O SHAUGHNESSY FUNDS INC, N-1A EL, 1996-07-03

O SHAUGHNESSY FUNDS INC
N-1A EL, 1996-07-03

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<PAGE>
As filed with the Securities and Exchange Commission on July 3, 1996

1933 Act Registration No. 33-
1940 Act Registration No. 811-

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

----------

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/

----------

O'SHAUGHNESSY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)

479 West 22nd Street, New York, New York 10011
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code:
(212) 633-9700

Steven J. Paggioli
Investment Company Administration Corporation
479 West 22nd Street, New York, New York 10011
(Name and Address of Agent for Service)

Copies of communications to:
Counsel for the Fund:

Joel H. Goldberg, Esq. James P. O'Shaughnessy
Shereff, Friedman, O'Shaughnessy Capital Management, Inc.
Hoffman & Goodman, LLP 60 Arch Street
919 Third Avenue Greenwich, Connecticut 06830
New York, New York 10022-9998

Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the Registration Statement

The registrant declares that an indefinite amount of common stock, par value
$.0001 per share, is being registered by this Registration Statement pursuant to
Section 24(f) under the Investment Company Act of 1940, as amended, and Rule
24f-2 thereunder. In accordance with Rule 24f-2 (a)(3) a filing fee of $500 is
being paid with this filing.

The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

================================================================================

<PAGE>
O'SHAUGHNESSY FUNDS, INC.

CROSS REFERENCE SHEET

Between Items Enumerated in Part A of Form N-1A and Prospectus and Between Items
Enumerated in Part B of Form N-1A and Statement of Additional Information
Pursuant to Rule 481(a) under the Securities Act of 1933

Item Number of
Form N-1A; Part A Location in Prospectus
- ----------------- ----------------------
1. Cover Page ......................... Cover Page

2. Synopsis ........................... About the Fund(s) -- Transaction and
Fund Expenses

3. Condensed Financial Information .... Inapplicable

4. General Description of
Registrant ......................... About the Fund(s) -- Investment
Objective and Policies; -- Investment
Objective and Strategies; -- Other
Investment Policies and Practices

5. Management of the Fund ............. About the Fund(s) -- Transaction and
Fund Expenses; Management and
Organization of the Fund(s)

5A. Management's Discussion of Fund
Performance ........................ Inapplicable

6. Capital Stock and Other
Securities ......................... Net Asset Value; Performance
Information

7. Purchase of Securities Being Offered About the Fund(s) -- Transaction and
Fund Expenses; Information About Your
Account -- Purchase of Shares; --
Exchange Privilege; -- Redemption of
Shares; Information on Distributions
and Taxes

8. Redemption or Repurchase ........... Information About Your Account --
Purchase of Shares; -- Exchange
Privilege; -- Redemption of Shares;
Information on Distributions and Taxes

9. Pending Legal Proceedings .......... Inapplicable

<PAGE>

Item Number of Location in Statement
Form N-1A; Part B of Additional Information
- ----------------- -------------------------
10. Cover Page.......................... Front Cover Page

11. Table of Contents................... Back Cover Page

12. General Information and History..... Not Applicable

13. Investment Objectives and Policies.. Investment Policies and Limitations

14. Management of the Fund.............. Management of the Funds; Directors and
Officers

15. Control Persons and Principal
Holders of Securities.............. Management of Funds; Directors and
Officers

16. Investment Advisory and Other
Services............................ Directors and Officers; Management of
the Funds
17. Brokerage Allocation and Other
Practices........................... Portfolio Transactions

18. Capital Stock and Other Securities.. Valuation of Shares; Other Information

19. Purchase, Redemption and Pricing of
Securities Being Offered............ Additional Purchase and Redemption
Information

20. Tax Status.......................... Additional Information about Dividends
and Taxes

21. Underwriters........................ Management of the Funds; Portfolio
Transactions

22. Calculation of Performance Data..... Performance Information

23. Financial Statements................ Financial Statements of the Fund

Part C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.

<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION - July 3, 1996

PROSPECTUS

_____________, 1996

O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND
479 West 22nd Street, New York, New York 10011
(800) ___-____

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 each Fund is to seek total return, consisting
of capital appreciation and current income.

Strategy Indexing(TM)

Each Fund seeks to achieve its investment objective through a process of
Strategy Indexing(TM) 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(TM) which meet certain criteria, as described below.

The investment strategy of Cornerstone Value Fund (the "Cornerstone Value
Strategy") entails the selection of 50 common stocks from the O'Shaughnessy
Market Leaders Universe(TM) which meet certain criteria, as described below.
(The Cornerstone Growth Strategy and the Cornerstone Value Strategy are each
referred to as a "Strategy.")

Risk/Reward

Each Fund's Strategy provides a rigorous and disciplined approach to
investing, based on a buy and hold philosophy over the course of each year, and
has, in the Manager's judgment, the potential to provide superior returns.
However, each Fund intends to adhere to its respective Strategy 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.

<PAGE>

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. In addition, there are no Rule 12b-1 fees.

------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

------------

This Prospectus contains the information you should know about the Funds
before you invest. Please keep it for future reference. A statement containing
additional information about the Funds, dated ____________, 1996, has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this Prospectus. It is available, at no charge, by calling or by writing
the Funds at the telephone number or address set forth above.

------------

O'Shaughnessy Capital Management, Inc.-Manager
First Fund Distributors, Inc.-Distributor

<PAGE>
ABOUT THE FUND

TRANSACTION AND FUND EXPENSES

The following table and example should help you understand the kinds of
expenses you will bear directly or indirectly as a Fund shareholder. In the
table, "Shareholder Transaction Expenses," shows that you pay no sales charges.
All the money you invest in the Funds goes to work for you, subject to the fees
noted in the table. "Annual Fund 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 you account statement.

Table Cornerstone Cornerstone
Growth Fund Value Fund
------------ ----------
<S> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) .................................... None None
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...................................................... None None
Exchange Fee........................................................ None None
Annual Fund Operating Expenses (as a percentage of
average net assets):
Management Fees (a).................................................
Rule 12b-1 Fees..................................................... None None
Custodian Fees....................................................
Shareholder Servicing Costs(b)....................................
Other.............................................................

Total Other Expenses............................................

Total Fund Operating Expenses.....................................
</TABLE>

- ---------------------
(a) See "Management and Organization of the Funds -- Manager" on page 15.

(b) See "Management and Organization of the Funds -- Shareholder Services" on
page 16.

Hypothetical Example Cornerstone Cornerstone
Growth Fund Value Fund
------------ ----------

An investor would pay the following expenses on a
$1,000 investment assuming:(1) an operating expense
ratio of _____%; (2) a 5% annual return through out
the period; and (3) redemption at the end of the
period:
One year............................................ $ $
Three years......................................... $ $

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.

3
<PAGE>

INVESTMENT OBJECTIVE AND STRATEGIES

To help you decide whether either or both of the Cornerstone Growth Fund
and Cornerstone Value Fund are appropriate for you, this section takes a closer
look at each Fund's investment objective and Strategy.

What is each Fund's objective?

The investment objective of each Fund is to seek total return, consisting
of capital appreciation and current income. There can be no assurance that the
Funds will achieve their 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,(TM) 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,(TM) 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 or to meet redemption requests, 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(TM) that also meet the following criteria: (i) annual
earnings that have increased in each of the past five years, and (ii) a

price-to-sales ratio below 1.5. A stock's price-to-sales ratio is computed by
dividing the market value of the stock by the issuer's most recent twelve month
sales.

What is the O'Shaughnessy All Stocks Universe(TM) ?

The O'Shaughnessy All Stocks Universe(TM) consists of all the common stocks
in the Standard & Poor's Compustat ("S&P Compustat") database (the "COMPUSTAT(R)
Database") with market capitalizations exceeding $150 million. Currently, the
COMPUSTAT(R) Database consists of the stocks of 9,629 issuers, and the
O'Shaughnessy All Stocks Universe(TM) consists of the stocks of 4,085 issuers.

What is the Cornerstone Value Strategy?

The Cornerstone Value Strategy involves the selection of the 50 highest
dividend-yielding common stocks from the O'Shaughnessy Market Leaders
Universe(TM).

What is the O'Shaughnessy Market Leaders Universe(TM) ?

The O'Shaughnessy Market Leaders Universe(TM) consists of those stocks in
the COMPUSTAT(R) Database which are not power utility companies and which have
(i) market capitalizations exceeding the average of the COMPUSTAT(R) Database;
(ii) twelve month sales which are fifty percent greater than for the average of
the COMPUSTAT(R) Database; (iii) a number of shares outstanding which exceeds
the average for the COMPUSTAT(R) Database;

4
<PAGE>

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 441 issuers.

How does investment through the Cornerstone Growth Strategy and the Cornerstone
Value Strategy work?

Upon commencement of operations of the Cornerstone Growth Fund and
Cornerstone Value Fund, the Manager will purchase 50 stocks for each Fund as
dictated by the Cornerstone Growth Strategy and the Cornerstone Value Strategy,
respectively, based on information as of December 31 of the immediately
preceding year. Each Fund's holdings of each stock in its portfolio will
initially be weighted equally, as described below. Thereafter, the Manager will
re-balance the portfolio of each Fund annually based on information as of
December 31 of each year in the first five business days of the succeeding year
(the "Re-Balance Date"), in accordance with the Fund's respective Strategy. That
is, on the Re-Balance Date of each year, stocks meeting the Strategy's criteria
as of the immediately preceding December 31 will be purchased for the Fund to
the extent not then held, stocks which no longer meet the criteria as of such
date will be sold, and the holdings of all stocks in the Fund that continue to
meet the criteria will be appropriately increased or decreased to result in
equal weighting of all stocks in the portfolio.

As stated above, the stocks in which each Fund will invest will at the time
of investment be weighted equally by dollar amount, subject to rounding so that
no odd lots will be purchased. As described above, rebalancing will occur for
each Fund as of the end of each calendar year based on the stock selections
determined through implementation of the respective Strategy. When a Fund
receives new cash flow from the sale of its shares over the course of the year,
such cash will be used to the extent necessary to meet redemptions. The balance
of any such cash will be invested on a weekly basis in the 50 stocks selected
for the Fund pursuant to the applicable Strategy, based on the original equal
weightings and without any intention to rebalance the portfolio on an interim
basis. 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
original weightings. Thus, interim purchases and sales of securities between
annual Re-Balance Dates will be based on the original allocation for the year
and will be made without regard to price appreciation or depreciation and
without regard to whether or not a particular security continues to meet the
Strategy's criteria

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

5
<PAGE>

industry, the economy or the stock market generally. However, due to purchases
and redemptions of Fund shares during the year and changes in the market value
of the stock positions, it is likely that stock positions will not be weighted
equally at all times during a year.

The Manager will not use investments in cash and short-term securities for
temporary defensive purposes. The Funds will be substantially fully invested in
stocks selected as described above at all times.

How can I decide if the Funds are an appropriate investment for me?

Consider your investment goals, your time horizon for achieving them, and
your tolerance of risk. The Funds are not appropriate investments for those who
seek short-term investments, since the Manager expects the benefits of investing
in the Funds to be derived from investing assets in accordance with the

Cornerstone Growth Strategy and the Cornerstone Value Strategy over successive
one year periods. 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 charts and tables compare the actual performance of the S&P
500 Index (the "S&P 500") and the hypothetical performance of each of the
Cornerstone Growth Strategy and Cornerstone Value Strategy for the historical
periods indicated. Returns for each of the Cornerstone Growth Strategy and
Cornerstone Value Strategy are the theoretical return on a portfolio which was
annually rebalanced in accordance with the respective Strategy (i.e., stocks
meeting the Strategy's criteria, as described above in "About the Fund --
Investment Objective and Strategies," were purchased for the portfolio on
December 31 in each given year to the extent not then held, stocks which no
longer met the criteria were sold on such date, and the holdings of all stocks
in the portfolio that continued to meet the criteria were appropriately
increased or decreased to result in equal weighting of all stocks in the
portfolio). These returns reflect the past performance of the Cornerstone Growth
Strategy and Cornerstone Value Strategy and may not be indicative of the future
performance of the Strategies, the Cornerstone Growth Fund or the Cornerstone
Value Fund. Actual performance of the Cornerstone Growth Fund and the
Cornerstone Value Fund may differ from the quoted performance of the Cornerstone
Growth Strategy and the Cornerstone Value Strategy, respectively, because 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 on a stock's value, and 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 addition, the returns do not reflect any of the expenses that each of
the Cornerstone Growth Fund and the Cornerstone Value Fund bear, including
transaction expenses (i.e., commission costs).

6
<PAGE>

The returns for the Cornerstone Growth Strategy and the Cornerstone Value
Strategy 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, the Manager can presently foresee no circumstances that
would cause deviation from the Cornerstone Growth Strategy or the Cornerstone
Value Strategy in managing the Cornerstone Growth Fund and the Cornerstone Value
Fund, respectively. All returns reflect reinvestment of dividends and other
earnings.

<PAGE>
Cornerstone Growth Strategy
Total Return on a $10,000 Investment
(Figures [do not] reflect advisory fees, commissions, Fund expenses or taxes.)*

Plot Points for graph of S&P 500 and Cornerstone Growth Strategy December 31,
1954-December 31, 1995.

================================================================================
Year ending: S&P 500 Cornerstone Growth Strategy
- --------------------------------------------------------------------------------
12/31/54 $ 10,000.00 $ 10,000.00
12/31/55 $ 13,156.00 $ 13,040.00
12/31/56 $ 14,019.03 $ 15,387.20
12/31/57 $ 12,507.78 $ 12,632.89
12/31/58 $ 17,931.16 $ 19,303.06
12/31/59 $ 20,075.72 $ 23,955.09
12/31/60 $ 20,170.08 $ 26,973.44
12/31/61 $ 25,593.81 $ 40,756.86
12/31/62 $ 23,359.47 $ 33,746.68
12/31/63 $ 28,685.43 $ 40,765.99
12/31/64 $ 33,412.79 $ 52,995.79
12/31/65 $ 37,572.68 $ 76,366.93
12/31/66 $ 33,792.87 $ 76,290.57
12/31/67 $ 41,896.40 $ 139,840.61
12/31/68 $ 46,530.14 $ 210,460.12
12/31/69 $ 42,575.08 $ 151,320.82
12/31/70 $ 44,282.34 $ 147,386.48
12/31/71 $ 50,619.15 $ 194,697.54
12/31/72 $ 60,226.66 $ 233,052.96
12/31/73 $ 51,397.43 $ 168,963.39
12/31/74 $ 37,792.53 $ 119,795.05
12/31/75 $ 51,851.35 $ 164,837.98
12/31/76 $ 64,212.72 $ 218,410.33
12/31/77 $ 59,602.24 $ 276,070.66
12/31/78 $ 63,512.15 $ 381,805.72
12/31/79 $ 75,223.79 $ 529,564.53
12/31/80 $ 99,611.34 $ 861,601.49
12/31/81 $ 94,720.43 $ 784,057.36
12/31/82 $ 115,000.07 $ 1,074,942.63
12/31/83 $ 140,886.59 $ 1,426,448.88
12/31/84 $ 149,720.17 $ 1,397,919.90
12/31/85 $ 197,870.18 $ 1,992,035.85
12/31/86 $ 234,416.81 $ 2,344,626.20
12/31/87 $ 246,676.80 $ 2,218,016.39
12/31/88 $ 288,143.18 $ 2,876,767.25
12/31/89 $ 378,879.46 $ 3,561,437.86
12/31/90 $ 366,868.98 $ 3,443,910.41
12/31/91 $ 478,947.46 $ 5,214,080.36
12/31/92 $ 515,682.73 $ 6,543,670.85

8
<PAGE>

* Once estimated expenses have been determined, performance information will
be recomputed and provided net of such expenses.

<PAGE>

Annual results for S&P 500 and Cornerstone Growth Strategy,
December 31, 1954-December 31, 1995.
(Figures [do not] reflect advisory fees, commissions, fund expenses or taxes.)*

================================================================================
Cornerstone Growth Cornerstone Growth Strategy
Year ending: S&P 500 Strategy vs. S&P 500
- --------------------------------------------------------------------------------
31-Dec-55 31.56% 30.40% -1.16%
31-Dec-56 6.56% 18.00% 11.44%
31-Dec-57 -10.78% -17.90% -7.12%
31-Dec-58 43.36% 52.80% 9.44%
31-Dec-59 11.96% 24.10% 12.14%
31-Dec-60 0.47% 12.60% 12.13%
31-Dec-61 26.89% 51.10% 24.21%
31-Dec-62 -8.73% -17.20% -8.47%
31-Dec-63 22.80% 20.80% -2.00%
31-Dec-64 16.48% 30.00% 13.52%
31-Dec-65 12.45% 44.10% 31.65%
31-Dec-66 -10.06% -0.10% 9.96%
31-Dec-67 23.98% 83.30% 59.32%
31-Dec-68 11.06% 50.50% 39.44%
31-Dec-69 -8.50% -28.10% -19.60%
31-Dec-70 4.01% -2.60% -6.61%
31-Dec-71 14.31% 32.10% 17.79%
31-Dec-72 18.98% 19.70% 0.72%
31-Dec-73 -14.66% -27.50% -12.84%
31-Dec-74 -26.47% -29.10% -2.63%
31-Dec-75 37.20% 37.60% 0.40%
31-Dec-76 23.84% 32.50% 8.66%
31-Dec-77 -7.18% 26.40% 33.58%
31-Dec-78 6.56% 38.30% 31.74%
31-Dec-79 18.44% 38.70% 20.26%
31-Dec-80 32.42% 62.70% 30.28%
31-Dec-81 -4.91% -9.00% -4.09%
31-Dec-82 21.41% 37.10% 15.69%
31-Dec-83 22.51% 32.70% 10.19%
31-Dec-84 6.27% -2.00% -8.27%
31-Dec-85 32.16% 42.50% 10.34%
31-Dec-86 18.47% 17.70% -0.77%
31-Dec-87 5.23% -5.40% -10.63%
31-Dec-88 16.81% 29.70% 12.89%
31-Dec-89 31.49% 23.80% -7.69%
31-Dec-90 -3.17% -3.30% -0.13%
31-Dec-91 30.55% 51.40% 20.85%
31-Dec-92 7.67% 25.50% 17.83%
31-Dec-93 9.99% 30.30% 20.31%
31-Dec-94 1.31% -5.30% -6.61%
31-Dec-95 36.80% 18.20% -18.60%

* Once estimated expenses have been determined, performance information will
be recomputed net of such expenses.

<PAGE>
Summary results for S&P 500 and Cornerstone Growth Strategy,
December 31, 1954-December 31, 1995.
(Figures [do not] reflect advisory fees, commissions, fund expenses or taxes.)*

================================================================================
Cornerstone Growth
S&P 500 Strategy
- --------------------------------------------------------------------------------
Arithmetic average 12.43% 21.15%
Standard deviation of return 16.05% 25.67%
Sharpe risk-adjusted ratio** 42.00 60.00
1-yr return 36.80% 18.20%
3-yr compounded 15.09% 13.41%
5-yr compounded 16.46% 22.61%
10-yr compounded 14.79% 16.96%
15-yr compounded 14.77% 17.39%
20-yr compounded 14.56% 22.50%
25-yr compounded 11.49% 17.63%
30-yr compounded 10.67% 17.46%
35-yr compounded 11.03% 18.26%
40-yr compounded 10.77% 17.93%
Compound Annual Return 11.23% 18.22%

$10,000 becomes: $786,093 $9,544,063

Maximum return 43.36% 83.30%
Minimum return -26.47% -29.10%

* Once estimated expenses have been determined, performance information will
be recomputed net of such 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.

<PAGE>
Cornerstone Value Strategy
Total Return on a $10,000 Investment
(Figures [do not] reflect advisory fees, commissions, Fund expenses or taxes.)*

Plot Points for graph of S&P 500 and Cornerstone Value Strategy December 31,
1951-December 31, 1995.

================================================================================
Year ending: S&P 500 Cornerstone Value Strategy
- --------------------------------------------------------------------------------
12/31/51 $ 10,000.00 $ 10,000.00
12/31/52 $ 11,837.00 $ 11,430.00
12/31/53 $ 11,720.00 $ 11,567.00
12/31/54 $ 17,887.00 $ 17,640.00
12/31/55 $ 23,532.00 $ 22,597.00
12/31/56 $ 25,076.00 $ 25,941.00
12/31/57 $ 22,372.00 $ 22,439.00
12/31/58 $ 32,073.00 $ 32,514.00
12/31/59 $ 35,909.00 $ 35,635.00
12/31/60 $ 36,078.00 $ 35,625.00
12/31/61 $ 45,779.00 $ 44,317.00
12/31/62 $ 41,783.00 $ 43,165.00
12/31/63 $ 51,309.00 $ 51,280.00
12/31/64 $ 59,765.00 $ 61,690.00
12/31/65 $ 67,205.00 $ 72,547.00
12/31/66 $ 60,445.00 $ 65,147.00
12/31/67 $ 74,939.00 $ 80,587.00
12/31/68 $ 83,227.00 $ 101,943.00
12/31/69 $ 76,153.00 $ 86,652.00
12/31/70 $ 79,207.00 $ 96,443.00
12/31/71 $ 90,541.00 $ 111,681.00
12/31/72 $ 107,726.00 $ 127,317.00
12/31/73 $ 91,933.00 $ 119,805.00
12/31/74 $ 67,599.00 $ 105,069.00
12/31/75 $ 92,745.00 $ 166,219.00
12/31/76 $ 114,856.00 $ 231,377.00
12/31/77 $ 106,609.00 $ 239,012.00
12/31/78 $ 113,603.00 $ 246,900.00
12/31/79 $ 134,551.00 $ 310,106.00
12/31/80 $ 178,173.00 $ 373,058.00
12/31/81 $ 169,424.00 $ 420,809.00
12/31/82 $ 205,698.00 $ 503,288.00
12/31/83 $ 252,001.00 $ 697,557.00
12/31/84 $ 267,801.00 $ 730,342.00
12/31/85 $ 353,926.00 $ 985,961.00
12/31/86 $ 419,296.00 $ 1,189,070.00
12/31/87 $ 441,225.00 $ 1,327,002.00
12/31/88 $ 515,395.00 $ 1,678,657.00
12/31/89 $ 677,693.00 $ 2,309,832.00
12/31/90 $ 656,210.00 $ 2,148,144.00
12/31/91 $ 856,683.00 $ 2,940,809.00
12/31/92 $ 922,390.00 $ 3,281,943.00
12/31/93 $ 1,014,537.00 $ 3,951,459.00

12/31/94 $ 1,027,828.00 $ 4,141,129.00
12/31/95 $ 1,406,068.00 $ 5,246,810.00

* Once estimated expenses have been determined, performance information will
be recomputed and provided net of such expenses.

<PAGE>
Annual results for S&P 500 and Cornerstone Value Strategy,
December 31, 1951-December 31, 1995.
(Figures [do not] reflect advisory fees, commissions, fund expenses or taxes.)*

================================================================================
O'Shaughnessy
O'Shaughnessy Cornerstone Cornerstone Value Strategy
Year ending: S&P 500 Value Strategy vs. S&P 500
- --------------------------------------------------------------------------------
12/31/52 18.37% 14.30% -4.07%
12/31/53 -0.99% 1.20% 2.19%
12/31/54 52.62% 52.50% -0.12%
12/31/55 31.56% 28.10% -3.46%
12/31/56 6.56% 14.80% 8.24%
12/31/57 -10.78% -13.50% -2.72%
12/31/58 43.36% 44.90% 1.54%
12/31/59 11.96% 9.60% -2.36%
12/31/60 0.47% -0.03% -0.50%
12/31/61 26.89% 24.40% -2.49%
12/31/62 -8.73% -2.60% 6.13%
12/31/63 22.80% 18.80% -4.00%
12/31/64 16.48% 20.30% 3.82%
12/31/65 12.45% 17.60% 5.15%
12/31/66 -10.06% -10.20% -0.14%
12/31/67 23.98% 23.70% -0.28%
12/31/68 11.06% 26.50% 15.44%
12/31/69 -8.50% -15.00% -6.50%
12/31/70 4.01% 11.30% 7.29%
12/31/71 14.31% 15.80% 1.49%
12/31/72 18.98% 14.00% -4.98%
12/31/73 -14.66% -5.90% 8.76%
12/31/74 -26.47% -12.30% 14.17%
12/31/75 37.20% 58.20% 21.00%
12/31/76 23.84% 39.20% 15.36%
12/31/77 -7.18% 3.30% 10.48%
12/31/78 6.56% 3.30% -3.26%
12/31/79 18.44% 25.60% 7.16%
12/31/80 32.42% 20.30% -12.12%
12/31/81 -4.91% 12.80% 17.71%
12/31/82 21.41% 19.60% -1.81%
12/31/83 22.51% 38.60% 16.09%
12/31/84 6.27% 4.70% -1.57%
12/31/85 32.16% 35.00% 2.84%
12/31/86 18.47% 20.60% 2.13%
12/31/87 5.23% 11.60% 6.37%
12/31/88 16.81% 26.50% 9.69%
12/31/89 31.49% 37.60% 6.11%
12/31/90 -3.17% -7.00% -3.83%
12/31/91 30.55% 36.90% 6.35%
12/31/92 7.67% 11.60% 3.93%
12/31/93 9.99% 20.40% 10.41%
12/31/94 1.31% 4.80% 3.49%
12/31/95 36.80% 26.70% -10.10%

* Once estimated expenses have been determined, performance information will
be recomputed net of such expenses.

<PAGE>
Summary results for S&P 500 and Cornerstone Value Strategy,
December 31, 1954-December 31, 1995.
(Figures [do not] reflect advisory fees, commissions, fund expenses or taxes)*

================================================================================
S&P 500 Cornerstone Value Strategy
- --------------------------------------------------------------------------------
Arithmetic average 13.17% 16.56%
Standard deviation of return 16.77% 17.12%
Sharpe risk-adjusted ratio** 46.00 66.00
1-yr return 36.80% 26.70%
3-yr compounded 15.09% 16.93%
5-yr compounded 16.46% 19.55%
10-yr compounded 14.79% 18.20%
15-yr compounded 14.77% 19.27%
20-yr compounded 14.56% 18.84%
25-yr compounded 12.19% 17.33%
30-yr compounded 10.67% 15.34%
35-yr compounded 11.03% 15.33%
40-yr compounded 10.77% 14.59%
Compound Annual Return 11.90% 15.30%

$10,000 becomes: $1,406,068 $5,246,810

Maximum return 52.62% 58.20%
Minimum return -26.47% -15.00%

* Once estimated expenses have been determined, performance information will
be recomputed net of such 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.

