THE
OLSTEIN
FUNDS
THE
OLSTEIN
FINANCIAL
ALERT
FUND
ANNUAL REPORT
August 31, 1999
President's Message September 1999
Dear Shareholders:
It has been a great year for the Olstein Financial Alert Fund. We are
particularly pleased with the Fund's average annual return of 25.54% as of
August 31, 1999 since the Fund's inception on September 21, 1995. The end
result is good, but along the way there were several periods of pain and
disappointment. I can say with complete confidence that the Fund's share price
will continue to fluctuate in value, but we remain committed to a discipline
that is oriented toward achieving the Fund's objective of long-term capital
appreciation.
COMMITMENT TO A LONG-TERM INVESTMENT STRATEGY
The market has become inundated with amateur investors. New investors,
attempting to enter the marketplace as day traders, remind me of 5-year olds
left alone in a candy shop, free to eat everything in sight without regard to
future consequences. These "5-year olds" may receive immediate gratification,
but have no idea of possible future negative consequences. Similarly, the
inexperienced analysts who have been attracted to the securities industry by the
latest bull market, have continued waving their pom-poms and cheering on the "5-
year old" inexperienced investors by adding more and more candy with little
concern for the dangers that may lurk in the future. I believe cash flow and
basic research have been abandoned, with scant attention paid to the quarterly
earnings being manipulated by many company managers to satisfy many Wall Street
analysts and amateur investors seeking immediate gratification. The good news
is that this type of behavior may be setting up tremendous opportunities for the
Fund. We react against the excessive thinking of the general public and buy
good companies that are being abandoned by investors fighting to get into the
candy store. Patience is required, as the price to be paid for taking advantage
of these excesses is volatility and, at times, underperformance.
We hope that the Fund's shareholders understand that commitment to a long-term
strategy should not be derailed by short-term results. Unfortunately, we cannot
escape periods of disappointment over a 3 to 5-year time horizon when
implementing the Fund's eclectic value philosophy. We react to stock prices
created during periods of investor pessimism. For example, beginning in April
of 1998 and culminating in October of 1998 some of the Fund's assets were
employed by purchasing oil service companies and semiconductor-related
companies. Investors abandoned these stocks in droves as an overreaction to the
Asian and Latin American crises. We agreed that the short-term economic outlook
for oil and semiconductors was bleak, but we believed we were being compensated
for the pessimism through the prices we were paying for these stocks. As is
typical, when one purchases out of favor companies, the negativity surrounding
them may go further and last longer than predicted. However, to counteract the
short-term pessimism and give us the patience that is required for our values to
potentially be recognized, we buy companies that generate excess cash flow,
employ realistic accounting practices and have the financial ability to weather
a storm. In our opinion, oil is not disappearing and semiconductors are vital
components in the computer/Internet revolution, even though short-term pricing
and demand may have been bleak. We stuck to our discipline, despite short-term
underperformance (6 months) and were richly rewarded for our patience. We
cannot be right all the time and the attempt to accomplish this feat would
probably cause us to be wrong over time.
An example of why one must keep a 3 to 5-year investment horizon follows: A
shareholder visited our offices in March of 1998. He was retiring and was
seeking to invest a good portion of his IRA in the Fund. At the time, the Fund
had appreciated approximately 15% in the first quarter of 1998 and approximately
100% cumulatively in the prior 2-1/2 years. As always, Erik Olstein (VP of
marketing) sought to inject realism into the potential investor's expectations,
counseling the shareholder that he should not expect similar performance in the
future. Erik explained to him that we employ a defense first philosophy, should
only be judged over 3 to 5-year periods and that periods of jubilation could be
followed by periods of temporary disappointment. Unfortunately, nobody can time
these periods precisely and short-term performance in the Fund was basically
random. The shareholder acknowledged our warnings and proceeded to make a
significant investment at the Fund's then all-time peak price. Approximately 6-
months later, Erik received a call from the shareholder, who was now down
approximately 20%, expressing his disappointment with our short-term
performance. Erik again counseled the shareholder regarding the Fund's 3 to 5-
year orientation and that we do not have the ability to control short-term
volatility in today's markets. By January of 1999, as our values were again
beginning to be recognized, the shareholder's capital was restored in its
entirety (in fact, the shareholder was up approximately 3%). While the
shareholder was happy to have his capital restored, he expressed mild
disappointment that the large-cap growth funds had exceeded our return by a
material percentage over the past year. The shareholder was again counseled as
to the Fund's 3 to 5-year philosophy. Erik said that we do not take the
concentrated risk to be number one, but rather our goal was to exceed the return
of U.S. Treasury securities by 50% or more over a 3 to 5-year period. Erik
reminded the shareholder that he had only been with the Fund for 10-months. By
April of 1999 oil prices were making a comeback, semiconductors were again in
demand and the Fund's portfolio was going through a period of value recognition.
