THE OLSTEIN FINANCIAL ALERT FUND
A SERIES OF
THE OLSTEIN FUNDS
4 MANHATTANVILLE RD.
PURCHASE, NY 10577
(914) 397-7565
PROSPECTUS DATED NOVEMBER 18, 1996
This prospectus offers shares of The Olstein Financial Alert Fund (the
"Fund"), the first series of The Olstein Funds (the "Trust"), an open-
end diversified management investment company which was organized as a
Delaware business trust on March 31, 1995. The primary investment
objective of the Fund is long-term capital appreciation with a
secondary objective of income.
The Fund was created to provide a mutual fund format by which the
public could invest according to the value-oriented philosophy
developed and utilized over the past twenty-eight years by Robert A.
Olstein, the president of the Fund's investment manager, Olstein &
Associates, L.P. ("Olstein & Associates" or the "Investment Manager").
This investment philosophy involves a detailed inferential analysis of
company financial statements, to alert the Investment Manager to
positive or negative factors affecting a company's future earnings
power and value of a company's stock, which may not have been
recognized by the financial markets. The philosophy was originated in
the 1970s when Robert A. Olstein co-authored the "Quality of Earnings
Report" service, a financial statement "alert" service for
institutional investors.
The Fund seeks to achieve its objectives by investing primarily
in equity securities which the Investment Manager determines to be
under-valued after an intensive analysis of a company's financial
statements. The Fund may also engage in short-selling of equity
securities which the Investment Manager determines to be over-valued.
Consistent with the secondary objective of income, in the event that
suitable undervalued securities are not available, the Fund may invest
in fixed-income securities until such time as desirable equity
securities are identified. There can be no assurance that the Fund's
investment objective will be achieved. See "Investment Objectives and
Policies" and "Risks and Special Considerations."
Fund shares may be purchased or redeemed at any time. Purchases
will be effected at the net asset value next determined following
receipt and acceptance of an investor's purchase order. Redemptions
will be effected at the net asset value next determined following
receipt of a proper redemption request, subject to a contingent
deferred sales charge which may be imposed on redemptions made within
two years of purchase. See "Determination of Net Asset Value,"
"Expenses of the Fund," and "How to Redeem Shares."
This Prospectus sets forth information about the Fund that
prospective investors should know before investing. The Prospectus
should be read carefully and retained for future reference. More
information about the Fund has been filed with the Securities and
Exchange Commission, and is contained in the "Statement of Additional
Information," dated November 18, 1996 which is available at no charge
upon written request to the Fund. The Fund's Statement of Additional
Information is incorporated herein by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
SYNOPSIS................................................... 3
Investment Objectives.................................... 3
Investment Manager....................................... 3
Investment Manager's Performance......................... 3
Distributor and Transfer Agent........................... 3
How to Purchase Shares................................... 4
Minimum Investment....................................... 4
Redemption and Exchanges................................. 4
Investment Management Fees............................... 4
Risks and Special Considerations......................... 4
FUND EXPENSES.............................................. 5
FINANCIAL HIGHLIGHTS....................................... 6
OLSTEIN'S INVESTMENT PERFORMANCE........................... 7
INVESTMENT OBJECTIVE AND POLICIES.......................... 8
RISKS AND SPECIAL CONSIDERATIONS........................... 10
Small-Capitalization Stocks.............................. 10
Short-Selling............................................ 10
Purchasing Options....................................... 10
Illiquid Securities...................................... 11
American Depository Receipts............................. 11
Repurchase Agreements.................................... 11
Portfolio Turnover....................................... 12
MANAGEMENT OF THE FUND..................................... 12
Board of Trustees........................................ 12
Investment Manager....................................... 13
Distribution of Shares................................... 13
Administrator, Transfer Agent and Fund Accounting/
Pricing Agent.......................................... 15
Custodian................................................ 15
Expenses................................................. 15
SHARES OF BENEFICIAL INTEREST.............................. 16
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES........... 16
DETERMINATION OF NET ASSET VALUE........................... 17
HOW TO PURCHASE SHARES..................................... 17
Purchases by Mail........................................ 18
Purchases by Wire........................................ 19
Automatic Investment Plan................................ 19
HOW TO REDEEM SHARES....................................... 19
Redemption by Mail....................................... 20
Redemption by Telephone.................................. 21
RETIREMENT PLANS........................................... 22
Individual Retirement Accounts ("IRAs").................. 22
401(k) Plans and other Defined Contribution Plans........ 22
403(b)(7) Retirement Plans............................... 23
PERFORMANCE................................................ 23
<PAGE>
SYNOPSIS
INVESTMENT OBJECTIVES
The objective of the Fund is long-term capital appreciation with
a secondary objective of income. The Fund seeks to achieve its
objectives by investing primarily in a diversified portfolio of under-
valued equity securities as determined by the Investment Manager for
the Fund. The Fund may also engage in short sales of securities that
the Investment Manager believes are over-valued. During periods in
which suitable undervalued equity securities are not available, the
Fund may also invest in fixed-income securities.
When evaluating stocks for the Fund's portfolio, the Investment
Manager emphasizes an inferential analysis of financial statements,
rather than more conventional analytical methodology such as macro-
economic analysis, management contact and market timing techniques.
The Fund's stock selection process emphasizes a company's financial
conservatism and considers the possibility of downside risk before
evaluating a stock's upside potential in its effort to achieve capital
appreciation. When screening investments for the Fund's portfolio,
the Investment Manager believes that the quality of a company is
associated with its financial strength as opposed to characteristics
such as size, number of years in business, sensitivity to economic
cycles, industry categorization, or the volatility of its stock price.
The Investment Manager similarly believes that the search for
undervalued securities should not be restricted by such
characteristics. As a result, the Fund will invest in securities
without regard to whether they are characterized as small-
capitalization, large-capitalization, growth stock, cyclical stock,
technology stock, or otherwise. With this approach, the Fund intends
to capitalize on opportunities that develop anywhere in the equity
markets. There can be no assurance that the Fund's investment
objective will be achieved. See "Investment Objective and Policies."
INVESTMENT MANAGER
Olstein & Associates is the investment manager of the Fund.
Robert A. Olstein, the president of Olstein & Associates, has been
engaged for the past twenty-eight years as a securities analyst and
portfolio manager. For fifteen years prior to the Fund's inception,
Robert A. Olstein was a Senior Vice President/Senior Portfolio Manager
at Smith Barney Inc., managing private employee benefit plans and
individual client portfolios. In 1971, Mr. Olstein co-founded the
"Quality of Earnings Report" service which pioneered the concept of
using inferential financial screening techniques to analyze balance
sheets and income statements to alert portfolio managers to positive
and negative factors affecting a company's future earnings power and
value of a company's stock, which may not yet have been recognized by
the financial markets.
INVESTMENT MANAGER'S PERFORMANCE
Information about the performance record of the Investment
Manager's portfolio management team for its Smith Barney Inc. separately
managed accounts from December 31, 1990 through the quarter immediately
preceding the commencement of the Fund's operations is included in the
section of the Prospectus called "Olstein's Investment Performance."
DISTRIBUTOR AND TRANSFER AGENT
Olstein & Associates also serves with Rodney Square Distributors,
Inc. ("RSD") as co-underwriters and distributors for the Fund's shares
(together, the "Distributors"). Rodney Square Management Corporation
("Rodney Square") is the administrator, transfer agent and dividend
disbursing agent for the Fund. Rodney Square and RSD are wholly owned
subsidiaries of Wilmington Trust Company. See "Management of the
Fund."
Selected brokers, dealers, financial institutions or other
entities ("Selling Dealers") may enter into agreements to sell shares
of the Fund. Selling Dealers may be eligible to receive an up-front
commission of up to 1.5%, which is financed solely by Olstein &
Associates, and is not charged to the Fund or its shareholders. In
addition, Selling Dealers may receive up to 90% of the total 12b-1
Plan fees payable by the Fund with respect to assets in the Fund
attributable to investments by clients of such Selling Dealer. Such
fees currently total 1.00%.
HOW TO PURCHASE SHARES
Shares of the Fund are offered continuously by the Distributors
directly and through certain brokers, dealers, financial institutions
or other such entities. To obtain information about purchasing shares
of the Fund, investors and dealers should contact Rodney Square at
(800) 799-2113. Brokerage clients of Olstein & Associates may contact
Olstein & Associates directly.
The Fund does not impose front-end sales charges. Certain
redemptions of Fund shares may be subject to a contingent deferred
sales charge ("CDSC") if redeemed within the first two years after
purchase, and investments are subject to 12b-1 Plan fees. The public
offering price of shares of the Fund is the net asset value per share
next determined after the receipt and acceptance of the purchase
order. See "Expenses of the Fund" and "How to Purchase Shares."
MINIMUM INVESTMENT
The minimum initial investment is $1,000 and subsequent
investments must total at least $100. The minimum initial investment
requirement for qualified tax sheltered retirement plans is $250 with
no minimum for subsequent investments. See "How to Purchase Shares."
REDEMPTION AND EXCHANGES
Shares of the Fund are redeemed at the net asset value next
calculated after receipt of the redemption request in proper form,
subject to any applicable CDSC.
INVESTMENT MANAGEMENT FEES
The Investment Manager selects investments for 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. This fee is higher than that paid by
most mutual funds. See "Management of the Fund."
RISKS AND SPECIAL CONSIDERATIONS
The Fund may engage in short sales of equity securities when the
Investment Manager believes that the price of a security is over-
valued and may decline. At no time will the Fund make short sales in
excess of 25% of its net assets. Short-selling is a technique that
may be considered speculative and involves risk beyond the initial
capital necessary to secure each transaction. For defensive or
hedging purposes, the Fund may seek to lower some of the risk
associated with short sales by purchasing call options on securities
sold short by the Fund, which would lock in a purchase price for the
underlying security. Short-selling by the Fund, as well as the
purchase of options on securities to hedge short positions, may be
considered investments in derivative securities. In addition, the
Fund may enter into repurchase agreements which carry risks of loss if
the parties to such agreements default or enter into bankruptcy
proceedings. See "Risks and Special Considerations."
FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES: The following table illustrates
estimated expenses and fees that a shareholder of the Fund will incur.
Maximum Sales Charge Imposed on Purchases None
Maximum Sales Charge Imposed on Reinvested
Dividends None
Maximum Contingent Deferred Sales Charge 2.50%(1)
Redemption Fees None
Exchange Fee None
ESTIMATED ANNUAL OPERATING EXPENSES: These expenses, which cover the
cost of investment management, administration, distribution, marketing
and shareholder communication, are quoted as a percentage of average
daily net assets of the Fund. The expenses are factored into the
Fund's share price and are not billed directly to shareholders.
Investment Advisory Fees 1.00%
Rule 12b-1 Fees 1.00%(2)
Other Expenses .43%
TOTAL OPERATING COSTS 2.43%
The purpose of these tables is to assist the investor in
understanding the various expenses that an investor in the Fund will
bear directly or indirectly. The amount of "Other Expenses" is based
on estimated amounts for the current fiscal year.
1 There is no CDSC if an investor redeems Fund shares more than two
years after such shares are purchased. Shares may be subject to a
CDSC of: (i) 2.50% if shares are redeemed within one year of
purchase; and (ii) 1.25% if shares are redeemed during the second
year following purchase. The CDSC may be waived under certain
circumstances. See "How To Redeem Shares."
2 The Board of Trustees has adopted a Plan of Distribution for the
Fund pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"). A portion of the fees payable under this
plan will be used to pay distribution expenses (0.75%) and a
portion will be used for shareholder servicing costs (0.25%).
Over an extended period of time, the aggregate distribution
payments made by the Fund under the plan could cause long-term
shareholders to bear distribution costs that exceed the amount of
the maximum front-end sales charge permitted under the rules of
the National Association of Securities Dealers, Inc. (the "NASD").
See "Distribution of Shares."
The following example illustrates the expenses that an investor
would pay on a $1,000 investment over various time periods assuming
(1) a 5% annual rate of return and (2) redemption at the end of each
time period. As noted in the table above, redemptions of shares of
the Fund are subject to a CDSC if the shares are redeemed during the
first or second year following purchase.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$50 $76 $130 $277
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period (and
therefore no CDSC):
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$25 $76 $130 $277
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following table includes selected per share data and other
performance information for the Fund throughout the period from
September 21, 1995 (Commencement of Operations) through August 31,
1996 and is derived from the audited financial statements of the
Fund. It should be read in conjunction with the Fund's financial
statements and notes thereto, along with Management's discussion and
analysis of the Fund's performance appearing in the Fund's Annual
Report to Shareholders for the period ended August 31, 1996, which is
included together with the unqualified report of independent auditor's
thereon as part of the Fund's Statement of Additional Information,
or may be obtained without charge by writing or calling the Fund at
the address and number listed on the prospectus cover.
FOR THE PERIOD
SEPTEMBER 21, 1995+
THROUGH
AUGUST 31, 1996
-------------------
NET ASSET VALUE - BEGINNING OF PERIOD............ $ 10.00
INVESTMENT OPERATIONS:
Net investment loss........................... (0.07)
Net realized and unrealized gain
on investments.............................. 1.29
Total from investment operations......... 1.22
DISTRIBUTIONS:
From net realized gain on investments.......... (0.01)
Total distributions...................... (0.01)
NET ASSET VALUE - END OF PERIOD.................. $11.21
TOTAL RETURN++................................... 12.22%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses....................................... 2.43%*
Net investment loss............................ (0.68)%*
Portfolio turnover rate.......................... 139.77%*
Average commission rate paid..................... $ 0.0592
Net assets at end of period ($000 omitted)....... $109,005
+ Commencement of Operations.
++ The total return for the period has not been annualized and
does not reflect any deferred sales charge.
* Annualized.
OLSTEIN'S INVESTMENT PERFORMANCE
Set forth below is information about the performance record of the
Investment Manager's portfolio management team for its Smith Barney Inc.
separately managed accounts from December 31, 1990 through the quarter
immediately preceding the commencement of the Fund's operations.1 These
accounts were managed according to the same investment objective and
philosophy, and were subject to substantially similar investment
policies and techniques as those used by the Fund. See "Investment
Objectives and Policies." The results presented are not intended to
predict or suggest the return to be experienced by the Fund or the
return that an individual investor might achieve by investing in the
Fund. The Fund's results may be different from the composite of
separate accounts shown because of, among other things, differences in
fees and expenses, and because private accounts are not subject to
certain investment limitations, diversification requirements, and other
restrictions imposed by the Investment Company Act of 1940, as amended
(the "1940 Act") and the Internal Revenue Code, as amended, which, if
applicable, may have adversely affected the performance of such
accounts.
Net Olstein Performance(2) Total Return S&P 500(3)
1991 +32.76% +30.48%
1992 +12.79% +7.77
1993 +12.13% +10.07%
1994 +5.40% +1.32%
1995(1st six mos.) +15.34%(1) +20.25%(1)
1 As separate account investment performance was calculated on a
quarterly basis, and the Fund commenced operations in the third quarter
of 1995, comparative performance statistics are supplied for only the
first six months of 1995.
2 The results shown above represent a composite of discretionary, fee
paying, separate accounts, reflect the reinvestment of any dividends or
capital gains, and are shown after deduction of fees of 2.5%, which
represents the average account management fee (including all investment
management, transaction, administrative and custodial fees) charged to
such accounts by Smith Barney Inc.
3 The "Total Return S&P 500" reflects the reinvestment of dividends
and capital gains, but represents a "gross" return, without the
deduction of any fees.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital
appreciation with a secondary objective of income. The Fund's primary
investment objective is a fundamental policy, which means that it may
not be changed without the approval of the holders of a majority of
the Fund's outstanding voting securities. There can be no assurance
that the Fund will achieve its objectives.
The Fund seeks to achieve its objectives by investing primarily
in common stocks of companies that are determined to be under-valued
when comparing the "private market value" as determined by the
Investment Manager with the value of the securities as established in
the public trading markets. The Fund believes that, in order to
achieve long-term capital appreciation, downside risk should be
emphasized before considering the upside potential in the stock
selection process. Accordingly, the Fund will not purchase equity
securities unless they meet the Fund's value criteria. To the extent
that suitable undervalued securities are not available, the Fund will
invest its assets in fixed-income or money market securities. In
addition to purchasing under-valued equity securities, if the
Investment Manager determines that a security is over-valued, the Fund
may engage in short sales of the security.
The Fund will select equity securities based on a value-oriented
philosophy developed and employed by the Investment Manager which
emphasizes the analysis of financial statements to alert the
Investment Manager to the items that may positively or negatively
affect prices of securities. This philosophy enables the Investment
Manager to identify and select companies which, in the Manager's
opinion: (i) generate more cash flow than is necessary to sustain the
operations of the business (including capital expenditures); (ii)
avoid aggressive accounting practices; (iii) demonstrate balance sheet
fundamentals consistent with the Investment Manager's philosophy of
emphasizing downside risk before upside potential; and (iv) are
selling at a discount to the "private market value" as estimated by
the Investment Manager. Rather than relying on market timing
technique information obtained through management contact, or macro-
economic analysis, the Investment Manager identifies such companies by
engaging in an intensive analysis of a company's balance sheet, income
statement, cash flow statement and related footnotes. The Investment
Manager believes that a historical and investigative analysis of
information disclosed in a company's publicly disclosed financial
statements and accompanying footnotes, shareholder reports and filings
made with the U.S. Securities and Exchange Commission (the "SEC") is
the best method of assessing the capabilities of the management of a
company.
The "private market value" of a company's common stock is
determined by the Investment Manager under an inferential
investigative analysis of the company's financial statements,
shareholder reports and SEC filings. Instead of relying on
conventional price/earnings ratio analysis, the Investment Manager
calculates an internal cash rate of return for each company which is
then compared to available rates of return on three to five year U.S.
