As Filed With the Securities and Exchange Commission On January 12, 2000
Securities Act File No. 333-91421
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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[X] PRE-EFFECTIVE AMENDMENT NO. 1 [ ] POST-EFFECTIVE AMENDMENT NO.
(Check appropriate box or boxes)
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O'SHAUGHNESSY FUNDS, INC.
(Exact Name of Registrant as Specified in its Charter)
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1-877-OSFUNDS
(Area Code and Telephone Number)
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35 Mason Street
Greenwich, Connecticut 06830
(Address of Principal Executive Offices:
Number, Street, City, State, Zip Code)
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James P. O'Shaughnessy
35 Mason Street
Greenwich, Connecticut 06830
(Name and Address of Agent for Service)
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COPIES TO:
COUNSEL FOR THE FUND: Steven J. Paggioli
Swidler Berlin Shereff Friedman, LLP Investment Company Administration, LLC
The Chrysler Building 915 Broadway
405 Lexington Avenue Suite 1605
New York, New York 10174 New York, New York 10010
Attention: Joel H. Goldberg, Esq.
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the Registration Statement becomes effective
under the Securities Act of 1933.
TITLE OF SECURITIES BEING REGISTERED:
Shares of Beneficial Interest, Par Value $.0001 per share.
No filing fee is required because of reliance on Section 24(f) under the
Investment Company Act of 1940, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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O'SHAUGHNESSY FUNDS, INC.
O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND
O'SHAUGHNESSY AGGRESSIVE GROWTH FUND
35 MASON STREET
GREENWICH, CONNECTICUT 06830
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NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
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TO BE HELD ON FEBRUARY 25, 2000
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that a joint special meeting of shareholders (the
"Meeting") of the O'Shaughnessy Dogs of the Market(TM) Fund (the "Dogs of the
Market Fund") and the O'Shaughnessy Aggressive Growth Fund (the "Aggressive
Growth Fund" and together with the Dogs of the Market Fund, the "Acquired
Funds") of O'Shaughnessy Funds, Inc. ("O'Shaughnessy Funds") will be held at the
Stamford Marriott, 2 Stamford Forum, Stamford, Connecticut, on February 25, 2000
at 4:00 p.m., Eastern Time, for the following purposes:
(1) With respect to the Dogs of the Market Fund, to approve or disapprove
an Agreement and Plan of Reorganization (the "Value Funds Agreement and Plan")
providing for the acquisition of substantially all of the assets, and assumption
of substantially all of the liabilities, of the Dogs of the Market Fund by the
O'Shaughnessy Cornerstone Value Fund (the "Cornerstone Value Fund") of
O'Shaughnessy Funds, solely in exchange for an equal aggregate value of
newly-issued shares of the Cornerstone Value Fund. The Value Funds Agreement and
Plan also provides for distribution of such shares of the Cornerstone Value Fund
to shareholders of the Dogs of the Market Fund in liquidation of the Dogs of the
Market Fund. A vote in favor of this proposal will constitute a vote in favor of
the liquidation of the Dogs of the Market Fund;
(2) With respect to the Aggressive Growth Fund, to approve or disapprove
an Agreement and Plan of Reorganization (the "Growth Funds Agreement and Plan")
providing for the acquisition of substantially all of the assets, and assumption
of substantially all of the liabilities, of the Aggressive Growth Fund by the
O'Shaughnessy Cornerstone Growth Fund (the "Cornerstone Growth Fund") of
O'Shaughnessy Funds, solely in exchange for an equal aggregate value of
newly-issued shares of the Cornerstone Growth Fund. The Growth Funds Agreement
and Plan also provides for distribution of such shares of the Cornerstone Growth
Fund to shareholders of the Aggressive Growth Fund in liquidation of the
Aggressive Growth Fund. A vote in favor of this proposal will constitute a vote
in favor of the liquidation of the Aggressive Growth Fund; and
(3) To transact such other business as properly may come before the
Meeting or any adjournment thereof.
The Board of Directors of O'Shaughnessy Funds has fixed the close of
business on January 5, 2000 as the record date for the determination of
shareholders entitled to notice of, and to vote at, the Meeting or any
adjournment thereof.
A complete list of the shareholders of each of the Acquired Funds entitled
to vote at the Meeting will be available and open to the examination of any
shareholders of each Acquired Fund for any purpose germane to such Meeting
during ordinary business hours from and after February 11, 2000 at the offices
of such Acquired Fund, 35 Mason Street, Greenwich, Connecticut and at the
Meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING IN PERSON ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ENCLOSED RESPECTIVE FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE
PROVIDED FOR THAT PURPOSE.
Each of the enclosed proxies is being solicited on behalf of the Board of
Directors of O'Shaughnessy Funds.
By Order of the Board of Directors,
Steven J. Paggioli
Secretary, O'Shaughnessy Funds, Inc.
Greenwich, Connecticut
Dated: January 12, 2000
O'SHAUGHNESSY FUNDS, INC.
35 MASON STREET
GREENWICH, CONNECTICUT 06830
1-877-OSFUNDS
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JOINT SPECIAL MEETING OF SHAREHOLDERS OF
O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND
AND
O'SHAUGHNESSY AGGRESSIVE GROWTH FUND
OF
O'SHAUGHNESSY FUNDS, INC.
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FEBRUARY 25, 2000
This Proxy Statement and Prospectus (this "Proxy Statement and
Prospectus") is furnished in connection with the solicitation of proxies on
behalf of the Board of Directors (the "Board of Directors") of O'Shaughnessy
Funds, Inc., a Maryland corporation ("O'Shaughnessy Funds"), for use at the
Joint Special Meeting of Shareholders (the "Meeting") of O'Shaughnessy Dogs of
the Market(TM) Fund (the "Dogs of the Market Fund" or an "Acquired Fund") and
O'Shaughnessy Aggressive Growth Fund (the "Aggressive Growth Fund" or an
"Acquired Fund," and together with the Dogs of the Market Fund, the "Acquired
Funds") of O'Shaughnessy Funds. The Meeting has been called to approve or
disapprove the proposed Agreement and Plan of Reorganization (each a "Plan" and
collectively, the "Plans") between each of the Acquired Funds and each other
fund of O'Shaughnessy Funds set forth below (each an "Acquiring Fund," and
collectively, the "Acquiring Funds"):
Acquired Fund Acquiring Fund
------------- --------------
Dogs of the Market Fund O'Shaughnessy Cornerstone Value Fund (the
"Cornerstone Value Fund," and together with the
Dogs of the Market Fund, the "Value Funds")
Aggressive Growth Fund O'Shaughnessy Cornerstone Growth Fund (the
"Cornerstone Growth Fund," and together with the
Aggressive Growth Fund, the "Growth Funds")
The Plan with respect to the Value Funds is sometimes referred to herein as the
"Value Funds Agreement and Plan" and the Plan with respect to the Growth Funds
is sometimes referred to herein as the "Growth Funds Agreement and Plan." Each
Plan provides for the acquisition by the respective Acquiring Fund of
substantially all of the assets, and assumption of substantially all of the
liabilities, of the respective Acquired Fund, solely in exchange for an equal
aggregate value of newly-issued shares of the respective Acquiring Fund. The
reorganization of the Value Funds and the Growth Funds shall be hereinafter
referred to as the "Value Funds Reorganization" and the "Growth Funds
Reorganization," respectively, and collectively such reorganizations shall be
referred to as the "Reorganizations," and individually as a "Reorganization."
Immediately upon the receipt by an Acquiring Fund of the assets of the
respective Acquired Fund and the assumption by such Acquiring Fund of the
liabilities of such Acquired Fund, and as part of the respective Reorganization,
such Acquired Fund will distribute the shares of the Acquiring Fund received in
such Reorganization to the shareholders of such Acquired Fund in liquidation
thereof.
Holders of shares of an Acquired Fund will receive shares of the
respective Acquiring Fund, which will be subject to the same management fees
(with respect to the Cornerstone Value Fund, the "Value Fund Corresponding
Shares," with respect to the Cornerstone Growth Fund, the "Growth Fund
Corresponding Shares," and collectively the "Corresponding Shares," as the
context requires), as the shares of such Acquired Fund. The aggregate net asset
value of the Corresponding Shares to be issued in a Reorganization to the
shareholders of an Acquired Fund will equal the aggregate net asset value of the
outstanding shares of such Acquired Fund, as set forth in the respective Plan.
The Acquired Funds and the Acquiring Funds sometimes are referred to herein
collectively as the "Funds" and individually as a "Fund," as the context
requires. The Acquiring Funds following the Reorganizations sometimes are
referred to herein collectively as the "Combined Funds" and individually as the
"Pro Forma Cornerstone Value Fund" or "Value Combined Fund" in the case of the
Cornerstone GrowthValue Fund and the "Pro Forma Cornerstone Growth Fund" or
"Growth Combined Fund" in the case of the Cornerstone Growth Fund.
This Proxy Statement and Prospectus serves as a prospectus of
O'Shaughnessy Funds under the Securities Act of 1933, as amended (the
"Securities Act"), in connection with the issuance of the Corresponding Shares
by the Acquiring Funds to the Acquired
Funds pursuant to the terms of the Reorganizations.
The Dogs of the Market Fund, the Aggressive Growth Fund, the Cornerstone
Value Fund and the Cornerstone Growth Fund are separate series of O'Shaughnessy
Funds, a diversified, open-end management investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act").
Both the Dogs of the Market Fund and the Cornerstone Value Fund seek to provide
their respective shareholders with total return, consisting of capital
appreciation and current income. They both seek to achieve their investment
objective through a process of Strategy Indexing(R) which is pursued through the
implementation of an investment strategy developed by O'Shaughnessy Capital
Management, Inc., the Funds' investment manager (the "Manager"). For more
information regarding the process of Strategy Indexing(R), see "Summary -- The
Funds -- Comparison of the Funds --Value Funds -- Investment Policies --
Strategies" and "-- How Each Strategy Works." Both Value Funds invest
substantially all of their
respective assets in common stocks selected through this strategy. The
Aggressive Growth Fund and the Cornerstone Growth Fund seek to provide their
respective shareholders with capital appreciation and long-term growth of
capital, respectively. The Aggressive Growth Fund seeks to achieve its
investment objective through implementation of proprietary aggressive growth
models developed by the Manager. For more information relating to such
proprietary aggressive growth models, see "Summary -- The Funds --Comparison of
the Funds -- Growth Funds -- Investment Policies -- Strategies." The Cornerstone
Growth Fund also seeks to achieve its investment objective through a process of
Strategy Indexing(R). See "Summary -- The Funds --Comparison of the Funds --
Growth Funds -- Investment Policies -- Strategies" and "-- How each Strategy
Works." There can be no assurance that, after the Reorganizations, the Combined
Funds will achieve their respective investment objectives.
The current prospectus relating to the Acquiring Funds, dated November 28,
1998, as supplemented (the "Acquiring Funds Prospectus"), accompany this Proxy
Statement and Prospectus and are incorporated herein by reference. The Annual
Reports to Shareholders of the Acquiring Funds for the year ended September 30,
1999 also accompany this Proxy Statement and Prospectus. The current
prospectuses relating to the Acquired Funds, each dated November 28, 1998, as
supplemented (the "Acquired Funds Prospectuses," and together with the Acquiring
Funds Prospectus, the "O'Shaughnessy Funds Prospectuses") (which Acquired Funds
Prospectuses are also incorporated herein by reference) and a statement of
additional information relating to the Funds, dated November 28, 1998 (the
"O'Shaughnessy Funds Statement"), have been filed with the Securities and
Exchange Commission (the "Commission"). Such documents may be obtained, without
charge, by writing the Funds at the address above, or by calling toll-free
1-877-OSFUNDS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT AND PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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This Proxy Statement and Prospectus sets forth concisely the information
about the Acquiring Funds that shareholders of the respective Acquired Fund
should know before considering the applicable Reorganization and should be
retained for future reference. The Acquired Funds have authorized the
solicitation of proxies in connection with the Reorganizations solely on the
basis of this Proxy Statement and Prospectus and the accompanying documents.
Additional information contained in a statement of additional information
relating to the Reorganizations (the "Statement of Additional Information"),
including pro forma financial statements of the Pro Forma Cornerstone Value Fund
giving effect to the consummation of the Value Funds Reorganization, is on file
with the Commission. The Statement of Additional Information is available from
the Funds without charge, upon request by calling the toll free telephone number
set forth above or by writing the Funds at their principal executive offices.
The Statement of Additional Information, dated January 12, 2000 is incorporated
by reference into this Proxy Statement and Prospectus.
The Commission maintains a web site (http://www.sec.gov) that contains the
Statement of Additional Information, the O'Shaughnessy Funds Prospectuses, the
O'Shaughnessy Funds Statement, other material incorporated by reference and
other information regarding the Funds.
The address of the principal executive offices of the Funds is 35 Mason
Street, Greenwich, Connecticut 06830, the telephone number is 1-877-OSFUNDS and
the web address is http://www.osfunds.com.
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THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS January 12, 2000.
TABLE OF CONTENTS
Page
----
INTRODUCTION -3-
SUMMARY -4-
The Reorganizations -4-
Fee Tables -6-
The Funds -9-
PRINCIPAL RISK FACTORS AND SPECIAL CONSIDERATIONS -24-
Value Funds -24-
Growth Funds -24-
All Funds -25-
COMPARISON OF THE FUNDS -26-
Financial Highlights -26-
Management -29-
Expenses -31-
Purchase, Exchange and Redemption of Shares -32-
Performance -32-
Shareholder Rights -33-
Dividends -33-
Tax Information -33-
Transactions -33-
Portfolio Turnover -33-
Additional Information -34-
THE REORGANIZATIONS -35-
General -35-
Terms of the Plans -36-
Potential Benefits to Shareholders as a Result of the Reorganizations -37-
Federal Income Tax Consequences of the Reorganizations -38-
Capitalization -39-
INFORMATION CONCERNING THE MEETING -40-
Date, Time and Place of Meeting -40-
Solicitation, Revocation and Use of Proxies -40-
Record Date and Outstanding Shares -41-
Security Ownership of Certain Beneficial Owners and Management
of the Funds -41-
Voting Rights and Required Vote -42-
ADDITIONAL INFORMATION -43-
LEGAL PROCEEDINGS -43-
LEGAL OPINIONS -44-
EXPERTS -44-
SHAREHOLDER PROPOSALS -44-
-2-
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors for use at the
Meeting to be held at the Stamford Marriott, 2 Stamford Forum, Stamford,
Connecticut on February 25, 2000, at 4:00 p.m., Eastern Time. The mailing
address for the Acquired Funds is 35 Mason Street, Greenwich, Connecticut 06830.
The approximate mailing date of this Proxy Statement and Prospectus is January
21, 2000.
Any person giving a proxy may revoke it at any time prior to its exercise
by executing a superseding proxy, by giving written notice of the revocation to
the Secretary of the Acquired Fund of which such person is a shareholder at the
address indicated above or by voting in person at the Meeting of shareholders of
such Acquired Fund. All properly executed proxies received prior to a Meeting
will be voted at such Meeting in accordance with the instructions marked thereon
or otherwise as provided therein. Unless instructions to the contrary are
marked, properly executed proxies will be voted "FOR" the proposal to approve
the Plans.
The Board of Directors has fixed the close of business on January 5, 2000
as the record date for the determination of shareholders entitled to notice of,
and to vote at, the Meeting or any adjournment thereof. Approval of the Plans
will require the affirmative vote of shareholders of the applicable Acquired
Fund representing not less than a majority of the total number of votes entitled
to be cast thereon. Shareholders of each Acquired Fund will vote as a single
class on the proposal to approve the Plan of such Acquired Fund. Approval of the
Plan with respect to one Acquired Fund is not dependent on approval of the Plan
with respect to the other Acquired Fund. Properly executed proxies that are
returned but that are marked "abstain" or with respect to which a broker-dealer
has declined to vote on any proposal ("broker non-votes") are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. Because they are not votes in favor of the proposal, they have the
effect of a negative vote. Each share of an Acquired Fund is entitled to one
vote. See "Information Concerning the Meeting."
The Board of Directors currently knows of no business other than that
discussed above that will be presented for consideration at the Meeting. If any
other matter is properly presented, it is the intention of the persons named in
the enclosed proxy to vote in accordance with their best judgment.
-3-
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT AND PROSPECTUS (INCLUDING DOCUMENTS INCORPORATED BY
REFERENCE) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE COMPLETE
INFORMATION CONTAINED IN THIS PROXY STATEMENT AND PROSPECTUS AND IN THE PLANS,
ATTACHED HERETO AS EXHIBIT I.
IN THIS PROXY STATEMENT AND PROSPECTUS, THE TERM "VALUE FUNDS
REORGANIZATION" REFERS TO (I) THE ACQUISITION OF SUBSTANTIALLY ALL OF THE
ASSETS, AND ASSUMPTION OF SUBSTANTIALLY ALL OF THE LIABILITIES, OF THE DOGS OF
THE MARKET FUND BY THE CORNERSTONE VALUE FUND SOLELY IN EXCHANGE FOR AN EQUAL
AGGREGATE VALUE OF THE VALUE FUND CORRESPONDING SHARES, AND (II) THE SUBSEQUENT
DISTRIBUTION OF SUCH CORRESPONDING SHARES TO THE SHAREHOLDERS OF THE DOGS OF THE
MARKET FUND IN LIQUIDATION THEREOF AND (III) THE SUBSEQUENT TERMINATION OF THE
EXISTENCE OF THE DOGS OF THE MARKET FUND; and the term "Growth Fund
Reorganization" refers to (i) the acquisition of substantially all of the
assets, and assumption of substantially all of the liabilities, of the
Aggressive Growth Fund by the Cornerstone Growth fund solely in exchange for an
equal aggregate value of the Growth Fund Corresponding Shares, and (ii) the
subsequent distribution of such Corresponding Shares to the shareholders of the
Aggressive Growth Fund in liquidation thereof. The Value Funds Reorganization
and the Growth Funds Reorganization are sometimes referred to collectively
herein as the "Reorganizations" and individually as a "Reorganization."
THE REORGANIZATIONS
At a meeting of the Board of Directors held on October 18, 1999, the Board
of Directors unanimously approved a proposal that each Acquiring Fund acquire
substantially all of the assets, and assume substantially all of the
liabilities, of the respective Acquired Fund solely in exchange for an equal
aggregate value of such Acquiring Fund's Corresponding Shares to be distributed
to the shareholders of such Acquired Fund. In addition, the Growth Funds
Reorganization was unanimously re-approved at a meeting of the Board of
Directors held on December 30, 1999.
Based upon their evaluation of all relevant information, Fund management
and the Board of Directors have determined that the Reorganizations will
potentially benefit the shareholders of the Acquired Funds. First, following the
Reorganizations, shareholders of an Acquired Fund will remain invested in a
diversified open-end fund which has the same Manager, substantially the same
investment objective and similar, though not identical, investment techniques. A
second advantage to shareholders relates to the potential for reduced operating
expenses due to economies of scale. The net assets of the Cornerstone Value Fund
and Cornerstone Growth Fund as of September 30, 1999 were $26,305,050 and
$120,772,225, respectively. These would increase by the amount of the net assets
of each of the Acquired Funds at the time of the Reorganizations. As of
September 30, 1999, those amounts were approximately $17,721,091 in the case of
the Dogs of the Market Fund and $12,069,000$12,244,928 in the case of the
Aggressive Growth Fund. Since the expenses of the Combined Funds will therefore
be spread over a larger asset base, Fund management anticipates that all Funds
are likely to benefit from reduced overall operating expenses (on a pro forma
basis) over time as a result of economies of scale expected after the
Reorganizations. See " -- Fee Tables"; "The Reorganizations -- Potential
Benefits to Shareholders as a Result of the Reorganizations" and "Comparison of
the Funds -- Expenses."
The Board of Directors, including all of the directors who are not
"interested persons," as defined in the Investment Company Act, has determined
that the Value Funds Reorganization and Growth Funds Reorganization are in the
best interests of the Dogs of the Market Fund and the Aggressive Growth Fund,
respectively. In addition, since the Corresponding Shares of each Acquiring Fund
will be issued at net asset value in exchange for the net assets of the
respective Acquired Fund having a value equal to the aggregate net asset value
of the shares of the respective Acquired Fund outstanding as of the Valuation
Time (as defined herein), the net asset value per share of the respective
Acquiring Fund should remain virtually unchanged solely as a result of the
respective Reorganization. Thus, the Reorganizations should not result in
dilution of net asset value of the Acquiring Funds immediately following
consummation of the Reorganizations. However, as a result of the
Reorganizations, a shareholder of an Acquired Fund would hold a smaller
percentage of ownership in the respective Acquiring Fund than he or she did in
that Acquired Fund prior to the respective Reorganization.
If all of the requisite approvals are obtained and certain conditions are
either met or waived, it is anticipated that the Reorganizations will occur as
soon as practicable thereafter, provided that the Funds have
obtained prior to that time an opinion
of counsel concerning the tax consequences of the Reorganizations as set forth
in the Plans. The Plans may be terminated, and the Reorganizations abandoned,
whether before or after the requisite approval by the shareholders of the
Acquired Funds, at any time prior to the Exchange Date (as defined herein), (i)
by the Board of Directors; (ii) by an Acquired Fund if any condition to such
Acquired Fund's obligations has not been fulfilled or waived; or (iii) by an
Acquiring Fund if any condition to such Acquiring Fund's obligations has not
been fulfilled or waived.
-4-
FEE TABLES
Actual and Pro Forma Fee Table for Shareholders of the Cornerstone Value
Fund, the Dogs of the Market Fund, the Pro Forma Cornerstone Value Fund, the
Cornerstone Growth Fund, the Aggressive Growth Fund and the Pro Forma
Cornerstone Growth Fund, each as of September 30, 1999
ACTUAL ACTUAL
------------------------- --------------------------
PRO FORMA PRO FORMA
CORNERSTONE DOGS OF THE CORNERSTONE CORNERSTONE AGGRESSIVE CORNERSTONE
VALUE FUND MARKET FUND VALUE FUND GROWTH FUND GROWTH FUND GROWTH FUND
---------- ----------- ---------- ----------- ----------- -----------
SHAREHOLDER FEES:*
Maximum Sales Charge (Load) Imposed
on Purchases
(as a percentage of offering price)....... None None None None None None
Maximum Sales Charge (Load)
Imposed on Dividend Reinvestment......... None None None None None None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase
price or redemption proceeds,
whichever is lower)...................... None None None None None None
Redemption Fee (a) (on shares held
less than 90 days)....................... 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%
Exchange Fee (a)(b) (on shares held
less than 90 days)....................... 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS):
Management Fees(c)...................... 0.74% 0.74% (d) 0.74% 0.74% 0.74% (d) 0.74%
Rule 12b-1 Fees......................... None None None None None None
Other Expenses.......................... 0.64% 0.35% (d) 0.51% 0.41% 1.23% (d) 0.41%
Total Fund Operating Expenses............. 1.38% 1.09% (d) 1.25% 1.15% 1.97% (d) 1.15%
-3-
- ------------------
(a) A 1.5% redemption fee payable to the Funds will be assessed on shares
purchased and held for less than 90 days. Shareholders who effect
redemptions of Fund shares by wire transfer will pay a $12.00 wire transfer
fee. See "Information About Your Account--Redemption of Shares" in the
O'Shaughnessy Funds Prospectuses.
(b) Shareholders who effect exchanges of shares of a Fund for shares of another
Fund by telephone in accordance with the exchange privilege will be charged
a $5.00 exchange fee in addition to any fees applicable as indicated in
footnote (a). See "Information About Your Account--Exchange Privilege" in
the O'Shaughnessy Funds Prospectuses.
(c) See "Management and Organization of the Fund -- Management" in the
O'Shaughnessy Funds Prospectuses.
(d) To limit the Fund's expenses, the Manager voluntarily agreed to reduce its
fees or reimburse such Fund through September 30, 1999 to ensure that the
total operating expenses of the Dogs of the Market Fund and the Aggressive
Growth Fund did not exceed 1.09% and 2.00%, respectively, of average net
assets annually (the "expense cap"). Any such reductions made by the
Manager in its fees or reimbursement of expenses with respect to such Fund
are subject to reimbursement by such Fund to the Manager (recapture by the
Manager), provided such Fund is able to effect such reimbursement while
keeping total operating expenses at or below the annual expense cap, and
that no reimbursement will be made after September 30, 2000. Any amounts
reimbursed will have the effect of increasing fees otherwise paid by such
Fund. In absence of any reimbursements, the overall operating expenses, as
a percent of net assets, for the Dogs of the Market Fund and Aggressive
Growth Fund would have been 1.50% and 2.23%, respectively, for the fiscal
period ended September 30, 1999.
-4-
These examples are intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds.
EXAMPLES:
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
An investor would pay the following expenses on a
$10,000 investment and assuming (1) the Total Fund
Operating Expenses set forth in the table above for the
relevant Fund, (2) a 5% annual return throughout the
period and (3) redemption at the end of the period:
Cornerstone Value Fund ........................................ 140 436 753 1,652
Dogs of the Market Fund(a) .................................... 111 346 600 1,325
Pro Forma Cornerstone Value Fund* ............................. 127 396 685 1,506
Cornerstone Growth Fund ....................................... 117 365 632 1,393
Aggressive Growth Fund (b) .................................... 199 617 1,059 2,286
Pro Forma Cornerstone Growth Fund* ............................ 117 365 632 1,393
- ----------
* Assuming the Reorganization had taken place on October 1, 1998.
(a) Absent certain fee reductions and reimbursements by the Manager of the
expenses of the Dogs of the Market Fund, such cumulative expenses that an
investor in that Fund would pay for the period of one year, three years,
five years and ten years would be $152, $473, $816 and $1,784,
respectively.
(b) Absent certain fee reductions and reimbursements by the Manager of the
expenses of the Aggressive Growth Fund, such cumulative expenses that an
investor in that Fund would pay for the period of one year, three years,
five years and ten years would be $225, $695, $1,191 and $2,552,
respectively.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder bears directly or indirectly as compared
to the costs and expenses that would be borne by such investors on a pro forma
basis taking into account the consummation of the Reorganizations. The Examples
set forth above assume reinvestment of all dividends and distributions and
utilize a 5% annual rate of return as mandated by Commission regulations. THE
EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
ANNUAL RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLES. See "The
Reorganizations -- Potential Benefits to Shareholders as a Result of the
Reorganizations," "Comparison of the Funds -- Management,", and "-- Purchase,
Exchange and Redemption of Shares."
