THE OLSTEIN FINANCIAL ALERT FUND
- --------------------------------
PRESIDENT'S MESSAGE
- -------------------
DEAR SHAREHOLDER:
INVESTING ON AUTOPILOT:
It always amazed me to observe many wedding invitees
maintaining the same dance step, regardless of the change in
music. It is remarkable that, despite the many changes I have
experienced in the economic environment during my 29 years in the
investment business, many investors continue to fall into the
same investment trap.
Back in the 1970s most American investors chose their own
stocks one at a time and believed that you never sell as long as
the companies in the portfolio were sound. At the time, holders
of Polaroid, Xerox and Eastman Kodak had just gone through a
remarkable decade of outstanding investment gains following this
philosophy. At one time in 1972, Polaroid reached a price that
valued the company at 100 times earnings, and investors were
nevertheless provided with the rationale as to why the stock was
"cheap". The bear market of 1973 and 1974 which followed
completely destroyed the investment myth of "one-decision"
investing. In many instances an investor had to wait over 20
years for some of the "nifty fifty," one-decision stocks in their
portfolio (which included some of the biggest and best names in
corporate America) to reach the purchase prices that were paid in
1972.
In the early 90's, many investors asked mutual fund managers
to select securities for them in hopes of increasing their return
in an environment of falling interest rates. Now, as the longest
bull market in history continues without a meaningful decline,
investors are increasingly deciding that they no longer need
(nor should they pay for) such managers to find securities with
the best potential relative to the risk taken. Instead, they are
investing in mutual funds whose only purpose is to mimic the
performance of the stock market and charge low fees. Risk
assessment is completely removed from the investment process.
Known as "index funds," these investment vehicles hold shares
in companies that make up a well-recognized market index such as
the Standard & Poor's 500 Composite Index (S&P 500). In essence,
these funds do invest mindlessly, run on "autopilot," and
guarantee that, except for the minimal cost of running the fund,
will do no worse than the index that they define as the proxy
for the stock market.
"MINDLESS" INVESTING:
Mindless investing has risks that an investor should be
unwilling to accept. As a student of history, I can recall that
time after time, mindless investing has proven to be a high risk
investment process. An investor needs only to be reminded of the
Penn Central Railroad, once a pillar of the American economic
system, that went bankrupt in l970.
Exuberant over investment results during the last 6 years,
many investors have come to believe that all that is required to
make money is to be in the market. Index funds have grown in
popularity. A recent(1) article in "The New York Times" noted
that, on an average over the last 3 years, index funds that track
the S&P 500 have performed better for their shareholders than did
93% of stock funds actively managed by investment
professionals. Based on these results and press accolades, many
novice investors have mistakenly reached conclusions about the
safety of these investments. In fact, while index funds have
recently done well, there have been long periods in the past when
actively managed stock funds outperformed the index. For
example, in the five year period ended December 31, 1982, 80% of
the actively managed portfolios performed better than the S&P
500(1).
There is a major difference between a fund matching a market
average and a risk-free investment. As more and more money has
poured into these vehicles, the individual securities included in
the index are purchased automatically with no valuation or
assessment. As a result, the index becomes higher and higher,
and individual securities (similar to the early 1970s) within the
funds, although maybe great companies, begin to reach levels of
overvaluation.
Many recent investors have never experienced a bear market.
Unlike a general stock fund, an index fund cannot hold cash or
other instruments to protect itself against a market decline or
overvalued stocks. In addition, index funds are weighted by the
market value of companies. Thus, fluctuations in the largest
stocks such as General Electric, Coca Cola, Intel, etc. have an
oversized effect on the fluctuation in the fund. While Olstein &
Associates, L.P., (the "Manager") believes that Intel is still
undervalued despite sizable appreciation over the past few years,
the Manager believes that the index movement is creating pockets
of overvaluation in stocks such as General Electric and Coca Cola
which are prominent in the index.