Treasury Notes to calculate the company's "private market value." The
Investment Manager seeks to identify deviations between the Manager's
calculation of a company's private market value and the stock market
value of securities that the Investment Manager believes are
temporarily unpopular or not being properly valued by investors. The
Investment Manager believes that such securities offer the potential
for above average appreciation if and when the deviations in value are
corrected by market forces. The possibility of such appreciation may
not be realized immediately, therefore the Fund should only be
purchased by investors with a three to five year investment time
horizon. Although the Fund's primary objective is long-term
appreciation, the Fund would recognize short-term gains and losses by
trading securities in its portfolio when price fluctuations, or other
fundamental changes may lead the Manager to effect sales to reduce the
risk of further loss.
The Fund will invest in a diversified portfolio of equity
securities of companies chosen solely because they meet the financial
characteristics determined under the value-oriented philosophy
utilized by the Investment Manager. The Investment Manager believes
that the quality of a company is associated with its financial
strength as opposed to characteristics such as size, number of years
in business, sensitivity to economic cycles, industry categorization,
or the volatility of its stock price. The Investment Manager
similarly believes that the search for undervalued securities should
not be restricted by such characteristics. As a result, the Fund will
invest in securities without regard to whether the securities are
characterized as small-capitalization, large-capitalization, growth
stock, cyclical stock, technology stock, or otherwise. With this
approach, the Fund intends to capitalize on opportunities that develop
anywhere in the equity markets. Securities will be sold without
regard to holding period when they reach a price objective based on a
computation of private market value or when circumstances change such
that the security no longer meets the value criteria of the Fund.
In situations where the Investment Manager determines that a
company engages in aggressive accounting practices, is over-leveraged,
or investors have unrealistic expectations of future earnings
potential which results in the company's stock being over-valued in
comparison to the Investment Manager's calculation of its private
market value, the Fund may engage in short sales of the company's
stock. This process allows the Fund to realize profits if the value
of the company's stock is reduced to a level that was anticipated by
the Investment Manager. The Investment Manager considers aggressive
accounting practices to include (i) "front end" accounting methods
that immediately flow non-recurring revenues such as up-front
franchise fees through the company's income statement; (ii)
capitalization of research and development, advertising, or
promotional payments which contribute materially to year to year
earnings growth; and (iii) reversing previously established reserves
which result in material increments to income. In addition, the
Investment Manager seeks to identify companies using accounting
practices for shareholder reporting that are more aggressive than the
company's tax reporting practices. For example, the use of percentage
of completion accounting methods for shareholder reporting purposes,
and completed contract accounting methods for tax reporting purposes
can result in substantially increased earnings figures reported to
shareholders, which may not accurately reflect the company's earnings
potential, and therefore, its value. The Fund will not make short
sales in excess of 25% of its total net assets and the value of any
securities of any one issuer in which the Fund is short may not exceed
the lesser of 2% of the Fund's net assets or 2% of the securities of
any class of any issuer's securities. In addition, short sales will
only be made in those securities that are listed on a national
exchange.
The Fund is also authorized to purchase call options on
securities as a hedging technique as more fully described in the
Statement of Additional Information. Generally, the Fund may seek to
offset positions that are sold short by the Fund. The purchase of
call options gives the Fund the right, but not the obligation, to buy
(call) a security at a fixed price during a specified period. When
purchasing options in securities, the Fund pays a non-refundable
premium to the party who sells (writes) the option. Premiums paid by
the Fund in connection with option purchases will not exceed 5% of the
Fund's net assets. When engaging in short sales, the Fund may hedge a
short position by purchasing a call option to purchase the underlying
security at a given price in the future. This practice allows the
Fund to protect itself in the event of an unexpected increase in the
price of a security sold short. The Fund's activities relating to
short sales and any purchase of options on securities for hedging
purposes may be considered investments in derivative securities.
"Derivative" securities include instruments whose value is based upon,
or derived from, some underlying security. See "Risks and Special
Considerations."
If the Investment Manager determines that suitable undervalued
equity securities are not available, the Fund may seek income by
investing a substantial portion of its assets in other types of
securities, such as securities convertible into common stocks and
common stock equivalents (including rights and warrants), preferred
stocks, debt securities issued or guaranteed as to principal by the
U.S. government, its agencies or instrumentalities ("U.S. Government
Securities"), and/or other high-quality, short-term debt securities
(commercial paper, repurchase agreements, bankers' acceptances,
certificates of deposit and other fixed-income securities including,
non-convertible and convertible bonds, debentures and notes issued by
U.S. corporations and certain bank obligations and participation).
High-quality, investment grade debt securities are those that are
rated A or better by Moody's Investors Services, Inc. ("Moody's"), or
A or better by Standard & Poor's Ratings Services("S&P"), or that are
of comparable quality. The Fund's investment in repurchase agreements
that do not mature in seven days and other securities for which there
is no readily available market for resale, or that are subject to
legal or contractual restrictions on resale, may be considered
illiquid securities under federal or state law. The Fund will
restrict its investment in illiquid securities to not more than 10% of
its net assets. See "Risks and Special Considerations." In
accordance with the Fund's secondary objective of income, the Fund may
also invest in non-equity securities pending the investment of
proceeds of sales of Fund shares, or of the proceeds of certain sales
of portfolio securities, but such investments will only be maintained
for the periods during which the Manager believes that suitable
undervalued equity securities are unavailable.
The Fund may also purchase and sell American Depository Receipts
("ADRs") as more fully described in the Statement of Additional
Information. ADRs are receipts typically issued by a U.S. bank or
trust company which evidence ownership of underlying securities issued
by a foreign corporation. Generally, ADRs in registered form are
designed for use in the U.S. securities markets. The Fund may invest
in ADRs through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the underlying
security and a depository, whereas a depository may establish an
unsponsored facility without participation of the issuer of the
deposited security. Holders of unsponsored ADRs generally bear all
the costs of such facilities and the depository of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or
to pass through voting rights to the holders of such receipts in
respect of the deposited securities. Therefore, there may not be a
correlation between information concerning the issuer of the security
and the market value of an unsponsored ADR. The Fund generally does
not expect to invest more than 5% of its assets in ADRs.
The Fund will select money market securities for investment when
such securities offer a current market rate of return which the Fund
considers reasonable in relation to the risk of the investment, and
the issuer can satisfy suitable standards of credit-worthiness set by
the Fund. The money market securities in which the Fund may invest
are repurchase agreements, certificates of deposit, U.S. Government
Securities, commercial paper and securities of money market mutual
funds. Other than its investments in money market mutual funds, the
Fund will not invest in other investment companies. The Fund's
investments in money market mutual funds may be made only in
accordance with the limitations imposed by the 1940 Act and the rules
thereunder.
U.S. Government Securities include a variety of Treasury
securities, which differ in their interest rates, maturities and dates
of issuance. Treasury bills have a maturity of one year or less;
Treasury notes have maturities of one to ten years; Treasury bonds
generally have a maturity of greater than five years. The Fund will
only acquire U.S. Government Securities which are supported by the
"full faith and credit" of the United States. Securities which are
backed by the full faith and credit of the United States include
Treasury bills, Treasury notes, Treasury bonds, and obligations of the
Government National Mortgage Association, the Farmers Home
Administration, and the Export-Import Bank. The Fund's direct
investments in money market securities will generally favor securities
with shorter maturities (maturities of less than 60 days) which are
less affected by price fluctuations than are those with longer
maturities.
Certificates of deposit are certificates issued against funds
deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on
maturity. Investments in bank certificates of deposit and bankers'
acceptances are generally limited to domestic banks and savings and
loan associations that are members of the Federal Deposit Insurance
Corporation or Federal Savings and Loan Insurance Corporation having a
net worth of at least $100 million dollars ("Domestic Banks") and
domestic branches of foreign banks (limited to institutions having
total assets not less than $1 billion or its equivalent).
Investments in prime commercial paper may be made in notes,
drafts, or similar instruments payable on demand or having a maturity
at the time of issuance not exceeding nine months, exclusive of days
of grace, or any renewal thereof payable on demand or having a
maturity likewise limited.
As a matter of fundamental policy, the Fund will generally not
borrow money. However, the Fund may borrow from banks (i) for
temporary or emergency purposes in an amount not exceeding 5% of the
Fund's assets; or (ii) to meet redemption requests that might
otherwise require the untimely disposition of portfolio securities, in
an amount up to 331/3% of the value of the Fund's total assets
(including the amount borrowed) valued at market less liabilities (not
including the amount borrowed) at the time the borrowing was made.
While borrowings exceed 5% of the value of the Fund's total assets,
the Fund will not make additional investments. Interest paid on
borrowings will reduce net income.
RISKS AND SPECIAL CONSIDERATIONS
SMALL-CAPITALIZATION STOCKS
To the extent that the Fund invests in securities of companies
with market capitalizations less than the median market capitalization
of the listed companies on the New York Stock Exchange ("NYSE"), such
securities could be considered small-capitalization stocks.
Typically, securities of small companies are less liquid than
securities of large companies. Recognizing this factor, the Fund will
endeavor to effect securities transactions in a manner to avoid
causing significant price fluctuations in the market for such
securities.
SHORT-SELLING
If the Fund anticipates that the price of a security will
decline, it may sell the security short and borrow the same security
from a broker or other institution to complete the sale. The Fund may
realize a profit or loss depending upon whether the market price of a
security decreases or increases between the date of the short sale and
the date on which the Fund must replace the borrowed security. As a
hedging technique, the Fund may purchase options to buy securities
sold short by the Fund. Such options would lock in a future purchase
price and protect the Fund in case of an unanticipated increase in the
price of a security sold short by the Fund. Short-selling is a
technique that may be considered speculative and involves risk beyond
the initial capital necessary to secure each transaction. In
addition, the technique could result in higher operating costs for the
Fund and have adverse tax effects for the investor. Investors should
consider the risks of such investments before investing in the Fund.
See "Synopsis-Risks and Special Considerations."
Whenever the Fund effects a short sale, it will set aside in
segregated accounts cash, U.S. Government Securities or other liquid
assets equal to the difference between (i) the market value of the
securities sold short; and (ii) any cash or U.S. Government Securities
required to be deposited as collateral with the broker in connection
with the short sale (but not including the proceeds of the short
sale). Until the Fund replaces the security it borrowed to make the
short sale it must maintain daily the segregated account at such a
level that the amount deposited in it plus the amount deposited with
the broker as collateral will equal the current market value of the
securities sold short. No more than 25% of the value of the Fund's
total net assets will be, when added together, (i) deposited as
collateral for the obligation to replace securities borrowed to effect
short sales; and (ii) allocated to segregated accounts in connection
with short sales. The Fund's ability to make short sales may be
limited by a requirement applicable to "regulated investment
companies" under Subchapter M of the Internal Revenue Code that no
more than 30% of the Fund's gross income in any year may be the result
of gains from the sale of property held for the less than three
months.
PURCHASING OPTIONS
The success of purchasing call options for hedging purposes
depends on the Investment Manager's judgment and ability to predict
the movement of stock prices. There is generally an imperfect
correlation between options and the securities being hedged. If the
Investment Manager correctly anticipates the direction of the price of
the underlying security that is the subject of the hedge, the option
will not be exercised, and any premium paid for the option may lower
the Fund's return. If an option position is no longer needed for
hedging purposes, it may be closed out by selling an option of the
same series previously purchased. There is a risk that a liquid
secondary market may not exist and the Fund may not be able to close
out an option position, and therefore would not be able to offset any
portion of the premium paid for that option. The risk that the Fund
will not be able to close out an options contract will be minimized
because the Fund will only enter into options transactions on a
national exchange and for which there appears to be a liquid secondary
market.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its total assets in securities
which may be considered illiquid, which include securities with
contractual restrictions on resale, repurchase agreements maturing in
greater than seven days, and other securities which may not be readily
marketable. Liquidity relates to the ability of the Fund to sell a
security in a timely manner at a price which reflects the value of
that security. The relative illiquidity of some of the Fund's
securities may adversely affect the ability of the Fund to dispose of
such securities in a timely manner and at a fair price at times when
it may be necessary or advantageous for the Fund to liquidate
portfolio securities. Certain securities in which the Fund may invest
are subject to legal or contractual restrictions as to resale and
therefore may be illiquid by their terms.
AMERICAN DEPOSITORY RECEIPTS
The Fund may purchase and sell ADRs. Since ADRs are receipts
which evidence ownership of underlying securities issued by foreign
corporations, investments in ADRs may involve greater risks than
investments in domestic securities. Foreign issuers are not generally
subject to uniform accounting, auditing and financial reporting
standards comparable to those of U.S. public companies and there is
generally less information available to the public about non-U.S.
companies. In addition, foreign investments may include risks related
to legal, political and or diplomatic actions of foreign governments,
such as imposition of withholding taxes on interest and dividend
income payable on the securities held, possible seizure or
nationalization of foreign deposits, establishment of exchange
controls as the adoption of other foreign governmental restrictions
which might adversely affect to value of foreign issuer's stock. The
Fund generally does not expect to invest more than 5% of its assets in
ADRs.
REPURCHASE AGREEMENTS
Under a repurchase agreement the Fund acquires a debt instrument
subject to the obligation of the seller to repurchase and the Fund to
resell such debt instrument at a fixed price. The Fund will enter
into repurchase agreements only with banks that are members of the
Federal Reserve System, or securities dealers who are members of a
national securities exchange or are market makers in government
securities and report to the Market Reports Division of the Federal
Reserve Bank of New York and, in either case, only where the debt
instrument collateralizing the repurchase agreement is a U.S. Treasury
or agency obligation supported by the full faith and credit of the
United States. A repurchase agreement may also be viewed as the loan
of money by the Fund to the seller. The resale price specified is
normally in excess of the purchase price, reflecting an agreed upon
interest rate. The rate is effective for the period of time the Fund
is invested in the agreement and may not be related to the coupon rate
on the underlying security. The term of these repurchase agreements
will usually be short (from overnight to one week), and at no time
will the Fund invest in repurchase agreements of more than sixty days.
The securities which are collateral for the repurchase agreements,
however, may have maturity dates in excess of sixty days from the
effective date of the repurchase agreement. The Fund will always
receive, as collateral, securities whose market value, including
accrued interest, will at least equal 102% of the dollar amount to be
paid to the Fund under each agreement at its maturity, and the Fund
will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the Custodian. If
the seller defaults, the Fund might incur a loss if the value of the
collateral securing the repurchase agreement declines, and might incur
disposition costs in connection with liquidation of the collateral.
In addition, if bankruptcy proceedings are commenced with respect to
the seller of the security, collection of the collateral by the Fund
may be delayed or limited. The Fund also may not be able to
substantiate its interests in the underlying securities. While
management of the Fund acknowledges these risks, it is expected that
such risks can be controlled through stringent security selection and
careful monitoring procedures. The Fund may not enter into a
repurchase agreement with more than seven days to maturity if, as a
result, more than 10% of the market value of the Fund's net assets
would be invested in such repurchase agreements. For purposes of the
diversification test for qualification as a regulated investment
company under the Internal Revenue Code, repurchase agreements are not
counted as cash, cash items or receivables, but rather as securities
issued by the counter-party to the Repurchase Agreements.
PORTFOLIO TURNOVER
The Fund intends to follow a very strict "buy and sell
discipline," under which it will purchase or sell securities whenever
the Fund's value criteria are met, which may result in portfolio
changes and a portfolio turnover rate higher than that reached by many
capital appreciation funds. Portfolio transactions relating to the
Fund's secondary objective of income may contribute to this portfolio
turnover rate. High portfolio turnover involves additional
transaction costs (such as brokerage commissions), which are borne by
the Fund, and might involve adverse tax effects. See "Dividends,
Distributions and Taxes."
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Board of Trustees of the Fund consists of seven individuals, four
of whom are not "interested persons" of the Fund as that term is
defined in the 1940 Act. The Trustees are fiduciaries for the Fund's
shareholders and are governed by the laws of the State of Delaware in
this regard. They establish policy for the operation of the Fund and
appoint the officers who conduct the daily business of the Fund. The
Statement of Additional Information contains more information
regarding the Officers and Trustees of the Fund, and following is a
list of the Trustees and a brief statement of their present positions:
Robert A. Olstein* President and Chairman of the Trust;
President of Olstein & Associates, L.P.
Erik K. Olstein* Secretary and Assistant Treasurer of the
Trust; Vice President of Sales of Olstein
& Associates, L.P.
Neil C. Klarfeld* Executive Vice President, Park Tower
Realty Corp.
Fred W. Lange President and Portfolio Manager of Lange
Financial Services; Board of Trustees
Wagner College
John Lohr Principal, Lockwood Financial Group Ltd.
D. Michael Murray President, Murray, Sheer & Montgomery
Lawrence K. Wein Managing director of Global Transit
Services of AT&T
* These Trustees are deemed to be "interested persons" of the Trust as
that term is defined in the 1940 Act.
INVESTMENT MANAGER
Olstein & Associates, L.P. (previously defined as the "Investment
Manager")serves as the investment manager for the Fund pursuant to an
investment management contract (the "Management Contract"). Subject
to the supervision of the Trustees and officers of the Trust, the
Investment Manager selects investments and supervises the assets of
the Fund, and places portfolio transactions for the Fund. The
Investment Manager is governed by the policies set forth under
"Investment Objectives and Policies." For its services, the
Investment Manager is paid an annual fee equal to 1.00% of the Fund's
average daily net assets, which is higher than that paid by most
mutual funds.
