FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 2 [x ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 3 [x ]
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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:
(203) 869-7148
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
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It is proposed that this filing will become effective:
__ Immediately upon filing pursuant to paragraph (b)
__ On pursuant to paragraph (b)
XX 60 days after filing pursuant to paragraph (a) (1)
__ On pursuant to paragraph (a) (1)
__ 75 days after filing pursuant to paragraph (a) (2)
__ On pursuant to paragraph (a) (2) of Rule 485
If appropriate, check the following box:
__ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- -------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------
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
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Item Number of
Form N-1A; Part A Location in Prospectus
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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
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Item Number of Location in Statement
Form N-1A; Part B of Additional Information
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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
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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 seeks to achieve its investment objective through a process of Strategy
Indexing T which is pursued through the implementation of an investment strategy
developed by O'Shaughnessy Capital Management, Inc., the Fund's investment
manager (the "Manager"). The Fund invests substantially all of its assets in
common stocks selected through this stategy.
The investment strategy of the Dogs of the Market Fund (the "Dogs of the Market
Strategy") entails the selection of 30 common stocks from the Dow Jones
Industrial Average and the S&P 400 Industrial Average which are high dividend
yielding common stocks or large well-established companies and meet certain
criteria as described below. (The Dogs of the Market Strategy is referred to as
a "Strategy.") 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.
PROSPECTUS
August , 1997
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 May 15, 1997 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
<PAGE>
writing the Fund at the telephone number or address set forth above.
O'Shaughnessy Capital Management, Inc.-Manager
First Fund Distributors, Inc.-Distributor
TABLE OF CONTENTS
About the Fund 2
FINANCIAL HIGHLIGHTS 3
Management and Organization of the Fund 12
Information about Your Account 14
Information on Distributions and Taxes 21
Performance Information 23
Net Asset Value 23
Other Shareholder Services 24
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.
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Fee Table
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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) (d) 0.74%
Rule 12b-1 Fees None
Other Expenses (d) (e) 0.76%
Total Fund Operating Expenses (d) 1.50%
(a) Shareholders who effect redemptions of Fund shares by wire transfer will pay a $12.00
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."
(d) To limit the Fund's expenses during its initial period of operations, the
Manager has voluntarily agreed to reduce its fees or reimburse the Fund through
at least September 30, 1997 to ensure that the Fund's total operating expenses
do not exceed 2.00% of average net assets annually. Any such reductions made by
the Manager in its fees or reimbursement of expenses with respect to the Fund
are subject to reimbursement by the Fund to the Manager (recapture by the
Manager), provided the Fund is able to effect such reimbursement while keeping
total operating expenses at or below 2.00% of average net assets annually, and
that no reimbursement will be made after September 30, 2000. Any amounts
reimbursed will have the effect of increasing fees otherwise paid by the Fund.
(e) "Other Expenses" is based on estimated amounts for the current fiscal year.
Example:
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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:
Cumulative Expenses Paid for the Period of: 1 Year 3 Years
$15 $47
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.
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FINANCIAL HIGHLIGHTS
Per Share Operating Performance
(For a share outstanding throughout the period) (Unaudited) November 1,
1996* through March 31, 1997
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Net asset value, beginning of period $10.00 Income from investment operations:
Net investment income .04
Net realized and unrealized loss on investments .03***
<PAGE>
Total from investment operations .07
Distributions paid from net investment income (.01)
Net asset value, end of period $10.06
Total Return 0.72%**
Ratios/supplemental data:
Net assets, end of period (thousands) $2,906
Ratio of expenses to average net assets:
Before expense reimbursement 11.50%+
After expense reimbursement 2.00%+
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement (7.98%)+
After expense reimbursement 1.52%+
Portfolio turnover rate 4.20%
Average commission rate paid $.0503=
*Commencement of operations.
**Not Annualized.
***The amount shown in this caption for a share outstanding throughout the
period does not correspond with the change in realized gains and losses in the
portfolio securities for the period because of the timing of sales and
repurchases of portfolio shares in relation to fluctuating market values for the
portfolio.
