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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21682
Sterling Capital Variable Insurance Funds
(Exact name of registrant as specified in charter)
434 Fayetteville Street, 5th Floor
Raleigh, NC 27601-0575
(Address of principal executive offices) (Zip code)
James T. Gillespie, President
Sterling Capital Variable Insurance Funds
434 Fayetteville Street, 5th Floor
Raleigh, NC 27601-0575
(Name and address of agent for service)
Registrant’s telephone number, including area code: (800) 228-1872
Date of fiscal year end: December 31
Date of reporting period: December 31, 2012
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
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Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
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Sterling Capital Variable Insurance Funds |
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Table of Contents
Sterling Capital Select Equity VIF
Performance Overview 12/31/2002 - 12/31/2012
Growth of a $10,000 investment
Portfolio Manager
Stephen L. Morgan, CFA
Executive Director & Select Equity portfolio manager Sterling Capital Management LLC
Average Annual Returns
1 Year | 5 Years | 10 Years | ||||
Sterling Capital Select Equity VIF | 14.53% | -1.82% | 4.53% | |||
S&P 500® Index | 16.00% | 1.66% | 7.10% |
The chart represents a comparison of a hypothetical $10,000 investment in the indicated Fund versus a similar investment in the Fund’s benchmark, and includes the reinvestment of distributions. The returns include the Fund level expenses, but do not include fees charged by participating insurance companies. These charges and fees will reduce returns. Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The value of the contract will fluctuate so that when redeemed, it may be worth more or less than the original investment.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk. The net asset value per share of the Fund will fluctuate as the value of the securities in the portfolio changes. Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
Q. How did the Fund perform during the 12-month period between January 1, 2012 and December 31, 2012?
A. The Fund underperformed its benchmark, the S&P 500® Index.
Q. What factors affected the Fund’s performance?
A. The economy’s continued gradual recovery as well as accommodative monetary policy both in the U.S. and abroad helped push financial markets higher during 2012. Additionally, the housing market appeared to have bottomed out, which helped boost consumer confidence. The Fund’s absolute return benefited from these developments.1
The Fund’s performance relative to its benchmark benefited from its overall sector positioning. The Fund held underweight positions in the traditionally defensive sectors of utilities and consumer staples, which underperformed the market. The Fund’s holdings in the media industry and in stocks affected by the housing recovery were among the largest positive contributors to relative performance.1
The Fund’s relative performance was dampened somewhat by its underweight position in the consumer discretionary sector, which outperformed the benchmark. The Fund’s overweight position in the energy sector, which was among the poorest performers during the year, also reduced the Fund’s relative performance. Two specific holdings in the energy sector and one position in the materials sector also detracted from returns.1
1 | Portfolio composition is as of December 31, 2012, and is subject to change. |
The Fund is measured against the S&P 500® Index, a widely recognized, unmanaged index of common stocks. The index is unmanaged and does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for these services. Investors cannot invest directly in an index, although they can invest in its underlying securities.
A portion of the Fund’s fees have been voluntarily reduced (See Note 5 in the Notes to the Financial Statements). If fees had not been reduced, the Fund’s total return for the periods would have been lower.
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Sterling Capital Strategic Allocation Equity VIF
Performance Overview 12/31/2002 - 12/31/2012
Growth of a $10,000 investment
Portfolio Managers
Sterling Capital Strategic Allocation Equity VIF is managed by James C. Willis, CFA, Managing Director and Head of Sterling Capital Advisory Solutions Team, Jeffrey J. Schappe, CFA, Managing Director and Chief Market Strategist and Will G. Gholston, CFA, Director and Manager of Quantitative Analysis.
Average Annual Returns
1 Year | 5 Years | 10 Years | ||||||||||
Sterling Capital Strategic Allocation Equity VIF | 13.41% | -1.33% | 5.17% | |||||||||
Russell Global Index1 | 17.19% | -0.29% | 9.17% | |||||||||
S&P 500® Index1 | 16.00% | 1.66% | 7.10% |
The chart represents a comparison of a hypothetical $10,000 investment in the indicated Fund versus a similar investment in the Fund’s benchmark, and includes the reinvestment of distributions. The returns include the Fund level expenses, but do not include fees charged by participating insurance companies. These charges and fees will reduce returns. Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The value of the contract will fluctuate so that when redeemed, it may be worth more or less than the original investment.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk. The Fund is primarily concentrated in underlying funds and is therefore subject to the same risks as the underlying funds and bears a portion of the expenses of the underlying funds. The underlying funds may invest in equity securities and in other types of bonds and fixed-income instruments, short-term obligations and the shares of other investment companies. The net asset value per share of the Fund will fluctuate as the value of the securities in the portfolio changes.
Q. How did the Fund perform during the 12-month period between January 1, 2012 and December 31, 2012?
A. The Fund underperformed its benchmark, the Russell Global Index.
Q. What factors affected the Fund’s performance?
A. Risk assets generally made significant gains during the period, boosted by aggressive central bank action in the second half of the year. Real estate investment trusts (REITs) performed especially well. The Dow Jones Equity All REIT Index returned 19.57% during 2012, contributing significantly to the Fund’s absolute gains. Commodities had the opposite effect on the Fund’s absolute performance, as the Dow Jones UBS Commodity Index fell -1.06% over the period.2
The Fund’s allocation to other investment companies that invest in REITs aided its performance relative to its benchmark. A significant underweight position in non-U.S. developed equity shares for much of the period also strengthened the Fund’s relative performance, as these stocks underperformed the global equity benchmark substantially during the first three quarters of 2012.2
The Fund’s allocation to other investment companies that invest in commodities during the period hurt its performance relative to the benchmark, which had no direct exposure to commodities. An underweight allocation to emerging markets also detracted from relative performance.2
1 | As of February 1, 2012, the primary benchmark for the Fund changed from the S&P 500® Index to the Russell Global Index (the “New Benchmark”), as the New Benchmark was determined to be a more appropriate broad-based index for comparison purposes. The S&P 500® Index will not be shown in the future. |
2 | Portfolio composition is as of December 31, 2012, and is subject to change. |
S&P 500® Index is an unmanaged index generally considered to be representative of the performance of the stock market as a whole. The Fund is measured against the Russell Global Index. The Russell Global Index measures the performance of the global equity market. The indices do not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for these services. Investors cannot invest directly in an index, although they can invest in its underlying securities.
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Sterling Capital Special Opportunities VIF
Performance Overview 7/22/2004 - 12/31/2012
Growth of a $10,000 investment
Portfolio Manager
George F. Shipp, CFA
Managing Director and portfolio manager Sterling Capital Management LLC
Average Annual Returns (Inception 7/22/2004)
1 Year | 5 Years | Since
Inception | ||||||||||
Sterling Capital Special Opportunities VIF | 14.33% | 4.05% | 9.92% | |||||||||
S&P 500® Index | 16.00% | 1.66% | 5.29% |
The chart represents a comparison of a hypothetical $10,000 investment in the indicated Fund versus a similar investment in the Fund’s benchmark, and includes the reinvestment of distributions. The inception date used for the S&P 500® Index was 07/31/04. The returns include the Fund level expenses, but do not include fees charged by participating insurance companies. These charges and fees will reduce returns. Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The value of the contract will fluctuate so that when redeemed, it may be worth more or less than the original investment.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk. The net asset value per share of the Fund will fluctuate as the value of the securities in the portfolio changes. A concentrated portfolio may add a measure of volatility to performance, as major fluctuations in any one holding will likely affect the Fund more than a fund with greater diversification.
