CROFT
LEOMINSTER
INC.
INCOME FUND
ANNUAL REPORT
APRIL 30, 1999
<PAGE>
June 14, 1999
Dear Income Fund Shareholder,
As of May 31, 1999, The year to date total return of your
Croft-Leominster Income Fund is*:
YTD PERFORMANCE
---------------
Croft-Leominster Income Fund + 0.43%
Lehman Bros. Intermediate (0.65%)
Govt./Corp. Bond Index**
US overall economic growth continues to be strong. In addition, world
markets are recovering from the crisis of the past several years. Energy prices
(oil) have rebounded from their all-time historical lows. There are renewed
fears of inflation in the US economy. In response, the Federal Reserve has
changed its policy stance on interest rates to a more cautious one. All of these
factors have led to rising interest rates in US markets.
Since our last report to you on October 31, 1999 the 30 year Treasury
Bond yield has risen from approximately 5.1% to over 6.0%. Rising rates have two
main affects on bonds. First of all, bond prices fall as the present value of a
bond's cash flows become worth less. This is negative for bond investors.
Secondly, cash flows can be reinvested at higher rates. This is beneficial to
bond investors. The more influential of the two affects is the price
depreciation; thus, the recent poor performance of the bond market.
As of May 31, 1999, the Croft Leominster Income Fund has the following
characteristics: weighted average yield to maturity of 8.3%, average duration of
8.5 years and weighted average maturity of 19.2 years. To minimize credit risk,
we maintain strong diversification. We hold 73 corporate bond issues which are
spread among 20 industries. In addition, we continue to have a very limited
exposure to international markets. We believe the US market, with the world's
strongest economy, offers a much better overall risk vs. reward environment for
bond investors.
We thank you for you investment in the Croft-Leominster Income Fund.
With kindest regards,
Sincerely,
Kent G. Croft
- ----------------
* Past performance is not indicative of future performance. Investment return
and principal will fluctuate. An investor's shares, when redeemed may be
worth more or less than the original value.
** The Lehman Brothers Intermediate Bond Index is a broad measure of the
performance of intermediate (one to ten years) government and corporate
fixed-rate debt issues. These figures are presented gross of fees.
-2-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN PERFORMANCE
SINCE INCEPTION
ONE YEAR FIVE YEARS (01/01/92)*
-------- ---------- -----------
INCOME FUND 2.91% 9.42% 10.49%
* The performance data quoted includes past performance of the Leominster
Income Limited Partnership, the predecessor to the Croft-Leominster Income
Fund. This past performance has been adjusted for fees and expenses for the
periods prior to inception of the Croft-Leominster Income Fund on May 4,
1995. The Leominster Income Limited Partnership was not registered under
the 1940 Act and therefore was not subject to certain investment
restrictions which may have adversely affected performance.
Total return takes into account all distributions made by the Fund, as well as
changes in share price over the period. Past performance is not indicative of
future results.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE COMPARISON
$10,000 INVESTMENT SINCE INCEPTION*
INCOME LP/ PERIOD LEHMAN BROS. PERIOD
MMYY INCOME FUND RETURN* RETURN
- ---- ----------- ------- ------------ ------
*Period return reflects adjustment
for Income Fund Expenses.
