As filed with the Securities and Exchange Commission on January 19, 2000
Files Nos. 333-0795
811-07695
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 6 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 7 [X]
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O'SHAUGHNESSY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
35 Mason Street, Greenwich, Connecticut 06830
(Address of Principal Executive Offices, including Zip Code)
(203) 869-7148
(Registrant's Telephone Number, including Area Code)
James P. O'Shaughnessy
O'Shaughnessy Capital Management, Inc.
35 Mason Street
Greenwich, Connecticut 06830
Copies of communications to:
Counsel for the Fund:
Joel H. Goldberg, Esq.
Swidler, Berlin, Shereff, Friedman, LLP
919 Third Avenue
New York, New York 10022-9998
Steven J. Paggioli
Investment Company Administration, LLC
915 Broadway, New York, New York 10010
(Name and Address of Agent for Service)
----------
It is proposed that this filing will become effective (check appropriate box)
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On January 28, 2000 pursuant to paragraph (b)
[ ] 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:
[X] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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<PAGE>
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND
SERIES OF O'SHAUGHNESSY FUNDS, INC.
O'Shaughnessy Cornerstone Growth Fund is a stock mutual fund that seeks
long-term growth of capital.
O'Shaughnessy Cornerstone Value Fund is a stock mutual fund that seeks
total return, consisting of capital appreciation and current income.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION DOES NOT
APPROVE OR DISAPPROVE OF THESE SHARES OR DETERMINE IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _________, 2000
www.osfunds.com
<PAGE>
TABLE OF CONTENTS
An Overview of the Funds ..................................................
Performance ...............................................................
Fees and Expenses .........................................................
Investment Objectives and Principal Investment Strategies .................
Principal Risks of Investing in the Funds .................................
Management of the Funds....................................................
Shareholder Information ...................................................
Pricing of Fund Shares ....................................................
Dividends and Distributions ...............................................
Tax Consequences ..........................................................
Financial Highlights ......................................................
2
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AN OVERVIEW OF THE FUNDS
WHAT ARE THE INVESTMENT GOALS OF THE FUNDS?
CORNERSTONE GROWTH FUND seeks long-term growth of capital.
CORNERSTONE VALUE FUND seeks total return, consisting of capital appreciation
and current income.
WHAT ARE THE MAIN INVESTMENT STRATEGIES OF THE FUNDS?
Each Fund seeks to achieve its investment goal through a process of Strategy
Indexing(R)* which is pursued through the use of an investment strategy
developed by O'Shaughnessy Capital Management, Inc., the Funds' investment
manager (the "Manager"). Each Fund will invest substantially all of its assets
in common stocks selected through such strategies. Each Fund may invest in
foreign securities, including American Depositary Receipts ("ADRs").
Each Fund offers a disciplined approach to investing, based on a buy and hold
philosophy over the course of each year, which ignores market timing and rejects
active management. The Manager anticipates that the 50 stocks held in each
Fund's portfolio will remain the same through the course of a year, despite any
adverse developments concerning a company, an industry, the economy or the stock
market generally.
CORNERSTONE GROWTH FUND. In selecting stocks for this Fund, the Manager uses the
Cornerstone Growth Strategy*. The Cornerstone Growth Strategy selects the 50
common stocks with the highest one-year price appreciation as of the date of
purchase from the O'Shaughnessy All Stocks Universe(TM) that also meet certain
criteria that is explained in detail under "Investment Objectives and Principal
Investment Strategies."
CORNERSTONE VALUE FUND. In selecting stocks for this Fund, the Manager uses the
Cornerstone Value Strategy*. The Cornerstone Value Strategy selects the 50
highest dividend-yielding common stocks from the O'Shaughnessy Market Leaders
Universe(TM) that also meet certain criteria that is explained in detail under
"Investment Objectives and Principal Investment Strategies."
- ----------
Trademarks of O'Shaughnessy Capital Management, Inc. U.S. Patent No. 5,978,778.
3
<PAGE>
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
There is the risk that you could lose money on your investment in the Funds. The
following risks could affect the value of your investment:
* The stock market goes down
* Interest rates rise which can result in a decline in the equity market
* Stocks in the Funds' portfolios may not increase their earnings at the rate
anticipated
* The Strategy Indexing(R) employed by the Funds could cause them to
underperform similar funds that do not use this discipline
* Securities of medium and small companies involve greater volatility than
investing in larger more established companies
* Adverse developments occur in foreign markets. Foreign investments involve
greater risk.
WHO MAY WANT TO INVEST IN THE FUNDS?
The Funds may be appropriate for investors who:
* Are pursuing a long-term goal such as retirement
* Are willing to accept higher short-term risk along with higher potential
for long-term growth of capital
* Want to add an equity investment to diversify their investment portfolio o
Believe that long-term investing, using a disciplined strategy, is most
likely to meet their investment goals
The Funds may not be appropriate for investors who:
* Need regular income or stability of principal
* Are pursuing a short term goal
* Are not comfortable with a Fund's disciplined Strategy
PERFORMANCE
The following performance information indicates some of the risks of
investing in the Funds. The bar charts show how each Fund's total return has
varied from year to year. The tables show each Fund's average return over time
compared with broad-based market indices. This past performance will not
necessarily continue in the future.
CORNERSTONE GROWTH FUND
CALENDAR YEAR TOTAL RETURNS (%)
[The following is the bar chart]
1997: 31.34%
1998: 3.67%
1999: 37.72%
[End of bar chart]
4
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During the period shown in the bar chart, the Fund's highest quarterly return
was 32.04% for the quarter ended December 31, 1999 and the lowest quarterly
return was -28.53% for the quarter ended September 30, 1998.
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
Since Inception
1 Year (11/1/96)
------ ---------
Cornerstone Growth Fund 37.72% 22.24%
S&P 500 Index* 21.04% 28.15%
Russell 2000 Index ** 21.26% 14.73%
Lipper Small Cap Growth Fund Index*** 61.17% 21.68%
- ----------
* The S&P 500 Index is an unmanaged capitalization-weighted index generally
representative of the market for the stocks of large U.S. companies across
the broad domestic economy.
** The Russell 2000 Index is a recognized small-cap index of the 2,000
smallest securities of the Russell 3000 Index, which is comprised of the
3,000 largest U.S. securities as determined by total market capitalization.
*** The Lipper Small Cap Growth Index is comprised of funds that invest at
least 75% of their equity assets in companies with market capitalizations
of less than 250% of the dollar-weighted median market capitalization of
the S&P Small-Cap 600 Index. The S&P Small-Cap 600 Index is a market
weighted index consisting of 600 domestic stocks chosen for market size,
liquidity, and industry group representation. The funds in this Index have
a similar investment objective as the Cornerstone Growth Fund.
CORNERSTONE VALUE FUND
CALENDAR YEAR TOTAL RETURNS (%)
[The following is the bar chart]
1997: 15.29%
1998: 6.59%
1999: 6.01%
[End of bar chart]
5
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During the period shown in the bar chart, the Fund's highest quarterly return
was 11.87% for the quarter ended December 31, 1998 and the lowest quarterly
return was -10.04% for the quarter ended September 30, 1998.
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
Since Inception
1 Year (11/1/96)
------ ---------
Cornerstone Value Fund 6.01% 8.81%
S&P 500 Index* 21.04% 28.15%
Lipper Multi-Cap Value Fund Index** 5.94% 14.19%
- ----------
* The S&P 500 Index is an unmanaged capitalization-weighted index generally
representative of the market for the stocks of large U.S. companies across
the broad domestic economy.
** The Lipper Multi-Cap Value Fund Index is comprised of funds that invest in
a variety of market capitalization ranges, without concentrating 75% of
their equity assets in any one capitalization range over an extended period
of time. The funds in this Index have a similar investment objective as the
Cornerstone Value Fund.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
Cornerstone Cornerstone
Growth Fund Value Fund
----------- ----------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases..... None None
Maximum deferred sales charge (load) ................ None None
Redemption fee (as a percentage of amount
redeemed)* ......................................... 1.50% 1.50%
Exchange Fee* ....................................... 1.50% 1.50%
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees ..................................... 0.74% 0.74%
Distribution and Service (12b-1) Fees................ None None
Other Expenses ...................................... 0.41% 0.64%
---- ----
Total Annual Fund Operating Expenses ................ 1.15% 1.38%
==== ====
- ----------
* If you redeem or exchange shares you have owned for less than 90 days, a
1.50% fee will be deducted from the value of your exchange or from your
redemption proceeds. This fee is payable to the Fund.
6
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EXAMPLE
This Example is intended to help you compare the cost of investing in shares of
the Funds with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Funds for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Funds' operating expenses remain the same. Although your actual costs may be
higher or lower, under the assumptions, your costs would be:
Cornerstone Cornerstone
Growth Fund Value Fund
----------- ----------
One Year ....................... $ 117 $ 140
Three Years .................... $ 365 $ 436
Five Years ..................... $ 632 $ 753
Ten Years ...................... $1,393 $1,652
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
CORNERSTONE GROWTH FUND. The goal of the Cornerstone Growth Fund is to seek
long-term growth of capital. The Fund seeks to meet its goal by investing
substantially all of its assets in common stocks selected through the
"Cornerstone Growth Strategy."
WHAT IS THE CORNERSTONE GROWTH STRATEGY?
The Cornerstone Growth Strategy selects the 50 common stocks with the highest
one-year price appreciation as of the date of purchase from the O'Shaughnessy
All Stock Universe(TM) that also meet the following criteria: (i) annual
earnings that are higher than the previous year; (ii) a price-to-sales ratio
below 1.5; (iii) positive relative strength over the past three and six month
periods; and (iv) historical trading volume sufficient to allow for the Fund to
purchase the required number of shares on the Re-Balance Date. A stock's
price-to-sales ratio is computed by dividing the market value of the stock by
the issuer's most recent twelve months sales.
WHAT IS THE O'SHAUGHNESSY ALL STOCKS UNIVERSE(TM)?
The O'Shaughnessy All Stock Universe(TM) consists of all the domestic and
foreign common stocks in the Standard & Poor's Compustat ("S&P Compustat")
database (the "COMPUSTAT(R) Database") with market capitalizations exceeding
$172 million. Currently the COMPUSTAT(R) Database consists of the stocks
(including the American Depositary Receipts ("ADRS")) of 4,651 issuers, and the
O'Shaughnessy All Stocks Universe(TM) consists of the stocks of 2,731 issuers.
7
<PAGE>
CORNERSTONE VALUE FUND. The goal of the Cornerstone Value Fund is to seek total
return, consisting of capital appreciation and current income. The Fund seeks to
meet its goal by investing substantially all of its assets in common stocks
selected through the "Cornerstone Value Strategy."
WHAT IS THE CORNERSTONE VALUE STRATEGY?
The Cornerstone Value Strategy involves the selection of the 50 highest
dividend-yielding common stocks from the O'Shaughnessy Market Leaders
Universe(TM) that have historical trading volume sufficient to allow for the
Fund to purchase the required number of shares on the Re-Balance Date.
WHAT IS THE O'SHAUGHNESSY MARKET LEADERS UNIVERSE(TM)?
The O'Shaughnessy Market Leaders Universe(TM)consists of those domestic and
foreign stocks in the COMPUSTAT(R)Database which are not power utility companies
and which have (i) market capitalizations exceeding the average of the
COMPUSTAT(R)Database; (ii) twelve month sales which are 50% greater than the
average for the COMPUSTAT(R) Database; (iii) a number of shares outstanding
which exceeds the average for the COMPUSTAT(R) Database; and (iv) cash flow
which exceeds the average for the COMPUSTAT(R)Database. Currently, the
O'Shaugnessy Market Leaders Universe(TM)consists of the stocks of 296 issuers.
HOW DOES INVESTMENT THROUGH THE CORNERSTONE GROWTH STRATEGY AND THE CORNERSTONE
VALUE STRATEGY WORK?
When the Funds began, the Manager purchased 50 stocks for each Fund as dictated
by the respective Strategy, based on information at that time. Each Fund's
holdings of each stock in its portfolio were initially weighted equally by
dollar amount. Thereafter the Manager rebalances the portfolio of each Fund
annually during the month preceding and three months after the calendar year-end
of the succeeding year (the "Re-Balance Date"), in accordance with the Fund's
respective Strategy, based on information during this period. That is, during
the Re-Balance period of each year, stocks meeting the Strategy's criteria on or
about the immediately preceding year-end will be purchased for the Fund to the
extent not then held, stocks which no longer meet the criteria as of such date
will be sold, and the holdings of all stocks in the Fund that continue to meet
the criteria will be appropriately increased or decreased to result in equal
weighting of all stocks in the portfolio.
When a Fund receives new cash flow from the sale of its shares over the course
of the year, such cash will first be used to the extent necessary to meet
redemptions. The balance of any such cash will be invested in the 50 stocks
selected for the Fund using the applicable 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. Such purchases will generally be made on a weekly
basis, but may be on a more or less frequent basis in the discretion of the
Manager, depending on certain factors, including the size of the Fund and the
amount of cash to be invested. To the extent redemptions exceed new cash flow
into a Fund, the Fund will meet redemption requests by selling securities on a
pro rata basis, based on 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
8
<PAGE>
without regard to whether or not a particular security continues to meet the
Strategy's criteria.
The Manager expects that the 50 stocks held in each Fund's portfolio will remain
the same throughout the course of a year, despite any adverse developments
concerning an issuer, an industry, the economy or the stock market generally.
However, if during the course of a year it is determined that earnings or other
information that form the basis for selecting a security are false or incorrect,
the Manager reserves the right to replace such a security with another meeting
the criteria of the respective Strategy. Also, due to purchases and redemptions
of Fund shares during the year, changes in the market value of the stock
positions in a Fund's portfolio and compliance with federal tax laws, it is
likely that stock positions will not be weighted equally at all times during a
year.
COMPUSTAT(R) DATABASE. Although S&P Compustat obtains information for inclusion
in or for use in the COMPUSTAT(R) Database from sources which S&P Compustat
considers reliable, S&P Compustat does not guarantee the accuracy or
completeness of the COMPUSTAT(R) Database. S&P Compustat makes no warranty,
express or implied, as to the results to be obtained by the Funds, or any other
persons or entity from the use of the COMPUSTAT(R) Database. S&P Compustat makes
no express or implied warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose with respect to the
COMPUSTAT(R) Database. "Standard & Poor's" and "S&P" are trademarks of The
McGraw-Hill Companies, Inc. The Funds are not sponsored, endorsed, sold or
promoted by S&P Compustat and S&P Compustat makes no representation regarding
the advisability of investing in the Funds.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
The principal risks of investing in the Funds that may adversely affect the
Funds' net asset value or total return are previously summarized in "An Overview
of the Funds." These risks are discussed in more detail below.
STRATEGY INDEXING(R) RISK. The Strategy Indexing(R) utilized by each Fund
provides a disciplined approach to investing, based on a buy and hold philosophy
during the course of each year, which ignores market timing and rejects active
management. Each Fund will adhere to its respective Strategy (subject to
applicable federal tax requirements relating to mutual funds), despite any
adverse developments concerning an issuer, an industry, the economy or the stock
market generally. This could result in substantial losses to a Fund, if for
example, the stocks selected for a Fund's portfolio for a given year are
experiencing financial difficulty, or are out of favor in the market because of
weak performance, poor earnings forecast, negative publicity or general market
cycles.
There can be no assurance that the market factors that caused the stocks held in
a Fund's portfolio to meet a Strategy's investment criteria as of rebalancing in
any given year will continue during such year until the next rebalancing, that
any negative conditions adversely affecting a stock's price will not develop
and/or deteriorate during a given year, or that share prices of a stock will not
decline during a given year.
Each Fund's portfolio is rebalanced annually in accordance with its respective
Strategy. Rebalancing may result in elimination of better performing assets from
a Fund's portfolio and increases in investments in securities with relatively
lower total return.
9
<PAGE>
MARKET RISK. The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industry, sector of
the economy or the market as a whole.
SMALL AND MEDIUM SIZED COMPANIES RISK. Investing in securities of small and
medium sized companies may involve greater volatility than investing in larger
and more established companies because they can be subject to more abrupt or
erratic share price changes than larger, more established companies. Small
companies may have limited product lines, markets or financial resources and
their management may be dependent on a limited number of key individuals.
Securities of these companies may have limited market liquidity and their prices
may be more volatile.
FOREIGN SECURITIES RISK. The risk of investing in the securities of foreign
companies is greater than the risk of investing in domestic companies. Some of
these risks include: (1) unfavorable changes in currency exchange rates; (2)
economic and political instability; (3) less publicly available information; (4)
less strict auditing and financial reporting requirement; (5) less governmental
supervision and regulation of securities markets; (6) higher transactions costs;
(7) potential adverse effects of the euro conversion; and (8) greater
possibility not being able to sell securities on a timely basis.
