CROFT LEOMINSTER
CROFT-LEOMINSTER
VALUE FUND
ANNUAL REPORT
APRIL 30, 2000
<PAGE>
June 16, 2000
Dear Shareholder:
From 01/01/00 to 06/16/00, your Croft-Leominster Value Fund has returned
10.3%. Over the same period, the S&P 500 Index has returned 0.2% and the Lipper
Multi-Cap Value Index has returned 1.3%. The Lipper Multi-Cap Value Index is how
we are measured versus funds with the same investment style.* For the calendar
year ending 12/31/99, the Value Fund returned 11.3%, the Lipper Multi-Cap Value
Index returned 7.8% and the S&P 500 Index returned 21.0%.*
In our past letters to you, we highlighted our belief that many investors
were ignoring fundamentals and were placing bets on companies with extremely
high valuations. This has occurred several times in the past. Each of these
periods of investor speculation eventually ends and the over-valued companies
correct.
The NASDAQ Index, which contains a number of these companies, declined
37.3% in a little over two months from its high value. It is now trading 24% off
of its high. An even more speculative index, the Bloomberg US Internet Index
dropped approximately 64% from its high.
In contrast, our Value philosophy and patience have been rewarded. Our
approach attempts to find those companies that are selling at a discount to
their intrinsic value based on future earnings, cash flows and/or hidden assets.
Many times these companies are out of favor with the general investment
community and offer compelling rewards vs. risks. This can help to preserve
investor principle when a correction occurs. For example, during the same period
that the NASDAQ Index and Bloomberg US Internet Index tumbled, your Value Fund
returned approximately 2.8%. The Value Fund has the following characteristics:
--------------------------------------------------------------------------------
Value Fund S&P 500 Index
--------------------------------------------------------------------------------
Estimated 2000 Price/Earnings 14.4X 25.2X
--------------------------------------------------------------------------------
Estimated Growth Rate 12.2% 11.0%
--------------------------------------------------------------------------------
Yield 1.0 1.0
Your largest holding continues to be SPX Corp. SPX Corp. consists of a
portfolio of 15 businesses that are focused in markets where they are the number
one or two operator. Management, led by CEO John Blystone, has been instrumental
in unlocking shareholder value. In the past four years, revenue has increased
threefold and cash flows have grown eightfold. Operating margins have also
increased by over 9%. Recently, SPX Corp. announced plans to IPO its Inrange
business which manufactures fiber channel switches. We estimate that the IPO
could value the Inrange business at more than 2/3 the current SPX stock price.
This values the rest of its businesses very cheaply. Proceeds from the IPO can
be used to pay down debt and/or to make acquisitions to fuel growth. Because of
this, we expect the stock to continue to gain.
-1-
<PAGE>
During the past year, several investors have inquired about our approach to
investing in technology and communication stocks. To reiterate, we do believe
that there is a place for technology and communication companies in your fund.
We have taken steps to implement this belief. The Fund's exposure in these areas
are with companies that are industry leaders, have quality earnings, are
reasonably valued within their sectors and have good growth rates. Most
importantly, we will invest only in those companies that we feel will be in
existence several years from now.
We thank you for your investment in the Croft-Leominster Value Fund.
Sincerely,
Kent 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 Standard and Poor's 500 (S&P 500) is
an unmanaged index that is widely recognized as an indicator of the overall
market. The Lipper Multi-Cap Value Index is comprised of stock funds investing
in companies of various size, normally those that are considered undervalued
relative to major stock indexes based on price-to-current-earnings and
price-to-book ratios.
Comments about the Value Fund Portfolio and the S&P 500 are as of 06/16/00.
-2-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER VALUE FUND
--------------------------------------------------------------------------------
Average Annual Performance
Since Inception
One Year 5/10/95
-------- -------
VALUE FUND (0.48%) 14.85%
Cumulative Performance Comparison
$10,000 Investment Since Inception*
[Graph deleted here] Graph depicts the comparison of the Value Fund, S&P 500 and
the Russell 2000 Value for the period May 1995 through April 2000.
RUSSELL
DATE VALUE FUND S&P 500 2000 Value
---- ---------- ------- ----------
May-95 $10,000.00 $10,000.00 $10,000.00
Jul-95 $10,300.00 $10,782.00 $10,820.00
Oct-95 $10,489.52 $11,224.06 $10,855.71
Jan-96 $11,513.30 $12,347.59 $11,714.39
Apr-96 $11,856.39 $12,764.94 $12,479.34
Jul-96 $11,563.54 $12,561.98 $11,972.68
Oct-96 $12,848.25 $13,926.21 $12,981.98
Jan-97 $14,208.88 $15,600.14 $14,346.38
Apr-97 $14,071.05 $ 15,970 $14,297.61
Jul-97 $17,145.58 $19,096.76 $16,898.34
Oct-97 $17,958.28 $18,394.00 $17,810.85
Jan-98 $17,478.79 $19,795.62 $18,279.28
Apr-98 $ 20,139 $ 22,521 $20,269.89
Jul-98 $ 17,845 $ 22,789 $17,918.58
Oct-98 $ 16,000 $ 22,434 $16,440.30
Jan-99 $ 17,320 $ 26,219 $17,019.00
Apr-99 $ 20,024 $ 27,432 $17,161.96
Jul-99 $ 19,579 $ 27,380 $17,894.77
Oct-99 $ 18,354 $ 28,188 $16,558.03
Jan-00 $ 18,377 $ 28,918 $16,707.06
Apr-00 $ 19,868 $ 30,202 $17,916.65
*Past performance is not indicative of future performance. Investment return and
principal will fluctuate. An investor's shares, when redeemed may be worth more
or less than the original value.
