<PAGE>
CORNERCAP BALANCED FUND
ANNUAL REPORT TO SHAREHOLDERS
A Series of
CornerCap Group of Funds
A "Series" Investment Company
FOR THE FISCAL YEAR ENDED
MAY 31, 1997
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The Peachtree, Suite 1700 Advisor: (800) 728-0670
1355 Peachtree Street NE Administrator: (888) 81 FUNDS
Atlanta, GA 30309 Telecopier: (404) 892-9353
CORNERCAP BALANCED FUND
MANAGER'S REPORT TO THE SHAREHOLDERS
FOR THE ANNUAL PERIOD ENDING MAY 31, 1997
Dear Shareholder:
Attached are the portfolio valuation and financial reports for the
semi-annual period ending May 31, 1997.
We want to welcome the Atlanta Growth Fund shareholders to Cornerstone
Capital. The Fund was reorganized on May 28, 1997, as the CornerCap Balanced
Fund, and Cornerstone became the investment advisor on that date. We are an
Atlanta based firm, and we have transferred most of the Fund support services
(transfer agent, fund accountant, administrator, attorney, etc.) to Atlanta
based firms.
We at Cornerstone Capital are excited about being able to offer a
product like the CornerCap Balanced Fund to our client base. Our firm has an
excellent 18 year investment performance record, and we have drastically lowered
the Fund's expense ratio. Our figures show a tremendous loyalty among
Cornerstone's existing fund and private clients, and we look forward to offering
the Fund to many current and prospective clients. One promise we will make is
that you, the client, will be the primary consideration in all future decisions
about the investments in or operations of the Fund.
In order to achieve the Fund's balanced objective, which calls for a
target investment mix of approximately 60% equities and 40% fixed income
securities, Cornerstone repositioned the Fund assets into securities that meet
our long term valuation criteria. Consequently, long term capital gains were
realized and were distributed in the form of a dividend to the shareholders of
record on June 13, 1997. On June 30, 1997, the Fund executed a reverse split.
Shareholders of record on that date received 1 share of the Fund for every 4
shares owned. The purpose of the reverse split is to bring the net asset value
into a more appropriate trading range. The attached financial statements have
been adjusted to reflect the above mentioned split.
Shareholders will notice that we have structured a well diversified
portfolio of equities and fixed income securities. This report will also give
shareholders an indication of the type of securities and industry sectors that
our analysis is showing as fundamentally strong.
This is the newest addition to the CornerCap Family of Funds, and it
is now available to new shareholders. The Fund's primary objective is to obtain
long term capital appreciation and current income by investing in large-to-
medium capitalization equities and high quality, fixed income securities.
Cornerstone also manages the CornerCap Growth Fund which has a higher growth
objective and targets being fully invested in a diversified portfolio of small-
to-medium capitalization stocks. The CornerCap Balanced Fund will be attractive
to prospective shareholders whose objectives are more conservative than
investors in our CornerCap Growth Fund.
Again, welcome to our family of funds, and we appreciate the
opportunity to be of service to you. We look forward to a long and prosperous
relationship.
CORNERSTONE CAPITAL CORP.
July 29, 1997
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
CORNERCAP BALANCED FUND
ATLANTA, GEORGIA
We have audited the accompanying statement of assets and liabilities of
CornerCap Balanced Fund, including the portfolio of investments, as of May 31,
1997, and the related statement of operations, the statement of changes in net
assets, and the financial highlights for the period May 24, 1997 to May 31,
1997. 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 audit.