-6-
THE FUNDS
BUSINESS OF THE FUNDS ............. The Funds are organized as separate
investment portfolios or series of
O'Shaughnessy Funds, a Maryland
corporation, which was incorporated on May
20, 1996. Each of the Funds commenced
operations on November 1, 1996.
As of September 30, 1999, the net assets
of the Funds were as follows:
Dogs of the Market Fund $17,721,091
Cornerstone Value Fund $26,305,050
Aggressive Growth Fund $12,244,928
Cornerstone Growth Fund $120,772,225
COMPARISON OF THE FUNDS ........... VALUE FUNDS
INVESTMENT OBJECTIVES
Both the Dogs of the Market Fund and the
Cornerstone Value Fund seek to provide
their respective shareholders with total
return, consisting of capital appreciation
and current income.
INVESTMENT POLICIES
GENERAL. Each of the Value Funds seeks to
achieve its investment objective through a
process of Strategy Indexing(R), which is
pursued through the implementation of an
investment strategy developed by the
Manager. For more information regarding
the process of Strategy Indexing(R), see
"-- Strategies" and "-- How Each Strategy
Works" below. There can be no assurance
that, after the Value Funds
Reorganization, the Pro Forma Cornerstone
Value Fund will achieve its investment
objectives.
STRATEGIES. The Dogs of the Market Fund
seeks to achieve its objective through a
process of Strategy Indexing(R), which is
pursued through implementation of the Dogs
of the Market Strategy. The Dogs of the
Market Strategy entails the selection of
30 common stocks from the Dow Jones
Industrial Average(1) and the S&P 400
Industrial Average using the following
criteria:
1. Ten stocks in the Fund's portfolio will
be the highest yielding stocks from Dow
Jones.
- ----------
(1) "Dow Jones Industrial Average" is a trademark of Dow Jones & Company, Inc.
("Dow Jones"). Neither the Funds nor the Manager is affiliated with, nor are
the Funds sponsored by, Dow Jones. Dow Jones has not participated in any way
in the creation of the Funds or in the selection of stocks included in the
Funds, nor has Dow Jones reviewed or approved any information included in
this Proxy Statement Prospectus.
-7-
2. Twenty stocks will be the highest
yielding stocks from the S&P 400
Industrial Average that also have (a)
market capitalization exceeding $1 billion
and (b) an issue of common stock
outstanding rated A or higher by Standard
& Poor's.
The Cornerstone Value Fund seeks to
achieve its investment objective through a
process of Strategy Indexing(R), which is
pursued through the implementation of 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 as
of the Re-Balance Date (as defined below).
See "-- How Each Strategy Works" below.
The O'Shaughnessy Market Leaders
Universe(TM) consists of those domestic
and foreign stocks in the Standard &
Poor's Compustat ("S&P Compustat")
database (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 fifty percent 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'Shaughnessy Market
Leaders Universe(TM) consists of the
stocks of 399 issuers.
Other than assets temporarily maintained
in cash or liquid short- term securities
pending investment to meet redemption
requests or to comply with federal tax
laws applicable to mutual funds, each of
the Dogs of the Market Fund and the
Cornerstone Value Fund will invest
substantially all of its assets in common
stocks selected through its respective
Strategy described above.
HOW EACH STRATEGY WORKS. Upon
implementation of the Dogs of the Market
Strategy, the Manager purchased 30 stocks
for the Dogs of the Market Fund as
dictated by such Strategy, based on
information as of that date. The Fund's
holdings of each stock in its portfolio
were initially weighted equally by dollar
amount. Thereafter, the Manager has
re-balanced the portfolio of the Fund
annually in the first month of the
succeeding year (the "Re-Balance Date"),
in accordance with the Fund's Strategy,
based on information on or about the
immediately preceding December 31. That
is, on the Re-Balance Date of each year,
stocks meeting the Dogs of the Market
Strategy's criteria on or about the
immediately preceding December 31 are
purchased for the Fund to the extent not
then held, stocks which no longer meet the
criteria as of such date are sold, and the
holdings of all stocks in the Fund that
continue to meet the criteria are
appropriately increased or decreased to
result in equal weighting of all stocks in
the portfolio.
-8-
Upon commencement of operations of the
Cornerstone Value Fund, the Manager
purchased 50 stocks for that Fund as
dictated by its Strategy, based on
information as of commencement of
operations of the Fund. The Cornerstone
Value Fund's holdings of each stock in its
portfolio were initially weighted equally
by dollar amount. Thereafter, the Manager
has re-balanced (and will in the future
re-balance) the portfolio of the
Cornerstone Value Fund on the Re-Balance
Date, in accordance with such Fund's
Strategy, based on information on or about
the immediately preceding December 31.
That is, on the Re-Balance Date of each
year, stocks meeting the Cornerstone Value
Strategy's criteria on or about the
immediately preceding December 31 are
purchased for the Cornerstone Value Fund
to the extent not then held, stocks which
no longer meet the criteria as of such
date are sold, and the holdings of all
stocks in the Cornerstone Value Fund that
continue to meet the criteria are
appropriately increased or decreased to
result in equal weighting of all stocks in
the portfolio.
When the Dogs of the Market Fund or the
Cornerstone Value 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 stocks selected
for such Fund pursuant to its respective
Strategy as of the most recent rebalancing
of the Fund's portfolio, in proportion to
the current weightings of such stocks in
the portfolio and without any intention to
rebalance the portfolio on an interim
basis. It is anticipated that such
purchases will generally be made on a
weekly basis, but may be on a more or less
frequent basis in the discretion of the
Manager, depending on certain factors,
including the size of the Fund and the
amount of cash to be invested. To the
extent redemptions exceed new cash flow
into a Fund, such 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
Fund's Strategy criteria.
Each of the Dogs of the Market Fund and
Cornerstone Value Fund offers a
disciplined approach to investing, based
on a buy and hold philosophy over the
course of each year, which ignores market
timing and rejects active management. Each
of the Dogs of the Market Fund and
Cornerstone Value Fund will adhere to its
respective Strategy regardless of the
performance of the stock market in a
particular period.
The Manager anticipates that the stocks
held in the portfolio of each of the Dogs
of the Market Fund and Cornerstone Value
Fund 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 factual criteria that form the
basis for selecting a security are false
or incorrect, the Manager reserves the
right to replace such a security with
-9-
another meeting the criteria of the
applicable Strategy. Also, due to
purchases and redemptions of Fund shares
during the year, changes in the market
value of the stock positions held in a
Fund's portfolio and compliance with the
federal tax laws, it is likely that stock
positions will not be weighted equally at
all times during a year.
Each of the Dogs of the Market Fund and
Cornerstone Value Fund will be
substantially fully invested in stocks
selected as described above at all times.
Because the Cornerstone Value Fund adheres
to a disciplined Strategy and invests only
in the stocks selected through its
Strategy, it is anticipated that as soon
as practicable after the completion of the
Value Funds Reorganization, the Value
Combined Fund will be required to
liquidate a substantial portion of the
assets acquired from the Dogs of the
Market Fund. Such a liquidation will
entail transaction costs and may result in
tax consequences to shareholders. See "The
Reorganizations -- Federal Income Tax
Consequences of the Reorganizations."
However, following the Value Funds
Reorganization, shareholders of the Dogs
of the Market Fund will remain invested in
a diversified fund which has the same
Manager, substantially the same investment
objective and similar, though not
identical, investment techniques. See "The
Reorganizations--Potential Benefits to
Shareholders as a Result of the
Reorganizations."
CASH AND SHORT-TERM SECURITIES. Each of
the Value Funds may temporarily invest a
portion of its total assets in cash or
liquid short-term securities pending
investment of such assets in stocks in
accordance with the Fund's investment
strategy, to meet redemption requests, and
in the case of the Cornerstone Value Fund,
to the extent necessary to comply with the
federal tax laws applicable to regulated
investment companies. Unlike the
Cornerstone Value Fund, which will not use
investments in cash and short-term
securities for temporary defensive
purposes, the Dogs of the Market Fund may
invest a portion of its assets in cash or
liquid short-term securities for such
purposes, but is under no obligation to do
so.
Short-term securities in which the Value
Funds may invest include certificates of
deposit, commercial paper, notes,
obligations issued or guaranteed by the
U.S. Government or any of its agencies or
instrumentalities, and repurchase
agreements involving such securities. See
"-- All Funds -- Investment Policies --
Repurchase Agreements," below.
The Manager does not expect assets
invested in cash or liquid short-term
securities to exceed 5% of a Value Fund's
total assets at any time.
-10-
ILLIQUID SECURITIES. The Dogs of the
Market Fund may invest up to 15% of its
assets in illiquid securities. Illiquid
securities are securities which cannot be
readily resold because of legal or
contractual restrictions or which cannot
otherwise be marketed, redeemed, put to
the issuer or a third party, which do not
mature within seven days, or which the
Manager, in accordance with guidelines
approved by the Board of Directors, has
not determined to be liquid. The
Cornerstone Value Fund will not invest in
illiquid securities.
The Dogs of the Market Fund may purchase,
without regard to the above limitation,
securities that are not registered under
the Securities Act but that can be offered
and sold to "qualified institutional
buyers" under Rule 144A under the
Securities Act, provided that the Board of
Directors or the Manager pursuant to
guidelines adopted by the Board of
Directors, continuously determines, based
on the trading markets for the specific
Rule 144A security, that it is liquid.
INDUSTRY CONCENTRATION. Each Value Fund
may not invest more than 25% of its total
assets in any one industry (excluding U.S.
Government securities). The concentration
policy is a fundamental policy.
If upon rebalancing, the stocks selected
by a Value Fund's investment strategy
would result in more than 25% of such
Fund's total assets being invested in a
single industry, the Manager will be
required to deviate from such investment
strategy in investing the portfolio so as
not to violate such Fund's concentration
policy.
FOREIGN SECURITIES. The Value Funds may
invest in securities of foreign issuers.
The Dogs of the Market Fund may invest up
to 25% of its total assets in such
securities, while the Cornerstone Value
Fund is not limited in the amount of
foreign securities that it may invest in.
The Value Funds may invest in foreign
securities either through (i) direct
purchase of securities of foreign issuers
or (ii) purchase of ADRs, which are
dollar-denominated securities of foreign
issuers traded in the U.S. Such
investments increase diversification of a
Fund's portfolio and may enhance return,
but they also involve some special risks
such as exposure to potentially adverse
local political and economic developments,
nationalization and exchange controls;
potentially lower liquidity and higher
volatility; possible problems arising from
regulatory practices that differ from U.S.
standards; the imposition of withholding
taxes on income from such securities;
confiscating taxation; and the chance that
fluctuations in foreign exchange rates
will decrease the investment's value
(favorable changes can increase its
value). These risks are heightened for
investment in developing countries and
there is no limit on the amount of a
Fund's foreign investments that may be
invested in such countries.
-11-
The Value Funds may invest in ADRs through
both sponsored and unsponsored
arrangements. The issuers of unsponsored
ADRs are not obligated to disclose
material information in the United States,
and therefore, there may not be a
correlation between such information and
the market value of the ADRs.
WARRANTS. The Dogs of the Market Fund may
invest in warrants. Warrants are similar
to options to purchase securities at a
specific price valid for a specific period
of time. The Dogs of the Market Fund may
not invest more than 5% of its net assets
(at the time of investment) in warrants
(other than those attached to other
securities). If the market price of the
underlying security never exceeds the
exercise price, the Dogs of the Market
Fund will lose the entire investment in
the warrant. Moreover, if a warrant is not
exercised within the specified time
period, it will become worthless and the
Dogs of the Market Fund will lose the
purchase price and the right to purchase
the underlying security. The Cornerstone
Value Fund does not currently intend to
invest in warrants.
GROWTH FUNDS
INVESTMENT OBJECTIVES
The Cornerstone Growth Fund and the
Aggressive Growth Fund seek to provide
their respective shareholders with
long-term growth of capital and capital
appreciation, respectively.
INVESTMENT POLICIES
GENERAL. The Cornerstone Growth Fund seeks
to achieve its investment objective
through a process of Strategy Indexing(R)
which is pursued through the
implementation of an investment strategy
developed by the Manager. For more
information regarding the process of
Strategy Indexing(R), see "-- Strategies"
and "-- How Each Strategy Works" below.
The Aggressive Growth Fund seeks to
achieve its investment objective through
implementation of proprietary aggressive
growth models developed by the Manager.
For more information relating to such
proprietary aggressive growth models, see
"-- Strategies" below. There can be no
assurance that, after the Growth Funds
Reorganization, the Pro Forma Cornerstone
Growth Fund will achieve its investment
objectives.
STRATEGIES. The Cornerstone Growth Fund
seeks to achieve its investment objective
through a process of Strategy Indexing(R),
which is pursued through the
implementation of the Cornerstone Growth
Strategy. The Cornerstone Growth Strategy
selects the 50 stocks with the highest
one-year price appreciation as of the date
of purchase from the O'Shaughnessy All
Stocks Universe(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, and
(iii) historical trading volume sufficient
to allow for the Fund to purchase the
-12-
required number of shares as of 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 month sales. See "--How Each
Strategy Works" below.
The O'Shaughnessy All Stocks Universe(TM)
consists of all the domestic and foreign
common stocks in the COMPUSTAT(R) Database
with market capitalizations exceeding $172
million. Currently, the COMPUSTAT(R)
Database consists of the stocks (including
American Depository Receipts ("ADRs")) of
9,778 issuers, and the O'Shaughnessy All
Stocks Universe(TM) consists of the stocks
of 3,869 issuers.
The Aggressive Growth Fund seeks to
achieve its objective through the
implementation of proprietary aggressive
growth models developed by the Manager.
The Fund's portfolio will generally
consist of approximately 45 stocks,
selected through implementation of the
Manager's proprietary aggressive growth
models. At the time of purchase, such
stocks will generally possess the
following characteristics:
1. a market capitalization in excess of
$150 million;
2. outstanding price performance during
the last six months or one year period
prior to purchase;
3. high earnings gains during the one
year period prior to purchase; and
expected high future earnings gains in
the general consensus of market
analysts.
It is expected that the proprietary
aggressive growth models used by the
Manager in selecting stocks for the
Aggressive Growth Fund's portfolio will
select stocks for investment without
regard to capitalization, except that the
issuers must have market capitalizations
in excess of $150 million. The majority of
these stocks will be common stocks of
domestic corporations and ADRs.
The Manager may invest the Aggressive
Growth Fund's assets in stocks which do
not meet all of the above criteria, if, in
the opinion of the Manager, such stocks
possess characteristics similar to stocks
meeting such criteria. In addition, the
Manager may continue to hold a stock in
the Aggressive Growth Fund's portfolio
which no longer meets the initial criteria
for investment if the Manager believes
such investments are consistent with the
Fund's investment objective.
Other than assets temporarily maintained
in cash or liquid short-term securities
pending investment to meet redemption
requests or to comply with federal tax
laws applicable to mutual funds, the
Cornerstone Growth Fund will invest
substantially all of its assets in common
stocks selected through its respective
Strategy described above.
HOW EACH STRATEGY WORKS. Upon commencement
of operations of the Cornerstone Growth
Fund, the Manager purchased 50 stocks for
that Fund as dictated by its Strategy,
based on information as of the
-13-
commencement of operations of the Fund.
The Cornerstone Growth Fund's holdings of
each stock in its portfolio were initially
weighted equally by dollar amount.
Thereafter, the Manager has re-balanced
(and will in the future re-balance) the
portfolio of the Cornerstone Growth Fund
on the Re-Balance Date, in accordance with
the Fund's Strategy, based on information
on or about the immediately preceding
December 31. That is, on the Re-Balance
Date of each year, stocks meeting the
Cornerstone Growth Strategy's criteria on
or about the immediately preceding
December 31 are purchased for the
Cornerstone Growth Fund to the extent not
then held, stocks which no longer meet the
criteria as of such date are sold, and the
holdings of all stocks in the Cornerstone
Growth Fund that continue to meet the
criteria are appropriately increased or
decreased to result in equal weighting of
all stocks in the portfolio.
When the Cornerstone Growth 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 stocks
selected for the Cornerstone Growth Fund
pursuant to its Strategy as of the most
recent rebalancing of the Fund's
portfolio, in proportion to the current
weightings of such stocks in the portfolio
and without any intention to rebalance the
portfolio on an interim basis. It is
anticipated that such purchases will
generally be made on a weekly basis, but
may be on a more or less frequent basis in
the discretion of the Manager, depending
on certain factors, including the size of
the Fund and the amount of cash to be
invested. To the extent redemptions exceed
new cash flow into the Cornerstone Growth
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
Fund's Strategy criteria.
Unlike the Aggressive Growth Fund, which
utilizes an actively managed stock
selection approach, the Cornerstone Growth
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 Cornerstone Growth
Fund will adhere to its Strategy
regardless of the performance of the stock
market in a particular period.
The Manager anticipates that the stocks
held in the portfolio of the Cornerstone
Growth Fund 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 factual criteria 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 Cornerstone Growth Strategy. Also,
due to purchases and redemptions of Fund
-14-
shares during the year, changes in the
market value of the stock positions held
in the Cornerstone Growth Fund's portfolio
and compliance with the federal tax laws,
it is likely that stock positions will not
be weighted equally at all times during a
year.
The Cornerstone Growth Fund will be
substantially fully invested in stocks
selected as described above at all times.
Because the Cornerstone Growth Fund
adheres to a disciplined Strategy and
invests only in the stocks selected
through its Strategy, it is anticipated
that as soon as practicable after the
completion of the Growth Funds
Reorganization, the Growth Combined Fund
will be required to liquidate a
substantial portion of the assets acquired
from the Aggressive Growth Fund. Such a
liquidation will entail transaction costs
and may result in tax consequences to
shareholders. See "The Reorganizations --
Federal Income Tax Consequences of the
Reorganizations." However, following the
Growth Funds Reorganization, shareholders
of the Aggressive Growth Fund will remain
invested in a diversified fund which has
the same Manager, substantially the same
investment objective and similar, though
not identical, investment techniques. See
"The Reorganizations--Potential Benefits
to Shareholders as a Result of the
Reorganizations."
CASH AND SHORT-TERM SECURITIES. Each of
the Growth Funds may temporarily invest a
portion of its total assets in cash or
liquid short-term securities pending
investment of such assets in stocks in
accordance with the Fund's investment
strategy, to meet redemption requests, and
in the case of the Cornerstone Growth
Fund, to the extent necessary to comply
with the federal tax laws applicable to
regulated investment companies. Unlike the
Cornerstone Growth Fund, which will not
use investments in cash and short-term
securities for temporary defensive
purposes, the Aggressive Growth Fund may
invest a portion of its assets in cash or
liquid short-term securities for such
purposes, but are under no obligation to
do so.
Short-term securities in which the Growth
Funds may invest include certificates of
deposit, commercial paper, notes,
obligations issued or guaranteed by the
U.S. Government or any of its agencies or
instrumentalities, and repurchase
agreements involving such securities. See
"-- All Funds -- Investment Policies --
Repurchase Agreements," below.
The Manager does not expect assets
invested in cash or liquid short-term
securities to exceed 5% of a Growth Fund's
total assets at any time.
ILLIQUID SECURITIES. The Aggressive Growth
Fund may invest up to 15% of its assets in
illiquid securities. Illiquid securities
are securities which cannot be readily
resold because of legal or contractual
restrictions or which cannot otherwise be
marketed, redeemed, put to the issuer or a
third party, which do not mature within
seven days, or which the Manager, in
-15-
accordance with guidelines approved by the
Board of Directors, has not determined to
be liquid. The Cornerstone Growth Fund
will not invest in illiquid securities.
The Aggressive Growth Fund may purchase,
without regard to the above limitation,
securities that are not registered under
the Securities Act but that can be offered
and sold to "qualified institutional
buyers" under Rule 144A under the
Securities Act, provided that the Board of
Directors or the Manager pursuant to
guidelines adopted by the Board of
Directors, continuously determines, based
on the trading markets for the specific
Rule 144A security, that it is liquid.
SMALL CAP STOCKS. Unlike the portfolio of
the Cornerstone Growth Fund, which will
typically include larger capitalization
stocks, it is anticipated that the
Aggressive Growth Fund's portfolio will
include small cap stocks (i.e., stocks
whose issuers have market capitalizations
exceeding $150 million but less than $1
billion). Small cap stocks may present
greater opportunities for capital
appreciation and a higher degree of risk;
they tend to be more vulnerable to
financial and other risks and thus are
more volatile than stocks of larger, more
established companies. Because the
Aggressive Growth Fund may invest in
stocks with greater than average
volatility, which may result in
substantial declines in the Fund's share
price, it is suitable only for the most
aggressive investors.
INDUSTRY CONCENTRATION. Each Growth Fund
may not invest more than 25% of its total
assets in any one industry (excluding U.S.
Government securities). The concentration
policy is a fundamental policy.
If upon rebalancing, the stocks selected
by a the Cornerstone Growth Fund's
investment strategy would result in more
than 25% of the Fund's total assets being
invested in a single industry, the Manager
will be required to deviate from such
investment strategy in investing the
portfolio so as not to violate the Fund's
concentration policy.
FOREIGN SECURITIES. The Growth Funds may
invest in securities of foreign issuers.
The Aggressive Growth Fund may invest up
to 25% of its total assets in such
securities, while the Cornerstone Growth
Fund is not limited in the amount of
foreign securities that it may invest in.
The Growth Funds may invest in foreign
securities either through (i) direct
purchase of securities of foreign issuers
or (ii) purchase of ADRs, which are
dollar-denominated securities of foreign
issuers traded in the U.S. Such
investments increase diversification of a
Fund's portfolio and may enhance return,
but they also involve some special risks
such as exposure to potentially adverse
local political and economic developments,
nationalization and exchange controls;
potentially lower liquidity and higher
volatility; possible problems arising from
regulatory practices that differ from U.S.
standards; the imposition of withholding
taxes on income from such securities;
-16-
confiscating taxation; and the chance that
fluctuations in foreign exchange rates
will decrease the investment's value
(favorable changes can increase its
value). These risks are heightened for
investment in developing countries and
there is no limit on the amount of a
Fund's foreign investments that may be
invested in such countries.
The Growth Funds may invest in ADRs
through both sponsored and unsponsored
arrangements. The issuers of unsponsored
ADRs are not obligated to disclose
material information in the United States,
and therefore, there may not be a
correlation between such information and
the market value of the ADRs.
WARRANTS. The Aggressive Growth Fund may
invest in warrants. Warrants are similar
to options to purchase securities at a
specific price valid for a specific period
of time. The Aggressive Growth Fund may
not invest more than 5% of its net assets
(at the time of investment) in warrants
(other than those attached to other
securities). If the market price of the
underlying security never exceeds the
exercise price, the Aggressive Growth Fund
will lose the entire investment in the
warrant. Moreover, if a warrant is not
exercised within the specified time
period, it will become worthless and the
Aggressive Growth Fund will lose the
purchase price and the right to purchase
the underlying security. The Cornerstone
Growth Fund does not currently intend to
invest in warrants.
ALL FUNDS
INVESTMENT POLICIES
REPURCHASE AGREEMENTS. As described above
in "Comparison of the Funds--Value
Funds--Cash and Short-Term Securities," or
"Comparison of the Funds--Growth
Funds--Cash and Short-Term Securities,"
each Fund may invest in short-term
securities pursuant to repurchase
agreements. The Funds may only enter into
repurchase agreements with a member bank
of the Federal Reserve System or
well-established securities dealer in U.S.
government securities. In the event of a
bankruptcy or default by the seller of the
repurchase agreement, a Fund may suffer
delays and incur costs or possible losses
in liquidating the underlying security
which is held as collateral, and such Fund
may incur a loss if the value of the
collateral declines during this period. As
a matter of operating policy, the Funds
may not invest more than 15% of their
respective total assets in repurchase
agreements maturing in more than seven
days.
LENDING OF PORTFOLIO SECURITIES. Like
other mutual funds, each Fund may from
time to time lend securities from its
portfolio to banks, brokers and other
financial institutions to earn additional
income. The principal risk is that the
borrower may default on its obligation to
return borrowed securities, because of
insolvency or otherwise. In this event, a
Fund could experience delays in recovering
its securities and capital. In accordance
with applicable law, each Fund may not
lend portfolio securities representing in
excess of 33 1/3% of its respective total
assets. The lending policy is a
fundamental policy.
-17-
BORROWING. Each Fund may borrow money from
banks in an amount up to 33% of its
respective total assets for extraordinary
or emergency purposes such as meeting
anticipated redemptions, and may pledge
assets in connection with such borrowing.
The borrowing policy is a fundamental
policy.
HEDGING AND RETURN ENHANCEMENT STRATEGIES.
The Funds are permitted to utilize certain
hedging and return enhancement strategies
and techniques such as options on
securities and securities indices, futures
contracts on securities and securities
indices and options on futures contracts,
as described below.
Futures (a type of potentially high-risk
derivative) are often used to manage or
hedge risk, because they enable the
investor to buy or sell an asset in the
future at an agreed upon price. Options
(another potentially high-risk derivative)
give the investor the right, but not the
obligation, to buy or sell an asset at a
predetermined price in the future. The
Funds may buy and sell futures and options
contracts for any number of reasons,
including: to manage their respective
exposure to changes in securities prices;
as an efficient means of adjusting their
respective overall exposure to certain
markets; in an effort to enhance income;
and to protect the value of portfolio
securities. The Funds may purchase, sell,
or write call and put options on
securities, financial indices and futures.
Futures contracts and options may not
always be successful hedges; their prices
can be highly volatile. Using them could
lower a Fund's total return, and the
potential loss from the use of futures can
exceed a Fund's initial investment in such
contracts.
As a matter of operating policy, initial
margin deposits and premiums on options
used for nonhedging purposes will not
equal more than 5% of a Fund's net asset
value.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED
PURCHASES. The Funds may purchase
securities under a firm commitment
agreement or on a when-issued basis. Firm
commitment agreements and when-issued
purchases call for the purchase of
securities at an agreed-upon price on a
specified future date, and would be used,
for example, when a decline in the yield
of securities of a given issuer is
anticipated. A Fund as purchaser assumes
the risk of any decline in value of the
security beginning on the date of the
agreement or purchase. The Funds will not
enter into such transactions for the
purpose of leveraging, and accordingly,
will segregate liquid assets with its
custodian equal (on a daily
market-to-market basis) to the amount of
its commitment to purchase the when-issued
securities and securities subject to the
firm commitment agreement.
DIVERSIFICATION. In order to maintain each
Fund's status as a diversified investment
company, with respect to 75% of a Fund's
total assets: (i) not more than 5% of the
Fund's assets may be invested in the
-18-
securities of a single issuer (excluding
U.S. Government Securities); and (ii) a
Fund may not hold more than 10% of the
outstanding voting securities of a single
issuer. The diversification policy is a
fundamental policy.
