CORNERCAP BALANCED 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 BALANCED FUND
PORTFOLIO OF INVESTMENTS
September 30, 1998 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Value
Shares (Note 1-A)
------ ----------
COMMON STOCKS - 54.77%
-------------
<S> <C> <C>
Aerospace- Defense - 1.54%
2,300 GenCorp $ 44,275
---------
Advertising - 1.03%
1,550 Readers Digest Assoc., Class A 29,644
---------
Auto & Truck - 1.72%
1,050 Ford Motor Company 49,284
---------
Banks - 3.28%
1,100 Chase Manhattan Corporation 47,575
550 JP Morgan 46,544
---------
94,119
---------
Beverage - 1.69%
900 Anheuser-Busch Companies 48,600
---------
Building Materials - 1.90%
1,000 PPG Industries, Inc. 54,563
---------
Chemical-Specialty - 1.40%
10,050 Ethyl Corporation 40,200
---------
Diversified Company - 1.89%
1,600 ITT Industries, Inc. 54,200
---------
Electric Utility - 3.79%
1,900 Houston Industries, Inc. 59,138
1,600 First Energy Corp. 49,700
---------
108,838
---------
Electric Equipment - 2.02%
1,250 Johnson Controls, Inc. 58,125
---------
Machinery - 3.34%
2,300 Flowserve Corporation 46,575
1,200 Briggs and Stratton Corp. 49,350
---------
95,925
---------
Maritime - 1.73%
2,500 Alexander & Baldwin 49,688
---------
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
/TABLE
<PAGE>
<TABLE>
<CAPTION>
CORNERCAP BALANCED FUND
PORTFOLIO OF INVESTMENTS - (Continued)
September 30, 1998 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Value
Shares (Note 1-A)
------ ----------
COMMON STOCKS
-------------
<C> <S> <C>
Medical Supplies - 3.55%
1,400 Bausch & Lomb, Inc. $ 55,125
2,300 Mallinckrodt Inc. New 46,719
---------
101,844
---------
Metals- Fabrication - 1.69%
3,200 Timken Company 48,400
---------
Metals & Mining - 2.33%
1,600 Cyprus Amax Minerals 21,200
900 Reynolds Metals 45,731
---------
66,931
---------
Packaging & Container - 1.60%
1,300 Ball Corporation 45,825
---------
Paper & Forest Products - 3.44%
4,200 P.H. Glatfelter Company 54,863
5,000 Abitibi Consolidated 44,062
---------
98,925
---------
Petroleum - Integrated - 1.45%
900 Ashland, Inc. 41,625
---------
Publishing - 1.19%
1,200 Deluxe Corp. 34,125
---------
Retail- Specialty- 1.73%
2,000 Enesco Group Inc. 49,625
---------
Steel - 3.11%
1,200 Carpenter Technology 43,875
1,900 USX-U.S. Steel Group 45,363
---------
89,238
---------
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORNERCAP BALANCED FUND
PORTFOLIO OF INVESTMENTS - (Continued)
September 30, 1998 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Value
Shares (Note 1-A)
------ ----------
COMMON STOCKS
-------------
<C> <S> <C>
Telecom Services 3.40%
800 Sprint Corporation $ 57,600
900 Telefonos de Mexico 39,825
---------
97,425
---------
Textile - 1.63%
1,350 Springs Industries 46,913
---------
Thrift - 1.48%
1,705 Washington Federal, Inc. 42,625
---------
Tobacco - 2.83%
900 Philip Morris Companies, Inc. 41,456
1,350 UST, Inc. 39,909
---------
81,365
---------
Total Common Stocks (Cost $1,681,972) $ 1,572,325
---------
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORNERCAP BALANCED FUND
PORTFOLIO OF INVESTMENTS - (Continued)
September 30, 1998 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Principal
Amount
---------
U.S. GOVERNMENT BONDS - 35.14%
---------------------
U.S. Treasury
<C> <S> <C> <C>
$210,000 6.250%, Due 05/31/00 $ 215,906
210,000 6.625%, Due 04/30/02 225,422
150,000 5.750%, Due 08/15/03 159,188
120,000 7.250%, Due 05/15/04 137,025
140,000 6.500%, Due 08/15/05 157,763
100,000 6.500%, Due 10/15/06 113,594
Total Government Bonds (Cost $955,060.95) $ 1,008,898
-----------
* Non-Income Producing Security
SHORT-TERM INVESTMENTS - 4.81%
----------------------
Wachovia Bank Short-Term Authorized Demand Notes
138,343 (Cost $138,140) $ 138,140
-----------
Total Investments (Cost $2,775,173) (a) 94.77% 2,719,363
Other assets in excess of liabilities - net 5.23% 62,866
------ -----------
Net assets 100.00% $ 2,782,229
====== ===========
(a) Aggregate cost for federal income tax purposes is
$2,775,173. At September 30, 1998, net unrealized
appreciation of securities for federal income tax