We conducted our audit 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 May 31, 1997, 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 audit provides 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 Balanced Fund as of May 31, 1997, the results of its operations, the
changes in its net assets, and the financial highlights for the period May 24,
1997 to May 31, 1997 in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
PHILADELPHIA, PENNSYLVANIA
JULY 25, 1997
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CORNERCAP BALANCED FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
VALUE
Shares (NOTE 1-A)
------ ----------
COMMON STOCKS - 56.1%
------------------------
Advertising - 1.8%
11,900 True North Conun $37,762
AUTO & TRUCK - 1.9%
1,050 Ford Motor Co. 39,375
BANKS - 1.8%
400 Chase Manhattan Corp. 37,800
BEVERAGE (ALCOHOLIC) - 1.8%
900 Anheuser-Busch Cos. 38,588
BUILDING MATERIALS - 1.9%
700 PPG Industries, Inc. 40,687
CEMENT & AGGREGATES - 1.9%
1,600 Lafarge Corp. 39,600
CHEMICAL-BASIC - 1.9%
850 ARCO Chemical Co. 39,313
CHEMICAL-SPECIALTY - 1.9%
4,250 Ethyl Corp. 39,844
DIVERSIFIED - 1.9%
1,600 ITT Industries 39,600
ELECTRICAL EQUIPMENT - 1.8%
900 Johnson Controls, Inc. 38,137
ELECTRIC UTILITY-EAST - 1.9%
1,800 N.Y. State Electric & Gas 39,150
ELECTRIC UTILITY-CENTRAL - 1.9%
1,900 Houston Industries, Inc. 39,425
FINANCIAL SERVICES - 1.8%
600 Beneficial Corp. 38,550
FOREIGN TELECOM - 1.9%
900 Telefonos de Mexico 39,825
MACHINERY - 1.9%
1,400 Durco International, Inc. 39,550
MARITIME - 1.9%
1,450 Alexander & Baldwin 39,331
METALS & MINING - 1.9%
1,600 Cyprus Amax Minerals 39,000
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CORNERCAP BALANCED FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
MAY 31, 1997
VALUE
Shares (NOTE 1-A)
------ ----------
PACKAGING & CONTAINER - 1.8%
1,300 Ball Corp. 37,863
PAPER & FOREST PRODUCTS - 1.9%
2,300 Glatfelter Co., P.H. 40,250
PRECISION INSTRUMENT - 1.9%
2,000 E,G & G 39,000
PUBLISHING - 3.7%
1,200 Deluxe Corp. 39,000
1,550 Readers Digest Class A 38,363
---------
77,363
- ---------------------------------------------------------
RETAIL SPECIALTY - 1.9%
2,000 Limited, Inc. 40,250
STEEL-GENERAL - 1.8%
1,200 USX-U.S. Steel Group 38,700
STEEL-INTEGRATED - 1.9%
900 Carpenter Technology 38,925
TELECOM SERVICES - 1.9%
800 Sprint Corp. 39,100
TEXTILE - 1.8%
750 Springs Industries 37,969
THRIFT - 2.0%
1,550 Washington Federal, Inc. 40,881
TOBACCO - 3.7%
900 Philip Morris 39,600
1,350 UST, Inc. 38,475
---------
78,075
- ---------------------------------------------------------
TOTAL COMMON STOCKS 1,173,913
------------------------
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CORNERCAP BALANCED FUND
PORTFOLIO OF INVESTMENTS - (CONTINUED)
MAY 31, 1997
PRINCIPAL
AMOUNT
- ------
GOVERNMENT BONDS - 26.0%
- -------------------------
U.S. Treasury
$210,000 6.250%, Due 05/31/00 209,344
210,000 6.625%, Due 04/30/02 210,919
120,000 7.250%, Due 05/15/04 124,237
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TOTAL GOVERNMENT BONDS 544,500
-----------------------------------
TOTAL INVESTMENTS (COST $1,498,295) (A) 82.1% 1,718,413
OTHER ASSETS IN EXCESS OF LIABILITIES - NET 17.9% 375,028
---------- ---------
NET ASSETS 100.0% $2,093,441
====================================== ==========
(a) Aggregate cost for federal income tax purposes is $1,498,295. At May 31,
1997, unrealized appreciation (depreciation) of securities for federal income
tax purposes consists entirely of unrealized appreciation of $220,118.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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CORNERCAP BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1997
ASSETS
Investments at market value,
(Identified cost $1,498,295) (NOTE 1-A) $1,718,413
Cash 110,264
Dividends receivable 1,443
Receivable for securities sold 2,054,862
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TOTAL ASSETS 3,884,982
------------------------------------------
LIABILITIES
Payable for securities purchased 1,711,504
Payable for capital stock redeemed 22,181
Accrued expenses 57,856
----------
TOTAL LIABILITIES 1,791,541
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NET ASSETS
(Applicable to shares outstanding,
No par value, unlimited shares authorized) $2,093,441
==========
NET ASSET VALUE AND REPURCHASE PRICE PER SHARE
($2,093,441 63,449 shares) $32.99
======
NET ASSETS
At May 31, 1997, net assets consisted of:
Paid-in capital $ 463,386
Accumulated net investment income 777
Accumulated net realized gains on investments 1,409,160
Unrealized appreciation of investments 220,118
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$2,093,441
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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CORNERCAP BALANCED FUND
STATEMENT OF OPERATIONS
MAY 24, 1997* TO MAY 31, 1997
INVESTMENT INCOME
INCOME
Dividends $ 1,108
------
EXPENSES
