497(c)
1933 Act Registration File No. 33-91770
1940 Act File No. 811-9038
THE
OLSTEIN
FUNDS
THE
OLSTEIN
FINANCIAL
ALERT
FUND
ADVISER CLASS SHARES
PROSPECTUS
September 1, 1999
THE OLSTEIN FINANCIAL ALERT FUND
PROSPECTUS SEPTEMBER 1, 1999
ADVISER CLASS SHARES A SERIES OF
THE OLSTEIN FUNDS
4 MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
(888) 887-9827
The Fund seeks long-term capital appreciation through a proprietary value-
oriented approach to investing in common stocks, that cuts across all investment
disciplines. The Fund's inferential screening techniques were originated in the
1970's by Robert A. Olstein, the president of the Fund's investment manager, who
co-authored the "Quality of Earnings Report" service, a publication that served
as a financial statement alert service for institutional investors.
TABLE OF CONTENTS
FUND INFORMATION
Summary of the Fund 2
Past Performance 4
Fund Expenses 5
Olstein & Associates Managed Account Performance 6
Objectives, Strategies, and Main Risks 6
Management of the Fund 9
Fund Distribution 10
Financial Highlights 11
SHAREHOLDER INFORMATION
Pricing of Fund Shares 12
How to Purchase Shares 12
How to Redeem Shares 14
Retirement Plans 18
Dividends, Capital Gains Distributions and Taxes 19
FOR MORE INFORMATION
The back cover tells you how to obtain more information about the
Fund.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
ACCURATE OR COMPLETE. IT IS A CRIMINAL OFFENSE TO SUGGEST OTHERWISE.
FUND INFORMATION
SUMMARY OF THE FUND
INVESTMENT OBJECTIVES
The Fund's primary investment objective is long-term capital appreciation and
its secondary objective is income. The Fund was created so that the public
could invest according to the financial statement alert philosophy developed and
utilized over the past thirty years by Robert A. Olstein, the president of the
Fund's investment manager, Olstein & Associates, L.P.
INVESTMENT PHILOSOPHY AND STRATEGY
The Fund seeks to achieve its primary objective by investing in a diversified
portfolio of under-valued equity securities as determined by the investment
manager for the Fund. The manager believes that achieving the Fund's investment
objective is correlated with minimizing investment errors as opposed to
selecting companies with the highest appreciation potential without regard to
downside risk. The first line of defense against investment errors is to select
companies for the portfolio that generate excess cash flow after capital
expenditures and working capital needs. The philosophy, developed to achieve
the Fund's primary objective, emphasizes a detailed look behind the numbers of
financial statements to assess financial strength and screen for potential
problems in order to assess downside risk - "defense first" - before considering
a stock's potential for capital appreciation. In addition to purchasing
undervalued securities, if the investment manager determines that a security is
overvalued, the Fund may engage in short sales of the security.
The main thrust of the Fund's philosophy is to identify stocks selling below
the investment manager's proprietary calculation of private market value. When
evaluating stocks for the Fund's portfolio, the investment manager emphasizes an
inferential analysis of financial statements, rather than more conventional
analytical methodologies such as macro-economic analysis, management contact or
market timing techniques. The objective of the inferential analysis is to alert
the investment manager to positive or negative factors affecting a company's
future free cash flow that may or may not be recognized in the financial
markets. The investment manager's stock selection process emphasizes a
company's financial conservatism and considers the possibility of downside risk
before evaluating a stock's upside potential in its effort to achieve capital
appreciation.
The Fund's investment philosophy is based on the belief that an intensive
inferential analysis of a company's financial statements, supporting documents,
disclosure practices, and financial statement footnotes, is the best way to
analyze the capabilities of management, the economic reality of the information
provided, the conservatism of the accounting and disclosure practices, the
company's financial strength, and finally, the value of the company.
When screening investments for the Fund's portfolio, the investment manager
believes that the quality of a company is associated with the following
characteristics:
o its financial strength
o its ability to provide excess cash flow
o the quality of its earnings
o the predictability of the earnings based on the company's unique business
fundamentals
The Fund will invest in companies without regard to whether they are
conventionally categorized as small, medium, or large capitalization or whether
they are characterized as growth, cyclical, technology, or any other category.
Similarly, the Fund does not focus on characteristics such as number of years in
business, sensitivity to economic cycles, industry categorization, or the
volatility of a company's stock price. The Fund believes that value
opportunities can develop across all categories, and the restriction of
investments according to artificial barriers could inhibit the Fund from
reaching its capital gain objective.
The Fund purchases common stocks of companies that the investment manager
believes can deliver investor returns over a five year time period that are at
least fifty percent higher than the yield on three to five year U.S. treasury
notes over the same time period. Further, the Fund attempts to buy such stocks
when they are trading at a discount to the manager's calculation of the stock's
"private market value."
The Fund will purchase stocks that meet its value criteria and, if the
manager concludes that suitable undervalued securities are not available, the
Fund may invest all or a portion of its assets in short-term fixed income or
money market securities, until suitable equity securities are available. At
such times, the Fund will pursue its secondary investment objective of income.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in common stocks has inherent risks which could cause you to lose
money. Some of the risks of investing in this Fund are:
o Stock prices may decline over short, or even extended periods.
o The investment manager may be incorrect in its judgment of the value of
particular stocks.
o Stock prices may not climb to anticipated levels for an unexpectedly long
time.
o The Fund engages in short sales of stocks when the investment manager
believes that their price is over-valued and may decline. Short selling is
a technique that may be considered speculative and involves risk beyond the
amount of money used to secure each transaction.
PAST PERFORMANCE
The bar chart and table shown below illustrate the variability of the Fund's
returns. The bar chart indicates the risks of investing in the Fund by showing
the changes in the Fund's performance from year to year (on a calendar year
basis). The table shows how the Fund's average annual returns compare with
those of the S&P 500 Index and the Lipper Capital Appreciation Funds Index, both
of which represent broad measures of market performance. The Fund's past
performance is not necessarily an indication of how the Fund will perform in the
future.
The Adviser Class does not have a past performance history because it was
only recently created. Therefore, the returns featured in the bar chart and
table shown below represent the past performance of the Class C shares of the
Fund, which is the original class of shares of the Fund that has been sold since
its inception. Both the Class C shares and the Adviser Class of the Fund would
have similar annual returns because the shares of both classes are invested in
the same portfolio of securities. However, the annual returns for the Adviser
Class should be higher than the Class C shares because the annual expenses of
the Adviser Class will be lower than the Class C shares. The Class C shares are
subject to annual Rule 12b-1 fees of 1.00% of the average annual daily net
assets of the class, while the Adviser Class is only subject to annual Rule 12b-
1 fees of 0.25%.
Total Return as of 12/31 1<F1>
1996 24.36%
1997 34.83%
1998 15.01%
BEST QUARTER: Q4 1998 27.67%
WORST QUARTER: Q3 1998 -16.07%
1<F1> The six month return of the Class C shares for the period January 1, 1999
through June 30, 1999 was 28.19%.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98
SINCE INCEPTION
1 YEAR 9/21/95
------ ---------------
Olstein Financial Alert Fund 15.01% 23.11%
S&P 500 Index (w/ dividends reinvested)1<F2> 28.58% 27.64%
Lipper Capital Appreciation Funds Index 19.80% 17.18%
1<F2> The S&P 500 Index is an unmanaged index created by Standard & Poor's
Corporation that is considered to represent the U.S. stock market
performance in general, and is not an investment product available for
purchase. The Class C returns presented above include operating expenses
(such as management fees, transaction costs, etc.) that reduce returns,
while the return of the S&P 500 Index does not. An individual who
purchases a product that attempts to mimic the performance of the S&P 500
Index will incur expenses such as management fees, transaction costs,
etc. that reduce returns.
2<F3> The Lipper Capital Appreciation Funds Index consists of the average
return of the 30 largest capital appreciation funds tracked by Lipper
Analytical Services. Performance is presented after the deduction of
all fees.
FUND EXPENSES
The following tables describe the fees and expenses that you would pay if you
buy and hold shares of the Adviser Class of the Fund.
SHAREHOLDER TRANSACTION FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge on Purchases None
Maximum Contingent Deferred Sales Charge None
Maximum Sales Charge on Reinvested Dividends None
Redemption Fees None1<F4>
1<F4> The transfer agent charges a $12.00 fee for each wire redemption.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees 1.00%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.25%
-----
TOTAL ANNUAL OPERATING COSTS 1.50%
EXAMPLE
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The Example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of each period. The Example also
assumes that you earn a 5% return, with no change in Fund expense levels.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$153 $474 $818 $1,791
OLSTEIN & ASSOCIATES MANAGED ACCOUNT PERFORMANCE
The following table provides information about the performance record
established by the Olstein & Associates portfolio management team while managing
individual client accounts at Smith Barney Inc. from December 31, 1990 through
the quarter immediately preceding the commencement of Fund operations. The
accounts whose performance is shown were managed according to the same
investment objectives, strategies and philosophy, and were subject to
substantially similar investment policies and techniques as those used by the
Fund.
The results presented are not intended to predict or suggest the return to be
experienced by the Fund or the return that an individual investor might achieve
by investing in the Fund. The Fund's results may be different from the
composite of separate accounts shown because of, among other things, differences
in fees and expenses, and because private accounts are not subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the Investment Company Act of 1940, as amended, and the Internal
Revenue Code, as amended, which, if applicable, may have adversely
affected the performance of such accounts.
The accounts whose performance is shown were managed according to the same
investment objectives and philosophy, and were subject to substantially similar
investment policies and techniques, as those used by the Fund.
NET OLSTEIN S&P 500
PERFORMANCE2<F6> TOTAL RETURN3<F7>
---------------- -----------------
1991 +32.26% +30.48%
1992 +12.29% +7.77%
1993 +11.63% +10.07%
1994 +4.90% +1.32%
1995 (1st six mos.)1<F5> +15.09% +20.25%
1<F5> The Fund commenced operations in the third quarter of 1995, at
which time Olstein & Associates discontinued managing separate
accounts. The Smith Barney clients' investment performance was
calculated on a quarterly basis, and therefore no performance
was calculated for the third quarter of 1995.
2<F6> The results shown above represent a composite of discretionary,
fee paying, separate accounts, reflect the reinvestment of any
dividends or capital gains, and are shown after deduction of
fees of 3.0%, which represents the highest possible account
management fee (including all investment management,
transaction, administrative and custodial fees) charged to such
accounts by Smith Barney Inc. The method used to calculate the
performance shown differs from the standard SEC method which is
used to calculate returns for mutual funds.
3<F7> The S&P 500 Total Return reflects the reinvestment of dividends
and capital gains, but represents a "gross" return, without the
deduction of any fees.
OBJECTIVES, STRATEGIES AND MAIN RISKS
OBJECTIVES
The Fund's primary investment objective is long-term capital appreciation.
The Fund seeks to achieve this objective through investment in a diversified
portfolio of common stocks selected according to the value-oriented investment
philosophy described in the Summary of the Fund section of this prospectus. If
the investment manager determines that securities meeting the Fund's value
criteria are not available, the Fund may invest all or a portion of its assets
in short-term fixed income or money market securities in order to pursue the
Fund's secondary objective of income.
The Fund's investment philosophy and value-oriented approach to the goal of
long-term capital appreciation requires investors who are willing to accept
fluctuations in market psychology and who have the patience to follow a value
investing discipline. Therefore, the Fund is designed for investors with a
longer-term investment outlook of at least three-to-five years. The Fund
believes that value investing requires a disciplined, patient approach because
anticipated stock values often take time to emerge.
STRATEGIES
The Fund seeks to achieve its objective by investing primarily in a
diversified portfolio of common stocks of U.S. based companies which are
selected because their financial characteristics are consistent with the Fund's
unique value philosophy. When evaluating a potential company for investment,
the investment manager performs an intensive, inferential analysis of the
historical and current information contained in the company's publicly disclosed
financial statements and accompanying footnotes, shareholder reports and other
required disclosure filings. The manager scrutinizes the company's corporate
accounting and reporting techniques in an effort to "look behind the numbers" to
obtain an accurate understanding of the company's business fundamentals and
business characteristics.
The manager believes that the true quality and value of a company is
associated with its financial strength, its ability to provide excess cash flow,
the quality and predictability of its earnings based on the company's unique
business and financial fundamentals. The manager believes that, in order to
achieve long-term capital appreciation, downside risk should be considered
before upside potential in the stock selection process. The first line of
defense for protecting against downside risk is to only select companies for the
portfolio that generate positive excess cash flow. Companies that generate
excess cash flow have the potential to:
o Raise their dividend payments
o Re-purchase company shares
o Make strategic acquisitions
o Ride out rough times without adopting short-term strategies not in the
long-term interest of the company in order to alleviate cash shortages
o Be acquired as a result of their strong financial position
OLSTEIN & ASSOCIATES IDENTIFIES AND SELECTS
COMPANIES WHICH, IN THE MANAGER'S OPINION:
o Generate more cash flow than necessary
to sustain business
o Avoid aggressive accounting practices
such as capitalizing regular expenses
o Demonstrate balance sheet fundamentals that
are consistent with the Fund's "defense first" approach
o Are selling at a discount to the private market
value as estimated by Olstein & Associates
The manager considers aggressive accounting practices to include: (i) "front
end" accounting techniques that immediately flow non-recurring revenues such as
up-front franchising fees through the company's income statement; (ii) "purchase
accounting" techniques that use non-recurring cost writeoffs associated with
corporate acquisitions to enable the company to increase reported earnings;
(iii) capitalization of research and development, advertising or promotional
payments, when such capitalization contributes to yearly earnings growth; and
(iv) reversing previously established reserves which can increase reported
income. In addition, the investment manager avoids companies that use
accounting techniques to report higher profits to shareholders than those
reported to the IRS for tax purposes. For example, firms that capitalize
marketing costs for shareholder reporting purposes and expense such costs for
tax reporting purposes can report higher earnings figures to shareholders.
