O'Shaughnessy Funds Inc.
Building New Standards For Investment Success
Cornerstone Growth Fund
Cornerstone Value Fund
35 Mason Street, Greenwich, Connecticut 06830
Toll-Free 877-OSFUNDS (673-8637)
www.osfunds.com
NASDQ Symbols: OSCGX (Cornerstone Growth Fund)
OSCVX (Cornerstone Value Fund)
THE FUNDS
O'Shaughnessy Cornerstone Growth Fund ("Cornerstone Growth Fund") and
O'Shaughnessy Cornerstone Value Fund ("Cornerstone Value Fund") (each a "Fund,"
and together, the "Funds") are separate investment portfolios or series of
O'Shaughnessy Funds, Inc., an open-end, diversified management investment
company or mutual fund.
INVESTMENT OBJECTIVE
The investment objective of the Cornerstone Growth Fund is to seek long-term
growth of capital. The investment objective of the Cornerstone Value Fund is to
seek total return, consisting of capital appreciation and current income.
STRATEGY INDEXING
Each Fund seeks to achieve its investment objective through a process of
Strategy Indexing which is pursued through the implementation of an investment
strategy developed by O'Shaughnessy Capital Management, Inc., the Funds'
investment manager (the "Manager"). The Funds will invest substantially all of
their assets in common stocks selected through such strategies.
The investment strategy of Cornerstone Growth Fund (the "Cornerstone Growth
Strategy") entails the selection of 50 common stocks from the O'Shaughnessy All
Stocks Universe which meet certain criteria, as described in this prospectus.
The investment strategy of Cornerstone Value Fund (the "Cornerstone Value
Strategy") entails the selection of 50 common stocks from the O'Shaughnessy
Market Leaders Universe which meet certain criteria, as described below. (The
Cornerstone Growth Strategy and the Cornerstone Value Strategy are each referred
to as a "Strategy.")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
PROSPECTUS
November 30, 1998
This Prospectus contains the information you should know about the Funds before
you invest. Please keep it for future reference. A statement containing
additional information about the Funds, dated November 30, 1998, has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this Prospectus. It is available, at no charge, by calling or by writing
the Funds at the telephone number or address set forth above. The SEC maintains
an internet site (http://www.sec.gov) that contains the SAI, other material
incorporated by reference and other information about companies that file
electronically with the SEC. O'Shaughnessy
Capital Management, Inc. - Manager
First Fund Distributors, Inc. - Distributor
RISK/REWARD
Each Fund's Strategy provides a rigorous and disciplined approach to investing,
based on a buy and hold philosophy over the course of each year, and has, in the
Manager's judgment, the potential to provide superior returns. However, each
Fund intends to adhere to its respective Strategy (subject to applicable federal
tax requirements relating to mutual funds) regardless of the performance of the
stock market or other economic factors or indicators in a particular period,
which may result in losses to the Fund.
PURCHASE OF SHARES
Shares of the Funds will be offered to investors during the continuous offering
at a price equal to the next determined net asset value per share. There are no
fees or charges to purchase or sell shares or to reinvest dividends, however, a
fee applies to certain short-term redemptions, see "Information About Your
Account - Redemption of Shares". There are no Rule 12b-1 fees.
TABLE OF CONTENTS
About the Funds ............................................ 3
Financial Highlights ....................................... 5
Management and Organization of the Funds ................... 18
Information about Your Account ............................. 20
Information on Distributions and Taxes ..................... 27
Performance Information .................................... 28
Net Asset Value ............................................ 28
Other Shareholder Services ................................. 29
2
ABOUT THE FUNDS
TRANSACTION AND FUND EXPENSES
The following table and example should help you understand the kinds of expenses
you will bear directly or indirectly as a Fund shareholder. In the table,
"Shareholder Transaction Expenses, shows that you pay no sales charges. All the
money you invest in the Funds goes to work for you, subject to the fees noted in
the table. "Annual Fund Operating Expenses shows how much it would cost to
operate each Fund for a year, based on estimated expenses through the end of
each Fund's first full year. These costs you pay indirectly, because they are
deducted from the Fund's total assets before the daily share price is calculated
and before dividends and other distributions are made. You will not see these
expenses on your account statement.
FEE TABLE
Shareholder Transaction Expenses:
Cornerstone Cornerstone
Growth Fund Value Fund
----------- ----------
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) None None
Maximum Sales Charge Imposed on
Dividend Reinvestments None None
Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower) None None
Redemption Fee (a) (on shares held
less than 90 days) 1.50% 1.50%
Exchange Fee (a) (b) (on shares held
less than 90 days) 1.50% 1.50%
Annual Fund Operating Expenses
(as a percentage of average net assets):
Cornerstone Cornerstone
Growth Fund Value Fund
----------- ----------
Management Fees (c) 0.74% 0.74%
Rule 12b-1 Fees None None
Other Expenses 0.42% 0.71%
Total Fund Operating Expenses 1.16% 1.45%
(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."
(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."
(c) See "Management and Organization of the Funds - Management."
3
Example: An investor would pay the following expenses on a $1,000 investment
assuming: (1) the operating expense ratio set forth in the table above; (2) a 5%
annual return through out the period; and (3) redemption at the end of the
period: Cornerstone
Cornerstone Growth Fund Value Fund
- ----------- ----------- ----------
One year $ 12 $ 15
Three years $ 37 $ 46
Five years $ 64 $ 80
Ten years $142 $176
The table and example are intended to assist investors in understanding the
costs and expenses that a shareholder in each Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses or annual rate of return, and actual expenses or annual rate of
return may be more or less than those shown.
4
FINANCIAL HIGHLIGHTS
CORNERSTONE GROWTH FUND
Per Share Operating Performance
(For a share outstanding throughout the period)
Year November 1, 1996*
Ended through
September 30, 1998 September 30, 1997
------------------ ------------------
Net asset value, beginning of period $ 15.30 $ 10.00
------- -------
Income from investment operations:
Net investment (loss) income (0.07) (0.02)
Net realized & unrealized (loss) gain
on investments (3.88) 5.32
Total from investment operations (3.95) 5.30
Less distributions:
From net investment income -- --
From net realized capital gains (1.78) --
(1.78) --
------- -------
Net asset value, end of period $ 9.57 $ 15.30
======= =======
Total Return (27.63%) 53.05%**
Ratios/supplemental data:
Net assets, end of period (millions) $ 80.4 $ 91.3
Ratio of expenses to average net assets:
Before expense reimbursement 1.16% 1.63%+
After expense reimbursement -- 1.56%+
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement (0.86%) (1.19%)+
After expense reimbursement -- (1.12%)+
Portfolio turnover rate 119.98% 15.52%
* Commencement of operations.
** Not Annualized.
+ Annualized.
5
FINANCIAL HIGHLIGHTS
CORNERSTONE VALUE FUND
Per Share Operating Performance
(For a share outstanding throughout the period)
Year November 1, 1996*
Ended through
September 30, 1998 September 30, 1997
------------------ ------------------
Net asset value, beginning of period $ 11.50 $ 10.00
------- -------
Income from investment operations:
Net investment (loss) income 0.21 0.15
Net realized & unrealized (loss) gain
on investments (0.70) 1.37
Total from investment operations (0.49) 1.52
Less distributions:
From net investment income (0.17) (0.02)
From net realized capital gains -- --
(0.17) (0.02)
------- -------
Net asset value, end of period $ 10.84 $ 11.50
======= =======
Total Return (4.32%) 15.21%**
Ratios/supplemental data:
Net assets, end of period (millions) $ 21.9 $ 13.5
Ratio of expenses to average net assets:
Before expense reimbursement 1.45% 2.66%
After expense reimbursement 1.45% 1.85%
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement 2.12% 1.93%
After expense reimbursement 2.12% 2.73%
Portfolio turnover rate 51.56% 2.01%
* Commencement of operations.
** Not Annualized.
+ Annualized.
6
INVESTMENT OBJECTIVE AND STRATEGIES
To help you decide whether either or both of the Cornerstone Growth Fund and
Cornerstone Value Fund are appropriate for you, this section takes a closer look
at each Fund's investment objective and Strategy.
WHAT IS EACH FUND'S OBJECTIVE?
The investment objective of the Cornerstone Growth Fund is to seek long-term
growth of capital. The investment objective of the Cornerstone Value Fund is to
seek total return, consisting of capital appreciation and current income. There
can be no assurance that either Fund will achieve its investment objective.
HOW DOES EACH FUND ACHIEVE ITS OBJECTIVE?
The Cornerstone Growth Fund seeks to achieve its investment objective through a
process of Strategy Indexing , which is pursued through the implementation of
the Cornerstone Growth Strategy. The Cornerstone Value Fund seeks to achieve its
investment objective through a process of Strategy Indexing , which is pursued
through the implementation of the Cornerstone Value Strategy. Each Strategy was
developed by the Manager.
Other than assets temporarily maintained in cash or liquid short-term securities
pending investment, to meet redemption requests or to comply with federal tax
laws applicable to mutual funds, each Fund will invest substantially all of its
assets in common stocks selected through the respective Strategy, as described
more fully below.
WHAT IS THE CORNERSTONE GROWTH STRATEGY?
The Cornerstone Growth Strategy selects the 50 stocks with the highest one-year
price appreciation as of the date of purchase from the O'Shaughnessy All Stocks
Universe that also meet the following criteria: (i) annual earnings that 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
required number of shares as of the Re-Balance Date (as defined in this
prospectus). 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 does
investment through the Cornerstone Growth Strategy and the Cornerstone Value
Strategy work?
WHAT IS THE O'SHAUGHNESSY ALL STOCKS UNIVERSE?
The O'Shaughnessy All Stocks Universe consists of all the domestic and foreign
common stocks in the Standard & Poor's Compustat ("S&P Compustat") database (the
"COMPUSTAT Database") with market capitalizations exceeding $172 million.