<S> <C> <C> <C> <C>
Jan-92 $10,000.00 0.00% $10,000.00 0.00%
Mar-92 $10,720.00 7.20% $ 9,909.00 -0.91%
Jun-92 $11,325.68 5.65% $10,301.40 3.96%
Sep-92 $11,716.42 3.45% $10,755.69 4.41%
Dec-92 $11,845.30 1.10% $10,716.97 -0.36%
Mar-93 $12,733.69 7.50% $11,142.43 3.97%
Jun-93 $13,241.77 3.99% $11,383.11 2.16%
Sep-93 $13,580.76 2.56% $11,639.23 2.25%
Dec-93 $13,913.49 2.45% $11,657.85 0.16%
Mar-94 $13,422.34 -3.35% $11,421.20 -2.03%
Jun-94 $13,180.74 -1.80% $11,352.67 -0.60%
Sep-94 $13,245.32 0.49% $11,445.76 0.82%
Dec-94 $13,081.08 -1.24% $11,433.17 -0.11%
Mar-95 $13,879.03 6.10% $11,933.94 4.38%
May-95 $14,498.03 4.46% $12,141.59 1.74%
Jul-95 $14,918.47 2.90% $12,532.55 3.22%
Oct-95 $15,743.47 5.53% $12,879.70 2.77%
Jan-96 $16,601.49 5.45% $13,298.30 3.25%
Apr-96 $15,972.29 -3.79% $13,029.67 -2.02%
Jul-96 $16,333.26 2.26% $13,196.45 1.28%
Oct-96 $17,133.59 4.90% $13,627.97 3.27%
Jan-97 $17,555.08 2.46% $13,772.43 1.06%
Apr-97 $17,655.14 0.57% $ 13,866 0.68%
Jul-97 $19,014.59 7.70% $ 14,394 3.81%
Oct-97 $19,309.32 1.55% $ 14,649 1.77%
Jan-98 $20,021.83 3.69% $ 15,002 2.41%
Apr-98 $ 20,188 0.83% $ 15,142 0.93%
Jul-98 $ 20,594 2.01% $ 15,404 1.73%
Oct-98 $ 20,143 -2.19% $ 16,023 4.02%
Jan-99 $ 20,818 3.35% $ 16,174 0.94%
Apr-99 $ 20,776 -0.20% $ 16,104 -0.43%
<FN>
* Past performance is not indicative of future performance. Investment return
and principal will fluctuate. An investor's shares, when redeemed may be
worth more or less than the original value.
</FN>
</TABLE>
-3-
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
SCHEDULE OF INVESTMENTS
April 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES MARKET VALUE
- ------ ------------
COMMON STOCKS - 3.53%
UTILITIES-ELECTRIC - 0.55%
<C> <S> <C>
2,100 Illinova Corp. ............................................ $ 55,125
BOND FUNDS - 2.98%
6,200 Alliance World Dollar Govt. II ............................ 64,712
11,000 First Australia Prime Income Fund ......................... 73,563
4,500 Salomon Brothers Worldwide Income Fund .................... 54,000
10,300 Templeton Emerging Markets Income Fund .................... 109,438
--------
TOTAL COMMON STOCKS (Cost $353,771) ....................... 356,838
--------
PREFERRED STOCKS- 1.90%
2,820 Conseco Financing Trust, 8.70% ............................ 70,500
2,100 Foster Wheeler Trust, 9.00% ............................... 52,238
1,300 MediaOne Finance Trust, 9.04% ............................. 35,262
1,400 Oxy Capital Trust, 8.16% .................................. 34,737
--------
TOTAL PREFERRED STOCKS (Cost $190,396) ............................... 192,737
--------
PRINCIPAL VALUE
- ---------------
CORPORATE BONDS- 91.50%
AUTOS & AUTOMOTIVE PRODUCTS- 2.68%
150,000 Federal Mogul Corp. Notes, 7.75%, 07/01/06 ................ $150,440
95,000 Ford Holdings Inc. Debentures, 9.30%, 03/01/30 ............ 121,238
--------
271,678
--------
BUILDING MATERIALS & HOUSING- 2.73%
22,000 Oakwood Homes Corp. Senior Notes, 8.125%, 03/01/09 ........ 22,083
50,000 Owens-Corning, Notes, 7.50%, 08/01/18 ..................... 48,581
200,000 Owens-Corning, Notes, 7.70%, 05/01/08 ..................... 205,223
--------
275,887
--------
CABLE TV & CELLULAR TELEPHONE- 6.37%
185,000 CF Cable TV Inc. Senior Secured Notes, 9.125%, 07/15/07 ... 196,331
325,000 Tele-Communications Inc. Notes, 7.875%, 08/01/13 .......... 361,218
80,000 Tele-Communications Inc. Senior Debentures, 8.75%, 02/15/23 87,008
--------
644,557
--------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-4-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
SCHEDULE OF INVESTMENTS
April 30, 1999
- --------------------------------------------------------------------------------
PRINCIPAL VALUE MARKET VALUE
- --------------- ------------
CAPITAL GOODS- 0.94%
90,000 Caterpillar Inc. Sinking Fund Debentures,
9.75%, 06/01/19 .......................................... $ 94,561
---------
CHEMICALS- 3.30%
35,000 ARCO Chemical Co. Debentures, 9.90%, 11/01/00 ............ 35,560
65,000 ARCO Chemical Co. Debentures, 10.25%, 11/01/10 ........... 69,018
105,000 ARCO Chemical Co. Debentures, 9.80%, 02/01/20 ............ 104,128
129,000 Dow Chemical Co. Debentures, 5.97%, 01/15/09 ............. 125,046
---------
333,752
---------
CONTAINERS & PAPER- 18.95%
150,000 Abitibi-Consolidated, Debentures, 7.40%, 04/01/18 ........ 142,596
175,000 Champion International, Debentures, 7.625%, 09/01/23 ..... 177,394
46,000 Georgia Pacific Corp. Debentures, 9.875%, 11/01/21 ....... 51,761
380,000 Georgia Pacific Corp. Debentures, 9.625%, 03/15/22 ....... 424,809
