O'Shaughnessy Cornerstone Growth Fund
O'Shaughnessy Cornerstone Value Fund
May 19, 1998
Dear fellow Shareholder:
What is the single greatest obstacle to successful investing? In all my research
over the years, I've come to see that the greatest obstacle to investment
success stares at us every morning in the mirror.
Some of the research I did for my new book, How to Retire Rich, reveals some
extremely alarming information. During one of the greatest bull markets in
history, most equity mutual fund investors barely stayed ahead of T-bills! In a
study of investor performance over a recent ten-year period, Dalbar Financial
Services found that while the S&P 500 had a gain of 293 percent, investors in
equity mutual funds actually earned only 70 to 90 percent! That's a three to one
difference. The huge chasm between the two was attributed to investors trying to
time the market, thus failing to keep their money in the stock market for the
entire ten years.
We live in the here-and-now, and can't help but focus on what's happening today.
But when it comes to investing, focusing on the here-and-now is the worst thing
you can do. The best thing you can do is find a great strategy and let it work.
For period of October 1, 1997 to March 31, 1998, our Cornerstone Growth and
Cornerstone Value Funds had a return of (1.99)% and 12.27%, respectively. We are
not concerned with the nature of this short-term performance; we strongly
believe that the most important thing to focus on is our long-term goals.
If you find yourself focusing on how one stock or another is performing, or how
your portfolio performed today, you're on the wrong path. We believe the reason
80 percent of conventional money managers have so far failed to beat the S&P 500
over the long term is because they are inexorably swayed by the short term. No
one can tell you which way the market will head over the short-term. There is no
credible way to call the next 15-percentage point move in the averages. But it's
my firm belief that the next 100 percent move in the market will be up.
Enclosed is the semi-annual report for the O'Shaughnessy Cornerstone Growth and
Cornerstone Value Funds. The report contains financial statements for the Funds
during the six-month period ended March 31, 1998, and the Fund's portfolio on
that date.
Sincerely,
/s/ James P. O'Shaughnessy
James P. O'Shaughnessy
<PAGE>
2
O'Shaughnessy Cornerstone Growth Fund
<TABLE>
<CAPTION>
TOP TEN PORTFOLIO HOLDINGS at March 31,1998
- -------------------------------------------------------------------------------------------------------
Percent of Net Assets
- -------------------------------------------------------------------------------------------------------
<S> <C>
American Eagle Outfitters................................................ 3.26%
Best Buy Company, Inc.................................................... 3.12%
Musicland Stores Corp.................................................... 2.67%
Avid Technology, Inc..................................................... 2.66%
Bally Total Fitness Holding Corp......................................... 2.49%
Trans World Entertainment................................................ 2.47%
Navistar International................................................... 2.44%
Cablevision Systems - Class A............................................ 2.37%
Whole Foods Market, Inc.................................................. 2.35%
Dycom Industries, Inc.................................................... 2.25%
</TABLE>
O'Shaughnessy Cornerstone Value Fund
<TABLE>
<CAPTION>
TOP TEN PORTFOLIO HOLDINGS at March 31,1998
- -------------------------------------------------------------------------------------------------------
Percent of Net Assets
- -------------------------------------------------------------------------------------------------------
<S> <C>
Tele Danmark - A/S, Sponsored ADR........................................ 2.62%
Southern New England Telecom............................................. 2.55%
British Telecommunications PLC, ADR...................................... 2.41%
Frontier Corp............................................................ 2.40%
Ford Motor Company....................................................... 2.37%
Lyondell Petrochemical Company........................................... 2.28%
Freeport - McMoran C&G................................................... 2.24%
J.C. Penney Company, Inc................................................. 2.22%
Koninklijke PTT Nederland NV, Sponsored ADR.............................. 2.21%
U.S. West Communications................................................. 2.15%
</TABLE>
<PAGE>
3
O'Shaughnessy Cornerstone Growth Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 99.36% Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Air Courier: 2.09%
43,892 Airborne Freight Corp........................................ $ 1,651,436
-----------
Air Transportation, Scheduled: 2.05%
21,810 US Airways Group, Inc.*...................................... 1,616,666
-----------
Air-Conditioning, Heating, Refrigeration
Equipment: 1.83%
162,754 International Comfort Products Corp.*........................ 1,444,442
-----------
Apparel and Other Finished Products: 2.08%
41,302 OshKosh B'Gosh, Inc.......................................... 1,649,499
-----------
Bottled and Canned Soft Drinks, Water: 1.78%
38,303 Coca-Cola Enterprises........................................ 1,405,241
-----------
Cable and Other Pay TV Services: 2.37%
28,488 Cablevision Systems - Class A*............................... 1,873,086
-----------
Catalog and Mail-Order Houses: 1.98%
454,390 Hanover Direct, Inc.*........................................ 1,561,966
-----------
Converted Paper Products: 1.61%
33,669 Mail-Well, Inc.*............................................. 1,275,213
-----------
Electronic Computer Accessories: 1.83%
42,665 CTS Corp..................................................... 1,447,943
-----------
Electronic Connectors: 1.79%
24,468 Amphenol Corp. - Class A*.................................... 1,411,498
-----------
Fabricated Plate Work: 2.22%
56,773 Aavid Thermal Technologies, Inc.*............................ 1,752,866
-----------
Family Clothing Stores: 3.26%
58,579 American Eagle Outfitters*................................... 2,577,476
-----------
</TABLE>
<PAGE>
4
O'Shaughnessy Cornerstone Growth Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited), Continued
- -------------------------------------------------------------------------------------------------------
Shares Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Flat Glass: 1.59%
104,345 Vitro, Sociedad Anonima, Sponsored ADR....................... $ 1,252,140
-----------
General Industrial Machinery: 2.02%
53,842 Gardner Denver Machinery, Inc.*.............................. 1,595,069
-----------
Grocery Stores: 2.35%
26,649 Whole Foods Market, Inc.*.................................... 1,858,768
-----------
Hobby, Toy and Game Shops: 2.21%
46,618 Michael's Stores, Inc.*...................................... 1,742,348
-----------
Home Furniture and Equipment Stores: 2.18%
31,283 Linens `n Things*............................................ 1,718,610
-----------
Industrial Trucks, Tractors, Trailers: 1.99%
58,000 Terex Corp.*................................................. 1,569,625
-----------
Jewelry, Silverware, Plated Ware: 1.97%
51,048 Oneida Ltd................................................... 1,556,964
-----------
Membership Sports and Recreation: 2.49%
62,294 Bally Total Fitness Holding Corp.*........................... 1,962,261
-----------
Miscellaneous Shopping Goods Stores: 2.02%
40,825 Barnes & Noble, Inc.*........................................ 1,592,175
-----------
Motor Homes: 1.90%
41,438 National RV Holdings, Inc.*.................................. 1,496,948
-----------
Motor Vehicles and Car Bodies: 2.44%
54,933 Navistar International*...................................... 1,922,655
-----------
Oil and Gas Field Services: 1.74%
54,524 Stolt Comex Seaway S.A., Sponsored ADR*...................... 1,373,323
-----------
</TABLE>
<PAGE>
5
O'Shaughnessy Cornerstone Growth Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited), Continued
- -------------------------------------------------------------------------------------------------------
Shares Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operative Builders: 3.53%
49,344 Crossmann Communities, Inc.*................................. $ 1,464,900
87,238 Standard Pacific Corp........................................ 1,324,927
-----------
2,789,827
-----------
Paper and Paper Products - Wholesale: 2.22%
28,353 United Stationers, Inc.*..................................... 1,752,570
-----------
Petroleum Refining: 1.65%
171,751 Wainoco Oil Corp............................................. 1,298,867
-----------
Photographic Equipment and Supply: 2.66%
50,980 Avid Technology, Inc.*....................................... 2,096,553
-----------
Printed Circuit Boards: 1.36%
50,026 DII Group, Inc.*............................................. 1,075,559
-----------
Public Building and Related Furnishings: 1.49%
48,663 Virco Manufacturing Corp..................................... 1,173,995
-----------
Radio, TV Broadcast, Communications Equipment: 1.49%
70,813 Spectrian Corp.*............................................. 1,177,266
-----------
Radio, TV, Cons Electronic Stores: 3.12%
36,940 Best Buy Company, Inc.*...................................... 2,461,128
-----------
Radiotelephone Communications: 1.64%
62,839 Grupo Iusacell SA de CV, Sponsored ADR*..................... 1,296,054
-----------
Railroad Equipment: 2.05%
58,613 MotivePower Industries*...................................... 1,619,184
-----------
Real Estate Agents and Manager: 1.28%
99,575 Grubb & Ellis Company*....................................... 1,008,197
-----------
Record and Prerecorded Tape Stores: 5.14%
186,404 Musicland Stores Corp.*...................................... 2,108,695
70,336 Trans World Entertainment Group*............................. 1,951,824
-----------
4,060,519
