| | | |
| | Croft Income Fund | |
| | Schedule of Investments | |
| | October 31, 2014 (Unaudited) | |
| | | |
Shares/Principal | | | Fair Value |
| | | |
CORPORATE BONDS (a) - 47.04% | |
| | | |
Agriculture - 0.74% | |
100,000 | | Archer-Daniels Midland Co., 5.45%, 3/15/18 | $ 112,233 |
| | | |
Autos & Automotive Products - 2.55% | |
180,000 | | Dana Holdings Corp., 6.50%, 2/15/19 | 186,975 |
200,000 | | Ford Motor Credit Co., LLC, 2.75%, 5/15/15 | 201,991 |
| | | 388,966 |
Building Materials & Housing - 2.02% | |
180,000 | | Lennar Corp., 4.75%, 12/15/17 | 188,100 |
115,000 | | Plum Creek Timber Co., 5.875%, 11/15/15 | 120,768 |
| | | 308,868 |
Business Services - 1.06% | |
145,000 | | United Parcel Services, 5.50%, 1/15/18 | 162,353 |
| | | |
Capital Goods - 1.89% | |
160,000 | | Pitney Bowes, Inc., 4.75%, 5/15/18 | 171,433 |
105,000 | | United Technologies Corp., 5.375%, 12/15/17 | 117,786 |
| | | 289,219 |
Chemicals - 2.12% | | | |
150,000 | | Albemarle Corp., 5.10%, 2/1/15 | 151,572 |
150,000 | | DuPont EI De Nemours, 6.00% 7/15/18 | 171,903 |
| | | 323,475 |
Containers & Paper - 1.03% | |
150,000 | | Crown Americas LLC, 6.25%, 2/1/21 | 157,875 |
| | | |
Electric & Gas Utilities - 1.24% | |
185,000 | | Exelon Corp., 4.90%, 6/15/15 | 189,717 |
| | | |
Energy - 5.58% | |
100,000 | | BP Capital Markets Plc, 3.125%, 10/1/15 | 102,428 |
100,000 | | ConocoPhillips Corp., 5.20%, 5/15/18 | 112,208 |
150,000 | | Consol Energy, Inc., 8.25%, 4/1/20 | 158,250 |
160,000 | | Occidental Petroleum Corp., 1.75%, 2/15/17 | 162,012 |
167,000 | | SM Energy Co., 6.625%, 2/15/19 | 172,845 |
140,000 | | Whiting Petroleum Corp., 6.50%, 10/1/18 | 144,200 |
| | | 851,943 |
Energy Services - 1.65% | |
100,000 | | Baker Hughes, Inc., 7.50%, 11/15/18 | 120,907 |
140,000 | | Hornbeck Offshore Services, Inc., 5.875, 4/1/20 | 131,600 |
| | | 252,507 |
Financial Services - 4.71% | |
75,000 | | Berkshire Hathaway Financial Corp., 1.60%, 5/15/17 | 75,916 |
150,000 | | Capital One Financial Co., 2.45%, 4/24/19 | 150,444 |
165,000 | | Deere Capital Corp., 2.00%, 1/13/17 | 168,478 |
60,000 | | JP Morgan Chase & Co., 5.875%, 6/13/16 | 64,631 |
137,000 | | Merrill Lynch & Co., 6.875%, 4/25/18 | 158,478 |
100,000 | | PNC Funding Corp., 3.625%, 2/8/15 | 100,843 |
| | | 718,790 |
Food & Drug Producers - 1.72% | |
150,000 | | Anheuser-Busch InBev SA/NV, 4.125%, 1/15/15 | 151,056 |
110,000 | | Pfizer, Inc., 5.35%, 3/15/15 | 111,926 |
| | | 262,982 |
Gas & Gas Transmission - 0.64% | |
100,000 | | KN Energy, Inc. Senior Debentures, 7.25%, 3/1/28 | 97,750 |
| | | |
Industrial Goods - 2.90% | |
75,000 | | Cummins Engine Company, Inc. Debentures, 6.75%, 2/15/27 | 95,354 |
206,000 | | General Electric Co., 5.25%, 12/6/17 | 229,252 |
115,000 | | Johnson Controls, Inc., 7.70%, 3/1/15 | 117,701 |
| | | 442,307 |
Media & Entertainment - 3.48% | |
186,000 | | Liberty Interactive, Corp., 8.25%, 2/1/30 | 202,740 |
165,000 | | News America Holdings, Inc., 7.75%, 2/1/24 | 200,003 |
110,000 | | Washington Post Co., 7.25%, 2/1/19 | 128,097 |
| | | 530,840 |
Metal & Mining - 2.23% | |
90,000 | | ArcelorMittal, 4.25%, 8/5/15 | 91,463 |
100,000 | | Nucor Corp., 5.75%, 12/1/17 | 111,519 |
125,000 | | U.S. Steel Corp., 7.00%, 2/1/18 | 137,812 |
| | | 340,794 |
