FILED PURSUANT TO RULE 497(C)
THE SARATOGA
ADVANTAGE TRUST
CLASS I SHARES
PROSPECTUS - January 1, 2001
T H E S A R A T O G A A D V A N T A G ET R U S T
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 Large Capitalization Value Portfolio
Portfolio
Large Capitalization Growth Portfolio
Investment Quality Bond Portfolio Small Capitalization Portfolio
Municipal Bond 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(Trademark) (the "Saratoga SHARP(Trademark) 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.
TABLE OF CONTENTS
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Page
THE PORTFOLIOS
U.S. Government Money Market Portfolio 3
Investment Quality Bond Portfolio 5
Municipal Bond Portfolio 8
Large Capitalization Value Portfolio 11
Large Capitalization Growth Portfolio 13
Small Capitalization Portfolio 15
International Equity Portfolio 17
Summary of Trust Expenses 20
Additional Investment Strategy Information 22
Additional Risk Information 22
Investment Manager 23
Advisers 24
Administration 25
SHAREHOLDER INFORMATION
Pricing of Portfolio Shares 25
Purchase of Shares 26
Redemption of Shares 27
Dividends and Distributions 29
Tax Consequences 29
Financial Highlights 31
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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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's Class I shares has
varied from year to year over the
life of the Portfolio.
---------------------------------------
Calendar Years Average Annual Returns
-------------- ----------------------
1995 5.40%
1996 4.32%
1997 4.47%
1998 4.44%
1999 4.22%
During the periods shown in the bar chart, the highest return for a
calendar quarter was 1.50% (quarter ended June 30, 1995) and the lowest return
for a calendar quarter was 0.95% (quarter ended June 30, 1999). Year-to-date
total return as of September 30, 2000 was 3.85%.
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, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
U.S. Government Money Market
Portfolio 4.22% 4.57% 4.57%
90 Day T-Bills 4.60% 5.02% 5.26%
Lipper U.S. Treasury Money
Market Index(1) 4.30% 4.81% 4.79%
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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. These funds intend
to keep a constant net asset value. Investors may not invest directly in the
Index.
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.
INVESTMENT QUALITY BOND PORTFOLIO
Investment Objective
The Investment Quality Bond Portfolio seeks current income and reasonable
stability of principal.
The Adviser
The Investment Quality Bond Portfolio is advised by Fox Asset Management,
Inc. The Portfolio is managed by a team that includes 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 Senior 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.
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.
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.
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 Annual Total Returns - Calendar Years
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's Class I shares has
varied from year to year over the
life of the Portfolio.
---------------------------------------
Calendar Years Average Annual Returns
-------------- ----------------------
1995 12.44%
1996 3.15%
1997 6.58%
1998 6.47%
1999 (0.01%)
During the periods shown in the bar chart, the highest return for a
calendar quarter was 3.99% (quarter ended June 30, 1995) and the lowest return
for a calendar quarter was -0.73% (quarter ended March 31, 1996). Year-to-date
total return as of September 30, 2000 was 6.03%.
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, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
Investment Quality Bond
Portfolio -0.01% 5.64% 5.00%
Lehman Intermediate
Government/Corporate Bond
Index(1) 0.39% 7.09% 6.43%
Lipper Short-Intermediate
Investment Grade Debt Funds
Index(2) 1.19% 6.41% 5.89%
--------------------------------------------------------------------------------
(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. Investors may not invest
directly in the Index.
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.
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.
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.
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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's Class I shares has
varied from year to year over the
life of the Portfolio.
--------------------------------------------------------------------------------
Calendar Years Average Annual Returns
-------------- ----------------------
1995 15.21%
1996 3.05%
1997 8.27%
1998 5.38%
1999 (6.00%)
During the periods shown in the bar chart, the highest return for a
calendar quarter was 5.85% (quarter ended March 31, 1995) and the lowest return
for a calendar quarter was -2.55% (quarter ended December 31, 1994).
Year-to-date total return as of September 30, 2000 was 7.59%.
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, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
Municipal Bond Portfolio -6.00% 4.95% 3.79%
Lehman Municipal Bond Index(1) -2.06% 6.90% 5.88%
Lipper General Municipal Debt
Funds Index(2) -4.07% 6.14% 5.12%
--------------------------------------------------------------------------------
(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. Investors may not invest directly in the
Index.
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.
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 OpCap Advisors. Mr.
LeCates brings 32 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, a Chartered Financial Analyst, is a graduate from Princeton
University and earned his MBA in finance from Harvard Business School.
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.
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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's Class I shares has
varied from year to year over the
life of the Portfolio.
---------------------------------------
Calendar Years Average Annual Returns
-------------- ----------------------
1995 36.98%
1996 23.98%
1997 25.49%
1998 11.77%
1999 1.11%
During the periods shown in the bar chart, the highest return for a
calendar quarter was 14.90% (quarter ended December 31, 1998) and the lowest
return for a calendar quarter was -13.09% (quarter ended September 30, 1998).
Year-to-date total return as of September 30, 2000 was 0.38%.
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, 1999)
--------------------------------------------------------------------------------
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
Large Capitalization Value
Portfolio 1.11% 19.21% 17.24%
S&P/Barra Value Index(1) 12.73% 22.94% 20.37%
Morningstar Large Value
Average(2) 6.62% 19.59% 17.60%
--------------------------------------------------------------------------------
(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 August 31, 2000, consisted
of 669 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.
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.
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.
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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's Class I shares has
varied from year to year over the
life of the Portfolio.
---------------------------------------
Calendar Years Average Annual Returns
-------------- ----------------------
1995 28.98%
1996 13.43%
1997 32.52%
1998 36.44%
1999 34.18%
During the periods shown in the bar chart, the highest return for a
calendar quarter was 34.27% (quarter ended December 31, 1998) and the lowest
return for a calendar quarter was -13.18% (quarter ended September 30, 1998).
Year-to-date total return as of September 30, 2000 was -3.13%.
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, 1999)
--------------------------------------------------------------------------------
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
Large Capitalization Growth
Portfolio 34.18% 28.82% 26.79%
S&P/Barra Growth Index(1) 28.25% 33.64% 31.05%
Morningstar Large Growth
Average(2) 38.48% 29.46% 26.78%
--------------------------------------------------------------------------------
(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 August 31, 2000, consisted
of 698 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.
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
Investment Objective
The Small Capitalization Portfolio seeks maximum capital appreciation.
The Adviser
The Portfolio is advised by Fox Asset Management, Inc. It is managed by a
management team led by J. Peter Skirkanich and George C. Pierides, who are the
key small-cap personnel on the firm's Investment Committee. Mr. Skirkanich is
the President and Chief Investment Officer of Fox and founded the firm in 1985.
Mr. Pierides is a Managing Director who spearheads the firm's small-cap efforts;
he joined the firm in 1995 from Windward Asset Management.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in common
stocks. Normally 80% of the Portfolio will be invested in companies whose stock
market capitalizations fall within the range of capitalizations in the Russell
2000 Index. The Portfolio will also occasionally invest a portion of its assets
in mid-cap stocks with compelling valuations and fundamentals that are small
relative to their industries, and it will not immediately sell a security that
was bought as a small-cap stock but through appreciation has become a mid-cap
stock. In selecting securities for the Portfolio, the Adviser begins with a
screening process that seeks to identify growing companies whose stocks sell at
discounted price-to-earnings and price-to-cash flow multiples. The Adviser also
attempts to discern situations where intrinsic asset values are not widely
recognized. The Adviser favors such higher-quality companies that generate
strong cash flow, provide above-average free cash flow yields and maintain sound
balance sheets. Rigorous fundamental analysis, from both a quantitative and
qualitative standpoint, is applied to all investment candidates. While the
Adviser employs a disciplined "bottom-up" approach that attempts to identify
undervalued stocks, it nonetheless is sensitive to emerging secular trends. The
Adviser does not, however, rely on macroeconomic forecasts in its stock
selection efforts and prefers to remain fully invested.
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.
Small and 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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's Class I shares has
varied from year to year over the
life of the Portfolio.
-------------- ----------------------
Calendar Years Average Annual Returns
-------------- ----------------------
1995 27.31%
1996 15.89%
1997 23.20%
1998 (18.61%)
1999 13.01%
During the periods shown in the bar chart, the highest return for a
calendar quarter was 22.62% (quarter ended June 30, 1999) and the lowest return
for a calendar quarter was -28.41% (quarter ended September 30, 1998).
Year-to-date total return as of September 30, 2000 was 14.37%.
--------------------------------------------------------------------------------
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, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
Small Capitalization Portfolio 13.01% 10.82% 9.52%
Russell 2000 Index(1) 21.26% 16.69% 15.09%
Morningstar Small Value
Average(2) 4.33% 14.62% 13.09%
--------------------------------------------------------------------------------
(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 August 31, 2000, consisted
of 211 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.
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.
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 Funds 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. Ian Peart 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.
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.
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.
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.
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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's Class I shares has
varied from year to year over the
life of the Portfolio.
