CROFT-LEOMINSTER
INCOME FUND
ANNUAL REPORT
April 30, 1996
<PAGE>
Croft Funds Corporation
CROFT-LEOMINSTER INCOME FUND
April 30, 1996
Dear Croft-Leominster Income Fund Shareholder:
Since its inception date of May 4, 1995, the Croft-Leominster Income Fund has
gained 10.2% through April 30, 1996, on a total return basis. In our first year
as a mutual fund, we have achieved our objective of outperforming the benchmark
indexes. And over the longer term, the same portfolio in a limited partnership
format has achieved an 11.4% annualized return since inception (January 1, 1992)
compared to a 6.3% annualized return for the Lehman Brothers Intermediate
Government/Corporate Bond Index over the same time period.
The Income Fund continues to seek a high level of current income by investing at
least 65% of its assets in investment-grade fixed-income securities. The Fund
may invest up to 34.9% of its assets in non-investment grade securities,
including common stocks and high-yield bonds. We attempt to add value to the
Income Fund in this manner, through the opportunistic use of convertible
securities, preferred securities, closed-end bond funds, and high-yield bonds
with attractive valuations.
As of April 30, 1996, the Income Fund s bond portfolio had the following
characteristics: weighted average yield to maturity of 8.8%, average duration of
8.3 years, and weighted average maturity of 19.3 years. The Fund's 30-day SEC
yield was 7.81% as of April 30, 1996.
The Income Fund maintains industry diversification, with its corporate bonds
dispersed among 18 different industries and 43 different securities. This
diversification helps to minimize both credit and event risks. In addition, the
Fund attempts to minimize the risk of early redemption by holding a number of
bonds which are either selling at a discount or are non-callable for life.
Thank you for investing in the Croft-Leominster Income Fund. We will continue
to work hard to justify your confidence in the Fund.
Sincerely yours,
Gordon Croft
Vice President
June 13, 1996
**Comments refer to the Fund as of April 30, 1996. Composition of the portfolio
will have changed somewhat at this mailing.
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<TABLE>
<CAPTION>
Croft Funds Corporation
SCHEDULE OF INVESTMENTS
CROFT-LEOMINSTER INCOME FUND
April 30, 1996
<C> <S> <C>
Shares Market Value
COMMON STOCKS 8.34%
BOND FUNDS 7.83%
6,200 Alliance World Dollar Govt.II $ 76,725
3,900 Alliance World Dollar Govt. Fund 49,725
3,700 Latin America Dollar Income Fund 48,563
6,731 Morgan Stanley Emerging Mkt Debt Fd 86,662
9,500 Salomon Brothers Worldwide Income Fd 121,125
10,300 Templeton Emerging Markets Income Fund 122,313
505,113
INSURANCE 0.51%
1,300 GCR Holdings Ltd. 33,150
TOTAL COMMON STOCKS (Cost $543,608) 538,263
PREFERRED STOCKS 2.62%
CONVERTIBLE PREFERRED 1.31%
1,600 Bethlehem Steel $5.00 Conv PFD 84,800
PREFERRED STOCKS 1.31%
500 Allied Irish 11.875% PFD 13,875
650 California Fed Bank 10.625% PFD B 70,281
84,156
TOTAL PREFERRED STOCKS (Cost $152,712) 168,956
The accompanying notes are an integral part of these financial statements.
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Croft Funds Corporation
SCHEDULE OF INVESTMENTS
CROFT-LEOMINSTER INCOME FUND
April 30, 1996
Principal Value Market Value
BONDS 81.94%
AUTO & AUTOMOTIVE PRODUCTS 3.69%
95,000 Ford Holdings Inc. Debentures $ 108,931
120,000 SPX Corp. Sr. Sub. Nts. 129,000
237,931
CABLE TV/CELLULAR 5.20%
130,000 CF Cable TV Inc. Sr. Sec. Notes 130,000
225,000 Tele-Communications Inc. Notes 205,463
335,463
CAPITAL GOODS 1.56%
90,000 Caterpillar Inc. Sinking Fund Debentures 100,341
CHEMICALS 3.12%
105,000 Arco Chemical Co. Debentures 127,792
20,000 General Chemical Corp. Senior Subordinated Notes 20,150
50,000 Rexene Corp. Senior Notes 53,500
201,442
CONTAINERS & PAPER 15.51%
365,000 Georgia-Pacific Corp. Debentures 383,723
465,000 Georgia-Pacific Corp. Debentures 474,558
20,000 Owens-Illinois Inc. Senior Subordinated Notes 20,500
125,000 Stone Container Corp. Senior Notes 121,250
1,000,031
CONVERTIBLE BONDS 0.89%
65,000 Oryx Energy Co. Convertible Subordinated Debentures 57,606
The accompanying notes are an integral part of these financial statements.
