O SHAUGHNESSY FUNDS INC, N-30D, 1999-12-07

O SHAUGHNESSY FUNDS INC
N-30D, 1999-12-07

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O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND

November 21, 1999

Dear Fellow Shareholders,

Enclosed is the annual report for the O'Shaughnessy Cornerstone Growth and
Cornerstone Value Funds. The report contains financial statements for the Funds
during the year ended September 30, 1999, as well as the Funds' portfolios on
that date. For the one-year period ended September 30, 1999 our Cornerstone
Growth and Cornerstone Value Funds had returns of 29.15% and 17.12%,
respectively.

Obviously, we are pleased with the performance of our Cornerstone Funds over
this past year. The market recovery in the fall of 1998 fueled Cornerstone
Growth's performance, as the fund was 100% committed to equities when the market
surged. Cornerstone Value's performance, on the other hand, was bolstered by the
protection high dividend yielding stocks provided during the late summer 1998
market correction. The Fund also benefited from the rally experienced by large
value stocks in the early summer of 1999.

Those of you who were shareholders a year ago may recall the turbulence we faced
during the third quarter of 1998, and the challenge this presented to staying
the course. In my letter then, I reminded you to remain focused on the
long-term, because I strongly believe that's where the biggest rewards lay for
patient, intelligent investors.

As I've said many times before, focusing on the short-term is a dangerous and
destructive investment habit, which usually leads to unnecessary despair in
downturns and often-unrealistic optimism in rising markets. Investors focusing
only on Cornerstone Growth's performance in August 1988 would be tempted to run
for the hills--but that would mean missing its rebound and strong performance
over the next 12 months. To stay the course, we must constantly remind ourselves
of our goals, and why we're investing in the first place--usually for our
retirement or our children's education. In most circumstances, these are events
that are at least five to ten years away.

As always, I hope that together, we can reach our long-term goals by staying the
course and sticking with our time-tested investment strategies.

Sincerely,

/s/ James P. O'Shaughnessy

James P. O'Shaughnessy

The Cornerstone Growth Fund's and Cornerstone Value Fund's average annual total
returns from inception on November 1, 1996 through September 30, 1999 were
12.68% and 8.89%, respectively. Performance figures of the Funds represent past

performance and are not indicative of future performance. Share values will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than the original investment.

Strategy Indexing, Cornerstone Growth and Cornerstone Value are trademarks of
O'Shaughnessy Capital Management, Inc. U.S. Patent number 5,978,778.

The Fund is distributed by First Fund Distributors, Inc., Phoenix, AZ. Member
NASD.
<PAGE>
2

O'SHAUGHNESSY CORNERSTONE GROWTH FUND

Comparison of the change in value of a $10,000 investment in the O'Shaughnessy
Cornerstone Growth Fund versus the S&P 500 Composite Stock Price Index, the
Lipper Small Cap Growth Index and the Russell 2000 Index

O'Shaughnessy Lipper Russell
Cornerstone Small Cap 2000
Growth Fund S&P 500 Growth Index Index
----------- ------- ------------ -----
1-Nov-96 10,000 10,000 10,000 10,000
31-Dec-96 10,073 10,560 10,287 10,678
31-Mar-97 9,753 10,842 9,061 10,127
30-Jun-97 11,864 12,729 10,708 11,764
30-Sep-97 15,305 13,684 12,504 13,510
31-Dec-97 13,229 14,080 11,442 13,051
31-Mar-98 15,000 16,041 12,734 14,397
30-Jun-98 15,498 16,570 12,268 13,739
30-Sep-98 11,077 14,921 9,342 10,957
31-Dec-98 13,716 18,119 11,552 12,744
31-Mar-99 12,674 19,023 11,176 12,053
30-Jun-99 14,723 20,366 12,769 13,928
30-Sep-99 14,306 19,093 13,000 13,047

Past performance is not predictive of future performance.

The S&P 500 is a broad market-weighted average of U.S. blue-chip companies. The
Lipper Small Cap Growth Index is comprised of mutual funds that invest at least
75% of equity assets in companies with market capitalizations of less than 250%
of the dollar-weighted market capitalization of the S&P Small-Cap 600 index and
have an above average price-to-earnings ratio, price-to-book ratio and three
year earnings growth. The Russell 2000 tracks the 2000 smallest stocks in the
Russell 3000. The indices are unmanaged and include reinvested dividends.
<PAGE>
3

O'SHAUGHNESSY CORNERSTONE VALUE FUND

Comparison of the change in value of a $10,000 investment in the
O'Shaughnessy Cornerstone Value Fund versus the S&P 500 Composite
Stock Price Index and the Lipper Multi-Cap Value Index

O'Shaughnessy Lipper
Cornerstone Multi-Cap
Value Fund S&P 500 Value Index
---------- ------- -----------
1-Nov-96 10,000 10,000 10,000
31-Dec-96 10,028 10,560 10,629
31-Mar-97 9,818 10,842 10,809
30-Jun-97 10,729 12,729 12,264
30-Sep-97 11,521 13,684 13,490
31-Dec-97 11,562 14,080 13,490
31-Mar-98 12,934 16,041 15,031
30-Jun-98 12,253 16,570 14,765
30-Sep-98 11,023 14,921 12,520
31-Dec-98 12,324 18,119 14,370
31-Mar-99 12,519 19,023 14,474
30-Jun-99 14,244 20,366 16,184
30-Sep-99 12,910 19,093 14,444

Past performance is not predictive of future performance.

The S&P 500 is a broad market-weighted average of U.S. blue-chip companies. The
Lipper Multi-Cap Value Index is comprised of mutual funds that invest in a
variety of market capitalization ranges, without concentrating 75% or more of
net assets in any one capitalization range over an extended period of time and
have a below average price-to-earning ratio, price-to-book ratio and three year
growth figure. The indices are unmanaged and include reinvested dividends.
<PAGE>
4

O'SHAUGHNESSY CORNERSTONE GROWTH FUND

TOP TEN PORTFOLIO HOLDINGS at September 30, 1999
- --------------------------------------------------------------------------------
Percent of Net Assets
- --------------------------------------------------------------------------------

1) Echostar Communications Corporation .................... 7.01%
2) Optical Coating Laboratory, Inc. ....................... 6.03%
3) Calpine Corporation .................................... 5.87%
4) Best Buy Co., Inc. ..................................... 3.58%
5) Insituform Technologies, Inc. .......................... 3.22%
6) Gateway 2000, Inc. ..................................... 3.04%
7) Corel Corporation ...................................... 2.90%
8) Apple Computer, Inc. ................................... 2.82%
9) Winnebago Industries, Inc. ............................. 2.74%
10) The Topps Company, Inc. ................................ 2.72%

O'SHAUGHNESSY CORNERSTONE VALUE FUND

1 ) Anglo American Corporation of South Africa Ltd. ....... 3.88%
2 ) British Steel PLC ..................................... 3.17%
3 ) Compania Anonima Nacional Telefonos de Venezuela ...... 2.93%
4 ) Rio Tinto plc ......................................... 2.92%
5 ) Telefonos de Mexico ................................... 2.87%
6 ) Occidental Petroleum Corporation ...................... 2.66%
7 ) Atlantic Richfield Company ............................ 2.59%
8 ) Minnesota Mining and Manufacturing Company ............ 2.56%
9 ) Imperial Petroleum, Inc. .............................. 2.56%
10 ) The Dow Chemical Company .............................. 2.51%
<PAGE>
5

O'SHAUGHNESSY CORNERSTONE GROWTH FUND

PORTFOLIO OF INVESTMENTS at September 30, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCK: 99.44% Market Value
- --------------------------------------------------------------------------------

ADVERTISING: 0.67%
212,100 E4L, Inc.* .......................................... $ 808,631
------------
AIRLINES: 1.30%
83,600 Amtran, Inc.*........................................ 1,567,500
------------
APPAREL: 2.61%
110,900 Quicksilver, Inc.* .................................. 2,023,925
60,500 Tropical Sportswear Int'l Corporation* .............. 1,126,813
------------
3,150,738
------------
COMPUTERS: 9.71%
53,700 Apple Computer, Inc.* ............................... 3,399,881
45,500 CDW Computer Centers, Inc.* ......................... 2,223,812
34,500 Computer Sciences Corporation* ...................... 2,425,781
82,600 Gateway 2000, Inc.* ................................. 3,670,537
------------
11,720,011
------------
COSMETICS/PERSONAL CARE: 1.71%
53,000 The Estee Lauder Companies Inc. ..................... 2,070,313
------------
DISTRIBUTION/WHOLESALE: 1.23%
82,800 Miami Computer Supply Corporation* .................. 1,485,225
------------
ELECTRIC: 5.87%
83,400 Calpine Corporation* ................................ 7,094,213
------------
ELECTRONICS: 8.61%
53,500 Flextronics International Limited* .................. 3,113,031
79,100 Optical Coating Laboratory, Inc. .................... 7,282,144
------------
10,395,175
------------
ENGINEERING & CONSTRUCTION: 5.91%
59,800 Granite Construction Incorporated ................... 1,558,538
155,400 Insituform Technologies, Inc.* ...................... 3,885,000
52,300 Jacobs Engineering Group Inc.* ...................... 1,699,750
------------
7,143,288
------------
<PAGE>
6

O'SHAUGHNESSY CORNERSTONE GROWTH FUND

PORTFOLIO OF INVESTMENTS at September 30, 1999, Continued
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------