-------------- ----------------------
Calendar Years Average Annual Returns
-------------- ----------------------
1995 3.08%
1996 6.56%
1997 6.91%
1998 13.22%
1999 40.03%
During the periods shown in the bar chart, the highest return for a
calendar quarter was 27.38% (quarter ended December 31, 1999) and the lowest
return for a calendar quarter was -16.13% (quarter ended March 31, 1999).
Year-to-date total return as of September 30, 2000 was -12.97%.
--------------------------------------------------------------------------------
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, 1999)
--------------------------------------------------------------------------------
Past Past Life of Portfolio
1 Year 5-Years (since 9/2/94)
International Equity Portfolio 40.03% 13.23% 11.06%
Morgan Stanley EAFE Index
(U.S. Dollars)(1) 26.97% 12.83% 11.10%
--------------------------------------------------------------------------------
(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.
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, 2000. There are no shareholder transaction expenses, sales loads or
distribution fees.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
U.S.
Government Investment Large Large
Money Market Quality Municipal Capitalization Capitalization Small International
Portfolio Bond Bond Value Growth Capitalization Equity
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------- ----------- ------------- ---------------- ---------- ----------- -----------
Shareholder Fees None None None None None None None
Annual Portfolio Operating Expenses
(expenses that are deducted form
Portfolio assets as a percentage of
average net assets)
Management Fees* .475% 0.55% 0.55% 0.65% 0.65% 0.65% 0.75%
Distribution (Rule 12b-1 Expenses) None None None None None None None
Other Expenses* .565% 0.61% 1.24% 0.37% 0.29% 0.61% 0.70%
Total Annual Portfolio Operating Expenses 1.04% 1.16% 1.79% 1.02% 0.94% 1.26% 1.45%
Fee Waiver (and/or Expense
Reimbursement)* -------- (0.05%) (0.59%) -------- (0.05%) (0.01%) (0.17%)
Net Expenses* 1.04% 1.11% 1.20% 1.02% 0.89% 1.25% 1.28%
========================================= ======== ======= ======= ======== ======= ======= ======
</TABLE>
* 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, 0.04%;
Municipal Bond, 0.01%; Large Capitalization Value, 0%; Large Capitalization
Growth, 0.04%; Small Capitalization, 0%; and International Equity, 0.16%. 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 year ended August 31, 2000, reimbursement payments were made by the
following Portfolios to the Manager under the terms of the Expense Agreement:
$5,648, $1,276, $4,904, $936 and $9,358 for the Large Capitalization Value,
Large Capitalization Growth, International Equity, Investment Quality Bond and
Money Market Portfolios, respectively.
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>
U.S.
Government Investment Large Large
Money Market Quality Municipal Capitalization Capitalization Small International
Portfolio Bond Bond Value Growth Capitalization Equity
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ---------- ---------- -------------- -------------- --------------- ---------------
1 year $109 $121 $126 $107 $98 $132 $147
3 years 340 379 392 334 308 411 479
5 years 590 656 678 579 534 711 788
10 years 1,305 1,447 1,494 1,281 1,185 1,564 1,726
</TABLE>
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.
ADDITIONAL RISK INFORMATION
This section provides additional information relating to principal risks of
investing in the Portfolios.
The risks set forth below are applicable to a Portfolio only to the extent
the Portfolio invests in the investment described.
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.
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.
Manager's Fee
Portfolio -------------
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.
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 May 5, 2000,
Allianz AG acquired majority ownership of PIMCO Advisors, in part by acquiring
all of the publicly traded units of PIMCO Advisors Holding LP, which owns about
44% of PIMCO Advisors, including Oppenheimer Capital, as independent operating
units. 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, 2000,
Oppenheimer Capital and its subsidiary OpCap had assets under management of
approximately $38.3 billion.
Fox Asset Management, Inc. ("Fox"), a registered investment adviser, serves
as Adviser to the Investment Quality Bond and Small Capitalization Portfolios.
Fox was formed in 1985. Fox is wholly-owned by its current employees, with a
controlling interest held by J. Peter Skirkanich, President and Chairman of
Fox's Investment Committee. Fox is located at 44 Sycamore Avenue, Little Silver,
NJ 07739. As of August 31, 2000, 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 Sansome Street,
Suite 3300, San Francisco, CA 94104, the firm managed assets of approximately $7
billion as of August 31, 2000.
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 Old Mutual plc and provides investment management
services to corporations, pension and profit-sharing plans, trusts, estates and
other institutions and individuals. As of August 31, 2000, Sterling had
approximately $3 billion in assets under management. It is anticipated that a
buyout of Sterling by its employees will occur on or around January 1, 2001,
after which Sterling will be a North Carolina limited liability company that is
100% owned by its employees.
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, 2000, the firm
and its affiliates managed approximately $55 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 100 Wood Street, London,
England EC2V 7AN.
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.
SHAREHOLDER INFORMATION
PRICING OF 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.
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(Trademark) 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.
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.
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.
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.
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.
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.
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.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
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).
The information for 2000, 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.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period)
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<TABLE>
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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, 2000 $20.59 $0.12 ($0.23) ($0.11) ($0.17) ($1.80)$18.51 (0.49%) $75,516 1.02%(1) 0.68%(1) 90%
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%
(1) During the fiscal year ended August 31, 2000 Saratoga did not waive any
of its management fees. During the fiscal years ended August 31,1999, August 31,
1998 and August 31,1997, Saratoga Capital Management waived a portion of its
management fees. During 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 0.68%, respectively, for the year ended August 31, 2000, 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 and 2.19% and 0.04%, respectively, for the year ended
August 31,1996.
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
Large Capitalization Growth Portfolio (Class I)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000 $26.98 ($0.11) $8.40 $8.29 -- ($1.66) $33.61 31.45% $142,600 0.89%(1) (0.35%)(1) 33%
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%
(1) During the fiscal year ended August 31, 2000 Saratoga did not waive any
of its management fees. During the fiscal years ended August 31,1999, August 31,
1998 and 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 0.94%
and (0.31%), respectively, for the year ended August 31, 2000, 1.02% and(0.36%),
respectively, for the year ended August 31, 1999, 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 and 1.67% and (0.60%), respectively, for the
year ended August 31, 1996.
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
Small Capitalization Portfolio (Class I)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000$10.10 ($0.04) $2.96 $2.92 -- ($0.12) $12.90 29.41% $48,275 1.25%(1) (0.37%)(1) 59%
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)(2) (0.39) 13.58 11.03% 22,071 1.25%(1) (0.83%)(1) 95%
(1) During the fiscal years ended August 31, 2000, August 31,1999, August
31, 1998 and 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 1.26%
and (0.33%), respectively, for the year ended August 31, 2000, 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 and 1.84% and (1.42%),
respectively, for the year ended August 31,1996.
(2) Amount rounds to less than $0.01.
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
International Equity Portfolio (Class I)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000$13.18 ($0.01) $2.74 $2.73 ($0.08) ($0.18)$15.65 20.72% $35,887 1.28%(1) (0.08%)(1) 45%
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(2) 0.34 0.34 (0.03) (0.05)9.59 3.68% 6,857 1.65%(1) 0.23%(1)58%
(1) During the fiscal year ended August 31, 2000 Saratoga did not waive any
of its management fees. During the fiscal years ended August 31,1999, August 31,
1998 and August 31, 1997, Saratoga Capital Management waived a Portion of its
management fees. During 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 1.45%
and 0.08%, respectively, for the year ended August 31, 2000, 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 and 3.91% and (2.33%), respectively, for the year ended
August 31,1996.
(2) Amount rounds to less than $0.01.
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
Investment Quality Bond Portfolio (Class I)
--------------------------------------------------------------------------------
Year Ended
Augusy 31, 2000 $9.88 0.54 $0.02 $0.56 ($0.54) -- $9.90 5.83% $33,199 1.11%(1) 5.47%(1) 52%
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) 62%
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%
Year Ended
August 31, 1997 9.91 0.51 0.18 0.69 (0.51) 0.00(2)10.09 7.16% 22,507 1.28%(1) 5.03%(1) 30%
Year Ended
August 31, 1996 10.08 0.48 (0.16) 0.32 (0.48) (0.01) 9.91 3.23% 16,864 1.31%(1) 4.84%(1) 55%
(1) During the fiscal year ended August 31, 2000 Saratoga did not waive any
of its management fees. During the fiscal years ended August 31,1999, August 31,
1998 and August 31,1997, Saratoga Capital Management waived a portion of its
management fees. During 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 1.16%
and 5.51%, respectively, for the year ended August 31, 2000, 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 and 2.12% and 3.90%, respectively, for the year ended
August 31,1996.
(2) Amount rounds to less than $0.01.