If the manager identifies companies that engage in aggressive accounting
practices, carry excessive debt or are over-leveraged, and the manager believes
that their stock price is overvalued, the Fund may sell the stock short. Short
sales allow the Fund to realize profits if the stock price declines below the
level where the Fund sold the stock short.
The investment manager calculates the "private market value" of a company by
considering the amount of excess cash flow expected to be generated by the
company over five years after taking into account all working capital needs and
capital expenditures. The manager next calculates the return that could be
generated by an investment in the company based on the anticipated excess cash
flows. This return is then compared to the available rates of return on three-
to-five year U.S. Treasury notes. The Fund seeks investments that could provide
returns over a five year time period that are at least fifty percent higher than
the yield on such U.S. Treasury notes.
Once suitable investments are identified as described above, the Fund seeks
to buy the companies' common stock at prices that reflect a discount to the
manager's calculation of the stock's "private market value." This approach
differs from the traditional value investing technique which relies on an
analysis of the price-to-earnings ratios reported by companies. The Fund
believes that stock prices often fall below the "private market value" as a
result of analysts and investors who focus on the short-term and overreact to a
company's failure to fully meet quarterly earnings estimates, or to other
negative information. The Fund also believes that negative market psychology
can cause stocks to be temporarily unpopular or improperly valued. The Fund
intends to capitalize on market volatility and valuation extremes, by purchasing
stocks at prices that the manager believes can result in above average capital
appreciation if and when the deviation in stock prices are corrected by market
forces.
In addition to common stocks, the Fund may invest in other equity securities
or securities that have an equity component, such as warrants, rights or
securities that are convertible into common stock. The Fund may also purchase
and sell American Depository Receipts ("ADRs"), which are receipts typically
issued by a U.S. bank or trust company which evidence ownership of underlying
foreign securities, although the Fund does not expect to invest more than 5% of
its assets in ADRs. 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 and, indirectly,
to better manage the Fund's ability to experience taxable gains or losses in an
effort to maximize the after-tax returns for shareholders.
If the investment manager determines that suitable undervalued equity
securities are not available, the Fund may seek income by investing all or a
portion of its assets in other types of securities, including preferred stock,
debt securities issued or guaranteed as to principal by the United States
government, its agencies or instrumentalities, and/or other high-quality,
investment grade debt securities (commercial paper, repurchase agreements,
bankers' acceptances, certificates of deposit and other fixed income securities,
including non-convertible and convertible bonds, debentures and notes issued by
U.S. corporations and certain bank obligations and loan participations). The
Fund may also invest in money market mutual funds within the limitations imposed
by the 1940 Act.
MAIN RISKS
MANAGER AND STOCK MARKET RISK
Olstein & Associates makes all decisions regarding the Fund's investments.
Therefore the Fund's investment success depends on the skill of Olstein &
Associates in evaluating, selecting and monitoring the Fund's assets. Like all
mutual funds, an investment in the Fund is subject to the risk that prices of
securities may decline over short, or even extended periods, or that the
investments chosen by the investment manager may not perform as anticipated. In
addition, because the Fund uses a value-oriented approach, there is a risk that
the market will not recognize a stock's intrinsic value for an unexpectedly long
time, or that the investment manager's calculation of the underlying value will
not be reflected in the market price.
THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE
LONG-TERM CAPITAL APPRECIATION.
SHORT SELLING
If the Fund anticipates that the price of a company's stock is overvalued and
will decline, it may sell the security short and borrow the same security from a
broker or other institution to complete the sale. The Fund may realize a profit
or loss depending upon whether the market price of a security decreases or
increases between the date of the short sale and the date on which the Fund
replaces the borrowed security. Short selling is a technique that may be
considered speculative and involves risk beyond the initial capital necessary to
secure each transaction. Whenever the Fund sells short, it is required to
deposit collateral in segregated accounts to cover its obligation, and to
maintain the collateral in an amount at least equal to the market value of the
short position. As a hedging technique, the Fund may purchase call options to
buy securities sold short by the Fund. Such options would lock in a future
purchase price and protect the Fund in case of an unanticipated increase in the
price of a security sold short by the Fund.
PORTFOLIO TURNOVER
The Fund intends to follow a strict "buy and sell" discipline, under which it
will purchase or sell stocks whenever the Fund's value criteria are met. This
practice may result in a portfolio turnover rate higher than that reached by
many capital appreciation funds. High portfolio turnover involves additional
transaction costs (such as brokerage commissions), which are borne by the Fund,
and might involve adverse tax effects.
YEAR 2000 ISSUES
Like all mutual funds, the Fund and its service providers utilize systems
that must accurately process date related information on or after January 1,
2000. If the systems used by the Fund or its service providers (investment
manager and distributor, transfer agent, custodian, administrator and others)
are negatively affected by Year 2000 issues, the Fund may not be able to handle
securities trades, payments of interest and dividends, or pricing and account
services. Although, at this time, there can be no assurance that there will be
no adverse impact on the Fund, the Fund's service providers have advised the
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000 and expect that their systems, and those of
other parties they deal with, will be adapted in time for that event.
MANAGEMENT OF THE FUND
The Fund's investments and business operations are managed by Olstein &
Associates, L.P., subject to supervision by a Board of Trustees. The members of
the Board of Trustees are fiduciaries for the Fund's shareholders and establish
policy for the operation of the Fund.
As investment manager, Olstein & Associates selects investments for the Fund,
supervises the Fund's portfolio transactions to buy and sell securities, all
according to the Fund's stated investment objectives and policies. The
investment manager is also responsible for selecting brokers and dealers to
execute the Fund's portfolio transactions. The investment manager may place
transactions through itself or Fund affiliates, subject to SEC rules designed to
ensure fairness of commissions. The firm also manages the day-to-day operation
of the business of the Fund. The investment manager will provide on a
reimbursable basis, administrative and clerical services, office space and other
facilities for the Fund, and keep certain books and records for the Fund. To
date, the investment manager has chosen not to accrue or seek reimbursement for
such expenses from the Fund. For its services the investment manager receives
an annual fee equal to 1.00% of the Fund's average daily net assets.
Robert A. Olstein is the president of Olstein & Associates and is principally
responsible for the management of the Fund's portfolio of securities.
Mr. Olstein has been engaged in various aspects of securities research and
portfolio management for both institutional and retail clients since 1968. In
1971, he co-founded the Quality of Earnings Report service, which pioneered the
concept of using inferential financial screening techniques to analyze balance
sheets and income statements to alert institutional portfolio managers to
positive or negative factors affecting a company's future earnings power and
value of a company's stock. Prior to forming Olstein & Associates, Mr. Olstein
managed portfolios for individuals, corporations and employee benefit plans at
Smith Barney Inc. and its predecessor companies between 1981 and 1995.
Mr. Olstein was a Senior Vice President/Senior Portfolio Manager at Smith Barney
where he managed approximately $158 million of individual and employee benefit
accounts, $73 million of which were managed under the Smith Barney Equity
Portfolio Management Program. Mr. Olstein is a senior member of the New York
Society of Securities Analysts and a fellow of the Financial Analysts
Federation. He is a past recipient of the Graham & Dodd and Gerald M. Loeb
Research Awards, has testified before the Senate Banking Committee on bank
accounting, and has been quoted in and is the author of numerous articles on
corporate reporting and disclosure practices in publications such as the Wall
Street Journal, Business Week, the New York Times, Baron's, etc. Mr. Olstein
periodically serves as co-host on CNBC's "Squawk Box" show.
MR. OLSTEIN HAS BEEN IN THE MANAGEMENT BUSINESS SINCE 1968
FUND DISTRIBUTION
Shares of the Fund are offered to investors through financial advisers such
as brokers, dealers, investment advisers and financial planners. These
financial advisers are eligible to offer shares of the Adviser Class of the
Fund, provided they separately charge investment advisory or management fees to
their clients. Olstein & Associates serves as the Fund's principal underwriter
and national distributor. In addition to its status as a registered investment
adviser, Olstein & Associates is registered as a broker-dealer and is a member
of the National Association of Securities Dealers, Inc.
As distributor, Olstein & Associates selects financial advisers to enter into
agreements to sell the Fund's shares. Olstein & Associates also provides
marketing and shareholder servicing support for the Fund, and coordinates the
distribution activities of the Fund, its service providers and financial
advisers who sell the Funds' shares.
RULE 12B-1 PLAN
The Fund has adopted a Shareholder Servicing and Distribution Plan for the
Adviser Class pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended. Under the Plan, the assets of the Adviser Class are subject to
annual fees totaling 0.25% of the average daily net assets of the Class. These
fees are used to pay for the sale of shares of the Class and for shareholder and
distribution services provided to Class shareholders. Because these fees are
paid out of the Class's assets on an on-going basis, over time these fees may
cost you more than paying other types of sales charges.
FINANCIAL HIGHLIGHTS
The following table includes selected per share data and other performance
information for the Fund throughout each period and is derived from the audited
financial statements of the Fund. It should be read together with the Fund's
financial statements, notes and the unqualified report of independent auditors,
Ernst & Young, LLP along with management's discussion and analysis of the Fund's
performance, appearing in the Fund's Annual Report to Shareholders for the year
ended August 31, 1998. The Fund's Annual Report may be obtained without charge
by writing or calling the Fund at the address or number listed on the prospectus
cover.
THIS FINANCIAL HIGHLIGHTS TABLE REFLECTS THE PERFORMANCE OF THE SHARES OF THE
CLASS C SHARES OF THE FUND, RATHER THAN THE ADVISER CLASS OF THE FUND, WHICH IS
A NEW CLASS AND DOES NOT HAVE A HISTORICAL PERFORMANCE RECORD. BECAUSE BOTH
CLASSES INVEST IN THE SAME PORTFOLIO OF INVESTMENTS, THEY WILL HAVE SIMILAR BUT
NOT IDENTICAL FINANCIAL PERFORMANCE.
<TABLE>
FOR THE PERIOD
FOR THE FOR THE FOR THE SEPTEMBER 21, 1995+<F8>
SIX MONTHS ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED THROUGH
FEBRUARY 28, 1999 AUGUST 31, 1998 AUGUST 31, 1997 AUGUST 31, 1996
(UNAUDITED)
----------------- ---------------- ---------------- ----------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.88 $ 14.79 $ 11.21 $ 10.00
INVESTMENT OPERATIONS:
Net investment loss (0.03)1<F11> (0.06)1<F11> (0.05) (0.07)
Net realized and unrealized gain (loss)
on investments 3.84 (0.95) 4.66 1.29
Total from investment operations 3.81 (1.01) 4.61 1.22
DISTRIBUTIONS:
From net realized gain on investments (0.65) (2.90) (1.03) (0.01)
NET ASSET VALUE - END OF PERIOD $ 14.04 $ 10.88 $ 14.79 $ 11.21
TOTAL RETURN++<F9> 35.32% (9.33)% 43.61% 12.22%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses2<F12> 2.16% 2.25% 2.38% 2.43%*<F10>
Net investment loss (0.51)%*<F10> (0.39)% (0.45)% (0.68)%*<F10>
Interest and dividends on short positions 0.22%*<F10> -- -- --
Portfolio turnover rate 111.04% 187.44% 164.92% 139.77%*<F10>
Net assets at end of period ($000 omitted) $271,461 $204,323 $175,602 $109,005
+<F8> Commencement of operations.
++<F9> 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.
*<F10> Annualized.
1<F11> Net investment loss per share represents net investment loss divided by average shares outstanding throughout the period.
2<F12> The expense ratio excludes interest expenses on equity swap contracts and dividends on short positions. The ratio
including such interest and dividends for the period ended February 28, 1999 was 2.38%.
</TABLE>
SHAREHOLDER INFORMATION
ELIGIBLE INVESTORS
ABOUT THE ADVISER CLASS. The Adviser Class is sold through broker/dealers,
investment advisers, financial planners, financial institutions, and other
financial professionals (hereafter, "Financial Advisers"). The Rule 12b-1
distribution or shareholder servicing fees are lower for this class of shares
than the Fund's Class C shares because the Financial Advisers selling this class
charge investors an additional fee for advisory services (usually asset-based)
and perform distribution, administration and/or shareholder services that
benefit the Fund.
The Fund currently offers the no-load Adviser Class shares described in this
Prospectus as well as Class C shares which are described in a separate
prospectus. (For information or a copy of the Class C prospectus, call
(888) 887-9827). Shares of each class represent interests in the Fund's
portfolio of investments and share equally in the Fund's gains or losses, except
that each class is subject to differing distribution and shareholder servicing
expenses.