YEAR 2000 RISK. As the year 2000 began, the Funds did not experience any notable
problems arising from the inability of computer systems used by the Manager and
other service providers to properly process and calculate information related to
dates beginning January 1, 2000. This is commonly known as the "Year 2000
Issue." There can be no assurance that some computer systems will not
malfunction in the future as a result of the Year 2000 Issue. Although the
Manager does not anticipate that its services or the services of the Funds'
other service providers will be adversely affected as a result of the Year 2000
Issue, it will continue to monitor the situation. If malfunctions related to the
Year 2000 Issue do arise, the Funds and their investments could be adversely
affected, as well as companies in which the Funds invest.
WHAT IS THE HISTORICAL PERFORMANCE OF THE STRATEGIES?
The following graphs and tables compare the actual performance of the S&P 500
Index (the "S&P 500"), the hypothetical performance of each of the Cornerstone
Growth Strategy and Cornerstone Value Strategy for the historical periods
indicated and the actual performance of the Cornerstone Growth Fund and
Cornerstone Value Fund for 1997, 1998 and 1999. Returns for each Strategy are
the returns on a hypothetical portfolio of stocks which was rebalanced annually
in accordance with such Strategy for the historical periods indicated. The
Strategies have been developed and tested solely by the Manager.
Actual performance of the Funds may differ from the quoted performance of the
Strategies for the following reasons: each Fund may not be fully invested at all
times; not all stocks in a Fund's portfolio may be weighted equally at all
10
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times due to appreciation or depreciation in a stock's value; purchases and
sales of stocks for a Fund's portfolio are likely to occur between annual
rebalancings due to cash inflows and outflows (from purchases and redemptions of
Fund shares) during the year; in managing the Funds, the Manager may make
limited modifications to the Strategies as necessary to comply with federal tax
laws; and the returns of the Strategies do not reflect the advisory fees,
commission costs, expenses or taxes that are borne by the Funds.
Because the returns for the Strategies are hypothetical, they do not represent
actual trading or the impact that material economic and market factors might
have had on the Manager's decision-making under actual circumstances. However,
except as described above, the Manager can presently foresee no circumstances
that would cause deviation from the Strategies in managing the Funds. All
returns contained in the graphs and charts below reflect reinvestment of
dividends and other earnings.
CORNERSTONE GROWTH STRATEGY STOCKS: Hypothetical Total Return on a $10,000
Investment+
[The following is in graph form]
Cornerstone
Date S&P 500 Growth
- ---- ------- ------
1952 $ 10,000 $ 10,000
1953 9,901 10,040
1954 15,111 15,733
1955 19,880 20,515
1956 21,184 24,208
1957 18,900 19,875
1958 27,096 30,369
1959 30,336 37,688
1960 30,479 42,436
1961 38,675 64,121
1962 35,298 53,093
1963 43,346 64,136
1964 50,490 83,377
1965 56,776 120,146
1966 51,064 120,026
1967 63,309 220,007
1968 70,311 331,110
1969 64,335 238,068
1970 66,915 231,878
1971 76,490 306,311
1972 91,008 366,655
1973 77,666 265,825
1974 57,108 188,470
1975 78,352 259,334
1976 97,031 343,618
1977 90,064 434,333
1978 95,973 600,683
1979 113,670 833,147
1980 150,522 1,355,530
1981 143,131 1,233,532
1982 173,776 1,691,173
1983 212,892 2,244,186
1984 226,241 2,199,303
1985 299,000 3,134,006
1986 354,225 3,688,725
1987 372,751 3,489,534
1988 435,410 4,525,926
1989 572,521 5,603,096
1990 554,372 5,418,194
1991 723,733 8,203,146
1992 779,243 10,294,948
1993 857,090 13,414,317
1994 868,318 12,703,358
1995 1,193,329 15,015,370
1996 1,468,630 19,748,214
1997* 1,958,565 25,937,304
1998* 2,518,323 26,889,203
1999* 3,037,601 37,031,811
[End of graph]
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O'Shaughnessy Cornerstone Growth Strategy Index vs. the S&P 500* (December 31,
1953 - December 31, 1999)
Cornerstone
Growth
Year Ending S&P 500 Strategy
- ----------- ------- --------
12/31/53 -0.99% 0.40%
12/31/54 52.62% 56.70%
12/31/55 31.56% 30.40%
12/31/56 6.56% 18.00%
12/31/57 -10.78% -17.90%
12/31/58 43.36% 52.80%
12/31/59 11.96% 24.10%
12/31/60 0.47% 12.60%
12/31/61 26.89% 51.10%
12/31/62 -8.73% -17.20%
12/31/63 22.80% 20.80%
12/31/64 16.48% 30.00%
12/31/65 12.45% 44.10%
12/31/66 -10.06% -0.10%
12/31/67 23.98% 83.30%
12/31/68 11.06% 50.50%
12/31/69 -8.50% -28.10%
12/31/70 4.01% -2.60%
12/31/71 14.31% 32.10%
12/31/72 18.98% 19.70%
12/31/73 -14.66% -27.50%
12/31/74 -26.47% -29.10%
12/31/75 37.20% 37.60%
12/31/76 23.84% 32.50%
12/31/77 -7.18% 26.40%
12/31/78 6.56% 38.30%
12/31/79 18.44% 38.70%
12/31/80 32.42% 62.70%
12/31/81 -4.91% -9.00%
12/31/82 21.41% 37.10%
12/31/83 22.51% 32.70%
12/31/84 6.27% -2.00%
12/31/85 32.16% 42.50%
12/31/86 18.47% 17.70%
12/31/87 5.23% -5.40%
12/31/88 16.81% 29.70%
12/31/89 31.49% 23.80%
12/31/90 -3.17% -3.30%
12/31/91 30.55% 51.40%
12/31/92 7.67% 25.50%
12/31/93 9.99% 30.30%
12/31/94 1.31% -5.30%
12/31/95 37.43% 18.20%
12/31/96 23.07% 31.52%
12/31/97+ 33.36% 31.34%
12/31/98+ 28.58% 3.67%
12/31/99+ 20.62% 37.72%
- ----------
+ Returns for 1997, 1998 and 1999 are actual for the Cornerstone Growth Fund,
net of fees and expenses.
* This Chart and the Index Performance Statistics and Comparisons represent
past performance of the S&P 500 Index, an unmanaged index of securities,
and the Cornerstone Growth Strategy, but not the Cornerstone Growth Fund,
applied retroactively, and should not be considered indicative of future
results. The performance of the strategy shown is a hypothetical example of
the performance of the strategy found in the backtest, using an initial
$10,000 value, if the Strategy had been in existence and employed from 1952
through 1996, together with the actual return of the O'Shaughnessy
Cornerstone Growth Fund for 1997, 1998 and 1999. Performance of the
Strategy and the S&P 500 do not reflect advisory fees, commissions,
expenses or taxes that the Fund bears. The Strategy's performance as well
as that of the S&P 500 would be lower if such fees and expenses were
deducted. Read the prospectus carefully before investing.
12
<PAGE>
CORNERSTONE VALUE STRATEGY STOCKS: Hypothetical Total Return on a $10,000
Investment+
[The following is in graph form]
Cornerstone
Date S&P 500 Value
- ---- ------- -----
1952 11,837 11,430
1953 11,720 11,567
1954 17,887 17,640
1955 23,532 22,597
1956 25,076 25,941
1957 22,372 22,439
1958 32,073 32,514
1959 35,909 35,635
1960 36,078 35,625
1961 45,779 44,317
1962 41,783 43,165
1963 51,309 51,280
1964 59,765 61,690
1965 67,205 72,547
1966 60,445 65,147
1967 74,939 80,587
1968 83,227 101,943
1969 76,153 86,652
1970 79,207 96,443
1971 90,541 111,681
1972 107,726 127,317
1973 91,933 119,805
1974 67,599 105,069
1975 92,745 166,219
1976 114,856 231,377
1977 106,609 239,012
1978 113,603 246,900
1979 134,551 310,106
1980 178,173 373,058
1981 169,424 420,809
1982 205,698 503,288
1983 252,001 697,557
1984 267,801 730,342
1985 353,926 985,961
1986 419,296 1,189,070
1987 441,225 1,327,002
1988 515,395 1,678,657
1989 677,693 2,309,832
1990 656,210 2,148,144
1991 856,683 2,940,809
1992 922,390 3,281,943
1993 1,014,537 3,951,459
1994 1,027,828 4,141,129
1995 1,412,543 5,246,810
1996 1,738,417 6,395,862
1997* 2,318,353 7,373,789
1998* 2,980,938 7,859,722
1999* 3,595,608 8,332,091
[End of graph]
13
<PAGE>
O'Shaughnessy Cornerstone Value Strategy Index vs. the S&P 500* (December 31,
1952 - December 31, 1999)
Cornerstone Value
Year Ending S&P 500 Strategy
- ----------- ------- --------
12/31/52 18.37% 14.30%
12/31/53 -0.99% 1.20%
12/31/54 52.62% 52.50%
12/31/55 31.56% 28.10%
12/31/56 6.56% 14.80%
12/31/57 -10.78% -13.50%
12/31/58 43.36% 44.90%
12/31/59 11.96% 9.60%
12/31/60 0.47% -0.03%
12/31/61 26.89% 24.40%
12/31/62 -8.73% -2.60%
12/31/63 22.80% 18.80%
12/31/64 16.48% 20.30%
12/31/65 12.45% 17.60%
12/31/66 -10.06% -10.20%
12/31/67 23.98% 23.70%
12/31/68 11.06% 26.50%
12/31/69 -8.50% -15.00%
12/31/70 4.01% 11.30%
12/31/71 14.31% 15.80%
12/31/72 18.98% 14.00%
12/31/73 -14.66% -5.90%
12/31/74 -26.47% -12.30%
12/31/75 37.20% 58.20%
12/31/76 23.84% 39.20%
12/31/77 -7.18% 3.30%
12/31/78 6.56% 3.30%
12/31/79 18.44% 25.60%
12/31/80 32.42% 20.30%
12/31/81 -4.91% 12.80%
12/31/82 21.41% 19.60%
12/31/83 22.51% 38.60%
12/31/84 6.27% 4.70%
12/31/85 32.16% 35.00%
12/31/86 18.47% 20.60%
12/31/87 5.23% 11.60%
12/31/88 16.81% 26.50%
12/31/89 31.49% 37.60%
12/31/90 -3.17% -7.00%
12/31/91 30.55% 36.90%
12/31/92 7.67% 11.60%
12/31/93 9.99% 20.40%
12/31/94 1.31% 4.80%
12/31/95 37.43% 26.70%
12/31/96 23.07% 21.90%
12/31/97+ 33.36% 15.29%
12/31/98+ 28.58% 6.59%
12/31/99+ 20.62% 6.01%
- ----------
+ Returns for 1997, 1998 and 1999 are actual for the Cornerstone Value Fund,
net of fees and expenses.
* This Chart and the Index Performance Statistics and Comparisons represent
past performance of the S&P 500 Index, an unmanaged index of securities,
and the Cornerstone Value Strategy, but not the Cornerstone Value Fund,
applied retroactively, and should not be considered indicative of future
results. The performance of the strategy shown is a hypothetical example of
the performance of the Strategy found in the backtest, using an initial
$10,000 value, if the Strategy had been in existence and employed from 1952
through 1996, together with the actual return of the O'Shaughnessy
Cornerstone Value Fund for 1997, 1998 and 1999. Performance of the Strategy
and the S&P 500 do not reflect advisory fees, commissions, expenses or
taxes that the Fund bears. The Strategy's performance as well as that of
the S&P 500 would be lower if such fees and expenses were deducted. Read
the prospectus carefully before investing.
14
<PAGE>
Summary results for S&P 500 and Hypothetical Results for Cornerstone Growth
Strategy Stocks, December 31, 1952-December 31, 1999.++
Cornerstone
S&P 500 Growth Strategy
------- ---------------
Annualized return 12.93% 19.10%
Maximum return in any year 52.62% 83.30%
Minimum return in any year -26.47% -29.10%
Sharpe risk-adjusted ratio* 78.22% 43.86%
3 year annualized return** 27.41% 23.31%
5 year annualized return** 28.46% 23.86%
10 year annualized return** 18.16% 20.79%
15 year annualized return** 18.90% 20.71%
20 year annualized return** 17.85% 20.89%
25 year annualized return** 17.23% 23.52%
30 year annualized return** 13.71% 18.32%
35 year annualized return** 12.42% 19.03%
40 year annualized return** 12.21% 18.80%
$10,000 becomes: $3,037,601 $37,031,811
Returns for 1997, 1998 and 1999 are actual for Cornerstone Growth Fund, net of
fees and expenses.
* The Sharpe risk-adjusted ratio (the "Sharpe ratio") takes a portfolio's
volatility, as measured by its standard deviation of return, into account.
The higher the Sharpe ratio, the better the portfolio's risk-adjusted
return. The Sharpe ratio is calculated by subtracting the risk free
Treasury bill return from the portfolio's return and then dividing that
number by the portfolio's overall standard deviation of return.
** Quoted return is for the most recent period ended December 31, 1999.
- --------------------------------------------------------------------------------
++ These Statistics and Comparisons represent past performance of the S&P 500,
an unmanaged index of securities, and the Cornerstone Growth Strategy, but
not the Cornerstone Growth Fund, applied retroactively, and should not be
considered indicative of future results. The performance of the strategy
shown is a hypothetical example of the performance of the strategy found in
the backtest, using an initial $10,000 value, if the Strategy had been in
existence and employed from 1952 through 1996, together with the actual
return of the O'Shaughnessy Cornerstone Growth Fund for 1997, 1998 and
1999. Performance of the Strategy and the S&P 500 do not reflect advisory
fees, commissions, expenses or taxes that the Fund bears, The Strategy's
performance as well as that of the S&P 500 would be lower if such fees and
expenses were deducted. Read the prospectus carefully before investing.
15
<PAGE>
Summary results for S&P 500 and Hypothetical Results for Cornerstone Value
Strategy Stocks, December 31, 1951-December 31, 1999.++
Cornerstone
S&P 500 Value Strategy
------- --------------
Arithmetic average return 14.29% 16.22%
Standard deviation of return 16.54% 16.54%
Annualized return 13.04% 15.04%
Maximum return in any year 52.62% 58.20%
Minimum return in any year -26.47% -15.00%
Sharpe risk-adjusted ratio* 97.22% 66.85%
3 year annualized return** 27.41% 9.22%
5 year annualized return** 28.46% 15.01%
10 year annualized return** 18.16% 13.69%
15 year annualized return** 18.90% 17.62%
20 year annualized return** 17.85% 17.89%
25 year annualized return** 17.23% 19.12%
30 year annualized return** 13.71% 16.44%
35 year annualized return** 12.42% 15.05%
40 year annualized return** 12.21% 14.61%
$10,000 becomes: $3,595,608 $8,332,091
Returns for 1997, 1998 and 1999 are actual for Cornerstone Growth Fund, net of
fees and expenses.
* The Sharpe ratio takes a portfolio's volatility, as measured by its
standard deviation of return, into account. The higher the Sharpe ratio,
the better the portfolio's risk-adjusted return. The Sharpe ratio is
calculated by subtracting the risk free Treasury bill return from the
portfolio's return and then dividing that number by the portfolio's overall
standard deviation of return.
** Quoted return is for the most recent period ended December 31, 1999.
- ------------------------------------------------------------------------------
++ These Statistics and Comparisons represent past performance of the S&P 500,
an unmanaged index of securities, and the Cornerstone Value Strategy, but
not the Cornerstone Value Fund, applied retroactively, and should not be
considered indicative of future results. The performance of the strategy
shown is a hypothetical example of the performance of the strategy found in
the backtest, using an initial $10,000 value, if the Strategy had been in
existence and employed from 1952 through 1996, together with the actual
return of the O'Shaughnessy Cornerstone Value Fund for 1997, 1998 and 1999.
Performance of the Strategy and the S&P 500 do not reflect advisory fees,
commissions, expenses or taxes that the Fund bears, The Strategy's
performance as well as that of the S&P 500 would be lower if such fees and
expenses were deducted. Read the prospectus carefully before investing.
16
<PAGE>
MANAGEMENT OF THE FUNDS
WHO RUNS THE FUNDS?
O'Shaughnessy Capital Management, Inc. is the investment manager of each Fund.
The Manager's address is 35 Mason Street, Greenwich, CT 06830. The Manager has
been providing investment advisory services since 1988. The Manager serves as
portfolio consultant to a unit investment trust and provides investment advisory
services to investment companies and individual and institutional accounts with
assets in excess of $800 million. The Manager also furnishes each Fund with
office space and certain administrative services and provides most personnel
needed by the Funds. For its services, each Fund pays the Manager a monthly
management fee based upon its average daily net assets. For the fiscal year
ended September 30, 1999, the Manager received advisory fees of 0.74% of each of
the Fund's average daily net assets.