700,000 Georgia Pacific Corp. Debentures, 9.125%, 07/01/22 ....... 765,675
50,000 Owens-Illinois Inc. Debentures, 7.80%, 05/15/18 .......... 48,294
65,000 Stone Container Corp. Senior Notes, 9.875%, 02/01/01 ..... 66,138
140,000 Stone Container Corp. Senior Subordinated Debentures,
10.75%, 04/01/02 ......................................... 140,000
100,000 Stone Container Corp. Senior Subordinated Units, 12.25%,
04/01/02.................................................. 101,500
---------
1,918,167
---------
ELECTRIC & GAS UTILITIES- 4.03%
40,000 Houston Lighting & Power, 1st Mortgage, 8.75%, 03/01/22 .. 43,273
70,000 Monongahela Power, 1st Mortgage, 8.625%, 11/01/21 ........ 73,892
115,000 Old Dominion Electric, 1st Mortgage, 8.76%, 12/01/22 ..... 127,936
105,000 Penn Power & Light, 1st Mortgage, 9.25%, 10/01/19 ........ 110,813
50,000 Portland General Electric, 1st Mortgage, 7.75%, 04/15/23 . 51,896
---------
407,810
---------
ENERGY & ENERGY SERVICES- 7.11%
65,000 Global Marine Inc., Notes, 7.00%, 06/01/28 ............... 59,288
55,000 Kelley Oil & Gas, Senior Subordinated Notes, 10.375%,
10/15/06 ................................................. 30,800
50,000 Magnum Hunter Res, Debentures, 10.00%, 06/01/07 .......... 46,000
135,000 Mariner Energy Corp. Senior Subordinated Notes, 10.50%,
08/01/06.................................................. 114,750
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-5-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
SCHEDULE OF INVESTMENTS
April 30, 1999
- --------------------------------------------------------------------------------
PRINCIPAL VALUE MARKET VALUE
- --------------- ------------
100,000 Mobil Corp. Debentures, 8.00%, 08/12/32 .................. $ 107,197
240,000 Occidental Petroleum, Debentures, 7.20%, 04/01/28 ........ 225,178
125,000 Panaco Inc. Notes, 10.625%, 10/01/04 ..................... 86,875
---------
610,800
---------
FINANCIAL SERVICES- 7.16%
105,000 APP International Finance, Global Bond, 11.75%, 10/01/05 . 84,000
123,000 Aetna Services Inc. Debentures, 8.00%, 01/15/17 .......... 125,840
95,000 Aetna Services Inc. Debentures, 7.25%, 08/15/23 .......... 91,886
100,000 Chase Manhattan Corp New, Subordinated Notes, 7.875%,
08/01/04 ................................................. 99,602
105,000 Lincoln National Corp. Debentures, 9.125%, 10/01/24 ...... 116,246
180,000 Reliance Group Holdings, Senior Subordinated Debentures,
9.75%, 11/15/03 .......................................... 86,075
20,000 Washington Mutual Cap Company Guarantee, 8.375%, 06/01/27 21,160
---------
724,809
---------
FOOD & DRUG PRODUCERS- 1.66%
80,000 Borden Inc. Sinking Fund Debentures, 9.25%, 06/15/19 ..... 75,982
85,000 RJR Nabisco Inc. Notes, 8.625%, 12/01/02 ................. 92,142
---------
168,124
---------
GAS & GAS TRANSMISSION- 3.14%
165,000 Bellwether Exploration Co. Senior Subordinated, 10.875%,
04/01/07.................................................. 150,150
165,000 KN Energy Inc, Debentures, 7.25%, 03/01/28 ............... 167,872
---------
318,022
---------
INDUSTRIAL GOODS- 10.91
60,000 Crown Cork & Seal, Debentures, 8.00%, 04/15/23 ........... 60,846
85,000 National Equipment Services, Senior Subordinated Notes,
10.00%, 11/30/04 ......................................... 89,250
75,000 Tenneco Inc. Debentures, 7.625%, 06/15/17 ................ 75,375
50,000 Tyco International Group SA Company Guarantee, 6.875%,
01/15/29.................................................. 48,834
50,000 Terex Corp. Company Guarantee, 8.875%, 04/01/08 .......... 49,813
65,000 Westinghouse Electric Corp. Debentures, 8.625%, 08/01/12 . 72,951
670,000 Westinghouse Electric Corp. Debentures, 7.875%, 09/01/23 . 707,480
---------
1,074,589
---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-6-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
SCHEDULE OF INVESTMENTS
April 30, 1999
- --------------------------------------------------------------------------------
PRINCIPAL VALUE MARKET VALUE
- --------------- ------------
MEDIA & ENTERTAINMENT- 7.86%
200,000 CBS Inc. Senior Debentures, 8.875%, 06/01/22 ............. $ 211,199
100,000 Granite Broadcasting, Senior Subordinated Notes, 10.375%,
05/15/05.................................................. 105,000
345,000 Time Warner Inc. Debentures, 9.15%, 02/01/23 ............. 427,438
45,000 Time Warner Inc. Debentures, 8.375%, 03/15/23 ............ 52,191
---------
795,828
---------
MEDICAL-DRUGS-1.17%
80,000 Dura Pharmaceuticals Convertible, 3.50%, 07/15/02 ........ 59,600
55,000 Rhone-Poulenc Rorer Inc. Debentures, 8.62%, 01/05/21 ..... 58,777
