CROFT-LEOMINSTER
INCOME FUND
ANNUAL REPORT
APRIL 30, 1998
<PAGE>
June 20, 1998
Dear Fellow Shareholder,
We are pleased to report the Fund's performance for the fiscal year
ending 4/30/98. The total returns are as follows*:
FISCAL YEAR
5/1/97-4/30/98
--------------
INCOME FUND + 14.3%
Lehman Bros. Intermediate
Govt./Corp. Bond Index** + 9.2%
Relative to its peers, the Income Fund continues to perform well. For
the one year period ending 4/30/98, THE WALL STREET JOURNAL'S MUTUAL FUND
SCORECARD ranked the Fund 6th out of 98 BBB rated bond funds***, as determined
by Lipper Analytical Services, Inc.
Treasury yields remain low as the economy continues to exhibit little
signs of inflation. The spreads on corporate bonds are tight as the market
perceives low risk and inflationary pressure. It appears that any negative
influence on inflation due to the strong economy and labor market is being
offset by increased production and technological efficiencies, cheaper imports
created by the events in Asian markets and stable to lower commodity prices.
The Income Fund seeks a high level of current income. As of April 30,
1998 the Income Fund had the following characteristics: weighted average yield
to maturity of 8.2%, average duration of 7.8 years and weighted average maturity
of 19.1 years. We continue to maintain strong industry diversification, with 69
different corporate bonds dispersed among 21 industries. This diversification
helps to minimize both credit and event risks. In addition, the Fund attempts to
minimize the risk of early redemption of bonds by holding a number of bonds that
are eight selling at a discount or are non-callable for life.
Thank you for your confidence in Croft-Leominster and we will continue
to manage your funds with great care.
With kindest regards.
Sincerely yours,
Gordon Croft
- ----------
* Past performance is not indicative of future performance. Investment return
and principal will fluctuate. An investor's shares, when redeemed, may be
worth more or less than the original value.
** The Lehman Brothers Intermediate Bond Index is a broad measure of the
performance of Intermediate (one to ten years) government and corporate
fixed-rate debt issues. These figures are presented gross of fees.
*** 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.
-2-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
AVERAGE ANNUAL PERFORMANCE
FISCAL YEAR SINCE INCEPTION
5/1/97-4/30/98 5/4/95-4/30/98
-------------- --------------
INCOME FUND +14.3% +11.7%
CUMULATIVE PERFORMANCE COMPARISON
$10,000 INVESTMENT SINCE INCEPTION*
[PERFORMANCE GRAPH OMITTED HERE]
GRAPH DEPICTED HERE SHOWS THE COMPARISON OF A $10,000 INVESTMENT IN THE CROFT
INCOME FUND AND THE LEHMAN BROTHERS INDEX FOR THE PERIOD JANUARY 1992 THORUGH
APRIL 30, 1998.
CROFT LEHMAN
INCOME BROTHERS
DATE FUND INDEX
---- ---- -----
JANUARY 1992 $10,000.00 $10,000.00
MARCH 1992 10,720.00 9,909.00
JUNE 1992 11,325.68 10,301.40
SEPTEMBER 1992 11,716.42 10,755.69
DECEMBER 1992 11,845.30 10,716.97
MARCH 1993 12,733.89 11,142.43
JUNE 1993 13,241.77 11,383.11
SEPTEMBER 1993 13,580.76 11,639.23
DECEMBER 1993 13,913.49 11,867.85
MARCH 1994 13,422.34 11,421.20
JUNE 1994 13,180.74 11,352.67
SEPTEMBER 1994 13,245.32 11,445.76
DECEMBER 1994 13,081.08 11,433.17
MARCH 1995 13,879.03 11,933.84
MAY 1995 14,498.03 12,141.59
JULY 1995 14,918.47 12,532.55
OCTOBER 1995 15,743.47 12,879.70
JANUARY 1995 16,601.49 13,298.30
APRIL 1995 15,972.29 13,029.67
JULY 1996 16,333.26 13,196.45
OCTOBER 1996 17,133.59 13,627.97
JANUARY 1997 17,565.08 13,772.43
APRIL 1997 17,655.14 13,866.00
JULY 1997 19,014.59 14,394.00
OCTOBER 1997 19,309.32 14,648.00
JANUARY 1998 20,021.83 15,002.00
APRIL 1998 20,188.00 15,142.00
*PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN
AND PRINCIPAL WILL FLUCTUATE. AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH
MORE OR LESS THAN THE ORIGINAL VALUE.