Now, the shareholder who had been invested in the Fund for a year, was up about
20%. One day in April of 1999, this same shareholder called once again and
stated that he had decided to increase his investment in the Fund. Although
past performance is no guarantee of future results, investment decisions should
not be based solely on an investment manager's short-term performance record.
The facts are that we were never that bad when the Fund dropped far greater than
we had ever expected between March and September of 1998. We were also not as
good as when the Fund made a rapid 60% comeback between October 1998 and April
1999 as the negative psychology lifted and many of the Fund's value stocks
sprinted to what we believed were realistic prices. Momentum players trading in
the market may have given the appearance that the Fund was volatile. If the
measurement period had been 1-year rather than 6-months, there would have
appeared to be less volatility. In our opinion, short-term performance is never
a reason to select a Fund. The characteristics that we believe are the most
important when selecting a fund include:
o A clearly articulated investment philosophy that one believes is sound
o An appropriate investment objective combined with a risk profile that one
can tolerate
o Independent thinking and unencumbered decision making within the
investment manager's organization
o Personal discipline to follow the articulated philosophy when it is
temporarily out of favor
o Flexibility, or the ability to reverse wrong decisions, as new
information evolves regardless of whether or not the original conclusion
was wrong
o Above average 3 to 5- year returns
o A passion for the business
Although heavily biased, we believe that we possess each one of these
attributes.
REVIEW OF SELECTED PORTFOLIO HOLDINGS
The Fund's near cash position, which reached a peak of about 17% in September
1999, is beginning to decline again as we react to the values being created by
the current negative market psychology. Retailers such as Federated Department
Stores, Neiman Marcus Group, K-Mart Corporation, Ross Stores, Boyds Collection
and Wet Seal, have all been added to the Fund's portfolio. As investors abandon
conventional retailers in search of Internet riches, the abandoned conventional
retailers have fallen to what we believe are attractive values. Federated has a
kicker, in that its catalogue division (Fingerhut) has become an Internet
processing and shipping company. Wal-Mart, eToys and several other e-commerce
companies have recently hired Fingerhut to process their orders.
We continue to invest in the build out of the Internet infrastructure through
companies such as Computer Network Technology (data storage), Quantum DLT (data
storage), Methode Electronics (fiber optics) and Intel (semiconductors). All
four companies have positive cash flow, no debt, and could be about ready to go
through a sustained period of growth after experiencing some current problems.
The oil service companies have provided the Fund with significant returns over
the past year and we continue to believe that the oil service companies remain
undervalued as exploration should begin to pick up next year. Our holdings
include Tidewater, Santa Fe Drilling and UTI Energy. All three companies are
soundly capitalized and are producing excess cash flow, even during the current
oil exploration downturn. We are hopeful of a turn in the next year.
Varian Medical Systems (cancer care systems and x-ray tubes), Kaydon Corporation
(aerospace and manufacturing) and Anchor Gaming (gambling machines and lottery)
represent mid-cap companies that are in temporary disfavor, have outstanding
balance sheets, excess cash flow and we believe are undervalued relative to
their long-term potential.
We recently made a commitment to Hasbro and Mattel. They are franchise toy
manufacturers with temporary problems, that have caused their stock to be
undervalued as a result of what we believe is a temporary downturn in their
businesses. Again, we are purchasing these companies against a wall of
pessimism at what we believe are attractive prices.
Finally, Oxford Health Plans was purchased approximately 1-year ago at prices
that we believed did not adequately reflect the positive changes taking place at
the company. A new management team, lead by a prominent physician with prior
HMO experience, restated reserves to reflect economic reality, implemented steps
to clear up past operating and administrative problems, instituted a material
rate increase, recast the balance sheet to a sounder footing and invested a
material amount of their own money in the company. Even though our initial
analysis was correct, recent litigation has cast a cloud over the entire health
care industry. Even though we may disagree strongly with the intent of the
class action litigation, we have to re-evaluate our position based on the
current facts. We have not found a way to protect ourselves against operating
risk, but our commitment to paying the right price for financially strong
companies and our additional commitment to portfolio diversification should
limit any potential downside risk associated with this litigation.
We like the price that we can pay for a stock as a result of the short-term
pessimism that may surround the company. We have the patience to ride out what
we believe are miscalculations of the company's market value, especially when we
can see a potential period of excess cash flow across the valley.
We appreciate your trust and welcome any comments you may have.
Sincerely,
/s/ Robert A. Olstein
Robert A. Olstein
President
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT*<F1>
This table displays, on a quarterly basis, the Fund's net asset value per share,
distributions, and the value of $10,000 invested in the Fund at the time of its
inception. (Assumes all dividends were reinvested and no shares were redeemed.)