-----------
</TABLE>
<PAGE>
6
O'Shaughnessy Cornerstone Growth Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited), Continued
- -------------------------------------------------------------------------------------------------------
Shares Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Refrigeration and Service Industry Machines: 1.52%
65,906 Tokheim Corp.*............................................... $ 1,202,785
-----------
Rolling and Draw Nonferrous Metal: 1.82%
44,437 Encore Wire Corp.*........................................... 1,438,648
-----------
Security Brokers and Dealers: 3.57%
55,206 Advest Group, Inc............................................ 1,359,448
17,175 Donaldson, Lufkin & Jenrette Securities Corp................. 1,457,728
-----------
2,817,176
-----------
Ship and Boat Building and Repairing: 1.95%
37,213 McDermott International...................................... 1,537,362
-----------
Steel Pipe and Tube: 1.21%
53,842 Maverick Tube Corp.*......................................... 952,330
-----------
Steel Works and Blast Furnaces: 1.46%
78,992 NS Group, Inc.*.............................................. 1,155,258
-----------
Title Insurance: 2.04%
43,824 Fidelity National Financial, Inc............................. 1,610,532
-----------
Trucking, Except Local: 1.94%
139,786 Arkansas Best Corp.*......................................... 1,528,909
-----------
Variety Stores: 4.18%
77,901 Ames Department Stores*...................................... 1,645,659
66,519 Fred's, Inc. - Class A....................................... 1,654,660
-----------
3,300,319
-----------
Water, Sewer, Pipeline Construction: 2.25%
63,248 Dycom Industries, Inc.*...................................... 1,774,897
-----------
Total Common Stocks (cost $68,027,666)....................... 78,436,153
-----------
</TABLE>
<PAGE>
7
O'Shaughnessy Cornerstone Growth Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited), Continued
- -------------------------------------------------------------------------------------------------------
Principal Amount SHORT-TERM INVESTMENTS: 0.62% Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
$164,520 General Mills Demand Note, 5.2925%, due 4/1/1998+............ $ 164,520
167,037 Johnson Controls Demand Note, 5.2925%, due 4/1/1998+......... 167,037
158,385 Pitney Bowes Demand Note, 5.2925%, due 4/1/1998+............. 158,385
-----------
Total Short-Term Investments (cost $489,942)................. 489,942
-----------
Total Investments in Securities (cost $68,517,608++): 99.98%. 78,926,095
Other Assets less Liabilities: 0.02%......................... 18,488
-----------
Total Net Assets: 100.0% .................................... $78,944,583
===========
</TABLE>
*Non-income producting security.
+Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates. The
rates listed are as of March 31, 1998.
++At March 31, 1998, the cost of securities for Federal tax purposes was the
same as the basis for financial reporting. Unrealized appreciation and
depreciation of securities were as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation................................ $12,210,778
Gross unrealized depreciation................................ (1,802,291)
-----------
Net unrealized appreciation............................ $10,408,487
===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
8
O'Shaughnessy Cornerstone Value Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 99.21% Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Books, Publishing and Printing: 2.05%
17,182 Readers Digest Association, Class A.......................... $ 469,283
---------
Chemicals and Allied Products: 1.93%
6,248 Imperial Chemical Industries, ADR............................ 442,790
---------
Cigarettes: 1.63%
8,966 Philip Morris Companies, Inc................................. 373,770
---------
Commercial Banks, NEC: 3.75%
5,741 National Australia Bank Ltd., Sponsored ADR.................. 413,352
4,057 National Westminster Bank, ADR............................... 445,256
---------
858,608
---------
Cookies and Crackers: 1.48%
10,812 RJR Nabisco Holdings Corp.................................... 338,551
---------
Crude Petroleum and Natural Gas: 1.77%
13,835 Occidental Petroleum Corp.................................... 405,538
---------
Department Stores: 2.22%
6,715 J.C. Penney Company, Inc..................................... 508,242
---------
Grain, Mill Products: 1.88%
5,660 General Mills, Inc........................................... 430,160
---------
Industrial Inorganic Chemicals: 1.78%
12,313 BOC Group PLC, ADR........................................... 406,329
---------
Industrial Organic Chemicals: 1.81%
8,723 Arco Chemical Company........................................ 413,252
---------
Investors, NEC: 2.02%
10,082 Anglo-American Corp. of South Africa Ltd., Unsponsored ADR... 462,512
---------
Life Insurance: 1.95%
21,645 B.A.T. Industries PLC, Sponsored ADR......................... 446,428
---------
</TABLE>
<PAGE>
9
O'Shaughnessy Cornerstone Value Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited), Continued
- -------------------------------------------------------------------------------------------------------
Shares Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lumber and Wood Products Ex Furniture: 2.04%
8,277 Weyerhaeuser Company......................................... $ 467,651
---------
Metal Mining: 2.24%
25,763 Freeport-McMoran C&G......................................... 513,650
---------
Miscellaneous Nondurable Goods - Wholesale: 1.74%
24,221 Minorco, Sponsored ADR....................................... 399,268
---------
Motor Vehicle Parts, Accessory: 1.91%
10,265 Tenneco, Inc. (New).......................................... 438,187
---------
Motor Vehicle Supply, New Parts - Wholesale: 1.64%
47,732 Pacific Dunlop Ltd., Sponsored ADR........................... 375,890
---------
Motor Vehicles and Car Bodies: 6.42%
11,522 Chrysler Corp................................................ 478,883
8,358 Ford Motor Company........................................... 541,703
6,674 General Motors Corp.......................................... 450,078
---------
1,470,664
---------
Paper Mills: 1.97%
7,567 Union Camp Corp.............................................. 452,128
---------
Petroleum Refining: 13.47%
4,767 Amoco Corp................................................... 411,750
5,071 Atlantic Richfield Company................................... 398,707
5,274 Chevron Corp................................................. 423,568
15,316 Lyondell Petrochemical Company............................... 521,701
5,619 Mobil Corp................................................... 430,556
7,465 Texaco, Inc.................................................. 449,766
12,719 Ultramar Diamond Shamrock.................................... 448,345
---------
3,084,393
---------
Pharmaceutical Preparations: 2.12%
11,076 Pharmacia & Upjohn, Inc...................................... 484,575
---------
</TABLE>
<PAGE>
10
O'Shaughnessy Cornerstone Value Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited), Continued
- -------------------------------------------------------------------------------------------------------
Shares Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plastics, Resing, Elastomers: 3.71%
3,996 Dow Chemical Co.............................................. $ 388,611
6,816 Eastman Chemical Co.......................................... 459,654
----------
848,265
----------
Primary Nonferrous Metals: 1.84%
6,512 Phelps Dodge Corp............................................ 420,431
----------
Services to Motion Picture Production: 2.15%
36,068 Rank Group PLC, Sponsored ADR................................ 491,427
----------
State Commercial Banks: 1.90%
3,611 Bankers Trust New York Corp.................................. 434,448
----------
Steel Works and Blast Furnaces: 6.13%
18,927 British Steel PLC, Sponsored ADR............................. 458,980
21,929 Broken Hill Proprietary Co. - Class A........................ 453,656
12,983 USX-U.S. Steel Group......................................... 490,108
----------
1,402,744
----------
Steel Works, Roll and Finish Mill: 1.95%
24,586 Worthington Industries, Inc.................................. 445,621
----------
Telephone Communications: 23.71%
4,463 Bell Atlantic Corp........................................... 457,458
5,051 British Telecommunication PLC, ADR........................... 552,453
16,898 Frontier Corp................................................ 550,241
7,769 GTE Corp..................................................... 465,169
19,677 Hong Kong Telecom Ltd., ADR.................................. 411,987
9,778 Koninkiijke PTT Nederland NV, Sponsored ADR.................. 506,623
8,074 Southern New England Telecom................................. 583,851
10,467 Telecom Corp. of New Zealand Ltd., Sponsored ADR............. 402,325
13,165 Tele Danmark - A/S, Sponsored ADR............................ 600,653
11,340 Telecom de Argentina, Sponsored ADR.......................... 406,114
8,987 U.S. West Communications Group............................... 492,038
----------
5,428,912
----------
Total Common Stocks (cost $19,816,651)....................... 22,713,717
----------
</TABLE>
<PAGE>
11
O'Shaughnessy Cornerstone Value Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited), Continued
- -------------------------------------------------------------------------------------------------------
Principal Amount SHORT-TERM INVESTMENTS: 0.32% Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
$72,659 Johnson Controls Demand Note, 5.2925%, due 4/1/1998+
(cost $72,659)............................................... $ 72,659
-----------
Total Investments in Securities (cost $19,889,310++): 99.53%. 22,786,376
Other Assets less Liabilities: 0.47%......................... 107,456
-----------
Total Net Assets: 100.0% .................................... $22,893,832
===========
</TABLE>
+Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates. The
rates listed are as of March 31, 1998.