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

14
<PAGE>

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. In addition,
each Fund may invest a portion of its assets in cash and liquid short-term
securities for the purpose of meeting redemption requests.

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 net 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 possibly 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.

Borrowing. Each Fund may borrow money in an amount up to 33 1/3% of its
respective total assets from banks for extraordinary or emergency purposes such
as meeting anticipated redemptions, and may pledge 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.

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

15
<PAGE>

commission or spread available. In addition, consistent with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., the Manager
may consider sales of shares of the Funds as a factor in the selection of
brokers or dealers to execute portfolio transactions for the Funds.

Portfolio Turnover. As described above, in accordance with each Fund's
Strategy, the Fund's portfolio will be rebalanced as of December 31 of each
year. That is, stocks meeting the respective Strategy's criteria will be
purchased for the portfolio to the extent not then held, stocks which no longer
meet the criteria will be sold, and the holdings of all stocks in the portfolio
that continue to meet the criteria will be appropriately increased or decreased
to result in equal weighting of all stocks in the portfolio. The Funds
anticipate that their annual turnover rates should not exceed 75% under normal
conditions.

COMPUSTAT(R) Database. Although S&P Compustat obtains information for
inclusion in or for use in the COMPUSTAT(R) Database from sources which S&P
Compustat considers reliable, S&P Compustat does not guarantee the accuracy or
completeness of the COMPUSTAT(R) Database. S&P Compustat makes no warranty,
express or implied, as to the results to be obtained by the Funds, or any other
persons or entity from the use of the COMPUSTAT(R) Database. S&PCompustat 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.

RISK FACTORS

What are some of the potential risks associated with the Strategies?

The Strategy Indexing(TM) 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, 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 the investment criteria of the Fund's
Strategy at the time of selection as of December 31 in any given year will
continue during a 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.

16
<PAGE>

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 its 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.

MANAGEMENT AND ORGANIZATION OF THE FUNDS

MANAGEMENT

Who runs the Funds?

General Oversight. The O'Shaughnessy Funds is governed by a Board of
Directors that meets regularly to review the Funds' investment, performance,
expenses, and other business affairs. The Board elects the Funds' officers.

Manager. O'Shaughnessy Capital Management, Inc. acts as investment manager
of each Fund pursuant to a management agreement between O'Shaughnessy Funds and
the Manager 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 ___ % of the Fund's average
daily net assets.

The Manager's office is located at 60 Arch Street, Greenwich, Connecticut
06830. O'Shaughnessy Capital Management, Inc. was incorporated in 1988. As of
________, 1996, the Manager had approximately $___________ in individual account
assets under management. The Manager also serves as portfolio consultant to a
unit investment trust with assets in excess of $180 million.

Portfolio Management. James P. O'Shaughnessy has the day-to-day
responsibility for managing the portfolio of each Fund and developing and
executing each Fund's investment program since the inception of each Fund. For
the past five years, Mr. O'Shaughnessy has served as President of the Manager,
and in such capacity, has managed equity accounts for high net worth individuals
and served as portfolio consultant to a unit investment trust managed by the
Manager. Mr. O'Shaughnessy is recognized as a leading expert and pioneer in
quantitative equity analysis. He is the author of two financial books, Invest
Like the Best and What Works on Wall Street.

17
<PAGE>

Agreement provides the Distributor with the right to distribute shares of the
Funds through affiliated broker-dealers and through other broker-dealers or
financial institutions with whom the Distributor has entered into selected
dealer agreements. The address of the Distributor is 4455 E. Camelback Road,
Suite 261 E, Phoenix, Arizona 85018. The Distributor provides distribution
services to the Funds at no cost to the Funds.

Administrator. Pursuant to an Administration Agreement, Investment Company
Administration Corporation (the "Administrator") serves as administrator of the
Funds. The Administrator provides certain administrative services, including,
among other responsibilities, coordinating relationships with independent
contractors and agents, preparing for signature by officers and filing of
certain documents required for compliance with applicable laws and regulations,
preparing financial statements, and arranging for the maintenance of books and
records. For its services, each Fund pays the Administrator a fee each month, as
the annual rate of ___ % of the average daily net assets of the respective Fund.
The address of the Administrator is 479 West 22nd Street, New York, New York
10011. The Administrator and the Distributor are under common control and are
therefore considered affiliates of each other.

Shareholder Services. ______________ acts as the Funds' transfer and
dividend disbursing agent (the "Transfer Agent"). The address of the Transfer
Agent is ____________ .

Custodian. ________________ acts as the Funds' custodian (the "Custodian").
The address of the Custodian is __________________.

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(TM) Fund (the "other O'Shaughnessy
Funds"). The charter of O'Shaughnessy Funds provides that the Board of Directors
may issue additional investment portfolios of shares and/or additional classes
of shares for each investment portfolio. O'Shaughnessy Funds, including each
investment portfolio thereof, was organized 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 issued.

Each 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.

18
<PAGE>

Do the Funds have annual shareholder meetings?

The Funds are not required to hold annual meetings and do not intend to do
so except when certain matters, such as a change in a Fund's fundamental
policies, are to be decided. In addition, shareholders representing at least 10%
of all eligible votes may call a special meeting if they wish for the purpose of
voting on the removal of any Fund Director. If a meeting is held and you cannot
attend, you can vote by proxy. Before the meeting, you will be sent proxy

materials that explain the issues to be decided and include a voting card for
you to mail back.

INFORMATION ABOUT YOUR ACCOUNT

PURCHASE OF SHARES

The minimum initial investment in the Fund is $5,000 and the minimum
subsequent investment is $100, except that for retirement plans, the minimum
initial investment is $500 and the minimum subsequent investment amount is $50.

Investors may make an initial purchase of shares and subsequent investments
in a Fund by mail or wire as described below. The Funds reserve the right in
their sole discretion to waive the minimum investment amounts, including in the
case of investments by employees and affiliates of the Manager and family
members of any of the foregoing, and Individual Retirement Accounts ("IRAs") of
shareholders of the Funds.

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 [Transfer Agent, address].
Subsequent investments must be accompanied by a letter indicating the name(s) in
which the account is registered and the account number or by the remittance
portion of the account statement and mailed to the address stated above.

How do I purchase shares by wire?

If you are wiring funds, call the Transfer Agent at 800-___-____ 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, a completed Application should be sent to the
Transfer Agent at [address] prior to or immediately after the funds are wired.
Instruct your bank to wire federal funds to [Transfer Agent's Full Name] ABA#
____________, [Designated Department of Transfer Agent].

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, the amount being wired, and the
Transfer Agent's internal security code #_______. 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.

19
<PAGE>

What is the purchase price of Fund shares and when do purchases become
effective?

Purchases of Fund shares become effective and shares will be priced at the
net asset value per share ("NAV") next determined after the investor's check or
wire is received by the Transfer Agent. NAV for each Fund is calculated as of
the close of business on the New York Stock Exchange ("NYSE") (currently 4:00
p.m., Eastern time). If your request is received in correct form before 4:00
p.m. Eastern time, your transaction will be priced at that day's NAV. If your
request is received after 4:00 p.m., it will be priced at the next business
day's NAV. Orders that request a particular day or price for your transaction or
any other special conditions cannot be accepted.

The time at which transactions and shares are priced and the time until
which orders are accepted may be changed in case of an emergency or if the NYSE
closes at a time other than 4:00 p.m., Eastern time.

The purchase order must include the documentation specified above. Please
do not send purchase orders to the Funds; the Funds forward purchase orders to
the Transfer Agent and a purchase will not become effective until the Transfer
Agent receives all the necessary documentation.

What are the conditions of purchase?

All purchase orders are subject to acceptance or rejection by the Funds or
the Distributor, in their sole discretion. The offering of shares may be
suspended whenever a Fund considers suspension desirable or when required by any
order, rule or regulation of any governmental body having jurisdiction. Checks
and money orders should be drawn on United States banks; the Funds and the
Distributor reserve the right to reject checks drawn on foreign banks.

The Transfer Agent will mail a confirmation of each completed purchase to
the investor. If an order is canceled because an investor's check does not
clear, the investor will be responsible for any loss incurred by the respective
Fund, the Transfer Agent, the Distributor, the Administrator or the Manager. If
the investor is already a shareholder, the Fund may redeem shares from the
account to cover any loss. If the investor is not a shareholder or if the loss
is greater than the value of the shareholder's account, the Distributor will be
responsible for any loss to the Fund, and will have the right to recover such
amount from the investor.

Who do I contact if I have questions about my account or need additional
information concerning investment in the Funds?

If you have investment questions about the Funds, or if you would like any
additional information relating to an investment in the Funds, please call
800-___-____ (toll-free) or 212- ___-____, or write to the Distributor at First
Fund Distributors, Inc., 4455 E. Camelback Road, Suite 261 E, Phoenix AZ 85018.
If you are a shareholder and have questions about your account, or if you wish
to arrange for wire transactions, please call the Transfer Agent at
800-___-____. Before telephoning, please be sure to have your account number and
social security number or tax identification number readily available.

Will I receive share certificates for shares purchased?

Share certificates will not be issued for shares.

Can I purchase shares through other broker-dealers?

20
<PAGE>

Manager or Distributor reimburses the outside brokers for providing shareholder
services to the omnibus accounts in an amount equal to what the Fund would
otherwise have paid to provide shareholder services to each individual
shareholder account.

Investors may also arrange to purchase shares of each Fund through other
outside broker-dealers with which O'Shaughnessy Funds does not have an
arrangement, and such broker-dealers may purchase shares of the Fund by
telephone if they have made arrangements in advance with the Fund. To place a
telephone order such broker-dealer should call the Transfer Agent at 800-___-
____.

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(TM) Fund and, as the case may be, O'Shaughnessy
Cornerstone Growth(TM) Fund or O'Shaughnessy Cornerstone Value(TM) Fund). The
exchange procedures are described below. Prospectuses for the other
O'Shaughnessy Funds may be obtained by writing to the Distributor at 4455 E.
Camelback Road, Suite 261 E, Phoenix AZ 85018, Attention: O'Shaughnessy Funds,
Inc. or by calling 800-___-____ (toll-free).

Is there any sales charge or minimum investment applicable to an exchange?

Shareholders of the Funds may exchange their Fund shares, without the
payment of any sales or service charge, for shares of any other O'Shaughnessy
Fund 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
other O'Shaughnessy Fund into which the exchange is being made; except that the
minimum investment requirement for an initial exchange into any other
O'Shaughnessy Fund is $5,000. Each of the other O'Shaughnessy Funds reserves the
right to waive the minimum investment requirement set forth in its prospectus.

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 other O'Shaughnessy Funds.

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 respective Fund of all necessary documentation in connection with
the redemption of Fund shares as described below under "Redemption Of Shares
- --How do I redeem shares by mail?"

Do current instructions concerning receipt of dividends and distributions carry
over to exchanged shares?

21
<PAGE>

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 [ten] days after the purchase date. The exchange privilege is available
only in states where shares of the other O'Shaughnessy Funds may be sold
legally.

Each of the Funds and the other O'Shaughnessy Funds reserves the right to
reject any order to acquire its shares through exchange or otherwise, to
restrict or terminate the exchange privilege at any time and, 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 Application
entitled "Shareholder Privileges" are eligible to make telephone requests for
exchanges and may do so by telephoning the Transfer Agent at 800 ___-____. A

shareholder who has not completed the Shareholder Privileges section of the
Application but who wishes to become eligible to make telephone exchanges should
designate a change in such instructions by writing to the Transfer Agent. Please
note that such changed instructions must (i) be signed by the registered
owner(s) of the shares exactly as the account is registered and signature
guaranteed, and (ii) include the name of the account, the account number and the
name of the Fund to which the exchange instructions relate. See "Redemption Of
Shares - How do I redeem shares by telephone?" below, which describes the time
of day at which telephone redemptions and exchanges will be priced and
processed. Shares of the other O'Shaughnessy Funds acquired pursuant to a
telephone request for exchange will be held under the same account registration
as the shares redeemed through the exchange.

The Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. A description of such procedures is
contained in the SAI. None of the Funds, the other O'Shaughnessy Funds, the
Transfer Agent, the Distributor, the Administrator or the Manager will be liable
for damages resulting from instructions communicated by telephone that any of
them reasonably believed to be genuine pursuant to such procedures.

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.

How do I make exchanges by mail?

To exchange Fund shares by mail, send the following information to [Full
name of Transfer Agent, address]: (i) a written request for exchange signed by
the registered owner(s) of the shares, exactly as the account is registered,
indicating the name of the account, the account number, the number of shares or
the dollar value of the shares to be exchanged, and indicating shares of which
other O'Shaughnessy Fund shares of the Fund are to be exchanged for; and (ii)

22
<PAGE>

indicate the name on the account and the account number (if already established)
with such other O'Shaughnessy 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 the following information to [full name of
Transfer Agent, address]: (i) a written request for redemption signed by the
registered owner(s) of the shares, exactly as the account is registered,
indicating 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) any signature
guarantees that are required as described below; and (iii) any additional
documents which might be required for redemptions by corporations, executors,
administrators, trustees, guardians or other similar shareholders. Except as
otherwise directed by a Fund in its discretion, the Transfer Agent will not
redeem shares until it has received all necessary documents; corporate and
institutional investors and fiduciaries should contact the Transfer Agent to
ascertain what additional documentation is required.

May I send redemptions requests to the Funds?

Please do not send redemption requests to the Funds. The Funds must forward
all redemption requests to the Transfer Agent and instructions for redemption
will not be effective until received by the Transfer Agent. Shares redeemed will
be priced at the net asset value per share next determined after acceptance of a
complete redemption request by the Transfer Agent. Redemption requests received
by the Transfer Agent after the close of the NYSE (currently 4:00 p.m., Eastern
time) will be treated as though received on the next business day. The Transfer
Agent cannot accept redemption requests that specify a particular date for
redemption or special redemption conditions.

When are signature guarantees required?

Except as indicated below, all of the signatures on any request 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; and (iii) the redemption check
is mailed to the shareholder(s) at the address of record. 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.

23
<PAGE>

The requirement of a guaranteed signature protects against an unauthorized
person redeeming shares and obtaining the redemption proceeds.

How do I redeem shares by telephone?

Shareholders who have completed the section of the Fund Application

entitled "Shareholder Privileges" are eligible to make telephone requests for
redemptions (without charge) and may do so by telephoning the Transfer Agent at
800-___-____. 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 for IRA accounts. In such cases,
redemption can only be made by mail as described above under "Redemptions By
Mail." Telephone requests for redemptions (or exchanges -- see "Exchange
Privilege" above) received before the close of business of the NYSE (currently
4:00 p.m., Eastern time) on a business day will be priced and processed as of
the close of business on that day; requests received after that time will be
processed as of the close of business on the next business day.

As noted above, the Funds will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. None of the Funds, the
Transfer Agent, the Distributor, the Administrator or the Manager will be liable
for damages resulting from instructions communicated by telephone that any of
them reasonably believed to be genuine pursuant to such procedures.

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 "Redemptions 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.

<PAGE>

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. 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 [ten] 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 $5,000. If your balance is
below $5,000 for three months or longer, we have the right to close your account
after giving you 60 days in which to increase your balance.

INFORMATION ON DISTRIBUTIONS AND TAXES

DIVIDENDS AND OTHER DISTRIBUTIONS GENERALLY

Dividend and capital gain distributions are reinvested in additional shares
of the Funds in your account unless you select another option on your
Application. The advantage of reinvesting distributions arises from compounding;
that is, you receive dividends and capital gain distributions on an increasing
number of shares. Distributions not reinvested are paid by check or transmitted
to your bank account.

INCOME DIVIDENDS

Each Fund declares and pays dividends (if any) annually.

CAPITAL GAINS

A capital gain or loss is the difference between the purchase and sale
price of a security. If a Fund has net capital gains for the year (after
subtracting any capital losses), they are usually declared and paid in December
to shareholders of record on a specified date that month.

25
<PAGE>

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.

Will I pay taxes on redemptions or exchanges of Fund shares?

When you sell shares in a Fund, you may realize a gain or loss. Unless you
are a dealer in securities, such gain or loss will be capital gain or loss. In
addition, such gain or loss will be a long-term capital gain or loss if you hold
your shares for more than one year, or short-term capital gain or loss if you
hold your shares for less than one year.

If you exchange shares of the Fund, you may realize a gain or loss. 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?

The following summary does not apply to retirement accounts, such as IRAs,
which are tax-deferred until you withdraw money from them.

Distributions of ordinary income and short-term capital gains are taxable
as ordinary income. The dividends of each Fund will be eligible for the 70%
deduction for dividends received by corporations only to the extent the Fund's
income consists of dividends paid by U.S. corporations. Long-term gains are
taxable at the applicable long-term gain rate. The gain is long- or short-term
depending on how long the respective Fund held the securities, not how long you
held shares in the Fund.

What are the tax effects of buying shares before a distribution?

If you buy shares of a Fund shortly before or on the "record date" -- the
date that establishes you as the person to receive the upcoming distribution --
you will receive, in the form of a taxable distribution, a portion of the money

you just invested. Therefore, you may wish to find out the Fund's record date(s)
before investing. Of course, a Fund's share price may, at any time, reflect
undistributed capital gains or unrealized appreciation.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect, and does
not address the state and local tax consequences of an investment in the Funds.
For the complete provisions, reference should be made to the pertinent Code
sections and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative or administrative
action either prospectively or retroactively.

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.

26
<PAGE>

PERFORMANCE INFORMATION

This section should help you understand the terms used to describe Fund
performance.

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, Eastern time) on each
day that the NYSE is open for business and on each other day in which there is a
sufficient degree of trading in a Fund's portfolio securities that the current
net asset value of the Fund's shares may be materially affected by changes in
the value of the Fund's portfolio securities.

How is net asset value determined?

Each Fund determines the net asset value per share by subtracting the
Fund's total liabilities from the Fund's total assets (the value of the
securities that the Fund holds plus cash and other assets), dividing the
remainder by the total number of shares outstanding, and adjusting the result to
the nearest full cent.

How are the securities held in a Fund's portfolio valued?

Securities listed on the NYSE, American Stock Exchange or other national
exchanges are valued at the last sale price on such exchange on the day as of
which the net asset value per share is to be calculated. Over-the-counter
securities included in the NASDAQ National Market System are valued at the last
sale price. If there is no sale on a particular security on such day, it is
valued at the last bid price. Other securities, to the extent that market
quotations are readily available, are valued at the bid price at the time of the
determination. All other securities and assets, including restricted securities,
are valued in good faith in a manner determined by the Directors of the Funds
best to reflect their fair value.

27
<PAGE>

OTHER SHAREHOLDER SERVICES

Systematic Investment Plan

A shareholder may make monthly or quarterly investments into an existing
account automatically in amounts of not less than $50. Shareholders wishing to
establish a Systematic Investment Plan should call the Funds at 800-___-____ for
more information and an application.

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 filing out the appropriate part of the Application. Under
this plan, a shareholder may receive (or designate a third party to receive) a
monthly or quarterly check in a stated amount of not less than $50. Shares of
the respective Fund will be redeemed as necessary to meet withdrawal payments.
All participants must elect to have their dividends and capital gain
distributions reinvested automatically. A shareholder who decides later to use
this service should fill out a Shareholder Services Form and send it to

[Transfer Agent, address]. Shareholders should allow approximately ten days for
such form to be processed.

Reports to Shareholders

Each time a shareholder invests, redeems, transfers or exchanges Fund
shares, or receives a distribution from a Fund, the Fund will send a
confirmation of the transaction which will include a summary of all of the
shareholder's most recent transactions.

At such time as prescribed by law, each Fund will send to each shareholder
the following reports (if they are applicable), which may be used in completing
U.S. income tax returns:

Form 1099-DIV Report taxable distributions during the
preceding calendar year. (If a shareholder did not
receive taxable distributions in the previous year,
such shareholder will not be sent a 1099-DIV.)

Form 1099-B Reports redemption proceeds paid (including
those resulting from exchanges) during the preceding
calendar year.

Form 1099-R Report distributions from retirement plan
accounts during the preceding calendar year.

Form 5498 Reports contributions to IRAs for the previous
calendar year.

If an investor's shares are held by an outside broker in an omnibus
account, it is the responsibility of such outside broker to provide shareholders
whose shares are held in the omnibus account with any reports prescribed by law
which the shareholders require in order to complete their U.S. income tax
returns.

Retirement Plans

Eligible investors may invest in the Funds under the following prototype
retirement plans:
Individual Retirement Account (IRA)
Simplified Employee Pension (SEP) for sole proprietors,
partnerships and corporations.
Profit-Sharing and Money Purchase Pension Plans for corporations
and their employees.

There is no minimum for investment in such plans. See "Shareholder Services
- --Retirement Plans" in the Statement of Additional Information.

28
<PAGE>

Automatic Reinvestment Plan

For the convenience of investors, all dividends and distributions are

automatically reinvested in full and fractional shares of the Funds at the net
asset value per share at the close of business on the record date, unless
otherwise specified on the Application or requested by a shareholder in writing.
If the Transfer Agent does not receive a written request for subsequent
dividends and/or distributions to be paid in cash at least three full business
days prior to a given record date, the dividends and/or distributions to be paid
to a shareholder will be reinvested. If a shareholder elects to receive
dividends and distributions in cash and the U.S. Postal Service cannot deliver
the checks, or if the checks remain uncashed for six months, the shareholder's
distribution checks will be reinvested into the shareholder's account at the
then current net asset value.

[Attach Investor's New Account Application.]

<PAGE>

- --------------------------------------------------------------------------------

No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund, the Investment Adviser, the Administrator or
the Distributor. This Prospectus does not constitute an offering may not
lawfully be made.

TABLE OF CONTENTS
About the Fund ............................................................. 3
Management and Organization
of the Funds ............................................................. 17
Information about Your Account ............................................. 19
Information on Distribution and
Taxes............................................................... 25
Performance Information..................................................... 27
Net Asset Value ............................................................ 27
Other Shareholder Services ................................................. 28

INVESTMENT MANAGER
O'Shaughnessy Capital Management, Inc.
60 Arch Street
Greenwich, Connecticut 06830

ADMINISTRATOR
Investment Company Administration Corporation
479 West 22nd Street
New York, New York 10011

DISTRIBUTOR
First Funds Distributor, Inc.
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018

TRANSFER

AUDITORS

LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022

- --------------------------------------------------------------------------------

Prospectus

O'SHAUGHNESSY
CORNERSTONE VALUE FUND

O'SHAUGHNESSY
CORNERSTONE GROWTH FUND

_________, 1996

- --------------------------------------------------------------------------------

<PAGE>

SUBJECT TO COMPLETION - July 3, 1996

PROSPECTUS

_____________, 1996

O'SHAUGHNESSY AGGRESSIVE GROWTH FUND
479 West 22nd Street, New York, New York 10011
(800) ___-____

------------

The Fund

O'Shaughnessy Aggressive Growth Fund (the "Fund") is an investment
portfolio or series of O'Shaughnessy Funds, Inc., an open-end management
investment company with multiple portfolios or series available for investment.

Investment Objective

The investment objective of the Fund is capital appreciation.

Strategy

The Fund seeks to achieve its objective through implementation of
proprietary aggressive growth models developed by O'Shaughnessy Capital
Management, Inc., the Fund's investment manager (the "Manager").

The Fund's portfolio will generally consist of approximately 45 common
stocks selected by the Manager which meet certain criteria. For a more detailed
description of the Fund, see "About the Fund -- Investment Objective and
Policies."

Risk/Reward

Although the stocks in which the Fund may invest have, in the Manager's
judgment, the potential to provide superior return, such stocks are likely to be
subject to greater than average price volatility, which may result in
substantial declines in the Fund's share price. Accordingly, the Fund is
suitable only for the most aggressive investors. For a discussion of the
additional risks associated with an investment in the Fund, see "About the Fund
- -- Investment Objective and Policies."

Purchase of Shares

Shares of the Fund will be offered to investors during the continuous
offering at a price equal to the next determined net asset value per share.
There are no fees or charges to purchase or sell shares or to reinvest
dividends. There are no Rule 12b-1 fees.

<PAGE>

------------

This Prospectus contains the information you should know about the Fund
before you invest. Please keep it for future reference. A statement containing
additional information about the Fund, dated ____________, 1996, has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this Prospectus. It is available, at no charge, by calling or by writing
the Fund at the telephone number or address set forth above.

------------

O'Shaughnessy Capital Management, Inc.-Manager
First Fund Distributors, Inc.-Distributor

<PAGE>
ABOUT THE FUND

TRANSACTION AND FUND EXPENSES

The following table and example should help you understand the kinds of
expenses you will bear directly or indirectly as a Fund shareholder. In the
table, "Shareholder Transaction Expenses," shows that you pay no sales charges.
All the money you invest in the Fund goes to work for you, subject to the fees
noted in the table. "Annual Fund Expenses" shows how much it would cost to
operate the Fund for a year, based on estimated expenses through the end of the
Fund's first full year. These costs you pay indirectly, because they are
deducted from the Fund's total assets before the daily share price is calculated
and before dividends and other distributions are made. You will not see these
expenses on you account statement.

Table

Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases (as a percentage
of offering price) .................................................... None
Sales Charge Imposed on Dividend Reinvestments......................... None
Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, whichever is lower)............................... None
Redemption fee......................................................... None
Exchange Fee........................................................... None
Annual Fund Operating Expenses (as a percentage of average net assets):
Management Fees (a)....................................................
Rule 12b-1 Fees........................................................
Other Expenses None
Custodian Fees.......................................................
Shareholder Servicing Costs(b).......................................
Other................................................................

Total Other Expenses...............................................

Total Fund Operating Expenses........................................

- ---------------------
(a) See "Management and Organization of the Fund -- Management -- The Manager"
on page 8.
(b) See "Management and Organization of the Fund -- Management -- Shareholder
Services" on page 9.