Q. How did the Fund perform during the 12-month period between January 1, 2012 and December 31, 2012?
A. The Fund underperformed its benchmark, the S&P 500® Index.
Q. What factors affected the Fund’s performance?
A. Stocks made gains across all sectors during the 12-month period. The Fund’s strong absolute returns were fueled by exceptional performance from its information technology, consumer discretionary and health care holdings. These three sectors combined contributed more than 70% of the Fund’s total returns during the year.1
The Fund’s absolute returns were negatively impacted by its energy holdings, which included two of the portfolio’s five worst performing stocks. Energy stocks were constrained by a combination of lower global demand and lower commodity prices, particularly for natural gas. An individual holding in the health care sector was the Fund’s largest overall detractor, followed closely by a global personal computer manufacturing and services firm. A near-zero return on cash was also a significant drag on the Fund’s absolute returns .1
The Fund’s relative performance was boosted by an overweight position and favorable stock selection in consumer discretionary stocks. Among these, a cable and broadband provider performed especially well. The Fund’s largest allocation was to information technology holdings, some of which outpaced their sector peers ..1
Energy holdings were the largest detractor to the Fund’s performance relative to its benchmark. Two of its four energy holdings declined during the period. Health care sector returns beat the market, but two of the Fund’s health care holdings suffered declines. One of these was a health care IT firm that seemed well positioned to benefit from the industry’s move toward electronic health records but stumbled in its execution. The Fund’s above-average cash position also dragged on its relative performance .1
1 | Portfolio composition is as of December 31, 2012, and is subject to change. |
The Fund is measured against the S&P 500® Index, a widely recognized, unmanaged index of common stocks. The index does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for these services. Investors cannot invest directly in an index, although they can invest in its underlying securities.
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Table of Contents
Sterling Capital Total Return Bond VIF
Performance Overview 7/22/2004 - 12/31/2012
Growth of a $10,000 investment
Portfolio Managers
Mark Montgomery, CFA
Managing Director and Senior Fixed Income portfolio manager Sterling Capital Management LLC
Richard T. LaCoff
Managing Director and Senior Fixed Income portfolio manager Sterling Capital Management LLC
Average Annual Returns (Inception 7/22/2004)
1 Year | 5 Years | Since
Inception | ||||||||||
Sterling Capital Total Return Bond VIF | 6.10% | 6.36% | 5.41% | |||||||||
Barclays U.S. Aggregate Bond Index | 4.22% | 5.95% | 5.54% |
The chart represents a comparison of a hypothetical $10,000 investment in the indicated Fund versus a similar investment in the Fund’s benchmark, and includes the reinvestment of distributions. The inception date used for the Barclays U.S. Aggregate Bond Index was 07/31/04. The returns include the Fund level expenses, but do not include fees charged by participating insurance companies. These charges and fees will reduce returns. Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The value of the contract will fluctuate so that when redeemed, it may be worth more or less than the original investment.
Investment Concerns
Bonds offer a relatively stable level of income, although bond prices will fluctuate providing the potential for principal gain or loss. Intermediate-term, higher-quality bonds generally offer less risk than longer-term bonds and a lower rate of return.
The Fund is subject to the risk that principal value tends to react in opposition to the movement of interest rates and that a rising interest rate environment increases the risk of loss of principal.
Q. How did the Fund perform during the 12-month period between January 1, 2012 and December 31, 2012?
A. The Fund outperformed its benchmark, the Barclays U.S. Aggregate Bond Index.
Q. What factors affected the Fund’s performance?
A. The U.S. economy expanded during the period, although at a below-trend rate of growth, while the rate of inflation remained tame. The Federal Reserve pursued an accommodative monetary policy to stimulate economic activity and improve labor market conditions. These factors created an environment conducive to solid fixed income market performance, as interest rates declined and the yield curve flattened.1
The Fund benefited from an overweight allocation to higher interest products, including corporate bonds, commercial and residential mortgage-backed securities, and taxable municipal bonds. All of these sectors boosted both absolute and relative returns. Within the corporate and securitized sectors, the portfolio had an overweight allocation to securities that carry higher risk, such as high-yield bonds, which further boosted the Fund’s performance relative to its benchmark.1
The major detractor from the Fund’s relative performance was yield curve positioning. Sector allocation decisions, particularly relating to higher interest products, produced a portfolio with a maturity profile weighted toward the intermediate range of the yield curve. This weighting detracted from performance due to the flattening of the yield curve.1
1 | Portfolio composition is as of December 31, 2012, and is subject to change. |
The Fund is measured against Barclays U.S. Aggregate Bond Index which is a market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed and mortgage-backed securities, with maturities of at least one year. The index is unmanaged and does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for these services. Investors cannot invest directly in an index, although they can invest in its underlying securities.
A portion of the Fund’s fees have been voluntarily reduced (See Note 5 in the Notes to the Financial Statements). If fees had not been reduced, the Fund’s total return for the periods would have been lower.
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Sterling Capital Variable Insurance Funds |
Summary of Portfolio Holdings (Unaudited)
December 31, 2012
Each Sterling Capital Variable Insurance Fund’s portfolio composition at December 31, 2012 was as follows :
Sterling Capital Select Equity VIF | Percentage of net assets | |||
Consumer Discretionary | 9.7 | % | ||
Consumer Staples | 9.1 | % | ||
Energy | 12.0 | % | ||
Financials | 17.1 | % | ||
Health Care | 11.6 | % | ||
Industrials | 14.5 | % | ||
Information Technology | 21.7 | % | ||
Materials | 2.1 | % | ||
Telecommunication Services | 1.8 | % | ||
Exchange Traded Funds | 0.0 | % | ||
Cash Equivalents | 0.2 | % | ||
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99.8 | % | |||
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Sterling Capital Strategic Allocation Equity VIF | ||||
Sterling Capital Equity Income Fund, Institutional Class | 5.5 | % | ||
Sterling Capital Equity Index Fund, Institutional Class | 0.9 | % | ||
Sterling Capital Mid Value Fund, Institutional Class | 8.9 | % | ||
Sterling Capital Select Equity Fund, Institutional Class | 21.4 | % | ||
Sterling Capital Small Value Fund, Institutional Class | 2.2 | % | ||
Sterling Capital Special Opportunities Fund, Institutional Class | 13.6 | % | ||
Sterling Capital Ultra Short Bond Fund, Institutional Class | 0.7 | % | ||
Non-Affiliated Investment Companies | 8.6 | % | ||
Exchange Traded Funds | 38.2 | % | ||
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100.0 | % | |||
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Sterling Capital Special Opportunities VIF | ||||
Consumer Discretionary | 15.9 | % | ||
Consumer Staples | 4.9 | % | ||
Energy | 9.2 | % | ||
Financials | 6.4 | % | ||
Health Care | 16.4 | % | ||
Industrials | 3.4 | % | ||
Information Technology | 32.3 | % | ||
Materials | 7.1 | % | ||
Cash Equivalents | 4.7 | % | ||
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100.3 | % | |||
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Sterling Capital Total Return Bond VIF | ||||
Asset Backed Securities | 3.2 | % | ||
Collateralized Mortgage Obligations | 10.8 | % | ||
Commercial Mortgage-Backed Securities | 20.8 | % | ||
Corporate Bonds | 34.3 | % | ||
Mortgage-Backed Securities | 23.2 | % | ||
Municipal Bonds | 7.1 | % | ||
Preferred Stocks | 2.0 | % | ||
U.S. Treasury Bonds | 0.6 | % | ||
Cash Equivalents | 0.8 | % | ||
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102.8 | % | |||
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Table of Contents
Sterling Capital Variable Insurance Funds |
December 31, 2012
As a shareholder of the Sterling Capital Variable Insurance Funds, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees and other Fund expenses.
These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Sterling Capital Variable Insurance Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2012 through December 31, 2012.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, 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 table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Beginning Account Value 7/1/12 | Ending Account Value 12/31/12 | Expenses Paid During Period 7/1/12 - 12/31/12* | Expense Ratio During Period 7/1/12 - 12/31/12 | |||||
Sterling Capital Select Equity VIF | $1,000.00 | $1,049.80 | $5.67 | 1.10% | ||||
Sterling Capital Strategic Allocation Equity VIF | 1,000.00 | 1,077.90 | 3.60 | 0.69% | ||||
Sterling Capital Special Opportunities VIF | 1,000.00 | 1,086.10 | 6.66 | 1.27% | ||||
Sterling Capital Total Return Bond VIF | 1,000.00 | 1,027.90 | 6.12 | 1.20% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by 184 (the number of days in the most recent fiscal half-year) divided by 366 (the number of days in the fiscal year). Expenses shown do not include annuity contract fees or fees and expenses of any underlying funds in which the Funds invest. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on each Sterling Capital Variable Insurance Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds’ 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 this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of 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. Therefore, 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.
