[LOGO]
O'SHAUGHNESSY
FUNDS INC.
BUILDING
NEWSTANDARDS
FOR INVESTMENT
SUCCESS
CORNERSTONE GROWTH(TM) FUND
CORNERSTONE VALUE(TM) FUND
SEMI-ANNUAL REPORT
MARCH 31, 2000
<PAGE>
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND
May 10, 2000
Dear Fellow Shareholder:
Enclosed is the semi-annual report for the O'Shaughnessy Cornerstone Growth and
Cornerstone Value Funds. The report contains financial statements for the Funds
during the six-month period ended March 31, 2000 and the Fund's portfolio on
that date.
For the period of October 1, 1999 to March 31, 2000, our Cornerstone Growth and
Value Funds had a return of 46.04% and -6.38%, respectively. Over the same
period, the S&P 500 and Russell 2000 have had a return of 17.51% and 26.83%
respectively. For the 12 months ending March 31, 2000 our Cornerstone Growth and
Value Funds have had a return of 64.84% and -3.46%. Over the same period, the
S&P 500 and Russell 2000 have had a return of 17.94% and 37.29% respectively.
The disparity between the performance of the small-cap Cornerstone Growth and
the large-cap Cornerstone Value is stark. While small-cap names came back to
life after the last two years of going nowhere, large-cap value stocks remain
unwanted and unloved. But history suggests that this will not persist.
Ultimately, the market snaps up stocks that are bargains and punishes those that
move too far too fast. Twelve months ago, it was small-cap stocks that were
unwanted and unloved, and many people were saying they would never come back.
Cornerstone Growth's performance over the last year demonstrates to us how wrong
the nay Sayers were. I strongly believe that in time the market will do the same
with big-cap value stocks. If you are a Cornerstone Value investor, I advise
patience. The market rewards those who stay strategically invested for the
long-term and -- as current volatility suggests -- punishes those who focus on
the short-term.
As you may know, O'Shaughnessy Capital Management, the investment advisor which
manages your funds, has recently made a strategic business decision to exit the
mutual fund business so that we can focus more closely on individual account
portfolios, historically a larger and faster growing part of our business.
Recent trends in the investment marketplace indicate to us that investors are
moving toward more tax-friendly, customizable, personalized forms of investments
that will allow them to use many of our strategies in one portfolio.
We therefore have agreed in principle to sell certain assets and license certain
patented investment strategies and processes to Edward J. Hennessy, Inc. We
believe that Hennessy is an excellent replacement manager. A new management
agreement with Hennessy is being submitted to you for approval. Hennessy fully
believes in the power of Strategy Indexing, and is committed to continuing the
disciplined investment criteria used by the Funds. If you approve the New
Management Agreement with Hennessy, we will license our patented investment
strategies for the Funds to Hennessy, giving them the ability to select stocks
exactly the way the Funds have done in the past. It has been my privilege to
serve as your fund manager over the last three years. I hope that those of you
who continue to favor funds will stay the course with Cornerstone Growth or
Cornerstone Value. O'Shaughnessy Capital Management will continue to offer both
strategies in separate account formats, as we believe deeply in the investment
strategies that drive them. As always, I hope and trust that you will continue
to let long-term, time-tested strategies serve as the core of your investment
portfolio.
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 March 31, 2000 were 24.16%
and 5.72%, 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. The S&P 500 Index is a broad market-weighted average of U.S.
blue-chip companies. The Russell 2000 Index is formed by taking the 3,000
largest U.S. companies and then eliminating the largest 1,000 leaving a good
small company index. The indices are unmanaged and returns include reinvested
dividends.
The Funds are distributed by First Fund Distributors, Inc., Phoenix, AZ.