Cumulative
Hypothetical Example: Expenses Paid
for the Period of
1 Year 3 Years
------ -------

An investor would pay the following expenses on a $1,000
investment assuming:(1) an operating expense ratio of

_____%; (2) a 5% annual return throughout the period;
and (3) redemption at the end of the period:............ $ $

The table and example are intended to assist investors in understanding the
costs and expenses that a shareholder in the Fund will bear directly or
indirectly. 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.

3
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

To help you decide whether the Fund is appropriate for you, this section
takes a closer look at the Fund's investment objective and policies.

What is the Fund's objective?

The investment objective of the Fund is capital appreciation. There can be
no assurance that the Fund will achieve its investment objective.

What is the Fund's investment strategy?

The Fund will seek to achieve its objective through the implementation of
proprietary aggressive growth models developed by O'Shaughnessy Capital
Management, Inc., the Fund's investment manager (the "Manager").

The Fund's portfolio will generally consist of approximately 45 stocks,
selected through implementation of the Manager's proprietary aggressive growth
models. At the time of purchase, such stocks will generally possess the
following characteristics:

o a market capitalization in excess of $150 million;

o outstanding price performance during the last six months or one year
period prior to purchase;

o high earnings gains during the one year period prior to purchase; and

o expected high future earnings gains in the general consensus of market
analysts.

The Manager may invest the Fund's assets in stocks which do not meet all of
the above criteria, if, in the opinion of the Manager, such stocks possess
characteristics similar to stocks meeting such criteria. In addition, the
Manager may continue to hold a stock in the Fund's portfolio which no longer
meets the initial criteria for investment if the Manager believes such
investments are consistent with the Fund's investment objective.

What are the potential risks of investing primarily in common stocks?

The fundamental risk associated with any common stock fund is the risk that

the value of the stocks its 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.

4
<PAGE>

OTHER INVESTMENT POLICIES AND PRACTICES

This section takes a detailed look at other investment policies and
practices of the Fund. The Fund's investments are subject to further
restrictions and risks described in the Statement of Additional Information.

Shareholder approval is required to change the Fund's investment objective
and certain investment restrictions noted in the following section as
"fundamental policies." The Manager also follows certain "operating policies"
which can be changed without shareholder approval. However, significant changes
in operating policies are discussed with shareholders in Fund reports.

The Fund's holdings in certain kinds of investments cannot exceed maximum
percentages of total assets, which are set forth below. While these restrictions
provide a useful level of detail about the Fund's investments, investors should
not view them as an accurate gauge of the potential risk of such investments.
The net effect of a particular investment depends on its volatility and the size
of its overall return in relation to the performance of all the Fund's other
investments.

Cash and Short-Term Securities. The Fund may temporarily invest a portion
of its total assets in cash or liquid short-term securities pending investment
of such assets in stocks in accordance with the Fund's investment strategy and
in order to meet redemption requests. The Fund may also invest a portion of its
assets in cash or liquid short-term securities for temporary defensive purposes,
but is under no obligation to do so. Short-term securities in which the Fund may
invest include certificates of deposit, commercial paper, notes, obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, and repurchase agreements involving such securities. See
"Repurchase Agreements," below.

Repurchase Agreements. The Fund may invest in repurchase agreements. The
Fund may only enter into repurchase agreements with a member bank of the Federal
Reserve System or a well-established securities dealer in U.S. government
securities. In the event of a bankruptcy or default by the seller of the
repurchase agreement the Fund may suffer delays and incur costs or possible
losses in liquidating the underlying security which is held as collateral, and
the Fund may incur a loss if the value of the collateral declines during this
period. As a matter of operating policy, the Fund may not invest more than 15%
of its net assets in repurchase agreements maturing in more than seven days.

Illiquid Securities. The Fund may invest up to 15% of its net assets in
illiquid securities. Illiquid securities are securities which cannot be readily
resold because of legal or contractual restrictions or which cannot otherwise be
marketed, redeemed, put to the issuer or a third party, or which do not mature
within seven days, or which the Manager, in accordance with guidelines approved
by the Board of Directors, has not determined to be liquid.

5
<PAGE>

The Fund may purchase, without regard to the above limitation, securities
that are not registered under the Securities Act of 1933 (the "Securities Act")
but that can be offered and sold to "qualified institutional buyers" under Rule
144A under the Securities Act, provided that the Board of Directors, or the
Manager pursuant to guidelines adopted by the Board, continuously determines,
based on the trading markets for the specific Rule 144A security, that it is
liquid.

Lending of Portfolio Securities. Like other mutual funds, the Fund may from
time to time lend securities from its portfolio to banks, brokers and other
financial institutions to earn additional income. The principal risk is that the
borrower may default on its obligation to return borrowed securities, because of
insolvency or otherwise. In this event, the Fund could experience delays in
recovering its securities and possibly capital. In accordance with applicable
law, the Fund may not lend portfolio securities representing in excess of 331/3%
of its total assets. The lending policy is a fundamental policy.

Borrowing. The Fund may borrow money from banks in an amount up to 331/3%
of its total assets for extraordinary or emergency purposes such as meeting
anticipated redemptions, and may pledge assets in connection with such
borrowing. The borrowing policy is a fundamental policy.

Small Cap Stocks. It is anticipated that the Fund's portfolio may include
small cap stocks (i.e., stocks whose issuers have market capitalizations
exceeding $150 million but less than $1 billion). Small cap stocks may present
greater opportunities for capital appreciation and a higher degree of risk; they
tend to be more vulnerable to financial and other risks and thus are more
volatile than stocks of larger, more established companies. Because the Fund may
invest in stocks with greater than average volatility, which may result in
substantial declines in the Fund's share price, it is suitable only for the most
aggressive investors.

Industry Concentration. The Fund may not invest more than 25% of its total
assets in any one industry (excluding U.S. Government securities). The
concentration policy is a fundamental policy.

Depositary Receipts. The Fund may invest up to 25% of its total assets in
American Depositary Receipts ("ADRs") which are dollar-denominated securities of
foreign issuers traded in the U.S. Such investments increase diversification of
the Fund's portfolio and may enhance return, but they also involve some special
risks such as exposure to potentially adverse local political and economic
developments, nationalization and exchange controls; potentially lower liquidity
and higher volatility; possible problems arising from regulatory practices that

differ from U.S. standards; the imposition of withholding taxes on income from
such securities; 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.

<PAGE>

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 types of potentially high-risk derivative) are often used to
manage or hedge risk, because they enable the investor to buy or sell an asset
in the future at an agreed upon price. Options (another potentially high-risk
derivative) give the investor the right, but not the obligation, to buy or sell
an asset at a predetermined price in the future. The Fund may buy and sell
futures and options contracts for any number of reasons, including: to manage
its exposure to changes in securities prices; as an efficient means of adjusting
its overall exposure to certain markets; in an effort to enhance income; and to
protect the value of portfolio securities. The Fund may purchase, sell, or write
call and put options on securities, financial indices and futures.

Futures contracts and options may not always be successful hedges; their
prices can be highly volatile. Using them could lower the Fund's total return,
and the potential loss from the use of futures can exceed the Fund's initial
investment in such contracts.

As a matter of operating policy, initial margin deposits and premiums on
options used for non-hedging purposes will not equal more than 5% of the Fund's
net asset value.

Firm Commitment Agreements and When-Issued Purchases. The Fund may purchase
securities under a firm commitment agreement or on a when-issued basis. Firm
commitment agreements and when-issued purchases call for the purchase of
securities at an agreed-upon price on a specified future date, and would be
used, for example, when a decline in the yield of securities of a given issuer
is anticipated. The Fund as purchaser assumes the risk of any decline in value
of the security beginning on the date of the agreement or purchase. The Fund
will not enter into such transactions for the purpose of leveraging, and
accordingly, will segregate U.S. Government securities, cash or cash equivalents
with its custodian equal (on a daily marked-to- market basis) to the amount of
its commitment to purchase the when-issued securities and securities subject to
the firm commitment agreement.

of the underlying security never exceeds the exercise price, the Fund will lose
the entire investment in the warrant. Moreover, if a warrant is not exercised
within the specified time period, it will become worthless and the Fund will
lose the purchase price and the right to purchase the underlying security.

<PAGE>

seeks reasonably competitive commission rates, the Fund does not necessarily pay
the lowest commission or spread available. In addition, consistent with the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.,
the Manager may consider sales of shares of the Fund as a factor in the
selection of brokers or dealers to execute portfolio transactions for the Fund.

Portfolio Turnover. The Fund anticipates that its annual turnover rate
should not exceed 200% under normal conditions. The portfolio turnover rate is
calculated by dividing the lesser of the Fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year. High portfolio
turnover involves correspondingly greater transaction costs in the form of
brokerage commissions and dealer spreads, which are borne directly by the Fund.

MANAGEMENT AND ORGANIZATION OF THE FUND

MANAGEMENT

Who runs the Fund?

General Oversight. O'Shaughnessy Funds is governed by a Board of Directors
that meets regularly to review the Fund's investment, performance, expenses, and
other business affairs. The Board elects the Fund's officers.

Manager. O'Shaughnessy Capital Management, Inc. acts as investment manager
of the Fund pursuant to a management agreement between O'Shaughnessy Funds and
the Manager on behalf of the Fund (the "Management Agreement"). In its capacity
as investment manager, the Manager is responsible for selection and management
of the Fund's portfolio investments. For its services, the Fund pays the Manager
a fee each month, at the annual rate of ___ % of the Fund's average daily net
assets.

The Manager's office is located at 60 Arch Street, Greenwich, Connecticut
06830. O'Shaughnessy Capital Management was incorporated in 1988. As of
__________, 1996, the Manager had approximately $__________ in individual
account assets under management. The Manager also serves as portfolio consultant

to a unit investment trust with assets in excess of $180 million.

Portfolio Management. James P. O'Shaughnessy has had the day-to-day
responsibility for managing the Fund's portfolio and developing and executing
the Fund's investment program since inception of the Fund. For the past five
years, Mr. O'Shaughnessy has served as President of the Manager, and in such
capacity, has managed equity accounts for high net worth individuals and served
as portfolio consultant to a unit investment trust managed by the Manager. Mr.
O'Shaughnessy is recognized as a leading expert and pioneer in quantitative
equity analysis. He is the author of two financial books, Invest Like the Best
and What Works on Wall Street.

<PAGE>

Distributor. O'Shaughnessy Funds has entered into a Distribution Agreement
(the "Distribution Agreement") with First Fund Distributors, Inc. (the
"Distributor"), a registered broker-dealer, to act as the principal distributor
of the shares of the Fund. The Distribution Agreement provides the Distributor
with the right to distribute shares of the Fund through affiliated
broker-dealers and through other broker-dealers or financial institutions with
whom the Distributor has entered into selected dealer agreements. The address of
the Distributor is 4455 E. Camelback Road, Suite 261 E, Phoenix, Arizona 85018.
The Distributor provides distribution services to the Fund at no cost to the
Fund.

Administrator. Pursuant to an Administration Agreement, Investment Company
Administration Corporation (the "Administrator") serves as administrator of the
Fund. The Administrator provides certain administrative services, including,
among other responsibilities, coordinating relationships with independent
contractors and agents, preparing for signature by officers and filing of
certain documents required for compliance with applicable laws and regulations,
preparing financial statements, and arranging for the maintenance of books and
records. For its services, the Fund pays the Administrator a fee each month, at
the annual rate of ___ % of the Fund's average daily net assets. The address of
the Administrator is 479 West 22nd Street, New York, New York 10011. The
Administrator and the Distributor are under common control and are therefore
considered affiliates of each other.

Shareholder Services. ______________ acts as the Fund's transfer and
dividend disbursing agent (the "Transfer Agent"). The address of the Transfer
Agent is ____________ .

Custodian. ________________ acts as the Fund's custodian (the "Custodian").
The address of the Custodian is ____________ .

How are Fund expenses determined?

The Management Agreement identifies the expenses to be paid by the Fund. In
addition to the fees paid to the Manager, the Fund pays certain additional
expenses, including but not limited to, the following: shareholder service
expenses; custodial, accounting, legal, and audit fees; administrative fees;

costs of preparing and printing prospectuses and reports sent to shareholders;
registration fees and expenses; proxy and annual meeting expenses (if any); and
independent Director fees and expenses.

ORGANIZATION

How is the Fund organized?

The Fund is an investment portfolio or series of O'Shaughnessy Funds. There
are three other investment portfolios of O'Shaughnessy Funds, shares of which
are not offered for sale through this Prospectus: O'Shaughnessy Cornerstone
Value Fund, O'Shaughnessy Cornerstone Growth Fund and O'Shaughnessy Dogs of the
Market(TM) Fund (the "other O'Shaughnessy Funds"). The charter of O'Shaughnessy
Funds provides that the Board of Directors may issue additional investment
portfolios of shares and/or additional classes of shares for each investment

<PAGE>

portfolio. O'Shaughnessy Funds, including each investment portfolio thereof, was
organized in Maryland on May 20, 1996.

What is meant by "shares"?

As with all mutual funds, investors purchase shares when they invest in the
Fund. These shares are a part of a Fund's authorized capital stock, but share
certificates are not issued.

Each share and fractional share entitles the shareholder to: receive a
proportional interest in the Fund's capital gain distributions; and cast one
vote per share on certain Fund matters, including the election of Fund
Directors, changes in fundamental policies, or approval of changes in the Fund's
Management Agreement.

Does the Fund have annual shareholder meetings?

The Fund is not required to hold annual meetings and does not intend to do
so except when certain matters, such as a change in the Fund's fundamental
policies, are to be decided. In addition, shareholders representing at least 10%
of all eligible votes may call a special meeting if they wish for the purpose of
voting on the removal of any Fund Director. If a meeting is held and you cannot
attend, you can vote by proxy. Before the meeting, the Fund will send you proxy
materials that explain the issues to be decided and include a voting card for
you to mail back.

INFORMATION ABOUT YOUR ACCOUNT

PURCHASE OF SHARES

Investors may make an initial purchase of shares and subsequent investments
in the Fund by mail or wire as described below. The Fund reserves the right in
its sole discretion to waive the minimum investment amounts, including in the
case of investments by employees and affiliates of the Manager and family
members of any of the foregoing, and Individual Retirement Accounts ("IRAs") of
shareholders of the Fund.

How do I purchase shares by mail?

For initial investments, please send a completed Application, together with
a check payable to O'Shaughnessy Aggressive Growth Fund to [Transfer Agent,
address]. 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.

<PAGE>

How do I purchase shares by wire?

What is the purchase price of Fund shares and when do purchases become
effective?

Purchases of Fund shares become effective and shares will be priced at the
net asset value per share ("NAV") next determined after the investor's check or
wire is received by the Transfer Agent. NAV for the Fund is calculated as of the
close of business on the New York Stock Exchange ("NYSE") (currently 4:00 p.m.,
Eastern time). If your request is received in correct form before 4:00 p.m.
Eastern time, your transaction will be priced at that day's NAV. If your request

is received after 4:00 p.m., it will be priced at the next business day's NAV.
Orders that request a particular day or price for your transaction or any other
special conditions cannot be accepted.

The purchase order must include the documentation specified above. Please
do not send purchase orders to the Fund; the Fund forwards purchase orders to
the Transfer Agent and a purchase will not become effective until the Transfer
Agent receives all the necessary documentation.

What are the conditions of purchase?

All purchase orders are subject to acceptance or rejection by the Fund or
the Distributor, in their sole discretion. The offering of shares may be
suspended whenever the Fund considers suspension desirable or when required by
any order, rule or regulation of any governmental body having jurisdiction.
Checks and money orders should be drawn on United States banks; the Fund and the
Distributor reserve the right to reject checks drawn on foreign banks.

<PAGE>

The Transfer Agent will mail a confirmation of each completed purchase to
the investor. If an order is canceled because an investor's check does not
clear, the investor will be responsible for any loss incurred by the Fund, the
Transfer Agent, the Distributor, the Administrator or the Manager. If the
investor is already a shareholder, the Fund may redeem shares from the account
to cover any loss. If the investor is not a shareholder or if the loss is
greater than the value of the shareholder's account, the Distributor will be
responsible for any loss to the Fund, and will have the right to recover such
amount from the investor.

Who do I contact if I have questions about my account or need additional
information concerning an investment in the Fund?

If you have investment questions about the Fund, or if you would like any
additional information relating to an investment in the Fund, please call
800-___-____ (toll-free) or 212- ___-____, or write to the Distributor at First
Fund Distributors, Inc., 4455 E. Camelback Road, Suite 261 E, Phoenix AZ 85018.
If you are a shareholder and have questions about your account, or if you wish
to arrange for wire transactions, please call the Transfer Agent at
800-___-____. 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.

Can I purchase shares through broker-dealers other than the Distributor?

O'Shaughnessy Funds has entered into agreements with various outside
brokers on behalf of the Funds through which shareholders may purchase shares.
The shares are held by such outside brokers in an omnibus account rather than in
the name of the individual shareholder. The Manager or Distributor reimburses
the outside brokers for providing shareholder services to the omnibus accounts
in an amount equal to what the Fund would otherwise have paid to provide
shareholder services to each individual shareholder account.

Investors may also arrange to purchase shares of the Fund through other
outside broker-dealers with which O'Shaughnessy Funds does not have an
arrangement, and such broker-dealers may purchase shares of the Fund by
telephone if they have made arrangements in advance with the Fund. To place a
telephone order such broker-dealer should call the Transfer Agent at 800-
_______.

Purchases by broker-dealers become effective and shares will be priced as
described above. If an investor purchases shares through broker-dealers other
than the Distributor, such broker-dealers may charge the investor a service fee
that is reasonable for the service performed, bearing in mind that the investor
could have acquired or redeemed the Fund's shares directly without the payment
of any fee. No part of any such service fee will be received by the Distributor,
the Manager, the Administrator or the Fund.

<PAGE>

EXCHANGE PRIVILEGE

Shares of the Fund may be exchanged for shares of each of the other
O'Shaughnessy Funds (i.e., O'Shaughnessy Cornerstone Value Fund, O'Shaughnessy
Cornerstone Growth Fund and O'Shaughnessy Dogs of the Market(TM) Fund). The
exchange procedures are described below. Prospectuses for the other
O'Shaughnessy Funds may be obtained by writing to the Distributor at 4455 E.
Camelback Road, Suite 261 E, Phoenix AZ 85018, Attention: O'Shaughnessy Funds,
Inc. or by calling 800-___-____ (toll-free).

Is there any sales charge or minimum investment applicable to an exchange?

Shareholders of the Fund may exchange their shares of the Fund, without the
payment of any sales or service charge, for shares of any other O'Shaughnessy
Fund 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
other O'Shaughnessy Fund into which the exchange is being made; except that the
minimum investment requirement for an initial exchange into any other
O'Shaughnessy Fund is $5,000. Each of the other O'Shaughnessy Funds reserves the
right to waive the minimum investment requirement set forth in its prospectus.
If a shareholder exchanges shares through a broker-dealer other than the
Distributor, such broker-dealer may charge the shareholder a service fee, no
part of which will be received by the Distributor, the Manager, the Fund, or the
other O'Shaughnessy Funds.

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 of all necessary documentation in connection with the
redemption of Fund shares as described below under "Redemption Of Shares --How
do I redeem shares by mail?"

Do current instructions concerning receipt of dividends and distributions carry
over to exchanged shares?

Dividend and distribution instructions with respect to exchanged shares
will remain the same as those given previously by the shareholders to the fund
from which the shareholder is exchanging the shares, unless the shareholder
designates a change in such instructions by writing to the Transfer Agent.
Please note that such changed instructions (i) must be signed by the registered
owners(s) of the shares, exactly as the account is registered and signature
guaranteed, and (ii) include the name of the account, the account number, and
the name of the fund for which instructions have changed.

What are the conditions applicable to an exchange?

Exchanges involving the redemption of shares recently purchased by
personal, corporate or government check will be permitted only after the Fund
has reasonable belief that the check has cleared, which may take up to [ten]
days after the purchase date. The exchange privilege is available only in states
where shares of the other O'Shaughnessy Funds may be sold legally.

<PAGE>

The Fund and the other O'Shaughnessy Funds each reserves the right to
reject any order to acquire its shares through exchange or otherwise, to
restrict or terminate the exchange privilege at any time and, if the exchange
privilege is to be permanently terminated, the Fund will provide its shareholder
with written notice of such termination. The Fund reserves the right to suspend
temporarily the telephone exchange privilege in emergency circumstances or in
cases where, in the judgment of the Fund, continuation of the privilege would be
detrimental to the Fund and its shareholders as a whole. Such temporary
suspension can be without prior notification.

How can I make exchanges by telephone?

Shareholders who have completed the section of the Fund's Application
entitled "Shareholder Privileges" are eligible to make telephone requests for
exchanges and may do so by telephoning the Transfer Agent at 800 ___-____. A
shareholder who has not completed the Shareholder Privileges section of the
Application but who wishes to become eligible to make telephone exchanges should
designate a change in such instructions by writing to the Transfer Agent. Please
note that such changed instructions must (i) be signed by the registered

owner(s) of the shares exactly as the account is registered and signature
guaranteed, and (ii) include the name of the account, the account number and the
name of the Fund. See "Redemption Of Shares - How do I redeem shares by
telephone?" below, which describes the time of day at which telephone
redemptions and exchanges will be priced and processed. Shares of the other
O'Shaughnessy Funds acquired pursuant to a telephone request for exchange will
be held under the same account registration as the shares redeemed through the
exchange.

The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. A description of such procedures is
contained in the SAI. None of the Fund, the other O'Shaughnessy Funds, the
Transfer Agent, the Distributor, the Administrator or the Manager will be liable
for damages resulting from instructions communicated by telephone that any of
them reasonably believed to be genuine pursuant to such procedures.

Shareholders should be aware that, at times, the volume of telephone calls
or other factors beyond the Fund's control may make it difficult to reach the
Transfer Agent by telephone. This will be true particularly during periods of
drastic economic market changes. In such cases, shareholders should continue to
telephone or utilize the written exchange procedures described below.

How do I make exchanges by mail?

To exchange shares by mail, send the following information to [Full name of
Transfer Agent, address]: (i) a written request for exchange signed by the
registered owner(s) of the shares, exactly as the account is registered,
indicating the name of the account, the account number, the number of shares or
the dollar value of the shares to be exchanged, and indicating shares of which
other O'Shaughnessy Fund shares of the Fund are to be exchanged for; and (ii)
indicate the name on the account and the account number (if already established)
with such other O'Shaughnessy Fund.

<PAGE>

REDEMPTION OF SHARES

How do I redeem shares by mail?

To redeem shares by mail, send the following information to [full name of

Transfer Agent, address]: (i) a written request for redemption signed by the
registered owner(s) of the shares, exactly as the account is registered,
indicating 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) any signature
guarantees that are required as described below; and (iii) any additional
documents which might be required for redemptions by corporations, executors,
administrators, trustees, guardians or other similar shareholders. Except as
otherwise directed by the Fund in its discretion, the Transfer Agent will not
redeem shares until it has received all necessary documents; corporate and
institutional investors and fiduciaries should contact the Transfer Agent to
ascertain what additional documentation is required.

May I send redemptions requests to the Fund?

Please do not send redemption requests to the Fund. The Fund must forward
all redemption requests to the Transfer Agent and instructions for redemption
will not be effective until received by the Transfer Agent. Shares redeemed will
be priced at the net asset value per share next determined after acceptance of a
complete redemption request by the Transfer Agent. Redemption requests received
by the Transfer Agent after the close of the NYSE (currently 4:00 p.m., Eastern
time) will be treated as though received on the next business day. The Transfer
Agent cannot accept redemption requests that specify a particular date for
redemption or special redemption conditions.

When are signature guarantees required?

<PAGE>

addition, the Fund in its discretion may waive the signature guarantee for
employees and affiliates of the Manager, the Distributor and the Administrator,
and family members of the foregoing.

The requirement of a guaranteed signature protects against an unauthorized
person redeeming shares and obtaining the redemption proceeds.

How do I redeem shares by telephone?

Shareholders who have completed the section of the Fund's Application
entitled "Shareholder Privileges" are eligible to make telephone requests for

redemptions (without charge) and may do so by telephoning the Transfer Agent at
800-___-____. 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 for IRA accounts. In such cases,
redemption can only be made by mail as described above under "Redemptions By
Mail." Telephone requests for redemptions (or exchanges -- see "Exchange
Privilege" above) received before the close of business on the NYSE (currently
4:00 p.m., Eastern time) on a business day will be priced and processed as of
the close of business on that day; requests received after that time will be
processed as of the close of business on the next business day.

As noted above, the Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. None of the Fund, the
Transfer Agent, the Distributor, the Administrator or the Manager will be liable
for damages resulting from instructions communicated by telephone that any of
them reasonably believed to be genuine.

Shareholders should be aware that, at times, the volume of telephone calls
or other factors beyond the Fund's control may make it difficult to reach the
Transfer Agent by telephone. This will be true particularly during periods of
drastic economic or market changes. In the event of difficulty in reaching the
Transfer Agent, shareholders should continue to telephone or utilize the written
redemption procedures described above under "Redemptions By Mail."

The Fund reserves the right to terminate the telephone redemption privilege
at any time and, if so terminated, will provide the shareholders with written
notice of such termination. The Fund reserves the right to suspend temporarily
telephone redemptions in emergency circumstances or in cases where, in the
judgment of the Fund, continuation of the privilege would be detrimental to the
Fund and its shareholders as a whole. Such temporary suspension can be without
prior notification.

What options do I have in receiving redemption proceeds?

Redemption proceeds may be sent to shareholders by mail or by wire as
described below. Wire redemptions will only be made if the Transfer Agent has
received appropriate written wire

<PAGE>

instructions. Because of fluctuations in the value of the Fund's portfolio, the
net asset value of shares redeemed may be more or less than the investor's cost.

Redemption By Mail. In the case of shareholders who request that their
redemption proceeds be sent by mail, the Transfer Agent mails checks for

redemption proceeds typically within one or two business days, but no later than
seven days, after it receives the request and all the necessary documents.

Wire redemptions will be made only if the Transfer Agent has received
appropriate written instructions from the shareholder either on the Fund's
Application or by separate letter. A shareholder who has not indicated wire
instructions on the Application, but would like to have redemption proceeds
wired to a particular bank for each redemption request, should so designate by
writing to the Transfer Agent. Please note that such instructions must (i) be
signed by the registered owner(s) of the shares exactly as the account is
registered and signature guaranteed, and (ii) include the name of the account,
the account number and the name of the Fund.