-3-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER VALUE FUND
SCHEDULE OF INVESTMENTS
April 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Market Value
------ ------------
COMMON STOCKS - 95.15%
Auto's & Automotive Products - 1.16%
<C> <S> <C>
4,150 Federal-Mogul Corp. .............................. $ 56,284
-----------
Banks, S&L's and Brokers - 7.37%
500 Astoria Financial Corp. .......................... 13,781
2,415 BankAtlantic Bancorp, Inc. ....................... 9,056
1,100 BankUnited Corp. ................................. 36,506
2,600 First Union Corp. ................................ 82,875
1,600 Mellon Financial Corp. ........................... 51,400
2,100 Summit Bancorp ................................... 53,287
4,376 Washington Mutual Inc. ........................... 111,861
-----------
358,766
-----------
Basic Materials - 0.54%
4,200 National Steel Corp. Cl B ........................ 26,250
-----------
Brazil - 0.21%
18,000 + Brazilian Investment Trust PLC ................... 10,260
-----------
Building & Construction - 0.63%
1,700 Owens Corning .................................... 30,919
-----------
Business Services - 0.12%
300+ Metamor Worldwide Inc. ........................... 5,812
-----------
Capital Equipment - 2.14%
300 Eaton Corp. ...................................... 25,200
700 Kennametal Inc. .................................. 20,125
3,750+ Terex Corp. ...................................... 58,594
-----------
103,919
-----------
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER VALUE FUND
SCHEDULE OF INVESTMENTS
April 30, 2000
--------------------------------------------------------------------------------
Shares Market Value
------ ------------
Chemicals - 3.19%
2,000 CK Witco Corp. ................................... $ 23,500
1,500 M.A. Hanna Co. ................................... 17,250
700+ International Specialty Products Inc. ............ 4,112
4,400 Lyondell Chemical Co. ............................ 80,850
500 Union Carbide Corp. .............................. 29,500
-----------
155,212
-----------
Closed-End Funds - 0.94%
534+ India Growth Fund Inc. ........................... 6,642
1,900+ Jardine Fleming India Fund ....................... 21,850
600+ Morgan Stanley India Invt. Fund .................. 7,275
700+ The India Fund Inc. .............................. 10,019
-----------
45,786
-----------
Consumer Cyclicals - 3.59%
600 Armstrong World Industries Inc. .................. 11,737
900 Black & Decker Corp. ............................. 37,856
2,800 Koninklijke Philips Electronics NV ............... 124,950
-----------
174,543
-----------
Consumer Services - 1.28%
2,458 Viad Corp. ....................................... 62,372
-----------
Financial Services - 5.60%
2,050 Capital One Financial Corp. ...................... 89,688
3,075 Citigroup Inc. ................................... 182,770
-----------
272,458
-----------
Health Care - 0.42%
800 Becton, Dickinson, and Co. ....................... 20,500
-----------
Insurance - 4.21%
4,500 Ace Ltd. ......................................... 107,719
800 Allstate Corp. ................................... 18,900
1,500 Hartford Financial Services Group Inc. ........... 78,281
-----------
204,900
-----------
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER VALUE FUND
SCHEDULE OF INVESTMENTS
April 30, 2000
--------------------------------------------------------------------------------
Shares Market Value
------ ------------
Media & Entertainment - 7.60%
300+ AMFM Inc. ........................................ $ 19,912
1,700+ Big City Radio Inc. .............................. 7,012
4,700+ CBS Corp. ........................................ 276,125
300+ Cablevision Systems Cl A ......................... 20,306
800+ Fox Entertainment Group Inc. ..................... 20,600
500 News Corporation Ltd ADR ......................... 25,719
-----------
369,674
-----------
Multi-Industry - 11.05%
3,200+ Alpine Group Inc. ................................ 26,000
3,401+ SPX Corp. ........................................ 373,685
3,000 Tyco International Ltd. .......................... 137,813
-----------
537,498
-----------
Natural Gas - 8.24%
900 Anadarko Petroleum Corp. ......................... 39,094
2,100 Burlington Resources Inc. ........................ 82,556
16,200+ Comstock Resources Inc. .......................... 76,950
1,300+ Mallon Resources Corp. ........................... 10,806
29,708+ Meridian Resource Corp. .......................... 107,692
7,900+ Titan Exploration Inc. ........................... 39,500
2,300 Union Pacific Resources Group Inc. ............... 44,131
-----------
400,729
-----------
Oil - 3.24%
800 Apache Corp. ..................................... 38,750
37,300+ Equity Oil Co. ................................... 71,103
5,200+ Santa Fe Snyder Corp. ............................ 47,775
-----------
157,628
-----------
Paper & Forest Products - 5.54%
3,000 Boise Cascade Corp. .............................. 97,688
11,261+ Smurfit-Stone Container Corp. .................... 171,730
-----------
269,418
-----------
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER VALUE FUND
SCHEDULE OF INVESTMENTS
April 30, 2000
--------------------------------------------------------------------------------
Shares Market Value
------ ------------
Pharmaceuticals - 2.90%
1,700 American Home Products Corp. ..................... $ 95,519
400 Warner Lambert Co. ............................... 45,525
-----------
141,044
-----------
Real Estate Investment Trusts - 1.52%
2,600 Starwood Hotels & Resorts Worldwide .............. 73,938
-----------
Technology - 11.69%
300+ America Online Inc. .............................. 17,944
498 Corning Inc. ..................................... 98,355
800+ PSINet Inc. ...................................... 18,550
200 International Business Machines Corp. ............ 22,325
350+ Microsoft Corp. .................................. 24,412
400+ Seagate Technology Inc. .......................... 20,325
700+ Unisys Corp. ..................................... 16,231
1,449 Flextronics International Ltd. ................... 101,792
600+ Varian Semiconductor Equipment Associates Inc. ... 40,350
900+ American Power Conversion ........................ 31,781
400+ Conexant Systems Inc. ............................ 23,950
175 Motorola Inc. .................................... 20,836
1,100+ Loral Space & Communications ..................... 10,794
500+ Oracle Corp. ..................................... 39,969
1,300 Lucent Technologies Inc. ......................... 80,844
-----------
568,458
-----------
Telephone & Cellular - 7.88%
150+ Voicestream Wireless Corp. ....................... 14,850
300 GTE Corp. ........................................ 20,325