WHO MAY PURCHASE THE ADVISER CLASS. The following investors may qualify to
purchase Adviser Class shares of the Fund:
o Clients of Financial Advisers who charge their clients asset-based fees
for advisory services.
o A bank, trust company or similar financial institution investing for the
account of one of its customers for whom it exercises investment
discretion over a trust account.
o A tax-exempt employee benefit plan of Olstein & Associates or any
officer or trustee of The Olstein Funds, or a full-time employee of
Olstein & Associates.
PRICING OF FUND SHARES
The price for Adviser Class shares is the net asset value per share ("NAV"),
which is determined by the Fund as of the close of regular trading (generally
4:00 p.m. eastern time) on each day that the New York Stock Exchange is open for
unrestricted trading. Purchase and redemption requests are priced at the next
NAV calculated after receipt and acceptance of a completed purchase or
redemption request. The NAV is determined by dividing the value of the Fund's
securities, cash and other assets, minus all expenses and liabilities, by the
number of shares outstanding (assets - liabilities/# of shares = NAV). The NAV
takes into account the expenses and fees of the Fund, including management,
distribution and shareholder servicing fees, which are accrued daily. Each
class of shares of the Fund will have its own NAV which reflects any variations
in distribution and shareholder servicing fees among the classes.
The Fund's portfolio securities are valued each day at their market value,
which usually means the last quoted sale price on the security's principal
exchange that day. If market quotations are not readily available, securities
will be valued at their fair market value as determined in good faith, or under
procedures approved by, the Board of Trustees. The Fund may use independent
pricing services to assist in calculating NAV.
The SAI contains additional information regarding the pricing of the Fund
shares.
HOW TO PURCHASE SHARES
All initial purchases of Adviser Class shares must be made through a
Financial Adviser that is authorized to sell Adviser Class shares of the Fund.
The Fund's manager and distributor, Olstein & Associates, requires that all
accounts opened by such Financial Advisers are for investors who meet the
eligibility requirements described above.
Shares are normally purchased at the first NAV calculated after the Fund's
transfer agent, Firstar Mutual Fund Services, LLC ("Firstar"), receives and
accepts a purchase order in proper form as described below. The Fund has
entered into one or more agreements with Financial Advisers under which the
Financial Advisers may directly, or through intermediaries that the Financial
Advisers are authorized to designate, accept purchase and redemption orders that
are in "proper form" on behalf of the Fund. The Fund will be deemed to have
received a purchase order when the Financial Adviser or intermediary accepts the
purchase order and such order will be priced at the NAV next computed for the
Adviser Class after such order is accepted by the Financial Adviser or
intermediary.
Shares of the Funds may be purchased through Financial Adviser that may
charge the investor a transaction fee or other fee for their service at the time
of purchase. Such fees would not otherwise be charged by the Fund.
The Fund reserves the right to reject your purchase order and to suspend the
offering of shares of the Fund. The Fund reserves the right to vary the
following initial and subsequent minimum investment requirements at any time.
MINIMUM INVESTMENTS INITIAL SUBSEQUENT
------------------- ------- ----------
Regular Accounts $1,000 $100 ($1,000 by wire)
Qualified Tax Sheltered Retirement
Plans or IRAs $250 $100
PURCHASES THROUGH YOUR FINANCIAL ADVISER
Contact your Financial Adviser to open or add to your account.
PURCHASES BY MAIL
Financial Advisers should have the investor complete and sign the
New Account Application form.
Make check or money order payable to The Olstein Financial Alert Fund - Adviser
Class
MAIL TO: OVERNIGHT OR EXPRESS MAIL TO:
THE OLSTEIN FINANCIAL THE OLSTEIN FINANCIAL
ALERT FUND (Adviser Class) ALERT FUND (Adviser Class)
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 East Michigan Street
Milwaukee, WI 53201-0701 Milwaukee, WI 53202
Setting up an IRA account? Please call the Fund at (888) 887-9827 for details.
All checks and money orders must be in U.S. Dollars only. No cash will be
accepted.
NOTE: FIRSTAR MUTUAL FUND SERVICES, LLC CHARGES A $25 FEE FOR ANY RETURNED
CHECKS DUE TO INSUFFICIENT FUNDS. YOU WILL BE RESPONSIBLE FOR ANY LOSSES
SUFFERED BY THE FUND AS A RESULT.
PURCHASES BY WIRE
Call first to set up a new account by wire to give the Fund the investment and
dollar amount: (888) 887-9827
Immediately send a completed New Account Application form to the Fund at the
above address to have all accurate information recorded to your account. Your
purchase request should be wired through the Federal Reserve Bank as follows:
Firstar Bank Milwaukee, N.A. Credit to: Firstar Mutual Fund Services, LLC
777 East Wisconsin Avenue Account Number: 112-952-137
Milwaukee, Wisconsin 53202 Further credit to: The Olstein Financial
Alert Fund
ABA Number: 075000022 Your account name and account number
(For new accounts, include taxpayer identification number)
PURCHASES BY TELEPHONE
The telephone purchase option allows you to move money from your bank account
to your Fund account at your request. Only bank accounts held at domestic
financial institutions that are Automated Clearing House (ACH) members may be
used for telephone transactions.
To have your Fund shares purchased at the NAV determined at the close of
regular trading on a given date, Firstar must receive both your purchase order
and payment by Electronic Funds Transfer through the ACH System before the close
of regular trading on that date. Most transfers are completed within three
business days. YOU MAY NOT USE TELEPHONE TRANSACTIONS FOR INITIAL PURCHASES OF
FUND SHARES.
The minimum amount that can be transferred by telephone is $100. For
information about telephone transactions, please call the Fund at (888) 887-
9827.
AUTOMATIC INVESTMENT PLAN
You may purchase shares of the Fund through an Automatic Investment Plan
which allows monies to be deducted directly from your checking, savings or bank
money market accounts to invest in the Fund. You may make automatic investments
on a weekly, monthly, bi-monthly (every other month) or quarterly basis.
Minimum initial investment: $1,000
Subsequent monthly investment: $ 100
You are eligible for this plan if your account is maintained at a domestic
financial institution which is an ACH member.
The Fund may alter, modify or terminate this Plan at any time. For
information about participating in the Automatic Investment Plan, call the Fund
at (888) 887-9827.
ADDITIONAL INVESTMENTS
You may add to your account at any time by purchasing shares by mail (minimum
$100) or by wire (minimum $1,000) according to the above wiring instructions.
You must notify the Fund at (888) 887-9827 prior to sending your wire. You must
send a remittance form which is attached to your individual account statement
together with any subsequent investments made through the mail. All purchase
requests must include your account registration number in order to assure that
your funds are credited properly.
HOW TO REDEEM SHARES
You may redeem your shares of the Fund on any business day that the Fund
calculates its NAV. Generally, redemption requests should be made through your
Financial Adviser. Redemption requests in excess of $50,000 must be made in
writing. Your shares will be sold at the NAV next calculated after your
redemption request is accepted by the transfer agent.
If your redemption request is in good order, the Fund will normally send you
your redemption proceeds on the next business day and no later than seven
calendar days after receipt of the redemption request. The Fund can send
payments by wire directly to any bank previously designated by you in the New
Account Application. A $12.00 fee is charged for each wire redemption.
REMEMBER:
CHECKS ARE SENT TO YOUR ADDRESS ON RECORD. IF YOU MOVE, TELL US!
If you purchase shares by check and request a redemption soon after the
purchase, the Fund will honor the redemption request, but will not mail the
proceeds until your purchase check has cleared (usually within 12 days). If you
make a purchase with a check that does not clear, the purchase will be canceled
and you will be responsible for any losses or fees incurred in that transaction.
Checks will be made payable to you and will be sent to your address of
record. If the proceeds of the redemption are requested to be sent to an
address other than the address of record or if the address of record has been
changed within 15 days of the redemption request, the request must be in writing
with your signature(s) guaranteed. The Fund is not responsible for interest on
redemption amounts due to lost or misdirected mail.
Shares of the Fund may be redeemed through Financial Advisers that may charge
the investor a transaction fee or other fee for their services at the time of
redemption. Such fees would not otherwise be charged by the Fund.
IF YOUR ACCOUNT FALLS BELOW $1,000, THE FUND
MAY ASK YOU TO INCREASE YOUR BALANCE.
IF YOU DON'T, YOUR SHARES COULD BE
AUTOMATICALLY REDEEMED.
Certain authorized Financial Advisers and their designated intermediaries are
authorized to accept redemption orders on behalf of the Fund. The Fund will be
deemed to have received a redemption order when the Financial Advisers or
intermediary accepts the redemption order and such order will be priced at the
NAV next computed for the Adviser Class after such order is accepted by the
Financial Adviser or intermediary.
SIGNATURE GUARANTEES
Signature guarantees are needed for
o Redemption requests over $50,000
o Redemption requests to be sent to a different address other than the
address of record
o Obtaining or changing telephone redemption privileges
Signature guarantees can be obtained from banks and securities dealers, but
not from a notary public. The transfer agent may require additional supporting
documents for redemptions made by corporations, executors, administrators,
trustees and guardians. The New Account Application contains appropriate
information and a form on which to make the signature guarantee.
REDEMPTIONS IN-KIND
If your redemption request exceeds the lesser of $250,000 or 1% of the NAV
(an amount that would affect Fund operations), the Fund reserves the right to
make a "redemption in-kind." A redemption in-kind is a payment in portfolio
securities rather than cash. The portfolio securities would be valued using the
same method as the Fund uses to calculate its NAV. You may experience
additional expenses such as brokerage commissions in order to sell the
securities received from the Fund. In-kind payments do not have to constitute
a cross section of the Fund's portfolio. The Fund will not recognize gain or
loss for federal tax purposes on the securities used to complete an in-kind
redemption, but you will recognize gain or loss equal to the difference between
the fair market value of the securities received and the shareholder's basis in
the Fund shares redeemed.
REDEMPTION THROUGH YOUR FINANCIAL ADVISER
Contact your Financial Adviser.
REDEMPTION BY MAIL
Send written redemption requests to:
THE OLSTEIN FINANCIAL ALERT FUND (Adviser Class)
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
If a redemption request is inadvertently sent to the Fund at its corporate
address, it will be forwarded and the effective date of redemption will be
delayed until the request is received by Firstar.
The Fund cannot honor any redemption requests with special conditions or
which specify an effective date other than as provided.
A redemption request must be received in good order by Firstar for the
request to be processed. "Good Order" means the request for redemption must
include a Letter of Instruction specifying or containing:
o the NAME of the Fund
o the NUMBER of shares or the DOLLAR amount of shares to be redeemed
o SIGNATURES of all registered shareholders exactly as the shares are
registered
o the ACCOUNT registration number
o Any additional requirements listed below that apply to your particular
account
TYPE OF REGISTRATION REQUIREMENTS
-------------------- ------------
Individual, Joint Tenants, Redemption requests must be signed by
Sole Proprietorship, Custodial all person(s) required to
(Uniform Gift to Minors Act), sign for the account, exactly as the
General Partners account is registered.
Corporations, Associations Redemption request and a corporate
resolution, signed by person(s)
required to sign for the account,
accompanied by signature guarantee(s).
Trusts Redemption request signed by the
trustee(s), with a signature
guarantee. (If the Trustee's name is
not registered on the account, a copy
of the trust document certified within
the past 60 days is also required.)
IRA REDEMPTIONS
If you have an IRA, you must indicate on your redemption request whether or
not to withhold federal income tax. Redemption requests not indicating an
election to have federal tax withheld will be subject to withholding. If you
are uncertain of the redemption requirements, please contact Firstar Mutual Fund
Services, LLC in advance: (888) 887-9827.
REDEMPTION BY TELEPHONE
If you are set up to perform telephone transactions (either through your New
Account Application or by subsequent arrangements in writing), you may redeem
shares in any amount up to $50,000 by instructing the transfer agent by
telephone at: (888) 887-9827. Redemption requests for amounts exceeding $50,000
must be made in writing.
If the proceeds are sent by wire, Firstar will assess a $12.00 wire fee.
In order to arrange for redemption by wire or telephone after an account has
been opened, or to change the bank or account designated to receive redemption
proceeds, a written request must be sent to the transfer agent at the address
listed above.
A signature guarantee is required of all shareholders in order to qualify for
or to change telephone redemption privileges.
NEITHER THE FUND NOR ANY OF ITS SERVICE CONTRACTORS WILL BE LIABLE FOR ANY
LOSS OR EXPENSE IN ACTING UPON ANY TELEPHONE INSTRUCTIONS THAT ARE REASONABLY
BELIEVED TO BE GENUINE. The Fund will use reasonable procedures to attempt to
confirm that all telephone instructions are genuine such as:
o requesting a shareholder to correctly state his or her Fund account number,
o the name in which his or her account is registered,
o his or her banking institution,
o bank account number and
o the name in which his or her bank account is registered.