A shareholder who would like to change the wire instructions indicated on
the Application should designate a change in such instructions by writing to the
Transfer Agent and complying with the requirements set forth in the preceding
paragraph. There is a $1,000 minimum on redemption proceeds by bank wire. A
shareholder's bank may impose a charge for receiving wires.

When would the payment of proceeds be delayed?

Please note that shares paid for by personal, corporate or government check
cannot be redeemed before the Fund has reasonable belief that the check has
cleared, which may take up to [ten] days after payment of the purchase price.
This delay can be avoided by paying for shares by certified check or bank-wire.
An investor will be notified promptly by the Transfer Agent if a redemption
request cannot be accepted.

Would my account ever be involuntarily redeemed?

Due to the relatively high cost to the Fund of maintaining small accounts,
we ask you to maintain an account balance of at least $5,000. If your balance is
below $5,000 for three months or longer, we have the right to close your account
after giving you 60 days in which to increase your balance.

<PAGE>

INFORMATION ON DISTRIBUTIONS AND TAXES

DIVIDENDS AND OTHER DISTRIBUTIONS GENERALLY

Dividend and capital gain distributions are reinvested in additional Fund
shares in your account unless you select another option on your Application. The
advantage of reinvesting distributions arises from compounding; that is, you
receive dividends and capital gain distributions on an increasing number of

shares. Distributions not reinvested are paid by check or transmitted to your
bank account.

INCOME DIVIDENDS

The Fund declares and pays dividends (if any) annually.

CAPITAL GAINS

A capital gain or loss is the difference between the purchase and sale
price of a security. If the Fund has net capital gains for the year (after
subtracting any capital losses), they are usually declared and paid in December
to shareholders of record on a specified date that month.

TAX INFORMATION

You need to be aware of the possible tax consequences when: (1) the Fund
makes a distribution to your account; (2) you sell Fund shares; or (3) you
exchange shares of the Fund for shares of one of the other O'Shaughnessy Funds.

Will I pay taxes on redemptions or exchanges of Fund shares?

When you sell shares in the Fund, you may realize a gain or loss. Unless
you are a dealer in securities, such gain or loss will be capital gain or loss.
In addition, such gain or loss will be a long-term capital gain or loss if you
hold your shares for more than one year, or short-term capital gain or loss if
you hold shares for less than one year.

If you exchange shares of the Fund, you may realize gain or loss. 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?

The following summary does not apply to retirement accounts, such as IRAs,
which are tax-deferred until you withdraw money from them.

<PAGE>

Distributions of ordinary income and short-term capital gains are taxable
as ordinary income. The dividends of the Fund will be eligible for the 70%
deduction for dividends received by corporations only to the extent the Fund's
income consists of dividends paid by U.S. corporations. Long-term gains are
taxable at the applicable long-term gain rate. The gain is long- or short-term

depending on how long the Fund held the securities, not how long you held shares
in the Fund.

Pursuant to the Fund's investment objectives, the Fund may invest in
foreign securities. Foreign taxes may be paid by the Fund as a result of tax
laws of countries in which the Fund may invest. Income tax treaties between
certain countries and the United States may reduce or eliminate such taxes. It
is impossible to determine in advance the effective rate of foreign tax to which
the Fund will be subject, since the amount of Fund assets to be invested in
various countries is not known. Because the Fund limits its investment in
foreign securities, shareholders will not be entitled to claim foreign tax
credits with respect to their share of foreign taxes paid by the Fund on income
from investments of foreign securities held by the Fund.

What are the tax effects of buying shares before a distribution?

If you buy shares shortly before or on the "record date" -- the date that
establishes you as the person to receive the upcoming distribution -- you will
receive, in the form of a taxable distribution, a portion of the money you just
invested. Therefore, you may wish to find out the Fund's record date(s) before
investing. Of course, a Fund's share price may, at any time, reflect
undistributed capital gains or unrealized appreciation.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect, and does
not address the state and local tax consequences of an investment in the Fund.
For the complete provisions, reference should be made to the pertinent Code
sections and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative or administrative
action either prospectively or retroactively.

PERFORMANCE INFORMATION

This section should help you understand the terms used to describe Fund
performance.

What is total return?

This tells you how much an investment in the Fund has changed in value over
a given time period. It reflects any net increase or decrease in the share price
and assumes that all dividends and capital gains (if any) paid during the period
were reinvested in additional shares. Including reinvested distributions means
that total return numbers include the effect of compounding, i.e, you receive
income and capital gain distributions on an increasing number of shares.

<PAGE>

Advertisements for the Fund may include cumulative or compound average
annual total return figures, which may be compared with various indices, other
performance measures, or other mutual funds.

What is cumulative total return?

What is average annual total return?

NET ASSET VALUE

The price at which the Fund's shares are purchased or redeemed is the
Fund's next determined net asset value per share. The net asset value per share
is calculated as of the close of the NYSE (currently 4:00, Eastern time) on each
day that the NYSE is open for business and on each other day in which there is a
sufficient degree of trading in the Fund's portfolio securities that the current
net asset value of the Fund's shares may be materially affected by changes in
the value of the Fund's portfolio securities.

How is net asset value determined?

The Fund determines the net asset value per share by subtracting the Fund's
total liabilities from the Fund's total assets (the value of the securities the
Fund holds plus cash and other assets), dividing the remainder by the total
number of shares outstanding, and adjusting the result to the nearest full cent.

How are the securities held in the Fund's portfolio valued?

<PAGE>

OTHER SHAREHOLDER SERVICES

Systematic Investment Plan

A shareholder may make monthly or quarterly investments into an existing
account automatically in amounts of not less than $100. Shareholders wishing to
establish a Systematic Investment Plan should call the Fund at 800-___-____ for
more information and an application.

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 filing out the appropriate part of the Application. Under
this plan, a shareholder may receive (or designate a third party to receive) a
monthly or quarterly check in a stated amount of not less than $50. Fund shares
will be redeemed as necessary to meet withdrawal payments. All participants must
elect to have their dividends and capital gain distributions reinvested
automatically. A shareholder who decides later to use this service should fill
out a Shareholder Services Form and send it to [Transfer Agent, address].
Shareholders should allow approximately ten days for such form to be processed.

Reports to Shareholders

Each time a shareholder invests, redeems, transfers or exchanges shares, or
receives a distribution, the Fund will send a confirmation of the transaction
which will include a summary of all of the shareholder's most recent
transactions.

At such time as prescribed by law, the Fund will send to each shareholder
the following reports (if they are applicable), which may be used in completing
U.S. income tax returns:

Form 1099-DIV Report taxable distributions during
the preceding calendar year. (If a
shareholder did not receive taxable
distributions in the previous year, such
shareholder will not be sent a 1099-DIV.)

Form 1099-B Reports redemption proceeds paid
(including those resulting from exchanges)
during the preceding calendar year.

Form 1099-R Report distributions from retirement plan
accounts during the preceding calendar year

Form 5498 Reports contributions to IRAs for the
previous calendar year.

which the shareholders require in order to complete their U.S. income tax
returns.

<PAGE>

Retirement Plans

Eligible investors may invest in the Fund under the following prototype
retirement plans:

Individual Retirement Account (IRA)

Simplified Employee Pension (SEP) for sole proprietors,
partnerships and corporations.

Profit-Sharing and Money Purchase Pension Plans for corporations and
their employees.

There is no minimum for investment in such plans. See "Shareholder Services
- --Retirement Plans" in the Statement of Additional Information.

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.

[Attach Investor's New Account Application]

<PAGE>

- --------------------------------------------------------------------------------

TABLE OF CONTENTS
About the Fund ............................................................ 3
Management and Organization
of the Fund ............................................................. 8
Information about Your Account ............................................ 10
Information on Distribution and
Taxes ................................................................... 18
Performance Information ................................................... 19
Net Asset Value ........................................................... 20
Other Shareholder Services ................................................ 21

INVESTMENT MANAGER
O'Shaughnessy Capital Management, Inc.
60 Arch Street
Greenwich, Connecticut 06830

ADMINISTRATOR
Investment Company Administration Corporation
479 West 22nd Street
New York, New York 10011

DISTRIBUTOR
First Funds Distributor, Inc.
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018

TRANSFER AGENT

AUDITORS

LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022

- --------------------------------------------------------------------------------

Prospectus

O'SHAUGHNESSY
AGGRESSIVE GROWTH FUND

_______________, 1996

- --------------------------------------------------------------------------------

<PAGE>

SUBJECT TO COMPLETION - July 3, 1996

PROSPECTUS

_____________, 1996

O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND
479 West 22nd Street, New York, New York 10011
(800) ___-____

------------

The Fund

O'Shaughnessy Dogs of the Market(TM) Fund (the "Fund") is an investment
portfolio or series of O'Shaughnessy Funds, Inc., an open-end management
investment company with multiple portfolios or series available for investment.

Investment Objective

The investment objective of the Fund is to seek total return, consisting of
capital appreciation and current income.

Strategy

The Fund will invest primarily in the common stocks of large,
well-established companies selected by O'Shaughnessy Capital Management, Inc.,
the Fund's investment manager (the "Manager"). It is anticipated that
approximately 30% of the Fund's portfolio will generally consist of the ten
stocks which, at the time of purchase, were the ten highest-yielding stocks
contained in the Dow Jones Industrial Average (the "Dow Dogs"). The remaining
assets of the Fund will be invested primarily in thirty to forty additional
stocks that the Manager believes have substantially the same qualities as the
Dow Dogs, and which meet certain additional criteria, as described below. For a
more detailed description of the Fund's investment strategy, see "About the Fund
- -- Investment Objective and Policies."

Purchase of Shares

------------

<PAGE>

------------

O'Shaughnessy Capital Management, Inc.-Manager
First Fund Distributors, Inc.-Distributor

<PAGE>
ABOUT THE FUND

TRANSACTION AND FUND EXPENSES

The following table and example should help you understand the kinds of
expenses you will bear directly or indirectly as a Fund shareholder. In the
table, "Shareholder Transaction Expenses," shows that you pay no sales charges.
All the money you invest in the Fund goes to work for you, subject to the fees
noted in the table. "Annual Fund Expenses" shows how much it would cost to
operate the Fund for a year, based on estimated expenses through the end of the
Fund's first full year. These costs you pay indirectly, because they are
deducted from the Fund's total assets before the daily share price is calculated
and before dividends and other distributions are made. You will not see these
expenses on you account statement.

Table

Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ................................. None
Sales Charge Imposed on Dividend Reinvestments......................... None
Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, whichever is lower).................... None
Redemption fee.........................................................
Exchange Fee........................................................... None
Annual Fund Operating Expenses (as a percentage of average net assets): None
Management Fees (a)....................................................
Rule 12b-1 Fees........................................................
Other Expenses
Custodian Fees.......................................................
Shareholder Servicing Costs(b).......................................
Other................................................................

Total Other Expenses...............................................

Total Fund Operating Expenses........................................

- ---------------------
(a) See "Management and Organization of the Fund -- Manager" on page 8.

(b) See "Management and Organization of the Fund -- Shareholder Servicing"
on page 9.

Cumulative
Expenses Paid
for the Period of
-----------------
1 Year 3 Years
------ -------
Example:
An investor would pay the following expenses on a $1,000
investment assuming: (1) an operating expense ratio of _____%;

(2) a 5% annual return throughout the period; and
(3) redemption at the end of the period:....................... $ $

3
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

To help you decide whether the Fund is appropriate for you, this section
takes a closer look at the Fund's investment objective and policies.

What is the Fund's objective?

The investment objective of the Fund is to seek total return, consisting of
capital appreciation and current income. There can be no assurance that the Fund
will achieve its investment objective.

What is the Fund's investment strategy?

O'Shaughnessy Capital Management, Inc., the Fund's investment manager (the
"Manager"), will manage the Fund so that generally, the Fund will hold positions
in the ten stocks which, at the time of purchase, were among the ten
highest-yielding stocks contained in the Dow Jones Industrial Average(1) (the
"Dow Dogs"). It is anticipated that approximately 30% of the Fund's assets will
be invested in the Dow Dogs at any time. The remaining assets of the Fund will
be invested primarily in thirty to forty stocks that the Manager believes have
substantially the same qualities as the Dow Dogs. These stocks will be chosen
from a universe of 1,600 widely followed companies (the "Universe") and, at the
time of purchase, will generally:

o be among the largest companies in the Universe based on market
capitalization, with no company having market capitalization smaller
than $1 billion at the time of purchase;

o have dividend yields higher than the average of all stocks in the
Universe; and

o have sales, common shares outstanding and cash flow higher than the
average of all stocks in the Universe.

The Manager may invest the Fund's assets in stocks which do not meet all of
the above criteria, if, in the opinion of the Manager, such stocks possess
characteristics similar to stocks meeting such criteria. In addition, the
Manager may continue to hold stocks in the Fund's portfolio which no longer meet
the initial criteria for investment if the Manager believes such investments are
consistent with the Fund's investment objective.

- --------
(1) "Dow Jones Industrial Average" is a trademark of Dow Jones & Company,
Inc. ("Dow Jones"). Neither the Fund nor the Manager is affiliated with, nor is
the Fund sponsored by Dow Jones. Dow Jones has not participated in any way in
the creation of the Fund or in the selection of stocks included in the Fund, nor
has Dow Jones reviewed or approved any information included in this Prospectus.

4
<PAGE>

What are the potential risks of investing primarily in common stocks?

OTHER INVESTMENT POLICIES AND PRACTICES

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.

5
<PAGE>

incur a loss if the value of the collateral declines during this period. As a
matter of operating policy, the Fund may not invest more than 15% of its net
assets in repurchase agreements maturing in more than seven days.

Lending of Portfolio Securities. Like other mutual funds, the Fund may from
time to time lend securities from its portfolio to banks, brokers and other
financial institutions to earn additional income. The principal risk is that the
borrower may default on its obligation to return borrowed securities, because of
insolvency or otherwise. In this event, the Fund could experience delays in
recovering its securities and possibly capital. In accordance with applicable
law, the Fund may not lend portfolio securities representing in excess of
33 1/3% of its total assets. The lending policy is a fundamental policy.

Borrowing. The Fund may borrow money from banks in an amount up to 33 1/3%
of its total assets for extraordinary or emergency purposes such as meeting
anticipated redemptions, and may pledge assets in connection with such
borrowing. The borrowing policy is a fundamental policy.

Industry Concentration. The Fund may not invest more than 25% of its total
assets in any one industry (excluding U.S. Government securities). The
concentration policy is a fundamental policy.

Depositary Receipts. The Fund may invest up to 25% of its total assets in

American Depository Receipts ("ADRs") which are dollar-denominated securities of
foreign issuers traded in the U.S. Such investments increase diversification of
the Fund's portfolio and may enhance return, but they also involve some special
risks such as exposure to potentially adverse local political and economic
developments, nationalization and exchange controls; potentially lower liquidity
and higher volatility; possible problems arising from regulatory practices that
differ from U.S. standards; the imposition of withholding taxes on income from
such securities; 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

6
<PAGE>

and there is no limit on the amount of the Fund's foreign investments that may
be invested in such countries.

As a matter of operating policy, initial margin deposits and premiums on
options used for non-hedging purposes will not equal more than 5% of the Fund's
net asset value.

Firm Commitment Agreements and When-Issued Purchases. The Fund may purchase
securities under a firm commitment agreement or on a when-issued basis. Firm
commitment agreements and when-issued purchases call for the purchase of
securities at an agreed-upon price on a specified future date, and would be
used, for example, when a decline in the yield of securities of a given issuer
is anticipated. The Fund as purchaser assumes the risk of any decline in value
of the security beginning on the date of the agreement or purchase. The Fund
will not enter into such transactions for the purpose of leveraging, and
accordingly, will segregate U.S. Government securities, cash or cash equivalents
with its custodian equal (on a daily marked-to-market basis) to the amount of
its commitment to purchase the when-issued securities and securities subject to

the firm commitment agreement.

Warrants. The Fund may invest in warrants, which are similar to options to
purchase securities at a specific price valid for a specific period of time. The
Fund may not invest more than 5% of its net assets (at the time of investment)
in warrants (other than those attached to other securities). If the market price
of the underlying security never exceeds the exercise price, the Fund will lose
the entire investment in the warrant. Moreover, if a warrant is not exercised
within the specified time period, it will become worthless and the Fund will
lose the purchase price and the right to purchase the underlying security.

7
<PAGE>

Portfolio Transactions. In executing portfolio transactions, the Fund seeks
to obtain the best net results, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution, operational facilities of the firm involved and the
firm's risk in positioning a block of securities. While the Fund generally seeks
reasonably competitive commission rates, the Fund does not necessarily pay the
lowest commission or spread available. In addition, consistent with the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., the
Manager may consider sales of shares of the Fund as a factor in the selection of
brokers or dealers to execute portfolio transactions for the Fund.

Portfolio Turnover. The Fund anticipates that its annual turnover rate
should not exceed 50% under normal conditions. The portfolio turnover rate is
calculated by dividing the lesser of the Fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year. High portfolio
turnover involves correspondingly greater transaction costs in the form of
brokerage commissions and dealer spreads, which are borne directly by the Fund.

MANAGEMENT AND ORGANIZATION OF THE FUND

MANAGEMENT

Who runs the Fund?

The Manager's office is located at 60 Arch Street, Greenwich, Connecticut
06830. O'Shaughnessy Capital Management was incorporated in 1988. As of ______,
1996, the Manager had approximately $______ in individual account assets under
management. The Manager also serves as portfolio consultant to a unit investment
trust with assets in excess of $180 million.

8
<PAGE>

Manager, and in such capacity, has managed equity accounts for high net worth
individuals and served as portfolio consultant to a unit investment trust
managed by the Manager. Mr. O'Shaughnessy is recognized as a leading expert and
pioneer in quantitative equity analysis. He is the author of two financial
books, Invest Like The Best and What Works on Wall Street.

Administrator. Pursuant to an Administration Agreement, Investment Company
Administration Corporation (the "Administrator") serves as administrator of the
Fund. The Administrator provides certain administrative services, including,
among other responsibilities, coordinating relationships with independent
contractors and agents, preparing for signature by officers and filing of
certain documents required for compliance with applicable laws and regulations,
preparing financial statements, and arranging for the maintenance of books and
records. For its services, the Fund pays the Administrator a fee each month, at
the annual rate of ___ % of the Fund's average daily net assets. The address of
the Administrator is 479 West 22nd Street, New York, New York 10011. The
Administrator and Distributor are under common control and are therefore
considered affiliates of each other.

Shareholder Services. ______________ acts as the Fund's transfer and
dividend disbursing agent (the "Transfer Agent"). The address of the Transfer
Agent is ____________.

Custodian. ________________ acts as the Fund's custodian (the "Custodian").
The address of the Custodian is ____________.

How are Fund expenses determined? The Management Agreement identifies the
expenses to be paid by the Fund. In addition to the fees paid to the Manager,

the Fund pays certain additional expenses, including but not limited to, the
following: shareholder service expenses; custodial, accounting, legal, and audit
fees; administrative fees; costs of preparing and printing prospectuses and
reports sent to shareholders; registration fees and expenses; proxy and annual
meeting expenses (if any); and independent Director fees and expenses.

ORGANIZATION

How is the Fund organized?

The Fund is an investment portfolio or series of O'Shaughnessy Funds. There
are three other investment portfolios of O'Shaughnessy Funds, shares of which
are not offered for sale

9
<PAGE>

through this Prospectus: O'Shaughnessy Cornerstone Value Fund, O'Shaughnessy
Cornerstone Growth Fund and O'Shaughnessy Aggressive Growth Fund (the "other
O'Shaughnessy Funds"). The charter of O'Shaughnessy Funds provides that the
Board of Directors may issue additional investment portfolios of shares and/or
additional classes of shares for each investment portfolio. O'Shaughnessy Funds,
including each investment portfolio thereof, was organized in Maryland on May
20, 1996.

What is meant by "shares"?

As with all mutual funds, investors purchase shares when they invest in the
Fund. These shares are a part of a Fund's authorized capital stock, but share
certificates are not issued.

Does the Fund have annual shareholder meetings?

INFORMATION ABOUT YOUR ACCOUNT

PURCHASE OF SHARES

The minimum initial investment in the Fund is $5,000 and the minimum

subsequent investment is $100, except that for retirement plans, the minimum
initial investment is $500 and the minimum subsequent investment is $50.

10
<PAGE>

How do I purchase shares by mail?

For initial investments, please send a completed Application, together with
a check payable to O'Shaughnessy Dogs of the Market(TM) Fund to [Transfer Agent,
address]. 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?

What is the purchase price of Fund shares and when do purchases become
effective?

close of business on the New York Stock Exchange ("NYSE") (currently 4:00 p.m.,
Eastern time). If your request is received in correct form before 4:00 p.m.
Eastern time, your transaction will be priced at that day's NAV. If your request
is received after 4:00 p.m., it will be priced at the next business day's NAV.
Orders that request a particular day or price for your transaction or any other
special conditions cannot be accepted.

11
<PAGE>

What are the conditions of purchase?

The Transfer Agent will mail a confirmation of each completed purchase to
the investor. If an order is canceled because an investor's check does not
clear, the investor will be responsible for any loss incurred by the Fund, the
Transfer Agent, the Distributor, the Administrator or the Manager. If the
investor is already a shareholder, the Fund may redeem shares from the account
to cover any loss. If the investor is not a shareholder or if the loss is
greater than the value of the shareholder's account, the Distributor will be
responsible for any loss to the Fund, and will have the right to recover such
amount from the investor.

Who do I contact if I have questions about my account or need additional
information concerning an investment in the Fund?

Will I receive share certificates for shares purchased?

Share certificates will not be issued for shares.

Can I purchase shares through broker-dealers other than the Distributor?

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

12
<PAGE>

broker-dealers may charge the investor a service fee that is reasonable for the
service performed, bearing in mind that the investor could have acquired or
redeemed the Fund's shares directly without the payment of any fee. No part of
any such service fee will be received by the Distributor, the Manager, the
Administrator or the Fund.

EXCHANGE PRIVILEGE

Shares of the Fund may be exchanged for shares of each of the other
O'Shaughnessy Funds (i.e., O'Shaughnessy Cornerstone Value Fund, O'Shaughnessy
Cornerstone Growth Fund and O'Shaughnessy Aggressive Growth Fund). The exchange
procedures are described below. Prospectuses for the other O'Shaughnessy Funds
may be obtained by writing to the Distributor at 4455 E. Camelback Road, Suite
261 E, Phoenix AZ 85018, Attention: O'Shaughnessy Funds, Inc. or by calling
800-___-____ (toll-free).

Is there any sales charge or minimum investment applicable to an exchange?

At what price is an exchange effected?

Do current instructions concerning receipt of dividends and distributions carry
over to exchanged shares?

13
<PAGE>

What are the conditions applicable to an exchange?

How can I make exchanges by telephone?

Shareholders who have completed the section of the Fund's Application
entitled "Shareholder Privileges" are eligible to make telephone requests for

exchanges and may do so by telephoning the Transfer Agent at 800 ___-____. A
shareholder who has not completed the Shareholder Privileges section of the
Application but who wishes to become eligible to make telephone exchanges should
designate a change in such instructions by writing to the Transfer Agent. Please
note that such changed instructions must (i) be signed by the registered
owner(s) of the shares exactly as the account is registered and signature
guaranteed, and (ii) include the name of the account, the account number and the
name of the Fund. See "Redemption Of Shares - How do I redeem shares by
telephone?" below, which describes the time of day at which telephone
redemptions and exchanges will be priced and processed. Shares of the other
O'Shaughnessy Funds acquired pursuant to a telephone request for exchange will
be held under the same account registration as the shares redeemed through the
exchange.

How do I make exchanges by mail?

To exchange shares by mail, send the following information to [Full name of
Transfer Agent, address]: (i) a written request for exchange signed by the
registered owner(s) of the

14
<PAGE>

shares, exactly as the account is registered, indicating the name of the
account, the account number, the number of shares or the dollar value of the
shares to be exchanged, and indicating shares of which other O'Shaughnessy Fund
shares of the Fund are to be exchanged for; and (ii) indicate the name on the
account and the account number (if already established) with such other
O'Shaughnessy Fund.

REDEMPTION OF SHARES

Administrator or the Fund.

How do I redeem shares by mail?

To redeem shares by mail, send the following information to [full name of
Transfer Agent, address]: (i) a written request for redemption signed by the
registered owner(s) of the shares, exactly as the account is registered,
indicating 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) any signature
guarantees that are required as described below; and (iii) any additional
documents which might be required for redemptions by corporations, executors,
administrators, trustees, guardians or other similar shareholders. Except as
otherwise directed by the Fund in its discretion, the Transfer Agent will not
redeem shares until it has received all necessary documents; corporate and
institutional investors and fiduciaries should contact the Transfer Agent to
ascertain what additional documentation is required.

May I send redemptions requests to the Fund?

When are signature guarantees required?

15
<PAGE>

The Fund will waive the signature guarantee requirement on a redemption
request that instructs that the proceeds be sent by mail if all of the following
conditions apply: (i) the redemption is for $10,000 or less; (ii) the redemption
check is payable to the shareholder(s) of record; and (iii) the redemption check
is mailed to the shareholder(s) at the address of record. In addition, the Fund
in its discretion may waive the signature guarantee for employees and affiliates
of the Manager, the Distributor and the Administrator, and family members of the
foregoing.

The requirement of a guaranteed signature protects against an unauthorized
person redeeming shares and obtaining the redemption proceeds.

How do I redeem shares by telephone?

Shareholders who have completed the section of the Fund's Application
entitled "Shareholder Privileges" are eligible to make telephone requests for
redemptions (without charge) and may do so by telephoning the Transfer Agent at
800-___-____. 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 for IRA accounts. In such cases,
redemption can only be made by mail as described above under "Redemptions By
Mail." Telephone requests for redemptions (or exchanges -- see "Exchange
Privilege" above) received before the close of business on the NYSE (currently
4:00 p.m., Eastern time) on a business day will be priced and processed as of
the close of business on that day; requests received after that time will be
processed as of the close of business on the next business day.

