File Nos. and 33-3149 and 811-4581
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. __
Post-Effective Amendment No. 20
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 22
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(Check appropriate box or boxes)
CORNERCAP GROUP OF FUNDS
The Peachtree, Suite 1700, 1355 Peachtree Street NE, Atlanta, Georgia 30309
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (404) 870-0700
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Thomas E. Quinn, The Peachtree, Suite 1700,
1355 Peachtree Street NE, Atlanta, Georgia 30309
(Name and Address of Agent for Service)
With copy to:
Reinaldo Pascual, Esq., Kilpatrick Stockton LLP,
1100 Peachtree Street, Suite 2800 Atlanta, Georgia 30309
Release Date: July 27, 2000
It is proposed that this filing will become effective:
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immediately upon filing pursuant to ------- on (date) pursuant to paragraph (b) of Rule
- ------- paragraph (b) 485
60 days after filing pursuant to ------- on (date) pursuant to paragraph (a) of Rule
- ------- paragraph (a) 485
75 days after filing pursuant to X on July 27, 2000 pursuant to paragraph
- ------- paragraph (a)(2) ------- --------
(a)(2) of Rule 485
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TITLE OF SECURITIES BEING REGISTERED: Common Stock, par value $.01 per share
The Registrant hereby registers an indefinite number of securities
under Rule 24f-2 of the Investment Company Act of 1940.
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CORNERCAP GROUP OF FUNDS
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CORNERCAP CORNERCAP
BALANCED FUND SMALL-CAP VALUE FUND
CORNERCAP
EMERGING GROWTH FUND
PROSPECTUS
July 27, 2000
TABLE OF CONTENTS
Prospectus Summary......................................................... 1
Historical Performance of the Funds........................................ 3
Summary of Fund Expenses................................................... 4
Financial Highlights....................................................... 5
The Fund in Detail: Objectives, Strategy and Additional Risks............. 7
Management................................................................. 10
Valuation of Shares........................................................ 11
Purchasing Shares.......................................................... 11
Exchange Privilege......................................................... 12
Redeeming Shares........................................................... 12
Additional Information About Purchases, Sales and Exchanges................ 13
Dividend and Tax Information............................................... 13
Additional Information..................................................... 15
The CornerCap Group of Funds currently offers three separate series representing
separate portfolios of investments: the CornerCap Balanced Fund, the CornerCap
Small-Cap Value Fund, and the CornerCap Emerging Growth Fund.
______________________________________________________________________________
| |
| 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 or any state securities commission |
| passed on the accuracy or adequacy of this prospectus. Any representation |
| to the contrary is a criminal offense. |
|______________________________________________________________________________|
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PROSPECTUS INVESTMENT OBJECTIVES AND
SUMMARY STRATEGY
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SUMMARY: OBJECTIVES AND STRATEGY OBJECTIVES AND INVESTMENT STRATEGY OF THE BALANCED FUND: The
The Balanced Fund: The Balanced Balanced Fund's investment objective is to obtain long-term
Fund's investment objective is to capital appreciation and current income. To meet its investment
obtain long-term capital appreciation objective, the Balanced Fund typically invests between 50% and 70%
and current income. of its assets in equity securities, such as common stocks,
The Small-Cap Value Fund: The preferred stocks, and convertible securities. Although the Fund
Small-Cap Value Fund's investment may invest in companies of any size, the Fund invests primarily in
objective is to obtain long-term the domestic common stock of large-cap and mid-cap companies which
capital appreciation. A secondary the Fund's Advisor believes to have above-average growth potential.
objective is to generate income from The Fund's Advisor selects these securities from among 1,500
dividends or interest on securities. issues ranked according to several fundamental factors using the
Advisor's proprietary models. Three of the most important factors
The Emerging Growth Fund: The in the Advisor's model are the following:
Emerging Growth Fund's investment o relative price/earnings ratio
objective is to obtain long-term o earnings growth rates
capital appreciation. o cash flow measurements
Although the exact percentage varies in accordance with economic
WHAT DO LARGE-, MID-, SMALL, and and market conditions, the Fund balances its equity investments by
MICRO-CAP MEAN? typically investing between 20% and 40% in fixed income
The capitalization ("cap") of a securities, such as obligations of the United States government,
company refers to the value of its corporate securities including bonds and notes, and sovereign
outstanding securities. You can government municipal, mortgage-backed and other asset-backed
calculate a company's capitalization securities. The Fund may invest in fixed income securities of any
by multiplying the number of its maturity. In addition, the Balanced Fund may hold cash and cash
outstanding shares by the current equivalents.
market price of those shares. The
largest publicly traded stocks have a
market capitalization of over $250 OBJECTIVES AND INVESTMENT STRATEGY OF THE SMALL-CAP VALUE FUND:
billion while the smallest publicly The Small-Cap Value Fund's investment objective is to obtain
traded stocks may have a market long-term capital appreciation. A secondary objective is to
capitalization of under $50 million. generate income from dividends or interest on securities. To meet
The Funds define large-, mid-, and its investment objectives, the Small-Cap Value Fund normally
small-cap as follows: invests more than 90% of its assets in equity securities of
LARGE-CAP: A large-cap stock has a domestic and foreign issuers, such as common stocks, preferred
market capitalization of at least $5 stocks, and convertible securities. Although the Fund may invest
billion. in companies of any size, the Fund invests primarily in the
MID-CAP: A mid-cap stock has a domestic common stock of small-cap and mid-cap companies which the
market capitalization of at least $1 Fund's Advisor believes to have above-average growth potential.
billion. The Fund's Advisor selects these securities from among 1,500
SMALL-CAP: A small-cap stock has a issues ranked according to several fundamental factors using the
market capitalization under $1 Advisor's proprietary models. Three of the most important factors
billion. in the Advisor's model are the following:
MICRO-CAP: A micro-cap stock is o relative price/earnings ratio
among the smallest of traded stocks, o earnings growth rates
typically with market capitilizations o cash flow measurements
of under $300 million. Assets of the Small-Cap Value Fund not invested in equity
securities may be invested in short-term U.S. Government
obligations or cash equivalent instruments.
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OBJECTIVES AND INVESTMENT STRATEGY OF THE EMERGING GROWTH FUND: The Emerging
Growth Fund's investment objective is to obtain long-term capital appreciation.
To meet its investment objectives, the Emerging Growth Fund will normally invest
more than 90% of its assets in equity securities such as common stocks,
preferred stocks, and convertible securities. Although the Fund may invest in
companies of any size, it will invest primarily in the domestic common stock of
micro-cap companies which the Fund's Advisor believes to have above-average
growth potential. The micro-cap securities may or may not be listed on the major
exchanges. The Fund's Advisor will select securities based on research which
emphasizes revenue growth and momentum. Other factors that will be considered
include the following:
o changes in quarter to quarter earnings and cash flow,
o movements in stock price,
o a stock's liquidity,
o management ownership of a stock, and
o how a company's growth is financed.
Assets of the Emerging Growth Fund not invested in equity securities are
typically invested in short-term U.S. Government obligations or cash equivalent
instruments.
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SUMMARY: PRINCIPAL RISKS OF PRINCIPAL RISKS OF INVESTING IN ALL THE FUNDS
THE FUNDS
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EQUITY SECURITY INTEREST RATE RISK: An increase in interest rates may
Like any investment, an lower the present value of a company's future earnings stream. Because
investment in any of the the market price of a stock continuously changes based upon investors'
Funds may lose money. collective perceptions of future earnings, stock prices will generally
Individual companies and decline when investors anticipate or experience rising interest rates.
sectors of the economy
present their own set of MARKET RISK: Stock prices fluctuate in response to many factors,
unique risks which may cause including the activities of individual companies and general market and
the Funds to underperform the economic conditions. Regardless of any one company's particular
overall stock or bond prospects, a declining stock market may produce a decline in stock prices
markets. Because of the for all companies. Stock market declines may continue for an indefinite
risks associated with period of time, and investors should understand that from time to time
investments in securities, during temporary or extended bear markets, the value of the Funds may
the Funds are intended to be decline.
long-term investment vehicles
and are not designed to BUSINESS AND ECONOMIC RISK: Often, a particular industry, or certain
provide investors with a companies within that industry, may be affected by circumstances that
means of speculating on have little to no impact on other industries, or other companies within
short-term stock market that industry. For example, many industries and companies rely heavily
movements. on one type of technology. If this technology becomes outdated, or
ceases to be cost-effective, industries and companies that rely on the
Accordingly, you should technology may become unprofitable while companies outside the industry
understand the principal may not be affected at all.
risks of investing in the
Funds, each of which is
described in detail in the
facing column.
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POLITICAL RISK: The regulation or deregulation of particular industries may
materially impact the value of companies within the affected industry. For
example, during the past few years, electric and gas utility sectors of the
economy have been moving towards deregulation and open price competition. In
this new environment, some companies will make a successful transition into,
and prosper under, deregulation, and other companies will mismanage the
process and do poorly.
SMALL COMPANY RISK: Stocks of smaller companies may have more risks than
larger companies. In general, they have less experienced management teams,
serve smaller markets, and find it more difficult than larger companies to
obtain financing for growth or potential development. Further, there is
typically a smaller market for the securities of a small-cap company than for
the securities of a large company. Due to these and other factors, small
companies may be more susceptible to market downturns, and their stock prices
may be more volatile.
ADDITIONAL PRINCIPAL RISKS OF AN INVESTMENT IN THE EMERGING GROWTH FUND
The small company risks are especially prominent in the Emerging Growth Fund
which invests almost exclusively in the smallest of traded stocks. Investments
in micro-cap stocks tend to be volatile and highly speculative. Investors
should be able to bear the economic risks of the investment, including
incurring substantial losses.
In addition to investments in micro-cap stocks, the Emerging Growth Fund may
occasionally make principals investments, where a portion of the Fund's assets
are invested in a private placement for the purpose of acquiring all or a
significant portion of a company's stock. The Advisor will carefully monitor
these investments, but they are very high-risk, and may result in a
substantial or complete loss of the amounts invested.
ADDITIONAL RISKS OF AN INVESTMENT IN THE BALANCED FUND
BOND INTEREST RATE RISK: Bond prices will rise when interest rates fall, and
will decline when interest rates rise. These fluctuations in bond prices will
be more marked with respect to long-term bonds than with respect to short-term
bonds. In addition, the prices of lower coupon bonds are generally more
volatile than higher coupon bonds of the same approximate maturity.
CREDIT RISK: Bond issuers who are experiencing difficult economic
circumstances, either because of a general economic downturn or individual
circumstances, may be unable to make interest payments on their bonds when
due. Additionally, bond issuers may be unable to repay the principal upon
maturity of their bonds. These sorts of "credit risks," reflected in the
credit ratings assigned to bond issues by companies like Moody's or Standard &
Poor's, may cause the price of an issuer's bond to decline, and may affect
liquidity for the security. Normally, bonds with lower credit ratings will
have higher yields than bonds with the highest credit ratings, reflecting the
relatively greater risk of bonds with lower credit ratings.
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HISTORICAL PERFORMANCE OF THE FUNDS
The bar charts and tables shown below provide an indication of the risks of
investing in the Funds by showing changes in the Funds' performance from year to
year and by showing how the Funds' average annual returns for 1, 5, and 10 years
compared to those of a broad-based securities market index.