Beginning Account Value 7/1/12 | Ending Account Value 12/31/12 | Expenses Paid During Period 7/1/12 - 12/31/12* | Expense Ratio During Period 7/1/12 - 12/31/12 | |||||
Sterling Capital Select Equity VIF | $1,000.00 | $1,019.61 | $5.58 | 1.10% | ||||
Sterling Capital Strategic Allocation Equity VIF | 1,000.00 | 1,021.67 | 3.51 | 0.69% | ||||
Sterling Capital Special Opportunities VIF | 1,000.00 | 1,018.75 | 6.44 | 1.27% | ||||
Sterling Capital Total Return Bond VIF | 1,000.00 | 1,019.10 | 6.09 | 1.20% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by 184 (the number of days in the most recent fiscal half-year) divided by 366 (the number of days in the fiscal year). Expenses shown do not include annuity contract fees or fees and expenses of any underlying funds in which the Funds invest. |
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Sterling Capital Select Equity VIF |
Schedule of Portfolio Investments
December 31, 2012
Shares | Fair Value | |||||
COMMON STOCKS (99.6%) | ||||||
Consumer Discretionary (9.7%) | ||||||
3,840 | Coach, Inc. | $ | 213,158 | |||
8,700 | Comcast Corp., Class A | 325,206 | ||||
5,460 | DIRECTV(a) | 273,873 | ||||
6,270 | Target Corp. | 370,996 | ||||
1,680 | Time Warner Cable, Inc. | 163,279 | ||||
7,620 | Walt Disney Co. (The) | 379,400 | ||||
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1,725,912 | ||||||
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Consumer Staples (9.1%) | ||||||
8,860 | Coca-Cola Co. (The) | 321,175 | ||||
5,910 | CVS Caremark Corp. | 285,749 | ||||
11,850 | Mondelez International, Inc., Class A | 301,819 | ||||
4,920 | PepsiCo, Inc. | 336,676 | ||||
2,355 | Philip Morris International, Inc. | 196,972 | ||||
2,670 | Procter & Gamble Co. (The) | 181,266 | ||||
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1,623,657 | ||||||
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Energy (12.0%) | ||||||
3,615 | Anadarko Petroleum Corp. | 268,631 | ||||
9,600 | Cenovus Energy, Inc. | 321,984 | ||||
3,790 | Chevron Corp. | 409,850 | ||||
4,380 | Exxon Mobil Corp. | 379,089 | ||||
5,820 | Schlumberger, Ltd. | 403,268 | ||||
8,160 | Suncor Energy, Inc. | 269,117 | ||||
2,715 | Valero Energy Corp. | 92,636 | ||||
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2,144,575 | ||||||
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Financials (17.1%) | ||||||
1,160 | American Express Co. | 66,677 | ||||
13,801 | Bank of New York Mellon Corp. (The) | 354,686 | ||||
4,740 | Berkshire Hathaway, Inc., Class B(a) | 425,178 | ||||
14,055 | Charles Schwab Corp. (The) | 201,830 | ||||
12,273 | JPMorgan Chase &Co. | 539,644 | ||||
14,730 | MetLife, Inc. | 485,206 | ||||
6,180 | PNC Financial Services Group, Inc. | 360,356 | ||||
13,560 | Wells Fargo & Co. | 463,481 | ||||
5,088 | Weyerhaeuser Co., REIT | 141,548 | ||||
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3,038,606 | ||||||
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Health Care (11.6%) | ||||||
7,080 | Express Scripts Holding Co.(a) | 382,320 | ||||
4,500 | Johnson & Johnson. | 315,450 | ||||
7,350 | Merck & Co., Inc. | 300,909 | ||||
10,770 | Pfizer, Inc. | 270,111 | ||||
8,700 | UnitedHealth Group, Inc. | 471,888 | ||||
5,460 | WellPoint, Inc. | 332,623 | ||||
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2,073,301 | ||||||
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Industrials (14.5%) | ||||||
9,330 | ABB, Ltd., ADR | 193,971 | ||||
5,390 | Boeing Co. (The) | 406,190 | ||||
3,840 | FedEx Corp. | 352,205 | ||||
3,140 | Fluor Corp. | 184,443 |
Shares | Fair Value | |||||
COMMON STOCKS — (continued) | ||||||
Industrials — (continued) | ||||||
25,440 | General Electric Co. | $ | 533,986 | |||
6,090 | Honeywell International, Inc. | 386,532 | ||||
6,630 | Pentair, Ltd | 325,865 | ||||
7,260 | Xylem, Inc. | 196,746 | ||||
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2,579,938 | ||||||
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Information Technology (21.7%) | ||||||
1,380 | Apple, Inc. | 735,581 | ||||
16,620 | Cisco Systems, Inc. | 326,583 | ||||
16,440 | EMC Corp.(a) | 415,932 | ||||
465 | GOOGLE, Inc., Class A(a) | 329,857 | ||||
5,240 | Intel Corp. | 108,101 | ||||
1,950 | International Business Machines Corp. | 373,523 | ||||
21,930 | Microsoft Corp. | 586,189 | ||||
8,430 | Oracle Corp. | 280,888 | ||||
6,900 | QUALCOMM, Inc. | 427,938 | ||||
7,440 | TE Connectivity, Ltd. | 276,173 | ||||
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3,860,765 | ||||||
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Materials (2.1%) | ||||||
10,590 | Barrick Gold Corp. | 370,756 | ||||
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Telecommunication Services (1.8%) | ||||||
9,600 | AT&T, Inc. | 323,616 | ||||
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Total Common Stocks | 17,741,126 | |||||
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EXCHANGE TRADED FUNDS (0.0%) | ||||||
195 | Utilities Select Sector SPDR Fund | 6,815 | ||||
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Total Exchange Traded Funds | 6,815 | |||||
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INVESTMENT COMPANY (0.2%) | ||||||
25,728 | Federated Treasury Obligations Fund, Institutional Shares | 25,728 | ||||
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Total Investment Company | 25,728 | |||||
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Total Investments — 99.8% | 17,773,669 | |||||
Net Other Assets (Liabilities) — 0.2% | 31,412 | |||||
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NET ASSETS — 100.0% | $ | 17,805,081 | ||||
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(a) Represents non-income producing security.
ADR — American Depositary Receipt |
REIT — Real Estate Investment Trust |
SPDR — Standard and Poors Depositary Receipt |
See accompanying notes to the financial statements.
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Table of Contents
Sterling Capital Strategic Allocation Equity VIF |
Schedule of Portfolio Investments
December 31, 2012
Shares | Fair Value | |||||
AFFILIATED INVESTMENT COMPANIES (53.2%) |
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16,947 | Sterling Capital Equity Income Fund, | $ | 269,290 | |||
4,367 | Sterling Capital Equity Index Fund, | 41,703 | ||||
30,342 | Sterling Capital Mid Value Fund, | 435,106 | ||||
83,087 | Sterling Capital Select Equity Fund, | 1,044,409 | ||||
8,773 | Sterling Capital Small Value Fund, Institutional Class(a) | 107,729 | ||||
35,784 | Sterling Capital Special Opportunities Fund, | 660,576 | ||||
3,338 | Sterling Capital Ultra Short Bond Fund, | 33,380 | ||||
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Total Affiliated Investment Companies | 2,592,193 | |||||
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NON-AFFILIATED INVESTMENT |
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18,042 | Credit Suisse Commodity Return Strategy | 144,879 | ||||
27,785 | Federated Treasury Obligations Fund, | 27,785 | ||||
10,616 | Harding, Loevner International Equity | 169,226 | ||||
1,957 | Lazard Emerging Markets Equity Portfolio | 38,234 | ||||
1,160 | Oppenheimer Developing Markets Fund | 40,469 | ||||
|
| |||||
Total Non-Affiliated Investment Companies | 420,593 | |||||
|
| |||||
EXCHANGE TRADED FUNDS (38.2%) | ||||||
2,307 | iShares Dow Jones US Real Estate Index Fund | 149,309 | ||||
9,055 | iShares MSCI EAFE Index Fund | 514,505 | ||||
3,887 | iShares MSCI EAFE Small Cap Index Fund | 158,240 | ||||
3,516 | iShares MSCI EAFE Value Index Fund | 171,053 | ||||
9,530 | iShares MSCI Emerging Markets Index Fund | 422,656 | ||||
1,555 | iShares Russell 2000 Index Fund | 131,071 | ||||
5,038 | iShares Russell Midcap Growth Index Fund | 316,386 | ||||
|
| |||||
Total Exchange Traded Funds | 1,863,220 | |||||
|
| |||||
Total Investments — 100.0% | 4,876,006 | |||||
Net Other Assets (Liabilities) — (0.0)% | (1,119 | ) | ||||
|
| |||||
NET ASSETS — 100.0% | $ | 4,874,887 | ||||
|
|
(a) Represents non-income producing security.