++At March 31, 1998, the cost of securities for Federal tax purposes was the
same as the basis for financial reporting. Unrealized appreciation and
depreciation of securities were as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation................................ $ 3,015,583
Gross unrealized depreciation................................ (118,517)
-----------
Net unrealized appreciation............................ $ 2,897,066
===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
12
O'Shaughnessy Cornerstone Growth Fund
O'Shaughnessy Cornerstone Value Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at March 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------------------------------
Cornerstone Cornerstone
Growth Fund Value Fund
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in securities, at value (identified cost $68,517,608
and $19,889,310, respectively) (Note 2) ...................... $78,926,095 $22,786,376
Receivables:
Fund shares sold........................................... 66,914 20,785
Dividends and interest..................................... 12,216 79,074
Deferred organization costs...................................... 18,097 18,097
Prepaid expenses and other assets................................ 73,319 26,428
----------- -----------
Total assets ........................................ 79,096,641 22,930,760
----------- -----------
LIABILITIES
Payables:
Fund shares repurchased.................................... 95,481 -0-
Advisory fee............................................... 46,758 13,642
Administration fee......................................... 6,319 1,844
Accrued expenses................................................. 3,500 21,442
----------- -----------
Total liabilities.................................... 152,058 36,928
----------- -----------
NET ASSETS ............................................................ $78,944,583 $22,893,832
=========== ===========
Net asset value, offering price and redemption price per share
($78,944,583/6,089,170 and $22,893,832/1,799,897 shares
outstanding, respectively; 25,000,000,000 shares of each
Fund (par value $.0001) authorized)........................ $12.96 $12.72
====== ======
SOURCE OF NET ASSETS
Paid-in capital ................................................. $77,677,857 $19,427,759
(Accumulated) Undistributed net investment (loss) income......... (420,924) 94,816
(Accumulated) Undistributed net realized (loss) gain on
investment transactions........................................ (8,720,837) 474,191
Net unrealized appreciation of investments....................... 10,408,487 2,897,066
----------- -----------
Net assets ................................................ $78,944,583 $22,893,832
=========== ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
13
O'Shaughnessy Cornerstone Growth Fund
O'Shaughnessy Cornerstone Value Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------------------------------
Cornerstone Cornerstone
Growth Fund Value Fund
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign witholding tax of $0 and
$17,397, respectively).............................. $ 68,566 $ 298,029
Interest............................................... 9,464 5,304
------------ -----------
Total income..................................... 78,030 303,333
------------ -----------
Expenses:
Advisory fees (Note 3)................................. 236,968 62,323
Custodian and accounting fees.......................... 21,709 16,765
Administration fee (Note 3)............................ 32,023 8,423
Professional fees...................................... 8,254 8,890
Registration fees...................................... 18,010 12,356
Reports to shareholders................................ 6,948 4,796
Transfer agent fees.................................... 17,462 6,956
Directors' fees........................................ 4,794 4,794
Amortization of organization costs (Note 2)............ 2,513 2,513
Other ................................................. 6,682 4,069
------------ -----------
Total expenses................................... 355,363 131,885
------------ -----------
Net investment (loss) income .............. (277,333) 171,448
------------ -----------
REALIZED AND UNREALIZED (LOSS) GAIN ON INVESTMENTS
Net realized (loss) gain on security transactions...... (1,695,262) 475,105
Net change in unrealized appreciation of investments... 272,956 1,725,427
------------ -----------
Net realized and unrealized (loss) gain
on investments................................. (1,422,306) 2,200,532
------------ -----------
Net (Decrease) Increase in Net Assets
Resulting from Operations ............... $ (1,699,639) $ 2,371,980
============ ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
14
O'Shaughnessy Cornerstone Growth Fund
O'Shaughnessy Cornerstone Value Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
Cornerstone Growth Fund Cornerstone Value Fund
- --------------------------------------------------------------------------------------------------------------------------
Six Months Nov. 1, 1996* Six Months Nov. 1, 1996*
Ended through Ended through
March 31, 1998+ Sept. 30, 1997 March 31, 1998+ Sept. 30, 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment (loss) income......................... $ (277,333) $ (143,245) $ 171,448 $ 156,779
Net realized (loss) gain on security transactions.... (1,695,262) 338,817 475,105 1,556
Net change in unrealized appreciation of investments. 272,956 10,135,531 1,725,427 1,171,639
----------- ----------- ----------- -----------
Net (decrease) increase in net assets
resulting from operations ................... (1,699,639) 10,331,103 2,371,980 1,329,974
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
Net investment income................................ (0) (346) (231,740) (1,671)
Net realized gain from security transactions......... (7,364,392) (0) (2,470) (0)
----------- ----------- ----------- -----------
Total dividends and distributions ............. (7,364,392) (346) (234,210) (1,671)
----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS
Net (decrease) increase in net assets derived from
capital shares transactions (a).................... (3,249,936) 80,902,793 7,286,686 12,116,073
----------- ----------- ----------- -----------
Total (decrease) increase in net assets ....... (12,313,967) 91,233,550 9,424,456 13,444,376
NET ASSETS
Beginning of period.................................. 91,258,550 25,000 13,469,376 25,000
----------- ----------- ----------- -----------
End of period (including (accumulated) undistributed
net investment (loss) income of ($420,924), ($143,591),
$94,816, and $155,108, respectively)............... $78,944,583 $91,258,550 $22,893,832 $13,469,376
=========== =========== =========== ===========
</TABLE>
(a) A summary of capital shares transactions is as follows:
<TABLE>
<CAPTION>
Six Months November 1, 1996*
Ended through
March 31, 1998+ September 30, 1997
-------------------------- -------------------------
Cornerstone Growth Fund Shares Value Shares Value
- ----------------------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold ........................................... 4,446,038 $57,505,936 6,334,346 $85,931,562
Shares issued on reinvestment of distributions......... 631,833 7,164,991 30 297
Shares redeemed........................................ (4,955,262) (67,920,863) (370,315) (5,029,066)
---------- ----------- --------- -----------
Net increase (decrease)................................ 122,609 $(3,249,936) 5,964,061 $80,902,793
========== =========== ========= ===========
Cornerstone Value Fund
- ----------------------
Shares sold ........................................... 926,766 $10,702,395 1,309,392 $13,619,016
Shares issued on reinvestment of distributions......... 19,959 226,714 132 1,322
Shares redeemed........................................ (317,813) (3,642,423) (141,039) (1,504,265)
---------- ----------- --------- -----------
Net increase........................................... 628,912 $ 7,286,686 1,168,485 $12,116,073
========== =========== ========= ===========
</TABLE>
+Unaudited.
*Commencement of operations.
See Notes to Financial Statements.
<PAGE>
15
O'Shaughnessy Cornerstone Growth Fund
O'Shaughnessy Cornerstone Value Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Per Share Operating Performance (For a capital share outstanding throughout each period)
- -------------------------------------------------------------------------------------------------------------------
Cornerstone Growth Fund Cornerstone Value Fund
- -------------------------------------------------------------------------------------------------------------------
Six Months Nov. 1, 1996* Six Months Nov. 1, 1996*
Ended through Ended through
March 31, 1998+ Sept. 30, 1997 March 31, 1998+ Sept. 30, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.......... $ 15.30 $ 10.00 $ 11.50 $ 10.00
------- ------- ------- -------
Income from investment operations:
Net investment (loss) income............ (.05) (.02) .09 .13
Net realized and unrealized (loss) gain
on investments........................ (.51) 5.32 1.30 1.37
------- ------- ------- -------
Total from investment operations.............. (.56) 5.30 1.39 1.50
------- ------- ------- -------
Less distributions:
From net investment income.............. (0) (0) (.17) (0)
From net capital gains.................. (1.78) (0) (0) (0)
------- ------- ------- -------
Total distributions........................... (1.78) (0) (.17) (0)
------- ------- ------- -------
Net asset value, end of period................ $ 12.96 $ 15.30 $ 12.72 $ 11.50
======= ======= ======= =======
Total return ................................. (1.99%)** 53.05%** 12.27%** 15.21%**
Ratios/supplemental data:
Net assets, end of period (thousands)......... $78,945 $91,259 $22,894 $13,469
Ratio of expenses to average net assets:
Before expense reimbursement............ 1.11%++ 1.63%++ 1.56%++ 2.66%++
After expense reimbursement............. 1.11%++ 1.56%++ 1.56%++ 1.85%++
Ratio of net investment (loss) income to
average net assets:
Before expense reimbursement............ (0.87%)++ (1.19%)++ 2.03%++ 1.93%++
After expense reimbursement............. (0.87%)++ (1.12%)++ 2.03%++ 2.73%++
Portfolio turnover rate....................... 113.90% 15.52% 44.75% 2.01%
Average commission rate paid per share........ $ .0371 $ .0497 $ .0434 $ .0500
+Unaudited.
