AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1998
File No. 33-81926
File No. 811-8652
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 5
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 7
CROFT FUNDS CORPORATION
(Exact Name of Registrant as Specified in Charter)
207 East Redwood Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (410) 576-0100
Mr. Kent Croft
207 East Redwood Street
Baltimore, Maryland 21202
(Name and Address of Agent for Service)
Copies to:
John H. Grady, Jr., Esquire
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box)
_ immediately upon filing pursuant to paragraph (b) of Rule 485
_ on [DATE] pursuant to paragraph (b) of Rule 485
X 60 days after filing pursuant to paragraph (a) of Rule 485
_ on [DATE] pursuant to paragraph (a) of Rule 485
_ 75 days after filing pursuant to paragraph (a) of Rule 485
<PAGE>
PROSPECTUS
CROFT-LEOMINSTER
VALUE FUND
INCOME FUND
<PAGE>
CROFT FUNDS CORPORATION
SHAREHOLDER INQUIRIES
If you have questions about your account, you may contact the Corporation's
transfer agent at: P.O. Box 5536, Hauppauge, New York 11788-0132, or by calling
1-800-746-3322.
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent, or by writing to: Croft
Funds Corporation, 207 East Redwood Street, Suite 802, Baltimore, Maryland 21202
or by telephoning 1-800-551-0990:
-- A statement of additional information ("SAI") about the Fund that is
incorporated by reference into the Prospectus.
-- The Fund's most recent annual and semi-annual reports which contain
detailed financial information.The annual report also contains a
discussion of markets conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal
year.
-- Detailed information about purchasing and redeeming Fund shares that
is incorporated by reference into the Prospectus.
In addition you may review information about the Fund (including the SAI)
at the Securities and Exchange Commission's ("SEC") Public Reference Room in
Washington, DC (Call 1-800-SEC-0330 to find out about the operation of the
Public Reference Room.) The SEC's Internet site at http.//www.sec.gov has
reports and other information about the Fund and you may get copies of this
information by writing the Public Reference Section of the SEC, Washington, DC
20549-5009 and by paying duplicating fees.
No person has been authorized to give any information or to make any
representations not contained in this prospectus in connection with the offering
made by this prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds.
This prospectus does not constitute an offering by the Funds in any jurisdiction
in which such offering may not lawfully be made.
Investment Company Act File No. 811-8652
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER VALUE FUND
CROFT-LEOMINSTER INCOME FUND
AUGUST 30, 1998
The Croft-Leominster Value Fund and the Croft-Leominster Income Fund (each a
"Fund" and, together, the "Funds") are two separately-managed portfolios of
Croft Funds Corporation (the "Corporation"), a no-load, open-end management
investment company. Croft-Leominster, Inc. (the "Manager"), serves as investment
manager for the Funds.
- -- The Croft-Leominster Value Fund (the "Value Fund") seeks capital growth by
investing primarily in the common stock of companies which are believed to
be undervalued and have good prospects for capital appreciation.
- -- The Croft-Leominster Income Fund (the "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.
These securities have not been approved or disapproved by the Securities and
Exchange Commission, nor has the Commission passed on the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
PAGE
INVESTMENT SUMMARY:
Investment Objectives,
Strategies and Risks......................................................3
FUND PERFORMANCE INFORMATION:
Average Annual Total Returns..............................................5
Fees and Expenses of the Funds............................................6
Example of Annual Expenses................................................6
MANAGEMENT OF THE FUNDS:
Investment Manager........................................................7
Portfolio Manager.........................................................7
SHAREHOLDER INFORMATION:
How Net Asset Value is Determined.........................................8
How to Buy Shares.........................................................8
How to Redeem Shares......................................................9
Distributions............................................................10
Taxes....................................................................11
Distribution Plan........................................................11
FINANCIAL HIGHLIGHTS..........................................................12
SHAREHOLDER INQUIRIES.................................................Back Cover
<PAGE>
INVESTMENT SUMMARY
THE VALUE FUND
- --------------
INVESTMENT OBJECTIVE
- --------------------
The Value Fund's investment objective is growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
- -------------------------------
The Manager focuses on companies with low stock prices relative to future
earnings growth, cash flow and asset value, and at times, employs a "contrarian"
approach that focuses on securities of companies that are out-of-favor, and
whose price/earnings ratio is lower than the rest of the market.
The Fund invests primarily in common stocks of established mid-sized and
large-sized companies that the Manager believes are undervalued. Mid-sized
companies have market capitalizations in the range of $500 million to $2
billion. Large companies are those with market capitalizations greater than $2
billion. In making investment decisions for the Fund, the Manager considers the
underlying value of a company's assets, including multiples of cash flow,
valuing of resource reserves and land assets, and other hidden values.
The Fund may, from time to time, take temporary defensive positions in
attempting to respond to adverse market, economic, political, or other
conditions.
RELATED RISKS
- -------------
Investing in equity securities involves risk. The Fund's shares will fluctuate
in value based on fluctuations in the value of the underlying equity securities
held in the Fund's portfolio. An investment in the Fund may be more suitable for
long-term investors who can bear the risk of short-term fluctuations.
The stocks in which the Fund invests will normally have a lower price to
projected earnings ratio than the market and a somewhat higher level of
"company-specific" risks than the market. These risks include higher earnings
sensitivity to the business cycle or interest rates, high debt levels, potential
for business restructurings or other special situations, and legal or regulatory
risks and uncertainties. Many individual securities may be riskier than the
market and experience abrupt short-term price movements. However, the Manager
intends to hold a carefully selected, diversified portfolio of securities that
may permit higher returns to compensate investors for higher levels of risk. You
may lose all or a substantial part of your investment.
-3-
<PAGE>
THE INCOME FUND
- ---------------
INVESTMENT OBJECTIVE
- --------------------
The Income Fund's investment objective is high current income with moderate risk
to principal.
PRINCIPAL INVESTMENT STRATEGIES
- -------------------------------
The Manager invests primarily in corporate bonds and other fixed-income
securities that are considered investment grade. The Fund also invests in many
fixed income securities that are rated below "investment grade" or are not
rated, but of equivalent quality. These fixed income securities are often
referred to as "high yield securities" or "junk bonds."
The Fund will generally hold multiple issues across multiple industries in
order to minimize both the risks that an issue's underlying obligation will not
be paid and that its credit rating will be downgraded.
The Manager also will attempt to minimize the risks of early redemption by
purchasing some bonds that are either selling at a discount to their call price
(the price at which they can be redeemed by the issuer before their scheduled
maturity) or are non-callable for life. When the Fund invests in high yield
securities, it generally seeks to receive a correspondingly high return to
compensate it for the additional credit risk and market risk it has assumed.
The Fund may, from time to time, take temporary defensive positions in
attempting to respond to adverse market, economic, political, or other
conditions.
RELATED RISKS
- -------------
The Fund's shares will fluctuate in value in response to interest rate changes
and other factors. Changes by recognized agencies in the rating of any
fixed-income security and in the ability of an issuer to make payments of
interest and principal will affect the value of these investments. The prices of
below investment grade securities are likely to be heavily affected by changes
in interest rates, levels of economic activity and issuer creditworthiness.
During periods of falling interest rates, the values of fixed-income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline.
The Fund's investment in high-yield junk bonds involves greater risk of
default or price decline than investments in investment grade securities.
High-yield junk bonds may have greater price volatility and limited liquidity in
the secondary market. This may limit the ability of the Fund to sell such
securities at their fair market value either to meet redemption requests or in
response to changes in the economy or the financial markets. Prices may also be
affected by investors perception of credit quality and the outlook for economic
growth, and may move independently of interest rates and the overall bond
market. You may lose all or a substantial part of your investment.
-4-
<PAGE>
FUND PERFORMANCE
- ----------------
The bar chart and table below reflect the performance of each Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in
each of the Funds. This past performance, however, does not necessarily indicate
how the Funds will perform in the future.
VALUE FUND = 1995--11.80, 1996--19.92, 1997--32.51.
INCOME FUND = 1995--12.72, 1996--7.12, 1997--13.02.
The Value Fund(1)*
The Income Fund(1)*
(1) Commenced operations on May 4, 1995.
* The year-to-date return as of July 31, 1998 was ___ and ___ for the Value
and Income Funds, respectively.
Since each Fund commenced operations, the highest and lowest return for an
individual calendar quarter was as follows:
HIGHEST FOR THE LOWEST FOR THE
QUARTERLY PERIOD QUARTERLY PERIOD
RETURN ENDING RETURN ENDING
------ ------ ------ ------
The Value Fund 20.21% (6/30/97) (2.91)% (12/31/97)
The Income Fund 5.58% (12/31/95) (1.69)% (3/31/96)
Average Annual Total Returns (for year ending December 31, 1997)
VALUE FUND S&P 500+
---------- -------
Past One Year 32.51% 33.34%
Past Five Years N/A N/A
Since Inception* 24.32% 28.96%
*The Value Fund commenced operations on May 4, 1995.
+The S&P 500 Composite is an unmanaged index that is a widely recognized
indicator of general market performance.
LEHMAN-BROTHERS
INCOME FUND INTERMEDIATE BOND
INDEX+
------------- ------
Past One Year 13.02% 8.13%
Past Five Years N/A N/A
Since Inception* 12.40% 7.83%
*The Income Fund commenced operations on May 4, 1995.
+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.
-5-
<PAGE>
FEES AND EXPENSES OF THE FUNDS
- ------------------------------
This table describes the fees and expenses you may pay if you buy and hold
shares of the Funds. THE FUNDS DO NOT CHARGE SALES LOADS OR OTHER SIMILAR FEES
WHEN YOU PURCHASE OR REDEEM SHARES. THE ANNUAL FUND OPERATING EXPENSES IN THE
TABLE BELOW DO NOT REFLECT VOLUNTARY FEE WAIVERS AND/OR REIMBURSEMENTS FROM THE
MANAGER. Actual Total Annual Operating Expenses after waivers and reimbursements
by the manager are equal to 1.50% and 1.10% for the Value and Income Funds,
respectively. The Manager guarantees that, until December 31, 2001, the total
operating expenses of the Value and Income Funds will not exceed 1.50% and
1.35%, respectively.
VALUE FUND INCOME FUND
---------- -----------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) NONE NONE
Maximum Deferred
Sales Charge (Load) NONE NONE
Redemption Fee (as a
percentage of amount
redeemed, if applicable)(1) NONE NONE
Exchange Fee NONE NONE
ANNUAL FUND OPERATING EXPENSES
(expenses that may be deducted from Fund assets)
Management Fees 0.94% 0.79%
Distribution (12b-1) Fees 0.25%* 0.25%*
Other Expenses 1.71%** 0.80%**
Total Annual Fund
Operating Expenses 2.90%*** 1.84%***
(1) Redemption proceeds wired to a designated account at the shareholder's
request will be reduced by a wire redemption fee of $13.
* Actual 12b-1 fees after waivers are equal to 0.10% and 0.00% for the Value and
Income Funds, respectively. The Manager may discontinue these waivers at any
time and without notice, but does not intend to do so in the foreseeable future.
** Actual Other Expenses after waivers and reimbursements by the manager are
equal to 0.46% and 0.31% for the Value and Income Funds, respectively. The
Manager may discontinue these waivers at any time and without notice, but does
not intend to do so in the foreseeable future.
*** Actual Total Annual Operating Expenses after waivers and reimbursements by
the manager are equal to 1.50% and 1.10% for the Value and Income Funds,
respectively.
EXAMPLE
- -------
This example is intended to help you compare the cost of investing in each Fund
with the cost of investing in other mutual funds. This hypothetical rate of
return is not intended to be representative of past or future performance.
The example assumes that you invest $10,000 in each Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that each Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
VALUE FUND $153 $474 $818 $1,791
INCOME FUND $112 $350 $606 $1,340
-6-
<PAGE>
MANAGEMENT OF THE FUNDS
- -----------------------
INVESTMENT MANAGER. Croft-Leominster, Inc. (the "Manager") is the investment
manager for each Fund. The Manager provides investment advisory and portfolio
management services and makes day-to-day investment decisions for the Funds. The
Manager is registered as an investment adviser with the SEC and has been in the
investment management business for 9 years. On July 31, 1998, the Manager
managed over $____ million of assets for pension plans, corporations,
individuals, institutions and limited partnerships. The Manager's address is 207
East Redwood Street, Suite 802, Baltimore, Maryland 21202.
For the year ended April 30, 1998, the Manager received from each Fund the
management fee set forth in the table below:
VALUE FUND INCOME FUND
---------- -----------
Management fee 0.94% 0.79%
paid in fiscal year
ended April 30, 1998
(as a percentage of average net assets)
FUND OWNERSHIP BY THE MANAGER. Ownership of the Funds by employees of the
Manager are set forth below:
VALUE FUND INCOME FUND
---------- -----------
Manager's Ownership 15.2% 12.4%
of the Funds as of
May 31, 1998
(as a percentage of total shares outstanding)
PORTFOLIO MANAGERS
- ------------------
L. GORDON CROFT, Vice President and Director of the Manager, has joint
responsibility for overseeing the investments of the Funds' assets. Mr. Croft
holds a B.E.S. degree in Engineering from the Johns Hopkins University and an
M.E.A. in Engineering from George Washington University. From 1967 through 1989,
he held various positions with T. Rowe Price Associates, Inc., most recently as
an investment counselor and Director. Mr. Croft co-founded Croft-Leominster,
Inc. with Kent Croft in 1989.
KENT G. CROFT, President and Director of the Manager, has joint responsibility
for overseeing the investments of the Funds' assets. He holds an A.B. degree
(`85) from Dartmouth College. From 1985 through May 1988, Mr. Croft was employed
as a manager in the equity department at Salomon Brothers, Inc., New York. From
1988-1989, Mr. Croft was Vice President, Real Estate Investments for Bryans Road
Corp. In 1989, he co-founded Croft-Leominster, Inc. He is a board member for the
Baltimore Securities Analyst's Society and a member of the Association of
Investment Management and Research.
Other activities include trustee of Charles County Community College
Foundation, President of Croft-Leominster Foundation, Trustee of the Baltimore
Mentoring Partnership and Leadership Council of One to One.
-7-
<PAGE>
HOW NET ASSET VALUE IS DETERMINED
- ---------------------------------
The price of Fund shares is the Fund's net asset value. The net asset value per
share of each Fund is determined once on each day on which the New York Stock
Exchange is open (a "Business Day"), as of the close of the Exchange ("Valuation
Time"). Portfolio securities for which market quotations are readily available
are valued at market price. Short-term obligations having remaining maturities
of 60 days or less are valued at amortized cost, which the Corporation's
Directors have determined to approximate their market value. All other
securities and assets are valued at their fair value as determined in good faith
by the Directors or by persons acting at their direction pursuant to guidelines
established by the Directors.
Orders for the purchase of shares of the Funds are executed at the net
asset value determined as of the next Valuation Time after an order is placed.
Shares will not be priced on days when the New York Stock Exchange is closed.
HOW TO BUY SHARES
- -----------------
You may purchase shares by mail, wire, or through broker-dealer firms that make
shares available Monday through Friday, except on federal holidays and Good
Friday. You will not be charged any sales charges for purchases of Fund shares.
The minimum initial investment is $2,000 ($500 for an IRA), and the minimum
additional investment is $200. The Corporation reserves the right to reject any
order for the purchase of shares in whole or in part.
PURCHASES BY MAIL
- -----------------
You may open an account by mail or overnight delivery by sending a check or
other negotiable bank draft (payable to: the Croft-Leominster [Name of Fund])
for $2,000 or more ($500 minimum for IRAs), together with the completed
Application Form to the Custodian at the appropriate address:
Croft-Leominster Value Fund
P.O. Box 640272
Cincinnati, Ohio 45264-0272
Croft-Leominster Income Fund
P.O. Box 640538
Cincinnati, Ohio 45264-0538
For overnight delivery (both funds):
Croft Funds Corporation
c/o Star Bank, N.A.
Mutual Fund Custody Department
425 Walnut Street M.L. 6118
Cincinnati, Ohio 45202
If you are making a subsequent investment, you should send a stub from a
previous confirmation in lieu of the application form. If no stub is available,
you should send a brief letter giving the name of the Fund(s), registered
name(s) of the account and the account number along with a check indicating your
account number on the face. Checks do not need to be certified but must be drawn
on a U.S. bank. American Data Services, Inc., the Corporation's transfer agent,
will charge a $15 fee against your account for any check returned to the
Custodian. You will also be responsible for any losses suffered by a Fund as a
result of a returned check.
-8-
<PAGE>
PURCHASES BY WIRE
- -----------------
You may purchase shares by wire. A purchase order will be effective as of the
day received, if the order and payment are received prior to 4:00 p.m., Eastern
Time. Your bank may charge a wire fee.
If you are establishing a new account or purchasing additional shares for
an existing account by wire transfer, you should call American Data Services
beforehand to provide account information. A properly completed and signed
application marked "follow up" must be sent for all new accounts opened by wire,
which are subject to acceptance by the fund.
If you have an account with a commercial bank that is a member of the
Federal Reserve System, you may purchase shares of the Funds by requesting the
bank to transmit funds by wire to:
Star Bank N.A., Cinti/Trust
ABA #0420-0001-3
Attn: Croft-Leominster Value Fund
(DDA #481701340), or
Attn: Croft-Leominster Income Fund
(DDA #481701282)
YOUR NAME AND ACCOUNT NUMBER MUST BE SPECIFIED IN THE WIRE.
TAX-DEFERRED RETIREMENT PLANS
- -----------------------------
You may purchase shares for virtually all types of tax-deferred retirement
plans. Please contact the Corporation at 1-800-746-3322 to obtain plan forms
and/or custody agreements for the following:
-- Individual Retirement Accounts (for individuals and their non-employed
spouses who wish to make limited tax deductible contributions to a
tax-deferred account for retirement); and
-- Simplified Employee Pension Plans
Star Bank, N.A. furnishes custodian services to the Funds' shareholders for
such tax-deferred retirement plans. Dividends and distributions will be
automatically reinvested without a sales charge. For further details, including
fees charged, tax consequences and redemption information, see the specific plan
documents which can be obtained from the Corporation. You should consult with
your tax advisor before establishing any tax-deferred retirement plans.
If you are interested in investing your IRA account in the Funds, you may
have to establish an IRA or IRA Rollover account through Star Bank, N.A. Please
call the Corporation at 1-800-746-3322 for further information.
HOW TO REDEEM SHARES
- --------------------
You may redeem shares by sending a written request, signed by the record
owner(s), to: American Data Services, Inc., the Fund's transfer agent, at P.O.
Box 5536, Hauppauge, New York 11788-0132. The request must specify the name of
the Fund and the number of shares to be redeemed.
-9-
<PAGE>
- -- Redemption requests and changes to the shareholder's address or designated
bank account must be guaranteed by an "eligible guarantor institution"
(which includes: banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations). Signature guarantees will be accepted from any
eligible guarantor institution which participates in a signature guarantee
program. A broker-dealer guaranteeing signatures must be a member of a
clearing corporation or maintain net capital of at least $100,000. Credit
unions must be authorized to issue signature guarantees.
- -- YOU MAY NOT REDEEM SHARES DIRECTLY FROM THE FUNDS BY TELEPHONE. If you have
purchased shares through a broker, you may redeem those shares through such
broker consistent with the broker's policies, the terms of any agreement
governing the purchase and redemption of those shares, and the terms of any
agreement governing the relationship between the broker and the Funds.
Under these circumstances, redemptions may be effected by telephone through
such brokers.
- -- The redemption price is the net asset value per share next computed after
receipt of the redemption request. Payment on redemption will be made as
promptly as possible and, in any event, within seven days after the
redemption order is received, provided, however, that redemption proceeds
for shares purchased by check (including certified or cashier's checks)
will be forwarded only upon collection of payment for the shares
(collection of payment may take up to 15 days). The Custodian will charge
$13 for a Federal Reserve wire redemption payment made at your request.
- -- The Funds reserve the right to redeem shares if the account has a value of
less than $1,000 due to redemptions. If a Fund exercises its right to
redeem such shares, you will be given written notice and will be allowed 30
days to make an additional investment in an amount that will increase the
value of the account to at least $1,000.
- -- The Funds will pay cash for all shares redeemed, except under abnormal
conditions that make payment in cash impractical. In such an instance,
payment may be made wholly or partly in liquid portfolio securities with a
market value equal to the redemption price. You may incur brokerage costs
in converting such securities to cash.
-10-
<PAGE>
DISTRIBUTIONS
- -------------
The Funds distribute as dividends substantially all net investment income (which
comes from dividends and interest received from investments) and net realized
capital gains. The Value and Income Funds generally will declare and pay
dividends out of investment income annually and quarterly, respectively, and
distribute net realized capital gains annually. All distributions will be paid
in shares of a Fund, unless you elect, in writing, at least 15 days prior to the
date of distribution by notice to the Corporation's transfer agent, to receive
them in cash. Such election will become effective for all future dividends.
TAXES
- -----
Amounts you receive from the Funds may be subject to Federal, state and local
taxation, depending on your tax situation. The tax treatment of dividends and
distributions is the same whether or not you reinvest them. Dividends are
ordinary income and capital gains distributions are taxed based on how long a
Fund held the assets. The Fund will tell you annually how to treat dividends and
distributions.
If you redeem shares of a Fund, you will be subject to tax on any gains you
earn based on your holding period for the shares. An exchange of shares of a
Fund for shares of another Fund is a sale of Fund shares for tax purposes.
DISTRIBUTION PLAN
- -----------------
The Fund has adopted a distribution and shareholder services plan (the "Plan")
pursuant to rule 12b-1 of the Investment Company Act of 1940. As provided in the
Plan, the Fund may pay a fee of up to .25% of each Fund's 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
Plan also provides for payment of expenses relating to the costs of
prospectuses, reports to Shareholders, sales literature and other materials for
potential investors.
The Board of Directors will review and approve, on a quarterly basis, all
expenditures made pursuant to the Plan. The Plan cannot be amended without a
vote of the outstanding shares of the Funds. Because the distribution fee is
paid annually, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
-11-
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
The following financial highlights information is intended to help you
understand the financial performance of each Fund for the past five years, or
the life of each Fund if less than five years. The total returns in the table
represent the rate that you would have earned (or lost) on an investment in each
fund (assuming reinvestment of all dividends and distributions). This
information has been audited by McCurdy & Associates, CPA's, Inc., whose report,
along with each Fund's financial statements, are incorporated by reference into
the Fund's Statement of Additional Information and are included in the Fund's
1998 Annual Report to Shareholders.
PER SHARE OPERATING PERFORMANCE
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
FOR THE FISCAL YEAR ENDED APRIL 30
<TABLE>
<CAPTION>
VALUE VALUE VALUE INCOME INCOME INCOME
FUND FUND FUND FUND FUND FUND
1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.32 $11.74 $10.00 $10.40 $10.25 $10.00
Income from investment operations:
Net investment income 0.00 0.04 0.10 0.81 0.79 0.73
Capital Gains -- -- -- -- 0.04 0.03
Net realized and unrealized 5.49 2.11 1.75 0.65 0.22 0.25
gain (loss) on investments
Total from investment operations 5.49 2.15 1.85 1.46 1.05 1.01
Less distributions:
Dividends from net investment income 0.00 (0.05) (0.07) (0.78) (0.84) (0.73)
Distributions from net realized gains (1.78) (0.52) (0.04) (0.13) (0.06) (0.03)
Total Distributions (1.78) (0.57) (0.11) (0.91) (0.90) (0.76)
Net Asset Value, End of Period $17.03 $13.32 $11.74 $10.95 $10.40 $10.25
====== ====== ====== ====== ====== ======
Ratios/Supplemental data:
Net Assets, end of period (000's) 5,263 2,064 1,255 9,890 7,419 6,450
Ratios to average net assets:
Expenses 1.50% 1.50% 1.50%** 1.10% 1.10% 1.10%**
Net investment income 0.00% 0.34% 0.89%** 7.38% 7.57% 7.35%**
Portfolio turnover rate 80.98% 105.72% 65.38% 15.62% 13.73% 13.76%
Total Return 43.14% 18.71% 18.57% 14.36% 10.56% 10.17%
<FN>
(1) The Value Fund and Income Fund commenced operations on May 4, 1995.
** Annualized
</FN>
</TABLE>
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<PAGE>
INVESTMENT MANAGER
Croft-Leominster, Inc.
207 East Redwood Street, Suite 802
Baltimore, Maryland 21202
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1800 M Street, NW
Washington, DC 20036
INDEPENDENT AUDITORS
McCurdy & Associates, CPA's, Inc.
27955 Clemens Road
Westlake, OH 44145
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
ADMINISTRATOR AND
SHAREHOLDER SERVICES AGENT
American Data Services, Inc.
P.O. Box 5536
Hauppauge, New York 11788-0132
-13-
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CROFT FUNDS CORPORATION
Croft-Leominster Value Fund
Croft-Leominster Income Fund
STATEMENT OF ADDITIONAL INFORMATION
August 30, 1998
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus dated August 30, 1998. A copy
of the Prospectus may be obtained from Croft Funds Corporation, 207 East Redwood
Street, Suite 802, Baltimore, Maryland 21202 or by calling (410) 576-0100.
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TABLE OF CONTENTS
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ORGANIZATION AND CAPITALIZATION OF THE CORPORATION............................1
INVESTMENT OBJECTIVE AND POLICIES.............................................1
RISK FACTORS..................................................................2
GENERAL INVESTMENT PRACTICES..................................................3
MISCELLANEOUS INVESTMENT PRACTICES............................................7
NOTE ON SHAREHOLDER APPROVAL..................................................8
FUNDAMENTAL INVESTMENT RESTRICTIONS...........................................8
INVESTMENT RESTRICTIONS.......................................................8
HOW TO REDEEM.................................................................9
HOW NET ASSET VALUE IS DETERMINED............................................10
CALCULATION OF YIELD AND RETURN..............................................11
PERFORMANCE COMPARISONS......................................................12
DISTRIBUTIONS................................................................13
TAXES........................................................................13
MANAGEMENT OF THE FUNDS......................................................14
OTHER SERVICES...............................................................18
PORTFOLIO TRANSACTIONS.......................................................19
5% AND 25% SHAREHOLDERS......................................................20
EXPERTS......................................................................21
APPENDIX A:
CORPORATE BOND AND COMMERCIAL PAPER RATINGS..................................22
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ORGANIZATION AND CAPITALIZATION OF THE CORPORATION
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The Corporation was established as a corporation under the laws of the
State of Maryland under Articles of Incorporation (the "Articles") dated July
20, 1994 and is authorized to issue 30 million shares of capital stock, par
value of $.001 per share, all of which Shares are designated common stock. Each
Share has one vote and shall be entitled to dividends and distributions when and
if declared by each Fund. In the event of liquidation or dissolution of a Fund,
each Share would be entitled to its pro rata portion of the Fund's assets after
all debts and expenses have been paid. A copy of the Articles is on file with
the Secretary of the State of Maryland.
Shares of each Fund are entitled to one vote per share (with
proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. There will normally be no meetings of shareholders for the
purpose of electing Directors, except insofar as elections are required under
the 1940 Act in the event that (i) less than a majority of the Directors have
been elected by shareholders, or (ii) if, as a result of a vacancy, less than
two-thirds of the Directors have been elected by the shareholders, the vacancy
will be filled only by a vote of the shareholders. In addition, the Directors
may be removed from office by a written consent signed by the holders of
two-thirds of the outstanding shares of the Funds and filed with the Funds'
custodian or by a vote of the holders of two-thirds of the outstanding shares of
the Funds at a meeting duly called for the purpose, which meeting shall be held
upon the written request of the holders of not less than 10% of the outstanding
shares. Upon written request by ten or more shareholders, who have been such for
at least six months, and who hold shares constituting 1% of the outstanding
shares, stating that such shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures necessary to demand a
meeting to consider removal of a Director, the Funds have undertaken to provide
a list of shareholders or to disseminate appropriate materials (at the expense
of the requesting shareholders). Except as set forth above, each Director shall
continue to hold office and may appoint his successor.
The Board of Directors may classify any authorized but unissued Shares
into classes and may establish certain distinctions between classes relating to
additional voting rights, payments of dividends, rights upon liquidation or
distribution of the assets of the Funds and any other restrictions permitted by
law and the Corporation's Articles.
INVESTMENT OBJECTIVE AND POLICIES
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The Croft-Leominster Value and Income Funds (the "Funds") are
diversified portfolios of the Croft Funds Corporation (the "Corporation"), an
open-end management investment company. The investment objective and policies of
the Funds are set forth below and in the Prospectus. There is no assurance that
a Fund's objective will be achieved.
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This Statement contains certain additional information about the
objective and policies, including "miscellaneous investment practices" in which
the Funds may engage.
THE VALUE FUND
Although the Fund invests primarily in common stocks, up to 35% of its assets
may be invested in warrants and in investment-grade convertible securities,
preferred stocks, and corporate debt securities. Consistent with its objective,
the Fund may invest in U.S. securities and non-U.S. traded equity securities of
foreign issuers, and may invest a portion of its assets in foreign debt
securities. The Fund may invest up to 10% of its assets in non-investment grade
debt securities with ratings as low as CCC from Standard & Poor's Corporation
("S&P") or Caa from Moody's Investors Services, Inc. ("Moody's"). Debt
securities rated Caa by Moody's may be in default or there may be present
elements of danger with respect to principal or interest, and debt securities
rated CCC by S&P have a current identifiable vulnerability to default and are
dependent on favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal.
THE INCOME FUND
Although the Fund invests primarily (under normal market conditions, at least
65% of its total assets) in a diversified portfolio of investment grade
fixed-income securities, up to 35% of its assets may be invested in warrants and
in investment-grade convertible securities, preferred stocks, and common stocks.
Consistent with its objective, the Fund primarily invests in debt securities
that are considered investment grade (E.G., rated Aaa, Aa, A, or Baa by Moody's,
or AAA, AA, A, or BBB by S&P, or, if not rated, determined by the Manager to be
of comparable quality). The Fund may also invest up to 34% of its assets in
non-investment grade debt securities. These securities, commonly referred to as
"High-Yield Junk Bonds," are rated Ba or below by Moody's or BB or below by S&P,
or have no credit rating at all but are of comparable quality. The Fund may own
securities with ratings as low as Caa from Moody's or CCC from S&P. Debt
securities rated Caa by Moody's may be in default or there may be present
elements of danger with respect to principal or interest, and debt securities
rated CCC by S&P have a current identifiable vulnerability to default and are
dependent on favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal.
