THE OLSTEIN FINANCIAL ALERT FUND
PRESIDENT'S MESSAGE-
- ------------------------------------------------------------------------------
DEAR SHAREHOLDER:
In this, our initial Shareholder Report, the first order of business is to
personally thank you for entrusting your assets to the Olstein Financial Alert
Fund. Although we understand that the objective of your investment in the
Fund is capital appreciation, we believe shareholder servicing and a close and
informative relationship is also important. We would like to start this new
relationship with a detailed description of our philosophy, a description of
some key Fund holdings and a summary of the Fund's performance during this
initial period.
OBJECTIVE:
Our main objective is to participate in enhancing our shareholders' net worth
over time by seeking long-term capital appreciation for the Fund. We do this
by selecting a portfolio of stocks in which each company's downside risk is
evaluated before considering the upside potential. It is not our objective to
compete on a monthly or quarterly comparative return basis with other mutual
funds or stock market averages, nor are we interested in the rating services'
opinion of our investment style. Our philosophy does not subscribe to buying
the latest fad or concentrating in a few securities, because we believe that
such strategies entail too much risk. We believe the desire to produce
constant and instantaneous gratification in the stock market usually results
in disappointing long-term results.
PHILOSOPHY:
The Fund was founded to invest according to the philosophy that has been
developed over the past 28 years by the investment advisor. Utilizing an
inferential analysis of financial statements, the advisor seeks to purchase
companies that are found to be good businesses at bargain prices and sell the
securities of good businesses which are no longer believed to be at bargain
prices. Most investors in their search for good businesses fail to consider
the price that they are paying for these businesses. We are constantly
comparing stock prices to values based on the information available and look
to capitalize on any deviations. In practicing our philosophy, it is
sometimes necessary to move against the tide which may result in the Fund's
portfolio under performing the market during lengthy periods of time.
Unfortunately, paying the right price is usually accomplished by taking a
position when a company is going through a rough period or period of
disenchantment by investors. Sometimes, this rough patch goes longer than
expected. However, pessimism usually produces the price opportunities we
seek. No philosophy or investment discipline works all the time but should be
expected to work over time. We are acting as the turtle in the famous fable,
"The Tortoise Versus the Hare" by seeking to win over time, not all the time.
1
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
PRESIDENT'S MESSAGE-CONTINUED
- ------------------------------------------------------------------------------
ANALYZING THE STOCK MARKET:
People often ask us what our expectation for the stock market is. We believe
that when people ask the question about the future direction of the stock
market, they are seeking protection against periods of negative crowd
psychology (periods during which most stocks are sold without discrimination
creating material unrealized short-term losses in portfolios). We have yet to
find the individual who can predict the psychology of the masses on a
consistent basis over time to profit therefrom. We do not own the averages,
but we do own a portfolio of selected individual companies that we believe are
selling below our proprietary computation of their private market values. To
achieve the Fund's objective of long-term capital gains in the equity markets,
we set our goals over three to five year time periods and ride out
intermittent storms of negative crowd psychology. Longer time periods should
enable the Fund to take advantage of price disparities that may develop during
periods of negative crowd psychology between market prices set by public
shareholders and our computation of private market values, thereby increasing
the chances of the Fund achieving its goals.
ADJUSTING TO VOLATILITY:
Over the past ten years, prices of most stocks and the market in general have
become more volatile over shorter periods of time. Momentum investing and the
narrowing of time horizons by the analytical community for changing investment
opinions have helped to create this volatility. Individual stocks sometimes
rise and fall by as much as 10% in a day as analysts change their investment
opinions based on one quarter's earnings estimates being missed by as little
as $.01 or $.02 a share. Although we set our values and objectives for
individual companies over longer time periods than the analytical community,
we are constantly adjusting the size of our positions. We seek to take
advantage of the price volatility in our core investments that are created by
frequent opinion changes by the analytical community and those public
investors with only thirty to ninety day time horizons. We reduce commitments
in positions when prices get closer to our valuations and do the opposite when
prices move further away from our valuations. We will not add to our
investments in any company that represents more than 5% of our portfolio, as a
means of reducing overall portfolio volatility and to lessen the impact on the
portfolio of "just plain bad luck" affecting any one company.