Miscellaneous Consumer Goods & Services - 0.71% | |
100,000 | | Tenneco Packaging, Inc. Debentures, 8.125%, 6/15/17 | 108,000 |
| | | |
Retail Stores - 1.54% | |
70,000 | | Auto Zone, Inc., 6.95%, 6/15/16 | 76,390 |
160,000 | | Costco Wholesale Corp., 1.125%, 12/15/17 | 158,938 |
| | | 235,328 |
Technology - 4.98% | | | |
200,000 | | Amazon.com, Inc., 2.50%, 11/29/22 | 187,123 |
40,000 | | Arrow Electronics, Inc., 6.875%, 6/1/18 | 45,799 |
150,000 | | CDW LLC, 8.50%, 4/1/19 | 159,000 |
145,000 | | Cisco Systems, Inc., 5.50%, 2/22/16 | 154,214 |
100,000 | | IBM Corp., 5.70%, 9/14/17 | 112,355 |
100,000 | | Texas Instruments, Inc., 2.375%, 5/16/16 | 102,800 |
| | | 761,291 |
Telecommunications - 1.98% | |
150,000 | | Anixter, Inc., 5.95%, 3/1/15 | 151,312 |
150,000 | | CenturyLink, Inc., 5.00%, 2/15/15 | 151,425 |
| | | 302,737 |
Textiles & Apparel Mfg. - 1.25% | |
180,000 | | Hanesbrands, Inc., 6.375%, 12/15/20 | 191,025 |
| | | |
Transportation - 1.02% | |
150,000 | | Hertz Corp., 6.75%, 4/15/19 | 156,375 |
| | | |
TOTAL FOR CORPORATE BONDS (Cost $6,834,681) - 47.04% | $ 7,185,375 |
| | | |
PREFERRED STOCKS - 0.56% | |
3,000 | | CHS, Inc., Series B, 7.875% | $ 85,410 |
TOTAL FOR PREFERRED STOCKS (Cost $75,000) - 0.56% | $ 85,410 |
| | | |
U.S. GOVERNMENT AGENCIES AND OBLIGATIONS - 25.73% | |
750,000 | | U.S. Treasury Notes, 0.375%, 1/31/16 | 751,465 |
750,000 | | U.S. Treasury Notes, 0.375%, 5/31/16 | 750,527 |
750,000 | | U.S. Treasury Notes, 0.75%, 1/15/17 | 752,344 |
750,000 | | U.S. Treasury Notes, 0.875%, 6/15/17 | 751,699 |
300,000 | | U.S. Treasury Notes, 1.875%, 10/31/17 | 308,086 |
300,000 | | U.S. Treasury Notes, 2.625%, 12/31/14 | 301,195 |
300,000 | | U.S. Treasury Notes, 3.25%, 7/31/16 | 314,813 |
TOTAL FOR U.S. GOVERNMENT AGENCIES AND OBLIGATIONS (Cost $3,921,111) - 25.73% | $ 3,930,129 |
| | | |
SHORT TERM INVESTMENTS - 26.05% | |
3,980,044 | | Invesco Short Term Investment Treasury Fund 0.01% ** | 3,980,044 |
TOTAL FOR SHORT TERM INVESTMENTS (Cost $3,980,044) - 26.05% | $ 3,980,044 |
| | | |
TOTAL INVESTMENTS (Cost $14,810,836) - 99.38% | $ 15,180,958 |
| | | |
OTHER ASSETS LESS LIABILITIES - 0.62% | 94,877 |
| | | |
NET ASSETS - 100.00% | | | $ 15,275,835 |
| | | |
(a) Categorized as Level 2 of the fair value hierarchy. Refer to Notes 2 and 3 of the accompanying notes | |
to the financial statements for additional information. | |
** Variable rate security; the coupon rate shown represents the yield at October 31, 2014. | |
The accompanying notes are an integral part of these financial statements. | |
CROFT FUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2014 (UNAUDITED)
Note 1. Organization
The Croft Value Fund (the “Value Fund”), the Croft Income Fund (the “Income Fund”), and the Croft Focus Fund (the “Focus Fund”), together (the “Funds”) were organized as managed portfolios of the Croft Funds Corporation (the “Corporation”) under the laws of the State of Maryland pursuant to Articles of Incorporation dated July 20, 1994, and are registered under the Investment Company Act of 1940, as amended (“the Act”), as diversified, open-end investment companies. The Value Fund and Income Fund commenced operations on May 4, 1995. The Focus Fund commenced operations on December 31, 