Shareholders should be aware that, at times, the volume of telephone calls
or other factors beyond the Fund's control may make it difficult to reach the
Transfer Agent by telephone. This will be true particularly during periods of
drastic economic or market changes. In the event of difficulty in reaching the
Transfer Agent, shareholders should continue to telephone or utilize the written
redemption procedures described above under "Redemptions By Mail."

16
<PAGE>

What options do I have in receiving redemption proceeds?

Redemption proceeds may be sent to shareholders by mail or by wire as
described below. Wire redemptions will only be made if the Transfer Agent has
received appropriate written wire instructions. Because of fluctuations in the
value of the Fund's portfolio, the net asset value of shares redeemed may be
more or less than the investor's cost.

Redemption By Mail. In the case of shareholders who request that their

redemption proceeds be sent by mail, the Transfer Agent mails checks for
redemption proceeds typically within one or two business days, but no later than
seven days, after it receives the request and all the necessary documents.

When would the payment of proceeds be delayed?

Would my account ever be involuntarily redeemed?

17
<PAGE>

INFORMATION ON DISTRIBUTIONS AND TAXES

DIVIDENDS AND OTHER DISTRIBUTIONS GENERALLY

Dividend and capital gain distributions are reinvested in additional Fund
shares in your account unless you select another option on your Application. The

advantage of reinvesting distributions arises from compounding; that is, you
receive dividends and capital gain distributions on an increasing number of
shares. Distributions not reinvested are paid by check or transmitted to your
bank account.

INCOME DIVIDENDS

The Fund declares and pays dividends (if any) annually.

CAPITAL GAINS

TAX INFORMATION

Will I pay taxes on redemptions or exchanges of Fund shares?

If you exchange shares of the Fund you may realize a gain or loss. 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?

The following summary does not apply to retirement accounts, such as IRAs,
which are tax-deferred until you withdraw money from them.

18
<PAGE>

depending on how long the Fund held the securities, not how long you held shares
in the Fund.

What are the tax effects of buying shares before a distribution?

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect, and does
not address the state and local tax consequences of an investment in the Fund.
For the complete provisions, reference should be made to the pertinent Code
sections and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative or administrative
action either prospectively or retroactively.

PERFORMANCE INFORMATION

This section should help you understand the terms used to describe Fund
performance.

What is total return?

19
<PAGE>

Advertisements for the Fund may include cumulative or compound average
annual total return figures, which may be compared with various indices, other
performance measures, or other mutual funds.

What is cumulative total return?

What is average annual total return?

NET ASSET VALUE

How is net asset value determined?

How are the securities held in the Fund's portfolio valued?

20
<PAGE>

OTHER SHAREHOLDER SERVICES

Systematic Investment Plan

A shareholder may make monthly or quarterly investments into an existing
account automatically in amounts of not less than $50. Shareholders wishing to
establish a Systematic Investment Plan should call the Fund at 800-___-____ for
more information and an application.

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 filing out the appropriate part of the Application. Under
this plan, a shareholder may receive (or designate a third party to receive) a
monthly or quarterly check in a stated amount of not less than $50. Fund shares
will be redeemed as necessary to meet withdrawal payments. All participants must
elect to have their dividends and capital gain distributions reinvested
automatically. A shareholder who decides later to use this service should fill
out a Shareholder Services Form and send it to [Transfer Agent, address].
Shareholders should allow approximately ten days for such form to be processed.

Reports to Shareholders

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-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.

which the shareholders require in order to complete their U.S. income tax
returns.

21
<PAGE>

Retirement Plans

Eligible investors may invest in the Fund under the following prototype
retirement plans:

Individual Retirement Account (IRA)

Simplified Employee Pension (SEP) for sole proprietors, partnerships
and corporations.

Profit-Sharing and Money Purchase Pension Plans for corporations and their
employees.

There is no minimum for investment in such plans. See "Shareholder Services
- --Retirement Plans" in the Statement of Additional Information.

Automatic Reinvestment Plan

[Attach Investor's New Account Application.]

<PAGE>

- --------------------------------------------------------------------------------

INVESTMENT MANAGER
O'Shaughnessy Capital Management, Inc.
60 Arch Street
Greenwich, Connecticut 06830

ADMINISTRATOR
Investment Company Administration Corporation
479 West 22nd Street
New York, New York 10011

DISTRIBUTOR
First Funds Distributor, Inc.
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018

TRANSFER AGENT

AUDITORS

LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022

- --------------------------------------------------------------------------------

Prospectus

O'SHAUGHNESSY
DOGS OF THE MARKET(TM) FUND

_______________, 1996

- --------------------------------------------------------------------------------

<PAGE>

SUBJECT TO COMPLETION - July 3, 1996

STATEMENT OF ADDITIONAL INFORMATION

O'SHAUGHNESSY FUNDS, INC.
(the "O'Shaughnessy Funds")
O'Shaughnessy Cornerstone Value Fund
O'Shaughnessy Cornerstone Growth Fund
O'Shaughnessy Aggressive Growth Fund
O'Shaughnessy Dogs of the Market(TM) Fund
(each, a "Fund," and collectively, the "Funds")

479 West 22nd Street
New York, New York 10011
Telephone: 1-800-___-____

This Statement of Additional Information ("SAI") is not a prospectus and should
be read only in conjunction with the current Prospectus of each Fund (each, a
"Fund Prospectus"), dated ___________, 1996. A copy of each Fund Prospectus may
be obtained by calling or writing to the relevant Fund at the telephone number
or address shown above. This SAI is incorporated by reference into each Fund
Prospectus.

Statement of Additional Information dated ___________, 1996

<PAGE>
TABLE OF CONTENTS

INVESTMENT POLICIES AND LIMITATIONS........................................B-3

DIRECTORS AND OFFICERS....................................................B-10

MANAGEMENT OF THE FUNDS...................................................B-11

PORTFOLIO TRANSACTIONS....................................................B-13

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................B-14

VALUATION OF SHARES.......................................................B-15

ADDITIONAL INFORMATION ABOUT DIVIDENDS AND TAXES..........................B-15

PERFORMANCE INFORMATION...................................................B-16

OTHER INFORMATION.........................................................B-17

FINANCIAL STATEMENTS OF THE FUNDS.........................................B-19

OPTIONS AND FUTURES........................................................A-1

B-2

<PAGE>

INVESTMENT POLICIES AND LIMITATIONS

The following supplements the information contained in each Fund Prospectus
concerning the investment policies and limitations of O'Shaughnessy Cornerstone
Growth Fund ("Cornerstone Growth"), O'Shaughnessy Cornerstone Value Fund
("Cornerstone Value Fund"), O'Shaughnessy Aggressive Growth Fund ("Aggressive
Growth Fund") and O'Shaughnessy Dogs of the Market(TM) Fund ("Dogs of the Market
Fund"). O'Shaughnessy Capital Management, Inc. (the "Manager") serves as
investment adviser to each Fund. See "Management of the Funds."

Special Considerations Relating to Depositary Receipts. As noted in the
applicable Fund Prospectus, Aggressive Growth Fund and Dogs of the Market Fund
may each invest up to 25% of its assets in American Depositary Receipts
("ADRs"). Generally, ADRs, in registered form, are denominated in U.S. dollars
and are designed for use in the U.S. securities markets. ADRs are receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying securities. For purposes of the Funds' investment policies, ADRs are
deemed to have the same classification as the underlying securities they
represent. Thus, an ADR evidencing ownership of common stock will be treated as
common stock.

Many of the foreign securities held in the form of depository receipts by the
Funds are not registered with the Securities and Exchange Commission ("SEC"),
nor are the issuers thereof subject to its reporting requirements. Accordingly,
there may be less publicly available information concerning foreign issuers of
securities held by the Funds than is available concerning U.S. companies.
Foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards or to other regulatory requirements comparable to
those applicable to U.S. companies.

Investment income on certain foreign securities may be subject to foreign
withholding or other taxes that could reduce the return on these securities. Tax
treaties between the United States and foreign countries, however, may reduce or
eliminate the amount of foreign taxes to which a Fund would be subject.

Illiquid Securities. Aggressive Growth Fund and Dogs of the Market Fund may each
invest up to 15% of its net assets in illiquid securities. The term illiquid
securities for this purpose means securities which cannot be readily resold
because of legal and contractual considerations or which cannot otherwise be
marketed, redeemed, put to the issuer or a third party, or which do not mature
within seven days, or which the Manager, in accordance with guidelines
established by the Board of Directors, has not determined to be liquid and
includes, among other things, purchased over-the-counter ("OTC") options and
repurchase agreements maturing in more than seven days.

The assets used as cover for OTC options written by a Fund will be considered
illiquid unless the OTC options are sold to qualified dealers who agree that the
Fund may repurchase any OTC option it writes at a maximum price to be calculated
by a formula set forth in the option agreement. The cover for an OTC option
written subject to this procedure will be considered illiquid only to the extent
that the maximum repurchase price under the option formula exceeds the intrinsic

value of the option.

Restricted securities may be sold only in privately negotiated transactions or
in public offerings with respect to which a registration statement is in effect
under the Securities Act of 1933 ("1933 Act"). Where registration is required, a
Fund may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell.

In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including securities sold
in private placements, repurchase agreements, commercial paper, foreign
securities and corporate bonds and notes. These instruments are often restricted
securities because the securities are sold in transactions not requiring
registration. Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend either on an
efficient institutional market in which such unregistered securities can be
readily resold or on an issuer's ability to honor a demand for repayment.
Therefore, the fact that there are contractual or legal restrictions on resale
to the general public or certain institutions is not dispositive of the
liquidity of such investments.

B-3
<PAGE>

Rule 144A under the 1933 Act establishes a safe harbor from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities that might
develop as a result of Rule 144A could provide both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. Such markets might include automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
of Securities Dealers, Inc. ("NASD"). An insufficient number of qualified buyers
interested in purchasing Rule 144A-eligible restricted securities held by a
Fund, however, could affect adversely the marketability of such Fund securities
and a Fund might be unable to dispose of such securities promptly or at
favorable prices.

The Board of Directors has delegated the function of making day-to-day
determinations of liquidity to the Manager pursuant to guidelines approved by
the Board. The Manager takes into account a number of factors in reaching
liquidity decisions, including but not limited to: (1) the frequency of trades
for the security, (2) the number of dealers that make quotes for the security,
(3) the number of dealers that have undertaken to make a market in the security,
(4) the number of other potential purchasers and (5) the nature of the security
and how trading is effected (e.g., the time needed to sell the security, how
bids are solicited and the mechanics of transfer). The Manager monitors the
liquidity of restricted securities in each Fund and reports periodically on such
decisions to the Board of Directors.

Repurchase Agreements. Each Fund may enter into a repurchase agreement through
which an investor (such as the Fund) purchases a security (known as the
"underlying security") from a well-established securities dealer or bank that is
a member of the Federal Reserve System. Any such dealer or bank will be on the
Fund's approved list. Each Fund intends to enter into repurchase agreements only
with banks and dealers in transactions believed by the Manager to present
minimum credit risks in accordance with guidelines established by the Fund's
Board of Directors. The Manager will review and monitor the creditworthiness of
those institutions under the Board's general supervision.

At the time of entering into the repurchase agreement the bank or securities
dealer agrees to repurchase the underlying security at the same price, plus
specified interest. Repurchase agreements are generally for a short period of
time, often less than a week. Repurchase agreements which do not provide for
payment within seven days will be treated as illiquid securities. The Fund will
only enter into repurchase agreements where (i) the underlying securities are of
the type (excluding maturity limitations) which the Fund's investment guidelines
would allow it to purchase directly, (ii) the market value of the underlying
security, including interest accrued, will at all times be equal to or exceed
the value of the repurchase agreement, and (iii) payment for the underlying
security is made only upon physical delivery or evidence of book-entry transfer
to the account of the Fund's custodian or a bank acting as agent. In the event
of a bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying security and losses,
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during this period; and
(c) expenses of enforcing its rights.

Lending of Fund Securities. Each Fund is authorized to lend up to 25% of the
value of its total assets to broker-dealers or institutional investors that the
Manager deems qualified, but only when the borrower maintains with the Fund's
custodian bank collateral either in cash or money market instruments in an
amount at least equal to the market value of the securities loaned, plus accrued
interest and dividends, determined on a daily basis and adjusted accordingly.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Manager to be of
good standing and when, in the judgment of the Manager, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
All relevant facts and circumstances, including the creditworthiness of the
broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Board of
Directors. During the period of the loan the Manager will monitor all relevant
facts and circumstances, including the creditworthiness of the borrower. A Fund
will retain authority to terminate any loan at any time. A Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. A Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest or other distributions on the
securities loaned. A Fund will regain record ownership of loaned securities to

B-4
<PAGE>

exercise beneficial rights, such as voting and subscription rights and rights to
dividends, interest or other distributions, when regaining such rights is
considered to be in the Fund's interest.

Hedging and Return Enhancement Strategies. As discussed in the applicable Fund
Prospectus, each of Aggressive Growth Fund and Dogs of the Market Fund may use a
variety of financial instruments ("Hedging Instruments"), including certain
options, futures contracts (sometimes referred to as "futures") and options on
futures contracts, to attempt to hedge the Fund's investments or attempt to
enhance the Fund's income. The particular Hedging Instruments are described in
Appendix A to this Statement of Additional Information.

Hedging strategies can be broadly categorized as short hedges and long hedges. A
short hedge is a purchase or sale of a Hedging Instrument intended partially or
fully to offset potential declines in the value of one or more investments held
by a Fund. Thus, in a short hedge a Fund takes a position in a Hedging
Instrument whose price is expected to move in the opposite direction of the
price of the investment being hedged. For example, a Fund might purchase a put
option on a security to hedge against a potential decline in the value of that
security. If the price of the security declines below the exercise price of the
put, the Fund could exercise the put and thus limit its loss below the exercise
price to the premium paid plus transaction costs. In the alternative, because
the value of the put option can be expected to increase as the value of the
underlying security declines, the Fund might be able to close out the put option
and realize a gain to offset the decline in the value of the security.

Conversely, a long hedge is a purchase or sale of a Hedging Instrument intended
partially or fully to offset potential increases in the acquisition cost of one
or more investments that a Fund intends to acquire. Thus, in a long hedge a Fund
takes a position in a Hedging Instrument whose price is expected to move in the
same direction as the price of the prospective investment being hedged. For
example, a Fund might purchase a call option on a security it intends to
purchase in order to hedge against an increase in the cost of the security. If
the price of the security increased above the exercise price of the call, the
Fund could exercise the call and thus limit its acquisition cost to the exercise
price plus the premium paid and transaction costs. Alternatively, the Fund might
be able to offset the price increase by closing out an appreciated call option
and realizing a gain.

Hedging Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that a Fund owns or
intends to acquire. Hedging Instruments on stock indices, in contrast, generally
are used to hedge against price movements in broad equity market sectors in
which the Fund has invested or expects to invest. Hedging Instruments on debt
securities may be used to hedge either individual securities or broad fixed
income market sectors.

The use of Hedging Instruments is subject to applicable regulations of the SEC,
the several options and futures exchanges upon which they are traded, the
Commodity Futures Trading Commission ("CFTC") and various state regulatory

authorities. In addition, a Fund's ability to use Hedging Instruments will be
limited by tax considerations. See "Additional Information about Dividends and
Taxes" below.

In addition to the products, strategies and risks described below and in the
applicable Fund Prospectus, the Manager expects to discover additional
opportunities in connection with options, futures contracts and other hedging
techniques. The Manager may utilize these opportunities to the extent that they
are consistent with the respective Fund's investment objectives and permitted by
the respective Fund's investment limitations and applicable regulatory
authorities. The applicable Fund Prospectus or this Statement of Additional
Information will be supplemented to the extent that new products or techniques
involve materially different risks than those described below or in the Fund
Prospectus.

Special Risks of Hedging Strategies. The use of Hedging Instruments involves
special considerations and risks, as described below. Risks pertaining to
particular Hedging Instruments are described in the sections that follow.

(1) Successful use of most Hedging Instruments depends upon the Manager's
ability to predict movements of the overall securities, currency and
interest rate markets, which requires different skills than predicting
changes in the price of individual securities. While the Manager is
experienced in the use of Hedging Instruments, there can be no
assurance that any particular hedging strategy adopted will succeed.

B-5
<PAGE>

(2) There might be imperfect correlation, or even no correlation, between
price movements of a Hedging Instrument and price movements of the
investments being hedged. For example, if the value of a Hedging
Instrument used in a short hedge increased by less than the decline in
value of the hedged investment, the hedge would not be fully
successful. Such a lack of correlation might occur due to factors
unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Hedging
Instruments are traded. The effectiveness of hedges using Hedging
Instruments on indices will depend on the degree of correlation between
price movements in the index and price movements in the securities
being hedged.

(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements
in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of
favorable price movements in the hedged investments. For example, if a
Fund entered into a short hedge because the Manager projected a decline
in the price of a security held by a Fund, and the price of that
security increased instead, the gain from that increase might be wholly
or partially offset by a decline in the price of the Hedging
Instrument. Moreover, if the price of the Hedging Instrument declined

by more than the increase in the price of the security, the Fund could
suffer a loss. In either such case, the Fund would have been in a
better position had it not hedged at all.

(4) As described below, a Fund might be required to maintain assets as
cover, maintain segregated accounts or make margin payments when it
takes positions in Hedging Instruments involving obligations to third
parties (i.e., Hedging Instruments other than purchased options). If a
Fund were unable to close out its positions in such Hedging
Instruments, it might be required to continue to maintain such assets
or accounts or make such payments until the position expired or
matured. These requirements might impair a Fund's ability to sell a
Fund security or make an investment at a time when it would otherwise
be favorable to do so, or require that a Fund sell a portfolio security
at a disadvantageous time. A Fund's ability to close out a position in
a Hedging Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a
market, the ability and willingness of a contra party to enter into a
transaction closing out the position. Therefore, there is no assurance
that any hedging position can be closed out at a time and price that is
favorable to the Fund.

Cover for Hedging Strategies. Transactions using Hedging Instruments, other
than purchased options, expose a Fund to an obligation to another party. A Fund
will not enter into any such transactions unless it owns either (1) an
offsetting covered position in securities, or other options or futures contracts
or (2) cash, receivables and short-term debt securities, with a value sufficient
at all times to cover its potential obligations to the extent not covered as
provided in (1) above. Each Fund will comply with SEC guidelines regarding cover
for hedging transactions and will, if the guidelines so require, set aside cash,
U.S. Government securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount.

Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Hedging Instrument is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
a Fund's assets to cover or segregated accounts could impede Fund management or
the Fund's ability to meet redemption requests or other current obligations.

Options. Aggressive Growth Fund and Dogs of the Market Fund may purchase put
and/or call options, and write (sell) covered put and call options on equity
[and debt securities] and stock indices. The purchase of call options serves as
a long hedge, and the purchase of put options serves as a short hedge. Writing
covered put or call options can enable a Fund to enhance income by reason of the
premiums paid by the purchasers of such options. However, if the market price of
the security underlying a covered put option declines to less than the exercise
price of the option, minus the premium received, the Fund would expect to suffer
a loss. Writing covered call options serves as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Fund will be obligated to
sell the security at less than its market value. If the covered call option is
an OTC option, the securities or other assets used as cover would be considered

illiquid to the extent described above under "Investment Policies and
Restrictions -- Illiquid Securities."

B-6
<PAGE>

The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the historical price volatility of the underlying investment and
general market conditions. Options normally have expiration dates of up to nine
months. Options that expire unexercised have no value.

A Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, a Fund may terminate its
obligation under a call option that it had written by purchasing an identical
call option; this is known as a closing purchase transaction. Conversely, a Fund
may terminate a position in a put or call option it had purchased by writing an
identical put or call option; this is known as a closing sale transaction.

The Funds may purchase or write exchange-traded and/or OTC options. Currently,
many options on equity securities are exchange-traded. [Exchange markets for
options on debt securities exist but are relatively new, and these instruments
are primarily traded on the OTC market.] Exchange-traded options in the United
States are issued by a clearing organization affiliated with the exchange on
which the option is listed which, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between the Fund and its contra party (usually a securities dealer or a bank)
with no clearing organization guarantee. Thus, when the Fund purchases or writes
an OTC option, it relies on the party from whom it purchased the option or to
whom it has written the option (the "contra party") to make or take delivery of
the underlying investment upon exercise of the option. Failure by the contra
party to do so would result in the loss of any premium paid by the Fund as well
as the loss of any expected benefits of the transaction.

A Fund's ability to establish and close out positions in exchange-listed options
depends on the existence of a liquid market. Each Fund intends to purchase or
write only those exchange-traded options for which there appears to be a liquid
secondary market. However, there can be no assurance that such a market will
exist at any particular time. Closing transactions can be made for OTC options
only by negotiating directly with the contra party, or by a transaction in the
secondary market if any such market exists. Although a Fund will enter into OTC
options only with contra parties that are expected to be capable of entering
into closing transactions with the Fund, there is no assurance that the Fund
will in fact be able to close out an OTC option position at a favorable price
prior to expiration. In the event of insolvency of the contra party, the Fund
might be unable to close out an OTC option position at any time prior to its
expiration.

If the Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option

written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.

Futures. The purchase of futures or call options thereon can serve as a long
hedge, and the sale of futures or the purchase of put options thereon can serve
as a short hedge. Writing covered call options on futures contracts can serve as
a limited short hedge, using a strategy similar to that used for writing covered
call options on securities and indices.

Futures strategies also can be used to manage the average duration of a Fund. If
the Manager wishes to shorten the average duration of a Fund, the Fund may sell
a futures contract or a call option thereon, or purchase a put option on that
futures contract. If the Manager wishes to lengthen the average duration of a
Fund, the Fund may buy a futures contract or a call option thereon.

No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit in a segregated
account with its custodian, in the name of the futures broker through whom the
transaction was effected, initial margin consisting of cash, U.S. Government
securities or other liquid, high-grade debt securities, in an amount generally
equal to 10% or less of the contract value. Margin must also be deposited when
writing a call option on a futures contract, in accordance with applicable
exchange rules. Unlike margin in securities transactions, initial margin on
futures contracts does not represent a borrowing, but rather is in the nature of
a performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, a
Fund may be required by an exchange to increase the level of its initial margin
payment, and initial margin requirements might be increased generally in the
future by regulatory action.

B-7
<PAGE>

Subsequent variation margin payments are made to and from the futures broker
daily as the value of the futures position varies, a process known as marking to
market. Variation margin does not involve borrowing, but rather represents a
daily settlement of the Fund's obligations to or from a futures broker. When a
Fund purchases an option on a future, the premium paid plus transaction costs is
all that is at risk. In contrast, when a Fund purchases or sells a futures
contract or writes a call option thereon, it is subject to daily variation
margin calls that could be substantial in the event of adverse price movements.
If the Fund has insufficient cash to meet daily variation margin requirements,
it might need to sell securities at a time when such sales are disadvantageous.

Holders and writers of futures positions and options on futures can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, an instrument identical to the instrument
held or written. Positions in futures and options on futures may be closed only
on an exchange or board of trade that provides a secondary market. Each Fund
intends to enter into futures transactions only on exchanges or boards of trade

where there appears to be a liquid secondary market. However, there can be no
assurance that such a market will exist for a particular contract at a
particular time. Secondary markets for options on futures are currently in the
development stage, and no Fund will trade options on futures on any exchange or
board of trade unless, in the Manager's opinion, the markets for such options
have developed sufficiently that the liquidity risks for such options are not
greater than the corresponding risks for futures.

Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a future or related option can vary from the previous
day's settlement price; once that limit is reached, no trades may be made that
day at a price beyond the limit. Daily price limits do not limit potential
losses because prices could move to the daily limit for several consecutive days
with little or no trading, thereby preventing liquidation of unfavorable
positions.

If a Fund were unable to liquidate a futures or related options position due to
the absence of a liquid secondary market or the imposition of price limits, it
could incur substantial losses. The Fund would continue to be subject to market
risk with respect to the position. In addition, except in the case of purchased
options, the Fund would continue to be required to make daily variation margin
payments and might be required to maintain the position being hedged by the
future or option or to maintain cash or securities in a segregated account.

Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options markets
are subject to daily variation margin calls and might be compelled to liquidate
futures or related options positions whose prices are moving unfavorably to
avoid being subject to further calls. These liquidations could increase price
volatility of the instruments and distort the normal price relationship between
the futures or options and the investments being hedged. Also, because initial
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities markets, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, program trading and
other investment strategies might result in temporary price distortions.

Limitations on the Use of Futures. Each of the Aggressive Growth Fund and Dogs
of the Market Fund has represented to the CFTC that it: (1) will use future
contracts and options thereon traded on a commodities exchange solely in bona
fide hedging transactions or, alternatively (2) will not enter into futures
contracts and options thereon traded on a commodities exchange for which the
aggregate initial margin and premiums exceed 5% of a Fund's total assets
(calculated in accordance with CFTC regulations).

Investment Limitations. The investment restrictions set forth below are
fundamental policies of each Fund, which cannot be changed with respect to a
Fund without the approval of the holders of a majority of the outstanding voting
securities of that Fund, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), as the lesser of: (1) 67% or more of the Fund's voting
securities present at a meeting of shareholders, if the holders of more than 50%

of the Fund's outstanding shares are present in person or by proxy, or (2) more
than 50% of the outstanding shares. Unless otherwise indicated, all percentage
limitations apply to each Fund on an individual basis, and apply only at the
time an investment is made; a later increase or decrease in percentage resulting
from changes in values or net assets will not be deemed to be an investment that
is contrary to these restrictions. Pursuant to such restrictions and policies,
no Fund may:

B-8
<PAGE>

(1) make an investment in any one industry if the investment would cause
the aggregate value of the Fund's investment in such industry to
exceed 25% of the Fund's total assets, except that this policy does
not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government
securities"), certificates of deposit and bankers' acceptances.

