CORNERCAP GROWTH FUND
SEMI-ANNUAL REPORT TO SHAREHOLDERS
A Series of
CornerCap Group of Funds
A "Series" Investment Company
FOR THE SIX MONTHS ENDED
SEPTMEBER 30, 1998
The Peachtree, Suite 1700 Advisor:
(800) 728-0670
1355 Peachtree Street, NE Administrator:
(888) 81 FUNDS
Atlanta, Georgia 30309 Telecopier:
(404) 870-0770<PAGE>
CornerCap Group of Funds
Manager's Report to the Shareholders
for the semi-annual period ended September 30, 1998
Dear Shareholder:
Attached are the portfolio valuation and financial reports for the
semi-annual period ended September 30, 1998. As of this date, the
shares of the CornerCap Growth Fund were valued at $11.61, and the
shares of the CornerCap Balanced Fund were valued at $11.48. As we
recently discussed in our quarterly commentary, the last six months
have been a difficult period for almost any equity market investor,
regardless of their sector, style or nationality. Rather than
repeating what we said in our quarterly report, we would like to
discuss how we believe investors should use our family of mutual funds
to be successful with their own, unique situation.
There are many ways that investors analyze mutual fund investments.
Which fund has the highest return? Over what period of time? At what
level of risk? Which measure of risk do I use? At what cost? Am I
seeing all the costs? What about taxes? The list of ways to view a
mutual fund is extensive. In building our mutual fund family, we
believe the most important view is time.
We believe that we can generally control the costs, tax efficiency,
and other administrative aspects of a mutual fund. We also believe
that we can successfully manage a mutual fund's returns and risks.
However, we can only be successful in delivering a high enough return
and a low enough risk if we know the time horizon of our shareholders.
When you invest in one of our funds, ask yourself how long you plan to
leave it there before withdrawing and using those savings?
Our longest time requirement is with the CornerCap Growth Fund (CGF).
We expect this fund to be our highest returning vehicle over time. It
is fully invested in a portfolio of small to medium size companies.
We also expect this fund to be the most volatile in the near term.
Evidence of this volatility can be seen in the fund's recent
performance. In our Annual Report just six months ago, we reported a
one-year return of 47.8% and an annualized 5.5-year return of 19.8%.
Over the following two quarters, the fund declined 22.9%, with most of
that occurring in the month of August. For shareholders that started
with us last spring, we need sufficient time to make up for this very
unfortunate starting point. We believe that the Growth Fund is most
appropriate for investors who plan to leave their savings in the
equity market for at least 10 years.
Our CornerCap Balanced Fund (CBF) is designed as a medium-term
investment vehicle. This fund is only 60% in equities, and these
stocks are primarily larger companies that pay a dividend. The
remaining 40% of the portfolio are targeted for the more conservative
fixed income (bond) market. While the strength of the Growth Fund is
its substantial expected return when times are good, the strength of
the Balanced Fund is that it is designed to deliver reasonable growth
while providing down side protection during the more difficult times.
The Balanced Fund was only down 6.4% in the third quarter, and as of
this writing, it has more than made up that loss.<PAGE>
When an investor's time horizon is relatively short (e.g., less than
five years,) he should be much more focused on his short-term
liquidity needs and not on long term returns or risks. For our mutual
fund clients with this requirement, we offer a low-risk bond fund.
This fund has an average maturity of five years and all bonds are
government guaranteed.
Again, the most important analysis for an investor is his own time
horizon. If the time is wrong, then the objective is wrong, and
investors need a lot of luck to win when they start out not knowing
where they're headed. We believe that our funds will deliver good
returns relative to their objectives over time. They are also
structured and managed to be cost efficient and tax efficient. Our
funds now have a Unified Fee Structure (as of March 31, 1998), so the
expense ratios cannot exceed the fixed amounts of 1.3% and 1.5% for
the CBF and CGF, respectively. There are also no load charges for
contributions or withdrawals, and for 1998, we are waiving the annual
IRA fee.