++Annualized.
*Commencement of operations.
**Not Annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE>
16
O'Shaughnessy Cornerstone Growth Fund
O'Shaughnessy Cornerstone Value Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The O'Shaughnessy Cornerstone Growth Fund and O'Shaughnessy Cornerstone
Value Fund (the "Funds") are each a series of shares of O'Shaughnessy Funds,
Inc., which is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The Funds began operations
on November 1, 1996. Cornerstone Growth Fund seeks long-term capital growth.
Cornerstone Value Fund seeks both current income and long-term capital growth.
Each Fund seeks to achieve its objective utilizing distinct processes of
Strategy Indexing(TM) developed by the investment advisor.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation: The Funds' investments are carried at market
value. Securities listed on an exchange or quoted on a National
Market System are valued at the last sale price. Other securities
are valued at the mean between the last bid and asked prices.
Securities for which market quotations are not readily available, if
any, are valued following procedures approved by the Board of
Directors. Short-term investments are valued at amortized cost,
which approximates market value.
B. Federal Income Taxes: It is each Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no federal income tax
provision is required.
C. Security Transactions, Dividends and Distributions: Security
transactions are accounted for on the trade date. Dividend income
and distributions to shareholders are recorded on the ex-dividend
date. Realized gains and losses on securities sold are determined
under the identified cost basis.
D. Deferred Organization Costs: The Funds have each incurred expenses
of $25,190 in connection with their organization. These costs have
been deferred and are being amortized on a straight-line basis over
a period of sixty months from the date the Funds commenced
investment operations.
E. Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of increases and
decreases in net assets during the reporting period. Actual results
could differ from those estimates.
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the six months ended March 31, 1998, O'Shaughnessy Capital Management,
Inc. (the "Advisor") provided the Funds with investment management services
under an Investment Advisory Agreement. The Advisor furnished all investment
advice, office space, facilities, and provides most of the personnel needed by
the Funds. As compensation for its services, the Advisor is entitled to a
monthly fee at the annual rate of 0.74% based upon the average daily net assets
of the Funds.
<PAGE>
17
O'Shaughnessy Cornerstone Growth Fund
O'Shaughnessy Cornerstone Value Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
- --------------------------------------------------------------------------------
The Fund's are responsible for their own operating expenses. The Advisor
has agreed to reduce fees payable to it by each Fund and to pay each Fund's
operating expenses to the extent necessary to limit each Fund's aggregate annual
operating expenses to 2.00% of average net assets (the "expense cap"). Any such
reductions made by the Advisor in its fees or payment of expenses which are each
Fund's obligation are subject to reimbursement by the Fund to the Advisor, if so
requested by the Advisor, in the first, second or third fiscal year next
succeeding the fiscal year of the reduction or absorption if the aggregate
amount actually paid by each Fund toward the operating expenses for such fiscal
year (taking into account the reimbursement) does not exceed the applicable
limitation on Fund expenses. With respect to the reimbursement of a particular
fee reduction or expense payment, a reimbursement to the Advisor is permitted
only within the three year period following the year in which the Advisor
reduced the subject fee or paid the subject expense. Any such reimbursement is
also contingent upon Board of Directors review and approval at the time the
reimbursement is made. Such reimbursement may be paid prior to a Fund's payment
of current expenses if so requested by the Advisor even if that practice may
require the Advisor to waive, reduce or absorb current Fund expenses.
Investment Company Administration Corporation (the "Administrator") acts
as the Funds' Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Funds; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Funds' custodian, transfer agent and accountants;
coordinates the preparation and payment of Funds' expenses and reviews the
Funds' expense accruals. For its services, the Administrator receives a monthly
fee per portfolio at the following annual rate:
Under $100 million - 0.10% of average daily net assets, subject to a
minimum fee of $10,000 annually
$100 to $200 million - 0.05% of average daily net assets
Over $200 million - 0.03% of average daily net assets
First Fund Distributors, Inc. (the "Distributor") acts as the Funds'
principal underwriter in a continuous public offering of the Funds' shares. The
Distributor is an affiliate of the Administrator.
Certain officers of the Funds are also officers and/or directors of the
Administrator and the Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the six months ended March 31, 1998, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, for the
Cornerstone Growth Fund were $75,776,718 and $86,802,172, respectively.
For the six months ended March 31, 1998, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, for the
Cornerstone Value Fund were $15,250,892 and $7,526,858, respectively.
<PAGE>
INVESTMENT ADVISOR
O'Shaughnessy Capital Management, Inc.
35 Mason Street
Greenwich, Connecticut 06830
ADMINISTRATOR
Investment Company Administration Corporation
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018
TRANSFER AGENT
Firstar Trust Company
615 E. Michigan Street
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
This report is intended for shareholders of O'Shaughnessy Cornerstone Growth
Fund and O'Shaughnessy Cornerstone Value Fund and may not be used as sales
literature unless preceded or accompanied by a current prospectus.
<PAGE>
O'Shaughnessy
Funds, Inc.
BUILDING
NEW STANDARDS
FOR INVESTMENT
SUCCESS
35 Mason Street
Greenwich, Connecticut
06830
(800) 797-0773
www.osfunds.com
Cornerstone Growth Fund
Cornerstone Value Fund
Semi-Annual Report
March 31, 1998
<PAGE>
O'Shaughnessy Aggressive Growth Fund
May 19, 1998
Dear fellow Shareholder:
What is the single greatest obstacle to successful investing? In all my research
over the years, I've come to see that the greatest obstacle to investment
success stares at us every morning in the mirror.
Some of the research I did for my new book, How to Retire Rich, reveals some
extremely alarming information. During one of the greatest bull markets in
history, most equity mutual fund investors barely stayed ahead of T-bills! In a
study of investor performance over a recent ten-year period, Dalbar Financial
Services found that while the S&P 500 had a gain of 293 percent, investors in
equity mutual funds actually earned only 70 to 90 percent! That's a three to one
difference. The huge chasm between the two was attributed to investors trying to
time the market, thus failing to keep their money in the stock market for the
entire ten years.
We live in the here-and-now, and can't help but focus on what's happening today.
But when it comes to investing, focusing on the here-and-now is the worst thing
you can do. The best thing you can do is find a great strategy and let it work.
For the period of October 1, 1997 to March 31, 1998, our Aggressive Growth Fund
is up 0.83%. We are not concerned with the nature of this short-term
performance; we strongly believe that the most important thing to focus on is
our long-term goals.
If you find yourself focusing on how one stock or another is performing, or how
your portfolio performed today, you're on the wrong path. We believe the reason
80 percent of conventional money managers have so far failed to beat the S&P 500
over the long term is because they are inexorably swayed by the short term. No
one can tell you which way the market will head over the short-term. There is no
credible way to call the next 15-percentage point move in the averages. But it's
my firm belief that the next 100 percent move in the market will be up.
Enclosed is the semi-annual report for the O'Shaughnessy Aggressive Growth Fund.
The report contains financial statements for the Fund during the six-month
period ended March 31, 1998, and the Fund's portfolio on that date.