(2) purchase securities of any one issuer (except U.S. Government
securities), if as a result at the time of purchase more than 5% of
the Fund's total assets would be invested in such issuer, or the
Fund would own or hold 10% or more of the outstanding voting
securities of that issuer, except that 25% of the total assets of
the Fund may be invested without regard to this limitation;

(3) purchase securities on margin, except for short-term credit
necessary for clearance of Fund transactions and except that a Fund
that may use options or futures strategies and may make margin
deposits in connection with its use of options, futures contracts
and options on futures contracts;

(4) purchase or sell real estate, except that, to the extent permitted
by applicable law, a Fund may invest in securities secured by real
estate or interests therein or issued by companies which invest in
real estate or interests therein;

(5) purchase or sell commodities or commodity contracts, except to the
extent described in the Fund Prospectus and this Statement of
Additional Information with respect to futures and related options;

(6) make loans, except through loans of Fund securities and repurchase
agreements, provided that for purposes of this restriction the
acquisition of bonds, debentures or other corporate debt securities
and investment in government obligations, short-term commercial
paper, certificates of deposit, bankers' acceptances and other fixed
income securities as described in the applicable Fund Prospectus and
this Statement of Additional Information shall not be deemed to be
the making of a loan, and provided further that the lending of Fund
securities and repurchase agreements may be made only in accordance
with applicable law and the applicable Fund Prospectus and this
Statement of Additional Information as it may be amended from time
to time;

(7) borrow money or issue senior securities, except that each Fund may
borrow in an amount up to 33-1/3% of its respective total assets
from banks for extraordinary or emergency purposes such as meeting
anticipated redemptions, and may pledge its assets in connection
with such borrowing. The Fund may not pledge its assets other than
to secure such borrowings or, to the extent permitted by the Fund's
investment policies as set forth in the applicable Fund Prospectus
and this Statement of Additional Information, as they may be amended
from time to time, in connection with hedging transactions,
short-sales, when-issued and forward commitment transactions and
similar investment strategies. For purposes of this restriction, the
deposit of initial or maintenance margin in connection with futures
contracts will not be deemed to be a pledge of the assets of a Fund.

(8) Underwrite securities of the issuers except insofar as the Fund
technically may be deemed to be an underwriter under the Securities
Act of 1933, as amended, in selling portfolio securities.

The following investment restrictions (or operating policies) may be changed in
respect of a Fund by the Board of Directors without shareholder approval. No
Fund may:

(a) Make investments for the purpose of exercising control or
management;

(b) make short sales of securities or maintain a short position, except
to the extent permitted by applicable law;

(c) purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law;

B-9
<PAGE>

(d) invest in securities which cannot be readily resold because of legal
or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in
such securities. This restriction shall not apply to securities
which mature within seven days or securities which the Board of
Directors has otherwise determined to be liquid pursuant to
applicable law. Notwithstanding the 15% limitation herein, to the
extent the laws of any state in which a Fund's shares are registered
or qualified for sale require a lower limitation, the Fund will
observe such limitation. Securities purchased in accordance with
Rule 144A under the Securities Act of 1933, as amended (a "Rule 144A
security") and determined to be liquid by the Board of Directors are
not subject to the limitations set forth in this investment
restriction (d). The foregoing operating policy applies only to
Aggressive Growth Fund and Dogs of the Market Fund since neither the
Cornerstone Growth Fund nor Cornerstone Value Fund invests in
illiquid securities;

(e) invest in warrants, if, at the time of acquisition, its investments
in warrants, valued at the lower of cost or market value, would
exceed 5% of the Fund's net assets; included within such limitation,
but not to exceed 2% of the Fund's net assets, are warrants which
are not listed on the New York Stock Exchange or American Stock
Exchange or a major foreign exchange. For purposes of this
restriction, warrants acquired by the Fund in units or attached to
securities may be deemed to be without value;

(f) invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if
more than 5% of the Fund's total assets would be invested in such
securities. This restriction shall not apply to mortgage-backed
securities, asset-backed securities or obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities;

(g) purchase or retain the securities of any issuer, if the individual
officers and directors of the Fund or the officers and directors of
the Manager each owning beneficially more than one-half of one
percent of the securities of such issuer own in the aggregate more
than 5% of the securities of such issuer;

(h) invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development
programs, except that the Fund may invest in securities issued by
companies that engage in oil, gas or other mineral exploration or
development activities; and

(i) write, purchase or sell puts, calls straddles, spreads or
combinations thereof, except to the extent permitted in the
applicable Fund Prospectus and this Statement of Additional
Information, as they may be amended from time to time.

DIRECTORS AND OFFICERS

The Directors and officers of O'Shaughnessy Funds, their business addresses and
principal occupations during the past five years are listed below. Unless
otherwise indicated, each person's address is 479 West 22nd Street, New York,
New York 10011.

Other Business Activities
Name, Age and Address Position with the Fund in Past 5 Years
- --------------------- ---------------------- ---------------

[To be provided by amendment]

B-10
<PAGE>

Other Business Activities
Name, Age and Address Position with the Fund in Past 5 Years
- --------------------- ---------------------- ---------------

- ----------
* Interested person, as defined in the 1940 Act.

Pursuant to the terms of the Management Agreement (defined below) with
O'Shaughnessy Funds on behalf of the Funds, the Manager pays all compensation of
officers of the Funds as well as the fees of all Directors who are affiliated
persons of the Manager, the Administrator or the Distributor. O'Shaughnessy
Funds pays Directors who are not interested persons of the Funds (each, a
"disinterested Director") fees for serving as Directors. Specifically,
O'Shaughnessy Funds pay each disinterested Director a fee of $_____ per year
plus $______ per meeting attended, together with such Director's out-of-pocket
expenses relating to attendance at meetings. [O'Shaughnessy Funds also
compensates members of the Audit and Nominating Committee, which consists of all
disinterested Directors, with a fee of $_______ per year; the Chairman of the
Audit and Nominating Committee receives an additional annual fee of $______ from
O'Shaughnessy Funds per year.] Each Fund pays its pro rata share of the
foregoing fees based on the Fund's relative net assets.

The following table sets forth the estimated aggregate compensation
O'Shaughnessy Funds expects to pay to the disinterested Directors for the fiscal
year ended ________, 199__.

Aggregate Pension or Retirement
Compensation Benefits Accrued as Total Compensation
Name of Director From Fund Part of Fund Expenses From Fund Complex
- ---------------- --------- --------------------- -----------------
[To be provided by
amendment.]

Because the Manager and the Administrator perform substantially all of the
services necessary for the operation of the Funds, the Funds require no
employees. No officer, director or employee of the Manager or the Administrator
receives any compensation from the Funds for acting as a Director or officer.

As of the date of this Statement of Additional Information, the officers and

Directors of the Funds as a group (___ persons) owned an aggregate of less than
1% of the outstanding shares of each Fund.

MANAGEMENT OF THE FUNDS

The Manager. The Manager acts as the investment manager of each Fund pursuant to
a management agreement with O'Shaughnessy Funds on behalf of each Fund, dated as
of ______________, 1996 (the "Management Agreement"). Under the Management
Agreement, O'Shaughnessy Funds pays the Manager a fee in respect of each Fund,
computed daily and payable monthly, according to the schedule set forth in the
applicable Fund Prospectus.

B-11
<PAGE>

Pursuant to the Management Agreement, the Manager is responsible for investment
management of each Fund's portfolio, subject to general oversight by the Board
of Directors. In addition, the Manager is obligated to keep certain books and
records of the Funds. In connection therewith, the Manager furnishes each Fund
with those ordinary clerical and bookkeeping services which are not being
furnished by the Funds' custodian, administrator or transfer and dividend
disbursing agent.

Under the terms of the Management Agreement, each Fund bears all expenses
incurred in its operation that are not specifically assumed by the Manager,
Investment Company Administration Corporation, the Fund's administrator (the
"Administrator"), or First Fund Distributors, Inc., the Funds' distributor (the
"Distributor"). General expenses of O'Shaughnessy Funds not readily identifiable
as belonging to one of the Funds are allocated among the Funds by or under the
direction of the Board of Directors in such manner as the Board determines to be
fair and equitable. Expenses borne by each Fund include, but are not limited to,
the following (or the Fund's allocated share of the following): (1) the cost
(including brokerage commissions, if any) of securities purchased or sold by the
Fund and any losses incurred in connection therewith; (2) investment management
fees; (3) organizational expenses; (4) filing fees and expenses relating to the
registration and qualification of O'Shaughnessy Funds or the shares of a Fund
under federal or state securities laws and maintenance of such registrations and
qualifications; (5) fees and expenses payable to disinterested Directors; (6)
taxes (including any income or franchise taxes) and governmental fees; (7) costs
of any liability, directors' and officers' insurance and fidelity bonds; (8)
legal, accounting and auditing expenses; (9) charges of custodian, transfer
agents and other agents; (10) expenses of setting in type and providing a
camera-ready copy of the Fund Prospectus and supplements thereto, expenses of
setting in type and printing or otherwise reproducing statements of additional
information and supplements thereto and reports and proxy materials for existing
shareholders; (11) any extraordinary expenses (including fees and disbursements
of counsel) incurred by O'Shaughnessy Funds or the Fund; (12) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; and (13) costs of meetings of shareholders.

Under the Management Agreement, the Manager will not be liable for any error of
judgment or mistake of law or for any loss suffered by O'Shaughnessy Funds or

any Fund in connection with the performance of the Management Agreement, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Manager in the performance of its duties or from reckless disregard
of its duties and obligations thereunder.

The Management Agreement has an initial term of two years and may be renewed
from year to year thereafter so long as such continuance is specifically
approved at least annually in accordance with the requirements of the 1940 Act.
The Management Agreement provides that it will terminate in the event of its
assignment (as defined in the 1940 Act). The Management Agreement may be
terminated by O'Shaughnessy Funds in respect of a Fund or by the Manager upon 60
days' prior written notice.

California imposes limitations on the expenses of the Funds. These expense
limitations require that the Manager reimburse each Fund in an amount necessary
to prevent the ordinary operating expenses of the Fund (excluding interest,
taxes, distribution fees, brokerage fees and commissions and extraordinary
charges such as litigation costs) from exceeding 2.5% of the Fund's first $30
million of average daily net assets, 2.0% of the next $70 million of average
daily net assets and 1.5% of the remaining average daily net assets. The
Manager's obligation to reimburse a Fund is limited to the amount of the Fund's
respective management fee. No fee payment will be made to the Manager during any
fiscal year which will cause such expenses to exceed the most restrictive
expense limitation applicable at the time of such payment. The Manager may
voluntarily waive its management fee or subsidize other Fund expenses. This may
have the effect of increasing a Fund's return.

The Administrator. O'Shaughnessy Funds, on behalf of the Funds, has retained
Investment Company Administration Corporation to provide administration services
to each Fund. Under the Administration Agreement with O'Shaughnessy Funds, the
Administrator furnishes the Funds with [office facilities], together with those
clerical and book-keeping services which are not being furnished by the Manager.
In addition, the Administrator may provide personnel to serve as officers of
O'Shaughnessy Funds. The salaries and other expenses of providing such personnel
are borne by the Administrator. For its services, each Fund pays the
Administrator a fee each month at the annual rate of ___% of the Fund's average
daily net assets.

The Distributor. O'Shaughnessy Funds, on behalf of the Funds, has retained First
Fund Distributors, Inc. to provided distribution-related services to each Fund.
The Distributor provides such services to the Funds at no cost to the Funds. The
Distributor may distribute the shares of the Funds directly or through other
broker-dealers with

B-12
<PAGE>

which it has entered into selected dealer agreements. In addition to
distributing the Funds' shares, the Distributor provides personnel to serve as
officers of O'Shaughnessy Funds. The salaries and other expenses related to
providing such personnel are borne by the Distributor.

Code of Ethics. The Board of Directors of O'Shaughnessy Funds has adopted a Code

of Ethics under Rule 17j-1 of the 1940 Act (the "Code"). The Code restricts the
investing activities of Fund officers, Directors and advisory persons and, as
described below, imposes additional, more onerous restrictions on Fund
investment personnel.

All persons covered by the Code are required to preclear any personal securities
investment (with limited exceptions, such as government securities) and must
comply with ongoing requirements concerning record keeping and disclosure of
personal securities investments. The preclearance requirement and associated
procedures are designed to identify any prohibition or limitation applicable to
a proposed investment. In addition, all persons covered by the Code are
prohibited from purchasing or selling any security which, to such person's
knowledge, is being purchased or sold (as the case may be), or is being
considered for purchase or sale, by a Fund. Investment personnel are subject to
additional restrictions such as a ban on acquiring securities in an initial
public offering, "blackout periods" which prohibit trading by investment
personnel of a Fund within periods of trading by the Fund in the same security
and a ban on short-term trading in securities.

PORTFOLIO TRANSACTIONS

Subject to policies established by the Board of Directors, the Manager is
responsible for the execution of Fund transactions and the allocation of
brokerage transactions for the respective Funds. As a general matter in
executing Fund transactions, the Manager may employ or deal with such brokers or
dealers as may, in the Manager's best judgment, provide prompt and reliable
execution of the transaction at favorable security prices and reasonable
commission rates. In selecting brokers or dealers, the Manager will consider all
relevant factors, including the price (including the applicable brokerage
commission or dealer spread), size of the order, nature of the market for the
security, timing of the transaction, the reputation, experience and financial
stability of the broker-dealer, the quality of service, difficulty of execution
and operational facilities of the firm involved and in the case of securities,
the firm's risk in positioning a block of securities. Prices paid to dealers in
principal transactions through which most debt securities and some equity
securities are traded generally include a spread, which is the difference
between the prices at which the dealer is willing to purchase and sell a
specific security at that time. Each Fund that invests in securities traded in
the OTC markets will engage primarily in transactions with the dealers who make
markets in such securities, unless a better price or execution could be obtained
by using a broker. A Fund has no obligation to deal with any broker or group of
brokers in the execution of Fund transactions.

The Manager may select broker-dealers which provide it with research services
and may cause a Fund to pay such broker-dealers commissions which exceed those
other broker-dealers may have charged, if in its view the commissions are
reasonable in relation to the value of the brokerage and/or research services
provided by the broker-dealer. Research services furnished by brokers through
which a Fund effects securities transactions may be used by the Manager in
advising other funds or accounts and, conversely, research services furnished to
the Manager by brokers in connection with other funds or accounts the Manager
advises may be used by the Manager in advising a Fund. Information and research
received from such brokers will be in addition to, and not in lieu of, the
services required to be performed by the Manager under the Management Agreement.

The Funds may purchase and sell Fund portfolio securities to and from dealers
who provide the Fund with research services. Fund transactions will not be
directed to dealers solely on the basis of research services provided.

Investment decisions for each Fund and for other investment accounts managed by
the Manager are made independently of each other in light of differing
considerations for the various accounts. However, the same investment decision
may be made for a Fund and one or more of such accounts. In such cases,
simultaneous transactions are inevitable. Purchases or sales are then allocated
between the Fund and such other account(s) as to amount according to a formula
deemed equitable to the Fund and such account(s). While in some cases this
practice could have a detrimental effect upon the price or value of the security
as far as a Fund is concerned, or upon its ability to complete its entire order,
in other cases it is believed that coordination and the ability to participate
in volume transactions will be beneficial to the Fund.

B-13
<PAGE>

Portfolio Turnover. For reporting purposes, a Fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of Fund securities for
the fiscal year by the monthly average of the value of the Fund securities owned
by the Fund during the fiscal year. In determining such Fund turnover,
securities with maturities at the time of acquisition of one year or less are
excluded. The Manager will adjust the Fund's assets as it deems advisable, and
Fund turnover will not be a limiting factor should the Manager deem it advisable
for a Fund to purchase or sell securities.

As described above, the Aggressive Growth Fund and the Dogs of the Market Fund
may engage in options transactions. The options activities of a Fund may affect
its turnover rate, the amount of brokerage commissions paid by a Fund and the
realization of net short-term capital gains. High portfolio turnover involves
correspondingly greater brokerage commissions, other transaction costs, and a
possible increase in short-term capital gains or losses. See "Valuation of
Shares" and "Additional Information about Distributions and Taxes" below.

The exercise of calls written by a Fund may cause the Fund to sell Fund
securities, thus increasing its turnover rate. The exercise of puts also may
cause a sale of securities and increase turnover; although such exercise is
within the Fund's control, holding a protective put might cause the Fund to sell
the underlying securities for reasons which would not exist in the absence of
the put. A Fund will pay a brokerage commission each time it buys or sells a
security in connection with the exercise of a put or call. Some commissions may
be higher than those which would apply to direct purchases or sales of Fund
securities.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Reference is made to "Information About Your Account -- Purchase of Shares; --
Redemption of Shares " in each Fund Prospectus for additional information about
purchase and redemption of Fund shares. You may purchase and redeem shares of
each Fund on each day on which the New York Stock Exchange, Inc. ("NYSE") is

open for trading ("Business Day"). Currently, the NYSE is closed on New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Such purchases and redemptions of the shares
of each Fund are effected at their respective net asset values per share
determined as of the close of the NYSE (which currently is 4:00 p.m., Eastern
time) on that Business Day. The time at which the transactions are priced may be
changed in case of an emergency or if the NYSE closes at a time other than 4:00
p.m., Eastern time.

O'Shaughnessy Funds may suspend redemption privileges of shares of any Fund or
postpone the date of payment during any period (1) when the NYSE is closed or
trading on the NYSE is restricted as determined by the SEC, (2) when an
emergency exists, as defined by the SEC, that makes it not reasonably
practicable for O'Shaughnessy Funds to dispose of securities owned by it or to
determine fairly the value of its assets or (3) as the SEC may otherwise permit.
The redemption price may be more or less than the shareholder's cost, depending
on the market value of the Fund's securities at the time.

O'Shaughnessy Funds will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. O'Shaughnessy Funds uses the
following procedure to process telephone redemptions: (1) obtaining some or all
of the following information: account number, name(s), social security number
registered to the account and personal identification; (2) recording all
telephone transactions; and (3) sending written confirmation of each transaction
to the registered owner.

The payment of the redemption price may be made in money or in kind, or partly
in money and partly in kind, as determined by the Directors. However, the Fund
has elected to be governed by Rule 18f-1 under the Investment Company Act of
1940 pursuant to which the Fund is obligated to redeem shares solely in money up
to the lesser of $250,000 or 1% of the net asset value of the Fund during any
90-day period for any one shareholder. While the Rule is in effect, such
election may not be revoked without the approval of the SEC. It is contemplated
that if the Fund should redeem in kind, securities distributed would be valued
as described below under "Net Asset Value," and investors would incur brokerage
commissions in disposing of such securities. If the Fund redeems in kind, the
Fund will not distribute depository receipts representing foreign securities.

B-14
<PAGE>

VALUATION OF SHARES

The net asset value for the shares of each Fund will be determined on each day
the NYSE is open for trading. The net assets of each Fund are valued as of the
close of the NYSE (currently 4:00 P.M., Eastern time) on each Business Day. Each
Fund's net asset value per share is calculated separately.

For all Funds, the net asset value per share is computed by dividing the value
of the securities held by the Fund plus any cash or other assets, less its
liabilities, by the number of outstanding shares of the Fund, and adjusting the

result to the nearest full cent. Securities listed on the NYSE, American Stock
Exchange or other national exchanges are valued at the last sale price on such
exchange on the day as of which the net asset value per share is to be
calculated. Over-the-counter securities included in the NASDAQ National Market
System are valued at the last sale price. Bonds and other fixed-income
securities are valued using market quotations provided by dealers, and also may
be valued on the basis of prices provided by pricing services when the Board of
Directors believes that such prices reflect the fair market value of such
securities. Money market instruments are valued a market value, except that
instruments maturing in sixty days or less are valued using the amortized cost
method of valuation. If there is no sale in a particular security on such day,
it is valued at the last bid price. Other securities, to the extent that market
quotations are readily available, are value at the bid price at the time of the
determination. All other securities and assets, including restricted securities,
are valued in good faith in a manner determined by the Board of Directors best
to reflect their full value.

When market quotations for options and futures positions held by the Funds are
readily available, those positions are valued based upon such quotations. Market
quotations are not generally available for options traded in the OTC market.
When market quotations for options and futures positions, or any other
securities or assets of the Funds, are not available, they are valued at fair
value as determined in good faith by or under the direction of the Board of
Directors. When practicable, such determinations are based upon appraisals
received from a pricing service using a computerized matrix system or appraisals
derived from information concerning the security or similar securities received
from recognized dealers in those securities.

When a Fund writes a put or call option, the amount of the premium is included
in the Fund's assets and an equal amount is included in its liabilities. The
liability thereafter is adjusted to the current market value of the option. The
premium paid for an option purchased by a Fund is recorded as an asset and
subsequently adjusted to market value.

ADDITIONAL INFORMATION ABOUT DIVIDENDS AND TAXES

Each Fund is treated as a separate corporation for federal income tax purposes.
In order to qualify (or to continue to qualify) for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
(the "Code"), each Fund must distribute to its shareholders each taxable year at
least 90% of its investment company taxable income (consisting generally of net
investment income and net short-term capital gain) for such taxable year and
must meet several additional requirements. With respect to each Fund, these
requirements include the following: (1) the Fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans and gains from the sale or other disposition of stock or
securities or other income (including gains from options and futures) derived
with respect to its business of investing in stock or securities ("Income
Requirement"); (2) the Fund must derive less than 30% of its gross income each
taxable year from the sale or other disposition of stock or securities, or any
of the following, that were held for less than three months -- options or
futures that are not directly related to the Fund's principal business of
investing in securities (or options and futures with respect to securities)
("Short-Short Limitation"); (3) at the close of each quarter of the Fund's

taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. Government securities, securities of other RICs and
other securities, with these other securities limited, in respect of any one
issuer, to an amount that does not exceed 5% of the value of the Fund's total
assets and that does not represent more than 10% of the outstanding voting
securities of the issuer; (4) at the close of each quarter of the Fund's taxable
year, not more than 25% of the value of its total assets may be invested in
securities (other than U.S. Government securities or the securities of other
RICs) of any one issuer; and (5) the Fund must distribute during its taxable
year at least 90% of its investment company taxable income plus 90% of its net
tax-exempt interest income, if any.

The use of hedging and related income strategies, such as writing and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the character and timing of recognition of the

B-15
<PAGE>

income received in connection therewith by each Fund eligible to use such
strategies. Income from transactions in options and futures derived by a Fund
with respect to its business of investing in securities, will qualify as
permissible income under the Income Requirement. However, income from the
disposition of options and futures contracts will be subject to the Short-Short
Limitation if they are held for less than three months.

If a Fund satisfies certain requirements, any increase in value on a position
that is part of a "designated hedge" will be offset by any decrease in value
(whether realized or not) of the offsetting hedging position during the period
of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that Limitation. Each
Fund will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent a Fund does not qualify for this treatment,
it may be forced to defer the closing out of certain options and futures
contracts beyond the time when it otherwise would be advantageous to do so, in
order for the Fund to qualify or continue to qualify as a RIC.

The foregoing is only a general summary of some of the important federal income
tax considerations generally affecting the Funds and their shareholders. No
attempt is made to present a complete explanation of the federal tax treatment
of the Funds' activities. See the applicable Fund Prospectus for further tax
information.

PERFORMANCE INFORMATION

Performance information is computed separately for each Fund in accordance with
the formulas described below. At any time in the future, total return may be
higher or lower than in the past and there can be no assurance that any
historical results will continue.

Certain historical performance information for the Cornerstone Value Strategy
and the Cornerstone Growth Strategy, the respective investment strategies of the

Cornerstone Growth Fund and Cornerstone Value Fund, is included in the Fund
Prospectus relating to the Cornerstone Value and Growth Funds. See "Performance
Information" in the Funds' Prospectus.

Calculation of Total Return and Average Annual Total Return. Total Return with
respect to the shares of a Fund is a measure of the change in value of an
investment in the Fund over the period covered, which assumes that any dividends
or capital gains distributions are reinvested in that Fund's shares immediately
rather than paid to the investor in cash. The formula for Total Return with
respect to a Fund's shares used herein includes four steps: (1) adding to the
total number of shares purchased by a hypothetical $1,000 investment the number
of shares which would have been purchased if all dividends and distributions
paid or distributed during the period had been immediately reinvested; (2)
calculating the value of the hypothetical initial investment of $1,000 as of the
end of the period by multiplying the total number of shares on the last trading
day of the period by the net asset value per share on the last trading day of
the period; (3) assuming redemption at the end of the period; and (4) dividing
this account value for the hypothetical investor by the initial $1,000
investment. Average Annual Total Return is measured by annualizing Total Return
over the period.

Performance Comparisons. Each Fund may from time to time include the Total
Return and the Average Annual Total Return of its shares in advertisements or in
information furnished to shareholders.

Each Fund may from time to time also include the ranking of its performance
figures relative to such figures for groups of mutual funds categorized by
Lipper Analytical Services ("Lipper") as having the same or similar investment
objectives or by similar services that monitor the performance of mutual funds.
Each Fund may also from time to time compare its performance to average mutual
fund performance figures compiled by Lipper in Lipper Performance Analysis.
Advertisements or information furnished to present shareholders or prospective
investors may also include evaluations of a Fund published by nationally
recognized ranking services and by financial publications that are nationally
recognized such as Barron's, Business Week, CDA Technologies, Inc., Changing
Times, Consumer's Digest, Dow Jones Industrial Average, Financial Planning,
Financial Times, Financial World, Forbes, Fortune, Hulbert's Financial Digest,
Institutional Investor, Investors Daily, Money, Morningstar Mutual Funds, The
New York Times, Personal Investor, Stanger's Investment Adviser, Value Line, The
Wall Street Journal, Wiesenberger Investment Company Service and USA Today.

B-16
<PAGE>

The performance figures described above may also be used to compare the
performance of a Fund's shares against certain widely recognized standards or
indices for stock market performance. The following are the indices against
which the Funds may compare performance:

The Standard & Poor's Composite Index of 500 Stocks (the "S&P 500 Index")
is a market value-weighted and unmanaged index showing the changes in the
aggregate market value of 500 stocks relative to the base period 1941-43. The

S&P 500 Index is composed almost entirely of common stocks of companies listed
on the NYSE, although the common stocks of a few companies listed on the
American Stock Exchange or traded OTC are included. The 500 companies
represented include 400 industrial, [60] transportation and 50 financial
services concerns. The S&P 500 Index represents about 80% of the market value of
all issues traded on the NYSE.

The Wilshire 5000 Equity Index (or its component indices) represents the
return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.

The National Association of Securities Dealers Automated Quotation System
(NASDAQ) Composite Index covers 4,500 stocks traded over the counter. It
represents many small company stocks but is heavily influenced by about 100 of
the largest NASDAQ stocks. It is a value-weighted index calculated on price
change only and does not include income.