2,563 Sprint Corp. ..................................... 157,625
1,730+ Qwest Communications International Inc. .......... 75,039
3,100 Williams Companies Inc. .......................... 115,669
-----------
383,508
-----------
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER VALUE FUND
SCHEDULE OF INVESTMENTS
April 30, 2000
--------------------------------------------------------------------------------
Shares Market Value
------ ------------
Transportation - 3.03%
2,050+ Kansas City Southern Industries .................. $ 147,344
-----------
Utilities - 1.06%
3,700+ Niagara Mohawk Holdings Inc. ..................... 51,338
-----------
TOTAL COMMON STOCK (Cost $3,795,765) ....................... 4,628,558
-----------
CONVERTIBLE PREFERRED STOCKS - 0.73%
700 Seagram Co LTD "Aces"
(Cost $29,046) .......................... 35,613
-----------
MUTUAL FUNDS - 0.04%
147 Schroder All Asia
(Cost $1,629) .......................... 1,770
-----------
SHORT TERM INVESTMENTS - 2.28%
111,024 Firstar Treasury Fund
(Cost $111,024) ........................ 111,024
-----------
TOTAL INVESTMENTS
(Cost $3,937,464) ............. 98.20% 4,776,965
Other assets less liabilities .......... 1.80% 87,232
------ ------------------
TOTAL NET ASSETS ...................... 100.00% $ 4,864,197
====== ==================
<FN>
(1) Federal Tax Information: At April 30, 2000 the net unrealized appreciation
based on cost for Federal Income tax purposes of $3,937,464 was as follows:
Aggregate gross unrealized appreciation for all investments for which
there was an excess of value over cost ............... $ 1,330,989
Aggregate gross unrealized depreciation for all investments for
which there was an excess of cost over value .......... (491,488)
----------
Net unrealized appreciation ............................... $ 839,501
============
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value (cost $3,937,464) (Note 2) $ 4,776,965
Receivable for securities sold ............................... 100,407
Receivable for Fund shares sold .............................. 10,564
Dividends and interest receivable ............................ 3,274
Prepaid expenses ............................................. 6,129
-----------
Total Assets ......................................... 4,897,339
-----------
LIABILITIES:
Advisory fee payable (Note 3) .............$ 3,089
Payable for securities purchased .......... 14,750
Payable for redemptions ................... 112
Accrued expenses and other liabilities .... 15,191
-----------
Total Liabilities .................................... 33,142
-----------
Net Assets ........................................... $ 4,864,197
===========
NET ASSETS CONSIST OF:
Additional paid in capital ........................... $ 4,036,031
Accumulated net realized loss from
investment transactions ...................... (11,335)
Net unrealized appreciation on
investments .................................. 839,501
-----------
Net Assets ........................................... $ 4,864,197
===========
Net asset value and redemption price per share
($4,864,197/293,622 shares
of capital stock outstanding) (Note 4) ............... $ 16.57
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-9-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER VALUE FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Dividends .................................................. $ 44,478
Interest ................................................... 3,888
Other ...................................................... 37
Total income ....................................... 48,403
---------
Expenses:
Investment advisory fee (Note 3) ........................... 45,501
Administration fee ......................................... 17,154
Legal fee .................................................. 10,947
Transfer agent fee ......................................... 10,478
Printing ................................................... 7,434
Custody fee ................................................ 6,168
Insurance .................................................. 5,974
Registration ............................................... 5,004
Audit fee .................................................. 3,318
Trustee fee ................................................ 1,499
Other ...................................................... 4,759
---------
Total expenses ..................................... 118,236
Less: Expense reimbursement (Note 3) .............. (46,435)
---------
Net expenses ....................................... 71,801
---------
Net investment (loss) .............................. (23,398)
---------
Net Realized and Unrealized Gains
(Losses) on Investments (Note 2)
Net realized gain from investment transactions ............. 144,911
---------
Net change in unrealized appreciation of investments ....... (136,637)
---------
Net realized and unrealized gain on investments .... 8,274
---------
Net decrease in net assets resulting from operations $ (15,124)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-10-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
April 30, 2000 April 30, 1999
-------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment loss ................................. $ (23,398) $ (16,724)
Net realized gain (loss) from investment transactions 144,911 (156,944)
Net change in unrealized appreciation
(depreciation) of investments ............... (136,637) 7,115
----------- -----------
Net decrease in net assets resulting from operations (15,124) (166,553)
Dividends and Distributions to Shareholders
Distributions from net gain on investments .. 0 (105,002)
----------- -----------
Capital Share Transaction
Net capital share transactions (Note 4) ..... (19,194) (93,167)
----------- -----------
Net decrease in net assets .................. (34,318) (364,722)
NET ASSETS:
Beginning of year ................................... 4,898,515 5,263,237
----------- -----------
End of year ......................................... $ 4,864,197 $ 4,898,515
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-11-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000
--------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
The Croft-Leominster Value Fund (the "Fund"), is a managed portfolio of the
Croft Funds Corporation, is registered under the Investment Company Act of 1940,
as amended, as a diversified, open-end management company. The Fund is one of a
series of Funds of the Croft Funds Corporation, which also includes the
Croft-Leominster Income Fund. The Fund's investment objective is to seek growth
of capital. It invest primarily (under normal market conditions, at least 65% of
its total assets) in common stocks which are believed by the Manager to be
undervalued and have good prospects for capital appreciation.