VALUE CAN OCCUR ANYWHERE:
Mutual funds today are marketed to the public based on differing objectives
and categories such as growth stock, cyclical stock, large cap stock, small
cap stock, technology stocks, etc. In our search for value, we refuse to be
confined by categories. Our investment philosophy is based on a search for
value which relies heavily on inferential analysis of a company's reported
numbers. We look to invest in businesses which we believe have niche products
or franchises which are difficult to duplicate, generate excess cash flow
(generate more cash from their basic business than is paid out including
capital expenditures), have sound finances, conservative accounting and, in
our opinion, have a higher level of earnings predictability. Our holdings cut
across all investment categories and include growth stocks, cyclical stocks,
large cap stocks, small cap stocks, technology stocks, etc. The only common
2
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
PRESIDENT'S MESSAGE-CONTINUED
- ------------------------------------------------------------------------------
ground to the Fund's holdings are companies that we believe are selling at a
discount to their private market value based on our analysis of the financial
statements, footnotes and other disclosures. In addition, although we
understand that all companies represent risk in terms of their future
operations (ability to earn money), we refuse to knowingly take financial
risk. In seeking to guard against financial risk we look for companies that
possess one or more of the following characteristics: 1) demonstrate past
periods of excess cash flow, 2) have excess cash on the balance sheet to
weather a temporary storm, 3) have the potential to generate excess cash flow
in the near future, 4) do not have excessive levels of debt or debt that
cannot be liquidated within six years through the application of the company's
excess cash flow.
SIGNIFICANT HOLDINGS:
As of March 1, 1996, meaningful portfolio holdings include (WE RECOMMEND THAT
YOU REVIEW THE ATTACHED SCHEDULE OF INVESTMENTS TO DETERMINE THE ACTUAL
PERCENTAGES OF THE FUND'S PORTFOLIO REPRESENTED BY THESE SECURITIES):
GENERAL MOTORS CORP. - GM has assembled an outstanding management team that
has reduced the company's vulnerability to cyclical downturns through cost
cutting, and has a rapidly improving balance sheet fueled by material amounts
of excess cash flow. Their wholly-owned subsidiary, GM Hughes, is the leader
in satellite communication and wireless television, which are industries that
are experiencing rapid growth throughout the world. We are influenced by the
average earnings we foresee over the next five years rather than analysts'
projections of monthly car sales.
BRUNSWICK CORP. - Brunswick is utilizing its excess cash flow generated from
being the premier leisure time boating and marine company to acquire
companies in other areas of leisure time to reduce the cyclical nature of the
business. The company is expanding internationally, cutting costs, has a
conservative balance sheet and is experiencing a 10-15% earnings per share
growth rate.
AIRLINE INDUSTRY (AMR Corp., Continental Airlines, Inc., UAL Corp., Delta
Airlines, Inc.) - The strong growth in business and leisure travel in
combination with newly demonstrated pricing flexibility through the control of
new aircraft expenditures should result in significant excess cash flow
throughout the industry. These securities, in our opinion, are all
undervalued because we believe investors are currently being wrongfully
influenced by the industry's past failures at controlling prices and costs.
We believe the Fund's airline holdings are going to enter a period of long-
term secular, cyclical growth.
MERCK CO., INC. - Merck's exciting new products, excess cash flow and better
than expected earnings contributions from the 1993 acquisition of a leading
prescription distributor to HMOs are, we believe, not being properly valued in
the market place.
3
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
PRESIDENT'S MESSAGE-CONTINUED
- ------------------------------------------------------------------------------
INTEL CORP. - We believe that investors are being too heavily influenced by
short-term conditions in the personal computer industry and not recognizing
Intel's technological monopoly created by its $3.5 billion annual commitment
to capital expenditures and research and development expenditures. We believe
Intel's management team, excess cash flow and participation in all facets of
the technological revolution engulfing the world are not being properly valued
by long-term investors.
ETHAN ALLEN INTERIORS, INC. - Ethan Allen, the premier national manufacturer
and distributor of furniture, is moving away from independent owners of its
retail stores to company owned stores resulting in higher margins. In
addition, Ethan Allen has been successful in recently launching its concept
overseas and is generating positive excess cash flow.
FLEETWOOD ENTERPRISES, INC. - Fleetwood is a leader in motor and mobile home
production which could go into a new growth phase fueled by retiring baby
boomers. The company has $7 per share in cash, and has the ability to shrink
the capitalization materially from the proceeds of the sale of its captive
finance company.
SOTHEBY'S HOLDINGS, INC. - The premier auction house is participating in the
early stages of a turnaround of the art market. The company's fixed cost
structure should allow an increasing percentage of revenues to drop to the
bottom line. We believe Sotheby's could begin to grow at 20% plus per year,
has sound finances and its positive future makes the company a prime
acquisition candidate. A wealthy group of investors recently established a 7%
stock position in Sotheby's and is seeking to discuss maximization of
shareholder value with management.
TEXAS INSTRUMENTS, INC. - This well-financed, excess cash flow producing
technological leader in semiconductors is currently being penalized by
investors because of short-term excess inventory in certain niches of the
semiconductor industry. The company is well diversified and a leader in
cutting-edge technologies that should grow at above-average rates.
SEMICONDUCTOR EQUIPMENT SUPPLIERS (Silicon Valley Group, Applied Materials,
Lam Research, Kulicke & Soffa) - a short-term slowdown in the semiconductor
industry has investors worried about a slowdown in capital expenditures. We
believe that the rapid technological obsolescence of semiconductor and memory
should produce more rapid retrofitting of production lines thus reducing past
cyclicality. We believe semiconductor equipment suppliers should experience
cyclical growth far above the doomsday scenario being currently predicted.