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
Municipal Bond Portfolio (Class I)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000$10.00 $0.43 $0.15 $0.58 ($0.43) ($0.06) $10.09 6.08% $10,021 1.20%(1) 4.43%(1) 12%
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%
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%
Year Ended
August 31, 1997 10.00 0.43 0.33 0.76 (0.43) -- 10.33 7.67% 7,223 1.21%(1) 4.19%(1) 20%
Year Ended
August 31, 1996 9.93 0.41 0.07 0.48 (0.41) -- 10.00 4.88% 4,708 1.23%(1) 4.03%(1) 12%
(1) During the fiscal years ended August 31,1999, August 31, 1998 and
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 1.79% and
3.84%, respectively, for the year ended August 31, 2000, 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 and 5.32% and (0.12%), respectively, for the year ended
August 31,1996.
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
U.S. Government Money Market Portfolio (Class I)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000$1.000 $0.048 -- $0.048 ($0.048) -- $1.000 4.96% $35,605 1.04%(1) 4.82(1) n/a
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
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
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
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
(1) During the fiscal year ended August 31, 2000 Saratoga did not waive any
of its management fees. During the fiscal years ended August 31,1999, August 31,
1998 and August 31,1997, Saratoga Capital Management waived a portion of its
management fees. During 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 1.04%
and 4.82%, respectively, for the year ended August 31, 2000,1.02% and 4.04%,
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 and 1.79% and 3.64%, respectively, for the year ended
August 31,1996.
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
</TABLE>
CLASS I SHARES
PROSPECTUS
THE SARATOGA
ADVANTAGE TRUST
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.
FILED PURSUANT TO RULE 497(C)
THE SARATOGA
ADVANTAGE TRUST
CLASS B SHARES
PROSPECTUS - January 1, 2001
T H E S A R A T O G A A D V A N T A G ET R U S T
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 Large Capitalization Value Portfolio
Portfolio
Large Capitalization Growth Portfolio
Investment Quality Bond Portfolio Small Capitalization Portfolio
Municipal Bond 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.
TABLE OF CONTENTS
---------------------------------------------------------- ---------
Page
THE PORTFOLIOS
U.S. Government Money Market Portfolio 3
Investment Quality Bond Portfolio 5
Municipal Bond Portfolio 8
Large Capitalization Value Portfolio 11
Large Capitalization Growth Portfolio 13
Small Capitalization Portfolio 15
International Equity Portfolio 17
Summary of Trust Expenses 20
Additional Investment Strategy Information 22
Additional Risk Information 22
Investment Manager 23
Advisers 24
Administration 25
SHAREHOLDER INFORMATION
Pricing of Portfolio Shares 25
Purchase of Shares 25
Contingent Deferred Sales Charge 26
Plan of Distribution 27
Redemption of Shares 28
Dividends and Distributions 30
Tax Consequences 31
Financial Highlights 32
--------------------------------------------------------------------------------
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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years*
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's shares has varied
from year to year over the life of
the Portfolio.
-------------- ----------------------
Calendar Years Average Annual Returns
-------------- ----------------------
1995 5.40%
1996 4.32%
1997 4.47%
1998 4.44%
1999 3.23%
During the period shown in the bar chart, the highest return for a calendar
quarter was 1.50% (quarter ended June 30, 1995) and the lowest return for a
calendar quarter was 0.62% (quarter ended June 30, 1999). Year-to-date total
return as of September 30, 2000 for Class B shares was 3.23%.
*Class B shares of the Portfolio commenced operations on January 4, 1999.
The returns shown in the chart for the calendar years 1995 through 1998 are for
Class I shares of the Portfolio which are offered in a separate prospectus.
Class I and 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.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's 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 shares at the end of each period and you were charged a
contingent deferred sales charge. Of course, if you did not sell your shares at
the end of the period, your return would be higher.
--------------------------------------------------------------------------------
Average Annual Total Returns (as of December 31, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
U.S. Government Money Market
Portfolio(1) -1.77% 2.57% 2.57%
90 Day T-Bills 4.60% 5.02% 5.26%
Lipper U.S. Treasury Money
Market Index(2) 4.30% 4.81% 4.79%
--------------------------------------------------------------------------------
(1) The return for the past 1 year (since 1/4/99) is for Class B shares.
The returns for the past 5 year period and life of Portfolio are for Class I
shares of the Portfolio that have lower expenses than Class B shares. The
returns for all periods indicated reflect the imposition of a contingent
deferred sales charge assessed on Class B shares as described under "Contingent
Deferred Sales Charge."
(2) The Lipper U.S. Treasury Money Market Fund Index consists of the 30
largest mutual funds that invest principally in U.S. Treasury obligations with
dollar-weighted average maturities of less than 90 days. These funds intend to
keep a constant net asset value. Investors may not invest directly in the Index.
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.
INVESTMENT QUALITY BOND PORTFOLIO
Investment Objective
The Investment Quality Bond Portfolio seeks current income and reasonable
stability of principal.
The Adviser
The Investment Quality Bond Portfolio is advised by Fox Asset Management,
Inc. The Portfolio is managed by a team that includes 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 Senior 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.
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.
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.
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 Annual Total Returns - Calendar Years*
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's shares has varied
from year to year over the life of
the Portfolio.
-------------- ----------------------
Calendar Years Average Annual Returns
-------------- ----------------------
1995 12.44%
1996 3.15%
1997 6.58%
1998 6.47%
1999 (0.85%)
During the periods shown in the bar chart, the highest return for a
calendar quarter was 3.99% (quarter ended June 30, 1995) and the lowest return
for a calendar quarter was -0.73% (quarter ended March 31, 1996). Year-to-date
total return as of September 30, 2000 for Class B shares was 5.30%.
*Class B shares of the Portfolio commenced operations on January 4, 1999.
The returns shown in the chart for the calendar years 1995 through 1998 are for
Class I shares of the Portfolio which are offered in a separate prospectus.
Class I and 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.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's 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 shares at the end of each period and you were charged a
contingent deferred sales charge. Of course, if you did not sell your shares at
the end of the period, your return would be higher.
--------------------------------------------------------------------------------
Average Annual Total Returns (as of December 31, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
Investment Quality Bond
Portfolio(1) -5.85% 3.64% 3.00%
Lehman Intermediate
Government/Corporate Bond
Index(2) 0.39% 7.09% 6.43%
Lipper Short-Intermediate
Investment Grade Debt Funds
Index(3) 1.19% 6.41% 5.89%
--------------------------------------------------------------------------------
(1) The return for the past 1 year (since 1/4/99) is for Class B shares.
The returns for the past 5 year period and life of Portfolio are for Class I
shares of the Portfolio that have lower expenses than Class B shares. The
returns for all periods indicated reflect the imposition of a contingent
deferred sales charge assessed on Class B shares as described under "Contingent
Deferred Sales Charge."
(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 that does not include
fees and expenses. Investors may not invest directly in the Index.
(3) 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. Investors may not invest
directly in the Index.
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.
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.
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.
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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years*
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's shares has varied
from year to year over the life of
the Portfolio.
-------------- ----------------------
Calendar Years Average Annual Returns
-------------- ----------------------
1995 15.21%
1996 3.05%
1997 8.27%
1998 5.38%
1999 (6.62%)
During the period shown in the bar chart, the highest return for a calendar
quarter was 5.85% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -2.94% (quarter ended June 30, 1999). Year-to-date total
return as of September 30, 2000 for Class B shares was 6.91%.
* Class B shares of the Portfolio commenced operations on January 4, 1999.
The returns shown in the chart for the calendar years 1995 through 1998 are for
Class I shares of the Portfolio which are offered in a separate prospectus.
Class I and 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.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's 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 shares at the end of each period and you were charged a
contingent deferred sales charge. Of course, if you did not sell your shares at
the end of the period, your return would be higher.
--------------------------------------------------------------------------------
Average Annual Total Returns (as of December 31, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
Municipal Bond Portfolio(1) -11.62% 2.95% 1.79%
Lehman Municipal Bond Index(2) -2.06% 6.90% 5.88%
Lipper General Municipal Debt
Funds Index(3) -4.07% 6.14% 5.12%
--------------------------------------------------------------------------------
(1) The return for the past 1 year (since 1/4/99) is for Class B shares.
The returns for the past 5 year period and life of Portfolio are for Class I
shares of the Portfolio that have lower expenses than Class B shares. The
returns for all periods indicated reflect the imposition of a contingent
deferred sales charge assessed on Class B shares as described under "Contingent
Deferred Sales Charge."
(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 that does not include fees and
expenses. Investors may not invest directly in the Index.
(3) 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. Investors may not invest directly in the
Index.
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.
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 OpCap Advisors. Mr.
LeCates brings 32 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, a Chartered Financial Analyst, is a graduate of Princeton
University and earned his MBA in finance from Harvard Business School.
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.
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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years*
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's shares has varied
from year to year over the life of
the Portfolio.
-------------- ----------------------
Calendar Years Average Annual Returns
-------------- ----------------------
1995 36.98%
1996 23.98%
1997 25.49%
1998 11.77%
1999 0.42%
During the period shown in the bar chart, the highest return for a calendar
quarter was 14.90% (quarter ended December 31, 1998) and the lowest return for a
calendar quarter was -13.09% (quarter ended September 30, 1998). Year-to-date
total return as of September 30, 2000 for Class B shares was -0.27%.