+Annualized.
=For fiscal years beginning after September 1, 1995, a fund is required to
disclose average commission rate per share for security trades on which
commissions are charged.
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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.
<PAGE>
How does the Fund achieve its objective?
The Dogs of the Market(TM)Fund seeks to achieve its investment objective through
a process of Strategy IndexingT, which is pursued through the implementation of
the Dogs of the Market(TM)Strategy. This Strategy was developed by the Manager.
Other than assets temporarily maintained in cash of liquid short-term
securities pending investment to meet redemption requests or to comply with
federal tax laws applicable to mutual funds, the Fund will invest substantially
all of its assets in common stocks selected through the Strategy as described
more fully below.
What is the Dogs of the Market(TM) Strategy?
The Dogs of the Market(TM) Strategy selects thirty stocks using the following
selection criteria:
1. Ten stocks in the Fund's portfolio will be the highest yielding stocks from
the Dow Jones Industrial Average1 (the "Dow Dogs").
2. Twenty stocks will be the highest yielding stocks from the S&P 400 Industrial
Average that also have: a) market capitalization exceeding $1 billion and (b) an
issue of common stock outstanding rated higher than A by Standard & Poor's.
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.
How does investment through the Dogs of the Market(TM) Strategy work?
Upon implementation of the Strategy, the Manager will purchase 30 stocks for the
Fund as dictated by the Dogs of the Market(TM)Strategy, based on information as
of that date. The 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 the Fund annually in the first fifteen business days of the
succeeding year (the "Re-Balance Date"), in accordance with the Fund's 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 the 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 30 stocks
selected for the Fund pursuant to the Strategy as of the most recent rebalancing
of the Fund's portfolio, in proportion to the current weightings of such stocks
in the portfolio 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
<PAGE>
cash flow into the Fund, the Fund will meet redemption requests by selling
securities on a pro rata basis, based on the current weightings of such
securities in the portfolio. Thus, interim purchases and sales of securities
between annual Re-Balance Dates will be based on current portfolio weightings
and will be made without regard to whether or not a particular security
continues to meet the Strategy's criteria.
From November 1, 1996, when the Fund began operations, through August ,
1997, the Fund sought to attain its objective by investing approximately 30% of
the Fund's portfolio in the Dow Dogs and the remainder of the portfolio in
additional stocks the Manager believed to have substantially the same qualities
as the Dow Dogs.
Will the Manager deviate from the Strategy?
The Manager is committed to a rigorous, disciplined approach and cannot
presently anticipate any circumstances which would cause it to diverge from the
Strategy described above in managing the Fund.
However, to the extent necessary to comply with federal tax laws
applicable to regulated investment companies such as the Fund, the Manager
reserves a limited right to modify the Strategy. See "Information On
Distributions and Taxes -- Status as a Regulated Investment Company" below.
Is there anything else I should know about the Strategy?
The 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. The Fund will adhere to its Strategy regardless of the
performance of the stock market in a particular period.
The Manager anticipates that the 30 stocks held in the 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 the 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 Fund will be substantially fully invested in stocks selected as
described above at all times.
How can I decide if the Fund is an appropriate investment for me?
Consider your investment goals, your time horizon for achieving them, and your
tolerance of risk. The Fund is not an appropriate investment for those who seek
short-term investments, since the Manager expects the benefits of investing in
the Fund to be derived from investing assets in accordance with the Strategy
over the long-term. See "What is the historical performance of the Strategy?"
below. A discussion of the risks associated with investment in the Fund 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 Fund. In addition, historical
information relating to the performance of the Strategy over time is discussed
below.
<PAGE>
What is the historical performance of the Strategy?
The following graphs and tables compare the actual performance of the S&P 500
Index (the "S&P 500") and the hypothetical performance of the Strategy for the
historical periods indicated. Returns for the Strategy are the returns on a
hypothetical portfolio of stocks which was rebalanced annually in accordance
with the Strategy for the historical periods indicated. The Strategy has been
developed and tested solely by the Manager.