FOOD: 3.15%
36,400 Safeway Inc.* ........................................ $ 1,385,475
177,100 The Grand Union Company* ............................. 2,418,522
------------
3,803,997
------------
HEALTH CARE: 1.22%
25,900 Wellpoint Health Networks Inc.* ...................... 1,476,300
------------
HOME BUILDERS: 1.97%
47,200 NVR, Inc.* ........................................... 2,383,600
------------
HOME FURNISHINGS: 1.00%
36,300 Maytag Corporation* .................................. 1,209,244
------------
INSURANCE: 3.45%
38,000 LandAmerica Financial Group, Inc. .................... 750,500
46,550 Reinsurance Group of America, Incorporated ........... 1,195,753
73,000 Stewart Information Services Corporation ............. 1,336,813
66,200 The First American Financial Corporation ............. 885,425
------------
4,168,491
------------
MACHINERY -- CONSTRUCTION & MINING: 1.46%
72,900 Astec Industries, Inc.* .............................. 1,758,712
------------
MACHINERY -- DIVERSIFIED: 1.62%
77,700 Specialty Equipment Companies, Inc.* ................. 1,961,925
------------
MEDIA: 2.14%
61,300 Viacom Inc., Class B* ................................ 2,589,925
------------
MISCELLANEOUS MANUFACTURING: 1.19%
81,160 Myers Industries, Inc. 1,440,590
------------
MOBILE HOME BUILDERS: 5.24%
123,850 Monaco Coach Corporation* ............................ 3,018,844
138,400 Winnebago Industries, Inc. ........................... 3,312,950
------------
6,331,794
------------
<PAGE>
7

O'SHAUGHNESSY CORNERSTONE GROWTH FUND

PHARMACEUTICALS: 5.05%
63,900 Alpharma Inc., Class A................................ $ 2,256,469
92,766 Bindley Western Industries, Inc....................... 1,327,713
32,100 Express Scripts, Inc.*................................ 2,511,825
------------
6,096,007
------------
RESTAURANT: 1.74%
108,000 Ruby Tuesday, Inc..................................... 2,106,000
------------
RETAIL: 17.02%
56,900 AnnTalor, Inc.*....................................... 2,325,788
69,700 Best Buy Co., Inc.*................................... 4,325,756
78,600 Brinker International, Inc.* ........................ 2,132,025
31,000 Costco Companies, Inc.*............................... 2,232,000
41,600 CVS Corporation....................................... 1,697,800
156,100 Musicland Stores Corporation*......................... 1,365,875
126,800 Sonic Automotive, Inc.*............................... 1,648,400
78,400 The TJX Companies, Inc................................ 2,200,100
54,900 Wal-Mart Stores, Inc.................................. 2,611,181
------------
20,538,925
------------
SOFTWARE: 2.90%
472,400 Corel Corporation* ................................... 3,498,712
------------
TELECOMMUNICATION EQUIPMENT: 0.65%
56,700 Superior TeleCom Inc. ................................ 790,256
------------
TELECOMMUNICATIONS: 7.02%
93,200 Echostar Communications Corporation* ................. 8,463,725
------------
TEXTILES: 0.89%
54,200 Mohawk Industries, Inc.* ............................. 1,080,613
------------
TOYS/GAMES/HOBBIES: 2.72%
437,400 The Topps Company, Inc.* ............................. 3,280,500
------------
<PAGE>
8

O'SHAUGHNESSY CORNERSTONE GROWTH FUND

PORTFOLIO OF INVESTMENTS at September 30, 1999, Continued
- --------------------------------------------------------------------------------
Shares/Principal Amount Market Value
- --------------------------------------------------------------------------------

TRANSPORTATION: 1.39%
48,300 Landstar System, Inc.*............................... $ 1,678,425
------------
Total Common Stocks (Cost $112,267,992): 99.44%...... 120,092,835
------------
SHORT-TERM INVESTMENT: 0.57%
$ 684,755 Firstar Bank Demand Note
5.1300%, due 10/1/99 (cost $684,755)................. 684,755
------------
Total Investment in Securities
(cost $112,952,747): 100.01% 120,777,590
Liabilities less Other Assets: -0.01%................ (5,365)
------------
Total Net Assets: 100.0%............................. $120,772,225
============

* Non-income producing security.

See Notes to Financial Statements.
<PAGE>
9

O'SHAUGHNESSY CORNERSTONE VALUE FUND

PORTFOLIO OF INVESTMENTS at September 30, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCK: 98.65% Market Value
- --------------------------------------------------------------------------------

AUTO MANUFACTURERS: 1.72%
9,000 Ford Motor Company .................................... $ 451,688
------------
AUTO PARTS & EQUIPMENT: 1.83%
13,000 Dana Corporation ...................................... 482,625
------------
BANKS: 13.54%
10,200 Banc One Corporation .................................. 355,087
8,600 BankAmerica Corporation ............................... 478,912
13,500 BankBoston Corporation ................................ 585,562
8,600 First Union Corporation ............................... 305,838
16,300 KeyCorp ............................................... 420,744
6,800 National Australia Bank Ltd. .......................... 501,925
9,900 PNC Bank Corp. ........................................ 521,606
12,100 Summit Bancorp ........................................ 392,494
------------
3,562,168
------------
BEVERAGES: 1.78%
11,300 Diageo PLC ............................................ 468,244
------------
CHEMICALS: 4.24%
11,400 Eastman Chemical Company .............................. 456,000
5,800 The Dow Chemical Company .............................. 659,025
------------
1,115,025
------------
DISTRIBUTION/WHOLESALE: 1.58%
15,600 Genuine Parts Company ................................. 414,375
------------
FINANCIAL SERVICES: 1.73%
11,200 Union Planters Corporation ............................ 456,400
------------
FOOD: 3.04%
6,600 General Mills, Inc. ................................... 535,425
17,700 Nabisco Group Holdings Corp. .......................... 265,500
------------
800,925
------------
FOREST PRODUCTS & PAPER: 4.17%
19,400 Westvaco Corporation .................................. 497,125
10,400 Weyerhaeuser Company .................................. 599,300
------------
1,096,425
------------
<PAGE>
10

O'SHAUGHNESSY CORNERSTONE VALUE FUND

HOLDING COMPANIES -- DIVERSIFIED: 1.79%
27,700 Tomkins PLC ........................................ $ 470,900
------------
HOUSEHOLD PRODUCTS/WARES: 2.04%
16,600 Fortune Brands, Inc. ............................... 535,350
------------
INSURANCE: 2.86%
12,300 SAFECO Corporation .................................. 344,400
14,800 The St. Paul Companies, Inc. ...................... 407,000
------------
751,400
------------
IRON/STEEL: 8.64%
24,700 Allegheny Teledyne Incorporated ................... 416,812
18,277 Anglo American Corporation of South Africa Ltd. .... 1,021,227
32,400 British Steel PLC* .................................. 834,300
------------
2,272,339
------------
MACHINERY -- DIVERSIFIED: 2.29%
15,600 Deere & Company ..................................... 603,525
------------
MINING: 2.91%
10,800 Rio Tinto PLC ..................................... 766,800
------------
MISCELLANEOUS MANUFACTURING: 5.49%
10,900 Cooper Industries, Inc. ............................ 509,575
7,000 Minnesota Mining and Manufacturing Company .......... 672,438
15,400 Tenneco Inc. ........................................ 261,800
------------
1,443,813
------------
OIL & GAS PRODUCERS: 22.70%
7,700 Atlantic Richfield Company........................... 682,412
5,433 BP Amoco ADR.......................................... 602,044
6,300 Chevron Corporation ................................. 559,125
32,300 Imperial Petroleum, Inc............................... 672,244
30,300 Occidental Petroleum Corporation..................... 700,688
12,000 Phillips Petroleum Company........................... 585,000
13,900 Shell Transport and Trading Company.................. 632,450
14,600 Sunoco, Inc........................................... 399,675
9,800 Texaco Inc........................................... 618,625
17,700 USX-Marathon Group.................................... 517,725
------------
5,969,988
------------
<PAGE>
11

O'SHAUGHNESSY CORNERSTONE VALUE FUND

PACKAGING & CONTAINERS: 1.56%
16,900 Crown Cork & Seal Company, Inc........................ $ 409,825
------------
RETAIL: 1.45%
11,100 J. C. Penny Company................................... 381,563
------------
TELEPHONE: 9.40%
28,700 Compania Anonima Nacional Telefonos de Venezuela...... 769,519
17,800 Telefonica de Argentina S.A........................... 469,475
10,600 Telefonos de Mexico................................... 755,250
8,400 U S WEST, Inc......................................... 479,325
------------
2,473,569
------------
TOBACCO: 1.89%
9,900 Philip Morris Companies Inc........................... 338,456
5,866 RJ Reynolds Tobacco Holdings, Inc..................... 158,382
------------
496,838
------------
TRANSPORTATION: 2.00%
12,400 CSX Corporation ..................................... 525,450
------------
Total Common Stocks (Cost $26,850,423): 98.65% ....... 25,949,235
------------
Total Investment in Securities
(cost $26,850,423): 98.65% ......................... 25,949,235
Other Assets less Liabilities: 1.35% ................. 355,815
------------
Total Net Assets: 100.0% ............................ $ 26,305,050
============

*Non-income producing security.