See accompanying notes to the financial statements.
9
Table of Contents
Sterling Capital Special Opportunities VIF |
Schedule of Portfolio Investments
December 31, 2012
Shares | Fair Value | |||||
COMMON STOCKS (95.6%) |
| |||||
Consumer Discretionary (15.9%) | ||||||
50,000 | Comcast Corp., Class A | $ | 1,869,000 | |||
13,000 | DIRECTV(a) | 652,080 | ||||
98,000 | Ford Motor Co. | 1,269,100 | ||||
17,000 | Yum! Brands, Inc. | 1,128,800 | ||||
|
| |||||
4,918,980 | ||||||
|
| |||||
Consumer Staples (4.9%) | ||||||
75,000 | Dole Food Co., Inc.(a) | 860,250 | ||||
26,000 | Mondelez International, Inc., Class A | 662,220 | ||||
|
| |||||
1,522,470 | ||||||
|
| |||||
Energy (9.2%) | ||||||
15,000 | Apache Corp. | 1,177,500 | ||||
11,000 | EOG Resources, Inc. | 1,328,690 | ||||
10,000 | Halliburton Co. | 346,900 | ||||
|
| |||||
2,853,090 | ||||||
|
| |||||
Financials (6.4%) | ||||||
40,000 | Charles Schwab Corp. (The) | 574,400 | ||||
25,000 | CME Group, Inc. | 1,267,750 | ||||
15,500 | Och-Ziff Capital Management Group LLC, Class A | 147,250 | ||||
|
| |||||
1,989,400 | ||||||
|
| |||||
Health Care (16.4%) | ||||||
24,000 | Agilent Technologies, Inc. | 982,560 | ||||
33,000 | Merck & Co., Inc. | 1,351,020 | ||||
34,000 | Teva Pharmaceutical Industries, Ltd., ADR | 1,269,560 | ||||
27,000 | UnitedHealth Group, Inc. | 1,464,480 | ||||
|
| |||||
5,067,620 | ||||||
|
| |||||
Industrials (3.4%) | ||||||
7,000 | FedEx Corp. | 642,040 | ||||
8,000 | Ryder System, Inc. | 399,440 | ||||
|
| |||||
1,041,480 | ||||||
|
| |||||
Information Technology (32.3%) | ||||||
150,000 | Activision Blizzard, Inc. | 1,593,000 |
Shares | Fair Value | |||||
COMMON STOCKS — (continued) |
| |||||
Information Technology — (continued) | ||||||
13,000 | Check Point Software Technologies, Ltd.(a) | $ | 619,320 | |||
78,000 | Cisco Systems, Inc. | 1,532,700 | ||||
70,000 | Corning, Inc. | 883,400 | ||||
92,000 | Dell, Inc. | 931,960 | ||||
30,000 | eBay, Inc.(a) | 1,530,600 | ||||
27,500 | Harris Corp. | 1,346,400 | ||||
19,000 | Intuit, Inc. | 1,130,500 | ||||
18,000 | Nuance Communications, Inc.(a) | 401,760 | ||||
|
| |||||
9,969,640 | ||||||
|
| |||||
Materials (7.1%) | ||||||
26,000 | Newmont Mining Corp | 1,207,440 | ||||
2,000 | Potash Corp. of Saskatchewan, Inc. | 81,380 | ||||
52,000 | Yamana Gold, Inc. | 894,920 | ||||
|
| |||||
2,183,740 | ||||||
|
| |||||
Total Common Stocks | 29,546,420 | |||||
|
| |||||
INVESTMENT COMPANY (4.7%) |
| |||||
1,461,140 | Federated Treasury Obligations Fund, | |||||
Institutional Shares | 1,461,140 | |||||
|
| |||||
Total Investment Company | 1,461,140 | |||||
|
| |||||
Total Investments — 100.3% | 31,007,560 | |||||
Net Other Assets (Liabilities) — (0.3)% | (78,848 | ) | ||||
|
| |||||
NET ASSETS — 100.0% | $ | 30,928,712 | ||||
|
|
(a) | Represents non-income producing security. |
ADR — American Depositary Receipt
See accompanying notes to the financial statements.
10
Table of Contents
Sterling Capital Total Return Bond VIF |
Schedule of Portfolio Investments
December 31, 2012
Principal | Fair Value | |||||
ASSET BACKED SECURITIES (3.2%) |
| |||||
$95,000 | American Express Credit Account Master Trust, Series 2008-7, Class A, 1.509%, 3/15/16(a) | $ | 95,762 | |||
200,000 | Capital One Multi-Asset Execution Trust, Series 2006-A5, Class A5, 0.269%, 1/15/16(a) | 199,996 | ||||
174,000 | Chase Issuance Trust, Series 2008-A8, Class A8, 1.409%, 5/15/17(a) | 178,441 | ||||
85,000 | MBNA Credit Card Master Note Trust, Series 2006-A5, Class A5, 0.269%, 10/15/15(a) | 84,974 | ||||
|
| |||||
Total Asset Backed Securities | 559,173 | |||||
|
| |||||
COLLATERALIZED MORTGAGE |
| |||||
89,334 | Adjustable Rate Mortgage Trust, Series 2004-5, Class 4A1, 5.159%, 4/25/35(a) | 88,864 | ||||
54,950 | Banc of America Alternative Loan Trust, Series 2004-10, Class 1CB1, 6.000%, 11/25/34 | 53,860 | ||||
102,475 | Banc of America Funding Corp., Series 2006-2, Class 3A1, 6.000%, 3/25/36 | 104,557 | ||||
61,958 | Countrywide Alternative Loan Trust, Series 2004-22CB, Class 1A1, 6.000%, 10/25/34 | 64,253 | ||||
46,832 | Countrywide Home Loan Mortgage Pass Through Trust, Series 2002-38, Class A3, 5.000%, 2/25/18 | 46,880 | ||||
61,980 | Credit Suisse First Boston Mortgage Securities Corp., Series 2005-7, Class 4A3, 5.000%, 8/25/20 | 65,267 | ||||
50,948 | Fannie Mae, Series 2003-33, Class A, 4.000%, 5/25/33 | 55,918 | ||||
48,401 | Fannie Mae, Series 2003-33, Class AQ, 4.000%, 5/25/33 | 52,487 | ||||
136,181 | Fannie Mae, Series 2012-84, Class HL, 2.500%, 1/25/42 | 141,156 | ||||
69,234 | Freddie Mac, Series 3768, Class V, 4.000%, 11/15/23 | 76,831 | ||||
169,841 | Freddie Mac, Series 4077, Class PJ, 3.500%, 11/15/40 | 183,293 | ||||
59,311 | MASTR Alternative Loans Trust, Series 2004-13, Class 3A1, 6.500%, 1/25/35 | 60,207 | ||||
116,956 | PHH Mortgage Capital LLC, Series 2007-6, Class A1, 6.002%, 12/18/37(a) | 123,860 | ||||
37,251 | RAAC, Series 2004-SP3, Class AI5, 4.890%, 12/25/32(a) | 37,615 | ||||
76,014 | RALI Trust, Series 2005-QR1, Class A, 6.000%, 10/25/34 | 77,463 | ||||
48,735 | Residential Asset Securitization Trust, Series 2004-IP2, Class 4A, 2.823%, 12/25/34(a) | 48,796 | ||||
105,352 | Specialty Underwriting & Residential Finance, Series 2004-AA1, Class 1A1, 5.000%, 10/25/34 | 106,681 | ||||
127,684 | Structured Adjustable Rate Mortgage Loan Trust, Series 2004-6, Class 4A1, 2.709%, 6/25/34(a) | 132,031 | ||||
