THE OLSTEIN FINANCIAL ALERT FUND
President's Message
- -------------------------------------------------------------------------------
WE'D RATHER BE RICH THAN FAMOUS: UNDERSTANDING THE RISKS TAKEN
TO ACHIEVE PERFORMANCE
DEAR SHAREHOLDER:
We are pleased to report that the Fund's total return was
43.61% for the fiscal year ended August 31, 1997. * Although
Olstein & Associates, L.P. (the "Manager") is pleased with the
Fund's performance, the Manager is more gratified with the
conservative approach towards risk that was taken to achieve this
performance. As you will see in the enclosed shareholder report,
the Fund ended its fiscal year with approximately 25% of its
assets invested in short-term U.S. Government backed obligations.
In applying the Manager's discipline of only buying securities
that sell at discounts to its calculation of a company's private
market value or, just as importantly, selling securities at
prices that it believed were fairly valued, the Manager was never
able to achieve a fully invested position in stocks. Throughout
the year, the Fund held between 15% and 30% of its portfolio in
short-term U.S. Government backed obligations. If the Manager
had chosen to deviate from its discipline (incur more risk by
owning securities that were displaying positive price momentum
that carried the individual stocks to prices above our calculated
private market value) the Fund could have materially improved its
performance given the current positive environment for equities.
Using 20-20 hindsight, one could ask the age-old question "Why
did I pay for my life insurance last year when I didn't die?"
GOING THE DISTANCE
The reason an individual owns life insurance is to protect
against a sudden loss of income created by the death of a key
member of the family, and to maintain the survivors' standard of
living. Similarly, it is the cornerstone of the Fund's
philosophy that achieving shareholders' capital gains objectives
is correlated with a concern for the preservation of capital
(minimizing errors) before analyzing the potential for capital
gains (selecting the biggest winners). In a 1-1/2 mile horse
race, the horse expending all its energy dazzling the fans by
battling the early leaders to get the lead at the 1-mile post
usually finishes towards the end of the pack. Similarly, the
Fund's performance relative to that of its competition was
achieved by protecting the portfolio from severe corrections
either in the stock market, individual stocks, or groups of
stocks. The Manager achieved this protection by avoiding
momentum stocks that were creating short-term exciting performance
statistics for their owners, while reaching levels of
overvaluation. Similar to the aforementioned horse leading at the
1-mile post in a 1 - 1/2 mile race the Fund's relative performance
was aided by mutual funds that rode the momentum curve too far, and
got
* This total return does not include the Fund's maximum ("CDSC")
Contingent Deferred Sales Charge of 2.50% which would be charged
if a shareholder redeemed within one year of purchase. Past
performance is not necessarily indicative of future results.
Investment returns and principal value may fluctuate, so that when
redeemed, shares may be worth more or less than their original cost.
The Fund's average annual total return for the one year period and
since inception through August 31, 1997, assuming the deduction of the
Fund's maximum CDSC for redemptions at the end of each period was
41.11% and 27.25% respectively.
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
President's Message - CONTINUED
- -------------------------------------------------------------------------------
caught in severe corrections. This resulted in these funds falling
behind the Fund's slow but steady progress when momentum shifted
to other groups and stocks that had better risk/reward ratios.
Of course, the top performing fund in any one year - especially
up years - is usually captured by those funds that are willing to
assume more risk by continuing to own stocks that tend to reach
levels of overvaluation created by investors following the latest
investment fad. Typically, the press canonizes the top
performer. However, the public rarely hears about the hundreds
of other funds that disappointed their shareholders by not
achieving their objectives in an attempt to reach the top of the
industry by taking bigger risks.
Following are charts that represent the performance of the
Fund, the Lipper Capital Appreciation Funds Index and the
Standard & Poor's 500 Composite Index (the "S&P 500") since the
Fund's inception on September 21, 1995. The S&P 500 is a
capitalization weighted index of five hundred larger capitalized
stocks designed to measure performance of the broad domestic
securities market through changes in the aggregate market value
of five hundred stocks representing all major industries. The
Lipper Capital Appreciation Index consists of the average return
of the 30 largest capital appreciation funds. Lipper Analytical
Services, the mutual fund tracking company which computes this
Index, classifies the Fund as a capital appreciation fund.