See Notes to Financial Statements.
<PAGE>
12

O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND

STATEMENTS OF ASSETS AND LIABILITIES at September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cornerstone Cornerstone
Growth Fund Value Fund
------------- ------------
<S> <C> <C>
ASSETS
Investments in securities, at value (identified
cost $112,952,747 and $26,850,423 respectively) $ 120,777,590 $ 25,949,235
Receivables:
Portfolio securities sold ................... -- 528,239
Fund shares sold ............................ 107,375 8,160
Dividends and interest ...................... 21,555 97,720
Deferred organization costs .................... 10,532 10,532
Prepaid expenses and other ..................... 39,497 21,829
------------- ------------
Total assets .............................. 120,956,549 26,615,715
------------- ------------
LIABILITIES
Payables:
Fund shares repurchased ..................... 41,572 10,560
Funds advanced by custodian ................. -- 256,741
Advisory fee ................................ 75,012 16,898
Administration fee .......................... 9,486 3,397
Accrued expenses ............................... 58,254 23,069
------------- ------------
Total liabilities ......................... 184,324 310,665
------------- ------------
NET ASSETS ........................................ $ 120,772,225 $ 26,305,050
============= ============
Net asset value, offering and redemption price
per share ($120,772,225/9,773,751 and
$26,305,050/2,210,552 shares outstanding;
respectively; 25,000,000,000 shares
(par value $.0001) authorized) ............... $ 12.36 $ 11.90
============= ============
COMPONENTS OF NET ASSETS
Paid-in capital ................................ $ 123,664,912 $ 24,820,527
Undistributed net investment income ............ -- 565,497
Accumulated net realized gain (loss) on
investment transactions ...................... (10,717,530) 1,820,214
Net unrealized appreciation (depreciation)
of investments ............................... 7,824,843 (901,188)
------------- ------------
Net assets .................................. $ 120,772,225 $ 26,305,050
============= ============
</TABLE>

See Notes to Financial Statements.
<PAGE>
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND

STATEMENTS OF OPERATIONS
Year Ended September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cornerstone Cornerstone
Growth Fund Value Fund
----------- -----------
<S> <C> <C>
INVESTMENT INCOME
Income
Dividends (net of foreign withholding tax
of $0 and $23,142, respectively) .................. $ 215,083 $ 968,020
Interest ........................................... 19,383 8,380
Income from securities lending ..................... 100,580 122,728
----------- ----------
Total income ..................................... 335,046 1,099,128
----------- ----------
Expenses (Note 3)
Advisory fees ...................................... 783,280 204,286
Transfer agent fees ................................ 104,413 32,449
Administration fees ................................ 101,802 37,053
Custodian fees ..................................... 65,999 26,647
Registration fees .................................. 49,446 20,878
Accounting fees .................................... 28,425 21,768
Professional fees .................................. 37,233 11,794
Reports to shareholders ............................ 21,999 10,001
Insurance fees ..................................... 9,373 2,218
Directors' fees .................................... 7,399 7,399
Other .............................................. 6,671 3,114
Amortization of deferred organization costs ........ 5,038 5,038
----------- ----------
Total expenses ................................... 1,221,078 382,645
----------- ----------
Net investment income (loss) ............................. (886,032) 716,483
----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) from security transactions (1,597,353) 2,269,047
Net change in unrealized appreciation of investments 25,593,050 553,549
----------- ----------
Net realized and unrealized gain on investments .. 23,995,697 2,822,596
----------- ----------
Net Increase in Net Assets Resulting from Operations ..... $23,109,665 $3,539,079
=========== ==========
</TABLE>

See Notes to Financial Statements.
<PAGE>
14

O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cornerstone Growth Fund Cornerstone Value Fund
-------------------------------------- --------------------------------------
Year Ended Year Ended Year Ended Year Ended
September 30, 1999 September 30, 1998 September 30, 1999 September 30, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income (loss) $ (886,032) $ (665,794) $ 716,483 $ 437,383
Net realized gain (loss) from security
transactions ........................ (1,597,353) (1,821,292) 2,269,047 561,340
Net change in unrealized appreciation
(depreciation) on investments 25,593,050 (27,903,738) 553,549 (2,626,376)
------------- ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from
operations ........................ 23,109,665 (30,390,824) 3,539,079 (1,627,653)
------------- ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............ -- -- (511,737) (231,740)
Net realized gains from security
transactions ........................ -- (7,364,392) (1,009,259) (2,470)
------------- ------------ ------------ ------------
0 (7,364,392) (1,520,996) (234,210)
------------- ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from
capital share transactions(a) 17,283,911 26,875,315 2,360,574 10,318,880
------------- ------------ ------------ ------------
Total increase (decrease) in net
assets 40,393,576 (10,879,901) 4,378,657 8,457,017
NET ASSETS
Beginning of year 80,378,649 91,258,550 21,926,393 13,469,376
------------- ------------ ------------ ------------
End of year (including undistributed net
investment income (loss) of $0, $0,
$565,497, and $360,751,
respectively) $ 120,772,225 $ 80,378,649 $ 26,305,050 $ 21,926,393
============= ============ ============ ============
</TABLE>

See Notes to Financial Statements.
<PAGE>
15

O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND

STATEMENTS OF CHANGES IN NET ASSETS, continued
- --------------------------------------------------------------------------------
(a) A summary of capital share transactions is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
Cornerstone Growth Fund September 30, 1999 September 30, 1998
- -------------------------------------------------------------------------------------------
Shares Value Shares Value
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold ................. 7,152,440 $ 82,058,831 9,244,626 $116,802,209
Shares issued on reinvestment
of distributions .......... 0 0 631,833 7,164,991
Shares redeemed ............. (5,777,646) (64,774,920) (7,444,063) (97,091,885)
---------- ------------ ---------- ------------
Net increase ................ 1,374,794 $ 17,283,911 2,432,396 $ 26,875,315
========== ============ ========== ============

Year Ended Year Ended
Cornerstone Value Fund September 30, 1999 September 30, 1998
- -------------------------------------------------------------------------------------------
Shares Value Shares Value
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares sold ................. 1,924,794 $ 23,974,199 1,691,812 $ 20,010,395
Shares issued on reinvestment
of distributions .......... 124,352 1,412,633 19,959 226,714
Shares redeemed ............. (1,861,996) (23,026,258) (859,354) (9,918,229)
---------- ------------ --------- ------------
Net increase ................ 187,150 $ 2,360,574 852,417 $ 10,318,880
========== ============ ========= ============
</TABLE>

See Notes to Financial Statements.
<PAGE>
16

O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cornerstone Growth Fund
-------------------------------------------------
Year Ended November 1, 1996*
----------------------------- through
September 30, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period .... $ 9.57 $ 15.30 $10.00
------- ------- ------
Income from investment operations:
Net investment income (loss)........... (0.09) (0.07) (0.02)
Net realized and unrealized
gain (loss) on investments.. ......... 2.88 (3.88) 5.32
------- ------- ------
Total from investment operations......... 2.79 (3.95) 5.30
------- ------- ------
Less distributions:
From net investment income............. -- -- --
From net realized gains................ (1.78) --
------- ------
-- (1.78) --
------- ------- ------
Net asset value, end of period........... $ 12.36 $ 9.57 $15.30
======= ======= ======
Total return ............................ 29.15% (27.63%) 53.05%**
Ratios/supplemental data:
Net assets, end of period
(millions) ............................. $ 120.8 $ 80.4 $ 91.3
Ratio of expenses to average net
assets:
Before expense reimbursement........... 1.15% 1.16% 1.63%++
After expense reimbursement............ 1.15% 1.16% 1.56%++
Ratio of net investment (loss) income to
average net assets:
Before expense reimbursement........... (0.84%) (0.86%) (1.19%)++
After expense reimbursement............ (0.84%) (0.86%) (1.12%)++
Portfolio turnover rate.................. 125.19% 119.98% 15.52%

Cornerstone Value Fund
-------------------------------------------------
Year Ended November 1, 1996*
----------------------------- through
September 30, September 30, September 30,
1999 1998 1997
------------- ------------- -------------

Net asset value, beginning of period..... $ 10.84 $11.50 $10.00
------- ------ ------
Income from investment operations:
Net investment income (loss)........... 0.33 0.21 0.15
Net realized and unrealized
gain (loss) on investments............ 1.49 (0.70) 1.37
------- ------ ------
Total from investment operations......... 1.82 (0.49) 1.52
------- ------ ------
Less distributions:
From net investment income............. (0.26) (0.17) (0.02)
From net realized gains................ (0.50) -- --
------- ------ ------
(0.76) (0.17) (0.02)
------- ------ ------
Net asset value, end of period........... $ 11.90 $10.84 $11.50
======= ====== ======
Total return ........................... 17.12% (4.32%) 15.21%**
Ratios/supplemental data:
Net assets, end of period
(millions).............................. $ 26.3 $ 21.9 $ 13.5 **
Ratio of expenses to average net
assets:
Before expense reimbursement........... 1.38% 1.45% 2.66%++
After expense reimbursement.. ......... 1.38% 1.45% 1.85%++
Ratio of net investment (loss) income to
average net assets:
Before expense reimbursement........... 2.58% 2.12% 1.93%++
After expense reimbursement............ 2.58% 2.12% 2.73%++
Portfolio turnover rate.................. 122.79% 51.56% 2.01%
</TABLE>

* Commencement of operations.
** Not Annualized.
++ Annualized.

See Notes to Financial Statements.
<PAGE>
17

O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND

NOTES TO FINANCIAL STATEMENTS at September 30, 1999
- --------------------------------------------------------------------------------

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.

