WHAT IS ASSET ALLOCATION?

Asset allocation is a sophisticated method of combining different classes of investments such as large stocks, small stocks, bonds, and money market funds to develop a comprehensive investment plan.  The goal of asset allocation is to create a diversified investment portfolio in accordance with the investor's personal goals and objectives.

Investment programs can ignore the need for asset allocation, and may fail to combine appropriate investments to try to protect capital.  In fact, some are designed to place all of an investor's assets into only one asset category.  Perhaps more importantly, they can disregard the fact that financial goals and circumstances change throughout the course of an investor's lifetime, and that their appropriate asset allocation changes as a result.

Bewildering choices and inflexible investment programs make the asset allocation process extremely difficult for investors to implement.

WHY IS ASSET ALLOCATION IMPORTANT?

According to the Financial Analysts Journal, a prominent source of historical investment information, asset allocation accounts for about 90% of the variability of investment returns over time:

Your financial advisor can determine an asset allocation strategy to diversify your assets to try to minimize your investment risk and increase your investment returns.  Examples of the risk reduction that may be provided by even a simple asset allocation approach are illustrated in the table below.

YOUR FINANCIAL ADVISOR HELPS YOU CREATE YOUR PERSONAL ASSET ALLOCATION

Your financial advisor can carefully tailor your portfolio to meet your specific goals and objectives for growth, income, capital preservation, or a combination thereof.

• Large Capitalization Stocks
• Mid Capitalization Stocks
• Small Capitalization Stocks
• International Stocks
• Industry Sector Stocks
• Investment Quality Bonds
• Municipal Bonds
• U.S. Government Money Market Securities

Your financial advisor can work with you to change your asset allocation as often as necessary to maintain an investment strategy that is always consistent with your current objectives and financial circumstances.  As you move through your life's investment challenges, your financial advisor can make the strategic recommendations to try to provide a lifelong guide to financial success.

Over the long term, diversified portfolios tend to provide less volatile returns.  The charts compare the performance of a non-diversified portfolio composed entirely of common stocks (S&P 500) with a diversified portfolio that consists of: 40% S&P 500 (which measures common stocks); 40% 30-year Treasury bonds (which measure long-term government bonds); and 20% cash equivalents (which measures short-term cash equivalents). The periods of comparison each include a major market downturn.  As you can see, the non-diversified portfolio had more dramatic shortterm price swings than the diversified portfolio. These charts do not represent the long-term performance potential for common stocks or a diversified portfolio and there is no assurance that a diversified portfolio will provide more favorable results than a non-diversified one. Source: Ibbotson Associates, Chicago. Used with permission. All rights reserved.

No matter how much time you can commit to researching investments (in between your job and personal commitments), professional money managers will always be able to do more.  They have the resources to hire the best investment minds and equip them with state-of-the-art computer systems.  That's why major corporations, pension plans, and wealthy individuals utilize professional money managers; they know that using professional management is an excellent way to try to achieve their investment goals.

CHOOSING THE RIGHT MANAGERS REQUIRES EXPERTISE

With over 22,000 money management firms in the United States today, there are actually many more managers to research than there are stocks on the New York Stock Exchange!  Researching and selecting an appropriate, reputable firm is difficult.  Selecting a group of money management firms to combine their investment specialties to work with your strategic asset allocation further

TOP QUALITY MANAGERS HAVE TRADITIONALLY WORKED ONLY WITH LARGE ACCOUNTS

Unfortunately  for the average investor, the high quality professional money management firms have million dollar or greater minimum account size requirements.  Based upon their long-term successful track records, they can choose to work with only the largest clients who can afford their fees and meet their minimums.  In addition, to properly diversify your investments to meet your goals, you would need to hire a manager to oversee your investments in each asset class.

Lack of sufficient time and expertise, the difficulty of selecting an appropriate, reputable manager, and the high minimum account levels for top quality managers make the investment challenge difficult for investors.