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 the last bid price.
Federal Income Taxes-The Fund intends to comply with requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its net investment income as dividends to its
shareholders. The Fund intends to distribute its net long-term capital gains and
its net short-term capital gains at least once a year. Therefore no provision
for income taxes is required.
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 and 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 contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund retains Croft-Leominster Inc. (the "Advisor") as its investment
advisor. Under the terms of the management agreement, the Advisor receives a
fee, computed daily and payable monthly at the annual rate of .94% of the Fund's
average daily net asset value. Until December 31, 2001, the Advisor guarantees
that the overall expense ratio for the Fund, which exclude ordinary brokerage
commission incurred in the purchase or sale of portfolio securities, will not
exceed 1.50%. As a result, for the year ended April 30, 2000, the Advisor
accrued reimbursements to the Fund of $46,435.
-12-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000
--------------------------------------------------------------------------------
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
May 1, 1999. The 12b-1 fee will be waived into the forseeable 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.
NOTE 4. CAPITAL SHARE TRANSACTIONS
At April 30, 2000, 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 $4,036,031 for the Fund.
Transactions in capital stock were as follows:
For the year For the year
ended ended
April 30, 2000 April 30, 1999
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold ............... 36,366 $ 568,874 146,546 $ 2,269,700
Shares issued in
reinvestment of dividends.. 0 0 7,044 103,048
Shares redeemed ........... (36,891) (588,068) (168,416) (2,465,915)
---------------------- -----------------------
Net increase (decrease) ... (525) $ (19,194) (14,826) $ (93,167)
====================== =======================
-13-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000
--------------------------------------------------------------------------------
NOTE 5. INVESTMENT TRANSACTIONS
Purchases and sales, excluding short term securities, for the year ended
April 30, 2000 aggregated $2,625,012, and $2,875,627, respectively, for the
Fund.
NOTE 6. DISTRIBUTION TO SHAREHOLDERS
During the year ended April 30, 2000, the Fund did not declare any
dividends.
NOTE 7. RECLASSIFICATIONS
In accordance with accounting pronouncements, the Fund has recorded a
reclassification in its capital accounts. As of April 30, 2000 the fund recorded
permanent book/tax differences of ($23,398) from undistributed net investment
income to paid in capital. This reclassification has no impact on the net asset
value of the Fund and is designed generally to present undistributed income on a
tax basis which is considered to be more informative to shareholders.
-14-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER VALUE FUND
FINANCIAL HIGHLIGHTS
(For a fund share outstanding throughout each period)
<TABLE>
<CAPTION>
For the For the For the For the May 4, 1995
year ended year ended year ended year ended through
April 30, April 30, April 30, April 30, April 30,
2000 1999 1998 1997 1996*
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......... $ 16.65 $ 17.03 $ 13.32 $ 11.74 $ 10.00
------------ ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income ......................... (0.08) (0.04) 0.00 0.04 0.10
Net realized and unrealized gain on
investments ........................... 0.00 (0.10) 5.49 2.11 1.75
------------ ------------ ------------ ------------ ------------
Total from investment operations .............. (0.08) (0.14) 5.49 2.15 1.85
------------ ------------ ------------ ------------ ------------
Less distributions:
Dividends from net investment income .......... 0.00 0.00 0.00 (0.05) (0.07)
Distribution from net realized capital
gains from security transactions .............. 0.00 (0.24) (1.78) (0.52) (0.04)
------------ ------------ ------------ ------------ ------------
Total distributions ........................... 0.00 (0.24) (1.78) (0.57) (0.11)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period ........................ $ 16.57 $ 16.65 $ 17.03 $ 13.32 $ 11.74
============ ============ ============ ============ ============
Total return** ........................................ (0.48%) (0.63%) 43.14% 18.71% 18.57%
Ratios/Supplemental data:
Net assets end of period (in 000's) ........... $ 4,864 $ 4,899 $ 5,263 $ 2,064 $ 1,255
Ratio of expenses to average net assets
before reimbursement .................. 2.47% 2.59% 2.75% 5.40% 1.50%^
Ratio of expenses to average net assets
after reimbursement ................... 1.50% 1.50% 1.50% 1.50% 1.50%^
Ratio of net investment income (loss) to
average net assets before reimbursement (1.01% (1.37%) (1.25%) (3.56%) 0.89%^
Ratio of net investment income (loss) to
average net assets, after reimbursement (0.49%) (0.29%) 0.00% 0.34% 0.89%^
Portfolio turnover rate ....................... 55.66% 89.33% 80.98% 105.72% 65.38%
----------
<FN>
* Commencement of operations
** Based on net asset value per share
^ Annualized
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
-15-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and
Board of Directors
Croft-Leominster Value Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, of the Croft-Leominster Value Fund (one
of a series constituting the Croft Funds Corporation) as of April 30, 2000, 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 four 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, 2000, 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 Value Fund of the Croft Funds Corporation as of April 30, 2000,
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 four 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 25, 2000
-16-
<PAGE>
CROFT LEOMINSTER
1-800-746-3322
<PAGE>
CROFT LEOMINSTER
INCOME FUND
ANNUAL REPORT
APRIL 30, 2000
June 16, 2000
Dear Fellow Shareholders,
From 01/01/00 - 06/16/00, your Croft-Leominster Income Fund has returned
1.4*%. The Fund's current yield is approximately 8.0%.