*Class B shares of the Portfolio commenced operations on January 4, 1999.
The returns shown in the chart for the calendar years 1995 through 1998 are for
Class I shares of the Portfolio which are offered in a separate prospectus.
Class I and 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.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's 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 shares at the end of each period and you were charged a
contingent deferred sales charge. Of course, if you did not sell your shares at
the end of the period, your return would be higher.
--------------------------------------------------------------------------------
Average Annual Total Returns (as of December 31, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
Large Capitalization Value
Portfolio(1) -4.58% 17.21% 15.24%
S&P/Barra Value Index(2) 12.73% 22.94% 20.37%
Morningstar Large Value
Average(3) 6.62% 19.59% 17.60%
--------------------------------------------------------------------------------
(1) The return for the past 1 year (since 1/4/99) is for Class B shares.
The returns for the past 5 year period and life of Portfolio are for Class I
shares of the Portfolio that have lower expenses than Class B shares. The
returns for all periods indicated reflect the imposition of a contingent
deferred sales charge assessed on Class B shares as described under "Contingent
Deferred Sales Charge."
(2) 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.
(3) The Morningstar Large Value Average, as of August 31, 2000, consisted
of 669 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
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.
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.
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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years*
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's shares has varied
from year to year over the life of
the Portfolio.
-------------- ----------------------
Calendar Years Average Annual Returns
-------------- ----------------------
1995 28.98%
1996 13.43%
1997 32.52%
1998 36.44%
1999 33.62%
During the period shown in the bar chart, the highest return for a calendar
quarter was 34.27% (quarter ended December 31, 1998) and the lowest return for a
calendar quarter was -13.18% (quarter ended September 30, 1998). Year-to-date
total return as of September 30, 2000 for Class B shares was -3.78%.
*Class B shares of the Portfolio commenced operations on January 4, 1999.
The returns shown in the chart for the calendar years 1995 through 1998 are for
Class I shares of the Portfolio which are offered in a separate prospectus.
Class I and 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.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's 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 shares at the end of each period and you were charged a
contingent deferred sales charge. Of course, if you did not sell your shares at
the end of the period, your return would be higher.
--------------------------------------------------------------------------------
Average Annual Total Returns (as of December 31, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
Large Capitalization Growth
Portfolio(1) 28.62% 26.82% 24.79%
S&P/Barra Growth Index(2) 28.25% 33.64% 31.05%
Morningstar Large Growth
Average(3) 38.48% 29.46% 26.78%
--------------------------------------------------------------------------------
(1) The return for the past 1 year (since 1/4/99) is for Class B shares.
The returns for the past 5 year period and life of Portfolio are for Class I
shares of the Portfolio that have lower expenses than Class B shares. The
returns for all periods indicated reflect the imposition of a contingent
deferred sales charge assessed on Class B shares as described under "Contingent
Deferred Sales Charge."
(2) 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.
(3) The Morningstar Large Growth Average, as of August 31, 2000, consisted
of 698 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.
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
Investment Objective
The Small Capitalization Portfolio seeks maximum capital appreciation.
The Adviser
The Portfolio is advised by Fox Asset Management, Inc. It is managed by a
management team led by J. Peter Skirkanich and George C. Pierides, who are the
key small-cap personnel on the firm's Investment Committee. Mr. Skirkanich is
the President and Chief Investment Officer of Fox and founded the firm in 1985.
Mr. Pierides is a Managing Director who spearheads the firm's small-cap efforts;
he joined the firm in 1995 from Windward Asset Management.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in common
stocks. Normally 80% of the Portfolio will be invested in companies whose stock
market capitalizations fall within the range of capitalizations in the Russell
2000 Index. The Portfolio will also occasionally invest a portion of its assets
in mid-cap stocks with compelling valuations and fundamentals that are small
relative to their industries, and it will not immediately sell a security that
was bought as a small-cap stock but through appreciation has become a mid-cap
stock. In selecting securities for the Portfolio, the Adviser begins with a
screening process that seeks to identify growing companies whose stocks sell at
discounted price-to-earnings and price-to-cash flow multiples. The Adviser also
attempts to discern situations where intrinsic asset values are not widely
recognized. The Adviser favors such higher-quality companies that generate
strong cash flow, provide above-average free cash flow yields and maintain sound
balance sheets. Rigorous fundamental analysis, from both a quantitative and
qualitative standpoint, is applied to all investment candidates. While the
Adviser employs a disciplined "bottom-up" approach that attempts to identify
undervalued stocks, it nonetheless is sensitive to emerging secular trends. The
Adviser does not, however, rely on macroeconomic forecasts in its stock
selection efforts and prefers to remain fully invested.
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.
Small and 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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years*
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's shares has varied
from year to year over the life of
the Portfolio.
-------------- ----------------------
Calendar Years Average Annual Returns
-------------- ----------------------
1995 27.31%
1996 15.89%
1997 23.20%
1998 (18.61%)
1999 12.33%
During the period shown in the bar chart, the highest return for a calendar
quarter was 22.62% (quarter ended June 30, 1999) and the lowest return for a
calendar quarter was -28.41% (quarter ended September 30, 1998). Year-to-date
total return as of September 30, 2000 for Class B shares was 13.65%.
*Class B shares of the Portfolio commenced operations on January 4, 1999.
The returns shown in the chart for the calendar years 1995 through 1998 are for
Class I shares of the Portfolio which are offered in a separate prospectus.
Class I and 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.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's 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 shares at the end of each period and you were charged a
contingent deferred sales charge. Of course, if you did not sell your shares at
the end of the period, your return would be higher.
--------------------------------------------------------------------------------
Average Annual Total Returns (as of December 31, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
Small Capitalization 7.33% 8.82% 7.52%
Portfolio(1)
Russell 2000 Index(2) 21.26% 16.69% 15.09%
Morningstar Small Value
Average(3) 4.33% 14.62% 13.09%
--------------------------------------------------------------------------------
(1) The return for the past 1 year (since 1/4/99) is for Class B shares.
The returns for the past 5 year period and life of Portfolio are for Class I
shares of the Portfolio that have lower expenses than Class B shares. The
returns for all periods indicated reflect the imposition of a contingent
deferred sales charge assessed on Class B shares as described under "Contingent
Deferred Sales Charge."
(2) 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.
(3) The Morningstar Small Value Average, as of August 31, 2000, consisted
of 211 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.
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.
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 Funds 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. Ian Peart 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.
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.
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.
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.
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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years*
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's shares has varied
from year to year over the life of
the Portfolio.
-------------- ----------------------
Calendar Years Average Annual Returns
-------------- ----------------------
1995 3.08%
1996 6.56%
1997 6.91%
1998 13.22%
1999 35.56%
During the period shown in the bar chart, the highest return for a calendar
quarter was 27.38% (quarter ended December 31, 1999) and the lowest return for a
calendar quarter was -16.13% (quarter ended March 31, 1999). Year-to-date total
return as of September 30, 2000 for Class B shares was -13.53%.
*Class B shares of the Portfolio commenced operations on January 4, 1999.
The returns shown in the chart for the calendar years 1995 through 1998 are for
Class I shares of the Portfolio which are offered in a separate prospectus.
Class I and 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.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's shares
with those of a broad measure of market performance over time. The Portfolio's
returns assume you sold the shares at the end of each period and you were
charged a contingent deferred sales charge. Of course, if you did not sell your
shares at the end of the period, your return would be higher.
--------------------------------------------------------------------------------
Average Annual Total Returns (as of December 31, 1999)
Past Past Life of Portfolio
1 Year 5-Years (since 9/2/94)
--------------------------------------------------------------------------------
International Equity 30.56% 11.23% 9.06%
Portfolio(1)
Morgan Stanley EAFE Index (U.S.
Dollars)(2) 26.97% 12.83% 11.10%
--------------------------------------------------------------------------------
(1) The return for the past 1 year (since 1/4/99) is for Class B shares.
The returns for the past 5 year period and life of Portfolio are for Class I
shares of the Portfolio that have lower expenses than Class B shares. The
returns for all periods indicated reflect the imposition of a contingent
deferred sales charge assessed on Class B shares as described under "Contingent
Deferred Sales Charge."
(2) 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.
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, 2000.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
U.S.
