As filed with the Securities and Exchange Commission on December 30, 1999
Registration Nos.: 033-79708
811-08542
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 x
Pre-Effective Amendment No.
Post-Effective Amendment No. 8 x
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 x
Amendment No. 10 x
_____________
The Saratoga Advantage Trust
(a Delaware business trust)
(Exact Name of Registrant as Specified in Charter)
1501 Franklin Avenue
Mineola, New York 11501-4803
(Address of Principal Executive Office)
Registrant's Telephone Number, Including Area Code: (516) 873-7010
Stuart M. Strauss, Esq.
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019-5820
(Name and Address of Agent for Service)
________________________
Approximate Date of Proposed Public Offering:
As soon as practicable after this Post-Effective Amendment becomes effective.
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)
on December 30, 1999 pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a)
on [date], 1999 pursuant to paragraph (a) of rule 485.
Amending the Prospectus and Updating Financial Statements
SARATOGA ADVANTAGE TRUST
PROSPECTUS - CLASS I SHARES
[Front Cover]
Prospectus - January 1, 2000
The Saratoga Advantage Trust is a mutual fund company comprised of 7
separate mutual fund portfolios, each with its own distinctive investment
objectives and policies. The Portfolios are:
U.S. Government Money Market Portfolio Large Capitalization Value Portfolio
Investment Quality Bond Portfolio Large Capitalization Growth Portfolio
Municipal Bond Portfolio Small Capitalization Portfolio
International Equity Portfolio
The Portfolios are managed by Saratoga Capital Management (the
"Manager"). Each Portfolio is advised by an investment adviser selected and
supervised by the Manager.
Shares of the Portfolios are offered to participants in investment
advisory programs that provide asset allocation recommendations to investors
based on an evaluation of each investor's objectives and risk tolerance. An
asset allocation methodology developed by the Manager, the Saratoga Strategic
Horizon Asset Reallocation Program_ (the "Saratoga SHARP(R) Program"), may be
utilized in this regard by investment advisers that have entered into agreements
with the Manager. The Manager receives a fee from the investment advisers that
have entered into such agreements with the Manager. Shares of the Portfolios are
also available to other investors and advisory services.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
-53-
TABLE OF CONTENTS
THE PORTFOLIOS
U.S. GOVERNMENT MONEY MARKET PORTFOLIO...........................3
INVESTMENT QUALITY BOND PORTFOLIO................................7
MUNICIPAL BOND PORTFOLIO........................................12
LARGE CAPITALIZATION VALUE PORTFOLIO............................17
LARGE CAPITALIZATION GROWTH PORTFOLIO...........................21
SMALL CAPITALIZATION PORTFOLIO..................................24
INTERNATIONAL EQUITY PORTFOLIO..................................28
ADDITIONAL INVESTMENT STRATEGY INFORMATION......................35
ADDITIONAL RISK INFORMATION.....................................37
INVESTMENT MANAGER..............................................40
ADVISERS 41
ADMINISTRATION..................................................43
SHAREHOLDER INFORMATION
PRICING PORTFOLIO SHARES........................................44
PURCHASE OF SHARES..............................................44
REDEMPTION OF SHARES............................................47
DIVIDENDS AND DISTRIBUTIONS.....................................50
TAX CONSEQUENCES................................................50
FINANCIAL HIGHLIGHTS............................................52
<PAGE>
THE PORTFOLIOS
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
Investment Objective
The U.S. Government Money Market Portfolio seeks to provide maximum
current income to the extent consistent with the maintenance of liquidity and
the preservation of capital.
The Adviser
The Portfolio is advised by Sterling Capital Management Company. All
investment decisions for the Portfolio are made by Sterling Capital's investment
committee.
Principal Investment Strategies
The Portfolio will invest in high quality, short-term U.S. Government
securities. The Adviser seeks to maintain the Portfolio's share price at $1.00.
The share price remaining stable at $1.00 means that the Portfolio would
preserve the principal value of your investment.
The U.S. Government securities that the Portfolio may purchase include:
o U.S. Treasury bills, notes and bonds, all of which
are direct obligations of the U.S. Government.
o Securities issued by agencies and instrumentalities
of the U.S. Government which are backed by the full
faith and credit of the United States. Among the
agencies and instrumentalities issuing these
obligations are the Government National Mortgage
Association and the Federal Housing Administration.
o Securities issued by agencies and instrumentalities
which are not backed by the full faith and credit of
the United States, but whose issuing agency or
instrumentality has the right to borrow from the U.S.
Treasury to meet its obligations. Among these
agencies and instrumentalities are the Federal
National Mortgage Association, the Federal Home Loan
Mortgage Corporation and the Federal Home Loan Bank.
o Securities issued by agencies and instrumentalities
which are backed solely by the credit of the issuing
agency or instrumentality. Among these agencies and
instrumentalities is the Federal Farm Credit System.
In addition, the Portfolio may invest in repurchase agreements with
respect to securities issued by the U.S. Government, its agencies and
instrumentalities.
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objectives.
Credit and Interest Rate Risks. A principal risk of investing in the
Portfolio is associated with its U.S. Government securities investments, which
are subject to two types of risks: credit risk and interest rate risk. Credit
risk refers to the possibility that the issuer of a security will be unable to
make interest payments and repay the principal on its debt. Interest rate risk,
another risk of debt securities, refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of interest
rates.
Credit risk is minimal with respect to the Portfolio's U.S. Government
securities investments. Repurchase agreements involve a greater degree of credit
risk. The Adviser, however, actively manages the Portfolio's assets to reduce
the risk of losing any principal investment as a result of credit or interest
rate risks. In addition, federal regulations require money market funds, such as
the Portfolio, to invest only in high quality debt obligations and short
maturities.
An investment in the Portfolio is not a bank deposit and is not insured
or guaranteed by the FDIC or any other government agency. Although the Portfolio
seeks to preserve the value of your investment at $1.00 per share, if it is
unable to do so, it is possible to lose money by investing in this Portfolio.
<PAGE>
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
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The bar chart reflect the following peformance for the following calendar year
end: 1998 4.44%
1997 4.47%
1996 4.32%
1995 5.40%
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[OBJECT OMITTED]
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During the periods shown in the bar chart, the highest return for a calendar
quarter was 1.5% (quarter ended June 30, 1995) and the lowest return for a
calendar quarter was 1.1% (quarter ended June 30, 1996). Year-to-date total
return as of September 30, 1999 was 3.0%.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's
average annual returns with those of
a broad measure of market performance
over time, as well as with an index
of funds with similar investment
objectives. The Portfolio's returns
assume you sold your shares at the
end of each period.
Average Annual Total Returns (as of December 31, 1998)
---------------------------------------------------------------------------
--------------------------------- ----------------- -----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
--------------------------------- ----------------- -----------------------
--------------------------------- ----------------- -----------------------
U.S. Government Money Market
Portfolio 4.5% 4.7%
--------------------------------- ----------------- -----------------------
--------------------------------- ----------------- -----------------------
90 Day T-Bills 4.8% 5.1%
--------------------------------- ----------------- -----------------------
--------------------------------- ----------------- -----------------------
Lipper U.S. Treasury Money
Market Index1/ 4.8% 4.9%
-
--------------------------------- ----------------- -----------------------
<PAGE>
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
INVESTMENT QUALITY BOND PORTFOLIO
Investment Objective
The Investment Quality Bond Portfolio seeks current income and
reasonable stability of principal.
The Adviser
The Portfolio is advised by Fox Asset Management, Inc.The Portfolio is
managed by a management team lead by J. Peter Skirkanich, John Sampson, James
O'Mealia and Doug Edler. Mr. Skirkanich is the President and Chief Investment
Officer of Fox and founded the firm in 1985. Mr. Sampson is a Managing Director
and joined the firm in 1998 from Pharos Management LLC, a consulting firm
specializing in fixed income investments. Mr. O'Mealia is a Managing Director of
Fox and joined the firm in 1998 from Sunnymeath Asset Management Inc., where he
was President. Mr. Edler is a Vice President of Fox; he joined Fox in 1999 from
J. P. Morgan & Co., Inc. where he managed that firm's proprietary fixed income
investments.
Principal Investment Strategies
The Portfolio will normally invest at least 65% of its assets in
investment grade fixed-income securities or in non-rated securities considered
by the Adviser to be of comparable quality. The Portfolio may also invest in
non-convertible fixed income preferred stock and mortgage pass-through
securities. In deciding which securities to buy, hold or sell, the Adviser
considers economic developments, interest rate trends and other factors such as
the issuer's creditworthiness. The average maturity of the securities held by
the Portfolio may range from three to ten years.
<PAGE>
Mortgage pass-through securities are mortgage-backed securities that
represent a participation interest in a pool of residential mortgage loans
originated by the U.S. government or private lenders such as banks. They differ
from conventional debt securities, which provide for periodic payment of
interest in fixed amounts and principal payments at maturity or on specified
call dates. Mortgage pass-through securities provide for monthly payments that
are a "pass-through" of the monthly interest principal payments made by the
individual borrowers on the pooled mortgage loans.
The Portfolio may invest in mortgage pass-through securities that are
issued or guaranteed by the Government National Mortgage Association, the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation. These securities are either direct obligations of the U.S.
Government, or the issuing agency/instrumentality has the right to borrow from
the U.S. Treasury to meet its obligations, although the Treasury is not legally
required to extend credit to the agency/instrumentality.
Private mortgage pass-through securities also can be Portfolio
investments. They are issued by private originators of and investors in mortgage
loans, including savings and loan associations and mortgage banks. Since private
mortgage pass-through securities typically are not guaranteed by an entity
having the credit status of a U.S. Government agency, the securities generally
are structured with one or more type of credit enhancement.
In addition, the Portfolio may invest up to 5% of its net assets in
fixed-income securities rated lower than investment grade, commonly known as
"junk bonds."
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
Fixed-Income Securities. Principal risks of investing in the Portfolio
are associated with its fixed-income investments. All fixed-income securities,
such as corporate bonds, are subject to two types of risk: credit risk and
interest rate risk. Credit risk refers to the possibility that the issuer of a
security will be unable to make interest payments and/or repay the principal on
its debt.
<PAGE>
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of interest
rates. When the general level of interest rates goes up, the prices of most
fixed-income securities go down. When the general level of interest rates goes
down, the prices of most fixed-income securities go up. (Zero coupon securities
are typically subject to greater price fluctuations than comparable securities
that pay current interest.) Long-term fixed income securities will rise and fall
in response to interest rate changes to a greater extent than short-term
securities.
Mortgage-Backed Securities. The Portfolio may invest in mortgage-backed
securities, such as mortgage pass-through securities, which have different risk
characteristics than traditional debt securities. Although the value of
fixed-income securities generally increases during periods of falling interest
rates and decreases during periods of rising interest rates, this is not always
the case with mortgage-backed securities. This is due to the fact that the
principal on underlying mortgages may be prepaid at any time as well as other
factors. Generally, prepayments will increase during a period of falling
interest rates and decrease during a period of rising interest rates. The rate
of prepayments also may be influenced by economic and other factors. Prepayment
risk includes the possibility that, as interest rates fall, securities with
stated interest rates may have the principal prepaid earlier than expected,
requiring the Portfolio to invest the proceeds at generally lower interest
rates.
Investments in mortgage-backed securities are made based upon, among
other things, expectations regarding the rate of prepayments on underlying
mortgage pools. Rates of prepayment, faster or slower than expected by the
Manager and/or Adviser, could reduce the Portfolio's yield, increase the
volatility of the Portfolio and/or cause a decline in net asset value. Certain
mortgage-backed securities may be more volatile and less liquid than other
traditional types of debt securities.
<PAGE>
Other Risks. The performance of the Portfolio also will depend on
whether the Adviser is successful in pursuing the Portfolio's investment
strategy. In addition, the Portfolio is subject to other risks from its
permissible investments including the risks associated with junk bonds. For more
information about these risks, see the "Additional Risk Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
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The bar chart reflect the following peformance for the following calendar year
end: 1998 6.47%
1997 6.58%
1996 3.15%
1995 12.44%
During the periods shown in the bar chart, the highest return for a calendar
quarter was 4.0% (quarter ended June 30, 1995) and the lowest return for a
calendar quarter was -0.7% (quarter ended March 31, 1996). Year-to-date total
return as of September 30, 1999 was 0.1%.
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's
average annual returns with those of
a broad measure of market performance
over time, as well as with an index
of funds with similar investment
objectives. The Portfolio's returns
assume you sold your shares at the
end of each period.
Average Annual Total Returns (as of December 31, 1998)
---------------------------------------------------------------------------
--------------------------------- ---------------- ------------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
--------------------------------- ---------------- ------------------------
--------------------------------- ---------------- ------------------------
Investment Quality Bond
Portfolio 6.5% 6.2%
--------------------------------- ---------------- ------------------------
--------------------------------- ---------------- ------------------------
Lehman Intermediate
Government/Corporate Bond 8.4% 7.9%
Index1/
--------------------------------- ---------------- ------------------------
--------------------------------- ---------------- ------------------------
Lipper Short-Intermediate
Investment Grade Debt Funds 7.0% 7.0%
Index2/
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--------------------------------- ---------------- ------------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the
Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
MUNICIPAL BOND PORTFOLIO
Investment Objective
The Municipal Bond Portfolio seeks a high level of interest income that
is excluded from federal income taxation to the extent consistent with prudent
investment management and the preservation of capital.
The Adviser
The Portfolio is advised by OpCap Advisors. It is managed by a
management team lead by Matthew Greenwald, Senior Vice President of Oppenheimer
Capital, the parent of OpCap Advisors. Mr. Greenwald has been a fixed income
portfolio manager and financial analyst for Oppenheimer Capital since 1989. From
1984-1989 he was a fixed income portfolio manager with PaineWebber's Mitchell
Hutchins Asset Management.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in
securities that pay interest exempt from federal income taxes. The Portfolio's
Adviser generally invests the Portfolio's assets in municipal obligations. There
are no maturity limitations on the Portfolio's securities. Municipal obligations
are bonds, notes or short-term commercial paper issued by state governments,
local governments, and their respective agencies. In pursuing the Portfolio's
investment objective, the Adviser has considerable leeway in deciding which
investments it buys, holds or sells on a day-to-day basis. The Portfolio will
invest primarily in municipal bonds rated within the four highest grades by
Moody's Investors Service Inc. ("Moody's"), Standard & Poor's Corporation
("S&P"), or Fitch IBCA, Inc. ("Fitch") or, if not rated, of comparable quality
in the opinion of the Adviser. The Portfolio may invest without limit in
municipal obligations that pay interest income subject to the "alternative
income tax" although it does not currently expect to invest more than 20% of its
total assets in such instruments. Some shareholders may have to pay tax on
distributions of this income.
<PAGE>
Municipal bonds, notes and commercial paper are commonly classified as
either "general obligation" or "revenue." General obligation bonds, notes, and
commercial paper are secured by the issuer's faith and credit, as well as its
taxing power, for payment of principal and interest. Revenue bonds, notes and
commercial paper, however, are generally payable from a specific source of
income. They are issued to fund a wide variety of public and private projects in
sectors such as transportation, education and industrial development. Included
within the revenue category are participations in lease obligations. The
Portfolio's municipal obligation investments may include zero coupon securities,
which are purchased at a discount and make no interest payments until maturity.
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
Credit and Interest Rate Risks. Municipal obligations, like other debt
securities, are subject to two types of risks:credit risk and interest rate risk
<PAGE>
Credit risk refers to the possibility that the issuer of a security
will be unable to make interest payments and/or repay the principal on its debt.
In the case of revenue bonds, notes or commercial paper, for example, the credit
risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment
obligations. The issuers of private activity bonds, used to finance projects in
sectors such as industrial development and pollution control, also may be
negatively impacted by the general credit of the user of the project. Lease
obligations may have risks not normally associated with general obligation or
other revenue bonds. Certain lease obligations contain "non-appropriation"
clauses that provide that the governmental issuer has no obligation to make
future payments under the lease or contract unless money is appropriated for
such purposes by the appropriate legislative body on an annual or other periodic
basis. Consequently, continued lease payments on those lease obligations
containing "non-appropriation" clauses are dependent on future legislative
actions. If such legislative actions do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including
disposition of the property.
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of interest
rates. When the general level of interest rates goes up, the prices of most
fixed-income securities go down. When the general level of interest rates goes
down, the prices of most fixed-income securities go up. Zero coupon securities
are typically subject to greater price fluctuations than comparable securities
that pay current interest.
The Portfolio is not limited as to the maturities of the municipal
obligations in which it may invest. Thus, a rise in the general level of
interest rates may cause the price of its portfolio securities to fall
substantially.
Other Risks. The performance of the Portfolio also will depend on whether
the Adviser is successful in pursuing the Portfolio's investment strategy. In
addition, the Portfolio is subject to other risks from its permissi ble
investments. For information about these risks, see the "Additional Risk
Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
<PAGE>
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[OBJECT OMITTED]
- --------------------------------------------------------------------------------
The bar chart reflect the following peformance for the following calendar year
end: 1998 5.38%
1997 8.27%
1996 3.05%
1995 15.21%
During the periods shown in the bar chart, the highest return for a calendar
quarter was 5.9% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was 0.0% (quarter ended December 31, 1998). Year-to-date total
return as of September 30, 1999 was -4.5%.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's
average annual returns with those of
a broad measure of market performance
over time, as well as with an index
of funds with similar investment
objectives. The Portfolio's returns
assume you sold your shares at the
end of each period.
Average Annual Total Returns (as of December 31, 1998)
--------------------------------------------------------------------------
--------------------------------- ---------------- -----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
--------------------------------- ---------------- -----------------------
--------------------------------- ---------------- -----------------------
Municipal Bond Portfolio 5.4% 6.2%
--------------------------------- ---------------- -----------------------
--------------------------------- ---------------- -----------------------
Lehman Municipal Bond Index 1/
6.5% 7.8%
--------------------------------- ---------------- -----------------------
--------------------------------- ---------------- -----------------------
Lipper General Municipal Debt
Funds Index2/ 5.6% 7.4%
-
--------------------------------- ---------------- -----------------------
<PAGE>
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
LARGE CAPITALIZATION VALUE PORTFOLIO
Investment Objective
The Large Capitalization Value Portfolio seeks total return consisting
of capital appreciation and dividend income.
The Adviser
The Portfolio is advised by OpCap Advisors. It is managed by a
portfolio team comprised of senior professionals of OpCap Advisors. One member
of the team, Frank LeCates, has primary supervisory authority over
implementation of the management team's purchase and sale recommendations. Mr.
LeCates is the Director of Research at Oppenheimer Capital, the parent of OpCo
Advisors. Mr. LeCates brings 28 years of investment experience to his current
position. Formerly with Donaldson, Lufkin & Jenrette for 18 years, he has served
as head of institutional equity sales, Director of Research and as a securities
analyst. Mr. LeCates graduated from Princeton University, earned an MBA at
Harvard Business School and is a CFA.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in a
diversified portfolio of common stocks and securities convertible into common
stocks. At least 65% of the Portfolio assets will be invested in common stocks
of issuers with total market capitalizations of $1 billion or greater at the
time of purchase. In determining which securities to buy, hold or sell, the
Adviser focuses its investment selection on highly liquid equity securities
that, in the Adviser's opinion, have above average price appreciation potential
at the time of purchase. In general, securities are characterized as having
above average dividend yields and below average price earnings ratios relative
to the stock market in general, as measured by the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500"). Other factors, such as earnings,
the issuer's ability to generate cash flow in excess of business needs and
sustain above average profitability, as well as industry outlook and market
share, are also considered by the Adviser.
<PAGE>
In addition, the Portfolio may invest in stock index futures contracts
and options.
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
Common Stocks. A principal risk of investing in the Portfolio is
associated with common stock investments. In general, stock values fluctuate in
response to activities specific to the company as well as general market,
economic and political conditions. Stock prices can fluctuate widely in response
to these factors.
Other Risks. The performance of the Portfolio also will depend on
whether the Adviser is successful in pursuing the Portfolio's investment
strategy. In addition, the Portfolio is subject to other risks from its
permissible investments including the risks associated with stock index futures
contracts and options. For information about these risks, see the "Additional
Risk Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
<PAGE>
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[OBJECT OMITTED]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
The bar chart reflect the following peformance for the following calendar year
end: 1998 11.77%
1997 25.49%
1996 23.98%
1995 36.98%
During the periods shown in the bar chart, the highest return for a calendar
quarter was 14.9% (quarter ended December 31, 1998) and the lowest return for a
calendar quarter was -13.1% (quarter ended September 30, 1998). Year-to-date
total return as of September 30, 1999 was -0.9%.
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's
average annual returns with those of
a broad measure of market performance
over time, as well as with an index
of funds with similar investment
objectives. The Portfolio's returns
assume you sold your shares at the
end of each period.
Average Annual Total Returns (as of December 31, 1998)
---------------------------------------------------------------------------
---------------------------------- ---------------- -----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
---------------------------------- ---------------- -----------------------
---------------------------------- ---------------- -----------------------
Large Capitalization Value
Portfolio 11.8% 21.3%
S&P/Barra Value Index 1/ 14.7% 22.2%
-
---------------------------------- ---------------- -----------------------
---------------------------------- ---------------- -----------------------
Morningstar Large Value Average2/
12.5% 19.8%
---------------------------------- ---------------- -----------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
LARGE CAPITALIZATION GROWTH PORTFOLIO
Investment Objective
The Large Capitalization Growth Portfolio seeks capital appreciation.
The Adviser
The Portfolio is advised by Harris Bretall Sullivan & Smith, L.L.C. Stock
selection for the Portfolio is made by the Strategy and Investment Committees of
Harris Bretall. The Portfolio is managed by a management team lead by Jack
Sullivan and Gordon Ceresino. Mr. Sullivan is a partner of Harris Bretall and
has been associated with the firm since 1981. Mr. Ceresino is a Partner of
Harris Bretall and has been associated with the firm since 1991.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in a
diversified portfolio of common stocks that, in the Adviser's opinion, are
characterized by earnings growth in excess of that of the S&P 500. The Portfolio
will also normally invest at least 65% of its assets in common stocks of issuers
with total market capitalizations of $3 billion or more. In deciding which
securities to buy, hold or sell, the Adviser evaluates factors believed to be
favorable to long-term capital appreciation, including specific financial
characteristics of the issuer such as historical earnings growth, sales growth,
profitability and return on equity. The Adviser also analyzes the issuer's
position within its industry as well as the quality and experience of the
issuer's management.
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
<PAGE>
Common Stocks. A principal risk of investing in the Portfolio is
associated with common stock investments. In general, stock values fluctuate in
response to activities specific to the company as well as general market,
economic and political conditions. Stock prices can fluctuate widely in response
to these factors.
Other Risks. The performance of the Portfolio also will depend on whether
the Adviser is successful in pursuing the Portfolio's investment strategy. In
addition, the Portfolio is subject to other risks from its permissible
investments. For information about these risks, see the "Additional Risk
Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
The bar chart reflect the following peformance for the following calendar year
end: 1998 36.44%
1997 32.52%
1996 13.43%
1995 28.98%
<PAGE>
During the periods shown in the bar chart, the highest return for a calendar
quarter was 34.3% (quarter ended December 31, 1998) and the lowest return for a
calendar quarter was -13.2% (quarter ended September 30, 1998). Year-to-date
total return as of September 30, 1999 was 7.2%.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's
average annual returns with those of
a broad measure of market performance
over time, as well as with an index
of funds with similar investment
objectives. The Portfolio's returns
assume you sold your shares at the
end of each period.
Average Annual Total Returns (as of December 31, 1998)
----------------------------------------------------------------------------
------------------------------------ ---------------- ----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
------------------------------------ ---------------- ----------------------
------------------------------------ ---------------- ----------------------
Large Capitalization Growth
Portfolio 36.4% 25.1%
S&P/Barra Growth Index 1/ 42.2% 31.7%
-
------------------------------------ ---------------- ----------------------
------------------------------------ ---------------- ----------------------
Morningstar Large Growth Average2/ 34.0% 24.6%
-
------------------------------------ ---------------- ----------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
SMALL CAPITALIZATION PORTFOLIO
Investment Objective
The Small Capitalization Portfolio seeks maximum capital appreciation.
The Adviser
The Portfolio is advised by Thorsell, Parker Partners, Inc. It is
managed by a management team lead by Richard Thorsell, Managing Partner and
Chief Investment Officer of Thorsell since 1992.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in common
stocks. At least 65% of the Portfolio's assets will be invested in common stocks
of issuers with, at the time of purchase, total market capitalizations of less
than $1 billion; at least one-third of the Portfolio's assets will be invested
in common stocks of companies with total market capitalizations of $550 million
or less at the time of purchase. In deciding which securities to buy, hold or
sell for the Portfolio, the Adviser seeks small capitalization growth companies
that it believes are undervalued in the marketplace. These companies typically
are under-followed by investment firms and undervalued relative to their growth
prospects. The Portfolio may also invest in companies that offer the possibility
of accelerating earnings growth due to internal changes such as new product
introductions, synergistic acquisitions or distribution channels or external
changes affecting the marketplace for the company's products and services. Such
external factors can be demographic, regulatory, legislative, technological,
social or economic.
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
<PAGE>
Common Stocks. A principal risk of investing in the Portfolio is
associated with common stock investments. In general, stock values fluctuate in
response to activities specific to the company as well as general market,
economic and political conditions. Stock prices can fluctuate widely in response
to these factors.
Small & Medium Capitalization Companies. The Portfolio's investments in
smaller and medium-sized companies carry more risk than investments in larger
companies. While some of the Portfolio's holdings in these companies may be
listed on a national securities exchange, such securities are more likely to be
traded in the over-the-counter market. The low market liquidity of these
securities may have an adverse impact on the Portfolio's ability to sell certain
securities at favorable prices and may also make it difficult for the Portfolio
to obtain market quotations based on actual trades, for purposes of valuing its
securities. Investing in lesser-known, smaller and medium capitalization
companies involves greater risk of volatility of the Portfolio's net asset value
than is customarily associated with larger, more established companies. Often
smaller and medium capitalization companies and the industries in which they are
focused are still evolving and, while this may offer better growth potential
than larger, more established companies, it also may make them more sensitive to
changing market conditions.
Other Risks. The performance of the Portfolio also will depend on whether
the Adviser is successful in pursuing the Portfolio's investment strategy. In
addition, the Portfolio is subject to other risks from its permissible
investments. For information about these risks, see the "Additional Risk
Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
<PAGE>
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
The bar chart reflect the following peformance for the following calendar year
end: 1998 (18.61%)
1997 23.20%
1996 15.89%
1995 27.31%
During the periods shown in the bar chart, the highest return for a calendar
quarter was 21.5% (quarter ended September 30, 1997) and the lowest return for a
calendar quarter was -28.4% (quarter ended September 30, 1998). Year-to-date
total return as of September 30, 1999 was 4.4%.
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Portfolio's
average annual returns with those of
a broad measure of market performance
over time, as well as with an index
of funds with similar investment
objectives. The Portfolio's returns
assume you sold your shares at the
end of each period.
Average Annual Total Returns (as of December 31, 1998)
-----------------------------------------------------------------------------
------------------------------------ ----------------- ----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
------------------------------------ ----------------- ----------------------
------------------------------------ ----------------- ----------------------
Small Capitalization Portfolio
-18.6% 8.7%
------------------------------------ ----------------- ----------------------
------------------------------------ ----------------- ----------------------
Russell 2000 Index 1/ -2.6% 13.7%
-
------------------------------------ ----------------- ----------------------
------------------------------------ ----------------- ----------------------
Morningstar Small Value Average2/
-7.2% 14.6%
------------------------------------ ----------------- ----------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
Investment Objective
The Portfolio seeks long-term capital appreciation.
The Adviser
The Portfolio is advised by Friends Ivory & Sime, Inc. The Portfolio is
managed by a management team lead by Julie Dent, Director of Global Equities at
Friends Ivory & Sime plc who has been overseeing the management of the Portfolio
since January 31, 1997. Ms. Dent joined Friends Ivory & Sime in 1986 and, as a
member of the Asset Allocation Committee, is responsible for asset allocation
and overseeing the management of global and international accounts for U.S. and
Japanese clients. Individual stocks are selected by the regional Equity Teams
which operate on a sectoral basis. Debbie Clarke is the European team leader;
Rowan Chaplin is the Japan team leader; and Mearns Nimmo is the Pacific Rim team
leader.
Principal Investment Strategy
The Portfolio will normally invest at least 80% of its assets in the
equity securities of companies located outside of the United States. Equity
securities consist of common and preferred stock and other securities such as
depositary receipts, bonds, rights and warrants that are convertible into common
stock. Under normal market conditions, at least 65% of the Portfolio's assets
will be invested in securities of issuers located in at least three foreign
countries, including countries with developing and emerging economies. The
Portfolio expects that its investments in foreign issuers will generally take
the form of depositary receipts. These are dollar denominated receipts which
represent and may be converted into the underlying foreign security. Depositary
receipts are publicly traded on exchanges or over-the-counter in the United
States. In deciding which securities to buy, hold or sell, the Adviser considers
economic developments, industry prospects and other factors such as an issuer's
competitive position or potential earnings.
<PAGE>
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
Foreign Securities. A principal risk of investing in the Portfolio is
associated with foreign stock investments. In general, stock values fluctuate in
response to activities specific to the company as well as general market,
economic and political conditions. Stock prices can fluctuate widely in response
to these factors.
The Portfolio's investments in foreign securities (including depositary
receipts) involve risks in addition to the risks associated with domestic
securities. One additional risk is currency risk. While the price of Portfolio
shares is quoted in U.S. dollars, the Portfolio generally converts U.S. dollars
to a foreign market's local currency to purchase a security in that market. If
the value of that local currency falls relative to the U.S. dollar, the U.S.
dollar value of the foreign security will decrease.
This is true even if the foreign security's local price remains unchanged.
Foreign securities also have risks related to economic and political
developments abroad, including expropriations, confiscatory taxation, exchange
control regulation, limitations on the use or transfer of Portfolio assets and
any effects of foreign social, economic or political instability. In particular,
adverse political or economic developments in a geographic region or a
particular country in which the Portfolio invests could cause a substantial
decline in the value of its portfolio securities. Foreign companies, in general,
are not subject to the regulatory requirements of U.S. companies and, as such,
there may be less publicly available information about these companies.
Moreover, foreign accounting, auditing and financial reporting standards
generally are different from those applicable to U.S. companies. Finally, in the
event of a default of any foreign debt obligations, it may be more difficult for
the Portfolio to obtain or enforce a judgment against the issuers of the
securities.
<PAGE>
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their U.S.
counterparts. In addition, differences in clearance and settlement procedures in
foreign markets may cause delays in settlements of the Portfolio's trades
effected in those markets. Delays in purchasing securities may result in the
Portfolio losing investment opportunities. The inability to dispose of foreign
securities due to settlement delays could result in losses to the Portfolio due
to subsequent declines in the value of the securities. Issuers of the foreign
security represented by a depositary receipt may not be obligated to disclose
material information in the United States.
Many European countries have adopted or are in the process of adopting
a single European currency, referred to as the "euro." The long-term
consequences of the euro conversion for foreign exchange rates, interest rates
and the value of European securities that the Portfolio may purchase are
unclear. The consequences may adversely affect the value and/or increase the
volatility of securities held by the Portfolio.
The Portfolio may invest in foreign securities issued by companies
located in developing or emerging countries. Compared to the United States and
other developed countries, developing or emerging countries may have relatively
unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities. Prices of these securities tend
to be especially volatile and, in the past, securities in these countries have
been characterized by greater potential loss (as well as gain) than securities
of companies located in developed countries.
<PAGE>
The Portfolio may invest in foreign small capitalization securities.
Investing in lesser-known, smaller capitalized companies may involve greater
risk of volatility of the Portfolio's share price than is customarily associated
with investing in larger, more established companies. There is typically less
publicly available information concerning smaller companies than for larger,
more established companies. Some small companies have limited product lines,
distribution channels and financial and managerial resources and tend to
concentrate on fewer geographical markets than do larger companies. Also,
because smaller companies normally have fewer shares outstanding than larger
companies and trade less frequently, it may be more difficult for the Portfolio
to buy and sell significant amounts of shares without an unfavorable impact on
prevailing market prices.
Other Risks. The performance of the Portfolio also will depend on whether
the Adviser is successful in pursuing the Portfolio's investment strategy. In
addition, the Portfolio is subject to other risks from its permissible
investments. For information about these risks, see the "Additional Risk
Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
The bar chart reflect the following peformance for the following calendar year
end: 1998 13.22%
1997 6.91%
1996 6.56%
1995 3.08%
<PAGE>
During the periods shown in the bar chart, the highest return for a calendar
quarter was 15.1% (quarter ended June 30, 1997) and the lowest return for a
calendar quarter was -16.1% (quarter ended September 30, 1998). Year-to-date
total return as of September 30, 1999 was 9.9%.
AVERAGE ANNUAL
TOTAL RETURNS This table compares the Portfolio's average annual returns with
those of a broad measure of market performance over time. The Portfolio's
returns
assume you sold your shares at the
end of each period.
Average Annual Total Returns (as of December 31, 1998)
---------------------------------------------------------------------------
------------------------------------- -------------- ----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
------------------------------------- -------------- ----------------------
------------------------------------- -------------- ----------------------
International Equity Portfolio 13.2% 5.3%
------------------------------------- -------------- ----------------------
------------------------------------- -------------- ----------------------
Morgan Stanley EAFE Index (U.S.
Dollars)1/ 20.0% 7.7%
------------------------------------- -------------- ----------------------
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.
This Index does not include fees and
expenses, and investors may not invest in
the Index directly. The Gross Domestic
Product (GDP) version of the Index is used
above.
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
SUMMARY OF TRUST EXPENSES
Annual Portfolio Operating Expenses. The following table lists the costs and
expenses that an investor will incur as a shareholder of each of the Portfolios
based on operating expenses incurred during the fiscal year ended August 31,
1999. There are no shareholder transaction expenses, sales loads or distribution
fees.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
U.S. Large Large
Govern- Investment Municipal Capitali- Capitali- Small Inter-
ment Quality Bond zation zation Capitali- national
Money Bond Portfolio Value Growth zation Equity
Market Portfolio Portfolio Portfolio Portfolio Portfolio
Portfolio
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
Shareholder Fees........... None None None None None None None
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
Annual Portfolio Operating Expenses
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
(expenses that are deducted from
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
Portfolio assets as a percentage of
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
average net assets)
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
Management Fees*...... .475% .55% .55% .65% .65% .65% .75%
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
Distribution None None None None None None None
(Rule 12b-1 Expenses).
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
Other Expenses*............ .545% .51% 1.13% .47% .37% .66% .74%
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
Total Annual Portfolio Operating Expenses 1.02% 1.06% 1.68% 1.12% 1.02% 1.31% 1.49%
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
Fee Waiver (and/or Expense Reimbursement)*----------- --- (0.48%) --- --- (0.01%) (0.09%)
---
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
Net Expenses*.............. 1.02% 1.06% 1.20% 1.12% 1.02% 1.30% 1.40%
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- -----------------------
</TABLE>
<PAGE>
* Management Fees, Other Expenses, Fee Waiver and/or Reimbursement, and Net
Expenses: Each Portfolio pays the Manager a fee for its services that is
computed daily and paid monthly at an annual rate ranging from .475% to .75% of
the value of the average daily net assets of the Portfolio. The fees of each
Adviser are paid by the Manager. The nature of the services provided to, and the
aggregate management fees paid by each Portfolio are described under "Investment
Manager." The Portfolios benefit from expense offset arrangements with the
Trust's custodian bank where uninvested cash balances earn credits that reduce
monthly fees. The amount of the expense offset for each respective portfolio was
as follows: U.S. Government Money Market, 0%; Investment Quality Bond, 0.06%;
Municipal Bond, 0%; Large Capitalization Value, 0.06%; Large Capitalization
Growth, 0.01%; Small Capitalization, 0%; and International Equity, 0%. Under
applicable SEC regulations, the amount by which Portfolio expenses are reduced
by an expense offset arrangement is required to be added to "Other Expenses."
"Other Expenses" also include fees for shareholder services, administration,
custodial fees, legal and accounting fees, printing costs, registration fees,
the costs of regulatory compliance, a Portfolio's allocated portion of the costs
associated with maintaining the Trust's legal existence and the costs involved
in the Trust's communications with shareholders. The Trust and the Manager have
entered into an Excess Expense Agreement (the "Expense Agreement") effective
January 1, 1999. In connection with the Expense Agreement, the Manager is
currently waiving its management fees and/or assuming certain other operating
expenses of the Portfolios in order to maintain the expense ratios of each class
of the Portfolios at or below predetermined levels (each an "Expense Cap").
Under the terms of the Expense Agreement, expenses borne by the Manager are
subject to reimbursement by the Portfolios up to five years from the date the
fee or expense was incurred, but no reimbursement payment will be made by a
Portfolio if it would result in the Portfolio exceeding its Expense Cap. The
following are the Expense Caps for each of the Portfolios: U.S. Government Money
Market, 1.125%; Investment Quality Bond, 1.20%; Municipal Bond, 1.20%; Large
Capitalization Value, 1.30%; Large Capitalization Growth, 1.30%; Small
Capitalization, 1.30%; and International Equity, 1.40%. The Expense Agreement
can be terminated by either party, without penalty, upon 60 days prior notice.
For the period ended August 31, 1999 a reimbursement payment of $9,358 was made
by the Small Capitalization Portfolio to the Manager. No reimbursement payments
were made by the other Portfolios to the Manager under the terms of the Expense
Agreement. The table does not reflect any fees paid by investors pursuant to
Consulting Programs.
Example
This example is intended to help you compare the cost of investing in the
Portfolios with the cost of investing in other mutual funds.
This example shows what expenses you could pay over time. The example assumes
that you invest $10,000 in the Portfolio, your investment has a 5% return each
year, and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, the table below shows your costs at the end
of each period based on these assumptions.
- - If You HELD or SOLD Your Shares:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
U.S. Large Large
Govern- Investment Municipal Capitali- Capitali- Small Inter-
ment Quality Bond zation zation Capitali- national
Money Bond Portfolio Value Growth zation Equity
Market Portfolio Portfolio Portfolio Portfolio Portfolio
Portfolio
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
1 year............................... $ 107 $ 111 $ 126 $ 118 $ 107 $ 137 $ 147
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
3 years.............................. 334 347 392 366 334 425 457
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
5 years.............................. 579 601 679 635 579 734 789
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
10 years............................. 1,282 1,329 1,495 1,400 1,282 1,611 1,727
- ----------------------------------------- ------------ -------------- ------------- ----------- ------------- ------------- --------
</TABLE>
<PAGE>
ADDITIONAL INVESTMENT STRATEGY INFORMATION
This section provides additional information relating to each Portfolio's
principal strategies.
Defensive Investing. The Portfolios are intended primarily as vehicles for
the implementation of a long term investment program utilizing asset allocation
strategies rendered through investment advisory programs that are based on an
evaluation of an investor's investment objectives and risk tolerance. Because
these asset allocation strategies are designed to spread investment risk across
the various segments of the securities markets through investment in a number of
Portfolios, each individual Portfolio generally intends to be substantially
fully invested in accordance with its investment objectives and policies during
most market conditions. Although the Adviser of a Portfolio may, upon the
concurrence of the Manager, take a temporary defensive position during adverse
market conditions, it can be expected that a defensive posture will be adopted
less frequently than would be by other mutual funds. This policy may impede an
Adviser's ability to protect a Portfolio's capital during declines in the
particular segment of the market to which the Portfolio's assets are committed.
Forward Currency Contracts. A Portfolio's investments also may include
forward currency contracts, which involve the purchase or sale of a specific
amount of foreign currency at the current price with delivery at a specified
future date. A Portfolio may use these contracts to hedge against adverse price
movements in its portfolio securities or securities it may purchase and the
currencies in which they are determined or to gain exposure to currencies
underlying various securities or financial instruments.
Investment Policies. The percentage limitations relating to the composition
of a Portfolio referenced in the discussion of a Portfolio apply at the time a
Portfolio acquires an investment and refer to the Portfolio's net assets, unless
otherwise noted. Subsequent percentage changes that result from market
fluctuations will not require a Portfolio to sell any Portfolio security. A
Portfolio may change its principal investment strategies without shareholder
approval; however you would be notified of any change.
<PAGE>
Portfolio Turnover. Except for U.S. Government Money Market Portfolio, each
Portfolio's turnover rate is not expected to exceed the following respective
percentages annually under normal circumstances:
Investment Quality Bond Portfolio 50%
Municipal Bond Portfolio 30%
Large Capitalization Value Portfolio 50%
Large Capitalization Growth Portfolio 50%
Small Capitalization Portfolio 100%
International Equity Portfolio 60%
- --------------------------------------------------------- --------------
A high turnover rate will increase a Portfolio's brokerage costs. It may also
increase a Portfolio's capital gains, which are passed along to Portfolio
shareholders as distributions. This, in turn, may increase your tax liability as
a Portfolio shareholder. See the sections on "Dividend and Distributions" and
"Tax Consequences."
<PAGE>
ADDITIONAL RISK INFORMATION
This section provides additional information relating to principal risks of
investing in the Portfolios.
Year 2000. Each Portfolio could be adversely affected if the computer systems
necessary for the efficient operation of the Manager, the Adviser, the Trust's
other service providers and the markets and corporate and governmental issuers
in which the Portfolios invest, do not properly process and calculate
date-related information from and after January 1, 2000.
In addition, it is possible that the markets for securities in which the
Portfolios invest have been detrimentally affected by computer failures
throughout the financial services industry beginning January 1, 2000. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. Corporate and governmental data processing errors also may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Portfolios' investments may be adversely affected.
Moreover, issuers in emerging markets may have greater year 2000-related
problems.
* * *
The risks set forth below are applicable to a Portfolio only to the extent the
Portfolio invests in the investment described.
<PAGE>
Junk Bonds. A Portfolio's investments in securities rated lower than investment
grade or if unrated of comparable quality as determined by the Adviser (commonly
known as "junk bonds") pose significant risks. The prices of junk bonds are
likely to be more sensitive to adverse economic changes or individual corporate
developments than higher rated securities. During an economic downturn or
substantial period of rising interest rates, junk bond issuers and, in
particular, highly leveraged issuers may experience financial stress that would
adversely affect their ability to service their principal and interest payment
obligations, to meet their projected business goals or to obtain additional
financing. In the event of a default, the Portfolio may incur additional
expenses to seek recovery. The secondary market for junk bonds may be less
liquid than the markets for higher quality securities and, as such, may have an
adverse effect on the market prices of certain securities. The illiquidity of
the market may also adversely affect the ability of the Trust's Trustees to
arrive at a fair value for certain junk bonds at certain times and could make it
difficult for the Portfolios to sell certain securities. In addition, periods of
economic uncertainty and change probably would result in increased volatility of
market prices of high yield securities and a corresponding volatility in a
Portfolio's net asset value.
Securities Rated in the Lowest Investment Grade Category. Investments in the
fixed-income securities rated in the lowest investment grade category by Moody's
or S&P may have speculative characteristics and therefore changes in economic or
other circumstances are more likely to weaken their capacity to make principal
and interest payments than would be the case with investments in securities with
higher credit ratings.
Options and Futures. If a Portfolio invests in options and/or futures, its
participation in these markets would subject the Portfolio to certain risks. The
Adviser's predictions of movements in the direction of the stock, bond, stock
index, currency or interest rate markets may be inaccurate, and the adverse
consequences to the Portfolio (e.g., a reduction in the Portfolio's net asset
value or a reduction in the amount of income available for distribution) may
leave the Portfolio in a worse position than if these strategies were not used.
Other risks inherent in the use of options and futures include, for example, the
possible imperfect correlation between the price of options and futures
contracts and movements in the prices of the securities being hedged, and the
possible absence of a liquid secondary market for any particular instrument.
Certain options may be over-the-counter options, which are options negotiated
with dealers; there is no secondary market for these investments.
<PAGE>
Forward Currency Contracts. A Portfolio's participation in forward currency
contracts also involves risks. If the Adviser employs a strategy that does not
correlate well with the Portfolio's investments or the currencies in which the
investments are denominated, currency contracts could result in a loss. The
contracts also may increase the Portfolio's volatility and may involve a
significant risk.
<PAGE>
INVESTMENT MANAGER
Saratoga Capital Management serves as the Trust's Manager. The Manager,
subject to the review and approval of the Board of Trustees of the Trust,
selects Advisers for each Portfolio and supervises and monitors the performance
of each Adviser.
The Manager may, subject to the approval of the Trustees, replace
investment advisers or amend investment advisory agreements without shareholder
approval whenever the Manager and the Trustees believe such action will benefit
a Portfolio and its shareholders. The Manager compensates each Adviser out of
its management fee.
The total amount of investment management fees payable by each
Portfolio to the Manager may not be changed without shareholder approval.
- ------------------------------------------------------------------
Portfolio Manager's Fee
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
U.S. Government Money Market Portfolio...... .475%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Investment Quality Bond Portfolio........... .55%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Municipal Bond Portfolio.................... .55%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Large Capitalization Value Portfolio........ .65%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Large Capitalization Growth Portfolio....... .65%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Small Capitalization Portfolio.............. .65%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
International Equity Portfolio.............. .75%
- ------------------------------------------------------------------
<PAGE>
The Manager is located at 1501 Franklin Avenue, Mineola, New York
11501-4803. Saratoga Capital Management is a Delaware general partnership which
is owned by certain executives of Saratoga Capital Management and by Mr. Ronald
J. Goguen, whose address is Major Drilling Group International Inc., 111 St.
George Street, Suite 200, Moncton, New Brunswick, Canada E1C177, Mr. John
Schiavi, whose address is Schiavi Enterprises, 985 Main Street, Oxford, Maine
04270, and Mr. Thomas Browne, whose address is Pontil PTY Limited, 14 Jannali
Road, Dubbo, NSW Australia 2830.
ADVISERS
The following set forth certain information about each of the Advisers:
OpCap Advisors ("OpCap"), a registered investment adviser, located at
1345 Avenue of the Americas, New York, NY 10105, serves as Adviser to the
Municipal Bond Portfolio and the Large Capitalization Value Portfolio. OpCap is
a majority owned subsidiary of Oppenheimer Capital, a registered investment
adviser, founded in 1968. Oppenheimer Capital is an indirect wholly owned
subsidiary of PIMCO Advisors, L.P. ("PIMCO"), a registered investment adviser.
On October 31, 1999, PIMCO, its two general partners, certain of their
affiliates, Allianz of America, Inc. ("Allianz") and certain other parties
entered into an agreement pursuant to which Allianz will acquire majority
ownership of PIMCO. Upon completion of the transaction, which is expected to be
by the end of the first quarter of 2000, PIMCO and its subsidiaries, including
OpCap, will be controlled by Allianz. Allianz is a holding company that owns
several insurance and financial service companies and is a subsidiary of Allianz
AG, the world's second largest insurance company as measured by premium income.
As of August 31, 1999, Oppenheimer Capital and its subsidiary OpCap had assets
under management of approximately $58.4 billion.
Fox Asset Management, Inc. ("Fox"), a registered investment adviser,
serves as Adviser to the Investment Quality Bond Portfolio. Fox was formed in
1985. Fox is owned by its current employees, with a controlling interest held by
J. Peter Skirkanich, President, Managing Director and Chairman of Fox's
Investment Committee. Fox is located at 44 Sycamore Avenue, Little Silver, NJ
07739. As of August 31, 1999, assets under management by Fox were approximately
$1.8 billion.
<PAGE>
Harris Brettal Sullivan & Smith, L.L.C. ("Harris Bretall"), a
registered investment adviser, serves as Adviser to the Large Capitalization
Growth Portfolio. The firm's predecessor, Harris Bretall Sullivan & Smith, Inc.,
was founded in 1971. Value Asset Management, Inc., a holding company owned by
BancBoston Ventures, Inc., is the majority owner. Located at One Post Street,
San Francisco, CA 94104, the firm managed assets of approximately $4.5 billion
as of June 30, 1999.
Thorsell, Parker Partners, Inc. ("Thorsell"), a registered investment
adviser serves as Adviser to the Small Capitalization Portfolio. The firm is
located at 265 Post Road West, Westport, Connecticut 06880. Thorsell is owned by
its current employees with a controlling interest (approximately 70%) held by
Richard L. Thorsell. As of August 31, 1999, Thorsell had approximately $250
million of assets under management.
Sterling Capital Management Company ("Sterling"), a registered
investment adviser, is the Adviser to the U.S. Government Money Market
Portfolio. Sterling is a North Carolina corporation formed in 1970 and located
at One First Union Center, 301 S. College Street, Suite 3200, Charlotte, NC
28202. Sterling is a wholly-owned subsidiary of United Asset Management
Corporation and provides investment management services to corporations, pension
and profit-sharing plans, trusts, estates and other institutions and
individuals. As of August 31, 1999, Sterling had approximately $3.3 billion in
assets under management. Since 1982, Sterling has been involved with the
distribution of the North Carolina Capital Management Trust, a money market
mutual fund offered exclusively to public units in the state, the first such
fund to be registered with the Securities and Exchange Commission. As of August
31, 1999, the asset value of this fund was approximately $2.9 billion.
Friends Ivory & Sime, Inc. ("FIS"), a registered investment adviser, is
the Adviser to the International Equity Portfolio and, in connection therewith,
has entered into a sub-investment advisory agreement with Friends Ivory & Sime
plc of London, England. Pursuant to such sub-investment advisory agreement,
Friends Ivory & Sime plc performs investment advisory and portfolio transaction
services for the Portfolio. While Friends Ivory & Sime plc is responsible for
the day-to-day management of the Portfolio's assets, FIS reviews investment
performance, policies and guidelines, facilitates communication between Friends
Ivory & Sime plc and the Manager and maintains certain books and records.
<PAGE>
FIS (formerly Ivory & Sime International, Inc.) was organized in 1978,
and as of February, 1998 is a wholly-owned subsidiary of Friends Ivory & Sime
plc. FIS offers clients in the United States the services of Friends Ivory &
Sime plc in global securities markets. Friends Ivory & Sime plc is a subsidiary
of Friends Provident Group. Friends Provident was founded in 1832, and is a
mutual life assurance company registered in England. As of August 31, 1999, the
firm and its affiliates managed approximately $53.3 billion of global equity
investments. FIS is located at One World Trade Center, Suite 2101, New York, NY
10048, and Friends Ivory & Sime plc is located at Princes Court, 7 Princes
Street, London, England EC2R8AQ.
ADMINISTRATION
State Street Bank and Trust Company, located at One Heritage Drive,
North Quincy, Massachusetts 02171, is the custodian of the assets of the Trust,
and calculates the net asset value of the shares of each Portfolio and creates
and maintains the Trust's required financial records.
Funds Distributor, Inc. provides administrative services and manages
the administrative affairs of the Trust.
<PAGE>
SHAREHOLDER INFORMATION
PRICING PORTFOLIO SHARES
The price of shares of each Portfolio called "net asset value," is
based on the value of the Portfolio's investments.
The net asset value per share of each Portfolio is determined once
daily at the close of trading on the New York Stock Exchange ("NYSE") (currently
4:00 p.m. Eastern Standard Time) on each day that the NYSE is open. Shares will
not be priced on days that the NYSE is closed.
The value of each Portfolio's portfolio securities is based on the
securities' market price when available. When a market price is not readily
available, including circumstances under which an Adviser determines that a
security's market price is not accurate, a portfolio security is valued at its
fair value, as determined under procedures established by the Trust's Board of
Trustees. In these cases, the Portfolio's net asset value will reflect certain
portfolio securities' fair value rather than their market price.
All securities held by the U.S. Government Money Market Portfolio and
debt securities with remaining maturities of sixty days or less at the time of
purchase are valued at amortized cost. The amortized cost valuation method
involves valuing a debt obligation in reference to its cost rather than market
forces.
PURCHASE OF SHARES
Purchase of shares of a Portfolio must be made through a dealer having
a sales agreement with Funds Distributor, Inc., the Trust's general distributor
(the "Distributor"), or directly through the Distributor. Shares of a Portfolio
are available to participants in Consulting Programs and to other investors and
investment advisory services. The purchase price is the net asset value per
share next determined after receipt of an order by the Distributor.
<PAGE>
Investment Advisory Programs. The Trust is designed to allow Consulting
Programs and other investment advisory programs to relieve investors of the
burden of devising an asset allocation strategy to meet their individual needs
as well as selecting individual investments within each asset category among the
myriad choices available. Generally, the Consulting Programs provide advisory
services in connection with investments among the Portfolios by identifying the
investor's risk tolerance and investment objectives through evaluation of an
investor questionnaire; identifying and recommending an appropriate allocation
of assets among the Portfolios that is intended to conform to such risk
tolerance and objectives in a recommendation; and providing, on a periodic
basis, an analysis and evaluation of the investor's account and recommending any
appropriate changes in the allocation of assets among the Portfolios. The
investment advisers for the Consulting Programs are also responsible for
reviewing the asset allocation recommendations and performance reports with the
investor, providing any interpretations, monitoring identified changes in the
investor's financial characteristics and the implementation of investment
decisions.
The investment advisers in the Consulting Programs may use the
Manager's Saratoga SHARP(R) Program in assisting their clients in translating
investor needs, preferences and attitudes into suggested portfolio allocations.
In addition, the Manager may provide some or all of the administrative services
to the investment advisers for the Consulting Programs such as the preparation,
printing and processing of investment questionnaires and investment literature
and other client communications. The Manager receives a fee from the investment
adviser for these services.
The fee payable by the client for the Consulting Programs is subject to
negotiation between the client and his or her investment advisor and is paid
directly by each advisory client to his or her investment advisor either by
redemption of Portfolio shares or by separate payment.
<PAGE>
Other Advisory Programs. Shares of the Portfolios are also available
for purchase by certain registered investment advisers (other than the
investment advisers for the Consulting Programs) as a means of implementing
asset allocation recommendations based on an investor's investment objectives
and risk tolerance. In order to qualify to purchase shares on behalf of its
clients, the investment advisor must be approved by the Manager. Investors
purchasing shares through these investment advisory programs will bear different
fees for different levels of services as agreed upon with the investment
advisers offering the programs. Registered investment advisers interested in
utilizing the Portfolios for the purposes described above should call
800-807-FUND (800-807-3863).
Continuous Offering. For Class I shares of the Trust, the minimum
initial investment in the Trust is $10,000 and the minimum investment in any
individual Portfolio (other than the U.S. Government Money Market Portfolio) is
$250; there is no minimum investment for the U.S. Government Money Market
Portfolio. For employees and relatives of: the Manager, firms distributing
shares of the Trust, and the Trust service providers and their affiliates, the
minimum initial investment is $1,000 with no individual Portfolio minimum. There
is no minimum initial investment for employee benefit plans, associations, and
individual retirement accounts. The minimum subsequent investment in the Trust
is $100 and there is no minimum subsequent investment for any Portfolio. The
Trust reserves the right at any time to vary the initial and subsequent
investment minimums.
The Trust offers an Automatic Investment Plan under which purchase
orders of $100 or more may be placed periodically in the Trust. The purchase
price is paid automatically from cash held in the shareholder's designated
account. For further information regarding the Automatic Investment Plan,
shareholders should contact their Consulting Broker or the Trust at 800-807-FUND
(800-807-3863).
The sale of shares will be suspended during any period when the
determination of net asset value is suspended and may be suspended by the Board
of Trustees whenever the Board judges it to be in the best interest of the Trust
to do so. The Distributor in its sole discretion, may accept or reject any
purchase order.
<PAGE>
The Distributor will from time to time provide compensation to dealers
in connection with sales of shares of the Trust including financial assistance
to dealers in connection with conferences, sales or training programs for their
employees, seminars for the public and advertising campaigns.