---------
118,377
---------
METALS & MINING- 5.00%
180,000 Alcan Aluminum Ltd. Debentures, 8.875%, 01/15/22 ......... 196,247
285,000 USX Corp. Debentures, 8.50%, 03/01/23 .................... 309,498
---------
505,745
---------
MISC. CONSUMER GOODS & SERVICES- 0.11%
10,000 Eastman Kodak Co. Notes, 9.375%, 03/15/03 ................ 11,189
---------
RETAIL STORES- 2.21
30,000 Dayton Hudson Co. Debentures, 8.60%, 01/15/12 ............ 35,304
115,000 Great Atlantic & Pacific Tea Co. Notes, 7.75%, 04/15/07 .. 114,452
100,000 Woolworth Corp. Debentures, 8.50%, 01/15/22 .............. 74,083
---------
109,387
---------
TECHNOLOGY- 0.52%
50,000 Tektronix Inc. Senior Notes, 7.625%, 08/15/02 ............ 52,134
---------
TELEPHONES- 4.93%
50,000 BellSouth Telecommunications, Debentures, 7.875%, 08/01/32 51,525
125,000 GTE Corp. Debentures, 8.75%, 11/01/21 .................... 149,612
70,000 New York Telephone Co. Debentures, 9.375%, 07/15/31 ...... 78,108
20,324 Nynex Corp. Amortized Debentures, 9.55%, 05/01/10 ........ 23,207
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-7-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
SCHEDULE OF INVESTMENTS
April 30, 1999
- --------------------------------------------------------------------------------
PRINCIPAL VALUE MARKET VALUE
- --------------- ------------
50,000 Sprint Capital Corp. Company Guarantee, 6.875%, 11/15/28.. $ 48,613
135,000 U.S. West Communications, Debentures, 8.875%, 06/01/31.... 147,440
---------
498,505
---------
TEXTILES & APPAREL MANUFACTURING- 0.57%
70,000 Fruit of the Loom Inc. Senior Notes, 7.375%, 11/15/23..... 58,045
---------
TRANSPORTATION- 0.15%
15,000 Union Pacific Corp. Sinking Fund Debentures, 8.50%,
01/15/17.................................................. 15,468
---------
TOTAL CORPORATE BONDS- (Cost $9,343,393).............................. 9,260,949
---------
SHORT TERM INVESTMENTS- 3.47%
351,169 Star Treasury Fund,
TOTAL SHORT TERM INVESTMENTS (Cost $351,169).......................... 351,169
---------
TOTAL INVESTMENTS (Cost $9,887,560)...................... 100.40% 10,161,693
Liabilities in excess of cash and other assets........... (0.40%) (40,510)
------ ----------
TOTAL NET ASSETS......................................... 100.00% $10,121,183
====== ===========
<FN>
(1) Federal Tax Information: At April 30, 1999 the net unrealized appreciation
based on cost for Federal Income tax purposes of $9,887,560 was as follows:
Aggregate gross unrealized appreciation for all investments
for which there was an excess of value over cost................ $541,994
Aggregate gross unrealized depreciation for all investments
for which there was an excess of cost over value................ (267,861)
---------
Net unrealized appreciation....................................... $274,133
=========
+ Non-income producing security
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</FN>
</TABLE>
-8-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities, at value (cost $9,950,017) (Note 2) $ 10,161,693
Dividends and interest receivable ............................ 201,638
Due from advisor (Note 3) .................................... 1,714
------------
Total assets ......................................... 10,365,045
------------
LIABILITIES
Payables:
For securities purchased .................$ 50,407
Dividends declared ....................... 183,603
Other expenses ........................... 9,852
------------
Total liabilities .................................... 243,862
------------
Net Assets ........................................... $ 10,121,183
============
NET ASSETS CONSIST OF:
Additional paid in capital ........................... 9,970,529
Accumulated net investment income .................... 20,164
Accumulated net realized loss from
investment transactions (Note 6) ................... (81,186)
Net unrealized appreciation on investments ........... 211,676
------------
Net Assets ........................................... $ 10,121,183
============
Net asset value and redemption and offering price per share
($10,121,183/966,331 shares
of capital stock outstanding) (Note 6) ................. $ 10.47
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
-9-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
STATEMENT OF OPERATIONS
For the year ended April 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends ........................................................ $ 47,694
Interest ......................................................... 786,777
TOTAL INCOME ................................................ 834,471
