CORNERCAP GROWTH FUND
ANNUAL REPORT TO SHAREHOLDERS
A Series of
CornerCap Group of Funds
A "Series" Investment Company
FOR THE FISCAL YEAR ENDED
MARCH 31, 1998<PAGE>
CORNERCAP GROUP OF FUNDS
MANAGER'S REPORT FOR THE SHAREHOLDERS
FOR THE YEAR ENDED MARCH 31, 1998
Dear Shareholder:
We are very pleased with the accomplishments of our Funds during the fiscal
year ending March 31, 1998. Most important in the long term, and
appreciated over any term, is performance.
* The CORNERCAP GROWTH FUND realized a total return of 47.8% for the
year. The total return since CornerCap became the investment
advisor 5.5 years ago is 19.8% per year. The net asset value for
the Fund was $14.85 as of fiscal year end.
* The CORNERCAP BALANCED FUND was in operation only 10 months last
year, and the Fund returned 18.4% over that period. The net
asset value for the Fund was $12.21 as of fiscal year end.
Aside from performance, our most significant accomplishment in 1997 was
successfully launching our new Balanced Fund. We very much needed a more
conservative fund for many of our investors. This Fund is targeted to hold
a balance of growth-oriented stocks (60%) and more conservative bonds (40%).
While the Fund is tilted more toward growth, it will be less volatile than
the Growth Fund, and it will generate a higher portion of its total return
from yield.
We now have over 400 shareholders in the Balanced Fund, and we have lowered
the expense ratio, which was over 9%/year when we took over the Fund, to
1.3% for the coming year. We believe the attraction to this Fund will grow
as the equity market declines, so we are in no hurry for this type of
enticement to develop.
Whether the market is too high now or going much higher continues to be the
question most asked. These times are unique but they always are. This
has been the number one question every year since we started managing
investments almost 20 years ago. Markets are at all-time highs. True, but
over time the equity markets should continue to hit new highs, with periodic
down turns sprinkled in. For the long-term investor that can accept the
near term volatility of stocks, the equity market and our Growth Fund is the
appropriate investment vehicle.
The more important measure is that the equity markets are at all-time
"relative" highs. The fundamentals of companies (earnings, book value, cash
flow, yield, etc.) relative to their market price are at new highs. This
can be attributed to three very positive factors: (1) Returns on equity are
at all-time highs; (2) inflation is down and the expectations for future
inflation is also down; and (3) the savings rate for investors is up,
providing consistent cash infusions into the market. Market prices will be
vulnerable if one or more of these key factors cannot be sustained.
The equity market will have a significant drop at some point. It's not a
question of if, but rather when. No one can answer that question with any
degree of certainty. The market can drop tomorrow or five years down the
road. We work with and encourage each of our mutual fund clients to focus
more on setting their appropriate level of risk, rather than focusing on
<PAGE>
maximizing their returns. The appropriate returns will typically follow a
given level of risk. Over time you will generally be better served if you
enter and exit any bear market using the same investment strategy (i.e. the
same long-term objective), rather than trying to time your strategy based on
short-term market movements. If our Growth Fund, which is fully invested in
equities, represents too much risk for you, then consider moving your
account to our Balanced Fund. Whichever fund you choose, it should be done
with a five to ten year planning horizon in mind.
As the assets in our fund group have grown, we have continued to reduce the
Funds' expense ratios. Consistent with that process and to simplify our
administration, for fiscal year 1998 your Board of Trustees have approved
changing the Funds to a Unified Fee Structure. In effect, the investment
advisor, CornerCap Investment Counsel, will be responsible for all expenses
of the Funds. The advisor will charge a flat annualized fee to the Balanced
Fund and the Growth Fund of 1.3% and 1.5%, respectively. The Funds will
continue to be no-load, and there will be no 12(b)1 plan or other marketing
related fees paid out by the Funds.