<TABLE>
VALUE OF SHARES VALUE OF SHARES
NET ASSET OWNED, IF NET ASSET OWNED, IF
VALUE PER INITIAL INVESTMENT VALUE PER INITIAL INVESTMENT
DATE SHARE DIVIDENDS WAS $10,000 DATE SHARE DIVIDENDS WAS $10,000
---- --------- --------- ------------------ ---- --------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
9/21/95 $10.00 $10,000 9/30/97 $15.83 $17,250
9/30/95 10.01 10,010 12/31/97 12.81 $2.900 17,205
12/31/95 10.25 $0.011 10,261 3/31/98 14.78 19,851
3/31/96 10.87 10,882 6/30/98 13.75 18,468
6/30/96 11.45 11,462 9/30/98 11.54 15,499
9/30/96 11.70 11,713 12/31/98 14.05 0.648 19,788
12/31/96 11.71 1.032 12,760 3/31/99 14.71 20,717
3/31/97 12.23 13,327 6/30/99 18.01 25,365
6/30/97 13.40 14,602 9/30/99 16.81 23,675
</TABLE>
*<F1> PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The above chart
assumes no redemptions. Redemptions may be subject to a Contingent
Deferred Sales Charge (CDSC) if made within two years of the
investment of such funds. The Fund's average annual return for the
one year period and since inception through September 30, 1999,
assuming the deduction of the Fund's maximum CDSC for redemptions at
the end of the one year period (2.50%), was 50.25% and 23.84%
respectively. Investment returns and principal values may fluctuate,
so that, when redeemed, shares may be worth more or less than their
original cost. This letter must be preceded or accompanied by a
current prospectus. Please review the prospectus prior to investing
in the Fund.
COMPARISON OF THE CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT FROM
THE FUND'S INCEPTION THROUGH THE FISCAL YEAR END OF 8/31/99. THE LINE CHART
DOES NOT REFLECT ANY APPLICABLE CDSC REDEMPTION FEES.
DATE OLSTEIN FINANCIAL ALERT FUND S&P 500 LIPPER INDEX
---- ---------------------------- ------- ------------
9/21/95 $10,000 $10,000 $10,000
8/31/96 $11,222 $11,353 $10,770
8/31/97 $16,116 $15,968 $13,457
8/31/98 $14,612 $17,260 $12,865
8/31/99 $24,547 $24,133 $18,574
AVERAGE ANNUAL TOTAL RETURN
---------------------------
1 YEAR INCEPTION
------ ---------
Olstein Financial Alert*<F2> 65.49% 25.54%
Lipper Index**<F3> 44.38% 16.98%
S&P 500***<F4> 39.82% 25.00%
*<F2> Assumes reinvestment of dividends and capital gains. Also includes
all expenses at the end of each period and reflects the deduction of the
appropriate CDSC as if an investor had redeemed at the end of the one year
period, and thus represents a "net return." Past performance is not necessarily
indicative of future results. Investment returns and principal values may
fluctuate, so that, when redeemed, shares may be worth more or less than their
original cost.
**<F3> Lipper Index return does not reflect reinvested dividends and does not
reflect the deduction of any fees or expenses associated with investment in the
index, and thus represents a "gross return."
***<F4> S&P 500 return is adjusted upward to reflect reinvested dividends, but
does not reflect the deduction of any fees or expenses associated with
investment in the index, and thus represents a "gross return."
Schedule of Investments August 31, 1999
Value
Shares (Note 2)
------ --------
COMMON STOCKS - 86.1%
AUTOS & TRUCKS - 2.9%
Delphi Automotive Systems
Corporation 34,946 $ 655,238
General Motors Corporation 90,000 5,951,250
Thor Industries, Inc. 137,200 3,687,250
------------
10,293,738
------------
BIOTECHNOLOGY - 0.4%
Human Genome
Sciences, Inc. *<F5> 22,000 1,497,375
------------
BUILDING & HOUSING - 1.5%
Drew Industries
Incorporated *<F5> 134,000 1,541,000
Simpson Manufacturing
Co., Inc. *<F5> 39,000 2,008,500
Skyline Corporation 35,400 982,350
Southdown, Inc. 15,000 757,500
------------
5,289,350
------------
BUSINESS MACHINES & SOFTWARE - 3.8%
