As filed with the Securities and Exchange Commission on October 9, 1996.
1933 Act Registration No. 333-7595
1940 Act Registration No. 811-07695
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective No. 1 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 1 [x]
--------------------
O'SHAUGHNESSY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
60 Arch Street, Greenwich, Connecticut 06830
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:
(212) 633-9700
Steven J. Paggioli
Investment Company Administration Corporation
479 West 22nd Street, New York, New York 10011
(Name and Address of Agent for Service)
Copies of communications to:
Counsel for the Fund:
Joel H. Goldberg, Esq. James P. O'Shaughnessy
Shereff, Friedman, Hoffman & O'Shaughnessy Capital Management, Inc.
Goodman, LLP 60 Arch Street
919 Third Avenue Greenwich, Connecticut 06830
New York, New York 10022-9998
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the Registration Statement
The registrant has elected to register an indefinite amount of common stock, par
value $.0001 per share, pursuant to Section 24(f) under the Investment Company
Act of 1940, as amended, and Rule 24f-2 thereunder. In accordance with Rule
24f-2 (a)(3) a registration fee of $500 has previously been paid.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
O'SHAUGHNESSY FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
Between Items Enumerated in Part A of Form N-1A and Prospectus and Between
Items Enumerated in Part B of Form N-1A and Statement of Additional Information
Pursuant to Rule 481(a) under the Securities Act of 1933
<TABLE>
<CAPTION>
Item Number of
Form N-1A; Part A Location in Prospectus
- ----------------- ----------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis About the Fund(s) -- Transaction and Fund Expenses
3. Condensed Financial Information Inapplicable
4. General Description of
Registrant About the Fund(s) -- Investment Objective and
Policies; -- Investment Objective and Strategies;
-- Other Investment Policies and Practices
5. Management of the Fund About the Fund(s) -- Transaction and Fund
Expenses; Management and Organization of the
Fund(s)
5A. Management's Discussion of Fund Performance Inapplicable
6. Capital Stock and Other
Securities Net Asset Value; Performance Information
7. Purchase of Securities Being Offered About the Fund(s) -- Transaction and Fund
Expenses; Information About Your Account --
Purchase of Shares; -- Exchange Privilege; --
Redemption of Shares; Information on Distributions
and Taxes
8. Redemption or Repurchase Information About Your Account -- Purchase of
Shares; -- Exchange Privilege; -- Redemption of
Shares; Information on Distributions and Taxes
9. Pending Legal Proceedings Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item Number of Location in Statement
Form N-1A; Part B of Additional Information
- ----------------- -------------------------
<S> <C> <C>
10. Cover Page Front Cover Page
11. Table of Contents Back Cover Page
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Policies and Limitations
14. Management of the Fund Management of the Funds; Directors and Officers
15. Control Persons and Principal Holders of Securities Management of Funds; Directors and Officers
16. Investment Advisory and Other
Services Directors and Officers; Management of the Funds
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities Valuation of Shares; Other Information
19. Purchase, Redemption and Pricing of Securities
Being Offered Additional Purchase and Redemption Information
20. Tax Status Additional Information about Dividends and Taxes
21. Underwriters Management of the Funds; Portfolio Transactions
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements of the Fund
</TABLE>
Part C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
October 9, 1996
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND
60 Arch Street, Greenwich, Connecticut 06830
(800) 797-0773
The Funds
O'Shaughnessy Cornerstone Growth Fund ("Cornerstone Growth Fund") and
O'Shaughnessy Cornerstone Value Fund ("Cornerstone Value Fund") (each a "Fund,"
and together, the "Funds") are separate investment portfolios or series of
O'Shaughnessy Funds, Inc., an open-end, diversified management investment
company or mutual fund.
Investment Objective
The investment objective of the Cornerstone Growth Fund is to seek
long-term growth of capital. The investment objective of the Cornerstone Value
Fund is to seek total return, consisting of capital appreciation and current
income.
Strategy Indexing
Each Fund seeks to achieve its investment objective through a process of
Strategy Indexing which is pursued through the implementation of an investment
strategy developed by O'Shaughnessy Capital Management, Inc., the Funds'
investment manager (the "Manager"). The Funds will invest substantially all of
their assets in common stocks selected through such strategies.
The investment strategy of Cornerstone Growth Fund (the "Cornerstone Growth
Strategy") entails the selection of 50 common stocks from the O'Shaughnessy All
Stocks Universe which meet certain criteria, as described below.
The investment strategy of Cornerstone Value Fund (the "Cornerstone Value
Strategy") entails the selection of 50 common stocks from the O'Shaughnessy
Market Leaders Universe which meet certain criteria, as described below. (The
Cornerstone Growth Strategy and the Cornerstone Value Strategy are each referred
to as a "Strategy.")
Risk/Reward
Each Fund's Strategy provides a rigorous and disciplined approach to
investing, based on a buy and hold philosophy over the course of each year, and
has, in the Manager's judgment, the potential to provide superior returns.
However, each Fund intends to adhere to its respective Strategy (subject to
applicable federal tax requirements relating to mutual funds) regardless of the
performance of the stock market or other economic factors or indicators in a
particular period, which may result in losses to the Fund.
Purchase of Shares
Shares of the Funds will be offered to investors during the continuous
offering at a price equal to the next determined net asset value per share.
There are no fees or charges to purchase or sell shares or to reinvest
dividends. There are no Rule 12b-1 fees.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------
This Prospectus contains the information you should know about the Funds
before you invest. Please keep it for future reference. A statement containing
additional information about the Funds, dated October 9, 1996, has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this Prospectus. It is available, at no charge, by calling or by writing
the Funds at the telephone number or address set forth above.
------------
O'Shaughnessy Capital Management, Inc.-Manager
First Fund Distributors, Inc.-Distributor
-1-
<PAGE>
ABOUT THE FUNDS
TRANSACTION AND FUND EXPENSES
The following table and example should help you understand the kinds of
expenses you will bear directly or indirectly as a Fund shareholder. In the
table, "Shareholder Transaction Expenses," shows that you pay no sales charges.
All the money you invest in the Funds goes to work for you, subject to the fees
noted in the table. "Annual Fund Operating Expenses" shows how much it would
cost to operate each Fund for a year, based on estimated expenses through the
end of each Fund's first full year. These costs you pay indirectly, because they
are deducted from the Fund's total assets before the daily share price is
calculated and before dividends and other distributions are made. You will not
see these expenses on your account statement.
<TABLE>
<CAPTION>
Cornerstone Cornerstone
Table Growth Fund Value Fund
- ----- ----------- ----------
<S> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) ....None None
Maximum Sales Charge Imposed on Dividend Reinvestments .......................... None None
Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, whichever is lower) ..................................................None None
Redemption fee (a) ...............................................................None None
Exchange Fee (b) .................................................................None None
Annual Fund Operating Expenses (as a percentage of average net assets):
Management Fees (c) ..............................................................0.74% 0.74%
Rule 12b-1 Fees ..................................................................None None
Other Expenses ...................................................................0.76% 0.76%
----- ----
Total Fund Operating Expenses ..................................................1.50% 1.50%
===== ====
</TABLE>
- ---------------------
(a) Shareholders who effect redemptions of Fund shares by wire transfer will pay
a $7.50 wire transfer fee. See "Information About Your Account -- Redemption of
Shares."
(b) Shareholders who effect exchanges of shares of a Fund for shares of another
fund by telephone in accordance with the exchange privilege will be charged a
$5.00 exchange fee. See "Information About Your Account -- Exchange Privilege."
(c) See "Management and Organization of the Funds -- Management."
<TABLE>
<CAPTION>
Cornerstone Cornerstone
Example Growth Fund Value Fund
- ------- ----------- ----------
<S> <C> <C>
An investor would pay the following expenses on a $1,000 investment assuming:
(1) the operating expense ratio set forth in the table above; (2) a 5% annual
return through out the period; and (3) redemption at the end of the period:
One year ...........................................................................$15 $15
Three years ........................................................................$47 $47
</TABLE>
The table and example are intended to assist investors in understanding the
costs and expenses that a shareholder in each Fund will bear directly or
indirectly. "Other Expenses" is based on estimated amounts for the current
fiscal year. The example should not be considered a representation of past or
future expenses or annual rate of return, and actual expenses or annual rate of
return may be more or less than those shown.
-2-
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGIES
To help you decide whether either or both of the Cornerstone Growth Fund
and Cornerstone Value Fund are appropriate for you, this section takes a closer
look at each Fund's investment objective and Strategy.
What is each Fund's objective?
The investment objective of the Cornerstone Growth Fund is to seek
long-term growth of capital. The investment objective of the Cornerstone Value
Fund is to seek total return, consisting of capital appreciation and current
income. There can be no assurance that either Fund will achieve its investment
objective.
How does each Fund achieve its objective?
The Cornerstone Growth Fund seeks to achieve its investment objective
through a process of Strategy Indexing, which is pursued through the
implementation of the Cornerstone Growth Strategy. The Cornerstone Value Fund
seeks to achieve its investment objective through a process of Strategy
Indexing, which is pursued through the implementation of the Cornerstone Value
Strategy. Each Strategy was developed by the Manager.
Other than assets temporarily maintained in cash or liquid short-term
securities pending investment, to meet redemption requests or to comply with
federal tax laws applicable to mutual funds, each Fund will invest substantially
all of its assets in common stocks selected through the respective Strategy, as
described more fully below.
What is the Cornerstone Growth Strategy?
The Cornerstone Growth Strategy selects the 50 stocks with the highest
one-year price appreciation as of the date of purchase from the O'Shaughnessy
All Stocks Universe that also meet the following criteria: (i) annual earnings
that have increased in each of the past five years, and (ii) a price-to-sales
ratio below 1.5. A stock's price-to-sales ratio is computed by dividing the
market value of the stock by the issuer's most recent twelve month sales.
What is the O'Shaughnessy All Stocks Universe?
The O'Shaughnessy All Stocks Universe consists of all the common stocks in
the Standard & Poor's Compustat ("S&P Compustat") database (the "COMPUSTAT
Database") with market capitalizations exceeding $150 million. Currently, the
COMPUSTAT Database consists of the stocks of 9,629 issuers, and the
O'Shaughnessy All Stocks Universe consists of the stocks of 4,085 issuers.
What is the Cornerstone Value Strategy?
The Cornerstone Value Strategy involves the selection of the 50 highest
dividend- yielding common stocks from the O'Shaughnessy Market Leaders Universe
.
What is the O'Shaughnessy Market Leaders Universe?
The O'Shaughnessy Market Leaders Universe consists of those stocks in the
COMPUSTAT Database which are not power utility companies and which have (i)
market capitalizations exceeding the average of the COMPUSTAT Database; (ii)
twelve month sales which are fifty percent greater than the average for the
COMPUSTAT Database; (iii) a number of shares outstanding which exceeds the
average for the COMPUSTAT Database; and (iv) cash flow which exceeds the average
for the COMPUSTAT Database. Currently, the O'Shaughnessy Market Leaders Universe
consists of the stocks of 441 issuers.
How does investment through the Cornerstone Growth Strategy and the Cornerstone
Value Strategy work?
Upon commencement of operations of the Cornerstone Growth Fund and
Cornerstone Value Fund, the Manager will purchase 50 stocks for each Fund as
dictated by the Cornerstone Growth Strategy and the Cornerstone Value Strategy,
respectively, based on information as of commencement of operations of the Fund.
Each Fund's holdings of each stock in its portfolio will initially be weighted
equally by dollar amount. Thereafter, the Manager will re-balance the portfolio
of each Fund annually in the first fifteen business days of the succeeding year
(the "Re-Balance Date"), in accordance with the Fund's respective Strategy,
based on information as of the immediately preceding December 31. That is, on
the Re-Balance Date of each year, stocks meeting the Strategy's criteria as of
the immediately preceding December 31 will be purchased for the Fund to the
extent not then held, stocks which no longer meet the criteria as of such date
will be sold, and the holdings of all stocks in the Fund that continue to meet
the criteria will be appropriately increased or decreased to result in equal
weighting of all stocks in the portfolio.
When a Fund receives new cash flow from the sale of its shares over the
course of the year, such cash will first be used to the extent necessary to meet
redemptions. The balance of any such cash will be invested in the 50 stocks
selected for the Fund pursuant to the applicable Strategy as of the most recent
rebalancing of the Fund's portfolio, based on equal weightings by dollar amount
and without any intention to rebalance the portfolio on an interim basis. It is
anticipated that such purchases will generally be made on a weekly basis, but
may be on a more or less frequent basis in the discretion of the Manager,
depending on certain factors, including the size of the Fund and the amount of
cash to be invested. To the extent redemptions exceed new cash flow into a Fund,
the Fund will meet redemption requests by selling securities on a pro rata
basis, based on equal weightings by dollar amount. Thus, interim purchases and
sales of securities between annual Re-Balance Dates will be based on the
original allocation for the year and will be made without regard to price
appreciation or depreciation and without regard to whether or not a particular
security continues to meet the Strategy's criteria.
-3-
<PAGE>
Will the Manager deviate from the Strategies?
The Manager is committed to a rigorous, disciplined approach and cannot
presently anticipate any circumstances which would cause it to diverge from the
Strategies described above in managing the Funds.
However, to the extent necessary to comply with federal tax laws applicable to
regulated investment companies such as the Funds, the Manager reserves a limited
right to modify the Strategies. See "Information On Distributions and Taxes --
Status as a Regulated Investment Company" below.
Is there anything else I should know about the Strategies?
Each Fund offers a disciplined approach to investing, based on a buy and
hold philosophy over the course of each year, which ignores market timing and
rejects active management. Each Fund will adhere to its respective Strategy
regardless of the performance of the stock market in a particular period.
The Manager anticipates that the 50 stocks held in each Fund's portfolio
will remain the same throughout the course of a year, despite any adverse
developments concerning an issuer, an industry, the economy or the stock market
generally. However, due to purchases and redemptions of Fund shares during the
year, changes in the market value of the stock positions held in a Fund's
portfolio and compliance with the federal tax laws, it is likely that stock
positions will not be weighted equally at all times during a year.
The Funds will be substantially fully invested in stocks selected as
described above at all times.
How can I decide if the Funds are an appropriate investment for me? Consider
your investment goals, your time horizon for achieving them, and
your tolerance of risk. The Funds are not appropriate investments for those who
seek short-term investments, since the Manager expects the benefits of investing
in the Funds to be derived from investing assets in accordance with the
Cornerstone Growth Strategy and the Cornerstone Value Strategy over the
long-term. See "What is the historical performance of the Strategies?" below. A
discussion of the risks associated with investment in the Funds is contained in
"Risk Factors" below.
Is there other information I should review before making a decision? Be sure
to review "Other Investment Policies and Practices" which discusses certain
additional investment practices of the Funds. In addition, historical
information relating to the performance of the Cornerstone Growth Strategy and
the Cornerstone Value Strategy over time is discussed below.
What is the historical performance of the Strategies?
The following graphs and tables compare the actual performance of the S&P
500 Index (the "S&P 500") and the hypothetical performance of each of the
Cornerstone Growth Strategy and Cornerstone Value Strategy for the historical
periods indicated. Returns for each Strategy are the returns on a hypothetical
portfolio of stocks which was rebalanced annually in accordance with such
Strategy for the historical periods indicated. The Strategies have been
developed and tested solely by the Manager.
Actual performance of the Funds may differ from the quoted performance of
the Strategies for the following reasons: each Fund may not be fully invested at
all times; not all stocks in the Fund's portfolio may be weighted equally at all
times due to appreciation or depreciation in a stock's value; purchases and
sales of stocks for the Fund's portfolio are likely to occur between annual
rebalancings due to cash inflows and outflows (from purchases and redemptions of
Fund shares) during the year; in managing the Funds, the Manager may make
limited modifications to the Strategies as necessary to comply with federal tax
laws; and the returns of the Strategies do not reflect the advisory fees,
commission costs, expenses or taxes which would be borne by the Funds.
Because the returns for the Strategies are hypothetical, they do not
represent actual trading or the impact that material economic and market factors
might have had on the Manager's decision-making under actual circumstances.
However, except as described above, the Manager can presently foresee no
circumstances that would cause deviation from the Strategies in managing the
Funds. All returns contained in the graphs and charts below reflect reinvestment
of dividends and other earnings.
-4-
<PAGE>
Cornerstone Growth Strategy Stocks
Hypothetical Total Return on a $10,000 Investment
(This graph represents the hypothetical performance of the Cornerstone Growth
Strategy as applied retroactively in backtesting to December 31, 1954. The
performance of the Cornerstone Growth Strategy does not represent the
performance of the Cornerstone Growth Fund, nor does it (or the performance of
the S&P 500) reflect the advisory fees, commissions, expenses or taxes which
would be borne by the Fund. The Strategy's performance, as well as that of the
S&P 500, would be lower if such fees and expenses were deducted. Past
performance of the Cornerstone Growth Strategy is not predictive of future
performance of the Strategy or the Fund.)
Plot Points for Standard and Poor's 500 and Cornerstone Growth
Strategy December 31, 1954-December 31, 1995.
Year ending: S&P 500 Cornerstone Growth
- ------------ ------- ------------------
12/31/54 $ 10,000.00 $ 10,000.00
12/31/55 $ 13,156.00 $ 13,040.00
12/31/56 $ 14,019.03 $ 15,387.20
12/31/57 $ 12,507.78 $ 12,632.89
12/31/58 $ 17,931.16 $ 19,303.06
12/31/59 $ 20,075.72 $ 23,955.09
12/31/60 $ 20,170.08 $ 26,973.44
12/31/61 $ 25,593.81 $ 40,756.86
12/31/62 $ 23,359.47 $ 33,746.68
12/31/63 $ 28,685.43 $ 40,765.99
12/31/64 $ 33,412.79 $ 52,995.79
12/31/65 $ 37,572.68 $ 76,366.93
12/31/66 $ 33,792.87 $ 76,290.57
12/31/67 $ 41,896.40 $ 139,840.61
12/31/68 $ 46,530.14 $ 210,460.12
12/31/69 $ 42,575.08 $ 151,320.82
12/31/70 $ 44,282.34 $ 147,386.48
12/31/71 $ 50,619.15 $ 194,697.54
12/31/72 $ 60,226.66 $ 233,052.96
12/31/73 $ 51,397.43 $ 168,963.39
12/31/74 $ 37,792.53 $ 119,795.05
12/31/75 $ 51,851.35 $ 164,837.98
12/31/76 $ 64,212.72 $ 218,410.33
12/31/77 $ 59,602.24 $ 276,070.66
12/31/78 $ 63,512.15 $ 381,805.72
12/31/79 $ 75,223.79 $ 529,564.53
12/31/80 $ 99,611.34 $ 861,601.49
12/31/81 $ 94,720.43 $ 784,057.36
12/31/82 $ 115,000.07 $1,074,942.63
12/31/83 $ 140,886.59 $1,426,448.88
12/31/84 $ 149,720.17 $1,397,919.90
12/31/85 $ 197,870.18 $1,992,035.85
12/31/86 $ 234,416.81 $2,344,626.20
12/31/87 $ 246,676.80 $2,218,016.39
12/31/88 $ 288,143.18 $2,876,767.25
12/31/89 $ 378,879.46 $3,561,437.86
12/31/90 $ 366,868.98 $3,443,910.41
12/31/91 $ 478,947.46 $5,214,080.36
12/31/92 $ 515,682.73 $6,543,670.85
12/31/93 $ 567,199.43 $8,526,403.12
12/31/94 $ 574,629.74 $8,074,503.75
12/31/95 $ 786,093.49 $9,544,063.44
-5-
<PAGE>
Annual results for S&P 500 and Hypothetical Results for
Cornerstone Growth Strategy Stocks,
December 31, 1954-December 31, 1995.
(This table represents the hypothetical performance of Cornerstone Growth
Strategy as applied retroactively in backtesting to December 31, 1954. The
performance of the Cornerstone Growth Strategy does not represent the
performance of the Cornerstone Growth Fund, nor does it (or the performance of
the S&P 500) reflect the advisory fees, commissions, expenses or taxes which
would be borne by the Fund. The Strategy's performance, as well as that of the
S&P 500, would be lower if such fees and expenses were deducted. Past
performance of the Cornerstone Growth Strategy is not predictive of future
performance of the Strategy or the Fund.)
Cornerstone Growth Cornerstone Growth Strategy
Year ending: S&P 500 Strategy vs. S&P 500
- ------------ ------- -------- -----------
31-Dec-55 31.56% 30.40% -1.16%
31-Dec-56 6.56% 18.00% 11.44%
31-Dec-57 -10.78% -17.90% -7.12%
31-Dec-58 43.36% 52.80% 9.44%
31-Dec-59 11.96% 24.10% 12.14%
31-Dec-60 0.47% 12.60% 12.13%
31-Dec-61 26.89% 51.10% 24.21%
31-Dec-62 -8.73% -17.20% -8.47%
31-Dec-63 22.80% 20.80% -2.00%
31-Dec-64 16.48% 30.00% 13.52%
31-Dec-65 12.45% 44.10% 31.65%
31-Dec-66 -10.06% -0.10% 9.96%
31-Dec-67 23.98% 83.30% 59.32%
31-Dec-68 11.06% 50.50% 39.44%
31-Dec-69 -8.50% -28.10% -19.60%
31-Dec-70 4.01% -2.60% -6.61%
31-Dec-71 14.31% 32.10% 17.79%
31-Dec-72 18.98% 19.70% 0.72%
31-Dec-73 -14.66% -27.50% -12.84%
31-Dec-74 -26.47% -29.10% -2.63%
31-Dec-75 37.20% 37.60% 0.40%
31-Dec-76 23.84% 32.50% 8.66%
31-Dec-77 -7.18% 26.40% 33.58%
31-Dec-78 6.56% 38.30% 31.74%
31-Dec-79 18.44% 38.70% 20.26%
31-Dec-80 32.42% 62.70% 30.28%
31-Dec-81 -4.91% -9.00% -4.09%
31-Dec-82 21.41% 37.10% 15.69%
31-Dec-83 22.51% 32.70% 10.19%
31-Dec-84 6.27% -2.00% -8.27%
31-Dec-85 32.16% 42.50% 10.34%
31-Dec-86 18.47% 17.70% -0.77%
31-Dec-87 5.23% -5.40% -10.63%
31-Dec-88 16.81% 29.70% 12.89%
31-Dec-89 31.49% 23.80% -7.69%
31-Dec-90 -3.17% -3.30% -0.13%
31-Dec-91 30.55% 51.40% 20.85%
31-Dec-92 7.67% 25.50% 17.83%
31-Dec-93 9.99% 30.30% 20.31%
31-Dec-94 1.31% -5.30% -6.61%
31-Dec-95 36.80% 18.20% -18.60%
-6-
<PAGE>
Summary results for S&P 500 and Hypothetical Results for Cornerstone
Growth Strategy Stocks, December 31, 1954-December 31, 1995.
(This table represents the hypothetical performance of Cornerstone Growth
Strategy as applied retroactively in backtesting to December 31, 1954. The
performance of the Cornerstone Growth Strategy does not represent the
performance of the Cornerstone Growth Fund, nor does it (or the performance of
the S&P 500) reflect the advisory fees, commissions, expenses or taxes which
would be borne by the Fund. The Strategy's performance, as well as that of the
S&P 500 would be lower if such fees and expenses were deducted. Past
performance of the Cornerstone Growth Strategy is not predictive of future
performance of the Strategy or the Fund.)
S&P 500 Cornerstone Growth Strategy
------- ---------------------------
Arithmetic average 12.43% 21.15%
Standard deviation of return 16.05% 25.67%
Sharpe risk-adjusted ratio* 42.00 60.00%
1-yr return** 36.80% 18.20%
3-yr compounded** 15.09% 13.41%
5-yr compounded** 16.46% 22.61%
10-yr compounded** 14.79% 16.96%
15-yr compounded** 14.77% 17.39%
20-yr compounded** 14.56% 22.50%
25-yr compounded** 11.49% 17.63%
30-yr compounded** 10.67% 17.46%
35-yr compounded** 11.03% 18.26%
40-yr compounded** 10.77% 17.93%
Compound Annual Return 11.23% 18.22%
$10,000 becomes: $786,093 $9,544,063
Maximum return 43.36% 83.30%
Minimum return -26.47% -29.10%
* The Sharpe risk-adjusted ratio (the "Sharpe ratio") takes a portfolio's
volatility, as measured by its standard deviation of return, into account.
The higher the Sharpe ratio, the better the portfolio's risk-adjusted
return. The Sharpe ratio is calculated by subtracting the risk free
Treasury bill return from the portfolio's return and then dividing that
number by the portfolio's overall standard deviation of return.
** Quoted return is for the most recent period ended December 31, 1995.
-7-
<PAGE>
Cornerstone Value Strategy Stocks
Hypothetical Total Return on a $10,000 Investment
(This graph represents the hypothetical performance of Cornerstone Value
Strategy as applied retroactively in backtesting to December 31, 1951. The
performance of the Cornerstone Value Strategy does not represent the
performance of the Cornerstone Value Fund, nor does it (or the performance of
the S&P 500) reflect the advisory fees, commissions, expenses or taxes which
would be borne by the Fund. The Strategy's performance, as well as that of the
S&P 500 would be lower if such fees and expenses were deducted. Past
performance of the Cornerstone Value Strategy is not predictive of future
performance of the Strategy or the Fund.)
Plot Points for Standard and Poor's 500 and Cornerstone Value
Strategy December 31, 1951-December 31, 1995.
Year ending: S&P 500 Cornerstone Growth
- ------------ ------- ------------------
12/31/51 $ 10,000.00 $ 10,000.00
12/31/52 $ 11,837.00 $ 11,430.00
12/31/53 $ 11,720.00 $ 11,567.00
12/31/54 $ 17,887.00 $ 17,640.00
12/31/55 $ 23,532.00 $ 22,597.00
12/31/56 $ 25,076.00 $ 25,941.00
12/31/57 $ 22,372.00 $ 22,439.00
12/31/58 $ 32,073.00 $ 32,514.00
12/31/59 $ 35,909.00 $ 35,635.00
12/31/60 $ 36,078.00 $ 35,625.00
12/31/61 $ 45,779.00 $ 44,317.00
12/31/62 $ 41,783.00 $ 43,165.00
12/31/63 $ 51,309.00 $ 51,280.00
12/31/64 $ 59,765.00 $ 61,690.00
12/31/65 $ 67,205.00 $ 72,547.00
12/31/66 $ 60,445.00 $ 65,147.00
12/31/67 $ 74,939.00 $ 80,587.00
12/31/68 $ 83,227.00 $ 101,943.00
12/31/69 $ 76,153.00 $ 86,652.00
12/31/70 $ 79,207.00 $ 96,443.00
12/31/71 $ 90,541.00 $ 111,681.00
12/31/72 $ 107,726.00 $ 127,317.00
12/31/73 $ 91,933.00 $ 119,805.00
12/31/74 $ 67,599.00 $ 105,069.00
12/31/75 $ 92,745.00 $ 166,219.00
12/31/76 $ 114,856.00 $ 231,377.00
12/31/77 $ 106,609.00 $ 239,012.00
12/31/78 $ 113,603.00 $ 246,900.00
12/31/79 $ 134,551.00 $ 310,106.00
12/31/80 $ 178,173.00 $ 373,058.00
12/31/81 $ 169,424.00 $ 420,809.00
12/31/82 $ 205,698.00 $ 503,288.00
12/31/83 $ 252,001.00 $ 697,557.00
12/31/84 $ 267,801.00 $ 730,342.00
12/31/85 $ 353,926.00 $ 985,961.00
12/31/86 $ 419,296.00 $1,189,070.00
12/31/87 $ 441,225.00 $1,327,002.00
12/31/88 $ 515,395.00 $1,678,657.00
12/31/89 $ 677,693.00 $2,309,832.00
12/31/90 $ 656,210.00 $2,148,144.00
12/31/91 $ 856,683.00 $2,940,809.00
12/31/92 $ 922,390.00 $3,281,943.00
12/31/93 $1,014,537.00 $3,951,459.00
12/31/94 $1,027,828.00 $4,141,129.00
12/31/95 $1,406,068.00 $5,246,810.00
-8-
<PAGE>
Annual results for S&P 500 and Hypothetical Results for
Cornerstone Value Strategy Stocks,
December 31, 1951-December 31, 1995.
(This graph represents the hypothetical performance of Cornerstone Value
Strategy as applied retroactively in backtesting to December 31, 1951. The
performance of the Cornerstone Value Strategy does not represent the
performance of the Cornerstone Value Fund, nor does it (or the performance of
the S&P 500) reflect the advisory fees, commissions, expenses or taxes which
would be borne by the Fund. The Strategy's performance, as well as that of the
S&P 500, would be lower if such fees and expenses were deducted. Past
performance of the Cornerstone Value Strategy is not predictive of future
performance of the Strategy or the Fund.)
O'Shaughnessy O'Shaughnessy
Cornerstone Value Cornerstone Value Strategy vs.
Year ending: S&P 500 Strategy S&P 500
------------ ------- -------- -------
12/31/52 18.37% 14.30% -4.07%
12/31/53 -0.99% 1.20% 2.19%
12/31/54 52.62% 52.50% -0.12%
12/31/55 31.56% 28.10% -3.46%
12/31/56 6.56% 14.80% 8.24%
12/31/57 -10.78% -13.50% -2.72%
12/31/58 43.36% 44.90% 1.54%
12/31/59 11.96% 9.60% -2.36%
12/31/60 0.47% -0.03% -0.50%
12/31/61 26.89% 24.40% -2.49%
12/31/62 -8.73% -2.60% 6.13%
12/31/63 22.80% 18.80% -4.00%
12/31/64 16.48% 20.30% 3.82%
12/31/65 12.45% 17.60% 5.15%
12/31/66 -10.06% -10.20% -0.14%
12/31/67 23.98% 23.70% -0.28%
12/31/68 11.06% 26.50% 15.44%
12/31/69 -8.50% -15.00% -6.50%
12/31/70 4.01% 11.30% 7.29%
12/31/71 14.31% 15.80% 1.49%
12/31/72 18.98% 14.00% -4.98%
12/31/73 -14.66% -5.90% 8.76%
12/31/74 -26.47% -12.30% 14.17%
12/31/75 37.20% 58.20% 21.00%
12/31/76 23.84% 39.20% 15.36%
12/31/77 -7.18% 3.30% 10.48%
12/31/78 6.56% 3.30% -3.26%
12/31/79 18.44% 25.60% 7.16%
12/31/80 32.42% 20.30% -12.12%
12/31/81 -4.91% 12.80% 17.71%
12/31/82 21.41% 19.60% -1.81%
12/31/83 22.51% 38.60% 16.09%
12/31/84 6.27% 4.70% -1.57%
12/31/85 32.16% 35.00% 2.84%
12/31/86 18.47% 20.60% 2.13%
12/31/87 5.23% 11.60% 6.37%
12/31/88 16.81% 26.50% 9.69%
12/31/89 31.49% 37.60% 6.11%
12/31/90 -3.17% -7.00% -3.83%
12/31/91 30.55% 36.90% 6.35%
12/31/92 7.67% 11.60% 3.93%
12/31/93 9.99% 20.40% 10.41%
12/31/94 1.31% 4.80% 3.49%
12/31/95 36.80% 26.70% -10.10%
-9-
<PAGE>
Summary results for S&P 500 and Hypothetical Results for Cornerstone Value
Strategy Stocks, December 31, 1951-December 31, 1995.
(This graph represents the hypothetical performance of Cornerstone Value
Strategy as applied retroactively in backtesting to December 31, 1951. The
performance of the Cornerstone Value Strategy does not represent the
performance of the Cornerstone Value Fund, nor does it (or the performance of
the S&P 500) reflect the advisory fees, commissions, expenses or taxes which
would be borne by the Fund. The Strategy's performance, as well as that of the
S&P 500, would be lower if such fees and expenses were deducted. Past
performance of the Cornerstone Value Strategy is not predictive of future
performance of the Strategy or the Fund.)
S&P 500 Cornerstone Value Strategy
------- --------------------------
Arithmetic average 13.17% 16.56%
Standard deviation of return 16.77% 17.12%
Sharpe risk-adjusted ratio* 46.00 66.00
1-yr return** 36.80% 26.70%
3-yr compounded** 15.09% 16.93%
5-yr compounded** 16.46% 19.55%
10-yr compounded** 14.79% 18.20%
15-yr compounded** 14.77% 19.27%
20-yr compounded** 14.56% 18.84%
25-yr compounded** 12.19% 17.33%
30-yr compounded** 10.67% 15.34%
35-yr compounded** 11.03% 15.33%
40-yr compounded** 10.77% 14.59%
Compound Annual Return 11.90% 15.30%
$10,000 becomes: $1,406,068 $5,246,810
Maximum return 52.62% 58.20%
Minimum return -26.47% -15.00%
* The Sharpe ratio takes a portfolio's volatility, as measured by its standard
deviation of return, into account. The higher the Sharpe ratio, the better the
portfolio's risk-adjusted return. The Sharpe ratio is calculated by
subtracting the risk free Treasury bill return from the portfolio's return and
then dividing that number by the portfolio's overall standard deviation of
return.
** Quoted return is for the most recent period ended December 31, 1995.
-10-
<PAGE>
OTHER INVESTMENT POLICIES AND PRACTICES
This section takes a detailed look at other investment policies and
practices of the Funds. The Funds' investments are subject to further
restrictions and risks described in the Statement of Additional Information.
Shareholder approval is required to change a Fund's investment objective
and certain investment restrictions noted in the following section as
"fundamental policies." The Manager also follows certain "operating policies"
which can be changed without shareholder approval. However, significant changes
in operating policies are discussed with shareholders in Fund reports.
The Funds' holdings in certain kinds of investments cannot exceed maximum
percentages of total assets, which are set forth below. While these restrictions
provide a useful level of detail about a Fund's investments, investors should
not view them as an accurate gauge of the potential risk of such investments.
The net effect of a particular investment depends on its volatility and the size
of its overall return in relation to the performance of all the Fund's other
investments.
Cash and Short-Term Securities. Each Fund may temporarily invest a portion
of its total assets in cash or liquid short-term securities pending investment
of such assets in stocks in accordance with the Fund's Strategy, to meet
redemption requests, and to the extent necessary to comply with the federal tax
laws applicable to regulated investment companies. The Manager will not use
investments in cash and short-term securities for temporary defensive purposes.
Short-term securities in which the Funds may invest include certificates of
deposit, commercial paper, notes, obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities, and repurchase
agreements involving such securities. See "Repurchase Agreements," below.
The Manager does not expect assets invested in cash or liquid short-term
securities to exceed 5% of the Fund's total assets at any time.
Repurchase Agreements. As described above in "Cash and Short-Term
Securities," each Fund may invest in short-term securities pursuant to
repurchase agreements. The Funds may only enter into repurchase agreements with
a member bank of the Federal Reserve System or well-established securities
dealer in U.S. government securities. In the event of a bankruptcy or default by
the seller of the repurchase agreement, the Fund may suffer delays and incur
costs or possible losses in liquidating the underlying security which is held as
collateral, and the Fund may incur a loss if the value of the collateral
declines during this period. As a matter of operating policy, the Fund may not
invest more than 15% of a Fund's total assets in repurchase agreements maturing
in more than seven days.
-11-
<PAGE>
Lending of Portfolio Securities. Like other mutual funds, each Fund may
from time to time lend securities from its portfolio to banks, brokers and other
financial institutions to earn additional income. The principal risk is that the
borrower may default on its obligation to return borrowed securities, because of
insolvency or otherwise. In this event, the Fund could experience delays in
recovering its securities and possibly capital. In accordance with applicable
law, each Fund may not lend portfolio securities representing in excess of 33 %
of its respective total assets. The lending policy is a fundamental policy.
Borrowing. Each Fund may borrow money in an amount up to 33 % of its
respective total assets from banks for extraordinary or emergency purposes such
as meeting anticipated redemptions, and may pledge assets in connection with
such borrowing. The borrowing policy is a fundamental policy.
Industry Concentration. Each Fund may not invest more than 25% of its total
assets in any one industry (excluding U.S. Government securities). If upon
rebalancing, the stocks selected by a Fund's Strategy would result in more than
25% of the Fund's total assets being invested in a single industry, the Manager
will be required to deviate from the Strategy in investing the portfolio so as
not to violate the Fund's concentration policy. The concentration policy is a
fundamental policy.
Diversification. In order to maintain each Fund's status as a diversified
investment company, with respect to 75% of the Fund's total assets: 1) not more
than 5% of the Fund's assets may be invested in the securities of a single
issuer (excluding U.S. Government Securities); and 2) the Fund may not hold more
than 10% of the outstanding voting securities of a single issuer. The
diversification policy is a fundamental policy.
Portfolio Transactions. In executing portfolio transactions, the Funds seek
to obtain the best net results, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution, operational facilities of the firm involved and the
firm's risk in positioning a block of securities. While the Funds generally seek
reasonably competitive commission rates, the Funds do not necessarily pay the
lowest commission or spread available. In addition, consistent with the Conduct
Rules of the National Association of Securities Dealers, Inc., the Manager may
consider sales of shares of the Funds as a factor in the selection of brokers or
dealers to execute portfolio transactions for the Funds.
Portfolio Turnover. As described above, in accordance with each Fund's
Strategy, the Fund's portfolio will be rebalanced as of December 31 of each
year. That is, stocks meeting the respective Strategy's criteria will be
purchased for the portfolio to the extent not then held, stocks which no longer
meet the criteria will be sold, and the holdings of all stocks in the portfolio
that continue to meet the criteria will be appropriately increased or decreased
to result in equal weighting of all stocks in the portfolio. The Funds
anticipate that their annual turnover rates should not exceed 75% under normal
conditions.
-12-
<PAGE>
COMPUSTAT Database. Although S&P Compustat obtains information for
inclusion in or for use in the COMPUSTAT Database from sources which S&P
Compustat considers reliable, S&P Compustat does not guarantee the accuracy or
completeness of the COMPUSTAT Database. S&P Compustat makes no warranty, express
or implied, as to the results to be obtained by the Funds, or any other persons
or entity from the use of the COMPUSTAT Database. S&P Compustat makes no express
or implied warranties, and expressly disclaims all warranties of merchantability
or fitness for a particular purpose with respect to the COMPUSTAT Database.
"Standard & Poor's" and "S&P" are trademarks of The McGraw-Hill Companies, Inc.
The Funds are not sponsored, endorsed, sold or promoted by S&P Compustat and S&P
Compustat makes no representation regarding the advisability of investing in the
Funds.
RISK FACTORS
What are some of the potential risks associated with the Strategies? The
Strategy Indexing utilized by each Fund provides a disciplined approach to
investing, based on a buy and hold philosophy during the course of each year,
which ignores market timing and rejects active management. Each Fund will adhere
to its respective Strategy (subject to applicable federal tax requirements
relating to mutual funds), despite any adverse developments concerning an
issuer, an industry, the economy or the stock market generally. This could
result in substantial losses to a Fund, if for example, the stocks selected for
a Fund's portfolio for a given year are experiencing financial difficulty, or
are out of favor in the market because of weak performance, poor earnings
forecast, negative publicity or general market cycles. The Funds are not
appropriate investments for those who are not comfortable with a Fund's
Strategy.
There can be no assurance that the market factors that caused the stocks
held in a Fund's portfolio to meet a Strategy's investment criteria as of
rebalancing in any given year will continue during such year until the next
rebalancing, that any negative conditions adversely affecting a stock's price
will not develop and/or deteriorate during a given year, or that share prices of
a stock will not decline during a given year.
As described above, each Fund's portfolio is rebalanced annually in
accordance with its respective Strategy. Rebalancing may result in elimination
of better performing assets from a Fund's portfolio and increases in investments
in securities with relatively lower total return.
What are some potential risks associated with investing primarily in common
stocks?
The fundamental risk associated with any common stock fund is the risk that
the value of the stocks it holds might decrease. Stock values may fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than other
investment choices. Smaller or newer issuers are more likely to realize more
substantial growth as well as suffer more significant losses than larger or more
established issuers. Investments in such companies can be both more volatile and
more speculative. The Funds are not appropriate investments for those who are
unable or unwilling to assume the risk involved generally with investment in
common stocks.
Are there any additional risks associated with investment in the Funds?
There is no guarantee that the investment objective of a Fund will be
achieved or that the value of a shareholder's investment in the Fund will not
decrease.
-13-
<PAGE>
MANAGEMENT AND ORGANIZATION OF THE FUNDS
MANAGEMENT
Who runs the Funds?
General Oversight. O'Shaughnessy Funds is governed by a Board of Directors
that meets regularly to review the Funds' investment, performance, expenses, and
other business affairs. The Board elects the Funds' officers.
Manager. O'Shaughnessy Capital Management, Inc. acts as investment manager of
each Fund pursuant to a management agreement with O'Shaughnessy Funds on behalf
of the Fund (the "Management Agreement"). In its capacity as investment manager,
the Manager is responsible for selection and management of each Fund's portfolio
investments. For its services, each Fund pays the Manager a fee each month, at
the annual rate of 0.74 % of the Fund's average daily net assets.
The Manager's office is located at 60 Arch Street, Greenwich, Connecticut
06830. O'Shaughnessy Capital Management, Inc. was incorporated in 1988. The
Manager also serves as portfolio consultant to a unit investment trust with
assets in excess of $180 million. The Manager has no experience actively
managing open-end investment companies such as the Funds.
Portfolio Management. James P. O'Shaughnessy has had the day-to-day
responsibility for managing the portfolio of each Fund and developing and
executing each Fund's investment program since the commencement of operations of
each Fund. For the past five years, Mr. O'Shaughnessy has served as President of
the Manager, and in such capacity, has managed equity accounts for high net
worth individuals and served as portfolio consultant to a unit investment trust
managed by the Manager. Mr. O'Shaughnessy is recognized as a leading expert and
pioneer in quantitative equity analysis. He is the author of two financial
books, Invest Like the Best and What Works on Wall Street.
Distributor. O'Shaughnessy Funds has entered into a Distribution Agreement
(the "Distribution Agreement") with First Fund Distributors, Inc. (the
"Distributor"), a registered broker-dealer, to act as the principal distributor
of the shares of the Funds. The Distribution Agreement provides the Distributor
with the right to distribute shares of the Funds through other broker-dealers or
financial institutions with whom the Distributor has entered into selected
dealer agreements. The address of the Distributor is 4455 E. Camelback Road,
Suite 261 E, Phoenix, Arizona 85018. The Distributor provides distribution
services to the Funds at no cost to the Funds.