RISK FACTORS
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THE EURO
On January 1, 1999, the European Monetary Union (EMU) plans to implement a new
currency unit, the Euro, which is expected to reshape financial markets, banking
systems and monetary policies in Europe and other parts of the world. The
countries initially expected to convert or tie their currencies to the Euro
include Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Ireland,
Finland, Italy, Portugal and Spain. Implementation of this plan will mean
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that financial transactions and market information, including share quotations
and company accounts, in participating countries will be denominated in Euros.
Approximately 46% of the stock exchange capitalization of the total European
market may be reflected in Euros, and participating governments will issue their
bonds in Euros. Monetary policy for participating countries will be uniformly
managed by a new central bank, the European Central Bank (ECB).
Although it is not possible to predict the impact of the Euro implementation
plan on the Corporation, the transition to the Euro may change the economic
environment and behavior of investors, particularly in European markets. For
example, investors may begin to view those countries participating in the EMU as
a single entity, and the Manager may need to adapt its investment strategy
accordingly. The process of implementing the Euro also may adversely affect
financial markets world-wide and may result in changes in the relative strength
and value of the U.S. dollar or other major currencies, as well as possible
adverse tax consequences. The transition to the Euro is likely to have a
significant impact on fiscal and monetary policy in the participating countries
and may produce unpredictable effects on trade and commerce generally. These
resulting uncertainties could create increased volatility in financial markets
world-wide.
YEAR 2000
The Corporation depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, businesses and
individuals around the world, the Corporation could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Corporation has asked its service providers whether they expect to
have their computer systems adjusted for the year 2000 transition, and received
assurances that its system is expected to accommodate the year 2000 without
material adverse consequences to the Corporation. The Corporation and its
shareholders may experience losses if these assurances prove to be incorrect or
as a result of year 2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others with which the Corporation does business.
GENERAL INVESTMENT PRACTICES
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CASH RESERVES. The Funds generally will not employ defensive
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strategies, although during periods of difficult or unfavorable market
conditions, each Fund may invest up to 100% of its assets in high-quality,
short-term debt securities. These instruments include certificates of deposit
and banker's acceptances issued by FDIC-insured banks, commercial paper which is
either issued by companies having an outstanding debt issue rated at least A or
better by S&P or A or better by Moody's and short-term corporate obligations
that are rated A-2 or better by S&P or Prime-2 or better by Moody's or, if not
rated, are of comparable quality as determined by the Manager. In addition, the
Funds may hold any cash balances it accumulates for investment, reinvestment or
distribution in such short-term debt securities.
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CONVERTIBLE SECURITIES, PREFERRED STOCKS, AND WARRANTS. Each Fund may
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invest in debt or preferred equity securities convertible into or exchangeable
for equity securities. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on the
company's earnings and assets before common stock owners, but after bond owners.
Warrants are options that entitle the holder to buy a stated number of shares of
common stock at a specific price for a specified period of time (generally, two
or more years.)
EQUITY SECURITIES. Equity securities, including common stocks,
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represent an ownership interest in a corporation and have the least claim on a
company's earnings and assets. In purchasing equities, each Fund may invest in
companies that pay a significantly higher yield than the general market. In
contrast to fixed-income securities, the dividends of common stocks may be
increased periodically.
In seeking investments for the Value Fund, the primary consideration of
the Fund's manager, Croft-Leominster, Inc. (the "Manager"), is to invest in
securities which the Manager believes are currently undervalued due to
inefficiencies in the market. However, in selecting such securities, the
opinions and judgments being exercised by the Manager may be contrary to those
of the majority of investors. In certain instances, such opinions and judgments
will involve the risk of a correct judgment by the majority, or an individual
security or group of securities may remain depressed for an extended period of
time or even fall to a new low, in which case losses or only limited profits may
be incurred.
FIXED-INCOME AND CONVERTIBLE SECURITIES. The Funds may invest in U.S.
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Government and corporate debt and convertible securities of varying maturities.
The Manager may adjust the average maturity of a Fund's holdings of convertible
and fixed-income securities from time to time, depending on its assessment of
the relative yields available on securities of different maturities, its
expectations of future changes in interest rates and, with respect to
convertible securities, its evaluation of the fundamental investment merits of
the equity security for which the convertible security may be exchanged.
The Fund intends to purchase fixed-income and convertible securities
that are primarily of investment grade (i.e., rated Baa or better by Moody's or
BBB or better by Standard & Poor's; a description of these ratings is set forth
in the Appendix to this Statement). However, the Funds may also invest in
fixed-income and convertible securities rated Ba or below by Moody's or BB or
below by Standard & Poor's, or, if unrated, judged by the Manager to be of
comparable quality pursuant to guidelines adopted by the Board of Directors.
Such securities are often called "junk bonds," and are collectively referred to
herein as "High-Yield Securities." See "High-Yield Junk Bonds" below.
FOREIGN SECURITIES. The Funds may invest in securities of foreign
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issuers which may be traded in domestic securities markets in the form of
American Depository Receipts (ADRs), or in ordinary share form traded in the
market of the country of origin. These foreign securities, in particular those
traded principally overseas, may involve certain special legal risks due to
foreign economic, political and legal developments, including favorable or
unfavorable changes in
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currency exchange rates, exchange control regulations (including currency
blockage), expropriation of assets or nationalization, imposition of withholding
taxes on dividend or interest payments, and possible difficulty in obtaining and
enforcing judgments against foreign entities. Furthermore, issuers of foreign
securities are subject to different, often less comprehensive accounting,
reporting and disclosure requirements than domestic issuers. The securities of
some foreign companies and foreign securities markets are less liquid and at
times more volatile than securities of comparable domestic companies and
domestic securities markets. Foreign brokerage commissions and other fees are
also generally higher than in the United States. There are also special tax
considerations which apply to securities of foreign issuers and securities
principally traded overseas. In addition, unsponsored ADRs may provide less
information to the holders thereof.
HIGH-GRADE, SHORT-TERM DEBT SECURITIES. The Funds may invest in a
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variety of high-grade, U.S. dollar-denominated, short-term debt securities. For
a description of those instruments and of the Moody's and Standard & Poor's
ratings for such instruments, see the Appendix to this Statement. From time to
time, the Funds may invest in such instruments when the Manager believes that
suitable equity, convertible, or longer-term fixed-income securities are
unavailable. When a Fund is investing in such instruments, it is not investing
in instruments paying the highest available yield at that particular time. There
are usually no brokerage commissions as such paid by a Fund in connection with
the purchase of such instruments. See "Portfolio Transactions -Brokerage and
Research Services," for a discussion of underwriters' commissions and dealers'
spreads involved in the purchase and sale of such instruments.
A Fund's portfolio holdings of short-term, high-grade debt instruments
will be affected by general changes in interest rates resulting in increases or
decreases in the value of the obligations held by the Fund. The value of such
securities can be expected to vary inversely to the changes in prevailing
interest rates. Thus, if interest rates have increased from the time a security
was purchased, such security, if sold, might be sold at a price less than its
cost. Similarly, if interest rates have declined from the time a security was
purchased, such security, if sold, might be sold at a price greater than its
cost. In either instance, if the security were held to maturity no gain or loss
would normally be realized as a result of these fluctuations. Redemptions or
exchanges by shareholders could require the sale of portfolio investments at a
time when such a sale might not otherwise be desirable.
HIGH-YIELD JUNK BONDS. These securities are generally subject to
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greater credit risk than comparable higher-rated securities because issuers are
more vulnerable to economic downturns, higher interest rates or adverse
issuer-specific developments. In addition, such securities are often less liquid
than their investment grade counterparts. Adverse regulatory and economic
developments may from time to time limit the ability of the participants in the
High-Yield Junk Bond market to maintain orderly markets in certain High-Yield
Junk Bonds.
The Value Fund may invest up to 10% of its net assets in High-Yield
Junk Bonds. The Income Fund may invest up to 34% of its net assets in High-Yield
Junk Bonds (also referred to herein as "High Yield Securities"). As with other
fixed-income and convertible securities, High-
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Yield Securities are subject to both credit risk and market risk, although the
Manager believes that most convertible High-Yield Securities are likely to
exhibit equity characteristics as well.
The value and liquidity of High-Yield Securities may be diminished by
adverse publicity and investor perceptions. Also, legislation limiting the tax
benefits to the issuers of taxable High-Yield Securities or requiring
federally-insured savings and loan institutions to reduce their holdings of
taxable High-Yield Securities may continue to have an adverse effect on the
market value of these securities.
Because High-Yield Securities are frequently traded only in markets in
which the number of potential purchasers and sellers, if any, is limited, the
ability of the Fund to sell High-Yield Securities at their fair value either to
meet redemption requests or to respond to changes in the financial markets may
be limited. In such an event, such securities would be regarded as illiquid.
Thinly traded High-Yield Securities may be more difficult to value accurately
for the purpose of determining a Fund's net asset value. Also, because the
market for certain High-Yield Securities is relatively new, that market may be
particularly sensitive to an economic downturn or general increase in interest
rates. Recent regulatory and economic developments, including the bankruptcy
filing of the parent of Drexel Burnham Lambert Incorporated, have limited and
may continue to limit the ability of remaining participants in the High-Yield
Securities market to maintain orderly markets in certain High-Yield Securities.
Particular types of High-Yield Securities may present special concerns.
Some High- Yield Securities in which a Fund may invest may be subject to
redemption or call provisions that may limit increases in market value that
might otherwise result from lower interest rates while increasing the risk that
the Fund may be required to reinvest redemption or call proceeds during a period
of relatively low interest rates.
The Manager attempts to identify High-Yield Securities with relatively
favorable investment characteristics. The credit ratings issued by Moody's and
S&P are subject to various limitations. For example, while such ratings evaluate
the credit risk, they ordinarily do not evaluate the market risk of High-Yield
Securities. In certain circumstances, the ratings may not reflect in timely
fashion adverse developments affecting an issuer. For these reasons, the Manager
conducts its own independent credit analysis of High-Yield Securities.
ILLIQUID SECURITIES. Each Fund may purchase illiquid securities, which
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include securities whose disposition is restricted by the securities laws. The
number of potential purchasers and sellers, if any, for such securities is
limited, and the ability of a Fund to sell such securities at their fair market
value may be limited. It is expected that investments in illiquid securities
will not exceed 10% of the net assets of a Fund at any time, although each Fund
reserves the right to invest up to 15% of its net assets in illiquid securities.
LENDING OF PORTFOLIO SECURITIES. For the purpose of realizing
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additional income, each Fund may lend securities with a value of up to 30% of
its assets to broker-dealers, institutional investors, or other persons. Any
such loan will be continuously secured by liquid, high grade
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collateral consisting of U.S. government securities or cash, equal to the value
of the security loaned. Such lending could result in delays in receiving
additional collateral or in the recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially.
U.S. GOVERNMENT SECURITIES. The Funds may invest in obligations issued
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or guaranteed by agencies of the U.S. Government, including, among others, the
Federal Farm Credit Bank, the Federal Housing Administration and the Small
Business Administration, and obligations issued or guaranteed by
instrumentalities of the U.S. Government, including, among others, the Federal
Home Loan Mortgage Corporation, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the full faith and credit of
the U.S. Treasury (E.G., Government National Mortgage Association), others are
supported by the right of the issuer to borrow from the Treasury (E.G., Federal
Farm Credit Bank), while still others are supported only by the credit of the
instrumentality (E.G., Fannie Mae). Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing on the obligation
prior to maturity. Guarantees as to the timely payment of principal and interest
do not extend to the value or yield of these securities nor to the value of the
Fund's shares.
MISCELLANEOUS INVESTMENT PRACTICES
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REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements
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with banks and broker-dealers under which the Fund acquires a security (usually
a U.S. Government security) for cash and obtains a simultaneous commitment from
the seller to repurchase the security at an agreed-upon price and date. The
resale price is in excess of the acquisition price and reflects the agreed-upon
market rate unrelated to the coupon rate on the purchased security. Such
transactions afford an opportunity for the Fund to earn a return on temporarily
available cash at no market risk, although there is a risk that the seller may
default on its obligation to pay the agreed-upon sum at the re-delivery date.
Such a default may subject the Fund to expenses, delays and risks of loss.
Repurchase agreements with a maturity of more than seven days, taken together
with all of a Fund's other illiquid assets, will not exceed 15% of a Fund's net
assets. Repurchase agreements are considered loans under the Investment Company
Act of 1940 (the "1940 Act").
PORTFOLIO TURNOVER. A change in securities held by a Fund is known as
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"portfolio turnover" and almost always involves the payment by the Fund of
brokerage commissions or dealer markup and other transaction costs on the sale
of securities as well as on the reinvestment of the proceeds in other
securities. The Funds' annual "portfolio turnover" will be determined by
dividing the lesser of purchases or sales of portfolio securities for the year
by the monthly average value of the Funds' securities; for purposes of
calculation, securities which mature in one year or less are excluded. Because
of the long term nature of Value Fund's investment strategy, it is unlikely that
portfolio turnover will exceed that of other investment companies.
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The Funds will not generally trade in securities for short-term profits
but, when circumstances warrant, securities may be purchased and sold without
regard to the length of time held. Neither Fund can accurately predict its
annual portfolio turnover rate; however, the annual portfolio turnover rate is
not expected to exceed 100% for either Fund. A high turnover rate increases
transaction costs and may increase taxable gains.
WARRANTS. Each Fund may acquire attached and unattached warrants.
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Warrants entitle the holder to purchase equity securities at a specific price
for a specified period of time. Warrants in which the Fund may invest will be
freely transferable, and no more than 2% of the Fund's assets will be invested
in warrants which are not traded on either the New York or American Stock
Exchange. The Fund will not invest more than 5% of its net assets in warrants.
NOTE ON SHAREHOLDER APPROVAL
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The investment policies and objective of the Funds set forth above and
in the Prospectus may be changed without shareholder approval.
FUNDAMENTAL INVESTMENT RESTRICTIONS
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As a matter of fundamental policy, each Fund will not: (1) purchase the
securities of a company if, as a result: (a) the Fund would have more than 25%
of its total assets concentrated in any one industry, or (b) with respect to 75%
of its assets, the Fund's holdings of that issuer would amount to more than (i)
5% of the Fund's total assets or (ii) 10% of the outstanding voting securities
of a single issuer other than those issued by the U.S. Government, its agencies
or instrumentalities; (2) borrow money, except temporarily from banks to
facilitate redemption requests in amounts not exceeding 5% of its total assets
valued at market; and (3) purchase additional securities when money borrowed
exceeds 5% of the Fund's total assets. All percentage limitations on investments
set forth herein apply at the time of the making of an investment, and shall not
be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
INVESTMENT RESTRICTIONS
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No Fund may, without a vote of the majority of its outstanding voting
securities, take any of the following actions:
(1) Make short sales of securities or maintain a short position
for the account of the Fund unless at all times when a short position
is open the Fund owns an equal amount of such securities or owns
securities which, without payment of any further consideration, are
convertible into or exchangeable for securities of the same issue as,
and equal in amount to, the securities sold short.
(2) Issue senior securities, except as permitted by the 1940 Act
and the rules and regulations thereunder.
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(3) Act as an underwriter of securities of other issuers except
as it may be deemed an underwriter in selling the Fund's securities.
(4) Purchase securities on margin, except that each Fund may
obtain short-term credits as necessary for the clearance of security
transactions.
(5) Purchase or sell real estate, real estate limited partnership
interests, futures contracts, and commodities or commodities contracts.
However, subject to the permitted investments of the Fund, each Fund
may invest in marketable obligations secured by real estate or
interests therein.
(6) Invest in companies for the purpose of exercising control.
(7) Make loans, except that each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies,
may enter into repurchase agreements, and may lend its securities.
(8) Invest in interests in oil, gas or other mineral exploration
or development programs and oil, gas or mineral leases.
(9) Purchase securities of other investment companies except as
permitted by the 1940 Act and the rules and regulations thereunder.
It is contrary to each Fund's present policy, which may be changed by
the Directors without shareholder approval, to: (i) invest more than 15% of the
Fund's net assets (taken at current value) in securities which at the time of
such investment are not readily marketable; or (ii) write puts, calls, options
or combinations thereof.
All percentage limitations on investments set forth herein and in the
Prospectus will apply at the time of the making of an investment and shall not
be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
The phrase "shareholder approval," as used in the Prospectus, and the
phrase a "vote of a majority of the outstanding voting securities," as used
herein, means the affirmative vote of the lesser of (l) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares of the Fund
present at a meeting if more than 50% of the outstanding shares are represented
at the meeting in person or by proxy.
HOW TO REDEEM
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The procedures for redemption of Fund shares are summarized in the text
of the Prospectus following the caption "How to Redeem Shares." Redemption
requests must be in good order, as defined in the Prospectus. Upon receipt of a
redemption request in good order, the Shareholder will receive a check equal to
the net asset value of the redeemed shares next
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determined after the redemption request has been received. The Fund will accept
redemption requests only on days the New York Stock Exchange ("NYSE") is open.
Proceeds will normally be forwarded on the next day on which the NYSE is open;
however, the Funds reserve the right to take up to seven days to make payment
if, in the judgment of the Manager, the Funds could be adversely affected by
immediate payment. The proceeds of redemption may be more or less than the
shareholder's investment and thus may involve a capital gain or loss for tax
purposes. If the shares to be redeemed represent an investment made by check,
the Funds reserve the right not to forward the proceeds of the redemption until
the check has been collected.
The Funds may suspend the right of redemption and may postpone payment
only when the NYSE is closed for other than customary weekends and holidays, or
if permitted by the rules of the Securities and Exchange Commission ("SEC")
during periods when trading on the NYSE is restricted or during any emergency
which makes it impracticable for the Funds to dispose of its securities or to
determine fairly the value of its net assets, or during any other period
permitted by order of the SEC.
The Funds reserve the right to redeem shares and mail the proceeds to
the shareholder if at any time the net asset value of the shares in the
shareholder's account in a Fund falls below a specified level, currently set at
$1,000. Shareholders will be notified and will have 30 days to bring the account
up to the required level before any redemption action will be taken by a Fund.
The Funds also reserve the right to redeem shares in a shareholder's account in
excess of an amount set from time to time by the Board of Directors. No such
limit is presently in effect, but such a limit could be established at any time
and could be applicable to existing as well as future shareholders.
HOW NET ASSET VALUE IS DETERMINED
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As described in the text of the Prospectus following the caption "How
Net Asset Value is Determined," the net asset value per share of the Funds is
determined once on each day on which the NYSE is open, as of the close of the
NYSE.
The Corporation expects that the days, other than weekend days, that
the NYSE will not be open are: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The Funds' portfolio securities for which
market quotations are readily available are valued at market value, which is
determined by using the last reported sale price, or, if no sales are reported
- -- and in the case of certain securities traded over-the-counter -- the last
reported bid price. Many debt securities, including U.S. Government Securities,
are traded in the over-the-counter market. Obligations having remaining
maturities of 60 days or less are valued at amortized cost. The amortized cost
value of a security is determined by valuing it at cost originally and
thereafter amortizing any discount or premium from its face value at a constant
rate until maturity, regardless of the effect of fluctuating interest rates on
the market value of the instrument. Although the amortized cost method provides
certainty in valuation, it may result at times in determinations of value that
are higher or lower than the price the Funds would receive if the
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instruments were sold. Consequently, changes in the market value of such
portfolio instruments during periods of rising or falling interest rates will
not be reflected either in the computation of the Funds' net asset value.
Certain securities and assets of the Funds may be valued at fair value
as determined in good faith by the Directors or by persons acting at their
direction pursuant to guidelines established by the Directors. The fair value of
any restricted securities from time to time held by the Funds is determined by
the Manager in accordance with procedures approved by the Directors. Such
valuations and procedures are reviewed periodically by the Directors. The fair
value of such securities is generally determined as the amount which the Funds
could reasonably expect to realize from an orderly disposition of such
securities over a reasonable period of time. The valuation procedures applied in
any specific instance are likely to vary from case to case. However,
consideration is generally given to the financial position of the issuer and
other fundamental analytical data relating to the investment and to the nature
of the restrictions on disposition of the securities (including any registration
expenses that might be borne by the Funds in connection with such disposition).
In addition, such specific factors are also generally considered as the cost of
the investment, the market value of any unrestricted securities of the same
class (both at the time of purchase and at the time of valuation), the size of
the holding, the prices of any recent transactions or offers with respect to
such securities and any available analysts' reports regarding the issuer.
Generally, trading in corporate bonds, U.S. Government securities and
short-term, fixed-income instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in determining the Funds' net asset value of shares are computed as of such
times. Occasionally, events affecting the value of such securities may occur
between such times and the close of the Exchange which will not be reflected in
the computation of the Funds' net asset value. If events materially affecting
the value of a Fund's securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by the Board of
Directors.
CALCULATION OF YIELD AND RETURN
- -------------------------------
YIELD OF THE FUND. The Yield of each Fund will be computed by
-----------------
annualizing net investment income per share for a recent 30-day period and
dividing that amount by the Fund shares' net asset value (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
trading day of that period. Net investment income will reflect amortization of
any market value premium or discount of fixed-income securities (except for
obligations backed by mortgages or other assets) and may include recognition of
a pro rata portion of the stated dividend rate of dividend paying portfolio
securities. The Funds' Yield will vary from time to time depending upon market
conditions, the composition of the Funds' portfolio and operating expenses of
the Funds. These factors and possible differences in the methods used in
calculating yield should be considered when comparing a Funds' Yield to yields
published for other investment companies and other investment vehicles. Yield
should also be considered
-11-
<PAGE>
relative to changes in the value of the Funds' shares and to the relative risks
associated with the investment objectives and policies of the Funds.
For the 30-day period ended April 30, 1998 yield on the Income Fund was
7.01%.
At any time in the future, yields and total return may be higher or
lower than past yields and there can be no assurance that any historical results
will continue.
Investors in the Funds are specifically advised that share prices,
expressed as the net asset values per share, will vary just as Yields will vary.
An investor's focus on the Yield of a Fund to the exclusion of the consideration
of the share price may result in the investor's misunderstanding the Total
Return he or she may derive from a Fund.
CALCULATION OF TOTAL RETURN. Total Return is a measure of the change in
---------------------------
value of an investment in a Fund over the period covered, which assumes any
dividends or capital gains distributions are reinvested immediately rather than
paid to the investor in cash. The formula for Total Return used herein includes
four steps: (l) adding to the total number of shares purchased by a hypothetical
$1,000 investment in the Fund all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing this account value for the
hypothetical investor by the initial $1,000 investment and annualizing the
result for periods of less than one year.
Based on the foregoing, the average annual total return for each Fund
from commencement of operations through April 30, 1998 and for the one year
period ended April 30, 1998, were as follows:
Total Return
------------
Fund One Year Since Inception
---- -------- ---------------
Value Fund 43.1% 26.6%
Income Fund 14.4% 11.7%
PERFORMANCE COMPARISONS
- -----------------------
YIELD AND TOTAL RETURN. The Funds may from time to time include Total
----------------------
Return in information furnished to present or prospective shareholders. The
Funds may from time to time also include Total Return and Yield and the ranking
of those performance figures relative to such figures for groups of mutual funds
categorized by Lipper Analytical Services, Morningstar, the
-12-
<PAGE>
Investment Company Institute and other similar services as having the same
investment objective as the Funds.
DISTRIBUTIONS
- -------------
DISTRIBUTIONS FROM NET INVESTMENT INCOME. The Funds pay out
----------------------------------------
substantially all of their net investment income, (i.e., dividends, interest
they receive from their investments, and short-term gains). The Value and Income
Funds will declare and pay dividends out of investment income annually and
quarterly, respectively.
DISTRIBUTIONS OF CAPITAL GAINS. Each Fund's policy is to distribute
------------------------------
annually substantially all of the net realized capital gain, if any, after
giving effect to any available capital loss carryover. Net realized capital gain
is the excess of net realized long-term capital gain over net realized
short-term capital loss.
Dividends and short-term capital gains distributions of each Fund are
taxable as ordinary income. Distributions of any long-term capital gains are
treated as a gain from the sale or exchange of a capital asset held for more
than one year, regardless of how long you may have owned shares in a Fund.
Distributions of net capital gains of a Fund will not qualify for the
dividends-received deduction and will be taxable as long-term capital gain,
taxable at the rate of 20% for property held for more than 18 months and at the
rate of 28% for property held for more than one year but not for more than 18
months, whether received in cash or additional shares, and regardless of how
shares have been held.
In order to avoid a liability for excise tax on undistributed income,
the Code requires each Fund to distribute prior to calendar year end virtually
all the ordinary income of the Fund on a calendar year basis, and to distribute
virtually all of the capital gain net income realized in the one-year period
ending each October 31 and not previously distributed.
Distributions will be taxable whether received in cash or in shares
through the reinvestment of distributions. A dividend paid to you by a Fund in
January of a year generally is deemed to have been paid by the Fund and received
by you on December 31 of the preceding year, if the dividend was declared and
payable to shareholders of record on a date in October, November or December of
that preceding year. The Funds will provide federal tax information annually,
including information about dividends and distributions paid during the
preceding year.
TAXES
- -----
Each Fund intends to qualify each year as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). In order so to qualify, the Fund must, among other things, (a)
derive at least 90% of its gross income from dividends, interest, payments with
respect to certain securities loans, and gains from the sale of stock or
securities, or other income derived with respect to its business of investing in
such stock
-13-
<PAGE>
or securities; (b) each year distribute at least 90% of its "investment company
taxable income," which, in general, consists of investment income and short-term
capital gains; and (c) diversify its holdings so that, at the end of each fiscal
quarter (i) at least 50% of the market value of the Fund's assets is represented
by cash, cash items, U.S. Government securities, securities of other regulated
investment companies, and other securities, limited in respect of any one issuer
to a value not greater than 5% of the value of the Fund's total assets and 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities (other than those of
the U.S. Government or other regulated investment companies) of any one issuer
or of two or more issuers which the Fund controls and which are engaged in the
same, similar or related trades or businesses. By so qualifying, the Fund will
not be subject to federal income taxes to the extent that its net investment
income, net realized short-term capital gains and net realized long-term capital
gains are distributed.
In years when the Funds distribute amounts in excess of its earnings
and profits, such distributions may be treated in part as a return of capital. A
return of capital is not taxable to a shareholder and has the effect of reducing
the shareholder's basis in the shares. The Funds currently have no intention or
policy to distribute amounts in excess of its earnings and profits.
It is expected that at least some of the distributions from the Funds
will qualify for the dividends-received deduction for corporations to the extent
that the Funds' gross income was derived from qualifying dividends from domestic
corporations.
Annually, shareholders will receive information as to the tax status of
distributions made by the Funds in each calendar year.
The Funds are required to withhold and remit to the U.S. Treasury 31%
of all dividend income earned by any shareholder account for which an incorrect
or no taxpayer identification number has been provided or where the Funds are
notified that the shareholder has under- reported income in the past (or the
shareholder fails to certify that he is not subject to such withholding). In
addition, the Funds will be required to withhold and remit to the U.S. Treasury
31% of the amount of the proceeds of any redemption of shares of a shareholder
account for which an incorrect or no taxpayer identification number has been
provided.
The foregoing relates to federal income taxation. Distributions from
investment income and capital gains may also be subject to state and local
taxes. The Corporation is organized as a Maryland corporation. Under current
law, as long as the Funds qualify for the federal income tax treatment described
above, it is believed that the Funds will not be liable for any income or
franchise tax imposed by Maryland with respect to amounts distributed to
shareholders.
MANAGEMENT OF THE FUNDS
- -----------------------
Directors and officers of the Corporation and their principal
occupations during the past five years are as follows:
-14-
<PAGE>
*Kent G. Croft, (02/26/63) Director and President of the Corporation,
President, Croft- Leominster, Inc. since 1989.
*Professor Roy A. Schotland (03/18/33), Director and Chairman of the Board
of the Corporation. Professor of Law, Georgetown University Law Center;
Director, Custodial Trust Company.
*George D. Edwards, II (10/22/37), Director of the Corporation,
[Accountant], Croft- Leominster, Inc. Partner of the Omega Organization
Inc. since 1995. President and Chief Executive Officer, Hottman Edwards
Advertising, Inc. (advertising agency), 1971- 1995.
Frederick S. Billig (02/28/33), Director of the Corporation. Chief
Scientist and Associate Supervisor, John Hopkins University Applied Physics
Lab since 1987; President, Pyrodyne, Inc. since 1977.
L. Gordon Croft (10/27/32), Vice President of the Corporation. Vice
President, Chief Investment Officer and Director of Croft-Leominster, Inc.
since 1989.
Charles Jay McLaughlin (09/20/62), Director of the Corporation. Vice
President Retail Sales, Orion Safety Products as of January 1, 1998. Vice
President Marine Division, Orion Safety Products (1996-1998). Attorney,
Oppenheimer Wolff & Donnelly (law firm, 1989-1995).
John H. Grady, Jr. (06/01/61), Secretary of the Corporation. Partner,
Morgan, Lewis and Bockius LLP (law firm) since 1993. Associate, Ropes &
Gray (law firm).
Carla Reedinger (03/25/60), Treasurer and Chief Financial Officer of the
Corporation. Equity Trader and Senior Portfolio Assistant,
Croft-Leominster, Inc. since 1989.
Wayne Berry (DOB), Assistant Vice President of the Corporation. Marketing
Director, Croft-Leominster since March, 1994. Retired Internal Revenue
Service (37 years) April 1993.
Jonathan Giordani (04/11/74), Assistant Vice President of the Corporation.
Research analyst, Croft-Leominster since February, 1997. Student, The Johns
Hopkins University, 1992-1996.
-------------------------
* Mr. Croft, Mr. Schotland and Mr. Edwards are "interested persons" of the
Corporation under the Investment Company Act of 1940.
** L. Gordon Croft is the father of Kent G. Croft.
-15-
<PAGE>
The mailing address of each of the officers and Directors is: c/o the
Corporation, 207 East Redwood Street, Suite 802, Baltimore, Maryland 21202.
The Corporation's Articles of Incorporation provide that the
Corporation will indemnify its Directors and each of its officers against
liabilities and expenses incurred in connection with the litigation in which
they may be involved because of their offices with the Funds, except if it is
determined in the manner specified in the Articles that they have not acted in
good faith in the reasonable belief that their actions were in the best
interests of the Fund or that such indemnification would relieve any officer or
Director of any errors and omissions to the Corporation or its shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of his or her duties.
Each Director who is not an "interested person" receives an annual fee
of $500.00. The salaries and expenses of each of the Corporation's officers who
are also officers or employees of the Manager are paid by the Manager. Mr.
Croft, as a stockholder and officer of the Manager, will benefit from the
management fees paid by the Funds.