THE FUND'S MISSION:
The mission of The Olstein Financial Alert Fund (the "Fund")
is to potentially provide shareholders with returns that exceed
alternative low risk treasury securities and reward our
shareholders for taking the risks of investing in equities. The
Manager does not purport to compete against any market index
which someone defines as a proxy for the stock market, and
believes that attempts at both defining and predicting the stock
market should be viewed as an exercise in futility better left to
the philosophers of the world. The Manager's investment focus is
on identifying individual stocks which sell at a discount to the
Manager's proprietary calculation of the company's private market
value. The Manager does not share the media's obsession with
comparing performance on a daily, quarterly, or annual basis with
either market indices or other funds. The Manager believes that
long-term capital gains objectives are achieved by paying
attention to the price one pays for securities as opposed to the
willingness to pay any price for a good company. The Fund
embraces the philosophy that a "good" company can be a "bad"
stock if you pay the wrong price. At the end of its Semi-Annual
period, the Fund held approximately 20% of its portfolio in short-
term U. S. Treasury securities waiting to be invested in stocks
that sell at discounts to the Manager's assessment of value,
rather than mindlessly remaining fully invested. If being
cautious results in underperforming an index for a period of
time, the Manager is willing to accept this penalty.
The new breed of mindless investing products such as index
funds, the "Dogs of the Dow," and similarly designed products
entail risk by the very fact that the financial statements of the
companies are not being examined by a professional. The low fees
match the effort being provided to investors to assess the values
of the companies in the portfolio. On the other hand,
shareholders of The Olstein Financial Alert Fund are more
interested in playing defense first; having a professional
continually monitoring the financial health of the companies in
the portfolio, and diversifying their risk over a large portfolio
of securities rather than take the risk of concentration.
In 1996, the S&P 500 appreciated 22.9%. Few investors
realize how concentrated the performance of the S&P 500 has been.
For example, the aforementioned "New York Times" article noted
that last year, 25 of the largest stocks in the S&P 500 that
account for one-third of the value of the Index rose 37%.
Therefore, according to our calculations, the other 475 stocks
collectively were up 16%. Thus, when one calculates a simple
average (unweighted with respect to market capitalization) of the
appreciation of the 500 stocks comprising the S&P 500, the
average appreciation falls to 17% from the reported 22.9%
weighted average. Of course, if and when the stock market, or
the current index investment theme reverses itself, the larger
companies in the Index could have the opposite impact on the S&P
500. Liquidations by index funds, or individual investors and
portfolio managers who deem the securities of these larger
companies to be overvalued, could result in a magnified effect on
index funds. The Manager believes that such concentration,
especially in the form of mindless investing, increases
investment risks.
THE RISK/REWARD RATIO:
The Olstein Financial Alert Fund was one of the few funds to
outperform the S&P 500 in 1996 (24.4% vs. 22.9% respectively)*.
However, the Manager continues to believe that investment results
should be measured over 5 and 10-year periods rather than one-
year intervals. I am proud of the fact that the results were
achieved with approximately 20% of the Fund invested in short-
term U. S. Treasury securities, waiting for equity securities to
decline to prices that improved the Manager's assessment of a
risk/reward ratio. The Fund's cash position provided
shareholders with a potential hedge against a reversal in market
psychology, yet the Manager was still able to provide the Fund's
shareholders with a satisfactory return. Even if the Fund had
underperformed the S&P 500, the Manager believes that the Fund's
shareholders should be willing to pay the price for such
prudence. Included with this letter is a chart illustrating the
hypothetical value of a $10,000 investment made at the Fund's
inception.
The Manager will continue to apply the principle of assessing
risk before considering upside potential on a stock-by-stock
basis. This is the cornerstone of the Fund's investment
philosophy. Mindless investing entails too much risk. The
Manager is unyielding in its dedication to hands-on investing
which emphasizes playing defense first in its quest to achieve
the Fund's shareholders' capital gains objectives.
Although there may be some bumps along the way, the Manager
believes that the Fund's portfolio holdings are structured to
achieve the Fund's objectives over the ensuing 3 - 5 year period.
Your trust is greatly appreciated.