Sincerely,
/s/ James P. O'Shaughnessy
James P. O'Shaughnessy
<PAGE>
2
O'Shaughnessy Aggressive Growth Fund
<TABLE>
<CAPTION>
TOP TEN PORTFOLIO HOLDINGS at March 31,1998
- -------------------------------------------------------------------------------------------------------
Percent of Net Assets
- -------------------------------------------------------------------------------------------------------
<S> <C>
Dell Computer Corp.......................................................... 3.43%
ICN Pharmaceuticals, Inc.................................................... 3.21%
Pillowtext Corp............................................................. 2.96%
Whole Foods Market, Inc..................................................... 2.91%
Anchor Gaming............................................................... 2.83%
Sofamor/Danek Group, Inc.................................................... 2.79%
Safeskin Corp............................................................... 2.77%
VWR Scientific Products Corp................................................ 2.75%
Texas Industries, Inc....................................................... 2.74%
Proffits, Inc............................................................... 2.72%
</TABLE>
<PAGE>
3
O'Shaughnessy Aggressive Growth Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 99.70% Market Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Air Courier: 2.58%
7,861 Airborne Freight Corp............................................. $ 295,770
---------
Air Transportation, Scheduled: 2.53%
3,910 US Airways Group, Inc.*........................................... 289,829
---------
Beverages: 2.05%
8,951 Triarc Companies, Inc.*........................................... 234,964
---------
Department Stores: 5.43%
6,711 Fred Meyer, Inc.*................................................. 309,964
8,581 Proffitt's, Inc.*................................................. 311,061
---------
621,025
---------
Drilling Oil and Gas Wells: 2.13%
7,961 Noble Drilling Corp.*............................................. 243,308
---------
Eating Places: 4.28%
6,370 CKE Restaurants, Inc.............................................. 234,097
13,941 VICORP Restaurants, Inc.*......................................... 256,166
---------
490,263
---------
Electromedical Apparatus: 2.51%
3,920 Guidant Corp...................................................... 287,630
---------
Electronic Computer Accessories: 2.27%
7,641 CTS Corp.......................................................... 259,316
---------
Electronic Computers: 5.39%
8,641 Compaq Computer Corp.............................................. 223,586
5,801 Dell Computer Corp.*.............................................. 393,018
---------
616,604
---------
Fabricated Rubber Products, NEC: 2.77%
4,300 Safeskin Corp.*................................................... 317,662
---------
Fire, Marine and Casualty Insurance: 1.89%
1,730 Cincinnati Financial Corp......................................... 216,682
---------
Grocery Stores: 2.91%
4,770 Whole Foods Market, Inc.*......................................... 332,708
---------
</TABLE>
<PAGE>
4
O'Shaughnessy Aggressive Growth Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Home Furniture and Equipment Store: 2.55%
10,781 Pier 1 Imports, Inc............................................... $ 292,435
---------
Industrial Trucks, Tractors, Trailers: 2.67%
2,280 NACCO Industries, Inc. - Class A.................................. 305,520
---------
Jewelry, Silverware, Plated Ware: 2.44%
9,141 Oneida Ltd........................................................ 278,800
---------
Measuring and Controlling Devices: 1.68%
8,221 Input/Output, Inc.*............................................... 192,166
---------
Meat Packing Plants: 2.22%
7,391 Smithfield Foods, Inc.*........................................... 254,990
---------
Metalworking Machinery, NEC: 2.35%
3,530 SPX Corp.*........................................................ 269,383
---------
Mining and Quarrying of Nonmetals: 2.11%
8,751 CalMat Company.................................................... 241,746
---------
Miscellaneous Amusement and Recreational
Services: 2.83%
4,370 Anchor Gaming*.................................................... 324,472
---------
Miscellaneous Electrical Machinery and
Equipment Supplies: 1.81%
10,811 Standard Motor Products........................................... 207,436
---------
Miscellaneous Fabricated Textile Products: 2.96%
6,991 Pillowtext Corp................................................... 338,627
---------
Motion Picture and Tape Distribution: 2.16%
8,441 King World Productions, Inc.*..................................... 246,899
---------
</TABLE>
<PAGE>
5
O'Shaughnessy Aggressive Growth Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operative Builders: 7.08%
9,381 Del Webb Corp..................................................... $ 286,121
10,381 Ryland Group, Inc................................................. 286,775
15,612 Standard Pacific Corp............................................. 237,107
---------
810,003
---------
Orthopedic Prosthetics Surgical Supply: 2.78%
3,740 Sofamor/Danek Group, Inc.*........................................ 318,835
---------
Pharmaceutical Preparations: 3.21%
7,471 ICN Pharmaceuticals, Inc.......................................... 367,922
---------
Professional and Commercial Equipment: 2.75%
8,631 VWR Scientific Products*.......................................... 315,031
---------
Radiotelephone Communications: 2.51%
5,871 AirTouch Communications*.......................................... 287,312
---------
Refuse Systems: 2.28%
10,461 Allied Waste Industries, Inc.*.................................... 261,198
---------
Savings Institution Federal Chartered: 4.29%
8,061 Dime Bancorp, Inc................................................. 242,334
6,511 Golden State Bancorp, Inc.*....................................... 248,639
---------
490,973
---------
Security Brokers and Dealers: 2.13%
9,881 The Advest Group, Inc............................................. 243,320
---------
Steel Works and Blast Furnaces: 2.74%
5,421 Texas Industries, Inc............................................. 313,402
---------
Services To Dwellings, Other Buildings: 2.17%
7,981 ABM Industries, Inc............................................... 247,910
---------
Telephone Communications: 2.67%
7,931 LCI International, Inc.*.......................................... 305,344
---------
</TABLE>
<PAGE>
6
O'Shaughnessy Aggressive Growth Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Water Transportation: 2.57%
7,621 Sea Containers, Ltd. - Class A.................................... $ 293,885
----------
Total Common Stocks (cost $9,927,725)............................. 11,413,370
----------
Principal Amount SHORT-TERM INVESTMENTS: 0.11%
- ------------------------------------------------------------------------------------------------------
$12,676 Johnson Controls Demand Note, 5.2925%, due 4/1/1998+
(cost $12,676).................................................... 12,676
-----------
Total Investments in Securities (cost $9,940,401++): 99.81% ...... 11,426,046
Other Assets less Liabilities: 0.19%.............................. 21,418
-----------
Total Net Assets: 100.0% ......................................... $11,447,464
===========
</TABLE>
*Non-income producing security.
+Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates. The
rates listed are as of March 31, 1998.
++At March 31, 1998, the cost of securities for Federal tax purposes was the
same as the basis for financial reporting. Unrealized appreciation and
depreciation of securities were as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation................................... $ 1,606,782
Gross unrealized depreciation................................... (121,137)
-----------
Net unrealized appreciation............................... $ 1,485,645
===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
7
O'Shaughnessy Aggressive Growth Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at March 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (identified cost $9,940,401) (Note 2) ....... $11,426,046
Receivables:
Fund shares sold........................................................... 5,492
Dividends and interest..................................................... 3,064
Deferred organization costs...................................................... 18,098
Prepaid expenses and other assets................................................ 20,334
-----------
Total assets ........................................................ 11,473,034
-----------
LIABILITIES
Payables:
Advisory fee............................................................... 8,393
Administration fee......................................................... 897
Accrued expenses................................................................. 16,280
-----------
Total liabilities.................................................... 25,570
-----------
NET ASSETS............................................................................ $11,447,464
===========
Net asset value, offering price and redemption price per share
($11,447,464/807,289 shares outstanding;
25,000,000,000 shares (par value $.0001) authorized) ...................... $14.18
======
SOURCE OF NET ASSETS
Paid-in capital ................................................................. $10,112,751
Accumulated net investment loss.................................................. (83,894)
Accumulated net realized loss on investment transactions......................... (67,038)
Net unrealized appreciation of investments....................................... 1,485,645
-----------
Net assets ................................................................ $11,447,464
===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
8
O'Shaughnessy Aggressive Growth Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income:
Dividends................................................................ $ 13,969
Interest................................................................. 2,961
--------
Total income....................................................... 16,930
--------
Expenses:
Advisory fees (Note 3)................................................... 38,291
Custodian and accounting fees............................................ 15,058
Registration fees........................................................ 7,695
Transfer agent fees...................................................... 6,956
Professional fees........................................................ 6,467
Reports to shareholders.................................................. 6,310
Administration fee (Note 3).............................................. 5,035
Directors' fees.......................................................... 4,794
Other ................................................................... 2,959
Amortization of organization costs (Note 2).............................. 2,513
--------
Total expenses..................................................... 96,078
Less: Advisory fee waiver and absorption (Note 3).................. (19,360)
--------
Net expenses....................................................... 76,718
--------
Net investment loss ......................................... (59,788)
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on security transactions............................... (78,855)
Net change in unrealized appreciation of investments..................... 540,899
--------
Net realized and unrealized gain on investments.................... 462,044
--------
Net Increase in Net Assets
Resulting from Operations ................................. $ 402,256
=========
</TABLE>
See Notes to Financial Statements.