Administrator. Pursuant to an Administration Agreement, Investment Company
Administration Corporation (the "Administrator") serves as administrator of the
Funds. The Administrator provides certain administrative services, including,
among other responsibilities, coordinating relationships with independent
contractors and agents, preparing for signature by officers and filing of
certain documents required for compliance with applicable laws and regulations,
preparing financial statements, and arranging for the maintenance of books and
records. For its services, each Fund pays the Administrator a fee each month, at
the annual rate of 0.10% of the first $100 million of the Fund's average daily
net assets, 0.05% of the next $100 million of such net assets, and 0.03% of such
net assets over $200 million, with a minimum fee of $40,000 annually per Fund.
The address of the Administrator is 4455 E. Camelback Rd., Suite 261 E, Phoenix,
Arizona 85018. The Administrator and the Distributor are under common control
and are therefore considered affiliates of each other.
Transfer Agent and Custodian. Firstar Trust Company acts as the Funds'
transfer and dividend disbursing agent (the "Transfer Agent"), as well as the
Funds' custodian (the "Custodian"). The address of the Transfer Agent and
Custodian is 615 E. Michigan Street, Third Floor, Milwaukee, Wisconsin 53202.
-14-
<PAGE>
How are expenses of the Funds determined?
The Management Agreement identifies the expenses to be paid by each Fund. In
addition to the fees paid to the Manager, each Fund pays certain additional
expenses, including but not limited to, the following: shareholder service
expenses; custodial, accounting, legal, and audit fees; administrative fees;
costs of preparing and printing prospectuses and reports sent to shareholders;
registration fees and expenses; proxy and annual meeting expenses (if any); and
independent Director fees and expenses.
ORGANIZATION
How are the Funds organized?
The Funds are investment portfolios or series of O'Shaughnessy Funds. There
are two other investment portfolios of O'Shaughnessy Funds, shares of which are
not offered for sale through this Prospectus: O'Shaughnessy Aggressive Growth
Fund and O'Shaughnessy Dogs of the Market Fund (the "other O'Shaughnessy
Funds"). The charter of O'Shaughnessy Funds provides that the Board of Directors
may issue additional investment portfolios of shares and/or additional classes
of shares for each investment portfolio. O'Shaughnessy Funds was organized as a
corporation in Maryland on May 20, 1996.
What is meant by "shares"?
As with all mutual funds, investors purchase shares when they invest in the
Funds. These shares are a part of the Funds' authorized capital stock, but share
certificates are not generally issued.
Each full share and fractional share entitles the shareholder to: receive a
proportional interest in the respective Fund's capital gain distributions; and
cast one vote per share on certain Fund matters, including the election of
Directors, changes in fundamental policies, or approval of changes in the
Management Agreement.
Shareholder inquiries may be addressed to each Fund at the address or
telephone number set forth on the cover page of this Prospectus.
Do the Funds have annual shareholder meetings?
The Funds are not required to hold annual meetings and do not intend to do so
except when certain matters, such as a change in a Fund's fundamental policies,
are to be decided. In addition, shareholders representing at least 10% of all
eligible votes may call a special meeting if they wish, for the purpose of
voting on the removal of any Fund Director. If a meeting is held and you cannot
attend, you can vote by proxy. Before the meeting, you will be sent proxy
materials that explain the issues to be decided and include a voting card for
you to mail back.
INFORMATION ABOUT YOUR ACCOUNT
PURCHASE OF SHARES
The minimum initial investment in the Fund is $5,000 and the minimum
subsequent investment is $100, except that for retirement plans, the minimum
initial investment is $500 and the minimum subsequent investment amount is $50.
Investors may make an initial purchase of shares and subsequent investments in
a Fund by mail or wire as described below. The Funds reserve the right in their
sole discretion to waive the minimum investment amounts, including in the case
of investments by employees and affiliates of the Manager and family members of
any of the foregoing, and Individual Retirement Accounts ("IRAs") of
shareholders of the Funds.
-15-
<PAGE>
The Internal Revenue Service requires the correct reporting of social security
numbers or tax identification numbers. The failure to provide this information
will result in the rejection of an investor's Application.
How do I purchase shares by mail?
For initial investments, please send a completed Application, together with a
check payable to O'Shaughnessy Cornerstone Value Fund or O'Shaughnessy
Cornerstone Growth Fund, as the case may be, to O'Shaughnessy Funds, Inc., c/o
Firstar Trust Company, at P.O. Box 701, Milwaukee, WI 53201-0701 (for
Applications sent by U.S. mail) or 615 E. Michigan Street, Third Floor,
Milwaukee, WI 53202 (for Applications sent via overnight courier). Subsequent
investments must be accompanied by a letter indicating the name(s) in which the
account is registered and the account number or by the remittance portion of the
account statement and mailed to the address stated above.
How do I purchase shares by wire?
If you are wiring funds, call the Transfer Agent at 800-797-0773 for an
account number if this is an initial investment or to inform the Transfer Agent
that a wire is expected if this is a subsequent investment.
For an initial investment, prior to or immediately after the funds are wired,
a completed Application should be sent to O'Shaughnessy Funds, Inc., c/o Firstar
Trust Company, at P.O. Box 701, Milwaukee, WI 53201-0701 (for Applications sent
by U.S. mail) or 615 E. Michigan Street, Third Floor, Milwaukee, WI 53202 (for
Applications sent via overnight courier). Instruct your bank to wire federal
funds to O'Shaughnessy Funds, c/o Firstar Trust Company, ABA# 075000022, DDA#
112952137.
The wire should specify the name of the Fund, the name(s) in which the account
is registered, the shareholder's social security number or employer tax
identification number, the account number and the amount being wired. Please
indicate if this is an initial or subsequent investment. Wire purchases are
normally used only for large purchases (over $5,000). Your bank may charge you a
fee for sending the wire.
What is the purchase price of Fund shares and when do purchases become
effective?
Purchases of Fund shares become effective and shares will be priced at the
net asset value per share ("NAV") next determined after the investor's check or
wire is received by the Transfer Agent. NAV for each Fund is calculated as of
the close of business on the New York Stock Exchange ("NYSE") (currently 4:00
p.m., Eastern time). If your request is received in correct form before 4:00
p.m. Eastern time, your transaction will be priced at that day's NAV. If your
request is received after 4:00 p.m., it will be priced at the next business
day's NAV. Orders that request a particular day or price for your transaction or
any other special conditions cannot be accepted.
The time at which transactions and shares are priced and the time until which
orders are accepted may be changed in case of an emergency or if the NYSE closes
at a time other than 4:00 p.m., Eastern time.
-16-
<PAGE>
The purchase order must include the documentation specified above. Please do
not send purchase orders to the Funds; the Funds forward purchase orders to the
Transfer Agent and a purchase will not become effective until the Transfer Agent
receives all the necessary documentation.
What are the conditions of purchase?
All purchase orders are subject to acceptance or rejection by the Funds or the
Distributor, in their sole discretion. The offering of shares may be suspended
whenever a Fund considers suspension desirable or when required by any order,
rule or regulation of any governmental body having jurisdiction. Checks and
money orders should be drawn on United States banks; the Funds and the
Distributor reserve the right to reject checks drawn on foreign banks.
The Transfer Agent will mail a confirmation of each completed purchase to the
investor. If an order is canceled because an investor's check does not clear,
the investor will be responsible for any loss incurred by the respective Fund,
the Transfer Agent, the Distributor, the Administrator or the Manager. If the
investor is already a shareholder, the Fund may redeem shares from the account
to cover any loss. If the investor is not a shareholder or if the loss is
greater than the value of the shareholder's account, the Distributor will be
responsible for any loss to the Fund, and will have the right to recover such
amount from the investor.
Who do I contact if I have questions about my account or need additional
information concerning investment in the Funds?
If you have investment questions about the Funds, or if you would like any
additional information relating to an investment in the Funds, please call
800-797-0773 (toll-free), or write to the Distributor at First Fund
Distributors, Inc., 4455 E. Camelback Road, Suite 261 E, Phoenix AZ 85018. If
you are a shareholder and have questions about your account, or if you wish to
arrange for wire transactions, please call the Transfer Agent at 800-797-0773.
Before telephoning, please be sure to have your account number and social
security number or employer tax identification number readily available.
Will I receive share certificates for shares purchased?
Share certificates will not be issued for shares unless the investor sends a
written request for certificates to O'Shaughnessy Funds, Inc., c/o Firstar Trust
Company at P.O. Box 701, Milwaukee, WI 53201-0701 (for requests sent via U.S.
mail) or 615 E. Michigan Street, Third Floor, Milwaukee, WI 53202 (for requests
sent via overnight courier). Share certificates are issued only for full shares
and may be redeposited in the shareholder's account at any time. In order to
facilitate redemptions and exchanges, most shareholders elect not to receive
certificates, since a shareholder wishing to redeem or exchange shares
represented by a certificate must surrender such certificate, properly endorsed
on the reverse side together with a signature guarantee. (See "Redemption of
Shares -- When are signature guarantees required?" below). If a certificate is
lost, the shareholder may incur an expense in replacing it.
-17-
<PAGE>
Can I purchase shares through broker-dealers other than the Distributor?
O'Shaughnessy Funds may enter into agreements with various outside brokers on
behalf of the Funds through which shareholders may purchase shares. Such shares
may be held by such outside brokers in an omnibus account rather than in the
name of the individual shareholder. The Manager may reimburse the outside
brokers for providing shareholder services to the omnibus accounts in an amount
equal to what the Fund would otherwise have paid to provide shareholder services
to each individual shareholder account.
Investors may also arrange to purchase shares of each Fund through other
outside broker-dealers with which O'Shaughnessy Funds does not have an
arrangement, and such broker-dealers may purchase shares of the Fund by
telephone if they have made arrangements in advance with the Fund. To place a
telephone order such broker-dealer should call the Transfer Agent at
800-797-0773.
Purchases by broker-dealers become effective and shares will be priced as
described above. If an investor purchases shares through broker-dealers other
than the Distributor, such broker-dealers may charge the investor a service fee
that is reasonable for the service performed, bearing in mind that the investor
could have acquired or redeemed each Fund's shares directly without the payment
of any fee. No part of any such service fee will be received by the Distributor,
the Manager, the Administrator or the Funds.
EXCHANGE PRIVILEGE
Shares of each Fund may be exchanged for shares of each of the other
O'Shaughnessy Funds (i.e., O'Shaughnessy Aggressive Growth Fund and
O'Shaughnessy Dogs of the Market Fund and, as the case may be, O'Shaughnessy
Cornerstone Growth Fund or O'Shaughnessy Cornerstone Value Fund). Prospectuses
for the other O'Shaughnessy Funds may be obtained by writing to the Distributor
at 4455 E. Camelback Road, Suite 261 E, Phoenix AZ 85018, Attention:
O'Shaughnessy Funds, Inc. or by calling 800-797-0773 (toll-free).
You may also exchange shares of either Fund for shares of the Portico Money
Market Fund or Portico U.S. Government Money Market Fund, both money market
mutual funds not affiliated with O'Shaughnessy Funds or the Manager (the
"Portico Funds"). Prior to making such an exchange, you should obtain and
carefully read the prospectus for the Portico Money Market Fund or Portico U.S.
Government Money Market Fund. The exchange privilege does not constitute an
offering or recommendation on the part of the Funds or the Manager of an
investment in the Portico Funds.
The exchange procedures are described below.
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<PAGE>
Is there any sales charge or minimum investment applicable to an exchange?
Shareholders of the Funds may exchange their Fund shares, without the
payment of any sales or service charge, for shares of any other fund into which
an exchange is permitted equal in value to the net asset value of the shares
being exchanged. All exchanges are subject to all applicable terms set forth in
the prospectus of the fund into which the exchange is being made. If a
shareholder exchanges shares through a broker-dealer other than the Distributor,
such broker-dealer may charge the shareholder a service fee, no part of which
will be received by the Distributor, the Manager, the Funds, or the fund into
which the exchange is being made.
At what price is an exchange effected?
An exchange is effected at the respective net asset values of the two funds
with respect to which shares are being exchanged as next determined following
receipt by the fund into which the exchange is being made of all necessary
documentation in connection with the redemption of Fund shares as described
below under "Redemption Of Shares --How do I redeem shares by mail?"
Do current instructions concerning receipt of dividends and distributions carry
over to exchanged shares?
Dividend and distribution instructions with respect to exchanged shares will
remain the same as those given previously by the shareholders to the fund from
which the shareholder is exchanging the shares, unless the shareholder
designates a change in such instructions by writing to the Transfer Agent.
Please note that such changed instructions (i) must be signed by the registered
owners(s) of the shares, exactly as the account is registered and signature
guaranteed, and (ii) include the name of the account, the account number, and
the name of the fund for which instructions have changed.
What are the conditions applicable to an exchange?
Exchanges involving the redemption of shares recently purchased by personal,
corporate or government check will be permitted only after the respective Fund
has reasonable belief that the check has cleared, which may take up to fifteen
days after the purchase date. The exchange privilege is available only in states
where shares of the other O'Shaughnessy Funds or the Portico Funds may be sold
legally.
Each of the Funds, the other O'Shaughnessy Funds and the Portico Funds
reserves the right to reject any order to acquire its shares through exchange or
otherwise and to restrict or terminate the exchange privilege at any time. If
the exchange privilege is to be permanently terminated, each Fund will provide
its shareholders with written notice of such termination. Each Fund reserves the
right to suspend temporarily the telephone exchange privilege in emergency
circumstances or in cases where, in the judgment of the Fund, continuation of
the privilege would be detrimental to the Fund and its shareholders as a whole.
Such temporary suspension can be without prior notification.
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<PAGE>
How can I make exchanges by telephone?
Shareholders who have completed the section of the Fund's Application entitled
"Shareholder Privileges" are eligible to make telephone requests for exchanges
and may do so by telephoning the Transfer Agent at 800-797-0773. A shareholder
who has not completed the Shareholder Privileges section of the Application but
who wishes to become eligible to make telephone exchanges should designate a
change in such instructions by writing to the Transfer Agent. Please note that
such changed instructions must (i) be signed by the registered owner(s) of the
shares exactly as the account is registered and signature guaranteed, and (ii)
include the name of the account, the account number and the name of the Fund to
which the exchange instructions relate. See "Redemption Of Shares - How do I
redeem shares by telephone?" below, which describes the time of day at which
telephone redemptions and exchanges will be priced and processed. Telephone
requests for exchanges cannot be accepted with respect to shares represented by
certificates. Shares of the other O'Shaughnessy Funds or the Portico Funds
acquired pursuant to a telephone request for exchange will be held under the
same account registration as the shares redeemed through the exchange.
The Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Neither the Funds nor any of their
service contractors will be liable for any loss or expense in acting on
telephone instructions that are reasonably believed to be genuine. In attempting
to confirm that telephone instructions are genuine, the Funds will use
procedures that are considered reasonable, including requesting a shareholder to
correctly state the account number, the names in which the account is
registered, the social security number(s) registered to the account, and certain
additional personal identification. A full description of these procedures is
contained in the SAI. To the extent that the Funds fail to use reasonable
procedures to verify the genuineness of telephone instructions, they and/or
their service contractors may be liable for any such instructions that prove to
be fraudulent or unauthorized.
Shareholders should be aware that, at times, the volume of telephone calls or
other factors beyond a Fund's control may make it difficult to reach the
Transfer Agent by telephone. This will be true particularly during periods of
drastic economic market changes. In such cases, shareholders should continue to
telephone or utilize the written exchange procedures described below.
Shareholders who effect exchanges of Fund shares by telephone will be charged
a $5.00 exchange fee.
How do I make exchanges by mail?
To exchange Fund shares by mail, send a written request for exchange signed by
the registered owner(s) of the shares, exactly as the account is registered, to
O'Shaughnessy Funds, Inc., c/o Firstar Trust Company, at P.O. Box 701,
Milwaukee, WI 53201-0701 (for requests sent by U.S. mail) or 615 E. Michigan
Street, Third Floor, Milwaukee, WI 53202 (for requests sent via overnight
courier). The request for exchange should include the following information: the
name of the account, the account number, the number of Fund shares or the dollar
value of Fund shares to be exchanged, the shares of which other O'Shaughnessy
Fund or Portico Fund shares of the Fund are to be exchanged for, and the name on
the account and the account number (if already established) with such other
fund.
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REDEMPTION OF SHARES
Shareholders can redeem their shares by giving instructions to the Transfer
Agent in writing or by telephone. As more fully described below, these
redemption instructions may have to be accompanied by additional documentation,
which may include a signature guarantee.
If a shareholder redeems shares through a broker-dealer other than the
Distributor, such broker-dealer may charge the shareholder a service fee, no
part of which will be received by the Distributor, the Manager, the
Administrator or the Funds.
How do I redeem shares by mail?
To redeem shares by mail, send a written request for redemption signed by the
registered owner(s) of the shares, exactly as the account is registered to
O'Shaughnessy Funds, Inc., c/o Firstar Trust Company, at P.O. Box 701,
Milwaukee, WI 53201-0701 (for requests sent via U.S. mail) or 615 E. Michigan
Street, Third Floor, Milwaukee, WI 53202 (for requests sent via overnight
courier). The request for exchange should include the following: the name of the
account, the account number, the number of shares or the dollar value of shares
to be redeemed and whether proceeds are to be sent by mail or wire, and if by
wire, giving the wire instructions; (ii) duly endorsed share certificates, if
any have been issued for the shares redeemed; (iii) any signature guarantees
that are required as described below; and (iv) any additional documents which
might be required for redemptions by corporations, executors, administrators,
trustees, guardians or other similar shareholders. Except as otherwise directed
by a Fund in its discretion, the Transfer Agent will not redeem shares until it
has received all necessary documents; corporate and institutional investors and
fiduciaries should contact the Transfer Agent to ascertain what additional
documentation is required.
May I send redemptions requests to the Funds?
Please do not send redemption requests to the Funds. The Funds must forward
all redemption requests to the Transfer Agent and instructions for redemption
will not be effective until received by the Transfer Agent. Shares redeemed will
be priced at the net asset value per share next determined after acceptance of a
complete redemption request by the Transfer Agent. Redemption requests received
by the Transfer Agent after the close of the NYSE (currently 4:00 p.m., Eastern
time) will be treated as though received on the next business day. The Transfer
Agent cannot accept redemption requests that specify a particular date for
redemption or special redemption conditions.
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When are signature guarantees required?
Except as indicated below, all of the signatures on any request for redemption
or share certificates tendered for redemption must be guaranteed by a bank,
broker-dealer, credit union (if authorized under state law), securities exchange
or association, clearing agency or savings association. A notary public cannot
provide a signature guarantee.
The Funds will waive the signature guarantee requirement on a redemption
request that instructs that the proceeds be sent by mail if all of the following
conditions apply: (i) the redemption is for $10,000 or less; (ii) the redemption
check is payable to the shareholder(s) of record; (iii) the redemption check is
mailed to the shareholder(s) at the address of record; and (iv) no shares
represented by certificate are being redeemed. Share certificates submitted for
redemption or exchange must be properly endorsed and contain signature
guarantees. In addition, each Fund in its discretion may waive the signature
guarantee for employees and affiliates of the Manager, the Distributor and the
Administrator, and family members of the foregoing.
The requirement of a guaranteed signature protects against an unauthorized
person redeeming shares and obtaining the redemption proceeds.
How do I redeem shares by telephone?
Shareholders who have completed the section of the Fund Application entitled
"Shareholder Privileges" are eligible to make telephone requests for redemptions
(without charge) and may do so by telephoning the Transfer Agent at
800-797-0773. A shareholder who has not completed the Shareholder Privileges
section of the Application but who wishes to become eligible to make telephone
redemptions, should designate a change in such instructions by writing to the
Transfer Agent. Please note that such changed instructions must (i) be signed by
the registered owner(s) of the shares exactly as the account is registered and
signature guaranteed, and (ii) include the name of the account, the account
number and the name of the Fund.
Telephone redemptions cannot be accepted with respect to shares represented by
certificates or for IRA accounts. In such cases, redemption can only be made by
mail as described above under "Redemption of Shares -- How do I redeem shares by
mail?" Telephone requests for redemptions (or exchanges see "Exchange Privilege"
above) received before the close of business of the NYSE (currently 4:00 p.m.,
Eastern time) on a business day will be priced and processed as of the close of
business on that day; requests received after that time will be processed as of
the close of business on the next business day.
As noted above, the Funds will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine and may, along with their
service contractors, be liable for a failure to use such procedures. See
"Exchange Privilege - - How can I make exchanges by telephone?" above.
Shareholders should be aware that, at times, the volume of telephone calls or
other factors beyond a Fund's control may make it difficult to reach the
Transfer Agent by telephone. This will be true particularly during periods of
drastic economic or market changes. In the event of difficulty in reaching the
Transfer Agent, shareholders should continue to telephone or utilize the written
redemption procedures described above under "Redemption of Shares -- How do I
redeem shares by mail?"
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The Funds reserve the right to terminate the telephone redemption privilege at
any time and, if so terminated, will provide the shareholders with written
notice of such termination. Each Fund reserves the right to suspend temporarily
telephone redemptions in emergency circumstances or in cases where, in the
judgment of the Fund, continuation of the privilege would be detrimental to the
Fund and its shareholders as a whole. Such temporary suspension can be without
prior notification.
What options do I have in receiving redemption proceeds?
Redemption proceeds may be sent to shareholders by mail or by wire as
described below. Wire redemptions will only be made if the Transfer Agent has
received appropriate written wire instructions. Because of fluctuations in the
value of a Fund's portfolio, the net asset value of shares redeemed may be more
or less than the investor's cost.
Redemption By Mail. In the case of shareholders who request that their
redemption proceeds be sent by mail, the Transfer Agent mails checks for
redemption proceeds typically within one or two business days, but no later than
seven days, after it receives the request and all the necessary documents.
Redemption By Wire. In the case of shareholders who request that their
redemption proceeds be sent by bank wire, the Transfer Agent typically wires
redemption proceeds the next business day, but no later than seven days, after
it receives the request and all necessary documents.
Wire redemptions will be made only if the Transfer Agent has received
appropriate written instructions from the shareholder either on the Fund
Application or by separate letter. A shareholder who has not indicated wire
instructions on the Application, but would like to have redemption proceeds
wired to a particular bank for each redemption request, should so designate by
writing to the Transfer Agent. Please note that such instructions must (i) be
signed by the registered owner(s) of the shares exactly as the account is
registered and signature guaranteed, and (ii) include the name of the account,
the account number and the name of the Fund to which the request relates.
A shareholder who would like to change the wire instructions indicated on the
Fund Application should designate a change in such instructions by writing to
the Transfer Agent and complying with the requirements set forth in the
preceding paragraph. There is a $1,000 minimum on redemption proceeds by bank
wire. Shareholders who effect redemptions by wire transfer will pay a $7.50 wire
transfer fee to the Transfer Agent to cover costs associated with the transfer.
In addition, a shareholder's bank may impose a charge for receiving wires.
When would the payment of proceeds be delayed?
Please note that shares paid for by personal, corporate or government check
cannot be redeemed before the respective Fund has reasonable belief that the
check has cleared, which may take up to fifteen days after payment of the
purchase price. This delay can be avoided by paying for shares by certified
check or bank-wire. An investor will be notified promptly by the Transfer Agent
if a redemption request cannot be accepted.
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Would my account ever be involuntarily redeemed?
Due to the relatively high cost to the Funds of maintaining small accounts, we
ask you to maintain an account balance of at least $5,000. If your balance is
below $5,000 for three months or longer due to redemptions, we have the right to
close your account after giving you 60 days in which to increase your balance.
INFORMATION ON DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS GENERALLY
Dividend and capital gain distributions are reinvested in additional shares of
the Funds in your account unless you select another option on your Application.
The advantage of reinvesting distributions arises from compounding; that is, you
receive dividends and capital gain distributions on an increasing number of
shares. Distributions not reinvested are paid by check or transmitted to your
bank account.
INCOME DIVIDENDS
Each Fund declares and pays dividends (if any) annually.
CAPITAL GAINS
A capital gain or loss is the difference between the purchase and sale price
of a security. If a Fund has net capital gains for the year (after subtracting
any capital losses), they are usually declared and paid in December to
shareholders of record on a specified date that month.
TAX INFORMATION
You need to be aware of the possible tax consequences when: (1) a Fund makes a
distribution to your account; (2) you sell Fund shares; or (3) you exchange
shares of a Fund for shares of one of the other O'Shaughnessy Funds or Portico
Funds. The following summary does not apply to retirement accounts, such as
IRAs, which are tax-deferred until you withdraw money from them.
Will I pay taxes on redemptions or exchanges of Fund shares? When you sell or
exchange shares in a Fund, you may realize a gain or loss.
Unless you are a dealer in securities, such gain or loss will be capital gain or
loss. In addition, such gain or loss will be a long-term capital gain or loss if
you hold your shares for more than one year, or short-term capital gain or loss
if you hold your shares for one year or less.
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A loss recognized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. In addition, if you realize a loss on the sale or exchange of
Fund shares held six months or less, your short-term loss recognized is
reclassified to long-term to the extent of any long-term capital gain
distribution received.
Will I pay taxes on Fund distributions?
Distributions of ordinary income and short-term capital gains are taxable as
ordinary income. The dividends of each Fund will be eligible for the 70%
deduction for dividends received by corporations only to the extent the Fund's
income consists of dividends paid by U.S. corporations. Long-term gains are
taxable at the applicable long-term gain rate. The gain is long- or short-term
depending on how long the respective Fund held the securities, not how long you
held shares in the Fund.
What are the tax effects of buying shares before a distribution?
If you buy shares of a Fund shortly before or on the "record date" -- the date
that establishes you as the person to receive the upcoming distribution -- you
will receive, in the form of a taxable distribution, a portion of the money you
just invested. Therefore, you may wish to find out the Fund's record date(s)
before investing. Of course, a Fund's share price may, at any time, reflect
undistributed capital gains or unrealized appreciation.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect, and does
not address the state and local tax consequences of an investment in the Funds.
For the complete provisions, reference should be made to the pertinent Code
sections and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative or administrative
action either prospectively or retroactively. For additional information
regarding the federal income tax consequences of an investment in a Fund, see
"Additional Information about Dividends and Taxes" in the Statement of
Additional Information.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state, local or foreign taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Funds.
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<PAGE>
STATUS AS A REGULATED INVESTMENT COMPANY
To maintain its status as a regulated investment company under the Internal
Revenue Code (the "Code"), each Fund must, among other requirements, derive less
than 30% of its gross income in any year from the sale of stocks held for less
than three months (the "30% test").
As necessary to meet this requirement, the Manager may delay selling some or
all of those stocks held in a Fund's portfolio which would otherwise be sold on
the Re-Balance Date because they no longer meet the relevant Strategy's
criteria, if: (i) they have been held for less than three months, and (ii) their
sale would cause the Fund to fail the 30% test. In addition, during the three
month period immediately prior to the Re-Balance Date, the Manager reserves the
right to vary the general policy of investing new cash flow in all 50 stocks
selected by the relevant Strategy as of the last rebalancing by allocating new
cash flow only to those stocks which continue to meet the relevant Strategy's
criteria as of the date of investment or to liquid short-term securities. This
approach will enable the Manager to control investments in stocks which would
most likely be held for a period of less than three months as a result of
rebalancing, the gains from the sale of which are subject to the 30% test. As
such, it will minimize the disruption to the Strategy which would be caused by
the Fund's compliance with the 30% test. For additional information on
maintaining each Fund's status as a regulated investment company, see
"Additional Information About Dividends and Taxes" in the Statement of
Additional Information.
PERFORMANCE INFORMATION
This section should help you understand the terms used to describe Fund
performance. The Funds' annual report will contain additional performance
information and will be available upon request and without charge.
What is total return?
This tells you how much an investment in a Fund has changed in value over a
given time period. It reflects any net increase or decrease in the share price
and assumes that all dividends and capital gains (if any) paid during the period
were reinvested in additional shares. Including reinvested distributions means
that total return numbers include the effect of compounding, i.e, you receive
income and capital gain distributions on an increasing number of shares.
Advertisements for a Fund may include cumulative or compound average annual
total return figures, which may be compared with various indices, other
performance measures, or other mutual funds.
What is cumulative total return?
This is the actual rate of return on an investment for a specified period. A
cumulative return does not indicate how much the value of the investment may
have fluctuated between the beginning and the end of the period specified.
What is average annual total return?
This is always hypothetical. Working backward from the actual cumulative
return, it tells you what constant year-by-year return would have produced the
actual, cumulative return. By smoothing out all the variations in annual
performance, it gives you an idea of the investment's annual contribution to
your portfolio provided you held it for the entire period in question.
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<PAGE>
NET ASSET VALUE
The price at which each Fund's shares are purchased or redeemed is the Fund's
next determined net asset value per share. The net asset value per share is
calculated as of the close of the NYSE (currently 4:00 p.m., Eastern time) on
each day that the NYSE is open for business and on each other day in which there
is a sufficient degree of trading in a Fund's portfolio securities that the
current net asset value of the Fund's shares may be materially affected by
changes in the value of the Fund's portfolio securities.
How is net asset value determined?
Each Fund determines the net asset value per share by subtracting the Fund's
total liabilities from the Fund's total assets (the value of the securities that
the Fund holds plus cash and other assets), dividing the remainder by the total
number of shares outstanding, and adjusting the result to the nearest full cent.
How are the securities held in a Fund's portfolio valued?
Securities listed on the NYSE, American Stock Exchange or other national
exchanges are valued at the last sale price on such exchange on the day as of
which the net asset value per share is to be calculated. Over-the-counter
securities included in the NASDAQ National Market System are valued at the last
sale price. If there is no sale on a particular security on such day, it is
valued at the mean between the bid and asked prices. Other securities, to the
extent that market quotations are readily available, are valued at market value
in accordance with procedures established by the Board of Directors. Any
securities and other assets, for which market quotations are not readily
available, are valued in good faith in a manner determined by the Directors of
the Funds best to reflect their fair value.
OTHER SHAREHOLDER SERVICES
Automatic Investment Plan
An Automatic Investment Plan allows a shareholder to make automatic monthly
or quarterly investments into a Fund account, in amounts of at least $100, by
having the Transfer Agent draw an automatic clearing house (ACH) debit
electronically against a shareholder's checking or savings account. A
shareholder may establish an Automatic Investment Plan by completing the
appropriate section on the Application for new accounts or by calling the
Transfer Agent at (800) 797-0773 and requesting an Automatic Investment Plan
Application for existing accounts. A shareholder should be aware that a signed
Application should be received by the Transfer Agent at least 15 business days
prior to the initial transaction. The Transfer Agent will assess a $20 fee if
the automatic investment cannot be made due to insufficient funds, stop payment,
or for any other reason. The Fund cannot guarantee acceptance by your bank.
Automatic Cash Withdrawal Plan
When an account of $10,000 or more is opened or when an existing account
reaches that size, a shareholder may participate in the Fund's Automatic Cash
Withdrawal Plan by filling out the appropriate part of the Application. Under
this plan, a shareholder may receive (or designate a third party to receive) a
monthly or quarterly check in a stated amount of not less than $50. Shares of
the respective Fund will be redeemed as necessary to meet withdrawal payments.
All participants must elect to have their dividends and capital gain
distributions reinvested automatically. A shareholder who decides later to use
this service should fill out a Shareholder Services Form and send it to
O'Shaughnessy Funds, Inc., c/o Firstar Trust Company, P.O. Box 701, Milwaukee,
WI 53201-0701 (if sent by U.S. Mail) or 615 E. Michigan Street, Third Floor,
Milwaukee, WI 53202 (if sent via overnight courier). Shareholders should allow
approximately ten days for such form to be processed.
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Reports to Shareholders
Each time a shareholder invests, redeems, transfers or exchanges Fund shares,
or receives a distribution from a Fund, the Fund will send a confirmation of the
transaction which will include a summary of all of the shareholder's most recent
transactions.
At such time as prescribed by law, each Fund will send to each shareholder the
following reports (if they are applicable), which may be used in completing U.S.
income tax returns:
Form 1099-DIV Report taxable distributions during the preceding calendar
year. (If a shareholder did not receive taxable distributions
in the previous year, such shareholder will not be sent a
1099-DIV.)
Form 1099-B Reports redemption proceeds paid (including those resulting
from exchanges) during the preceding calendar year.
Form 1099-R Report distributions from retirement plan accounts during the
preceding calendar year.
Form 5498 Reports contributions to IRAs for the previous calendar year.
If an investor's shares are held by an outside broker in an omnibus account,
it is the responsibility of such outside broker to provide shareholders whose
shares are held in the omnibus account with any reports prescribed by law which
the shareholders require in order to complete their U.S. income tax returns.
Shareholders will also receive annual and semi-annual reports including the
financial statements of the Funds for the respective periods.
Retirement Plans
Eligible investors may invest in the Funds under the following prototype
retirement plans: Individual Retirement Account (IRA) Simplified Employee
Pension (SEP) for sole proprietors, partnerships and corporations.
Profit-Sharing and Money Purchase Pension Plans for corporations and
their employees.
There is no minimum for investment in such plans.
Automatic Reinvestment Plan
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Funds at the net
asset value per share at the close of business on the record date, unless
otherwise specified on the Application or requested by a shareholder in writing.
If the Transfer Agent does not receive a written request for subsequent
dividends and/or distributions to be paid in cash at least three full business
days prior to a given record date, the dividends and/or distributions to be paid
to a shareholder will be reinvested. If a shareholder elects to receive
dividends and distributions in cash and the U.S. Postal Service cannot deliver
the checks, or if the checks remain uncashed for six months, the shareholder's
distribution checks will be reinvested into the shareholder's account at the
then current net asset value.
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No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund, the Investment Adviser, the Administrator or
the Distributor. This Prospectus does not constitute an offering in any state in
which such offering may not lawfully be made.
TABLE OF CONTENTS
About the Funds ........................2
Management and Organization
of the Funds .......................14
Information about Your Account .........15
Information on Distributions and
Taxes ..............................24
Performance Information ................26
Net Asset Value ........................27
Other Shareholder Services .............27
INVESTMENT MANAGER
O'Shaughnessy Capital Management, Inc.
60 Arch Street
Greenwich, Connecticut 06830
ADMINISTRATOR
Investment Company Administration Corporation
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018
TRANSFER AGENT
Firstar Trust Company
615 E. Michigan Street
Milwaukee, Wisconsin 53202
AUDITORS
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
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Prospectus
O'SHAUGHNESSY
CORNERSTONE VALUE FUND
............
O'SHAUGHNESSY
CORNERSTONE GROWTH FUND
October 9, 1996
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PROSPECTUS
October 9, 1996
O'SHAUGHNESSY AGGRESSIVE GROWTH FUND
60 Arch Street, Greenwich, Connecticut 06830
(800) 797-0773
------------
The Fund
O'Shaughnessy Aggressive Growth Fund (the "Fund") is an investment
portfolio or series of O'Shaughnessy Funds, Inc., an open-end management
investment company with multiple portfolios or series available for investment.
Investment Objective
The investment objective of the Fund is capital appreciation.
Strategy
The Fund seeks to achieve its objective through implementation of
proprietary aggressive growth models developed by O'Shaughnessy Capital
Management, Inc., the Fund's investment manager (the "Manager").
The Fund's portfolio will generally consist of approximately 45 common
stocks selected by the Manager which meet certain criteria. For a more detailed
description of the Fund, see "About the Fund -- Investment Objective and
Policies."
Risk/Reward
Although the stocks in which the Fund may invest have, in the Manager's
judgment, the potential to provide superior return, such stocks are likely to be
subject to greater than average price volatility, which may result in
substantial declines in the Fund's share price. Accordingly, the Fund is
suitable only for the most aggressive investors. For a discussion of the
additional risks associated with an investment in the Fund, see "About the Fund
- -- Investment Objective and Policies."
Purchase of Shares
Shares of the Fund will be offered to investors during the continuous
offering at a price equal to the next determined net asset value per share.
There are no fees or charges to purchase or sell shares or to reinvest
dividends. There are no Rule 12b-1 fees.
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<PAGE>
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------
This Prospectus contains the information you should know about the Fund
before you invest. Please keep it for future reference. A statement containing
additional information about the Fund, dated October 9, 1996, has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this Prospectus. It is available, at no charge, by calling or by writing
the Fund at the telephone number or address set forth above.
------------
O'Shaughnessy Capital Management, Inc.-Manager
First Fund Distributors, Inc.-Distributor
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<PAGE>
ABOUT THE FUND
TRANSACTION AND FUND EXPENSES
The following table and example should help you understand the kinds of
expenses you will bear directly or indirectly as a Fund shareholder. In the
table, "Shareholder Transaction Expenses," shows that you pay no sales charges.
All the money you invest in the Fund goes to work for you, subject to the fees
noted in the table. "Annual Fund Operating Expenses" shows how much it would
cost to operate the Fund for a year, based on estimated expenses through the end
of the Fund's first full year. These costs you pay indirectly, because they are
deducted from the Fund's total assets before the daily share price is calculated
and before dividends and other distributions are made. You will not see these
expenses on your account statement.
Table
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) ......................................................None
Maximum Sales Charge Imposed on Dividend Reinvestments .................None
Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, whichever is lower) .............................None
Redemption fee (a)..................................................... None
Exchange Fee (b)....................................................... None
Annual Fund Operating Expenses (as a percentage of average net assets):
Management Fees (c).................................................... 1.00%
Rule 12b-1 Fees........................................................ None
Other Expenses......................................................... 0.80%
Total Fund Operating Expenses........................................ 1.80%
- ---------------------
(a) Shareholders who effect redemptions of Fund shares by wire transfer will
pay a $7.50 wire transfer fee. See "Information About Your Account - -
Redemption of Shares."
(b) Shareholders who effect exchanges of shares of the Fund for shares of
another fund by telephone in accordance with the exchange privilege will be
charged a $5.00 exchange fee. See "Information About Your Account --
Exchange Privilege."
(c) See "Management and Organization of the Fund -- Management."
<TABLE>
<CAPTION>
Cumulative
Example: Expenses Paid
for the Period of
-----------------
1 Year 3 Years
------ -------
<S> <C> <C>
An investor would pay the following expenses on a $1,000 investment assuming:
(1) the operating expense ratio set forth in the table above ; (2) a 5% annual
return throughout the period; and (3) redemption at the end of the period: ..................$18 $5
The table and example are intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. "Other Expenses" is based on estimated amounts for the current
fiscal year. The example should not be considered a representation of past or
future expenses or annual rate of return, and actual expenses or annual rate of
return may be more or less than those shown.
</TABLE>
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<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
To help you decide whether the Fund is appropriate for you, this
section takes a closer look at the Fund's investment objective and policies.
What is the Fund's objective?
The investment objective of the Fund is capital appreciation. There can
be no assurance that the Fund will achieve its investment objective.
What is the Fund's investment strategy?
The Fund will seek to achieve its objective through the implementation
of proprietary aggressive growth models developed by O'Shaughnessy Capital
Management, Inc., the Fund's investment manager (the "Manager").
The Fund's portfolio will generally consist of approximately 45 stocks,
selected through implementation of the Manager's proprietary aggressive growth
models. At the time of purchase, such stocks will generally possess the
following characteristics:
o a market capitalization in excess of $150 million;
o outstanding price performance during the last six months or one year
period prior to purchase;
o high earnings gains during the one year period prior to purchase; and
o expected high future earnings gains in the general consensus of market
analysts.
It is expected that the proprietary aggressive growth models used by
the Manager in selecting stocks for the Fund's portfolio will select stocks for
investment without regard to capitalization, except that the issuers must have
market capitalizations in excess of $150 million. The majority of these stocks
will be common stocks of domestic corporations and American Depository Receipts
("ADRs"), and will be traded on domestic stock exchanges or in the
over-the-counter market. The Fund will not invest in foreign securities except
through the purchase of ADRs.
The Manager may invest the Fund's assets in stocks which do not meet
all of the above criteria, if, in the opinion of the Manager, such stocks
possess characteristics similar to stocks meeting such criteria. In addition,
the Manager may continue to hold a stock in the Fund's portfolio which no longer
meets the initial criteria for investment if the Manager believes such
investments are consistent with the Fund's investment objective.
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<PAGE>
What are the potential risks of investing primarily in common stocks?
The fundamental risk associated with any common stock fund is the risk
that the value of the stocks it holds might decrease. Stock values may fluctuate
in response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than other
investment choices. Smaller or newer issuers are more likely to realize more
substantial growth as well as suffer more significant losses than larger or more
established issuers. Investments in such companies can be both more volatile and
more speculative.
OTHER INVESTMENT POLICIES AND PRACTICES
This section takes a detailed look at other investment policies and
practices of the Fund. The Fund's investments are subject to further
restrictions and risks described in the Statement of Additional Information.
Shareholder approval is required to change the Fund's investment
objective and certain investment restrictions noted in the following section as
"fundamental policies." The Manager also follows certain "operating policies"
which can be changed without shareholder approval. However, significant changes
in operating policies are discussed with shareholders in Fund reports.
The Fund's holdings in certain kinds of investments cannot exceed
maximum percentages of total assets, which are set forth below. While these
restrictions provide a useful level of detail about the Fund's investments,
investors should not view them as an accurate gauge of the potential risk of
such investments. The net effect of a particular investment depends on its
volatility and the size of its overall return in relation to the performance of
all the Fund's other investments.
Cash and Short-Term Securities. The Fund may temporarily invest a
portion of its total assets in cash or liquid short-term securities pending
investment of such assets in stocks in accordance with the Fund's investment
strategy and in order to meet redemption requests. The Fund may also invest a
portion of its assets in cash or liquid short-term securities for temporary
defensive purposes, but is under no obligation to do so. Short-term securities
in which the Fund may invest include certificates of deposit, commercial paper,
notes, obligations issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities, and repurchase agreements involving such
securities. See "Repurchase Agreements," below.
Repurchase Agreements. The Fund may invest in repurchase agreements.
The Fund may only enter into repurchase agreements with a member bank of the
Federal Reserve System or a well-established securities dealer in U.S.
government securities. In the event of a bankruptcy or default by the seller of
the repurchase agreement the Fund may suffer delays and incur costs or possible
losses in liquidating the underlying security which is held as collateral, and
the Fund may incur a loss if the value of the collateral declines during this
period. As a matter of operating
-5-
<PAGE>
policy, the Fund may not invest more than 15% of its total assets in repurchase
agreements maturing in more than seven days.
