Supplement Dated October 6, 1998 to the
Statement of Additional Information dated January 1, 1998 for
THE OLSTEIN FINANCIAL ALERT FUND
The following information amends and supplements the information set forth in
the Statement of Additional Information (SAI) dated January 1, 1998 for The
Olstein Financial Alert Fund:
Page 4 of the SAI is amended to include the following information:
Swap Agreements
---------------
The Fund may also enter into equity swap agreements for the purpose of
attempting to obtain a desired return or exposure to certain equity
securities or equity indices in an expedited manner or at a lower cost to
the Fund than if the Fund had invested directly in such securities. Such
techniques may indirectly enable the Fund to better manage the Fund's
ability to experience taxable gains or losses in an effort to
maximize the after-tax returns for shareholders.
Swap agreements are two party contracts entered into primarily by
institutional investors for periods ranging from a few weeks to more than
one year. In a standard swap transaction, two parties agree to exchange
the returns (or differentials in return) earned or realized on particular
predetermined investments or instruments. The gross returns to be
exchanged or "swapped" between the parties are generally calculated with
respect to a "notional amount," i.e., the return on, or increase in value
of a particular dollar amount invested in a "basket" of particular
securities or securities representing a particular index. Forms of swap
agreements include equity or index caps, under which, in return for a
premium, one party agrees to make payment to the other to the extent that
the return on securities exceeds a specified rate, or "cap"; equity or
index floors, under which, in return for a premium, one party agrees to
make payments to the other to the extent that the return on securities
fall below a specified level, or "floor"; and equity or index collars,
under which a party sells a cap and purchases a floor or vice versa in an
attempt to protect itself against movements exceeding given minimum or
maximum levels. Parties may also enter into bilateral swap agreements
which obligate one party to pay the amount of any net appreciation in a
basket or index of securities while the counterparty is obligated to pay
the amount of any net depreciation.
The "notional amount" of the swap agreement is only a fictive basis
on which to calculate the obligations which the parties to a swap
agreement have agreed to exchange. Most swap agreements entered into by
the Fund would calculate the obligations of the parties to the agreement
on a "net basis." Consequently, the Fund's current obligations (or rights)
under a swap agreement will generally be equal only to the net amount to
be paid or received under the agreement based on the relative values of
the positions held by each party to the agreement (the "net amount"). The
Fund's current obligations under a swap agreement will be accrued daily
(offset against amounts owed to the Fund) and any accrued but unpaid net
amounts owed to a swap counterparty will be covered by the maintenance of
a segregated account consisting of liquid assets such as cash, U.S.
Government securities, or high grade debt obligations, to avoid any
potential leveraging of the Fund's portfolio. The Fund will not enter into
a swap agreement with any single party if the net amount owed or to be
received under existing contracts with that party would exceed 5% of the
Fund's assets.
Whether the Fund's use of swap agreements will be successful in
furthering its investment objective will depend on the Adviser's ability
to predict correctly whether certain types of investments are likely to
produce greater returns than other investments. Because they are two-party
contracts and because they may have terms of greater than seven days, swap
agreements may be considered to be illiquid. Moreover, the Fund bears the
risk of loss of the amount expected to be received under a swap agreement
in the event of the default or bankruptcy of a swap agreement
counterparty. The Adviser will cause the Fund to enter into swap
agreements only with counterparties that would be eligible for
consideration as repurchase agreement counterparties under the Fund's
repurchase agreement guidelines. Certain restrictions imposed on the Fund
by the Internal Revenue Code may limit the Fund's ability to use swap
agreements. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market,
including potential government regulation, could adversely affect the
Fund's ability to terminate existing swap agreements or to realize amounts
to be received under such agreements.
h:/data/olst-sai