Computer Network
Technology Corporation *<F5> 405,500 6,411,969
International Business
Machines Corporation 40,000 4,982,500
Novell, Inc. *<F5> 85,500 2,025,281
------------
13,419,750
------------
BUSINESS SERVICES - 1.2%
Braun Consulting, Inc. *<F5> 40,000 437,500
Kelly Services, Inc. - Class A 125,000 3,515,625
Safety-Kleen Corp. *<F5> 15,000 191,250
------------
4,144,375
------------
COMMUNICATIONS & MEDIA - 7.4%
Adelphia Communications
Corporation - Class A *<F5> 41,000 2,542,000
Cablevision Systems
Corporation - Class A *<F5> 35,100 2,457,000
Comcast Corporation -
Class A *<F5> 32,500 956,719
Comcast Corporation - Special
Class A *<F5> 84,000 2,740,500
Fox Entertainment
Group, Inc. - Class A *<F5> 65,000 1,499,063
Media General, Inc. - Class A 35,500 1,739,500
MediaOne Group, Inc. *<F5> 83,000 5,457,250
Penton Media, Inc. 208,000 2,860,000
TV Guide, Inc. - Class A *<F5> 50,000 1,387,500
USA Networks, Inc. *<F5> 92,000 4,128,500
------------
25,768,032
------------
COMPUTERS - 2.8%
Compaq Computer
Corporation 73,000 1,692,688
Quantum Corporation *<F5> (1)<F6> 268,000 4,907,750
RadiSys Corporation *<F5> 79,700 3,068,450
------------
9,668,888
------------
CONSUMER PRODUCTS - 3.0%
American Greetings Corporation -
Class A 158,000 4,374,625
The Boyds Collection, Ltd. *<F5> 131,400 1,765,687
Mattel, Inc. 168,000 3,580,500
Russ Berrie and Company, Inc. 26,500 621,094
------------
10,341,906
------------
DRUGS - 2.6%
American Home Products
Corporation 65,000 2,697,500
Eli Lilly and Company 30,000 2,238,750
Merck & Co., Inc. 32,000 2,150,000
Pharmacia & Upjohn, Inc. 35,000 1,828,750
------------
8,915,000
------------
ELECTRICAL EQUIPMENT - 4.1%
Pittway Corporation - Class A 172,500 5,681,719
Varian Inc. *<F5> 207,000 3,286,125
Veeco Instruments Inc. *<F5> 155,000 5,202,188
------------
14,170,032
------------
ELECTRONICS - 5.9%
Amphenol Corporation -
Class A *<F5> 86,300 4,039,919
CTS Corporation 42,400 2,019,300
Dupont Photomasks, Inc. *<F5> 31,500 1,689,188
Harman International
Industries, Incorporated 120,000 5,100,000
Methode Electronics, Inc. -
Class A 193,100 3,475,800
SCI Systems, Inc. *<F5> 67,000 3,337,438
Texas Instruments
Incorporated 9,900 812,419
------------
20,474,064
------------
ENTERTAINMENT & LEISURE - 1.9%
Anchor Gaming *<F5> 51,600 2,507,438
Park Place Entertainment
Corporation *<F5> 375,000 4,242,187
------------
6,749,625
------------
FINANCIAL SERVICES - 1.5%
The John Nuveen Company -
Class A 39,100 1,527,344
Paine Webber Group Inc. 94,000 3,689,500
------------
5,216,844
------------
FURNITURE & FIXTURES - 4.8%
American Woodmark
Corporation 96,200 2,609,425
CompX International, Inc. *<F5> 246,500 4,190,500
Ethan Allen Interiors Inc. 141,950 4,143,166
Herman Miller, Inc. 166,800 3,930,225
Stanley Furniture
Company, Inc. *<F5> 95,900 1,918,000
------------
16,791,316
------------
HEALTHCARE SERVICES & SUPPLIES - 5.0%
CONMED Corporation *<F5> 86,000 2,408,000
Cytyc Corporation *<F5> 72,500 2,446,875
Oxford Health Plans, Inc. *<F5> (1)<F6> 417,500 6,471,250
Summit Technology, Inc. *<F5> 55,000 880,000
Varian Medical Systems, Inc. 236,200 5,107,825
------------
17,313,950
------------
INSURANCE - 1.5%
Hartford Life, Inc. - Class A 87,300 3,792,094
LandAmerica Financial
Group, Inc. 57,000 1,318,125
------------
5,110,219
------------
MACHINERY - INDUSTRIAL - 3.1%
Ampco-Pittsburgh
Corporation 119,500 1,523,625
CLARCOR Inc. 49,000 878,937
Gardner Denver Inc. *<F5> 97,500 1,870,781
Kaydon Corporation 111,300 3,415,519
Precision Castparts Corp. 88,500 3,141,750
------------
10,830,612
------------
MARKETING - 0.5%
ValueVision International, Inc. -
Class A *<F5> 76,000 1,814,500
------------
METALS & MINERALS - 1.5%