<TABLE>
<CAPTION>
Total Compensation
Aggregate Pension or from Registrant and
Compensation Retirement Fund Complex Paid
From Registrant Benefits Accrued Estimated to Directors for
Name of Person, for Fiscal Year as Part of Fund Annual Benefits Fiscal Year Ended
Position Ended 1998 Expenses Upon 1998
Retirement
<S> <C> <C> <C> <C>
Charles Jay $0 $0 $0 $0
McLaughlin*
George D. Edwards, $500.00 N/A N/A $500.00
II, Director
Frederick S. Billig, $500.00 N/A N/A $500.00
Director
========================== ===================== ====================== ==================== ========================
<FN>
*Mr. McLaughlin was not a Director of the Corporation as of April 30, 1998.
</FN>
</TABLE>
THE MANAGER. Under an agreement between the Corporation and the
Manager, subject to such policies as the Directors of the Corporation may
determine, the Manager, at its expense, will furnish continuously an investment
program for the Funds and will make investment decisions on behalf of the Funds
and place all orders for the purchase and sale of portfolio securities subject
always to applicable investment objectives, policies and restrictions.
Pursuant to the management agreement and subject to the control of the
Directors, the Manager also manages, supervises and conducts the other affairs
and business of the Funds, furnishes office space and equipment, provides
bookkeeping and certain clerical services and pays all fees and expenses of the
officers of the Funds. As indicated under "Portfolio
-16-
<PAGE>
Transactions -- Brokerage and Research Services," the Funds' portfolio
transactions may be placed with brokers which furnish the Manager, without cost,
certain research, statistical and quotation services of value to them or their
respective affiliates in advising the Funds or their other clients. In so doing,
the Funds may incur greater brokerage commissions than they might otherwise pay.
The Manager's compensation under the management agreement is subject to
reduction to the extent that in any year the expenses of a Fund exceed the
limits on investment company expenses imposed by any statute or regulatory
authority of any jurisdiction in which shares of such Fund are qualified for
offer and sale. The term "expenses" is subject to interpretation by each of such
jurisdictions, and, generally speaking, excludes brokerage commissions, taxes,
interest, distribution-related expenses and extraordinary expenses.
The management agreement has been approved by the Directors of the
Corporation. By its terms, the agreement will continue in force from year to
year, but only so long as its continuance is approved at least annually by the
Directors at a meeting called for that purpose or by the vote of a majority of
the outstanding shares of the Corporation. The agreement automatically
terminates on assignment, and is terminable upon notice by the Funds. In
addition, the agreement may be terminated on not more than 60 days' notice by
the Manager given to the Funds. In the event the Manager ceases to be the
manager of the Funds, the right of the Funds to use the identifying name of
"Croft-Leominster" may be withdrawn.
The Funds pay, in addition to the management fee described above, all
expenses not borne by the Manager, including, without limitation, fees and
expenses of the Directors, interest charges, taxes, brokerage commissions,
expenses of issue or redemption of shares, fees and expenses of registering and
qualifying the shares of the Funds for distribution under federal and state laws
and regulations, charges of custodians, auditing and legal expenses, expenses of
determining net asset value of the Funds' shares, reports to shareholders,
expenses of meetings of shareholders, expenses of printing and mailing
prospectuses, proxy statements and proxies to existing shareholders, and
insurance premiums. The Funds are also responsible for such nonrecurring
expenses as may arise, including litigation in which the Funds may be a party,
and other expenses as determined by the Directors. The Funds may have an
obligation to indemnify the officers and Directors with respect to such
litigation.
The management agreement provides that the Manager shall not be subject
to any liability in connection with the performance of its services thereunder
in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
The Manager is a Maryland corporation organized in 1989. Approximately
51 percent of the outstanding voting shares of the Manager is owned by L. Gordon
Croft.
For the fiscal year ended April 30, 1996, 1997 and 1998, the Funds
accrued and subsequently paid the following management fees:
-17-
<PAGE>
Fees Accrued and Paid Fees Waived
--------------------- -----------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Value Fund ......... $33,964 $15,468 $ 6,508 $ 0 $ 0 $ 0
Income Fund ........ $72,635 $55,199 $43,665 $ 0 $ 0 $ 0
In addition to the advisory fee, each Fund pays all expenses associated
with its operations, including brokerage fees, custodial and transfer agent
charges, expenses associated with the Corporation's organization, legal and
accounting fees and the costs of complying with federal and state requirements
regarding the registration of the Corporation's shares. Until December 31, 2001,
the Manager guarantees that the overall expense ratios for the Value and Income
Funds, which excludes ordinary brokerage commissions incurred in the purchase or
sale of portfolio securities, will not exceed 1.50% and 1.35%, respectively.
While the Manager's guarantee to assume a portion of the expenses of the Funds
is in effect, the Funds' performance will be enhanced.
The Manager may allocate brokerage transactions for each Fund on the
basis of a broker's sale of Fund shares.
The Manager also benefits from the advice and expertise of its Advisory
Council Committee. The current members of the Committee are David T. McLaughlin
and Professor Roy Schotland. Mr. McLaughlin is president, CEO and chairman of
the Aspen Institute, is the past president of Dartmouth College, and serves as
director on the boards of Atlantic Richfield Company, Atlas Air, Inc., Partner
Re Holdings, Ltd. and Westinghouse Electric Corporation. Mr. Schotland is a
professor at the Georgetown University Law Center, and teaches pension fund
regulation, campaign finance regulation, administrative law, and constitutional
law.
OTHER SERVICES
- --------------
CUSTODIAL ARRANGEMENTS. Star Bank, N.A., 425 Walnut Street, Cincinnati,
----------------------
Ohio 45202 is the custodian for the Funds. As such, Star holds in safekeeping
certificated securities and cash belonging to the Funds and, in such capacity,
is the registered owner of securities in book-entry form belonging to the Funds.
Upon instruction, Star receives and delivers cash and securities of the Fund in
connection with Fund transactions and collects all dividends and other
distributions made with respect to the Funds' portfolio securities. Star also
maintains certain accounts and records of the Funds.
TRANSFER AND SHAREHOLDER SERVICING AGENT. American Data Services, Inc.
----------------------------------------
serves as transfer agent and shareholder servicing agent to the Funds pursuant
to a Transfer Agency Agreement (the "Transfer Agency Agreement"). Under the
Transfer Agency Agreement, American Data Services, Inc. has agreed (i) to issue
and redeem Shares of the Funds; (ii) to
-18-
<PAGE>
address and mail all communications by the Funds to its Shareholders, including
reports to Shareholders, dividend and distribution notices, and proxy material
for meetings of Shareholders; (iii) to respond to correspondence or inquiries by
Shareholders and others relating to its duties; (iv) to maintain Shareholder
accounts and certain sub-accounts; and (v) to make periodic reports to the
Corporation's Board of Directors concerning the Fund's operations.
CERTIFIED PUBLIC ACCOUNTANTS. The Funds' independent public accountants
----------------------------
are McCurdy & Associates, CPA's, Inc. They conduct an annual audit of the Funds,
assist in the preparation of the Funds' federal and state income tax returns and
consult with the Funds as to matters of accounting and federal and state income
taxation.
PORTFOLIO TRANSACTIONS
- ----------------------
BROKERAGE AND RESEARCH SERVICES. Transactions on stock exchanges and
-------------------------------
other agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different brokers. Also, a
particular broker may charge different commissions according to such factors as
the difficulty and size of the transaction. There is generally no stated
commission in the case of securities, such as U.S. Government Securities, traded
in the over-the-counter markets or in the case of gold bullion but the price
paid by the Fund usually includes an undisclosed dealer commission or mark-up.
It is anticipated that most purchases and sales of short-term portfolio
securities will be with the issuer or with major dealers in money market
instruments acting as principals. In underwritten offerings, the price paid
includes a disclosed, fixed commission or discount retained by the underwriter
or dealer.
When the Manager places orders for the purchase and sale of portfolio
securities for a Fund and buys and sells securities for a Fund, it is
anticipated that such transactions will be effected through a number of brokers
and dealers. In so doing, the Manager intends to use its best efforts to obtain
for the Fund the most favorable price and execution available, except to the
extent that it may be permitted to pay higher brokerage commissions as described
below. In seeking the most favorable price and execution, the Manager considers
all factors it deems relevant, including, by way of illustration, price, the
size of the transaction, the nature of the market for the security, the amount
of commission, the timing of the transaction taking into account market prices
and trends, the reputation, experience and financial stability of the
broker-dealer involved and the quality of service rendered by the broker-dealer
in other transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research, statistical and quotation services from brokers which
execute portfolio transactions for the clients of such advisers. Consistent with
this practice, the Manager may receive research, statistical and quotation
services from many brokers with which the Funds' portfolio transactions are
placed. These services, which in some instances could also be purchased for
cash, include such matters as general economic and security market reviews,
industry and
-19-
<PAGE>
company reviews, evaluations of securities and recommendations as to the
purchase and sale of securities. Some of these services may be of value to the
Manager in advising various clients (including the Funds), although not all of
these services are necessarily useful and of value in managing the Funds. The
fees paid to the Manager are not reduced because they receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
and the Management Agreement, the Manager may cause the Funds to pay a broker
which provides "brokerage and research services" (as defined in the Act) to the
Manager an amount of disclosed commission for effecting a securities transaction
for the Funds in excess of the commission which another broker would have
charged for effecting that transaction. The authority of the Manager to cause
the Funds to pay any such greater commissions is subject to such policies as the
Directors may adopt from time to time.
Under the 1940 Act, persons affiliated with the Funds are prohibited
from dealing with the Funds as a principal in the purchase and sale of
securities.
5% AND 25% SHAREHOLDERS
- -----------------------
As of June 1, 1998, the following persons were the only persons who
were record owners (or to the knowledge of the Corporation, beneficial owners)
of 5% and 25% or more shares of the Funds. Persons who owned of record or
beneficially more than 25% of a Fund's outstanding shares may be deemed to
control the Fund within the meaning of the 1940 Act.
THE VALUE FUND
NAME % OWNERSHIP
---- -----------
Gordon Croft Limited Partnership 6.882%
7503 Club Road
Ruxton, MD 21204-6418
Phoenix Color Corp Employee Savings 21.290%
and Investment Plan
101Tandy Drive
Hagerstown, MD 21740
THE INCOME FUND
Gordon Croft Limited Partnership 6.002%
7503 Club Road
Baltimore, MD 21204
Balsa and Co. 10.876%
c/o Chase Manhattan Bank
Omnibus Reinvestment Account
-20-
<PAGE>
PO Box 1768, Grand Central Station
New York, NY 10163-1768
Hachey Glenn 12.152%
Rebecca Tomanck, JT TEN
3441 Bluff View Drive
St. Charles, MO 63303
As of April 30, 1998, the Directors of the Corporation own, in the
aggregate, less than 1% of the outstanding shares of the Trust.
EXPERTS
- -------
The Corporation's financial statements for the fiscal year ended April
30, 1998, including notes thereto and the report of McCurdy & Associates CPA's,
Inc., independent auditors, thereon have been filed with the SEC and are
incorporated by reference into this Statement of Additional Information. A copy
of the Corporation's 1998 Annual Report to Shareholders must accompany the
delivery of this Statement of Additional Information.
COUNSEL
- -------
Morgan, Lewis & Bockius LLP serves as counsel to the Corporation.
-21-
<PAGE>
APPENDIX A: CORPORATE BOND AND COMMERCIAL PAPER RATINGS
- ----------- -------------------------------------------
I. CORPORATE BOND RATINGS
----------------------
A. DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, I.E., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba and B -- Bonds which are rated Ba or B are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B. DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:
----------------------------------------------------------------------
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
-22-
<PAGE>
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB and B -- Bonds rated BB or B are regarded, on balance, as predominately
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. While such bonds will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CCC -- Debt rated CCC has a current identifiable vulnerability to default,
and is dependent on favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The 'CCC' rating category also
is used for debt subordinated to senior debt that is assigned an actual or
implied 'B' or 'B-' rating.
II. COMMERCIAL PAPER RATINGS
------------------------
A. DESCRIPTION OF MOODY'S INVESTORS SERVICE. INC.'S COMMERCIAL PAPER RATINGS:
--------------------------------------------------------------------------
Moody's Investors Service, Inc. evaluates the salient features that affect
a Commercial Paper issuer's financial and competitive position. Its appraisal
includes, but is not limited to, the review of such factors as: quality of
management, industry strengths and risks, vulnerability to business cycles,
competitive position, liquidity measurements, debt structure, operating trends
and access to capital markets. Differing degrees of weight are applied to these
factors as deemed appropriate for individual situations. Commercial Paper
issuers rated "Prime-1" are judged to be of the best quality. Their short-term
debt obligations carry the smallest degree of investment risk. Margins of
support for current indebtedness are large or stable with cash flow and asset
protection well assured. Current liquidity provides ample coverage of near-term
liabilities and unused alternative financing arrangements are generally
available. While protective elements may change over the intermediate or longer
term, such changes are most unlikely to impair the fundamentally strong position
of short-term obligations. Issuers in the Commercial Paper market rated
"Prime-2" are of high quality. Protection for short-term note holders is assured
with liquidity and value of current assets as well as cash generation in sound
relationship to current indebtedness. They are rated lower than the best
commercial paper issuers because margins of protection may not be as large or
because fluctuations of protective elements over the near or intermediate term
may be of greater amplitude. Temporary increases in relative short and overall
debt load may occur.
-23-
<PAGE>
Alternate means of financing remain assured. Issuers rated among Prime-1 and
Prime-2 categories are judged to be investment grade.
B. DESCRIPTION OF STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATINGS:
----------------------------------------------------------------------
Standard & Poor's Corporation describes its highest ("A") rating for
commercial paper as follows, with numbers l, 2 and 3 being used to denote
relative strength within the "A" classification: Liquidity ratios are adequate
to meet cash requirements. Long-term senior debt rating should be "A" or better;
in some instances "BBB" credits may be allowed if other factors outweigh the
"BBB." The issuer should be well- established and the issuer should have a
strong position within its industry. The reliability and quality of management
should be unquestioned.
-24-
<PAGE>
CROFT FUNDS CORPORATION
REGISTRATION STATEMENT ON FORM N-1A
PART C
OTHER INFORMATION
Item 23. EXHIBITS
--------
(a) Articles of Incorporation filed as Exhibit (1) to the Registrant's
Initial Registration Statement filed on July 22, 1994 are filed
herewith.
(b) By-Laws filed as Exhibit (2) to the Registrant's Initial Registration
Statement filed on July 22, 1994 are filed herewith
(c) Inapplicable
(d) Management Contract between Registrant and Croft-Leominster, Inc.
filed as Exhibit (5) of Pre- Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A filed on November 10,
1994 is filed herewith.
(e) Inapplicable
(f) Inapplicable
(g) Custodian Agreement between Registrant and Star Bank, N.A. dated
August 19, 1994 filed as Exhibit (8) of Pre-Effective Amendment No. 1
to the Registrant's Registration Statement on Form N-1A filed on
November 10, 1994 is filed herewith.
(h) (1) Fund Accounting Service Agreement between the Registrant and
American Data Services, Inc. dated August 8, 1994 filed as Exhibit
(9)(a) of Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed on November 10, 1994 is
filed herewith.
(2) Administrative Services Agreement between Registrant and American
Data Services, Inc. dated August 8, 1994 filed as Exhibit (9)(b)
of Pre-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form N-1A filed on November 10, 1994 is filed
herewith.
(3) Shareholder Servicing Agent Agreement between Registrant and
American Data Services, Inc. dated August 8, 1994 filed as Exhibit
(9)(c) of Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed on November 10, 1994 is
filed herewith.
(i) Opinion of Morgan, Lewis & Bockius as to legality of the securities
being registered filed as Exhibit (10) of Pre-Effective Amendment No.
1 to the Registrant's Registration Statement on Form N-1A filed on
November 10, 1994 is filed herewith.
(j) Consent of Independent Accountants - McCurdy & Associates CPA's, Inc.,
is filed herewith.
(k) Inapplicable
(l) Purchase Agreement between Registrant and Croft-Leominster, Inc. filed
as Exhibit (13) of Pre- Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed on November 10, 1994 is
filed herewith.
(m) Distribution Plan filed as Exhibit (15) of Pre-Effective Amendment No.
1 to the Registrant's Registration Statement on Form N-1A filed on
November 10, 1994 is filed herewith.
(n) Financial Data Schedules are filed herewith
(o) Inapplicable
(p) Powers of Attorney of Kent G. Croft, Roy A. Schotland, George D.
Edwards, II, Frederick S. Billig, and Carla Reedinger are filed
herewith.
C-1
<PAGE>
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
-----------------------------------------------------------
None
Item 25. INDEMNIFICATION
---------------
The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify and advance expenses to its officers to the same extent as to
its directors and to such further extent as is consistent with law. The Board of
Directors of the Corporation may make further provision for indemnification of
directors, officers, employees and agents in the By-Laws of the Corporation or
by resolution or agreement to the fullest extent permitted by the Maryland
General Corporation Law.
Item 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
--------------------------------------------------------
The Manager is a Maryland corporation that was organized in 1989. The Manager's
principal place of business is at 207 East Redwood Street, Suite 802, Baltimore,
Maryland 21202. It is in the business of providing investment advice and related
services, and is registered with the Securities and Exchange Commission and with
the State of Maryland as an investment adviser.
The Manager has prior experience as a General Partner of several
limited partnerships that invest in securities, and its principal staff has
substantial investment experience. Their names and personal background are as
follows:
NAME AND POSITION WITH
CROFT-LEOMINSTER, INC. PRIOR EXPERIENCE
- ---------------------- ----------------
Gordon Croft Vice President and Director,
Vice President and Director T. Rowe Price
Kent Croft Manager, Equity Sales and
President, Research Portfolio Manager Research, Salomon Brothers
Wayne Berry Investigator,
Internal Revenue Service
C-2
<PAGE>
Jonathan V. Giordani --
Research Analyst
David B. Hunter --
Research Analyst
David G. Meeker --
Research Analyst
Carla Reedinger Senior Portfolio Assistant to
Trader, Senior Portfolio Assistant Gordon Croft, T. Rowe Price
Christina Walters --
Portfolio Assistant
Phillip N. Vong B.S. Degree: Accounting,
Investment/Administrative Assistant Washington and Lee University
G. Russell Croft MBA University of London at
Research Analyst Royal Holloway
Item 27. PRINCIPAL UNDERWRITERS
----------------------
None
Item 28. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
All accounts, books and other documents required to be maintained
pursuant to Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder are maintained at the offices of the Registrant (transfer agency and
shareholder records), the offices of Registrant's manager, (journals, ledgers,
receipts, and brokerage orders), or at the offices of Morgan, Lewis & Bockius
LLP, counsel to the Registrant, 1800 M Street, N.W., Washington, D.C. 20036
(minute books, articles of incorporation and by-laws).
Item 29. MANAGEMENT SERVICES
-------------------
Not Applicable
Item 30. UNDERTAKINGS
------------
Not Applicable
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 5 to Registration Statement (33-81926) to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Baltimore and
State of Maryland, on the 28th day of June 1998.
CROFT FUNDS CORPORATION
By: /S/ KENT G. CROFT
-------------------------------------
Kent G. Croft, President and Director
As required by the Securities Act of 1933, this Post-Effective Amendment No. 4
to the Registration Statement has been signed by the following persons in the
capacity and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
* Director June 28, 1998
- ------------------------
Roy A. Schotland
* Director June 28, 1998
- ------------------------
George D. Edwards, II
* Director June 28, 1998
- ------------------------
Frederick S. Billig
/S/ KENT G. CROFT President and Director June 28, 1998
- ------------------------
Kent G. Croft
* Treasurer and Chief June 28, 1998
- ------------------------ Financial Officer
Carla Reedinger
*By: /S/ KENT G. CROFT
-----------------
Kent G. Croft
Attorney in fact
C-4
<PAGE>
EXHIBIT INDEX
-------------
SEQUENTIAL
NAME EXHIBIT PAGE NUMBER
---- ------- -----------
Articles of Incorporation filed as Exhibit (1) a
to the Registrant's Initial Registration Statement
filed on July 22, 1994 is filed herewith.
By-Laws filed as Exhibit (2) to the Registrant's b
Initial Registration Statement filed on July 22,
1994 are filed herewith
Inapplicable c
Management Contract between Registrant and d
Croft-Leominster, Inc. filed as Exhibit (5) of
Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed on
November 10, 1994 is filed herewith.
Inapplicable e
Inapplicable f
Custodian Agreement between Registrant and g
Star Bank, N.A. dated August 19, 1994 filed
as Exhibit (8) of Pre-Effective Amendment No. 1
to the Registrant's Registration Statement on
Form N-1A filed on November 10, 1994
is filed herewith.
Fund Accounting Service Agreement between the h(1)
Registrant and American Data Services, Inc.
dated August 8, 1994 filed as Exhibit (9)(a)
of Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A
filed on November 10, 1994 is filed herewith.
C-5
<PAGE>
Administrative Services Agreement between h(2)
Registrant and American Data Services, Inc.
dated August 8, 1994 filed as Exhibit (9)(b)
of Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A
filed on November 10, 1994 is filed herewith.
Shareholder Servicing Agent Agreement between h(3)
Registrant and American Data Services, Inc.
dated August 8, 1994 filed as Exhibit (9)(c)
of Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A
filed on November 10, 1994 is filed herewith.
Opinion of Morgan, Lewis & Bockius as to i
legality of the securities being registered
filed as Exhibit (10) of Pre-Effective Amendment
No. 1 to the Registrant's Registration Statement
on Form N-1A filed on November 10, 1994
is filed herewith.
Consent of Independent Accountants - j EX-99.Bj
McCurdy & Associates CPA's is filed
herewith.
Inapplicable k
Purchase Agreement between Registrant and Croft- l
Leominster, Inc. filed as Exhibit (13) of
Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed on
November 10, 1994 is filed herewith.
Distribution Plan filed as Exhibit (15) of m
Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed on
November 10, 1994 is filed herewith.
Financial Data Schedules are filed herewith. n EX-99.Bn1
EX-99.Bn2
Inapplicable o
Powers of Attorney are filed herewith p EX-99.Bp
C-6
ARTICLES OF INCORPORATION
OF
CROFT FUNDS CORPORATION
ARTICLE I
THE UNDERSIGNED, Kent Croft whose post office address is 207 East
Redwood Street, Baltimore, Maryland 21202, being at least eighteen years of age,
does hereby act as an incorporator, under and by virtue of the General Laws of
the State of Maryland authorizing the formation of corporations and with the
intention of forming a corporation.
ARTICLE II
The name of the Corporation is Croft Funds Corporation.
ARTICLE III
The purpose for which the Corporation is formed is to act as an
open-end management investment company under the Investment Company Act of 1940,
as amended (the "1940 Act").
ARTICLE IV
The Corporation is expressly empowered as follows:
(1) To hold, invest and reinvest its assets in securities and other
investments including assets in cash.
(2) To issue and sell shares of its capital stock in such amounts and
on such terms and conditions and for such purposes and for such amount or kind
of consideration as may now or hereafter be permitted by law.
<PAGE>
(3) To redeem, purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the shareholders
of the Corporation) shares of its capital stock, in any manner and to the extent
now or hereafter permitted by law and by the Charter of the Corporation.
(4) To enter into a written contract or contracts with any person or
persons providing for a delegation of the management of all or part of this
Corporation's securities portfolio(s) and also for the delegation of the
performance of various administrative or corporate functions, subject to the
direction of the Board of Directors of the Corporation. Any such contract or
contracts may be made with any person even though such person may be an officer,
other employee, director or shareholder of this Corporation or a corporation,
partnership, trust or association in which any such officer, other employee,
director or shareholder may be interested.
(5) To enter into a written contract or contracts appointing one or
more underwriters, distributors or agents for the sale of the shares of the
Corporation on such terms and conditions as the Board of Directors of the
Corporation may deem reasonable and proper, and to allow such person or persons
a commission on the sale of such shares. Any such contract or contracts may be
made with any person even though such person may be an officer, other employee,
director or shareholder of this Corporation or a corporation, partnership, trust
or association in which any such officer, other employee, director or
shareholder may be interested.
(6) To enter into a written contract or contracts employing such
custodian or custodians for the safekeeping of the property of the Corporation
and of its shares, such dividend disbursing agent or agents, and such transfer
agent or agents and registrar or registrars for its shares, and such agent or
agents for accounting and other administrative services on such terms and
conditions as the Board of Directors of the Corporation may deem reasonable and
proper for the conduct of the affairs of the Corporation, and to pay the fees
and disbursements of such custodians, dividend disbursing agents, transfer
agents, registrars and accounting and administrative services agents out of the
income and/or any other property of the Corporation. Notwithstanding any other
provisions of the Charter or the By-Laws of the Corporation, the Board of
Directors of the Corporation may cause any or all of the property of the
Corporation to be transferred to, or to be acquired and held in the name of, a
custodian so appointed or any nominee or nominees of this Corporation or nominee
or nominees of such custodian satisfactory to the Board of Directors of the
Corporation.
- 2 -
<PAGE>
(7) To employ the same person, partnership (general or limited),
association, trust or corporation in any multiple capacity under Sections (4),
(5) and (6) of this Article, who may receive compensation from the Corporation
in as many capacities in which such person, partnership (general or limited),
association, trust or corporation shall serve the Corporation.
(8) To do any and all such further acts or things and to exercise any
and all such further powers or rights as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of the purposes stated in Article III hereof.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by the
General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights
or privileges so granted or conferred.
ARTICLE V
The post office address of the principal office of the Corporation in
the State of Maryland is 207 East Redwood Street, Baltimore, Maryland 21202. The
name of the resident agent of the Corporation in this State is Kent Croft, a
citizen of this State, who resides there, and the post office address of the
resident agent is 207 East Redwood Street, Baltimore, Maryland 21202.
ARTICLE VI
SECTION 1.
----------
The total number of shares of capital stock which the Corporation shall
have the authority to issue is thirty million shares, of the par value of 1 mil
($.001) per share and of the aggregate par value of thirty thousand dollars
($30,000), all of which shares are designated Common Stock. Unless otherwise
prohibited by law, so long as the Corporation is registered as an open-end
investment company under the 1940 Act, the Board of Directors of the Corporation
- 3 -
<PAGE>
shall have the power and authority, without the approval of the holders of any
outstanding shares, to increase or decrease the number of shares of capital
stock, or the number of shares of capital stock of any class or series, that the
Corporation has authority to issue.
SECTION 2.
----------
Any fractional share shall carry proportionately all the rights of a
whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and the
right to receive dividends.
SECTION 3.
----------
All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of the Charter and the By-Laws of the
Corporation. All shares issued pursuant to the Charter of the Corporation for
which the price or consideration fixed thereon shall have been paid shall be
deemed to be fully paid and non-assessable.
SECTION 4.
----------
The Board of Directors of the Corporation shall have authority to
classify and reclassify any authorized but unissued shares of capital stock from
time to time by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of the capital
stock; provided that the Board of Directors of the Corporation shall not
classify or reclassify any of such shares into any class or series of stock
which is prior to any class or series of capital stock then outstanding with
respect to rights upon the liquidation, dissolution or winding up of the affairs
of, or upon any distribution of the general assets of, the Corporation, except
that there may be variations so fixed and determined among different series and
classes as to investment objectives, purchase price, right of redemption,
special rights as to dividends, and in liquidation, with respect to assets
belonging to a particular series or class, voting powers and conversion rights.
Subject to the provisions of Section 7 of this Article VI and applicable law,
the power of the Board of Directors of the Corporation to classify or reclassify
any of the shares of capital stock shall include, without limitation, authority
to classify or reclassify any such stock into a class
- 4 -
<PAGE>
or classes of capital stock and to divide and classify shares of any class into
one or more series of such class, by determining, fixing or altering one or more
of the following:
(A) The distinctive designation of such class or series and the
number of shares to constitute such class or series; provided that,
unless otherwise prohibited by the terms of such class or series, the
number of shares of any class or series may be decreased by the Board
of Directors of the Corporation in connection with any classification
or reclassification of unissued shares and the number of shares of such
class or series may be increased by the Board of Directors of the
Corporation in connection with any such classification or
reclassification, and any shares of any class or series which have been
redeemed, purchased or otherwise acquired by the Corporation shall
remain part of the authorized capital stock and be subject to
classification and reclassification as provided herein.
(B) Whether or not and, if so, the rates, amounts and times at
which, and the conditions under which, dividends shall be payable on
shares of such class or series.
(C) Whether or not shares of such class or series shall have
voting rights in addition to any general voting rights provided by law
and the Charter of the Corporation and, if so, the terms of such
additional voting rights.
(D) The rights of the holders of shares of such class or series
upon the liquidation, dissolution or winding up of the affairs, or upon
any distribution of the assets, of the Corporation.
(E) Any other rights, restrictions, including restrictions on
transferability, and qualifications of shares of such class or series,
not inconsistent with law and the Charter of the Corporation.
SECTION 5.
----------
The Board of Directors of the Corporation shall have authority to issue
from time to time shares of capital stock, whether now or hereafter authorized,
for such consideration as the Board of Directors of the Corporation may deem
advisable, subject to such limitations as may be set forth in the Charter or the
By-Laws of the Corporation or in the Maryland General Corporation Law.
- 5 -
<PAGE>
SECTION 6.
----------
No holder of stock of the Corporation shall, as such holder, have any
preemptive right to purchase or subscribe for any shares of the capital stock of
the Corporation or any other security of the Corporation which it may issue or
sell (whether out of the number of shares authorized by the Charter of the
Corporation, or out of any shares of the capital stock of the Corporation
acquired by it after the issue thereof, or otherwise) other than such right, if
any, as the Board of Directors of the Corporation, in its discretion, may
determine.
SECTION 7.
----------
Shares of Common Stock of the Corporation shall have the following
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption:
(A) ASSETS BELONGING TO A CLASS. All consideration received by
---------------------------
the Corporation for the issue or sale of stock of any class of Common
Stock, together with all assets in which such consideration is invested
and reinvested, income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation
thereof, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, shall irrevocably
belong to the class of shares of Common Stock with respect to which
such assets, payments or funds were received by the Corporation for all
purposes, subject only to the rights of creditors, and shall be so
handled upon the books of account of the Corporation. Such
consideration, assets, income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation
thereof, and any assets derived from any reinvestment of such proceeds
in whatever form, are herein referred to as "assets belonging to" such
class. Any assets, income, earnings, profits, and proceeds thereof,
funds or payments which are not readily attributable to any particular
class shall be allocable among any one or more of the classes in such
manner and on such basis as the Board of Directors of the Corporation,
in its sole discretion, shall deem fair and equitable.
