THE ATLANTA GROWTH FUND, INC.
Suite 1661
1100 Peachtree Street, N.E.
Atlanta, Georgia 30309
(800) 899-4742
March 17, 1997
Dear Shareholder:
The Board of Directors of The Atlanta Growth Fund, Inc. (the
"Atlanta Fund") has recently reviewed and endorsed a proposal for
reorganization (the "Reorganization") of the Atlanta Fund, which
they judge to be in the best interests of its shareholders. This
proposal calls for combining the assets of the Atlanta Fund with The
CornerCap Balanced Fund (the "Balanced Fund"), a separate series of
The CornerCap Group of Funds (the "CornerCap Funds"), an open-end
management investment company organized as a Massachusetts business
trust. The investment objective of the Balanced Fund is to obtain
long-term capital appreciation and current income by investing in a
combination of equity and fixed-income securities, including cash
and cash equivalents.
We have therefore called a Special Meeting of Shareholders to
be held on April 22, 1997 to consider this transaction. WE
STRONGLY INVITE YOUR PARTICIPATION BY ASKING YOU TO REVIEW, COMPLETE
AND RETURN YOUR PROXY AS SOON AS POSSIBLE.
As a result of this transaction, the Atlanta Fund would be
combined with the Balanced Fund, and you would become a shareholder
of the Balanced Fund, receiving shares of the Balanced Fund having
an aggregate net asset value equal to the aggregate net asset value
of your investment in the Atlanta Fund. No sales charge will be
imposed in the transaction and the closing of the transaction will
be conditioned upon receiving an opinion of counsel to the effect
that the proposed transaction will qualify as a tax-free
reorganization for Federal income tax purposes.
The Board of Directors believes the Reorganization will provide
benefits such as reduced operating expenses, no sales loads or
commissions on the purchase or sale of shares of the CornerCap
Funds, the ability to exchange shares in the Balanced Fund for
shares of the CornerCap Growth Fund, a separate series of the
CornerCap Funds, increased management and administrative resources
available to the Atlanta Fund shareholders and increased investment
diversification.
Detailed information about the proposed transaction and the
reasons for it are contained in the enclosed materials. Please
exercise your right to vote by completing, dating and signing the
enclosed proxy card. A self-addressed, postage-paid envelope has
been enclosed for your convenience. It is very important that you
vote and that your voting instructions be received no later than
April 18, 1997.
Sincerely,
_________________________
Michael L. Lucas
President
Atlanta, Georgia
March 17, 1997<PAGE>
THE ATLANTA GROWTH FUND, INC.
Suite 1661
1100 Peachtree Street, N.E.
Atlanta, Georgia 30309
(800) 899-4742
_______________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on April 22, 1997
_______________
To the Shareholders of The Atlanta Growth Fund, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders
of The Atlanta Growth Fund, Inc. (the "Atlanta Fund") will be held
at 1100 Peachtree Street, N.E., Suite 2800, Atlanta, Georgia 30309,
at 10:00 A.M. (local time), on April 22, 1997, for the following
purposes:
1. To consider and vote on an Agreement and Plan of
Reorganization providing for the acquisition of all or substantially
all of the assets of the Atlanta Fund by the CornerCap Balanced Fund
(the "Balanced Fund"), a separate series of The CornerCap Group of
Funds, an open-end management investment company organized as a
Massachusetts business trust, in exchange for shares of the Balanced
Fund and the assumption by the Balanced Fund of certain identified
liabilities of the Fund, and for the distribution of such Balanced
Fund shares to shareholders of the Atlanta Fund and the subsequent
termination and dissolution of the Atlanta Fund; and
2. To transact such other business as may properly come
before the meeting, or any adjournment or adjournments thereof.
The Board of Directors of the Atlanta Fund has fixed the close
of business on March 14, 1997 as the record date for
determination of shareholders entitled to notice of, and to vote at,
the meeting.
EACH SHAREHOLDER WHO DOES NOT EXPECT TO ATTEND THE MEETING IN
PERSON IS REQUESTED TO DATE, FILL IN, SIGN AND RETURN PROMPTLY THE
ENCLOSED FORM OF PROXY IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO
POSTAGE IF MAILED IN THE UNITED STATES.
YOUR PROMPT ATTENTION TO THE ENCLOSED FORM OF PROXY WILL HELP
TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By Order of the Board of Directors
________________________________
Michael L. Lucas,
President
March 17, 1997
<PAGE>
PROXY STATEMENT/PROSPECTUS FOR
ACQUISITION OF THE ASSETS OF
THE ATLANTA GROWTH FUND, INC. BY AND IN EXCHANGE FOR
SHARES OF THE CORNERCAP BALANCED FUND
March 17, 1997
Introduction to Proxy Statement/Prospectus
This Proxy Statement/Prospectus relates to the solicitation of
shareholder approval for the proposed transfer of all or
substantially all of the assets of The Atlanta Growth Fund, Inc.
(the "Atlanta Fund"), a non-diversified, open-end management
investment company organized as a Georgia corporation, to the
CornerCap Balanced Fund (the "Balanced Fund"), a separate series of
The CornerCap Group of Funds (the "CornerCap Funds"), a diversified,
open-end management investment company organized as a Massachusetts
business trust, in exchange for shares of beneficial interest of the
Balanced Fund and the assumption by the Balanced Fund of certain
identified liabilities of the Atlanta Fund (collectively, the
"Reorganization"). Pursuant to the proposed Agreement and Plan of
Reorganization between the Atlanta Fund and the Balanced Fund (the
"Agreement"), attached hereto as Exhibit A, each shareholder of the
Atlanta Fund would receive that number of full and fractional shares
of the Balanced Fund having an aggregate net asset value equal to
the aggregate net asset value of such shareholder's shares of the
Atlanta Fund held as of the close of business on the closing date of
the Reorganization. No sales charge would be imposed on the
transaction. As a result of the Reorganization, the Atlanta Fund
would be completely liquidated and dissolved.
The Balanced Fund's investment objective is to obtain long-term
capital appreciation and current income. The Balanced Fund will
attempt to achieve its objective by normally investing 50% to 70% of
its total assets in equity securities of domestic and foreign
issuers and at least 30% in fixed-income securities, including cash
and cash equivalents.
The address and telephone number of the Balanced Fund is The
Peachtree, Suite 1700, Atlanta, Georgia 30309 (404) 870-0700.
This Proxy Statement/Prospectus sets forth concisely the
information about the Balanced Fund that a prospective investor
should know prior to voting on the Reorganization, and should be
retained for future reference. For a more detailed discussion of
the investment objectives, policies and restrictions of the Balanced
Fund than provided herein, including a discussion of the risks of
investing in the Balanced Fund, see the Prospectus of the Balanced
Fund dated December 6, 1996 (the "Balanced Fund Prospectus") which
is included herewith. The information in the Balanced Fund
Prospectus is incorporated herein by reference. A Statement of
Additional Information dated March 17, 1997, containing
additional information about the Reorganization and the parties
thereto has been filed with the Securities and Exchange Commission
and is incorporated by reference into this Proxy
Statement/Prospectus. A copy of such statement is available upon
<PAGE>
request and without charge by writing to the Balanced Fund at the
address above or by calling collect at the number above. More
detailed information about the Atlanta Fund is included in its
Prospectus dated October 10, 1996 (the "Atlanta Fund Prospectus") and
the Atlanta Fund Statement of Additional Information dated October 10,
1996 and the Atlanta Fund's Semi-Annual Report for the fiscal period
ended November 30, 1996, all of which are incorporated herein by
reference. The Atlanta Fund Prospectus is available upon request and
without charge by contacting the Atlanta Fund at the above address and
phone number. Additional information about the Atlanta Fund, the Balanced
Fund and the CornerCap Funds has been filed with the Securities and Exchange
Commission, and this additional information, which includes charter
documents and other material agreements, is available upon oral or
written request without charge by writing to the Atlanta Fund or the
Balanced Fund at the addresses above or by calling (collect) the
Atlanta Fund or the CornerCap Funds at the numbers above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
<PAGE>
TABLE OF CONTENTS
Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Fee Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Information About The Reorganization . . . . . . . . . . . . . . 8
Reasons For The Reorganization . . . . . . . . . . . . . . . . . 13
Comparison Of Investment Objectives, Policies And Restrictions . 15
Comparison Of Shareholders' Rights . . . . . . . . . . . . . . . 17
Additional Information About The Balanced Fund . . . . . . . . . 20
Additional Information About The Atlanta Fund . . . . . . . . . . 21
Voting Information . . . . . . . . . . . . . . . . . . . . . . . 21
Financial Statements And Experts . . . . . . . . . . . . . . . . 23
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 23
iii
<PAGE>
SYNOPSIS
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN
THIS PROXY STATEMENT/PROSPECTUS. THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE MORE COMPLETE INFORMATION CONTAINED
ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, AND THE ATLANTA FUND
PROSPECTUS, THE BALANCED FUND PROSPECTUS AND THE AGREEMENT ATTACHED
TO THIS PROXY STATEMENT/PROSPECTUS AS EXHIBIT A.
THE PROPOSED REORGANIZATION. The Board of Directors of the Atlanta
Fund, including a majority of the Directors who are not "interested
persons" of the Atlanta Fund (the "Independent Directors"), as
defined in the Investment Company Act of 1940, as amended (the "1940
Act"), has approved an Agreement and Plan of Reorganization (the
"Agreement") providing for the acquisition of all or substantially
all of the assets of the Atlanta Fund by the Balanced Fund, in
exchange for shares of the Balanced Fund and the assumption by the
Balanced Fund of those liabilities of the Atlanta Fund reflected on
the Atlanta Fund's unaudited financial statements prepared in connection
with the Reorganization. The net asset value of the shares issued in the
exchange will equal the net asset value of the Atlanta Fund's shares then
outstanding. In connection with the Reorganization, shares of the Balanced
Fund will be distributed to shareholders of the Atlanta Fund, and the Atlanta
Fund will be completely liquidated and dissolved.
As a result of the Reorganization, each shareholder of the
Atlanta Fund will cease to be a shareholder of the Atlanta Fund and will
receive that number of full and fractional shares of the Balanced
Fund having an aggregate net asset value equal to the aggregate net
asset value of such shareholder's shares of the Atlanta Fund as of
the close of business on the closing date of the Reorganization. No
sales charge will be imposed in connection with the issuance of
shares of the Balanced Fund to the shareholders pursuant to the
Reorganization. If the Reorganization is approved, the Atlanta Fund
has agreed to pay all fees and expenses incurred by the Atlanta
Fund, the Balanced Fund and the CornerCap Funds in connection with
the Reorganization, and in connection therewith discharge or
establish reserves for those fees and expenses, as well as for all
of its other liabilities reflected in the financial statements,
prior to the Closing Date. For a more detailed discussion of the
terms of the Reorganization, see "Information About the
Reorganization."
For the reasons set forth below under "Reasons for the
Reorganization," the Board of Directors of the Atlanta Fund,
including a majority of the Independent Directors, has concluded
that the Reorganization would be in the best interests of the
Atlanta Fund and its shareholders, and therefore has submitted the
Reorganization for approval by shareholders of the Atlanta Fund at a
Special Meeting of Shareholders to be held on April 22, 1997 (the
"Meeting"). Approval of the Reorganization requires the vote of a
majority of the Atlanta Fund's outstanding shares. See "Voting
Information." The Board of Directors of the Atlanta Fund recommends
approval of the Agreement effecting the Reorganization.
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives and
policies of the Atlanta Fund and the Balanced Fund are significantly
different. The investment objective of the Balanced Fund is to
obtain long-term capital appreciation and current income. The
1<PAGE>
Balanced Fund attempts to achieve its objective by normally
investing 50% to 70% of its total assets in equity securities of
domestic and foreign issuers and at least 30% in fixed-income
securities, including cash and cash equivalents. In addition, the
Balanced Fund will not be limited with respect to the geographic
location of its portfolio investments.
The investment objective of the Atlanta Fund is to achieve
long-term growth of capital through investment in a portfolio
primarily comprised of the common stocks of the 50 most highly
capitalized publicly traded companies (the "Atlanta 50 Portfolio")
headquartered in the 18-county metropolitan statistical area of
Atlanta, Georgia ("Metropolitan Atlanta"). The Atlanta Fund pursues
its objective (i) by investing at least 75% of its total assets in
the Atlanta 50 Portfolio using a five-tiered weighing system based
primarily on each stock's relative total market value; and (ii) by
investing up to 25% of its total assets, on a non-weighted basis, in
the common stocks of publicly traded companies that either are
headquartered in the State of Georgia or have significant business
operations in Metropolitan Atlanta. For a more detailed discussion
and comparison of investment objectives and policies, see
"Comparison of Investment Objectives, Policies and Restrictions."
INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR. The investment
advisers, administrators and distributors of the Atlanta Fund and
the Balanced Fund are different. The investment adviser of the
Balanced Fund is Cornerstone Capital Corp. (the "Balanced Fund
Adviser"), a Georgia corporation having its principal office at The
Peachtree, Suite 1700, 1355 Peachtree Street, N.E., Atlanta, Georgia
30309. The Balanced Fund Adviser has been engaged in the investment
advisory business since 1989 and currently has approximately $200
million of assets under management.
The principal portfolio managers of the Balanced Fund are Thomas
E. Quinn and Ray Pbbeles. Mr. Quinn is a Chartered Financial Analyst
and a Certified Public Accountant and has worked in investment management
and financial analysis for 22 years. During the last six years Mr. Quinn has
served as the principal executive officer of the Balanced Fund
Adviser. Previously, Mr. Quinn was Chief Investment Officer for RJR
Investment Management, Inc. where he managed a portfolio worth over
$600 million. Mr. Peebles has worked with The Balanced Fund Adviser
for five years. He previously worked for Wachovia Bank of North
Carolina. Mr. Peebles is a Level III candidate in the Chartered
Financial Analyst program and has an MBA from Wake Forest University
and a BS in accounting from North Carolina State University.
Fortune Fund Administration, Inc., an affiliate of the Balanced
Fund Adviser ("Fortune"), serves as administrator of the Balanced
Fund. In that capacity, Fortune performs certain recordkeeping and
shareholder servicing functions required of registered investment
companies, assists the Balanced Fund in preparing and filing certain
financial and other reports, and performs certain daily functions
required for ongoing operations. Fortune also serves as Accounting
Services Agent and Transfer Agent of the Balanced Fund.
The Distributor and principal underwriter of the Balanced Fund
is Attkinson, Carter & Akers, Inc., a Georgia corporation with its
principal office at One Buckhead Plaza, Suite 1475, 3060 Peachtree
Road, N.W., Atlanta, Georgia 30305. The Balanced Fund Distributor
acts as agent upon the receipt of orders from investors and may be
entitled to compensation and other reimbursements pursuant to the
Balanced Funds Distribution Plan.
2<PAGE>
The investment adviser, administrator and distributor of the
Atlanta Fund is Wedgewood Equities, Inc., PFPC, Inc. and Pryor,
McClendon, Counts & Co., Inc., respectively.
For additional information about the Balanced Fund's and the
Atlanta Fund's investment advisers, administrators and distributors,
see the Balanced Fund Prospectus and the Atlanta Fund Prospectus,
respectively.
FEES AND EXPENSES. Pursuant to its Investment Advisory Agreement
with the Balanced Fund, the Balanced Fund pays the Balanced Fund
Adviser a fee, computed daily and payable monthly, at an annual rate
of 1% of the Balanced Fund's average daily net assets. The Balanced
Fund Advisory Agreement also provides that the Balanced Fund Adviser
will reduce its fee in any fiscal year to the extent that the
expenses of the Balanced Fund exceed applicable state limitations.
Currently, the most restrictive limitations limit expenses to 2.5%
of the first $30 million of a fund's average net assets, 2.0% of the
next $70 million and 1.5% net assets in excess of $100 million.
Pursuant to its Administration Agreement with Fortune, the
Balanced Fund pays Fortune an administrative fee at the annual rate
of 0.20% of the Balanced Fund's average daily assets, up to a
maximum of $4,000 per month. The Balanced Fund also pays Fortune
minimum fees of $18,000 and $12,000 per year for its services as
Transfer Agent and Accounting Services Agent, respectively. Fortune
is also reimbursed for certain out-of-pocket expenses incurred as a
result of its services under the Administration Agreement, Transfer
Agent Agreement and Accounting Services Agreement. The Balanced
Fund Adviser has voluntarily agreed to reimburse the Balanced Fund
for certain expenses to the extent and for so long as may be
necessary to keep total operating expenses at no greater than 2.0%
of average net assets during the 1997 and 1998 fiscal years.
Under its Investment Advisory and Management Agreement (the
"Atlanta Fund Advisory Agreement") with the Atlanta Fund Adviser,
the Atlanta Fund pays Wedgewood Equities, Inc., (the "Atlanta Fund
Adviser") a fee, computed daily and paid monthly, equal to an annual
rate of .34% of the Atlanta Fund's daily net assets. The Atlanta Fund
Adviser is currently waiving its fee.
Although the Balanced Fund pays the Balanced Fund Adviser
higher fees than are paid to the Atlanta Fund Adviser, the Board of
Directors of the Atlanta Fund believes such fees are justified given
the expanded investment universe of the Balanced Fund and the
Balanced Fund Adviser's voluntary commitment to keep operating
expenses below 2.0%. See also "Expense Ratios" below.
EXPENSE RATIOS. For the year ended May 31, 1996, the ratio of
expenses to average net assets (net of fee waivers) for the shares
of the Atlanta Fund was 8.36% (9.45% without fee waivers). The
anticipated ratio of expenses to average daily net assets for the
Balanced Fund upon completion of the Reorganization will be 2.0%
after reimbursement by the Balanced Fund Adviser of expenses in
excess of 2.0%. The Balanced Fund Adviser has voluntarily agreed to
reimburse the Balanced Fund for certain of its operating expenses to
the extent and for so long as may be necessary to keep the total
operating expenses at no greater than 2.0% of average net assets
during the 1997 and 1998 fiscal years. Without such reimbursement,
expenses are expected to be approximately 3.5% of average net assets,
for the current fiscal year. Accordingly, even without
reimbursement and using May 31, 1996 expense ratios for the Atlanta
Fund, the Balanced Fund's expense ratio is expected to be 4.86%
lower than that of the Atlanta Fund, or 6.86% lower with
reimbursement. The Atlanta Fund's expense ratio has continued to
climb and as of November 30, 1996 was 13.05% and 14.27% with and
without waivers, respectively, and both on an annualized basis. See
"Fee Table."
DISTRIBUTION PLAN. Both the Balanced Fund and the Atlanta Fund have
adopted Distribution Plans (the "Distribution Plans") pursuant to
Rule 12b-1 of the 1940 Act in order to facilitate the growth of
assets for each of the funds. The Distribution Plans, renewable
3<PAGE>
annually by the Board of each fund, authorizes each fund's
respective investment adviser or distributor to use fund assets up
to an amount equal to 0.25% per year. The percentage expenditure
limit for the Balanced Fund's and the Atlanta Fund's is the same.
However, the Balanced Fund does not expect to pay any amounts under
its Distribution Plan during the 1997 and 1998 fiscal years.
Furthermore, any such payment would be subject to the Balanced Fund
Adviser's voluntary commitment to limit operating expenses at no
greater than 2.0% of average net assets during those years. For a
more detailed discussion of the Distribution Plans, see the Atlanta
Fund Prospectus and the Balanced Fund Prospectus.
FEDERAL TAX CONSIDERATIONS. As a condition to closing under the
Agreement, the Atlanta Fund will obtain an opinion of counsel, based
on certain facts, assumptions and representations made by the
Balanced Fund and the Atlanta Fund, to the effect that the
Reorganization will qualify as a tax-free reorganization for federal
income tax purposes.
DIVIDEND DISTRIBUTIONS. Both the Balanced Fund and the Atlanta Fund
have a current policy to make, from time to time, distributions to
shareholders consisting of dividends and net realized capital gains.
There is no fee or other charge imposed by either fund in connection
with the reinvestment of dividends and capital gains distributions.
As permitted by the Balanced Fund's Board of Trustees and the
Atlanta Fund's Board of Directors, each fund permits its
shareholders to make an election to receive dividends and
distributions in cash or in full and fractional shares of the fund.
The failure to make any such election results in the automatic
reinvestment of the dividends or distributions in full and
fractional shares of each fund. The Balanced Fund will treat each
Atlanta Fund shareholder as having elected automatic reinvestment of
Balanced Fund dividends and distributions unless notified to the
contrary by the shareholders.
PURCHASE AND REDEMPTION PROCEDURES AND RIGHTS. Procedures for
purchasing and redeeming shares and the rights of shareholders
pursuant thereto do not differ significantly between the Balanced
Fund and the Atlanta Fund, except in the areas of minimum and
subsequent investment dollar requirements. Shares of the Balanced
Fund are purchased without a load at net asset value while purchases
of the Atlanta Fund's shares are generally subject to a 3.75%
initial sales load. The Balanced Fund imposes a minimum initial
investment of $2,000 on new shareholders and requires subsequent
investments to be at least $250, and the Atlanta Fund imposes a
minimum initial investment of $500 on new shareholders and requires
subsequent investments to be at least $100. Full and fractional
shares of the Balanced Fund and the Atlanta Fund may be redeemed at
any time for cash at the net asset value per share next determined
after receipt of a redemption request, as provided in their
respective Prospectuses. Shareholders of the Balanced Fund may
exchange their shares of the Balanced Fund for shares of the
CornerCap Growth Fund, a separate series of the CornerCap Group of
Funds, without payment or penalty at any time. See "Balanced Fund
Prospectus."
4<PAGE>
FEE TABLE
The table below compares the Atlanta Fund's annual fund
operating expenses for the fiscal year ended May 31, 1996 with the
expected annual fund operating expenses of the Balanced Fund for the
fiscal year ending March 31, 1997 (on an annualized basis).