Actual performance of the Fund may differ from the quoted performance
of the Strategy for the following reasons: the 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 Fund, the Manager may make limited
modifications to the Strategy as necessary to comply with federal tax laws; and
the returns of the Strategy do not reflect the advisory fees, commission costs,
expenses or taxes which would be borne by the Fund.
Because the returns for the Strategy 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 Strategy in managing the Fund.
All returns contained in the graphs and charts below reflect reinvestment of
dividends and other earnings.
(This graph represents the hypothetical performance of the Dogs of the
Market(TM) Strategy as applied retroactively in backtesting to December 31,
1974. The performance of the Dogs of the Market(TM) Strategy does not represent
the performance of the Dogs of the Market(TM) Fund (or the performance of the
S&P 500), nor does it 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 Dogs of the Market(TM) Strategy is not predictive of future
performance of the Strategy or the Fund.)
Year Dogs of S&P 500 Dogs of S&P 500
ending the Mkt the Mkt
$10,000.00 $10,000.00
Dec75 50.52% 37.20% $15,052.01 $13,720.00
Dec76 30.51% 23.84% $19,644.42 $16,990.85
Dec77 -2.80% -7.18% $19,094.39 $15,770.91
Dec-78 4.12% 6.56% $19,880.91 $16,805.48
Dec-79 20.56% 18.44% $23,967.77 $19,904.41
Dec-80 21.25% 32.42% $29,060.11 $26,357.41
Dec-81 7.20% -4.91% $31,153.64 $25,063.27
Dec-82 31.88% 21.41% $41,084.82 $30,429.31
Dec-83 32.02% 22.51% $54,241.58 $37,278.95
Dec-84 9.65% 6.27% $59,476.10 $39,616.34
Dec-85 32.20% 32.16% $78,628.85 $52,356.95
Dec-86 25.87% 18.47% $98,969.34 $62,027.28
Dec-87 7.83% 5.23% $106,713.72 $65,271.31
Dec-88 29.40% 16.81% $138,091.57 $76,243.42
Dec-89 29.18% 31.49% $178,387.36 $100,252.47
Dec-90 -0.46% -3.17% $177,563.90 $97,074.47
Dec-91 32.38% 30.55% $235,062.64 $126,730.72
Dec-92 13.75% 7.67% $267,390.19 $136,450.96
Dec-93 12.78% 9.99% $301,551.83 $150,082.41
Dec-94 4.97% 1.31% $316,538.95 $152,048.49
Dec-95 36.88% 37.43% $433,278.52 $208,960.24
Dec-96 20.77% 23.07% $523,270.47 $257,167.37
Average 20.48% 16.71%
Standard deviation 13.56% 13.55%
Sharpe ratio 99 71
3-year 20.17% 19.66%
5-year 17.36% 15.20%
10-year 18.12% 15.28%
15-year 20.69% 16.79%
20-year 17.84% 14.55%
Since Inception 19.71% 15.90%
$10,000 becomes: $523,270.47 $257,167.37
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Dogs of the Market(TM) Strategy Stocks
Hypothetical Total Return on a $10,000 Investment
Annual results for S&P 500 and Hypothetical Results for Dogs of the Market(TM)
Strategy Stocks, December 31, 1974-December 31, 1996.
(This table represents the hypothetical performance of Dogs of the Market(TM)
Strategy as applied retroactively in backtesting to December 31, 1974. The
performance of the Dogs of the Market(TM) Strategy does not represent the
performance of the Dogs of the Market(TM) Fund (or the performance of the S&P
500), nor does it 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 Dogs of the Market(TM) Strategy is not predictive of future
performance of the Strategy or the Fund.)