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| BALANCED FUND | SMALL-CAP VALUE FUND | EMERGING GROWTH FUND* |
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Year-by-year total return as of Year-by-year total return as of Year-by-year total return as of
12/31 each year (%) 12/31 each year (%) 12/31 each year (%)
<S> <C> <C> <C> <C> <C> <C><C> <C> <C><C> <C> <C> <C> <C> <C> <C>
40 40 40
| | 34.6 32.6 | 32.7
30 30 | 28.9 | 30 |
| | | | | | |
20 20 | 9.7 | | 20 |
| 11.3 | | 8.9 | | | | 10.36 |
10 | 10 | 5.4 | | | | 10 | | |
| | 0.7 | | | | | | | 2.7 | | | |
0___|____|_______________________ 0_______|___|__|___|___|___|___|__ __|_ 0___|_____|_____|___________________
| | | | | | |
- -10 -10 | -3.9 | -10 |
| | -16.1 -10.6 | -10.48
- -20 -20 -20
1998 1999 1 1 1 1 1 1 1 1 1 1 1 1 1
9 9 9 9 9 9 9 9 9 9 9 9 9
9 9 9 9 9 9 9 9 9 9 9 9 9
0 1 2 3 4 5 6 7 8 9 7 8 9
_____________________________________ ________________________________________ _________________________________________
2nd Quarter 2000 Year-to-Date Return:% 2nd Quarter 2000 Year-to-Date Return: % 2nd Quarter 2000 Year-to-Date Return: %
Best Quarter: 4th Qtr. 1998 9.2% Best Quarter: 1st Qtr. 198917.2% Best Quarter: 4th Qtr. 199920.2%
Worst Quarter: 1st Qtr. 1999-3.2% Worst Quarter: 3rd Qtr. 1998-17.8% Worst Quarter: 3rd Qtr. 1998-24.5%
- -------------------------------------- ---------------------------------------- -----------------------------------------
Average annual total return Average annual total return Average annual total return
as of 12/31/99* as of 12/31/99* as of 12/31/99*
Since Since
1 Year Inception 1 Year 5 Year 10 Year 1 Year Inception
------ --------- ------ ------ ------- ------ ---------
Balanced Fund 0.7% 8.1 Small-Cap 2.7% 11.5% 6.9% Emerging 32.7% 11.0%
Value Fund Growth Fund
Russell 1000 20.9% 26.4% Russell 2000 21.3% 16.7% 13.4% Russell 2000 21.3% 14.7%
Value Index (a) Value Index (c) Value Index (c)
Combined Index 12.9% 14.2%
Portfolio
(60% Stocks and
40% Bonds) (b)
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a The Russell 1,000 Value Index measures the performance of those companies
out of the 1,000 largest U.S. companies (based on total market
capitalization) that have lower price-to-book ratios and lower forecasted
growth values.
b The Balanced Fund has elected to balance the comparative index -- 60% the
Russell 1,000 Value Index and 40% the Lehman Brothers Government/Corporate
Bond Index. The Russell 1,000 Value Index measures the performance of the
1,000 largest U.S. companies (based on total market capitalization) that
have lower price-to-book ratios and lower forecasted growth values. The
Lehman Brothers Government/Corporate Bond Index measures the general
performance of fixed-income securities by tracking publicly issued U.S.
Treasury and debt obligations (excluding mortgage-backed securities),
fixed-rate, non-convertible, investment-grade corporate debt securities, and
U.S. dollar-denominated, SEC-registered non-convertible debt issued by
foreign governmental entities or international agencies.
c The Russell 2000 Value Index measures the 2,000 smallest of the 3,000
largest U.S. companies (based on total market capitalization) that have
lower price-to-book ratios and lower forecasted growth values.
* The performance figures are for the Cornerstone Microcap Fund, L.P., a
private, unregistered fund which transferred its assets to the Emerging
Growth Fund on July 27, 2000. The Cornerstone Microcap Fund was managed by
the same Advisor as the Emerging Growth Fund. It pursued the same objectives
and employed the same strategies as the Emerging Growth Fund.
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SUMMARY OF The purpose of the tables below is to assist you in understanding the
FUND various costs and expenses that you will bear directly or indirectly
EXPENSES as a shareholder of either Fund.
SHAREHOLDER FEES
Shareholder Fees are The Funds do not charge any sales charges or sales loads. However, if
fees paid directly you buy or sell shares indirectly through a broker instead of directly
from your investment from the Funds, you may be charged a fee by the broker.
ANNUAL OPERATING EXPENSES
EMERGING
BALANCED SMALL-CAP GROWTH
FUND VALUE FUND FUND
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Annual Operating Management Fee 1.00% 1.00% 1.00%
Expenses are Other Expenses 0.30% 0.50% 0.90%
expenses that are ---- ---- ----
deducted from Total Fund Expense 1.30% 1.50% 1.90%
Fund assets ==== ==== ====
Redemption Fee 0.00 0.00 2.00%*
Note: The annual operating expenses listed above are expressed as a
percentage of average daily net assets
* The redemption fee applies to all redemptions (sales or exchanges) made
within one year of purchase; it is deducted from redemption proceeds, and
retained by the Fund, not the Advisor. After you have held you shares
for one year, the redemption fee will not apply if you give the Fund 30
days notice of your intent to redeem.
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EXAMPLE OF FUND EXPENSES
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WHAT THIS EXAMPLE WILL The example below assumes that you invest $10,000 in either of the
SHOW YOU: The example to Funds for the time periods indicated, and then redeem all of your
the right is intended to shares at the end of those periods. The example also assumes that your
help you compare the costs investment has a 5% return each year, and that the Funds' operating
of investing in the Funds expenses remain the same. Although your actual costs may be higher or
to the costs of other lower, based on these assumptions your costs would be:
mutual funds.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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NOTE: The rate of return BALANCED FUND $132 $412 $ 713 $1,568
used in the example is SMALL-CAP VALUE FUND $153 $474 $ 818 $1,791
hypothetical and should EMERGING GROWTH FUND* $393 $597 $1,026 $2,222
not be considered a
representation of either THE ACTUAL EXPENSES ASSOCIATED WITH THE FUNDS MAY BE GREATER OR LESS
Fund's past or future THAN THOSE SHOWN.
performance.
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* For the Emerging Growth Fund, the 2% redemption fee is included for each of
the time periods; however, if you hold your shares for more than 1 year and
give the Advisor 30 days notice prior to redemption, the fee will not apply.
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FINANCIAL
HIGHLIGHTS
The financial highlights tables below are intended to help you understand the
Funds' financial performance for the time periods indicated. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment** in the Fund (assuming reinvestment of all dividends and
distributions). The information in the financial highlights tables has been
audited by the Funds' independent accountants, Tait, Weller and Baker, whose
report, along with the Fund's financial statements, is included in the Funds'
Annual Reports to Shareholders, incorporated by reference into this Prospectus,
and available upon request.
SMALL-CAP VALUE FUND
The following are selected per share data and ratios for the Small-Cap Value
Fund for each of the last five years in the period ended March 31, 2000.
RESULTS FOR THE YEARS ENDED MARCH 31:
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2000 1999 1998 1997 1996
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NET ASSET VALUE, BEGINNING OF YEAR $14.85 $11.68 $ 9.81 $8.61
INCOME FROM INVESTMENT OPERATIONS: ----- ----- ----- ----
Net Investment Income .04 .21 0.02 0.04
Net Gains (Losses) on Securities
(both realized and unrealized) (3.85) 5.05 1.93 1.22
----- ---- ----- ----
TOTAL FROM INVESTMENT OPERATIONS (3.81) 5.26 1.95 1.26
LESS DISTRIBUTIONS: ----- ---- ----- ----
Dividends from Net Investment Income - (.22) (.01) (0.06)
Distributions from Capital Gains (1.48) (1.87) (.07) -
----- ---- ----- ----
Total Distributions (1.48) (2.09) (.08) (0.06)
----- ---- ----- ----
NET ASSET VALUE, END OF YEAR $ 9.56 $14.85 $11.68 $9.81
===== ===== ===== ====
TOTAL RETURN (25.98%) 47.69% 19.94% 14.64%
RATIOS/SUPPLEMENTAL DATA:
2000 1999 1998 1997 1996
- ------------------------------------------------ ----------- ----------- ------------ ----------- ------------
Net Assets, End of Year (thousands) $12,090 $17,942 $12,856 $8,371
Ratio of Expenses to Average Net Assets 1.50% 1.56% 1.71% 1.75%
Ratio of Net Income to Average Net Assets 0.23% 0.17% 0.19% 0.49%
Portfolio Turnover Rate 39.16% 48.82% 37.13% 40.83%
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BALANCED FUND
The following are selected per share data and ratios for the Balanced Fund for
the periods indicated since it began operations May 24, 1997, following a
reorganization of The Atlanta Small-Cap Growth Fund, Inc., which resulted in the
Balanced Fund assuming certain assets and liabilities of The Atlanta Growth
Fund, Inc.
RESULTS FOR A SHARE OUTSTANDING FOR THE PERIOD:
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YEAR ENDED YEAR ENDED MAY 31, 1997 TO MAY 24, 1997 TO
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998* MAY 31, 1997*
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NET ASSET VALUE, BEGINNING OF PERIOD $12.21 $32.99 $33.20
INCOME FROM INVESTMENT OPERATIONS: ----- ----- -----
Net Investment Income 0.21 0.24 0.01
Net Gains (Losses) on Securities
(both realized and unrealized) (0.26) 2.20 (0.22)
----- ---- -----
TOTAL FROM INVESTMENT OPERATIONS (0.05) 2.44 (0.21)
LESS DISTRIBUTIONS: ----- ---- -----
Dividends from Net Investment Income (0.07) (0.19) -
Distributions from Capital Gains (0.47) (23.03) -
----- ----- -----
Total Distributions (0.54) (23.22) -
----- ----- -----
NET ASSET VALUE, END OF PERIOD $11.62 $12.21 $32.99
===== ===== =====
TOTAL RETURN (0.46%) 19.13% (0.60%)
RATIOS/SUPPLEMENTAL DATA:
YEAR ENDED YEAR ENDED MAY 31, 1997 TO MAY 24, 1997 TO
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998* MAY 31, 1997*
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (thousands) $4,498 $2,294 $2,093
Ratio of Expenses to Average Net Assets 1.30% 1.53%** 2.00%**
Ratio of Net Income to Average Net Assets 2.91% 2.80%** 4.50%**
Portfolio Turnover Rate 38.47% 13.38% 98.90%
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EMERGING GROWTH FUND
There is no historical financial information for the Emerging Growth Fund since
it is a new fund, commencing operations on July 27, 2000.
- ---------------
* The Balanced Fund initially had a fiscal year ending on May 31. The
Balanced Fund's fiscal year was changed after the May 31, 1997 fiscal year
to end March 31 to correspond to the fiscal year of the Small-Cap Value
Fund.
** Annualized
Per share amounts in the table above have been adjusted to reflect a
one-for-four 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
one-for-four reverse split, was $10.86 per share. Fee waivers reduced the
expense ratio and increased the net investment income ratio by 1.25% in 1998.
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THE FUND IN DETAIL
OBJECTIVES, STRATEGY AND
ADDITIONAL RISKS
An investment in any one of the Funds cannot be considered a complete investment
program. An investor's needs will depend largely on his or her financial
resources and individual investment goals and objectives. Investors who engage
in short-term trading and/or other speculative strategies and styles may not
find the Funds to be an appropriate investment vehicle.
BALANCED FUND
INVESTMENT OBJECTIVE: The Balanced Fund's investment objective is to obtain
long-term capital appreciation and current income.