EXPENSES:
Investment advisory fee (Note 3) ................................. 79,921
Administration fee ............................................... 24,283
Legal Fees ....................................................... 23,219
Transfer agent fees .............................................. 11,687
Audit fees ....................................................... 9,549
Insurance ........................................................ 6,249
Custody fees ..................................................... 7,387
Printing ......................................................... 5,062
Registration Fees ................................................ 3,991
Directors' fees and expenses ..................................... 650
Distribution fee (Note 3) ........................................ 0
Other ............................................................ 8,245
---------
TOTAL EXPENSES ............................................ 180,243
Less: Expense reimbursement (Note 3) ...................... (68,960)
---------
Net expenses .............................................. 111,283
---------
NET INVESTMENT INCOME ..................................... 723,188
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS (Note 2)
Net realized loss from investment transactions ................... (34,024)
Distributions of realized gains by other investment companies .... 0
Net change in unrealized depreciation of investments ............. (369,529)
---------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS ........... (403,553)
---------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ...... $ 319,635
=========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
-10-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year For the year
ended ended
April 30, 1999 April 30, 1998
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS)
<S> <C> <C>
Net investment income ............................... $ 723,188 $ 679,426
Net realized gain (loss) from investment transactions (34,024) 88,800
Distributions of realized gains by other
investment companies ........................... 0 19,524
Net change in unrealized appreciation of investments (369,529) 389,694
------------- -------------
Net increase in net assets resulting from operations 319,635 1,177,444
DIVIDENDS PAID TO SHAREHOLDERS:
Net investment income ($.76 and
.78 per share, respectively) ................... (712,264) (673,010)
Capital gains ($.03 and .13 per share respectively) . (30,145) (111,925)
Net capital share transactions (Note 4) ............. 653,902 2,079,013
------------- -------------
Net increase in net assets .......................... 231,128 2,471,522
NET ASSETS:
Beginning of year ................................... 9,890,055 7,418,533
------------- -------------
End of year ......................................... $ 10,121,183 $ 9,890,055
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
-11-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
NOTES TO FINANCIAL STATEMENTS
April 30, 1999
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
The Croft-Leominster Income Fund (the "Fund"), is a managed portfolio
of the Croft Funds Corporation, a diversified open-end management investment
company registered under the Investment Company Act of 1940. The Fund is one of
a series of Funds of the Croft Funds Corporation, which also includes the
Croft-Leominster Value Fund. It was organized in 1994 to succeed to the business
of Croft-Leominster Inc.'s Leominster Income Limited Partnership, an investment
company organized as a limited partnership which commenced operations January 1,
1992 for the purpose of investing the partners' capital in securities under
professional investment management. This succession occurred on May 4, 1995 when
the partnership's net assets aggregating $3,175,041 were transferred to the
Croft-Leominster Income Fund in exchange for 317,504 shares of the Fund's
capital stock. As a result of transferring such assets at their market value,
the change in unrealized appreciation of investments for the period, as shown in
the Statement of Operations will not equal the current unrealized appreciation
at April 30, 1999 as shown in the Statement of Assets and Liabilities and the
Schedule of Investments. The Croft-Leominster Income Fund seeks a high level of
current income with moderate risk of principal by investing primarily in a
diversified portfolio of investment grade fixed-income securities.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
by the Fund in the preparation of its financial statements.