Sincerely,
Robert A. Olstein
President
April 1, 1997
* The Fund's total returns for inception (September 21, 1995)
and for the 1 year period ending March 31, 1997 were 22.47%
and 33.27%, respectively. 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.
(1) January 28, 1997, "Riding Wall Street on Autopilot: Indexed
Funds Draw Investors", p.D1, Edward Wyatt
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT*
The table displays, on a quarterly basis, the Fund's net
asset value per share, distributions, and the value of $10,000
invested in the Fund at the time of its inception. (Assumes all
dividends were reinvested and no shares were redeemed.)
<TABLE>
<CAPTION>
VALUE OF SHARES OWNED,
NET ASSET VALUE IF INTIAL
DATE PER SHARE DIVIDENDS INVESTMENT WAS $10,000
---- --------------- --------- -----------------------
<C> <C> <C> <C>
9/21/95 $10.00 $10,000
9/30/95 10.01 10,010
12/31/95 10.25 $0.011 10,261
3/31/96 10.87 10,881
6/30/96 11.45 11,461
9/30/96 11.70 11,711
12/31/96 11.71 1.032 12,753
3/31/97 12.23 13,327
<FN>
* The above chart assumes no redemptions. Redemptions may be
subject to a Contingent Deferred Sales Charge if made within
two years of the investment of such funds. The Fund's total
returns for inception (September 21, 1995) and for the 1 year
period ending March 31, 1997 were 22.47% and 33.27%,
respectively. 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.
</FN>
</TABLE>
<PAGE>
THE OLSTEIN FINANCIAL ALERT
- ---------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
------ --------
<S> <C> <C>
COMMON STOCK - 78.8%
COMMUNICATIONS & BROADCASTING - 0.9%
BET Holdings, Inc. (A Shares)*.......... 41,500 $ 1,219,063
-------------
FINANCE & INSURANCE - 4.0%
INSURANCE CARRIERS - 1.8%
Chubb Corp.............................. 5,000 293,125
MGIC Investment Corp.................... 27,500 2,162,188
------------
2,455,313
------------
SECURITIES & COMMODITIES BROKERS,
DEALERS & SERVICES - 0.6%
Paine Webber Group, Inc................. 25,000 815,625
------------
STATE & NATIONAL BANKS - 1.6%
JSB Financial, Inc...................... 56,000 2,229,500
------------
TOTAL FINANCE & INSURANCE ........................ 5,500,438
------------
MANUFACTURING - 57.8%
CHEMICALS & ALLIED PRODUCTS - 5.3%
IMC Global Inc.......................... 53,500 1,865,813
Learonal, Inc........................... 112,400 2,711,650
Mississippi Chemical Corp............... 52,712 1,291,444
Terra Industries, Inc................... 99,900 1,361,138
------------
7,230,045
------------
COMMUNICATION EQUIPMENT - 1.3%
General Instrument Corp.*............... 75,000 1,781,250
------------
COMPUTER & OFFICE EQUIPMENT - 3.9%
Compaq Computer Corp. *................. 10,000 792,500
Hewlett-Packard Co...................... 7,000 392,000
Intel Corp.+............................ 22,500 3,192,187
LSI Logic Corp.*........................ 28,400 979,800
------------
5,356,487
------------
FURNITURE & FIXTURES - 1.2%
Ethan Allen Interiors, Inc.............. 35,000 1,605,625
------------
GAMES & TOYS - 0.5%
Mattel, Inc............................. 26,700 664,162
------------
GLASS, CONCRETE & OTHER PRODUCTS - 3.1%
Centex Construction Products, Inc....... 85,900 1,460,300
Giant Cement Holding, Inc.*............. 83,000 1,348,750
Southdown, Inc.......................... 42,000 1,501,500
------------
4,310,550
------------
MISCELLANEOUS ELECTRICAL MACHINERY,