purposes is as follows:
Unrealized appreciation $ 163,585
Unrealized depreciation (218,066)
---------
Net unrealized appreciation (depreciation) $ (54,481)
---------
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORNERCAP BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments at market value,
(Identified cost $1,938,665) (Note 1-A) $2,719,363
Cash 35,314
Interest and dividends receivable 22,848
Receivable for Securities Sold 91,997
Insurance Renewal 1,515
----------
Total assets 2,871,037
----------
LIABILITIES
Payable for securities purchased 86,012
Accrued expenses 2,796
----------
Total liabilities 88,808
----------
NET ASSETS
(Applicable to shares outstanding,
No par value, unlimited shares authorized) $2,782,229
==========
NET ASSET VALUE AND REPURCHASE PRICE PER SHARE
($2,782,229 divided by 242,324.867 shares) $11.48
======
NET ASSETS
At September 30, 1998, net assets consisted of:
Par Value @ .010 $2,423
Paid-in capital 3,363,813
Undistributed net investment income (loss) (680,360)
Accumulated net realized gains (losses) on investments 151,598
Unrealized appreciation (depreciation) of investments (54,481)
----------
$2,782,993
==========
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORNERCAP BALANCED FUND
STATEMENT OF OPERATIONS
Six Months Ended September 30, 1998 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income
Dividends $ 21,225
Interest 30,865
---------
Total investment income 52,090
---------
Expenses
Mangagement fee (Note 2) 12,402
Administration fees 3,721
---------
Total expenses 16,123
Net investment income 35,967
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized Gain (loss) from security transactions 138,317
Increase (decrease) in unrealized appreciation of investments (331,280)
---------
Net realized and unrealized gain (loss) on investments (192,963)
---------
Net increase (decrease) in net assets resulting from operations $ (156,995)
==========
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORNERCAP BALANCED FUND
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended September 30, 1998 and year ended March 31, 1998
- ---------------------------------------------------------------------------------------------------------------
Six Months ended Year ended
September 30, March 31,
1998 1998
----------------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income $ 35,967 $ 46,750
Net realized gain on investments 138,317 44,033
Change in unrealized appreciation of investments (331,280) 270,962
------------- ------------
Net increase (decrease) in net assets resulting
from operations (156,996) 361,745
Distributions to shareholders from
Net investment income ($.00 and $.19, respectively) 0 (35,472)
Realized gains ($.00 and $23.03, respectively) 0 (1,439,603)
------------- ------------
Total distributions 0 (1,475,075)
------------- ------------
Capital share transactions (a)
Increase in net assets resulting from
capital share transactions 645,034 1,314,079
------------- ------------
Total increase in net assets 488,038 200,749
NET ASSETS
Beginning of period 2,294,190 2,093,190
------------- ------------
End of period
(including undistributed net investment income of
$0.00 and $12,055, respectively) $ 2,782,228 $ 2,294,190
============= ============
<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 67,906 $807,686 80,377 $961,167
Shares reinvested 0 0 134,773 1,451,621
Shares redeemed (16,317) (162,652) (90,694) (1,098,709)
------- -------- ------- ----------
Net increase 51,589 $645,034 124,456 $1,314,079
======= ======== ======= ==========
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORNERCAP BALANCED FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- ---------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
September 30, 1998 March 31, 1998
------------------- ---------------
<S> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $12.21 $8.25*
----- ----
Income from investment operations
Net investment income 0.18 0.24
Net realized and unrealized gain (loss) on investments 3.45 2.20
---- ----