THE FUND AND FIRSTAR EACH RESERVE THE RIGHT TO REFUSE A WIRE OR TELEPHONE
REDEMPTION IF IT IS BELIEVED ADVISABLE TO DO SO. PROCEDURES FOR REDEEMING FUND
SHARES BY WIRE OR TELEPHONE MAY BE MODIFIED OR TERMINATED AT ANY TIME BY THE
FUND.
The Fund is not responsible for interest on redemptions due to lost or
misdirected mail.
ACH TRANSFER
Redemption proceeds can be sent to your bank account by ACH transfer. You
can elect this option by completing the appropriate section of the New Account
Application form. If money is moved by ACH transfer, you will not be charged by
the Fund for these services. There is a $100 minimum per ACH transfer.
SYSTEMATIC WITHDRAWAL PLAN
If you own shares with a value of $10,000 or more, you may participate in the
Systematic Withdrawal Plan. The Fund's systematic withdrawal option allows you
to move money automatically from your Fund account to your bank account
according to the schedule you select. The minimum systematic withdrawal amount
is $100.
To select the systematic withdrawal option you must check the appropriate box
on the New Account Application. If you expect to purchase additional Fund
shares, it may not be to your advantage to participate in the Systematic
Withdrawal Plan because contemporaneous purchases and redemptions may result in
adverse tax consequences.
For further details about this service, see the New Account Application or
call the transfer agent at (888) 887-9827.
RETIREMENT PLANS
Shares of the Fund are available for use in all types of tax-deferred
retirement plans such as:
o IRAs,
o employer-sponsored defined contribution plans (including 401(k) plans), and
o tax-sheltered custodial accounts described in Section 403(b)(7) of the
Internal Revenue Code.
Qualified investors benefit from the tax-free compounding of income dividends
and capital gains distributions. Application forms and brochures describing
investments in the Fund for retirement plans can be obtained by calling the Fund
at (888) 887-9827. Below is a brief description of the types of retirement
plans that may invest in the Fund:
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS)
You are eligible to contribute on a deductible basis to an IRA account if you
are not an active participant in an employer maintained retirement plan and,
when a joint return is filed, you do not have a spouse who is an active
participant. The IRA deduction is also available for individual taxpayers and
married couples with adjusted gross incomes not exceeding certain limits. All
individuals who have earned income may make nondeductible IRA contributions to
the extent that they are not eligible for a deductible contribution. Income
earned by an IRA account will continue to be tax deferred. Roth IRAs are also
available.
A special IRA program is available for employers under which the employers
may establish IRA accounts for their employees in lieu of establishing tax
qualified retirement plans. SEP-IRAs (Simplified Employee Pension-IRA) free the
employer of many of the recordkeeping requirements of establishing and
maintaining a tax qualified retirement plan trust.
ROTH IRAs
Roth IRAs permit tax free distributions of account balances if the assets have
been invested for five years or more and the distributions meet certain
qualifying restrictions. Investors filing as single taxpayers who have adjusted
gross incomes of $95,000 or more, and investors filing as joint taxpayers with
adjusted gross incomes of $150,000 or more may find their participation in this
IRA to be restricted.
If you are entitled to receive a distribution from a qualified retirement
plan, you may rollover all or part of that distribution into the Fund's IRA.
Your rollover contribution is not subject to the limits on annual IRA
contributions. You can continue to defer Federal income taxes on your
contribution and on any income that is earned on that contribution.
Firstar Bank Milwaukee, N.A. makes available its services as an IRA Custodian
for each shareholder account established as an IRA. For these services, Firstar
Bank Milwaukee, N.A. receives an annual fee of $12.50 per account with a cap of
$25.00 per social security number, which fee is paid directly to Firstar Bank
Milwaukee, N.A. by the IRA shareholder. If the fee is not paid by the date due,
shares of the Fund owned by the shareholder in the IRA account will be redeemed
automatically for purposes of making the payment. IRAs are subject to special
rules and conditions that must be reviewed by the investor when opening a new
account.
401(K) PLANS AND OTHER DEFINED CONTRIBUTION PLANS
Both self-employed individuals (including sole proprietorships and
partnerships) and corporations may use shares of the Fund as a funding medium
for a retirement plan qualified under the Internal Revenue Code. Such plans
typically allow investors to make annual deductible contributions, which may be
matched by their employers up to certain percentages based on the investor's
pre-contribution earned income.
403(B)(7) RETIREMENT PLANS
Schools, hospitals, and certain other tax-exempt organizations or
associations may use shares of the Fund as a funding medium for a retirement
plan for their employees. Contributions are made to the 403(b)(7) Plan as a
reduction to the employee's regular compensation. Such contributions are
excludable from the gross income of the employee for Federal Income tax purposes
to the extent they do not exceed applicable limitations (including a generally
applicable limitation of $9,500 per year).
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
The Fund will declare and pay annual dividends to its shareholders of
substantially all of its net investment income, if any, earned during the year
from investments and will distribute gains, if any, once a year.
Expenses of the Fund, including the investment management fees and 12b-1
fees, are accrued each day. Reinvestments of dividends and distributions in
additional shares of the Fund will be made at the net asset value determined on
the payable date, unless you elect to receive the dividends and/or distributions
in cash. No interest will accrue on amounts represented by uncashed
distribution or redemption checks. You may change your election at any time by
notifying the Fund in writing thirty days prior to the record date. Please call
the Fund at (888) 887-9827 for more information.
In general, distributions from the Fund are taxable to you as either ordinary
income or capital gains. This is true whether you reinvest your distributions in
additional shares of the Fund or receive them in cash. Any capital gains
distributed by the Fund are taxable to you as long-term capital gains no matter
how long you have owned your shares. Every January, you will receive a
statement that shows the tax status of distributions you received for the
previous year. Distributions declared in December but paid in January are
taxable as if they were paid in December. Distributions taxed as capital gains
may be taxable at different rates depending on how long the Fund holds its
assets.
When you sell or exchange your shares of the Fund, you may have a capital
gain or loss. The tax rate on any gain from the sale or exchange of your shares
depends on how long you have held your shares.
Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Non-U.S. investors may be
subject to U.S. withholding and estate tax. You should consult your tax
professional about federal, state, local or foreign tax consequences.
By law, the Fund must withhold 31% of your distributions and proceeds if you
do not provide your correct taxpayer identification number, or certify that such
number is correct, or if the IRS instructs the Fund to do so.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND.
THE a series of
OLSTEIN THE OLSTEIN FUNDS
FINANCIAL 4 Manhattanville Road
ALERT Purchase, NY 10577
FUND (888) 887-9827
FOR MORE INFORMATION
YOU MAY OBTAIN THE FOLLOWING AND OTHER INFORMATION ON THE FUND FREE OF CHARGE:
o Annual and Semi-annual Report to Shareholders
The annual and semi-annual reports provide the Fund's most recent financial
report and portfolio listings. The annual report contains a discussion of
the market conditions and investment strategies that affected the Fund's
performance during its last fiscal year.
o Statement of Additional Information (SAI) dated September 1, 1999
The SAI provides more details about the Fund's policies and management and
is incorporated by reference into this Prospectus.
INQUIRIES MAY BE MADE TO THE FOLLOWING:
TELEPHONE:
(888) 887-9827
MAIL:
The Olstein Financial Alert Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
SEC:
Text only versions of Fund documents can be viewed online or downloaded from:
http://www.sec.gov
You may review and obtain copies of Fund information at the SEC Public
Reference Room in Washington, D.C. (1-800-SEC-0330). Copies of the
information may be obtained for a fee by writing the Public Reference
Section, Washington, D.C. 20549-6009.
Investment Company Act File # 811-9038
STATEMENT OF ADDITIONAL INFORMATION
Class C Shares
Adviser Class Shares
September 1, 1999
Information about the Fund is included in the Prospectus for the Class C
shares dated January 1, 1999 and in the Prospectus for the Adviser Class
shares dated September 1, 1999, either of which may be obtained without charge
from the Fund by writing to the address or calling the telephone number listed
below. Shares of the Adviser Class are offered for sale through financial
advisers such as broker-dealers, investment advisers or financial planners. No
investment in shares of the Fund should be made without first reading the
Prospectus. Information has been incorporated into this Statement of
Additional Information by reference and may be obtained free of charge from
the address and telephone number below.
INVESTMENT MANAGER
AND DISTRIBUTOR
----------------
Olstein & Associates, L.P.
4 Manhattanville Road
Purchase, NY 10577
1-800-799-2113
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THE FUND'S PROSPECTUSES DATED JANUARY 1, 1999 (CLASS C
SHARES) AND SEPTEMBER 1, 1999 (ADVISER CLASS SHARES). PLEASE
RETAIN THIS STATEMENT OF ADDITIONAL INFORMATION FOR FUTURE REFERENCE.
TABLE OF CONTENTS
-----------------
History and Classification 3
Investment Strategies and Risks 3
Investment Restrictions 7
Portfolio Turnover 9
Management of the Fund 10
Control Persons and Principle Holders of Securities 12
Investment Manager 12
Distributor 13
Administrator 15
Transfer Agent and Fund Accountant 15
Custodian 16
Allocation of Portfolio Brokerage 16
Capital Stock 17
Purchase of Shares 18
Redemptions 18
Distributions 19
Taxation 19
General Information 20
Performance 21
Financial Statements 22
THE OLSTEIN FINANCIAL ALERT FUND
HISTORY AND CLASSIFICATION
The Olstein Financial Alert Fund (the "Fund") is the first and only series
of The Olstein Funds (the "Trust"), which is an open-end management investment
company. The Fund maintains a diversified portfolio of investments selected in
accordance with its investment objectives and policies. The Trust was organized
as a Delaware business trust on March 31, 1995.
INVESTMENT STRATEGIES AND RISKS
The Fund's primary objective is to achieve long-term capital appreciation,
and its secondary objective is income. The Fund seeks to achieve its objectives
by making investments selected according to its investment policies and
restrictions. This Statement of Additional Information contains further
information concerning the techniques and operations of the Fund, the securities
in which it will invest, and the policies it will follow.
PRIMARY INVESTMENT - COMMON STOCK
- ---------------------------------
To achieve its primary objective, the Fund invests in common stock of
companies that Olstein & Associates, L.P. (the "Investment Manager") determines
to be undervalued. Common stock is defined as shares of a corporation that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without a preference over any other shareholder or class of shareholders,
including holders of the corporation's preferred stock and other senior equity.
Common stock usually carries with it the right to vote and frequently an
exclusive right to do so.
OTHER EQUITY INVESTMENTS
- ------------------------
Convertible Securities. Traditional convertible securities include corporate
bonds, notes and preferred stocks that may be converted into or exchanged for
common stock, and other securities that also provide an opportunity for equity
participation. These securities are generally convertible either at a stated
price or a stated rate (that is, for a specific number of shares of common stock
or other security).
As with other fixed income securities, the price of a convertible security
to some extent varies inversely with interest rates. Income streams of
convertible securities are generally higher in yield than the income derivable
from a common stock, but lower than that afforded by a non-convertible debt
security. While providing a fixed-income stream, a convertible security also
affords the investor an opportunity, through its conversion feature, to
participate in the capital appreciation of the common stock into which it is
convertible. As the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis and so may
not experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the
price of a convertible security tends to rise as a reflection of the value of
the underlying common stock. To obtain such a higher yield, the Fund may be
required to pay for a convertible security an amount greater than the value of
the underlying common stock. Common stock acquired by the Fund upon conversion
of a convertible security will generally be held for as long as the Investment
Manager anticipates such stock will provide the Fund with opportunities which
are consistent with the Fund's investment objectives and policies.
Warrants. The Fund may invest in warrants, in addition to warrants acquired in
units or attached to securities. A warrant is an instrument issued by a
corporation which gives the holder the right to subscribe to a specified amount
of the issuer's capital stock at a set price for a specified period of time.
American Depository Receipts. The Fund may make foreign investments through the
purchase and sale of sponsored or unsponsored American Depository Receipts
("ADRs"). ADRs are receipts typically issued by a U.S. bank or trust company
that evidence ownership of underlying securities issued by a foreign
corporation. Generally, ADRs in registered form are designed for use in the
U.S. securities markets. The Fund may purchase ADRs whether they are
"sponsored" or "unsponsored." Sponsored ADRs are issued jointly by the issuer of
the underlying security and a depository, whereas unsponsored ADRs are issued
without participation of the issuer of the deposited security. Holders of
unsponsored ADRs generally bear all the costs of such facilities. The
depository of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through voting rights to the holders of such receipts in
respect to the deposited securities. Therefore, there may not be a correlation
between information concerning the issuer of the security and the market value
of an unsponsored ADR. ADRs may result in a withholding tax by the foreign
country of source, which will have the effect of reducing the income that may be
distributed to shareholders.
Investments in ADRs may involve greater risks than investments in domestic
securities. Foreign issuers are not generally subject to uniform accounting,
auditing and financial reporting standards comparable to those of U.S. public
companies. Also there is generally less information available to the public
about non-U.S. companies. In addition, foreign investments may include risks
related to legal, political and/or diplomatic actions of foreign governments.
These include imposition of withholding taxes on interest and dividend income
payable on the securities held, possible seizure or nationalization of foreign
deposits, and establishment of exchange controls at the adoption of other
foreign governmental restrictions which might adversely affect the value of a
foreign issuer's stock. The Fund generally does not expect to invest more than
5% of its assets in ADRs.