EQUIPMENT & SUPPLIES - 7.1%
Amphenol Corp. (A Shares)*.............. 66,500 $ 1,695,750
Applied Materials, Inc.*................ 15,000 759,375
Park Electrochemical Corp............... 77,000 1,876,875
Robbins & Myers, Inc.................... 43,400 1,193,500
Scotsman Industries, Inc................ 42,500 1,184,687
Silicon Valley Group, Inc.*............. 32,000 684,000
Teradyne, Inc.*......................... 22,500 613,125
Texas Instruments, Inc.................. 9,000 694,125
Varian Associates, Inc.................. 17,500 1,010,625
------------
9,712,062
------------
MISCELLANEOUS INDUSTRIAL MACHINERY
& EQUIPMENT - 3.3%
Harnischfeger Industries, Inc........... 10,000 438,750
LSI Industries, Inc..................... 73,000 967,250
Simpson Manufacturing Co.*.............. 61,800 1,575,900
Tidewater, Inc.......................... 35,000 1,505,000
------------
4,486,900
------------
MISCELLANEOUS MANUFACTURING INDUSTRIES - 2.5%
Kysor Industrial, Corp.................. 41,700 1,782,675
Pittway Corp............................ 7,600 397,100
Pittway Corp. (A Shares)................ 15,900 842,700
Steel of West Virginia, Inc.*........... 58,200 381,938
------------
3,404,413
------------
PAPER & PAPER PRODUCTS - 1.7%
Boise Cascade Corp...................... 72,500 2,383,437
------------
PHARMACEUTICAL PREPARATIONS - 2.1%
Merck & Co., Inc........................ 9,000 828,000
Pharmacia & Upjohn, Inc................. 33,500 1,235,313
Warner-Lambert Co....................... 10,000 840,000
------------
2,903,313
------------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 0.9%
Eastman Kodak Co........................ 14,000 1,254,750
------------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES - 1.7%
Depuy, Inc.*............................ 49,200 1,057,800
KLA Instruments*........................ 15,000 625,313
Theragenics Corp.*...................... 26,300 627,912
------------
2,311,025
------------
PRINTING & PUBLISHING - 4.3%
Bowater, Inc............................ 15,000 635,625
Bowne & Co., Inc........................ 145,000 3,915,000
Meredith Corp........................... 27,500 1,347,500
------------
5,898,125
------------
TELECOMMUNICATIONS EQUIPMENT - 0.7%
Adaptec, Inc.*.......................... 17,000 $ 647,062
HSN, Inc.*.............................. 13,500 347,625
------------
994,687
------------
TEXTILES & APPAREL - 5.4%
Donna Karan International, Inc.*........ 300,800 3,609,600
Liz Claiborne, Inc...................... 25,000 1,012,500
Quiksilver, Inc.*....................... 110,000 2,750,000
------------
7,372,100
------------
TRANSPORTATION - 7.6%
Continental Airlines, Inc.
(B Shares)*+.......................... 64,000 1,832,000
Delta Air Lines, Inc. .................. 31,000 2,495,500
Florida East Coast Industries, Inc...... 12,000 1,171,500
Northwest Airlines Corp. (A Shares)..... 109,500 3,873,562
UAL Corp.*.............................. 17,500 993,125
------------
10,365,687
------------
TRANSPORTATION EQUIPMENT - 5.2%
Fleetwood Enterprises, Inc.............. 126,000 3,276,000
General Motors Corp.+................... 58,500 3,385,689
Monaco Coach Corp.*..................... 26,000 520,000
------------
7,181,689
------------
TOTAL MANUFACTURING............................... 79,216,307
------------
MINING - 0.7%
Giant Industries, Inc................... 69,000 957,375