(B) LIABILITIES BELONGING TO A CLASS. The assets belonging to any
--------------------------------
class of Common Stock shall be charged with the liabilities in respect
of such class, and shall also be charged with such class's share of the
- 6 -
<PAGE>
general liabilities of the Corporation determined as hereinafter
provided. The determination of the Board of Directors of the
Corporation shall be conclusive as to the amount of such liabilities,
including the amount of accrued expenses and reserves; as to any
allocation of the same to a given class; and as to whether the same are
allocable to one or more classes. The liabilities so allocated to a
class are herein referred to as "liabilities belonging to" such class.
Any liabilities which are not readily attributable to any particular
class shall be allocable among any one or more of the classes in such
manner and on such basis as the Board of Directors of the Corporation,
in its sole discretion, shall deem fair and equitable.
(C) DIVIDENDS AND DISTRIBUTIONS. Shares of each class of Common
---------------------------
Stock shall be entitled to such dividends and distributions, in stock
or in cash or both, as may be declared from time to time by the Board
of Directors of the Corporation, acting in its sole discretion, with
respect to such class, provided, however, that dividends and
distributions on shares of a class of Common Stock shall be paid only
out of the lawfully available "assets belonging to such class" as such
phrase is defined in Section 7(A) of this Article VI.
(D) LIQUIDATING DIVIDENDS AND DISTRIBUTIONS. In the event of the
---------------------------------------
liquidation or dissolution of the Corporation, shareholders of each
class of Common Stock shall be entitled to receive, as a class, out of
the assets of the Corporation available for distribution to
shareholders, but other than general assets not belonging to any
particular class of stock, the assets belonging to such class; and the
assets so distributable to the shareholders of any class of Common
Stock shall be distributed among such shareholders in proportion to the
number of shares of such class held by them and recorded on the books
of the Corporation. In the event that there are any general assets not
belonging to any particular class of stock and available for
distribution, such distribution shall be made to the holders of stock
of all classes of Common Stock in proportion to the asset value of the
respective classes of Common Stock determined as hereinafter provided.
(E) VOTING. Each shareholder of each class of Common Stock shall
------
be entitled to one vote for each share of Common Stock, irrespective of
the class, then
- 7 -
<PAGE>
standing in his name on the books of the Corporation, and on any matter
submitted to a vote of shareholders, all shares of Common Stock then
issued and outstanding and entitled to vote shall be voted in the
aggregate and not by class except that: (i) when expressly required by
law, shares of Common Stock shall be voted by individual class and (ii)
only shares of Common Stock of the respective class or classes affected
by a matter shall be entitled to vote on such matter. At all meetings
of the shareholders, the holders of one-third of the shares of stock of
the Corporation entitled to vote at the meeting, present in person or
by proxy, shall constitute a quorum for the transaction of any
business, except as otherwise provided by statute or by the Charter of
the Corporation. In the absence of a quorum, no business may be
transacted, except that the holders of a majority of the shares of
stock present in person or by proxy and entitled to vote may adjourn
the meeting from time to time, without notice other than announcement
at the meeting, except as otherwise required by the By-Laws of the
Corporation, until the holders of the requisite amount of shares of
stock shall be so present. At any such adjourned meeting at which a
quorum may be present, any business may be transacted which might have
been transacted at the meeting as originally called. The absence from
any meeting, in person or by proxy, of holders of the number of shares
of stock of the Corporation in excess of a majority thereof which may
be required by the laws of the State of Maryland, the 1940 Act, or any
other applicable statute, the Charter or the By-Laws of the
Corporation, for action upon any given matter shall not prevent action
at such meeting upon any other matter or matters which may properly
come before the meeting, if there shall be present at the meeting, in
person or by proxy, holders of the number of shares of stock of the
Corporation required for action in respect of such other matter or
matters.
(F) REDEMPTION. To the extent the Corporation has funds or other
----------
property legally available therefor, each holder of shares of Common
Stock of the Corporation shall be entitled to require the Corporation
to redeem all or any part of the shares of Common Stock of the
Corporation standing in the name of such holder on the books of the
Corporation, and all shares of Common Stock issued by the Corporation
shall be subject to redemption by the Corporation, at the redemption
price of such shares as in effect from time to time as may be
- 8 -
<PAGE>
determined by the Board of Directors of the Corporation in accordance
with the provisions hereof, subject to the right of the Board of
Directors of the Corporation to suspend the right of redemption of
shares of Common Stock of the Corporation or postpone the date of
payment of such redemption price in accordance with provisions of
applicable law. Without limiting the generality of the foregoing, the
Corporation shall, to the extent permitted by applicable law, have the
right at any time to redeem the shares owned by any holder of Common
Stock of the Corporation (i) if such redemption is, in the opinion of
the Board of Directors of the Corporation, desirable in order to
prevent the Corporation from being deemed a "personal holding company"
within the meaning of the Internal Revenue Code, as now or hereafter in
force, (ii) if the value of such shares in the account maintained by
the Corporation or its transfer agent for any class of Common Stock is
less than One Thousand Dollars ($1,000.00) provided, however, that each
shareholder shall be notified that the value of his account is less
than One Thousand Dollars ($1,000.00) and allowed sixty (60) days to
make additional purchases of shares before such redemption is processed
by the Corporation or (iii) if the net income with respect to any
particular class of Common Stock should be negative or it should
otherwise be appropriate to carry out the Corporation's
responsibilities under the 1940 Act, in each case subject to such
further terms and conditions as the Board of Directors of the
Corporation may from time to time adopt. The redemption price of shares
of Common Stock of the Corporation shall, except as otherwise provided
in this Section 7(F), be the net asset value thereof as determined by
the Board of Directors of the Corporation from time to time in
accordance with the provisions of applicable law, less such redemption
fee or other charge, if any, as may be fixed by resolution of the Board
of Directors of the Corporation. Payment of the redemption price shall
be made in cash by the Corporation at such time and in such manner as
may be determined from time to time by the Board of Directors of the
Corporation unless, in the opinion of the Board of Directors of the
Corporation, which shall be conclusive, conditions exist which make
payment wholly in cash unwise or undesirable; in such event the
Corporation may make payment wholly or partly by securities or other
property included in the assets belonging or allocable to the class of
the shares redemption of which is being sought, the value of which
shall be determined as provided herein.
- 9 -
<PAGE>
(G) CONVERSION OR EXCHANGE. Each holder of any class of Common
----------------------
Stock of the Corporation, who either surrenders his share certificate
in good delivery form to the Corporation or, if the shares in question
are not represented by certificates, delivers to the Corporation a
written request in good order signed by the shareholder, shall, subject
to such procedures as may be established by the Board of Directors of
the Corporation, be entitled to convert or exchange the shares in
question on the basis hereinafter set forth, into shares of stock of
any other class of the Corporation. The Corporation shall determine the
net asset value, as provided herein, of the shares to be converted and
may deduct therefrom a conversion or exchange cost, in an amount
determined within the discretion of the Board of Directors of the
Corporation. Within five (5) business days after such surrender and
payment of any conversion or exchange cost, the Corporation shall issue
to the shareholder such number of shares of stock of the class desired
as, taken at the net asset value thereof determined as provided herein
in the same manner and at the same time as that of the shares
surrendered, shall equal the net asset value of the shares surrendered,
less any conversion or exchange cost as aforesaid. Any amount
representing a fraction of a share may be paid in cash at the option of
the Corporation. Any conversion or exchange cost may be paid and/or
assigned by the Corporation to the underwriter and/or to any other
entity, as it may elect.
(H) RESTRICTIONS ON TRANSFERABILITY. If, in the opinion of the
-------------------------------
Board of Directors of the Corporation, concentration in the ownership
of shares of Common Stock might cause the Corporation to be deemed a
personal holding company within the meaning of the Internal Revenue
Code, as now or hereafter in force, the Corporation may at any time and
from time to time refuse to give effect on the books of the Corporation
to any transfer or transfers of any share or shares of Common Stock in
an effort to prevent such personal holding company status.
- 10 -
<PAGE>
ARTICLE VII
The number of directors of the Corporation shall be [___] ( ) which
number may be increased or decreased pursuant to the By-Laws of the Corporation
but shall never be less than three (3) except for any period during which shares
of the Corporation are held by less than three shareholders. The name of the
director who shall act until the directors are elected by the Corporation's
shareholders or until his successor is duly elected and qualify is:
--------------------
ARTICLE VIII
SECTION 1. To the fullest extent that limitations on the liability of
---------
directors and officers are permitted by the Maryland General Corporation Law, no
director or officer of the Corporation shall have any liability to the
Corporation or its shareholders for damages. This limitation on liability
applies to events occurring at the time a person serves as a director or officer
of the Corporation whether or not such person is a director or officer at the
time of any proceeding in which liability is asserted.
SECTION 2. The Corporation shall indemnify and advance expenses to its
---------
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General Corporation
Law. The Corporation shall indemnify and advance expenses to its officers to the
same extent as to its directors and to such further extent as is consistent with
law. The Board of Directors of the Corporation may make further provision for
indemnification of directors, officers, employees and agents in the By-Laws of
the Corporation or by resolution or agreement to the fullest extent permitted by
the Maryland General Corporation Law.
SECTION 3. No provision of this Article VIII shall be effective to
---------
protect or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
SECTION 4. References to the Maryland General Corporation Law in this
---------
Article VIII are to such law as from time to time amended. No further amendment
to the Charter of
- 11 -
<PAGE>
the Corporation shall decrease, but may expand, any right of any person under
this Article VIII based on any event, omission or proceeding prior to such
amendment.
ARTICLE IX
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practices by or pursuant to the
direction of the Board of Directors of the Corporation, as to the amount of
assets, obligations or liabilities of the Corporation, as to the amount of net
income of the Corporation from dividends and interest for any period or amounts
at any time legally available for the payment of dividends, as to the amount of
any reserves or charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
such reserves or charges shall have been created shall have been paid or
discharged or shall be then or thereafter required to be paid or discharged), as
to the value of any security owned by the Corporation or as to any other matters
relating to the issuance, sale, redemption or other acquisition or disposition
of securities or shares of capital stock of the Corporation, and any reasonable
determination made in good faith by the Board of Directors of the Corporation as
to whether any transaction constitutes a purchase of securities on "margin", a
sale of securities "short", or an underwriting of the sale of, or a
participation in any underwriting or selling group in connection with the public
distribution of, any securities, shall be final and conclusive, and shall be
binding upon the Corporation and all holders of its capital stock, past, present
and future, and shares of the capital stock of the Corporation are issued and
sold on the condition and understanding, evidenced by the purchase of shares of
capital stock or acceptance of share certificates, that any and all such
determinations shall be binding as aforesaid. No provision of the Charter of the
Corporation shall be effective (i) to require a waiver of compliance with any
provision of the Securities Act of 1933, as amended, or the 1940 Act, or of any
valid rule, regulation or order of the Securities and Exchange Commission
thereunder or (ii) to protect or purport to protect any director or officer of
the Corporation against any liability to the Corporation or its security holders
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
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<PAGE>
ARTICLE X
The duration of this Corporation shall be perpetual.
ARTICLE XI
SECTION 1. The Corporation reserves the right from time to time to make
---------
any amendments to its Charter which may now or hereafter be authorized by law,
including any amendments changing the terms or contract rights, as expressly set
forth in its Charter, of any of its outstanding stock by classification,
reclassification or otherwise, but no such amendment which changes such terms or
contract rights of any of its outstanding stock shall be valid unless such
amendment shall have been authorized by not less than a majority of the
aggregate number of the votes entitled to be cast thereon by a vote at a meeting
or by the unanimous written consent of the Directors of the Corporation as
provided in the Corporation's By-Laws.
SECTION 2. Notwithstanding any provision of the General Laws of the
---------
State of Maryland requiring any action to be taken or authorized by the
affirmative vote of a greater proportion than the majority of the total number
of shares of any class of stock of the Corporation, such action shall be
effective and valid if taken or authorized by the affirmative vote of the
holders of a majority of the total number of shares outstanding of that class of
stock entitled to vote thereon, except as otherwise provided in the Charter of
the Corporation.
SECTION 3. So long as permitted by Maryland law, the books of the
---------
Corporation may be kept outside of the State of Maryland at such place or places
as may be designated from time to time by the Board of Directors of the
Corporation or in the By-Laws of the Corporation.
- 13 -
<PAGE>
SECTION 4. In furtherance, and not in limitation, of the powers
---------
conferred by the laws of the State of Maryland, the Board of Directors of the
Corporation is expressly authorized:
(A) To make, alter or repeal the By-Laws of the Corporation,
except where such power is reserved by the By-Laws of the Corporation
to the shareholders, and except as otherwise required by the 1940 Act.
(B) From time to time to determine whether and to what extent and
at what times and places and under what conditions and regulations the
books and accounts of the Corporation, or any of them other than the
stock ledger, shall be open to the inspection of the shareholders, and
no shareholder shall have any right to inspect any account or book or
document of the Corporation, except as conferred by law or authorized
by resolution of the Board of Directors or of the shareholders of the
Corporation.
(C) Without the assent or vote of the shareholders, to authorize
the issuance from time to time of shares of the stock of any class of
the Corporation, whether now or hereafter authorized, for such
consideration as the Board of Directors of the Corporation may deem
advisable.
(D) Without the assent or vote of the shareholders, to authorize
and issue obligations of the Corporation, secured and unsecured, as the
Board of Directors may determine, and to authorize and cause to be
executed mortgages and liens upon the property of the Corporation, real
and personal.
(E) Notwithstanding anything in the Charter of the Corporation to
the contrary, to establish in its absolute discretion the basis or
method for determining the value of the assets belonging to any class,
and the net asset value of each share of any class of the Corporation
for purposes of sales, redemptions, repurchases of shares or otherwise.
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<PAGE>
(F) To determine in accordance with generally accepted accounting
principles and practices what constitutes net profits, earnings,
surplus or net assets in excess of capital, and to determine what
accounting periods shall be used by the Corporation for any purpose,
whether annual or any other period, including daily; (i) to set apart
out of any funds of the Corporation such reserves for such purposes as
it shall determine and to abolish the same; (ii) to declare and pay any
dividends and distributions in cash, securities or other property from
surplus or any funds legally available therefor, at such intervals
(which may be as frequently as daily) or on such other periodic basis,
as it shall determine; (iii) to declare such dividends or distributions
by means of a formula or other method of determination, at meetings
held less frequently than the frequency of the effectiveness of such
declarations; (iv) to establish payment dates for dividends or any
other distributions on any basis, including dates occurring less
frequently than the effectiveness of declarations thereof; and (v) to
provide for the payment of declared dividends on a date earlier or
later than the specified payment date in the case of shareholders of
the Corporation redeeming their entire ownership of shares of any class
of the Corporation.
(G) In addition to the powers and authorities granted herein and
by statute expressly conferred upon it, the Board of Directors of the
Corporation is authorized to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of Maryland law, the Charter
and the By-Laws of the Corporation.
IN WITNESS WHEREOF, the undersigned incorporator of Croft Funds
Corporation has signed these articles of incorporation on this ____ day of July,
1994.
--------------------------
Kent Croft
Incorporator
WITNESS:
-------------------------
Name:
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<PAGE>
THE UNDERSIGNED incorporator of Croft Funds Corporation who executed
the foregoing Articles of Incorporation of which this Certificate is made a
part, hereby acknowledges the same to be his act and further acknowledges that,
to the best of his knowledge, the matters and facts set forth therein are true
in all material respects under the penalties of perjury.
--------------------------
Kent Croft
Incorporator
- 16 -
BY-LAWS
OF
CROFT FUNDS CORPORATION
ARTICLE I
OFFICES
-------
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation
----------------
shall be in the city of Baltimore, State of Maryland.
Section 2. PRINCIPAL EXECUTIVE OFFICE. The principal executive office
--------------------------
of the Corporation shall be in the City of Baltimore, State of Maryland.
Section 3. OTHER OFFICES. The Corporation may have such other offices
-------------
in such places as the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. ANNUAL MEETINGS. An annual meeting of the shareholders of
---------------
the Corporation shall not be required to be held in any year in which
shareholders are not required to elect directors under the Investment Company
Act of 1940, as amended (the "1940 Act") even if the Corporation is holding a
meeting of the shareholders for a purpose other than the election of directors.
If the Corporation is required by the 1940 Act to hold a meeting to elect
directors, the meeting shall be designated as the Annual Meeting of shareholders
for that year and shall be held within 120 days after the occurrence of an event
requiring the election of directors. The Board of Directors may, in its
discretion, hold a meeting to be designated as the Annual Meeting of
shareholders on a date within the month of March, in any year where an election
of directors by shareholders is not required under the 1940 Act. The date of an
Annual Meeting shall be set by appropriate resolution of the Board of Directors,
and shareholders shall vote on the election of directors and transact any other
business as may properly be brought before the Annual Meeting.
<PAGE>
Section 2. SPECIAL MEETINGS. Special meetings of the shareholders,
----------------
unless otherwise provided by law or by the Charter or the Corporation may be
called for any purpose or purposes by a majority of the Board of Directors or
the President, and shall be called by the President or Secretary on the written
request of the shareholders as provided by the Maryland General Corporation Law.
Such request shall state the purpose or purposes of the proposed meeting and the
matters proposed to be acted on at it; provided, however, that unless requested
by shareholders entitled to cast a majority of all the votes entitled to be cast
at the meeting, a special meeting need not be called to consider any matter
which is substantially the same as a matter voted on at any special meeting of
the shareholders held during the preceding twelve (12) months.
Section 3. PLACE OF MEETINGS. The regular meeting, if any, and any
-----------------
special meeting of the shareholders shall be held at such place within the
United States as the Board of Directors may from time to time determine.
Section 4. NOTICE OF MEETINGS; WAIVER OF NOTICE; SHAREHOLDER LIST.
------------------------------------------------------
(a) Notice of the place,date and time of the holding of each regular and special
meeting of the shareholders and the purpose or purposes of the meeting shall be
given personally or by mail, not less than ten nor more than ninety days before
the date of such meeting, to each shareholder entitled to vote at such meeting
and to each other shareholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the shareholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. The notice of every meeting of
shareholders may be accompanied by a form of proxy approved by the Board of
Directors in favor of such actions or persons as the Board of Directors may
select.
(b) Notice of any meeting of shareholders shall be deemed waived by any
shareholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. A meeting of shareholders convened on the
date for which it was called may be adjourned from time to time without further
notice to a date not more than 120 days after the original record date.
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<PAGE>
(c) At least five (5) days prior to each meeting of shareholders, the
officer or agent having charge of the share transfer books of the Corporation
shall make a complete list of shareholders entitled to vote at such meeting, in
alphabetical order with the address of and the number of shares held by each
shareholder.
Section 5. ORGANIZATION. At each meeting of the shareholders, the
------------
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, or in the
absence or the inability to act of the Chairman of the Board, the President and
all the Vice Presidents, a chairman chosen by the shareholders shall act as
chairman of the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
Section 6. VOTING. (a) Except as otherwise provided by statute or the
------
Charter of the Corporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
shareholders to one vote for every share of such stock standing in his name on
the record of shareholders of the Corporation as of the record date determined
pursuant to Section 5 of Article VI hereof or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth (30) day before the
meeting. In all elections for directors, each share of stock may be voted for as
many individuals as there are directors to be elected and for whose election the
share is entitled to be voted.
(b) Each shareholder entitled to vote at any meeting of shareholders
may authorize another person or persons to act for him by a proxy signed by such
shareholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the shareholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Charter of the Corporation or these By-Laws,
any corporate action to be taken by vote of the shareholders shall be authorized
by a majority of the total votes cast at a meeting of shareholders at which a
quorum is present by the holders of shares present in person or represented by
proxy and entitled to vote on such action, except that a plurality of all the
votes cast at a meeting at which a quorum is present is sufficient to elect a
director.
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<PAGE>
(c) If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the shareholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 7. INSPECTORS. The Board may, in advance of any meeting of
----------
shareholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any shareholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the chairman
of the meeting or any shareholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be shareholders.
Section 8. CONSENT OF SHAREHOLDERS IN LIEU OF MEETING. Except as
------------------------------------------
otherwise provided by statute any action required to be taken at any regular or
special meeting of shareholders, or any action which may be taken at any annual
or special meeting of shareholders, may be taken without a meeting, without
prior notice and without a vote, if the following are filed with the records of
shareholders' meetings: (i) a unanimous written consent which sets forth the
action and is signed by each shareholder entitled to vote on the matter and (ii)
a written waiver of any right to dissent signed by each shareholder entitled to
notice of the meeting but not entitled to vote at it.
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<PAGE>
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. GENERAL POWERS. Except as otherwise provided in the Charter
--------------
of the Corporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the shareholders by law or by the Charter of the Corporation
or these By-Laws.
Section 2. NUMBER OF DIRECTORS. The number of directors shall be fixed
-------------------
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of directors
shall in no event be less than three (except for any period during which shares
of the Corporation are held by fewer than three shareholders) nor more than
fifteen. Any vacancy created by an increase in directors may be filled in
accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be shareholders.
Section 3. ELECTION AND TERM OF DIRECTORS. Directors shall be elected
------------------------------
by majority vote of a quorum cast by written ballot at the regular meeting of
shareholders, if any, or at a special meeting held for that purpose. The term of
office of each Director shall be from the time of his election and qualification
and until his successor shall have been elected and shall have qualified, or
until his death, or until he shall have resigned, or have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Charter of the Corporation.
Section 4. RESIGNATION. A Director of the Corporation may resign at any
-----------
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
- 5 -
<PAGE>
Section 5. REMOVAL OF DIRECTORS. Any Director of the Corporation may be
--------------------
removed by the shareholders by a vote of a majority of the votes entitled to be
cast for the election of Directors.
Section 6. VACANCIES. The shareholders may elect a successor to fill a
---------
vacancy on the Board of Directors which results from the removal of a Director.
A majority of the remaining Directors, whether or not sufficient to constitute a
quorum, may fill a vacancy on the Board of Directors which results from any
cause except an increase in the number of Directors, and a majority of the
entire Board of Directors may fill a vacancy which results from an increase in
the number of Directors; provided, however, that no vacancies shall be filled by
action of the remaining Directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the shareholders of the Corporation. In the event that at any
time there is a vacancy in any office of a Director which vacancy may not be
filled by the remaining Directors, a special meeting of the shareholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A Director elected by the Board of
Directors of the Corporation to fill a vacancy serves until the next annual
meeting of shareholders and until his successor is elected and qualifies. A
Director elected by the shareholders of the Corporation to fill a vacancy which
results from the removal of a Director serves for the balance of the term of the
removed Director.
Section 7. REGULAR MEETINGS. Regular meetings of the Board may be held
----------------
with notice at such times and places as may be determined by the Board of
Directors.
Section 8. SPECIAL MEETINGS. Special meetings of the Board may be
----------------
called by the Chairman of the Board, the President, or by a majority of the
Directors either in writing or by vote at a meeting, and may be held at any
place in or out of the State of Maryland as the Board may from time to time
determine.
Section 9. NOTICE OF SPECIAL MEETINGS. Notice of each special meeting
--------------------------
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each Director, either personally or by telephone,
telegraph, cable or wireless, at least twenty-four hours before the time at
which such meeting is to be held, or by first-class mail, postage prepaid, or by
commercial delivery services addressed to him at his residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
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<PAGE>
Section 10. WAIVER OF NOTICE OF SPECIAL MEETINGS. Notice of any special
------------------------------------
meeting need not be given to any Director who shall, either before or after the
meeting, sign a written waiver of notice which is filed with the records of the
meeting or who shall attend such meeting. Except as otherwise specifically
required by these By-Laws, a notice or waiver of notice of any meeting need not
state the purposes of such meeting.
Section 11. QUORUM AND VOTING. One-third, but not fewer than three
-----------------
members, of the members of the entire Board shall be present in person at any
meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
the Charter of the Corporation, these By-Laws, the 1940 Act or other applicable
statute, the act of a majority of the Directors present at any meeting at which
a quorum is present shall be the act of the Board; provided, however, that the
approval of any contract with an investment adviser or principal underwriter, as
such terms are defined in the 1940 Act, which the Corporation enters into or any
renewal or amendment thereof, the approval of the fidelity bond required by the
1940 Act, and the selection of the Corporation's independent public accountants
shall each require the affirmative vote of a majority of the Directors who are
not interested persons, as defined in the 1940 Act, of the Corporation. In the
absence of a quorum at any meeting of the Board, a majority of the Directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the Directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other Directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. CHAIRMAN. The Board of Directors may at any time appoint
--------
one of its members as Chairman of the Board, who shall serve at the pleasure of
the Board and who shall perform and execute such duties and powers as may be
conferred upon or assigned to him by the Board or these By-Laws, but who shall
not by reason of performing and executing these duties and powers be deemed an
officer or employee of the Corporation.
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<PAGE>
Section 13. ORGANIZATION. At every meeting of the Board of Directors,
------------
the Chairman of the Board, if one has been selected and is present, shall
preside. In the absence or inability of the Chairman of the Board to preside at
a meeting, the President, or, in his absence or inability to act, another
Director chosen by a majority of the Directors present, shall act as chairman of
the meeting and preside at it. The Secretary (or, in his absence or inability to
act, any person appointed by the Chairman) shall act as secretary of the meeting
and keep the minutes thereof.
Section 14. WRITTEN CONSENT OF DIRECTORS IN LIEU OF A MEETING. Any
-------------------------------------------------
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee; PROVIDED, HOWEVER, that for so long as
the Corporation is registered as an investment company under the 1940 Act, this
Section shall be inapplicable to the approval of any investment advisory
agreement, sub-advisory agreement or any plan (or agreement containing a plan)
pursuant to Rule 12b-1 under the 1940 Act.
Section 15. MEETING BY CONFERENCE TELEPHONE. Members of the Board of
-------------------------------
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time; PROVIDED, HOWEVER, that for so long as the
Corporation is registered as an investment company under the 1940 Act, this
Section shall be inapplicable to the approval of any investment advisory
agreement, sub-advisory agreement or any plan (or agreement containing a plan)
pursuant to Rule 12b-1 under the 1940 Act.
Section 16. COMPENSATION. Any Director, whether or not he is a salaried
------------
officer, employee or agent of the Corporation, may be compensated for his
services as Director or as a member of a committee, or as Chairman of the Board
or chairman of a committee, and in addition may be reimbursed for transportation
and other expenses, all in such manner and amounts as the Directors may from
time to time determine.
Section 17. INVESTMENT POLICIES. It shall be the duty of the Board of
-------------------
Directors to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the
- 8 -
<PAGE>
Corporation, as recited in the current Prospectus of the Corporation filed from
time to time with the Securities and Exchange Commission and as required by the
1940 Act. The Board, however, may delegate the duty of management of the assets
and the administration of its day-to-day operations to an individual or
corporate management company or investment adviser pursuant to a written
contract or contracts which have obtained the requisite approvals, including the
requisite approvals of renewals thereof, of the Board of Directors or the
shareholders of the Corporation in accordance with the provisions of the 1940
Act.
ARTICLE IV
COMMITTEES
----------
Section 1. COMMITTEES OF THE BOARD. The Board may, by resolution
-----------------------
adopted by a majority of the entire Board, designate an Executive Committee,
Compensation Committee, Audit Committee and Nomination Committee, each of which
shall consist of two or more of the Directors of the Corporation, which
committee shall have and may exercise all the powers and authority of the Board
with respect to all matters other than as set forth in Section 3 of this Article
IV.
Section 2. OTHER COMMITTEES OF THE BOARD. The Board of Directors may
-----------------------------
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees of the Board, each such committee to
consist of two or more Directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.
Section 3. LIMITATION OF COMMITTEE POWERS. No committee of the Board
------------------------------
shall have power or authority to:
(a) recommend to shareholders any action requiring authorization
of shareholders pursuant to statute or the Charter;
(b) approve or terminate any contract with an investment adviser
or principal underwriter, as such terms are defined in the 1940 Act, or take any
other action required to be taken by the Board of Directors by the 1940 Act;
(c) amend or repeal these By-Laws or adopt new By-Laws;
- 9 -
<PAGE>
(d) declare dividends or other distributions or issue capital
stock of the Corporation; and
(e) approve any merger or share exchange which does not require
shareholder approval.
Section 4. GENERAL. One-third, but not less than two members, of the
-------
members of any committee shall be present in person at any meeting of such
committee in order to constitute a quorum for the transaction of business at
such meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such chairman
or any two members of any committee may fix the time and place of its meetings
unless the Board shall otherwise provide. In the absence or disqualification of
any member or any committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. The Board
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member, or to dissolve any such committee.
All committees shall keep written minutes of their proceedings and
shall report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.
ARTICLE V
OFFICERS, AGENTS AND EMPLOYEES
------------------------------
Section 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation
-------------------------
shall be a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and may also appoint such other officers, agents and
employees as it may deem necessary or proper. Any two or more offices may be
held by the same person, except the offices of President and Vice President, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. The Board may from time to time elect or appoint, or delegate to the
President the power to appoint, such other officers (including one or more
Assistant Vice Presidents, one or
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<PAGE>
more Assistant Treasurers and one or more Assistant Secretaries) and such
agents, as may be necessary or desirable for the business of the Corporation.
Such other officers and agents shall have such duties and shall hold their
offices for such terms as may be prescribed by the Board or by the appointing
authority.
Section 2. RESIGNATIONS. Any officer of the Corporation may resign at
------------
any time by giving written notice of his resignation to the Board, the Chairman
of the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3. REMOVAL OF OFFICER, AGENT OR EMPLOYEE. Any officer, agent or
-------------------------------------
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. VACANCIES. A vacancy in any office, whether arising from
---------
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. COMPENSATION. The compensation of the officers of the
------------
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a Director of the Corporation.
Section 6. BONDS OR OTHER SECURITY. If required by the Board, any
-----------------------
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. PRESIDENT. The President shall be the chief executive
---------
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he shall preside
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<PAGE>
at all meetings of the shareholders and of the Board of Directors. He shall
have, subject to the control of the Board of Directors, general charge of the
business and affairs of the Corporation. He may employ and discharge employees
and agents of the Corporation, except such as shall be appointed by the Board,
and he may delegate these powers.
Section 8. VICE PRESIDENTS. In the absence or disability of the
---------------
President, or when so directed by the President, any Vice President designated
by the Board of Directors may perform any or all of the duties of the President,
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the President; provided, however, that no Vice President
shall act as a member of or as chairman of any committee of which the President
is a member or chairman by designation of ex-officio, except when designated by
the Board. Each Vice President shall perform such other duties as from time to
time may be conferred upon or assigned to him by the Board or the President.
Section 9. TREASURER. The Treasurer shall:
---------
(a) have charge and custody of, and be responsible for, all the
funds and securities of the Corporation, except those which the Corporation has
placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act of
1934) pursuant to a written agreement designating such bank or trust company or
member of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the
credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board, taking proper
vouchers therefor; and
(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or the President.