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 COMPUTSTAT(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 RISK FACTORS
For a discussion of the principal risks of
investing in each Fund, see "Principal
Risk Factors and Special Considerations."
MANAGEMENT
GENERAL OVERSIGHT. O'Shaughnessy Funds is
governed by a Board of Directors that
meets regularly to review the Funds'
investment, performance, expenses, and
other business affairs. The Board of
Directors elects the Funds' officers.
MANAGER. The Manager acts as investment
manager of each Fund pursuant to a
management agreement with O'Shaughnessy
Funds on behalf of the Funds (the
"Management Agreement"). In its capacity
as investment manager, the Manager is
responsible for selection and management
of each Fund's portfolio investments. For
its services, each Fund pays the Manager a
fee each month, at the annual rate of
0.74% of the Fund's average daily net
assets.
PORTFOLIO MANAGEMENT. James P.
O'Shaughnessy has had the day-to-day
responsibility for managing the portfolio
of each Fund and developing and executing
each Fund's investment program since the
commencement of operations of each Fund.
For the past ten years, Mr. O'Shaughnessy
has served as Chairman and Chief Executive
Officer of the Manager, and in such
capacity, has managed equity accounts for
high net worth individuals and served as
portfolio consultant to a unit investment
trust. Mr. O'Shaughnessy is recognized as
a leading expert and pioneer in
quantitative equity analysis. He is the
author of three financial books, INVEST
LIKE THE BEST, WHAT WORKS ON WALL STREET
and HOW TO RETIRE RICH.
-19-
DISTRIBUTOR. First Fund Distributors, Inc.
(the "Distributor"), a registered
broker-dealer, acts as the principal
distributor of the shares of the Funds.
The Distributor provides distribution
services to the Funds at no cost to the
Funds.
ADMINISTRATOR. Pursuant to an
Administration Agreement, as amended,
Investment Company Administration, LLC
(the "Administrator") serves as
administrator of the Funds. The
Administrator provides certain
administrative services, including, among
other responsibilities, coordinating
relationships with independent contractors
and agents, preparing for signature by
officers and filing certain documents
required for compliance with applicable
laws and regulations, preparing financial
statements, and arranging for the
maintenance of books and records. For its
services, each Fund pays the Administrator
a fee each month, at the annual rate of
0.10% of the first $200 million of the
Fund's average daily net assets and 0.03%
of such net assets over $200 million. The
Administrator and the Distributor are
under common control and are therefore
considered affiliates of each other.
See "Comparison of the Funds --
Management" for more information regarding
the management of the Funds.
OTHER
SHARES. As with all mutual funds,
investors purchase shares when they invest
in the Funds. These shares are a part of
the Funds' authorized capital stock, but
share certificates are not generally
issued.
Each full share and fractional share
entitles the shareholder to: receive a
proportional interest in the respective
Fund's capital gain distributions and cast
one vote per share on certain Fund
matters, including the election of
directors, changes in fundamental
policies, or approval of changes in the
Management Agreement.
OVERALL EXPENSE RATIO. The actual overall
operating expenses, as a percent of net
assets, as of September 30, 1999, were
1.09% for the Dogs of the Market Fund and
1.38% for the Cornerstone Value Fund.
Absent certain fee reductions and
reimbursements by the Manager of the
expenses of the Dogs of the Market Fund,
the overall operating expenses of such
Fund, as a percent of net assets would
have been 1.50% for the fiscal period
ended September 30, 1999. If the Value
Funds Reorganization had taken place on
October 1, 1998, the overall operating
expenses, as a percent of net assets, for
the Value Combined Fund on a pro forma
combined basis would have been 1.25% as of
such date.
The actual overall operating expenses, as
a percent of net assets, as of September
30, 1999, were 1.97% for the Aggressive
Growth Fund and 1.15% for the Cornerstone
Growth Fund. Absent certain fee reductions
and reimbursements by the Manager of the
expenses of the Aggressive Growth Fund,
the overall operating expenses for such
-20-
Fund, as a percent of net assets would
have been 2.23% for the fiscal period
ended September 30, 1999. If the Growth
Funds Reorganization had taken place on
October 1, 1998, the overall operating
expenses, as a percent of net assets, for
the Growth Combined Fund on a pro forma
combined basis would have been 1.15% as of
such date.
PURCHASE OF SHARES. The procedures for
purchasing shares are the same for all
Funds, see "Comparison of the Funds --
Purchase, Exchange and Redemption of
Shares -- Purchase of Shares" and
"Information About Your Account" in the
O'Shaughnessy Funds Prospectuses.
REDEMPTION OF SHARES. The procedures for
redeeming shares are the same for all
Funds, see "Comparison of the Funds --
Purchase, Exchange and Redemption of
Shares -- Redemption of Shares" and
"Information About Your Account" in the
O'Shaughnessy Funds Prospectuses.
DIVIDENDS. The Funds currently have the
same policy with respect to dividends. See
"Comparison of the Funds -- Dividends" and
"Information On Distributions and Taxes"
in the O'Shaughnessy Funds Prospectuses.
NET ASSET VALUE. The price at which each
Fund's shares are purchased or redeemed is
the Fund's next determined net asset value
per share. The net asset value per share
is calculated as of the close of the New
York Stock Exchange ("NYSE") (currently
4:00 p.m., Eastern time) on each day that
the NYSE is open for business and on each
other day in which there is a sufficient
degree of trading in a Fund's portfolio
securities that the current net asset
value of the Fund's shares may be
materially affected by changes in the
value of the Fund's portfolio securities.
For further discussion on net asset value
and how it is determined, see "Comparison
of the Funds -- Additional Information --
Net Asset Value" and "Valuation of Shares"
in the O'Shaughnessy Funds Statement.
TAX CONSIDERATIONS. The tax consequences
associated with an investment in shares of
an Acquired Fund are substantially the
same as the tax consequences associated
with an investment in shares of the
respective Acquiring Fund. See
"Information on Distributions and Taxes"
in the O'Shaughnessy Funds Prospectuses.
For a more detailed discussion regarding
potential tax consequences of the
Reorganizations, see "The Reorganizations
-- Federal Income Tax Consequences of the
Reorganizations."
THE PROCESS OF STRATEGY INDEXING(R), THE
CORNERSTONE GROWTH STRATEGY, AND THE
CORNERSTONE VALUE STRATEGY ARE PATENTS OF
O'SHAUGHNESSY CAPITAL MANAGEMENT, INC.,
U.S. PATENT #5,978,778.
-21-
PRINCIPAL RISK FACTORS AND SPECIAL CONSIDERATIONS
Many of the investment risks associated with an investment in an Acquired
Fund are substantially the same as those associated with an investment in the
respective Acquiring Fund. A discussion of certain principal risks of investing
in the Funds is set forth below. See "Investment Policies and Limitations" in
the O'Shaughnessy Funds Statement for a more detailed discussion of investment
risks associated with an investment in the Funds.
VALUE FUNDS
POTENTIAL RISKS ASSOCIATED WITH A FUND'S STRATEGY
The Strategy Indexing(R) utilized by the Value Funds 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 such
Fund will adhere to its respective investment 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 Value Fund, if for
example, the stocks selected for such Fund's portfolio for a given year are
experiencing financial difficulty, or are out of favor in the market because of
weak performance, poor earnings forecast, negative publicity or general market
cycles. The Value Funds are not appropriate investments for those who are not
comfortable with the applicable Fund's investment strategy.
There can be no assurance that the market factors that caused the stocks
held in each such Fund's portfolio to meet its respective investment strategy's
investment criteria as of rebalancing in any given year will continue during
such year until the next rebalancing, that any negative conditions adversely
affecting a stock's price will not develop and/or deteriorate during a given
year, or that share prices of a stock will not decline during a given year.
As described above, the portfolio of the Value Funds is rebalanced annually
in accordance with its respective investment strategy. Rebalancing may result in
elimination of better performing assets from such Fund's portfolio and increases
in investments in securities with relatively lower total return.
GROWTH FUNDS
POTENTIAL RISKS ASSOCIATED WITH A FUND'S STRATEGY
The Strategy Indexing(R) utilized by the Cornerstone Growth 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 Cornerstone Growth Fund will adhere to its investment 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 Cornerstone
Growth Fund, if for example, the stocks selected for the Fund's portfolio for a
given year are experiencing financial difficulty, or are out of favor in the
market because of weak performance, poor earnings forecast, negative publicity
or general market cycles. The Cornerstone Growth Fund is not an appropriate
investment for those who are not comfortable with the Fund's investment
strategy.
There can be no assurance that the market factors that caused the stocks
held in the Cornerstone Growth Fund's portfolio to meet its investment
strategy's investment criteria as of rebalancing in any given year will continue
during such year until the next rebalancing, that any negative conditions
adversely affecting a stock's price will not develop and/or deteriorate during a
given year, or that share prices of a stock will not decline during a given
year.
As described above, the portfolio of the Cornerstone Growth Fund is
rebalanced annually in accordance with its investment strategy. Rebalancing may
result in elimination of better performing assets from the Cornerstone Growth
Fund's portfolio and increases in investments in securities with relatively
lower total return.
The foregoing risks are not applicable to the Aggressive Growth Fund, which
is an actively managed fund.
-22-
ALL FUNDS
POTENTIAL RISKS ASSOCIATED WITH INVESTING PRIMARILY IN COMMON STOCKS
The fundamental risk associated with any common stock fund, including all
of the Funds, is the risk that the value of the stocks it holds might decrease.
Stock values may fluctuate in response to the activities of an individual
company or in response to general market and/or economic conditions.
Historically, common stocks have provided greater long-term returns and have
entailed greater short-term risks than other investment choices. Smaller or
newer issuers are more likely to realize more substantial growth as well as
suffer more significant losses than larger or more established issuers.
Investments in such companies can be both more volatile and more speculative.
The Funds are not appropriate investments for those who are unable or unwilling
to assume the risk involved generally with investment in common stocks. See "The
Funds -- Comparison of the Funds -- Investment Policies -- Small Cap StockS" for
a discussion of the special risks applicable to the Aggressive Growth Fund in
connection with its investment in small cap stocks.
Although the stocks in which the Aggressive Growth Fund may invest have, in
the Manager's judgment, the potential to provide superior return, such stocks
are likely to be subject to greater than average price volatility, which may
result in substantial declines in such Fund's share price. Accordingly, the
Aggressive Growth Fund is suitable only for the most aggressive investors.
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.
ADDITIONAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUNDS
There is no guarantee that the investment objective of a Fund will be
achieved or that the value of a shareholder's investment in the Fund will not
decrease.
-23-
COMPARISON OF THE FUNDS
FINANCIAL HIGHLIGHTS
DOGS OF THE MARKET FUND. The financial information in the table below is
included in the Dogs of the Market Fund's Annual Report. The financial
information for the year ended September 30, 1999 has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report thereon is
included in that Fund's 1999 Annual Report. The financial information for the
two prior periods has been audited by McGladrey & Pullen, LLP, whose report
thereon is included in that Fund's 1998 Annual Report. The financial statements
and financial highlights included in the1998 Annual Report and 1999 Annual
Report of the Dogs of the Market Fund are incorporated by reference into the
O'Shaughnessy Funds Statement and the Statement of Additional Information,
respectively.
PER SHARE OPERATING PERFORMANCE (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
FOR THE YEAR FOR THE YEAR NOVEMBER 1, 1996*
ENDED ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
---- ---- ----
Net asset value, beginning of period $11.40 $ 11.96 $10.00
------ ------- ------
Income from investment operations:
Net investment income (loss) 0.23 0.10 .10
Net realized and unrealized gain
(loss) 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%
- ----------
* Commencement of operations.
** Not annualized.
+ Annualized.
-24-
CORNERSTONE VALUE FUND. The financial information in the table below is
included in the Cornerstone Value Fund's Annual Report. The financial
information for the year ended September 30, 1999 has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report thereon is
included in that Fund's 1999 Annual Report. The financial information for the
two prior periods has been audited by McGladrey & Pullen, LLP, whose report
thereon is included in that Fund's 1998 Annual Report. The financial statements
and financial highlights included in the 1998 Annual Report and 1999 Annual
Report of the Cornerstone Value Fund are incorporated by reference into the
O'Shaughnessy Funds Statement and Statement of Additional Information,
respectively.
PER SHARE OPERATING PERFORMANCE (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
FOR THE YEAR NOVEMBER 1, 1996*
ENDED FOR THE YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
---- ---- ----
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) -- --
------ ------ ------
Total distributions (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) $26.30 $21.90 $13.50
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 income (loss)
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%
- ----------
* Commencement of operations.
** Not annualized.
+ Annualized.
-25-
AGGRESSIVE GROWTH FUND. The financial information in the table below is
included in the Aggressive Growth Fund's Annual Report. The financial
information for the year ended September 30, 1999 has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report thereon is
included in that Fund's 1999 Annual Report. The financial information for the
two prior periods has been audited by McGladrey & Pullen, LLP, whose report
thereon is included in that Fund's 1998 Annual Report. The financial statements
and financial highlights included in the 1998 Annual Report and 1999 Annual
Report of the Aggressive Growth Fund are incorporated by reference into the
O'Shaughnessy Funds Statement and Statement of Additional Information,
respectively.
PER SHARE OPERATING PERFORMANCE (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
FOR THE YEAR NOVEMBER 1, 1996*
ENDED FOR THE YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
---- ---- ----
Net asset value, beginning of period $10.73 $14.29 $10.00
------ ------ ------
Income from investment operations:
Net investment income (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) $12.20 $8.30 $5.60
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 income (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%
- ----------
* Commencement of operations.
** Not annualized.
+ Annualized.
-26-
CORNERSTONE GROWTH FUND. The financial information in the table below is
included in the Cornerstone Growth Fund's Annual Report. The financial
information for the year ended September 30, 1999 has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report thereon is
included in that Fund's 1999 Annual Report. The financial information for the
two prior periods has been audited by McGladrey & Pullen, LLP, whose report
thereon is included in that Fund's 1998 Annual Report. The financial statements
and financial highlights included in the 1998 Annual Report and 1999 Annual
Report of the Cornerstone Growth Fund are incorporated by reference into the
O'Shaughnessy Funds Statement and Statement of Additional Information,
respectively.
PER SHARE OPERATING PERFORMANCE (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
NOVEMBER 1, 1996*
FOR THE YEAR ENDED FOR THE YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
---- ---- ----
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) --
Total distributions -- (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) $120.80 $80.40 $91.30
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 income (loss)
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%
- ----------
* Commencement of operations.
** Not annualized.
+ Annualized.
MANAGEMENT
GENERAL OVERSIGHT. O'Shaughnessy Funds is governed by a Board of Directors
consisting of four individuals, three of whom are not "interested persons" as
defined in the Investment Company Act. After the Reorganizations, the Board of
Directors will continue to serve as the Board of Directors of O'Shaughnessy
Funds. The Board of Directors meets regularly to review the Funds' investment,
performance, expenses, and other business affairs. The Board of Directors elects
the Funds' officers. See "Directors and Officers" in the O'Shaughnessy Funds
Statement.
-27-
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 35 Mason Street, Greenwich,
Connecticut 06830.
NAME, AGE AND ADDRESS POSITION OTHER BUSINESS ACTIVITIES IN PAST 5 YEARS
- --------------------- -------- -----------------------------------------
James P. O'Shaughnessy* Director, President Chairman and Chief Executive Officer of the
Age: 39 and Treasurer Manager, 1988 - present; author of INVEST LIKE THE
BEST, WHAT WORKS ON WALL STREET, and HOW TO RETIRE
RICH.
C. Flemming Heilmann Director President and Director, Danish American, N.Y.;
Age: 60 Former Chairman and CEO, Brockway Standard, Inc.,
1989-1994; Director, Porter Chadburn, Inc.; Porter
Chadburn, plc; Wheaton, Inc.; Danish American
Chamber of Commerce, N.Y.; American Friends of
Cambridge University; Trustee, Royal Wessanen
Group U.S. Trust.
Robert E. Ix Director Retired Chairman and Chief Executive Officer of
Age: 70 Cadbury Schweppes, Inc.; Director, Loctite Corp.
Joseph John McAleer Director Founder and President, MCA Associates, Inc. (ship
Age: 69 broker), 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, Wadsworth
Age: 49 Secretary of Group since 1986; Vice President of the
O'Shaughnessy Funds Distributor since 1989; Vice President of the
Administrator since 1990.
- ----------
* Interested person, as defined in the Investment Company Act.
Pursuant to the terms of the Management Agreement 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, 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 pays 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.
PENSION OR
AGGREGATE RETIREMENT BENEFITS
COMPENSATION FROM ACCRUED AS PART OF TOTAL COMPENSATION
NAME OF DIRECTOR FUNDS* FUND EXPENSES FROM FUND COMPLEX*
- ---------------- ------ ------------- ------------------
C. Flemming Heilman 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 year September 30, 1999, aggregate directors fees
and expenses in the amount of $29,596 were allocated to the Funds.
-28-
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.
MANAGEMENT ARRANGEMENTS AND FEES. O'Shaughnessy Capital Management, Inc.
(previously defined as the "Manager") acts as investment manager of each Fund
pursuant to the Management Agreement. In its capacity as investment manager, the
Manager is responsible for selection and management of each Fund's portfolio
investments. For its services, each Fund pays the Manager a fee each month, at
the annual rate of 0.74% of the Fund's average daily net assets. After the
consummation of the Reorganizations, the Manager will continue to perform
management services for each Combined Fund under the Management Agreement. The
pro forma effective fee rate of each Combined Fund after taking into account the
consummation of the Reorganizations would be 0.74% of each Combined Fund's
average daily net assets.
The Manager's office is located at 35 Mason Street, Greenwich, Connecticut
06830. The Manager was incorporated in 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. See "Management of the Funds" in the O'Shaughnessy Funds
Statement.
PORTFOLIO MANAGEMENT. James P. O'Shaughnessy has had the day-to-day
responsibility for managing the portfolio of each Fund and developing and
executing each Fund's investment program since the commencement of operations of
each Fund. For the past ten years, Mr. O'Shaughnessy has served as Chairman and
Chief Executive Officer of the Manager, and in such capacity, has managed equity
accounts for high net worth individuals and served as portfolio consultant to a
unit investment trust. Mr. O'Shaughnessy is recognized as a leading expert and
pioneer in quantitative equity analysis. He is the author of three financial
books, INVEST LIKE THE BEST, WHAT WORKS ON WALL STREET and How TO RETIRE RICH.
DISTRIBUTOR. First Fund Distributors, Inc. (previously defined as the
"Distributor"), a registered broker-dealer, acts as the principal distributor of
the shares of the Funds. The address of the Distributor is 4455 E. Camelback
Road, Suite 261 E, Phoenix, Arizona 85018. The Distributor provides distribution
services to the Funds at no cost to the Funds. After the consummation of the
Reorganizations, the Distributor will continue to provide distribution services
to each Combined Fund.
ADMINISTRATION ARRANGEMENTS AND FEES. Pursuant to the Administration
Agreement, Investment Company Administration, LLC (previously defined as the
"Administrator") serves as administrator of the Funds. The Administrator
provides certain administrative services, including, among other
responsibilities, coordinating relationships with independent contractors and
agents, preparing for signature by officers and filing of certain documents
required for compliance with applicable laws and regulations, preparing
financial statements, and arranging for the maintenance of books and records.
For its services, each Fund pays the Administrator a fee each month, at the
annual rate of 0.10% of the first $200 million of the Fund's average daily net
assets and 0.03% of such net assets over $200 million. The address of the
Administrator is 4455 E. Camelback Road, Suite 261 E, Phoenix, Arizona 85018.
The Administrator and the Distributor are under common control and are therefore
considered affiliates of each other. After the consummation of the
Reorganizations, the Administrator will continue to perform administrative
services for each Combined Fund under the Administration Agreement. The pro
forma effective fee payable to the Administrator by each Combined Fund after
taking into account the consummation of the Reorganizations would be the same as
that fee currently paid by each Fund.
EXPENSES
The Management Agreement identifies the expenses to be paid by each Fund.
In addition to the fees paid to the Manager, each Fund pays certain additional
expenses, including but not limited to, the following: shareholder service
expenses; custodial, accounting, legal, and audit fees; administrative fees;
costs of preparing and printing prospectuses and reports sent to shareholders;
registration fees and expenses; proxy and annual meeting expenses (if any); and
Disinterested Director fees and expenses. The Manager voluntarily agreed to,
until September 30, 1999, reduce fees payable to it by the Dogs of the Market
Fund and the Aggressive Growth Fund or reimburse such Funds to the extent
-29-
necessary to limit each such Fund's aggregate annual operating expenses to 1.09%
and 2.00%, respectively, of its average net assets (previously defined as the
"expense cap"). Any such reductions made by the Manager in its fees or
reimbursements of expenses with respect to such Funds are subject to recapture
by the Manager provided the applicable Fund is able to effect such recapture
while keeping total operating expenses at or below the annual expense cap, and
that no recapture will be made after September 30, 2000. Any amounts reimbursed
will have the effect of increasing fees otherwise paid by such Funds.
The total operating expenses, as a percent of net assets, as of September
30, 1999, were 1.09% for the Dogs of the Market Fund and 1.38% for the
Cornerstone Value Fund. Absent certain fee reductions and reimbursements by the
Manager of the expenses of the Dogs of the Market Fund, the total operating
expenses of such Fund, as a percent of net assets would have been 1.50% for the
fiscal period ended September 30, 1999. If the Value Funds Reorganization had
taken place on October 1, 1998, the overall operating expenses, as a percent of
net assets, for the Pro Forma Cornerstone Value Fund on a pro forma basis would
have been 1.25% as of September 30, 1999. The overall operating expenses, as a
percent of net assets, as of September 30, 1999, were 1.97% for the Aggressive
Growth Fund and 1.15% for the Cornerstone Growth Fund. Absent certain fee
reductions and reimbursements by the Manager of the expenses of the Aggressive
Growth Fund, the overall operating expenses for such Fund, as a percent of net
assets would have been 2.23% for the fiscal period ended September 30, 1999. If
the Growth Funds Reorganization had taken place on October 1, 1998, the overall
operating expenses, as a percent of net assets, for the Pro Forma Cornerstone
Growth Fund on a pro forma basis would have been 1.15% as of September 30, 1999.
After consummation of the Reorganizations, certain fixed costs, such as printing
of prospectuses and reports sent to shareholders, legal and audit fees and
registration fees would be spread across a larger asset base. Over time, this
would tend to lower the expense ratio borne by shareholders of both the
Acquiring Funds and the Acquired Funds, but the effect would be considerably
more significant in the case of shareholders of the Acquired Funds. This is
because the Acquired Funds are smaller, and effective September 30, 1999, the
Manager ceased its previous practice of reducing certain fees payable by, or
reimbursing certain expenses to, the Acquired Funds in order to ensure that the
Acquired Funds maintained their total operating expenses below certain levels.
Accordingly, Fund management believes that the Reorganizations are in the best
interest of the Funds. See "The Reorganizations -- Potential Benefits to
Shareholders as a Result of the Reorganization" and "Summary -- Fee Tables."
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES
The procedures for purchasing and redeeming shares of a Fund as well as the
exchange privileges are the same for all Funds. See "Information About Your
Account" in the O'Shaughnessy Funds Prospectuses.
Each of the Funds has the right to close the account of any shareholder
that fails to maintain an account balance with such Fund of $2,500 for three
months or longer due to redemptions, after giving such shareholder 60 days in
which to increase the balance. The Aggressive Growth Fund has not exercised such
right with respect to shareholders with account balances of less than $2,500;
however, the Growth Combined Fund may choose to exercise such right to close
small shareholder accounts after consummation of the Growth Funds
Reorganization.
PERFORMANCE
GENERAL. The following tables provide performance information for shares of
the Funds for the periods indicated. Past performance is not indicative of
future performance.
DOGS OF THE CORNERSTONE AGGRESSIVE CORNERSTONE
PERIOD MARKET FUND(1) VALUE FUND GROWTH FUND(1) GROWTH FUND
------ -------------- ---------- -------------- -----------
year ended
September 30, 1999 10.36% 17.12% 43.51% 29.15%
Inception*
through
September 30, 1999+ 10.01% 8.89% 16.10% 12.68%
- ----------
+ Average Annual total returns.
* Each of the Funds commenced operations on November 1, 1996.
(1) Absent certain fee reductions and reimbursements by the Manager of expenses
of the Dogs of the Market Fund and the Aggressive Growth Fund, the total
returns for such Funds would have been lower than those state above. See
"Summary--Fee Tables."
-30-
SHAREHOLDER RIGHTS
Each full share and fractional share of a Fund entitles the shareholder to
receive a proportional interest in the respective Fund's capital gain
distributions and cast one vote per share on certain Fund matters, including the
election of directors, changes in fundamental policies, or approval of changes
in the Management Agreement. Voting rights are not cumulative, so that holders
of more than 50% of the shares voting in the election of directors can, if they
choose to do so, elect all the directors of a Fund, in which event the holders
of the remaining shares are unable to elect any person as a director.
Corresponding Shares issued in the Reorganizations will be fully paid and
nonassessable and will have no preemptive rights. In the event of the
liquidation of a Fund, shareholders of such Fund are entitled to share pro rata
in the net assets of such Fund available for distribution to shareholders.
The Funds are not required to hold annual meetings and do not intend to do
so except when certain matters, such as a change in a Fund's fundamental
policies, are to be decided. In addition, shareholders representing at least 10%
of all eligible votes may call a special meeting if they wish, for the purpose
of voting on the removal of any Fund director.
DIVIDENDS
The Funds currently have the same policy with respect to dividends. Each
Fund declares and pays dividends (if any) annually. In addition, if a Fund has
net capital gains for the year (after subtracting any capital losses), they are
usually declared and paid in December to shareholders of record on a specified
date that month.
TAX INFORMATION
The tax consequences associated with an investment in shares of an Acquired
Fund are substantially the same as the tax consequences associated with an
investment in shares of the respective Acquiring Fund. See "Information on
Distributions and Taxes" in the O'Shaughnessy Funds Prospectuses.
PORTFOLIO TRANSACTIONS
In executing portfolio transactions, the Funds seek to obtain the best net
results, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution,
operational facilities of the firm involved and the firm's risk in positioning a
block of securities. While the Funds generally seek reasonably competitive
commission rates, the Funds do not necessarily pay the lowest commission or
spread available. In addition, consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., the Manager may consider sales of
shares of the Funds as a factor in the selection of brokers or dealers to
execute portfolio transactions for the Fund. For additional information
regarding procedures for engaging in portfolio transactions, see "Portfolio
Transactions" in the O'Shaughnessy Funds Statement.