------------
SERVICES - 9.0%
AMUSEMENT & RECREATION SERVICES - 0.3%
Harrah's Entertainment, Inc.*........... 25,000 462,500
------------
BUSINESS SERVICES - 5.8%
ABM Industries, Inc..................... 66,500 1,246,875
Hvide Marine, Inc.*..................... 112,000 2,324,000
RMH Teleservices, Inc.*................. 25,500 184,875
Sotheby's Holdings, Inc. (A Shares)..... 165,000 2,805,000
VeriFone, Inc.*......................... 40,000 1,390,000
------------
7,950,750
------------
MEDICAL & HEALTH SERVICES - 1.5%
Conmed Corp.*........................... 37,500 740,625
Healthcare Compare Corp.*............... 31,000 1,323,312
------------
2,063,937
------------
PERSONAL SERVICES - 1.4%
Hilton Hotels Corp...................... 75,200 1,889,400
------------
TOTAL SERVICES.................................... 12,366,587
------------
WHOLESALE & RETAIL TRADE - 6.4%
RETAIL APPAREL & ACCESSORY STORES - 3.2%
Kenneth Cole Productions, Inc.*......... 45,600 $ 894,900
Loehmann's Holdings, Inc.*.............. 90,000 1,434,375
Urban Outfitters, Inc.*................. 187,500 2,132,813
------------
4,462,088
------------
RETAIL DEPARTMENT STORES - 0.9%
The Wet Seal, Inc.*..................... 60,000 1,192,500
------------
RETAIL EATING & DRINKING PLACES - 0.5%
Buffets, Inc............................ 100,220 720,331
------------
RETAIL FURNITURE & APPLIANCE STORES - 0.6%
La-Z-Boy, Inc........................... 23,000 796,375
------------
WHOLESALE ELECTRONIC EQUIPMENT
& COMPUTERS - 1.2%
Tandy Corp.............................. 32,500 1,637,187
------------
TOTAL WHOLESALE & RETAIL TRADE.................... 8,808,481
------------
TOTAL COMMON STOCK
(Cost $94,616,358).............................. 108,068,251
------------
MUTUAL FUNDS - 0.6%
Scudder Managed Cash Fund
(COST $809,446)....................... 809,446 809,446
------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 21.4%
Federal Home Loan Banks,
5.21%, 3/14/97....................... $6,500 $ 6,487,771
Federal Home Loan Mtge. Corp.,
5.15%, 03/04/97....................... 4,288 4,286,160
Federal National Mtge. Assoc.,
5.14%, 03/03/97....................... 1,730 1,729,506
Federal National Mtge. Assoc.,
5.12%, 03/05/97....................... 3,325 3,323,108
Federal National Mtge. Assoc.,
5.12%, 03/06/97....................... 3,330 3,327,632
Federal National Mtge. Assoc.,
5.20%, 03/07/97....................... 5,595 5,590,151
Federal National Mtge. Assoc.,
5.20%, 03/11/97....................... 4,655 4,648,276
-----------
TOTAL U.S. GOVERNMENT
Agency Obligations
(Cost $29,392,604).............................. 29,392,604
-----------
TOTAL INVESTMENTS
(COST $124,818,408) - 100.8%.................... 138,270,301
RECEIVABLES FROM BROKERS FOR
SECURITIES SOLD SHORT - 1.8%.......................... 2,523,701
-----------
SECURITIES SOLD SHORT
(PROCEEDS $2,458,107) - (1.6)%........................ (2,165,338)
-----------
OTHER ASSETS AND LIABILITIES,
NET - (1.0)% ......................................... (1,441,505)
-----------
NET ASSETS - 100.0% .................................. $137,187,159
------------
<FN>
* Non-income producing securities.
+ A portion of these securities were pledged to cover collateralization
requirements on open short sale transactions. (See Note 3 of Notes to
Financial Statements). At the period end securities pledged amounted to
$2,729,060.