2013. The Board of Directors has authorized two classes of shares for the Value Fund and Focus Fund: Class R shares and Class I shares and each class is subject to different expenses. The Income Fund consists of one class of shares. The Value Fund’s investment objective is growth of capital. The Value Fund invests primarily in common stocks of companies believed by Croft-Leominster, Inc. (the “Advisor”) to be undervalued and have good prospects for capital appreciation. The Income Fund’s investment objective is to achieve a high level of current income with moderate risk to principal. The Advisor seeks to achieve this by investing primarily in a diversified portfolio of U.S. traded investment grade fixed-income securities. The Focus Fund’s investment objective is long-term growth of capital. The Focus Fund invests in a focused portfolio of 25 or fewer stocks primarily comprised of common stocks of U.S. and foreign companies that the Advisor believes are undervalued.
Note 2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. These policies are in conformity with accounting principles generally accepted in the U.S. (“GAAP”).
Security Valuations: All investments in securities are recorded at their estimated fair value, as described in Note 3.
Federal Income Taxes: Each Fund’s policy is to continue to comply with requirements of Subchapter M 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 Funds intend to distribute their net long-term capital gains and their net short-term capital gains at least once a year. Therefore, no provision for federal 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.
The Funds recognize the tax benefits of certain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. As of and during the six months ended October 31, 2014, management has analyzed the Funds’ tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2011-2013), or expected to be taken in the Funds’ 2014 tax returns. The Funds identify their major tax jurisdictions as U.S. Federal and certain State tax authorities; however, the Funds are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statements of Operations. As of and during the six months ended October 31, 2014, the Funds did not incur any interest or penalties.
Distributions to Shareholders: Distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date. The Funds may utilize earnings and profits distributed to shareholders on redemption of shares as part of the dividends paid deduction. The treatment for financial reporting purposes of distributions made to shareholders during the year from net investment income or net realized capital gains may differ from their ultimate treatment for federal income taxes purposes. These differences are caused primarily by differences in the timing of the recognition of certain components of income, expense or realized capital gain for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of the net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications will have no effect on net assets, results of operations or net asset value per share of the Funds. These differences relate primarily to the differing tax treatment of realized gains on redemptions in-kind, equalization, REITs, and the partnership conversion.
