Mgr Updates 2

Saratoga Capital Management
Capital Markets Overview
For
The Quarter Ended September 30, 2008

ECONOMIC OVERVIEW

The United States (U.S.) economy advanced at a moderate pace of 2.8% during the second quarter of 2008, measured by the Gross Domestic Product (GDP). Housing has continued to be one of the largest negative factors affecting the U.S. economy. During the past several months many economic sectors in the U.S. have demonstrated signs of contracting. One economic indicator that we have developed at Saratoga is called the Economic Leading Statistics index (ELS). The ELS index is made up of ten diverse economic factors that include interest rates, housing and industrial production, inflation and others. The ELS index’s normal range is from +50 to -50. When the ELS index falls to below +5 it usually suggests that the U.S. economy is contracting, and when it advances to greater than +5 it usually indicates that the economy could be expanding. During June of 2008, the ELS index fell to below +5. At the June 25, 2008 Federal Reserve (Fed) Open Market Committee meeting, the Fed released the following statement in part… “Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.” In response to the tight credit conditions at bank lending and depository institutions the Fed has injected several hundred billion dollars in the Federal Reserve banking system (FRBS). The FRBS consists of 12 regional banks that have the responsibility to monitor the commercial and savings banks in their regions to insure that they follow Federal Reserve Board regulations, and to provide those banks with access to emergency funds from the Fed’s discount window. The Fed added to total reserves while keeping required reserves relatively unchanged creating billions of dollars of “excess” reserves in the FRBS. Depository institutions are required to maintain reserves in certain proportions against various types of their deposits. The Federal Open Market Committee through open market operations influences the total amount of money and credit available in the economy. The Fed attempts to provide enough reserves to encourage expansion of money (monetary base) and credit (lending) in keeping with its goals of price stability and sustainable growth in economic activity. Therefore, these “excess” reserves in the FRBS should filter through depository institutions including commercial banks, mutual savings banks, savings and loan associations and credit unions; these reserves are immediately available for new loans to be established by banks to their clients. However, there is no authority to mandate that these banks facilitate loans. We believe the stock market is undergoing a phase of re-pricing “fair value.” As it tries to establish the equilibrium point of “fair value” it will probably undershoot it and at some time create an “undervalued” environment. We believe this re-pricing could produce a very good opportunity to acquire stocks at very attractive levels.

Information contained herein was obtained from recognized statistical services and other sources believed to be reliable and we therefore cannot make any representation as to its completeness or accuracy. Any statements not of factual nature constitute opinions which are subject to change without notice.

Investors should carefully consider the investment objectives, risks, charges and expenses of the Saratoga Funds. This and other information about the Saratoga Funds is contained in the prospectus, which can be obtained by calling (800) 807-FUND and should be read carefully before investing. The Funds of the Saratoga Advantage Trust are distributed by Northern Lights Distributors, LLC. 1057-NLD-10/17/2008

M.D. Sass Investors Services, Inc.
Saratoga Advantage Trust
Large Cap Value Portfolio
Quarter Ending September 30, 2008

M. D. Sass Investors Services, Inc. started advising the Portfolio on August 18, 2008. The biggest drag on the Saratoga Advantage Trusts Large Capitalization Value Portfolio’s performance in the third quarter of 2008 was an overweight position in energy and technology. These sectors underperformed the market largely due to weakening energy prices and increased risk aversion due to a massive deleveraging in global portfolios and hedge funds. Across the board, commodity prices dropped as the likelihood of a global recession increased. While a decline in energy stocks would be expected in this type of environment, we believe the magnitude was excessive and overwhelmed positive fundamentals for these investments.

The Portfolio has been overweight information technology stocks, which are enjoying double-digit earnings growth, are relatively unscathed by financial, housing and credit issues and are beneficiaries of strong overseas demand. In the third quarter, the technology sector generally underperformed the overall market as concerns of a slowdown in the PC cycle and enterprise technology spending weighed on certain individual stocks.

The credit crunch and weakening global economy will remain issues to work through in the fourth quarter and into 2009. That being said, we believe that the Portfolio’s high quality large capitalization stock holdings have long-term appreciation potential and represent value.

Loomis, Sayles & Company, L. P.
Saratoga Advantage Trust
Large Cap Growth Portfolio
Quarter Ending September 30, 2008

The Saratoga Large Capitalization Growth Portfolio’s negative performance in the third quarter of 2008 was due primarily to stock selection in the industrials, information technology and consumer staples sectors, as well as an overweight in the industrials sector. Slightly offsetting this negative performance was stock selection in the financials sector.