68,106 | Structured Asset Securities Corp., Series 2003-10, Class A, 6.000%, 4/25/33 | 72,669 | ||||
30,670 | Structured Asset Securities Corp., Series 2005-6, Class 5A1, 5.000%, 5/25/35 | 31,042 | ||||
113,298 | Wells Fargo Mortgage Backed Securities Trust, Series 2004-BB, Class A2, 2.623%, 1/25/35(a) | 111,031 |
Principal | Fair Value | |||||
COLLATERALIZED MORTGAGE |
| |||||
$117,404 | Wells Fargo Mortgage Backed Securities Trust, Series 2005-AR16, Class 6A3, 2.657%, 10/25/35(a) | $ | 115,686 | |||
36,741 | Wells Fargo Mortgage Backed Securities Trust, Series 2007-16, Class 1A1, 6.000%, 12/28/37 | 38,210 | ||||
|
| |||||
Total Collateralized Mortgage Obligations (Cost $1,818,905) | 1,888,657 | |||||
|
| |||||
COMMERCIAL MORTGAGE-BACKED |
| |||||
150,000 | Banc of America Commercial Mortgage Trust, Series 2006-3, Class A4, 5.889%, 7/10/44(a) | 171,373 | ||||
153,000 | Banc of America Commercial Mortgage Trust, Series 2006-5, Class A4, 5.414%, 9/10/47 | 174,022 | ||||
140,000 | Banc of America Commercial Mortgage Trust, Series 2007-2, Class A4, 5.625%, 4/10/49(a) | 163,741 | ||||
12,487 | Banc of America Commercial Mortgage Trust, Series 2007-2, Class A2, 5.634%, 4/10/49(a) | 12,755 | ||||
89,000 | Banc of America Merrill Lynch Commercial Mortgage, Inc., Series 2005-1, Class AJ, 5.196%, 11/10/42(a) | 93,629 | ||||
95,000 | CD Commercial Mortgage Trust, Series 2005-CD1, Class AM, 5.219%, 7/15/44(a) | 104,467 | ||||
150,000 | CD Commercial Mortgage Trust, Series 2007-CD4, Class A4, 5.322%, 12/11/49 | 172,067 | ||||
95,000 | CD Mortgage Trust, Series 2006-CD3, Class A5, 5.617%, 10/15/48 | 109,187 | ||||
100,000 | COMM Mortgage Trust, Series 2005-LP5, Class AJ, 5.046%, 5/10/43(a) | 107,778 | ||||
74,000 | COMM Mortgage Trust, Series 2012-CR4, Class A3, 2.853%, 10/15/45 | 76,024 | ||||
155,000 | COMM Mortgage Trust, Series 2006-C7, Class A4, 5.748%, 6/10/46(a) | 176,033 | ||||
155,000 | Commercial Mortgage Pass-Through Certificates, Series 2006-C4, Class A3, 5.467%, 9/15/39 | 175,974 | ||||
18,622 | Credit Suisse First Boston Mortgage Securities Corp., Series 2002-CP5, Class C, 5.230%, 12/15/35 | 18,621 | ||||
139,000 | Credit Suisse First Boston Mortgage Securities Corp., Series 2005-C1, Class AJ, 5.075%, 2/15/38(a) | 146,744 | ||||
101,000 | DBUBS Mortgage Trust, Series 2011-LC2A, Class A4, 4.537%, 7/10/44(b) | 116,773 | ||||
100,000 | GMAC Commercial Mortgage Securities Trust, Inc., Series 2005-C1, Class AM, 4.754%, 5/10/43 | 107,361 | ||||
158,000 | GMAC Commercial Mortgage Securities Trust, Inc., Series 2006-C1, Class A4, 5.238%, 11/10/45(a) | 174,184 | ||||
168,000 | Greenwich Capital Commercial Funding Corp., Series 2005-GG5, Class A5, 5.224%, 4/10/37(a) | 185,620 | ||||
117,000 | Greenwich Capital Commercial Funding Corp., Series 2005-GG5, Class AM, 5.277%, 4/10/37(a) | 126,664 | ||||
150,000 | JPMorgan Chase Commercial Mortgage Securities Corp., Series 2006-CB16, Class A4, 5.552%, 5/12/45 | 172,311 |
Continued
11
Table of Contents
Sterling Capital Total Return Bond VIF |
Schedule of Portfolio Investments — (continued)
December 31, 2012
Principal | Fair Value | |||||
COMMERCIAL MORTGAGE-BACKED |
| |||||
$150,000 | LB-UBS Commercial Mortgage Trust, Series | $ | 174,133 | |||
28,000 | Merrill Lynch/Countrywide Commercial | 28,309 | ||||
80,000 | Morgan Stanley Capital I Trust, Series | 89,454 | ||||
80,000 | Morgan Stanley Capital I Trust, Series | 88,393 | ||||
58,000 | UBS-Barclays Commercial Mortgage Trust, | 58,926 | ||||
119,000 | Wachovia Bank Commercial Mortgage Trust, | 130,355 | ||||
57,164 | Wachovia Bank Commercial Mortgage Trust, | 58,359 | ||||
150,000 | Wachovia Bank Commercial Mortgage Trust, | 170,701 | ||||
157,000 | WF-RBS Commercial Mortgage Trust, Series | 180,531 | ||||
71,000 | WF-RBS Commercial Mortgage Trust, Series | 73,305 | ||||
|
| |||||
Total Commercial Mortgage-Backed Securities (Cost $3,533,303) | 3,637,794 | |||||
|
| |||||
CORPORATE BONDS (34.3%) |
| |||||
Consumer Discretionary (3.5%) | ||||||
38,000 | Carnival Corp., 1.875%, 12/15/17 | 38,052 | ||||
33,000 | CBS Corp., 8.875%, 5/15/19(c) | 44,509 | ||||
73,000 | Comcast Cable Communications Holdings, Inc., | 110,366 | ||||
19,000 | COX Communications, Inc., 4.700%, | 19,387 | ||||
37,000 | Delphi Corp., 5.875%, 5/15/19 | 39,683 | ||||
65,000 | George Washington University (The), 3.485%, | 68,758 | ||||
31,000 | Home Depot, Inc. (The), 5.875%, 12/16/36 | 40,740 | ||||
35,000 | Kohl’s Corp., 3.250%, 2/1/23 | 33,984 | ||||
27,000 | NBCUniversal Media LLC, 5.950%, 4/1/41 | 33,103 | ||||
19,000 | Nordstrom, Inc., 6.250%, 1/15/18 | 23,035 | ||||
26,000 | Royal Caribbean Cruises, Ltd., 11.875%, | 31,460 | ||||
26,000 | Service Corp. International, 7.000%, 5/15/19 | 28,470 | ||||
36,000 | Time Warner Cable, Inc., 5.875%, 11/15/40 | 41,947 | ||||
33,000 | Wyndham Worldwide Corp., 5.625%, 3/1/21 | 36,832 | ||||
24,000 | Wyndham Worldwide Corp., 4.250%, 3/1/22 | 24,780 | ||||
|
| |||||
615,106 | ||||||
|
| |||||
Consumer Staples (2.0%) | ||||||
25,000 | Altria Group, Inc., 9.950%, 11/10/38 | 41,186 | ||||
19,000 | Anheuser-Busch InBev Worldwide, Inc., | 26,398 | ||||
27,000 | Beam, Inc., 5.875%, 1/15/36 | 31,334 | ||||
26,000 | Coca-Cola Co. (The), 3.150%, 11/15/20 | 28,293 | ||||
14,000 | Constellation Brands, Inc., 4.625%, 3/1/23 | 14,630 | ||||
38,000 | CVS Caremark Corp., 6.125%, 9/15/39 | 48,631 | ||||
41,000 | Kraft Foods Group, Inc., 3.500%, 6/6/22(b) | 43,762 | ||||
58,000 | Lorillard Tobacco Co., 6.875%, 5/1/20 | 70,695 |