</FN>
SECURITIES SOLD SHORT - (1.6)%
FINANCE - (0.4%)
Aames Financial Corp.................... 4,500 $ 135,563
Credit Acceptance Corp.................. 5,000 106,250
Olympic Financial Ltd................... 15,000 165,000
WFS Financial, Inc...................... 7,000 103,250
------------
TOTAL FINANCE..................................... 510,063
------------
MANUFACTURING - (0.2%)
Advanced Fibre Communications........... 3,000 97,500
Centennial Technologies, Inc............ 10,000 27,500
Hondo Oil and Gas Co.................... 10,000 120,000
North American Vaccine, Inc............. 4,000 90,500
------------
TOTAL MANUFACTURING............................... 335,500
------------
SERVICES - (0.4%)
BTG, Inc................................ 7,200 144,000
Medaphis Corp........................... 4,000 39,750
Organogenesis, Inc...................... 10,000 221,250
Wellcare Management Group, Inc.......... 13,000 97,500
------------
TOTAL SERVICES................................... 502,500
------------
WHOLESALE & RETAIL TRADE - (0.6%)
Best Buy Co., Inc....................... 10,000 92,500
Boston Chicken, Inc..................... 5,000 163,750
Cylink Corp............................. 12,300 150,675
Edison Brothers Stores ................. 37,600 61,100
Foxmeyer Health Corporation............. 84,600 105,750
Movie Gallery, Inc...................... 5,000 53,750
Today's Man, Inc........................ 25,000 93,750
U.S. Office Products Co................. 3,000 96,000
------------
TOTAL WHOLESALE & RETAIL TRADE.................... 817,275
------------
TOTAL SECURITIES SOLD SHORT
(PROCEEDS $2,458,107)................................. $ 2,165,338
------------
</TABLE>
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
================================
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
===============================================
<TABLE>
<C> <C>
ASSETS:
Investments in securities (identified cost $124,818,408) (Note 2) ........ $ 138,270,301
Receivables from brokers for securities sold short ....................... 2,523,701
Dividends and interest receivable ........................................ 152,454
Receivables for investments sold ......................................... 2,105,925
Receivables for capital shares sold....................................... 136,005
Unamortized organization costs ........................................... 82,089
Other Assets.............................................................. 12,992
-------------
Total assets ............................................................ 143,283,467
-------------
LIABILITIES:
Securities sold short (proceeds: $2,458,107) (Note 3) .................... 2,165,338
Payable for investments purchased ........................................ 3,301,458
Due to Investment Manager (Note 4) ....................................... 215,139
Other accrued expenses (Note 4) .......................................... 414,373
-------------
Total liabilities ....................................................... 6,096,308
-------------
NET ASSETS ............................................................... $ 137,187,159
=============
NET ASSETS CONSIST OF:
Accumulated net investment loss .......................................... $ (362,917)
Net unrealized appreciation of investments (Note 3) ...................... 13,451,892
Net unrealized appreciation on securities sold short ..................... 292,769
Accumulated net realized gain ............................................ 9,351,691
Shares of beneficial interest ............................................ 11,089
Additional paid-in capital ............................................... 114,442,635
-------------
NET ASSETS, for 11,089,322 shares outstanding ............................ $ 137,187,159
=============
NET ASSET VALUE and offering price per share ($137,187,159 / 11,089,322
outstanding shares of beneficial interest, $0.001 par value) $12.37
======
</TABLE>
STATEMENT OF OPERATIONS (UNAUDITED)
===================================
<TABLE>
<CAPTION>
FOR THE SIX-MONTH
PERIOD ENDED
FEBRUARY 28, 1997
(UNAUDITED)
------------------
<S> <C>
INVESTMENT INCOME:
Income:
Dividends.............................................................. $ 486,870
Interest............................................................... 609,634
-------------
1,096,504
-------------
EXPENSES:
Management fee (Note 4) ................................................. 609,917
Distribution expenses (Note 4) .......................................... 609,917
Custodian fee (Note 4) .................................................. 21,189
Transfer Agent fee (Note 4) ............................................. 27,688
Administration fee (Note 4) ............................................. 72,561
Accounting fee (Note 4) ................................................. 32,147
Trustees' fees and expenses (Note 4) .................................... 9,009
Amortization of organizational expenses ................................. 12,437
Legal.................................................................... 5,703
