Croft-Leominster
Income Fund
SEMI-Annual Report
October 31, 1996
(Unaudited)
<PAGE>
Dear fellow shareholder:
During the twelve month period ending December 31, 1996, the Croft-Leominster
Income Fund gained 7.1% on a total return basis. Since its inception date of May
4, 1995 through December 31, 1996, the Income Fund has gained 20.8% on a total
return basis.* We continue to perform well relative to our peers. The Wall
Street Journal's Mutual Fund Scorecard ranked the Income Fund 6th out of 102 BBB
rated bond funds** for the one-year period ending December 31, 1996, as
determined by Lipper Analytical Services, Inc. Over the longer term, the same
portfolio in a limited partnership format has achieved a 12.0% annualized return
since inception (January 1, 1992) compared to a 7.6% annualized return for the
Lehman Brothers Intermediate Government/ Corporate Bond Index over the same time
period.***
The Income Fund seeks 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. 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 December 31, 1996 the Income Fund's bond portfolio had the following
characteristics: weighted average yield to maturity of 8.4%, average duration
of 8.4 years, and weighted average maturity of 19.0 years. The Fund's 30-day
"SEC yield" was 7.49%. The Income Fund maintains strong industry
diversification, with its corporate bonds dispersed among 17 different
industries and 50 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 Income Fund.
Sincerely yours,
/s/ Gordon Croft
Gordon Croft
Vice President
* Past performance is not indicative of future performance. Investment
return and principal value will fluctuate. An investor's shares, when
redeemed, may be worth more or less than the original value.
** Category consists of mutual funds which generally invest at least 65% of
their assets in corporate bonds with BBB or better credit rating and may
hold government bonds. The total return does not include fees which were
waived during the period on which the ranking was based. If such fees were
not waived the total return would have been adversely affected.
*** The limited partnership was not registered under the Investment Company
Act of 1940 ("1940 Act") and, therefore, was not subject to certain
investment restrictions imposed by the 1940 act. If the limited partnership
had been registered under the 1940 Act, its performance may have been
adversely affected.
<PAGE>
<TABLE>
<CAPTION>
CROFT FUNDS CORPORATION
SCHEDULE OF INVESTMENTS
CROFT-LEOMINSTER INCOME FUND
October 31, 1996
(Unaudited)
<C> <S> <C> <C>
Shares Market Value
- ------ ------------
COMMON STOCKS 6.76%
BOND FUNDS 6.76%
6,200 Alliance World Dollar Govt.II............... $ 80,600
3,700 Latin America Dollar Income Fund ........... 51,331
6,731 Morgan Stanley Emerging Mkt Debt Fd ........ 92,551
9,500 Salomon Brothers Worldwide Income Fd ....... 133,000
10,300 Templeton Emerging Markets Income Fund ..... 123,600
-------
TOTAL COMMON STOCKS (Cost $458,955) ............................ 481,082
-------
PREFERRED STOCKS 2.70%
CONVERTIBLE PREFERRED 1.52%
2,100 Bethlehem Steel $5.00 Conv PFD.............. 108,675
-------
PREFERRED STOCKS 1.18%
500 Allied Irish 11.875% PFD.................... 13,500
650 California Fed Bank 10.625% PFD B........... 70,200
-------
83,700
-------
TOTAL PREFERRED STOCKS (Cost $177,814).......................... 192,375
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CROFT FUNDS CORPORATION
SCHEDULE OF INVESTMENTS
CROFT-LEOMINSTER INCOME FUND
October 31, 1996
(Unaudited)
<C> <S> <C>
Principal Value Market Value
- --------------- ------------
BONDS 83.67%
AUTOS & AUTOMOTIVE PRODUCTS 3.46%
95,000 Ford Holdings Inc. Debentures............... $ 113,411
120,000 SPX Corp. Senior Subordinated Notes ........ 132,900
---------
246,311
---------
CABLE TV & CELLULAR 6.41%
185,000 CF Cable TV Inc. Senior Sec. Notes.......... 193,325
70,000 Tele-Communications Inc. Senior Debentures.. 64,052
225,000 Tele-Communications Inc. Notes ............. 199,143
--------
456,520
--------
CAPITAL GOODS 1.39%
90,000 Caterpillar Inc. Sinking Fund Debentures ... 98,636
-------
CHEMICALS 5.35%
65,000 Arcadian Partners Senior Notes.............. 71,988
105,000 Arco Chemical Co. Debentures ............... 132,329
20,000 General Chemical Corp. Senior Subordinated
Notes..................................... 20,250
30,000 IMC Fertilizer Senior Debentures ........... 34,906
110,000 Rexene Corp. Senior Notes................... 121,688
-------
381,161
-------
CONTAINERS & PAPER 15.59%
46,000 Georgia-Pacific Corp. Debentures ........... 52,389
365,000 Georgia-Pacific Corp. Debentures ........... 407,302
465,000 Georgia-Pacific Corp. Debentures ........... 503,034
20,000 Owens-Illinois Inc. Senior Subordinated
Notes..................................... 20,900
125,000 Stone Container Corp. Senior Sub.