Robert A. Olstein is the president of the Investment Manager and
is principally responsible for the management of the Fund's portfolio
of securities. Mr. Olstein has been engaged in various aspects of
securities research and portfolio management for both institutional
and retail clients since 1968. In 1971, he co-founded the "Quality of
Earnings Report" service, which pioneered the concept of using
inferential financial screening techniques to analyze balance sheets
and income statements to alert institutional portfolio managers to
positive or negative factors affecting a company's future earnings
power and value of a company's stock. Prior to forming the Investment
Manager, Mr. Olstein managed portfolios for individuals, corporations
and employee benefit plans at Smith Barney Inc. ("Smith Barney") and
its predecessor companies between 1982 and 1995. Mr. Olstein was a
Senior Vice President/Senior Portfolio Manager at Smith Barney where
he managed approximately $158 million of individual and employee
benefit accounts $73 million of which were managed under the auspices
of the Smith Barney Equity Portfolio Management Program. Mr. Olstein
is a senior member of the New York Society of Securities Analysts and
a fellow of the Financial Analysts Federation. He is a past recipient
of the Graham & Dodd and Gerald M. Loeb Research Awards, has testified
before the Senate Banking Committee on bank accounting, and has been
quoted in and is the author of numerous articles on corporate
reporting and disclosure practices.
The Investment Manager is a New York limited partnership
established in June of 1994, with offices located at 4 Manhattanville
Road, Purchase, New York 10577. The corporate general partner of the
Investment Manager is Olstein, Inc., which was formed for the primary
purpose of acting as the Investment Manager's general partner, and
whose sole shareholder, officer and director is Robert A. Olstein.
Pursuant to the Management Contract with the Fund, the Investment
Manager will also provide, on a reimbursable basis, administrative and
clerical services, office space and other facilities for the Fund, and
keep certain books and records for the Fund to the extent that such
services are not provided by the Administrator or other persons.
The Investment Manager is responsible for selecting brokers and
dealers to execute portfolio transactions for the Fund. The
Investment Manager, which is itself a broker-dealer registered under
the Securities Exchange Act of 1934 and a member of the NASD, may
place Fund securities transactions through itself or other Fund
affiliates, and the Investment Manager and the Fund's officers may
consider sales of the Fund's shares when allocating brokerage, in
either case subject to the policy of obtaining best price and
execution on such transactions. Any portfolio transactions which are
effected by brokers or dealers who are considered to be affiliated
persons of the Fund will be subject to SEC Rules designed to ensure
that the commissions for such transactions are fair to the Fund's
shareholders. See "Allocation of Portfolio Brokerage" in the Fund's
Statement of Additional Information.
DISTRIBUTION OF SHARES
Rodney Square Distributors, Inc.("RSD"), a wholly owned
subsidiary of Wilmington Trust Company, and Olstein & Associates
(together the "Distributors") have entered into a distribution and
underwriting agreement with the Fund (the "Distribution Agreement")
dated August 18, 1995, under which the Distributors will act as co-
underwriters to engage in activities designed to assist the Fund in
securing purchasers for its shares. The fee for RSD's services as co-
underwriter is borne solely by Olstein & Associates, and Olstein &
Associates will receive compensation for its services under the 12b-1
Plan described below. Either directly or through affiliates, the
Distributors will provide services under the Distribution Agreement
including underwriting, coordination and approval of selling dealers,
investor support services, administrative services and 12b-1 Plan
administration.
The Fund has adopted a Shareholder Servicing and Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plan").
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 payable on a monthly
basis. Seventy-five percent of the total fee is a distribution fee
that can be used to compensate the Distributors or others for
distribution activities, including but not limited to, the
preparation, printing and distribution of prospectuses, sales
materials, reports, advertising and other distribution-related
materials, as well as payments to Selling Dealers with respect to the
sales of Fund shares. The remaining twenty-five percent is a
shareholder servicing fee used to compensate the Distributors, Selling
Dealers or others for ongoing servicing and maintenance of shareholder
accounts with the Fund. Such shareholder servicing activities include
responding to inquiries of shareholders of the Fund regarding their
ownership of shares of the Fund or providing other similar services
not otherwise required to be provided by the Investment Manager or the
Administrator. Payments under the 12b-1 Plan are not tied exclusively
to distribution or shareholder servicing expenses actually incurred by
the Distributors or others, and the payments may exceed the amount of
expenses actually incurred.
To promote the sale of the Fund's shares, Olstein & Associates
may enter into agreements with Selling Dealers under which the Selling
Dealers may be compensated for their distribution and shareholder
servicing activities. It is presently contemplated that certain
Selling Dealer agreements, subject to Olstein & Associates'
discretion, will provide for Olstein & Associates to pay the Selling
Dealer, from its own resources, an up-front commission of up to 1.5%
of the amount invested. No portion of such up-front commissions will
be borne by the Fund or its shareholders. While Olstein & Associates
has advised the Fund it hopes to recover such up-front commissions
payments by receipt of 12b-1 fees paid by the Fund, the Fund is not
legally obligated to repay such excess amounts or to continue the 12b-
1 Plan for such purpose. The Selling Dealer Agreements which provide
for a 1.5% up-front commission will also provide for Selling Dealers
to receive up to 90% of the total 12b-1 fees attributable to the
amount originally invested that remains invested in the Fund during
the second through fifth years at current market value. In subsequent
years, the Selling Dealers will receive up to 75% of the total 12b-1
fees for assets that remain invested in the Fund at current market
values. In the event that a Selling Dealer Agreement does not provide
for an up-front commission payment by Olstein & Associates to the
Selling Dealer, the Selling Dealer may be paid up to 90% of the total
12b-1 fee beginning in the first year. The 12b-1 fees payable to
Selling Dealers will consist in part of a shareholder servicing fee
and, in part, a distribution fee.
If investors elect to redeem their shares of the Fund within the
first two years of purchase, thereby incurring a CDSC, the CDSC will
be paid to Olstein & Associates. Any CDSC payments received by
Olstein Associates will not reduce the payments Olstein & Associates
may receive under the 12b-1 Plan during a particular year. By
receiving the CDSC upon early redemptions, Olstein & Associates will
recapture some of the up-front commissions it may have paid to Selling
Dealers when the original purchase was made, as opposed to receiving
ongoing fees under the 12b-1 Plan with respect to those assets if the
shareholder had retained the investment in the Fund.
RSD is located at 1100 North Market Street, Wilmington, Delaware
19890 and is an affiliate of Wilmington Trust Company ("WTC"), the
Fund's custodian bank for its securities and cash. Banking laws limit
deposit-taking institutions and certain of their affiliates from
underwriting or distributing securities. RSD believes that it may
perform the services contemplated under the co-underwriting agreement
without violation of applicable banking laws or regulations. If RSD
were prohibited from performing these services, it is expected that
RSD would resign as co-underwriter. It is not expected that
shareholders would suffer any adverse financial consequences as a
result of such an occurrence, as the Investment Manager would continue
to serve as the Distributor of the Fund's shares, and the Fund and the
Board of Trustees would consider whether to enter into any additional
agreements with other parties.
ADMINISTRATOR, TRANSFER AGENT AND FUND ACCOUNTING/PRICING AGENT
Rodney Square Management Corporation ("Rodney Square") serves as
the Fund's Administrator pursuant to an Administration Services
Agreement with the Fund dated August 18, 1995. As Administrator,
Rodney Square supplies office facilities, non-investment related
statistical and research data, stationary and office supplies,
executive and administrative services, internal auditing budgeting and
financial reporting services. Rodney Square also prepares and
maintains information for meetings of the Board of Trustees, assists
in the preparation of reports to shareholders, prepares proxy
statements, updates and supervises the preparation of prospectuses and
makes filings with the SEC and state securities authorities. Rodney
Square also monitors the Fund's compliance with federal and state
securities laws, and assists the Fund's Distributors in the review of
advertising literature, and the submission of such advertising to the
NASD for review and approval in accordance with NASD rules. For its
services as Administrator, Rodney Square receives a monthly fee from
the Fund, based on the Fund's average daily net assets, of 0.15% on
the first $50 million of assets (subject to a minimum annual fee of
$50,000), 0.10% on the next $50 million of assets, 0.07% on the next
$100 million in assets and 0.05% on assets in excess of $200 million.
Rodney Square also receives reimbursement from the Fund for out-of-
pocket expenses.
Rodney Square also serves as the Fund's transfer agent pursuant
to a Transfer Agency Agreement dated August 18, 1995. As transfer
agent, Rodney Square maintains the records of each shareholder's
account, answers shareholder inquiries concerning accounts, processes
purchases and redemptions of the Fund's shares in association with the
Distributors, acts as dividend and distribution disbursing agent, and
performs other shareholder service functions. Rodney Square will also
administer the payment of any up-front commission payments paid by
Olstein & Associates and ongoing 12b-1 fees paid by the Fund to
Selling Dealers and assist the Distributors in the preparation of the
quarterly 12b-1 reports to the Board of Trustees. See "Distribution
of Shares." Shareholder inquiries should be directed to Rodney Square
at (800) 799-2113.
Rodney Square also performs certain accounting and pricing
services for the Fund, including the daily calculation of the Fund's
net asset value. These services are provided pursuant to an
Accounting Services Agreement with the Fund dated August 18, 1995.
CUSTODIAN
The custodian for the securities and cash of the Fund is
Wilmington Trust Company, Rodney Square North, 1100 N. Market Street,
Wilmington, DE 19890-0001.
EXPENSES
Except as indicated above, the Fund is responsible for the
payment of its expenses, other than those borne by the Investment
Manager and such expenses may include, but are not limited to: (i)
management fees; (ii) the charges and expenses of the Fund's legal
counsel and independent auditors; (iii) brokers' commissions, mark-ups
and mark-downs and any issue or transfer taxes chargeable to the Fund
in connection with its securities transactions; (iv) all taxes and
corporate fees payable by the Fund to governmental agencies; (v) the
fees of any trade association of which the Fund is a member; (vi) the
cost of certificates, if any, representing shares of the Fund; (vii)
amortization and reimbursements of the organization expenses of the
Fund and the fees and expenses involved in registering and maintaining
registration of the Fund and its shares with the SEC, and the
preparation and printing of the Fund's registration statements and
prospectuses for such purposes; (viii) allocable communications
expenses with respect to investor services and all expenses of
shareholders and directors meetings and of preparing, printing and
mailing prospectuses and reports to shareholders; (ix) certain rent or
office expenses not assumed by others, (x) premiums for fidelity bond
and liability insurance covering Fund trustees and officers; (xi)
litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business;
and (xii) compensation for employees of the Fund.
SHARES OF BENEFICIAL INTEREST
The Trust is a series business trust that currently offers one
series of shares. The beneficial interest of each series of the Trust
is divided into an unlimited number of shares ("Shares"), with a par
value of $.001 each. Each Share has equal dividend, voting,
liquidation and redemption rights. There are no conversion or
preemptive rights. Shares, when issued, will be fully paid and
nonassessable. Fractional shares have proportional voting rights.
Shares of the Fund do not have cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the
election of trustees can elect all of the trustees if they choose to
do so and, in such event, the holders of the remaining shares will not
be able to elect any person to the Board of Trustees. Shares will be
maintained in open accounts on the books of the Transfer Agent, and
certificates for shares will generally not be issued.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
The Fund intends to declare and pay annual dividends to its
shareholders of substantially all of its net investment income, if
any, earned during the year from its investments, and the Fund will
distribute net realized capital gains, if any, once with respect to
each year. Expenses of the Fund, including the advisory fee, are
accrued daily. Reinvestments of dividends and distributions in
additional shares of the Fund will be made at the net asset value
determined on the date of the dividend or distribution unless the
shareholder has elected in writing to receive dividends or
distributions in cash. An election may be changed by notifying Rodney
Square in writing thirty days prior to the record date. Shareholders
may call Rodney Square at (800) 799-2113 for more information.
The Fund intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code"). As
such, the Fund will not be subject to federal income tax, or to any
excise tax, to the extent its earnings are distributed and by meeting
certain other requirements relating to the sources of its income and
diversification of its assets as provided in the Code. Dividends from
net investment income or net short-term capital gains will be taxable
to shareholders as ordinary income, whether received in cash or in
additional shares. For corporate investors, dividends from net
investment income will generally qualify in part for the 70% corporate
dividends received deduction, subject to certain holding period and
debt financing restrictions. The portion of the dividends so
qualified depends on the aggregate qualifying dividend income received
by the Fund from domestic (U.S.) sources.
Distributions paid by the Fund from net long-term capital gains,
whether received in cash or in additional shares, are taxable to those
investors who are subject to income taxes as long-term capital gains,
regardless of the length of time an investor has owned shares in the
Fund. The Fund does not seek to realize any particular amount of
capital gains during a year; rather, realized gains are a by-product
of Fund management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year.
Also, for those investors subject to tax, if purchases of shares in
the Fund are made shortly before the record date for a dividend or
capital gains distribution, a portion of the investment will be
returned as a taxable distribution.
Dividends which are declared in October, November or December to
shareholders of record in such a month, but which, for operational
reasons, may not be paid to the shareholder until the following
January, will be treated for tax purposes as if paid by the Fund and
received by the shareholder on December 31 of the calendar year in
which they are declared.
The redemption of shares of the Fund is treated as a sale and
therefore is a taxable event and may result in a capital gain or loss
to shareholders subject to tax. Capital gain or loss may be realized
from an ordinary redemption of shares or an exchange of shares between
two mutual funds (or two portfolios of a mutual fund). Any loss
incurred on a sale or exchange of the Fund's shares, held for six
months or less, will be treated as a long-term capital loss to the
extent of capital gain dividends received with respect to such shares.
In addition to federal taxes, shareholders may be subject to
state and local taxes on distributions. Distributions of interest
income and capital gains realized from certain types of U.S.
Government Securities may be exempt from state personal income taxes.
Each year, the Fund will mail information on the tax status of the
Fund's dividends and distributions to shareholders. Of course,
shareholders who are not subject to tax on their income would not be
required to pay tax on amounts distributed to them by the Fund. The
Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not
complied with IRS taxpayer identification regulations. Shareholders
may avoid this withholding requirement by certifying on the
Shareholder Application the proper Taxpayer Identification Number and
by certifying that they are not subject to backup withholding.
The tax discussion set forth above is included for general
information only. Prospective investors should consult their own tax
advisers concerning the federal, state, local or foreign tax
consequences of an investment in the Fund.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share ("net asset value") is
determined by the Fund as of the close of regular trading on each day
that the NYSE is open for unrestricted trading from Monday through
Friday (generally 4:00 p.m., Eastern time). The net asset value is
determined by the Fund by dividing the value of the Fund's securities,
plus any cash and other assets, less all liabilities, by the number of
shares outstanding. Expenses and fees of the Fund, including
management, distribution and shareholder servicing fees, are accrued
daily and taken into account for the purpose of determining the net
asset value.
Fund securities listed or traded on a securities exchange for
which representative market quotations are available will be valued at
the last quoted sales price on the security's principal exchange on
that day. Listed securities not traded on an exchange that day, and
other securities which are not traded in the over-the-counter market
on any given day will be valued at the mean between the last bid and
ask price in the market on that day, if any. Securities for which
market quotations are not readily available and all other assets will
be valued at their respective fair market value as determined in good
faith by, or under procedures established by, the Board of Trustees.
In determining fair value, the Trustees may employ an independent
pricing service.
Short-term investments with less than sixty days remaining to
maturity when acquired by the Fund will be valued on an amortized cost
basis by the Fund, excluding unrealized gains or losses thereon from
the valuation. This is accomplished by valuing the security at cost
and then assuming a constant amortization to maturity of any premium
or discount. If the Fund acquires a short-term security with more
than sixty days remaining to its maturity, it will be valued at
current market value until the 60th day prior to maturity, and will
then be valued on an amortized cost basis based upon the value on such
date unless the Trustees determine during such 60 day period that this
amortized cost value does not represent fair market value.
HOW TO PURCHASE SHARES
Shares of the Fund are offered on a continuous basis by the
Distributors and through Selling Dealers who have entered into Selling
Dealer Agreements with the Distributors. Brokerage clients of Olstein
& Associates who maintain private brokerage accounts with Olstein &
Associates, may contact Olstein & Associates directly. Selling
Dealers may receive compensation for their marketing and shareholder
servicing activities in the form of up-front commission payments
funded by Olstein & Associates from its own resources, or by receiving
a portion of the 12b-1 fees payable by the Fund under the 12b-1 Plan.
See "Distribution of Shares."
Shares are sold to investors at the net asset value next
determined after receipt and acceptance of an investor's purchase
order in proper form as described below. Shares of the Fund are
subject to annual 12b-1 Plan expenses and, if shares are redeemed
within two years of purchase, may be subject to a CDSC. See "Expenses
of the Fund" and "How to Redeem Shares." The Fund reserves the right
to reject any purchase order and to suspend the offering of shares of
the Fund. The minimum initial investment is $1,000, and subsequent
investments must total at least $100. The minimum initial investment
requirement for qualified tax sheltered retirement plans is $250 with
no minimum for subsequent investments. The Fund reserves the right to
vary the initial investment minimum and minimums for additional
investments at any time.
At the discretion of the Fund, investors may be permitted to
purchase Fund shares by transferring securities to the Fund that: (i)
meet the Fund's investment objective and policies; (ii) are acquired
by the Fund for investment and not for retail purposes; (iii) are
liquid securities which are not restricted as to transfer either by
law or liquidity of market; (iv) have a value which is readily
ascertainable (and not established only by evaluation procedures) as
evidenced by a listing on the American Stock Exchange, the NYSE, or
NASDAQ; and (v) at the discretion of the Fund, the value of any such
security (except U.S. Government securities) being exchanged together
with other securities of the same issuer owned by the Fund will not
exceed 5% of the net assets of the Fund immediately after the
transactions.
Securities transferred to the Fund will be valued in accordance
with the same procedures used to determine the Fund's net asset value.
All dividends, interests, subscription, or other rights pertaining to
such securities shall become the property of the Fund and must be
delivered to the Fund by the investor upon receipt from the issuer.