Use of Estimates: The preparation of financial statements in conformity with GAAP 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Organizational and Offering Costs: All costs incurred by the Focus Fund in connection with the organization, offering and initial registration of the Focus Fund were paid on behalf of the Focus Fund by the Advisor and will not be borne by the Focus Fund.
Other: The Funds record security transactions on the trade date. The highest cost method is used for determining gains or losses for financial statement and income tax purposes. Dividend income is recognized on the ex-dividend date. Interest income is recognized on an accrual basis. Discounts and premiums on securities purchased are accreted and amortized, over the lives of the respective securities. Withholding taxes on foreign dividends have been provided for in accordance with the Funds’ understanding of the appropriate country’s rules and tax rates. The ability of issuers of debt securities held by the Funds to meet their obligations may be affected by economic and political developments in a specific country or region. Expenses incurred by the Corporation that do not relate to a specific Fund or class of the Corporation is allocated in accordance to the Corporation’s expense policy. Class specific expenses are borne by each class. Income, non-class specific expenses, and realized and unrealized gains/losses are allocated to the respective classes based on the basis of relative net assets.
Note 3. Security Valuations – As described in Note 2, all investments in securities are recorded at their estimated fair value. The Funds utilize various methods to measure the fair value of most of their investments on a recurring basis. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the Funds have the ability to access.
Level 2 - Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument in an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3 - Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Funds’ own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3 within the fair value hierarchy.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Fair Value Measurements: A description of the valuation techniques applied to the Funds’ major categories of assets and liabilities measured at fair value on a recurring basis follows.
Equity securities (common stocks including real estate investment trusts and preferred stock) - Equity securities are valued by using market quotations furnished by a pricing service when the Advisor believes such prices accurately reflect the fair market value of such securities. Securities that are traded on any stock exchange are valued by the pricing service at the last quoted sale price. Lacking a last sale price, an exchange traded security is valued by the pricing service at its last bid price. Securities traded in the NASDAQ over-the-counter market are valued by the pricing service at the NASDAQ Official Closing Price. Generally, if the security is traded in an active market and is valued at the last sale price, the security is categorized as Level 1 within the fair value hierarchy. When the security position is not considered to be part of an active market or when the security is valued at the bid price, the position is generally categorized as Level 2 within the fair value hierarchy. When market quotations are not readily available, when the Advisor determines that the market quotation or the price provided by the pricing service does not accurately reflect the current market value or when restricted or illiquid securities are being valued, such securities are valued at fair value as determined by the Advisor in good faith, in accordance with guidelines adopted by and subject to review of the Board of Directors and are categorized in Level 2 or Level 3 within the fair value hierarchy, when appropriate.
Money market mutual funds are generally priced at the ending NAV provided by the service agent of the money market funds. These securities will be classified as Level 1 within the fair value hierarchy.
Fixed income securities - Fixed income securities such as corporate bonds and U.S. government agencies and obligations when valued using market quotations in an active market, will be categorized as Level 1 within the fair value hierarchy. However, they may be valued on the basis of prices furnished by a pricing service when the Advisor believes such prices more accurately reflect the fair 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. These securities will generally be categorized as Level 2 within the fair value hierarchy. If the Advisor decides that a price provided by the pricing service does not accurately reflect the fair value of the securities, when prices are not readily available from a pricing service, or when restricted or illiquid securities are being valued, securities are valued at fair value as determined in good faith by the Advisor, in conformity with guidelines adopted by and subject to review of the Board of Directors. These securities will be categorized in Level 2 or Level 3 within the fair value hierarchy, when appropriate.
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 amortized cost which approximates fair value and would be categorized in Level 2 within the fair value hierarchy.