All of these companies produce excess cash flow, and are selling at low
multiples of current earnings.
JSB FINANCIAL, INC. - a Long Island based S&L with a sound balance sheet (20%
equity/assets ratio) and under-leveraged earnings power. The company is
constantly buying its own stock in the open market and represents an
outstanding acquisition candidate for a larger bank seeking to expand the
company's under-utilized lending power and participation in the Long Island,
New York market.
4
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
PRESIDENT'S MESSAGE-CONTINUED
- ------------------------------------------------------------------------------
HOME SHOPPING NETWORK, INC. - TV mogul Barry Diller is the new chairman of
Home Shopping Network and has taken a meaningful ownership position in the
company. Mr. Diller's new management team has effectively cut costs and
changed merchandise. Diller's vision and leadership in transforming home
shopping into a unique broadcast marketer of products and services should lead
to a period of sustained growth and excess cash flow. We believe these
changes are not being properly valued in the market place.
BOISE CASCADE CORP. - This leading forest products and office supply company
has recently begun to generate excess cash flow. If one values Boise's 82%
interest in its publicly traded office supply company at current market prices
($27.00 per Boise share), and the company's timberland at a discount to
several recent public transactions, Boise's current market price represents a
material discount to our computation of private market value.
PERFORMANCE:
We have saved our discussion on the Fund's performance for last and for good
reason. Although we report performance to shareholders every six months and
our shareholders are able to monitor the Fund's daily fluctuations in the
newspapers, we believe short-term performance results in a long-term
portfolio are random events. Human emotion, wrong perceptions, extraneous
events, and crowd behavior all result in short-term fluctuations in stock
prices that may have little or no bearing on long-term values. It is our firm
belief, that it takes three to five year time periods to average out periodic
short-term events that affect individual securities.
When measuring relative performance of the Fund to the stock market, we
believe the only meaningful comparative benchmark is the Value Line Index
("Value Line"). The Value Line is a simple average of 1,700 securities (both
small cap and large cap) which are not weighted by the size of the company.
We believe the Value Line gives a better cross section of stocks than the
Standard & Poor's 500 Index ("S&P 500") for performance comparisons. The
Value Line does not change securities as frequently as the S&P 500 Index and
is not weighted by the size of the company. The S&P 500 Index is an
unmanaged, capitalization weighted index of five hundred publicly traded
stocks. The companies are selected by officers of Standard & Poor's and
weighted by the size of each company. We believe it is irrelevant to adjust
the Fund's average portfolio return to give more weight to the net changes in
the larger capitalized companies even though they may represent a smaller
overall percentage of the portfolio.
We are pleased to report that the Fund had an aggregate return of 8.02% since
September 21, 1995 (the date the Fund commenced operations). * During the
same time period, the Value Line appreciated 1.95%. Again, let me caution
you, five months is far too short of a time period to reach any conclusions
with regard to the Fund's results.
As of February 29, 1996, the Fund's assets were approximately $102,108,000.
5
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
PRESIDENT'S MESSAGE-CONTINUED
- ------------------------------------------------------------------------------
We look forward to continuing a close shareholder relationship and encourage
any questions or feedback.
Sincerely,
/s/ Robert A. Olstein
Robert A. Olstein,
President
March 15, 1996
* Past performance is not necessarily indicative of future results.
Investment returns and principal values may fluctuate, so that, when
redeemed, shares may be worth more or less than their original cost.
6
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)- FEBRUARY 29, 1996
- ------------------------------------------------------------------------------
VALUE
SHARES (NOTE 2)
------ --------
COMMON STOCK - 82.9%
FINANCE, INSURANCE & REAL ESTATE - 4.9%
INSURANCE CARRIERS - 1.3%
Vesta Insurance Group, Inc............... 40,000 $ 1,320,000
------------
STATE & NATIONAL BANKS - 3.6%
First Virginia Banks, Inc................ 25,800 1,028,775
JSB Financial, Inc....................... 83,320 2,666,240
------------
3,695,015
------------
TOTAL FINANCE, INSURANCE
& REAL ESTATE..................... 5,015,015
------------
MANUFACTURING - 46.5%
CHEMICALS & ALLIED PRODUCTS - 3.6%
Learonal, Inc............................ 97,300 2,602,775
RPM, Inc................................. 72,000 1,062,000
------------
3,664,775
------------
COMPUTER & OFFICE EQUIPMENT - 11.1%
Caere Corp............................... 35,140 289,905
Hewlett-Packard Co....................... 15,500 1,561,625
Intel Corp............................... 39,400 2,317,213
International Business Machines
Corp................................... 14,000 1,716,750
Kulicke & Soffa Industries, Inc.*........ 80,000 1,660,000
LSI Logic Corp.*......................... 85,000 2,348,125
Lexmark International Group, Inc......... 17,200 389,150
Xerox Corp............................... 8,000 1,042,000
------------
11,324,768
------------
FURNITURE & FIXTURES - 2.6%
Ethan Allen Interiors, Inc............... 85,855 1,963,933
Juno Lighting, Inc....................... 37,150 654,769
------------
2,618,702
------------
GLASS, CONCRETE & OTHER PRODUCTS - 0.3%
Medusa Corp.............................. 10,400 304,200
------------
IRON & STEEL - 1.0%
Kentucky Electric Steel, Inc............. 143,900 1,025,287
------------
See Notes to Financial Statements.