Currently, the COMPUSTAT Database consists of the stocks (including the American
Depository Receipts ("ADRs")) of 9,898 issuers, and the O'Shaughnessy All Stocks
Universe consists of the stocks of 3,762 issuers. What is the Cornerstone Value
Strategy?
The Cornerstone Value Strategy involves the selection of the 50 highest
dividend-yielding common stocks from the O'Shaughnessy Market Leaders Universe
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 does investment through the Cornerstone Growth Strategy and the Cornerstone
Value Strategy work?"
WHAT IS THE O'SHAUGHNESSY MARKET LEADERS UNIVERSE?
The O'Shaughnessy Market Leaders Universe consists of those domestic and foreign
stocks in the COMPUSTAT Database which are not power utility companies and which
have (i) market capitalizations exceeding the average of the COMPUSTAT Database;
(ii) twelve month sales which are fifty percent greater than the average for the
COMPUSTAT Database; (iii) a number of shares outstanding which exceeds the
average for the COMPUSTAT Database; and (iv) cash flow which exceeds the average
for the COMPUSTAT Database. Currently, the O'Shaughnessy Market Leaders Universe
consists of the stocks of 624 issuers.
7
HOW DOES INVESTMENT THROUGH THE CORNERSTONE GROWTH STRATEGY AND THE CORNERSTONE
VALUE STRATEGY WORK?
Upon commencement of operations of the Cornerstone Growth Fund and Cornerstone
Value Fund, the Manager purchased 50 stocks for each Fund as dictated by the
Cornerstone Growth Strategy and the Cornerstone Value Strategy, respectively,
based on information as of commencement of operations of the Fund. Each Fund's
holdings of each stock in its portfolio were initially be weighted equally by
dollar amount. Thereafter, the Manager re-balances the portfolio of each Fund
annually in the first month of the succeeding year (the "Re-Balance Date"), in
accordance with the Fund's respective Strategy, based on information determined
on or about the immediately preceding December 31. That is, on the Re-Balance
Date of each year, stocks meeting the Strategy's criteria based on information
determined on or about immediately preceding December 31 will be purchased for
the Fund to the extent not then held, stocks which no longer meet the criteria
as of such date will be sold, and the holdings of all stocks in the Fund that
continue to meet the criteria will be appropriately increased or decreased to
result in equal weighting of all stocks in the portfolio.
When a Fund receives new cash flow from the sale of its shares over the course
of the year, such cash will first be used to the extent necessary to meet
redemptions. The balance of any such cash will be invested in the 50 stocks
selected for the Fund pursuant to the applicable Strategy as of the most recent
rebalancing of the Fund's portfolio, 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, the Fund will meet redemption
requests by selling securities on a pro rata basis, based on the current
weightings of such securities in the portfolio. Thus, interim purchases and
sales of securities between annual Re-Balance Dates will be based on current
portfolio weightings and will be made without regard to whether or not a
particular security continues to meet the Strategy's criteria.
WILL THE MANAGER DEVIATE FROM THE STRATEGIES?
The Manager is committed to a rigorous, disciplined approach and cannot
presently anticipate any circumstances which would cause it to diverge from the
Strategies described above in managing the Funds.
IS THERE ANYTHING ELSE I SHOULD KNOW ABOUT THE STRATEGIES?
Each Fund offers a disciplined approach to investing, based on a buy and hold
philosophy over the course of each year, which ignores market timing and rejects
active management. Each Fund will adhere to its respective Strategy regardless
of the performance of the stock market in a particular period.
The Manager anticipates that the 50 stocks held in each Fund's portfolio will
remain the same throughout the course of a year, despite any adverse
developments concerning an issuer, an industry, the economy or the stock market
generally. However, 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 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.
The Funds will be substantially fully invested in stocks selected as described
above at all times.
HOW CAN I DECIDE IF THE FUNDS ARE AN APPROPRIATE INVESTMENT FOR ME?
Consider your investment goals, your time horizon for achieving them, and your
tolerance of risk. The Funds are not appropriate investments for those who seek
short-term investments, since the Manager expects the benefits of investing in
the Funds to be derived from investing assets in accordance with the Cornerstone
8
Growth Strategy and the Cornerstone Value Strategy over the long-term. See "What
is the historical performance of the Strategies?" below. A discussion of the
risks associated with investment in the Funds is contained in "Risk Factors"
below.
IS THERE OTHER INFORMATION I SHOULD REVIEW BEFORE MAKING A DECISION?
Be sure to review "Other Investment Policies and Practices" which discusses
certain additional investment practices of the Funds. In addition, historical
information relating to the performance of the Cornerstone Growth Strategy and
the Cornerstone Value Strategy over time is discussed below.
WHAT IS THE HISTORICAL PERFORMANCE OF THE STRATEGIES?
The following graphs and tables compare the actual performance of the S&P 500
Index (the "S&P 500"), the hypothetical performance of each the Cornerstone
Growth Strategy and Cornerstone Value Strategy for the historical periods
indicated and the actual performance of the Cornerstone Growth Fund and
Cornerstone Value Fund for 1997. Returns for each Strategy are the returns on a
hypothetical portfolio of stocks which was rebalanced annually in accordance
with such Strategy for the historical periods indicated. The Strategies have
been developed and tested solely by the Manager.
Actual performance of the Funds may differ from the quoted performance of the
Strategies for the following reasons: each Fund may not be fully invested at all
times; not all stocks in the Fund's portfolio may be weighted equally at all
times due to appreciation or depreciation in a stock's value; purchases and
sales of stocks for the Fund's portfolio are likely to occur between annual
rebalancings due to cash inflows and outflows (from purchases and redemptions of
Fund shares) during the year; in managing the Funds, the Manager may make
limited modifications to the Strategies as necessary to comply with federal tax
laws; and the returns of the Strategies do not reflect the advisory fees,
commission costs, expenses or taxes which would be borne by the Funds.
Because the returns for the Strategies are hypothetical, they do not represent
actual trading or the impact that material economic and market factors might
have had on the Manager's decision-making under actual circumstances. However,
except as described above, the Manager can presently foresee no circumstances
that would cause deviation from the Strategies in managing the Funds. All
returns contained in the graphs and charts below reflect reinvestment of
dividends and other earnings.
Cornerstone Cornerstone
Date S&P 500 Growth Fund Date S&P 500 Growth Fund
- ---- ------- ----------- ---- ------- -----------
31-Dec-52 10,000 10,000 31-Dec-75 78,352 259,334
31-Dec-53 9,901 10,040 31-Dec-76 97,031 343,618
31-Dec-54 15,111 15,733 31-Dec-77 90,064 434,333
31-Dec-55 19,880 20,515 31-Dec-78 95,973 600,683
31-Dec-56 21,184 24,208 31-Dec-79 113,670 833,147
31-Dec-57 18,900 19,875 31-Dec-80 150,522 1,355,530
31-Dec-58 27,096 30,369 31-Dec-81 143,131 1,233,532
31-Dec-59 30,336 37,688 31-Dec-82 173,776 1,691,173
31-Dec-60 30,479 42,436 31-Dec-83 212,892 2,244,186
31-Dec-61 38,675 64,121 31-Dec-84 226,241 2,199,303
31-Dec-62 35,298 53,093 31-Dec-85 299,000 3,134,006
31-Dec-63 43,346 64,136 31-Dec-86 354,225 3,688,725
31-Dec-64 50,490 83,377 31-Dec-87 372,751 3,489,534
31-Dec-65 56,776 120,146 31-Dec-88 435,410 4,525,926
31-Dec-66 51,064 120,026 31-Dec-89 572,521 5,603,096
31-Dec-67 63,309 220,007 31-Dec-90 554,372 5,418,194
31-Dec-68 70,311 331,110 31-Dec-91 723,733 8,203,146
31-Dec-69 64,335 238,068 31-Dec-92 779,243 10,294,948
31-Dec-70 66,915 231,878 31-Dec-93 857,090 13,414,317
31-Dec-71 76,490 306,311 31-Dec-94 868,318 12,703,358
31-Dec-72 91,008 366,655 31-Dec-95 1,187,858 15,015,370
31-Dec-73 77,666 265,825 31-Dec-96 1,461,897 19,748,214
31-Dec-74 57,108 188,470 31-Dec-97 1,949,586 25,929,405
9
O'Shaughnessy Cornerstone Growth Strategy Index
vs. the S&P 500* (December 31, 1952 - December 31, 1997)
Cornerstone Cornerstone
Year Ending S&P 500 Growth Strategy Year Ending S&P 500 Growth Strategy
- ----------- ------- --------------- ----------- ------- ---------------
12/31/53 -0.99% 0.40% 12/31/76 23.84% 32.50%
12/31/54 52.62% 56.70% 12/31/77 -7.18% 26.40%
12/31/55 31.56% 30.40% 12/31/78 6.56% 38.30%
12/31/56 6.56% 18.00% 12/31/79 18.44% 38.70%
12/31/57 -10.78% -17.90% 12/31/80 32.42% 62.70%
12/31/58 43.36% 52.80% 12/31/81 -4.91% -9.00%
12/31/59 11.96% 24.10% 12/31/82 21.41% 37.10%
12/31/60 0.47% 12.60% 12/31/83 22.51% 32.70%
12/31/61 26.89% 51.10% 12/31/84 6.27% -2.00%
12/31/62 -8.73% -17.20% 12/31/85 32.16% 42.50%
12/31/63 22.80% 20.80% 12/31/86 18.47% 17.70%
12/31/64 16.48% 30.00% 12/31/87 5.23% -5.40%
12/31/65 12.45% 44.10% 12/31/88 16.81% 29.70%
12/31/66 -10.06% -0.10% 12/31/89 31.49% 23.80%
12/31/67 23.98% 83.30% 12/31/90 -3.17% -3.30%
12/31/68 11.06% 50.50% 12/31/91 30.55% 51.40%
12/31/69 -8.50% -28.10% 12/31/92 7.67% 25.50%
12/31/70 4.01% -2.60% 12/31/93 9.99% 30.30%
12/31/71 14.31% 32.10% 12/31/94 1.31% -5.30%
12/31/72 18.98% 19.70% 12/31/95 37.43% 18.20%
12/31/73 -14.66% -27.50% 12/31/96 23.07% 31.52%
12/31/74 -26.47% -29.10% 12/31/97 33.36% 31.30%
12/31/75 37.20% 37.60%
+ Returns for 1997 are actual for the Cornerstone Growth Fund, net of fees
and expenses.