Investors who are permitted to transfer such securities will be
required to recognize all gains or losses on such transfers, and pay
taxes thereon, if applicable, measured by the difference between the
fair market value of the securities and the investors' bases therein.
Purchase orders for shares of the Fund which are received by
Rodney Square and accepted by the Distributors prior to the close of
regular trading hours on the NYSE on any day that the Fund calculates
its net asset value, are priced according to the net asset value
determined on that day. Purchase orders for shares of the Fund
received after the close of the NYSE on a particular day are priced as
of the time the net asset value per share is next determined.
Purchases may be made in one of the following ways:
PURCHASES BY MAIL
Investors may purchase shares by sending a check drawn on a U.S.
bank payable to The Olstein Financial Alert Fund along with a
completed Shareholder Application, to The Olstein Financial Alert
Fund, c/o Rodney Square Management Corporation, P.O. Box 8987,
Wilmington, DE 19899-9752. A purchase order sent by overnight mail
should be sent to The Olstein Financial Alert Fund, c/o Rodney Square
Management Corporation, Rodney Square North, 1105 North Market Street,
3rd Floor, Wilmington, DE 19890-0001. If a subsequent investment is
being made, the check should also indicate the investor's Fund account
number. When purchases are made by check, the Fund may withhold
payment on redemptions of shares purchased by such check until it is
reasonably satisfied that the funds are collected (which can take up
to 10 days). Redemption proceeds will be mailed upon clearance of the
check. Purchases made with a check that does not clear, will be
canceled and the investor will be responsible for any losses or fees
incurred in that transaction.
PURCHASES BY WIRE
To order shares for purchase by wiring federal funds, the
transfer agent must first be notified by calling (800) 799-2113 to
request an account number and furnish the Fund with a tax
identification number. Following notification to Rodney Square,
federal funds and registration instructions should be wired through
the Federal Reserve System to:
RODNEY SQUARE MANAGEMENT CORPORATION
C/O WILMINGTON TRUST COMPANY, WILMINGTON DELAWARE
ABA #0311 0009 2
ATTENTION: THE OLSTEIN FINANCIAL ALERT FUND
DDA # 2670-9431
[FURTHER CREDIT SHAREHOLDER NAME AND ACCOUNT NUMBER]
For initial purchases by wire, a completed application with
signature(s) of investor(s) must be filed with the transfer agent at
the address stated above under "Purchases by Mail." Investors should
be aware that some banks may impose a wire service fee.
AUTOMATIC INVESTMENT PLAN
Shares of the Fund may be purchased through an Automatic
Investment Plan. The Plan provides a convenient method by which
investors may have monies deducted directly from their checking,
savings or bank money market accounts for investment in the Fund on a
monthly, bi-monthly, quarterly, semi-annual or annual basis. The
minimum investment pursuant to this Plan is $100 per month (subsequent
to the $1000 initial investment). The account designated will be
debited in the specified amount, on or about the 20th of the month,
and Fund shares will be purchased. Only an account maintained at a
domestic financial institution which is an ACH member may be so
designated. The Fund may alter, modify or terminate this Plan at any
time. For information about participating in the Automatic Investment
Plan, call Rodney Square at (800) 799-2113.
HOW TO REDEEM SHARES
Shareholders may redeem their shares of the Fund on any business
day that the Fund calculates its net asset value. See "Determination
of Net Asset Value." Redemption requests are generally made to the
Fund's transfer agent (see below), however, brokerage clients of
Olstein & Associates who maintain private brokerage accounts with
Olstein & Associates may contact Olstein & Associates directly.
Redemptions will be effected at the net asset value per share next
determined after the receipt by the transfer agent of a redemption
request meeting the requirements described below, subject to any
applicable CDSC. The Fund normally sends redemption proceeds on the
next business day, but in any event redemption proceeds are sent
within seven calendar days of receipt of a redemption request in
proper form, or sooner if required under applicable law. Payment may
also be made by wire directly to any bank previously designated by the
shareholder in a shareholder account application. The Fund's
custodian or the shareholder's bank may impose a fee for wire service.
The Fund will honor redemption requests of shareholders who recently
purchased shares by check, but will not mail the proceeds attributable
to such purchase until it is reasonably satisfied that the purchase
check has cleared, which may take up to ten days from the purchase
date, at which time the redemption proceeds will be sent to the
shareholder.
Except as noted below, redemption requests received in proper
form by Rodney Square prior to the close of regular trading hours on
the NYSE on any business day that the Fund calculates its per share
net asset value are effective that day. Redemption requests received
after the close of the NYSE are effective as of the time the net asset
value per share is next determined.
If a shareholder submits a redemption request for a specific
dollar amount, and the redemption request is subject to a CDSC, the
Fund will redeem that number of shares necessary to deduct the
applicable CDSC and tender to the shareholder the requested amount to
the extent shares are still held in the account. Shares purchased
prior to the effective date of this prospectus which are sold within
the first two years of their purchase will be assessed the applicable
CDSC on the lesser of the then-current net asset value or the original
purchase price of such shares. Shares purchased after the effective
date of this prospectus which are sold within the first two years of
their purchase will be assessed the applicable CDSC on the original
purchase price. If a shareholder decides to repurchase the same
amount of shares within 90 days of a redemption which was subject to a
CDSC, the shareholder will receive an amount of shares equal to the
repurchase plus the number of shares necessary to reimburse the amount
of the CDSC. The following table sets forth the rates of the CDSC for
the shares of the Fund:
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE
YEAR AFTER OF DOLLAR AMOUNT
PURCHASE MADE SUBJECT TO CHARGE)
------------- ------------------
Up to 1 year 2.50%
Up to 2 years 1.25%
After 2 full years None
Redemptions by clients of Olstein & Associates who maintained
private brokerage accounts with Olstein & Associates at the time of
purchase will not be subject to the CDSC described in this prospectus.
The Fund will satisfy redemption requests in cash to the fullest
extent feasible, so long as such payments would not, in the opinion of
the Investment Manager or the Board of Trustees, result in the
necessity of the Fund selling assets under disadvantageous conditions
and to the detriment of the remaining shareholders of the Fund.
Pursuant to the Fund's Agreement and Declaration of Trust, payment for
shares redeemed may be made either in cash or in kind, or partly in
cash and partly in kind. However, the Fund has elected, pursuant to
Rule 18f-1 under the Act, to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund,
during any 90 day period for any one shareholder. Payments in excess
of this limit will also be made wholly in cash unless the Board of
Trustees believes that economic conditions exist which would make such
a practice detrimental to the best interests of the Fund. Any
portfolio securities paid or distributed in kind would be valued as
described under "Net Asset Value." In the event that an in-kind
distribution is made, a shareholder may incur additional expenses,
such as the payment of brokerage commissions, on the sale or other
disposition of the securities received from the Fund. In-kind
payments need not constitute a cross section of the Fund's portfolio.
Where a shareholder has requested redemption of all or a part of the
shareholder's investment, and where the Fund completes such redemption
in kind, the Fund will not recognize gain or loss for federal tax
purposes, on the securities used to complete the redemption but the
shareholder will recognize gain or loss equal to the difference
between the fair market value of the securities received and the
shareholder's basis in the Fund shares redeemed.
Shares may be redeemed in one of the following ways:
REDEMPTION BY MAIL
Shares may be redeemed by submitting a written request for
redemption to the transfer agent at The Olstein Financial Alert Fund,
c/o Rodney Square Management Corporation, P.O. Box 8987, Wilmington,
Delaware 19899-9752. A redemption order sent by over-night mail
should be sent to The Olstein Financial Alert Fund, c/o Rodney Square
Management Corporation, 1105 N Market Street, 3rd Floor, Wilmington,
Delaware 19890-0001.
A written redemption request to the transfer agent must: (i)
identify the shareholder's account number; (ii) state the number of
shares or dollar amounts to be redeemed; and (iii) the name of the
persons in whose name the account is registered. Each registered
owner must sign the redemption request exactly as the shares in the
account as registered. A signature may be guaranteed by an eligible
institution acceptable to the Fund's transfer agent, such as a bank,
broker, dealer, municipal security's dealer, government security's
dealer, credit union, national securities exchange, registered
securities association, clearing agency, or savings association. A
redemption request for amounts above $25,000, or redemption requests
for which proceeds are to be mailed somewhere other than the address
of record, must be accompanied by signature guarantees. Signatures
must be guaranteed by an "eligible guarantor institution" as defined
in Rule 17Ad-15 under the Securities Exchange Act of 1934. Eligible
guarantor institutions include banks, brokers, dealers, credit unions,
national securities exchanges, registered securities associations,
clearing agencies and savings associations. Broker-dealers
guaranteeing signatures must be a member of a clearing corporation or
maintain net capital of at least $100,000. Credit unions must be
authorized to issue signature guarantees. Signature guarantees will
be accepted from any eligible guarantor institution which participates
in a signature guarantee program. The transfer agent may require
additional supporting documents for redemptions made by corporations,
executors, administrators, trustees and guardians.
A redemption request will not be deemed to be properly received
until the transfer agent receives all required documents in proper
form. Questions with respect to the proper form for redemption
requests should be directed to the transfer agent at (800) 799-2113.
REDEMPTION BY TELEPHONE
Shareholders who have so indicated on the application, or have
subsequently arranged in writing to do so, may redeem shares in any
amount up to $50,000 by instructing the transfer agent by telephone at
(800) 799-2113. Redemption requests for amounts exceeding $50,000
must be made in writing. In order to arrange for redemption by wire
or telephone after an account has been opened, or to change the bank
or account designated to receive redemption proceeds, a written
request must be sent to the transfer agent at the address listed
above. A signature guarantee is required of all shareholders in order
to qualify for or to change telephone redemption privileges. The
application contains appropriate information and instructions and a
form on which to make the signature guarantee.
Neither the Fund nor any of its service contractors will be
liable for any loss or expense in acting upon any telephone
instructions that are reasonably believed to be genuine. In
attempting to confirm that telephone instructions are genuine, the
Fund will use such procedures as are considered reasonable, including
requesting a shareholder to correctly state his or her Fund account
number, the name in which his or her account is registered, his or her
banking institution, bank account number and the name in which his or
her bank account is registered. To the extent that the Fund fails to
use reasonable procedures to verify the genuineness of telephone
instructions, it and/or its service contractors may be liable for any
such instructions that prove to be fraudulent or unauthorized.
During times of drastic economic or market changes, the telephone
redemption privilege may be difficult to implement. In the event that
you are unable to reach Rodney Square by telephone, you may make a
redemption request by mail. The Fund and Rodney Square each reserve
the right to refuse a wire or telephone redemption if it is believed
advisable to do so. Procedures for redeeming Fund shares by wire or
telephone may be modified or terminated at any time by the Fund.
The Fund also reserves the right to involuntarily redeem an
investor's account where the account is worth less than the minimum
initial investment required when the account is established, presently
$1,000. The shares will not be involuntarily redeemed solely due to
market fluctuations and the effect such fluctuations may have on an
investor's account balance. (Any redemption of shares from an
inactive account established with a minimum investment may reduce the
account below the minimum initial investment, and could subject the
account to redemption initiated by the Fund.) The Fund will advise
the shareholder of such intention in writing at least sixty (60) days
prior to effecting such redemption, during which time the shareholder
may purchase additional shares in any amount necessary to bring the
account back to the minimum.
If the Trustees determine that it would be detrimental to the
best interest of the remaining shareholders of the Fund to make
payment in cash, the Fund may pay the redemption price in whole or in
part by distribution in kind of readily marketable securities, from
the Fund, within certain limits prescribed by the SEC. Such
securities will be valued on the basis of the procedures used to
determine the net asset value at the time of the redemption. If
shares are redeemed in kind, the redeeming shareholder will incur
brokerage costs in converting the assets into cash.
RETIREMENT PLANS
Shares of the Fund are available for use in all types of tax-
deferred retirement plans such as IRA's, employer-sponsored defined
contribution plans (including 401(k) plans) and tax-sheltered
custodial accounts described in Section 403(b)(7) of the Internal
Revenue Code. Qualified investors benefit from the tax-free
compounding of income dividends and capital gains distributions.
Application forms and brochures describing investments in the Fund for
retirement plans can be obtained from the Fund by calling Rodney
Square at (800) 799-2113. The following is a description of the types
of retirement plans for which the Fund's shares may be used for
investment:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS")
Individuals, who are not active participants (and, when a joint
return is filed, who do not have a spouse who is an active
participant) in an employer maintained retirement plan are eligible to
contribute on a deductible basis to an IRA account. The IRA deduction
is also retained for individual taxpayers and married couples with
adjusted gross incomes not in excess of certain specified limits. All
individuals who have earned income may make nondeductible IRA
contributions to the extent that they are not eligible for a
deductible contribution. Income earned by an IRA account will
continue to be tax deferred. A special IRA program is available for
employers under which the employers may establish IRA accounts for
their employees in lieu of establishing tax qualified retirement
plans. Known as SEP-IRA's (Simplified Employee Pension-IRA), they
free the employer of many of the recordkeeping requirements of
establishing and maintaining a tax qualified retirement plan trust.
If you are entitled to receive a distribution from a qualified
retirement plan, you may rollover all or part of that distribution
into the Fund's IRA. Your rollover contribution is not subject to the
limits on annual IRA contributions. You can continue to defer Federal
income taxes on your contribution and on any income that is earned on
that contribution.
WTC makes available its services as an IRA Custodian for each
shareholder account that is established as an IRA. For these
services, WTC receives an annual fee of $10.00 per account, which fee
is paid directly to WTC by the IRA shareholder. If the fee is not
paid by the date due, shares of the Fund owned by the shareholder in
the IRA account will be redeemed automatically for purposes of making
the payment.
401(K) PLANS AND OTHER DEFINED CONTRIBUTION PLANS
The Fund's shares may be used for investment in defined
contribution plans by both self-employed individuals (sole
proprietorships and partnerships) and corporations who wish to use
shares of the Fund as a funding medium for a retirement plan qualified
under the Internal Revenue Code. Such plans typically allow investors
to make annual deductible contributions, which may be matched by their
employers up to certain percentages based on the investor's pre-
contribution earned income.
403(B)(7) RETIREMENT PLANS
The Fund's shares are also available for use by schools,
hospitals, and certain other tax-exempt organizations or associations
who wish to use shares of the Fund as a funding medium for a
retirement plan for their employees. Contributions are made to the
403(b)(7) Plan as a reduction to the employee's regular compensation.
Such contributions, to the extent they do not exceed applicable
limitations (including a generally applicable limitation of $9,500 per
year), are excludable from the gross income of the employee for
Federal Income tax purposes.
PERFORMANCE
Total return data may from time to time be included in
advertisements about the Fund. The Fund's total return may be
calculated on an annualized and aggregate basis for various periods
(which periods will be stated in the advertisement). Average annual
return reflects the average percentage change per year in value of an
investment in the Fund. Aggregate total return reflects the total
percentage change over the stated period.
To help investors better evaluate how an investment in the Fund
might satisfy their investment objective, advertisements regarding the
Fund may compare the Fund's investment performance to appropriate
market indexes such as the Standard & Poor's 500 Composite Stock Price
Index, the Standard & Poor's 400 MidCap Index or the unweighted Value
Line Index, which is composed of over 1,600 stocks in the Value Line
Investment survey. The Fund may also compare its investment
performance to appropriate mutual fund indexes; and the Fund may
advertise its ranking compared to other similar mutual funds as
reported by industry analysts such as Lipper Analytical Services, Inc.
All data will be based on the Fund's past investment results and
does not predict future performance. Investment performance, which
will vary, is based on many factors, including market conditions, the
composition of the investments in the Fund, and the Fund's operating
expenses. Investment performance also often reflects the risk
associated with the Fund's investment objective and policies. These
factors should be considered when comparing the Fund to other mutual
funds and other investment vehicles.
<PAGE>
[Outside cover -- divided into two sections]
INVESTMENT MANAGER THE
------------------ [OLSTEIN LOGO]
Olstein & Associates, L.P. FUNDS
4 Manhattanville Road
Purchase, New York 10577
DISTRIBUTORS
------------
Rodney Square Distributors, Inc.
(Subsidiary of Wilmington Trust Company)
1100 N. Market Street
Wilmington, Delaware 19890-0001
Olstein & Associates, L.P.
4 Manhattanville Road
Purchase, New York 10577
THE
SHAREHOLDER SERVICES [OLSTEIN LOGO]
-------------------- FINANCIAL
Rodney Square Distributors, Inc. ALERT
(Subsidiary of Wilmington Trust Company) FUND
1100 N. Market Street
Wilmington, Delaware 19890-0001
CUSTODIAN
---------
Wilmington Trust Company
1100 N. Market Street
Wilmington, Delaware 19890-0001
LEGAL COUNSEL
-------------
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
INDEPENDENT AUDITORS PROSPECTUS
-------------------- NOVEMBER 18, 1996
Ernst & Young LLP
One North Charles Street
Baltimore, MD 21201
OS01 11/96
THE OLSTEIN FINANCIAL ALERT FUND
a series of THE OLSTEIN FUNDS
4 Manhattanville Road
Purchase, NY 10577
(914) 397-7565
STATEMENT OF ADDITIONAL INFORMATION DATED NOVEMBER 18, 1996
The Olstein Funds (the "Trust") is an open-end management investment
company that currently offers one series of shares called The Olstein
Financial Alert Fund (the "Fund"). The Fund maintains a diversified portfolio
of investments selected in accordance with its investment objective and
policies.
Information about the Fund is included in a prospectus dated November 18,
1996 which may be obtained without charge from the Fund by writing to the
addresses or calling the telephone numbers listed below. No investment in
shares of the Fund should be made without first reading the prospectus.
INVESTMENT MANAGER
AND DISTRIBUTOR DISTRIBUTOR
-------------------------- ---------------------------------------
Olstein & Associates, L.P. Rodney Square Distributors, Inc.