<TABLE>
<CAPTION>
LIPPER
OLSTEIN FINANCIAL CAPITAL APPRECIATION S&P 500 INDEX
PERIOD ALERT FUND FUNDS INDEX TOTAL RETURN
------ ----------------- -------------------- -------------
IF NO
REDEMPTION AT IF REDEMPTION AT
END OF PERIOD END OF PERIOD*
------------- ----------------
<S> <C> <C> <C> <C>
YEAR TO DATE
(1/1/97 - 8/31/97) 26.30% 23.80% 15.93% 22.91%
FISCAL YEAR
(9/1/96 - 8/31/97) 43.61% 41.11% 24.95% 40.65%
FROM INCEPTION
(9/21/95 - 8/31/97) 61.16% 59.91% 36.17% 61.05%
<FOOTNOTE>
* THESE AGGREGATE TOTAL RETURN
FIGURES ASSUME THE DEDUCTION OF THE MAXIMUM CONTINGENT DEFERRED
SALES CHARGE (CDSC) FOR REDEMPTIONS AT THE END OF EACH PERIOD.
SHARES REDEEMED WITHIN ONE YEAR OF PURCHASE ARE SUBJECT TO A
2.5% CDSC AND SHARES REDEEMED DURING THE SECOND YEAR FOLLOWING
PURCHASE ARE SUBJECT TO A 1.25% CDSC, WITH NO CDSC IMPOSED ON
REDEMPTIONS OF SHARES HELD FOR MORE THAN TWO YEARS. THE FUND'S
AVERAGE ANNUAL TOTAL RETURN FOR THE ONE YEAR PERIOD AND SINCE
INCEPTION THROUGH AUGUST 31, 1997, ASSUMING THE DEDUCTION OF
THE FUND'S MAXIMUM CDSC FOR REDEMPTIONS AT THE END OF EACH
PERIOD WAS 41.11% AND 27.25% RESPECTIVELY.
</FOOTNOTE>
</TABLE>
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
President's Message - CONTINUED
- -------------------------------------------------------------------------------
COMPARISON (UNDER THE ASSUMPTION THAT AN INVESTOR REDEEMS FUND SHARES DURING
THE FIRST TWO YEARS AND INCURS ANY APPLICABLE CDSC REDEMPTION FEES) OF THE
CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT FROM THE FUND'S INCEPTION
THROUGH THE FISCAL YEAR END OF 8/31/97 (LONG-TERM INVESTORS WHO EXPECT TO
HOLD SHARES MORE THAN TWO YEARS AND THUS WOULD NOT INCUR ANY CDSC REDEMPTION
FEES SEE CHART ON PRECEEDING PAGE FOR LONG-TERM INVESTORS).
Olstein Financial Alert Fund* S & P 500 Lipper Index
----------------------------- --------- ------------
Sept - 95 10,000 10,000 10,000
Aug - 96 11,210 11,425 10,834
Aug - 97 15,991 16,105 13,617
AVERAGE ANNUAL TOTAL RETURN
---------------------------
1 YEAR INCEPTION
------ ----------
Olstein Financial Alert Fund* 41.11% 27.25%
Lipper Index 24.95% 17.17%
S&P 500** 40.65% 27.72%
* Assumes reinvestment of dividends and capital gains. Also includes
all expenses and reflects the deduction of the appropriate CDSC as
if an investor had redeemed at the end of each period, and thus
represents a "net return." 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.
** 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."
Although market averages have been significantly higher over
the past 5 years, the 1990's have been characterized by rotating
corrections within market segments without affecting securities
that have been properly valued or had previous corrections. The
Manager believes that this type of environment should continue to
exist for the foreseeable future, and the Fund's investment
discipline should perform well during orderly and rational market
periods. The Manager understands that its discipline cannot work
all the time. The Fund's anti-momentum
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
President's Message - CONTINUED
- -------------------------------------------------------------------------------
Philosophy will go through periods of underperformance and, during
periods of overall negativity, will fail along with most others.
However, during longer time periods (3 to 5 years) the Manager
believes that its discipline is properly constructed to achieve
the Fund's objective of long-term capital appreciation.
In our last letter we wrote to you about "index investing" or
so called "mindless investing." As predicted, the largest stocks
in the popular S&P 500 are beginning to underperform the overall
market as investors begin to focus on the levels of overvaluation
that have occurred in this segment of the market. The attempt to
control risk is not necessarily a function of differentiating a
good company from a bad company, but is also a function of paying
the right price for a good company.