* This Chart and the Index Performance Statistics and Comparisons represent
past performance of the S&P 500, an unmanaged index of securities, and the
Cornerstone Growth Startegy, but not the Cornerstone Growth Fund, applied
retroactively, and should not be considered indicative of future results.
The performance of the strategy shown is a hypothetical example of the
performance of the strategy found in the backtest, using an initial $10,000
value, if the Strategy had been in existence and employed from 1952 through
1996, together with the actual return of the O'Shaughnessy Cornerstone
Growth Fund for 1997. Performance of the Strategy and the S&P 500 do not
reflect advisory fees, commissions, expenses or taxes that the Fund bears.
The Strategy's performance as well as that of the S&P 500 would be lower if
such fees and expenses were deducted. Read the prospectus carefully before
investing.
10
Cornerstone
Date S&P 500 Value Fund
---- ------- ----------
31-Dec-51 10,000 10,000
31-Dec-52 11,837 11,430
31-Dec-53 11,720 11,567
31-Dec-54 17,887 17,640
31-Dec-55 23,532 22,597
31-Dec-56 25,076 25,941
31-Dec-57 22,372 22,439
31-Dec-58 32,073 32,514
31-Dec-59 35,909 35,635
31-Dec-60 36,078 35,625
31-Dec-61 45,779 44,317
31-Dec-62 41,783 43,165
31-Dec-63 51,309 51,280
31-Dec-64 59,765 61,690
31-Dec-65 67,205 72,547
31-Dec-66 60,445 65,147
31-Dec-67 74,939 80,587
31-Dec-68 83,227 101,943
31-Dec-69 76,153 86,652
31-Dec-70 79,207 96,443
31-Dec-71 90,541 111,681
31-Dec-72 107,726 127,317
31-Dec-73 91,933 119,805
31-Dec-74 67,599 105,069
31-Dec-75 92,745 166,219
31-Dec-76 114,856 231,377
31-Dec-77 106,609 239,012
31-Dec-78 113,603 246,900
31-Dec-79 134,551 310,106
31-Dec-80 178,173 373,058
31-Dec-81 169,424 420,809
31-Dec-82 205,698 503,288
31-Dec-83 252,001 697,557
31-Dec-84 267,801 730,342
31-Dec-85 353,926 985,961
31-Dec-86 419,296 1,189,070
31-Dec-87 441,225 1,327,002
31-Dec-88 515,395 1,678,657
31-Dec-89 677,693 2,309,832
31-Dec-90 656,210 2,148,144
31-Dec-91 856,683 2,940,809
31-Dec-92 922,390 3,281,943
31-Dec-93 1,014,537 3,951,459
31-Dec-94 1,027,828 4,141,129
31-Dec-95 1,406,068 5,246,810
31-Dec-96 1,730,448 6,395,862
31-Dec-97 2,307,725 7,374,429
11
O'Shaughnessy Cornerstone Value Strategy Index
vs. the S&P 500* (December 31, 1951 - December 31, 1997)
Cornerstone Cornerstone
Year Ending S&P 500 Value Strategy Year Ending S&P 500 Value Strategy
----------- ------- -------------- ----------- ------- --------------
12/31/52 18.37% 14.30% 12/31/75 37.20% 58.20%
12/31/53 -0.99% 1.20% 12/31/76 23.84% 39.20%
12/31/54 52.62% 52.50% 12/31/77 -7.18% 3.30%
12/31/55 31.56% 28.10% 12/31/78 6.56% 3.30%
12/31/56 6.56% 14.80% 12/31/79 18.44% 25.60%
12/31/57 -10.78% -13.50% 12/31/80 32.42% 20.30%
12/31/58 43.36% 44.90% 12/31/81 -4.91% 12.80%
12/31/59 11.96% 9.60% 12/31/82 21.41% 19.60%
12/31/60 0.47% -0.03% 12/31/83 22.51% 38.60%
12/31/61 26.89% 24.40% 12/31/84 6.27% 4.70%
12/31/62 -8.73% -2.60% 12/31/85 32.16% 35.00%
12/31/63 22.80% 18.80% 12/31/86 18.47% 20.60%
12/31/64 16.48% 20.30% 12/31/87 5.23% 11.60%
12/31/65 12.45% 17.60% 12/31/88 16.81% 26.50%
12/31/66 -10.06% -10.20% 12/31/89 31.49% 37.60%
12/31/67 23.98% 23.70% 12/31/90 -3.17% -7.00%
12/31/68 11.06% 26.50% 12/31/91 30.55% 36.90%
12/31/69 -8.50% -15.00% 12/31/92 7.67% 11.60%
12/31/70 4.01% 11.30% 12/31/93 9.99% 20.40%
12/31/71 14.31% 15.80% 12/31/94 1.31% 4.80%
12/31/72 18.98% 14.00% 12/31/95 37.43% 26.70%
12/31/73 -14.66% -5.90% 12/31/96 23.07% 21.90%
12/31/74 -26.47% -12.30% 12/31/97 33.36% 15.30%
+ Returns for 1997 are actual for the Cornerstone Value Fund, net of fees and
expenses.
* This Chart and the Index Performance Statistics and Comparisons represent
past performance of the S&P 500, an unmanged index of securities, and the
Cornerstone Value Strategy, but not the Cornerstone Value Fund, applied
retroactively, and should not be considered indicative of future results.
The performance of the strategy shown is a hypothetical example of the
performance of the strategy found in the backtest, using an intital $10,000
value, if the Strategy had been in existence and employed from 1951 through
1996, together with the actual return of the O'Shaughnessy Cornerstone
Value Fund for 1997. Performance of the Strategy and the S&P 500 do not
reflect advisory fees, commissions, expenses or taxes that the Fund bears.
The Strategy's performance as well as that of the S&P 500 would be lower if
such fees and expanses were deducted. Read the prospectus carefully before
investing.
12
Summary results for S&P 500 and Hypothetical Results
for Cornerstone Growth Strategy Stocks,
December 31, 1952 - December 31, 1997.++
Cornerstone
S&P 500 Growth Strategy
------- ---------------
Arithmetic average+ 13.74% 21.93%
Standard deviation of return+ 16.91% 25.34%
Sharpe risk-adjusted ratio* 49.00 65.00
1-yr return** 33.36% 31.30%
3-yr compounded**+ 31.15% 26.85%
5-yr compounded**+ 20.24% 20.29%
10-yr compounded**+ 18.05% 22.21%
15-yr compounded**+ 17.52% 19.96%
20-yr compounded**+ 16.65% 22.69%
25-yr compounded**+ 13.06% 18.57%
30-yr compounded**+ 12.12% 17.23%
35-yr compounded**+ 12.16% 19.35%
40-yr compounded**+ 12.30% 19.64%
Compound Annual Return 12.44% 19.09%
$10,000 becomes : $1,958,565 $25,929,405
Maximum return 52.62% 83.30%
Minimum return -26.47% -29.10%
+ Returns for 1997 are actual for Cornerstone Growth Fund, net of fees and
expenses.
* The Sharpe risk-adjusted ratio (the "Sharpe ratio") takes a portfolio's
volatility, as measured by its standard deviation of return, into account.
The higher the Sharpe ratio, the better the portfolio's risk-adjusted
return. The Sharpe ratio is calculated by subtracting the risk free Treasury
bill return from the portfolio's return and then dividing that number by the
portfolio's overall standard deviation of return.
** Quoted return is for the most recent period ended December 31, 1997.
++ These Statistics and Comparisons represent past performance of the S&P 500,
an unmanaged index of securities, and the Cornerstone Growth Strategy, but
not the Cornerstone Growth Fund, applied retroactively, and should not be
considered indicative of future results. The performance of the strategy
shown is a hypothetical example of the performance of the strategy found in
the backtest, using an initial $10,000 value, if the Strategy had been in
existence and employed from 1952 through 1996, together with the actual
return of the O'Shaughnessy Cornerstone Growth Fund for 1997. Performance of
the Strategy and the S&P 500 do not reflect advisory fees, commissions,
expenses or taxes that the Fund bears. The Strategy's performance as well as
that of the S&P 500 would be lower if such fees and expenses were deducted.
Read the prospectus carefully before investing.
13
Summary results for S&P 500 and Hypothetical Results
for Cornerstone Value Strategy Stocks
December 31, 1951 - December 31, 1997.++
Cornerstone
S&P 500 Value Strategy
------- --------------
Arithmetic average + 13.84% 16.65%
Standard deviation of return+ 16.73% 16.76%
Sharpe risk-adjusted ratio* 51.00 67.00
1-yr return**+ 33.36% 15.30%
3-yr compounded**+ 31.15% 21.21%
5-yr compounded**+ 20.24% 17.58%
10-yr compounded**+ 18.05% 18.71%
15-yr compounded**+ 17.52% 19.60%
20-yr compounded**+ 16.65% 18.70%
25-yr compounded**+ 13.06% 17.63%
30-yr compounded**+ 12.12% 16.25%
35-yr compounded**+ 12.16% 15.82%
40-yr compounded**+ 12.30% 15.59%
Compound Annual Return 12.57% 15.44%
$10,000 becomes+: $2,318,353 $7,374,429
Maximum return 52.62% 58.20%
Minimum return -26.47% -15.00%
+ Returns for 1997 are actual for the Cornerstone Value Fund, net of fees and
expenses.