<PAGE>
2
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
TOP TEN PORTFOLIO HOLDINGS AT MARCH 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Percent of Net Assets
--------------------------------------------------------------------------------
1) Concord Camera Corp. ............................ 4.48%
2) 4Front Technologies, Inc. ....................... 2.87%
3) In Focus Systems, Inc. .......................... 2.86%
4) Amphenol Corp.-- CL A ........................... 2.85%
5) Hot Topic, Inc. ................................. 2.79%
6) ACT Manufacturing, Inc. ......................... 2.76%
7) Audiovox Corp.-- CL A ........................... 2.66%
8) Michaels Stores, Inc. ........................... 2.65%
9) Shaw Group, Inc. ................................ 2.58%
10) Circuit City Stores-Circuit City Group .......... 2.50%
O'SHAUGHNESSY CORNERSTONE VALUE FUND
TOP TEN PORTFOLIO HOLDINGS AT MARCH 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Percent of Net Assets
--------------------------------------------------------------------------------
1) Telefonica de Argentina S.A. .................... 2.77%
2) Xerox Corp. ..................................... 2.50%
3) First Union Corp. ............................... 2.46%
4) Nabisco Group Holdings Corp. .................... 2.46%
5) BANC ONE CORPORATION ............................ 2.34%
6) USX-Marathon Group .............................. 2.30%
7) FleetBoston Financial Corp. ..................... 2.29%
8) BankAmerica Corporation ......................... 2.27%
9) British American Tobacco PLC ADR ................ 2.26%
10) Conoco, Inc.-- CL B ............................. 2.25%
<PAGE>
3
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Shares COMMON STOCK: 100.3% Value
--------------------------------------------------------------------------------
ADVERTISING AGENCIES: 1.6%
78,380 True North Communications, Inc. .................... $ 3,081,314
------------
AMUSEMENT & RECREATION: 1.7%
224,990 Argosy Gaming Company* ............................. 3,206,107
------------
CHEMICALS -- PLASTIC: 2.0%
108,590 Spartech Corp. ..................................... 3,732,781
------------
CIRCUIT BOARDS: 1.7%
131,770 Park Electrochemical Corp. ......................... 3,228,365
------------
COMPUTER SERVICES: 6.6%
261,760 4Front Technologies, Inc.* ......................... 5,431,520
64,980 Safeguard Scientifics, Inc.* ....................... 4,568,906
287,320 Indus International, Inc.* ......................... 2,406,305
------------
12,406,731
------------
COMPUTERS: 2.0%
44,520 CDW Computer Centers, Inc.* ........................ 3,759,157
------------
COMPUTERS -- PERIPHERAL EQUIPMENT: 2.9%
150,980 In Focus Systems, Inc.* ............................ 5,406,971
------------
DIRECT MARKETING: 1.8%
500,150 Sitel Corp.* ....................................... 3,438,531
------------
DISTRIBUTION / WHOLESALE: 1.6%
86,350 Scansource, Inc.* .................................. 3,065,425
------------
ELECTRONIC COMPONENTS AND SEMICONDUCTORS: 2.8%
93,410 ACT Manufacturing, Inc.* ........................... 5,225,122
------------
<PAGE>
4
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 2000 (UNAUDITED)-- (CONTINUED)
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
ELECTRONICS: 7.9%
52,630 Amphenol Corp.-- CL A* ............................. $ 5,381,417
115,210 Audiovox Corp.-- CL A* ............................. 5,026,036
200,750 Sensormatic Electronics Corp.* ..................... 4,504,328
------------
14,911,781
------------
ENTERTAINMENT & LEISURE: 9.7%
321,985 Aztar Corp.* ....................................... 3,058,857
132,480 Harrah's Entertainment, Inc.* ...................... 2,459,160