-3-
<PAGE>
<TABLE>
<CAPTION>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
SCHEDULE OF INVESTMENTS
April 30, 1998
- --------------------------------------------------------------------------------
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS - 3.35%
BOND FUNDS- 3.35%
<C> <S> <C>
6,200 Alliance World Dollar Govt. II ..................... $ 81,763
4,500 Salomon Brothers Worldwide Income Fund ............. 66,937
3,700 Scudder Global High Income Fund .................... 52,956
10,300 Templeton Emerging Markets Income Fund ............. 130,038
---------
TOTAL COMMON STOCKS (Cost $294,614) 331,694
................................................................ ---------
PREFERRED STOCKS- 0.71%
650 California Fed Bank, 10.625%, Pfd. B ............... 70,362
--------
TOTAL PREFERRED STOCKS-(Cost $65,506) ........................... 70,362
--------
PRINCIPAL VALUE
- ---------------
CORPORATE BONDS- 94.32%
AUTOS & AUTOMOTIVE PRODUCTS- 1.23%
$95,000 Ford Holdings Inc. Debentures, 9.375%, 03/01/20 .... $121,333
--------
BUILDING MATERIALS & HOUSING- 2.02%
200,000 Owens-Corning, Notes, 7.70%, 05/01/08 .............. 199,900
--------
CABLE TV & CELLULAR TELEPHONE- 5.48%
185,000 CF Cable TV Inc. Senior Secured Notes, 9.125%,
07/15/07 ........................................ 205,294
225,000 Tele-Communications Inc. Notes, 7.875%, 08/01/13 ... 250,155
80,000 Tele-Communications Inc. Senior Debentures, 8.75%,
02/15/23 ........................................ 86,812
--------
542,261
--------
CAPITAL GOODS- 0.98%
90,000 Caterpillar Inc. Sinking Fund Debentures, 9.75%,
06/01/19 ........................................ 96,781
--------
CHEMICALS- 4.14%
105,000 ARCO Chemical Co. Debentures, 9.80%, 02/01/20 ...... 141,283
100,000 Dow Chemical Co. Debentures, 9.00%, 04/01/21 ....... 123,837
20,000 General Chemical Corp. Senior Subordinated Notes,
9.25%, 08/15/03 ................................. 20,700
100,000 Monsanto Co. Debentures, 8.70%, 10/15/21 ........... 123,518
---------
409,338
---------
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
SCHEDULE OF INVESTMENTS
April 30, 1998
- --------------------------------------------------------------------------------
PRINCIPAL VALUE MARKET VALUE
- --------------- ------------
CONTAINERS & PAPER- 18.27%
150,000 Abitibi-Consolidated, Debentures, 7.40%, 04/01/18 .. 147,241
165,000 Champion International, Debentures, 7.625%, 09/01/23 172,134
46,000 Georgia Pacific Corp. Debentures, 9.875%, 11/01/21 . 51,264
380,000 Georgia Pacific Corp. Debentures, 9.625%, 03/15/22 . 431,354
635,000 Georgia Pacific Corp. Debentures, 9.125%, 07/01/22 . 703,522
55,000 Stone Container Corp. Senior Notes, 9.875%, 02/01/01 56,512
140,000 Stone Container Corp. Senior Subordinated Debentures,
10.75%, 04/01/02 ................................... 142,800
100,000 Stone Container Corp. Senior Subordinated Units,
12.25%, 04/01/02 ................................... 102,000
---------
1,806,827
---------
ELECTRIC & GAS UTILITIES- 3.26%
70,000 Monongahela Power, 1st Mortgage, 8.625%, 11/01/21 .. 74,173
115,000 Old Dominion Electric, 1st Mortgage, 8.76%, 12/01/22 132,699
105,000 Penn Power & Light, 1st Mortgage, 9.25%, 10/01/19 .. 115,270
--------
322,142
--------
ENERGY & ENERGY SERVICES- 8.49%
60,000 Costilla Energy Inc. Senior Notes, 10.25%, 10/01/06 61,200
55,000 Kelley Oil & Gas, Senior Subordinated Notes,
10.375%, 10/15/06 ................................. 56,925
50,000 Magnum Hunter Res, Debentures, 10.00%, 06/01/07 .... 50,875
135,000 Mariner Energy Corp. Senior Subordinated Notes,
10.50%, 08/01/06 .................................. 139,050
100,000 Mobil Corp. Debentures, 8.00%, 08/12/32 ............ 111,372
50,000 National Energy Group, Senior Notes,
10.75%, 11/01/06 .................................. 47,000
200,000 Occidental Petroleum, Debentures, 7.20%, 04/01/28 .. 198,391
125,000 Panaco Inc. Notes, 10.625%, 10/01/04 ............... 126,875
50,000 Wiser Oil, Debentures, 9.50%, 05/15/07 ............. 47,750
--------
839,438
--------
FINANCIAL SERVICES- 7.26%
105,000 APP International Finance, Global Bond,
11.75%, 10/01/05 ................................. 98,175
157,000 Aetna Services Inc. Debentures, 8.00%, 01/15/17 .... 159,906
55,000 Aetna Services Inc. Debentures, 7.25%, 08/15/23 .... 55,004
100,000 Chase Manhattan Corp New, Subordinated Notes,
7.875%, 08/01/04 ................................. 101,867
15,000 ITT Corp. Senior Subordinated Debentures,