* The Sharpe ratio takes a portfolio's volatility, as measured by its standard
deviation of return, into account. The higher the Sharpe ratio, the better
the portfolio's risk-adjusted return. The Sharpe ratio is calculated by
subtracting the risk free Treasury bill return from the portfolio's return
and then dividing that number by the portfolio's overall standard deviation
of return.
** Quoted return is for the most recent period ended December 31, 1997.
++ These Statistics and Comparisons represent past performance of the S&P 500,
an unmanaged index of securities, and the Cornerstone Value Strategy, but
not the Cornerstone Value Fund, applied retroactively, and should not be
considered indicative of future results. The performance of the strategy
shown is a hypothetical example of the performance of the strategy found in
the backtest, using an initial $10,000 value, if the Strategy had been in
existence and employed from 1952 through 1996, together with the actual
return of the O'Shaughnessy Cornerstone Value Fund for 1997. Performance of
the Strategy and the S&P 500 do not reflect advisory fees, commissions,
expenses or taxes that the Fund bears. The Strategy's performance as well as
that of the S&P 500 would be lower if such fees and expenses were deducted.
Read the prospectus carefully before investing.
14
OTHER INVESTMENT POLICIES AND PRACTICES
This section takes a detailed look at other investment policies and practices of
the Funds. The Funds' investments are subject to further restrictions and risks
described in the Statement of Additional Information.
Shareholder approval is required to change a Fund's investment objective and
certain investment restrictions noted in the following section as "fundamental
policies." The Manager also follows certain "operating policies" which can be
changed without shareholder approval. However, significant changes in operating
policies are discussed with shareholders in Fund reports.
The Funds' holdings in certain kinds of investments cannot exceed maximum
percentages of total assets, which are set forth below. While these restrictions
provide a useful level of detail about a Fund's investments, investors should
not view them as an accurate gauge of the potential risk of such investments.
The net effect of a particular investment depends on its volatility and the size
of its overall return in relation to the performance of all the Fund's other
investments.
CASH AND SHORT-TERM SECURITIES. Each Fund may temporarily invest a portion of
its total assets in cash or liquid short-term securities pending investment of
such assets in stocks in accordance with the Fund's Strategy, to meet redemption
requests, and to the extent necessary to comply with the federal tax laws
applicable to regulated investment companies. The Manager will not use
investments in cash and short-term securities for temporary defensive purposes.
Short-term securities in which the Funds may invest include certificates of
deposit, commercial paper, notes, obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities, and repurchase
agreements involving such securities. See "Repurchase Agreements," below.
The Manager does not expect assets invested in cash or liquid short-term
securities to exceed 5% of the Fund's total assets at any time.
REPURCHASE AGREEMENTS. As described above in "Cash and Short-Term Securities,"
each Fund may invest in short-term securities pursuant to repurchase agreements.
The Funds may only enter into repurchase agreements with a member bank of the
Federal Reserve System or well-established securities dealer in U.S. government
securities. In the event of a bankruptcy or default by the seller of the
repurchase agreement, the Fund may suffer delays and incur costs or possible
losses in liquidating the underlying security which is held as collateral, and
the Fund may incur a loss if the value of the collateral declines during this
period. As a matter of operating policy, the Fund may not invest more than 15%
of a Fund's total assets in repurchase agreements maturing in more than seven
days.
LENDING OF PORTFOLIO SECURITIES. Like other mutual funds, each Fund may from
time to time lend securities from its portfolio to banks, brokers and other
financial institutions to earn additional income. The principal risk is that the
borrower may default on its obligation to return borrowed securities, because of
insolvency or otherwise. In this event, the Fund could experience delays in
recovering its securities and capital. In accordance with applicable law, each
Fund may not lend portfolio securities representing in excess of 33 1/3% - Note
only - per SAI of its respective total assets. The lending policy is a
fundamental policy.
BORROWING. Each Fund may borrow money in an amount up to 33% of its respective
total assets from banks for extraordinary or emergency purposes such as meeting
anticipated redemptions, and may pledge assets in connection with such
borrowing. The borrowing policy is a fundamental policy.
INDUSTRY CONCENTRATION. Each Fund may not invest more than 25% of its total
assets in any one industry (excluding U.S. Government securities). If upon
rebalancing, the stocks selected by a Fund's Strategy would result in more than
25% of the Fund's total assets being invested in a single industry, the Manager
will be required to deviate from the Strategy in investing the portfolio so as
not to violate the Fund's concentration policy. The concentration policy is a
fundamental policy.
15
HEDGING AND RETURN ENHANCEMENT STRATEGIES. The Fund is permitted to utilize
certain hedging and return enhancement strategies and techniques such as options
on securities and securities indices, futures contracts on securities and
securities indices and options on futures contracts, as described below.
Futures (a type of potentially high-risk derivative) are often used to manage or
hedge risk, because they enable the investor to buy or sell an asset in the
future at an agreed upon price. Options (another potentially high-risk
derivative) give the investor the right, but not the obligation, to buy or sell
an asset at a predetermined price in the future. The Fund may buy and sell
futures and options contracts for any number of reasons, including: to manage
its exposure to changes in securities prices; as an efficient means of adjusting
its overall exposure to certain markets; in an effort to enhance income; and to
protect the value of portfolio securities. The Fund may purchase, sell, or write
call and put options on securities, financial indices and futures.
Futures contracts and options may not always be successful hedges; their prices
can be highly volatile. Using them could lower the Fund's total return, and the
potential loss from the use of futures can exceed the Fund's initial investment
in such contracts.
As a matter of operating policy, initial margin deposits and premiums on options
used for nonhedging purpose will not equal more than 5% of the Fund's net asset
value.
FOREIGN SECURITIES. The Funds may invest in securities of foreign issuers,
either through (i) direct purchase of securities of foreign issuers or (ii)
purchase of American Depository Receipts ("ADRs") which are dollar-denominated
securities of foreign issuers traded in the U.S. Such investments increase
diversification of the Funds' portfolio and may enhance return, but they also
involve some special risks such as exposure to potentially adverse local
political and economic developments, nationalization and exchange controls;
potentially lower liquidity and higher volatility; possible problems arising
from regulatory practices that differ from U.S. standards; the imposition of
withholding taxes on income from such securities; confiscating taxation; and the
chance that fluctuations in foreign exchange rates will decrease the
investment's value (favorable changes can increase its value). These risks are
heightened for investment in developing countries and there is no limit on the
amount of the Fund's foreign investments that may be invested in such countries.
The 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.
DIVERSIFICATION. In order to maintain each Fund's status as a diversified
investment company, with respect to 75% of the Fund's total assets: 1) not more
than 5% of the Fund's assets may be invested in the securities of a single
issuer (excluding U.S. Government Securities); and 2) the Fund may not hold more
than 10% of the outstanding voting securities of a single issuer. The
diversification policy is a fundamental policy.
PORTFOLIO TRANSACTIONS. In executing portfolio transactions, the Funds seek to
obtain the best net results, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution, operational facilities of the firm involved and the
firm's risk in positioning a block of securities. While the Funds generally seek
reasonably competitive commission rates, the Funds do not necessarily pay the
lowest commission or spread available. In addition, consistent with the Conduct
Rules of the National Association of Securities Dealers, Inc., the Manager may
consider sales of shares of the Funds as a factor in the selection of brokers or
dealers to execute portfolio transactions for the Funds.
16
PORTFOLIO TURNOVER. As described above, in accordance with each Fund's Strategy,
the Fund's portfolio will be rebalanced based on information on or about
December 31 of each year. That is, stocks meeting the respective Strategy's
criteria will be purchased for the portfolio to the extent not then held, stocks
which no longer meet the criteria will be sold, and the holdings of all stocks
in the portfolio that continue to meet the criteria will be appropriately
increased or decreased to result in equal weighting of all stocks in the
portfolio. Under normal conditions, the annual turnover rate should not exceed
100% and 50% for the Cornerstone Growth Fund and Cornerstone Value Fund,
respectively.
COMPUSTAT DATABASE. Although S&P Compustat obtains information for inclusion in
or for use in the COMPUSTAT Database from sources which S&P Compustat considers
reliable, S&P Compustat does not guarantee the accuracy or completeness of the
COMPUSTAT Database. S&P Compustat makes no warranty, express or implied, as to
the results to be obtained by the Funds, or any other persons or entity from the
use of the COMPUSTAT Database. S&P Compustat makes no express or implied
warranties, and expressly disclaims all warranties of merchantability or fitness
for a particular purpose with respect to the COMPUSTAT Database. "Standard &
Poor's" and "S&P" are trademarks of The McGraw-Hill Companies, Inc. The Funds
are not sponsored, endorsed, sold or promoted by S&P Compustat and S&P Compustat
makes no representation regarding the advisability of investing in the Funds.
RISK FACTORS
The Strategy Indexing utilized by each Fund provides a disciplined approach to
investing, based on a buy and hold philosophy during the course of each year,
which ignores market timing and rejects active management. Each Fund will adhere
to its respective Strategy (subject to applicable federal tax requirements
relating to mutual funds), despite any adverse developments concerning an
issuer, an industry, the economy or the stock market generally. This could
result in substantial losses to a Fund, if for example, the stocks selected for
a Fund's portfolio for a given year are experiencing financial difficulty, or
are out of favor in the market because of weak performance, poor earnings
forecast, negative publicity or general market cycles. The Funds are not
appropriate investments for those who are not comfortable with a Fund's
Strategy.