James P. O'Shaughnessy has had the day-to-day responsibility for managing the
portfolio of each Fund and developing and executing each Fund's investment
program since the commencement of operations of each Fund. For the past eleven
years, Mr. O'Shaughnessy has served as Chairman and CEO of the Manager. Mr.
O'Shaughnessy is recognized as a leading expert and pioneer in quantative equity
analysis. He is the author of three financial books, INVEST LIKE THE BEST, WHAT
WORKS ON WALL STREET and HOW TO RETIRE RICH.
FUND EXPENSES
Each Fund is responsible for its own operating expenses. At times, the Manager
may reduce its fees and/or pay expenses of either Fund in order to reduce the
Fund's aggregate annual operating expenses. Any reduction in advisory fees or
payment of expenses made by the Manager are subject to reimbursement by the Fund
if requested by the Manager in subsequent fiscal years. This reimbursement may
be requested by the Manager if the aggregate amount actually paid by the Fund
toward operating expenses for such fiscal year (taking into account the
reimbursement) does not exceed the applicable limitation on Fund expenses. The
Manager is permitted to be reimbursed for fee reductions and/or expense payments
made in the prior three fiscal years. Any such reimbursement will be reviewed by
the Directors. Each Fund must pay its current ordinary operating expenses before
the Manager is entitled to any reimbursement of fees and/or expenses.
SHAREHOLDER INFORMATION
PURCHASE OF SHARES
The minimum initial investment in a Fund is $2,500 for regular accounts and $250
for Individual Retirement Accounts. For corporate sponsored retirement plans,
there is no minimum initial investment. There is no minimum subsequent
investment requirement for any account. However, a $100 minimum exists for each
additional investment made through the Automatic Investment Plan. The Funds may
waive the minimum investment requirements from time to time.
You may purchase shares of the Funds by check or wire. All purchases by check
must be in U.S. dollars. Third party checks and cash will not be accepted. A
17
<PAGE>
charge may be imposed if your check does not clear. The Funds are not required
to issue share certificates. The Funds reserve the right to reject any purchase
in whole or in part.
HOW DO I PURCHASE SHARES BY CHECK?
If you are making an initial investment in a Fund, simply complete the
appropriate Application and mail it with a check (made payable to "O'Shaughnessy
Cornerstone Value Fund" or "O'Shaughnessy Cornerstone Growth Fund") to:
O'Shaughnessy Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
If you wish to send your Application and check via an overnight delivery
service, delivery cannot be made to a post office box. In that case, you should
use the following address:
O'Shaughnessy Funds, Inc
c/o Firstar Mutual Fund Services, LLC
615 E. Michigan Street,
Third Floor
Milwaukee, WI 53202
Subsequent investments must be accompanied by a letter indicating the name(s) in
which the account is registered
HOW DO I PURCHASE SHARES BY WIRE?
If you are making an initial investment in a Fund, before you wire funds, you
should call the Fund at 877-OSFUNDS (673-8637) between 9:00 a.m. and 4:00 p.m.,
Eastern time, on a day when the New York Stock Exchange ("NYSE") is open for
trading to advise them that you are making an investment. You will then receive
your account number and an order confirmation number. Before or immediately
after your bank wires funds, a completed Application should be sent to the
Transfer Agent by U.S. mail or overnight courier to the addresses listed above.
If you are making a subsequent purchase, before you wire funds, you should be
sure to notify the Transfer Agent.
All wires 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. IT IS ESSENTIAL THAT
YOUR BANK INCLUDE COMPLETE INFORMATION ABOUT YOUR ACCOUNT IN ALL WIRE
INSTRUCTIONS. Wire purchases are normally used only for large purchases (over
$5,000). Your bank may charge you a fee for sending a wire to the Funds.
18
<PAGE>
Your bank should transmit immediately available funds by wire in your name to:
O'Shaughnessy Funds
c/o Firstar Mutual Fund Services, LLC
ABA# 075000022
DDA# 11295137
CAN I PURCHASE SHARES THROUGH BROKER-DEALERS OTHER THAN THE DISTRIBUTOR?
You may buy, sell and exchange shares of the Funds through certain brokers (and
their agents) that have made arrangements with the Funds to sell their shares.
When you place your order with such a broker or its authorized agent, your order
is treated as if you had placed it directly with the Funds' Transfer Agent, and
you will pay or receive the next price calculated by the Funds. The broker (or
agent) holds your shares in an omnibus account in the broker's (or agent's)
name, and the broker (or agent) maintains your individual ownership records. The
Manager may pay the broker (or its agent) for maintaining these records as well
as providing other shareholder services. The broker (or its agent) may charge
you a fee for handling your order. The broker (or agent) is responsible for
processing your order correctly and promptly, keeping you advised regarding the
status of your individual account, confirming your transactions and ensuring
that you receive copies of the Funds' prospectus.
You may also buy, sell and exchange shares of the Funds through other outside
broker-dealers that have not made arrangements with the Funds to sell their
shares. Such broker-dealers may purchase shares of the Funds by telephone if
they have made arrangements in advance with the Funds. To place a telephone
order, such broker-dealer should call the Funds at 877-OSFUNDS (673-8637).
AUTOMATIC INVESTMENT PLAN
For your convenience, the Funds offer an Automatic Investment Plan. Under this
Plan, after your initial investment, you authorize the Funds to withdraw from
your checking or savings account each month or quarter an amount that you wish
to invest, which must be at least $100. If you wish to enroll in this Plan,
complete the appropriate section in the Application. If you are an existing
shareholder, you may call the Fund at 877-OSFUNDS (673-8637) and request an
Automatic Investment Plan Application. Signed Applications should be received by
the Transfer at least 15 business days prior to your initial transaction. The
Transfer Agent will charge you a $20 fee if the automatic investment cannot be
made due to indufficient funds, stop payment or for any other reason. The Funds
may terminate or modify this privilege at any time. You may terminate your
participation in the Plan at any time by notifying the Transfer Agent in
writing.
RETIREMENT PLANS
You may invest in the Funds under the following prototype retirement plans:
* "Education" Individual Retirement Account (IRA)
* "Traditional" Individual Retirement Account (IRA)
* "Roth" Individual Retirement Account (IRA)
* Simplified Employee Pension (SEP) for sole proprietors, partnerships and
corporations
* Profit-Sharing and Money Purchase Pension Plans for corporations and their
employees
19
<PAGE>
HOW TO EXCHANGE SHARES
You may exchange shares of one Fund for shares of the other Fund any day the
Funds and the NYSE are open for business. You may also exchange shares of either
Fund for shares of the Firstar Money Market Fund, a money market mutual fund not
affiliated with O'Shaughnessy Funds or the Manager. The exchange privilege does
not constitute an offering or recommendation on the part of the Funds or the
Manager of an investment in the Firstar Money Market Fund. Prior to making an
exchange into the Firstar Money Market Fund, you should obtain and carefully
read that fund's prospectus which may be obtained by calling 877- OSFUNDS
(673-8637).
If you exchange into shares of the Firstar Money Market Fund you may establish
checkwriting privileges on that money market account. Contact the Fund at
877-OSFUNDS (673-8637) for a checkwriting application and signature card.
HOW DO I EXCHANGE SHARES BY MAIL?
You may exchange your Fund shares by simply sending a written request to the
Funds' Transfer Agent. You should give the name of your Fund account, account
number, the number of Fund shares or the dollar value of Fund shares to be
exchanged, and the name of the other fund into whith the exchange is being made.
If you have an existing account with the other fund, you should also give the
name and account number for that fund. The letter should be signed by all of the
shareholders whose names appear on the account registration.
HOW DO I EXCHANGE SHARES BY TELEPHONE?
If your account has telephone privileges, you may also exchange Fund shares by
calling the Fund at 877-OSFUNDS (673-8637) before the close of regular trading
on the NYSE, which presently is 4:00 p.m., Eastern time. If you are exchanging
shares by telephone, you will be subject to certain identification procedures
which are listed below under "How do I redeem shares by telephone?". You will be
charged a $5.00 fee for exchanges of Fund shares by telephone. Telephone
requests for exchanges will not be accepted with respect to shares represented
by certificates. The Funds may suspend temporarily the exchange privilege in
emergency situations or in cases where, in the judgment of the Fund,
continuation of the privilege would be detrimental to the Fund and its
shareholders. Such temporary suspension can be without prior notification to
shareholders.
The Funds reserve the right on notice to shareholders to limit the number of
exchanges you may make in any year to avoid excess Fund expenses. The Funds
reserve the right to reject any exchange order. The Funds may modify or
terminate the exchange privilege upon written notice to shareholders.
HOW TO SELL SHARES
You may sell (redeem) your Fund shares on any day the Funds and the NYSE are
open for business either directly to the Funds or through your investment
representative.
20
<PAGE>
HOW DO I SELL SHARES BY MAIL?
You may redeem your shares by sending a written request to the Transfer Agent.
The redemption request should include the following: (i) the name of the
account; (ii) the account number; (iii) the number of shares or the dollar value
of shares to be redeemed; (iv) duly endorsed share certificates, if issued; (v)
any signature guarantees that are required; and (vii) any additional documents
that might be required for redemptions by corporations, executors,
administrators, trustees, guardians or other similar shareholders. In addition,
please specify whether the redemptions proceeds are to be sent by mail or wire.
The letter should be signed by shareholders whose names appear on the account
registration. If you wish to have the proceeds wired, please give wire
instructions. Corporate and institutional investors and fiduciaries should
contact the Transfer Agent to ascertain what additional documentation is
required.
WHEN ARE SIGNATURE GUARANTEES REQUIRED?
To protect the Funds and their shareholders, except as noted in the following
paragraph, a signature guarantee is required for all written redemption
requests. Signature(s) on the redemption request must be guaranteed by an
"eligible guarantor institution." These include banks, broker-dealers, credit
unions and savings institutions. A broker-dealer guaranteeing signatures must be
a member of a clearing corporation or maintain net capital of at least $100,000.
Credit unions must be authorized to issue signature guarantees. Signature
guarantees will be accepted for any eligible guarantor institution which
participates in a signature guarantee program. A notary public is not an
acceptable guarantor.
The Funds will waive the signature guarantee required on redemption requests
that instruct that the proceeds be sent by mail if all of the following
conditions apply: (1) the redemption is for $10, 000 or less; (ii) the
redemption check is payable to the shareholder(s) of records; (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. In addition, the
Funds may waive the signature guarantee for employees and affiliates of the
Manager, the Distributor, the Administrator, and family members of the
foregoing.
HOW DO I SELL SHARES BY TELEPHONE?
If you complete the "Shareholder Privileges" section of the Fund Application,
you may redeem all or some of you shares by calling the Fund at 877-OSFUNDS
(673-8637) before the close of regular trading on the NYSE, which presently is
4.00 p.m., Eastern time. Redemption proceeds will be mailed within one or two
days. If you request, redemption proceeds will be wired on the next business day
to the bank account you have designated in your Fund Application or written
instructions. The minimum amount that may be wired is $1,000. You will be
charged a wire transfer fee of $12. This fee is will be deducted from your
redemption proceeds and paid to the Transfer Agent to cover costs associated
with the transfer. In addition, your bank may charge a fee for receiving wires.
Telephone redemptions will not be accepted with respect to shares represented by
certificates or for retirement accounts.
21
<PAGE>
When you establish telephone privileges, you are authorizing the Funds and their
Transfer Agent to act upon the telephone instructions of the person or persons
you have designated in your Account Application. Redemption proceeds will be
transferred to the bank account you have designated on your Account Application.
Before acting on instructions received by telephone, the Funds and the Transfer
Agent will use reasonable procedures to confirm that the telephone instructions
are genuine. These procedures will include recording the telephone call and
asking the caller for a form of personal identification. If the Funds and the
Transfer Agent follow these reasonable procedures, they will not be liable for
any loss, expense, or cost arising out of any telephone transaction request that
is reasonably believed to be genuine. This includes any fraudulent or
unauthorized request. The Funds may change, modify or terminate these privileges
at any time upon written notice to shareholders. The Funds may suspend
temporarily the redemption privilege in emergency situations or in cases where,
in the judgment of the Fund, continuation of the privilege would be detrimental
to the Fund and its shareholders. Such temporary suspension can be without prior
notification to shareholders.
You may request telephone redemption privileges after your account is opened by
writing to the Transfer Agent. Your written request for telephone privileges
must be signed by the registered owner(s) of the shares exactly as the account
is required and signature guaranteed, and include the name of the account, the
account number and the name of the Fund.
You may have difficulties in making a telephone redemption during periods of
abnormal market activity. If this occurs, you may make your redemption request
in writing.
WHEN WILL I RECEIVE MY REDEMPTION PROCEEDS?
Payment of your redemption proceeds will be made promptly, but not later than
seven days after the receipt of your written request in proper form as discussed
in this Prospectus. If you made your initial investment by wire, payment of your
redemption proceeds for those shares will not be made until one business day
after your completed Application is received by the Funds. If you did not
purchase your shares with a certified check or wire, the Funds may delay payment
of your redemption proceeds for up to 15 days from date of purchase or until
your check has cleared, whichever occurs first.
Each Fund has the right to pay redemption proceeds to you in whole or in part by
a distribution of securities from the Fund's portfolio. It is not expected that
the Funds would do so except in unusual circumstances. If either Fund pays your
redemption proceeds by a distribution of securities, you could incur brokerage
or other charges in converting the securities to cash.
WHEN WILL I PAY A REDEMPTION FEE?
The Funds are intended for long-term investors. Short-term "market timers" who
engage in frequent purchases and redemptions can disrupt the Funds' investment
22
<PAGE>
programs and create additional transaction costs that are borne by all
shareholders. For these reasons, each Fund will assess a 1.5% fee on redemptions
and exchanges of Fund shares purchased and held for less than 90 days. This fee
will be paid to the Fund to help offset transactions costs. In determining the
90-day holding period, the Funds will use the "first-in, first-out" method.
Under this method, the date of redemption or exchange will be compared with the
earliest purchase date of shares held in your account. If those shares were held
for less than 90 days, the fee will be assessed.
This fee does not apply to: (i) any shares purchased through reinvested
dividends or capital gains; or (ii) shares held in 401(k), 403(b), 457, Keogh,
profit sharing, SIMPLE IRA, SEP-IRA and money purchase pension retirement plan
accounts. In addition, this fee may not apply to shares held in broker omnibus
accounts.
CAN MY ACCOUNT BE INVOLUNTARILY REDEEMED?
The Funds may redeem the shares in your account if the value of your account is
less than $2,500 as a result of redemptions you have made. This does not apply
to retirement plan or Uniform Gifts or Transfers to Minors Act accounts. You
will be notified that the value of your account is less than $2,500 before the
Funds make an involuntary redemption. You will then have 30 days in which to
make an additional investment to bring the value of your account to at least
$2,500 before the Funds take any action.
SYSTEMATIC CASH WITHDRAWAL PROGRAM
As another convenience, you may redeem your Fund shares through the Systematic
Cash Withdrawal Program. If you elect this method of redemption, the Fund will
send you or a designated third party a check in a minimum amount of $50. You may
choose to receive a check each month or calendar quarter. Your Fund account must
have a value of at least $10,000 in order to participate in this Program. This
Program may be terminated at any time by the Funds. You may also elect to
terminate your participation in this Program at any time by writing to the
Transfer Agent.
A withdrawal under the Program involves a redemption of shares and may result in
a gain or loss for federal income tax purposes. In addition, if the amount
withdrawn exceeds the dividends credited to your account, the account ultimately
may be depleted.
PRICING OF FUND SHARES
The price of each Fund's shares is based on the Fund's net asset value. This is
calculated by dividing each Fund's assets, minus its liabilities, by the number
of shares outstanding. Each Fund's assets are the market value of securities
held in its portfolio, plus any cash and other assets. Each Fund's liabilities
are fees and expenses owed by the Fund. The number of Fund shares outstanding is
the amount of shares which have been issued to shareholders. The price you will
pay to buy Fund shares or the amount you will receive when you sell your Fund
shares is based on the net asset value next calculated after your order is
received by the Transfer Agent with complete information and meeting all the
requirements discussed in this Prospectus.
23
<PAGE>
The net asset value of each Fund's shares is determined as of the close of
regular trading on the NYSE. This is normally 4:00 p.m., Eastern time. Fund
shares will not be priced on days that the NYSE is closed for trading (including
certain U.S. holidays).
DIVIDENDS AND DISTRIBUTIONS
Each Fund will make distributions of dividends and capital gains, if any,
annually, usually on or about December 31 of each year.
All distributions will be reinvested in shares of the distributing Fund unless
you choose one of the following options: (1) receive dividends in cash while
reinvesting capital gain distributions in additional Fund shares; or (2) receive
all distributions in cash. If you wish to change your distribution option, write
to the Transfer Agent in advance of the payment date of the distribution.