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
$25,191 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 year ended September 30, 1999, 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 from each Fund at the annual rate of 0.74 % based upon the average
daily net assets of the Funds.
<PAGE>
18

O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND

NOTES TO FINANCIAL STATEMENTS at September 30, 1999, Continued
- --------------------------------------------------------------------------------

The Funds are responsible for their own operating expenses. The Advisor has
agreed to reduce fees payable to it by the Funds or reimburse the Funds 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 reimbursement of Fund expenses, which are the Fund's
obligation, are subject to recapture by the Advisor provided the Fund is able to
effect such recapture while keeping total operating expenses at or below the
annual expense cap. No recapture will be made after September 30, 2000. Any
amounts reimbursed will have the effect of increasing fees otherwise paid by the
Fund. No reimbursed expenses were subject to recapture by the Advisor from the
Cornerstone Growth Fund for the year ended September 30, 1999. Cumulative
reimbursed expenses subject to recapture by the Advisor from Cornerstone Growth
Fund and Cornerstone Value Fund totaled $8,879 and $46,300, respectively, at
September 30, 1999.

Investment Company Administration, L.L.C. (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 the 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 $40,000 annually
$100 to $200 million--0.05% of average daily net assets
Over $200 million--0.03% of average daily net assets

Prior to January 5, 1999, the administration fee for the Cornerstone Value
Fund was subject to a $10,000 annual minimum fee. Effective October 1, 1999, the
administration fee for Cornerstone Growth Fund and Cornerstone Value Fund is
0.10% of the first $200 million of average net assets and 0.03% of average net
assets in excess of $200 million.

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 year ended September 30, 1999, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, for the
Cornerstone Growth Fund were $149,073,701 and $133,425,961, respectively.

For the year ended September 30, 1999, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, for the
Cornerstone Value Fund were $34,821,256 and $33,499,269, respectively.
<PAGE>
19

O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND

NOTES TO FINANCIAL STATEMENTS at September 30, 1999, Continued
- --------------------------------------------------------------------------------

NOTE 5--SECURITIES LENDING

At September 30, 1999, the Cornerstone Growth Fund and Cornerstone Value
Fund, respectively, loaned securities valued at $12,032,000 and $2,973,000 to
certain brokers, dealers and other financial institutions who pay the Funds
negotiated lenders' fees. For collateral, the Funds received $12,273,400 and
$3,032,900, respectively, an amount equal to 102% of the market value of the
loaned securities, marked-to-market daily. The risks to the Funds, of lending
their securities, include delay in recovery of securities loaned or loss of
rights in the collateral should the borrower of the securities fail financially.

NOTE 6--INCOME TAXES

At September 30, 1999, the cost of securities for income tax purposes in
the Cornerstone Growth Fund was approximately $113,494,486. Unrealized
appreciation and depreciation of securities were as follows:

Gross unrealized appreciation........... $ 24,616,891
Gross unrealized depreciation........... (17,333,787)
-------------
Net unrealized appreciation............. $ 7,283,104
=============

At September 30, 1999, the cost of securities for income tax purposes in
the Cornerstone Value Fund was approximately $27,389,652. Unrealized
appreciation and depreciation of securities were as follows:

Gross unrealized appreciation........... $ 2,794,408
Gross unrealized depreciation........... (4,234,825)
------------
Net unrealized depreciation............. $ (1,440,417)
============

Net realized capital losses differ for financial statement and tax purposes
primarily due to differing tax treatment of wash sales.

At September 30, 1999, Cornerstone Growth Fund had tax basis capital losses
of $8,200,000, which may be carried over to offset future capital gains. Such
losses expire September 30, 2007.

At September 30, 1999, Cornerstone Growth Fund has deferred capital losses
occurring subsequent to October 31, 1998 of $1,900,000. For tax purposes, such
losses will be reflected in the year ending September 30, 2000.

NOTE 7--SUBSEQUENT EVENTS

At a special meeting held on October 18, 1999, the Board of Directors of
O'Shaughnessy Funds, Inc. determined that it would be in the best interest of
Fund shareholders to merge the O'Shaughnessy Aggressive Growth Fund with
O'Shaughnessy Cornerstone Growth Fund, and the O'Shaughnessy Dogs of the Market
Fund with the O'Shaughnessy Cornerstone Value Fund. Under the proposal, shares
of the O'Shaughnessy Aggressive Growth Fund would be exchanged for shares of the
O'Shaughnessy Cornerstone Growth Fund, and shares of the O'Shaughnessy Dogs of
the Market Fund would be exchanged for shares of the O'Shaughnessy Cornerstone
Value Fund if approved at a forthcoming meeting of the shareholders. It is
anticipated that such an exchange would be done on a tax-free basis.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
O'Shaughnessy Cornerstone Growth Fund and
O'Shaughnessy Cornerstone Value Fund

In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of O'Shaughnessy Cornerstone Growth
Fund and O'Shaughnessy Cornerstone Value Fund (two of the series of
O'Shaughnessy Funds, Inc., hereafter referred to as the "Funds") at September
30, 1999, and the results of their operations, the changes in their net assets
and the financial highlights for the year then ended, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at September 30, 1999 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above. The financial statements for the year ended September 30, 1998
including the financial highlights for the year then ended and the period from
November 1, 1996 (commencement of operations) to September 30, 1997, were
audited by other independent accountants whose report dated October 23, 1998
expressed an unqualified opinion on those financial statements.

PricewaterhouseCoopers LLP
New York, New York
October 22, 1999
<PAGE>
CHANGE IN INDEPENDENT ACCOUNTANT

On August 13, 1999, McGladrey & Pullen, LLP ("McGladrey") resigned as
independent auditors of the Fund pursuant to an agreement by
PricewaterhouseCoopers LLP ("PwC") to acquire McGladrey's investment company
practice. The McGladrey partners and professionals serving the Fund at the time
of the acquisition joined PwC.

The reports of McGladrey on the financial statements of the Fund during the past
two fiscal years contained no adverse opinion or disclaimer of opinion, and were
not qualified or modified as to uncertainty, audit scope or accounting
principles.

In connection with its audits for the two most recent fiscal years and through
August 13, 1999, there were no disagreements with McGladrey on any matter of
accounting principle or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
McGladrey would have caused it to make reference to the subject matter of
disagreement in connection with its report.

Effective August 13, 1999, the Fund, with the approval of its Board of Directors
and its Audit Committee, engaged PwC as its independent auditors.
<PAGE>
INVESTMENT ADVISOR
O'Shaughnessy Capital Management, Inc.
35 Mason Street
Greenwich, Connecticut 06830

ADMINISTRATOR
Investment Company Administration, LLC
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018

DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018

TRANSFER AGENT
Firstar Mutual Fund Services, LLC
615 E. Michigan Street
Milwaukee, Wisconsin 53202

INDEPENDENT AUDITOR
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

LEGAL COUNSEL
Swidler Berlin Shereff Friedman, 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. Past
performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be more or less than their original cost.
Statements and other information herein are dated and are subject to change.
<PAGE>
[O'SHAUGHNESSY FUNDS INC. LOGO]

BUILDING
NEW STANDARDS
FOR INVESTMENT
SUCCESS

DOGS OF THE MARKET(TM) FUND

ANNUAL REPORT
SEPTEMBER 30, 1999
<PAGE>
O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND

November 21, 1999

Dear Fellow Shareholders,

Enclosed is the annual report for the O'Shaughnessy Dogs of the Market Fund. The
report contains financial statements for the Fund during the year ended
September 30, 1999, as well as the Fund's portfolio on that date. For the
one-year period ended September 30, 1999 our Dogs of the Market Fund had a
return of 10.36%.

Although the Dogs of the Market Fund held its value better than the overall
market during the correction in October of 1998, the subsequent market recovery
was led by growth and technology companies. The Fund currently doesn't own many
of these stocks, since they pay little or no dividend, and it did not have a
particularly strong year as a result. However, we remain committed to the wisdom
of the long-term efficacy of high yield investing for more conservative
investors.

As I've said many times before, focusing on the short-term is a dangerous and
destructive investment habit, which usually leads to unnecessary despair in
downturns and often-unrealistic optimism in rising markets. To focus only on the
performance of the Dogs of the Market Fund over the past year means missing the
forest for the trees: remember that between 1974 and 1998, the Dogs of the
Market Strategy compounded at an annual rate of 19.49%, while the S&P 500
compounded at 17.09% over the same period. To stay the course, we must
constantly remind ourselves of our goals, and why we're investing in the first
place--usually for our retirement or our children's education. In most
circumstances, these are events that are at least five to ten years away.

As you may know, the O'Shaughnessy Funds' Board of Directors recently approved a
reorganization plan where the Dogs of the Market Fund will be merged into the
Cornerstone Value Fund. While we had hoped that the Fund would grow to a size
large enough to permit it to be economically viable, this growth hasn't
materialized. We and the Board have concluded that a merger of the Fund into the
larger Cornerstone Value Fund, with a similar investment objective and a lower
expense ratio, will be in the best interest of shareholders. A proxy statement
detailing the proposal will be sent out within a few weeks, and I encourage you
to review the statement and vote on the matter.
<PAGE>
2

O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND

As always, I hope that together, we can reach our long-term goals by staying the
course and sticking with our time-tested investment strategies.

Sincerely,

/s/ James P. O'Shaughnessy
James P. O'Shaughnessy

The S&P 500 Composite Stock Price Index is an unmanaged capitalization-weighted
index of 500 stocks designed to represent the broad domestic economy. Indexes do
not incur expenses and are not available for investment. The Fund's average
annual total return from inception on November 1, 1996 through September 30,
1999 was 10.01%.