The following table summarizes the inputs used to value the Value Fund’s assets measured at fair value as of October 31, 2014:
| | | | |
Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total |
Common Stocks | $ 86,517,258 | $ 0 | $ 0 | $ 86,517,258 |
Real Estate Investment Trust | 1,744,665 | 0 | 0 | 1,744,665 |
Short-Term Investments | 1,567,231 | 0 | 0 | 1,567,231 |
Total | $ 89,829,154 | $ 0 | $ 0 | $ 89,829,154 |
The following table summarizes the inputs used to value the Income Fund’s investments measured at fair value as of October 31, 2014:
| | | | |
Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total |
Corporate Bonds | $ 0 | $ 7,185,375 | $ 0 | $ 7,185,375 |
Preferred Stocks | 85,410 | 0 | 0 | 85,410 |
U.S. Government Agencies & Obligations | 3,930,129 | 0 | 0 | 3,930,129 |
Short-Term Investments | 3,980,044 | 0 | 0 | 3,980,044 |
Total | $ 7,995,583 | $ 7,185,375 | $ 0 | $ 15,180,958 |
The following table summarizes the inputs used to value the Focus Fund’s assets measured at fair value as of October 31, 2014:
| | | | |
Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total |
Common Stocks | $ 8,683,632 | $ 0 | $ 0 | $ 8,683,632 |
Short-Term Investments | 562,703 | 0 | 0 | 562,703 |
Total | $ 9,246,335 | $ 0 | $ 0 | $ 9,246,335 |
The Funds did not hold any Level 2 or Level 3 assets (those valued using significant unobservable inputs) at any time during the six months ended October 31, 2014. Therefore a reconciliation of assets in which significant unobservable inputs were used in determining fair value is not applicable.
The Funds did not hold any derivative instruments at any time during the six months ended October 31, 2014. For more detail on the industry classification of investments, please refer to each Fund’s Schedule of Investments. The Value Fund, Income Fund, and Focus Fund had no transfers between Level 1 and Level 2 during the six months ended October 31, 2014. The Funds consider transfers into and out of Level 1 and Level 2 as of the end of the reporting period.
Note 4. Investment Advisory Fee and Other Transactions with Affiliates
The Funds retain the Advisor as their investment advisor. Under the terms of the management agreement between the Advisor and the Trust, subject to such policies as the Board of Directors of the Corporation may determine, the Advisor, at its expense, will continuously furnish an investment program for the Funds, will make investment decisions on behalf of the Funds, and place all orders for the purchase and sale of portfolio securities subject to applicable investment objectives, policies and restrictions. Pursuant to the management agreement and subject to the general oversight of the Board of Directors, the Advisor also manages, supervises and conducts the other affairs and business of the Funds, furnishes office space and equipment, provides bookkeeping and certain clerical services and pays all fees and expenses of the officers of the Funds. For the Advisor’s services, the Funds pay a fee, computed daily and payable monthly at the annual rate of 0.94% of the Value Fund’s average daily net assets, at the annual rate of 0.79% of the Income Fund’s average daily net assets and at the annual rate of 0.94% of the Focus Fund’s average daily net assets.
For the six months ended October 31, 2014, the Advisor earned fees from the Value Fund of $460,706. The Advisor has contractually agreed to waive management fees and/or reimburse expenses to the Value Fund’s Class R shares through August 31, 2015 to limit the overall expense ratio to 1.47% (excluding brokerage, commissions, underlying fund fees and expenses and extraordinary expenses) of the Value Fund’s Class R shares average net assets. The Advisor has contractually agreed to waive management fees and/or reimburse expenses to the Value Fund’s Class I shares through August 31, 2015 to limit the overall expense ratio to 1.22% (excluding brokerage commissions, underlying fund fees and expenses, or extraordinary expenses) of the Value Fund’s Class I average net assets through August 31, 2015. For the six months ended October 31, 2014, $210 of management fees were waived for the Value Fund. As of October 31, 2014, the Value Fund owed the Advisor $69,164 in Advisory fees.