Debentures................................ 126,563
---------
1,110,188
---------
CONVERTIBLE BONDS 0.67%
50,000 Kelley Oil & Gas Corp. Convertible
Subordinated Debentures................... 47,500
-------
ELECTRIC & GAS UTILITIES 3.79%
60,000 Commonwealth Edison 1st Mtg................. 63,680
95,000 Georgia Power 1st Ref Mort.................. 96,498
100,000 Penn Power & Light 1st Mort................. 109,890
-------
270,068
-------
The accompanying notes are an integral part of these financial statements.
<PAGE>
CROFT FUNDS CORPORATION
SCHEDULE OF INVESTMENTS
CROFT-LEOMINSTER INCOME FUND
October 31, 1996
(Unaudited)
Principal Value Market Value
- --------------- ------------
ENERGY & ENERGY SERVICES 0.92%
65,000 Maxus Energy Corp. Notes................... $ 65,650
---------
FINANCIAL SERVICES 8.94%
225,000 Aetna Services Inc. Debentures............. 228,623
55,000 Aetna Services Inc. Debentures............. 53,519
100,000 Chase Manhattan Corp. New
Subordinated Notes...................... 102,001
15,000 ITT Corp. Senior Subordinated Debentures... 15,486
160,000 Reliance Group Holdings Senior
Subordinated Debentures................. 164,800
70,000 Torchmark Corp. Sinking Fund Debentures.... 71,900
--------
636,329
--------
FOOD & DRUG PRODUCERS 2.33%
80,000 Borden Inc. Sinking Fund Debentures....... 78,942
85,000 RJR Nabisco Inc. Notes.................... 86,795
-------
165,737
-------
INDUSTRIAL GOODS 7.17%
85,000 Ametek Inc. Senior Notes.................. 89,463
20,000 Deere & Co. Senior Debentures............. 22,268
65,000 Westinghouse Electric Corp. Debentures.... 64,883
370,000 Westinghouse Electric Corp. Debentures.... 333,564
510,178
-------
MEDIA & ENTERTAINMENT 6.26%
35,000 Time Warner Entertainment Senior Debentures. 35,763
375,000 Time Warner Inc. Debentures................. 409,733
-------
445,496
-------
METALS & MINING 8.25%
180,000 Alcan Aluminum Ltd. Debentures............. 193,872
90,000 Armco Inc. Senior Notes.................... 92,925
285,000 USX Corp. Debentures....................... 300,879
-------
587,676
-------
MISC. CONSUMER GOODS & SERVICES 0.30%
20,000 Integrated Health Services Senior Sub.
Notes .................................. 21,100
------
The accompanying notes are an integral part of these financial statements.