4 Manhattanville Road (subsidiary of Wilmington Trust Company)
Purchase, NY 10577 1100 N. Market Street
(914) 397-7565 Wilmington, DE 19890-0001
(800) 799-2113
- ------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ IN CONJUNCTION WITH THE FUND'S PROSPECTUS DATED NOVEMBER 18, 1996. RETAIN
THIS STATEMENT OF ADDITIONAL INFORMATION FOR FUTURE REFERENCE.
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
THE OLSTEIN FINANCIAL ALERT FUND-INVESTMENTS...................... 3
PORTFOLIO TURNOVER................................................ 5
INVESTMENT RESTRICTIONS........................................... 5
INVESTMENT MANAGER................................................ 7
DISTRIBUTORS...................................................... 8
ADMINISTRATOR..................................................... 9
ALLOCATION OF PORTFOLIO BROKERAGE................................. 10
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............... 11
PURCHASE OF SHARES................................................ 12
REDEMPTIONS....................................................... 12
OFFICERS AND TRUSTEES OF THE FUND................................. 13
TAXATION.......................................................... 16
GENERAL INFORMATION............................................... 17
PERFORMANCE....................................................... 18
FINANCIAL STATEMENTS.............................................. 19
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND - INVESTMENTS
----------------------------------------------
The Fund seeks to achieve its objective by making investments selected in
accordance with the Fund's investment restrictions and policies. The Fund
will vary its investment strategy as described in the Fund's prospectus to
achieve its objective. This Statement of Additional Information contains
further information concerning the techniques and operations of the Fund, the
securities in which it will invest, and the policies it will follow.
COMMON STOCK
- ------------
Common stock is defined as shares of a corporation that entitle the
holder to a pro rata share of the profits of the corporation, if any, without
a preference over any other shareholder or class of shareholders, including
holders of the corporation's preferred stock and other senior equity. Common
stock usually carries with it the right to vote and frequently an exclusive
right to do so. Holders of common stock also have the right to participate in
the remaining assets of the corporation after all other claims are paid,
including those of debt securities and preferred stock.
PREFERRED STOCK
- ---------------
Generally, preferred stock receives dividends prior to distributions on
common stock and usually has a priority of claim over common stockholders if
the issuer of the stock is liquidated. Unlike common stock, preferred stock
does not usually have voting rights; preferred stock, in some instances, is
convertible into common stock. In order to be payable, dividends on preferred
stock must be declared by the issuer's board of directors. Dividends on the
typical preferred stock are cumulative, causing dividends to accrue even if
not declared by the board of directors. There is, however, no assurance that
dividends will be declared by the boards of directors of issuers of the
preferred stocks in which the Fund invests.
CONVERTIBLE SECURITIES
- ----------------------
Traditional convertible securities include corporate bonds, notes and
preferred stocks that may be converted into or exchanged for common stock, and
other securities that also provide an opportunity for equity participation.
These securities are generally convertible either at a stated price or a
stated rate (that is, for a specific number of shares of common stock or other
security). As with other fixed income securities, the price of a convertible
security to some extent varies inversely with interest rates. While providing
a fixed-income stream (generally higher in yield than the income derivable
from a common stock but lower than that afforded by a non-convertible debt
security), a convertible security also affords the investor an opportunity,
through its conversion feature, to participate in the capital appreciation of
the common stock into which it is convertible. As the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of
the underlying common stock increases, the price of a convertible security
tends to rise as a reflection of the value of the underlying common stock. To
obtain such a higher yield, the Fund may be required to pay for a
convertiblesecurity an amount in excess of the value of the underlying common
stock. Common stock acquired by the Fund upon conversion of a convertible
security will generally be held for so long as the Investment Manager
anticipates such stock will provide the Fund with opportunities which are
consistent with the Fund's investment objectives and policies.
WARRANTS
- --------
The Fund may invest in warrants, in addition to warrants acquired in
units or attached to securities. A warrant is an instrument issued by a
corporation which gives the holder the right to subscribe to a specified
amount of the issuer's capital stock at a set price for a specified period of
time.
OPTIONS
- -------
The Fund will only purchase options for hedging purposes and not for
speculation. In this regard, the Fund will only purchase call options on
securities which are sold short by the Fund. Purchasing call options allows
the Fund to hedge against an increase in the price of securities that are sold
short by the Fund, by locking in a future purchase price. Such options on
securities will generally be held no longer than the Fund maintains a short
position in the underlying security. Call options on securities give the Fund
the right, but not the obligation, to buy (call) a security at a fixed price
during a specified period. When purchasing call options, the Fund pays a non-
refundable premium to the party who sells (writes) the option. Following the
purchase of a call option, the Fund may liquidate its position by entering
into a closing transaction in which the Fund sells an option of the same
series as previously purchased.
AMERICAN DEPOSITORY RECEIPTS
- ----------------------------
The Fund may make foreign investments through the purchase and sale of
sponsored or unsponsored American Depository Receipts ("ADRs"). ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. The Fund
may purchase ADRs whether they are "sponsored" or "unsponsored." "Sponsored"
ADRs are issued jointly by the issuer of the underlying security and a
depository, whereas "unsponsored" ADRs are issued without participation of the
issuer of the deposited security. Holders of unsponsored ADRs generally bear
all the costs of such facilities and the depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
Therefore, there may not be a correlation between information concerning the
issuer of the security and the market value of an unsponsored ADR. ADRs may
result in a withholding tax by the foreign country of source which will have
the effect of reducing the income distributable to shareholders.
PORTFOLIO TURNOVER
------------------
Although the primary objective of the Fund is long term capital
appreciation, the Fund may sell securities to recognize gains or avoid
potential for loss. The Fund will sell any portfolio security (without regard
to the time it has been held) when the Investment Manager believes that market
conditions, credit-worthiness factors or general economic conditions warrant
such a step. The annualized portfolio turnover rate during the period since
the commencement of investment operations through August 31, 1996 was 139.77%.
This is higher than many other mutual funds. High portfolio turnover involves
additional transaction costs (such as brokerage commissions) which are borne
by the Fund, or adverse tax effects. See "Dividends, Capital Gains
Distributions and Taxes" in the prospectus.
INVESTMENT RESTRICTIONS
-----------------------
The Fund has adopted the Investment Restrictions set forth below in
addition to those discussed in the prospectus. Some of these restrictions are
fundamental policies of the Fund, and cannot be changed without the approval
of a majority of the outstanding voting securities. As provided in the
Investment Company Act of 1940 (the "1940 Act") a "vote of a majority of the
outstanding voting securities" means the affirmative vote of the lesser of
(i) more than 50% of the outstanding shares, or (ii) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy.
As a matter of fundamental policy, the Fund will not:
(a) as to 75% of the Fund's total assets, invest more than 5% of its
total assets in the securities of any one issuer (this limitation does not
apply to cash and cash items, or obligations issued or guaranteed by the
United States Government, its agencies or instrumentalities, or securities of
other investment companies.);
(b) purchase more than 10% of the voting securities, or more than 10%
of any class of securities, of any one issuer; for purposes of this
restriction, all outstanding fixed income securities of an issuer are
considered as one class;
(c) make short sales of securities in excess of 25% of the Fund's
total assets or purchase securities on margin except for such short-term
credits as are necessary for the clearance of transactions;
(d) purchase or sell commodities or commodity contracts;
(e) make loans of money or securities, except (i) by the purchase of
fixed income obligations in which the Fund may invest consistent with its
investment objective and policies; or (ii) by investment in repurchase
agreements (see "Investment Objectives and Policies");
(f) borrow money, except the Fund may borrow from banks (i) for
temporary or emergency purposes not in excess of 5% of the Fund's net assets,
or (ii) to meet redemption requests that might otherwise require the untimely
disposition of portfolio securities, in an amount up to 33 1/3 of the value of
the Fund's net assets at the time the borrowing was made;
(g) pledge, hypothecate, mortgage or otherwise encumber its assets,
except in an amount up to 33 1/3% of the value of its net assets, but only to
secure borrowings authorized in the preceding restriction; this restriction
does not limit the authority of the Fund to maintain accounts for short sales
of securities;
(h) purchase the securities of any issuer, if, as a result, more than
10% of the value of a Fund's net assets would be invested in securities that
are subject to legal or contractual restrictions on resale ("restricted
securities"), in any combination of securities for which there are no readily
available market quotations, or in repurchase agreements maturing in more than
seven days;
(i) engage in the underwriting of securities except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security;
(j) purchase or sell real estate or interests therein, although it may
purchase securities of issuers which engage in real estate operations and may
purchase and sell securities which are secured by interests in real estate;
therefore, the Fund may invest in publicly-held real estate investment trusts
or marketable securities of companies which may represent indirect interests
in real estate such as real estate limited partnerships which are listed on a
national exchange, however, the Fund will not invest more than 10% of its
assets in any one or more real estate investment trusts; and
(k) invest more than 25% of the value of the Fund's total assets in
one particular industry, except for temporary defensive purposes; for
purposes of this limitation, utility companies will be divided according to
their services (e.g. gas, electric, water and telephone) and each will be
considered a separate industry; this restriction does not apply to investments
in U.S. Government securities, and investments in certificates of deposit and
bankers' acceptances are not considered to the investments in the banking
industry.
Non-fundamental policies may be changed by the Board of Trustees, without
shareholder approval. As a matter of non-fundamental policy, the Fund will
not:
(a) purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which invest in or sponsor such
programs;
(b) invest for the purpose of exercising control or management of
another company;
(c) invest in securities of any open-end investment company, except in
connection with a merger, reorganization or acquisition of assets and except
that the Fund may purchase securities of money market mutual funds, but such
investments in money market mutual funds may be made only in accordance with
the limitations imposed by the 1940 Act and the rules thereunder, as amended;
(d) invest more than 5% of its total assets in securities of companies
having a record, together with predecessors, of less than three years of
continuous operation; this limitation shall not apply to U.S. Government
securities; and
So long as percentage restrictions are observed by the Fund at the time
it purchases any security, changes in values of particular Fund assets or the
assets of the Fund as a whole will not cause a violation of any of the
foregoing fundamental or non-fundamental restrictions.
INVESTMENT MANAGER
------------------
The Trust on behalf of the Fund has entered into an investment management
agreement with Olstein & Associates, L.P. (the "Investment Manager"),
effective as of August 18, 1995 (the "Investment Management Agreement"), for
the provision of investment advisory services, subject to the supervision and
direction of the Trust's Board of Trustees. Pursuant to the Investment
Management Agreement, the Fund is obligated to pay the Investment Manager a
monthly fee equal to an annual rate of 1% of the Fund's average daily net
assets. This fee is higher than that normally charged by funds with similar
investment objectives. The Investment Manager will voluntarily waive all or a
portion of its management fees if necessary, in an attempt to keep the total
operating costs of the Fund (excluding the items described below) within the
most stringent limits prescribed by any state in which the Fund's shares are
offered for sale. The most stringent current state restriction limits a
fund's allowable aggregate operating expenses (excluding interest, taxes,
brokerage commissions, extraordinary expenses such as litigation costs and
distribution plan expenses of up to 1% of average annual net assets) in any
fiscal year to 2.5% of the first $30 million of average annual net assets of
the Fund, 2% of the next $70 million of average annual net assets of the Fund,
and 1.5% of average annual net assets of the Fund in excess of $100 million.
The advisory fee payable to the Investment Manager in connection with the
services provided to the Fund for the period September 21, 1995 (commencement
of operations) through August 31, 1996 amounted to $887,728.
The Investment Management Agreement is initially effective for two years.
The Agreement may be renewed after its initial term only so long as such
renewal and continuance are specifically approved at least annually by the
Board of Trustees or by vote of a majority of the outstanding voting
securities of the Fund, and only if the terms of the renewal thereof have been
approved by the vote of a majority of the Trustees of the Fund who are not
parties thereto or interested persons of any such party (the "Independent
Trustees"), cast in person at a meeting called for the purpose of voting on
such approval. The Agreement will terminate automatically in the event of its
assignment.
The Investment Manager has twenty limited partners, who will receive a
portion of the income derived from the advisory fee received by the Investment
Manager. In addition, some of the limited partners are brokers or dealers
who may receive up-front commissions from the Investment Manager for sales of
Fund shares, distribution fees for ongoing marketing of Fund shares under a
Plan of Distribution adopted pursuant to Rule 12b- under the 1940 Act (the
"12b-1 Plan"), or compensation as broker-dealer employees of companies who
execute portfolio transactions for the Fund.
DISTRIBUTORS
------------
Rodney Square Distributors, Inc., a wholly owned subsidiary of Wilmington
Trust Company ("RSD"), and Olstein & Associates, L.P. ("Olstein & Associates")
act as distributors of the Fund's shares under a distribution agreement (the
"Distribution Agreement") approved by the Board of Trustees of the Trust on
behalf of the Fund. RSD and Olstein & Associates (together the
"Distributors") will assist in the sale and distribution of the Fund's shares
as well as assisting with the servicing of shareholder accounts.
Olstein & Associates has sole authority to enter into agreements with
Selling Dealers, and is responsible for the payment of any up-front
commissions and 12b-1 fees payable to Selling Dealers under selling dealer
agreements. RSD is responsible for evaluating and recommending prospective
selling dealers, maintaining its broker-dealer registration in all 50 states,
and assisting Rodney Square Management Corporation ("Rodney Square") and
Olstein & Associates in the preparation of reports relating to payments made
under the 12b-1 plan. The Distribution Agreement also provides that the
Distributors, in the absence of willful misfeasance, bad faith or gross
negligence in the performance of their duties or by reason of reckless
disregard of their obligations and duties under the agreement, will not be
liable to the Trust or its shareholders for losses arising in connection with
the sale of Fund shares.
The Distribution Agreement became effective as of August 18, 1995, and
will remain in effect for a period of two years. Thereafter, the Distribution
Agreement continues in effect from year to year as long as its continuance is
approved at least annually by a majority of the Trustees, including a majority
of the Independent Trustees or, by a vote of a majority of the outstanding
voting securities of the Fund. The Distribution Agreement terminates
automatically in the event of its assignment. The Distribution Agreement is
also terminable without payment of a penalty (i) as to the Distributors,
either together or individually, by the Fund (by vote of a majority of the
Independent Trustees or by a vote of the outstanding voting securities of the
Fund) on not less than sixty (60) days' written notice to the affected party;
or (ii) as to RSD, by Olstein & Associates upon sixty (60) days' written
notice to RSD and the Fund; or (iii) as to either Distributor's own
participation, by such Distributor upon sixty (60) days' written notice to the
affected parties.
DISTRIBUTION PLAN
- -----------------
As noted in the Fund's prospectus, the Fund has adopted a plan pursuant
to Rule 12b-1 under the 1940 Act (the "Plan") whereby the Fund will pay 1.00%
per annum of its average daily net assets to compensate the Distributors or
other persons for expenses incurred in connection with the distribution of the
Fund's shares and the servicing of shareholder accounts. The fees are paid on
a monthly basis, based on the Fund's average daily net assets. Included
within the 1.00% payable under the Plan is a 0.75% fee that may be paid to
persons as compensation for time spent and expenses incurred in the
distribution and promotion of the Fund's shares, including but not limited to,
sales calls and presentations to potential shareholders, the printing of
prospectuses and reports used for sales purposes, expenses of preparation and
printing of sales literature and related expenses, advertisements, and other
distribution-related expenses as well as any distribution or service fees paid
to securities dealers or others who have executed a dealer agreement with the
Distributor. In addition, the Plan includes a payment of 0.25% per annum of
average daily net assets of the Fund for shareholder servicing costs. Any
expense of distribution in excess of 1.00% per annum will be borne by the
Investment Manager without any reimbursement or payment by the Fund. During
the period September 21, 1995 (commencement of operations) through August 31,
1996, the Fund paid Olstein & Associates a total of $887,728 for expenses
incurred in connection with the distribution of the Fund's shares and the
servicing of shareholder accounts.
The Plan has been approved by the Trust's Board of Trustees, including
all of the Independent Trustees as defined in the 1940 Act. The Board of
Trustees has determined that a consistent cash flow resulting from the sale of
new shares is necessary and appropriate to meet redemptions and to take
advantage of buying opportunities without having to make unwarranted
liquidations of portfolio securities. The Board therefore believes that it
will likely benefit the Fund to have monies available for the direct
distribution activities of the Distributors in promoting the sale of the
Fund's shares, and to avoid any uncertainties as to whether other payments
constitute distribution expenses on behalf of the Fund. The Board of Trustees,
including the Independent Trustees, has concluded that in the exercise of
their reasonable business judgment and in light of their fiduciary duties,
there is a reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Plan must be renewed annually by the Board of Trustees,
including a majority of the Independent Trustees who have no direct or
indirect financial interest in the operation of the Plan, cast in person at a
meeting called for that purpose. It is also required that the selection and
nomination of such Trustees be done by the Independent Trustees.
The Plan and any related agreement may not be amended to increase
materially the amounts to be spent for distribution expenses without approval
by a majority of the Fund's outstanding shares, and all material amendments to
the Plan or any related agreements shall be approved by a vote of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on any such amendment.
The Distributors are required to report in writing to the Board of
Trustees, at least quarterly, on the amounts and purpose of any payment made
under the Plan, as well as to furnish the Board with such other information as
may reasonably be requested in order to enable the Board to make an informed
determination of whether the Plan should be continued.
ADMINISTRATOR
-------------
Rodney Square Management Corporation, 1100 North Market Street,
Wilmington, DE 19890-0001, provides certain administrative services to the
Fund pursuant to an Administrative Services Agreement.