REDEMPTION OF SHARES
Shares of a Portfolio may be redeemed at no charge on any day that the
Portfolio calculates its net asset value. Redemption requests received in proper
form prior to the close of regular trading on the NYSE will be effected at the
net asset value per share determined on that day. Redemption requests received
after the close of regular trading on the NYSE will be effected at the net asset
value next determined. A Portfolio is required to transmit redemption proceeds
for credit to the shareholder's account at no charge within seven days after
receipt of a redemption request Redemption of shares purchased by check will not
be effected until the check clears, which may take up to 15 days from the
purchase date.
Redemption requests may be given to a dealer having a selling agreement
with the Distributor (who is responsible for transmitting them to the Trust's
Transfer Agent) or directly to the Transfer Agent, if the shareholder purchased
shares directly from the Distributor. In order to be effective, certain
redemption requests of a shareholder may require the submission of documents
commonly required to assure the safety of a particular account.
The agreement relating to participation in a Consulting Program between
a client and the investment adviser typically will provide that, absent separate
payment by the participant, fees charged pursuant to that agreement may be paid
through automatic redemptions of a portion of the participant's Trust account.
The Trust may suspend redemption procedures and postpone redemption
payment during any period when the NYSE is closed other than for customary
weekend or holiday closing or when the SEC has determined an emergency exists or
has otherwise permitted such suspension or postponement.
<PAGE>
Certain requests require a signature guarantee. To protect you and the
Trust from fraud, certain transactions and redemption requests must be in
writing and must include a signature guarantee in the following situations
(there may be other situations also requiring a signature guarantee in the
discretion of the Trust or Transfer Agent):
1. Re-registration of the account.
2. Changing bank wiring instructions on the account.
3. Name change on the account.
4. Setting up/changing systematic withdrawal plan to a
secondary address.
5. Redemptions greater than $25,000.
6. Any redemption check that is made payable to someone other
than the shareholder(s).
7. Any redemption check that is being mailed to a different
address than the address of record.
8. Your account registration has changed within the last 30
days.
You should be able to obtain a signature guarantee from a bank or trust
company, credit union, broker-dealer, securities exchange or association,
clearing agency or savings association, as defined by federal law.
Involuntary Redemptions. Due to the relatively high cost of maintaining
small accounts, the Trust may redeem an account having a current value of $7,500
or less as a result of redemptions, but not as a result of a fluctuation in a
Portfolio's net asset value or redemptions to pay fees for Consulting Programs,
after the shareholder has been given at least 30 days in which to increase the
account balance to more than that amount. Involuntary redemptions may result in
the liquidation of Portfolio holdings at a time when the value of those holdings
is lower than the investor's cost of the investment or may result in the
realization of taxable capital gains.
<PAGE>
Exchange Privilege. Shares of a Portfolio may be exchanged without payment
of any exchange fee for shares of another Portfolio of the same Class at their
respective net asset values.
An exchange of shares is treated for federal income tax purposes as a
redemption (sale) of shares given in exchange by the shareholder, and an
exchanging shareholder may, therefore, realize a taxable gain or loss in
connection with the exchange. The exchange privilege is available to
shareholders residing in any state in which Portfolio shares being acquired may
be legally sold.
The Manager reserves the right to reject any exchange request and the
exchange privilege may be modified or terminated upon notice to shareholders in
accordance with applicable rules adopted by the Securities and Exchange
Commission.
With regard to redemptions and exchanges made by telephone, the
Distributor and the Trust's Transfer Agent will request personal or other
identifying information to confirm that the instructions received from
shareholders or their account representatives are genuine. Calls may be
recorded. If our lines are busy or you are otherwise unable to reach us by
phone, you may wish to ask your investment representative for assistance or send
us written instructions, as described elsewhere in this prospectus. For your
protection, we may delay a transaction or not implement one if we are not
reasonably satisfied that the instructions are genuine. If this occurs, we will
not be liable for any loss. The Distributor and the Transfer Agent also will not
be liable for any losses if they follow instructions by phone that they
reasonably believe are genuine or if an investor is unable to execute a
transaction by phone.
<PAGE>
Because excessive trading (including short-term "market timing" trading
can limit a Portfolio's performance, each Portfolio may refuse any exchange
orders (1) if they appear to be market-timing transactions involving significant
portions of a Portfolio's assets or (2) from any shareholder account if the
shareholder or his or her broker-dealer has been advised that previous use of
the exchange privilege is considered excessive. Accounts under common ownership
or control, including those with the same taxpayer ID number and those
administered so as to redeem or purchase shares based upon certain predetermined
market indicators, will be considered one account for this purpose.
DIVIDENDS AND DISTRIBUTIONS
Net investment income (i.e., income other than long and short term
capital gains) and net realized long and short term capital gains will be
determined separately for each Portfolio. Dividends derived from net investment
income and distributions of net realized long and short term capital gains paid
by a Portfolio to a shareholder will be automatically reinvested (at current net
asset value) in additional shares of that Portfolio (which will be deposited in
the shareholder's account) unless the shareholder instructs the Trust, in
writing, to pay all dividends and distributions in cash. Dividends attributable
to the net investment income of the U.S. Government Money Market Portfolio, the
Municipal Bond Portfolio and the Investment Quality Bond Portfolio will be
declared daily and paid monthly. Shareholders of those Portfolios receive
dividends from the day following the purchase up to an including the date of
redemption. Dividends attributable to the net investment income of the remaining
Portfolios are declared and paid annually. Distributions of any net realized
long term and short term capital gains earned by a Portfolio will be made
annually.
TAX CONSEQUENCES
The following tax information in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in the Trust.
Taxes on Distributions. Your distributions are normally subject to
federal and state income tax when they are paid, whether you take them in cash
or reinvest them in shares. A distribution also may be subject to local income
tax. Any income dividend distributions and any short-term capital gain
distributions are taxable to you as ordinary income. Any long-term capital gain
distributions are taxable as long-term capital gains, no matter how long you
have owned shares in the Trust.
<PAGE>
With respect to the Municipal Bond Portfolio, distributions designated
as "exempt - interest dividends" generally will be exempt from regular federal
income tax. However, income exempt from regular federal income tax may be
subject to state or local tax. In addition, income derived from certain
municipal securities may be subject to the federal "alternative minimum tax."
Certain tax-exempt securities whose proceeds are used to finance private,
for-profit organizations are subject to this special tax system that ensures
that individuals pay at least some federal taxes. Although interest on these
securities is generally exempt from federal income tax, some taxpayers who have
many tax deductions or exemptions nevertheless may have to pay tax on the
income.
You will be sent annually a statement (IRS Form 1099-DIV) showing the
taxable distributions paid to you in the previous year. The statement provides
information on your dividends and capital gains for tax purposes.
Taxes on Sales. Your sale of Portfolio shares normally is subject to
federal and state income tax and may result in a taxable gain or loss to you. A
sale also may be subject to local income tax. Your exchange of Portfolio shares
for shares of another Portfolio is treated for tax purposes like a sale of your
original Portfolio shares and a purchase of your new shares. Thus, the exchange
may, like a sale, result in a taxable gain or loss to you and will give you a
new tax basis for your new shares.
When you open your Portfolio account, you should provide your social
security or tax identification number on your investment application. By
providing this information, you can avoid being subject to a federal backup
withholding tax of 31% on taxable distributions and redemption proceeds. Any
withheld amount would be sent to the IRS as an advance tax payment.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
Portfolio's financial performance for the life of each Portfolio. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in each respective Portfolio (assuming reinvestment of all
dividends and distributions).
This information for 1999 and 1998 has been audited by Ernst & Young
LLP, Independent Auditors whose report, along with the financial statements for
each Portfolio is included in the annual report, which is available upon
request. The information for periods prior to 1998 was audited by other
auditors, whose report thereon was unqualified.
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FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS RATIOS
--------------------------------------------------------------------- -----------------------------
Ratio
Distributions Ratio of Net
Net to of Net Investment
Realized Dividends Shareholders Operating Income
Net Asset And to from Net Net Net Expenses (Loss)
Value, Unrealized Total Shareholders Realized Asset Assets to to
Beginning Net Investment Gain(Loss) from Net Gains Value, End of Average Average Portfolio
of Income on Investment Investment on End of Total Period Net Net Turnover
Period (Loss) Investments Operations Income Investments Period Return* (000's) Assets Assets Rate
U.S. Government Money Market Portfolio (Class I)
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Year Ended
August 31,1999 $1.000 $0.044 $0.000 $0.044 $(0.044) $-- $1.000 4.11% $48,358 1.00%(1) 4.02%(1) n/a
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Year Ended
August 31, 1998 1.000 0.045 0.000 0.045 (0.045) -- 1.000 4.59% 38,492 1.12%(1) 4.41%(1) n/a
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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) n/a
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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) n/a
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September 2, 1994 (2)
to August 31, 1995 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) n/a
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</TABLE>
(1) During the fiscal years ended August 31, 1999, 1998 and 1997,
respectively, 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
1.02% and 4.00%, respectively for the year ended August 31, 1999, 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.
<PAGE>
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FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS RATIOS
--------------------------------------------------------------------- -----------------------------
Ratio
Distributions Ratio of Net
Net to of Net Investment
Realized Dividends Shareholders Operating Income
Net Asset And to from Net Net Net Expenses (Loss)
Value, Unrealized Total Shareholders Realized Asset Assets to to
Beginning Net Investment Gain(Loss) from Net Gains Value, End of Average Average Portfolio
of Income on Investment Investment on End of Total Period Net Net Turnover
Period (Loss) Investments Operations Income Investments Period Return* (000's) Assets Assets Rate
Investment Quality Bond Portfolio (Class I)
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Year Ended
August 31, 1999 $10.29 $0.49 ($0.35) $0.14 ($0.49) ($0.06)$9.88 1.33% $41,070 1.05%(1) 4.85%(1) 61%
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Year Ended
August 31, 1998 10.09 0.50 0.21 0.71 (0.50) (0.01) 10.29 7.21% 35,724 1.19%(1) 4.86%(1) 44%
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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%
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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%
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September 2, 1994 (2)
to August 31, 1995 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%
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</TABLE>
(1) During the fiscal years ended August 31, 1999, 1998 and 1997,
respectively, 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
1.06% and 4.86%, respectively, for the year ended August 31, 1999,
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.
(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.
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FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS RATIOS
--------------------------------------------------------------------- -----------------------------
Ratio
Distributions Ratio of Net
Net to of Net Investment
Realized Dividends Shareholders Operating Income
Net Asset And to from Net Net Net Expenses (Loss)
Value, Unrealized Total Shareholders Realized Asset Assets to to
Beginning Net Investment Gain(Loss) from Net Gains Value, End of Average Average Portfolio
of Income on Investment Investment on End of Total Period Net Net Turnover
Period (Loss) Investments Operations Income Investments Period Return* (000's) Assets Assets Rate
Municipal Bond Portfolio (Class I)
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Year Ended
August 31, 1999 $10.72 $0.42 ($0.68) ($0.26) ($0.42) $(0.04) $10.00 (2.55%) $11,556 1.20%(1) 3.96%(1) 23%
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Year Ended
August 31, 1998 10.33 0.43 0.42 0.85 (0.44) (0.02) 10.72 8.42% 9,794 1.20%(1) 4.07%(1) 18%
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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%
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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%
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September 2, 1994 (2)
to August 31, 1995 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%
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</TABLE>
(1) During the fiscal years ended August 31, 1999, 1998 and 1997,
respectively, 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 1.68% and 4.54%, respectively, for the year ended August
31, 1999, 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.
(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.
<PAGE>
16830766.8 99558777
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FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS RATIOS
--------------------------------------------------------------------- -----------------------------
Ratio
Distributions Ratio of Net
Net to of Net Investment
Realized Dividends Shareholders Operating Income
Net Asset And to from Net Net Net Expenses (Loss)
Value, Unrealized Total Shareholders Realized Asset Assets to to
Beginning Net Investment Gain(Loss) from Net Gains Value, End of Average Average Portfolio
of Income on Investment Investment on End of Total Period Net Net Turnover
Period (Loss) Investments Operations Income Investments Period Return* (000's) Assets Assets Rate
Large Capitalization Value Portfolio (Class I)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
August 31, 1999 $18.15 $0.13 $3.40 $3.53 ($0.09) ($1.00) $20.59 19.84% $78,484 1.10%(1) 0.84%(1) 67%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
August 31, 1998 18.57 0.14 0.07 0.21 (0.39) (0.24) 18.15 0.96% 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) 18.57 31.37% 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) 14.45 19.73% 18,274 1.28%(1) 0.97%(1) 26%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
September 2, 1994 (2) to
August 31, 1995 10.00(3) 0.15 2.20 2.35 (0.05) -- 12.30 23.60% 5,515 0.40%(1,4) 2.29%(1,4) 33%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) During the fiscal years ended August 31, 1999, 1998 and 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 1.12% and
0.86%, respectively, for the year ended August 31, 1999, 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.
(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.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS RATIOS
--------------------------------------------------------------------- -----------------------------
Ratio
Distributions Ratio of Net
Net to of Net Investment
Realized Dividends Shareholders Operating Income
Net Asset And to from Net Net Net Expenses (Loss)
Value, Unrealized Total Shareholders Realized Asset Assets to to
Beginning Net Investment Gain(Loss) from Net Gains Value, End of Average Average Portfolio
of Income on Investment Investment on End of Total Period Net Net Turnover
Period (Loss) Investments Operations Income Investments Period Return* (000's) Assets Assets Rate
Large Capitalization Growth Portfolio (Class I)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
August 31, 1999 $17.83 ($0.09) $9.65 $9.56 -- $(0.41) $26.98 54.03% $115,586 1.02%(1) (0.36%)(1) 39%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
August 31, 1998 17.87 (0.07) 0.81 0.74 -- (0.78) 17.83 3.91% 66,537 1.18%(1) (0.34%)(1) 45%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
August 31, 1997 13.16 (0.02) 4.73 4.71 -- -- 17.87 35.79% 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 31, 1995 10.00(3) 0.02 2.85 2.87 (0.01) -- 12.86 28.77% 11,107 0.51%(1,4) 0.32%(1,4) 23%
- ------------------------------------------------------------------------------------------------------------------------------------
</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 1.25% 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.
(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.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS RATIOS
--------------------------------------------------------------------- -----------------------------
Ratio
Distributions Ratio of Net
Net to of Net Investment
Realized Dividends Shareholders Operating Income
Net Asset And to from Net Net Net Expenses (Loss)
Value, Unrealized Total Shareholders Realized Asset Assets to to
Beginning Net Investment Gain(Loss) from Net Gains Value, End of Average Average Portfolio
of Income on Investment Investment on End of Total Period Net Net Turnover
Period (Loss) Investments Operations Income Investments Period Return* (000's) Assets Assets Rate
Small Capitalization Portfolio (Class I)
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
August 31, 1999 $9.82 ($0.05) $3.02 $2.97 -- $(2.69) $10.10 34.91% $38,225 1.21%(1) (0.60%)(1) 32%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
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) 15.05 18.07% 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) 13.58 11.03% 22,071 1.25%(1) (0.83%)(1) 95%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
September 2, 1994 (2) to
August 31, 1995 10.00(3) 0.02 2.61 2.63 (0.01) -- 12.62 26.38% 15,103 0.42%(1,4)(0.07%)(1,4) 111%
- ------------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) During the fiscal years ended August 31, 1999, 1998 and 1997
respectively, 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 1.31% and (0.70%), respectively, for the year ended August
31, 1999, 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.
(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.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS RATIOS
--------------------------------------------------------------------- -----------------------------
Ratio
Distributions Ratio of Net
Net to of Net Investment
Realized Dividends Shareholders Operating Income
Net Asset And to from Net Net Net Expenses (Loss)
Value, Unrealized Total Shareholders Realized Asset Assets to to
Beginning Net Investment Gain(Loss) from Net Gains Value, End of Average Average Portfolio
of Income on Investment Investment on End of Total Period Net Net Turnover
Period (Loss) Investments Operations Income Investments Period Return* (000's) Assets Assets Rate
International Equity Portfolio (Class I)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
August 31, 1999 $10.92 $0.11 $2.25 $2.36 ($0.10) -- $13.18 21.70% $28,743 1.45%(1) 1.00%(1) 46%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
August 31, 1998 10.74 0.13 0.09 0.22 (0.04) -- 10.92 2.08% 18,967 1.40%(1) 1.14%(1) 58%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
August 31, 1997 9.59 0.23 1.12 1.35 (0.20) -- 10.74 14.39% 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 31, 1995 10.00(3) 0.05 (0.71) (0.66) (0.01) -- 9.33 (6.61%) 2,907 0.38%(1,4) 1.03%(1,4) 36%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) During the fiscal years ended August 31, 1997, 1998 and 1999,
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 1.49% and
1.04%, respectively, for the year ended August 31, 1999, 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 (commitment 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.
<PAGE>
-61-
[Back Cover]
Additional information about each Portfolio's investments is available
in the Trust's Annual and Semi-Annual Reports to Shareholders. In the Trust's
Annual Report, you will find a discussion of the market conditions and
investment strategies that significantly affected each Portfolio's performance
during its last fiscal year. The Trust's Statement of Additional Information
also provides additional information about each Portfolio. The Statement of
Additional Information is incorporated herein by reference (legally is part of
this Prospectus). For a free copy of any of these documents, to request other
information about the Trust, or to make shareholder inquiries, please call:
(800) 807-FUND
You also may obtain information about the Trust by calling your
financial advisor or by visiting our Internet site at:
http://www.saratogacap.com
Information about the Trust (including the Statement of Additional
Information) can be viewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, DC. Information about the
Reference Room's operations may be obtained by calling the SEC at (202)
942-8090. Reports and other information about the Trust are available on the
EDGAR Database on the SEC's Internet site (www.sec.gov) and copies of this
information may be obtained, after paying a duplicating fee, by electronic
request at the following e-mail address: [email protected], or by writing the
Public Reference Section of the SEC, Washington, DC 20549-0102.
The Trust's Investment Company Act file number is 811-08542.
- --------
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. 1/ 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. The Lehman Index is an unmanaged index which does not include fees and
expenses. Investors may not invest directly in the Index. 2/ 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. 1/ 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. The Lehman Index is an unmanaged index which does not include fees and
expenses. Investors may not invest directly in the Index. 2/ 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. 1/ 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. The S&P/Barra Value Index does not include fees and expenses, and
investors may not invest directly in the Index. 2/ The Standard & Poor's 500(R)
Composite Stock Price Index 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 which does not include fees and expenses, and
includes the reinvestment of all dividends. Investors may not invest in the
Index directly. 3/ The Morningstar Large Value Average, as of September 30,
1999, consisted of 600 mutual funds comprised of large market capitalization
stocks with the lowest combinations of price-to-earnings and price-to-book
scores. Investors may not invest in the Average directly. 1/ 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. The S&P/Barra
Growth Index does not include fees and expenses, and investors may not invest
directly in the Index. 2/ The Morningstar Large Growth Average, as of September
30, 1999, consisted of 633 mutual funds comprised of large market capitalization
stocks with the highest combinations of price-to-earnings and price-to-book
scores. Investors may not invest in the Average directly. 1/ The Russell 2000
Index is comprised of the 2,000 smallest U.S. domiciled publicly traded common
stocks which are included in 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 which does not
include fees and expenses, and whose performance reflects reinvested dividends.
Investors may not invest in the Index directly. 2/ The Morningstar Small Value
Average, as of September 30, 1999, consisted of 230 mutual funds comprised of
small market capitalization stocks with the lowest combinations of
price-to-earnings and price-to-book scores. Investors may not invest in the
Average directly.
SARATOGA ADVANTAGE TRUST
PROSPECTUS - CLASS B SHARES
[Front Cover]
Prospectus - January 1, 2000
The Saratoga Advantage Trust is a mutual fund company comprised of 7
separate mutual fund portfolios, each with its own distinctive investment
objectives and policies. The Portfolios are:
U.S. Government Money Market Portfolio Large Capitalization Value Portfolio
Investment Quality Bond Portfolio Large Capitalization Growth Portfolio
Municipal Bond Portfolio Small Capitalization Portfolio
International Equity Portfolio
The Portfolios are managed by Saratoga Capital Management (the
"Manager"). Each Portfolio is advised by an investment adviser selected and
supervised by the Manager.
The Trust is designed to help investors to implement an asset
allocation strategy to meet their individual needs as well as select individual
investments within each asset category among the myriad choices available. The
Trust makes available assistance to help certain investors identify their risk
tolerance and investment objectives through use of an investor questionnaire,
and to select an appropriate model allocation of assets among the Portfolios. As
further assistance, the Trust makes available to certain investors the option of
automatic reallocation or rebalancing of their selected model. The Trust also
provides, on a periodic basis, a report to the investor containing an analysis
and evaluation of the investor's account.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
-57-
TABLE OF CONTENTS
THE PORTFOLIOS
U.S. GOVERNMENT MONEY MARKET PORTFOLIO..............................3
INVESTMENT QUALITY BOND PORTFOLIO...................................7
MUNICIPAL BOND PORTFOLIO...........................................12
LARGE CAPITALIZATION VALUE PORTFOLIO...............................17
LARGE CAPITALIZATION GROWTH PORTFOLIO..............................21
SMALL CAPITALIZATION PORTFOLIO.....................................24
INTERNATIONAL EQUITY PORTFOLIO.....................................28
SUMMARY OF TRUST EXPENSES..........................................33
ADDITIONAL INVESTMENT STRATEGY INFORMATION.........................36
ADDITIONAL RISK INFORMATION........................................38
INVESTMENT MANAGER.................................................40
ADVISERS 41
ADMINISTRATION.....................................................43
SHAREHOLDER INFORMATION
PRICING PORTFOLIO SHARES...........................................44
PURCHASE OF SHARES.................................................44
REDEMPTION OF SHARES...............................................49
DIVIDENDS AND DISTRIBUTIONS........................................53
TAX CONSEQUENCES...................................................53
FINANCIAL HIGHLIGHTS...............................................56
<PAGE>
THE PORTFOLIOS
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
Investment Objective
The U.S. Government Money Market Portfolio seeks to provide maximum
current income to the extent consistent with the maintenance of liquidity and
the preservation of capital.
The Adviser
The Portfolio is advised by Sterling Capital Management Company. All
investment decisions for the Portfolio are made by Sterling Capital's investment
committee.
Principal Investment Strategies
The Portfolio will invest in high quality, short-term U.S. Government
securities. The Adviser seeks to maintain the Portfolio's share price at $1.00.
The share price remaining stable at $1.00 means that the Portfolio would
preserve the principal value of your investment.
The U.S. Government securities that the Portfolio may purchase include:
o U.S. Treasury bills, notes and bonds, all of which are
direct obligations of the U.S. Government.
o Securities issued by agencies and instrumentalities
of the U.S. Government which are backed by the full
faith and credit of the United States. Among the
agencies and instrumentalities issuing these
obligations are the Government National Mortgage
Association and the Federal Housing Administration.
o Securities issued by agencies and instrumentalities
which are not backed by the full faith and credit of
the United States, but whose issuing agency or
instrumentality has the right to borrow from the U.S.
Treasury to meet its obligations. Among these
agencies and instrumentalities are the Federal
National Mortgage Association, the Federal Home Loan
Mortgage Corporation and the Federal Home Loan Bank.
o Securities issued by agencies and instrumentalities
which are backed solely by the credit of the issuing
agency or instrumentality. Among these agencies and
instrumentalities is the Federal Farm Credit System.
In addition, the Portfolio may invest in repurchase agreements with
respect to securities issued by the U.S. Government, its agencies and
instrumentalities.
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objectives.
Credit and Interest Rate Risks. A principal risk of investing in the
Portfolio is associated with its U.S. Government securities investments, which
are subject to two types of risks: credit risk and interest rate risk. Credit
risk refers to the possibility that the issuer of a security will be unable to
make interest payments and repay the principal on its debt. Interest rate risk,
another risk of debt securities, refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of interest
rates.
Credit risk is minimal with respect to the Portfolio's U.S. Government
securities investments. Repurchase agreements involve a greater degree of credit
risk. The Adviser, however, actively manages the Portfolio's assets to reduce
the risk of losing any principal investment as a result of credit or interest
rate risks. In addition, federal regulations require money market funds, such as
the Portfolio, to invest only in high quality debt obligations and short
maturities.
An investment in the Portfolio is not a bank deposit and is not insured
or guaranteed by the FDIC or any other government agency. Although the Portfolio
seeks to preserve the value of your investment at $1.00 per share, if it is
unable to do so, it is possible to lose money by investing in this Portfolio.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
<PAGE>
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
During the periods shown in the bar chart, the highest return for a calendar
quarter was 1.5% (quarter ended June 30, 1995) and the lowest return for a
calendar quarter was 1.1% (quarter ended June 30, 1996). Year-to-date total
return as of September 30, 1999 was 3.0%.
- ----------------
** Class B shares of the Portfolio commenced operations on January 4,
1999. The returns shown in the chart are for Class I shares of the
Portfolio which are offered in a separate prospectus. Class I and Class
B shares are invested in the same portfolio of securities. The returns
for Class B shares would differ from those for Class I only to the
extent that the Classes have different expenses.
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average
annual returns of the Portfolio's
Class I Shares with those of a broad
measure of market performance over
time, as well as with an index of
funds with similar investment
objectives. The Portfolio's returns
assume you sold the Class I Shares
at the end of each period.
Average Annual Total Returns (as of December 31, 1998)
---------------------------------------------------------------------------
--------------------------------- ----------------- -----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
--------------------------------- ----------------- -----------------------
--------------------------------- ----------------- -----------------------
U.S. Government Money Market
Portfolio 4.5% 4.7%
--------------------------------- ----------------- -----------------------
--------------------------------- ----------------- -----------------------
90 Day T-Bills 4.8% 5.1%
--------------------------------- ----------------- -----------------------
--------------------------------- ----------------- -----------------------
Lipper U.S. Treasury Money
Market Index1/ 4.8% 4.9%
-
--------------------------------- ----------------- -----------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
INVESTMENT QUALITY BOND PORTFOLIO
Investment Objective
The Investment Quality Bond Portfolio seeks current income and
reasonable stability of principal.
The Adviser
The Portfolio is advised by Fox Asset Management, Inc. The Portfolio is
managed by a management team lead by J. Peter Skirkanich, John Sampson, James
O'Mealia, and Doug Edler. Mr. Skirkanich is the President and Chief Investment
Officer of Fox and founded the firm in 1985. Mr. Sampson is a Managing Director
and joined the firm in 1998 from Pharos Management LLC, a consulting firm
specializing in fixed income investments. Mr. O'Mealia is a Managing Director of
Fox and joined the firm in 1998 from Sunnymeath Asset Management Inc., where he
was President. Mr. Edler is a Vice President of Fox; he joined Fox in 1999 from
J.P. Morgan & Co., Inc. where he managed that firm's proprietary fixed income
investments.
Principal Investment Strategies
The Portfolio will normally invest at least 65% of its assets in
investment grade fixed-income securities or in non-rated securities considered
by the Adviser to be of comparable quality. The Portfolio may also invest in
non-convertible fixed income preferred stock and mortgage pass-through
securities. In deciding which securities to buy, hold or sell, the Adviser
considers economic developments, interest rate trends and other factors such as
the issuer's creditworthiness. The average maturity of the securities held by
the Portfolio may range from three to ten years.
Mortgage pass-through securities are mortgage-backed securities that
represent a participation interest in a pool of residential mortgage loans
originated by the U.S. government or private lenders such as banks. They differ
from conventional debt securities, which provide for periodic payment of
interest in fixed amounts and principal payments at maturity or on specified
call dates. Mortgage pass-through securities provide for monthly payments that
are a "pass-through" of the monthly interest principal payments made by the
individual borrowers on the pooled mortgage loans.
<PAGE>
The Portfolio may invest in mortgage pass-through securities that are
issued or guaranteed by the Government National Mortgage Association, the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation. These securities are either direct obligations of the U.S.
Government, or the issuing agency/instrumentality has the right to borrow from
the U.S. Treasury to meet its obligations, although the Treasury is not legally
required to extend credit to the agency/instrumentality.
Private mortgage pass-through securities also can be Portfolio
investments. They are issued by private originators of and investors in mortgage
loans, including savings and loan associations and mortgage banks. Since private
mortgage pass-through securities typically are not guaranteed by an entity
having the credit status of a U.S. Government agency, the securities generally
are structured with one or more type of credit enhancement.
In addition, the Portfolio may invest up to 5% of its net assets in
fixed-income securities rated lower than investment grade, commonly known as
"junk bonds."
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
Fixed-Income Securities. Principal risks of investing in the Portfolio
are associated with its fixed-income investments. All fixed-income securities,
such as corporate bonds, are subject to two types of risk: credit risk and
interest rate risk. Credit risk refers to the possibility that the issuer of a
security will be unable to make interest payments and/or repay the principal on
its debt.
<PAGE>
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of interest
rates. When the general level of interest rates goes up, the prices of most
fixed-income securities go down. When the general level of interest rates goes
down, the prices of most fixed-income securities go up. (Zero coupon securities
are typically subject to greater price fluctuations than comparable securities
that pay current interest.) Long-term fixed income securities will rise and fall
in response to interest rate changes to a greater extent than short-term
securities.
Mortgage-Backed Securities. The Portfolio may invest in mortgage-backed
securities, such as mortgage pass-through securities, which have different risk
characteristics than traditional debt securities. Although the value of
fixed-income securities generally increases during periods of falling interest
rates and decreases during periods of rising interest rates, this is not always
the case with mortgage-backed securities. This is due to the fact that the
principal on underlying mortgages may be prepaid at any time as well as other
factors. Generally, prepayments will increase during a period of falling
interest rates and decrease during a period of rising interest rates. The rate
of prepayments also may be influenced by economic and other factors. Prepayment
risk includes the possibility that, as interest rates fall, securities with
stated interest rates may have the principal prepaid earlier than expected,
requiring the Portfolio to invest the proceeds at generally lower interest
rates.
Investments in mortgage-backed securities are made based upon, among
other things, expectations regarding the rate of prepayments on underlying
mortgage pools. Rates of prepayment, faster or slower than expected by the
Manager and/or Adviser, could reduce the Portfolio's yield, increase the
volatility of the Portfolio and/or cause a decline in net asset value. Certain
mortgage-backed securities may be more volatile and less liquid than other
traditional types of debt securities.
Other Risks. The performance of the Portfolio also will depend on
whether the Adviser is successful in pursuing the Portfolio's investment
strategy. In addition, the Portfolio is subject to other risks from its
permissible investments including the risks associated with junk bonds. For more
information about these risks, see the "Additional Risk Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
<PAGE>
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
During the periods shown in the bar chart, the highest return for a calendar
quarter was 4.0% (quarter ended June 30, 1995) and the lowest return for a
calendar quarter was -0.7% (quarter ended March 31, 1996).
Year-to-date total return as of September 30, 1999 was 0.1%.
- -------------------
** Class B shares of the Portfolio commenced operations on January 4,
1999. The returns shown in the chart are for Class I shares of the
Portfolio which are offered in a separate prospectus. Class I and Class
B shares are invested in the same portfolio of securities. The returns
for Class B shares would differ from those for Class I only to the
extent that the Classes have different expenses.
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average
annual returns of the Portfolio's
Class I Shares with those of a broad
measure of market performance over
time, as well as with an index of
funds with similar investment
objectives. The Portfolio's returns
assume you sold the Class I Shares at
the end of each period.
Average Annual Total Returns (as of December 31, 1998)
---------------------------------------------------------------------------
--------------------------------- ---------------- ------------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
--------------------------------- ---------------- ------------------------
--------------------------------- ---------------- ------------------------
Investment Quality Bond
Portfolio 6.5% 6.2%
--------------------------------- ---------------- ------------------------
--------------------------------- ---------------- ------------------------
Lehman Intermediate
Government/Corporate Bond Index 8.4% 7.9%
1/
-
--------------------------------- ---------------- ------------------------
--------------------------------- ---------------- ------------------------
Lipper Short-Intermediate
Investment Grade Debt Funds 7.0% 7.0%
Index2/
-
--------------------------------- ---------------- ------------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the
Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
MUNICIPAL BOND PORTFOLIO
Investment Objective
The Municipal Bond Portfolio seeks a high level of interest income that
is excluded from federal income taxation to the extent consistent with prudent
investment management and the preservation of capital.
The Adviser
The Portfolio is advised by OpCap Advisors. It is managed by a
management team lead by Matthew Greenwald, Senior Vice President of Oppenheimer
Capital, the parent of OpCap Advisors. Mr. Greenwald has been a fixed income
portfolio manager and financial analyst for Oppenheimer Capital since 1989. From
1984-1989 he was a fixed income portfolio manager with PaineWebber's Mitchell
Hutchins Asset Management.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in
securities that pay interest exempt from federal income taxes. The Portfolio's
Adviser generally invests the Portfolio's assets in municipal obligations. There
are no maturity limitations on the Portfolio's securities. Municipal obligations
are bonds, notes or short-term commercial paper issued by state governments,
local governments, and their respective agencies. In pursuing the Portfolio's
investment objective, the Adviser has considerable leeway in deciding which
investments it buys, holds or sells on a day-to-day basis. The Portfolio will
invest primarily in municipal bonds rated within the four highest grades by
Moody's Investors Service Inc. ("Moody's"), Standard & Poor's Corporation
("S&P"), or Fitch IBCA, Inc. ("Fitch") or, if not rated, of comparable quality
in the opinion of the Adviser. The Portfolio may invest without limit in
municipal obligations that pay interest income subject to the "alternative
income tax" although it does not currently expect to invest more than 20% of its
total assets in such instruments. Some shareholders may have to pay tax on
distributions of this income.
<PAGE>
Municipal bonds, notes and commercial paper are commonly classified as
either "general obligation" or "revenue." General obligation bonds, notes, and
commercial paper are secured by the issuer's faith and credit, as well as its
taxing power, for payment of principal and interest. Revenue bonds, notes and
commercial paper, however, are generally payable from a specific source of
income. They are issued to fund a wide variety of public and private projects in
sectors such as transportation, education and industrial development. Included
within the revenue category are participations in lease obligations. The
Portfolio's municipal obligation investments may include zero coupon securities,
which are purchased at a discount and make no interest payments until maturity.
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
Credit and Interest Rate Risks. Municipal obligations, like other debt
securities, are subject to two types of risks: credit risk and interest rate
risk.
Credit risk refers to the possibility that the issuer of a security
will be unable to make interest payments and/or repay the principal on its debt.
In the case of revenue bonds, notes or commercial paper, for example, the credit
risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment
obligations. The issuers of private activity bonds, used to finance projects in
sectors such as industrial development and pollution control, also may be
negatively impacted by the general credit of the user of the project. Lease
obligations may have risks not normally associated with general obligation or
other revenue bonds. Certain lease obligations contain "non-appropriation"
clauses that provide that the governmental issuer has no obligation to make
future payments under the lease or contract unless money is appropriated for
such purposes by the appropriate legislative body on an annual or other periodic
basis. Consequently, continued lease payments on those lease obligations
containing "non-appropriation" clauses are dependent on future legislative
actions. If such legislative actions do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including
disposition of the property.
<PAGE>
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of interest
rates. When the general level of interest rates goes up, the prices of most
fixed-income securities go down. When the general level of interest rates goes
down, the prices of most fixed-income securities go up. Zero coupon securities
are typically subject to greater price fluctuations than comparable securities
that pay current interest.
The Portfolio is not limited as to the maturities of the municipal
obligations in which it may invest. Thus, a rise in the general level of
interest rates may cause the price of its portfolio securities to fall
substantially.
Other Risks. The performance of the Portfolio also will depend on
whether the Adviser is successful in pursuing the Portfolio's investment
strategy. In addition, the Portfolio is subject to other risks from its
permissible investments. For information about these risks, see the "Additional
Risk Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
<PAGE>
During the periods shown in the bar chart, the highest return for a calendar
quarter was 5.9% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was 0.0% (quarter ended December 31, 1998).
Year-to-date total return as of September 30, 1999 was -4.5%.
- -------------------
** Class B shares of the Portfolio commenced operations on January 4,
1999. The returns shown in the chart are for Class I shares of the
Portfolio which are offered in a separate prospectus. Class I and Class
B shares are invested in the same portfolio of securities. The returns
for Class B shares would differ from those for Class I only to the
extent that the Classes have different expenses.
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average
annual returns of the Portfolio's
Class I Shares with those of a broad
measure of market performance over
time, as well as with an index of
funds with similar investment
objectives. The Portfolio's returns
assume you sold the Class I Shares at
the end of each period.
Average Annual Total Returns (as of December 31, 1998)
--------------------------------------------------------------------------
--------------------------------- ---------------- -----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
--------------------------------- ---------------- -----------------------
--------------------------------- ---------------- -----------------------
Municipal Bond Portfolio 5.4% 6.2%
--------------------------------- ---------------- -----------------------
--------------------------------- ---------------- -----------------------
Lehman Municipal Bond Index 1/
6.5% 7.8%
--------------------------------- ---------------- -----------------------
--------------------------------- ---------------- -----------------------
Lipper General Municipal Debt
Funds Index2/ 5.6% 7.4%
-
--------------------------------- ---------------- -----------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
LARGE CAPITALIZATION VALUE PORTFOLIO
Investment Objective
The Large Capitalization Value Portfolio seeks total return consisting
of capital appreciation and dividend income.
The Adviser
The Portfolio is advised by OpCap Advisors. It is managed by a
portfolio team comprised of senior professionals of OpCap Advisors. One member
of the team, Frank LeCates, has primary supervisory authority over
implementation of the management team's purchase and sale recommendations. Mr.
LeCates is the Director of Research at Oppenheimer Capital, the parent of OpCo
Advisors. Mr. LeCates brings 28 years of investment experience to his current
position. Formerly with Donaldson, Lufkin & Jenrette for 18 years, he has served
as head of institutional equity sales, Director of Research and as a securities
analyst. Mr. LeCates graduated from Princeton University, earned an MBA at
Harvard Business School and is a CFA.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in a
diversified portfolio of common stocks and securities convertible into common
stocks. At least 65% of the Portfolio assets will be invested in common stocks
of issuers with total market capitalizations of $1 billion or greater at the
time of purchase. In determining which securities to buy, hold or sell, the
Adviser focuses its investment selection on highly liquid equity securities
that, in the Adviser's opinion, have above average price appreciation potential
at the time of purchase. In general, securities are characterized as having
above average dividend yields and below average price earnings ratios relative
to the stock market in general, as measured by the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500"). Other factors, such as earnings,
the issuer's ability to generate cash flow in excess of business needs and
sustain above average profitability, as well as industry outlook and market
share, are also considered by the Adviser.
In addition, the Portfolio may invest in stock index futures contracts
and options.
<PAGE>
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
Common Stocks. A principal risk of investing in the Portfolio is
associated with common stock investments. In general, stock values fluctuate in
response to activities specific to the company as well as general market,
economic and political conditions. Stock prices can fluctuate widely in response
to these factors.
Other Risks. The performance of the Portfolio also will depend on
whether the Adviser is successful in pursuing the Portfolio's investment
strategy. In addition, the Portfolio is subject to other risks from its
permissible investments including the risks associated with stock index futures
contracts and options. For information about these risks, see the "Additional
Risk Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
<PAGE>
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
During the periods shown in the bar chart, the highest return for a calendar
quarter was 14.9% (quarter ended December 31, 1998) and the lowest return for a
calendar quarter was -13.1% (quarter ended September 30, 1998).
Year-to-date total return as of September 30, 1999 was -0.9%.
- -------------------
** Class B shares of the Portfolio commenced operations on January 4,
1999. The returns shown in the chart are for Class I shares of the
Portfolio which are offered in a separate prospectus. Class I and Class
B shares are invested in the same portfolio of securities. The returns
for Class B shares would differ from those for Class I only to the
extent that the Classes have different expenses.
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average
annual returns of the Portfolio's
Class I Shares with those of a broad
measure of market performance over
time, as well as with an index of
funds with similar investment
objectives. The Portfolio's returns
assume you sold the Class I Shares at
the end of each period.
Average Annual Total Returns (as of December 31, 1998)
---------------------------------------------------------------------------
---------------------------------- ---------------- -----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
---------------------------------- ---------------- -----------------------
---------------------------------- ---------------- -----------------------
Large Capitalization Value
Portfolio 11.8% 21.3%
---------------------------------- ---------------- -----------------------
---------------------------------- ---------------- -----------------------
S&P/Barra Value Index 1/ 14.7% 22.2%
-
---------------------------------- ---------------- -----------------------
---------------------------------- ---------------- -----------------------
Morningstar Large Value
Average2/ 12.5% 19.8%
---------------------------------- ---------------- -----------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
LARGE CAPITALIZATION GROWTH PORTFOLIO
Investment Objective
The Large Capitalization Growth Portfolio seeks capital appreciation.
The Adviser
The Portfolio is advised by Harris Bretall Sullivan & Smith, L.L.C. Stock
selection for the Portfolio is made by the Strategy and Investment Committees of
Harris Bretall. The Portfolio is managed by a management team lead by Jack
Sullivan and Gordon Ceresino. Mr. Sullivan is a partner of Harris Bretall and
has been associated with the firm since 1981. Mr. Ceresino is a Partner of
Harris Bretall and has been associated with the firm since 1991.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in a
diversified portfolio of common stocks that, in the Adviser's opinion, are
characterized by earnings growth in excess of that of the S&P 500. The Portfolio
will also normally invest at least 65% of its assets in common stocks of issuers
with total market capitalizations of $3 billion or more. In deciding which
securities to buy, hold or sell, the Adviser evaluates factors believed to be
favorable to long-term capital appreciation, including specific financial
characteristics of the issuer such as historical earnings growth, sales growth,
profitability and return on equity. The Adviser also analyzes the issuer's
position within its industry as well as the quality and experience of the
issuer's management.
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
<PAGE>
Common Stocks. A principal risk of investing in the Portfolio is
associated with common stock investments. In general, stock values fluctuate in
response to activities specific to the company as well as general market,
economic and political conditions. Stock prices can fluctuate widely in response
to these factors.
Other Risks. The performance of the Portfolio also will depend on
whether the Adviser is successful in pursuing the Portfolio's investment
strategy. In addition, the Portfolio is subject to other risks from its
permissible investments. For information about these risks, see the "Additional
Risk Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
During the periods shown in the bar chart, the highest return for a calendar
quarter was 34.3% (quarter ended December 31, 1998) and the lowest return for a
calendar quarter was -13.2% (quarter ended September 30, 1998).
Year-to-date total return as of September 30, 1999 was 7.2%.
- -------------------
** Class B shares of the Portfolio commenced operations on January 4,
1999. The returns shown in the chart are for Class I shares of the
Portfolio which are offered in a separate prospectus. Class I and Class
B shares are invested in the same portfolio of securities. The returns
for Class B shares would differ from those for Class I only to the
extent that the Classes have different expenses.
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average
annual returns of the Portfolio's
Class I Shares with those of a broad
measure of market performance over
time, as well as with an index of
funds with similar investment
objectives. The Portfolio's returns
assume you sold the Class I Shares at
the end of each period.
Average Annual Total Returns (as of December 31, 1998)
- ----------------------------------------------------------------------------
- ------------------------------------ ---------------- ----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
- ------------------------------------ ---------------- ----------------------
- ------------------------------------ ---------------- ----------------------
Large Capitalization Growth
Portfolio 36.4% 25.1%
- ------------------------------------ ---------------- ----------------------
- ------------------------------------ ---------------- ----------------------
S&P/Barra Growth Index 1/ 42.2% 31.7%
-
- ------------------------------------ ---------------- ----------------------
- ------------------------------------ ---------------- ----------------------
Morningstar Large Growth Average2/ 34.0% 24.6%
-
- ------------------------------------ ---------------- ----------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
SMALL CAPITALIZATION PORTFOLIO
Investment Objective
The Small Capitalization Portfolio seeks maximum capital appreciation.
The Adviser
The Portfolio is advised by Thorsell, Parker Partners, Inc. It is
managed by a management team lead by Richard Thorsell, Managing Partner and
Chief Investment Officer of Thorsell since 1992.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in common
stocks. At least 65% of the Portfolio's assets will be invested in common stocks
of issuers with, at the time of purchase, total market capitalizations of less
than $1 billion; at least one-third of the Portfolio's assets will be invested
in common stocks of companies with total market capitalizations of $550 million
or less at the time of purchase. In selecting investments for the Portfolio, the
Adviser seeks small capitalization growth companies that it believes are
undervalued in the marketplace. These companies typically are under-followed by
investment firms and undervalued relative to their growth prospects. The
Portfolio may also invest in companies that offer the possibility of
accelerating earnings growth due to internal changes such as new product
introductions, synergistic acquisitions or distribution channels or external
changes affecting the marketplace for the company's products and services. Such
external factors can be demographic, regulatory, legislative, technological,
social or economic.
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
<PAGE>
Common Stocks. A principal risk of investing in the Portfolio is
associated with common stock investments. In general, stock values fluctuate in
response to activities specific to the company as well as general market,
economic and political conditions. Stock prices can fluctuate widely in response
to these factors.
Small & Medium Capitalization Companies. The Portfolio's investments in
smaller and medium-sized companies carry more risk than investments in larger
companies. While some of the Portfolio's holdings in these companies may be
listed on a national securities exchange, such securities are more likely to be
traded in the over-the-counter market. The low market liquidity of these
securities may have an adverse impact on the Portfolio's ability to sell certain
securities at favorable prices and may also make it difficult for the Portfolio
to obtain market quotations based on actual trades, for purposes of valuing its
securities. Investing in lesser-known, smaller and medium capitalization
companies involves greater risk of volatility of the Portfolio's net asset value
than is customarily associated with larger, more established companies. Often
smaller and medium capitalization companies and the industries in which they are
focused are still evolving and, while this may offer better growth potential
than larger, more established companies, it also may make them more sensitive to
changing market conditions.
Other Risks. The performance of the Portfolio also will depend on
whether the Adviser is successful in pursuing the Portfolio's investment
strategy. In addition, the Portfolio is subject to other risks from its
permissible investments. For information about these risks, see the "Additional
Risk Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
<PAGE>
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
- -------------------
** Class B shares of the Portfolio commenced operations on January 4,
1999. The returns shown in the chart are for Class I shares of the
Portfolio which are offered in a separate prospectus. Class I and Class
B shares are invested in the same portfolio of securities. The returns
for Class B shares would differ from those for Class I only to the
extent that the Classes have different expenses.
During the periods shown in the bar chart, the highest return for a calendar
quarter was 22.6% (quarter ended September 30, 1997) and the lowest return for a
calendar quarter was -28.4% (quarter ended September 30, 1998).
Year-to-date total return as of September 30, 1999 was 4.4%.
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average
annual returns of the Portfolio's
Class I Shares with those of a broad
measure of market performance over
time, as well as with an index of
funds with similar investment
objectives. The Portfolio's returns
assume you sold the Class I Shares at
the end of each period.
Average Annual Total Returns (as of December 31, 1998)
-----------------------------------------------------------------------------
------------------------------------ ----------------- ----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
------------------------------------ ----------------- ----------------------
------------------------------------ ----------------- ----------------------
Small Capitalization Portfolio
-18.6% 8.7%
------------------------------------ ----------------- ----------------------
------------------------------------ ----------------- ----------------------
Russell 2000 Index 1/
-2.6% 13.7%
------------------------------------ ----------------- ----------------------
------------------------------------ ----------------- ----------------------
Morningstar Small Value Average2/ -7.2% 14.6%
------------------------------------ ----------------- ----------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
Investment Objective
The Portfolio seeks long-term capital appreciation.
The Adviser
The Portfolio is advised by Friends Ivory & Sime, Inc. The Portfolio is
managed by a management team led by Julie Dent, Director of Global Equities at
Friends Ivory & Sime plc who has been overseeing the management of the Portfolio
since January 31, 1997. Ms. Dent joined Friends Ivory & Sime in 1986 and, as a
member of the Asset Allocation Committee, is responsible for asset allocation
and overseeing the management of global and international accounts for U.S. and
Japanese clients. Individual stocks are selected by the regional Equity Teams,
which operate on a sectoral basis. Debbie Clarke is the European team leader;
Rowan Chaplin is the Japan team leader; and Mearns Nimmo is the Pacific Rim team
leader.
Principal Investment Strategy
The Portfolio will normally invest at least 80% of its assets in the
equity securities of companies located outside of the United States. Equity
securities consist of common and preferred stock and other securities such as
depositary receipts, bonds, rights and warrants that are convertible into common
stock. Under normal market conditions, at least 65% of the Portfolio's assets
will be invested in securities of issuers located in at least three foreign
countries, including countries with developing and emerging economies. The
Portfolio expects that its investments in foreign issuers will generally take
the form of depositary receipts. These are dollar denominated receipts which
represent and may be converted into the underlying foreign security. Depositary
receipts are publicly traded on exchanges or over-the-counter in the United
States. In deciding which securities to buy, hold or sell, the Adviser considers
economic developments, industry prospects and other factors such as an issuer's
competitive position or potential earnings.
<PAGE>
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
Foreign Securities. A principal risk of investing in the Portfolio is
associated with foreign stock investments. In general, stock values fluctuate in
response to activities specific to the company as well as general market,
economic and political conditions. Stock prices can fluctuate widely in response
to these factors.
The Portfolio's investments in foreign securities (including depositary
receipts) involve risks in addition to the risks associated with domestic
securities. One additional risk is currency risk. While the price of Portfolio
shares is quoted in U.S. dollars, the Portfolio generally converts U.S. dollars
to a foreign market's local currency to purchase a security in that market. If
the value of that local currency falls relative to the U.S. dollar, the U.S.
dollar value of the foreign security will decrease. This is true even if the
foreign security's local price remains unchanged.
Foreign securities also have risks related to economic and political
developments abroad, including expropriations, confiscatory taxation, exchange
control regulation, limitations on the use or transfer of Portfolio assets and
any effects of foreign social, economic or political instability. In particular,
adverse political or economic developments in a geographic region or a
particular country in which the Portfolio invests could cause a substantial
decline in the value of its portfolio securities. Foreign companies, in general,
are not subject to the regulatory requirements of U.S. companies and, as such,
there may be less publicly available information about these companies.
Moreover, foreign accounting, auditing and financial reporting standards
generally are different from those applicable to U.S. companies. Finally, in the
event of a default of any foreign debt obligations, it may be more difficult for
the Portfolio to obtain or enforce a judgment against the issuers of the
securities.
<PAGE>
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their U.S.
counterparts. In addition, differences in clearance and settlement procedures in
foreign markets may cause delays in settlements of the Portfolio's trades
effected in those markets. Delays in purchasing securities may result in the
Portfolio losing investment opportunities. The inability to dispose of foreign
securities due to settlement delays could result in losses to the Portfolio due
to subsequent declines in the value of the securities. Issuers of the foreign
security represented by a depositary receipt may not be obligated to disclose
material information in the United States.
Many European countries have adopted or are in the process of adopting
a single European currency, referred to as the "euro." The long-term
consequences of the euro conversion for foreign exchange rates, interest rates
and the value of European securities that the Portfolio may purchase are
unclear. The consequences may adversely affect the value and/or increase the
volatility of securities held by the Portfolio.
The Portfolio may invest in foreign securities issued by companies
located in developing or emerging countries. Compared to the United States and
other developed countries, developing or emerging countries may have relatively
unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities. Prices of these securities tend
to be especially volatile and, in the past, securities in these countries have
been characterized by greater potential loss (as well as gain) than securities
of companies located in developed countries.
The Portfolio may invest in foreign small capitalization securities.
Investing in lesser-known, smaller capitalized companies may involve greater
risk of volatility of the Portfolio's share price than is customarily associated
with investing in larger, more established companies. There is typically less
publicly available information concerning smaller companies than for larger,
more established companies. Some small companies have limited product lines,
distribution channels and financial and managerial resources and tend to
concentrate on fewer geographical markets than do larger companies. Also,
because smaller companies normally have fewer shares outstanding than larger
companies and trade less frequently, it may be more difficult for the Portfolio
to buy and sell significant amounts of shares without an unfavorable impact on
prevailing market prices.
<PAGE>
Other Risks. The performance of the Portfolio also will depend on
whether the Adviser is successful in pursuing the Portfolio's investment
strategy. In addition, the Portfolio is subject to other risks from its
permissible investments. For information about these risks, see the "Additional
Risk Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
- -------------------
** Class B shares of the Portfolio commenced operations on January 4,
1999. The returns shown in the chart are for Class I shares of the
Portfolio which are offered in a separate prospectus. Class I and Class
B shares are invested in the same portfolio of securities. The returns
for Class B shares would differ from those for Class I only to the
extent that the Classes have different expenses.
During the periods shown in the bar chart, the highest return for a calendar
quarter was 15.1% (quarter ended June 30, 1997) and the lowest return for a
calendar quarter was -16.1% (quarter ended September 30, 1998).
Year-to-date total return as of September 30, 1999 was 9.9%.
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average
annual returns of the Portfolio's
Class I Shares with those of a broad
measure of market performance over
time. The Portfolio's returns assume
you sold the Class I Shares at the
end of each period.
Average Annual Total Returns (as of December 31, 1998)
---------------------------------------------------------------------------
------------------------------------- -------------- ----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
------------------------------------- -------------- ----------------------
------------------------------------- -------------- ----------------------
International Equity Portfolio 13.2% 5.3%
------------------------------------- -------------- ----------------------
------------------------------------- -------------- ----------------------
Morgan Stanley EAFE Index (U.S.
Dollars)1/ 20.0% 7.7%
-
------------------------------------- -------------- ----------------------
---------------------------------------------------------------------------
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. This Index
does not include fees and expenses,
and investors may not invest in the
Index directly. The Gross Domestic
Product (GDP) version of the Index is
used above.
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
SUMMARY OF TRUST EXPENSES
Annual Portfolio Operating Expenses. The following table lists the costs and
expenses that an investor will incur as a shareholder of each of the
Portfolios based on operating expenses incurred during the fiscal period
ended August 31, 1999.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
U.S. Investment Large Large
Government Quality Municipal Capital- Capital- Small Intern-
Money Bond Bond zation zation Capital- ational
Market Portfolio Portfolio Value Growth zation Equity
Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
Shareholder Fees
Maximum Sales Charge on Purchases of None None None None None None None
Shares (as a % of offering price).....
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
Sales Charge on Reinvested Dividends
(as a None None None None None None None
% of offering price)..................
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
Maximum Contingent Deferred Sales Charge
(as a % of net asset value at the
time of 5% 5% 5% 5% 5% 5% 5%
purchase or sale, whichever is
less)(1)..................................
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
Exchange Fee............................ None None None None None None None
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
Annual Portfolio Operating Expenses
(Expenses that are deducted from
Portfolio assets as a percentage
of average net assets)
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
Management Fees......................
Distribution Expenses (Rule .475% .55% .55% .65% .65% .65% .75%
12b-1)(2)(3).............................. 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Other Expenses....................... .205% .18% .65% 1.73% 3.41% .53% 2.59%
-------- ------- ------- ------- ------ ------- --------
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
Total Annual Portfolio Operating 1.68% 1.73% 2.20% 3.38% 5.06% 2.18% 4.34%
Expenses(4) ............................
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
- ----------------------------------------------- ------------ ------------ ---------- ---------- ----------- --------- --------------
Fee Waiver (and/or Expense Reimbursement)...... --- --- --- (1.08%) (2.76%) --- (1.94%)
---- --- ----- --- ---- ---- - ------ --- --
Net Expenses................................... 1.68% 1.73% 2.20% 2.30% 2.30% 2.18% 2.40%
</TABLE>
<PAGE>
Management Fees, Other Expenses, Fee Waiver and/or Reimbursement, and Net
Expenses: Each Portfolio pays the Manager a fee for its services that is
computed daily and paid monthly at an annual rate ranging from .475% to .75% of
the value of the average daily net assets of the Portfolio. The fees of each
Adviser are paid by the Manager. The nature of the services provided to, and the
aggregate management fees paid by each Portfolio are described under "Investment
Management." Class B Shares commenced operation on January 1, 1999. The
Portfolios benefit from expense offset arrangements with the Trust's custodian
bank where uninvested cash balances earn credits that reduce monthly fees. The
amount of the expense offset for each respective Portfolio was as follows: U.S.