One issue that all of us are concerned about is something called
"Y2K." As you probably know, this relates to the potential computer
problems that will result on January 1, 2000 when the computer date
fields flip from 99 to 00. Unless the computer programs are all
corrected, the 00 will be interpreted as 1900 and not 2000. Our
computer consultants have identified the areas of concern within our
mutual fund company and with outside vendors that we use. We have
established a Y2K Oversight Committee to help insure that our funds
will continue to operate uninterrupted when we first move into the
next century. We are reporting on our efforts and progress to your
Board of Trustees, and we will also be reporting to you in our
quarterly reports next year.
We want to thank all shareholders for the referrals that you have made
to our mutual fund family. Since we do not actively market our mutual
funds, you are our best source of new clients. While our Fund is
available on Schwab and other discount brokerage networks, it is not
available through the retail brokerage firms. If we can help a friend
or another member of your family with their investments, we hope that
you will give us a call and let us talk with them or send a prospectus
and a letter of introduction. If we can be of service in any way,
please call our Fund Administrator at (888) 81FUNDS or anyone at
CornerCap at (800) 728-0670.
Thank you for continuing to be one of our much-appreciated
shareholders.
CornerCap Investment Counsel
November 16, 1998<PAGE>
<TABLE>
<CAPTION>
CORNERCAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998 (Unaudited)
- -----------------------------------------------------------------------------------------------------------
Value
Shares (Note 1-A)
------ ----------
COMMON STOCKS - 89.87%
----------------------
<C> <S> <C>
Apparel - 4.32%
13,050 Kellwood Company $ 350,719
153,900 Tultex Corporation * 269,325
----------
620,044
----------
Building Materials - 4.78%
8,600 Fluor Corporation 353,137
11,750 International Aluminum Corp. 333,406
----------
686,543
----------
Cement & Aggregates - 2.04%
6,500 Southdown, Inc. 292,500
----------
Chemical - Specialty - 4.59%
24,900 Furon Company 432,637
17,750 Wellman, Inc. 226,313
----------
658,950
Computer Software & Services - 1.66%
16,750 BancTec, Inc. 238,688
----------
Diversified Companies - 9.16%
17,300 Ametek, Inc. 298,425
13,725 Crane Company 322,537
13,100 Standex International Corporation 312,762
13,560 Varlen Corporation 379,680
----------
1,313,404
----------
Electronics - 3.13%
37,620 Bell Industries, Inc. * 449,089
----------
Home Building - 2.14%
12,500 Pulte Corporation 307,031
----------
Industrial Services - 2.14%
40,000 Health Management Systems, Inc. * 307,500
----------
Insurance - 4.43%
41,742 Gainsco, Inc. 300,021
9,400 Orion Capital Corporation 335,463
----------
635,484
----------
- -----------------------------------------------------------------------------------------------------------
/TABLE
<PAGE>
<TABLE>
<CAPTION>
CORNERCAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - (Continued)
September 30, 1998 (Unaudited)
- -----------------------------------------------------------------------------------------------------------
Value
Shares (Note 1-A)
------ ----------
COMMON STOCKS - 89.87%
----------------------
<C> <S> <C>
Machine Tool - 2.39%
25,200 Kulicke $ Soffa Industries 343,350
----------
Machinery - 1.65%
11,700 Flowserve Corporation 236,925
----------
Maritime - 1.29%
4,305 Marine Transport Corp. 9,417
43,050 New OMI Corporation * 174,891
----------
184,308
----------
Metal & Mining - 2.20%
23,800 Cyprus Amax Minerals 315,350
----------
Oilfield Service and Equipment - 3.80%
22,200 Ensco International Inc. 240,037
58,800 Parker Drilling Company 305,025
----------
545,062
----------
Packaging & Container - 2.70%
11,000 Ball Corporation 387,750
----------
Publishing - 2.40%
12,100 Deluxe Corporation 344,094
----------
Recreation - 2.54%
25,800 Huffy Corporation 364,425
----------
Restaurant - 8.97%
41,700 NPC International* 443,062
37,400 Piccadilly Cafeterias 409,062
19,600 Wendy's International 434,875
----------
1,286,999
Retail Specialty - 6.58%
13,600 Blair Corporation 406,300
28,300 Haverty Furniture, Inc. 537,700
----------
944,000
Steel - Integrated - 5.22%
20,700 Inland Steel Industries, Inc. 450,225
75,000 ACME Metals 182,813
----------
633,038