INVESTMENT STRATEGY: To achieve its objective, the Balanced Fund normally will
invest 50% to 70% of its total assets in equity securities of domestic and
foreign issuers and between 20% and 40% of its total assets in fixed income
securities, such as bonds or money market securities. The investment Advisor to
the Balanced Fund, CornerCap Investment Counsel, Inc. (the "Advisor") has chosen
to allocate the Balanced Fund's assets in this manner because it believes that
the objective of long-term capital appreciation and current income will be
maximized by placing primary emphasis on equity securities. Equity securities
have historically provided long-term investors with higher total returns than
most fixed income securities. However, in the short-term (i.e., less than 5
years), fixed income securities or money market instruments may provide higher
returns than equity securities.
The equity securities in which the Balanced Fund may invest typically will
consist of common stocks, preferred stocks, or convertible securities. The Fund
invests primarily in domestic common stock of large-cap and mid-cap companies
that the Advisor believes have above-average growth potential. Generally these
equity securities will be publicly traded on a national securities exchange or
over-the-counter. The Balanced Fund may also invest in fixed income securities
such as obligations of the United States government, corporate securities
including bonds and notes, and sovereign government municipal, mortgage-backed
and other asset-backed securities. These fixed income securities may have
varying dates of maturity and the average date of maturity may vary depending on
market and economic conditions.
The Advisor will seek out issuers of equity securities who demonstrate the
prospect for above average growth of earnings and dividends. Above average
growth refers to the actual or potential ability of an issuer to increase its
earnings and dividends at a rate greater than the average growth rate of the
broad market averages. The Fund's Advisor selects securities from among 1,500
issues ranked according to several fundamental factors using the Advisor's
proprietary models. Among other fundamental factors, the Balanced Fund and the
Advisor will emphasize the following three key criteria when choosing equity
securities with the potential for long-term capital appreciation:
1. relative price/earnings ratio;
2. earnings growth rates; and
3. cash flows in excess of expenditures.
The Advisor will also consider other factors such as diversification and risk,
and purchases will be made only if they can be made at prices which, in the
judgment of the Advisor, create the possibility of additional growth in capital.
The Balanced Fund will only invest in those corporate obligations, including
convertible securities, that in the opinion of the Advisor exhibit 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. The
Balanced Fund does not require that its investments in corporate obligations
actually be rated by Moody's or S&P. Should the rating or quality of a corporate
obligation decline after purchase by the Balanced Fund, the Advisor will
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reconsider the advisability of continuing to hold such obligations. There can be
no assurance that the Balanced Fund will achieve its objective.
SMALL-CAP VALUE FUND
INVESTMENT OBJECTIVE: The Small-Cap Value Fund's primary investment objective is
to obtain long-term capital appreciation. Income from dividends or interest on
portfolio securities is a secondary objective.
INVESTMENT STRATEGY: To achieve its objectives, the Small-Cap Value Fund will
invest at least 65% of its assets in equity securities having the
characteristics described below, and it is expected that under normal
circumstances the Small-Cap Value Fund will be over 90% invested in equity
securities. The Fund invests primarily in domestic stocks of small-cap and
mid-cap companies that the Advisor believes have above-average growth potential.
The remainder of the portfolio may be invested in short-term United States
government obligations or cash equivalent instruments.
The equity securities in which the Small-Cap Value Fund may invest typically
will consist of common stocks, preferred stocks, or convertible securities.
Generally these equity securities will be publicly traded on a national
securities exchange or over-the-counter.
The investment Advisor to the Small-Cap Value Fund, CornerCap Investment
Counsel, Inc. (the "Advisor") will seek out issuers of small-cap and mid-cap
equity securities who demonstrate the prospect for above average growth of
earnings and dividends. Above average growth refers to the actual or potential
ability of an issuer to increase its earnings and dividends at a rate greater
than the average growth rate of the broad market averages. Among other
fundamental factors, the Small-Cap Value Fund and the Advisor will emphasize the
following three key criteria when choosing equity securities with the potential
for long-term capital appreciation:
1. relative price/earnings ratio;
2. earnings growth rates; and
3. cash flows in excess of expenditures.
The Advisor will also consider other factors such as diversification and risk,
and purchases will be made only if they can be made at prices which, in the
judgment of the Advisor, create the possibility of additional growth in capital.
There can be no assurance that the Small-Cap Fund will achieve its objective.
EMERGING GROWTH FUND
INVESTMENT OBJECTIVE: The Emerging Growth Fund's investment objective is to
obtain long-term capital appreciation.
INVESTMENT STRATEGY: The Emerging Growth Fund will normally invest more than 90%
of its assets in equity securities such as common stocks, preferred stocks, and
convertible securities. Although the Fund may invest in companies of any size,
it will invest primarily in the domestic common stock of micro-cap companies
which the Fund's Advisor believes to have above-average growth potential. The
micro-cap securities may or may not be listed on the major exchanges.
The Fund's Advisor will select securities based on research which will emphasize
revenue growth and momentum. Other factors that will be considered include the
following:
o changes in quarter to quarter earnings and cash flow,
o movements in stock price,
o a stock's liquidity,
o management ownership of a stock, and
o how a company's growth if funded.
Trading costs are expected to be a significant factor in maximizing the Fund's
return. Not because of commissions, which are set very efficiently, but because
it may difficult to buy and sell micro-cap stocks without causing the trades to
move the stocks' price. In addition, since these securities are less liquid than
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the securities of larger companies, it may be difficult to buy and sell the
securities at a favorable price. The Advisor will attempt to monitor and control
trading costs.
Assets of the Emerging Growth Fund not invested in equity securities are
typically invested in short-term U.S. Government obligations or cash equivalent
instruments.
TEMPORARY DEFENSIVE POSITIONS
Each Fund may, from time to time, take temporary defensive positions that are
inconsistent with the Fund's principal investment strategies in an attempt to
respond to adverse market, economic, political or other conditions. When a Fund
takes a temporary defensive position, the Fund may not be able to achieve its
investment objective.
PORTFOLIO TURNOVER
Portfolio turnover measures the rate at which the securities in a fund's
portfolio change during any given year. Portfolio turnover involves expense to a
fund in the form of brokerage commissions and other transaction costs, which may
adversely impact the fund's performance. Additionally, an increase in portfolio
turnover may result in an increase or decrease in taxable gain or loss
attributable to shareholders of a fund. The Advisor intends to trade securities
in each Fund for long-term profits, and expects that under normal conditions,
portfolio turnover should be less than 50%. However, the rate of portfolio
turnover may be higher for a Fund if implementation of the Fund's investment
strategy or a temporary defensive position results in frequent trading.
ADDITIONAL RISKS
In addition to the principal risks of investing in the Funds, as described under
"Prospectus Summary--Principal Risks of Investing in the Funds" on page 2, the
following are additional risks of investing in the Funds.
FOREIGN SECURITIES: The Balanced Fund may, using the criteria set forth above,
invest up to 25% of its assets in foreign equity or corporate debt securities.
Additionally, the Small-Cap Value Fund and the Emerging Growth Fund may, using
the criteria set forth above, invest up to 20% of their assets in securities of
foreign issuers. The Advisor anticipates that such investments by the Funds will
be made in U.S. dollar denominated securities in the form of (i) American
Depository Receipts (ADRs) issued against the securities of foreign issuers, or
(ii) other securities of foreign issuers that are traded on U.S. national
securities exchanges or in the U.S. over-the-counter market.
There are 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 United States. 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.
FUTURES, OPTIONS, AND OTHER DERIVATIVE INSTRUMENTS: The Balanced Fund may
purchase and write options on securities and may invest in futures contracts for
the purchase and sale of foreign currencies, fixed income securities and
instruments based on financial indices, options on futures contracts and forward
contracts. There are several risks associated with the purchase of options and
financial futures. An imperfect correlation may exist between the change in the
market value of the Balanced Fund's portfolio securities and the prices of
financial futures contracts and options. The Balanced Fund can provide no
assurance that a liquid market will exist, which may result in an inability to
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close a futures or option position when desired. Additionally, markets may not
continue to become more over- or undervalued after the Balanced Fund takes a
position in options or futures contracts, and the Balanced Fund therefore may
incur losses. Additional information about futures, options and other derivative
instruments is contained in the Funds' Statement of Additional Information.
MANAGEMENT
INVESTMENT ADVISOR: CornerCap Investment Counsel, Inc., located at The
Peachtree, Suite 1700, 1355 Peachtree Street NE, Atlanta, Georgia, 30309,
provides investment management services to the Funds as their investment Advisor
(the "Advisor"). In addition to Advisory services, the Advisor also provides
administrative and day-to-day operational services to the Funds, including the
provision of or arranging the provision of accounting, administrative, legal
(except litigation), dividend disbursing, transfer agent, registrar, custodial,
shareholder reporting, sub-accounting and recordkeeping services. The Advisor
has managed the Balanced Fund since its inception, the Small-Cap Value Fund
since September, 1992, and the Emerging Growth Fund since its inception.
For its services to the Funds, the Funds pay the Advisor the fees described
below. All fees are expressed as an annualized percentage of average net assets
of each Fund.
BALANCED EMERGING SMALL-CAP
FUND GROWTH VALUE FUND
FUND
- ----------------- ----------- ----------- ------------
Advisory Fee 1.00% 1.00% 1.00%
Administration 0.30% 0.90% 0.50%
Fee ----------- ----------- ------------
TOTAL FEES 1.30% 1.90% 1.50%
The Advisor is controlled by Thomas E. Quinn, who owns a controlling interest in
the Advisor. Mr. Quinn also serves as a member of the Board of Trustees that
oversees the management and administration of the Funds.
Mr. Quinn has worked in investment management and financial analysis for 25
years. He is a Chartered Financial Analyst and a Certified Public Accountant.
His graduate degrees include an MBA from the University of North Carolina at
Greensboro and an MS in Operations Research from Ohio University.
Gene A. Hoots serves a Chairman Emeritus of the Advisor and a Vice President of
the Fund. Mr. Hoots has worked in investment management and financial analysis
for over 27 years. Previously, Mr. Hoots was Vice President of Reich & Tang and
President of RJR Investment Management, Inc. He has an MBA from the University
of North Carolina at Chapel Hill and a BS in Engineering from N.C. State
University.
PORTFOLIO MANAGEMENT:
CORNERCAP SMALL-CAP VALUE FUND. The Fund is jointly managed by Mr. Quinn and Mr.
Richard Bean. Their primary responsibilities are portfolio management,
investment strategy and research.
Mr. Quinn has managed the Fund since inception. Previously, Mr. Quinn was Chief
Investment Officer for RJR Investment Management, Inc., where he managed over
$600 million, primarily equity assets.
Mr. Richard Bean, Vice President of the Fund and a portfolio manager/investment
analyst with the Fund's investment adviser, CornerCap Investment Counsel, Inc.
(the "Advisor"), assumed the role of Fund co-manager of the CornerCap Small Cap
Value Fund on April 1, 2000. Mr. Bean has been with the Fund and the Advisor
since 1996, and his duties have included portfolio management and investment
research focused on small capitalization companies (generally, companies with
market capitalizations under $1 billion). Prior to joining the Advisor, Mr. Bean
was assistant controller with Godwins, Inc., an employee benefit plan
administrator.