TAX CONSEQUENCES
The Funds intend to make distributions of dividends and capital gains. Dividends
are taxable to you as ordinary income. The rate you pay on capital gain
distributions will depend on how long the Fund held the securities that
generated the gains, not on how long you owned your Fund shares. You will be
taxed in the same manner whether you receive your dividends and capital gain
distributions in cash or reinvest them in additional Fund shares.
If you exchange or sell your Fund shares, it is considered a taxable event for
you. Depending on the purchase price and the sale price of the shares you
exchange or sell, you may have a gain or a loss on the transaction. You are
responsible for any tax liabilities generated by your transaction.
FINANCIAL HIGHLIGHTS
These tables show each Fund's financial performance the period of its
operations. Certain information reflects financial results for a single Fund
share. "Total return" shows how much your investment in a Fund would have
increased or decreased during each period, assuming you had reinvested all
dividends and distributions. Information for the fiscal year ended September 30,
1999 has been audited by PricewaterhouseCoopers, LLP, independent auditors.
Their report and the Funds' financial statements are included in the Annual
Reports which are available upon request. Information for earlier periods shown
was audited by other independent accountants.
24
<PAGE>
<TABLE>
<CAPTION>
Cornerstone Growth Fund
-------------------------------------------------
Year Ended November 1, 1996*
----------------------------- through
September 30, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period .... $ 9.57 $ 15.30 $10.00
------- ------- ------
Income from investment operations:
Net investment income (loss)........... (0.09) (0.07) (0.02)
Net realized and unrealized
gain (loss) on investments.. ......... 2.88 (3.88) 5.32
------- ------- ------
Total from investment operations......... 2.79 (3.95) 5.30
------- ------- ------
Less distributions:
From net investment income............. -- -- --
From net realized gains................ (1.78) --
------- ------
-- (1.78) --
------- ------- ------
Net asset value, end of period........... $ 12.36 $ 9.57 $15.30
======= ======= ======
TOTAL RETURN ............................ 29.15% (27.63%) 53.05%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(millions) ............................. $ 120.8 $ 80.4 $ 91.3
Ratio of expenses to average net
assets:
Before expense reimbursement........... 1.15% 1.16% 1.63%++
After expense reimbursement............ 1.15% 1.16% 1.56%++
Ratio of net investment (loss) income to
average net assets:
Before expense reimbursement........... (0.84%) (0.86%) (1.19%)++
After expense reimbursement............ (0.84%) (0.86%) (1.12%)++
Portfolio turnover rate.................. 125.19% 119.98% 15.52%
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Cornerstone Value Fund
-------------------------------------------------
Year Ended November 1, 1996*
----------------------------- through
September 30, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period..... $ 10.84 $11.50 $10.00
------- ------ ------
Income from investment operations:
Net investment income (loss)........... 0.33 0.21 0.15
Net realized and unrealized
gain (loss) on investments............ 1.49 (0.70) 1.37
------- ------ ------
Total from investment operations......... 1.82 (0.49) 1.52
------- ------ ------
Less distributions:
From net investment income............. (0.26) (0.17) (0.02)
From net realized gains................ (0.50) -- --
------- ------ ------
(0.76) (0.17) (0.02)
------- ------ ------
Net asset value, end of period........... $ 11.90 $10.84 $11.50
======= ====== ======
TOTAL RETURN ........................... 17.12% (4.32%) 15.21%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(millions).............................. $ 26.3 $ 21.9 $ 13.5 **
Ratio of expenses to average net
assets:
Before expense reimbursement........... 1.38% 1.45% 2.66%++
After expense reimbursement.. ......... 1.38% 1.45% 1.85%++
Ratio of net investment (loss) income to
average net assets:
Before expense reimbursement........... 2.58% 2.12% 1.93%++
After expense reimbursement............ 2.58% 2.12% 2.73%++
Portfolio turnover rate.................. 122.79% 51.56% 2.01%
</TABLE>
* Commencement of operations.
** Not Annualized.
++ Annualized.
26
<PAGE>
CORNERSTONE GROWTH FUND
CORNERSTONE VALUE FUND
SERIES OF O'SHAUGHNESSY FUNDS, INC.
www.osfunds.com
For investors who want more information about the Funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Funds' investments
is available in the Funds' annual and semi-annual reports to shareholders. In
the Funds' annual reports, you will find a discussion of market conditions and
investment strategies that significantly affected the Funds' performance during
their last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds and is incorporated by reference into this
Prospectus.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Funds by contacting the Funds at:
O'Shaugnesssy Funds, Inc.
35 Mason Street
Greenwich, CT 06830
Telephone: 1-877-OSFUNDS
You can review and copy information including the Funds' reports and SAI at the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. You can obtain information on the operation of the Public Reference Room by
calling 1-202-942-8090. Reports and other information about the Fund are also
available:
* Free of charge from the Commission's EDGAR database on the Commission's
Internet website at http://www.sec.gov., or
* For a fee, by writing to the Public Reference Room of the Commission,
Washington, DC 20549-0102, or
* For a fee, by electronic request at the following e-mail address:
[email protected].
(The Fund's SEC Investment Company Act
file number is 811-07695)
27
<PAGE>
O'SHAUGHNESSY AGGRESSIVE GROWTH FUND
O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND
SERIES OF O'SHAUGHNESSY FUNDS, INC.
O'Shaughnessy Aggressive Growth Fund is a stock mutual fund that seeks
capital appreciation.
O'Shaughnessy Dogs of the Market(TM) Fund is a stock mutual fund that seeks
total return, consisting of capital appreciation and current income.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION DOES NOT
APPROVE OR DISAPPROVE OF THESE SHARES OR DETERMINE IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _________, 2000
www.osfunds.com
<PAGE>
TABLE OF CONTENTS
An Overview of the Funds ..................................................
Performance ...............................................................
Fees and Expenses .........................................................
Investment Objectives and Principal Investment Strategies .................
Principal Risks of Investing in the Funds .................................
Investment Advisor ........................................................
Shareholder Information ...................................................
Pricing of Fund Shares ....................................................
Dividends and Distributions ...............................................
Tax Consequences ..........................................................
Financial Highlights ......................................................
2
<PAGE>
AN OVERVIEW OF THE FUNDS
AGGRESSIVE GROWTH FUND
WHAT IS THE FUND'S INVESTMENT GOAL?
The Fund seeks long-term growth of capital.
WHAT ARE THE MAIN INVESTMENT STRATEGIES OF THE FUND?
The Fund seeks to achieve its investment goal through the use of proprietary
aggressive growth models developed by O'Shaughnessy Capital Management, Inc.,
the Fund's investment manager (the "Manager"). The Fund will primarily invest in
approximately 45 common stocks with a market capitalization in excess of $150
million selected through the use of such investment models. The Fund may invest
in foreign securities, including American Depositary Receipts ("ADRs").
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
There is the risk that you could lose money on your investment in the Fund. The
following risks could affect the value of your investment:
* The stock market goes down
* Interest rates rise which can result in a decline in the equity market
* Stocks in the Fund's portfolio may not increase their earnings at the rate
anticipated
* The aggressive growth models employed by the Fund could cause it to
underperform similar funds that do not use this discipline
* Securities of small companies involve greater volatility than investing in
larger more established companies
* Adverse developments occur in foreign markets. Foreign investments involve
greater risk
WHO MAY WANT TO INVEST IN THE FUND?
The Fund may be appropriate for investors who:
* Are pursuing a long-term goal such as retirement
* Are willing to accept higher short-term risk along with higher potential
for long-term growth of capital
* Want to add an equity investment in smaller and new issuers to diversify
their investment portfolio
The Fund may not be appropriate for investors who:
* Need regular income or stability of principal
* Are pursuing a short term goal
3
<PAGE>
DOGS OF THE MARKET(TM) FUND
WHAT ARE THE FUND'S INVESTMENT GOALS?
The Fund seeks total return, consisting of capital appreciation and current
income.
WHAT ARE THE MAIN INVESTMENT STRATEGIES OF THE FUND?
The Fund seeks to achieve its investment goal through a process of Strategy
Indexing(R) which is pursued through the use of an investment strategy developed
by O'Shaughnessy Capital Management, Inc., the Fund's investment manager (the
"Manager"). The Fund will invest substantially all of its assets in common
stocks selected through this 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 Manager anticipates that the 30 stocks held in the Fund's
portfolio will remain the same through the course of a year, despite any adverse
developments concerning a company, an industry, the economy or the stock market
generally.
In selecting stocks for the Fund, the Manager uses the Dogs of the Market
Strategy. The Dogs of the Market Strategy selects 30 high dividend-yielding
common stocks of large well-established companies from the Dow Jones Industrial
Average and the S&P 400 Industrial Average that also meet certain criteria that
is explained in detail under "Investment Objectives and Principal Investment
Strategies."
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
There is the risk that you could lose money on your investment in the Fund. The
following risks could affect the value of your investment:
* The stock market goes down
* Interest rates rise which can result in a decline in the equity market
* Stocks in the Fund's portfolios may not increase their earnings at the rate
anticipated
* The Strategy Indexing(R) employed by the Fund could cause it to
underperform similar funds that do not use this discipline
WHO MAY WANT TO INVEST IN THE FUND?
The Fund may be appropriate for investors who:
* Are pursuing a long-term goal such as retirement
* Are willing to accept higher short-term risk along with higher potential
for long-term growth of capital
* Want to add an equity investment to diversify their investment portfolio
* Believe that long-term investing, using a disciplined strategy, is most
likely to meet their investment goals
The Fund may not be appropriate for investors who:
* Need regular income or stability of principal
* Are pursuing a short term goal
* Are not comfortable with the Fund's disciplined Strategy
4
<PAGE>
PERFORMANCE
The following performance information indicates some of the risks of investing
in the Funds. The bar charts show how each Fund's total return has varied from
year to year. The tables show each Fund's average return over time compared with
a broad-based market index. This past performance will not necessarily continue
in the future.
AGGRESSIVE GROWTH FUND
CALENDAR YEAR TOTAL RETURNS (%)
[The following is the bar chart]
1997: 22.31%
1998: 8.26%
1999: 44.73%
[End of bar chart]
During the period shown in the bar chart, the Fund's highest quarterly return
was 27.49% for the quarter ended December 31, 1999 and the lowest quarterly
return was -21.22% for the quarter ended September 30, 1999.
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
Since Inception
1 Year (11/1/96)
------ ---------
Aggressive Growth Fund 44.73% 24.36%
S&P 500 Index* 21.04% 28.15%
- ----------
* The S&P 500 Index is an unmanaged index generally representative of the
market for the stocks of large sized U.S. companies.
5
<PAGE>
DOGS OF THE MARKET(TM) FUND
CALENDAR YEAR TOTAL RETURNS (%)
[The following is the bar chart]
1997: 25.84%
1998: 9.10%
1999: -6.84%
[End of bar chart]
During the period shown in the bar chart, the Fund's highest quarterly return
was 14/71% for the quarter ended June 30, 1999 and the lowest quarterly return
was -9.95% for the quarter ended June 30, 1999.
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
Since Inception
1 Year (11/1/96)
------ ---------
Dogs of the Market(TM)Fund -6.84% 8.19%
Dow Jones Industrial Average* 27.21% 24.82%
- ----------
* The Dow Jones Industrial Average is unmanaged price-weighted index of 30
large capitalization well-established blue chip stocks.
6
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
Aggressive Dogs of the
Growth Fund Market(TM) Fund
----------- ---------------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases .. None None
Maximum deferred sales charge (load) .............. None None
Redemption fee (as a percentage of amount
redeemed)* ....................................... 1.50% 1.50%
Exchange Fee* ..................................... 1.50% 1.50%
ANNUAL FUND OPERATING EXPENSES**
(expenses that are deducted from Fund assets)
Management Fees ................................... 0.74% 0.74%
Distribution and Service (12b-1) Fees ............. None None
Other Expenses .................................... 1.49% 0.76%
---- ----
Total Annual Fund Operating Expenses .............. 2.23% 1.50%
==== ====
- ----------
* If you redeem or exchange shares you have owned for less than 90 days, a
1.50% fee will be deducted from the value of your exchange or from your
redemption proceeds. This fee is payable to the Fund.
** For the fiscal year ended September 30, 1999, the Advisor voluntarily
waived fees and reimbursed expenses of the Aggressive Growth Fund in the
amount of 0.24% of the Fund's average daily net assets. For the same
period, the Advisor voluntarily waived fees and reimbursed expenses of the
Dogs of the Market Fund in the amount of 0.41% of the Fund's average daily
net assets.
EXAMPLE
This Example is intended to help you compare the cost of investing in shares of
the Funds with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Funds for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Funds' operating expenses remain the same. Although your actual costs may be
higher or lower, under the assumptions, your costs would be:
Aggressive Dogs of the
Growth Fund Market(TM) Fund
----------- ---------------
One Year ...................... $ 225 $ 152
Three Years ................... $ 695 $ 473
Five Years .................... $1,191 $ 816
Ten Years ..................... $2,552 $1,784
7
<PAGE>
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
AGGRESSIVE GROWTH FUND
The goal of the Aggressive Growth Fund is to seek long-term growth of capital.
The Fund seeks to meet its goal by investing substantially all of its assets in
common stocks of domestic corporations selected through the use of proprietary
aggressive growth models developed by the Manager.
The Fund's portfolio will generally consist of 45 stocks, selected through the
use of such models. At the time of purchase, such stocks will generally possess
the following characteristics:
* a market capitalization in excess of $150 million;
* outstanding price performance during the last six months or one year period
prior to purchase;
* high earnings gains during the one year period prior to purchase; and
* expected high future earnings gains in the general consensus of market
analysts.
The Fund may also invest in stocks which do not meet all of the above criteria,
if, in the opinion of the Manager, such stocks possess characteristics similar
to those listed above. In addition, the Fund may continue to hold a stock in the
Fund's portfolio which no longer meets the initial criteria for investment if
the Manager believes such investments are consistent with the Fund's investment
goal.
The Fund may also invest in securities of foreign issuers, including American
Depositary Receipts.
8
<PAGE>
DOGS OF THE MARKET(TM) FUND
The goal of the Dogs of the Market(TM) Fund is to seek total return, consisting
of capital appreciation and current income. The Fund seeks to meet its goal by
investing substantially all of its assets in common stocks selected through the
"Dogs of the Market Strategy."
WHAT IS THE DOGS OF THE MARKET STRATEGY?
The Dogs of the Market Strategy involves the selection of 30 common stocks using
the following selection criteria:
* Ten stocks in the Fund's portfolio will be the highest yielding stocks from
the Dow Jones Industrial Average (the "Dow Dogs").
* Twenty stocks will be the highest yielding stocks from the S&P 400
Industrial Average that also have (a) market capitalization over $1 billion
and (b) an issue of common outstanding that is rated A or higher by
Standard & Poor's Rating Service.
HOW DOES INVESTMENT THROUGH THE DOGS OF THE MARKET STRATEGY WORK?
When the Fund began, the Manager purchased 30 stocks for the Fund as dictated by
the Strategy, based on information at that time. The Fund's holdings of each
stock in its portfolio were initially weighted equally by dollar amount.
Thereafter the Manager rebalances the Fund's portfolio annually during the first
month after the calendar year-end of the succeeding year (the "Re-Balance
Date"), in accordance with the Strategy, based on information during this
period. That is, during the Re-Balance period of each year, stocks meeting the
Strategy's criteria on or about the immediately preceding year-end 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 using 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. Such purchases will generally be made on a weekly basis, but may be on a
more or less frequent basis in the discretion of the Manager, depending on
certain factors, including the size of the Fund and the amount of cash to be
invested. To the extent redemptions exceed new cash flow into 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.
9
<PAGE>
The Manager expects 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, if during the course of a year it is determined that earnings or other
information that form the basis for selecting a security are false or incorrect,
the Manager reserves the right to replace such a security with another meeting
the criteria of the Strategy. Also, due to purchases and redemptions of Fund
shares during the year, changes in the market value of the stock positions in
the Fund's portfolio and compliance with federal tax laws, it is likely that
stock positions will not be weighted equally at all times during a year.
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"), the hypothetical performance of Strategy for the
historical periods indicated and the actual performance of the Dogs of the
Market(TM) Fund for 1997, 1998 and 1999. 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 have 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 that are 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.