AK Steel Holding Corporation 120,000 2,520,000
Cleveland-Cliffs Inc. 50,500 1,619,156
NS Group, Inc. *<F5> 99,200 1,178,000
------------
5,317,156
------------
OIL & GAS SERVICES - 8.8%
Halliburton Company 37,000 1,715,875
Rowan Companies, Inc. *<F5> 292,500 5,447,812
Santa Fe International
Corporation 162,500 4,285,937
Tesoro Petroleum
Corporation *<F5> 204,500 3,693,781
Tidewater Inc. 173,500 5,638,750
UTI Energy Corp. *<F5> 342,300 6,846,000
Weatherford
International, Inc. *<F5> 84,000 2,992,500
------------
30,620,655
------------
PAPER & FOREST PRODUCTS - 2.0%
Boise Cascade Corporation (1)<F6> 109,500 3,983,062
Champion International
Corporation 55,000 3,025,000
------------
7,008,062
------------
PRINTING & PUBLISHING - 3.5%
Playboy Enterprises, Inc. -
Class A *<F5> 6,000 108,750
The New York Times
Company - Class A (1)<F6> 148,000 5,781,250
The Reader's Digest
Association, Inc. - Class B 135,400 3,833,512
The Washington Post
Company - Class B 4,600 2,479,400
------------
12,202,912
------------
RAILROADS - 1.1%
Florida East Coast
Industries, Inc. 47,200 1,699,200
The St. Joe Company 90,000 2,103,750
------------
3,802,950
------------
RETAIL - 5.5%
BJ's Wholesale Club, Inc. *<F5> 105,000 2,966,250
Federated Department
Stores, Inc. *<F5> 72,500 3,335,000
Kmart Corporation *<F5> 137,000 1,721,062
The Neiman Marcus
Group, Inc. 125,000 2,781,250
Ross Stores, Inc. 35,000 1,456,875
Sbarro, Inc. 213,300 5,865,750
Zany Brainy, Inc. *<F5> 129,500 987,437
------------
19,113,624
------------
SAVINGS & LOAN - 0.2%
Brookline Bancorp, Inc. 70,000 761,250
------------
SEMICONDUCTORS - 4.2%
Etec Systems, Inc. *<F5> 82,000 3,608,000
Intel Corporation (1)<F6> 81,000 6,657,187
KLA-Tencor Corporation *<F5> 27,000 1,695,937
Novellus Systems, Inc. *<F5> 52,500 2,831,719
------------
14,792,843
------------
TELECOMMUNICATIONS EQUIPMENT - 0.7%
General Cable Corporation 170,000 2,465,000
------------
TEXTILES & APPAREL - 1.8%
Reebok International Ltd. *<F5> 225,000 2,657,812
The Wet Seal, Inc. - Class A *<F5> 235,100 3,585,275
------------
6,243,087
------------
TRANSPORTATION EQUIPMENT - 2.1%
Arkansas Best Corporation *<F5> 65,700 821,250
Coachmen Industries, Inc. 207,500 3,281,094
Fleetwood Enterprises, Inc. 165,800 3,378,175
------------
7,480,519
------------
TRAVEL & RECREATION - 0.5%
Winnebago Industries, Inc. 76,000 1,819,250
------------
US ROYALTY TRUSTS - 0.3%
Texas Pacific Land Trust 22,800 1,068,750
------------
TOTAL COMMON STOCKS
(Cost $262,353,023) 300,505,634
------------
Shares or
Principal Value
Amount (Note 2)
------ --------
SHORT-TERM INVESTMENTS - 13.4%
MUTUAL FUNDS - 0.3%
Firstar Institutional Money
Market Fund 980,813 $ 980,813
------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 13.1%
Fannie Mae
0.00%, 9/01/1999 $7,900,000 7,900,000
Federal Home Loan Bank:
0.00%, 9/01/1999 8,000,000 8,000,000
4.95%, 9/02/1999 11,500,000 11,498,419
5.00%, 9/07/1999 8,000,000 7,993,333
Federal Farm Credit Bank
5.05%, 9/08/1999 8,500,000 8,491,654
Federal Home Loan
Mortgage Corporation (1)<F6>
4.97%, 9/17/1999 2,000,000 1,995,582
------------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS 45,878,988
------------
TOTAL SHORT- TERM INVESTMENTS
(Cost $46,859,801) 46,859,801
------------
TOTAL INVESTMENTS - 99.5%
(COST $309,212,824) 347,365,435
------------
SECURITIES SOLD SHORT - (3.1%)
(PROCEEDS $12,178,489) (10,753,449)
OTHER ASSETS, LESS
LIABILITIES - 3.6% 12,544,922
------------
NET ASSETS - 100.0% $349,156,908
------------
------------
*<F5> Non-income producing security.
(1)<F6> All or a portion of the securities have been committed as collateral
for open short positions.
The accompanying notes are an integral part of the financial statements.