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<PAGE>
Section 10. ASSISTANT TREASURERS. In the absence or disability of the
--------------------
Treasurer, or when so directed by the Treasurer, any Assistant Treasurer may
perform any or all of the duties of the Treasurer, and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. SECRETARY. The Secretary shall:
---------
(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board, the committees of the
Board and the shareholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation
and affix and attest the seal to all stock certificates of the Corporation
(unless the seal of the Corporation on such certificates shall be a facsimile,
as hereinafter provided) and affix and attest the seal to all other documents to
be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 12. ASSISTANT SECRETARIES. In the absence or disability of the
---------------------
Secretary, or when so directed by the Secretary, any Assistant Secretary may
perform any or all of the duties of the Secretary, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Secretary.
Each Assistant Secretary shall perform such other duties as from time to time
may be conferred upon or assigned to him by the Board of Directors, the
President or the Secretary.
Section 13. DELEGATION OF DUTIES. In case of the absence of any officer
--------------------
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any Director.
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<PAGE>
ARTICLE VI
CAPITAL STOCK
-------------
Section 1. STOCK CERTIFICATES. Each holder of stock of the Corporation
------------------
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by the President, a Vice President,
or the Chairman of the Board, and countersigned by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of
the Corporation. Any or all of the signatures or the seal on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
shall be issued, it may be issued by the Corporation with the same effect as if
such officer, transfer agent or registrar were still in office at the date of
issue.
Section 2. RIGHTS OF INSPECTION. There shall be kept at the principal
--------------------
executive office, which shall be available for inspection during usual business
hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
shareholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been shareholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. TRANSFER OF SHARES. Transfers of shares of stock of the
------------------
Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
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<PAGE>
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of shareholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. TRANSFER AGENTS AND REGISTRARS. The Corporation may have one
------------------------------
or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
Section 5. RECORD DATE AND CLOSING OF TRANSFER BOOKS. The Board of
-----------------------------------------
Directors may set a record date for the purpose of making any proper
determination with respect to shareholders, including which shareholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof
), receive a dividend, or be allotted or exercise other rights. The record date
may not be more than ninety (90) days before the date on which the action
requiring the determination will be taken; and, in the case of a meeting of
shareholders, the record date shall be at least ten (10) days before the date of
the meeting. The Board of Directors shall not close the books of the Corporation
against transfers of shares during the whole or any part of such period.
Section 6. REGULATIONS. The Board may make such additional rules and
-----------
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
Section 7. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. The
-------------------------------------------------
holder of any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, theft, destruction or mutilation
of such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost, stolen or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum,
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<PAGE>
limited or unlimited, and in such form and with such surety or sureties, as the
Board in its absolute discretion shall determine, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. STOCK LEDGERS. The Corporation shall not be required to keep
-------------
original or duplicate stock ledgers at its principal office in the City of
Baltimore, Maryland, but stock ledgers shall be kept at the office(s) of the
Transfer Agent(s) of the Corporation's capital stock.
ARTICLE VII
SEAL
----
The Board of Directors shall provide a suitable seal, bearing the name
of the Corporation, which shall be in the charge of the Secretary. The Board of
Directors may authorize one or more duplicate seals and provide for the custody
thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
FISCAL YEAR
-----------
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the last day of September in each year.
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<PAGE>
ARTICLE IX
DEPOSITORIES AND CUSTODIANS
---------------------------
Section 1. DEPOSITORIES. The funds of the Corporation shall be
------------
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. CUSTODIANS. All securities and other investments shall be
----------
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE X
EXECUTION OF INSTRUMENTS
------------------------
Section 1. CHECKS, NOTES, DRAFTS, ETC. Checks, notes, drafts,
---------------------------
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. SALE OR TRANSFER OF SECURITIES. Money market instruments,
------------------------------
bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of subject
to any limits imposed by these By-Laws, and pursuant to authorization by the
Board and, when so authorized to be held on behalf of the Corporation or sold,
transferred or otherwise disposed of, may be transferred from the name of the
Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XI
INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors and
ratified by the Board of Directors or the shareholders in accordance with the
provisions of the 1940 Act.
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<PAGE>
ARTICLE XII
ANNUAL STATEMENTS
-----------------
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the shareholders based upon each such examination shall be mailed to each
shareholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. INDEMNIFICATION. The Corporation shall indemnify its
Directors to the fullest extent that indemnification of Directors is permitted
by the Maryland General Corporation Law. The Corporation shall indemnify its
officers to the same extent as its Directors and to such further extent as is
consistent with law. The Corporation shall indemnify its Directors and officers
who while serving as Directors or officers also serve at the request of the
Corporation as a Director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan to the fullest extent consistent with law.
This Article XIII shall not protect any such person against any liability to the
Corporation or any shareholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
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<PAGE>
Section 2. ADVANCES. Any current or former Director or officer of the
--------
Corporation claiming indemnification within the scope of this Article XIII shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with proceedings to which he is a party
in the manner and to the full extent permissible under the Maryland General
Corporation Law, the Securities Act of 1933 (the "1933 Act") and the 1940 Act,
as such statutes are now or hereafter in force.
Section 3. PROCEDURE. On the request of any current or former Director
---------
or officer requesting indemnification or an advance under this Article XIII, the
Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the 1933 Act and the 1940
Act, as such statutes are now or hereafter in force, whether the standards
required by this Article XIII have been met.
Section 4. OTHER RIGHTS. The indemnification provided by this Article
------------
XIII shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of shareholders or
disinterested Directors or otherwise, both as to action by a Director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a Director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 5. MARYLAND LAW. References to the Maryland General Corporation
------------
Law in this Article XIII are to such law as from time to time amended.
ARTICLE XIV
AMENDMENTS
----------
These By-Laws or any of them may be amended, altered or repealed at any
annual meeting of the shareholders or at any special meeting of the shareholders
at which a quorum is present or represented, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors.
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MANAGEMENT AGREEMENT
AGREEMENT made as of _____________ between CROFT FUNDS CORPORATION, a
Maryland corporation (herein called the "Corporation"), and CROFT-LEOMINSTER,
INC., a Maryland corporation (the "Manager").
WHEREAS, the Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended ("1940
Act"); and
WHEREAS, the Corporation desires to retain the Manager to furnish
investment advisory services to the investment portfolios of the Corporation
listed on SCHEDULE A hereto (each a "Fund" and collectively, the "Funds"),
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
l. APPOINTMENT. The Corporation hereby appoints the Manager to act as
-----------
investment adviser to the Funds for the period and on the terms set forth in
this Agreement. The Manager accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided.
2. DELIVERY OF DOCUMENTS. The Corporation has furnished the Manager
---------------------
with copies properly certified or authenticated of each of the following:
<PAGE>
(a) the Corporation's Articles of Incorporation, as filed with the
Secretary of State of Maryland on July 20, 1994, and all amendments thereto or
restatements thereof (such Articles of Incorporation, as presently in effect and
as they shall from time to time be amended or restated, are herein called the
"Articles");
(b) the Corporation's By-Laws and amendments thereto;
(c) resolutions of the Corporation's Board of Directors authorizing the
appointment of the Manager and approving this Agreement;
(d) the Corporation's Notification of Registration on Form N-8A under
the 1940 Act, as filed with the Securities and Exchange Commission ("SEC") on
July 20, 1994, and all amendments thereto;
(e) the Corporation's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended ("1933 Act"), and under the 1940 Act, as
filed with the SEC and all amendments thereto; and
(f) the Corporation's most recent prospectus and Statement of
Additional Information for the Fund(s) (such prospectuses and Statement of
Additional Information, as presently in effect, and all amendments and
supplements thereto are herein collectively called the "Prospectus").
The Corporation will furnish the Manager from time to time with copies of all
amendments of or supplements to the foregoing.
- 2 -
<PAGE>
3. MANAGEMENT. Subject to the direction and control of the Board of
----------
Directors of the Corporation, the Manager will provide general economic and
financial analysis and advice to the Funds and provide a continuous investment
program for the Funds, including investment research and management as to all
securities and investments and cash equivalents in the Funds. More particularly,
the Manager will: determine from time to time what securities and other
investments will be purchased, retained, or sold by the Funds; furnish
statistical and research data; and compile data for, prepare for execution by
the Funds and file all the Funds' federal and state tax returns and required tax
filings other than those required to be made by the Funds' custodian,
administrator/transfer agent and/or distributor.
Subject to the provisions of the Articles and the 1940 Act, the
Manager, at its expense, may select and contract with investment advisers (the
"Sub-Advisers") for one or more of the Funds. So long as any Sub-Adviser serves
as Sub-Adviser to a Fund, it will be obligated to: (i) furnish continuously an
investment program as to those assets of the Funds involved allocated by the
Manager, (ii) in connection therewith, adhere to such guidelines as may be
established by the Manager from time to time to ensure compliance with
applicable investment objectives, policies and restrictions of the Corporation
and the Funds and (iii) place all orders for the purchase and sale of
investments. The Manager will be responsible for payment of all compensation to
all Sub-Advisers.
- 3 -
<PAGE>
The Manager further agrees that it:
(a) will use the same skill and care in providing such services as it
would use in providing services to fiduciary accounts if it had investment
responsibilities for such accounts;
(b) will conform with all applicable Rules and Regulations of the SEC
and will in addition conduct its activities under this Agreement in
accordance with any applicable regulations of any governmental authority
pertaining to the investment advisory activities of the Manager;
(c) will not make loans to any person to purchase or carry units of
beneficial interest in the Corporation or make loans to the Corporation;
(d) will place orders pursuant to its investment determinations for the
Funds either directly with the issuer or with an underwriter, market
maker, or broker or dealer. In placing orders with brokers and dealers,
the Manager will attempt to obtain prompt execution of orders in an
effective manner at the most favorable price. Consistent with this
- 4 -
<PAGE>
obligation, when the execution and price offered by two or more brokers or
dealers are comparable, the Manager may, in its discretion, purchase or
sell portfolio securities to and from brokers and dealers who provide the
Manager with research, advice and other services. In no instance will
portfolio securities be purchased from or sold to the Manager or any
Sub-Adviser, or any affiliated person of either the Corporation, the
Manager, or any Sub-Adviser, except as may be permitted under the 1940
Act;
(e) will treat confidentially and as proprietary information of the
Corporation all records and other information relative to the Corporation,
and will not use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Corporation, which
approval shall not be unreasonably withheld and may not be withheld where
the Manager may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Corporation; and
(f) will direct its personnel, when making investment recommendations
for the Corporation, not to inquire or take into consideration whether the
issuers of securities proposed for purchase or sale for the Corporation's
accounts are customers of the Manager or of its subsidiaries or
affiliates. In dealing with such customers, the Manager and its affiliates
will not inquire or take into consideration whether securities of those
customers are held by the Corporation.
- 5 -
<PAGE>
4. SERVICES TO OTHERS. The Corporation understands that the Manager may
------------------
in the future act as an investment adviser to fiduciary and other managed
accounts, and as investment adviser, general partner, sub-investment adviser,
and/or administrator to other investment companies and securities partnerships.
The Corporation has no objection to the Manager's acts in such capacities,
provided that whenever one of the Funds and one or more other investment
companies, partnerships or accounts advised by the Manager have available funds
for investment, investments suitable and appropriate for each will be allocated
in accordance with a formula believed by the Manager to be equitable to each
company. The Corporation recognizes that in some cases this procedure may
adversely affect the size of the position that a Fund may obtain in a particular
security. In addition, the Corporation understands that the persons employed by
the Manager to assist in the Manager's duties under this Agreement will not
devote their full time to such service and nothing contained in this Agreement
will be deemed to limit or restrict the right of the Manager or any of its
affiliates to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Manager hereby agrees that all records it maintains for
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<PAGE>
the Corporation are the property of the Corporation and further agrees to
surrender promptly to the Corporation any of such records upon the Corporation's
request and will require the same type of agreement from each Sub-Adviser. The
Manager further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.
6. EXPENSES. During the term of this Agreement, the Manager will pay
--------
all expenses incurred by it in providing general economic and financial analysis
and advice to the Funds and in providing a continuous investment program for the
Funds pursuant to Section 3 above, other than the cost of securities (including
brokerage commissions, if any) purchased for the Corporation. The Manager will
also pay all compensation of any person or persons employed by or associated
with the Manager to assist in the performance of the Manager's obligations under
this Agreement, whether or not such person is also an officer or employee of the
Corporation, and the Manager will not cause any obligation to be incurred on
behalf of the Corporation in respect of any such compensation. Other expenses to
be incurred in the operation of the Funds -- including without limitation taxes,
interest, brokerage fees and commissions, if any, fees of Directors who are not
officers, directors, shareholders, or employees of the Manager or any
Sub-Adviser, SEC fees and state "blue sky" qualification fees, administration
fees, costs of
- 7 -
<PAGE>
performing the pricing of portfolio securities, transfer and dividend disbursing
agents' fees, certain insurance premiums, outside auditing and legal expenses,
costs of maintaining the Corporation's existence as a Maryland corporation,
typesetting and printing prospectuses for regulatory purposes and for
distribution to current shareholders of the Funds, costs of shareholders' and
Directors' reports and meetings and any extraordinary expenses -- will be borne
by the Funds; PROVIDED HOWEVER, that the Funds will not bear, directly or
indirectly, the cost of any activity that is primarily intended to result in the
distribution of shares of the Funds, except as permitted under the 1940 Act.
7. COMPENSATION. For the services provided and the expenses assumed
pursuant to this Agreement, the Corporation will pay the Manager, and the
Manager will accept as full compensation therefor, an advisory fee, accrued
daily and payable monthly, in accordance with SCHEDULE B hereto.
----------
If in any fiscal year the aggregate expenses (as defined under the
securities regulations of any state having jurisdiction over the Corporation) of
a Fund exceed the expense limitations of any such state, the Manager will
reimburse such Fund for a portion of such excess expenses equal to such excess
times the ratio of the fees otherwise payable by such Fund to the Manager
hereunder to the aggregate fees otherwise payable by such Fund. The obligation
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<PAGE>
of the Manager to reimburse a Fund hereunder is limited in any fiscal year to
the amount of its fee hereunder from such Fund for such fiscal year, PROVIDED,
--------
HOWEVER, that, notwithstanding the foregoing, the Manager will reimburse each
- -------
Fund for such proportion of such excess expenses regardless of the amount of
fees paid to it during such fiscal year to the extent that the securities
regulations of any state having jurisdiction over the Corporation so require.
Such expense reimbursement, if any, will be estimated daily and reconciled and
paid on a monthly basis.
8. LIMITATION OF LIABILITY. The Manager will not be liable for any
-----------------------
error of judgment or mistake of law or for any loss suffered by the Corporation
in connection with the performance of this Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Manager in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement.
9. DURATION AND TERMINATION. This Agreement will become effective as to
------------------------
each Fund as of the date that the Fund commenced investment operations, provided
that it has been approved by a vote of a majority of the outstanding voting
securities of such Fund, in accordance with the requirements under the 1940 Act,
and, unless sooner terminated as provided herein, will continue in effect for
two years from the Fund's commencement of investment operations.
- 9 -
<PAGE>
Thereafter, if not terminated as to a Fund, this Agreement will
continue in effect as to such Fund for successive periods of twelve months,
PROVIDED such continuance is specifically approved at least annually (a) by the
vote of a majority of those members of the Corporation's Board of Directors who
are not parties to this Agreement or interested persons of the Corporation, the
Manager, or any Sub-Adviser, cast in person at a meeting called for the purpose
of voting on such approval, and (b) by the Corporation's Board of Directors or
by vote of a majority of the outstanding voting securities of such Fund.
Notwithstanding the foregoing, this Agreement may be terminated at any time on
sixty days' written notice, without the payment of any penalty, by the
Corporation (by vote of the Corporation's Board of Directors or by vote of a
majority of the outstanding voting securities of such Fund) or by the Manager.
This Agreement will immediately terminate in the event of its assignment. (As
used in this Agreement, the terms "majority of the outstanding voting
securities," "interested persons" and "assignment" shall have the same meaning
of such terms in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
---------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
- 10 -
<PAGE>
11. MISCELLANEOUS. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the laws of the State of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
CROFT FUNDS CORPORATION
By: ________________________
Name: ________________________
Title: ________________________
CROFT-LEOMINSTER, INC.
By: ________________________
Name: ________________________
Title: ________________________
Dated: This _____ day of
___________________, 1995.
- 11 -
<PAGE>
SCHEDULE A
FUND(S) DATE
- ------- ----
Croft-Leominster Value Fund
Croft-Leominster Income Fund
Dated this _____ day of ________________, 1995.
<PAGE>
SCHEDULE B
ADVISORY FEE SCHEDULE
FUND(S):
- --------
Croft-Leominster Value Fund 0.94%
Croft-Leominster Income Fund 0.79%
Dated: This _____ day of
___________________, 1995.
- 12 -
CUSTODY AGREEMENT
Agreement made as of the 19th day of August, 1994, between Croft Funds
Corporation, (the "Corporation"), a corporation organized under the laws of the
State of Maryland and having its office at 207 East Redwood Street, Suite 802,
Baltimore, Maryland 21202 acting for and on behalf of Croft-Leominster Value
Fund and Croft-Leominster Income Fund (each a "Fund" and, collectively, the
"Funds"), which is operated and maintained by the Corporation for the benefit of
the holders of shares of each Fund, and Star Bank, N.A. (the "Custodian"), a
national banking association having its principal office and place of business
at Star Bank Center, 425 Walnut Street, Cincinnati, Ohio 45202, which Agreement
provides for the furnishing of custodian services to the Fund.
Custodian agrees to retain custody of U.S. Government Securities and
securities issued and sold primarily in the United States. Pursuant to Paragraph
7 of Article IX of this Agreement, Custodian hereby appoints Bankers Trust
Company as Sub-Custodian to retain custody of foreign securities in accordance
with the terms and conditions of the Agreement dated as of _____________ between
Bankers Trust Company and Star Bank, N.A. attached hereto as Appendix D (the
"Sub-Custodian Agreement"). The Corporation hereby acknowledges such appointment
and expressly agrees to the terms and conditions set forth in the Sub-Custodian
Agreement.
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth the
Corporation, on behalf of each Fund, and each and every other series of the
Corporation as is established by the Board of Directors and listed as Appendix C
hereto and the Custodian agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
-----------
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Authorized Person" shall be deemed to include the Chairman,
President, Secretary, Treasurer, Controller, and any Vice President, or any
other person, whether or not any such person is an officer or employee of the
Corporation, duly authorized by the Board of Directors of the Corporation to
give Oral Instructions and Written Instructions on behalf of the Funds and
listed in the Certificate annexed hereto as Appendix A or such other Certificate
as may be received by the Custodian from time to time, subject in each case to
any limitations on the authority of such person as set forth in Appendix A or
any such Certificate.
2. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees, provided that the Custodian has
received a certified copy of a resolution of the Board of Directors of the
Corporation specifically approving deposits in the Book-Entry System.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is signed on behalf of a Fund by an officer of the
Corporation and is actually received by the Custodian.
4. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person or clearing agency authorized to act
as a depository under the Investment Company Act of 1940, its successor or
successors and its nominee or nominees, provided that the Custodian has received
a certified copy of a resolution of the Board of Directors of the Corporation
specifically approving such other person or clearing agency as a depository.
- 2 -
<PAGE>
5. "Dividend and Transfer Agent" shall mean the dividend and transfer
agent active, from time to time, in such capacity pursuant to a written
agreement with the Corporation, changes in which the Corporation shall
immediately report to the Custodian in writing.
6. "Money Market Security" shall be deemed to mean high quality
short-term debt obligations, including without limitation, securities issued or
guaranteed as to principal and/or interest by the government of the United
States or agencies or instrumentalities thereof, commercial paper, obligations
(including certificates of deposit, bankers' acceptances, repurchase and reverse
repurchase agreements with respect to the same) and bank time deposits of
domestic banks that are members of the Federal Deposit Insurance Corporation,
and short-term corporate obligations where the purchase and sale of such
securities normally require settlement in federal funds or their equivalent on
the same day as such purchase or sale.
7. "Officers" shall be deemed to include the Chairman, the President,
the Secretary, the Treasurer, the Controller, and any Vice President of the
Corporation listed in the Certificate annexed hereto as Appendix A or such other
Certificate as may be received by the Custodian from time to time.
8. "Oral Instructions" shall mean oral instructions actually received
by the Custodian from an Authorized Person (or from a person which the Custodian
reasonably believes in good faith to be an Authorized Person) and confirmed by
Written Instructions from Authorized Persons in such manner so that such Written
Instructions are received by the Custodian on the next business day.
- 3 -
<PAGE>
9. "Prospectus" shall mean the Fund's currently effective
prospectus(es) and statement(s) of additional information, as filed with and
declared effective by the Securities and Exchange Commission.
10. "Security or Securities" shall mean Money Market Securities, common
or preferred stocks, options, bonds, debentures, corporate debt securities,
notes, mortgages or other obligations, and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase or subscribe for
the same, or evidencing or representing any other rights or interest therein, or
any property or assets.
11. "Written Instructions" shall mean communications actually received
by the Custodian from one Authorized Person or from one person which the
Custodian reasonably believes in good faith to be an Authorized Person in
writing or by telex or any other such system whereby the receiver of such
communication is able to verify by codes or otherwise with a reasonable degree
of certainty the authenticity of the sender of such communication.
12. "Foreign Securities" include securities issued and sold primarily
outside of the United States by a foreign government, a national of any foreign
country or a corporation or other organization incorporated or organized under
the laws of any foreign country and securities issued or guaranteed by the
Government of the United States or by any state or any political subdivision
thereof or by any agency thereof by any entity organized under the laws of the
United States or of any state thereof which have been issued and sold primarily
outside the United States.
- 4 -
<PAGE>
ARTICLE II
APPOINTMENT OF CUSTODIAN
------------------------
1. The Corporation, acting for and on behalf of the Funds, hereby
constitutes and appoints the Custodian as custodian of all the Securities and
monies at any time owned by each Fund during the period of this Agreement ("Fund
Assets").
2. The Custodian hereby accepts appointment as Custodian and agrees to
perform the duties set forth in this Agreement.
ARTICLE III
DOCUMENTS TO BE FURNISHED BY THE CORPORATION
--------------------------------------------
The Corporation hereby agrees to furnish to the Custodian the following
documents:
1. A copy of its Articles of Incorporation certified by its Secretary.
2. A copy of its By-Laws certified by its Secretary.
3. A copy of the resolution of its Board of Directors appointing the
Custodian certified by its Secretary.
4. A copy of the most recent Prospectus of the Corporation.
5. A Certificate of the President and Secretary setting forth the names
and signatures of the present officers of the Corporation.
ARTICLE IV
CUSTODY OF CASH AND SECURITIES
------------------------------
1. The Corporation will deliver or cause to be delivered to the
Custodian all Fund Assets, including cash received for the issuance of its
shares, at any time during the period of this Agreement. The Custodian will not
be responsible for such Fund Assets until actually received by it.
- 5 -
<PAGE>
Upon such receipt, the Custodian shall hold in safekeeping and physically
segregate at all times from the property of any other persons, firms or
corporations all Fund Assets received by it from or for the account of the Fund.
Subject to the provisions of Article IX, Section 5 and Article IV, Section 5 the
Custodian will be entitled to reverse any credits made on a Fund's behalf where
such credits have been previously made and monies are not finally collected
within 90 days of the making of such credits. The Custodian is hereby authorized
by the Corporation, acting on behalf of each Fund, to actually deposit any Fund
Assets in the Book-Entry System or in a Depository, provided, however, that the
Custodian shall always be accountable to the Corporation for the Fund Assets so
deposited. Fund Assets deposited in the Book-Entry System or the Depository will
be represented in accounts which include only assets held by the Custodian for
customers, including but not limited to accounts in which the Custodian acts in
a fiduciary or representative capacity.
2. The Custodian shall credit to a separate account or accounts in the
name of the Fund all monies received by it for the account of a Fund, and shall
disburse the same only:
(a) In payment for Securities purchased for the account of the Fund,
as provided in Article V;
(b) In payment of dividends or distributions, as provided in Article
VI hereof,
(c) In payment of original issue or other taxes, as provided in
Article VII hereof;
(d) In payment for shares of the Fund redeemed by it, as provided in
Article VII hereof;
(e) Pursuant to Certificates (i) directing payment and setting forth
the name and address of the person to whom the payment is to be made, the amount
of such payment and the purpose for which payment is to be made (the Custodian
not being required to question such direction) or (ii) if reserve requirements
are established for the Fund by law or by valid regulation, directing the
- 6 -
<PAGE>
Custodian to deposit a specified amount of collected funds in the form of U.S.
dollars at a specified Federal Reserve Bank and stating the purpose of such
deposit, or
(f) In reimbursement of the expenses and liabilities of the
Custodian, as provided in paragraph 10 of Article IX hereof.
3. Promptly after the close of business on each day a Fund is open and
valuing its portfolio the Custodian shall furnish the Corporation with a
detailed statement of monies held for each Fund under this Agreement and with
confirmations and a summary of all transfers to or from the account of the
Fund(s) during said day. Where Securities are transferred to the account of a
Fund without physical delivery, the Custodian shall also identify as belonging
to the Fund a quantity of Securities in a fungible bulk of Securities registered
in the name of the Custodian (or its nominee) or shown on the Custodian's
account on the books of the Book-Entry System or the Depository. At least
monthly and from time to time, the Custodian shall furnish the Corporation with
a detailed statement of the Securities held for each Fund under this Agreement.
4. All Securities held for a Fund which are issued or issuable only in
bearer form, except such Securities as are held in the Book-Entry System, shall
be held by the Custodian in that form; all other Securities held for a Fund may
be registered in the name of the Fund, in the name of any duly appointed
registered nominee of the Custodian as the Custodian may from time to time
determine, or in the name of the Book-Entry System or the Depository or their
successor or successors, or their nominee or nominees. The Corporation agrees to
furnish to the Custodian appropriate instruments to enable the Custodian to hold
or deliver in proper form for transfer, or to register in the name of its
registered nominee or in the name of the Book-Entry System or the Depository,
any Securities which it may hold for the account of a Fund and which may from
time to time be registered in the name of the Fund. The Custodian shall hold all
such Securities which are not held in the Book-Entry System or by the Depository
or a Sub-Custodian in a separate account or accounts in the name of the Fund,
segregated at all times from those of any other Fund maintained and operated by
the Corporation and from those of any other person or persons.
- 7 -
<PAGE>
5. Unless otherwise instructed to the contrary by a Certificate, the
Custodian shall with respect to all Securities held for a Fund in accordance
with this Agreement:
(a) Collect all income due or payable to the Fund with respect to
Fund Assets;
(b) Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed, or retired, or otherwise
become payable;
(c) Surrender Securities in temporary form for definitive
Securities;
(d) Execute, as Custodian, any necessary declarations or
certificates of ownership under the Federal income tax laws or the laws or
regulations of any other taxing authority, including any foreign taxing
authority, now or hereafter in effect; and
(e) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of the
Fund, all rights and similar securities issued with respect to any Securities
held by the Custodian hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
(a) Execute and deliver to such persons as may be designated in such
Certificate proxies, consents, authorizations, and any other instruments whereby
the authority of a Fund as owner of any Securities may be exercised;
(b) Deliver any Securities held for a Fund in exchange for other
Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
- 8 -
<PAGE>
(c) Deliver any Securities held for the account of a Fund to any
protective committee, reorganization committee or other person in connection
with the reorganization, refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery; and
(d) Make such transfers or exchanges of the assets of a Fund and
take such other steps as shall be stated in said Certificate to be for the
purpose of effectuating any duly authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Fund.
7. The Custodian shall promptly deliver to the Corporation all notices,
proxy material and executed but unvoted proxies pertaining to shareholder
meetings of Securities held by each Fund. The Custodian shall not vote or
authorize the voting of any Securities or give any consent, waiver or approval
with respect thereto unless so directed by a Certificate or Written Instruction.
8. The Custodian shall promptly deliver to the Corporation all material
received by the Custodian and pertaining to Securities held by the Funds with
respect to tender or exchange offers, calls for redemption or purchase,
expiration of rights, name changes, stock splits and stock dividends, or any
other activity involving ownership rights in such Securities.
ARTICLE V
PURCHASE AND SALE OF INVESTMENTS OF THE FUNDS
---------------------------------------------
1. Promptly after each purchase of Securities by a Fund, the
Corporation shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate or Written
Instructions, and (ii) with respect to each purchase of Money Market Securities,
Written Instructions, a Certificate or Oral Instructions, specifying with
respect to each
- 9 -
<PAGE>
such purchase: (a) the name of the issuer and the title of the Securities, (b)
the principal amount purchased and accrued interest, if any, (c) the date of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase and (f) the name of the person from whom or the
broker through whom the purchase was made. The Custodian shall, upon receipt of
Securities purchased by or for a Fund, pay out of the monies held for the
account of the Fund the total amount payable to the person from whom or the
broker through whom the purchase was made, provided that the same conforms to
the total amount payable as set forth in such Certificate, Written Instructions
or Oral Instructions.
2. Promptly after each sale of Securities by the Corporation for the
account of a Fund, the Corporation shall deliver to the Custodian (i) with
respect to each sale of Securities which are not Money Market Securities, a
Certificate or Written Instructions, and (ii) with respect to each sale of Money
Market Securities, Written Instructions, a Certificate or Oral Instructions,
specifying with respect to each such sale: (a) the name of the issuer and the
title of the Security, (b) the principal amount sold, and accrued interest, if
any, (c) the date of sale, (d) the sale price per unit, (e) the total amount
payable to the Fund upon such sale and (f) the name of the broker through whom
or the person to whom the sale was made. The Corporation agrees that it will
institute no short sales of any securities, convertible or other. The Custodian
shall deliver the Securities upon receipt of the total amount payable to the
Fund upon such sale, provided that the same conforms to the total amount payable
as set forth in such Certificate, Written Instructions or Oral Instructions.
Subject to the foregoing, the Custodian may accept payment in such form as shall
be satisfactory to it, and may deliver Securities and arrange for payment in
accordance with the customs prevailing among dealers in Securities.
- 10 -
<PAGE>
3. Promptly after the time as of which the Corporation, on behalf of a
Fund, either
(a) writes an option on Securities
(b) notifies the Custodian that its obligations in respect of any
put or call option, as described in the Corporation's Prospectus, require that
the Fund deposit Securities or additional Securities with the Custodian,
specifying the type and value of Securities required to be so deposited, or
(c) notifies the Custodian that its obligations in respect of any
other Security, as described in the Corporation's Prospectus, require that the
Fund deposit Securities or additional Securities with the Custodian, specifying
the type and value of Securities required to be so deposited,
(d) the Custodian will cause to be segregated or identified as
deposited, pursuant to the Fund's obligations as set forth in the Prospectus,
Securities of such kinds and having such aggregate values as are required to
meet the Fund's obligations in respect thereof.