Government Money Market, 0%; Investment Quality Bond, 0.06%; Municipal Bond, 0%;
Large Capitalization Value, 0.06%; Large Capitalization Growth, 0.01%; Small
Capitalization, 0%; and International Equity, 0%. Under applicable SEC
regulations, the amount by which Portfolio expenses are reduced by an expense
offset arrangement is required to added to "Other Expenses." "Other Expenses"
also include fees for shareholder services, administration, custodial fees,
legal and accounting fees, printing costs, registration fees, the costs of
regulatory compliance, a Portfolio's allocated portion of the costs associated
with maintaining the Trust's legal existence and the costs involved in the
Trust's communications with shareholders. The Trust and the Manager have entered
into an Excess Expense Agreement (the "Expense Agreement") effective January 1,
1999. In connection with the Expense Agreement, the Manager is currently waiving
its management fees and/or assuming certain other operating expenses of the
Portfolios in order to maintain the expense ratios of each class of the
Portfolios at or below predetermined levels (each an "Expense Cap"). Under the
terms of the Expense Agreement, expenses borne by the Manager are subject to
reimbursement by the Portfolios up to five years from the date the fee or
expense was incurred, but no reimbursement payment will be made by a Portfolio
if it would result in the Portfolio exceeding its Expense Cap. The following are
the Expense Caps for each of the Portfolios: U.S. Government Money Market,
2.125%; Investment Quality Bond, 2.20%; Municipal Bond, 2.20%; Large
Capitalization Value, 2.30%; Large Capitalization Growth, 2.30%; Small
Capitalization, 2.30%; and International Equity, 2.40. The Expense Agreement can
be terminated by either party, without penalty, upon 60 days prior notice. For
the period ended August 31, 1999, a reimbursement payment of $9,358 was made by
the Small Capitalization Portfolio to the Manager. No reimbursement payments
were made by the other Portfolios to the Manager under the terms of the Expense
Agreement.
(1) The Contingent Deferred Sales Charge is scaled down to 1.00% during the
sixth year, reaching zero thereafter.
(2) The 12b-1 Fee is accrued daily and payable monthly, at the annual rate of
1% of the average net assets of Class B shares. Up to 0.25% of the average
daily net assets may be paid directly to the Manager for support services.
A portion of the fee payable pursuant to the Plan, equal to 0.25% of the
average daily net assets, is currently characterized as a service fee. A
service fee is a payment made for personal service and/or maintenance of
shareholder accounts.
(3) Upon conversion of Class B shares to Class I shares, such shares will not
be subject to a 12b-1 Fee. No sales charge is imposed at the time of
conversion of Class B shares to Class I shares (see "Shareholder
Information--Contingent Deferred Sales Charge").
(4) "Total Annual Portfolio Operating Expenses," as shown above, are based upon
the sum of Management Fees, 12b-1 Fees and "Other Expenses."
<PAGE>
Example
This example is intended to help you compare the cost of investing in the
Portfolios with the cost of investing in other mutual funds.
This example shows what expenses you could pay over time. This example assumes
that you invest $10,000 in the Portfolio, your investment has a 5% return each
year, and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, the table below shows your costs at the end
of each period based on these assumptions.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- -If You SOLD Your Shares:
- ---------------------------------------------- -------------------- --------------- ----------------- ----------------- ------------
U.S.
Government Investment Municipal Large Large Small International
Money Quality Bond Capitalization Capitalization Capitalization Equity
Market Bond Portfolio Value Growth Portfolio Portfolio
Portfolio Portfolio Portfolio Portfolio
- --------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- -------------
- --------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- -------------
1 year... $ 676 $ 682 $ 731 $ 742 $ 742 $ 729 $ 752
- --------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- -------------
- --------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- -------------
3 years.. 947 962 1,112 1,143 1,143 1,105 1,175
- --------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- -------------
- --------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- -------------
5 years.. 1,141 1,168 1,419 1,472 1,472 1,408 1,524
- --------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- -------------
- --------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- -------------
10 years. 1,864 1,917 2,349 2,410 2,384 2,359 2,564
- --------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- -------------
- --------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- -------------
- -If You HELD Your Shares:
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------- -------------------- --------------- ----------------- ----------------- ------------
- ---------- -------------------- --------------- ----------------- ----------------- ------------------------------------------------
- ---------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- ------------
1 year.. $ 176 $ 182 $231 $ 242 $ 242 $ 229 $ 252
- ---------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- ------------
- ---------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- ------------
3 years. 547 562 712 743 743 705 775
- ---------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- ------------
- ---------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- ------------
5 years. 941 968 1,219 1,272 1,272 1,208 1,324
- ---------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- ------------
- ---------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- ------------
10 years 1,864 1,917 2,349 2,410 2,384 2,359 2,564
- ---------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- ------------
- ---------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- ------------
- ---------- -------------------- --------------- ----------------- ----------------- ----------------- ----------------- ------------
</TABLE>
<PAGE>
ADDITIONAL INVESTMENT STRATEGY INFORMATION
This section provides additional information relating to each Portfolio's
principal strategies.
Defensive Investing. The Portfolios are intended primarily as vehicles
for the implementation of a long term investment program utilizing asset
allocation strategies rendered through investment advisory programs that are
based on an evaluation of an investor's investment objectives and risk
tolerance. Because these asset allocation strategies are designed to spread
investment risk across the various segments of the securities markets through
investment in a number of Portfolios, each individual Portfolio generally
intends to be substantially fully invested in accordance with its investment
objectives and policies during most market conditions. Although the Adviser of a
Portfolio may, upon the concurrence of the Manager, take a temporary defensive
position during adverse market conditions, it can be expected that a defensive
posture will be adopted less frequently than would be by other mutual funds.
This policy may impede an Adviser's ability to protect a Portfolio's capital
during declines in the particular segment of the market to which the Portfolio's
assets are committed.
Forward Currency Contracts. A Portfolio's investments also may include
forward currency contracts, which involve the purchase or sale of a specific
amount of foreign currency at the current price with delivery at a specified
future date. A Portfolio may use these contracts to hedge against adverse price
movements in its portfolio securities or securities it may purchase and the
currencies in which they are determined or to gain exposure to currencies
underlying various securities or financial instruments.
Investment Policies. The percentage limitations relating to the
composition of a Portfolio referenced in the discussion of a Portfolio apply at
the time a Portfolio acquires an investment and refer to the Portfolio's net
assets, unless otherwise noted. Subsequent percentage changes that result from
market fluctuations will not require a Portfolio to sell any Portfolio security.
A Portfolio may change its principal investment strategies without shareholder
approval; however you would be notified of any change.
<PAGE>
Portfolio Turnover. Except for U.S. Government Money Market Portfolio, each
Portfolio's turnover rate is not expected to exceed the following respective
percentages annually under normal circumstances:
Investment Quality Bond Portfolio 50%
Municipal Bond Portfolio 30%
Large Capitalization Value Portfolio 50%
Large Capitalization Growth Portfolio 50%
Small Capitalization Portfolio 100%
International Equity Portfolio 60%
- ------------------------------------------------ --------------
A high turnover rate will increase a Portfolio's brokerage costs. It may also
increase a Portfolio's capital gains, which are passed along to Portfolio
shareholders as distributions. This, in turn, may increase your tax liability as
a Portfolio shareholder. See the sections on "Dividend and Distributions" and
"Tax Consequences."
<PAGE>
ADDITIONAL RISK INFORMATION
This section provides additional information relating to the principal risks of
investing in the Portfolios.
Year 2000. Each Portfolio could be adversely affected if the computer systems
necessary for the efficient operation of the Manager, the Adviser, the Trust's
other service providers and the markets and corporate and governmental issuers
in which the Portfolios invest, do not properly process and calculate
date-related information from and after January 1, 2000.
In addition, it is possible that the markets for securities in which the
Portfolios invest have been detrimentally affected by computer failures
throughout the financial services industry beginning January 1, 2000. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. Corporate and governmental data processing errors also may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Portfolios' investments may be adversely affected.
Moreover, issuers in emerging markets may have greater year 2000-related
problems.
* * *
The risks set forth below are applicable to a Portfolio only to the extent the
Portfolio invests in the investment described.
<PAGE>
Junk Bonds. A Portfolio's investments in securities rated lower than investment
grade or if unrated of comparable quality as determined by the Adviser (commonly
known as "junk bonds") pose significant risks. The prices of junk bonds are
likely to be more sensitive to adverse economic changes or individual corporate
developments than higher rated securities. During an economic downturn or
substantial period of rising interest rates, junk bond issuers and, in
particular, highly leveraged issuers may experience financial stress that would
adversely affect their ability to service their principal and interest payment
obligations, to meet their projected business goals or to obtain additional
financing. In the event of a default, the Portfolio may incur additional
expenses to seek recovery. The secondary market for junk bonds may be less
liquid than the markets for higher quality securities and, as such, may have an
adverse effect on the market prices of certain securities. The illiquidity of
the market may also adversely affect the ability of the Trust's Trustees to
arrive at a fair value for certain junk bonds at certain times and could make it
difficult for the Portfolios to sell certain securities. In addition, periods of
economic uncertainty and change probably would result in increased volatility of
market prices of high yield securities and a corresponding volatility in a
Portfolio's net asset value.
Securities Rated in the Lowest Investment Grade Category. Investments in the
fixed-income securities rated in the lowest investment grade category by Moody's
or S&P may have speculative characteristics and therefore changes in economic or
other circumstances are more likely to weaken their capacity to make principal
and interest payments than would be the case with investments in securities with
higher credit ratings.
Options and Futures. If a Portfolio invests in options and/or futures, its
participation in these markets would subject the Portfolio to certain risks. The
Adviser's predictions of movements in the direction of the stock, bond, stock
index, currency or interest rate markets may be inaccurate, and the adverse
consequences to the Portfolio (e.g., a reduction in the Portfolio's net asset
value or a reduction in the amount of income available for distribution) may
leave the Portfolio in a worse position than if these strategies were not used.
Other risks inherent in the use of options and futures include, for example, the
possible imperfect correlation between the price of options and futures
contracts and movements in the prices of the securities being hedged, and the
possible absence of a liquid secondary market for any particular instrument.
Certain options may be over-the-counter options, which are options negotiated
with dealers; there is no secondary market for these investments.
Forward Currency Contracts. A Portfolio's participation in forward currency
contracts also involves risks. If the Adviser employs a strategy that does not
correlate well with the Portfolio's investments or the currencies in which the
investments are denominated, currency contracts could result in a loss. The
contracts also may increase the Portfolio's volatility and may involve a
significant risk.
<PAGE>
INVESTMENT MANAGER
Saratoga Capital Management serves as the Trust's Manager. The Manager,
subject to the review and approval of the Board of Trustees of the Trust,
selects Advisers for each Portfolio and supervises and monitors the performance
of each Adviser.
The Manager may, subject to the approval of the Trustees, replace
investment advisers or amend investment advisory agreements without shareholder
approval whenever the Manager and the Trustees believe such action will benefit
a Portfolio and its shareholders. The Manager compensates each Adviser out of
its management fee.
The total amount of investment management fees payable by each
Portfolio to the Manager may not be changed without shareholder approval.
- ------------------------------------------------------------------
Portfolio Manager's Fee
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
U.S. Government Money Market Portfolio.......... .475%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Investment Quality Bond Portfolio............... .55%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Municipal Bond Portfolio........................ .55%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Large Capitalization Value Portfolio............ .65%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Large Capitalization Growth Portfolio........... .65%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Small Capitalization Portfolio.................. .65%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
International Equity Portfolio.................. .75%
- ------------------------------------------------------------------
The Manager is located at 1501 Franklin Avenue, Mineola, New York
11501-4803. Saratoga Capital Management is a Delaware general partnership which
is owned by certain executives of Saratoga Capital Management and by Mr. Ronald
J. Goguen, whose address is Major Drilling Group International Inc., 111 St.
George Street, Suite 200, Moncton, New Brunswick, Canada E1C177, Mr. John
Schiavi, whose address is Schiavi Enterprises, 985 Main Street, Oxford, Maine
04270, and Mr. Thomas Browne, whose address is Pontil PTY Limited, 14 Jannali
Road, Dubbo, NSW Australia 2830.
<PAGE>
ADVISERS
The following set forth certain information about each of the Advisers:
OpCap Advisors ("OpCap"), a registered investment adviser, located at
1345 Avenue of the Americas, New York, NY 10105, serves as Adviser to the
Municipal Bond Portfolio and the Large Capitalization Value Portfolio. OpCap is
a majority owned subsidiary of Oppenheimer Capital, a registered investment
adviser, founded in 1968. Oppenheimer Capital is an indirect wholly owned
subsidiary of PIMCO Advisors, L.P. ("PIMCO"), a registered investment adviser.
On October 31, 1999, PIMCO, its two general partners, certain of their
affiliates, Allianz of America, Inc. ("Allianz") and certain other parties
entered into an agreement pursuant to which Allianz will acquire majority
ownership of PIMCO. Upon completion of the transaction, which is expected to be
by the end of the first quarter of 2000, PIMCO and its subsidiaries, including
OpCap, will be controlled by Allianz. Allianz is a holding company that owns
several insurance and financial service companies and is a subsidiary of Allianz
AG, the world's second largest insurance company as measured by premium income.
As of August 31, 1999, Oppenheimer Capital and its subsidiary OpCap had assets
under management of approximately $58.4 billion.
Fox Asset Management, Inc. ("Fox"), a registered investment adviser,
serves as Adviser to the Investment Quality Bond Portfolio. Fox was formed in
1985. Fox is owned by its current employees, with a controlling interest held by
J. Peter Skirkanich, President, Managing Director and Chairman of Fox's
Investment Committee. Fox is located at 44 Sycamore Avenue, Little Silver, NJ
07739. As of August 31, 1999, assets under management by Fox were approximately
$1.8 billion.
Harris Brettal Sullivan & Smith, L.L.C. ("Harris Bretall"), a
registered investment adviser, serves as Adviser to the Large Capitalization
Growth Portfolio. The firm's predecessor, Harris Bretall Sullivan & Smith, Inc.,
was founded in 1971. Value Asset Management, Inc., a holding company owned by
BancBoston Ventures, Inc., is the majority owner. Located at One Post Street,
San Francisco, CA 94104, the firm managed assets of approximately $4.5 billion
as of June 30, 1999.
<PAGE>
Thorsell, Parker Partners, Inc. ("Thorsell"), a registered investment
adviser serves as Adviser to the Small Capitalization Portfolio. The firm is
located at 265 Post Road West, Westport, Connecticut 06880. Thorsell is owned by
its current employees with a controlling interest (approximately 70%) held by
Richard L. Thorsell. As of August 31, 1999, Thorsell had approximately $250
million of assets under management.
Sterling Capital Management Company ("Sterling"), a registered
investment adviser, is the Adviser to the U.S. Government Money Market
Portfolio. Sterling is a North Carolina corporation formed in 1970 and located
at One First Union Center, 301 S. College Street, Suite 3200, Charlotte, NC
28202. Sterling is a wholly-owned subsidiary of United Asset Management
Corporation and provides investment management services to corporations, pension
and profit-sharing plans, trusts, estates and other institutions and
individuals. As of August 31, 1999, Sterling had approximately $3.3 billion in
assets under management. Since 1982, Sterling has been involved with the
distribution of the North Carolina Capital Management Trust, a money market
mutual fund offered exclusively to public units in the state, the first such
fund to be registered with the Securities and Exchange Commission. As of August
31, 1999, the asset value of this fund was approximately $2.9 billion.
Friends Ivory & Sime, Inc. ("FIS"), a registered investment adviser, is
the Adviser to the International Equity Portfolio and, in connection therewith,
has entered into a sub-investment advisory agreement with Friends Ivory & Sime
plc of London, England. Pursuant to such sub-investment advisory agreement,
Friends Ivory & Sime plc performs investment advisory and portfolio transaction
services for the Portfolio. While Friends Ivory & Sime plc is responsible for
the day-to-day management of the Portfolio's assets, FIS reviews investment
performance, policies and guidelines, facilitates communication between Friends
Ivory & Sime plc and the Manager and maintains certain books and records.
FIS (formerly Ivory & Sime International, Inc.) was organized in 1978,
and as of February, 1998 is a wholly-owned subsidiary of Friends Ivory & Sime
plc. FIS offers clients in the United States the services of Friends Ivory &
Sime plc in global securities markets. Friends Ivory & Sime plc is a subsidiary
of Friends Provident Group. Friends Provident was founded in 1832, and is a
mutual life assurance company registered in England. As of August 31, 1999, the
firm and its affiliates managed approximately $53.3 billion of global equity
investments. FIS is located at One World Trade Center, Suite 2101, New York, NY
10048, and Friends Ivory & Sime plc is located at Princes Court, 7 Princes
Street, London, England EC2R8AQ.
<PAGE>
ADMINISTRATION
State Street Bank and Trust Company, located at One Heritage Drive,
North Quincy, Massachusetts 02171, is the custodian of the assets of the Trust,
and calculates the net asset value of the shares of each Portfolio and creates
and maintains the Trust's required financial records.
Funds Distributor, Inc. provides administrative services and manages
the administrative affairs of the Trust.
<PAGE>
SHAREHOLDER INFORMATION
PRICING PORTFOLIO SHARES
The price of shares of each Portfolio called "net asset value," is
based on the value of the Portfolio's investments.
The net asset value per share of each Portfolio is determined once
daily at the close of trading on the New York Stock Exchange ("NYSE") (currently
4:00 p.m. Eastern Standard Time) on each day that the NYSE is open.
Shares will not be priced on days that the NYSE is closed.
The value of each Portfolio's portfolio securities is based on the
securities' market price when available. When a market price is not readily
available, including circumstances under which an Adviser determines that a
security's market price is not accurate, a portfolio security is valued at its
fair value, as determined under procedures established by the Trust's Board of
Trustees. In these cases, the Portfolio's net asset value will reflect certain
portfolio securities' fair value rather than their market price.
All securities held by the U.S. Government Money Market Portfolio and
debt securities with remaining maturities of sixty days or less at the time of
purchase are valued at amortized cost. The amortized cost valuation method
involves valuing a debt obligation in reference to its cost rather than market
forces.
PURCHASE OF SHARES
Purchase of shares of a Portfolio must be made through a dealer having
a sales agreement with Funds Distributor, Inc., the Trust's general distributor
(the "Distributor"), or directly through the Distributor. The purchase price is
the net asset value per share next determined after receipt of an order by the
Distributor.
<PAGE>
The Trust is designed to help investors to implement an asset allocation
strategy to meet their individual needs as well as select individual investments
within each asset category among the myriad choices available. The Trust offers
several Classes of shares to investors with different fees and expenses designed
to provide them with the flexibility of selecting an investment best suited to
their needs.
The Trust makes available assistance to help certain investors identify
their risk tolerance and investment objectives through use of an investor
questionnaire, and to select an appropriate model allocation of assets among the
Portfolios. As further assistance, the Trust makes available to certain
investors the option of automatic reallocation or rebalancing of their selected
model. The Trust also provides, on a periodic basis, a report to the investor
containing an analysis and evaluation of the investor's account.
CONTINGENT DEFERRED SALES CHARGE
Shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
invested in the Trust. A CDSC, however, will be imposed on most shares redeemed
within six years after purchase. The CDSC will be imposed on any redemption of
shares if after such redemption the aggregate current value of an account with
the Trust falls below the aggregate amount of the investor's purchase payments
for shares made during the six years preceding the redemption. In addition,
shares are subject to an annual 12b-1 fee of 1.0% of the average daily net
assets.
Shares of the Trust which are held for six years or more after purchase
will not be subject to any CDSC upon redemption. Shares redeemed earlier than
six years after purchase may, however, be subject to a CDSC which will be a
percentage of the dollar amount of shares redeemed and will be assessed on an
amount equal to the lesser of the current market value or the cost of the shares
being redeemed. The size of this percentage will depend upon how long the shares
have been held, as set forth in the following table:
- ------------------------------------- --------------------------------
Year Since
Purchase CDSC as a Percentage
Payment Made of Amount Redeemed
- ------------------------------------- --------------------------------
- ------------------------------------- --------------------------------
First................................ 5.0%
- ------------------------------------- --------------------------------
- ------------------------------------- --------------------------------
Second............................... 4.0%
- ------------------------------------- --------------------------------
- ------------------------------------- --------------------------------
Third................................ 4.0%
- ------------------------------------- --------------------------------
- ------------------------------------- --------------------------------
Fourth............................... 3.0%
- ------------------------------------- --------------------------------
- ------------------------------------- --------------------------------
Fifth................................ 2.0%
- ------------------------------------- --------------------------------
- ------------------------------------- --------------------------------
Sixth................................ 1.0%
- ------------------------------------- --------------------------------
- ------------------------------------- --------------------------------
Seventh and thereafter............... None
- ------------------------------------- --------------------------------
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years prior to the redemption; and (iii) the current net asset
value of shares purchased through reinvestment of dividends or distributions.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii), and (iii) above (in that order) are redeemed
first.
In addition, the CDSC, if otherwise applicable, will be waived in the
case of:
(1) redemptions of shares held at the time a shareholder dies or
becomes disabled, only if the shares are:(a) registered either
in the name of an individual shareholder (not a trust), or in
the names of such shareholder and his or her spouse as joint
tenants with right of survivorship; or (b) held in a qualified
corporate or self-employed retirement plan, Individual
Retirement Account ("IRA") or Custodial Account under Section
403(b)(7) of the Internal Revenue Code ("403(b) Custodial
Account"), provided in either case that the redemption is
requested within one year of the death or initial
determination of disability;
(2) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a
qualified corporate or self-employed retirement plan following
retirement (or, in the case of a "key employee" of a "top
heavy" plan, following attainment of age 59 1/2); (b)
distributions from an IRA or 403(b) Custodial Account
following attainment of age 70 1/2; or (c) a tax-free return
of an excess contribution to an IRA;
(3) certain redemptions pursuant to the Portfolio's Systematic
Withdrawal Plan (see "Redemption of Shares--Systematic
Withdrawal Plan").
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to engage
in gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of an IRA, 403(b) Custodial Account or
retirement plan assets to a successor custodian or trustee. All waivers will be
granted only following receipt by the Distributor of written confirmation of the
shareholder's entitlement.
Conversion to Class I Shares. Class B shares will convert automatically
to Class I shares, based on the relative net asset values of the shares of the
two Classes on the conversion date, which will be approximately eight (8) years
after the date of the original purchase, or if acquired through an exchange or a
series of exchanges, from the date the original shares were purchased. The
conversion of shares will take place in the month following the eighth
anniversary of the purchase. There will also be converted at that time such
proportion of shares acquired through automatic reinvestment of dividends and
distributions owned by the shareholder as the total number of his or her shares
converting at the time bears to the total number of outstanding shares purchased
and owned by the shareholder.
Currently, the Class I share conversion is not a taxable event, the
conversion feature may be canceled if it is deemed a taxable event in the future
by the Internal Revenue Service.
PLAN OF DISTRIBUTION
<PAGE>
The Portfolios have adopted a Plan of Distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940 with respect to the sale and
distribution of shares of the Portfolios. The Plan provides that each Portfolio
will pay the Distributor or other entities a fee, which is accrued daily and
paid monthly, at the annual rate of 1.0% of the average net assets. Up to 0.25%
of average daily net assets may be paid directly to the Manager for support
services. The fee is treated by each Portfolio as an expense in the year it is
accrued. Because the fee is paid out of each Portfolio's assets on an ongoing
basis, over time the fee may increase the costs of your investment and may cost
you more than paying other types of service charges. A portion of the fee
payable pursuant to the Plan, equal to 0.25% of the average daily net assets, is
currently characterized as a service fee. A service fee is a payment made for
personal service and/or the maintenance of shareholder accounts.
Additional amounts paid under the Plan are paid to the Distributor or
other entities for services provided and the expenses borne by the Distributor
and others in the distribution of the shares, including the payment of
commissions for sales of the shares and incentive compensation to and expenses
of Dealers and others who engage in or support distribution of shares or who
service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Portfolios' shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor or other entities may utilize fees paid
pursuant to the Plan to compensate Dealers or other entities for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.
Continuous Offering. For Class B shares of the Trust, the minimum
initial investment in the Trust is $10,000 and the minimum investment in any
individual Portfolio (other than the U.S. Government Money Market Portfolio) is
$250; there is no minimum investment for the U.S. Government Money Market
Portfolio. For employees and relatives of: the Manager, firms distributing
shares of the Trust, and the Trust service providers and their affiliates, the
minimum initial investment is $1,000 with no individual Portfolio minimum. There
is no minimum initial investment for employee benefit plans, associations, and
individual retirement accounts. The minimum subsequent investment in the Trust
is $100 and there is no minimum subsequent investment for any Portfolio. The
Trust reserves the right at any time to vary the initial and subsequent
investment minimums.
The Trust offers an Automatic Investment Plan under which purchase
orders of $100 or more may be placed periodically in the Trust. The purchase
price is paid automatically from cash held in the shareholder's designated
account. For further information regarding the Automatic Investment Plan,
shareholders should contact the Trust at 800-807-FUND (800-807-3863).
<PAGE>
The sale of shares will be suspended during any period when the
determination of net asset value is suspended and may be suspended by the Board
of Trustees whenever the Board judges it to be in the best interest of the Trust
to do so. The Distributor in its sole discretion, may accept or reject any
purchase order.
The Distributor will from time to time provide compensation to dealers
in connection with sales of shares of the Trust including financial assistance
to dealers in connection with conferences, sales or training programs for their
employees, seminars for the public and advertising campaigns.
REDEMPTION OF SHARES
Shares of a Portfolio may be redeemed on any day that the Portfolio
calculates its net asset value. Redemption requests received in proper form
prior to the close of regular trading on the NYSE will be effected at the net
asset value per share determined on that day less the amount of any applicable
CDSC. Redemption requests received after the close of regular trading on the
NYSE will be effected at the net asset value next determined less the CDSC. A
Portfolio is required to transmit redemption proceeds for credit to the
shareholder's account within seven days after receipt of a redemption request
Redemption of shares purchased by check will not be effected until the check
clears, which may take up to 15 days from the purchase date.
Redemption requests may be given to a dealer having a selling agreement
with the Distributor (who is responsible for transmitting them to the Trust's
Transfer Agent) or directly to the Transfer Agent, if the shareholder purchased
shares directly from the Distributor. In order to be effective, certain
redemption requests of a shareholder may require the submission of documents
commonly required to assure the safety of a particular account.
The Trust may suspend redemption procedures and postpone redemption
payment during any period when the NYSE is closed other than for customary
weekend or holiday closing or when the SEC has determined an emergency exists or
has otherwise permitted such suspension or postponement.
<PAGE>
Certain requests require a signature guarantee. To protect you and the
Trust from fraud, certain transactions and redemption requests must be in
writing and must include a signature guarantee in the following situations
(there may be other situations also requiring a signature guarantee in the
discretion of the Trust or Transfer Agent):
1. Re-registration of the account.
2. Changing bank wiring instructions on the account.
3. Name change on the account.
4. Setting up/changing systematic withdrawal plan to a secondary address.
5. Redemptions greater than $25,000.
6. Any redemption check that is made payable to someone other than the
shareholder(s).
7. Any redemption check that is being mailed to a different address than
the address of record.
8. Your account registration has changed within the last 30
days.
You should be able to obtain a signature guarantee from a bank or trust
company, credit union, broker-dealer, securities exchange or association,
clearing agency or savings association, as defined by federal law.
<PAGE>
Systematic Withdrawal Plan. A systematic withdrawal plan (the
"Withdrawal Plan") is available for shareholders. Any Portfolio from which
redemptions will be made pursuant to the Plan will be referred to as a "SWP
Portfolio". The Withdrawal Plan provides for monthly, quarterly, semi-annual or
annual payments in any amount not less than $25, or in any whole percentage of
the value of the SWP Portfolio's shares, on an annualized basis. Any applicable
CDSC will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase
of Shares"), except that the CDSC, if any, will be waived on redemptions under
the Withdrawal Plan of up to 12% annually of the value of each SWP Portfolio
account, based on the Share values next determined after the shareholder
establishes the Withdrawal Plan. Redemptions for which this CDSC waiver policy
applies may be in amounts up to 1% per month, 3% per quarter, 6% semi-annually
or 12% annually. Under this CDSC waiver policy, amounts withdrawn each period
will be paid by first redeeming shares not subject to a CDSC because the shares
were purchased by the reinvestment of dividends or capital gains distributions,
the CDSC period has elapsed or some other waiver of the CDSC applies. If shares
subject to a CDSC must be redeemed, shares held for the longest period of time
will be redeemed first followed by shares held the next longest period of time
until shares held the shortest period of time are redeemed. Any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed from
his or her account so that the proceeds (net of any applicable CDSC) to the
shareholder will be the designated monthly, quarterly, semi-annual or annual
amount.
A shareholder may suspend or terminate participation in the Withdrawal
Plan at any time. A shareholder who has suspended participation may resume
payments under the Withdrawal Plan, without requiring a new determination of the
account value for the 12% CDSC waiver. The Withdrawal Plan may be terminated or
revised at any time by the Portfolios.
The addition of a new SWP Portfolio will not change the account value
for the 12% CDSC waiver for the SWP Portfolios already participating in the
Withdrawal Plan.
Withdrawal Plan payments should not be considered dividends, yields or
income. If periodic Withdrawal Plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted. Each withdrawal constitutes a
redemption of shares and any gain or loss realized must be recognized for
federal income tax purposes. Shareholders should contact their dealer
representative or the Manager for further information about the Withdrawal Plan.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Portfolios in the same Class from which such shares were redeemed
or repurchased, at net asset value next determined after a reinstatement request
(made in writing to and approved by the Manager), together with the proceeds, is
received by the Transfer Agent and receive a pro-rata credit for any CDSC paid
in connection with such redemption or repurchase.
<PAGE>
Involuntary Redemptions. Due to the relatively high cost of maintaining
small accounts, the Trust may redeem an account having a current value of $7,500
or less as a result of redemptions, but not as a result of a fluctuation in a
Portfolio's net asset value after the shareholder has been given at least 30
days in which to increase the account balance to more than that amount.
Involuntary redemptions may result in the liquidation of Portfolio holdings at a
time when the value of those holdings is lower than the investor's cost of the
investment or may result in the realization of taxable capital gains. No CDSC
will be imposed on any involuntary redemption.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. The Trust may in the
future offer an exchange feature involving shares of an unaffiliated Fund group
subject to receipt of appropriate regulatory relief.
Exchange Privilege. Shares of a Portfolio may be exchanged without
payment of any exchange fee for shares of another Portfolio of the same Class at
their respective net asset values.
An exchange of shares is treated for federal income tax purposes as a
redemption (sale) of shares given in exchange by the shareholder, and an
exchanging shareholder may, therefore, realize a taxable gain or loss in
connection with the exchange. The exchange privilege is available to
shareholders residing in any state in which Portfolio shares being acquired may
be legally sold.
The Manager reserves the right to reject any exchange request and the
exchange privilege may be modified or terminated upon notice to shareholders in
accordance with applicable rules adopted by the Securities and Exchange
Commission.
With regard to redemptions and exchanges made by telephone, the
Distributor and the Trust's Transfer Agent will request personal or other
identifying information to confirm that the instructions received from
shareholders or their account representatives are genuine. Calls may be
recorded. If our lines are busy or you are otherwise unable to reach us by
phone, you may wish to ask your investment representative for assistance or send
us written instructions, as described elsewhere in this prospectus. For your
protection, we may delay a transaction or not implement one if we are not
reasonably satisfied that the instructions are genuine. If this occurs, we will
not be liable for any loss. The Distributor and the Transfer Agent also will not
be liable for any losses if they follow instructions by phone that they
reasonably believe are genuine or if an investor is unable to execute a
transaction by phone.
<PAGE>
Because excessive trading (including short-term "market timing" trading
can limit a Portfolio's performance, each Portfolio may refuse any exchange
orders (1) if they appear to be market-timing transactions involving significant
portions of a Portfolio's assets or (2) from any shareholder account if the
shareholder or his or her broker-dealer has been advised that previous use of
the exchange privilege is considered excessive. Accounts under common ownership
or control, including those with the same taxpayer ID number and those
administered so as to redeem or purchase shares based upon certain predetermined
market indicators, will be considered one account for this purpose.
DIVIDENDS AND DISTRIBUTIONS
Net investment income (i.e., income other than long and short term
capital gains) and net realized long and short term capital gains will be
determined separately for each Portfolio. Dividends derived from net investment
income and distributions of net realized long and short term capital gains paid
by a Portfolio to a shareholder will be automatically reinvested (at current net
asset value) in additional shares of that Portfolio (which will be deposited in
the shareholder's account) unless the shareholder instructs the Trust, in
writing, to pay all dividends and distributions in cash. Dividends attributable
to the net investment income of the U.S. Government Money Market Portfolio, the
Municipal Bond Portfolio and the Investment Quality Bond Portfolio will be
declared daily and paid monthly. Shareholders of those Portfolios receive
dividends from the day following the purchase up to an including the date of
redemption. Dividends attributable to the net investment income of the remaining
Portfolios are declared and paid annually. Distributions of any net realized
long term and short term capital gains earned by a Portfolio will be made
annually. Shares acquired by dividend and distribution reinvestment will not be
subject to any CDSC and will be eligible for conversion on a pro rata basis.
TAX CONSEQUENCES
The following tax information in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in the Trust.
<PAGE>
Taxes on Distributions. Your distributions are normally subject to
federal and state income tax when they are paid, whether you take them in cash
or reinvest them in shares. A distribution also may be subject to local income
tax. Any income dividend distributions and any short-term capital gain
distributions are taxable to you as ordinary income. Any long-term capital gain
distributions are taxable as long-term capital gains, no matter how long you
have owned shares in the Trust.
With respect to the Municipal Bond Portfolio, distributions designated
as "exempt - interest dividends" generally will be exempt from regular federal
income tax. However, income exempt from regular federal income tax may be
subject to state or local tax. In addition, income derived from certain
municipal securities may be subject to the federal "alternative minimum tax."
Certain tax-exempt securities whose proceeds are used to finance private,
for-profit organizations are subject to this special tax system that ensures
that individuals pay at least some federal taxes. Although interest on these
securities is generally exempt from federal income tax, some taxpayers who have
many tax deductions or exemptions nevertheless may have to pay tax on the
income.
You will be sent annually a statement (IRS Form 1099-DIV) showing the
taxable distributions paid to you in the previous year. The statement provides
information on your dividends and capital gains for tax purposes.
Taxes on Sales. Your sale of Portfolio shares normally is subject to
federal and state income tax and may result in a taxable gain or loss to you. A
sale also may be subject to local income tax. Your exchange of Portfolio shares
for shares of another Portfolio is treated for tax purposes like a sale of your
original Portfolio shares and a purchase of your new shares. Thus, the exchange
may, like a sale, result in a taxable gain or loss to you and will give you a
new tax basis for your new shares.
When you open your Portfolio account, you should provide your social
security or tax identification number on your investment application. By
providing this information, you can avoid being subject to a federal backup
withholding tax of 31% on taxable distributions and redemption proceeds. Any
withheld amount would be sent to the IRS as an advance tax payment.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
Portfolio's financial performance for the life of each Portfolio. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in each respective Portfolio (assuming reinvestment of all
dividends and distributions).
This information has been audited by Ernst & Young LLP, Independent
Auditors whose report, along with the financial statements for each Portfolio is
included in the annual report, which is available upon request.
<PAGE>
16841857.2 122899 2225E 99558777
-[PG NUMBER]-
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
- ------------------------------------ ----------- -------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS RATIOS
--------------------------------------------------------------------- -----------------------------
Ratio
Distributions Ratio of Net
Net to of Net Investment
Realized Dividends Shareholders Operating Income
Net Asset And to from Net Net Net Expenses (Loss)
Value, Unrealized Total Shareholders Realized Asset Assets to to
Beginning Net Investment Gain(Loss) from Net Gains Value, End of Average Average Portfolio
of Income on Investment Investment on End of Total Period Net Net Turnover
Period (Loss) Investments Operations Income Investments Period Return* (000's)Assets(2) Assets(2) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Large Capitalization Value Portfolio (Class B)
- ------------------------------------ ----------- ------------- ------------- ------------ ------------- ------------- --------- ----
- ------------------------------------ ----------- ------------- ------------- ------------ ------------- ------------- --------- ----
January 4, 1999 (1) to
August 31, 1999 $20.21 $( 0.02) $0.31 $ 0.29 $ - $ - $ 20.50 1.43% $172 1.72%(2) (0.53%)(2) 67%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) During the fiscal year ended August 31, 1999, 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 2.21% and 1.02% respectively, for
the year ended August 31, 1999
- --------------------------------------------------------------------------------
Large Capitalization Growth Portfolio (Class B)
- --------------------------------------------------------------------------------
- ------------------------------------ ----------- ------------- ------------- ------------ ------------- ------------- --------- ----
January 4, 1999 (1) to
August 31, 1999 $24.74 $ ( 0.04) $ 2.05 $ 2.01 $ - $ - $ 26.75 8.12% $204 1.19%(2) (0.73%)(2) 39%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) During the fiscal year ended August 31, 1999, 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 3.31% and (2.86%) respectively, for
the year ended August 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio (Class B)
- ------------------------------------------------------------------------------------------------------------------------------------
January 4, 1999 (1) to
August 31, 1999 $ 9.33 $(0.02) $ 0.73 $ 0.71 $ - $ - $ 10.04 7.61% $73 1.42%(2) (1.02%)(2) 32%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) During the fiscal year ended August 31, 1999, 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 1.43% and (1.02%) respectively, for
the year ended August 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Portfolio (Class B)
- ------------------------------------------------------------------------------------------------------------------------------------
January 4, 1999 (1) to
August 31, 1999 $ 12.29 $(0.02) $ 0.82 $ 0.80 $ - $ - $ 13.09 6.51% $68 2.16%(2) (0.77%)(2) 46%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) During the fiscal year ended August 31, 1999, 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 2.84% and (1.45%) respectively, for
the year ended August 31, 1999
- --------------------------------------------------------------------------------
U.S. Government Money Market Portfolio (Class B)
- ------------------------------------------------------------------------------------------------------------------------------------
January 4, 1999 (1)
to August 31, 1999 $1.000 $0.022 $ - $0.022 $(0.022) $ - $ 1.000 1.94% $70 1.06%(2) 1.82%(2) N/A
- ------------------------------------------------------------------------------------------------------------------------------------
(1) During the fiscal year ended August 31, 1999, 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 1.10% and 1.86% respectively, for
the year ended August 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Quality Bond Portfolio (Class B)
- ------------------------------------------------------------------------------------------------------------------------------------
January 4, 1999 (1) to
August 31, 1999 $ 10.29 $0.28 $(0.41) $(0.13) $(0.28) $ - $9.88 (1.32%) $64 1.07%(2) 2.23%(2) 62%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) During the fiscal year ended August 31, 1999, 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 1.13% and 2.29% respectively, for
the year ended August 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Bond Portfolio (Class B)
- ------------------------------------------------------------------------------------------------------------------------------------
January 4, 1999 (1) to
August 31, 1999 $10.66 $0.25 $(0.66) $(0.41) $(0.25) $ - $ 10.00 (4.00%) $8 1.24%(2) 1.76%(2) 23%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) During the fiscal year ended August 31, 1999, 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 1.96% respectively, for
the year ended August 31, 1999
(1) Commencement of offering.
(2) Not Annualized.
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
</TABLE>
<PAGE>
-[PG NUMBER]-
[Back Cover]
Additional information about each Portfolio's investments is available in
the Trust's Annual and Semi-Annual Reports to Shareholders. In the Trust's
Annual Report, you will find a discussion of the market conditions and
investment strategies that significantly affected each Portfolio's performance
during its last fiscal year. The Trust's Statement of Additional Information
also provides additional information about each Portfolio. The Statement of
Additional Information is incorporated herein by reference (legally is part of
this Prospectus). For a free copy of any of these documents, to request other
information about the Trust, or to make shareholder inquiries, please call:
(800) 807-FUND
You also may obtain information about the Trust by calling your financial
advisor or by visiting our Internet site at:
http://www.saratogacap.com
Information about the Trust (including the Statement of Additional
Information) can be viewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, DC. Information about the
Reference Room's operations may be obtained by calling the SEC at (202)
942-8090. Reports and other information about the Trust are available on the
EDGAR Database on the SEC's Internet site (www.sec.gov) and copies of this
information may be obtained, after paying a duplicating fee, by electronic
request at the following e-mail address: [email protected], or by writing the
Public Reference Section of the SEC, Washington, DC 20549-0102.
The Trust's Investment Company Act file number is 811-08542.
- --------
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. 1/ 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. The Lehman Index is an unmanaged index which does not include fees and
expenses. Investors may not invest directly in the Index. 2/ 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. 1/ 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. The Lehman Index is an unmanaged index which does not include fees and
expenses. Investors may not invest directly in the Index. 2/ 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. 1/ 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. The S&P/Barra Value Index does not include fees and expenses, and
investors may not invest directly in the Index. 2/ The Morningstar Large Value
Average, as of September 30, 1999, consisted of 600 mutual funds comprised of
large market capitalization stocks with the lowest combinations of
price-to-earnings and price-to-book scores. Investors may not invest in the
Average directly. 1/ 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. The S&P/Barra Growth Index does not include fees and
expenses, and investors may not invest directly in the Index. 2/ The Standard &
Poor's 500(R) Composite Stock Price Index 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 which does not include fees and
expenses, and includes the reinvestment of all dividends. Investors may not
invest in the Index directly. 3/ The Morningstar Large Growth Average, as of
September 30, 1999, consisted of 633 mutual funds comprised of large market
capitalization stocks with the highest combinations of price-to-earnings and
price-to-book scores. Investors may not invest in the Average directly. 1/ The
Russell 2000 Index is comprised of the 2,000 smallest U.S. domiciled publicly
traded common stocks which are included in 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
which does not include fees and expenses, and whose performance reflects
reinvested dividends. Investors may not invest in the Index directly. 2/ The
Morningstar Small Value Average, as of September 30, 1999, consisted of 230
mutual funds comprised of small market capitalization stocks with the lowest
combinations of price-to-earnings and price-to-book scores. Investors may not
invest in the Average directly.
SARATOGA ADVANTAGE TRUST
PROSPECTUS - CLASS C SHARES
[Front Cover]
Prospectus - January 1, 2000
The Saratoga Advantage Trust is a mutual fund company comprised of 7
separate mutual fund portfolios, each with its own distinctive investment
objectives and policies. The Portfolios are:
U.S. Government Money Market Portfolio Large Capitalization Value Portfolio
Investment Quality Bond Portfolio Large Capitalization Growth Portfolio
Municipal Bond Portfolio Small Capitalization Portfolio
International Equity Portfolio
The Portfolios are managed by Saratoga Capital Management (the
"Manager"). Each Portfolio is advised by an investment adviser selected and
supervised by the Manager.
The Trust is designed to help investors to implement an asset
allocation strategy to meet their individual needs as well as select individual
investments within each asset category among the myriad choices available. The
Trust makes available assistance to help certain investors identify their risk
tolerance and investment objectives through use of an investor questionnaire,
and to select an appropriate model allocation of assets among the Portfolios. As
further assistance, the Trust makes available to certain investors the option of
automatic reallocation or rebalancing of their selected model. The Trust also
provides, on a periodic basis, a report to the investor containing an analysis
and evaluation of the investor's account.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
16843104.2 122899 2227E 99558777
TABLE OF CONTENTS
THE PORTFOLIOS.....................................................1
U.S. GOVERNMENT MONEY MARKET PORTFOLIO....................1
INVESTMENT QUALITY BOND PORTFOLIO.........................5
MUNICIPAL BOND PORTFOLIO.................................10
LARGE CAPITALIZATION VALUE PORTFOLIO.....................15
LARGE CAPITALIZATION GROWTH PORTFOLIO....................19
SMALL CAPITALIZATION PORTFOLIO...........................22
INTERNATIONAL EQUITY PORTFOLIO...........................26
SUMMARY OF TRUST EXPENSES................................32
ADDITIONAL INVESTMENT STRATEGY INFORMATION...............35
ADDITIONAL RISK INFORMATION..............................37
INVESTMENT MANAGER.......................................40
ADVISERS 41
ADMINISTRATION...........................................43
SHAREHOLDER INFORMATION...........................................44
PRICING PORTFOLIO SHARES.................................44
PURCHASE OF SHARES.......................................44
REDEMPTION OF SHARES.....................................48
DIVIDENDS AND DISTRIBUTIONS..............................53
TAX CONSEQUENCES.........................................54
FINANCIAL HIGHLIGHTS.....................................56
<PAGE>
16843104.2 122899 2227E 99558777
THE PORTFOLIOS
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
Investment Objective
The U.S. Government Money Market Portfolio seeks to provide maximum
current income to the extent consistent with the maintenance of liquidity and
the preservation of capital.
The Adviser
The Portfolio is advised by Sterling Capital Management Company. All
investment decisions for the Portfolio are made by Sterling Capital's investment
committee.
Principal Investment Strategies
The Portfolio will invest in high quality, short-term U.S. Government
securities. The Adviser seeks to maintain the Portfolio's share price at $1.00.
The share price remaining stable at $1.00 means that the Portfolio would
preserve the principal value of your investment.
The U.S. Government securities that the Portfolio may purchase include:
o U.S. Treasury bills, notes and bonds, all of which
are direct obligations of the U.S. Government.
o Securities issued by agencies and instrumentalities
of the U.S. Government which are backed by the full
faith and credit of the United States. Among the
agencies and instrumentalities issuing these
obligations are the Government National Mortgage
Association and the Federal Housing Administration.
2
o Securities issued by agencies and instrumentalities
which are not backed by the full faith and credit of
the United States, but whose issuing agency or
instrumentality has the right to borrow from the U.S.
Treasury to meet its obligations. Among these
agencies and instrumentalities are the Federal
National Mortgage Association, the Federal Home Loan
Mortgage Corporation and the Federal Home Loan Bank.
o Securities issued by agencies and instrumentalities
which are backed solely by the credit of the issuing
agency or instrumentality. Among these agencies and
instrumentalities is the Federal Farm Credit System.
In addition, the Portfolio may invest in repurchase agreements with
respect to securities issued by the U.S. Government, its agencies and
instrumentalities.
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objectives.
Credit and Interest Rate Risks. A principal risk of investing in the
Portfolio is associated with its U.S. Government securities investments, which
are subject to two types of risks: credit risk and interest rate risk. Credit
risk refers to the possibility that the issuer of a security will be unable to
make interest payments and repay the principal on its debt. Interest rate risk,
another risk of debt securities, refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of interest
rates.
Credit risk is minimal with respect to the Portfolio's U.S. Government
securities investments. Repurchase agreements involve a greater degree of credit
risk. The Adviser, however, actively manages the Portfolio's assets to reduce
the risk of losing any principal investment as a result of credit or interest
rate risks. In addition, federal regulations require money market funds, such as
the Portfolio, to invest only in high quality debt obligations and short
maturities.
An investment in the Portfolio is not a bank deposit and is not insured
or guaranteed by the FDIC or any other government agency. Although the Portfolio
seeks to preserve the value of your investment at $1.00 per share, if it is
unable to do so, it is possible to lose money by investing in this Portfolio.
<PAGE>
- ----------------------
** Class C shares of the Portfolio commenced operations on January 4,
1999. The returns shown in the chart are for Class I shares of the
Portfolio which are offered in a separate prospectus. Class I and Class
C shares are invested in the same portfolio of securities. The returns
for Class C shares would differ from those for Class I only to the
extent that the Classes have different expenses.
3
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
During the periods shown in the bar chart, the highest return for a calendar
quarter was 1.5% (quarter ended June 30, 1995) and the lowest return for a
calendar quarter was 1.1% (quarter ended June 30, 1996). Year-to-date total
return as of September 30, 1999 was 3.0%.
<PAGE>
16843104.2 122899 2227E 99558777
[PG NUMBER]
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average
annual returns of the Portfolio's
Class I Shares with those of a broad
measure of market performance over
time, as well as with an index of
funds with similar investment
objectives. The Portfolio's returns
assume you sold the Class I Shares at
the end of each period.
Average Annual Total Returns (as of December 31, 1998)
---------------------------------------------------------------------------
--------------------------------- ----------------- -----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
--------------------------------- ----------------- -----------------------
--------------------------------- ----------------- -----------------------
U.S. Government Money Market
Portfolio 4.5% 4.7%
--------------------------------- ----------------- -----------------------
--------------------------------- ----------------- -----------------------
90 Day T-Bills 4.8% 5.1%
--------------------------------- ----------------- -----------------------
--------------------------------- ----------------- -----------------------
Lipper U.S. Treasury Money
Market Index1/ 4.8% 4.9%
-
--------------------------------- ----------------- -----------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
INVESTMENT QUALITY BOND PORTFOLIO
Investment Objective
The Investment Quality Bond Portfolio seeks current income and
reasonable stability of principal.
The Adviser
The Portfolio is advised by Fox Asset Management, Inc. The Portfolio is
managed by a management team lead by J. Peter Skirkanich, John Sampson, James
O'Mealia, and Doug Edler. Mr. Skirkanich is the President and Chief Investment
Officer of Fox and founded the firm in 1985. Mr. Sampson is a Managing Director
and joined the firm in 1998 from Pharos Management LLC, a consulting firm
specializing in fixed income investments. Mr. O'Mealia is a Managing Director of
Fox and joined the firm in 1998 from Sunnymeath Asset Management Inc., where he
was President. Mr. Edler is a Vice President of Fox; he joined Fox in 1999 from
J.P. Morgan & Co., Inc. where he managed that firm's proprietary fixed income
investments.
Principal Investment Strategies
The Portfolio will normally invest at least 65% of its assets in
investment grade fixed-income securities or in non-rated securities considered
by the Adviser to be of comparable quality. The Portfolio may also invest in
non-convertible fixed income preferred stock and mortgage pass-through
securities. In deciding which securities to buy, hold or sell, the Adviser
considers economic developments, interest rate trends and other factors such as
the issuer's creditworthiness. The average maturity of the securities held by
the Portfolio may range from three to ten years.
<PAGE>
Mortgage pass-through securities are mortgage-backed securities that
represent a participation interest in a pool of residential mortgage loans
originated by the U.S. government or private lenders such as banks. They differ
from conventional debt securities, which provide for periodic payment of
interest in fixed amounts and principal payments at maturity or on specified
call dates. Mortgage pass-through securities provide for monthly payments that
are a "pass-through" of the monthly interest principal payments made by the
individual borrowers on the pooled mortgage loans.
The Portfolio may invest in mortgage pass-through securities that are
issued or guaranteed by the Government National Mortgage Association, the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation. These securities are either direct obligations of the U.S.
Government, or the issuing agency/instrumentality has the right to borrow from
the U.S. Treasury to meet its obligations, although the Treasury is not legally
required to extend credit to the agency/instrumentality.
Private mortgage pass-through securities also can be Portfolio
investments. They are issued by private originators of and investors in mortgage
loans, including savings and loan associations and mortgage banks. Since private
mortgage pass-through securities typically are not guaranteed by an entity
having the credit status of a U.S. Government agency, the securities generally
are structured with one or more type of credit enhancement.
In addition, the Portfolio may invest up to 5% of its net assets in
fixed-income securities rated lower than investment grade, commonly known as
"junk bonds."
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
Fixed-Income Securities. Principal risks of investing in the Portfolio
are associated with its fixed-income investments. All fixed-income securities,
such as corporate bonds, are subject to two types of risk: credit risk and
interest rate risk. Credit risk refers to the possibility that the issuer of a
security will be unable to make interest payments and/or repay the principal on
its debt.
<PAGE>
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of interest
rates. When the general level of interest rates goes up, the prices of most
fixed-income securities go down. When the general level of interest rates goes
down, the prices of most fixed-income securities go up. (Zero coupon securities
are typically subject to greater price fluctuations than comparable securities
that pay current interest.) Long-term fixed income securities will rise and fall
in response to interest rate changes to a greater extent than short-term
securities.
Mortgage-Backed Securities. The Portfolio may invest in mortgage-backed
securities, such as mortgage pass-through securities, which have different risk
characteristics than traditional debt securities. Although the value of
fixed-income securities generally increases during periods of falling interest
rates and decreases during periods of rising interest rates, this is not always
the case with mortgage-backed securities. This is due to the fact that the
principal on underlying mortgages may be prepaid at any time as well as other
factors. Generally, prepayments will increase during a period of falling
interest rates and decrease during a period of rising interest rates. The rate
of prepayments also may be influenced by economic and other factors. Prepayment
risk includes the possibility that, as interest rates fall, securities with
stated interest rates may have the principal prepaid earlier than expected,
requiring the Portfolio to invest the proceeds at generally lower interest
rates.
Investments in mortgage-backed securities are made based upon, among
other things, expectations regarding the rate of prepayments on underlying
mortgage pools. Rates of prepayment, faster or slower than expected by the
Manager and/or Adviser, could reduce the Portfolio's yield, increase the
volatility of the Portfolio and/or cause a decline in net asset value. Certain
mortgage-backed securities may be more volatile and less liquid than other
traditional types of debt securities.
<PAGE>
16843104.2 122899 2227E 99558777
- -------------------
** Class C shares of the Portfolio commenced operations on January 4,
1999. The returns shown in the chart are for Class I shares of the
Portfolio which are offered in a separate prospectus. Class I and Class
C shares are invested in the same portfolio of securities. The returns
for Class C shares would differ from those for Class I only to the
extent that the Classes have different expenses.
[PG NUMBER]
Other Risks. The performance of the Portfolio also will depend on
whether the Adviser is successful in pursuing the Portfolio's investment
strategy. In addition, the Portfolio is subject to other risks from its
permissible investments including the risks associated with junk bonds. For more
information about these risks, see the "Additional Risk Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
During the periods shown in the bar chart, the highest return for a calendar
quarter was 4.0% (quarter ended June 30, 1995) and the lowest return for a
calendar quarter was -0.7% (quarter ended March 31, 1996). Year-to-date total
return as of September 30, 1999 was 1.0%.
<PAGE>
16843104.2 122899 2227E 99558777
[PG NUMBER]
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average
annual returns of the Portfolio's
Class I Shares with those of a broad
measure of market performance over
time, as well as with an index of
funds with similar investment
objectives. The Portfolio's returns
assume you sold The Class I Shares at
the end of each period.
Average Annual Total Returns (as of December 31, 1998)
---------------------------------------------------------------------------
--------------------------------- ---------------- ------------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
--------------------------------- ---------------- ------------------------
--------------------------------- ---------------- ------------------------
Investment Quality Bond
Portfolio 6.5% 6.2%
--------------------------------- ---------------- ------------------------
--------------------------------- ---------------- ------------------------
Lehman Intermediate
Government/Corporate Bond 8.4% 7.9%
Index2/
--------------------------------- ---------------- ------------------------
--------------------------------- ---------------- ------------------------
Lipper Short-Intermediate
Investment Grade Debt Funds 7.0% 7.0%
Index1/
-
--------------------------------- ---------------- ------------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
MUNICIPAL BOND PORTFOLIO
Investment Objective
The Municipal Bond Portfolio seeks a high level of interest income that
is excluded from federal income taxation to the extent consistent with prudent
investment management and the preservation of capital.