----------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORNERCAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - (Continued)
September 30, 1998 (Unaudited)
- -----------------------------------------------------------------------------------------------------------
Value
Shares (Note 1-A)
------ ----------
COMMON STOCKS - 89.87%
----------------------
<C> <S> <S>
Telecom Services - 2.91%
5,800 Sprint Corporation $ 417,600
----------
Textile - 1.79%
32,300 Culp, Inc. 256,381
----------
Tires - 2.40%
57,500 TBC Corporation 345,000
----------
Tobacco - 5.46%
12,850 UST Inc. 379,878
11,300 Universal Corporation 403,975
----------
783,853
----------
Total Common Stocks (Cost $13,594,116) $ 12,897,369
----------
*Non-Income Producing Security
Principal
Amount SHORT-TERM INVESTMENTS
--------- ----------------------
$1,427,468 Wachovia Bank Short-Term Authorized Demand Notes
(Cost $1,407,304) 1,407,304
----------
Total Investments (Cost $15,001,420)(a) 99.75% 14,304,674
Other Assets in Excess of Liabilities - Net .25% 30,241
------ ----------
Net Assets 100.00% $ 14,334,915
====== ============
(a) Aggregate cost for federal income tax purposes is $15,001,420.
At September 30, 1998, unrealized appreciation (depreciation) of
securities for federal income tax purposes is as follows:
Unrealized appreciation $ 2,232,463
Unrealized depreciation (2,929,210)
----------
Net unrealized appreciation (depreciation) $ (696,747)
============
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
/TABLE
<PAGE>
<TABLE>
<CAPTION>
CORNERCAP GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998 (Unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments at market value, (Identified cost $15,012,529) (Note 1-A) $ 14,304,674
Cash 16,306
Interest and dividends receivable 17,297
Receivable for capital shares sold 2,500
Insurance Renewal 11,109
----------
Total assets 14,351,886
----------
LIABILITIES
Accrued expenses 16,972
----------
Total liabilities 16,972
----------
NET ASSETS
(Applicable to 1,234,589.471 shares outstanding,
$.01 par value, unlimited shares authorized) $ 14,334,914
============
NET ASSET VALUE AND REPURCHASE PRICE PER SHARE
($14,334,914 divided by 1,234,589.471 shares) $11.61
======
NET ASSETS
At September 30, 1998, net assets consisted of:
Paid-in capital $ 12,282,959
Accumulated net investment income (loss) 21,320
Accumulated net realized gains (losses) on investments 2,727,381
Unrealized appreciation (depreciation) of investments (696,747)
------------
$ 14,334,913
============
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORNERCAP GROWTH FUND
STATEMENT OF OPERATIONS
Six months ended September 30, 1998 (Unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income
Interest $ 15,263
Dividends 117,185
----------
Total investment income 132,448
----------
Expenses
Management Fee 81,707
Administration Fee 40,856
----------
Total expenses 122,563
Less expenses waived and reimbursed (Note 2) 0
----------
Net expenses 122,563
----------
Net investment income 9,885
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions 882,897
Increase in unrealized appreciation (depreciation) of investments (4,807,605)
----------
Net realized and unrealized gain (loss) on investments (3,924,708)
----------
Net increase (decrease) in net assets resulting from operations ($3,914,822)
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORNERCAP GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
Six months ended September 30, 1998 (Unaudited)
- -----------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
September 30, 1998 March 31, 1998
------------------ --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income $ 9,885 $ 26,275
Net realized gain on investments 882,897 3,153,012
Increase in unrealized appreciation/depreciation of investments (4,807,605) 2,778,761
----------- ----------
Net increase/decrease in net assets resulting from operations (3,914,823) 5,958,048
Distributions to shareholders from
Net investment income ($.00 and $.22, respectively) 0 (37,280)
Realized gains ($.00 and $.07, respectively) 0 (2,070,572)
----------- ----------
Total distributions 0 (2,107,852)
Capital share transactions (a)
Increase in net assets resulting from
capital share transactions 300,417 1,235,326
----------- ----------
Total increase/decrease in net assets (3,614,405) 5,085,522
NET ASSETS
Beginning of period 17,949,319 12,856,297
----------- ----------