Principal | Fair Value | |||||
CORPORATE BONDS — (continued) |
| |||||
Consumer Staples — (continued) | ||||||
$37,000 | Wal-Mart Stores, Inc., 5.625%, 4/15/41(c) | $ | 48,454 | |||
|
| |||||
353,383 | ||||||
|
| |||||
Energy (4.9%) | ||||||
36,000 | Boardwalk Pipelines LP, 3.375%, 2/1/23 | 35,358 | ||||
28,000 | BP Capital Markets PLC, 1.375%, 11/6/17 | 28,025 | ||||
34,000 | Cameron International Corp., 6.375%, 7/15/18 | 41,128 | ||||
25,000 | Canadian Oil Sands, Ltd., 4.500%, 4/1/22(b) | 27,277 | ||||
27,000 | Denbury Resources, Inc., 8.250%, 2/15/20 | 30,375 | ||||
28,000 | Devon Energy Corp., 3.250%, 5/15/22(c) | 29,223 | ||||
37,000 | Energy Transfer Partners LP, 9.000%, 4/15/19 | 48,788 | ||||
40,000 | Enterprise Products Operating LLC, 5.950%, | 48,291 | ||||
25,000 | Halliburton Co., 4.500%, 11/15/41 | 27,909 | ||||
43,000 | Kinder Morgan Energy Partners LP, 3.950%, | 45,978 | ||||
32,000 | NuStar Logistics LP, 7.900%, 4/15/18(c) | 36,170 | ||||
36,000 | Occidental Petroleum Corp., 1.750%, 2/15/17 | 36,916 | ||||
51,000 | Petrobras International Finance Co. - PifCo, | 53,486 | ||||
30,000 | Petrohawk Energy Corp., 6.250%, 6/1/19 | 34,161 | ||||
30,000 | Plains Exploration & Production Co., 6.500%, | 33,225 | ||||
26,000 | Regency Energy Partners LP/Regency Energy | 28,470 | ||||
41,000 | Schlumberger Investment SA, 3.300%, | 43,661 | ||||
31,000 | Shell International Finance BV, 6.375%, | 43,554 | ||||
42,000 | Statoil ASA, 3.150%, 1/23/22(c) | 44,388 | ||||
34,000 | Talisman Energy, Inc., 5.500%, 5/15/42 | 37,473 | ||||
30,000 | Western Gas Partners LP, 4.000%, 7/1/22 | 31,575 | ||||
54,000 | Williams Partners LP/ Williams Partners | 65,601 | ||||
|
| |||||
851,032 | ||||||
|
| |||||
Financials (14.5%) | ||||||
30,000 | ABN AMRO North American Holding | 30,000 | ||||
31,000 | Aflac, Inc., 8.500%, 5/15/19 | 42,220 | ||||
33,000 | Alexandria Real Estate Equities, Inc., REIT, | 35,421 | ||||
30,000 | Alleghany Corp., 4.950%, 6/27/22 | 32,861 | ||||
56,000 | American International Group, Inc., 3.800%, | 60,611 | ||||
115,000 | Bank of America Corp., 5.700%, 1/24/22 | 138,293 | ||||
29,000 | Bank of New York Mellon Corp. (The), STEP, | 29,908 | ||||
30,000 | Bank of Nova Scotia, 4.375%, 1/13/21 | 34,739 | ||||
35,000 | Berkshire Hathaway, Inc., 2.200%, 8/15/16(c) | 36,519 | ||||
31,000 | BlackRock, Inc., 3.375%, 6/1/22 | 32,924 | ||||
33,000 | Caterpillar Financial Services Corp., MTN, | 42,968 | ||||
31,000 | CIT Group, Inc., 4.750%, 2/15/15(b) | 32,240 | ||||
40,000 | Citigroup, Inc., 5.875%, 1/30/42 | 49,366 | ||||
26,000 | CME Group, Inc., 3.000%, 9/15/22 | 26,381 | ||||
49,000 | Colonial Realty LP, 6.250%, 6/15/14(c) | 52,178 | ||||
23,000 | Cooperatieve Centrale Raiffeisen- | 24,751 | ||||
31,000 | CubeSmart LP, REIT, 4.800%, 7/15/22 | 33,669 |
Continued
12
Table of Contents
Sterling Capital Total Return Bond VIF |
Schedule of Portfolio Investments — (continued)
December 31, 2012
Principal | Fair Value | |||||
CORPORATE BONDS — (continued) |
| |||||
Financials — (continued) | ||||||
$38,000 | Eksportfinans ASA, GMTN, 1.875%, 4/2/13 | $ | 37,964 | |||
40,000 | Fifth Third Bancorp, 3.625%, 1/25/16 | 42,737 | ||||
68,000 | Ford Motor Credit Co. LLC, 7.000%, 4/15/15(c) | 75,823 | ||||
44,000 | General Electric Capital Corp., 2.950%, 5/9/16(c) | 46,348 | ||||
33,000 | General Electric Capital Corp., 2.100%, 12/11/19 | 33,093 | ||||
52,000 | General Electric Capital Corp., GMTN, 6.875%, 1/10/39(c) | 70,684 | ||||
25,000 | Goldman Sachs Group, Inc. (The), 6.250%, 2/1/41 | 30,673 | ||||
45,000 | Health Care REIT, Inc., 4.125%, 4/1/19(c) | 48,409 | ||||
48,000 | HSBC Finance Corp., 6.676%, 1/15/21 | 56,946 | ||||
25,000 | ING Bank NV, 4.000%, 3/15/16(b) | 26,605 | ||||
28,000 | Invesco Finance PLC, 3.125%, 11/30/22 | 28,283 | ||||
35,000 | Jefferies Group, Inc., 8.500%, 7/15/19 | 41,825 | ||||
48,000 | John Deere Capital Corp., MTN, 1.850%, 9/15/16(c) | 49,645 | ||||
42,000 | Jones Lang LaSalle, Inc., 4.400%, 11/15/22 | 42,905 | ||||
49,000 | JPMorgan Chase & Co., 2.600%, 1/15/16 | 50,939 | ||||
111,000 | JPMorgan Chase & Co., 4.350%, 8/15/21(c) | 124,124 | ||||
47,000 | KeyCorp, MTN, 5.100%, 3/24/21 | 54,755 | ||||
25,000 | Kimco Realty Corp., REIT, MTN, 5.783%, 3/15/16 | 28,069 | ||||
30,000 | Liberty Mutual Group, Inc., 4.950%, 5/1/22(b) | 32,697 | ||||
25,000 | Macquarie Bank, Ltd., 6.625%, 4/7/21(b) | 27,633 | ||||
66,000 | Merrill Lynch & Co., Inc., MTN, 6.875%, 4/25/18(c) | 79,560 | ||||
22,000 | MetLife, Inc., 7.717%, 2/15/19 | 28,842 | ||||
101,000 | Morgan Stanley, 5.375%, 10/15/15 | 109,805 | ||||
48,000 | Morgan Stanley, GMTN, 6.625%, 4/1/18(c) | 56,572 | ||||
47,000 | Murray Street Investment Trust I, STEP, 4.647%, 3/9/17(c) | 50,837 | ||||
28,000 | National City Corp., 6.875%, 5/15/19 | 34,932 | ||||
32,000 | National Rural Utilities Cooperative Finance Corp., 10.375%, 11/1/18 | 47,303 | ||||
42,000 | OneBeacon US Holdings, Inc., 4.600%, 11/9/22 | 43,185 | ||||
35,000 | Prudential Financial, Inc., 8.875%, 6/15/38(a) | 42,525 | ||||
41,000 | Simon Property Group LP, REIT, 10.350%, 4/1/19(c) | 58,629 | ||||
28,000 | SunTrust Banks, Inc., 3.500%, 1/20/17 | 30,070 | ||||
55,000 | Toyota Motor Credit Corp., MTN, 1.750%, 5/22/17 | 56,322 | ||||
44,000 | Ventas Realty LP/Ventas Capital Corp., REIT, 2.000%, 2/15/18 | 44,028 | ||||
70,000 | Wachovia Corp., 5.625%, 10/15/16 | 80,257 | ||||
37,000 | Wachovia Corp., 5.500%, 8/1/35 | 42,074 | ||||