PORTFOLIO TURNOVER
As described above, in accordance with each Acquiring Fund's investment
strategy, an Acquiring Fund's portfolio will be rebalanced based on information
on or about December 31 of each year. That is, stocks meeting the respective
investment strategy's criteria will be purchased for the Fund's portfolio to the
extent not then held, stocks which no longer meet the criteria will be sold, and
the holdings of all stocks in the portfolio that continue to meet the criteria
will be appropriately increased or decreased to result in equal weighting of all
stocks in the portfolio.
-31-
The portfolio turnover rate is calculated by dividing the lesser of a
Fund's annual sales or purchases of portfolio securities (exclusive of purchases
or sales of securities whose maturities at the time of acquisition were one year
or less) by the monthly average value of the securities in the portfolio during
the year. High portfolio turnover involves correspondingly greater transaction
costs in the form of brokerage commissions and dealer spreads, which a Fund
bears.
Neither Fund has placed a limit on its rate of portfolio turnover and
securities may be sold without regard to the time they have been held when, in
the opinion of the Manager, the investment considerations warrant such action.
Under normal conditions, the annual turnover rate should not exceed 50% and 100%
for the Cornerstone Value Fund and Cornerstone Growth Fund, respectively. Each
of the Dogs of the Market Fund and Aggressive Growth Fund anticipates that its
respective annual turnover rate should not exceed 50% and 200%, respectively,
under normal conditions. The portfolio turnover rates for the Dogs of the Market
Fund, the Cornerstone Value Fund, the Aggressive Growth Fund and the Cornerstone
Growth Fund, for the fiscal year ended September 30, 1999, were 63.31%, 122.79%,
193.84% and 125.19%, respectively. A high portfolio turnover may result in
adverse tax consequences, such as an increase in capital gain dividends. High
portfolio turnover may also involve correspondingly greater transaction costs in
the form of dealer spreads and brokerage commissions, which are borne directly
by the Funds. See "Portfolio Transactions--Portfolio Turnover" in the
O'Shaughnessy Funds Statement for further information regarding portfolio
turnover.
Because each of the Acquiring Funds adheres to a disciplined Strategy and
invests only in the stocks selected through its Strategy, it is anticipated that
as soon as practicable after the completion of the applicable Reorganization,
each of the Combined Funds will be required to liquidate a substantial portion
of the assets acquired from the respective Acquired Fund. Such a liquidation
will entail transaction costs and may result in tax consequences to
shareholders. See "The Reorganizations--Federal Income Tax Consequences of the
Reorganizations."
ADDITIONAL INFORMATION
NET ASSET VALUE. The price at which each Fund's shares are purchased or
redeemed is the Fund's next determined net asset value per share. The net asset
value per share is calculated as of the close of the NYSE (currently 4:00 p.m.,
Eastern time) on each day that the NYSE is open for business and on each other
day in which there is a sufficient degree of trading in a Fund's portfolio
securities that the current net asset value of the Fund's shares may be
materially affected by changes in the value of the Fund's portfolio securities.
Each Fund determines the net asset value per share by subtracting the Fund's
total liabilities from the Fund's total assets (the value of the securities that
the Fund holds plus cash and other assets), dividing the remainder by the total
number of shares outstanding, and adjusting the result to the nearest full cent.
Securities listed on the NYSE, American Stock Exchange or other national
exchanges are valued at the last sale price on such exchange on the day as of
which the net asset value per share is to be calculated. Over-the counter
securities included in the NASDAQ National Market System are valued at the last
sale price. If there is no sale on a particular security on such day, it is
valued at the mean between the bid and asked prices. Other securities, to the
extent that market quotations are readily available, are valued at market value
in accordance with procedures established by the Board of Directors. Any
securities and other assets, for which market quotations are not readily
available, are valued in good faith in a manner determined by the Board of
Directors best to reflect their fair value.
SHAREHOLDER SERVICES. The Funds offer the same shareholder services to
their respective shareholders. For information regarding such services, see
"Information About Your Account -- Shareholder Services" in the O'Shaughnessy
Funds Prospectuses.
INDEPENDENT AUDITORS. Currently PricewaterhouseCoopers LLP serves as the
independent auditors of the Funds. If the Reorganizations are completed, it is
currently anticipated that PricewaterhouseCoopers LLP will continue to serve as
the independent auditors of the Combined Funds. The principal business address
of PricewaterhouseCoopers LLP is 1177 Avenue of the Americas, New York, New York
10036.
CUSTODIAN. Firstar Bank Milwaukee (the "Custodian") acts as the custodian
of each of the Funds. If the Reorganizations are completed, it is currently
anticipated that the Custodian will continue to serve as the custodian of the
Combined Funds. The principal business address of the Custodian is 615 E.
Michigan Street, Milwaukee, Wisconsin 53202.
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TRANSFER AGENT. Firstar Mutual Fund Services, LLC (the "Transfer Agent"),
615 E. Michigan Street, Milwaukee, Wisconsin 53202, serves as the transfer agent
with respect to each Fund, pursuant to a transfer agency agreement with
O'Shaughnessy Funds. The Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening, maintenance and servicing of
shareholder accounts. If the Reorganizations are completed, it is currently
anticipated that the Transfer Agent will continue to serve as the transfer agent
of the Combined Funds. See "Information About Your Account--Purchase of Shares,"
"--Exchange Privilege," and "--Redemption of Shares" in the O'Shaughnessy Funds
Prospectuses.
CAPITAL STOCK. Each of the Funds has 25,000,000,000 shares of a single
class authorized, par value $.0001 per share. See "Other Information" in the
O'Shaughnessy Funds Statement for further discussion of the rights and
preferences attributable to shares of the Funds. See "Summary -- Fee Tables"
above and "About The Funds--Transaction and Fund Expenses" in each of the
O'Shaughnessy Funds Prospectuses for further discussion on the expenses
attributable to shares of the Funds.
SHAREHOLDER INQUIRIES. Shareholder inquiries may be addressed to each Fund
at the address or telephone number set forth on the cover page of this
Prospectus.
THE REORGANIZATIONS
GENERAL
Under the Value Funds Agreement and Plan, the Cornerstone Value Fund will
acquire substantially all of the assets, and assume substantially all of the
liabilities, of the Dogs of the Market Fund solely in exchange for an equal
aggregate value of Value Fund Corresponding Shares. Under the Growth Funds
Agreement and Plan, the Cornerstone Growth Fund will acquire substantially all
of the assets, and assume substantially all of the liabilities, of the
Aggressive Growth Fund solely in exchange for an equal aggregate value of Growth
Fund Corresponding Shares. Upon receipt by an Acquired Fund of Corresponding
Shares, such Acquired Fund will liquidate through a distribution of such
Corresponding Shares to its shareholders, as described below.
Generally, the assets transferred by an Acquired Fund to the respective
Acquiring Fund will include all investments of such Acquired Fund held in its
portfolio as of the Valuation Time (as defined in the Plans) and all other
assets of such Acquired Fund as of such time.
Each Acquired Fund will distribute the Corresponding Shares received by it
in connection with its Reorganization pro rata to its shareholders in exchange
for such shareholders' proportional interests in such Acquired Fund. The
Corresponding Shares received by an Acquired Fund's shareholders will have the
same aggregate net asset value as each such shareholder's interest in such
Acquired Fund as of the Valuation Time. See "-- Terms of the Plans -- Valuation
of Assets and Liabilities" for information concerning the calculation of net
asset value. The distribution will be accomplished by opening new accounts on
the books of the respective Acquiring Fund in the names of all shareholders of
such Acquired Fund, including shareholders holding shares in certificate form,
and transferring to each shareholder's account the Corresponding Shares
representing such shareholder's interest previously credited to the account of
such Acquired Fund. Shareholders holding an Acquired Fund's shares in
certificate form may receive certificates representing the Corresponding Shares
credited to their account in respect of such Acquired Fund's shares by sending
the certificates to the Transfer Agent accompanied by a written request for such
exchange.
Since the Corresponding Shares will be issued at net asset value in
exchange for the net assets of an Acquired Fund having a value equal to the
aggregate net asset value of the shares of such Acquired Fund as of the
Valuation Time, the net asset value per share of the respective Acquiring Fund
should remain virtually unchanged solely as a result of the applicable
Reorganization. Thus, the Reorganizations should not result in dilution of net
asset value of the Acquiring Funds immediately following consummation of the
Reorganizations. However, as a result of the Reorganizations, a shareholder of
an Acquired Fund would hold a smaller percentage of ownership in the respective
Acquiring Fund than he or she did in the Acquired Fund prior to the
Reorganizations.
-33-
If the shareholders of the Acquired Funds approve the Reorganizations at
the Meeting, all required regulatory approvals are obtained, and certain
conditions are either met or waived, it is expected that the Reorganizations
will take place during the first calendar quarter of 2000. Neither
Reorganization is dependent on the consummation of the other Reorganization.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE
DOGS OF THE MARKET FUND AND THE AGGRESSIVE GROWTH FUND APPROVE THE VALUE FUNDS
AGREEMENT AND PLAN AND GROWTH FUNDS AGREEMENT AND PLAN, RESPECTIVELY.
TERMS OF THE PLANS
THE FOLLOWING IS A SUMMARY OF THE SIGNIFICANT TERMS OF THE PLANS. THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE VALUE FUNDS AGREEMENT
AND PLAN AND THE GROWTH FUNDS AGREEMENT AND PLAN, ATTACHED HERETO AS EXHIBIT I.
VALUATION OF ASSETS AND LIABILITIES. The respective assets and liabilities
of the Acquired Funds and the Acquiring Funds will be valued as of the Valuation
Time. The assets in each Fund will be valued according to the procedures set
forth under "Valuation of Shares" in the O'Shaughnessy Funds Statement. Purchase
orders for an Acquired Fund's shares which have not been confirmed as of the
Valuation Time will be treated as assets of such Acquired Fund for purposes of
the respective Reorganization; redemption requests with respect to an Acquired
Fund's shares which have not settled as of the Valuation Time will be treated as
liabilities of such Acquired Fund for purposes of the respective Reorganization.
DISTRIBUTION OF CORRESPONDING SHARES. On the next full business day
following the Valuation Time (the "Exchange Date"), each Acquiring Fund will
issue to the respective Acquired Fund a number of Corresponding Shares the
aggregate net asset value of which will equal the aggregate net asset value of
shares of such Acquired Fund as of the Valuation Time. Such Acquired Fund will
then liquidate and distribute the Corresponding Shares received by it pro rata
to its shareholders in exchange for such shareholders' proportional interests in
such Acquired Fund. The Corresponding Shares received by an Acquired Fund's
shareholder will have the same aggregate net asset value as such shareholder's
interest in such Acquired Fund as of the Valuation Time.
EXPENSES. The expenses of each Reorganization that are directly
attributable to each Fund and the conduct of its business will be deducted from
the assets of that Fund as of the Valuation Time. These expenses are expected to
include the expenses incurred in preparing materials to be distributed to the
Board of Directors, legal fees incurred in preparing Board of Directors
materials, attending Board meetings and preparing the minutes thereof, and
accounting fees associated with each Fund's financial statements. The Funds
shall bear, pro rata according to their respective net assets on the Valuation
Date, all expenses incurred in connection with the respective Reorganization,
including, but not limited to, all costs related to the preparation of the
respective Plan, the preparation and distribution of the registration statement
of which this Proxy Statement and Prospectus is a part, the cost of preparing
and filing a ruling request with the IRS (if applicable), other filing fees,
legal and accounting fees, printing costs, portfolio transfer taxes (if any),
and any similar expenses incurred in connection with the respective
Reorganization.
REQUIRED APPROVALS. The completion of each Reorganization is conditioned
upon, among other things, the receipt of certain regulatory approvals. In
addition, the O'Shaughnessy Funds Articles of Incorporation (as amended to date)
requires approval of each Reorganization by the affirmative vote of the
respective Acquired Fund's shareholders representing no less than a majority of
the total number of votes entitled to be cast thereon.
AMENDMENTS AND CONDITIONS. The Plans may be amended at any time prior to
the Exchange Date with respect to any of the terms therein. The obligations of
each Acquired Fund and Acquiring Fund pursuant to the respective Plan are
subject to various conditions, including a registration statement on Form N-14
being declared effective by the Commission, the requisite approval of the
respective Reorganization by such Acquired Fund's shareholders, the receipt of
an opinion of counsel as to tax matters, and the confirmation by the respective
Acquired Fund and Acquiring Fund of the continuing accuracy of their respective
representations and warranties contained in such Plan.
-34-
TERMINATION, POSTPONEMENT AND WAIVERS. Each Plan may be terminated, and the
respective Reorganization abandoned at any time, whether before or after
adoption thereof by the respective Acquired Fund's shareholders, prior to the
Exchange Date or the Exchange Date may be postponed: (i) by the Board of
Directors; (ii) by an Acquired Fund if any condition to such Acquired Fund's
obligations has not been fulfilled or waived; or (iii) by an Acquiring Fund if
any condition to such Acquiring Fund's obligations has not been fulfilled or
waived.
POTENTIAL BENEFITS TO SHAREHOLDERS AS A RESULT OF THE REORGANIZATIONS
Fund management and the Board of Directors have identified certain
potential benefits to shareholders that are likely to result from the
Reorganizations. First, following the Reorganizations, shareholders of an
Acquired Fund will remain invested in a diversified open-end fund which has the
same Manager, substantially the same investment objective and similar, though
not identical, investment techniques. That is, both of the Value Funds seek
large, blue chip companies with high dividend yields that suggest that the
company's stock is undervalued. Dividend yield is the final determinant of stock
selection for both Funds. The main difference is the universe from which stocks
are selected: the Dogs of the Market Fund includes stocks based on dividend
yield from the thirty-stock Dow Jones Industrial Average and the 400-stock S&P
400 Industrial Average. The Cornerstone Value Fund, on the other hand, holds
stocks based on their dividend yield from the O'Shaughnessy Market Leaders
Universe(TM), which consists of over 600 issuers. The other difference is the
number of stocks held by each Fund - thirty by the Dogs of the Market Fund and
fifty by the Cornerstone Value Fund, making the latter a somewhat more
diversified portfolio. With respect to the Growth Funds, both ultimately rely on
price momentum as the final criterion for stock selection. The stock selection
strategy of the Aggressive Growth Fund is composed of eight quantitative models,
all of which have as a final criterion price momentum. The strategy of the
Aggressive Growth Fund is to buy inexpensive stocks (determined on the basis of
low price-to-sales ratios, a price/earnings growth rate of 3-5 and a
price/earnings ratio of less than 40), that are growing or are projected to grow
in value (based on certain objective factors identified by the Manager) and are
moving in price (26 and 52 week price momentum). The strategy of the Cornerstone
Growth Fund is to buy inexpensive stocks, based on a low price to sales ratio,
that are moving in price (price momentum).
A second advantage to shareholders relates to the potential for reduced
operating expenses over time due to economies of scale expected after the
Reorganizations. The net assets of the Cornerstone Value Fund and Cornerstone
Growth Fund as of September 30, 1999 were $26,305,050 and $120,772,225,
respectively. These would increase by the amount of the net assets of each of
the Acquired Funds at the time of the Reorganizations. As of September 30, 1999,
those amounts were approximately $17,721,091 in the case of the Dogs of the
Market Fund, and $12,244,928 in the case of the Aggressive Growth Fund. Certain
fixed costs, such as printing of prospectuses and reports sent to shareholders,
legal and audit fees, and registration fees would be spread across a larger
asset base. This would tend to lower the expense ratio borne by shareholders of
both the Acquiring Funds and the Acquired Funds, but the effect would be
considerably more significant in the case of shareholders of the Acquired Funds.
This is because the Acquired Funds are smaller, and effective September 30,
1999, the Manager ceased its previous practice of reducing certain fees payable
by, or reimbursing certain expenses to, the Acquired Funds in order to ensure
that the Acquired Funds maintained their total operating expenses below
specified levels. See "Summary -- Fee Tables" and "Comparison of the Funds --
Expenses." As described above under "Comparison of the Funds -- Management --
Management Arrangements and Fees" and "--Administration Arrangements and Fees,"
after the Reorganizations, the Combined Funds will, on a pro forma basis, pay a
management fee and administration fee to the Manager and the Administrator,
respectively, at the same effective annual rate as currently paid by the Funds.
To illustrate potential benefits to the Acquired Funds as a result of the
Reorganizations, including potential economies of scale, on September 30, 1999,
the total operating expenses as a percent of net assets, for the Dogs of the
Market Fund were 1.09% (based on Fund net assets of approximately $17.7 million)
and the total operating expenses, as a percent of net assets, for the Aggressive
Growth Fund were 1.97% (based on Fund net assets of approximately $12.2
million). Absent the aforementioned fee reductions and reimbursements by the
Manager of the expenses of the Dogs of the Market Fund and the Aggressive Growth
Fund, the total operating expenses of such Funds, as a percent of net assets,
would have been 1.50% and 2.23%, respectively, for the fiscal period ended
September 30, 1999. If the Reorganizations had taken place on October 1, 1998,
the total operating expenses, as a percent of net assets, for the Pro Forma
Cornerstone Value Fund and the Pro Forma Cornerstone Growth Fund, on a pro forma
combined basis, would have been 1.25% (based on Fund net assets of approximately
$44.0 million) and 1.15% (based on Fund net assets of approximately $132.9
million), respectively, each as of September 30, 1999.
-35-
The following table sets forth the total net assets of each of the Value
Funds and each of the Growth Funds as of the dates indicated.
TOTAL NET ASSETS OF
DOGS OF THE CORNERSTONE AGGRESSIVE CORNERSTONE
DATE MARKET FUND VALUE FUND GROWTH FUND GROWTH FUND
---- ----------- ---------- ----------- -----------
As of 9/30/97 $ 7,248,063 $13,469,376 $ 5,584,248 $ 91,258,550
As of 9/30/98 $22,627,210 $21,926,393 $ 8,342,782 $ 80,378,649
As of 9/30/99 $17,721,091 $26,305,050 $12,244,928 $120,772,225
The table illustrates that the net assets of the Cornerstone Value Fund
have experienced an increase, while the net assets of the Dogs of the Market
Fund have recently experienced a decrease. The net assets of both the
Cornerstone Growth Fund and the Aggressive Growth Fund have recently experienced
increases, but to a much more substantial degree in the case of the Cornerstone
Growth Fund. Were these trends to continue, the Acquiring Funds would experience
increasing economies of scale, which should have the effect of reducing their
overall operating expense ratios. The Aggressive Growth Fund would experience
less significant benefits and the Dogs of the Market Fund would experience the
opposite result, that is, a higher operating expense ratio due to a continuing
reduction in assets. Although there can be no certainty that the foregoing
trends would in fact continue, the Manager believes that the economies of scale
that may be realized as a result of the Reorganizations would be beneficial to
the shareholders of the Acquired Funds.
Based on the foregoing, the Board of Directors concluded that the
Reorganizations present no significant risks or costs (including legal,
accounting and administrative costs) that would outweigh the benefits discussed
above.
In approving the Reorganizations, the Board of Directors determined that
the net asset value of the Funds would not be diluted as a result of the
Reorganizations. See "The Reorganization -- General."
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATIONS
GENERAL. Each Reorganization has been structured with the intention that it
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. As a condition to the closing of each
Reorganization, each of the Value Funds and Growth Funds will receive an opinion
of Swidler Berlin Shereff Friedman, LLP substantially to the effect that for
Federal income tax purposes: (a) each of the respective Reorganizations, as
described herein, should constitute a reorganization within the meaning of
Section 368(a)(1)(C) of the Code and (b) assuming that the respective
Reorganization qualifies as a reorganization within the meaning of Section
368(a)(1)(C) of the Code: (i) each Fund will be deemed a "party" to such
Reorganization within the meaning of Section 368(b) of the Code; (ii) in
accordance with Section 354(a)(1) of the Code, no gain or loss will be
recognized by a shareholder of an Acquired Fund upon the receipt of
Corresponding Shares in the respective Reorganization solely in exchange for
their shares of such Acquired Fund; (iii) in accordance with Section 358 of the
Code, immediately after each Reorganization, the tax basis of the Corresponding
Shares received by a shareholder of the respective Acquired Fund in such
Reorganization will be equal, in the aggregate, to the tax basis of the shares
of such Acquired Fund surrendered in exchange therefor; (iv) in accordance with
Section 1223(1) of the Code, the holding period of the Corresponding Shares
received by a shareholder of an Acquired Fund in the respective Reorganization
will include the holding period of the shares of such Acquired Fund immediately
prior to such Reorganization (provided that at the time of such Reorganization
the shares of such Acquired Fund were held as capital assets); (v) in accordance
with Sections 361(a), 361(c)(1) and 357(a) of the Code, no gain or loss will be
recognized by an Acquired Fund on the acquisition of substantially all of the
assets, and assumption of substantially all of the liabilities, of such Acquired
Fund by the respective Acquiring Fund solely in exchange for the Corresponding
Shares or on the distribution of the Corresponding Shares to such Acquired
Fund's shareholders; (vi) under Section 1032 of the Code, no gain or loss will
be recognized by an Acquiring Fund on the exchange of its shares for the
respective Acquired Fund's assets and the assumption by such Acquiring Fund of
such Acquired Fund's liabilities; (vii) in accordance with Section 362(b) of the
Code, the tax basis of the assets of an Acquired Fund in the hands of the
-36-
respective Acquiring Fund will be the same as the tax basis of such assets in
the hands of such Acquired Fund immediately prior to the consummation of the
respective Reorganization; (viii) in accordance with Section 1223(2) of the
Code, the holding period of the transferred assets in the hands of an Acquiring
Fund will include the holding period of such assets in the hands of the
respective Acquired Fund; and (ix) the taxable year of an Acquired Fund will end
on the effective date of the respective Reorganization and pursuant to Section
381(a) of the Code and regulations thereunder, the respective Acquiring Fund
will succeed to and take into account certain tax attributes of such Acquired
Fund, such as earnings and profits and capital loss carryovers.
An opinion of counsel does not have the effect of a private letter ruling
from the IRS and is not binding on the IRS or any court. If a Reorganization
fails to qualify as a reorganization within the meaning of Section 368 of the
Code, the Reorganization would be treated as a taxable sale of assets followed
by a taxable liquidation of the respective Acquired Fund.
To the extent an Acquiring Fund has unrealized capital gains at the time of
the respective Reorganization, the respective Acquired Fund's shareholders may
incur taxable gains in the year that such Acquiring Fund realizes and
distributes those gains. This will be true notwithstanding that the unrealized
gains were reflected in the price of such Acquiring Fund's shares at the time
they were exchanged for assets of such Acquired Fund in the respective
Reorganization. Conversely, shareholders of an Acquiring Fund will share in
unrealized capital gains of the respective Acquired Fund after the respective
Reorganization and bear a tax consequence on the subsequent realization of such
gains. It is anticipated that each Combined Fund will dispose of a substantial
portion of its investment portfolio as soon as practicable after consummation of
the respective Reorganization, and any income or gain resulting therefrom
generally will be distributed to shareholders of the applicable Combined Fund
(in either cash or additional shares), which will be taxable thereto.
Shareholders should consult their tax advisers regarding the effect of the
Reorganizations in light of their individual circumstances. As the foregoing
relates only to Federal income tax consequences, shareholders also should
consult their tax advisers as to the foreign, state, local and other tax
consequences of the Reorganizations.
STATUS AS A REGULATED INVESTMENT COMPANY. All Funds have elected and
qualified to be taxed as regulated investment companies under Sections 851-855
of the Code, and after the Reorganizations, the Combined Funds intend to
continue to operate so as to qualify as regulated investment companies.
CAPITALIZATION
The following table sets forth as of September 30, 1999: (i) the
capitalization of the Dogs of the Market Fund, (ii) the capitalization of the
Cornerstone Value Fund, (iii) the pro forma capitalization of the Pro Forma
Cornerstone Value Fund, as adjusted to give effect to the Value Funds
Reorganization, (iv) the capitalization of the Aggressive Growth Fund, (v) the
capitalization of the Cornerstone Growth Fund, and (vi) the pro forma
capitalization of the Pro Forma Cornerstone Growth Fund, as adjusted to give
effect to the Growth Funds Reorganization.
-37-
CAPITALIZATION OF THE DOGS OF THE MARKET FUND, THE CORNERSTONE VALUE FUND, THE
PRO FORMA CORNERSTONE VALUE FUND (ON A PRO FORMA BASIS), THE AGGRESSIVE
GROWTH FUND, THE CORNERSTONE GROWTH FUND AND THE PRO FORMA CORNERSTONE
GROWTH FUND (ON A PRO FORMA BASIS), EACH AS OF SEPTEMBER 30, 1999.
UNAUDITED UNAUDITED
PRO FORMA PRO FORMA
DOGS OF THE CORNERSTONE CORNERSTONE AGGRESSIVE CORNERSTONE CORNERSTONE
MARKET FUND VALUE FUND VALUE FUND* GROWTH FUND GROWTH FUND GROWTH FUND*
----------- ---------- ----------- ----------- ----------- ------------
TOTAL
NET ASSETS: $17,721,091 $26,305,050 $44,026,141 $12,244,928 $120,772,225 $133,017,153
SHARES
OUTSTANDING: 1,459,090 2,210,552 3,699,676 838,354 9,773,751 10,761,906
NET ASSET
VALUE PER
SHARE: $ 12.15 $ 11.90 $ 11.90 $ 14.61 $ 12.36 $ 12.36
- ----------
* TOTAL NET ASSETS AND NET ASSET VALUE PER SHARE INCLUDE THE AGGREGATE VALUE
OF THE NET ASSETS OF THE DOGS OF THE MARKET FUND OR THE AGGRESSIVE GROWTH
FUND, AS APPLICABLE, THAT WOULD HAVE BEEN TRANSFERRED TO THE PRO FORMA
CORNERSTONE VALUE FUND AND THE PRO FORMA CORNERSTONE GROWTH FUND,
RESPECTIVELY, HAD THE REORGANIZATIONS BEEN CONSUMMATED ON OCTOBER 1, 1998.
ASSUMES DISTRIBUTION OF UNDISTRIBUTED NET INVESTMENT INCOME AND
UNDISTRIBUTED REALIZED CAPITAL GAINS. NO ASSURANCE CAN BE GIVEN AS TO HOW
MANY CORRESPONDING SHARES WILL BE ISSUED ON THE DATE THE REORGANIZATIONS
TAKE PLACE, AND THE FOREGOING SHOULD NOT BE RELIED UPON TO REFLECT THE
NUMBER OF CORRESPONDING SHARES THAT ACTUALLY WILL BE ISSUED ON OR AFTER
SUCH DATE.