For the six months ended October 31, 2014, the Advisor earned fees from the Income Fund of $59,389. The Advisor has contractually agreed to waive management fees and/or reimburse expenses to limit the overall expense ratio to 1.10% (excluding brokerage, commissions, underlying fund fees and expenses and extraordinary expenses) of the Income Fund’s average net assets. The Advisor waived management fees in the amount of $37,849, which is not recoupable, for the six months ended October 31, 2014. As of October 31, 2014, the Advisor owed the Income Fund $2,042 in Advisory fees.
For the six months ended October 31, 2014, the Advisor earned fees from the Focus Fund of $38,199. The Advisor has contractually agreed to waive management fees and/or reimburse expenses to the Focus Fund’s Class R shares through August 30, 2015 to limit the overall expense ratio to 1.47% (excluding brokerage, commissions, underlying fund fees and expenses and extraordinary expenses) of the Focus Fund’s Class R shares average net assets. The Advisor has contractually agreed to waive management fees and/or reimburse expenses to the Focus Fund’s Class I shares through August 30, 2015 to limit the overall expense ratio to 1.22% (excluding brokerage commissions, underlying fund fees and expenses, or extraordinary expenses) of the Focus Fund’s Class I average net assets through August 31, 2015. The Advisor waived management fees in the amount of $23,170, which is not recoupable, for the six months ended October 31, 2014. As of October 31, 2014, the Focus Fund owed the Advisor $11,854 in Advisory fees.
Pursuant to a plan of distribution, the Value Fund Class R, the Income Fund, and the Focus Fund Class R may pay a distribution fee of up to 0.25% 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. For the six months ended October 31, 2014, the Value Fund Class R, the Income Fund and the Focus Fund Class R incurred distribution fees of $98,937, $18,794 and $347, respectively.
Directors and certain officers of the Corporation are also officers and owners of the Advisor. Each “non-interested” Director is entitled to receive an annual fee of $5,000 plus expenses for services related to the Corporation. The expense is allocated between the Funds by relative net assets.
Note 5. Capital Share Transactions
At October 31, 2014, there were 30,000,000, $0.001 par value shares of capital stock authorized for the Croft Funds Corporation (which includes the Value Fund, the Income Fund and the Focus Fund). The paid in capital amounted to $38,054,253 for the Value Fund, $15,153,831 for the Income Fund and $8,744,122 for the Focus Fund.
The Funds will deduct a 2% redemption fee from redemption proceeds if shares are purchased and then redeemed within 30 days. For the six months ended October 31, 2014, the Value Fund – Class R collected $75 in redemption fees. For the six months ended October 31, 2014, the Value Fund – Class I, the Income Fund and the Focus Fund Class I and Class R did not collect any redemption fees. Management has waived any redemptions fee that otherwise would apply to shares redeemed by ReFlow, LLC.
Note 6. Investments
Value Fund
For the six months ended October 31, 2014, the cost of purchases and the proceeds from sales, other than U.S. Government Securities, short-term securities, and in-kind transactions, aggregated $10,774,672 and $18,472,435, respectively. For the six months ended October 31, 2014, the cost of purchases and the proceeds from sales of U.S. Government securities aggregated $0 and $0, respectively. For the six months ended October 31, 2014, the cost of purchases and proceeds from sales of in-kind transactions aggregated $0 and $8,428,433, respectively. For federal income tax purposes, as of October 31, 2014, the gross unrealized appreciation for all securities totaled $31,329,280 and the gross unrealized depreciation for all securities totaled $612,372, for a net unrealized appreciation of $30,716,908. The aggregate cost of securities for federal income tax purposes at October 31, 2014, was $59,112,246.
Income Fund
For the six months ended October 31, 2014, the cost of purchases and the proceeds from the sales, other than U.S. Government securities and short-term securities, aggregated $1,929,002 and $1,428,335, respectively. For the six months ended October 31, 2014, the cost of purchases and the proceeds from sales of U.S. Government securities aggregated $2,997,803 and $1,000,000, respectively. For federal income tax purposes, as of October 31, 2014, the gross unrealized appreciation for all securities totaled $409,265 and the gross unrealized depreciation for all securities totaled $39,143, for a net unrealized appreciation of $370,122. The aggregate cost of securities for federal income tax purposes at October 31, 2014, was $14,810,836.