REVIEW OF SELECTED PORTFOLIO HOLDINGS
The Fund continues to hold General Motors, which has a cash
earnings yield (earnings divided by price) that is significantly
higher than Coca-Cola or General Electric (which have been
outstanding investments over the past 5 years). However,
according to the Manager's calculations, even after allowing for
15% growth rates for both Coca-Cola and General Electric and no
growth for General Motors, higher returns may be achieved
through the ownership of General Motors at the current price than
owning U.S. treasury securities or paying what the Manager
believes are inflated prices for great companies such as Coca-
Cola and General Electric. The Manager invests in securities
only when its cash flow or asset-value analysis indicates that
current market values are at discounts to the Manager's
calculation of private market value. When establishing private
market value, cash-on-cash returns are strongly considered, as if
100% of the company was owned by a sophisticated owner and
comparing these returns to 3-to 5-year U.S. Treasury securities,
to establish a price that the Manager believes the company would
bring in a sale to a sophisticated buyer.
The Manager is currently finding value in modular and motor
home stocks (Fleetwood Enterprises, Champion Enterprises,
Coachmen Industries, etc.) which are currently going through a
period of disappointing sales. The 1940's baby boomers currently
reaching retirement age potentially represent pent-up demand for
these products. The Manager continues to hold Delta Airlines and
Continental Airlines on the belief that the airlines' improving
cash flow, their current high earnings levels (which we do not
believe are non-recurring) and recently achieved pricing
flexibility created by responsible capacity addition policies
are still not being properly valued in the marketplace.
Disk drive manufacturer Seagate Technologies has also gone
through a rough period that may last several quarters longer.
However, the pessimism of the immediate future has created buying
opportunities in what the Manager believes is a high-quality,
properly financed manufacturer of key components for computers.
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
President's Message - CONTINUED
- -------------------------------------------------------------------------------
Other companies in the Fund's portfolio are: Brunswick Corp.,
which is currently diversifying into a well-managed leisure time
company less dependent on the boom and bust cycles of boating;
Gannett Co., a media company owning television stations, cable
systems, and newspapers (including U.S.A. Today, one of the few
newspapers in the country that is increasing its circulation);
and Reader's Digest, an old-line media and direct selling
organization with large hidden assets that could be realized via
a takeover.
ASSESSING FINANCIAL RISK
In selecting companies for the Fund's portfolio, the
Manager's fundamental analysis begins with the balance sheet in
order to assess financial risk. The Manager uses Wall Street as
a database, and relies on analysts' knowledge of an industry and
the micro-economics affecting a specific company. However, the
Manager performs its own calculations and reaches its own
buy and sell conclusions, based on a thorough analysis of the
numbers included in financial statements, footnotes, and other
public disclosures. The Manager utilizes a proprietary investment
philosophy that is difficult to duplicate. As previously
stated, the Manager purchases stocks for the Fund's portfolio
that the Manager believes are selling at discounts to its
calculation of private market value. Although the process sounds
similar to other value managers, it is the Manager's financial
inference techniques for establishing value that differentiates
its discipline from other managers.
With 30 years of expertise in financial statements, looking
behind the numbers, and utilizing financial inference to reach
conclusions, the Manager's investigative techniques cut across
all disciplines (growth, cyclical, large cap stocks, small cap
stocks, etc.) Much of Wall Street research relies somewhat on
management contact, and contains various degrees of their
positive biases. The Manager does not rely on management contact
to reach its conclusions. It is believed that a night spent
analyzing and looking behind the numbers contained in financial
statements is worth two days of talking to management. Momentum
stocks will continue to be ignored if momentum is the only
criteria for ownership. No attempt will be made to react to what
other investors are currently doing. However, one must realize
that some market periods are not going to favor the Manager's
approach. It is believed that few, if any, can switch styles
back and forth from period to period, and are nimble enough to
always know the right way to go. Although the public would
rather believe that such nimbleness is possible, the Fund is
interested in attracting shareholders that believe in the
Manager's long-term approach of looking behind the numbers, and
are interested in performance over time rather than "all the
time." The current markets have been fueled by a tremendous
influx of liquidity. Most stocks are going up, and in certain
groups traditional valuation methods have broken down. Funds
with short-term time horizons have been correct to say, "who
cares" at the moment. The Manager does not believe that
traditional cash return valuation measures can be discarded and
expects that its longer-term horizon for valuing companies will
place the Fund in a better position to achieve its long-term
objectives.
