CORNERCAP BALANCED FUND
ANNUAL REPORT TO SHAREHOLDERS
A Series of
CornerCap Group of Funds
A "Series" Investment Company
FOR THE FISCAL YEAR ENDED
MARCH 31, 1999
<PAGE>
<PAGE>
CORNERCAP GROUP OF FUNDS
MANAGER'S REPORT FOR THE SHAREHOLDERS
FOR THE YEAR ENDED MARCH 31, 1999
Dear Shareholder:
The fiscal year ended March 31, 1999, was probably the most unusual 12-month
period in our history of investing. This is not because of the overall
returns delivered in the market but because of the extremes and the
narrowness of the market. The only stocks that performed well were the
technology/internet stocks and a few giant companies, which tended to drive
the returns of the major indices. All other stocks, which are the vast
majority, were down significantly over this 12-month period.
In early April 1999, the above extremes reversed themselves. This
represents a market leadership change for 1999 that we had predicted in our
December 31, 1998, report, and we believe this recent shift in the market
will remain intact. The technology sector has dropped dramatically in
recent weeks, and the larger growth-oriented stocks have gone nowhere. Our
value-oriented approach to investing, which was stampeded by the herd last
year, is now being hoisted to new heights. These extreme near-term shifts
in the market have clearly been reflected in the recent returns of our
mutual funds, especially our all-equity CornerCap Growth Fund.
<TABLE>
<CAPTION>
------12 Months Ending----- Current Qtr
3/31/97 3/31/98 (Through 5/21/99)
------- ------- -----------------
<S> <C> <C> <C>
CornerCap Growth Fund 47.8% -26.0% 19.2%
CornerCap Balanced Fund 18.4%* - 0.5% 11.0%
* 10-month return
</TABLE>
We realize that fiscal year 1998 was a difficult period for our
shareholders. We encourage you to always think long-term and to avoid the
temptation of reacting to short-term events. The financial news media are
bringing more information to us than ever before, and this is a good thing.
However, we have to manage the information being presented and not let the
media manage us. The media are not successful unless they can react quickly
to events and arouse the emotions of their audience. Emotionally reacting
to recent events is the best way we know to lose money in the market.
As a long-term investor, the most important thing to do is to use competent
investment counsel, and we believe that CornerCap Investment Counsel meets
those criteria. Of equal importance, you must set the appropriate level of
risk for your long-term investments. Over time, and assuming competent
investment decisions, higher risk will be rewarded with higher returns.
These higher long-term returns will also come at a price, which is higher
near-term volatility. That risk/return tradeoff is clearly illustrated by
the returns (see above) from our all-equity growth fund versus our balanced
fund, which has targeted a 40% investment in the bond market. Please call
and talk with us if you would like to discuss this tradeoff in more detail.
We would like to report on some other activities relating to your mutual
fund company. Effective March 31, 1998, your Board of Trustees approved
changing the Funds to a Unified Fee Structure. The effect of this is that
the investment advisor, CornerCap Investment Counsel, is responsible for all
expenses of the Funds. The advisor is paid a flat annualized fee for the
CornerCap Balanced Fund and the CornerCap Growth Fund of 1.3% and 1.5%,
respectively. There are no load charges, 12(b)1 fees, or other selling
costs associated with our Funds.
Our fund company and the service providers for our mutual funds are
continuing to implement the Year 2000 (Y2K) compliance project. We have
made significant progress on all internal operations, and the Y2K readiness
plan is on schedule to meet our deadline. The current focus is on
evaluating the compliance efforts of third-party service providers with whom
we do business. We have also developed a comprehensive contingency plan
designed to ensure continuing business operations in the event a Y2K problem
does occur. We are currently testing and evaluating the contingency plan.
Although there are no guarantees, we believe that the steps we are taking
will protect the Funds' investment portfolios, as much as possible, from
problems related to the Year 2000.
CORNERCAP INVESTMENT COUNSEL
MAY 28, 1999
<PAGE>
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
CORNERCAP BALANCED FUND
ATLANTA, GEORGIA
We have audited the accompanying statement of assets and liabilities of
CornerCap Balanced Fund, including the portfolio of investments, as of March
31, 1999, and the related statement of operations for the year then ended,
the statement of changes in net assets and the financial highlights for the
periods indicated thereon. 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, 1999, 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 Balanced Fund as of March 31, 1999, the results of its operations
for the year then ended, the changes in its net assets and the financial
highlights for the periods indicated above in conformity with generally
accepted accounting principles.