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CornerCap Balanced Fund. Mr. Quinn and D. Ray Peebles are the portfolio managers
for the Balanced Fund. Mr. Peebles has worked with CornerCap Investment Counsel
for seven years. He previously worked for Wachovia Bank of North Carolina. Mr.
Peebles is a Level III candidate in the Chartered Financial Analyst program. He
has an MBA from Wake Forest University and a BA in accounting from North
Carolina State University.
CornerCap Emerging Growth Fund. Bradford S. J. Young is the portfolio manager
for the Emerging Growth Fund. Mr. Young has worked for CornerCap Investment
Counsel for six years and has managed the Fund since its inception, as well as
managing the Fund's predecessor the Cornerstone MicroCap Fund, L.P. since its
inception in September, 1996. Mr. Young is a CFA charterholder and an officer of
the Atlanta Society of Financial Analysts. He received his BA in history from
the University of Virginia.
VALUATION OF SHARES
NET ASSET VALUE
The Funds' share prices are determined based upon net asset value ("NAV"). The
Funds calculate NAV at approximately 4:15 p.m., New York time, each day that the
New York Stock Exchange is open for trading. The NAV per share of each Fund is
determined by dividing the total value of the applicable Fund's investments and
other assets less any liabilities by its number of outstanding shares.
Equity securities listed on a national securities exchange or quoted on the
NASDAQ National Market System are valued at the last sale price on the day the
valuation is made or, if no sale is reported, at the latest bid price.
Valuations of variable and fixed income securities are supplied by independent
pricing services approved by The CornerCap Group of Funds' Board of Trustees.
Other assets and securities for which no quotations are readily available are
valued at fair value as determined in good faith by or under the direction of
The CornerCap Group of Funds' Board of Trustees. Securities with maturities of
sixty (60) days or less are valued at amortized cost.
PURCHASING SHARES
You may purchase shares of any Fund at its NAV next determined after receipt of
your properly completed account application. Each Fund's minimum initial
investment is $2,000 and minimum subsequent investment is $250. All investments
must be made in U.S. dollars, and you should note that the Funds reserve the
right to reject any purchase request for any reason.
INVESTING DIRECTLY BY MAIL:
New Accounts. You may purchase shares of a Fund by mailing a completed account
application with a check payable to the appropriate fund (the CornerCap
Small-Cap Value Fund, the CornerCap Balanced Fund or the CornerCap Emerging
Growth Fund) to the Funds' Transfer Agent at the following address: Fortune Fund
Administration, Inc., The Peachtree, Suite 1735, 1355 Peachtree Street, Atlanta,
GA, 30309.
Adding to Your Account. You may add to your account with any Fund by sending a
check for your additional investment payable to the appropriate fund (the
CornerCap Small-Cap Value Fund,, the CornerCap Balanced Fund or the CornerCap
Emerging Growth Fund) together with a subsequent investment stub from a previous
investment confirmation for your account to the Funds' Transfer Agent at the
address above. If you do not have a subsequent investment stub from a previous
investment confirmation for your account, please include a brief letter with
your check that gives the name on your account and your account number. Please
write your account number on your check.
INVESTING DIRECTLY BY WIRE:
New Accounts. You may purchase shares of a Fund by wire by mailing a completed
account application for the appropriate Fund (the CornerCap Small-Cap Value
Fund, the CornerCap Balanced Fund or the CornerCap Emerging Growth Fund) to the
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Funds' Transfer Agent at the following address: Fortune Fund Administration,
Inc., The Peachtree, Suite 1735, 1355 Peachtree Street, Atlanta, GA, 30309, and
requesting that your bank transmit your investment by wire directly to the
Transfer Agent. Please call the Transfer Agent at 1-888-813-8637 to obtain
complete wiring instructions. Please note that your bank may charge you a fee
for wiring funds.
Adding to Your Account. You may add to your account with any Fund by using the
wiring procedures described above. Be sure to include the name on your account
and your account number in the wire instructions you provide your bank.
EXCHANGE PRIVILEGE
You may exchange your shares in any CornerCap fund for those in another
CornerCap fund on the basis of their respective NAV's at the time of the
exchange. Before making any exchange, be sure to review this Prospectus closely
and consider the Funds' differences. Please note that since an exchange is the
redemption of shares from one fund followed by the purchase of shares in
another, any gain or loss realized on the exchange is recognizable for federal
income tax purposes (unless your account is tax deferred). You may make up to
four exchanges during a calendar year between identically registered accounts.
The Funds reserve the right to reject any exchange request, or to modify or
terminate exchange privileges at any time. Notice of all such modifications or
termination will be given at least 60 days prior to the effective date of the
change in privilege, except for unusual instances (such as when redemptions of
the exchange are suspended under Section 22(e) of the Investment Company Act of
1940, or when sales of the fund into which you are exchanging are temporarily
stopped).
REDEEMING SHARES
You may redeem full and fractional shares of a Fund for cash at the next
determined NAV after receipt of a properly completed redemption request. The
Emerging Growth Fund imposes a 2% redemption fee on all share redemptions made
within one year of purchase. The fee goes to the Fund, not the Advisor. After
you have held your shares for one year, the redemption fee will not apply if you
give the Fund 30 days notice of your intent to redeem.
To redeem shares, you should give instructions that specify the appropriate fund
and number of shares to be redeemed to CornerCap Group of Funds, c/o Fortune
Fund Administration, Inc., The Peachtree, Suite 1735, 1355 Peachtree Street,
Atlanta, GA, 30309, (888) 813-8637. Your instructions must be signed by all
registered owners exactly as the account is registered. If your redemption
request is under $25,000 you may call the Transfer Agent for instructions to
redeem your shares via facsimile. Redemptions of $25,000 or more require a
signature guarantee. A signature guarantee is also required for any redemption
that is to be mailed to an address other than the address of record.
In addition to written instructions, if any shares being redeemed or repurchased
are represented by stock certificates, the certificates must be surrendered. The
certificates must either be endorsed or accompanied by a stock power signed by
the registered owners, exactly as the certificates are registered. Additional
documents may be required from corporations or other organizations, fiduciaries
or anyone other than the shareholder of record.
Payment for shares tendered generally will be made within three days after
receipt by the transfer agent of instructions, certificates, if any, and other
documents, all in proper form. However, payment may be delayed under unusual
circumstances or for any shares purchased by check for a reasonable time (not to
exceed 15 days) necessary to determine that the purchase check will be honored.
The Funds reserve the right to process any redemption request that exceeds
$250,000 or 1% of the respective Fund's assets (whichever is less) by paying the
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redemption proceeds in portfolio securities rather than cash (typically referred
to as "redemption in kind").
ADDITIONAL INFORMATION ABOUT PURCHASES, SALES AND EXCHANGES
TELEPHONE PURCHASES AND REDEMPTIONS BY NASD MEMBER BROKERAGE FIRMS: Brokerage
firms that are NASD members may purchase and redeem Fund shares by telephoning
the Transfer Agent, and may purchase shares for investors who have investments
in either Fund through the brokerage firm's account with the applicable Fund.
These broker-dealers may charge you additional or different fees for purchasing
or redeeming shares than those described here. You should ask your broker-dealer
about his or her fees before investing. By electing telephone purchase and
redemption privileges, NASD member firms, on behalf of themselves and their
clients, agree that neither the Funds nor the Transfer Agent shall be liable for
following telephone instructions reasonably believed to be genuine. The Funds
and their agents will send written confirmations to brokers to ensure that
telephone instructions are genuine. The NASD member firms may bear the risk of
any loss in the event of such a transaction. Additional information about
investing through a broker-dealer is contained in the Funds' Statement of
Additional Information.
SHARE CERTIFICATES: The Funds do not issue share certificates unless
specifically requested. Maintaining shares in uncertificated form minimizes the
risk of loss or theft of a share certificate. A lost, stolen or destroyed
certificate can only be replaced upon obtaining a sufficient indemnity bond. The
cost of such a bond, which is borne by the shareholder, can be 2% or more of the
value of the missing certificate. To resolve questions concerning documents,
contact the Transfer Agent at 1-888-813-8637.
SMALL ACCOUNTS: The Board of Trustees may, in order to reduce the expenses of
the Funds, redeem all of the shares of any shareholder (other than a qualified
retirement plan) whose account has declined to a net asset value of less than
$2,000, as a result of a transfer or redemption, at the net asset value
determined as of the close of business on the business day preceding the sending
of notice of such redemption. The Funds would give shareholders whose shares
were being redeemed 60 days prior written notice in which to purchase sufficient
shares to avoid such redemption.
DIVIDEND AND TAX INFORMATION
The Funds typically distribute their respective net income or capital gains one
time during each calendar year, usually in December. For the convenience of
investors, each Fund reinvests all income dividends and capital gains
distributions in full and fractional shares of the respective Fund, unless the
shareholder has given prior written notice to the transfer agent that the
payment should be made in cash.
All dividends from net investment income together with those derived from the
excess of net short-term capital gain over net long-term capital loss
(collectively, "income dividends"), will be taxable as ordinary income to
shareholders whether or not paid in additional shares. Any distributions derived
from the excess of net long-term capital gain over net short-term capital loss
("capital gains distributions") are taxable as long-term capital gains to
shareholders regardless of the length of time a shareholder has owned his
shares. Any loss realized upon the redemption of shares within six months after
the date of their purchase will be treated as a long-term capital loss to the
extent of amounts treated as distributions of net long-term capital gain during
such six-month period. The exchange of one Fund's shares for shares of another
Fund will be treated as a sale and any gain thereon may be subject to federal
income tax.
Income dividends and capital gains distributions are taxed in the manner
described above, regardless of whether they are received in cash or reinvested
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in additional shares. Shareholders of each Fund will receive information
annually on Form 1099 with respect to the amount and nature of income and gains
to assist them in reporting the prior calendar year's distributions on their
Federal income tax return.
Distributions which are declared in October, November, or December but which are
not paid to shareholders until the following January will be treated for tax
purposes as if received on December 31 of the year in which they were declared.
Each Fund may liquidate the account of any shareholder who fails to furnish its
certificate of taxpayer identification number within 30 days after date the
account was opened.
Because each shareholder's tax situation is unique, shareholders should consult
their tax Advisors with respect to applicable foreign, state and local taxes.
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ADDITIONAL INFORMATION
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' annual reports,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Funds' performance over their last fiscal year.
Also, a Statement of Additional Information about the Funds has been filed with
the Securities and Exchange Commission. This Statement (which is incorporated in
its entirety by reference in this Prospectus) contains more detailed information
about the Funds.
The Funds' annual and semi-annual reports and the Funds' Statement of Additional
Information are available without charge upon written request to CornerCap
Investment Counsel, Inc., The Peachtree, Suite 1700, 1355 Peachtree Street NE,
Suite 1700, Atlanta, Georgia 30309, or by calling (888) 813-8637.
For questions about shareholder services, you may contact the Funds by telephone
at (888) 813-8637 or (404) 892-9313, or by facsimile sent to (404) 892-9353.
For questions regarding investment objectives of the Funds, you may contact the
Funds by telephone at (800) 728-0670 or (404) 870-0700, or by facsimile sent to
(404) 870-0770.
You can also review or obtain copies of these reports by visiting the Securities
and Exchange Commission's Public Reference Room in Washington, D.C. or by
sending your request and a duplicating fee to the Public Reference Room Section
of the Commission, Washington, D.C. 20549-6009. Information on the operation of
the public reference room may be obtained by calling the Commission at (800)
SEC-0330.
Reports and other information about the Funds can also be viewed online on the
Commission's Internet site at http://www.sec.gov.