Audit.................................................................... 13,419
Shareholders report fees ................................................ 8,265
Registration fees ....................................................... 15,512
Dividend expense for securities sold short .............................. 135
Miscellaneous ........................................................... 21,522
-------------
Total expenses ........................................................... 1,459,421
-------------
Net investment loss ...................................................... (362,917)
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions .......................... 11,047,661
Net realized loss on securities sold short ............................ (209,804)
Net unrealized appreciation of investments ............................ 11,662,979
Net unrealized appreciation on securities sold short .................. 173,205
-------------
Net gain on investments ................................................. 22,674,041
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $ 22,311,124
==============
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
===================================
<TABLE>
<CAPTION>
FOR THE SIX-MONTH FOR THE PERIOD
PERIOD ENDED SEPTEMBER 21, 1995+
FEBRUARY 28, 1997 THROUGH
(UNAUDITED) AUGUST 31, 1996
----------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss...................................................... $ (362,917) $ (606,294)
Net realized gain on investment transactions............................. 11,047,661 9,352,900
Net realized gain (loss) on securities sold short ....................... (209,804) 75,942
Net unrealized appreciation of investments............................... 11,662,979 1,788,913
Net unrealized appreciation on securities sold short .................... 173,205 119,564
------------- -------------
Net increase in net assets resulting from operations .................... 22,311,124 10,731,025
------------- -------------
Distributions to shareholders from:
Net realized capital gains ($1.032 and $0.011 per share, respectively) .. (10,206,993) (101,721)
------------ -------------
Increase in net assets from Fund share transactions (Note 5) ............. 16,078,274 98,275,450
------------ -------------
Increase in net assets ................................................... 28,182,405 108,904,754
NET ASSETS:
Beginning of period ..................................................... 109,004,754 100,000
------------ -------------
End of period ........................................................... $ 137,187,159 $109,004,754
============= =============
<FN>
+ Commencement of Operations.
</FN>
</TABLE>
<PAGE>
THE OLSTEIN FINANCIAL ALERT
===========================
FINANCIAL HIGHLIGHTS
====================
The following table includes selected data for a share outstanding for the Fund
throughout each period and other performance information derived from the
financial statements. It should be read in conjunction with the financial
statements and notes thereto.
<TABLE>
<CAPTION>
FOR THE SIX-MONTH FOR THE PERIOD
PERIOD ENDED SEPTEMBER 21, 1995+
FEBRUARY 28, 1997 THROUGH
(UNAUDITED) AUGUST 31, 1996
------------------ -------------------
<S> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD.................... $11.21 $10.00
INVESTMENT OPERATIONS:
Net investment loss..................................... (0.03) (0.07)
Net realized gain on investments........................ 2.22 1.29
------ ------
Total from investment operations..................... 2.19 1.22
------ ------
DISTRIBUTIONS:
From net realized gains................................. (1.03) (0.01)
------- ------
Total distributions............................... (1.03) (0.01)
------- ------
NET ASSET VALUE - END OF PERIOD.......................... $12.37 $11.21
======= =======
TOTAL RETURN++........................................... 20.11% 12.22%
Ratios (to average net assets)/Supplemental Data:
Expenses................................................ 2.39%* 2.43%*
Net investment income (loss)............................ (0.60)%* (0.68)%*
Portfolio turnover rate.................................. 149.56%* 139.77%*
Average commission rate paid............................. $0.0600 $0.0592
Net assets at end of period (000 omitted)................ $137,187 $109,005
<FN>
+ Commencement of Operations.
++ The total return for each period has not been annualized and does not
reflect any deferred sales charge.
* Annualized.
</FN>
</TABLE>
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
=========================================
1.DESCRIPTION OF THE FUND. The Olstein Financial Alert Fund
(the "Fund") is the first series of The Olstein Funds (the
"Trust"), a Delaware business trust organized on March 31,
1995. The Fund is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end
diversified management investment company. The primary
investment objective of the Fund is long-term capital
appreciation with a secondary objective of income. The Fund
commenced investment operations on September 21, 1995.
