CORNERCAP GROWTH FUND
ANNUAL REPORT TO SHAREHOLDERS
A Series of
CornerCap Group of Funds
A "Series" Investment Company
FOR THE FISCAL YEAR ENDED
MARCH 31, 1996
<PAGE>
CORNERCAP GROUP OF FUNDS
100 Northcreek, Suite 250 119B Reynolda Village
Atlanta, GA 30327 Winston-Salem, NC 27106
(800) 728-0670 (800) 728-2522
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CornerCap Growth Fund
Manager's Report to the Shareholders
for the year ended March 31, 1996
Dear Shareholder:
As of our March 31, 1996 fiscal year end, the Fund's net asset value
was $9.81 per share. Cornerstone Capital has been managing the CornerCap Growth
Fund for 3.5 years. The Fund has appreciated significantly and has attracted
substantial new contributions over this period. Your Board and the investment
advisor appreciate the support of all of the Fund's shareholders.
One unique characteristic of the CornerCap Growth Fund is that most
shareholders know someone at Cornerstone Capital. It is unusual for an investor
to know and be able to talk with someone at the investment advisory firm when
they have a concern. We believe this will result in a more stable fund. This
stability should result in less volatility and lower transaction costs, which
would facilitate continuing the Fund's long term growth.
The objective of the Fund is to be approximately fully invested in a
diversified portfolio of small to intermediate size common stocks. We talk to
most shareholders before they make a contribution to the Fund, and we try to
insure that their objectives are consistent with those of the Fund. Attached is
the Annual Report prepared by the Fund's auditors, Tait, Weller & Baker. As part
of the financial statements, you will find a list of the portfolio holdings as
of March 31, 1996, grouped by industry classification.
The Fund has performed exceptionally well in 1996. With a value of
$10.59 as of May 24, 1996, the Fund has realized a year-to-date return of 15.7%.
For the year ending March 31, 1996, the Fund returned 14.7%, and for the 3.5
year period the Fund is up 44.4%, or 12.0% annualized. Another positive
characteristic about the Fund's performance is that it has been very smooth and
consistently positive, while the overall market has experienced rather large
swings. We hope that the Fund will continue to have returns that are positive
and less volatile than the market, but since we are focused primarily on the
smaller capitalization sector of the market, this is not something that should
be planned on by our shareholders.
In addition to working to deliver good performance for our
shareholders, we are also trying to improve the Fund in other ways. We have
lowered the expense ratio of the Fund, and hope to continue to move in that
direction as we work to grow the Fund's assets. We also continue to have a tax
loss carryforward that we will be using to defer our shareholder's tax
obligations.
We are also planning to add another fund to the CornerCap Group of
Funds. This new fund will have a "balanced" investment objective -- a portion of
the fund will be invested in larger capitalization stocks and a portion in
conservative, fixed income securities. This will result in three funds with
uniquely different objectives that we can offer to our shareholders: The
CornerCap Growth Fund, the new balanced-objective fund, and a bond fund that we
offer through Federated Investors. These mutual funds allow Cornerstone Capital
to serve investors who do not have the $500,000 minimum account size that is
required for our separate account clients.
Thank you for your investment in the CornerCap Growth Fund, and for
your continued support of your investment advisor, Cornerstone Capital. If we
can be of service to you or someone you know, please do not hesitate to call
someone in one of our offices in Atlanta and North Carolina.
Cornerstone Capital Corp.
May 28, 1996
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
CornerCap Growth Fund
Atlanta, Georgia
We have audited the accompanying statement of assets and liabilities of
CornerCap Growth Fund, including the portfolio of investments, as of March 31,
1996, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
CornerCap Growth Fund as of March 31, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended in conformity with generally accepted accounting
principles.