265,490 Isle of Capri Casinos, Inc.* ....................... 3,318,625
174,000 Mandalay Resort Group* ............................. 2,936,250
156,040 Pinnacle Entertainment, Inc.* ...................... 3,169,563
156,010 Station Casinos, Inc.* ............................. 3,402,968
------------
18,345,423
------------
ENTERTAINMENT SOFTWARE: 1.9%
270,640 Take-Two Interactive Software, Inc.* ............... 3,585,980
------------
FINANCE: 2.1%
41,360 Lehman Brothers Holdings, Inc. ..................... 4,011,920
------------
FOOD: 1.5%
172,400 Hormel Foods Corp. ................................. 2,833,825
------------
HUMAN RESOURCES: 2.1%
162,840 Hall, Kinion & Associates, Inc.* ................... 3,918,338
------------
INTERNET SOFTWARE: 0.0%
278 Opus360 Corp.* ..................................... 0
------------
MACHINERY -- PRINT TRADE: 1.5%
104,410 Imation Corp.* ..................................... 2,786,442
------------
MEDICAL LABS: 2.4%
114,560 Quest Diagnostics, Inc.* ........................... 4,553,760
------------
<PAGE>
5
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 2000 (UNAUDITED)-- (CONTINUED)
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
METAL PROCESSORS: 1.6%
96,610 Mueller Industries, Inc.* .......................... $ 2,934,529
------------
METAL -- ALUMINUM: 1.6%
42,150 Alcoa, Inc. ........................................ 2,961,037
------------
MISCELLANEOUS MANUFACTURING: 1.3%
191,820 Polymer Group, Inc. ................................ 2,445,705
------------
PHOTO EQUIPMENT & SUPPLIES: 4.5%
153,910 Concord Camera Corp.* .............................. 8,465,050
------------
PRINTING: 1.7%
122,370 Workflow Management, Inc.* ......................... 3,296,342
------------
RETAIL: 28.6%
95,930 BJ's Wholesale Club, Inc.* ......................... 3,705,296
528,580 Charming Shoppes* .................................. 3,006,299
77,690 Circuit City Stores-Circuit City Group ............. 4,729,379
170,800 Coldwater Creek, Inc.* ............................. 2,903,600
76,770 Costco Companies, Inc.* ............................ 4,035,223
150,640 Hot Topic, Inc.* ................................... 5,272,400
122,880 Michaels Stores, Inc.* ............................. 5,007,360
101,510 PC Connection, Inc.* ............................... 2,867,658
78,490 Talbots, Inc. ...................................... 4,621,099
47,660 Target Corp. ....................................... 3,562,585
98,720 Tweeter Home Entertainment Group, Inc.* ............ 4,368,360
141,490 Ultimate Electronics, Inc.* ........................ 3,095,094
142,400 Whitehall Jewellers, Inc.* ......................... 3,346,400
72,440 Zale Corp.* ........................................ 3,418,263
------------
53,939,016
------------
SHOES: 1.8%
66,160 Timberland Company, Class A* ....................... 3,374,160
------------
SOAP & CLEANING: 1.2%
131,200 Church & Dwight Co., Inc. .......................... 2,255,000
------------
<PAGE>
6
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 2000 (UNAUDITED)-- (CONTINUED)
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
STEEL PIPE & TUBE: 2.6%
138,370 Shaw Group, Inc.* .................................. $ 4,877,543
------------
TRANSPORTATION: 1.6%
291,870 Arkansas Best Corp.* ............................... 3,064,635
------------
TOTAL COMMON STOCKS ................................ 189,110,990
------------
TOTAL PORTFOLIO OF INVESTMENTS
(cost $166,417,106): 100.3% ........................ 189,110,990
Liabilities in excess of Other Assets: (0.3)% ...... (521,019)
------------
NET ASSETS: 100.0% ................................. $188,589,971
============
* Non-income producing security.
See accompanying Notes to Financial Statements.