10
<PAGE>
DOGS OF THE MARKET STRATEGY STOCKS: Hypothetical Total Return on a $10,000
Investment+
[The following is in graph form]
Dogs of the
Date S&P 500 Market Fund
- ---- ------- -----------
31-Dec-74 $ 10,000 $ 10,000
31-Dec-75 13,721 15,052
31-Dec-76 16,993 19,644
31-Dec-77 15,772 19,094
31-Dec-78 16,807 19,881
31-Dec-79 19,906 23,968
31-Dec-80 26,360 29,060
31-Dec-81 25,066 31,154
31-Dec-82 30,432 41,085
31-Dec-83 37,283 54,242
31-Dec-84 39,620 59,476
31-Dec-85 52,362 78,629
31-Dec-86 62,033 98,969
31-Dec-87 65,278 106,714
31-Dec-88 76,251 138,092
31-Dec-89 100,262 178,387
31-Dec-90 97,084 177,564
31-Dec-91 126,743 235,063
31-Dec-92 136,465 267,390
31-Dec-93 150,097 301,552
31-Dec-94 152,064 316,539
31-Dec-95 208,981 433,279
31-Dec-96 257,193 523,270
31-Dec-97 342,993 658,274
31-Dec-98 440,976 718,243
31-Dec-99 _______ _______
[End of graph]
11
<PAGE>
O'Shaughnessy Dogs of the Market Strategy Index vs. the S&P 500* (December 31,
1974 - December 31, 1999)
Dogs of the
Market
Year Ending S&P 500 Strategy
- ----------- ------- --------
12/31/75 37.20% 50.52%
12/31/76 23.84% 30.51%
12/31/77 -7.18% -2.80%
12/31/78 6.56% 4.12%
12/31/79 18.44% 20.56%
12/31/80 32.42% 21.25%
12/31/81 -4.91% 7.20%
12/31/82 21.41% 31.88%
12/31/83 22.51% 32.02%
12/31/84 6.27% 9.65%
12/31/85 32.16% 32.20%
12/31/86 18.47% 25.87%
12/31/87 5.23% 7.83%
12/31/88 16.81% 29.40%
12/31/89 31.49% 29.18%
12/31/90 -3.17% -0.46%
12/31/91 30.55% 32.38%
12/31/92 7.67% 13.75%
12/31/93 9.99% 12.78%
12/31/94 1.31% 4.97%
12/31/95 37.43% 36.88%
12/31/96 23.07% 20.77%
12/31/97+ 33.36% 25.80%
12/31/98+ 28.58% 9.11%
12/31/99+ ____% ____%
- ----------
+ Returns for 1997, 1998 and 1999 are actual for the Dogs of the Market Fund,
net of fees and expenses.
* This Chart and the Index Performance Statistics and Comparisons represent
past performance of the S&P 500, an unmanaged index of securities, and the
Dogs of the Market Strategy, but not the Dogs of the Market Fund, applies
retroactively, and should not be considered indicative of future results.
The performance of the strategy shown is a hypothetical example of the
performance of the strategy found in the backtest, using an initial $10,000
value, if the Strategy had been in existence and employed from 1974 through
1996, together with the actual return of the O'Shaughnessy Dogs of the
Market Fund for 1997, 1998 and 1999. Performance of the Strategy and the
S&P 500 do not reflect advisory fees, commissions, expenses or taxes that
the Fund bears. The Strategy's performance as well as that of the S&P 500
would be lower if such fees and expenses were deducted. Read the prospectus
carefully before investing.
12
<PAGE>
Summary results for S&P 500 and Hypothetical Results for Dogs of the Market
Strategy Stocks, December 31, 1974-December 31, 1999.
These Performance Statistics and Comparisons represent past performance of the
S&P 500, an unmanaged index of securities, and the Dogs of the Market Strategy,
but not the Dogs of the Market Fund, applied retroactively, and should not be
considered indicative of future results. The performance of the strategy shown
is a hypothetical example of the performance of the strategy found in the
backtest, using an initial $10,000 value, if the Strategy had been in existence
and employed from 1974 through 1996, together with the actual return of the
O'Shaugnesssy Dogs of the Market Fund for 1997, 1998 and 1999. Performance of
the Strategy and the S&P 500 do not reflect advisory fees, commissions, expenses
or taxes that the Fund bears. The Strategy's performance as well as that of the
S&P 500 would be lower if such fees and expenses were deducted. Read the
prospectus carefully before investing.
Dogs of the
S&P 500 Market Strategy
------- ---------------
Arithmetic average+ ____% ____%
Standard deviation of return ____% ____%
Sharpe risk-adjusted ratio* ____% ____%
3-yr compounded**+ ____% ____%
5-yr compounded**+ ____% ____%
10-yr compounded*+ ____% ____%
15-yr compounded**+ ____% ____%
20-yr compounded**+ ____% ____%
Compound Annual Return+ ____% ____%
$10,000 becomes+: $____ $____
- ----------
* The Sharpe ratio takes a portfolio's volatility, as measured by its
standard deviation of return, into account. The higher the Sharpe ratio,
the better the portfolio's risk-adjusted return. The Sharpe ratio is
calculated by subtracting the risk free Treasury bill return from the
portfolio's return and then dividing that number by the portfolio's overall
standard deviation of return.
** Quoted return is for the most recent period ended December 31, 1999.
+Returns for 1997, 1998 and 1999 are actual for Dogs of the Market Fund,
net of fees and expenses.
13
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
AGGRESSIVE GROWTH FUND
MARKET RISK. The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industry, sector of
the economy or the market as a whole.
SMALL COMPANIES RISK. Investing in securities of small sized companies may
involve greater volatility than investing in larger and more established
companies because they can be subject to more abrupt or erratic share price
changes than larger, more established companies. Small companies may have
limited product lines, markets or financial resources and their management may
be dependent on a limited number of key individuals. Securities of these
companies may have limited market liquidity and their prices may be more
volatile.
FOREIGN SECURITIES RISK. The risk of investing in the securities of foreign
companies is greater than the risk of investing in domestic companies. Some of
these risks include: (1) unfavorable changes in currency exchange rates; (2)
economic and political instability; (3) less publicly available information; (4)
less strict auditing and financial reporting requirements; (5) less governmental
supervision and regulation of securities markets; (6) higher transaction costs;
(7) potential adverse effects of the euro conversion; and (8) greater
possibility of not being able to sell securities on a timely basis.
YEAR 2000 RISK. As the year 2000 began, the Funds did not experience any notable
problems arising from the inability of computer systems used by the Manager and
other service providers to properly process and calculate information related to
dates beginning January 1, 2000. This is commonly known as the "Year 2000
Issue." There can be no assurance that some computer systems will not
malfunction in the future as a result of the Year 2000 Issue. Although the
Manager does not anticipate that its services or the services of the Funds'
other service providers will be adversely affected as a result of the Year 2000
Issue, it will continue to monitor the situation. If malfunctions related to the
Year 2000 Issue do arise, the Funds and their investments could be adversely
affected, as well as companies in which the Funds invest.
14
<PAGE>
DOGS OF THE MARKET(TM) FUND
STRATEGY INDEXING(R) RISK. The Strategy Indexing(R) 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.
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.
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.
MARKET RISK. The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industry, sector of
the economy or the market as a whole.
YEAR 2000 RISK. The risk that the Fund could be adversely affected if the
computer systems used by the Manager and other service providers do not properly
process and calculate information related dates beginning January 1, 2000. This
is commonly known as the "Year 2000 Problem." This situation may negatively
affect the companies in which the Fund invests and by extension the value of the
Fund's shares. Although the Fund's service providers are taking steps to address
this issue, there may still be some risk of adverse effects.
15
<PAGE>
MANAGEMENT OF THE FUNDS
WHO RUNS THE FUNDS?
O'Shaughnessy Capital Management, Inc. is the investment manager of each Fund.
The Manager's address is 35 Mason Street, Greenwich, CT 06830. The Manager has
been providing investment advisory services since 1988. The Manager serves as
portfolio consultant to a unit investment trust and provides investment advisory
services to investment companies and individual and institutional accounts with
assets in excess of $800 million. The Manager also furnishes each Fund with
office space and certain administrative services and provides most personnel
needed by the Funds. For its services, each Fund pays the Manager a monthly
management fee based upon its average daily net assets. For the fiscal year
ended September 30, 1999, the Manager received advisory fees of 0.74%, net of
waiver, of each of the Fund's average daily net assets.
James P. O'Shaughnessy has had the day-to-day responsibility for managing the
portfolio of each Fund and developing and executing each Fund's investment
program since the commencement of operations of each Fund. For the past eleven
years, Mr. O'Shaughnessy has served as Chairman and CEO of the Manager. Mr.
O'Shaughnessy is recognized as a leading expert and pioneer in quantative equity
analysis. He is the author of three financial books, INVEST LIKE THE BEST, WHAT
WORKS ON WALL STREET and HOW TO RETIRE RICH.
FUND EXPENSES
Each Fund is responsible for its own operating expenses. At times, the Manager
may reduce its fees and/or pay expenses of either Fund in order to reduce the
Fund's aggregate annual operating expenses. Any reduction in advisory fees or
payment of expenses made by the Manager are subject to reimbursement by the Fund
if requested by the Manager in subsequent fiscal years. This reimbursement may
be requested by the Manager if the aggregate amount actually paid by the Fund
toward operating expenses for such fiscal year (taking into account the
reimbursement) does not exceed the applicable limitation on Fund expenses. The
Manager is permitted to be reimbursed for fee reductions and/or expense payments
made in the prior three fiscal years. Any such reimbursement will be reviewed by
the Directors. Each Fund must pay its current ordinary operating expenses before
the Manager is entitled to any reimbursement of fees and/or expenses.
SHAREHOLDER INFORMATION
PURCHASE OF SHARES
The minimum initial investment in a Fund is $2,500 for regular accounts and $250
for Individual Retirement Accounts. For corporate sponsored retirement plans,
there is no minimum initial investment. There is no minimum subsequent
investment requirement for any account. However, a $100 minimum exists for each
additional investment made through the Automatic Investment Plan.
The Funds may waive the minimum investment requirements from time to time.
16
<PAGE>
You may purchase shares of the Funds by check or wire. All purchases by check
must be in U.S. dollars. Third party checks and cash will not be accepted. A
charge may be imposed if your check does not clear. The Funds are not required
to issue share certificates. The Funds reserve the right to reject any purchase
in whole or in part.
HOW DO I PURCHASE SHARES BY CHECK?
If you are making an initial investment in a Fund, simply complete the
appropriate Application and mail it with a check (made payable to "O'Shaughnessy
Aggressive Growth Fund" or "O'Shaughnessy Dogs of the Market(TM) Fund") to:
O'Shaughnessy Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
If you wish to send your Application and check via an overnight delivery
service, delivery cannot be made to a post office box. In that case, you should
use the following address:
O'Shaughnessy Funds, Inc
c/o Firstar Mutual Fund Services, LLC
615 E. Michigan Street,
Third Floor
Milwaukee, WI 53202
Subsequent investments must be accompanied by a letter indicating the name(s) in
which the account is registered
HOW DO I PURCHASE SHARES BY WIRE?
If you are making an initial investment in a Fund, before you wire funds, you
should call the Fund at 877-OSFUNDS (673-8637) between 9:00 a.m. and 4:00 p.m.,
Eastern time, on a day when the New York Stock Exchange ("NYSE") is open for
trading to advise them that you are making an investment. You will then receive
your account number and an order confirmation number. Before or immediately
after your bank wires funds, a completed Application should be sent to the
Transfer Agent by U.S. mail or overnight courier to the addresses listed above.
If you are making a subsequent purchase, before you wire funds, you should be
sure to notify the Transfer Agent.
All wires 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. IT IS ESSENTIAL THAT
YOUR BANK INCLUDE COMPLETE INFORMATION ABOUT YOUR ACCOUNT IN ALL WIRE
INSTRUCTIONS. Wire purchases are normally used only for large purchases (over
$5,000). Your bank may charge you a fee for sending a wire to the Funds.
17
<PAGE>
Your bank should transmit immediately available funds by wire in your name to:
O'Shaughnessy Funds
c/o Firstar Mutual Fund Services, LLC
ABA# 075000022
DDA# 11295137
CAN I PURCHASE SHARES THROUGH BROKER-DEALERS OTHER THAN THE DISTRIBUTOR?
You may buy, sell and exchange shares of the Funds through certain brokers (and
their agents) that have made arrangements with the Funds to sell their shares.
When you place your order with such a broker or its authorized agent, your order
is treated as if you had placed it directly with the Funds' Transfer Agent, and
you will pay or receive the next price calculated by the Funds. The broker (or
agent) holds your shares in an omnibus account in the broker's (or agent's)
name, and the broker (or agent) maintains your individual ownership records. The
Manager may pay the broker (or its agent) for maintaining these records as well
as providing other shareholder services. The broker (or its agent) may charge
you a fee for handling your order. The broker (or agent) is responsible for
processing your order correctly and promptly, keeping you advised regarding the
status of your individual account, confirming your transactions and ensuring
that you receive copies of the Funds' prospectus.
You may also buy, sell and exchange shares of the Funds through other outside
broker-dealers that have not made arrangements with the Funds to sell their
shares. Such broker-dealers may purchase shares of the Funds by telephone if
they have made arrangements in advance with the Funds. To place a telephone
order, such broker-dealer should call the Funds at 877-OSFUNDS (673-8637).
AUTOMATIC INVESTMENT PLAN
For your convenience, the Funds offer an Automatic Investment Plan. Under this
Plan, after your initial investment, you authorize the Funds to withdraw from
your checking or savings account each month or quarter an amount that you wish
to invest, which must be at least $100. If you wish to enroll in this Plan,
complete the appropriate section in the Application. If you are an existing
shareholder, you may call the Fund at 877-OSFUNDS (673-8637) and request an
Automatic Investment Plan Application. Signed Applications should be received by
the Transfer at least 15 business days prior to your initial transaction. The
Transfer Agent will charge you a $20 fee if the automatic investment cannot be
made due to insufficient funds, stop payment or for any other reason. The Funds
may terminate or modify this privilege at any time. You may terminate your
participation in the Plan at any time by notifying the Transfer Agent in
writing.
RETIREMENT PLANS
You may invest in the Funds under the following prototype retirement plans:
* "Education" Individual Retirement Account (IRA)
* "Traditional" Individual Retirement Account (IRA)
* "Roth" Individual Retirement Account (IRA)
* Simplified Employee Pension (SEP) for sole proprietors, partnerships and
corporations
* Profit-Sharing and Money Purchase Pension Plans for corporations and their
employees
18
<PAGE>
HOW TO EXCHANGE SHARES
You may exchange shares of one Fund for shares of the other Fund or for shares
of O'Shaughnessy Cornerstone Growth Fund and O'Shaughnessy Cornerstone Value
Fund on any day the Funds and the NYSE are open for business. You may also
exchange shares of either Fund for shares of the Firstar Money Market Fund, a
money market mutual fund not affiliated with O'Shaughnessy Funds or the Manager.
The exchange privilege does not constitute an offering or recommendation on the
part of the Funds or the Manager of an investment in the Firstar Money Market
Fund. Prior to making any exchange, you obtain and carefully read the prospectus
of the other Fund. Prospectuses for the other O'Shaughnessy Funds and for the
Firstar Money Market Fund may be obtained by calling 877- OSFUNDS (673-8637).
If you exchange into shares of the Firstar Money Market Fund you may establish
checkwriting privileges on that money market account. Contact the Fund at
877-OSFUNDS (673-8637) for a checkwriting application and signature card.
HOW DO I EXCHANGE SHARES BY MAIL?
You may exchange your Fund shares by simply sending a written request to the
Funds' Transfer Agent. You should give the name of your Fund account, account
number, the number of Fund shares or the dollar value of Fund shares to be
exchanged, and the name of the other fund into whith the exchange is being made.
If you have an existing account with the other fund, you should also give the
name and account number for that fund. The letter should be signed by all of the
shareholders whose names appear on the account registration.
HOW DO I EXCHANGE SHARES BY TELEPHONE?
If your account has telephone privileges, you may also exchange Fund shares by
calling the Fund at 877-OSFUNDS (673-8637) before the close of regular trading
on the NYSE, which presently is 4.00 p.m., Eastern time. If you are exchanging
shares by telephone, you will be subject to certain identification procedures
which are listed below under "How do I redeem shares by telephone?". You will be
charged a $5.00 fee for exchanges of Fund shares by telephone. Telephone
requests for exchanges will not be accepted with respect to shares represented
by certificates. The Funds may suspend temporarily the exchange privilege in
emergency situations or in cases where, in the judgment of the Fund,
continuation of the privilege would be detrimental to the Fund and its
shareholders. Such temporary suspension can be without prior notification to
shareholders.
The Funds reserve the right on notice to shareholders to limit the number of
exchanges you may make in any year to avoid excess Fund expenses. The Funds
reserve the right to reject any exchange order. The Funds may modify or
terminate the exchange privilege upon written notice to shareholders.
19
<PAGE>
HOW TO SELL SHARES
You may sell (redeem) your Fund shares on any day the Funds and the NYSE are
open for business either directly to the Funds or through your investment
representative.
HOW DO I SELL SHARES BY MAIL?
You may redeem your shares by sending a written request to the Transfer Agent.