Dogs of the Market(TM) Dogs of the Market(TM)
Year ending: S&P 500 Strategy Strategy vs. S&P 500
31-Dec-75 37.20% 50.52% 13.32%
31-Dec-76 23.84% 30.51% 6.67%
31-Dec-77 -7.18% -2.80% 4.38%
31-Dec-78 6.56% 4.12% -2.44%
31-Dec-79 18.44% 20.56% 2.12%
31-Dec-80 32.42% 21.25% -11.17%
31-Dec-81 -4.91% 7.20% 12.11%
31-Dec-82 21.41% 31.88% 10.47%
31-Dec-83 22.51% 32.02% 9.51%
31-Dec-84 6.27% 9.65% 3.38%
31-Dec-85 32.16% 32.20% 0.04%
31-Dec-86 18.47% 25.87% 7.40%
31-Dec-87 5.23% 7.83% 2.60%
31-Dec-88 16.81% 29.40% 12.59%
31-Dec-89 31.49% 29.18% -2.31%
31-Dec-90 -3.17% -0.46% 2.71%
31-Dec-91 30.55% 32.38% 1.83%
31-Dec-92 7.67% 13.75% 6.08%
31-Dec-93 9.99% 12.78% 2.79%
31-Dec-94 1.31% 4.97% 3.66%
31-Dec-95 37.43% 36.88% -0.55%
31-Dec-96 23.07% 20.77% -2.30%
Summary results for S&P 500 and Hypothetical Results for Dogs of the Market(TM)
Strategy Stocks, December 31, 1974-December 31, 1996.
(This table represents the hypothetical performance of Dogs of the Market(TM)
Strategy as applied retroactively in backtesting to December 31, 1952. The
performance of the Dogs of the Market(TM)
<PAGE>
Strategy does not represent the performance of the Dogs of the Market(TM) Fund
(or the performance of the S&P 500), nor does it 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 Dogs of the Market(TM) Strategy
is not predictive of future performance of the Strategy or the Fund.)
S&P 500 Dogs of the Market(TM)
Strategy
Arithmetic average 16.71% 20.48%
Standard deviation of return 13.55% 13.56%
3-yr compounded* 19.66% 20.17%
5-yr compounded* 15.20% 17.36%
10-yr compounded* 15.28% 18.12%
15-yr compounded* 16.79% 20.69%
20-yr compounded* 14.55% 17.84%
Since Inception* 15.90% 19.71%
$10,000 becomes: $257,167.37 $523,270.47
*Quoted return is for the most recent period ended December 31, 1996.
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.
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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.
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 capital. In accordance with applicable law, the
Fund may not lend portfolio securities representing in excess of 33 % of its
total assets. The lending policy is a fundamental policy.
Borrowing. The Fund may borrow money from banks in an amount up to 33 % 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.
Foreign Securities. The Fund may invest up to 25% of its total assets in
securities of foreign issuers, either through (i) direct purchase of securities
of foreign issuers if they are listed and traded on a U.S. national securities
exchange or the NASDAQ National Market System or (ii) purchase of 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
<PAGE>
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 liquid assets 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.
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.
<PAGE>
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.
RISK FACTORS
What are some of the potential risks associated with the Strategy?
The Strategy IndexingT utilized by the 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. The Fund will adhere
to its 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 the Fund, if for example, the stocks selected for the
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 Fund is not an appropriate
investment for those who are not comfortable with the Fund's Strategy.
There can be no assurance that the market factors that caused the
stocks held in the Fund's portfolio to meet the 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, the Fund's portfolio is rebalanced annually in
accordance with its Strategy. Rebalancing may result in elimination of better
performing assets from the 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?
<PAGE>
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 Fund is not an appropriate investment 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 Fund?
There is no guarantee that the investment objective of the Fund will be achieved
or that the value of a shareholder's investment in the Fund will not decrease.
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 0.74% 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 was incorporated in 1988.
The Manager serves as portfolio consultant to a unit investment trust with
assets in excess of $100 million. Additionally, The Manager provides investment
advisory services to individual and institutional accounts with assets in excess
of $100 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. 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
<PAGE>
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.
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
<PAGE>
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.
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, and certain purchase programs made
available to clients of financial intermediaries eligible to sell shares 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
<PAGE>
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.
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
<PAGE>
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).