<PAGE>
7
O'SHAUGHNESSY CORNERSTONE VALUE FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
Shares COMMON STOCK: 100.9% Value
--------------------------------------------------------------------------------
AEROSPACE / DEFENSE: 3.5%
22,700 Lockheed Martin Corp. .............................. $ 463,931
18,700 Raytheon Company-- CL A ............................ 331,925
------------
795,856
------------
AUTO MANUFACTURERS: 3.7%
6,400 DaimlerChrysler AG ................................. 418,800
9,270 Ford Motor Company ................................. 425,841
------------
844,641
------------
AUTO PARTS & EQUIPMENT: 2.1%
16,560 Dana Corporation ................................... 466,785
------------
BANKS: 27.7%
15,520 BANC ONE CORPORATION ............................... 533,500
9,860 BankAmerica Corporation ............................ 517,034
10,600 Comerica, Inc. ..................................... 443,875
15,080 First Union Corp. .................................. 561,730
14,319 FleetBoston Financial Corp. ........................ 522,643
20,800 Huntington Bancshares, Inc. ........................ 465,400
22,490 KeyCorp ............................................ 427,310
6,500 National Australia Bank Ltd. ....................... 420,469
11,170 PNC Financial Services Group ....................... 503,348
19,800 Regions Financial Corp. ............................ 451,688
16,270 Summit Bancorp ..................................... 427,088
20,900 U.S. Bancorp ....................................... 457,188
19,200 Washington Mutual, Inc. ............................ 508,800
------------
6,240,073
------------
BEVERAGES: 2.1%
15,500 Diageo PLC ......................................... 466,937
------------
COMMERCIAL SERVICES: 2.0%
40,400 ServiceMaster Company .............................. 454,500
------------
DISTRIBUTION / WHOLESALE: 2.1%
20,030 Genuine Parts Company .............................. 478,216
------------
<PAGE>
8
O'SHAUGHNESSY CORNERSTONE VALUE FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 2000 (UNAUDITED)-- (CONTINUED)
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING OPERATIONS: 1.9%
12,320 Cooper Industries, Inc. ............................ $ 431,200
------------
DIVERSIFIED OPERATIONS: 2.0%
29,700 Desc S.A. de C.V. ADR .............................. 445,500
------------
FINANCIAL SERVICES: 1.7%
12,620 Union Planters Corporation ......................... 388,854
------------
FOOD: 10.2%
21,900 ConAgra, Inc. ...................................... 396,937
13,910 General Mills, Inc. ................................ 503,368
12,500 H.J. Heinz Company ................................. 435,938
16,100 Kellogg Company .................................... 412,562
46,750 Nabisco Group Holdings Corp. ....................... 561,000
------------
2,309,805
------------
FOOD - RETAIL: 1.8%
20,800 Winn-Dixie Stores, Inc. ............................ 404,300
------------
HOLDING COMPANIES -- DIVERSIFIED 2.0%
33,800 Tomkins PLC ........................................ 447,850
------------
INSURANCE: 5.5%
27,900 Conseco, Inc. ...................................... 319,106
12,400 Lincoln National Corp. ............................. 415,400
14,720 The St. Paul Companies, Inc. ....................... 502,320
------------
1,236,826
------------
IRON / STEEL: 1.4%
19,200 Corus Group PLC-- ADR .............................. 321,600
------------
OFFICE AUTOMATION & EQUIPMENT: 2.5%
21,900 Xerox Corp. ........................................ 569,400
------------
<PAGE>
9
O'SHAUGHNESSY CORNERSTONE VALUE FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 2000 (UNAUDITED)-- (CONTINUED)
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
OIL & GAS PRODUCERS: 10.9%
20,000 Conoco, Inc.-- CL B ................................ $ 512,500
8,000 Kerr-McGee Corp. ................................... 462,000
23,000 Occidental Petroleum Corporation ................... 477,250
9,140 Texaco Inc. ........................................ 490,133
20,100 USX-Marathon Group ................................. 523,856
------------
2,465,739
------------
RETAIL: 3.9%
24,890 J. C. Penny Company ................................ 370,239
16,400 Sears, Roebuck & Co. ............................... 506,350
------------
876,589
------------
RUBBER -- TIRES: 1.8%
17,700 The Goodyear Tire & Rubber Company ................. 412,631
------------
TELEPHONE: 2.8%
16,100 Telefonica de Argentina S.A. ....................... 631,925
------------
TOBACCO: 4.3%
48,500 British American Tobacco PLC ADR ................... 515,312
21,640 Philip Morris Companies Inc. ....................... 457,145
------------
972,457
------------
TRANSPORTATION: 5.0%
7,700 British Airways PLC ADR ............................ 413,875
15,800 CSX Corporation .................................... 371,300
24,200 Norfolk Southern Corp. ............................. 347,875
------------
1,133,050
------------
<PAGE>
10
O'SHAUGHNESSY CORNERSTONE VALUE FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 2000 (UNAUDITED)-- (CONTINUED)
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS ................................ $ 22,794,734
------------
TOTAL PORTFOLIO OF INVESTMENTS
(Cost $26,167,587): 100.9% ......................... 22,794,734
Liabilities in excess of Other Assets: (0.9)% ...... (193,897)
------------
NET ASSETS: 100.0% ................................. $ 22,600,837
============
See accompanying Notes to Financial Statements.