There can be no assurance that the market factors that caused the stocks held in
a Fund's portfolio to meet a Strategy's investment criteria as of rebalancing in
any given year will continue during such year until the next rebalancing, that
any negative conditions adversely affecting a stock's price will not develop
and/or deteriorate during a given year, or that share prices of a stock will not
decline during a given year.
As described above, each Fund's portfolio is rebalanced annually in accordance
with its respective Strategy. Rebalancing may result in elimination of better
performing assets from a Fund's portfolio and increases in investments in
securities with relatively lower total return.
WHAT ARE SOME POTENTIAL RISKS ASSOCIATED WITH INVESTING PRIMARILY IN COMMON
STOCKS?
The fundamental risk associated with any common stock fund is the risk that the
value of the stocks it holds might decrease. Stock values may fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than other
investment choices. Smaller or newer issuers are more likely to realize more
substantial growth as well as suffer more significant losses than larger or more
established issuers. Investments in such companies can be both more volatile and
more speculative. The Funds are not appropriate investments for those who are
unable or unwilling to assume the risk involved generally with investment in
common stocks.
ARE THERE ANY ADDITIONAL RISKS ASSOCIATED WITH INVESTMENT IN THE FUNDS?
There is no guarantee that the investment objective of a Fund will be achieved
or that the value of a shareholder's investment in the Fund will not decrease.
17
MANAGEMENT AND ORGANIZATION OF THE FUNDS
MANAGEMENT
WHO RUNS THE FUNDS?
GENERAL OVERSIGHT. O'Shaughnessy Funds, Inc. is governed by a Board of Directors
that meets regularly to review the Funds' investment, performance, expenses, and
other business affairs. The Board elects the Funds' officers.
MANAGER. O'Shaughnessy Capital Management, Inc. acts as investment manager of
each Fund pursuant to a management agreement with O'Shaughnessy Funds on behalf
of the Fund (the "Management Agreement"). In its capacity as investment manager,
the Manager is responsible for selection and management of each Fund's portfolio
investments. For its services, each Fund pays the Manager a fee each month, at
the annual rate of 0.74% of the Fund's average daily net assets.
The Manager's office is located at 35 Mason Street, Greenwich, Connecticut
06830. O'Shaughnessy Capital Management, Inc. 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.
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
CEO 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. (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.
ADMINISTRATOR. Pursuant to an Administration Agreement, 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 of certain documents
required for compliance with applicable laws and regulations, preparing
financial statements, and arranging for the maintenance of books and records.
For its services, each Fund pays the Administrator a fee each month, at the
annual rate of 0.10% of the first $100 million of the Fund's average daily net
assets, 0.05% of the next $100 million of such net assets, and 0.03% of such net
assets over $200 million, with a minimum fee of $40,000 annually per Fund. The
address of the Administrator is 4455 E. Camelback Rd., Suite 261 E, Phoenix,
Arizona 85018. The Administrator and the Distributor are under common control
and are therefore considered affiliates of each other.
TRANSFER AGENT AND CUSTODIAN. Firstar Mutual Fund Services, LLC acts as the
Funds' transfer and dividend disbursing agent (the "Transfer Agent"). Firstar
Bank Milwaukee is the Funds' custodian (the "Custodian"). The address of the
Transfer Agent and Custodian is 615 E. Michigan Street, Third Floor, Milwaukee,
Wisconsin 53202.
18
YEAR 2000 RISK. Like other business organizations around the world, the Fund
could be adversely affected if the computer systems used by its investment
manager and other service providers do not properly process and calculate
information related to dates beginning January 1, 2000. This is commonly known
as the "Year 2000 Issue." The Fund's manager has taken steps that it believes
are reasonably designed to address the Year 2000 Issue with respect to its own
computer systems and the Fund has obtained assurances from the Fund's other
service providers that they are taking comparable steps. However, there can be
no assurance that these actions will be sufficient to avoid any adverse impact
on the Fund.
HOW ARE EXPENSES OF THE FUNDS DETERMINED?
The Management Agreement identifies the expenses to be paid by each Fund. In
addition to the fees paid to the Manager, each Fund pays certain additional
expenses, including but not limited to, the following: shareholder service
expenses; custodial, accounting, legal, and audit fees; administrative fees;
costs of preparing and printing prospectuses and reports sent to shareholders;
registration fees and expenses; proxy and annual meeting expenses (if any); and
independent Director fees and expenses.
ORGANIZATION
HOW ARE THE FUNDS ORGANIZED?
The Funds are investment portfolios or series of O'Shaughnessy Funds. There are
two other investment portfolios of O'Shaughnessy Funds, shares of which are not
offered for sale through this Prospectus: O'Shaughnessy Aggressive Growth Fund
and O'Shaughnessy Dogs of the Market Fund (the "other O'Shaughnessy Funds"). The
charter of O'Shaughnessy Funds provides that the Board of Directors may issue
additional investment portfolios of shares and/or additional classes of shares
for each investment portfolio. O'Shaughnessy Funds was organized as a
corporation in Maryland on May 20, 1996.
WHAT IS MEANT BY "SHARES"?
As with all mutual funds, investors purchase shares when they invest in the
Funds. These shares are a part of the Funds' authorized capital stock, but share
certificates are not generally issued.
Each full share and fractional share entitles the shareholder to: receive a
proportional interest in the respective Fund's capital gain distributions; and
cast one vote per share on certain Fund matters, including the election of
Directors, changes in fundamental policies, or approval of changes in the
Management Agreement.
Shareholder inquiries may be addressed to each Fund at the address or telephone
number set forth on the cover page of this Prospectus.
DO THE FUNDS HAVE ANNUAL SHAREHOLDER MEETINGS?
The Funds are not required to hold annual meetings and do not intend to do so
except when certain matters, such as a change in a Fund's fundamental policies,
are to be decided. In addition, shareholders representing at least 10% of all
eligible votes may call a special meeting if they wish, for the purpose of
voting on the removal of any Fund Director. If a meeting is held and you cannot
attend, you can vote by proxy. Before the meeting, you will be sent proxy
materials that explain the issues to be decided and include a voting card for
you to mail back.
19
INFORMATION ABOUT YOUR ACCOUNT
PURCHASE OF SHARES
The minimum initial investment in the Fund is $2,500 for regular accounts and
$250 for Individual Retirement Accounts. For corporate sponsored retirement
plans, there is no minimum initial investment. There is no minimum subsequent
investment requirement for any account, however, a $100 minimum exists for each
additional investment, made through the automatic investment plan.
Investors may make an initial purchase of shares and subsequent investments in a
Fund by mail or wire as described below. The Funds reserve the right in their
sole discretion to waive the minimum investment amounts, including in the case
of investments by employees and affiliates of the Manager and family members of
any of the foregoing, and Individual Retirement Accounts ("IRAs") of
shareholders of the Funds, and certain purchase programs made available to
clients of financial intermediaries eligible to sell shares of the Fund.
The Internal Revenue Service requires the correct reporting of social security
numbers or tax identification numbers. The failure to provide this information
will result in the rejection of an investor's Application.
HOW DO I PURCHASE SHARES BY MAIL?
For initial investments, please send a completed Application, together with a
check payable to O'Shaughnessy Cornerstone Value Fund or O'Shaughnessy
Cornerstone Growth Fund, as the case may be, to O'Shaughnessy Funds, Inc., c/o
Firstar Mutual Fund Services, LLC, at P.O. Box 701, Milwaukee, WI 53201-0701
(for Applications sent by U.S. mail) or 615 E. Michigan Street, Third Floor,
Milwaukee, WI 53202 (for Applications sent via overnight courier). Subsequent
investments must be accompanied by a letter indicating the name(s) in which the
account is registered and the account number or by the remittance portion of the
account statement and mailed to the address stated above.
HOW DO I PURCHASE SHARES BY WIRE?
If you are wiring funds, call the Fund at 877-OSFUNDS (673-8637) for an account
number if this is an initial investment or to inform the Transfer Agent that a
wire is expected if this is a subsequent investment.
For an initial investment, prior to or immediately after the funds are wired, a
completed Application should be sent to O'Shaughnessy Funds, Inc., c/o Firstar
Mutual Fund Services, LLC, at P.O. Box 701, Milwaukee, WI 53201-0701 (for
Applications sent by U.S. mail) or 615 E. Michigan Street, Third Floor,
Milwaukee, WI 53202 (for Applications sent via overnight courier). Instruct your
bank to wire federal funds to O'Shaughnessy Funds, c/o Firstar Mutual Fund
Services, LLC, ABA# 075000022, DDA# 112952137.
The wire should specify the name of the Fund, the name(s) in which the account
is registered, the shareholder's social security number or employer tax
identification number, the account number and the amount being wired. Please
indicate if this is an initial or subsequent investment. Wire purchases are
normally used only for large purchases (over $5,000). Your bank may charge you a
fee for sending the wire.
WHAT IS THE PURCHASE PRICE OF FUND SHARES AND WHEN DO PURCHASES BECOME
EFFECTIVE?
Purchases of Fund shares become effective and shares will be priced at the net
asset value per share ("NAV") next determined after the investor's check or wire
is received by the Transfer Agent. NAV for each Fund is calculated as of the
close of business on the New York Stock Exchange ("NYSE") (currently 4:00 pm,
Eastern time). If your request is received in correct form before 4:00 pm,
Eastern time, your transaction will be priced at that day's NAV. If your request
is received after 4:00 pm, it will be priced at the next business day's NAV.
Orders that request a particular day or price for your transaction or any other
special conditions cannot be accepted.
20
The time at which transactions and shares are priced and the time until which
orders are accepted may be changed in case of an emergency or if the NYSE closes
at a time other than 4:00 pm, Eastern time.