The Adviser
The Portfolio is advised by OpCap Advisors. It is managed by a
management team lead by Matthew Greenwald, Senior Vice President of Oppenheimer
Capital, the parent of OpCap Advisors. Mr. Greenwald has been a fixed income
portfolio manager and financial analyst for Oppenheimer Capital since 1989. From
1984-1989 he was a fixed income portfolio manager with PaineWebber's Mitchell
Hutchins Asset Management.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in
securities that pay interest exempt from federal income taxes. The Portfolio's
Adviser generally invests the Portfolio's assets in municipal obligations. There
are no maturity limitations on the Portfolio's securities. Municipal obligations
are bonds, notes or short-term commercial paper issued by state governments,
local governments, and their respective agencies. In pursuing the Portfolio's
investment objective, the Adviser has considerable leeway in deciding which
investments it buys, holds or sells on a day-to-day basis. The Portfolio will
invest primarily in municipal bonds rated within the four highest grades by
Moody's Investors Service Inc. ("Moody's"), Standard & Poor's Corporation
("S&P"), or Fitch IBCA, Inc. ("Fitch") or, if not rated, of comparable quality
in the opinion of the Adviser. The Portfolio may invest without limit in
municipal obligations that pay interest income subject to the "alternative
income tax" although it does not currently expect to invest more than 20% of its
total assets in such instruments. Some shareholders may have to pay tax on
distributions of this income.
<PAGE>
16843104.2 122899 2227E 99558777
[PG NUMBER]
Municipal bonds, notes and commercial paper are commonly classified as
either "general obligation" or "revenue." General obligation bonds, notes, and
commercial paper are secured by the issuer's faith and credit, as well as its
taxing power, for payment of principal and interest. Revenue bonds, notes and
commercial paper, however, are generally payable from a specific source of
income. They are issued to fund a wide variety of public and private projects in
sectors such as transportation, education and industrial development. Included
within the revenue category are participations in lease obligations. The
Portfolio's municipal obligation investments may include zero coupon securities,
which are purchased at a discount and make no interest payments until maturity.
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
Credit and Interest Rate Risks. Municipal obligations, like other debt
securities, are subject to two types of risks:credit risk and interest rate
risk.
<PAGE>
Credit risk refers to the possibility that the issuer of a security
will be unable to make interest payments and/or repay the principal on its debt.
In the case of revenue bonds, notes or commercial paper, for example, the credit
risk is the possibility that the user fees from a project or other specified
revenue sources are insufficient to meet interest and/or principal payment
obligations. The issuers of private activity bonds, used to finance projects in
sectors such as industrial development and pollution control, also may be
negatively impacted by the general credit of the user of the project. Lease
obligations may have risks not normally associated with general obligation or
other revenue bonds. Certain lease obligations contain "non-appropriation"
clauses that provide that the governmental issuer has no obligation to make
future payments under the lease or contract unless money is appropriated for
such purposes by the appropriate legislative body on an annual or other periodic
basis. Consequently, continued lease payments on those lease obligations
containing "non-appropriation" clauses are dependent on future legislative
actions. If such legislative actions do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including
disposition of the property.
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of interest
rates. When the general level of interest rates goes up, the prices of most
fixed-income securities go down. When the general level of interest rates goes
down, the prices of most fixed-income securities go up. Zero coupon securities
are typically subject to greater price fluctuations than comparable securities
that pay current interest.
The Portfolio is not limited as to the maturities of the municipal
obligations in which it may invest. Thus, a rise in the general level of
interest rates may cause the price of its portfolio securities to fall
substantially.
Other Risks. The performance of the Portfolio also will depend on
whether the Adviser is successful in pursuing the Portfolio's investment
strategy. In addition, the Portfolio is subject to other risks from its
permissible investments. For information about these risks, see the "Additional
Risk Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
<PAGE>
- -------------------
** Class C shares of the Portfolio commenced operations on January 4,
1999. The returns shown in the chart are for Class I shares of the
Portfolio which are offered in a separate prospectus. Class I and Class
C shares are invested in the same portfolio of securities. The returns
for Class C shares would differ from those for Class I only to the
extent that the Classes have different expenses.
[PG NUMBER]
During the periods shown in the bar chart, the highest return for a calendar
quarter was 5.9% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was 0.0% (quarter ended December 31, 1998). Year-to-date total
return as of September 30, 1999 was -4.5%.
<PAGE>
16843104.2 122899 2227E 99558777
[PG NUMBER]
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average
annual returns of the Portfolio's
Class I Shares with those of a broad
measure of market performance over
time, as well as with an index of
funds with similar investment
objectives. The Portfolio's returns
assume you sold the Class I Shares at
the end of each period.
Average Annual Total Returns (as of December 31, 1998)
--------------------------------------------------------------------------
--------------------------------- ---------------- -----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
--------------------------------- ---------------- -----------------------
--------------------------------- ---------------- -----------------------
Municipal Bond Portfolio 5.4% 6.2%
--------------------------------- ---------------- -----------------------
--------------------------------- ---------------- -----------------------
Lehman Municipal Bond Index2/
6.5% 7.8%
--------------------------------- ---------------- -----------------------
--------------------------------- ---------------- -----------------------
Lipper General Municipal Debt
Funds Index1/ 5.6% 7.4%
-
--------------------------------- ---------------- -----------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
LARGE CAPITALIZATION VALUE PORTFOLIO
Investment Objective
The Large Capitalization Value Portfolio seeks total return consisting
of capital appreciation and dividend income.
The Adviser
The Portfolio is advised by OpCap Advisors. It is managed by a
portfolio team comprised of senior professionals of OpCap Advisors. One member
of the team, Frank LeCates, has primary supervisory authority over
implementation of the management team's purchase and sale recommendations. Mr.
LeCates is the Director of Research at Oppenheimer Capital, the parent of OpCo
Advisors. Mr. LeCates brings 28 years of investment experience to his current
position. Formerly with Donaldson, Lufkin & Jenrette for 18 years, he has served
as head of institutional equity sales, Director of Research and as a securities
analyst. Mr. LeCates graduated from Princeton University, earned an MBA at
Harvard Business School and is a CFA.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in a
diversified portfolio of common stocks and securities convertible into common
stocks. At least 65% of the Portfolio assets will be invested in common stocks
of issuers with total market capitalizations of $1 billion or greater at the
time of purchase. In determining which securities to buy, hold or sell, the
Adviser focuses its investment selection on highly liquid equity securities
that, in the Adviser's opinion, have above average price appreciation potential
at the time of purchase. In general, securities are characterized as having
above average dividend yields and below average price earnings ratios relative
to the stock market in general, as measured by the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500"). Other factors, such as earnings,
the issuer's ability to generate cash flow in excess of business needs and
sustain above average profitability, as well as industry outlook and market
share, are also considered by the Adviser.
In addition, the Portfolio may invest in stock index futures contracts
and options.
<PAGE>
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
Common Stocks. A principal risk of investing in the Portfolio is
associated with common stock investments. In general, stock values fluctuate in
response to activities specific to the company as well as general market,
economic and political conditions. Stock prices can fluctuate widely in response
to these factors.
Other Risks. The performance of the Portfolio also will depend on
whether the Adviser is successful in pursuing the Portfolio's investment
strategy. In addition, the Portfolio is subject to other risks from its
permissible investments including the risks associated with stock index futures
contracts and options. For information about these risks, see the "Additional
Risk Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
<PAGE>
16843104.2 122899 2227E 99558777
- -------------------
** Class C shares of the Portfolio commenced operations on January 4,
1999. The returns shown in the chart are for Class I shares of the
Portfolio which are offered in a separate prospectus. Class I and Class
C shares are invested in the same portfolio of securities. The returns
for Class C shares would differ from those for Class I only to the
extent that the Classes have different expenses.
[PG NUMBER]
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
During the periods shown in the bar chart, the highest return for a calendar
quarter was 14.9% (quarter ended December 31, 1998) and the lowest return for a
calendar quarter was -13.1% (quarter ended September 30, 1998). Year-to-date
total return as of September 30, 1999 was -0.9%.
<PAGE>
16843104.2 122899 2227E 99558777
[PG NUMBER]
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average
annual returns of the Portfolio's
Class I Shares with those of a broad
measure of market performance over
time, as well as with an index of
funds with similar investment
objectives. The Portfolio's returns
assume you sold the Class I Shares at
the end of each period.
Average Annual Total Returns (as of December 31, 1998)
---------------------------------------------------------------------------
---------------------------------- ---------------- -----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
---------------------------------- ---------------- -----------------------
---------------------------------- ---------------- -----------------------
Large Capitalization Value
Portfolio 11.8% 21.3%
---------------------------------- ---------------- -----------------------
---------------------------------- ---------------- -----------------------
S&P/Barra Value Index1/ 14.7% 22.2%
-
---------------------------------- ---------------- -----------------------
---------------------------------- ---------------- -----------------------
Morningstar Large Value
Average2/ 12.5% 19.8%
---------------------------------- ---------------- -----------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
LARGE CAPITALIZATION GROWTH PORTFOLIO
Investment Objective
The Large Capitalization Growth Portfolio seeks capital appreciation.
The Adviser
The Portfolio is advised by Harris Bretall Sullivan & Smith, L.L.C. Stock
selection for the Portfolio is made by the Strategy and Investment Committees of
Harris Bretall. The Portfolio is managed by a management team lead by Jack
Sullivan and Gordon Ceresino. Mr. Sullivan is a partner of Harris Bretall and
has been associated with the firm since 1981. Mr. Ceresino is a Partner of
Harris Bretall and has been associated with the firm since 1991.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in a
diversified portfolio of common stocks that, in the Adviser's opinion, are
characterized by earnings growth in excess of that of the S&P 500. The Portfolio
will also normally invest at least 65% of its assets in common stocks of issuers
with total market capitalizations of $3 billion or more. In deciding which
securities to buy, hold or sell, the Adviser evaluates factors believed to be
favorable to long-term capital appreciation, including specific financial
characteristics of the issuer such as historical earnings growth, sales growth,
profitability and return on equity. The Adviser also analyzes the issuer's
position within its industry as well as the quality and experience of the
issuer's management.
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
<PAGE>
16843104.2 122899 2227E 99558777
[PG NUMBER]
Common Stocks. A principal risk of investing in the Portfolio is
associated with common stock investments. In general, stock values fluctuate in
response to activities specific to the company as well as general market,
economic and political conditions. Stock prices can fluctuate widely in response
to these factors.
Other Risks. The performance of the Portfolio also will depend on
whether the Adviser is successful in pursuing the Portfolio's investment
strategy. In addition, the Portfolio is subject to other risks from its
permissible investments. For information about these risks, see the "Additional
Risk Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
During the periods shown in the bar chart, the highest return for a calendar
quarter was 34.3% (quarter ended December 31, 1998) and the lowest return for a
calendar quarter was -13.2% (quarter ended September 30, 1998).
Year-to-date total return as of September 30, 1999 was 7.2%.
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average
annual returns of the Portfolio's
Class I Shares with those of a broad
measure of market performance over
time, as well as with an index of
funds with similar investment
objectives. The Portfolio's returns
assume you sold the Class I Shares at
the end of each period.
Average Annual Total Returns (as of December 31, 1998)
----------------------------------------------------------------------------
------------------------------------ ---------------- ----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
------------------------------------ ---------------- ----------------------
------------------------------------ ---------------- ----------------------
Large Capitalization Growth
Portfolio 36.4% 25.1%
------------------------------------ ---------------- ----------------------
------------------------------------ ---------------- ----------------------
S&P/Barra Growth Index1/ 42.2% 31.7%
-
------------------------------------ ---------------- ----------------------
------------------------------------ ---------------- ----------------------
Morningstar Large Growth Average2/ 34.0% 24.6%
-
------------------------------------ ---------------- ----------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
SMALL CAPITALIZATION PORTFOLIO
<PAGE>
Investment Objective
The Small Capitalization Portfolio seeks maximum capital appreciation.
The Adviser
The Portfolio is advised by Thorsell, Parker Partners, Inc. It is
managed by a management team lead by Richard Thorsell, Managing Partner and
Chief Investment Officer of Thorsell since 1992.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in common
stocks. At least 65% of the Portfolio's assets will be invested in common stocks
of issuers with, at the time of purchase, total market capitalizations of less
than $1 billion; at least one-third of the Portfolio's assets will be invested
in common stocks of companies with total market capitalizations of $550 million
or less at the time of purchase. In deciding which securities to buy, hold or
sell for the Portfolio, the Adviser seeks small capitalization growth companies
that it believes are undervalued in the marketplace. These companies typically
are under-followed by investment firms and undervalued relative to their growth
prospects. The Portfolio may also invest in companies that offer the possibility
of accelerating earnings growth due to internal changes such as new product
introductions, synergistic acquisitions or distribution channels or external
changes affecting the marketplace for the company's products and services. Such
external factors can be demographic, regulatory, legislative, technological,
social or economic.
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
<PAGE>
Common Stocks. A principal risk of investing in the Portfolio is
associated with common stock investments. In general, stock values fluctuate in
response to activities specific to the company as well as general market,
economic and political conditions. Stock prices can fluctuate widely in response
to these factors.
Small & Medium Capitalization Companies. The Portfolio's investments in
smaller and medium-sized companies carry more risk than investments in larger
companies. While some of the Portfolio's holdings in these companies may be
listed on a national securities exchange, such securities are more likely to be
traded in the over-the-counter market. The low market liquidity of these
securities may have an adverse impact on the Portfolio's ability to sell certain
securities at favorable prices and may also make it difficult for the Portfolio
to obtain market quotations based on actual trades, for purposes of valuing its
securities. Investing in lesser-known, smaller and medium capitalization
companies involves greater risk of volatility of the Portfolio's net asset value
than is customarily associated with larger, more established companies. Often
smaller and medium capitalization companies and the industries in which they are
focused are still evolving and, while this may offer better growth potential
than larger, more established companies, it also may make them more sensitive to
changing market conditions.
Other Risks. The performance of the Portfolio also will depend on
whether the Adviser is successful in pursuing the Portfolio's investment
strategy. In addition, the Portfolio is subject to other risks from its
permissible investments. For information about these risks, see the "Additional
Risk Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
<PAGE>
16843104.2 122899 2227E 99558777
- -------------------
** Class C shares of the Portfolio commenced operations on January 4,
1999. The returns shown in the chart are for Class I shares of the
Portfolio which are offered in a separate prospectus. Class I and Class
C shares are invested in the same portfolio of securities. The returns
for Class C shares would differ from those for Class I only to the
extent that the Classes have different expenses.
[PG NUMBER]
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
During the periods shown in the bar chart, the highest return for a calendar
quarter was 21.5% (quarter ended September 30, 1997) and the lowest return for a
calendar quarter was -28.4% (quarter ended September 30, 1998). Year-to-date
total return as of September 30, 1999 was 4.4%.
<PAGE>
16843104.2 122899 2227E 99558777
[PG NUMBER]
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average
annual returns of the Portfolio's
Class I Shares with those of a broad
measure of market performance over
time, as well as with an index of
funds with similar investment
objectives. The Portfolio's returns
assume you sold the Class I Shares at
the end of each period.
Average Annual Total Returns (as of December 31, 1998)
- -----------------------------------------------------------------------------
- ------------------------------------ ----------------- ----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
- ------------------------------------ ----------------- ----------------------
- ------------------------------------ ----------------- ----------------------
Small Capitalization Portfolio
-18.6% 8.7%
- ------------------------------------ ----------------- ----------------------
- ------------------------------------ ----------------- ----------------------
Russell 2000 Index1/ -2.6% 13.7%
-
- ------------------------------------ ----------------- ----------------------
- ------------------------------------ ----------------- ----------------------
Morningstar Small Value Average2/ -7.2% 14.6%
- ------------------------------------ ----------------- ----------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
Investment Objective
The Portfolio seeks long-term capital appreciation.
The Adviser
The Portfolio is advised by Friends Ivory & Sime, Inc. The Portfolio is
managed by a management team led by Julie Dent, Director of Global Equities at
Friends Ivory & Sime plc who has been overseeing the management of the Portfolio
since January 31, 1997. Ms. Dent joined Friends Ivory & Sime in 1986 and, as a
member of the Asset Allocation Committee, is responsible for asset allocation
and overseeing the management of global and international accounts for U.S. and
Japanese clients. Individual stocks are selected by the regional Equity Teams,
which operate on a sectoral basis. Debbie Clarke is the European team leader;
Rowan Chaplin is the Japan team leader; and Mearns Nimmo is the Pacific Rim team
leader.
Principal Investment Strategy
The Portfolio will normally invest at least 80% of its assets in the
equity securities of companies located outside of the United States. Equity
securities consist of common and preferred stock and other securities such as
depositary receipts, bonds, rights and warrants that are convertible into common
stock. Under normal market conditions, at least 65% of the Portfolio's assets
will be invested in securities of issuers located in at least three foreign
countries, including countries with developing and emerging economies. The
Portfolio expects that its investments in foreign issuers will generally take
the form of depositary receipts. These are dollar denominated receipts which
represent and may be converted into the underlying foreign security. Depositary
receipts are publicly traded on exchanges or over-the-counter in the United
States. In deciding which securities to buy, hold or sell, the Adviser considers
economic developments, industry prospects and other factors such as an issuer's
competitive position or potential earnings.
<PAGE>
Principal Risks
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio share price will fluctuate with changes in the market
value of its portfolio securities. When you sell your Portfolio shares, they may
be worth less than what you paid for them and, accordingly, you can lose money
investing in this Portfolio.
Foreign Securities. A principal risk of investing in the Portfolio is
associated with foreign stock investments. In general, stock values fluctuate in
response to activities specific to the company as well as general market,
economic and political conditions. Stock prices can fluctuate widely in response
to these factors.
The Portfolio's investments in foreign securities (including depositary
receipts) involve risks in addition to the risks associated with domestic
securities. One additional risk is currency risk. While the price of Portfolio
shares is quoted in U.S. dollars, the Portfolio generally converts U.S. dollars
to a foreign market's local currency to purchase a security in that market. If
the value of that local currency falls relative to the U.S. dollar, the U.S.
dollar value of the foreign security will decrease. This is true even if the
foreign security's local price remains unchanged.
Foreign securities also have risks related to economic and political
developments abroad, including expropriations, confiscatory taxation, exchange
control regulation, limitations on the use or transfer of Portfolio assets and
any effects of foreign social, economic or political instability. In particular,
adverse political or economic developments in a geographic region or a
particular country in which the Portfolio invests could cause a substantial
decline in the value of its portfolio securities. Foreign companies, in general,
are not subject to the regulatory requirements of U.S. companies and, as such,
there may be less publicly available information about these companies.
Moreover, foreign accounting, auditing and financial reporting standards
generally are different from those applicable to U.S. companies. Finally, in the
event of a default of any foreign debt obligations, it may be more difficult for
the Portfolio to obtain or enforce a judgment against the issuers of the
securities.
<PAGE>
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their U.S.
counterparts. In addition, differences in clearance and settlement procedures in
foreign markets may cause delays in settlements of the Portfolio's trades
effected in those markets. Delays in purchasing securities may result in the
Portfolio losing investment opportunities. The inability to dispose of foreign
securities due to settlement delays could result in losses to the Portfolio due
to subsequent declines in the value of the securities. Issuers of the foreign
security represented by a depositary receipt may not be obligated to disclose
material information in the United States.
Many European countries have adopted or are in the process of adopting
a single European currency, referred to as the "euro." The long-term
consequences of the euro conversion for foreign exchange rates, interest rates
and the value of European securities that the Portfolio may purchase are
unclear. The consequences may adversely affect the value and/or increase the
volatility of securities held by the Portfolio.
The Portfolio may invest in foreign securities issued by companies
located in developing or emerging countries. Compared to the United States and
other developed countries, developing or emerging countries may have relatively
unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities. Prices of these securities tend
to be especially volatile and, in the past, securities in these countries have
been characterized by greater potential loss (as well as gain) than securities
of companies located in developed countries.
<PAGE>
The Portfolio may invest in foreign small capitalization securities.
Investing in lesser-known, smaller capitalized companies may involve greater
risk of volatility of the Portfolio's share price than is customarily associated
with investing in larger, more established companies. There is typically less
publicly available information concerning smaller companies than for larger,
more established companies. Some small companies have limited product lines,
distribution channels and financial and managerial resources and tend to
concentrate on fewer geographical markets than do larger companies. Also,
because smaller companies normally have fewer shares outstanding than larger
companies and trade less frequently, it may be more difficult for the Portfolio
to buy and sell significant amounts of shares without an unfavorable impact on
prevailing market prices.
Other Risks. The performance of the Portfolio also will depend on
whether the Adviser is successful in pursuing the Portfolio's investment
strategy. In addition, the Portfolio is subject to other risks from its
permissible investments. For information about these risks, see the "Additional
Risk Information" section.
Shares of the Portfolio are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
Past Performance
The bar chart and table below provide some indication of the risks of investing
in the Portfolio. The Portfolio's past performance does not indicate how the
Portfolio will perform in the future.
<PAGE>
- -------------------
** Class C shares of the Portfolio commenced operations on January 4,
1999. The returns shown in the chart are for Class I shares of the
Portfolio which are offered in a separate prospectus. Class I and Class
C shares are invested in the same portfolio of securities. The returns
for Class C shares would differ from those for Class I only to the
extent that the Classes have different expenses.
[PG NUMBER]
- --------------------------------------------------------------------------------
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This chart shows how the performance of the Portfolio's Class I shares has
varied from year to year over the life of the Portfolio.
- --------------------------------------------------------------------------------
During the periods shown in the bar chart, the highest return for a calendar
quarter was 15.1% (quarter ended June 30, 1997) and the lowest return for a
calendar quarter was -16.1% (quarter ended September 30, 1998). Year-to-date
total return as of September 30, 1999 was 9.9%.
<PAGE>
16843104.2 122899 2227E 99558777
[PG NUMBER]
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the average
annual returns of the Portfolio's
Class I Shares with those of a broad
measure of market performance over
time. The Portfolio's returns assume
you sold the Class I Shares at the
end of each period.
Average Annual Total Returns (as of December 31, 1998)
---------------------------------------------------------------------------
------------------------------------- -------------- ----------------------
Life of Portfolio
Past 1 Year (since 9/2/94)
------------------------------------- -------------- ----------------------
------------------------------------- -------------- ----------------------
International Equity Portfolio 13.2% 5.3%
------------------------------------- -------------- ----------------------
------------------------------------- -------------- ----------------------
Morgan Stanley EAFE Index (U.S.
Dollars)1/ 20.0% 7.7%
-
------------------------------------- -------------- ----------------------
Fees and Expenses
For a description of the fees and expenses that you may pay if you buy and hold
shares of the Portfolio, see the "Summary of Trust Expenses" section.
<PAGE>
SUMMARY OF TRUST EXPENSES
Annual Portfolio Operating Expenses. The following table lists the costs and
expenses that an investor will incur as a shareholder of each of the
Portfolios based on operating expenses incurred during the fiscal period
ended August 31, 1999.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------- ----------- ----------- -------------------- ----------- -------------------------
U.S. Investment Large Large
Government Quality Municipal Capital- Capital- Small Intern-
Money Bond Bond ization ization Capital- ational
Market Portfolio Portfolio Value Growth ization Equity
Portfolio Portfolio Portfolio Portfolio Portfolio
- ------------------------------------------------- ----------- ----------- ---------- ---------- ----------- --------- --------------
- ------------------------------------------------- ----------- ----------- ---------- ---------- ----------- --------- --------------
- ------------------------------------------------- ----------- ----------- ---------- ---------- ----------- --------- --------------
- ------------------------------------------------- ----------- ----------- ---------- ---------- ----------- --------- --------------
Shareholder Fees
Maximum Sales Charge on Purchases of None None None None None None None
Shares (as a % of offering price).....
- ------------------------------------------------- ----------- ----------- ----------- --------- ----------- --------- --------------
- ------------------------------------------------- ----------- ----------- ----------- --------- ----------- --------- --------------
Sales Charge on Reinvested Dividends
(as a None None None None None None None
% of offering price)..................
- ------------------------------------------------- ----------- ----------- ----------- --------- ----------- --------- --------------
- ------------------------------------------------- ----------- ----------- ----------- --------- ----------- --------- --------------
Maximum Contingent Deferred Sales Charge
(as a % of net asset value at the
time of 1% 1% 1% 1% 1% 1% 1%
purchase or sale, whichever is
less)(1)..................................
- ------------------------------------------------- ----------- ----------- ------------ -------- ----------- --------- --------------
- ------------------------------------------------- ----------- ----------- ------------ -------- ----------- --------- --------------
Exchange Fee............................ None None None None None None None
- ------------------------------------------------- ----------- ----------- ------------ -------- ----------- --------- --------------
- ------------------------------------------------- ----------- ----------- ------------ -------- ----------- --------- --------------
Annual Portfolio Operating Expenses (Expenses that are deducted
from Portfolio assets as a % of average net assets)
- ------------------------------------------------- ----------- ----------- ------------ -------- ----------- --------- --------------
- ------------------------------------------------- ----------- ----------- ------------ -------- ----------- --------- --------------
Management Fees...................... .475% .55% .55% .65% .65% .65% .75%
Distribution Expenses (Rule 12b-1)(2) 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Other Expenses....................... .445% .44% 1.23% .50% .40% .73% .22%
-------- ------- -------- ------- -------- -------- --------
- ------------------------------------------------- ----------- ----------- ------------- ------- ----------- --------- --------------
- ------------------------------------------------- ----------- ----------- ------------- ------- ----------- --------- --------------
- ------------------------------------------------- ----------- ----------- ------------- ------ ----------- -------------------------
- ------------------------------------------------- ----------- ----------- ------------- ------ ----------- -------------------------
Total Annual Portfolio Operating Expenses(3).... 1.92% 1.99% 2.78% 2.15% 2.05% 2.38% 1.97%
Fee Waiver (and/or Expense Reimbursement)....... --- --- (0.58%) --- --- (0.08%) ---
---- - --- ---- - ---------- --- ---- ------- - ---
Net Expenses.................................... 1.92% 1.99% 2.20% 2.15% 2.05% 2.30% 1.97%
- ------------------------------------------------- ----------- ----------- ------------- ------- ----------- --------- --------------
- --------------------------------------------------------------------------------------- ------- ---------- ------------------------
</TABLE>
<PAGE>
Management Fees, Other Expenses, Fee Waiver and/or Reimbursement, and Net
Expenses: Each Portfolio pays the Manager a fee for its services that is
computed daily and paid monthly at an annual rate ranging from .475% to .75% of
the value of the average daily net assets of the Portfolio. The fees of each
Adviser are paid by the Manager. The nature of the services provided to, and the
aggregate management fees paid by each Portfolio are described under "Investment
Management." Class C Shares commenced operation on January 4, 1999. The
Portfolios benefit from expense offset arrangements with the Trust's custodian
bank where uninvested cash balances earn credits that reduce monthly fees. The
amount of the expense offset for each respective Portfolio was as follows: U.S.
Government Money Market, 0%; Investment Quality Bond, 0.06%; Municipal Bond, 0%;
Large Capitalization Value, 0.06%; Large Capitalization Growth, 0.01%; Small
Capitalization, 0%; and International Equity, 0%. Under applicable SEC
regulations, the amount by which Portfolio expenses are reduced by an expense
offset arrangement is required to added to "Other Expenses." "Other Expenses"
also include fees for shareholder services, administration, custodial fees,
legal and accounting fees, printing costs, registration fees, the cost of
regulatory compliance, a Portfolio's allocated portion of the costs associated
with maintaining the Trust's legal existence and the costs involved in the
Trust's communications with shareholders. The Trust and the Manager have entered
into an Excess Expense Agreement (the "Expense Agreement") effective January 1,
1999. In connection with Expense Agreement, the Manager is currently waiving its
management fees and/or assuming certain other operating expenses of the
Portfolios in order to maintain the expense ratios of each class of the
Portfolios at or below predetermined levels (each an "Expense Cap"). Under the
terms of the Expense Agreement, expenses borne by the Manager are subject to
reimbursement by the Portfolios up to five years from the date the fee or
expense was incurred, but no reimbursement payment will be made by a Portfolio
if it would result in the Portfolio exceeding its Expense Cap. The following are
the Expense Caps for each of the Portfolios: U.S. Government Money Market,
2.125%; Investment Quality Bond, 2.20%; Municipal Bond, 2.20%; Large
Capitalization Value, 2.30%; Large Capitalization Growth, 2.30%; Small
Capitalization, 2.30%; and International Equity, 2.40%. The Expense Agreement
can be terminated by either party, without penalty, upon 60 days prior notice.
For the period ended August 31, 1999, a reimbursement payment of $9,358 was made
by the Small Capitalization Portfolio to the Manager. No reimbursement payments
were made by the other Portfolios to the Manager under the terms of the Expense
Agreement. (1) Only applicable to redemptions made within one year after
purchase (see "Contingent Deferred Sales Charge"). (2) The 12b-1 Fee is accrued
daily and payable monthly, at the annual rate of 1% of the average net assets of
Class C shares. Up to 0.25% of the average daily net assets may be paid
directly to the Manager for support services. A portion of the fee payable
pursuant to the Plan, equal to 0.25% of the average daily net assets, is
currently characterized as a service fee. A service fee is a payment made
for personal service and/or maintenance of shareholder accounts.
(3) "Total Annual Portfolio Operating Expenses," as shown above, are based upon
the sum of Management Fees, 12b-1 Fees and "Other Expenses."
<PAGE>
Example
This example is intended to help you compare the cost of investing in the
Portfolios with the cost of investing in other mutual funds. This example shows
what expenses you could pay over time. The example assumes that you invest
$10,000 in the Portfolio, your investment has a 5% return each year, and the
Portfolio's operating expenses remain the same. Although your actual costs may
be higher or lower, the table below shows your costs at the end of each period
based on these assumptions.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- -If You SOLD Your Shares:
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
U.S.
Government Investment Municipal Large Large Small International
Money Quality Bond Capitalization Capitalization Capitalization Equity
Market Bond Portfolio Value Growth Portfolio Portfolio
Portfolio Portfolio Portfolio Portfolio
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
1 year....... $ 302 $ 309 $ 331 $ 326 $ 315 $ 342 $ 307
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
3 years...... 623 645 712 696 664 743 639
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
5 years...... 1,070 1,107 1,219 1,192 1,139 1,272 1,097
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
10 years..... 2,309 2,386 2,611 2,557 2,450 2,716 2,364
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
- -If You HELD Your Shares:
1 year........ $ 202 $ 209 $ 231 $ 226 $ 215 $ 242 $ 207
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
3 years....... 623 645 712 696 664 743 639
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
5 years....... 1,070 1,107 1,219 1,192 1,139 1,272 1,097
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
10 years...... 2,309 2,386 2,611 2,557 2,450 2,716 2,364
- -------------- ------------- --------------- ----------------- ----------------- ----------------- ----------------- ---------------
- -------------------------------------------------------------------------------------------------------------------- ---------------
- -------------------------------------------------------------------------------------------------------------------- ---------------
</TABLE>
<PAGE>
ADDITIONAL INVESTMENT STRATEGY INFORMATION
This section provides additional information relating to each Portfolio's
principal strategies.
Defensive Investing. The Portfolios are intended primarily as vehicles
for the implementation of a long term investment program utilizing asset
allocation strategies rendered through investment advisory programs that are
based on an evaluation of an investor's investment objectives and risk
tolerance. Because these asset allocation strategies are designed to spread
investment risk across the various segments of the securities markets through
investment in a number of Portfolios, each individual Portfolio generally
intends to be substantially fully invested in accordance with its investment
objectives and policies during most market conditions. Although the Adviser of a
Portfolio may, upon the concurrence of the Manager, take a temporary defensive
position during adverse market conditions, it can be expected that a defensive
posture will be adopted less frequently than would be by other mutual funds.
This policy may impede an Adviser's ability to protect a Portfolio's capital
during declines in the particular segment of the market to which the Portfolio's
assets are committed.
Forward Currency Contracts. A Portfolio's investments also may include
forward currency contracts, which involve the purchase or sale of a specific
amount of foreign currency at the current price with delivery at a specified
future date. A Portfolio may use these contracts to hedge against adverse price
movements in its portfolio securities or securities it may purchase and the
currencies in which they are determined or to gain exposure to currencies
underlying various securities or financial instruments.
Investment Policies. The percentage limitations relating to the
composition of a Portfolio referenced in the discussion of a Portfolio apply at
the time a Portfolio acquires an investment and refer to the Portfolio's net
assets, unless otherwise noted. Subsequent percentage changes that result from
market fluctuations will not require a Portfolio to sell any Portfolio security.
A Portfolio may change its principal investment strategies without shareholder
approval; however you would be notified of any change.
<PAGE>
Portfolio Turnover. Except for U.S. Government Money Market Portfolio, each
Portfolio's turnover rate is not expected to exceed the following respective
percentages annually under normal circumstances:
Investment Quality Bond Portfolio 50%
Municipal Bond Portfolio 30%
Large Capitalization Value Portfolio 50%
Large Capitalization Growth Portfolio 50%
Small Capitalization Portfolio 100%
International Equity Portfolio 60%
- ---------------------------------------------- --------------
A high turnover rate will increase a Portfolio's brokerage costs. It may also
increase a Portfolio's capital gains, which are passed along to Portfolio
shareholders as distributions. This, in turn, may increase your tax liability as
a Portfolio shareholder. See the sections on "Dividend and Distributions" and
"Tax Consequences."
<PAGE>
ADDITIONAL RISK INFORMATION
This section provides additional information relating to the principal risks of
investing in the Portfolios.
Year 2000. Each Portfolio could be adversely affected if the computer systems
necessary for the efficient operation of the Manager, the Adviser, the Trust's
other service providers and the markets and corporate and governmental issuers
in which the Portfolios invest, do not properly process and calculate
date-related information from and after January 1, 2000.
In addition, it is possible that the markets for securities in which the
Portfolios invest have been detrimentally affected by computer failures
throughout the financial services industry beginning January 1, 2000. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. Corporate and governmental data processing errors also may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Portfolios' investments may be adversely affected.
Moreover, issuers in emerging markets may have greater year 2000-related
problems.
* * *
The risks set forth below are applicable to a Portfolio only to the extent the
Portfolio invests in the investment described.
<PAGE>
Junk Bonds. A Portfolio's investments in securities rated lower than investment
grade or if unrated of comparable quality as determined by the Adviser (commonly
known as "junk bonds") pose significant risks. The prices of junk bonds are
likely to be more sensitive to adverse economic changes or individual corporate
developments than higher rated securities. During an economic downturn or
substantial period of rising interest rates, junk bond issuers and, in
particular, highly leveraged issuers may experience financial stress that would
adversely affect their ability to service their principal and interest payment
obligations, to meet their projected business goals or to obtain additional
financing. In the event of a default, the Portfolio may incur additional
expenses to seek recovery. The secondary market for junk bonds may be less
liquid than the markets for higher quality securities and, as such, may have an
adverse effect on the market prices of certain securities. The illiquidity of
the market may also adversely affect the ability of the Trust's Trustees to
arrive at a fair value for certain junk bonds at certain times and could make it
difficult for the Portfolios to sell certain securities. In addition, periods of
economic uncertainty and change probably would result in increased volatility of
market prices of high yield securities and a corresponding volatility in a
Portfolio's net asset value.
Securities Rated in the Lowest Investment Grade Category. Investments in the
fixed-income securities rated in the lowest investment grade category by Moody's
or S&P may have speculative characteristics and therefore changes in economic or
other circumstances are more likely to weaken their capacity to make principal
and interest payments than would be the case with investments in securities with
higher credit ratings.
Options and Futures. If a Portfolio invests in options and/or futures, its
participation in these markets would subject the Portfolio to certain risks. The
Adviser's predictions of movements in the direction of the stock, bond, stock
index, currency or interest rate markets may be inaccurate, and the adverse
consequences to the Portfolio (e.g., a reduction in the Portfolio's net asset
value or a reduction in the amount of income available for distribution) may
leave the Portfolio in a worse position than if these strategies were not used.
Other risks inherent in the use of options and futures include, for example, the
possible imperfect correlation between the price of options and futures
contracts and movements in the prices of the securities being hedged, and the
possible absence of a liquid secondary market for any particular instrument.
Certain options may be over-the-counter options, which are options negotiated
with dealers; there is no secondary market for these investments.
<PAGE>
Forward Currency Contracts. A Portfolio's participation in forward currency
contracts also involves risks. If the Adviser employs a strategy that does not
correlate well with the Portfolio's investments or the currencies in which the
investments are denominated, currency contracts could result in a loss. The
contracts also may increase the Portfolio's volatility and may involve a
significant risk.
<PAGE>
INVESTMENT MANAGER
Saratoga Capital Management serves as the Trust's Manager. The Manager,
subject to the review and approval of the Board of Trustees of the Trust,
selects Advisers for each Portfolio and supervises and monitors the performance
of each Adviser.
The Manager may, subject to the approval of the Trustees, replace
investment advisers or amend investment advisory agreements without shareholder
approval whenever the Manager and the Trustees believe such action will benefit
a Portfolio and its shareholders. The Manager compensates each Adviser out of
its management fee.
The total amount of investment management fees payable by each
Portfolio to the Manager may not be changed without shareholder approval.
- -------------------------------------------------------------
Portfolio Manager's Fee
- -------------------------------------------------------------
- -------------------------------------------------------------
- -------------------------------------------------------------
- -------------------------------------------------------------
U.S. Government Money Market Portfolio...... .475%
- -------------------------------------------------------------
- -------------------------------------------------------------
Investment Quality Bond Portfolio........... .55%
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- -------------------------------------------------------------
Municipal Bond Portfolio.................... .55%
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- -------------------------------------------------------------
Large Capitalization Value Portfolio........ .65%
- -------------------------------------------------------------
- -------------------------------------------------------------
Large Capitalization Growth Portfolio....... .65%
- -------------------------------------------------------------
- -------------------------------------------------------------
Small Capitalization Portfolio.............. .65%
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International Equity Portfolio.............. .75%
- -------------------------------------------------------------
The Manager is located at 1501 Franklin Avenue, Mineola, New York
11501-4803. Saratoga Capital Management is a Delaware general partnership which
is owned by certain executives of Saratoga Capital Management and by Mr. Ronald
J. Goguen, whose address is Major Drilling Group International Inc., 111 St.
George Street, Suite 200, Moncton, New Brunswick, Canada E1C177, Mr. John
Schiavi, whose address is Schiavi Enterprises, 985 Main Street, Oxford, Maine
04270, and Mr. Thomas Browne, whose address is Pontil PTY Limited, 14 Jannali
Road, Dubbo, NSW Australia 2830.
<PAGE>
ADVISERS
The following set forth certain information about each of the Advisers:
OpCap Advisors ("OpCap"), a registered investment adviser, located at
1345 Avenue of the Americas, New York, NY 10105, serves as Adviser to the
Municipal Bond Portfolio and the Large Capitalization Value Portfolio. OpCap is
a majority owned subsidiary of Oppenheimer Capital, a registered investment
adviser, founded in 1968. Oppenheimer Capital is an indirect wholly owned
subsidiary of PIMCO Advisors, L.P. ("PIMCO"), a registered investment adviser.
On October 31, 1999, PIMCO, its two general partners, certain of their
affiliates, Allianz of America, Inc. ("Allianz") and certain other parties
entered into an agreement pursuant to which Allianz will acquire majority
ownership of PIMCO. Upon completion of the transaction, which is expected to be
by the end of the first quarter of 2000, PIMCO and its subsidiaries, including
OpCap, will be controlled by Allianz. Allianz is a holding company that owns
several insurance and financial service companies and is a subsidiary of Allianz
AG, the world's second largest insurance company as measured by premium income.
As of August 31, 1999, Oppenheimer Capital and its subsidiary OpCap had assets
under management of approximately $58.4 billion.
Fox Asset Management, Inc. ("Fox"), a registered investment adviser,
serves as Adviser to the Investment Quality Bond Portfolio. Fox was formed in
1985. Fox is owned by its current employees, with a controlling interest held by
J. Peter Skirkanich, President, Managing Director and Chairman of Fox's
Investment Committee. Fox is located at 44 Sycamore Avenue, Little Silver, NJ
07739. As of August 31, 1999, assets under management by Fox were approximately
$1.8 billion.
Harris Brettal Sullivan & Smith, L.L.C. ("Harris Bretall"), a
registered investment adviser, serves as Adviser to the Large Capitalization
Growth Portfolio. The firm's predecessor, Harris Bretall Sullivan & Smith, Inc.,
was founded in 1971. Value Asset Management, Inc., a holding company owned by
BancBoston Ventures, Inc., is the majority owner. Located at One Post Street,
San Francisco, CA 94104, the firm managed assets of approximately $4.5 billion
as of June 30, 1999.
<PAGE>
Thorsell, Parker Partners, Inc. ("Thorsell"), a registered investment
adviser serves as Adviser to the Small Capitalization Portfolio. The firm is
located at 265 Post Road West, Westport, Connecticut 06880. Thorsell is owned by
its current employees with a controlling interest (approximately 70%) held by
Richard L. Thorsell. As of August 31, 1999, Thorsell had approximately $250
million of assets under management.
Sterling Capital Management Company ("Sterling"), a registered
investment adviser, is the Adviser to the U.S. Government Money Market
Portfolio. Sterling is a North Carolina corporation formed in 1970 and located
at One First Union Center, 301 S. College Street, Suite 3200, Charlotte, NC
28202. Sterling is a wholly-owned subsidiary of United Asset Management
Corporation and provides investment management services to corporations, pension
and profit-sharing plans, trusts, estates and other institutions and
individuals. As of August 31, 1999, Sterling had approximately $3.3 billion in
assets under management. Since 1982, Sterling has been involved with the
distribution of the North Carolina Capital Management Trust, a money market
mutual fund offered exclusively to public units in the state, the first such
fund to be registered with the Securities and Exchange Commission. As of August
31, 1999, the asset value of this fund was approximately $2.9 billion.
Friends Ivory & Sime, Inc. ("FIS"), a registered investment adviser, is
the Adviser to the International Equity Portfolio and, in connection therewith,
has entered into a sub-investment advisory agreement with Friends Ivory & Sime
plc of London, England. Pursuant to such sub-investment advisory agreement,
Friends Ivory & Sime plc performs investment advisory and portfolio transaction
services for the Portfolio. While Friends Ivory & Sime plc is responsible for
the day-to-day management of the Portfolio's assets, FIS reviews investment
performance, policies and guidelines, facilitates communication between Friends
Ivory & Sime plc and the Manager and maintains certain books and records.
<PAGE>
FIS (formerly Ivory & Sime International, Inc.) was organized in 1978,
and as of February, 1998 is a wholly-owned subsidiary of Friends Ivory & Sime
plc. FIS offers clients in the United States the services of Friends Ivory &
Sime plc in global securities markets. Friends Ivory & Sime plc is a subsidiary
of Friends Provident Group. Friends Provident was founded in 1832, and is a
mutual life assurance company registered in England. As of August 31, 1999, the
firm and its affiliates managed approximately $53.3 billion of global equity
investments. FIS is located at One World Trade Center, Suite 2101, New York, NY
10048, and Friends Ivory & Sime plc is located at Princes Court, 7 Princes
Street, London, England EC2R8AQ.
ADMINISTRATION
State Street Bank and Trust Company, located at One Heritage Drive,
North Quincy, Massachusetts 02171, is the custodian of the assets of the Trust,
and calculates the net asset value of the shares of each Portfolio and creates
and maintains the Trust's required financial records.
Funds Distributor, Inc. provides administrative services and manages
the administrative affairs of the Trust.
<PAGE>
SHAREHOLDER INFORMATION
PRICING PORTFOLIO SHARES
The price of shares of each Portfolio called "net asset value," is
based on the value of the Portfolio's investments.
The net asset value per share of each Portfolio is determined once
daily at the close of trading on the New York Stock Exchange ("NYSE") (currently
4:00 p.m. Eastern Standard Time) on each day that the NYSE is open.
Shares will not be priced on days that the NYSE is closed.
The value of each Portfolio's portfolio securities is based on the
securities' market price when available. When a market price is not readily
available, including circumstances under which an Adviser determines that a
security's market price is not accurate, a portfolio security is valued at its
fair value, as determined under procedures established by the Trust's Board of
Trustees. In these cases, the Portfolio's net asset value will reflect certain
portfolio securities' fair value rather than their market price.
All securities held by the U.S. Government Money Market Portfolio and
debt securities with remaining maturities of sixty days or less at the time of
purchase are valued at amortized cost. The amortized cost valuation method
involves valuing a debt obligation in reference to its cost rather than market
forces.
PURCHASE OF SHARES
Purchase of shares of a Portfolio must be made through a dealer having
a sales agreement with Funds Distributor, Inc., the Trust's general distributor
(the "Distributor"), or directly through the Distributor. The purchase price is
the net asset value per share next determined after receipt of an order by the
Distributor.
<PAGE>
The Trust is designed to help investors to implement an asset
allocation strategy to meet their individual needs as well as select individual
investments within each asset category among the myriad choices available. The
Trust offers several Classes of shares to investors with different fees and
expenses designed to provide them with the flexibility of selecting an
investment best suited to their needs.
The Trust makes available assistance to help certain investors identify
their risk tolerance and investment objectives through use of an investor
questionnaire, and to select an appropriate model allocation of assets among the
Portfolios. As further assistance, the Trust makes available to certain
investors the option of automatic reallocation or rebalancing of their selected
model. The Trust also provides, on a periodic basis, a report to the investor
containing an analysis and evaluation of the investor's account.
CONTINGENT DEFERRED SALES CHARGE
Shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
invested in the Trust. A CDSC of 1%, however, will be imposed on most shares
redeemed within one year after purchase. The CDSC will be imposed on any
redemption of shares if after such redemption the aggregate current value of an
account with the Trust falls below the aggregate amount of the investor's
purchase payments for shares made during the one year preceding the redemption.
In addition, shares are subject to an annual 12b-1 fee of 1.0% of the average
daily net assets. Shares of the Trust which are held for one year or more after
purchase will not be subject to any CDSC upon redemption.
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the one year
preceding the redemption; (ii) the current net asset value of shares purchased
more than one year prior to the redemption; and (iii) the current net asset
value of shares purchased through reinvestment of dividends or distributions.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii), and (iii) above (in that order) are redeemed
first.
In addition, the CDSC, if otherwise applicable, will be waived in the
case of:
<PAGE>
(1) redemptions of shares held at the time a
shareholder dies or becomes disabled, only if the shares
are: (a) registered either in the name of an individual
shareholder (not a trust), or in the names of such
shareholder and his or her spouse as joint tenants with
right of survivorship; or (b) held in a qualified corporate
or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7)
of the Internal Revenue Code ("403(b) Custodial Account"),
provided in either case that the redemption is requested
within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a
qualified corporate or self-employed retirement plan following
retirement (or, in the case of a "key employee" of a "top
heavy" plan, following attainment of age 59 1/2); (b)
distributions from an IRA or 403(b) Custodial Account
following attainment of age 70 1/2; or (c) a tax-free return
of an excess contribution to an IRA;
(3) certain redemptions pursuant to the Portfolio's Systematic
Withdrawal Plan (see "Redemption of Shares--Systematic
Withdrawal Plan").
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to engage
in gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of an IRA, 403(b) Custodial Account or
retirement plan assets to a successor custodian or trustee. All waivers will be
granted only following receipt by the Distributor of written confirmation of the
shareholder's entitlement.
<PAGE>
PLAN OF DISTRIBUTION
The Portfolios have adopted a Plan of Distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940 with respect to the sale and
distribution of shares of the Portfolios. The Plan provides that each Portfolio
will pay the Distributor or other entities a fee, which is accrued daily and
paid monthly, at the annual rate of 1.0% of the average net assets. Up to 0.25%
of average daily net assets may be paid directly to the Manager for support
services. The fee is treated by each Portfolio as an expense in the year it is
accrued. Because the fee is paid out of each Portfolio's assets on an ongoing
basis, over time the fee may increase the cost of your investment and may cost
you more than paying other types of sales charges. A portion of the fee payable
pursuant to the Plan, equal to 0.25% of the average daily net assets, is
currently characterized as a service fee. A service fee is a payment made for
personal service and/or the maintenance of shareholder accounts.
Additional amounts paid under the Plan are paid to the Distributor or
other entities for services provided and the expenses borne by the Distributor
and others in the distribution of the shares, including the payment of
commissions for sales of the shares and incentive compensation to and expenses
of Dealers and others who engage in or support distribution of shares or who
service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Portfolios' shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor or other entities may utilize fees paid
pursuant to the Plan to compensate Dealers or other entities for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.
<PAGE>
Continuous Offering. For Class C shares of the Trust, the minimum
initial investment in the Trust is $10,000 and the minimum investment in any
individual Portfolio (other than the U.S. Government Money Market Portfolio) is
$250; there is no minimum investment for the U.S. Government Money Market
Portfolio. For employees and relatives of: the Manager, firms distributing
shares of the Trust, and the Trust service providers and their affiliates, the
minimum initial investment is $1,000 with no individual Portfolio minimum. There
is no minimum initial investment for employee benefit plans, associations, and
individual retirement accounts. The minimum subsequent investment in the Trust
is $100 and there is no minimum subsequent investment for any Portfolio. The
Trust reserves the right at any time to vary the initial and subsequent
investment minimums.
The Trust offers an Automatic Investment Plan under which purchase
orders of $100 or more may be placed periodically in the Trust. The purchase
price is paid automatically from cash held in the shareholder's designated
account. For further information regarding the Automatic Investment Plan,
shareholders should contact the Trust at 800-807-FUND (800-807-3863).
The sale of shares will be suspended during any period when the
determination of net asset value is suspended and may be suspended by the Board
of Trustees whenever the Board judges it to be in the best interest of the Trust
to do so. The Distributor in its sole discretion, may accept or reject any
purchase order.
The Distributor will from time to time provide compensation to dealers
in connection with sales of shares of the Trust including financial assistance
to dealers in connection with conferences, sales or training programs for their
employees, seminars for the public and advertising campaigns.
REDEMPTION OF SHARES
<PAGE>
Shares of a Portfolio may be redeemed on any day that the Portfolio
calculates its net asset value. Redemption requests received in proper form
prior to the close of regular trading on the NYSE will be effected at the net
asset value per share determined on that day less the amount of any applicable
CDSC. Redemption requests received after the close of regular trading on the
NYSE will be effected at the net asset value next determined less any applicable
CDSC. A Portfolio is required to transmit redemption proceeds for credit to the
shareholder's account within seven days after receipt of a redemption request
Redemption of shares purchased by check will not be effected until the check
clears, which may take up to 15 days from the purchase date.
Redemption requests may be given to a dealer having a selling agreement
with the Distributor (who is responsible for transmitting them to the Trust's
Transfer Agent) or directly to the Transfer Agent, if the shareholder purchased
shares directly from the Distributor. In order to be effective, certain
redemption requests of a shareholder may require the submission of documents
commonly required to assure the safety of a particular account.
The Trust may suspend redemption procedures and postpone redemption
payment during any period when the NYSE is closed other than for customary
weekend or holiday closing or when the SEC has determined an emergency exists or
has otherwise permitted such suspension or postponement.
Certain requests require a signature guarantee. To protect you and the
Trust from fraud, certain transactions and redemption requests must be in
writing and must include a signature guarantee in the following situations
(there may be other situations also requiring a signature guarantee in the
discretion of the Trust or Transfer Agent):
1. Re-registration of the account.
2. Changing bank wiring instructions on the account.
3. Name change on the account.
4. Setting up/changing systematic withdrawal plan to a
secondary address.
5. Redemptions greater than $25,000.
6. Any redemption check that is made payable to someone other
than the shareholder(s).
7. Any redemption check that is being mailed to a
different address than the address of record.
8. Your account registration has changed within the last 30
days.
You should be able to obtain a signature guarantee from a bank or trust
company, credit union, broker-dealer, securities exchange or association,
clearing agency or savings association, as defined by federal law.
Systematic Withdrawal Plan. A systematic withdrawal plan (the
"Withdrawal Plan") is available for shareholders. Any Portfolio from which
redemptions will be made pursuant to the Plan will be referred to as a "SWP
Portfolio". The Withdrawal Plan provides for monthly, quarterly, semi-annual or
annual payments in any amount not less than $25, or in any whole percentage of
the value of the SWP Portfolio's shares, on an annualized basis. Any applicable
CDSC will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase
of Shares"), except that the CDSC, if any, will be waived on redemptions under
the Withdrawal Plan of up to 12% annually of the value of each SWP Portfolio
account, based on the Share values next determined after the shareholder
establishes the Withdrawal Plan. Redemptions for which this CDSC waiver policy
applies may be in amounts up to 1% per month, 3% per quarter, 6% semi-annually
or 12% annually. Under this CDSC waiver policy, amounts withdrawn each period
will be paid by first redeeming shares not subject to a CDSC because the shares
were purchased by the reinvestment of dividends or capital gains distributions,
the CDSC period has elapsed or some other waiver of the CDSC applies. If shares
subject to a CDSC must be redeemed, shares held for the longest period of time
will be redeemed first followed by shares held the next longest period of time
until shares held the shortest period of time are redeemed. Any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed from
his or her account so that the proceeds (net of any applicable CDSC) to the
shareholder will be the designated monthly, quarterly, semi-annual or annual
amount.
A shareholder may suspend or terminate participation in the Withdrawal
Plan at any time. A shareholder who has suspended participation may resume
payments under the Withdrawal Plan, without requiring a new determination of the
account value for the 12% CDSC waiver. The Withdrawal Plan may be terminated or
revised at any time by the Portfolios.
<PAGE>
The addition of a new SWP Portfolio will not change the account value
for the 12% CDSC waiver for the SWP Portfolios already participating in the
Withdrawal Plan.
Withdrawal Plan payments should not be considered dividends, yields or
income. If periodic Withdrawal Plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted. Each withdrawal constitutes a
redemption of shares and any gain or loss realized must be recognized for
federal income tax purposes. Shareholders should contact their dealer
representative or the Manager for further information about the Withdrawal Plan.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Portfolios in the same Class from which such shares were redeemed
or repurchased, at net asset value next determined after a reinstatement request
(made in writing to and approved by the Manager), together with the proceeds, is
received by the Transfer Agent and receive a pro-rata credit for any CDSC paid
in connection with such redemption or repurchase.
Involuntary Redemptions. Due to the relatively high cost of maintaining
small accounts, the Trust may redeem an account having a current value of $7,500
or less as a result of redemptions, but not as a result of a fluctuation in a
Portfolio's net asset value after the shareholder has been given at least 30
days in which to increase the account balance to more than that amount.
Involuntary redemptions may result in the liquidation of Portfolio holdings at a
time when the value of those holdings is lower than the investor's cost of the
investment or may result in the realization of taxable capital gains. No CDSC
will be imposed on any involuntary redemption.
<PAGE>
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. The Trust may in the
future offer an exchange feature involving shares of an unaffiliated Fund group
subject to receipt of appropriate regulatory relief.
Exchange Privilege. Shares of a Portfolio may be exchanged without payment
of any exchange fee for shares of another Portfolio of the same Class at their
respective net asset values.
An exchange of shares is treated for federal income tax purposes as a
redemption (sale) of shares given in exchange by the shareholder, and an
exchanging shareholder may, therefore, realize a taxable gain or loss in
connection with the exchange. The exchange privilege is available to
shareholders residing in any state in which Portfolio shares being acquired may
be legally sold.
The Manager reserves the right to reject any exchange request and the
exchange privilege may be modified or terminated upon notice to shareholders in
accordance with applicable rules adopted by the Securities and Exchange
Commission.