INFORMATION CONCERNING THE MEETING
DATE, TIME AND PLACE OF MEETING
The Meeting will be held on February 25, 2000, at the Stamford Marriot, 2
Stamford Forum, Stamford, Connecticut, at 4:00 p.m., Eastern Time.
SOLICITATION, REVOCATION AND USE OF PROXIES
A shareholder executing and returning a proxy has the power to revoke it at
any time prior to its exercise by executing a superseding proxy or by submitting
a notice of revocation to the Secretary of the Dogs of the Market Fund or the
Aggressive Growth Fund, as the case may be. Although mere attendance at the
Meeting will not revoke a proxy, a shareholder present at the Meeting may
withdraw his or her proxy and vote in person.
All shares represented by properly executed proxies received at or prior to
the Meeting, unless such proxies previously have been revoked, will be voted at
the Meeting in accordance with the directions on the proxies; if no direction is
indicated on a properly executed proxy, such shares will be voted "FOR" approval
of the respective Plan.
It is not anticipated that any matters other than the adoption of the
respective Plan will be brought before the Meeting. If, however, any other
business properly is brought before the Meeting, proxies will be voted in
accordance with the judgment of the persons designated on such proxies.
-38-
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of shares of the Acquired Funds at the close of
business on January 5, 2000 (the "Record Date") are entitled to vote at the
Meeting or any adjournment thereof. At the close of business on the Record Date,
there were 1,059,336.310 and 818,391.462 shares of the Dogs of the Market Fund
and the Aggressive Growth Fund, respectively, issued and outstanding and
entitled to vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE FUNDS
To the knowledge of each Fund, as of the December 31, 1999, the following
shareholders, if any, owned more than 5% of the outstanding voting securities of
such Fund:
NAME AND ADDRESS PERCENTAGE AND
NAME OF FUND OF SHAREHOLDER TYPE OF OWNERSHIP
- ------------ -------------- -----------------
Dogs of the Market Fund Charles Schwab & Co., Inc. 28.88%; record ownership
101 Montgomery Street
San Francisco, California
94104
Merrill Lynch Pierce Fenner & Smith Inc., 6.74%; record ownership
for the Sole Benefit of its Customers
4800 Deer Lake Dr. E. Fl. 3
Jacksonville, Florida 32246
Aggressive Growth Fund Charles Schwab & Co., Inc. 21.54%; record ownership
for the Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, California
94104
National Investor Services Corp. for 7.55%; record ownership
the Exclusive Benefit of Customers
55 Water Street, Fl. 32
New York, New York 10041
Cornerstone Value Fund Charles Schwab & Co., Inc. 41.75%; record ownership
101 Montgomery Street
San Francisco, California
94104
National Investor Services Corp. for 6.93%; record ownership
the Exclusive Benefit of Customers
55 Water Street, Fl. 32
New York, New York 10041
Cornerstone Growth Fund Charles Schwab & Co., Inc. 31.78%; record ownership
101 Montgomery Street
San Francisco, California
94104
Enjayco Omnibus Account 13.95%; record ownership
P.O. Box 17909
Milwaukee, Wisconsin 53217
-39-
Assuming that Charles Schwab & Co., Inc. ("Charles Schwab") owns the same
number of shares of the Dogs of the Market Fund, the Aggressive Growth Fund, the
Cornerstone Value Fund and the Cornerstone Growth Fund on the date of
consummation of the Reorganizations as on December 31, 1999, Charles Schwab will
own of record, on a pro form basis, 1,178,246.309 and 3,239,897.796 shares of
the Value Combined Fund and Growth Combined Fund, respectively, after completion
of the Reorganizations.
Assuming that Merrill Lynch Pierce Fenner & Smith Inc. ("Merrill Lynch")
owns the same number of shares of the Dogs of the Market Fund on the date of
consummation of the Value Funds Reorganization as on December 31, 1999, Merrill
Lynch will own of record, on a pro forma basis, 114,614.114 shares of the Value
Combined Fund after completion of the Value Funds Reorganization.
Assuming that National Investor Services Corp. owns the same number of
shares of the Aggressive Growth Fund and the Cornerstone Value Fund on the date
of consummation of the Reorganizations as on December 31, 1999, National
Investor Services Corp. will own of record, on a pro forma basis 183,840.513 and
522,959.374 shares of the Value Combined Fund and the Growth Combined Fund,
respectively, after completion of the Reorganizations.
Assuming that Enjayco Omnibus Account owns the same number of shares of the
Cornerstone Growth Fund on the date of consummation of the Growth Funds
Reorganization as on December 31, 1999, Enjayco Omnibus Account will own of
record, on a pro forma basis, 1,344,427.212 shares of the Growth Combined Fund
after completion of the Growth Funds Reorganization.
At December 31, 1999, the directors and officers of the O'Shaughnessy Funds
as a group (12 persons) owned an aggregate of less than 1% of the outstanding
shares of the Dogs of the Market Fund and owned an aggregate of less than 1% of
the outstanding shares of common stock of O'Shaughnessy Funds.
At December 31, 1999, the directors and officers of the O'Shaughnessy Funds
as a group (12 persons) owned an aggregate of less than 1% of the outstanding
shares of the Aggressive Growth Fund and owned an aggregate of less than 1% of
the outstanding shares of common stock of O'Shaughnessy.
At December 31, 1999, the directors and officers of the O'Shaughnessy Funds
as a group (12 persons) owned an aggregate of less than 1% of the outstanding
shares of the Cornerstone Value Fund and owned an aggregate of less than 1% of
the outstanding shares of common stock of O'Shaughnessy Funds.
At December 31, 1999, the directors and officers of the O'Shaughnessy Funds
as a group (12 persons) owned an aggregate of less than 1% of the outstanding
shares of the Cornerstone Growth Fund and owned an aggregate of less than 1% of
the outstanding shares of common stock of O'Shaughnessy Funds.
VOTING RIGHTS AND REQUIRED VOTE
Each share of an Acquired Fund is entitled to one vote. Approval of the
Value Funds Agreement and Plan and the Growth Funds Agreement and Plan requires
the affirmative vote of shareholders of the Dogs of the Market Fund and the
Aggressive Growth Fund, respectively, representing a majority of the total votes
entitled to be cast thereon.
Broker-dealer firms holding shares of any of the Acquired Funds in "street
name" for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares before
the Meeting. Broker-dealer firms will not be permitted to grant voting authority
without instructions with respect to the approval of the Plans. Each of the
Acquired Funds will include shares held of record by broker-dealers as to which
such authority has been granted in its tabulation of the total number of shares
present for purposes of determining whether the necessary quorum of shareholders
exists. Properly executed proxies that are returned but that are marked
"abstain" or broker non-votes will be counted as present for the purposes of
-40-
determining a quorum. Since approval of the Value Funds Agreement and Plan and
Growth Funds Agreement and Plan requires the affirmative vote of shareholders
representing no less than a majority of the shares entitled to vote of the Dogs
of the Market Fund and the Aggressive Growth Fund, respectively, abstentions and
broker non-votes will have the same effect as a vote against approval of the
Value Funds Agreement and Plan or Growth Funds Agreement and Plan, as the case
may be.
A quorum for each Acquired Fund for purposes of the Meeting consists of
one-third of the shares of such Acquired Fund entitled to vote at the Meeting,
present in person or by proxy. If, by the time scheduled for each Meeting, a
quorum of the applicable Acquired Fund's shareholders is not present or if a
quorum is present but sufficient votes in favor of the Value Funds Agreement and
Plan or Growth Funds Agreement and Plan, as the case may be, are not received
from the shareholders of the respective Acquired Fund, the persons named as
proxies may propose one or more adjournments of such Meeting to permit further
solicitation of proxies from shareholders. Any such adjournment will require the
affirmative vote of a majority of the shares of the applicable Acquired Fund
present in person or by proxy and entitled to vote at the session of the Meeting
to be adjourned. The persons named as proxies will vote in favor of any such
adjournment if they determine that adjournment and additional solicitation are
reasonable and in the interests of the shareholders of such Acquired Fund.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form of
proxy, the accompanying Notice and this Proxy Statement and Prospectus will be
borne by the Funds pro rata according to the aggregate net assets of each Fund's
portfolio on the date of the Value Funds Reorganization or Growth Funds
Reorganization, as the case may be. Such expenses are currently estimated to be
approximately $45,000 in the aggregate.
Each of the Acquired Funds will reimburse banks, brokers and others for
their reasonable expenses in forwarding proxy solicitation materials to its
beneficial owners of shares of and will reimburse certain persons that it may
employ for their reasonable expenses in assisting in the solicitation of proxies
from such beneficial owners.
In order to obtain the necessary quorums at the Meetings, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of the Acquired Funds. The cost of soliciting proxies will be borne by
the Acquired Funds on a pro rata basis.
This Proxy Statement and Prospectus does not contain all of the information
set forth in the registration statements and the exhibits relating thereto which
O'Shaughnessy Funds has filed on behalf of the Funds with the Commission under
the Securities Act and the Investment Company Act, to which reference is hereby
made.
The Funds are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith file reports and
other information with the Commission. Proxy material, reports and other
information filed by the Funds (or by O'Shaughnessy Funds on behalf of the
Funds) can be inspected and copied at the public reference facilities of the
Commission in Washington, D.C. and at the New York Regional Office of the
Commission at Seven World Trade Center, New York, New York 10048. Copies of such
materials also can be obtained by mail from the Public Reference Branch, Office
of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates. The Commission
maintains a web site (http://www.sec.gov) that contains the Statement of
Additional Information, the O'Shaughnessy Funds Prospectuses, the O'Shaughnessy
Funds Statement, other material incorporated by reference and other information
regarding the Funds.
-41-
LEGAL PROCEEDINGS
There are no material legal proceedings to which any of the Funds is a
party.
LEGAL OPINIONS
Certain legal matters in connection with the Reorganizations will be passed
upon for the Funds by Swidler Berlin Shereff Friedman, LLP, The Chrysler
Building, 405 Lexington Avenue, New York, New York 10174.
EXPERTS
The financial highlights of the Funds included in this Proxy Statement and
Prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP and McGladrey & Pullen, LLP, independent auditors,
given on their authority as experts in auditing and accounting. The principal
business address of PricewaterhouseCoopers LLP is 1177 Avenue of the Americas,
New York, New York 10036. The principal business address of McGladrey & Pullen,
LLP is 555 Fifth Avenue, New York, New York 10017-2416.
SHAREHOLDER PROPOSALS
A shareholder proposal intended to be presented at any subsequent meeting
of shareholders of an Acquired Fund must be received by such Acquired Fund in a
reasonable time before the Board of Directors' solicitation relating to such
meeting is to be made in order to be considered in such Acquired Fund's proxy
statement and form of proxy relating to the meeting.
By Order of the Board of Directors,
STEVEN J. PAGGIOLI
Secretary, O'Shaughnessy Funds, Inc.
-42-
EXHIBIT I
AGREEMENT AND PLAN OF REORGANIZATION
TABLE OF CONTENTS
1. DEFINED TERMS; SECTIONS AND EXHIBITS; MISCELLANEOUS TERMS. I-1
a. DEFINITIONS I-1
b. USE OF DEFINED TERMS I-4
c. SECTIONS AND EXHIBITS I-4
d. MISCELLANEOUS TERMS I-4
2. THE REORGANIZATION(S) I-4
a. TRANSFER OF ASSETS I-4
b. ASSUMPTION OF LIABILITIES I-4
c. ISSUANCE AND VALUATION OF CORRESPONDING SHARES I-4
d. DISTRIBUTION OF CORRESPONDING SHARES TO ACQUIRED FUND SHAREHOLDERS I-4
e. INTEREST; PROCEEDS I-5
f. VALUATION TIME I-5
g. EVIDENCE OF TRANSFER I-5
h. TERMINATION I-5
i. SEPARATE AGREEMENTS; REORGANIZATIONS NOT CONDITIONED ON EACH OTHER I-5
3. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED FUND I-5
a. FINANCIAL STATEMENTS I-5
b. Intentionally left blank I-5
c. PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION I-5
d. LITIGATION I-5
e. MATERIAL CONTRACTS I-6
f. UNDISCLOSED LIABILITIES I-6
g. TAXES I-6
h. ASSETS I-6
i. CONSENTS I-6
j. N-14 REGISTRATION STATEMENT I-6
k. CAPITALIZATION I-6
4. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING FUND I-7
a. FINANCIAL STATEMENTS I-7
b. Intentionally left blank I-7
c. PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION I-7
d. LITIGATION I-7
e. MATERIAL CONTRACTS I-7
f. UNDISCLOSED LIABILITIES I-7
g. TAXES I-7
h. CONSENTS I-7
i. N-14 REGISTRATION STATEMENT I-7
j. CAPITALIZATION I-8
k. CORRESPONDING SHARES I-8
5. COVENANTS I-8
a. SPECIAL SHAREHOLDERS' MEETING I-8
b. UNAUDITED FINANCIAL STATEMENTS I-8
c. SHARE LEDGER RECORDS OF THE ACQUIRING FUND I-9
d. CONDUCT OF BUSINESS I-9
e. TERMINATION OF THE ACQUIRED FUND I-9
f. FILING OF N-14 REGISTRATION STATEMENT I-9
g. CORRESPONDING SHARES I-9
h. TAX RETURNS I-9
i. COMBINED PROXY STATEMENT AND PROSPECTUS MAILING I-9
j. CONFIRMATIONS OF TAX BASIS I-9
k. SHAREHOLDER LIST I-9
l. THE ACQUIRING FUND'S CONTINUED EXISTENCE I-10
i
6. EXCHANGE DATE I-10
7. CONDITIONS OF THE ACQUIRED FUND I-10
a. REPRESENTATIONS AND WARRANTIES I-10
b. PERFORMANCE I-10
c. SHAREHOLDER APPROVAL I-10
d. APPROVAL OF BOARD OF DIRECTORS OF O'SHAUGHNESSY FUNDS I-10
e. DELIVERIES BY THE ACQUIRING FUND I-10
f. NO ADVERSE CHANGE I-11
g. ABSENCE OF LITIGATION I-11
h. N-14 REGISTRATION STATEMENT I-11
i. COMPLIANCE WITH LAWS; NO ADVERSE ACTION OR DECISION I-11
j. COMMISSION ORDERS OR INTERPRETATIONS I-11
8. CONDITIONS OF THE ACQUIRING FUND I-11
a. REPRESENTATIONS AND WARRANTIES I-11
b. PERFORMANCE I-12
c. SHAREHOLDER APPROVAL I-12
d. APPROVAL OF BOARD OF DIRECTORS OF O'SHAUGHNESSY FUNDS I-12
e. DELIVERIES BY THE ACQUIRED FUND I-12
f. NO ADVERSE CHANGE I-12
g. ABSENCE OF LITIGATION I-12
h. N-14 REGISTRATION STATEMENT I-12
i. COMPLIANCE WITH LAWS; NO ADVERSE ACTION OR DECISION I-12
j. COMMISSION ORDERS OR INTERPRETATIONS I-12
k. DIVIDENDS I-12
9. TERMINATION, POSTPONEMENT AND WAIVERS I-12
a. TERMINATION OF AGREEMENT I-13
b. COMMISSION ORDER I-13
c. EFFECT OF TERMINATION I-13
d. WAIVERS; NON-MATERIAL CHANGES I-13
10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION I-13
a. SURVIVAL I-14
b. INDEMNIFICATION OBLIGATIONS OF THE ACQUIRED FUND I-14
c. INDEMNIFICATION OBLIGATIONS OF THE ACQUIRING FUND I-14
d. INDEMNIFICATION PROCEDURE I-14
11. OTHER MATTERS I-15
a. LEGEND I-15
b. FURTHER ASSURANCES I-15
c. NOTICEs I-15
d. ENTIRE AGREEMENT I-16
e. AMENDMENT I-16
f. GOVERNING LAW I-16
g. ASSIGNMENT I-16
h. FEES AND EXPENSES I-16
i. SEVERABILITY I-16
j. HEADINGS I-16
k. COUNTERPARTS I-16
ii
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the 5th day of January, 2000, by and between O'SHAUGHNESSY FUNDS, INC.
("O'Shaughnessy Funds") on behalf of each Acquired Fund (as defined herein) and
each Acquiring Fund (as defined herein), each a separate investment portfolio of
O'Shaughnessy Funds.
PLANS OF REORGANIZATION
WHEREAS, this Agreement constitutes a separate agreement and plan of
reorganization between each of the following group of parties: (i) the
O'Shaughnessy Dogs of the Market(TM) Fund (the "Dogs of the Market Fund") and
the O'Shaughnessy Cornerstone Value Fund (the "Cornerstone Value Fund," and
together with the Dogs of the Market Fund, the "Value Funds") and (ii) the
O'Shaughnessy Aggressive Growth Fund (the "Aggressive Growth Fund") and the
O'Shaughnessy Cornerstone Growth Fund (the "Cornerstone Growth Fund," and
together with the Aggressive Growth Fund, the "Growth Funds"). The Dogs of the
Market Fund and the Aggressive Growth Fund are sometimes referred to herein
collectively as the "Acquired Funds" and individually as an "Acquired Fund," as
the context requires. The Cornerstone Value Fund and the Cornerstone Growth Fund
are sometimes referred to herein collectively as the "Acquiring Funds" and
individually as an "Acquiring Fund," as the context requires;
WHEREAS, each reorganization will consist of (i) the acquisition of an
Acquired Fund's Assets (as defined herein), and assumption of that Acquired
Fund's Assumed Liabilities (as defined herein), by the respective Acquiring Fund
solely in exchange for an aggregate value of shares of such Acquiring Fund (the
"Corresponding Shares"), equal to the net asset value of such Acquired Fund's
Assets determined in accordance with Section 2(c) hereof, and (ii) the
subsequent distribution by that Acquired Fund of such Acquiring Fund's
Corresponding Shares to its shareholders in exchange for such shareholders'
respective shares of the Acquired Fund in liquidation of the Acquired Fund (each
a "Reorganization" and collectively, the "Reorganizations");
WHEREAS, it is intended that each Reorganization described herein shall be
a reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"), and any successor provision; and
WHEREAS, the consummation of one Reorganization is not conditioned upon the
consummation of the other Reorganization.
AGREEMENT
NOW, THEREFORE, in order to consummate each Reorganization and in
consideration of the premises and the covenants and agreements hereinafter set
forth, and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, and intending to be legally bound, each
Acquired Fund and Acquiring Fund hereby agrees as follows:
1. Defined Terms; Sections and Exhibits; Miscellaneous Terms.
a. Definitions. As used herein the following terms have the following
respective meanings (such definitions to be equally applicable to both the
singular and plural forms of the terms defined):
"ACQUIRED FUND" has the meaning ascribed thereto in the first
paragraph under the heading "Plans of Reorganization" hereof. For purposes of
this Agreement, the term "Acquired Fund" shall refer to the Dogs of the Market
Fund in respect of the Value Funds Reorganization and the Aggressive Growth Fund
in respect of the Growth Funds Reorganization.
"ACQUIRING FUND" has the meaning ascribed thereto in the first
paragraph under the heading "Plans of Reorganization" hereof. For purposes of
this Agreement, the term "Acquiring Fund" shall refer to the Cornerstone Value
Fund in respect of the Value Funds Reorganization and the Cornerstone Growth
Fund in respect of the Growth Funds Reorganization.
I-1
"AGGRESSIVE GROWTH FUND" has the meaning ascribed thereto in the first
paragraph under the heading "Plans of Reorganization" hereof.
"AGREEMENT" has the meaning ascribed thereto in the introduction
hereof.
"ASSETS" has the meaning ascribed thereto in Section 2(a) hereof. For
purposes of this Agreement, the term "Assets" shall refer to the Assets of (i)
the Dogs of the Market Fund in the case of the Value Funds Reorganization and
(ii) the Aggressive Growth Fund in the case of the Growth Funds Reorganization.
"ASSUMED LIABILITIES" has the meaning ascribed thereto in Section 2(b)
hereof. For purposes of this Agreement, the term "Assumed Liabilities" shall
refer to the Assumed Liabilities of (i) the Dogs of the Market Fund in the case
of the Value Funds Reorganization and (ii) the Aggressive Growth Fund in the
case of the Growth Funds Reorganization.
"CODE" has the meaning ascribed thereto in the first paragraph under
the heading "Plans of Reorganization" hereof.
"COMMISSION" shall mean the Securities and Exchange Commission.
"CORNERSTONE GROWTH FUND" has the meaning ascribed thereto in the
first paragraph under the heading "Plans of Reorganization" hereof.
"CORNERSTONE VALUE FUND" has the meaning ascribed thereto in the first
paragraph under the heading "Plans of Reorganization" hereof.
"CORRESPONDING SHARES" has the meaning ascribed thereto in the second
paragraph under the heading "Plans of Reorganization" hereof. For purposes of
this Agreement, the term "Corresponding Shares" shall refer to the Corresponding
Shares of (i) the Cornerstone Value Fund in the case of the Value Funds
Reorganization and (ii) the Cornerstone Growth Fund in the case of the Growth
Funds Reorganization.
"DOGS OF THE MARKET FUND" has the meaning ascribed thereto in the
first paragraph under the heading "Plans of Reorganization" hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCHANGE DATE" has the meaning ascribed thereto in Section 6 hereof.
"FUNDS" shall mean the Value Funds and the Growth Funds.
"GOVERNMENTAL AUTHORITY" shall mean any governmental or
quasi-governmental authority including, without limitation, any Federal, state,
territorial, county, municipal or other governmental or quasi-governmental
agency, board, branch, bureau, commission, court, arbitral body, department or
other instrumentality or political unit or subdivision, whether domestic or
foreign.
"GROWTH FUNDS REORGANIZATION" consists of (i) the acquisition of the
Aggressive Growth Fund's Assets, and assumption of the Aggressive Growth Fund's
Assumed Liabilities, by the Cornerstone Growth Fund solely in exchange for an
aggregate value of Corresponding Shares of the Cornerstone Growth Fund, equal to
the net asset value of the Aggressive Growth Fund's Assets determined in
accordance with Section 2(c) hereof, and (ii) the subsequent distribution by the
Aggressive Growth Fund of such Corresponding Shares to its shareholders in
exchange for such shareholders' respective shares of the Aggressive Growth Fund
in liquidation of the Aggressive Growth Fund.
"INDEMNIFIED PARTY" has the meaning ascribed thereto in Section 10(b)
hereof.
"INDEMNIFYING PARTY" has the meaning ascribed thereto in Section 10(b)
hereof.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended.
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"INVESTMENTS" shall mean, with respect to each Person, (i) the
investments of such Person shown on the schedule of its investments as of the
date set forth therein; and (ii) all other assets owned by such Person or
liabilities incurred as of such date.
"LIEN" shall mean any security agreement, financing statement (whether
or not filed), mortgage, lien (statutory or otherwise), charge, pledge,
hypothecation, conditional sales agreement, adverse claim, title retention
agreement or other security interest, encumbrance, restriction, deed of trust,
indenture, option, limitation, exception to or other title defect in or on any
interest or title of any vendor, lessor, lender or other secured party to or of
such Person under any conditional sale, lease, consignment, or bailment given
for security purposes, trust receipt or other title retention agreement with
respect to any property or asset of such Person, whether direct, indirect,
accrued or contingent.
"LOSSES" has the meaning ascribed thereto in Section 10(b) hereof.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, any
event, circumstance or condition that, individually or when aggregated with all
other similar events, circumstances or conditions could reasonably be expected
to have, or has had, a material adverse effect on: (i) the business, property,
operations, condition (financial or otherwise), results of operations or
prospects of such Person or (ii) the ability of such Person to consummate the
transactions contemplated hereunder in the manner contemplated hereby, other
than, in each case, any change relating to the economy or securities markets in
general.
"N-14 REGISTRATION STATEMENT" has the meaning ascribed thereto in
Section 3(j) hereof.
"O'SHAUGHNESSY FUNDS" has the meaning ascribed thereto in the
introduction hereof.
"O'SHAUGHNESSY FUNDS STATEMENT OF ADDITIONAL INFORMATION" shall mean
the combined statement of additional information of the Funds, dated as of
November 30, 1998, as amended or supplemented.
"PERMITTED LIENS" shall mean, with respect to any Person, any Lien
arising by reason of (i) taxes, assessments, governmental charges or claims that
are either not yet delinquent, or being contested in good faith for which
adequate reserves have been recorded, (ii) the Federal or state securities laws,
and (iii) imperfections of title or encumbrances as do not materially detract
from the value or use of the Assets or materially affect title thereto.
"PERSON" shall mean any individual, corporation, limited liability
company, limited or general partnership, joint venture, association, joint stock
company, trust, unincorporated organization, or government or any agency or
political subdivision thereof.
"PROHIBITED ASSETS" has the meaning ascribed thereto in Section 2(a)
hereof. For purposes of this Agreement, the term "Prohibited Assets" shall refer
to the Prohibited Assets of (i) the Dogs of the Market Fund in the case of the
Value Funds Reorganization and (ii) the Aggressive Growth Fund in the case of
the Growth Funds Reorganization.
"REORGANIZATION" and "REORGANIZATIONs" have the meanings ascribed
thereto in the first paragraph under the heading "Plans of Reorganization"
hereof. For purposes of this Agreement, the term "Reorganization" shall refer to
the Value Funds Reorganization or the Growth Fund Reorganization, as the context
requires.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SBSF" has the meaning ascribed thereto in Section 6 hereof.
"VALUATION TIME" has the meaning ascribed thereto in Section 2(f)
hereof.
"VALUE FUNDS REORGANIZATION" consists of (i) the acquisition of the
Dogs of the Market Fund's Assets, and assumption of the Dogs of the Market
Fund's Assumed Liabilities, by the Cornerstone Value Fund solely in exchange for
an aggregate value of Corresponding Shares of the Cornerstone Value Fund, equal
to the net asset value of the Dogs of the Market Fund's Assets determined in
accordance with Section 2(c) hereof, and (ii) the subsequent distribution by the
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Dogs of the Market Fund of such Corresponding Shares to its shareholders in
exchange for such shareholders' respective shares of the Dogs of the Market Fund
in liquidation of the Dogs of the Market Fund.
b. Use of Defined Terms. Any defined term used in the plural shall refer to
all members of the relevant class, and any defined term used in the singular
shall refer to any one or more of the members of the relevant class. The use of
any gender shall be applicable to all genders.
c. Sections and Exhibits. References in this Agreement to Sections and
Exhibits are to Sections and Exhibits of and to this Agreement. The Exhibits, if
any, to this Agreement are hereby incorporated herein by this reference as if
fully set forth herein.
d. Miscellaneous Terms. The term "or" shall not be exclusive. The terms
"herein," "hereof," "hereto," "hereunder" and other terms similar to such terms
shall refer to this Agreement as a whole and not merely to the specific article,
section, paragraph or clause where such terms may appear. The term "including"
shall mean "including, but not limited to."