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Croft Funds Corporation
SCHEDULE OF INVESTMENTS
CROFT-LEOMINSTER INCOME FUND
April 30, 1996
Principal Value Market Value
ELECTRIC & GAS UTILITIES 2.47%
60,000 Commonwealth Edison 1st Mtg $ 61,520
95,000 Georgia Power 1st Ref Mort. 97,920
159,440
ENERGY & ENERGY SERVICES 0.98%
65,000 Maxus Energy Corp. Notes 63,050
FINANCIAL SERVICES 8.42%
225,000 Aetna Life & Casualty Co. Debentures 214,922
55,000 Aetna Life & Casualty Co. Debentures 51,354
100,000 Chase Manhattan New Subordinated Notes 100,363
15,000 ITT Corp. Senior Subordinated Debentures 15,159
160,000 Reliance Group Holdings Senior Subordinated Debs. 161,200
542,998
FOOD & DRUG PRODUCERS 2.57%
80,000 Borden Inc. Sinking Fund Debentures 80,480
85,000 RJR Nabisco Inc. Notes 84,887
165,367
INDUSTRIAL GOODS 7.02%
85,000 Ametek Inc. Senior Notes 88,825
20,000 Deere & Co. Senior Debentures 21,446
65,000 Penn Central Corp. Subordinated Notes 70,200
65,000 Westinghouse Electric Corp. Debentures 62,174
240,000 Westinghouse Electric Corp. Debentures 210,182
452,827
MEDIA & ENTERTAINMENT 9.07%
35,000 Time Warner Entertainment Senior Debentures 34,495
530,000 Time Warner Inc. Debentures 550,657
585,152
METALS & MINING 8.84%
180,000 Alcan Aluminum Ltd. Debentures 191,228
90,000 Armco Inc. Senior Notes 92,700
285,000 USX Corp. Debentures 286,195
570,123
The accompanying notes are an integral part of these financial statements.
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Croft Funds Corporation
SCHEDULE OF INVESTMENTS
CROFT-LEOMINSTER INCOME FUND
April 30, 1996
Principal Value Market Value
MISC. CONSUMER GOODS & SERVICES 0.32%
20,000 Integrated Health Services Senior Sub. Notes $ 20,850
RETAIL STORES 2.38%
30,000 Dayton Hudson Co. Debentures 31,297
105,000 Sears Roebuck & Co. Notes 122,447
153,744
TECHNOLOGY 2.75%
125,000 Plantronics Inc. Senior Notes 127,500
50,000 Tektronix Inc. Senior Notes 50,189
177,689
TELEPHONES 2.59%
125,000 GTE Corp. Debentures 139,576
24,580 NYNEX Corp. SF Debs. 27,518
167,094
TEXTILES & APPAREL 2.95%
70,000 Fruit of the Loom Inc. Senior Notes 63,006
130,000 Westpoint Stevens Inc. Senior Sub. Deb. 127,400
190,406
TRANSPORTATION 1.61%
100,000 Southern Pacific Railroad Senior Notes 104,000
TOTAL BONDS (Cost $5,228,639) 5,285,554
SHORT TERM INVESTMENTS 6.42%
Star Treasury Fund (Cost $413,859) 413,859
TOTAL INVESTMENTS (Cost $6,338,818) 99.32% $ 6,406,632
Other assets less liabilities 0.68% 43,553
TOTAL NET ASSETS 100.00% $ 6,450,185
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Croft Funds Corporation
STATEMENT OF ASSETS AND LIABILITIES
CROFT-LEOMINSTER INCOME FUND
April 30, 1996
<S> <C>
ASSETS
Investments at value (cost $6,338,818) $ 6,406,632
Dividends and interest receivable 132,550
Total assets 6,539,182
LIABILITIES
Payable for fund shares redeemed 900
Payable for dividends declared 27,276
Accrued advisory fee (Note 3) 43,665
Other expenses 17,156
Total liabilities 88,997
NET ASSETS
Net assets, equivalent to $10.25 on 629,013 shares
outstanding. (Note 4) $6,450,185
Computation of net asset value per share and
public offering price $ 10.25
Net Assets consist of:
Paid in capital 6,361,818
Undistributed net investment income 6,617
Accumulated undistributed net realized
gains (losses) from security transactions 13,936
Net unrealized appreciation (depreciation)
of investments 67,814
Net Assets April 30, 1996 $ 6,450,185
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
Croft Funds Corporation
STATEMENT OF OPERATIONS
CROFT-LEOMINSTER INCOME FUND
For the period from May 4, 1995 (Commencement of Operations)
through April 30, 1996
<S> <C>
Investment Income:
Dividends $ 72,443
Interest 394,837
Total income 467,280
Expenses:
Investment advisory fee (Note 3) 43,665
Distribution fee (Note 3) 0
Other 17,134
Total expenses 60,799
Net investment income (loss) 406,481
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments 30,969
Unrealized appreciation (depreciation) of investments
for the period 67,814
Net gain (loss) on investments 98,763
Net increase (decrease) in net assets
from operations $505,264
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
Croft Funds Corporation
STATEMENT OF CHANGES IN NET ASSETS
CROFT-LEOMINSTER INCOME FUND
May 4, 1995* through April 30, 1996
<S> <C>
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 406,481
Net realized gain (loss) on investments 30,969