<TABLE>
<CAPTION>
Balanced The Atlanta
Fund Fund
Pro Forma
--------- -----------
<S> <C> <C>
Shareholder Transaction Expenses:
Sales Load (as a percentage of offering price) None 3.75%<F1>
Sales Load on Dividend Reinvestment None None
Preferred Sales Changes None None
Redemption Fee None None
Exchange Fee None N/A
Annual Fund Operating Expenses (as a percentage of net assets)
Management Fees (after waivers and reimbursement)<F2> 0.00% 0.00%
Rule 12b-1 Fees (after waivers and reimbursement)<F3> 0.00% 0.25%
Other Expenses (after waivers and reimbursement)<F4> 2.00% 8.11%
Total Fund Operating Expenses <F5> 2.00% 8.36%
__________________________
<FN>
<F1> Sales load is reduced for purchases of $25,000 or more. See the
Atlanta Fund Prospectus.
<F2> The Balanced Fund's Investment Advisory Agreement with the Balanced
Fund Adviser provides for compensation to the Balanced Fund Adviser at
the annual rate of 1.0% of average daily net assets. The Balanced Fund
Adviser has voluntarily agreed to waive all or such portion of such fee
and to reimburse the Balanced Fund to the extent and for so long as may
be necessary to keep total Balanced Fund operating expenses at no greater
than 2.0% of average net assets during the 1997 and 1998 fiscal years.
The Atlanta Fund's agreement with the Atlanta Fund Adviser provides for
compensation of at the annual rate of .34% of the Atlanta Fund's daily
net assets. The Atlanta Fund Adviser is currently waiving its fee.
<F3> The Balanced Fund has adopted a Distribution Plan pursuant to which it
may reimburse the Balanced Fund Distributor and Adviser for certain
distribution-related expenses of the Balanced Fund up to an annual amount
of 0.25% of the Balanced Fund's average daily net assets. No
reimbursements or other payments have been made under this plan since its
inception and none are presently contemplated during the 1997 and 1998
fiscal years.
<F4> "Other expenses" are estimated for the Balanced Fund and include
without limitation, fees paid to independent accountants, independent
trustees, legal counsel, administrator, transfer agent, custodian and
accounting services agents. "Other expenses" also includes costs
associated with registration fees, reports to shareholders and other
miscellaneous expenses. The Balanced Fund Adviser has voluntarily agreed
to waive its advisory and administrative fees and to reimburse the
Balanced Fund for certain of its operating expenses to the extent and for
so long as may be necessary to keep total Balanced Fund operating
expenses at no greater than 2.0% of average net assets during the 1997
and 1998 fiscal years.
<F5> Total operating expenses are net of fee waivers and reimbursements.
In the absence of such waivers and reimbursements,
total operating expenses were 9.45% for the Atlanta Fund during the
fiscal year ended May 31, 1996 and are expected to be 3.5% for the Balanced
Fund for the current fiscal year. For the six-month period ended
5<PAGE>
November 30, 1996, the Atlanta Fund's total operating expenses were
13.05% and 14.27% with and without waivers, respectively, and both on an
annualized basis.
</FN>
</TABLE>
Example
Based on the expenses set forth above, a shareholder would pay the
following expenses on a $1,000 investment, assuming (1) a hypothetical 5%
annual return and (2) redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
---------------------------------------------
Balanced Fund ................... $20 $64 $110 $244
Atlanta Fund .................... $117 $267 $407 $719
The foregoing table is intended to assist investors in
understanding the costs and expenses that a shareholder in the
applicable fund will bear directly or indirectly. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
ASSUMED FOR PURPOSES OF THE EXAMPLE. THE ASSUMED 5% RETURN IS
HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE ANNUAL RETURNS.
RISK FACTORS
Because of the substantial differences in investment
objectives, policies and restrictions between the Atlanta Fund
and the Balanced Fund, the risks of investing in each fund are
substantially different. The following risks should be
considered by shareholders of the Atlanta Fund in their
evaluation of the Reorganization.
The Atlanta Fund's concentration in companies headquartered
in or doing business in Metropolitan Atlanta ties the performance
of the Atlanta Fund to the economic environment of Atlanta and
the surrounding region. Accordingly, the Atlanta Fund is subject
to, and could be adversely impacted by, industrial and business
trends within Atlanta and the surrounding geographical area.
Moreover, the Atlanta Fund's requirement that at least 75% of its
total assets be invested in the Atlanta 50 Portfolio could cause
imbalances in the Atlanta Fund relative to diversification by
industry sector, further tying the fund's performance to the
performance of several particular industries within Metropolitan
Atlanta. In addition, the Atlanta 50 Portfolio restrictions of
the Atlanta Fund also prohibit the Atlanta Fund Adviser from
utilizing certain traditional analytical measures frequently
employed to select investments. For additional information about
the risks of investing in the Atlanta Fund, see the Atlanta Fund
Prospectus.
The Balanced Fund, on the other hand, may invest in equity
securities of domestic and foreign issuers without restrictions
related to the geographic location of such issuers. The Balanced
Fund will also invest at least 30% of its assets in fixed-income
securities of domestic and foreign issuers, including cash and
6<PAGE>
cash equivalents. Foreign securities will be limited to 25% of
the Balanced Fund assets and will generally be dollar
denominated.
As a fund investing in both equity and fixed income
securities, the Balanced Fund is subject to market risk, interest
rate risk and credit risk. The market for equity securities in
the United States tends to be cyclical, with periods when the
prices of securities generally rise and periods when they
generally decline. All equity securities are usually influenced
to some extent by price movements in the equities market.
Because of the risks associated with investments in equity
securities, the Balanced Fund is intended to be a long-term
investment vehicle and is not designed to provide investors with
a means of speculating on short-term stock market movements.
The fixed-income portion of the Balanced Fund will be
subject to risk arising from fluctuating interest rate levels.
As prevailing interest rates decrease, bond prices will increase.
Likewise, when prevailing interest rates increase, bond prices
will decrease. The level of price volatility of a bond is
generally dependent upon the length of time until maturity.
Bonds with longer maturities usually have higher yields and
greater price volatility than bonds with shorter maturities. A
change in the level of interest rates will affect both the net
asset value per share of the Balanced Fund as well as its yield.
Fixed income securities are also subject to credit risk
arising from the ability of the issuer to make timely payment of
interest and principal installments. Credit ratings give an
indication of the issuer's ability to maintain these timely
payments. Normally, bonds with lower credit ratings will have
higher yields than bonds with the highest credit ratings. The
Balanced Fund invests only in those corporate obligations which
in the Balanced Fund Adviser's opinion have the investment
characteristics described by Moody's in rating corporate
obligations within its four highest ratings of Aaa, Aa, A and Baa
and by S&P in rating corporate obligations within its four
highest ratings of AAA, AA, A and BBB. It is possible that the
ability of the Balanced Fund to achieve its objective of current
income could be diminished by its restriction on the use of non-
investment grade corporate obligations. For a description of
these ratings, see Appendix A to the Balanced Fund's Statement of
Additional Information. Investments in government obligations
will include direct obligations of the U.S. Government, such as
U. S. Treasury Bills, Notes and Bonds, obligations guaranteed by
the U.S. Government, such as Government National Mortgage
Association obligations, and obligations of U.S. Government
authorities, agencies and instrumentalities, such as Federal
National Mortgage Association, Federal Home Loan Bank, Federal
Financing Bank and Federal Farm Credit Bank obligations.
The Balanced Fund does not require that its investments in
corporate obligations actually be rated by Moody's or S&P, and it
may acquire such unrated obligations which in the opinion of the
Balanced Fund Adviser are of a quality at least equal to a rating
of Baa by Moody's or BBB by S&P. With respect to investments in
unrated obligations, the Balanced Fund will be more reliant on
the Balanced Fund Adviser's judgment and experience than would be
the case if the Balanced Fund invested solely in rated
obligations. Obligations rated Baa by Moody's or BBB by S&P have
speculative characteristics. A rating of Baa by Moody's
indicates that the obligation is of "medium grade," neither
highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. A rating of BBB by S&P
7<PAGE>
indicates that the obligation is in the lowest "investment grade"
security rating. Obligations rated BBB are regarded as having an
adequate capacity to pay principal and interest. Whereas such
obligations normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and
interest than obligations in the top three "investment grade"
categories. Both credit and market risks as described above are
increased by investing in fixed income obligations rated Baa by
Moody's and BBB by S&P. For a more detailed description of these
ratings, see Appendix A to the Balanced Fund's Statement of
Additional Information.
The Balanced Fund Adviser will attempt to limit fluctuations
in the market value of the portfolio by adopting a more defensive
posture during periods of economic difficulty. During such
periods the Balanced Fund may temporarily acquire high quality short-term
money market instruments rated Prime-1 by Moody's or A or better
by S&P or, if unrated, of comparable quality as determined by the
Balanced Fund Adviser, at such times, and in such amounts (up to
100% of assets), as in the opinion of the Balanced Fund Adviser
seems appropriate. Short-term money market instruments will
include, among others, Treasury bills, bankers' acceptances,
certificates of deposit, time deposits, and commercial paper.
For a description of these instruments, see Appendix A to the
Balanced Fund's Statement of Additional Information.
There are additional risks associated with investments in
securities of foreign issuers. Such risks include changes in
currency rates, greater difficulty in commencing lawsuits,
differences between U.S. and foreign economies, and U.S.
Government policy with respect to certain investments abroad.
Foreign companies are frequently not subject to the accounting
and financial reporting standards applicable to U.S. companies,
and there may be less information available about foreign
issuers. Securities of foreign issuers are generally less liquid
and more volatile than those of comparable U.S. issuers. There
is often less government regulation of issuers than in the U.S.
There is also the possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic
developments that could adversely affect the value of those
investments.
Finally, because the investment objectives, policies and
restrictions of the Atlanta Fund and the Balanced Fund are
substantially different, the Balanced Fund will immediately after
closing liquidate all Atlanta Fund investments that do not
conform with the investment objectives, policies and restrictions
of the Balanced Fund. This will cause the Balanced Fund to
realize tax gains and incur brokerage expense and other costs.
For additional information about the risks of investing in
the Balanced Fund, see the Balanced Fund Prospectus and Statement
of Additional Information.
INFORMATION ABOUT THE REORGANIZATION
The summary below is qualified by reference to the Balanced
Fund Prospectus, the Atlanta Fund Prospectus and the Agreement
attached to this Proxy Statement/Prospectus as Exhibit A.
8<PAGE>
TERMS OF THE REORGANIZATION. The Agreement provides that the
Balanced Fund will acquire all or substantially all of the assets
of the Atlanta Fund in exchange for shares of the Balanced Fund
and the assumption by the Balanced Fund of certain identified
liabilities of the Atlanta Fund three days after the day of the
approval of the Reorganization by the Shareholders of the Atlanta
Fund (the "Closing Date"), or such later date as provided for
pursuant to the Agreement. The Balanced Fund will not assume any
liabilities or obligations of the Atlanta Fund, other than those
reflected in an unaudited statement of assets and liabilities of
the Atlanta Fund as of the normal close of business of the New
York Stock Exchange (currently 4:30 p.m., New York City time) on
the day the Reorganization is approved (the "Valuation Date").
The number of full and fractional shares of the Balanced Fund to
be issued to shareholders of the Atlanta Fund will be determined
on the basis of the relative net asset values per share and
aggregate net assets of the Balanced Fund and the Atlanta Fund
computed as of the close of business on the New York Stock
Exchange on the Valuation Date. The net asset value per share
for both the Balanced Fund and the Atlanta Fund will be
determined by dividing their respective assets, less liabilities,
by the total number of their respective outstanding shares.
Portfolio securities of both the Balanced Fund and the Atlanta
Fund will be valued in accordance with the valuation practices of
the Balanced Fund as described under "Net Asset Value" in the
Balanced Fund Prospectus.
The Board of Directors of the Atlanta Fund has determined
that participation in the Reorganization is in the best interests
of shareholders of the Atlanta Fund.
Prior to the Closing Date, the Atlanta Fund will continue to
discharge all of its known liabilities and obligations. The
liabilities assumed are expected to relate generally to expenses
incurred in the ordinary course of the Atlanta Fund's operations,
such as accounts payable relating to custodian and transfer
agency fees, legal and accounting fees, and expenses of state
securities registrations of the Atlanta Fund's shares. These
liabilities will also include all fees and expenses incurred by
the Atlanta Fund, the Balanced Fund and the CornerCap Funds in
connection with the Reorganization. These Reorganization
expenses are expected to include legal fees, accounting fees,
printing fees, transfer agent fees and other miscellaneous
expenses associated with the Reorganization. The Balanced Fund
will assume all liabilities, expenses, costs, charges and
reserves reflected on an unaudited statement of assets and
liabilities of the Atlanta Fund as of the close of the New York
Stock Exchange on the Valuation Date prepared by the Atlanta
Fund's Administrator, PFPC, Inc. Coopers & Lybrand, L.L.P. will
perform certain agreed upon procedures on such statement to
assist management of the Atlanta Fund in determining the
reasonableness of final expense accruals and distributions. This
statement will also be reviewed by the Balanced Fund's auditors
and must be reasonably satisfactory to them. The Balanced Fund
will assume only those liabilities of the Portfolio reflected in
that unaudited statement of assets and liabilities and will not
assume any other liabilities.
9<PAGE>
As of or prior to the Closing Date, the Atlanta Fund
contemplates declaring and paying a dividend or dividends which
are intended to have the effect of distributing to the Atlanta
Fund's shareholders all of the Atlanta Fund's net income which
has not been distributed previously.
Immediately after the Closing, the Atlanta Fund will
distribute pro rata to its shareholders of record as of the close
of business on the Valuation Date the full and fractional shares
of the Balanced Fund received by the Atlanta Fund, and the
Atlanta Fund will then take such actions to dissolve and
liquidate. Such distribution will be accomplished by the
establishment of accounts on the share records of the Balanced
Fund in the name of the Atlanta Fund shareholders, each
representing the respective pro rata number of full and
fractional shares of Balanced Fund due such shareholders. After
the Closing Date, any outstanding certificates representing
shares of the Atlanta Fund will represent shares of the Balanced
Fund distributed to the record holders of the Atlanta Fund.
Share certificates of the Atlanta Fund will, upon presentation to
the Transfer Agent of the Balanced Fund, be exchanged for shares
of the Balanced Fund. Certificates for the Balanced Fund shares
will be issued only upon written request.
INDEMNIFICATION. Pursuant to the terms of the Agreement, the
Atlanta Fund has agreed to indemnify, defend and hold the
CornerCap Funds and the Balanced Fund and their respective
affiliates, trustees, officers, employees, and agents harmless in
respect to any liability incurred by them that arises out of or
relate to (i) any material breach of or failure by the Atlanta
Fund to perform any of its covenants or agreements in the
Agreement, (ii) any false statement contained in the
representations and warranties of the Atlanta Fund in the
Agreement and (iii) any claims, suits, obligations or liabilities
associated with the operations of the Atlanta Fund prior to the
Closing Date.
Pursuant to the terms of the Agreement, Wedgewood Equities
Inc. and Pryor, McClendon, Counts & Co., Inc. ("Pryor
McClendon"), have agreed to indemnify, defend and hold the
CornerCap Funds and the Balanced Fund and their respective
affiliates, trustees, officers, employees, and agents harmless in
respect to any liability incurred by them that arises out of or
relates to (i) any material breach of or failure by them to
perform their respective covenants or agreements in the
Agreement, (ii) any false statement contained in the
representations and warranties of the Atlanta Fund in the
Agreement if such statement was made in reliance upon and in
conformity with information furnished to the Acquired Fund by
either of them, and (iii) any claims, suits, obligations or
liabilities associated with the operations of the Atlanta Fund
prior to the Closing Date.
Pursuant to the terms of the Agreement, the Balanced Fund
has agreed to indemnify, defend and hold the Atlanta Fund, Pryor
McClendon and Wedgewood Equities and their respective affiliates,
trustees, officers, employees, and agents harmless in respect to
any liability incurred by them that arises out of or relates to
(i) any material breach or failure by the Balanced Fund to
perform any of its covenants and agreements in the Agreement,
10<PAGE>
(ii) any false statement contained in the representatives and
warranties of the Balanced Fund in the Agreement and (iii) any
claims, suits, obligations or liabilities associated with the
operations of the Balanced Fund subsequent to the Closing Date.
APPROVAL AND CONSUMMATION OF THE AGREEMENT. The consummation of
the Agreement is subject to the conditions set forth therein.
The Agreement may be terminated by the Board of Directors of the
Atlanta Fund or the Board of Trustees of the Balanced Fund, by
mutual agreement at any time prior to the Closing Date.
Termination by the Atlanta Fund will not terminate its obligation
to pay the expenses related to the Reorganization. See "Expenses
of the Transaction" below.
Approval of the Reorganization will require the affirmative
vote of the holders of a majority of the outstanding voting
securities of the Atlanta Fund. If the Reorganization is not
approved by the shareholders of the Atlanta Fund, the Board of
Directors of the Atlanta Fund will consider the options available
to the Atlanta Fund, including its termination and dissolution.
Atlanta Fund shareholders who object to the Reorganization have
the rights outlined below in "Voting Information."
THE BOARD OF DIRECTORS OF THE ATLANTA FUND RECOMMENDS
APPROVAL OF THE REORGANIZATION.
EXPENSES OF THE TRANSACTION. If the Reorganization is
consummated, the Atlanta Fund terminates the Agreement prior to
April 30, 1997 or the Atlanta Fund fails to distribute this
Proxy Statement/Prospectus or takes or fails to take any other
action which causes or results in the failure of the
Reorganization to close, the Atlanta Fund will pay all fees and
expenses incurred in connection with the Reorganization,
including but not limited to (i) all fees and expenses related to
the preparation, filing and distribution of this Proxy
Statement/Prospectus, (ii) all applicable filing fees, (ii)
printing and mailing expenses, (iii) accountants' and auditors'
fees and expenses, and (v) the reasonable expenses of the
CornerCap Funds specifically related to the Reorganization,
including the fees and expenses of its legal counsel. If for any
other reason the Reorganization does not close, the Atlanta Fund
shall be responsible for 50% of all such fees and expenses and
the Balanced Fund and Pryor McClendon, the Atlanta Fund's
distributor, shall each be responsible for 25% of all such fees
and expenses; provided, however, that the Balanced Fund will be
responsible for all such fees and expenses if the Reorganization
does not become effective as a result of a material breach of the
Agreement by the Balanced Fund. Fees and expenses of the
Reorganization are currently estimated to be approximately
$75,000.
PRO FORMA FINANCIAL INFORMATION. Atlanta Fund shareholders will
represent 100% of the ownership of the Balanced Fund at the
closing of the Reorganization. The effects of the
Reorganization are summarized below. Expenses of the
reorganization, estimated at $75,000, will be borne by the
Atlanta Fund and will reduce net asset value per share by $0.21
per share on a pro forma basis as of November 30, 1996, or 2.4%
of net assets of the Atlanta Fund at such date. The operating
expenses of the Balanced Fund will be no greater than 2% of
average net assets during the 1997 and 1998 fiscal years. This
is a significant reduction from the 8.36% expense ratio (9.45%
after waivers and reimbursements) experienced by the Atlanta Fund
for its fiscal year ended May 31, 1996. Deferred organizational
expenses of the Atlanta Fund which have been written off as of
November 30, 1996 in anticipation of the reorganization. Finally,
because the investment objectives, policies and restrictions of
the Atlanta Fund and the Balanced Fund are substantially
11<PAGE>
different, the Balanced Fund will immediately after Closing
liquidate all Atlanta Fund investments that do not conform with
the investment objectives, policies and restrictions of the
Balanced Fund. This will cause the Balanced Fund to realize tax
gains and incur brokerage expense and other costs. For additional
information about the effects of the Reorganization, please refer
to the Pro Forma Statement of Net Assets, Pro Forma Statement of Operations
and notes thereto included in the Statement of Additional Information
related to the Reorganization, which Statement of Additional Information
is incorporated by reference herein and is available upon request.
DESCRIPTION OF THE BALANCED FUND SHARES. Full and fractional
shares of beneficial interest of the Balanced Fund will be issued
to shareholders of the Atlanta Fund in accordance with the
procedures under the Agreement as described above. Each share
will be fully paid and non-assessable and will be redeemable at
the net asset value per share, and will have no preemptive or
conversion rights. See "Comparison of Shareholders' Rights" for
additional information with respect to the shares of the Balanced
Fund.
CAPITALIZATION. The following table, which is unaudited, shows
the capitalization and net asset values per share of the Atlanta
Fund as of November 30, 1996 and of the Balanced Fund on a pro
forma basis as of that date after giving effect to the
Reorganization. The Balanced Fund has not yet commenced active
operations, but will do so immediately upon the closing of the
Reorganization.
12
<PAGE>
<TABLE>
<CAPTION>
Atlanta Fund Balanced Fund Pro
Forma
------------ -----------------
<S> <C> <C>
Net Assets $3,171,817 $3,171,817
Net asset value per share $8.27 $8.27
Shares outstanding 383,327 383,327
</TABLE>
The Reorganization is being accounted for by the Balanced Fund by
the method used for a tax-free reorganization of an investment company.
Under this method (sometimes referred to as a "pooling without
restatement"), the aggregate net asset value of the Balanced Fund shares
issued will equal the aggregate net asset value of the Atlanta Fund. The
above numbers do not reflect the payment by the Atlanta Fund of the
expenses related to the Reorganization or the other effects of the
Reorganization. See "Information About the Reorganization - Expenses of
the Transaction and Pro Forma Financial Information."
FEDERAL INCOME TAX CONSEQUENCES. The Reorganization is intended to
qualify for Federal income tax purposes as a tax-free reorganization
under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Code"), with no gain or loss recognized as a consequence of the
Reorganization by the Balanced Fund, the Atlanta Fund, or the
shareholders of the Atlanta Fund. As a condition to the closing of the
Reorganization, the Atlanta Fund will have received an opinion from the
law firm of Kilpatrick & Cody, L.L.P. to that effect. That opinion will
be based in part upon representations made by the Atlanta Fund and the
Balanced Fund, and certain facts and assumptions.
Shareholders of the Atlanta Fund should consult their tax advisers
regarding the effect, if any, of the proposed Reorganization in light of
their individual circumstances. SINCE THE FOREGOING DISCUSSION ONLY
RELATES TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION,
SHAREHOLDERS OF THE ATLANTA FUND SHOULD ALSO CONSULT THEIR TAX ADVISORS
AS TO STATE, LOCAL, AND OTHER TAX CONSEQUENCES, IF ANY, OF THE
REORGANIZATION.