7
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)-CONTINUED FEBRUARY 29, 1996
- ------------------------------------------------------------------------------
VALUE
SHARES (NOTE 2)
------ --------
MISC. ELECTRICAL MACHINERY, EQUIP. & SUPPLIES - 7.8%
Continental Circuits Corp.*.............. 30,000 $ 465,000
Park Electrochemical Corp................ 40,800 1,305,600
Silicon Valley Group, Inc................ 70,500 1,692,000
Teradyne, Inc.*.......................... 90,000 1,833,750
Texas Instruments, Inc................... 54,500 2,718,187
------------
8,014,537
------------
MISC. INDUSTRIAL MACHINERY & EQUIP. - 2.3%
Augat, Inc............................... 125,600 2,213,700
Varco International, Inc.*............... 10,000 118,750
------------
2,332,450
------------
MISCELLANEOUS MANUFACTURING INDUSTRIES - 3.2%
Anthony Industries, Inc.................. 7,500 165,000
Brunswick Corp........................... 81,005 1,852,989
Columbus McKinnon Corp................... 1,000 15,500
Redman Industries, Inc.*................. 32,500 1,178,125
Revlon, Inc. (A Shares)*................. 1,000 27,625
------------
3,239,239
------------
PAPER & PAPER PRODUCTS - 1.0%
Boise Cascade Corp....................... 30,000 1,057,500
------------
PHARMACEUTICAL PREPARATIONS - 1.8%
Merck & Co., Inc......................... 20,115 1,332,619
Warner-Lambert Co........................ 5,000 494,375
------------
1,826,994
------------
PRINTING & PUBLISHING - 1.3%
Bowne & Co., Inc......................... 25,700 481,875
Washington Post Co. (B Shares)........... 3,108 895,104
------------
1,376,979
------------
TELECOMMUNICATIONS EQUIPMENT - 0.9%
Rogers Corp.............................. 42,610 900,136
------------
TEXTILES & APPAREL - 1.6%
Barry (R.G.) Corp.*...................... 47,600 749,700
Garan, Inc............................... 25,000 381,250
Liz Claiborne, Inc....................... 16,445 515,962
------------
1,646,912
------------
See Notes to Financial Statements.
8
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)-CONTINUED FEBRUARY 29, 1996
- ------------------------------------------------------------------------------
VALUE
SHARES (NOTE 2)
------ --------
TRANSPORTATION EQUIPMENT - 8.0%
Coachmen Industries, Inc................. 30,000 $ 821,250
Echlin, Inc.............................. 34,500 1,168,688
Fleetwood Enterprises, Inc............... 91,275 2,453,016
General Motors Corp...................... 59,605 3,054,756
Harley-Davidson, Inc..................... 18,505 663,867
------------
8,161,577
------------
TOTAL MANUFACTURING................. 47,494,056
------------
MINING - 2.4%
CRUDE PETROLEUM & NATURAL GAS - 2.4%
Giant Industries Inc..................... 28,700 333,638
Helmerich & Payne, Inc................... 40,345 1,351,557
Wiser Oil Co............................. 62,370 756,236
------------
TOTAL MINING........................ 2,441,431
------------
SERVICES - 11.3%
AMUSEMENT & RECREATION SERVICES - 1.2%
Walt Disney Co........................... 18,145 1,188,497
------------
BUSINESS SERVICES - 6.6%
Catalina Marketing Corp.................. 8,895 666,013
The Olsten Corp.......................... 35,510 1,624,583
Sotheby's Holdings, Inc. (A Shares)...... 298,995 4,447,551
------------
6,738,147
------------
COMPUTER SERVICES - 2.6%
Santa Cruz Operation, Inc.*.............. 77,500 552,188
Sun Microsystems, Inc.................... 40,000 2,100,000
------------
2,652,188
------------
MEDICAL & HEALTH SERVICES - 0.9%
Healthcare Compare Corp.................. 20,000 975,000
------------
TOTAL SERVICES...................... 11,553,832
------------
TRANSPORTATION, COMMUNICATION, ELECTRIC & SANITATION - 8.6%
COMMUNICATION & BROADCASTING - 0.3%
BET Holdings, Inc. (A Shares)*........... 11,000 339,625
------------
See Notes to Financial Statements.