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
President's Message - CONTINUED
- -------------------------------------------------------------------------------
Olstein & Associates, L.P. has grown to a staff of 11
professionals, six of whom work directly on research and the
management of the Fund's portfolio. Each of the research and
portfolio management professionals have been well trained to
implement the Manager's philosophy and discipline, and are
required to invest alongside the Fund's shareholders.
Shareholder servicing is equally important. You can be assured
that the Manager has built an organization trained to carry out
an investment discipline that assesses risk before reward, and
that values an ethic to service the Fund's shareholders'
investment and administrative needs.
Your trust is appreciated. We continue to work diligently in
order to achieve the Fund's long-term objectives.
Sincerely,
/s/ Robert A. Olstein
Robert A. Olstein
President
October 20, 1997
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
Schedule of Investments AUGUST 31, 1997
- -----------------------------------------------------------------------------
VALUE
SHARES (NOTE 2)
------ --------
COMMON STOCK - 75.9%
COMMUNICATIONS & BROADCASTING - 0.8%
BET Holdings, Inc. (A Shares)*.......... 14,500 $ 570,938
Comcast Corp. (Special A Shares) ....... 38,000 890,624
-------------
TOTAL COMMUNICATIONS & BROADCASTING 1,461,562
-------------
FINANCE & INSURANCE - 3.0%
INSURANCE CARRIERS - 0.6%
MGIC Investment Corp.................... 22,000 1,106,874
-------------
SECURITY & COMMODITY BROKERS, DEALERS & SERVICES - 1.4%
Lehman Brothers Holdings, Inc........... 41,000 1,798,875
Paine Webber Group, Inc................. 22,500 864,844
-------------
2,663,719
-------------
STATE & NATIONAL BANKS - 1.0%
JSB Financial, Inc...................... 39,000 1,769,625
-------------
TOTAL FINANCE & INSURANCE.......................... 5,540,218
-------------
MANUFACTURING - 61.1%
CHEMICALS & ALLIED PRODUCTS - 2.8%
Brunswick Technologies, Inc.*........... 60,000 1,057,500
Learonal, Inc.+......................... 183,000 4,003,125
-------------
5,060,625
-------------
COMPUTER & OFFICE EQUIPMENT - 3.5%
Dynatech Corp........................... 26,000 994,500
Hewlett-Packard Co...................... 23,000 1,410,188
Intel Corp.+............................ 17,000 1,566,125
Seagate Technology...................... 62,500 2,386,719
-------------
6,357,532
-------------
FOOD & BEVERAGE - 0.3%
Smucker (J.M.) Co. (B Shares)........... 22,100 542,831
-------------
FURNITURE & FIXTURES - 3.1%
Ethan Allen Interiors, Inc. (Rights
Attached) ............................. 17,400 1,278,900
La-Z-Boy, Inc........................... 69,100 2,444,412
Stanley Furniture Co., Inc.*............ 67,600 1,926,600
-------------
5,649,912
-------------
GAMES & TOYS - 1.1%
Mattel, Inc............................. 61,300 2,049,719
-------------
GLASS, CONCRETE & OTHER PRODUCTS - 2.8%
Centex Construction Products, Inc....... 87,900 2,516,137
Giant Cement Holding, Inc.*............. 83,000 1,898,625
Southdown, Inc.......................... 12,400 582,025
-------------
4,996,787
-------------
VALUE
SHARES (NOTE 2)
------ --------
MISC. ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES - 6.2%
Aavid Thermal Technologies*............. 18,200 $ 536,900
Amphenol Corp. (A Shares)*.............. 89,600 3,516,800
Andrea Electronics Corp.*............... 105,100 3,560,263
Orbit/FR, Inc.*......................... 5,000 136,250
Silicon Valley Group, Inc.*............. 80,000 2,700,000
Varian Associates, Inc.................. 14,500 827,406
Woodhead Industries, Inc................ 2,500 46,250
-------------
11,323,869
-------------
MISCELLANEOUS INDUSTRIAL MACHINERY & EQUIPMENT - 3.2%
LSI Industries, Inc..................... 33,000 478,500
Simpson Manufacturing Co.*.............. 72,000 2,655,000
Tidewater, Inc.......................... 49,500 2,598,750
-------------
5,732,250
-------------
MISCELLANEOUS MANUFACTURING INDUSTRIES - 5.2%
Brunswick Corp+......................... 86,500 2,638,250
Champion Enterprises, Inc............... 143,500 2,475,375
Deltic Timber Corp...................... 58,000 1,714,625
Pittway Corp. (A Shares)................ 19,600 1,182,125
Skyline Corp............................ 26,000 752,375
Steel of West Virginia, Inc.*........... 73,200 732,000
-------------
9,494,750
-------------
PAPER & PAPER PRODUCTS - 1.9%
Boise Cascade Corp...................... 88,000 3,481,500
-------------
PHARMACEUTICAL PREPARATIONS - 0.8%
Merck & Co., Inc........................ 8,000 734,500
Pharmacia & Upjohn, Inc................. 21,500 732,344
-------------
1,466,844
-------------
PRECISION INSTRUMENTS & MEDICAL SUPPLIES - 0.8%
IFR Systems, Inc........................ 55,500 1,422,188
-------------
PRINTING & PUBLISHING - 8.5%
Bowater, Inc............................ 62,900 3,219,694
Bowne & Co., Inc........................ 113,400 3,281,512
Gannett Co., Inc........................ 31,500 3,069,281
Meredith Corp........................... 81,700 2,451,000
Reader's Digest Association, Inc.