With regard to redemptions and exchanges made by telephone, the
Distributor and the Trust's Transfer Agent will request personal or other
identifying information to confirm that the instructions received from
shareholders or their account representatives are genuine. Calls may be
recorded. If our lines are busy or you are otherwise unable to reach us by
phone, you may wish to ask your investment representative for assistance or send
us written instructions, as described elsewhere in this prospectus. For your
protection, we may delay a transaction or not implement one if we are not
reasonably satisfied that the instructions are genuine. If this occurs, we will
not be liable for any loss. The Distributor and the Transfer Agent also will not
be liable for any losses if they follow instructions by phone that they
reasonably believe are genuine or if an investor is unable to execute a
transaction by phone.
<PAGE>
Because excessive trading (including short-term "market timing" trading
can limit a Portfolio's performance, each Portfolio may refuse any exchange
orders (1) if they appear to be market-timing transactions involving significant
portions of a Portfolio's assets or (2) from any shareholder account if the
shareholder or his or her broker-dealer has been advised that previous use of
the exchange privilege is considered excessive. Accounts under common ownership
or control, including those with the same taxpayer ID number and those
administered so as to redeem or purchase shares based upon certain predetermined
market indicators, will be considered one account for this purpose.
DIVIDENDS AND DISTRIBUTIONS
Net investment income (i.e., income other than long and short term
capital gains) and net realized long and short term capital gains will be
determined separately for each Portfolio. Dividends derived from net investment
income and distributions of net realized long and short term capital gains paid
by a Portfolio to a shareholder will be automatically reinvested (at current net
asset value) in additional shares of that Portfolio (which will be deposited in
the shareholder's account) unless the shareholder instructs the Trust, in
writing, to pay all dividends and distributions in cash. Dividends attributable
to the net investment income of the U.S. Government Money Market Portfolio, the
Municipal Bond Portfolio and the Investment Quality Bond Portfolio will be
declared daily and paid monthly. Shareholders of those Portfolios receive
dividends from the day following the purchase up to an including the date of
redemption. Dividends attributable to the net investment income of the remaining
Portfolios are declared and paid annually. Distributions of any net realized
long term and short term capital gains earned by a Portfolio will be made
annually. Shares acquired by dividend and distribution reinvestment will not be
subject to any CDSC and will be eligible for conversion on a pro rata basis.
<PAGE>
TAX CONSEQUENCES
The following tax information in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in the Trust.
Taxes on Distributions. Your distributions are normally subject to
federal and state income tax when they are paid, whether you take them in cash
or reinvest them in shares. A distribution also may be subject to local income
tax. Any income dividend distributions and any short-term capital gain
distributions are taxable to you as ordinary income. Any long-term capital gain
distributions are taxable as long-term capital gains, no matter how long you
have owned shares in the Trust.
With respect to the Municipal Bond Portfolio, distributions designated
as "exempt - interest dividends" generally will be exempt from regular federal
income tax. However, income exempt from regular federal income tax may be
subject to state or local tax. In addition, income derived from certain
municipal securities may be subject to the federal "alternative minimum tax."
Certain tax-exempt securities whose proceeds are used to finance private,
for-profit organizations are subject to this special tax system that ensures
that individuals pay at least some federal taxes. Although interest on these
securities is generally exempt from federal income tax, some taxpayers who have
many tax deductions or exemptions nevertheless may have to pay tax on the
income.
You will be sent annually a statement (IRS Form 1099-DIV) showing the
taxable distributions paid to you in the previous year. The statement provides
information on your dividends and capital gains for tax purposes.
<PAGE>
Taxes on Sales. Your sale of Portfolio shares normally is subject to
federal and state income tax and may result in a taxable gain or loss to you. A
sale also may be subject to local income tax. Your exchange of Portfolio shares
for shares of another Portfolio is treated for tax purposes like a sale of your
original Portfolio shares and a purchase of your new shares. Thus, the exchange
may, like a sale, result in a taxable gain or loss to you and will give you a
new tax basis for your new shares.
When you open your Portfolio account, you should provide your social
security or tax identification number on your investment application. By
providing this information, you can avoid being subject to a federal backup
withholding tax of 31% on taxable distributions and redemption proceeds. Any
withheld amount would be sent to the IRS as an advance tax payment.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
Portfolio's financial performance for the life of each Portfolio. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in each respective Portfolio (assuming reinvestment of all
dividends and distributions).
This information has been audited by Ernst & Young LLP, Independent
Auditors whose report, along with the financial statements for each Portfolio is
included in the annual report, which is available upon request.
<PAGE>
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FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
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<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS RATIOS
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Ratio
Distributions Ratio of Net
Net to of Net Investment
Realized Dividends Shareholders Operating Income
Net Asset And to from Net Net Net Expenses (Loss)
Value, Unrealized Total Shareholders Realized Asset Assets to to
Beginning Net Investment Gain(Loss) from Net Gains Value, End of Average Average Portfolio
of Income on Investment Investment on End of Total Period Net Net Turnover
Period (Loss) Investments Operations Income Investments Period Return* (000's)Assets(2) Assets(2) Rate
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U.S. Government Money Market Portfolio (Class C)
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January 4, 1999 (1)to
August 31, 1999 $1.000 $0.022 $ - $0.022 $(0.022) $ - $ 1.000 1.99% $ 295 1.22%(2) 2.03%(2) n/a
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(1) During the fiscal year ended August 31, 1999, 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 1.26%
and 2.07% respectively, for the year ended August 31, 1999
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Investment Quality Bond Portfolio (Class C)
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January 4, 1999 (1)to
August 31, 1999 $ 10.29 $0.28 $(0.40) $(0.12) $(0.28) $ - $9.89 (1.21%) $ 284 1.26%(2) 2.69%(2) 62%
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(1) During the fiscal year ended August 31, 1999, 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 2.73% respectively, for the year ended August 31, 1999
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Municipal Bond Portfolio (Class C)
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January 4, 1999 (1)to
August 31, 1999 $10.66 $0.25 $ (0.68) $(0.43) $(0.23) $ - $ 10.00 (4.12%) $ 38 0.68%(2) 2.64%(2) 23%
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(1) During the fiscal year ended August 31, 1999, 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 1.82% and 3.78% respectively, for the year ended August 31, 1999
(1) Commencement of offering.
(2) Not Annualized
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* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
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Large Capitalization Value Portfolio (Class C)
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January 4, 1999 (1)to
August 31, 1999 $20.21 $0.04 $ 0.27 $ 0.31 $ - $ - $20.52 1.53% $ 1,138 1.61%(2) 0.56%(2) 67%
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(1) During the fiscal year ended August 31, 1999, 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 1.41% and 1.36% respectively, for the year ended August 31, 1999
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Large Capitalization Growth Portfolio (Class C)
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January 4, 1999 (1)to
August 31, 1999 $24.74 $( 0.10) $ 2.14 $2.04 $ - $ - $26.78 8.25% $ 2,209 1.22%(2) (0.82%)(2) 39%
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(1) During the fiscal year ended August 31, 1999, 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 1.34% and (0.94%) respectively, for
the year ended August 31, 1999
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Small Capitalization Portfolio (Class C)
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January 4, 1999 (1)to
August 31, 1999 $ 9.33 $(0.02) $ 0.75 $ 0.73 $ - $ - $10.06 7.82% $ 243 1.46%(2) (1.09%)(2) 32%
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(1) During the fiscal year ended August 31, 1999, 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 1.56% and (1.19% ) respectively,
for the year ended August 31, 1999
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International Equity Portfolio (Class C)
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January 4, 1999 (1)to
August 31, 1999 $ 12.29 $0.02 $ 0.79 $ 0.81 $ - $ - $13.10 6.59% $380 1.15%(2) 0.20%(2) 46%
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(1) During the fiscal year ended August 31, 1999, 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 1.29% and 0.34% respectively, for the year ended August 31, 1999
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</TABLE>
<PAGE>
[Back Cover]
Additional information about each Portfolio's investments is available in
the Trust's Annual and Semi-Annual Reports to Shareholders. In the Trust's
Annual Report, you will find a discussion of the market conditions and
investment strategies that significantly affected each Portfolio's performance
during its last fiscal year. The Trust's Statement of Additional Information
also provides additional information about each Portfolio. The Statement of
Additional Information is incorporated herein by reference (legally is part of
this Prospectus). For a free copy of any of these documents, to request other
information about the Trust, or to make shareholder inquiries, please call:
(800) 807-FUND
You also may obtain information about the Trust by calling your financial
advisor or by visiting our Internet site at:
http://www.saratogacap.com
Information about the Trust (including the Statement of Additional
Information) can be viewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, DC. Information about the
Reference Room's operations may be obtained by calling the SEC at (202)
942-8090. Reports and other information about the Trust are available on the
EDGAR Database on the SEC's Internet site (www.sec.gov) and copies of this
information may be obtained, after paying a duplicating fee, by electronic
request at the following e-mail address: [email protected], or by writing the
Public Reference Section of the SEC, Washington, DC 20549-0102.
The Trust's Investment Company Act file number is 811-08542.
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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. 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. The Lehman Index is an unmanaged index which does not include fees and
expenses. Investors may not invest directly in the Index. 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 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. The Lehman Index is an unmanaged index which does not include fees and
expenses. Investors may not invest directly in the Index. 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. 1/ 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. The S&P/Barra Value Index does not include fees and expenses, and
investors may not invest directly in the Index. 2/ The Morningstar Large Value
Average, as of September 30, 1999, consisted of 600 mutual funds comprised of
large market capitalization stocks with the lowest combinations of
price-to-earnings and price-to-book scores. Invest may not invest in the Average
directly. 1/ 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. The S&P/Barra Growth Index does not include fees and expenses, and
investors may not invest directly in the Index. 2/ The Standard & Poor's 500(R)
Composite Stock Price Index 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 which does not include fees and expenses, and
includes the reinvestment of all dividends. Investors may not invest in the
Index directly. 3/ The Morningstar Large Growth Average, as of September 30,
1999, consisted of 633 mutual funds comprised of large market capitalization
stocks with the highest combinations of price-to-earnings and price-to book
scores. Investors may not invest in the Average directly. 1/ The Russell 2000
Index is comprised of the 2,000 smallest U.S. domiciled publicly traded common
stocks which are included in 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 which does not
include fees and expenses, and whose performance reflects reinvested dividends.
Investors may not invest in the Index directly. 2/ The Morningstar Small Value
Average, as of September 30, 1999, consisted of 230 mutual funds comprised of
small market capitalization stocks with the lowest combinations of
price-to-earnings and price-to-book scores. Investors may not invest in the
Average directly. 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. This Index does not
include fees and expenses, and investors may not invest in the Index directly.
The Gross Domestic Product (GDP) version of the index is used above.
THE SARATOGA ADVANTAGE TRUST
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 2000
Income Portfolios: Equity Portfolios:
U.S. Government Money Market Portfolio Large Capitalization Value Portfolio
Investment Quality Bond Portfolio Large Capitalization Growth Portfolio
Municipal Bond Portfolio Small Capitalization Portfolio
International Equity Portfolio
(each a "Portfolio" and collectively the "Portfolios")
This Statement of Additional Information is not a Prospectus. Investors should
understand that this Statement of Additional Information should be read in
conjunction with the Trust's Class I Prospectus, the Trust's Class B Prospectus,
or the Trust's Class C Prospectus, each dated January 1, 2000. A copy of each
Prospectus may be obtained by written request to Saratoga Capital Management at
the address or phone listed below.
Saratoga Capital Management
1501 Franklin Avenue
Mineola, New York
11501-4803
800-807-FUND
(800-807-3863)
<PAGE>
TABLE OF CONTENTS
Page
FUND HISTORY...................................................................2
INVESTMENT OF THE TRUST'S ASSETS...............................................2
INVESTMENT RESTRICTIONS.......................................................12
PRINCIPAL HOLDERS OF SECURITIES AND CONTROL PERSONS OF THE PORTFOLIOS.........14
TRUSTEES AND OFFICERS.........................................................16
MANAGEMENT AND OTHER SERVICES.................................................19
INVESTMENT ADVISORY SERVICES..................................................21
DETERMINATION OF NET ASSET VALUE..............................................25
PORTFOLIO YIELD AND TOTAL RETURN INFORMATIONPERFORMANCE INFORMATION...........29
CERTAIN TAX CONSIDERATIONS....................................................38
ADDITIONAL INFORMATION........................................................43
FINANCIAL STATEMENTS..........................................................48
APPENDIX A -- RATINGS.........................................................49
<PAGE>
53
FUND HISTORY
The Trust was organized as an unincorporated business trust under the
laws of Delaware on April 8, 1994 and is a trust fund commonly known as a
"business trust."
INVESTMENT OF THE TRUST'S ASSETS
The investment objective and policies of each Portfolio are described
in each Prospectus. A further description of each Portfolio's investments and
investment methods appears below.
COLLATERALIZED MORTGAGE OBLIGATIONS. In addition to securities issued
by Ginnie Mae, Fannie Mae and Freddie Mac, another type of mortgage-backed
security is the "collateralized mortgage obligation", which is secured by groups
of individual mortgages but is similar to a conventional bond where the investor
looks only to the issuer for payment of principal and interest. Although the
obligations are recourse obligations to the issuer, the issuer typically has no
significant assets, other than assets pledged as collateral for the obligations,
and the market value of the collateral, which is sensitive to interest rate
movements, may affect the market value of the obligations. A public market for a
particular collateralized mortgage obligation may or may not develop and thus,
there can be no guarantee of liquidity of an investment in such obligations.
INFORMATION ON TIME DEPOSITS AND VARIABLE RATE NOTES. The Portfolios
may invest a fixed time deposits, whether or not subject to withdrawal
penalties; however, investment in such deposits which are subject to withdrawal
penalties, other than overnight deposits, are subject to the 15% limit on
illiquid investments set forth in the Prospectus for each Portfolio.
The commercial paper obligations which the Portfolios may buy are
unsecured and may include variable rate notes. The nature and terms of a
variable rate note (i.e., a "Master Note") permit a Portfolio to invest
fluctuating amounts at varying rates of interest pursuant to a direct
arrangement between a Portfolio as Lender, and the issuer, as borrower. It
permits daily changes in the amounts borrowed. The Portfolio has the right at
any time to increase, up to the full amount stated in the note agreement, or to
decrease the amount outstanding under the note. The issuer may prepay at any
time and without penalty any part of or the full amount of the note. The note
may or may not be backed by one or more bank letters of credit. Because these
notes are direct lending arrangements between the Portfolio and the issuer, it
is not generally contemplated that they will be traded; moreover, there is
currently no secondary market for them. Except as specifically provided in the
Prospectus there is no limitation on the type of issuer from whom these notes
will be purchased; however, in connection with such purchase and on an ongoing
basis, a Portfolio's Adviser will consider the earning power, cash flow and
other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such notes
made demand simultaneously. A Portfolio will not invest more than 5% of its
total assets in variable rate notes. Variable rate notes are subject to the
Portfolio's investment restriction on illiquid securities unless such notes can
be put back to the issuer on demand within seven days.
<PAGE>
CONVERTIBLE SECURITIES. As specified in the Prospectus, certain of the
Portfolios may invest in fixed-income securities which are convertible into
common stock. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function of
its "investment value" (its value as if it did not have a conversion privilege),
and its "conversion value" (the security's worth if it were to be exchanged for
the underlying security, at market value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, the convertible security will sell at some premium over
its conversion value. (This premium represents the price investors are willing
to pay for the privilege of purchasing a fixed-income security with a
possibility of capital appreciation due to the conversion privilege.) At such
times the price of the convertible security will tend to fluctuate directly with
the price of the underlying equity security. Convertible securities may be
purchased by the Portfolios at varying price levels above their investment
values and/or their conversion values in keeping with the Portfolios'
objectives.
INSURED BANK OBLIGATIONS. The Federal Deposit Insurance Corporation
("FDIC") insures the deposits of federally insured banks and savings and loan
associations (collectively referred to as "banks") up to $100,000. A Portfolio
may, within the limits set forth in the Prospectus, purchase bank obligations
which are fully insured as to principal by the FDIC. Currently, to remain fully
insured as to principal, these investments must be limited to $100,000 per bank;
if the principal amount and accrued interest together exceed $100,000, the
excess principal and accrued interest will not be insured. Insured bank
obligations may have limited marketability. Unless the Board of Trustees
determines that a readily available market exists for such obligations, a
Portfolio will treat such obligations as subject to the 15% limit for illiquid
investments set forth in the Prospectus unless such obligations are payable at
principal amount plus accrued interest on demand or within seven days after
demand.
<PAGE>
LENDING PORTFOLIO SECURITIES. To generate income for the purpose of
helping to meet its operating expenses, each Portfolio other than the U.S.
Government Money Market Portfolio may lend securities to brokers, dealers and
other financial organizations. These loans, if and when made, may not exceed
33_% of a Portfolio's assets taken at value. A Portfolio's loans of securities
will be collateralized by cash, letters or credit or U.S. Government Securities.
The cash or instruments collateralizing a Portfolio's loans of securities will
be maintained at all times in a segregated account with the Portfolio's
custodian, or with a designated sub-custodian, in an amount at least equal to
the current market value of the loaned securities. In lending securities to
brokers, dealers and other financial organizations, a Portfolio is subject to
risks, which, like those associated with other extensions of credit, include
delays in recovery and possible loss off rights in the collateral should the
borrower fail financially. The Trust's custodian bank arranges for each
Portfolio's securities loans and manages collateral received in connection with
these loans.
WHEN-ISSUED SECURITIES. All Portfolios may take advantage of offerings
of eligible portfolio securities on a "when-issued" basis, i.e., delivery of and
payment for such securities take place sometime after the transaction date on
terms established on such date. Normally, settlement on U.S. Government
securities takes place within ten days. A Portfolio only will make when-issued
commitments on eligible securities with the intention of actually acquiring the
securities. If a Portfolio chooses to dispose of the right to acquire a
when-issued security (prior to its acquisition), it could, as with the
disposition of any other Portfolio obligation, incur a gain or loss due to
market fluctuation. No when-issued commitments will be made if, as a result,
more than 15% of the net assets of a Portfolio would be so committed.
HEDGING. Certain Portfolios may use certain hedging instruments. To
engage in short hedging, a Portfolio would: (i) sell financial futures; (ii)
purchase puts on such futures or on individual securities held by it ("Portfolio
securities") or securities indexes; or (iii) write calls on Portfolio securities
or on financial futures or securities indexes. To engage in long hedging, a
Portfolio would: (i) purchase financial futures, or (ii) purchase calls or write
puts on such futures or on Portfolio securities or securities indexes.
Additional information about the Hedging Instruments a Portfolio may use is
provided below.
FINANCIAL FUTURES. No price is paid or received upon the purchase of a
financial future. Upon entering into a futures transaction, a Portfolio will be
required to deposit an initial margin payment equal to a specified percentage of
the contract value. Initial margin payments will be deposited with a Portfolio's
custodian bank in an account registered in the futures commission merchant's
name; however the futures commission merchant can gain access to that account
only under specified conditions. As the future is marked to market to reflect
changes in its market value, subsequent payments, called variation margin, will
be made to or from the futures commission merchant on a daily basis. Prior to
expiration of the future, if the Portfolio elects to close out its position by
taking an opposite position, a final determination of variation margin is made,
additional cash is required to be paid by or released to the Portfolio, and any
loss or gain is realized for tax purposes. Although financial futures by their
terms call for the actual delivery or acquisition of the specified debt
security, in most cases the obligation is fulfilled by closing the position. All
futures transactions are effected through a clearing house associated with the
exchange on which the contracts are traded. At present, no Portfolio intends to
enter into financial futures and options on such futures if after any such
purchase, the sum of initial margin deposits on futures and premiums paid on
futures options would exceed 5% of a Portfolio's total assets. This limitation
is not a fundamental policy.
<PAGE>
ADDITIONAL INFORMATION ON PUTS AND CALLS. When a Portfolio writes a
call, it receives a premium and agrees to sell the callable securities to a
purchaser of a corresponding call during the call period (usually not more than
9 months) at a fixed exercise price (which may differ from the market price of
the underlying securities) regardless of market price changes during the call
period. If the call is exercised, the Portfolio forgoes any possible profit from
an increase in market price over the exercise price. A Portfolio may, in the
case of listed options, purchase calls in "closing purchase transactions" to
terminate a call obligation. A profit or loss will be realized, depending upon
whether the net of the amount of option transaction costs and the premium
received on the call written is more or less than the price of the call
subsequently purchased. A profit may be realized if the call lapses unexercised,
because the Portfolio retains the underlying security and the premium received.
Sixty percent of any such profits are considered long-term gains and forty
percent are considered short-term gains for tax purposes. If, due to a lack of a
market, a Portfolio could not effect a closing purchase transaction, it would
have to hold the callable securities until the call lapsed or was exercised. A
Portfolio's Custodian, or a securities depository acting for the Custodian, will
act as the Portfolio's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC") in connection with listed calls, as to the
securities on which the Portfolio has written calls, or as to other acceptable
escrow securities, so that no margin will be required for such transactions. OCC
will release the securities on the expiration of the calls or upon the
Portfolio's entering into a closing purchase transaction.
When a Portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment during
the call period (or on a certain date for OTC options) at a fixed exercise
price. A Portfolio benefits only if the call is sold at a profit or if, during
the call period, the market price of the underlying investment is above the call
price plus the transaction costs and the premium paid for the call and the call
is exercised. If a call is not exercised or sold (whether or not at a profit),
it will become worthless at its expiration date and the Portfolio will lose its
premium payment and the right to purchase the underlying investment.
With OTC options, such variables as expiration date, exercise price and
premium will be agreed upon between the Portfolio and the transaction dealer,
without the intermediation of a third party such as the OCC. If a transacting
dealer fails to make delivery on the U.S. Government securities underlying an
option it has written, in accordance with the terms of that option as written a
Portfolio could lose the premium paid for the option as well as any anticipated
benefit of the transaction. The Portfolios will engage in OTC option
transactions only with primary U.S. Government securities dealers recognized by
the Federal Reserve Bank of New York. In the event that any OTC option
transaction is not subject to a forward price at which the Portfolio has the
absolute right to repurchase the OTC option which it has sold, the value of the
OTC option purchased and of the Portfolio assets used to "cover" the OTC option
will be considered "illiquid securities" and will be subject to the 15% limit on
illiquid securities. The "formula" on which the forward price will be based may
vary among contracts with different primary dealers, but it will be based on a
multiple of the premium received by the Portfolio for writing the option plus
the amount, if any, of the option's intrinsic value, i.e., current market value
of the underlying securities minus the option's strike price.
<PAGE>
A put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period (or on a certain date for OTC options). The investment
characteristics of writing a put a covered by segregated liquid assets equal to
the exercise price of the put are similar to those of writing a covered call.
The premium paid on a put written a Portfolio represents a profit, as long as
the price of the underlying investment remains above the exercise price.
However, a Portfolio has also assumed the obligation during the option period to
buy the underlying investment from the buyer of the put at the exercise price,
even though the value of the investment may fall below the exercise price. If
the put expires unexercised, the Portfolio (as writer) realizes a gain in the
amount of the premium. If the put is exercised, the Portfolio must fulfill its
obligation to purchase the underlying investment at the exercise price, which
will usually exceed the market value of the investment at that time. In that
case, the Portfolio may incur a loss upon disposition, equal to the sum of the
sale price of the underlying investment and the premium received minus the sum
of the exercise price and any transaction costs incurred.
When writing put options, to secure its obligation to pay for the
underlying security, a Portfolio will maintain in a segregated account at its
Custodian liquid assets with a value equal to at least the exercise price of the
option. As a result, the Portfolio forgoes the opportunity of trading the
segregated assets or writing calls against those assets. As long as the
Portfolio's obligation as a put writer continues, the Portfolio may be assigned
an exercise notice by the broker-dealer through whom such option was sold,
requiring the Portfolio to purchase the underlying security at the exercise
price. A Portfolio has no control over when it may be required to purchase the
underlying security, since it may be assigned an exercise notice at any time
prior to the termination of its obligation as the writer of the put. This
obligation terminates upon the earlier of the expiration of the put, or the
consummation by the Portfolio of a closing purchase transaction by purchasing a
put of the same series as that previously sold. Once a Portfolio has been
assigned an exercise notice, it is thereafter not allowed to effect a closing
purchase transaction.
A Portfolio may effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent an underlying
security from being put to it. Furthermore, effecting such a closing purchase
transaction will permit the Portfolio to write another put option to the extent
that the exercise price thereof is secured by the deposited assets, or to
utilize the proceeds from the sale of such assets for other investments by the
Portfolio. The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from writing the option.
<PAGE>
When a Portfolio purchases a put, it pays a premium and has the right
to sell the underlying investment at a fixed exercise price to a seller of a
corresponding put on the same investment during the put period if it is a listed
option (or on a certain date if it is an OTC option). Buying a put on securities
or futures held by it permits a Portfolio to attempt to protect itself during
the put period against a decline in the value of the underlying investment below
the exercise price. In the event of a decline in the market, the Portfolio could
exercise, or sell the put option at a profit that would offset some or all of
its loss on the Portfolio securities. If the market price of the underlying
investment is above the exercise price and as a result, the put is not
exercised, the put is not exercised, the put will become worthless at its
expiration date and the purchasing Portfolio will lose the premium paid and the
right to sell the underlying securities; the put may, however, be sold prior to
expiration (whether or not at a profit). Purchasing a put on futures or
securities not held by it permits a Portfolio to protect its Portfolio
securities against a decline in the market to the extent that the prices of the
future or securities underlying the put move in a similar pattern to the prices
of the securities in the Portfolio's portfolio.
An option position may be closed out only on a market which provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. A Portfolio's
option activities may affect its turnover rate and brokerage commissions. The
exercise of calls written by a Portfolio may cause the Portfolio to sell from
its Portfolio securities to cover the call, thus increasing its turnover rate in
a manner beyond the Portfolio's control. The exercise of puts on securities or
futures will increase portfolio turnover. Although such exercise is within the
Portfolio's control, holding a put might cause a Portfolio to sell the
underlying investment for reasons which would not exist in the absence of the
put. A Portfolio will pay a brokerage commission every time it purchases or
sells a put or a call or purchases or sells a related investment in connection
with the exercise of a put or a call.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS. Transactions in options by a
Portfolio are subject to limitations established (and changed from time to time)
by each of the exchanges governing the maximum number of options which may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the on same or
different exchanges or are held in one or more accounts or through one or more
different exchanges or through one or more brokers. Thus, the number of options
which a Portfolio may write or hold may be affected by options written or held
by other investment companies and discretionary accounts of the Portfolio's
Adviser, including other investment companies having the same or an affiliated
investment adviser. An exchange may order the liquidation of positions found to
be in violation of those limits and may impose certain other sanctions.
Due to requirements under the Investment Company Act of 1940 (the "1940
Act") when a Portfolio sells a future, it will segregate on its books, cash or
readily marketable short-term (maturing in one year or less) debt instruments in
an amount equal to the market value of such future, less the margin deposit
applicable to it.
<PAGE>
The Trust and each Portfolio must operate within certain restrictions
as to its positions in futures and options thereon under a rule ("CFTC Rule")
adopted by the Commodity Futures Trading Commission ("CFTC") under the Commodity
Exchange Act (the "CEA"), which excludes the Trust and each Portfolio from
registration with the CFTC as a "commodity pool operator" (as defined under the
CEA). Under those restrictions, a Portfolio may not enter into any financial
futures or options contract unless such transactions are for bona fide hedging
purposes, or for other purposes only if the aggregate initial margins and
premiums required to establish such non-hedging positions would not exceed 5% of
the liquidation value of its assets. Each Portfolio may use futures and options
thereon for bona fide hedging or for other purposes within the meaning and
intent of the applicable provisions of the CEA.
POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks with respect
to futures and options discussed in the Prospectus and above, there is a risk in
selling futures that the prices of futures will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of a Portfolio's securities.
The ordinary spreads between prices in the cash and future markets are subject
to distortions due to differences in the natures of those markets. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close out futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions.
When a Portfolio uses appropriate Hedging Instruments to establish a
position in the market as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures or on a
particular security, it is possible that the market may decline. If the
Portfolio then concludes not to invest in such securities at that time because
of concerns as to possible further market decline or for other reasons, it will
realize a loss on the Hedging Instruments that is not offset by a reduction In
the price of the securities purchased.
Transactions in Hedging Instruments may also result in certain Federal
income tax consequences described below under the heading "Certain Tax
Considerations."
<PAGE>
TYPE OF SECURITIES IN WHICH THE INTERNATIONAL EQUITY PORTFOLIO MAY
INVEST. As discussed in the Prospectus, the International Equity Portfolio seeks
to achieve its investment objectives through investment primarily in equity
securities. It is expected that the Portfolio will invest principally in
American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), and
European Depositary Receipts ("EDRs") although it also may invest directly in
equity securities. Generally, ADRs and GDRs in registered form are U.S. dollar
denominated securities designed for use in the U.S. securities markets, which
represent and may be converted into the underlying foreign security. EDRs are
typically issued in bearer form and are deigned for use in the European
securities markets. Issuers of the stock of ADRs not sponsored by such
underlying issuers are not obligated to disclose material information in the
United States and, therefore, there may not be a correlation between such
information and the market value of such ADRs. The Portfolio also may purchase
shares of investment companies or trusts which invest principally in securities
in which the Portfolio is authorized to invest. The return on the Portfolio's
investments in investment companies will be reduced by the operating expenses,
including investment advisory and administrative fees, of such companies. The
Portfolio's investment in an investment company may require the payment of a
premium above the net asset value of the investment company's shares, and the
market price of the investment company assets. The Portfolio will not invest in
any investment company of trust unless it is believed that the potential
benefits of such investment are sufficient to warrant the payment of any such
premium. Under the 1940 Act, the Portfolio may not invest more than 10% of its
assets in investment companies or more than 5% of its total assets in the
securities of any one investment company, nor may it own more than 3% of the
outstanding voting securities of any such company. To the extent the Portfolio
invests in securities in bearer form it may be more difficult to recover
securities in the event such securities are lost or stolen.
PRIVATE PLACEMENTS. The Portfolios may invest in securities which are
subject to restriction on resale because they have not been registered under the
Securities Act of 1933 (the "1933 Act"), or which are otherwise not readily
marketable. These securities are generally referred to as private placements or
restricted securities. Limitations on the resale of such securities may have an
adverse effect on their marketability, and may prevent the Portfolios from
disposing of them promptly at reasonable prices. A Portfolio may have to bear
the expense of registering such securities for resale and risk the substantive
delays in effecting such registration. However, the Portfolios may avail
themselves of recently adopted regulatory changes to the 1933 Act ("Rule 144A")
which permit the Portfolios to purchase securities which have been privately
placed and resell such securities to certain qualified institutional buyers
without restriction. Since it is not possible to predict with assurance exactly
how this market for restricted securities sold and offered under Rule 144A will
develop, the Board of Trustees will carefully monitor the Portfolios'
investments in these securities, focusing on such important factors, among
others, as valuation, liquidity and availability of information. This investment
practice could have the effect of increasing the level of illiquidity in the
Portfolios to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these restricted securities.
Securities of foreign issuers often have not been registered in the
U.S. Accordingly, if a Portfolio wishes to sell unregistered foreign securities
in the U.S. it will avail itself of Rule 144A.
<PAGE>
FOREIGN CURRENCY TRANSACTIONS. When a Portfolio agrees to purchase or
sell a security in a foreign market it will generally be obligated to pay or
entitled to receive a specified amount of foreign currency and will then
generally convert dollars to that currency in the case of a purchase or that
currency to dollars in the case of a sale. The Portfolios will conduct their
foreign currency exchange transactions either on a spot basis (i.e., cash) at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward foreign currency contracts ("forward contracts") to
purchase or sell foreign currencies. A Portfolio may enter into forward
contracts in order to lock in the U.S. dollar amount it must pay or expects to
receive for a security it has agreed to buy or sell. A Portfolio may also enter
into forward currency contracts with respect to the Portfolio's portfolio
positions when it believes that a particular currency may change unfavorably
compared to the U.S. dollar. A forward contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large,
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
A Portfolio will segregate on its books, U.S. Government securities or
debt securities in a separate account of the Portfolio in an amount equal to the
value of the Portfolio's total assets committed to the consummation of any such
contract in such account. If, rather than cash, portfolio securities are used to
secure such a forward contract, on the settlement of the forward contract for
delivery by the Portfolio of a foreign currency, the Portfolio may either sell
the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract obligating it to
purchase, on the same settlement date, the same amount of foreign currency.
The Portfolios may effect currency hedging transactions in foreign
currency futures contacts, exchange-listed and over-the-counter call and put
options on foreign currency futures contracts and on foreign currencies. The use
of forward futures or options contracts will not eliminate fluctuations in the
underlying prices of the securities which the Portfolios own or intend to
purchase or sell. They simply establish a rate of exchange for a future point in
time. Additionally, while these techniques tend to minimize the risk of loss due
to a decline in the value of the hedged currency, their use tends to limit any
potential gain which might result from the increase in value of such currency.
In addition, such transactions involve costs and may result in losses.
Although each Portfolio value its assets in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies to U.S. dollars on
a daily basis. It will, however, do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the spread
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Portfolio at one
rate, while offering a lesser rate of exchange should the Portfolio desire to
resell that currency to the dealer.
The transactions described in this section may also give risk to
certain Federal income tax consequences described below under the heading
"Certain Tax Considerations."
ADDITIONAL RISKS. Securities in which the Portfolios may invest are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors and shareholders, such as the federal
Bankruptcy Code, and laws, if any, which may be enacted by Congress or the state
legislatures extending the time for payment of principal or interest, or both or
imposing other constraints upon enforcement of such obligations.
<PAGE>
RATINGS OF CORPORATE AND MUNICIPAL DEBT OBLIGATIONS. Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P") and Fitch
Municipal Division ("Fitch") are private services that provide ratings of the
credit quality of debt obligations, including issues of corporate and municipal
securities. A description of the range of ratings assigned to corporate and
municipal securities by Moody's, S&P and Fitch is included in Appendix A to this
Statement of Additional Information. The Investment Quality Bond Portfolio and
the Municipal Bond Portfolio may use these ratings in determining whether to
purchase, sell or hold a security. These ratings represent Moody's, S&P's and
Fitch's opinions as to the quality of the securities that they undertake to
rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, securities with the same maturity,
interest rate and ratings may have different market prices. Subsequent to its
purchase by the Investment Quality Bond Portfolio or the Municipal Bond
Portfolio, an issue of securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Portfolio. The
Advisers to the Municipal Bond Portfolio and the Investment Quality Bond
Portfolio will consider such an event in determining whether the Portfolio
should continue to hold the obligation but will dispose of such securities in
order to limit the holdings of debt securities rated below investment grade to
less than 5% of the assets of the respective Portfolio.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from federal income tax (and also, when available,
from the federal alternative minimum tax) are rendered by bond counsel to the
issuing authorities at the time of issuance. Neither the Municipal Bond
Portfolio nor the Portfolio's Adviser will review the proceedings relating to
the issuance of municipal securities or the basis for such opinions. An issuer's
obligations under its municipal securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors (such as the federal bankruptcy laws) and federal, state and local
laws that may be enacted to extend the time for payment of principal or
interest, or both, or to impose other constraints upon enforcement of such
obligations. There also is the possibility that, as a result of litigation or
other conditions, the power or ability of issuers to meet their obligations for
the payment of principal of an interest on their municipal securities may be
materially adversely affected.
MUNICIPAL NOTES. For liquidity purposes, pending investment in
municipal bonds, or on a temporary or defensive basis due to market conditions,
the Municipal Bond Portfolio may invest in tax-exempt short-term debt
obligations (maturing in one year or less). These obligations, known as
"municipal notes," include tax, revenue and bond anticipation notes,
construction loan notes and tax-exempt commercial paper which are issued to
obtain funds for various public purposes; the interest from these Notes is also
exempt from federal income taxes. The Municipal Bond Portfolio will limit its
investments in municipal notes to those which are rated, at the time of
purchase, within the two highest grades assigned by Moody's or the two highest
grades assigned by S&P or Fitch, or if unrated, which are of comparable quality
in the opinion of the Adviser.
<PAGE>
MUNICIPAL BONDS. Municipal bonds include debt obligations of a state, a
territory, or a possession of the United States, or any political subdivision
thereof (e.g., countries, cities, towns, villages, districts, authorities) or
the District of Columbia issued to obtain funds for various purposes, including
the construction of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which municipal bonds may be issued
include the refunding of outstanding obligations, obtaining funds for general
operating expenses and the obtaining of funds to loan to public or private
institutions for the construction of facilities such as education, hospital and
housing facilities. In addition, certain types of private activity bonds may be
issued by or on behalf of public authorities to obtain funds to provide
privately-operated housing facilities, sports facilities, convention or trade
show facilities, airport, mass transit, port or parking facilities, air or water
pollution control facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Such obligations are included
within the term municipal bonds if the interest paid thereon is at the time of
issuance, in the opinion of the issuer's bond counsel, exempt from federal
income tax. The current federal tax laws, however, substantially limit the
amount of such obligations that can be issued in each state.
The two principal classifications of municipal bonds are "general
obligation" and limited obligation or "revenue" bonds. General obligation bonds
are secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest, whereas revenue bonds are payable only from
the revenues derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise tax or other specific revenue
source. Private activity bonds that are municipal bonds are in most cases
revenue bonds and do not generally constitute the pledge of the credit of the
issuer of such bonds. The credit quality of private activity revenue bonds is
usually directly related to the credit standing of the industrial user involved.
There are, in addition, a variety of hybrid and special types of municipal
obligations as well as numerous differences in the collateral security of
municipal bonds, both within and between the two principal classifications
described above.
INVESTMENT RESTRICTIONS
<PAGE>
FUNDAMENTAL POLICIES. The Trust on behalf the each Portfolio has
adopted certain investment restrictions. Each Portfolio may not, with respect to
75% of its total assets taken at market value, invest more than 5% of its total
assets in the securities of any one issuer, except U.S. Government Securities,
or acquire more than 10% of any class of the outstanding voting securities of
any one issuer. In addition, except as described above with respect to the
Municipal Bond Portfolio, each Portfolio may not invest 25% or more of its total
assets in securities of issuers in any one industry. The Trust on behalf of a
Portfolio may borrow money as a temporary measure from banks in an aggregate
amount not exceeding one-third of the value of the Portfolio's total assets to
meet redemptions and for other temporary or emergency purposes not involving
leveraging. A Portfolio may not purchase securities while borrowings exceed 5%
of the value of the Portfolio's assets. The Portfolios each may purchase
securities which are not registered under the 1933 Act but which can be sold to
"qualified institutional buyers" in accordance with Rule 144A under the 1933
Act. Any such security will not be considered illiquid so long as it is
determined by the Board of Trustees or the Portfolio's Adviser, acting under
guidelines approved and monitored by the Board, which has the ultimate
responsibility for any determination regarding liquidity, that an adequate
trading market exists for that security. This investment practice could have the
effect of increasing the level of illiquidity in each of the Portfolios during
any period that qualified institutional buyers become uninterested in purchasing
these restricted securities. The ability to sell to qualified institutional
buyers under Rule 144A is a recent development and it is not possible to predict
how this market will develop. The Board will carefully monitor any investments
by each of the Portfolios in these securities.
The following are also fundamental policies and cannot be changed
without the vote of a majority of the outstanding voting securities of that
Portfolio, as defined in the 1940 Act. Such a majority is defined as the lesser
of (a) 67% or more of the shares of the Portfolio present at a meeting of
shareholders of the Trust, if the holders of more than 50% of the outstanding
shares of the Portfolio are present or represented by proxy or (b) more than 50%
of the outstanding shares of the Portfolio. For purposes of the following
restrictions and those contained in the Prospectus: (i) all percentage
limitations apply immediately after a purchase or initial investment; and (ii)
any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total assets does not require
elimination of any security from a Portfolio.
Under these additional restrictions, each Portfolio cannot: (a) invest
in physical commodities or physical commodity contracts or speculate in
financial commodity contracts or speculate in financial commodity contracts, but
all Portfolios are authorized to purchase and sell financial futures contracts
and options on such futures contracts exclusively for hedging and other
non-speculative purposes to the extent specified in the Prospectus; (b) invest
in real estate or real estate limited partnerships (direct participation
programs); however, each Portfolio may purchase securities of issuers which
engage in real estate operations and securities which are secured by real estate
or interests therein; (c) underwrite securities of other companies except in so
far as the Portfolio may be deemed to be an underwriter under the 1933 Act in
disposing of a security; (d) purchase warrants if as a result the Portfolio
would then have either more than 5% of its total assets (determined at the time
of investment) invested in warrants or more than 2% of its total assets invested
in warrants not listed on the New York or American Stock Exchange; (e) pledge
its assets or assign or otherwise encumber its assets in excess of 33_% of its
net assets (taken at market value at the time of Pledging) and then only to
secure borrowings effected within the limitations set forth in the Prospectus;
(f) issue senior securities as defined in the 1940 Act except insofar as the
Portfolio may be deemed to have issued a senior security by reason of: (i)
entering into a repurchase agreement; (ii) borrowing money in accordance with
restrictions described above; or (iii) lending Portfolio securities; and (g)
make loans to any person or individual except that Portfolio securities may be
loaned by all Portfolios within the limitations set forth in the Prospectus.
In addition, each Portfolio may not, with respect to 75% of its assets,
invest more than 5% of the value of its total assets in the securities of any
one issuer.
The investment restrictions listed above as well as the Portfolio's
investment objectives are fundamental policies and, accordingly, may not be
changed with respect to any Portfolio without the approval of a majority of the
outstanding shares of that Portfolio, as defined in the 1940 Act.
<PAGE>
NON-FUNDAMENTAL POLICIES. The following policies may be changed by the
Board of Trustees without shareholder approval. A Portfolio will not invest more
than 15% (10% with respect to the U.S. Government Money Market Portfolio) of the
value of its net assets in securities that are illiquid, including certain
government stripped mortgage related securities, repurchase agreements maturing
in more than seven days and that cannot be liquidated prior to maturity and
securities that are illiquid by virtue of the absence of a readily available
market. Securities that have legal or contractual restrictions on resale but
have a readily available market are deemed not illiquid for this purpose. In
addition, each portfolio cannot: (a) purchase securities on margin (except for
such short-term loans as are necessary for the clearance of purchases of
Portfolio securities) or make short sales of securities except "against the box"
(collateral arrangements in connection with transactions in futures and options
are not deemed to be margin transactions); (b) invest for the purpose of
exercising control or management of another company.
PRINCIPAL HOLDERS OF SECURITIES AND
CONTROL PERSONS OF THE PORTFOLIOS
<PAGE>
The following persons owned 5% or more of the outstanding Class B
Shares of U.S. Government Money Market as of December 10, 1999: Robert Moon Sr.
& Louise Moon, PO Box 505, Auburn, ME 04212-0505 - 19.80%; First Union
Securities, Inc., A/C 4263-8203, Mark Haywood & Patricia Haywood, 111 East
Kilbourn Avenue, Milwaukee, WI 53202-6611 - 9.12%; First Union Securities, Inc.,
A/C 4952-9223, Midwest Consolidators Intl, Target Benefit Plan, 111 East
Kilbourn Avenue, Milwaukee, WI 53202-6611 - 40.01%; First Union Securities,
Inc., A/C 8437-7029, Midwest Consolidators Intl, Target Benefit Plan, 111 East
Kilbourn Avenue, Milwaukee, WI 53202-6611 - 16.23%; First Union Securities,
Inc., A/C 3678-3444, Jacqueline A. Goldberg, 111 East Kilbourn Avenue,
Milwaukee, WI 53202-6611 - 13.69%. The following persons owned 5% or more of the
outstanding Class C Shares of U.S. Government Money Market as of December 10,
1999: State Street Bank & Trust Co., Cust for the IRA of FBO Stanley Prowler,
139 E. 63rd Street, New York, NY 10021-7405 - 10.25%; Sharon L. Collier &
Herbert L. Collier, 8201 E. Kalil Dr., Scottsdale, AZ 85260-5736 - 45.75%. The
following persons owned 5% or more of the outstanding Class B Shares of
Investment Quality as of December 10, 1999: Robert Moon Sr. & Louise Moon, P.O.
Box 505, Auburn, ME 04212-0505 - 16.35%; First Union Securities, Inc., A/C
4952-9223, Midwest Consolidators Intl., Target Benefit Plan, 111 East Kilbourn
Avenue, Milwaukee, WI 53202-6611 - 47.46%; First Union Securities, Inc., A/C
8437-7029, Midwest Consolidators Intl, Target Benefit Plan, 111 East Kilbourn
Avenue, Milwaukee, WI 53202-6611 - 19.27%; First Union Securities, Inc., A/C
3678-3444, Jacqueline A. Goldberg, 111 East Kilbourn Avenue, Milwaukee, WI
53202-6611 - 16.28%. The following persons owned 5% or more of the outstanding
Class C Shares of Investment Quality as of December 10, 1999: State Street Bank
& Trust Co., Cust for the IRA of FBO Stanley Prowler, 139 E. 63rd Street, New
York, NY 10021-7405 - 10.43%; State Street Bank & Trust Co., Cust for the IRA of
FBO Herbert L. Collier, 8201 E. Kalil Drive, Scottsdale, AZ 85260-5736 - 34.31%.
The following persons owned 5% or more of the outstanding Class B Shares of
Municipal Bond as of December 10, 1999: First Union Securities, Inc., A/C
4263-8203, Mark Haywood & Patricia Haywood, 111 East Kilbourn Avenue, Milwaukee,
WI 53202-6611 - 96.60%. The following persons owned 5% or more of the
outstanding Class C Shares of Municipal Bond as of December 10, 1999: Gabriel F.
Gargiulo, 963 Elms Common Dr., Apt. 305, Rocky Hill, CT 06067-1819 - 18.45%;
Concetta Pascale & Marian Bruzzese, 723 Patterson Avenue, Franklin Square, NY
11010-4107 - 29.34%; Pauline Frederick, 25-C Esquire Drive, Manchester, CT
06040-2411 - 29.96%; Irene Henrietta Hovanec Trustee, Irene Henrietta Hovanec
Trust, U/A DTD 5-15-95, 5428 Wyndemere Square, Swartz Creek, MI 48473-8906 -
17.36%. The following persons owned 5% or more of the outstanding Class B Shares
of Large Capitalization Value as of December 10, 1999: Laura A. Cloutier &
Ernest W. Bergeron, 224 Perley Street, Manchester, NH 03104-3840 - 6.79%; State
Street Bank & Trust Co., Cust for the IRA of FBO Richard C. Dielensnyder, 896 W.
Hill Road, West Berlin, VT 05663-6561 - 6.63%; Donaldson Lufkin Jenrette
Securities Corporation Inc., P.O. Box 2052, Jersey City, NJ 07303-2052 - 6.69%;
Stifel Nicolaus & Co. Inc., A/C 3859-0262, Jeffrey S. Hamrick, 501 North
Broadway, St. Louis, MO 63102-2102 - 6.09%; Stifel Nicolaus & Co. Inc., A/C
8922-8757, Jonathan F. Young, 501 North Broadway, St. Louis, MO 63102-2102 -
7.93%; Stifel Nicolaus & Co. Inc., A/C 8925-1605, Marlene G. Young, 501 North
Broadway, St. Louis, MO 63102-2102 - 13.72%; First Union Securities, Inc., A/C
4952-9223, Midwest Consolidators Intl, Target Benefit Plan, 111 East Kilbourn
Avenue, Milwaukee, WI 53202-6611 - 9.43%. The following persons owned 5% or more
of the outstanding Class C Shares of Large Capitalization Value as of December
10, 1999: State Street Bank & Trust Co, Cust for the IRA of FBO Joseph V.
Colosimo, 5053 E. Cochise Road, Paradise Valley, AZ 85253-1069 - 32.91%; State
Street Bank & Trust Co., Cust for the IRA of FBO Herbert L. Collier, 8201 E.
Kalil Drive, Scottsdale, AZ 85260-5736 - 9.53%. The following persons owned 5%
or more of the outstanding Class B Shares of Large Capitalization Growth as of
December 10, 1999: Laura A. Cloutier & Ernest W. Bergeron, 224 Perley Street,
Manchester, NH 03104-3840 - 8.09%; Donaldson Lufkin Jenrette Securities
Corporation Inc., P.O. Box 2052, Jersey City, NJ 07303-2052 - 6.20%; Stifel
Nicolaus & Co. Inc., A/C 3859-0262, Jeffry S. Hamrick IRA, 501 North Broadway,
St. Louis, MO 63102-2102 - 5.48%; Stifel Nicolaus & Co. Inc., A/C 8922-8757,
Jonathan F. Young IRA, 501 North Broadway, St. Louis, MO 63102-2102 - 7.12%;
Stifel Nicolaus & Co. Inc., A/C 8925-1605, Marlene G. Young Sep. IRA, 501 North
Broadway, St. Louis, MO 63102-2102-12.32%; First Union Securities, Inc., A/C
4952-9223, Midwest Consolidators Intl, TTEE, Target Beneft Plan, 111 East
Kilbourn Avenue, Milwaukee, WI 53202-6611 - 10.18%. The following persons owned
5% or more of the outstanding Class C Shares of Large Capitalization Growth as
of December 10, 1999: State Street Bank & Trust, Cust for the IRA of Thomas Wood
III, 1765 Hilliard Drive, San Marino, CA 91108-3011 - 5.18%; State Street Bank &
Trust Co, Cust for the IRA of FBO Joseph V. Colosimo, 5053 E. Cochise Road,
Paradise Valley, AZ 85253-1069 - 27.88%; State Street Bank & Trust Co., Cust for
the IRA of FBO Herbert L. Collier, 8201 E. Kalil Drive, Scottsdale, AZ
85260-5736 - 13.00%. The following persons owned 5% or more of the outstanding
Class B Shares of Small Capitalization as of December 10, 1999: State Street
Bank & Trust Co., Cust for the IRA of FBO Richard C. Dielensnyder, 896 W. Hill
Road, West Berlin, VT 05663-6561 - 8.90%; Stifel Nicolaus & Co. Inc., A/C
3859-0262, Jeffry S. Hamrick IRA, 501 North Broadway, St. Louis, MO, 63102-2102
- - 10.97%; Stifel Nicolaus & Co. Inc., A/C 8922-8757, Jonathan F. Young IRA, 501
North Broadway, St. Louis, MO 63102-2102 - 21.94%; Stifel Nicolaus & Co. Inc.,
A/C 8925-1605, Marlene G. Young, 501 North Broadway, St. Louis, MO 63102-2102 -
32.91%; First Union Securities, Inc., A/C 8998-3144, Richard A. Wehler & Cora S.
Wehler, 111 East Kilbourn Avenue, Milwaukee, WI 53202-6611 - 6.13%. The
following persons owned 5% or more of the outstanding Class C Shares of Small
Capitalization as of December 10, 1999: State Street Bank & Trust Co., Customer
For the IRA of FBO Joseph V. Colosimo, 5053 E. Cochise Road, Paradise Valley, AZ
85253-1069 - 47.39%; State Street Bank & Trust Co., Cust for the IRA of FBO
Herbert L. Collier, 8201 E. Kalil Drive, Scottsdale, AZ 85260-5736 - 21.68%. The
following persons owned 5% or more of the outstanding Class I Shares of Small
Capitalization as of December 10, 1999: Northern Trust Co. as Cust FBO, American
Medical Assoc Pension Pl, P.O. Box 92956, Chicago, IL 60675-2956 - 26.71%. The
following persons owned 5% or more of the outstanding Class B Shares of
International Equity as of December 10, 1999: State Street Bank & Trust Co.,
Cust for the IRA of FBO Richard C. Dielensnyder, 896 W. Hill Road, West Berlin,
VT 05663-6561 - 11.18%; Stifel Nicolau & Co. Inc., A/C 3859-0262, Jeffry S.
Hamrick IRA, 501 North Broadway, St. Louis, MO 63102-2102 - 11.65%; Stifel
Nicolaus & Co. Inc., A/C 8922-8757, Jonathan F. Young IRA, 501 North Broadway,
St. Louis, MO 63102-2102 - 16.54%; Stifel Nicolaus & Co. Inc., A/C 8925-1605,
Marlene G. Young Sep. IRA, 501 North Broadway, St. Louis, MO 63102-2102 -
27.49%; First Union Securities, Inc., A/C 4952-9223, Midwest Consolidators Intl,
TTEE, Target Benefit Plan, 111 East Kilbourn Avenue, Milwaukee, WI 53202-6611 -
8.37%; First Union Securities, Inc., A/C 8998-3144, Richard A. Wehler & Cora S.
Wehler, 111 East Kilbourn Avenue, Milwaukee, WI 53202-6611 - 6.37%; JMS LLC Cust
FBO, Stephen F. Lorince IRA, A/C 5324-5838,
P.O. Box 346, Beaver Meadows, PA 18216-0346 - 5.12%.
TRUSTEES AND OFFICERS
The trustees and officers of the Trust, and their principal occupations
during the past five years, are set forth below. Trustees who are "interested
persons," as defined in the 1940 Act, are denoted by an asterisk. As of December
10, 1999, the trustees and officers of the Trust as a group owned less than 1%
of the outstanding shares of each Portfolio.
Bruce E. Ventimiglia,
President, CEO, and Chairman of the Board of Trustees*
1501 Franklin Avenue
Mineola, NY 11501
Age 44
Chairman, President and Chief Executive Officer of Saratoga Capital Management;
prior thereto, Senior Vice President of Oppenheimer Capital and OpCap Advisers;
Senior Vice President of Prudential Securities, Inc.
Patrick H. McCollough, Trustee
One Michigan Avenue Building
120 North Washington Square
Lansing, Michigan 48933
<PAGE>
Age 57
Partner with the law firm of Cawthorne, McCollough & Cavanagh since 1987;
Michigan State Senator from 1971 to 1978 and 1982 to 1986.
Udo W. Koopmann, Trustee
11500 Governors's Drive
Chapel Hill, NC 27514
Age 57
President, the CapCo Group, LLC; prior thereto, Chief Financial and
Administrative Executive of the North American subsidiary of Klockner and
Company AG, a multi-national company; member of National Committee of Steel
Service Centre Institute.
Floyd E. Seal, Trustee
7565 Industrial Ct.
Alpharetta, GA 30004
Age 49
Chief Executive Officer and 50% owner of TARAHILL, INC., d.b.a. Pet Goods
Manufacturing & Imports, Alpharetta, GA; Partner of S&W Management, Gwinnet, GA.
Scott C. Kane, Vice President and Secretary
1501 Franklin Avenue
Mineola, NY 11501
Age 40
Managing Director and Chief Sales and Marketing Officer of Saratoga Capital
Management; prior thereto, he was Vice President of Prudential Securities, Inc.
Stephen Ventimiglia, Vice President*
1501 Franklin Avenue
Mineola, NY 11501
Age 43
Vice Chairman and Chief Investment Officer of Saratoga Capital Management; prior
thereto, he was First Vice President and Senior Portfolio Manager of Prudential
Securities, Inc.
William Marra, Treasurer
1501 Franklin Avenue
Mineola, NY 11501
Age 48
<PAGE>
Chief Financial Officer of Saratoga Capital Management since 1997; prior
thereto, he was an account Representative at MetLife, 1995-1997; various
positions held at Prudential Securities from 1978-1994.
* Bruce Ventimiglia and Stephen Ventimiglia are brothers.
REMUNERATION OF OFFICERS AND TRUSTEES. All of the above officers of the
Trust are officers of Saratoga Capital Management and all officers of the Trust
receive no salary or fee from the Trust. Until a Portfolio has net assets of $25
million, no trustees' fees will be paid by that Portfolio. When a Portfolio has
net assets of at least $25 million but not more than $50 million, the Trustees,
other than Mr. Ventimiglia, will be paid an annual fee of $3,500 plus $500 for
each trustees' meeting attended and $100 for each committee meeting attended.