REASONS FOR THE REORGANIZATION
The Atlanta Fund was organized to provide an investment
vehicle for capital appreciation primarily through investment in
the common stock of publicly traded companies headquartered in
the metropolitan area of Atlanta, Georgia. Although the Board of
Directors of the Atlanta Fund is satisfied with the Atlanta
Fund's overall performance, the Board of Directors and the
Atlanta Fund Adviser are concerned about the relatively small
amount of total assets invested in the Atlanta Fund and the
relatively high level of operating expenses sustained by the
Atlanta Fund. In consideration of the Atlanta Fund's situation,
the Board of Directors has decided, subject to shareholder
approval, to transfer all or substantially all of the Atlanta
Fund's assets to the Balanced Fund. The comparatively larger
asset projections of the Balanced Fund, combined with the Atlanta
13<PAGE>
Fund, will enable shareholders of the Atlanta Fund to benefit
from increased diversification of investments and other economies
of scale. The Board of Directors of the Atlanta Fund has
concluded that economies of scale and potentially lower expense
ratios can be realized by transferring the assets of the Atlanta
Fund into the Balanced Fund.
The Atlanta Fund's Board of Directors has determined that
consummation of the Reorganization is in the best interests of
the Atlanta Fund and that the interests of the shareholders of the
Atlanta Fund will be best served as a result of the proposed transaction.
The Board of Directors believes the transaction is in the best interests
of the Atlanta Fund and its shareholders for the following reasons:
Reduction of Assets. The assets of the Atlanta Fund have
experienced a significant reduction since its inception and
there is no indication that this trend will reverse itself.
The Atlanta Fund's net assets as of May 31, 1993 were $9.1
million, compared to $3.9 million as of May 31, 1996. The
number of shares outstanding has similarly experienced a
significant reduction since its inception from approximately
820,148 to 317,956 during the same three year period. If
these trends continue, the reduction of assets of the
Atlanta Fund will adversely affect the ability of the
Atlanta Fund to meet its investment objectives.
Expense Ratio. The continued decrease in the Atlanta Fund's
net assets together with significant recurring operating
expenses has caused the Atlanta Fund's expense ratio to
increase significantly and there is no indication that this
trend will reverse itself. The Board of Directors believes
that the total operating expenses should be less than the
aggregate expenses of the individual funds, resulting in a
lower expense ratio for the combined fund. In addition, the
Balanced Fund Adviser has voluntarily agreed to reimburse
the Balanced Fund for certain operating expenses to the
extent and for so long as may be necessary to keep the total
operating expenses at no greater than 2.0% of aggregate net
assets during the 1997 and 1998 fiscal years.
Investment Objectives and Policies. The investment
objectives and policies of the Atlanta Fund and the Balanced
Fund are significantly different. The investment objectives
and policies of the Atlanta Fund require its investment
adviser to concentrate in companies headquartered in or
doing business in Metropolitan Atlanta. As a result, the
performance of the Atlanta Fund is tied directly to the
economic environment of Atlanta and the surrounding region.
Accordingly, the Atlanta Fund is subject to, and could be
adversely impacted by, industrial and business trends within
Atlanta and the surrounding areas. Moreover, the Atlanta
Fund's requirement that at least 75% of its total assets be
invested in the Atlanta 50 Portfolio could cause imbalances
in the Atlanta Fund relative to diversification by industry
sector, further tying the fund's performance to the
performance of several particular industries within
Metropolitan Atlanta. The Balanced Fund, on the other hand,
attempts to achieve its investment objective by normally
investing 50% to 70% of its total assets in equity
securities of domestic and foreign issuers and at least 30%
in fixed-income securities, including cash and cash
equivalents. Accordingly, the Balanced Fund will not be
limited with respect to the geographic location of its
14<PAGE>
portfolio investments which will enable the shareholders of
the Atlanta Fund to benefit from the increased investment
diversification.
The Board of Directors believes that if the Atlanta Fund
continues to operate under existing and foreseeable conditions,
the investment objectives of the Atlanta Fund may not be realized
and that the recurring significant expenses may jeopardize the
Atlanta Fund's ability to operate in the future. In the event
the Reorganization is not approved by the Atlanta Fund
shareholders, the Board of Directors currently believes that the
dissolution and liquidation of the Atlanta Fund as an alternative
to the Reorganization would be in the best interests of the
Atlanta Fund and its shareholders.
THE DIRECTORS RECOMMEND THAT THE SHAREHOLDERS OF THE ATLANTA
FUND APPROVE THE REORGANIZATION.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
GENERAL OVERVIEW. The investment objectives and policies of the
Atlanta Fund and the Balanced Fund are significantly different.
The investment objective of the Balanced Fund is to obtain long-
term capital appreciation and current income. The Balanced Fund
attempts to achieve its objective by normally investing 50% to
70% of its total assets in equity securities of domestic and
foreign issuers and at least 30% in fixed-income securities,
including cash and cash equivalents. The Balanced Fund will not
be limited with respect to the geographic location of its
portfolio investments.
The investment objective of the Atlanta Fund is to achieve
long-term growth of capital through investment in a portfolio
primarily comprised of the common stocks of the 50 most highly
capitalized publicly traded companies (the "Atlanta 50
Portfolio") headquartered in the 18-county metropolitan
statistical area of Atlanta, Georgia ("Metropolitan Atlanta").
The Atlanta Fund pursues its objective (i) by investing at least
75% of its total assets in the Atlanta 50 Portfolio using a five-
tiered weighing system based primarily on each stock's relative
total market value; and (ii) by investing up to 25% of its total
assets, on a non-weighted basis, in the common stocks of publicly
traded companies that either are headquartered in the State of
Georgia or have significant business operations in Metropolitan
Atlanta.
OVERALL PORTFOLIO COMPARISON. The Atlanta Fund concentrates its
portfolio in Atlanta by investing at least 75% of the fund's
total assets in the 50 most highly capitalized publicly traded
companies headquartered in Metropolitan Atlanta (the "Atlanta
50"), utilizing a five-tiered weighting system based primarily on
the relative total market capitalization of each stock included
in the Atlanta 50, as outlined in the Atlanta Fund Portfolio.
The remaining 25% of the Atlanta Fund's assets may be invested in
the common stock of publicly traded companies that are
headquartered in the State of Georgia or have significant
business or operations in Metropolitan Atlanta (the "Non-Weighted
Portfolio"). Although the Atlanta Fund attempts to invest as
much of the fund as possible in common stocks, when necessary to
control cash flow or to compensate for unusual market conditions,
the Non-Weighted Portfolio assets may be invested in high quality
15<PAGE>
fixed-income securities, bonds, and short-term money market
securities, or in stock index futures and options. Fixed-income
securities will only be purchased if they are rated Aaa, Aa or A
by Moody's or AAA, AA or A by S&P. Short-term money market
securities will only be purchased if given one of the top two
ratings given by Moody's or S&P. See the Atlanta Fund Prospectus
for a more complete discussion of the fund's portfolio and
investment strategies.
The Balanced Fund concentrates its portfolio on domestic
equity securities, but up to 25% of its assets may be invested in
foreign issues. Normally 50% to 70% of the fund's assets will be
invested in common stocks, preferred stocks, or convertible
domestic and foreign securities, the great majority of which are
publicly traded on national securities exchanges or over-the-
counter. Many of the securities selected for the fund are chosen
on the basis of the Adviser's rankings of 1,500 common stocks
which take into consideration several factors, such as
price/earnings ratio, earnings growth rate, and cash flows that
are in excess of capital expenditures. Selections from these
rankings and other sources are made on the basis of
diversification and perceived risk in an effort to balance these
factors for long-term capital growth.
In addition to the equity securities discussed above, at
least 30% of the Balanced Fund will be invested in various fixed
income securities. These fixed income securities may include
direct obligations of the U.S. Government, such as U. S. Treasury
Bills, Notes and Bonds, obligations guaranteed by the U.S.
Government, such as Government National Mortgage Association
obligations, and obligations of U.S. Government authorities,
agencies and instrumentalities, such as Federal National Mortgage
Association, Federal Home Loan Bank, Federal Financing Bank and
Federal Farm Credit Bank obligations, and municipal and state
government obligations, mortgage-backed and other asset backed-
securities. These fixed income securities may also include
corporate bonds and notes, as long as those bonds and notes have
the investment characteristics described by Moody's in rating
corporate obligations within its four highest ratings of Aaa, Aa,
A and Baa and by S&P in rating corporate obligations within its
four highest ratings of AAA, AA, A and BBB, although such bonds
and notes need not actually have been rated by Moody's or S&P.
The Balanced Fund portfolio will also have the flexibility
to acquire high quality short-term money market instruments rated
Prime-1 by Moody's or A or better by S&P or, if unrated, of
comparable quality to such rated instruments. Such short-term
money market instruments include, among others, Treasury bills,
bankers' acceptances, certificates of deposit, time deposits, and
commercial paper.
For a more complete discussion of the Balanced Fund's
portfolio and investment strategies, see the Balanced Fund
Prospectus included herewith and the Statement of Additional
Information for the Balanced Fund.
COMPARISON OF FUNDAMENTAL INVESTMENT RESTRICTIONS. Except as set
forth below, the fundamental investment restrictions of both
Funds are substantially similar. Fundamental restrictions are
those that may not be changed unless authorized by a vote of a
majority of a fund's outstanding shares.
16<PAGE>
Restrictions Based On Investment Objectives. The Atlanta
Fund must invest at least 75% of its portfolio in the Atlanta 50
Portfolio and is subject to other restrictions based on its
investment objectives and policies, as outlined above and
provided in the Atlanta Fund Prospectus. The Balanced Fund must
invest at least 30% of its portfolio in fixed-income securities,
and may not invest over 25% of its portfolio in foreign issues.
In addition, the Balanced Fund's portfolio must reflect the
general investment objectives and policies of the fund, as
outlined above and provided in the Balanced Fund Prospectus.
Maximum Investment In One Issuer. As a non-diversified
investment company, the Atlanta Fund may not invest more than
7.5.% of the value of its total assets in the securities of any
one issuer. As to 75% of its assets, the Balanced Fund may not
invest more than 5% of the value of its total assets in the
securities of any one issuer.
New Issuers. The Atlanta Fund may not invest in securities
of any issuer which has not been in operation for at least three
years (including predecessors), and the Balanced Fund may not
invest more than 5% of its total assets in issuers not in
operation for at least one year.
Foreign Exchange. The Atlanta Fund may not buy or sell
foreign exchange. The Balanced Fund has no similar restriction.
Illiquid Investments. The Atlanta Fund may not invest more
than 5% of the value of its total assets in illiquid investments
(including repurchase agreements with a maturity date over seven
days and other securities that are restricted or otherwise not
marketable). The Balanced Fund's restriction is 10% of its net
assets.
COMPARISON OF SHAREHOLDERS' RIGHTS
GENERAL INFORMATION AND QUALIFICATIONS. As a Massachusetts
business trust, the Balanced Fund is governed by the CornerCap
Fund's Declaration of Trust dated January 6, 1986, as amended
(the "CornerCap Funds Declaration"), its By-laws (the "the
CornerCap Funds By-laws"), and applicable Massachusetts law. In
some respects, its operations differ from those of the Atlanta
Fund, which is organized as a Georgia corporation, and is
governed by its Articles of Incorporation, dated December 17,
1991 as amended (the "Atlanta Fund Articles"), its By-laws (the
"Atlanta Fund By-laws"), and applicable Georgia law.
Shareholders of the Atlanta Fund entitled to authorize the
Reorganization may obtain a copy of the CornerCap Funds
Declaration and CornerCap Funds By-laws, without charge, upon
written request, or collect call, to the CornerCap Funds or
Atlanta Fund.
17<PAGE>
The following information is only a summary of certain
characteristics of the operations of Atlanta Fund, its Articles
of Incorporation and By-laws, and Georgia law, and the operations
of the CornerCap Funds, its Declaration of Trust and By-laws, and
Massachusetts law. The following is not a complete description
of the documents or laws cited. Shareholders should refer to the
provisions of the Atlanta Fund Articles, the Atlanta Fund By-
laws, and Georgia law, and the CornerCap Funds Declaration, the
CornerCap Funds By-laws and Massachusetts law directly for a more
thorough description.
SHARES OF THE FUNDS. The CornerCap Funds has authorized an
unlimited number of shares of beneficial interest, with a par
value of $0.01 per share. The Atlanta Fund has authorized
capital of 500 million (500,000,000) shares of common stock, each
having no par value. The shares of each of the funds have no
preemptive or conversion rights.
VOTING REQUIREMENTS. The CornerCap Funds By-laws provide that
special meetings of shareholders shall be called upon the written
request of holders of not less than 10% of the then outstanding
shares of the fund. Similarly, the Atlanta Fund By-laws provide
that a special meeting of shareholders shall be called upon the
written request of shareholders representing not less than 10% of
the outstanding shares of the Atlanta Fund.
Amendments to the Atlanta Fund Articles must be recommended
by the Board of Directors and approved by the vote of
shareholders holding a majority of shares entitled to vote.
Amendments to the Atlanta Fund Bylaws may be made by the Board of
Directors or an affirmative vote of 80% of the outstanding shares
entitled to vote for Directors under the Bylaws. Any amendment
to the CornerCap Funds Declaration may be adopted by a majority
of the Trustees when authorized to do so by the vote of
shareholders holding a majority of the shares of the Balanced
Fund entitled to vote. Certain amendments to the CornerCap Funds
Declaration that do not adversely affect the rights of
shareholders may be approved by a majority of the Trustees,
without shareholder vote.
SHAREHOLDER MEETINGS. The CornerCap Funds is not required to hold
annual meetings of shareholders, but is required to hold meetings
of its shareholders for purposes of voting on certain matters as
required under the 1940 Act, including for the election of
Trustees. The Atlanta Fund is required under its By-laws and the
Georgia Code to hold an annual meeting of shareholders for the
election of Directors and the transaction of certain other
business matters as may be appropriate at such a meeting.
DIRECTORS AND TRUSTEES. The business of the Atlanta Fund, and
the business of the CornerCap Funds, is managed under the
direction of its Board of Directors and Board of Trustees,
respectively, which formulate the general policies of the funds
and meet periodically to review the investment performance of the
funds, monitor investment activities and practices and discuss
other matters affecting the funds. In addition, each Board, in
its discretion, declares what, if any, dividends are to be paid
by the funds and when they are to be paid.
The CornerCap Funds Bylaws provide that the Board of
Trustees sets the number of Trustees for the CornerCap Funds, and
that number may be any number between three and fifteen.
18<PAGE>
Currently, the CornerCap Funds has four Trustees. Each Trustee's
term of office is unlimited as to duration unless the Trustee
resigns, dies or is removed by the adoption of a resolution to
remove the Trustee by two-thirds of the Trustees not proposed for
removal or by vote of the shareholders of the fund holding not
less than a majority of the shares then outstanding cast in
person or by proxy at any meeting called for that purpose.
Trustee vacancies may be filled by the Trustees remaining in
office.
The Atlanta Fund Articles set the number of Directors for
the fund at five (5), and authorizes that the number of Directors
may be increased, but not decreased, by an affirmative vote of
80% of the shares of the Atlanta Fund entitled to vote for
election of Directors. The Atlanta Fund Directors are elected to
serve for three year terms, and Directors' terms are staggered.
Each Director serves his entire term unless removed by death,
resignation, retirement, or an affirmative vote of 80% of the
shares outstanding entitled to vote on election of Directors.
SHAREHOLDER LIABILITY. Under Massachusetts law, shareholders of
the Balanced Fund could, under certain circumstances, be held
personally liable for the obligations of the CornerCap Funds.
However, the CornerCap Funds Declaration disclaims shareholder
liability for acts or obligations of the CornerCap Funds and
requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by
the CornerCap Funds or the Trustees. The CornerCap Funds
Declaration provides for indemnification out of trust property
for all losses and expenses of any shareholder held personally
liable for the obligations of the CornerCap Funds. Thus, the
risk of a shareholder incurring financial loss on account of
shareholder liability is considered remote since it is limited to
circumstances in which a disclaimer is inoperative and the
CornerCap Funds itself would be unable to meet its obligations.
Under Georgia law, shareholders of the Atlanta Fund holding
shares of the corporation are only subject to liability for the
obligations of the corporation to the extent of their investment
therein.
LIABILITY OF DIRECTORS AND TRUSTEES. Under the CornerCap Funds
Declaration, a Trustee or an officer will be personally liable
only for his own willful misfeasance, criminal acts, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his office. Under the CornerCap Funds
Declaration, Trustees and officers will be indemnified for the
expenses of litigation against them unless it is determined that
the person did not act in good faith in the reasonable belief
that the person's action was in the best interests of the
CornerCap Funds or if his conduct is determined to constitute
willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties. The CornerCap Funds may also advance
money for these expenses provided that the Trustee or officer
undertakes to repay the CornerCap Funds if his conduct is later
determined to preclude indemnification.
The Atlanta Fund Articles provide that the Directors and
officers shall be indemnified to the fullest extent possible
under Georgia law. Georgia law provides that, in addition to any
other liability imposed by law, the Directors of Atlanta Fund may
be liable to Atlanta Fund for voting or assenting to the
declaration of any dividend or other distribution of assets to
shareholders which is contrary to Georgia law.
19<PAGE>
In the event of any litigation against the Directors or
officers of the Atlanta Fund, Georgia law permits the Atlanta
Fund to indemnify a Director or officer unless it is proved that
(i) the act or omission of the Director or officer was material
to the cause of action adjudicated in the proceeding and was
committed in bad faith or with active and deliberate dishonesty,
(ii) the Director or officer actually received an improper
personal benefit in money, property or services, or (iii) in the
case of a criminal proceeding, the Director or officer had
reasonable cause to believe that the act or omission was
unlawful.
RIGHTS OF INSPECTION. Subject to reasonable regulations of the
Trustees as to time, place, manner and extent, CornerCap Funds
shareholders have the right to inspect the records, accounts and
books of the CornerCap Funds for any legitimate business purpose
as provided by Massachusetts law. Under the Georgia Code, the
Atlanta Fund shareholders have automatic rights of inspection for
the Atlanta Fund Articles, the Atlanta Fund Bylaws, certain types
of resolutions of the shareholders or Board of Directors, all
shareholder communications and shareholder meeting minute books
for any three year period, and are entitled to inspect other
records, accounts and books of the Atlanta Fund for any
legitimate business purpose as provided by Georgia law.
ADDITIONAL INFORMATION ABOUT THE BALANCED FUND
Additional information concerning the operation and
management of the Balanced Fund is incorporated herein by
reference from the Balanced Fund Prospectus and Statement of
Additional Information dated December 6, 1996, which have been
filed with the Securities and Exchange Commission. A copy of the
Balanced Fund Prospectus is included herewith and the Balanced
Fund Statement of Additional Information is available
upon request and without charge by calling collect (404) 240-0666.
Reports and other information filed by the Balanced Fund,
including charter documents, can be inspected and copied at the
Public Reference Facilities maintained by the Securities and
Exchange Commission, located at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be
obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549 at prescribed rates or by
calling the Balanced Fund.
20
<PAGE>
ADDITIONAL INFORMATION ABOUT THE ATLANTA FUND
Additional information concerning the operation and
management of the Atlanta Fund is incorporated herein by
reference from the Atlanta Fund Prospectus and Statement of
Additional Information dated October 10, 1996 and the Atlanta
Fund Semi-Annual Report to Shareholders for the fiscal period
ended November 30, 1996, which have been filed with the Securities
and Exchange Commission. A copy of the Atlanta Fund Prospectus and
Statement of Additional Information is available upon request and
without charge by calling (800) 899-4742. Reports and other information
filed by the Atlanta Fund, including charter documents, can be
inspected and copied at the Public Reference Facilities maintained
by the Securities and Exchange Commission, located at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of such material
can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and
Exchange Commission, Washington, D.C. 20549 at prescribed rates
or by calling the Atlanta Fund.
VOTING INFORMATION
GENERAL. Proxies of the shareholders of Atlanta Fund are being
solicited by the Board of Directors of the Atlanta Fund.
Approval of the Agreement and the Reorganization will require the
affirmative consent of the holders of a majority of the Atlanta
Fund's outstanding voting securities. Abstentions will have the
effect of 'no' votes for purposes of the Proposal. Proxies are
to be solicited by mail. Additional solicitation may be made by
telephone, telegraph or personal contact by officers, employees
or agents of the Atlanta Fund and Balanced Fund and their
affiliates. Proxies may only be revoked in accordance with
applicable state law.
APPRAISAL RIGHTS. Pursuant to Section 14-2-1302 of the Georgia
Business Corporation Code (the "Georgia Code"), an Atlanta Fund
shareholder who objects to the Reorganization has the right to
demand payment of the fair value of his shares immediately before
the effectuation of the reorganization, excluding any
appreciation or depreciation as a result of the Reorganization.
To secure this right, the Georgia Code requires that a
shareholder deliver to the Atlanta Fund a written objection to
the Reorganization prior to the shareholder vote. The objecting
shareholder will lose his statutory dissenter's rights in the
event he votes in favor of the Reorganization. A proxy vote
against the Reorganization will not constitute the written
objection required by the Georgia Code. Following the
shareholders' authorization of the Reorganization, the Atlanta
Fund is required to give written notice of the approval of the
Reorganization to the objecting shareholder. Within the time
period specified in the Atlanta Fund's notification, the
objecting shareholder must demand payment for the fair value of
his shares and deposit his share certificates, if any, with the
Atlanta Fund. Within 10 days of the later of the date the
Reorganization is effected or the receipt of the payment demand,
the Atlanta Fund shall offer to pay the objecting shareholder the
amount the Atlanta Fund estimates to be the fair value of his
shares, plus accrued interest. If the objecting shareholder
believes that the amount offered is less than the fair value of
his shares or that the interest due has been incorrectly
calculated, he may notify the Atlanta Fund in writing of his own
estimate of the fair value of his shares and interest due. The
objecting shareholder will waive his right to demand payment for
21
<PAGE>
the fair value of his shares, plus accrued interest, if he does
not notify the Atlanta Fund within 30 days after the Atlanta Fund
offered payment for his shares.