End of year
(including accumulated net investment income of
$0.00 and $11,435, respectively) $ 14,334,914 $ 17,941,819
============= ============
<CAPTION>
(a) Summary of capital share activity follows:
Six Months Ended Year Ended
September 30, 1998 March 31, 1998
--------------------- ----------------------
Shares Value Shares Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Shares sold 120,830 $ 1,562,121 204,161 $ 2,857,683
Shares reinvested 0 0 159,748 2,067,145
Shares redeemed (94,960) (1,261,704) (254,409) (3,689,502)
-------- ------------ --------- ------------
Net increase 25,870 $ 300,417 109,500 $ 1,235,326
======== ============ ========= ============
- -------------------------------------------------------------------------------------------
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORNERCAP GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the six month period)
- -----------------------------------------------------------------------------------------------------------
Six Months Ended Years Ended
September 30, March 31
----------------- -----------------------------------------------
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of year $14.85 $11.68 $9.81 $8.61 $7.69 $7.58
------ ------ ----- ----- ----- -----
Income from investment operations
Net investment income 0.008 0.21 0.02 0.04 0.05 0.02
Net realized and unrealized gain
on investments (3.244) 5.05 1.93 1.22 0.89 0.11
------ ---- ---- ---- ---- ----
Total from investment operations (3.236) 5.26 1.95 1.26 0.94 0.13
------ ---- ---- ---- ---- ----
Less distributions from
Net investment income --.-- 0.22 0.01 0.06 0.02 0.02
Realized gains --.-- 1.87 0.07 --.-- --.-- --.--
------ ---- ---- ---- ---- ----
Total distributions --.-- 2.09 0.08 0.06 0.02 0.02
------ ---- ---- ---- ---- ----
Net asset value, end of period $11.61 $14.85 $11.68 $9.81 $8.61 $7.69
====== ====== ====== ===== ===== =====
Total Return (21.82%) 47.69% 19.94% 14.64% 12.25% 1.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($000) 14,335 $17,942 $12,856 $8,371 $7,299 $4,229
Ratios to average net assets
Expenses 0.75% 1.56% 1.71% 1.75% 1.87% 2.00%
Net investment income (loss) 0.06% 0.17% 0.19% 0.49% 0.70% 0.13%
Portfolio turnover rate 34.9% 48.82% 37.13% 40.83% 55.12% 35.58%
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
/TABLE
<PAGE>
CORNERCAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 (Unaudited)
- ------------------------------------------------------------------------------
(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)
September 30, 1998 (Unaudited)
- ------------------------------------------------------------------------------
(2) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
The Advisor has entered into an Investment Advisory Agreement
with each Fund to provide investment management services to the
Fund (the "Advisory Agreements"). The Advisor has entered into
a new Operating Services Agreement with each Fund for the
current fiscal year to provide virtually all day-to-day
operational services to the Fund (the "Services Agreements").
The combined effect for each Fund of its Advisory Agreement and
Services Agreement is to place a cap or ceiling on each Fund's
ordinary operating expenses, excepting brokerage, interest,
taxes, distribution, litigation, and other extraordinary
expenses. Accordingly, the expenses for each Fund set forth
above have been restated to reflect the Fund's new fee
arrangements. For the Growth Fund expenses are capped at 1.50%
of the daily net asset value of the Fund. The Fund does not
assess 12b-1 fees.
DISTRIBUTION AGREEMENT AND PLAN
The Fund has adopted a Distribution Plan pursuant to which the
Fund reimburses the Advisor for marketing expenses incurred in
distributing shares of the Fund, primarily the cost of printing
sales material. This expense is limited to 1/4 of 1% of the
Fund's average net assets. For the period ending September
30, 1998, no such reimbursements were made.
(3) PURCHASES AND SALES OF SECURITIES
For the period ended September 30, 1998, the cost of purchases and
the proceeds from sales of securities, excluding short-term
securities, were $5,199,367 and $6,175,106, 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 share-holders. In
addition, the Fund intends to pay distributions as required to
avoid imposition of excise tax. Therefore, no federal income tax
provision is required.