The Value Line (Geometric) Index is an unweighted index of the
approximately 1,700 stocks followed by the Value Line Investment Survey.

The Russell 2000/Small Stock Index comprises the smallest 2000 stocks in
the Russell 3000 Index, and represents approximately 11% of the Russell 3000
Index's market capitalization. The Russell 3000 Index comprises the 3,000
largest U.S. companies by market capitalization. The smallest company has a
market value of roughly $20 million.

In reports or other communications to shareholders, O'Shaughnessy Funds may also
describe general economic and market conditions affecting the Funds and may
compare the performance of the Funds with (1) that of mutual funds included in
the rankings prepared by Lipper or similar investment services that monitor the
performance of mutual funds, (2) IBC/Donoghue's Money Fund Report, (3) other
appropriate indices of investment securities and averages for peer universe of
funds which are described in this Statement of Additional Information, or (4)
data developed by the Manager derived from such indices or averages.

OTHER INFORMATION

The Funds are organized as separate investment portfolios or series of the
O'Shaughnessy Funds, a Maryland corporation which was incorporated on May 20,
1996 under the name "O'Shaughnessy Funds, Inc."

The Articles of Incorporation of O'Shaughnessy Funds authorize the Board of
Directors to classify and reclassify any and all shares which are then unissued
into any number of classes, each class consisting of such number of shares and
having such designations, powers, preferences, rights, qualifications,
limitations, and restrictions, as shall be determined by the Board, subject to
the 1940 Act and other applicable law, and provided that the authorized shares
of any class shall not be decreased below the number then outstanding and the
authorized shares of all classes shall not exceed the amount set forth in the
Articles of Incorporation, as in effect from time to time.

Registration Statement. This Statement of Additional Information and the Fund
Prospectuses do not contain all the information included in the Registration

Statement filed with the Commission under the 1933 Act with respect to the
securities offered by the Fund Prospectuses. The Registration Statement,
including the exhibits filed therewith, may be examined at the office of the
Commission in Washington, D.C.

Statements contained in this Statement of Additional Information and the Fund
Prospectuses as to the contents of any contract or other document are not
complete and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional

B-17
<PAGE>

Information and the Fund Prospectuses form a part, each such statement being
qualified in all respects by such reference.

Counsel. The law firm of Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third
Avenue, New York, New York 10022, counsel to the Funds, has passed upon the
legality of the shares offered by the Fund Prospectuses.

Auditors. [Name] [Address] serves as independent auditors for the Funds.

Custodian. [Name] [Address] serves as custodian for the Funds.

Transfer Agent. [Name] [Address] serves as transfer agent for the Funds.

B-18

<PAGE>
FINANCIAL STATEMENTS OF THE FUNDS

__________, [address], serves as independent auditors of the Funds.
___________on an annual basis will audit the financial statements prepared by
the Manager and expresses an opinion on such financial statements based on their
audits.

STATEMENT OF ASSETS AND LIABILITIES
, 1996

<TABLE>
<CAPTION>
Cornerstone Cornerstone Dogs of Aggressive
Growth Value the Market Growth
Fund Fund Fund Fund
--------- --------- --------- ---------
Assets
<S> <C> <C> <C> <C>
Cash in bank................................ $ $ $ $
Prepaid registration fees (Note 3)..........
Deferred organization expenses (Note 4).....
--------- --------- --------- ---------
Total Assets.....................................
Liabilities - accrued expenses...................
--------- --------- --------- ---------

Net Assets (equivalent to $_____ per share on
_______ shares of common stock each
(par value $0.0001) outstanding with an
unlimited number of shares authorized)
(Note 1).................................... $ $ $ $
========= ========= ========= =========
</TABLE>

- --------------
1) O'Shaughnessy Cornerstone Growth Fund, O'Shaughnessy Cornerstone Value Fund,
O'Shaughnessy Aggressive Growth Fund and O'Shaughnessy Dogs of the Market(TM)
Fund (each a "Fund", and collectively, the "Funds"), are four investment
portfolios or series of O'Shaughnessy Funds, Inc. ("O'Shaughnessy Funds"),
which was organized as a Maryland corporation on May 20, 1996. O'Shaughnessy
Funds is registered under the Investment Company Act of 1940, as amended as
an open-end investment company.

2) O'Shaughnessy Funds intends to enter into a Management Agreement (the
"Management Agreement") with O'Shaughnessy Capital Management, Inc. (the
"Manager"), a Distribution Agreement (the "Distribution Agreement") with
First Fund Distributors, Inc. (the "Distributor"), and an administration
agreement with Investment Company Administration Corporation (the
"Administrator"). (See "Management of the Fund" in the Statement of
Additional Information.) Certain officers and/or directors of the Fund are
officers and/or directors of the Manager, the Distributor and the
Administrator.

3) Prepaid registration fees are charged to income as the related shares are
issued.

4) Deferred organization expenses will be amortized over a period from the date
O'Shaughnessy Funds commences operations not exceeding five years. In the
event that the Manager (or any subsequent holder, redeems any of its original
shares prior to the end of the five-year period, the proceeds of the
redemption payable in respect of such shares shall be reduced by the pro rata
share (based on the proportionate share of the original shares redeemed to
the total number of original shares outstanding at the time or redemption) of
the unamortized deferred organization expenses as of the date of such
redemption. In the event a Fund is liquidated prior to the end of the
five-year period, the Manager (or any subsequent holder) shall bear the
unamortized deferred organization expenses.)

B-19

<PAGE>
Appendix A
OPTIONS AND FUTURES

Certain Funds may use the following Hedging Instruments:

Options on Securities -- A call option is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to buy
the security underlying the option at a specified price at any time during the
term of the option. The writer of the call option, who receives the premium, has
the obligation, upon exercise of the option during the option term, to deliver
the underlying security against payment of the exercise price. A put option is a
similar contract that gives its purchaser, in return for a premium, the right to
sell the underlying security at a specified price during the option term. The
writer of the put option, who receives the premium, has the obligation, upon
exercise of the option during the option term, to buy the underlying security at
the exercise price.

Options on Securities Indexes -- A securities index assigns relative values to
the securities included in the index and fluctuates with changes in the market
values of those securities. A securities index option operates in the same way
as a more traditional stock option, except that exercise of a securities index
option is effected with cash payment and does not involve delivery of
securities. Thus, upon exercise of a securities index option, the purchaser will
realize, and the writer will pay, an amount based on the difference between the
exercise price and the closing price of the securities index.

Stock Index Futures Contracts -- A stock index futures contract is a bilateral
agreement pursuant to which one party agrees to accept, and the other party
agrees to make, delivery of an amount of cash equal to a specified dollar amount
times the difference between the stock index value at the close of trading of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the stocks comprising the index is made. Generally,
contracts are closed out prior to the expiration date of the contract.

Interest Rate Futures Contracts -- Interest rates futures contracts are
bilateral agreements pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of debt security at a
specified future time and at a specified price. Although such futures contracts
by their terms call for actual delivery or acceptance of debt securities, in
most cases, the contracts are closed out before the settlement date without the
making or taking of delivery.

A-1

<PAGE>
PART C
OTHER INFORMATION

Item 24. Financial Statements and Exhibits.

(a) Financial Statements.

Contained in Part A, the Prospectus:

None

Contained in Part B, the Statement of Additional Information:

To be filed by amendment.

(b) Exhibits.

(1)(a) Articles of Incorporation of Registrant.
(b) Articles of Amendment, dated July 2, 1996.

(2) By-Laws of Registrant.

(3) Inapplicable.

(4) Instrument defining rights of Shareholders (Incorporated by
reference to Exhibits 1 and 2 above).

(5) Management Agreement between Registrant and O'Shaughnessy
Capital Management, Inc.*

(6) Distribution Agreement between Registrant and First Fund
Distributors, Inc.*

(7) Inapplicable.

(8) Custody Agreement.*

(9) Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement.*

(10) Opinion and consent of Shereff, Friedman, Hoffman & Goodman,
counsel for Registrant.*

(11) Consent of independent auditors for the Registrant.*

(12) Inapplicable.

(13) Certificate of sole shareholder, O'Shaughnessy Capital
Management, Inc.*
<PAGE>

(14) Inapplicable.

(15) Inapplicable.

(16) Inapplicable.

(17) Inapplicable.

(18) Inapplicable.

- ----------------------
* To be filed by amendment.

Item 25. Persons Controlled by or Under Common Control with Registrant.

Prior to the effective date of this Registration Statement, the Registrant
will sell 10,000 shares of the Registrant (2,500 shares of each Series) to
O'Shaughnessy Capital Management, Inc. (the "Manager").

Item 26. Number of Holders of Securities.

As of [date] the number of record holders of shares of Common Stock, par
value $0.0001 per share, of O'Shaughnessy Funds, Inc., was as follows:

Title of Series Number of Record Holders
--------------- ------------------------

O'Shaughnessy Cornerstone Value Fund 1
O'Shaughnessy Cornerstone Growth Fund 1
O'Shaughnessy Aggressive Growth Fund 1
O'Shaughnessy Dogs of the Market(TM)Fund 1

Item 27. Indemnification.

Article V of the Registrant's By-Laws relating to the indemnification of
officers and trustees is quoted below:

ARTICLE V

Indemnification

C-2
<PAGE>

to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Absent a court determination that an

officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Corporation to indemnify such person must be based upon the reasonable
determination of independent legal counsel or the vote of a majority of a quorum
of the directors who are neither "interested persons," as defined in Section
2(a)(19) of the Investment Company Act, nor parties to the proceeding
("non-party independent directors"), after review of the facts, that such
officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.

Each officer and director of the Corporation claiming indemnification
within the scope of this Article V shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland without a preliminary
determination as to his ultimate entitlement to indemnification (except as set
forth below); provided, however, that the person seeking indemnification shall
provide to the Corporation a written affirmation of his good faith belief that
the standard of conduct necessary for indemnification by the Corporation has
been met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance; (c) a majority of a
quorum of non-party independent directors, or independent legal counsel in a
written opinion, shall determine, based on a review of facts readily available
to the Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.

The Corporation may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland, from liability arising from his activities as officer or
director of the Corporation. The Corporation, however, may not purchase
insurance on behalf of any officer or director of the Corporation that protects
or purports to protect such person from liability to the Corporation or to its
stockholders to which such officer or director would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.

The Corporation may indemnify, make advances or purchase insurance to the
extent provided in this Article V on behalf of an employee or agent who is not
an officer or director of the Corporation.

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.

C-3
<PAGE>

Article ____ of the Management Agreement between Registrant and
O'Shaughnessy Capital Management (Exhibit _____ hereof) 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 ___ of the Distribution Agreement relating to the securities
being offered hereby, the Registrant agrees to indemnify the Distributor and
each person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "Act"), against certain types of civil liabilities
arising in connection with the Registration Statement or Prospectus and
Statement of Additional Information.

Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or controlling
person or the principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

Item 28. Business and other Connections of Investment Manager.

O'Shaughnessy Capital Management, Inc., the Investment Manager of the
Trust, is primarily in the business of providing investment management
services. Reference is made to the most recent Form ADV and schedules
thereto of O'Shaughnessy Capital Management on file with the Commission
(File No. 801-33868) for a description of the names and employment of the
directors and officers of O'Shaughnessy Capital Management and other
required information.

Item 29. Principal Underwriters.

(a) First Fund Distributors, Inc., acts as the Principal Underwriter for
the Registrant and also acts as principal underwriter for the following
investment companies:

Guinness Flight Investment Funds, Inc.
Jurika & Voyles Mutual Funds
Hotchkis and Wiley Funds
Rainier Investment Management Mutual Funds

RNC Liquid Assets Fund, Inc.
Professionally Managed Portfolios
Avondale Total Return Fund
Crescent Fund
Osterweis Fund
Perkins Opportunity Fund
Pro-Conscience Women's Equity Mutual Fund

C-4
<PAGE>

Trent Equity Fund
Academy Value Fund
Kayne Anderson Rising Dividends Fund
Boston Managed Growth Fund
Leonetti Balanced Fund
Lighthouse Growth Fund
US Global Leaders Growth Fund
Harris Bretall Sullivan & Smith Growth Equity Fund
Pzena Focused Valve Fund
Tital Financial Services Fund

(b) Set forth below is information concerning each director and officer
of First Fund Distributors, Inc.

(1) (2) (3)
Positions and Offices
Name and Principal with Principal Position and Offices
Business Address Underwriter with Registrant
---------------- ----------- ---------------

Robert H. Wadsworth President and Treasurer Vice President
4455 E. Camelback Road and Assistant
Suite 261E Secretary
Phoenix, AZ 85018

Eric M. Banhazl Vice President Assistant Treasurer
2025 E. Financial Way
Glendora, CA 91741

Steven J. Paggioli Vice President & Treasurer
479 West 22nd Street Secretary
New York, NY 10011

Item 30. Location of Accounts and Records.

The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940
and the rules promulgated thereunder are in the possession of the

Registrant's custodian and transfer agent at the address set forth in Part
A, except those records relating to portfolio transactions and the basic
organizational and corporate documents of the Registrant (see Subsections
(2)(iii), (4), (5), (6), (7), (9), (10) and (11) of Rule 31a-1(b)), which,
with respect to portfolio transactions are kept by the Manager and with
respect to corporate documents by its Administrator at the addresses set
forth in Parts A and B.

C-5
<PAGE>

Item 31. Management Services.

None.

Item 32. Undertakings.

Registrant hereby undertakes to:

(a) File a post-effective amendment, using financial statements which
may not be certified, within four to six months of the effective
date of this Registration Statement; and

(b) Furnish each person to whom a Prospectus is delivered with a copy of
Registrant's latest annual request to shareholders, upon request and
without charge.

C-6

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of New York, and state of New York, on
the 2nd day of July, 1996.

O'SHAUGHNESSY FUNDS, INC.

Registrant

By: /s/ James O'Shaughnessy
------------------------------
James O'Shaughnessy, President

Pursuant to the requirement of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

Signatures Title Date
---------- ----- ----

/s/ James O'Shaughnessy President (Chief Executive July 2, 1996
- ------------------------- Officer) and Director
James O'Shaughnessy

/s/ Steven J. Paggioli Treasurer (Principal Financial July 2, 1996
- ------------------------- and Accounting Officer) and
Steven J. Paggioli Director

/s/ Robin Berger Director July 2, 1996
- -------------------------
Robin Berger

C-7

<PAGE>
INDEX TO EXHIBITS

Exhibit
Number Description
- ------- -----------
1(a) Articles of Incorporation of O'Shaughnessy Funds, Inc.
(b) Articles of Amendment.

2. By-Laws of O'Shaughnessy Funds, Inc.

C-8

<PAGE>
ARTICLES OF INCORPORATION
OF
O'SHAUGHNESSY FUNDS, INC.

ARTICLE I

THE UNDERSIGNED, Valerie A. Zondorak, Esq. whose address is 919 Third
Avenue, New York, New York 10169, being at least eighteen years of age, does
hereby act as an incorporator, under and by virtue of the General Laws of the
State of Maryland authorizing the formation of corporations and with the
intention of forming a corporation.

ARTICLE II

NAME

The name of the corporation is O'Shaughnessy Funds, Inc. (herein called the
"Corporation").

ARTICLE III

PURPOSES AND POWERS

The purpose or purposes for which the Corporation is formed, the powers,
rights and privileges that the Corporation shall be authorized to exercise and
enjoy, and the business or objects to be transacted, carried on and promoted by
it are as follows:

1
<PAGE>

(1) To conduct and carry on the business of an investment company of the
management type.

(2) To hold, invest and reinvest its assets in securities, and in
connection therewith to hold part or all of its assets in cash.

(3) To issue and sell shares of its own capital stock in such amounts and
on such terms and conditions for such purposes and for such amount or kind of
consideration now or hereafter permitted by the General Laws of the State of
Maryland and by these Articles of Incorporation, as its Board of Directors may
determine; provided, however, that the value of the consideration per share to
be received by the Corporation upon the sale or other disposition of any shares
of its capital stock shall not be less than the net asset value per share of
such capital stock outstanding at the time of such event.

(4) To exchange, classify, reclassify, change the designation of, convert,
rename, redeem, purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the stockholders
of the Corporation) shares of its issued or unissued capital stock of any class
or series, as its Board of Directors may determine, in any manner and to the

extent now or hereafter permitted by the Investment Company Act of 1940, as
amended (the "Investment Company Act"), the General Laws of the State of
Maryland and by these Articles of Incorporation.

(5) To do any and all such further acts or things and to exercise any and
all such further powers or rights as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.

2
<PAGE>

The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by the
General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing purposes, powers, rights and privileges shall not
be deemed to exclude any powers, rights or privileges so granted or conferred.

ARTICLE IV

PRINCIPAL OFFICE AND RESIDENT AGENT

The post office address of the principal office of the Corporation within
the State of Maryland is 32 South Street, Baltimore, Maryland 21202. The
resident agent of the Corporation within the State of Maryland is The
Corporation Trust Incorporated, whose address is 32 South Street, Baltimore,
Maryland 21202.

ARTICLE V

CAPITAL STOCK

(1) The total number of shares which the Corporation has authority to issue
is one hundred billion (100,000,000,000) shares of common stock (par value
$0.0001 per share), amounting in aggregate par value to ten million dollars
($10,000,000.00). All of such shares of common stock are initially classified
into four separate series to be known as "O'Shaughnessy Cornerstone Value(TM)
Fund," O'Shaughnessy Cornerstone Growth(TM) Fund," "O'Shaughnessy Aggressive
Growth Fund," and "O'Shaughnessy Dogs of the Market(TM) Fund." Each such series
shall be divided initially as follows: O'Shaughnessy Cornerstone

3
<PAGE>

Value(TM) Fund shall consist of twenty-five billion (25,000,000,000) shares;
O'Shaughnessy Cornerstone Growth(TM) Fund shall consist of twenty-five billion
(25,000,000,000) shares, O'Shaughnessy Aggressive Growth Fund shall consist of
twenty-five billion (25,000,000,000) shares, and O'Shaughnessy Dogs of the
Market(TM) Fund shall consist of twenty-five billion (25,000,000000) shares. All
of the shares of each such series are initially classified as a single class.

(2) The Board of Directors may classify and reclassify any unissued shares
of stock (whether or not such shares have been previously classified or
reclassified) into one or more additional or other classes or series as may be
established from time to time by setting or changing in any one or more respects
the designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of or rights to require redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series.

(3) The Board of Directors may classify and reclassify any issued shares of
stock into one or more additional or other classes or series as may be
established from time to time by setting or changing in any one or more respects
the designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of or rights to require redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series; provided, however, that any
such classification or reclassification shall not substantially adversely affect
the rights of holders of

4
<PAGE>

such issued shares. The Board's authority pursuant to this paragraph shall
include, but not be limited to, the power to vary among all of the holders of a
particular class or series (a) the length of times shares must be held prior to
reclassification to shares of another class or series (the "Holding Period(s)"),
(b) the manner in which the time for such Holding Period(s) is determined and
(c) the class or series into which the particular class or series is being
reclassified; provided, however, that, subject to the first sentence of this
section, with respect to holders of the Corporation's shares issued on or after
the date of the Corporation's first effective prospectus which sets forth
Holding Period(s), the Holding Period(s), the manner in which the time for such
Holding Period(s) is determined and the class or series into which the
particular class or series is being reclassified shall be disclosed in the
Corporation's prospectus or statement of additional information in effect at the
time such shares, which are the subject of the reclassification, were issued.

(4) Each series of stock of the Corporation shall relate to a separate
portfolio of investments. All shares of stock within each series shall be
identical except that there may be variations among the different series,
including, without limitation, as to the purchase price, determination of net
asset value, designations, preferences, conversion or other rights, voting
powers, restrictions, allocations of expenses, special and relative rights and
limitations as to dividends and on liquidation, qualifications or terms or
conditions of or rights to require redemption of such shares of stock.

(5) Except as the Board of Directors otherwise may provide when classifying
or reclassifying any shares of stock into separate series, all consideration
received by the Corporation for the issue or sale of shares of stock of a
particular series, together with all assets in which such consideration is

invested or reinvested, all income, earnings, profits,

5
<PAGE>

and proceeds received thereon, including any proceeds derived from the sale,
exchange or liquidation of such assets, any funds or payments derived from any
reinvestment of such proceeds, and any assets, income, earnings, profits, and
proceeds thereof, funds or payments that are not readily identifiable as
belonging to any particular series ("General Assets") allocated to a series,
shall constitute assets of that series, in contrast to other series (subject
only to the rights of creditors) and are herein referred to as assets "belonging
to" that series. Except as herein expressly provided, any General Assets shall
be allocated by or under the supervision of the Board of Directors to and among
any one or more of the series established and designated from time to time, in
such manner and on such basis as the Board of Directors, in its sole discretion,
deems fair and equitable. Such decisions by the Board of Directors shall be
final and conclusive.

(6) The assets belonging to each series of stock shall be charged with the
liabilities of the Corporation in respect of that series and with all expenses,
costs, charges, and reserves attributable to that series. Such liabilities,
expenses, costs, charges, and reserves, together with any liabilities, expenses,
costs, charges, or reserves of the Corporation that are not readily identifiable
as belonging to any particular series ("General Liabilities") allocated to that
series, shall constitute the liabilities of that series, in contrast to other
series, and are herein referred to as "belonging to" that series. Except as
herein expressly provided, any General Liabilities shall be allocated by or
under the supervision of the Board of Directors to and among any one or more of
the series established and designated from time to time, in such manner and on
such basis as the Board of Directors, in its sole discretion, deems fair and
equitable. Such decisions by the Board of Directors shall be final and
conclusive.

6
<PAGE>

(7) Expenses related to the distribution of, and other identified expenses
that should properly be allocated to, the shares of a particular class of stock
of any series may be charged to and borne solely by such class and the bearing
of expenses solely by a class of stock of any series may be appropriately
reflected (in a manner determined by the Board of Directors) and cause
differences in the net asset value attributable to, and the dividend, redemption
and liquidation rights of, the shares of each class of stock of the series.

(8) Unless otherwise expressly provided in the charter of the Corporation,
including any Articles Supplementary thereto, the holders of each class or
series of stock shall be entitled to dividends and distributions in such amounts
and at such times as may be determined by the Board of Directors, and the
dividends and distributions paid with respect to the various classes or series

of stock may vary among such classes and series. Dividends and distributions
with respect to a series may be declared or paid only out of the net assets
belonging to that series.

(9) Unless otherwise expressly provided in the charter of the Corporation,
including those matters set forth in Article III, Section 4 hereof and including
any Articles Supplementary thereto, on each matter submitted to a vote of
stockholders, each holder of a share of stock of the Corporation shall be
entitled to one vote for each share standing in such holder's name on the books
of the Corporation, irrespective of the class or series thereof, and all shares
of all classes and series shall vote together as a single class; provided,
however, that (a) as to any matter with respect to which a separate vote of any
class or series is required by the Investment Company Act, or any rules,
regulations or orders issued thereunder, or by the Maryland General Corporation
Law, such requirement as to a separate vote by that class or

7
<PAGE>

series shall apply in lieu of a general vote of all classes and series as
described above, (b) in the event that the separate vote requirements referred
to in (a) above apply with respect to one or more classes or series, then,
subject to paragraph (c) below, the shares of all other classes and series not
entitled to a separate class vote shall vote as a single class, and (c) as to
any matter which does not affect the interest of a particular class or series,
such class or series shall not be entitled to any vote and only the holders of
shares of the affected classes and series, if any, shall be entitled to vote.

(10) Unless otherwise expressly provided in the charter of the Corporation,
including any Articles Supplementary thereto, subject to compliance with the
requirements of the Investment Company Act, the Board of Directors shall have
the authority to provide that holders of shares of any class or series shall
have the right to convert or exchange said shares into shares of one or more
other classes or series of shares in accordance with such requirements and
procedures as may be established by the Board of Directors.

(11) Unless otherwise expressly provided in the charter of the Corporation,
including any Articles Supplementary thereto, in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of all classes and series of stock of the Corporation shall be
entitled, after payment or provision for payment of the debts and other
liabilities of the Corporation, to share ratably in the remaining net assets of
the Corporation; provided, however, that so long as the stock of the Corporation
shall be classified or reclassified into series, holders of any shares of stock
within such series shall be entitled to share ratably (after taking into account
any expenses attributable to any separate classes of such series) out of the
assets belonging to such series.

8
<PAGE>

(12) Any reference to "shares," "stock" or "shares of stock" in these
Articles of Incorporation shall be deemed to refer, unless the context otherwise
requires, to the shares of each separate class and/or series. As used in the
charter of the Corporation, the terms "charter" and "Articles of Incorporation"
shall mean and include these Articles of Incorporation as amended, supplemented
and restated from time to time whether by Articles of Amendment, Articles
Supplementary, Articles of Restatement or otherwise.

ARTICLE VI

REDEMPTION

(1) Each holder of shares of stock of the Corporation shall be entitled to
require the Corporation to redeem all or any part of the shares of stock of the
Corporation standing in the name of such holder on the books of the Corporation,
and all shares of stock issued by the Corporation shall be subject to redemption
by the Corporation, at the redemption price of such shares as in effect from
time to time as may be determined by the Board of Directors of the Corporation
in accordance with the provisions hereof, subject to the right of the Board of
Directors of the Corporation to suspend the right of redemption of shares of
stock of the Corporation or postpone the date of payment of such redemption
price in accordance with the provisions of applicable law.

(2) All shares of stock of the Corporation shall be redeemable at the
option of the Corporation. The Board of Directors may by resolution from time to
time authorize the Corporation to require the redemption of all or any part of
the outstanding shares of any class or series upon such terms and conditions as
the Board of Directors, in its discretion, shall

9
<PAGE>

deem advisable, and upon the sending of written notice thereof to each holder
whose shares are to be redeemed.

(3) The redemption price of shares of stock of the Corporation shall be the
net asset value thereof as determined by the Board of Directors of the
Corporation or under its direction from time to time in accordance with the
provisions of applicable law, less such redemption or other charge, if any, as
may be fixed by the Board of Directors of the Corporation. Payment of the
redemption price shall be made by the Corporation at such time and in such
manner as may be determined from time to time by the Board of Directors of the
Corporation in accordance with the provisions of applicable law.