Advisory fee (NOTE 2) 94
Miscellaneous 331
------
TOTAL EXPENSES 425
Less expenses waived (NOTE 2) (94)
------------------------------------
NET EXPENSES 331
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NET INVESTMENT INCOME 777
----------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized gain from security transactions 1,252,034
Decrease in unrealized appreciation of investments (1,266,712)
----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (14,678)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ (13,901)
==============================================
* COMMENCEMENT OF OPERATIONS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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CORNERCAP BALANCED FUND
STATEMENT OF CHANGES IN NET ASSETS
MAY 24, 1997* TO MAY 31, 1997
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income $ 777
Net realized gain on investments 1,252,034
Decrease in unrealized appreciation of investments (1,266,712)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS (13,901)
CAPITAL SHARE TRANSACTIONS (A)
Increase in net assets resulting from capital
share transactions 2,107,342
-----------
TOTAL INCREASE IN NET ASSETS 2,093,441
NET ASSETS
Beginning of year -
-----------
END OF YEAR
(including undistributed net investment income of $777) $ 2,093,441
===========
(A) SUMMARY OF CAPITAL SHARE ACTIVITY FOLLOWS:
1997
-----------------------------
SHARES VALUE
----------------- -----
Shares issued from reorganization (NOTE 4) 64,260 2,134,139
Shares redeemed (811) (26,797)
------ ---------
NET INCREASE 63,449 2,107,342
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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CORNERCAP BALANCED FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING FOR THE PERIOD MAY 24, 1997* TO MAY 31, 1997)
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 33.20
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INCOME FROM INVESTMENT OPERATIONS -
Net investment income .01
Net realized and unrealized gain (loss) on investments (.22)
-------
TOTAL FROM INVESTMENT OPERATIONS (.21)
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NET ASSET VALUE, END OF PERIOD $ 32.99
=======
TOTAL RETURN (0.60)%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF YEAR ($000) $ 2,093
RATIOS TO AVERAGE NET ASSETS
Expenses 2.0%**
Net investment income 4.5%**
PORTFOLIO TURNOVER RATE 98.9%
AVERAGE COMMISSIONS PER SHARE $.1118
* COMMENCEMENT OF OPERATIONS
** ANNUALIZED
PER SHARE AMOUNTS HAVE BEEN ADJUSTED TO REFLECT 1 FOR 4 REVERSE STOCK SPLIT
EFFECTIVE JUNE 30, 1997. ON JUNE 14, 1997, A CAPITAL GAIN DISTRIBUTION OF $
22.91 PER SHARE ( $ 5.73 PER SHARE ON A PRE-SPLIT BASIS ) WAS PAID TO
SHAREHOLDERS. THE NET ASSET VALUE PER SHARE ON JUNE 30, 1997, AFTER THE PAYMENT
OF THE CAPITAL GAIN DISTRIBUTION AND THE EFFECT OF THE 1 FOR 4 REVERSE SPLIT,
WAS $ 10.86 PER SHARE.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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CORNERCAP BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CornerCap Balanced Fund (the "FUND") is a series of shares of the CornerCap
Group of Funds and is registered under the Investment Company Act of 1940 as
a diversified open-end management investment company. Investment operations
commenced on May 24, 1997 as a result of the reorganization of the Atlanta
Growth Fund (NOTE 4). The investment objective of the Fund is to obtain
capital appreciation and current income. 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.
C. 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.
(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.
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CORNERCAP BALANCED FUND
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
MAY 31, 1997
For the period May 24, 1997 to May 31, 1997, the Advisor waived the
Advisory fee of $94.
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
period May 24, 1997 to May 31, 1997, no such reimbursements were made.
(3) PURCHASES AND SALES OF SECURITIES
For the period May 24, 1997 to May 31, 1997, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, were
$1,722,742 and $2,054,862, respectively.
(4) REORGANIZATION OF ATLANTA GROWTH FUND
On May 23, 1997, CornerCap Balanced Fund acquired all the net assets of The
Atlanta Growth Fund pursuant to a plan of reorganization approved by The
Atlanta Growth Fund shareholders. The acquisition was accomplished by a
tax-free exchange of 257,038 shares of CornerCap Balanced Fund (valued at
$2,134,139) for the 257,038 shares of CornerCap Balanced Fund outstanding on
May 23, 1997. The Atlanta Growth Fund's net assets on May 23, 1997 included
$1,267,258 of unrealized appreciation.
(5) STOCK SPLIT - SUBSEQUENT EVENT
Effective June 30, 1997, the Fund had a reverse stock split of 1 share for
every 4 shares owned. The financial statements and financial highlights
have been adjusted retroactively to reflect this split.