9
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
SCHEDULE OF INVESTMENTS (UNAUDITED-CONTINUED FEBRUARY 29, 1996
- ------------------------------------------------------------------------------
VALUE
SHARES (NOTE 2)
------ --------
TRANSPORTATION - 8.3%
AMR Corp.*............................... 12,000 $ 1,053,000
Continental Airlines, Inc.
(B Shares)*............................ 32,000 1,536,000
Delta Air Lines, Inc..................... 30,285 2,362,230
Florida East Coast Industries, Inc....... 13,305 1,160,861
Tidewater, Inc........................... 20,000 682,500
UAL Corp................................. 9,000 1,607,625
------------
8,402,216
------------
TOTAL TRANSPORTATION, COMMUNICATION,
ELECTRIC & SANITATION.............. 8,741,841
------------
WHOLESALE & RETAIL TRADE - 9.2%
MISCELLANEOUS RETAIL STORES - 3.1%
Home Shopping Network, Inc............... 300,300 3,153,150
------------
RETAIL DEPARTMENT STORES - 5.2%
Strawbridge & Clothier (A Shares)........ 55,200 1,462,800
Urban Outfitters, Inc.................... 80,120 2,003,000
Wet Seal, Inc............................ 209,335 1,857,848
------------
5,323,648
------------
WHOLESALE FOOTWEAR - 0.9%
Nike, Inc. (B Shares)................... 13,880 900,465
------------
TOTAL WHOLESALE & RETAIL TRADE..... 9,377,263
------------
TOTAL COMMON STOCK
(COST $80,269,139)............... 84,623,438
------------
MUTUAL FUNDS - 0.2%
Scudder Managed Cash Fund
(COST $231,151)......................... 231,151 231,151
------------
See Notes to Financial Statements.
10
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)-CONTINUED FEBRUARY 29, 1996
- ------------------------------------------------------------------------------
Par Value
(000) (Note 2)
------ --------
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 14.0%
Federal Farm Credit Banks,
5.13%, 03/07/96........................ 3,760 $ 3,756,785
Federal Home Loan Banks,
5.12%, 03/04/96........................ 3,595 3,593,466
Federal National Mortgage Assoc.,
5.13%, 03/01/96........................ 2,450 2,450,000
Federal National Mortgage Assoc.,
5.12%, 03/06/96........................ 1,345 1,344,044
Federal National Mortgage Assoc.,
5.14%, 03/12/96........................ 3,200 3,194,974
------------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(COST $14,339,269)................ 14,339,269
------------
COMMERCIAL PAPER - 3.4%
American Express Co., 5.25%,
03/05/96............................... 1,000 1,000,000
Exxon Corp., 5.25%, 03/05/96............. 1,000 1,000,000
Ford Motor Credit Co., 5.25%,
03/05/96............................... 1,441 1,440,817
------------
TOTAL COMMERCIAL PAPER
(COST $3,440,817)................. 3,440,817
------------
VALUE
SHARES (NOTE 2)
------ --------
TOTAL INVESTMENTS
(COST $98,280,376) - 100.5%................. $102,634,675
DEPOSITS WITH BROKERS & CUSTODIAN
BANK FOR SECURITIES SOLD SHORT - 0.8%
GENERAL MOTORS CORP...................... 16,265 833,581
RECEIVABLES FROM BROKERS FOR
SECURITIES SOLD SHORT - 0.7%............... 763,104
SECURITIES SOLD SHORT
(PROCEEDS $763,104) - (0.7)%............... (762,998)
OTHER ASSETS AND LIABILITIES,
NET - (1.3)%............................... (1,360,509)
------------
NET ASSETS - 100.0%.......................... $102,107,853
============
See Notes to Financial Statements.
11
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)-CONTINUED FEBRUARY 29, 1996
- ------------------------------------------------------------------------------
VALUE
SHARES (NOTE 2)
------ --------
SCHEDULE OF SECURITIES
SOLD SHORT - (0.7)%
MANUFACTURING - (0.1)%
Carrington Laboratories, Inc............. 2,000 57,250
Hondo Oil and Gas Co..................... 8,000 90,000
------------
TOTAL MANUFACTURING................. 147,250
------------
SERVICES - (0.2)%
Discovery Zone, Inc...................... 40,000 38,748
Netcom On-Line Communication
Services, Inc.*........................ 1,000 23,250
Organogenesis, Inc....................... 4,000 61,500
Psinet, Inc.*............................ 1,000 10,125
Spyglass, Inc.*.......................... 1,000 23,125
Uunet Technoloies, Inc................... 1,500 45,000
------------
TOTAL SERVICES...................... 201,748
------------
WHOLESALE & RETAIL TRADE - (0.4)%
Baby Superstore Inc.*.................... 2,000 84,250
Boston Chicken, Inc...................... 6,000 215,250
Reebok International Ltd................. 1,000 26,375
Starbucks Corp. 5,000 88,125
------------
TOTAL WHOLESALE & RETAIL TRADE...... 414,000
------------
TOTAL SECURITIES SOLD SHORT
(PROCEEDS $763,104)............... $ 762,998
============
* Non-income producing security.