The top contributors to performance during this period were Charles Schwab and JP Morgan Chase & Co. Charles Schwab shares were up during September after the company reported strong asset flows for the month of August and was seen as having the potential to gain retail market share from some of the brokers facing greater challenges. JP Morgan Chase shares were up during September as investors expressed their confidence that the company could weather the current financial uncertainties. JP Morgan is expected to benefit from market share gains as the number of players in the banking sector declines.

The largest detractors to performance included Apple and Southwestern Energy. Apple was down during the third quarter as investors grew concerned that the widespread economic slowdown would impact Apple's product sales. Energy prices hit all time highs during the second quarter and then began to drop off significantly during the third quarter. As the sell-off of commodities began, the energy sector as a whole took a sizeable performance hit, as was the case with Southwestern Energy.

During the third quarter the Portfolio significantly reduced its exposure to the materials and processing, producer durables and energy sectors. These sectors have suffered under commodity pricing decline pressures and an overall global economic slowdown. The majority of the proceeds were redeployed into the consumer discretionary, financial services and technology sectors. Going forward, the financial services sector may provide excellent opportunities for investors. The need for consolidation and stronger capital ratios among the surviving financial services institutions should lead to sizable market share gains for these lenders. We have chosen to selectively add to our financials exposure since the sector may be in the early stages of stabilization.

Vaughan Nelson Investment Management, L.P.
Saratoga Advantage Trust
Mid Capitalization Portfolio
Quarter Ending September 30, 2008

We believe that authorities in the U.S. have been slow to recognize the magnitude of the current credit crisis and to address the root cause, which we believe is a lack of confidence in the financial system and in financial intermediaries’ level of equity capitalization. The credit markets in our opinion will remain dysfunctional until financial intermediaries provide greater transparency of their counter party risks and exposure to illiquid assets, and they develop plans to raise additional capital. Passage of the Troubled Asset Relief Program was a necessary first step, but we do not believe that it will be enough on its own to end the current crisis.

We believe that the U.S. stock markets have entered the final stage of the current bear market. Stocks are being sold as they are one of the last remaining sources of liquidity. Stock market price action reflects a material reduction in risk exposure and leverage, and based on earnings we believe stock markets are deeply oversold and have begun to discount a protracted global synchronized recession. Future stock performance should be supported by valuation, cash on the sidelines and a high level of short interest. Once credit markets stabilize, we believe fear will abate and a sharp rally will occur, although possibly from lower levels.

Fox Asset Management, L.L.C.
Saratoga Advantage Trust
Small Cap Portfolio
Quarter Ending September 30, 2008

Small capitalization value stocks were the only major domestic stock asset class to generate positive returns in the third quarter of 2008 in what turned out to be another challenging quarter. Most major domestic market indices sold off sharply during the third quarter, as worries over the stability of our financial system and its effects on the global economy intensified during the period.

The Saratoga Advantage Trust Small Capitalization Portfolio’s performance during the quarter was negatively affected partly by stock selection. The principal detractors from performance were stock selection in the technology, financial, and energy sectors, as well as our underweight position in the financial sector. The Portfolio’s semiconductor holdings suffered from concerns over a slowing global economy and its impact on demand and pricing, while an acquisition announcement by a networking holding was not well received by the market. Energy was the worst performing market sector during the third quarter, with the sell-off in a coal holding particularly hurting the Portfolio’s performance.

Favorable stock selection in the staples and healthcare sectors added positively to performance. Consumer staples demonstrated their defensive characteristics during the quarter, with the acquisition of a retail drug chain holding significantly contributing to performance during the third quarter. Healthcare also positively contributed to performance, as a pharmaceutical company also agreed to be acquired during the quarter.

As always, we remain steadfast in our commitment to finding well-managed companies, with strong balance sheets and cash flow, selling at discount valuations.

During the third quarter of 2008, stock selection in Japan and an allocation to emerging markets detracted from the Portfolio’s performance. Conversely, Europe and the UK were the largest positive contributors to performance.

By sector, financials and consumer discretionary stock selection contributed positively to performance, as did a consumer staples overweight. After having had very little exposure to troubled asset classes, French bank BNP Paribas is likely to be one of the winners in the banking industry as the financial crisis winds down. Stock selection in energy, industrials and technology detracted from performance. Russian national gas giant Gazprom declined in response to lower gas prices and concerns about political turmoil in Russia and emerging markets in general.

Our global growth outlook is far more precarious than at the end of June 2008. Three months ago we anticipated a global economic slowdown but not a worldwide recession, and we were concerned about the rise of inflation in many parts of the world. We are now more concerned about the possibility of recession and less concerned about the inflation outlook. In this environment, we remain focused on owning companies that have strong balance sheets, proven business models, and the opportunity to outperform as the environment normalizes.