The discussion above is intended to summarize the necessary
procedures under Georgia law for a shareholder to exercise his
dissenter's right. Shareholders wishing to exercise their
dissenter's rights should consult the Georgia Code directly and
obtain the advice of legal counsel. See Exhibit B for Sections
14-2-1301 through 14-2-1332 of the Georgia Code.
The Securities and Exchange Commission's Division of
Investment Management has taken the position in Investment
Company Act Release No. 8752 (April 10, 1975) that adherence to
the dissenter's rights of the valuation procedures under the
Georgia Code would constitute a violation of the 1940 Act and
Rule 22c-1 promulgated thereunder (the "forward pricing" rule
which, in substance, prohibits a registered investment company
from redeeming its shares except at a price based on the net
asset value of such shares next computed after such shares have
been tendered for redemption) and that Rule 22c-1 supersedes
contrary provisions of state statutes. Under the terms of the
Agreement, the Balanced Fund will assume the Atlanta Fund's
obligations, if any, with respect to statutory rights of
appraisal. In the event that any shareholder elects to exercise
his statutory rights of appraisal under the Georgia Code, it is
the Balanced Fund's present intention to petition a court of
competent jurisdiction to determine whether the valuation
procedures connected with such rights of appraisal have been
superseded by the provisions of Rule 22c-1. In such event, a
dissenting shareholder may not receive any payment until
disposition of any such court proceeding.
For federal income tax purposes, dissenting shareholders
obtaining payment for their shares will recognize gain or loss
measured by the difference between any such payment and the tax
basis for their shares. Shareholders are advised to consult
their personal tax advisors as to the tax consequences of
dissenting.
RECORD DATE AND SECURITIES OUTSTANDING. Shareholders of the
Atlanta Fund of record at the close of business on March 14,
1997 (the "Record Date") will be entitled to authorize approval
of the Agreement and the Reorganization. Shareholders are
entitled to one vote for each share held and fractional votes for
fractional shares held. As of November 22, 1996, as shown on the
books of the Atlanta Fund, there were issued and outstanding
384,505.803 shares of common stock. The approval of the
shareholders of the Balanced Fund are not being solicited, since
their approval is not necessary for the Reorganization to take
place.
FIVE PERCENT OWNERS. The Balanced Fund has not yet commenced
active operations and has no shareholders. No person owns
beneficially 5% or more of the Atlanta Fund's outstanding shares.
OTHER BUSINESS. The Directors of the Atlanta Fund know of no
other business to be brought before the Meeting. However, if any
other matters properly come before the Meeting, proxies will be
voted in accordance with the judgment of the proxies.
22<PAGE>
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of the Atlanta Fund contained in
the Atlanta Fund's annual report to shareholders for the fiscal
year ended May 31, 1996, included in the Atlanta Fund's Statement
of Addition of Information and incorporated by reference herein,
have been included and incorporated herein in reliance on the
report of Coopers & Lybrand, L.L.P., independent certified public
accountants. No financial information of the Balanced Fund is
included or incorporated by reference herein as such Fund has not
yet begun operations. The Balanced Fund will begin operations on
the Closing Date and its financial statements for its fiscal year
ending March 31, 1997 are expected to be audited by Tait, Weller
& Baker, certified public accountants.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of
the Balanced Fund will be passed upon by Kilpatrick Stockton LLP,
which firm will also render an opinion as to certain
Federal income tax consequences of the Reorganization.
23
<PAGE>
EXHIBIT A
AGREEMENT
AND
PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
is made as of the 22nd day of November, 1996, by and among the
CORNERCAP BALANCED FUND (the "Acquiring Fund"), a series of The
CornerCap Group of Funds (the "CornerCap Funds"), a Massachusetts
business trust with its principal place of business at 100
Northcreek, Suite 250, 3715 Northside Parkway, N.W., Atlanta,
Georgia 30327, and THE ATLANTA GROWTH FUND, INC. (the "Acquired
Fund"), a Georgia corporation with its principal place of
business at 1100 Peachtree Street, N.E., Suite 1661, Atlanta,
Georgia 30309.
PREAMBLE
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section
368(a) of the United States Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization (the "Reorganization")
will consist of the transfer of all or substantially all of the
assets of the Acquired Fund to the Acquiring Fund in exchange
solely for shares of common stock, $0.01 par value per share, of
the Acquiring Fund (the "Acquiring Fund Shares"), the assumption
by the Acquiring Fund of certain identified liabilities of the
Acquired Fund, and the distribution of the Acquiring Fund Shares
to the shareholders of the Acquired Fund in complete liquidation
of the Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
WITNESSETH
WHEREAS, the CornerCap Funds is an open-end, registered
investment company of the management type; and
WHEREAS, the CornerCap Funds is authorized to issue its
shares of common stock in separate series, including the
Acquiring Fund, each of which series maintains a separate and
distinct portfolio of assets; and
WHEREAS, the Acquiring Fund is a new series of the CornerCap
Funds organized for the purpose of consummating the
Reorganization; and
WHEREAS, the Board of Trustees of the CornerCap Funds, on
behalf of and the Acquiring Fund, has determined that the
exchange of all or substantially all of the assets of the
Acquired Fund for Acquiring Fund Shares, the assumption of
certain identified liabilities of the Acquired Fund by the
Acquiring Fund and the consummation of the Reorganization
pursuant to this Agreement is in the best interests of the
Acquiring Fund; and
1
<PAGE>
WHEREAS, the Board of Directors of the Acquired Fund has
determined that the exchange of all or substantially all of the
assets of the Acquired Fund for Acquiring Fund Shares, the
assumption of certain identified liabilities of the Acquired Fund
by the Acquiring Fund and the consummation of the Reorganization
pursuant to this Agreement is in the best interests of the
Acquired Fund and its shareholders;
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS IN EXCHANGE FOR SHARES, THE ASSUMPTION OF
CERTAIN LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED
FUND.
1.1 TRANSFER OF ASSETS; DELIVERY OF ACQUIRING FUND SHARES.
Subject to the terms and conditions set forth herein and on the
basis of the representations and warranties contained herein, the
Acquired Fund agrees to transfer all of the Acquired Fund's
assets, as set forth in Section 1.2, to the Acquiring Fund, the
Acquiring Fund agrees in exchange therefor (i) to deliver to the
Acquired Fund the number of Acquiring Fund Shares, including
fractional Acquiring Fund Shares, determined by dividing the
value of the Acquired Fund's net assets computed in the manner
and as of the time and date set forth in Section 2.1 by the net
asset value of one Acquiring Fund Share computed in the manner
and as of the time and date set forth in Section 2.2; and (ii) to
assume certain identified liabilities of the Acquired Fund, as
set forth in Section 1.3. Such transactions shall take place at
the closing provided for in Section 3 (the "Closing").
1.2 ASSETS OF ACQUIRED FUND. The assets of the Acquired
Fund to be acquired by the Acquiring Fund consist of all
property, including, without limitation, all cash, cash
equivalents, securities, commodities and futures interests and
dividends or interest receivables, claims and rights of action,
rights to register shares under applicable securities laws, and
books and records, which are owned by the Acquired Fund and any
deferred or prepaid expenses shown as assets on the books of the
Acquired Fund on the Closing Date (as defined in Section 3).
1.3 DISCHARGE OR ASSUMPTION OF LIABILITIES. Acquired Fund
will continue to discharge all of its known liabilities and
obligations in the ordinary course of business consistent with
past payment practices prior to the Closing Date, including,
without limitation, all liabilities, expenses, costs, charges and
reserves (expected to include expenses incurred in the ordinary
course of the Acquired Fund's operations such as accounts payable
relating to custodian and transfer agency fees, legal and audit
fees, and expenses of state securities registration of the
Acquired Fund's shares. An unaudited statement of assets and
liabilities of the Acquired Fund shall be prepared by the
Acquired Fund's administrator, PFPC, Inc. Coopers & Lybrand,
L.L.P. will perform certain agreed upon procedures on the
2
<PAGE>
unaudited financial statements as of the Valuation Date to assist
management of the Acquired Fund in determining the reasonableness
of final expense accruals and distributions, as of the Valuation
Date (as defined in Section 2.1). The unaudited statements of
assets and liabilities of the Acquired Fund shall also be
reviewed by the Acquiring Fund's auditors and be reasonably
satisfactory to them. The Acquiring Fund shall assume only those
liabilities of the Acquired Fund reflected on that unaudited
statement of assets and liabilities and shall not assume any
other liabilities except as otherwise provided herein.
1.4 DISTRIBUTION OF ACQUIRING FUND SHARES; LIQUIDATION OF
ACQUIRED FUND. Immediately after the transfer of assets provided
for in Section 1.1, the Acquired Fund will distribute pro rata to
the Acquired Fund's shareholders of record, determined as of
immediately after the close of business on the Closing Date (the
"Acquired Fund Shareholders"), the Acquiring Fund Shares received
by the Acquired Fund pursuant to Section 1.1 and will completely
liquidate. Acquired Fund shall take any further actions in
connection with its liquidation as required by applicable law.
Such distribution and liquidation will be accomplished by the
transfer of the Acquiring Fund Shares then credited to the
account of the Acquired Fund on the books of the Acquiring Fund
to open accounts on the share records of the Acquiring Fund in
the names of the Acquired Fund Shareholders. The aggregate net
asset value of Acquiring Fund Shares to be so credited to
Acquired Fund Shareholders shall be equal to the aggregate net
asset value of the Acquired Fund shares owned by such
shareholders as of immediately after the close of business on the
Valuation Date. All issued and outstanding shares of the
Acquired Fund will simultaneously be canceled on the books of the
Acquired Fund, although share certificates representing interests
in the Acquired Fund will represent a number of Acquiring Fund
Shares after the Closing Date as determined in accordance with
Section 2.3. The Acquiring Fund will not issue certificates
representing the Acquiring Fund Shares in connection with such
exchange except upon request by a shareholder of the Acquired
Fund.
1.5 SHARE TRANSFER RECORDS. Ownership of Acquiring Fund
Shares will be shown on the share transfer books of the Acquiring
Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and
statement of additional information.
2. VALUATION.
2.1 METHOD OF VALUATION. The value of the Acquired Fund's
assets to be acquired by the Acquiring Fund hereunder will be the
value of such assets computed as of the normal close of business
of the New York Stock Exchange on the day of the meeting of
Acquired Fund Shareholders held for the purpose of voting on the
Reorganization (such time and date being hereinafter called the
"Valuation Date"), using the valuation procedures set forth in
the Acquiring Fund's then-current prospectus or statement of
additional information. If, immediately before the Valuation
Date, (a) the NYSE is closed to trading or trading thereon is
restricted or (b) trading or the reporting of trading on the NYSE
3
<PAGE>
or elsewhere is disrupted, so that accurate appraisal of the net
asset value of Acquired Fund and the net asset value per
Acquiring Fund Share is impracticable, the Valuation Date will be
postponed until the first business day after the day when such
trading has been fully resumed and such reporting has been
restored.
2.2 NET ASSET VALUE PER SHARE. The net asset value of an
Acquiring Fund Share will be the net asset value per share of the
Acquiring Fund computed immediately after the close of business
of the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Acquiring Fund's then-
current prospectus or statement of additional information.
2.3 ISSUANCE OF ACQUIRING FUND SHARES. The number of the
Acquiring Fund Shares to be issued (including fractional shares,
if any) in exchange for the Acquired Fund's assets will be
determined by dividing the value of the net assets of the
Acquired Fund determined using the same valuation procedures
referred to in Section 2.1 by the net asset value of an Acquiring
Fund Share determined in accordance with Section 2.2.
2.4 VALUATION. All computations of value with respect to
the Acquiring Fund will be made by such pricing and accounting
services agent as the Acquiring Fund may designate in its
reasonable discretion, subject to the Acquired Fund's right to
review such calculations to ensure their accuracy.
3. CLOSING.
The Closing of the transactions will occur three days after
the Valuation Date or such later date as the parties may agree in
writing (the "Closing Date"). All acts taking place at the
Closing will be deemed to take place simultaneously immediately
before the start of business on the Closing Date unless otherwise
agreed to by the parties in writing. The start of business on
the Closing Date will be as of 9:00 a.m., New York time. The
Closing will be held at the offices of Kilpatrick & Cody, L.L.P.,
1100 Peachtree Street, Atlanta, Georgia or at such other place
and time as the parties shall mutually agree.
4. ADDITIONAL AGREEMENTS.
4.1 CERTIFICATE OF CUSTODIAN. Wachovia Bank of North
Carolina, as custodian for the Acquiring Fund (the "Custodian")
will deliver at the Closing a certificate of an authorized
officer stating that: (a) the Acquired Fund's portfolio
securities, cash, and any other assets have been delivered in
proper form to the Acquiring Fund; and (b) all necessary taxes
including, without limitation all applicable federal and state
stock transfer stamps, if any, have been paid, or provision for
payment has been made, in conjunction with the delivery of
portfolio securities.
4.2 DELIVERY OF SHARE TRANSFER RECORDS. Provident
Financial Processing Corporation (the "Transfer Agent"), on
behalf of the Acquired Fund will deliver at the Closing a
certificate of an authorized officer stating that its records
contain the names and addresses of the Acquired Fund Shareholders
and the number and percentage ownership of outstanding shares
owned by each such shareholder immediately prior to the Closing.
4<PAGE>
4.3 CONFIRMATION OF ACQUIRING FUND. The Acquiring Fund
shall issue and deliver a confirmation evidencing the Acquiring
Fund Shares to be credited on the Closing Date to the Acquired
Fund or provide evidence satisfactory to the Acquired Fund that
such Acquiring Fund Shares have been credited to the Acquired
Fund's account on the books of the Acquiring Fund.
4.4 ADDITIONAL DOCUMENTS. Each party shall deliver to the
other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other
party or its counsel may reasonably request.
5. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED FUND.
To induce the CornerCap Funds and the Acquiring Fund to
enter into this Agreement, the Acquired Fund represents and
warrants to the Acquiring Fund as follows:
5.1 ORGANIZATION. The Acquired Fund is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Georgia.
5.2 REGISTRATIONS. The Acquired Fund is an open-end, non-
diversified investment company duly registered under the
Investment Company Act of 1940 (the "1940 Act") and, with respect
to its shares, under the Securities Act of 1933, (the "1933 Act")
and such registrations are in full force and effect.
5.3 NO INCONSISTENT OBLIGATIONS. The Acquired Fund is not,
and the execution, delivery and performance of this Agreement
will not result, in a material violation of its Articles of
Incorporation or By-laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the
Acquired Fund is a party or by which it is bound.
5.4 MATERIAL CONTRACTS. The Acquired Fund has no material
contracts or other commitments (other than this Agreement) which
will be terminated with liability to it prior or subsequent to
the Closing Date.
5.5 LITIGATION; CONTINGENCIES. No material litigation or
administrative proceeding or, to the knowledge of the Acquired
Fund, investigation of or before any court or governmental body
is presently pending or, to its knowledge threatened, against the
Acquired Fund or any properties or assets held by it. The
Acquired Fund knows of no facts which might form the basis for
the institution of such proceedings and is not a party to or
subject to the provisions of any order, decree or judgment of any
court or governmental body that materially and adversely affects
its business or its ability to consummate the transactions
contemplated herein.
5.6 STATEMENT OF ASSETS AND LIABILITIES. The Statement of
Assets and Liabilities of the Acquired Fund at May 31, 1996, has
been audited by Coopers & Lybrand, L.L.P., independent certified
public accountants, and is in accordance with generally accepted
5<PAGE>
accounting principles consistently applied. A copy of such
statement has been furnished to the CornerCap Funds and the
Acquiring Fund.
5.7 NO ADVERSE CHANGES. Since May 31, 1996, there has not
been any material adverse change in the Acquired Fund's financial
condition, assets, liabilities or business other than changes
occurring in the ordinary course of business, or any incurrence
by the Acquired Fund of indebtedness maturing more than one year
from the date that such indebtedness was incurred, except as
otherwise disclosed to and accepted by the CornerCap Funds and
the Acquiring Fund. For the purposes of this Section 5.7, a
decline in net asset value per share of the Acquired Fund, the
discharge of Acquired Fund liabilities, or the redemption of
Acquired Fund shares by Acquired Fund Shareholders do not
constitute a material adverse change.
5.8 TAXES. At the Closing Date, all material Federal and
other tax returns and reports of the Acquired Fund required by
law to have been filed by such date will have been filed and are
or will be correct, and all Federal and other taxes shown as due
or required to be shown as due on said returns and reports will
have been paid or provision will have been made for the payment
thereof, and, to the best of the Acquired Fund's knowledge, no
such return is currently under audit and no assessment has been
asserted with respect to such returns. For each taxable year of
its operation, the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated
investment company and has elected to be treated as such.
5.9 CAPITALIZATION. The authorized capital stock of the
Acquired Fund consists of 500,000,000 shares of common stock, no
par value per share, of which 384,505.803 shares are issued
and outstanding as of the date of this Agreement. All issued and
outstanding shares of the Acquired Fund are, and at the Closing
Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. All of the issued and outstanding shares of
the Acquired Fund will, at the time of Closing, be held by the
persons and in the amounts set forth in the records of the
Transfer Agent, as provided in Section 4.2. The Acquired Fund
does not have outstanding any options, warrants or other rights
to subscribe for or purchase any of the Acquired Fund shares, nor
is there outstanding any security convertible into any of the
Acquired Fund shares.
5.10 TITLE TO ASSETS. At the Closing Date, the Acquired Fund
will have good and marketable title to the Acquired Fund's assets
to be transferred to the Acquiring Fund pursuant to Section 1.2,
subject to the shareholder approval referred to in Section 10.1,
and full right, power, and authority to sell, assign, transfer
and deliver such assets under this Agreement, and upon delivery
and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the
full transfer thereof, other than as disclosed to the Acquiring
Fund.
5.11 AUTHORITY. The execution, delivery and performance of
this Agreement has been duly authorized prior to the Closing Date
by all necessary action on the part of the Acquired Fund's Board
of Directors, and, subject to the approval of the Acquired Fund's
Shareholders, this Agreement will constitute a valid and binding
6<PAGE>
obligation of the Acquired Fund, enforceable in accordance with
its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles.
5.12 COMPLIANCE WITH SECURITIES LAWS. The information to be
furnished by the Acquired Fund for use in registration
statements, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby
will be accurate and complete in all material respects and will
comply in all material respects with Federal securities and other
laws and regulations thereunder applicable thereto. The proxy
statement of the Acquired Fund (the "Proxy Statement") to be
included in the Registration Statement referred to in Section 7.6
will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances under which such statements are made, not
materially misleading, provided that no representation or
warranty is made with respect to information that is supplied by
the Acquiring Fund.
6. REPRESENTATIONS AND WARRANTIES OF THE CORNERCAP FUNDS AND
THE ACQUIRING FUND.
To induce the Acquired fund to enter into and perform this
Agreement, the CornerCap Funds, on behalf of Acquiring Fund,
represents and warrants to the Acquired Fund as follows:
6.1 ORGANIZATION. The CornerCap Funds is a business trust
duly organized, validly existing and in good standing under the
laws of the Commonwealth of Massachusetts.
6.2 REGISTRATIONS. The CornerCap Funds is a
registered open-end investment company and its registration with
the Securities and Exchange Commission (the "Commission") as an
investment company with respect to each series of shares it
currently offers under the 1940 Act, and the registration of such
shares under the 1933 Act, are in full force and effect. A post-
effective amendment to the CornerCap Funds' Registration
Statement on Form N-1A was filed on September 13, 1996 adding the
Acquired Fund to the CornerCap Funds' Registration Statement on
Form N-1A. Such post-effective amendment is expected to be
declared effective on or before the effective date of the
Registration Statement on Form N-14 referred to in Section 7.6
hereof.
6.3 PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION.
The current prospectus and statement of additional information of
the CornerCap Funds conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the
rules and regulations of the Securities and Exchange Commission
(the "Commission") thereunder and do not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not materially misleading.
6.4 TITLE TO ASSETS. At the Closing Date, the Acquiring
Fund will have good and marketable title to the Acquiring Fund's
assets.
7<PAGE>
6.5 NO INCONSISTENT OBLIGATIONS. The Acquiring Fund is
not, and the execution, delivery and performance of this
Agreement will not result, in a material violation of the
Declaration of Trust or By-laws of the CornerCap Funds or the
Acquiring Fund or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquiring Fund
or the CornerCap Funds is a party or by which either is bound.
6.6 LITIGATION; CONTINGENCIES. No material litigation or
administrative proceeding or investigation of or before any court
or governmental body is presently pending or threatened against
the CornerCap Funds, the Acquiring Fund or any of its properties
or assets. Neither the CornerCap Funds nor the Acquiring Fund
knows of any facts which might form the basis for the institution
of such proceedings against the CornerCap Funds or the Acquiring
Fund, and neither the CornerCap Funds nor the Acquiring Fund is a
party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the
transactions herein contemplated.
6.7 CAPITALIZATION. (a) The authorized capital stock of
the Acquiring Fund consists of an unlimited number of shares of
beneficial interest, $0.01 par value per share, of which none are
issued and outstanding as of the date of this Agreement. The
Acquiring Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any Acquiring Fund
Shares, except as provided for in this Agreement, nor is there
outstanding any security convertible into any Acquiring Fund
Shares.
(b) The Acquiring Fund Shares to be issued and delivered to
the Acquired Fund, for the account of the Acquired Fund
Shareholders, pursuant to the terms of this Agreement will, at
the Closing Date, have been duly authorized and, when so issued
and delivered, will be duly and validly issued Acquiring Fund
Shares, and will be fully paid and non-assessable.
6.8 AUTHORITY. The execution, delivery and performance of
this Agreement has been duly authorized prior to the Closing Date
by all necessary action, if any, on the part of the Trustees of
the CornerCap Funds, as issuer of the Acquiring Fund, and this
Agreement will constitute a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject
as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors'
rights and to general equity principles.