The following table sets forth the aggregate compensation paid by the Trust to
each of the Trustees for the year ended August 31, 1999.
Aggregate Compensation
Name of Trustee From the Trust
Bruce Ventimiglia $ 0
Patrick McCollough $20,310.14
Udo Koopmann $21,994.25
Floyd Seal $19,515.00
MANAGEMENT AND OTHER SERVICES
The manager of the Trust is Saratoga Capital Management ("Saratoga" or
the "Manager"), 1501 Franklin Avenue, Mineola, New York 11501. Pursuant to the
Management Agreement with the Trust (the "Management Agreement"), Saratoga,
subject to the supervision of the Trustees and in conformity with the stated
policies of the Trust, manages the operations of the Trust and reviews the
performance of the Advisers, and makes recommendations to the Trustees with
respect to the retention and renewal of contracts.
The following table sets forth the annual management fee rates payable
by each Portfolio to Saratoga pursuant to the Management Agreement, expressed as
a percentage of the Portfolio's average daily net assets:
<PAGE>
- ---------------------------------------------------------- --------------------
Total
Portfolio Management
Fee
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Large Capitalization Growth Portfolio................ 0.65%
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Large Capitalization Value Portfolio................. 0.65%
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Small Capitalization Portfolio....................... 0.65%
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
International Equity Portfolio....................... 0.75%
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Investment Quality Bond Portfolio.................... 0.55%
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
Municipal Bond Portfolio............................. 0.55%
- ---------------------------------------------------------- --------------------
- ---------------------------------------------------------- --------------------
U.S. Government Money Market Portfolio............... 0.475%
- ---------------------------------------------------------- --------------------
The fee is computed daily and payable monthly. Currently, the Manager
is voluntarily limiting expenses of the Portfolios as follows: for Class I
Shares -- 1.125% with respect to U.S. Government Money Market Portfolio, 1.20%
with respect to Investment Quality Bond Portfolio, 1.20% with respect to
Municipal Bond Portfolio, 1.30% with respect to Large Capitalization Value
Portfolio, 1.30% with respect to Large Capitalization Growth Portfolio, 1.30%
with respect to Small Capitalization Portfolio and 1.40% with respect to
International Equity Portfolio; for each of Class B and Class C Shares -- 2.125%
with respect to U.S. Government Money Market Portfolio, 2.20% with respect to
Investment Quality Bond Portfolio, 2.20% with respect to Municipal Bond
Portfolio, 2.30% with respect to Large Capitalization Value Portfolio, 2.30%
with respect to Large Capitalization Growth Portfolio, 2.30% with respect to
Small Capitalization Portfolio and 2.40% with respect to International Equity
Portfolio. For the year ended August 31, 1997, the Manager voluntarily waived
its management fees and assumed $73,464 and $31,195 in other operating expenses
for Municipal Bond and International Equity Portfolios, respectively. The
Manager also voluntarily waived $57,918; $48,882; $59,602; and $80,307 in
management fees for U.S. Government Money Market, Investment Quality Bond, Large
Capitalization Value, and small Capitalization, respectively. 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
voluntarily 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. For
the year ended August 31, 1999, the Manager voluntarily waived all of its
management fees in the amount of $63,104 and assumed $3,027 in other operating
expenses for Municipal Bond. The Manager also voluntarily waived $17,055;
$32,279; $9,858; $2,113 and $8,784 in management fees for Large Capitalization
Value, Small Capitalization, International Equity, Investment Quality Bond and
U.S. Government Money Market respectively, for the year ended August 31, 1999.
The Manager did not waive any fees for Large Capitalization Growth.
<PAGE>
Expenses not expressly assumed by Saratoga under the Management
Agreement or by Funds Distributor, Inc. under the Administration Agreement are
paid by the Trust. Expenses incurred by a Portfolio are allocated among the
various Classes of shares pro rata based on the net assets of the Portfolio
attributable to each Class, except that 12b-1 fees relating to a particular
Class are allocated directly to that Class. In addition, other expenses
associated with a particular Class, except advisory or custodial fees, may be
allocated directly to that Class, provided that such expenses are reasonably
identified as specifically attributable to that Class, and the direct allocation
to that Class is approved by the Trust's Board of Trustees. The fees payable to
each Adviser pursuant to the Investment Advisory Agreements between each Adviser
and Saratoga with respect to the Portfolios are paid by Saratoga. Under the
terms of the Management Agreement, the Trust is responsible for the payment of
the following expenses among others: (a) the fees payable to the Manager, (b)
the fees and expenses of Trustees who are not affiliated persons of the Manager
or the Trust's Advisers, (c) the fees and certain expenses of the Custodian and
Transfer and Dividend Disbursing Agent, including the cost of maintaining
certain required records of the Trust and of pricing the Trust's shares, (d) the
charges and expenses of legal counsel and independent accountants for the Trust,
(e) brokerage commissions and any issue or transfer taxes chargeable to the
Trust in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Trust to governmental agencies, (g) the fees of
any trade association of which the Trust may be a member, (h) the cost of share
certificates representing shares of the Trust, (i) the cost of fidelity and
liability insurance, (j) the fees and expenses involved in registering and
maintaining registration of the Trust and of its shares with the SEC, qualifying
its shares under state securities laws, including the preparation and printing
of the Trust's registration statements and prospectuses for such purposes, (k)
all expenses of shareholders and Trustees' meetings (including travel expenses
of trustees and officers of the Trust who are directors, officers or employees
of the Manager or Advisers) and of preparing, printing and mailing reports,
proxy statements and prospectuses to shareholders in the amount necessary for
distribution to the shareholders and (l) litigation and indemnification expenses
and other extraordinary expenses not incurred in the ordinary course of the
Trust's business.
The Management Agreement provides that Saratoga will not be liable for
any error of judgment or for any loss suffered by the Trust in connection with
the matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement will continue in effect for a period of more than
one year from the date of execution only so long as such continuance is
specifically approved at least annually in conformity with the 1940 Act. The
Management Agreement was last approved by the Trustees of the Trust including
all of the Trustees who are not parties to the contract or interested persons of
any such party as defined in the 1940 Act on April 12, 1999, for a period of one
year effective as of April 14, 1999.
<PAGE>
ADMINISTRATION AGREEMENT. Funds Distributor, Inc. acts as the Trust's
Administrator pursuant to an Administration Agreement which was approved by the
Trust's trustees on September 1, 1999. The Administration Agreement will remain
in effect for three years from the date of its effectiveness, September 21,
1999, and may be continued annually thereafter if approved in accordance with
requirements of the 1940 Act. Prior to the Administration Agreement currently in
effect, Unified Fund Services, Inc. served as the Trust's Administrator. For the
year ended August 31, 1997, each Portfolio accrued the following amounts in
administrative fees: U.S. Government Money Market, $39,242; Investment Quality
Bond, $36,802; Municipal Bond, $30,728; Large Capitalization Value, $38,957;
Large Capitalization Growth, $46,248; Small Capitalization, $37,893; and
International Equity, $31,899. For the year ended August 31, 1998, each
Portfolio accrued the following amounts in administrative fees: U.S. Government
Money Market, $35,159; Investment Quality Bond, $31,607; Municipal Bond, $9,425;
Large Capitalization Value, $43,563; Large Capitalization Growth, $70,934; Small
Capitalization, $38,677; and International Equity, $16,802. For the year ended
August 31, 1999, each Portfolio accrued the following amounts in administrative
fees: U.S. Government Money Market, $30,261; Investment Quality Bond, $30,006;
Municipal Bond, $9,230; Large Capitalization Value, $43,226; Large
Capitalization Growth, $72,939; Small Capitalization, $22,663; and International
Equity, $17,017.
INVESTMENT ADVISORY SERVICES
Subject to the supervision and direction of the Manager and,
ultimately, the Trustees, each Adviser manages the securities held by the
Portfolio it serves in accordance with the Portfolio's stated investment
objectives and policies, makes investment decisions for the Portfolio and places
orders to purchase and sell securities on behalf of the Portfolio.
The Advisory Agreements for the Portfolios were last approved by the
Trustees, including a majority of the Trustees who are not parties to such
contract or interested persons of any such parties, on April 12, 1999, for a
period of one year effective as of April 14, 1999.
Each Advisory Agreement provides that it will terminate in the event of
its assignment (as defined in the 1940 Act). Each Advisory Agreement may be
terminated by the Trust, Saratoga, or by vote of a majority of the outstanding
voting securities of the Trust, upon written notice to the Adviser, or by the
Adviser upon at least 100 days' written notice. Each Advisory Agreement provides
that it will continue in effect for a period of more than one year from its
execution only so long as such continuance is specifically approved at least
annually in accordance with the requirements of the 1940 Act.
Subject to the supervision and direction of the Manager and,
ultimately, the Trustees, each Adviser's responsibilities are limited to
managing the securities held by the Portfolio it serves in accordance with the
Portfolio's stated investment objective and policies, making investment
decisions for the Portfolio and placing orders to purchase and sell securities
on behalf of the Portfolio.
PLAN OF DISTRIBUTION. The Trust has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the 1940 Act (the "Plan") pursuant to which each
Class, other than Class I, pays the Distributor or other entities compensation
accrued daily and payable monthly at the annual rate of 1.0% of average daily
net assets of Class B and Class C, respectively. The Distributor or other
entities also receive the proceeds and contingent deferred sales charges imposed
on certain redemptions of shares, which are separate and apart from payments
made pursuant to the Plan.
<PAGE>
The Distributor has informed the Trust that a portion of the fees
payable each year pursuant to the Plan equal to 0.25% of such Class's average
daily net assets are currently each characterized as a "service fee" under the
Rules of the National Association of Securities Dealers, Inc. (of which the
Distributor is a member). The "service fee" is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion of
the Plan fees payable by a Class is characterized as an "asset-based sales
charge" as defined in the aforementioned Rules of the Association.
The Plan was adopted by a majority vote of the Board of Trustees,
including all of the Trustees of the Trust who are not "interested persons" of
the Trust (as defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Plan (the "Independent 12b-1
Trustees"), cast in person at a meeting called for the purpose of voting on the
Plan, on October 9, 1998 and was last approved on September 1, 1999, effective
as of September 21, 1999.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts extended by the Distributor or other entities
under the Plan and the purpose for which such expenditures were made.
The Plan may not be amended to increase materially the amount to be
spent for the services described therein without approval of the shareholders of
the affected Class or Classes of the Trust, and all material amendments of the
Plan must also be approved by the Trustees in the manner described above. The
Plan may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the Trust (as defined in the 1940 Act) on not
more than thirty days' written notice to any other party to the Plan. So long as
the Plan is in effect, the election and nomination of Independent Trustees shall
be committed to the discretion of the Independent Trustees.
At any given time, the expenses in distributing shares of each
Portfolio may be in excess of the total of (i) the payments made by the
Portfolio pursuant to the Plan, and (ii) the proceeds of CDSCs paid by investors
upon the redemption of shares. For example, if $1 million in expenses in
distributing shares of a Portfolio had been incurred and $750,000 had been
received as described in (i) and (ii) above, the excess expense would amount to
$250,000. Because there is not a requirement under the Plan that the Distributor
or other entities be reimbursed for all distribution expenses or any requirement
that the Plan be continued from year to year, such excess amount does not
constitute a liability of the Portfolio. Although there is no legal obligation
for the Portfolio to pay expenses incurred in excess of payments made to the
Distributor under the Plan, and the proceeds of CDSCs paid by investors upon
redemption of shares, if for any reason the Plan is terminated the Trustees will
consider at that time the manner in which to treat such expenses. Any cumulative
expenses incurred, but not yet recovered through distribution fees or CDSCs, may
or may not be recovered through future distribution fees or CDSCs. If expenses
in distributing shares are less than payments made for distributing shares, the
Distributor or other entities will retain the full amount of the payments.
<PAGE>
PORTFOLIO TRANSACTIONS. Each Adviser is responsible for decisions to
buy and sell securities, futures contracts and options thereon, the selection of
brokers, dealers and futures commission merchants to effect the transactions and
the negotiation of brokerage commissions, if any. As most, if not all, purchases
made by the Income Portfolios are principal transactions at net prices, those
made by the Income Portfolios are principal transactions at net prices, those
Portfolios pay no brokerage commissions; however, prices of debt obligations
reflect mark-ups and mark-downs which constitute compensation to the executing
dealer. Each Portfolio will pay brokerage commissions on transactions in listed
options and equity securities. Prices of portfolio securities purchased from
underwriters of new issues include a commission or concession paid by the issuer
to the underwriter, and prices of debt securities purchased from dealers include
a spread between the bid and asked prices. Each Adviser seeks to obtain prompt
execution of orders at the most favorable net price. Transactions may be
directed to dealers during the course of an underwriting in return for their
brokerage and research services, which are intangible and on which no dollar
value can be placed. There is no formula for such allocation. The research
information may or may not be useful to one or more of the Portfolios and/or
other accounts of the Advisers; information received in connection with directed
orders of other accounts managed by the Advisers or its affiliates may or may
not be useful to one or more of the Portfolios. Such information may be in
written or oral form and includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of the
Advisers, to make available additional views for consideration and comparison,
and to enable the Advisers to obtain market information for the valuation of
securities held in a Portfolio's assets.
<PAGE>
Sales of shares of each Portfolio, subject to applicable rules covering
the Distributor's activities in this area, will also be considered as a factor
in the direction of portfolio transactions to dealers, but only in conformity
with the price, execution and other considerations and practices discussed
above. A Portfolio will not purchase any securities from or sell any securities
to a broker that is affiliated with any of the Advisers (an "affiliated broker")
that is acting as principal for its own account. Each of the Advisers currently
serves as investment manager to a number of clients, including other investment
companies, and may in the future act as investment manager or adviser to others.
It is the practice of each Adviser to cause purchase or sale transactions to be
allocated among the Portfolios and others whose assets it manages in such manner
as it deems equitable. In making such allocations among the Portfolios and other
client accounts, the main factors considered are the respective investment
objectives, the relative size of Portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the Portfolios of each Portfolio and other client accounts. When orders
to purchase or sell the same security on identical terms are placed by more than
one of the Portfolios and/or other advisory accounts managed by an Adviser or
its affiliates, the transactions are generally executed as received, although a
Portfolio or advisory account that does not direct trades to a specific broker
("free trades") usually will have its order executed first. Purchases are
combined where possible for the purpose of negotiating brokerage commissions,
which in some cases might have a detrimental effect on the price or volume of
the security in a particular transaction as far as the Portfolio is concerned.
Orders placed by accounts that direct trades to a specific broker will generally
be executed after the free trades. All orders placed on behalf of the Portfolio
are considered free trades. However, having an order placed first in the market
does not necessarily guarantee the most favorable price.
Subject to the above considerations, an affiliated broker may act as a
securities broker or futures commission merchant for the Trust. In order for an
affiliate of an Adviser or Saratoga to effect any Portfolio transactions for the
Trust, the commissions, fees or other remuneration received by an affiliated
broker must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold during a comparable period
of time. This standard would allow an affiliated broker to receive no more than
the remuneration which would be expected to be received by an unaffiliated
broker in a commensurate arm's-length transaction. Furthermore, the Trustees,
including a majority of the Trustees who are not "interested" persons, have
adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to an affiliated broker are
consistent with the foregoing standard.
The following tables present information as to the allocation of
brokerage commissions by the Portfolios of the Trust for the year ended August
31, 1997, to Hoenig & Co, Inc. ("Hoenig"), which is an affiliated person of
Axe-Houghton Associates, Inc., and was considered an affiliated broker of the
Trust during that time period, and information as to the allocation of brokerage
commissions by the Portfolios for the years ended August 31, 1997, August 31,
1998 and August 31, 1999 to Oppenheimer & Co., Inc. ("OpCo"), which was an
affiliated person of OpCap Advisers, and was considered an affiliated broker of
the Trust during those time periods.
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------- ------------------ ----------------------- -------------------- --------------------------
Commissions Paid % of total % of total dollar
- ------------------------- ------------------ ----------------------- -------------------- --------------------------
- ------------------------- ------------------ ----------------------- -------------------- --------------------------
Portfolio Period to Hoenig* commissions paid amount of transactions
- ------------------------- ------------------ ----------------------- -------------------- --------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- ------------------------- ------------------ ----------------------- -------------------- --------------------------
Small Capitalization Year ended $3,300 3.7% 1.4%
8/31/97
- ------------------------- ------------------ ----------------------- -------------------- --------------------------
- ------------------------- ------------------ ----------------------- -------------------- --------------------------
- ------------------------- ------------------ ----------------------- -------------------- --------------------------
* Transactions with Hoenig & Co, Inc. were on an agency basis since principal transactions between the
Portfolio and an affiliated broker are restricted by the 1940 Act.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------- --------------- ---------------------- --------------------- ----------------------------
Portfolio Period Commissions Paid % of total % of total dollar
- --------- ------
to OpCo commissions paid amount of transactions
- -------------------------- --------------- ---------------------- --------------------- ----------------------------
- -------------------------- --------------- ---------------------- --------------------- ----------------------------
- -------------------------- --------------- ---------------------- --------------------- ----------------------------
- -------------------------- --------------- ---------------------- --------------------- ----------------------------
Large Capitalization Year ended $275 1.8% 0.3%
Value 8/31/97
- -------------------------- --------------- ---------------------- --------------------- ----------------------------
- -------------------------- --------------- ---------------------- --------------------- ----------------------------
- -------------------------- --------------- ---------------------- --------------------- ----------------------------
- -------------------------- --------------- ---------------------- --------------------- ----------------------------
Year ended $1,045 2.2% 2.2%
8/31/98
- -------------------------- --------------- ---------------------- --------------------- ----------------------------
- -------------------------- --------------- ---------------------- --------------------- ----------------------------
- -------------------------- --------------- ---------------------- --------------------- ----------------------------
- -------------------------- --------------- ---------------------- --------------------- ----------------------------
Year ended $1,210 1.1% 0.1%
8/31/99
- -------------------------- --------------- ---------------------- --------------------- ----------------------------
</TABLE>
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share for each class of shares of each
Portfolio is determined each day the New York Stock Exchange (the "Exchange") is
open, as of the close of the regular trading session of the Exchange that day
(currently 4:00 p.m. Eastern Time), by dividing the value of a Portfolio's net
assets by the number of its shares outstanding.
The Exchange's most recent annual announcement (which is subject to change)
states that it will close on New Year's Day, Dr. Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day. It may also close on other days.
Securities listed on a national securities exchange or designated
national market system securities are valued at the last reported sale price on
that day, or, if there has been no sale on such day or on the previous day on
which the Exchange was open (if a week has not elapsed between such days), then
the value of such security is taken to be the reported bid price at the time as
of which the value is being ascertained. Securities actively traded in the
over-the-counter market but not designated as national market system securities
are valued at the last quoted bid price. Any securities or other assets for
which current market quotations are not readily available are valued at their
fair value as determined in good faith under procedures established by and under
the general supervision and responsibility of the Trust's Board of Trustees. The
value of a foreign security is determined in its national currency and that
value is then converted into its US dollar equivalent at the foreign exchange
rate in effect on the date of valuation.
The Trust's Board of Trustees has approved the use of nationally
recognized bond pricing services for the valuation of each Portfolio's debt
securities. The services selected create and maintain price matrices of U.S.
Government and other securities from which individual holdings are valued
shortly after the close of business each trading day. Debt securities not
covered by the pricing services are valued upon bid prices obtained from dealers
who maintain an active market therein or, if no readily available market
quotations are available from dealers, such securities (including restricted
securities and OTC options) are valued at fair value under the Board's
procedures. Short-term (having a maturity of 60 days or less) debt securities
are valued at amortized cost.
<PAGE>
Puts and calls are valued at the last sales price therefor, or, if
there are no transactions, at the last reported sales price that is within the
spread between the closing bid and asked prices on the valuation date. Futures
are valued based on their daily settlement value. When a Portfolio writes a
call, an amount equal to the premium received is included in the Portfolio
Statement of Assets and Liabilities as an asset, and an equivalent deferred
credit is included in the liability section. The deferred credit is adjusted
("marked-to-market") to reflect the current market value of the call. If a call
written by a Portfolio is exercised, the proceeds on the sale of the underlying
securities are increased by the premium received. If a call or put written by a
Portfolio expires on its stipulated expiration date or if a Portfolio enters
into a closing transaction, it will realize a gain or loss depending on whether
the premium was more or less than the transaction costs, without regard to
unrealized appreciation or depreciation on the underlying securities. If a put
held by a Portfolio is exercised by it, the amount the Portfolio receives on its
sale of the underlying investment is reduced by the amount of the premium paid
by the Portfolio.
The U.S. Government Money Market Portfolio utilizes the amortized cost
method in valuing its portfolio securities for purposes of determining the net
asset value of the shares of the Portfolio. The Portfolio utilizes the amortized
cost method in valuing its portfolio securities even though the portfolio
securities may increase or decrease in market value, generally, in connection
with changes in interest rates. The amortized cost method of valuation involves
valuing a security at its cost adjusted by a constant amortization to maturity
of any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Portfolio
would receive if it sold the instrument. During such periods, the yield to
investors in the Portfolio may differ somewhat from that obtained in a similar
company which uses mark to market values from all its portfolio securities. For
example, if the use of amortized cost resulted in a lower (higher) aggregate
portfolio value on a particular day, a prospective investor in the Portfolio
would be able to obtain a somewhat higher (lower) yield than would result from
investment in such a similar company and existing investors would receive less
(more) investment income. The purpose of this method of calculation is to
facilitate the maintenance of a constant net asset value per share of $1.00.
<PAGE>
The Portfolio's use of the amortized cost method to value its portfolio
securities and the maintenance of the per share net asset value of $1.00 is
permitted pursuant to Rule 2a-7 of the 1940 Act (the "Rule"), and is conditioned
on its compliance with various conditions including: (a) the Trustees are
obligated, as a particular responsibility within the overall duty of care owed
to the Portfolio's shareholders, to establish procedures reasonably designed,
taking into account current market conditions and the Portfolios investment
objectives, to stabilize the net asset value per share as computed for the
purpose of distribution and redemption at $1.00 per share; (b) the procedures
include (i) calculation, at such intervals as the Trustees determine are
appropriate and as are reasonable in light of current market conditions, of the
deviation, if any, between net asset value per share using amortized cost to
value portfolio securities and net asset value per share based upon available
market quotations with respect to such portfolio securities; (ii) periodic
review by the Trustees of the amount of deviation as well as methods used to
calculate it; and (iii) maintenance of written records of the procedures, the
Trustees' considerations made pursuant to them and any actions taken upon such
considerations; (c) the Trustees should consider what steps should be taken, if
any, in the event of a difference of more than 1/2 of 1% between the two methods
of valuation; and (d) the Trustees should take such action as they deem
appropriate (such as shortening the average portfolio maturity, realizing gains
or losses or as provided by the Agreement and Declaration of Trust, reducing the
number of the outstanding shares of the Portfolio to eliminate or reduce to the
extent reasonably practicable material dilution or other unfair results to
investors or existing shareholders). Any reduction of outstanding shares will be
effected by having each shareholder proportionately contribute to the
Portfolio's capital the necessary shares that represent the amount of excess
upon such determination. Each shareholder will be deemed to have agreed to such
contribution in these circumstances by investment in the Portfolio.
The Rule further requires that the Portfolio limit its investments to
U.S. dollar-denominated instruments which the Trustees determine present minimal
credit risks and which are Eligible Securities (as defined below). The Rule also
requires the Portfolio to maintain a dollar-weighted average portfolio maturity
(not more than 90 days) appropriate to its objective of maintaining a stable net
asset value of $1.00 per share and precludes the purchase of any instrument with
remaining maturity of more than thirteen months. Should the disposition of a
Portfolio security result in a dollar-weighted average portfolio maturity of
more than 90 days, the Portfolio would be required to invest its available cash
in such a manner as to reduce such maturity to 90 days or less as soon as
reasonably practicable.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio instrument is deemed to be the period remaining
(calculated from the trade date or such other date on which the Portfolio's
interest in the instrument is subject to market action) until the date noted on
the face of the instrument as the date on which the principal amount must be
paid, or in the case of an instrument called for redemption, the date on which
the redemption payment must be made.
A variable rate obligation that is subject to a demand feature is
deemed to have a maturity equal to the longer of the period remaining until the
next readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand. A floating rate instrument
that is subject to a demand feature is deemed to have a maturity equal to the
period remaining until the principal amount can be recovered through demand.
An Eligible Security is defined in the Rule to mean a security which:
(a) has a remaining maturity of thirteen months or less; (b) (i) is rated in the
two highest short-term rating categories by any two nationally recognized
statistical rating organizations ("NRSROs") that have issued a short-term rating
with respect to the security or class of debt obligations of the issuer, or (ii)
if only one NRSRO has issued a short-term rating with respect to the security,
then by that NRSRO; (c) was a long-term security at the time of issuance whose
issuer has outstanding a short-term debt obligation which is comparable in
priority and security and has a rating as specified in clause (b) above; or (d)
if no rating is assigned by any NRSRO as provided in clauses (b) and (c) above,
the unrated security is determined by the Board to be of comparable quality to
any such rated security.
As permitted by the Rule, the Trustees have delegated to the
Portfolio's Adviser, subject to the Trustees' oversight pursuant to guidelines
and procedures adopted by the Trustees, the authority to determine which
securities present minimal credit risks and which unrated securities are
comparable in quality to rated securities.
<PAGE>
If the Trustees determine that it is no longer in the best interests of
the Portfolio and its shareholders to maintain a stable price of $1.00 per
share, or if the Trustees believe that maintaining such price no longer reflects
a market-based net asset value per share, the Trustees have the right to change
from an amortized cost basis of valuation to valuation based on market
quotations. The Trust will notify shareholders of any such change.
The Portfolio will manage its portfolio in an effort to maintain a
constant $1.00 per share price, but it cannot assure that the value of its
shares will never deviate from this price. Since dividends from net investment
income are declared and reinvested on a daily basis, the net asset value per
share, under ordinary circumstances, is likely to remain constant. Otherwise,
realized and unrealized gains and losses will not be distributed on a daily
basis but will be reflected in the Portfolio's net asset value. The amounts of
such gains and losses will be considered by the Trustees in determining the
action to be taken to maintain the Trust's $1.00 per share net asset value. Such
action may include distribution at any time of part or all of the then
accumulated undistributed net realized capital gains, or reduction or
elimination of daily dividends by an amount equal to part or all of the then
accumulated net realized capital losses. However, if realized losses should
exceed the sum of net investment income plus realized gains on any day, the net
asset value per share on that day might decline below $1.00 per share. In such
circumstances, the Trust may eliminate the payment of daily dividends for a
period of time in an effort to restore the Trust's $1.00 per share net asset
value. A decline in prices of securities could result in significant unrealized
depreciation on a mark-to-market basis. Under these circumstances the Portfolio
may reduce or eliminate the payment of dividends and utilize a net asset value
per share as determined by using available market quotations or reduce the
number of its shares outstanding.
PORTFOLIO YIELD AND TOTAL RETURN INFORMATION
PERFORMANCE INFORMATION
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
CURRENT YIELD AND EFFECTIVE YIELD. The Trust may from time to time
advertise the current yield and effective annual yield of the U.S. Government
Money Market Portfolio calculated over a 7-day period. The yield quoted will be
the simple annualized yield for an identified seven calendar day period. The
yield calculation will be based on a hypothetical account having a balance of
exactly one share at the beginning of the seven-day period. The base period
return will be the change in the value of the hypothetical account during the
seven-day period, including dividends declared on any shares purchased with
dividends on the share but excluding any capital changes. The yield will vary as
interest rates and other conditions affecting money market instruments change.
Yield also depends on the quality, length of maturity and type of instruments in
the Portfolio, and its operating expenses. The Portfolio may also prepare an
effective annual yield computed by compounding the unannualized seven-day period
return as follows: by adding 1 to the unannualized 7-day period return, raising
the sum to a power equal to 365 divided by 7, and subtracting 1 from the result.
Effective Yield = (base period return +1)365/7 -1
<PAGE>
OTHER PORTFOLIOS
YIELDS. Yield information may be useful to investors in reviewing a
Portfolio's performance. However, a number of factors should be considered
before using yield information as a basis for comparison with other investments.
An investment in any of the Portfolios of the Trust is not insured; yield is not
guaranteed and normally will fluctuate on a daily basis. The yield for any given
past period is not an indication or representation of future yields or rates of
return. Yield is affected by Portfolio quality, Portfolio maturity, type of
instruments held and operating expenses. When comparing a Portfolio's yield with
that of other investments, investors should understand that certain other
investment alternatives such as money-market instruments or bank accounts
provide fixed yield and also that bank accounts may be insured.
The Trust may from time to time advertise the yield of a Portfolio as
calculated over a 30-day period. This yield will be computed by dividing the
Trust's net investment income per share earned during this 30-day period by the
maximum offering price per share on the last day of this period. The average
number of shares used in determining the net investment income per share will be
the average daily number of shares outstanding during the 30-day period that
were eligible to receive dividends. In accordance with regulations of the
Securities and Exchange Commission, income will be computed by totaling the
interest earned on all debt obligations during the 30-day period and subtracting
from that amount the total of all expenses incurred during the period, which
include management and distribution fees. The 30-day yield is then annualized on
a bond-equivalent basis assuming semi-annual reinvestment and compounding of net
investment income, as described in the Prospectus.
Yield is calculated according to the following formula:
------------------------------------------
YIELD = 2[(a-b +1)^6 - 1]
cd
------------------------------------------
Where:
x = daily net investment income, based upon the subtraction of daily
accrued expenses from daily accrued income of the Portfolio. Income is
accrued daily for each day of the indicated period based upon
yield-to-maturity of each obligation held in the Portfolio as of the
day before the beginning of any thirty-day period or as of contractual
settlement date for securities acquired during the period. Mortgage and
other receivables-backed securities calculate income using coupon rate
and outstanding principal amount.
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
<PAGE>
Yield does not reflect capital gains or losses, non-recurring or
irregular income. Gain or loss attributable to actual monthly paydowns on
mortgage or other receivables-backed obligations purchased at a discount or
premium is reflected as an increase or decrease in interest income during the
period.
TAX EQUIVALENT YIELD is computed by dividing that portion of the
current yield (computed as described above) which is tax exempt by 1 minus a
stated tax rate and adding the quotient to that portion, if any, of the yield of
the Portfolio that is not tax exempt.
E
TAX EQUIVALENT YIELD = ---------- + t
1-P
Where: E = tax exempt yield
P = stated income tax rate
t = taxable yield
The Municipal Bond Portfolio may advertise tax-equivalent yields at
varying assumed tax rates.
AVERAGE ANNUAL TOTAL RETURN
The Trust may from time to time advertise the average annual total
return of a Portfolio. These figures are computed separately for Class I, Class
B and Class C shares. Average annual total return is computed by finding the
average annual computed rates of return over the 1, 5 and 10 year periods that
would equate the initial amount invested to the ending redeemable value
according to the following formula:
P (1+t)n = ERV
Where: P = a hypothetical initial investment of $1,000
t = average annual total return
n = number of years
ERV = ending redeemable value of P at the end of each period
Total return information may be useful to investors in reviewing a
Portfolio's performance. However, certain factors should be considered before
using this information as a basis for comparison with alternate investments. No
adjustment is made for taxes payable on distributions. The total return for any
given past period is not an indication or representation by the Portfolio of
future rates of return on its shares.
<PAGE>
Total returns quoted in advertising reflect all aspects of a
Portfolio's return including the effect of reinvesting dividends and capital
gain distributions, and any change in a Portfolio's net asset value per share
over the period. Average annual returns are calculated by determining the growth
or decline in value of a hypothetical investment in a Portfolio over a stated
period, and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual return that would equal 100% growth on a compounded basis in ten years.
AGGREGATE TOTAL RETURN
The Trust may from time to time advertise the aggregate total return of
a Portfolio. A Portfolio's aggregate total return figures represent the
cumulative change in the value of an investment in the Portfolio for the
specified period and are computed by the following formula:
ERV - P
--------
P
Where: P = a hypothetical initial payment of $1000.
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made
at the beginning of the 1, 5, or 10 year period at the end of the 1, 5
or 10 year period (or fractional portion thereof).
Unaveraged or cumulative total returns reflect the simple change in
value of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns and other performance
information may be quoted numerically or in a table, graph or similar
illustration.
The average annual total return for Class I on an investment made in
Class I Shares of the Portfolios for the year ended August 31, 1999 and for the
period of inception (September 2, 1994) through year ended August 31, 1999 are
as follows:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Average Annual Total Average Annual Total
Name of Portfolio ----------------------------------- --------------------------------
Return for the year ended Return for period of inception
through year ended August 31,
August 31, 1999* 1999*
- -------------------------------------------------- ------------------------------------ ---------------------------------
- -------------------------------------------------- ------------------------------------ ---------------------------------
Large Capitalization Value 19.84% 18.66%
- -------------------------------------------------- ------------------------------------ ---------------------------------
- -------------------------------------------------- ------------------------------------ ---------------------------------
Large Capitalization Growth 54.03% 23.48%
- -------------------------------------------------- ------------------------------------ ---------------------------------
- -------------------------------------------------- ------------------------------------ ---------------------------------
Small Capitalization 34.91% 9.17%
- -------------------------------------------------- ------------------------------------ ---------------------------------
- -------------------------------------------------- ------------------------------------ ---------------------------------
International Equity 21.70% 6.57%
- -------------------------------------------------- ------------------------------------ ---------------------------------
- -------------------------------------------------- ------------------------------------ ---------------------------------
Investment Quality Bond 1.33% 5.18%
- -------------------------------------------------- ------------------------------------ ---------------------------------
- -------------------------------------------------- ------------------------------------ ---------------------------------
Municipal Bond -2.55% 4.54%
- -------------------------------------------------- ------------------------------------ ---------------------------------
</TABLE>
* During the year ended August 31, 1999, the Manager waived all or a portion of
its management fee for each Portfolio other than Large Capitalization Growth.
The Manager also assumed a portion of the operating expenses of the Municipal
Bond Portfolio. All Portfolios benefitted from expense offset arrangements with
the custodian bank. Without such waivers, expense assumptions and expense
offsets, the returns would have been lower.
The cumulative total returns for Class B and Class C on an investment
made in Class B or Class C Shares of the Portfolios for the period January 4,
1999 (date of inception) to August 31, 1999 are as follows:
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Cumulative Total Returns for Class B Cumulative Total Returns for Class C
Name of Portfolio Shares for the period January 4 to Shares for the period January 4 to
August 31, 1999* August 31, 1999*
- ---------------------------------------- -------------------------------------- ---------------------------------------
- ---------------------------------------- -------------------------------------- ---------------------------------------
U.S. Government Money Market 1.94% 1.99%
- ---------------------------------------- -------------------------------------- ---------------------------------------
- ---------------------------------------- -------------------------------------- ---------------------------------------
Investment Quality (1.32%) (1.21%)
- ---------------------------------------- -------------------------------------- ---------------------------------------
- ---------------------------------------- -------------------------------------- ---------------------------------------
Municipal Bond (4.00%) (4.12%)
- ---------------------------------------- -------------------------------------- ---------------------------------------
- ---------------------------------------- -------------------------------------- ---------------------------------------
Large Capitalization Value 1.43% 1.53%
- ---------------------------------------- -------------------------------------- ---------------------------------------
- ---------------------------------------- -------------------------------------- ---------------------------------------
Large Capitalization Growth 8.12% 8.25%
- ---------------------------------------- -------------------------------------- ---------------------------------------
- ---------------------------------------- -------------------------------------- ---------------------------------------
Small Capitalization 7.61% 7.82%
- ---------------------------------------- -------------------------------------- ---------------------------------------
- ---------------------------------------- -------------------------------------- ---------------------------------------
International Equity 6.51% 6.59%
- ---------------------------------------- -------------------------------------- ---------------------------------------
</TABLE>
* During the year ended August 31, 1999, the Manager waived all or a portion of
its management fee for each Portfolio other than Large Capitalization Growth.
The Manager also assumed a portion of the operating expenses of the Municipal
Bond Portfolio. All Portfolios benefitted from expense offset arrangements with
the custodian bank. Without such waivers, expense assumptions and expense
offsets, the returns would have been lower.
<PAGE>
YIELD FOR 30-DAY PERIOD
ENDED AUGUST 31, 1999*
Portfolio
Investment Quality Bond Portfolio
-Class I 5.42%
-Class B 4.73%
-Class C 4.59%
Municipal Bond Portfolio
-Class I 4.43%
-Class B 3.42%
-Class C 1.75%
* Reflects the waiver of management fees, assumption of certain operating
expenses of the Municipal Bond Portfolio, and the benefit of expense offset
arrangements. Without such waivers, assumptions and expense offsets, the yields
would have been 5.42%, 4.70% and 4.60, respectively, for Class I, Class B and
Class C Shares of the Investment Quality Bond Portfolio, and 3.86%, 3.42% and
(4.88%), respectively, for Class I, Class B and Class C Shares of the Municipal
Bond Portfolio.
TAX EQUIVALENT YIELD FOR 30-DAY PERIOD
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ---------------- -------------------- ------------------ ------------------ --------------------
At Federal At Federal
Portfolio 30 Day Period At Federal Income Income Tax Rate Income Tax Rate At Federal Income
- ---------
Ended Tax Rate of 28% of 31% of 36% Tax Rate of 39%
----- ----------- ------ ------ -----------
- --------------------- ---------------- -------------------- ------------------ ------------------ --------------------
- --------------------- ---------------- -------------------- ------------------ ------------------ --------------------
Municipal
Bond-Class I 8/31/99* 6.15% 6.42% 6.92% 7.26%
- --------------------- ---------------- -------------------- ------------------ ------------------ --------------------
- --------------------- ---------------- -------------------- ------------------ ------------------ --------------------
Municipal
Bond-Class B 8/31/99* 4.75% 4.96% 5.35% 5.61%
- --------------------- ---------------- -------------------- ------------------ ------------------ --------------------
- --------------------- ---------------- -------------------- ------------------ ------------------ --------------------
Municipal
Bond-Class C 8/31/99* 2.43% 2.53% 2.73% 2.86%
- --------------------- ---------------- -------------------- ------------------ ------------------ --------------------
</TABLE>
* During the 30-day period ended August 31, 1999, the Manager waived the
management fee, assumed certain expenses and benefitted from expense offset
arrangements for the Municipal Bond Portfolio. Without such waivers, expense
assumptions and expense offsets, the yields for the Municipal Bond Portfolio
would have been 5.36% at the 28% Federal income tax rate, 5.60% at the 31%
Federal income tax rate, 6.03% at the 36% Federal income tax rate and 6.33% at
the 39% Federal income tax rate, for Class I Shares, 4.75% at the 28% Federal
income tax rate, 4.96% at the 31% Federal income tax rate, 5.35% at the 36%
Federal income tax rate and 5.61% at the 39% Federal income tax rate, for Class
B Shares, and (6.78%) at the 28% Federal income tax rate, (7.07%) at the 31%
Federal income tax rate, (7.62%) at the 36% Federal income tax rate and (8.00%)
at the 39% Federal income tax rate, for Class C Shares, each for the period
ended August 31, 1999.
<PAGE>
YIELD FOR SEVEN-DAY PERIOD*
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------ ----------------------- ---------------------- --------------------------
Portfolio Period Ended Current Effective
- ------------------------------------------ ----------------------- ---------------------- --------------------------
- ------------------------------------------ ----------------------- ---------------------- --------------------------
U.S. Government Money Market August 31, 1999 4.15% 4.23%
Portfolio-Class I
- ------------------------------------------ ----------------------- ---------------------- --------------------------
- ------------------------------------------ ----------------------- ---------------------- --------------------------
U.S. Government Money Market August 31, 1999 3.22% 3.27%
Portfolio-Class B
- ------------------------------------------ ----------------------- ---------------------- --------------------------
- ------------------------------------------ ----------------------- ---------------------- --------------------------
U.S. Government Money Market August 31, 1999 3.28% 3.33%
Portfolio-Class C
- ------------------------------------------ ----------------------- ---------------------- --------------------------
</TABLE>
* During the seven day period ended August 31, 1999 the Manager waived a portion
of the entire management fee, assumed certain expenses, and benefitted from an
expense offset arrangement with respect to the U.S. Government Money Market
Portfolio. Without such waiver, expense assumptions and expense offsets, the
current yield and effective yield would have been 4.15% and 4.23% for Class I
Shares, 3.22% and 3.27% for Class B Shares, and 3.28% and 3.33% for Class C
Shares.
From time to time the Portfolios may refer in advertisements to
rankings and performance statistics published by (1) recognized mutual fund
performance rating services including but not limited to Lipper Analytical
Services, Inc. and Morningstar, Inc., (2) recognized indexes including but not
limited to the Standard & Poor's Composite Stock Price Index, Russell 2000
Index, Dow Jones Industrial Average, Consumer Price Index, EAFE Index, Lehman
Brothers Government/Corporate Bond Index, the S&P Barra/Growth Index, the
S&P/Barra Value Index, Lehman Municipal Bond Index and (3) Money Magazine and
other financial publications including but not limited to magazines, newspapers
and newsletters. Performance statistics may include yields, total returns,
measures of volatility, standard deviation or other methods of portraying
performance based on the method used by the publishers of the information. In
addition, comparisons may be made between yields on certificates of deposit and
U.S. government securities and corporate bonds, and between value stocks and
growth stocks, and may refer to current or historic financial or economic trends
or conditions.
The performance of the Portfolios may be compared to the performance of
other mutual funds in general, or to the performance of particular types of
mutual funds. These comparisons may be expressed as mutual fund rankings
prepared by Lipper Analytical Services, Inc. ("Lipper"), an independent service
located in Summit, New Jersey that monitors the performance of mutual funds.
Lipper generally ranks funds on the basis of total return, assuming reinvestment
of distributions, but does not take sales charges or redemption fees into
consideration, and is prepared without regard to tax consequences. In addition
to the mutual fund rankings, performance may be compared to mutual fund
performance indices prepared by Lipper.
<PAGE>
From time to time, a Portfolio's performance also may be compared to
other mutual funds tracked by financial or business publications and
periodicals. For example, the Portfolio may quote Morningstar, Inc., in its
advertising materials. Morningstar, Inc. is a mutual fund rating service that
rates mutual funds on the basis of risk-adjusted performance.
Saratoga Capital Management or Funds Distributor, Inc. (the
"Distributor") (which replaced Unified Management Corporation as the Trust's
distributor effective September 21, 1999) may provide information designed to
help individuals understand their investment goals and explore various financial
strategies such as general principles of investing, such as asset allocation,
diversification, risk tolerance, goal setting, and a questionnaire designed to
help create a personal financial profile.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds, intermediate
term government bonds, long-term government bonds, Treasury bills, the U.S. rate
of inflation (based on CPI), and combinations of various capital markets. The
performance of these capital markets is based on the returns of different
indices.
Saratoga Capital Management or the Distributor may use the performance
of these capital markets in order to demonstrate general risk-versus-reward
investment scenarios. Performance comparisons may also include the value of a
hypothetical investment in any of these capital markets. The risks associated
with the security types in any capital market may or may not correspond directly
to those of the Portfolios. The Portfolios may also compare performance to that
of other compilations or indices that may be developed and made available in the
future.
In advertising materials, the Distributor may reference or discuss its
products and services, which may include: retirement investing; brokerage
products and services; the effects of dollar-cost averaging and saving for
college; and the risks of market timing. In addition, the Distributor may quote
financial or business publications and periodicals, including model Portfolios
or allocations, as they relate to fund management, investment philosophy, and
investment techniques.
The Portfolios may present their fund number, Quotron number, CUSIP
number, and discuss or quote their current portfolio manager.
VOLATILITY. The Portfolios may quote various measures of volatility and
benchmark correlation in advertising. In addition, the Portfolios may compare
these measures to those of other funds. Measures of volatility seek to compare a
fund's historical share price fluctuations or total returns to those of a
benchmark. Measures of benchmark correlation indicate how valid a comparative
benchmark may be. All measures of volatility and correlation are calculated
using averages of historical data.
Momentum indicators indicate the Portfolios' price movements over
specific periods of time. Each point on the momentum indicator represents the
Portfolios' percentage change in price movements over that period.
<PAGE>
The Portfolios may advertise examples of the effects of periodic
investment plans, including the principle of dollar cost averaging. In such a
program, an investor invests a fixed dollar amount in a fund at periodic
intervals, thereby purchasing fewer shares when prices are high and more shares
when prices are low. While such a strategy does not assure a profit or guard
against a loss in a declining market, the investor's average cost per share can
be lower than if fixed numbers of shares are purchased at the same intervals. In
evaluating such a plan, investors should consider their ability to continue
purchasing shares during periods of low price levels.
The Portfolios may be available for purchase through retirement plans
or other programs offering deferral of or exemption from income taxes, which may
produce superior after-tax returns over time. For example, a $1,000 investment
earning a taxable return of 10% annually would have an after-tax value of $1,949
after ten years, assuming tax was deducted from the return each year at a 28%
rate. An equivalent tax-deferred investment would have an after-tax value of
$2,100 after ten years, assuming tax was deducted at a 31% rate from the
tax-deferred earnings at the end of the ten-year period.
CERTAIN TAX CONSIDERATIONS
GENERAL. The following discussion is only a summary of certain tax
considerations generally affecting the Trust, each Portfolio of the Trust, and
shareholders of Portfolios, and is not intended as a substitute for careful tax
planning. The discussion does not purport to deal with all of the Federal, state
and local tax consequences applicable to an investment in each Portfolio or to
all categories of investors, some of which may be subject to special rules.
Shareholders are urged to consult their tax advisors with specific reference to
their own tax situations.
Each Portfolio generally will make two basic types of distributions:
ordinary dividends and long-term capital gain distributions. These two types of
distributions are reported differently on a shareholder's income tax return and
they are also subject to different rates of tax (or, in the case of ordinary
dividends of the Municipal Bond Portfolio, may be "exempt-interest dividends
generally exempt from Federal income tax). The tax treatment of the investment
activities of each Portfolio will affect the amount and timing and character of
the distributions made by such Portfolio. Shareholders are urged to consult
their own tax professionals regarding specific questions as to federal, state or
local taxes.
INVESTMENT COMPANY TAXATION. Each Portfolio intends to remain qualified
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986. As such, a Portfolio will not be subject to federal income tax on
its net investment income and capital gains, if any, to the extent that it
distributes such income and capital gains to its shareholders.
<PAGE>
Each Portfolio in the Trust generally intends to distribute sufficient
income and gains so that the Fund will not pay corporate income tax on its
earnings. Each Portfolio also generally intends to distribute to its
shareholders in each calendar year a sufficient amount of ordinary income and
capital gains to avoid the imposition of a 4% excise tax. If a Portfolio retains
all or part of any net long-term capital gains in any year for reinvestment, the
Portfolio will pay federal income tax (and possibly excise tax) on such retained
gains.
Gains or losses on sales of securities by a Portfolio will be long-term
capital gains or losses if the securities have a tax holding period of more than
one year. Gains or losses on the sale of securities with a tax holding period of
one year or less will be short-term gains or losses.
As a general rule, a Portfolio's transactions in futures contracts and
options will increase or decrease the amount of long-term and short-term capital
gains or losses realized by the Portfolio and, accordingly, will affect the
amount of capital gains distributed to the Portfolio's shareholders. Gains or
losses on a Portfolio's transactions in regulated futures contracts, options on
broad-based stock indices, options on stock index futures, certain other futures
contracts and options thereon generally are treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss. When a Portfolio engages
in options and futures transactions, various tax rules may accelerate or defer
recognition of certain gains and losses, change the character of certain gains
or losses, or alter the holding period of other investments held by the Fund.
The application of these rules would therefore also affect the amount, timing
and character of distributions made by the Portfolio.
A Portfolio's foreign currency gains or losses from forward contracts,
futures contracts that are not "regulated futures contracts", and unlisted
options, and certain other foreign currency gains or losses derived with respect
to fixed-income securities, are treated as ordinary income or loss. In general,
such foreign currency gains or losses will increase or decrease the amount of
the Portfolio's income available to be distributed to shareholders as ordinary
income, rather than increasing or decreasing the amount of the Portfolio's net
capital gain. Additionally, if such foreign currency losses exceed other
ordinary income during a taxable year, a Portfolio would not be able to make
ordinary income distributions for the year.
<PAGE>
Under certain tax rules, a Portfolio may be required to include an
amount in income with respect to a security even though the Portfolio does not
receive payments in cash attributable to such income in respect of the security
during the year. For example, a Portfolio may be required to accrue a portion of
any discount at which it purchases a debt security as income in each year. In
addition, if the Portfolio invests in an equity security of a non-U.S.
corporation classified as a "passive foreign investment company" for U.S. tax
purposes, the application of certain technical tax provisions applying to
investments in such companies may result in the Portfolio being required to
accrue income in respect of the security without any receipt of cash
attributable to such income. To the extent that a Portfolio invests in any
securities producing such "phantom income", the Portfolio will nonetheless be
required to make income distributions of such phantom income in order to avoid
taxation of such income at the Portfolio level. Such distributions will be
required to be made from available cash of the Portfolio or by liquidation or
Portfolio securities if necessary. If a distribution of cash necessitates the
liquidation of Portfolio securities, the Portfolio may realize a gain or loss
from such sales. Any net capital gains realized from such transactions may
result in larger capital gain distributions (if any) to shareholders than they
would have received in the absence of such transactions.
THE MUNICIPAL BOND PORTFOLIO
Because the Municipal Bond Portfolio will distribute exempt-interest
dividends, interest on indebtedness incurred by a shareholder to purchase or
carry shares of the Municipal Bond Portfolio is not deductible for Federal
income tax purposes. If a shareholder of the Municipal Bond Portfolio receives
exempt-interest dividends with respect to any share and if such share is held by
the shareholder for six months or less, then any loss on the sale or exchange of
such share may, to the extent of such exempt-interest dividends, be disallowed.
In addition, the Code may require a shareholder, if he or she receives
exempt-interest dividends, to treat as taxable income a portion of certain
otherwise non-taxable social security and railroad retirement benefit payments.
Furthermore, that portion of any exempt-interest dividend paid by the Municipal
Bond Portfolio which represents income derived from private activity bonds held
by the Portfolio may not retain its tax-exempt status in the hands of a
shareholder who is a "substantial user" of a facility financed by such bonds, or
a "related person" thereof. Moreover, as noted in the Prospectus, some of the
Municipal Bond Portfolio's dividends may be a specific preference item or a
component of an adjustment item, for purposes of the Federal individual and
corporate alternative minimum taxes. In addition, the receipt of dividends and
distributions from the Municipal Bond Portfolio also may affect a Subchapter S
corporate shareholder's Federal "excess net passive income" tax liability.
Shareholders should consult their own tax advisers as to whether they are (a)
substantial users with respect to a facility or related to such users within the
meaning of the Code or (b) subject to a Federal alternative minimum tax, the
Federal environmental tax, the Federal branch profits tax or the Federal excess
net passive income tax.
Each shareholder of the Municipal Bond Portfolio will receive after the
close of the calendar year an annual statement as to the Federal income tax
status of his or her dividends and distributions from the Portfolio for the
prior calendar year. These statements also will designate the amount of
exempt-interest dividends that is a specified preference in term for purposes of
the Federal individual and corporate alternative minimum taxes. Each shareholder
of the Municipal Bond Portfolio will also receive a report of the percentage and
source on a state-by-state basis of interest income on municipal obligations
received by the Portfolio during the preceding year. Shareholders should consult
their tax advisers as to any other state and local taxes that may apply to these
dividends and distributions. In the event that the Municipal Bond Portfolio
derives taxable net investment income, it intends to designate as taxable
dividends the same percentage of each day's dividend as its actual taxable net
investment income bears to its total taxable net investment income earned on
that day. Therefore, the percentage of each day's dividend designated as
taxable, if any, may vary from day to day.
<PAGE>
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities. Similar proposals may be introduced in the
future. If such a proposal were enacted, the availability of municipal
securities for investment by the Municipal Bond Portfolio could be affected. In
that event the Board of Trustees of the Trust would reevaluate the investment
objections and policies of the Municipal Bond Portfolio.
Individuals are often exempt from state and local personal income taxes
on distributions of tax-exempt interest income derived from obligations of
issuers located in the state in which they reside when these distributions are
received directly from these issuers, but are usually subject to such taxes on
income derived from obligations of issuers located in other jurisdictions. The
discussion does not purport to deal with all of the Federal, state and local tax
consequences applicable to an investment in the Municipal Bond Portfolio, or to
all categories of investors, some of which may be subject to special rules.
Shareholders are urged to consult their tax advisers with specific reference to
their own tax situations.
ALL PORTFOLIOS
TAXATION OF DIVIDENDS AND DISTRIBUTIONS. Shareholders normally will
have to pay federal income taxes, and any state and/or local income taxes, on
the dividends and other distributions they receive from any Portfolio in the
Trust (other than "exempt-interest dividends" received from the Municipal Bond
Portfolio). Any dividends and distributions, to the extent that they are derived
from net investment income or short-term capital gains, are taxable to the
shareholder as ordinary income regardless of whether the shareholder receives
such payments in additional shares or in cash.
Any net long-term capital gains realized by a Portfolio will be
distributed annually as described in the Prospectus. Such distributions
("capital gain dividends") will be taxable to shareholders as long-term capital
gains, regardless of how long a shareholder has held shares of the Portfolio and
regardless of whether the distribution is received in additional shares or in
cash. Such distributions will be designated as capital gain dividends in a
written notice mailed by the Portfolio to shareholders after the close of the
Portfolio's taxable year. If a shareholder receives a capital gain dividend with
respect to any share and if the share has been held by the shareholder for six
months or less, then any loss (to the extent not disallowed pursuant to the
other six-month rule described above relating to exempt-interest dividends) on
the sale or exchange of such share will be treated as a long-term capital loss
to the extent of the capital gain dividend. Short-term capital gains will be
distributed annually as ordinary income as required by the Internal Revenue
Code.
At August 31, 1999, the following Portfolio 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 2007
- ----------------- ----- ---- ---- ---- ---- ----
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. Government Money Market $2,309 $ 0 $ 0 $ 32 $ 187 $2,090
- --------------------------------------------------------------------------------
<PAGE>
Any dividend or capital gains distribution received by a shareholder
from any regulated investment company will have the effect of reducing the net
asset value of the shareholder's stock in that company by the exact amount of
the dividend or capital gains distribution. Furthermore, such dividends and
capital gains distributions are subject to federal income taxes. If the net
asset value of the shares should be reduced below a shareholder's cost as a
result of the payment of dividends or the distribution of realized long-term
capital gains, such payment or distribution would represent economically in part
a return of the shareholder's investment but nonetheless would be taxable to the
shareholder. Therefore, an investor should consider the tax implications of
purchasing Portfolio shares immediately prior to a distribution record date.
Subject to certain exceptions, a domestic corporate shareholder may be
eligible for a 70% dividends received deduction to the extent that each
Portfolio earns and distributes qualifying dividends from its investments.
Distributions of net capital gains by a Portfolio will not be eligible for the
dividends received deduction.
Shareholders who are not citizens or residents of the United States and
certain foreign entities may be subject to withholding of United States tax on
distributions made by a Portfolio.
REDEMPTIONS AND EXCHANGES. In general, a sale of shares results in
capital gain or loss and, for individual shareholders, is taxable at a federal
rate dependent upon the length of time the shares were held. A redemption of a
shareholder's Portfolio shares is normally treated as a sale for tax purposes.
Portfolio shares held for a period of one year or less will, for tax purposes,
generally result in short-term gains or losses and those held for more than one
year generally result in long-term gain or loss. Under current law, the maximum
tax rate on long-term capital gains is 20%. Any loss realized by shareholders
upon a redemption of shares within six months of the date of their purchase will
be treated as a long-term capital loss to the extent of any distributions of net
long-term capital gains with respect to such shares during the six-month period.