Performance figures of the Fund, Strategy and indexes referenced represent past
performance and are not indicative of future performance of the Fund, Strategy
or the indexes. Share values will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original investment.

The Fund is distributed by First Fund Distributors, Inc., Phoenix, AZ. Member
NASD.
<PAGE>
3

O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND

Comparison of the change in value of a $10,000 investment in the O'Shaughnessy
Dogs of The Market Fund versus the S&P 500 Composite Stock Price Index, the
Lipper Multi-Cap Value Index and the Dow Jones Industrial Average

<TABLE>
<CAPTION>
O'Shaughnessy Dogs S & P 500 Composite Lipper Multi-Cap Dow Jones
of The Market Fund Stock Price Index Value Index Industrial Average
------------------ ----------------- ----------- ------------------
<S> <C> <C> <C> <C>
1-Nov-96 10,000 10,000 10,000 10,000
31-Dec-96 10,032 10,560 10,629 10,745
31-Mar-97 10,072 10,842 10,809 11,027
30-Jun-97 11,223 12,729 12,264 12,907
30-Sep-97 11,974 13,684 13,490 13,426
31-Dec-97 12,624 14,080 13,490 13,425
31-Mar-98 13,629 16,041 15,031 15,000
30-Jun-98 13,396 16,570 14,765 15,322
30-Sep-98 12,063 14,921 12,520 13,491
31-Dec-98 13,773 18,119 14,370 15,864
31-Mar-99 12,808 19,023 14,474 16,981
30-Jun-99 14,693 20,366 16,184 19,109
30-Sep-99 13,312 19,093 14,444 18,079
</TABLE>

Past performance is not predictive of future performance.

The S&P 500 is a broad market-weighted average of U.S. blue-chip companies. The
Lipper Multi-Cap Value index is comprised of mutual funds that invest in a
variety of market capitalization ranges, without concentrating 75% or more of
net assets in any one capitalization range over an extended period of time and
have a below average price-to-earning ratio, price-to-book ratio and three year
growth figure. The Dow Jones Industrial Average tracks the performance of 30
blue-chip stocks. The indices are unmanaged and include reinvested dividends.
<PAGE>
4

O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND

TOP TEN PORTFOLIO HOLDINGS AT SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Percent of Net Assets
- --------------------------------------------------------------------------------
1) Nalco Chemical Company............................. 6.35%

2) Minnesota Mining and Manufacturing Company......... 4.45%

3) Royal Dutch Petroleum Company--ADR................. 4.13%

4) Caterpillar Inc.................................... 3.99%

5) ALLTELL Corporation................................ 3.93%

6) Johnson Controls, Inc.............................. 3.85%

7) E. I. du Pont de Nemours and Company............... 3.81%

8) Chevron Corporation................................ 3.76%

9) Kellogg Company.................................... 3.74%

10) J.P. Morgan & Co., Incorporated.................... 3.67%
<PAGE>
5

O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND

PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 99.70% Market Value
- --------------------------------------------------------------------------------
AUTO MANUFACTURERS: 3.09%
8,700 General Motors Corporation............................. $ 547,556
-----------
AUTO PARTS & EQUIPMENT: 6.76%
30,300 Cooper Tire & Rubber Company........................... 534,038
6,289 Delphi Automotive Systems.............................. 101,017
11,700 The Goodyear Tire & Rubber Company..................... 563,063
-----------
1,198,118
-----------
BANKS: 3.67%
5,700 J.P. Morgan & Co., Incorporated........................ 651,225
-----------
CHEMICALS: 12.74%
15,700 Air Products and Chemicals............................. 456,281
11,100 E. I. du Pont de Nemours and Company................... 675,712
22,300 Nalco Chemical Company................................. 1,126,150
-----------
2,258,143
-----------
CONSUMER PRODUCTS: 2.17%
14,900 American Greetings Corporation......................... 383,675
-----------
COSMETICS/PERSONAL CARE: 2.65%
13,600 International Flavors & Fragrances, Inc................ 469,200
-----------
DISTRIBUTION/WHOLESALE: 2.77%
18,500 Genuine Parts Company.................................. 491,406
-----------
ELECTRICAL COMPONENT & EQUIPMENT: 3.57%
10,000 Emerson Electric....................................... 631,875
-----------
ELECTRONICS: 3.85%
10,300 Johnson Controls, Inc.................................. 683,019
-----------
FOOD: 14.23%
11,400 Bestfoods.............................................. 552,900
19,200 ConAgra, Inc........................................... 433,200
10,700 H.J. Heinz Company..................................... 460,100
17,700 Kellogg Company........................................ 662,644
13,900 Winn-Dixie Stores, Inc................................. 412,656
-----------
2,521,500
-----------
<PAGE>
6

O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND

PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1999, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
HOUSEWARES: 2.35%
14,600 Newell Rubbermaid, Inc................................. $ 417,013
-----------
MACHINERY--CONSTRUCTION & MINING: 3.99%
12,900 Caterpillar Inc........................................ 707,081
-----------
MISCELLANEOUS MANUFACTURING: 10.98%
8,600 Eastman Kodak Company.................................. 648,762
8,200 Minnesota Mining and Manufacturing Company............. 787,713
16,100 National Service Industries, Inc....................... 507,150
-----------
1,943,625
-----------
OIL & GAS PRODUCERS: 11.49%
7,500 Chevron Corporation.................................... 665,625
8,400 Exxon Corporation...................................... 637,875
12,400 Royal Dutch Petroleum Company--ADR..................... 732,375
-----------
2,035,875
-----------
PACKAGING & CONTAINERS: 3.08%
16,100 Bemis Company.......................................... 545,387
-----------
RETAIL: 3.09%
15,050 The May Dept Stores Company............................ 548,384
-----------
TELEPHONE: 3.93%
9,900 ALLTELL Corporation.................................... 696,712
-----------
TOBACCO: 5.29%
11,700 Philip Morris Companies Inc............................ 399,994
17,800 UST, Inc............................................... 537,338
-----------
937,332
-----------
Total Investment in Securities
(cost $18,470,326): 99.70%............................. 17,667,126
Other Assets less Liabilities: 0.30% .................. 53,965
-----------
TOTAL NET ASSETS: 100.0%............................... 17,721,091
===========
<PAGE>
7

O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND

STATEMENT OF ASSETS AND LIABILITIES AT SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value
(identified cost $18,470,326)................................ $17,667,126
Receivables:
Portfolio securities sold.................................... 341,560
Fund shares sold............................................. 5,456
Dividends.................................................... 47,527
Deferred organization costs.................................... 10,533
Prepaid expenses and other..................................... 20,789
-----------
Total assets............................................... 18,092,991
-----------
LIABILITIES
Payables:
Fund shares repurchased...................................... 35,277
Advisory fee................................................. 2,908
Administration fee........................................... 1,606
Funds advanced by custodian.................................. 317,354
Accrued expenses............................................... 14,755
-----------
Total liabilities.......................................... 371,900
-----------
NET ASSETS....................................................... $17,721,091
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($17,721,091/1,459,090 shares outstanding; 25,000,000,000
shares (par value $.0001) authorized)........................ $ 12.15
===========
COMPONENTS OF NET ASSETS
Paid-in capital................................................ $16,971,347
Undistributed net investment income............................ 271,390
Undistributed net realized gain on investment transactions..... 1,281,554
Net unrealized depreciation of investments..................... (803,200)
-----------
Net assets................................................... $17,721,091
===========

See Notes to Financial Statements.
<PAGE>
8

O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND

STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income:
Dividends (net of foreign withholding tax of $6,544)......... $ 567,835
Interest..................................................... 2,862
Other........................................................ 24,237
-----------
Total income............................................... 594,934
-----------
Expenses (Note 3):
Advisory fees................................................ 164,117
Administration fees.......................................... 32,127
Transfer agent fees.......................................... 26,293
Registration fees............................................ 25,793
Reports to shareholders...................................... 21,999
Accounting fees.............................................. 20,985
Custodian fees............................................... 16,315
Professional fees............................................ 9,794
Directors' fees.............................................. 7,399
Amortization of deferred organization costs.................. 5,037
Other........................................................ 5,052
-----------
Total expenses............................................. 334,911
Less: expense reimbursement (Note 3)....................... (92,281)
-----------
Net expenses............................................... 242,630
-----------
NET INVESTMENT INCOME.................................... 352,304
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions................. 1,470,454
Net change in unrealized appreciation of investment.......... 694,626
-----------
Net realized and unrealized gain on investments............ 2,165,080
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $ 2,517,384
===========

See Notes to Financial Statements.
<PAGE>
9

O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND

STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year Ended Year Ended
September 30, 1999 September 30, 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income............................................ $ 352,304 $ 208,847
Net realized gain on security transactions....................... 1,470,454 408,727
Net change in unrealized appreciation (depreciation)
of investments................................................. 694,626 (1,760,280)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS............................................ 2,517,384 (1,142,706)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............................................ (274,381) (69,959)
Net realized gains from security transactions.................... (597,939) (443,982)
----------- -----------
(872,320) (513,941)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets derived from capital
share transactions(a).......................................... (6,551,183) 17,035,794
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (4,906,119) 15,379,147

NET ASSETS.......................................................
Beginning of year................................................ 22,627,210 7,248,063
----------- -----------
END OF YEAR (including undistributed net investment income of
$271,390 and $193,467, respectively)........................... $17,721,091 $22,627,210
=========== ===========

(a) A summary of capital share transactions is as follows:

- ----------------------------------------------------------------------------------------------
Year Ended Year Ended
September 30, 1999 September 30, 1998
- ----------------------------------------------------------------------------------------------
Shares Value Shares Value
- ----------------------------------------------------------------------------------------------
Shares sold........................ 959,418 $12,044,414 2,072,680 $25,664,085
Shares issued on reinvestment
of distributions................. 62,336 784,885 42,247 504,011
Shares redeemed.................... (1,546,861) (19,380,482) (736,926) (9,132,302)
----------- ----------- ----------- -----------
Net increase (decrease)............ (525,107) $(6,551,183) 1,378,001 $17,035,794
=========== =========== =========== ===========
</TABLE>

See Notes to Financial Statements.
<PAGE>
10

O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND

FINANCIAL HIGHLIGHTS

(FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
November 1, 1996*
Year Ended Year Ended through
September 30, 1999 September 30, 1998 September 30, 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period....... $ 11.40 $ 11.96 $ 10.00
----------- ----------- -----------
Income from investment operations:
Net investment income.................. 0.23 0.10 0.10
Net realized and unrealized gain on
investments.......................... 0.97 0.02 1.87
----------- ----------- -----------
Total from investment operations........... 1.20 0.12 1.97
----------- ----------- -----------
Less distributions:
From net investment income............. (0.14) (0.09) (0.01)
From net realized gains................ (0.31) (0.59) 0.00
----------- ----------- -----------
Total distributions........................ (0.45) (0.68) (0.01)
----------- ----------- -----------
Net asset value, end of period............. $ 12.15 $ 11.40 $ 11.96
=========== =========== ===========
TOTAL RETURN............................... 10.36% 0.74% 19.74%**

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)....... $ 17.7 $ 22.6 $ 7.2
Ratio of expenses to average net assets:
Before expense reimbursement........... 1.50% 1.46% 4.28%++
After expense reimbursement............ 1.09% 1.46% 1.99%++
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement........... 1.17% 1.24% (0.51%)++
After expense reimbursement............ 1.58% 1.24% 1.78%++
Portfolio turnover rate.................... 63.31% 44.35% 118.44%
</TABLE>

* Commencement of operations.
** Not Annualized.
++ Annualized.

See Notes to Financial Statements.
<PAGE>
11

O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND

NOTES TO FINANCIAL STATEMENTS AT SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------

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.

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.

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.

NOTE 3 -- INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

For the year ended September 30, 1999, 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>
12

O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND

NOTES TO FINANCIAL STATEMENTS AT SEPTEMBER 30, 1999, CONTINUED
- --------------------------------------------------------------------------------

The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees payable to it by the Fund or reimburse the Fund to the
extent necessary to limit the Fund's aggregate annual operating expenses to
1.09% of average net assets (the "expense cap"). Any such reductions made by the
Advisor in its fees or reimbursement of Fund expenses, which are the Fund's
obligation, are subject to recapture by the Advisor provided the Fund is able to
effect such recapture while keeping total operating expenses at or below the
annual expense cap. No recapture will be made after September 30, 2000. Any
amounts reimbursed will have the effect of increasing fees otherwise paid by the
Fund. For the year ended September 30, 1999, the Advisor reimbursed the Fund in
the amount of $92,281. Cumulative reimbursed expenses subject to recapture by
the Advisor totaled $163,480 at September 30, 1999. Effective October 1, 1999,
the expense cap was eliminated.

Investment Company Administration, L.L.C. (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 $200 million -- 0.10% of average daily net assets
Over $200 million -- 0.03% of average daily net assets

Prior to July 1, 1999 the administration fee was 0.10% of the first $100
million of average net assets; 0.05% of the next $100 million of average net
assets; and 0.03% of average net assets in excess of $200 million. The
administration fee was subject to an annual minimum of $10,000 from October 1,
1998 to January 4, 1999 and $40,000 from January 5, 1999 to June 30, 1999.
Effective July 1, 1999 there is no minimum fee.

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 SECURITIES

For the year ended September 30, 1999, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, were
$13,945,945 and $20,981,238, respectively.

NOTE 5 -- SECURITIES LENDING

At September 30, 1999, securities valued at $1,623,000 were on loan from
the Fund to certain brokers, dealers and other financial institutions who pay
the Fund negotiated lenders' fees. For collateral, the Fund received $1,655,700,
an amount equal to 102% of the market value of the loaned securities,
marked-to-market daily. The risks to the Fund, of lending its securities,
include delay in recovery of securities loaned or loss of rights in the
collateral should the borrower of the securities fail financially.
<PAGE>
13

O'SHAUGHNESSY DOGS OF THE MARKET(TM) FUND

NOTES TO FINANCIAL STATEMENTS AT SEPTEMBER 30, 1999, CONTINUED
- --------------------------------------------------------------------------------

NOTE 6 -- INCOME TAXES

At September 30, 1999, the cost of securities for income tax purposes was
approximately $18,987,563. Unrealized appreciation and depreciation of
securities were as follows:

Gross unrealized appreciation............................... $ 1,980,656
Gross unrealized depreciation............................... (3,301,093)
-----------
Net unrealized depreciation................................. $(1,320,437)
===========

Net realized capital gains differ for financial statements and tax purposes
primarily due to differing tax treatment of wash sales.

NOTE 7 -- SUBSEQUENT EVENTS

At a special meeting held on October 18, 1999, the Board of Directors
determined that it would be in the best interest of Fund shareholders to merge
the Fund with the O'Shaughnessy Cornerstone Value Fund. Under the proposal,
shares of the Fund would be exchanged for shares of the O'Shaughnessy
Cornerstone Value Fund if approved at a forthcoming meeting of the shareholders.
It is anticipated that such an exchange would be done on a tax-free basis.

Effective October 19, 1999, the Fund ceased offering new shares.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of O'Shaughnessy Dogs of the Market Fund

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of O'Shaughnessy Dogs of the Market
Fund (one of the series of O'Shaughnessy Funds, Inc., hereafter referred to as
the "Fund") at September 30, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for the year then ended,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at September 30, 1999 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above. The financial statements for the year ended September 30, 1998
including the financial highlights for the year then ended and the period from
November 1, 1996 (commencement of operations) to September 30, 1997, were
audited by other independent accountants whose report dated October 23, 1998
expressed an unqualified opinion on those financial statements.

PricewaterhouseCoopers LLP
New York, New York
October 22, 1999
<PAGE>
CHANGE IN INDEPENDENT ACCOUNTANT

ADMINISTRATOR
Investment Company Administration, LLC
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018

DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018

TRANSFER AGENT
Firstar Mutual Fund Services, LLC
615 E. Michigan Street
Milwaukee, Wisconsin 53202

INDEPENDENT AUDITOR
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

LEGAL COUNSEL
Swidler Berlin Shereff Friedman, 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. Past performance results shown in this report should not be
considered a representation of future performance. Share price and returns will
fluctuate so that shares, when redeemed, may be more or less than their original
cost. Statements and other information herein are dated and are subject to
change.
<PAGE>
[O'SHAUGHNESSY FUNDS INC. LOGO]

35 Mason Street
Greenwich, Connecticut 06830
877-OSFUNDS
www.osfunds.com
<PAGE>
[O'SHAUGHNESSY FUNDS INC. LOGO]

BUILDING
NEW STANDARDS
FOR INVESTMENT
SUCCESS

AGGRESSIVE GROWTH FUND

ANNUAL REPORT
SEPTEMBER 30, 1999
<PAGE>
O'SHAUGHNESSY AGGRESSIVE GROWTH FUND

November 21, 1999

Dear Fellow Shareholders,

Enclosed is the annual report for the O'Shaughnessy Aggressive Growth Fund. The
report contains financial statements for the Fund during the year ended
September 30, 1999, as well as the Fund's portfolio on that date. For the
one-year period ended September 30, 1999 our Aggressive Growth Fund had a return
of 43.51%.

Obviously, we are pleased with the performance of Aggressive Growth over this
past year. The market recovery in the fall of 1998 fueled the fund's
performance, as it was 100% committed to equities when the market surged.

As I've said many times before, focusing on the short-term is a dangerous and
destructive investment habit, which usually leads to unnecessary despair in
downturns and often-unrealistic optimism in rising markets. Investors focusing
only on the performance of the Aggressive Growth Fund in August 1988 would be
tempted to run for the hills--but that would mean missing its rebound and strong
performance over the next 12 months. To stay the course, we must constantly
remind ourselves of our goals, and why we're investing in the first
place--usually for our retirement or our children's education. In most
circumstances, these are events that are at least five to ten years away.

As you may know, the O'Shaughnessy Funds' Board of Directors recently approved a
reorganization plan whereby the Aggressive Growth Fund is proposed to be merged
into the Cornerstone Growth Fund. While we had hoped that the Fund would grow to
a size large enough to permit it to be economically viable, this growth hasn't
materialized. We and the Board have concluded that a merger of the Fund into the
larger Cornerstone Growth Fund, with a similar investment objective and a lower
expense ratio, will be in the best interest of shareholders. A proxy statement
detailing the proposal will be sent out within a few weeks, and I encourage you
to review the statement and vote on the matter.

As always, I hope that together, we can reach our long-term goals by staying the
course and sticking with our time-tested investment strategies.

Sincerely,

/s/ James P. O'Shaughnessy

James P. O'Shaughnessy

The Fund's average annual total return from inception on November 1, 1996
through September 30, 1999 was 16.10%. Performance figures of the Fund represent
past performance and are not indicative of future performance. Share value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than the original investment.

