CORNERCAP GROUP OF FUNDS
CORNERCAP CORNERCAP
BALANCED FUND SMALL-CAP VALUE FUND
CORNERCAP
EMERGING GROWTH FUND
PROSPECTUS
July 27, 2000
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TABLE OF CONTENTS
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Prospectus Summary............................................................. 1
Historical Performance of the Funds............................................ 4
Summary of Fund Expenses....................................................... 5
Financial Highlights........................................................... 6
The Fund in Detail: Objectives, Strategy and Additional Risks................. 8
Management..................................................................... 11
Valuation of Shares............................................................ 12
Purchasing Shares.............................................................. 12
Exchange Privilege............................................................. 13
Redeeming Shares............................................................... 13
Additional Information About Purchases, Sales and Exchanges.................... 14
Dividend and Tax Information................................................... 15
Additional Information......................................................... 16
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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.
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| 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 STRATEGY
SUMMARY
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WHAT DO LARGE-, MID-, SMALL, and OBJECTIVES AND PRINCIPAL STRATEGY OF THE BALANCED FUND: The
MICRO-CAP MEAN? Balanced Fund's investment objective is to obtain long-term capital
The capitalization ("cap") of a appreciation and current income. To meet its investment objective,
company refers to the value of its the Balanced Fund typically invests between 50% and 70% of its
outstanding securities. You can assets in equity securities, such as common stocks, preferred
calculate a company's capitalization stocks, and convertible securities. Although the Fund may invest in
by multiplying the number of its companies of any size, the Fund invests primarily in the domestic
outstanding shares by the current common stock of large-cap and mid-cap companies which the Fund's
market price of those shares. The Advisor believes to have above-average growth potential.
largest publicly traded stocks have a
market capitalization of over $250 The Fund's Advisor selects these securities from among 1,500 issues
billion while the smallest publicly ranked according to several fundamental factors using the Advisor's
traded stocks may have a market proprietary models. Three of the most important factors in the
capitalization of under $50 million. Advisor's model are the following:
The Funds define large-, mid-, and
small-cap as follows: o relative price/earnings ratio
Large-cap: A large-cap stock has a o earnings growth rates
market capitalization of at least $5 o cash flow measurements
billion.
Mid-cap: A mid-cap stock has a Although the exact percentage varies in accordance with economic and
market capitalization of at least $2 market conditions, the Fund balances its equity investments by
billion. typically investing between 20% and 40% in fixed income securities,
Small-cap: A small-cap stock has a such as obligations of the United States government, corporate
market capitalization under $2 securities including bonds and notes, and sovereign government
billion. municipal, mortgage-backed and other asset-backed securities. The
Micro-cap: A micro-cap stock is Fund may invest in fixed income securities of any maturity. In
among the smallest of traded stocks, addition, the Balanced Fund may hold cash and cash equivalents.
typically with market capitalizations
of under $300 million. OBJECTIVES AND PRINCIPAL STRATEGY OF THE SMALL-CAP VALUE FUND: The
Small-Cap Value Fund's investment objective is to obtain long-term
capital appreciation. A secondary objective is to generate income
from dividends or interest on securities. To meet its investment
objectives, the Small-Cap Value Fund normally invests more than 90%
of its assets in equity securities of domestic and foreign issuers,
such as common stocks, preferred stocks, and convertible securities.
Although the Fund may invest in companies of any size, the Fund
invests primarily in the domestic common stock of small-cap and
mid-cap companies which the Fund's Advisor believes to have
above-average growth potential. The Fund's Advisor selects these
securities from among 1,500 issues ranked according to several
fundamental factors using the Advisor's proprietary models. Three
of the most important factors in the Advisor's model are the
following:
o relative price/earnings ratio
o earnings growth rates
o cash flow measurements
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 PRINCIPAL 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.