/S/ TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
PHILADELPHIA, PENNSYLVANIA
MAY 6, 1999
<PAGE>
<PAGE>
CORNERCAP BALANCED FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999
_______________________________________________________________________________
VALUE
SHARES (NOTE 1-A)
------ ----------
COMMON STOCKS - 58.33%
-------------
AIR TRANSPORTATION - 1.76%
1,150 British Airway PLC ADR $78,919
----------
AUTOMOTIVE - 1.77%
1,400 Ford Motor Co. Del 79,450
----------
AEROSPACE - 4.87%
1,900 Goodrich BF Co. 65,194
1,800 Rockwell International Corp. 76,387
4,300 Gencorp, Inc. 77,400
----------
218,981
BANK - 1.78%
1,500 First Union Corp. 80,156
----------
BEVERAGES - 1.53%
900 Anheuser-Busch Companies, Inc. 68,569
----------
BUILDING MATERIALS - 1.82%
1,600 PPG Industries, Inc. 82,000
----------
COMMUNICATIONS - 4.32%
800 Sprint Corp. 78,500
400 Sprint Corp. PCS Group 17,725
1,500 Telefonos de Mexico 98,250
----------
194,475
----------
DIVERSIFIED - 3.54%
2,100 ITT Industries, Inc. 74,287
2,500 National Service Industries, Inc. 85,156
----------
159,443
----------
ELECTRIC LIGHTING AND WIRING EQUIPMENT - 1.73%
1,250 Johnson Ctls., Inc. 77,969
----------
ELECTRICAL UTILITIES - 3.42%
2,800 First Energy Corp. 78,225
2,900 Reliant Energy, Inc. 75,581
----------
153,806
----------
FINANCIAL SERVICES - 1.51%
550 JP Morgan & Co., Inc. 67,856
----------
INSURANCE 1.73%
2,000 Ohio Casualty Corp. 78,000
----------
MACHINERY - 2.97%
1,600 Briggs & Stratton 78,900
3,500 Flowserve Corporation 54,469
----------
133,369
----------
_______________________________________________________________________________
<PAGE>
<PAGE>
CORNERCAP BALANCED FUND
PORTFOLIO OF INVESTMENTS - (Continued)
MARCH 31, 1999
_______________________________________________________________________________
VALUE
SHARES (NOTE 1-A)
------ ----------
COMMON STOCKS - 58.33%
-------------
MARITIME - 1.70%
3,900 Alexander & Baldwin 76,536
----------
MEDICAL SUPPLIES - 3.80%
1,400 Bausch & Lomb, Inc. 91,000
3,000 Mallinckrodt, Inc. 79,875
----------
170,875
----------
METALS - 1.74%
4,800 Timken Co. 78,000
----------
MINING - 2.36%
1,600 Cyprus Amax Minerals 19,400
1,800 Reynolds Metals 86,962
----------
106,362
----------
OIL INDUSTRY - 1.64%
1,800 Ashland, Inc. 73,687
----------
PACKAGING & CONTAINERS - 1.36%
1,300 Ball Corp. 61,019
----------
PAPER & FOREST PRODUCTS - 2.02%
5,000 Abitibi Consolidated 44,063
4,200 Glatfelter P.H. Co. 46,988
----------
91,051
----------
PUBLISHING - 1.49%
2,300 Deluxe Corp. 66,988
----------
RETAIL - SPECIALTY - 0.80%
2,000 Enesco Group, Inc. 36,125
----------
STEEL INTERGRATED - 2.26%
1,200 Carpenter Technology 31,125
3,000 USX-U.S. Steel Group 70,500
----------
101,625
----------
TOBACCO - 3.13%
2,000 Philip Morris Companies, Inc. 70,375
2,700 US Tobacco, Inc. 70,537
----------
140,912
----------
TEXTILE - 1.50%
2,500 Spring Ind. 67,656
----------
THRIFT - 1.78%
3,801 Washington Fed. 79,811
----------
TOTAL COMMON STOCKS (COST $2,608,932) 2,623,640
----------
_______________________________________________________________________________
<PAGE>
<PAGE>
CORNERCAP BALANCED FUND
PORTFOLIO OF INVESTMENTS - (Continued)
MARCH 31, 1999
_______________________________________________________________________________
PRINCIPAL VALUE
AMOUNT (NOTE 1-A)
- --------- ----------
CORPORATE BONDS - 24.84%
---------------
ELECTRONIC COMPONENTS - 3.37%
$150,000 Sony, 6.125%, Due 03/04/03 $ 151,778
---------
ELECTRICAL UTILITIES - 3.41%
National Rural Utilities
150,000 6.375%, Due 10/15/04 153,547
---------
FINANCIAL SERVICE - 18.06%
GMAC
150,000 6.700%, Due 04/03/01 153,109
Merrill Lynch
150,000 6.375%, Due 10/15/08 149,670
Nations Bank
200,000 6.375%, Due 05/15/05 202,955
Norwest Financial
150,000 6.250%, Due 12/15/07 150,777
Walmart
150,000 6.750%, Due 05/15/02 155,607
---------
812,118
---------
TOTAL CORPORATE BONDS (COST $1,141,425) 1,117,443
---------
U.S. GOVERNMENT BONDS - 9.08%
U.S. Treasury
$150,000 5.75%, Due 08/15/03 $ 153,000
140,000 6.50%, Due 08/15/05 148,619
100,000 6.50%, Due 10/15/06 106,562
---------
TOTAL GOVERNMENT BONDS (COST $408,587) 408,181
---------
SHORT-TERM INVESTMENTS - 9.85%
----------------------
Wachovia Bank Short-Term Authorized Demand Notes
$443,082 (Cost $443,082) 443,082
---------
TOTAL INVESTMENTS (COST $4,602,026) (a) 102.10% 4,592,346
LIABILITIES IN EXCESS OF OTHER ASSETS (2.10)% (94,337)
------ ---------
NET ASSETS 100.00% $4,498,009
------ ---------
(a) Aggregate cost for federal income tax purpose is $4,602,026.