The Corporation will provide to the Custodian, as of the end of each
trading day, the market value of the Fund's option liability and the market
value of its portfolio of common stocks.
4. On contractual settlement date, the account of a fund will be
charged for all purchases settling on that day, regardless of whether or not
delivery is made. On contractual settlement date, sale proceeds will likewise be
credited to the account of the Fund irrespective of delivery.
In the case of "sale fails", the Custodian may request the assistance
of the Fund in making delivery of the failed Security.
- 11 -
<PAGE>
ARTICLE VI
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
-------------------------------------
1. The Corporation shall furnish to the Custodian a copy of the
resolution of the Board of Directors, certified by the Secretary, either (i)
setting forth the date of the declaration of any dividend or distribution in
respect of shares of a Fund, the date of payment thereof, the record date as of
which Fund shareholders entitled to payment shall be determined, the amount
payable per share to Fund shareholders of record as of that date and the total
amount to be paid by the Dividend and Transfer Agent on the payment date, or
(ii) authorizing the declaration of dividends and distributions in respect of
shares of a fund on a daily basis and authorizing the Custodian to rely on
Written Instructions or a Certificate setting forth the date of the declaration
of any such dividend or distribution, the date of payment thereof, the record
date as of which Fund shareholders entitled to payment shall be determined, the
amount payable per share to Fund shareholders of record as of that date and the
total amount to be paid by the Dividend and Transfer Agent on the payment date.
2. Upon the payment date specified in such resolution, Written
Instructions or Certificate, as the case may be, the Custodian shall arrange for
such payments to be made by the Dividend and Transfer Agent out of monies held
for the account of the Fund.
ARTICLE VII
SALE AND REDEMPTION OF SHARES OF THE FUNDS
------------------------------------------
1. The Custodian shall receive and credit to the account of a Fund such
payments for shares of the Fund issued or sold from time to time as are received
from the distributor for the Fund's shares, from the Dividend and Transfer
Agent, or from the Corporation.
- 12 -
<PAGE>
2. Upon receipt of Written Instructions, the Custodian shall arrange
for payment of redemption proceeds to be made by the Dividend and Transfer Agent
out of the monies held for the account of the Fund in the total amount specified
in the Written Instructions.
3. Notwithstanding the above provisions regarding the redemption of
Fund shares, whenever shares of the Fund are redeemed pursuant to any check
redemption privilege which may from time to time be offered by a Fund, the
Custodian, unless otherwise subsequently instructed by Written Instructions
shall, upon receipt of any Written Instructions setting forth that the
redemption is in good form for redemption in accordance with the check
redemption procedure, honor the check presented as part of such check redemption
privilege out of the monies held in the account of the Fund for such purposes.
ARTICLE VIII
INDEBTEDNESS
------------
In connection with any borrowings, the Corporation, on behalf of a
fund, will cause to be delivered to the Custodian by a bank or broker (including
the Custodian, if the borrowing is from the Custodian), a notice or undertaking
in the form currently employed by any such bank or broker setting forth the
amount which such bank or broker will loan to the Fund against delivery of a
stated amount of collateral. The Corporation shall promptly deliver to the
Custodian a Certificate specifying with respect to each such borrowing: (a) the
name of the bank or broker, (b) the amount and terms of the borrowing, which may
be set forth by incorporating by reference an attached promissory note, duly
endorsed by the Corporation, acting on behalf of the Fund, or other loan
agreement, (c) the date and time, if known, on which the loan is to be entered
into, (d) the date on which the loan becomes due and payable, (e) the total
amount payable to the Fund on the borrowing date,
- 13 -
<PAGE>
(f) the market value of Securities collateralizing the loan, including the name
of the issuer, the title and the number of shares or the principal amount of any
particular Securities and (g) a statement that such loan is in conformance with
the Investment Company Act of 1940 and the Fund's then-current Prospectus. The
Custodian shall deliver on the borrowing date specified in a Certificate the
specified collateral and the executed promissory note, if any, against delivery
by the lending bank or broker of the total amount of the loan payable, provided
that the same conforms to the total amount payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank or broker,
keep such collateral in its possession, but such collateral shall be subject to
all rights therein given the lending bank or broker, by virtue of any promissory
note or loan agreement. The Custodian shall deliver in the manner directed by
the Corporation from time to time such Securities as additional collateral as
may be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Corporation shall cause all Securities released
from collateral status to be returned directly to the Custodian and the
Custodian shall receive from time to time such return of collateral as may be
tendered to it. In the event that the Corporation fails to specify in a
Certificate or Written Instructions the name of the issuer, the title and number
of shares or the principal amount of any particular Securities to be delivered
as collateral by the Custodian, the Custodian shall not be under any obligation
to deliver any Securities. The Custodian may require such reasonable conditions
with respect to such collateral and its dealings with third-party lenders as it
may deem appropriate.
ARTICLE IX
CONCERNING THE CUSTODIAN
------------------------
1. Except as otherwise provided herein, the Custodian shall not be
liable for any loss or damage, including reasonable counsel fees, resulting from
- 14 -
<PAGE>
its action or omission to act or otherwise, except for any such loss or damage
arising out of its own negligence or willful misconduct. The Corporation, on
behalf of each Fund and only from Fund Assets (or insurance purchased by the
Corporation with respect to its liabilities on behalf of a Fund hereunder),
shall defend, indemnify and hold harmless the Custodian and its directors,
officers, employees and agents with respect to any loss, claim, liability or
cost (including reasonable attorneys' fees) arising from or relating to the
Corporation's duties with respect to a Fund hereunder or any other action or
inaction of the Corporation or its Directors, officers, employees or agents as
to the Fund, except such as may arise from the negligent action, omission or
willful misconduct of the Custodian, its directors, officers, employees or
agents. The Custodian shall defend, indemnify and hold harmless the Corporation
and its Directors, officers, employees or agents with respect to any loss,
claim, liability or cost (including reasonable attorneys' fees) arising or
alleged to arise from or relating to the Custodian's duties with respect to the
Fund hereunder or any other action or inaction of the Custodian or its
directors, officers, employees, agents, nominees or Sub-Custodians as to a Fund,
except such as may arise from the negligent action, omission or willful
misconduct of the Corporation, its Directors, officers, employees or agents. The
Custodian may, with respect to questions of law that arise under or relate to
this agreement apply for and obtain the advice and opinion of counsel to the
Corporation at the expense of the Corporation, or of its own counsel at its own
expense. and shall be fully protected with respect to anything done or omitted
by it in good faith in conformity with the advice or opinion of counsel to the
Corporation, and shall be similarly protected with respect to anything done or
omitted by it in good faith in conformity with advice or opinion of its counsel,
unless counsel to the Fund shall, within a reasonable time after being notified
of the substance of the legal advice received by the Custodian, have a differing
interpretation of such question of law. The Custodian shall be liable to the
Corporation for any proximate loss or damage resulting from the use of the
Book-Entry
- 15 -
<PAGE>
System or any Depository arising by reason of any negligence, misfeasance or
misconduct on the part of the Custodian or any of its employees, agents,
nominees or Sub-Custodians, but not for any special, incidental, consequential,
or punitive damages; provided, however, that nothing contained herein shall
preclude recovery by the Corporation, on behalf of a Fund, of principal and of
interest to the date of recovery on, Securities incorrectly omitted from the
Fund's account or penalties imposed on the Corporation, in connection with a
Fund, for any failures to deliver Securities.
In any case in which one party hereto is asked to indemnify the other
or hold the other harmless, the party from whom indemnification is sought (the
"Indemnifying Party") shall be advised of all pertinent facts concerning the
situation in question, and the party claiming a right to indemnification (the
"Indemnified Party") will use reasonable care to identify and notify the
Indemnifying Parry promptly concerning any situation which presents or appears
to present a claim for indemnification against the Indemnifying Party. The
Indemnifying Party shall have the option to defend the Indemnified Party against
any claim which may be the subject of the indemnification, and in the event the
Indemnifying Party so elects, such defense shall be conducted by counsel chosen
by the Indemnifying Party and satisfactory to the Indemnified Party and the
Indemnifying Party will so notify the Indemnified Party and thereupon such
Indemnifying Party shall take over the complete defense of the claim and the
Indemnified Party shall sustain no further legal or other expenses in such
situation for which indemnification has been sought under this paragraph, except
the expenses of any additional counsel retained by the Indemnified Party. In no
case shall any party claiming the right to indemnification confess any claim or
make any compromise in any case in which the other party has been asked to
indemnify such party (unless such confession or compromise is made with such
other party's prior written consent).
- 16 -
<PAGE>
The obligations of the parties hereto under this paragraph shall
survive the termination of this Agreement.
2. Without limiting the generality of the foregoing, the Custodian,
acting in the capacity of Custodian hereunder, shall be under no obligation to
inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased by or for
the account of a Fund, the legality of the purchase thereof, or the propriety of
the amount paid therefor;
(b) The legality of the sale of any Securities by or for the account
of a Fund, or the propriety of the amount for which the same are sold;
(c) The legality of the issue or sale of any shares of a Fund, or
the sufficiency of the amount to be received therefor;
(d) The legality of the redemption of any shares of a Fund, or the
propriety of the amount to be paid therefor;
(e) The legality of the declaration or payment of any dividend by
the Corporation in respect of shares of a Fund;
(f) The legality of any borrowing by the Corporation, on behalf of a
Fund, using Securities as collateral;
(g) The sufficiency of any deposit made pursuant to a Certificate
described in clause (ii) of paragraph 2(e) of Article IV hereof.
3. The Custodian shall not be liable for any money or collected funds
in U.S. dollars deposited in a Federal Reserve Bank in accordance with a
Certificate described in clause (ii) of paragraph 2(e) of Article IV hereof, nor
be liable for or considered to be the Custodian of any money, whether or not
represented by any check, draft, or other instrument for the payment of money,
received by it on behalf of a Fund until the Custodian actually receives and
collects such money directly or by the final crediting of the account
representing the Fund's interest at the Book-Entry System or Depository.
- 17 -
<PAGE>
4. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Dividend and
Transfer Agent nor to take any action to effect payment or distribution by the
Dividend and Transfer Agent of any amount paid by the Custodian to the Dividend
and Transfer Agent in accordance with this Agreement.
5. Income due or payable to a Fund with respect to Fund Assets will be
credited to the account of the Fund as follows:
(a) Dividends will be credited on the first business day following
payable date irrespective of collection.
(b) Interest on fixed rate municipal bonds and debt securities
issued or guaranteed as to principal and/or interest by the government of the
United States or agencies or instrumentalities thereof (excluding securities
issued by the Govemment National Mortgage Association) will be credited on
payable date irrespective of collection.
(c) Interest on fixed rate corporate debt securities will be
credited on the first business day following payable date irrespective of
collection.
(d) Interest on variable and floating rate debt securities and debt
securities issued by the Government National Mortgage Association will be
credited upon the Custodian's receipt of funds.
(e) Proceeds from options will be credited upon the Custodian's
receipt of funds.
6. Notwithstanding paragraph 5 of this Article IX, the Custodian shall
not be under any duty or obligation to take action to effect collection of any
amount, if the Securities upon which such amount is payable are in default, or
if payment is refused after due demand or presentation, unless and until (i) it
shall be directed to take such action by a Certificate and (ii) it shall be
assured to its satisfaction of reimbursement of its costs and expenses in
connection with any such action or, at the Custodian's option, prepayment.
- 18 -
<PAGE>
7. Provided that the provisions of Section 17(f) of the Investment
Company Act of 1940 and the rules adopted thereafter are fully complied with,
the Custodian may appoint one or more financial or banking institutions, as
Depository or Depositories or as Sub-Custodian or Sub-Custodians, including, but
not limited to, banking institutions located in foreign countries, of Securities
and monies at any time owned by a Fund, upon terms and conditions approved in a
Certificate. Current Depository(s) and Sub-Custodian(s) are noted in Appendix B.
The Custodian shall not be relieved of any obligation or liability under this
Agreement in connection with the appointment or activities of such Depositories
or Sub-Custodians.
8. The Custodian shall not be under any duty or obligation to ascertain
whether any Securities at any time delivered to or held by it for the account of
a Fund are such as properly may be held by the Fund under the provisions of the
Articles of Incorporation and the Corporation's By-Laws.
9. The Custodian shall treat all records and other information relating
to the Corporation, the Funds and Fund Assets as confidential and shall not
disclose any such records or information to any other person unless: (a) the
Corporation shall have consented thereto in writing or (b) such disclosure is
compelled by law.
10. The Custodian shall be entitled to receive and the Corporation
agrees to pay to the Custodian, for each Fund's account from Fund Assets only,
such compensation as shall be determined pursuant to Appendix C attached hereto,
or as shall be determined pursuant to amendments to such Appendix approved by
the Custodian and the Corporation, on behalf of each Fund.
- 19 -
<PAGE>
The Custodian shall be entitled to charge against any money held by it for the
account of a Fund the amount of any loss, damage, liability or expense,
including reasonable counsel fees, for which it shall be entitled to
reimbursement under the provisions of this Agreement as determined by agreement
of the Custodian and the Corporation or by the final order of any court or
arbitrator having jurisdiction and as to which all rights of appeal shall have
expired. The expenses which the Custodian may charge against the account of a
Fund include, but are not limited to, the expenses of Sub-Custodians incurred in
settling transactions involving the purchase and sale of Securities of the Fund.
11. The Custodian shall be entitled to rely upon any Certificate
reasonably believed by it to be genuine. The Custodian shall be entitled to rely
upon any Oral Instructions and any Written Instructions actually received by the
Custodian pursuant to Article IV or V hereof. The Corporation agrees to forward
to the Custodian Written Instructions from Authorized Persons confirming Oral
Instructions in such manner so that such Written Instructions are received by
the Custodian, whether by hand delivery, telex or otherwise, on the first
business day following the day on which such Oral Instructions are given to the
Custodian. The Corporation agrees that the fact that such confirming
instructions are not received by the Custodian shall in no way affect the
validity of the transactions or enforceability of the transactions hereby
authorized by the Corporation. The Corporation agrees that the Custodian shall
incur no liability to a Fund in acting upon Oral Instructions given to the
Custodian hereunder concerning such transactions.
12. The Custodian will (a) set up and maintain proper books of account
and complete records of all transactions in the accounts maintained by the
Custodian hereunder in such manner as will meet the obligations of each Fund
under the Investment Company Act of 1940, with particular attention to Section
31 thereof and Rules 31a-1 and 31a-2 thereunder, and (b) preserve for the
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<PAGE>
periods prescribed by applicable Federal statute or regulation all records
required to be so preserved. The books and records of the Custodian shall be
open to inspection and audit at reasonable times and with prior notice by
Officers and auditors employed by the Corporation.
13. The Custodian and its Sub-Custodians shall promptly send to the
Corporation, for the account of a Fund, any report received on the systems of
internal accounting control of the Book-Entry System or the Depository and with
such reports on their own systems of internal accounting control as the
Corporation may reasonably request from time to time.
14. The Custodian performs only the services of a custodian and shall
have no responsibility for the management, investment or reinvestment of the
Securities from time to time owned by the Funds. The Custodian is not a selling
agent for shares of any Fund and performance of its duties as a custodial agent
shall not be deemed to be a recommendation to the Custodian's depositors or
others of shares of a Fund as an investment.
ARTICLE X
TERMINATION
-----------
1. Either of the parties hereto may terminate this Agreement for any
reason by giving to the other party a notice in writing specifying the date of
such termination, which shall be not less than ninety (90) days after the date
of giving of such notice. If such notice is given by the Corporation, on behalf
of the Fund, it shall be accompanied by a copy of a resolution of the Board of
Directors, certified by the Secretary or any Assistant Secretary, electing to
terminate this Agreement and designating a successor custodian or custodians,
each of which shall be a bank or corporation company having not less than
$2,000,000 aggregate capital, surplus and undivided profits. In the event such
notice is given by the Custodian, the Corporation shall, on or before the
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<PAGE>
termination date, deliver to the Custodian a copy of a resolution of its Board
of Directors, certified by the Secretary, designating a successor custodian or
custodians to act on behalf of the Fund. In the absence of such designation by
the Corporation, the Custodian may designate a successor custodian which shall
be a bank or corporation company having not less than $2,000,000 aggregate
capital, surplus, and undivided profits. Upon the date set forth in such notice
this Agreement shall terminate, and the Custodian, provided that it has received
a notice of acceptance by the successor custodian, shall deliver, on that date,
directly to the successor custodian all Securities and monies then owned by the
Funds and held by it as Custodian. Upon termination of this Agreement, the
Corporation shall pay to the Custodian on behalf of the Fund such compensation
as may be due as of the date of such termination. The Corporation agrees on
behalf of the Fund that the Custodian shall be reimbursed for its reasonable
costs in connection with the termination of this Agreement.
2. If a successor custodian is not designated by the Corporation, on
behalf of the Funds, or by the Custodian in accordance with the preceding
paragraph, or the designated successor cannot or will not serve, the Corporation
shall upon the delivery by the Custodian to the Corporation of all Securities
(other than Securities held in the Book-Entry System which cannot be delivered
to the Corporation) and monies then owned by the Fund, other than monies
deposited with a Federal Reserve Bank pursuant to a Certificate described in
clause (ii) of paragraph 2(e) of Article IV, be deemed to be the custodian for
the Fund, and the Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty with respect to
Securities held in the Book-Entry System which cannot be delivered to the
Corporation to hold such Securities hereunder in accordance with this Agreement.
- 22 -
<PAGE>
ARTICLE XI
MISCELLANEOUS
-------------
1. Appendix A sets forth the names and the signatures of all Authorized
Persons. The Corporation agrees to furnish to the Custodian, on behalf of the
Fund, a new Appendix A in form similar to the attached Appendix A, if any
present Authorized Person ceases to be an Authorized Person, or if any other or
additional Authorized Persons are elected designated or appointed. Until such
new Appendix A shall be received, the Custodian shall be fully protected in
acting under the provisions of this Agreement upon Oral Instructions or
signatures of the present Authorized Persons as set forth in the last delivered
Appendix A.
2. No recourse under any obligation of this Agreement or for any claim
based thereon shall be had against any organizer, shareholder, Officer,
Director, past, present or future as such, of the Corporation or of any
predecessor or successor, either directly or through the Corporation or any such
predecessor or successor, whether by virtue of any constitution, statute or rule
of law or equity, or be the enforcement of any assessment or penalty or
otherwise; it being expressly agreed and understood that this Agreement and the
obligations thereunder are enforceable solely against Fund Assets, and that no
such personal liability whatever shall attach to, or is or shall be incurred by,
the organizers, shareholders, Officers, Directors of the Corporation or of any
predecessor or successor, or any of them as such, because of the obligations
contained in this Agreement or implied therefrom and that any and all such
liability is hereby expressly waived and released by the Custodian as a
condition of, and as a consideration for, the execution of this Agreement.
3. The obligations set forth in this Agreement as having been made by
the Corporation have been made by the Board of Directors, acting as such
Directors for and on behalf of the Corporation, pursuant to the authority vested
in them under the laws of the State of Maryland, the Articles
- 23 -
<PAGE>
of Incorporation and the By-Laws of the Corporation. This Agreement has been
executed by Officers of the Corporation as officers, and not individually, and
the obligations contained herein are not binding upon any of the Directors,
Officers, agents or holders of shares, personally, but bind only the Corporation
and then only to the extent of Fund Assets.
4. Such provisions of the Prospectus of the Corporation and any other
documents (including advertising material) specifically mentioning the Custodian
(other than merely by name and address) shall be reviewed with the Custodian by
the Corporation.
5. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at Star
Bank Center, 425 Walnut Street, M.L. 6118, Cincinnati, Ohio 45202, attention
Mutual Fund Custody Department, or at such other place as the Custodian may from
time to time designate in writing.
6. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Corporation shall be sufficiently given when
delivered to the Corporation or on the third business day following the time
such notice is deposited in the U.S. mail postage prepaid and addressed to the
Corporation at its office at 207 East Redwood Street, Suite 802, Baltimore,
Maryland 21202, or at such other place as the Corporation may from time to time
designate in writing.
7. This Agreement with the exception of Appendices A and B may not be
amended or modified in any manner except by a written agreement executed by both
parties with the same formality as this Agreement, and authorized and approved
by a resolution of the Board of Directors of the Corporation.
- 24 -
<PAGE>
8. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however, that
this Agreement shall not be assignable by the Corporation or by the Custodian,
and no attempted assignment by the Corporation or the Custodian shall be
effective without the written consent of the other party hereto.
9. This Agreement shall be construed in accordance with the laws of the
State of Ohio.
10. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized as of the day
and year first above written.
ATTEST: Croft Funds Corporation
By:
- -------------------------- -------------------------
ATTEST: Star Bank, N.A.
By:
- -------------------------- -------------------------
- 25 -
<PAGE>
APPENDIX A
BOARD OF DIRECTORS
------------------
AUTHORIZED PERSONS SPECIMEN SIGNATURES
------------------ -------------------
Chairman ------------------ -------------------
President ------------------ -------------------
Vice President ------------------ -------------------
Secretary ------------------ -------------------
Treasurer ------------------ -------------------
Controller: ------------------ -------------------
Adviser Employees ------------------ -------------------
------------------ -------------------
------------------ -------------------
American Data Services,
Inc. Employees: ------------------ -------------------
------------------ -------------------
------------------ -------------------
------------------ -------------------
<PAGE>
APPENDIX B
The following Depository(s) and Sub-Custodian(s) are employed currently by Star
Bank, N.A. for securities processing and control . . .
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bankers Trust Company
16 Wall Street
New York, NY 10005
<PAGE>
APPENDIX C
Star Bank, N.A.
CUSTODY FEE SCHEDULE
FOR
CROFT-LEOMINSTER VALUE FUND
CROFT-LEOMINSTER INCOME FUND
Star Bank, N.A., as Custodian, will receive monthly compensation for services
according to the terms of the following Schedule:
I. PORTFOLIO TRANSACTION FEES:
--------------------------
(a) For each repurchase agreement transaction $ 7.00
(b) For each portfolio transaction processed through
DTC or Federal Reserve $ 9.00
(c) For each portfolio transaction processed through
our New York custodian $25.00
(d) For each GNMA/Amortized Security Purchase $25.00
(e) For each GNMA Prin/Ant Paydown, GNMA Sales $8.00
(f) For each option/future contract written,
exercised or expired $40.00
(g) For each Cedel/Euro clear transaction $80.00
(h) For each Disbursement (Fund expenses only) $ 5.00
A transaction is a purchase/sale of a security, free receipt/free delivery
(excludes initial conversion), maturity, tender or exchange:
II. MARKET VALUE FEE
----------------
Based upon an annual rate of: MILLION
-------
.0005 (5 Basis Points) on First $10
.0003 (3 Basis Points) on Next $10
.0002 (2 Basis Points) on Next $20
.00015 (1.5 Basis Points) on Balance
III.MONTHLY MINIMUM FEE-PER FUND $400.00
IV. OUT-OF-POCKET EXPENSES
The only out-of-pocket expenses charged to your account will be
shipping fees or transfer fees.
V. IRA DOCUMENTS
Per Shareholder/year to hold each IRA Document $8.00
<PAGE>
VI. EARNINGS CREDITS
On a monthly basis any earnings credits generated from uninvested
custody balances will be applied against any cash management service
fees generated. Earnings credits are based on the average yield on the
91 day U.S. Treasury Bill for the preceding thirteen weeks less the 10%
reserve.
- 2 -
<PAGE>
APPENDIX D
CUSTODIAN AGREEMENT
-------------------
AGREEMENT dated as of _________________ between BANKERS TRUST COMPANY (the
"Custodian") and Star Bank, N.A. (the "Customer"). Customer represents and
Custodian acknowledges that it is entering into this Agreement solely as
Custodian of Croft-Leominster Value Fund and the Croft-Leominster Income Fund
(the "Funds"), its client, with whom Customer has a Custody Agreement.
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of the Customer which are delivered to and accepted
by the Custodian or any of its subcustodians (as that term is defined in Section
5) anywhere in the world (the "Property") pursuant to the terms and conditions
set forth herein. Without limitation, such Property shall include stocks and
other equity interests of every type, evidences of indebtedness, other
instruments representing same or rights or obligations to received, purchase,
deliver or sell same and other non-cash investment property of the Customer
("Securities") and cash from whatever source and in whatever currency ("Cash").
The Custodian shall not be responsible for any property of the Customer held or
received by the Customer or others and not delivered to the Custodian or any of
its subcustodians.
2. Custody Account. The Custodian agrees to establish and maintain a
custody account in the name of the Customer (the "Account") for any and all
Property from time to time received and accepted by the Custodian or any of its
subcustodians for the account of the Customer. The Customer acknowledges its
responsibility as a principal for all of its obligations to the Custodian
arising under or in connection with this Agreement, notwithstanding that it may
be acting on behalf of Funds and warrants its authority to deposit in the
Account any Property received therefor by the Custodian shall not be subject to,
nor shall its rights and obligations under this Agreement or with respect to the
Account be affected by, any agreement between the Customer and any other person.
The Custodian shall hold, keep safe and protect as custodian in the Account, on
behalf of the Customer, all Property. All transactions, including, but not
limited to, foreign exchange transactions, involving the Property shall be
executed or settled solely in accordance with Instructions (as that term is
defied in Section 10), except that until the Custodian receives Instructions to
the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments whether paid in cash or in kind, on the Property,
as the same become payable and credit the same to the
Account;
(b) present for payment all Securities held in the Account which
are called, redeemed or retired or otherwise become payable
and all coupons and other income items which call for
payment upon presentation and hold the cash received in the
Account pursuant to this Agreement;
(c) exchange Securities where the exchange is purely ministerial
(including, without limitation, the exchange of temporary
securities for those in
<PAGE>
definitive form and the exchange of warrants, or other
documents of entitlement to securities, for the Securities
themselves);
(d) whenever notification of a rights entitlement or a
fractional interest resulting from a rights issue, stock
dividend or stock split is received for the Account and such
rights entitlement or fractional interest bears an
expiration date, if after endeavoring to obtain the
Customer's Instructions such Instructions are not received
in time for the Custodian to take timely action, sell in the
discretion of the Custodian (which sale the Customer hereby
authorizes the Custodian to make) such rights entitlement or
fractional interest and credit the Account with the net
proceeds of such sale;
(e) executed in the Customer's name for the Account, whenever
the Custodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of
income from the Property; and
(f) pay for the Account, any and all taxes and levies in the
nature of taxes imposed on income on the Property by any
governmental authority. In the event there is insufficient
Cash available in the Account to pay such taxes and levies,
the Custodian shall notify the Customer of the amount of the
shortfall and the Customer, at its option, may deposit
additional Cash in the Account or take steps to have
sufficient Cash available. The Customer agrees, when and if
requested by the Custodian and required in connection with
the payment of any such taxes to cooperate with the
Custodian in furnishing information, executing documents or
otherwise.
The Custodian shall deliver, subject to Section 12 below, any and all Property
in the Account in accordance with instructions and in connection therewith, the
Customer will accept delivery of Securities of the same class and denomination
in place of those contained in the Account. Neither the Custodian nor any
subcustodian shall have any duty or responsibility to see to the application of
any Property withdrawn from the Account upon Instructions.
Except as otherwise may be agreed upon by the parties hereto, the Custodian
shall not be required to comply with any Instructions to settle the purchase of
any Securities for the Account unless there is sufficient Cash in the Account at
the time or to settle the sale of any Securities from the Account unless such
Securities are in deliverable form. Notwithstanding the foregoing, if the
purchase price of such Securities exceeds the amount of Cash in the Account at
the time of such purchase, the Custodian may, in its sole discretion, advance
the amount of the difference in order to settle the purchase of such Securities.
The amount of any such advance shall be deemed a loan from the Custodian to the
Customer payable on demand and bearing interest accruing from the date such loan
is made to but not including the date such loan is repaid at a rate per annum
customarily charged by the Custodian on similar loans.
3. Records, Ownership of Property and Statements. The ownership of the
Property whether Securities, Cash and/or other property, and whether held by the
Custodian or a subcustodian
- 2 -
<PAGE>
or in a securities depository or clearing agency as hereinafter authorized,
shall be clearly recorded on the Custodian's books as belonging to the Account
and not for the Custodian's own interest. The Custodian shall keep accurate and
detailed accounts of all investments, receipts, disbursements and other
transactions for the Account. All accounts, books and records of the Custodian
relating thereto shall be open to inspection and audit at all reasonable times
during normal business hours by any person designated by the Customer. The
Custodian will supply to the Customer from time to time, as mutually agreed
upon, a statement in respect to any Property in the Account held by the
Custodian or by a subcustodian. In the absence of the filing in writing with the
Custodian by the Customer of exceptions or objections to any such statement
within sixty (60) days of the mailing thereof, the Customer shall be deemed to
have approved such statement; and in such case or upon written approval of the
Customer of any such statement, the Custodian shall, to the extent permitted by
law, be released, relieved and discharged with respect to all matters and things
set forth in such statement as though such statement had been settled by the
decree of a court of competent jurisdiction in an action in which the Customer
and all persons having any equity interest in the Customer were parties.
4. Maintenance of Property Outside of the United States. Property in
the Account may be held in a country or other Jurisdiction outside of the United
States; provided that (a) with respect to Securities, such country or other
jurisdiction shall be one in which the principal trading market for such
Securities is located or the country or other jurisdiction in which such
Securities are to be presented for payment or are acquired for the Account and
(b) with respect to cash, the amount thereof to be maintained in any country or
other jurisdiction shall be an amount which is deemed necessary to settle
transactions relating to Securities purchased for the Account in such country or
jurisdiction or which is received in connection with the holding of such
Securities in the Account.
5. Subcustodians and Securities Depositories. The Custodian may employ,
directly or indirectly, one or more subcustodians to assist in the performance
of obligations hereunder; provided, however, that the employment of any such
subcustodians (other than any such subcustodian which is a securities depository
or clearing agency) the Custodian shall only be responsible or liable for losses
arising from such employment caused by the Custodian's own failure to exercise
reasonable care.