33,000 | WR Berkley Corp., 4.625%, 3/15/22 | 35,371 | ||||
|
| |||||
2,525,518 | ||||||
|
| |||||
Health Care (2.1%) | ||||||
19,000 | Amgen, Inc., 5.150%, 11/15/41 | 21,382 | ||||
26,000 | Cigna Corp., 5.375%, 2/15/42 | 30,271 | ||||
36,000 | DaVita HealthCare Partners, Inc., 6.625%, 11/1/20 | 39,150 | ||||
42,000 | DENTSPLY International, Inc., 2.750%, 8/15/16(c) | 43,576 | ||||
28,000 | Fresenius US Finance II, Inc., 9.000%, 7/15/15(b) | 32,270 |
Principal | Fair Value | |||||
CORPORATE BONDS — (continued) |
| |||||
Health Care — (continued) | ||||||
$24,000 | HCA, Inc., 8.500%, 4/15/19 | $ | 26,760 | |||
28,000 | Mylan, Inc., 7.625%, 7/15/17(b) | 31,468 | ||||
47,000 | Teva Pharmaceutical Finance IV BV, 3.650%, 11/10/21(c) | 50,301 | ||||
42,000 | UnitedHealth Group, Inc., 4.625%, 11/15/41(c) | 44,839 | ||||
44,000 | Valeant Pharmaceuticals International, 6.500%, 7/15/16(b) | 46,255 | ||||
|
| |||||
366,272 | ||||||
|
| |||||
Industrials (2.8%) | ||||||
52,000 | Burlington Northern Santa Fe LLC, 4.950%, 9/15/41 | 58,649 | ||||
28,000 | Carlisle Cos., Inc., 3.750%, 11/15/22 | 27,730 | ||||
47,000 | Corrections Corp. of America, 7.750%, 6/1/17(c) | 49,937 | ||||
23,000 | Equifax, Inc., 3.300%, 12/15/22 | 22,815 | ||||
35,000 | Flowserve Corp., 3.500%, 9/15/22 | 35,151 | ||||
34,000 | Iron Mountain, Inc., 5.750%, 8/15/24 | 34,425 | ||||
29,500 | Nielsen Finance LLC/Nielsen Finance Co., 4.500%, 10/1/20(b) | 29,353 | ||||
44,000 | Penske Truck Leasing Co. LP/PTL Finance Corp., 3.125%, 5/11/15(b) | 44,895 | ||||
25,000 | Republic Services, Inc., 6.200%, 3/1/40 | 31,375 | ||||
36,000 | Textron, Inc., 4.625%, 9/21/16 | 39,211 | ||||
30,000 | URS Corp., 5.000%, 4/1/22(b) | 30,884 | ||||
35,000 | Verisk Analytics, Inc., 5.800%, 5/1/21(c) | 39,223 | ||||
25,000 | Waste Management, Inc., 7.375%, 3/11/19 | 31,789 | ||||
17,000 | WPP Finance 2010, 3.625%, 9/7/22 | 16,909 | ||||
|
| |||||
492,346 | ||||||
|
| |||||
Information Technology (0.5%) | ||||||
18,000 | Altera Corp., 1.750%, 5/15/17 | 18,392 | ||||
25,000 | Jabil Circuit, Inc., 4.700%, 9/15/22 | 26,281 | ||||
30,000 | Oracle Corp., 5.375%, 7/15/40 | 37,405 | ||||
|
| |||||
82,078 | ||||||
|
| |||||
Materials (1.3%) | ||||||
32,000 | Anglo American Capital PLC, 4.125%, 9/27/22(b) | 33,432 | ||||
25,000 | Ecolab, Inc., 5.500%, 12/8/41 | 29,826 | ||||
31,000 | Lubrizol Corp., 8.875%, 2/1/19 | 43,256 | ||||
23,000 | Newmont Mining Corp., 4.875%, 3/15/42 | 23,688 | ||||
29,000 | Rock-Tenn Co., 4.900%, 3/1/22(b) | 31,340 | ||||
29,000 | Sealed Air Corp., 6.875%, 7/15/33(b)(c) | 27,840 | ||||
35,000 | Xstrata Finance Canada, Ltd., 4.000%, 10/25/22(b) | 35,378 | ||||
|
| |||||
224,760 | ||||||
|
| |||||
Telecommunication Services (1.3%) | ||||||
36,000 | AT&T, Inc., 5.550%, 8/15/41 | 43,204 | ||||
21,000 | British Telecommunications PLC, 9.625%, 12/15/30 | 33,362 | ||||
34,000 | CC Holdings GS V LLC, 2.381%, 12/15/17(b) | 34,166 | ||||
14,000 | SBA Telecommunications, Inc., 5.750%, 7/15/20(b) | 14,875 | ||||
27,000 | Telefonica Emisiones SAU, 5.134%, 4/27/20(c) | 28,384 | ||||
73,000 | Verizon Communications, Inc., 2.450%, 11/1/22 | 73,024 | ||||
|
| |||||
227,015 | ||||||
|
| |||||
Utilities (1.4%) | ||||||
55,000 | Duke Energy Carolinas LLC, 6.100%, 6/1/37 | 69,637 |
Continued
13
Table of Contents
Sterling Capital Total Return Bond VIF |
Schedule of Portfolio Investments — (continued)
December 31, 2012
Principal | Fair Value | |||||
CORPORATE BONDS — (continued) |
| |||||
Utilities — (continued) | ||||||
$33,000 | Progress Energy, Inc., 3.150%, 4/1/22 | $ | 33,407 | |||
15,000 | PSEG Power LLC, 5.500%, 12/1/15 | 16,748 | ||||
22,000 | PSEG Power LLC, 2.750%, 9/15/16 | 22,892 | ||||
30,000 | Puget Energy, Inc., 5.625%, 7/15/22 | 32,312 | ||||
39,000 | Southern Co. (The), 1.950%, 9/1/16(c) | 40,192 | ||||
28,000 | Virginia Electric and Power Co., 2.950%, 1/15/22 | 29,486 | ||||
|
| |||||
244,674 | ||||||
|
| |||||
Total Corporate Bonds | 5,982,184 | |||||
|
| |||||
MORTGAGE-BACKED SECURITIES (23.2%) |
| |||||
Fannie Mae (12.5%) | ||||||
8,257 | 4.500%, 10/1/18, Pool #752030 | 8,904 | ||||
14,209 | 5.000%, 10/1/25, Pool #255894 | 15,578 | ||||
242,281 | 3.000%, 3/1/27, Pool #AK7410 | 256,068 | ||||
83,784 | 2.500%, 10/1/27, Pool #AB6645 | 87,939 | ||||
425,000 | 2.500%, 1/15/28(d) | 444,391 | ||||
162,491 | 4.000%, 6/1/32, Pool #MA1089 | 174,921 | ||||
3,280 | 7.000%, 6/1/35, Pool #255820 | 3,765 | ||||
23,868 | 5.000%, 11/1/35, Pool #842402 | 25,915 | ||||
29,180 | 6.000%, 12/1/36, Pool #902054 | 31,946 | ||||
181,608 | 5.500%, 8/1/37, Pool #995082 | 198,685 | ||||
62,844 | 5.000%, 6/1/40, Pool #AD4927 | 68,259 | ||||
58,585 | 5.000%, 6/1/40, Pool #AD7860 | 65,256 | ||||
89,379 | 4.000%, 3/1/41, Pool #AH7283 | 95,937 | ||||
133,975 | 4.500%, 5/1/41, Pool #AI1023 | 145,438 | ||||
210,676 | 4.000%, 1/1/42, Pool #AK0685 | 227,441 | ||||
144,607 | 3.500%, 11/1/42, Pool #AQ3200 | 154,706 | ||||
167,000 | 3.000%, 1/15/43(d) | 174,985 | ||||
|
| |||||
2,180,134 | ||||||
|
| |||||
Freddie Mac (8.2%) | ||||||
13,878 | 6.000%, 10/1/19, Pool #G11679 | 15,097 | ||||
7,155 | 5.500%, 10/1/21, Pool #G12425 | 7,722 | ||||
309,398 | 3.000%, 4/1/27, Pool #E03091 | 327,588 | ||||
171,081 | 3.500%, 4/1/32, Pool #C91437 | 182,870 | ||||
297,244 | 3.500%, 5/1/32, Pool #C91447 | 317,727 | ||||
2,945 | 6.000%, 7/1/35, Pool #A36304 | 3,225 | ||||
40,081 | 6.000%, 8/1/37, Pool #A64981 | 43,618 | ||||
39,787 | 6.500%, 12/1/37, Pool #A69955 | 45,282 | ||||