Exchange of a Portfolio's shares for shares of another fund, including
shares of other Portfolios in The Saratoga Advantage Trust, are also subject to
similar tax treatment. Such an exchange is treated for tax purposes as a sale of
the original shares in the first fund, followed by the purchase of shares in the
second fund.
If a shareholder realizes a loss on the redemption or exchange of a
Portfolio's shares and reinvests in that Portfolio's shares within 30 days
before or after the redemption or exchange, the transactions may be subject to
the "wash sale" rules, resulting in a postponement of the recognition of such
loss for tax purposes.
<PAGE>
BACKUP WITHHOLDING. If a shareholder fails to furnish a correct
taxpayer identification number, fails to fully report dividend or interest
income or fails to certify that he or she has provided a correct taxpayer
identification number and that he or she is not subject to backup withholding,
then the shareholder may be subject to a 31% "backup withholding tax," with
respect to (a) taxable dividends and distributions, and (b) the proceeds of any
redemptions of shares of a Portfolio. An individual's taxpayer identification
number is his or her social security number. The backup withholding tax is not
an additional tax and will be credited against a taxpayer's regular Federal
income tax liability.
ADDITIONAL INFORMATION
DESCRIPTION OF THE TRUST. It is not contemplated that regular annual
meetings of shareholders will be held. Shareholders of each Portfolio have the
right, upon the declaration in writing or vote by two-thirds of the outstanding
shares of the Portfolio, to remove a Trustee. The Trustees will call a meeting
of shareholders to vote on the removal of a Trustee upon the written request of
the record holders (for at least six months) of 10% of its outstanding shares.
In addition, 10 shareholders holding the lesser of $25,000 or 1% of a
Portfolio's outstanding shares may advise the Trustees in writing that they wish
to communicate with other shareholders of that Portfolio for the purpose of
requesting a meeting to remove a Trustee. The Trustees will then either give the
applicants access to the Portfolio's shareholder list or mail the applicant's
communication to all other shareholders at the applicant's expense.
When issued, shares of each class are fully paid and have no
preemptive, conversion (except Class B Shares) or other subscription rights.
Each class of shares represents identical interests in the applicable
Portfolio's investment Portfolio. As such, they have the same rights, privileges
and preferences, except with respect to: (a) the designation of each class, (b)
the effect of the respective sales charges, if any, for each class, (c) the
distribution fees borne by each class, (d) the expenses allocable exclusively to
each class, (e) voting rights on matters exclusively affecting a single class
and (f) the exchange privilege of each class. Upon liquidation of the Trust or
any Portfolio, shareholders of each class of shares of a Portfolio are entitled
to share pro rata in the net assets of that class available for distribution to
shareholders after all debts and expenses have been paid. The shares do not have
cumulative voting rights.
The assets received by the Trust on the sale of shares of each
Portfolio and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are allocated to each Portfolio, and constitute the
assets of such Portfolio. The assets of each Portfolio are required to be
segregated on the Trust's books of account. Expenses not otherwise identified
with a particular Portfolio will be allocated fairly among two or more
Portfolios by the Board of Trustees. The Trust's Board of Trustees has agreed to
monitor the Portfolio transactions and management of each of the Portfolios and
to consider and resolve any conflict that may arise.
The Agreement and Declaration of Trust contains an express disclaimer
of shareholder liability for each Portfolio's obligations, and provides that
each Portfolio shall indemnify any shareholder who is held personally liable for
the obligations of that Portfolio. It also provides that each Portfolio shall
assume, upon request, the defense of any claim made against any shareholder for
any act or obligation of that Portfolio and shall satisfy any judgment thereon.
<PAGE>
POSSIBLE ADDITIONAL PORTFOLIO SERIES. If additional Portfolios are
created by the Board of Trustees, shares of each such Portfolio will be entitled
to vote as a group only to the extent permitted by the 1940 Act (see below) or
as permitted by the Board of Trustees.
Under Rule 18f-2 of the 1940 Act, any matter required to be submitted
to a vote of shareholders of any investment company which has two or more series
outstanding is not deemed to have been effectively acted upon unless approved by
the holders of a "majority" (as defined in that Rule) of the voting securities
of each series affected by the matter. Such separate voting requirements do not
apply to the election of trustees or the ratification of the selection of
accountants. Approval of an investment management or distribution plan and a
change in fundamental policies would be regarded as matters requiring separate
voting by each Portfolio. The Rule contains provisions for cases in which an
advisory contract is approved by one or more, but not all, series. A change in
investment policy may go into effect as to one or more series whose holders so
approve the change even though the required vote is not obtained as to the
holders of other affected series.
INDEPENDENT AUDITORS. Ernst & Young, LLP, 787 Seventh Avenue, New York,
New York 10019 serves as the independent auditors of the Trust and of each
Portfolio. Their services include auditing the annual financial statements and
financial highlights of each Portfolio as well as other related services.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICING AGENT. State Street
Bank and Trust Company acts as transfer agent, shareholder servicing agent and
custodian of the assets of the Trust.
DISTRIBUTION OPTIONS. Shareholders may change their distribution options by
giving the Transfer Agent three days prior notice in writing.
TAX INFORMATION. The Federal tax treatment of the Portfolios' dividends
and distributions is explained in the Prospectus under the heading "Dividends,
Distributions and Taxes." A Portfolio will be subject to a nondeductible 4%
excise tax to the extent that it fails to distribute by the end of any calendar
year substantially all its ordinary income for that year and capital gains for
the one year period ending on October 31 of that year.
RETIREMENT PLANS. The Distributor may print advertisements and
brochures concerning retirement plans, lump sum distributions and 401-k plans.
These materials may include descriptions of tax rules, strategies for reducing
risk and descriptions of 401-k programs. From time to time hypothetical
investment programs illustrating various tax-deferred investment strategies will
be used in brochures, sales literature, and omitting prospectuses. The following
examples illustrate the general approaches that will be followed. These
hypotheticals will be modified with different investment amounts, reflecting the
amounts that can be invested in different types of retirement programs,
different assumed tax rates, and assumed rates of return. They should not be
viewed as indicative of past or future performance of any of the Distributor's
products.
<PAGE>
REDEMPTION IN KIND. If the Board of Trustees determines that it would
be detrimental to the best interests of a Portfolio's shareholders to make a
redemption payment wholly in cash, the Portfolio may pay, in accordance with
rules adopted by the SEC, any portion of a redemption in excess of the lesser of
$250,000 or 1% of the Portfolio's net assets by a distribution in kind of
readily marketable portfolio securities in lieu of cash. Redemptions failing to
meet this threshold must be made in cash. Shareholders receiving distributions
in kind of portfolio securities may incur brokerage commissions when
subsequently disposing of those securities.
<PAGE>
EXAMPLES
- --------------------------------------------------------------------------
Benefits of Long Term Tax-Free Compounding - Single Sum
- --------------------------------------------------------------------------
- --------------------- ----------------------------------------------------
Amount of Contribution: $100,000
- --------------------- ----------------------------------------------------
- --------------------- ----------------------------------------------------
Rates of Return
- ---------------------
- --------------------- ---------------- -----------------
Years
- --------------------- ----------------- ---------------- -----------------
- --------------------- ----------------- ---------------- -----------------
8.00% 10.00% 12.00%
- --------------------- ----------------- ---------------- -----------------
- --------------------- ----------------------------------------------------
Value at end
- --------------------- ----------------------------------------------------
- --------------------- ----------------- ---------------- -----------------
5 $ 146,933 $ 161,051 $ 176,234
- --------------------- ----------------- ---------------- -----------------
- --------------------- ----------------- ---------------- -----------------
10 $ 215,892 $ 259,374 $ 310,585
- --------------------- ----------------- ---------------- -----------------
- --------------------- ----------------- ---------------- -----------------
15 $ 317,217 $ 417,725 $ 547,357
- --------------------- ----------------- ---------------- -----------------
- --------------------- ----------------- ---------------- -----------------
20 $ 466,096 $ 672,750 $ 964,629
- --------------------- ----------------- ---------------- -----------------
- --------------------- ----------------- ---------------- -----------------
25 $ 684,848 $1,083,471 $1,700,006
- --------------------- ----------------- ---------------- -----------------
- --------------------- ----------------- ---------------- -----------------
30 $1,006,266 $1,744,940 $2,995,992
- --------------------- ----------------- ---------------- -----------------
- --------------------------------------------------------------------------
Benefits of Long Term Tax-Free Compounding - Periodic Investment
- --------------------------------------------------------------------------
- --------------------- ----------------------------------------------------
Amount Invested Annually: $2,000
- --------------------- ----------------------------------------------------
- --------------------- ----------------------------------------------------
Rates of Return
- ---------------------
- --------------------- ---------------- -----------------
Years
- --------------------- ----------------- ---------------- -----------------
- --------------------- ----------------- ---------------- -----------------
8.00% 10.00% 12.00%
- --------------------- ----------------- ---------------- -----------------
- --------------------- ----------------------------------------------------
Value at End
- --------------------- ----------------------------------------------------
- --------------------- ----------------- ---------------- -----------------
5 $12,672 $ 13,431 $ 14,230
- --------------------- ----------------- ---------------- -----------------
- --------------------- ----------------- ---------------- -----------------
10 $31,291 $ 35,062 $ 39,309
- --------------------- ----------------- ---------------- -----------------
- --------------------- ----------------- ---------------- -----------------
15 $58,649 $ 69,899 $ 83,507
- --------------------- ----------------- ---------------- -----------------
- --------------------- ----------------- ---------------- -----------------
20 $98,846 $126,005 $161,397
- --------------------- ----------------- ---------------- -----------------
- --------------------- ----------------- ---------------- -----------------
25 $157,909 $216,364 $298,668
- --------------------- ----------------- ---------------- -----------------
- --------------------- ----------------- ---------------- -----------------
30 $244,692 $361,887 $540,585
- --------------------- ----------------- ---------------- -----------------
<PAGE>
- --------------------------------------------------------------------------------
Comparison of Taxable and Tax-Free Investing -- Periodic Investments
(Assumed Tax Rate:28%)
- --------------------------------------------------------------------------------
- ------------ -------------------------------------------------------------------
Amount of Annual Contribution (Pre-Tax): $2,000
- ------------ -------------------------------------------------------------------
- ------------ -------------------------------------------------------------------
Tax Deferred Rates of Return
- ------------ -------------------------------------------------------------------
- ------------ -------------------------- ------------------------- --------------
Years
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
8.00% 10.00% 12.00%
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------------------------------------------------
Value at End
- ------------ -------------------------------------------------------------------
- ------------ -------------------------- ------------------------- --------------
5 $12,672 $13,431 $14,230
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
10 $31,291 $35,062 $39,309
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
15 $58,649 $69,899 $83,507
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
20 $98,846 $126,005 $161,397
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
25 $157,909 $216,364 $298,668
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
30 $244,692 $361,887 $540,585
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------------------------------------------------
Annual Contribution (After Tax): $1,440
Fully Taxed Rates of Return
- ------------ -------------------------------------------------------------------
- ------------ -------------------------- ------------------------- --------------
Years
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
5.76% 7.20% 8.64%
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------------------------------------------------
Value at End
- ------------ -------------------------------------------------------------------
- ------------ -------------------------- ------------------------- --------------
5 $ 8,544 $ 8,913 $ 9,296
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
10 $19,849 $21,531 $23,364
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
15 $34,807 $39,394 $44,654
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
20 $54,598 $64,683 $76,874
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
25 $80,785 $100,485 $125,635
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
30 $115,435 $151,171 $199,429
- ------------ -------------------------- ------------------------- --------------
<PAGE>
- --------------------------------------------------------------------------------
Comparison of Tax Deferred Investing
-- Deducting Taxes at End
(Assumed Tax Rate at End: 28%)
- --------------------------------------------------------------------------------
- ------------ -------------------------------------------------------------------
Amount of Annual Contribution: $2,000
- ------------ -------------------------------------------------------------------
- ------------ -------------------------------------------------------------------
Tax Deferred Rates of Return
- ------------ -------------------------------------------------------------------
- ------------ -------------------------- ------------------------- --------------
Years
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
8.00% 10.00% 12.00%
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------------------------------------------------
Value at end
- ------------ -------------------------------------------------------------------
- ------------ -------------------------- ------------------------- --------------
5 $11,924 $12,470 $13,046
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
10 $28,130 $30,485 $33,903
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
15 $50,627 $58,728 $68,525
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
20 $82,369 $101,924 $127,406
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
25 $127,694 $169,782 $229,041
- ------------ -------------------------- ------------------------- --------------
- ------------ -------------------------- ------------------------- --------------
30 $192,978 $277,359 $406,021
- ------------ -------------------------- ------------------------- --------------
FINANCIAL STATEMENTS
The financial statements and independent auditor's report required to
be included in this Statement of Additional Information are incorporated herein
by reference to the Trust's Annual Report to Shareholders for the year ended
August 31, 1999. The Trust will provide the Annual Report without charge upon
request by calling the Trust at 1-800-807-FUND (1-800-807-3863).
<PAGE>
APPENDIX A -- RATINGS
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
Aaa. Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of these issues.
Aa. Bonds which are rated Ae are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements;
their future payments cannot be considered as well assured. Often the protection
of interest and principal may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies the numerical modifiers 1, 2, and 3 to each generic
rating classification from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
<PAGE>
DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS
Aaa. Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. They are rated lower than the Aaa bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which made
the long-term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A are judged to be upper medium grade
obligations. Security for principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future.
Baa. Bonds which are rated Baa are considered as medium grade
obligations, i.e.; they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements
and their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not well
safeguarded during both good and bad times. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack the characteristics of a
desirable investment. Assurance of interest and principal payments or of other
terms of the contract over long periods may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be elements of danger present with respect to
principal or interest.
DESCRIPTION OF S&P CORPORATE BOND RATINGS
AAA. Bonds rated AAA have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA. Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in a small degree.
<PAGE>
A. Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB AND B. Bonds rated BB and B are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
DESCRIPTION OF S&P'S MUNICIPAL BOND RATINGS
AAA. Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree. The AA
rating may be modified by the addition of a plus or minus sign to show relative
standing within the AA rating category.
A. Debt rated A is regarded as safe. This rating differs from the two
higher ratings because, with respect to general obligation bonds, there is some
weakness which, under certain adverse circumstances, might impair the ability of
the issuer to meet debt obligations at some future date. With respect to revenue
bonds, debt service coverage is good but not exceptional and stability of
pledged revenues could show some variations because of increased competition or
economic influences in revenues.
BBB. Bonds rated BBB are regarded as having adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in the A category.
BB. Debt rated BB has less near-term vulnerability to default than
other speculative grade debt, however, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payment.
<PAGE>
B. Debt rated B has a greater vulnerability to default bit presently
has the capacity to meet interest and principal payments. Adverse business,
financial or economic conditions would likely impair capacity or willingness to
pay interest and repay principal.
CCC. Debt rated CCC has a current identifiable vulnerability to default
and is dependent upon favorable business, financial and economic conditions to
meet timely payments of principal. In the event of adverse business, financial
or economic conditions, it is not likely to have the capacity to pay interest
and repay principal.
DESCRIPTION OF FITCH'S MUNICIPAL BOND RATINGS
Debt rated "AAA", the highest rating by Fitch, is considered to be of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
Debt rated "AA" is regarded as very high credit quality. The obligor's
ability to pay interest and repay principal is very strong.
Debt rated "A" is of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than debt
with higher ratings.
Debt rated "BBB" is of satisfactory credit quality. The obligor's
ability to pay interest and repay principal is adequate, however a change in
economic conditions may adversely affect timely payment.
Debt rated "BB" is considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes, however, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
Debt rated "B" is considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
Debt rated "CCC" has certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA)
to indicate the relative position within the category.
<PAGE>
DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES AND OTHER SHORT-TERM
LOANS
Moody's ratings for state and municipal notes and other short-term
loans are designated "Moody's Investment Grade" ("MIG"). Such ratings recognize
the differences between short-term credit risk and long-term risk. A short-term
rating designated VMIG may also be assigned on an issue having a demand feature.
Factors affecting the liquidity of the borrower and short-term cyclical elements
are critical in short-term borrowing.
Symbols used will be as follows:
MIG-l/VMIG-1. This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
DESCRIPTION OF S&P'S RATINGS OF STATE AND MUNICIPAL NOTES AND OTHER SHORT-TERM
LOANS
Standard & Poor's tax exempt note ratings are generally given to such
notes that mature in three years or less. The two higher rating categories are
as follows:
SP-1. Very strong or strong capacity to pay principal and interest.
These issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated Prime-l by Moody's are judged by Moody's to be
of the best quality. Their short-term debt obligations carry the smallest degree
of investment risk. Margins of support for current indebtedness are large or
stable with cash flow and asset protection well insured. Current liquidity
provides ample coverage of near-term liabilities and unused alternative
financing arrangements are generally available. While protective elements may
change over the intermediate or longer term, such changes are most unlikely to
impair the fundamentally strong position of short-term obligations.
<PAGE>
Issuers (or related supporting institutions) rated Prime-2 have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Commercial paper rated A by S&P have the following characteristics.
Liquidity ratios are better than industry average. Long-term debt rating is A or
better. The issuer has access to at least two additional channels of borrowing.
Basic earnings and cash flow are in an upward trend. Typically, the issuer is a
strong company in a well-established industry and has superior management.
Issuers rated A are further refined by use of numbers 1, 2, and 3 to denote
relative strength within this highest classification. Those issuers rated A-1
that are determined by S&P to possess overwhelming safety characteristics are
denoted with a plus (+) sign designation.
Fitch's commercial paper ratings represent Fitch's assessment of the
issuer's ability to meet its obligations in a timely manner. The assessment
places emphasis on the existence of liquidity. Ratings range from F-1+ which
represents exceptionally strong credit quality to F-4 which represents weak
credit quality.
Duff & Phelps' short-term ratings apply to all obligations with
maturities of under one year, including commercial paper, the uninsured portion
of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit and current maturities of long-term
debt. Emphasis is placed on liquidity. Ratings range from Duff 1+ for the
highest quality to Duff 5 for the lowest, issuers in default. Issues rated Duff
1+ are regarded as having the highest certainty of timely payment. Issues rated
Duff 1 are regarded as having very high certainty of timely payment.
Part C Other Information
Item 24. Financial Statements and Exhibits
Financial Statements:
Included in the Prospectus:
Financial Highlights
Included in Part B:
The financial statements and independent auditors' report
required to be included in part B are incorporated therein by
reference to the Registrant's Annual Report to Shareholders
for the year ended August 31, 1999.
Included in Part C:
None
Exhibits:
(1) (a) Agreement and Declaration of Trust.*
(b) Amendment No. 1 to the Agreement and Declaration
of Trust.*
(2) By-laws of Registrant.*
(3) Not Applicable.
(4) Not Applicable.
(5) (a) Form of Management Agreement.**
(b) (1) Form of Investment Advisory Agreement
between Saratoga Capital Management and Sterling
Capital Management Company with respect to the US
Government Money Market Portfolio.**
(b) (1) (i) Amendment to the Investment Advisory
Agreement filed herewith.
(b) (2) Form of Investment Advisory Agreement between
Saratoga Capital Management and Fox Asset Management,
Inc. with respect to the Investment Quality Bond
Portfolio. **
(b) (2) (i) Amendment to the Investment Advisory
Agreement filed herewith.
(b) (3) Form of Investment Advisory Agreement between
Saratoga Capital Management and OpCap Advisors with
respect to the Municipal Bond Portfolio. **
(b) (4) Form of Investment Advisory Agreement between
Saratoga Capital Management and OpCap Advisors with
respect to the Large Capitalization Value
Portfolio. **
(b) (5) Form of Investment Advisory Agreement between
Saratoga Capital Management and Harris Bretall
Sullivan & Smith Inc. with respect to the Large
Capitalization Growth Portfolio. **
(b) (6) Form of Investment Advisory Agreement between
Saratoga Capital Management and Thorsell, Parker
Partners with respect to the Small Capitalization
Portfolio. **
(b) (7) Form of Investment Advisory Agreement between
Saratoga Capital Management and Ivory & Sime
International, Inc. with respect to the International
Equity Portfolio. **
(b) (8) Form of Sub-Investment Advisory Agreement
between Ivory & Sime International, Inc. and Ivory &
Sime plc with respect to the International Equity
Portfolio. **
(6) (a) General Distributor's Agreement. ***
(b) Soliciting Dealer Agreement. **
(7) Not Applicable.
(8) Custodian Contract.*
(9) Administration Agreement filed herewith.
(10) Opinion and consent of counsel as to the legality of
the securities being registered, indicating whether
they will when sold be legally issued, fully paid and
non-assessable.*
(11) (a) Consent of Ernst & Young LLP is filed herewith.
(12) Not Applicable.
(13) Agreement relating to initial capital.*
(14) Not Applicable.
(15) (a) Distribution plan relating to Class B
shares ****
(b) Distribution plan relating to Class C
shares ****
(c) Distribution Agreement filed herewith.
(d) Form of Selling Agreement with Funds
Distributor, Inc. filed herewith.
(16) Schedule for Computation of Performance
Calculations.*
(17) Financial Data Schedules are filed herewith
(18) Rule 18f-3 Plan ****
(19) Powers of Attorney ***
*Filed with Post-effective Amendment No. 1 on 5/5/1995 to the Registrant's
Registration Statement, and hereby incorporated by reference
**Filed with Post-effective Amendment No. 4 on 3/7/1997 to the Registrant's
Registration Statement, and hereby incorporated by reference
***Filed with Post-effective Amendment No. 5 on 11/3/1997 to the
Registrant's Registration Statement, and hereby incorporated by reference
****Filed with Post-effective Amendment No. 6 on 11/3/1998 to the
Registrant's Registration Statement, and hereby incorporated by reference.
Item 25. Persons Controlled by or Under Common Control with Registrant
No person is presently controlled by or under common control
with the Registrant.
Item 26. Number of Holders of Securities
Number of Record
Holders as of
Title of Class September 30, 1999
-------------- ------------------
Shares of Beneficial Interest
U.S. Government Money Market Portfolio.......3,449
Investment Quality Bond Portfolio............2,436
Municipal Bond Portfolio..................... 477
Large Capitalization Value Portfolio.........5,082
Large Capitalization Growth Portfolio........5,126
Small Capitalization Portfolio...............4,537
International Equity Portfolio...............4,068
Item 27. Indemnification
See Article VI of the Registrant's Agreement and Declaration
of Trust.
A determination that a trustee or officer is entitled to
indemnification may be made by a reasonable determination,
based upon a review of the facts, that the person was not
liable by reason of Disabling Conduct (as defined in the
Agreement and Declaration of Trust) by (a) a vote of a
majority of a quorum of Trustees who are neither interested
persons of the Trust (as defined under the Investment Company
Act of 1940) nor parties to the proceeding or (b) an
independent legal counsel in a written opinion. Expenses
including counsel and accountants fees (but excluding amounts
paid in satisfaction of judgments, in compromise or as fines
or penalties) may be advanced pending final disposition of the
proceeding provided that the officer or trustee shall have
undertaken to repay the amounts to the Trust if it is
ultimately determined that indemnification is not authorized
under the Agreement and Declaration of Trust and (i) such
person shall have provided security for such undertaking, (ii)
the Trust shall be insured against losses arising by reason of
any lawful advances or (iii) a majority of a quorum of
disinterested Trustees who are not party to the proceeding, or
an independent legal counsel in a written opinion, shall have
determined based on review of readily available facts that
there is reason to believe that the officer or trustee
ultimately will be found entitled to indemnification.
Item 28. Business and Other Connections of Investment Advisers
See "Management of the Trust" in the Prospectus and
"Investment Advisory Services" in the Additional Statement
regarding the business of the investment advisers. For
information as to the business, profession, vocation or
employment of a substantial nature of each of the officers and
directors of the investment advisers, reference is made to the
Form ADV of Sterling Capital Management Company, File No. 801-
8776, the Form ADV of Thorsell, Parker Partners, Inc, File No
801- 42814 , the Form ADV of Fox Asset Management, Inc., File.
801-26397, the Form ADV of Ivory & Sime International, Inc.,
File No. 801-13750, the Form ADV of Harris Bretall Sullivan &
Smith, Inc. File No. 801-7369 and the Form ADV of OpCap
Advisors (formerly Quest for Value Advisors), File No.
801-27180, filed under the Investment Advisers Act of 1940,
and Schedules D and F thereto, incorporated herein by
reference.
Item 29. Principal Underwriters
(a) Funds Distributor, Inc. ("Funds Distributor") acts as
principal underwriter for the following investment
companies.
American Century California Tax-Free and
Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
The Brinson Funds
CDC MPT+ Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Dresdner RCM Investment Funds Inc.
J. P. Morgan Institutional Funds
J.P. Morgan Funds
JPM Series Trust
JPM Series Trust II
LaSalle Partners Funds, Inc.
Merrimac Series
Monetta Fund, Inc.
The Montgomery Funds I
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
National Investors Cash Management Fund, Inc.
Nomura Pacific Basin Fund, Inc.
Orbitex Group of Funds
Saratoga Advantage Trust
SG Cowen Funds, Inc.
SG Cowen Income + Growth Fund, Inc.
SG Cowen Standby Reserve Fund, Inc.
SG Cowen Standby Tax-Exempt Reserve Fund, Inc.
SG Cowen Series Funds, Inc.
SoGen Funds, Inc.
SoGen Variable Funds, Inc.
St. Clair Funds, Inc.
The Skyline Funds
TD Waterhouse Trust
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.
Funds Distributor is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Funds Distributor is located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109. Funds Distributor is an
indirect wholly-owned subsidiary of Boston Institutional Group, Inc., a holding
company all of whose outstanding shares are owned by key employees.
(b) The following is a list of the executive officers,
directors and partners of Funds Distributor, Inc.
Position and
Position and Offices with Funds Distributor Name Offices with
Fund
Director, President and Chief Executive Officer Marie E. Connolly None
Executive Vice-President George A. Rio None
Executive Vice-President Donald R. Roberson None
Executive Vice-President William S. Nichols None
Senior Vice-President, General Counsel, Chief Margaret W. Chambers None
Compliance Officer, Secretary and Clerk
Director, Senior Vice-President, Treasurer Joseph F. Tower, III None
And Chief Financial Officer
Senior Vice-President Paula R. David None
Senior Vice-President Gary S. MacDonald None
Senior Vice-President Judith K. Benson None
Chairman and Director William J. Nutt None
Item 30. Location of Required Records -- Rule 31a-1
State Street Bank and Trust Company
One Heritage Drive
North Quincy, Mass. 01271
Will maintain records required by Rule 31a-1(b)(1), (b)(2),
(b)(3), (b)(5), (b)(6), (b)(7) and (b)(8).
OpCap Advisors
One World Financial Center
New York, NY 10281
Will maintain records required by Rule 31a-1(b)(4) and (b)(11)
and (b)(9) and (b)(10) with respect to the Municipal Bond and
the Large Capitalization Value Portfolio.
Records required by 31a-1(b)(9) and (b)(10) will be maintained
on behalf of the following portfolios by their respective
Advisors:
Investment Quality Bond Fox Asset Management, Inc.
44 Sycamore Avenue
Little Silver, NJ 07739
Large Capitalization Harris Bretall Sullivan & Smith, Inc
Growth Portfolio One Post Street
San Francisco, CA 94104
Small Capitalization Thorsell, Parker Partners, Inc.
Portfolio 265 Post Road West
Westport, CT 06880
U.S. Government Sterling Capital Management Company
Money Market Portfolio One First Union Center
301 S College Street
Suite 3200
Charlotte, NC 28202
International Equity Friends Ivory & Sime plc
Portfolio Princes Court
7 Princes Street
London, England EC2R8AQ
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to assist shareholder
communication in accordance with the provisions of
Section 16 of the Investment Company Act of 1940 and
to call a meeting of shareholders for the purpose of
voting upon the question of the removal of a Trustee
or Trustees when requested in writing to do so by the
holders of at least 10% of the Registrant's
outstanding shares of beneficial interest.
(d) Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders,
upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the requirements
for effectiveness of this Registration Statement under rule 485(a) under the
Securities Act of 1933 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, duly authorized, in the City of
Mineola, and State of New York, on the 27th day of December, 1999.
SARATOGA ADVANTAGE TRUST
By /s/ Bruce E. Ventimiglia
Bruce E. Ventimiglia
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on December 27, 1999.
Signature Title
/s/ Bruce E. Ventimiglia Trustee, Chairman of the Board
Bruce E. Ventimiglia and President
(principal executive officer)
/s/ William P. Marra Treasurer
William P. Marra (principal financial officer and
principal accounting Officer)
*
______________________ Trustee
Patrick H. McCollough
*
______________________ Trustee
Udo W. Koopmann
*
______________________ Trustee
Floyd E. Seal
*By /s/Stuart M. Strauss
Stuart M. Strauss
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit Description
- - ------- ------------
1. Consent of Ernst & Young LLP............... .......... EX-99.B11.1
2. Amendment to the Investment Advisory Agreement..........EX-99.B5b.1.i
3. Amendment to the Investment Advisory Agreement..........EX-99.B5b.2.i
4. Distribution Agreement..................................EX-99.C15.c
5. Distribution Agreement..................................EX-99.C15.d
6. Administration Agreement................................EX-99.9
7. Financial Data Schedules................................EX-27
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the incorporation by reference of
our report dated October 15, 1999 in this Registration Statement (Form N-1A No.
33-79708) of The Saratoga Advantage Trust.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
December 27, 1999
AMENDMENT TO THE INVESTMENT ADVISORY AGREEMENT
BETWEEN SARATOGA CAPITAL MANAGEMENT
AND STERLING CAPITAL MANAGEMENT COMPANY
REGARDING THE SARATOGA ADVANTAGE TRUST
The Investment Advisory Agreement between Saratoga Capital Management and
Sterling Capital Management Company regarding the Saratoga Advantage Trust dated
April 14, 1997 is hereby amended as follows:
Subparagraph 5(a) is replaced in its entirety with the following:
5(a) As compensation for services performed and costs assumed hereunder, the
Manager agrees to pay the Advisor a fee that is computed daily and paid monthly
at the following annual rates: 12.5 basis points per annum on the first $50
million of net assets managed, 10 basis points per annum on the next $50 million
of net assets managed, and 6.5 basis points per annum on net assets managed over
$100 million (the "Portfolio Advisory Fee"), reduced in the same percentage as
the Manager when the Manager reduces its fee to the Portfolio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals, if any, to be hereunto affixed, as of May 1, 1999.
SARATOGA CAPITAL MANAGEMENT
Attest: /s/ By: /s/ Bruce E. Ventimiglia
STERLING CAPITAL MANAGEMENT COMPANY
Attest: /s/ By: /s/ Alexander McAlister
AMENDMENT TO THE INVESTMENT ADVISORY AGREEMENT
BETWEEN SARATOGA CAPITAL MANAGEMENT
AND FOX ASSET MANAGEMENT INC.
REGARDING THE SARATOGA ADVANTAGE TRUST
The Investment Advisory Agreement between Saratoga Capital Management and Fox
Asset Management Inc. regarding the Saratoga Advantage Trust dated April 14,
1997 is hereby amended as follows:
Subparagraph 5(a) is replaced in its entirety with the following:
5(a) As compensation for services performed and costs assumed hereunder, the
Manager agrees to pay the Advisor a fee that is computed daily and paid monthly
at the following annual rates: 20 basis points per annum on the first $50
million of net assets managed, 15 basis points per annum on the next $50 million
of net assets managed, and 10 basis points per annum on net assets managed over
$100 million (the "Portfolio Advisory Fee"), reduced in the same percentage as
the Manager when the Manager reduces its fee to the Portfolio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals, if any, to be hereunto affixed, as of May 1, 1999.
SARATOGA CAPITAL MANAGEMENT
Attest: /s/ By:/s/ Bruce E. Ventimiglia
FOX ASSET MANAGEMENT INC.
Attest: /s/ By: /s/ John R. Sampson
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of the 21st day of September, 1999 by and
between The Saratoga Advantage Trust (the "Trust"), a Delaware business trust,
on behalf of its series listed on Schedule A, attached hereto, together with all
other series subsequently established and made subject to this Agreement in
accordance with Section 4.3 below (each a "Portfolio," collectively the
"Portfolios") and Funds Distributor, Inc., a Massachusetts corporation having a
place of business at 60 State Street, Suite 1300, Boston, Massachusetts 02109
("FDI").
WHEREAS, the beneficial shares of the Trust are currently divided into
a number of separate series of shares, or funds, each corresponding to a
Portfolio, and many of which are also divided into multiple classes of shares.
For purposes of this Agreement the term "Shares" shall mean the authorized
shares of the relevant Portfolio, if any, and otherwise shall mean the Trust's
authorized shares;
WHEREAS, FDI is registered as a broker-dealer with the Securities and
Exchange Commission (the "SEC") under the Securities Exchange Act of 1934 (the
"1934 Act") and is a member of the National Association of Securities Dealers,
Inc. (the "NASD");
WHEREAS, Saratoga Capital Management ("Manager") is the registered
investment adviser to the Portfolios pursuant to a Management Agreement between
the Manager and the Trust;
WHEREAS, the Board of Trustees of the Trust wish to engage FDI to act
as the distributor for the Portfolios and FDI is willing to render such service
on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises set forth below, the parties agree as follows:
1. Services as Distributor
1.1 FDI will act as agent for the distribution of Shares covered by,
and in accordance with, the registration statement and prospectus then in effect
under the Securities Act of 1933, as amended (the "1933 Act"), and will transmit
promptly any orders received by FDI for purchase or redemption of Shares to the
Transfer and Dividend Disbursing Agent for the Portfolio of which the Portfolio
has notified FDI in writing.
1.2 FDI agrees to use its best efforts to perform its duties hereunder
in the solicitation of orders for the sale of Shares. It is contemplated that
FDI may enter into sales or servicing agreements with securities dealers,
financial institutions and other industry professionals, such as investment
advisers, accountants and estate planning firms, at the direction of the Trust
or its representatives and in so doing FDI will act only on its own behalf as
principal.
1.3 FDI shall act as distributor of Shares in compliance with all
applicable laws, rules and regulations, including, without limitations, the
Investment Company Act of 1940, as amended (the "1940 Act"), the 1933 Act, 1934
Act, the Rules of the NASD, the Trust's Agreement and Declaration of Trust and
By-Laws. FDI represents and warrants that it is a broker-dealer registered with
the SEC and that it is registered with the relevant securities regulatory
agencies in all fifty states, the District of Columbia and Puerto Rico. FDI also
represents and warrants that it is a member of the NASD.
1.4 FDI shall file Trust advertisements, sales literature and other
marketing and sales related materials with the appropriate regulatory agencies
and shall obtain such approvals for their use as may be required by the SEC, the
NASD and/or state securities administrators.
1.5 Whenever in the judgment of the Trust or Manager such action is
warranted by unusual market, economic or political conditions, or by abnormal
circumstances of any kind deemed to render sales of the Trust's Shares not in
the best interest of the Trust, the Manager may instruct FDI to decline to
accept any orders for, or make any sales of, any Shares until such time as the
Manager deems it advisable to accept such orders and to make such sales,
provided that such instruction is consistent with and does not violate any
applicable law or regulation. Notwithstanding the foregoing, however, FDI, after
notification to the Trust, shall have the right to reject orders for the
purchase of the Trust's Shares that, in its discretion, would be detrimental to
the Trust or would violate any applicable law or regulation. FDI agrees to
notify the Trust in advance and seek the Trust's approval to reject such order
which FDI deems to be detrimental to the Trust, such approval not to be
unreasonably withheld or delayed, provided that such notice, approval process,
activity or timing is consistent with and does not violate any applicable law or
regulation.
1.6 The Trust agrees to pay all costs and expenses in connection with
the registration of Shares under the 1933 Act and all expenses in connection
with maintaining facilities for the issue and transfer of Shares and for
supplying information, prices and other data to be furnished by the Trust
hereunder, and all expenses in connection with the preparation and printing of
the Trust's prospectuses and statements of additional information for regulatory
purposes and for distribution to shareholders; provided however, that the Trust
shall not pay any of the costs of advertising or promotion for the sale of
Shares, except as authorized by a plan adopted pursuant to Rule 12b-1 under the
1940 Act. FDI shall also be entitled to compensation for FDI's services as
provided in any Distribution Plan adopted as to any Portfolio and class of the
Portfolio's Shares pursuant to Rule 12b-1.
1.7 The Trust agrees to execute any and all documents and to furnish
any and all information and otherwise to take all actions which may be
reasonably necessary in the discretion of the Trust's officers in connection
with the qualification of Shares for sale in such states as FDI may designate to
the Trust and the Trust may approve, and the Trust agrees to pay all expenses
which may be incurred in connection with such qualification. FDI shall pay all
expenses connected with its own qualification as a dealer under state or Federal
laws and, except as otherwise specifically provided in this Agreement, all other
expenses incurred by FDI in connection with the sale of Shares as contemplated
in this Agreement.
1.8 The Trust shall furnish FDI from time to time, for use in
connection with the sale of Shares, such information with respect to the Trust
or any relevant Portfolio and the Shares as FDI may reasonably request, all of
which shall be signed by one or more of the Trust's duly authorized officers;
and the Trust warrants that the material statements contained in any such
information, when so signed by the Trust's officers, shall be true and correct
to the best of their knowledge. The Trust also shall furnish FDI upon request
with: (a) semi-annual reports and annual audited reports of the Trust's books
and accounts made by independent public accountants regularly retained by the
Trust, (b) a monthly itemized list of the securities in the Trust's or, if
applicable, each Portfolio's investment portfolio, (c) monthly balance sheets as
soon as practicable after the end of each month, and (d) from time to time such
additional information regarding the Trust's financial condition as FDI may
reasonably request.
1.9 The Trust represents to FDI that all registration statements and
prospectuses filed by the Trust with the SEC under the 1933 Act and under the
1940 Act with respect to the Shares have been carefully prepared in conformity
with the requirements of said Acts and rules and regulations of the SEC
thereunder. As used in this Agreement the terms "registration statement" and
"prospectus" shall mean any registration statement and prospectus, including the
statement of additional information incorporated by reference therein, filed
with the SEC and any amendments and supplements thereto which at any time shall
have been filed with said Commission. The Trust represents and warrants to FDI
that any registration statement and prospectus, when such registration statement
becomes effective, will contain all material statements required to be stated
therein in conformity with said Acts and the rules and regulations of said
Commission; that to the best of the Trust's knowledge all material statements of
fact contained in any such registration statement and prospectus will be true
and correct when such registration statement becomes effective; and that neither
any registration statement nor any prospectus when such registration statement
becomes effective will include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading. The Trust may, but shall not be obligated to,
propose from time to time such amendment or amendments to any registration
statement and such supplement or supplements to any prospectus as, in the light
of future developments, may, in the opinion of the Trust's counsel, be necessary
or advisable. If the Trust shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Trust of a
reasonable written request from FDI to do so, FDI may, at its option, terminate
this Agreement or decline to make offers of the Trust's securities until such
amendments are made. The Trust shall not file any amendment to any registration
statement or supplement to any prospectus without giving FDI reasonable notice
thereof in advance; provided, however, that nothing contained in this Agreement
shall in any way limit the Trust's right to file at any time such amendments to
any registration statement and/or supplements to any prospectus, of whatever
character, as the Trust may deem advisable, such right being in all respects
absolute and unconditional.
1.10 The Trust authorizes FDI and any dealers with whom FDI has entered
into dealer agreements to use any prospectus in the form furnished by the Trust
in connection with the sale of Shares. The Trust agrees to indemnify, defend and
hold FDI, its several officers and directors, and any person who controls FDI
within the meaning of Section 15 of the 1933 Act free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
reasonable cost of investigating or defending such claims, demands or
liabilities and any reasonable counsel fees incurred in connection therewith)
which FDI, its officers and directors, or any such controlling persons, may
incur under the 1933 Act, the 1940 Act, or common law or otherwise, arising out
of or on the basis of any untrue statement, or alleged untrue statement, of a
material fact required to be stated in either any registration statement or any
prospectus or any statement of additional information, or arising out of or
based upon any omission, or alleged omission, to state a material fact required
to be stated in any registration statement, any prospectus or any statement of
additional information or necessary to make the statements in any of them not
misleading, except that the Trust's agreement to indemnify FDI, its officers or
directors, and any such controlling person will not be deemed to cover any such
claim, demand, liability or expense to the extent that it arises out of or is
based upon any such untrue statement, alleged untrue statement, omission or
alleged omission made in any registration statement, any prospectus or any
statement of additional information in reliance upon information furnished by
FDI, its officers, directors or any such controlling person to the Trust or its
representatives for use in the preparation thereof, and except that the Trust's
agreement to indemnify FDI and the Trust's representations and warranties set
out in paragraph 1.9 of this Agreement will not be deemed to cover any liability
to the Trust or its shareholders to which FDI would otherwise be subject by
reason of willful misfeasance, bad faith or negligence in the performance of its
duties, or by reason of its reckless disregard of its obligations and duties
under this Agreement ("Disqualifying Conduct"). The Trust's agreement to
indemnify FDI, its officers and directors, and any such controlling person, as
aforesaid, is expressly conditioned upon the Trust's being notified of any
action brought against FDI, its officers or directors, or any such controlling
person, such notification to be given by letter, by facsimile or by telegram
addressed to the Trust at its address set forth on Schedule A, attached hereto,
within a reasonable period of time after the summons or other first legal
process shall have been served. The failure to so notify the Trust of any such
action shall not relieve the Trust from any liability which the Trust may have
to the person against whom such action is brought by reason of any such untrue,
or alleged untrue, statement or omission, or alleged omission, otherwise than on
account of the Trust's indemnity agreement contained in this paragraph 1.10. The
Trust shall have the right to control the defense of any suit brought to enforce
any such claim, demand or liability, but, in such case, such defense shall be
conducted by counsel of good standing chosen by the Trust and approved by FDI
which approval shall not be unreasonably withheld or delayed. In the event the
Trust elects to assume the defense of any such suit and retain counsel of good
standing approved by FDI, the defendant or defendants in such suit shall bear
the fees and expenses of any additional counsel retained by any of them; but in
case the Trust does not elect to assume the defense of any such suit, the Trust
will reimburse FDI, its officers and directors, or the controlling person or
persons named as defendant or defendants in such suit, for the reasonable fees
and expenses of any counsel approved by the Trust, such approval not to be
unreasonably withheld or delayed, and retained by FDI or them. The Trust's
indemnification agreement contained in this paragraph 1.10 and the Trust's
representations and warranties in this Agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
FDI, its officers and directors, or any controlling person, and shall survive
the delivery of any Shares. This agreement of indemnity will inure exclusively
to FDI's benefit, to the benefit of FDI's several officers and directors, and
their respective estates, and to the benefit of any controlling persons and
their successors. The Trust agrees promptly to notify FDI of the commencement of
any litigation or proceedings against the Trust or any of its officers or
Trustees in connection with the issue and sale of Shares.
1.11 FDI agrees to indemnify, defend and hold the Trust, its several
officers and Trustees, and any person who controls the Trust within the meaning
of Section 15 of the 1933 Act free and harmless from and against any and all
claims, demands, liabilities and expenses (including the reasonable cost of
investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Trust, its
officers or Trustees, or any such controlling person, may incur under the 1933
Act, the 1940 Act, or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Trust, its officers or Trustees, or
such controlling person resulting from such claims or demands, (a) shall arise
out of or be based upon any unauthorized sales literature, advertisements,
information, statements or representations or any Disqualifying Conduct in
connection with the offering and sale of any Shares, or (b) shall arise out of
or be based upon any untrue, or alleged untrue, statement of a material fact
contained in information furnished in writing by FDI to the Trust specifically
for use in the Trust's registration statement and used in the answers to any of
the items of the registration statement or in the corresponding statements made
in the prospectus or statement of additional information, or shall arise out of
or be based upon any omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by FDI to the Trust and
required to be stated in such answers or necessary to make such information not
misleading. FDI's agreement to indemnify the Trust, its officers and Trustees,
and any such controlling person, as aforesaid, is expressly conditioned upon FDI
being notified of any action brought against the Trust, its officers or
Trustees, or any such controlling person, such notification to be given by
letter, by facsimile or by telegram addressed to FDI at its address set forth
above within a reasonable period of time after the summons or other first legal
process shall have been served. FDI shall have the right to control the defense
of such action, with counsel of its own choosing, satisfactory to the Trust, if
such action is based solely upon such alleged misstatement or omission on FDI's
part, and in any other event the Trust, its officers or Trustees, or such
controlling person shall each have the right to participate in the defense or
preparation of the defense of any such action. The failure to so notify FDI of
any such action shall not relieve FDI from any liability which FDI may have to
the Trust, its officers or Trustees, or to such controlling person or to the
person against whom such action is brought by reason of any such untrue, or
alleged untrue, statement or omission, or alleged omission, otherwise than on
account of FDI's indemnity agreement contained in this paragraph 1.11. FDI's
indemnification agreement contained in this paragraph 1.11 and FDI's
representations and warranties in this Agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
the Trust, its officers and Trustees, or any controlling person, and shall
survive the delivery of any Shares. This agreement of indemnity will inure
exclusively to the Trust's benefit, to the benefit of the Trust's officers and
Trustees, and their respective estates, and to the benefit of any controlling
persons and their successors. FDI agrees promptly to notify the Trust of the
commencement of any litigation or proceedings against FDI or any of its officers
or directors in connection with the issue and sale of Shares.
1.12 No Shares shall be offered by either FDI or the Trust under any of
the provisions of this Agreement and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the 1933
Act or if and so long as a current prospectus as required by Section 10 of said
Act, as amended, is not on file with the SEC; provided, however, that nothing
contained in this paragraph 1.12 shall in any way restrict or have an
application to or bearing upon the Trust's obligation to repurchase any Shares
from any shareholder in accordance with the provisions of the Trust's prospectus
or charter documents.
1.13 The Trust agrees to advise FDI immediately in writing:
(a) of any request by the SEC for amendments to the
registration statement or prospectus then in effect or for additional
information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement or
prospectus then in effect or the initiation of any proceeding for that
purpose;
(c) of the happening of any event which makes untrue any
statement of a material fact made in the registration statement or
prospectus then in effect or which requires the making of a change in
such registration statement or prospectus in order to make the
statements therein not misleading; and
(d) of all actions of the SEC with respect to any amendments to
any registration statement or prospectus which may from time to time be
filed with the SEC.
2. Offering Price
Shares of any class of a Portfolio offered for sale by FDI shall be
offered at a price per share (the "Offering Price") as set forth in the
then-current prospectus. The Offering Price, if not an exact multiple of one
cent, shall be adjusted to the nearest cent. In addition, Shares of any class of
a Portfolio offered for sale by FDI may be subject to a contingent deferred
sales charge as set forth in the Trust's then-current prospectus. FDI shall be
entitled to receive any sales charge or contingent deferred sales charge in
respect of the Shares. Any payments to dealers shall be governed by a separate
agreement between FDI and such dealer, subject to the approval of the Manager,
and the Trust's then-current prospectus.
3. Term
This Agreement shall become effective with respect to the Trust as of
the date hereof and will continue for an initial two-year term and will continue
thereafter so long as such continuance is specifically approved at least
annually (i) by the Trust's Board of Trustees or (ii) by a vote of a majority of
the Shares of the Trust or the relevant Portfolio, as the case may be, provided
that in either event its continuance also is approved by a majority of the
Trustees who are not "interested persons" of any party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable with respect to the Trust, without
penalty, on not less than sixty days' written notice by the Board of Trustees or
by vote of a majority of the outstanding voting securities of the Trust. This
Agreement may be terminated at any time without penalty upon 120 days' written
notice by FDI. This Agreement will automatically and immediately terminate in
the event of its "assignment." (As used in this Agreement, the terms "majority
of the outstanding voting securities," "interested person" and "assignment"
shall have the same meanings as such terms have in the 1940 Act). In the event
that the succession of Saratoga Capital Management to a successor entity is
deemed to be an assignment under the 1940 Act, the parties will enter into a
separate distribution agreement on identical terms, subject to the approval of
the Trust's Board of Trustees and by a majority of the Trustees who are not
interested persons of any party to the Agreement. FDI agrees to notify the Trust
immediately upon the event of its expulsion or suspension by the NASD. This
Agreement will automatically and immediately terminate in the event of FDI's
expulsion or suspension by the NASD.
4. Miscellaneous
4.1 The Trust recognizes that, except to the extent otherwise agreed to
by the parties hereto, FDI's directors, officers and employees may from time to
time serve as directors, trustees, officers and employees of corporations and
business trusts (including other investment companies), and that FDI or FDI's
affiliates may enter into distribution or other agreements with other
corporations and trusts.
4.2 No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
4.3 This Agreement and the Schedules forming a part hereof may be
amended at any time by a writing signed by each of the parties hereto. In the
event that the Board members of any additional funds indicate by vote that such
funds are to be made parties to this Agreement, whether such funds were in
existence at the time of the effective date of this Agreement or subsequently
formed, Schedule A hereto shall be amended to reflect the addition of such new
funds and such new funds shall thereafter become parties hereto. In the event
that any of the Portfolios listed on Schedule A terminates its registration as a
management investment company, or otherwise ceases operations, Schedule A shall
be amended to reflect the deletion of such Portfolio and its various classes.
4.4 This Agreement is executed by the Trustees of the Trust, not
individually, but in their capacity as Trustees under the Declaration of Trust
made April 4, 1994. None of the Shareholders, Trustees, officers, employees, or
agents of the Trust shall be personally bound or liable under this Agreement,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim hereunder but only to the property of the Trust and, if the
obligation or claim relates to the property held by the Trust for the benefit of
one or more but fewer than all Portfolios, then only to the property held for
the benefit of the affected Portfolio.
4.5 This Agreement shall be governed by the internal laws of The
Commonwealth of Massachusetts without giving effect to principles of conflicts
of laws.
4.6 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement by a duly
authorized representative of the parties hereto.
THE SARATOGA ADVANTAGE TRUST
By: /s/ Bruce E. Ventimiglia
Name: Bruce E. Ventimiglia
Title: Chairman, President and CEO
FUNDS DISTRIBUTOR, INC.
By: /s/ Donald R. Roberson
Name: Donald R. Roberson
Title: Executive Vice President
<PAGE>
SCHEDULE A
PORTFOLIOS
THE SARATOGA ADVANTAGE TRUST
1501 Franklin Avenue
Mineola, New York 11501-4803
U.S. Government Money Market Portfolio
Investment Quality Bond Portfolio
Municipal Bond Portfolio
Large Capitalization Value Portfolio
Large Capitalization Growth Portfolio
Small Capitalization Portfolio
International Equity Portfolio
FORM OF SELLING AGREEMENT
THE SARATOGA ADVANTAGE TRUST
FROM:
Company>>
Address1>>
Address2>>
City>>, State>> Zip>>
TO:
Funds Distributor, Inc.
60 State Street, Suite 1300
Boston, MA 02109
Gentlemen:
We (the "Dealer") desire to enter into an agreement with Funds Distributor, Inc.
(the "Distributor") for the sale and distribution of the shares of the Saratoga
Advantage Trust, an open-end investment company in series form (hereinafter
referred to as the "Trust" and each series thereof as a "Portfolio") of which
Funds Distributor, Inc. is the Distributor and whose shares are offered to the
public at an offering price which will not include a sales charge (hereinafter
referred to as the "Shares"). Upon acceptance of this Agreement by Distributor,
Dealer understands that Dealer may offer and sell Shares subject, however, to
all of the terms and conditions hereof and to Distributor's right, without
notice, to suspend or terminate the sale of the Shares of any one or more of the
Portfolios.
1. Dealer understands that the Shares will be offered and sold at the public
offering price in effect in accordance with the terms of the then-current
prospectus at the time the order for such Shares is confirmed and accepted
by Distributor. All purchase requests and applications submitted by Dealer
are subject to acceptance or rejection in Distributor's sole discretion,
and, if accepted, each purchase will be deemed to have been consummated at
the office of the Trust's shareholder servicing agent.
2. Dealer herein certifies that Dealer is registered as a
broker-dealer under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc. ("NASD") and agrees to
maintain its membership in the NASD during the full force and effect of
this Agreement. For as long as this Agreement is in full force and effect,
Dealer agrees to abide by all of the rules and regulations of the
Securities and Exchange Commission ("SEC") and the NASD which are binding
upon underwriters and dealers in the distribution of the securities of
open-end investment companies, including without limitation, Section 2830
of the NASD Conduct Rules, all of which are incorporated herein as if set
forth in full. Dealer agrees that it will not sell or offer for sale Shares
in any state or jurisdiction where Shares have not been qualified for sale.
3. Dealer will offer and sell Shares of any Portfolio only in
accordance with the terms and conditions of the Trust's then current
Prospectus and Dealer will not make representations which are not included
in said Prospectus or in any authorized supplemental material supplied by
Distributor and/or the Trust or its agents. Dealer will use its best effort
in the development and promotion of sales of Shares and agrees to be
responsible for the proper instruction and training of all sales personnel
employed by Dealer, in order that the Shares will be offered in accordance
with the terms and conditions of this Agreement and all applicable laws,
rules and regulations. Dealer agrees to hold Distributor harmless and
indemnify Distributor in the event that Dealer, or any of Dealer's sales
representatives, should violate any law, rule or regulation, or any
provisions of this Agreement, which violation may result in Liability to
Distributor, the Trust or any Portfolio. All expenses which Dealer may
incur in connection with Dealer's activities under this Agreement shall be
borne by Dealer.
4. Payments for purchases of Shares made by wire order from Dealer shall be
made to Distributor's designated agent, and received by Distributor's
designated agent, together with all necessary applications and other
documents require to establish an account within three business days after
the acceptance of Dealer's order or such shorter time as may be required by
law. If such timely payment is not received by Distributor's designated
agent, Dealer understands and agrees herein that Distributor reserves the
right, without notice, forthwith to cancel the sale, or, at Distributor's
option, to sell back to the Portfolio the Shares ordered by Dealer, in
which latter case, Dealer will be held responsible for any loss, including
loss of profit, suffered by Distributor or Distributor's designated agent,
resulting from Dealer's failure to make the aforesaid payment. Where sales
of Portfolio Shares are contingent upon the Portfolio's receipt of funds in
payment therefore, Dealer will forward promptly to Distributor, or
Distributor's designated agent, any purchase orders and/or payments
received by Dealer from investors.
5. Dealer agrees to purchase Shares only from Distributor or from Dealer's
customers. If Dealer purchases Shares from Distributor, Dealer agrees that
all such purchases shall be made only to cover orders received by Dealer
from Dealer's customers, or for Dealer's own bona fide investment. If
Dealer purchases Shares from Dealer's customers, Dealer agrees to pay such
customers not less than the applicable repurchase price as established by
the then current applicable Prospectus.
6. Distributor's obligations to Dealer under this Agreement are subject to all
the provisions of any distributorship agreement entered into between
Distributor and the Trust. Dealer understands and agrees herein that in
Dealer's performing of its services covered by this Agreement that Dealer
is acting as a principal, and Distributor is in no way responsible for the
manner of Dealer's performance or for any of Dealer's acts, employees or
representatives as Distributor's agent, partner or employee, or the agent
or employee of the Trust.
7.
<PAGE>
Distributor, its affiliates, and the Trust shall not be liable for any loss,
expenses, damages, costs or other claims arising out of any redemption or
exchange pursuant to telephone instructions from any person, or
Distributor's refusal to execute such instructions for any reason.
8. Dealer agrees to maintain records of all sales of Shares made through
Dealer and to furnish Distributor with copies of each record on request.