PREFERRED STOCK
- ---------------
Generally, preferred stock receives dividends prior to distributions on
common stock and usually has a priority of claim over common stockholders if the
issuer of the stock is liquidated. Unlike common stock, preferred stock does
not usually have voting rights; however, in some instances, preferred stock is
convertible into common stock. In order to be payable, dividends on preferred
stock must be declared by the issuer's board of directors. Dividends on the
typical preferred stock are cumulative, causing dividends to accrue even if not
declared by the board of directors. There is, however, no assurance that
dividends will be declared by the boards of directors of issuers of the
preferred stocks in which the Fund invests.
If the Investment Manager determines that suitable undervalued equity
securities are not available, the Fund may seek income by investing a
substantial portion of its assets in other types of securities.
MONEY MARKET INSTRUMENTS
- ------------------------
The Fund will select money market securities for investment when such
securities offer a current market rate of return which the Fund considers
reasonable in relation to the risk of the investment, and the issuer can satisfy
suitable standards of credit-worthiness set by the Fund. The money market
securities in which the Fund may invest are:
o repurchase agreements o U.S. Government securities
o certificates of deposit o commercial paper
o shares of money market mutual funds
The Fund's direct investments in money market securities will generally
favor securities with shorter maturities (maturities of less than 60 days) which
are less affected by price fluctuations than are those with longer maturities.
Other than its investments in money market mutual funds, the Fund will not
invest in other investment companies. The Fund's investments in money market
mutual funds may be made only in accordance with the limitations imposed by The
Investment Company Act of 1940 ("the 1940 Act") and its applicable rules.
U.S. Government Securities. U.S. Government Securities include a variety of
Treasury securities, which differ in their interest rates, maturities and dates
of issuance. The Fund will only acquire U.S. Government Securities which are
supported by the "full faith and credit" of the United States. Securities that
are backed by the full faith and credit of the United States include:
(a) Treasury bills,
(b) Treasury bonds,
(c) Treasury notes, and
(d) obligations of the Government National Mortgage Association,
the Farmers Home Administration, and the Export-Import Bank.
The maturity rates of U.S. Government Securities are as follows:
1 Year or Less 1 to 10 Years Greater than 10 Years
-------------- ------------- ---------------------
Treasury bills Treasury notes Treasury bonds
Certificates of Deposit. Certificates of deposit are certificates issued
against funds deposited in a commercial bank or a savings and loan association
for a definite period of time, earning a specified return. Bankers' acceptances
are negotiable drafts or bills of exchange, normally drawn by an importer or
exporter to pay for specific merchandise, which are "accepted" by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face value
of the instrument on maturity. Investments in bank certificates of deposit and
bankers' acceptances are generally limited to domestic banks and savings and
loan associations that are members of the Federal Deposit Insurance Corporation
or Federal Savings and Loan Insurance Corporation having a net worth of at least
$100 million dollars and domestic branches of foreign banks (limited to
institutions having total assets not less than $1 billion or its equivalent).
Commercial Paper. Investments in prime commercial paper may be made in notes,
drafts, or similar instruments payable on demand or having a maturity at the
time of issuance not exceeding nine months, exclusive of days of grace, or any
renewal periods payable on demand or having a maturity likewise limited.
Repurchase Agreements. Under a repurchase agreement, the Fund acquires a debt
instrument subject to the obligation of the seller to repurchase and the Fund to
resell such debt instrument at a fixed price. The Fund will enter into
repurchase agreements only with banks that are members of the Federal Reserve
System, or securities dealers who are members of a national securities exchange
or are market makers in government securities and report to the Market Reports
Division of the Federal Reserve Bank of New York. In either case, the Fund will
enter into repurchase agreements only when the debt instrument collateralizing
the repurchase agreement is a U.S. Treasury or agency obligation supported by
the full faith and credit of the United States.
A repurchase agreement may also be viewed as the loan of money by the Fund
to the seller. The resale price specified is normally greater than the purchase
price, reflecting an agreed upon interest rate. The rate is effective for the
period of time the Fund is invested in the agreement and may not be related to
the coupon rate on the underlying security.
The term of these repurchase agreements will usually be short (from
overnight to one week), and at no time will the Fund invest in repurchase
agreements of more than sixty days. The securities that are collateral for the
repurchase agreements, however, may have maturity dates in excess of sixty days
from the effective date of the repurchase agreement.
As collateral, the Fund will always receive securities whose market value,
including accrued interest, will at least equal 102% of the dollar amount to be
paid to the Fund under each agreement at its maturity. The Fund will make
payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of the Custodian.
If the seller defaults, the Fund might incur a loss if the value of the
collateral securing the repurchase agreement declines, and might incur
disposition costs in connection with liquidation of the collateral. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the security, collection of the collateral by the Fund may be delayed or
limited. The Fund also may not be able to substantiate its interests in the
underlying securities. While management of the Fund acknowledges these risks,
the Investment Manager expects to control these risks through stringent security
selection and careful monitoring procedures.
The Fund's investment in repurchase agreements that do not mature in seven
days and other securities for which there is no readily available market for
resale, or that are subject to legal or contractual restrictions on resale, may
be considered illiquid securities under federal or state law. The Fund will
restrict its investment in illiquid securities to not more than 10% of its net
assets. For purposes of the diversification test for qualification as a
regulated investment company under the Internal Revenue Code, repurchase
agreements are not counted as cash, cash items or receivables, but rather as
securities issued by the counter-party to the repurchase agreements.
ILLIQUID SECURITIES
- -------------------
The Fund may invest up to 10% of its total assets in securities that may be
considered illiquid. Illiquid securities include securities with contractual
restrictions on resale, repurchase agreements maturing in greater than seven
days, and other securities that may not be readily marketable. Liquidity
relates to the ability of the Fund to sell a security in a timely manner at a
price that reflects the value of that security. The relative illiquidity of
some of the Fund's securities may adversely affect the ability of the Fund to
dispose of such securities in a timely manner and at a fair price at times when
it may be necessary or advantageous for the Fund to liquidate portfolio
securities. Certain securities in which the Fund may invest are subject to
legal or contractual restrictions as to resale and therefore may be illiquid by
their terms.
EQUITY 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, and, indirectly, 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 net
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.
INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions set forth below in
addition to those discussed in the Prospectus. Some of these restrictions are
fundamental policies of the Fund, and cannot be changed without the approval of
a majority of the outstanding voting securities. As provided in the 1940 Act, a
"vote of a majority of the outstanding voting securities" means the affirmative
vote of the lesser of:
(1) more than 50% of the outstanding shares, or
(2) 67% or more of the shares present at a meeting if more than
50% of the outstanding shares are represented at the meeting
in person or by proxy.
FUNDAMENTAL POLICIES
- --------------------
As a matter of fundamental policy, the Fund will not:
(a) as to 75% of the Fund's total assets, invest more than 5% of its total
assets in the securities of any one issuer (this limitation does not apply to
cash and cash items, or obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities, or securities of other investment
companies);
(b) purchase more than 10% of the voting securities, or more than 10% of
any class of securities, of any one issuer; for purposes of this restriction,
all outstanding fixed income securities of an issuer are considered as one
class;
(c) make short sales of securities in excess of 25% of the Fund's total
assets or purchase securities on margin except for such short-term credits as
are necessary for the clearance of transactions;
(d) purchase or sell commodities or commodity contracts;
(e) make loans of money or securities, except
o by the purchase of fixed income obligations in which the Fund
may invest consistent with its investment objective and
policies; or
o by investment in repurchase agreements (see "Investment
Strategies and Risks");
(f) borrow money, except the Fund may borrow from banks in the following
cases:
o for temporary or emergency purposes not in excess of 5% of the
Fund's net assets, or
o to meet redemption requests that might otherwise require the
untimely disposition of portfolio securities, in an amount up to
33 1/3 of the value of the Fund's net assets at the time the
borrowing was made;
(g) pledge, hypothecate, mortgage or otherwise encumber its assets, except
in an amount up to 33 1/3% of the value of its net assets, but only to secure
borrowings authorized in the preceding restriction; this restriction does not
limit the authority of the Fund to maintain accounts for short sales of
securities;
(h) purchase the securities of any issuer, if, as a result, more than 10%
of the value of a Fund's net assets would be invested in securities that are
subject to legal or contractual restrictions on resale ("restricted
securities"), in any combination of securities for which there are no readily
available market quotations, or in repurchase agreements maturing in more than
seven days;
(i) engage in the underwriting of securities except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security;
(j) purchase or sell real estate or interests in real estate, although it
may purchase securities of issuers which engage in real estate operations and
may purchase and sell securities which are secured by interests in real estate;
therefore, the Fund may invest in publicly-held real estate investment trusts or
marketable securities of companies which may represent indirect interests in
real estate such as real estate limited partnerships which are listed on a
national exchange, however, the Fund will not invest more than 10% of its assets
in any one or more real estate investment trusts; and
(k) invest more than 25% of the value of the Fund's total assets in one
particular industry, except for temporary defensive purposes; for purposes of
this limitation, utility companies will be divided according to their services
(e.g. gas, electric, water and telephone) and each will be considered a separate
industry; this restriction does not apply to investments in U.S. Government
securities, and investments in certificates of deposit and bankers' acceptances
are not considered to be investments in the banking industry.
NON-FUNDAMENTAL POLICIES
- ------------------------
Non-fundamental policies may be changed by the Fund's Board of Trustees,
without shareholder approval. As a matter of non-fundamental policy, the Fund
will not:
(a) purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest in the
securities of companies which invest in or sponsor such programs;
(b) invest for the purpose of exercising control or management of another
company;
(c) invest in securities of any open-end investment company, except in
connection with a merger, reorganization or acquisition of assets and except
that the Fund may purchase securities of money market mutual funds, but such
investments in money market mutual funds may be made only in accordance with the
limitations imposed by the 1940 Act and the rules thereunder, as amended; and
(d) invest more than 5% of its total assets in securities of companies
having a record, together with predecessors, of less than three years of
continuous operation; this limitation shall not apply to U.S. Government
securities.
So long as percentage restrictions are observed by the Fund at the time it
purchases any security, changes in values of particular Fund assets or the
assets of the Fund as a whole will not cause a violation of any of the foregoing
fundamental or non-fundamental restrictions.
SHORT SELLING
- -------------
If the Fund anticipates that the price of a security will decline, it may
sell the security short and borrow the same security from a broker or other
institution to complete the sale. The Fund may realize a profit or loss
depending upon whether the market price of a security decreases or increases
between the date of the short sale and the date on which the Fund must replace
the borrowed security. As a hedging technique, the Fund may purchase options to
buy securities sold short by the Fund. Such options would lock in a future
purchase price and protect the Fund in case of an unanticipated increase in the
price of a security sold short by the Fund. Short selling is a technique that
may be considered speculative and involves risk beyond the initial capital
necessary to secure each transaction. In addition, the technique could result
in higher operating costs for the Fund and have adverse tax effects for the
investor. Investors should consider the risks of such investments before
investing in the Fund.
Whenever the Fund effects a short sale, it will set aside in segregated
accounts cash, U.S. Government Securities or other liquid assets equal to the
difference between:
(a) the market value of the securities sold short; and
(b) any cash or U.S. Government Securities required to be deposited as
collateral with the broker in connection with the short sale (but not including
the proceeds of the short sale).
Until the Fund replaces the security it borrowed to make the short sale, it
must maintain daily the segregated account at such levels that the amount
deposited in it plus the amount deposited with the broker as collateral will
equal the current market value of the securities sold short.
The value of any securities of any one issuer in which the Fund is short
may not exceed the lesser of 2% of the Fund's net assets or 2% of the securities
of any class of any issuer's securities. In addition, short sales will only be
made in those securities that are listed on a national exchange. When added
together, no more than 25% of the value of the Fund's total net assets will be:
o deposited as collateral for the obligation to replace securities
borrowed to effect short sales; and
o allocated to segregated accounts in connection with short sales.
OPTIONS
- -------
Generally, the Fund will only purchase options for hedging purposes and not
for speculation. In this regard, the Fund will only purchase call options on
underlying securities that are sold short by the Fund. Purchasing call options
allows the Fund to hedge against an increase in the price of securities that are
sold short by the Fund, by locking in a future purchase price. Such options on
securities will generally be held no longer than the Fund maintains a short
position in the underlying security.
The purchase of call options gives the Fund the right, but not the
obligation, to buy (call) a security at a fixed price during a specified period.
When purchasing call options, the Fund pays a non-refundable premium to the
party who sells (writes) the option. This practice allows the Fund to protect
itself in the event of an unexpected increase in the price of a security sold
short. Premiums paid by the Fund in connection with option purchases will not
exceed 5% of the Fund's net assets. Following the purchase of a call option,
the Fund may liquidate its position by entering into a closing transaction in
which the Fund sells an option of the same series as previously purchased.