The redemption request should include the following: (i) the name of the
account; (ii) the account number; (iii) the number of shares or the dollar value
of shares to be redeemed; (iv) duly endorsed share certificates, if issued; (v)
any signature guarantees that are required; and (vii) any additional documents
that might be required for redemptions by corporations, executors,
administrators, trustees, guardians or other similar shareholders. In addition,
please specify whether the redemptions proceeds are to be sent by mail or wire.
The letter should be signed by shareholders whose names appear on the account
registration. If you wish to have the proceeds wired, please give wire
instructions. Corporate and institutional investors and fiduciaries should
contact the Transfer Agent to ascertain what additional documentation is
required.
WHEN ARE SIGNATURE GUARANTEES REQUIRED?
To protect the Funds and their shareholders, except as noted in the following
paragraph, a signature guarantee is required for all written redemption
requests. Signature(s) on the redemption request must be guaranteed by an
"eligible guarantor institution." These include banks, broker-dealers, credit
unions and savings institutions. A broker-dealer guaranteeing signatures must be
a member of a clearing corporation or maintain net capital of at least $100,000.
Credit unions must be authorized to issue signature guarantees. Signature
guarantees will be accepted for any eligible guarantor institution which
participates in a signature guarantee program. A notary public is not an
acceptable guarantor.
The Funds will waive the signature guarantee required on redemption requests
that instruct that the proceeds be sent by mail if all of the following
conditions apply: (1) the redemption is for $10, 000 or less; (ii) the
redemption check is payable to the shareholder(s) of records; (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. In addition, the
Funds may waive the signature guarantee for employees and affiliates of the
Manager, the Distributor, the Administrator, and family members of the
foregoing.
HOW DO I SELL SHARES BY TELEPHONE?
If you complete the "Shareholder Privileges" section of the Fund Application,
you may redeem all or some of you shares by calling the Fund at 877-OSFUNDS
(673-8637) before the close of regular trading on the NYSE, which presently is
4:00 p.m., Eastern time. Redemption proceeds will be mailed within one or two
days. If you request, redemption proceeds will be wired on the next business day
to the bank account you have designated in your Fund Application or written
instructions. The minimum amount that may be wired is $1,000. You will be
charged a wire transfer fee of $12. This fee is will be deducted from your
20
<PAGE>
redemption proceeds and paid to the Transfer Agent to cover costs associated
with the transfer. In addition, your bank may charge a fee for receiving wires.
Telephone redemptions will not be accepted with respect to shares represented by
certificates or for retirement accounts.
When you establish telephone privileges, you are authorizing the Funds and their
Transfer Agent to act upon the telephone instructions of the person or persons
you have designated in your Account Application. Redemption proceeds will be
transferred to the bank account you have designated on your Account Application.
Before acting on instructions received by telephone, the Funds and the Transfer
Agent will use reasonable procedures to confirm that the telephone instructions
are genuine. These procedures will include recording the telephone call and
asking the caller for a form of personal identification. If the Funds and the
Transfer Agent follow these reasonable procedures, they will not be liable for
any loss, expense, or cost arising out of any telephone transaction request that
is reasonably believed to be genuine. This includes any fraudulent or
unauthorized request. The Funds may change, modify or terminate these privileges
at any time upon written notice to shareholders. The Funds may suspend
temporarily the redemption privilege in emergency situations or in cases where,
in the judgment of the Fund, continuation of the privilege would be detrimental
to the Fund and its shareholders. Such temporary suspension can be without prior
notification to shareholders.
You may request telephone redemption privileges after your account is opened by
writing to the Transfer Agent. Your written request for telephone privileges
must be signed by the registered owner(s) of the shares exactly as the account
is required and signature guaranteed, and include the name of the account, the
account number and the name of the Fund.
You may have difficulties in making a telephone redemption during periods of
abnormal market activity. If this occurs, you may make your redemption request
in writing.
WHEN WILL I RECEIVE MY REDEMPTION PROCEEDS?
Payment of your redemption proceeds will be made promptly, but not later than
seven days after the receipt of your written request in proper form as discussed
in this Prospectus. If you made your initial investment by wire, payment of your
redemption proceeds for those shares will not be made until one business day
after your completed Application is received by the Funds. If you did not
purchase your shares with a certified check or wire, the Funds may delay payment
of your redemption proceeds for up to 15 days from date of purchase or until
your check has cleared, whichever occurs first.
Each Fund has the right to pay redemption proceeds to you in whole or in part by
a distribution of securities from the Fund's portfolio. It is not expected that
the Funds would do so except in unusual circumstances. If either Fund pays your
redemption proceeds by a distribution of securities, you could incur brokerage
or other charges in converting the securities to cash.
21
<PAGE>
WHEN WILL I PAY A REDEMPTION FEE?
The Funds are intended for long-term investors. Short-term "market timers" who
engage in frequent purchases and redemptions can disrupt the Funds' investment
programs and create additional transaction costs that are borne by all
shareholders. For these reasons, each Fund will assess a 1.5% fee on redemptions
and exchanges of Fund shares purchased and held for less than 90 days. This fee
will be paid to the Fund to help offset transactions costs. In determining the
90-day holding period, the Funds will use the "first-in, first-out" method.
Under this method, the date of redemption or exchange will be compared with the
earliest purchase date of shares held in your account. If those shares were held
for less than 90 days, the fee will be assessed.
This fee does not apply to: (i) any shares purchased through reinvested
dividends or capital gains; or (ii) shares held in 401(k), 403(b), 457, Keogh,
profit sharing, SIMPLE IRA, SEP-IRA and money purchase pension retirement plan
accounts. In addition, this fee may not apply to shares held in broker omnibus
accounts.
CAN MY ACCOUNT BE INVOLUNTARILY REDEEMED?
The Funds may redeem the shares in your account if the value of your account is
less than $2,500 as a result of redemptions you have made. This does not apply
to retirement plan or Uniform Gifts or Transfers to Minors Act accounts. You
will be notified that the value of your account is less than $2,500 before the
Funds make an involuntary redemption. You will then have 30 days in which to
make an additional investment to bring the value of your account to at least
$2,500 before the Funds take any action.
SYSTEMATIC CASH WITHDRAWAL PROGRAM
As another convenience, you may redeem your Fund shares through the Systematic
Cash Withdrawal Program. If you elect this method of redemption, the Fund will
send you or a designated third party a check in a minimum amount of $50. You may
choose to receive a check
each month or calendar quarter. Your Fund account must have a value of at least
$10,000 in order to participate in this Program. This Program may be terminated
at any time by the Funds. You may also elect to terminate your participation in
this Program at any time by writing to the Transfer Agent.
A withdrawal under the Program involves a redemption of shares and may result in
a gain or loss for federal income tax purposes. In addition, if the amount
withdrawn exceeds the dividends credited to your account, the account ultimately
may be depleted.
PRICING OF FUND SHARES
The price of each Fund's shares is based on the Fund's net asset value. This is
calculated by dividing each Fund's assets, minus its liabilities, by the number
of shares outstanding. Each Fund's assets are the market value of securities
held in its portfolio, plus any cash and other assets. Each Fund's liabilities
are fees and expenses owed by the Fund. The number of Fund shares outstanding is
the amount of shares which have been issued to shareholders. The price you will
pay to buy Fund shares or the amount you will receive when you sell your Fund
22
<PAGE>
shares is based on the net asset value next calculated after your order is
received by the Transfer Agent with complete information and meeting all the
requirements discussed in this Prospectus.
The net asset value of each Fund's shares is determined as of the close of
regular trading on the NYSE. This is normally 4:00 p.m., Eastern time. Fund
shares will not be priced on days that the NYSE is closed for trading (including
certain U.S. holidays).
DIVIDENDS AND DISTRIBUTIONS
Each Fund will make distributions of dividends and capital gains, if any,
annually, usually on or about December 31 of each year.
All distributions will be reinvested in shares of the distributing Fund unless
you choose one of the following options: (1) receive dividends in cash while
reinvesting capital gain distributions in additional Fund shares; or (2) receive
all distributions in cash. If you wish to change your distribution option, write
to the Transfer Agent in advance of the payment date of the distribution.
TAX CONSEQUENCES
The Funds intend to make distributions of dividends and capital gains. Dividends
are taxable to you as ordinary income. The rate you pay on capital gain
distributions will depend on how long the Fund held the securities that
generated the gains, not on how long you owned your Fund shares. You will be
taxed in the same manner whether you receive your dividends and capital gain
distributions in cash or reinvest them in additional Fund shares.
If you exchange or sell your Fund shares, it is considered a taxable event for
you. Depending on the purchase price and the sale price of the shares you
exchange or sell, you may have a gain or a loss on the transaction. You are
responsible for any tax liabilities generated by your transaction.
FINANCIAL HIGHLIGHTS
These tables show each Fund's financial performance the period of its
operations. Certain information reflects financial results for a single Fund
share. "Total return" shows how much your investment in a Fund would have
increased or decreased during each period, assuming you had reinvested all
dividends and distributions. Information for the fiscal year ended September 30,
1999 has been audited by PricewaterhouseCoopers LLP, independent auditors. Their
report and the Funds' financial statements are included in the Annual Reports
which are available upon request. Information for earlier periods shown was
audited by other independent accountants.
23
<PAGE>
O'SHAUGHNESSY AGGRESSIVE GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Per Share Operating Performance
(For a capital share outstanding throughout each period)
- - -----------------------------------------------------------------------------------------------------------
Year Year November 1, 1996*
Ended Ended through
September 30, 1999 September 30, 1998 September 30, 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net asset value, beginning of period ........ $ 10.73 $ 14.29 $ 10.00
------- -------- -------
Income from investment operations:
Net investment loss ...................... (0.18) (0.15) (0.06)
Net realized and unrealized gain (loss)
on investments .......................... 4.75 (3.21) 4.35
------- -------- -------
Total from investment operations ............ 4.57 (3.36) 4.29
------- -------- -------
Less distributions:
From net realized gains .................. (0.69) (0.20) --
------- -------- -------
Net asset value, end of period .............. $ 14.61 $ 10.73 $ 14.29
======= ======== =======
TOTAL RETURN ................................ 43.51% (23.70)% 42.90%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) ........ $ 12.2 $ 8.3 $ 5.6
Ratio of expenses to average net assets:
Before expense reimbursement ............. 2.23% 2.24% 7.01%++
After expense reimbursement .............. 1.97% 2.00% 1.98%++
Ratio of net investment loss to average
net assets:
Before expense reimbursement ............. (1.78)% (1.77)% (6.41)%++
After expense reimbursement .............. (1.52)% (1.53)% (1.39)%++
Portfolio turnover rate ..................... 193.84% 206.30% 104.77%
</TABLE>
* Commencement of operations.
** Not Annualized.
++ Annualized.
24
<PAGE>
O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------------------------------
November 1, 1996*
Year Ended Year Ended through
September 30, 1999 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net asset value, beginning of period....... $ 11.40 $ 11.96 $ 10.00
----------- ----------- -----------
Income from investment operations:
Net investment income.................. 0.23 0.10 0.10
Net realized and unrealized gain on
investments.......................... 0.97 0.02 1.87
----------- ----------- -----------
Total from investment operations........... 1.20 0.12 1.97
----------- ----------- -----------
Less distributions:
From net investment income............. (0.14) (0.09) (0.01)
From net realized gains................ (0.31) (0.59) 0.00
----------- ----------- -----------
Total distributions........................ (0.45) (0.68) (0.01)
----------- ----------- -----------
Net asset value, end of period............. $ 12.15 $ 11.40 $ 11.96
=========== =========== ===========
TOTAL RETURN............................... 10.36% 0.74% 19.74%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)....... $ 17.7 $ 22.6 $ 7.2
Ratio of expenses to average net assets:
Before expense reimbursement........... 1.50% 1.46% 4.28%++
After expense reimbursement............ 1.09% 1.46% 1.99%++
Ratio of net investment income (loss) to
average net assets:
Before expense reimbursement........... 1.17% 1.24% (0.51%)++
After expense reimbursement............ 1.58% 1.24% 1.78%++
Portfolio turnover rate.................... 63.31% 44.35% 118.44%
</TABLE>
* Commencement of operations.
** Not Annualized.
++ Annualized.
26
<PAGE>
AGGRESSIVE GROWTH FUND
DOGS OF THE MARKET(TM) FUND
SERIES OF O'SHAUGHNESSY FUNDS, INC.
WWW.OSFUNDS.COM
For investors who want more information about the Funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Funds' investments
is available in the Funds' annual and semi-annual reports to shareholders. In
the Funds' annual reports, you will find a discussion of market conditions and
investment strategies that significantly affected the Funds' performance during
their last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds and is incorporated by reference into this
Prospectus.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Funds by contacting the Funds at:
O'Shaughnessy Funds, Inc.
35 Mason Street
Greenwich, CT 06830
Telephone: 1-877-OSFUNDS
You can review and copy information including the Funds' reports and SAI at the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. You can obtain information on the operation of the Public Reference Room by
calling 1-202-942-8090. Reports and other information about the Fund are also
available:
* Free of charge from the Commission's EDGAR database on the Commission's
Internet website at http://www.sec.gov., or
* For a fee, by writing to the Public Reference Room of the Commission,
Washington, DC 20549-0102, or
* For a fee, by electronic request at the following e-mail address:
[email protected].
(The Fund's SEC Investment Company Act
file number is 811-07695)
27
<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")
STATEMENT OF ADDITIONAL INFORMATION
DATED______________, 2000
35 Mason Street
Greenwich, Connecticut 06830
Telephone: 1-877-OSFUNDS
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 ______________, 2000. 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.
TABLE OF CONTENTS
INVESTMENT POLICIES AND LIMITATIONS ...................................... B-2
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-15
PERFORMANCE INFORMATION .................................................. B-16
OTHER INFORMATION ........................................................ B-18
FINANCIAL STATEMENTS OF THE FUNDS ........................................ B-19
OPTIONS AND FUTURES ...................................................... A-20
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 advisor to each Fund. See "Management of the Funds."
SPECIAL CONSIDERATIONS RELATING TO DEPOSITORY RECEIPTS. As noted in the
applicable Fund Prospectus, the Funds may each invest in the securities of
foreign issuers, including American Depository Receipts ("ADRs"). Generally,
ADRs, in registered form, are denominated in U.S. dollars and are designed for
use in the U.S. securities markets. ADRs are receipts typically issued by a U.S.
bank or trust company evidencing ownership of the underlying securities. For
purposes of the Funds' investment policies, ADRs are deemed to have the same
classification as the underlying securities they represent. Thus, an ADR
evidencing ownership of common stock will be treated as common stock.
Many of the foreign securities held in the form of depository receipts by
the Funds are not registered with the Securities and Exchange Commission
("SEC"), nor are the issuers thereof subject to its reporting requirements.
Accordingly, there may be less publicly available information concerning foreign
issuers of securities held by the Funds than is available concerning U.S.
companies. Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards or to other regulatory requirements
comparable to those applicable to U.S. companies.
Investment income on certain foreign securities may be subject to foreign
withholding or other taxes that could reduce the return on these securities. Tax
treaties between the United States and foreign countries, however, may reduce or
eliminate the amount of foreign taxes to which a Fund would be subject.
ILLIQUID SECURITIES. The Aggressive Growth Fund may invest up to 15% of its
net assets in illiquid securities. The term illiquid securities for this purpose
means securities which cannot be readily resold because of legal and contractual
considerations or which cannot otherwise be marketed, redeemed, put to the
issuer or a third party, or which do not mature within seven days, or which the
Manager, in accordance with guidelines established by the Board of Directors,
has not determined to be liquid and includes, among other things, purchased
over-the-counter ("OTC") options and repurchase agreements maturing in more than
seven days. The assets used as cover for OTC options written by a Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure will be considered illiquid only
to the extent that the maximum repurchase price under the option formula exceeds
the intrinsic value of the option.
Restricted securities may be sold only in privately negotiated transactions
or in public offerings with respect to which a registration statement is in
effect under the Securities Act of 1933 ("1933 Act"). Where registration is
required, a Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell.
In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including securities sold
in private placements, repurchase agreements, commercial paper, foreign
securities and corporate bonds and notes. These instruments are often restricted
securities because the securities are sold in transactions not requiring
registration. Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend either on an
efficient institutional market in which such unregistered securities can be
readily resold or on an issuer's ability to honor a demand for repayment.
B-2
<PAGE>
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. An insufficient number
of qualified buyers interested in purchasing Rule 144A-eligible restricted
securities held by a Fund, however, could affect adversely the marketability of
such Fund securities and a Fund might be unable to dispose of such securities
promptly or at favorable prices.