Government Investment Large Large
Money Market Quality Municipal Capitalization Capitalization Small International
Portfolio Bond Bond Value Growth Capitalization Equity
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ----------- --------- -------------- -------------- --------- ----------
Shareholder Fees
Maximum Sales Charge on Purchases of
Shares None None None None None None None
(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 5% 5% 5% 5% 5% 5% 5%
time of
purchase or sale, whichever is
less)(1)
Exchange Fee None None None None None None None
Annual Portfolio Operating Expenses
(expenses that are deducted form
Portfolio assets as a percentage of
average net assets)
Management Fees .475% 0.55% 0.55% 0.65% 0.65% 0.65% 0.75%
Distribution (Rule 12b-1 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses)(2)(3)
Other Expenses .395% 0.41% 1.56% 0.13% 0.07% 0.42% 0.43%
Total Annual Portfolio Operating 1.87% 1.96% 3.11% 1.78% 1.72% 2.07% 2.18%
Expenses(4)
Fee Waiver (and/or Expense Reimbursement)* -------- (0.04%) (0.92%) -------- (0.05%) (0.03%) (0.16%)
Net Expenses 1.87% 1.92% 2.19% 1.78% 1.67% 2.04% 2.02%
</TABLE>
(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 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."
* 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.' Class B Shares commenced operations 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, 0.04%; Municipal Bond, 0.02%; Large
Capitalization Value, 0%; Large Capitalization Growth, 0.04%; Small
Capitalization, 0%; and International Equity, 0.16%. 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,
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 year ended August 31, 2000, reimbursement payments were made by the
following Portfolios to the Manager under the terms of the Expense Agreement:
$5,648, $1,276, $4,904, $936 and $9,358 for the Large Capitalization Value,
Large Capitalization Growth, International Equity, Investment Quality Bond and
Money Market Portfolios, respectively.
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 SOLD Your Shares:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
U.S.
Government Investment Large Large
Money Market Quality Municipal Capitalization Capitalization Small International
Portfolio Bond Bond Value Growth Capitalization Equity
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ---------- --------- -------------- -------------- -------------- -------------
1 year $696 $705 $731 $686 $680 $717 $728
3 years 1,007 1,035 1,111 978 959 1,070 1,105
5 years 1,243 1,291 1,418 1,194 1,162 1,349 1,408
10 years 2,031 2,139 2,349 1,949 1,876 2,257 2,385
- If You HELD Your Shares:
--------- ---------- --------- -------------- -------------- -------------- ------------
1 year $196 $205 $231 $186 $180 $217 $228
3 years 607 635 711 578 559 670 705
5 years 1,043 1,091 1,218 994 962 1,149 1,208
10 years 2,031 2,139 2,349 1,949 1,876 2,257 2,385
</TABLE>
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.
ADDITIONAL RISK INFORMATION
This section provides additional information relating to principal risks of
investing in the Portfolios.
The risks set forth below are applicable to a Portfolio only to the extent
the Portfolio invests in the investment described.
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.
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.
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 May 5, 2000,
Allianz AG acquired majority ownership of PIMCO Advisors, in part by acquiring
all of the publicly traded units of PIMCO Advisors Holdings LP, which owns about
44% of PIMCO Advisors. Allianz has indicated that it intends to maintain the
current subsidiaries of PIMCO Advisors, including Oppenheimer Capital, as
independent operating units. 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, 2000, Oppenheimer Capital and its subsidiary OpCap had assets under
management of approximately $38.3 billion.
Fox Asset Management, Inc. ("Fox"), a registered investment adviser, serves
as Adviser to the Investment Quality Bond and Small Capitalization Portfolios.
Fox was formed in 1985. Fox is wholly-owned by its current employees, with a
controlling interest held by J. Peter Skirkanich, President and Chairman of
Fox's Investment Committee. Fox is located at 44 Sycamore Avenue, Little Silver,
NJ 07739. As of August 31, 2000, 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 Sansome Street,
Suite 3300, San Francisco, CA 94104, the firm managed assets of approximately $7
billion as of August 31, 2000.
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 Old Mutual plc and provides investment management
services to corporations, pension and profit-sharing plans, trusts, estates and
other institutions and individuals. As of August 31, 2000, Sterling had
approximately $3 billion in assets under management. It is anticipated that a
buyout of Sterling by its employees will occur on or around January 1, 2001,
after which Sterling will be a North Carolina limited liability company that is
100% owned by its employees.
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, 2000, the firm
and its affiliates managed approximately $55 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 100 Wood Street, London,
England EC2V 7AN.
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.
SHAREHOLDER INFORMATION
PRICING OF 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.
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 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
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).
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.
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.
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.
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.
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.
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.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
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.
--------------------------------------------------------------------------------
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)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000 $20.50 $0.13 ($0.41) ($0.28) ($0.17) ($1.80) $18.25 (1.33%) $1,280 1.78% (0.03%) 90%
January 4, 1999 (2)
to August 31, 1999 20.21 (0.02) 0.31 0.29 -- -- 20.50 1.43% 172 1.72%(1,3)(0.53%)(1,3) 67%
(1) During the fiscal period ended August 31, 1999, Saratoga Capital
Management waived a portion of its management fees. 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 1.78% and (0.03%),
respectively, for the year ended August 31, 2000, 2.21% and 1.02%, respectively,
for the year ended August 31, 1999.
(2) Commencement of offering.
(3) Not Annualized
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
Large Capitalization Growth Portfolio (Class B)
--------------------------------------------------------------------------------
Year Ended
Augusy 31, 2000$26.75 ($0.13) $8.03 $7.90 -- ($1.66) $32.99 30.22% $2,801 1.67%(1) (1.16%)(1) 33%
January 4, 1999 (2)
to August 31, 1999 24.74 (0.04) 2.05 2.01 -- -- 26.75 8.12% 204 1.19%(1,3)(0.73%)(1,3) 39%
(1) During the fiscal periods ended August 31, 2000 and August 31, 1999,
Saratoga Capital Management waived a portion of its management fees.
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 1.72% and
(1.11%), respectively, for the year ended August 31, 2000, 3.31% and (2.86%),
respectively, for the year ended August 31, 1999.
(2) Commencement of offering.
(3) Not Annualized
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
Small Capitalization Portfolio (Class B)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000$10.04 ($0.06) $2.84 $2.78 -- ($0.12) $12.70 28.17% $436 2.04%(1)(1.11%)(1) 59%
January 4, 1999 (2)
To August 31, 1999 9.33 (0.02) 0.73 0.71 -- -- 10.04 7.61% 73 1.42%(1,3)(1.02%)(1,3) 32%
(1) During the fiscal periods ended August 31, 2000 and August 31, 1999,
Saratoga Capital Management waived a portion of its management fees.
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 2.07% and
(1.08%), respectively, for the year ended August 31, 2000, 1.43% and (1.02%),
respectively, for the year ended August 31, 1999.
(2) Commencement of offering.
(3) Not Annualized
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
International Equity Portfolio (Class B)
--------------------------------------------------------------------------------
Year ended
August 31, 2000 $13.09 - $2.58 $2.58 ($0.08) ($0.18) $15.41 19.71% $420 2.02% (0.67%) 45%
January 4, 1999 (2)
to August 31, 1999 12.29 ($0.02) 0.82 0.80 -- -- 13.09 6.51% 68 2.16%(1,3) (0.77%)(1,3) 46%
(1) During the fiscal period ended August 31, 1999, Saratoga Capital
Management waived a portion of its management fees. 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 2.18% and (0.51%),
respectively, for the year ended August 31, 2000, 2.84% and (1.45%),
respectively, for the year ended August 31, 1999.
(2) Commencement of offering.
(3) Not Annualized
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
Investment Quality Bond Portfolio (Class B)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000$9.88 $0.46 $0.01 $0.47 ($0.46) -- $9.89 4.88% $125 1.92% 4.68% 53%
January 4, 1999 (2)
to August 31, 1999 10.29 0.28 (0.41) (0.13) (0.28) -- 9.88 (1.32%) 64 1.07%(1,3)2.23%(1,3) 62%
(1) During the fiscal period ended August 31, 1999, Saratoga Capital
Management waived a portion of its management fees. Additionally, for the
periods presented above, the Portfolio benefited from an expense offset
arrangement with its custodian bank. If such waivers, assumptions and expense
offsets had not been in effect for the respective periods, the ratios of net
operating expenses to average daily net assets and of net investment income
(loss) to average daily net assets would have been 1.96% and 4.72%,
respectively, for the year ended August 31, 2000, 1.13% and 2.29%, respectively,
for the year ended August 31, 1999.
(2) Commencement of offering.
(3) Not Annualized
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
Municipal Bond Portfolio (Class B)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000 $10.00 $0.34 $0.16 $0.50 ($0.34) ($0.06) $10.10 5.14% $16 2.19%(1) 3.38%(1) 12%
January 4, 1999 (2)
to August 31, 1999 10.66 0.25 (0.66) (0.41) (0.25) -- 10.00 (3.91%) 8 1.24%(1,3) 1.76%(1,3) 23%
(1) During the fiscal periods ended August 31, 2000 and August 31, 1999,
Saratoga Capital Management waived a portion of its management fees.
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 3.11% and
2.78%, respectively, for the year ended August 31, 2000,1.44% and 1.96%,
respectively, for the year ended August 31, 1999.
(2) Commencement of offering.