6.9 NO ADVERSE CHANGES. Since March 31, 1996, there has
not been any material adverse change in the Acquiring Fund's
financial condition, assets, liabilities or business other than
changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of indebtedness maturing more
than one year from the date that such indebtedness was incurred.
For the purposes of this Section 6.9, a decline in net asset
value per share of the Acquiring Fund, the discharge of Acquiring
Fund liabilities, or the redemption of Acquiring Fund shares by
Acquiring Fund Shareholders do not constitute a material adverse
change.
6.10 TAXES. At the Closing Date, all material Federal and
other tax returns and reports of the Acquiring Fund required by
8<PAGE>
law to have been filed by such date will have been filed and are
or will be correct, and all Federal and other taxes shown as due
or required to be shown as due on said returns and reports will
have been paid or provision will have been made for the payment
thereof, and, to the best of the Acquiring Fund's knowledge, no
such return is currently under audit and no assessment has been
asserted with respect to such returns. For each taxable year of
its operation, the Acquiring Fund has met the requirements of
Subchapter M of the Code for qualification as a regulated
investment company and has elected to be treated as such.
6.11 COMPLIANCE WITH SECURITIES LAWS. The information to be
furnished by the CornerCap Funds and the Acquiring Fund for use
in registration statements, proxy materials and other documents
which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with
Federal securities and other laws and regulations applicable
thereto. The Registration Statement, insofar as it relates to
the Acquiring Fund, will, on the effective date of the
Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
such statements were made, not materially misleading, provided
that no representation or warranty is made with respect to
information about the Acquired Fund included in such Registration
Statement or information supplied by the Acquired Fund.
7. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
7.1 BUSINESS IN ORDINARY COURSE. The Acquiring Fund and
the Acquired Fund each will operate its business in the ordinary
course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions,
and any other distributions that may be advisable.
7.2 ACQUIRED FUND SHAREHOLDERS' MEETING. The Acquired Fund
will call a meeting of the Acquired Fund Shareholders to consider
and act upon this Agreement and to take all other action
reasonably necessary to obtain approval of the transactions
contemplated herein.
7.3 NO DISTRIBUTION OF ACQUIRING FUND SHARES. The Acquired
Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of
this Agreement.
7.4 BENEFICIAL OWNERSHIP OF ACQUIRED FUND SHARES. The
Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Acquired Fund Shares.
7.5 EFFORTS TO CONSUMMATE. Subject to the provisions of
this Agreement, the Acquiring Fund and the Acquired Fund will
each take, or cause to be taken, all actions, and do or cause to
be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by
this Agreement.
9<PAGE>
7.6 COOPERATION. The Acquired Fund will provide the
Acquiring Fund with information necessary for the preparation of
a prospectus (the "Prospectus") which will include the Proxy
Statement, referred to in Section 5.12, all to be included in a
Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the
Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act
in connection with the meeting of the Acquired Fund Shareholders
to consider approval of this Agreement and the transactions
contemplated herein.
7.7 APPROVALS AND AUTHORIZATION. The Acquiring Fund will
use all reasonable efforts to obtain the approvals and
authorizations required by the 1933 Act, the 1940 Act and such of
the state blue sky or securities laws as may be necessary in
order to continue its operations after the Closing Date.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the
transactions provided for herein are subject, at its election, to
the performance by the Acquiring Fund of all the obligations to
be performed by it hereunder on or before the Closing Date, and,
in addition thereto, the following further conditions.
8.1 REPRESENTATIONS AND WARRANTIES. All representations
and warranties of the CornerCap Funds, on behalf of the Acquiring
Fund, contained in this Agreement will be true and correct in all
material respects as of the date hereof and, except as they may
be affected by the transactions contemplated by this Agreement,
as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
8.2 OFFICERS' CERTIFICATE. The Acquiring Fund will have
delivered to the Acquired Fund a certificate executed in its name
by its President and Treasurer in a form reasonably satisfactory
to the Acquired Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the Acquiring
Fund made in this Agreement are true and correct at and as of the
Closing Date, except as they may be affected by the transactions
contemplated by this Agreement and as to such other matters as
the Acquired Fund shall reasonably request.
8.3 LEGAL OPINION. The Acquired Fund will have received on
the Closing Date the opinion of Kilpatrick & Cody, L.L.P.,
counsel to the Acquiring Fund, in a form reasonably satisfactory
to the Acquired Fund, and dated as of the Closing Date,
concerning the following matters:
(a) The CornerCap Funds has been duly formed as a business
trust and is validly existing and in good standing under the laws
of the Commonwealth of Massachusetts; (b) the Acquiring Fund has
the power to carry on its business as presently conducted; (c)
this Agreement has been duly authorized, executed and delivered
by the CornerCap Funds and the Acquiring Fund and constitutes a
valid and legally binding obligation of the CornerCap Funds and
of the Acquiring Fund enforceable against the CornerCap Funds and
the Acquiring Fund in accordance with its terms, subject to
10<PAGE>
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity principles; (d)
the execution and delivery of the Agreement did not, and the
exchange of the Acquired Fund's assets for shares of the
Acquiring Fund pursuant to the Agreement will not, violate the
Declaration of Trust or By-laws of the CornerCap Funds or result
in a default under or breach of any of the agreements filed as
exhibits to (or incorporated by reference in) the CornerCap
Funds' most recent post-effective amendment of its registration
statement on Form N-1A; (e) to the knowledge of such counsel, all
regulatory consents, authorizations, approvals or filings
required to be obtained or made by the CornerCap Funds or the
Acquiring Fund under the Federal laws of the United States, the
State of Georgia or the Commonwealth of Massachusetts for the
exchange of the Acquired Fund's assets for shares of the
Acquiring Fund, pursuant to the Agreement have been obtained or
made; and (f) the shares of the Acquiring Fund to be distributed
to Acquired Fund stockholders under this Agreement, assuming due
authorization and delivery as contemplated by this Agreement,
will be validly issued and outstanding and fully paid and non-
assessable.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE CORNERCAP FUNDS
AND THE ACQUIRING FUND.
The obligations of the CornerCap Funds and the Acquiring
Fund to complete the transactions provided for herein are
subject, at their election, to the performance by the Acquired
Fund of all of the obligations to be performed by it hereunder on
or before the Closing Date and, in addition thereto, the
following conditions:
9.1 REPRESENTATIONS AND WARRANTIES. All representations
and warranties of the Acquired Fund contained in this Agreement
will be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date.
9.2 STATEMENT OF ASSETS AND LIABILITIES. The Acquired Fund
shall have delivered to the Acquiring Fund a statement of the
Acquired Fund's assets and liabilities, as of the Valuation Date,
certified by the President of the Acquired Fund.
9.3 OFFICERS' CERTIFICATE. The Acquired Fund shall have
delivered to the Acquiring Fund on the Closing Date a certificate
executed in its name by its President, in form and substance
satisfactory to the Acquiring Fund and dated as of the Closing
Date, to the effect that the representations and warranties of
the Acquired Fund made in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other
matters as the Acquiring Fund shall reasonably request.
9.4 LEGAL OPINION. The Acquiring Fund shall have received
on the Closing Date the opinion of Powell, Goldstein, Frazer &
Murphy, counsel to the Acquired Fund, dated as of the Closing
Date, concerning the following matters:
11<PAGE>
(a) The Acquired Fund has been duly formed and is validly
existing and in good standing under the laws of the State of
Georgia; (b) The Acquired Fund has the power to carry on its
business as presently conducted; (c) this Agreement has been duly
authorized, executed and delivered by the Acquired Fund and
constitutes a valid and legally binding obligation of the
Acquired Fund enforceable against the Acquired Fund in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and laws of general
applicability relating to or affecting creditors' rights and to
general equity principles; (d) the execution and delivery of the
Agreement did not, and the exchange of the Acquired Fund's assets
for shares of the Acquiring Fund pursuant to the Agreement will
not, violate Acquired Fund's Articles of Incorporation or By-laws
or result in a default under or breach of any of the agreements
filed as exhibits to (or incorporated by reference in) the
Acquired Fund's most recent post-effective amendment of its
registration statement on Form N-1A; and (e) to the knowledge of
such counsel, all regulatory consents, authorizations, approvals
or filings required to be obtained or made by the Acquired Fund
under the Federal laws of the United States or the State of
Georgia for the exchange of the Acquired Fund's assets for shares
of the Acquiring Fund, pursuant to the Agreement have been
obtained or made.
10. FURTHER CONDITIONS PRECEDENT.
If any of the conditions set forth below do not exist on or
before the Closing Date, any party to this Agreement, at its
option, will not be required to consummate the transactions
contemplated by this Agreement.
10.1 APPROVAL OF ACQUIRING FUND'S SHAREHOLDERS. The
Agreement and the transactions contemplated herein will have been
approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of
the 1940 Act and the Acquired Fund's Articles of Incorporation
and By-laws, and certified copies of the resolutions evidencing
such approval will have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the conditions set
forth in this Section 10.1.
10.2 NO INCONSISTENT REQUIREMENTS. On the Closing Date, no
action, suit or other proceeding will be threatened or pending
before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated
herein.
10.3 CONSENTS. All consents of other parties and all other
consents, orders and permits of Federal, state and local
regulatory authorities deemed necessary by the Acquiring Fund or
the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order
or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Acquired
Fund, provided that either party hereto may for itself waive any
of such conditions.
12<PAGE>
10.4 EFFECTIVENESS OF REGISTRATION STATEMENT. The
Registration Statement will have become effective under the 1933
Act, and no stop orders suspending the effectiveness thereof will
have been issued and, to the best knowledge of the parties
hereto, no investigation or proceeding for that purpose shall
have been instituted or be pending, threatened or contemplated
under the 1933 Act.
10.5 TAX OPINION. The parties shall have received the
opinion of Kilpatrick & Cody, L.L.P., substantially to the effect
that the transaction contemplated by this Agreement constitutes a
tax-free reorganization for Federal income tax purposes. The
delivery of such opinion is conditioned upon receipt by
Kilpatrick & Cody, L.L.P. of representations it requests of the
parties. Notwithstanding anything herein to the contrary,
neither the Acquiring Fund nor the Acquired Fund may waive the
condition set forth in this Section 10.5.
11. TERMINATION.
This Agreement and the transaction contemplated hereby may
be terminated and abandoned by either party, by mutual agreement
at any time prior to the Closing Date. In the event of
termination under this Section 11, there shall be no liability
for damages on the part of any party, its officers, Directors, or
Trustees, except as provided in Section 12.2.
12. MISCELLANEOUS.
12.1 ABSENCE OF BROKERS. The CornerCap Funds, the Acquiring
Fund and the Acquired Fund each represent and warrant to the
other that it has no obligations to pay any brokers or finders
fees in connection with the transactions provided for herein.
12.2 PAYMENT OF EXPENSES. (a) Subject to paragraphs (b) and
(c) below, the Acquired Fund will pay all fees and expenses
incurred in connection with the preparation, filing and
distribution of the Proxy Statement and Registration Statement,
including but not limited to (i) all applicable filing fees, (ii)
printing and mailing expenses, (iii) accountants' and auditors'
fees and expenses, (iv) the reasonable expenses of the CornerCap
Funds and the Acquiring Fund related specifically to this
Agreement and the Reorganization, including, without limitation,
the fees and expenses of their legal counsel, Kilpatrick & Cody,
all on a current basis as billed or incurred.
(b) If the Acquired Fund terminates this Agreement
prior to February 28, 1996 or fails to distribute the Proxy
Statement and Registration Statement required to be distributed
hereunder (assuming such Proxy Statement and Registration
Statement are in material compliance with Federal securities laws
and are delivered to the Acquired Fund in a timely manner) or
takes or fails to take any other action which causes or results
in the failure of the transaction contemplated hereunder to
close, the Acquired Fund will be solely responsible for all such
fees and expenses.
(c) If for any other reason the transaction
contemplated herein does not become effective, the Acquired Fund
13<PAGE>
shall be responsible for 50% of all such fees and expenses and
the Acquiring Fund, on the one hand, and Pryor, McClendon, Counts
& Co., Inc., on the other hand, shall each be responsible for 25%
of all such fees and expenses; provided, however, that the
Acquiring Fund will be responsible for all such fees and expenses
if the transaction contemplated by this Agreement does not become
effective as a result of a material breach of this Agreement by
the Acquiring Fund.
12.3 ENTIRE AGREEMENT. This Agreement supersedes all prior
discussions and agreements among the parties with respect to the
subject matter hereof. The CornerCap Funds, the Acquiring Fund
and the Acquired Fund agree that neither party has made any
representation, warranty or covenant not set forth herein and
that this Agreement constitutes the entire agreement between the
parties.
12.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in this Agreement or in
any document delivered pursuant hereto or in connection herewith
will survive the consummation of the transactions contemplated
hereunder.
12.5 AMENDMENTS. This Agreement may be amended, modified or
supplemented in such manner as may be mutually agreed upon in
writing by the authorized officers of the CornerCap Funds, the
Acquired Fund and the Acquiring Fund; provided, however, that
following the meeting of the Acquired Fund Shareholders called by
the Acquired Fund pursuant to Section 10.1 of this Agreement, no
such amendment may have the effect of changing the provisions for
determining the number of the Acquiring Fund Shares to be issued
to the Acquired Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
12.6 INDEMNIFICATION. (a) Acquired Fund (the "Indemnifying
Party") covenants and agrees to indemnify, defend and hold the
CornerCap Funds and the Acquiring Fund and their respective
affiliates, Directors, Trustees, officers, employees, and agents
(collectively, the "Indemnified Parties") harmless from and
against and in respect of all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries, and
deficiencies, including interest, penalties and reasonable
attorneys' fees, that they shall incur or suffer which arise out
of or relate to (i) any material breach of or failure by Acquired
Fund to perform any of its covenants or agreements in this
Agreement; (ii) any false statement contained in the
representations and warranties of Acquired Fund in this
Agreement; and (iii) any claims, suits, obligations or
liabilities associated with the operations of the Acquired Fund
prior to the Closing.
(b) Wedgewood Equities Inc. ("Wedgewood Equities") and
Pryor, McClendon, Counts & Co., Inc. ("PMC") (collectively, the
"Indemnifying Parties"), jointly and severally covenant and agree
to indemnify, defend and hold the CornerCap Funds and the
Acquiring Fund and their respective affiliates, Directors,
Trustees, officers, employees, and agents (collectively, the
"Indemnified Parties") harmless from and against and in respect
of all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including
interest, penalties and reasonable attorneys' fees, that they
shall incur or suffer which arise out of or relate to (i) any
14<PAGE>
material breach of or failure by them to perform their respective
covenants or agreements in Section 12.2 of this Agreement; (ii)
any false statement contained in the representations and
warranties of Acquired Fund in this Agreement if such statement
was made in reliance upon and in conformity with information
furnished to the Acquired Fund by either of them; and (iii) any
claims, suits, obligations or liabilities associated with the
operations of the Acquired Fund prior to the Closing.
(c) Acquiring Fund (the "Indemnifying Party")
covenants and agrees to indemnify, defend and hold the Acquired
Fund, Wedgewood Equities and PMC and their respective affiliates,
Directors, officers, employees, and agents (collectively, the
"Indemnified Parties") harmless from and against and in respect
of all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including
interest, penalties and reasonable attorneys' fees, that they
shall incur or suffer which arise out of or relate to (i) any
material breach of or failure by Acquiring Fund to perform any of
its covenants or agreements in this Agreement; (ii) any false
statement contained in the representations and warranties of
Acquiring Fund in this Agreement; and (iii) any claims, suits,
obligations or liabilities associated with the operations of the
Acquiring Fund or any of its predecessors in interest subsequent
to the Closing.
(d) In order for an Indemnified Party to be entitled
to any indemnification provided for under this Agreement in
respect of, arising out of or involving a claim or demand made by
any person, firm, governmental authority or corporation against
the Indemnified Party (a "Third Party Claim"), the Indemnified
Party must notify one or more Indemnifying Party in writing of
the Third Party Claim within 10 business days after receipt by
such Indemnified Party of written notice of the Third Party
Claim; provided, however, that failure to give such notification
shall not affect the indemnification provided hereunder except to
the extent that the Indemnifying Party shall have been actually
and materially prejudiced as a result of such failure.
Thereafter, the Indemnified Party shall deliver to such
Indemnifying Party, within 5 business days after the Indemnified
Party's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnified Party
relating to the Third Party Claim.
(e) If a Third Party Claim is made against an
Indemnified Party, the Indemnifying Party may, at the option of
the Indemnified Party, be allowed to participate in the defense
thereof and to assume the defense thereof with counsel selected
by the Indemnifying Party and reasonably acceptable to the
Indemnified Party; provided, however, that the Indemnifying Party
shall not admit any liability with respect to, or discharge,
compromise or settle any Third Party Claim on behalf of or for
the account and risk of the Indemnified Party without the express
written consent of the Indemnified Party. If the Indemnifying
Party assumes such defense, the Indemnified Party shall have the
right to participate in, but not control, the defense thereof and
to employ counsel separate from the counsel employed by the
Indemnifying Party. Whether or not the Indemnifying Party
chooses or is permitted to defend or prosecute any Third Party
Claim, all of the parties hereto shall cooperate in the defense
or prosecution thereof. Such cooperation shall include the
retention and (upon the Indemnifying Party's written request) the
provision to the Indemnifying Party of copies of records and
15<PAGE>
information which are reasonably relevant to such Third Party
Claim, and making employees available on a mutually convenient
basis to provide additional information and explanation of any
material provided hereunder. Whether or not the Indemnifying
Party shall have assumed, or been permitted to assume, the
defense of a Third Party Claim, the Indemnified Party shall not
admit any liability with respect to, or settle, compromise or
discharge, such Third Party Claim involving relief in the form of
money damages without the Indemnifying Party's prior written
consent, which consent shall not be unreasonably delayed or
withheld.
12.7 NOTICES. All notices or other communications required
or permitted to be given or made hereunder shall be in writing
and delivered personally or sent by pre-paid, first class
certified or registered mail, return receipt requested, or by
facsimile transmission, to the intended recipient thereof at its
address or facsimile number set out below. Any such notice or
communication shall be deemed to have been duly given immediately
(if given or made in person or by facsimile confirmed by mailing
a copy thereof to the recipient in accordance with this Section
12.6 on the date of such facsimile), or five days after mailing
(if given or made by mail), and in proving same it shall be
sufficient to show that the envelope containing the same was
delivered to the delivery service and duly addressed, or that
receipt of a facsimile was confirmed by the recipient as provided
above. The addresses and facsimile numbers of the parties for
purposes of this Agreement are set forth on the signature page
hereto below their respective signatures. Either party may
change the address to which notices or other communications to
such party shall be delivered or mailed by giving notice thereof
to the other party hereto in the manner provided herein.
12.8 HEADINGS. The headings contained in this Agreement are
for reference purposes only and may not affect in any way the
meaning or interpretation of this Agreement.
12.9 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an
original.
12.10 ASSIGNMENT. No assignment or transfer hereof or
of any rights or obligations hereunder may be made by any party
without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer
upon or give any person, firm or corporation, other than the
parties hereto and their respective successors and assigns, any
rights or remedies under or by reason of this Agreement.
12.11 BINDING NATURE. (a) This Agreement will bind and
inure to the benefit of the parties hereto and their respective
successors and assigns.
(b) It is expressly agreed that the obligations of the
Acquiring Fund hereunder will not be binding upon any of the
Directors, Trustees, shareholders, nominees, officers, agents, or
employees of the CornerCap Funds personally, but shall bind only
the property of the Acquiring Fund. The execution and delivery
of this Agreement have been authorized by the Trustees of the
CornerCap Funds and signed by authorized officers of the
16<PAGE>
CornerCap Funds acting as such, and neither such authorization by
such Trustees nor such execution and delivery by such officers
shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, but shall bind
only the property of the Acquiring Fund.
12.12 GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Georgia; provided that, in the case of any conflict between such
laws and the federal securities laws, the latter shall govern.
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed by a duly authorized officer and
its seal to be affixed thereto.
THE CORNERCAP BALANCED FUND OF
THE CORNERCAP GROUP OF FUNDS
By: /s/ Thomas E. Quinn
Thomas E. Quinn
President
100 North Creek
Suite 250
3175 Northside Parkway
Atlanta, Georgia 30327
Telephone: (404) 240-0666
Facsimile: (404) 240-0144
THE ATLANTA GROWTH FUND, INC.
By: /s/ Michael L. Lucas
Michael L. Lucas
President
Suite 1661
1100 Peachtree Street, N.E.
Atlanta, Georgia 30309
Telephone: (404) 875-1261
Facsimile: (404) 875-1565
The undersigned hereby consent to and agree to be bound by
the provisions of Section 12.6 above.
WEDGEWOOD EQUITIES INC.
By: /s/ Raymond J. McClendon
Raymond J. McClendon
Vice Chairman and Chief Operating
Officer
Suite 1661
1100 Peachtree Street, N.E.
Atlanta, Georgia 30309
Telephone: (404) 875-7216
Facsimile: (404) 875-9865
17<PAGE>
The undersigned hereby consents to and agrees to be bound by
the provisions of Sections 12.2(c) and 12.6 above.
PRYOR, MCCLENDON, COUNTS & CO., INC.
By: /s/ Raymond J. McClendon
Raymond J. McClendon
Vice Chairman and Chief Operating
Officer
Suite 1661
1100 Peachtree Street, N.E.
Atlanta, Georgia 30309
Telephone: (404) 875-7216
Facsimile: (404) 875-9865
18
<PAGE>
EXHIBIT B
Georgia Dissenters' Rights Statutes
14-2-1301. Definitions.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a
beneficial owner of shares held in a voting trust or by a nominee
as the record shareholder.
(2) "Corporate action" means the transaction or other
action by the corporation that creates dissenters' rights under
Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a
dissenter before the corporate action, or the surviving or
acquiring corporation by merger or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to
dissent from corporate action under Code Section 14-2-1302 and
who exercises that right when and in the manner required by Code
Sections 14-2-1320 through 14-2-1327.
(5) "Fair value," with respect to a dissenter's shares,
means the value of the shares immediately before the effectuation
of the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate
action.
(6) "Interest" means interest from the effective date of
the corporate action until the date of payment, at a rate that is
fair and equitable under all the circumstances.