2. The Reorganization(s).
a. Transfer of Assets. Subject to receiving the requisite approval of the
shareholders of the Acquired Fund, and to the other terms and conditions
contained herein, on the Exchange Date, the Acquired Fund shall convey, transfer
and deliver to the Acquiring Fund, and the Acquiring Fund shall purchase,
acquire and accept from the Acquired Fund, free and clear of all Liens (other
than Permitted Liens), substantially all of the assets (including interest
accrued as of the Valuation Time on debt instruments) of the Acquired Fund (as
to each Acquired Fund, such assets (excluding the Prohibited Assets) are
collectively referred to herein as the "Assets"). Notwithstanding anything to
the contrary in this Agreement, the Acquired Fund shall retain and shall not
convey, transfer or deliver to the Acquiring Fund, and the Acquiring Fund shall
not purchase, acquire or accept any Assets that the Acquiring Fund advises the
Acquired Fund in writing it is not permitted to acquire (collectively, the
"Prohibited Assets").
b. Assumption of Liabilities. Subject to receiving the requisite approval
of the shareholders of the Acquired Fund, and to the other terms and conditions
contained herein, on the Exchange Date, the Acquiring Fund will assume and agree
to pay, perform and discharge when due substantially all of the obligations and
liabilities of the Acquired Fund then existing, whether absolute, accrued,
contingent or otherwise (with respect to each Acquired Fund, collectively, the
"Assumed Liabilities"); PROVIDED that recourse for such liabilities will be
limited to the net Assets of the Acquired Fund acquired by the Acquiring Fund
hereunder.
c. Issuance and Valuation of Corresponding Shares. Full Corresponding
Shares, and to the extent necessary, a fractional Corresponding Share, of an
aggregate net asset value equal to the net asset value of the Assets of the
Acquired Fund acquired by the Acquiring Fund hereunder, determined as
hereinafter provided, shall be issued by the Acquiring Fund to the Acquired Fund
in exchange for the Assets. The net asset value of each of the Acquired Fund and
the Acquiring Fund shall be determined in accordance with the procedures
described in the O'Shaughnessy Funds Statement of Additional Information as of
the Valuation Time. Such valuation and determination shall be made by the
Acquiring Fund in cooperation with the Acquired Fund. The Acquiring Fund shall
issue its Corresponding Shares to the Acquired Fund in one certificate or share
deposit receipt registered in the name of the Acquired Fund.
d. Distribution of Corresponding Shares to Acquired Fund Shareholders.
Pursuant to this Agreement, as soon as practicable after the Valuation Time, the
Acquired Fund will distribute all Corresponding Shares received by it from the
Acquiring Fund in connection with the Reorganization to its shareholders in
exchange for their corresponding shares in the Acquired Fund. Such distribution
shall be accomplished by the opening of shareholder accounts on the share ledger
records of the Acquiring Fund in the amounts due the shareholders of the
Acquired Fund based on their respective holdings in the Acquired Fund as of the
Valuation Time and the delivery by the Acquired Fund of the certificate or share
deposit receipt evidencing the Corresponding Shares received by it from the
Acquiring Fund hereunder to Firstar Mutual Fund Services, LLC, as the transfer
agent; PROVIDED, HOWEVER, that the Acquiring Fund shall not permit any such
shareholder of the Acquired Fund to (i) receive dividends or other distributions
on Corresponding Shares in cash (although such dividends and distributions shall
be credited to the account of such shareholder established on the Acquiring
Fund's books in accordance with this Section), (ii) exercise exchange privileges
with respect to such Corresponding Shares, if any, or (iii) pledge or redeem
such Corresponding Shares unless such shareholder has delivered a certificate or
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certificates evidencing his or her shares in the Acquired Fund accompanied by
duly executed stock powers, duly surrendered his or her outstanding receipts for
shares of the Acquired Fund or, in the event of lost, stolen or destroyed stock
certificates or receipts for shares, posted adequate bond or submitted a lost
certificate affidavit, as the case may be. The Acquired Fund shall, at its
expense, request its shareholders to deliver any such stock certificate(s),
surrender such receipts for shares, post adequate bond or submit a lost
certificate affidavit, as the case may be. In the event that a shareholder is
not permitted to receive dividends or other distributions on Corresponding
Shares in cash as provided in this Section, the Acquiring Fund shall pay such
dividends or other distributions in additional Corresponding Shares,
notwithstanding any election such shareholder may have made previously with
respect to the payment of dividends or other distributions on Corresponding
Shares.
e. Interest; Proceeds. The Acquired Fund will pay or cause to be paid to
the Acquiring Fund any interest or proceeds it receives on or after the Exchange
Date with respect to its Assets.
f. Valuation Time. The Valuation Time shall be 4:00 P.M., Eastern Time, on
March 3, 2000, or such earlier or later day and time as may be mutually agreed
upon in writing between the parties hereto (the "Valuation Time").
g. Evidence of Transfer. The Acquiring Fund and the Acquired Fund will
jointly file any instrument as may be required by the State of Maryland to
effect the transfer of the Assets to the Acquiring Fund.
h. Termination. The Acquired Fund's existence as a separate portfolio of
O'Shaughnessy Funds will be terminated as soon as practicable following the
Exchange Date by making any required filings with the State of Maryland.
i. Separate Agreements; Reorganizations not Conditioned on Each Other. Each
of the respective parties hereto hereby agrees that this Agreement shall
constitute a separate agreement and plan of reorganization between (i) the Value
Funds in respect of the Value Funds Reorganization and (ii) the Growth Funds in
respect of the Growth Funds Reorganization. The respective parties further agree
that the consummation of the Value Funds Reorganization shall not be conditioned
on the consummation of the Growth Funds Reorganization and the consummation of
the Growth Funds Reorganization shall not be conditioned on the consummation of
the Value Funds Reorganization.
3. Representations and Warranties of the Acquired Fund.
The Acquired Fund represents and warrants to the Acquiring Fund as follows:
a. Financial Statements. The Acquiring Fund has been furnished with an
accurate, correct and complete statement of assets and liabilities and a
schedule of Investments of the Acquired Fund, (i) each as of September 30, 1998,
said financial statements having been examined by McGladrey & Pullen, LLP,
independent public accountants and (ii) each as of September 30, 1999, said
financial statements having been examined by PricewaterhouseCoopers LLP,
independent public accountants. Such examined financial statements fairly
present in all material respects the financial position of the Acquired Fund as
of the dates and for the periods referred to therein and in conformity with
generally accepted accounting principles applied on a consistent basis.
b. Intentionally left blank
c. Prospectus and Statement of Additional Information. The Acquiring Fund
has been furnished with the Acquired Fund's Prospectus, dated November 30, 1998,
as amended or supplemented, and said Prospectus does not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Insofar as it relates
to the Acquired Fund, the O'Shaughnessy Funds Statement of Additional
Information does not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
d. Litigation. There are no material claims, actions, suits or legal,
administrative or other proceedings pending or, to the knowledge of the Acquired
Fund, threatened against the Acquired Fund that could reasonably be expected to
have a Material Adverse Effect on the Acquired Fund. The Acquired Fund is not
charged with or, to its knowledge, threatened with any violation, or
investigation of any possible violation, of any provisions of any Federal, state
or local law or regulation or administrative ruling relating to any aspect of
its business that could reasonably be expected to have a Material Adverse Effect
on the Acquired Fund.
I-5
e. Material Contracts. There are no material contracts outstanding to which
O'Shaughnessy Funds, on behalf of the Acquired Fund, is a party that have not
been disclosed in the N-14 Registration Statement, the Acquired Fund's
Prospectus, the O'Shaughnessy Funds Statement of Additional Information or which
will not otherwise be disclosed to the Acquiring Fund prior to the Valuation
Time.
f. Undisclosed Liabilities. To its knowledge, the Acquired Fund has no
material liabilities, contingent or otherwise, other than those shown on its
statements of assets and liabilities referred to herein, those incurred in the
ordinary course of its business since September 30, 1999, and those incurred in
connection with the Reorganization.
g. Taxes. The Acquired Fund has filed (or caused to be filed), or has
obtained extensions to file, all Federal, state and local tax returns which are
required to be filed by it, and has paid (or caused to be paid) or has obtained
extensions to pay, all taxes shown on said returns to be due and owing and all
assessments received by it, up to and including the taxable year in which the
Exchange Date occurs. All tax liabilities of the Acquired Fund have been
adequately provided for on its books, and no tax deficiency or liability of the
Acquired Fund has been asserted and no question with respect thereto has been
raised by the Internal Revenue Service or by any state or local tax authority
for taxes in excess of those already paid, up to and including the taxable year
in which the Exchange Date occurs.
h. Assets. The Acquired Fund has good and marketable title to the Assets,
free and clear of all Liens, except for Permitted Liens. The Acquired Fund is
the direct sole and exclusive owner of the Assets. At the Exchange Date, upon
consummation of the transactions contemplated hereby, the Acquiring Fund will
have good and marketable title to the Assets, free and clear of all Liens,
except for Permitted Liens.
i. Consents. No filing or registration with, or consent, approval,
authorization or order of, any Person is required for the consummation by the
Acquired Fund of the Reorganization, except for (i) such as may be required
under the Securities Act, the Exchange Act, and the Investment Company Act or
state securities laws (which term as used herein shall include the laws of the
District of Columbia and Puerto Rico), (ii) the approval of not less than a
majority of the shares of the Acquired Fund entitled to vote thereon, and (iii)
the approval of a majority of the members of the Board of Directors of
O'Shaughnessy Funds.
j. N-14 Registration Statement. The registration statement filed, or to be
filed, by O'Shaughnessy Funds on Form N-14 relating to the Corresponding Shares
to be issued pursuant to this Agreement, which includes the proxy statement of
the Acquired Fund and the prospectus of the Acquiring Fund with respect to the
transactions contemplated herein, and any supplement or amendment thereto or to
the documents therein (as amended, the "N-14 Registration Statement"), on the
effective date of the N-14 Registration Statement, at the time of the
shareholders' meeting referred to in Section 5(a) hereof and on the Exchange
Date, insofar as it relates to the Acquired Fund (i) complied, or will comply,
as the case may be, in all material respects, with the applicable provisions of
the Securities Act, the Exchange Act and the Investment Company Act and the
rules and regulations promulgated thereunder, and (ii) did not, or will not, as
the case may be, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; PROVIDED, HOWEVER, that the representations and warranties in
this subsection shall apply only to statements in or omissions from the N-14
Registration Statement made in reliance upon and in conformity with information
furnished by the Acquired Fund for use in the N-14 Registration Statement.
k. Capitalization. The Acquired Fund is authorized to issue 25,000,000,000
shares of a single class, par value $0.0001 per share. As of the date hereof,
the Acquired Fund has 1,059,336.310 shares (in the case of the Dogs of the
Market Fund) and 818,391.462 shares (in the case of the Aggressive Growth Fund)
issued and outstanding. All issued and outstanding shares of the Acquired Fund
are duly authorized, validly issued, fully paid and non-assessable and free of
preemptive rights. Except for in connection with any automatic investment and
dividend and distribution reinvestment plan available to its shareholders, there
are no options, warrants, subscriptions, calls or other rights, agreements or
commitments obligating the Acquired Fund to issue any of its shares or
securities convertible into its shares.
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4. Representations and Warranties of the Acquiring Fund.
The Acquiring Fund represents and warrants to the Acquired Fund as follows:
a. Financial Statements. The Acquired Fund has been furnished with an
accurate, correct and complete statement of assets and liabilities and a
schedule of Investments of the Acquiring Fund, (i) each as of September 30,
1998, said financial statements having been examined by McGladrey & Pullen, LLP,
independent public accountants and (ii) each as of September 30, 1999, said
financial statements having been examined by PricewaterhouseCoopers LLP,
independent public accountants. Such examined financial statements fairly
present in all material respects the financial position of the Acquiring Fund as
of the dates and for the periods referred to therein and in conformity with
generally accepted accounting principles applied on a consistent basis.
b. Intentionally left blank.
c. Prospectus and Statement of Additional Information. The Acquired Fund
has been furnished with the Acquiring Fund's Prospectus and said Prospectus does
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Insofar as it relates to the Acquiring Fund, the O'Shaughnessy Funds
Statement of Additional Information does not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
d. Litigation. There are no material claims, actions, suits or legal,
administrative or other proceedings pending or, to the knowledge of the
Acquiring Fund, threatened against the Acquiring Fund that could reasonably be
expected to have a Material Adverse Effect on the Acquiring Fund. The Acquiring
Fund is not charged with or, to its knowledge, threatened with any violation, or
investigation of any possible violation, of any provisions of any Federal, state
or local law or regulation or administrative ruling relating to any aspect of
its business that could reasonably be expected to have a Material Adverse Effect
on the Acquiring Fund.
e. Material Contracts. There are no material contracts outstanding to which
O'Shaughnessy Funds, on behalf of the Acquiring Fund, is a party that have not
been disclosed in the N-14 Registration Statement, the Acquiring Fund's
Prospectus, or the O'Shaughnessy Funds Statement of Additional Information or
which will not otherwise be disclosed to the Acquired Fund prior to the
Valuation Time.
f. Undisclosed Liabilities. To its knowledge, the Acquiring Fund has no
material liabilities, contingent or otherwise, other than those shown on its
statements of assets and liabilities referred to herein, those incurred in the
ordinary course of its business as an investment company since September 30,
1999 and those incurred in connection with the Reorganization.
g. Taxes. The Acquiring Fund has filed (or caused to be filed), or has
obtained extensions to file, all Federal, state and local tax returns which are
required to be filed by it, and has paid (or caused to be paid) or has obtained
extensions to pay, all taxes shown on said returns to be due and owing and all
assessments received by it, up to and including the taxable year in which the
Exchange Date occurs. All tax liabilities of the Acquiring Fund have been
adequately provided for on its books, and no tax deficiency or liability of the
Acquiring Fund has been asserted and no question with respect thereto has been
raised by the Internal Revenue Service or by any state or local tax authority
for taxes in excess of those already paid, up to and including the taxable year
in which the Exchange Date occurs.
h. Consents. No filing or registration with, or consent, approval,
authorization or order of, any Person is required for the consummation by the
Acquiring Fund of the Reorganization, except for (i) such as may be required
under the Securities Act, the Exchange Act, and the Investment Company Act or
state securities laws (which term as used herein shall include the laws of the
District of Columbia and Puerto Rico) and (ii) the approval of a majority of the
members of the Board of Directors of O'Shaughnessy Funds.
i. N-14 Registration Statement. The N-14 Registration Statement, on its
effective date, at the time of the shareholders' meeting referred to in Section
5(a) hereof and on the Exchange Date, insofar as it relates to the Acquiring
Fund (i) complied, or will comply, as the case may be, in all material respects,
with the applicable provisions of the Securities Act, the Exchange Act and the
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Investment Company Act and the rules and regulations promulgated thereunder, and
(ii) did not, or will not, as the case may be, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; PROVIDED, HOWEVER, that the
representations and warranties in this subsection shall apply only to statements
in or omissions from the N-14 Registration Statement made in reliance upon and
in conformity with information furnished by the Acquiring Fund for use in the
N-14 Registration Statement.
j. Capitalization. The Acquiring Fund is authorized to issue 25,000,000,000
shares of a single class, par value $0.0001 per share. As of the date hereof,
the Acquiring Fund has 2,063,520.557 shares (in the case of the Cornerstone
Value Fund) and 9,670,207.142 shares (in the case of the Cornerstone Growth
Fund) issued and outstanding. All issued and outstanding shares of the Acquiring
Fund are duly authorized, validly issued, fully paid and non-assessable and free
of preemptive rights. Except for in connection with any automatic investment and
dividend and distribution reinvestment plan available to its shareholders, there
are no options, warrants, subscriptions, calls or other rights, agreements or
commitments obligating the Acquiring Fund to issue any of its shares or
securities convertible into its shares.
k. Corresponding Shares.
i. The Corresponding Shares to be issued by the Acquiring Fund to the
Acquired Fund and subsequently distributed by the Acquired Fund to its
shareholders as provided in this Agreement have been duly and validly
authorized and, when issued and delivered pursuant to this Agreement, will
be legally and validly issued and will be fully paid and nonassessable and
will have full voting rights, and no shareholder of the Acquiring Fund will
have any preemptive right of subscription or purchase in respect thereof.
ii. At or prior to the Exchange Date, the Corresponding Shares to be
issued by the Acquiring Fund to the Acquired Fund on the Exchange Date will
be duly qualified for offering to the public in all states of the United
States in which the sale of shares of the Acquiring Fund presently are
qualified, and there are a sufficient number of such shares registered
under the Securities Act, the Investment Company Act and with each
pertinent state securities commission to permit the transfers contemplated
by this Agreement to be consummated.
5. Covenants.
a. Special Shareholders' Meeting. The Acquired Fund agrees to call a
special meeting of its shareholders as soon as practicable after the effective
date of the N-14 Registration Statement for the purpose of considering the
Reorganization as described in this Agreement.
b. Unaudited Financial Statements.
i. The Acquired Fund hereby agrees to furnish to the Acquiring Fund,
at or prior to the Exchange Date, for the purpose of determining the number
of Corresponding Shares to be issued by the Acquiring Fund to the Acquired
Fund pursuant to Section 2(c) hereof, an accurate, correct and complete
unaudited statement of assets and liabilities of the Acquired Fund with
values determined in accordance with Section 2(c) hereof and an unaudited
schedule of Investments of the Acquired Fund (including the respective
dates and costs of acquisition thereof), each as of the Valuation Time.
Such unaudited financial statements will fairly present in all material
respects the financial position of the Acquired Fund as of the dates and
for the periods referred to therein and in conformity with generally
accepted accounting principles applied on a consistent basis.
ii. The Acquiring Fund hereby agrees to furnish to the Acquired Fund,
at or prior to the Exchange Date, for the purpose of determining the number
of Corresponding Shares to be issued by the Acquiring Fund to the Acquired
Fund pursuant to Section 2(c) hereof, an accurate, correct and complete
unaudited statement of assets and liabilities of the Acquiring Fund with
values determined in accordance with Section 2(c) hereof and an unaudited
schedule of Investments of the Acquiring Fund (including the respective
dates and costs of acquisition thereof), each as of the Valuation Time.
Such unaudited financial statements will fairly present in all material
respects the financial position of the Acquiring Fund as of the dates and
for the periods referred to therein and in conformity with generally
accepted accounting principles applied on a consistent basis.
I-8
c. Share Ledger Records of the Acquiring Fund. The Acquiring Fund agrees,
as soon as practicable after the Valuation Time, to open shareholder accounts on
its share ledger records for the shareholders of the Acquired Fund in connection
with the distribution of Corresponding Shares by the Acquired Fund to such
shareholders in accordance with Section 2(c) hereof.
d. Conduct of Business. The Acquired Fund and the Acquiring Fund covenant
and agree to operate their respective businesses as presently conducted between
the date hereof and the Exchange Date; PROVIDED, HOWEVER, that the Acquired Fund
shall be permitted to sell those Assets that constitute Prohibited Assets.
e. Termination of the Acquired Fund. O'Shaughnessy Funds agrees that
following the consummation of the Reorganization, (i) it will terminate the
existence of the Acquired Fund in accordance with the laws of the State of
Maryland and any other applicable law; (ii) it will not make on behalf of the
Acquired Fund any distributions of any Corresponding Shares other than to the
shareholders of the Acquired Fund and without first paying or adequately
providing for the payment of all of the liabilities of the Acquired Fund not
assumed hereunder, if any; and (iii) on and after the Exchange Date it shall not
conduct any business on behalf of the Acquired Fund except in connection with
the termination of the Acquired Fund.
f. Filing of N-14 Registration Statement. O'Shaughnessy Funds will file the
N-14 Registration Statement with the Commission and will use its best efforts to
cause the N-14 Registration Statement to become effective as promptly as
practicable after the filing thereof.
g. Corresponding Shares. The Acquired Fund agrees that it will not sell or
otherwise dispose of any of the Corresponding Shares to be received by it from
the Acquiring Fund in connection with the Reorganization, except in distribution
to the shareholders of the Acquired Fund in accordance with the terms hereof.
h. Tax Returns. Each of the respective parties hereto agrees that by the
Exchange Date all of its Federal and other tax returns and reports required to
be filed on or before such date shall have been filed and all taxes shown as due
on said returns either shall have been paid or adequate liability reserves shall
have been provided for the payment of such taxes. In connection with this
provision, each of the respective parties hereto agrees to cooperate with each
other in filing any tax return, amended return or claim for refund, determining
a liability for taxes or a right to a refund of taxes or participating in or
conducting any audit or other proceeding in respect of taxes. The Acquiring Fund
agrees to retain for a period of ten (10) years following the Exchange Date all
returns, schedules and work papers and all material records or other documents
relating to tax matters of the Acquiring Fund for its taxable period first
ending after the Exchange Date and for all prior taxable periods. Any
information obtained under this subsection shall be kept confidential except as
otherwise may be necessary in connection with the filing of returns or claims
for refund or in conducting an audit or other proceeding. After the Exchange
Date, the Acquired Fund shall prepare, or cause its agents to prepare, any
Federal, state or local tax returns, including any Forms 1099, required to be
filed by the Acquired Fund with respect to the Acquired Fund's final taxable
year ending with its complete liquidation and for any prior periods or taxable
years and further shall cause such tax returns and Forms 1099 to be duly filed
with the appropriate taxing authorities. Notwithstanding any of the foregoing,
any expenses incurred by an Acquired Fund (other than for payment of taxes) in
connection with the preparation and filing of said tax returns and Forms 1099
after the Exchange Date shall be borne by the Acquired Fund to the extent such
expenses have been accrued by the Acquired Fund in the ordinary course of
business without regard to the Reorganization; any excess expenses shall be
borne by O'Shaughnessy Capital Management, Inc. at the time such tax returns and
Forms 1099 are prepared.
i. Combined Proxy Statement and Prospectus Mailing. The Acquired Fund
agrees to mail to its shareholders of record entitled to vote at the special
meeting of shareholders at which action is to be considered regarding this
Agreement, in sufficient time to comply with requirements as to notice thereof,
a combined Proxy Statement and Prospectus which complies in all material
respects with the applicable provisions of Section 14(a) of the Exchange Act and
Section 20(a) of the Investment Company Act, and the rules and regulations
promulgated thereunder.
j. Confirmations of Tax Basis. The Acquired Fund will deliver to the
Acquiring Fund on the Exchange Date confirmations or other adequate evidence as
to the tax basis of each of the Assets delivered to the Acquiring Fund
hereunder, certified by PricewaterhouseCoopers LLP.
k. Shareholder List. As soon as practicable after the close of business on
the Exchange Date, the Acquired Fund shall deliver to the Acquiring Fund a list
of the names and addresses of all of the shareholders of record of the Acquired
Fund on the Exchange Date and the number of shares of the Acquired Fund owned by
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each such shareholder as of such date, certified to the best of its knowledge
and belief by the transfer agent or by O'Shaughnessy Funds on behalf of the
Acquired Fund.
l. The Acquiring Fund's Continued Existence. Following the consummation of
the Reorganization, the Acquiring Fund expects, and agrees to use all reasonable
efforts, to stay in existence and continue its business as a separate portfolio
of an open-end management investment company registered under the Investment
Company Act.
6. Exchange Date. The closing of the transactions contemplated by this Agreement
shall be at the offices of Swidler Berlin Shereff Friedman, LLP ("SBSF"), The
Chrysler Building, 405 Lexington Avenue, New York, New York, at 10:00 A.M. on
the next full business day following the Valuation Time, or at such other place,
time and date agreed to by each of the respective parties hereto. The date and
time upon which such closing is to take place shall be referred to herein as the
"Exchange Date." Except with respect to Prohibited Assets, to the extent that
any of the Assets, for any reason, are not transferable on the Exchange Date,
the Acquired Fund shall cause such Assets to be transferred to the Acquiring
Fund's account with Firstar Bank Milwaukee at the earliest practicable date
thereafter.