<PAGE>
9
O'Shaughnessy Aggressive Growth Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
Six Months November 1, 1996*
Ended through
March 31, 1998+ September 30, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment loss........................................................... $ (59,788) $ (24,106)
Net realized (loss) gain on security transactions............................. (78,855) 115,860
Net change in unrealized appreciation of investments.......................... 540,899 944,746
----------- ----------
Net increase in net assets resulting from operations ................... 402,256 1,036,500
----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain from security transactions.................................. (104,043) (0)
----------- ----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from capital share transactions (a)........ 5,565,003 4,522,748
----------- ----------
Total increase in net assets ........................................... 5,863,216 5,559,248
NET ASSETS
Beginning of period........................................................... 5,584,248 25,000
----------- ----------
End of period (including accumulated net investment loss of
$83,894 and $24,106, respectively)...................................... $11,447,464 $5,584,248
=========== ==========
</TABLE>
(a) A summary of capital shares transactions is as follows:
<TABLE>
<CAPTION>
Six Months November 1, 1996*
Ended through
March 31, 1998+ September 30, 1997
------------------------- ------------------------
Shares Value Shares Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Shares sold................................ 561,989 $7,460,932 473,170 $5,453,047
Shares issued on reinvestment
of distribution...................... 8,307 102,677 0 0
Shares redeemed............................ (153,872) (1,998,606) (84,805) (930,299)
-------- ---------- ------- ----------
Net increase............................... 416,424 $5,565,003 388,365 $4,522,748
======== ========== ======= ==========
</TABLE>
*Commencement of operations.
+Unaudited.
See Notes to Financial Statements.
<PAGE>
10
O'Shaughnessy Aggressive Growth Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Per Share Operating Performance (Unaudited)
(For a share outstanding throughout each period)
- -------------------------------------------------------------------------------------------------------------------
Six Months November 1, 1996*
Ended through
March 31, 1998+ September 30, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period..................................... $14.29 $10.00
------ ------
Income from investment operations:
Net investment loss................................................ (.04) (.06)
Net realized and unrealized gain on investments.................... .13 4.35
------ ------
Total from investment operations......................................... .09 4.29
------ ------
Less distributions:
From net capital gains............................................. (.20) (.00)
------ ------
Net asset value, end of period........................................... $14.18 $14.29
====== ======
Total Return ............................................................ 0.83%** 42.90%**
Ratios/supplemental data:
Net assets, end of period (thousands).................................... $11,447 $5,584
Ratio of expenses to average net assets:
Before expense reimbursement....................................... 2.50%++ 7.01%++
After expense reimbursement........................................ 2.00%++ 1.98%++
Ratio of net investment loss to average net assets:
Before expense reimbursement....................................... (2.06%)++ (6.41%)++
After expense reimbursement........................................ (1.55%)++ (1.39%)++
Portfolio turnover rate.................................................. 83.63% 104.77%
Average commission rate paid per share................................... $ .0480 $.0492
+Unaudited.
++Annualized.
*Commencement of operations.
**Not Annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE>
11
O'Shaughnessy Aggressive Growth Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The O'Shaughnessy Aggressive Growth Fund (the "Fund") is a series of
shares of O'Shaughnessy Funds, Inc., which is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund began operations on November 1, 1996. The Fund's objective is capital
appreciation.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation: The Fund's investments are carried at market
value. Securities listed on an exchange or quoted on a National
Market System are valued at the last sale price. Other securities
are valued at the mean between the last bid and asked prices.
Securities for which market quotations are not readily available, if
any, are valued following procedures approved by the Board of
Directors. Short-term investments are valued at amortized cost,
which approximates market value.
B. Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no federal income tax
provision is required.
C. Security Transactions, Dividends and Distributions: Security
transactions are accounted for on the trade date. Dividend income
and distributions to shareholders are recorded on the ex-dividend
date. Realized gains and losses on securities sold are determined
under the identified cost basis.
D. Deferred Organization Costs: The Fund has incurred expenses of
$25,191 in connection with their organization. These costs have been
deferred and are being amortized on a straight-line basis over a
period of sixty months from the date the Fund commenced investment
operations.
E. Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and
decreases in net assets during the reporting period. Actual results
could differ from those estimates.
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the six months ended March 31, 1998, O'Shaughnessy Capital Management,
Inc. (the "Advisor") provided the Fund with investment management services under
an Investment Advisory Agreement. The Advisor furnished all investment advice,
office space, facilities, and provides most of the personnel needed by the Fund.
As compensation for its services, the Advisor is entitled to a monthly fee at
the annual rate of 1.00% based upon the average daily net assets of the Fund.
The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees payable to it by the Fund and to pay Fund operating
expenses to the extent necessary to limit the Fund's aggregate annual operating
expenses to 2.00% of average net assets (the "expense cap"). Any such reductions
<PAGE>
12
O'Shaughnessy Aggressive Growth Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
- --------------------------------------------------------------------------------
made by the Advisor in its fees or payment of expenses which are the Fund's
obligation are subject to reimbursement by the Fund to the Advisor, if so
requested by the Advisor, in the first, second or third fiscal year next
succeeding the fiscal year of the reduction or absorption if the aggregate
amount actually paid by the Fund toward the operating expenses for such fiscal
year (taking into account the reimbursement) does not exceed the applicable
limitation on Fund expenses. With respect to the reimbursement of a particular
fee reduction or expense payment, a reimbursement to the Advisor is permitted
only within the three year period following the year in which the Advisor
reduced the subject fee or paid the subject expense. Any such reimbursement is
also contingent upon Board of Directors review and approval at the time the
reimbursement is made. Such reimbursement may be paid prior to the Fund's
payment of current expenses if so requested by the Advisor even if that practice
may require the Advisor to waive, reduce or absorb current Fund expenses. For
the period ended March 31, 1998, the Advisor reduced its fees and absorbed Fund
expenses in the amount of $19,360; no amounts were reimbursed.
Investment Company Administration Corporation (the "Administrator") acts
as the Fund's Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Fund; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Fund's custodian, transfer agent and accountants;
coordinates the preparation and payment of Fund's expenses and reviews the
Fund's expense accruals. For its services, the Administrator receives a monthly
fee per portfolio at the following annual rate:
Under $100 million - 0.10% of average daily net assets, subject to a
minimum fee of $10,000 annually
$100 to $200 million - 0.05% of average daily net assets
Over $200 million - 0.03% of average daily net assets
First Fund Distributors, Inc. (the "Distributor") acts as the Fund's
principal underwriter in a continuous public offering of the Fund's shares. The
Distributor is an affiliate of the Administrator.
Certain officers of the Fund are also officers and/or directors of the
Administrator and the Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITES
For the six months ended March 31, 1998, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, were
$12,085,043 and $6,577,569, respectively.
<PAGE>
INVESTMENT ADVISOR
O'Shaughnessy Capital Management, Inc.
35 Mason Street
Greenwich, Connecticut 06830
ADMINISTRATOR
Investment Company Administration Corporation
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018
TRANSFER AGENT
Firstar Trust Company
615 E. Michigan Street
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
This report is intended for shareholders of O'Shaughnessy Aggressive Growth
Fund and may not be used as sales literature unless preceded or accompanied
by a current prospectus.
<PAGE>
O'Shaughnessy
Funds, Inc.
BUILDING
NEW STANDARDS
FOR INVESTMENT
SUCCESS
35 Mason Street
Greenwich, Connecticut
06830
(800) 797-0773
www.osfunds.com
Aggressive Growth Fund
Semi-Annual Report
March 31, 1998
<PAGE>
O'Shaughnessy Dogs of the Market(TM) Fund
May 19, 1998
Dear fellow Shareholder:
What is the single greatest obstacle to successful investing? In all my research
over the years, I've come to see that the greatest obstacle to investment
success stares at us every morning in the mirror.
Some of the research I did for my new book, How to Retire Rich, reveals some
extremely alarming information. During one of the greatest bull markets in
history, most equity mutual fund investors barely stayed ahead of T-bills! In a
study of investor performance over a recent ten-year period, Dalbar Financial
Services found that while the S&P 500 had a gain of 293 percent, investors in
equity mutual funds actually earned only 70 to 90 percent! That's a three to one
difference. The huge chasm between the two was attributed to investors trying to
time the market, thus failing to keep their money in the stock market for the
entire ten years.
We live in the here-and-now, and can't help but focus on what's happening today.
But when it comes to investing, focusing on the here-and-now is the worst thing
you can do. The best thing you can do is find a great strategy and let it work
For the period of October 1, 1997 to March 31, 1998, our Dogs of the Market Fund
is up 13.82%. While we are certainly very pleased with this performance, we
strongly believe that the most important thing to focus on is our long-term
goals, not our short-term performance.