The Board of Directors has delegated the function of making day-to-day
determinations of liquidity to the Manager pursuant to guidelines approved by
the Board. The Manager takes into account a number of factors in reaching
liquidity decisions, including but not limited to: (1) the frequency of trades
for the security, (2) the number of dealers that make quotes for the security,
(3) the number of dealers that have undertaken to make a market in the security,
(4) the number of other potential purchasers and (5) the nature of the security
and how trading is effected (e.g., the time needed to sell the security, how
bids are solicited and the mechanics of transfer). The Manager monitors the
liquidity of restricted securities in each Fund and reports periodically on such
decisions to the Board of Directors.
REPURCHASE AGREEMENTS. Each Fund may enter into a repurchase agreement
through which an investor (such as the Fund) purchases a security (known as the
"underlying security") from a well-established securities dealer or bank that is
a member of the Federal Reserve System. Any such dealer or bank will be on the
Fund's approved list. Each Fund intends to enter into repurchase agreements only
with banks and dealers in transactions believed by the Manager to present
minimum credit risks in accordance with guidelines established by the Fund's
Board of Directors. The Manager will review and monitor the creditworthiness of
those institutions under the Board's general supervision.
At the time of entering into the repurchase agreement the bank or
securities dealer agrees to repurchase the underlying security at the same
price, plus specified interest. Repurchase agreements are generally for a short
period of time, often less than a week. Repurchase agreements which do not
provide for payment within seven days will be treated as illiquid securities.
The Fund will only enter into repurchase agreements where (i) the underlying
securities are of the type (excluding maturity limitations) which the Fund's
investment guidelines would allow it to purchase directly, (ii) the market value
of the underlying security will at all times be equal to at least 102% of the
value of the repurchase agreement, and (iii) payment for the underlying security
is made only upon physical delivery or evidence of book-entry transfer to the
account of the Fund's custodian or a bank acting as agent. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying security and losses,
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during this period; and
(c) expenses of enforcing its rights.
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
B-3
<PAGE>
to terminate any loan at any time. A Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or money market instruments held as collateral to
the borrower or placing broker. A Fund will receive reasonable interest on the
loan or a flat fee from the borrower and amounts equivalent to any dividends,
interest or other distributions on the securities loaned. A Fund will regain
record ownership of loaned securities to exercise beneficial rights, such as
voting and subscription rights and rights to dividends, interest or other
distributions, when regaining such rights is considered to be in the Fund's
interest.
HEDGING AND RETURN ENHANCEMENT STRATEGIES. As discussed in the applicable
Fund Prospectus, the Funds 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 SAI.
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 and
Taxes" below.
In addition to the products, strategies and risks described below and in
the applicable Fund Prospectus, the Manager expects to discover additional
opportunities in connection with options, futures contracts and other hedging
techniques. The Manager may utilize these opportunities to the extent that they
are consistent with the respective Fund's investment objectives and permitted by
the respective Fund's investment limitations and applicable regulatory
authorities. The applicable Fund Prospectus or this SAI will be supplemented to
the extent that new products or techniques involve materially different risks
than those described below or in the Fund Prospectus.
B-4
<PAGE>
SPECIAL RISKS OF HEDGING STRATEGIES. The use of Hedging Instruments
involves special considerations and risks, as described below. Risks pertaining
to particular Hedging Instruments are described in the sections that follow.
(1) Successful use of most Hedging Instruments depends upon the Manager's
ability to predict movements of the overall securities and interest rate
markets, which requires different skills than predicting changes in the price of
individual securities. While the Manager is experienced in the use of Hedging
Instruments, there can be no assurance that any particular hedging strategy
adopted will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Hedging Instrument and price movements of the investments
being hedged. For example, if the value of a Hedging Instrument used in a short
hedge increased by less than the decline in value of the hedged investment, the
hedge would not be fully successful. Such a lack of correlation might occur due
to factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Hedging Instruments are
traded. The effectiveness of hedges using Hedging Instruments on indices will
depend on the degree of correlation between price movements in the index and
price movements in the securities being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Fund entered into a short
hedge because the Manager projected a decline in the price of a security held by
a Fund, and the price of that security increased instead, the gain from that
increase might be wholly or partially offset by a decline in the price of the
Hedging Instrument. Moreover, if the price of the Hedging Instrument declined by
more than the increase in the price of the security, the Fund could suffer a
loss. In either such case, the Fund would have been in a better position had it
not hedged at all.
(4) As described below, a Fund might be required to maintain assets as
cover, maintain segregated accounts or make margin payments when it takes
positions in Hedging Instruments involving obligations to third parties (i.e.,
Hedging Instruments other than purchased options). If a Fund were unable to
close out its positions in such Hedging Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair a Fund's ability to
sell a Fund security or make an investment at a time when it would otherwise be
favorable to do so, or require that a Fund sell a portfolio security at a
disadvantageous time. A Fund's ability to close out a position in a Hedging
Instrument prior to expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of a contra party to enter into a transaction closing out the
position. Therefore, there is no assurance that any hedging position can be
closed out at a time and price that is favorable to the Fund.
COVER FOR HEDGING STRATEGIES. Transactions using Hedging Instruments, other
than purchased options, expose a Fund to an obligation to another party. A Fund
will not enter into any such transactions unless it owns either (1) an
offsetting covered position in securities, or other options or futures
contracts, or (2) cash, receivables and short-term debt securities, with a value
sufficient at all times to cover its potential obligations to the extent not
covered as provided in (1) above. Each Fund will comply with Securities and
Exchange Commission ("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. The Funds 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
B-5
<PAGE>
income by reason of the premiums paid by the purchasers of such options.
However, if the market price of the security underlying a covered put option
declines to less than the exercise price of the option, minus the premium
received, the Fund would expect to suffer a loss. Writing covered call options
serves as a limited short hedge, because declines in the value of the hedged
investment would be offset to the extent of the premium received for writing the
option. However, if the security appreciates to a price higher than the exercise
price of the call option, it can be expected that the option will be exercised
and the Fund will be obligated to sell the security at less than its market
value. If the covered call option is an OTC option, the securities or other
assets used as cover would be considered illiquid to the extent described above
under "Investment Policies and Restrictions -- Illiquid Securities."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration dates
of up to nine months. Options that expire unexercised have no value.
A Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, a Fund may terminate its
obligation under a call option that it had written by purchasing an identical
call option; this is known as a closing purchase transaction. Conversely, a Fund
may terminate a position in a put or call option it had purchased by writing an
identical put or call option; this is known as a closing sale transaction.
The Funds may purchase or write exchange-traded and/or OTC options.
Currently, many options on equity securities are exchange-traded.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed which,
in effect, guarantees completion of every exchange-traded option transaction. In
contrast, OTC options are contracts between the Fund and its contra party
(usually a securities dealer or a bank) with no clearing organization guarantee.
Thus, when the Fund purchases or writes an OTC option, it relies on the party
from whom it purchased the option or to whom it has written the option (the
"contra party") to make or take delivery of the underlying investment upon
exercise of the option. Failure by the contra party to do so would result in the
loss of any premium paid by the Fund as well as the loss of any expected
benefits of the transaction.
A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. Each Fund intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although a Fund
will enter into OTC options only with contra parties that are expected to be
capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
contra party, the Fund might be unable to close out an OTC option position at
any time prior to its expiration.
If the Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
FUTURES. The purchase of futures or call options thereon can serve as a
long hedge, and the sale of futures or the purchase of put options thereon can
serve as a short hedge. Writing covered call options on futures contracts can
serve as a limited short hedge, using a strategy similar to that used for
writing covered call options on securities and indices.
Futures strategies also can be used to manage the average duration of a
Fund. If the Manager wishes to shorten the average duration of a Fund, the Fund
may sell a futures contract or a call option thereon, or purchase a put option
on that futures contract. If the Manager wishes to lengthen the average duration
of a Fund, the Fund may buy a futures contract or a call option thereon.
B-6
<PAGE>
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.
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.
B-7
<PAGE>
LIMITATIONS ON THE USE OF FUTURES. The Funds have represented to the CFTC
that they: (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 a 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 (the
"1940 Act"), as the lesser of: (1) 67% or more of the Fund's voting securities
present at a meeting of shareholders, if the holders of more than 50% of the
Fund's outstanding shares are present in person or by proxy, or (2) more than
50% of the outstanding shares. Unless otherwise indicated, all percentage
limitations apply to each Fund on an individual basis, and apply only at the
time an investment is made; a later increase or decrease in percentage resulting
from changes in values or net assets will not be deemed to be an investment that
is contrary to these restrictions, except for the policies regarding borrowing
and illiquid securities or as otherwise noted. 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 SAI 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 SAI 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 SAI as it may be amended from time to time;
(7) borrow money or issue senior securities, except that each Fund may
borrow in an amount up to 33-1/3% of its respective total assets from banks for
extraordinary or emergency purposes such as meeting anticipated redemptions, and
may pledge its assets in connection with such borrowing. The Fund may not pledge
its assets other than to secure such borrowings or, to the extent permitted by
B-8
<PAGE>
the Fund's investment policies as set forth in the applicable Fund Prospectus
and this SAI, 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
Act, 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 net 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 them
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 the Cornerstone Growth Fund, Cornerstone Value
Fund, and Dogs of the Market Fund do not invest 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 SAI, as they may be amended from time to time.
DIRECTORS AND OFFICERS
The Directors and officers of O'Shaughnessy Funds, their business addresses and
principal occupations during the past five years are listed below. Unless
otherwise indicated, each person's address is 60 Mason 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: 38 Treasurer Management,Inc., 1988 - present; author
O'Shaughnessy Capital of "Invest Like the Best", "What Works
Management, Inc. on Wall Street", and "How to Retire Rich."
</TABLE>
B-9
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Position with the Fund Other Business Activities in Past 5 Years
- --------------------- ---------------------- -----------------------------------------
<S> <C> <C>
C. Flemming Heilmann Director President and Director, Danish American,
Age: 59 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: 68 Officer of Cadbury Schweppes, Inc.;
Director, Loctite Corp.
Joseph John McAleer Director Founder and President, MCA Associates,
Age: 68 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 48 Secretary Wadsworth Group since 1986; Vice
President of First Fund Distributors, Inc.
since 1989; Vice President of Investment
Company Administration, LLC since 1990.
</TABLE>
- ----------
* Interested person, as defined in the 1940 Act.
Pursuant to the terms of the Management Agreement (defined below) with
O'Shaughnessy Funds on behalf of the Funds, the Manager pays the compensation of
all officers and Directors who are affiliated persons of the Manager. Pursuant
to the terms of the Administration Agreement (defined below), the Administrator
pays the compensation of all officers that are affiliated persons of the
Administrator.
O'Shaughnessy Funds pays Directors who are not interested persons of the
O'Shaughnessy Funds (each, a "disinterested Director") fees for serving as
Directors. Specifically, O'Shaughnessy Funds pay each disinterested Director a
$9,750 annual retainer paid quarterly, together with such Director's
out-of-pocket expenses relating to attendance at meetings. Each Fund pays one
quarter of the foregoing fees.
The following table sets forth the aggregate compensation the Funds paid to
the disinterested Directors for the fiscal year ended September 30, 1999.
Aggregate Pension or Retirement
Compensation Benefits Accrued as Total Compensation
Name of Director From Funds* Part of Fund Expenses From Fund Complex*
- ---------------- ----------- --------------------- ------------------
C. Flemming Heilmann $9,750 None $9,750
Robert E. Ix $9,750 None $9,750
Joseph John McAleer $9,750 None $9,750
- ----------
* During the fiscal period ended September 30, 1999, aggregate directors fees
and expenses in the amount of $29,596 were allocated to the Funds.
B-10
<PAGE>
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 SAI, the officers and Directors of the O'Shaughnessy
Funds as a group (5 persons) owned an aggregate of less than 1% of the
outstanding shares of each Fund.
MANAGEMENT OF THE FUNDS
THE MANAGER. The Manager acts as the investment manager of each Fund
pursuant to a management agreement with O'Shaughnessy Funds on behalf of each
Fund (the "Management Agreement"). Under the Management Agreement, O'Shaughnessy
Funds pays the Manager a fee in respect of each Fund, computed daily and payable
monthly, according to the schedule set forth in the applicable Fund Prospectus.
The Manager is wholly owned and controlled by James P. O'Shaughnessy and his
immediate family.
Pursuant to the Management Agreement, the Manager is responsible for
investment management of each Fund's portfolio, subject to general oversight by
the Board of Directors, and provides the Funds with office space. In addition,
the Manager is obligated to keep certain books and records of the Funds. In
connection therewith, the Manager furnishes each Fund with those ordinary
clerical and bookkeeping services which are not being furnished by the Funds'
custodian, administrator or transfer and dividend disbursing agent.
Under the terms of the Management Agreement, each Fund bears all expenses
incurred in its operation that are not specifically assumed by the Manager,
Investment Company Administration, LLC, 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.
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.
B-11
<PAGE>
During the fiscal year ended September 30, 1997, Aggressive Growth Fund,
Cornerstone Growth Fund, Cornerstone Value Fund and Dogs of the Market Fund paid
$17,218, $92,933, $42,147 and $26,765, respectively, in advisory fees. For the
same period, the Manager waived fees and reimbursed expenses of the Aggressive
Growth Fund, Cornerstone Growth Fund, Cornerstone Value Fund and Dogs of the
Market Fund in the amounts of $87,309, $8,879, $46,300 and $71,199,
respectively.
During the fiscal year ended September 30, 1998, Aggressive Growth Fund,
Cornerstone Growth Fund, Cornerstone Value Fund and Dogs of the Market Fund paid
$93,549, $573,605, $152,188 and $126,357, respectively, in advisory fees. For
the same period, the Manager reimbursed fees and expenses of the Aggressive
Growth Fund in the amount of $22,305.
During the fiscal year ended September 30, 1999, Aggressive Growth Fund,
Cornerstone Growth Fund, Cornerstone Value Fund and Dogs of the Market Fund paid
$74,894, $783,280, $204,286 and $164,117, respectively, in advisory fees. For
the same period, the Manager reimbursed fees and expenses of the Aggressive
Growth Fund and Dogs of the Market Fund in the amounts of $27,163 and $92,281,
respectively.
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
O'Shaughnessy Funds. 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 $200
million of a Fund's average daily net assets and 0.03% of such net assets over
$200 million. During the fiscal year ended September 30, 1997, the Administrator
received a total of $64,377 in administration fees from the Funds. For the
fiscal year ended September 30, 1998, the Administrator received a total of
$126,059 in administration fees from the Funds and waived an additional $68,044.
For the fiscal year ended September 30, 1999, the Administrator received a total
of $205,483 in administration fees from the Funds but waived $31,892 of those
fees.
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 restricts the
investing activities of O'Shaughnessy Funds officers, Directors and advisory
persons and, as described below, imposes additional, more onerous restrictions
on Fund investment personnel.
All persons covered by the Code of Ethics 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 of Ethics 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-12
<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 the manager under the Management
Agreement. The Funds may purchase and sell Fund portfolio securities to and from
dealers who provide the Fund with research services. Fund transactions will not
be directed to dealers solely on the basis of research services provided.
Investment decisions for each Fund and for other investment accounts
managed by the Manager are made independently of each other in light of
differing considerations for the various accounts. However, the same investment
decision may be made for a Fund and one or more of such accounts. In such cases,
simultaneous transactions are inevitable. Purchases or sales are then allocated
between the Fund and such other account(s) as to amount according to a formula
deemed equitable to the Fund and such account(s). While in some cases this
practice could have a detrimental effect upon the price or value of the security
as far as a Fund is concerned, or 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.
The Funds paid the following amounts in portfolio brokerage commissions:
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
September 30, 1997 September 30, 1998 September 30, 1999
------------------ ------------------ ------------------
Aggressive Growth $ 15,035 $ 56,518 $ 56,606
Cornerstone Growth 134,182 313,452 480,937
Cornerstone Value 18,816 41,323 86,912
Dogs of the Market 12,893 31,508 24,203
PORTFOLIO TURNOVER. For reporting purposes, a Fund's portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of portfolio
securities for the fiscal year by the monthly average of the value of the
portfolio securities owned by the Fund during the fiscal year. In determining
such portfolio turnover, securities with maturities at the time of acquisition
of one year or less are excluded. The Manager will adjust a Fund's assets as it
B-13
<PAGE>
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 Funds 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 (100% or more) 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. For the fiscal year ended September 30, 1998, the
Aggressive Growth Fund, Cornerstone Growth Fund and Dogs of the Market Fund had
a portfolio turnover rate of 206.30%, 119.98% and 44.35%, respectively. For the
fiscal year ended September 30, 1999, the Aggressive Growth Fund, Cornerstone
Growth Fund and Dogs of the Market Fund had a portfolio turnover rate of
193.84%, 125.19 and 63.31%, respectively. For the fiscal years ended September
30, 1999 and 1998, the Cornerstone Value Fund had a portfolio turnover rate of
122.79% and 51.56%, respectively. The higher turnover rate in fiscal 1999 for
Cornerstone Value Fund was due to ?????