ADDITIONAL PRINCIPAL RISK OF AN INVESTMENT IN THE SMALL-CAP VALUE AND EMERGING
GROWTH FUNDS
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 RISK 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 private 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
compare 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 | | 8.1 | | | | 11.8 |
10 | 10 | 5.4 | | | | 10 | |
| | 0.7 | | | | | | | 2.7 | | |
_0_____________________|____|_______ 0_______|______|___|___|___|___|__ __|_ 0_________________________|__________|____
| | | | | -5 |
| | | -3.9 | | |
-10 -10 | | -10 -8.4
| | | -10.6 |
| | -16.1 -15
-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:%
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BEST QUARTER: 4th Qtr. 1998 9.2% BEST QUARTER: 1st Qtr. 1989 17.2% BEST QUARTER: 4th Qtr. 1999 20.2%
WORST QUARTER: 1st Qtr. 1999 -3.2% WORST QUARTER: 3rd Qtr. 1998 -17.8% WORST QUARTER: 3rd Qtr. 1998 -24.5%
AVERAGE ANNUAL TOTAL AVERAGE ANNUAL TOTAL AVERAGE ANNUAL TOTAL
RETURN AS OF RETURN AS OF RETURN AS OF
12/31/99* 12/31/99* 12/31/99*
--------------------------------------- ---------------------------------------- --------------------------------------------
SINCE SINCE
1 YEAR INCEPTION 1 YEAR 5 YEAR 10 YEAR 1 YEAR INCEPTION
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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 21.3% 16.7% 13.4% RUSSELL 21.3% 14.7%
VALUE INDEX a 2000 2000 VALUE
COMBINED VALUE INDEX c
INDEX PORTFOLIO 12.9% 14.2% INDEX c
(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 all 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 each Fund.
SHAREHOLDER FEES
SHAREHOLDER FEES are fees The Funds do not charge any sales charges or sales loads.
paid directly from your
investment If you buy or sell shares indirectly through a broker instead of directly
from the Funds, you may be charged a fee by the broker.
Emerging Growth Fund's Redemption Fee 2.00%
ANNUAL OPERATING EXPENSES
EMERGING
BALANCED SMALL-CAP GROWTH
FUND VALUE FUND FUND
ANNUAL OPERATING EXPENSES Management Fee 1.00% 1.00% 1.00%
are expenses that are
dececuted from Fund assets Other Expenses 0.30% 0.50% 0.90%*
Total Expenses 1.30% 1.50% 1.90%
Note: The annual operating expenses listed above are expressed as a
percentage of average daily net assets
The Emerging Growth Fund charges a 2.00% redemption fee. 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. The redemption fee will also
apply to shares held for more than one year, but not if you give the
Advisor at least 30 days notice of your intent to redeem. The fee will
not apply if you hold your shares for more than one year and give the
Fund 30 days notice of your intent to redeem.
** These figures are estimated since this is a new fund with no
operational history.
EXAMPLE OF FUND EXPENSES
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 -- --
not be considered a
representation of either
Fund's past or future THE ACTUAL EXPENSES ASSOCIATED WITH THE FUNDS MAY BE GREATER OR LESS
performance. THAN THOSE SHOWN.
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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, 1999.