Under the Administrative Services Agreement, the administrator: (1)
coordinates with the Custodian and monitors the custodial, transfer agency and
accounting services provided to the Fund; (2) coordinates with and monitors
any other third parties furnishing services to the Fund; (3) provides the Fund
with necessary office space, telephones and other communications facilities
and personnel competent to perform administrative and clerical functions; (4)
maintains such books and records of the Fund as may be required by applicable
federal or state law and supervises the maintenance of such books and records
if maintained by third parties; (5) prepares or supervises the preparation by
third parties of all federal, state and local tax returns and reports of the
Fund required by applicable law; (6) prepares and, after approval by the Fund,
files and arranges for the distribution of proxy materials and periodic
reports to shareholders of the Fund as required by applicable law; (7)
prepares and after approval by the Fund, arranges for the filing of such
registration statements and other documents with the Securities and Exchange
Commission (the "SEC") and other federal and state regulatory authorities as
may be required by applicable law; (8) reviews and submits to the officers of
the Trust for their approval invoices or other requests for payment of the
Fund's expenses and instructs the Custodian to issue checks in payment
thereof; (9) assists the Fund in the preparation of documents and information
needed for meetings of the Board of Trustees and prepares the minutes of Board
meetings; (10) monitors the Fund's compliance with applicable state securities
laws; (11) assists the Distributors with the review of advertising literature
and the submission of such advertising literature to the National Association
of Securities Dealers (the "NASD") for review and approval under applicable
NASD rules; (12) assists the Distributors with the preparation of quarterly
reports to the Board of Trustees relating to the distribution plan adopted by
the Fund pursuant to Rule 12b-1; and (13) takes such other action with respect
to the Fund as may be necessary in the opinion of the Administrator to perform
its duties under the agreement.
ALLOCATION OF PORTFOLIO BROKERAGE
---------------------------------
The Fund's portfolio securities transactions are placed by the Investment
Manager. The objective of the Fund is to obtain the best available prices in
its portfolio transactions, taking into account the costs, promptness of
executions and other qualitative considerations. There is no pre-existing
commitment to place orders with any broker, dealer or member of an exchange.
The Investment Manager evaluates a wide range of criteria in seeking the most
favorable price and market for the execution of transactions, including the
broker's commission rate, execution capability, positioning and distribution
capabilities, back office efficiency, ability to handle difficult trades,
financial stability, and prior performance in serving the Investment Manager
and its clients. In transactions on equity securities and U.S. Government
securities executed in the over-the-counter market, purchases and sales are
transacted directly with principal market-makers except in those circumstances
where, in the opinion of the Investment Manager, better prices and executions
are available elsewhere.
The Investment Manager, when effecting purchases and sales of portfolio
securities for the account of the Fund, will seek execution of trades either
(i) at the most favorable and competitive rate of commission charged by any
broker, dealer or member of an exchange, or (ii) at a higher rate of
commission charges, if reasonable, in relation to brokerage and research
services provided to the Fund or the Investment Manager by such member,
broker, or dealer. Such services may include, but are not limited to, any one
or more of the following: information as to the availability of securities
for purchase or sale, statistical or factual information, or opinions
pertaining to investments. The Investment Manager may use research and
services provided to it by brokers and dealers in servicing all its clients,
including the Fund, and not all such services will be used by the Investment
Manager in connection with the Fund. Brokerage may also be allocated to
dealers in consideration of the Fund's share distribution but only when
execution and price are comparable to that offered by other brokers. During
the period September 21, 1995 (commencement of operations) through August 31,
1996, the Fund paid $421,109 in brokerage commissions.
The Investment Manager, which is a member of the NASD and a broker-dealer
registered under the Securities Exchange Act of 1934, and certain other Fund
affiliates, may act as brokers to execute transactions for the Fund subject to
procedures set forth in Rule 17e-1 under the 1940 Act designed to ensure the
fairness of such transactions, which include making quarterly reports to the
Board of Trustees regarding such brokerage transactions. As a result, in
order for such persons to effect any portfolio transactions for the Fund on an
exchange, the commissions, fees or other remuneration received must be
reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time. This standard would allow the Investment Manager or other
affiliated brokers to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in an arm's-length
transaction of a like size and nature.
The Investment Manager may from time to time provide investment
management services to individuals and other institutional clients, including
corporate pension plans, profit-sharing and other employee benefit trusts, and
other investment pools. There may be occasions on which other investment
advisory clients advised by the Investment Manager may also invest in the same
securities as the Fund. When these clients buy or sell the same securities at
substantially the same time, the Investment Manager may average the
transactions as to price and allocate the amount of available investments in a
manner which it believes to be equitable to each client, including the Fund.
On the other hand, to the extent permitted by law, the Investment Manager may
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for other clients managed by it in order to obtain lower
brokerage commissions, if any.
The Investment Manager is responsible for making the Fund's portfolio
decisions subject to instructions described in the prospectus. The Board of
Trustees may however impose limitations on the allocation of portfolio
brokerage.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
---------------------------------------------------
As of October 31, 1996, the following shareholders were known to own of
record more than 5% of the outstanding shares of the Fund:
Name and Address Percentage Ownership
---------------- --------------------
Albert Fried Jr. 6.35%
40 Exchange Place
New York, NY 10005
PURCHASE OF SHARES
------------------
The shares of the Fund are continuously offered by the Distributors.
Orders will not be considered complete until receipt by Rodney Square and
acceptance by the Distributors of a completed account application form, and
receipt of payment for the shares purchased. Once the completed account
application and payment are received, orders will be confirmed at the next
determined net asset value (based upon valuation procedures described in the
prospectus) as of the close of business of the business day on which the
completed order is received. Completed orders received by the Fund after the
close of the business day will be confirmed at the next day's price.
REDEMPTIONS
-----------
Under normal circumstances investors may redeem shares at any time,
subject to any applicable contingent deferred sales charge ("CDSC").
Telephone redemption privileges are available, upon written request, for
amounts up to $50,000. The redemption price will be based upon the net asset
value per share next determined after receipt of the redemption request, less
the amount of any applicable CDSC, provided the redemption has been submitted
in the manner described below. The redemption price may be more or less than
your cost, depending upon the net asset value per share at the time of
redemption.
Payment for shares tendered for redemption is generally made by check
within seven days after tender in proper form, or earlier if required under
applicable law, except that the Fund reserves the right to suspend the right
of redemption, or to postpone the date of payment upon redemption beyond seven
days, (i) for any period during which the New York Stock Exchange (the "NYSE")
is closed, or trading on the NYSE is restricted by the SEC, (ii) for any
period during which an emergency exists as determined by the SEC as a result
of which disposal of securities owned by the Fund is not reasonably
predictable or it is not reasonably practicable for the Fund to fairly
determine the value of its net assets, or (iii) for such other periods as the
SEC may by order permit for the protection of shareholders of the Fund.
Pursuant to the Fund's Agreement and Declaration of Trust, payment for
shares redeemed may be made either in cash or in-kind, or partly in cash and
partly in-kind. However, the Fund has elected, pursuant to Rule 18f-1 under
the 1940 Act, to redeem its shares solely in cash up to the lesser of $250,000
or 1% of the net assets of the Fund, during any 90-day period for any one
shareholder. Payments in excess of this limit will also be made wholly in
cash unless the Board of Trustees believes that economic conditions exist
which would make such a practice detrimental to the best interests of the
Fund. Any portfolio securities paid or distributed in-kind would be valued as
described under "Net Asset Value." In the event that an in-kind distribution
is made, a shareholder may incur additional expenses, such as the payment of
brokerage commissions, on the sale or other disposition of the securities
received from the Fund. In-kind payments need not constitute a cross-section
of the Fund's portfolio. Where a shareholder has requested redemption of all
or a part of the shareholder's investment, and where the Fund completes such
redemption in-kind, the Fund will not recognize gain or loss for federal tax
purposes, on the securities used to complete the redemption but the
shareholder will recognize gain or loss equal to the difference between the
fair market value of the securities received and the shareholder's basis in
the Fund shares redeemed.
<PAGE>
OFFICERS AND TRUSTEES OF THE FUND
---------------------------------
The Trustees and principal executive officers and their principal
occupations for the past five years are listed below.
Position and Office Principal Occupation
Name and Address Age with the Trust during the Past Five Years
- ---------------- --- ------------------- --------------------------
Robert A. Olstein* 55 Chairman and President President, Olstein &
4 Manhattanville Road Associates, L.P., since
Purchase, NY 10577 1994; President, Olstein,
Inc. since June, 1994;
Senior Vice
President/Senior
Portfolio Manager,
Smith Barney Inc. from
1982 until 1994.
Neil C. Klarfeld* 51 Trustee Executive Vice
499 Park Avenue President, Park Tower
New York, NY 10022 Realty Corp., since
1979.
Fred W. Lange 63 Trustee President and Portfolio
199 Stanley Avenue Manager, Lange Staten
Island, NY 10301 Financial Services since
1972; Member of the
Board of Trustees of
Wagner College.
John Lohr 51 Trustee Principal, Lockwood
10 Valley Stream Parkway Financial Group Ltd.,
Malvern, PA 19355 since January 1996;
Attorney, sole
practitioner, from 1995
until 1996; Senior Vice
President, Smith Barney
Inc., from 1987 until
1995.
D. Michael Murray 56 Trustee President, Murray,
2715 M Street, NW, #300 Sheer & Montgomery,
Washington, DC 20007 since 1968.
Lawrence K. Wein 54 Trustee Managing Director of
55 Corporate Park Drive Global Transit Services,
Room 23D50 AT&T, Inc., since
Bridgewater, NJ 08807 1990.
- ---------------------
* Trustees who are "interested persons" as defined in the Investment
Company Act of 1940.
<PAGE>
Position and Office Principal Occupation
Name and Address Age with the Trust during the Past Five Years
- ---------------- --- ------------------- --------------------------
Erik K. Olstein* 29 Trustee, Secretary Vice President of Sales,
4 Manhattanville Road Assistant Treasurer Olstein & Associates,
Purchase, NY 10577 and Chief Compliance L.P. since 1994; Client
Officer Liaison, Smith Barney
Inc. from 1994 until
1995; Assistant OTC
Trader, Lehman
Brothers Inc. from 1993
until 1994; Officer and
Pilot, U.S. Navy from
1990 until 1993.
Michael Luper 27 Chief Accounting Vice President, Olstein
4 Manhattanville Road Officer and Treasurer & Associates, L.P. since
Purchase, NY 10577 1994; Client Liaison,
Smith Barney Inc. from
1994 until 1995; Auditor
(CPA), J. H. Cohn &
Company from 1991
until 1994.
Molly Graham 41 Assistant Secretary Senior Fund
1100 Nort Market St. Administrator, Rodney
Wilmington, DE 19890 Square Management
Corporation since 1993;
Legal Assistant, Clark,
Ladner, Fortenbaugh &
Young from 1991 until
1993.
John J. Kelley 37 Assistant Treasurer Vice President, Rodney
1100 North Market St. Square Management
Wilmington, DE 19890 Corporation since 1995;
Assistant Vice President,
Rodney Square
Management Corp. from
1989 until 1995.
The officers conduct and supervise the daily business operations of the
Trust, while the Trustees, in addition to the functions set forth under
"Investment Manager," and "Distribution of Shares" review such actions and
decide on general policy. Compensation to officers and Trustees of the Trust
who are affiliated with the Investment Manager is paid by the Investment
Manager and not by the Trust. Information relating to the compensation to be
paid to the Trustees of the Trust is set forth below:
- ---------------------
* Trustees who are "interested persons" as defined in the Investment
Company Act of 1940.
<PAGE>
TOTAL COMPENSATION FROM
TRUST AND FUND COMPLEX
NAME AND POSITION PAID TO TRUSTEES
- ----------------- -----------------------
Robert A. Olstein*
Chairman and President None
Erik K. Olstein*
Trustee, Secretary and Assistant Treasurer None
Neil C. Klarfeld*
Trustee None
Fred W. Lange
Trustee $4,000
John Lohr
Trustee $2,000
D. Michael Murray
Trustee $2,000
Lawrence K. Wein
Trustee $4,000
The interested Trustees of the Trust receive no compensation for their
service as Trustees. For their service as Trustees, the Independent Trustees
receive a $2,500 annual fee and $500 per meeting attended, as well as
reimbursement for expenses incurred in connection with attendance at such
meetings.
TAXATION
--------
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to so qualify, a fund must, among other things (i) derive
at least 90% of its gross income from dividends, interest, payments with
respect to certain securities loans, gains from the sale of securities or
foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; (ii) derive less than 30%
of its gross income from the sale or other disposition of stock or securities
or certain futures and options thereon held for less than three months ("short-
short gains"); (iii) distribute at least 90% of its dividends, interest and
certain other taxable income each year; and (iv) at the end of each fiscal
quarter maintain at least 50% of the value of its total assets in cash,
government securities, securities of other regulated investment companies, and
other securities of issuers which represent, with respect to each issuer, no
more than 5% of the value of a fund's total assets and 10% of the outstanding
voting securities of such issuer, and with no more than 25% of its assets
invested in the securities (other than those of the government or other
regulated investment companies) of any one issuer or of two or more issuers
which the Fund controls and which are engaged in the same, similar or related
trades and businesses.
- ---------------------
* Trustees who are "interested persons" as defined in the Investment
Company Act of 1940.
To the extent the Fund qualifies for treatment as a regulated investment
company, it will not be subject to federal income tax on income and net
capital gains paid to shareholders in the form of dividends or capital gains
distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distributions" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of a fund's ordinary
income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 plus undistributed
amounts from prior years. The Fund intends to make distributions sufficient
to avoid imposition of the excise tax. Distributions declared by the Fund
during October, November or December to shareholders of record during such
month and paid by January 31 of the following year will be taxable to
shareholders in the calendar year in which they are declared, rather than the
calendar year in which they are received.
Shareholders will be subject to federal income taxes on distributions
made by the Fund whether received in cash or additional shares of the Fund.
Distributions of net investment income and net short-term capital gains, if
any, will be taxable to shareholders as ordinary income. Distributions of net
long-term capital gains, if any, will be taxable to shareholders as long-term
capital gains, without regard to how long a shareholder has held shares of the
Fund. A loss on the sale of shares held for six months or less will be
treated as a long-term capital loss to the extent of any long-term capital
gain dividend paid to the shareholder with respect to such shares. Dividends
eligible for designation under the dividends received deduction and paid by
the Fund may qualify in part for the 70% dividends received deduction for
corporations provided, however, that those shares have been held for at least
45 days.
The Fund will notify shareholders each year of the amount of dividends
and distributions, including the amount of any distribution of long-term
capital gains, and the portion of its dividends which may qualify for the 70%
deduction.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and regulations. The Code and regulations are subject to change by
legislative or administrative action at any time, and retroactively.
Dividends and distributions also may be subject to state and local taxes.
Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state and local taxes.
In the case of a short sale, the taxable event occurs only when the stock
is delivered to close the short sale. If on the date of a short sale,
substantially identical property has been held by the Fund for not more than
one year, or if substantially identical property is acquired by the Fund after
such short sale and on or before the date of the closing thereof, then (i) any
gain on the closing of the short sale is considered short-term gain; and (ii)
the holding period of such substantially identical property is considered to
begin on the date of the closing of the short sale or the date of a sale or
other disposition of the property, if earlier. If on the date of such short
sale substantially identical property has been held by the Fund for more than
one year, any loss on the closing of such short sale is considered a long-term
loss even if the property delivered to close the short sale was held for not
more than one year. These rules may result in the elimination of the Fund's
holding period of stock or securities for purposes of the requirement that the
Fund must derive less than 30% of its gross income from the sale or
disposition of stock or securities held for less than three months. The
ability of the Fund to engage in short sales may be limited by application of
this 30% gross income requirement.
GENERAL INFORMATION
-------------------
AUDITS AND REPORTS
- ------------------
The financial statements of the Fund are audited each year by Ernst &
Young LLP of Baltimore, MD, independent auditors. Shareholders receive semi-
annual and annual reports of the Fund including the annual audited financial
statements and a list of securities owned.
CODE OF ETHICS
- --------------
The Fund has adopted a Code of Ethics for certain access persons of the
Trust, which includes its Trustees and certain officers and employees of the
Trust and the Investment Manager. The Code of Ethics is designed to ensure
that Fund insiders act in the interest of the Fund and its shareholders with
respect to any personal trading of securities. Under the Code of Ethics,
access persons are prohibited from knowingly buying or selling securities
which are being purchased, sold or considered for purchase or sale by the
Fund. The Code of Ethics contains even more stringent investment restrictions
and prohibitions for insiders who participate in the Fund's investment
decisions. The Code of Ethics also contains certain reporting requirements and
securities trading clearance procedures.
PERFORMANCE
-----------
Total return may be quoted in advertisements, shareholder reports or
other communications to shareholders. Total return is the total of all income
and capital gains paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price. Occasionally,
the Fund may include its distribution rate in advertisements. The
distribution rate is the amount of distributions per share made by the Fund
over a 12-month period divided by the current maximum offering price.
SEC rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by
the Fund be accompanied by certain standardized performance information
computed as required by the SEC. Total return quotations used by the Fund are
based on the standardized methods of computing performance mandated by the
SEC. An explanation of those and other methods used by the Fund to compute or
express performance follows.
As the following formula indicates, the average annual total return is
determined by multiplying a hypothetical initial purchase order of $1,000 by
the average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period less any fees charged to all shareholder accounts and
annualizing the result. The calculation assumes the maximum sales load is
deducted from the initial $1,000 purchase order and that all dividends and
distributions are reinvested at the public offering price on the reinvestment
dates during the period. The quotation assumes the account was completely
redeemed at the end of each one, five or ten-year periods and assumes the
deduction of all applicable charges and fees. According to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one, five or ten-year periods, determined at the
end of the one, five or ten-year periods (or a fractional portion
thereof).
The Fund's total return for the period from September 21, 1995
(commencement of operations) through August 31, 1996 was 12.22%.