The success of purchasing call options for hedging purposes depends on the
Investment Manager's judgment and ability to predict the movement of stock
prices. There is generally an imperfect correlation between options and the
securities being hedged. If the Investment Manager correctly anticipates the
direction of the price of the underlying security that is the subject of the
hedge, the option will not be exercised, and any premium paid for the option may
lower the Fund's return. If an option position is no longer needed for hedging
purposes, it may be closed out by selling an option of the same series
previously purchased. There is a risk that a liquid secondary market may not
exist and the Fund may not be able to close out an option position, and
therefore would not be able to offset any portion of the premium paid for that
option. The risk that the Fund will not be able to close out an options
contract will be minimized because the Fund will only enter into options
transactions on a national exchange and for which there appears to be a liquid
secondary market.
The Fund's activities relating to short sales and any purchase of options
on securities for hedging purposes may be considered investments in derivative
securities. "Derivative" securities include instruments whose value is based
upon, or derived from, some underlying security.
PORTFOLIO TURNOVER
Although the primary objective of the Fund is to achieve long term capital
appreciation, the Fund may sell securities to recognize gains or avoid potential
for loss without regard to the time it has been held. The Fund intends to
follow a strict "buy and sell discipline" under which it will purchase or sell
securities whenever the Fund's value criteria are met. When appropriate, the
Fund takes into consideration the holding period of the security.
The Investment Manager believes that adhering to a strict sell discipline
when the Fund's value criteria are met reduces the potential severity of future
portfolio valuation declines. However, such discipline may result in portfolio
changes and a portfolio turnover rate higher than that reached by many capital
appreciation funds. High portfolio turnover produces additional transaction
costs (such as brokerage commissions) which are borne by the Fund. High
portfolio turnover also may cause adverse tax effects. See "Dividends, Capital
Gains Distributions and Taxes" in the Prospectus.
The annualized portfolio turnover rate for the past three years is as
follows:
- -----------------------------------------------------------------------------
Period from
Fiscal year ended Fiscal Year ended September 21, 1995*<F14>
August 31, 1998 August 31, 1997 to August 31, 1996
- -----------------------------------------------------------------------------
187.44% 164.92% 139.77%
- -----------------------------------------------------------------------------
*<F14> Commencement of operations
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES AND OFFICERS OF THE TRUST
- -------------------------------------------
The Board of Trustees of the Trust consists of seven individuals, four of
whom are not "interested persons" of the Trust or Fund as that term is defined
in the 1940 Act. The Trustees are fiduciaries for the Fund's shareholders and
are governed by the laws of the State of Delaware in this regard. They
establish policy for the operation of the Fund and appoint the officers who
conduct the daily business of the Fund.
The officers conduct and supervise the daily business operations of the
Trust, while the Trustees, in addition to the functions set forth under
"Investment Manager," and "Distribution of Shares" review such actions and
decide on general policy. Compensation to officers and Trustees of the Trust
who are affiliated with the Investment Manager is paid by the Investment Manager
and not by the Trust.
The names, addresses and occupational history of the Trustees and principal
executive officers are listed below:
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS AGE POSITION AND OFFICE PRINCIPAL OCCUPATION
WITH THE TRUST DURING THE PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert A. Olstein*<F15>+<F16> 58 Chairman and President President, Olstein & Associates, L.P., since 1994;
4 Manhattanville Road President, Olstein, Inc., since June 1994; Senior Vice
Purchase, NY 10577 President/Senior Portfolio Manager, Smith Barney Inc.
from 1982 until 1994.
- ----------------------------------------------------------------------------------------------------------------------------------
Neil C. Klarfeld*<F15> 55 Trustee Executive Officer, Clarett Group (Real Estate
135 W. 50th, 21st Floor Development) since 1998; previously Executive Vice
New York, NY 10020 President, Park Tower Realty Corp., since 1979.
- ----------------------------------------------------------------------------------------------------------------------------------
Fred W. Lange 66 Trustee President and Portfolio Manager, Lange Staten Financial
199 Stanley Avenue Services (investment services), since 1972; Member of the
Staten Island, NY 10301 Board of Trustees of Wagner College.
- ----------------------------------------------------------------------------------------------------------------------------------
John Lohr 54 Trustee Principal, Lockwood Financial Group Ltd. (investment
10 Valley Stream Parkway services), since January 1996; Attorney, sole
Malvern, PA 19355 practitioner, from 1995 until 1996; Senior Vice
President, Smith Barney Inc., from 1987 until 1995.
- ----------------------------------------------------------------------------------------------------------------------------------
D. Michael Murray 59 Trustee President, Murray, Sheer & Montgomery (consultants),
1200 New Hampshire Ave., NW since 1968.
Suite 430
Washington, DC 20036
- ----------------------------------------------------------------------------------------------------------------------------------
Lawrence K. Wein 57 Trustee Managing Director of Global Transit Services, AT&T, Inc.,
55 Corporate Park Drive since 1990.
Room 23D50
Bridgewater, NJ 08807
- ----------------------------------------------------------------------------------------------------------------------------------
Erik K. Olstein*<F15>+<F16> 32 Trustee, Secretary, Vice President of Sales, Olstein & Associates, L.P.,
4 Manhattanville Road Assistant Treasurer and since 1994; Client Liaison, Smith Barney Inc., from 1994
Purchase, NY 10577 Chief Compliance Officer until 1995; Assistant OTC Trader, Lehman Brothers Inc.
from 1993 until 1994.
- ----------------------------------------------------------------------------------------------------------------------------------
Michael Luper 31 Chief Accounting Officer Vice President, Olstein & Associates, L.P., since 1994;
4 Manhattanville Road and Treasurer Client Liaison, Smith Barney Inc., from 1994 until 1995;
Purchase, NY 10577 Auditor (CPA), J. H. Cohn & Company from 1991 until 1994.
- ----------------------------------------------------------------------------------------------------------------------------------
*<F15> Trustees who are "interested persons" as defined in the 1940 Act.
+<F16> Erik K. Olstein is the nephew of Robert A. Olstein, President of The Olstein Funds.
</TABLE>
COMPENSATION
- ------------
For their service as Trustees, the Independent Trustees receive a $2,500
annual fee and $500 per meeting attended, as well as reimbursement for expenses
incurred in connection with attendance at such meetings. The interested
Trustees of the Trust receive no compensation for their service as Trustees.
The table below details the amount of compensation received by the Trustees from
the Fund for the past fiscal year. Presently, none of the executive officers
receive compensation from the Fund.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
PENSION OR RETIREMENT TOTAL COMPENSATION FROM
AGGREGATE COMPENSATION BENEFITS ACCRUED AS PART ESTIMATED ANNUAL BENEFITS TRUST AND FUND COMPLEX
NAME AND POSITION FROM FUND OF FUND EXPENSES UPON RETIREMENT PAID TO TRUSTEES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert A. Olstein*<F17> None None None None
Chairman and President
Erik K. Olstein*<F17> None None None None
Trustee, Secretary and
Assistant Treasurer
Neil C. Klarfeld*<F17> None None None None
Trustee
Fred W. Lange $4,500 None None $4,500
Trustee
John Lohr $4,500 None None $4,500
Trustee
D. Michael Murray $4,500 None None $4,500
Trustee
Lawrence K. Wein $4,500 None None $4,500
Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
*<F17>Interested Trustees
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
---------------------------------------------------
CONTROL PERSONS
- ---------------
As of August 31, 1999, there were no control persons of the Fund. "Control"
means:
(a) the beneficial ownership, either directly or through one or more
controlled companies, of more than 25% of the voting securities
of a company;
(b) the acknowledgment or assertion by either the controlled or
controlling party of the existence of control; or
(c) a final adjudication under section 2(a)(9) of the 1940 Act that
control exists.
PRINCIPAL HOLDERS
- -----------------
As of August 31, 1999, the following shareholders were known to own of
record more than 5% of the outstanding shares of the Fund:
Name and Address Percentage Ownership
- ---------------- -------------------
The Lupa Family Trust Class C Shares
Attn: Gary Gladstein 7.99%
c/o Soros Fund Management
888 Seventh Ave, 33rd Floor
New York, NY 10106
MANAGEMENT OWNERSHIP
- --------------------
As of August 31, 1999, the Fund's officers, directors and members of the
Investment Manager as a group own 20.09% of the Class C shares of the Fund.
INVESTMENT MANAGER
Effective August 18, 1995, the Trust entered into an investment management
agreement on behalf of the Fund with Olstein & Associates, L.P. (the "Investment
Management Agreement"), Olstein & Associates, L.P. provides investment advisory
services. The services of the Investment Manager are subject to the supervision
and direction of the Trust's Board of Trustees.
The Investment Manager is organized as a New York limited partnership and
is controlled and operated by its general partner, Olstein, Inc., a New York
corporation which is wholly-owned by Robert A. Olstein. Because Mr. Olstein
owns Olstein, Inc. and is a Trustee of the Fund, Mr. Olstein is considered an
affiliated person of both the Investment Manager and the Fund. The Investment
Manager has twenty limited partners, who will receive a portion of the income
derived from the advisory fee received by the Investment Manager. In addition,
some of the limited partners are brokers or dealers who may receive up-front
commissions from the Investment Manger for sales of Fund shares, distribution
fees for ongoing marketing of Fund shares under a Plan of Distribution adopted
pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plan"), or compensation as
broker-dealer employees of companies who execute portfolio transactions for the
Fund.
The Investment Management Agreement must be renewed annually. The
Agreement will be renewed each year only so long as its renewal and continuance
are specifically approved at least annually by:
(a) the Board of Trustees, or
(b) by vote of a majority of the outstanding voting securities of the
Fund.
If the Agreement is to be approved by a majority of the outstanding voting
securities, then prior to the shareholder vote the terms of the renewal must be
approved by the vote of a majority of the Trustees of the Fund who are not
parties of the Agreement or interested persons of any such party (the
"Independent Trustees"). The vote of the Trustees must be cast in person at a
meeting called for the purpose of voting on such approval. The Agreement will
terminate automatically in the event of its assignment.
According to the Investment Management Agreement, the Fund is obligated to
pay the Investment Manager a monthly fee equal to an annual rate of 1% of the
Fund's average daily net assets. This fee is higher than that normally charged
by funds with similar investment objectives. The advisory fee paid to the
Investment Manager for the services provided to the Fund for the past three
fiscal years was as follows:
- -----------------------------------------------------------------------------
Fiscal year ended Fiscal Year ended Period from September 21, 1995*<F18>
August 31, 1998 August 31, 1997 to August 31, 1996
- -----------------------------------------------------------------------------
$2,373,999 $1,375,148 $887,728
- -----------------------------------------------------------------------------
*<F18>Commencement of operations
DISTRIBUTOR
Olstein & Associates, L.P. (the "Distributor") acts as distributor of the
Fund's shares under an Amended and Restated Distribution Agreement (the
"Distribution Agreement") approved by the Board of Trustees of the Trust on
behalf of the Fund. The Distributor assists in the sale and distribution of
the Fund's shares as well as assisting with the servicing of shareholder
accounts.
The Distributor has sole authority to enter into agreements with Selling
Dealers or other parties who offer the Fund's shares for sale and is responsible
for the payment of any up-front commissions and 12b-1 fees payable to Selling
Dealers or others. The Distribution Agreement also provides that the
Distributor, in the absence of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under the agreement, will not be liable to the
Trust or its shareholders for losses arising in connection with the sale of Fund
shares.
The Distribution Agreement became effective as of August 18, 1995, and is
subject to renewal on an annual basis. The Agreement will be renewed each year
if its continuance is approved at least annually by a majority of the Trustees,
including a majority of the Independent Trustees or, by a vote of a majority of
the outstanding voting securities of the Fund. The Distribution Agreement
terminates automatically in the event of its assignment. The Distribution
Agreement may be terminated in two ways without payment of a penalty:
(1) as to the Distributor, by the Fund (by vote of a majority of the
Independent Trustees or by a vote of the outstanding voting
securities of the Fund) on not less than 60 days' written notice;
or
(2) as to the Distributor's own participation, by the Distributor
upon 60 days' written notice.
DISTRIBUTION (RULE 12B-1) PLANS
- -------------------------------
As noted in the separate prospectuses of the Class C shares and the Adviser
Class shares, the Fund has adopted a plan pursuant to Rule 12b-1 under the 1940
Act for each class of its shares (each a "Plan" and collectively, the "Plans").
For the Class C shares, the Plan provides for the payment of fees of 1.00%
per year of the average daily net assets of the class to compensate the
Distributor or other persons for expenses incurred in connection with the
distribution of the shares of the class and the servicing of shareholder
accounts. The fees are accrued and may be paid on a monthly basis, based on the
Fund's average daily net assets of the Class C shares. Included within the
1.00% payable under the Plan is a 0.75% fee that may be paid to persons as
compensation for time spent and expenses incurred in the distribution and
promotion of the Class C shares. These include, but are not limited to, sales
calls and presentations to potential shareholders, media relations, the printing
of prospectuses and reports used for sales purposes, expenses for the
preparation and printing of sales literature and related expenses,
advertisements, and other distribution-related expenses, as well as any
distribution or service fees paid to securities dealers or others who have
executed a dealer agreement with the Distributor. In addition, the Plan
includes a payment of 0.25% per annum of average daily net assets of Class C
shares for shareholder servicing costs. Any expense for distribution greater
than 1.00% per annum will be borne by the Investment Manager without any
reimbursement or payment by the Class C shares.