(7) "Record shareholder" means the person in whose name
shares are registered in the records of a corporation or the
beneficial owner of shares to the extent of the rights granted by
a nominee certificate on file with a corporation.
(8) "Shareholder" means the record shareholder or the
beneficial shareholder. (Code 1981, Section 14-2-1301, enacted
by Ga. L. 1988, p. 1070, Section 1; Ga. L. 1993, p. 1231, Section
16.)<PAGE>
14-2-1302. Right to dissent.
(a) A record shareholder of the corporation is entitled to
dissent from, and obtain payment of the fair value of his shares
in the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the
corporation is a party:
(A) If approval of the shareholders of the
corporation is required for the merger by Code Section
14-2-1103 or the articles of incorporation and the
shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is
merged with its parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which
the corporation is a party as the corporation whose shares
will be acquired, if the shareholder is entitled to vote on
the plan;
(3) Consummation of a sale or exchange of all or
substantially all of the property of the corporation if a
shareholder vote is required on the sale or exchange
pursuant to Code Section 14-2-1202, but not including a sale
pursuant to court order or a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds
of the sale will be distributed to the shareholders within
one year after the date of sale;
(4) An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a
dissenter's shares because it:
(A) Alters or abolishes a preferential right of
the shares;
(B) Creates, alters, or abolishes a right in
respect of redemption, including a provision respecting
a sinking fund for the redemption or repurchase, of the
shares;
(C) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or other
securities;
(D) Excludes or limits the right of the shares to
vote on any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or
other securities with similar voting rights;
(E) Reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional
share so created is to be acquired for cash under Code
Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part
of the shares of the class; or
(5) Any corporate action taken pursuant to a
shareholder vote to the extent that Article 9 of this
chapter, the articles of incorporation, bylaws, or a
resolution of the board of directors provides that voting or
<PAGE>
nonvoting shareholders are entitled to dissent and obtain
payment for their shares.
(b) A shareholder entitled to dissent and obtain payment
for his shares under this article may not challenge the corporate
action creating his entitlement unless the corporate action fails
to comply with procedural requirements of this chapter or the
articles of incorporation or bylaws of the corporation or the
vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether
the shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article,
there shall be no right of dissent in favor of the holder of
shares of any class or series which, at the record date fixed to
determine the shareholders entitled to receive notice of and to
vote at a meeting at which a plan of merger or share exchange or
a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national
securities exchange or held of record by more than 2,000
shareholders, unless:
(1) In the case of a plan of merger or share exchange,
the holders of shares of the class or series are required
under the plan of merger or share exchange to accept for
their shares anything except shares of the surviving
corporation or another publicly held corporation which at
the effective date of the merger or share exchange are
either listed on a national securities exchange or held of
record by more than 2,000 shareholders, except for scrip or
cash payments in lieu of fractional shares; or
(2) The articles of incorporation or a resolution of
the board of directors approving the transaction provides
otherwise. (Code 1981, Section 14-2-1302, enacted by Ga. L.
1988, p. 1070, Section 1; Ga. L. 1989, p. 946, Section 58.)
14-2-1303. Dissent by nominees and beneficial owners.
A record shareholder may assert dissenters' rights as
to fewer than all the shares registered in his name only if he
dissents with respect to all shares beneficially owned by any one
beneficial shareholder and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this
Code section are determined as if the shares as to which he
dissents and his other shares were registered in the names of
different shareholders. (Code 1981, Section 14-2-1303, enacted by
Ga. L. 1988, p. 1070, Section 1.)
14-2-1320. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters'
rights under Code Section 14-2-1302 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that
shareholders are or may be entitled to assert dissenters' rights
under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under
Code Section 14-2-1302 is taken without a vote of shareholders,
the corporation shall notify in writing all shareholders entitled
to assert dissenters' rights that the action was taken and send
<PAGE>
them the dissenters' notice described in Code Section 14-2-1322
no later than ten days after the corporate action was taken.
(Code 1981, Section 14-2-1320, enacted by Ga. L. 1988, p. 1070,
Section 1; Ga. L. 1993, p. 1231, Section 17.)
14-2-1321. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters'
rights under Code Section 14-2-1302 is submitted to a vote at a
shareholders' meeting, a record shareholder who wishes to assert
dissenters' rights:
(1) Must deliver to the corporation before the vote is
taken written notice of his intent to demand payment for his
shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed
action.
(b) A record shareholder who does not satisfy the
requirements of subsection (a) of this Code section is not
entitled to payment for his shares under this article. (Code
1981, Section 14-2-1321, enacted by Ga. L. 1988, p. 1070, Section
1.)
14-2-1322. Dissenters' notice.
(a) If proposed corporate action creating dissenters'
rights under Code Section 14-2-1302 is authorized at a
shareholders' meeting, the corporation shall deliver a written
dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten
days after the corporate action was taken and must:
(1) State where the payment demand must be sent and
where and when certificates for certificated shares must be
deposited;
(2) Inform holders of uncertificated shares to what
extent transfer of the shares will be restricted after the
payment demand is received;
(3) Set a date by which the corporation must receive
the payment demand, which date may not be fewer than 30 nor
more than 60 days after the date the notice required in
subsection (a) of this Code section is delivered; and
(4) Be accompanied by a copy of this article. (Code
1981, Section 14-2-1322, enacted by Ga. L. 1988, p. 1070,
Section 1.)<PAGE>
14-2-1323. Duty to demand payment.
(a) A record shareholder sent a dissenters' notice
described in Code Section 14-2-1322 must demand payment and
deposit his certificates in accordance with the terms of the
notice.
(b) A record shareholder who demands payment and deposits
his shares under subsection (a) of this Code section retains all
other rights of a shareholder until these rights are cancelled or
modified by the taking of the proposed corporate action.
(c) A record shareholder who does not demand payment or
deposit his share certificates where required, each by the date
set in the dissenters' notice, is not entitled to payment for his
shares under this article. (Code 1981, Section 14-2-1323,
enacted by Ga. L. 1988, p. 1070, Section 1.)
14-2-1324. Share restrictions.
(a) The corporation may restrict the transfer of
uncertificated shares from the date the demand for their payment
is received until the proposed corporate action is taken or the
restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as
to uncertificated shares retains all other rights of a
shareholder until these rights are cancelled or modified by the
taking of the proposed corporate action. (Code 1981, Section 14-
2-1324, enacted by Ga. L. 1988, p. 1070, Section 1.)
14-2-1325. Offer of payment.
(a) Except as provided in Code Section 14-2-1327, within
ten days of the later of the date the proposed corporate action
is taken or receipt of a payment demand, the corporation shall by
notice to each dissenter who complied with Code Section 14-2-1323
offer to pay to such dissenter the amount the corporation
estimates to be the fair value of his or her shares, plus accrued
interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a
fiscal year ending not more than 16 months before the date
of payment, an income statement for that year, a statement
of changes in shareholders' equity for that year, and the
latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the
fair value of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand
payment under Code Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by
written notice to the corporation within 30 days after the
corporation's offer or is deemed to have accepted such offer by<PAGE>
failure to respond within said 30 days, payment for his or her
shares shall be made within 60 days after the making of the offer
or the taking of the proposed corporate action, whichever is
later. (Code 1981, Section 14-2-1325, enacted by Ga. L. 1988, p.
1070, Section 1; Ga. L. 1989, p. 946, Section 59; Ga. L. 1993, p.
1231, Section 18.)
14-2-1326. Failure to take action.
(a) If the corporation does not take the proposed action
within 60 days after the date set for demanding payment and
depositing share certificates, the corporation shall return the
deposited certificates and release the transfer restrictions
imposed on uncertificated shares.
(b) If, after returning deposited certificates and
releasing transfer restrictions, the corporation takes the
proposed action, it must send a new dissenters' notice under Code
Section 14-2-1322 and repeat the payment demand procedure. (Code
1981, Section 14-2-1326, enacted by Ga. L. 1988, p. 1070, Section
1; Ga. L. 1990, p. 257, Section 20.)
14-2-1327. Procedure if shareholder dissatisfied with payment or
offer.
(a) A dissenter may notify the corporation in writing of
his own estimate of the fair value of his shares and amount of
interest due, and demand payment of his estimate of the fair
value of his shares and interest due, if:
(1) The dissenter believes that the amount offered
under Code Section 14-2-1325 is less than the fair value of
his shares or that the interest due is incorrectly
calculated; or
(2) The corporation, having failed to take the
proposed action, does not return the deposited certificates
or release the transfer restrictions imposed on
uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment
under this Code section and is deemed to have accepted the
corporation's offer unless he or she notifies the corporation of
his or her demand in writing under subsection (a) of this Code
section within 30 days after the corporation offered payment for
his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the
time set forth in subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information
required under subsection (b) of Code Section 14-2-1325, and
the corporation shall provide the information to the
shareholder within ten days after receipt of a written
demand for the information; and
(2) The shareholder may at any time, subject to the
limitations period of Code Section 14-2-1332, notify the
corporation of his own estimate of the fair value of his
shares and the amount of interest due and demand payment of
<PAGE>
his estimate of the fair value of his shares and interest
due. (Code 1981, Section 14-2-1327, enacted by Ga. L. 1988,
p. 1070, Section 1; Ga. L. 1989, p. 946, Section 60; Ga. L.
1990, p. 257, Section 21; Ga. L. 1993, p. 1231, Section 19.)
14-2-1330. Court action.
(a) If a demand for payment under Code Section 14-2-1327
remains unsettled, the corporation shall commence a proceeding
within 60 days after receiving the payment demand and petition
the court to determine the fair value of the shares and accrued
interest. If the corporation does not commence the proceeding
within the 60 day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which
shall be a non-jury equitable valuation proceeding, in the
superior court of the county where a corporation's registered
office is located. If the surviving corporation is a foreign
corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or
whose shares were acquired by the foreign corporation was
located.
(c) The corporation shall make all dissenters, whether or
not residents of this state, whose demands remain unsettled
parties to the proceeding, which shall have the effect of an
action quasi in rem against their shares. The corporation shall
serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the
manner provided by law for the service of a summons and
complaint, and upon each nonresident dissenting shareholder
either by registered or certified mail or by publication, or in
any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding
is commenced under subsection (b) of this Code section is plenary
and exclusive. The court may appoint one or more persons as
appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except
as otherwise provided in this chapter, Chapter 11 of Title 9,
known as the "Georgia Civil Practice Act," applies to any
proceeding with respect to dissenters' rights under this chapter.
(e) Each dissenter made a party to the proceeding is
entitled to judgment for the amount which the court finds to be
the fair value of his shares, plus interest to the date of
judgment. (Code 1981, Section 14-2-1330, enacted by Ga. L. 1988,
p. 1070, Section 1; Ga. L. 1989, p. 946, Section 61; Ga. L. 1993,
p. 1231, Section 20.)<PAGE>
14-2-1331. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under
Code Section 14-2-1330 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court, but not including fees and
expenses of attorneys and experts for the respective parties. The
court shall assess the costs against the corporation, except that
the court may assess the costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent
the court finds the dissenters acted arbitrarily, vexatiously, or
not in good faith in demanding payment under Code Section 14-2-
1327.
(b) The court may also assess the fees and expenses of
attorneys and experts for the respective parties, in amounts the
court finds equitable;
(1) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not
substantially comply with the requirements of Code Sections
14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in
favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect
to the rights provided by this article.
(c) If the court finds that the services of attorneys for
any dissenter were of substantial benefit to other dissenters
similarly situated, and that the fees for those services should
not be assessed against the corporation, the court may award to
these attorneys reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited. (Code 1981, Section
14-2-1331, enacted by Ga. L. 1988, p. 1070, Section 1.)
14-2-1332. Limitation of actions.
No action by any dissenter to enforce dissenters'
rights shall be brought more than three years after the corporate
action was taken, regardless of whether notice of the corporate
action and of the right to dissent was given by the corporation
in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322. (Code 1981, Section 14-2-1332, enacted
by Ga. L. 1988, p. 1070, Section 1.)<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the assets of
The Atlanta Growth Fund, Inc.
1100 Peachtree Street
Suite 1661
Atlanta, Georgia 30309
Telephone: (800) 899-4742
By and in exchange for shares of
The Balanced Fund
of the CornerCap Group of Funds
The Peachtree, Suite 1700
1355 Peachtree Street, N.E.
Atlanta, Georgia 30309
Telephone: (404) 870-0700 (collect)
This Statement of Additional Information relating
specifically to the proposed acquisition of all of the assets of
The Atlanta Growth Fund, Inc. (the "Atlanta Fund") in exchange
for shares of the CornerCap Balanced Fund, consists of this cover
page, the Atlanta Fund's ProForma Statement of Net Assets, Statement
of Operations and Notes thereto, and the Statement of Additional Information
of the CornerCap Balanced Fund dated December 6, 1996, which ProForma
Financial Statements and Statement of Additional Information are attached
hereto and incorporated by reference herein.
This Statement of Additional Information is not a
prospectus. A Proxy Statement/Prospectus dated March 17
1997 relating to the above-referenced matter may be obtained from
the CornerCap Balanced Fund. This Statement of Additional
Information relates to, and should be read in conjunction with,
such Proxy Statement/Prospectus.
The date of this Statement of Additional Information is
March 17, 1997.
<PAGE>
THE ATLANTA GROWTH FUND, INC.
PRO FORMA STATEMENT OF NET ASSETS
November 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
=========================================================================================================
Number Pro Forma + Pro Forma
of Shares Value Adjustments Balance
--------- ----- ---------- ---------
<S> <C> <C> <C> <C>
COMMON STOCK - 87.0%
Accident & Health Insurance - 1.3%
AFLAC, Inc. 1,000 $ 41,750 $ (41,750) $ -
------------ ------------- ---------
Air Transportation, Scheduled - 2.2%
Atlantic Southeast Airlines, Inc. 1,500 34,125 (34,125) -
Delta Air Lines, Inc. 500 37,625 (37,625) -
------------ ------------- ---------
71,750 (71,750) -
------------ ------------- ---------
Bakery Products - 1.3%
Flowers Industries, Inc. 1,750 41,344 (41,344) -
------------ ------------- ---------
Bottled & Canned Soft Drinks - 6.8%
Coca-Cola Enterprises, Inc. 2,500 112,812 (112,812) -
The Coca-Cola Co. 2,000 102,250 (102,250) -
------------ ------------- ---------
215,062 (215,062) -
------------ ------------- ---------
Cable & Other Pay Television
Services - 0.6%
Cox Communications, Inc. Class A * 1,000 20,500 (20,500) -
------------ ------------- ---------
Carpets and Rugs - 1.5%
Mohawk Industries, Inc. 1,500 35,719 (35,719) -
Shaw Industries, Inc. 1,000 11,750 (11,750) -
------------ ------------- ---------
47,469 (47,469) -
------------ ------------- ---------
Commercial Banks - 8.9%
First Union Corp. 984 75,153 (75,153) -
NationsBank Corporation 1,260 130,568 (130,568) -
SunTrust Banks, Inc. 1,500 76,125 (76,125) -
------------ ------------- ---------
281,846 (281,846) -
------------ ------------- ---------
Commercial Printing - 1.5%
John H. Harland Co. 1,500 46,313 (46,313) -
------------ ------------- ---------
Electric Services - 1.8%
The Southern Co. 2,500 55,625 (55,625) -
------------ ------------- ---------
Electrical Lighting & Wiring
Equipment - 1.1%
National Services Industries, Inc. 1,000 35,000 (35,000) -
------------ ------------- ---------
Electronmedical Apparatus - 1.4%
Healthdyne Information Enterprises * 1,700 7,862 (7,862) -
Medaphis Corp. * 3,500 36,313 (36,313) -
------------ ------------- ---------
44,175 (44,175) -
------------ ------------- ---------
=============================================================================================================================
-1-
/TABLE
<PAGE>
THE ATLANTA GROWTH FUND, INC.
PRO FORMA STATEMENT OF NET ASSETS - (Continued)
November 30, 1996 (Unaudited)
<TABLE>
<CAPTIION>
=========================================================================================================
Number Pro Forma + Pro Forma
of Shares Value Adjustments Balance
--------- ----- ----------- ---------
<S> <C> <C> <C> <C>
Electronic Components - 1.0%
Electromagnetic Sciences, Inc. * 1,500 31,125 (31,125) -
------ ------- --------
Farm Machinery & Equipment - 1.8%
AGCO Corp. 2,000 55,750 (55,750) -
------ ------- --------
In Vitro Diagnostic Substances - 0.4%
International Murex Technologies
Corp. * 2,000 13,500 (13,500) -
------ ------- --------
Industrial Inorganic Chemicals - 1.4%
Georgia Gulf Corp. 1,600 43,800 (43,800) -
------ ------- --------
Insurance Agents, Brokers &
Services - 2.5%
Crawford & Co. Class B 2,700 55,687 (55,687) -
Fuqua Enterprises, Inc. * 1,000 24,125 (24,125) -
------ ------- --------
79,812 (79,812) -
------ ------- --------
Knit Outerwear Mills - 1.1%
Oxford Industries, Inc. 2,500 36,500 (36,500) -
------ ------- --------
Land Subdividers & Developers - 1.6%
IRT Property Co. 4,800 51,600 (51,600) -
------ ------- --------
Manifold Business Forms - 0.7%
American Business Products, Inc. Ga. 1,000 22,250 (22,250) -
------ ------- --------
Natural Gas Distribution - 1.3%
AGL Resources, Inc. 2,000 42,250 (42,250) -
------ ------- --------
Oil & Gas Field Equipment - 1.5%
RPC, Inc. * 3,000 46,500 (46,500) -
------ ------- --------
Paper Mills - 2.3%
Georgia-Pacific Corp. 1,000 72,750 (72,750) -
------ ------- --------
Paperboard Containers &
Boxes - 2.8%
Caraustar Industries, Inc. 2,600 88,075 (88,075) -
------ ------- --------
Photographic Equipment &
Supplies - 0.6%
Metromedia International Group,
Inc. * 1,700 20,613 (20,613) -
------ ------- --------
Primary Production of
Aluminum - 2.0%
Alumax, Inc. * 2,000 64,750 (64,570) -
------ ------- --------
===========================================================================================================
</TABLE>
-2-
<PAGE>
THE ATLANTA GROWTH FUND, INC.
PRO FORMA STATEMENT OF NET ASSETS - (Continued)
November 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
=========================================================================================================
Number Pro Forma + Pro Forma
of Shares Value Adjustments Balance
--------- ----- ----------- ---------
<S> <C> <C> <C> <C>
Radio & TV Broadcasting
Equipment - 1.0%
Scientific-Atlanta, Inc. 2,000 31,000 (31,000) -
------- -------- -------
Real Estate Investment Trust - 3.7%
Cousins Properties, Inc. 3,000 69,750 (69,750) -
Post Properties, Inc. 1,200 46,350 (46,350) -
------- -------- -------
116,100 (116,100) -
------- -------- -------
Retail -
Lumber & Building Materials - 3.3%
The Home Depot, Inc. 2,000 104,250 (104,250) -
------- -------- -------
Services - Commercial Services - 2.2%
Norrell Corp. 3,000 69,375 (69,375) -
------- -------- -------
Services - Computer Processing - 8.3%
First Data Corp. 2,008 80,069 (80,069) -
National Data Corp. 1,750 69,781 (69,781) -
Total System Services, Inc. 4,000 113,500 (113,500) -
------- -------- -------
263,350 (263,350) -
------- -------- -------
Services -
Consumer Credit Reporting - 2.1%
Equifax, Inc. 2,000 65,500 (65,500) -
------- -------- -------
Services -
Dwellings & Other Buildings - 0.9%
Rollins, Inc. 1,550 28,869 (28,869) -
------- -------- -------
Services -
Equipment Rental & Leasing - 2.7%
Aaron Rents, Inc. Non-Voting 6,220 86,302 (86,302) -
------- -------- -------
Services - Home Health Care - 0.7%
Matria Healthcare, Inc. * 1,200 7,200 (7,200) -
Morrison Health Care, Inc. 1,000 14,250 (14,250) -
21,450 (21,450) -
------- -------- -------
Services - Nursing Facilities - 1.0%
Health Images, Inc. 2,000 31,250 (31,250) -
------- -------- -------
Services - Prepackaged Software - 1.8%
HBO & Co. 1,000 56,875 (56,875) -
------- -------- -------
State Commercial Banks - 2.5%
Savannah Bank Corp. 2,100 46,200 (46,200) -
Synovus Financial Corp. 1,000 32,750 (32,750) -
------- -------- -------
78,950 (78,950) -
------- -------- -------
=========================================================================================================
</TABLE>
-3-<PAGE>
THE ATLANTA GROWTH FUND, INC.
PRO FORMA STATEMENT OF NET ASSETS - (Continued)
November 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
=========================================================================================================
Number Pro Forma + Pro Forma
of Shares Value Adjustments Balance
--------- ----- ----------- ---------
<S> <C> <C> <C> <C>
Telephone & Telegraph
Apparatus - 0.9%
American Telephone & Telegraph Co. 500 19,625 (19,625) -
Lucent Technologies, Inc. 162 8,303 (8,303) -
27,928 (27,928) -
Telephone Communications - 1.9%
BellSouth Corp. 1,500 60,562 (60,562) -
Television Broadcasting
Systems - 2.5%
Gray Communications Systems 1,000 18,500 (18,500) -
Time Warner, Inc. 1,500 61,125 (61,125) -
79,625 (79,625) -
Wholesale -
Motor Vehicle Supplies - 2.1%
Genuine Parts Co. 1,500 67,500 (67,500) -
Total Common Stock Investments
(Cost $1,574,975) 87.0% 2,758,995** (2,758,995) -
Cash 14.5 461,220 2,758,995 3,220,215
Assets (Liabilities) in excess of other assets
(liabilities) (1.5) (48,398) 120,416 72,018
Net Assets 100.0% $3,171,817 $ 120,416 $3,292,233
Shares outstanding 383,327 383,327
Net Asset Value and Redemption
Price Per Share $8.27 $8.59
+ See Note 2 for pro forma adjustments
* Non-income producing
** Aggregate cost for Federal income tax purposes. The aggregate gross unrealized appreciation
(depreciation) for all securities is as follows:
Excess of value over tax cost $1,223,087
Excess of tax cost over value (39,067)
----------
$1,184,020
==========
See accompanying notes to financial statements
============================================================================================================
</TABLE>
-4-
<PAGE>
THE ATLANTA GROWTH FUND, INC.