8.75%, 03/01/06 .................................. 14,858
105,000 Lincoln National Corp. Debentures, 9.125%, 10/01/24 120,507
160,000 Reliance Group Holdings, Senior Subordinated
Debentures, 9.75%, 11/15/03 ...................... 167,600
--------
717,917
--------
FOOD & DRUG PRODUCERS- 1.75%
80,000 Borden Inc. Sinking Fund Debentures, 9.25%, 06/15/19 83,964
85,000 RJR Nabisco Inc. Notes, 8.625%, 12/01/02 ........... 88,963
--------
172,927
--------
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
SCHEDULE OF INVESTMENTS
April 30, 1998
- --------------------------------------------------------------------------------
PRINCIPAL VALUE MARKET VALUE
- --------------- ------------
GAS & GAS TRANSMISSION- 6.56%
340,000 Bellwether Exploration Co. Senior Subordinated,
10.875%, 04/01/07 .................................. 355,300
100,000 Burlington Resources Inc. Debentures,
9.125%, 10/01/21 ................................... 127,379
165,000 KN Energy Inc, Debentures, 7.25%, 03/01/28 ......... 166,335
--------
649,014
--------
INDUSTRIAL GOODS- 9.20%
85,000 Ametek Inc. Senior Notes, 9.75%, 03/15/04 .......... 90,100
50,000 Crown Cork & Seal, Debentures, 8.00%, 04/15/23 ..... 55,169
20,000 Deere & Co. Senior Debentures, 8.50%, 01/09/22 ..... 23,572
65,000 Westinghouse Electric Corp. Debentures,
8.625%, 08/01/12 ................................. 69,453
670,000 Westinghouse Electric Corp. Debentures,
7.875%, 09/01/23 ................................. 671,787
--------
910,081
--------
MEDIA & ENTERTAINMENT- 8.01%
200,000 CBS Inc. Senior Debentures, 8.875%, 06/01/22 ....... 211,814
100,000 Granite Broadcasting, Senior Subordinated Notes,
10.375%, 05/15/05 .................................. 105,750
345,000 Time Warner Inc. Debentures, 9.15%, 02/01/23 ....... 423,312
45,000 Time Warner Inc. Debentures, 8.375%, 03/15/23 ...... 51,142
--------
792,018
--------
METALS & MINING- 5.34%
180,000 Alcan Aluminum Ltd. Debentures,
8.875%, 01/15/22 ................................... 198,220
285,000 USX Corp. Debentures, 8.50%, 03/01/23 .............. 329,894
--------
528,114
--------
MISC. CONSUMER GOODS & SERVICES- 0.23%
10,000 Eastman Kodak Co. Notes, 9.375%, 03/15/03 .......... 11,352
10,000 Proctor & Gamble Co. Senior Notes,
8.50%, 08/10/09 .................................. 11,800
--------
23,152
--------
RETAIL STORES- 2.80%
30,000 Dayton Hudson Co. Debentures, 8.60%, 01/15/12 ...... 35,259
105,000 Sears Roebuck & Co. Notes, 9.375%, 11/01/11 ........ 129,995
100,000 Woolworth Corp. Debentures, 8.50%, 01/15/22 ........ 111,512
--------
276,766
--------
TECHNOLOGY- 1.84%
125,000 Plantronics Inc. Senior Notes, 10.00%, 01/15/01 .... 130,000
50,000 Tektronix Inc. Senior Notes, 7.625%, 08/15/02 ...... 52,123
--------
182,123
--------
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
SCHEDULE OF INVESTMENTS
April 30, 1998
- --------------------------------------------------------------------------------
PRINCIPAL VALUE MARKET VALUE
- --------------- ------------
TELEPHONES- 4.63%
50,000 BellSouth Telecommunications, Debentures, 7.875%, 08/01/32 53,399
125,000 GTE Corp. Debentures, 8.75%, 11/01/21 .............. 151,667
70,000 New York Telephone Co. Debentures, 9.375%, 07/15/31 78,575
21,821 Nynex Corp. Amortized Debentures, 9.55%, 05/01/10 .. 25,091
135,000 U.S. West Communications, Debentures, 8.875%, 06/01/31 149,396
--------
458,128
--------
TEXTILES & APPAREL MANUFACTURING- 2.03%
70,000 Fruit of the Loom Inc. Senior Notes, 7.375%, 11/15/23 63,331
130,000 Westpoint Stevens Inc. Senior Subordinated Debentures,
9.375%, 12/15/05 ................................. 137,475
---------
200,806
---------
TRANSPORTATION- 0.80%
75,000 Union Pacific Corp. Sinking Fund Debentures,
8.50%, 01/15/17 ............................. 78,962
---------
TOTAL CORPORATE BONDS- (Cost $8,789,678) ......................... 9,328,028
---------
GOVERNMENT BONDS- 0.21%
20,000 U.S. Treasury Notes, 5.875%, 02/15/04
TOTAL GOVERNMENT BONDS-(Cost $19,269) ............................ 20,188
---------
SHORT TERM INVESTMENTS- 1.90%
188,230 Star Treasury Fund,
TOTAL SHORT TERM INVESTMENTS-(Cost $188,230) ..................... 188,230
---------
TOTAL INVESTMENTS (Cost $9,357,297)........................100.49% 9,938,502
Liabilities in excess of other assets.................. ......0.49% (48,447)
------ ---------
TOTAL NET ASSETS............................................100.00% $9,890,055
====== ==========
<FN>
(1) Federal Tax Information: At April 30, 1998 the net unrealized