The Fund is distributed by First Fund Distributors, Inc., Phoenix, AZ. Member
NASD.
<PAGE>
2

O'SHAUGHNESSY AGGRESSIVE GROWTH FUND

Comparison of the change in value of a $10,000 investment in the O'Shaughnessy
Aggressive Growth Fund versus the S&P 500 Composite Stock Price Index, the
Lipper Multi-Cap Growth Index and the NASDAQ Composite Index

O'Shaughnessy Lipper NASDAQ
Aggressive Multi-Cap Composite
Growth Fund S&P 500 Growth Index Index
----------- ------- ------------ -----
1-Nov-96 10,000 10,000 1,751.520 10,000
31-Dec-96 10,410 10,560 1,817.851 10,569
31-Mar-97 9,860 10,842 1,756.959 10,002
30-Jun-97 11,440 12,729 2,040.188 11,806
30-Sep-97 14,290 13,684 2,304.171 13,800
31-Dec-97 12,732 14,080 2,235.050 12,856
31-Mar-98 14,409 16,041 2,550.200 15,028
30-Jun-98 13,840 16,570 2,609.296 15,512
30-Sep-98 10,903 14,921 2,223.960 13,867
31-Dec-98 13,784 18,119 2,789.278 17,951
31-Mar-99 13,848 19,023 2,966.157 20,150
30-Jun-99 15,990 20,366 3,187.931 21,989
30-Sep-99 15,647 19,093 3,067.250 22,482

Past performance is not predictive of future performance.

The S&P 500 is a broad market-weighted average of U.S. blue-chip companies. The
Lipper Multi-Cap Growth index is comprised of mutual funds that invest in a
variety of market capitalization ranges, without concentrating 75% or more of
net assets in any one capitalization range over an extended period of time and
have an above average price-to-earning ratio, price-to-book ratio and three year
growth figure. The NASDAQ Composite tracks the performance of domestic common
stocks traded on the regular Nasdaq market as well as National Market System
traded foreign common stocks and ADR's. The indices are unmanaged and include
reinvested dividends.
<PAGE>
3

O'SHAUGHNESSY AGGRESSIVE GROWTH FUND

1) Symantec Corp. ...................... 2.79%
2) Lands' End, Inc. .................... 2.75%
3) Apple Computer, Inc. ................ 2.74%
4) Sun Microsystems, Inc. .............. 2.66%
5) Hambrecht & Quist Group ............. 2.64%
6) QUALCOM Incorporated ............... 2.63%
7) Titan Corp. ......................... 2.59%
8) EMC Corp. ........................... 2.57%
9) PE Corp--PE Biosystems Group ........ 2.48%
10) Biogen, Inc. ........................ 2.45%
<PAGE>
4

O'SHAUGHNESSY AGGRESSIVE GROWTH FUND

PORTFOLIO OF INVESTMENTS at September 30, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 97.36% Market Value
- --------------------------------------------------------------------------------

AEROSPACE AIRCRAFT: 4.51%
5,500 Boeing Company ........................................ $ 234,437
22,100 Titan Corp.* .......................................... 317,688
-----------
552,125
-----------
APPAREL: 5.81%
7,100 Jones Apparel Group, Inc.* ............................ 204,125
5,100 Lands' End, Inc.* ..................................... 336,600
9,350 Quicksilver, Inc.* .................................... 170,638
-----------
711,363
-----------
BANK: 1.59%
1,700 J.P. Morgan & Company, Inc. ........................... 194,225
-----------
BIOTECHNOLOGY: 2.45%
3,800 Biogen, Inc.* ......................................... 299,487
-----------
BUSINESS: 2.18%
5,400 Jabil Cricuit, Inc.* .................................. 267,300
-----------
COMPUTERS: 7.82%
5,300 Apple Computer, Inc.* ................................. 335,556
3,700 Lexmark International Group, Inc.* .................... 297,850
3,500 Sun Microsystems, Inc.* ............................... 325,500
-----------
958,906
-----------
DRUGS: 1.07%
7,600 ICN Pharmaceuticals, Inc. ............................. 130,625
-----------
ELECTRICAL EQUIPMENT: 1.48%
4,300 Dycom Industries, Inc.* ............................... 181,406
-----------
ELECTRONIC: 6.40%
4,200 PE Corp-PE Biosystems Group ........................... 303,450
17,500 Sensormatic Electronics Corp.* ........................ 222,031
3,600 Solectron Corp.* ...................................... 258,525
-----------
784,006
-----------
<PAGE>
5

O'SHAUGHNESSY AGGRESSIVE GROWTH FUND

ENERGY: 2.02%
6,000 Enron Corp. ........................................... $ 247,500
-----------
ENGINEERING & CONSTRUCTION: 1.58%
7,100 CDI Corp.* ............................................ 193,919
-----------
ENTERTAINMENT & LEISURE: 6.33%
26,465 Aztar Corp.* .......................................... 271,266
11,500 Mandalay Resort Group* ................................ 227,125
11,900 Station Casinos, Inc.* ................................ 276,675
-----------
775,066
-----------
HEALTHCARE: 1.96%
14,300 Apria Healthcare Group, Inc.* ......................... 239,525
-----------
HOME BUILDERS: 2.11%
10,800 Winnebago Industries .................................. 258,525
-----------
HOSPITAL SUPPLY: 1.90%
84,700 Laboratory Corporation of America Holdings* ........... 232,925
-----------
HOUSEHOLD PRODUCT: 1.63%
13,800 Haverty Furniture Companies, Inc. ..................... 200,100
-----------
INVESTMENT COMPANY: 4.32%
7,500 Alliance Capital Management L.P. ...................... 205,781
6,600 Hambrecht & Quist Group* .............................. 322,987
-----------
528,768
-----------
MACHINERY -- AGRICULTURAL & CONSTRUCTION: 1.18%
6,000 Astec Industries, Inc.* ............................... 144,750
-----------
MANUFACTURING: 1.76%
16,200 Material Sciences Corp.* .............................. 215,662
-----------
<PAGE>
6

O'SHAUGHNESSY AGGRESSIVE GROWTH FUND

MANUFACTURING/COMPUTER: 2.57%
4,400 EMC Corp.* ............................................ $ 314,325
-----------
MISCELLANEOUS: 3.49%
19,000 Mentor Graphics Corp.* ................................ 162,688
3,900 Safeguard Scientifics, Inc. ........................... 265,200
-----------
427,888
-----------
POLUTION CONTROL: 1.41%
13,700 Autonation, Inc.* ..................................... 172,106
-----------
RETAIL: 12.70%
5,300 American Eagle Outfitters, Inc.* ...................... 256,719
3,610 Best Buy Co., Inc.* ................................... 224,046
39,900 Charming Shoppes* ..................................... 204,488
5,200 Circuit City Stores-Circuit City Group ................ 219,375
9,500 Claire's Sores, Inc. .................................. 157,344
7,900 Michaels Stores, Inc.* ................................ 233,050
5,000 Tandy Corp. ........................................... 258,438
-----------
1,553,460
-----------
SEMICONDUCTOR: 2.23%
5,300 LSI Logic Corp.* ...................................... 272,950
-----------
SHOES: 2.30%
7,200 Timberland Company, Class A* .......................... 281,250
-----------
SOFTWARE: 2.79%
9,500 Symantec Corp.* ....................................... 341,703
-----------
TELECOMMUNICATION: 6.63%
1,700 QUALCOM Incorporated* ................................. 321,619
3,600 Tellabs, Inc.* ........................................ 204,975
1,200 Vodafone Airtouch PLC, ADR ............................ 285,300
-----------
811,894
-----------
TRANSPORTATION: 1.86%
4,900 Navistar International Corp.* ......................... 227,850
-----------
<PAGE>
7

O'SHAUGHNESSY AGGRESSIVE GROWTH FUND

TRANSPORTATION/RAILROAD: 3.28%
12,400 American Freightways Corp.* ......................... $ 225,525
3,800 Kansas City Southern Industries, Inc. ............. 176,462
-----------
401,987
-----------
Total Investment in Securities
(cost $11,003,051): 97.36% ......................... 11,921,596
Other Assets less Liabilities: 2.64% ................ 323,332
-----------
Total Net Assets: 100.0% ............................ $12,244,928
===========

* Non-income producing securities.