Our Funds are not packaged to be sold. There are a number of creative ways
to compensate stockbrokers, financial planners, and other intermediaries for
selling a mutual fund. We use none of these techniques. As such, it is
very appropriate that there are no agents out there selling our Funds. Most
financial products are packaged to be sold, and for very good reasons. By
paying the required selling costs, a fund can accelerate the success of
their quality products and/or make up for any deficiencies in weaker
products. We do not think it is in the best interest of our shareholders to
incur these selling costs. We are focused on having the highest quality
mutual fund products, and we are very long-term investors, with both our
client's investments and our internal investments.
Our Funds are packaged to be bought. Our focus is on service rather than
selling. If we can evolve a group of funds with good performance and
reasonable costs and risks, then sufficient investors will discover and buy
into our Funds. This pro-servicing/non-selling approach will be slower and
less profitable in the near term, but it will create an enormous long-term
asset a loyal client base.
Attached is the Annual Report prepared by the Fund's auditors, Tait, Weller
& Baker. As part of the financial statements, you will find a list of the
portfolio holdings as of March 31, 1998, grouped by asset class and industry
classification. Thank you for your investment in our CornerCap Group of
Funds, and please let us know if we can be of further service to you.
CORNERCAP INVESTMENT COUNSEL
MAY 29, 1998
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
CORNERCAP GROWTH FUND
ATLANTA, GEORGIA
We have audited the accompanying statement of assets and liabilities of
CornerCap Growth Fund, including the portfolio of investments, as of March
31, 1998, and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years
in the period then ended. These financial statements are the responsibility
of the Trust's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 1998, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
CornerCap Growth Fund as of March 31, 1998, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended in conformity with generally accepted
accounting principles.
/s/ Tait, Weller and Baker
PHILADELPHIA, PENNSYLVANIA
MAY 1, 1998
<PAGE>
CORNERCAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
MARCH 31, 1998
____________________________________________________________________________________________________________
VALUE
SHARES (NOTE 1-A)
------ ----------
COMMON STOCKS - 91.74%
----------------------
<C> <S> <C>
APPAREL - 4.39%
13,050 Kellwood Company $ 402,919
100,700 Tultex Corporation * 383,919
------------
786,838
------------
BUILDING MATERIALS - 4.67%
8,600 Fluor Corporation 427,850
11,750 International Aluminum Corp. 410,516
------------
838,366
------------
CEMENT & AGGREGATES - 2.52%
6,500 Southdown, Inc. 452,969
------------
CHEMICAL - SPECIALTY - 5.41%
24,900 Furon Company 586,706
17,750 Wellman, Inc. 383,844
------------
970,550
------------
COMPUTER SOFTWARE & SERVICES - 2.30%
16,750 BancTec, Inc. 412,469
------------
DIVERSIFIED COMPANIES - 10.73%
17,300 Ametek, Inc. 517,919
9,150 Crane Company 484,950
13,100 Standex International Corporation 401,187
13,560 Varlen Corporation 522,060
------------
1,926,116
------------
ELECTRONICS - 2.33%
29,620 Bell Industries, Inc. * 418,382
------------
HOME BUILDING - 2.75%
10,600 Pulte Corporation 492,900
------------
INDUSTRIAL SERVICES - 2.79%
40,000 Health Management Systems, Inc. * 500,000
------------
INSURANCE - 4.77%
41,742 Gainsco, Inc. 341,763
9,400 Orion Capital Corporation 514,062
------------
855,825
------------
___________________________________________________________________________________________________________
</TABLE>
<PAGE>
CORNERCAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - (Continued)
<TABLE>
<CAPTION>
MARCH 31, 1998
____________________________________________________________________________________________________________
VALUE
SHARES (NOTE 1-A)
------ ----------
COMMON STOCKS - 91.74%
----------------------
<C> <S> <C>
MACHINERY - 2.13%
11,700 Flowserve Corporation 381,712
------------
MARITIME - 2.16%
43,050 OMI Corporation * 387,450
------------
MEDICAL SUPPLIES - 2.24%