THE CORNERCAP GROUP OF FUNDS INVESTMENT ACT FILE NUMBER:
811-4581
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CORNERCAP GROUP OF FUNDS
A "Series" Investment Company
CORNERCAP BALANCED FUND
CORNERCAP SMALL-CAP VALUE FUND
CORNERCAP EMERGING GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
July 27 2000
The CornerCap Balanced Fund (the "Balanced Fund"), the CornerCap Small-Cap
Value Fund (the "Small-Cap Value Fund") and the CornerCap Emerging Growth
Fund (the "Emerging Growth Fund") are series of the CornerCap Group of Funds
(collectively, the "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").
This Statement of Additional Information incorporates information by
reference from each Fund's Annual Report to shareholders for the fiscal year
ended March 31, 2000. These reports also accompany this Statement of
Additional Information (except that there is no such report for the Emerging
Growth Fund since it began operations in July 2000). Additional copies are
available, without charge, by contacting the Funds.
This Statement of Additional Information is not a prospectus, and it should
be read in conjunction with the Prospectus of the Funds dated July 27, 2000,
as may be amended from time to time (the "Prospectus"). Copies of the
Prospectus may be obtained from CornerCap Investment Counsel, Inc., the
Funds' investment advisor (the "Advisor") at the following address:
CORNERCAP INVESTMENT COUNSEL, INC.
The Peachtree, Suite 1700
1355 Peachtree Street
Atlanta, GA 30309
Voice: (888) 813-8637 Facsimile: (404) 870-0770
<PAGE>
THE CORNERCAP GROUP OF FUNDS
CORNERCAP BALANCED FUND CORNERCAP SMALL-CAP VALUE FUND
CORNERCAP EMERGING GROWTH FUND
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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<S> <C>
General Information................................................................................. 1
Investment Objectives, Policies and Risks........................................................... 1
Repurchase Agreements.......................................................................... 1
Foreign Securities............................................................................. 2
Options........................................................................................ 2
Futures Contracts and Options on Futures Contracts............................................. 3
Forward Foreign Currency Exchange Contracts.................................................... 3
Swap Agreements................................................................................ 4
Mortgage-Related Securities.................................................................... 4
Risks of Mortgage-Related Securities........................................................... 5
Convertible Securities......................................................................... 6
General........................................................................................ 6
Portfolio Turnover.................................................................................. 6
Investment Restrictions............................................................................. 7
Management.......................................................................................... 9
Principal Shareholders.............................................................................. 10
Advisory and Administration Agreements.............................................................. 10
Advisory and Operational Service Agreements.................................................... 10
Advisory Agreements............................................................................ 11
Services Agreements............................................................................ 11
Administrator, Transfer Agent, Accounting Services Agent....................................... 12
Custodian...................................................................................... 12
Independent Public Accountants................................................................. 12
Distributor.................................................................................... 12
Portfolio Transactions and Brokerage................................................................ 13
Capitalization...................................................................................... 14
Purchase and Redemption of Shares................................................................... 15
Exchange Privilege............................................................................. 16
Telephone Purchases, Exchanges, and Redemptions for Securities Firms........................... 16
Net Asset Value..................................................................................... 16
Distributions and Tax Status........................................................................ 17
Performance Information............................................................................. 19
Small-Cap Value Fund........................................................................... 19
Balanced Fund.................................................................................. 20
Performance Calculation........................................................................ 20
Financial Statements................................................................................ 20
Appendix A.......................................................................................... 21
</TABLE>
<PAGE>
GENERAL INFORMATION
The CornerCap Group of Funds is a diversified open-end management investment
company consisting of three separate portfolios, each of which represents a
separate portfolio of investments. The funds currently comprising the CornerCap
Group of Funds are the CornerCap Balanced Fund, the CornerCap Small-Cap Value
Fund, and the CornerCap Emerging Growth Fund.
The CornerCap Funds were organized on January 6, 1986, as a Massachusetts
business trust. Prior to August 13, 1990, the Small-Cap Value Fund was known as
Wealth Monitors Fund. Between August 13, 1990, and September 25, 1992, the
Small-Cap Value Fund was known as the Sunshine Growth Trust. From September 25,
1992, until July 28, 1995, the Small-Cap Value Fund was known as the Cornerstone
Growth Fund. From July 28, 1995 until April, 2000, the Small-Cap Value Fund was
known as the CornerCap Growth Fund. The Balanced Fund began operations on May
24, 1997, following a reorganization of the Atlanta Growth Fund, Inc. which
resulted in the Balanced Fund's acquiring the assets and assuming certain
liabilities of the Atlanta Growth Fund, Inc. The Emerging Growth Fund began
operations on July 27, 2000 by assuming the assets of a predecessor private,
unregistered fund, the CornerStone Microcap Fund, L.P.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
Please refer to "Prospectus Summary -- Investment Objectives and Strategy,"
"Prospectus Summary -- Principal Risks of Investing in the Funds," and "The Fund
In Detail: Investment Objectives and Principal Strategies" in the Funds'
Prospectus for a full discussion of the Funds' investment objectives, principal
strategies and principal risks. The information set forth below describes
additional investment strategies, types of investments, investments that the
Funds may make when taking a temporary defensive position, and information
regarding risks of certain of these types of investments that is not addressed
in the Funds' Prospectus. Following this information is information regarding
portfolio turnover for the Funds that is not in the Funds' Prospectus, and
information regarding the Funds' policies with respect to certain types of
investment.
REPURCHASE AGREEMENTS: The Funds 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
Funds 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 Funds 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 Funds to enter into repurchase agreements with
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commercial banks and securities dealers. The Board of Trustees will monitor the
creditworthiness of such entities.
FOREIGN SECURITIES: The Funds 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 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 Funds 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 Funds 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
Funds 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 Funds 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 Funds will lose its
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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 assurance that a liquid market
will exist when the Funds 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 Funds may invest in
interest rate futures contracts and options thereon ("futures options"); the
Funds may enter into foreign currency futures contracts and options; and the
Funds 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 Funds' returns 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 a Fund from liquidating an unfavorable position and the
Fund would remain obligated to meet margin requirements until the position is
closed.
Each 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. Each 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-the-money," would not exceed 5%
of the Fund's total assets.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Balanced 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 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
Balanced 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
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with requirements under the 1940 Act to avoid any potential leveraging of the
Fund.
SWAP AGREEMENTS: The Balanced 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 Balanced 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 Balanced Fund would calculate
the obligations of the parties to the agreement on a "net basis." Consequently,
the Balanced 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 Balanced 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 Balanced 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 Balanced Fund may invest in mortgage-backed and
other asset-backed securities. These securities include mortgage pass-through
certificates, collateralized mortgage obligations, mortgage-backed bonds and
securities representing interests in other types of financial bonds.
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).
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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. 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.
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 its 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
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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 a 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,
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 Funds consist
primarily of common and preferred stocks, the Funds 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 Funds 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.
GENERAL: Notwithstanding the foregoing, the Funds do not currently anticipate
investing more than 5% of their respective assets in repurchase agreements,
foreign securities, options, futures, currency contracts, swap agreements or
mortgage related securities.
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
Small-Cap Value Fund's portfolio turnover rate for the fiscal year ended March
31, 2000 was 42%. The Small-Cap Value Fund's portfolio turnover rate in the
future is expected to be in the range of 30% to 70%. The Balanced Fund's
portfolio turnover rate for the fiscal year ended March 31, 2000 was 7%. The
Balanced Fund's portfolio turnover rate in the future is expected to be in the
range of 30% to 70%. Higher turnover would involve correspondingly greater
commissions and transaction costs. The Emerging Growth Fund began operations in
July, 27 2000; therefore, there are no corresponding figures for that fund.
INVESTMENT RESTRICTIONS
The Balanced Fund is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the holders
of a majority (as defined in the 1940 Act) of the Balanced Fund's outstanding
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securities. The Balanced Fund's investment objective is such a policy. Among its
other fundamental policies, the Fund may not: (i) with respect to 75% of its
assets, invest more than 5% of the value of its total assets in securities of
any one issuer (other than securities of the U.S. Government, its agencies and
instrumentalities); or (ii) invest 25% or more of the value of its total assets
in securities of issuers in any one industry.
The Small-Cap Value Fund is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the holders
of a majority (as defined in the 1940 Act) of the Small-Cap Value Fund's
outstanding securities. The Small-Cap Value Fund's investment objective is such
a policy. Among its other fundamental policies, the Small-Cap Value Fund may not
(i) invest more than 5% of the value of its total assets in securities of any
one issuer (other than securities of the U.S. Government, its agencies and
instrumentalities); or (ii) invest 25% or more of the value of its total assets
in securities of issuers in any one industry.
It is the position of the staff of the SEC (and an operating although not a
fundamental policy of the Funds) that open-end investment companies, such as the
Funds, should not make certain investments if thereafter more than 15% of the
value of their net assets would be invested in illiquid assets. The investments
included in this 15% limit are (i) those which are illiquid, e.g., those which
are subject to restriction as to disposition under Federal securities laws
(which the Fund does not expect to own), (ii) fixed time deposits subject to
withdrawal penalties (other than overnight deposits), (iii) repurchase
agreements having a maturity of more than seven days, and (iv) investments which
are not readily marketable. This 15% limit does not include obligations payable
at principal amount plus accrued interest within seven days after purchase.
Each of the Funds has also adopted the following restrictions 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 applicable 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 Small-Cap Value 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);
2. Issue senior securities, borrow money or pledge its assets except that the
Fund may borrow from a bank for temporary or emergency purposes in amounts not
exceeding 33% (taken at the lower of cost or current value) of its total assets
(not including the amount borrowed) and pledge its assets to secure such
borrowings; the Fund will not purchase any additional portfolio securities while
such borrowings are outstanding;
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 three years 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,
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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;
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;
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;
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.
The Balanced Fund and the Emerging Growth 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);
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; the Emerging Growth Fund can
have no more than 15% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years 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;
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;
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10. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common stock 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 Funds,
including general supervision and review of its investment activities. The
officers, who administer the Funds' daily operations, are appointed by the Board
of Trustees. The current Trustees and principal officers of the Funds, 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.
NAME (Age)
Address
(a) Position With Trust
(b) Principal Occupations During Past Five Years
THOMAS E. QUINN (53)*
The Peachtree, Suite 1700
1355 Peachtree St. NE
Atlanta, GA 30309
(a) Trustee, President, CFO, and Treasurer
(b) President, CornerCap Investment Counsel
GENE A. HOOTS (59)*
3000 Big Oak Dr.
Charlotte, NC 28210
(a) Vice President
(b) Chairman Emeritus, CornerCap Investment Counsel
RICHARD T. BEAN (36)
The Peachtree, Suite 1700
1355 Peachtree St. NE
Atlanta, GA 30309
(a) Vice-President
(b) Portfolio Manager, CornerCap Investment Counsel
Assistant Controller, Godwins Inc. (an
employee benefit plan administrator)
JOHN A. HACKNEY, III (33)
The Peachtree, Suite 1700
1355 Peachtree St. NE
Atlanta, GA 30309
(a) Secretary
(b) Compliance Officer, CornerCap Investment Counsel
RICHARD L. BOGER (53)
3495 Piedmont Road, NE, Suite 718
Building 11
Atlanta, GA 30305
(a) Trustee
(b) President, Export Insurance Services, Inc.