Regardless of the method used, past performance is not necessarily
indicative of future results, but is an indication of the return to
shareholders only for the limited historical period used.
COMPARISONS AND ADVERTISEMENTS
- ------------------------------
To help investors better evaluate how an investment in a Fund might
satisfy their investment objective; advertisements, sales literature and other
shareholder communications regarding a Fund may discuss yield or total return
for such Fund as reported by various financial publications. Advertisements,
sales literature and shareholder communications may also compare yield or
total return to yield or total return as reported by other investments,
indices, and averages. The following publications, indices, and averages may
be used:
Barron's Personal Investor
Business Week Personal Investing News
CDA Investment Technologies, Inc. Russell 2000 Index
Kiplinger's Personal Finance Russell 2000 Value and Growth Indexes
Consumer Digest S&P 500 Composite Stock Price Index
Financial World S&P SmallCap 600 Index
Forbes S&P MidCap 400 Index
Fortune S&P/Barra Growth & Value Indexes
Investment Company Data, Inc. Success
Investor's Daily The New York Times
Lipper Mutual Fund Performance
Analysis U.S. News and World Report
Lipper Mutual Fund Indices USA Today
Money Wall Street Journal
Morningstar, Inc. Wiesenberger Investment Companies
Services
Mutual Fund Values Wilshire Medium & Small Cap Indexes
Nasdaq Indexes
A Fund may also from time to time along with performance advertisements,
present its investments, as of a current date, in the form of the "Schedule of
Investments" included in the Semi-Annual and Annual Reports to the
shareholders of the Trust.
FINANCIAL STATEMENTS
--------------------
The financial statements and financial highlights of the Fund for the
period September 21, 1995 (Commencement of Operations) through August 31, 1996
which appear in the Fund's Annual Report to Shareholders and the report
thereon by Ernst & Young LLP, the Fund's independent auditors, also appearing
therein, are incorporated by reference into this Statement of Additional
Information. The Annual Report may be obtained, without charge, by writing or
calling the Fund's Distributor at the address or number listed on the cover
page of this Statement of Additional Information.
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
PRESIDENT'S MESSAGE
- ---------------------------------------------------------------------------
DEAR SHAREHOLDER:
It has been almost a year since the inception of The Olstein Financial
Alert Fund (the "Fund"). Although it is tempting to focus on the Fund's
eleven-month performance, to do so goes against the basic tenet of our
longer-term philosophy. The Fund's investment philosophy is based on a
belief that investment performance conclusions should be reached over 3-5
year time periods. Investment analysts, including the Fund's investment
manager, Olstein & Associates, L.P (the "Manager") can provide little
expertise in terms of short-term price predictions for individual stocks or
the stock market in general. In fact, the Manager's methodology of buying
pessimism often results in short-term periods of lagging performance in
order to reach long-term capital gains objectives. Thus, we have become
more comfortable with client "hand holding" during periods of under-
performance rather than blowing our horn during short-term periods of
positive performance. Outlined below are some practical examples of the
Fund's investment philosophy over the past year.
BUYING PESSIMISM:
Wet Seal, Inc. was the Fund's largest percentage winner last year. During
four years of lean times and a poor business climate in the junior apparel
market, Wet Seal was able to generate excess cash flow and remain
conservatively financed with a large cash position and no debt. The
company operated at an almost break-even level while its competitors were
going bankrupt or reporting significant losses. In April 1995, Wet Seal
seized upon a major opportunity when it purchased Contempo Casuals from
Neiman Marcus for $1 million worth of Wet Seal stock. The Manager
calculated that Contempo would add approximately $230 million to Wet Seal's
$130 million sales base and offered significant potential for cost saving
by eliminating duplication. By analyzing Wet Seal's business performance
and financial information under difficult business conditions, the Manager
reached very positive conclusions about the quality of management. The
negativity surrounding the poor business climate in which Wet Seal operated
enabled the Fund to purchase the company at what the Manager believed was a
bargain price. When Wet Seal's business turned, the Fund was able to sell
its last shares at 350% above the purchase price.
It is a portfolio manager's job to be right over time, not all the time.
Portfolio managers are often pressured by their clients to provide
instantaneous gratification and to be right all the time. Ironically, the
analytical community's quest to be right all the time creates the
volatility and opportunities on which The Olstein Financial Alert Fund
thrives.
For example, the Fund recently made a significant commitment to the airline
industry, in particular, to Delta, Continental and United. The Manager
believes that the industry is entering into a prolonged period of cyclical
growth and that these companies are poised for potentially higher returns.
The Manager's inferential analysis of such airlines' financial statements
also indicates the potential for a prolonged period of excess cash flow.
In addition, the Manager believes that the conscious decision by airline
management to keep fleet capacity additions well within projected cash
flows may give the airlines pricing flexibility such as they have not
enjoyed during the past 30 years.
In the last few weeks, airline stock prices have declined due to increased
fuel prices, security concerns and quarterly earnings projections, all of
which the Manager views as short-term negative developments. While many
industry analysts lower expectations upon short-term negative developments
1
THE OLSTEIN FINANCIAL ALERT FUND
PRESIDENT'S MESSAGE -- CONTINUED
- ---------------------------------------------------------------------------
so as not to appear incorrect in the short term to institutional investors,
we believe that a portfolio manager should value companies and not attempt
to predict stock price movements over 90 day periods. In response to what
the Manager perceives as stock price movements created by analysts who
express opinions about 30-90 day time periods, the Manager adds to the
Fund's positions as stocks deviate further away from the Manager's
valuations and correspondingly reduces the Fund's percentage commitment to
individual securities as their prices gravitate toward the Manager's
valuations. Buying the pessimism that creates value is a lonely and
contrary thing to do. Instead of paying high prices for companies that are
currently providing investors with immediate excitement, publicity and
gratification, the Manager is willing to go through long, dark periods with
individual securities which are out of fashion, but are conservatively
financed, produce excess cash flow and represent good businesses selling at
a discount. In the Manager's opinion, buying pessimism represents a lower
risk methodology of achieving capital gains objectives. The Manager
believes that, despite short-term concerns, the airlines should be better
able to absorb normal cyclical fluctuations in their costs because of their
newly found pricing flexibility, and thus, the Manager is adding to the
Fund's airline holdings.
MOMENTUM INVESTORS:
Although the Manager's investment philosophy does not incorporate reacting
to predictions of broad stock market movements, current themes and fads
engulfing Wall Street are monitored. The Manager is concerned about the
momentum investors who have become fashionable over the past 5 years but
have yet to experience a prolonged period of negative market psychology.
There is a large population of newly-born bull market portfolio managers
running mutual funds who are buying momentum stocks and so-called concept
stocks. Momentum investors have created pockets of overvaluation in small
capitalization growth stocks and so-called concept stocks. In cases where
the financial statements indicate that a company is selling above the
Manager's calculation of private market value and there is some doubt as to
the financial statement's portrayal of economic reality, a small short sale
position may be established to allow the Fund to potentially realize a
profit should the company's stock price fall to the Manager's calculation
of private market value.+ For example, the Fund currently has a small
short position in America Online, as the Manager believes that the
company's method of accounting for marketing costs is not realistically
portraying the basic earnings power of the company. Momentum investors
have also made it more difficult to find undervalued securities, but until
these opportunities present themselves, the Fund will hold cash equivalents
(currently 15% of the Fund's assets).
The Manager does not want the Fund's shareholders to infer that any market
predictions are being made. A company by company orientation is used.
Should negative market psychology develop in general or in individual
securities which results in conservatively financed companies becoming
undervalued, the Manager will purchase these companies, despite the
negative psychology surrounding them.
STOCKS WITHIN OUR VALUE PARAMETERS:
Listed below are examples of unfashionable stocks currently falling into
the Manager's value parameters (WE RECOMMEND THAT YOU REVIEW THE ATTACHED
SCHEDULE OF INVESTMENTS TO DETERMINE THE ACTUAL PERCENTAGES OF THE FUND'S
PORTFOLIO REPRESENTED BY THESE SECURITIES):
SILICON VALLEY GROUP, INC., NOVELLUS SYSTEMS, INC. AND KLA INSTRUMENTS -
(semi-conductor equipment companies). Wall Street is concerned about an
earnings downturn lasting until 1998. We are impressed by their low
+ Short selling is a technique that may be considered speculative and
involves risk beyond the initial capital necessary to secure each
transaction. Please refer to the Fund's Prospectus for complete
information.
2
THE OLSTEIN FINANCIAL ALERT FUND
PRESIDENT'S MESSAGE -- CONTINUED
- ---------------------------------------------------------------------------
valuations, their high levels of cash, and their technological support to
semi-conductor companies which are experiencing a temporary setback during
what we believe is a sustained period of cyclical growth. Silicon Valley
Group is being capitalized in the market place at $500 million. Silicon
Valley has cash of $300 million and has stockholders such as Intel,
Motorola and Texas Instruments, Inc. who apparently believe in Silicon
Valley's technology. Similarly, cash represents 25% of the market
capitalization of companies such as Novellus Systems and KLA Instruments.
FLEETWOOD ENTERPRISES, INC. - (a manufacturer of mobile homes and
recreation vehicles). The population in the 45 to 64 year old category,
the prime purchasers of mobile and motor homes, is predicted to grow 47% in
the next 15 years compared to 1% for the remainder of the population.
Fleetwood is a leader in its field, generates excess cash each year, has no
debt, and just recently showed confidence in its future by tendering for
20% of its outstanding shares. Wall Street is concerned about a short-term
drop in backlogs and the recent selling of 2 million shares back to the
company by its 71 year-old Chairman for estate purposes. The Manager
believes that the company has an outstanding future and is selling at a 25%
discount to the Manager's calculation of private market value.
GENERAL MOTORS, CORP. - The Manager believes that the automobile company,
which generates excess cash flow, is being re-engineered by a bright
innovative management team. GM's Hughes subsidiary, which includes its
satellite, aerospace and DirecTV units, are worth $20 per GM share and
could be spun off shortly. The Manager also believes that the segments of
GM are being undervalued by the market because analysts are too focused on
daily automotive sales, the next recession, and strike talk.
BOWNE & CO., INC. - The company is the oldest and largest financial
printer in the U.S. and generates excess cash flow each year, has $35
million of excess cash sitting on its balance sheet and has earnings power,
which the Manager believes is above Wall Street's expectations. Wall
Street is worried about Bowne's past dependence on the printing derived
from Initial Public Offerings (IPO's). However, the Manager believes the
company has diversified into mutual fund printing and other high-end
corporate market endeavors which should soften Bowne's cyclicality. We
believe Wall Street again is too bearish and is not zeroing in on the fact
that Bowne is currently selling at a discount to the Manager's calculation
of private market value even under a no growth assumption.
MORE THAN PERFORMANCE STATISTICS:
We are pleased to report that the Fund had an aggregate return of 12.22%
since September 21, 1995 (the date the Fund commenced operations).* In our
Semi-Annual report, we based the comparison of the Fund's performance
against the Value Line Index, an unweighted index composed of over 1,700
stocks in the Value Line Investment Survey. However, over the past year we
have found that because the Standard & Poor's 500 Composite Index (S&P 500)
is used as a standard in the mutual fund industry for performance
statistics, many of our shareholders have indicated that they prefer the
S&P 500 as a basis of comparison. In response to this request from our
shareholders, we have chosen to use the S&P 500 as the comparative bench-
mark for measuring the Fund's relative performance. The S&P 500 is a
capitalization weighted index of five hundred larger capitalized stocks
designed to measure performance of the broad domestic economy through
changes in the aggregate market value of five hundred stocks representing
all major industries. Because the S&P 500 is a weighted index, the Manager
also thought it would be more informative to provide an unweighted index of
* 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.
3
THE OLSTEIN FINANCIAL ALERT FUND
PRESIDENT'S MESSAGE -- CONTINUED
- ---------------------------------------------------------------------------
mutual fund performance which consists of the average return of the 30
largest capital appreciation funds, rather than compare the Fund to the
unweighted Value Line Index. Lipper Analytical Services, the mutual fund
rating company which computes this index, classifies the Fund as a capital
appreciation fund. Below is a chart that represents the performance of the
Fund, the Lipper Capital Appreciation Funds Index, and the S&P 500 since
the Fund's inception on September 21, 1995.
[GRAPH]
Sep-95 Aug-96
------ ------
S&P 500 Index $10,000 $11,426
Lipper Index $10,000 $10,834
Olstein Financial
Alert Fund $10,000 $11,183
AGGREGATE RETURN
INCEPTION
Olstein Financial Alert(1) 12.22%
Lipper Index 8.34%
S&P 500(2) 14.25%
1 Includes all expenses and/or charges, and thus represents a "net return."
Total return assumes reinvestment of dividends and capital gains. 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.
2 S&P 500 return is adjusted upward to reflect reinvested dividends, but
does not reflect the deduction of any fees or expenses associated with
investment in the index, and thus represents a "gross return."
4
THE OLSTEIN FINANCIAL ALERT FUND
PRESIDENT'S MESSAGE -- CONTINUED
- ---------------------------------------------------------------------------
Performance statistics are seductive because they provide one of the few
objective elements for selecting investment vehicles. However, the Manager
believes that investors should also consider the risks taken by the
portfolio manager rather than focusing solely on returns. The Manager does
not subscribe to the more conventional measurement of risk that is based
purely on the price volatility of a stock. The Manager measures portfolio
risk by assessing the probability of the individual companies within the
portfolio losing more than 20% of their market value over three- to five-
year time periods. In assessing the probability of loss, a company's
financial strength, its ability to produce excess cash flow, the QUALITY OF
EARNINGS and the Manager's confidence in the predictability of earnings
based on the company's unique business fundamentals are analyzed. Losses
penalize returns more than profits help. A portfolio manager who shows an
increase of 80% in one year and loses 50% in the next year has lost 10% of
his shareholders' capital.
The cornerstone of The Olstein Financial Alert Fund's philosophy continues
to be that long term capital gains objectives may be achieved by avoiding
serious errors rather than taking the risk to find big winners. The Fund's
Manager is dedicated to looking into and behind the numbers contained in a
company's publicly available financial statements which may be
contradicting Wall Street's predictions and valuations. A thorough
analysis of these numbers should give the Fund an edge in either avoiding
potential losers or selecting stocks where stock market valuations are
below the Manager's calculation of private market values.
We look forward to continuing a close shareholder relationship and
encourage any questions or feedback.
Sincerely,
/s/ Robert A. Olstein
Robert A. Olstein
President
October 24, 1996
5
THE OLSTEIN FINANCIAL ALERT FUND
SCHEDULE OF INVESTMENTS AUGUST 31, 1996
- ----------------------------------------------------------------------------
VALUE
SHARES (NOTE 2)
------ --------
COMMON STOCK - 84.6%
COMMUNICATIONS & BROADCASTING - 1.0%
BET Holdings, Inc. (A Shares)*.......... 41,500 $ 1,063,437
-----------
FINANCE & INSURANCE - 5.1%
INSURANCE CARRIERS - 2.7%
MGIC Investment Corp.................... 25,000 1,584,375
Vesta Insurance Group, Inc.............. 33,500 1,293,938
-----------
2,878,313
-----------
STATE & NATIONAL BANKS - 2.4%
JSB Financial, Inc...................... 80,000 2,650,000
-----------
TOTAL FINANCE & INSURANCE......................... 5,528,313
-----------
MANUFACTURING - 63.0%
CHEMICALS & ALLIED PRODUCTS - 7.7%
Arcadian Corporation.................... 23,000 506,000
Century Aluminum Company................ 45,000 720,000
First Mississippi Corp.................. 68,000 1,827,500
IMC Global Inc.......................... 16,000 688,000
Learonal, Inc........................... 107,300 2,333,775
RPM, Inc................................ 77,000 1,232,000
Terra Industries, Inc................... 80,900 1,071,925
-----------
8,379,200
-----------
COMPUTER & OFFICE EQUIPMENT - 7.9%
Caere Corp.*............................ 28,140 252,381
Compaq Computer Corporation*............ 10,000 566,250
Intel Corp.............................. 20,500 1,636,156
International Business Machines
Corp.................................... 6,000 686,250
LSI Logic Corp.*........................ 150,000 3,281,250
LAM Research Corp.*..................... 25,000 590,625
Xerox Corp.............................. 29,000 1,591,375
-----------
8,604,287
-----------
FOOD & BEVERAGE - 0.6%
Canandaigua Wine Company*............... 30,000 690,000
-----------
FURNITURE & FIXTURES - 1.1%
Ethan Allen Interiors, Inc.............. 46,000 1,230,500
-----------
GLASS, CONCRETE & OTHER PRODUCTS - 2.9%
Centex Construction Products,
Inc.................................... 90,000 1,327,500
Giant Cement Holding, Inc.*............. 50,000 693,750
Southdown, Inc.......................... 50,000 1,162,500
-----------
3,183,750
-----------
VALUE
SHARES (NOTE 2)
------ --------
IRON & STEEL - 1.0%
Kentucky Electric Steel, Inc.*.......... 151,900 $ 1,082,288
-----------
MISC. ELECTRICAL MACHINERY, EQUIP. & SUPPLIES - 9.0%
AVX Corp................................ 82,600 1,548,750
Amphenol Corp. (A Shares)*.............. 81,000 1,589,625
Applied Materials, Inc.*................ 19,000 460,750
Park Electrochemical Corp............... 116,000 2,102,500
Silicon Valley Group, Inc.*............. 47,000 851,875
Teradyne, Inc.*......................... 70,000 1,085,000
Texas Instruments, Inc.................. 37,500 1,753,125
Varian Associates....................... 10,000 456,250
-----------
9,847,875
-----------
MISC. INDUSTRIAL MACHINERY & EQUIP. - 2.0%
Novellus Systems, Inc.*................. 21,500 811,625
Simpson Manufacturing
Company*............................. 71,800 1,364,200
-----------
2,175,825
-----------
MISCELLANEOUS MANUFACTURING INDUSTRIES - 3.1%
Chase Brass Industries, Inc.*........... 25,200 425,250
Kysor Industrial, Corp.................. 46,100 1,181,312
Pittway Corporation..................... 9,100 410,637
Pittway Corporation (A Shares).......... 17,900 841,300
Steel of West Virginia, Inc.*........... 82,500 536,250
-----------
3,394,749
-----------
PAPER & PAPER PRODUCTS - 0.8%
Boise Cascade Corp...................... 25,000 843,750
-----------
PHARMACEUTICAL PREPARATIONS - 3.3%
American Home Products Corp............. 14,000 829,500
Merck & Co., Inc........................ 20,000 1,312,500
Pharmacia & Upjohn, Inc................. 21,500 903,000
Warner-Lambert Co....................... 10,000 595,000
-----------
3,640,000
-----------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES - 1.5%
KLA Instruments*........................ 40,000 790,000
Nellcor Puritan Bennet, Inc.*........... 33,000 849,750
-----------
1,639,750
-----------
PRINTING & PUBLISHING - 1.4%
Bowne & Co., Inc........................ 76,800 1,526,400
-----------
TELECOMMUNICATIONS EQUIPMENT - 1.4%
Adaptec, Inc.*.......................... 14,000 698,250
Rogers Corp.*........................... 30,700 767,500
-----------
1,465,750
-----------
The accompanying notes are an integral part of the financial statements.