SECURITY VALUATION-Securities which are traded on any exchange or on
the NASDAQ over-the-counter market are valued at the last quoted sale price.
Investments, for which no sale is reported, are valued at their last bid price.
When market quotations are not readily available, when it is determined that the
last bid price does not accurately reflect the current value or when restricted
securities are being valued, such securities are valued as determined in good
faith under procedures established by and under the general supervision of the
Fund's Board of Directors. Fixed income securities generally are valued by using
market quotations, but may be valued on the basis of prices furnished by a
pricing service when the Adviser believes such prices accurately reflect the
fair market value of such securities. A pricing service utilizes electronic data
processing techniques based on yield spreads relating to securities with similar
characteristics to determine prices for normal institutional-size trading units
of debt securities without regard to sale or bid prices. Short term investments
in fixed income securities with maturities of less than 60 days when acquired,
or which subsequently are within 60 days of maturity, are valued by using the
amortized cost method of valuation, unless the Board of Directors determine that
the amortized cost does not reflect the securities' fair value, in which case
these securities will be valued at their fair value as determined by the Board
of Directors.
FEDERAL INCOME TAXES-The Fund intends to comply with requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its net investment income as dividends to its
-12-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
NOTES TO FINANCIAL STATEMENTS
April 30, 1999
- --------------------------------------------------------------------------------
shareholders. The Fund intends to distribute its net long-term capital gains and
its net short-term capital gains at least once a year. Therefore no provision
for income taxes is required. Federal income tax loss carryforwards generated in
prior years will be used to offset a portion of current year's net realized
gains.
OTHER-The Fund follows industry practice and records security
transactions on the trade date. The specific identification method is used for
determining gains or losses for financial statement and income tax purposes.
Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities are recorded as soon as information is
available to the Fund. Interest income is recorded on an accrual basis.
Discounts and premiums on securities purchased are amortized over the life of
the respective securities.
ESTIMATES-The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of cotigent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES.
The Fund retains Croft-Leominster Inc. (the "Adviser") as its
investment adviser. Under the terms of the agreement the Adviser receives a fee,
computed daily and payable monthly at the annual rate of .79% of the Income
Fund's average daily net assets. Until December 31, 2001, the Adviser guarantees
that the overall expense ratio for the Income Fund, which exclude ordinary
brokerage commissions incurred in the purchase or sale of portfolio securities,
will not exceed 1.10%. As a result, for the year ended April 30, 1999, the
Adviser accrued reimbursements to the Fund of $68,960.
Pursuant to a plan of Distribution the Fund pays a distribution fee of
up to .25% of the average daily net assets to Broker-Dealers for distribution
assistance, and to financial institutions and intermediaries such as banks,
savings and loan associations, insurance companies and investment counselors as
compensation for services rendered or expenses incurred in connection with
distribution assistance.
The Croft Funds Corporation elected to waive the 12b-1 fee for the Fund
on August 23, 1995. The 12b-1 fee will be waived into the foreseeable future;
however, the Croft Funds Corporation reserves the right to terminate the waiver
and reinstate the 12b-1 fee at any time in its sole discretion.