G. HARRY DURITY (51)
1 ADP Boulevard
Roseland, NJ 07068-1728
(a) Trustee
(b) Sr. Vice President, Corporate Development, Automatic Data Processing, Inc.
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LAURIN M. MCSWAIN (48)
706 Monarch Plaza
3414 Peachtree Road, NE
Atlanta, GA 30326
(a) Trustee
(b) Attorney, Bloodworth & McSwain
The Small-Cap Value Fund incurred aggregate Trustees' fees and expenses for
fiscal years ended March 31, 2000 of $6,046.58. The Balanced Fund incurred
aggregate Trustees' fees and expenses for fiscal year ended March 31, 2000, of
$3,023.29. The Emerging Growth Fund began operations in July, 2000; therefore,
it incurred no such fees for 1999. Trustees who are not affiliated with the
Advisor receive $500 from the Small-Cap Value Fund and $250 from the Balanced
Fund per regular meeting and committee meeting attended, plus reimbursement of
out of pocket expenses for attending Board meetings. During the fiscal year
ended March 31, 2000, each non-affiliated trustee received $2,000 from the
Small-Cap Value Fund and $1,000 from the Balanced Fund on account of fees, plus
reimbursement of expenses. There were no such fees for the Emerging Growth Fund
since it began operations in July 2000.
PRINCIPAL SHAREHOLDERS
As of March 31, 2000, John C. Staton, Jr., is a record holder of 35.0% of the
CornerCap Emerging Growth Fund's outstanding shares. Mr. Staton's address is
191 Peachtree Street, Atlanta, GA 30303.
As of March 31, 2000, the Trustees and Officers of the Trust, as a group,
beneficially owned less than 1% of the outstanding shares of the Balanced Fund.
As of March 31, 2000, the Trustees and Officers of the Trust, as a group,
beneficially owned less than 1% of the outstanding shares of the Small-Cap Value
Fund.
ADVISORY AND ADMINISTRATION ARRANGEMENTS
Reference is made to "Management--Investment Advisor" and "Management--Portfolio
Management" in the Prospectus for certain information concerning the management
and advisory arrangements of the Funds.
ADVISORY AND OPERATIONS SERVICES AGREEMENTS: CornerCap Investment Counsel, Inc.
(the "Advisor") has entered into an Investment Advisory Agreement with each Fund
to provide investment management services to the Fund (the "Advisory
Agreements"). In addition to the Advisory Agreements, the Advisor has entered
into an Administrative Services Agreement with each Fund to provide, or make
arrangements for the provision of, virtually all day-to-day operational services
to the Fund (the "Services Agreements").
The Advisor was organized as a Georgia corporation and registered with the SEC
as an investment advisor in 1989. The Advisor is controlled by Thomas E. Quinn
who owns a controlling interest of the Advisor's outstanding shares. The
Advisor's offices are located at The Peachtree, Suite 1700, 1355 Peachtree
Street, Atlanta, Georgia 30309.
As explained in the Prospectus, the terms of the Advisory Agreements and the
Services Agreements empower the Advisor, subject to the Board of Trustees of the
CornerCap Group of Funds, to manage each respective Fund's assets and provide or
arrange for the provision of operational and other administrative services for
the day-to-day operation of each respective Fund. Each Fund pays the Advisor for
the services performed under its respective Advisory Agreement a monthly fee at
the annual rate of 1% of each Fund's average daily net assets. Under its
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Services Agreement, the Balanced Fund pays the Advisor a monthly fee at the
annual rate of .30% of the Fund's average daily net assets, and under its
Services Agreement, the Small-Cap Value Fund pays the Advisor a monthly fee at
an annual rate of .50% of the Fund's average daily net assets. Accordingly,
total expenses for the Balanced Fund, excepting brokerage interest, taxes,
litigation, and other extraordinary expenses, equals an annual rate of 1.30% of
the daily net asset value of the Fund. Total expenses for the Small-Cap Value
Fund, excepting brokerage interest, taxes, litigation, and other extraordinary
expenses, is an annual rate of 1.50% of the daily net asset value of the Fund.
Total expenses for the Emerging Growth Fund, excepting brokerage interest,
taxes, litigation, and other extraordinary expenses, is an annual rate of 1.90%
of the daily net asset value of the Fund.
ADVISORY AGREEMENTS: The Balanced Fund has entered into an Investment Advisory
Agreement dated November 6, 1996 with the Advisor; the Small-Cap Value Fund has
entered into an Investment Advisory Agreement dated September 9, 1992 with the
Advisor; and, the Emerging Growth Fund has entered into Investment Advisory
agreement with the Advisor dated July 27, 2000. Each Fund pays the Advisor for
the services performed under its respective Advisory Agreement a monthly fee at
the annual rate of 1% of each Fund's average daily net assets. Each Advisory
Agreement also provides that in the event the expenses of the Fund (including
the 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 each 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. During the fiscal years ended March 31,
1998, 1999, and 2000, the Small-Cap Value Fund paid the Advisor fees of $75,000,
$148,217, and $133,173 respectively. During the period of May 24,1997, through
March 31, 1998, the Advisor subsidized the Balanced Fund in the amount of
$4,175. During the periods ended March 31, 1999 and March 31, 2000, the Balanced
Fund paid the Advisor fees of $29,532 and $43,797, respectively. The Emerging
Growth Fund began operations in July 2000; therefore, there were no such fees
for prior years.
Unless earlier terminated, each Advisory Agreement will remain in effect from
year to year if approved annually (a) by the Board of Trustees of the CornerCap
Group of Funds or by a majority of the outstanding shares of the applicable
Fund; and (b) by a majority of the Trustees who are not parties to such contract
or interested persons (as defined in the Investment Company Act of 1940) of any
such party. Each Advisory Agreement terminates automatically upon assignment and
may be terminated without penalty on 60 days written notice at the option of
either party thereto or by the vote of the shareholders of the applicable Fund.
The Advisory Agreements also provide that the Advisor shall not be liable to the
Funds for any error of judgment by the Advisor or for any loss sustained by the
Funds 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.
SERVICES AGREEMENTS: Each Fund pays the Advisor for the services performed under
its respective Services Agreement. Under the Services Agreements, the Advisor
provides day-to-day operational services to the Funds. The Balanced Fund pays
the Advisor a monthly fee at the annual rate of .30% of the Fund's average daily
net assets. The Small-Cap Value Fund pays the Advisor a monthly fee at an annual
rate of .50% of the Fund's average daily net assets. The Emerging Growth Fund
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will pay the Advisor a monthly fee at an annual rate of .90% of the Fund's
average daily net assets.
Under their respective Services Agreements, each Fund and the Advisor have
entered into several agreements with third party providers to provide, among
other services, accounting, administrative, dividend disbursing, transfer agent,
registrar, custodial, shareholder reporting, sub-accounting and recordkeeping
services to the Fund. None of the Funds is obligated to pay any expenses or fees
under any of these third party agreements.
ADMINISTRATOR, TRANSFER AGENT, ACCOUNTING SERVICES AGENT: Fortune Fund
Administration, Inc., The Peachtree, Suite 1775, 1355 Peachtree Street, N.E.,
Atlanta, Georgia 30309, serves as the Funds' Transfer Agent, Administrator, and
Accounting Services Agent. As Transfer Agent, Fortune Fund Administration
disburses dividends, processes new accounts, purchases, redemptions, transfers,
and issues new certificates. Pursuant to the Services Agreement, the Advisor
will pay all of the administration fees of Fortune Fund Administration, Inc.
Fortune Fund Administration, Inc. is an affiliate of the Advisor.
CUSTODIAN: UMB Bank, N.A., 985 Grand Avenue, Kansas City, Missouri 64105, acts
as the Funds' Custodian. As Custodian, UMB Bank is responsible for keeping the
Funds' assets in safekeeping and to collect income.
INDEPENDENT PUBLIC ACCOUNTANTS: Tait, Weller & Baker, 810 Center Plaza, Suite
800, Philadelphia, Pennsylvania 19103, serve as the Funds' independent public
accountants, performing an annual audit of the Funds' accounts, assisting in the
preparation of certain reports to the SEC, and preparing the Funds' tax returns.
DISTRIBUTOR: The Funds are self-distributed. They offer their shares to the
public on a continuous basis. For information on the purchase and redemption of
Fund shares, see "Purchase and Redemption of Shares" below.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisory Agreement states that in connection with its duties to arrange for
the purchase and the sale of securities held in the portfolio of the Funds by
placing purchase and sale orders for the Funds, the Advisor shall select such
broker-dealers ("brokers") as shall, in the Advisor's judgment, implement the
policy of the Funds 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 Advisory Agreements to consider the reliability,
integrity and financial condition of the broker.
The Advisor is also authorized by the Advisory Agreements to consider whether
the broker provides brokerage and/or research services to the Funds and/or other
accounts of the Advisor. The Advisory Agreements state 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 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 Advisory Agreements
provide that to demonstrate that such determinations were in good faith, and to
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show the overall reasonableness of commissions paid, the Advisor shall be
prepared to show that commissions paid (i) were for purposes contemplated by the
Advisory Agreements; (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 Funds recognize in the Advisory Agreements 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 Funds in the valuation of the
Funds' investments. The research which the Advisor receives for the Fund's
brokerage commissions, whether or not useful to the Funds, 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 Funds.
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 Funds
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.
During the three fiscal years ended March 31, 1998, 1999, and 2000 the Small-Cap
Value Fund paid total brokerage commissions of $59,832, $78,318, and $35,759
respectively. For the periods from May 24, 1997 (commencement of operations),
through March 31, 1998, and the periods ended March 31, 1999 and March 31, 2000,
the Balanced Fund paid brokerage commissions of $12,500, $10,115, and $5,229
respectively. The Emerging Growth Fund began operations in July 2000; therefore,
there were no such fees for prior years.
The Funds were parties to Distribution Agreements with Attkisson, Carter &
Akers, Inc. ("ACA"), One Buckhead Plaza, Suite 1450, 3060 Peachtree Road, N.W.,
Atlanta, Georgia 30305, until September 30, 1999, when the agreements were
terminated. During the term of these agreements, none of the Funds had a
contractual obligation to direct brokerage to ACA, but the Funds were permitted
to direct brokerage to ACA when, in the opinion of the Advisor, such directed
brokerage represented best execution. ACA and its principals indirectly received
compensation from brokerage fees paid by the Funds to ACA with respect to
portfolio securities trades for ACA's brokerage services
For the fiscal years ended March 31, 1998, 1999 and 2000, the Balanced Fund paid
brokerage commissions to ACA of $0, $0 and $0, respectively. During the fiscal
year ended March 31, 2000, the Balanced Fund paid 0% of its aggregate brokerage
commissions to ACA, and the Balanced Fund effected 0% of its aggregate dollar
amount of transactions involving the payment of commissions through ACA.
For the fiscal years ended March 31, 1998, 1999, and 2000, the Small-Cap Value
Fund paid brokerage commissions to ACA of $17,304, $15,096 and $455,
respectively. During the fiscal year ended March 31, 2000, the Small-Cap Value
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Fund paid 1.3% of its aggregate brokerage commissions to ACA, and the Fund
effected 1.9% of its aggregate dollar amount of transactions involving the
payment of commissions through ACA.