(A Shares)............................. 73,000 2,158,062
Reader's Digest Association, Inc.
(B Shares)............................. 41,000 1,137,750
-------------
15,317,299
-------------
TELECOMMUNICATIONS EQUIPMENT - 2.6%
Adaptec, Inc............................ 11,000 528,000
C-COR Electronics, Inc.................. 98,500 1,268,188
HSN, Inc.*.............................. 90,000 2,970,000
-------------
4,766,188
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
Schedule of Investments - CONTINUED AUGUST 31, 1997
- -----------------------------------------------------------------------------
VALUE
SHARES (NOTE 2)
------ --------
TEXTILES & APPAREL - 2.1%
Liz Claiborne, Inc...................... 27,000 $ 1,203,188
Quiksilver, Inc.*....................... 75,000 2,554,688
-------------
3,757,876
-------------
TOBACCO - 2.2%
Philip Morris Cos., Inc................. 90,000 3,926,250
-------------
TRANSPORTATION - 6.6%
Airnet Systems, Inc. *.................. 70,300 1,502,662
Continental Airlines, Inc.
(B Shares)*+........................... 30,000 1,098,750
Delta Air Lines, Inc. (Preferred
Rights Attached)+ ..................... 90,000 7,785,000
Florida East Coast Industries, Inc...... 14,500 1,627,625
-------------
12,014,037
-------------
TRANSPORTATION EQUIPMENT - 7.4%
Coachmen Industries, Inc................ 319,000 5,901,500
Fleetwood Enterprises, Inc.............. 132,000 4,108,500
General Motors Corp.+................... 40,000 2,510,000
Thor Industries, Inc.................... 34,500 935,812
-------------
13,455,812
-------------
TOTAL MANUFACTURING............................... 110,816,269
-------------
MINING - 0.6%
Cleveland-Cliffs Inc.................... 25,000 1,042,187
-------------
SERVICES - 5.5%
BUSINESS SERVICES - 4.4%
Catalina Marketing Corp.*............... 52,000 2,408,250
Hvide Marine, Inc.*..................... 65,000 2,006,875
Sotheby's Holdings, Inc.