Schedule of Securities Sold Short August 31, 1999
Value
Shares (Note 2)
------ --------
SECURITIES SOLD SHORT
MANUFACTURING
Micron Electronics, Inc. 9,000 $ 87,188
MTI Technology Corporation 41,500 925,969
Zoltek Companies, Inc. 12,500 96,094
-----------
TOTAL MANUFACTURING 1,109,251
-----------
SERVICES
Acxiom Corporation 14,000 245,875
Analytical Surveys, Inc. 10,500 210,656
Aviation Sales Company 23,000 713,000
Cerner Corporation 26,500 440,562
Conseco, Inc. 29,000 696,000
Diamond Technology
Partners Incorporated 12,000 397,500
drkoop.com, Inc. 9,000 153,000
Eclipsys Corporation 20,000 288,750
Enhance Financial Services
Group Inc. 5,000 102,500
E*TRADE Group, Inc. 13,300 332,500
Fair, Isaac and Company,
Incorporated 10,000 282,500
HCR Manor Care, Inc. 32,500 635,781
Hvide Marine Incorporated -
Class A 6,500 3,453
iVillage Inc. 8,000 290,500
The Kroll-O'Gara Company 13,000 249,438
Ocwen Financial Corporation 30,000 200,625
Sapient Corporation 10,500 766,500
Shared Medical Systems
Corporation 12,000 674,250
-----------
TOTAL SERVICES 6,683,390
-----------
WHOLESALE & RETAIL TRADE
Amazon.com, Inc. 4,800 597,000
Boston Chicken, Inc. 39,000 13,650
Einstein/Noah Bagel Corp. 160,220 115,158
eBAY Inc. 3,700 464,581
eToys Inc. 8,600 374,100
Just For Feet, Inc. 3,500 14,219
Tricon Global Restaurants, Inc. 18,000 731,250
VerticalNet, Inc. 9,300 320,850
The Warnaco Group, Inc. 15,000 330,000
-----------
TOTAL WHOLESALE & RETAIL TRADE 2,960,808
-----------
TOTAL SECURITIES SOLD SHORT
(PROCEEDS $12,178,489) $10,753,449
-----------
-----------
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities August 31, 1999
ASSETS:
Investments, at value (cost $309,212,824) $347,365,435
Receivable from broker for proceeds on securities sold short 10,730,096
Receivable for investments sold 5,449,486
Capital shares sold 483,335
Dividends and interest receivable 210,204
Other receivables 8,324
Organization costs, net of accumulated amortization 18,374
Other assets 62,048
------------
Total Assets 364,327,302
------------
LIABILITIES:
Securities sold short, at value (proceeds of $12,178,489) 10,753,449
Payable for securities purchased 3,299,524
Capital shares redeemed 54,053
12b-1 fee payable 599,487
Payable to Adviser 298,396
Accrued expenses and other liabilities 165,485
------------
Total Liabilities 15,170,394
------------
NET ASSETS $349,156,908
------------
------------
NET ASSETS CONSIST OF:
Capital stock $237,250,035
Accumulated undistributed net realized gain on investments
sold and securities sold short 72,329,222
Net unrealized appreciation on:
Investments 38,152,611
Short positions 1,425,040
------------
Total Net Assets $349,156,908
------------
------------
Shares outstanding (250,000,000 shares of
$.001 par value authorized) 20,027,816
Net Asset Value and Offering Price Per Share $17.43
------
------
The accompanying notes are an integral part of the financial statements.
Statement of Operations
For the
Year Ended
August 31, 1999
---------------
INVESTMENT INCOME:
Interest income $ 2,775,363
Dividend Income 1,672,013
------------
Total investment income 4,447,376
------------
EXPENSES:
Investment management fee 2,876,576
Distribution expense 2,876,388
Administration fee 156,927
Shareholder servicing and accounting costs 126,281
Custody fees 42,770
Federal and state registration 28,255
Professional fees 62,265
Reports to shareholders 11,545
Trustees' fees and expenses 20,900
Amortization of organization costs 25,444
Other 52,000
------------
Total expenses before interest expense
and dividends on short positions 6,279,351
Interest Expense (Note 3) 261,923
Dividends on short positions 25,399
------------
Total expenses 6,566,673
------------
Net investment loss (2,119,297)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized gain on:
Investments 63,995,109
Short positions 1,504,296
Equity contracts (Note 3) 9,212,494
Change in net unrealized appreciation/depreciation on:
Investments 66,371,430
Short positions (2,053,176)
------------
Net realized and unrealized gain on investments 139,030,153
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $136,910,856
------------
------------
The accompanying notes are an integral part of the financial statements.
Statements of Changes in Net Assets
For the For the
Year Ended Year Ended
August 31, 1999 August 31, 1998
--------------- ---------------
OPERATIONS:
Net investment loss $ (2,119,297) $ (932,976)
Net realized gain on:
Investments 63,995,109 24,306,352
Short positions 1,504,296 719,783
Equity contracts 9,212,494 --
Change in net unrealized appreciation/
depreciation on:
Investments 66,371,430 (56,652,794)
Short positions (2,053,176) 4,528,897
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 136,910,856 (28,030,738)
DISTRIBUTION TO SHAREHOLDERS FROM
NET REALIZED GAINS (12,016,817) (35,837,667)
------------ ------------
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS (NOTE 6) 19,939,892 92,589,749
------------ ------------
TOTAL INCREASE IN NET ASSETS 144,833,931 28,721,344
NET ASSETS:
Beginning of year 204,322,977 175,601,633
------------ ------------
End of year $349,156,908 $204,322,977
------------ ------------
------------ ------------
The accompanying notes are an integral part of the financial statements.
Financial Highlights
The following table includes selected data for a share outstanding for the Fund
throughout each period and other performance information derived from the
financial statements. It should be read in conjunction with the financial
statements and notes thereto.