14,500 Marquette Medical Systems, Inc., Class A * 402,375
------------
METAL & MINING - 2.21%
23,800 Cyprus Amax Minerals 395,675
------------
PACKAGING & CONTAINER - 2.01%
11,000 Ball Corporation 360,250
------------
PRECISION INSTRUMENT - 2.93%
18,100 EG&G, Inc. 526,031
------------
PUBLISHING - 2.22%
12,100 Deluxe Corporation 398,544
------------
RECREATION - 2.33%
25,800 Huffy Corporation 417,637
------------
RESTAURANT - 8.15%
41,700 NPC International * 552,525
37,400 Piccadilly Cafeterias 472,175
19,600 Wendy's International 437,325
------------
1,462,025
------------
RETAIL SPECIALTY - 6.30%
26,200 Blair Corporation 599,325
28,300 Haverty Furniture, Inc. 530,625
------------
1,129,950
------------
STEEL - INTEGRATED - 3.19%
20,700 Inland Steel Industries, Inc. 571,837
------------
TELECOM SERVICES - 3.24%
8,600 Sprint Corporation 582,113
------------
TEXTILE - 2.41%
21,100 Culp, Inc. 432,550
------------
</TABLE>
<PAGE>
CORNERCAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - (Continued)
<TABLE>
<CAPTION>
MARCH 31, 1998
____________________________________________________________________________________________________________
VALUE
SHARES (NOTE 1-A)
------ ----------
COMMON STOCKS - 91.74%
----------------------
<C> <S> <C> <C>
TIRES - 2.48%
44,500 TBC Corporation 445,000
------------
TOBACCO 5.08%
12,850 UST Inc. 414,413
113,000 Universal Corporation 497,906
------------
912,319
------------
TOTAL COMMON STOCKS (COST $12,349,025) 16,459,883
------------
PRINCIPAL
AMOUNT SHORT-TERM INVESTMENTS
---------- ----------------------
<C>
$1,427,468 Wachovia Bank Short-Term Authorized Demand Notes
(Cost $1,427,468) 1,427,468
------------
TOTAL INVESTMENTS (COST $13,776,493)(A) 99.70% 17,887,351
OTHER ASSETS IN EXCESS OF LIABILITIES - NET .30% 54,468
----- ------------
NET ASSETS 100.00% $ 17,941,819
====== ============
* NON-INCOME PRODUCING SECURITY
(a) Aggregate cost for federal income tax purposes is $13,776,493. At March 31, 1998, unrealized
appreciation (depreciation) of securities for federal income tax purposes is as follows:
Unrealized appreciation $ 4,568,759
Unrealized depreciation (457,901)
------------
NET UNREALIZED APPRECIATION $ 4,110,858
============
____________________________________________________________________________________________________________
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
CORNERCAP GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, 1998
_______________________________________________________________________________________
<S> <C>
ASSETS
Investments at market value, (Identified cost $13,776,493) (NOTE 1-A) $17,887,351
Cash 77,890
Interest and dividends receivable 14,828
Receivable for capital shares sold 500
Other assets 11,109
-----------
TOTAL ASSETS 17,991,678
-----------
LIABILITIES
Payable for capital stock redeemed 38,000
Accrued expenses 11,859
-----------
TOTAL LIABILITIES 49,859
-----------
NET ASSETS
(Applicable to 1,208,215 shares outstanding,
$.01 par value, unlimited shares authorized) $17,941,819
-----------
NET ASSET VALUE AND REPURCHASE PRICE PER SHARE
($17,941,819 divided by 1,208,215 shares) $14.85
------
NET ASSETS
At March 31, 1998, net assets consisted of:
Paid-in capital $11,975,042
Accumulated net investment income 11,435
Accumulated net realized gains on investments 1,844,484
Unrealized appreciation of investments 4,110,858
-----------
$17,941,819
===========
_______________________________________________________________________________________
</TABLE>
See accompanying notes to financial statements
<PAGE>
CORNERCAP GROWTH FUND
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1998
________________________________________________________________________________
INVESTMENT INCOME
INCOME
Interest $ 36,514
Dividends 230,064
----------
TOTAL INVESTMENT INCOME 266,578
----------
EXPENSES
Fund accounting fees 30,796
Advisory fee (Note 2) 153,687
Professional fees 28,805
Custodian fees 2,315
Transfer agent fees 23,087
Administration fees 31,369
Shareholder servicing costs 10,480
Registration fees 14,738
Insurance 12,871
Trustees fees 7,422
Miscellaneous 3,420
----------
Total expenses 318,990
Less expenses waived and reimbursed (NOTE 2) (78,687)
----------
NET EXPENSES 240,303
NET INVESTMENT INCOME 26,275
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions 3,153,012