Philadelphia, Pennsylvania
April 19, 1996
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CORNERCAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 1996
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Value
Shares (Note 1-A)
COMMON STOCKS - 98.04%
Aerospace/Defense - 2.17%
14,550 GenCorp. $ 181,875
------------
Auto Parts - Glass - 3.30%
12,700 Apogee Enterprises 276,225
------------
Building Materials - 4.76%
10,700 Southdown, Inc. 252,788
5,450 International Aluminum Corp. 145,787
------------
398,575
Specialty Chemicals - 2.46%
9,350 Furon Company 205,700
------------
Computer Software & Service - 2.07%
10,050 BancTec, Inc. * 173,362
------------
Diversified Companies - 5.00%
6,700 Sequa Corp., Class A 228,637
5,000 Sprint Corp. 190,000
------------
418,637
Engine Parts - 2.80%
13,000 SPX Corp. 234,000
------------
Financial Services - 2.88%
13,500 California Federal Bank * 241,313
------------
Food Processing & Products - 2.78%
23,800 Morningstar Group 232,421
------------
Franchise - 3.31%
30,800 NPC International 277,200
------------
Furniture/Home Furnishings - 2.74%
21,100 Culp, Inc. 229,462
------------
Home Building - 2.23%
11,600 Ryland Group, Inc. 187,050
------------
Insurance - Diversified - 5.24%
5,650 American Bankers Insurance Group 199,163
8,950 Washington National Corp. 239,412
------------
438,575
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<PAGE>
CORNERCAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - (Continued)
March 31, 1996
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Value
Shares (Note 1-A)
Insurance - Life - 2.37%
4,450 Providian Corp. 198,581
------------
Insurance - Property & Casualty - 5.03%
18,742 Gainsco, Inc. 208,505
4,700 Orion Capital Corp. 212,675
------------
421,180
Integrated Steel Producer - 2.28%
7,700 Inland Steel Industries 190,575
------------
Machinery - Diversified - 4.08%
17,400 Huffy Corp. 184,875
5,200 Standex International 156,650
------------
341,525
Manufacturer - Industrial - 2.94%
6,100 Crane Co. 246,288
------------
Manufacturer - Recreational Vehicles - 3.01%
9,600 Coachmen Industries 252,000
------------
Manufacturing - 2.22%
15,050 Sealright Co. 186,244
------------
Merchandise - Discount Store - 2.76%
16,500 Shopko Stores 231,000
------------
Metal Fabricating & Fasteners - 2.27%
11,600 Handy & Harman 189,950
------------
Mineral Resources - 2.80%
8,300 Cyprus Amax Minerals 234,475
------------
Petroleum Products - 2.90%
8,400 Ultramar Corp. 242,550
------------
Retail - Hair Care Appliances - 2.66%
9,900 Helen of Troy Ltd. 222,750
------------
Scientific Equipment - 2.46%
9,200 EG&G, Inc. 205,850
------------
Securities Brokerage - 2.35%
5,250 Salomon, Inc. 196,875
------------
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<PAGE>
CORNERCAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - (Continued)
March 31, 1996
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Value
Shares (Note 1-A)
Shipping - 2.73%
28,550 OMI Corp. 228,400
------------
Telecommunications - Foreign - 2.53%
4,450 Telefonica de Espana Sponsored ADR 211,375
------------
Textiles - Apparel - 3.81%
9,050 Kellwood Co. 140,275
38,600 Tultex Corporation 178,525
------------
318,800
Textiles - Manufacture/Recycles - 2.25%
8,000 Wellman, Inc. 188,000
------------
Tobacco - 4.85%
5,650 UST Inc. 180,094
9,000 Universal Corp. 226,125
------------
406,219
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Total Common Stocks (Cost $7,108,756) 8,207,032
Principal
Amount SHORT-TERM INVESTMENTS - 1.87%
- ------- ------------------------------
$157,006 Wachovia Bank Short-Term Authorized Demand Notes
(Cost $156,943) 156,943
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Total Investments (Cost $7,265,699)(a) 99.91% 8,363,975
Other Assets in Excess of Liabilities - Net .09 7,274
-------- ------------
Net Assets 100.00% $ 8,371,249
======== ============
* Non-Income Producing Security
(a) Aggregate cost for federal income tax purposes is $7,265,699. At March 31,
1996, unrealized appreciation (depreciation) of securities for federal
income tax purposes is as follows:
Unrealized appreciation $ 1,329,917
Unrealized depreciation (231,641)
------------
Net unrealized appreciation $ 1,098,276
============
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See accompanying notes to financial statements
<PAGE>
CORNERCAP GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
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ASSETS
Investments at market value,
(Identified cost $7,265,699) (Note 1-A) $ 8,363,975
Cash 350
Dividends receivable 6,609
Other assets 7,214
------------
Total assets 8,378,148
LIABILITIES
Payable for capital stock redeemed 1,962
Accrued expenses 4,937
------------
Total liabilities 6,899
============
NET ASSETS
(Applicable to 853,467 shares outstanding,
$.01 par value, unlimited shares authorized) $ 8,371,249
============
NET ASSET VALUE AND REPURCHASE PRICE PER SHARE
($8,371,249 / 853,467 shares) $ 9.81
======
NET ASSETS