The US economy remains robust. The longest post-war economic expansion
continues. Unemployment stands at approximately 3.9%, which is near a historical
low. Because of this, the Federal Reserve Bank fears that employers competing
for labor will push wages higher and cause inflationary pressure in the economy.
The Federal Reserve Bank continues to be proactive in its fight to keep the
economy from overheating. Since April 1999, the Fed has increased the Federal
Funds Rate six times by a total of 1.75%. The Fed Funds Rate is now 6.50%, its
highest level since January of 1991.
This environment has been a challenging one for corporate bond
investors. However, the good news is that recent economic data is showing signs
that the Federal Reserve Bank's actions are working and the economic growth is
slowing to a more benign level. We believe that we are nearing the end of Fed
tightening which should lead to a nice rally in the bond market.
As of May 31, 2000, the Income Fund has the following characteristics:
weighted average yield to maturity of 9.4%, weighted average duration of 8 years
and weighted average maturity of 18.4 years. We continue to manage credit risk
by investing for strong diversification. We hold 67 corporate bond issues which
are spread among 19 industries.
Thank you for your investment in the Croft-Leominster Income Fund.
With kindest regards,
Sincerely,
Kent 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.
- 1 -
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN PERFORMANCE
SINCE INCEPTION
ONE YEAR FIVE YEARS (01/01/92)*
-------- ---------- -----------
INCOME FUND (2.40%) 6.95% 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.
CUMULATIVE PERFORMANCE COMPARISON
$10,000 INVESTMENT SINCE INCEPTION*
[GRAPH DELETED HERE]
Graph shown here depicts the comparison of Croft-Leominster Income LP/Income
Fund and the Lehman Brothers Int Govt/Corp Bond Index from January 1992 through
April 2000.
CROFT LEHMAN BROTHERS
DATE INCOME FUND* RETURN
---- ------------ -------
Jan-92 $10,000.00 $10,000.00
Mar-92 $10,720.00 $9,909.00
Jun-92 $11,325.68 $10,301.40
Sep-92 $11,716.42 $10,755.69
Dec-92 $11,845.30 $10,716.97
Mar-93 $12,733.69 $11,142.43
Jun-93 $13,241.77 $11,383.11
Sep-93 $13,580.76 $11,639.23
Dec-93 $13,913.49 $11,657.85
Mar-94 $13,422.34 $11,421.20
Jun-94 $13,180.74 $11,352.67
Sep-94 $13,245.32 $11,445.76
Dec-94 $13,081.08 $11,433.17
Mar-95 $13,879.03 $11,933.94
May-95 $14,498.03 $12,141.59
Jul-95 $14,918.47 $12,532.55
Oct-95 $15,743.47 $12,879.70
Jan-96 $16,601.49 $13,298.30
Apr-96 $15,972.29 $13,029.67
Jul-96 $16,333.26 $13,196.45
Oct-96 $17,133.59 $13,627.97
Jan-97 $17,555.08 $13,772.43
Apr-97 $17,655.14 $ 13,866
Jul-97 $19,014.59 $ 14,394
Oct-97 $19,309.32 $ 14,649
Jan-98 $20,021.83 $ 15,002
Apr-98 $ 20,188 $ 15,142
Jul-98 $ 20,594 $ 15,404
Oct-98 $ 20,143 $ 16,023
Jan-99 $ 20,818 $ 16,174
Apr-99 $ 20,776 $ 16,104
Jul-99 $ 20,298 $ 15,977
Oct-99 $ 20,402 $ 16,180
Jan-00 $ 20,318 $ 16,087
Apr-00 $ 20,275 $ 16,350
*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.
-2-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
SCHEDULE OF INVESTMENTS
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES MARKET VALUE
------ ------------
COMMON STOCKS-D 2.79%
Closed-End Funds-D 2.46%
<C> <S> <C>
6,200 Alliance World Dollar Govt. II ....................................... 54,250
4,500 Salomon Brothers Worldwide Income Fund ............................... 50,625
10,300 Templeton Emerging Markets Income Fund ............................... 95,919
-----------
200,794
-----------
Utilities-D 0.33%
1,400 Edison International ................................................. $ 26,688
-----------
TOTAL COMMON STOCKS (Cost $262,501) ...................................... 227,482
===========
PREFERRED STOCKS-D 1.12%
2,820 Conseco Financing Trust, 8.70%, 09/30/28 ............................. 29,962
2,100 Foster Wheeler Trust, 9.00%, 01/15/29 ................................ 34,125
1,400 Oxy Capital Trust, 8.16%, 01/20/39 ................................... 27,650
-----------
TOTAL PREFERRED STOCKS-D (Cost $158,000) .......................................... 91,737
===========
Principal Value
---------------
CORPORATE BONDS- 93.08%
Autos & Automotive Products-D 1.48%
$ 150,000 Federal Mogul Global Notes, 7.75%, 07/01/06 .......................... $ 120,701
-----------
Building Materials & Housing- 2.70%
50,000 Owens-Corning, Debentures, 7.50%, 08/01/18 ........................... 40,029
200,000 Owens-Corning, Notes, 7.70%, 05/01/08 ................................ 180,515
----------
220,544
-----------
Cable TV & Cellular Telephone- 4.60%
185,000 CF Cable TV Inc. Senior Secured Notes,
9.125%, 07/15/07 ............................................. 194,075
100,000 Tele-Communications Inc. Notes,
7.875%, 08/01/13 ............................. ............... 99,776
80,000 Tele-Communications Inc. Senior Debentures,
8.75%, 02/15/23 .............................................. 81,341
-----------
375,192
-----------
Capital Goods- 1.15%
90,000 Caterpillar Inc. Sinking Fund Debentures,
9.75%, 06/01/19 ............................................. 93,999
-----------
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
SCHEDULE OF INVESTMENTS
APRIL 30, 2000
--------------------------------------------------------------------------------
PRINCIPAL VALUE MARKET VALUE
--------------- ------------
Chemicals-3.22%
$ 35,000 ARCO Chemical Co. Debentures, 9.90%, 11/01/00 ........................ $ 34,968
65,000 ARCO Chemical Co. Debentures, 10.25%, 11/01/10 ....................... 63,638
105,000 ARCO Chemical Co. Debentures, 9.80%, 02/01/20 ........................ 98,440
75,000 Agrium Inc Debentures (Yankee), 7.80%, 02/01/27 ...................... 65,421
----------
262,467
----------
Containers & Paper-20.42%
150,000 Abitibi-Consolidated, Debentures, 7.40%, 04/01/18 .................... 127,906
175,000 Champion International, Debentures, 7.625%, 09/01/23 ................. 156,081