Illiquid Securities. The Fund may invest up to 15% of its total assets
in illiquid securities. Illiquid securities are securities which cannot be
readily resold because of legal or contractual restrictions or which cannot
otherwise be marketed, redeemed, put to the issuer or a third party, or which do
not mature within seven days, or which the Manager, in accordance with
guidelines approved by the Board of Directors, has not determined to be liquid.
The Fund may purchase, without regard to the above limitation,
securities that are not registered under the Securities Act of 1933 (the
"Securities Act") but that can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act, provided that the Board of
Directors, or the Manager pursuant to guidelines adopted by the Board,
continuously determines, based on the trading markets for the specific Rule 144A
security, that it is liquid.
Lending of Portfolio Securities. Like other mutual funds, the Fund may
from time to time lend securities from its portfolio to banks, brokers and other
financial institutions to earn additional income. The principal risk is that the
borrower may default on its obligation to return borrowed securities, because of
insolvency or otherwise. In this event, the Fund could experience delays in
recovering its securities and possibly capital. In accordance with applicable
law, the Fund may not lend portfolio securities representing in excess of 331/3%
of its total assets. The lending policy is a fundamental policy.
Borrowing. The Fund may borrow money from banks in an amount up to
331/3% of its total assets for extraordinary or emergency purposes such as
meeting anticipated redemptions, and may pledge assets in connection with such
borrowing. The borrowing policy is a fundamental policy.
Small Cap Stocks. It is anticipated that the Fund's portfolio may
include small cap stocks (i.e., stocks whose issuers have market capitalizations
exceeding $150 million but less than $1 billion). Small cap stocks may present
greater opportunities for capital appreciation and a higher degree of risk; they
tend to be more vulnerable to financial and other risks and thus are more
volatile than stocks of larger, more established companies. Because the Fund may
invest in stocks with greater than average volatility, which may result in
substantial declines in the Fund's share price, it is suitable only for the most
aggressive investors.
Industry Concentration. The Fund may not invest more than 25% of its total
assets in any one industry (excluding U.S. Government securities). The
concentration policy is a fundamental policy.
Depositary Receipts. The Fund may invest up to 25% of its total assets in
ADRs which are dollar-denominated securities of foreign issuers traded in the
U.S. Such investments increase diversification of the Fund's portfolio and may
enhance return, but they also involve some special
-6-
<PAGE>
risks such as exposure to potentially adverse local political and economic
developments, nationalization and exchange controls; potentially lower liquidity
and higher volatility; possible problems arising from regulatory practices that
differ from U.S. standards; the imposition of withholding taxes on income from
such securities; confiscating taxation; and the chance that fluctuations in
foreign exchange rates will decrease the investment's value (favorable changes
can increase its value). These risks are heightened for investment in developing
countries and there is no limit on the amount of the Fund's foreign investments
that may be invested in such countries.
The Fund may invest in ADRs through both sponsored and unsponsored
arrangements. The issuers of unsponsored ADRs are not obligated to disclose
material information in the United States, and therefore, there may not be a
correlation between such information and the market value of the ADRs.
Hedging and Return Enhancement Strategies. The Fund is permitted to
utilize certain hedging and return enhancement strategies and techniques such as
options on securities and securities indices, futures contracts on securities
and securities indices and options on futures contracts, as described below.
Futures (a type of potentially high-risk derivative) are often
used to manage or hedge risk, because they enable the investor to buy or sell an
asset in the future at an agreed upon price. Options (another potentially
high-risk derivative) give the investor the right, but not the obligation, to
buy or sell an asset at a predetermined price in the future. The Fund may buy
and sell futures and options contracts for any number of reasons, including: to
manage its exposure to changes in securities prices; as an efficient means of
adjusting its overall exposure to certain markets; in an effort to enhance
income; and to protect the value of portfolio securities. The Fund may purchase,
sell, or write call and put options on securities, financial indices and
futures.
Futures contracts and options may not always be successful
hedges; their prices can be highly volatile. Using them could lower the Fund's
total return, and the potential loss from the use of futures can exceed the
Fund's initial investment in such contracts.
As a matter of operating policy, initial margin deposits and
premiums on options used for non-hedging purposes will not equal more than 5% of
the Fund's net asset value.
Firm Commitment Agreements and When-Issued Purchases. The Fund may
purchase securities under a firm commitment agreement or on a when-issued basis.
Firm commitment agreements and when-issued purchases call for the purchase of
securities at an agreed-upon price on a specified future date, and would be
used, for example, when a decline in the yield of securities of a given issuer
is anticipated. The Fund as purchaser assumes the risk of any decline in value
of the security beginning on the date of the agreement or purchase. The Fund
will not enter into such transactions for the purpose of leveraging, and
accordingly, will segregate U.S. Government securities, cash or cash equivalents
with its custodian equal (on a daily marked-to- market basis) to the amount of
its commitment to purchase the when-issued securities and securities subject to
the firm commitment agreement.
-7-
<PAGE>
Warrants. The Fund may invest in warrants, which are similar to options
to purchase securities at a specific price valid for a specific period of time.
The Fund may not invest more than 5% of its net assets (at the time of
investment) in warrants (other than those attached to other securities). If the
market price of the underlying security never exceeds the exercise price, the
Fund will lose the entire investment in the warrant. Moreover, if a warrant is
not exercised within the specified time period, it will become worthless and the
Fund will lose the purchase price and the right to purchase the underlying
security.
Diversification. In order to maintain the Fund's status as a diversified
investment company, with respect to 75% of the Fund's total assets: 1) not more
than 5% of the Fund's assets may be invested in the securities of a single
issuer (excluding U.S. Government securities); and 2) the Fund may not hold more
than 10% of the outstanding voting securities of a single issuer. The
diversification policy is a fundamental policy.
Portfolio Transactions. In executing portfolio transactions, the Fund
seeks to obtain the best net results, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution, operational facilities of the firm involved and the
firm's risk in positioning a block of securities. While the Fund generally seeks
reasonably competitive commission rates, the Fund does not necessarily pay the
lowest commission or spread available. In addition, consistent with the Conduct
Rules of the National Association of Securities Dealers, Inc., the Manager may
consider sales of shares of the Fund as a factor in the selection of brokers or
dealers to execute portfolio transactions for the Fund.
Portfolio Turnover. The Fund anticipates that its annual turnover rate
should not exceed 200% under normal conditions. The portfolio turnover rate is
calculated by dividing the lesser of the Fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year. High portfolio
turnover involves correspondingly greater transaction costs in the form of
brokerage commissions and dealer spreads, which are borne directly by the Fund.
MANAGEMENT AND ORGANIZATION OF THE FUND
MANAGEMENT
Who runs the Fund?
General Oversight. O'Shaughnessy Funds is governed by a Board of Directors
that meets regularly to review the Fund's investment, performance, expenses, and
other business affairs. The Board elects the Fund's officers.
Manager. O'Shaughnessy Capital Management, Inc. acts as investment manager
of the Fund pursuant to a management agreement with O'Shaughnessy Funds on
behalf of the Fund (the "Management Agreement"). In its capacity as investment
manager, the Manager is responsible for
-8-
<PAGE>
selection and management of the Fund's portfolio investments. For its services,
the Fund pays the Manager a fee each month, at the annual rate of 1.00% of the
Fund's average daily net assets. The Fund's advisory fee is higher than that
paid by most other funds; however, it is comparable to that payable by funds
with investment objectives similar to the Fund's.
The Manager's office is located at 60 Arch Street, Greenwich,
Connecticut 06830. O'Shaughnessy Capital Management was incorporated in 1988.
The Manager serves as portfolio consultant to a unit investment trust with
assets in excess of $180 million. The Manager has no experience actively
managing open-end investment companies such as the Fund.
Portfolio Management. James P. O'Shaughnessy has had the day-to-day
responsibility for managing the Fund's portfolio and developing and executing
the Fund's investment program since commencement of operations of the Fund. For
the past five years, Mr. O'Shaughnessy has served as President of the Manager,
and in such capacity, has managed equity accounts for high net worth individuals
and served as portfolio consultant to a unit investment trust managed by the
Manager. Mr. O'Shaughnessy is recognized as a leading expert and pioneer in
quantitative equity analysis. He is the author of two financial books, Invest
Like the Best and What Works on Wall Street.
Distributor. O'Shaughnessy Funds has entered into a Distribution
Agreement (the "Distribution Agreement") with First Fund Distributors, Inc. (the
"Distributor"), a registered broker-dealer, to act as the principal distributor
of the shares of the Fund. The Distribution Agreement provides the Distributor
with the right to distribute shares of the Fund through other broker-dealers or
financial institutions with whom the Distributor has entered into selected
dealer agreements. The address of the Distributor is 4455 E. Camelback Road,
Suite 261 E, Phoenix, Arizona 85018. The Distributor provides distribution
services to the Fund at no cost to the Fund.
Administrator. Pursuant to an Administration Agreement, Investment
Company Administration Corporation (the "Administrator") serves as administrator
of the Fund. The Administrator provides certain administrative services,
including, among other responsibilities, coordinating relationships with
independent contractors and agents, preparing for signature by officers and
filing of certain documents required for compliance with applicable laws and
regulations, preparing financial statements, and arranging for the maintenance
of books and records. For its services, the Fund pays the Administrator a fee
each month, at the annual rate of 0.10% of the first $100 million of the Fund's
average daily net assets, 0.05% of the next $100 million of such net assets, and
0.03% of such net assets over $200 million, with a minimum fee of $40,000
annually. The address of the Administrator is 4455 E. Camelback Rd., Suite 261
E, Phoenix, Arizona 85018. The Administrator and the Distributor are under
common control and are therefore considered affiliates of each other.
Transfer Agent and Custodian. Firstar Trust Company acts as the Fund's
transfer and dividend disbursing agent (the "Transfer Agent"), as well as the
Fund's custodian (the "Custodian"). The address of the Transfer Agent and
Custodian is 615 E. Michigan Street, Third Floor, Milwaukee, Wisconsin 53202.
-9-
<PAGE>
How are Fund expenses determined?
The Management Agreement identifies the expenses to be paid by the
Fund. In addition to the fees paid to the Manager, the Fund pays certain
additional expenses, including but not limited to, the following: shareholder
service expenses; custodial, accounting, legal, and audit fees; administrative
fees; costs of preparing and printing prospectuses and reports sent to
shareholders; registration fees and expenses; proxy and annual meeting expenses
(if any); and independent Director fees and expenses.
ORGANIZATION
How is the Fund organized?
The Fund is an investment portfolio or series of O'Shaughnessy Funds.
There are three other investment portfolios of O'Shaughnessy Funds, shares of
which are not offered for sale through this Prospectus: O'Shaughnessy
Cornerstone Value Fund, O'Shaughnessy Cornerstone Growth Fund and O'Shaughnessy
Dogs of the Market(TM) Fund (the "other O'Shaughnessy Funds"). The charter of
O'Shaughnessy Funds provides that the Board of Directors may issue additional
investment portfolios of shares and/or additional classes of shares for each
investment portfolio. O'Shaughnessy Funds was organized as a corporation in
Maryland on May 20, 1996.
What is meant by "shares"?
As with all mutual funds, investors purchase shares when they invest in
the Fund. These shares are a part of a Fund's authorized capital stock, but
share certificates are not generally issued.
Each full share and fractional share entitles the shareholder to:
receive a proportional interest in the Fund's capital gain distributions; and
cast one vote per share on certain Fund matters, including the election of Fund
Directors, changes in fundamental policies, or approval of changes in the Fund's
Management Agreement.
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
Does the Fund have annual shareholder meetings?
The Fund is not required to hold annual meetings and does not intend to
do so except when certain matters, such as a change in the Fund's fundamental
policies, are to be decided. In addition, shareholders representing at least 10%
of all eligible votes may call a special meeting if they wish, for the purpose
of voting on the removal of any Fund Director. If a meeting is held and you
cannot attend, you can vote by proxy. Before the meeting, the Fund will send you
proxy materials that explain the issues to be decided and include a voting card
for you to mail back.
-10-
<PAGE>
INFORMATION ABOUT YOUR ACCOUNT
PURCHASE OF SHARES
The minimum initial investment in the Fund is $5,000 and the minimum
subsequent investment is $100, except that for retirement plans, the minimum
initial investment is $500 and the minimum subsequent investment is $50.
Investors may make an initial purchase of shares and subsequent
investments in the Fund by mail or wire as described below. The Fund reserves
the right in its sole discretion to waive the minimum investment amounts,
including in the case of investments by employees and affiliates of the Manager
and family members of any of the foregoing, and Individual Retirement Accounts
("IRAs") of shareholders of the Fund.
The Internal Revenue Service requires the correct reporting of social
security numbers or tax identification numbers. The failure to provide this
information will result in the rejection of an investor's Application.
How do I purchase shares by mail?
For initial investments, please send a completed Application, together
with a check payable to O'Shaughnessy Aggressive Growth Fund to O'Shaughnessy
Funds, Inc., c/o Firstar Trust Company, at P.O. Box 701, Milwaukee, WI
53201-0701 (for Applications sent by U.S. mail) or 615 E. Michigan Street, Third
Floor, Milwaukee, WI 53202 (for Applications sent via overnight courier).
Subsequent investments must be accompanied by a letter indicating the name(s) in
which the account is registered and the account number or by the remittance
portion of the account statement and mailed to the address stated above.
How do I purchase shares by wire?
If you are wiring funds, call the Transfer Agent at 800-797-0773 for an
account number if this is an initial investment or to inform the Transfer Agent
that a wire is expected if this is a subsequent investment.
For an initial investment, prior to or immediately after the funds
are wired, a completed Application should be sent to O'Shaughnessy Funds, Inc.,
c/o Firstar Trust Company, at P.O. Box 701, Milwaukee, WI 53201-0701 (for
Applications sent by U.S. mail) or 615 E. Michigan Street, Third Floor,
Milwaukee, WI 53202 (for Applications sent via overnight courier). Instruct your
bank to wire federal funds to O'Shaughnessy Funds, c/o Firstar Trust Company,
ABA# 075000022, DDA # 112952137.
The wire should specify the name of the Fund, the name(s) in which the
account is registered, the shareholder's social security number or employer tax
identification number, the account number and the amount being wired. Please
indicate if this is an initial or subsequent
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<PAGE>
investment. Wire purchases are normally used only for large purchases (over
$5,000). Your bank may charge you a fee for sending the wire.
What is the purchase price of Fund shares and when do purchases become
effective? Purchases of Fund shares become effective and shares will be priced
at the net asset value per share ("NAV") next determined after the investor's
check or wire is received by the Transfer Agent. NAV for the Fund is calculated
as of the close of business on the New York Stock Exchange ("NYSE") (currently
4:00 p.m., Eastern time). If your request is received in correct form before
4:00 p.m. Eastern time, your transaction will be priced at that day's NAV. If
your request is received after 4:00 p.m., it will be priced at the next business
day's NAV. Orders that request a particular day or price for your transaction or
any other special conditions cannot be accepted.
The time at which transactions and shares are priced and the time until
which orders are accepted may be changed in case of an emergency or if the NYSE
closes at a time other than 4:00 p.m., Eastern time.
The purchase order must include the documentation specified above.
Please do not send purchase orders to the Fund; the Fund forwards purchase
orders to the Transfer Agent and a purchase will not become effective until the
Transfer Agent receives all the necessary documentation.
What are the conditions of purchase?
All purchase orders are subject to acceptance or rejection by the Fund
or the Distributor, in their sole discretion. The offering of shares may be
suspended whenever the Fund considers suspension desirable or when required by
any order, rule or regulation of any governmental body having jurisdiction.
Checks and money orders should be drawn on United States banks; the Fund and the
Distributor reserve the right to reject checks drawn on foreign banks.
The Transfer Agent will mail a confirmation of each completed purchase
to the investor. If an order is canceled because an investor's check does not
clear, the investor will be responsible for any loss incurred by the Fund, the
Transfer Agent, the Distributor, the Administrator or the Manager. If the
investor is already a shareholder, the Fund may redeem shares from the account
to cover any loss. If the investor is not a shareholder or if the loss is
greater than the value of the shareholder's account, the Distributor will be
responsible for any loss to the Fund, and will have the right to recover such
amount from the investor.
Who do I contact if I have questions about my account or need additional
information concerning an investment in the Fund?
If you have investment questions about the Fund, or if you would like
any additional information relating to an investment in the Fund, please call
800-797-0773 (toll-free), or write to the Distributor at First Fund
Distributors, Inc., 4455 E. Camelback Road, Suite 261 E, Phoenix AZ 85018. If
you are a shareholder and have questions about your account, or if you wish to
arrange for wire transactions, please call the Transfer Agent at 800-797-0773.
Before
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<PAGE>
telephoning, please be sure to have your account number and social security
number or employer tax identification number readily available.
Will I receive share certificates for shares purchased?
Share certificates will not be issued for shares unless the investor
sends a written request for certificates to O'Shaughnessy Funds, Inc., c/o
Firstar Trust Company, at P.O. Box 701, Milwaukee, WI 53201-0701 (for requests
sent via U.S. mail) or 615 E. Michigan Street, Third Floor, Milwaukee, WI 53202
(for requests sent via overnight courier). Share certificates are issued only
for full shares and may be redeposited in the shareholder's account at any time.
In order to facilitate redemptions and exchanges, most shareholders elect not to
receive certificates, since a shareholder wishing to redeem or exchange shares
represented by a certificate must surrender such certificate, properly endorsed
on the reverse side together with a signature guarantee. (See "Redemption of
Shares -- When are signature guarantees required?" below). If a certificate is
lost, the shareholder may incur an expense in replacing it.
Can I purchase shares through broker-dealers other than the Distributor?
O'Shaughnessy Funds may enter into agreements with various outside
brokers on behalf of the Funds through which shareholders may purchase shares.
Such shares may be held by such outside brokers in an omnibus account rather
than in the name of the individual shareholder. The Manager may reimburse the
outside brokers for providing shareholder services to the omnibus accounts in an
amount equal to what the Fund would otherwise have paid to provide shareholder
services to each individual shareholder account.
Investors may also arrange to purchase shares of the Fund through other
outside broker-dealers with which O'Shaughnessy Funds does not have an
arrangement, and such broker-dealers may purchase shares of the Fund by
telephone if they have made arrangements in advance with the Fund. To place a
telephone order such broker-dealer should call the Transfer Agent at 800-
797-0773.
Purchases by broker-dealers become effective and shares will be priced
as described above. If an investor purchases shares through broker-dealers other
than the Distributor, such broker-dealers may charge the investor a service fee
that is reasonable for the service performed, bearing in mind that the investor
could have acquired or redeemed the Fund's shares directly without the payment
of any fee. No part of any such service fee will be received by the Distributor,
the Manager, the Administrator or the Fund.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of each of the other
O'Shaughnessy Funds (i.e., O'Shaughnessy Cornerstone Value Fund, O'Shaughnessy
Cornerstone Growth Fund and O'Shaughnessy Dogs of the Market(TM) Fund).
Prospectuses for the other O'Shaughnessy Funds may be obtained by writing to the
Distributor at 4455 E. Camelback Road, Suite 261 E, Phoenix AZ 85018, Attention:
O'Shaughnessy Funds, Inc. or by calling 800-797-0773 (toll-free).
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<PAGE>
You may also exchange shares of the Fund for shares of the Portico
Money Market Fund or Portico U.S. Government Money Market Fund, both money
market mutual funds not affiliated with O'Shaughnessy Funds or the Manager (the
"Portico Funds"). Prior to making such an exchange, you should obtain and
carefully read the prospectus for the Portico Money Market Fund or Portico U.S.
Government Money Market Fund. The exchange privilege does not constitute an
offering or recommendation on the part of the Fund or the Manager of an
investment in the Portico Funds.
The exchange procedures are described below.
Is there any sales charge or minimum investment applicable to an exchange?
Shareholders of the Fund may exchange their shares of the Fund, without
the payment of any sales or service charge, for shares of any other fund into
which an exchange is permitted equal in value to the net asset value of the
shares being exchanged. All exchanges are subject to all applicable terms set
forth in the prospectus of the fund into which the exchange is being made. If a
shareholder exchanges shares through a broker-dealer other than the Distributor,
such broker-dealer may charge the shareholder a service fee, no part of which
will be received by the Distributor, the Manager, the Fund, or the fund into
which the exchange is being made.
At what price is an exchange effected?
An exchange is effected at the respective net asset values of the two
funds with respect to which shares are being exchanged as next determined
following receipt by the fund into which the exchange is being made of all
necessary documentation in connection with the redemption of Fund shares as
described below under "Redemption Of Shares --How do I redeem shares by mail?"
Do current instructions concerning receipt of dividends and distributions carry
over to exchanged shares?
Dividend and distribution instructions with respect to exchanged shares
will remain the same as those given previously by the shareholders to the fund
from which the shareholder is exchanging the shares, unless the shareholder
designates a change in such instructions by writing to the Transfer Agent.
Please note that such changed instructions (i) must be signed by the registered
owners(s) of the shares, exactly as the account is registered and signature
guaranteed, and (ii) include the name of the account, the account number, and
the name of the fund for which instructions have changed.
What are the conditions applicable to an exchange?
Exchanges involving the redemption of shares recently purchased by
personal, corporate or government check will be permitted only after the Fund
has reasonable belief that the check has cleared, which may take up to fifteen
days after the purchase date. The exchange privilege is available only in states
where shares of the other O'Shaughnessy Funds or the Portico Funds may be sold
legally.
-14-
<PAGE>
The Fund, the other O'Shaughnessy Funds and the Portico Funds each
reserves the right to reject any order to acquire its shares through exchange or
otherwise and to restrict or terminate the exchange privilege at any time. If
the exchange privilege is to be permanently terminated, the Fund will provide
its shareholders with written notice of such termination. The Fund reserves the
right to suspend temporarily the telephone exchange privilege in emergency
circumstances or in cases where, in the judgment of the Fund, continuation of
the privilege would be detrimental to the Fund and its shareholders as a whole.
Such temporary suspension can be without prior notification.
How can I make exchanges by telephone?
Shareholders who have completed the section of the Fund's Application
entitled "Shareholder Privileges" are eligible to make telephone requests for
exchanges and may do so by telephoning the Transfer Agent at 800-797-0773. A
shareholder who has not completed the Shareholder Privileges section of the
Application but who wishes to become eligible to make telephone exchanges should
designate a change in such instructions by writing to the Transfer Agent. Please
note that such changed instructions must (i) be signed by the registered
owner(s) of the shares exactly as the account is registered and signature
guaranteed, and (ii) include the name of the account, the account number and the
name of the Fund. See "Redemption Of Shares - How do I redeem shares by
telephone?" below, which describes the time of day at which telephone
redemptions and exchanges will be priced and processed. Telephone requests for
exchanges cannot be accepted with respect to shares represented by certificates.
Shares of the other O'Shaughnessy Funds or Portico Funds acquired pursuant to a
telephone request for exchange will be held under the same account registration
as the shares redeemed through the exchange.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Neither the Fund nor any of its service
contractors will be liable for any loss or expense in acting on telephone
instructions that are reasonably believed to be genuine. In attempting to
confirm that telephone instructions are genuine, the Fund will use procedures
that are considered reasonable, including requesting a shareholder to correctly
state the account number, the name(s) in which the account is registered, the
social security number(s) registered to the account, and certain additional
personal identification. A full description of these procedures is contained on
the SAI. To the extent that the Fund fails to use reasonable procedures to
verify the genuineness of telephone instructions, it and/or its service
contractors may be liable for any such instructions that prove to be fraudulent
or unauthorized.
Shareholders should be aware that, at times, the volume of telephone
calls or other factors beyond the Fund's control may make it difficult to reach
the Transfer Agent by telephone. This will be true particularly during periods
of drastic economic market changes. In such cases, shareholders should continue
to telephone or utilize the written exchange procedures described below.
Shareholders who effect exchanges of Fund shares by telephone will be
charged a $5.00 exchange fee.
-15-
<PAGE>
How do I make exchanges by mail?
To exchange shares by mail, send a written request for exchange signed
by the registered owner(s) of the shares, exactly as the account is registered
to O'Shaughnessy Funds, Inc., c/o Firstar Trust Company, at P.O. Box 701,
Milwaukee, WI 53201-0701 (for requests sent by U.S. mail) or 615 E. Michigan
Street, Third Floor, Milwaukee, WI 53202 (for requests sent via overnight
courier). The request for exchange should include the following information: the
name of the account, the account number, the number of Fund shares or the dollar
value of Fund shares to be exchanged, the shares of which other O'Shaughnessy
Fund or Portico Fund shares of the Fund are to be exchanged for, and the name on
the account and the account number (if already established) with such other
fund.
REDEMPTION OF SHARES
Shareholders can redeem their shares by giving instructions to the
Transfer Agent in writing or by telephone. As more fully described below, these
redemption instructions may have to be accompanied by additional documentation,
which may include a signature guarantee.
If a shareholder redeems shares through a broker-dealer other than the
Distributor, such broker-dealer may charge the shareholder a service fee, no
part of which will be received by the Distributor, the Manager, the
Administrator or the Fund.
How do I redeem shares by mail?
To redeem shares by mail, send a written request for redemption signed
by the registered owner(s) of the shares, exactly as the account is registered
to O'Shaughnessy Funds, Inc., c/o Firstar Trust Company, at P.O. Box 701,
Milwaukee, WI 53201-0701 (for requests sent by U.S. mail) or 615 E. Michigan
Street, Third Floor, Milwaukee, WI 53202 (for requests sent via overnight
courier). The request should include the following: the name of the account, the
account number, the number of shares or the dollar value of shares to be
redeemed and whether proceeds are to be sent by mail or wire, and if by wire,
giving the wire instructions; (ii) duly endorsed share certificates, if any have
been issued for the shares redeemed; (iii) any signature guarantees that are
required as described below; and (iv) any additional documents which might be
required for redemptions by corporations, executors, administrators, trustees,
guardians or other similar shareholders. Except as otherwise directed by the
Fund in its discretion, the Transfer Agent will not redeem shares until it has
received all necessary documents; corporate and institutional investors and
fiduciaries should contact the Transfer Agent to ascertain what additional
documentation is required.
May I send redemptions requests to the Fund?
Please do not send redemption requests to the Fund. The Fund must
forward all redemption requests to the Transfer Agent and instructions for
redemption will not be effective until received by the Transfer Agent. Shares
redeemed will be priced at the net asset value per share next determined after
acceptance of a complete redemption request by the Transfer Agent. Redemption
requests received by the Transfer Agent after the close of the NYSE (currently
4:00 p.m., Eastern time) will be treated as though received on the next business
day. The Transfer
-16-
<PAGE>
Agent cannot accept redemption requests that specify a particular date for
redemption or special redemption conditions.
When are signature guarantees required?
Except as indicated below, all of the signatures on any request for
redemption or share certificates tendered for redemption must be guaranteed by a
bank, broker-dealer, credit union (if authorized under state law), securities
exchange or association, clearing agency or savings association. A notary public
cannot provide a signature guarantee.
The Fund will waive the signature guarantee requirement on a redemption
request that instructs that the proceeds be sent by mail if all of the following
conditions apply: (i) the redemption is for $10,000 or less; (ii) the redemption
check is payable to the shareholder(s) of record; (iii) the redemption check is
mailed to the shareholder(s) at the address of record; and (iv) no shares
represented by certificate are being redeemed. Share certificates submitted for
redemption or exchange must be properly endorsed and contain signature
guarantees. In addition, the Fund in its discretion may waive the signature
guarantee for employees and affiliates of the Manager, the Distributor and the
Administrator, and family members of the foregoing.
The requirement of a guaranteed signature protects against an
unauthorized person redeeming shares and obtaining the redemption proceeds.
How do I redeem shares by telephone?
Shareholders who have completed the section of the Fund's Application
entitled "Shareholder Privileges" are eligible to make telephone requests for
redemptions (without charge) and may do so by telephoning the Transfer Agent at
800-797-0773. A shareholder who has not completed the Shareholder Privileges
section of the Application but who wishes to become eligible to make telephone
redemptions, should designate a change in such instructions by writing to the
Transfer Agent. Please note that such changed instructions must (i) be signed by
the registered owner(s) of the shares exactly as the account is registered and
signature guaranteed, and (ii) include the name of the account, the account
number and the name of the Fund.
Telephone redemptions cannot be accepted with respect to shares
represented by certificates or for IRA accounts. In such cases, redemption can
only be made by mail as described above under "Redemption of Shares -- How do I
redeem shares by mail?" Telephone requests for redemptions (or exchanges -- see
"Exchange Privilege" above) received before the close of business on the NYSE
(currently 4:00 p.m., Eastern time) on a business day will be priced and
processed as of the close of business on that day; requests received after that
time will be processed as of the close of business on the next business day.
As noted above, the Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine and may, along with
their service contractors, be liable for a failure to use such procedures. See
"Exchange Privilege--How can I make exchanges by telephone?" above.
-17-
<PAGE>
Shareholders should be aware that, at times, the volume of telephone
calls or other factors beyond the Fund's control may make it difficult to reach
the Transfer Agent by telephone. This will be true particularly during periods
of drastic economic or market changes. In the event of difficulty in reaching
the Transfer Agent, shareholders should continue to telephone or utilize the
written redemption procedures described above under "Redemption of Shares -- How
do I redeem shares by mail?"
The Fund reserves the right to terminate the telephone redemption
privilege at any time and, if so terminated, will provide the shareholders with
written notice of such termination. The Fund reserves the right to suspend
temporarily telephone redemptions in emergency circumstances or in cases where,
in the judgment of the Fund, continuation of the privilege would be detrimental
to the Fund and its shareholders as a whole. Such temporary suspension can be
without prior notification.
What options do I have in receiving redemption proceeds?
Redemption proceeds may be sent to shareholders by mail or by wire as
described below. Wire redemptions will only be made if the Transfer Agent has
received appropriate written wire instructions. Because of fluctuations in the
value of the Fund's portfolio, the net asset value of shares redeemed may be
more or less than the investor's cost.
Redemption By Mail. In the case of shareholders who request that their
redemption proceeds be sent by mail, the Transfer Agent mails checks for
redemption proceeds typically within one or two business days, but no later than
seven days, after it receives the request and all the necessary documents.
Redemption By Wire. In the case of shareholders who request that their
redemption proceeds be sent by bank wire, the Transfer Agent typically wires
redemption proceeds the next business day, but no later than seven days, after
it receives the request and all necessary documents.
Wire redemptions will be made only if the Transfer Agent has received
appropriate written instructions from the shareholder either on the Fund's
Application or by separate letter. A shareholder who has not indicated wire
instructions on the Application, but would like to have redemption proceeds
wired to a particular bank for each redemption request, should so designate by
writing to the Transfer Agent. Please note that such instructions must (i) be
signed by the registered owner(s) of the shares exactly as the account is
registered and signature guaranteed, and (ii) include the name of the account,
the account number and the name of the Fund.
A shareholder who would like to change the wire instructions indicated
on the Application should designate a change in such instructions by writing to
the Transfer Agent and complying with the requirements set forth in the
preceding paragraph. There is a $1,000 minimum on redemption proceeds by bank
wire. Shareholders who effect redemptions by wire transfer will pay a $7.50 wire
transfer fee to the Transfer Agent to cover costs associated with the transfer.
In addition, a shareholder's bank may impose a charge for receiving wires.
-18-
<PAGE>
When would the payment of proceeds be delayed?
Please note that shares paid for by personal, corporate or government
check cannot be redeemed before the Fund has reasonable belief that the check
has cleared, which may take up to fifteen days after payment of the purchase
price. This delay can be avoided by paying for shares by certified check or
bank-wire. An investor will be notified promptly by the Transfer Agent if a
redemption request cannot be accepted.
Would my account ever be involuntarily redeemed?
Due to the relatively high cost to the Fund of maintaining small
accounts, we ask you to maintain an account balance of at least $5,000. If your
balance is below $5,000 for three months or longer due to redemptions, we have
the right to close your account after giving you 60 days in which to increase
your balance.
INFORMATION ON DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS GENERALLY
Dividend and capital gain distributions are reinvested in additional
Fund shares in your account unless you select another option on your
Application. The advantage of reinvesting distributions arises from compounding;
that is, you receive dividends and capital gain distributions on an increasing
number of shares. Distributions not reinvested are paid by check or transmitted
to your bank account.
INCOME DIVIDENDS
The Fund declares and pays dividends (if any) annually.
CAPITAL GAINS
A capital gain or loss is the difference between the purchase and sale
price of a security. If the Fund has net capital gains for the year (after
subtracting any capital losses), they are usually declared and paid in December
to shareholders of record on a specified date that month.
TAX INFORMATION
You need to be aware of the possible tax consequences when: (1) the
Fund makes a distribution to your account; (2) you sell Fund shares; or (3) you
exchange shares of the Fund for shares of one of the other O'Shaughnessy Funds
or Portico Funds. The following summary does not apply to retirement accounts,
such as IRAs, which are tax-deferred until you withdraw money from them.
-19-
<PAGE>
Will I pay taxes on redemptions or exchanges of Fund shares?
When you sell or exchange shares in the Fund, you may realize a gain or
loss. Unless you are a dealer in securities, such gain or loss will be capital
gain or loss. In addition, such gain or loss will be a long-term capital gain or
loss if you hold your shares for more than one year, or short-term capital gain
or loss if you hold your shares for one year or less.
A loss recognized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through automatic
reinvestment of dividends or otherwise) within a 61- day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. In addition, if you realize a loss on the sale or exchange of
Fund shares held six months or less, your short-term loss recognized is
reclassified to long-term to the extent of any long-term capital gain
distribution received.
Will I pay taxes on Fund distributions?
Distributions of ordinary income and short-term capital gains are taxable
as ordinary income. The dividends of the Fund will be eligible for the 70%
deduction for dividends received by corporations only to the extent the Fund's
income consists of dividends paid by U.S. corporations. Long-term gains are
taxable at the applicable long-term gain rate. The gain is long- or short-term
depending on how long the Fund held the securities, not how long you held shares
in the Fund.
What is the tax effect of the Fund's investment in foreign securities?
Pursuant to the Fund's investment objectives, the Fund may invest in
foreign securities. Foreign taxes may be paid by the Fund as a result of tax
laws of countries in which the Fund may invest. Income tax treaties between
certain countries and the United States may reduce or eliminate such taxes. It
is impossible to determine in advance the effective rate of foreign tax to which
the Fund will be subject, since the amount of Fund assets to be invested in
various countries is not known. Because the Fund limits its investment in
foreign securities, shareholders will not be entitled to claim foreign tax
credits with respect to their share of foreign taxes paid by the Fund on income
from investments of foreign securities held by the Fund.
What are the tax effects of buying shares before a distribution?
If you buy shares shortly before or on the "record date" -- the date
that establishes you as the person to receive the upcoming distribution -- you
will receive, in the form of a taxable distribution, a portion of the money you
just invested. Therefore, you may wish to find out the Fund's record date(s)
before investing. Of course, a Fund's share price may, at any time, reflect
undistributed capital gains or unrealized appreciation.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect, and does
not address the state and local tax consequences of an investment in the Fund.
For the complete provisions, reference should be made to the pertinent Code
sections and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative or administrative
action either prospectively or retroactively. For additional information
regarding federal income tax consequences of an investment in the Fund, see
"Additional Information About Dividends and Taxes" in the Statement of
Additional Information.
Shareholders are urged to consult their own tax advisers regarding
specific questions as to Federal, state, local or foreign taxes. Foreign
investors should consider applicable foreign taxes in their evaluation of an
investment in the Fund.
-20-
<PAGE>
PERFORMANCE INFORMATION
This section should help you understand the terms used to describe Fund
performance. The Fund's annual report will contain additional performance
information and will be available upon request and without charge.
What is total return?
This tells you how much an investment in the Fund has changed in value
over a given time period. It reflects any net increase or decrease in the share
price and assumes that all dividends and capital gains (if any) paid during the
period were reinvested in additional shares. Including reinvested distributions
means that total return numbers include the effect of compounding, i.e, you
receive income and capital gain distributions on an increasing number of shares.
Advertisements for the Fund may include cumulative or compound average
annual total return figures, which may be compared with various indices, other
performance measures, or other mutual funds.
What is cumulative total return?
This is the actual rate of return on an investment for a specified
period. A cumulative return does not indicate how much the value of the
investment may have fluctuated between the beginning and the end of the period
specified.
What is average annual total return?
This is always hypothetical. Working backward from the actual
cumulative return, it tells you what constant year-by-year return would have
produced the actual, cumulative return. By smoothing out all the variations in
annual performance, it gives you an idea of the investment's annual contribution
to your portfolio provided you held it for the entire period in question.
NET ASSET VALUE
The price at which the Fund's shares are purchased or redeemed is the
Fund's next determined net asset value per share. The net asset value per share
is calculated as of the close of the NYSE (currently 4:00 p.m., Eastern time) on
each day that the NYSE is open for business and on each other day in which there
is a sufficient degree of trading in the Fund's portfolio securities that the
current net asset value of the Fund's shares may be materially affected by
changes in the value of the Fund's portfolio securities.
-21-
<PAGE>
How is net asset value determined?
The Fund determines the net asset value per share by subtracting the
Fund's total liabilities from the Fund's total assets (the value of the
securities the Fund holds plus cash and other assets), dividing the remainder by
the total number of shares outstanding, and adjusting the result to the nearest
full cent.
How are the securities held in the Fund's portfolio valued?
Securities listed on the NYSE, American Stock Exchange or other
national exchanges are valued at the last sale price on such exchange on the day
as of which the net asset value per share is to be calculated. Over-the-counter
securities included in the NASDAQ National Market System are valued at the last
sale price. If there is no sale on a particular security on such day, it is
valued at the mean between the bid and asked prices. Other securities, to the
extent that market quotations are readily available, are valued at market value
in accordance with procedures established by the Board of Directors. Any
securities and other assets for which market quotations are not readily
available are valued in good faith in a manner determined by the Directors of
the Fund best to reflect their fair value.
OTHER SHAREHOLDER SERVICES
Automatic Investment Plan
An Automatic Investment Plan allows a shareholder to make automatic
monthly or quarterly investments into a Fund account, in amounts of at least
$100, by having the Transfer Agent draw an automatic clearing house (ACH) debit
electronically against a shareholder's checking or savings account. A
shareholder may establish an Automatic Investment Plan by completing the
appropriate section on the Application Form for new accounts or by calling the
Transfer Agent at (800) 797-0733 and requesting an Automatic Investment Plan
Application for existing accounts. A shareholder should be aware that a signed
Application should be received by the Transfer Agent at least 15 business days
prior to the initial transaction. The Transfer Agent will assess a $20 fee if
the automatic investment cannot be made due to insufficient funds, stop payment,
or for any other reason. The Fund cannot guarantee acceptance by your bank.
Automatic Cash Withdrawal Plan
When an account of $10,000 or more is opened or when an
existing account reaches that size, a shareholder may participate in the Fund's
Automatic Cash Withdrawal Plan by filling out the appropriate part of the
Application. Under this plan, a shareholder may receive (or designate a third
party to receive) a monthly or quarterly check in a stated amount of not less
than $50. Fund shares will be redeemed as necessary to meet withdrawal payments.
All participants must elect to have their dividends and capital gain
distributions reinvested automatically. A shareholder who decides later to use
this service should fill out a Shareholder Services Form and send it to
O'Shaughnessy Funds, Inc., c/o Firstar Trust Company, at P.O. Box 701,
Milwaukee, WI 53201- 0701 (for requests sent by U.S. mail) or 615 E. Michigan
Street, Third Floor, Milwaukee, WI 53202 (for requests sent via overnight
courier). Shareholders should allow approximately ten days for such form to be
processed.
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<PAGE>
Reports to Shareholders
Each time a shareholder invests, redeems, transfers or exchanges
shares, or receives a distribution, the Fund will send a confirmation of the
transaction which will include a summary of all of the shareholder's most recent
transactions.
At such time as prescribed by law, the Fund will send to each
shareholder the following reports (if they are applicable), which may be used in
completing U.S. income tax returns:
Form 1099-DIV Report taxable distributions during the preceding calendar
year. (If a shareholder did not receive taxable distributions
in the previous year, such shareholder will not be sent a
1099-DIV.)
Form 1099-B Reports redemption proceeds paid (including those resulting
from exchanges) during the preceding calendar year.
Form 1099-R Report distributions from retirement plan accounts during the
preceding calendar year.
Form 5498 Reports contributions to IRAs for the previous calendar year.
If an investor's shares are held by an outside broker in an omnibus
account, it is the responsibility of such outside broker to provide shareholders
whose shares are held in the omnibus account with any reports prescribed by law
which the shareholders require in order to complete their U.S. income tax
returns.
Shareholders will also receive annual and semi-annual reports including
the financial statements of the Funds for the respective periods.
Retirement Plans
Eligible investors may invest in the Fund under the following
prototype retirement plans:
Individual Retirement Account (IRA)
Simplified Employee Pension (SEP) for sole proprietors, partnerships
and corporations.
Profit-Sharing and Money Purchase Pension Plans for corporations
and their employees.
There is no minimum for investment in such plans.
-23-
<PAGE>
Automatic Reinvestment Plan
For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of the
Fund at the net asset value per share at the close of business on the record
date, unless otherwise specified on the Application or requested by a
shareholder in writing. If the Transfer Agent does not receive a written request
for subsequent dividends and/or distributions to be paid in cash at least three
full business days prior to a given record date, the dividends and/or
distributions to be paid to a shareholder will be reinvested. If a shareholder
elects to receive dividends and distributions in cash and the U.S. Postal
Service cannot deliver the checks, or if the checks remain uncashed for six
months, the shareholder's distribution checks will be reinvested into the
shareholder's account at the then current net asset value.
-24-
<PAGE>
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund, the Investment Adviser, the Administrator or
the Distributor. This Prospectus does not constitute an offering in any state in
which such offering may not lawfully be made.
TABLE OF CONTENTS
About the Fund............................................3
Management and Organization
of the Fund ......................................8
Information about Your Account ..........................11
Information on Distribution and Taxes ...................19
Performance Information .................................21
Net Asset Value .........................................21
Other Shareholder Services ..............................22
INVESTMENT MANAGER
O'Shaughnessy Capital Management, Inc.