ARTICLE VII

DETERMINATION BINDING

Any determination made in good faith and, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to the
direction of the Board of Directors, as to the amount of the assets, debts,

obligations or liabilities of the Corporation (or of any class or series
thereof), as to the amount of net income from dividends and interest for any
period or amounts at any time legally available for the payment of dividends, as
to the amount of any reserves or charges set up and the propriety thereof, as to
the time of or purpose for creating such reserves or charges, as to the use,
alteration or cancellation of any reserves or charges (whether or not any
obligation or liability for which such reserves or charges shall have been
created shall have been paid or discharged or shall be then or thereafter
required to be paid or discharged), as to the price of any security or other

10
<PAGE>

asset owned or held by the Corporation (or any series thereof), as to the number
of shares of the Corporation (or any class or series thereof) outstanding, as to
the estimated expense to the Corporation (or any class or series thereof) in
connection with purchases of its shares, as to the ability to liquidate
securities in an orderly fashion, or as to any other matters, including, but not
limited to, those relating to the issue, sale, purchase and/or other acquisition
or disposition of securities or shares of the Corporation (or any class or
series thereof) shall be final and conclusive, and shall be binding upon the
Corporation and all holders of its shares, past, present and future, and shares
of the Corporation (and any class or series thereof) are issued and sold on the
condition and understanding, evidenced by acceptance of certificates for such
shares by, or confirmation of such shares being held for the account of, any
shareholder, that any and all determinations shall be binding as aforesaid. No
provision of these Articles of Incorporation shall be effective to require a
waiver of compliance with any provision of the Securities Act of 1933, as
amended, or the Investment Company Act, or any valid rule, regulation or order
of the Securities and Exchange Commission thereunder.

ARTICLE VIII

PROVISIONS FOR DEFINING AND REGULATING
CERTAIN POWERS OF THE CORPORATION AND OF
THE DIRECTORS AND STOCKHOLDERS

In furtherance and not in limitation of the powers conferred by the laws of
the State of Maryland the following provisions are hereby adopted for the
purpose of defining and regulating the powers of the Corporation and of the
directors and shareholders.

11
<PAGE>

(1) The Board of Directors of the Corporation is hereby empowered to
authorize, without shareholder approval, the issuance and sale from time to time
of shares of stock of the Corporation of any class or series, whether now or
hereafter authorized, in each case upon such terms and conditions and for such
consideration as such Board of Directors may deem advisable, subject to such

limitations as are contained in these Articles of Incorporation, the By-Laws of
the Corporation, the laws of the State of Maryland, and the Investment Company
Act.

(2) The Corporation may issue fractional shares of stock, which shall carry
proportionately to the respective fractions represented thereby all the rights
of a whole share, including, without limitation, the right to vote and the right
to receive dividends, provided, however, that the Corporation shall not be
required to issue share certificates for such fractional shares.

(3) No holder of stock of the Corporation shall, as such holder, have any
preemptive right to purchase or subscribe for any shares of the stock of the
Corporation or any other security of the Corporation which it may issue or sell
(whether out of the number of shares authorized by the Articles of
Incorporation, or out of any shares of the stock of the Corporation of any class
or series acquired by it after the issue thereof, or otherwise) other than such
right, if any, as the Board of Directors, in its discretion, may determine.

(4) All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of the charter and By-Laws of the
Corporation.

12
<PAGE>

(5) Except as required by law, the holders of stock of the Corporation
shall have only such right to inspect the records, documents, accounts and books
of the Corporation as may be granted by the Board of Directors of the
Corporation.

(6) Notwithstanding any provisions of the Maryland General Corporation Law
requiring a greater proportion than a majority of the votes of all classes or
series of stock of the Corporation (or any class or series entitled to vote
thereon as a separate class or series) to take or authorize any action, the
Corporation is hereby authorized (subject to the requirements of the Investment
Company Act, or any rules, regulations and orders issued thereunder) to take
such action upon the concurrence of a majority of the aggregate number of shares
of stock of the Corporation entitled to vote thereon (or a majority of the
aggregate number of shares of a class or series entitled to vote thereon as a
separate class or series).

(7) The presence in person or by proxy of the holders of shares entitled to
cast one-third of the votes entitled to be cast shall constitute a quorum at any
meeting of stockholders, except with respect to any matter which requires
approval by a separate vote of one or more classes or series of stock, in which
case the presence in person or by proxy of the holders of shares entitled to
cast one-third of the votes entitled to be cast by each class or series entitled
to vote as a separate class or series shall constitute a quorum.

(8) The Corporation reserves the right from time to time to amend, alter or
repeal any provision of these Articles of Incorporation, including, without
limitation, in any manner now or hereafter prescribed by statute, including any

amendment which alters the contract rights, as expressly set forth in the
charter, of any outstanding stock and substantially

13
<PAGE>

adversely affects the stockholder's rights, and all rights conferred upon
stockholders herein are granted subject to this reservation.

(9) The Board of Directors may make, alter and repeal the By-Laws of the
Corporation (without approval of stockholders), except as such power may
otherwise be limited in the By-Laws.

(10) The Board of Directors of the Corporation from time to time may change
the Corporation's name, or change the name or other designation of any class or
series of its stock, without the vote or consent of the stockholders of the
Corporation, in any manner and to the extent now or hereafter permitted by the
General Laws of the State of Maryland and by these Articles of Incorporation.

ARTICLE IX

INDEMNIFICATION AND LIMITATION OF LIABILITY

(1) Subject to any limitations imposed by the Investment Company Act, and
to the maximum extent permitted by the General Laws of the State of Maryland
from time to time in effect, the Corporation shall indemnify its currently
acting and its former directors and officers, whether serving the Corporation or
at its request any other entity, including the advance of expenses under the
procedures and to the full extent permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions, and is
expressly empowered to adopt,

14
<PAGE>

approve and amend from time to time such By-Laws, resolutions or contracts
implementing such provisions or such further indemnification arrangements as may
be permitted by law. Neither the amendment nor repeal of this Article IX, nor
the adoption or amendment of any other provision of these Articles of
Incorporation or the By-Laws of the Corporation inconsistent with this Article,
shall apply to or affect in any respect the rights of indemnification provided
hereunder with respect to acts or omissions occurring prior to such amendment,
repeal or adoption.

(2) Subject to any limitation imposed by the Investment Company Act, to the
maximum extent permitted by the General Laws of the State of Maryland from time
to time in effect, no director or officer of the Corporation shall be liable to

the Corporation or its stockholders for money damages. Neither the amendment of
these Articles of Incorporation nor the repeal of any provision hereof, shall
limit or eliminate the benefits provided to directors and officers under this
provision in connection with any act or omission that occurred prior to such
amendment or repeal.

(3) Nothing in these Articles of Incorporation shall be construed to
protect any director or officer of the Corporation against any liability to the
Corporation or its shareholders to which such director or officer 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 or
her office.

15
<PAGE>

ARTICLE X

DIRECTORS

The number of directors of the Corporation shall be three (3), which number
may be increased or decreased pursuant to the By-Laws of the Corporation, but
shall never be less than the number prescribed by the Maryland General
Corporation Law. The names of the persons who shall act as directors of the
Corporation until the first annual meeting of shareholders or until their
successors are duly elected and qualify are:

James O'Shaughnessy
Steven J. Paggioli
Robin Berger

ARTICLE XI

PERPETUAL EXISTENCE

The duration of the Corporation shall be perpetual.

IN WITNESS WHEREOF, the undersigned incorporator of O'Shaughnessy Funds,
Inc. hereby executes the foregoing Articles of Incorporation, acknowledges the
same to be her act and that to the best of her knowledge, the matters and facts
set forth herein are true in all material respects and that this statement is
made under the penalties of perjury.

Dated: May 16, 1996

/s/ Valerie A. Zondorak
----------------------------
Valerie A. Zondorak

<PAGE>
O'SHAUGHNESSY FUNDS, INC.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION

O'Shaughnessy Funds, Inc., a Maryland corporation having its principal
Maryland office c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland, 21202 (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: The charter of the Corporation is hereby amended by these Articles
of Amendment as follows:

In each instance in which the words "O'Shaughnessy Cornerstone
Value(TM) Fund" and "O'Shaughnessy Cornerstone Growth(TM) Fund" appear in
Article V of the Corporation's Articles of Incorporation, designating two
of the Corporation's series of common stock, the letters "(TM)" shall be
deleted and the names of these series hereinafter shall be designated
"O'Shaughnessy Cornerstone Value Fund" and "O'Shaughnessy Cornerstone
Growth Fund," respectively.

SECOND: The foregoing amendment has been effected in the manner and by the
vote required by the Corporation's charter and the laws of the State of
Maryland. The amendment was approved by a majority of the entire Board of
Directors of the Corporation; and at the time of approval by the Board of
Directors there were no shares of stock of the Corporation entitled to vote on
the matter either outstanding or subscribed for.

THIRD: Except as amended hereby, the Corporation's charter shall remain in
full force and effect.

FOURTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.

The President acknowledges these Articles of Amendment to the corporate act
of the Corporation and states that to the best of his knowledge, information and
belief, the matters set forth in these Articles of Amendment with respect to the
authorization and approval of the amendment of the Corporation's charter are
true in all material respects, and that this statement is made under the
penalties for perjury.
<PAGE>

IN WITNESS WHEREOF, O'SHAUGHNESSY FUNDS, INC. has caused these Articles of
Amendment to be signed in its name and on its behalf by its President, a duly
authorized officer of the Corporation, and attested by its Secretary effective
the 2nd day of July, 1996.

O'SHAUGHNESSY FUNDS, INC.

By: /s/ James O'Shaughnessy

-----------------------------
James O'Shaughnessy
President

ATTEST:

/s/ Robin Berger
- --------------------------
Robin Berger
Secretary

<PAGE>
BY-LAWS

O'SHAUGHNESSY FUNDS, INC.

ARTICLE I

Meetings of Stockholders

Section 1. Annual Meeting. So long as the Corporation is registered as an
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act," such term to include the rules and regulations
promulgated under the Investment Company Act unless otherwise specified or the
context otherwise requires), annual meetings of the stockholders shall not be
held except where required to be held by the Investment Company Act or by the
Maryland General Corporation Law or when called by the Board of Directors or by
an officer or officers authorized to take such action by the Board of Directors.
If in any calendar year the Corporation is required or elects to hold an annual
meeting, the meeting shall be held on such day, not a Saturday, Sunday or legal
holiday, as the Board of Directors or the officer or officers calling the
meeting may prescribe. At each such annual meeting, the stockholders shall elect
a Board of Directors and transact such other business as may properly come
before the meeting. The provisions of these By-Laws which contemplate the
holding of an annual meeting of stockholders shall be suspended during any
calendar year in which no annual meeting of stockholders is held.

Section 2. Special Meetings. Special meetings of the stockholders, unless
otherwise provided by law or by the Articles of Incorporation (such term to
include the Articles of Incorporation of the Corporation as the same may be
amended, supplemented or restated from time to time), may be called for any
purpose or purposes by a majority of the Board of Directors, the Chairman of the
Board, the President, or on the written request of at least 10% of the holders
of the outstanding shares of capital stock of the Corporation entitled to be
cast at such meeting to the extent permitted by Maryland law.

Section 3. Place of Meetings. The annual meeting and any special meeting of
the stockholders shall be held at such place within the United States as the
Board of Directors may from time to time determine.

Section 4. Notice of Meetings; Waiver of Notice. Notice of the place, date
and time of the holding of each annual and special meeting of the stockholders
and the purpose or purposes of each special meeting shall be given personally or
by mail, not less than ten nor more than ninety days before the date of such
meeting, to each stockholder entitled to vote at such meeting and to each other
stockholder entitled to notice of the meeting. Notice by mail shall be deemed
<PAGE>

to be duly given when deposited in the United States mail addressed to the
stockholder at his address as it appears on the records of the Corporation, with
postage thereon prepaid.

Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or the adjournment is for more than
one hundred and twenty days after the original record date, notice of such
adjourned meeting need not be given if the time and place to which the meeting
shall be adjourned were announced at the meeting at which the adjournment is
taken.

Section 5. Quorum. At all meetings of the stockholders, the holders of
shares entitled to cast one-third of the votes entitled to be cast, present in
person or by proxy, shall constitute a quorum for the transaction of any
business, except as otherwise provided by statute or by the Articles of
Incorporation. In the absence of a quorum no business may be transacted, except
that the holders of a majority of the shares of stock present in person or by
proxy and entitled to vote may adjourn the meeting from time to time, without
notice other than announcement thereat except as otherwise required by these
By-Laws, until the holders of the requisite amount of shares of stock shall be
so present. At any such adjourned meeting at which a quorum may be present any
business may be transacted which might have been transacted at the meeting as
originally called. The absence from any meeting, in person or by proxy, of
holders of the number of shares of stock of the Corporation in excess of a
majority thereof which may be required by the laws of the State of Maryland, the
Investment Company Act, or other applicable statute, the Articles of
Incorporation, or these By-Laws, for action upon any given matter shall not
prevent action at such meeting upon any other matter or matters which may
properly come before the meeting, if there shall be present thereat, in person
or by proxy, holders of the number of shares of stock of the Corporation
required for action in respect of such other matter or matters.

Section 6. Organization. At each meeting of the stockholders, the Chairman
of the Board (if one has been designated by the Board), or in his absence or
inability to act, the President, or in the absence or inability to act of the
Chairman of the Board and the President, a Vice President, shall act as chairman
of the meeting. The Secretary, or in his absence or inability to act, any person
appointed by the chairman of the meeting, shall act as secretary of the meeting
and keep the minutes thereof.

Section 7. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.

Section 8. Voting. Except as otherwise provided by statute or the Articles
of Incorporation, each holder of record of shares of stock of the Corporation
having voting power shall be entitled at each meeting of the stockholders to one
vote for every share of such stock standing in his name on the record of
stockholders of the Corporation as of the record date

2
<PAGE>

determined pursuant to Section 9 of this Article or if such record date shall

not have been so fixed, then at the later of (i) the close of business on the
day on which notice of the meeting is mailed or (ii) the thirtieth day before
the meeting.

Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these By-Laws,
any corporate action to be taken by vote of the stockholders (other than the
election of directors which shall be by plurality vote) shall be authorized by a
majority of the total votes cast at a meeting of stockholders by the holders of
shares present in person or represented by proxy and entitled to vote on such
action.

If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.

Section 9. Fixing of Record Date. The Board of Directors may set a record
date for the purpose of determining stockholders entitled to vote at any meeting
of the stockholders. The record date, which may not be prior to the close of
business on the day the record date is fixed, shall be not more than ninety nor
less than ten days before the date of the meeting of stockholders. All persons
who were holders of record of shares at such time, and not others, shall be
entitled to vote at such meeting and any adjournment thereof.

Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath to execute faithfully the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting powers of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a

<PAGE>

certificate of any fact found by them. No director or candidate for the office
of director shall act as inspector of an election of directors. Inspectors need
not be stockholders.

Section 11. Consent of Stockholders in Lieu of Meeting. Except as otherwise
provided by statute or the Articles of Incorporation, any action required to be
taken at any annual or special meeting of stockholders, or any action which may
be taken at any annual or special meeting of stockholders, may be taken without
a meeting, without prior notice and without a vote, if the following are filed
with the records of stockholders meetings: (i) a unanimous written consent which
sets forth the action and is signed by each stockholder entitled to vote on the
matter, and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote thereat.

ARTICLE II

Board of Directors

Section 1. General Powers. Except as otherwise provided in the Articles of
Incorporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the stockholders by law or by the Articles of Incorporation or
these By-Laws.

Section 2. Number of Directors. The number of directors shall be fixed from
time to time by resolution adopted by a majority of the directors then in
office; provided, however, that the number of directors shall in no event be
less than the number required by the Maryland General Corporation Law. Any
vacancy created by an increase in directors may be filled in accordance with
Section 6 of this Article II. No reduction in the number of directors shall have
the effect of removing any director from office prior to the expiration of his
term unless such director is specifically removed pursuant to Section 5 of this
Article II at the time of such decrease. Directors need not be stockholders.

Section 3. Term of Directors. The term of office of each director shall be
from the time of his election and qualification until the election of directors
next succeeding his election and until his successor shall have been elected and
shall have qualified, or until his death, or until he shall have resigned, or
until he shall have been removed as hereinafter provided in these By-Laws, or as
otherwise provided by statute or the Articles of Incorporation.

Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.

<PAGE>

Section 5. Removal of Directors. Any director of the Corporation may be
removed with or without cause by the stockholders by a vote of a majority of the
outstanding shares of stock then entitled to be cast in the election of
directors. This Section 5 of Article II of the By-Laws is not subject to
alteration or repeal by the Board of Directors, subject to the requirements of
the Investment Company Act of 1940, as amended.

Section 6. Vacancies. Subject to the provisions of the Investment Company
Act, any vacancies in the Board, whether arising from death, resignation,
removal, an increase in the number of directors or any other cause, shall be
filled by a vote of the Board of Directors as provided by statute.

Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.

Section 8. Regular Meeting. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.

Section 9. Special Meetings. Special meetings of the Board may be called by
two or more directors of the Corporation or by the Chairman of the Board or the
President.

Section 10. Telephone Meetings. Members of the Board of Directors or of any
committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the provisions of
the Investment Company Act, participation in a meeting by these means
constitutes presence in person at the meeting.

Section 11. Notice of Special Meetings. Notice of each special meeting of
the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.

Section 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice which is filed with the records of the meeting
or who shall attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver of notice of any meeting need not state the
purposes of such meeting.

Section 13. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by the

5
<PAGE>

Articles of Incorporation, these By-Laws, the Investment Company Act, or other
applicable statute, the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn such meeting to another time and place until a
quorum shall be present thereat. Notice of the time and place of any such
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.

Section 14. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his absence
or inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.

Section 15. Written Consent of Directors in Lieu of a Meeting. Subject to
the provisions of the Investment Company Act, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writings or writing are filed
with the minutes of the proceedings of the Board or committee.

Section 16. Compensation. Directors may receive compensation for services
to the Corporation in their capacities as directors or otherwise in such manner
and in such amounts as may be fixed from time to time by the Board.

ARTICLE III

Committees

Section 1. Executive Committee. The Board may, by resolution adopted by a
majority of the entire Board, designate an Executive Committee consisting of two
or more of the directors of the Corporation, which committee shall have and may
exercise all the powers and authority of the Board with respect to all matters
other than:

(a) the recommendation or submission to stockholders of any action
requiring authorization of stockholders pursuant to statute or the
Articles of Incorporation;

(b) the filling of vacancies on the Board of Directors;

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(c) the fixing of compensation of the directors for serving on the Board
or on any committee of the Board, including the Executive Committee;

(d) the approval or termination of any contract with an investment adviser
or principal underwriter, as such terms are defined in the Investment
Company Act, or the taking of any other action required to be taken by
the Board of Directors by the Investment Company Act;

(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;

(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;

(g) the declaration of dividends or distributions on stock and the
issuance of stock of the Corporation; and

(h) the approval of any merger or share exchange which does not require
stockholder approval.

The Executive Committee shall keep written minutes of its proceedings and
shall report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.

Section 2. Other Committees of the Board. The Board of Directors may from
time to time, by resolution adopted by a majority of the whole Board, designate
one or more other committees of the Board, each such committee to consist of two
or more directors and to have such powers and duties as the Board of Directors
may, by resolution, prescribe.

Section 3. General. One third, but not less than two, of the members of any
committee shall be present in person at any meeting of such committee in order
to constitute a quorum for the transaction of business at such meeting, and the
act of a majority present shall be the act of such committee. The Board may
designate a chairman of any committee and such chairman or any two members of
any committee may fix the time and place of its meetings unless the Board shall
otherwise provide. In the absence or disqualification of any member of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board shall
have the power at any time to change the membership of any committee, to fill
all vacancies, to designate alternate members to replace any absent or
disqualified member, or to dissolve any such committee. Nothing herein shall be
deemed to prevent the Board from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation; provided,
however, that no such committee shall have or may exercise any authority

<PAGE>

or power of the Board in the management of the business or affairs of the
Corporation, except as may be prescribed by the Board.

ARTICLE IV

Officers, Agents and Employees

Section 1. Number, Qualification, Election and Tenure. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more offices
may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity. Such officers shall be elected annually at a regular or
special meeting of the Board of Directors, each to hold office until his
successor shall have been duly elected and shall have qualified, or until his
death, or until he shall have resigned, or have been removed, as hereinafter
provided in these By-Laws. The Board may from time to time elect, or delegate to
the President the power to appoint, such officers (including one or more
Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents, as may be necessary or desirable for the
business of the Corporation. Such officers and agents shall have such duties and
shall hold their offices for such terms as may be prescribed by the Board or by
the appointing authority.

Section 2. Resignations. Any officer of the Corporation may resign at any
time by giving written notice of resignation to the Board, the Chairman of the
Board, the President or the Secretary. Any such resignation shall take effect at
the time specified therein or, if the time when it shall become effective shall
not be specified therein, immediately upon its receipt. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.

Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.

Section 4. Vacancies. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to such office.

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Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.

Section 6. Bonds or Other Security. If required by the Board, any officer,
agent or employee of the Corporation shall give a bond or other security for the
faithful performance of his duties, in such amount and with such surety or
sureties as the Board may require.

Section 7. President. The President shall be the chief executive officer of
the Corporation. In the absence of the Chairman of the Board (or if there be
none), the President shall preside at all meetings of the stockholders and of
the Board of Directors. He shall have, subject to the control of the Board of
Directors, general charge of the business and affairs of the Corporation. He may
employ and discharge employees and agents of the Corporation, except such as
shall be appointed by the Board, and he may delegate these powers.

Section 8. Vice President. Each Vice President shall have such powers and
perform such duties as the Board of Directors or the President may from time to
time prescribe.

Section 9. Treasurer. The Treasurer shall:

(a) have charge and custody of, and be responsible for, all the funds and
securities of the Corporation, except those which the Corporation has
placed in the custody of a bank or trust company or member of a
national securities exchange (as that term is defined in the
Securities Exchange Act of 1934, as amended) pursuant to a written
agreement designating such bank or trust company or member of a
national securities exchange as custodian of the property of the
Corporation;

(b) keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation;

(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;

(e) disburse the funds of the Corporation and supervise the investment of
its funds as ordered or authorized by the Board, taking proper
vouchers therefor; and

(f) in general, perform all the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him by
the Board or the President.

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Section 10. Secretary. The Secretary shall:

(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of
the Board and the stockholders;

(b) see that all notices are duly given in accordance with the provisions
of these By- Laws and as required by law;

(c) be custodian of the records and the seal of the Corporation and, if
required, affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificate
shall be a facsimile, as hereinafter provided) and affix and attest
the seal to all other documents to be executed on behalf of the
Corporation under its seal;

(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are
properly kept and filed; and

(e) in general, perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by
the Board or the President.

Section 11. Delegation of Duties. In case of the absence of any officer of
the Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board may confer for the time being, the powers or duties, or
any of them, of such officer upon any other officer or upon any director.

ARTICLE V

Indemnification

Each officer and director of the Corporation shall be indemnified by the
Corporation to the full extent permitted under the General Laws of the State of
Maryland, except that such indemnity shall not protect any such person against
any liability to the Corporation or any stockholder thereof to which such person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. Absent a court determination that an officer or director seeking
indemnification was not liable on the merits or guilty of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office, the decision by the Corporation to indemnify such person
must be based upon the reasonable determination of independent legal counsel or
the vote of a majority of a quorum of the directors who are neither "interested
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

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director is not guilty of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.

The Corporation may indemnify, make advances or purchase insurance to the
extent provided in this Article V on behalf of an employee or agent who is not
an officer or director of the Corporation.

ARTICLE VI

Stock

Section 1. Stock Certificates. If so determined by resolution of the Board
of Directors, each holder of stock of the Corporation shall be entitled upon
request to have a certificate or certificates, in such form as shall be approved
by the Board of Directors, representing the number of shares of stock of the
Corporation owned by him, provided, however, that certificates for fractional
shares will not be delivered in any case. Certificates representing shares of
stock shall be signed by or in the name of the Corporation by the President or a
Vice President or the

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Chairman of the Board and by the Secretary or an Assistant Secretary or the

Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation.
Any or all of the signatures or the seal on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate shall be
issued, it may be issued by the Corporation with the same effect as if such
officer, transfer agent or registrar were still in the office at the date of
issue.

Section 2. Books of Account and Record of Stockholders. There shall be kept
at the principal executive office of the Corporation correct and complete books
and records of account of all the business and transactions of the Corporation.

Section 3. Transfer of Shares. Transfer of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for such shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.

Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.

Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
alleged to have been lost or destroyed or which shall have been mutilated, and
the Board of Directors may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board of Directors, in its absolute
discretion, may refuse to issue any such new certificate, except pursuant to
legal proceedings under the laws of the State of Maryland.

<PAGE>

Section 6. Fixing of a Record Date for Dividends and Distributions. The
Board may fix, in advance, a date not more than ninety days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of interests or evidences of interests arising out of any
changes, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.

ARTICLE VII

Seal

The seal of the Corporation shall be in the form determined by the Board of
Directors and shall bear, in addition to any other emblem or device approved by
the Board of Directors, the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Maryland". Said seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced. If the Corporation is required to place its seal to a
document, it is sufficient to meet the requirements of any law, rule or
regulation relating to a corporate seal to place the word "(seal)" adjacent to
the signature of the person authorized to sign the document on behalf of the
Corporation.

ARTICLE VIII

Fiscal Year

The fiscal year of the Corporation shall be as determined by the Board of
Directors from time to time.

ARTICLE IX

Execution of Instruments

Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts, acceptances,
bills of exchange and other orders or obligations for the payment of money shall
be signed by such officer or officers or person or persons as the Board of
Directors by resolution shall from time to time designate.

Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws and pursuant to authorization by the Board of
Directors and, when so authorized to be held on behalf of the Corporation or
sold, transferred or otherwise disposed of, may be transferred from the name of

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the Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.

ARTICLE X

Amendments

These By-Laws or any of them may be amended, altered or repealed at any
regular meeting of the stockholders or at any special meeting of the
stockholders by a favorable vote of the holders of not less than a majority of
all votes cast on the matter at such meeting, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors, except any particular By-Law which is
specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act.