(A Shares)+........................... 140,500 2,660,719
Trico Marine Services, Inc.*............ 30,000 930,000
-------------
8,005,844
-------------
PERSONAL SERVICES - 1.1%
Hilton Hotels Corp...................... 65,200 2,000,825
-------------
TOTAL SERVICES.................................... 10,006,669
-------------
WHOLESALE & RETAIL TRADE - 4.9%
MISCELLANEOUS RETAIL STORES - 0.2%
Lund International Holdings, Inc.*...... 38,650 434,812
-------------
RETAIL APPAREL & ACCESSORY STORES - 3.0%
Claire's Stores, Inc.................... 45,000 945,000
The Wet Seal, Inc.*..................... 205,000 4,458,750
-------------
5,403,750
-------------
VALUE
SHARES (NOTE 2)
------ --------
WHOLESALE ELECTRONIC EQUIPMENT & COMPUTERS - 1.2%
Tandy Corp.............................. 32,500 $ 2,157,188
-------------
WHOLESALE MISCELLANEOUS - 0.5%
Wynn's International, Inc............... 31,500 909,563
-------------
Total Wholesale & Retail Trade..................... 8,905,313
-------------
TOTAL COMMON STOCK
(COST $109,338,243)............................... 137,772,218
-------------
MUTUAL FUNDS - 0.2%
Scudder Managed Cash Fund,
5.22% (COST $332,855).................. 332,855 332,855
-------------
PAR
($000)
------
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 23.9%
Federal Home Loan Bank, 5.36%,
09/08/97............................... 2,483 2,480,412
Federal Home Loan Bank, 5.40%,
09/10/97.............................. 1,487 1,484,993
Federal Home Loan Mtge. Corp.,
5.37%, 09/03/97........................ 4,066 4,064,787
Federal Home Loan Mtge. Corp.,
5.37%, 09/04/97........................ 6,700 6,697,002
Federal Home Loan Mtge. Corp.,
5.36%, 09/05/97....................... 5,200 5,196,903
Federal Home Loan Mtge. Corp.,
5.42%, 09/09/97........................ 8,508 8,497,753
Federal Home Loan Mtge. Corp.,
5.32%, 09/20/97....................... 5,900 5,899,128
Federal Home Loan Mtge Corp.,
5.44%, 09/25/97+....................... 2,190 2,182,057
Federal National Mtge. Assn.,
5.43%, 09/11/97........................ 6,870 6,859,638
-----------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(COST $43,362,673)............................... 43,362,673
-----------
TOTAL INVESTMENTS
(COST $153,033,771) - 100.0%.......................... $181,467,746
============
*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 fiscal year end, securities pledged
amounted to $9,976,570.
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
Schedule of Securities Sold Short August 31, 1997
- -----------------------------------------------------------------------------
VALUE
SHARES (NOTE 2)
------ --------
SECURITIES SOLD SHORT
COMMUNICATIONS & BROADCASTING
Tel-Save Holdings, Inc. ................ 11,000 $ 196,625
-------------
FINANCE & INSURANCE
Arcadia Financial Ltd. ................ 15,000 149,063
Jayhawk Acceptance Corp................. 10,000 11,875
-------------
Total Finance & Insurance.......................... 160,938
-------------
MANUFACTURING
Cooper Cameron Corp..................... 9,000 583,875
Copytele, Inc........................... 20,000 91,250
Itron, Inc. ............................ 11,300 271,200
Medicis Pharmaceutical Corp.
(A Shares)............................. 7,000 278,250
North American Vaccine, Inc............. 3,500 71,750
TurboChef, Inc.......................... 5,000 60,000
Vivus, Inc.............................. 11,000 294,250
Zonagen, Inc............................ 11,000 347,875
-------------
TOTAL MANUFACTURING................................ 1,998,450
-------------
VALUE
SHARES (NOTE 2)
------ --------
SERVICES
Aspen Technology, Inc................... 4,000 $ 136,500
Cambridge Technology
Partners, Inc.......................... 4,000 129,000
Cks Group, Inc.......................... 2,700 90,111
FPA Medical Management, Inc............. 8,500 246,500
HNC Software Inc........................ 6,500 236,438
Imnet Systems, Inc...................... 8,000 264,000
Medaphis Corp........................... 17,000 155,125
Pegasystems Inc. ....................... 6,900 185,869
Prepaid Legal Services, Inc............. 11,000 261,250
Signature Resorts Inc................... 10,000 358,750
-------------
TOTAL SERVICES..................................... 2,063,543
-------------
WHOLESALE & RETAIL TRADE
Best Buy Co., Inc....................... 22,000 374,000
Boston Chicken, Inc..................... 10,000 123,125
Brightpoint, Inc........................ 6,000 225,000
Cellstar Corp........................... 8,000 266,500
Cylink Corp............................. 8,300 95,450
Einstein/Noah, Bagel Corp............... 22,200 235,875
Today's Man, Inc........................ 17,000 55,250
U.S. Office Products Co................. 9,100 298,025
-------------
TOTAL WHOLESALE & RETAIL TRADE..................... 1,673,225
-------------
TOTAL SECURITIES SOLD SHORT
(PROCEEDS $5,042,100)............................ $ 6,092,781
=============
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
Statement of Assets and Liabilities August 31, 1997
- -------------------------------------------------------------------------------
ASSETS:
Investments in securities (identified cost $153,033,771) (Note 2) $181,467,746
Cash.............................................................. 815
Receivable from brokers for securities sold short ................ 5,042,100
Dividends and interest receivable ................................ 96,795
Receivable for investments sold .................................. 1,073,062
Receivable for capital shares sold................................ 60,266
Unamortized organization costs ................................... 69,262
Other assets...................................................... 42,452