<PAGE>
11
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND
STATEMENTS OF ASSETS AND LIABILITIES AT MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Cornerstone Cornerstone
Growth Fund Value Fund
--------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Portfolio of investments, at value (cost
$166,417,106 and $26,167,587 respectively) ............ $ 189,110,990 $ 22,794,734
Receivables:
Portfolio securities sold ............................. -- 307,702
Fund shares sold ...................................... 74,734 20,464
Dividends and interest ................................ 23,181 112,556
Deferred organization costs ............................. 8,007 8,007
Prepaid expenses and other assets ....................... 11,406 7,600
------------- -------------
Total assets ....................................... 189,228,318 23,251,063
------------- -------------
LIABILITIES
Payables:
Portfolio securities purchased ........................ -- 527,162
Fund shares redeemed .................................. 38,637 4,000
Funds advanced by custodian ........................... 441,948 63,210
Advisory fees ......................................... 112,312 11,887
Administration fees ................................... 17,839 2,900
Accrued expenses ...................................... 27,611 41,067
------------- -------------
Total liabilities .................................. 638,347 650,226
------------- -------------
NET ASSETS ................................................ $ 188,589,971 $ 22,600,837
============= =============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($188,589,971/10,447,126 and $22,600,837/2,375,759 shares
outstanding; respectively) .............................. $ 18.05 $ 9.51
============= =============
COMPONENTS OF NET ASSETS
Paid-in capital ......................................... $ 134,716,004 $ 28,583,588
Accumulated net investment loss ......................... (630,347) (68,256)
Accumulated net realized gain (loss) on investments ..... 31,810,430 (2,541,642)
Net unrealized appreciation (depreciation) on investments 22,693,884 (3,372,853)
------------- -------------
Net assets ......................................... $ 188,589,971 $ 22,600,837
============= =============
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
12
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 -- (UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Cornerstone Cornerstone
Growth Fund Value Fund
------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income
Dividends (net of foreign taxes withheld
of $0 and $7,808, respectively) ..................... $ 134,051 $ 403,483
Interest .............................................. 49,626 747
Income from securities lending ........................ 20,089 5,588
------------ ------------
Total income ....................................... 203,766 409,818
------------ ------------
Expenses
Advisory fees ......................................... 549,661 77,360
Transfer agent fees ................................... 81,108 22,811
Administration fees ................................... 73,914 10,903
Custody fees .......................................... 38,165 21,662
Registration expense .................................. 26,417 13,011
Fund accounting fees .................................. 16,392 12,822
Audit fees ............................................ 14,240 5,414
Reports to shareholders ............................... 11,315 5,486
Legal fees ............................................ 10,108 2,404
Insurance expense ..................................... 4,842 1,239
Director fees ......................................... 4,788 3,898
Miscellaneous expenses ................................ 638 485
Amortization of deferred organization costs ........... 2,525 2,525
------------ ------------
Total expenses ..................................... 834,113 180,020
Less: fees waived and expenses absorbed ............ -- (1,219)
------------ ------------
Net expenses ....................................... 834,113 178,801
------------ ------------
NET INVESTMENT INCOME (LOSS) ................... (630,347) 231,017