46,000 Georgia Pacific Corp. Debentures, 9.875%, 11/01/21 ................... 47,044
380,000 Georgia Pacific Corp. Debentures, 9.625%, 03/15/22 ................... 377,867
700,000 Georgia Pacific Corp. Debentures, 9.125%, 07/01/22 ................... 674,507
50,000 Owens-Illinois Inc. Senior Unsecured Debentures, 7.80%, 05/15/18 ..... 43,027
140,000 Stone Container Corp. Senior Subordinated Debentures, 10.75%, 04/01/02 139,650
100,000 Stone Container Corp. Senior Subordinated Units, 12.25%, 04/01/02 .... 100,000
----------
1,666,082
----------
Electric & Gas Utilities- 3.40%
40,000 Houston Lighting & Power, 1st Mortgage, 8.75%, 03/01/22 .............. 40,355
70,000 Monongahela Power, 1st Mortgage, 8.625%, 11/01/21 .................... 71,610
115,000 Old Dominion Electric, 1st Mortgage, 8.76%, 12/01/22 ................. 119,141
50,000 Portland General Electric, 1st Mortgage, 7.75%, 04/15/23 ............. 46,449
----------
277,555
----------
Energy & Energy Services- 8.25%
65,000 Global Marine Inc, Notes, 7.00%, 06/01/28 ............................ 55,530
50,000 Magnum Hunter Res, Debentures, 10.00%, 06/01/07 ...................... 43,500
135,000 Mariner Energy Corp. Senior Subordinated Notes, 10.50%, 08/01/06 ..... 120,150
100,000 Mobil Corp. Debentures, 8.00%, 08/12/32 .............................. 103,026
240,000 Occidental Petroleum, Debentures, 7.20%, 04/01/28 .................... 204,105
125,000 Panaco Inc. Notes, 10.625%, 10/01/04 ................................. 98,125
50,000 YPF Sociedad Anonima, Notes, 8.00%, 02/15/04 ......................... 48,772
----------
673,208
----------
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, 2000
--------------------------------------------------------------------------------
PRINCIPAL VALUE MARKET VALUE
--------------- ------------
Environmental Service/Pollution Control-D 0.52%
$ 50,000 Waste Management Inc Debentures, 7.65%, 03/15/11 ..................... $ 42,464
----------
Financial Services-D 7.75%
105,000 APP International Finance, Global Bond, 11.75%, 10/01/05 ............. 85,050
100,000 Ace Capital Trust II, 9.70%, 04/01/30 ................................ 100,412
123,000 Aetna Services Inc. Debentures, 8.00%, 01/15/17 ...................... 114,558
95,000 Aetna Services Inc. Debentures, 7.25%, 08/15/23 ...................... 80,889
105,000 Lincoln National Corp. Debentures, 9.125%, 10/01/24 .................. 109,634
180,000 Reliance Group Holdings, Senior Subordinated
Debentures, 9.75%, 11/15/03 ....................................... 122,400
20,000 Washington Mutual Cap Company Guarantee, 8.375%, 06/01/27 ............ 18,976
----------
631,919
----------
Food & Drug Producers-D 2.38%
80,000 Borden Inc. Sinking Fund Debentures, 9.25%, 06/15/19 ................. 71,326
80,000 Dura Pharmaceuticals Convertible, 3.50%, 07/15/02 .................... 65,500
55,000 Rhone-Poulenc Rorer (Yankee) Debentures, 8.62%, 01/05/21 ............. 57,557
----------
194,383
----------
Gas & Gas Transmission-D 1.52%
40,000 Bellwether Exploration Co. Senior Subordinated,
10.875%, 04/01/07 36,000
100,000 KN Energy Inc, Debentures, 7.25%, 03/01/28 87,841
----------
123,841
----------
Industrial Goods-D 12.38%
60,000 Crown Cork & Seal, Debentures, 8.00%, 04/15/23 ....................... 48,910
75,000 Cummins Engine Company, Inc. Debentures (Puts), 6.75%, 02/15/27 ...... 69,812
85,000 National Equipment Services, Senior Subordinated Notes,
10.00%, 11/30/04 ................................................. 76,925
50,000 Terex Corp. Company Guarantee, 8.875%, 04/01/08 ...................... 44,375
50,000 Tyco International Group SA Company Guarantee,
6.875%, 01/15/29 ................................................. 42,119
65,000 Westinghouse Electric Corp. Debentures, 8.625%, 08/01/12 ............. 68,351
670,000 Westinghouse Electric Corp. Debentures, 7.875%, 09/01/23 ............. 659,149
----------
1,009,641
----------
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, 2000
--------------------------------------------------------------------------------
PRINCIPAL VALUE MARKET VALUE
--------------- ------------
Media & Entertainment-D 8.80%
$ 200,000 CBS Inc. Senior Debentures, 8.875%, 06/01/22 ......................... $ 203,781
100,000 Granite Broadcasting, Senior Subordinated Notes,
10.375%, 05/15/05 .................................. 94,500
345,000 Time Warner Inc. Debentures, 9.15%, 02/01/23 ......................... 373,551
45,000 Time Warner Entertainment Senior Debentures, 8.375%, 03/15/23 ........ 45,633
----------
717,465
----------
Metals & Mining-D 5.74%
180,000 Alcan Aluminum Ltd. Debentures, 8.875%, 01/15/22 ..................... 182,865
285,000 USX Corp. Debentures, 8.50%, 03/01/23 ................................ 285,418
----------
468,283
----------
Miscellaneous Consumer Goods & Services-D 1.01%
10,000 Eastman Kodak Co. Notes, 9.375%, 03/15/03 ............................ 10,411
75,000 Tenneco Packaging Debentures, 8.125%, 06/15/17 ....................... 71,770
----------
82,181
----------
Retail Stores-D 1.41%
115,000 Great Atlantic & Pacific Tea Co. Unsecured Notes, 7.75%, 04/15/07 .... 102,183
30,000 Rite Aid Corp Notes, 7.125%, 01/15/07 ................................ 12,450
----------
114,633
----------
Technology-D .56%
50,000 Lockheed Martin Corp Company Guarantee, 7.65%, 05/01/16 .............. 45,726
----------
Telephones-D 5.79%
50,000 BellSouth Telecommunications, Debentures, 7.875%, 08/01/32 ........... 46,943
125,000 GTE Corp. Debentures, 8.75%, 11/01/21 ................................ 134,222
70,000 New York Telephone Co. Debentures, 9.375%, 07/15/31 .................. 72,074
18,749 Nynex Corp. Amortized Debentures, 9.55%, 05/01/10 .................... 19,499
135,000 U.S. West Communications, Debentures, 8.875%, 06/01/31 ............... 136,719
62,000 Williams Communication Group Senior Notes, 10.875%, 10/01/09 ......... 62,620