<PAGE>
You may also exchange shares of the Fund for shares of the Portico
Money Market Fund, a money market mutual fund not affiliated with O'Shaughnessy
Funds or the Manager. Prior to making such an exchange, you should obtain and
carefully read the prospectus for the Portico 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 Money Market Fund.
If you exchange into shares of the Portico Money Market Fund you may
establish checkwriting privileges on the Portico Money Market Fund. Contact the
Transfer Agent at (800) 797-0773 for a checkwriting application and signature
card.
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 Money Market Fund
may be sold legally.
<PAGE>
The Fund, the other O'Shaughnessy Funds and the Portico Money Market
Fund 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 Money Market Fund 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 in
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.
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
<PAGE>
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 fund (either another O'Shaughnessy Fund or the Portico
Money Market 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 redemption 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.
When are signature guarantees required?
Except as indicated below, all of the signatures on any request for
redemption or share certificates
<PAGE>
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.
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
<PAGE>
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 $12.00
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 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
<PAGE>
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 the
Portico Money Market Fund. 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 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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
Systematic 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 Systematic 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 call
the Transfer Agent at (800) 797-0773.
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: oIndividual Retirement Account (IRA) oSimplified Employee
Pension (SEP) for sole proprietors, partnerships and corporations
oProfit-Sharing and Money Purchase Pension Plans for corporations and their
employees
The minimum initial investment is $500 and the minimum subsequent
investment is $50 for retirement plans.
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
<PAGE>
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.
[This page intentionally left blank.]
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.
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
<PAGE>
555 Fifth Avenue
New York, New York 10017-2416
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
[INSERT O'SHAUGHNESSY PROSPECTUS
DOGS OF THE MARKET ARTWORK]
<PAGE>
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 MarketTM 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 August ____, 1997. 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 August ____, 1997.
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
B-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, the Funds may each invest in the securities of
foreign issuers, including 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 ascommon 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. The Aggressive Growth Fund may 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
B-2
<PAGE>
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.
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 eitheron 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.
B-3
<PAGE>
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 toenter 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 thecreditworthiness 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.
Lending of Fund Securities. In accordance with applicable law, each Fund may
lend portfolio securities (representing not more than 33 1/3% 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
B-4
<PAGE>
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.
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
andTaxes" below.
B-5
<PAGE>
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 aHedging 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 indice 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.
B-6
<PAGE>
(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'sability 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 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 wil
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
B-7
<PAGE>
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 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.
B-8
<PAGE>
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 liquid assets 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 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.
B-9
<PAGE>
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
B-10
<PAGE>
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:
(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,
B-11
<PAGE>
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;
(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. 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 since neither the Cornerstone Growth Fund, Cornerstone
Value Fund, nor Dogs of the Market Fund invests in illiquid securities;
(e) 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.
B-12
<PAGE>
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>
<CAPTION>
Name, Age and Address Position with the Fund Other Business Activities in Past 5 Years
- --------------------- ---------------------- -----------------------------------------
<S> <C> <C>
James P. O'Shaughnessy* Director, President and President of O'Shaughnessy Capital
Age: 36 Treasurer Management,Inc., 1988 - present; author
of "Invest Like the Best" and "What
O'Shaughnessy Captial Works on Wall Street
Management, Inc.
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
Age: 67 Officer of Cadbury Schweppes, Inc.;
Director, Loctite Corp.
Joseph John McAleer Director Founder and President, MCA Associates,
Age: 67 Inc. (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: 47 Secretary Wadsworth Group since 1986; Vice
President of First Fund Distributors, Inc.
since 1989; Vice President of Investment
Company Administration Corporation
since 1990.
* Interested person, as defined in the 1940 Act.
</TABLE>
B-13
<PAGE>
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 September 30, 1997.
<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>
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 September 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
B-14
<PAGE>
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 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. The Manager may voluntarily waive its management
fee or subsidize other Fund expenses. This may have the effect of increasing a
Fund's return.
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.
B-15
<PAGE>
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.
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 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.
B-16
<PAGE>
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 theManager 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 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.
B-17
<PAGE>
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
oneyear 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.