At March 31, 1999, unrealized appreciation (depreciation) of
securities for federal income tax purposes is as follows:
Gross unrealized appreciation $ 284,069
Gross unrealized depreciation (293,749)
---------
NET UNREALIZED DEPRECIATION $ (9,680)
---------
_______________________________________________________________________________
See accompanying notes to financial statements
<PAGE>
<PAGE>
CORNERCAP BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999
________________________________________________________________________________
ASSETS
Investments at market value,
(Identified cost $4,602,026) (Note 1-A) $ 4,592,346
Cash 256,509
Interest receivable 30,792
Dividends receivable 5,235
Other assets 1,515
----------
TOTAL ASSETS 4,886,397
----------
LIABILITIES
Payable for investment securities purchased $ 375,077
Payable for fund shares redeemed 8,601
Advisory fee payable 3,791
Service fees payable 919
----------
TOTAL LIABILITIES 388,388
----------
NET ASSETS
(Applicable to 387,136 shares outstanding,
unlimited number of shares authorized) $ 4,498,009
==========
NET ASSET VALUE OFFERING AND REPURCHASE
PRICE PER SHARE
($4,498,009 ) 387,136 shares) $ 11.62
----------
NET ASSETS
At March 31, 1999, net assets consisted of:
Paid-in capital $ 4,357,792
Undistributed net investment income 73,927
Accumulated net realized gains on investments 75,970
Net unrealized depreciation (9,680)
----------
$ 4,498,009
==========
________________________________________________________________________________
See accompanying notes to financial statements
<PAGE>
<PAGE>
CORNERCAP BALANCED FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
________________________________________________________________________________
INVESTMENT INCOME
Dividends $ 51,809
Interest 72,388
----------
TOTAL INCOME 124,197
----------
EXPENSES
Management fee (Note 2) 29,532
SERVICE COSTS (NOTE 2) 8,859
----------
TOTAL EXPENSES 38,391
----------
NET INVESTMENT INCOME 85,806
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from security transactions 196,394
Change in unrealized appreciation of investments (286,479)
----------
NET LOSS ON INVESTMENTS (90,085)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (4,279)
==========
_______________________________________________________________________________
See accompanying notes to financial statements
<PAGE>
<PAGE>
CORNERCAP BALANCED FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED MARCH 31, 1999 AND PERIOD ENDED MARCH 31, 1998*
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________
YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31,
1999 1998*
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income $ 85,806 $ 46,750
Net realized gain on investments 196,394 44,033
Increase (decrease) in unrealized appreciation
of investments (286,479) 270,962
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (4,279) 361,745
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
($0.07 and $0.19 per share, respectively) (19,152) (35,472)
Capital gains
($0.47 and $23.03 per share, respectively) (122,292) (1,439,603)
---------- ----------
CAPITAL SHARE TRANSACTIONS (a)
Increase in net assets resulting from capital
share transactions 2,349,542 1,314,079
---------- ----------
TOTAL INCREASE IN NET ASSETS 2,203,819 200,749
NET ASSETS
Beginning of period 2,294,190 2,093,441
---------- ----------
END OF PERIOD
(Including undistributed net investment income of
$73,927 and $12,055, respectively) $ 4,498,009 $ 2,294,190
========== ==========
</TABLE>
(a) SUMMARY OF CAPITAL SHARE ACTIVITY FOLLOWS:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
MARCH 31, 1999 MARCH 31, 1998*
------------------------ --------------------------
SHARES VALUE SHARES VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Shares sold 231,516 $ 2,735,803 80,377 $ 961,167
Shares issued on
reinvestment of distributions 11,916 139,421 134,773 1,451,621
-------- ---------- -------- ----------
243,432 2,875,224 215,150 2,412,788
Shares redeemed (44,201) (525,682) (90,694) (1,098,709)
-------- ---------- -------- ----------
NET INCREASE 199,231 $ 2,349,542 124,456 $ 1,314,079
======== ========== ======== ==========
* The Fund has changed its year-end from May 31st to March 31st.