If you find yourself focusing on how one stock or another is performing, or how
your portfolio performed today, you're on the wrong path. We believe the reason
80 percent of conventional money managers have so far failed to beat the S&P 500
over the long term is because they are inexorably swayed by the short term. No
one can tell you which way the market will head over the short-term. There is no
credible way to call the next 15-percentage point move in the averages. But it's
my firm belief that the next 100 percent move in the market will be up.
Enclosed is the semi-annual report for the O'Shaughnessy Dogs of the Market
Fund. The report contains financial statements for the Fund during the six-month
period ended March 31, 1998, and the Fund's portfolio on that date.
Sincerely,
/s/ James P. O'Shaughnessy
James P. O'Shaughnessy
<PAGE>
2
O'Shaughnessy Dogs of the Market(TM) Fund
<TABLE>
<CAPTION>
TOP TEN PORTFOLIO HOLDINGS at March 31,1998
- -------------------------------------------------------------------------------------------------------
Percent of Net Assets
- -------------------------------------------------------------------------------------------------------
<S> <C>
American Home Products Corp.............................................. 3.76%
May Department Stores.................................................... 3.64%
SBC Communications, Inc.................................................. 3.59%
J.P. Morgan & Company, Inc............................................... 3.59%
National Service Industries, Inc......................................... 3.58%
Emerson Electric Company................................................. 3.49%
H.J. Heinz Company....................................................... 3.47%
Rubbermaid, Inc.......................................................... 3.44%
E.I. du Pont de Nemours & Company........................................ 3.42%
Foster Wheeler Corp...................................................... 3.41%
</TABLE>
<PAGE>
3
O'Shaughnessy Dogs of the Market(TM) Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited)
- ---------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 98.12% Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Canned Frozen, Preserve Fruit and Vegetables: 3.47%
12,863 H. J. Heinz Company............................................... $ 750,878
---------
Cigarettes: 2.78%
14,430 Philip Morris Companies, Inc...................................... 601,551
---------
Converted Paper Products: 3.35%
7,950 Minnesota Mining and Manufacturing Company........................ 724,941
---------
Department Stores: 3.64%
12,393 May Department Stores............................................. 786,956
---------
Distilled and Blended Liquors: 3.00%
11,807 Brown-Forman Corp. - Class B...................................... 649,385
---------
Electric Lighting Wiring Equipment: 3.58%
13,176 National Service Industries, Inc.................................. 774,914
---------
Food and Kindred Products: 2.93%
19,695 ConAgra, Inc...................................................... 632,702
---------
Grocery Stores: 3.20%
14,937 Winn-Dixie Stores, Inc............................................ 692,703
---------
Heavy Construction - Non-Building Construction: 3.41%
24,120 Foster Wheeler Corp............................................... 737,167
---------
Industrial Measurement Instruments: 3.49%
11,572 Emerson Electric Company.......................................... 754,350
---------
Industrial Organic Chemicals: 2.75%
12,667 International Flavors & Fragrances................................ 596,932
---------
Malt Beverages: 3.18%
14,839 Anheuser-Busch Companies, Inc..................................... 687,231
---------
Miscellaneous Chemical Products: 3.10%
16,504 Nalco Chemical Company............................................ 669,444
---------
</TABLE>
<PAGE>
4
O'Shaughnessy Dogs of the Market(TM) Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited), Continued
- ---------------------------------------------------------------------------------------------------------
Shares Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Motor Vehicle Supply, New Parts-Wholesale: 3.39%
19,226 Genuine Parts Company............................................. $ 732,991
---------
Motor Vehicles and Car Bodies: 3.35%
10,750 General Motors Corp............................................... 724,953
---------
Paper and Allied Products: 3.28%
15,133 International Paper Company....................................... 708,414
---------
Paper Mills: 3.07%
13,234 Kimberly-Clark Corp............................................... 663,354
---------
Petroleum Refining: 9.65%
8,478 Chevron Corp...................................................... 680,889
10,671 Exxon Corp........................................................ 721,626
12,041 Royal Dutch Petroleum Company ADR................................. 684,079
---------
2,086,594
---------
Pharmaceutical Preparations: 3.76%
8,537 American Home Products Corp....................................... 814,216
---------
Photographic Equipment and Supplies: 3.23%
10,769 Eastman Kodak Company............................................. 698,639
---------
Plastic Materials and Synthetics: 3.42%
10,867 E. I. du Pont de Nemours & Company................................ 738,956
---------
Plastic Products, NEC: 3.44%
26,098 Rubbermaid, Inc................................................... 743,793
---------
State Commercial Banks: 3.59%
5,776 J.P. Morgan & Company, Inc........................................ 775,789
---------
Telephone Communications: 10.04%
15,896 ALLTELL Corp...................................................... 694,456
10,652 AT&T Company...................................................... 699,038
17,816 SBC Communications, Inc........................................... 777,223
---------
2,170,717
---------
</TABLE>
<PAGE>
5
O'Shaughnessy Dogs of the Market(TM) Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited), Continued
- ---------------------------------------------------------------------------------------------------------
Shares Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tobacco Products: 2.63%
17,659 UST, Inc.......................................................... $ 569,503
----------
Women's Clothing Stores: 3.39%
25,589 The Limited, Inc.................................................. 734,084
----------
Total Common Stocks (cost $19,601,782)............................ 21,221,157
----------
Principal Amount SHORT-TERM INVESTMENTS: 9.12%
- ---------------------------------------------------------------------------------------------------------
$375,090 General Mills Demand Note, 5.2925%, due 4/1/1998+................. 375,090
550,000 Johnson Controls Demand Note, 5.2925%, due 4/1/1998+.............. 550,000
526,000 Pitney Bowes Demand Note, 5.2925%, due 4/1/1998+.................. 526,000
400,919 Sara Lee Demand Note, 5.2875%, due 4/1/1998+...................... 400,918
119,094 Warner Lambert Demand Note, 5.2660%, due 4/1/1998+................ 119,094
-----------
Total Short-Term Investments (cost $1,971,103).................... 1,971,102
-----------
Total Investments in Securities (cost $21,572,885++): 107.24% .... 23,192,259
Liabilities in excess of Other Assets: (7.24)%.................... (1,565,215)
-----------
Total Net Assets: 100.0% ......................................... $21,627,044
===========
</TABLE>
+Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates. The
rates listed are as of March 31, 1998.