<PAGE>
CROFT FUNDS CORPORATION
SCHEDULE OF INVESTMENTS
CROFT-LEOMINSTER INCOME FUND
October 31, 1996
(Unaudited)
Principal Value Market Value
- --------------- ------------
RETAIL STORES 2.25%
30,000 Dayton Hudson Co. Debentures............... $ 33,510
105,000 Sears Roebuck & Co. Notes.................. 126,291
-------
159,801
-------
TECHNOLOGY 2.55%
125,000 Plantronics Inc. Senior Notes............. 129,688
50,000 Tektronix Inc. Senior Notes .............. 51,855
-------
181,543
-------
TELEPHONES 3.52%
125,000 GTE Corp. Debentures....................... 144,663
70,000 New York Telephone Debentures.............. 79,130
23,240 NYNEX Corp. Sinking Fund Debentures........ 26,438
-------
250,231
-------
TEXTILES & APPAREL MANUFACTURING 3.20%
30,000 Fieldcrest Cannon Inc. Senior
Sub. Debentures......................... 31,200
70,000 Fruit of the Loom Inc. Senior Notes........ 65,631
130,000 Westpoint Stevens Inc. Senior
Sub. Debentures......................... 131,300
-------
228,131
-------
TRANSPORTATION 1.32%
90,000 Union Pacific Corp. Sinking Fund
Debentures.............................. 94,100
-------
TOTAL BONDS (Cost $5,721,935)................................. 5,956,356
---------
SHORT TERM INVESTMENTS 5.25%
374,064 Star Treasury Fund (Cost $374,064)......... 374,064
---------
TOTAL INVESTMENTS (Cost $6,732,768).................... 98.38% $ 7,003,877
Other assets less liabilities........................... 1.62% 115,438
------ ---------
TOTAL NET ASSETS 100.00% $ 7,119,315
====== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CROFT FUNDS CORPORATION
STATEMENT OF ASSETS AND LIABILITIES
CROFT-LEOMINSTER INCOME FUND
October 31, 1996
(Unaudited)
<S> <C>
ASSETS
Investments at value (cost $6,732,768).................. $7,003,877
Dividends and interest receivable ...................... 147,985
Other Assets ........................................... 3,101
----------
Total assets ...................................... 7,154,963
----------
LIABILITIES
Payable for fund shares redeemed ....................... 105
Accrued advisory fee (Note 3)........................... 4,741
Due to Investment Adviser (Note 3) ..................... 18,158
Other expenses ......................................... 12,644
----------
Total liabilities .............................. 35,648
----------
NET ASSETS
Net assets, equivalent to $10.54 on 675,718 shares
outstanding. (Note 4)................................ $7,119,315
==========
Computation of net asset value per share and
public offering price ................................. $ 10.54
==========
Net Assets consist of:
Paid in capital ........................................ 6,843,263
Undistributed net investment income .................... 5,527
Accumulated undistributed net realized
gains (losses) from security transactions ........... (584)
Net unrealized appreciation (depreciation) .............
of investments ...................................... 271,109
---------
Net Assets October 31, 1996 ............................ $7,119,315
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CROFT FUNDS CORPORATION
STATEMENT OF OPERATIONS
CROFT-LEOMINSTER INCOME FUND
For the six months ended October 31, 1996
(Unaudited)
<S> <C>
Investment Income:
Dividends ............................................. $ 34,980
Interest .............................................. 256,567
---------
Total income ..................................... 291,547
---------
Expenses:
Investment advisory fee (Note 3)....................... 26,821
Administrative Fee .................................... 11,487
Legal Fee ............................................. 7,259
Transfer Agent Fee .................................... 5,892
Audit Fee ............................................. 3,309
Insurance ............................................. 3,150
Custody Fee ........................................... 3,025
Printing .............................................. 1,915
Registration .......................................... 1,676
Distribution fee (Note 3).............................. 0
Other ................................................. 857
-------
Total expenses ................................... 65,391
Less: Expense Reimbursement ...................... (28,046)
------
Net Expenses .................................... 37,345
------
Net investment income (loss)...................... 254,202
-------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments ............... 17,674
Unrealized appreciation (depreciation) of investments
for the period ................................... 203,295
-------
Net gain (loss) on investments ................... 220,969
-------
Net increase (decrease) in net assets from
operations .................................. $475,171
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CROFT FUNDS CORPORATION
STATEMENT OF CHANGES IN NET ASSETS
CROFT-LEOMINSTER INCOME FUND
<S> <C> <C>
For the six months May 4, 1995*
ended October 31, 1996 through
(Unaudited) April 30, 1996
Increase (Decrease) in Net Assets from Operations:
Net investment income .......................................... $ 254,202 $406,481
Net realized gain (loss) on investments ........................ 17,674 30,969
Unrealized appreciation (depreciation) for the period .......... 203,295 67,814
-------- -------
Net increase (decrease) in net assets
from operations ........................................... 475,171 505,264
-------- -------
Dividends paid to shareholders:
Net investment income ($.40 and .73 per share, respectively).... (255,292) (399,864)
Capital gains ($.04 and .03 per share, respectively)............ (32,194) (17,033)
Capital share transactions (Note 4) ............................ 481,445 6,361,818
------- ---------
Total increase .......................................... 669,130 6,450,185
------- ---------
Net Assets:
Beginning of period ............................................ 6,450,185 0
End of period (including undistributed
net investment income of $5,527
and $6,617, respectively).................................. $7,119,315 $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 STATEMENTS
October 31, 1996
(Unaudited)
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 October 31, 1996 as shown in the Statement of Assets and Liabilities and the
Schedule of Investments. The Fund's investment objective is to seek a high level
of current income with moderate risk of principal. To achieve this objective, it
invests primarily (under normal market conditions at least 65% of its total
assets) in a diversified portfolio of investment grade fixed-income securities.