At March 31, 1996, net assets consisted of:
Paid-in capital $ 8,040,926
Accumulated net investment income 15,121
Accumulated net realized losses on investments (783,074)
Unrealized appreciation of investments 1,098,276
------------
$ 8,371,249
============
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See accompanying notes to financial statements
<PAGE>
CORNERCAP GROWTH FUND
STATEMENT OF OPERATIONS
Year ended March 31, 1996
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INVESTMENT INCOME
Income
Interest $ 17,080
Dividends 165,195
------------
Total investment income 182,275
Expenses
Fund accounting fees 18,950
Advisory fee (Note 2) 81,373
Professional fees 18,903
Custodian fees 7,557
Transfer agent fees 16,842
Administration fees 13,787
Shareholder servicing costs 3,813
Registration fees 16,661
Insurance 1,716
Trustees fees 6,838
Miscellaneous 4,801
------------
Total expenses 191,241
Less expenses waived and reimbursed (Note 2) (49,144)
------------
Net expenses 142,097
------------
Net investment income 40,178
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions 201,707
Increase in unrealized appreciation of investments 862,129
Net realized and unrealized gain on investments 1,063,836
------------
Net increase in net assets resulting from operations $ 1,104,014
============
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See accompanying notes to financial statements
<PAGE>
CORNERCAP GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
Years ended March 31, 1996 and 1995
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<TABLE>
<S> <C> <C>
1996 1995
---- ----
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income $ 40,178 $ 37,222
Net realized gain on investments 201,707 352,197
Increase in unrealized appreciation of investments 862,129 243,324
------------ ------------
Net increase in net assets resulting from operations 1,104,014 632,743
Distributions to shareholders from
Net investment income ($.06 and $.02, respectively) (51,322) (13,747)
Capital share transactions (a)
Increase in net assets resulting from
capital share transactions 19,909 2,450,675
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Total increase in net assets 1,072,601 3,069,671
NET ASSETS
Beginning of year 7,298,648 4,228,977
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End of year
(including accumulated net investment income of
$15,121 and $23,475, respectively) $ 8,371,249 $ 7,298,648
============ ============
(a) Summary of capital share activity follows:
</TABLE>
<TABLE>
<S> <C> <C>
1996 1995
--------------------------------- ------------------------
Shares Value Shares Value
Shares sold 211,232 $ 1,880,260 325,076 $ 2,678,184
Shares reinvested 5,691 50,656 1,692 13,348
Shares redeemed (210,768) (1,911,007) (29,512) (240,857)
---------- ------------- --------- ------------
Net increase 6,155 $ 19,909 297,256 $ 2,450,675
========== ============= ========= ============
</TABLE>
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See accompanying notes to financial statements
<PAGE>
CORNERCAP GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the year)
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<TABLE>
Years ended March 31,
---------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Per Share Operating Performance
Net asset value,
beginning of year $ 8.61 $ 7.69 $ 7.58 $ 7.60 $ 6.45
------- ------- ------- ------- -------
Income from investment operations -
Net investment income (loss) .04 .05 .02 .23 (.08)
Net realized and unrealized
gain (loss) on investments 1.22 .89 .11 (.25) 1.23
------- ------- ------- ------- -------
Total from investment operations 1.26 .94 .13 (.02) 1.15
------- ------- ------- ------- -------
Less distributions from
Net investment income .06 .02 .02 - -
------- ------- ------- ------- -------
Net asset value,
End of year $ 9.81 $ 8.61 $ 7.69 $ 7.58 $ 7.60
======= ======= ======= ======= =======
Total Return 14.64% 12.25% 1.71% (.26)% 17.83%
RATIOS/SUPPLEMENTAL DATA
Net assets,
end of year ($000) $ 8,371 $ 7,299 $ 4,229 $ 3,042 $ 1,084
Ratios to average net assets
Expenses 1.75% 1.87% 2.00% 2.00% 2.14%
Net investment income (loss) .49% .70% .13% .40% (.29)%
Portfolio turnover rate 40.83% 55.12% 35.58% 83.40% 91.62%
</TABLE>
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See accompanying notes to financial statements
<PAGE>
CORNERCAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
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(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CornerCap Growth Fund (the "Fund") was organized on January 6, 1986 as a
Massachusetts Business Trust and is registered under the Investment
Company Act of 1940 as a diversified open-end management investment
company. Investment operations commenced on July 17, 1986. The following
is a summary of significant accounting policies followed by the Fund in
the preparation of the financial statements. The policies are in
conformity with generally accepted accounting principles.