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments ................. 42,527,960 (550,021)
Net unrealized appreciation (depreciation) on investments 13,525,642 (964,924)
------------ ------------
Net realized and unrealized gain (loss) on investments 56,053,602 (1,514,945)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS .................................. $ 55,423,255 $ (1,283,928)
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
13
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Cornerstone Growth Fund Cornerstone Value Fund
------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
March 31, 2000* September 30, 1999 March 31, 2000* September 30, 1999
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment income (loss) .......... $ (630,347) $ (886,032) $ 231,017 $ 716,483
Net realized gain (loss) on investments 42,527,960 (1,597,353) (550,021) 2,269,047
Net unrealized appreciation
(depreciation) on investments ....... 13,525,642 25,593,050 (964,924) 553,549
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ..................... 55,423,255 23,109,665 (1,283,928) 3,539,079
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............ -- -- (864,770) (511,737)
From net realized gain ................ -- -- (2,378,766) (1,009,259)
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS ................... -- -- (3,243,536) (1,520,996)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from
capital share transactions(a) ....... 12,394,491 17,283,911 823,251 2,360,574
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ......................... 67,817,746 40,393,576 (3,704,213) 4,378,657
NET ASSETS
Beginning of year ..................... 120,772,225 80,378,649 26,305,050 21,926,393
------------- ------------- ------------- -------------
END OF YEAR (including accumulated net
investment loss of $630,347, and
$68,256 respectively) ............... $ 188,589,971 $ 120,772,225 $ 22,600,837 $ 26,305,050
============= ============= ============= =============
</TABLE>
* Unaudited
See accompanying Notes to Financial Statements.
<PAGE>
14
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>
--------------------------------------------------------------------------------------------------------------
CORNERSTONE GROWTH FUND CORNERSTONE VALUE FUND
--------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
March 31, 2000* March 31, 2000*
--------------------------------------------------------------------------------------------------------------
Shares Value Shares Value
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued in exchange for Aggressive
Growth Fund ................................. 734,784 $ 12,990,988
Shares issued in exchange for Dogs of the
Market Fund ................................. -- -- 690,330 $ 6,406,260
Shares sold ................................... 1,759,599 27,208,965 392,699 3,957,083
Shares issued in reinvestment of
distributions ............................... -- -- 304,557 3,100,393
Shares redeemed ............................... (1,821,008) (27,805,462) (1,222,379) (12,640,485)
------------ ------------ ------------ ------------
Net increase .................................. 673,375 $ 12,394,491 165,207 $ 823,251
============ ============ ============ ============
Year Ended Year Ended
September 30, 1999 September 30, 1999
--------------------------------------------------------------------------------------------------------------
Shares Value Shares Value
--------------------------------------------------------------------------------------------------------------
Shares sold ................................... 7,152,440 $ 82,058,831 1,924,794 $ 23,974,199
Shares issued in reinvestment of distributions -- -- 124,352 1,412,633
Shares redeemed ............................... (5,777,646) (64,774,920) (1,861,996) (23,026,258)
------------ ------------ ------------ ------------
Net increase .................................. 1,374,794 $ 17,283,911 187,150 $ 2,360,574
============ ============ ============ ============
</TABLE>
* Unaudited.
See accompanying Notes to Financial Statements.