CAPITALIZATION
The Funds are series of the CornerCap Group of Funds. The Declaration of Trust
of the CornerCap Group of Funds 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 Funds. Each share
represents an interest in a Fund proportionately equal to the interest of each
other share. Upon any Fund's liquidation, all shareholders of such Fund 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 three classes of shares (i.e., the CornerCap Balanced Fund, the
CornerCap Small-Cap Value Fund, and the CornerCap Emerging 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." Income, direct liabilities and direct operating
expenses of each series will be allocated directly to each series, and general
liabilities and expenses of the Funds will be allocated among the series in
proportion to the total net assets of each series by the Board of Trustees.
Shareholders are entitled to one vote for each full share held (and fractional
votes for fractional shares) and may vote in the election of Trustees and on
other matters submitted to meetings of shareholders. Matters submitted to
shareholders must be approved by a majority of the outstanding securities of
each series, unless the matter does not affect a particular series, in which
case only the affected series' approval will be required.
The Declaration of Trust provides that the Funds' shareholders have the right,
upon the declaration in writing or vote of more than two-thirds of its
outstanding shares, to remove a Trustee. The Trustees will call a meeting of
shareholders to vote on the removal of a trustee upon the written request of the
record holders of ten percent of its shares. In addition, ten shareholders
holding the lesser of $25,000 worth or one percent of Fund shares may advise the
Trustees in writing that they wish to communicate with other shareholders for
the purpose of requesting a meeting to remove a Trustee. The Trustees will then,
if requested by the applicants, mail at the applicants' expense the applicants'
communications to all other shareholders. Except for a change in the name of the
Funds, no amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of more than 50% of its outstanding shares. The
holders of shares have no pre-emptive or conversion rights. Shares when issued
are fully paid and non-assessable, except as set forth above. The Funds may be
terminated upon the sale of its assets to another issuer, if such sale is
approved by the vote of the holders of more than 50% of the outstanding shares
of each series, or upon liquidation and distribution of its assets, if so
approved. If not so terminated, the Funds will continue indefinitely.
Under Massachusetts law, a shareholder of a Massachusetts business trust may be
held liable as a partner under certain circumstances. The 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 Funds or its
Trustees. The Declaration of Trust provides for indemnification and
reimbursement of expenses out of the appropriate Fund's property for any
shareholder held personally liable for its obligations. The Declaration of Trust
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also provides that the Funds shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the Funds and
satisfy any judgment thereon. In addition, the operation of the Funds as
investment companies would not likely give rise to liabilities in excess of its
assets. Thus the risk of a shareholder incurring financial loss on account of
shareholder liability is highly unlikely and is limited to the relatively remote
circumstances in which the Funds would be unable to meet its obligations.
PURCHASE AND
REDEMPTION OF SHARES
Reference is made to "Purchasing Shares" in the Prospectus for more information
concerning how to purchase shares.
EXCHANGE PRIVILEGE: You may exchange your shares in any CornerCap fund for those
in another CornerCap fund on the basis of their respective NAV's at the time of
the exchange. Before making any exchange, be sure to review this Prospectus
closely and consider the Funds' differences. Please note that since an exchange
is the redemption of shares from one fund followed by the purchase of shares in
another, any gain or loss realized on the exchange is recognizable for federal
income tax purposes (unless your account is tax deferred). You may make up to
four exchanges during a calendar year between identically registered accounts.
The Funds reserve the right to reject any exchange request, or to modify or
terminate exchange privileges at any time. Notice of all such modifications or
termination will be given at least 60 days prior to the effective date of the
change in privilege, except for unusual instances (such as when redemptions of
the exchange are suspended under Section 22(e) of the Investment Company Act of
1940, or when sales of the fund into which you are exchanging are temporarily
stopped).
If the CornerCap Group of Funds' Board of Trustees determines that it would be
detrimental to the best interests of the remaining shareholders of the
respective Fund to make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by a distribution in kind of securities
from the portfolio of the respective Fund, in lieu of cash, in conformity with
applicable rules of the SEC. The Funds, however, have elected to be governed by
Rule 18f-1 under the 1940 Act pursuant to which each Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of its net
asset value during any 90 day period for any one shareholder. Should redemptions
by any shareholder exceed such limitation, each Fund will have the option of
redeeming the excess in cash or in kind. If shares are redeemed in kind, the
redeeming shareholder would incur brokerage costs in converting the assets into
cash.
TELEPHONE PURCHASES, EXCHANGES, AND REDEMPTIONS FOR SECURITIES FIRMS: The
following purchase and redemption telephone procedures have been established by
the Funds for investors who purchase Fund shares through member firms of the
National Association of Securities Dealers, Inc. (the "NASD") who have accounts
with the Funds for the benefit of their clients. Telephone purchases and
redemptions will be effected by the Funds only through such NASD members, who in
turn will be responsible for crediting the investor's account at the NASD member
with the amount of any purchase or redemption pursuant to its account agreement
with the investor's instruction to purchase or redeem Fund shares.
NASD member firms may charge a reasonable handling fee for providing this
service. Such fees are established by each NASD member acting independently from
the Funds and none of the Funds nor the Distributor receives any part of such
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fees. Such handling fees may be avoided by investing directly with the Funds
through the Distributor, but investors doing so will not be able to avail
themselves of the Funds' telephone privileges.
Member firms of the NASD may telephone the Distributor at (800) 628-4077 and
place purchase and redemption orders on behalf of investors who carry their
investments in a Fund through the member's account with the appropriate Fund.
PURCHASE BY TELEPHONE. Shares shall be purchased at the net asset value next
determined after receipt of the purchase request by the applicable Fund. Payment
for shares purchased must be received from the NASD member firm by the
appropriate Fund by wire no later than the third business day following the
purchase order. If payment for any purchase order is not received on or before
the third business day, the order is subject to cancellation by the Fund and the
NASD member firm's account with the Fund will immediately be charged for any
loss.
REDEMPTION BY TELEPHONE. The redemption price is the net asset value next
determined after the receipt of the redemption request by the applicable Fund.
Payment for shares redeemed will be made or delayed as provided above under
"Redeeming Shares."
By electing telephone purchase and redemption privileges, NASD member firms, on
behalf of themselves and their clients, agree that none of the Funds, the
Distributor nor the Transfer Agent shall be liable for following instructions
communicated by telephone and reasonably believed to be genuine. Each Fund and
its agents provide written confirmation of transactions initiated by telephone
as a procedure designed to confirm that telephone instructions are genuine. In
addition, all telephone transactions are recorded. As a result of these and
other policies, the NASD member firm may bear the risk of any loss in the event
of such a transaction. If any Fund fails to employ this and other established
procedures, it may be liable. Each Fund reserves the right to modify or
terminate telephone privileges at any time.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value per share of the Funds'
shares will be determined as of 4:15 p.m. on each day that the New York Stock
Exchange (the "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, Martin Luther
King Day, Washington's Birthday, President's Day, 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 Funds' 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
each 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 value based
upon those quotations. The procedures used by the pricing service are reviewed
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by the applicable 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.
DISTRIBUTIONS AND TAX STATUS
The Funds typically distribute their respective net income or capital gains one
time during each calendar year, usually in December. For the convenience of
investors, each Fund reinvests all income dividends and capital gains
distributions in full and fractional shares of the respective Fund, unless the
shareholder has given prior written notice to the transfer agent that the
payment should be made in cash.
All dividends from net investment income together with those derived from the
excess of net short-term capital gain over net long-term capital loss
(collectively, "income dividends"), will be taxable as ordinary income to
shareholders whether or not paid in additional shares. Any distributions derived
from the excess of net long-term capital gain over net short-term capital loss
("capital gains distributions") are taxable as long-term capital gains to
shareholders regardless of the length of time a shareholder has owned his
shares. Any loss realized upon the redemption of shares within six months after
the date of their purchase will be treated as a long-term capital loss to the
extent of amounts treated as distributions of net long-term capital gain during
such six-month period.
Income dividends and capital gains distributions are taxed in the manner
described above, regardless of whether they are received in cash or reinvested
in additional shares. Shareholders of each Fund will receive information
annually on Form 1099 with respect to the amount and nature of income and gains
to assist them in reporting the prior calendar year's distributions on their
Federal income tax return.
Distributions which are declared in October, November, or December but which are
not paid to shareholders until the following January will be treated for tax
purposes as if received on December 31 of the year in which they were declared.
The exchange of one Fund's shares for shares of another Fund will be treated as
a sale and any gain thereon may be subject to federal income tax.
Each Fund may liquidate the account of any of its shareholder who fails to
furnish its certificate of taxpayer identification number within 30 days after
date the account was opened.
Each Fund has qualified and elected to be treated as a "regulated investment
company" under Subchapter M of the Code during its previous fiscal periods and
intends to continue to do so in the future. A fund that is qualified under
Subchapter M will not be subject to federal income tax on the part of its net
ordinary income and net realized capital gains which it distributes to its
shareholders. None of the Funds anticipates being subject to Federal income or
excise taxes because each Fund intends to distribute all of its net investment
income and net capital gains to its shareholders for a fiscal year in accordance
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with the timing requirements of the Code and to meet other requirements of the
Code relating to the sources of income and diversification of its assets.
When an income dividend or capital gains distribution is paid by a Fund, net
asset value per share of the appropriate Fund 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.
None of the Funds intends 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 Funds may unintentionally acquire stock in a PFIC. Each
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 each Fund's income dividends may be eligible for the
dividends-received deduction allowed to corporations under the Code, if certain
requirements are met. Investment income received by each Fund from sources
within foreign countries may be subject to foreign income taxes withheld at the
source.
Under the Code, the Funds may be required to impose backup withholding at a rate
of 31% on income dividends and capital gains distributions, and payment of
redemption proceeds to individuals and other non-exempt shareholders, if such
shareholders have not provided a correct taxpayer identification number and made
the certifications required by the Internal Revenue Service on the account
application. A shareholder in any Fund may also be subject to backup withholding
if the Internal Revenue Service or a broker notifies the applicable Fund that
the shareholder is subject to backup withholding.
The treatment of income dividends and capital gains distributions to
shareholders of the Funds 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.
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PERFORMANCE INFORMATION
From time to time, the Funds may publish their total return in advertisements
and communications to investors. Total return information will include the
Funds' average annual compounded rate of return over the most recent four
calendar quarters and over the period from the Funds' inception of operations.
The Funds may also advertise aggregate and average total return information over
different periods of time. The Funds' total return will be based upon the value
of the shares acquired through a hypothetical $1,000 investment at the beginning
of the specified period and the net asset value of such shares at the end of the
period, assuming reinvestment of all distributions at net asset value. Total
return figures will reflect all recurring charges against the Funds' income.
Investors should note that the investment results of the Funds will fluctuate
over time, and any presentation of the Funds' total return for any period should
not be considered as a representation of what an investor's total return may be
in any future period.
In reports or other communications to shareholders and in advertising material,
the Funds may compare performance with that of other mutual funds as listed in
the rankings prepared by Lipper Analytical Services, Inc. and similar
independent services that monitor the performance of mutual funds, or unmanaged
indices of securities of the type in which the Fund invests.
SMALL-CAP VALUE FUND: The average annual rates of return (unaudited) as of March
31, 2000 for the Small-Cap Value Fund for the periods listed below (since
inception of management by CornerCap Investment Counsel) are as follows:
1 year 2.7%
5 years 11.5%
10 years 6.9%
As an example, based on the average annual compound rates of return listed above
over these periods, you could have expected the following values (unaudited) on
a $1,000 investment assuming no redemption at the end of each time period.