60 Arch Street
Greenwich, Connecticut 06830
ADMINISTRATOR
Investment Company Administration Corporation
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018
TRANSFER AGENT
Firstar Trust Company
615 E. Michigan Street
Milwaukee, Wisconsin 53202
AUDITORS
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
-25-
<PAGE>
Prospectus
O'SHAUGHNESSY
AGGRESSIVE GROWTH FUND
October 9, 1996
-26-
<PAGE>
PROSPECTUS
October 9, 1996
O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND
60 Arch Street,
Greenwich, Connecticut 06830
(800)797-0773
------------
The Fund
O'Shaughnessy Dogs of the Market(TM) Fund (the "Fund") is an
investment portfolio or series of O'Shaughnessy Funds, Inc., an open-end
management investment company with multiple portfolios or series available for
investment.
Investment Objective
The investment objective of the Fund is to seek total return,
consisting of capital appreciation and current income.
Strategy
The Fund will invest primarily in the common stocks of large,
well-established companies selected by O'Shaughnessy Capital Management, Inc.,
the Fund's investment manager (the "Manager"). It is anticipated that
approximately 30% of the Fund's portfolio will generally consist of the ten
stocks which, at the time of purchase, were the ten highest-yielding stocks
contained in the Dow Jones Industrial Average (the "Dow Dogs"). The remaining
assets of the Fund will be invested primarily in thirty to forty additional
stocks that the Manager believes have substantially the same qualities as the
Dow Dogs, and which meet certain additional criteria, as described below. For a
more detailed description of the Fund's investment strategy, see "About the Fund
- -- Investment Objective and Policies."
Purchase of Shares
Shares of the Fund will be offered to investors during the continuous
offering at a price equal to the next determined net asset value per share.
There are no fees or charges to purchase or sell shares or to reinvest
dividends. There are no Rule 12b-1 fees.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------
This Prospectus contains the information you should know about the Fund
before you invest. Please keep it for future reference. A statement containing
additional information about the Fund, dated October 9, 1996, has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this Prospectus. It is available, at no charge, by calling or by writing
the Fund at the telephone number or address set forth above.
------------
O'Shaughnessy Capital Management, Inc.-Manager
First Fund Distributors, Inc.-Distributor
-1-
<PAGE>
ABOUT THE FUND
TRANSACTION AND FUND EXPENSES
The following table and example should help you understand the kinds of
expenses you will bear directly or indirectly as a Fund shareholder. In the
table, "Shareholder Transaction Expenses," shows that you pay no sales charges.
All the money you invest in the Fund goes to work for you, subject to the fees
noted in the table. "Annual Fund Operating Expenses" shows how much it would
cost to operate the Fund for a year, based on estimated expenses through the end
of the Fund's first full year. These costs you pay indirectly, because they are
deducted from the Fund's total assets before the daily share price is calculated
and before dividends and other distributions are made. You will not see these
expenses on your account statement.
Table
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price.) ............................................................None
Maximum Sales Charge Imposed on Dividend Reinvestments................. None
Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, whichever is lower) .............................None
Redemption fee (a) .................................................... None
Exchange Fee (b) ...................................................... None
Annual Fund Operating Expenses (as a percentage of average net assets):
Management Fees (c).................................................... 0.90%
Rule 12b-1 Fees........................................................ None
Other Expenses......................................................... 0.80%
Total Fund Operating Expenses........................................ 1.70%
- --------------------
(a) Shareholders who effect redemptions of Fund shares by wire transfer
will pay a $7.50 wire transfer fee. See "Information About Your Account - -
Redemption of Shares."
(b) Shareholders who effect exchanges of shares of the Fund for shares of
another fund by telephone in accordance with the exchange privilege will be
charged a $5.00 exchange fee. See "Information About Your Account - - Exchange
Privilege."
(c) See "Management and Organization of the Fund -- Management."
<TABLE>
<CAPTION>
Cumulative
Expenses Paid
for the Period of
1 Year 3 Years
------ -------
Example:
<S> <C> <C>
An investor would pay the following expenses on a $1,000 investment assuming:
(1) the operating expense ratio set forth in the table above; (2) a 5% annual
return throughout the period; and (3) redemption at the end of the period: ...................$17 $55
</TABLE>
The table and example are intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. "Other Expenses" is based on estimated amounts for the current
fiscal year. The example should not be considered a representation of past or
future expenses or annual rate of return, and actual expenses or annual rate of
return may be more or less than those shown.
-2-
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
To help you decide whether the Fund is appropriate for you, this
section takes a closer look at the Fund's investment objective and policies.
What is the Fund's objective?
The investment objective of the Fund is to seek total return,
consisting of capital appreciation and current income. There can be no assurance
that the Fund will achieve its investment objective.
What is the Fund's investment strategy?
O'Shaughnessy Capital Management, Inc., the Fund's investment manager
(the "Manager"), will manage the Fund so that generally, the Fund will hold
positions in the ten stocks which, at the time of purchase, were among the ten
highest-yielding stocks contained in the Dow Jones Industrial Average1 (the "Dow
Dogs"). It is anticipated that approximately 30% of the Fund's assets will be
invested in the Dow Dogs at any time. The remaining assets of the Fund will be
invested primarily in thirty to forty stocks that the Manager believes have
substantially the same qualities as the Dow Dogs. These stocks, at the time of
purchase, will generally:
o be issued by among the largest companies in the market based
on market capitalization, with no company having market
capitalization smaller than $1 billion at the time of
purchase;
o have dividend yields higher than the average of all stocks in
the market; and
o have sales, common shares outstanding and cash flow higher
than the average of all stocks in the market.
The Manager may invest the Fund's assets in stocks which do not meet
all of the above criteria, if, in the opinion of the Manager, such stocks
possess characteristics similar to stocks meeting such criteria. In addition,
the Manager may continue to hold stocks in the Fund's portfolio which no longer
meet the initial criteria for investment if the Manager believes such
investments are consistent with the Fund's investment objective.
- --------
1 "Dow Jones Industrial Average" is a trademark of Dow Jones & Company,
Inc. ("Dow Jones"). Neither the Fund nor the Manager is affiliated with, nor is
the Fund sponsored by Dow Jones. Dow Jones has not participated in any way in
the creation of the Fund or in the selection of stocks included in the Fund, nor
has Dow Jones reviewed or approved any information included in this Prospectus.
-3-
<PAGE>
What are the potential risks of investing primarily in common stocks?
The fundamental risk associated with any common stock fund is the risk
that the value of the stocks it holds might decrease. Stock values may fluctuate
in response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than other
investment choices. Smaller or newer issuers are more likely to realize more
substantial growth as well as suffer more significant losses than larger or more
established issuers. Investments in such companies can be both more volatile and
more speculative.
OTHER INVESTMENT POLICIES AND PRACTICES
This section takes a detailed look at other investment policies and
practices of the Fund. The Fund's investments are subject to further
restrictions and risks described in the Statement of Additional Information.
Shareholder approval is required to change the Fund's investment
objective and certain investment restrictions noted in the following section as
"fundamental policies." The Manager also follows certain "operating policies"
which can be changed without shareholder approval. However, significant changes
in operating policies are discussed with shareholders in Fund reports.
The Fund's holdings in certain kinds of investments cannot exceed
maximum percentages of total assets, which are set forth below. While these
restrictions provide a useful level of detail about the Fund's investments,
investors should not view them as an accurate gauge of the potential risk of
such investments. The net effect of a particular investment depends on its
volatility and the size of its overall return in relation to the performance of
all the Fund's other investments.
Cash and Short-Term Securities. The Fund may temporarily invest a
portion of its total assets in cash or liquid short-term securities pending
investment of such assets in stocks in accordance with the Fund's investment
strategy and in order to meet redemption requests. The Fund may also invest a
portion of its assets in cash or liquid short-term securities for temporary
defensive purposes, but is under no obligation to do so. Short-term securities
in which the Fund may invest include certificates of deposit, commercial paper,
notes, obligations issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities, and repurchase agreements involving such
securities. See "Repurchase Agreements," below.
Repurchase Agreements. The Fund may invest in repurchase agreements.
The Fund may only enter into repurchase agreements with a member bank of the
Federal Reserve System or a well-established securities dealer in U.S.
government securities. In the event of a bankruptcy or default by the seller of
the repurchase agreement the Fund may suffer delays and incur costs or possible
losses in liquidating the underlying security which is held as collateral, and
the Fund may incur a loss if the value of the collateral declines during this
period. As a matter of operating policy, the Fund may not invest more than 15%
of its total assets in repurchase agreements maturing in more than seven days.
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<PAGE>
Illiquid Securities. The Fund may invest up to 15% of its total assets
in illiquid securities. Illiquid securities are securities which cannot be
readily resold because of legal or contractual restrictions or which cannot
otherwise be marketed, redeemed, put to the issuer or a third party, or which do
not mature within seven days, or which the Manager, in accordance with
guidelines approved by the Board of Directors, has not determined to be liquid.
The Fund may purchase, without regard to the above limitation,
securities that are not registered under the Securities Act of 1933 (the
"Securities Act") but that can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act, provided that the Board of
Directors, or the Manager pursuant to guidelines adopted by the Board,
continuously determines, based on the trading markets for the specific Rule 144A
security, that it is liquid.
Lending of Portfolio Securities. Like other mutual funds, the Fund may
from time to time lend securities from its portfolio to banks, brokers and other
financial institutions to earn additional income. The principal risk is that the
borrower may default on its obligation to return borrowed securities, because of
insolvency or otherwise. In this event, the Fund could experience delays in
recovering its securities and possibly capital. In accordance with applicable
law, the Fund may not lend portfolio securities representing in excess of 331/3%
of its total assets. The lending policy is a fundamental policy.
Borrowing. The Fund may borrow money from banks in an amount up to
331/3% of its total assets for extraordinary or emergency purposes such as
meeting anticipated redemptions, and may pledge assets in connection with such
borrowing. The borrowing policy is a fundamental policy.
Industry Concentration. The Fund may not invest more than 25% of its
total assets in any one industry (excluding U.S. Government securities). The
concentration policy is a fundamental policy.
-5-
<PAGE>
Depositary Receipts. The Fund may invest up to 25% of its total assets
in American Depository Receipts ("ADRs") which are dollar-denominated securities
of foreign issuers traded in the U.S. Such investments increase diversification
of the Fund's portfolio and may enhance return, but they also involve some
special risks such as exposure to potentially adverse local political and
economic developments, nationalization and exchange controls; potentially lower
liquidity and higher volatility; possible problems arising from regulatory
practices that differ from U.S. standards; the imposition of withholding taxes
on income from such securities; confiscating taxation; and the chance that
fluctuations in foreign exchange rates will decrease the investment's value
(favorable changes can increase its value). These risks are heightened for
investment in developing countries and there is no limit on the amount of the
Fund's foreign investments that may be invested in such countries.
The Fund may invest in ADRs through both sponsored and unsponsored
arrangements. The issuers of unsponsored ADRs are not obligated to disclose
material information in the United States, and therefore, there may not be a
correlation between such information and the market value of the ADRs.
Hedging and Return Enhancement Strategies. The Fund is permitted to
utilize certain hedging and return enhancement strategies and techniques such as
options on securities and securities indices, futures contracts on securities
and securities indices and options on futures contracts, as described below.
Futures (a type of potentially high-risk derivative) are often used to
manage or hedge risk, because they enable the investor to buy or sell an asset
in the future at an agreed upon price. Options (another potentially high-risk
derivative) give the investor the right, but not the obligation, to buy or sell
an asset at a predetermined price in the future. The Fund may buy and sell
futures and options contracts for any number of reasons, including: to manage
its exposure to changes in securities prices; as an efficient means of adjusting
its overall exposure to certain markets; in an effort to enhance income; and to
protect the value of portfolio securities. The Fund may purchase, sell, or write
call and put options on securities, financial indices and futures.
Futures contracts and options may not always be successful
hedges; their prices can be highly volatile. Using them could lower the Fund's
total return, and the potential loss from the use of futures can exceed the
Fund's initial investment in such contracts.
As a matter of operating policy, initial margin deposits and
premiums on options used for non-hedging purposes will not equal more than 5% of
the Fund's net asset value.
Firm Commitment Agreements and When-Issued Purchases. The Fund may
purchase securities under a firm commitment agreement or on a when-issued basis.
Firm commitment agreements and when-issued purchases call for the purchase of
securities at an agreed-upon price on a specified future date, and would be
used, for example, when a decline in the yield of securities of a given issuer
is anticipated. The Fund as purchaser assumes the risk of any decline in value
of the security beginning on the date of the agreement or purchase. The Fund
will not enter into such transactions for the purpose of leveraging, and
accordingly, will segregate U.S. Government securities, cash or cash equivalents
with its custodian equal (on a daily marked-to- market basis) to the amount of
its commitment to purchase the when-issued securities and securities subject to
the firm commitment agreement.
-6-
<PAGE>
Warrants. The Fund may invest in warrants, which are similar to
options to purchase securities at a specific price valid for a specific period
of time. The Fund may not invest more than 5% of its net assets (at the time of
investment) in warrants (other than those attached to other securities). If the
market price of the underlying security never exceeds the exercise price, the
Fund will lose the entire investment in the warrant. Moreover, if a warrant is
not exercised within the specified time period, it will become worthless and the
Fund will lose the purchase price and the right to purchase the underlying
security.
Diversification. In order to maintain the Fund's status as a
diversified investment company, with respect to 75% of the Fund's total assets:
1) not more than 5% of the Fund's assets may be invested in the securities of a
single issuer (excluding U.S. Government securities); and 2) the Fund may not
hold more than 10% of the outstanding voting securities of a single issuer. The
diversification policy is a fundamental policy.
Portfolio Transactions. In executing portfolio transactions, the Fund
seeks to obtain the best net results, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution, operational facilities of the firm involved and the
firm's risk in positioning a block of securities. While the Fund generally seeks
reasonably competitive commission rates, the Fund does not necessarily pay the
lowest commission or spread available. In addition, consistent with the Conduct
Rules of the National Association of Securities Dealers, Inc., the Manager may
consider sales of shares of the Fund as a factor in the selection of brokers or
dealers to execute portfolio transactions for the Fund.
Portfolio Turnover. The Fund anticipates that its annual turnover rate
should not exceed 50% under normal conditions. The portfolio turnover rate is
calculated by dividing the lesser of the Fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year. High portfolio
turnover involves correspondingly greater transaction costs in the form of
brokerage commissions and dealer spreads, which are borne directly by the Fund.
MANAGEMENT AND ORGANIZATION OF THE FUND
MANAGEMENT
Who runs the Fund?
General Oversight. O'Shaughnessy Funds is governed by a Board of
Directors that meets regularly to review the Fund's investment, performance,
expenses, and other business affairs. The Board elects the Fund's officers.
Manager. O'Shaughnessy Capital Management, Inc. acts as investment
manager of the Fund pursuant to a management agreement with O'Shaughnessy Funds
on behalf of the Fund (the "Management Agreement"). In its capacity as
investment manager, the Manager is responsible for selection and management of
the Fund's portfolio investments. For its services, the Fund pays the Manager a
fee each month, at the annual rate of 0.90% of the Fund's average daily net
assets. The Fund's advisory fee is higher than that paid by most other funds;
however, it is comparable to that payable by funds with investment objectives
similar to the Fund's.
-7-
<PAGE>
The Manager's office is located at 60 Arch Street, Greenwich,
Connecticut 06830. O'Shaughnessy Capital Management was incorporated in 1988.
The Manager serves as portfolio consultant to a unit investment trust with
assets in excess of $180 million. The Manager has no experience actively
managing open-end investment companies such as the Fund.
Portfolio Management. James P. O'Shaughnessy has had the day-to-day
responsibility for managing the Fund's portfolio and developing and executing
the Fund's investment program since inception of the Fund. For the past five
years, Mr. O'Shaughnessy has served as President of the Manager, and in such
capacity, has managed equity accounts for high net worth individuals and served
as portfolio consultant to a unit investment trust managed by the Manager. Mr.
O'Shaughnessy is recognized as a leading expert and pioneer in quantitative
equity analysis. He is the author of two financial books, Invest Like the Best
and What Works on Wall Street.
Distributor. O'Shaughnessy Funds has entered into a Distribution
Agreement (the "Distribution Agreement") with First Fund Distributors, Inc. (the
"Distributor"), a registered broker-dealer, to act as the principal distributor
of the shares of the Fund. The Distribution Agreement provides the Distributor
with the right to distribute shares of the Fund through other broker-dealers or
financial institutions with whom the Distributor has entered into selected
dealer agreements. The address of the Distributor is 4455 E. Camelback Road,
Suite 261 E, Phoenix, Arizona 85018. The Distributor provides distribution
services to the Fund at no cost to the Fund.
Administrator. Pursuant to an Administration Agreement, Investment
Company Administration Corporation (the "Administrator") serves as administrator
of the Fund. The Administrator provides certain administrative services,
including, among other responsibilities, coordinating relationships with
independent contractors and agents, preparing for signature by officers and
filing of certain documents required for compliance with applicable laws and
regulations, preparing financial statements, and arranging for the maintenance
of books and records. For its services, the Fund pays the Administrator a fee
each month, at the annual rate of 0.10% of the first $100 million of the Fund's
average daily net assets, 0.05% of the next $100 million of such net assets, and
0.03% of such net assets over $200 million, with a minimum fee of $40,000
annually. The address of the Administrator is 4455 E. Camelback Rd., Suite 261
E, Phoenix, Arizona 85018. The Administrator and the Distributor are under
common control and are therefore considered affiliates of each other.
Transfer Agent and Custodian. Firstar Trust Company acts as the Fund's
transfer and dividend disbursing agent (the "Transfer Agent"), as well as the
Fund's custodian (the "Custodian"). The address of the Transfer Agent and
Custodian is 615 E. Michigan Street, Third Floor, Milwaukee, Wisconsin 53202.
-8-
<PAGE>
How are Fund expenses determined?
The Management Agreement identifies the expenses to be paid by the
Fund. In addition to the fees paid to the Manager, the Fund pays certain
additional expenses, including but not limited to, the following: shareholder
service expenses; custodial, accounting, legal, and audit fees; administrative
fees; costs of preparing and printing prospectuses and reports sent to
shareholders; registration fees and expenses; proxy and annual meeting expenses
(if any); and independent Director fees and expenses.
ORGANIZATION
How is the Fund organized?
The Fund is an investment portfolio or series of O'Shaughnessy Funds.
There are three other investment portfolios of O'Shaughnessy Funds, shares of
which are not offered for sale through this Prospectus: O'Shaughnessy
Cornerstone Value Fund, O'Shaughnessy Cornerstone Growth Fund and O'Shaughnessy
Aggressive Growth Fund (the "other O'Shaughnessy Funds"). The charter of
O'Shaughnessy Funds provides that the Board of Directors may issue additional
investment portfolios of shares and/or additional classes of shares for each
investment portfolio. O'Shaughnessy Funds was organized as a corporation in
Maryland on May 20, 1996.
What is meant by "shares"?
As with all mutual funds, investors purchase shares when they invest in
the Fund. These shares are a part of a Fund's authorized capital stock, but
share certificates are not generally issued.
Each full share and fractional share entitles the shareholder to:
receive a proportional interest in the Fund's capital gain distributions; and
cast one vote per share on certain Fund matters, including the election of Fund
Directors, changes in fundamental policies, or approval of changes in the Fund's
Management Agreement.
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
Does the Fund have annual shareholder meetings?
The Fund is not required to hold annual meetings and does not intend to
do so except when certain matters, such as a change in the Fund's fundamental
policies, are to be decided. In addition, shareholders representing at least 10%
of all eligible votes may call a special meeting if they wish, for the purpose
of voting on the removal of any Fund Director. If a meeting is held and you
cannot attend, you can vote by proxy. Before the meeting, the Fund will send you
proxy materials that explain the issues to be decided and include a voting card
for you to mail back.
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<PAGE>
INFORMATION ABOUT YOUR ACCOUNT
PURCHASE OF SHARES
The minimum initial investment in the Fund is $5,000 and the minimum
subsequent investment is $100, except that for retirement plans, the minimum
initial investment is $500 and the minimum subsequent investment is $50.
Investors may make an initial purchase of shares and subsequent
investments in the Fund by mail or wire as described below. The Fund reserves
the right in its sole discretion to waive the minimum investment amounts,
including in the case of investments by employees and affiliates of the Manager
and family members of any of the foregoing, and Individual Retirement Accounts
("IRAs") of shareholders of the Fund.
The Internal Revenue Service requires the correct reporting of social
security numbers or tax identification numbers. The failure to provide this
information will result in the rejection of an investor's Application.
How do I purchase shares by mail?
For initial investments, please send a completed Application, together
with a check payable to O'Shaughnessy Dogs of the Market(TM) Fund to
O'Shaughnessy Funds, Inc., c/o Firstar Trust Company, at P.O. Box 701,
Milwaukee, WI 53201-0701 (for Applications sent by U.S. mail) or 615 E. Michigan
Street, Third Floor, Milwaukee, WI 53202 (for Applications sent via overnight
courier). Subsequent investments must be accompanied by a letter indicating the
name(s) in which the account is registered and the account number or by the
remittance portion of the account statement and mailed to the address stated
above.
How do I purchase shares by wire?
If you are wiring funds, call the Transfer Agent at 800-797-0773 for an
account number if this is an initial investment or to inform the Transfer Agent
that a wire is expected if this is a subsequent investment.
For an initial investment, prior to or immediately after the funds
are wired, a completed Application should be sent to O'Shaughnessy Funds, Inc.,
c/o Firstar Trust Company, at P.O. Box 701, Milwaukee, WI 53201-0701 (for
Applications sent by U.S. mail) or 615 E. Michigan Street, Third Floor,
Milwaukee, WI 53202 (for Applications sent via overnight courier). Instruct your
bank to wire federal funds to O'Shaughnessy Funds, c/o Firstar Trust Company,
ABA# 075000022, DDA # 112952137.
The wire should specify the name of the Fund, the name(s) in which the
account is registered, the shareholder's social security number or employer tax
identification number, the account number and the amount being wired. Please
indicate if this is an initial or subsequent investment. Wire purchases are
normally used only for large purchases (over $5,000). Your bank may charge you a
fee for sending the wire.
What is the purchase price of Fund shares and when do purchases become
effective?
Purchases of Fund shares become effective and shares will be priced at
the net asset value per share ("NAV") next determined after the investor's check
or wire is received by the Transfer Agent. NAV for the Fund is calculated as of
the close of business on the New York Stock Exchange ("NYSE") (currently 4:00
p.m., Eastern time). If your request is received in correct form before 4:00
p.m. Eastern time, your transaction will be priced at that day's NAV. If your
request is received after 4:00 p.m., it will be priced at the next business
day's NAV. Orders that request a particular day or price for your transaction or
any other special conditions cannot be accepted.
The time at which transactions and shares are priced and the time until
which orders are accepted may be changed in case of an emergency or if the NYSE
closes at a time other than 4:00 p.m., Eastern time.
The purchase order must include the documentation specified above.
Please do not send purchase orders to the Fund; the Fund forwards purchase
orders to the Transfer Agent and a purchase will not become effective until the
Transfer Agent receives all the necessary documentation.
What are the conditions of purchase?
All purchase orders are subject to acceptance or rejection by the Fund
or the Distributor, in their sole discretion. The offering of shares may be
suspended whenever the Fund considers suspension desirable or when required by
any order, rule or regulation of any governmental body having jurisdiction.
Checks and money orders should be drawn on United States banks; the Fund and the
Distributor reserve the right to reject checks drawn on foreign banks.
-10-
<PAGE>
The Transfer Agent will mail a confirmation of each completed purchase
to the investor. If an order is canceled because an investor's check does not
clear, the investor will be responsible for any loss incurred by the Fund, the
Transfer Agent, the Distributor, the Administrator or the Manager. If the
investor is already a shareholder, the Fund may redeem shares from the account
to cover any loss. If the investor is not a shareholder or if the loss is
greater than the value of the shareholder's account, the Distributor will be
responsible for any loss to the Fund, and will have the right to recover such
amount from the investor.
Who do I contact if I have questions about my account or need additional
information concerning an investment in the Fund?
If you have investment questions about the Fund, or if you would like
any additional information relating to an investment in the Fund, please call
800-797-0773 (toll-free), or write to the Distributor at First Fund
Distributors, Inc., 4455 E. Camelback Road, Suite 261 E, Phoenix AZ 85018. If
you are a shareholder and have questions about your account, or if you wish to
arrange for wire transactions, please call the Transfer Agent at 800-797-0773.
Before telephoning, please be sure to have your account number and social
security number or employer tax identification number readily available.
Will I receive share certificates for shares purchased?
Share certificates will not be issued for shares unless the investor
sends a written request for certificates to O'Shaughnessy Funds, Inc., c/o
Firstar Trust Company, at P.O. Box 701, Milwaukee, WI 53201-0701 (for requests
sent via U.S. mail) or 615 E. Michigan Street, Third Floor, Milwaukee, WI 53202
(for requests sent via overnight courier). Share certificates are issued only
for full shares and may be redeposited in the shareholder's account at any time.
In order to facilitate redemptions and exchanges, most shareholders elect not to
receive certificates, since a shareholder wishing to redeem or exchange shares
represented by a certificate must surrender such certificate, properly endorsed
on the reverse side together with a signature guarantee. (See "Redemption of
Shares -- When are signature guarantees required?" below). If a certificate is
lost, the shareholder may incur an expense in replacing it.
Can I purchase shares through broker-dealers other than the Distributor?
O'Shaughnessy Funds may enter into agreements with various outside
brokers on behalf of the Funds through which shareholders may purchase shares.
Such shares may be held by such outside brokers in an omnibus account rather
than in the name of the individual shareholder. The Manager may reimburse the
outside brokers for providing shareholder services to the omnibus accounts in an
amount equal to what the Fund would otherwise have paid to provide shareholder
services to each individual shareholder account.
Investors may also arrange to purchase shares of the Fund through other
outside broker-dealers with which O'Shaughnessy Funds does not have an
arrangement, and such broker-dealers may purchase shares of the Fund by
telephone if they have made arrangements in advance with the Fund. To place a
telephone order such broker-dealer should call the Transfer Agent at 800-
797-0773.
Purchases by broker-dealers become effective and shares will be priced
as described above. If an investor purchases shares through broker-dealers other
than the Distributor, such broker-dealers may charge the investor a service fee
that is reasonable for the service performed, bearing in mind that the investor
could have acquired or redeemed the Fund's shares directly without the payment
of any fee. No part of any such service fee will be received by the Distributor,
the Manager, the Administrator or the Fund.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of each of the other
O'Shaughnessy Funds (i.e., O'Shaughnessy Cornerstone Value Fund, O'Shaughnessy
Cornerstone Growth Fund and O'Shaughnessy Aggressive Growth Fund). Prospectuses
for the other O'Shaughnessy Funds may be obtained by writing to the Distributor
at 4455 E. Camelback Road, Suite 261 E, Phoenix AZ 85018, Attention:
O'Shaughnessy Funds, Inc. or by calling 800-797-0773 (toll-free).
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<PAGE>
You may also exchange shares of the Fund for shares of the Portico
Money Market Fund or Portico U.S. Government Money Market Fund, both money
market mutual funds not affiliated with O'Shaughnessy Funds or the Manager (the
"Portico Funds"). Prior to making such an exchange, you should obtain and
carefully read the prospectus for the Portico Money Market Fund or Portico U.S.
Government Money Market Fund. The exchange privilege does not constitute an
offering or recommendation on the part of the Fund or the Manager of an
investment in the Portico Funds.
The exchange procedures are described below.
Is there any sales charge or minimum investment applicable to an exchange?
Shareholders of the Fund may exchange their shares of the Fund, without
the payment of any sales or service charge, for shares of any other fund into
which an exchange is permitted equal in value to the net asset value of the
shares being exchanged. All exchanges are subject to all applicable terms set
forth in the prospectus of the fund into which the exchange is being made. If a
shareholder exchanges shares through a broker-dealer other than the Distributor,
such broker-dealer may charge the shareholder a service fee, no part of which
will be received by the Distributor, the Manager, the Fund, or the fund into
which the exchange is being made.
At what price is an exchange effected?
An exchange is effected at the respective net asset values of the two
funds with respect to which shares are being exchanged as next determined
following receipt by the fund into which the exchange is being made of all
necessary documentation in connection with the redemption of Fund shares as
described below under "Redemption Of Shares --How do I redeem shares by mail?"
Do current instructions concerning receipt of dividends and distributions carry
over to exchanged shares?
Dividend and distribution instructions with respect to exchanged shares
will remain the same as those given previously by the shareholders to the fund
from which the shareholder is exchanging the shares, unless the shareholder
designates a change in such instructions by writing to the Transfer Agent.
Please note that such changed instructions (i) must be signed by the registered
owners(s) of the shares, exactly as the account is registered and signature
guaranteed, and (ii) include the name of the account, the account number, and
the name of the fund for which instructions have changed.
What are the conditions applicable to an exchange?
Exchanges involving the redemption of shares recently purchased by
personal, corporate or government check will be permitted only after the Fund
has reasonable belief that the check has cleared, which may take up to fifteen
days after the purchase date. The exchange privilege is available only in states
where shares of the other O'Shaughnessy Funds or the Portico Funds may be sold
legally.
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<PAGE>
The Fund, the other O'Shaughnessy Funds and the Portico Funds each
reserves the right to reject any order to acquire its shares through exchange or
otherwise and to restrict or terminate the exchange privilege at any time. If
the exchange privilege is to be permanently terminated, the Fund will provide
its shareholders with written notice of such termination. The Fund reserves the
right to suspend temporarily the telephone exchange privilege in emergency
circumstances or in cases where, in the judgment of the Fund, continuation of
the privilege would be detrimental to the Fund and its shareholders as a whole.
Such temporary suspension can be without prior notification.
How can I make exchanges by telephone?
Shareholders who have completed the section of the Fund's Application
entitled "Shareholder Privileges" are eligible to make telephone requests for
exchanges and may do so by telephoning the Transfer Agent at 800-797-0773. A
shareholder who has not completed the Shareholder Privileges section of the
Application but who wishes to become eligible to make telephone exchanges should
designate a change in such instructions by writing to the Transfer Agent. Please
note that such changed instructions must (i) be signed by the registered
owner(s) of the shares exactly as the account is registered and signature
guaranteed, and (ii) include the name of the account, the account number and the
name of the Fund. See "Redemption Of Shares - How do I redeem shares by
telephone?" below, which describes the time of day at which telephone
redemptions and exchanges will be priced and processed. Telephone requests for
exchanges cannot be accepted with respect to shares represented by certificates.
Shares of the other O'Shaughnessy Funds or Portico Funds acquired pursuant to a
telephone request for exchange will be held under the same account registration
as the shares redeemed through the exchange.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Neither the Fund nor any of its service
contractors will be liable for any loss or expense in acting on telephone
instructions that are reasonably believed to be genuine. In attempting to
confirm that telephone instructions are genuine, the Fund will use procedures
that are considered reasonable, including requesting a shareholder to correctly
state the account number, the name(s) in which the account is registered, the
social security number(s) registered to the account, and certain additional
personal identification. A full description of these procedures is contained on
the SAI. To the extent that the Fund fails to use reasonable procedures to
verify the genuineness of telephone instructions, it and/or its service
contractors may be liable for any such instructions that prove to be fraudulent
or unauthorized.
Shareholders should be aware that, at times, the volume of telephone
calls or other factors beyond the Fund's control may make it difficult to reach
the Transfer Agent by telephone. This will be true particularly during periods
of drastic economic market changes. In such cases, shareholders should continue
to telephone or utilize the written exchange procedures described below.
Shareholders who effect exchanges of Fund shares by telephone will be
charged a $5.00 exchange fee.
-13-
<PAGE>
How do I make exchanges by mail?
To exchange shares by mail, send a written request for exchange signed
by the registered owner(s) of the shares, exactly as the account is registered
to O'Shaughnessy Funds, Inc., c/o Firstar Trust Company, at P.O. Box 701,
Milwaukee, WI 53201-0701 (for requests sent by U.S. mail) or 615 E. Michigan
Street, Third Floor, Milwaukee, WI 53202 (for requests sent via overnight
courier). The request for exchange should include the following information: the
name of the account, the account number, the number of Fund shares or the dollar
value of Fund shares to be exchanged, the shares of which other O'Shaughnessy
Fund or Portico Fund shares of the Fund are to be exchanged for, and the name on
the account and the account number (if already established) with such other
fund.
REDEMPTION OF SHARES
Shareholders can redeem their shares by giving instructions to the
Transfer Agent in writing or by telephone. As more fully described below, these
redemption instructions may have to be accompanied by additional documentation,
which may include a signature guarantee.
If a shareholder redeems shares through a broker-dealer other than the
Distributor, such broker-dealer may charge the shareholder a service fee, no
part of which will be received by the Distributor, the Manager, the
Administrator or the Fund.
How do I redeem shares by mail?
To redeem shares by mail, send a written request for redemption signed
by the registered owner(s) of the shares, exactly as the account is registered
to O'Shaughnessy Funds, Inc., c/o Firstar Trust Company, at P.O. Box 701,
Milwaukee, WI 53201-0701 (for requests sent by U.S. mail) or 615 E. Michigan
Street, Third Floor, Milwaukee, WI 53202 (for requests sent via overnight
courier). The request should include the following: the name of the account, the
account number, the number of shares or the dollar value of shares to be
redeemed and whether proceeds are to be sent by mail or wire, and if by wire,
giving the wire instructions; (ii) duly endorsed share certificates, if any have
been issued for the shares redeemed; (iii) any signature guarantees that are
required as described below; and (iv) any additional documents which might be
required for redemptions by corporations, executors, administrators, trustees,
guardians or other similar shareholders. Except as otherwise directed by the
Fund in its discretion, the Transfer Agent will not redeem shares until it has
received all necessary documents; corporate and institutional investors and
fiduciaries should contact the Transfer Agent to ascertain what additional
documentation is required.
May I send redemptions requests to the Fund?
Please do not send redemption requests to the Fund. The Fund must
forward all redemption requests to the Transfer Agent and instructions for
redemption will not be effective until received by the Transfer Agent. Shares
redeemed will be priced at the net asset value per share next determined after
acceptance of a complete redemption request by the Transfer Agent. Redemption
requests received by the Transfer Agent after the close of the NYSE (currently
4:00 p.m., Eastern time) will be treated as though received on the next business
day. The Transfer Agent cannot accept redemption requests that specify a
particular date for redemption or special redemption conditions.
-14-
<PAGE>
When are signature guarantees required?
Except as indicated below, all of the signatures on any request for
redemption or share certificates tendered for redemption must be guaranteed by a
bank, broker-dealer, credit union (if authorized under state law), securities
exchange or association, clearing agency or savings association. A notary public
cannot provide a signature guarantee.
The Fund will waive the signature guarantee requirement on a redemption
request that instructs that the proceeds be sent by mail if all of the following
conditions apply: (i) the redemption is for $10,000 or less; (ii) the redemption
check is payable to the shareholder(s) of record; (iii) the redemption check is
mailed to the shareholder(s) at the address of record; and (iv) no shares
represented by certificate are being redeemed. Share certificates submitted for
redemption or exchange must be properly endorsed and contain signature
guarantees. In addition, the Fund in its discretion may waive the signature
guarantee for employees and affiliates of the Manager, the Distributor and the
Administrator, and family members of the foregoing.
The requirement of a guaranteed signature protects against an
unauthorized person redeeming shares and obtaining the redemption proceeds.
How do I redeem shares by telephone?
Shareholders who have completed the section of the Fund's Application
entitled "Shareholder Privileges" are eligible to make telephone requests for
redemptions (without charge) and may do so by telephoning the Transfer Agent at
800-797-0773. A shareholder who has not completed the Shareholder Privileges
section of the Application but who wishes to become eligible to make telephone
redemptions, should designate a change in such instructions by writing to the
Transfer Agent. Please note that such changed instructions must (i) be signed by
the registered owner(s) of the shares exactly as the account is registered and
signature guaranteed, and (ii) include the name of the account, the account
number and the name of the Fund.
Telephone redemptions cannot be accepted with respect to shares
represented by certificates or for IRA accounts. In such cases, redemption can
only be made by mail as described above under "Redemption of Shares -- How do I
redeem shares by mail?" Telephone requests for redemptions (or exchanges -- see
"Exchange Privilege" above) received before the close of business on the NYSE
(currently 4:00 p.m., Eastern time) on a business day will be priced and
processed as of the close of business on that day; requests received after that
time will be processed as of the close of business on the next business day.
As noted above, the Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine and may, along with
their service contractors, be liable for a failure to use such procedures. See
"Exchange Privilege--How can I make exchanges by telephone?" above.
-15-
<PAGE>
Shareholders should be aware that, at times, the volume of telephone
calls or other factors beyond the Fund's control may make it difficult to reach
the Transfer Agent by telephone. This will be true particularly during periods
of drastic economic or market changes. In the event of difficulty in reaching
the Transfer Agent, shareholders should continue to telephone or utilize the
written redemption procedures described above under "Redemption of Shares -- How
do I redeem shares by mail?"
The Fund reserves the right to terminate the telephone redemption
privilege at any time and, if so terminated, will provide the shareholders with
written notice of such termination. The Fund reserves the right to suspend
temporarily telephone redemptions in emergency circumstances or in cases where,
in the judgment of the Fund, continuation of the privilege would be detrimental
to the Fund and its shareholders as a whole. Such temporary suspension can be
without prior notification.
What options do I have in receiving redemption proceeds?
Redemption proceeds may be sent to shareholders by mail or by wire as
described below. Wire redemptions will only be made if the Transfer Agent has
received appropriate written wire instructions. Because of fluctuations in the
value of the Fund's portfolio, the net asset value of shares redeemed may be
more or less than the investor's cost.
Redemption By Mail. In the case of shareholders who request that their
redemption proceeds be sent by mail, the Transfer Agent mails checks for
redemption proceeds typically within one or two business days, but no later than
seven days, after it receives the request and all the necessary documents.
Redemption By Wire. In the case of shareholders who request that their
redemption proceeds be sent by bank wire, the Transfer Agent typically wires
redemption proceeds the next business day, but no later than seven days, after
it receives the request and all necessary documents.
Wire redemptions will be made only if the Transfer Agent has received
appropriate written instructions from the shareholder either on the Fund's
Application or by separate letter. A shareholder who has not indicated wire
instructions on the Application, but would like to have redemption proceeds
wired to a particular bank for each redemption request, should so designate by
writing to the Transfer Agent. Please note that such instructions must (i) be
signed by the registered owner(s) of the shares exactly as the account is
registered and signature guaranteed, and (ii) include the name of the account,
the account number and the name of the Fund.
A shareholder who would like to change the wire instructions indicated
on the Application should designate a change in such instructions by writing to
the Transfer Agent and complying with the requirements set forth in the
preceding paragraph. There is a $1,000 minimum on redemption proceeds by bank
wire. Shareholders who effect redemptions by wire transfer will pay a $7.50 wire
transfer fee to the Transfer Agent to cover costs associated with the transfer.
In addition, a shareholder's bank may impose a charge for receiving wires.
-16-
<PAGE>
When would the payment of proceeds be delayed?
Please note that shares paid for by personal, corporate or government
check cannot be redeemed before the Fund has reasonable belief that the check
has cleared, which may take up to fifteen days after payment of the purchase
price. This delay can be avoided by paying for shares by certified check or
bank-wire. An investor will be notified promptly by the Transfer Agent if a
redemption request cannot be accepted.
Would my account ever be involuntarily redeemed?
Due to the relatively high cost to the Fund of maintaining small
accounts, we ask you to maintain an account balance of at least $5,000. If your
balance is below $5,000 for three months or longer due to redemptions, we have
the right to close your account after giving you 60 days in which to increase
your balance.
INFORMATION ON DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS GENERALLY
Dividend and capital gain distributions are reinvested in additional
Fund shares in your account unless you select another option on your
Application. The advantage of reinvesting distributions arises from compounding;
that is, you receive dividends and capital gain distributions on an increasing
number of shares. Distributions not reinvested are paid by check or transmitted
to your bank account.
INCOME DIVIDENDS
The Fund declares and pays dividends (if any) annually.
CAPITAL GAINS
A capital gain or loss is the difference between the purchase and sale
price of a security. If the Fund has net capital gains for the year (after
subtracting any capital losses), they are usually declared and paid in December
to shareholders of record on a specified date that month.
TAX INFORMATION
You need to be aware of the possible tax consequences when: (1) the
Fund makes a distribution to your account; (2) you sell Fund shares; or (3) you
exchange shares of the Fund for shares of one of the other O'Shaughnessy Funds
or Portico Funds. The following summary does not apply to retirement accounts,
such as IRAs, which are tax-deferred until you withdraw money from them.
-17-
<PAGE>
Will I pay taxes on redemptions or exchanges of Fund shares?
When you sell or exchange shares in the Fund, you may realize a gain or
loss. Unless you are a dealer in securities, such gain or loss will be capital
gain or loss. In addition, such gain or loss will be a long-term capital gain or
loss if you hold your shares for more than one year, or short-term capital gain
or loss if you hold your shares for one year or less.
A loss recognized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. In addition, if you realize a loss on the sale or exchange of
Fund shares held six months or less, your short-term loss recognized is
reclassified to long-term to the extent of any long-term capital gain
distribution received.
Will I pay taxes on Fund distributions?
Distributions of ordinary income and short-term capital gains are
taxable as ordinary income. The dividends of the Fund will be eligible for the
70% deduction for dividends received by corporations only to the extent the
Fund's income consists of dividends paid by U.S. corporations. Long-term gains
are taxable at the applicable long-term gain rate. The gain is long- or
short-term depending on how long the Fund held the securities, not how long you
held shares in the Fund.
What is the tax effect of the Fund's investment in foreign securities?
Pursuant to the Fund's investment objectives, the Fund may invest in
foreign securities. Foreign taxes may be paid by the Fund as a result of tax
laws of countries in which the Fund may invest. Income tax treaties between
certain countries and the United States may reduce or eliminate such taxes. It
is impossible to determine in advance the effective rate of foreign tax to which
the Fund will be subject, since the amount of Fund assets to be invested in
various countries is not known. Because the Fund limits its investment in
foreign securities, shareholders will not be entitled to claim foreign tax
credits with respect to their share of foreign taxes paid by the Fund on income
from investments of foreign securities held by the Fund.
What are the tax effects of buying shares before a distribution?
If you buy shares shortly before or on the "record date" -- the date
that establishes you as the person to receive the upcoming distribution -- you
will receive, in the form of a taxable distribution, a portion of the money you
just invested. Therefore, you may wish to find out the Fund's record date(s)
before investing. Of course, a Fund's share price may, at any time, reflect
undistributed capital gains or unrealized appreciation.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect, and does
not address the state and local tax consequences of an investment in the Fund.