-----------
Total assets .................................................... 187,952,498
-----------
LIABILITIES:
Securities sold short (proceeds: $5,042,100) (Note 3) ........... 6,092,781
Payable for investments purchased ............................... 5,390,427
Payable for capital shares repurchased.......................... 350,000
Due to Investment Manager (Note 4) .............................. 146,161
Other accrued expenses (Note 4) ................................. 371,496
-----------
Total liabilities ............................................... 12,350,865
-----------
NET ASSETS .......................................................$175,601,633
============
NET ASSETS CONSIST OF:
Net unrealized appreciation of investments (Note 3) ..............$ 28,433,975
Net unrealized depreciation on securities sold short ............. (1,050,681)
Accumulated net realized gain .................................... 23,497,945
Shares of beneficial interest .................................... 11,875
Additional paid-in capital ....................................... 124,708,519
------------
NET ASSETS, for 11,874,766 shares outstanding ....................$175,601,633
============
NET ASSET VALUE and offering price per share ($175,601,633
/ 11,874,766 outstanding shares of beneficial interest,
$0.001 par value).............................................. $ 14.79
=======
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
Statement of Operations
- -------------------------------------------------------------------------------
FOR THE
FISCAL YEAR ENDED
AUGUST 31, 1997
-----------------
INVESTMENT INCOME:
Dividends...................................... $ 1,015,927
Interest....................................... 1,650,154
--------------
2,666,081
--------------
EXPENSES:
Management fee (Note 4) ....................... 1,375,148
Distribution expenses (Note 4) ................ 1,375,148
Custodian fee (Note 4) ........................ 49,688
Transfer Agent fee (Note 4) ................... 60,225
Administration fee (Note 4) ................... 157,204
Accounting fee (Note 4) ....................... 68,447
Trustees' fees and expenses (Note 4) .......... 18,693
Amortization of organizational expenses ....... 25,263
Professional fees.............................. 51,833
Shareholders report fees ...................... 25,456
Registration fees ............................. 26,086
Dividend expense for securities sold short .... 135
Miscellaneous ................................. 45,377
--------------
Total expenses ................................. 3,278,703
--------------
Net investment loss ............................ (612,622)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions ... 25,164,729
Net realized gain on securities sold short ..... 432,004
--------------
Net realized gain on investments............... 25,596,733
--------------
Net change in unrealized appreciation of
investments.................................... 26,645,062
Net change in unrealized depreciation on
securities sold short ......................... (1,170,245)
--------------
Net change in unrealized appreciation.......... 25,474,817
--------------
Net gain on investments ........................ 51,071,550
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 50,458,928
==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
Statements of Changes in Net Assets
- -------------------------------------------------------------------------------
FOR THE PERIOD
FOR THE SEPTEMBER 21, 1995+
FISCAL YEAR ENDED THROUGH
AUGUST 31, 1997 AUGUST 31, 1996
---------------- -------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss.................... $ (612,622) $ (606,294)
Net realized gain on investments....... 25,596,733 9,428,842
Net change in unrealized
appreciation ...................... 25,474,817 1,908,477
------------- -------------
Net increase in net assets resulting
from operations ..................... 50,458,928 10,731,025
------------- -------------
Distributions to shareholders from:
Net realized gains .................... (10,206,993) (101,721)
------------- -------------
Increase in net assets from Fund share
transactions (Note 5) ................. 26,344,944 98,275,450
------------- -------------
Increase in net assets ................. 66,596,879 108,904,754
NET ASSETS:
Beginning of period ................... 109,004,754 100,000
------------- -------------
End of period ......................... $ 175,601,633 $ 109,004,754
============== =============
+ Commencement of Operations.
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
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.
FOR THE PERIOD
FOR THE SEPTEMBER 21, 1995+
FISCAL YEAR ENDED THROUGH
AUGUST 31, 1997 AUGUST 31, 1996
----------------- -------------------
NET ASSET VALUE -
BEGINNING OF PERIOD......... $11.21 $10.00
INVESTMENT OPERATIONS:
Net investment loss........ (0.05) (0.07)
Net realized and unrealized
gain on investments....... 4.66 1.29
------ -----
Total from investment
operations............... 4.61 1.22
------ -----
DISTRIBUTIONS:
From net realized gain
on investments............. (1.03) (0.01)
------ -----
Total distributions...... (1.03) (0.01)
------ -----
NET ASSET VALUE -
END OF PERIOD............... $14.79 $11.21
====== ======
TOTAL RETURN:++.............. 43.61% 12.22%
Ratios (to average net assets)
/Supplemental Data:
Expenses.................... 2.38% 2.43%*
Net investment loss......... (0.45)% (0.68)%*
Portfolio turnover rate...... 164.92% 139.77%*
Average commission rate paid. $0.0581 $0.0592
Net assets at end of period
(000 omitted)............... $175,602 $109,005
+ Commencement of Operations.