++At March 31, 1998, the cost of securities for Federal tax purposes was the
same as the basis for financial reporting. Unrealized appreciation and
depreciation of securities were as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation..................................... $ 1,673,488
Gross unrealized depreciation..................................... (54,113)
-----------
Net unrealized appreciation................................. $ 1,619,375
===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
6
O'Shaughnessy Dogs of the Market(TM) Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES at March 31, 1998 (Unaudited)
- ---------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at value (identified cost $21,572,885) (Note 2) ...... $23,192,260
Receivables:
Fund shares sold........................................................... 119,589
Dividends and interest..................................................... 40,526
Deferred organization costs...................................................... 18,098
Prepaid expenses and other assets................................................ 28,804
-----------
Total assets ........................................................ 23,399,277
-----------
LIABILITIES
Payables:
Advisory fee............................................................... 11,747
Administration fee......................................................... 1,588
Investments purchased...................................................... 1,740,241
Fund shares repurchased.................................................... 500
Accrued expenses................................................................. 18,157
-----------
Total liabilities.................................................... 1,772,233
-----------
NET ASSETS............................................................................. $21,627,044
===========
Net asset value, offering price and redemption price per share
($21,627,044/1,679,533 shares outstanding;
25,000,000,000 shares (par value $.0001) authorized) ...................... $12.88
=======
SOURCE OF NET ASSETS
Paid-in capital ................................................................. $19,751,022
Undistributed net investment income.............................................. 40,737
Undistributed net realized gain on investment transactions....................... 215,910
Net unrealized appreciation of investments....................................... 1,619,375
-----------
Net assets ................................................................ $21,627,044
===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
7
O'Shaughnessy Dogs of the Market(TM) Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 1998 (Unaudited)
- ---------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign witholding tax of $10)........................... $ 148,346
Interest................................................................... 6,518
-----------
Total income......................................................... 154,864
-----------
Expenses:
Advisory fees (Note 3)..................................................... 42,646
Custodian and accounting fees.............................................. 15,293
Registration fees.......................................................... 7,860
Transfer agent fees........................................................ 6,956
Professional fees.......................................................... 6,467
Administration fee (Note 3)................................................ 6,199
Reports to shareholders.................................................... 6,101
Directors' fees............................................................ 4,794
Other ..................................................................... 3,332
Amortization of organization costs (Note 2)................................ 2,513
-----------
Total expenses....................................................... 102,161
Less: expense reimbursement (Note 3)................................. (3,414)
-----------
Net expenses......................................................... 98,747
-----------
Net investment income ......................................... 56,117
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on security transactions................................. 215,598
Net change in unrealized appreciation of investments....................... 1,356,921
-----------
Net realized and unrealized gain on investments...................... 1,572,519
-----------
Net Increase in Net Assets Resulting
from Operations ............................................ $ 1,628,636
===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
8
O'Shaughnessy Dogs of the Market(TM) Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------
Six Months November 1, 1996*
Ended through
March 31, 1998+ September 30, 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income..................................................... $ 56,117 $ 55,370
Net realized gain on security transactions................................ 215,598 444,294
Net change in unrealized appreciation of investments...................... 1,356,921 262,454
----------- ----------
Net increase in net assets resulting
from operations ................................................. 1,628,636 762,118
----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................................... (69,959) (791)
Net realized gain from security transactions.............................. (443,982) (0)
----------- ----------
Total dividends and distributions to shareholders .................. (513,941) (791)
----------- ----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from capital
shares transactions (a)................................................ 13,264,286 6,461,736
----------- ----------
Total increase in net assets ....................................... 14,378,981 7,223,063
NET ASSETS
Beginning of period....................................................... 7,248,063 25,000
----------- ----------
End of period (including undistributed net investment income
of $40,737 and $54,579, respectively)............................... $21,627,044 $7,248,063
=========== ==========
</TABLE>
(a) A summary of capital shares transactions is as follows:
<TABLE>
<CAPTION>
Six Months November 1, 1996*
Ended through
March 31, 1998+ September 30, 1997
- ---------------------------------------------------------------------------------------------------------
Shares Value Shares Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold............................ 1,195,496 $14,785,050 695,230 $7,496,135
Shares issued on reinvestment
of distributions..................... 42,247 504,011 66 662
Shares redeemed........................ (164,406) (2,024,775) (91,600) (1,035,061)
--------- ----------- ------- ----------
Net increase........................... 1,073,337 $13,264,286 603,696 $6,461,736
========= =========== ======= ==========
</TABLE>
*Commencement of operations.
+Unaudited.
See Notes to Financial Statements.
<PAGE>
9
O'Shaughnessy Dogs of the Market(TM) Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Per Share Operating Performance
(For a capital share outstanding throughout each period)
- --------------------------------------------------------------------------------------------------------
Six Months November 1, 1996*
Ended through
March 31, 1998+ September 30, 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period.......................... $11.96 $10.00
------ ------
Income from investment operations:
Net investment income................................... .02 .10
Net realized and unrealized gain on investments......... 1.58 1.87
------ ------
Total from investment operations.............................. 1.60 1.97
------ ------
Less distributions:
From net investment income.............................. (.09) (.01)
From net capital gains.................................. (.59) -
------ ------
Total distributions........................................... (.68) (.01)
------ ------
Net asset value, end of period................................ $12.88 $11.96
====== ======
Total Return ................................................. 13.82%** 19.74%**
Ratios/supplemental data:
Net assets, end of period (thousands)......................... $21,627 $7,248
Ratio of expenses to average net assets:
Before expense reimbursement............................ 1.50%++ 4.28%++
After expense reimbursement............................. 1.45%++ 1.99%++
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement............................ 0.77%++ (0.51%)++
After expense reimbursement............................. 0.82%++ 1.78%++
Portfolio turnover rate....................................... 43.53% 118.44%
Average commission rate paid per share........................ $ .0493 $.0449
*Commencement of operations.
**Not Annualized.
+Unaudited.
++Annualized.
</TABLE>
See Notes to Financial Statements.
<PAGE>
10
O'Shaughnessy Dogs of the Market(TM) Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The O'Shaughnessy Dogs of the Market(TM) Fund (the "Fund") is a series of
shares of O'Shaughnessy Funds, Inc., which is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund began operations on November 1, 1996. The Fund seeks total return,
consisting of capital appreciation and current income. The Fund seeks to achieve
its objective utilizing the distinct process of Strategy Indexing(TM) developed
by the investment advisor.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation: The Fund's investments are carried at market
value. Securities listed on an exchange or quoted on a National
Market System are valued at the last sale price. Other securities
are valued at the mean between the last bid and asked prices.
Securities for which market quotations are not readily available, if
any, are valued following procedures approved by the Board of
Directors. Short-term investments are valued at amortized cost,
which approximates market value.
B. Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no federal income tax
provision is required.
C. Security Transactions, Dividends and Distributions: Security
transactions are accounted for on the trade date. Dividend income
and distributions to shareholders are recorded on the ex-dividend
date. Realized gains and losses on securities sold are determined
under the identified cost basis.
D. Deferred Organization Costs: The Fund has incurred expenses of
$25,191 in connection with its organization. These costs have been
deferred and are being amortized on a straight-line basis over a
period of sixty months from the date the Fund commenced investment
operations.
E. Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and
decreases in net assets during the reporting period. Actual results
could differ from those estimates.
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the six months ended March 31, 1998, O'Shaughnessy Capital Management,
Inc. (the "Advisor") provided the Fund with investment management services under
an Investment Advisory Agreement. The Advisor furnished all investment advice,
office space, facilities, and provides most of the personnel needed by the Fund.
As compensation for its services, the Advisor is entitled to a monthly fee at
the annual rate of 0.74% based upon the average daily net assets of the Fund.
<PAGE>
11
O'Shaughnessy Dogs of the Market(TM) Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
- --------------------------------------------------------------------------------
The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees payable to it by the Fund and to pay Fund operating
expenses to the extent necessary to limit the Fund's aggregate annual operating
expenses to 2.00% of average net assets (the "expense cap"). Any such reductions
made by the Advisor in its fees or payment of expenses which are the Fund's
obligation are subject to reimbursement by the Fund to the Advisor, if so
requested by the Advisor, in the first, second or third fiscal year next
succeeding the fiscal year of the reduction or absorption if the aggregate
amount actually paid by the Fund toward the operating expenses for such fiscal
year (taking into account the reimbursement) does not exceed the applicable
limitation on Fund expenses. With respect to the reimbursement of a particular
fee reduction or expense payment, a reimbursement to the Advisor is permitted
only within the three year period following the year in which the Advisor
reduced the subject fee or paid the subject expense. Any such reimbursement is
also contingent upon Board of Directors review and approval at the time the
reimbursement is made. Such reimbursement may be paid prior to the Fund's
payment of current expenses if so requested by the Advisor even if that practice
may require the Advisor to waive, reduce or absorb current Fund expenses. For
the period ended March 31, 1998, the Advisor reduced its fees and absorbed Fund
expenses in the amount of $3,414; no amounts were reimbursed.
Investment Company Administration Corporation (the "Administrator") acts
as the Fund's Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Fund; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Fund's custodian, transfer agent and accountants;
coordinates the preparation and payment of Fund's expenses and reviews the
Fund's expense accruals. For its services, the Administrator receives a monthly
fee per portfolio at the following annual rate:
Under $100 million - 0.10% of average daily net assets, subject to a
minimum fee of $10,000 annually
$100 to $200 million - 0.05% of average daily net assets
Over $200 million - 0.03% of average daily net assets
First Fund Distributors, Inc. (the "Distributor") acts as the Fund's
principal underwriter in a continuous public offering of the Fund's shares. The
Distributor is an affiliate of the Administrator.
Certain officers of the Fund are also officers and/or directors of the
Administrator and the Distributor.
NOTE 4 - PURCHASES AND SALES OF SECURITES
For the six months ended March 31, 1998, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, were
$17,650,631 and $5,198,175, respectively.
<PAGE>
INVESTMENT ADVISOR
O'Shaughnessy Capital Management, Inc.
35 Mason Street
Greenwich, Connecticut 06830
ADMINISTRATOR
Investment Company Administration Corporation
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018
TRANSFER AGENT
Firstar Trust Company
615 E. Michigan Street
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
This report is intended for shareholders of O'Shaughnessy Dogs of the
Market(TM) Fund and may not be used as sales literature unless
preceded or accompanied by a current prospectus.
<PAGE>
O'Shaughnessy
Funds, Inc.
BUILDING
NEW STANDARDS
FOR INVESTMENT
SUCCESS
35 Mason Street
Greenwich, Connecticut
06830
(800) 797-0773
www.osfunds.com
Dogs of the Market(TM) Fund
Semi-Annual Report
March 31, 1998