<TABLE>
For the Period
For the For the For the September 21, 1995+<F7>
Year Ended Year Ended Year Ended through
August 31, 1999 August 31, 1998 August 31, 1997 August 31, 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $10.88 $14.79 $11.21 $10.00
------ ------ ------ ------
INVESTMENT OPERATIONS:
Net investment loss (0.11)1<F10> (0.06)1<F10> (0.05) (0.07)
Net realized and unrealized
gain (loss) on investments 7.31 (0.95) 4.66 1.29
------ ------ ------ ------
Total from investment operations 7.20 (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 $17.43 $10.88 $14.79 $11.21
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN:++<F8> 67.99% (9.33)% 43.61% 12.22%
Ratios (to average net assets)/Supplemental Data:
Expenses2<F11> 2.19% 2.25% 2.38% 2.43%*<F9>
Net investment loss (0.74)% (0.39)% (0.45)% (0.68)%*<F9>
Interest expense and dividends
on short positions 0.10% 0.00% -- --
Portfolio turnover rate 179.33% 187.44% 164.92% 139.77%*<F9>
Net assets at end of period (000 omitted) $349,157 $204,323 $175,602 $109,005
</TABLE>
+<F7> Commencement of Operations.
++<F8> Total returns do not reflect any deferred sales charge. The total
return for the period ending August 31, 1996 has not been annualized.
*<F9> Annualized.
1<F10> Net investment loss per share represents net investment loss divided
by the average shares outstanding throughout the period.
2<F11> The expense ratio excludes interest expense on equity swap contracts
and dividends on short positions. The ratio including interest
expense on equity swap contracts and dividends on short positions for
the period ended August 31, 1999 was 2.29%.
The accompanying notes are an integral part of the financial statements.
Notes to Financial Statements
1. DESCRIPTION OF THE FUND. The Olstein Financial Alert Fund (the "Fund") is
the first series of The Olstein Funds (the "Trust"), a Delaware business
trust organized on March 31, 1995. The Fund is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
diversified management investment company. The primary investment
objective of the Fund is long-term capital appreciation with a secondary
objective of income. The Fund commenced investment operations on September
21, 1995.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of the
significant accounting policies of the Fund:
Security Valuation. The Fund's securities, except short-term investments
with remaining maturities of 60 days or less, are valued at their market
value as determined by their last sale price in the principal market in
which these securities are normally traded. Lacking any sales, the security
will be valued at the mean between the closing bid and ask price. Short-
term investments with remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value, unless the Fund's Board of
Trustees determines that this does not represent fair value. The value of
all other securities is determined in good faith under the direction of the
Board of Trustees.
Federal Income Taxes. The Fund intends to continue to qualify for treatment
as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986 and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision has been provided.
Distributions to Shareholders. Distributions of net investment income and
net realized gains, if any, are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
Generally, distributions are declared annually in December.
Deferred Organization Costs. Costs incurred by the Fund in connection with
its organization, aggregating $125,396, have been deferred and are being
amortized using the straight-line method over a five-year period beginning
on the date that the Fund commenced operations. In the event that any of
the initial shares of the Fund are redeemed during the amortization period
by any holder thereof, the redemption proceeds will be reduced by any
unamortized organization costs in the same proportion as the number of
initial shares being redeemed bears to the number of initial shares
outstanding at the time of such redemption.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Other. Investment security transactions are accounted for on a trade date
basis. The Fund uses the specific identification method for determining
realized gain or loss on investments for both financial and federal income
tax reporting purposes. Dividend income and dividends on short positions are
recognized on the ex-dividend date or as soon as information is available to
the Fund and interest income is recognized on an accrual basis. Investment
income includes $333,683 of interest earned on receivables from brokers for
proceeds on securities sold short.
3. PURCHASES AND SALES OF INVESTMENT SECURITIES. During the year ended August
31, 1999, purchases and sales of investment securities (excluding securities
sold short and short-term investments) aggregated as follows:
Purchases $423,303,099
Sales 402,771,611
The following balances for the Fund are as of August 31, 1999:
Cost for Net Tax Basis Tax Basis Gross Tax Basis Gross
Federal Income Unrealized Unrealized Unrealized
Tax Purposes Appreciation Appreciation Depreciation
-------------- ------------ ------------- --------------
$309,241,192 $38,124,243 $53,166,316 $(15,042,073)
Short Sales. Short sales are transactions in which the Fund sells a
security it does not own, in anticipation of a decline in the market value
of that security. To complete such a transaction, the Fund must borrow the
security to deliver to the buyer upon the short sale; the Fund then is
obligated to replace the security borrowed by purchasing it in the open
market at some later date. The Fund will incur a loss if the market price
of the security increases between the date of the short sale and the date on
which the Fund replaces the borrowed security. The Fund will realize a gain
if the security declines in value between those dates. All short sales must
be fully collateralized. The Fund maintains the collateral in a segregated
account consisting of cash, U.S. Government securities or other liquid
assets sufficient to collateralize the market value of its short positions.
The Fund limits the value of short positions to 25% of the Fund's net
assets. At August 31, 1999, the Fund had 3.1% of its net assets in short
positions.