In the third quarter of 2008 healthcare’s relative stability was tested once again, as the market took a tumble. Positive performance for the Saratoga Advantage Trust Health & Biotechnology Portfolio was helped by the strength in several biotechnology stock issues held by the Portfolio. One reason for this may have been the growing appeal of the group’s earnings growth, given the slowdown in expected growth in more economically sensitive sectors. In addition, there were also company-specific factors at work. Genentech shares surged on the news that Roche was interested in acquiring the company, while Amgen bounced on positive clinical data for its osteoarthritis drug in development.

Laggards included Cell Genesys, which halted a clinical trial over safety concerns, and Medicis, which announced that it would be restating financial statements. The Medicis announcement occurred near the end of the quarter, and we are currently investigating the details.

The solid performance of the Portfolio came in spite of what was arguably an unfavorable environment for our investment style. The strong relative returns of momentum-oriented strategies that occurred from mid-2007 through mid-2008 all of a sudden ended in the third quarter – in all sectors except for healthcare. This, and the accompanying wide valuation spreads, presented a headwind for our more contrarian approach. We believe this headwind will eventually subside.

While not immune from the problems in the overall market and economy, we believe that healthcare should outperform in a declining market, and the November elections could introduce volatility in the sector.

The positive effects of second quarter, 2008 earnings in the technology sector that were not as bad as many feared - as well as the hope that the worst of the credit and housing crisis was behind us - quickly dissipated in the third quarter of 2008 as the financial crisis worsened. After slowly regaining some footing from July, 2008 lows, a great deal of stocks stumbled and volatility surged in September as credit woes re-intensified and the crisis of confidence in the U.S. financial system worsened. Despite the Federal Reserve’s efforts to provide ample liquidity as the massive deleveraging continued, some of the nation’s oldest financial institutions faced solvency issues which forced them into bankruptcy, government control, or a merger with a stronger competitor. The House of Representatives failure to pass the initial Troubled Asset Relief Plan caused market anxiety as well, especially with almost daily evidence of economic deterioration. Weaker economic growth is a likely risk to 2008 and 2009 technology budgets. While many technology budgets have seen only modest cuts, a sustained downturn could ultimately impact all technology budgets.

Many economic indicators dramatically weakened across the world in September of 2008, significantly pressuring stock markets and increasing the potential for a global recession that may result in disappointing earnings over the next few quarters. During uncertain periods such as these, we are more inclined to trade off magnitude of fundamental surprise for increased certainty that results will be above expectations for companies that the Portfolio owns. Looking forward, we are also seeing positive indicators in terms of yield curve shape, Federal Reserve liquidity injection and Congressional legislation that should begin to restore health to the financial system and enable well capitalized entities to lead the market towards recovery. We continue to focus on themes with dynamic secular trends and companies less exposed to the overall economy.

Loomis, Sayles & Company, L. P.
Saratoga Advantage Trust
Financial Services Portfolio
Quarter Ending September 30, 2008

The third quarter of 2008 was characterized by a series of sharp sell-offs followed by rallies as many investors reacted strongly to news, positive or negative. The top three contributors to performance during the third quarter were Wells Fargo, Bank of America and JP Morgan. Lehman Brothers and Morgan Stanley were the top detractors to performance.

Each of the top contributors to performance during the third quarter benefited from an investor flight to quality. Those institutions with better credit metrics, higher capital ratios, durable deposit funding and unquestioned access to liquidity rose to the top in the quarter.

Shares of Lehman Brothers were sold after the company announced a larger than expected quarterly net loss and failed to calm investor fears with its restructuring plan. The subsequent bankruptcy of the company caused many investors to believe that Morgan Stanley may be the next company to face a liquidity crisis which sent the shares down. The Portfolio continues to own Morgan Stanley on the belief that its new classification as a bank holding company provides the company access to more diversified sources of funding.

As the environment continues to be challenging, we remain conservative in our investments by owning stocks that we believe are within safer areas of financials such as insurance, trust banks, and processors. We have also increased the cash equivalents position within the Portfolio. We are optimistic that our constant search for value and attractive investment opportunities will serve the Portfolio well.

The Saratoga Advantage Trust Energy & Basic Materials Portfolio was negatively affected by a general decline in energy commodities during the third quarter of 2008. Leading the decline were oil service stocks, which negatively impacted returns; the best relative performance was in the industrial energy group where declines were modest. While there are numerous causes of the drop in energy stocks, the steep decline in energy commodity prices seems to be the most important.