Unrealized appreciation (depreciation) for the period 67,814
Net increase (decrease) in net assets
from operations 505,264
Dividends paid to shareholders:
Net investment income (399,864)
Capital gains (17,033)
Capital share transactions (Note 4) 6,361,818
Total increase 6,450,185
Net Assets:
Beginning of period 0
End of period (including undistributed
net investment income of $6,617) $6,450,185
<FN>
* Commencement of operations
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Croft Funds Corporation
NOTES TO FINANCIAL STATEMENT
April 30, 1996
Note 1. Nature of Business and Basis of Presentation
The Croft-Leominster Income Fund (the "Fund"), is a managed portfolio of the
Croft Funds Corpor-ation, a diversified open-end management investment company
registered under the Investment Company Act of 1940. The Fund is one of a series
of Funds of the Croft Funds Corporation, which also includes the
Croft-Leominster Value Fund. It was organized in 1994 to succeed to the business
of Croft-Leominster Inc.'s Leominster Income Limited Partnership, an investment
company organized as a limited partnership which commenced operations January 1,
1992 for the purpose of investing the partners' capital in securities under
professional investment management. This succession occurred on May 4, 1995 when
the partnership's net assets aggregating $3,175,041 were transferred to the
Croft-Leominster Income Fund in exchange for 317,504 shares of the Fund's
capital stock. As a result of transferring such assets at their market value,
the change in unrealized appreciation of investments for the period, as shown in
the Statement of Operations will not equal the current unrealized appreciation
at April 30, 1996 as shown in the Statement of Assets and Liabilities and the
Schedule of Investments.
Note 2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
(a) Valuation of Securities.
Investments are stated at value based on latest sales prices reported on
national securities exchanges on the last business day of the period.
Investments for which no sale is reported, or which are traded over the counter,
are valued at the last reported bid price.
(b) Income taxes.
The Fund intends to comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Therefore no provision has been made for
federal income taxes.
(c) Other.
Realized gains and losses are reported on an identified cost basis. Securities
transactions are recorded on the trade date basis. Interest is accrued as earned
and dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities are recorded as soon as information is
available to the Fund. Dividends and capital gain distributions to shareholders
are recorded on the ex-dividend date. Discounts and premiums on securities
purchased are amortized over the life of the respective securities.
<PAGE>
Croft Funds Corporation
NOTES TO FINANCIAL STATEMENT
April 30, 1996
Note 3. Investment Advisory Fee and Other Transactions With Affiliates.
The Fund retains Croft-Leominster Inc. (Adviser) as its investment adviser.
Under the terms of the agreement the Adviser receives a fee, computed daily and
payable quarterly at the annual rate of .79% of the Income Fund's average daily
net assets. Until December 31, 1997, the manager guarantees that the overall
expense ratio for the Income Fund, which exclude ordinary brokerage commissions
incurred in the purchase or sale of portfolio securities, will not exceed 1.35%.
Pursuant to a plan of Distribution the Fund pays a distribution fee of up to
.25% of the average daily net assets to Broker-Dealers for distribution
assistance, and to financial institutions and intermediaries such as banks,
savings and loan associations, insurance companies and investment counselors as
compensation for services rendered or expenses incurred in connection with
distribution assistance.
The Croft Funds Corporation elected to waive the 12b-1 fee for the
Croft-Leominster Income Fund on August 23, 1995. The waiver was enacted
primarily because the Corporation currently does not have any 12b-1 agreements
with a broker-dealer or any other financial institution, and felt it imprudent
to accrue fees for compensation of the same. The 12b-1 fee will be waived into
the foreseeable future; however, the Croft Funds Corporation reserves the right
to terminate the waiver and reinstate the 12b-1 fee at any time in its sole
discretion.
Note 4. Capital Stock.