Suchpurchasesand 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
B-18
<PAGE>
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 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 asof 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.
B-19
<PAGE>
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.
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
B-20
<PAGE>
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 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.
B-21
<PAGE>
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 theirevaluation 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 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.
B-22
<PAGE>
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'ssharesagainst 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
B-23
<PAGE>
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 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.
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.
B-24
<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.
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.
The unaudited financial statements for the Funds for the period ended
March 31, 1997 are incorporated by reference to the semi-annual reports of the
Funds, copies of which are available at no charge by calling 1-800-797-0773.
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 MarketTM 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,
B-25
<PAGE>
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 MarketTM 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
O'SHAUGHNESSY FUNDS, INC.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES OF THE FUNDS
OCTOBER 3, 1996
<CAPTION>
Cornerstone Cornerstone Dogs of the Aggressive
Growth Value MarketTM Growth
Fund Fund Fund Fund
<S> <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
------ -------- ------ ------
B-26
<PAGE>
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 MarketTM 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-27
<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
tothe 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.
B-28
<PAGE>
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits.
(a) Financial Statements.
Contained in Part A, the Prospectus:
Financial Highlights (unaudited)
Contained in Part B, the Statement of Additional Information:
Statement of Assets and Liabilities as of October 3, 1996.
Unaudited financial statements for the period ended March 31, 1997 are
incorporated by reference from the semi-annual reports for that period.
(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**
(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).
** Incorporated by reference to identically numbered Exhibits in
pre-effective amendment No. 1 to Registrant's Registration Statement on Form
N-1A, filed on October 9, 1996.
Item 25. Persons Controlled by or Under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As May 15, 1997, 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 753
O'Shaughnessy Cornerstone Growth Fund 947
O'Shaughnessy Aggressive Growth Fund 273
O'Shaughnessy Dogs of the Market(TM)Fund 610
Item 27. Indemnification.
Article V of the Registrant's By-Laws relating to the indemnification
of officers and trustees is quoted below:
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.
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.
<PAGE>
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:
<PAGE>
Advisors Series Trust
Guinness Flight Investment Funds, Inc.
Jurika & Voyles Mutual Fund Group
Hotchkis and Wiley Funds
Masters' Select Equity Fund
PIC Investment Trust
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group
Avondale Total Return Fund
Osterweis Fund
Perkins Opportunity Fund
Pro-Conscience Women's Equity Mutual Fund
Trent Equity Fund
Academy Value Fund
Kayne Anderson Mutual Funds
Boston Managed Growth Fund
Leonetti Balanced Fund
Lighthouse Growth Fund
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
</TABLE>
(c) Not applicable.
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) 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) and has duly caused this Post-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 16th
day of June, 1997.
O'SHAUGHNESSY FUNDS, INC.
Registrant
By: /s/ James P. O'Shaughnessy
--------------------------
James P. O'Shaughnessy, President
<PAGE>
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 June 16, 1997
Officer) and Director
/s/ James P. O'Shaughnessy
----------------------
James P. O'Shaughnessy Treasurer (Principal Financial June 16, 1997
and Accounting Officer)
/s/ C. Flemming Heilmann
----------------------
C. Flemming Heilmann Director June 16, 1997
/s/ Joseph John McAleer
---------------------
Joseph John McAleer Director June 16, 1997
/s/ Robert E. Ix
------------
Robert E. Ix Director June 16, 1997
</TABLE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the references to our firm in the Post-Effective Amendment No. 2
to the Registration Statement on Form N-1A of O'Shaughnessy Funds, Inc.
("Funds") and to the use of our report dated October 4, 1996 on the statements
of assets and liabilities which appears in the Funds' Statement of Additional
Information.
McGladrey & Pullen, LLP
New York, NY
June 13, 1997
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<NAME> O'SHAUGHNESSY DOGS OF THE MARKET FUND
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<ACCUMULATED-NET-GAINS> 612
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (66,711)
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<NET-INVESTMENT-INCOME> 7,466
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<OVERDISTRIBUTION-GAINS> 0
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</TABLE>