<PAGE>
15
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND
FINANCIAL HIGHLIGHTS FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Cornerstone Growth Fund
<TABLE>
<CAPTION>
Year Ended September 30, November 1, 1996*
Six Months Ended ------------------------ through
March 31, 2000^ 1999 1998 September 30, 1997
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................... $ 12.36 $ 9.57 $ 15.30 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss .................................. (0.06) (0.09) (0.07) (0.02)
Net realized and unrealized gain (loss) on investments 5.75 2.88 (3.88) 5.32
------- ------- ------- -------
Total from investment operations ....................... 5.69 2.79 (3.95) 5.30
------- ------- ------- -------
LESS DISTRIBUTIONS:
From net realized gain ............................... -- -- (1.78) --
------- ------- ------- -------
Total distributions .................................... -- -- (1.78) --
------- ------- ------- -------
Net asset value, end of period ......................... $ 18.05 $ 12.36 $ 9.57 $ 15.30
======= ======= ======= =======
Total return ........................................... 46.04%** 29.15% (27.63%) 53.05%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) ................... $ 188.6 $ 120.8 $ 80.4 $ 91.3
Ratio of expenses to average net assets:
Before fees waived and expenses absorbed ........... 1.12%++ 1.15% 1.16% 1.63%++
After fees waived and expenses absorbed ............ 1.12%++ 1.15% 1.16% 1.56%++
Ratio of net investment loss to average net assets:
Before fees waived and expenses absorbed ........... (0.85%)++ (0.84%) (0.86%) (1.19%)++
After fees waived and expenses absorbed ............ (0.85%)++ (0.84%) (0.86%) (1.12%)++
Portfolio turnover rate ................................ 102.35%** 125.19% 119.98% 15.52%**
Cornerstone Value Fund
Year Ended September 30, November 1, 1996*
Six Months Ended ------------------------ through
March 31, 2000^ 1999 1998 September 30, 1997
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.90 $ 10.84 $ 11.50 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.18 0.33 0.21 0.15
Net realized and unrealized gain (loss) on investments (0.82) 1.49 (0.70) 1.37
------- ------- ------- -------
Total from investment operations (0.64) 1.82 (0.49) 1.52
------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income (0.47) (0.26) (0.17) (0.02)
From net realized gain (1.28) (0.50) -- --
------- ------- ------- -------
Total distributions (1.75) (0.76) (0.17) (0.02)
------- ------- ------- -------
Net asset value, end of period $ 9.51 $ 11.90 $ 10.84 $ 11.50
======= ======= ======= =======
Total return (6.38%)** 17.12% (4.32%) 15.21%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) $ 22.6 $ 26.3 $ 21.9 $ 13.5**
Ratio of expenses to average net assets:
Before fees waived and expenses absorbed 1.72%++ 1.38% 1.45% 2.66%++
After fees waived and expenses absorbed 1.71%++ 1.38% 1.45% 1.85%++
Ratio of net investment income to average net assets:
Before fees waived and expenses absorbed 2.20%++ 2.58% 2.12% 1.93%++
After fees waived and expenses absorbed 2.21%++ 2.58% 2.12% 2.73%++
Portfolio turnover rate 81.89%** 122.79% 51.56% 2.01%**
</TABLE>
* Commencement of operations.
** Not Annualized.
++ Annalized.
^ Unaudited.
See accompanying Notes to Financial Statements.
<PAGE>
16
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- ORGANIZATION
The O'Shaughnessy Cornerstone Growth Fund and O'Shaughnessy Cornerstone
Value Fund (the "Funds") are each a series of shares of O'Shaughnessy Funds,
Inc., which is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The Funds began operations
on November 1, 1996.
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: Investments in securities traded on a national
securities exchange or Nasdaq are valued at the last reported sales
price at the close of regular trading on each day that the exchanges
are open for trading; securities traded on an exchange or Nasdaq for
which there have been no sales and other over-the-counter securities
are valued at the mean between the last bid and asked price.
Securities for which 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 all of its taxable income to
its shareholders. Therefore, no federal income tax provision is
required.
C. SECURITY TRANSACTIONS, INVESTMENT INCOME AND DISTRIBUTIONS: As is
common in the industry, security transactions are accounted for on the
trade date. The cost of securities sold is determined under the
identified cost basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income is
recorded on an accrual 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. Actual results could differ from those estimates.