PRO FORMA STATEMENT OF OPERATIONS
November 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
==========================================================================================================
For the Six
Months Ended
November 30, Pro Forma + Pro Forma
1996 Adjustments Amount
------------- ----------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 27,374 $ - $ 27,374
Interest 6,212 - 6,212
Total income 33,586 - 33,586
EXPENSES
Investment advisory fee 9,549 - 9,549
Administration fee 49,800 - 49,800
Distribution expenses 4,421 - 4,421
Directors fees 11,936 - 11,936
Custodian fees 10,170 - 10,170
Transfer agent fee 21,194 - 21,194
Legal fees 41,806 - 41,806
Audit fees 7,758 - 7,758
Registration fees 20,017 - 20,017
Amortization of organizational costs 42,712 - 42,712
Printing 18,374 - 18,374
Insurance 10,917 - 10,917
Miscellaneous 3,612 - 3,612
Reorganization expenses - 75,000 75,000
-------- -------- --------
Total expenses 252,266 75,000 327,266
Less fees waived (21,485) - (21,485)
Expenses reimbursed - (195,416) (195,416)
-------- -------- --------
Net expenses 230,781 (120,416) 110,365
NET INVESTMENT LOSS (197,195) 120,416 (76,779)
-------- -------- --------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain from security
transactions 670,866 1,184,020 1,854,886
Net unrealized depreciation of
investments (547,406) (1,184,020) (1,731,426)
-------- -------- --------
NET GAIN ON INVESTMENTS 123,460 - 123,460
-------- -------- --------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (73,735) $ 120,416 $ 46,681
========== =========== ===========
+ See Note 2 for pro forma adjustments
==========================================================================================================
</TABLE>
See accompanying notes to financial statements
-5-
<PAGE>
THE ATLANTA GROWTH FUND, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
November 30, 1996 (Unaudited)
(1) PROPOSED REORGANIZATION
The ProForma Statement of Net Assets and Statement of Operations (the
"ProForma Statements") reflect the accounts of the Atlanta Growth
Fund, Inc. (the "Atlanta Fund") for the period from June 1, 1996
through November 30, 1996. These statements have been derived from
the unaudited financial statements of the Atlanta Fund for the six-
month period ended November 30, 1996. This ProForma Statements give
effect to the proposed transfer of all assets and known liabilities of
the Atlanta Fund in exchange for shares of the CornerCap Balanced Fund
as if such transaction had occurred on November 30, 1996.
Under the proposed Agreement and Plan of Reorganization, the CornerCap
Balanced Fund (the "Balanced Fund"), a separate series of The
CornerCap Group of Funds, will acquire all or substantially all of the
assets of the Atlanta Fund in exchange for shares of the Balanced Fund
and the assumption of certain identified liabilities of The Atlanta
Fund. The Reorganization will be accomplished on a tax-free basis and
the exchange ratio will be 1 share of the Balanced Fund for 1 share of
the Atlanta Fund. The ProForma Statements should be read in
conjunction with the historical financial statements of the Atlanta
Fund. Presently, there are no assets in The Balanced Fund.
(2) PRO FORMA ADJUSTMENTS
The pro forma adjustments in the statement of net assets and statement
of operations reflect the following:
A) Sale of investment securities to reflect the significantly
different investment objective of the Balanced Fund and the
corresponding realization of previously unrecognized gains in the
amount of $1,184,020.
B) Recognition of the anticipated expense ratio limitation of 2.0% of
average net assets. On a pro forma basis, an expense reimbursement
in the amount of $195,416 would have been necessary to limit normal
operating expenses to 2.0% for the six months ended November 30,
1996.
C) Recognition of reorganization expenses in the amount of $75,000 to
be borne by the Atlanta Fund.
-6-<PAGE>
CORNERCAP BALANCED FUND
OF
THE CORNERCAP GROUP OF FUNDS
A "SERIES" INVESTMENT COMPANY
STATEMENT OF ADDITIONAL INFORMATION
Dated December 6, 1996
The CornerCap Balanced Fund (the "Fund") is a series of the CornerCap Group of
Funds, a diversified open-end management investment company registered with the
Securities and Exchange Commission (the "SEC") as required by the Investment
Company Act of 1940 (the "1940 Act"). The only other series of the CornerCap
Funds is the CornerCap Growth Fund is offered under a separate Prospectus and
Statement of Additional Information. Prior to June 1995, The CornerCap Group of
Funds' name was The Cornerstone Group of Funds.
This Statement of Additional Information is not a prospectus, and it should be
read in conjunction with the Prospectus of the Fund dated December 6, 1996, as
may be amended from time to time (the "Prospectus"); copies of the Prospectus
may be obtained from the Fund, c/o Cornerstone Capital Corp., The Peachtree,
Suite 1700, 1355 Peachtree Street, Atlanta, Georgia 30309. Cornerstone
Capital Corp. (the "Advisor") is the Fund's investment advisor.
TABLE OF CONTENTS
Page
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . 2
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Advisor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Accounting & Administrative Services . . . . . . . . . . . . . . . . . . . 6
Portfolio Transactions and Brokerage . . . . . . . . . . . . . . . . . . . 6
Distribution Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1
<PAGE>
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to obtain long-term capital appreciation
and current income. The Fund will attempt to achieve its objective by normally
investing 50% to 70% of its total assets in equity securities of domestic and
foreign issuers and at least 30% in fixed income securities including cash and
cash equivalents. The Fund does not intent to invest more than 25% of its
assets in any one industry. The portfolio and investment strategies of the
Fund are described in the Fund's Prospectus. The following discussion
elaborates on the disclosure of the Fund's investment policies contained
in the Prospectus. Notwithstanding the following, the Fund does not currently
anticipate investing more than 5% of its assets in repurchase agreements,
foreign securities, options, futures, currency contracts, swap agreements
or mortgage related securities.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreements. A
repurchase agreement, which may be considered a "loan" under the Investment
Company Act of 1940 as amended (the "1940 Act"), is a transaction in which a
fund purchases a security and simultaneously commits to sell the security to the
seller at an agreed-upon price and date (usually not more than seven days) after
the date of purchase. The resale price reflects the purchase price plus an
agreed-upon market rate of interest which is unrelated to the coupon rate or
maturity of the purchased security. The Fund's risk is limited to the ability
of the seller to pay the agreed-upon amount on the delivery date. In the
opinion of management, this risk is not material; if the seller defaults, the
underlying security constitutes collateral for the seller's obligations to pay.
This collateral, equal to or in excess of 100% of the repurchase agreement, will
be held by the custodian for the Fund's assets. However, in the absence of
compelling legal precedents in this area, there can be no assurance that the
Fund will be able to maintain its rights to such collateral upon default of the
issuer of the repurchase agreement. To the extent that the proceeds from a sale
upon a default in the obligation to repurchase are less than the repurchase
price, the Fund would suffer a loss. It is intended (but not required) that at
no time will the market value of any of the Fund's securities subject to
repurchase agreements exceed 50% of the total assets of entering into such
agreement. It is intended for the Fund to enter into repurchase agreements with
commercial banks and securities dealers. The Board of Trustees will monitor the
creditworthiness of such entities.
FOREIGN SECURITIES. The Fund may invest directly in foreign equity securities
traded on U.S. national exchanges or over-the-counter and in foreign securities
represented by ADRs, as described below. The Fund may also invest in foreign
currency-denominated fixed-income securities. Investing in securities issued by
companies whose principal business activities are outside the United States may
involve significant risks not present in domestic investments. For example,
there is generally less publicly available information about foreign companies,
particularly those not subject to the disclosure and reporting requirements of
the U.S. securities laws. Foreign issuers are generally not bound by uniform
accounting, auditing, and financial reporting requirements and standards of
practice comparable to those applicable to
2
<PAGE>
domestic issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of cash or
other assets of the Fund, political or financial instability, or diplomatic and
other developments which could affect such investments. Further, economies of
particular countries or areas of the world may differ favorably or unfavorably
from the economy of the United States. Foreign securities often trade with less
frequency and volume than domestic securities and therefore may exhibit greater
price volatility. Additional costs associated with an investment in foreign
securities may include higher custodial fees than apply to domestic custodial
arrangements, and transaction costs of foreign currency conversions.
ADRs provide a method whereby the Fund may invest in securities issued by
companies whose principal business activities are outside the United States.
These securities will not be denominated in the same currency as the securities
into which they may be converted. Generally, ADRs, in registered form, are
designed for use in U.S. securities markets.
ADRs are receipts typically issued by a U.S. bank or trust company evidencing
ownership of the underlying securities, and may be issued as sponsored or
unsponsored programs. In sponsored programs, an issuer has made arrangements to
have its securities trade in the form of ADRs. In unsponsored programs, the
issuer may not be directly involved in the creation of the program. Although
regulatory requirements with respect to sponsored and unsponsored programs are
generally similar, in some cases it may be easier to obtain financial
information from an issuer that has participated in the creation of a sponsored
program.
OPTIONS. The Fund may purchase and write put and call options on securities.
The Fund may write a call or put option only if the option is "covered" by the
Fund holding a position in the underlying securities or by other means which
would permit immediate satisfaction of the Fund's obligation as writer of the
option. The purchase and writing of options involves certain risks. During
the option period, the covered call writer has, in return for the premium on the
option, given up the opportunity to profit from a price increase in the
underlying securities above the exercise price, but, as long as its obligation
as a writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying securities at the exercise price. If a
put or call option purchased by the Fund is not sold when it has remaining
value, and if the market prices of the underlying security, in the case of a
put, remains equal to or greater than the exercise price or, in the case of a
call, remains less than or equal to the exercise price, the Fund will lose its
entire investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security. There can be no
3
<PAGE>
assurance that a liquid market will exist when the Fund seeks to close out an
option position. Furthermore, if trading restrictions or suspensions are
imposed on the options market, a Fund may be unable to close out a position.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may invest in
interest rate futures contracts and options thereon ("futures options"); the
Fund may enter into foreign currency futures contracts and options; and the Fund
may enter into stock index futures contracts and options thereon. Such
contracts may not be entered into for speculative purposes. When a Fund
purchases a futures contract, an amount of cash, U.S. Government securities, or
money market instruments equal to the fair market value less initial and
variation margin of the futures contract will be deposited in a segregated
account to collateralize the position and thereby ensure that such futures
contract is "covered."
There are several risks associated with the use of futures and futures options.
The value of a futures contract may decline. With respect to transactions for
hedging, there can be no guarantee that there will be a correlation between
price movements in the hedging vehicle and in the portfolio securities being
hedged. An incorrect correlation could result in a loss on both the hedged
securities in a Fund and the hedging vehicle so that the Fund return might have
been greater had hedging not been attempted. There can be no assurance that a
liquid market will exist at a time when a Fund seeks to close out a futures
contract or a futures option position. Most futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures contract prices
during a single day; once the daily limit has been reached on a particular
contract, no trades may be made that day at a price beyond that limit. In
addition, certain of these instruments are relatively new and without a
significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent the Fund from liquidating an unfavorable position and the
Fund would remain obligated to meet margin requirements until the position is
closed.
The Fund will only enter into futures contracts or futures options which are
standardized and traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. The Fund will use
financial futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the Commodity
Futures Trading Commission, or, with respect to positions in financial futures
and related options that do not qualify as "bona fide hedging" positions, will
enter into such non-hedging positions only to the extent that aggregate initial
margin deposits plus premiums paid by it for open futures option positions, less
the amount by which any such positions are "in-a-money," would not exceed 5% of
the Fund's total assets.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may enter into forward
foreign currency exchange contracts ("forward contracts") to attempt to minimize
the risk to the Fund from adverse changes in the relationship between the U.S.
dollar and foreign
4
<PAGE>
currencies. A forward contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date which is individually negotiated
and privately traded by currency traders and their customers. Such contracts
may not be entered into for speculative purposes. The Fund will not enter into
forward contracts if, as a result, more than 10% of the value of its total
assets would be committed to the consummation of such contracts, and will
segregate assets or "cover" its positions consistent with requirements under the
1940 Act to avoid any potential leveraging of the Fund.
SWAP AGREEMENTS. The Fund may enter into interest rate, index and currency
exchange rate swap agreements for purposes of attempting to obtain a particular
desired return at a lower cost to the Fund than if it had invested directly in
an instrument that yielded that desired return. Swap agreements are two-party
contracts entered into primarily by institutional investors for periods ranging
from a few weeks to more than one year. In a standard "swap" transaction, two
parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments. The
gross returns to be exchanged or "swapped" between the parties are calculated
with respect to a "notional amount," i.e., the return on or increase in value of
a particular dollar amount invested at a particular interest rate, in a
particular foreign currency, or in a "basket" of securities representing a
particular index. Commonly used swap agreements include interest rate caps,
under which, in return for a premium, one party agrees to make payments to the
other to the extent that interest rates exceed a specified rate, or "cap;"
interest rate floors, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates fall below a
specified level, or "floor;" and interest rate collars, under which a party
sells a cap and purchases a floor or vice versa in an attempt to protect itself
against interest rate movements exceeding given minimum or maximum levels.
The "notional amount" of the swap agreement is only a fictive basis on which to
calculate the obligations which the parties to a swap agreement have agreed to
exchange. Most swap agreements entered into by the Fund would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, the
Fund's obligations (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). Obligations under a swap agreement will be accrued daily (offset
against amounts owing to the Fund) and any accrued but unpaid net amounts owed
to a swap counterpart will be covered by the maintenance of a segregated account
consisting of cash, U.S. Government securities, or high-grade debt obligations,
to avoid any potential leveraging of the Fund. The Fund will not enter into a
swap agreement with any single party if the net amount owed or to be received
under existing contracts with that party would exceed 5% of the Fund's total
assets.
MORTGAGE-RELATED SECURITIES. The Fund may invest in mortgage-backed and other
asset-backed securities. These securities include mortgage pass-through
certificates, collaterized
5
<PAGE>
mortgage obligations, mortgage-backed bonds and securities representing
interests in other types of financial assets.
MORTGAGE PASS-THROUGH SECURITIES representing interests in "pools" of mortgage
loans in which payments of both interest and principal on the securities are
generally made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities).
Payment of principal and interest on some mortgage pass-through securities may
be guaranteed by the full faith and credit of the U.S. Government (in the case
of securities guaranteed by the Government National Mortgage Association
"GNMA"); or guaranteed by agencies or instrumentalities of the U.S. Government
(in the case of securities guaranteed by the Federal National Mortgage
Association "FNMA" or the Federal Home Loan Mortgage Corporation "FHLMC", which
are supported only by the discretionary authority of the U.S. Government to
purchase the agency's obligations).
CMOS are securities which are typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FNMA, or FHLMC. Similar to a bond,
interest and prepaid principal on a CMO are paid, in most cases, semiannually.
CMOs are structured into multiple classes, with each class bearing a different
stated maturity. Monthly payments of principal, including prepayments, are
first returned to investors holding the shortest maturity class; investors
holding the longer maturity classes will receive principal only after the first
class has been retired. An investor is partially guarded against a sooner than
desired return of principal because of the sequential payments. CMOs that are
issued or guaranteed by the U.S. Government or by any of its agencies or
instrumentalities will be considered U.S. Government securities by the Fund,
while other CMOs, even if collateralized by U.S. Government securities, will
have the same status as other privately issued securities for purposes of
applying the Fund's diversification tests.
In a typical CMO transaction, a corporation ("issuer") issues multiple series
(E.G., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third-party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds all bear
current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
6
<PAGE>
MORTGAGE-BACKED BONDS are general obligations of the issuer fully collateralized
directly or indirectly by a pool of mortgages. The mortgages serve as
collateral for the issuer's payment obligations on the bonds but interest and
principal payments on the mortgages are not passed through either directly (as
with GNMA certificates and FNMA and FHLMC pass-through securities) or on a
modified basis (as with CMOs). Accordingly, a change in the rate of prepayments
on the pool of mortgages could change the effective maturity of a CMO but not
that of a mortgage-backed bond (although, like many bonds, mortgage-backed bonds
can provide that they are callable by the issuer prior to maturity).
ASSET-BACKED SECURITIES are securities representing interests in other types of
financial assets, such as automobile-finance receivables or credit-card
receivables. Such securities are subject to many of the same risks as are
mortgage-backed securities, including prepayment risks and risks of foreclosure.
They may or may not be secured by the receivables themselves or may be unsecured
obligations of their issuers.
RISKS OF MORTGAGE-RELATED SECURITIES. Investment in mortgage-backed securities
poses several risks, including prepayment, market, and credit risk. Prepayment
risk reflects the risk that borrowers may prepay their mortgages faster than
expected, thereby affecting the investment's average life and perhaps it yield.
Whether or not a mortgage loan is prepaid is almost entirely controlled by the
borrower. Borrowers are most likely to exercise prepayment options at the time
when it is least advantageous to investors, generally prepaying mortgages as
interest rates fall, and slowing payments as interest rates rise. Besides the
effect of prevailing interest rates, the rate of prepayment and refinancing of
mortgages may also be affected by home value appreciation, ease of the
refinancing process and local economic conditions.
Market risk reflects the risk that the price of the security may fluctuate over
time. The price of mortgage-backed securities may be particularly sensitive to
prevailing interest rates, the length of time the security is expected to be
outstanding, and the liquidity of the issue. In a period of unstable interest
rates, there may be decreased demand for certain types of mortgage-backed
securities, and a fund invested in such securities wishing to sell them may find
it difficult to find a buyer, which may in turn decrease the price at which they
may be sold.
Credit risk reflects the risk that the Fund may not receive all or part of its
principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. Government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. Government. The performance of private
label mortgage-backed securities, issued by private institutions, is based on
the financial health of those institutions. With respect to GNMA certificates,
7
<PAGE>
although GNMA guarantees timely payment even if homeowners delay or default,
tracking the "pass-through" payments may, at times, be difficult.
CONVERTIBLE SECURITIES. Although the equity investments of the Fund consists
primarily of common and preferred stocks, the Fund may buy securities
convertible into common stock if, for example, the Advisor believes that a
company's convertible securities are undervalued in the market. Convertible
securities eligible for purchase by the Fund include convertible bonds,
convertible preferred stocks, and warrants. A warrant is an instrument issued
by a corporation which gives the holder the right to subscribe to a specific
amount of the corporation's capital stock at a set price for a specified period
of time. Warrants do not represent ownership of the securities, but only the
right to buy the securities. The prices of warrants do not necessarily move
parallel to the prices of underlying securities. Warrants may be considered
speculative in that they have no voting rights, pay no dividends, and have no
rights with respect to the assets of a corporation issuing them. Warrant
positions will not be used to increase the leverage of the Fund; consequently,
warrant positions are generally accompanied by cash positions equivalent to the
required exercise amount.
PORTFOLIO TURNOVER
An annual portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities (excluding
certain short-term securities) for a year and dividing that amount by the
monthly average of the market value of such securities during the year. The
Fund's portfolio turnover rate is expected to be in the range of 30% to
70% for both the equity and fixed income portion of the portfolio. Higher
turnover would involve correspondingly greater commissions and transaction
costs.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions (in addition to those indicated
in its Prospectus) as fundamental policies, which may not be changed without the
favorable vote of the holders of a "majority," as defined in the 1940 Act, of
the Fund's outstanding voting securities. Under the 1940 Act, the vote of the
holders of a "majority" of a Fund's outstanding voting securities means the vote
of the holders of the lesser of (i) 67% of the shares of the Fund represented at
a meeting at which the holders of more than 50% of its outstanding shares are
represented or (ii) more than 50% of the outstanding shares. The Fund may not:
1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions);
8
<PAGE>
2. Issue senior securities, borrow money or pledge its assets except as
permitted by the 1940 Act.
3. Purchase any security if as a result the Fund would then hold more than 10%
of any class of securities of an issuer (taking all common stock issues of
an issuer as a single class, all preferred stock issues as a single class,
and all debt issues as a single class) or more than 33.33% of the
outstanding voting securities of an issuer;
4. Purchase any security if as a result the Fund would then have more than 5%
of its total assets (taken at current value) invested in securities of
companies (including predecessors) less than one year old;
5. Invest in securities of any issuer if, to the knowledge of the Fund, any
officer or Trustee of the Fund or officer or director of the Advisor owns
more than 1/2 of 1% of the outstanding securities of such issuer, and such
Trustees, officers and Trustees who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuer;
6. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws;
9
<PAGE>
7. Make investments for the purpose of exercising control or management;
8. Participate on a joint, or joint and several basis in any trading account
in securities;
9. Invest in securities of other registered investment companies except as
permitted by Section 12 of the 1940 Act;
10. Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the common stocks of companies which
invest in or sponsor such programs;
11. Make loans, except through repurchase agreements;
12. Purchase warrants if as a result the Fund would then have more than 5% of
its total net assets (taken at the lower of cost or current value) invested
in warrants, or if more than 2% of the value of the Fund's total net assets
would be invested in warrants which are not listed on the New York or
American Stock Exchanges, except for warrants included in units or attached
to other securities; and
13. Buy or sell commodities or commodity contracts, or real estate or interests
in real estate, although it may purchase and sell securities which are
secured by real estate and securities of companies which invest or deal in
real estate. It may buy or sell futures contracts or options thereon for
hedging purposes as described in the Fund's prospectus.
MANAGEMENT
The Board of Trustees is responsible for the overall management of the Fund,
including general supervision and review of its investment activities. The
officers, who administer the Fund's daily operations, are appointed by the Board
of Trustees. The current Trustees and principal officers of the Fund, their
addresses, and their principal occupations for the past five years are set forth
below. "Interested" trustees, as defined by the 1940 Act, are designated below
by an asterisk.
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<TABLE>
<CAPTION>
Position With Principal Occupations During Past
Name and Address (Age) Trust Five Years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas E. Quinn*(51) Trustee, President, President, Cornerstone Capital Corp.