At April 30, 1996, there were 30,000,000 shares of capital stock ($.001 par
value) authorized for the Croft Funds Corporation, and capital paid-in amounted
to $6,361,818 for the Income Fund. Transactions in capital stock were as
follows:
<TABLE>
<S> <C> <C>
May 4, 1995
(Commencement of
Operations) through
April 30, 1996
Amount Shares
Sold..................................... 654,746 $ 6,627,185
Issued on reinvestment
of dividends............................. 27,377 285,640
Redemptions.............................. (53,110) (551,007)
Net increase............................. 629,013 $ 6,361,818
</TABLE>
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Croft Funds Corporation
NOTES TO FINANCIAL STATEMENT
April 30, 1996
Note 5. Investment Transactions.
During the period ended April 30, 1996, purchases and sales of investment
securities, excluding short-term obligations were as follows:
Cost of purchases......... $ 3,115,169
Proceeds of sales......... 699,823
At April 30, 1996 the net unrealized appreciation based on cost for Federal
income tax purposes of $6,302,062 for the Income Fund was as follows:
Unrealized appreciation..... $ 156,832
Unrealized depreciation..... (52,262)
$ 104,570
Note 6. Distribution to Shareholders
The Croft-Leominster Income Fund makes dividend distributions quarterly. During
the fiscal year ended April 30, 1996, distributions of $.76 aggregating $416,897
were declared with $27,276 remaining payable to shareholders at year end.
Note 7. Financial Instrument Disclosure
There are no reportable financial instruments that have any off balance sheet
risk as of April 30, 1996.
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Croft Funds Corporation
CROFT-LEOMINSTER INCOME FUND
April 30, 1996
<TABLE>
<S> <C>
Financial Highlights for a share outstanding
throughout the period from
May 4, 1995 (Commencement of Operations)
through April 30, 1996)
Per Share Operating Performance (for a
share outstanding throughout the period)
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income .73
Capital gains .03
Net realized and unrealized gain (loss)
on investments .25
Total from investment operations 1.01
Less distributions:
Dividends from net investment income (.73)
Dividends from net realized gains (.03)
Total distributions (.76)
Net asset value, end of period $10.25
Ratios/Supplemental Data:
Net assets, end of period (000's) 6,450
Ratios to average net assets:
Expenses 1.10%**
Net investment income 7.35%**
Portfolio turnover rate 13.76%*
Total Return 10.17%*
<FN>
** Annualized
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
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CROFT FUNDS CORPORATION
April 30, 1996
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Directors
Croft Funds Corporation
We have audited the accompanying statement of assets and liabilities of Croft
Funds Corporation (comprising, respectively, the Croft-Leominster Income Fund
and Croft-Leominster Value Fund), including the schedule of portfolio
investments, as of April 30, 1996, and the related statement of operations, the
statement of changes in net assets, and financial highlights for the period from
May 4, 1995 (commencement of operations) to April 30, 1996 in the period then
ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments and cash held
by the custodian as of April 30, 1996, by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Croft Funds Corporation as of
April 30, 1996, the results of its operations, the changes in its net assets,
and the financial highlights for the period from May 4, 1995 (commencement of
operations) to April 30, 1996 in the period then ended, in conformity with
generally accepted accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
May 23, 1996
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Croft Funds Corporation
CROFT-LEOMINSTER INCOME FUND
April 30, 1996
<TABLE>
<CAPTION>
Average Annual Total Return Performance: Period Ended 4/30/96
<S> <C> <C> <C>
Since Inception Since Inception
One Year on 1/1/92 (Annualized) on 1/1/92 (Total Return)
Croft-Leominster Income Fund* +11.8% +11.4% +59.7%
Lehman Brothers Intermediate + 7.8% + 6.3% +30.3%
Government/Corporate Bond Index
<FN>
* The performance data quoted includes past performance of the Leominster Income
Limited Partnership, the predecessor to the Croft-Leominster Income Fund.
This past performance has been adjusted for fees and expenses for the periods
prior to inception of the Croft-Leominster Income Fund on May 4, 1995. The
Leominster Income Limited Partnership was not registered under the 1940 Act
and therefore was not subject to certain investment restrictions which may
have adversely affected performance.
Total return takes into account all distributions made by the Fund, as well as
changes in share price over the period. Past performance is not indicative of
future results.
</FN>
</TABLE>
[Graph Here: Indicating Cumulative Performance Comparison using $10,000
Investment Since Inception.
Croft-Leominster Income Fund value at 4/96............ $ 15,972
Lehman Brothers Intermediate Govt./Corp. Bond Index... $ 13,030
End of Graph]
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CROFT-LEOMINSTER
INCOME FUND
1-800-746-3322