NOTE 3 -- INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the six months ended March 31, 2000, 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>
17
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (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 at March 31, 2000. Cumulative reimbursed expenses
subject to recapture by the Advisor from Cornerstone Growth and Cornerstone
Value Fund totaled $8,879 and $47,519, respectively, at March 31, 2000.
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:
$100 to $200 million -- 0.10% of average daily net assets
Over $200 million -- 0.03% of average daily net assets
First Fund Distributors, Inc. (the "Distributor") acts as the Funds'
principal underwriter in a continuous public offering of the Funds' shares. The
Distributor is an affiliate of the Administrator.
Certain officers of the Funds are also officers and/or directors of the
Administrator and the Distributor.
NOTE 4 -- PURCHASES AND SALES OF SECURITIES
For the six months ended March 31, 2000, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, for the
Cornerstone Growth Fund were $155,150,754 and $157,384,717, respectively.
For the six months ended March 31, 2000, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, for the
Cornerstone Value Fund were $17,824,883 and $25,517,534, respectively.
NOTE 5 -- SECURITIES LENDING
At March 31, 2000, for the Cornerstone Growth Fund and Cornerstone Value
Fund, respectively, loaned securities valued at $20,957,200 and $2,750,950 to
certain brokers, dealers and other financial institutions who pay the Funds
negotiated lenders' fees. For collateral, the Funds received $21,407,300 and
$2,772,550, respectively, an amount equal to at 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.
<PAGE>
18
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 6 -- INCOME TAXES
At March 31, 2000, the basis of securities for federal income tax purposes
in the Cornerstone Growth Fund was the same as their cost for financial
reporting purposes. Unrealized appreciation and depreciation were as follows:
Gross unrealized appreciation ....................... $31,541,967
Gross unrealized depreciation ....................... (8,848,083)
-----------
Net unrealized appreciation ..................... $22,693,884
===========
At March 31, 2000, the basis of securities for federal income tax purposes
in the Cornerstone Value Fund was the same as their cost for financial reporting
purposes. Unrealized appreciation and depreciation were as follows:
Gross unrealized appreciation ....................... $ 263,857
Gross unrealized depreciation ....................... (3,636,710)
-----------
Net unrealized appreciation ..................... $(3,372,853)
===========
At March 31, 2000, 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 March 31, 2000, 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.
<PAGE>
19
O'SHAUGHNESSY CORNERSTONE GROWTH FUND
O'SHAUGHNESSY CORNERSTONE VALUE FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 7 -- FUND MERGER
On March 24, 2000, the shareholders of the O'Shaughnessy Funds approved a
plan of reorganization whereby on that date, the O'Shaughnessy Cornerstone
Growth Fund acquired all the net assets of the O'Shaughnessy Aggressive Growth
Fund and the O'Shaughnessy Cornerstone Value Fund acquired all the net assets of
the O'Shaughnessy Dogs of the Market Fund. These acquisitions were accomplished
by the tax-free exchange of shares of equal value on the acquisition date,
pursuant to a plan of reorganization approved by the O'Shaughnessy Funds'
shareholders. The net assets of the O'Shaughnessy Aggressive Growth and
O'Shaughnessy Dogs of the Market immediately prior to the acquisition were as
follows:
<TABLE>
<CAPTION>
Net Unrealized
Accumulated Net Appreciation
Realized Loss (Depreciation)
Net Assets Paid-in Capital On Investments On Investments
---------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Aggressive Growth Fund ...... $12,990,988 $11,647,589 $ -- $ 1,343,399
Dogs of the Market Fund ..... $ 6,406,260 $ 9,346,070 $(1,433,069) $(1,506,741)
</TABLE>
The net assets of the following Funds, the accounting survivors of the
reorganizations, immediately before the acquisitions were as follows:
Cornerstone Growth Fund .................................. $ 171,465,847
Cornerstone Value Fund ................................... $ 15,916,903
<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
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>
[LOGO]
O'SHAUGHNESSY
FUNDS, INC.
35 Mason Street
Greenwich, Connecticut
06830
877-OSFUNDS
www.osfunds.com