The purchase order must include the documentation specified above. Please do not
send purchase orders to the Funds; the Funds forward purchase orders to the
Transfer Agent and a purchase will not become effective until the Transfer Agent
receives all the necessary documentation.
WHAT ARE THE CONDITIONS OF PURCHASE?
All purchase orders are subject to acceptance or rejection by the Funds or the
Distributor, in their sole discretion. The offering of shares may be suspended
whenever a Fund considers suspension desirable or when required by any order,
rule or regulation of any governmental body having jurisdiction. Checks and
money orders should be drawn on United States banks; the Funds and the
Distributor reserve the right to reject checks drawn on foreign banks.
The Transfer Agent will mail a confirmation of each completed purchase to the
investor. If an order is canceled because an investor's check does not clear,
the investor will be responsible for any loss incurred by the respective Fund,
the Transfer Agent, the Distributor, the Administrator or the Manager. If the
investor is already a shareholder, the Fund may redeem shares from the account
to cover any loss. If the investor is not a shareholder or if the loss is
greater than the value of the shareholder's account, the Distributor will be
responsible for any loss to the Fund, and will have the right to recover such
amount from the investor.
WHO DO I CONTACT IF I HAVE QUESTIONS ABOUT MY ACCOUNT OR NEED ADDITIONAL
INFORMATION CONCERNING INVESTMENT IN THE FUNDS?
If you have investment questions about the Funds, or if you would like any
additional information relating to an investment in the Funds, please call
877-OSFUNDS (673-8637) (toll-free), or write to the Distributor at First Fund
Distributors, Inc., 4455 E. Camelback Road, Suite 261 E, Phoenix AZ 85018. If
you are a shareholder and have questions about your account, or if you wish to
arrange for wire transactions, please call the Fund at (877-OSFUNDS (673- 8637).
Before telephoning, please be sure to have your account number and social
security number or employer tax identification number readily available.
WILL I RECEIVE SHARE CERTIFICATES FOR SHARES PURCHASED?
Share certificates will not be issued for shares unless the investor sends a
written request for certificates to O'Shaughnessy Funds, Inc., c/o Firstar
Mutual Fund Services, LLC at P.O. Box 701, Milwaukee, WI 53201-0701 (for
requests sent via U.S. mail) or 615 E. Michigan Street, Third Floor, Milwaukee,
WI 53202 (for requests sent via overnight courier). Share certificates are
issued only for full shares and may be redeposited in the shareholder's account
at any time. In order to facilitate redemptions and exchanges, most shareholders
elect not to receive certificates, since a shareholder wishing to redeem or
exchange shares represented by a certificate must surrender such certificate,
properly endorsed on the reverse side together with a signature guarantee. (See
"Redemption of Shares - When are signature guarantees required?" below). If a
certificate is lost, the shareholder may incur an expense in replacing it.
CAN I PURCHASE SHARES THROUGH BROKER-DEALERS OTHER THAN THE DISTRIBUTOR?
O'Shaughnessy Funds may enter into agreements with various outside brokers on
behalf of the Funds through which shareholders may purchase shares. Such shares
may be held by such outside brokers in an omnibus account rather than in the
name of the individual shareholder. The Manager may reimburse the outside
brokers for providing shareholder services to the omnibus accounts in an amount
equal to what the Fund would otherwise have paid to provide shareholder services
to each individual shareholder account.
21
Investors may also arrange to purchase shares of each Fund through other outside
broker-dealers with which O'Shaughnessy Funds does not have an arrangement, and
such broker-dealers may purchase shares of the Fund by telephone if they have
made arrangements in advance with the Fund. To place a telephone order such
broker-dealer should call the Fund at 877-OSFUNDS (673-8637).
Purchases by broker-dealers become effective and shares will be priced as
described above. If an investor purchases shares through broker-dealers other
than the Distributor, such broker-dealers may charge the investor a service fee
that is reasonable for the service performed, bearing in mind that the investor
could have acquired or redeemed each Fund's shares directly without the payment
of any fee. No part of any such service fee will be received by the Distributor,
the Manager, the Administrator or the Funds.
EXCHANGE PRIVILEGE
Shares of each Fund may be exchanged for shares of each of the other
O'Shaughnessy Funds (i.e., O'Shaughnessy Aggressive Growth Fund and
O'Shaughnessy Dogs of the Market Fund and, as the case may be, O'Shaughnessy
Cornerstone Growth Fund or O'Shaughnessy Cornerstone Value Fund). Prospectuses
for the other O'Shaughnessy Funds may be obtained by writing to the Distributor
at 4455 E. Camelback Road, Suite 261 E, Phoenix AZ 85018, Attention:
O'Shaughnessy Funds, Inc. or by calling 877-OSFUNDS (673-8637) (toll-free).
You may also exchange shares of either Fund for shares of the Firstar Money
Market Fund, a money market mutual fund not affiliated with O'Shaughnessy Funds
or the Manager. Prior to making such an exchange, you should obtain and
carefully read the prospectus for the Firstar Money Market Fund. The exchange
privilege does not constitute an offering or recommendation on the part of the
Funds or the Manager of an investment in the Firstar Money Market Fund.
If you exchange into shares of the Firstar Money Market Fund you may establish
checkwriting privileges on the Firstar Money Market Fund. Contact the Fund at
877-OSFUNDS (673-8637) for a checkwriting application and signature card. The
exchange procedures are described below.
IS THERE ANY SALES CHARGE OR MINIMUM INVESTMENT APPLICABLE TO AN EXCHANGE?
Shareholders of the Funds may exchange their Fund shares, without the payment of
any sales or service charge unless the exchange is effected via telephone
instructions for which a $5.00 charge will be levied or on shares held less than
90 days for which a redemption fee will be charged (see "Information About Your
Account - Redemption of Shares"), for shares of any other fund into which an
exchange is permitted equal in value to the net asset value of the shares being
exchanged. All exchanges are subject to all applicable terms set forth in the
prospectus of the fund into which the exchange is being made. If a shareholder
exchanges shares through a broker-dealer other than the Distributor, such
broker-dealer may charge the shareholder a service fee, no part of which will be
received by the Distributor, the Manager, the Funds, or the fund into which the
exchange is being made.
AT WHAT PRICE IS AN EXCHANGE EFFECTED?
An exchange is effected at the respective net asset values of the two funds with
respect to which shares are being exchanged as next determined following receipt
by the fund into which the exchange is being made of all necessary documentation
in connection with the redemption of Fund shares as described below under
"Redemption of Shares - How do I redeem shares by mail?"
22
DO CURRENT INSTRUCTIONS CONCERNING RECEIPT OF DIVIDENDS AND DISTRIBUTIONS CARRY
OVER TO EXCHANGED SHARES?
Dividend and distribution instructions with respect to exchanged shares will
remain the same as those given previously by the shareholders to the fund from
which the shareholder is exchanging the shares, unless the shareholder
designates a change in such instructions by writing to the Transfer Agent.
Please note that such changed instructions (i) must be signed by the registered
owners(s) of the shares, exactly as the account is registered and signature
guaranteed, and (ii) include the name of the account, the account number, and
the name of the fund for which instructions have changed.
WHAT ARE THE CONDITIONS APPLICABLE TO AN EXCHANGE?
Exchanges involving the redemption of shares recently purchased by personal,
corporate or government check will be permitted only after the respective Fund
has reasonable belief that the check has cleared, which may take up to fifteen
days after the purchase date. The exchange privilege is available only in states
where shares of the other O'Shaughnessy Funds or the Firstar Money Market Fund
may be sold legally.
Each of the Funds, the other O'Shaughnessy Funds and the Firstar Money Market
Fund reserves the right to reject any order to acquire its shares through
exchange or otherwise and to restrict or terminate the exchange privilege at any
time. If the exchange privilege is to be permanently terminated, each Fund will
provide its shareholders with written notice of such termination. Each Fund
reserves the right to suspend temporarily the telephone exchange privilege in
emergency circumstances or in cases where, in the judgment of the Fund,
continuation of the privilege would be detrimental to the Fund and its
shareholders as a whole. Such temporary suspension can be without prior
notification.
HOW CAN I MAKE EXCHANGES BY TELEPHONE?
Shareholders who have completed the section of the Fund's Application entitled
"Shareholder Privileges" are eligible to make telephone requests for exchanges
and may do so by telephoning the Fund at 877-OSFUNDS (673-8637). A shareholder
who has not completed the Shareholder Privileges section of the Application but
who wishes to become eligible to make telephone exchanges should designate a
change in such instructions by writing to the Transfer Agent. Please note that
such changed instructions must (i) be signed by the registered owner(s) of the
shares exactly as the account is registered and signature guaranteed, and (ii)
include the name of the account, the account number and the name of the Fund to
which the exchange instructions relate. See "Redemption of Share - How do I
redeem shares by telephone?" below, which describes the time of day at which
telephone redemptions and exchanges will be priced and processed. Telephone
requests for exchanges cannot be accepted with respect to shares represented by
certificates. Shares of the other O'Shaughnessy Funds or the Firstar Money
Market Fund acquired pursuant to a telephone request for exchange will be held
under the same account registration as the shares redeemed through the exchange.
The Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Neither the Funds nor any of their
service contractors will be liable for any loss or expense in acting on
telephone instructions that are reasonably believed to be genuine. In attempting
to confirm that telephone instructions are genuine, the Funds will use
procedures that are considered reasonable, including requesting a shareholder to
correctly state the account number, the names in which the account is
registered, the social security number(s) registered to the account, and certain
additional personal identification..
23
Shareholders should be aware that, at times, the volume of telephone calls or
other factors beyond a Fund's control may make it difficult to reach the
Transfer Agent by telephone. This will be true particularly during periods of
drastic economic market changes. In such cases, shareholders should continue to
telephone or utilize the written exchange procedures described below.