See Notes to Financial Statements.
12
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) FEBRUARY 29, 1996
- ------------------------------------------------------------------------------
ASSETS:
Investments in securities (identified cost
$98,280,376 ) (Note 2).......................... $102,634,675
Deposits with brokers and custodian bank
for securities sold short
(identified cost $729,892) (Note 3)............. 833,581
Receivable from brokers for securities sold short.... 763,104
Receivable for investments sold...................... 497,873
Receivable for Fund shares sold...................... 58,922
Dividends and interest receivable.................... 105,844
Prepaid insurance expenses........................... 12,791
Unamortized organization costs....................... 114,334
------------
Total assets.................................... 105,021,124
------------
LIABILITIES:
Securities sold short (proceeds: $763,104)
(Note 3)........................................ 762,998
Payable for investments purchased.................... 1,654,941
Due to Investment Manager (Note 4)................... 80,103
Other accrued expenses (Note 4)...................... 415,229
------------
Total liabilities............................... 2,913,271
------------
NET ASSETS........................................... $102,107,853
============
NET ASSETS CONSIST OF:
Accumulated net investment loss...................... $ (220,901)
Net unrealized appreciation of investments
(Note 3)........................................ 4,457,988
Net unrealized appreciation on securities
sold short (Note 3)............................. 106
Accumulated net realized gain from investments....... 2,714,245
Accumulated net realized loss from securities
sold short...................................... (41,318)
Shares of beneficial interest........................ 9,462
Additional paid-in capital........................... 95,188,271
------------
NET ASSETS, for 9,462,204 shares outstanding......... $102,107,853
============
NET ASSET VALUE and offering price per share
($102,107,853 / 9,462,204
outstanding shares of beneficial
interest, $0.001 par value per share)........... $10.79
======
See Notes to Financial Statements.
13
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 21, 1995*
THROUGH
FEBRUARY 29, 1996
(UNAUDITED)
-------------------
INVESTMENT INCOME:
Income:
Dividends...................................... $ 373,214
Interest....................................... 261,252
----------
634,466
----------
EXPENSES:
Management fee (Note 4)............................. 341,246
Distribution expenses (Note 4)...................... 341,246
Custodian fee (Note 4).............................. 13,477
Transfer Agent fee (Note 4)......................... 16,709
Administration fee (Note 4)......................... 43,477
Accounting fee (Note 4)............................. 19,084
Trustees' fees and expenses (Note 4)................ 3,671
Amortization of organizational expenses (Note 2).... 11,062
Legal............................................... 15,057
Audit............................................... 5,828
Shareholders reports................................ 7,272
Registration and filing fees........................ 18,121
Dividend expense for securities sold short.......... 135
Miscellaneous....................................... 18,982
----------
Total expenses........................................... 855,367
----------
Net investment loss...................................... (220,901)
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions... 2,815,966
Net realized loss on securities sold short..... (41,318)
Net unrealized appreciation of investments
during the period............................ 4,457,988
Net unrealized appreciation on securities
sold short during the period................. 106
----------
Net gain on investments............................. 7,232,742
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $7,011,841
==========
* Commencement of Operations.
See Notes to Financial Statements.
14
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 21, 1995*
THROUGH
FEBRUARY 29, 1996
(UNAUDITED)
-------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss............................. $ (220,901)
Net realized gain on investment transactions.... 2,815,966
Net realized loss on securities sold short...... (41,318)
Net unrealized appreciation of investments
during the period............................. 4,457,988
Net unrealized appreciation on securities
sold short during the period.................. 106
------------
Net increase in net assets resulting from
operations.................................... 7,011,841
------------
Distributions to shareholders from:
Net realized gains ($0.011 per share)........... (101,721)
------------
Increase in net assets from Fund share
transactions (Note 5)........................... 95,097,733
------------
Increase in net assets............................... 102,007,853
NET ASSETS:
Beginning of period............................. 100,000
------------
End of period................................... $102,107,853
============
* Commencement of Operations.
See Notes to Financial Statements.
15
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following table includes selected data for a share outstanding of the Fund
throughout the period and other performance information derived from the
financial statements. It should be read in conjunction with the financial
statements and notes thereto.