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, Martin Luther King. Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Such purchases
and redemptions of the shares of each Fund are effected at their respective net
asset values per share determined as of the close of the NYSE (normally 4:00
P.M., Eastern time) on that Business Day. The time at which the transactions are
priced may be changed in case of an emergency or if the NYSE closes at a time
other than 4:00 P.M., Eastern time.
O'Shaughnessy Funds may suspend redemption privileges of shares of any Fund
or postpone the date of payment during any period (1) when the NYSE is closed or
trading on the NYSE is restricted as determined by the SEC, (2) when an
emergency exists, as defined by the SEC, that makes it not reasonably
practicable for O'Shaughnessy Funds to dispose of securities owned by it or to
determine fairly the value of its assets or (3) as the SEC may otherwise permit.
The redemption price may be more or less than the shareholder's cost, depending
on the market value of the Fund's securities at the time.
O'Shaughnessy Funds will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. O'Shaughnessy Funds uses
some or all of the following procedures to process telephone redemptions: (1)
requesting a shareholder to correctly state some or all of the following
information: account number, name(s), social security number registered to the
account, personal identification, banking 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 1940 Act 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
B-14
<PAGE>
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 (normally 4:00 P.M., Eastern time) on each Business Day.
Each Fund's net asset value per share is calculated separately.
For all Funds, the net asset value per share is computed by dividing the
value of the securities held by the Fund plus any cash or other assets, less its
liabilities, by the number of outstanding shares of the Fund, and adjusting the
result to the nearest full cent. Securities listed on the NYSE, American Stock
Exchange or other national exchanges are valued at the last sale price on such
exchange on the day as of which the net asset value per share is to be
calculated. Over-the-counter securities included in the NASDAQ National Market
System are valued at the last sale price. Bonds and other fixed-income
securities are valued using market quotations provided by dealers, and also may
be valued on the basis of prices provided by pricing services when the Board of
Directors believes that such prices reflect the fair market value of such
securities. If there is no sale in a particular security on such day, it is
valued at the mean between the bid and asked prices. Other securities, to the
extent that market quotations are readily available, are valued at market value
in accordance with procedures established by the Board of Directors. Any other
securities and other assets for which market quotations are not readily
available are valued in good faith in a manner determined by the Board of
Directors best to reflect their full value.
When market quotations for options and futures positions held by the Funds
are readily available, those positions are valued based upon such quotations.
Market quotations are not generally available for options traded in the OTC
market. When market quotations for options and futures positions, or any other
securities or assets of the Funds, are not available, they are valued at fair
value as determined in good faith by or under the direction of the Board of
Directors. When practicable, such determinations are based upon appraisals
received from a pricing service using a computerized matrix system or appraisals
derived from information concerning the security or similar securities received
from recognized dealers in those securities.
When a Fund writes a put or call option, the amount of the premium is
included in the Fund's assets and an equal amount is included in its
liabilities. The liability thereafter is adjusted to the current market value of
the option. The premium paid for an option purchased by a Fund is recorded as an
asset and subsequently adjusted to market value.
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 (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) 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; (3) 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 (4) 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.
B-15
<PAGE>
The use of hedging and related income strategies, such as writing and
purchasing options and futures contracts, involves complex rules that will
determine for income tax purposes the character and timing of recognition of the
income received in connection therewith by each Fund eligible to use such
strategies. Income from transactions in options and futures derived by a Fund
with respect to its business of investing in securities, will qualify as
permissible income under the Income Requirement.
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.
A loss realized on a sale or exchange of shares of a Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Dividends and capital gains distributions may also be subject
to state and local taxes.
The foregoing is only a general summary of some of the important federal
income tax considerations generally affecting the Funds and their shareholders.
No attempt is made to present a complete explanation of the federal tax
treatment of the Funds' activities. See the applicable Fund Prospectus for
further tax information.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state and local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in a
Fund.
PERFORMANCE INFORMATION
Performance information is computed separately for each Fund in accordance
with the formulas described below. At any time in the future, total return may
be higher or lower than in the past and there can be no assurance that any
historical results will continue.
Certain historical performance information for the Cornerstone Value
Strategy and the Cornerstone Growth Strategy, the respective investment
strategies of the Cornerstone Growth Fund and Cornerstone Value Fund, is
included in the Fund Prospectus relating to the Cornerstone Value and
Cornerstone Growth Funds. See "Performance Information" in the Funds'
Prospectus.
B-16
<PAGE>
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.
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.
The following are the Funds' average annual total returns for the period
ending September 30, 1999*:
From Inception
(November 1, 1996) One Year
------------------ --------
Aggressive Growth 16.10% 43.51%
Cornerstone Growth 12.68% 29.15%
Cornerstone Value 8.89% 17.12%
Dogs of the Market 10.01% 10.36%
- ----------
* Certain expenses of the Aggressive Growth Fund and Dogs of the Market Fund
have been waived or reimbursed from inception through September 30, 1999
and certain expenses of the Cornerstone Value Fund and Cornerstone Growth
Fund have been waived or reimbursed from inception through September 30,
1997. Accordingly return figures are higher than they would have been had
such expenses not been waived or reimbursed.
Each Fund may from time to time also include the ranking of its performance
figures relative to such figures for groups of mutual funds categorized by
Lipper Analytical Services ("Lipper") as having the same or similar investment
objectives or by similar services that monitor the performance of mutual funds.
Each Fund may also from time to time compare its performance to average mutual
fund performance figures compiled by Lipper in Lipper Performance Analysis.
Advertisements or information furnished to present shareholders or prospective
investors may also include evaluations of a Fund published by nationally
recognized ranking services and by financial publications that are nationally
recognized such as Barron's, Business Week, CDA Technologies, Inc., Changing
Times, Consumer's Digest, Dow Jones Industrial Average, Financial Planning,
Financial Times, Financial World, Forbes, Fortune, Hulbert's Financial Digest,
Institutional Investor, Investors Daily, Money, Morningstar Mutual Funds, The
New York Times, Personal Investor, Stanger's Investment Adviser, Value Line, The
Wall Street Journal, Wiesenberger Investment Company Service and USA Today.
The performance figures described above may also be used to compare the
performance of a Fund's shares against certain widely recognized standards or
indices for stock market performance. The following are the indices against
which the Funds may compare performance:
The Standard & Poor's Composite Index of 500 Stocks (the "S&P 500 Index")
is a market value-weighted and unmanaged index showing the changes in the
aggregate market value of 500 stocks relative to the base period 1941-43. The
S&P 500 Index is composed almost entirely of common stocks of companies listed
on the NYSE, although the common stocks of a few companies listed on the
American Stock Exchange or traded OTC are included. The 500 companies
represented include industrial, transportation and financial services concerns.
The S&P 500 Index represents about 80% of the market value of all issues traded
on the NYSE.
B-17
<PAGE>
The Wilshire 5000 Equity Index (or its component indices) represents the
return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.
The National Association of Securities Dealers Automated Quotation System
(NASDAQ) Composite Index covers 4,500 stocks traded over the counter. It
represents many small company stocks but is heavily influenced by about 100 of
the largest NASDAQ stocks. It is a value-weighted index calculated on price
change only and does not include income.
The Value Line (Geometric) Index is an unweighted index of the
approximately 1,700 stocks followed by the Value Line Investment Survey.
The Russell 2000/Small Stock Index comprises the smallest 2000 stocks in
the Russell 3000 Index, and represents approximately 11% of the Russell 3000
Index's market capitalization. The Russell 3000 Index comprises the 3,000
largest U.S. companies by market capitalization. The smallest company has a
market value of roughly $20 million.
In reports or other communications to shareholders, O'Shaughnessy Funds may
also describe general economic and market conditions affecting the Funds and may
compare the performance of the Funds with: (1) that of mutual funds included in
the rankings prepared by Lipper or similar investment services that monitor the
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 SAI and the Fund Prospectuses do not contain
all the information included in the Registration Statement filed with the SEC
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 SEC in Washington, D.C.
Statements contained in this SAI 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 SAI and the Fund
Prospectuses form a part, each such statement being qualified in all respects by
such reference.
COUNSEL AND AUDITORS. The law firm of Swidler, Berlin, Shereff, Friedman,
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.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent auditors for the Funds.
TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTANT. Firstar Mutual Fund
Services, LLC ("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
B-18
<PAGE>
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.
As of December 31, 1999, the following shareholders owned more than 5% of
the outstanding voting securities of:
Dogs of the Market Fund:
Charles Schwab & Co., Inc. for Exclusive Benefit of Customers
San Francisco, CA 94104; 28.88%
Merrill Lynch Pierce Fenner & Smith Inc. for Exclusive Benefit of its
Customers
Jacksonville, FL 32246; 6.74%
Aggressive Growth Fund:
Charles Schwab & Co., Inc. for Exclusive Benefit of Customers,
San Francisco, CA 94104; 21.54%
National Investor Services Corp. for Exclusive Benefit of Customers
New York, NY 10041; 7.55%
Cornerstone Value Fund:
Charles Schwab & Co., Inc. for Exclusive Benefit of Customers,
San Francisco, CA 94104; 41.75%
National Investor Services Corp. for Exclusive Benefit of Customers
New York, NY 10041; 6.93%
Cornerstone Growth Fund:
Charles Schwab & Co., Inc. for Exclusive Benefit of Customers,
San Francisco, CA 94104; 31.78%
Enjayco Omnibus Account
Milwaukee, WI; 13.95%
FINANCIAL STATEMENTS OF THE FUNDS
PricewaterhouseCoopers, LLP, serves as independent auditors of the
Funds. PricewaterhouseCoopers, LLP, 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 audited financial statements for the Funds for the period ended
September 30, 1999 are incorporated by reference herein and appear in the annual
reports of the Funds, copies of which are available at no charge by calling
1-800-797-0773.
B-19
<PAGE>
Appendix A
OPTIONS AND FUTURES
The Funds 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 Indices -- A securities index assigns relative values
to the securities included in the index and fluctuates with changes in the
market values of those securities. A securities index option operates in the
same way as a more traditional stock option, except that exercise of a
securities index option is effected with cash payment and does not involve
delivery of securities. Thus, upon exercise of a securities index option, the
purchaser will realize, and the writer will pay, an amount based on the
difference between the exercise price and the closing price of the securities
index.
Stock Index Futures Contracts -- A stock index futures contract is a
bilateral agreement pursuant to which one party agrees to accept, and the other
party agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the stocks comprising the index is
made. Generally, contracts are closed out prior to the expiration date of the
contract.
Interest Rate Futures Contracts -- Interest rates futures contracts are
bilateral agreements pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of debt security at a
specified future time and at a specified price. Although such futures contracts
by their terms call for actual delivery or acceptance of debt securities, in
most cases, the contracts are closed out before the settlement date without the
making or taking of delivery.
B-20
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(1)(a) Articles of Incorporation of Registrant.*
(b) Articles of Amendment, dated July 2, 1996.*
(2) Amended and Restated By-Laws of Registrant.**
(3) Instrument defining rights of Shareholders (Incorporated by
reference to Exhibits 1 and 2 above).
(4) Management Agreement between Registrant and O'Shaughnessy Capital
Management, Inc.**
(5) Distribution Agreement between Registrant and First Fund
Distributors, Inc.**
(6) Not Applicable
(7) Custody Agreement between the Registrant and Firstar Trust
Company.**
(8)(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, LLC.**
(c) Fund Accounting Agreement between the Registrant and Firstar Trust
Company**
(9) Opinion of Swider, Berlin,Shereff, Friedman, LLP, counsel for
Registrant.**
(10)(a) Consent of PricewaterhouseCoopers
(b) Consent of McGladrey & Pullen
(c) Report of McGladrey & Pullen
(11) Inapplicable.
(12) Certificate of sole shareholder, O'Shaughnessy Capital Management,
Inc.**
(13) Inapplicable.
(14) Inapplicable.
(15) 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 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
Article V of the Registrant's By-Laws relating to the indemnification of
officers and trustees is quoted below:
<PAGE>
ARTICLE V
INDEMNIFICATION
Each officer and director of the Corporation shall be indemnified by the
Corporation to the full extent permitted under the General Laws of the State of
Maryland, except that such indemnity shall not protect any such person against
any liability to the Corporation or any stockholder thereof to which such person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. Absent a court determination that an officer or director seeking
indemnification was not liable on the merits or guilty of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office, the decision by the Corporation to indemnify such person
must be based upon the reasonable determination of independent legal counsel or
the vote of a majority of a quorum of the directors who are either "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
<PAGE>
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.
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
<PAGE>
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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER.
O'Shaughnessy Capital Management, Inc., the Investment Manager of the
Funds, 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, Inc. and other required
information.
ITEM 28. 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:
Advisors Series Trust
Brandes Investment Trust
Fleming Mutual Fund Group
Fremont Mutual Funds
Guinness Flight Investment Funds
Jurika & Voyles Fund Group
Kayne Anderson Mutual Funds
Masters' Select Investment Trust
PIC Investment Trust
The Purisima Funds
Professionally Managed Portfolios
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group, Inc.
UBS Private Investor Funds
Trust for Investment Managers
(b) Set forth below is information concerning each director and officer of
First Fund Distributors, Inc
<PAGE>
Positions and Offices
Name and Principal with Principal Position and Offices
Business Address Underwriter with Registrant
- ---------------- ----------- ---------------
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
915 Broadway Secretary Secretary
New York, NY 10010
(c) Not applicable.
ITEM 28. 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 29. MANAGEMENT SERVICES.
None.
ITEM 30. 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 represents that this amendment
meets the requirement for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933 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 18th
day of January, 2000.
O'SHAUGHNESSY FUNDS, INC.
(Registrant)
By: /s/ James P. O'Shaughnessy
---------------------------------------
James P. O'Shaughnessy, President
Pursuant to the requirement of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/James P. O'Shaughnessy President (Chief Executive January 18, 2000
- ------------------------- Officer)
James P. O'Shaughnessy
/s/James P. O'Shaughnessy Treasurer (Chief Financial January 18, 2000
- ------------------------- and Accounting Officer)
James P. O'Shaughnessy
/s/C. Flemming Heilmann Director January 18, 2000
- -----------------------
C. Flemming Heilmann
/s/ Joseph John McAleer Director January 18, 2000
- -----------------------
Joseph John McAleer
/s/ Robert I. Ix Director January 18, 2000
- --------------------------
Robert E. Ix
<PAGE>
EXHIBITS
Exhibit Number Description
- -------------- -----------
99B.10.A Consent of PricewaterhouseCoopers
99B.10.B Consent of McGladrey & Pullen
99B.10.C Report of McGladrey & Pullen
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1a of our reports dated October 22, 1999, relating to the
financial statements and financial highlights which appear in the September 30,
1999 Annual Reports to Shareholders of O'Shaughnessy Dogs of the Market Fund,
O'Shaughnessy Aggressive Growth Fund, O'Shaughnessy Cornerstone Value Fund, and
O'Shaughnessy Cornerstone Growth Fund series of O'Shaughnessy Funds, Inc. which
are also incorporated by reference into the Registration Statement. We also
consent to the references to us under the headings "Financial Highlights",
"Counsel and Auditors" and "Financial Statements of the Fund" in such
Registration Statement.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
January 18, 2000
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated October 23, 1998 on the 1998 financial
statements of O'Shaughnessy Dogs of the Market Fund, O'Shaughnessy Aggressive
Growth Fund, Cornerstone Value Fund and the Cornerstone Growth Fund, which are
attached as an Exhibit to the Post Effective Amendment of the O'Shaughnessy
Funds, Inc. as filed with the Securities and Exchange Commission on Form N1-A.
/s/McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
New York, New York
January 18, 2000
INDEPENDENT AUDITOR'S REPORT
Board Of Directors and Shareholders
O'Shaughnessy Cornerstone Growth Fund
O'Shaughnessy Cornerstone Value Fund
O'Shaughnessy Dogs of the Market Fund
O'Shaughnessy Aggressive Growth Fund
We have audited the statements of changes in net assets and the financial
highlights for the year ended September 30, 1998 and for the period from
November 1, 1996 (commencement of operations) to September 30, 1997 of
O'Shaughnessy Cornerstone Growth Fund, O'Shaughnessy Cornerstone Value Fund,
O'Shaughnessy Dogs of the Market Fund, and O'Shaughnessy Aggressive Growth Fund.
These financial statements and financial highlights are the responsibility of
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the changes in net assets and
the financial highlights for the periods indicated of of O'Shaughnessy
Cornerstone Growth Fund, O'Shaughnessy Cornerstone Value Fund, O'Shaughnessy
Dogs of the Market Fund, and O'Shaughnessy Aggressive Growth Fund, in conformity
with generally accepted accounting principles.
/s/McGladrey & Pullen LLP
McGladrey & Pullen, LLP
New York, New York
October 23, 1998