Shareholders who effect exchanges of Fund shares by telephone will be charged a
$5.00 exchange fee.
HOW DO I MAKE EXCHANGES BY MAIL?
To exchange Fund shares by mail, send a written request for exchange signed by
the registered owner(s) of the shares, exactly as the account is registered, to
O'Shaughnessy Funds, Inc., c/o Firstar Mutual Fund Services, LLC, at P.O. Box
701, Milwaukee, WI 53201-0701 (for requests sent by U.S. mail) or 615 E.
Michigan Street, Third Floor, Milwaukee, WI 53202 (for requests sent via
overnight courier). The request for exchange should include the following
information: the name of the account, the account number, the number of Fund
shares or the dollar value of Fund shares to be exchanged, the shares of which
other fund (either another O'Shaughnessy Fund or the Firstar Money Market Fund)
shares of the Fund are to be exchanged for, and the name on the account and the
account number (if already established) with such other fund.
REDEMPTION OF SHARES
Shareholders can redeem their shares by giving instructions to the Transfer
Agent in writing or by telephone. As more fully described below, these
redemption instructions may have to be accompanied by additional documentation,
which may include a signature guarantee.
If a shareholder redeems shares through a broker-dealer other than the
Distributor, such broker-dealer may charge the shareholder a service fee, no
part of which will be received by the Distributor, the Manager, the
Administrator or the Funds.
HOW DO I REDEEM SHARES BY MAIL?
To redeem shares by mail, send a written request for redemption signed by the
registered owner(s) of the shares, exactly as the account is registered to
O'Shaughnessy Funds, Inc., c/o Firstar Mutual Fund Services, LLC, at P.O. Box
701, Milwaukee, WI 53201-0701 (for requests sent via U.S. mail) or 615 E.
Michigan Street, Third Floor, Milwaukee, WI 53202 (for requests sent via
overnight courier). The request for exchange should include the following: the
name of the account, the account number, the number of shares or the dollar
value of shares to be redeemed and whether proceeds are to be sent by mail or
wire, and if by wire, giving the wire instructions; (ii) duly endorsed share
certificates, if any have been issued for the shares redeemed; (iii) any
signature guarantees that are required as described below; and (iv) any
additional documents which might be required for redemptions by corporations,
executors, administrators, trustees, guardians or other similar shareholders.
Except as otherwise directed by a Fund in its discretion, the Transfer Agent
will not redeem shares until it has received all necessary documents; corporate
and institutional investors and fiduciaries should contact the Transfer Agent to
ascertain what additional documentation is required.
WHEN WOULD I PAY A REDEMPTION FEE?
The Funds can experience substantial price fluctuations and are intended for
long-term investors. Short-term "market timers" who engage in frequent purchases
and redemptions can disrupt the Funds' investment programs and create additional
transaction costs that are borne by all shareholders. For these reasons each
Fund will assess a 1.5% fee on redemptions (including exchanges) of Fund shares
purchased and held for less than 90 days.
Redemption fees will be paid to the Fund to help offset transaction costs. The
Fund will use the "first-in, first-out" (FIFO) method to determine the 90 day
holding period. Under this method, the date of redemption or exchange will be
compared with the earliest purchase date of shares held in the account. If this
holding period is less than 90 days, the fee will be assessed.
24
The fee does not apply to any shares purchased through reinvested distributions
(dividends and capital gains) or to shares held in retirement plans such as
401(k), 403(b), 457, Koegh, profit sharing, SIMPLE IRA, SEP-IRA, and money
purchase pension accounts. These exceptions may not apply to shares held in
broker omnibus accounts. The fee does apply to shares held in IRA accounts and
to shares purchased through automatic investment plans (see "Other Shareholder
Services - Automatic Investment Plan").
MAY I SEND REDEMPTION REQUESTS TO THE FUNDS?
Please do not send redemption requests to the Funds. The Funds must forward all
redemption requests to the Transfer Agent and instructions for redemption will
not be effective until received by the Transfer Agent. Shares redeemed will be
priced at the net asset value per share next determined after acceptance of a
complete redemption request by the Transfer Agent. Redemption requests received
by the Transfer Agent after the close of the NYSE (currently 4:00 pm, Eastern
time) will be treated as though received on the next business day. The Transfer
Agent cannot accept redemption requests that specify a particular date for
redemption or special redemption conditions.
WHEN ARE SIGNATURE GUARANTEES REQUIRED?
Except as indicated below, all of the signatures on any request for redemption
or share certificates tendered for redemption must be guaranteed by a bank,
broker-dealer, credit union (if authorized under state law), securities exchange
or association, clearing agency or savings association. A notary public cannot
provide a signature guarantee.
The Funds will waive the signature guarantee requirement on a redemption request
that instructs that the proceeds be sent by mail if all of the following
conditions apply: (i) the redemption is for $10,000 or less; (ii) the redemption
check is payable to the shareholder(s) of record; (iii) the redemption check is
mailed to the shareholder(s) at the address of record; and (iv) no shares
represented by certificate are being redeemed. Share certificates submitted for
redemption or exchange must be properly endorsed and contain signature
guarantees. In addition, each Fund in its discretion may waive the signature
guarantee for employees and affiliates of the Manager, the Distributor and the
Administrator, and family members of the foregoing.
The requirement of a guaranteed signature protects against an unauthorized
person redeeming shares and obtaining the redemption proceeds.
HOW DO I REDEEM SHARES BY TELEPHONE?
Shareholders who have completed the section of the Fund Application entitled
"Shareholder Privileges" are eligible to make telephone requests for redemptions
(without charge) and may do so by telephoning the Fund at 877-OSFUNDS
(673-8637). A shareholder who has not completed the Shareholder Privileges
section of the Application but who wishes to become eligible to make telephone
redemptions, should designate a change in such instructions by writing to the
Transfer Agent. Please note that such changed instructions must (i) be signed by
the registered owner(s) of the shares exactly as the account is registered and
signature guaranteed, and (ii) include the name of the account, the account
number and the name of the Fund.
Telephone redemptions cannot be accepted with respect to shares represented by
certificates or for IRA accounts. In such cases, redemption can only be made by
mail as described above under "Redemption of Shares - How do I redeem shares by
mail?" Telephone requests for redemptions (or exchanges - see "Exchange
Privilege" above) received before the close of business of the NYSE (currently
4:00 pm, Eastern time) on a business day will be priced and processed as of the
close of business on that day; requests received after that time will be
processed as of the close of business on the next business day.
As noted above, the Funds will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine and may, along with their
service contractors, be liable for a failure to use such procedures. See
"Exchange Privilege - How can I make exchanges by telephone?" above.
25
Shareholders should be aware that, at times, the volume of telephone calls or
other factors beyond a Fund's control may make it difficult to reach the
Transfer Agent by telephone. This will be true particularly during periods of
drastic economic or market changes. In the event of difficulty in reaching the
Transfer Agent, shareholders should continue to telephone or utilize the written
redemption procedures described above under "Redemption of Shares - How do I
redeem shares by mail?"
The Funds reserve the right to terminate the telephone redemption privilege at
any time and, if so terminated, will provide the shareholders with written
notice of such termination. Each Fund reserves the right to suspend temporarily
telephone redemptions in emergency circumstances or in cases where, in the
judgment of the Fund, continuation of the privilege would be detrimental to the
Fund and its shareholders as a whole. Such temporary suspension can be without
prior notification.
WHAT OPTIONS DO I HAVE IN RECEIVING REDEMPTION PROCEEDS?
Redemption proceeds may be sent to shareholders by mail or by wire as described
below. Wire redemptions will only be made if the Transfer Agent has received
appropriate written wire instructions. Because of fluctuations in the value of a
Fund's portfolio, the net asset value of shares redeemed may be more or less
than the investor's cost.
REDEMPTION BY MAIL. In the case of shareholders who request that their
redemption proceeds be sent by mail, the Transfer Agent mails checks for
redemption proceeds typically within one or two business days, but no later than
seven days, after it receives the request and all the necessary documents.
REDEMPTION BY WIRE. In the case of shareholders who request that their
redemption proceeds be sent by bank wire, the Transfer Agent typically wires
redemption proceeds the next business day, but no later than seven days, after
it receives the request and all necessary documents.
Wire redemptions will be made only if the Transfer Agent has received
appropriate written instructions from the shareholder either on the Fund
Application or by separate letter. A shareholder who has not indicated wire
instructions on the Application, but would like to have redemption proceeds
wired to a particular bank for each redemption request, should so designate by
writing to the Transfer Agent. Please note that such instructions must (i) be
signed by the registered owner(s) of the shares exactly as the account is
registered and signature guaranteed, and (ii) include the name of the account,
the account number and the name of the Fund to which the request relates.
A shareholder who would like to change the wire instructions indicated on the
Fund Application should designate a change in such instructions by writing to
the Transfer Agent and complying with the requirements set forth in the
preceding paragraph. There is a $1,000 minimum on redemption proceeds by bank
wire. Shareholders who effect redemptions by wire transfer will pay a $12.00
wire transfer fee to the Transfer Agent to cover costs associated with the
transfer. In addition, a shareholder's bank may impose a charge for receiving
wires.
WHEN WOULD THE PAYMENT OF PROCEEDS BE DELAYED?
Please note that shares paid for by personal, corporate or government check
cannot be redeemed before the respective Fund has reasonable belief that the
check has cleared, which may take up to fifteen days after payment of the
purchase price. This delay can be avoided by paying for shares by certified
check or bank-wire. An investor will be notified promptly by the Transfer Agent
if a redemption request cannot be accepted.
WOULD MY ACCOUNT EVER BE INVOLUNTARILY REDEEMED?