FOR THE PERIOD
SEPTEMBER 21, 1995 1
THROUGH
FEBRUARY 29, 1996
(UNAUDITED)
-------------------
NET ASSET VALUE - BEGINNING OF PERIOD................. $10.00
------
Investment Operations:
Net investment loss.............................. (0.02)
Net realized and unrealized gain
on investments................................. 0.82
------
Total from investment operations............ 0.80
------
DISTRIBUTIONS:
From net investment income....................... -
From net realized gain on investments............ (0.01)
------
Total distributions......................... (0.01)
------
NET ASSET VALUE - END OF PERIOD....................... $10.79
======
TOTAL RETURN 2........................................ 8.02%
Ratios (to average net assets)/Supplemental Data:
Expenses......................................... 2.51%*
Net investment loss.............................. (0.65)%*
Portfolio turnover rate............................... 138.33%*
Average commision rate paid........................... $0.0594
Net assets at end of period
(000 omitted)....................................... $102,108
1 Commencement of Operations.
2 The total return for the period has not been annualized.
* Annualized.
16
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUND. The Olstein Financial Alert Fund (the "Fund")
is the first series of The Olstein Funds (the "Trust"), a Delaware
business trust organized on March 31, 1995. The Fund is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end diversified management investment company. The primary
investment objective of the Fund is long-term capital appreciation with a
secondary objective of income. The Fund commenced investment operations
on September 21, 1995.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of the
significant accounting policies of the Fund:
SECURITY VALUATION. The Fund's securities, except short-term investments
with remaining maturities of 60 days or less, are valued at their market
value as determined by their last sale price in the principal market in
which these securities are normally traded. Lacking any sales,
securities will be valued at the mean between the closing bid and ask
price. Short-term investments with remaining maturities of 60 days or
less are valued at amortized cost, which approximates market value,
unless the Fund's Board of Trustees determines that this does not
represent fair value. The value of all other securities is determined in
good faith under the direction of the Board of Trustees.
FEDERAL INCOME TAXES. The Fund intends to qualify for treatment as a
"regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986 and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions of net investment income
and net realized gains will be made annually in December. An additional
distribution may be made to the extent necessary to avoid the payment of
a 4% excise tax.
DEFERRED ORGANIZATION COSTS. Costs incurred by the Fund in connection
with its organization have been deferred and are being amortized using
the straight-line method over a five-year period beginning on the date
that the Fund commenced operations. In the event that any of the initial
shares of the Fund are redeemed during the amortization period by any
holder thereof, the redemption proceeds will be reduced by any
unamortized organization expenses in the same proportion as the number of
initial shares being redeemed bears to the number of initial shares
outstanding at the time of such redemption.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
17
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)-CONTINUED
- ------------------------------------------------------------------------------
OTHER. Investment security transactions are accounted for on a trade
date basis. The Fund uses the specific identification method for
determining realized gain or loss on investments for both financial and
federal income tax reporting purposes.
3. PURCHASES AND SALES OF INVESTMENT SECURITIES. During the period ended
February 29, 1996, purchases and sales of investment securities
(excluding securities sold short and short-term investments) aggregated
as follows:
Purchases..................... $60,292,756
Sales......................... 40,963,953
The following balances for the Fund are as of February 29, 1996:
COST FOR NET TAX BASIS TAX BASIS GROSS TAX BASIS GROSS
FEDERAL INCOME UNREALIZED UNREALIZED UNREALIZED
TAX PURPOSES APPRECIATION APPRECIATION DEPRECIATION
-------------- ------------- --------------- ---------------
$99,425,074 $4,043,182 $7,712,856 $(3,669,674)
SHORT SALES. Short sales are transactions in which the Fund sells a
security it does not own, in anticipation of a decline in the market
value of that security. To complete such a transaction, the Fund must
borrow the security to deliver to the buyer upon the short sale; the Fund
then is obligated to replace the security borrowed by purchasing it in
the open market at some later date. The Fund will incur a loss if the
market price of the security increases between the date of the short sale
and the date on which the Fund replaces the borrowed security. The Fund
will realize a gain if the security declines in value between those
dates. All short sales must be fully collateralized. The Fund maintains
the collateral in a segregated account consisting of cash, equity
securities and/or U.S. Government securities sufficient to collateralize
the sales proceeds of its short positions. The Fund limits the value of
short positions to 25% of the Fund's net assets. At February 29,1996,
the Fund had 0.07% of its net assets in short positions. For the period
ended February 29,1996, the cost of investments purchased to cover short
sales and the proceeds from investments sold short were $562,253 and
$520,935, respectively.
4. INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES. The
Fund employs Olstein & Associates, L.P. ("Olstein & Associates" or the
"Investment Manager") as the investment manager. Pursuant to an
investment management agreement with the Fund, the Investment Manager
selects investments and supervises the assets of the Fund in accordance
with the investment objective, policies and restrictions of the Fund,
subject to the supervision and direction of the Board of Trustees. For
its services, the Investment Manager is paid a monthly fee at the annual
rate of 1.00% of the Fund's average daily net assets. For the period
ended February 29, 1996, the Fund incurred investment management fees of
$341,246.