See Notes to Financial Statements.
<PAGE>
8

O'SHAUGHNESSY AGGRESSIVE GROWTH FUND

STATEMENT OF ASSETS AND LIABILITIES at September 30, 1999
- --------------------------------------------------------------------------------

ASSETS
Investments in securities, at value (identified
cost $11,003,051) .......................................... $11,921,596
Receivables:
Portfolio securities sold ................................. 219,044
Fund shares sold .......................................... 181,478
Dividends and interest .................................... 2,967
From Investment Advisor ................................... 1,846
Deferred organization costs .................................. 10,533
Prepaid expenses and other ................................... 16,907
-----------
Total assets ............................................ 12,354,371
-----------
LIABILITIES
Payables:
Fund shares repurchased ................................... 5,907
Administration fee ........................................ 3,397
Funds advanced by custodian ............................... 68,273
Accrued expenses ............................................. 31,866
-----------
Total liabilities ....................................... 109,443
-----------
NET ASSETS ...................................................... $12,244,928
===========
Net asset value, offering and redemption price per share
[$12,244,928/838,354 shares outstanding;
25,000,000,000 shares (par value $.0001) authorized] ...... $ 14.61
===========
COMPONENTS OF NET ASSETS
Paid-in capital .............................................. $10,751,911
Undistributed net realized gain on investment transactions ... 574,472
Net unrealized appreciation of investments ................... 918,545
-----------
Net assets ................................................ $12,244,928
===========

See Notes to Financial Statements.
<PAGE>
9

O'SHAUGHNESSY AGGRESSIVE GROWTH FUND

STATEMENT OF OPERATIONS
Year Ended September 30, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income:
Dividends (net of foreign withholding tax of $357) .... $ 40,452
Interest 2,379
Other 4,677
-----------
Total income 47,508
-----------
Expenses:
Advisory fees (Note 3) ................................ 74,894
Administration fees (Note 3) .......................... 34,501
Transfer agent fees ................................... 25,926
Accounting fees 21,314
Registration fees 19,778
Custodian fees 17,002
Reports to shareholders 13,001
Professional fees 10,576
Directors' fees 7,399
Amortization of deferred organization costs (Note 2-D) 5,038
Other 3,664
-----------
Total expenses ...................................... 233,093
Less: expense reimbursement (Note 3) (27,163)
-----------
Net expenses 205,930
-----------
Net investment loss ......................................... (158,422)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions 802,788
Net change in unrealized appreciation of investments .. 2,906,193
-----------
Net realized and unrealized gain on investments ..... 3,708,981
-----------
Net Increase in Net Assets Resulting from Operations ........ $ 3,550,559
===========

See Notes to Financial Statements.
<PAGE>
10

O'SHAUGHNESSY AGGRESSIVE GROWTH FUND

<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------
Year Ended Year Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment loss $ (158,422) $ (143,595)
Net realized gain from security transactions .... 802,788 613,829
Net change in unrealized appreciation
(depreciation) on investments .................. 2,906,193 (2,932,394)
------------ -----------
Net increase (decrease) in net assets
resulting from operations ................... 3,550,559 (2,462,160)
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
Net realized gains from security transactions ... (527,839) (104,043)
------------ -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from capital
share transactions(a) .......................... 879,426 5,324,737
------------ -----------
Total increase in net assets ................. 3,902,146 2,758,534
NET ASSETS
Beginning of year ............................... 8,342,782 5,584,248
------------ -----------
End of year (including accumulated net investment
loss of $0, and $143,595, respectively) ........ $ 12,244,928 $ 8,342,782
============ ===========

(a) A summary of capital share transactions is as follows:

Year Ended Year Ended
September 30, 1999 September 30, 1998
------------------------- --------------------------
Shares Value Shares Value
----------- ------------ ----------- -------------
Shares sold...................... 380,716 $ 5,034,395 825,148 $ 10,967,878
Shares issued on reinvestment
of distributions............... 39,298 497,283 8,307 102,677
Shares redeemed.................. (359,360) (4,652,252) (446,620) (5,745,818)
--------- ----------- --------- ------------
Net increase..................... 60,654 $ 879,426 386,835 $ 5,324,737
========= =========== ========= ============
</TABLE>

See Notes to Financial Statements.
<PAGE>
11

O'SHAUGHNESSY AGGRESSIVE GROWTH FUND

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Per Share Operating Performance
(For a capital share outstanding throughout each period)
- -----------------------------------------------------------------------------------------------------------
Year Year November 1, 1996*
Ended Ended through
September 30, 1999 September 30, 1998 September 30, 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net asset value, beginning of period ........ $ 10.73 $ 14.29 $ 10.00
------- -------- -------
Income from investment operations:
Net investment loss ...................... (0.18) (0.15) (0.06)
Net realized and unrealized gain (loss)
on investments .......................... 4.75 (3.21) 4.35
------- -------- -------
Total from investment operations ............ 4.57 (3.36) 4.29
------- -------- -------
Less distributions:
From net realized gains .................. (0.69) (0.20) --
------- -------- -------
Net asset value, end of period .............. $ 14.61 $ 10.73 $ 14.29
======= ======== =======
Total return ................................ 43.51% (23.70)% 42.90%**
Ratios/supplemental data:
Net assets, end of period (millions) ........ $ 12.2 $ 8.3 $ 5.6
Ratio of expenses to average net assets:
Before expense reimbursement ............. 2.23% 2.24% 7.01%++
After expense reimbursement .............. 1.97% 2.00% 1.98%++
Ratio of net investment loss to average
net assets:
Before expense reimbursement ............. (1.78)% (1.77)% (6.41)%++
After expense reimbursement .............. (1.52)% (1.53)% (1.39)%++
Portfolio turnover rate ..................... 193.84% 206.30% 104.77%
</TABLE>

* Commencement of operations.
** Not Annualized.
++ Annualized.

See Notes to Financial Statements.
<PAGE>
12

O'SHAUGHNESSY AGGRESSIVE GROWTH FUND

NOTES TO FINANCIAL STATEMENTS at September 30, 1999
- --------------------------------------------------------------------------------

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.

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.

NOTE 3 -- INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

For the year ended September 30, 1999, 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.
Prior to October 27, 1998, the advisory fee was 1.00% of the average daily net
assets of the Fund.
<PAGE>
13

O'SHAUGHNESSY AGGRESSIVE GROWTH FUND

NOTES TO FINANCIAL STATEMENTS at September 30, 1999, continued
- --------------------------------------------------------------------------------

The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees payable to it by the Fund or reimburse the Fund 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 reimbursement of Fund expenses, which are the Fund's
obligation, are subject to recapture by the Advisor provided the Fund is able to
effect such recapture while keeping total operating expenses at or below the
annual expense cap. No recapture will be made after September 30, 2000. Any
amounts reimbursed will have the effect of increasing fees otherwise paid by the
Fund. For the year ended September 30, 1999, the Advisor reimbursed the Fund in
the amount of $27,163. Cumulative reimbursed expenses subject to recapture by
the Advisor totaled $136,777 at September 30, 1999. Effective October 1, 1999,
the expense cap was eliminated.

Under $100 million -- 0.10% of average daily net assets, subject to a
minimum fee of $40,000 annually
$100 to $200 million -- 0.05% of average daily net assets
Over $200 million -- 0.03% of average daily net assets

Prior to January 5, 1999, the administration fee was subject to a $10,000
annual minimum fee. Effective October 1, 1999, the administration fee is 0.10%
of the first $200 million of average net assets and 0.03% of average net assets
in excess of $200 million.

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 SECURITIES

For the year ended September 30, 1999, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, were
$20,323,341 and $20,419,518, respectively.

NOTE 5 -- SECURITIES LENDING

At September 30, 1999, securities valued at $701,000 were on loan from the
Fund to certain brokers, dealers and other financial institutions who pay the
Fund negotiated lenders' fees. For collateral, the Fund received $715,200, an
amount equal to 102% of the market value of the loaned securities,
marked-to-market HERE IT IS amount equal to 102% of the market value of the
loaned securities, marked-to-market daily. The risks to the Fund, of lending its
securities, include delay in recovery of securities loaned or loss of rights in
the collateral should the borrower of the securities fail financially.
<PAGE>
14

O'SHAUGHNESSY AGGRESSIVE GROWTH FUND

NOTES TO FINANCIAL STATEMENTS at September 30, 1999, continued
- --------------------------------------------------------------------------------

NOTE 6 -- INCOME TAXES

At September 30, 1999, the cost of securities for income tax purposes was
approximately $11,040,510. Unrealized appreciation and depreciation of
securities were as follows:

Gross unrealized appreciation............ $1,718,118
Gross unrealized depreciation............ (837,032)
----------
Net unrealized appreciation.............. $ 881,086
==========

Net realized capital gains differ for financial statements and tax purposes
primarily due to differing treatment of wash sales.

NOTE 7 -- SUBSEQUENT EVENTS

At a special meeting held on October 18, 1999, the Board of Directors
determined that it would be in the best interest of Fund shareholders to merge
the Fund with the O'Shaughnessy Cornerstone Growth Fund. Under the proposal,
shares of the Fund would be exchanged for shares of the O'Shaughnessy
Cornerstone Growth Fund if approved at a forthcoming meeting of the
shareholders. It is anticipated that such an exchange would be done on a
tax-free basis.

Effective October 19, 1999, the Fund ceased offering new shares.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
O'Shaughnessy Aggressive Growth Fund

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of O'Shaughnessy Aggressive Growth
Fund (one of the series of O'Shaughnessy Funds, Inc., hereafter referred to as
the "Fund") at September 30, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for the year then ended,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at September 30, 1999 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above. The financial statements for the year ended September 30, 1998
including the financial highlights for the year then ended and the period from
November 1, 1996 (commencement of operations) to September 30, 1997, were
audited by other independent accountants whose report dated October 23, 1998
expressed an unqualified opinion on those financial statements.

PricewaterhouseCoopers LLP
New York, New York
October 22, 1999
<PAGE>
CHANGE IN INDEPENDENT ACCOUNTANT

ADMINISTRATOR
Investment Company Administration, LLC
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018

DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261 E
Phoenix, Arizona 85018

TRANSFER AGENT
Firstar Mutual Fund Services, LLC
615 E. Michigan Street
Milwaukee, Wisconsin 53202

INDEPENDENT AUDITOR
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

LEGAL COUNSEL
Swidler Berlin Shereff Friedman, 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. Past performance results shown in this report should not be
considered a representation of future performance. Share price and returns will
fluctuate so that shares, when redeemed, may be more or less than their original
cost. Statements and other information herein are dated and are subject to
change.
<PAGE>
[O'SHAUGHNESSY FUNDS INC. LOGO]

35 Mason Street
Greenwich, Connecticut 06830
877-OSFUNDS
www.osfunds.com