(3) Not Annualized
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
U.S. Government Money Market Portfolio (Class B)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000 $1.000 $0.040 -- $0.000 ($0.040) -- $1.000 4.10% $115 1.87% 4.06% n/a
January 4, 1999 (2)
to August 31, 1999 1.000 0.022 -- 0.022 (0.022) -- 1.000 1.94% 70 1.06%(1,3) 1.82%(1,3) n/a
(1) During the fiscal period ended August 31, 1999, Saratoga Capital
Management waived a portion of its management fees. 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 1.87% and 4.06%,
respectively, for the year ended August 31, 2000, 1.10% and 1.86%, respectively,
for the year ended August 31, 1999
(2) Commencement of offering.
(3) Not Annualized
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
</TABLE>
CLASS B SHARES
PROSPECTUS
THE SARATOGA
ADVANTAGE TRUST
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.
FILED PURSUANT TO RULE 497(C)
THE SARATOGA
ADVANTAGE TRUST
CLASS C SHARES
PROSPECTUS - January 1, 2001
T H E S A R A T O G A A D V A N T A G ET R U S T
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 Large Capitalization Value Portfolio
Portfolio
Large Capitalization Growth Portfolio
Investment Quality Bond Portfolio Small Capitalization Portfolio
Municipal Bond 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.
TABLE OF CONTENTS
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Page
THE PORTFOLIOS
U.S. Government Money Market Portfolio 3
Investment Quality Bond Portfolio 5
Municipal Bond Portfolio 8
Large Capitalization Value Portfolio 11
Large Capitalization Growth Portfolio 13
Small Capitalization Portfolio 15
International Equity Portfolio 17
Summary of Trust Expenses 20
Additional Investment Strategy Information 22
Additional Risk Information 22
Investment Manager 23
Advisers 24
Administration 25
SHAREHOLDER INFORMATION
Pricing of Portfolio Shares 25
Purchase of Shares 25
Contingent Deferred Sales Charge 26
Plan of Distribution 27
Redemption of Shares 28
Dividends and Distributions 30
Tax Consequences 30
Financial Highlights 32
--------------------------------------------------------------------------------
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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years*
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's shares has varied
from year to year over the life of
the Portfolio.
---------------------------------------
Calendar Years Average Annual Return
---------------------------------------
1995 5.40%
1996 4.32%
1997 4.47%
1998 4.44%
1999 3.28%
During the period shown in the bar chart, the highest return for a calendar
quarter was 1.50% (quarter ended June 30, 1995) and the lowest return for a
calendar quarter was 0.62% (quarter ended June 30, 1999). Year-to-date total
return as of September 30, 2000 for Class C shares was 3.22%.
* Class C shares of the Portfolio commenced operations on January 4, 1999.
The returns shown in the chart for the calendar years 1995 through 1998 are for
Class I shares of the Portfolio which are offered in a separate prospectus.
Class I and 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.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's 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 shares at the end of each period and you were charged a
contingent deferred sales charge. Of course, if you did not sell your shares at
the end of the period, your return would be higher.
--------------------------------------------------------------------------------
Average Annual Total Returns (as of December 31, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
U.S. Government Money Market
Portfolio(1) 2.28% 4.57% 4.57%
90 Day T-Bills 4.60% 5.02% 5.26%
Lipper U.S. Treasury Money
Market Index(2) 4.30% 4.81% 4.79%
--------------------------------------------------------------------------------
(1) The return for the past 1 year (since 1/4/99) is for Class C shares.
The returns for the past 5 year period and life of Portfolio are for Class I
shares of the Portfolio that have lower expenses than Class C shares. The
returns for all periods indicated reflect the imposition of a contingent
deferred sales charge assessed on Class C shares as described under "Contingent
Deferred Sales Charge."
(2) The Lipper U.S. Treasury Money Market Fund Index consists of the 30
largest mutual funds that invest principally in U.S. Treasury obligations with
dollar-weighted average maturities of less than 90 days. These funds intend to
keep a constant net asset value. Investors may not invest directly in the Index.
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.
INVESTMENT QUALITY BOND PORTFOLIO
Investment Objective
The Investment Quality Bond Portfolio seeks current income and reasonable
stability of principal.
The Adviser
The Investment Quality Bond Portfolio is advised by Fox Asset Management,
Inc. The Portfolio is managed by a team that includes 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 Senior 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.
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.
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.
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 Annual Total Returns - Calendar Years*
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's shares has varied
from year to year over the life of
the Portfolio.
---------------------------------------
Calendar Years Average Annual Return
---------------------------------------
1995 12.44%
1996 3.15%
1997 6.58%
1998 6.47%
1999 (0.73%)
During the periods shown in the bar chart, the highest return for a
calendar quarter was 3.99% (quarter ended June 30, 1995) and the lowest return
for a calendar quarter was -0.73% (quarter ended March 31, 1996). Year-to-date
total return as of September 30, 2000 for Class C shares was 5.29%.
* Class C shares of the Portfolio commenced operations on January 4, 1999.
The returns shown in the chart for the calendar years 1995 through 1998 are for
Class I shares of the Portfolio which are offered in a separate prospectus.
Class I and 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.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's 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 shares at the end of each period and you were charged a
contingent deferred sales charge. Of course, if you did not sell your shares at
the end of the period, your return would be higher.
--------------------------------------------------------------------------------
Average Annual Total Returns (as of December 31, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
Investment Quality Bond
Portfolio(1) -1.73% 5.64% 5.00%
Lehman Intermediate
Government/Corporate Bond
Index(2) 0.39% 7.09% 6.43%
Lipper Short-Intermediate
Investment Grade Debt Funds
Index(3) 1.19% 6.41% 5.89%
--------------------------------------------------------------------------------
(1) The return for the past 1 year (since 1/4/99) is for Class C shares.
The returns for the past 5 year period and life of Portfolio are for Class I
shares of the Portfolio that have lower expenses than Class C shares. The
returns for all periods indicated reflect the imposition of a contingent
deferred sales charge assessed on Class C shares as described under "Contingent
Deferred Sales Charge."
(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 that does not include
fees and expenses. Investors may not invest directly in the Index.
(3) 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. Investors may not invest
directly in the Index.
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.
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.
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.
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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years*
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's shares has varied
from year to year over the life of
the Portfolio.
---------------------------------------
Calendar Years Average Annual Return
---------------------------------------
1995 15.21%
1996 3.05%
1997 8.27%
1998 5.38%
1999 (6.72%)
During the period shown in the bar chart, the highest return for a calendar
quarter was 5.85% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -2.94% (quarter ended June 30, 1999). Year-to-date total
return as of September 30, 2000 for Class C shares was 6.72%.
* Class C shares of the Portfolio commenced operations on January 4, 1999.
The returns shown in the chart for the calendar years 1995 through 1998 are for
Class I shares of the Portfolio which are offered in a separate prospectus.
Class I and 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.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's 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 shares at the end of each period and you were charged a
contingent deferred sales charge. Of course, if you did not sell your shares at
the end of the period, your return would be higher.
--------------------------------------------------------------------------------
Average Annual Total Returns (as of December 31, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
Municipal Bond Portfolio(1) -7.72% 4.95% 3.79%
Lehman Municipal Bond Index(2) -2.06% 6.90% 5.88%
Lipper General Municipal Debt
Funds Index(3) -4.07% 6.14% 5.12%
--------------------------------------------------------------------------------
(1) The return for the past 1 year (since 1/4/99) is for Class C shares.
The returns for the past 5 year period and life of Portfolio are for Class I
shares of the Portfolio that have lower expenses than Class C shares. The
returns for all periods indicated reflect the imposition of a contingent
deferred sales charge assessed on Class C shares as described under "Contingent
Deferred Sales Charge."
(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 that does not include fees and
expenses. Investors may not invest directly in the Index.
(3) 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. Investors may not invest directly in the
Index.
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.
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 OpCap Advisors. Mr.
LeCates brings 32 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, a Chartered Financial Analyst, is a graduate of Princeton
University and earned his MBA in finance from Harvard Business School.
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.
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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years*
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's shares has varied
from year to year over the life of
the Portfolio.
---------------------------------------
Calendar Years Average Annual Return
---------------------------------------
1995 36.98%
1996 23.98%
1997 25.49%
1998 11.77%
1999 0.52%
During the period shown in the bar chart, the highest return for a calendar
quarter was 14.90% (quarter ended December 31, 1998) and the lowest return for a
calendar quarter was -13.09% (quarter ended September 30, 1998). Year-to-date
total return as of September 30, 2000 for Class C shares was -0.27%.
* Class C shares of the Portfolio commenced operations on January 4, 1999.
The returns shown in the chart for the calendar years 1995 through 1998 are for
Class I shares of the Portfolio which are offered in a separate prospectus.
Class I and 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.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's 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 shares at the end of each period and you were charged a
contingent deferred sales charge. Of course, if you did not sell your shares at
the end of the period, your return would be higher.
--------------------------------------------------------------------------------
Average Annual Total Returns (as of December 31, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
Large Capitalization Value
Portfolio(1) -0.48% 19.21% 17.24%
S&P/Barra Value Index(2) 12.73% 22.94% 20.37%
Morningstar Large Value
Average(3) 6.62% 19.59% 17.60%
--------------------------------------------------------------------------------
(1) The return for the past 1 year (since 1/4/99) is for Class C shares.