The Customer authorizes and instructs the Custodian to hold the Property in the
Account in custody accounts which have been established by the Custodian with
one of its branches, a branch of another U.S. bank, a foreign bank or trust
company acting as custodian or a securities depository in which the Custodian
participants. Hereinafter, the term "subcustodian" will refer to any third-party
agent referred to in the first sentence of this paragraph which has entered into
an agreement with the Custodian of the type contemplated hereunder regarding
Securities and/or Cash held in or to be acquired for the Account. In addition,
the Customer also authorizes the Custodian to authorize any subcustodian to hold
the Property in the Account in one or more accounts with securities depositories
or clearing agencies in which such subcustodian participates subject to the
provisions set forth below. The Custodian shall select in its sole discretion
the entity or entities in the custody of which any of the Securities may be so
maintained or with which any Cash may be so deposited. Furthermore, any entity
so selected is authorized to hold such Securities or Cash in its account with
any securities depository or clearing agency in which it participates.
- 3 -
<PAGE>
6. Use of Subcustodian. With respect to Securities in the Account which
are maintained by the Custodian in the custody of a subcustodian pursuant to
Section 5,
(a) The Custodian will identify on its books as belonging to the
Customer any Securities held by such subcustodian.
(b) In the event that a subcustodian permits any of the Securities
placed in its care to be held in a securities depository or clearing
agency, such subcustodian will be required by its agreement with the
Custodian to identify on its books such Securities as being held for
the account of the Custodian for its customers.
(c) Any Securities in the Account held by a subcustodian will be
subject only to the instructions of the Custodian or its agents
unless specifically otherwise authorized by the Custodian on an
exception basis; and any Securities held in a securities depository
or clearing agency for the account of the Custodian or a
subcustodian will be subject only to the instructions of the
Custodian or such subcustodian, as the case may be.
(d) Securities deposited with a subcustodian will be maintained in an
account holding only assets for customers of the Custodian.
(e) Any agreement the Custodian shall enter into with a subcustodian
with respect to the holding of Securities shall require that (i) the
Securities are not subject to any right, charge, security interest
lien or claim of any kind in favor of such subcustodian except a
claim for payment in accordance with such agreement for their safe
custody or administration and expenses related thereto and (ii)
beneficial ownership of such Securities be freely transferable
without the payment of money or value other than for safe custody or
administration and expenses related thereto.
(f) Upon request by the Customer, the Custodian will identify the name,
address and principal place of business of any subcustodian and the
name and address of the governmental agency or other regulatory
authority that supervises or regulates such subcustodian.
7. Holding of Securities, Nominees, etc. Securities in the Account
which are held by the Custodian or any subcustodian may be held by such entity
in the name of the Customer, in its own name, in the name of its nominee or in
bearer form. Securities which are held with a subcustodian or are eligible for
deposit in a securities depository as provided above may be maintained with the
subcustodian or depository, as the case may be, in an account for the
Custodian's or subcustodian's customers. The Custodian or subcustodian, as the
case may be, may combine certificates of the same issue held by it as fiduciary
or as a custodian. In the event that any Securities in the name of the Custodian
or its nominee or held by one of its subcustodians and registered in the name of
such subcustodian or its nominee are called for partial redemption by the issuer
of such Security, the
- 4 -
<PAGE>
Custodian may, subject to the rules or regulations pertaining to allocation of
any securities depository in which such Securities have been deposited, allot,
or cause to be allotted, the called portion to the respective beneficial holders
of such class of security in any manner the Custodian deems to be fair and
equitable.
8. Proxies, etc. With respect to any proxies, notices, reports or other
communications relative to any of the Securities in the Account, the Custodian
shall perform such services relative thereto as may be agreed upon between the
Custodian and the Customer. Neither the Custodian nor its nominees or agents
shall vote upon or in respect of any of the Securities in the Account, execute
any form of proxy to vote thereon, or give any consent or take any action
(except as provided in Section 2) with respect thereto except upon the receipt
of Instructions from the Customer relative thereto.
9. Settlement Procedures. Settlement and payment for Securities
received for the Account and delivery of Securities maintained for the Account
may be effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the Jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering Securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such Securities from such purchaser or dealer, and
in accordance with the standard operating procedures of the Custodian in effect
from time to time for that jurisdiction or market.
10. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian at its address set forth in Section 15 below in
writing or by tested telex signed or given by such one or more person or persons
as the Customer shall have from time to time authorized to give the particular
class of Instructions in question and whose name and (if applicable) signature
and office address have been filed with the Custodian, or upon receipt of such
other form of instructions as the Customer may from time to time authorize in
writing and which the Custodian agrees to accept. The Custodian shall have the
right to assume in the absence of notice to the contrary from the Customer that
any person whose name is on file with the Custodian pursuant to this Section 10
has been authorized by the Customer to give the Instructions in question and
that such authorization has not been revoked.
11. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Securities in the Account and carrying out its obligations under
the Agreement. So long as and to the extent that it has exercised reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any Property or other property or evidence of title thereto
received by it or delivered by it pursuant to this Agreement and shall be held
harmless in acting upon, and may conclusively rely on, without liability for any
loss resulting therefrom, any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed or furnished
by the proper party or parties, including, without limitation, Instructions, and
shall be indemnified by the Customer for any losses, damages, costs and expenses
(including, without limitation, the fees and expenses of counsel) incurred by
the Custodian and arising out of action
- 5 -
<PAGE>
taken or omitted in good faith by the Custodian hereunder or under any
Instructions. The Custodian shall be liable to the Customer for any loss which
shall occur directly as the result of the failure of a subcustodian (other than
any subcustodian which is a securities depository or clearing agency the actions
or omissions for which the Custodian's liability and responsibility is set forth
in the last proviso of the first paragraph of Section 5) to exercise reasonable
care with respect to the safekeeping of such Securities. In the event of any
loss to the Customer by reason of the failure of the Custodian or its
subcustodian to utilize reasonable care, the Custodian shall be liable to the
Customer to the extent of the Customer's actual damages at the time such loss
was discovered without reference to any special conditions or circumstances. In
no event shall the Custodian be liable for any consequential or special damages.
The Custodian shall be entitled to rely, and may act, on advice of counsel (who
may be counsel for the Customer) on all matters and shall be without liability
for any action reasonably taken or omitted pursuant to such advice.
All collections of funds or other property paid or distributed in respect of
Securities in the Account, including funds involved in third-party foreign
exchange transactions, shall be made at the risk of the Customer. The Custodian
shall have no liability for any loss accessioned by delay in the actual receipt
of notice by the Custodian or by its subcustodian of any payment, reception or
other transaction regarding Securities in the Accounting respect of which the
Custodian has agreed to take action as provided in Section 2 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether DE JURE or DE FACTO),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; acts of war, terrorism, insurrection or
revolution; strikes or work stoppages; the inability of a local clearing and
settlement system to settle transactions for reasons beyond the control of the
Custodian; hurricane, cyclone, earthquake, volcanic eruption, nuclear fusion,
fission, radioactivity or other acts of God.
The provisions of this Section shall survive termination of this Agreement.
12. Fees and Expenses. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's out-of-pocket or
incidental expenses, including (but not limitation) legal fees. The Customer
hereby agrees to hold the Custodian harmless from any liability or loss
resulting from any taxes or other governmental charges, and any expense related
thereto, which may be imposed, or assessed with respect to any Property in the
Account and also agrees to hold the Custodian, its subcustodians, and their
respective nominees harmless from any liability as a record holder of Property
in the Account. The Custodian is authorized to charge any account of the
Customer for such items. The provisions of this Section shall survive the
termination of this Agreement.
13. Amendment, Modifications, etc. No provisions of this Agreement may
amended, modified or waived except in writing signed by the parties hereto.
14. Termination. This Agreement may be terminated by the Customer or
the Custodian by ninety (90) days' notice to the other; provided that notice by
the Customer shall specify the names of the persons to who the Custodian shall
deliver the Securities in the Account and to whom the Cash in the Account shall
be paid. If notice of termination is given by the Custodian, the Customer shall,
- 6 -
<PAGE>
within ninety (90) days following the giving of such notice, deliver to the
Custodian a written notice specifying the names of the persons to whom the
Custodian shall deliver the Securities in the Account and to whom the Cash in
the Account shall be paid. In either case, the Custodian will deliver such
Securities and Cash to the persons so specified, after deducting therefrom any
amounts which the Custodian determines to be owed to it under Section 12. In
addition, the Custodian may in its discretion withhold from such delivery such
Cash and Securities as may be necessary to settle transactions pending at the
time of such delivery. If within ninety (90) days following the giving of a
notice of termination by the Custodian, the Custodian does not receive from the
Customer a written notice specifying the names of the persons to whom the Cash
in the Account shall be paid, the Custodian, at its election, may deliver such
Securities and pay such Cash to a bank or trust company doing business in the
State of New York to be held and disposed of pursuant to the provisions of this
Agreement, or may continue to hold such Securities and Cash until a written
notice as aforesaid is delivered to the Custodian.
15. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, had delivered or sent by telex,
telegram, facsimile or cable, addressed, if to the Customer, to its address set
forth on the signature page hereof and, if to the Custodian, to c/o BTNY
Services, Inc., 34 Exchange Place, Jersey City, New Jersey 07302, Attention:
Global Securities Services, (Telex No. 420066 Area 19 Answerback: BANTRUS)
(Facsimile No. 201/860-7290), or in either case to such other address as shall
have been furnished to the receiving party pursuant to the provisions hereof and
(b) shall be deemed effective when received, or, in the case of a telex, when
sent to the proper number and acknowledged by a proper answerback.
16. Security for Payment. To secure payment of all fees and expenses
payable to Custodian hereunder, including but not limited to amounts payable
pursuant to indemnification provisions and to the last paragraph of Section 2,
the Customer hereby grants to Custodian a continuing security interest in and
right to setoff against the Account and all Property held therein from time to
time in the full amount of such obligations; provided that, if the Account
consists of more than one fund and the obligations secured pursuant to this
Section 16 can be allocated to a specific fund, such security interest and right
of setoff will be limited to any amounts owned hereunder, Custodian shall be
entitled to use available Cash in the Account or such applicable portion thereof
held for a specific fund, as the case, may be, and to dispose of Securities in
the Account or such applicable portion thereof as is necessary. In the event
Securities in the Account or such applicable portion thereof are insufficient to
discharge such obligations, the Customer hereby grants Custodian a continuing
security interest in and right of setoff against the balance from time to time
in any non-custodian account of the Customer (the "Pledged Balances"), and
Custodian may, at any time or from time to time at Custodian's sole option and
without notice, appropriate and apply toward the payment of such obligations,
the Pledged Balances. If at any time Property in the Account or such applicable
portion thereof and the Pledged Balances are insufficient to fully collateralize
such obligations, Customer shall provide to Custodian additional collateral in
form and amount satisfactory to Custodian and shall grant to Custodian a
continuing security interest in and right of setoff against such collateral. In
any such case and without limiting the foregoing, Custodian shall be entitled to
take such other action(s) or exercise such other options, powers and rights as
Custodian now or hereafter has a secured creditor under the New York Uniform
Commercial Code or any other applicable law.
- 7 -
<PAGE>
17. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and
Custodian.
18. Publicity. Customer shall furnish to Custodian at its office
referred to in Section 15 above, prior to any distribution thereof, copies of
any material prepared for distribution to any persons who are not parties hereto
that refer in any way Custodian. Customer shall not distribute or permit the
distribution of such materials if Custodian reasonable objects in writing within
ten (10) business days (or such other time as may be mutually agreed) after
receipt thereof. The provisions of this Section shall survive the termination of
this Agreement.
19. Submission to Jurisdiction. To the extent, if any, to which the
Customer or any of its respective properties may be deemed to have or hereafter
to acquire immunity, on the ground of sovereignty or otherwise, from any
judicial process or proceeding to enforce this Agreement or to collect amounts
due hereunder (including, without limitation, attachment proceedings prior to
judgment or in aid of execution) in any jurisdiction, the Customer hereby waives
such immunity and agrees not to claim the same. Any suit, action or proceeding
arising out of this Agreement may be instituted in any State or Federal court
sitting in the City of New York, State of New York, United States of America,
and the Customer irrevocably submits to the non-exclusive jurisdiction of any
such court in any such suit, action or proceeding and waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of venue of such suit, action or proceeding brought in such a court and
any claim that such suit, action or proceeding was brought in an inconvenient
forum. The Customer hereby irrevocably designates, appoints and empowers, as its
authorized agent to receive, for and on behalf of the Customer and its property
service of process in the State of New York when and as such legal actions or
proceedings may be brought in any of the aforementioned courts, and such service
of process shall be deemed complete upon the date of delivery thereof to such
agent whether or not such agent gives notice thereof to the Customer or upon the
earliest of any other date permitted by applicable law. The Customer further
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
certified air mail, postage prepaid, to the Customer at its address set forth
below or in any other manner permitted by law, such service to become effective
upon the earlier of (i) the date fifteen (15) days after such mailing or (ii)
any earlier of date permitted by applicable law. The Customer agrees that it
will at all times continuously maintain an agent to receive service of process
in the City and State of New York on behalf of itself and its properties with
respect to this Agreement and in the event that, for any reason, the agent named
above or its successor shall no longer serve as agent of the Customer to receive
service of process in the City and State of New York on its behalf, the Customer
shall promptly appoint a successor to so serve and shall advise the Custodian
thereof
20 Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
STAR BANK, N.A.
- 8 -
<PAGE>
By:
------------------------------------
Title: Senior Trust Officer
Address: 425 Walnut St., M.L. 6118
Cincinnati, Ohio 45202
BANKERS TRUST COMPANY
By:
------------------------------------
Title:
------------------------------------
- 9 -
<PAGE>
Star Bank, N.A
Global Custody
Fee Schedule
1. ANNUAL CHARGE ON FUND ASSETS NON-EMERGING MARKETS
-------------------------------------------------
-- 10 basis points on the first $25 million
-- 12 basis points on the next $25 million
-- Remainder to be negotiated
2. TRANSACTION FEE FOR NON-EMERGING MARKETS:
----------------------------------------
-- $125 per Security Purchase/sale until funds asset value reaches $25
million
-- $75 per security purchase/sale once funds asset value exceeds
$25 million
NON-EMERGING MARKETS:
---------------------
- -- Cedel (Eurobonds) -- Australia -- Austria
- -- Euroclear (Eurobonds) -- Belgium -- Hong Kong
-- Canada -- Indonesia
-- Denmark -- Malaysia
-- France -- Mexico (Equieies)
-- Germany -- Philippines
-- Italy -- Singapore
-- Ireland -- Spain
-- Japan -- Sweden
-- Luxembourg -- Thailand
-- Netherlands
-- New Zealand
-- Norway
-- Switzerland
-- United Kingdom
<PAGE>
ASSET AND TRANSACTION FEE -- EMERGING MARKETS
- ---------------------------------------------
COUNTRY ANNUAL ASSET FEE TRANSACTIONS
- ------- ---------------- ------------
Argentina 45 Basis Points $175
Bangladesh 35 Basis Points $175
Brazil 50 Basis Points $125
Chile 30 Basis Points $125
Columbia 40 Basis Points $150
Finland 15 Basis Points $125
Greece 50 Basis Points 20 Basis Points
India 45 Basis Points $175
Mexico (Bonds) 30 Basis Points $125
Pakistan 30 Basis Points $175
Peru 55 Basis Points $175
Portugal 15 Basis Points $125
Shanghai 25 Basis Points $100
Shenzen 25 Basis Points $100
South Korea 15 Basis Points $125
Sri Lanka 25 Basis Points $100
Turkey 30 Basis Points $125
Venezuela 35 Basis Points $125
3. Base Fee -- $525 per Account (per month)
4. Communications (Globe*Link) -- Free of Charge
* The above fee schedule assumes the client will deal directly with Star
Bank and all foreign security transactions will be settled in U.S. dollars.
NOTES:
- ------
1. Fees are billed monthly.
2. Fees for the receipt of positions relating to the initial asset
transaction will be waived with the exception of Spain and Indonesia were
re-registration fees will be assessed.
3. Cash movements relating to third party FX trades will be assessed at $15
per U.S. wire movement and $50 per non-U.S. wire movement. For FX trades
concluded with BTCo., this charge will be waived.
4. Fees for investment in countries not listed will be negotiated separately.
5. Fees for stamp duty and registration, charged by local authorities, not
included as part of trade cost will be billed separately.
- 2 -
FUND ACCOUNTING SERVICE AGREEMENT
AGREEMENT made the 8th day of August 1994 by and between CROFT FUNDS CORPORATION
(the"Fund") and AMERICAN DATA SERVICES, INC., a New York corporation (AADS@).
BACKGROUND
----------
WHEREAS, the Fund is a diversified, open-end management investment
company registered with the United States Securities and Exchange Commission
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, ADS is a corporation experienced in providing accounting
services to mutual funds and possesses facilities sufficient to provide such
services; and
WHEREAS, the Fund desires to avail itself of the experience, assistance
and facilities of ADS and to have ADS perform for the Fund certain services
appropriate to the operations of the Fund, and ADS is willing to furnish such
services in accordance with the terms hereinafter set forth.
TERMS
-----
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, the Fund and ADS hereby agree as follows:
1. DUTIES OF ADS.
ADS will provide the Fund with the necessary office space, communication
facilities and personnel to perform the following services for the Fund:
(a) Timely calculate and transmit to NASDAQ the Fund's daily net
asset value and communicate such value to the Fund and its
transfer agent;
(b) Maintain and keep current all books and records of the Fund as
required by Rule 3la-1 under the 1940 Act, as such rule or any
successor rule may be amended from time to time ("Rule
31a-l"), that are applicable to the fulfillment of ADS's
duties hereunder, as well as any other documents necessary or
advisable for compliance with applicable regulations as may be
mutually agreed to between the Fund and ADS. Without limiting
the generality of the foregoing, ADS will prepare and maintain
the following records upon receipt of information in proper
form from the Fund or its authorized agents:
(i) Cash receipts journal
(ii) Cash disbursements journal
(iii) Dividend record
(iv) Purchase and sales C portfolio securities journals
(v) Subscription and redemption journals
(vi) Security ledgers
<PAGE>
(vii) Broker ledger
(viii) General ledger
(ix) Daily expense accruals
(x) Daily income accruals
(xi) Securities and monies borrowed or loaned and
collateral therefore
(xii) Foreign currency journals
(xiii) Trial balances
(c) Provide the Fund and its investment adviser with daily
portfolio valuation, net asset value calculation and other
standard operational reports as requested from time to time.
(d) Provide all raw data available from our fund accounting system
(PAIRS) for managements preparation of the following:
1. Semi-annual financial statements;
2. Semi-annual form N-SAR;
3. Annual tax returns;
4. Financial data necessary to update form N-1a;
5. Annual proxy statement.
(e) Provide facilities to accommodate annual audit and any audits
or examinations conducted by the Securities and Exchange
Commission or any other governmental or quasi-governmental
entities with jurisdiction.
ADS shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
2. COMPENSATION OF ADS.
In consideration of the services to be performed by ADS as set
forth herein, ADS shall be entitled to receive compensation and reimbursement
for all reasonable out-of-pocket expenses. The Fund agrees to pay ADS the fees
and reimbursement of out-of-pocket expenses as set forth in the fee schedule
attached hereto as Schedule A.
3. LIMITATION OF LIABILITY OF ADS.
(a) ADS may rely upon the advice of the Fund, or of counsel for the
Fund and upon statements of the Fund's independent accountants, brokers and
other persons reasonably believed by it in good faith to be expert in the
matters upon which they are consulted and for any actions reasonably taken in
good faith reliance upon such statements and without gross negligence or willful
misconduct, ADS shall not be liable to anyone.
- 2 -
<PAGE>
(b) ADS shall not be liable to the Fund for any error of judgment
or mistake of law or for any loss arising out of any act of omission by ADS in
the performance of its duties hereunder except as hereinafter set forth. Nothing
herein contained shall be construed to protect ADS against any liability to the
Fund or its security holders to which ADS shall otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence in the performance of its
duties on behalf of the Fund, reckless disregard of ADS's obligations and duties
under this Agreement or the willful violation of any applicable law.
(c) Except as may otherwise be provided by applicable law, neither
ADS nor its shareholders, officers, directors, employees or agents shall be
subject to, and the Fund shall indemnify and hold such persons harmless from and
against, any liability for and any damages, expenses or losses incurred by
reason of the inaccuracy of information furnished to ADS by the Fund or its
authorized agents or in connection with any error in judgment or mistake of law
or any act or omission in the course of, connected with or arising out of any
services to be rendered hereunder, except by reason of willful misfeasance, bad
faith or gross negligence in the performance of ADS's duties, by reason of
reckless disregard of ADS's obligations and duties under this Agreement or the
willful violation of any applicable law.
4. REPORTS.
(a) The Fund shall provide to ADS on a quarterly basis a report of
a duly authorized officer of the Fund representing that all information
furnished to ADS during the preceding quarter was true, complete and correct in
all material respects. ADS shall not be responsible for the accuracy of any
information furnished to it by the Fund or its authorized agents, and the Fund
shall hold ADS harmless in regard to any liability incurred by reason of the
inaccuracy of such information.
(b) Whenever, in the course of performing its duties under this
Agreement, ADS determines, on the basis of information supplied to ADS by the
Fund or its authorized agents, that a violation of applicable law has occurred
or that, to its knowledge, a possible violation of applicable law may have
occurred or, with the passage of time, would occur, ADS shall promptly notify
the Fund and its counsel of such violation.
5. ACTIVITIES OF ADS.
The services of ADS under this Agreement are not to be deemed
exclusive, and ADS shall be free to render similar services to others so long as
its services hereunder are not impaired thereby.
6. ACCOUNTS AND RECORDS.
The accounts and records maintained by ADS shall be the property of
the Fund, and shall be surrendered to the Fund promptly upon request by the Fund
in the form in which such accounts and records have been maintained or
preserved. ADS agrees to maintain a back-up set of accounts and records of the
Fund (which back-up set shall be updated on at least a weekly basis) at a
- 3 -
<PAGE>
location other than that where the original accounts and records are stored. ADS
shall assist the Fund's independent auditors, or, upon approval of the Fund, any
regulatory body, in any requested review of the Fund's accounts and records. ADS
shall preserve the accounts and records as they are required to be maintained
and preserved by Rule 3la-1.
7. CONFIDENTIALITY.
ADS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all other
information germane thereto, as confidential and not to be disclosed to any
person except as may be authorized by the Fund.
8. DURATION AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective as of the date hereof and
shall remain in force for a period of three (3) years, provided however, that
both parties to this Agreement have the option to terminate the Agreement,
without penalty, upon ninety (90) days prior written notice.
Upon termination of this Agreement in accordance with the
foregoing, ADS shall deliver to the Fund (at the expense of the Fund) all
records and other documents made or accumulated in the performance of its duties
for the Fund hereunder.
9. ASSIGNMENT.
This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the prior
written consent of ADS, or by ADS without the prior written consent of the Fund.
10. GOVERNING LAW.
The provisions of this Agreement shall be construed and interpreted
in accordance with the laws of the State of New York as at the time in effect
and the applicable provisions of the 1940 Act. To the extent that the applicable
law of the State of New York, or any of the provisions herein, conflict with the
applicable provisions of the 1940 Act, the latter shall control.
11. AGREEMENT BINDING ONLY ON FUND PROPERTY.
ADS understands that the obligations of this Agreement are not
binding upon any shareholder to the trust personally, but bind only upon the
trust's property. ADS represents that it has notice of the provisions of the
trust's declaration of trust disclaiming shareholder liability for acts or
obligations of the trust.
- 4 -
<PAGE>
12. AMENDMENTS TO THIS AGREEMENT.
This Agreement may be amended by the parties hereto only if such
amendment is in writing and signed by both parties.
13. NOTICES.
All notices and other communications hereunder shall be in writing,
shall be deemed to have been given when received or when sent by telex or
facsimile, and shall be given to the following addresses (or such other
addresses as to which notice is given):
To the Fund: To ADS:
Mr. Kent Croft Mr. Michael Miola
President President
Croft-Leominster, Inc. American Data Services, Inc.
207 East Redwood Street 24 West Carver St.
Suite 802 Suite 102
Baltimore, MD 21202 Huntington, NY 11743
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
CROFT FUNDS CORPORATION AMERICAN DATA SERVICES, INC.
By: /S/ KENT CROFT By: /S/ MICHAEL MIOLA
----------------------- -----------------------
Kent Croft Michael Miola
President President
- 5 -
<PAGE>
SCHEDULE A
(a) FUND ACCOUNTING SERVICE FEE:
For the services rendered by ADS in its capacity as fund accounting agent, as
specified in Paragraph 1. DUTIES OF ADS, the Fund shall pay ADS, within ten (10)
days after receipt of an invoice from ADS at the beginning of each month, a fee
which is included in Schedule A of the ADMINISTRATIVE SERVICES AGREEMENT.
<PAGE>
SCHEDULE B
PORTFOLIOS TO BE SERVICED UNDER THIS AGREEMENT:
(1) Croft-Leominster Value Fund
(2) Croft-Leominster Income Fund
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
AGREEMENT made the 8th day of August 1994 by and between CROFT FUNDS CORPORATION
(the "Fund") and AMERICAN DATA SERVICES, INC. a New York corporation (the
"Administrator").
BACKGROUND
WHEREAS, the Fund is a diversified open-end management investment
company registered with the United States Securities and Exchange Commission
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Administrator is a corporation experienced in providing
administrative services to mutual funds and possesses facilities sufficient to
provide such services; and
WHEREAS, the Fund desires to avail itself of the experience, assistance
and facilities of the Administrator and to have the Administrator perform for
the Fund certain services appropriate to the operations of the Fund and the
Administrator is willing to furnish such services in accordance with the terms
hereinafter set forth.
TERMS
-----
NOW, THEREFORE, in consideration of the promises and mutual covenants
hereinafter contained, the Fund and the Administrator hereby agree to the
following:
1. DUTIES OF THE ADMINISTRATOR.
---------------------------
The Administrator will provide the Fund with the necessary office space,
communication facilities and personnel to perform the following services for the
Fund:
(a) Monitor all regulatory (1940 Act and IRS) and prospectus
restrictions for compliance;
(b) Prepare and coordinate the printing of semi-annual and annual
financial statements;
(c) Prepare selected management reports for performance and
compliance analyses as agreed upon by the Fund and
Administrator from time to time;
(d) Prepare selected financial data required for directors'
meetings as agreed upon by the Fund and the Administrator from
time to time and coordinate directors meeting agendas with
outside legal counsel to the Fund;
<PAGE>
(e) Determine income and capital gains available for distribution
and calculate distributions required to meet regulatory,
income, and excise tax requirements, to be reviewed by the
Fund's independent public accountants;
(f) Prepare the Fund's federal, state, and local tax returns to be
reviewed by the Fund's independent public accountants;
(g) Prepare and maintain the Fund's operating expense budget to
determine proper expense accruals to be charged to the Fund in
order to calculate it's daily net asset value.
(h) 1940 ACT filings--
In conjunction with the Fund's outside legal counsel the
Administrator will:
-- Prepare the Fund's Form N-SAR reports;
-- Update all financial sections of the Fund's Statement of
Additional Information and coordinate its completion;
-- Update all financial sections of the Fund's prospectus and
coordinate its completion;
-- Update all financial sections of the Fund's proxy statement
and coordinate its completion;
-- Prepare an annual update to Fund's 24f-2 filing (if
applicable);
(i) Monitor services provided by the Fund's custodian bank as well
as any other service providers to the Fund;
(j) Provide appropriate financial schedules (as requested by the
Fund's independent public accountants or SEC examiners),
coordinate the Fund's annual or SEC audit, and provide office
facilities as may be required;
(k) Attend management and board of directors meetings as
requested; and
(l) The preparation and filing (filing fee to be paid by the Fund)
of applications and reports as necessary to register or
maintain the Funds registration under the securities or "Blue
Sky" laws of the various states selected by the Fund's
Distributor.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
- 2 -
<PAGE>
2. COMPENSATION OF THE ADMINISTRATOR.
----------------------------------
In consideration of the services to be performed by ADS as set forth
herein, ADS shall be entitled to receive compensation and reimbursement for all
reasonable out-of-pocket expenses. The Fund agrees to pay ADS the fees and
reimbursement of out-of-pocket expenses as set forth in the fee schedule
attached hereto as Schedule A.
3. RESPONSIBILITY AND INDEMNIFICATION.
-----------------------------------
(a) The Administrator shall be held to the exercise of reasonable care
in carrying out the provisions of the Agreement, but shall be without liability
to the Fund for any action taken or omitted by it in good faith without gross
negligence, bad faith, willful misconduct or reckless disregard of its duties
hereunder. It shall be entitled to rely upon and may act upon the accounting
records and reports generated by the Fund, advice of the Fund, or of counsel for
the Fund and upon statements of the Fund's independent accountants, and shall be
without liability for any action reasonably taken or omitted pursuant to such
records and reports or advice, provided that such action is not, to the
knowledge of the Administrator, in violation of applicable federal or state laws
or regulations, and provided further that such action is taken without gross
negligence, bad faith, willful misconduct or reckless disregard of its duties.
(b) The Administrator shall not be liable to the Fund for any error of
judgment or mistake of law or for any loss arising out of any act or omission by
the Administrator in the performance of its duties hereunder except as
hereinafter set forth. Nothing herein contained shall be construed to protect
the Administrator against any liability to the Fund or its security holders to
which the Administrator shall otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence in the performance of its duties on
behalf of the Fund, reckless disregard of the Administrator's obligations and
duties under this Agreement or the willful violation of any applicable law.
(c) Except as may otherwise be provided by applicable law, neither the
Administrator nor its stockholders, officers, directors, employees or agents
shall be subject to, and the Fund shall indemnify and hold such persons harmless
from and against, any liability for and any damages, expenses or losses incurred
by reason of the inaccuracy of information furnished to the Administrator by the
Fund or its authorized agents or in connection with any error in judgment or
mistake of law or any act or omission in the course of, connected with or
arising out of any services to be rendered hereunder, except by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, by reason of reckless disregard of the Administrator's obligations and
duties under this Agreement or the willful violation of any applicable law.
4. REPORTS.
-------
(a) The Fund shall provide to the Administrator on a quarterly basis a
report of a duly authorized officer of the Fund representing that all
information furnished to the Administrator during the preceding quarter was
true, complete and correct to the best of its knowledge. The Administrator shall
not be responsible for the accuracy of any information furnished to it by the
Fund, and the Fund shall hold the Administrator harmless in regard to any
liability incurred by reason of the inaccuracy of such information.
- 3 -
<PAGE>
(b) The Administrator shall provide to the Board of Directors of the
Fund, on a quarterly basis, a report, in such a form as the Administrator and
the Fund shall from time to time agree, representing that, to its knowledge, the
Fund was in compliance with all requirements of applicable federal and state
law, including without limitation, the rules and regulations of the Securities
and Exchange Commission and the Internal Revenue Service, or specifying any
instances in which the Fund was not so in compliance. Whenever, in the course of
performing its duties under this Agreement, the Administrator determines, on the
basis of information supplied to the Administrator by the Fund, that a violation
of applicable law has occurred, or that, to its knowledge, a possible violation
of applicable law may have occurred or, with the passage of time, could occur,
the Administrator shall promptly notify the Fund and its counsel of such
violation.