The Peachtree, Suite 1700 CFO and Treasurer
1355 Peachtree Street,, N.E.
Atlanta, Georgia 30309
Gene A. Hoots* (57) Vice President Chief Executive Officer, Cornerstone
119B Reynolda Village Capital Corp.
Winston-Salem, NC 27106
Richard T. Bean (34) Vice President & Portfolio Manager, Cornerstone
The Peachtree, Suite 1700 Secretary Capital Corp.
1355 Peachtree Street, N.E. Assistant Controller, Godwins Inc.
Atlanta, Georgia 30309
Position With Principal Occupations During Past
Name and Address Trust Five Years
- ------------------------------------------------------------------------------------------------------
Richard L. Boger (51) Trustee President, Export Insurance
303 Townsend Place, NW Services, Inc.
Atlanta, GA 30327
G. Harry Durity (49) Trustee Corporate Vice President,
58 Close Road Worldwide Business Development,
Greenwich, CT 06831 Automatic Data Processing, Inc.;
Sr. Vice President, Corp. Develop.,
Laurin M. McSwain (45) Trustee Attorney, Bloodworth & McSwain
3000 Andrews Drive, NW
#5
Atlanta, GA 30305
</TABLE>
The Cornercap Group of Funds pays trustees who are not affiliated with the
Advisor $500.00 per regular and committee meeting attended, plus
reimbursement of out of pocket expenses for attending Board or committee
meetings.
THE ADVISOR
Cornerstone Capital Corp. is the Fund's investment advisor. The Fund pays the
Advisor for the services performed a fee at the annual rate of 1% of the Fund's
average net assets. This rate is higher than that paid to most management
investment companies. However, the Investment Advisory Agreement dated
December ___, 1996, between the Fund and the Advisor (the "Agreement")
provides that in the event the expenses of the Fund (including the
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<PAGE>
fees of the Advisor and amortization of organization expenses but excluding
interest, taxes, brokerage commissions and extraordinary expenses) for any
fiscal year exceed the limit set by applicable regulations of a state securities
commission, the Advisor will reduce its fee to the Fund by the amount of such
excess up to the full amount of the advisor's annual fee. Any such reductions
are accrued and paid in the same manner as the Advisor's fee and are subject to
readjustment during the year.
The Advisor has voluntarily agreed to waive all or such portion of its fee as
may be necessary to cause the total fund operating expenses not to exceed 2.0%
of average net assets. The Advisor has also voluntarily agreed to reimburse the
fund for certain of its operating expenses to the extent and for so long as may
be necessary to keep total Fund operating expenses at no greater than 2.0% of
average net assets.
The Agreement also provides that the Advisor shall not be liable to the Fund for
any error of judgment by the Advisor or for any loss sustained by the Fund
except in the case of a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages will be limited as
provided in the 1940 Act) or of willful misfeasance, bad faith, gross negligence
or reckless disregard of duty.
ACCOUNTING, TRANSFER AGENCY AND ADMINISTRATIVE SERVICES
Fortune Fund Administration, Inc., an affiliate of Cornerstone
Capital Corp., serves as the Fund s Administrator pursuant to an
Administration Agreement. The Administrator provides certain
recordkeeping and shareholder servicing functions required of
registered investment companies, and will assist the Fund in
preparing and filing certain financial and other reports, and
perform certain daily functions required for ongoing operations.
The Administration Agreement provides that the Administrator will
be paid at the annual rate of .20% of the Fund s average daily
net assets, up to a maximum $4,000 a month. The Administrator
will be reimbursed for certain out-of-pocket expenses, and it may
subcontract with other responsible companies for some of its
duties.
Fortune Fund Administration, Inc. also serves as the Fund s
transfer agent and accounting services agent pursuant to separate
Transfer Agent and Accounting Services Agreements. Pursuant to
the Accounting Services Agreement, Fortune will receive a minimum
fee of $18,000 per year. Pursuant to the Transfer Agent
Agreement, Fortune will receive a minimum fee of $12,000 per
year, plus reimbursement of certain cost under both agreements.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Agreement states that in connection with its duties to arrange for the
purchase and the sale of securities held in the portfolio of the Fund by placing
purchase and sale orders for the Fund, the Advisor shall select such broker-
dealers ("brokers") as shall, in the Advisor's judgment, implement the policy of
the Fund to achieve "best execution"--i.e., prompt and efficient execution at
the most favorable securities price. In making such selection, the Advisor is
authorized in the Agreement to consider the reliability, integrity and financial
condition of the broker.
The Advisor is also authorized by the Agreement to consider whether the broker
provides brokerage and/or research services to the Fund and/or other accounts of
the Advisor. The Agreement states that the commissions paid to brokers may be
higher than another broker would have charged if a good faith determination is
made by the Advisor that the
12
<PAGE>
commission is reasonable in relation to the services provided, viewed in terms
of either that particular transaction or the Advisor's overall responsibilities
as to the accounts as to which it exercises investment discretion and that the
Advisor shall use its judgment in determining that the amount of commissions
paid are reasonable in relation to the value of brokerage and research services
provided and need not place or attempt to place a specific dollar value on such
services or on the portion of commission rates reflecting such services. The
Agreement provides that to demonstrate that such determinations were in good
faith, and to show the overall reasonableness of commissions paid, the Advisor
shall be prepared to show that commissions paid (i) were for purposes
contemplated by the Agreement; (ii) were for products or services which provide
lawful and appropriate assistance to the Advisor's decision-making process; and
(iii) were within a reasonable range as compared to the rates charged by brokers
to other institutional investors as such rates may become known from available
information. The Fund recognizes in the Agreement that, on any particular
transaction, a higher than usual commission may be paid due to the difficulty of
the transaction in question.
The research services discussed above may be in written form or through direct
contact with individuals and may include information as to particular companies
and securities as well as services assisting the Fund in the valuation of the
Fund's investments. The research which the Advisor receives for the Fund's
brokerage commissions whether or not useful to the Fund, may be useful to the
Advisor in managing the accounts of the Advisor's other advisory clients.
Similarly, the research received for the commissions of such accounts may be
useful to the Fund.
In the over-the-counter market, securities are frequently traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. Money market instruments usually trade on a "net" basis as well. On
occasion, certain money market instruments may be purchased by the Fund directly
from an issuer in which case no commissions or discounts are paid. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount.
DISTRIBUTION PLAN
The Fund's Distribution Plan (the "Plan") is its written plan adopted pursuant
to Rule 12b-1 (the "Rule") under the 1940 Act.
The Plan authorizes the Advisor or Distributor to make permitted payments to any
qualified recipient under a related agreement on either or both of the following
bases: (a) as reimbursement for direct expenses incurred in the course of
distributing Fund shares or
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<PAGE>
providing administration assistance to the Fund or its shareholders, including,
but not limited to advertising, printing and mailing promotional material,
telephone calls and lines, computer terminals, and personnel; and/or (b) at a
rate specified in the related agreement with the qualified recipient in question
based on the average value of the qualified holdings of such qualified recipient
("Permitted Payments"). The Advisor or Distributor may make permitted payments
in any amount to any qualified recipient, provided that (i) the total amount of
all permitted payments made during a fiscal year of the Fund to all qualified
recipients (whether made under (a) and/or (b) above) do not exceed in that
fiscal year 1/4 of 1% of the Fund's average annual net assets; and (ii) a
majority of the Fund's qualified Trustees may at anytime decrease or limit the
aggregate amount of all permitted payments or decrease or limit the amount
payable to any Qualified recipient. The Fund will reimburse the Advisor or
Distributor for such permitted payments within such limit, but the Advisor or
Distributor shall bear any permitted payments beyond such limits. A related
agreement will terminate automatically if it is assigned, as that term is
defined in the 1940 Act.
The Plan also authorizes the Advisor or Distributor to purchase advertising to
promote the sale of shares of the Fund, to pay for sales literature and other
promotional material, and to make payments to the Distributor's sales personnel.
Any such advertising and sales material may include references to other open-end
investment companies or other investments and any sales personnel so paid are
not required to devote their time solely to the sale of Fund shares. Any such
expenses ("Permitted Expenses") made during a fiscal year of the Fund shall be
reimbursed or paid by the Fund, except that the combined amount of reimbursement
or payment of Permitted Expenses together with the Permitted Payments made
pursuant to the Plan by the Fund shall not, in the aggregate, in that fiscal
year of the Fund, exceed 1/4 of 1% of the average net assets of the Fund in such
year; and the Advisor or Distributor shall bear any such expenses beyond such
limits. No such reimbursement may be made for Permitted Expenses or Permitted
Payments for the fiscal year prior to the fiscal year in question or in
contemplation of future Permitted Expenses or Permitted Payments.
The Plan requires that while it is in effect the Advisor shall report in writing
at least quarterly to the Board of Trustees, and the Board shall review the
following: (i) The amounts of all Permitted Payments, the identity of the
recipients of each such payment; the basis on which each such recipient was
chosen as a Qualified Recipient and the basis on which the amount of the
Permitted Payment to such Qualified Recipient was made; (ii) the amounts of
Permitted Expenses and the purpose of each such Expense; and (iii) all costs of
the other payments specified in the Plan (making estimates of such costs where
necessary or desirable), in each case during the preceding calendar or fiscal
quarter. While the Plan is in effect, the selection and nomination of Trustees
who are not interested persons of the Fund is committed to the discretion of the
Fund's then existing disinterested Trustees.
14
<PAGE>
NET ASSET VALUE
As indicated in the Prospectus, the net asset value per share of the Fund's
shares will be determined as of 4:15 p.m. on each day that the New York Stock
Exchange ("NYSE") is open for trading. The NYSE annually announces the days on
which it will not be open for trading; the most recent announcement indicates
that it will not be open on the following days: New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. However, it should be noted that the NYSE may close on
days not included in that announcement.
In determining the net asset value of the Fund's shares, common stocks and other
securities that are listed on a national securities exchange or the NASDAQ
National Market System are valued at the last sale price as of 4:15 p.m., New
York time, on each day that the NYSE is open for trading, or, in the absence of
recorded sales, at the last closing price on such exchange or on such System.
Unlisted securities that are not included in such National Market System are
valued at the closing price in the over-the-counter market. Valuations of
fixed-income securities are supplied by independent pricing services used
by the Fund. Valuations of fixed-income securities are based upon a
consideration of yields or prices of obligations of comparable quality,
coupon, maturity and type, indications as to value from recognized
dealers, and general market conditions. The pricing service may
use electronic data processing techniques and/or computerized matrix
system to determine valuations. Fixed-income securities for which
market quotations are readily available are valued based upon those
quotations. The procedures used by the pricing service are
reviewed by the Fund under the general supervision of the
Trustees. The Trustees may deviate from the valuation provided
by the pricing service whenever, in their judgment, such
valuation is not indicative of the fair value of the obligation.
Securities and other assets for which market quotations are not readily
available are valued by appraisal at their fair value as determined in good
faith by the Advisor under procedures established by and under the general
supervision and responsibility of the Board of Trustees. Debt securities
which mature in less than 60 days are valued at amortized cost (unless
the Board of Trustees determines that this method does not represent
the fair market value of such assets), if their original maturity
was 60 days or less.
TAX STATUS
The following information supplements and should be read in conjunction with the
section in the Fund's Prospectus entitled "Dividends and Tax Status."
When an income dividend or capital gains distribution is paid by the Fund, net
asset value per share is reduced automatically by the amount of the dividend or
distribution. If net asset value per share is reduced below a shareholder's
cost basis as a result, such a distribution might still be taxable to the
shareholder as ordinary income or capital gain (as the case may be) although in
effect it represents a return of invested capital. For this reason, investors
should consider carefully the desirability of purchasing shares immediately
prior to a distribution date.
The Fund does not intend to invest in foreign issuers which meet the definition
in the Code of passive foreign investment companies ("PFICs"). However, foreign
corporations are not required to certify their status as PFICs to potential U.S.
investors, and the Fund may unintentionally acquire stock in a PFIC. The Fund's
income and gain, if any, from the holding of PFIC stock may be subject to a non-
deductible tax at the Fund level.
A portion of the Fund's income dividends may be eligible for the dividends-
received deduction allowed to corporations under the Code, if certain
requirements are met.
15
<PAGE>
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source.
The treatment of income dividends and capital gains distributions to
shareholders of the Fund under the various foreign, state, and local income tax
laws may not parallel that under the Federal law. Shareholders should consult
their tax adviser with respect to applicable foreign, state, and local taxes.
GENERAL
The Fund is a series of The CornerCap Group of Funds. The Fund's Declaration of
Trust permits its Trustees to issue an unlimited number of full and fractional
shares of beneficial interest and to divide or combine the shares into a greater
or lesser number of shares without thereby changing the proportionate beneficial
interest in the Fund. Each share represents an interest in a Fund
proportionately equal to the interest of each other share. Upon the Fund's
liquidation, all shareholders would share pro rata in the net assets of the Fund
in question available for distribution to shareholders. If they deem it
advisable and in the best interest of shareholders, the Board of Trustees may
create additional classes of shares which differ from each other only as to
dividends. The Board of Trustees has created two classes of shares (i.e., the
Fund and the CornerCap Growth Fund), but the Board may create additional classes
in the future, which have separate assets and liabilities; each of such
classes has or will have a designation including the word "Series" or "Fund."
Rule 18f-2 under the 1940 Act provides that matters submitted to shareholders be
approved by a majority of the outstanding securities of each series, unless it
is clear that the interest of each series in the matter are identical or the
matter does not affect a series. However, the rule exempts the selection of
accountants and the election of Trustees from the separate voting requirements.
Income, direct liabilities and direct operating expenses of each series will be
allocated directly to each series, and general liabilities and expenses of the
Fund will be allocated among the series in proportion to the total net assets of
each series by the Board of Trustees.
Under Massachusetts law, a shareholder of a Massachusetts business trust may be
held liable as a partner under certain circumstances. The Fund's Declaration of
Trust, however, contains an express disclaimer of shareholder liability for its
acts or obligations and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund or its
Trustees. The Declaration of Trust provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for its obligations. The Declaration of Trust also provides
that the Fund shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the Fund and satisfy any judgment
thereon. In addition, the operation of the Fund as an investment company would
not likely give rise to liabilities in excess of its assets. Thus the risk of a
shareholder incurring financial loss on
16
<PAGE>
account of shareholder liability is highly unlikely and is limited to the
relatively remote circumstances in which the Fund would be unable to meet its
obligations.
The Fund entered into a Distribution Agreement effective as of March 31, 1995,
1996, with Attkisson, Carter & Akers, Inc., a securities broker/dealer
registered pursuant to the Securities Exchange Act of 1934, and located in
Atlanta, Georgia. No fee is paid pursuant to this agreement other than
reimbursement under the Fund's Rule 12b-1 Distribution Plan.
With respect to the purchase and sale of Fund shares, certain broker/dealers
other than the Distributor may charge a fee to Fund investors for executing
transactions on the investor's behalf. Such transactions may be executed on the
investor's behalf directly through the Fund's Transfer Agent without payment of
such a fee. See the section entitled "How to Purchase Shares" in the
Prospectus.
Funds Services, Inc. serves as the Transfer Agent. Funds Services, Inc., in its
function as Transfer Agent, disburses dividends, processes new accounts,
purchases, redemptions, transfers, and issues certificates. Commonwealth Fund
Accounting acts as the Fund's accounting services agent. Wachovia Bank. acts as
the Fund's custodian to hold its assets in safekeeping and collect income.
The Fund's independent public accountants, Tait, Weller & Baker, perform an
annual audit of the Fund's accounts, assist in the preparation of certain
reports to the SEC, and prepare the Fund's tax returns.
FINANCIAL STATEMENTS
No Financial Statements are provided for the Balanced Fund as it has only
recently begun operations.
17
<PAGE>
APPENDIX A
Some of the terms used in the Fund's Prospectus and this Statement of
Additional Information are described below.
The term "MONEY MARKET" refers to the marketplace composed of the financial
institutions which handle the purchase and sale of liquid, short-term, high-
grade debt instruments. The money market is not a single entity, but consists
of numerous separate markets, each of which deals in a different type of
short-term debt instrument. These include U.S. Government obligations,
commercial paper, certificates of deposit and bankers' acceptances, which are
generally referred to as money market instruments.
U.S. GOVERNMENT OBLIGATIONS are debt securities (including bills, notes and
bonds) issued by the U.S. Treasury or issued by an agency or instrumentality of
the U.S. Government which is established under the authority of an Act of
Congress. Such agencies or instrumentalities include, but are not limited to,
the Federal National Mortgage Association, Government National Mortgage
Association, the Federal Farm Credit Bank, and the Federal Home Loan Bank.
Although all obligations of agencies, authorities and instrumentalities are not
direct obligations of the U.S. Treasury, payment of the interest and principal
on these obligations is generally backed directly or indirectly by the U.S.
Government. This support can range from the backing of the full faith and
credit of the United States to U.S. Treasury guarantees, or to the backing
solely of the issuing instrumentality itself. In the case of securities not
backed by the full faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.
BANK OBLIGATIONS include certificates of deposit which are negotiable
certificates evidencing the indebtedness of a commercial bank to repay funds
deposited with it for a definite period of time (usually from 14 days to one
year) at a stated interest rate.
BANKERS' ACCEPTANCES are credit instruments evidencing the obligation of a
bank to pay a draft which has been drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face amount
of the instrument upon maturity.
TIME DEPOSITS are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
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<PAGE>
COMMERCIAL PAPER consists of short-term (usually one to 180 days) unsecured
promissory notes issued by corporations in order to finance their current
operations.
CORPORATE DEBT obligations are bonds and notes issued by corporations and
other business organizations, including business trusts, in order to finance
their long-term credit needs.
CERTIFICATES OF DEPOSIT are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return.
MORTGAGE-BACKED securities are interests in a pool of mortgage loans. Most
mortgage securities are pass-through securities, which means that they provide
investors with payments consisting of both principal and interest as mortgages
in the underlying mortgage pool are paid off by the borrowers. The dominant
issuers or guarantors of mortgage securities are the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") are hybrid instruments with
characteristics of both mortgage-backed and mortgage pass-through securities.
Similar to a bond, interest and prepaid principal on a CMO are paid, in most
cases, semi-annually. CMOs may be collateralized by whole mortgage loans but
are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured into
multiple classes, with each class bearing a different stated maturity. Monthly
payments of principal, including prepayments, are first returned to investors
holding the shortest maturity class; investors holding the longer maturity
classes receive principal only after the first class has been retired.
MUNICIPAL BONDS are debt obligations which generally have a maturity at the
time of issue in excess of one year and are issued to obtain funds for various
public purposes. The two principal classifications of municipal bonds are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable only from the
revenues derived from a particular facility or class of facilities, or, in some
cases, from the proceeds of a special excise or specific revenue source.
Industrial development bonds or private activity bonds are issued by or on
behalf of public authorities to obtain funds for privately operated facilities
and are, in most cases, revenue bonds which do not generally carry the pledge of
the full faith and credit of the issuer of such bonds, but depend for payment on
the ability of the industrial user to meet its obligations (or any property
pledged as security).
19
<PAGE>
ZERO COUPON BONDS are debt obligations issued without any requirement for
the periodic payment of interest. Zero coupon bonds are issued at a significant
discount from face value. The discount approximates the total amount of
interest the bonds would accrue and compound over the period until maturity at a
rate of interest reflecting the market rate at the time of issuance. A
Portfolio, if it holds zero coupon bonds in its portfolio, however, would
recognize income currently for Federal tax purposes in the amount of the unpaid,
accrued interest (determined under tax rules) and generally would be required to
distribute dividends representing such income to shareholders currently, even
though funds representing such income would not have been received by the
Portfolio. Cash to pay dividends representing unpaid, accrued interest may be
obtained from sales proceeds of portfolio securities and Portfolio shares and
from loan proceeds. Because interest on zero coupon obligations is not paid to
the Portfolio on a current basis but is in effect compounded, the value of the
securities of this type is subject to greater fluctuations in response to
changing interest rates than the value of debt obligations which distribute
income regularly.
RATINGS OF CORPORATE DEBT OBLIGATIONS. The characteristics of corporate
debt obligations rated by Moody's are generally as follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater
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<PAGE>
amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
The characteristics of corporate debt obligations rated by S&P are
generally as follows:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
21
<PAGE>
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
A bond rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or
obtained by the rating services from other sources which they consider reliable.
The ratings may be changed, suspended or withdrawn as a result of changes in or
unavailability of, such information, or for other reasons.
RATINGS OF COMMERCIAL PAPER. Cash Management Portfolio purchases are
limited to those instruments rated A-1 by S&P and Prime 1 by Moody's.
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics: liquidity ratios are adequate to meet cash requirements; the
issuer's long-term debt is rated "A" or better; the issuer has access to at
least two additional channels of borrowing; and basic earnings and cash flow
have an upward trend with allowances made for unusual circumstances. Typically,
the issuer's industry is well established and the issuer has a strong position
within the industry.
Commercial paper rated Prime 1 by Moody's is the highest commercial paper
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation
22
<PAGE>
to competition and consumer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations. Relative strength or weakness of the above factors determine how
the issuer's commercial paper is rated within various categories.
DETERMINATION OF CREDIT QUALITY OF UNRATED SECURITIES. In determining
whether an unrated debt security is - of comparable quality to a rated security,
the Advisor may consider the following factors, among others:
(1) other securities of the issuer that are rated;
(2) the issuer's liquidity, debt structure, repayment schedules, and
external credit support facilities;
(3) the reliability and quality of the issuer's management;
(4) the length to maturity of the security and the percentage of the
portfolio represented by securities of that issuer;
(5) the issuer's earnings and cash flow trends;
(6) the issuer's industry, the issuer's position in its industry, and an
appraisal of speculative risks which may be inherent in the industry;
(7) the financial strength of the issuer's parent and its relationship
with the issuer;
(8) the extent and reliability of credit support, including a letter of
credit or third party guarantee applicable to payment of principal and
interest;
(9) the issuer's ability to repay its debt from cash sources or asset
liquidation in the event that the issuer's backup credit facilities
are unavailable;
(10) other factors deemed relevant by the Advisor.
23