++ Total returns do not reflect any deferred sales charge. The total return
for the period, September 21, 1995 through August 31, 1996, has not been
annualized.
* Annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
Notes to the 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 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, if any, will be made
annually in December. Additional distributions may be made to
the extent necessary.
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
fiscal year ended August 31, 1997, purchases and sales of
investment securities (excluding securities sold short and
short-term investments) aggregated as follows:
Purchases.................... $181,636,173
Sales........................ 189,387,756
The following balances for the Fund are as of August 31, 1997:
COST FOR NET TAX BASIS TAX BASIS GROSS TAX BASIS GROSS
FEDERAL INCOME UNREALIZED UNREALIZED UNREALIZED
TAX PURPOSES APPRECIATION APPRECIATION DEPRECIATION
-------------- -------------- --------------- ---------------
$153,066,175 $28,401,571 $28,804,098 $402,527
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
Notes to the Financial Statements - CONTINUED
- -------------------------------------------------------------------------------
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, 1997, the Fund had 3.5% of its net
assets in short positions. For the fiscal year ended August
31, 1997, the cost of investments purchased to cover short
sales and the proceeds from those investments sold short were
$7,428,073 and $7,860,077, 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 fiscal
year ended August 31, 1997, the Fund incurred investment
management fees of $1,375,148.
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 fiscal year
ended August 31, 1997 amounted to $157,204.
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
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
Notes to the Financial Statements - CONTINUED
- -------------------------------------------------------------------------------
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 fiscal year
ended August 31, 1997, fees paid by the Fund pursuant to the
12b-1 Plan amounted to $1,375,148.
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 fiscal year ended August 31, 1997, the Fund paid
total brokerage commissions of $228,941 to affiliated broker
dealers in connection with purchases and sales of investment
securities.
5.FUND SHARES. At August 31, 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:
FOR THE FISCAL YEAR FOR THE PERIOD
ENDED SEPTEMBER 21, 1995+
AUGUST 31, 1997 THROUGH AUGUST 31, 1996
------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
Shares sold....... 1,707,526 $ 21,552,725 10,157,265 $103,041,971
Shares issued to
shareholders in
reinvestment of
distributions..... 873,315 10,182,852 9,956 101,256
Shares redeemed... (432,096) (5,390,633) (451,200) (4,867,777)
--------- ------------ --------- ------------
Net increase...... 2,148,745 $26,344,944 9,716,021 $ 98,275,450
============= ============
Shares outstanding:
Beginning of
period........... 9,726,021 10,000
--------- ---------
End of period.... 11,874,766 9,726,021
========== =========
+Commencement of Operations.
<PAGE>
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, 1997, and the related statement of operations for
the year then ended, and the statements of changes in net
assets and financial highlights for the periods
indicated therein. 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 audits.
We conducted our audits 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 and financial highlights. Our procedures
included confirmation of securities owned as of August 31, 1997
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 audits provide 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, 1997, the results of its operations for the year then ended,
and the changes in its net assets and its financial highlights
for the periods indicated therein, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, PA
September 26, 1997
<PAGE>
THE OLSTEIN FINANCIAL ALERT FUND
Tax Information
- -------------------------------------------------------------------------------
During the fiscal year ended August 31, 1997, the Fund paid a
distribution of $1.032 per share from net short-term capital
gains.
In January 1998, shareholders of the Fund will receive
Federal income tax information on all distributions paid to their
accounts in the calendar year 1997. Please consult a tax advisor
if you have any questions about federal or state income tax laws,
or how to prepare your tax return.
<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) 701-7565
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)
800-799-2113
CUSTODIAN
---------------
Wilmington Trust Company
LEGAL COUNSEL
---------------------
Stradley, Ronon, Stevens & Young, LLP
INDEPENDENT AUDITORS ANNUAL REPORT
-------------------------- AUGUST 31, 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.
OS06 8/97