5. ACTIVITIES OF THE ADMINISTRATOR.
--------------------------------
The Administrator shall be free to render similar services to others so
long as its services hereinunder are not impaired thereby.
6. RECORDS.
-------
The records maintained by the Administrator shall be the property of
the Fund, and shall be made available to the Fund promptly upon request by the
Fund in the form in which such records have been maintained or preserved. The
Administrator shall upon approval of the Fund assist the Fund's independent
auditors, or, any regulatory body, in any requested review of the Fund's
accounts and records. The Administrator shall preserve the records in its
possession (at the expense of the Fund) as required by Rule 31a-1 of the 1940
Act.
7. CONFIDENTIALITY.
----------------
The Administrator agrees that it will, on behalf of itself and its
officers and employees, treat all transactions contemplated by this Agreement,
and all other information germane thereto, as confidential and such information
shall not be disclosed to any person except as may be authorized by the Fund.
8. DURATION AND TERMINATION OF THE AGREEMENT.
------------------------------------------
This Agreement shall become effective as of the date hereof and shall
remain in force for a period of three (3) years, provided however, that both
parties to this Agreement have the option to terminate the Agreement, without
penalty, upon ninety (90) days prior written notice.
Upon termination of this Agreement in accordance with the foregoing,
the Administrator shall deliver to the Fund (at the expense of the Fund) all
records and other documents made or accumulated in the performance of its duties
for the Fund hereunder.
- 4 -
<PAGE>
9. ASSIGNMENT.
-----------
This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by the Fund without the prior written consent
of the Administrator, or by the Administrator without the prior written consent
of the Fund.
10. GOVERNING LAW.
--------------
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the 1940 Act. To the extent that the applicable law
of the State of New York, or any of the provisions herein, conflict with the
applicable provisions of the 1940 Act, the latter shall control.
11. AMENDMENTS TO THIS AGREEMENT.
-----------------------------
This Agreement may be amended by the parties hereto only if such
amendment is in writing and signed by both parties.
13. NOTICES.
-------
All notices and other communications hereunder shall be in writing,
shall be deemed to have been given when delivered in person or by certified
mail, return receipt requested, and shall be given to the following addresses
(or such other addresses as to which notice is given):
To the Fund: To ADS:
Mr. Kent Croft Mr. Michael Miola
President President
Croft-Leominster, Inc. American Data Services, Inc.
207 East Redwood Street 24 West Carver Street
Suite 802 Suite 102
Baltimore, MD 21202 Huntington, NY 11743
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CROFT FUNDS CORPORATION AMERICAN DATA SERVICES, INC.
By: /S/ KENT CROFT By: /S/ MICHAEL MIOLA
---------------------- ------------------------
Kent Croft Michael Miola
President President
- 5 -
<PAGE>
SCHEDULE A
----------
(a) ADMINISTRATIVE SERVICE FEE:
---------------------------
For the services rendered by ADS in its capacity as administrator, as specified
in Paragraph 1. DUTIES OF THE ADMINISTRATOR., the Fund shall pay ADS, within ten
(10) days after receipt of an invoice from ADS at the beginning of each month, a
fee equal to the greater of:
NOTE: The following fees are per portfolio serviced.
MINIMUM FEE:
------------
Based upon previous month-end net assets:
Under $10 million .......................$1,300
From $11 million to $20 million ..........1,600
From $21 million on ......................2,000
OR,
NET ASSET CHARGE:
1/12th of 0.05% (5 basis points) of net assets.
On each annual anniversary date of this Agreement, the fees enumerated
above will be increased by the change in the Consumer Price Index for the
Northeast region (CPI) for the twelve month period ending with the month
preceding such annual anniversary date.
(b) EXPENSES. The Fund shall reimburse ADS for any out-of-pocket
expenses, exclusive of salaries, advanced by ADS in connection with but not
limited to the printing or filing of documents for the Fund, travel, telephone,
quotation services, facsimile transmissions, stationery and supplies, record
storage, postage, telex, and courier charges, incurred in connection with the
performance of its duties hereunder. ADS shall provide the Fund with a monthly
invoice of such expenses and the Fund shall reimburse ADS within fifteen (15)
days after receipt thereof.
(c) STATE REGISTRATION (BLUE SKY) SURCHARGE: The fees enumerated in
paragraph (a) above include the initial state registration, renewal and
maintenance of registration (as detailed in, Paragraph 1(1) DUTIES OF THE
ADMINISTRATOR) for five (5) states. Each additional state registration requested
will be subject to the following fees:
Initial registration ............... $175.00
Registration renewal ............... $100.00
Sales reports (if required) ........ $ 25.00
<PAGE>
(d) SPECIAL REPORTS. All reports and /or analyses requested by the Fund
that are not in the normal course of fund administrative activities as specified
in Section 1 of this Agreement shall be subject to an additional charge, agreed
upon in advance, based upon the following rates:
Labor:
Senior staff--$100.00/hr.
Junior staff--$ 50.00/hr.
Computer time-- $ 45.00/hr.
(e) SECURITY DEPOSIT. The Fund will remit to ADS upon execution of this
Agreement a security deposit equal to one (1) month's minimum fee under this
Agreement, computed in accordance with the number of portfolios listed in
Schedule B of this Agreement. The Fund will have the option to have the security
deposit applied to the last month's service fee, or applied to any new contract
between the Fund and ADS.
- 2 -
SHAREHOLDER SERVICING AGENT AGREEMENT
AGREEMENT made the 8th day of August 1994 by and between CROFT FUNDS CORPORATION
(the "Fund") and AMERICAN DATA SERVICES, INC., a New York corporation ("ADS" ).
BACKGROUND
WHEREAS, the Fund is a diversified, open-end management investment
company registered with the United States Securities and Exchange Commission
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, ADS is a corporation registered as a transfer agent under the
Securities and Exchange Act of 1934, experienced in providing transfer and
dividend disbursing agent functions to mutual funds and possesses facilities
sufficient to provide such services; and
WHEREAS, the Fund desires to avail itself of the experience, assistance
and facilities of ADS and to have ADS perform for the Fund certain services
appropriate to the operations of the Fund, and ADS is willing to furnish such
services in accordance with the terms hereinafter set forth.
TERMS
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained. the Fund and ADS hereby agree as follows:
1. EMPLOYMENT. The Fund hereby employs ADS to act as Shareholder
----------
Servicing Agent for the Fund. The portfolios to be covered by this Agreement are
listed on Schedule B annexed to this Agreement. ADS shall, at its own expense,
render the services and assume the obligations herein set forth subject to being
compensated therefore as herein provided.
2. AUTHORITY OF ADS. ADS is hereby authorized by the Fund to receive
----------------
all cash which may from time to time be delivered to it by or for the account of
the Fund and to deposit such cash into accounts maintained by the Fund's
custodian bank in the name of or for the benefit of the Fund; to issue
confirmations and/or certificates for shares of capital stock of the Fund upon
receipt of payment; to redeem or repurchase on behalf of the Funds' shares of
capital stock of the Fund upon receipt of certificates properly endorsed or
properly executed written requests as described in the Prospectus of the Fund;
and to act as dividend disbursing agent for the Fund.
3. Duties of ADS: ADS hereby agrees to:
A. Process new accounts.
<PAGE>
B. Process purchases, both initial and subsequent, in accordance
with the conditions set forth in the Funds' prospectuses, as
mutually agreed by the Fund and ADS.
C. Transfer shares of capital stock to an existing account or to a
new account upon receipt of required documentation in good order.
D. Redeem uncertificated and/or certificated shares upon receipt of
required documentation in good order.
E. Issue and/or cancel certificates as instructed; replace lost,
stolen or destroyed certificates upon receipt of satisfactory
indemnification or bond.
F. Distribute dividends and/or capital gain distributions. This
includes disbursement as cash or reinvestment and changing the
disbursement option at the request of shareholders.
G. Process exchanges between funds (process and direct
purchase/redemption and initiate new account or process to new
account.
H. Make miscellaneous changes to records, including but not
necessarily limited to address changes, and changes in plans
(I.E., systematic withdrawal, dividend reinvestment. etc.).
I. Prepare and mail a year to date confirmation and statement as
each transaction is recorded in a shareholder account, with the
original sent to the shareholder. Duplicate confirmations to be
available on request within current year.
J. Obtain 800 line/s to answer shareholder service calls and
correspondence in reply to shareholder requests. Please note that
this will be a shareholder service line only. All ADS responses,
verbal and written, will be strictly limited to the status of an
existing account. All other calls will be transferred to fund
management or the distributor.
K. Reports to Fund:
Daily -- transaction journal with listing of all subscriptions
and redemptions.
Monthly -- listing of all subscription and redemption
transactions for month.
L. Daily control and reconciliation of Fund shares with ADS's
records and the Fund's office records.
- 2 -
<PAGE>
M. Prepare and mail annual form 1099B, 1099R, 1099DIV, and Form 5498
to shareholders. IRS copy will be filed via mag-media.
N. Provide readily obtainable data, which may from time to time be
requested for audit purposes.
O. Replace lost or destroyed checks.
P. Continuously maintain all records for active and closed accounts.
Q. Furnish shareholder data information for the current calendar
year in connection with IRA's (including Form 5498 and qualified
Keogh plans in a format suitable for mailing to shareholders.
4. COMPENSATION OF ADS. In consideration of the services to be
-------------------
performed by ADS as set forth herein, ADS shall be entitled to receive
compensation and reimbursement for all reasonable out-of-pocket expenses. The
Fund agrees to pay ADS a fee and reimbursement of out-of-pocket expenses as set
forth in the fee schedule attached hereto as Schedule A.
5. RIGHTS AND POWERS OF ADS. ADS's rights and powers with respect to
------------------------
acting for and on behalf of the Fund, including rights and powers of ADS's
officers and directors, shall be as follows:
A. No order, direction, approval, contract or obligation on behalf
of the Fund with or in any way affecting ADS shall be deemed
binding unless made in writing and signed on behalf of the Fund
by an officer or officers of the Fund who has been duly
authorized to so act on behalf of the Fund by its Board of
Directors/Trustees.
B. ADS will not be, act, or in any way be considered a selling agent
of the Fund. Nor will ADS engage in any selling activity of the
Fund.
C. The services of ADS to the Fund are not to be deemed exclusive
and ADS shall be free to render similar services to others as
long as its services for others does not in any manner or way
hinder, preclude or prevent ADS from performing its duties and
obligations under this Agreement.
D. The Fund will indemnify ADS and hold it harmless from and against
all costs, losses and expenses which may be incurred by it, and
all claims and liabilities which may be asserted or assessed
against it as a result of any action taken by it without gross
negligence and in good faith, and for any act, omission, delay or
refusal made by ADS in connection with this agency in reliance
upon or in accordance with any instruction or advice of any duly
authorized officer of the Fund.
- 3 -
<PAGE>
6. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become
-------------------------------------
effective as of the date hereof and shall remain in force for a period of three
(3) years, provided, however, that both parties to this Agreement have the
option to terminate the Agreement, without penalty, upon ninety (90) days prior
written notice.
Upon termination of this Agreement in accordance with the foregoing,
ADS shall deliver to the Fund (at the expense of the Fund) all records and other
documents made or accumulated in the performance of its duties for the Fund
hereunder.
7. ACCOUNTS AND RECORDS. The accounts and records maintained by ADS
--------------------
shall be the property of the Fund, and shall be surrendered to the Fund promptly
upon request by the Fund in the form in which such accounts and records have
been maintained or preserved. ADS agrees to maintain a back-up set of accounts
and records of the Fund (which back-up set shall be updated on at least a weekly
basis) at a location other than that where the original accounts and records are
stored. ADS shall assist the Fund's independent auditors, or, upon approval of
the Fund, any regulatory body, in any requested review of the Fund's accounts
and records. ADS shall preserve the accounts and records as they are required to
be maintained and preserved by Rule 31a-1.
8. CONFIDENTIALITY. ADS agrees that it will, on behalf of itself and
---------------
its officers and employees, treat all transactions contemplated by this
Agreement, and all other information germane thereto, as confidential and not to
be disclosed to any person except as may be authorized by the Fund.
9. AMENDMENT. This Agreement may be amended by mutual written consent
---------
of the parties. If, at any time during the existence of this Agreement, the Fund
deems it necessary or advisable in the best interests of the Fund that any
amendment of this Agreement be made in order to comply with the recommendations
or requirements of the Securities and Exchange Commission or state regulatory
agencies or other governmental authority, or to obtain any advantage under state
or federal laws, and shall notify ADS of the form of amendment which it deems
necessary or advisable and the reasons therefore, and if ADS declines to assent
to such amendment, the Fund may terminate this Agreement forthwith.
10. FOR BUSINESS TRUSTS ONLY: AGREEMENT BINDING ONLY ON FUND PROPERTY.
----------------------------------------
ADS understands that the obligations of this Agreement are not binding upon any
shareholder to the trust personally, but bind only upon the trust's property.
ADS represents that it has notice of the provisions of the trust's declaration
of trust disclaiming shareholder liability for acts or obligations of the trust.
11. ASSIGNMENT. This Agreement shall extend to and shall be binding
----------
upon the parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Fund without the
prior written consent of ADS, or by ADS without the prior written consent of the
Fund.
12. GOVERNING LAW. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of New York as at the
- 4 -
<PAGE>
time in effect and the applicable provisions of the 1940 Act. To the extent that
the applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
13. NOTICES. All notices and other communications hereunder shall be in
-------
writing, shall be deemed to have been given when received or when sent by telex
or facsimile, and shall be given to the following addresses (or such other
addresses as to which notice is given):
To the Fund: To ADS:
Mr. Kent Croft Mr. Michael Miola
President President
Croft-Leominster, Inc. American Data Services, Inc.
207 East Redwood Street 24 West Carver St.
Suite 802 Suite 102
Baltimore, MD 21202 Huntington, NY 11743
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CROFT FUNDS CORPORATION AMERICAN DATA SERVICES, INC.
By: /S/ KENT CROFT By: /S/ MICHAEL MIOLA
------------------------ -------------------------
Kent Croft Michael Miola
President President
- 5 -
<PAGE>
SCHEDULE A
----------
(a.) SHAREHOLDER SERVICE FEE:
The following fees are charged per portfolio serviced based upon the
following annual rates (billed monthly).
For the services rendered by ADS in its capacity as transfer agent, the
Fund shall pay ADS, within ten (10) days after receipt of an invoice from ADS at
the beginning of each month, a fee equal to the greater of:
Equity Fund .....................$ 8.00 per account */per year
Fixed Income Fund............... $10.00 per account */per year
Money Market Fund............... $12.00 per account */per year
- OR -
Minimum maintenance charge per fund -- $800.00/month.
* A charge is made for an account in the month that an account opens or closes.
2. Transaction Fees:
Trade Entry (purchase/liquidation) and maintenance
transactions..............................................$1.35 each
New account set-up...........................................$2.50 each
Customer service calls.......................................$1.00 each
Correspondence/Information requests..........................$1.25 each
Check preparation............................................$ .50 each
Liquidations paid by wire transfer...........................$3.00 each
Omnibus accounts.............................................$1.35 per **
Transaction
ACH charge...................................................$ .30 each
SWP .........................................................$1.25 each**
<PAGE>
Stock transfer services, cont.
Other Fees:
Closed accounts C per account...............................$2.00/year
** Not included as a Trade Entry.
4. IRA plan fees.
The following fees will be charged directly to the shareholder
account.
Annual maintenance fee............................$15.00 per account
Incoming transfer from prior custodian............$12.00
Distribution to a participant.....................$10.00
Refund of excess contribution.....................$15.00
Transfer to successor custodian...................$12.00
Automatic periodic distributions..................$15.00/year per
account
All accounts closed during a calendar year will be considered as open
accounts for billing purposes until the end of that calendar year.
On each anniversary date of this Agreement the fees enumerated above
will be increased by the change in the Consumer Price Index for the Northeast
region (CPI) for the twelve month period ending with the month preceding such
annual anniversary date.
(b) OUT-OF-POCKET-EXPENSES:
The Fund shall reimburse ADS for any out-of-pocket expenses, exclusive
of salaries, advanced by ADS in connection with but not limited to the printing
of confirmation forms and statements, proxy expenses, travel, telephone,
facsimile transmissions, stationery and supplies, record storage, postage, telex
and courier charges, and pro-rata portion of annual audit letter incurred in
connection with the performance of its duties hereunder. ADS shall provide the
Fund with a monthly invoice of such expenses and the Fund shall reimburse ADS
within fifteen (15) days after receipt thereof.
(c) SPECIAL REPORTS. All reports and/or analyses requested by the Fund
that are not included in the fee schedule, shall be subject to an additional
charge, agreed upon in advance, based upon the following rates:
- 2 -
<PAGE>
Labor :
Senior staff -- $100.00/hr.
Junior staff -- $ 50.00/hr.
Computer time --$ 45.00/hr.
(d) SECURITY DEPOSIT. The Fund will remit to ADS upon execution of this
Agreement a security deposit equal to one (1) month's minimum fee under this
Agreement, computed in accordance with the number of portfolios listed in
Schedule B of this Agreement. The Fund will have the option to have the security
deposit applied to the last month's service fee, or applied to any new contract
between the Fund and ADS.
(e) CONVERSION CHARGE.
NOTE: FOR EXISTING FUNDS ONLY (new funds please ignore):
There will be a charge to convert the Fund's shareholder accounting
records on to the ADS shareholder accounting system (ADSHARE). In addition, ADS
will be reimbursed for all out-of-pocket expenses, enumerated in paragraph (b)
above, incurred during the conversion process.
The conversion charge will be estimated and agreed upon in advance by
the Fund and ADS. The charge will be based upon the amount of records to be
converted and the condition of the previous service agents records.
- 3 -
<PAGE>
SCHEDULE B
PORTFOLIOS TO BE SERVICED UNDER THIS AGREEMENT:
(1) Croft-Leominster Value Fund
(2) Croft-Leominster Income Fund
November 10, 1994
Croft Funds Corporation
207 East Redwood Street
Baltimore, Maryland 21202
Ladies and Gentlemen::
We are furnishing this opinion with respect to the proposed offer and
sale from time to time of thirty million (30,000,000) shares, with a par value
of one mil ($.01) the "Shares"), of Croft Funds Corporation (the "Fund"), a
Maryland corporation, in registration under the Securities Act of 1933 by a
Registration Statement on Form N-1A (File No. 811- 8652; 33-81926) as amended
from time to time (the "Registration Statement").
We have acted as counsel to the Fund since its inception, and we are
familiar with the actions taken by its Directors to authorize the issuance of
the Shares. We have reviewed the Articles of Incorporation, the By-laws, and the
minute books of the Fund, and such other certificates, documents and opinions of
counsel as we deem necessary for the purpose of this opinion.
We have reviewed the Fund's Notification of Registration on Form N-8A
under the Investment Company Act of 1940. We have assisted in the preparation of
the Fund's Registration Statement, including all pre-effective amendments
thereto, filed or to be filed with the Securities and Exchange Commission.
In our review we have assumed the genuineness of all signatures, the
authenticity and completeness of all documents purporting to be originals
(whether reviewed by us in original or in copy form), and the conformity to the
originals of all documents purporting to be copies.
<PAGE>
Croft Funds Corporation
June 24, 1998
Page 2
We have assumed the appropriate action will be taken to register or
qualify the sale of the Shares under any applicable state and federal laws
regulating sales and offerings of securities.
Based upon the foregoing, we are of the opinion that:
1. The Fund is a corporation validly existing under the laws of the
State of Maryland. The Fund is authorized under its Articles of Incorporation to
issue thirty million Shares in series representing interests in the
Croft-Leominster Value Fund and the Croft- Leominster Income Fund, and in such
other series or classes as the Directors may hereafter duly authorize.
2. Upon the issuance of any Shares of any of the series or classes of
the Fund for payment therefor as described in, and in accordance with the
Registration Statement and the Articles of Incorporation and By-laws of the
Fund, the Shares so issued will be validly issued, fully paid and
non-assessable.
This opinion is intended only for your use in connection with the
offering of Shares and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as Exhibit 10 to the
Fund's registration Statement to be filed with the Securities and Exchange
Commission and to the reference to our firm under the caption "Legal Counsel" in
the Prospectus filed as part of such Registration Statement.
Very truly yours,
MORGAN, LEWIS AND BOCKIUS
McCurdy 27955 Clemens Road
& Associates Westlake, Ohio 44145
CPA's, Inc. Phone: (440) 835-8500
Fax: (440) 835-1093
- --------------------------------------------------------------------------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Post-Effective Amendment Number 5 of our report dated May 19, 1998 and to all
references to our firm included in or made a part of this Post-Effective
Amendment.
/s/ McCurdy & Associates CPA's, Inc.
- -----------------------------------
McCurdy & Associates CPA's, Inc.
June 25, 1998
PURCHASE AGREEMENT
The Croft Funds Corporation (the "Fund"), a Maryland Corporation, and
Croft- Leominster, Inc. ("Croft-Leominster"), a Maryland [resident], hereby
agree with each other as follows:
1. The Fund hereby offers Croft-Leominster and Croft-Leominster hereby
purchases 10,000 units of beneficial interest in the Fund (such
10,000 units of beneficial interest being hereinafter collectively
known as "Shares") at a price of $10.00 per Share. Croft-Leominster
hereby acknowledges purchase of the Shares and the Fund hereby
acknowledges receipt from Croft-Leominster of funds in the amount of
$100,000 in full payment for the Shares.
2. Croft-Leominster represents and warrants to the Fund that the Shares
are being acquired for investment purposes and not with a view to
the distribution thereof.
3. Croft-Leominster agrees that if it or any direct or indirect
transferee of any of the Shares redeems any of the Shares prior to
the 3rd anniversary of the date the Fund begins its investment
activities, Croft-Leominster will pay to the Fund an amount equal to
the number resulting from multiplying the Fund's total unamortized
organizational expenses by a fraction, the numerator of which is
equal to the number of Shares redeemed by Croft-Leominster or such
transferee and the denominator of which is equal to the number of
Shares outstanding as of the date of such redemption, as long as the
administrative position of the staff of the Securities and Exchange
Commission requires such reimbursement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the ____ day of ________, 1994.
THE CROFT FUNDS CORPORATION
By: ____________________________________
[Title]
DISTRIBUTION PLAN
CROFT FUNDS CORPORATION
WHEREAS, Croft Funds Corporation (the "Corporation") is engaged in
business as an open-end investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Directors of the Corporation have determined that there is
a reasonable likelihood that the following Distribution Plan will benefit the
Corporation and the owners of shares (the "Shareholders") in the
separately-managed portfolios ("Funds") of the Corporation;
NOW, THEREFORE, the Directors of the Corporation hereby adopt this
Distribution Plan pursuant to Rule 12b-1 under the 1940 Act.
SECTION 1. The Corporation has adopted this Distribution Plan (the
---------
"Plan") to enable the Corporation to directly or indirectly bear expenses
relating to the distribution of the shares of the Funds as may, from time to
time, be added to the Plan and listed on Schedule A attached hereto.
SECTION 2. The Corporation will pay broker/dealers and other financial
---------
institutions a fee not to exceed the annual rate specified on Schedule A hereto
as compensation for distribution or shareholder services they provide. The
actual fee to be paid by the Corporation to broker/dealers and financial
institutions will be negotiated based on the extent and quality of services
provided, and will be set forth in an agreement that meets the requirements of
Section 3(b) and Section 7 herein.
SECTION 3. This Plan shall not take effect as to a Fund until it has
---------
been approved (a) by a vote of at least a majority of the outstanding shares of
such Fund; and (b) together with any related agreements, by votes of the
majority of both (i) the Directors of the Corporation and (ii) the Qualified
Directors (as defined herein), cast in person at a Board of Directors meeting
called for the purpose of voting on this Plan or such agreement.
SECTION 4. This Plan shall continue in effect for a period of more than
---------
one year after it takes effect only for so long as such continuance is
specifically approved at least annually in the manner provided in Part (b) of
Section 3 herein for the approval of this Plan.
<PAGE>
SECTION 5. Any person authorized to direct the disposition of monies
---------
paid or payable by the Corporation pursuant to this Plan or any related
agreement shall provide to the Directors of the Corporation, at least quarterly,
a written report of the amounts so expended and the purposes for which such
expenditures were made.
SECTION 6. This Plan may be terminated at any time by the vote of a
---------
majority of the Qualified Directors or, with respect to shares of a Fund, by
vote of a majority of the outstanding shares of the Fund. Termination by the
shareholders of a Fund will not affect the validity of this Plan with respect to
the shares of any other Fund.
SECTION 7. All agreements with any person relating to implementation of
---------
this Plan shall be in writing, and any agreement related to this Plan shall
provide (a) that such agreement may be terminated at any time, without payment
of any penalty, by the vote of a majority of the Qualified Directors or with
respect to shares of a Fund, by vote of a majority of the outstanding shares of
the Fund, on not more than 60 days written notice to any other party to the
agreement; and (b) that such agreement shall terminate automatically in the
event of its assignment.
SECTION 8. This Plan may be amended in the manner provided in Part (b)
---------
of Section 3 herein for the approval of this Plan; provided, however, that the
Plan may not be amended to increase materially the amount of distribution
expenses permitted pursuant to Section 2 hereof with respect to the shares of a
Fund without the approval of a majority of the outstanding shares of such Fund
of the Corporation.
SECTION 9. While this Plan is in effect, the selection and nomination
---------
of those Directors who are not interested persons of the Corporation shall be
committed to the discretion of the Directors then in office who are not
interested persons of the Corporation.
SECTION 10. As used in this Plan, (a) the term "Qualified Directors"
----------
shall mean those Directors of the Corporation who are not interested persons of
the Corporation, and have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it, and (b) the terms
"assignment" and "interested person" shall have the respective meanings
specified in the 1940 Act and the rules and regulations thereunder, subject to
such exemptions as may be granted by the Securities and Exchange Commission.
- 2 -
<PAGE>
SECTION 11. This Plan shall not obligate the Corporation or any other
----------
party to enter into an agreement with any particular person.
May 1, 1995
- 3 -
<PAGE>
SCHEDULE A
Maximum Rule 12b-1 Plan Fees
FUND PERCENTAGE OF NET ASSETS
---- ------------------------
Croft-Leominster Value Fund _____%
Croft-Leominster Income Fund _____%
Dated this 1st day of
May, 1995.
- 4 -
CROFT FUNDS CORPORATION
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director
and/or officer of Croft Funds Corporation (the "Fund"), a corporation organized
under the laws of the State of Maryland, hereby constitutes and appoints Kent G.
Croft, L. Gordon Croft, and John H. Grady, Jr., and each of them singly, his
true and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, to sign for him and in his name, place and stead, and in the
capacity indicated below, to sign any and all Registration Statements and all
amendments thereto relating to the offering of the Trust's shares under the
provisions of the Investment Company Act of 1940 and/or the Securities Act of
1933, each such Act as amended, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
acting alone, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/S/ FREDERICK BILLIG Date: JUNE 19, 1998
- -------------------- -------------
Frederick S. Billig
Director
<PAGE>
CROFT FUNDS CORPORATION
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director
and/or officer of Croft Funds Corporation (the "Fund"), a corporation organized
under the laws of the State of Maryland, hereby constitutes and appoints Kent G.
Croft, L. Gordon Croft, and John H. Grady, Jr., and each of them singly, his
true and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, to sign for him and in his name, place and stead, and in the
capacity indicated below, to sign any and all Registration Statements and all
amendments thereto relating to the offering of the Trust's shares under the
provisions of the Investment Company Act of 1940 and/or the Securities Act of
1933, each such Act as amended, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
acting alone, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/S/ GEORGE D. EDWARDS, II Date: JUNE 18, 1998
- ------------------------- -------------
George D. Edwards, II
Director
<PAGE>
CROFT FUNDS CORPORATION
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director
and/or officer of Croft Funds Corporation (the "Fund"), a corporation organized
under the laws of the State of Maryland, hereby constitutes and appoints Kent G.
Croft, L. Gordon Croft, and John H. Grady, Jr., and each of them singly, his
true and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, to sign for him and in his name, place and stead, and in the
capacity indicated below, to sign any and all Registration Statements and all
amendments thereto relating to the offering of the Trust's shares under the
provisions of the Investment Company Act of 1940 and/or the Securities Act of
1933, each such Act as amended, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
acting alone, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/S/ ROY A. SCHOTLAND Date: JUNE 17, 1998
- -------------------- -------------
Roy A. Schotland
Director
<PAGE>
CROFT FUNDS CORPORATION
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director
and/or officer of Croft Funds Corporation (the "Fund"), a corporation organized
under the laws of the State of Maryland, hereby constitutes and appoints Kent G.
Croft, L. Gordon Croft, and John H. Grady, Jr., and each of them singly, her
true and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, to sign for her and in her name, place and stead, and in the
capacity indicated below, to sign any and all Registration Statements and all
amendments thereto relating to the offering of the Trust's shares under the
provisions of the Investment Company Act of 1940 and/or the Securities Act of
1933, each such Act as amended, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
acting alone, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
as of the date set forth below.
/S/ CARLA REEDINGER Date: JUNE 16, 1998
- ------------------- -------------
Carla Reedinger
Treasurer and Chief Financial Officer
<PAGE>
CROFT FUNDS CORPORATION
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned director
and/or officer of Croft Funds Corporation (the "Fund"), a corporation organized
under the laws of the State of Maryland, hereby constitutes and appoints L.
Gordon Croft, and John H. Grady, Jr., and each of them singly, his true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, to sign for him and in his name, place and stead, and in the
capacity indicated below, to sign any and all Registration Statements and all
amendments thereto relating to the offering of the Trust's shares under the
provisions of the Investment Company Act of 1940 and/or the Securities Act of
1933, each such Act as amended, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
acting alone, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/S/ KENT G. CROFT Date: JUNE 16, 1998
- ----------------- -------------
President and Director
<TABLE> <S> <C>
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<APPREC-INCREASE-CURRENT> 389,694
<NET-CHANGE-FROM-OPS> 1,177,444
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<DISTRIBUTIONS-OF-INCOME> 673,010
<DISTRIBUTIONS-OF-GAINS> 111,925
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<PER-SHARE-NII> .81
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<NAME> CROFT FUNDS CORPORATION
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<NAME> CROFT LEOMINSTER VALUE FUND
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<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 4,308,439
<INVESTMENTS-AT-VALUE> 5,277,462
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<DISTRIBUTIONS-OF-GAINS> 414,496
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<SHARES-REINVESTED> 26,843
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