As the housing and financial crisis begins to spread across the globe, economic growth prospects for both Organisation For Economic Co-Operation and Development (OECD) and non OECD countries are being challenged. In particular, any reduction in economic activity in China and India would likely be particularly bad for energy commodities as the bulk of new demand is derived here. It is extremely difficult to predict where oil and natural gas prices could go in a prolonged recession, but suffice to say they could go lower. We believe, however, that at roughly $70 per barrel of oil, the cost per barrel of large new production projects, such as the tar sands development in Western Canada, would become uneconomic. As a result, it is likely that prices would not drop below this level for a sustainable period.

During most of the third quarter, much of the selling was not related to company specific developments, but rather to top down or macro events....such as the collapse of Lehman Brothers and liquidity issues throughout the U.S. and world economies. The steps that the Federal Reserve has taken are dramatic and should, over time, improve liquidity conditions and make the environment for buying energy stocks more stable. In the meantime, we are trying to reduce risk through purchasing larger energy companies.

The credit crunch that persisted for the prior few quarters grew into a complete credit crisis in the third quarter of 2008. From our perspective, for significant periods of time the credit markets did not function normally, and occasionally throughout September in particular functioned in what we believe to be an irrational manner. While U.S. Treasuries performed well as many investors sought safety above all other considerations, other sectors of the fixed income markets deteriorated.

While the events of the last three months were certainly unusual, we believe that the fixed income markets will eventually return to a more normal state, although it will take time. We will continue to manage the Saratoga Advantage Trust Investment Quality Bond Portfolio for the long-term, emphasizing the higher quality names. Recently, we have been diversifying positions in the Portfolio even more than we ordinarily do in order to try to reduce idiosyncratic risk.

Oppenheimer Capital
Saratoga Advantage Trust
Municipal Bond Portfolio
Quarter Ending September 30, 2008

Generally speaking, in the third quarter of 2008 municipals underperformed taxable bonds as investors sought the safety of Treasuries. Financial uncertainty and a slowdown of global growth partially contributed to a sell off in spread based assets in the third quarter of 2008. The price of oil fell from approximately $140 per barrel to $100 per barrel. Rather than being greeted with relief, this decline was perceived by many as an indication of evaporating demand. The events of September, 2008 rewrote the financial landscape in the United States over a three week period: the U.S. government nationalized Fannie Mae and Freddie Mac (effectively wiping out the common and preferred shareholders), Lehman Brothers filed the largest bankruptcy in U.S. recorded history, Bank of America bought Merrill Lynch, American International Group required an $85 billion infusion from the U.S. government, Washington Mutual failed and was acquired by JP Morgan, and Goldman Sachs and Morgan Stanley accepted greater regulation by becoming bank holding companies.

The Portfolio was invested primarily in U.S. Government Agency notes as of September 30, 2008. The third quarter of 2008 concluded as one of the more volatile and uncertain periods for the financial community in recent memory. The housing market collapse and the resulting difficulties with many mortgage backed securities (MBS) has helped create a “blockage” in the flow of credit and liquidity between various financial institutions. This issue is related to the fact that banks and financial intermediaries apparently do not trust each other’s short-term viability. Some causes for this distrust can be related to the following: 1) the depletion of tier one capital ratios caused by the ownership of unmarketable and, in essence, near-worthless MBS, 2) the rapidly changing landscape of the investment banking industry (Lehman bankruptcy, Merrill Lynch sale to Bank of America, and bailouts of AIG, Fannie Mae, and Freddie Mac), and 3) the uncertainty of the creation and passage of U.S. Government legislation that will assist in the “unclogging” of the general flow of capital by purchasing the “toxic” MBS from the firms who own and cannot market such securities.

We believe the downward spiral of our current market growth cycle is ongoing and the greatest fear is the uncertainty of its ultimate result. The growing “credit crunch” has removed a large portion of liquidity that is necessary to promote general investment and growth in all areas of our economy. We also believe that future actions by the Federal Open Market Committee will depend on future economic indicators and the degree of liquidity in the short-term debt market. Nothing should be completely discounted, and each day has the potential for a news-worthy event that could warrant some action. With safety and preservation of capital as our primary goal, we will continue to be cautious with any of our purchases to try to maintain liquidity and preserve capital in the Portfolio.

Investors should carefully consider the investment objectives, risks, charges and expenses of the Saratoga Funds. This and other information about the Saratoga Funds is contained in the prospectus, which can be obtained by calling (800) 807-FUND and should be read carefully before investing. The Funds of the Saratoga Advantage Trust are distributed by Northern Lights Distributors, LLC.

1085-NLD-10/23/2008