For the complete provisions, reference should be made to the pertinent Code
sections and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative or administrative
action either prospectively or retroactively. For additional information
regarding federal income tax consequences of an investment in the Fund, see
"Additional Information About Dividends and Taxes" in the Statement of
Additional Information."
Shareholders are urged to consult their own tax advisers regarding
specific questions as to Federal, state, local or foreign taxes. Foreign
investors should consider applicable foreign taxes in their evaluation of an
investment in the Fund.
-18-
<PAGE>
PERFORMANCE INFORMATION
This section should help you understand the terms used to describe Fund
performance. The Fund's annual report will contain additional performance
information and will be available upon request and without charge.
What is total return?
This tells you how much an investment in the Fund has changed in value
over a given time period. It reflects any net increase or decrease in the share
price and assumes that all dividends and capital gains (if any) paid during the
period were reinvested in additional shares. Including reinvested distributions
means that total return numbers include the effect of compounding, i.e, you
receive income and capital gain distributions on an increasing number of shares.
Advertisements for the Fund may include cumulative or compound average
annual total return figures, which may be compared with various indices, other
performance measures, or other mutual funds.
What is cumulative total return?
This is the actual rate of return on an investment for a specified
period. A cumulative return does not indicate how much the value of the
investment may have fluctuated between the beginning and the end of the period
specified.
What is average annual total return?
This is always hypothetical. Working backward from the actual
cumulative return, it tells you what constant year-by-year return would have
produced the actual, cumulative return. By smoothing out all the variations in
annual performance, it gives you an idea of the investment's annual contribution
to your portfolio provided you held it for the entire period in question.
NET ASSET VALUE
The price at which the Fund's shares are purchased or redeemed is the
Fund's next determined net asset value per share. The net asset value per share
is calculated as of the close of the NYSE (currently 4:00 p.m., Eastern time) on
each day that the NYSE is open for business and on each other day in which there
is a sufficient degree of trading in the Fund's portfolio securities that the
current net asset value of the Fund's shares may be materially affected by
changes in the value of the Fund's portfolio securities.
How is net asset value determined?
The Fund determines the net asset value per share by subtracting the
Fund's total liabilities from the Fund's total assets (the value of the
securities the Fund holds plus cash and other assets), dividing the remainder by
the total number of shares outstanding, and adjusting the result to the nearest
full cent.
How are the securities held in the Fund's portfolio valued?
Securities listed on the NYSE, American Stock Exchange or other
national exchanges are valued at the last sale price on such exchange on the day
as of which the net asset value per share is to be calculated. Over-the-counter
securities included in the NASDAQ National Market System are valued at the last
sale price. If there is no sale on a particular security on such day, it is
valued at the mean between the bid and asked prices. Other securities, to the
extent that market quotations are readily available, are valued at market value
in accordance with procedures established by the Board of Directors. Any
securities and other assets, for which market quotations are not readily
available are valued in good faith in a manner determined by the Directors of
the Fund best to reflect their fair value.
-19-
<PAGE>
OTHER SHAREHOLDER SERVICES
Automatic Investment Plan
An Automatic Investment Plan allows a shareholder to make
automatic monthly or quarterly investments into a Fund account, in amounts of at
least $100, by having the Transfer Agent draw an automatic clearing house (ACH)
debit electronically against a shareholder's checking or savings account. A
shareholder may establish an Automatic Investment Plan by completing the
appropriate section on the Application for new accounts or by calling the
Transfer Agent at (800) 797-0733 and requesting an Automatic Investment Plan
Application for existing accounts. A shareholder should be aware that a signed
Application should be received by the Transfer Agent at least 15 business days
prior to the initial transaction. The Transfer Agent will assess a $20 fee if
the automatic investment cannot be made due to insufficient funds, stop payment,
or for any other reason. The Fund cannot guarantee acceptance by your bank.
Automatic Cash Withdrawal Plan
When an account of $10,000 or more is opened or when an existing
account reaches that size, a shareholder may participate in the Fund's Automatic
Cash Withdrawal Plan by filling out the appropriate part of the Application.
Under this plan, a shareholder may receive (or designate a third party to
receive) a monthly or quarterly check in a stated amount of not less than $50.
Fund shares will be redeemed as necessary to meet withdrawal payments. All
participants must elect to have their dividends and capital gain distributions
reinvested automatically. A shareholder who decides later to use this service
should fill out a Shareholder Services Form and send it to O'Shaughnessy Funds,
Inc., c/o Firstar Trust Company, at P.O. Box 701, Milwaukee, WI 53201-0701 (for
requests sent by U.S. mail) or 615 E. Michigan Street, Third Floor, Milwaukee,
WI 53202 (for requests sent via overnight courier). Shareholders should allow
approximately ten days for such form to be processed.
Reports to Shareholders
Each time a shareholder invests, redeems, transfers or exchanges
shares, or receives a distribution, the Fund will send a confirmation of the
transaction which will include a summary of all of the shareholder's most recent
transactions.
At such time as prescribed by law, the Fund will send to each
shareholder the following reports (if they are applicable), which may be used in
completing U.S. income tax returns:
Form 1099-DIV Report taxable distributions during the preceding calendar
year. (If a shareholder did not receive taxable distributions
in the previous year, such shareholder will not be sent a
1099-DIV.)
Form 1099-B Reports redemption proceeds paid (including those resulting
from exchanges) during the preceding calendar year.
Form 1099-R Report distributions from retirement plan accounts during the
preceding calendar year.
Form 5498 Reports contributions to IRAs for the previous calendar year.
If an investor's shares are held by an outside broker in an omnibus
account, it is the responsibility of such outside broker to provide shareholders
whose shares are held in the omnibus account with any reports prescribed by law
which the shareholders require in order to complete their U.S. income tax
returns.
Shareholders will also receive annual and semi-annual reports including
the financial statements of the Funds for the respective periods.
Retirement Plans
Eligible investors may invest in the Fund under the following
prototype retirement plans:
Individual Retirement Account (IRA)
SimplifiedEmployee Pension (SEP) for sole proprietors,
partnerships and corporations
Profit-Sharing and Money Purchase Pension Plans for corporations
and their employees.
There is no minimum for investment in such plans.
-20-
<PAGE>
Automatic Reinvestment Plan
For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of the
Fund at the net asset value per share at the close of business on the record
date, unless otherwise specified on the Application or requested by a
shareholder in writing. If the Transfer Agent does not receive a written request
for subsequent dividends and/or distributions to be paid in cash at least three
full business days prior to a given record date, the dividends and/or
distributions to be paid to a shareholder will be reinvested. If a shareholder
elects to receive dividends and distributions in cash and the U.S. Postal
Service cannot deliver the checks, or if the checks remain uncashed for six
months, the shareholder's distribution checks will be reinvested into the
shareholder's account at the then current net asset value.
-21-
<PAGE>
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund, the Investment Adviser, the Administrator or
the Distributor. This Prospectus does not constitute an offering in any state in
which such offering may not lawfully be made.
TABLE OF CONTENTS
About the Fund...........................................2
Management and Organization
of the Fund .....................................7
Information about Your Account .........................10
Information on Distribution and
Taxes ..........................................17
Performance Information ................................19
Net Asset Value ........................................19
Other Shareholder Services .............................20
INVESTMENT MANAGER
O'Shaughnessy Capital Management, Inc.
60 Arch Street
Greenwich, Connecticut 06830
ADMINISTRATOR
Investment Company Administration Corporation
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018
TRANSFER AGENT
Firstar Trust Company
615 E. Michigan Street
Milwaukee, Wisconsin 53202
AUDITORS
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
-22-
<PAGE>
Prospectus
O'SHAUGHNESSY
DOGS OF THE MARKET(TM) FUND
October 9, 1996
-23-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
O'SHAUGHNESSY FUNDS, INC.
(the "O'Shaughnessy Funds")
O'Shaughnessy Cornerstone Value Fund
O'Shaughnessy Cornerstone Growth Fund
O'Shaughnessy Aggressive Growth Fund
O'Shaughnessy Dogs of the Market(TM) Fund
(each, a "Fund," and collectively, the "Funds")
60 Arch Street
Greenwich, Connecticut 06830
Telephone: 1-800-797-0773
This Statement of Additional Information ("SAI") is not a prospectus
and should be read only in conjunction with the current Prospectus of each Fund
(each, a "Fund Prospectus"), dated October 9, 1996. A copy of each Fund
Prospectus may be obtained by calling or writing to the relevant Fund at the
telephone number or address shown above. This SAI is incorporated by reference
into each Fund Prospectus, as applicable.
Statement of Additional Information dated October 9, 1996.
<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES AND LIMITATIONS ........................B-1
DIRECTORS AND OFFICERS .....................................B-9
MANAGEMENT OF THE FUNDS ....................................B-11
PORTFOLIO TRANSACTIONS .....................................B-13
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION .............B-14
VALUATION OF SHARES ........................................B-15
ADDITIONAL INFORMATION ABOUT DIVIDENDS AND TAXES ...........B-16
PERFORMANCE INFORMATION ....................................B-17
OTHER INFORMATION ..........................................B-19
FINANCIAL STATEMENTS OF THE FUNDS ..........................B-20
OPTIONS AND FUTURES ........................................A-1
<PAGE>
INVESTMENT POLICIES AND LIMITATIONS
The following supplements the information contained in each Fund Prospectus
concerning the investment policies and limitations of O'Shaughnessy Cornerstone
Growth Fund ("Cornerstone Growth Fund"), O'Shaughnessy Cornerstone Value Fund
("Cornerstone Value Fund"), O'Shaughnessy Aggressive Growth Fund ("Aggressive
Growth Fund") and O'Shaughnessy Dogs of the Market(TM) Fund ("Dogs of the Market
Fund"). O'Shaughnessy Capital Management, Inc. (the "Manager") serves as
investment adviser to each Fund. See "Management of the Funds."
Special Considerations Relating to Depositary Receipts. As noted in the
applicable Fund Prospectus, Aggressive Growth Fund and Dogs of the Market Fund
may each invest up to 25% of its total assets in American Depositary Receipts
("ADRs"). Generally, ADRs, in registered form, are denominated in U.S. dollars
and are designed for use in the U.S. securities markets. ADRs are receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying securities. For purposes of the Funds' investment policies, ADRs are
deemed to have the same classification as the underlying securities they
represent. Thus, an ADR evidencing ownership of common stock will be treated as
common stock.
Many of the foreign securities held in the form of depository receipts by the
Funds are not registered with the Securities and Exchange Commission ("SEC"),
nor are the issuers thereof subject to its reporting requirements. Accordingly,
there may be less publicly available information concerning foreign issuers of
securities held by the Funds than is available concerning U.S. companies.
Foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards or to other regulatory requirements comparable to
those applicable to U.S. companies.
Investment income on certain foreign securities may be subject to foreign
withholding or other taxes that could reduce the return on these securities. Tax
treaties between the United States and foreign countries, however, may reduce or
eliminate the amount of foreign taxes to which a Fund would be subject.
Illiquid Securities. Aggressive Growth Fund and Dogs of the Market Fund may each
invest up to 15% of its total assets in illiquid securities. The term illiquid
securities for this purpose means securities which cannot be readily resold
because of legal and contractual considerations or which cannot otherwise be
marketed, redeemed, put to the issuer or a third party, or which do not mature
within seven days, or which the Manager, in accordance with guidelines
established by the Board of Directors, has not determined to be liquid and
includes, among other things, purchased over-the-counter ("OTC") options and
repurchase agreements maturing in more than seven days.
The assets used as cover for OTC options written by a Fund will be considered
illiquid unless the OTC options are sold to qualified dealers who agree that the
Fund may repurchase any OTC option it writes at a maximum price to be calculated
by a formula set forth in the option agreement. The cover for an OTC option
written subject to this procedure will be considered illiquid only to the extent
that the maximum repurchase price under the option formula exceeds the intrinsic
value of the option.
Restricted securities may be sold only in privately negotiated transactions or
in public offerings with respect to which a registration statement is in effect
under the Securities Act of 1933 ("1933 Act"). Where registration is required, a
Fund may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell.
B-1
<PAGE>
In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including securities sold
in private placements, repurchase agreements, commercial paper, foreign
securities and corporate bonds and notes. These instruments are often restricted
securities because the securities are sold in transactions not requiring
registration. Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend either on an
efficient institutional market in which such unregistered securities can be
readily resold or on an issuer's ability to honor a demand for repayment.
Therefore, the fact that there are contractual or legal restrictions on resale
to the general public or certain institutions is not dispositive of the
liquidity of such investments.
Rule 144A under the 1933 Act establishes a safe harbor from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities that might
develop as a result of Rule 144A could provide both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. Such markets might include automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
of Securities Dealers, Inc. ("NASD"). An insufficient number of qualified buyers
interested in purchasing Rule 144A-eligible restricted securities held by a
Fund, however, could affect adversely the marketability of such Fund securities
and a Fund might be unable to dispose of such securities promptly or at
favorable prices.
The Board of Directors has delegated the function of making day-to-day
determinations of liquidity to the Manager pursuant to guidelines approved by
the Board. The Manager takes into account a number of factors in reaching
liquidity decisions, including but not limited to: (1) the frequency of trades
for the security, (2) the number of dealers that make quotes for the security,
(3) the number of dealers that have undertaken to make a market in the security,
(4) the number of other potential purchasers and (5) the nature of the security
and how trading is effected (e.g., the time needed to sell the security, how
bids are solicited and the mechanics of transfer). The Manager monitors the
liquidity of restricted securities in each Fund and reports periodically on such
decisions to the Board of Directors.
Repurchase Agreements. Each Fund may enter into a repurchase agreement through
which an investor (such as the Fund) purchases a security (known as the
"underlying security") from a well-established securities dealer or bank that is
a member of the Federal Reserve System. Any such dealer or bank will be on the
Fund's approved list. Each Fund intends to enter into repurchase agreements only
with banks and dealers in transactions believed by the Manager to present
minimum credit risks in accordance with guidelines established by the Fund's
Board of Directors. The Manager will review and monitor the creditworthiness of
those institutions under the Board's general supervision.
At the time of entering into the repurchase agreement the bank or securities
dealer agrees to repurchase the underlying security at the same price, plus
specified interest. Repurchase agreements are generally for a short period of
time, often less than a week. Repurchase agreements which do not provide for
payment within seven days will be treated as illiquid securities. The Fund will
only enter into repurchase agreements where (i) the underlying securities are of
the type (excluding maturity limitations) which the Fund's investment guidelines
would allow it to purchase directly, (ii) the market value of the underlying
security will at all times be equal to at least 102% of the value of the
repurchase agreement, and (iii) payment for the underlying security is made only
upon physical delivery or evidence of book-entry transfer to the account of the
Fund's custodian or a bank acting as agent. In the event of a bankruptcy or
other default of a seller of a repurchase agreement, the Fund could experience
both delays in liquidating the underlying security and losses, including: (a)
possible decline in the value of the underlying security during the period while
the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of
income and lack of access to income during this period; and (c) expenses of
enforcing its rights.
B-2
<PAGE>
Lending of Fund Securities. In accordance with applicable law, each Fund may
lend portfolio securities (representing not more than 331/3% of its total
assets) to banks, broker-dealers or financial institutions that the Manager
deems qualified, but only when the borrower maintains with the Fund's custodian
bank collateral either in cash or money market instruments in an amount at least
equal to at least 102% of the market value of the securities loaned, determined
on a daily basis and adjusted accordingly. There may be risks of delay in
recovery of the securities or even loss of rights in the collateral should the
borrower of the securities fail financially. However, loans will only be made to
borrowers deemed by the Manager to be of good standing and when, in the judgment
of the Manager, the consideration which can be earned currently from such
securities loans justifies the attendant risk. All relevant facts and
circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Board of Directors. During the period of
the loan the Manager will monitor all relevant facts and circumstances,
including the creditworthiness of the borrower. A Fund will retain authority to
terminate any loan at any time. A Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or money market instruments held as collateral to
the borrower or placing broker. A Fund will receive reasonable interest on the
loan or a flat fee from the borrower and amounts equivalent to any dividends,
interest or other distributions on the securities loaned. A Fund will regain
record ownership of loaned securities to exercise beneficial rights, such as
voting and subscription rights and rights to dividends, interest or other
distributions, when regaining such rights is considered to be in the Fund's
interest.
Hedging and Return Enhancement Strategies. As discussed in the applicable Fund
Prospectus, each of Aggressive Growth Fund and Dogs of the Market Fund may use a
variety of financial instruments ("Hedging Instruments"), including certain
options, futures contracts (sometimes referred to as "futures") and options on
futures contracts, to attempt to hedge the Fund's investments or attempt to
enhance the Fund's income. The particular Hedging Instruments are described in
Appendix A to this Statement of Additional Information.
Hedging strategies can be broadly categorized as short hedges and long hedges. A
short hedge is a purchase or sale of a Hedging Instrument intended partially or
fully to offset potential declines in the value of one or more investments held
by a Fund. Thus, in a short hedge a Fund takes a position in a Hedging
Instrument whose price is expected to move in the opposite direction of the
price of the investment being hedged. For example, a Fund might purchase a put
option on a security to hedge against a potential decline in the value of that
security. If the price of the security declines below the exercise price of the
put, the Fund could exercise the put and thus limit its loss below the exercise
price to the premium paid plus transaction costs. In the alternative, because
the value of the put option can be expected to increase as the value of the
underlying security declines, the Fund might be able to close out the put option
and realize a gain to offset the decline in the value of the security.
Conversely, a long hedge is a purchase or sale of a Hedging Instrument intended
partially or fully to offset potential increases in the acquisition cost of one
or more investments that a Fund intends to acquire. Thus, in a long hedge a Fund
takes a position in a Hedging Instrument whose price is expected to move in the
same direction as the price of the prospective investment being hedged. For
example, a Fund might purchase a call option on a security it intends to
purchase in order to hedge against an increase in the cost of the security. If
the price of the security increased above the exercise price of the call, the
Fund could exercise the call and thus limit its acquisition cost to the exercise
price plus the premium paid and transaction costs. Alternatively, the Fund might
be able to offset the price increase by closing out an appreciated call option
and realizing a gain.
Hedging Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that a Fund owns or
intends to acquire. Hedging Instruments on stock indices, in contrast, generally
are used to hedge against price movements in broad equity market sectors in
which the Fund has invested or expects to invest. Hedging Instruments on debt
securities may be used to hedge either individual securities or broad fixed
income market sectors.
B-3
<PAGE>
The use of Hedging Instruments is subject to applicable regulations of the SEC,
the several options and futures exchanges upon which they are traded, the
Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, a Fund's ability to use Hedging Instruments will be
limited by tax considerations. See "Additional Information about Dividends and
Taxes" below.
In addition to the products, strategies and risks described below and in the
applicable Fund Prospectus, the Manager expects to discover additional
opportunities in connection with options, futures contracts and other hedging
techniques. The Manager may utilize these opportunities to the extent that they
are consistent with the respective Fund's investment objectives and permitted by
the respective Fund's investment limitations and applicable regulatory
authorities. The applicable Fund Prospectus or this Statement of Additional
Information will be supplemented to the extent that new products or techniques
involve materially different risks than those described below or in the Fund
Prospectus.
Special Risks of Hedging Strategies. The use of Hedging Instruments
involves special considerations and risks, as described below. Risks pertaining
to particular Hedging Instruments are described in the sections that follow.
(1) Successful use of most Hedging Instruments depends upon the
Manager's ability to predict movements of the overall securities
and interest rate markets, which requires different skills than
predicting changes in the price of individual securities. While the
Manager is experienced in the use of Hedging Instruments, there can
be no assurance that any particular hedging strategy adopted will
succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Hedging Instrument and price movements
of the investments being hedged. For example, if the value of a
Hedging Instrument used in a short hedge increased by less than the
decline in value of the hedged investment, the hedge would not be
fully successful. Such a lack of correlation might occur due to
factors unrelated to the value of the investments being hedged,
such as speculative or other pressures on the markets in which
Hedging Instruments are traded. The effectiveness of hedges using
Hedging Instruments on indices will depend on the degree of
correlation between price movements in the index and price
movements in the securities being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable
price movements in the investments being hedged. However, hedging
strategies can also reduce opportunity for gain by offsetting the
positive effect of favorable price movements in the hedged
investments. For example, if a Fund entered into a short hedge
because the Manager projected a decline in the price of a security
held by a Fund, and the price of that security increased instead,
the gain from that increase might be wholly or partially offset by
a decline in the price of the Hedging Instrument. Moreover, if the
price of the Hedging Instrument declined by more than the increase
in the price of the security, the Fund could suffer a loss. In
either such case, the Fund would have been in a better position had
it not hedged at all.
(4) As described below, a Fund might be required to maintain assets as
cover, maintain segregated accounts or make margin payments when it
takes positions in Hedging Instruments involving obligations to
third parties (i.e., Hedging Instruments other than purchased
options). If a Fund were unable to close out its positions in such
Hedging Instruments, it might be required to continue to maintain
such assets or accounts or make such payments until the position
expired or matured. These requirements might impair a Fund's
ability to sell a Fund security or make an investment at a time
when it would otherwise be favorable to do so, or require that a
Fund sell a portfolio security at a disadvantageous time. A Fund's
ability to close out a position in a Hedging Instrument prior to
B-4
<PAGE>
expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability
and willingness of a contra party to enter into a transaction
closing out the position. Therefore, there is no assurance that any
hedging position can be closed out at a time and price that is
favorable to the Fund.
Cover for Hedging Strategies. Transactions using Hedging Instruments, other
than purchased options, expose a Fund to an obligation to another party. A Fund
will not enter into any such transactions unless it owns either (1) an
offsetting covered position in securities, or other options or futures
contracts, or (2) cash, receivables and short-term debt securities, with a value
sufficient at all times to cover its potential obligations to the extent not
covered as provided in (1) above. Each Fund will comply with SEC guidelines
regarding cover for hedging transactions and will, if the guidelines so require,
set aside cash, U.S. Government securities or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Hedging Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
a Fund's assets to cover or segregated accounts could impede Fund management or
the Fund's ability to meet redemption requests or other current obligations.
Options. Aggressive Growth Fund and Dogs of the Market Fund may purchase
put and/or call options, and write (sell) covered put and call options on equity
and stock indices. The purchase of call options serves as a long hedge, and the
purchase of put options serves as a short hedge. Writing covered put or call
options can enable a Fund to enhance income by reason of the premiums paid by
the purchasers of such options. However, if the market price of the security
underlying a covered put option declines to less than the exercise price of the
option, minus the premium received, the Fund would expect to suffer a loss.
Writing covered call options serves as a limited short hedge, because declines
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security appreciates to
a price higher than the exercise price of the call option, it can be expected
that the option will be exercised and the Fund will be obligated to sell the
security at less than its market value. If the covered call option is an OTC
option, the securities or other assets used as cover would be considered
illiquid to the extent described above under "Investment Policies and
Restrictions -- Illiquid Securities."
The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the historical price volatility of the underlying investment and
general market conditions. Options normally have expiration dates of up to nine
months. Options that expire unexercised have no value.
A Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, a Fund may terminate its
obligation under a call option that it had written by purchasing an identical
call option; this is known as a closing purchase transaction. Conversely, a Fund
may terminate a position in a put or call option it had purchased by writing an
identical put or call option; this is known as a closing sale transaction.
The Funds may purchase or write exchange-traded and/or OTC options. Currently,
many options on equity securities are exchange-traded. Exchange-traded options
in the United States are issued by a clearing organization affiliated with the
exchange on which the option is listed which, in effect, guarantees completion
of every exchange-traded option transaction. In contrast, OTC options are
contracts between the Fund and its contra party (usually a securities dealer or
a bank) with no clearing organization guarantee. Thus, when the Fund purchases
or writes an OTC option, it relies on the party from whom it purchased the
option or to whom it has written the option (the "contra party") to make or take
delivery of the underlying investment upon exercise of the
B-5
<PAGE>
option. Failure by the contra party to do so would result in the loss of any
premium paid by the Fund as well as the loss of any expected benefits of the
transaction.
A Fund's ability to establish and close out positions in exchange-listed options
depends on the existence of a liquid market. Each Fund intends to purchase or
write only those exchange-traded options for which there appears to be a liquid
secondary market. However, there can be no assurance that such a market will
exist at any particular time. Closing transactions can be made for OTC options
only by negotiating directly with the contra party, or by a transaction in the
secondary market if any such market exists. Although a Fund will enter into OTC
options only with contra parties that are expected to be capable of entering
into closing transactions with the Fund, there is no assurance that the Fund
will in fact be able to close out an OTC option position at a favorable price
prior to expiration. In the event of insolvency of the contra party, the Fund
might be unable to close out an OTC option position at any time prior to its
expiration.
If the Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
Futures. The purchase of futures or call options thereon can serve as a long
hedge, and the sale of futures or the purchase of put options thereon can serve
as a short hedge. Writing covered call options on futures contracts can serve as
a limited short hedge, using a strategy similar to that used for writing covered
call options on securities and indices.
Futures strategies also can be used to manage the average duration of a Fund. If
the Manager wishes to shorten the average duration of a Fund, the Fund may sell
a futures contract or a call option thereon, or purchase a put option on that
futures contract. If the Manager wishes to lengthen the average duration of a
Fund, the Fund may buy a futures contract or a call option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, initial margin consisting of cash, U.S. Government
securities or other liquid, high-grade debt securities, in an amount generally
equal to 10% or less of the contract value. Margin must also be deposited when
writing a call option on a futures contract, in accordance with applicable
exchange rules. Unlike margin in securities transactions, initial margin on
futures contracts does not represent a borrowing, but rather is in the nature of
a performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, a
Fund may be required by an exchange to increase the level of its initial margin
payment, and initial margin requirements might be increased generally in the
future by regulatory action.
Subsequent variation margin payments are made to and from the futures broker
daily as the value of the futures position varies, a process known as marking to
market. Variation margin does not involve borrowing, but rather represents a
daily settlement of the Fund's obligations to or from a futures broker. When a
Fund purchases an option on a future, the premium paid plus transaction costs is
all that is at risk. In contrast, when a Fund purchases or sells a futures
contract or writes a call option thereon, it is subject to daily variation
margin calls that could be substantial in the event of adverse price movements.
If the Fund has insufficient cash to meet daily variation margin requirements,
it might need to sell securities at a time when such sales are disadvantageous.
Holders and writers of futures positions and options on futures can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, an instrument identical to the instrument
held or written. Positions in futures and options on futures may be closed only
on an exchange or
B-6
<PAGE>
board of trade that provides a secondary market. Each Fund intends to enter into
futures transactions only on exchanges or boards of trade where there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist for a particular contract at a particular time. Secondary
markets for options on futures are currently in the development stage, and no
Fund will trade options on futures on any exchange or board of trade unless, in
the Manager's opinion, the markets for such options have developed sufficiently
that the liquidity risks for such options are not greater than the corresponding
risks for futures.
Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a future or related option can vary from the previous
day's settlement price; once that limit is reached, no trades may be made that
day at a price beyond the limit. Daily price limits do not limit potential
losses because prices could move to the daily limit for several consecutive days
with little or no trading, thereby preventing liquidation of unfavorable
positions.
If a Fund were unable to liquidate a futures or related options position due to
the absence of a liquid secondary market or the imposition of price limits, it
could incur substantial losses. The Fund would continue to be subject to market
risk with respect to the position. In addition, except in the case of purchased
options, the Fund would continue to be required to make daily variation margin
payments and might be required to maintain the position being hedged by the
future or option or to maintain cash or securities in a segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options markets
are subject to daily variation margin calls and might be compelled to liquidate
futures or related options positions whose prices are moving unfavorably to
avoid being subject to further calls. These liquidations could increase price
volatility of the instruments and distort the normal price relationship between
the futures or options and the investments being hedged. Also, because initial
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities markets, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, program trading and
other investment strategies might result in temporary price distortions.
Limitations on the Use of Futures. Each of the Aggressive Growth Fund and
Dogs of the Market Fund has represented to the CFTC that it: (1) will use future
contracts and options thereon traded on a commodities exchange solely in bona
fide hedging transactions or, alternatively (2) will not enter into futures
contracts and options thereon traded on a commodities exchange for which the
aggregate initial margin and premiums exceed 5% of the liquidation value of the
Fund's portfolio (calculated in accordance with CFTC regulations). As a matter
of operating policy, initial margin deposits and premiums on options used for
non-hedging purposes will not equal more than 5% of a Fund's net asset value.
Investment Limitations. The investment restrictions set forth below are
fundamental policies of each Fund, which cannot be changed with respect to a
Fund without the approval of the holders of a majority of the outstanding voting
securities of that Fund, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), as the lesser of: (1) 67% or more of the Fund's voting
securities present at a meeting of shareholders, if the holders of more than 50%
of the Fund's outstanding shares are present in person or by proxy, or (2) more
than 50% of the outstanding shares. Unless otherwise indicated, all percentage
limitations apply to each Fund on an individual basis, and apply only at the
time an investment is made; a later increase or decrease in percentage resulting
from changes in values or net assets will not be deemed to be an investment that
is contrary to these restrictions. Pursuant to such restrictions and policies,
no Fund may:
B-7
<PAGE>
(1) make an investment in any one industry if the investment would cause
the aggregate value of the Fund's investment in such industry to exceed
25% of the Fund's total assets, except that this policy does not apply
to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government securities"),
certificates of deposit and bankers' acceptances.
(2) purchase securities of any one issuer (except U.S. Government
securities), if as a result at the time of purchase more than 5% of the
Fund's total assets would be invested in such issuer, or the Fund would
own or hold 10% or more of the outstanding voting securities of that
issuer, except that 25% of the total assets of the Fund may be invested
without regard to this limitation;
(3) purchase securities on margin, except for short-term credit necessary
for clearance of Fund transactions and except that a Fund that may use
options or futures strategies and may make margin deposits in
connection with its use of options, futures contracts and options on
futures contracts;
(4) purchase or sell real estate, except that, to the extent permitted by
applicable law, a Fund may invest in securities secured by real estate
or interests therein or issued by companies which invest in real estate
or interests therein;
(5) purchase or sell commodities or commodity contracts, except to the
extent described in the Fund Prospectus and this Statement of
Additional Information with respect to futures and related options;
(6) make loans, except through loans of Fund securities and repurchase
agreements, provided that for purposes of this restriction the
acquisition of bonds, debentures or other corporate debt securities
and investment in government obligations, short-term commercial paper,
certificates of deposit, bankers' acceptances and other fixed income
securities as described in the applicable Fund Prospectus and this
Statement of Additional Information shall not be deemed to be the
making of a loan, and provided further that the lending of Fund
securities and repurchase agreements may be made only in accordance
with applicable law and the applicable Fund Prospectus and this
Statement of Additional Information as it may be amended from time to
time;
(7) borrow money or issue senior securities, except that each Fund may
borrow in an amount up to 33-1/3% of its respective total assets from
banks for extraordinary or emergency purposes such as meeting
anticipated redemptions, and may pledge its assets in connection with
such borrowing. The Fund may not pledge its assets other than to
secure such borrowings or, to the extent permitted by the Fund's
investment policies as set forth in the applicable Fund Prospectus and
this Statement of Additional Information, as they may be amended from
time to time, in connection with hedging transactions, short- sales,
when-issued and forward commitment transactions and similar investment
strategies. For purposes of this restriction, the deposit of initial
or maintenance margin in connection with futures contracts will not be
deemed to be a pledge of the assets of a Fund.
(8) underwrite securities of the issuers except insofar as the Fund
technically may be deemed to be an underwriter under the Securities Act
of 1933, as amended, in selling portfolio securities.
The following investment restrictions (or operating policies) may be changed in
respect of a Fund by the Board of Directors without shareholder approval. No
Fund may:
(a) make investments for the purpose of exercising control or management;
(b) make short sales of securities or maintain a short position, except to
the extent permitted by applicable law;
B-8
<PAGE>
(c) purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law;
(d) invest in securities which cannot be readily resold because of legal
or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in
such securities. This restriction shall not apply to securities which
mature within seven days or securities which the Board of Directors
has otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws of
any state in which a Fund's shares are registered or qualified for
sale require a lower limitation, the Fund will observe such
limitation. Securities purchased in accordance with Rule 144A under
the Securities Act of 1933, as amended (a "Rule 144A security") and
determined to be liquid by the Board of Directors are not subject to
the limitations set forth in this investment restriction (d). The
foregoing operating policy applies only to Aggressive Growth Fund and
Dogs of the Market Fund since neither the Cornerstone Growth Fund nor
Cornerstone Value Fund invests in illiquid securities;
(e) invest in warrants, if, at the time of acquisition, its investments in
warrants, valued at the lower of cost or market value, would exceed 5%
of the Fund's net assets; included within such limitation, but not to
exceed 2% of the Fund's net assets, are warrants which are not listed
on the New York Stock Exchange or American Stock Exchange or a major
foreign exchange. For purposes of this restriction, warrants acquired
by the Fund in units or attached to securities may be deemed to be
without value;
(f) invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Fund's total assets would be invested in such
securities. This restriction shall not apply to mortgage-backed
securities, asset-backed securities or obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities;
(g) purchase or retain the securities of any issuer, if the individual
officers and directors of the Fund or the officers and directors of the
Manager each owning beneficially more than one-half of one percent of
the securities of such issuer own in the aggregate more than 5% of the
securities of such issuer;
(h) invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development
programs, except that the Fund may invest in securities issued by
companies that engage in oil, gas or other mineral exploration or
development activities; and
(i) write, purchase or sell puts, calls straddles, spreads or combinations
thereof, except to the extent permitted in the applicable Fund
Prospectus and this Statement of Additional Information, as they may be
amended from time to time.
DIRECTORS AND OFFICERS
The Directors and officers of O'Shaughnessy Funds, their business addresses and
principal occupations during the past five years are listed below. Unless
otherwise indicated, each person's address is 60 Arch Street, Greenwich,
Connecticut 06830.
<TABLE>
<C> <C> <C>
Name, Age and Address Position with the Fund Other Business Activities in Past 5 Years
- --------------------- ---------------------- -----------------------------------------
James P. O'Shaughnessy* Director, President and President of O'Shaughnessy Capital
Age: 36 Treasurer Management, Inc., 1988 - present; author of
O'Shaughnessy Capital Invest Like the Best and What Works on Wall
Management, Inc. Street
B-9
<PAGE>
Name, Age and Address Position with the Fund Other Business Activities in Past 5 Years
- --------------------- ---------------------- -----------------------------------------
C. Flemming Heilmann Director President and Director, Danish American
Age: 60 Society, N.Y.; Former Chairman and CEO,
Brockway Standard, Inc., 1989-1994; Director:
Porter Chadburn, Inc.; Porter Chadburn, plc;
Wheaton, Inc.; Danish American Chamber of
Commerce, N.Y.; American Friends of
Cambridge University; Trustee: Royal
Wessanen Group U.S. Trust.
Robert E. Ix Director Retired Chairman and Chief Executive Officer
Age: 67 of Cadbury Schweppes, Inc.;
Director, Loctite Corp.
Joseph John McAleer Director Founder and President, MCA Associates, Inc.
Age: 67 (shipbroker), 1983-present; General Partner,
Sixtus Limited Partnership; President and
Director, Salesian Sisters Partners Circle;
Trustee, American Merchant Marine Museum Foundation
Steven J. Paggioli Vice President and Executive Vice President and Director,
Age: 46 Secretary Wadsworth Group since 1986; Vice President
of First Fund Distributors, Inc. since 1989;
Vice President of Investment Company
Administration Corporation since 1990.
</TABLE>
* Interested person, as defined in the 1940 Act.
Pursuant to the terms of the Management Agreement (defined below) with
O'Shaughnessy Funds on behalf of the Funds, the Manager pays the compensation of
all officers and Directors who are affiliated persons of the Manager. Pursuant
to the terms of the Administration Agreement (defined below), the Administrator
pays the compensation of all officers that are affiliated persons of the
Administrator.
O'Shaughnessy Funds pays Directors who are not interested persons of the Funds
(each, a "disinterested Director") fees for serving as Directors. Specifically,
O'Shaughnessy Funds pay each disinterested Director a $13,000 annual retainer
paid quarterly, together with such Director's out-of-pocket expenses relating to
attendance at meetings. Each Fund pays its pro rata share of the foregoing fees
based on the Fund's relative net assets.
The following table sets forth the estimated aggregate compensation
O'Shaughnessy Funds expects to pay to the disinterested Directors for the fiscal
year ended June 30, 1997.
B-10
<PAGE>
<TABLE>
<CAPTION>
Aggregate Pension or Retirement
Compensation Benefits Accrued as Total Compensation
Name of Director From Funds* Part of Fund Expenses From Fund Complex*
- ---------------- ------------- --------------------- ------------------
<S> <C> <C>
C. Flemming Heilmann $13,000 None $13,000
Robert E. Ix $13,000 None $13,000
Joseph John McAleer $13,000 None $13,000
</TABLE>
- ----------------
* Based on estimated payments for the first full fiscal year of operations of
O'Shaughnessy Funds, ending June 30, 1997.
Because the Manager and the Administrator perform substantially all of the
services necessary for the operation of the Funds, the Funds require no
employees. No officer, director or employee of the Manager or the Administrator
receives any compensation from the Funds for acting as a Director or officer.
As of the date of this Statement of Additional Information, the officers and
Directors of the Funds as a group (5 persons) owned an aggregate of less than 1%
of the outstanding shares of each Fund.
MANAGEMENT OF THE FUNDS
The Manager. The Manager acts as the investment manager of each Fund pursuant to
a management agreement with O'Shaughnessy Funds on behalf of each Fund (the
"Management Agreement"). Under the Management Agreement, O'Shaughnessy Funds
pays the Manager a fee in respect of each Fund, computed daily and payable
monthly, according to the schedule set forth in the applicable Fund Prospectus.
The Manager is wholly owned and controlled by James P. O'Shaughnessy and his
immediate family.
Pursuant to the Management Agreement, the Manager is responsible for investment
management of each Fund's portfolio, subject to general oversight by the Board
of Directors, and provides the Funds with office space. In addition, the Manager
is obligated to keep certain books and records of the Funds. In connection
therewith, the Manager furnishes each Fund with those ordinary clerical and
bookkeeping services which are not being furnished by the Funds' custodian,
administrator or transfer and dividend disbursing agent.
Under the terms of the Management Agreement, each Fund bears all expenses
incurred in its operation that are not specifically assumed by the Manager,
Investment Company Administration Corporation, the Fund's administrator (the
"Administrator"), or First Fund Distributors, Inc., the Funds' distributor (the
"Distributor"). General expenses of O'Shaughnessy Funds not readily identifiable
as belonging to one of the Funds are allocated among the Funds by or under the
direction of the Board of Directors in such manner as the Board determines to be
fair and equitable. Expenses borne by each Fund include, but are not limited to,
the following (or the Fund's allocated share of the following): (1) the cost
(including brokerage commissions, if any) of securities purchased or sold by the
Fund and any losses incurred in connection therewith; (2) investment management
fees; (3) organizational expenses; (4) filing fees and expenses relating to the
registration and qualification of O'Shaughnessy Funds or the shares of a Fund
under federal or state securities laws and maintenance of such registrations and
qualifications; (5) fees and expenses payable to disinterested Directors; (6)
taxes (including any income or franchise taxes) and governmental fees; (7) costs
of any liability, directors' and officers' insurance and fidelity bonds; (8)
legal, accounting and auditing expenses; (9) charges of custodian, transfer
agents and other agents; (10) expenses of setting in type and providing a
camera-ready copy of the Fund Prospectus and supplements thereto, expenses of
setting in type and printing or otherwise reproducing statements of additional
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<PAGE>
information and supplements thereto and reports and proxy materials for existing
shareholders; (11) any extraordinary expenses (including fees and disbursements
of counsel) incurred by O'Shaughnessy Funds or the Fund; (12) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; and (13) costs of meetings of shareholders.
Under the Management Agreement, the Manager will not be liable for any error of
judgment or mistake of law or for any loss suffered by O'Shaughnessy Funds or
any Fund in connection with the performance of the Management Agreement, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Manager in the performance of its duties or from reckless disregard
of its duties and obligations thereunder.
The Management Agreement has an initial term of two years and may be renewed
from year to year thereafter so long as such continuance is specifically
approved at least annually in accordance with the requirements of the 1940 Act.
The Management Agreement provides that it will terminate in the event of its
assignment (as defined in the 1940 Act). The Management Agreement may be
terminated by O'Shaughnessy Funds in respect of a Fund or by the Manager upon 60
days' prior written notice.
California imposes limitations on the expenses of the Funds. These expense
limitations require that the Manager reimburse each Fund in an amount necessary
to prevent the ordinary operating expenses of the Fund (excluding interest,
taxes, distribution fees, brokerage fees and commissions and extraordinary
charges such as litigation costs) from exceeding 2.5% of the Fund's first $30
million of average daily net assets, 2.0% of the next $70 million of average
daily net assets and 1.5% of the remaining average daily net assets. The
Manager's obligation to reimburse a Fund is limited to the amount of the Fund's
respective management fee. No fee payment will be made to the Manager during any
fiscal year which will cause such expenses to exceed the most restrictive
expense limitation applicable at the time of such payment. The Manager may
voluntarily waive its management fee or subsidize other Fund expenses. This may
have the effect of increasing a Fund's return.
The Administrator. O'Shaughnessy Funds, on behalf of the Funds, has retained the
Administrator to provide administration services to each Fund. The
Administration Agreement provides that the Administrator will furnish the Funds
with various administrative services including, among others: the preparation
and coordination of reports to the Board of Directors; preparation and filing of
securities and other regulatory filings (including state securities filings),
marketing materials, tax returns and shareholder reports; review and payment of
Fund expenses; monitoring and oversight of the activities of the Funds' other
servicing agents (i.e. transfer agent, custodian, accountants, etc.); and
maintaining books and records of the Funds; administering shareholder accounts.
In addition, the Administrator may provide personnel to serve as officers of the
Corporation. The salaries and other expenses of providing such personnel are
borne by the Administrator. For its services, each Fund pays the Administrator a
fee each month at the annual rate of 0.10% of the first $100 million of a Fund's
average daily net assets, 0.05% of the next $100 million of such net assets, and
0.03% of such net assets over $200 million, with a minimum fee of $40,000
annually per portfolio.