----------
472,077
----------
TOTAL CORPORATE BONDS-D (Cost $8,094,205) 7,592,361
----------
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, 2000
--------------------------------------------------------------------------------
PRINCIPAL VALUE MARKET VALUE
--------------- ------------
SHORT TERM INVESTMENTS-D 0.32%
$ 25,957 Firstar Treasury Fund
TOTAL SHORT TERM INVESTMENTS-D (Cost $25,957) ................................. $ 25,957
-------------
TOTAL INVESTMENTS (Cost $8,540,663) 97.31% 7,937,537
Other assets less liabilities 2.69% 219,437
------ --------------
TOTAL NET ASSETS 100.00% $ 8,156,974
====== ==============
<FN>
(1) Federal Tax Information: At April 30, 2000 the net unrealized appreciation
based on cost for Federal Income tax purposes of $8,603,120 was as
follows:
Aggregate gross unrealized appreciation for all investments for which there was
an excess of value over cost $ 150,507
Aggregate gross unrealized depreciation for all investments for which there was
an excess of cost over value (753,633)
-------------
Net unrealized depreciation $ (603,126)
=============
</FN>
</TABLE>
-7-
The accompanying notes are an integral part of these financial statements.
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value (cost $8,540,663) (Note 2) $7,937,537
Receivables for securities ................................... 66,551
Dividends and interest receivable ............................ 183,968
Prepaid expenses ............................................. 3,587
----------
Total Assets ......................................... 8,191,643
----------
LIABILITIES:
Advisory fee payable (Note 3) ............... $ 892
Payable for redemptions ..................... 3,585
Accrued expenses and other liabilities ...... 30,192
----------
Total Liabilities ............................................ 34,669
----------
Net Assets ................................................... $8,156,974
----------
NET ASSETS CONSIST OF:
Additional paid in capital ................................... $8,941,618
Accumulated net investment income ............................ 7,276
Accumulated net realized loss from
investment transactions .............................. (188,794)
Net unrealized depreciation on investments ................... (603,126)
----------
Net Assets ................................................... $8,156,974
==========
Net asset value and redemption and offering price per share
($8,156,974/864,547 shares
of capital stock outstanding) (Note 6) ....................... $ 9.43
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest ................................................... $ 739,835
Dividends .................................................. 48,178
---------
Total income ....................................... 788,013
Expenses:
Investment advisory fees (Note 3) .......................... 71,079
Administration fees ........................................ 18,603
Audit fees ................................................. 14,338
Legal fees ................................................. 11,202
Transfer agent fees ........................................ 10,042
Printing ................................................... 6,225
Insurance .................................................. 5,958
Custody fees ............................................... 5,215
Registration fees .......................................... 4,991
DirectorsO fees and expenses ............................... 483
Other ...................................................... 13,287
---------
Total expenses ..................................... 161,423
Less: Expense reimbursement (Note 3) .............. (62,452)
---------
Net expenses ....................................... 98,971
---------
Net investment income .............................. 689,042
---------
Net Realized and Unrealized Gains
(Losses) on Investments (Note 2)
Net realized loss from investment transactions ............. (107,608)
Net change in unrealized depreciation of investments ....... (814,802)
---------
Net realized and unrealized loss on investments .... (922,410)
---------
Net decrease in net assets resulting from operations $(233,368)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-9-
<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, 2000 April 30, 1999
-------------- --------------
Increase (Decrease) in Net Assets from Operations:
<S> <C> <C>
Net investment income ................................................... $ 689,042 $ 723,188
Net realized (loss) from investment transactions ........................ (107,608) (34,024)
Net change in unrealized depreciation of investments .................... (814,802) (369,529)
------------ ------------
Net increase (decrease) in net assets resulting from operations (233,368) 319,635
Dividends and Distributions to shareholders:
Net investment income ($.79 and .76 per share, respectively) ............ (701,930) (712,264)
Capital gains ($.00 and .03 per share, respectively) .................... 0 (30,145)
------------ ------------
Total dividends and distributions ....................................... (701,930) (742,409)
------------ ------------
Capital Share Transaction
Net capital share transactions (Note 4) ................................. (1,028,911) 653,902
------------ ------------
Net increase (decrease) in net assets ................................... (1,964,209) 231,128
NET ASSETS:
Beginning of year ....................................................... 10,121,183 9,890,055
------------ ------------
End of year ............................................................. $ 8,156,974 $ 10,121,183
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-10-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000
--------------------------------------------------------------------------------
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, 2000 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.