2.SIGNIFICANT ACCOUNTING POLICIES. The following is a summary
of the significant accounting policies of the Fund:
SECURITY VALUATION. The Fund's securities, except short-term
investments with remaining maturities of 60 days or less, are
valued at their market value as determined by their last sale
price in the principal market in which these securities are
normally traded. Lacking any sales, 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 continue 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 six-
month period ended February 28, 1997, purchases and sales of
investment securities (excluding securities sold short and
short-term investments) aggregated as follows:
PURCHASES................... $75,098,841
SALES....................... 83,035,633
The following balances for the Fund are as of February 28,
1997:
<TABLE>
<CAPTION>
COST FOR NET TAX BASIS TAX BASIS GROSS TAX BASIS GROSS
FEDERAL INCOME UNREALIZED UNREALIZED UNREALIZED
TAX PURPOSES APPRECIATION APPRECIATION DEPRECIATION
-------------- -------------- --------------- ----------------
<C> <C> <C> <C>
$124,998,258 $13,272,043 $16,282,953 $3,010,910
</TABLE>
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 February 28, 1997, the Fund had 1.6% of its
net assets in short positions. For the six-month period ended
February 28, 1997, the cost of investments purchased to cover
short sales and the proceeds from those investments sold short
were $3,032,737 and $2,822,933, 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 six-
month period ended February 28, 1997, the Fund incurred
investment management fees of $609,917.
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 six-month
period ended February 28, 1997 amounted to $72,561.
Rodney Square also serves as Transfer and Dividend Paying
Agent for the Fund pursuant to a Transfer Agent Agreement with
the Trust dated August 18, 1995. WTC serves as Custodian of
the assets of the Trust.
Rodney Square Distributors, Inc. ("RSD"), a wholly owned
subsidiary of WTC, and Olstein & Associates (together the
"Distributors") have entered into a distribution and
underwriting agreement with the Fund dated August 18, 1995,
under which the Distributors act as co-underwriters to engage
in activities designed to assist the Fund in securing
purchasers for its shares. The Fund has adopted a Shareholder
Servicing and Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act (the "12b-1 Plan"). Amounts paid under the 12b-1
Plan may compensate the Distributors or others for the
activities in the promotion and distribution of the Fund's
shares and for shareholder servicing. The total amount which
the Fund will pay under the 12b-1 Plan is 1.00% per annum of
the Fund's average daily net assets. For the six-month period
ended February 28, 1997, fees paid by the Fund pursuant to the
12b-1 Plan amounted to $609,917.
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 six-month period ending February 28, 1997, the Fund
paid total brokerage commissions of $98,812 to affiliated
broker dealers in connection with purchases and sales of
investment securities.
5.FUND SHARES. At February 28, 1997, 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:
<TABLE>
<CAPTION>
FOR THE SIX-MONTH
PERIOD ENDED FOR THE PERIOD
FEBRUARY 28, 1997 SEPTEMBER 21,1995+
(UNAUDITED) THROUGH AUGUST 31, 1996
------------------ -----------------------
<S> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Shares sold...... 759,359 $9,157,901 10,157,265 $103,041,971
Shares issued to
shareholders in
reinvestment of
distributions.... 873,315 10,182,851 9,956 101,256
Shares
redeemed......... (269,373) (3,262,478) (451,200) (4,867,777)
--------- ----------- ---------- -----------
Net increase..... 1,363,301 $16,078,274 9,716,021 $ 98,275,450
============ =============
Shares outstanding:
Beginning of
period.......... 9,726,021 10,000
--------- ------
End of period.... 11,089,322 9,726,021
========== =========
<FN>
+COMMENCEMENT OF OPERATIONS.
</FN>
</TABLE>
<PAGE>
[Outside cover -- divided into two sections]
TRUSTEES THE
------------------ [OLSTEIN LOGO]
Robert A. Olstein, Chairman FUNDS
Neil C. Klarfeld
Fred W. Lange
John Lohr
D. Michael Murray
Erik K. Olstein
Lawrence K. Wein
INVESTMENT MANAGER
--------------------------
Olstein & Associates, L.P.
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 SEMI-ANNUAL REPORT
-------------------------- FEBRUARY 28, 1997
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.
OS07 4/97