The Distributor. O'Shaughnessy Funds, on behalf of the Funds, has retained First
Fund Distributors, Inc. to provide distribution-related services to each Fund in
connection with the continuous offering of the Fund's shares. The Distributor
provides such services to the Funds at no cost to the Funds. The Distributor may
distribute the shares of the Funds through other broker-dealers with which it
has entered into selected dealer agreements.
Code of Ethics. The Board of Directors of O'Shaughnessy Funds has adopted a Code
of Ethics under Rule 17j-1 of the 1940 Act (the "Code"). The Code restricts the
investing activities of Fund officers, Directors and advisory
B-12
<PAGE>
persons and, as described below, imposes additional, more onerous restrictions
on Fund investment personnel.
All persons covered by the Code are required to preclear any personal securities
investment (with limited exceptions, such as government securities) and must
comply with ongoing requirements concerning record keeping and disclosure of
personal securities investments. The preclearance requirement and associated
procedures are designed to identify any prohibition or limitation applicable to
a proposed investment. In addition, all persons covered by the Code are
prohibited from purchasing or selling any security which, to such person's
knowledge, is being purchased or sold (as the case may be), or is being
considered for purchase or sale, by a Fund. Investment personnel are subject to
additional restrictions such as a ban on acquiring securities in an initial
public offering, "blackout periods" which prohibit trading by investment
personnel of a Fund within periods of trading by the Fund in the same security
and a ban on short-term trading in securities.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors, the Manager is
responsible for the execution of Fund transactions and the allocation of
brokerage transactions for the respective Funds. As a general matter in
executing Fund transactions, the Manager may employ or deal with such brokers or
dealers as may, in the Manager's best judgment, provide prompt and reliable
execution of the transaction at favorable security prices and reasonable
commission rates. In selecting brokers or dealers, the Manager will consider all
relevant factors, including the price (including the applicable brokerage
commission or dealer spread), size of the order, nature of the market for the
security, timing of the transaction, the reputation, experience and financial
stability of the broker-dealer, the quality of service, difficulty of execution
and operational facilities of the firm involved and in the case of securities,
the firm's risk in positioning a block of securities. Prices paid to dealers in
principal transactions through which most debt securities and some equity
securities are traded generally include a spread, which is the difference
between the prices at which the dealer is willing to purchase and sell a
specific security at that time. Each Fund that invests in securities traded in
the OTC markets will engage primarily in transactions with the dealers who make
markets in such securities, unless a better price or execution could be obtained
by using a broker. A Fund has no obligation to deal with any broker or group of
brokers in the execution of Fund transactions.
The Manager may select broker-dealers which provide it with research services
and may cause a Fund to pay such broker-dealers commissions which exceed those
other broker-dealers may have charged, if in its view the commissions are
reasonable in relation to the value of the brokerage and/or research services
provided by the broker-dealer. Research services furnished by brokers through
which a Fund effects securities transactions may be used by the Manager in
advising other funds or accounts and, conversely, research services furnished to
the Manager by brokers in connection with other funds or accounts the Manager
advises may be used by the Manager in advising a Fund. Information and research
received from such brokers will be in addition to, and not in lieu of, the
services required to be performed by the Manager under the Management Agreement.
The Funds may purchase and sell Fund portfolio securities to and from dealers
who provide the Fund with research services. Fund transactions will not be
directed to dealers solely on the basis of research services provided.
Investment decisions for each Fund and for other investment accounts managed by
the Manager are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may be made for a Fund and one or more of such accounts. In such cases,
simultaneous transactions are inevitable. Purchases or sales are then allocated
between the Fund and such other account(s) as to amount according to a formula
deemed equitable to the Fund and such account(s). While in some cases this
practice could have a detrimental effect upon the price or value of the security
as far as a Fund is concerned, or
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<PAGE>
upon its ability to complete its entire order, in other cases it is believed
that coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
Portfolio Turnover. For reporting purposes, a Fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the fiscal year by the monthly average of the value of the portfolio
securities owned by the Fund during the fiscal year. In determining such
portfolio turnover, securities with maturities at the time of acquisition of one
year or less are excluded. The Manager will adjust a Fund's assets as it deems
advisable, and portfolio turnover will not be a limiting factor should the
Manager deem it advisable for a Fund to purchase or sell securities.
As described above, the Aggressive Growth Fund and the Dogs of the Market Fund
may engage in options transactions. The options activities of a Fund may affect
its turnover rate, the amount of brokerage commissions paid by a Fund and the
realization of net short-term capital gains. High portfolio turnover involves
correspondingly greater brokerage commissions, other transaction costs, and a
possible increase in short-term capital gains or losses. See "Valuation of
Shares" and "Additional Information about Distributions and Taxes" below.
The exercise of calls written by a Fund may cause the Fund to sell portfolio
securities, thus increasing its turnover rate. The exercise of puts also may
cause a sale of securities and increase turnover; although such exercise is
within the Fund's control, holding a protective put might cause the Fund to sell
the underlying securities for reasons which would not exist in the absence of
the put. A Fund will pay a brokerage commission each time it buys or sells a
security in connection with the exercise of a put or call. Some commissions may
be higher than those which would apply to direct purchases or sales of portfolio
securities. Additional information concerning portfolio turnover, including
anticipated portfolio turnover rates for each Fund, is contained in the relevant
Fund Prospectus.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Reference is made to "Information About Your Account -- Purchase of Shares; --
Redemption of Shares " in each Fund Prospectus for additional information about
purchase and redemption of Fund shares. You may purchase and redeem shares of
each Fund on each day on which the New York Stock Exchange, Inc. ("NYSE") is
open for trading ("Business Day"). Currently, the NYSE is closed on New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Such purchases and redemptions of the shares
of each Fund are effected at their respective net asset values per share
determined as of the close of the NYSE (which currently is 4:00 p.m., Eastern
time) on that Business Day. The time at which the transactions are priced may be
changed in case of an emergency or if the NYSE closes at a time other than 4:00
p.m., Eastern time.
O'Shaughnessy Funds may suspend redemption privileges of shares of any Fund or
postpone the date of payment during any period (1) when the NYSE is closed or
trading on the NYSE is restricted as determined by the SEC, (2) when an
emergency exists, as defined by the SEC, that makes it not reasonably
practicable for O'Shaughnessy Funds to dispose of securities owned by it or to
determine fairly the value of its assets or (3) as the SEC may otherwise permit.
The redemption price may be more or less than the shareholder's cost, depending
on the market value of the Fund's securities at the time.
O'Shaughnessy Funds will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. O'Shaughnessy Funds uses
some or all of the following procedures to process telephone redemptions: (1)
requesting a shareholder to correctly state some or all of the following
information: account number, name(s), social security number registered to the
account, personal identification, banking
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<PAGE>
institution, bank account number and the name in which the bank account is
registered; (2) recording all telephone transactions; and (3) sending written
confirmation of each transaction to the registered owner.
The payment of the redemption price may be made in money or in kind, or partly
in money and partly in kind, as determined by the Directors. However, each Fund
has elected to be governed by Rule 18f-1 under the Investment Company Act of
1940 pursuant to which the Fund is obligated to redeem shares solely in money up
to the lesser of $250,000 or 1% of the net asset value of the Fund during any
90-day period for any one shareholder. While the Rule is in effect, such
election may not be revoked without the approval of the SEC. It is contemplated
that if the Fund should redeem in kind, securities distributed would be valued
as described below under "Net Asset Value," and investors would incur brokerage
commissions in disposing of such securities. If a Fund redeems in kind, the Fund
will not distribute depository receipts representing foreign securities.
VALUATION OF SHARES
The net asset value for the shares of each Fund will be determined on each day
the NYSE is open for trading. The net assets of each Fund are valued as of the
close of the NYSE (currently 4:00 P.M., Eastern time) on each Business Day. Each
Fund's net asset value per share is calculated separately.
For all Funds, the net asset value per share is computed by dividing the value
of the securities held by the Fund plus any cash or other assets, less its
liabilities, by the number of outstanding shares of the Fund, and adjusting the
result to the nearest full cent. Securities listed on the NYSE, American Stock
Exchange or other national exchanges are valued at the last sale price on such
exchange on the day as of which the net asset value per share is to be
calculated. Over-the-counter securities included in the NASDAQ National Market
System are valued at the last sale price. Bonds and other fixed-income
securities are valued using market quotations provided by dealers, and also may
be valued on the basis of prices provided by pricing services when the Board of
Directors believes that such prices reflect the fair market value of such
securities. If there is no sale in a particular security on such day, it is
valued at the mean between the bid and asked prices. Other securities, to the
extent that market quotations are readily available, are valued at market value
in accordance with procedures established by the Board of Directors. Any other
securities and other assets for which market quotations are not readily
available are valued in good faith in a manner determined by the Board of
Directors best to reflect their full value.
When market quotations for options and futures positions held by the Funds are
readily available, those positions are valued based upon such quotations. Market
quotations are not generally available for options traded in the OTC market.
When market quotations for options and futures positions, or any other
securities or assets of the Funds, are not available, they are valued at fair
value as determined in good faith by or under the direction of the Board of
Directors. When practicable, such determinations are based upon appraisals
received from a pricing service using a computerized matrix system or appraisals
derived from information concerning the security or similar securities received
from recognized dealers in those securities.
When a Fund writes a put or call option, the amount of the premium is included
in the Fund's assets and an equal amount is included in its liabilities. The
liability thereafter is adjusted to the current market value of the option. The
premium paid for an option purchased by a Fund is recorded as an asset and
subsequently adjusted to market value.
B-15
<PAGE>
ADDITIONAL INFORMATION ABOUT DIVIDENDS AND TAXES
Each Fund is treated as a separate corporation for federal income tax purposes.
In order to qualify (or to continue to qualify) for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
(the "Code"), each Fund must distribute to its shareholders each taxable year at
least 90% of its investment company taxable income (consisting generally of net
investment income and net short-term capital gain) for such taxable year and
must meet several additional requirements. With respect to each Fund, these
requirements include the following: (1) the Fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans and gains from the sale or other disposition of stock or
securities or other income (including gains from options and futures) derived
with respect to its business of investing in stock or securities ("Income
Requirement"); (2) the Fund must derive less than 30% of its gross income each
taxable year from the sale or other disposition of stock or securities, or any
of the following, that were held for less than three months -- options or
futures that are not directly related to the Fund's principal business of
investing in securities (or options and futures with respect to securities) (the
"30% Test"); (3) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with these other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the outstanding voting securities of
the issuer; (4) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer; and (5) the Fund must distribute during its taxable year at least
90% of its investment company taxable income plus 90% of its net tax-exempt
interest income, if any.
The use of hedging and related income strategies, such as writing and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the character and timing of recognition of the income
received in connection therewith by each Fund eligible to use such strategies.
Income from transactions in options and futures derived by a Fund with respect
to its business of investing in securities, will qualify as permissible income
under the Income Requirement. However, income from the disposition of options
and futures contracts will be subject to the 30% Test if they are held for less
than three months.
If a Fund satisfies certain requirements, any increase in value on a position
that is part of a "designated hedge" will be offset by any decrease in value
(whether realized or not) of the offsetting hedging position during the period
of the hedge for purposes of determining whether the Fund satisfies the 30%
Test. Thus, only the net gain (if any) from the designated hedge will be
included in gross income for purposes of that Test. Each Fund will consider
whether it should seek to qualify for this treatment for its hedging
transactions. To the extent a Fund does not qualify for this treatment, it may
be forced to defer the closing out of certain options and futures contracts
beyond the time when it otherwise would be advantageous to do so, in order for
the Fund to qualify or continue to qualify as a RIC.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent the
RIC does not distribute, during each calendar year, 98% of its ordinary income,
determined on a calendar year basis, and 98% of its capital gains, determined,
in general, on an October 31 year end, plus certain undistributed amounts from
previous years. Each Fund anticipates that it will make sufficient timely
distributions to avoid imposition of the excise tax.
Under certain provisions of the Code, some shareholders may be subject to a 31%
withholding tax on ordinary income dividends, capital gains distributions and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom a certified taxpayer identification
number is not on file with the respective Fund or who, to that Fund's knowledge,
have furnished an incorrect number. When establishing an account, an investor
must certify under penalty of
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<PAGE>
perjury that such number is correct and that such shareholder is not otherwise
subject to backup withholding.
Ordinary income dividends paid by a Fund to shareholders who are non-resident
aliens or foreign entities generally will be subject to a 30% United States
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Non-resident shareholders are
urged to consult their own tax advisers concerning the applicability of the
United States withholding tax.
A shareholder who holds shares as a capital asset generally will recognize a
capital gain or loss upon the sale or exchange of such shares, which capital
gain or loss will be a long-term capital gain or loss if such shares are held
for more than one year. However, any loss realized by a shareholder who held
shares for six months or less will be treated as a long-term capital loss to the
extent of any distributions of net capital gains received by the shareholder
with respect to such shares.
A loss realized on a sale or exchange of shares of a Fund will be disallowed if
other Fund shares are acquired (whether through the automatic reinvestment of
dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
Dividends and capital gains distributions may also be subject to state and local
taxes.
The foregoing is only a general summary of some of the important federal income
tax considerations generally affecting the Funds and their shareholders. No
attempt is made to present a complete explanation of the federal tax treatment
of the Funds' activities. See the applicable Fund Prospectus for further tax
information.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state and local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in a
Fund.
PERFORMANCE INFORMATION
Performance information is computed separately for each Fund in accordance with
the formulas described below. At any time in the future, total return may be
higher or lower than in the past and there can be no assurance that any
historical results will continue.
Certain historical performance information for the Cornerstone Value Strategy
and the Cornerstone Growth Strategy, the respective investment strategies of the
Cornerstone Growth Fund and Cornerstone Value Fund, is included in the Fund
Prospectus relating to the Cornerstone Value and Cornerstone Growth Funds. See
"Performance Information" in the Funds' Prospectus.
Calculation of Total Return and Average Annual Total Return. Total Return with
respect to the shares of a Fund is a measure of the change in value of an
investment in the Fund over the period covered, which assumes that any dividends
or capital gains distributions are reinvested in that Fund's shares immediately
rather than paid to the investor in cash. The formula for Total Return with
respect to a Fund's shares used herein includes four steps: (1) adding to the
total number of shares purchased by a hypothetical $1,000 investment the number
of shares which would have been purchased if all dividends and distributions
paid or distributed during the period had been immediately reinvested; (2)
calculating the value of the hypothetical initial investment of $1,000 as of the
end of the period by multiplying the total number of shares on the last trading
day of the period by the net
B-17
<PAGE>
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing this account value for the
hypothetical investor by the initial $1,000 investment. Average Annual Total
Return is measured by annualizing Total Return over the period.
Performance Comparisons. Each Fund may from time to time include the Total
Return and the Average Annual Total Return of its shares in advertisements or in
information furnished to shareholders.
Each Fund may from time to time also include the ranking of its performance
figures relative to such figures for groups of mutual funds categorized by
Lipper Analytical Services ("Lipper") as having the same or similar investment
objectives or by similar services that monitor the performance of mutual funds.
Each Fund may also from time to time compare its performance to average mutual
fund performance figures compiled by Lipper in Lipper Performance Analysis.
Advertisements or information furnished to present shareholders or prospective
investors may also include evaluations of a Fund published by nationally
recognized ranking services and by financial publications that are nationally
recognized such as Barron's, Business Week, CDA Technologies, Inc., Changing
Times, Consumer's Digest, Dow Jones Industrial Average, Financial Planning,
Financial Times, Financial World, Forbes, Fortune, Hulbert's Financial Digest,
Institutional Investor, Investors Daily, Money, Morningstar Mutual Funds, The
New York Times, Personal Investor, Stanger's Investment Adviser, Value Line, The
Wall Street Journal, Wiesenberger Investment Company Service and USA Today.
The performance figures described above may also be used to compare the
performance of a Fund's shares against certain widely recognized standards or
indices for stock market performance. The following are the indices against
which the Funds may compare performance:
The Standard & Poor's Composite Index of 500 Stocks (the "S&P 500
Index") is a market value- weighted and unmanaged index showing the changes in
the aggregate market value of 500 stocks relative to the base period 1941-43.
The S&P 500 Index is composed almost entirely of common stocks of companies
listed on the NYSE, although the common stocks of a few companies listed on the
American Stock Exchange or traded OTC are included. The 500 companies
represented include industrial, transportation and financial services concerns.
The S&P 500 Index represents about 80% of the market value of all issues traded
on the NYSE.
The Wilshire 5000 Equity Index (or its component indices) represents
the return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.
The National Association of Securities Dealers Automated Quotation
System (NASDAQ) Composite Index covers 4,500 stocks traded over the counter. It
represents many small company stocks but is heavily influenced by about 100 of
the largest NASDAQ stocks. It is a value-weighted index calculated on price
change only and does not include income.
The Value Line (Geometric) Index is an unweighted index of the
approximately 1,700 stocks followed by the Value Line Investment Survey.
The Russell 2000/Small Stock Index comprises the smallest 2000 stocks
in the Russell 3000 Index, and represents approximately 11% of the Russell 3000
Index's market capitalization. The Russell 3000 Index comprises the 3,000
largest U.S. companies by market capitalization. The smallest company has a
market value of roughly $20 million.
In reports or other communications to shareholders, O'Shaughnessy Funds may also
describe general economic and market conditions affecting the Funds and may
compare the performance of the Funds with: (1) that of mutual funds included in
the rankings prepared by Lipper or similar investment services that monitor the
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<PAGE>
performance of mutual funds, (2) IBC/Donoghue's Money Fund Report, (3) other
appropriate indices of investment securities and averages for peer universes of
funds which are described in this Statement of Additional Information, or (4)
data developed by the Manager derived from such indices or averages.
OTHER INFORMATION
The Funds are organized as separate investment portfolios or series of the
O'Shaughnessy Funds, a Maryland corporation which was incorporated on May 20,
1996 under the name "O'Shaughnessy Funds, Inc."
The Articles of Incorporation of O'Shaughnessy Funds authorize the Board of
Directors to classify and reclassify any and all shares which are then unissued
into any number of classes, each class consisting of such number of shares and
having such designations, powers, preferences, rights, qualifications,
limitations, and restrictions, as shall be determined by the Board, subject to
the 1940 Act and other applicable law, and provided that the authorized shares
of any class shall not be decreased below the number then outstanding and the
authorized shares of all classes shall not exceed the amount set forth in the
Articles of Incorporation, as in effect from time to time.
Computation of Offering Price Per Share.
The offering price for shares of each Fund, based on the value of the
Fund's net assets or number of outstanding shares on October 3, 1996, is
calculated as set forth below.
<TABLE>
<CAPTION>
Cornerstone Cornerstone Aggressive Dogs of the
Value Fund Growth Fund Growth Fund Market Fund
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Assets.......................... $25,000 $25,000 $25,000 $25,000
Number of Shares Outstanding........ 2,500 2,500 2,500 2,500
Net Asset Value Per Share (net assets
divided by number of shares $10.00 $10.00 $10.00 $10.00
outstanding)........................
Sales Charge........................ None None None None
Offering Price...................... $10.00 $10.00 $10.00 $10.00
</TABLE>
Registration Statement. This Statement of Additional Information and the Fund
Prospectuses do not contain all the information included in the Registration
Statement filed with the Commission under the 1933 Act with respect to the
securities offered by the Fund Prospectuses. The Registration Statement,
including the exhibits filed therewith, may be examined at the office of the
Commission in Washington, D.C.
Statements contained in this Statement of Additional Information and the Fund
Prospectuses as to the contents of any contract or other document are not
complete and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information and the Fund Prospectuses form a part,
each such statement being qualified in all respects by such reference.
Counsel. The law firm of Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third
Avenue, New York, New York 10022, counsel to the Funds, has passed upon the
legality of the shares offered by the Fund Prospectuses.
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<PAGE>
Auditors. McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York
10017-2416, serves as independent auditors for the Funds.
Transfer Agent, Custodian and Fund Accountant. Firstar Trust Company
("Firstar"), 615 E. Michigan Street, Milwaukee, Wisconsin 53202, serves as
transfer agent, custodian and fund accountant for the Funds. As custodian,
Firstar will be responsible for, among other things, receipt of and disbursement
funds from the Fund's account, establishment of segregated accounts as
necessary, and transfer, exchange and delivery of Fund portfolio securities. As
fund accountant, Firstar will provide the Funds with various services including:
portfolio and tax accounting, valuation, expense accrual and payment, compliance
control and financial reporting.
Other. Prior to the effective date of this Registration Statement, O'Shaughnessy
Funds will sell 10,000 shares (2,500 shares of each Fund) to the Manager for the
purpose of providing required initial capital to the Funds.
FINANCIAL STATEMENTS OF THE FUNDS
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017-2416, serves
as independent auditors of the Funds. McGladrey & Pullen, on an annual basis,
will audit the financial statements prepared by the Manager and express an
opinion on such financial statements based on their audits.
B-20
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
O'Shaughnessy Funds, Inc.
We have audited the accompanying statements of assets and liabilities
of O'Shaughnessy Cornerstone Growth Fund, O'Shaughnessy Cornerstone Value Fund,
O'Shaughnessy Dogs of the Market(TM) Fund and O'Shaughnessy Aggressive Growth
Fund Series of O'Shaughnessy Funds, Inc. as of October 3, 1996. These financial
statements are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements 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 are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures related to the schedule. 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 referred to above present
fairly, in all material respects, the financial position of O'Shaughnessy
Cornerstone Growth Fund, O'Shaughnessy Cornerstone Value Fund, O'Shaughnessy
Dogs of the Market(TM) Fund and O'Shaughnessy Aggressive Growth Fund Series of
O'Shaughnessy Funds, Inc., as of October 3, 1996.
New York, New York
October 4, 1996
B-21
<PAGE>
O'SHAUGHNESSY FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES OF THE FUNDS
OCTOBER 3, 1996
<TABLE>
<CAPTION>
Cornerstone Cornerstone Dogs of the Aggressive
Growth Value Market(TM) Growth
Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
ASSETS
Cash in bank ..................................................$25,000 $25,000 $25,000 $25,000
Prepaid registration fees (Note 3) .............................14,314 14,314 14,781 14,781
Deferred organization expenses (Note 4) ........................24.291 24,291 24,292 24,292
------- ------- ------- -------
Total Assets ...............................................63,605 63,605 64,073 64,073
LIABILITIES
Payable for organization and registration expenses 38,605 38,605 39,073 39,073
------- ------- ------- -------
Net Assets applicable to each series of fund shares
outstanding; an unlimited number of shares of
Common Stock (par value $.0001) authorized $25,000 $25,000 $25,000 $25,000
====== ====== ====== ======
Numbers of shares outstanding 2,500 2,500 2,500 2,500
Net assets, offering and redemption price per share $10.00 $10.00 $10.00 $10.00
====== ====== ====== ======
</TABLE>
- --------------
1) O'Shaughnessy Cornerstone Growth Fund, O'Shaughnessy Cornerstone Value
Fund, O'Shaughnessy Aggressive Growth Fund and O'Shaughnessy Dogs of the
Market(TM) Fund (each a "Fund", and collectively, the "Funds"), are four
investment portfolios or series of O'Shaughnessy Funds, Inc.
("O'Shaughnessy Funds"), which was organized as a Maryland corporation on
May 20, 1996. O'Shaughnessy Funds is registered under the Investment
Company Act of 1940, as amended, as a diversified open-end management
investment company.
2) O'Shaughnessy Funds intends to enter into a Management Agreement (the
"Management Agreement") with O'Shaughnessy Capital Management, Inc. (the
"Manager"), a Distribution Agreement (the "Distribution Agreement") with
First Fund Distributors, Inc. (the "Distributor"), and an administration
agreement with Investment Company Administration Corporation (the
"Administrator"). (See "Management of the Fund" in the Statement of
Additional Information.) Certain officers and/or directors of the Fund are
officers and/or directors of the Manager, the Distributor and the
Administrator.
3) Prepaid registration fees are charged to income as the related shares are
issued.
4) Deferred organization expenses will be amortized over a five-year period
from the date O'Shaughnessy Funds commences operations. In the event that
the Manager (or any subsequent holder, redeems any of its original shares
prior to the end of the five-year period, the proceeds of the redemption
payable in respect of such shares shall be reduced by the pro rata share
(based on the proportionate share of the original shares redeemed to the
total number of original shares outstanding at the time or redemption) of
the unamortized deferred organization expenses as of the date of such
redemption. In the event a Fund is liquidated prior to the end of the
five-year period, the Manager (or any subsequent holder) shall bear the
unamortized deferred organization expenses.)
B-22
<PAGE>
Appendix A
OPTIONS AND FUTURES
Aggressive Growth Fund and Dogs of the Market Fund may use the following Hedging
Instruments:
Options on Securities -- A call option is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to buy
the security underlying the option at a specified price at any time during the
term of the option. The writer of the call option, who receives the premium, has
the obligation, upon exercise of the option during the option term, to deliver
the underlying security against payment of the exercise price. A put option is a
similar contract that gives its purchaser, in return for a premium, the right to
sell the underlying security at a specified price during the option term. The
writer of the put option, who receives the premium, has the obligation, upon
exercise of the option during the option term, to buy the underlying security at
the exercise price.
Options on Securities Indexes -- A securities index assigns relative values to
the securities included in the index and fluctuates with changes in the market
values of those securities. A securities index option operates in the same way
as a more traditional stock option, except that exercise of a securities index
option is effected with cash payment and does not involve delivery of
securities. Thus, upon exercise of a securities index option, the purchaser will
realize, and the writer will pay, an amount based on the difference between the
exercise price and the closing price of the securities index.
Stock Index Futures Contracts -- A stock index futures contract is a bilateral
agreement pursuant to which one party agrees to accept, and the other party
agrees to make, delivery of an amount of cash equal to a specified dollar amount
times the difference between the stock index value at the close of trading of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the stocks comprising the index is made. Generally,
contracts are closed out prior to the expiration date of the contract.
Interest Rate Futures Contracts -- Interest rates futures contracts are
bilateral agreements pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of debt security at a
specified future time and at a specified price. Although such futures contracts
by their terms call for actual delivery or acceptance of debt securities, in
most cases, the contracts are closed out before the settlement date without the
making or taking of delivery.
A-1
<PAGE>
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits.
(a) Financial Statements.
Contained in Part A, the Prospectus:
None
Contained in Part B, the Statement of Additional Information:
Statement of Assets and Liabilities as of October 3, 1996.
(b) Exhibits.
(1)(a) Articles of Incorporation of Registrant.*
(b) Articles of Amendment, dated July 2, 1996.*
(2)(a) By-Laws of Registrant.
(b) Amended and Restated By-Laws of Registrant.
(3) Inapplicable.
(4) Instrument defining rights of Shareholders
(Incorporated by reference to Exhibits 1 and 2
above).
(5) Management Agreement between Registrant and
O'Shaughnessy Capital Management, Inc.
(6) Distribution Agreement between Registrant and First
Fund Distributors, Inc.
(7) Inapplicable.
(8) Custody Agreement between the Registrant and Firstar
Trust Company.
(9)(a) Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between the
Registrant and Firstar Trust Company.
(b) Administration Agreement between Registrant and
Investment Company Administration Corporation.
(c) Fund Accounting Agreement between the Registrant and
Firstar Trust Company
C-1
<PAGE>
(10) Opinion and consent of Shereff, Friedman, Hoffman &
Goodman, LLP, counsel for Registrant.
(11) Consent of McGladrey & Pullen, LLP, independent
auditors for the Registrant.
(12) Inapplicable.
(13) Certificate of sole shareholder, O'Shaughnessy
Capital Management, Inc.
(14) Inapplicable.
(15) Inapplicable.
(16) Inapplicable.
(17) Inapplicable.
(18) Inapplicable.
* Incorporated by reference to identically numbered Exhibits in
Registrant's initial Registration Statement on Form N-1A, filed on July
3, 1996 (File No. 333-7595).
Item 25. Persons Controlled by or Under Common Control with Registrant.
Prior to the effective date of this Registration Statement, the
Registrant will sell 10,000 shares of the Registrant (2,500 shares of
each Fund) to O'Shaughnessy Capital Management, Inc. (the "Manager").
Item 26. Number of Holders of Securities.
As of the date hereof the number of record holders of shares of Common
Stock, par value $0.0001 per share, of O'Shaughnessy Funds, Inc., was
as follows:
Title of Series Number of Record Holders
--------------- ------------------------
O'Shaughnessy Cornerstone Value Fund 1
O'Shaughnessy Cornerstone Growth Fund 1
O'Shaughnessy Aggressive Growth Fund 1
O'Shaughnessy Dogs of the Market(TM)Fund 1
Item 27. Indemnification.
Article V of the Registrant's By-Laws relating to the indemnification
of officers and trustees is quoted below:
C-2
<PAGE>
ARTICLE V
Indemnification
Each officer and director of the Corporation shall be indemnified by
the Corporation to the full extent permitted under the General Laws of the State
of Maryland, except that such indemnity shall not protect any such person
against any liability to the Corporation or any stockholder thereof to which
such person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. Absent a court determination that an officer or director
seeking indemnification was not liable on the merits or guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, the decision by the Corporation to
indemnify such person must be based upon the reasonable determination of
independent legal counsel or the vote of a majority of a quorum of the directors
who are neither "interested persons," as defined in Section 2(a)(19) of the
Investment Company Act, nor parties to the proceeding ("non-party independent
directors"), after review of the facts, that such officer or director is not
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article V shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland without a preliminary
determination as to his ultimate entitlement to indemnification (except as set
forth below); provided, however, that the person seeking indemnification shall
provide to the Corporation a written affirmation of his good faith belief that
the standard of conduct necessary for indemnification by the Corporation has
been met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance; (c) a majority of a
quorum of non-party independent directors, or independent legal counsel in a
written opinion, shall determine, based on a review of facts readily available
to the Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the General
Laws of the State of Maryland, from liability arising from his activities as
officer or director of the Corporation. The Corporation, however, may not
purchase insurance on behalf of any officer or director of the Corporation that
protects or purports to protect such person from liability to the Corporation or
to its stockholders to which such officer or director would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
C-3
<PAGE>
The Corporation may indemnify, make advances or purchase insurance to
the extent provided in this Article V on behalf of an employee or agent who is
not an officer or director of the Corporation.
The Registrant has purchased an insurance policy insuring its officers
and Directors against liabilities, and certain costs of defending claims against
such officers and Directors, to the extent such officers and Directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties.
Article IV of the Management Agreement between Registrant and
O'Shaughnessy Capital Management limits the liability of O'Shaughnessy Capital
Management to liabilities arising from willful misfeasance, bad faith or gross
negligence in the performance of their respective duties or from reckless
disregard of their respective duties and obligations.
In Section 6(b) of the Distribution Agreement relating to the
securities being offered hereby, the Registrant agrees to indemnify the
Distributor and each person, if any, who controls the Distributor within the
meaning of the Securities Act of 1933 (the "Act"), against certain types of
civil liabilities arising in connection with the Registration Statement or
Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or controlling
person or the principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and other Connections of Investment Manager.
O'Shaughnessy Capital Management, Inc., the Investment Manager of the
Trust, is primarily in the business of providing investment management
services. Reference is made to the most recent Form ADV and schedules
thereto of O'Shaughnessy Capital Management on file with the Commission
(File No. 801-33868) for a description of the names and employment of
the directors and officers of O'Shaughnessy Capital Management and
other required information.
Item 29. Principal Underwriters.
(a) First Fund Distributors, Inc., acts as the Principal Underwriter
for the Registrant and also acts as principal underwriter for the
following investment companies:
C-4
<PAGE>
Berger/BIAM International Fund
Guinness Flight Investment Funds, Inc.
Jurika & Voyles Mutual Fund Group
Hotchkis and Wiley Funds
PIC Investment Trust
Rainier Investment Management Mutual Funds
RNC Liquid Assets Fund, Inc.
Avondale Total Return Fund
Osterweis Fund
Perkins Opportunity Fund
Pro-Conscience Women's Equity Mutual Fund
Trent Equity Fund
Academy Value Fund
Kayne Mutual Funds
Boston Managed Growth Fund
Leonetti Balanced Fund
Lighthouse Growth Fund
Masters Concentrated Select Trust
US Global Leaders Growth Fund
Harris Bretall Sullivan & Smith Growth Equity Fund
Pzena Focused Value Fund
Titan Financial Services Fund
(b) Set forth below is information concerning each director and
officer of First Fund Distributors, Inc.
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Offices
Name and Principal with Principal Position and Offices
Business Address Underwriter with Registrant
---------------- ----------- ---------------
<S> <C> <C>
Robert H. Wadsworth President and Treasurer Assistant Treasurer
4455 E. Camelback Road
Suite 261E
Phoenix, AZ 85018
Eric M. Banhazl Vice President None
2025 E. Financial Way
Glendora, CA 91741
Steven J. Paggioli Vice President and Vice President and
479 West 22nd Street Secretary Secretary
New York, NY 10011
(c) Not applicable.
</TABLE>
C-5
<PAGE>
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of
1940 and the rules promulgated thereunder are in the possession of the
Registrant's custodian and transfer agent at the address set forth in
Part A, except those records relating to portfolio transactions and the
basic organizational and corporate documents of the Registrant (see
Subsections (2)(iii), (4), (5), (6), (7), (9), (10) and (11) of Rule
31a-1(b)), which, with respect to portfolio transactions are kept by
the Manager and with respect to corporate documents by its
Administrator at the addresses set forth in Parts A and B.
Item 31. Management Services.
None.
Item 32. Undertakings.
Registrant hereby undertakes to:
(a) File a post-effective amendment, using financial statements
which may not be certified, within four to six months of the
effective date of this Registration Statement; and
(b) Furnish each person to whom a Prospectus is delivered with a
copy of Registrant's latest annual request to shareholders,
upon request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Pre-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Greenwich,
and state of Connecticut, on the 9th day of October, 1996.
O'SHAUGHNESSY FUNDS, INC.
Registrant
By: /s/ James P. O'Shaughnessy
--------------------------
James P. O'Shaughnessy, President
Pursuant to the requirement of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ James P. O'Shaughnessy
--------------------------
James P. O'Shaughnessy President (Chief Executive October 9, 1996
Officer) and Director
/s/ James P. O'Shaughnessy
----------------------
James P. O'Shaughnessy Treasurer (Principal Financial October 9, 1996
and Accounting Officer)
/s/ C. Flemming Heilmann
----------------------
C. Flemming Heilmann Director October 9, 1996
/s/ Joseph John McAleer
---------------------
Joseph John McAleer Director October 9, 1996
/s/ Robert E. Ix
------------
Robert E. Ix Director October 9, 1996
</TABLE>
C-7
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
2(b) Amended and Restated By-Laws of Registrant.
5. Management Agreement between Registrant and O'Shaughnessy
Capital Management, Inc.
6. Distribution Agreement between Registrant and First Fund
Distributors, Inc.
8 Custody Agreement between the Registrant and Firstar Trust
Company.
9(a) Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between the Registrant and Firstar
Trust Company.
(b) Administration Agreement between Registrant and Investment
Company Administration Corporation.
(c) Fund Accounting Agreement between Registant and Firstar Trust
Company.
10 Opinion and consent of Shereff, Friedman, Hoffman & Goodman,
LLP.
11 Consent of independent auditors for the Registrant.
13 Certificate of sole shareholder, O'Shaughnessy Capital
Management, Inc.
C-8
AMENDED AND RESTATED BY-LAWS
OF
O'SHAUGHNESSY FUNDS, INC.
ARTICLE I
Meetings of Stockholders
Section 1. Annual Meeting. So long as the Corporation is registered as
an investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act," such term to include the rules and regulations
promulgated under the Investment Company Act unless otherwise specified or the
context otherwise requires), annual meetings of the stockholders shall not be
held except where required to be held by the Investment Company Act or by the
Maryland General Corporation Law or when called by the Board of Directors or by
an officer or officers authorized to take such action by the Board of Directors.
If in any calendar year the Corporation is required or elects to hold an annual
meeting, the meeting shall be held on such day, not a Saturday, Sunday or legal
holiday, as the Board of Directors or the officer or officers calling the
meeting may prescribe. At each such annual meeting, the stockholders shall elect
a Board of Directors and transact such other business as may properly come
before the meeting. The provisions of these By-Laws which contemplate the
holding of an annual meeting of stockholders shall be suspended during any
calendar year in which no annual meeting of stockholders is held.
Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law or by the Articles of Incorporation (such term
to include the Articles of Incorporation of the Corporation as the same may be
amended, supplemented or restated from time to time), may be called for any
purpose or purposes by a majority of the Board of Directors, the Chairman of the
Board, the President, or on the written request of at least 10% of the holders
of the outstanding shares of capital stock of the Corporation entitled to be
cast at such meeting to the extent permitted by Maryland law.
Section 3. Place of Meetings. The annual meeting and any special
meeting of the stockholders shall be held at such place within the United States
as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,
date and time of the holding of each annual and special meeting of the
stockholders and the purpose or purposes of each special meeting shall be given
personally or by mail, not less than ten nor more than ninety days before the
date of such meeting, to each stockholder entitled to vote at such meeting and
to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed
1
<PAGE>
to be duly given when deposited in the United States mail addressed to the
stockholder at his address as it appears on the records of the Corporation, with
postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived
by any stockholder who shall attend such meeting in person or by proxy, or who
shall, either before or after the meeting, submit a signed waiver of notice
which is filed with the records of the meeting. When a meeting is adjourned to
another time and place, unless the Board of Directors, after the adjournment,
shall fix a new record date for an adjourned meeting, or the adjournment is for
more than one hundred and twenty days after the original record date, notice of
such adjourned meeting need not be given if the time and place to which the
meeting shall be adjourned were announced at the meeting at which the
adjournment is taken.
Section 5. Quorum. At all meetings of the stockholders, the holders of
shares entitled to cast one-third of the votes entitled to be cast, present in
person or by proxy, shall constitute a quorum for the transaction of any
business, except as otherwise provided by statute or by the Articles of
Incorporation. In the absence of a quorum no business may be transacted, except
that the holders of a majority of the shares of stock present in person or by
proxy and entitled to vote may adjourn the meeting from time to time, without
notice other than announcement thereat except as otherwise required by these
By-Laws, until the holders of the requisite amount of shares of stock shall be
so present. At any such adjourned meeting at which a quorum may be present any
business may be transacted which might have been transacted at the meeting as
originally called. The absence from any meeting, in person or by proxy, of
holders of the number of shares of stock of the Corporation in excess of a
majority thereof which may be required by the laws of the State of Maryland, the
Investment Company Act, or other applicable statute, the Articles of
Incorporation, or these By-Laws, for action upon any given matter shall not
prevent action at such meeting upon any other matter or matters which may
properly come before the meeting, if there shall be present thereat, in person
or by proxy, holders of the number of shares of stock of the Corporation
required for action in respect of such other matter or matters.
Section 6. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, shall act
as chairman of the meeting. The Secretary, or in his absence or inability to
act, any person appointed by the chairman of the meeting, shall act as secretary
of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his name on
the record of stockholders of the Corporation as of the record date
2
<PAGE>
determined pursuant to Section 9 of this Article or if such record date shall
not have been so fixed, then at the later of (i) the close of business on the
day on which notice of the meeting is mailed or (ii) the thirtieth day before
the meeting.
Each stockholder entitled to vote at any meeting of
stockholders may authorize another person or persons to act for him by a proxy
signed by such stockholder or his attorney-in-fact. No proxy shall be valid
after the expiration of eleven months from the date thereof, unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases where such proxy states that it
is irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these By-Laws,
any corporate action to be taken by vote of the stockholders (other than the
election of directors which shall be by plurality vote) shall be authorized by a
majority of the total votes cast at a meeting of stockholders by the holders of
shares present in person or represented by proxy and entitled to vote on such
action.
If a vote shall be taken on any question other than the
election of directors, which shall be by written ballot, then unless required by
statute or these By-Laws, or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each ballot
shall be signed by the stockholder voting, or by his proxy, if there be such
proxy, and shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date, which may not be prior to the
close of business on the day the record date is fixed, shall be not more than
ninety nor less than ten days before the date of the meeting of stockholders.
All persons who were holders of record of shares at such time, and not others,
shall be entitled to vote at such meeting and any adjournment thereof.
Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath to execute faithfully the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting powers of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a
3
<PAGE>
certificate of any fact found by them. No director or candidate for the office
of director shall act as inspector of an election of directors. Inspectors need
not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any annual or special meeting of stockholders, or any
action which may be taken at any annual or special meeting of stockholders, may
be taken without a meeting, without prior notice and without a vote, if the
following are filed with the records of stockholders meetings: (i) a unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter, and (ii) a written waiver of any right to
dissent signed by each stockholder entitled to notice of the meeting but not
entitled to vote thereat.
ARTICLE II
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Articles
of Incorporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the stockholders by law or by the Articles of Incorporation or
these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution adopted by a majority of the directors then in
office; provided, however, that the number of directors shall in no event be
less than the number required by the Maryland General Corporation Law. Any
vacancy created by an increase in directors may be filled in accordance with
Section 6 of this Article II. No reduction in the number of directors shall have
the effect of removing any director from office prior to the expiration of his
term unless such director is specifically removed pursuant to Section 5 of this
Article II at the time of such decrease. Directors need not be stockholders.
Section 3. Term of Directors. The term of office of each director shall
be from the time of his election and qualification until the election of
directors next succeeding his election and until his successor shall have been
elected and shall have qualified, or until his death, or until he shall have
resigned, or until he shall have been removed as hereinafter provided in these
By-Laws, or as otherwise provided by statute or the Articles of Incorporation.
Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
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Section 5. Removal of Directors. Any director of the Corporation may be
removed with or without cause by the stockholders by a vote of a majority of the
outstanding shares of stock then entitled to be cast in the election of
directors. This Section 5 of Article II of the By-Laws is not subject to
alteration or repeal by the Board of Directors, subject to the requirements of
the Investment Company Act of 1940, as amended.
Section 6. Vacancies. Subject to the provisions of the Investment
Company Act, any vacancies in the Board, whether arising from death,
resignation, removal, an increase in the number of directors or any other cause,
shall be filled by a vote of the Board of Directors as provided by statute.
Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.
Section 8. Regular Meeting. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.
Section 9. Special Meetings. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 10. Telephone Meetings. Members of the Board of Directors or of
any committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the provisions of
the Investment Company Act, participation in a meeting by these means
constitutes presence in person at the meeting.