Represents the period from June 1, 1997 through March 31, 1998.
_______________________________________________________________________________________________________
See accompanying notes to financial statements
</TABLE>
<PAGE>
<PAGE>
CORNERCAP BALANCED FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FOR THE PERIOD
YEAR ENDED JUNE 1, 1997 TO MAY 24, 1997* TO
MARCH 31, 1999 MARCH 31, 1998(a) MAY 31, 1997
-------------- ----------------- ----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.21 $ 32.99 $ 33.20
INCOME FROM INVESTMENT OPERATIONS -
Net investment income .21 .24 .01
Net realized and unrealized gain
(loss) on investments (.26) 2.20 (.22)
TOTAL FROM INVESTMENT OPERATIONS (.05) 2.44 (.21)
LESS DISTRIBUTIONS FROM -
Net investment income (.07) (.19) -
Realized gains (.47) (23.03) -
TOTAL DISTRIBUTIONS (.54) (23.22) -
NET ASSET VALUE, END OF PERIOD $ 11.62 $ 12.21 $ 32.99
TOTAL RETURN (.46)% 19.13% (.60)%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD ($000) $ 4,498 $ 2,294 $ 2,093
RATIOS TO AVERAGE NET ASSETS (b)
Expenses 1.30% 1.53%** 2.00%**
Net investment income 2.91% 2.80%** 4.50%**
PORTFOLIO TURNOVER RATE 38.47% 13.38% 98.90%
</TABLE>
* Commencement of operations
** 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) The Fund has changed its year-end from May 31st to March 31st.
(b) Fee waivers reduced the expense ratio and increased the net investment
income ratio by 1.25% in 1998.
________________________________________________________________________________
See accompanying notes to financial statements
<PAGE>
<PAGE>
CORNERCAP BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
_______________________________________________________________________________
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CornerCap Balanced Fund (the "FUND") is a series of shares of the
CornerCap Group of Funds and is registered under the Investment Company
Act of 1940 as a diversified open-end management investment company.
Investment operations commenced on May 24, 1997 as a result of the
reorganization of the Atlanta Growth Fund (Note 4). The investment
objective of the Fund is to obtain capital appreciation and current
income. The following is a summary of significant accounting policies
followed by the Fund in the preparation of the financial statements.
The policies are in conformity with generally accepted accounting
principles.
A. SECURITY VALUATION - Portfolio securities that are listed on national
securities exchanges or the NASDAQ National Market System are valued
at the last sale price as of 4:15 p.m. Eastern time, or in the absence
of recorded sales, at the average of readily available closing bid and
asked prices on such exchanges or such System. Unlisted securities
that are not included in such System are valued at the mean of the
quoted bid and asked prices in the over-the-counter-market. Securities
and other assets for which market quotations are not readily available
are valued at fair value as determined in good faith by the Advisor
under procedures established by and under the general supervision and
responsibility of the Fund's Board of Trustees. Short-term
investments are valued at amortized cost, if their original maturity
was 60 days or less, or by amortizing the values as of the 61st day
prior to maturity, if their original term to maturity exceeded 60
days.
B. SECURITY TRANSACTIONS, INVESTMENT INCOME AND OTHER - Security
transactions are recorded on the 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.
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.
________________________________________________________________________________
<PAGE>
<PAGE>
CORNERCAP BALANCED FUND
NOTES TO FINANCIAL STATEMENTS - (Continued)
MARCH 31, 1999
_______________________________________________________________________________
(2) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
The Fund has an investment advisory agreement with CornerCap
Investment Counsel, Inc. (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.
In addition, the Fund has a service agreement with the Advisor,
pursuant to which the Advisor receives a fee, computed daily and
payable monthly at an annual rate of .30% of average net assets.
The Advisor will provide day-to-day operational services to the Fund
including, but not limited to, providing or arranging to provide
accounting, administrative, legal (except litigation), dividend
disbursing, transfer agent, registrar, custodial, shareholder
reporting, sub accounting and recordkeeping services. All fees
and expenses associated with these and other functions including,
but not limited to, expenses of legal compliance, shareholder
communication and meetings of the Shareholders and the Board of
Trustees will be paid by the Advisor.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended March 31, 1999, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities,
were $3,196,879 and $1,032,293, respectively.
(4) STOCK SPLIT
Effective June 30, 1997, the Fund had a reverse stock split of 1 share
for every 4 shares owned. The financial highlights for the period
ended May 31, 1997 have been adjusted retroactively to reflect this
split.
_______________________________________________________________________________