7. Conditions of the Acquired Fund.
The obligations of the Acquired Fund hereunder shall be subject to the
satisfaction, at or before the Exchange Date (or such other date specified
herein), of the conditions set forth below. The benefit of these conditions is
for the Acquired Fund only and may be waived, in whole or in part, by the
Acquired Fund at any time in its sole discretion.
a. Representations and Warranties. The representations and warranties of
the Acquiring Fund made in this Agreement shall be true and correct in all
material respects when made, as of the Valuation Time and as of the Exchange
Date all with the same effect as if made at and as of such dates, except that
any representations and warranties that relate to a particular date or period
shall be true and correct in all material respects as of such date or period.
b. Performance. The Acquiring Fund shall have performed, satisfied and
complied with all covenants, agreements and conditions required to be performed,
satisfied or complied with by it under this Agreement at or prior to the
Exchange Date.
c. Shareholder Approval. This Agreement shall have been adopted, and the
Reorganization shall have been approved, by the affirmative vote of the holders
of not less than a majority of the shares of the Acquired Fund, issued and
outstanding and entitled to vote thereon, voting together as a single class.
d. Approval of Board of Directors of O'Shaughnessy Funds. This Agreement
shall have been adopted and the Reorganization shall have been approved by the
Board of Directors of O'Shaughnessy Funds.
e. Deliveries by the Acquiring Fund. At or prior to the Exchange Date, the
Acquiring Fund shall deliver to the Acquired Fund, against receipt of the
Acquired Fund's Assets in accordance with Section 2(a) hereof, the following:
i. the unaudited financial statements of the Acquiring Fund required
by Section 5(b)(ii) hereof;
ii. an opinion of SBSF, in form and substance satisfactory to the
Acquired Fund, substantially to the effect that, for Federal income tax
purposes, (i) the transfer of the Assets to the Acquiring Fund in exchange
solely for the Corresponding Shares and the assumption by the Acquiring
Fund of the Assumed Liabilities as provided for in this Agreement should
constitute a reorganization within the meaning of Section 368(a)(1)(C) of
the Code, and (ii) assuming that such transfer, exchange and assumption
qualifies as a reorganization within the meaning of Section 368(a)(1)(C) of
the Code: (a) each of the respective parties hereto will be deemed to be a
"party" to the Reorganization within the meaning of Section 368(b) of the
Code; (b) in accordance with Section 361(a), 361(c)(1) and 357(a) of the
Code, no gain or loss will be recognized by the Acquired Fund on the
acquisition of the Assets, and assumption of the Assumed Liabilities, by
the Acquiring Fund solely in exchange for the Corresponding Shares or on
the distribution of the Corresponding Shares to the Acquired Fund's
shareholders as provided for in this Agreement; (c) under Section 1032 of
the Code, no gain or loss will be recognized by the Acquiring Fund on the
receipt of the Assets in exchange for the Corresponding Shares and the
assumption by the Acquiring Fund of the Assumed Liabilities as provided for
in this Agreement; (d) in accordance with Section 354(a)(1) of the Code, no
gain or loss will be recognized by a shareholder of the Acquired Fund on
I-10
the receipt of Corresponding Shares in the Reorganization solely in
exchange for its shares of the Acquired Fund; (e) in accordance with
Section 362(b) of the Code, the tax basis of the Assets in the hands of the
Acquiring Fund will be the same as the tax basis of such Assets in the
hands of the Acquired Fund immediately prior to the consummation of the
Reorganization; (f) in accordance with Section 358 of the Code, immediately
after the Reorganization, the tax basis of the Corresponding Shares
received by a shareholder of the Acquired Fund in the Reorganization will
be equal, in the aggregate, to the tax basis of the shares of the Acquired
Fund surrendered in exchange therefor; (g) in accordance with Section
1223(1) of the Code, the holding period of the Corresponding Shares
received by a shareholder of the Acquired Fund in the Reorganization will
include the holding period of the shares of the Acquired Fund immediately
prior to the Reorganization (provided that at the time of the
Reorganization the shares of the Acquired Fund were held as capital
assets); (h) in accordance with Section 1223(2) of the Code, the holding
period of the Assets in the hands of the Acquiring Fund will include the
holding period of such Assets in the hands of the Acquired Fund; and (i)
the taxable year of the Acquired Fund will end on the effective date of the
Reorganization and pursuant to Section 381(a) of the Code and regulations
thereunder, the Acquiring Fund will succeed to and take into account
certain tax attributes of the Acquired Fund, such as earnings and profits
and capital loss carryovers.
f. No Adverse Change. There shall have occurred no material adverse change
in the financial position of the Acquiring Fund since September 30, 1999 other
than changes in its portfolio securities since that date or changes in the
market value of its portfolio securities, each in the ordinary course of
business.
g. Absence of Litigation. There shall not be pending before any
Governmental Authority any material litigation with respect to the matters
contemplated by this Agreement.
h. N-14 Registration Statement. The N-14 Registration Statement shall have
become effective under the Securities Act, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of any of the
respective parties hereto, contemplated by the Commission.
i. Compliance with Laws; No Adverse Action or Decision. Since the date
hereof, (i) no law, statute, ordinance, code, rule or regulation shall have been
promulgated, enacted or entered that restrains, enjoins, prevents, materially
delays, prohibits or otherwise makes illegal the performance of this Agreement,
the Reorganization or the consummation of any of the transactions contemplated
hereby and thereby; (ii) the Commission shall not have issued an unfavorable
advisory report under Section 25(b) of the Investment Company Act, nor
instituted or threatened to institute any proceeding seeking to enjoin
consummation of the Reorganization under Section 25(c) of the Investment Company
Act, and (iii) no other legal, administrative or other proceeding shall be
instituted or threatened by any Governmental Authority which would materially
affect the financial condition of the Acquiring Fund or that seeks to restrain,
enjoin, prevent, materially delay, prohibit or otherwise make illegal the
performance of this Agreement, the Reorganization or the consummation of any of
the transactions contemplated hereby or thereby.
j. Commission Orders or Interpretations. The Acquired Fund shall have
received from the Commission such orders or interpretations as SBSF, as counsel
to the Acquired Fund, deems reasonably necessary or desirable under the
Securities Act and the Investment Company Act in connection with the
Reorganization; PROVIDED, that such counsel shall have requested such orders or
interpretations as promptly as practicable, and all such orders shall be in full
force and effect.
8. Conditions of the Acquiring Fund.
The obligations of the Acquiring Fund hereunder shall be subject to the
satisfaction, at or before the Exchange Date (or such other date specified
herein), of the conditions set forth below. The benefit of these conditions is
for the Acquiring Fund only and may be waived, in whole or in part, by the
Acquiring Fund at any time in its sole discretion.
a. Representations and Warranties. The representations and warranties of
the Acquired Fund made in this Agreement shall be true and correct in all
material respects when made, as of the Valuation Time and as of the Exchange
Date all with the same effect as if made at and as of such dates, except that
any representations and warranties that relate to a particular date or period
shall be true and correct in all material respects as of such date or period.
I-11
b. Performance. The Acquired Fund shall have performed, satisfied and
complied with all covenants, agreements and conditions required to be performed,
satisfied or complied with by it under this Agreement at or prior to the
Exchange Date.
c. Shareholder Approval. This Agreement shall have been adopted, and the
Reorganization shall have been approved, by the affirmative vote of the holders
of not less than a majority of the shares of the Acquired Fund, issued and
outstanding and entitled to vote thereon, voting together as a single class.
d. Approval of Board of Directors of O'Shaughnessy Funds. This Agreement
shall have been adopted and the Reorganization shall have been approved by the
Board of Directors of O'Shaughnessy Funds.
e. Deliveries by the Acquired Fund. At or prior to the Exchange Date, the
Acquired Fund shall deliver to the Acquiring Fund, against the assumption by the
Acquiring Fund of the Assumed Liabilities and the receipt of the Corresponding
Shares in accordance with Sections 2(b) and (c) hereof, respectively, the
following:
i. the unaudited financial statements of the Acquired Fund required by
Section 5(b)(i) hereof;
ii. an opinion of SBSF, in form and substance satisfactory to the
Acquiring Fund, with respect to the matters specified in Section 7(e)(ii)
hereof.
f. No Adverse Change. There shall have occurred no material adverse change
in the financial position of the Acquired Fund since September 30, 1999 other
than changes in its portfolio securities since that date or changes in the
market value of its portfolio securities, each in the ordinary course of
business.
g. Absence of Litigation. There shall not be pending before any
Governmental Authority any material litigation with respect to the matters
contemplated by this Agreement.
h. N-14 Registration Statement. The N-14 Registration Statement shall have
become effective under the Securities Act, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of any of the
respective parties hereto, contemplated by the Commission.
i. Compliance with Laws; No Adverse Action or Decision. Since the date
hereof, (i) no law, statute, ordinance, code, rule or regulation shall have been
promulgated, enacted or entered that restrains, enjoins, prevents, materially
delays, prohibits or otherwise makes illegal the performance of this Agreement,
the Reorganization or the consummation of any of the transactions contemplated
hereby and thereby; (ii) the Commission shall not have issued an unfavorable
advisory report under Section 25(b) of the Investment Company Act, nor
instituted or threatened to institute any proceeding seeking to enjoin
consummation of the Reorganization under Section 25(c) of the Investment Company
Act, and (iii) no other legal, administrative or other proceeding shall be
instituted or threatened by any Governmental Authority which would materially
affect the financial condition of the Acquired Fund or that seeks to restrain,
enjoin, prevent, materially delay, prohibit or otherwise make illegal the
performance of this Agreement, the Reorganization or the consummation of any of
the transactions contemplated hereby or thereby.
j. Commission Orders or Interpretations. The Acquired Fund shall have
received from the Commission such orders or interpretations as SBSF, as counsel
to the Acquired Fund, deems reasonably necessary or desirable under the
Securities Act and the Investment Company Act in connection with the
Reorganization; PROVIDED, that such counsel shall have requested such orders or
interpretations as promptly as practicable, and all such orders shall be in full
force and effect.
k. Dividends. Prior to the Exchange Date, the Acquired Fund shall have
declared a dividend or dividends which, together with all such previous
dividends, shall have the effect of distributing to its shareholders all of its
investment company taxable income for the period from October 1, 1999 to and
including the Exchange Date, if any (computed without regard to any deduction
for dividends paid), and all of its net capital gain, if any, realized for the
period from October 1, 1999 to and including the Exchange Date.
I-12
9. Termination, Postponement and Waivers.
a. Termination of Agreement. Notwithstanding anything contained in this
Agreement to the contrary, subject to Section 10(a) hereof, this Agreement may
be terminated and the Reorganization abandoned at any time (whether before or
after adoption thereof by the shareholders of the Acquired Fund) prior to the
Exchange Date, or the Exchange Date may be postponed, by notice in writing prior
to the Exchange Date
i. by either of the respective parties hereto if :
(1) the Boards of Directors of O'Shaughnessy Funds so agrees in
writing;
(2) the transactions contemplated by this Agreement have not
been consummated by July 15, 2000; PROVIDED, however, that
the right to terminate or postpone this Agreement under this
Section 9(a)(i)(2) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of
consummation of the transactions contemplated by this
Agreement on or before such date; or
(3) any Governmental Authority of competent jurisdiction shall
have issued any judgment, injunction, order, ruling or
decree or taken any other action restraining, enjoining or
otherwise prohibiting this Agreement, the Reorganization or
the consummation of any of the transactions contemplated
hereby or thereby and such judgment, injunction, order,
ruling, decree or other action becomes final and
non-appealable; PROVIDED, that the party seeking to
terminate this Agreement pursuant to this Section 9(a)(i)(3)
shall have used its reasonable best efforts to have such
judgment, injunction, order, ruling, decree or other action
lifted, vacated or denied.
ii. by an Acquired Fund if any condition of the Acquired Fund's
obligations set forth in Section 7 of this Agreement has not been fulfilled
or waived by it; or
iii. by an Acquiring Fund if any condition of the Acquiring Fund's
obligations set forth in Section 8 of this Agreement has not been fulfilled
or waived by it.
b. COMMISSION ORDER. If any order or orders of the Commission with respect
to this Agreement shall be issued prior to the Exchange Date and shall impose
any terms or conditions which are determined by action of the Board of Directors
of O'Shaughnessy Funds to be acceptable, such terms and conditions shall be
binding as if a part of this Agreement without further vote or approval of the
shareholders of the Acquired Fund, unless such terms and conditions shall result
in a change in the method of computing the number of Corresponding Shares to be
issued by the Acquiring Fund to the Acquired Fund in which event, unless such
terms and conditions shall have been included in the proxy solicitation
materials furnished to the shareholders of the Acquired Fund prior to the
meeting at which the Reorganization shall have been approved, this Agreement
shall not be consummated and shall terminate unless the Acquired Fund promptly
shall call a special meeting of shareholders at which such conditions so imposed
shall be submitted for approval and the requisite approval of such conditions
shall be obtained.
c. Effect of Termination. In the event of termination of this Agreement
pursuant to the provisions hereof, the same shall become null and void and have
no further force or effect, and there shall not be any liability on the part of
either of the respective parties hereto or Persons who are their directors,
trustees, officers, agents or shareholders in respect of this Agreement.
d. Waivers; Non-Material Changes. At any time prior to the Exchange Date,
any of the terms or conditions of this Agreement may be waived by the party
hereto that is entitled to the benefit thereof, if, in the judgment of such
party after consultation with its counsel, such action or waiver will not have a
material adverse effect on the benefits intended under this Agreement to the
shareholders of the respective party, on behalf of which such action is taken.
In addition, the respective parties hereto have delegated to their respective
investment adviser the ability to make non-material changes to this Agreement if
such investment adviser deems it to be in the best interests of the trust for
which it serves as investment adviser to do so.
I-13
10. Survival of Representations and Warranties; Indemnification.
a. Survival. The respective representations and warranties contained in
Sections 3 and 4 hereof shall expire with, and be terminated by, the
consummation of the Reorganization, and neither the Acquired Fund nor the
Acquiring Fund nor any of their officers, directors or trustees, agents or
shareholders shall have any liability with respect to such representations or
warranties after the Exchange Date. This provision shall not protect any
officer, director, trustee, agent or shareholder of the Acquired Fund or the
Acquiring Fund against any liability to the entity for which such Person serves
in such capacity, or to its shareholders, to which such Person would be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties in the conduct of such office.
b. Indemnification Obligations of the Acquired Fund. The Acquired Fund
hereby agrees to indemnify and hold harmless the Acquiring Fund from and against
any and all losses, claims, damages, liabilities, costs (including reasonable
attorneys' fees) and expenses (including expenses of investigation)
(collectively, "Losses") which the Acquiring Fund may incur or sustain as a
result of, relating to or arising out of, (i) any corporate obligation of the
Acquired Fund, whether consisting of tax deficiencies or otherwise, required to
be paid by the Acquiring Fund and based upon a claim or claims against the
Acquired Fund which were omitted or not fairly reflected in the financial
statements delivered to the Acquiring Fund in connection with the
Reorganization; (ii) any breach or alleged breach in any material respect of any
warranty, or the inaccuracy in any material respect of any representation, as
the case may be, made by the Acquired Fund; (iii) the failure or threatened
failure, in any material respect, of the Acquired Fund to fulfill any agreement
or covenant of the Acquired Fund contained in this Agreement; or (iv) any claim
is made alleging that (a) the N-14 Registration Statement included any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading or (b) the Proxy
Statement and Prospectus delivered to the shareholders of the Acquired Fund and
forming a part of the N-14 Registration Statement included any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except insofar as such
claim is based on written information furnished by the Acquiring Fund to the
Acquired Fund. The party being indemnified is referred to herein as the
"Indemnified Party" and the indemnifying party is referred to herein as the
"Indemnifying Party."
c. Indemnification Obligations of the Acquiring Fund. The Acquiring Fund
hereby agrees to indemnify and hold harmless the Acquired Fund from and against
any and all Losses which the Acquired Fund may incur or sustain as a result of,
relating to or arising out of, (i) any breach or alleged breach in any material
respect of any warranty, or the inaccuracy in any material respect of any
representation, as the case may be, made by the Acquiring Fund; (ii) the failure
or threatened failure, in any material respect, of the Acquiring Fund to fulfill
any agreement or covenant of the Acquiring Fund contained in this Agreement; or
(iii) any claim is made alleging that (a) the N-14 Registration Statement
included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading or (b) the Proxy Statement and Prospectus delivered to shareholders
of the Acquired Fund and forming a part of the N-14 Registration Statement
included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except insofar as such claim is based on written information
furnished by the Acquired Fund to the Acquiring Fund.
d. Indemnification Procedure. In the event that any claim is made against
the Acquiring Fund in respect of which indemnity may be sought by the Acquiring
Fund from the Acquired Fund under Section 10(b) hereof, or in the event that any
claim is made against the Acquired Fund in respect of which indemnity may be
sought by the Acquired Fund from the Acquiring Fund under Section 10(c) hereof,
then the Indemnified Party, with reasonable promptness and before payment of
such claim, shall give written notice of such claim to the Indemnifying Party.
If no objection as to the validity of the claim is made in writing to the
Indemnified Party by the Indemnifying Party within thirty (30) days after the
giving of notice hereunder, then the Indemnified Party may pay such claim and
shall be entitled to reimbursement therefor, pursuant to this Agreement. If,
prior to the termination of such thirty-day period, objection in writing as to
the validity of such claim is made to the Indemnified Party, the Indemnified
Party shall withhold payment thereof until the validity of such claim is
established (i) to the satisfaction of the Indemnifying Party, or (ii) by a
final determination of a court of competent jurisdiction, whereupon the
Indemnified Party may pay such claim and shall be entitled to reimbursement
thereof, pursuant to this Agreement, or (iii) with respect to any tax claims,
within seven (7) calendar days following the earlier of (A) an agreement between
the Acquired Fund and the Acquiring Fund that an indemnity amount is payable,
(B) an assessment of a tax by a taxing authority, or (C) a "determination" as
defined in Section 1313(a) of the Code. For purposes of this Section, the term
I-14
"assessment" shall have the same meaning as used in Chapter 63 of the Code and
Treasury Regulations thereunder, or any comparable provision under the laws of
the appropriate taxing authority. In the event of any objection by the
Indemnifying Party, the Indemnifying Party promptly shall investigate the claim,
and if it is not satisfied with the validity thereof, the Indemnifying Party
shall conduct the defense against such claim. All costs and expenses incurred by
the Indemnifying Party in connection with such investigation and defense of such
claim shall be borne by it. These indemnification provisions are in addition to,
and not in limitation of, any other rights the parties may have under applicable
law.
11. Other Matters.
a. Legend. Pursuant to Rule 145 under the Securities Act, and in connection
with the issuance of any shares to any Person who at the time of the
Reorganization is, to its knowledge, an affiliate of a party to the
Reorganization pursuant to Rule 145(c) of the Securities Act, the Acquiring Fund
will cause to be affixed upon the certificate(s) issued to such Person (if any)
a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT TO THE ISSUER THEREOF (OR ITS STATUTORY SUCCESSOR) OR ITS
PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 OR (II) IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE FUND, SUCH
REGISTRATION IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to the Acquiring
Fund's transfer agent with respect to such shares. The Acquired Fund will
provide the Acquiring Fund on the Exchange Date with the name of any Acquired
Fund shareholder who is to the knowledge of the Acquired Fund an affiliate of it
on such date.
b. Further Assurances. Each party hereto covenants and agrees to provide
the other party hereto and its agents and counsel with any and all
documentation, information, assistance and cooperation that may become necessary
from time to time with respect to the transactions contemplated by this
Agreement.
c. Notices. Any notice, report or other communication hereunder shall be in
writing and shall be given to the Person entitled thereto by hand delivery,
prepaid certified mail or overnight service, addressed to the Acquired Fund or
the Acquiring Fund, as applicable, at the address set forth below. If the notice
is sent by certified mail, it shall be deemed to have been given to the Person
entitled thereto five (5) business days after being deposited in the United
States mail and if the notice is sent by overnight service, it shall be deemed
to have been given to the Person entitled thereto one (1) business day after it
was deposited with the courier service for delivery to that Person. Notice of
any change in any address listed below also shall be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party entitled to receive such notice.
If to the Acquired Fund and/or the Acquiring Fund, to:
35 Mason Street
Greenwich, Connecticut 06830
Attention: James P. O'Shaughnessy
With a copy to:
Swidler Berlin Shereff Friedman, LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Attention: Joel H. Goldberg, Esq.
I-15
d. Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the matters contemplated herein and
supersedes all previous agreements or understandings between the parties related
to such matters.
e. Amendment. Except as set forth in Section 9(d) hereof, this Agreement
may be amended, modified, superseded, canceled, renewed or extended, and the
terms or covenants hereof may be waived, only by a written instrument executed
by the respective parties hereto or, in the case of a waiver, by the party
waiving compliance. Except as otherwise specifically provided in this Agreement,
no waiver by either party hereto of any breach by the other party hereto of any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar provision or condition at
the same or at any prior or subsequent time.
f. Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York applicable to agreements made and to be performed in said
state, without giving effect to the principles of conflict of laws thereof.
g. Assignment. This Agreement shall not be assigned by any of the parties
hereto, in whole or in part, whether by operation of law or otherwise, without
the prior written consent of the other party hereto. Any purported assignment
contrary to the terms hereof shall be null, void and of no effect.
h. Fees and Expenses. With respect to expenses incurred in connection with
the Reorganization, (i) the Acquiring Fund shall pay all expenses incurred which
are solely attributable to the Acquiring Fund and the conduct of its business,
(ii) the Acquired Fund shall pay all expenses incurred which are solely
attributable to the Acquired Fund and the conduct of its business, and (iii) the
Acquired Fund and the Acquiring Fund shall pay all other expenses incurred in
connection with the Reorganization pro rata according to each fund's net assets
on the Valuation Date, including, but not limited to, all costs related to the
preparation and distribution of the N-14 Registration Statement. Such fees and
expenses shall include costs of preparing and filing a federal tax ruling
request (if applicable), legal and accounting fees, state securities fees (if
any), printing costs, filing fees, portfolio transfer taxes (if any), and any
similar expenses incurred in connection with the Reorganization. If for any
reason the Reorganization is not consummated, a party shall not be liable to the
other party hereto for any damages resulting therefrom, including, without
limitation, consequential damages, except to the extent that such party acted
with willful misfeasance, bad faith, willful misconduct or reckless disregard.
i. Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms and
provisions of this Agreement in any other jurisdiction.
j. Headings. Headings to sections in this Agreement are intended solely for
convenience and no provision of this Agreement is to be construed by reference
to the heading of any section.
k. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be deemed to be
an original but all such counterparts together shall constitute but one
instrument.
I-16
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
With respect to the Value Funds Reorganization:
O'SHAUGHNESSY FUNDS, INC.,
on behalf of O'Shaughnessy Dogs of the Market(TM) Fund
By:
---------------------------------------
Name:
Title:
O'SHAUGHNESSY FUNDS, INC.,
on behalf of O'Shaughnessy Cornerstone Value Fund
By:
---------------------------------------
Name:
Title:
With respect to the Growth Funds Reorganization:
O'SHAUGHNESSY FUNDS, INC.,
on behalf of O'Shaughnessy Aggressive Growth Fund
By:
----------------------------------------
Name:
Title:
O'SHAUGHNESSY FUNDS, INC.,
on behalf of O'Shaughnessy Cornerstone Growth Fund
By:
----------------------------------------
Name:
Title:
I-17
O'SHAUGHNESSY FUNDS, INC.
O'Shaughnessy Dogs of the Market(TM) Fund
O'Shaughnessy Aggressive Growth Fund
35 Mason Street
Greenwich, Connecticut 06830
---------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Proxy Statement and Prospectus (the "Proxy
Statement and Prospectus"), dated January 12, 2000, which has been filed by
O'Shaughnessy Funds, Inc. ("O'Shaughnessy Funds" or the "Registrant") relating
to the Reorganizations (as defined herein). Copies of the Proxy Statement and
Prospectus may be obtained at no charge by writing to the O'Shaughnessy Funds at
the address indicated above or by calling toll-free 1-877-OS-FUNDS. This
Statement of Additional Information has been incorporated by reference into the
Proxy Statement and Prospectus.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Proxy Statement and
Prospectus.
Further information about O'Shaughnessy Funds is contained in the Funds'
Prospectuses and combined Statement of Additional Information, each dated
November 30, 1998, and the Annual Reports of the Funds for the year ended
September 30, 1999. The Funds' combined Statement of Additional Information,
dated November 30, 1998, and the Annual Reports of the Acquiring Funds for the
year ended September 30, 1999 are incorporated herein by reference and accompany
this Statement of Additional Information.
The Securities and Exchange Commission maintains a web site
(http://www.sec.gov) that contains the prospectuses and combined statement of
additional information of the Funds, other material incorporated by reference
and other information regarding the Funds.
TABLE OF CONTENTS
General Information B-2
Financial Statements B-2
Pro Forma Combined Statement of Assets and
Liabilities for the O'Shaughnessy Dogs of the
Market(TM) Fund and O'Shaughnessy Cornerstone
Value Fund as of September 30, 1999 (Audited) F-1
Pro Forma Combined Statement of Operations for the
O'Shaughnessy Dogs of the Market(TM) Fund and
O'Shaughnessy for the Cornerstone Value Fund year
ended September 30, 1999 (Audited) F-2
Statement of Investments for the O'Shaughnessy Cornerstone Value Fund F-3
Statement of Investments for the O'Shaughnessy Dogs of the MarketFund F-4
Pro Forma Combined Statement of Investments for
the O'Shaughnessy Cornerstone Value Fund (combined
with Dogs of the Market Fund) F-5
The date of this Statement of Additional Information is January 12, 2000
B-1
GENERAL INFORMATION
The shareholders of the O'Shaughnessy Dogs of the Market(TM) Fund (the
"Dogs of the Market Fund" or an "Acquired Fund") and O'Shaughnessy Aggressive
Growth Fund (the "Aggressive Growth Fund" or an "Acquired Fund," and together
with the Dogs of the Market Fund, the "Acquired Funds") of O'Shaughnessy Funds
are each being asked to approve an Agreement and Plan of Reorganization (the
"Plan"). The Plan provides for the acquisition by the O'Shaughnessy Cornerstone
Growth Fund (the "Cornerstone Growth Fund" or an "Acquiring Fund") of
substantially all of the assets, and assumption of substantially all of the
liabilities, of the Aggressive Growth Fund, solely in exchange for an equal
aggregate value of newly-issued shares of the O'Shaughnessy Cornerstone Growth
Fund. The Plan further provides for the acquisition by the O'Shaughnessy
Cornerstone Value Fund (the "Cornerstone Value Fund" or an "Acquiring Fund" and
together with the Cornerstone Growth Fund, the "Acquiring Funds") of
substantially all of the assets, and assumption of substantially all of the
liabilities, of the Dogs of The Market Fund, solely in exchange for an equal
aggregate value of newly-issued shares of the O'Shaughnessy Cornerstone Value
Fund. Each such transaction is referred to herein as a "Reorganization" and
collectively, as the "Reorganizations." The consummation of a Reorganization is
not conditioned upon the consummation of the other Reorganization. The Acquired
Funds and the Acquiring Funds are sometimes collectively referred to herein as
the "Funds".
A Joint Special Meeting of the Acquired Funds' shareholders to consider the
Reorganizations will be held at the Stamford Marriott, 2 Stamford Forum,
Stamford, Connecticut on February 25, 2000, at 4:00 p.m., Eastern Time. The
approximate mailing date of the Proxy Statement and Prospectus is January 21,
2000.
For further information about the Reorganizations, see the Combined Proxy
Statement and Prospectus.
FINANCIAL STATEMENTS
Unaudited Pro forma financial statements reflecting consummation of the
Value Funds Reorganization are included herein.
Audited financial statements and accompanying notes for the fiscal year
ended September 30, 1999 for the Funds and the independent auditor's report
thereon are incorporated herein by reference from the Funds' respective Annual
Report to Shareholders, which accompany this Statement of Additional
Information.