Increase in unrealized appreciation of investments 2,778,761
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 5,931,773
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $5,958,048
----------
_______________________________________________________________________________
See accompanying notes to financial statements
<PAGE>
CORNERCAP GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, 1998 AND 1997
______________________________________________________________________________________________________
1998 1997
----- ------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income $ 26,275 $ 21,184
Net realized gain on investments 3,153,012 1,620,467
Increase in unrealized appreciation of investments 2,778,761 233,821
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 5,958,048 1,875,472
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income ($.22 and $.01, respectively) (37,280) (13,865)
Realized gains ($1.87 and $.07, respectively) (2,070,572) (75,349)
----------- -----------
TOTAL DISTRIBUTIONS (2,107,852) (89,214)
----------- -----------
CAPITAL SHARE TRANSACTIONS (a)
Increase in net assets resulting from
capital share transactions 1,235,326 2,698,790
----------- -----------
TOTAL INCREASE IN NET ASSETS 5,085,522 4,485,048
NET ASSETS
Beginning of year 12,856,297 8,371,249
----------- -----------
END OF YEAR
(including accumulated net investment income of
$11,435 and $22,440, respectively) $17,941,819 $12,856,297
=========== ===========
</TABLE>
(a) SUMMARY OF CAPITAL SHARE ACTIVITY FOLLOWS:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ----------------------------
Shares Value Shares Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Shares sold 204,161 $ 2,857,683 375,974 $ 4,117,045
Shares reinvested 159,748 2,067,145 7,481 87,223
Shares redeemed (254,409) (3,689,502) (135,896) (1,505,478)
-------- ----------- -------- -----------
NET INCREASE 109,500 $ 1,235,326 247,559 $ 2,698,790
======== =========== ======== ===========
______________________________________________________________________________________________________
</TABLE>
See accompanying notes to financial statements
<PAGE>
CORNERCAP GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
_________________________________________________________________________________________________________________
Years ended March 31,
-----------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF YEAR $ 11.68 $ 9.81 $ 8.61 $ 7.69 $ 7.58
------- ------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS -
Net investment income .21 .02 .04 .05 .02
Net realized and unrealized gain
on investments 5.05 1.93 1.22 .89 .11
------- ------- ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 5.26 1.95 1.26 .94 .13
------- ------- ------ ------ ------
LESS DISTRIBUTIONS FROM
Net investment income .22 .01 .06 .02 .02
Realized gains 1.87 .07 - - -
------- ------- ------ ------ ------
TOTAL DISTRIBUTIONS 2.09 .08 .06 .02 .02
------- ------- ------ ------ ------
NET ASSET VALUE, END OF YEAR $ 14.85 $ 11.68 $ 9.81 $ 8.61 $ 7.69
------- ------- ------ ------ ------
TOTAL RETURN 47.69% 19.94% 14.64% 12.25% 1.71%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF YEAR ($000) $17,942 $12,856 $8,371 $7,299 $4,229
RATIOS TO AVERAGE NET ASSETS
Expenses 1.56% 1.71% 1.75% 1.87% 2.00%
Net investment income (loss) .17% .19% .49% .70% .13%
PORTFOLIO TURNOVER RATE 48.82% 37.13% 40.83% 55.12% 35.58%
AVERAGE COMMISSION RATE PER SHARE .1201
_________________________________________________________________________________________________________________
</TABLE>
See accompanying notes to financial statements
<PAGE>
CORNERCAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
________________________________________________________________________________
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CornerCap Growth Fund (the "Fund") was organized on January 6, 1986 as a
Massachusetts Business Trust and is registered under the Investment
Company Act of 1940 as a diversified open-end management investment
company. Investment operations commenced on July 17, 1986. The
following is a summary of significant accounting policies followed by the
Fund in the preparation of the financial statements. The policies are
in conformity with generally accepted accounting principles.