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) Estimates.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>
CROFT FUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
(Unaudited)
(d) 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.
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 monthly 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 excludes ordinary brokerage commissions
incurred in the purchase or sale of portfolio securities, will not exceed 1.35%.
As a result, for the six months ended October 31, 1996, the Adviser accrued
reimbursements to the Fund of $28,046.
Pursuant to a plan of Distribution the Fund pays a distribution fee of up to
.25% of the average daily net assets to Broker-Dealers for distribution
assistance, and to financial institutions and intermediaries such as banks,
savings and loan associations, insurance companies and investment counselors as
compensation for services rendered or expenses incurred in connection with
distribution assistance.
The Croft Funds Corporation elected to waive the 12b-1 fee for the
Croft-Leominster Income Fund on August 23, 1995. The waiver was enacted
primarily because the Corporation currently does not have any 12b-1 agreements
with a broker-dealer or any other financial institution, and felt it imprudent
to accrue fees for compensation of the same. The 12b-1 fee will be waived into
the foreseeable future; however, the Croft Funds Corporation reserves the right
to terminate the waiver and reinstate the 12b-1 fee at any time in its sole
discretion.
<PAGE>
CROFT FUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
(Unaudited)
Note 4. Capital Stock.
At October 31, 1996, there were 30,000,000 shares of capital stock ($.001 par
value) authorized for the Croft Funds Corporation, and capital paid-in amounted
to $6,843,263 for the Income Fund. Transactions in capital stock were as
follows:
<TABLE>
<S> <C> <C>
For the six
months ended
October 31, 1996
Shares Amount
------ ------
Sold...................................... 28,737 $296,736
Issued on reinvestment
of dividends.............................. 21,554 221,927
Redemptions............................... (3,586) (37,218)
------ --------
Net increase ............................. 46,705 $481,445
====== ========
</TABLE>
Note 5. Investment Transactions.
During the period ended October 31, 1996, purchases and sales of investment
securities, excluding short-term obligations were as follows:
Cost of purchases $895,803
Proceeds of sales 479,731
At October 31, 1996 the net unrealized appreciation based on cost for Federal
income tax purposes of $6,684,635 for the Income Fund was as follows:
Unrealized appreciation $336,373
Unrealized depreciation (17,131)
--------
$319,242
========
Note 6. Financial Instrument Disclosure
There are no reportable financial instruments that have any off balance sheet
risk as of October 31, 1996.
<PAGE>
<TABLE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
Financial Highlights for a share outstanding
throughout the period
<S> <C> <C>
For the six months May 4, 1995*
ended October 31, 1996 through
(Unaudited) April 30, 1996
---------------------- --------------
Net asset value, beginning of period................. $ 10.25 $ 10.00
------- -------
Income from investment operations:
Net investment income .......................... .39 .73
Capital gains................................... - .03
Net realized and unrealized gain (loss)
on investments ............................... .34 .25
------- -------
Total from investment operations............... .73 1.01
Less distributions:
Dividends from net investment income............ (.40) (.73)
Dividends from net realized gains............... (.04) (.03)
Total distributions (.44) (.76)
Net asset value, end of period....................... $ 10.54 $ 10.25)
Ratios/Supplemental Data:
Net assets, end of period (000's)............... 7,119 6,450
Ratios to average net assets:
Expenses ....................................... 1.10%** 1.10%**
Net investment income........................... 7.48%** 7.35%**
Portfolio turnover rate ........................ 7.71% 13.76%
Total Return ........................................ 14.92%** 10.17%
<FN>
* Commencement of operations
** Annualized
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