The returns for the past 5 year period and life of Portfolio are for Class I
shares of the Portfolio that have lower expenses than Class C shares. The
returns for all periods indicated reflect the imposition of a contingent
deferred sales charge assessed on Class C shares as described under "Contingent
Deferred Sales Charge."
(2) 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.
(3) The Morningstar Large Value Average, as of August 31, 2000, consisted
of 669 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
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.
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.
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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years*
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's shares has varied
from year to year over the life of
the Portfolio.
---------------------------------------
Calendar Years Average Annual Return
---------------------------------------
1995 28.98%
1996 13.43%
1997 35.52%
1998 36.44%
1999 33.83%
During the period shown in the bar chart, the highest return for a calendar
quarter was 34.27% (quarter ended December 31, 1998) and the lowest return for a
calendar quarter was -13.18% (quarter ended September 30, 1998). Year-to-date
total return as of September 30, 2000 for Class C shares was -3.77%.
* Class C shares of the Portfolio commenced operations on January 4, 1999.
The returns shown in the chart for the calendar years 1995 through 1998 are for
Class I shares of the Portfolio which are offered in a separate prospectus.
Class I and 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.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's 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 shares at the end of each period and you were charged a
contingent deferred sales charge. Of course, if you did not sell your shares at
the end of the period, your return would be higher.
--------------------------------------------------------------------------------
Average Annual Total Returns (as of December 31, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
Large Capitalization Growth
Portfolio(1) 32.83% 28.82% 26.79%
S&P/Barra Growth Index(2) 28.25% 33.64% 31.05%
Morningstar Large Growth
Average(3) 38.48% 29.46% 26.78%
--------------------------------------------------------------------------------
(1) The return for the past 1 year (since 1/4/99) is for Class C shares.
The returns for the past 5 year period and life of Portfolio are for Class I
shares of the Portfolio that have lower expenses than Class C shares. The
returns for all periods indicated reflect the imposition of a contingent
deferred sales charge assessed on Class C shares as described under "Contingent
Deferred Sales Charge."
(2) 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.
(3) The Morningstar Large Growth Average, as of August 31, 2000, consisted
of 698 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.
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
Investment Objective
The Small Capitalization Portfolio seeks maximum capital appreciation.
The Adviser
The Portfolio is advised by Fox Asset Management, Inc. It is managed by a
management team led by J. Peter Skirkanich and George C. Pierides, who are the
key small-cap personnel on the firm's Investment Committee. Mr. Skirkanich is
the President and Chief Investment Officer of Fox and founded the firm in 1985.
Mr. Pierides is a Managing Director who spearheads the firm's small-cap efforts;
he joined the firm in 1995 from Windward Asset Management.
Principal Investment Strategies
The Portfolio will normally invest at least 80% of its assets in common
stocks. Normally 80% of the Portfolio will be invested in companies whose stock
market capitalizations fall within the range of capitalizations in the Russell
2000 Index. The Portfolio will also occasionally invest a portion of its assets
in mid-cap stocks with compelling valuations and fundamentals that are small
relative to their industries, and it will not immediately sell a security that
was bought as a small-cap stock but through appreciation has become a mid-cap
stock. In selecting securities for the Portfolio, the Adviser begins with a
screening process that seeks to identify growing companies whose stocks sell at
discounted price-to-earnings and price-to-cash flow multiples. The Adviser also
attempts to discern situations where intrinsic asset values are not widely
recognized. The Adviser favors such higher-quality companies that generate
strong cash flow, provide above-average free cash flow yields and maintain sound
balance sheets. Rigorous fundamental analysis, from both a quantitative and
qualitative standpoint, is applied to all investment candidates. While the
Adviser employs a disciplined "bottom-up" approach that attempts to identify
undervalued stocks, it nonetheless is sensitive to emerging secular trends. The
Adviser does not, however, rely on macroeconomic forecasts in its stock
selection efforts and prefers to remain fully invested.
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.
Small and 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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years*
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's shares has varied
from year to year over the life of
the Portfolio.
---------------------------------------
Calendar Years Average Annual Return
---------------------------------------
1995 27.31%
1996 15.89%
1997 23.20%
1998 (18.61%)
1999 12.77%
During the period shown in the bar chart, the highest return for a calendar
quarter was 22.62% (quarter ended June 30, 1999) and the lowest return for a
calendar quarter was -28.41% (quarter ended September 30, 1998). Year-to-date
total return as of September 30, 2000 for Class C shares was 13.50%.
* Class C shares of the Portfolio commenced operations on January 4, 1999.
The returns shown in the chart for the calendar years 1995 through 1998 are for
Class I shares of the Portfolio which are offered in a separate prospectus.
Class I and 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.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's 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 shares at the end of each period and you were charged a
contingent deferred sales charge. Of course, if you did not sell your shares at
the end of the period, your return would be higher.
--------------------------------------------------------------------------------
Average Annual Total Returns (as of December 31, 1999)
Past Past Life of Portfolio
1 Year 5 Years (since 9/2/94)
--------------------------------------------------------------------------------
Small Capitalization 11.77% 10.82% 9.52%
Portfolio(1)
Russell 2000 Index(2) 21.26% 16.69% 15.09%
Morningstar Small Value
Average(3) 4.33% 14.62% 13.09%
--------------------------------------------------------------------------------
(1) The return for the past 1 year (since 1/4/99) is for Class C shares.
The returns for the past 5 year period and life of Portfolio are for Class I
shares of the Portfolio that have lower expenses than Class C shares. The
returns for all periods indicated reflect the imposition of a contingent
deferred sales charge assessed on Class C shares as described under "Contingent
Deferred Sales Charge."
(2) 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.
(3) The Morningstar Small Value Average, as of August 31, 2000, consisted
of 211 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.
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.
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 Funds 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. Ian Peart 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.
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.
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.
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.
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.
ANNUAL TOTAL RETURNS Annual Total Returns - Calendar Years*
This chart shows how the performance [OBJECT OMITTED]
of the Portfolio's shares has varied
from year to year over the life of
the Portfolio.
---------------------------------------
Calendar Years Average Annual Return
---------------------------------------
1995 3.08%
1996 6.56%
1997 6.91%
1998 13.22%
1999 35.64%
During the period shown in the bar chart, the highest return for a calendar
quarter was 27.38% (quarter ended December 31, 1999) and the lowest return for a
calendar quarter was -16.13% (quarter ended March 31, 1999). Year-to-date total
return as of September 30, 2000 for Class C shares was -13.65%.
*Class C shares of the Portfolio commenced operations on January 4, 1999.
The returns shown in the chart for the calendar years 1995 through 1998 are for
Class I shares of the Portfolio which are offered in a separate prospectus.
Class I and 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.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the average annual returns of the Portfolio's shares
with those of a broad measure of market performance over time. The Portfolio's
returns assume you sold the shares at the end of each period and you were
charged a contingent deferred sales charge. Of course, if you did not sell your
shares at the end of the period, your return would be higher.
--------------------------------------------------------------------------------
Average Annual Total Returns (as of December 31, 1999)
Past Past Life of Portfolio
1 Year 5-Years (since 9/2/94)
--------------------------------------------------------------------------------
International Equity 34.64% 13.23% 11.06%
Portfolio(1)
Morgan Stanley EAFE Index (U.S.
Dollars)(2) 26.97% 12.83% 11.10%
--------------------------------------------------------------------------------
(1) The return for the past 1 year (since 1/4/99) is for Class C shares.
The returns for the past 5 year period and life of Portfolio are for Class I
shares of the Portfolio that have lower expenses than Class C shares. The
returns for all periods indicated reflect the imposition of a contingent
deferred sales charge assessed on Class C shares as described under "Contingent
Deferred Sales Charge."
(2) 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.
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, 2000.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
U.S.
Government Investment Large Large
Money Market Quality Municipal Capitalization Capitalization Small International
Portfolio Bond Bond Value Growth Capitalization Equity
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ---------- --------- -------------- -------------- ------------- ----------
Shareholder Fees
Maximum Sales Charge on Purchases of
Shares None None None None None None None
(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 1% 1% 1% 1% 1% 1% 1%
time of
purchase or sale, whichever is
less)(1)
Exchange Fee None None None None None None None
Annual Portfolio Operating Expenses
(expenses that are deducted form
Portfolio assets as a percentage of
average net assets)
Management Fees 0.475% 0.55% 0.55% 0.65% 0.65% 0.65% 0.75%
Distribution (Rule 12b-1 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses)(2)
Other Expenses .395% 0.42% 1.29% 0.20% (0.20%) 0.09% 0.23%
Total Annual Portfolio Operating 1.87% 1.97% 2.84% 1.85% 1.63% 1.74% 1.98%
Expenses(3)
Fee Waiver (and/or Expense Reimbursement)* -------- (0.05%) (0.64%) -------- (0.04%) (0.02%) (0.16%)
Net Expenses 1.87% 1.92% 2.20% 1.85% 1.59% 1.72% 1.82%
</TABLE>
(1) Only applicable to redemptions made witin 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 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."