Focus Fund
For the six months ended October 31, 2014, the cost of purchases and the proceeds from sales, other than U.S. Government Securities and short-term securities, aggregated $5,618,270 and $4,183,747, respectively. For the six months ended October 31, 2014, the cost of purchases and the proceeds from sales of U.S. Government securities aggregated $0 and $0, respectively. For federal income tax purposes, as of October 31, 2014, the gross unrealized appreciation for all securities totaled $505,534 and the gross unrealized depreciation for all securities totaled $341,440, for a net unrealized appreciation of $164,094. The aggregate cost of securities for federal income tax purposes at October 31, 2014, was $9,082,241.
Note 7. Distributions to Shareholders
Value Fund
The Value Fund makes distributions annually. During the six months ended October 31, 2014, the Value Fund Class I and Class R did not pay a distribution. During the year ended April 30, 2014, distributions of $0.12 per share, or $80,633 in the aggregate, were declared and paid from net investment income for Class I. During the year ended April 30, 2014, distributions of $0.22 per share, or $970,695 in the aggregate, were declared and paid from net investment income for Class R. During the year ended April 30, 2014, distributions of $0.22 per share, or $145,113 for Class I and $961,332 for Class R, in the aggregate, were declared and paid from short-term capital gains. During the year ended April 30, 2014, distributions of $3.53 per share, or $2,378,810 for Class I and $15,758,979 for Class R, in the aggregate, were declared and paid from long-term capital gains.
During the period August 1, 2012 (commencement of operations) through April 30, 2013, distributions of $0.13 per share, or $49,748 in the aggregate, were declared and paid from net investment income for Class I.
During the year ended April 30, 2013, distributions of $0.20 per share, or $2,210,332 in the aggregate, were declared and paid from net investment income for Class R.
The tax character of distributions paid during the fiscal years ended April 30, 2014 and 2013 was as follows:
| | |
| Fiscal year ended | Fiscal year ended |
Distributions paid from: | 4/30/2014 | 4/30/2013 |
Ordinary Income | $ 2,157,773 | $2,260,080 |
Realized Gains | $18,137,789 | $ - |
| $20,295,562 | $2,260,080 |
As of the fiscal year ended April 30, 2014, the components of distributable earnings/(accumulated losses) on a tax basis are as follows:
| |
Accumulated Undistributed Ordinary Income | $ 573,087 |
Accumulated Net Realized Gain on Investments | 10,143,448 |
Net Unrealized Appreciation on Investments | 37,951,896 |
| $ 48,668,431 |
The difference between book and tax-basis unrealized appreciation (depreciation) is attributable to the tax deferral of losses from wash sales.
Income Fund
The Income Fund makes quarterly income distributions. During the six months ended October 31, 2014, distributions of $0.07 per share, or $103,609 in aggregate, were declared and paid from net investment income. During the year ended April 30, 2014, distributions of $0.19 per share, or $275,622 in aggregate, were declared and paid from net investment income. During the year ended April 30, 2013, distributions of $0.25 per share, or $403,285 in the aggregate, were declared and paid from net investment income.
The tax character of distributions paid during the six months ended October 31, 2014, and fiscal years ended April 30, 2014 and 2013 was as follows:
| | | |
| Six months ended | Fiscal year ended | Fiscal year ended |
Distributions paid from: | 10/31/2014 | 4/30/2014 | 4/30/2013 |
Ordinary Income | $103,609 | $275,622 | $403,285 |
As of the fiscal year ended April 30, 2014, the components of distributable earnings/(accumulated losses) on a tax basis are as follows:
| |
Undistributed Ordinary Income | $ 23,251 |
Capital Loss Carryforward | (261,366) |
Net Unrealized Appreciation on Investments | 465,474 |
| $ 227,359 |
The difference between book and tax-basis unrealized appreciation (depreciation) is attributable to the tax deferral of post-October losses.