B-2
O'Shaughnessy Cornerstone Value Fund
(Combined with Dogs of The Market Fund)
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
as of September 30, 1999
Pro Forma
Cornerstone Dogs of the Pro Forma Cornerstone
Value Fund Market Fund Adjustments Value Fund
---------- ----------- ----------- ----------
ASSETS
Investments in securities, at value $25,949,235 17,667,126 43,616,3613
Cash 10,533 1 10,533
Receivables:
Portfolio securities sold 528,239 341,560 869,799
Fund shares sold 8,160 5,456 13,616
Dividends and interest 97,720 47,527 145,247
Deferred organization costs 10,532 10,533 (10,533) 1 10,532
Prepaid expenses and other 21,829 20,789 42,618
-----------------------------------------------------------------
Total assets 26,615,715 18,092,991 0 44,708,706
-----------------------------------------------------------------
LIABILITIES
Payables:
Fund shares repurchased 10,560 35,277 45,837
Fund advanced by custodian 256,741 317,354 574,095
Advisory fee 16,898 2,908 19,806
Administration fee 3,397 1,606 5,003
Accrued expenses 23,069 14,755 37,824
-----------------------------------------------------------------
Total liabilities 310,665 371,900 0 682,565
-----------------------------------------------------------------
NET ASSETS $26,305,050 17,721,091 0 44,026,141
=================================================================
COMPONENTS OF NET ASSETS
Paid-in
capital $24,820,527 16,971,347 1,552,944 2 43,344,818
(Accumulated) Undistributed net investment
(loss) income 565,497 271,390 (271,390) 2 565,497
(Accumulated) Undistributed net realized
(loss) gain on investment transactions 1,820,214 1,281,554 (1,281,554) 2 1,820,214
Net unrealized appreciation (depreciation)
of investments (901,188) (803,200) (1,704,388)
-----------------------------------------------------------------
Net assets $26,305,050 17,721,091 0 44,026,141
=================================================================
- ----------
1. Unamortized Organization Costs of the Acquired Fund to be liquidated on
effective date of the respective Reorganization.
2. (Accumulated) Undistributed Net Investment Income and Gain to be
distributed and assumed to be reinvested in additional Fund shares.
3. Because the Cornerstone Value Fund adheres to a disciplined Strategy and
invests only in the stocks selected through its Strategy, it is anticipated
that as soon as practicable after the completion of the Value Funds
Reorganization, the Value Combined Fund will be required to liquidate a
substantial portion of the assets acquired from the Dogs of the Market
Fund.
F-1
O'Shaughnessy Cornerstone Value Fund
(Combined with Dogs of The Market Fund)
PRO FORMA STATEMENT OF OPERATIONS
For the Period Ended September 30, 1999
Pro Forma
Cornerstone Dogs of the Pro Forma Cornerstone
Value Fund Market Fund Adjustments Value Fund
---------- ----------- ----------- ----------
INVESTMENT INCOME
Income
Dividends 1 $ 968,020 567,835 1,535,855
Interest 8,380 2,862 11,242
Other 122,728 24,237 146,965
-------------------------------------------------------
Total income 1,099,128 594,934 0 1,694,062
-------------------------------------------------------
Expenses
Advisory fees 204,286 164,117 368,403
Transfer agent fees 32,449 26,293 (4,500) 5 54,242
Administration fees 37,053 32,127 (12,591) 3 56,589
Custodian fees 26,647 16,315 (13,000) 6 29,962
Registration fees 20,878 25,793 (15,000) 3 31,671
Accounting fees 21,768 20,985 (20,000) 7 22,753
Professional fees 11,794 9,794 (9,794) 3 11,794
Reports to shareholders 10,001 21,999 (10,000) 3 22,000
Insurance fees 2,218 2,052 4,270
Directors' fees 7,399 7,399 14,798
Miscellaneous fees 3,114 3,000 (3,000) 3 3,114
Amortization of deferred organization costs 5,038 5,037 (5,037) 3 5,038
-------------------------------------------------------
Total expenses 382,645 334,911 (92,922) 624,634
-------------------------------------------------------
Less: expense reimbursement (92,281) 92,281 4 0
Net expenses 382,645 242,630 (641) 624,634
-------------------------------------------------------
Net investment (loss) income 716,483 352,304 641 1,069,428
-------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions 2,269,047 1,470,454 3,739,501
Net change in unrealized appreciation
of investments 553,549 694,626 1,248,175
-------------------------------------------------------
Net realized and unrealized gain on
investments 2,822,596 2,165,080 0 4,987,676
-------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations $3,539,079 2,517,384 641 6,057,104
=======================================================
- ----------
1. Net of foreign withholding tax of $23,142 and $6,544 for the Cornerstone
Value Fund and Dogs of the Market Fund, respectively.
2. Assumed expense reductions during the period reflecting the Growth Combined
Fund.
3. Assumed expense subsidy not needed during period reflecting the Growth
Combined Fund.
F-2
STATEMENT OF INVESTMENTS
O'SHAUGHNESSY CORNERSTONE VALUE FUND
INDUSTRY NON-INCOME
INDUSTRY SHARES SECURITY NAME MARKET VALUE SUBTOTAL INDUSTRY % PRODUCING
-------- ------ ------------- ------------ -------- ---------- ---------
Auto Manufacturers 9,000 Ford Motor Company 451,688 451,688 1.72%
Auto Parts & Equipment 13,000 Dana Corporation 482,625 482,625 1.83%
Banks 10,200 BANC ONE CORPORATION 355,087
Banks 8,600 BankAmerica Corporation 478,912
Banks 13,500 BankBoston Corporation 585,562
Banks 8,600 First Union Corporation 305,838
Banks 16,300 KeyCorp 420,744
Banks 6,800 National Australia Bank Ltd. 501,925
Banks 9,900 PNC Bank Corp. 521,606
Banks 12,100 Summit Bancorp 392,494 3,562,168 13.54%
Beverages 11,300 Diageo PLC 468,244 468,244 1.78%
Chemicals 11,400 Eastman Chemical Company 456,000
Chemicals 5,800 The Dow Chemical Company 659,025 1,115,025 4.24%
Distribution/Wholesale 15,600 Genuine Parts Company 414,375 414,375 1.58%
Financial Services 11,200 Union Planters Corporation 456,400 456,400 1.73%
Food 6,600 General Mills, Inc. 535,425
Food 17,700 Nabisco Group Holdings Corp. 265,500 800,925 3.04%
Forest Products & Paper 19,400 Westvaco Corporation 497,125
Forest Products & Paper 10,400 Weyerhaeuser Company 599,300 1,096,425 4.17%
Holding Companies -
Diversified 27,700 Tomkins PLC 470,900 470,900 1.79%
Household Product/Wares 16,600 Fortune Brands, Inc. 535,350 535,350 2.04%
Insurance 12,300 SAFECO Corporation 344,400
Insurance 14,800 The St. Paul Companies, Inc. 407,000 751,400 2.86%
Iron/Steel 24,700 Allegheny Teledyne Incorporated 416,812
Anglo American Corporation of South
Iron/Steel 18,277 Africa 1,021,227
Iron/Steel 32,400 British Steel PLC 834,300 2,272,339 8.64% *
Machinery - Diversified 15,600 Deere & Company 603,525 603,525 2.29%
Mining 10,800 Rio Tinto plc 766,800 766,800 2.91%
Miscellaneous Manufacturing 10,900 Cooper Industries, Inc. 509,575
Minnesota Mining and
Miscellaneous Manufacturing 7,000 Manufacturing Corp. 672,438
Miscellaneous Manufacturing 15,400 Tenneco Inc. 261,800 1,443,813 5.49%
Oil & Gas Producers 7,700 Atlantic Richfield Company 682,412
Oil & Gas Producers 5,433 BP Amoco ADR 602,044
Oil & Gas Producers 6,300 Chevron Corporation 559,125
Oil & Gas Producers 32,300 Imperial Petroleum, Inc. 672,244
Oil & Gas Producers 30,300 Occidental Petroleum Corporation 700,688
Oil & Gas Producers 12,000 Phillips Petroleum Company 585,000
Shell Transport and Trading
Oil & Gas Producers 13,900 Company 632,450
Oil & Gas Producers 14,600 Sunoco, Inc. 399,675
Oil & Gas Producers 9,800 Texaco Inc. 618,625
Oil & Gas Producers 17,700 USX-Marathon Group 517,725 5,969,988 22.70%
Packaging & Containers 16,900 Crown Cork & Seal Company, Inc. 409,825 409,825 1.56%
Retail 11,100 J.C. Penny Company 381,563 381,563 1.45%
Telephone Compania Anonima Nacional
28,700 Telefonos d 769,519
Telephone 17,800 Telefonica de Argentina S.A. 469,475
Telephone 10,600 Telefonos de Mexico 755,250
Telephone 8,400 U S WEST Inc. 479,325 2,473,569 9.40%
Tobacco 9,900 Philip Morris Companies Inc. 338,456
Tobacco 5,866 RJ Reynolds Tobacco Holdings, Inc. 158,382 496,838 1.89%
Transportation 12,400 CSX Corporation 525,450 525,450 2.00%
Total Common Stocks
(cost $26,850,423): 98.65% 25,949,235
Total Investment in Securities
(cost $26,850,423): 98.65% 25,949,235
Other Assets less Liabilities: 1.35% 355,815
-----------
Total Net Assets 100.0% $26,305,050
===========
* Non-income producing security.
F-3
STATEMENT OF INVESTMENTS
O'SHAUGHNESSY DOGS OF THE MARKET FUND
MARKET INDUSTRY NON-INCOME
INDUSTRY SHARES SECURITY NAME VALUE SUBTOTAL INDUSTRY % PRODUCING
-------- ------ ------------- ----- -------- ---------- ---------
Auto Manufacturers 8,700 General Motors Corporation 547,556 547,556 3.09%
Auto Parts & Equipment 30,300 Cooper Tire & Rubber Company 534,038
Auto Parts & Equipment 6,289 Delphi Automotive Systems 101,017
Auto Parts & Equipment 11,700 The Goodyear Tire & Rubber Company 563,063 1,198,118 6.76%
Banks 5,700 J.P. Morgan & Co., Incorporated 651,225 651,225 3.67%
Chemicals 15,700 Air Products and Chemicals 456,281
Chemicals 11,100 E.I. du Pont de Nemours and
Company 675,712
Chemicals 22,300 Nalco Chemical Company 1,126,150 2,258,143 12.74%
Consumer Products 14,900 American Greetings Corporation 383,675 383,675 2.17%
Cosmetics/Personal Care 13,600 International Flavors &
Fragrances, Inc. 469,200 469,200 2.65%
Distribution/Warehouse 18,500 Genuine Parts Company 491,406 491,406 2.77%
Electrical Componen &
Equipment 10,000 Emerson Electric 631,875 631,875 3.57%
Electronics 10,300 Johnson Controls, Inc. 683,019 683,019 3.85%
Food 11,400 Bestfoods 552,900
Food 19,200 ConAgra, Inc. 433,200
Food 10,700 H.J. Heinz Company 460,100
Food 17,700 Kellogg Company 662,644
Food 13,900 Winn-Dixie Stores, Inc. 412,656 2,521,500 14.23%
Housewares 14,600 Newell Rubbermaid, Inc. 417,013 417,013 2.35%
Machinery - Construction &
Mining 12,900 Caterpillar Inc. 707,081 707,081 3.99%
Miscellaneous Manufacturing 8,600 Eastman Kodak Company 648,762
Minnesota Mining and
Miscellaneous Manufacturing 8,200 Manufacturing Corp. 787,713
Miscellaneous Manufacturing 16,100 National Service Industries, Inc. 507,150 1,943,625 10.98%
Oil & Gas Producers 7,500 Chevron Corporation 665,625
Oil & Gas Producers 8,400 Exxon Corporation 637,875
Oil & Gas Producers 12,400 Royal Dutch Petroleum Company - ADR 732,375 2,035,875 11.49%
Packaging & Containers 16,100 Bernis Company 545,387 545,387 3.08%
Retail 15,050 The May Dept. Stores Company 548,384 548,384 3.09%
Telephone 9,900 AllTELL Corporation 696,712 696,712 3.93%
Tobacco 11,700 Philip Morris Companies Inc. 399,994
Tobacco 17,800 UST, Inc. 537,338 937,332 5.29%
Total Common Stocks
(cost $18,470,326): 99.70% 17,667,126
Total Investment in Securities
(cost $18,470,326): 99.70% 17,667,126
Other Assets less Liabilities: 0.30% 53,965
-----------
Total Net Assets 100.0% $17,721,091
===========
B-6
PRO FORMA COMBINED STATEMENT OF INVESTMENTS
O'SHAUGHNESSY CORNERSTONE VALUE FUND (COMBINED WITH DOGS OF THE MARKET FUND)
MARKET INDUSTRY NON-INCOME
INDUSTRY SHARES SECURITY NAME VALUE SUBTOTAL INDUSTRY % PRODUCING
-------- ------ ------------- ----- -------- ---------- ---------
Auto Manufacturers 9,000 Ford Motor Company 451,688
Auto Manufacturers 8,700 General Motors Corporation 547,556 999.244 2.27%
Auto Parts & Equipment 30,300 Cooper Tire & Rubber Company 534,038
Auto Parts & Equipment 13,000 Dana Corporation 482,625
Auto Parts & Equipment 6,289 Delphi Automotive Systems 101,017
Auto Parts & Equipment 11,700 The Goodyear Tire & Rubber Company 563,063 1,680,743 3.82%
Banks 10,200 BANC ONE CORPORATION 355,087
Banks 8,600 BankAmerica Corporation 478,912
Banks 13,500 BankBoston Corporation 585,562
Banks 8,600 First Union Corporation 305,838
Banks 5,700 J.P. Morgan & Co. Incorporated 651,225
Banks 16,300 KeyCorp 420,744
Banks 6,800 National Australia Bank Ltd. 501,925
Banks 9,900 PNC Bank Corp. 521,606
Banks 12,100 Summit Bancorp 392,494 4,213,393 9.57%
Beverages 11,300 Diageo PLC 468,244 468,244 1.06%
Chemicals 15,700 Air Products and Chemicals 456,281
E.I. du Pont de Nemours and
Chemicals 11,100 Company 675,712
Chemicals 11,400 Eastman Chemical Company 456,000
Chemicals 22,300 Nalco Chemical Company 1,126,150
Chemicals 5,800 The Dow Chemical Company 659,025 3,373,168 7.66%
Consumer Products 14,900 American Greetings Corporation 383,675 383,675 0.87%
International Flavors &
Cosmetics/Personal Care 13,600 Fragrances, Inc. 469,200 469,200 1.07%
Distribution/Wholesale 15,600 Genuine Parts Company 414,375
Distribution/Wholesale 18,500 Genuine Parts Company 491,406 905,781 2.06%
Electricial Components &
Equipment 10,000 Emerson Electric 631,875 631,875 1.43%
Electronics 10,300 Johnson Controls, Inc. 683,019 683,019 1.55%
Financial Services 11,200 Union Planters Corporation 456,400 456,400 1.04%
Food 11,400 Bestfoods 552,900
Food 19,200 ConAgra, Inc. 433,200
Food 6,600 General Mills, Inc. 535,425
Food 10,700 H.J. Heinz Company 460,100
Food 17,700 Kellogg Company 662,644
Food 17,700 Nabisco Group Holdings Corp. 265,500
Food 13,900 Winn-Dixie Stores, Inc. 412,656 3,322,425 7.55%
Forest Products & Paper 19,400 Westvaco Corporation 497,125
Forest Products & Paper 10,400 Weyerhaeuser Company 599,300 1,096,425 2.49%
Holding Companies -
Diversified 27,700 Tomkins PLC 470,900 470,900 1.07%
Household Product/Wares 16,600 Fortune Brands, Inc. 535,350 535,350 1.22%
Housewares 14,600 Newell Rubbermail, Inc. 417,013 417,013 0.95%
Insurance 12,300 SAFECO Corporation 344,400
Insurance 14,800 The St. Paul Companies, Inc. 407,900 751,400 1.71%
Iron/Steel 24,700 Allegheny Teledyne Incorporated 416,812
Iron/Steel 18,277 Anglo American Corporation of
South Africa 1,021,227
Iron/Steel 32,400 British Steel PLC 834,300 2,272,339 5.16% *
Machinery - Construction &
Mining 12,900 Caterpillar Inc. 707,081 707,081 1.61%
Machinery - Diversified 15,600 Deere & Company 603,525 603,525 1.37%
Mining 10,800 Rio Tinto plc 766,800 766,800 1.74%
Miscellaneous Manufacturing 10,900 Cooper Industries, Inc. 509,575
Miscellaneous Manufacturing 8,600 Eastman Kodak Company 648,762
Miscellaneous Manufacturing 7,000 Minnesota Mining and
Manufacturing Corp. 672,438
Miscellaneous Manufacturing 8,200 Minnesota Mining and
Manufacturing Corp. 787,713
Miscellaneous Manufacturing 16,100 National Service Industries, Inc. 507,150
Miscellaneous Manufacturing 15,400 Tenneco Inc. 261,800 3,387,438 7.69%
Oil & Gas Producers 7,700 Atlantic Richfield Company 682,412
Oil & Gas Producers 5,433 BP Amoco ADR 602,044
Oil & Gas Producers 6,300 Chevron Corporation 559,125
Oil & Gas Producers 7,500 Chevron Corporation 665,625
Oil & Gas Producers 8,400 Exxon Corporation 637,875
Oil & Gas Producers 32,300 Imperial Petroleum, Inc. 672,244
Oil & Gas Producers 30,300 Occidental Petroleum Corporation 700,688
Oil & Gas Producers 12,000 Phillips Petroleum Company 585,000
Oil & Gas Producers 12,400 Royal Dutch Petroleum Company -ADR 732,375
Oil & Gas Producers 13,900 Shell Transport and Trading Company 632,450
F-5
PRO FORMA COMBINED STATEMENT OF INVESTMENTS
O'SHAUGHNESSY CORNERSTONE VALUE FUND (COMBINED WITH DOGS OF THE MARKET FUND)
MARKET INDUSTRY NON-INCOME
INDUSTRY SHARES SECURITY NAME VALUE SUBTOTAL INDUSTRY % PRODUCING
-------- ------ ------------- ----- -------- ---------- ---------
Oil & Gas Producers 14,600 Sunoco, Inc. 399,675
Oil & Gas Producers 9,800 Texaco Inc. 618,625
Oil & Gas Producers 17,700 USX-Marathon Group 517,725 8,005,863 18.18%
Packaging & Containers 16,100 Bernis Company 545,387
Packaging & Containers 16,900 Crown Cork & Seal Company, Inc. 409,825 955,212 2.17%
Retail 11,100 J.C. Penny Company 381,563
Retail 15,050 The May Dept. Stores Company 548,384 929,947 2.11%
Telephone 9,900 ALLTELL Corporation 696,712
Telephone 28,700 Compania Anonima Nacional
Telefonos d 769,519
Telephone 17,800 Telefonica de Argentina S.A. 469,475
Telephone 10,600 Telefonos de Mexico 755,250
Telephone 8,400 U S WEST Inc. 479,325 3,179,281 7.20%
Tobacco 9,900 Philip Morris Companies Inc. 338,456
Tobacco 11,700 Philip Morris Companies Inc. 399,994
Tobacco 5,866 RJ Reynolds Tobacco Holdings, Inc. 158,382
Tobacco 17,800 UST, Inc. 537,338 1,434,170 3.26%
Transportation 12,400 CSX Corporation 525,450 525,450 1.19%
43,616,361 43,6161,361 99.07%
Total Common Stocks
(cost $45,320,749): 99.07% 43,616,361
Total Investment in Securities
(cost $45,320,749):99.07% 43,616,361
Other Assets less Liabilities: 0.93% 409,780
-----------
Total Net Assets 100.0% $44,026,141
===========
* Non-income producing security.
F-6
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Each officer and director of O'Shaughnessy Funds shall be indemnified by
O'Shaughnessy Funds 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 O'Shaughnessy Funds 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 O'Shaughnessy Funds to
indemnify such person must be based upon the reasonable determination of
independent legal counsel or the vote of a majority of a quorum of the directors
who are neither "interested persons," as defined in Section 2(a)(19) of the
Investment Company Act, nor parties to the proceeding ("non-party independent
directors"), after review of the facts, that such officer or director is not
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office. Each officer and director
of O'Shaughnessy Funds claiming indemnification within the scope of this Article
V shall be entitled to advances from O'Shaughnessy Funds for payment of the
reasonable expenses incurred by him in connection with proceedings to which he
is a party in the manner and to the full extent permitted under the General Laws
of the State of Maryland without a preliminary determination as to his ultimate
entitlement to indemnification (except as set forth below); provided, however,
that the person seeking indemnification shall provide to O'Shaughnessy Funds a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by O'Shaughnessy Funds 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
O'Shaughnessy Funds for his undertaking; (b) O'Shaughnessy Funds 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
O'Shaughnessy Funds 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. O'Shaughnessy Funds 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 O'Shaughnessy Funds.
O'Shaughnessy Funds, however, may not purchase insurance on behalf of any
officer or director of O'Shaughnessy Funds that protects or purports to protect
such person from liability to O'Shaughnessy Funds 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. O'Shaughnessy Funds 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
O'Shaughnessy Funds. 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 the
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 "Securities Act"), against certain
types of civil liabilities arising in connection with this Registration
Statement or the Proxy Statement and Prospectus and Statement of Additional
Information. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to Directors, officers and controlling persons
of the Registrant and the principal underwriter pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Director, officer,
or controlling person of the Registrant and the principal underwriter in
connection with the successful defense of any action, suit or proceeding) is
asserted by such Director, officer or controlling person or the principal
underwriter in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
C-1
ITEM 16. EXHIBITS
Exhibit No.
- -----------
1. (a) Articles of Incorporation of the Registrant. (1)
(b) Articles of Amendment, dated July 2, 1996. (1)
2. Amended and Restated By-laws of the Registrant. (2)
3. Not applicable.
4. Form of Agreement and Plan of Reorganization (filed herewith as
Exhibit I to the Proxy Statement and Prospectus contained in this
Registration Statement).
5. Instrument defining rights of shareholders (incorporated by reference
to Exhibits 1(a), 1(b) and 2 above).
6. Management Agreement between the Registrant and O'Shaughnessy Capital
Management, Inc. (2)
7. Distribution Agreement between the Registrant and First Fund
Distributors, Inc. (2)
8. Not applicable.
9. Custody Agreement between the Registrant and Firstar Trust Company.
(2)
10. Not applicable.
11. Opinion and consent of Swidler Berlin Shereff Friedman, LLP, counsel
to the Registrant.
12. (a) Opinion and consent of Swidler Berlin Shereff Friedman, LLP,
counsel to the Registrant, regarding certain tax matters relating
to the Growth Funds Reorganization.
(b) Opinion and consent of Swidler Berlin Shereff Friedman, LLP,
counsel to the Registrant, regarding certain tax matters relating
to the Value Funds Reorganization.
13. (a) Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between the Registrant and Firstar
Trust Company. (2)
(b) Administration Agreement between the Registrant and Investment
Company Administration, LLC. (2)
(c) Fund Accounting Agreement between the Registrant and Firstar
Trust Company. (2)
14. (a) Consent of McGladrey & Pullen, LLP.
(b) Consent of PricewaterhouseCoopers LLP.
15. Not applicable.
16. Power of Attorney. (3)
17 (a) Prospectus dated November 30, 1998 of the O'Shaughnessy
Cornerstone Value Fund and the O'Shaughnessy Cornerstone Growth
Fund. (4)
(b) Prospectus dated November 30, 1998 of the O'Shaughnessy Dogs of
the Market(TM)Fund. (4)
(c) Prospectus dated November 30, 1998 of the O'Shaughnessy
Aggressive Growth Fund. (4)
C-2
(d) Combined Statement of Additional Information dated November 30,
1998 of the Funds. (4)
(e) Combined Semi-Annual Report to Shareholders of the O'Shaughnessy
Cornerstone Value Fund and the O'Shaughnessy Cornerstone Growth
Fund for the six-month period ended March 31, 1999.(4)
(f) Form of Proxy for the O'Shaughnessy Dogs of the Market(TM) Fund.
(g) Form of Proxy for the O'Shaughnessy Aggressive Growth Fund.
(h) President's Letter. (4)
(i) Combined Annual Report to Shareholders of the O'Shaughnessy
Cornerstone Value Fund, the O'Shaughnessy Cornerstone Growth
Fund, the O'Shaughnessy Dogs of the MarketTM Fund and the
O'Shaughnessy Aggressive Growth Fund for the year ended September
30, 1999.
- ----------
(1) Previously filed with Registration Statement on Form N-1A (File No.
333-7595) on July 3, 1996, and incorporated herein by this reference.
(2) Previously filed with Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 333-7595) on October 9, 1996, and
incorporated herein by this reference.
(3) Included on the signature page of the Registrant's Registration Statement
on Form N-14 (File No. 333-91421) filed on November 22, 1999, and
incorporated herein by this reference.
(4) Previously filed with Registration Statement on Form N-14 (File No.
333-91421) on November 22, 1999, and incorporated herein by this reference.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant agrees to prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(b) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (a) above will be filed as part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
C-3
SIGNATURES
As required by the Securities Act of 1933, this Amendment to Registration
Statement has been signed on behalf of the Registrant, in the city of Greenwich,
and State of Connecticut, on the 11th day of January, 2000.
O'SHAUGHNESSY FUNDS, INC.
(Registrant)
By: /s/ James P. O'Shaughnessy
--------------------------
James P. O'Shaughnessy,
President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signatures Title Date
---------- ----- ----
James P. O'Shaughnessy* President (Chief Executive
- ------------------------------- Officer)
James P. O'Shaughnessy
James P. O'Shaughnessy* Treasurer (Chief Financial
- ------------------------------- and Accounting Officer)
James P. O'Shaughnessy
C. Flemming Heilmann* Director
- -------------------------------
C. Flemming Heilmann
Joseph John McAleer* Director
- -------------------------------
Joseph John McAleer
Robert E. Ix* Director
- -------------------------------
Robert E. Ix
* By: /s/ James P. O'Shaughnessy January 11, 2000
------------------------------------------
(James P. O'Shaughnessy, Attorney-in-Fact)
C-4
EXHIBIT INDEX
Exhibit No.
- -----------
11 Opinion and consent of Swidler Berlin Shereff Friedman, LLP, counsel
to the Registrant.
12 (a) Opinion and consent of Swidler Berlin Shereff Friedman, LLP,
counsel to the Registrant regarding certain tax matters relating
to the Growth Funds Reorganization.
(b) Opinion and consent of Swidler Berlin Shereff Friedman, LLP,
counsel to the Registrant regarding certain tax matters relating
to the Value Funds Reorganization.
14 (a) Consent of McGladrey & Pullen, LLP.
(b) Consent of PricewaterhouseCoopers LLP.
17 (f) Form of Proxy for the O'Shaughnessy Dogs of the Market(TM)Fund.
(g) Form of Proxy for the O'Shaughnessy Aggressive Growth Fund.
(i) Combined Annual Report to Shareholders of the O'Shaughnessy
Cornerstone Value Fund, the O'Shaughnessy Cornerstone Growth
Fund, the O'Shaughnessy Dogs of the MarketTM Fund and the
O'Shaughnessy Aggressive Growth Fund for the year ended September
30, 1999.