Total from investment operations 3.52 2.44
---- ----
Less distributions from -
Net investment income --.-- (0.19)
Realized gains --.-- (23.03)
------ ------
Total distributions --.-- (23.22)
------ ------
Net asset value, end of period $11.48 $12.21
===== =====
Total Return (5.98)% 19.13%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000) $2,782 $2,294
Ratios to average net assets (A)
Expenses 0.65% 1.53%**
Net investment income 1.45% 2.80%**
Portfolio turnover rate 32.35% 13.38%
* June 1, 1997
** Annualized
Per share amounts have been adjusted for the year ended May 31, 1997
to reflect a 1 for 4 reverse stock split effective June 30, 1997. On
June 14, 1997, a capital gain distribution of $22.91 per share ($5.73
per share on a pre-split basis) was paid to shareholders. The net
asset value per share on June 30, 1997, after the payment of the
capital gain distribution and the effect of the 1 for 4 reverse split,
was $10.86 per share.
(A) Fee waivers reduced the expense ratio and increased the net investment
income ratio by 1.25% in 1998.
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
/TABLE
<PAGE>
CORNERCAP BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
- ------------------------------------------------------------------------------
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CornerCap Balanced Fund (the "Fund") is a series of shares of the
CornerCap Group of Funds and is registered under the Investment
Company Act of 1940 as a diversified open-end management investment
company. Investment operations commenced on May 24, 1997, as a
result of the reorganization of the Atlanta Growth Fund. The
investment objective of the Fund is to obtain capital appreciation
and current income. The following is a summary of significant
accounting policies followed by the Fund in the preparation of the
financial statements. The policies are in conformity with
generally accepted accounting principles.
A. SECURITY VALUATION - Portfolio securities that are listed on
national securities exchanges or the NASDAQ National Market
System are valued at the last sale price as of 4:15 p.m.
Eastern time, or in the absence of recorded sales, at the
average of readily available closing bid and asked prices on
such exchanges or such System. Unlisted securities that are
not included in such System are valued at the mean of the
quoted bid and asked prices in the over-the-counter-market.
Securities and other assets for which market quotations are not
readily available are valued at fair value as determined in
good faith by the Advisor under procedures established by and
under the general supervision and responsibility of the Fund's
Board of Trustees. Short-term investments are valued at
amortized cost, if their original maturity was 60 days or less,
or by amortizing the values as of the 61st day prior to
maturity, if their original term to maturity exceeded 60 days.
B. SECURITY TRANSACTIONS, INVESTMENT INCOME AND OTHER - Security
transactions are recorded on the trade date. Realized gains
and losses on sales of investments are calculated on the
identified cost basis. Dividend income is recorded on the ex-
dividend date and interest income is recorded on the accrual
basis.
C. FEDERAL INCOME TAXES - It is the Fund's policy to meet the
requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its
taxable net income to its shareholders. In addition, the Fund
intends to pay distributions as required to avoid imposition of
excise tax. Therefore, no federal income tax provision is
required.
D. 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.
<PAGE>
CORNERCAP BALANCED FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
September 30, 1998
- ------------------------------------------------------------------------------
E. 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.
(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
Balanced Fund expenses are capped at 1.30% 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 ended 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 $1,204,706 and $330,540, respectively.