Section 11. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice which is filed with the records of the meeting
or who shall attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver of notice of any meeting need not state the
purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by the
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Articles of Incorporation, these By-Laws, the Investment Company Act, or other
applicable statute, the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn such meeting to another time and place until a
quorum shall be present thereat. Notice of the time and place of any such
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
Section 14. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his absence
or inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the Investment Company Act, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writings or
writing are filed with the minutes of the proceedings of the Board or committee.
Section 16. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.
ARTICLE III
Committees
Section 1. Executive Committee. The Board may, by resolution adopted by
a majority of the entire Board, designate an Executive Committee consisting of
two or more of the directors of the Corporation, which committee shall have and
may exercise all the powers and authority of the Board with respect to all
matters other than:
(a) the recommendation or submission to stockholders of any action
requiring authorization of stockholders pursuant to statute or
the Articles of Incorporation;
(b) the filling of vacancies on the Board of Directors;
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(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the
Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in
the Investment Company Act, or the taking of any other action
required to be taken by the Board of Directors by the
Investment Company Act;
(e) the amendment or repeal of these By-Laws or the adoption of
new By-Laws;
(f) the amendment or repeal of any resolution of the Board which
by its terms may be amended or repealed only by the Board;
(g) the declaration of dividends or distributions on stock and the
issuance of stock of the Corporation; and
(h) the approval of any merger or share exchange which does not
require stockholder approval.
The Executive Committee shall keep written minutes of its
proceedings and shall report such minutes to the Board. All such proceedings
shall be subject to revision or alteration by the Board; provided, however, that
third parties shall not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees of the Board, each such committee to
consist of one or more directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two, of the members of
any committee shall be present in person at any meeting of such committee in
order to constitute a quorum (unless the committee consists of one member, in
which case one member will constitute a quorum) for the transaction of business
at such meeting, and the act of a majority present shall be the act of such
committee (unless the committee consists of one member in which case the act of
one member shall be the act of the committee). The Board may designate a
chairman of any committee and such chairman or any two members of any committee
(or any one member, in the case of a one member committee) may fix the time and
place of its meetings unless the Board shall otherwise provide. In the absence
or disqualification of any member of any committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. The Board shall have the power at any time to change the
membership of any committee, to fill all vacancies, to designate alternate
members to replace any absent or disqualified member, or to dissolve any
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such committee. Nothing herein shall be deemed to prevent the Board from
appointing one or more committees consisting in whole or in part of persons who
are not directors of the Corporation; provided, however, that no such committee
shall have or may exercise any authority or power of the Board in the management
of the business or affairs of the Corporation, except as may be prescribed by
the Board.
ARTICLE IV
Officers, Agents and Employees
Section 1. Number, Qualification, Election and Tenure. The officers of
the Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more offices
may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity. Such officers shall be elected annually at a regular or
special meeting of the Board of Directors, each to hold office until his
successor shall have been duly elected and shall have qualified, or until his
death, or until he shall have resigned, or have been removed, as hereinafter
provided in these By-Laws. The Board may from time to time elect, or delegate to
the President the power to appoint, such officers (including one or more
Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents, as may be necessary or desirable for the
business of the Corporation. Such officers and agents shall have such duties and
shall hold their offices for such terms as may be prescribed by the Board or by
the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of resignation to the Board, the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which
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shall be vacant, in the manner prescribed in these By-Laws for the regular
election or appointment to such office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.
Section 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), the President shall preside at all meetings of the stockholders
and of the Board of Directors. He shall have, subject to the control of the
Board of Directors, general charge of the business and affairs of the
Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.
Section 8. Vice President. Each Vice President shall have such powers
and perform such duties as the Board of Directors or the President may from time
to time prescribe.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the
funds and securities of the Corporation, except those which
the Corporation has placed in the custody of a bank or trust
company or member of a national securities exchange (as that
term is defined in the Securities Exchange Act of 1934, as
amended) pursuant to a written agreement designating such bank
or trust company or member of a national securities exchange
as custodian of the property of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the
credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board,
taking proper vouchers therefor; and
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(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 10. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the
committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By- Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation
and, if required, affix and attest the seal to all stock
certificates of the Corporation (unless the seal of the
Corporation on such certificate shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation
under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 11. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board may confer for the time being, the powers or duties, or
any of them, of such officer upon any other officer or upon any director.
ARTICLE V
Indemnification
Each officer and director of the Corporation shall be
indemnified by the Corporation to the full extent permitted under the General
Laws of the State of Maryland, except that such indemnity shall not protect any
such person against any liability to the Corporation or any stockholder thereof
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Absent a court determination that an
officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Corporation to indemnify such person must be based upon the reasonable
determination of independent legal counsel or the vote of a majority of a quorum
of the directors who are neither "interested
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persons," as defined in Section 2(a)(19) of the Investment Company Act, nor
parties to the proceeding ("non-party independent directors"), after review of
the facts, that such officer or director is not guilty of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Each officer and director of the Corporation claiming
indemnification within the scope of this Article V shall be entitled to advances
from the Corporation for payment of the reasonable expenses incurred by him in
connection with proceedings to which he is a party in the manner and to the full
extent permitted under the General Laws of the State of Maryland without a
preliminary determination as to his ultimate entitlement to indemnification
(except as set forth below); provided, however, that the person seeking
indemnification shall provide to the Corporation a written affirmation of his
good faith belief that the standard of conduct necessary for indemnification by
the Corporation has been met and a written undertaking to repay any such
advance, if it should ultimately be determined that the standard of conduct has
not been met, and provided further that at least one of the following additional
conditions is met: (a) the person seeking indemnification shall provide a
security in form and amount acceptable to the Corporation for his undertaking;
(b) the Corporation is insured against losses arising by reason of the advance;
(c) a majority of a quorum of non-party independent directors, or independent
legal counsel in a written opinion, shall determine, based on a review of facts
readily available to the Corporation at the time the advance is proposed to be
made, that there is reason to believe that the person seeking indemnification
will ultimately be found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer
or director protecting such person to the full extent permitted under the
General Laws of the State of Maryland, from liability arising from his
activities as officer or director of the Corporation. The Corporation, however,
may not purchase insurance on behalf of any officer or director of the
Corporation that protects or purports to protect such person from liability to
the Corporation or to its stockholders to which such officer or director would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
The Corporation may indemnify, make advances or purchase
insurance to the extent provided in this Article V on behalf of an employee or
agent who is not an officer or director of the Corporation.
ARTICLE VI
Stock
Section 1. Stock Certificates. If so determined by resolution of the
Board of Directors, each holder of stock of the Corporation shall be entitled
upon request to have a certificate or certificates, in such form as shall be
approved by the Board of Directors, representing the number of shares of stock
of the Corporation owned by him, provided, however, that certificates for
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fractional shares will not be delivered in any case. Certificates representing
shares of stock shall be signed by or in the name of the Corporation by the
President or a Vice President or the Chairman of the Board and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in the office at the date of issue.
Section 2. Books of Account and Record of Stockholders. There shall be
kept at the principal executive office of the Corporation correct and complete
books and records of account of all the business and transactions of the
Corporation.
Section 3. Transfer of Shares. Transfer of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for such shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
alleged to have been lost or destroyed or which shall have been mutilated, and
the Board of Directors may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding,
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the Board of Directors, in its absolute discretion, may refuse to issue any such
new certificate, except pursuant to legal proceedings under the laws of the
State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions. The
Board may fix, in advance, a date not more than ninety days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of interests or evidences of interests arising out of any
changes, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
ARTICLE VII
Seal
The seal of the Corporation shall be in the form determined by
the Board of Directors and shall bear, in addition to any other emblem or device
approved by the Board of Directors, the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Maryland". Said seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced. If the Corporation is required to place its seal to a
document, it is sufficient to meet the requirements of any law, rule or
regulation relating to a corporate seal to place the word "(seal)" adjacent to
the signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
The fiscal year of the Corporation shall be as determined by
the Board of Directors from time to time.
ARTICLE IX
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, transferred
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or otherwise disposed of subject to any limits imposed by these By-Laws and
pursuant to authorization by the Board of Directors and, when so authorized to
be held on behalf of the Corporation or sold, transferred or otherwise disposed
of, may be transferred from the name of the Corporation by the signature of the
President or a Vice President or the Treasurer or pursuant to any procedure
approved by the Board of Directors, subject to applicable law.
ARTICLE X
Amendments
These By-Laws or any of them may be amended, altered or
repealed at any regular meeting of the stockholders or at any special meeting of
the stockholders by a favorable vote of the holders of not less than a majority
of all votes cast on the matter at such meeting, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors, except any particular By-Law which is
specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act.
14
MANAGEMENT AGREEMENT
AGREEMENT made this ____ day of __________, 1996 by and
between O'SHAUGHNESSY FUNDS, INC., a Maryland corporation (hereinafter referred
to as the "Corporation"), on behalf of each of its investment series set forth
on Schedule A hereto as it may be amended from time to time (hereinafter
referred to each as a "Fund" and together, as the "Funds"), and O'SHAUGHNESSY
CAPITAL MANAGEMENT, INC., a Maryland corporation (hereinafter referred to as the
"Manager").
W I T N E S S E T H:
WHEREAS, the Corporation is engaged in business as a
diversified open-end management investment company registered under the
Investment Company Act of 1940, as amended (hereinafter referred to as the
"Investment Company Act"); and
WHEREAS, the Manager is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940; and
WHEREAS, the Corporation on behalf of the Funds desires to
retain the Manager to provide management and investment advisory services to the
Funds in the manner and on the terms hereinafter set forth; and
WHEREAS, the Manager is willing to provide management and
investment advisory services to the Funds on the terms and conditions hereafter
set forth;
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, the Corporation, on behalf of the Funds, and
the Manager hereby agree as follows:
ARTICLE I
Duties of the Manageras a manager
The Corporation hereby employs the Manager to act as a manager
and investment adviser of the Funds and to furnish the management and investment
advisory services described below, subject to the policies of the Funds and the
review by and overall consent of the Board of Directors of the Corporation, for
the period and on the terms and conditions set forth in this Agreement. The
Manager hereby accepts such employment and agrees during such period, at its own
expense, to render, or arrange for the rendering of, such services and to assume
the obligations herein set forth for the compensation provided for herein. The
Manager shall for all purposes herein be deemed to be an independent contractor
and shall, unless otherwise expressly provided or authorized, have no authority
to act for or represent the Corporation or the Funds in any way or otherwise be
deemed agents of the Corporation or the Funds. Additional investment series may
from time to time
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be added to those covered by this Agreement by the parties by executing a new
Schedule A which shall become effective upon its execution and shall supersede
any Schedule A having an earlier date.
(a) Management Services. The Manager shall perform the
management services necessary for the operation of the Funds as hereinafter
provided. The Manager shall generally monitor each Fund's compliance with
investment policies and restrictions as set forth in its currently effective
Prospectus and Statement of Additional Information relating to the shares of the
Fund under the Securities Act of 1933, as amended (each a "Prospectus" and
"Statement of Additional Information",- respectively). The Manager shall provide
the Corporation with such other services as the Manager, subject to review by
the Directors, shall from time to time determine to be necessary or useful to
perform its obligations under this Agreement. The Manager shall make reports to
the Directors of its performance of obligations hereunder and furnish advice and
recommendations with respect to such other aspects of the business and affairs
of the Corporation as it shall determine to be desirable.
(b) Investment Advisory Services. With respect to each Fund:
(i) The Manager shall provide such investment research,
advice and supervision as the Fund may from time to time consider necessary for
the proper supervision of the assets of the Fund, shall furnish continuously an
investment program for the Fund and shall determine from time to time which
securities shall be purchased, sold or exchanged and what portion of the assets
of the Fund shall be held in the various securities in which the Fund invests,
options, futures, options on futures or cash, subject always to the restrictions
of the Articles of Incorporation and ByLaws of the Corporation, as amended from
time to time, the provisions of the Investment Company Act and the statements
relating to the Fund's investment objectives, investment policies and investment
restrictions as the same are set forth in the Fund's currently effective
Prospectus and Statement of Additional Information. Should the Directors at any
time, however, make any definite determination as to investment policy and
notify the Manager thereof in writing, the Manager shall be bound by such
determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked.
(ii) To the extent applicable, the Manager shall also
make decisions for the Fund as to foreign currency matters and make
determinations as to foreign exchange contracts.
(iii) The Manager shall make decisions for the Fund as
to the manner in which voting rights, rights to consent to corporate action and
any other rights pertaining to the Fund's portfolio securities shall be
exercised.
(iv) The Manager shall take, on behalf of the Fund, all
actions which it deems necessary to implement the Fund's investment policies,
and in particular to place all orders for the purchase or sale of portfolio
securities for the Fund's account with brokers or dealers selected by it, and to
that end, the Manager is authorized as the agent of the Fund to give
instructions to the custodian of the Fund as to deliveries of securities and
payments of cash for the account of the Fund.
(v) In connection with the selection of such brokers or
dealers and the placing of such orders with respect to assets of the Fund, the
Manager is directed at all times to seek to obtain execution and prices within
the policy guidelines determined by the Directors and set forth
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in the Fund's Prospectus and Statement of Additional Information. Subject to
this requirement and the provisions of the Investment Company Act, the
Securities Exchange Act of 1934, as amended, and other applicable provisions of
law, the Manager may select brokers or dealers with which it or the Corporation
is affiliated (if any).
ARTICLE II
Allocation of Charges and Expenses
(a) The Manager. The Manager assumes and shall pay for
maintaining the staff and personnel necessary to perform its obligations under
this Agreement, shall pay all compensation relating to service to the
Corporation of Officers and Directors of the Corporation who are affiliated
persons of the Manager, and shall pay the expenses of the Funds incurred in
connection with the continuous offering of Fund shares.
(b) The Corporation. Except as described in paragraph (a)
hereof, the Corporation, on behalf of each Fund, assumes and shall pay all other
Fund expenses, including, without limitation: taxes, expenses for legal and
auditing services, costs of printing proxies, stock certificates, shareholder
reports, Prospectuses and Statements of Additional Information, charges of the
custodian, any sub-custodian and transfer agent, expenses of portfolio
transactions, expenses of redemption of shares, Securities and Exchange
Commission fees, expenses of registering the shares under federal, state and
foreign laws, fees and actual out-of-pocket expenses of Directors who are not
affiliated persons of the Manager, accounting and pricing costs (including the
daily calculation of the net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, and other expenses
properly payable by each Fund.
ARTICLE III
Compensation of the Manager
(a) Management and Investment Advisory Fee. For the services
rendered, the facilities furnished and expenses assumed by the Manager, each
Fund shall pay to the Manager at the end of each calendar month a fee,
commencing on the day following effectiveness hereof, based upon the average
daily value of the net assets of such Fund, as determined and computed in
accordance with the description of the determination of net asset value
contained in the relevant Prospectus and Statement of Additional Information.
The fee payable by each Fund is set forth on Schedule A hereto.
If this Agreement becomes effective subsequent to the first
day of a month or shall terminate before the last day of a month, compensation
for that part of the month that this Agreement is in effect shall be prorated in
a manner consistent with the calculation of the fee as set forth above. Subject
to the provisions of subsection (b) hereof, payment of the Manager's
compensation for the preceding month shall be made as promptly as possible after
completion of the computations contemplated by subsection (b) hereof. During any
period when the determination of net asset value
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is suspended by the Directors, the net asset value of a share as of the last
business day prior to such suspension shall for this purpose be deemed to be the
net asset value at the close of each succeeding business day until it is again
determined.
(b) Expense Limitations. In the event the operating expenses
of a Fund, including amounts payable to the Manager pursuant to subsection (a)
hereof, for any fiscal year ending on a date on which this Agreement is in
effect exceed the expense limitations applicable to the Fund imposed by
applicable state securities laws or regulations thereunder, as such limitations
may be raised or lowered from time to time, the Manager shall reduce its
management fee with respect to such Fund by the extent of such excess and, if
required pursuant to any such laws or regulations, will reimburse such Fund in
the amount of such excess; provided, however, to the extent permitted by law,
there shall be excluded from such expenses the amount of any interest, taxes,
brokerage fees and commissions, distribution fees and extraordinary expenses
(including but not limited to legal claims and liabilities and litigation costs
and any indemnification related thereto) paid or payable by such Fund. Whenever
the expenses of a Fund exceed a pro rata portion of the applicable annual
expense limitations, the estimated amount of reimbursement under such
limitations shall be applicable as an offset against the monthly payment of the
fee due to the Manager with respect to such Fund. Should two or more such
expense limitations be applicable at the end of the last business day of the
month, that expense limitation which results in the largest reduction in the
Manager's fee shall be applicable.
ARTICLE IV
Limitation of Liability of the Manager
The Manager shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of a Fund, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder. As used in this Article IV,
the term "Manager" shall include any directors, officers and employees of the
Manager.
ARTICLE V
Activities of the Manager
The services of the Manager to the Funds are not to be deemed
to be exclusive, and the Manager is free to render services to other investment
advisory clients. It is understood that Directors, officers, employees and
shareholders of the Corporation are or may become interested in the Manager, as
directors, officers, employees and shareholders or otherwise, and that
directors, officers, employees and shareholders of the Manager are or may become
similarly interested in the Corporation.
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ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first
above written and shall remain in force with respect to each Fund until ____,
1998 and thereafter, but only so long as such continuance is specifically
approved with respect to each Fund at least annually by: (i) the Directors, or
by the vote of a majority of the outstanding voting securities of the Fund, and
(ii) a majority of those Directors who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called for the
purpose of voting on such approval.
This Agreement may be terminated at any time with respect to a
Fund, without the payment of any penalty, by the Directors or by the vote of a
majority of the outstanding voting securities of such Fund, or by the Manager,
on sixty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
ARTICLE VII
Amendments of this Agreement
With respect to a Fund, this Agreement may be amended by the
parties only if such amendment is specifically approved by: (i) the vote of a
majority of outstanding voting securities of such Fund, and (ii) a majority of
those Directors who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose of voting on
such approval.
ARTICLE VIII
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting
securities," "assignment," "affiliated person" and "interested person," when
used in this Agreement, shall have the respective meanings specified in the
Investment Company Act and the rules thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.
5
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ARTICLE IX
Governing Law
This Agreement shall be construed in accordance with laws of
the State of New York and the applicable provisions of the Investment Company
Act. To the extent that the applicable laws of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
O'SHAUGHNESSY FUNDS, INC.
By:_____________________________
Name:
Title:
O'SHAUGHNESSY CAPITAL MANAGEMENT, INC.
By:_____________________________
Name:
Title:
6
<PAGE>
Schedule A
Compensation
Name of Fund (as a % of average daily net assets)
- ------------ ------------------------------------
O'Shaughnessy Cornerstone Valve Fund .......................0.74%
O'Shaughnessy Cornerstone Growth Fund ......................0.74%
O'Shaughnessy Aggressive Growth Fund .......................0.74%
O'Shaughnessy Dogs of the Market(TM)Fund ...................0.74%
Date: ____________
O'SHAUGHNESSY FUNDS, INC.
By:___________________________________
Name:
Title:
O'SHAUGHNESSY CAPITAL MANAGEMENT, INC.
By:____________________________________
Name:
Title:
7
DISTRIBUTION AGREEMENT
This Agreement made this day of , 1996 by and between
O'SHAUGHNESSY FUNDS, INC., a Maryland Corporation (the "Corporation"), and FIRST
FUND DISTRIBUTORS, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H:
WHEREAS, the Corporation is registered as an open-end
management investment company under the Investment Company Act of 1940 (the
"1940 Act"), with shares of common stock organized into separate series as set
forth on Schedule A hereto ("series" or "portfolios"), and it is in the interest
of the Corporation to offer the shares of common stock of the series for sale
continuously; and
WHEREAS, the Distributor is registered as a broker-dealer
under the Securities Exchange Act of 1934 (the "1934 Act") and is a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS, the Corporation and the Distributor wish to enter
into an agreement with each other with respect to the continuous offering of the
shares of common stock of each series of the Corporation (the "Shares");
NOW, THEREFORE, the parties agree as follows:
1. Appointment of Distributor. The Corporation hereby appoints
the Distributor as exclusive agent to sell and to arrange for the sale of the
Shares, on the terms and for the period set forth in this Agreement, and the
Distributor hereby accepts such appointment and agrees to act hereunder directly
and/or through the Corporation's transfer agent in the manner set forth in the
Prospectuses (as defined below). It is understood and agreed that the services
of the Distributor hereunder are not exclusive, and the Distributor may act as
principal underwriter for the shares of any other registered investment company.
2. Services and Duties of the Distributor.
(a) The Distributor agrees to sell the Shares, as agent
for the Corporation, from time to time during the term of this Agreement upon
the terms described in a Prospectus. As used in this Agreement, the term
"Prospectus" shall mean a prospectus and statement of additional information
included as part of the Corporation's Registration Statement, as such prospectus
and statement of additional information may be amended or supplemented from time
to time, and the term "Registration Statement" shall mean the Registration
Statement most recently filed from time to time by the Corporation with the
Securities and Exchange Commission ("SEC") and effective under the Securities
Act of 1933 (the "1933 Act") and the 1940 Act, as such Registration Statement is
amended by any amendments thereto at the time in effect. The Distributor shall
not be obligated to sell any certain number of Shares.
1
<PAGE>
(b) Upon commencement of operations of the series, the
Distributor will hold itself available to receive orders, satisfactory to the
Distributor, for the purchase of the Shares and will accept such orders and will
transmit such orders and funds received by it in payment for such Shares as are
so accepted to the Corporation's transfer agent or custodian, as appropriate, as
promptly as practicable. Purchase orders shall be deemed accepted and shall be
effective at the time and in the manner set forth in the series' Prospectuses.
The Distributor shall not make any short sales of Shares.
( c) The offering price of the Shares shall be the net
asset value per share of the Shares, plus the sales charge, if any, (determined
as set forth in the Prospectuses). The Corporation shall furnish the
Distributor, with all possible promptness, an advice of each computation of net
asset value and offering price.
(d) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice ("selected
dealers") for the sale of Shares. Shares sold to selected dealers shall be for
resale by such dealers only at the offering price of the Shares as set forth in
the Prospectuses. The Distributor shall offer and sell Shares only to such
selected dealers as are members in good standing of the NASD.
3. Duties of the Corporation.
(a) Maintenance of Federal Registration. The
Corporation shall, at its expense, take, from time to time, all necessary action
and such steps, including payment of the related filing fees, as may be
necessary to register and maintain registration of a sufficient number of Shares
under the 1933 Act. The Corporation agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
may be no untrue statement of a material fact in a Registration Statement or
Prospectus, or necessary in order that there may be no omission to state a
material fact in the Registration Statement or Prospectus which omission would
make the statements therein misleading.
(b) Maintenance of "Blue Sky" Qualifications. The Corporation
shall, at its expense, use its best efforts to qualify and maintain the
qualification of an appropriate number of Shares for sale under the securities
laws of such states as the Distributor and the Corporation may approve, and, if
necessary or appropriate in connection therewith, to qualify and maintain the
qualification of the Corporation or the series as a broker or dealer in such
states; provided that the Corporation shall not be required to amend its
Articles of Incorporation or By-Laws to comply with the laws of any state, to
maintain an office in any state, to change the terms of the offering of the
Shares in any state, to change the terms of the offering of the Shares in any
state from the terms set forth in Prospectuses, to qualify as a foreign
corporation in any state or to consent to service of process in any state other
than with respect to claims arising out of the offering and sale of the Shares.
The Distributor shall furnish such information and other material relating to
its affairs and activities as may be required by the Corporation or its series
in connection with such qualifications.
(c) Copies of Reports and Prospectuses. The Corporation
shall, at its expense, keep the Distributor fully informed with regard to its
affairs and in connection therewith shall furnish to
2
<PAGE>
the Distributor copies of all information, financial statements and other papers
which the Distributor may reasonably request for use in connection with the
distribution of Shares, including such reasonable number of copies of
Prospectuses and annual and interim reports as the Distributor may request and
shall cooperate fully in the efforts of the Distributor to sell and arrange for
the sale of the Shares and in the performance of the Distributor under this
Agreement.
4. Conformity with Applicable Law and Rules. The Distributor
agrees that in selling Shares hereunder it shall conform in all respects with
the laws of the United States and of any state in which Shares may be offered,
and with applicable rules and regulations of the NASD.
5. Independent Contractor. In performing its duties hereunder,
the Distributor shall be an independent contractor and neither the Distributor,
nor any of its officers, directors, employees, or representatives is or shall be
an employee of the Corporation in the performance of the Distributor's duties
hereunder. The Distributor shall be responsible for its own conduct and the
employment, control, and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents or employees. The
Distributor assumes full responsibility for its agents and employees under
applicable statutes and agrees to pay all employee taxes thereunder.
6. Indemnification.
(a) Indemnification of Corporation. The Distributor
agrees to indemnify and hold harmless the Corporation and each of its present or
former directors, officers, employees, representatives and each person, if any,
who controls or previously controlled the Corporation within the meaning of
Section 15 of the 1933 Act against any and all losses, liabilities, damages,
claims or expenses (including the reasonable costs of investigating or defending
any alleged loss, liability, damage, claims or expense and reasonable legal
counsel fees incurred in connection therewith) to which the Corporation or any
such person may become subject under the 1933 Act, under any other statute, at
common law, or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Distributor or any of
the Distributor's directors, officers, employees or representatives, or (ii) may
be based upon any untrue statement or alleged untrue statement of a material
fact contained in a Registration Statement, Prospectus, shareholder report or
other information covering Shares filed or made public by the Corporation or any
amendment thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such statement or omission was made in
reliance upon and in conformity with information furnished to the Corporation by
the Distributor. In no case (i) is the Distributor's indemnity in favor of the
Corporation, or any person indemnified to be deemed to protect the Corporation
or such indemnified person against any liability to which the Corporation or
such person would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of the Corporation's or such
person's duties or by reason of reckless disregard of the Corporation's or such
person's obligations and duties under this Agreement or (ii) is the Distributor
to be liable under its indemnity agreement contained in this Paragraph with
respect to any claim made against the Corporation or any
3
<PAGE>
person indemnified unless the Corporation or such person, as the case may be,
shall have notified the Distributor in writing of the claim within a reasonable
time after the summons or other first written notification giving information of
the nature of the claim shall have been served upon the Corporation or upon such
person (or after the Corporation or such person shall have received notice of
such service on any designated agent). However, failure to notify the
Distributor of any such claim shall not relieve the Distributor from any
liability which the Distributor may have to the Corporation or any person
against whom such action is brought otherwise than on account of the
Distributor's indemnity agreement contained in this Paragraph.
The Distributor shall be entitled to participate, at its own
expense, in the defense, or, if the Distributor so elects, to assume the defense
of any suit brought to enforce any such claim, but, if the Distributor elects to
assume the defense, such defense shall be conducted by legal counsel chosen by
the Distributor and satisfactory to the Corporation, and to the persons
indemnified as defendant or defendants, in the suit. In the event that the
Distributor elects to assume the defense of any such suit and retain such legal
counsel, the Corporation, and the persons indemnified as defendant or defendants
in the suit, shall bear the fees and expenses of any additional legal counsel
retained by them. If the Distributor does not elect to assume the defense of any
such suit, the Distributor will reimburse the Corporation and the persons
indemnified defendant or defendants in such suit for the reasonable fees and
expenses of any legal counsel retained by them. The Distributor agrees to
promptly notify the Corporation of the commencement of any litigation of
proceedings against it or any of its officers, employees or representatives in
connection with the issue or sale of any Shares.
(b) Indemnification of the Distributor. The Corporation
agrees to indemnify and hold harmless the Distributor and each of its present or
former directors, officers, employees, representatives and each person, if any,
who controls or previously controlled the Distributor within the meaning of
Section 15 of the 1933 Act against any and all losses, liabilities, damages,
claims or expenses (including the reasonable costs of investigating or defending
any alleged loss, liability, damage, claim or expense and reasonable legal
counsel fees incurred in connection therewith) to which the Distributor or any
such person may become subject under the 1933 Act, under any other statute, at
common law, or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Corporation or any of
the Corporation's directors, officers, employees or representatives, or (ii) may
be based upon any untrue statement or alleged untrue statement of a material
fact contained in a Registration Statement, Prospectus, shareholder report or
other information covering Shares filed or made public by the Corporation or any
amendment thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading unless such statement or omission was made
in reliance upon and in conformity with information furnished to the Corporation
by the Distributor. In no case (i) is the Corporation's indemnity in favor of
the Distributor, or any person indemnified to be deemed to protect the
Distributor or such indemnified person against any liability to which the
Distributor or such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of such person's
duties or by reason of reckless disregard of such person's obligations and
duties under this Agreement or (ii) is the Corporation to be liable under their
indemnity
4
<PAGE>
agreement contained in this Paragraph with respect to any claim made against
Distributor, or person indemnified unless the Distributor, or such person, as
the case may be, shall have notified the Corporation in writing of the claim
within a reasonable time after the summons or other first written notification
giving information of the nature of the claim shall have been served upon the
Distributor or upon such person (or after the Distributor or such person shall
have received notice of such service on any designated agent). However, failure
to notify the Corporation of any such claim shall not relieve the Corporation
from any liability which the Corporation may have to the Distributor or any
person against whom such action is brought otherwise than on account of the
Corporation's indemnity agreement contained in this Paragraph.
The Corporation shall be entitled to participate, at its own
expense, in the defense, or, if the Corporation so elects, to assume the defense
of any suit brought to enforce any such claim, but if the Corporation elects to
assume the defense, such defense shall be conducted by legal counsel chosen by
the Corporation and satisfactory to the Distributor and to the persons
indemnified as defendant or defendants, in the suit. In the event that the
Corporation elects to assume the defense of any such suit and retain such legal
counsel, the Distributor, the persons indemnified as defendant or defendants in
the suit, shall bear the fees and expenses of any additional legal counsel
retained by them. If the Corporation does not elect to assume the defense of any
such suit, the Corporation will reimburse the Distributor and the persons
indemnified as defendant or defendants in such suit for the reasonable fees and
expenses of any legal counsel retained by them. The Corporation agrees to
promptly notify the Distributor of the commencement of any litigation or
proceedings against it or any of its directors, officers, employees or
representatives in connection with the issue or sale of any Shares.
7. Authorized Representations. The Distributor is not
authorized by the Corporation to give on behalf of the Corporation any
information or to make any representations in connection with the sale of Shares
other than the information and representations contained in a Registration
Statement or Prospectus filed with the SEC under the 1933 Act and/or the 1940
Act, covering Shares, as such Registration Statement and Prospectus may be
amended or supplemented from time to time, or contained in shareholder reports
or other material that may be prepared by or on behalf of the Corporation for
the Distributor's use. This shall not be construed to prevent the Distributor
from preparing and distributing tombstone ads and sales literature or other
material as it may deem appropriate. No person other than the Distributor is
authorized to act as principal underwriter (as such term is defined in the 1940
Act) for the Corporation.
8. Term of Agreement. The term of this Agreement shall begin
on the date first above written, and unless sooner terminated as hereinafter
provided, this Agreement shall remain in effect for a period of two years from
the date first above written. Thereafter, this Agreement shall continue in
effect from year to year, subject to the termination provisions and all other
terms and conditions thereof, so long as such continuation shall be specifically
approved at least annually by (i) the Board of Directors or by vote of a
majority of the outstanding voting securities of each investment portfolio of
the Corporation and, (ii) by the vote, cast in person at a meeting called for
the purpose of voting on such approval, of a majority of the Directors of the
Corporation who are not parties to
5
<PAGE>
this Agreement or interested persons of any such party. The Distributor shall
furnish to the Corporation, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
9. Amendment or Assignment of Agreement. This Agreement may
not be amended or assigned except as permitted by the 1940 Act, and this
Agreement shall automatically and immediately terminate in the event of its
assignment.
10. Termination of Agreement. This Agreement may be terminated
by either party hereto, without the payment of any penalty, on not more than
upon 60 days' nor less than 30 days' prior notice in writing to the other party;
provided, that in the case of termination by the Corporation such action shall
have been authorized by resolution of a majority of the Directors of the
Corporation who are not parties to this Agreement or interested persons of any
such party, or by vote of a majority of the outstanding voting securities of
each series of the Corporation.
11. Miscellaneous. The captions in this Agreement are included
for convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Nothing herein contained shall be deemed to require the
Corporation to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of Directors
of the Corporation of responsibility for and control of the conduct of the
affairs of the Corporation.
12. Definition of Terms. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretation thereof, if any, by the
United States courts or, in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC validly issued pursuant to the
1940 Act. Specifically, the terms "vote of a majority of the outstanding voting
securities", "interested persons," "assignment," and "affiliated person," as
used in Paragraphs 8, 9 and 10 hereof, shall have the meanings assigned to them
by Section 2(a) of the 1940 Act. In addition, where the effect of a requirement
of the 1940 Act reflected in any provision of this Agreement is relaxed by a
rule, regulation or order of the SEC, whether of special or of general
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
13. Compliance with Securities Laws. The Corporation
represents that it is registered as an open-end management investment company
under the 1940 Act, and agrees that it
6
<PAGE>
will comply with all the provisions of the 1940 Act and of the rules and
regulations thereunder. The Corporation and the Distributor each agree to comply
with all of the applicable terms and provisions of the 1940 Act, the 1933 Act
and, subject to the provisions of Section 4(d), all applicable "Blue Sky" laws.
The Distributor agrees to comply with all of the applicable terms and provisions
of the 1934 Act.
14. Notices. Any notice required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, to the Distributor at 4455 E. Camelback Road., Suite 261E,
Phoenix, AZ 85018 or to the Corporation at 479 West 22nd Street, New York, NY
10011.
15. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below on the date first
written above.
O'SHAUGHNESSY FUNDS, INC.
By:______________________________
Name:
Title:
FIRST FUND DISTRIBUTORS, INC.
By:_______________________________
Name:
Title:
7
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Schedule A
Series or Portfolios of O'Shaughnessy Funds, Inc.
O'Shaughnessy Cornerstone Value Fund
O'Shaughnessy Cornerstone Growth Fund
O'Shaughnessy Aggressive Growth Fund
O'Shaughnessy Dogs of the Market(TM) Fund
8
CUSTODIAN AGREEMENT
THIS AGREEMENT made on this eighth day of October, 1996, between
O'Shaughnessy Funds, Inc., a Maryland Corporation, (hereinafter called the
"Funds"), which is an open-end, diversified mutual fund, and FIRSTAR TRUST
COMPANY, a corporation organized under the laws of the State of Wisconsin
(hereinafter called "Custodian"),
WHEREAS, the Funds desire that the securities and cash of each of
its investment portfolios shall be hereafter held and administered by Custodian
pursuant to the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
made, the Funds and Custodian agree as follows:
1. Definitions
The word "securities" as used herein includes stocks, shares,
bonds, debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or
direction or certification in writing signed in the name of the Funds by any two
of the President, a Vice President, the Secretary or the Treasurer of the Funds,
or any other persons duly authorized to sign by the Board of Directors. For
purpose of section 4.A of this agreement the following shall constitute
officers' certificates; (1) with respect to payments to or from the account of
the Funds pursuant to items (a) and (d) of section 4.A, a copy of a trade
ticket, signed by one officer of the Funds and one other duly authorized person;
and (2) with respect to payments to or from the account of the Funds pursuant to
item (b) of section 4.A, written documentation received from the Funds' transfer
agent, signed by one or more duly authorized persons by said transfer agent.
Officers' certificates transmitted via mail, courier, or facsimile are
considered to be in acceptable form for purposes of this agreement.
The word "Board" shall mean Board of Directors of O'Shaughnessy
Funds, Inc.
2. Names, Titles, and Signatures of the Funds' Officers
An officer of the Funds will certify to Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1 hereof, and the names of the members of the Board of
Directors, together with any changes which may occur from time to time.
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<PAGE>
3. Additional Series.
The Funds are authorized to issue separate investment portfolios
or series of shares. The parties intend that each portfolio established by the
Funds, now or in the future, be covered by the terms and conditions of this
agreement. The portfolios covered by this agreement are set forth on schedule A,
as it may be amended from time to time.
4. Receipt and Disbursement of Money
A. Custodian shall open and maintain a separate account or
accounts in the name of the Funds, subject only to draft or order by Custodian
acting pursuant to the terms of this Agreement. Custodian shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Funds, other than cash maintained by the Funds in
a bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Custodian shall make payments of cash to, or for
the account of, the Funds from such cash only:
(a) for the purchase of securities for the portfolio of the
Funds upon the delivery of such securities to Custodian,
registered in the name of the Funds or of the nominee of
Custodian referred to in Section 7 or in proper form for
transfer;
(b) for the purchase or redemption or repurchase of shares of
the common stock of the Funds upon delivery thereof to
Custodian, or upon proper instructions from the Funds;
(c) for the payment of interest, dividends, taxes, investment
adviser's fees or operating expenses (including, without
limitation thereto, fees for legal, accounting, auditing
and custodian services and expenses for printing and
postage);
(d) for payments in connection with the conversion, exchange
or surrender of securities owned or subscribed to by the
Funds held by or to be delivered to Custodian; or
(e) for other proper corporate purposes certified by
resolution of the Board of Directors of the Funds.
-2-
<PAGE>
Before making any such payment, Custodian shall receive (and may
rely upon) an officers' certificate requesting such payment and stating that it
is for a purpose permitted under the terms of items (a), (b), (c), or (d) of
this Subsection A, and also, in respect of item (e), upon receipt of an
officers' certificate, and a certified copy of a resolution of the Board of
Directors of the Funds signed by an officer of the Funds and certified by its
secretary or assistant secretary, specifying the amount of such payment, setting
forth the purpose for which such payment is to be made, declaring such purpose
to be a proper corporate purpose, and naming the person or persons to whom such
payment is to be made, provided, however, that an officers' certificate and
certified Board resolution need not precede the disbursement of cash for the
purpose of purchasing a money market instrument, or any other security with same
or next-day settlement, if the President, a Vice President, the Secretary or the
Treasurer of the Funds issues appropriate oral instructions to Custodian and an
appropriate officers' certificate is received by Custodian within two business
days thereafter.
B. Custodian is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received by Custodian
for the account of the Funds.
C. Custodian shall, upon receipt of officers' certificate, make
federal funds available to the Funds as of specified times agreed upon from time
to time by the Funds and the custodian in the amount of checks received in
payment for shares of the Funds which are deposited into the Fund's account.
5. Segregated Accounts
Upon receipt of an officer's certificate, the Custodian shall
establish and maintain a segregated account(s) for and on behalf of the Funds,
into which account(s) may be transferred cash and/or securities.
6. Transfer, Exchange, Redelivery, etc. of Securities
Custodian shall hold and physically segregrate for the account of
the Funds all securities owned by the Funds, other than those held in a
book-entry account maintained for the custodian by a Federal Reserve Bank or in
a securities depository as provided in section 14 hereof. Custodian shall have
sole power to release or deliver any securities of the Funds held by it pursuant
to this Agreement. Custodian agrees to transfer, exchange or deliver securities
held by it hereunder only:
(a) for sales of such securities for the account of the Funds
upon receipt by Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or
otherwise become payable;
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(c) for examination by any broker selling any such securities
in accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other
securities alone or other securities and cash whether
pursuant to any plan of merger, consolidation,
reorganization, recapitalization or readjustment, or
otherwise;
(e) upon conversion of such securities pursuant to their
terms into other securities;
(f) upon exercise of subscription, purchase or other similar
rights represented by such securities;
(g) for the purpose of exchanging interim receipts or
temporary securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common
stock of the Funds upon delivery thereof to Custodian;
(i) upon the receipt of payment in connection with any
repurchase agreement related to such securities entered
into by the Funds;
(j) for delivery in connection with any loans of securities
made by the Funds, but only against receipt of adequate
collateral as agreed upon from time to time by the
Custodian and the Funds, which may be in the form of cash
or obligations issued by the United States government,
its agencies or instrumentalities;
(k) for delivery as security in connection with any
borrowings by the Funds requiring a pledge of assets by
the Funds, but only against receipt of amounts borrowed;
(l) for delivery in accordance with the provisions of any
agreement among the Funds, the Custodian and a
broker-dealer registered under the Securities Exchange
Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The
Options Clearing Corporation and of any registered
national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the
Funds;
(m) for delivery in accordance with the provisions of any
agreement among the Funds, the Custodian, and a Futures
Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or
organizations, regarding account deposits in connection
with transactions by the Funds; or
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(n) for other proper corporate purposes.
As to any deliveries made by Custodian pursuant to items (a),
(b), (d), (e), (f), and (g), securities or cash receivable in exchange therefore
shall be deliverable to Custodian.
Before making any such transfer, exchange or delivery, Custodian
shall receive (and may rely upon) an officers' certificate requesting such
transfer, exchange or delivery, and stating that it is for a purpose permitted
under the terms of items (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k),
(l), or (m) of this Section 6 and also, in respect of item (n), upon receipt of
an officers' certificate, and a certified copy of a resolution of the Board of
Directors of the Funds signed by an officer of the corporation and certified by
its secretary or assistant secretary, specifying the securities to be delivered,
setting forth the purpose for which such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made, provided, however, that an
officers' certificate need not precede any such transfer, exchange or delivery
of a money market instrument, or any other security with same or next-day
settlement, if the President, a Vice President, the Secretary or the Treasurer
of the Funds issues appropriate oral instructions to Custodian and an
appropriate officers' certificate is received by Custodian within two business
days thereafter.
7. Custodian's Acts Without Instructions
Unless and until Custodian receives an officers' certificate to
the contrary, Custodian shall: (a) present for payment all coupons and other
income items held by it for the account of the Funds, which call for payment
upon presentation and hold the cash received by it upon such payment for the
account of the Funds; (b) collect interest and cash dividends received, with
notice to the Funds, for the account of the Funds; (c) hold for the account of
the Funds hereunder all stock dividends, rights and similar securities issued
with respect to any securities held by it hereunder; and (d) execute, as agent
on behalf of the Funds, all necessary ownership certificates required by the
Internal Revenue Code or the Income Tax Regulations of the United States
Treasury Department or under the laws of any state now or hereafter in effect,
inserting the Funds' name on such certificates as the owner of the securities
covered thereby, to the extent it may lawfully do so.
8. Registration of Securities
Except as otherwise directed by an officers' certificate,
Custodian shall register all securities, except such as are in bearer form, in
the name of a registered nominee of Custodian as defined in the Internal Revenue
Code and any Regulations of the Treasury Department issued hereunder or in any
provision of any subsequent federal tax law exempting such transaction from
liability for stock transfer taxes, and shall execute and deliver all such
certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state. Custodian shall use its best efforts
to the end that the specific securities held by it hereunder shall be at all
times identifiable in its records.