6
THE OLSTEIN FINANCIAL ALERT FUND
SCHEDULE OF INVESTMENTS - CONTINUED AUGUST 31, 1996
- ----------------------------------------------------------------------------
VALUE
SHARES (NOTE 2)
------ --------
TEXTILES & APPAREL - 3.6%
Barry (R.G.) Corp.*..................... 55,125 $ 757,969
Liz Claiborne, Inc...................... 34,000 1,181,500
Quiksilver, Inc.*....................... 85,000 1,997,500
-----------
3,936,969
-----------
TRANSPORTATION - 8.8%
Continental Airlines, Inc.
(B Shares)*............................. 139,000 3,144,875
Delta Air Lines, Inc..................... 44,500 3,153,938
Florida East Coast Industries, Inc....... 20,305 1,652,319
UAL Corp.*.............................. 34,500 1,656,000
-----------
9,607,132
-----------
TRANSPORTATION EQUIPMENT - 6.9%
Coachmen Industries, Inc................ 28,600 532,675
Echlin, Inc............................. 43,900 1,338,950
Fleetwood Enterprises, Inc.............. 105,000 2,913,750
General Motors Corp..................... 10,404 517,599
Harley-Davidson, Inc.................... 22,400 918,400
Monaco Coach Corp.*..................... 25,000 331,250
TRW Inc................................. 4,500 416,250
Winnebago Industries, Inc............... 64,900 527,313
-----------
7,496,187
-----------
TOTAL MANUFACTURING............................... 68,744,412
-----------
MINING - 0.9%
Giant Industries Inc.................... 63,300 949,500
-----------
SERVICES - 10.7%
AMUSEMENT & RECREATION SERVICES - 2.4%
Bally Entertainment Corporation*........ 55,200 1,504,200
Walt Disney Co.......................... 19,500 1,111,500
-----------
2,615,700
-----------
BUSINESS SERVICES - 4.8%
Hvide Marine, Inc....................... 30,000 356,250
Kelly Services, Inc., Class A........... 24,000 684,000
The Olsten Corp......................... 15,000 418,125
Sotheby's Holdings, Inc. (A Shares)..... 241,995 3,750,922
-----------
5,209,297
-----------
COMPUTER SERVICES - 1.3%
Santa Cruz Operation, Inc.*............. 216,300 1,487,063
-----------
MEDICAL & HEALTH SERVICES - 2.0%
Healthcare Compare Corp.*............... 50,000 2,137,500
-----------
VALUE
SHARES (NOTE 2)
------ --------
PERSONAL SERVICES - 0.2%
Hilton Hotels Corp...................... 2,500 $ 267,187
-----------
TOTAL SERVICES.................................... 11,716,747
-----------
WHOLESALE & RETAIL TRADE - 3.9%
MISCELLANEOUS RETAIL STORES - 0.8%
Home Shopping Network, Inc.*............ 80,300 863,225
-----------
RETAIL APPAREL & ACCESSORY STORES - 1.7%
Kenneth Cole Productions, Inc.*......... 95,000 1,852,500
-----------
RETAIL DEPARTMENT STORES - 0.9%
Strawbridge & Clothier (A Shares)....... 55,200 993,600
-----------
RETAIL EATING & DRINKING PLACES - 0.5%
Buffets Inc.*........................... 20,500 281,875
Hometown Buffet Inc.*................... 16,000 248,000
-----------
529,875
-----------
TOTAL WHOLESALE & RETAIL TRADE.................... 4,239,200
-----------
TOTAL COMMON STOCK
(COST $90,603,981)............................... 92,241,609
-----------
MUTUAL FUNDS - 0.9%
Scudder Managed Cash Fund
(COST $940,961)........................ 940,961 940,961
-----------
PAR VALUE
(000) (NOTE 2)
U.S. GOVERNMENT AGENCY ----- --------
OBLIGATIONS - 14.8%
Federal Home Loan Banks, 5.17%,
09/04/96............................... $1,505 $ 1,504,352
Federal Home Loan Banks, 5.19%,
09/05/96............................... 3,750 3,747,837
Federal National Mortgage Assoc.,
5.22%, 09/06/96........................ 6,225 6,220,487
Federal National Mortgage Assoc.,
5.23%, 09/12/96........................ 4,695 4,687,497
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $16,160,173).............................. 16,160,173
-----------
The accompanying notes are an integral part of the financial statements.
7
THE OLSTEIN FINANCIAL ALERT FUND
SCHEDULE OF INVESTMENTS - CONTINUED AUGUST 31, 1996
- ----------------------------------------------------------------------------
PAR VALUE
(000) (NOTE 2)
------ --------
COMMERCIAL PAPER - 0.8%
American Express, 5.25%, 09/03/96
(COST $886,738)......................... $887 $ 886,738
-----------
SHARES
TOTAL INVESTMENTS ------
(COST $108,591,853) - 101.1%......................... 110,229,481
-----------
DEPOSITS WITH BROKERS &
CUSTODIAN BANK FOR
SECURITIES SOLD SHORT - 1.4%
Cash.................................... 75,942
General Motors Corp.
(COST $1,321,116)...................... 29,596 1,472,401
-----------
1,548,343
-----------
RECEIVABLES FROM BROKERS FOR
SECURITIES SOLD SHORT - 1.5%......................... 1,607,902
-----------
SECURITIES SOLD SHORT
(PROCEEDS $1,607,902) - (1.4)%........................ (1,488,338)
-----------
OTHER ASSETS AND LIABILITIES,
NET - (2.6)%......................................... (2,892,634)
-----------
NET ASSETS - 100.0%................................... $109,004,754
============
*Non-income producing security.
The accompanying notes are an integral part of the financial statements.
8
THE OLSTEIN FINANCIAL ALERT FUND
SCHEDULE OF SECURITIES SOLD SHORT AUGUST 31, 1996
- ----------------------------------------------------------------------------
VALUE
SHARES (NOTE 2)
------ --------
SCHEDULE OF SECURITIES
SOLD SHORT - (1.4)%
FINANCE - (0.1)%
Olympic Financial Ltd................... 2,000 $ 49,000
-----------
MANUFACTURING - (0.3)%
Carrington Laboratories, Inc............ 2,000 47,000
Copytele, Inc........................... 7,500 46,875
Hondo Oil and Gas Co.................... 10,000 152,500
Summit Technology, Inc.................. 5,000 33,125
-----------
TOTAL MANUFACTURING............................... 279,500
-----------
SERVICES - (0.7)%
America Online, Inc..................... 5,000 151,250
Discovery Zone, Inc..................... 32,900 12,338
Medaphis Corp........................... 12,000 151,500
Organogenesis, Inc...................... 7,300 126,837
Orthodontic Centers of America,
Inc..................................... 5,000 188,750
Stratosphere Corporation................ 30,000 60,000
Wellcare Management Group............... 10,500 106,313
-----------
TOTAL SERVICES.................................... 796,988
-----------
WHOLESALE & RETAIL TRADE - (0.3)%
Circuit City Stores, Inc................ 4,500 141,750
Foxmeyer Health Corporation............. 45,900 183,600
Today's Man. Inc........................ 25,000 37,500
-----------
TOTAL WHOLESALE & RETAIL TRADE.................... 362,850
-----------
TOTAL SECURITIES SOLD SHORT
(PROCEEDS $1,607,902)........................... $1,488,338
===========
The accompanying notes are an integral part of the financial statements.
9
THE OLSTEIN FINANCIAL ALERT FUND
STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1996
- --------------------------------------------------------------------------
ASSETS:
Investments in securities (identified cost
$108,591,853) (Note 2).............................. $110,229,481
Deposits with brokers and custodian bank for
securities sold short (Note 3)...................... 1,548,343
Receivable from brokers for securities sold short..... 1,607,902
Dividends and interest receivable..................... 117,131
Receivable for investments sold....................... 155,645
Unamortized organization costs........................ 101,691
------------
Total assets...................................... 113,760,193
------------
LIABILITIES:
Securities sold short (proceeds: $1,607,902)
(Note 3)............................................ 1,488,338
Payable for investments purchased..................... 2,814,074
Due to Investment Manager (Note 4).................... 91,897
Other accrued expenses (Note 4)....................... 285,188
Other liabilities..................................... 75,942
------------
Total liabilities................................. 4,755,439
------------
NET ASSETS............................................ $109,004,754
============
NET ASSETS CONSIST OF:
Accumulated net investment loss....................... $(606,294)
Net unrealized appreciation of investments
(Note 3)............................................ 1,788,913
Net unrealized appreciation on securities
sold short.......................................... 119,564
Accumulated net realized gain......................... 9,251,179
Accumulated net realized gain from securities
sold short.......................................... 75,942
Shares of beneficial interest......................... 9,726
Additional paid-in capital............................ 98,365,724
------------
NET ASSETS, for 9,726,021 shares outstanding.......... $109,004,754
============
NET ASSET VALUE and redemption price per share
($109,004,754 / 9,726,021 outstanding shares
of beneficial interest, $0.001 par value)........... $11.21
======
The accompanying notes are an integral part of the financial statements.
10
THE OLSTEIN FINANCIAL ALERT FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 21, 1995+
THROUGH
AUGUST 31, 1996
-----------------
INVESTMENT INCOME:
Income:
Dividends......................................... $862,683
Interest.......................................... 693,034
------------
1,555,717
------------
EXPENSES:
Management fee (Note 4)............................. 887,728
Distribution expenses (Note 4)...................... 887,728
Custodian fee (Note 4).............................. 32,328
Transfer Agent fee (Note 4)......................... 36,229
Administration fee (Note 4)......................... 105,817
Accounting fee (Note 4)............................. 44,252
Trustees' fees and expenses (Note 4)................ 13,000
Amortization of organizational expenses............. 23,705
Legal............................................... 21,500
Audit............................................... 12,100
Shareholders report fees............................ 17,976
Registration fees................................... 44,045
Dividend expense for securities sold short.......... 135
Miscellaneous....................................... 35,468
------------
Total expenses........................................ 2,162,011
------------
Net investment loss................................... (606,294)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions...... 9,352,900
Net realized gain on securities sold short........ 75,942
Net unrealized appreciation of investments........ 1,788,913
Net unrealized appreciation on securities
sold short...................................... 119,564
------------
Net gain on investments............................. 11,337,319
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... $ 10,731,025
============
+ Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
11
THE OLSTEIN FINANCIAL ALERT FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 21, 1995+
THROUGH
AUGUST 31, 1996
-----------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss................................. $(606,294)
Net realized gain on investment transactions........ 9,352,900
Net realized gain on securities sold short.......... 75,942
Net unrealized appreciation of investments.......... 1,788,913
Net unrealized appreciation on securities
sold short........................................ 119,564
------------
Net increase in net assets resulting from
operations........................................ 10,731,025
------------
Distributions to shareholders from:
Net realized capital gains ($0.011 per share)....... (101,721)
------------
Increase in net assets from Fund share transactions
(Note 5)............................................ 98,275,450
------------
Increase in net assets................................ 108,904,754
NET ASSETS:
Beginning of period................................. 100,000
------------
End of period....................................... $109,004,754
============
+ Commencement of Operations.
The accompanying notes are an integral part of the financial statements.
12
THE OLSTEIN FINANCIAL ALERT FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------
The following table includes selected data for a share outstanding for
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+
THROUGH
AUGUST 31, 1996
-------------------
NET ASSET VALUE - BEGINNING OF PERIOD $10.00
------
Investment Operations:
Net investment loss..................... (0.07)
Net realized and unrealized gain
on investments......................... 1.29
------
Total from investment operations..... 1.22
------
DISTRIBUTIONS:
From net realized gain on investments... (0.01)
------
Total distributions............... (0.01)
------
NET ASSET VALUE - END OF PERIOD.......... $11.21
======
TOTAL RETURN++........................... 12.22%
Ratios (to average net assets)/Supplemental Data:
Expenses............................... 2.43%*
Net investment loss.................... (0.68)%*
Portfolio turnover rate.................. 139.77%*
Average commission rate paid............. $0.0592
Net assets at end of period
(000 omitted).......................... $109,005
+ Commencement of Operations.
++ The total return for the period has not been annualized and does not
reflect any deferred sales charge.
* Annualized.
The accompanying notes are an integral part of the financial statements.
13
THE OLSTEIN FINANCIAL ALERT FUND
NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------
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, the security 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 has been
provided.
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.
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
August 31, 1996, purchases and sales of investment securities (excluding
securities sold short and short-term investments) aggregated as follows:
Purchases......................... $131,386,240
Sales............................. 106,905,193
14
THE OLSTEIN FINANCIAL ALERT FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- ---------------------------------------------------------------------------
The following balances for the Fund are as of August 31, 1996:
COST FOR NET TAX BASIS TAX BASIS GROSS TAX BASIS GROSS
FEDERAL INCOME UNREALIZED UNREALIZED UNREALIZED
TAX PURPOSES APPRECIATION APPRECIATION DEPRECIATION
-------------- -------------- -------------- --------------
$111,392,334 $309,548 $7,620,459 $7,310,911
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,
U.S. Government securities or other liquid assets sufficient to
collateralize the market value of its short positions. The Fund limits
the value of short positions to 25% of the Fund's net assets. At August
31, 1996, the Fund had 1.4% of its net assets in short positions. For
the period ended August 31, 1996, the cost of investments purchased to
cover short sales and the proceeds from those investments sold short
were $3,096,971 and $3,172,913, 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 August 31, 1996, the Fund incurred investment management fees of
$887,728.
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 August 31, 1996 amounted to $105,817.
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
15
THE OLSTEIN FINANCIAL ALERT FUND
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- ---------------------------------------------------------------------------
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
August 31, 1996, fees paid by the Fund pursuant to the 12b-1 Plan
amounted to $887,728.
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.
During the period September 21, 1995 (Commencement of Operations)
through August 31, 1996, the Fund paid total brokerage commissions of
$67,434 to affiliated broker dealers in connection with purchases and
sales of investment securities.
5.Fund Shares. At August 31, 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 AUGUST 31, 1996
-----------------------
SHARES AMOUNT
------ ------
Shares sold.......................... 10,157,265 $103,041,971
Shares issued to shareholders in
reinvestment of distributions....... 9,956 101,256
Shares redeemed...................... (451,200) (4,867,777)
---------- ------------
Net increase......................... 9,716,021 $ 98,275,450
============
Shares outstanding:
Beginning of period.................. 10,000
----------
End of period........................ 9,726,021
==========
+ Commencement of Operations.
16
THE OLSTEIN FINANCIAL ALERT FUND
REPORT OF INDEPENDENT AUDITORS
- ---------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Trustees of The Olstein Financial Alert Fund:
We have audited the accompanying statement of assets and liabilities,
including the schedules of investments and securities sold short, of The
Olstein Financial Alert Fund as of August 31, 1996, and the related
statements of operations and changes in net assets, and financial
highlights for the period September 21, 1995 (Commencement of Operations)
through August 31, 1996. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 1996 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of The Olstein Financial Alert Fund at August 31, 1996, the results of its
operations, the changes in its net assets, and its financial highlights for
the period September 21, 1995 (Commencement of Operations) through August
31, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Baltimore, Maryland
September 27, 1996
17
THE OLSTEIN FINANCIAL ALERT FUND
TAX INFORMATION
- ------------------------------------------------------------------------
During the period ended August 31, 1996, the Fund paid a distribution of
$0.011 per share from net short-term capital gains.
In January 1997, shareholders of the Fund will receive Federal income
tax information on all distributions paid to their accounts in the
calendar year 1996. Please consult a tax advisor if you have any
questions about federal or state income tax laws, or how to prepare your
tax return.
18
<PAGE>
[Outside cover -- divided into two sections]
TRUSTEES THE
------------------ [OLSTEIN LOGO]
Robert A. Olstein, Chairman FUNDS
Neil C. Clarfeld
Fred W. Lange
John Lohr
D. Michael Murray
Erik K. Olstein
Lawrence K. Wein
INVESTMENT MANAGER
--------------------------
Olstein & Associates, L.P.
4 Manhattanville Road
Purchase, New York 10577
(914) 397-7565
THE
DISTRIBUTORS [OLSTEIN LOGO]
-------------------- FINANCIAL
Rodney Square Distributors, Inc. ALERT
(Subsidiary of Wilmington Trust Company) FUND
&
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 ANNUAL REPORT
-------------------------- AUGUST 31, 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.
OS06 10/96