Equity Contracts. The Board of Trustees authorized the Fund to enter into
an equity swap contract with a major broker/dealer which allowed the Fund to
receive from the counterparty any appreciation and dividends paid on a
basket of securities and pay the counterparty LIBOR rate plus 75 basis
points based on the notional amount of the contract as well as any
depreciation on the respective basket of securities.
The Fund realized a gain of $9,212,494 upon termination of the contract.
This contract terminated on November 5, 1998.
4. INVESTMENT MANAGEMENT FEE AND OTHER AGREEMENTS. The Fund employs Olstein &
Associates, L.P. ("Olstein & Associates" or the "Investment Manager") as the
investment manager. Pursuant to an investment management agreement with the
Fund, the Investment Manager selects investments and supervises the assets
of the Fund in accordance with the investment objective, policies and
restrictions of the Fund, subject to the supervision and direction of the
Board of Trustees. For its services, the Investment Manager is paid a
monthly fee at the annual rate of 1.00% of the Fund's average daily net
assets. For the year ended August 31, 1999, the Fund incurred investment
management fees of $2,876,576.
Certain trustees and officers of the Trust are also officers of the Trust's
Investment Manager. Such trustees and officers are paid no fees by the
Trust for serving as trustees or officers of the Trust.
5. SERVICE AND DISTRIBUTION PLAN. Olstein & Associates (the "Distributor") has
entered into a distribution and underwriting agreement with the Fund dated
August 18, 1995, under which the Distributor acts as underwriter to engage
in activities designed to assist the Fund in securing purchasers for its
shares. The Fund has adopted a Shareholder Servicing and Distribution Plan
pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plan"). Amounts paid
under the 12b-l Plan may compensate the Distributor or others for the
activities in the promotion and distribution of the Fund's shares and for
shareholder servicing. The total amount which the Fund will pay under the
12b-1 Plan is 1.00% per annum of the Fund's average daily net assets. For
the year ended August 31, 1999, fees accrued by the Fund pursuant to the
12b-1 Plan were $2,876,388.
During the year ended August 31, 1999, the Fund paid total brokerage
commissions of $678,144 to affiliated broker dealers in connection with
purchases and sales of investment securities.
6. FUND SHARES. At August 31, 1999, there was an unlimited number of shares of
beneficial interest, $0.001 par value, authorized. The following table
summarizes the activity in shares of the Fund:
<TABLE>
Year Ended Year Ended
August 31, 1999 August 31, 1998
--------------------------- ---------------------------
Shares Amount Shares Amount
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 2,100,324 $32,590,279 6,685,402 $94,858,849
Shares issued to shareholders in
reinvestment of distributions 881,266 11,755,899 2,833,901 35,338,744
Shares redeemed (1,737,487) (24,406,286) (2,610,356) (37,607,844)
---------- ----------- ---------- -----------
Net increase 1,244,103 $19,939,892 6,908,947 $92,589,749
----------- -----------
----------- -----------
SHARES OUTSTANDING:
Beginning of period 18,783,713 11,874,766
---------- ----------
End of period 20,027,816 18,783,713
---------- ----------
---------- ----------
</TABLE>
Report of Independent Auditors
To the Shareholders and Trustees of The Olstein Financial Alert Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedules of investments and securities sold short, of The Olstein Financial
Alert Fund as of August 31, 1999, and the related statement of operations for
the year then ended, and the statements of changes in net assets and financial
highlights for the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned and securities sold short, as of August 31, 1999, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Olstein Financial Alert Fund at August 31, 1999, the results of its operations
for the year then ended, and the changes in its net assets and its financial
highlights for the periods indicated therein, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
October 8, 1999
Tax Information
In early 1999, shareholders received information regarding all distributions
paid to them by the Fund during the fiscal year ended August 31, 1999. The Fund
hereby designates $12,016,817 as a long-term capital gain distribution taxed at
20%.
TRUSTEES
--------
Robert A. Olstein, Chairman
Neil C. Klarfeld
Fred W. Lange
John Lohr
D. Michael Murray
Erik K. Olstein
Lawrence K. Wein
INVESTMENT MANAGER
------------------
Olstein & Associates, L.P.
4 Manhattanville Road
Purchase, New York 10577
DISTRIBUTOR
-----------
Olstein & Associates, L.P.
ADMINISTRATOR, TRANSFER AGENT,
DIVIDEND PAYING AGENT &
SHAREHOLDER SERVICING AGENT
---------------------------
Firstar Mutual Fund Services, LLC
615 East Michigan Street
P.O. Box 701
Milwaukee, WI 53202
CUSTODIAN
---------
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53202
LEGAL COUNSEL
-------------
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP
111 East Kilbourn Avenue
Milwaukee, WI 53202
This report is submitted for the general information of the shareholders of the
Fund. The report is not authorized for distribution to prospective investors in
the Fund unless preceded or accompanied by an effective Prospectus.
TOLL FREE TELEPHONE NUMBER:
(800) 799-2113