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The Funds shall from time to time furnish to Custodian
appropriate instruments to enable Custodian to hold or deliver in proper form
for transfer, or to register in the name of its registered nominee, any
securities which it may hold for the account of the Funds and which may from
time to time be registered in the name of the Funds.
9. Voting and Other Action
Neither Custodian nor any nominee of Custodian shall vote any of
the securities held hereunder by or for the account of the Funds, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall promptly deliver, or cause to be executed and delivered, to the
Corporation all notices, proxies and proxy soliciting materials with relation to
such securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the Funds), but without
indicating the manner in which such proxies are to be voted.
10. Transfer Tax and Other Disbursements
The Funds shall pay or reimburse Custodian from time to time for
any transfer taxes payable upon transfers of securities made hereunder, and for
all other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.
Custodian shall execute and deliver such certificates in
connection with securities delivered to it or by it under this Agreement as may
be required under the provisions of the Internal Revenue Code and any
Regulations of the Treasury Department issued thereunder, or under the laws of
any state, to exempt from taxation any exemptable transfers and/or deliveries of
any such securities.
11. Concerning Custodian
Custodian shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in writing, such compensation
shall be as set forth in Exhibit A attached hereto Commission. If the Funds
elect to terminate this Agreement prior to the third anniversary of this
Agreement, the Funds agree to reimburse Agent for the difference between the
standard fee schedule and the discounted fee schedule agreed to between the
parties.
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Custodian shall exercise reasonable care and diligence, act in
good faith and use its best efforts within reasonable limits in the performance
of its duties under this agreement. Custodian shall not be liable for any action
taken in good faith upon any officers' certificate herein described or certified
copy of any resolution of the Board, and may rely on the genuineness of any such
document which it may in good faith believe to have been validly executed.
The Funds agree to indemnify and hold harmless Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable counsel fees) incurred or assessed against it or by its
nominee in connection with the performance of this Agreement, except such as may
arise from its or its nominee's own negligent action, negligent failure to act
or willful misconduct. Custodian is authorized to charge any account of the
Funds for such items.
In the event of any advance of cash for any purpose made by
Custodian resulting from orders or instructions of the Funds, or in the event
that Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Funds shall be security therefore.
Custodian agrees to indemnify and hold harmless the Funds from
all charges, expenses, assessments, and claims/liabilities (including counsel
fees) incurred or assessed against it in connection with the performance of this
agreement, except such as may arise from the Funds' own negligent action,
negligent failure to act, or willful misconduct.
12. Subcustodians
Custodian is hereby authorized to engage another bank or trust
company as a Subcustodian for all or any part of the Funds' assets in accordance
with the terms of this agreement, so long as any such bank or trust company is
(i) a bank or trust company organized under the laws of any state of the United
States, having an aggregate capital, surplus and undivided profit, as shown by
its last published report, of not less than Two Million Dollars ($2,000,000) and
(ii) qualified to act as a custodian under the Investment Company Act of 1940,
and provided further that the use of each such subcustodian shall be approved or
ratified by a vote of a majority of the Board of Directors of the Funds. If the
Custodian utilizes the services of a Subcustodian, the Custodian shall not be
relieved of any of its responsibilities hereunder by the appointment of such
Subcustodian and shall remain fully liable and responsible for the acts of the
Subcustodian and for any losses caused to the Funds by the Subcustodian as fully
as if the Custodian was directly responsible for any such acts or losses under
the terms of the Custodian Agreement.
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Notwithstanding anything contained herein, if the Funds requires
the Custodian to engage specific Subcustodians for the safekeeping and/or
clearing of assets, the Funds agree to indemnify and hold harmless Custodian
from all claims, expenses and liabilities incurred or assessed against it in
connection with the use of such Subcustodian in regard to the Funds' assets,
except as may arise from its own negligent action, negligent failure to act or
willful misconduct.
13. Reports by Custodian
Custodian shall furnish the Funds periodically as agreed upon
with a statement summarizing all transactions and entries for the account of the
Funds. Custodian shall furnish to the Funds, at the end of every month, a list
of the portfolio securities showing the aggregate cost of each issue. The books
and records of Custodian pertaining to its actions under this Agreement shall be
open to inspection and audit at reasonable times by officers of, and of auditors
employed by, the Funds.
14. Termination or Assignment
This Agreement may be terminated by the Funds, or by Custodian,
on ninety (90) days notice, given in writing and sent by registered mail to
Custodian at P.O. Box 2054, Milwaukee, Wisconsin 53201, or to the Funds at 60
Arch Street, Greenwich, Connecticut 06830 as the case may be. Upon any
termination of this Agreement, pending appointment of a successor to Custodian
or a vote of the shareholders of the Funds to dissolve or to function without a
custodian of its cash, securities and other property, Custodian shall not
deliver cash, securities or other property of the Funds to the Funds, but may
deliver them to a bank or trust company of its own selection, qualified to act
as a custodian under the Investment Company Act of 1940 and having an aggregate
capital, surplus and undivided profits, as shown by its last published report of
not less than Two Million Dollars ($2,000,000), as a Custodian for the Funds to
be held under terms similar to those of this Agreement, provided, however, that
Custodian shall not be required to make any such delivery or payment until full
payment shall have been made by the Funds of all liabilities constituting a
charge on or against the properties then held by Custodian or on or against
Custodian, and until full payment shall have been made to Custodian of all its
fees, compensation, costs and expenses, subject to the provisions of Section 10
of this Agreement.
This Agreement may not be assigned by Custodian without the
consent of the Funds, authorized or approved by a resolution of its Board of
Directors.
15. Deposits of Securities in Securities Depositories
No provision of this Agreement shall be deemed to prevent the use
by Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Board of Directors of the Funds approves by resolution the
use of such central securities clearing agency or securities depository.
16. Records
To the extent that Custodian in any capacity prepares or
maintains any records required to be maintained and preserved by the Funds
pursuant to the provisions of the Investment Company Act of 1940, as amended, or
the rules and regulations promulgated thereunder, Custodian agrees to make any
such records available to the Funds upon request and to preserve such records
for the periods prescribed in Rule 31a-2 under the Investment Company Act of
1940, as amended.
17. Notices
Any notices required or desired to be given to any party hereto
shall be in writing, shall be addressed to such other party at that party's
address set forth below and shall be deemed given when deposited in the United
States mail, certified, return receipt requested, or actually received by the
party to whom it was addressed if delivered by an alternate method. Any party
may change the address to which notices or other communications are to be given
by giving the other parties notice of such change.
Custodian Firstar Trust Company
P.O. Box 2054
Milwaukee, WI 53202
The Funds O'Shaughnessy Funds, Inc.
60 Arch Street
Greenwich, Connecticut 06830
18. Governing Law
This agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of Wisconsin.
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19. Severability
The intention of the parties to this Agreement is to comply fully
with all laws, rules, regulations and public policies, and this Agreement shall
be construed consistently with all laws, rules, regulations and public policies
to the extent possible. If and to the extent that any court of competent
jurisdiction determines it is impossible to construe any provision of this
Agreement consistently with any law, rule, regulation or public policy and
consequently holds that provision to be invalid, such holding shall in no way
affect the validity of the other provisions of this Agreement, which shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and their respective corporate seals to be affixed hereto as of
the date first above-written by their respective officers thereunto duly
authorized.
Executed in several counterparts, each of which is an original.
Attest: FIRSTAR TRUST COMPANY
________________________________ By ____________________________
Assistant Secretary Vice President
Attest: O'Shaughnessy Funds, Inc.
________________________________ By ____________________________
Date:___________________________ Date:__________________________
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TRANSFER AGENT AGREEMENT
THIS AGREEMENT is made and entered into on this eighth day of Oct, 1996,
by and between O'Shaughnessy Funds, Inc., a Maryland Corporation, (hereinafter
referred to as the "Funds") and Firstar Trust Company, a corporation organized
under the laws of the State of Wisconsin (hereinafter referred to as the
"Agent").
WHEREAS, the Funds are open-ended management investment companies which
are registered under the Investment Company Act of 1940; and
WHEREAS, the Agent is a trust company and, among other things, is in the
business of administering transfer and dividend disbursing agent functions for
the benefit of its customers;
NOW, THEREFORE, the Funds and the Agent do mutually promise and agree as
follows:
1. Terms of Appointment; Duties of the Agent
Subject to the terms and conditions set forth in this Agreement, the
Funds hereby appoint the Agent to act as transfer agent and dividend disbursing
agent.
The Agent shall perform all of the customary services of a transfer
agent and dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to:
A. Receive orders for the purchase of shares;
B. Process purchase orders and issue the appropriate number of
certificated or uncertificated shares with such uncertificated
shares being held in the appropriate shareholder account;
C. Process redemption requests received in good order;
D. Pay monies;
E. Process transfers of shares in accordance with the shareowner's
instructions;
F. Process exchanges between funds within the same family of funds;
G. Issue and/or cancel certificates as instructed; replace lost,
stolen or destroyed certificates upon receipt of satisfactory
indemnification or surety bond;
H. Prepare and transmit payments for dividends and distributions
declared by the Funds;
I. Make changes to shareholder records, including, but not limited
to, address changes in plans (i.e., systematic withdrawal,
automatic investment, dividend reinvestment, etc.);
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J. Record the issuance of shares of the Funds and maintain, pursuant
to Securities Exchange Act of 1934 Rule 17ad-10(e), a record of
the total number of shares of the Funds which are authorized,
issued and outstanding;
K. Prepare shareholder meeting lists and, if applicable, mail,
receive and tabulate proxies;
L. Mail shareholder reports and prospectuses to current
shareholders;
M. Prepare and file U.S. Treasury Department forms 1099 and other
appropriate information returns required with respect to
dividends and distributions for all shareholders;
N. Provide shareholder account information upon request and prepare
and mail confirmations and statements of account to shareholders
for all purchases, redemptions and other confirmable transactions
as agreed upon in writing with the Funds;
O. Provide a Blue Sky System which will enable the Funds to monitor
the total number of shares sold in each state. In addition, the
Funds shall identify to the Agent in writing those transactions
and assets to be treated as exempt from the Blue Sky reporting to
the Funds for each state. The responsibility of the Agent for the
Funds' Blue Sky state registration status is solely limited to
the initial compliance by the Funds and the reporting of such
transactions to the Funds.
P. Agent agrees to deal with, and answer in a timely manner, all
correspondence and inquiries relating to the functions of Agent
under this Agreement with respect to the Funds.
Q. Agent agrees to furnish the Funds such information and at such
intervals as is necessary for the Funds to comply with the
registration and/or the reporting requirements (including
applicable escheat laws) of the Securities and Exchange
Commission, Blue Sky authorities or other governmental
authorities.
R. Agent agrees tp provide to the Funds such information as may
reasonably be required to enable the Funds to reconcile the
number of outstanding Shares between Agent's records and the
account books of the Funds.
2. Compensation
The Funds agree to pay the Agent for performance of the duties listed in
this Agreement. The fees and out-of-pocket expenses payable under this agreement
are set forth in the Schedule of Fees attached here to and include, but are not
limited to the following: printing, postage, forms, stationery, record
retention, mailing, insertion, programming, labels, shareholder lists and proxy
expenses.
These fees and reimbursable expenses may be changed from time to time
subject to mutual written agreement between the Funds and the Agent.
The Funds agree to pay all fees and reimbursable expenses within ten
(10) business days following the mailing of the billing notice.
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3. Representations of Agent
The Agent represents and warrants to the Funds that:
A. It is a trust company duly organized, existing and in good
standing under the laws of Wisconsin;
B. It is a registered transfer agent under the Securities Exchange
Act of 1934 as amended.
C. It is duly qualified to carry on its business in the state of
Wisconsin;
D. It is empowered under applicable laws and by its charter and
bylaws to enter into and perform this Agreement;
E. All requisite corporate proceedings have been taken to authorize
it to enter and perform this Agreement; and
F. It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
G. It will comply with all applicable requirements of the Securities
Act of 1933 and the Securities Exchange Act of 1934, as amended,
the Investment Company Act of 1940, as amended, and any laws,
rules, and regulations of governmental authorities having
jurisdiction.
4. Representations of the Funds
The Funds represent and warrant to the Agent that:
A. The Funds are an open-ended diversified investment company under
the Investment Company Act of 1940;
B. The Funds are a corporation organized, existing, and in good
standing under the laws of the Investment Company Act of 1940;
C. The Funds are empowered under applicable laws and by their
Corporate Charter and bylaws to enter into and perform this
Agreement;
D. All necessary proceedings required by the Corporate Charter have
been taken to authorize them to enter into and perform this
Agreement;
E. The Funds will comply with all applicable requirements of the
Securities and Exchange Acts of 1933 and 1934, as amended, the
Investment Company Act of 1940, as amended, and any laws, rules
and regulations of governmental authorities having jurisdiction;
and
F. A registration statement under the Securities Act of 1933 is
currently effective and will remain effective, and appropriate
state securities law filings have been made and will continue to
be made, with respect to all shares of the Funds being offered
for sale.
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5. Covenants of the Funds and Agent
The Funds shall furnish the Agent a certified copy of the resolution of
the Board of Directors of the Funds authorizing the appointment of the Agent and
the execution of this Agreement. The Funds shall provide to the Agent a copy of
the Corporate Charter, bylaws of the Funds, and all amendments.
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the rules thereunder, the Agent agrees that all such records prepared or
maintained by the Agent relating to the services to be performed by the Agent
hereunder are the property of the Funds and will be preserved, maintained and
made available in accordance with such section and rules and will be surrendered
to the Funds on and in accordance with its request.
6. Indemnification; Remedies Upon Breach
The Agent shall exercise reasonable care and diligence, act in good
faith and use its best efforts within reasonable limits in the performance of
its duties under this Agreement. The Agent shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which this Agreement relates, including losses resulting from
mechanical breakdowns or the failure of communication or power supplies beyond
the Agent's control, except a loss resulting from the Agent's refusal or failure
to comply with the terms of this Agreement or from bad faith, negligence, or
willful misconduct on its part in the performance of its duties under this
Agreement. Notwithstanding any other provision of this Agreement, the Fund shall
indemnify and hold harmless the Agent from and against any and all claims,
demands, losses, expenses, and liabilities (whether with or without basis in
fact or law) of any and every nature (including reasonable attorneys' fees)
which the Agent may sustain or incur or which may be asserted against the Agent
by any person arising out of any action taken or omitted to be taken by it in
performing the services hereunder (i) in accordance with the foregoing
standards, or (ii) in reliance upon any written or oral instruction provided to
the Agent which the agent reasonably believes to have been executed by any duly
authorized officer of the Fund, such duly authorized officer to be included in a
list of authorized officers furnished to the Agent and as amended from time to
time in writing by resolution of the Board of Directors of the Fund.
Further, the Fund will indemnify and hold the Agent harmless against any
and all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from any claim, demand, action, or suit as
a result of the negligence of the Fund or the principal underwriter (unless
contributed to by the Agent's breach of this Agreement or other Agreements
between the Fund and the Agent, or the Agent's own negligence or bad faith); or
as a result of the Agent acting upon telephone instructions relating to the
exchange or redemption of shares received by the Agent and reasonably believed
by the Agent under a standard of care customarily used in the industry to have
originated from the record owner of the subject shares; or as a result of acting
in reliance upon any genuine instrument or stock certificate signed,
countersigned, or executed by any person or persons authorized to sign,
countersign, or execute the same.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, the Agent shall take all reasonable steps to
minimize service interruptions for any period that such interruption continues
beyond the Agent's control. The Agent will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from such a
breakdown at the expense of the Agent. The Agent agrees that it shall, at all
times, have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing equipment
to the extent appropriate equipment is available. Representatives of the Fund
shall be entitled to inspect the Agent's premises and operating capabilities,
and any and all of the Agent's books and records which relate to any transaction
or function performed by the Agent pursant to this agreement, at any time during
regular business hours of the Agent, upon reasonable notice to the Agent.
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Regardless of the above, the Agent reserves the right to reprocess and
correct administrative errors at its own expense.
In order that the indemnification provisions contained in this section
shall apply, it is understood that if in any case the Fund may be asked to
indemnify or hold the Agent harmless, the Fund shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and it is
further understood that the Agent will use all reasonable care to notify the
Fund promptly concerning any situation which presents or appears likely to
present the probability of such a claim for indemnification against the Fund.
The Fund shall have the option to defend the Agent against any claim which may
be the subject of this indemnification. In the event that the Fund so elects, it
will so notify the Agent and thereupon the Fund shall take over complete defense
of the claim, and the Agent shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification under this section. The
Agent shall in no case confess any claim or make any compromise in any case in
which the Fund will be asked to indemnify the Agent except with the Fund's prior
written consent.
The Agent shall indemnify and hold the Fund harmless from and against
any and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which may be asserted against the Fund by any person arising
out of any action taken or omitted to be taken by the Agent as a result of the
Agent's refusal or failure to comply with the terms of this Agreement, its bad
faith, negligence, or willful misconduct.
7. Confidentiality
The Agent agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Funds and its
shareholders and shall not be disclosed to any other party, except after prior
notification to and approval in writing by the Funds, which approval shall not
be unreasonably withheld and may not be withheld where the Agent may be exposed
to civil or criminal contempt proceedings for failure to comply after being
requested to divulge such information by duly constituted authorities.
8. Additional Series
The Funds are authorized to issue separate classes of shares of common
stock representing interests in separate investment portfolios. The parties
intend that each portfolio established by the Fund, now or in the future, be
covered by the terms and conditions of this agreement. The portfolios covered by
this Agreement are set forth on Schedule A hereto, as it may be amended from
time to time.
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9. Records
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner, and for such period as it may deem advisable
and is agreeable to the Funds but not inconsistent with the rules and
regulations of appropriate government authorities, in particular, Section 31 of
the Investment Company Act of 1940 as amended (the "Investment Company Act"),
and the rules thereunder. the Agent agrees that all such records prepared or
maintained by The Agent relating to the services to be performed by the Agent
hereunder are the property of the Funds and will be preserved, maintained, and
made available with such section and rules of the Investment Company Act and
will be promptly surrendered to the Funds on and in accordance with its request.
9. Wisconsin Law to Apply
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the state of Wisconsin.
10. Amendment, Assignment, Termination and Notice
A. This Agreement may be amended by the mutual written consent of
the parties.
B. This Agreement may be terminated, without penalty to the Funds or
the Agent, upon ninety (90) day's written notice given by one
party to the other.
C. This Agreement and any right or obligation hereunder may not be
assigned by either party without the signed, written consent of
the other party.
D. Any notice required to be given by the parties to each other
under the terms of this Agreement shall be in writing, addressed
and delivered, or mailed to the principal place of business of
the other party. If to the Agent, such notice should to be sent
to Firstar Trust Company/Mutual Fund Services located at 615 East
Michigan Street, Milwaukee, Wisconsin 53202. If to the Funds,
such notice should be sent to O'Shaughnessy Funds, Inc. 60 Arch
Street, Greenwich, Connecticut 06830.
E. In the event that the Funds give to the Agent its written
intention to terminate and appoint a successor transfer agent,
the Agent agrees to cooperate in the transfer of its duties and
responsibilities to the successor, including any and all unissued
and cancelled stock certificates representing Fund shares
remaining in its possession relevant books, records and other
data established or maintained by the Agent under this Agreement.
F. Should the Funds exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records
and material will be paid by the Funds.
O'Shaughnessy Funds, Inc. Firstar Trust Company
By: ____________________________ By: _____________________________
Print:___________________________ Print:____________________________
Title:____________________________ Title:_____________________________
Date:____________________________ Date:_____________________________
Attest: __________________________ Attest: _________________________
Assistant Secretary
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ADMINISTRATION AGREEMENT
AGREEMENT made this day of , 1996 by and between O'SHAUGHNESSY
FUNDS, INC., a Maryland corporation (the "Corporation"), and INVESTMENT COMPANY
ADMINISTRATION CORPORATION, a Delaware Corporation (the "Administrator").
W I T N E S S E T H
WHEREAS, the Corporation is registered as an open-end
management investment company under the Investment Company Act of 1940 (the
"1940 Act"), with shares of common stock organized into separate series as set
forth on Schedule A hereto ("series" or "portfolios"); and
WHEREAS, the Corporation wishes to retain the Administrator to
provide certain administrative services in connection with the management of the
operations of the various portfolios of the Corporation and the Administrator is
willing to furnish such services:
NOW THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Corporation hereby appoints the
Administrator to provide certain administrative services, hereinafter
enumerated, in connection with the management of the portfolios' operations for
the period and on the terms set forth in this Agreement. The Administrator
agrees to comply with all relevant provisions of the 1940 Act, applicable rules
and regulations thereunder, and other applicable law.
2. Services on a Continuing Basis. The Administrator will
perform the following services on a regular basis which would be daily, weekly
or as otherwise appropriate:
(A) prepare and coordinate reports and other materials to be
supplied to the Board of Directors of the Corporation;
(B) prepare and/or supervise the preparation and filing of
all securities filings, periodic financial reports, prospectuses,
statements of additional information, marketing materials, tax
returns, shareholder reports and other regulatory reports or filings
required of the Corporation and the portfolios.
(C) prepare all required filings necessary to maintain the
Corporation's and portfolios' qualification and/or registration to
sell shares in all states where the Corporation and portfolios
currently do, or intend to do business;
(D) coordinate the preparation, printing and mailing of all
materials (e.g., Annual Reports) required to be sent to shareholders;
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(E) coordinate the preparation and payment of Corporation
and portfolio related expenses;
(F) conduct relations with, and monitor and oversee the
activities of the Corporation's and the portfolios' servicing agents
(i.e., transfer agent, custodian, fund accounting agent, attorneys,
underwriters, brokers and dealers, corporate fiduciaries, banks and
such other persons in any such other capacity deemed to be necessary
or desirable;
(G) review and adjust as necessary the portfolios' daily
expense accruals;
(H) maintain and keep such books and records of the
Corporation as required by law or for the proper operation of the
Corporation and its portfolios other than those maintained and kept by
the Corporation's Manager and servicing agents;
(I) provide the Corporation with (i) the services of persons
competent to perform the administrative and clerical functions
described herein, and (ii) personnel to serve as officers of the
Corporation;
(J) provide the portfolios with office space as well
asadministrative offices and such data processing facilities as are
necessary for the performance of its duties under this Agreement.
(K) monitor each portfolio's compliance with investment
policies and restrictions as set forth in the portfolio's currently
effective Prospectus and Statement of Additional Information under the
Securities Act of 1933.
(L) perform such additional services as may be agreed upon
by the Corporation and the Administrator.
3. Responsibility of the Administrator. The Administrator
shall be under no duty to take any action on behalf of the Corporation or the
portfolios except as set forth herein or as may be agreed to by the
Administrator in writing. In the performance of its duties hereunder, the
Administrator shall be obligated to exercise reasonable care and diligence and
to act in good faith and to use its best efforts. Without limiting the
generality of the foregoing or any other provision of this Agreement, the
Administrator shall not be liable for delays or errors or loss of data occurring
by reason of circumstances beyond the Administrator's control.
4. Reliance Upon Instructions. The Corporation agrees that the
Administrator shall be entitled to rely upon any instructions, oral or written,
actually received by the Administrator from the Board of Directors of the
Corporation and shall incur no liability to the Corporation or the investment
adviser to any portfolio in acting upon such oral or written instructions,
provided such instructions reasonably appear to have been received from a person
duly authorized by the Board of Directors of the Corporation to give oral or
written instructions on behalf of the Corporation or any portfolio.
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<PAGE>
5. Confidentiality. The Administrator agrees on behalf of
itself and its employees to treat confidentially all records and other
information relative to the Corporation and portfolios and all prior, present or
potential shareholders of any and all portfolios, except after prior
notification to, and approval of release of information in writing by, the
Corporation, which approval shall not be unreasonably withheld where the
Administrator may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Corporation or by a
portfolio.
6. Equipment Failures. In the event of equipment failures or
the occurrence of events beyond the Administrator's control which render the
performance of the Administrator's functions under this Agreement impossible,
the Administrator shall take reasonable steps to minimize service interruptions
and is authorized to engage the services of third parties to prevent or remedy
such service interruptions.
7. Compensation. As compensation for services rendered by the
Administrator during the term of this Agreement, each portfolio of the
Corporation set forth in Schedule A will pay to the Administrator a monthly fee
at the annual rate of 0.10% of the first $100 million of average daily net
assets, 0.05% of the next $100 million of such net assets, and 0.03% of such net
assets over $200 million, with a minimum fee of $40,000 annually per portfolio.
8. Indemnification. The Corporation and portfolios agree to
indemnify and hold harmless the Administrator from all taxes, filing fees,
charges, expenses, assessments, claims and liabilities (including without
limitation, liabilities arising under the Securities Act of 1933, the Securities
Exchange Act of 1934, the 1940 Act, and any state and foreign securities laws,
all as amended from time to time) and expenses, including (without limitation)
reasonable attorneys fees and disbursements, reasonably arising directly or
indirectly from any action or thing which the Administrator takes or does or
omits to take or do at the request of or in reliance upon the advice of the
Board of Directors of the Corporation, provided that the Administrator will not
be indemnified against any liability to a portfolio or to shareholders (or any
expenses incident to such liability) arising out of the Administrator's own
willful misfeasance, bad faith, negligence or reckless disregard of its duties
and obligations under this Agreement. The Administrator agrees to indemnify and
hold harmless the Corporation and each of its Directors from all claims and
liabilities (including without limitation, liabilities under the Securities Act
of 1933, the Securities Exchange Act of 1934, the 1940 Act, and any state and
foreign securities laws, all as amended from time to time) and expenses,
including (without limitation) reasonable attorneys fees and disbursements,
arising directly or indirectly from any action or thing which the Administrator
takes or does or omits to take or do which is in violation of this Agreement or
not in accordance with instructions properly given to the Administrator, or
arising out of the Administrator's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties and obligations under this
Agreement.
9. Duration and termination. This Agreement shall continue
until termination by the Corporation on behalf of any portfolio (by resolution
of the Board of Directors) or the Administrator on 60 days' written notice to
the other party. All notices and other communications hereunder shall be in
writing.
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10. Amendments. This Agreement or any part hereof may be
changed or waived only by instrument in writing signed by the party against
which enforcement of such change or waiver is sought, provided such amendment is
specifically approved by the Board of Directors of the Corporation.
11. Miscellaneous. This Agreement embodies the entire
agreement and understanding between the parties thereto with respect to the
services to be performed hereunder, and supersedes all prior agreements and
understandings, relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
limit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement will not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below on the date first
written above.
O'SHAUGHNESSY FUNDS, INC.
By:________________________________________
Name:
Title:
INVESTMENT COMPANY ADMINISTRATION
CORPORATION
By:________________________________________
Name:
Title:
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Schedule A
Series or Portfolios of O'Shaughnessy Funds, Inc.
O'Shaughnessy Cornerstone Value Fund
O'Shaughnessy Cornerstone Growth Fund
O'Shaughnessy Aggressive Growth Fund
O'Shaughnessy Dogs of the Market(TM) Fund
5
FUND ACCOUNTING SERVICING AGREEMENT
This contract between O'Shaughnessy Funds, Inc., a Maryland Corporation,
hereinafter called the ("Funds"), and Firstar Trust Company, a Wisconsin
corporation, hereinafter called "FTC," is entered into on this eighth day of
October, 1996.
WHEREAS, O'Shaughnessy Funds, Inc., is an open-ended management
investment company registered under the Investment Company Act of 1940; and
WHEREAS, Firstar Trust Company ("FTC") is in the business of providing,
among other things, mutual fund accounting services to investment companies;
NOW, THEREFORE, the parties do mutually promise and agree as follows:
1. Services. FTC agrees to provide the following mutual fund
accounting services to the Funds:
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date +1 basis
using security trade information communicated from the investment
manager on a timely basis.
(2) For each valuation date, obtain prices from a pricing
source approved by the Board of Directors and apply those prices
to the portfolio positions. For those securities where market
quotations are not readily available, the Board of Directors
shall approve, in good faith, the method for determining the fair
value for such securities.
(3) Identify interest and dividend accrual balances as of
each valuation date and calculate gross earnings on investments
for the accounting period.
(4) Determine gain/loss on security sales and identify
them as to short-short, short- or long-term status; account for
periodic distributions of gains or losses to shareholders and
maintain undistributed gain or loss balances as of each valuation
date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense accrual
amounts as directed by the Funds as to methodology, rate or
dollar amount.
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<PAGE>
(2) Record payments for Fund expenses upon receipt of
written authorization from the Funds.
(3) Account for fund expenditures and maintain expense
accrual balances at the level of accounting detail, as agreed
upon by FTC and the Funds.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for Fund share purchases, sales, exchanges,
transfers, dividend reinvestments, and other Fund share activity
as reported by the transfer agent on a timely basis.
(2 Apply equalization accounting as directed by the Funds.
(3) Determine net investment income (earnings) for the
Funds as of each valuation date. Account for periodic
distributions of earnings to shareholders and maintain
undistributed net investment income balances as of each valuation
date.
(4) Maintain a general ledger for the Funds in the form
as agreed upon.
(5) For each day the Funds are open as defined in the
prospectuses, determine the net asset value of the Funds
according to the accounting policies and procedures set forth in
the prospectuses.
(6) Calculate per share net asset value, per share net
earnings, and other per share amounts reflective of fund
operation at such time as required by the nature and
characteristics of the Funds.
(7) Communicate, at an agreed upon time, the per share
price for each valuation date to parties as agreed upon from time
to time.
(8) Prepare monthly reports which document the adequacy of
accounting detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the Funds to support
the tax reporting required for IRS-defined regulated investment
companies.
(2) Maintain tax lot detail for the Funds.
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(3) Calculate taxable gain/loss on security sales using
the tax lot relief method designated by the Funds.
(4) Provide the necessary financial information to support
the taxable components of income and capital gains distributions
to the transfer agent to support tax reporting to the
shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support
financial statement preparation by making the fund accounting
records available to O'Shaughnessy Funds Inc., the Securities and
Exchange Commission, and the outside auditors.
(2) Maintain accounting records according to the
Investment Company Act of 1940 and regulations provided
thereunder.
2. Pricing of Securities. For each valuation date, obtain prices from a
pricing source selected by FTC but approved by the Fund's Board and apply those
prices to the portfolio positions in accordance with the Fund's valuation
procedures. For those securities where market quotations are not readily
available, the Fund's Board shall approve, in good faith, the method for
determining the fair value for such securities.
If the Funds desire to provide a price which varies from the
pricing source, in accordance with the Fund's valuation procedures, the Funds
shall promptly notify and supply FTC with the valuation of any such security on
each valuation date. All pricing changes made by the Funds will be in writing
and must specifically identify the securities to be changed by CUSIP, name of
security, new price or rate to be applied, and, if applicable, the time period
for which the new prices are effective.
3. Changes in Accounting Procedures. Any resolution passed by the
Board of Directors that affects accounting practices and procedures under this
agreement shall be effective upon written receipt and acceptance by the FTC.
4. Changes in Equipment, Systems, Service, Etc. FTC reserves the right
to make changes from time to time, as it deems advisable, relating to its
services, systems, programs, rules, operating schedules and equipment, so long
as such changes do not adversely affect the service provided to the Funds under
this Agreement.
5. Compensation. FTC shall be compensated for providing the services
set forth in this Agreement in accordance with the Fee Schedule attached hereto
as Exhibit A and A.1 and as mutually agreed upon and amended from time to time.
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<PAGE>
6. Performance of Service.
A. FTC shall exercise reasonable care and diligence, act
in good faith and use its best efforts within reasonable limits
in the performance of its duties under this Agreement. FTC shall
not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with matters to which
this Agreement relates, including losses resulting from
mechanical breakdowns or the failure of communication or power
supplies beyond FTC's control, except a loss resulting from FTC's
refusal or failure to comply with the terms of this Agreement or
from bad faith, negligence, or willful misconduct on its part in
the performance of its duties under this Agreement.
Notwithstanding any other provision of this Agreement, the Funds
shall indemnify and hold harmless FTC from and against any and
all claims, demands, losses, expenses, and liabilities (whether
with or without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which FTC may sustain or
incur or which may be asserted against FTC by any person arising
out of any action taken or omitted to be taken by it in
performing the services hereunder (i) in accordance with the
foregoing standards, or (ii) in reliance upon any written or oral
instruction provided to FTC which the agent reasonably believes
to have been executed by any duly authorized officer of the
Funds, such duly authorized officer to be included in a list of
authorized officers furnished to FTC and as amended from time to
time in writing by resolution of the Board of Directors of the
Funds.
In the event of a mechanical breakdown or failure of
communication or power supplies beyond its control, FTC shall
take all reasonable steps to minimize service interruptions for
any period that such interruption continues beyond FTC's control.
FTC will make every reasonable effort to restore any lost or
damaged data and correct any errors resulting from such a
breakdown at the expense of FTC. FTC agrees that it shall, at all
times, have reasonable contingency plans with appropriate
parties, making reasonable provision for emergency use of
electrical data processing equipment to the extent appropriate
equipment is available. Representatives of the Funds shall be
entitled to inspect FTC's premises and operating capabilities,
and any and all of FTC's books and records which relate to any
transaction or function performed by FTC pursuant to this
agreement, at any time during regular business hours of FTC, upon
reasonable notice to FTC.
Regardless of the above, FTC reserves the right to
reprocess and correct administrative errors at its own expense.
B. In order that the indemnification provisions contained
in this section shall apply, it is understood that if in any case
the Fund may be asked to indemnify or hold FTC harmless, the
Funds shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further
understood that FTC will use all reasonable care to notify the
Fund promptly concerning any situation which presents or appears
likely to present the probability of such a claim for
indemnification against the Funds. The Funds shall have the
option to defend FTC against any claim which may be the subject
of this indemnification. In the event that the Funds so elects,
it will so notify FTC and thereupon the Funds shall take over
complete defense of the claim, and FTC shall in such situation
initiate no further legal or other expenses for which it shall
seek indemnification under this section. FTC shall in no case
confess any claim or make any compromise in any case in which the
Funds will be asked to indemnify FTC except with the Fund's prior
written consent.
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<PAGE>
C. FTC shall indemnify and hold the Funds harmless from
and against any and all claims, demands, losses, expenses, and
liabilities (whether with or without basis in fact or law) of any
and every nature (including reasonable attorneys' fees) which may
be asserted against the Funds by any person arising out of any
action taken or omitted to be taken by FTC as a result of FTC's
refusal or failure to comply with the terms of this Agreement,
its bad faith, negligence, or willful misconduct.
7. Records. FTC shall keep records relating to the services to be
performed hereunder, in the form and manner, and for such period as it may deem
advisable and is agreeable to the Funds but not inconsistent with the rules and
regulations of appropriate government authorities, in particular, Section 31 of
The Investment Company Act of 1940 as amended (the "Investment Company Act"),
and the rules thereunder. FTC agrees that all such records prepared or
maintained by FTC relating to the services to be performed by FTC hereunder are
the property of the Funds and will be preserved, maintained, and made available
with such section and rules of the Investment Company Act and will be promptly
surrendered to the Funds on and in accordance with its request.
8. Confidentiality. FTC shall handle in confidence all information
relating to the Fund's business, which is received by FTC during the course of
rendering any service hereunder.
9. Data Necessary to Perform Services. The Funds or its agent, which
may be FTC, shall furnish to FTC the data necessary to perform the services
described herein at times and in such form as mutually agreed upon.
10. Notification of Error. The Funds will notify FTC of any balancing or
control error caused by FTC within three (3) business days after receipt of any
reports rendered by FTC to the Funds, or within three (3) business days after
discovery of any error or omission not covered in the balancing or control
procedure, or within three (3) business days of receiving notice from any
shareholder.
11. Additional Series. In the event that the O'Shaughnessy Funds Inc.,
establishes one or more series of shares with respect to which it desires to
have FTC render accounting services, under the terms hereof, it shall so notify
FTC in writing, and if FTC agrees in writing to provide such services, such
series will be subject to the terms and conditions of this Agreement, and shall
be maintained and accounted for by FTC on a discrete basis. The portfolios
currently covered by this Agreement are listed on Schedule A.
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12. Term of Agreement. This Agreement may be terminated by either party
upon giving ninety (90) days prior written notice to the other party or such
shorter period as is mutually agreed upon by the parties. However, this
Agreement may be replaced or modified by a subsequent agreement between the
parties.
13. Duties in the Event of Termination. In the event that in connection
with termination a Successor to any of FTC's duties or responsibilities
hereunder is designated by O'Shaughnessy Funds Inc., by written notice to FTC,
FTC will promptly, upon such termination and at the expense of O'Shaughnessy
Funds Inc., transfer to such Successor all relevant books, records,
correspondence and other data established or maintained by FTC under this
Agreement in a form reasonably acceptable to O'Shaughnessy Funds Inc., (if such
form differs from the form in which FTC has maintained the same, O'Shaughnessy
Funds Inc., shall pay any expenses associated with transferring the same to such
form), and will cooperate in the transfer of such duties and responsibilities,
including provision for assistance from FTC's personnel in the establishment of
books, records and other data by such successor.
14. Notices. Notices of any kind to be given by either party to the
other party shall be in writing and shall be duly given if mailed or delivered
as follows: Notice to FTC shall be sent to 615 E Michigan Street, 2nd Floor
Milwaukee, WI 53202 and notice to the Funds shall be sent to O'Shaughnessy Funds
Inc., 60 Arch Street, Greenwich, Connecticut 06830.
15. Choice of Law. This Agreement shall be construed in accordance
with the laws of the State of Wisconsin.
IN WITNESS WHEREOF, the due execution hereof on the date first above
written.
ATTEST: Firstar Trust Company
__________________________________ By ________________________________
ATTEST: O'Shaughnessy Funds Inc.
__________________________________ By ________________________________
Date:______________________________ Date:_____________________________
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SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 THIRD AVENUE
NEW YORK, N.Y. 10022-9998
October 7, 1996
VIA TELECOPIER AND FIRST CLASS MAIL
O'Shaughnessy Funds, Inc.
60 Arch Street
Greenwhich, Connecticut 06830
Dear Sirs:
O'Shaughnessy Funds, Inc. (the "Corporation"), on behalf of
each of its series: O'Shaughnessy Cornerstone Value Fund, O'Shaughnessy
Cornerstone Growth Fund, O'Shaughnessy Aggressive Growth Fund, and O'Shaughnessy
Dogs of the Market(TM) Fund, proposes to issue and sell an indefinite number of
shares of common stock (the "Shares"), par value $0.0001 per share, in the
manner and on the terms set forth in its Registration Statement on Form N-1A
filed with the Securities and Exchange Commission (File No. 811-07695; 333-7595)
(the "Registration Statement").
We have, as counsel, participated in various proceedings
relating to the Corporation and to the Shares. We have examined copies, either
certified or otherwise proved to our satisfaction to be genuine, of its Articles
of Incorporation, as amended to date, and By-Laws, as currently in effect, and
other documents relating to its organization and operation. In addition, we have
received written confirmation from personnel of the Maryland State Department of
Assessments and Taxation that the Corporation is in good standing under the laws
of the State of Maryland. We have also reviewed the Registration Statement and
all amendments filed as of the date of this opinion and the documents filed as
exhibits thereto. We are generally familiar with the business affairs of the
Corporation.
Based upon the foregoing, it is our opinion that:
1. The Corporation has been duly incorporated and is validly
existing under the laws of the State of Maryland.
2. The Corporation is authorized to issue up to one-hundred billion
(100,000,000,000) Shares. Under Maryland law, (a) the number of
Shares may be increased or decreased by action of the Board of
Directors, and (b) Shares which are issued and subsequently
redeemed by the Corporation are, by virtue of such redemption,
restored to the status of authorized and unissued Shares.
3. Subject to the effectiveness of the Registration Statement and in
compliance with applicable state securities laws, upon the
issuance of the Shares for a consideration not less than the par
value thereof as required by the Investment Company Act of 1940,
as amended, and in accordance with the terms of the Registration
Statement, such Shares will be legally issued and outstanding and
fully paid and non-assessable.
We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as a part of the Registration Statement and
with any state securities commission where such filing is required. We also
consent to the reference to our firm as counsel in the prospectus and statement
of additional information filed as a part thereof. In giving this consent we do
not admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended.
We are members of the Bar of the State of New York and do not
hold ourselves out as being conversant with the laws of any jurisdiction other
than those of the United States of America and the State of New York. We note
that we are not licensed to practice law in the State of Maryland, and to the
extent that any opinion expressed herein involves the law of Maryland, such
opinion should be understood to be based solely upon our review of the published
statutes of that State and, where applicable, published cases, rules or
regulations of regulatory bodies of that State.
Very truly yours,
/s/ SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
---------------------------------------------
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
SFH&G;JHG;MKN;VAZ
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated October 4, 1996 on the
financial statements referred to therein, in this Registration Statement on Form
N-1A, file No. 333-7595, of O'Shaughnessy Funds, Inc., as filed with the
Securities and Exchange Commission.
We also consent to the reference to our Firm in the Statement of
Additional Information under the caption "Auditors".
McGladrey & Pullen, LLP
New York, New York
October 4, 1996
CERTIFICATE OF SOLE SHAREHOLDER
O'Shaughnessy Capital Management, Inc., the holder of 10,000
shares of common stock, par value $0.0001 per share, of O'Shaughnessy Funds,
Inc., a Maryland corporation (the "Fund") representing 2,500 shares of each of
the following series of the Fund:
1. O'Shaughnessy Cornerstone Value Fund
2. O'Shaughnessy Cornerstone Growth Fund
3. O'Shaughnessy Aggressive Growth Fund
4. O'Shaughnessy Dogs of the Market(TM) Fund,
does hereby confirm to the Fund its representation that it purchased such
shares for investment purposes, with no present intention of redeeming or
reselling any portion thereof, and does further agree that if it redeems any
portion of such shares prior to the amortization of the Fund's organizational
expenses, the proceeds thereof will be reduced by the proportionate amount of
the unamortized organizational expenses which the number of shares being
redeemed bears to the number of shares initially purchased.
O'SHAUGHNESSY CAPITAL MANAGEMENT, INC.
By: /s/ James P. O'Shaughenssy
--------------------------
James P. O'Shaughnessy
President
Dated: October 3, 1996