The Saratoga Advantage Trust consists of twelve proprietary investment portfolios, each representing a major investment asset class.   The Trust incorporates all of the traditional advantages and disciplines of professional money management, with two additional benefits:

1. Each investment portfolio is advised by a professional money management firm with a nationally recognized expertise in managing its specific asset class.  These are firms of institutional quality and integrity that manage money for some of the world's largest corporations, pension plans, hospitals and municipalities.  (Please see the Saratoga Advantage Trust Investment Portfolios brochure and Prospectus for more information on the managers).

2. Each portfolio invests only in its specific asset class within the Trust's explicit investment guidelines.  This helps ensure that the Saratoga portfolios always work hand-in-hand with your specific asset allocation.   Investors should note that in other portfolios, the portfolio manager may not be required to invest in a manner that is consistent with investors' asset allocation goals, and in fact may counter the investor's asset allocation strategy by imposing a different or contrary allocation within the portfolio.  (Please click here to read the "How the Saratoga Portfolios Differ" brochure for a more detailed discussion of these important advantages.)

It simply means that the Trust provides you with a professional "player" at each specific position.  This is designed to balance your investment team by putting the right skills in the appropriate places.  You can't win a game with 11 quarterbacks, no matter how talented they may be.

SARATOGA'S RESEARCH EXPERTISE IN MANAGER SELECTION

Saratoga Capital Management, LLC has carefully selected the Trust's top money management firms from the universe of over 22,000 candidates based upon extensive research and evaluation of each firm's:

• Investment Philosophy
• Research Capabilities
• Decision Making Process
• Professional Staff Experience and Size
• Long-Term Investment Performance
• Organizational Stability
• Financial Strength
• Communications and Reporting Skills

EASY ACCESS TO TOP QUALITY MANAGERS

The Saratoga Advantage Trust's low minimum account size provides investors with easy access to some of the nation's finest money managers.  By using the Saratoga Advantage Trust, all investors have the opportunity to invest in the same manner as successful institutions do.

Like an exercise program or a diet regimen, successful investing requires a long-term, disciplined commitment.  Many investors begin with good intentions, but the day-to-day events of work, family and social life frequently overwhelm even the most committed.  Financial markets change, and new trends require a reevaluation of prior investment strategies.   Your own goals and circumstances change over time and your investments should be modified to reflect your new requirements.  Without a constant source of guidance, it is easy to let your investment discipline slip away.

WHAT INFORMATION DO YOU NEED TO BE A SUCCESSFUL INVESTOR?

Ask yourself:  How many of your investments provide you with the information you need to determine if they are performing properly?

Without a way to see investment results in a meaningful light, investors have no idea whether their investment performance is as good as it could be, or even acceptable at all.  An investment in stocks that returned 10% sounds good, but what if the stock market returned 15% in the same period?   Conversely, an investment that declined in value may actually have performed quite well in comparison to similar investments that declined even more over the same time period.  To truly understand your investment performance, you not only need to know your specific performance, but also the performance of the appropriate benchmarks to make a valid comparison.

Once you establish an account, your financial advisor can provide you with the ongoing, investment advice that you need to stay on track to your financial goals.  Your financial advisor can help you periodically review your investment goals and objectives and, as the financial markets change, develop the appropriate investment strategy for your current needs.

THE SARATOGA QUARTERLY REPORT PROVIDES YOU WITH COMPREHENSIVE INFORMATION

In order for you to accurately gauge your investment results, the Saratoga Advantage Trust provides you with a comprehensive, written quarterly report containing detailed investment information.  Each report includes the following highlights:

• Your overall Saratoga Advantage Trust investment performance.
• The performance of each of your individual investment portfolios.

• Your current holdings in each of the portfolios.
• A detailed financial markets overview from Saratoga Capital Management, LLC.
• Helpful tax preparation information including:
  • A summary of your interest and dividends received and/or reinvested.
  • A summary of your purchases, sales and exchange activity.

The information in the quarterly report has been carefully designed to assist you in analyzing your investment progress.  All performance figures are provided for the current quarter, as well as on a year-to-date and since inception basis, allowing you to review your investment progress over several time periods.  In addition to the comprehensive quarterly reports, your taxable accounts will also receive an annual statement of your realized gains and losses to help you with your tax planning and preparation.

In between quarterly reports, information on your investment in the Saratoga Advantage Trust is always available through your financial advisor.

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