Due to the relatively high cost to the Funds of maintaining small accounts, we
ask you to maintain an account balance of at least $2,500. If your balance is
below $2,500 for three months or longer due to redemptions, we have the right to
close your account after giving you 60 days in which to increase your balance.
26
INFORMATION ON DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS GENERALLY
Dividend and capital gain distributions are reinvested in additional shares of
the Funds in your account unless you select another option on your Application.
The advantage of reinvesting distributions arises from compounding; that is, you
receive dividends and capital gain distributions on an increasing number of
shares. Distributions not reinvested are paid by check or transmitted to your
bank account.
INCOME DIVIDENDS
Each Fund declares and pays dividends (if any) annually.
CAPITAL GAINS
A capital gain or loss is the difference between the purchase and sale price of
a security. If a Fund has net capital gains for the year (after subtracting any
capital losses), they are usually declared and paid in December to shareholders
of record on a specified date that month.
TAX INFORMATION
You need to be aware of the possible tax consequences when: (1) a Fund makes a
distribution to your account; (2) you sell Fund shares; or (3) you exchange
shares of a Fund for shares of one of the other O'Shaughnessy Funds or the
Firstar Money Market Fund. The following summary does not apply to retirement
accounts, such as IRAs, which are tax-deferred until you withdraw money from
them.
WILL I PAY TAXES ON REDEMPTIONS OR EXCHANGES OF FUND SHARES?
When you sell or exchange shares in a Fund, you may realize a gain or loss.
Unless you are a dealer in securities, such gain or loss will be capital gain or
loss. Consult your tax advisor concerning the tax rate applicable to your sale
or exchange of Fund shares.
A loss recognized on a sale or exchange of shares of the Fund will be disallowed
if other Fund shares are acquired (whether through automatic reinvestment of
dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss. In
addition, if you realize a loss on the sale or exchange of Fund shares held six
months or less, your short-term loss recognized is reclassified to long-term to
the extent of any long-term capital gain distribution received.
WILL I PAY TAXES ON FUND DISTRIBUTIONS?
Distributions of ordinary income and short-term capital gains are taxable as
ordinary income. The dividends of each Fund will be eligible for the 70%
deduction for dividends received by corporations only to the extent the Fund's
income consists of dividends paid by U.S. corporations. Distributions designated
as capital gains dividends are taxable as capital gains regardless of the length
of time shares of the Fund have been held.
WHAT ARE THE TAX EFFECTS OF BUYING SHARES BEFORE A DISTRIBUTION?
If you buy shares of a Fund shortly before or on the "record date" - the date
that establishes you as the person to receive the upcoming distribution - you
will receive, in the form of a taxable distribution, a portion of the money you
just invested. Therefore, you may wish to find out the Fund's record date(s)
before investing. Of course, a Fund's share price may, at any time, reflect
undistributed capital gains or unrealized appreciation.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury regulations presently in effect, and does not address
the state and local tax consequences of an investment in the Funds. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
27
regulations are subject to change by legislative or administrative action either
prospectively or retroactively. For additional information regarding the federal
income tax consequences of an investment in a Fund, see "Additional Information
about Dividends and Taxes" in the Statement of Additional Information.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state, local or foreign taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Funds.
PERFORMANCE INFORMATION
This section should help you understand the terms used to describe Fund
performance. The Funds' annual report will contain additional performance
information and will be available upon request and without charge.
WHAT IS TOTAL RETURN?
This tells you how much an investment in a Fund has changed in value over a
given time period. It reflects any net increase or decrease in the share price
and assumes that all dividends and capital gains (if any) paid during the period
were reinvested in additional shares. Including reinvested distributions means
that total return numbers include the effect of compounding, i.e, you receive
income and capital gain distributions on an increasing number of shares.
Advertisements for a Fund may include cumulative or compound average annual
total return figures, which may be compared with various indices, other
performance measures, or other mutual funds.
WHAT IS CUMULATIVE TOTAL RETURN?
This is the actual rate of return on an investment for a specified period. A
cumulative return does not indicate how much the value of the investment may
have fluctuated between the beginning and the end of the period specified.
WHAT IS AVERAGE ANNUAL TOTAL RETURN?
This is always hypothetical. Working backward from the actual cumulative return,
it tells you what constant year-by-year return would have produced the actual,
cumulative return. By smoothing out all the variations in annual performance, it
gives you an idea of the investment's annual contribution to your portfolio
provided you held it for the entire period in question.
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 pm, Eastern time) on each
day that the NYSE is open for business and on each other day in which there is a
sufficient degree of trading in a Fund's portfolio securities that the current
net asset value of the Fund's shares may be materially affected by changes in
the value of the Fund's portfolio securities.
HOW IS NET ASSET VALUE DETERMINED?
Each Fund determines the net asset value per share by subtracting the Fund's
total liabilities from the Fund's total assets (the value of the securities that
the Fund holds plus cash and other assets), dividing the remainder by the total
number of shares outstanding, and adjusting the result to the nearest full cent.
HOW ARE THE SECURITIES HELD IN A FUND'S PORTFOLIO VALUED?
Securities listed on the NYSE, American Stock Exchange or other national
exchanges are valued at the last sale price on such exchange on the day as of
which the net asset value per share is to be calculated. Over-the-counter
28
securities included in the NASDAQ National Market System are valued at the last
sale price. If there is no sale on a particular security on such day, it is
valued at the mean between the bid and asked prices. Other securities, to the
extent that market quotations are readily available, are valued at market value
in accordance with procedures established by the Board of Directors. Any
securities and other assets, for which market quotations are not readily
available, are valued in good faith in a manner determined by the Directors of
the Funds best to reflect their fair value.
OTHER SHAREHOLDER SERVICES
AUTOMATIC INVESTMENT PLAN
An Automatic Investment Plan allows a shareholder to make automatic monthly or
quarterly investments into a Fund account, in amounts of at least $100, by
having the Transfer Agent draw an automatic clearing house (ACH) debit
electronically against a shareholder's checking or savings account. A
shareholder may establish an Automatic Investment Plan by completing the
appropriate section on the Application for new accounts or by calling the Fund
at 877-OSFUNDS (673-8637) and requesting an Automatic Investment Plan
Application for existing accounts. A shareholder should be aware that a signed
Application should be received by the Transfer Agent at least 15 business days
prior to the initial transaction. The Transfer Agent will assess a $20 fee if
the automatic investment cannot be made due to insufficient funds, stop payment,
or for any other reason. The Fund cannot guarantee acceptance by your bank.
SYSTEMATIC CASH WITHDRAWAL PLAN
When an account of $10,000 or more is opened or when an existing account reaches
that size, a shareholder may participate in the Fund's Systematic Cash
Withdrawal Plan by filling out the appropriate part of the Application. Under
this plan, a shareholder may receive (or designate a third party to receive) a
monthly or quarterly check in a stated amount of not less than $50.00. Shares of
the respective Fund will be redeemed as necessary to meet withdrawal payments.
All participants must elect to have their dividends and capital gain
distributions reinvested automatically. A shareholder who decides later to use
this service should call the Fund at 877-OSFUNDS (673-8637).
REPORTS TO SHAREHOLDERS
Each time a shareholder invests, redeems, transfers or exchanges shares, or
receives a distribution, the Fund will send a confirmation of the transaction
which will include a summary of all of the shareholder's most recent
transactions.
At such time as prescribed by law, the Fund will send to each shareholder the
following reports (if they are applicable), which may be used in completing U.S.
income tax returns:
Form 1099-DIV Report taxable distributions during the preceding calendar year.
(If a shareholder did not receive taxable distributions in the previous year,
such shareholder will not be sent a 1099-DIV.)
Form 1099-B Reports redemption proceeds paid (including those resulting from
exchanges) during the preceding calendar year.
Form 1099-R Report distributions from retirement plan accounts during the
preceding calendar year. Form 5498 Reports contributions to IRAs for the
previous calendar year.
If an investor's shares are held by an outside broker in an omnibus account, it
is the responsibility of such outside broker to provide shareholders whose
shares are held in the omnibus account with any reports prescribed by law which
the shareholders require in order to complete their U.S. income tax returns.
Shareholders will also receive annual and semi-annual reports including the
financial statements of the Funds for the respective periods.
29
RETIREMENT PLANS
Eligible investors may invest in the Fund under the following prototype
retirement plans:
"Education" Individual Retirement Account (IRA) "Traditional" Individual
Retirement Account (IRA) "Roth" Individual Retirement Account (IRA)
Simplified Employee Pension (SEP) for sole proprietors, partnerships and
corporations Profit-Sharing and Money Purchase Pension Plans for
corporations and their employees
AUTOMATIC REINVESTMENT PLAN
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at the net
asset value per share at the close of business on the record date, unless
otherwise specified on the Application or requested by a shareholder in writing.
If the Transfer Agent does not receive a written request for subsequent
dividends and/or distributions to be paid in cash at least three full business
days prior to a given record date, the dividends and/or distributions to be paid
to a shareholder will be reinvested. If a shareholder elects to receive
dividends and distributions in cash and the U.S. Postal Service cannot deliver
the checks, or if the checks remain uncashed for six months, the shareholder's
distribution checks will be reinvested into the shareholder's account at the
then current net asset value.
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund, the Investment Adviser, the Administrator or
the Distributor. This Prospectus does not constitute an offering in any state in
which such offering may not lawfully be made.
30
INVESTMENT MANAGER
O'Shaughnessy Capital Management, Inc.
35 Mason Street
Greenwich, Connecticut 06830
ADMINISTRATOR
Investment Company Administration, LLC
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018
TRANSFER AGENT
Firstar Mutual Fund Services, LLC
615 E. Michigan Street
Milwaukee, Wisconsin 53202
AUDITORS
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
LEGAL COUNSEL
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York 10022