-11-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000
--------------------------------------------------------------------------------
Federal Income Taxes-The Fund intends to comply with requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its net investment income as dividends to its
shareholders. The Fund intends to distribute its net long-term capital gains and
its net short-term capital gains at least once a year. Therefore no provision
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 contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES.
The Fund retains Croft-Leominster Inc. (the "Adviser") as its investment
adviser. Under the terms of the agreement the Adviser receives a fee, computed
daily and payable monthly at the annual rate of .79% of the Income Fund's
average daily net assets. Until December 31, 2001, the Adviser guarantees that
the overall expense ratio for the Income Fund, which exclude ordinary brokerage
commissions incurred in the purchase or sale of portfolio securities, will not
exceed 1.10%. As a result, for the year ended April 30, 2000, the Adviser
accrued reimbursements to the Fund of $62,452.
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.
-12-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000
--------------------------------------------------------------------------------
NOTE 4. CAPITAL SHARE TRANSACTIONS
As of April 30, 2000 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 $8,941,618 for the Fund.
Transactions in capital stock were as follows:
For the year For the year
ended ended
April 30, 2000 April 30, 1999
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold ............... 33,076 $ 330,901 193,507 $ 2,061,975
Shares issued in
reinvestment of dividends.. 70,385 697,538 40,710 435,209
Shares redeemed ........... (205,246) (2,057,350) (171,201) (1,843,282)
------------------------ ----------------------
Net increase (decrease) ... (101,785) $(1,028,911) 63,016 $ 653,902
======================== ======================
NOTE 5. INVESTMENT TRANSACTIONS
Purchases and sales, excluding short-term securities, for the year ended
April 30, 2000 aggregated $514,008 and $1,449,171, respectively, for the Fund.
NOTE 6. DISTRIBUTIONS TO SHAREHOLDERS
The Fund makes dividend distributions quarterly. During the year ended
April 30, 2000, distributions of $0.79 aggregating $701,930 were declared from
net investment income.
NOTE 7. CARRYOVERS
At April 30, 2000, the Fund had unused capital loss carryforwards of $141,295
available to offset future gains, if any, for Federal income tax purposes. The
capital loss carryforward expires in 2008.
-13-
<PAGE>
CROFT FUNDS CORPORATION
CROFT-LEOMINSTER INCOME FUND
FINANCIAL HIGHLIGHTS
(For a fund share outstanding throughout each period)
<TABLE>
<CAPTION>
For the For the For the For the May 4, 1995*
year ended year ended year ended year ended through
April 30, April 30, April 30, April 30, April 30,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....... $ 10.47 $ 10.95 $ 10.40 $ 10.25 $ 10.00
------------ ------------- ------------ ------------ ------------
Income (loss) from investment operations
Net investment income ...................... 0.76 0.77 0.81 0.79 0.73
Net realized and unrealized gain(loss) on
investments ........................ (1.02) (0.46) 0.65 0.26 0.28
VTotal from investment operations ........... (0.26) 0.31 1.46 1.05 1.01
------------ ------------- ------------ ------------ ------------
Less distributions
Dividends from net investment income ....... (0.78) (0.76) (0.78) (0.84) (0.73)
Distribution from realized gains from
security transactions .............. 0.00 (0.03) (0.13) (0.06) (0.03)
------------ ------------- ------------ ------------ ------------
Total distributions ........................ (0.78) (0.79) (0.91) (0.90) (0.76)
------------ ------------- ------------ ------------ ------------
Net asset value, end of period ............. $ 9.43 $ 10.47 $ 10.95 $ 10.40 $ 10.25
============ ============= ============ ============ ============
Total return** ............................. (2.40%) 2.91% 14.36% 10.56% 10.17%
Ratios/Supplemental data
Net assets end of period (in 000's) ........ 8,157 10,121 9,890 7,419 6,450
Ratio of expenses to average net assets,
before reimbursement ............... 1.79% 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% 1.10%^
Ratio of net investment income
(loss) to average net assets, before
reimbursement ...................... 6.97% 6.47% 6.90% 6.76% 7.35%^
Ratio of net investment income
(loss) to average net assets,
after reimbursement ................ 7.66% 7.15% 7.38% 7.57% 7.35%^
Portfolio turnover rate .................... 5.87% 13.45% 15.62% 13.73% 13.76%^
<FN>
----------
* Commencement of operations
** Based on net asset value per share.
^ Annualized
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
-14-
<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, 2000, 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 four 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, 2000, by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Croft-Leominster Income Fund of the Croft Funds Corporation as of April 30,
2000, 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 four 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 25, 2000
-15-
<PAGE>
CROFT LEOMINSTER
1-800-746-3322