A. SECURITY VALUATION - Portfolio securities that are listed on national
securities exchanges or the NASDAQ National Market System are valued
at the last sale price as of 4:15 p.m. Eastern Standard time, or in
the absence of recorded sales, at the average of readily available
closing bid and asked prices on such exchanges or such System.
Unlisted securities that are not included in such System are valued
at the mean of the quoted bid and asked prices in the over-the-
counter-market. Securities and other assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by the Advisor under procedures established
by and under the general supervision and responsibility of the Fund's
Board of Trustees. Short-term investments are valued at amortized
cost, if their original maturity was 60 days or less, or by
amortizing the values as of the 61st day prior to maturity, if their
original term to maturity exceeded 60 days.
B. SECURITY TRANSACTIONS, INVESTMENT INCOME AND OTHER - Security
transactions are recorded on the next business date after trade date.
Realized gains and losses on sales of investments are calculated on
the identified cost basis. Dividend income is recorded on the ex-
dividend date and interest income is recorded on the accrual basis.
C. DISTRIBUTIONS TO SHAREHOLDERS - Distributions from net investment
income and realized gains, if any, are recorded on the ex-dividend
date. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles.
D. ACCOUNTING ESTIMATES - In preparing financial statements in
conformity with generally accepted accounting principles, management
makes estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
_______________________________________________________________________________
<PAGE>
CORNERCAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
MARCH 31, 1998
_______________________________________________________________________________
(2) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
The Fund has an investment advisory agreement with the Advisor,
pursuant to which the Advisor receives a fee, computed daily and
payable monthly, at an annual rate of 1.0% of the average daily net
assets.
The Advisor provides continuous supervision of the investment
portfolio and pays the cost of compensation of the officers of the
Fund, occupancy and certain clerical and administration costs involved
in the day to day operations of the Fund. The Fund bears all other
costs and expenses. Under the investment advisory agreement, if the
aggregate expenses of the Fund (including the fees to the Advisor but
excluding taxes, interest, brokerage fees and commissions,
distribution fee and extraordinary expenses) exceed the limitations
imposed by state securities administrators, the Advisor will reduce
its fee by the amount of such excess. In addition, the Advisor has
undertaken to pay fund expenses in excess of 2.0% of average net
assets for the Fund's fiscal year ending March 31, 1998. For the year
ended March 31, 1998, the Advisor waived Advisory fees of $78,687.
DISTRIBUTION AGREEMENT AND PLAN
The Fund has adopted a Distribution Plan pursuant to which the Fund
reimburses the Advisor for marketing expenses incurred in distributing
shares of the Fund, primarily the cost of printing sales material.
This expense is limited to 1/4 of 1% of the Fund's average net assets.
For the year ending March 31, 1998, no such reimbursements were made.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended March 31, 1998, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities,
were $5,092,902 and $3,993,806, respectively.
(4) FEDERAL INCOME TAXES
It is the Fund's policy to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. In
addition, the Fund intends to pay distributions as required to avoid
imposition of excise tax. Therefore, no federal income tax provision
is required.
_______________________________________________________________________________