18
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)-CONTINUED
- ------------------------------------------------------------------------------
Rodney Square Management Corp. ("Rodney Square"), a wholly owned
subsidiary of Wilmington Trust Company ("WTC"), which is wholly owned by
Wilmington Trust Corporation, a publicly held bank holding company,
serves as Administrator to the Fund pursuant to an Administration
Agreement with the Trust on behalf of the Fund. As Administrator, Rodney
Square is responsible for services such as budgeting, maintaining federal
and state registration for the Fund's shares, financial reporting,
compliance monitoring and corporate management. For the services
provided, Rodney Square receives a monthly administration fee at an
annual rate based upon the average daily net assets of the Fund as
follows: 0.15% of average daily net assets up to $50 million (subject to
a minimum annual fee of $50,000); 0.10% of average daily net assets over
$50 million up to $100 million; 0.07% of average daily net assets over
$100 million up to $200 million; and 0.05% of average daily net assets
over $200 million. The administration fee paid to Rodney Square for the
period ended February 29, 1996 amounted to $43,477.
Rodney Square also serves as Transfer and Dividend Paying Agent for the
Fund pursuant to a Transfer Agent Agreement with the Trust dated August
18,1995. WTC serves as Custodian of the assets of the Trust.
Rodney Square Distributors, Inc. ("RSD"), a wholly owned subsidiary of
WTC, and Olstein & Associates (together the "Distributors") have entered
into a distribution and underwriting agreement with the Fund dated August
18,1995, under which the Distributors act as co-underwriters to engage in
activities designed to assist the Fund in securing purchasers for its
shares. The Fund has adopted a Shareholder Servicing and Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plan").
Amounts paid under the 12b-1 Plan may compensate the Distributors or
others for the activities in the promotion and distribution of the Fund's
shares and for shareholder servicing. The total amount which the Fund
will pay under the 12b-1 Plan is 1.00% per annum of the Fund's average
daily net assets. For the period ended February 29, 1996, fees paid by
the Fund pursuant to the 12b-1 Plan amounted to $341,246.
Rodney Square determines the net asset value per share of the Fund and
provides accounting services to the Fund pursuant to an Accounting
Services Agreement with the Fund. For the accounting services provided,
Rodney Square receives an annual fee of $40,000, plus an amount based on
the average daily net assets of the Fund as follows: 0.03% of average
daily net assets over $50 million up to $100 million; 0.02% of average
daily net assets over $100 million up to $250 million; and 0.01% of
average daily net assets of the Fund over $250 million.
Certain trustees and officers of the Trust are also officers of the
Trust's Investment Manager. Such trustees and officers are paid no fees
by the Trust for serving as trustees or officers of the Trust.
19
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)-CONTINUED
- ------------------------------------------------------------------------------
5. FUND SHARES. At February 29, 1996, there was an unlimited number of
shares of beneficial interest, $0.001 par value, authorized. The
following table summarizes the activity in shares of the Fund:
FOR THE PERIOD
SEPTEMBER 21,1995*
THROUGH
FEBRUARY 29, 1996
(UNAUDITED)
-------------------------------
SHARES AMOUNT
--------- -----------
Shares sold.............................. 9,552,849 $96,117,666
Shares issued to shareholder
in reinvestment of dividends........... 9,956 101,256
Shares redeemed.......................... (110,601) (1,121,189)
--------- -----------
Net increase............................. 9,452,204 $95,097,733
===========
Shares outstanding:
Beginning of period...................... 10,000
---------
End of period............................ 9,462,204
=========
* Commencement of Operations.
20
<PAGE>
TRUSTEES THE
--------------------------- OLSTEIN
Robert A. Olstein, Chairman FUNDS
Neil C. Klarfeld
Fred W. Lange
John Lohr
D. Michael Murray
Erik K. Olstein
Lawrence K. Wein
INVESTMENT MANAGER
-----------------------------
Olstein & Associates, L.P.
105 Corporate Park Drive
White Plains, New York 10604
(914) 397-7565
DISTRIBUTORS THE
---------------------------------------- OLSTEIN
Rodney Square Distributors, Inc. FINANCIAL ALERT FUND
(Subsidiary of Wilmington Trust Company)
&
Olstein & Associates, L.P.
SHAREHOLDER SERVICES
----------------------------------------
Rodney Square Management Corporation
(Subsidiary of Wilmington Trust Company)
CUSTODIAN
------------------------
Wilmington Trust Company
LEGAL COUNSEL
-------------------------------------
Stradley, Ronon, Stevens & Young, LLP
INDEPENDENT AUDITORS SEMI-ANNUAL REPORT
-------------------- FEBRUARY 29, 1996
Ernst & Young LLP
THIS REPORT IS SUBMITTED FOR THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND.
THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS IN THE FUND UNLESS
PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