One Year 5 Years 10 Years
- -----------------------------------
$1,027 $1,723 $1,948
CornerCap Investment Counsel, Inc. (formerly Cornerstone Capital Corp.) became
the investment advisor to the Small-Cap Value Fund in August 1992. Prior to that
time, the Small-Cap Value Fund was known by other names and was advised and
managed by other entities. The Small-Cap Value Fund was organized originally on
January 6, 1986. Per share income and capital changes for the last ten years of
the Small-Cap Value Fund are also included in the Prospectus under "Financial
Highlights" and performance information since inception is available upon
request.
BALANCED FUND: The average annual rates of return as of the end of the most
recent fiscal year ended March 31, 2000, and for the period beginning May 27,
1997 (since inception) for the Balanced Fund are as follows:
1 year 0.7%
Since inception 8.1%
As an example, based on the average annual compound rates of return listed above
over the most recent fiscal year and the period May 27, 1997 to March 31, 2000
(since inception), you could have expected the following values on a $1,000
investment assuming no redemption at the end of the period (Unaudited):
One year Since Inception
---------------------------------
$1,006 $1,207
CornerCap Investment Counsel, Inc. (formerly Cornerstone Capital Corp.) has been
investment advisor to the Balanced Fund since its inception following a
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reorganization of The Atlanta Growth Fund, Inc. on May 24, 1997, which resulted
in the Balanced Fund assuming certain assets and liabilities of The Atlanta
Growth Fund, Inc.
EMERGING GROWTH FUND: The average annual rates of return as of the end of the
most recent fiscal year ended March 31, 2000, and for the period beginning
August 31, 1996 (since inception) for the Emerging Growth Fund are as follows:
1 year 32.7%
Since inception 11.0%
As an example, based on the average annual compound rates of return listed above
over the most recent fiscal year and the period August 31, 1996 to March 31,
2000 (since inception), you could have expected the following values on a $1,000
investment assuming no redemption at the end of the period (Unaudited):
One year Since Inception
-------------------------------
$1,033 $1,466
The performance figures are for the Cornerstone Microcap Fund, L.P., a private,
unregistered fund which transferred its assets to the Emerging Growth Fund on
July 27, 2000. The Cornerstone Microcap Fund was managed by the same Advisor as
the Emerging Growth Fund. It pursued the same objective and employed the same
strategies as the Emerging Growth Fund.
PERFORMANCE CALCULATION: The following is a brief description of how performance
is calculated. Quotations of average annual total return for the Funds will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of 1 year, 5 years, and since
inception. These are the annual total rates of return that would equate the
initial amount invested to the ending redeemable value. These rates of return
are calculated with the following formula:
P(1+T)n = ERV
(where T = average annual total return; ERV = ending redeemable value of a
hypothetical initial payment of $10,000; and n = number of years). All total
return figures reflect the deduction of a proportional share of Fund expenses on
an annual basis, and assume that all dividends and distributions are reinvested
when paid.
FINANCIAL STATEMENTS
The financial statements of the Small-Cap Value Fund for the year ended March
31, 1999 and the report of the Small-Cap Value Fund's independent accountants
are included in the Small-Cap Value Fund's Annual Report to shareholders and are
incorporated by reference into this SAI. A copy of the Annual Report accompanies
this SAI.
The Balanced Fund is a series of CornerCap that began operations on May 24,
1997, following the closing of a reorganization transaction with The Atlanta
Growth Fund, Inc., pursuant to which the Balanced Fund assumed certain assets
and liabilities of The Atlanta Growth Fund, Inc. The financial statements of the
Balanced Fund for the year ended March 31, 1999, and the Report of the Balanced
Fund's independent accountants are included in the Balanced Fund's Annual Report
to Shareholders and are incorporated by reference into this SAI. A copy of the
Annual Report accompanies this SAI.
The Emerging Growth Fund began operationsin July 2000, therefore, there are no
financial statements for previous years.
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APPENDIX A
DEFINITIONS: Some of the terms used in the Fund's Prospectus and this Statement
of Additional Information are described below.
MONEY MARKET: 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: 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: 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: 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: Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
COMMERCIAL PAPER: 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: 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: 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: 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
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Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
COLLATERALIZED MORTGAGE OBLIGATIONS: 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: 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).
ZERO COUPON BONDS: 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 Fund, 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 Fund.
Cash to pay dividends representing unpaid, accrued interest may be obtained from
sales proceeds of portfolio securities and Fund shares and from loan proceeds.
Because interest on zero coupon obligations is not paid to the Fund 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
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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 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.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are 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. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements. The
future of such bonds cannot be considered as well assured.
B --- Bonds which are rated B generally lack characteristics of a desirable
investment.
Caa -- Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca -- Bonds rated Ca are speculative to a high degree.
C -- Bonds rated C are the lowest rated class of bonds and are regarded as
having extremely poor prospects.
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.
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.
BB -- Debt rated BB is predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with terms of the obligation. BB
indicates the lowest degree of speculation; CC indicates the highest degree of
speculation.
BB, B, CCC, CC -- Debt in these ratings is predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with terms
of the obligation. BB indicates the lowest degree of speculation and CC the
highest.
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.
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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: 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 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
Adviser 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.
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FORM N-1A
PART C
OTHER INFORMATION
ITEM 23: EXHIBITS
(a) Declaration of Trust, as supplemented. Incorporated by Reference from PEA
No. 13, filed November 26, 1996.
(b) By-Laws. Incorporated by Reference from PEA No. 13, filed November 26,
1996.
(c) Not Applicable.
(d) (1) Investment Advisory Agreement for Small-Cap Value Fund (dated September
9, 1992). Incorporated by Reference from PEA No. 8, filed July 29, 1993.
(2) Investment Advisory Agreement for Balanced Fund. Incorporated by
Reference from Form N-14, filed December 2, 1996.
(3) Investment Advisory Agreement for the Emerging Markets Fund. To be
filed by amendment.
(e) (1) Not Applicable.
(2) First Amendment to Distribution Agreement. Incorporated by Reference
from N-14, filed December 2, 1996.
(f) Not Applicable.
(g) (1) Custody Agreement (dated October 30, 1992). Incorporated by Reference
from PEA No. 8, filed July 29, 1993.
(2) Form of First Amendment to Custody Agreement, incorporated by reference
from PEA No. 17, filed July 28, 1998.
(h) (1)(i) Accounting Services Agreement (dated October 1, 1992). Incorporated
by Reference from Amendment No. 1 to Form N-14, filed February 28, 1997.
(ii) Form of First Amendment to Accounting Services Agreement,
incorporated by reference from PEA No. 17, filed July 28, 1998.
(2) (i) Transfer Agent Agreement. Incorporated by Reference from Form N-14,
filed December 2, 1996.
(ii) Form of First Amendment to Transfer Agent Agreement, incorporated
by reference from PEA No. 17, filed July 28, 1998.
(3) (i) Administrative Agreement. Incorporated by Reference from Form N-14,
filed December 2, 1996.
(ii) Form of First Amendment to Administrative Agreement, incorporated
by reference from PEA No. 17, filed July 28, 1998.
(4) (i) Form of Operating Services Agreement for the Balanced Fund,
incorporated by reference from PEA No. 16, filed May 29,
1998.
(ii) Form of First Amendment to Operating Services Agreement for the
Balanced Fund, incorporated by reference from PEA No. 17, filed July 28, 1998.
(5) (i) Form of Operating Services Agreement for the Small-Cap Value Fund,
incorporated by reference from PEA No. 16, filed May 29, 1998.
(ii) Form of First Amendment to Operating Services Agreement for the
Small-Cap Value Fund.
(iii) Form of Operating Services Agreement for the Emerging Growth
Fund. To be filed by amendment.
(i) Opinion of Counsel, incorporated by reference from PEA No. 17, filed
July 29, 1998.
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(j) (1) Consents of Independent Auditors.
(2) Power of Attorney. Incorporated by Reference from PEA No. 7, filed
September 23, 1992 and PEA No. 9, filed July 29, 1994.
(k) Not Applicable.
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
None.
ITEM 25. INDEMNIFICATION.
Previously filed on and incorporated by reference from PEA No. 7, filed
September 23, 1992.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
CornerCap Investment Counsel (the "Advisor") is the investment advisor of the
Registrant. For information as to the business profession, vocation or
employment of a substantial nature of the Advisor, its directors and officers,
reference is made to Part B of this Registration Statement and to Form ADV filed
under the Investment Advisers Act of 1940 by the Advisor.
ITEM 27. PRINCIPAL UNDERWRITER.
The Funds offer their shares without the engagement of a distributor.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All shareholder account records including share ledgers, duplicate confirmation,
duplicate account statements, and application forms are maintained by the
Registrant's Transfer Agent, Fortune Fund Administration, Inc., The Peachtree,
Suite 1775, 1355 Peachtree Street, NE, Atlanta, Georgia 30309. Certain
accounting records of the Registrant are maintained by Fortune Fund
Administration, Inc. in its capacity as Accounting Services Agent.
Actual portfolio securities and other investment assets (including cash) are
maintained in the custody of the Registrant's Custodian Bank, UMB Bank, n.a.,
928 Grand Avenue, Kansas City, MO 64105.
Records relating to the investment of the CornerCap Group of Funds, including
research information, records relating to the placement of brokerage
transactions, memorandum regarding investment recommendations for supporting
and/or authorizing the purchase or sale of assets, and all other records of the
Registrant required to be maintained pursuant to Section 31(a) of the 1940 Act,
and Rule 31a-1 thereunder (such records include copies of the Declaration of
Trust, By-Laws, minute books, original copies of all agreements, compliance
records and reports, etc.) are maintained at CornerCap Investment Counsel, The
Peachtree, Suite 1700, 1355 Peachtree St, N.E., Atlanta, Georgia, 30309.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest applicable annual report to
Shareholders, upon request and without charge.
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Blue Sky records are originated and maintained by Commonwealth Shareholder
Services, Inc., at 1500 Forest Avenue, Suite 223, Richmond, Virginia, 23229.
Duplicate copies of Blue Sky records are also maintained at CornerCap Investment
Counsel (address noted above).
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SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(a) under the Securities Act of 1933 and the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Atlanta, State of Georgia, on the 11th day of
May, 2000.
CORNERCAP GROUP OF FUNDS, REGISTRANT
BY: /s/ Thomas E. Quinn
--------------------------------
Thomas E. Quinn, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
has constituted and appointed Thomas E. Quinn as his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, and all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Dated as of the 11th day of May, 2000.
/s/ Thomas E. Quinn
------------------------------------
Thomas E. Quinn, Principal Executive
Officer, Principal Accounting Officer,
Trustee
Richard L. Boger**
------------------------------------
Richard L. Boger, Trustee
G. Harry Durity**
------------------------------------
G. Harry Durity, Trustee
Laurin M. McSwain**
------------------------------------
Laurin M. McSwain, Trustee
**BY: /s/ Thomas E. Quinn
------------------------------------
Thomas E. Quinn, Attorney-in-fact
Dated May 11, 2000
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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated May 6, 1999 on the financial
statements and financial highlights of CornerCap Small-Cap Value Fund (formerly
CornerCap Growth Fund) and our report dated May 6, 1999 on the financial
statements and financial highlights of CornerCap Balanced Fund. Such financial
statements and financial highlights appear in the 1999 Annual Report to
Shareholders which is incorporated by reference in the Post-Effective Amendment
to the Registration Statement on Form N-1A of CornerCap Group of Funds. We also
consent to the references to our Firm in the Registration Statement and
Prospectus.
/s/ Tait, Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
May 12, 2000