A. SECURITY VALUATION - Portfolio securities that are listed on
national securities exchanges or the NASDAQ National Market System
are valued at the last sale price as of 4:15 p.m. Eastern time, or
in the absence of recorded sales, at the average of readily
available closing bid and asked prices on such exchanges or such
System. Unlisted securities that are not included in such System
are valued at the mean of the quoted bid and asked prices in the
over-the-counter-market. Securities and other assets for which
market quotations are not readily available are valued at fair
value as determined in good faith by the Advisor under procedures
established by and under the general supervision and responsibility
of the Fund's Board of Trustees. Short-term investments are
valued at amortized cost, if their original maturity was 60 days
or less, or by amortizing the values as of the 61st day prior to
maturity, if their original term to maturity exceeded 60 days.
B. SECURITY TRANSACTIONS, INVESTMENT INCOME AND OTHER - Security
transactions are recorded on the next business date after trade
date. Realized gains and losses on sales of investments are
calculated on the identified cost basis. Dividend income is recorded
on the ex-dividend date and interest income is recorded on the
accrual basis.
(2) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
The Fund has an investment advisory agreement with the Advisor,
pursuant to which the Advisor receives a fee, computed daily and
payable monthly, at an annual rate of 1.0% of the average daily net
assets.
The Advisor provides continuous supervision of the investment portfolio
and pays the cost of compensation of the officers of the Fund,
occupancy and certain clerical and administration costs involved in the
day to day operations of the Fund. The Fund bears all other costs and
expenses.
Under the investment advisory agreement, if the aggregate expenses of
the Fund (including the fees to the Advisor but excluding taxes,
interest, brokerage fees and commissions, distribution fee and
extraordinary expenses) exceed the limitations imposed by state
securities administrators, the Advisor will reduce its fee by the
amount of such excess.
In addition, the Advisor has undertaken to pay fund expenses in excess
of 2.0% of average net assets for the Fund's fiscal year ending March
31, 1996. For the year ended March 31, 1996, the Advisor waived the
Advisory fee of $49,144.
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<PAGE>
CORNERCAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
March 31, 1996
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DISTRIBUTION AGREEMENT AND PLAN
The Fund has adopted a Distribution Plan pursuant to which the Fund
reimburses the Advisor for marketing expenses incurred in distributing
shares of the Fund, primarily the cost of printing sales material. This
expense is limited to 1/4 of 1% of the Fund's average net assets. For
the year ending March 31, 1996, no such reimbursements were made.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended March 31, 1996, the cost of purchases and the proceeds
from sales of securities, excluding short-term securities, were $3,210,819
and $3,310,066, respectively.
(4) FEDERAL INCOME TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of
its taxable net income to its shareholders. In addition, the Fund intends
to pay distributions as required to avoid imposition of excise tax.
Therefore, no federal income tax provision is required.
For Federal income tax purposes, the Fund had accumulated net realized
losses on investments of $783,074 as of March 31, 1996, of which $316,444
expires in 1997 and $466,630 expires in 1998, respectively.
The Fund will resume annual capital gains distributions in future years to
the extent net capital gains are realized in excess of available
carryovers.
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