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RESULTS FOR THE PERIOD ENDING MARCH 31:
2000 1999 1998 1997 1996 1995
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NET ASSET VALUE, BEGINNING OF PERIOD $9.56 $14.85 $11.68 $9.81 $8.61 $7.69
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) .06 .04 .21 0.02 0.04 0.05
Net Gains (Losses) on Securities
(both realized and unrealized) .46 (3.85) 5.05 1.93 1.22 0.89
--- ---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS .52 (3.81) 5.26 1.95 1.26 0.94
LESS DISTRIBUTIONS:
Dividends from Net Investment Income (.06) - .22 .01 0.06 0.02
Distributions from Capital Gains (1.15) (1.48) 1.87 .07 - -
------ ------ ---- --- - -
Total Distributions (1.21) (1.48) 2.09 .08 0.06 0.02
NET ASSET VALUE, END OF PERIOD $8.87 $9.56 $14.85 $11.68 $9.81 $8.61
TOTAL RETURN 5.30% (25.98)% 47.69% 19.94% 14.64% 12.25%
RATIOS/SUPPLEMENTAL DATA:
2000 1999 1998 1997 1996 1995
----------------------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
Net Assets, End of Period (thousands) $11,492 $12,090 $17,942 $12,856 $8,371 $7,299
Ratio of Expenses to Average Net Assets 1.50% 1.50% 1.56% 1.71% 1.75% 1.87%
Ratio of Net Income to Average Net Assets .53% .23% .17% 0.19% 0.49% 0.12%
Portfolio Turnover Rate 37.13% 39.16% 48.82% 37.13% 40.83% 55.12%
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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.
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RESULTS FOR A SHARE OUTSTANDING FOR THE PERIOD:
2000 1999 MAY 31, 1997 TO MAY 24, 1997 TO
MARCH 31, 1998* MAY 31, 1997*
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NET ASSET VALUE, BEGINNING OF PERIOD $11.62 $12.21 $32.99 $33.20
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) .36 .21 0.24 0.01
Net Gains (Losses) on Securities
(both realized and unrealized) (.66) (.26) 2.20 (0.22)
--- --- ---- ----
TOTAL FROM INVESTMENT OPERATIONS (.30) (.05) 2.44 (0.21)
LESS DISTRIBUTIONS:
Dividends from Net Investment Income (.37) (.07) (0.19) -
Distributions from Capital Gains (.24) (.44) 23.03 -
----- ----- -----
Total Distributions (.61) (.54) 23.22 -
NET ASSET VALUE, END OF PERIOD $10.71 $11.62 $12.21 $32.99
TOTAL RETURN (2.89)% (.46)% 19.13% (0.60%)
RATIOS/SUPPLEMENTAL DATA:
2000 1999 MAY 31, 1997 TO MAY 24, 1997 TO
MARCH 31, 1998 MAY 31, 1997
----------------------------------------------- ----------- ----------- ------------------ -----------------
Net Assets, End of Period (thousands) $4,430 $4,498 $2,294 $2,093
Ratio of Expenses to Average Net Assets 1.32% 1.30% 1.53%** 1.00%**
Ratio of Net Income to Average Net Assets 3.16% 2.91% 2.80%** 4.50%**
Portfolio Turnover Rate 16.38% 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.
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* 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 Fund will sell securities when the Advisor determines that it is
advantageous to do so, such as when securities with relatively greater value are
available for purchase by the Fund, or to raise cash.
The Balanced Fund will only invest in those corporate obligations, including
convertible securities, that in the opinion of the Advisor exhibit the
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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
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.
The Fund will sell securities when the Advisor determines that it is
advantageous to do so, such as when securities with relatively greater value are
available for purchase by the Fund, or to raise cash.
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.
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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
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.
The Fund will sell securities when the Advisor determines that it is
advantageous to do so, such as when securities with relatively greater value are
available for purchase by the Fund, or to raise cash.
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
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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.
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 SMALL-CAP EMERGING
FUND VALUE FUND GROWTH
FUND
----------------- ---------- ------------- -----------
Advisory Fee 1.00% 1.00% 1.00%
Administration 0.30% 0.50% 0.90%
Fee ---------- ------------- -----------
TOTAL FEES 1.30% 1.50% 1.90%
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
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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.
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 some time after 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 purchase request. 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
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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
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
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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 from purchase) 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
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. 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. If the
shareholders do not purchase additional shares within this period, their shares
will be redeemed at the net asset value determined as of the close of business
on the business day following the end of the 60-day period.
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
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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
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 the 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.
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THE CORNERCAP GROUP OF FUNDS INVESTMENT ACT FILE NUMBER:
811-4581
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