appreciation based on cost for Federal Income tax purposes of
$9,293,431 was as follows:
Aggregate gross unrealized appreciation for all investments for
which there was an excess of value over cost.....................$ 684,885
Aggregate gross unrealized depreciation for all investments for
which there was an excess of cost over value..................... 39,813)
----------
Net unrealized appreciation......................................$ 645,072
==========
+ Non-income producing security
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements
-7-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities, at value (cost $9,357,297) (Note 2) . $ 9,938,502
Dividends and interest receivable .............................. 186,250
Prepaid expenses and other ..................................... 1,090
Due from investment adviser (Note 3) ........................... 1,364
------------
Total Assets ............................................. 10,127,206
------------
LIABILITIES:
Payables:
For securities purchased .....................$ 200,071
Dividends payable (Note 6).................... 26,356
Other expenses ............................... 10,724
------------
Total Liabilities ...................................... 237,151
------------
Net Assets ............................................. $ 9,890,055
============
NET ASSETS CONSIST OF:
Additional paid in capital ............................... $ 9,316,627
Undistributed net investment income ...................... 9,240
Accumulated net realized loss from
investment transactions ............................... (17,017)
Net unrealized appreciation on
investments ............................................ 581,205
------------
Net Assets ............................................... $ 9,890,055
============
Net asset value and redemption and offering price per share
($9,890,055/903,316 shares of capital stock outstanding)
(Note 4) ................................................. $ 10.95
============
The accompanying notes are an integral part of these financial statements
-8-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
STATEMENT OF OPERATIONS
For the year ended April 30, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest ....................................................... $ 705,611
Dividends ...................................................... 74,952
-----------
TOTAL INCOME ............................................ 780,563
EXPENSES:
Investment advisory fee (Note 3) ............................... $ 72,635
Administration fee ............................................. 24,456
Transfer agent fees ............................................ 11,345
Audit fee ...................................................... 10,319
Custody fee .................................................... 6,682
Registration fees .............................................. 5,118
Insurance ...................................................... 5,000
Printing ....................................................... 4,079
Legal fee ...................................................... 2,568
Directors' fee and expenses .................................... 500
Distribution fee (Note 3) ...................................... 0
Other .......................................................... 3,160
-----------
Total expenses .......................................... 145,862
Less: Expense reimbursement ............................ (44,725)
-----------
Net expenses ............................................ 101,137
-----------
Net investment income ................................... 679,426
-----------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS (Note 2)
Net realized gain from investment transactions ................. 88,800
Distributions of realized gains by other investment companies .. 19,524
Net change in unrealized appreciation of investments ........... 389,694
-----------
Net realized and unrealized gain
on investments .......................................... 498,018
-----------
Net increase in net assets resulting
from operations ......................................... $ 1,177,444
===========
The accompanying notes are an integral part of these financial statements
-9-
<PAGE>
<TABLE>
<CAPTION>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
APRIL 30, 1998 APRIL 30, 1997
--------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
<S> <C> <C>
Net investment income ....................................... $ 679,426 $ 528,949