For the Adviser Class shares, the Plan provides for the payment of fees of
0.25% per year of the average daily net assets of the class to compensate the
Distributor or other persons for distribution and shareholder servicing
activities undertaken on behalf of the Class C shares and Class C shareholders.
The fees are accrued and may be paid on a monthly basis, based on the average
daily net assets of the Adviser Class shares. It is presently anticipated that
the fees will be used to compensate third parties who provide a platform through
which investment advisers, financial planners and other financial professionals,
are able to offer the shares of the class for sale.
Each Plan has been approved by the Trust's Board of Trustees, including all
of the Independent Trustees as defined in the 1940 Act. The Board of Trustees
has determined that a consistent cash flow resulting from the sale of new shares
is necessary and appropriate to meet redemptions, and to take advantage of
buying opportunities without having to make unwarranted liquidations of
portfolio securities. The Board therefore believes that it will likely benefit
the Fund to have monies available for the direct distribution activities of the
Distributor in promoting the sale of the Fund's shares, and to avoid any
uncertainties as to whether other payments by the Fund constitute distribution
expenses on behalf of the Fund. The Board of Trustees, including the
Independent Trustees, has concluded that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that each Plan will benefit the Fund and the shareholders of the
respective classes. Each Plan must be renewed annually by the Board of
Trustees, including a majority of the Independent Trustees who have no direct or
indirect financial interest in the operation of the Plan, cast in person at a
meeting called for that purpose. It is also required that the selection and
nomination of such Trustees be done by the Independent Trustees.
The Plans and any related agreements may not be amended to increase
materially the amounts to be spent for distribution expenses without approval by
a majority of the outstanding shares of the affected class, and all material
amendments to the Plan or any related agreements shall be approved by a vote of
the Independent Trustees, cast in person at a meeting called for the purpose of
voting on any such amendment.
The Distributor is required to report in writing to the Board of Trustees,
at least quarterly, the amounts and purpose of any payment made under the Plans,
as well as to furnish the Board with such other information as may reasonably be
requested in order for the Board to make an informed determination as to whether
the Plans should be continued.
The Adviser Class was first available for sale on September 1, 1999, and
therefore, no historical 12b-1 fee data is provided.
During the fiscal year ended August 31, 1998, the Distributor retained
$2,269,710 of the fees paid pursuant to the Class C Plan and paid the balance to
financial institutions or other entities ("Selling Dealers"). The Fund has paid
the following amounts under the Class C Plan for expenses incurred in connection
with the distribution of the Class C shares and the servicing of Class C
shareholder accounts.
- -----------------------------------------------------------------------------
Fiscal year ended Fiscal Year ended Period from September 21, 1995*<F19>
August 31, 1998 August 31, 1997 to August 31, 1996
- -----------------------------------------------------------------------------
$2,373,999 $1,375,148 $887,728
- -----------------------------------------------------------------------------
*<F19>Commencement of operations
Below are the itemized expenditures the Distributor made during the fiscal
year ended August 31, 1998:
- -----------------------------------------------------------------------------
Advertising $ 156,623
Printing & Mailing of Prospectuses to
other than current shareholders 569,000
Compensation to Dealers 1,058,422
Compensation to Sales Personnel 387,975
Interest or Other Finance Charges 0
Other Fees 80,999
- -----------------------------------------------------------------------------
TOTAL $2,253,019
- -----------------------------------------------------------------------------
ADMINISTRATOR
Firstar Mutual Fund Services, LLC, 615 East Michigan Street, Milwaukee,
Wisconsin, 53202, provides certain administrative services to the Fund pursuant
to an Administrative Services Agreement. Under the Administrative Services
Agreement, the administrator:
o coordinates with the Custodian and monitors the custodial,
transfer agency and accounting services provided to the Fund;
o coordinates with and monitors any other third parties furnishing
services to the Fund;
o provides the Fund with necessary office space, telephones and
other communications facilities and personnel competent to
perform administrative and clerical functions;
o maintains such books and records of the Fund as may be required
by applicable federal or state law and supervises the maintenance
of such books and records if maintained by third parties;
o prepares or supervises the preparation by third parties of all
federal, state and local tax returns and reports of the Fund
required by applicable law;
o prepares and, after approval by the Fund, files and arranges for
the distribution of proxy materials and periodic reports to
shareholders of the Fund as required by applicable law;
o prepares and after approval by the Fund, arranges for the filing
of such registration statements and other documents with the
Securities and Exchange Commission (the "SEC") and other federal
and state regulatory authorities as may be required by applicable
law;
o reviews and submits to the officers of the Trust for their
approval invoices or other requests for payment of the Fund's
expenses and instructs the Custodian to issue checks in payment
thereof;
o assists the Fund in the preparation of documents and information
needed for meetings of the Board of Trustees and prepares the
minutes of Board meetings;
o monitors the Fund's compliance with applicable state securities
laws;
o assists the Distributor with the preparation of quarterly reports
to the Board of Trustees relating to the distribution plan
adopted by the Fund pursuant to Rule 12b-1; and
o takes such other action with respect to the Fund as may be
necessary in the opinion of the Administrator to perform its
duties under the agreement.
The Fund has paid the following fees for administrative services over the
past three fiscal years:
- -----------------------------------------------------------------------------
Fiscal year ended Fiscal Year ended Period from September 21, 1995*<F20>
August 31, 1998 August 31, 1997 to August 31, 1996
- -----------------------------------------------------------------------------
$169,932 $157,204 $105,817
- -----------------------------------------------------------------------------
*<F20>Commencement of operations
TRANSFER AGENT AND FUND ACCOUNTANT
Firstar Mutual Fund Services, LLC also serves as transfer agent and
dividend disbursing agent for the Fund under a Shareholder Servicing Agreement.
As transfer and dividend disbursing agent, Firstar Mutual Fund Services, LLC has
agreed to:
o issue and redeem shares of the Fund,
o make dividend and other distributions to shareholders of the
Fund,
o respond to correspondence by Fund shareholders and others
relating to its duties,
o maintain shareholder accounts, and
o make periodic reports to the Fund.
In addition, the Trust has entered into a Fund Accounting Servicing
Agreement with Firstar Mutual Fund Services, LLC pursuant to which Firstar
Mutual Fund Services, LLC has agreed to maintain the financial accounts and
records of the Fund and provide other accounting services to the Fund.
CUSTODIAN
Firstar Bank Milwaukee, N.A. serves as custodian of the Trust's assets
pursuant to a Custody Agreement. Under the Custody Agreement, Firstar Bank
Milwaukee, N.A. has agreed to:
o maintain a separate account in the name of the Fund,
o make receipts and disbursements of money on behalf of the Fund,
collect and receive all income and other payments and
distributions on account of the Fund's portfolio investments,
o respond to correspondence from shareholders, security brokers and
others relating to its duties, and
o make periodic reports to the Fund concerning the Fund's
operations.
Firstar Bank Milwaukee, N.A. does not exercise any supervisory function
over the purchase and sale of securities.
ALLOCATION OF PORTFOLIO BROKERAGE
The Fund's portfolio securities transactions are placed by the Investment
Manager. The objective of the Fund is to obtain the best available prices in
its portfolio transactions, taking into account the costs, promptness of
executions and other qualitative considerations. There is no pre-existing
commitment to place orders with any broker, dealer or member of an exchange.
The Investment Manager evaluates a wide range of criteria in seeking the most
favorable price and market for the execution of transactions. These include the
broker's commission rate, execution capability, positioning and distribution
capabilities, information in regard to the availability of securities, trading
patterns, statistical or factual information, opinions pertaining to trading
strategy, back office efficiency, ability to handle difficult trades, financial
stability, and prior performance in serving the Investment Manager and its
clients. In transactions of equity securities and U.S. Government securities
executed in the over-the-counter market, purchases and sales are transacted
directly with principal market-makers except in those circumstances when, in the
opinion of the Investment Manager, better prices and executions are available
elsewhere.
The Investment Manager, when effecting purchases and sales of portfolio
securities for the account of the Fund, will seek execution of trades either (1)
at the most favorable and competitive rate of commission charged by any broker,
dealer or member of an exchange, or (2) at a higher rate of commission charges,
if reasonable, in relation to brokerage and research services provided to the
Fund or the Investment Manager by such member, broker, or dealer. Such services
may include, but are not limited to, any one or more of the following:
o information as to the availability of securities for purchase or
sale,
o statistical or factual information, or
o opinions pertaining to investments.
The Investment Manager may use research and services provided to it by
brokers and dealers in servicing all its clients, including the Fund, and not
all such services will be used by the Investment Manager in connection with the
Fund. Brokerage may also be allocated to dealers in consideration of the Fund's
share distribution, but only when execution and price are comparable to that
offered by other brokers. The Fund paid the following amounts in brokerage
commissions during the past three fiscal years.
- -----------------------------------------------------------------------------
Fiscal year ended Fiscal Year ended Period from September 21, 1995*<F21>
August 31, 1998 August 31, 1997 to August 31, 1996
- -----------------------------------------------------------------------------
$1,039,337 $571,532 $421,109
- -----------------------------------------------------------------------------
*<F21>Commencement of operations
The Investment Manager, which is a member of the NASD and a broker-dealer
registered under the Securities Exchange Act of 1934, and certain other Fund
affiliates, may act as brokers to execute transactions for the Fund subject to
procedures set forth in Rule 17e-1 under the 1940 Act designed to ensure the
fairness of such transactions. These procedures include making quarterly
reports to the Board of Trustees regarding such brokerage transactions. As a
result, in order for such persons to effect any portfolio transactions for the
Fund on an exchange, the commissions, fees or other remuneration received must
be reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time. This standard would allow the Investment Manager or other
affiliated brokers to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in an arm's length transaction
of a like size and nature.
The following table shows the amounts of brokerage commissions paid by the
Fund to affiliated broker-dealers during the two most recently completed fiscal
periods. The table also indicates the identity of such brokers and the reasons
for their affiliation, as well as the percentage of the Fund's total dollar
amount of commission-based transactions, and the percentage of the Fund's total
commissions paid, during the Fund's most recently completed fiscal year.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF FUND'S TOTAL
BROKERAGE COMMISSIONS PAID COMMISSIONS FOR FISCAL
FOR FISCAL YEAR ENDED: YEAR ENDED: AFFILIATED REASON FOR AFFILIATION
- -----------------------------------------------------------------------------------------------------------------------------------
BROKER-DEALER 8/31/99 8/31/98 8/31/97 8/31/99 8/3198 8/31/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Albert Freid Co. $106,080 $43,266 $33,354 6.59% 4.16% 5.84% Yes Limited Partner of
Investment Manager
- -----------------------------------------------------------------------------------------------------------------------------------
Bear, Stearns Securities Corp. $143,020 $70,571 $52,049 8.89% 6.79% 9.11% Yes Employee's spouse is
Limited Partner of
Investment Manager
- -----------------------------------------------------------------------------------------------------------------------------------
Olstein & Associates, L.P. $428,626 $288,530 $143,538 26.65% 27.76% 25.11% Yes Manager and Principal
Underwriter of Fund
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Investment Manager may from time to time provide investment management
services to individuals and other institutional clients, including corporate
pension plans, profit-sharing and other employee benefit trusts, and other
investment pools. There may be occasions on which other investment advisory
clients advised by the Investment Manager may also invest in the same securities
as the Fund. When these clients buy or sell the same securities at
substantially the same time, the Investment Manager may average the transactions
as to price and allocate the amount of available investments in a manner which
it believes to be equitable to each client, including the Fund. On the other
hand, to the extent permitted by law, the Investment Manager may aggregate the
securities to be sold or purchased for the Fund with those to be sold or
purchased for other clients managed by it in order to obtain lower brokerage
commissions, if any.
The Investment Manager is responsible for making the Fund's portfolio
decisions subject to the limitations described in the prospectus. The Board of
Trustees may, however, impose limitations on the allocation of portfolio
brokerage.
CAPITAL STOCK
The beneficial interest in the Trust is divided into an unlimited number of
shares, with a par value of $0.001 per share. The Board of Trustees is
empowered under the Trust's Agreement and Declaration of Trust to authorize the
division of shares into separate series and the division of series into separate
classes of shares without shareholder approval. Pursuant to this authority, the
Board established and designated the Olstein Financial Alert Fund series of
shares, and further divided such series into Adviser Class and Class C shares.
When issued, all shares will be fully paid and nonassessable and will be
redeemable and freely transferable. All shares have equal voting rights, except
that shares of each class have sole voting rights with respect to matters that
only affect the holders of that class, such as the right to vote on issues
associated with the Rule 12b-1 Plan for the class. Shares can be issued as full
or fractional shares. A fractional share has proportionally the same rights and
privileges as a full share. The shares possess no preemptive or conversion
rights. Each share may be freely retained or disposed of according to the
purchase and redemption requirements of the Fund.