* 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.' Class C Shares commenced operations 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, 0.04%; Municipal Bond, 0.02%; Large
Capitalization Value, 0%; Large Capitalization Growth, 0.04%; Small
Capitalization, 0%; and International Equity, 0.16%. 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,
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 year ended August 31, 2000, reimbursement payments were made by the
following Portfolios to the Manager under the terms of the Expense Agreement:
$5,648, $1,276, $4,904, $936 and $9,358 for the Large Capitalization Value,
Large Capitalization Growth, International Equity, Investment Quality Bond and
Money Market Portfolios, respectively.
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 SOLD Your Shares:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
U.S.
Government Investment Large Large
Money Market Quality Municipal Capitalization Capitalization Small International
Portfolio Bond Bond Value Growth Capitalization Equity
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ------------ ---------- -------------- -------------- -------------- --------------
1 year $296 $306 $331 $294 $271 $282 $307
3 years 607 638 711 600 530 565 642
5 years 1,043 1,096 1,218 1,032 913 973 1,102
10 years 2,254 2,363 2,610 2,232 1,988 2,111 2,374
- If You HELD Your Shares:
--------- ----------- ---------- -------------- --------------- -------------- --------------
1 year $196 $206 $231 $194 $171 $182 $207
3 years 607 638 711 600 530 565 642
5 years 1,043 1,096 1,218 1,032 913 973 1,102
10 years 2,254 2,363 2,610 2,232 1,988 2,111 2,374
</TABLE>
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.
ADDITIONAL RISK INFORMATION
This section provides additional information relating to principal risks of
investing in the Portfolios.
The risks set forth below are applicable to a Portfolio only to the extent
the Portfolio invests in the investment described.
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.
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.
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 May 5, 2000,
Allianz AG acquired majority ownership of PIMCO Advisors, in part by acquiring
all of the publicly traded units of PIMCO Advisors Holdings LP, which owns about
44% of PIMCO Advisors. Allianz has indicated that it intends to maintain the
current subsidiaries of PIMCO Advisors, including Oppenheimer Capital, as
independent operating units. 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, 2000, Oppenheimer Capital and its subsidiary OpCap had assets under
management of approximately $38.3 billion.
Fox Asset Management, Inc. ("Fox"), a registered investment adviser, serves
as Adviser to the Investment Quality Bond and Small Capitalization Portfolios.
Fox was formed in 1985. Fox is wholly-owned by its current employees, with a
controlling interest held by J. Peter Skirkanich, President and Chairman of
Fox's Investment Committee. Fox is located at 44 Sycamore Avenue, Little Silver,
NJ 07739. As of August 31, 2000, 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 Sansome Street,
Suite 3300, San Francisco, CA 94104, the firm managed assets of approximately 7
billion as of August 31, 2000.
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 Old Mutual plc and provides investment management
services to corporations, pension and profit-sharing plans, trusts, estates and
other institutions and individuals. As of August 31, 2000, Sterling had
approximately $3 billion in assets under management. It is anticipated that a
buyout of Sterling by its employees will occur on or around January 1, 2001,
after which Sterling will be a North Carolina limited liability company that is
100% owned by its employees.
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, 2000, the firm
and its affiliates managed approximately $55 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 100 Wood Street, London,
England EC2V 7AN.
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.
SHAREHOLDER INFORMATION
PRICING OF 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.
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 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:
(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.
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.
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
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.
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.
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.
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.
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.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
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.
--------------------------------------------------------------------------------
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 C)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000 $20.52 $0.05 ($0.33) ($0.28) ($0.17) ($1.80) $18.27 (1.39%) $3,509 1.85% (0.13%) 90%
January 4, 1999 (2)
to August 31, 1999 20.21 0.04 0.27 0.31 -- -- 20.52 1.53% 1,138 0.61%(1,3)(0.56%)(1,3) 67%
(1) During the fiscal period ended August 31, 1999, Saratoga Capital
Management waived a portion of its management fees. 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 1.85% and (0.13%),
respectively, for the year ended August 31, 2000, 1.41% and 1.36%, respectively,
for the year ended August 31, 1999.
(2) Commencement of offering.
(3) Not Annualized
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
Large Capitalization Growth Portfolio (Class C)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000$26.78 ($0.26) $8.19 $7.93 -- ($1.66) $33.05 30.30% $7,017 1.59%(1) (1.06%)(1) 33%
January 4, 1999 (2)
to August 31, 1999 24.74 (0.10) 2.14 2.04 -- -- 26.78 8.25% 2,209 1.22%(1,3)(0.82%)(1,3) 39%
(1) During the fiscal periods ended August 31, 2000 and August 31,1999,
Saratoga Capital Management waived a portion of its management fees.
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 1.63% and
(1.02%), respectively, for the year ended August 31, 2000, 1.34% and 0.94%,
respectively, for the year ended August 31, 1999.
(2) Commencement of offering.
(3) Not Annualized
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
Small Capitalization Portfolio (Class C)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000$10.06 ($0.07) $2.86 $2.79 -- ($0.12) $12.73 28.22% $1,693 1.72%(1)(0.79%)(1) 59%
January 4, 1999 (2)
To August 31, 1999 9.33 (0.02) 0.75 0.73 -- -- 10.06 7.82% 243 1.46%(1,3)(1.09%)(1,3) 32%
(1) During the fiscal periods ended August 31, 2000 and August 31, 1999,
Saratoga Capital Management waived a portion of its management fees.
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 1.74% and
(0.76%), respectively, for the year ended August 31, 2000, 1.56% and (1.19%),
respectively, for the year ended August 31, 1999.
(2) Commencement of offering.
(3) Not Annualized
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
International Equity Portfolio (Class C)
--------------------------------------------------------------------------------
Year ended
August 31, 2000 $13.10 $- $2.56 $2.56 ($0.08) ($0.18) $15.40 19.54% $1,534 1.82% (0.45%) 45%
January 4, 1999 (2)
to August 31, 1999 12.29 0.02 0.79 0.81 -- -- 13.10 6.59% 380 1.15%(1,3) 0.20%(1,3) 46%
(1) During the fiscal period ended August 31, 1999, Saratoga Capital
Management waived a portion of its management fees. 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 1.98% and (0.29%),
respectively, for the year ended August 31, 2000, 1.29% and 0.34%, respectively,
for the year ended August 31, 1999.
(2) Commencement of offering.
(3) Not Annualized
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
Investment Quality Bond Portfolio (Class C)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000$9.89 $0.46 $0.01 $0.47 ($0.46) -- $9.90 4.88% $1,361 1.92% 4.69% 53%
January 4, 1999 (2)
to August 31, 1999 10.29 0.28 (0.40) (0.12) (0.28) -- 9.89 (1.21%) 284 1.26%(1,3)2.69%(1,3) 62%
(1) During the fiscal period ended August 31, 1999, Saratoga Capital
Management waived a portion of its management fees. 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 1.97% and 4.74%,
respectively, for the year ended August 31, 2000, 1.30% and 2.73%, respectively,
for the year ended August 31, 1999.
(2) Commencement of offering.
(3) Not Annualized
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
Municipal Bond Portfolio (Class C)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000 $10.00 $0.35 $0.13 $0.48 ($0.33) ($0.06) $10.09 4.97% $114 2.20%(1) 3.40%(1) 12%
January 4, 1999 (2)
to August 31, 1999 10.66 0.25 (0.68) (0.43) (0.23) -- 10.00 (4.12%) 38 0.68%(1,3) 2.64%(1,3) 23%
(1) During the fiscal periods ended August 31, 2000 and August 31, 1999,
Saratoga Capital Management waived a portion of its management fees.
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
2.76%, respectively, for the year ended August 31, 2000, 1.82% and 3.78%,
respectively, for the year ended August 31, 1999.
(2) Commencement of offering.
(3) Not Annualized
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
--------------------------------------------------------------------------------
U.S. Government Money Market Portfolio (Class C)
--------------------------------------------------------------------------------
Year Ended
August 31, 2000 $1.000 $0.040 -- $0.040 ($0.040) -- $1.000 4.10% $805 1.87% 4.11% n/a
January 4, 1999 (2)
to August 31, 1999 1.000 0.022 -- 0.022 (0.022) -- 1.000 1.99% 295 1.22%(1,3) 2.03%(1,3) n/a
(1) During the fiscal period ended August 31, 1999, Saratoga Capital
Management waived a portion of its management fees. 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 1.87% and 4.11%,
respectively, for the year ended August 31, 2000, 1.26% and 2.07%, respectively,
for the year ended August 31, 1999.
(2) Commencement of offering.
(3) Not Annualized
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
</TABLE>
CLASS C SHARES
PROSPECTUS
THE SARATOGA
ADVANTAGE TRUST
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.