Focus Fund
The Focus Fund will make distributions from investment income annually and quarterly, respectively, and distribute any net realized gains annually. During the six months ended October 31, 2014, the Focus Fund Class I and Class R did not pay a distribution. During the period December 31, 2013 (commencement of investment operations) through April 30, 2014, Class I and Class R did not pay a distribution.
For the period December 31, 2013 (commencement of investment operations) through April 30, 2014, the components of distributable earnings/(accumulated losses) on a tax basis are as follows:
| |
Accumulated Undistributed Ordinary Income | $ 5,573 |
Net Unrealized Appreciation on Investments | 17,618 |
| $ 23,191 |
The difference between book and tax-basis unrealized appreciation (depreciation) is attributable to the tax deferral of post-October losses.
Note 8. Control Ownership
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates a presumption of control of the fund, under Section 2 (a) (9) of the Act. As of October 31 2014, SEI Private Trust Company held in omnibus accounts for the benefit of others approximately 28% of the voting securities of the Income Fund and may be deemed to control the Income Fund. As of October 31, 2014, the Croft family, in aggregate, owned approximately 56% of the voting securities of the Focus Fund and may be deemed to control the Focus Fund.
Note 9. Capital Loss Carryforwards
As of the fiscal year ended April 30, 2014, the Income Fund had available for federal tax purposes an unused capital loss carryforward of $261,366 which expires in 2018. Any losses incurred during future taxable years will be required to be utilized prior to the losses incurred in prior years. To the extent that these carryforwards are used to offset future capital gains, it is possible that the amount which is offset will not be distributed to shareholders. Capital loss carryforwards utilized in the fiscal year ended April 30, 2014 for the Value Fund and Income Fund amounted to $180,467 and $1,629, respectively.
Note 10. Loan Agreement
The Funds may, from time to time, participate in a program offered by ReFlow, LLC (“ReFlow”) which provides an alternative source of capital available to the Funds to satisfy some or all of their redemption requests at a minimum of 25 basis point daily fee of the outstanding loan balance. The Value Fund’s maximum borrowed was $3,061,154 with an average borrowing of $325,408 during the six months ended October 31, 2014. ReFlow shall not purchase more than the lesser of (a) 3% of the outstanding voting shares of the Fund or (b) the number of shares that can be purchased subject to the capital or other limits announced from time to time by ReFlow. Fees associated with the loan agreement amounted to $21,151 for the Value Fund, which was voluntarily waived by the Advisor. As repayment for shares purchased in Class R of the Value Fund, securities were redeemed in-kind with a fair value of $8,716,340. The Income Fund and Focus Fund had no borrowings during the six months ended October 31, 2014. As of October 31, 2014, the Value Fund, Income Fund and Focus Fund had no borrowings outstanding.
Note 11. Subsequent Events
The Funds are required to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the Statements of Assets and Liabilities. For non-recognized subsequent events that must be disclosed to keep the financial statements from being misleading, the Funds are required to disclose the nature of the event as well as an estimate of its financial effect, or a statement that such an estimate cannot be made. Management has evaluated the impact of all subsequent events on the Funds through the issuance date of these financial statements and has noted no such events requiring accounting or disclosure.
CROFT FUNDS CORPORATION
EXPENSE ILLUSTRATION
OCTOBER 31, 2014 (UNAUDITED)
Expense Example
As a shareholder of the Croft Funds, you incur two types of costs: (1) transaction costs which consist of redemption fees; and (2) ongoing costs which consist of management fees, distribution and /or Service (12b-1) fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, May 1, 2014 through October 31, 2014, for Croft Value Fund, Class I and R, the Croft Income Fund, and the Focus Fund, Class I and R.
Actual Expenses
The first line of the tables below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the tables below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not such Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in these Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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