The assets of the Trust held with respect to each series shall be charged
with the liabilities of the Trust with respect to that series. All expenses,
costs, charges and reserves attributable to the series, and any general
liabilities of the Trust which are not readily identifiable as being held in
respect of a series, shall be allocated and charged by the Trustees to any one
or more series as the Trustees deem fair and equitable. Each allocation of
liabilities shall be binding on the shareholders of the series in absence of
manifest error. Notwithstanding the foregoing, shares of separate classes of a
particular series may be subject to differing allocations of income to
reflect different expense levels that affect the individual class. Such varying
expenses can include distribution or transfer agent expenses, but not investment
management fees.
The Trustees have full discretion to determine which items shall be treated
as income and which items as capital in dividend or distribution payments.
PURCHASE OF SHARES
The shares of the Fund are continuously offered by the Distributor. Orders
will not be considered complete until receipt by Firstar Mutual Fund Services,
LLC and acceptance by the Distributor of a completed account application form,
and receipt of payment for the shares purchased. Once the completed account
application and payment are received, orders will be confirmed at the next
determined net asset value for the particular class (based upon valuation
procedures described in the Prospectus) as of the close of business of the
business day on which the completed order is received. Completed orders
received by the Fund after the close of the business day will be confirmed at
the next day's price.
PURCHASES BY TRANSFERRING OTHER SECURITIES
- ------------------------------------------
If the Fund agrees, you may be permitted to purchase Fund shares by transferring
securities to the Fund. The securities must
o meet the Fund's investment objectives and policies
o be acquired by the Fund for investment purposes
o be liquid securities which are not restricted as to transfer either by law
or liquidity of market
o have a value which is readily ascertainable (and not established only by
evaluation procedures) as evidenced by a listing on the American Stock
Exchange, the New York Stock Exchange, or NASDAQ; and
o at the discretion of the Fund, the value of the security (except U.S.
Government securities) being exchanged together with other securities of
the same issuer owned by the Fund must not exceed 5% of the net assets of
the Fund immediately after the transactions.
Securities transferred to the Fund will be valued according to the same
procedures used to determine the Fund's NAV. All dividends, interests,
subscription, or other rights pertaining to the securities will become the
property of the Fund and must be delivered to the Fund by the investor upon
receipt from the issuer. Investors who are permitted to transfer such
securities will be required to recognize all gains or losses on such transfers,
and pay taxes thereon, if applicable, measured by the difference between the
fair market value of the securities and the investors' basis in the securities.
REDEMPTIONS
Under normal circumstances investors may redeem shares at any time, subject
to any applicable contingent deferred sales charge ("CDSC"). Telephone
redemption privileges are available, upon written request, for amounts up to
$50,000. The redemption price will be based upon the first net asset value per
share determined after receipt of the redemption request, less the amount of any
applicable CDSC, provided the redemption has been submitted in the manner
described in the prospectus. The redemption price may be more or less than your
cost, depending upon the net asset value per share at the time of redemption.
Payment for shares tendered for redemption is generally made by check
within seven days after tender in proper form, or earlier if required under
applicable law. However, the Fund reserves the right to suspend the right of
redemption, or to postpone the date of payment upon redemption beyond seven days
for the following reasons:
(1) for any period during which the New York Stock Exchange (the
"NYSE") is closed, or trading on the NYSE is restricted by the
SEC,
(2) for any period during which an emergency exists as determined by
the SEC as a result of which disposal of securities owned by the
Fund is not reasonably predictable or it is not reasonably
practicable for the Fund to fairly determine the value of its net
assets, or
(3) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Pursuant to the Fund's Agreement and Declaration of Trust, payment for
shares redeemed may be made either in cash or in-kind, or partly in cash and
partly in-kind. However, the Fund has elected, pursuant to Rule 18f-1 under the
1940 Act, to redeem its shares solely in cash up to the lesser of $250,000 or 1%
of the net assets of the Fund, during any 90-day period for any one shareholder.
Payments in excess of this limit will also be made wholly in cash unless the
Board of Trustees believes that economic conditions exist which would make such
a practice detrimental to the best interests of the Fund. Any portfolio
securities paid or distributed in-kind would be valued as described under "Net
Asset Value" in the Prospectus.
In the event that an in-kind distribution is made, a shareholder may incur
additional expenses, such as the payment of brokerage commissions, on the sale
or other disposition of the securities received from the Fund. In-kind payments
need not constitute a cross-section of the Fund's portfolio. When a shareholder
has requested redemption of all or a part of the shareholder's investment, and
when the Fund completes such redemption in-kind, the Fund will not recognize
gain or loss for federal tax purposes on the securities used to complete the
redemption. However, the shareholder will recognize gain or loss equal to the
difference between the fair market value of the securities received and the
shareholder's basis in the Fund shares redeemed.
DISTRIBUTIONS
Distributions of Net Investment Income. The Fund receives income generally in
the form of dividends and interest on its investments. This income, less
expenses incurred in the operation of the Fund, constitute its net investment
income from which dividends may be paid to you. Any distributions by the Fund
from such income will be taxable to you as ordinary income, whether you take
them in cash or in additional shares.
Distributions of Capital Gains. The Fund may derive capital gains and losses in
connection with sales or other dispositions of its portfolio securities.
Distributions derived from the excess of net short-term capital gain over net
long-term capital loss will be taxable to you as ordinary income. Distributions
paid from long-term capital gains realized by the Fund will be taxable to you as
long-term capital gain, regardless of how long you have held your shares in the
Fund. Any net short-term or long-term capital gains realized by the Fund (net
of any capital loss carryovers) generally will be distributed once each year,
and may be distributed more frequently, if necessary, in order to reduce or
eliminate federal excise or income taxes on the Fund.
Information on the Tax Character of Distributions. The Fund will inform you of
the amount and character of your distributions at the time they are paid, and
will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year. If you have not
held Fund shares for a full year, you may have designated and distributed to you
as ordinary income or capital gain a percentage of income that is not equal to
the actual amount of such income earned during the period of your investment in
the Fund.
TAXATION
Election to be Taxed as a Regulated Investment Company. The Fund has elected to
be treated as a regulated investment company under Subchapter M of the Code, has
qualified as such for its most recent fiscal year, and intends to so qualify
during the current fiscal year. As a regulated investment company, the Fund
generally pays no federal income tax on the income and gains it distributes to
you. The Board reserves the right not to maintain the qualification of the Fund
as a regulated investment company if it determines such course of action to be
beneficial to you. In such case, the Fund will be subject to federal, and
possibly state, corporate taxes on its taxable income and gains, and
distributions to you will be taxed as ordinary dividend income to the extent of
the Fund's available earnings and profits.
Excise Tax Distribution Requirements. The Code requires the Fund to distribute
at least 98% of its taxable ordinary income earned during the calendar year and
98% of its capital gain net income earned during the twelve month period ending
October 31 (in addition to undistributed amounts from the prior year) to you by
December 31 of each year in order to avoid federal excise taxes. The Fund
intends to declare and pay sufficient dividends in December (or in January that
are treated by you as received in December) but does not guarantee and can give
no assurances that its distributions will be sufficient to eliminate all such
taxes.
Redemption of Fund Shares. Redemptions and exchanges of Fund shares are taxable
transactions for federal and state income tax purposes that cause you to
recognize a gain or loss. If you hold your shares as a capital asset, the gain
or loss that you realize will be capital gain or loss. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated as
a long-term capital loss to the extent of any long-term capital gains
distributed to you by the Fund on those shares.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you purchase other shares in the
Fund (through reinvestment of dividends or otherwise) within 30 days before or
after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you purchase.
U.S. Government Obligations. Many states grant tax-free status to dividends
paid to you from interest earned on direct obligations of the U.S. government,
subject in some states to minimum investment requirements that must be met by
the Fund. Investments in GNMA/FNMA securities, bankers' acceptances, commercial
paper and repurchase agreements collateralized by U.S. government securities do
not generally qualify for tax-free treatment. The rules on exclusion of this
income are different for corporations.
Dividends-Received Deduction for Corporations. Distributions from the Fund will
generally qualify in part for the 70% dividends-received deduction for
corporations. The portion of the dividends so qualified depends on the
aggregate taxable qualifying dividend income received by the Fund from domestic
(U.S.) sources. The Fund will send to shareholders statements each year
advising the amount of the dividend income which qualifies for such treatment.
All dividends, including those which qualify for the dividends-received
deduction, must be included in your alternative minimum taxable income
calculation.
Investment in Complex Securities. The Fund may invest in complex securities.
Such investments may be subject to numerous special and complicated tax rules.
These rules could affect whether gains and losses recognized by the Fund are
treated as ordinary income or capital gain and/or accelerate the recognition of
income to the Fund or defer the Fund's ability to recognize losses. In turn,
these rules may affect the amount, timing or character of the income distributed
to you by the Fund.
GENERAL INFORMATION
INDEPENDENT AUDITOR
- --------------------
The Fund's independent auditors, Ernst & Young LLP, 111 East Kilbourn
Avenue, Milwaukee, WI, audit and report on the Fund's annual financial
statements, review certain regulatory reports and the Fund's federal income tax
returns, and perform other professional accounting, auditing, tax and advisory
services when engaged to do so by the Fund. Shareholders will receive annual
audited financial statements and semi-annual unaudited financial statements.
CODE OF ETHICS
- --------------
The Fund has adopted a Code of Ethics for certain access persons of the
Trust, which includes its Trustees and certain officers and employees of the
Trust and the Investment Manager. The Code of Ethics is designed to ensure that
Fund insiders act in the interest of the Fund and its shareholders with respect
to any personal trading of securities. Under the Code of Ethics, access persons
are prohibited from knowingly buying or selling securities which are being
purchased, sold or considered for purchase or sale by the Fund. The Code of
Ethics contains even more stringent investment restrictions and prohibitions for
insiders who participate in the Fund's investment decisions. The Code of Ethics
also contains certain reporting requirements and securities trading clearance
procedures.
PERFORMANCE
CALCULATION OF PERFORMANCE DATA
- -------------------------------
Total return may be quoted in advertisements, shareholder reports or other
communications to shareholders. Total return is the total of all income and
capital gains paid to shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original investment, expressed as
a percentage of the purchase price. Occasionally, the Fund may include its
distribution rate in advertisements. The distribution rate is the amount of
distributions per share made by the Fund over a 12-month period divided by the
current maximum offering price.
SEC rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by
the Fund be accompanied by certain standardized performance information computed
in the manner required by the SEC. Total return quotations used by the Fund are
based on the standardized methods of computing performance mandated by the SEC.
An explanation of those and other methods used by the Fund to compute or express
performance follows.
As the following formula indicates, the average annual total return is
determined by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period less any fees charged to all shareholder accounts and
annualizing the result. The calculation assumes the maximum sales load is
deducted from the initial $1,000 purchase order and that all dividends and
distributions are reinvested at the public offering price on the reinvestment
dates during the period. The quotation assumes the account was completely
redeemed at the end of each one, five or ten-year periods and assumes the
deduction of all applicable charges and fees. According to the SEC formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one, five or ten-year periods, determined at
the end of the one, five or ten-year periods (or a fractional
portion thereof).
The return information for the Class C shares of the Fund is shown in the table
below:
without the CDSC with the CDSC
================ =============
Average Annual Return for the
Fiscal Year ended 8/31/98 (9.33)% (11.58)%
Average Annual Total Return for
the Period from 9/21/95 - 8/31/98 13.73% 13.73%
Aggregate Total Return for the
Period from 9/21/95 - 8/31/98 46.13% 46.13%
Regardless of the method used, past performance is not necessarily
indicative of future results, but is an indication of the return to shareholders
only for the limited historical period used.
COMPARISONS AND ADVERTISEMENTS
- ------------------------------
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements, sales literature and other
shareholder communications regarding a Fund may discuss yield or total return
for such Fund as reported by various financial publications. Advertisements,
sales literature and shareholder communications may also compare yield or total
return to yield or total return as reported by other investments, indices, and
averages. The following publications, indices, and averages may be used:
Barron's
Business Week
CDA Investment Technologies, Inc.
Kiplinger's Personal Finance
Consumer Digest
Financial World
Forbes
Fortune
Investment Company Data, Inc.
Investor's Daily
Lipper Mutual Fund Performance Analysis
Lipper Mutual Fund Indices
Money
Morningstar, Inc.
Mutual Fund Values
Nasdaq Indexes
Personal Investor
Personal Investing News
Russell 2000 Index
Russell 2000 Value and Growth Indexes
S&P 500 Composite Stock Price Index
S&P SmallCap 600 Index
S&P MidCap 400 Index
S&P/Barra Growth & Value Indexes
Success
The New York Times
U.S. News and World Report
USA Today
Wall Street Journal
Wiesenberger Investment Companies Services
Wilshire Medium & Small Cap Indexes
Along with performance advertisements, the Fund may also present its
investments, as of a current date, in the form of the "Schedule of Investments"
included in the Semi-Annual and Annual Reports to the shareholders of the Trust.
FINANCIAL STATEMENTS
The financial statements and financial highlights of the Fund for the
fiscal year ended August 31, 1998 which appear in the Fund's Annual Report to
Shareholders and the report thereon by Ernst & Young LLP, the Fund's independent
auditors, also appearing therein, are incorporated by reference into this
Statement of Additional Information. The Annual Report may be obtained, without
charge, by writing or calling the Fund's Distributor at the address or number
listed on the cover page of this Statement of Additional Information.