Net realized gain from investment transactions .............. 88,800 18,264
Distributions of realized gains by other investment companies 19,524 24,795
Net change in unrealized appreciation of investments ........ 389,694 123,697
----------- -----------
Net increase in net assets resulting from operations ........ 1,177,444 695,685
DIVIDENDS PAID TO SHAREHOLDERS:
Net investment income ($.78 and .84 per share, respectively) (673,010) (557,517)
Capital gains ($.13 and .06 per share, respectively) ........ (111,925) (45,617)
Net capital share transactions (Note 4) ..................... 2,079,013 875,797
----------- -----------
Net increase in net assets .................................. 2,471,522 968,348
NET ASSETS:
Beginning of period ......................................... 7,418,533 6,450,185
----------- -----------
End of period ............................................... $ 9,890,055 $ 7,418,533
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
-10-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
NOTES TO FINANCIAL STATEMENTS
April 30, 1998
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
The Croft-Leominster Income Fund (the "Fund"), is a managed portfolio
of the Croft Funds Corporation, 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, 1998 as shown in the Statement of Assets and Liabilities and the
Schedule of Investments. The Croft-Leominster Income Fund seeks a high level of
current income with moderate risk of principal by investing primarily 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.
SECURITY VALUATION-Securities which are traded on any exchange or on
the NASDAQ over-the-counter market are valued at the last quoted sale price.
Investments, for which no sale is reported, are valued at their last bid price.
When market quotations are not readily available, when it is determined that the
last bid price does not accurately reflect the current value or when restricted
securities are being valued, such securities are valued as determined in good
faith under procedures established by and under the general supervision of the
Fund's Board of Directors.
Fixed income securities generally are valued by using market
quotations, but may be valued on the basis of prices furnished by a pricing
service when the Adviser believes such prices accurately reflect the fair market
value of such securities. A pricing service utilizes electronic data processing
techniques based on yield spreads relating to securities with similar
characteristics to determine prices for normal institutional-size trading units
of debt securities without regard to sale or bid prices. Short term investments
in fixed income securities with maturities of less than 60 days when acquired,
or which subsequently are within 60 days of maturity, are valued by using the
amortized cost method of valuation, unless the Board of Directors determine that
the amortized cost does not reflect the securities' fair value, in which case
these securities will be valued at their fair value as determined by the Board
of Directors.
FEDERAL INCOME TAXES-The Fund intends to comply with requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its net investment income as dividends to its
shareholders. The Fund intends to distribute its net long-term capital gains and
its net short-term capital gains at least once a year. Therefore no provision
-11-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
NOTES TO FINANCIAL STATEMENTS
April 30, 1998
- --------------------------------------------------------------------------------
for income taxes is required. Federal income tax loss carryforwards generated in
prior years will be used to offset a portion of current year's net realized
gains.
OTHER-The Fund follows industry practice and records security
transactions on the trade date. The specific identification method is used for
determining gains or losses for financial statement and income tax purposes.
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. Interest income is recorded on an accrual basis.
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.
NOTE 3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES.
The Fund retains Croft-Leominster Inc. (the "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, 2001, the Adviser 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 1.10%. As a result, for the year ended April 30, 1998, the
Adviser accrued reimbursements to the Fund of $44,725.