9. From time to time during the term of this Agreement Distributor may make
payments to Dealer pursuant to one or more of the distribution and/or
service plans adopted by certain of the Portfolios pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "Act") in consideration of
Dealer furnishing distribution and/or shareholder services hereunder with
respect to each such Portfolio. Distributor has no obligation to make any
such payments and Dealer hereby waives any such payments until Distributor
receives monies therefor from the Portfolio. Any such payments made
pursuant to this Section 9 shall be subject to the following terms and
conditions:
(a) Any such payments shall be in such amounts as Distributor may from time
to time advise Dealer in writing but in any event not in excess of the
amounts permitted by the plan in effect with respect to each particular
Portfolio and will be based on the dollar amount of Portfolio Shares which
are owned of record by Dealer as nominee for Dealer's customers or which
are owned by those customers of Dealer whose records, as maintained by the
Portfolios or their agents, designate Dealer as the customer's dealer of
record. Any such payments shall be in addition to the selling concession,
if any, allowed to Dealer pursuant to this Agreement. No such fee will be
paid to Dealer with respect to Shares purchased by Dealer and redeemed by
the Portfolios or by Distributor as agent within seven business days after
the dates of confirmation of such purchase.
(b) The provisions of this Section 9 relate to the plan adopted by a
particular Portfolio pursuant to Rule 12b-1. In accordance with Rule 12b-1,
any person authorized to direct the disposition of monies paid or payable
by a Portfolio pursuant to this Section 9 shall provide the Portfolio's
Board, and the Board shall review, at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures were
made.
(c) The provisions of this Section 9 applicable to each Portfolio shall
remain in effect for not more than a year and thereafter for successive
annual periods only so long as such continuance is specifically approved at
least annually in conformity with Rule 12b-1 and the Act. The provisions of
this Section 9 shall automatically terminate with respect to a particular
plan, in the event such plan terminates or is not continued or in the event
this Agreement terminates or ceases to remain in effect.
10.
<PAGE>
Dealer may terminate this Agreement by notice in writing to Distributor, which
termination shall become effective thirty days after the date of receipt by
Distributor. Dealer agrees that Distributor has and reserves the right, in
Distributor's sole discretion, without notice, to suspend sales of Shares
of any of the Portfolios, or to withdraw entirely the offering of Shares of
any of the Portfolios, or, in Distributor's sole discretion, to modify,
amend or cancel this Agreement upon written notice to Dealer of such
modification, amendment or cancellation, which shall be effective
immediately on the date stated in such notice. Without limiting the
foregoing, Distributor may terminate this Agreement for cause upon
violation by Dealer of any of the provisions of this Agreement, said
termination to become effective on the date of the mailing of the notice to
Dealer of such termination. Without limiting the foregoing, any provision
hereof to the contrary notwithstanding, Dealer's expulsion from the NASD
will automatically terminate this Agreement without notice. Dealer's
suspension from the NASD the appointment of a trustee for all or
substantially all of Dealer's business assets, or violation of applicable
State or Federal laws or rules or regulations of authorized regulatory
agencies will terminate this Agreement effective upon the date of
Distributor's mailing to Dealer of such termination. Distributor's failure
to terminate for any cause shall not constitute a waiver of Distributor's
right to terminate at a later date for any such cause. All notices
hereunder shall be to the respective parties at the addresses listed
herein, unless changed by written notice. Any dispute that may arise in
connection with this Agreement shall be submitted to arbitration by the
NASD, with the panel to be located in Boston, Massachusetts.
11. This Agreement shall become effective upon Distributor's execution of this
Agreement, such date being the one appearing below. This Agreement and all
the rights and obligations of the parties hereunder shall be governed by
and construed under the laws of the Commonwealth of Massachusetts. This
Agreement is not assignable by Dealer without the written permission of
Distributor. The Trust may assign or transfer this Agreement to any
successor firm or corporation which becomes Distributor or Sub-Distributor
of the Trust.
"Accepted"
Company>> Funds Distributor, Inc.
By: __________________________ By: ________________________________
(Authorized Signature) Print Name:__________________________
Date:
--------------------------
(Please Print Name)
Date: __________________________
ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT made as of the 21st day of September, 1999 between and
among The Saratoga Advantage Trust (the "Trust"), a Delaware business trust,
Saratoga Capital Management ("Saratoga"), a Delaware general partnership and
Funds Distributor, Inc.
("FDI"), a Massachusetts corporation.
WHEREAS, the Trust is an open-end management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), currently
comprised of seven separate investment portfolios (each a "Portfolio,"
collectively, the "Portfolios") as listed on Schedule A, as such Schedule may be
amended from time to time;
WHEREAS, Saratoga serves as investment manager to the Trust;
WHEREAS, the Trust has entered into a Distribution Agreement with FDI for the
distribution by FDI of certain classes of shares of beneficial interest (the
"Shares") in the Trust;
WHEREAS, certain employees of Saratoga will be registered with the National
Association of Securities Dealers, Inc. ("NASD") as representatives of FDI (such
persons shall hereinafter be referred to as "Registered Representatives") and
will be wholesaling the Portfolios' Shares;
WHEREAS, the Trust desires to retain FDI to assist it in performing certain
services with respect to the Shares of the Trust and FDI is willing to perform
such services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the mutual agreements herein contained, the
parties agree as follows:
1. Services and Duties of FDI. FDI will serve as the Trust's administrative
services agent and further agrees to perform the specific administrative duties
and provide the specific administrative services for the Trust, as listed in
Exhibit A.
2. Services Provided by Saratoga. In furtherance of the responsibilities under
this Agreement, Saratoga will provide or cause the provision of certain
services, as listed in Exhibit B.
3. Compensation; Reimbursement of Expenses.
(a) The Trust shall pay FDI for the services provided under this
Agreement an aggregate annual fee in the first year of $337,000 (the "Minimum
Fee"), payable monthly on the first business day of each month. During the
second and third year of the Agreement, the Trust shall pay FDI the Minimum Fee
plus 7.5 basis points on the average monthly net assets in the Class B Shares
and Class C Shares of each Portfolio of the Trust, subject to a maximum limit on
all fees of $460,000 per year (the "Maximum Fee"). Such aggregate annual fees
are based on seven (7) Portfolios. The addition of any new portfolio will
increase, on an annual basis, the Maximum Fee by the following amounts:
Additional Annual Fee
First Additional Portfolio: $50,550
Second Additional Portfolio: $47,180
Third Additional Portfolio: $43,810
Fourth Additional Portfolio: $40,440
Fifth Additional Portfolio: $37,070
Sixth Additional Portfolio $33,700
The Trust shall pay FDI an annual fee for the provision of blue sky
services in the amount of $72 per registration/permit, payable monthly on the
first business day of each month. Saratoga and the Trust acknowledge that FDI
provides this service through a sub-contractual arrangement with ClearSky
Corporation or other mutually acceptable provider.
(b) The fee as stated above under Section 3(a) is subject to the
following conditions: (i) that FDI shall only sponsor 15 or fewer Registered
Representatives (additional sponsorships shall be subject to a $2,500 annual fee
per Registered Representative sponsored by FDI in excess of the 15 Registered
Representatives); and (ii) that advertising legal review shall be for the lesser
of 45 marketing pieces or 165 pages per calendar year (advertising legal review
in excess of 45 pieces or 165 pages for the relevant annual contract period
shall be subject to a flat fee of $300 per 1-10 page piece and $10 per page
thereafter for such piece).
(c) All fees to FDI for the services described in this Agreement are
exclusive of out-of-pocket costs. Saratoga or the Trust, as appropriate, agree
to reimburse FDI for FDI's reasonable out-of-pocket expenses incurred in
providing the services hereunder. The out-of-pocket costs associated with
medallion distribution include, but are not limited to, travel expenses,
broker/dealer costs, registered representative fees, sponsorship and maintenance
of registered representative licenses, annual compliance meetings and NASD
filing fees for sales literature. The out-of -pocket costs associated with legal
administration include, but are not limited to, travel expenses, postage and
other mail-related costs, NASD and Securities and Exchange Commission (the
"SEC") filing fees, courier fees, EDGAR related services, and related printing
charges. The out-of-pocket costs associated with financial administration
include, but are not limited to travel expenses, postage and other mail-related
costs and telephone charges associated with receiving reports via modem.
Expenses incurred out of the ordinary course in providing the services hereunder
are subject to prior approval by the Trust. Such out-of-pocket expenses shall be
paid by the Trust within 30 days from the date of invoice.
The Trust will bear all expenses incurred in the operation of the
Portfolios and the Trust, including, but not limited to, taxes, interest,
brokerage fees and commissions, salaries (if any) and fees of employees,
officers and directors who are not officers, directors, shareholders or
employees of FDI, SEC fees and state Blue Sky qualification fees, advisory and
administration fees, charges of custodians, transfer and dividend disbursing
agents' fees, fund accounting agents' fees, insurance premiums, outside auditor
and legal expenses, costs of maintenance of the Trust's existence, costs of
independent pricing services, mutual fund industry fee and performance
information, typesetting and printing of prospectuses for regulatory purposes
and for distribution to current Trust shareholders, costs of shareholders'
reports and corporate mailing costs, administrative services fees for
preparation, stuffing and distribution of literature other than those required
by federal or state regulatory authority, meetings and any other routine or
extraordinary expenses. FDI will bear all expenses incurred by it in connection
with the performance by FDI of the services hereunder this Agreement, except
that the Trust shall pay to or reimburse FDI any reasonable and necessary
out-of-pocket expenses incurred by FDI on behalf of the Trust, as described
above. In addition, FDI shall have no obligation to make any payments pursuant
to a Portfolio's plan of distribution adopted pursuant to Rule 12b-1 under the
1940 Act until FDI has received monies therefor from the Portfolio.
(d) For the period from the date hereof through September 30, 1999, FDI
shall rebate 100% of the Minimum Fee that it is entitled to receive under the
Agreement, in recognition of FDI's obligation to provide only the Medallion
Distribution Services described in Exhibit A. Beginning October 1, 1999 and
concurrent with the commencement of Legal Administration Services and Financial
Administration Services by FDI as described in Exhibit A, the rebate will be
eliminated and FDI shall be entitled to receive the full compensation described
in Section 3(a) of the Agreement.
(e) If this Agreement becomes effective subsequent to the first day of
a month or shall terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fees as set forth above.
4. Effective Date and Term.
(a) This Agreement shall become effective with respect to the Trust as
of the date first written above (or, if a particular Portfolio is not in
existence on that date, on the date FDI becomes the distributor of the Shares of
such Portfolio; Schedule A to this Agreement shall be deemed amended to include
such Portfolio and any classes of Shares of such Portfolio from and after such
date).
(b) This Agreement shall continue for an initial three-year period
ending September 30, 2002 and shall continue thereafter for successive one-year
terms unless terminated pursuant to the provision of sub-section (c) or (d) of
this Section 4.
(c) This Agreement shall automatically terminate upon termination of
the Distribution Agreement between the Trust and FDI. This Agreement may be
terminated at any time without payment of any penalty, upon 60 days' written
notice by the Trust pursuant to the vote of a majority of its Board of Trustees.
This Agreement may be terminated at any time without payment of any penalty upon
120 days' written notice by FDI. In any event, the provisions of Section 5 and 6
shall survive termination of this Agreement and continue in full force and
effect. Compensation due FDI and unpaid upon such termination shall be
immediately due and payable upon and notwithstanding such termination.
(d) Either the Trust or FDI shall have the right to immediately
terminate this Agreement, if (i) a material breach of any provision of this
Agreement has been committed by FDI or the Trust/Saratoga; (ii) the
non-breaching party delivers notice that the other party is in breach of any of
its obligations under this Agreement; and (iii) either (a) the action or
inaction of the breaching party giving rise to the cause for termination is not
capable of being remedied or (b) if such action or inaction is capable of being
remedied, the breaching party shall not have remedied such action or inaction
within thirty (30) days after such notice.
5. Standard of Care and Indemnification.
(a) FDI shall give the Trust the benefit of its best judgment and
efforts in rendering its services to the Trust and, except as specifically
provided herein, shall not be liable for error of judgment or mistake of law,
for any loss arising out of any investment, or in any event whatsoever, provided
that nothing herein shall be deemed to protect, or purport to protect, FDI
against any liability to Saratoga or the Trust or to the security holders of the
Trust to which it would otherwise be subject by reason of willful misfeasance,
bad faith or negligence in the performance of its duties hereunder, or by reason
of reckless disregard of its obligations and duties hereunder.
(b) The Trust and Saratoga shall indemnify and hold FDI, its officers,
directors, employees, shareholders, affiliated persons (as such term is defined
in the 1940 Act) and agents (collectively the "FDI Indemnified Parties" and each
individually an "FDI Indemnified Party") harmless from and against any and all
losses, claims, damages, expenses and liabilities, joint or several (including,
but not limited to, any reasonable investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of, any action,
suit, proceeding or claim), which such FDI Indemnified Party or FDI Indemnified
Parties may be or become subject to or liable for by reason of or in connection
with (i) the Agreement, (ii) FDI's provision of services pursuant to the
Agreement, (iii) any materially false or inaccurate information or data provided
by the Trust, Saratoga or one of its agents for use by FDI in providing its
services hereunder or under the Distribution Agreement, or (iv) any information
or data created by FDI that is materially changed by the Trust or Saratoga
without FDI's approval; provided, however, that an FDI Indemnified Party shall
not be entitled to indemnification hereunder to the extent, but only to the
extent, that it shall have been finally determined by a court of competent
jurisdiction that such loss, claim, damage, expense or liability was caused
directly and proximately by action or omission of FDI and that such action or
omission involved bad faith, negligence, reckless disregard of its obligations
hereunder, or intentional misconduct by FDI.
(c) FDI shall indemnify and hold Saratoga and the Trust, their
officers, directors, employees, shareholders, affiliated persons (as such term
is defined in the 1940 Act) and agents (collectively the "Saratoga Indemnified
Parties" and each individually a " Saratoga Indemnified Party") harmless from
and against any and all losses, claims, damages, expenses and liabilities, joint
or several (including, but not limited to, any reasonable investigation, legal
and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit, proceeding or claim), which such Saratoga
Indemnified Party or Saratoga Indemnified Parties may be or become subject to or
liable for by reason of or in connection with (i) the Agreement, (ii) under the
Securities Act of 1933, the 1934 Act, the 1940 Act, common law or otherwise,
(iii) any breach of any covenant or obligation of FDI contained in the
Agreement, (iv) any failure by FDI to comply with any laws applicable to its
performance of services under the Agreement, (v) any materially false or
inaccurate information or data provided by FDI to Saratoga or the Trust pursuant
to FDI's obligations hereunder or under the Distribution Agreement, (vi) any
information or data provided by Saratoga or the Trust that is materially changed
by FDI without Saratoga's or the Trust's approval or (vi) a final determination
by a court of competent jurisdiction that such loss, claim, damage, expense or
liability was caused directly or proximately by an action or omission of FDI
involving bad faith, negligence, reckless disregard of its obligations
hereunder, or intentional misconduct by FDI; provided, however, that a Saratoga
Indemnified Party shall not be entitled to indemnification hereunder to the
extent, but only to the extent, that it shall have been finally determined by a
court of competent jurisdiction that such loss, claim, damage, expense or
liability was caused directly and proximately by action or omission of Saratoga
or the Trust and that such action or omission involved bad faith, negligence,
reckless disregard of the obligations hereunder of Saratoga or the Trust, or
intentional misconduct by Saratoga or the Trust.
(d) In order to provide for just and equitable contribution in
circumstances in which the terms of Section 5(b) or Section 5(c) are applicable,
but for any reason the indemnification provided for therein is held to be
unavailable, Saratoga, the Trust and FDI shall contribute to the aggregate
losses, claims, damages, expenses and liabilities (including, but not limited
to, any reasonable investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit,
proceeding or claim) which any of the FDI Indemnified Parties or Saratoga
Indemnified Parties (as defined above), respectively, may be subject to or
liable for in proportion to the relative fault of Saratoga or the Trust, on the
one hand, and FDI, on the other hand; provided, however, that in determining
relative fault, there shall be considered the relative benefits received by each
party from the transactions giving rise to the loss, claim, damage, expense or
liability, the parties' relative knowledge and access to information concerning
the matter with respect to which the claim was asserted, the opportunity to
correct and prevent any statement or omission, and any other equitable
considerations appropriate under the circumstances; provided, further, that in
no event shall FDI, Saratoga or the Trust be required to contribute in the
aggregate hereunder any amount in excess of the aggregate compensation received
by FDI for its services during the immediately preceding 12 month period.
Saratoga, the Trust and FDI shall not have any other right of contribution in
connection herewith.
(e) The applicable indemnified party, promptly and in any event within
ten (10) days after receipt of notice of commencement of any action, suit,
proceeding or claim in respect of which a claim for indemnification may be made
by it, shall notify the applicable indemnifying party in writing of the
commencement of such action, suit, proceeding or claim, enclosing a copy of all
papers served. However, the omission to so notify the applicable indemnifying
party of any such action, suit, proceeding or claim shall not relieve such
indemnifying party from any liability that it may have under Section 5(b) or
5(c), as applicable, of this Agreement except to the extent that the ability of
such indemnifying party to defend such action, suit, proceeding or claim is
materially adversely affected.
(f) In case any such action, suit, proceeding or claim for which
indemnity may be payable hereunder shall be brought against an FDI Indemnified
Party or Saratoga Indemnified Party, as applicable (an "Indemnified Party"), and
such Indemnified Party shall notify the applicable indemnifying party of the
commencement thereof, such indemnifying party shall be entitled to participate
in, and to the extent that such indemnifying party shall wish to assume the
defense thereof, with counsel reasonably satisfactory to such Indemnified Party,
subject to the further provisions of this paragraph. After written notice from
such indemnifying party to such Indemnified Party of its election to so assume
the defense thereof, such indemnifying party shall not be liable to the
applicable Indemnified Parties for any additional attorneys' fees or other
expenses of litigation, other than reasonable costs of investigation
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, unless (i) the employment of counsel by such Indemnified Parties has
been authorized in writing by such indemnifying party, such authorization not to
be unreasonably withheld or delayed; (ii) such Indemnified Parties shall have
obtained a written opinion of counsel reasonably acceptable to such indemnifying
party that there exists a conflict of interest between such Indemnified Parties
and the relevant party in the conduct of the defense of such action or that
there are one or more defenses available to such Indemnified Parties that are
unavailable to such indemnifying party (in which case such indemnifying party
shall not have the right to direct the defense of such action on behalf of such
Indemnified Parties); or (iii) such indemnifying party shall not in fact have
employed counsel reasonably satisfactory to such Indemnified Parties to assume
the defense of such action, in each of which cases the reasonable fees and
expenses of counsel utilized by such Indemnified Parties shall be at the expense
of such indemnifying party, it being understood, however, that such indemnifying
party shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys for an Indemnified
Party, which firm shall be designated in writing by the Indemnified Party.
Notwithstanding the foregoing, under the circumstances described in clause (ii)
above, the applicable Indemnified Parties shall be entitled to retain an
additional law firm, in any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, provided such Indemnified Parties have
obtained a written opinion of counsel reasonably acceptable to the indemnifying
party that a conflict of interest exists that would preclude the use of a single
law firm, in which case the indemnifying party shall be liable for the
reasonable fees and expenses of counsel designated by the Indemnified Parties in
writing. All such fees and expenses which are at the expense of an indemnifying
party hereunder shall be promptly paid by such indemnifying party.
(g) Nothing in this Agreement shall be construed as limiting an
Indemnified Party's rights to employ counsel at its own expense or to obtain
indemnification for amounts reasonably paid to adverse claimants in satisfaction
of any judgments or in settlement of any actions, suit, proceeding or claims,
except that no party hereto shall be liable for any settlement of any action,
suit, proceeding or claim effected without its written consent. None of the
parties hereto shall settle or compromise any action, suit, proceeding or claim
if such settlement or compromise provides for an admission of liability on the
part of an Indemnified Party without such Indemnified Party's written consent.
6. Confidentiality. During the term of this Agreement, the Trust, FDI and
Saratoga may have access to confidential information relating to such matters as
a party's business, trade secrets, systems, procedures, manuals, products,
contracts, personnel, and clients. As used in this Agreement, "Confidential
Information" means information belonging to a party that is of value to that
party and the disclosure of which could result in a competitive or other
disadvantage to that party. Confidential Information includes, without
limitation, financial information, proposal and presentations, reports,
forecasts; inventions, improvements and other intellectual property; trade
secrets; know-how; designs, processes or formulae; software; market or sales
information or plans; customer lists; and business plans, prospects and
opportunities (such as possible acquisitions or dispositions of businesses or
facilities). Confidential Information includes information developed by a party
hereto in the course of engaging in the activities provided for in this
Agreement, unless: (i) the information is or becomes publicly known through
lawful means; (ii) at the time of receipt the information was already actually
known to the other party; or (iii) the information is disclosed to the other
party without a confidential restriction by a third party who rightfully
possesses the information and did not obtain it, either directly or indirectly,
from another party hereto, or any of its respective principals, employees,
affiliated persons, or affiliated entities. The parties understand and agree
that all Confidential Information shall be kept confidential by the other both
during and after the term of this Agreement. The parties further agree that they
will not, without the prior written approval by the other party, disclose such
Confidential Information, or use such Confidential Information in any way,
either during the term of this Agreement or at any time thereafter, except as
required in the course of this Agreement and as approved by the other party or
as required by law.
7. Record Retention and Confidentiality. FDI shall keep and maintain on behalf
of the Trust all books and records which the Trust and FDI are, or may be,
required to keep and maintain in connection with the services to be provided
hereunder pursuant to any applicable statutes, rules and regulations, including
without limitation Rules 31a-1 and 31a-2 under the 1940 Act. FDI further agrees
that all such books and records shall be the property of the Trust and to make
such books and records available for inspection by the Trust, by Saratoga, or by
the SEC at reasonable times and otherwise to keep confidential all books and
records and other information relative to the Trust and its shareholders; except
when requested to divulge such information by duly-constituted authorities or
court process.
8. Rights of Ownership. All computer programs and procedures developed to
perform the services to be provided by FDI under this Agreement are the property
of FDI. All records and other data except such computer programs and procedures
are the exclusive property of the Trust and all such other records and data will
be furnished to Saratoga and/or the Trust in appropriate form as soon as
practicable after termination of this Agreement for any reason.
9. Return of Records. FDI may at its option at any time, and shall promptly upon
the demand of Saratoga and/or the Trust, turn over to Saratoga and/or the Trust
and cease to retain FDI's files, records and documents created and maintained by
FDI pursuant to this Agreement so long as FDI shall be able to retain
photocopies of such documents to the extent needed by FDI in the performance of
its services or for its legal protection. If not so turned over to Saratoga
and/or the Trust, such documents and records will be retained by FDI for six
years from the end of the fiscal year of the Trust for which they were created.
At the end of such six-year period, such records and documents will be turned
over to Saratoga and/or the Trust unless the Trust authorizes in writing the
destruction of such records and documents.
10. Representations of the Trust. The Trust represents and warrants to FDI that
this Agreement has been duly authorized by the Trust and, when executed and
delivered by the Trust, will constitute a legal, valid and binding obligation of
the Trust, enforceable against the Trust in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
11. Representations of Saratoga. Saratoga represents and warrants to FDI that
this Agreement has been duly authorized by Saratoga and, when executed and
delivered by Saratoga, will constitute a legal, valid and binding obligation of
Saratoga, enforceable against Saratoga in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
12. Representations of FDI. (a) FDI represents and warrants that this Agreement
has been duly authorized by FDI and, when executed and delivered by FDI, will
constitute a legal, valid and binding obligation of FDI, enforceable against FDI
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
(b) FDI further represents and warrants that it is a member of the NASD
and agrees to abide by all of the rules and regulations of the NASD, including,
without limitation, its Conduct Rules. FDI agrees to comply with all applicable
federal and state laws, rules and regulations. FDI agrees to notify Saratoga
immediately in the event of its expulsion or suspension by the NASD. Expulsion
of FDI by the NASD will automatically terminate this Agreement immediately
without notice. Suspension of FDI by the NASD will terminate this Agreement
effective immediately upon written notice of termination to FDI from Saratoga.
13. Notices. All notices or other communications hereunder to a party hereto
shall be in writing and shall be deemed sufficient if mailed to the Trust at the
following address: 1501 Franklin Avenue, Mineola, NY 11501-4803, Attention:
President; to Saratoga at the following address: 1501 Franklin Avenue, Mineola,
NY 11501-4803, Attention: President, with a copy to the Trust's counsel; and to
FDI at the following address: 60 State Street, Suite 1300, Boston, MA 02109,
Attention: President with a copy to General Counsel or at such other address as
such party may designate by written notice to the other, or in either case if
sent by telex, telecopier, telegram or similar means of same day delivery (with
a confirming copy by mail as provided herein).
14. Headings. Paragraph headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
15. Assignment. This Agreement and the rights and duties hereunder shall not be
assignable by any of the parties hereto without the specific written consent of
the other parties, except that Saratoga may assign this Agreement to Saratoga
Capital Management LLC or such other business entity to which Saratoga may
succeed.
16. Governing Law. This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of The Commonwealth of Massachusetts.
17. Use of Saratoga Name. Subject to approval of the content by Saratoga, the
Trust and Saratoga will allow FDI's non-exclusive use of the "Saratoga" name and
"Saratoga Advantage Trust" name solely in connection with FDI's website, trade
advertisements, client lists and mutual fund industry conferences and displays.
FDI agrees and acknowledges that Saratoga, the Trust and/or affiliates own all
right, title, and interest in the name "Saratoga" and "Saratoga Advantage Trust"
and will only use the "Saratoga" name as stated herein.
18. Services Not Exclusive. The Trust and Saratoga hereby acknowledge that the
services provided hereunder by FDI are not exclusive. Nothing herein shall be
deemed to limit or restrict FDI's right, or the right of any of FDI's officers,
directors or employees to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, fund, firm, individual or association, as well as provide
distribution services to any other mutual fund, including any fund which may
directly compete with or be similar to Saratoga.
19. No Liability of Shareholders. This Agreement is executed by the Trustees of
the Trust, not individually, but in their capacity as Trustees under the
Declaration of Trust made April 4, 1994. None of the shareholders, Trustees,
officers, employees, or agents of the Trust shall be personally bound or liable
under this Agreement, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder but only to the property of
the Trust and, if the obligation or claim relates to the property held by the
Trust for the benefit of one or more but fewer than all Portfolios, then only to
the property held for the benefit of the affected Portfolio.
20. Severability. If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if this Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
21. Counterparts. This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed all as of the day and year first above written.
THE SARATOGA ADVANTAGE TRUST
By: /s/ Bruce E. Ventimiglia
Title: Chairman, President and CEO
SARATOGA CAPITAL MANAGEMENT
By: /s/ Scott C. Kane
Title: Managing Director
FUNDS DISTRIBUTOR, INC.
By: /s/ Donald R. Roberson
Title: Executive Vice President
<PAGE>
Dated: September 21, 1999
SCHEDULE A TO THE AGREEMENT
BETWEEN AND AMONG THE SARATOGA ADVANTAGE TRUST,
SARATOGA CAPITAL MANAGEMENT AND
FUNDS DISTRIBUTOR, INC.
THE SARATOGA ADVANTAGE TRUST
U.S. Government Money Market Portfolio
Investment Quality Bond Portfolio
Municipal Bond Portfolio
Large Capitalization Value Portfolio
Large Capitalization Growth Portfolio
Small Capitalization Portfolio
International Equity Portfolio
THE SARATOGA ADVANTAGE TRUST
By: /s/ Bruce E. Ventimiglia
Title: Chairman, President and CEO
SARATOGA CAPITAL MANAGEMENT
By: /s/ Scott C. Kane
Title: Managing Director
FUNDS DISTRIBUTOR, INC.
By: /s/ Donald R. Roberson
Title: Executive Vice President
<PAGE>
EXHIBIT A
Services and Duties of Funds Distributor, Inc.
A. Medallion Distribution Services
(a) Legal review and principal sign-off of Portfolio marketing materials and
other sales related materials to ensure compliance with the advertising rules of
the relevant regulatory authorities and file such materials, and obtain such
approvals for their use as may be required by the SEC or the NASD. FDI will
forward all NASD comments on marketing materials to Saratoga.
(b) Forward sales related complaints concerning the Portfolios to Saratoga.
(c) Coordinate registration of the Portfolios with the National Securities
Clearing Corporation ("NSCC") and file required Fund/SERV reports with the NSCC.
(d) Provide advice and counsel to the Trust with respect to regulatory matters
regarding legal review and principal sign off of Portfolio marketing material
and other sales related materials, broker/dealer and distribution related
issues, including monitoring regulatory and legislative developments that may
affect the Portfolios and assist the Trust in routine regulatory examinations or
investigations, or litigation.
(e) Prepare quarterly board materials with regard to sales and other
distribution related data reasonably requested by the Board of Trustees.
(f) Prepare materials for the Board of Trustees supporting the annual renewal of
the Distribution Agreement.
(g) Provide all necessary Blue Sky services utilizing ClearSky, a third-party
provider, on behalf of Saratoga, including but not limited to: tracking all
sales per state to registered amounts; filing all required registration
materials; and maintaining fund registrations in accordance with state
securities laws. Work with Saratoga personnel and ClearSky to ensure that the
Portfolios are in full compliance with any applicable state regulatory
requirements.
(h) Perform sales cap testing on an individual Portfolio basis as required by
the NASD and related regulatory and compliance reports, if any.
(i) Keep and maintain all books and records relating to its services in
accordance with Rule 31a-1 and Rule 31a-2 under the 1940 Act.
<PAGE>
B. Legal Administration Services
FDI will provide the following routine legal administration services
("Routine Administrative Services"):
1. Corporate and Secretarial Services
(a) Provide the necessary complement of Assistant Secretaries for the Trust.
(b) Maintain general corporate calendar and track all legal and compliance
requirements through annual cycles.
(c) Prepare board meeting materials (four (4) quarterly board meetings per
year), including but not limited to:
o Prepare agenda and background materials for legal approval, including
explanatory memorandums and resolutions
o Make presentations
o Monitor annual approval requirements
o Prepare extensive background material for annual
review of advisory fees, major corporate structural
changes, etc.
o Prepare minutes
o Follow-up on matters raised at meetings
o Keep Trustees apprised of important and relevant industry developments
o Prepare treasury and compliance reports
(d) Maintain Agreement and Declaration of Trust and By-Laws of the Trust.
(e) Draft contracts, assist in negotiation and planning, as appropriate. For
example negotiate, draft and keep current the following contracts: (i)
investment advisory and sub-advisory contracts; (ii) distribution agreement;
(iii) bank agreements; (iv) broker/dealer agreements; (v) transfer agency
agreement; (vi) custody agreement; (vii) administration
agreement/sub-administration agreement; (viii) 12b-1 plans and related
agreements; (ix) shareholder servicing plans and related agreements; (x) IRA
custodian agreements; (xi) bi-party repurchase agreements; (xii) tri-party
repurchase agreements; (xiii) futures account agreement and procedural
safekeeping agreement; (xiv) loan agreements; and (xv) various other routine
agreements and amendments.
2. SEC and Public Disclosure Assistance
(a) Prepare and file via EDGAR one annual amendment to the Trust's registration
statement, including updating prospectuses and statement of additional
information (not including any amendment requiring major prospectus revisions or
the addition of new portfolios or classes).
(b) Review Form N-SAR, Form 24F-2, annual and semi-annual shareholder reports
for legal disclosure requirements.
(c) Monitor fidelity bond and directors' and officers' errors and omissions
policies and file such fidelity bond with the Securities and Exchange
Commission.
(d) Provide legal assistance for shareholder communications.
3. Legal Consulting and Planning
(a) Provide general legal advice on matters relating to portfolio management,
portfolio operations, mutual fund sales, development of advertising materials,
changing or improving prospectus disclosure, and any potential changes in the
fund's investment policies, operations, or structure.
(b) Provide general legal advice on reasonable routine banking, fiduciary,
corporate and securities law issues.
(c) Maintain a continuing awareness of significant emerging regulatory and
legislative developments which may affect the Portfolios, update the investment
adviser on those developments, and provide related planning assistance.
(d) Develop or assist in developing guidelines and procedures to improve overall
compliance by the Trust and its various agents.
(e) Provide advice with regard to Portfolio litigation matters, routine Trust
examinations and investigations by regulatory agencies.
(f) Provide advice regarding long term planning for the Trust including the
creation of new portfolios, corporate structural changes, mergers, acquisitions,
and other asset gathering plans including new distribution methods.
(g) Maintain effective communications with Trust counsel and counsel to the
"non-interested" Trustees.
(h) Create and implement timing and responsibility system for outside legal
counsel when necessary to implement major projects and the legal management of
such projects.
(i) Monitor activities and billing practices of outside counsel performing
services for the Trust or in connection with related Portfolio activities.
4. Compliance
(a) Consulting regarding all testing that is done by the agents of the Trust to
assist the adviser in complying with Portfolio prospectus guidelines and
limitations, 1940 Act requirements, and Internal Revenue Code requirements.
(b) Jointly create Compliance Manuals and workshops for advisory personnel with
the agents of the Trust or investment adviser.
(c) Consultation and advice for resolution of compliance questions along with
Trust counsel, the investment adviser and the fund accountant.
(d) Be actively involved with the management of SEC and other regulatory
examinations.
(e) Assist portfolio managers with compliance matters including reviewing the
Compliance Manual on a regular basis and attending compliance meetings with the
portfolio managers.
(f) Assist in developing guidelines and procedures to improve overall compliance
by the Trust and its various agents.
(g) Maintain legal liaison with and provide legal advice and counsel to the
Trust regarding its relationships, contractual or otherwise, with the various
Trust agents, such as the investment adviser, investment sub-adviser, custodian,
transfer agent, and auditors with respect to their activities on behalf of the
Trust.
(h) Provide advice regarding all Portfolio distribution arrangements for
compliance with applicable banking and broker/dealer regulations.
(i) Maintain the Trust's Code of Ethics and administer, with assistance from the
agents of the Trust, compliance by the Trustees, officers and "access persons"
under the terms of the Trust's Code of Ethics and Securities and Exchange
Commission regulations.
* * *
FDI is willing to provide any extraordinary legal administration
services ("Extraordinary Legal Administrative Services") to the Trust. All of
the extraordinary legal functions set forth below may be accomplished wholly or
partially by FDI depending upon the circumstances (e.g., work flow and timing
demands) surrounding each request.
Additional compensation payable by Saratoga to FDI for the provision of
extraordinary services is either (i) a flat fee to be negotiated after the scope
of the project has been accurately and completely defined; or (ii) a fee for a
particular project based on an hourly rate of between $125 and $150 depending
upon the complexity of the project. Only personnel with an Assistant Vice
President title or higher with FDI would bill on an hourly basis.
Extraordinary Legal Administrative Services may, depending upon the
circumstances, include the following:
<PAGE>
(a) Shareholder Meetings
o Draft Proxies
o Organize, attend and keep minutes
o Work with the Transfer Agent on solicitations and vote tabulation
o Provide legal presence at meetings
(b) Draft Proxy/Solicitation Documents on Form N-14 (Fund Mergers).
(c) An annual post-effective amendment that involves major prospectus revisions
or the addition of new investment portfolios or classes.
(d) Board meeting materials for significant corporate restructuring or other
major changes as well as more than four board meetings during a twelve month
period.
(e) More than one Post-Effective Amendment in any twelve month period.
(f) Advice regarding conversion of pooled funds and certain other bank specific
advice.
(g) Monitor and participate in the preparation of no-action requests and
application documents for exemptive orders.
<PAGE>
C. Financial Administration Services
1. Financial Administration/Compliance
(a) Provide the appropriate complement of Assistant Treasurers to assume certain
specified responsibilities (these functions will be based upon the day to day
work completed by knowledgeable staff assembled by Saratoga including the fund
accountant).
(b) Prepare and file, with assistance from the agents of the Trust: (i),
unaudited financial statements and schedules of investments as required for
annual and semi-annual reports; (ii) EDGAR on-line filings related to annual and
semi-annual reports; (iii) EDGAR on-line filings related to Form N-SAR; and (iv)
EDGAR on-line filings related to Form 24F-2
(c) Calculate with assistance from the agents of the Trust, Portfolio
performance and Saratoga's asset allocation models' performance, and report to
outside services as directed by Trust management.
(d) Prepare, with assistance from the agents of the Trust, mutually agreed upon
financial materials for review by the Board of Trustees such as: distribution
summaries, deviations of mark-to-market valuation and amortized cost monitoring
for the money market funds.
(e) Monitor, with assistance from the agents of the Trust, compliance with the
following: each Portfolio's investment limitations and restrictions (e.g.,
issuer or industry diversification, etc.) listed in the current Prospectus and
Statement of Additional Information; each Portfolio's requirements under Section
851 of the Internal Revenue Code for qualification as a regulated investment
company (e.g., 90% income, diversification tests); approved issuers' listings
for repurchase agreements, Rule 17a-7 and Rule 12d-3 reporting.
(f) Perform, with assistance from and based upon trial balances and portfolio
holdings supplied by the agents of the Trust, the following additional
compliance services: monthly tax qualification testing, including gross income
tests, and 25% and 50% asset diversification tests; 1940 Act testing, including
diversification, illiquid securities and investments in other investment
companies; consultation and advising to remedy compliance issues.
(g) Provide, with assistance from the agents of the Trust, all the necessary tax
compliance duties and services, including but not limited to: 90% minimum
distribution test; 50% assets test for tax-exempt funds; 50% asset test for
foreign tax credit pass through; identification of "private activity" tax
exempt; identification of passive foreign investment companies; and
identification of foreign currency transactions.
(h) Calculate, with assistance from the agents of the Trust, Portfolio expense
projections, revising accruals as needed. Review, on a monthly basis, expenses
based on actual charges annualized and accrued daily, including expenses based
on a percentage of the Portfolio's average daily net assets (advisory and
administrative fees).
(i) Calculate, with assistance from the agents of the Trust, the monthly
management and advisory fees for each Portfolio, such calculation to be approved
for payment by an officer of the Trust.
(j) Review and monitor, with assistance from the agents of the Trust,
mark-to-market comparisons and Rule 2a-7 requirements for money market funds.
(k) Provide mutual fund industry fee and performance information, as needed for
Board materials and the annual report management discussion and analysis, from
its own resources to the extent available or otherwise from resources acceptable
to the Trust provided that any charges associated with information provided by
third parties shall be paid by the Trust.
(l) Assist (along with the fund accountant) the Trust's adviser in valuing
securities which are not readily salable.
(m) Assist with and coordinate, with assistance from the agents of the Trust,
communications and data collections with regard to any regulatory examinations
or investigations, and yearly audits by independent accountants and be involved
with the planning and conducting of audits and examinations.
2. CDSC Financing Arrangement
(a) Recording on a Portfolio-by-Portfolio basis of all receivables purchased.
(b) Calculating and accounting for, on a Portfolio-by-Portfolio basis, all
collections related to the purchased receivables, including contingent deferred
sales charges and Rule 12b-1 fees.
(c) Maintenance of required records directly related to the purchased
receivables and the ensuing collections, including furnishing upon request any
documents as needed by the seller or purchaser.
(d) Provide a detailed monthly report summarizing receivables activity,
including calculations of fees and interest as required by the program
documents.
(e) Perform and monitor compliance testing as required by the program documents,
providing additional monthly reports to document compliance requirements.
(f) Provide control point between the purchaser, seller and service provider(s).
(g) Report receivable activity to the Board of Trustees.
(h) Respond to inquiries of the purchaser and seller.
(i) Participate in the communication among the purchaser, seller, service
provider(s), and outside auditors as needed, in connection with the review of
purchased receivables activity.
(j) Document procedures as identified and developed with all interested parties,
including auditors, associated with the purchased receivables process.
<PAGE>
EXHIBIT B
Services Provided by Saratoga Capital Management
(a) Complete or cause the Trust's other service providers to complete the August
31, 1999 year-end audit process, including but not limited to, the preparation
and timely filing of all tax related documents and financial statements.
(b) Cause the Trust's other service providers to provide all spreadsheets and
procedures currently in place relating to the Trust's treasury/financial
administration, with historical copy and formulas intact, to FDI as soon as
practicable after the effectiveness of this Agreement.
(c) Cause the Trust's other service providers to furnish any and all information
to and assist FDI in taking any other actions that may be reasonably necessary
in connection with FDI providing those services listed in Exhibit A.
(d) Cause the Trust's transfer agent to provide sales of the Shares to FDI or
Clear Sky to assure compliance with applicable state securities and Blue Sky
laws.
(e) Cause the Trust's transfer agent to give necessary information for the
preparation of quarterly reports in a form satisfactory to FDI regarding Rule
12b-1 fees, front-end sales loads, back-end sales loads, if applicable, and
other data regarding sales and sales loads as required by the 1940 Act or as
requested by the Board of Trustees of the Trust.
(f) Cause the Trust's transfer agent to provide FDI with all necessary
information, including all historical information, so that FDI can calculate the
maximum sales charges payable by the Portfolios pursuant to the NASD's Conduct
Rules and the actual sales charges paid by the Portfolios, if applicable; and
cause the Trust's transfer agent to provide such information in a form
satisfactory to FDI no less often than monthly for every Portfolio and on a
daily basis for any Portfolio where FDI determines that the remaining limit is
approaching zero, if applicable.
(g) Submit all sales literature and advertisements to FDI for legal/compliance
review in advance of use, and incorporate such changes as FDI may reasonably
request therein. FDI will file such materials and obtain such approvals for
their use as may be required by the SEC or NASD. For purposes of this Agreement
"sales literature" and "advertisements" mean brochures, letters, electronic
media, training materials and dealers' guides, materials for oral presentations
and all other similar materials, whether transmitted directly to potential
shareholders or published in print or audio-visual media, but does not include
generic materials that do not mention the Portfolios or the Shares.
(h) Monitor the performance of the Registered Representatives with respect to
compliance with the NASD's Conduct Rules, and in particular the NASD's
interpretation of the applicability of Rule 3040 of the NASD's Conduct Rules to
certain activities of persons registered as representatives with an NASD member
and as an investment adviser with the SEC, and who conduct their advisory
activities away from their NASD employer/member as described in the NASD's
Special Notice to Members 94-44.
(i) Identify persons employed by Saratoga that will become Registered
Representatives and assist FDI in ascertaining that such persons meet all
requirements established for being a Registered Representative by the SEC, NASD
and relevant state securities commissions.
(j) (i) Identify persons to enter into appropriate agreements with FDI for the
solicitation of Portfolio Shares, such as securities dealers, financial
institutions and other industry professionals such as investment advisers and
estate planning firms (collectively referred to herein as "Selling Broker
Dealers"); (ii) assist FDI in ascertaining that such persons meet any
requirements established for Selling Broker-Dealers by law, the Trust or FDI;
(iii) request that FDI enter into selling agreements with each such Selling
Broker-Dealer ("Selling Agreements") (Exhibit C), such request to be signed by a
duly authorized officer or employee of Saratoga who shall be a person listed on
Exhibit D until such time as Saratoga amends or supplements such list, and
Saratoga will assist in the performance of the necessary due diligence to
determine the qualification of the prospective Selling Broker-Dealer pursuant to
clause (ii) above; (iv) submit such Selling Broker-Dealer request and all
related due diligence materials that Saratoga may have to FDI; (v) assist FDI in
coordinating the execution of Selling Agreements between FDI and the Selling
Broker-Dealers; and (vi) use its best efforts to insure that no sales are
executed or processed prior to obtaining an executed Selling Agreement from the
Selling Broker-Dealer making the sale.
(k) Provide administrative support (e.g. telemarketing and fulfillment services)
with regard to, and use its best efforts to monitor the performance of, the
Selling Broker-Dealers in their solicitation and execution of sales of the
Shares and all activities related thereto, including compliance with applicable
law, the Selling Agreements, and the multi-class procedures.
(l) Use reasonable efforts to monitor the Selling Broker-Dealers in their
resolution of as of trades with respect to Shares of the Portfolios in order to
mitigate the risk of loss to FDI and the Portfolios from such as of trades.
(m) Report to FDI, to the extent that Saratoga is aware, any and all actions or
inactions by any Selling Broker-Dealer that (i) fail to comply with the terms of
any Selling Agreements, (ii) violate any applicable laws of any governmental
authorities, including the NASD's Conduct Rules, or (iii) violate any other
agreements or procedures with which such Selling Broker-Dealer is required to
comply.
(n) (i) Provide the form of confirmation statement to be used for sale of the
Shares to FDI and provide or cause to be provided to customers of the Selling
Broker-Dealers and to the Selling Broker-Dealers such confirmations of all
transactions in the Shares as may be required by the 1934 Act and the Selling
Agreements, and (ii) use reasonable efforts to monitor the Trust's transfer
agent in its preparation and mailing of such confirmations regarding the sales
of the Shares and report to FDI any deficiencies of which Saratoga is aware in
the transfer agent's performance of such activities.
(o) Report sales-related complaints to FDI and consult with FDI concerning the
manner in which such complaints will be addressed.
(p) Provide FDI with copies of, or access to, any documents that FDI may
reasonably request and will notify FDI as soon as possible of any matter
materially affecting FDI's performance of its services under this Agreement.
<PAGE>
EXHIBIT C
AUTHORIZED SARATOGA REPRESENTATIVES
The following individuals are authorized to request the issuance of
sales agreements to clients and/or potential clients of The Saratoga Advantage
Trust:
Bruce E. Ventimiglia
Scott C. Kane
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> US Govt Money Market Portfolio
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-1-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 49,224,049
<INVESTMENTS-AT-VALUE> 49,224,049
<RECEIVABLES> 1,178,166
<ASSETS-OTHER> 27,604
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,429,819
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 529,573
<TOTAL-LIABILITIES> 529,573
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,902,488
<SHARES-COMMON-STOCK> 49,893,242
<SHARES-COMMON-PRIOR> 38,494,598
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,242)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 49,900,246
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,083,913
<OTHER-INCOME> 0
<EXPENSES-NET> 204,401
<NET-INVESTMENT-INCOME> 879,512
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 879,512
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 879,512
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29,257,421
<NUMBER-OF-SHARES-REDEEMED> 18,890,333
<SHARES-REINVESTED> 861,806
<NET-CHANGE-IN-ASSETS> 11,407,873
<ACCUMULATED-NII-PRIOR> 1,896
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 100,845
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 213,904
<AVERAGE-NET-ASSETS> 42,446,192
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.96
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> Investment Quality Bond
Portfolio
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-1-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 39,109,701
<INVESTMENTS-AT-VALUE> 38,852,226
<RECEIVABLES> 1,726,340
<ASSETS-OTHER> 95,576
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40,674,142
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,365,474
<TOTAL-LIABILITIES> 1,365,474
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,465,567
<SHARES-COMMON-STOCK> 3,912,678
<SHARES-COMMON-PRIOR> 3,472,275
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 3,131
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 103,707
<ACCUM-APPREC-OR-DEPREC> (257,475)
<NET-ASSETS> 39,308,668
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,151,852
<OTHER-INCOME> 0
<EXPENSES-NET> 208,331
<NET-INVESTMENT-INCOME> 943,521
<REALIZED-GAINS-CURRENT> 219,577
<APPREC-INCREASE-CURRENT> (768,372)
<NET-CHANGE-FROM-OPS> 394,726
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 943,521
<DISTRIBUTIONS-OF-GAINS> 245,800
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,405,439
<NUMBER-OF-SHARES-REDEEMED> 1,069,131
<SHARES-REINVESTED> 111,101
<NET-CHANGE-IN-ASSETS> 3,584,969
<ACCUMULATED-NII-PRIOR> 1,896
<ACCUMULATED-GAINS-PRIOR> 105,809
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 109,805
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 220,742
<AVERAGE-NET-ASSETS> 39,925,132
<PER-SHARE-NAV-BEGIN> 10.29
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> (0.18)
<PER-SHARE-DIVIDEND> 0.12
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.11
<EXPENSE-RATIO> 1.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> Municipal Portfolio
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-1-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 10,390,744
<INVESTMENTS-AT-VALUE> 10,741,908
<RECEIVABLES> 141,793
<ASSETS-OTHER> 68,553
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,451,922
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 82,314
<TOTAL-LIABILITIES> 82,314
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,451,922
<SHARES-COMMON-STOCK> 1,017,556
<SHARES-COMMON-PRIOR> 913,816
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (11,632)
<ACCUMULATED-NET-GAINS> 78,486
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 351,164
<NET-ASSETS> 10,869,940
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 269,310
<OTHER-INCOME> 0
<EXPENSES-NET> 62,931
<NET-INVESTMENT-INCOME> 206,379
<REALIZED-GAINS-CURRENT> 81,207
<APPREC-INCREASE-CURRENT> (112,140)
<NET-CHANGE-FROM-OPS> 175,446
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 306,379
<DISTRIBUTIONS-OF-GAINS> 43,266
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 306,740
<NUMBER-OF-SHARES-REDEEMED> 222,642
<SHARES-REINVESTED> 23,022
<NET-CHANGE-IN-ASSETS> 1,075,972
<ACCUMULATED-NII-PRIOR> 1,896
<ACCUMULATED-GAINS-PRIOR> 27,023
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29,107
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 93,805
<AVERAGE-NET-ASSETS> 10,585,502
<PER-SHARE-NAV-BEGIN> 10.72
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> (0.06)
<PER-SHARE-DIVIDEND> 0.22
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.65
<EXPENSE-RATIO> 1.18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> Large Cap Value Portfolio
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-1-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 65,387,690
<INVESTMENTS-AT-VALUE> 73,217,580
<RECEIVABLES> 376,226
<ASSETS-OTHER> 85,546
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 73,679,352
<PAYABLE-FOR-SECURITIES> 6,221,717
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 338,189
<TOTAL-LIABILITIES> 6,559,906
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,691,385
<SHARES-COMMON-STOCK> 3,396,093
<SHARES-COMMON-PRIOR> 2,349,717
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 238,991
<ACCUMULATED-NET-GAINS> 1,837,162
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,829,890
<NET-ASSETS> 67,119,446
<DIVIDEND-INCOME> 338,443
<INTEREST-INCOME> 248,164
<OTHER-INCOME> 0
<EXPENSES-NET> 308,627
<NET-INVESTMENT-INCOME> 277,980
<REALIZED-GAINS-CURRENT> 1,374,721
<APPREC-INCREASE-CURRENT> 4,821,614
<NET-CHANGE-FROM-OPS> 6,474,315
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 238,346
<DISTRIBUTIONS-OF-GAINS> 2,604,268
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,277,860
<NUMBER-OF-SHARES-REDEEMED> 366,567
<SHARES-REINVESTED> 144,908
<NET-CHANGE-IN-ASSETS> 24,478,709
<ACCUMULATED-NII-PRIOR> 240,241
<ACCUMULATED-GAINS-PRIOR> 2,547,843
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 172,594
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 324,081
<AVERAGE-NET-ASSETS> 53,312,732
<PER-SHARE-NAV-BEGIN> 18.15
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 2.73
<PER-SHARE-DIVIDEND> 0.09
<PER-SHARE-DISTRIBUTIONS> 1.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.71
<EXPENSE-RATIO> 1.16
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> Large Cap Growth Portfolio
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-1-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 62,409,660
<INVESTMENTS-AT-VALUE> 103,078,825
<RECEIVABLES> 1,816,373
<ASSETS-OTHER> 25,529
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 104,920,727
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,400,311
<TOTAL-LIABILITIES> 1,400,311
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 59,740,374
<SHARES-COMMON-STOCK> 3,968,482
<SHARES-COMMON-PRIOR> 3,731,031
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 449,579
<ACCUMULATED-NET-GAINS> 3,560,456
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40,669,165
<NET-ASSETS> 103,520,416
<DIVIDEND-INCOME> 291,260
<INTEREST-INCOME> 27,752
<OTHER-INCOME> 0
<EXPENSES-NET> 481,223
<NET-INVESTMENT-INCOME> (162,211)
<REALIZED-GAINS-CURRENT> 3,552,307
<APPREC-INCREASE-CURRENT> 31,653,034
<NET-CHANGE-FROM-OPS> 35,043,130
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,644,127
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,184,637
<NUMBER-OF-SHARES-REDEEMED> 1,018,883
<SHARES-REINVESTED> 80,611
<NET-CHANGE-IN-ASSETS> 36,983,609
<ACCUMULATED-NII-PRIOR> 1,896
<ACCUMULATED-GAINS-PRIOR> 1,532,451
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 294,141
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 498,694
<AVERAGE-NET-ASSETS> 91,445,988
<PER-SHARE-NAV-BEGIN> 17.83
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> 8.78
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.41
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 26.09
<EXPENSE-RATIO> 1.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> Small Cap Portfolio
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-1-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 37,775,797
<INVESTMENTS-AT-VALUE> 31,499,025
<RECEIVABLES> 96,363
<ASSETS-OTHER> 23,306
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 31,618,694
<PAYABLE-FOR-SECURITIES> 190,625
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 176,971
<TOTAL-LIABILITIES> 367,596
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89,823,554
<SHARES-COMMON-STOCK> 3,647,459
<SHARES-COMMON-PRIOR> 2,366,030
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 701,063
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,594,621
<ACCUM-APPREC-OR-DEPREC> (6,276,772)
<NET-ASSETS> 31,251,098
<DIVIDEND-INCOME> 82,520
<INTEREST-INCOME> 18,334
<OTHER-INCOME> 0
<EXPENSES-NET> 163,474
<NET-INVESTMENT-INCOME> (62,620)
<REALIZED-GAINS-CURRENT> (1,168,179)
<APPREC-INCREASE-CURRENT> 4,386,110
<NET-CHANGE-FROM-OPS> 3,155,311
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 6,885,615
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 856,124
<NUMBER-OF-SHARES-REDEEMED> 440,887
<SHARES-REINVESTED> 795,468
<NET-CHANGE-IN-ASSETS> 8,016,382
<ACCUMULATED-NII-PRIOR> 1,896
<ACCUMULATED-GAINS-PRIOR> 5,970,299
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 94,625
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 180,692
<AVERAGE-NET-ASSETS> 29,092,720
<PER-SHARE-NAV-BEGIN> 9.82
<PER-SHARE-NII> (0.19)
<PER-SHARE-GAIN-APPREC> 1.63
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 2.69
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.57
<EXPENSE-RATIO> 1.12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> Internationl Equity Portfolio
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-1-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 20,444,144
<INVESTMENTS-AT-VALUE> 22,220,520
<RECEIVABLES> 131,587
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23,772,169
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 160,074
<TOTAL-LIABILITIES> 160,074
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,043,381
<SHARES-COMMON-STOCK> 2,004,622
<SHARES-COMMON-PRIOR> 1,737,557
<ACCUMULATED-NII-CURRENT> 59,534
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 267,196
<ACCUM-APPREC-OR-DEPREC> 1,776,376
<NET-ASSETS> 23,612,095
<DIVIDEND-INCOME> 197,939
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 133,933
<NET-INVESTMENT-INCOME> 64,006
<REALIZED-GAINS-CURRENT> 49,597
<APPREC-INCREASE-CURRENT> 1,615,655
<NET-CHANGE-FROM-OPS> 1,729,258
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 173,213
<DISTRIBUTIONS-OF-GAINS> 160,696
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 647,438
<NUMBER-OF-SHARES-REDEEMED> 388,589
<SHARES-REINVESTED> 14,968
<NET-CHANGE-IN-ASSETS> 4,645,195
<ACCUMULATED-NII-PRIOR> 117,534
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 270,290
<GROSS-ADVISORY-FEES> 79,252
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 172,260
<AVERAGE-NET-ASSETS> 21,206,330
<PER-SHARE-NAV-BEGIN> 10.92
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.89
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.77
<EXPENSE-RATIO> 1.26
</TABLE>