Certain Directors and officers of the Corporation are "interested
persons" (as defined in the Investment Company Act of 1940) of the Corporation.
Each "non-interested" Director is entitled to receive an annual fee of $500 plus
expenses for services relating to the Corporation.
-13-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
NOTES TO FINANCIAL STATEMENTS
April 30, 1999
- --------------------------------------------------------------------------------
NOTE 4. CAPITAL SHARE TRANSACTIONS
As of April 30, 1999 there was 30,000,000, $0.001 par value shares of
capital stock authorized for the Croft Funds Corporation, and capital paid-in
amounted to $9,970,529 for the Fund.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
APRIL 30, 1999 APRIL 30, 1998
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ............. 193,507 $ 2,061,975 339,981 $ 3,714,031
Shares issued in
reinvestment of dividends 40,710 435,209 57,575 629,138
Shares redeemed ......... (171,201) (1,843,282) (207,625) (2,264,156)
----------------------- -----------------------
Net increase ............ 63,016 $ 653,902 184,931 $ 2,079,013
======================= =======================
</TABLE>
NOTE 5. INVESTMENT TRANSACTIONS
Purchases and sales, excluding short term securities, for the year
ended April 30, 1999 aggregated $1,768,374, and $1,304,569, respectively for the
Fund.
NOTE 6. DISTRIBUTIONS TO SHAREHOLDERS
The Fund makes dividend distributions quarterly. During the year ended
April 30, 1999, distributions of $0.76 aggregating $712,264 were declared from
net investment income with $183,603 remaining payable to shareholders at April
30, 1999. For the same period, distributions of $0.03 aggregating $40,145 were
declared from net realized gains.
-14-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
FINANCIAL HIGHLIGHTS
(for a fund share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the For the May 4, 1995*
year ended year ended year ended through
April 30, April 30, April 30, April 30,
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period .......... $ 10.95 $ 10.40 $ 10.25 $ 10.00
Income (loss) from investment operations:
Net investment income ................. 0.77 0.81 0.79 0.73
Net realized and unrealized gain(loss)
on investments ................ (0.46) 0.65 0.26 0.28)
Total from investment operations ...... 0.31 1.46 1.05 1.01)
Less distributions:
Dividends from net investment income .. (0.76) (0.78) (0.84) (0.73)
Distribution from realized gains
from security transactions .... (0.03) (0.13) (0.06) (0.03)
Total distributions ................... (0.79) (0.91) (0.90) (0.76)
Net asset value, end of period ................ $ 10.47 $ 10.95 $ 10.40 $ 10.25
Total return** ................................ 2.91% 14.36% 10.56% 10.17%
Ratios/Supplemental Data:
Net assets end of period (in 000's) ... 10,121 9,890 7,419 6,450
Ratio of expenses to average net assets
before reimbursement .......... 1.78% 1.59% 1.90% 1.10%^
Ratio of expenses to average net assets
after reimbursement ........... 1.10% 1.10% 1.10% 1.10 ^
Ratio of net investment income (loss)
to average net assets,
before reimbursement .......... 6.47% 6.90% 6.76% 7.35%^
Ratio of net investment income (loss)
to average net assets,
after reimbursement ........... 7.15% 7.38% 7.57% 7.35%^
Portfolio turnover rate ............... 13.45% 15.62% 13.73% 13.76%^
<FN>
------------------
* Commencement of operations
** Based on net asset value per share
^ Annualized
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</FN>
</TABLE>
-15-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Directors
Croft-Leominster Income Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, of the Croft-Leominster Income Fund (one
of a series constituting the Croft Funds Corporation) as of April 30, 1999, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
financial highlights for each of the three years then ended, and for the period
from May 4, 1995 (commencement of operations) to April 30, 1996 in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments and cash held by
the custodian as of April 30, 1999, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Croft-Leominster Income Fund of the Croft Funds Corporation as of April 30,
1999, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the three years in the period then ended, and for the
period from May 4, 1995 (commencement of operations) to April 30, 1996 in the
period then ended, in conformity with generally accepted accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio
May 13, 1999
-16-
<PAGE>
CROFT
LEOMINSTER
INC.
1-800-746-3322