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
Fund on August 23, 1995. 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 SHARE TRANSACTIONS
As of April 30, 1998 there was 30,000,000, $0.001 par value shares of
capital stock authorized for the Croft Funds Corporation, and capital paid-in
amounted to $9,316,627 for the Fund.
-12-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
NOTES TO FINANCIAL STATEMENTS
April 30, 1998
- --------------------------------------------------------------------------------
Transactions in capital stock were as follows:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
APRIL 30, 1998 APRIL 30, 1997
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Shares sold .............. 339,981 $ 3,714,031 55,851 $ 581,758
Shares issued in
reinvestment of dividends 57,575 629,138 44,932 467,568
Shares redeemed .......... (207,625) (2,264,156) (16,411) (173,529)
-------- ----------- ------- ---------
Net increase ............. 189,931 2,079,013 84,372 $ 875,797
======== =========== ======== =========
NOTE 5. INVESTMENT TRANSACTIONS
Purchases and sales, excluding short-term securities, for the year
ended April 30, 1998 aggregated $3,378,967 and $1,354,953, respectively, for the
Fund.
NOTE 6. DISTRIBUTIONS TO SHAREHOLDERS
The Fund makes dividend distributions quarterly. During the fiscal
year ended April 30, 1998, distributions of $0.78 aggregating $673,010 were
declared from net investment income with $26,356 remaining payable to
shareholders at year end. For the same time period, distributions of $0.13
aggregating $111,925 were declared from net realized gains (including $0.02
applicable to short-term gains that are taxable to shareholders as ordinary
income dividends).
NOTE 7. FINANCIAL INSTRUMENT DISCLOSURE
There are no reportable financial instruments that have any off
balance sheet risk as of april 30, 1998.
-13-
<PAGE>
<TABLE>
<CAPTION>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
FINANCIAL HIGHLIGHTS
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE FOR THE MAY 4, 1995*
YEAR ENDED YEAR ENDED THROUGH
APRIL 30, 1998 APRIL 30,1997 APRIL 30, 1996
------------- ---------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period ............................. $ 10.40 $ 10.25 $ 10.00
----------- ----------- ---------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment income ....................................... 0.81 0.79 0.73
Net realized and unrealized gain on
investments ............................................... 0.65 0.26 0.28
----------- ----------- ---------
Total from investment operations ............................ 1.46 1.05 1.01
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LESS DISTRIBUTIONS
Dividends from net investment income ........................ (0.78) (0.84) (0.73)
Distribution from realized gains from security
transactions .............................................. (0.13) (0.06) (0.03)
----------- ----------- ---------
Total distributions ......................................... (0.91) (0.90) (0.76)
----------- ----------- ---------
Net asset value, end of period .............................. $ 10.95 $ 10.40 $ 10.25
=========== =========== =========
Total return** .............................................. 14.36% 10.56% 10.17%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (in 000's) ......................... 9,890 7,419 6,450
Ratio of expenses to average net assets, before reimbursement 1.59% 1.90% 1.10%++
Ratio of expenses to average net assets, after reimbursement 1.10% 1.10% 1.10%++
Ratio of net investment income (loss) to average
net assets, before reimbursement .......................... 6.90% 6.76% 7.35%++
Ratio of net investment income (loss) to average
net assets, after reimbursement ........................... 7.38% 7.57% 7.35%++
Portfolio turnover rate ..................................... 15.62% 13.73% 13.76%
Average commission rate paid+ ............................... 0.0608 0.0711 --
<FN>
- ----------
* Commencement of operations
** Based on net asset value per share.
+ Disclosure of this rate is required by the SEC on a prospective basis
beginning with the Fund's 1996 fiscal year end.
++ Annualized
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements
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INDEPENDENT AUDITOR'S REPORT
----------------------------
To The Shareholders and
Board of Directors
Croft-Leominster Income Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, of the Croft-Leominster Income Fund (one
of a series constituting the Croft Funds Corporation), as of April 30, 1998, and
the related statement of operations for the year then ended, and the statement
of changes in net assets for each of the two years in the period then ended, and
financial highlights for each of the two years then ended, and 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, 1998, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Croft-Leominster Income Fund of the Croft Funds Corporation as of April 30,
1998, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the two years in the period then ended, and 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 19, 1998
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<PAGE>
CROFT-LEOMINSTER
INCOME FUND
1-800-746-3322