105,739 | 4.500%, 1/1/40, Pool #A90764 | 113,467 | ||||
113,841 | 3.801%, 7/1/40, Pool #1B4948(a) | 120,442 | ||||
181,443 | 5.000%, 7/1/40, Pool #A93070 | 196,945 | ||||
49,415 | 5.000%, 7/1/40, Pool #C03487 | 53,637 | ||||
|
| |||||
1,427,620 | ||||||
|
| |||||
Ginnie Mae (2.5%) | ||||||
97,241 | 4.500%, 2/15/40, Pool #737031 | 106,964 | ||||
57,202 | 5.000%, 2/15/40, Pool #737037 | 62,925 | ||||
208,114 | 4.500%, 9/20/40, Pool #4801 | 230,120 | ||||
29,286 | 4.500%, 6/20/41, Pool #5082 | 32,213 | ||||
|
| |||||
432,222 | ||||||
|
| |||||
Total Mortgage-Backed Securities | 4,039,976 | |||||
|
|
Principal | Fair Value | |||||
MUNICIPAL BONDS (7.1%) |
| |||||
California (2.5%) | ||||||
$220,000 | Metropolitan Water District of Southern California, Build America Bonds, Water Utility Improvements Revenue, Callable 7/1/19 @ 100, 6.538%, 7/1/39 | $ | 262,647 | |||
75,000 | Palo Alto, Unified School District Refunding G.O., Taxable, 2.441%, 8/1/21 | 74,487 | ||||
65,000 | State of California, Build America Bonds, School Improvements G.O., Taxable, 7.625%, 3/1/40 | 93,346 | ||||
|
| |||||
430,480 | ||||||
|
| |||||
Colorado (0.3%) | ||||||
55,000 | Colorado Housing & Finance Authority Revenue, Taxable, Series B, 1.600%, 5/15/16 | 56,029 | ||||
|
| |||||
Connecticut (0.3%) | ||||||
60,000 | State of Connecticut, Public Improvements G.O., Taxable, Series B, 2.551%, 10/15/22 | 60,680 | ||||
|
| |||||
Illinois (0.8%) | ||||||
130,000 | State of Illinois, Sales Tax Revenue, Taxable Building, 2.931%, 6/15/22 | 132,127 | ||||
|
| |||||
New Mexico (0.3%) | ||||||
50,000 | State of New Mexico, Public Improvements Refunding Revenue, Series A1, 5.000%, 7/1/15 | 55,597 | ||||
|
| |||||
New York (2.2%) | ||||||
155,000 | City of New York, NY, Build America Bonds, Public Improvements G.O., 4.774%, 3/1/20 | 181,314 | ||||
95,000 | New York City Municipal Water Finance Authority Refunding Revenue, Build America Bonds Taxable, Series EE, Callable 6/15/20 @ 100, 6.491%, 6/15/42 | 111,596 | ||||
100,000 | New York State Environmental Facilities Corp., Revenue Bonds, Taxable, State Revolving Funds, Series C, 2.745%, 6/15/22 | 100,206 | ||||
|
| |||||
393,116 | ||||||
|
| |||||
Pennsylvania (0.4%) | ||||||
70,000 | Philadelphia Authority for Industrial Development, Refunding Revenue, Taxable, 3.664%, 4/15/22 | 69,914 | ||||
|
| |||||
Washington (0.3%) | ||||||
45,000 | Port of Vancouver, Refunding G.O., Limited Tax, Series B, 2.714%, 12/1/21 | 44,978 | ||||
|
| |||||
Total Municipal Bonds | 1,242,921 | |||||
|
| |||||
U.S. TREASURY BONDS (0.6%) |
| |||||
95,000 | 3.125%, 2/15/42 | 99,334 | ||||
|
| |||||
Total U.S. Treasury Bonds | 99,334 | |||||
|
|
Continued
14
Table of Contents
Sterling Capital Total Return Bond VIF |
Schedule of Portfolio Investments — (continued)
December 31, 2012
Shares | Fair Value | |||||
PREFERRED STOCKS (2.0%) |
| |||||
Consumer Staples (0.6%) | ||||||
1 | HJ Heinz Finance Co., Series B, 8.000%(b) | $ | 104,625 | |||
|
| |||||
Financials (1.2%) | ||||||
2,059 | Citigroup Capital XIII, 7.875% | 57,446 | ||||
1,775 | Citigroup Capital XV, 6.500% | 44,553 | ||||
1,114 | DDR Corp., Series H, REIT, 7.375% | 27,883 | ||||
1,355 | SL Green Realty Corp., Series C, REIT, | 33,997 | ||||
1,850 | US Bancorp, Series F, 6.500% | 52,984 | ||||
|
| |||||
216,863 | ||||||
|
| |||||
Telecommunication Services (0.2%) | ||||||
960 | Qwest Corp., 7.000% | 24,950 | ||||
|
| |||||
Total Preferred Stocks | 346,438 | |||||
|
| |||||
INVESTMENT COMPANY (0.8%) |
| |||||
136,156 | Federated Treasury Obligations Fund, | 136,156 | ||||
|
| |||||
Total Investment Company | 136,156 | |||||
|
| |||||
Total Investments — 102.8% | 17,932,633 | |||||
Net Other Assets (Liabilities) — (2.8)% | (484,015 | ) | ||||
|
| |||||
NET ASSETS — 100.0% | $ | 17,448,618 | ||||
|
|
(a) | The interest rate for this variable rate note, which will change periodically, is based either on the prime rate or an index of market rates. The reflected rate is in effect as of December 31, 2012. The maturity date reflected is the final maturity date. |
(b) | Rule 144A, Section 4(2) or other security which is restricted as to resale to qualified institutional investors. The Investment Advisor, using Board approved procedures, has deemed these securities or a portion of these securities to be liquid. |
(c) | Represents that all or a portion of the security was pledged as collateral for securities purchased on a when-issued basis. |
(d) | Represents securities purchased on a when-issued basis. At December 31, 2012, total cost of investments purchased on a when-issued basis was $619,164. |
G.O. — General Obligation
GMTN — Global Medium Term Note
MTN — Medium Term Note
REIT — Real Estate Investment Trust
STEP — Step Coupon Bond
See accompanying notes to the financial statements.
15
Table of Contents
Sterling Capital Variable Insurance Funds |
Statements of Assets and Liabilities
December 31, 2012
Sterling Capital Select Equity VIF | Sterling Capital Strategic Allocation Equity VIF | Sterling Capital Special Opportunities VIF | Sterling Capital Total Return Bond VIF | |||||||||||||
Assets: | ||||||||||||||||
Investments at fair value - unaffiliated (a) | $ | 17,773,669 | $ | 2,283,813 | $ | 31,007,560 | $ | 17,932,633 | ||||||||
Investments at fair value - affiliated (b) | — | 2,592,193 | — | — | ||||||||||||
Cash | 45,825 | — | — | — | ||||||||||||
Interest and dividends receivable - unaffiliated | 17,276 | 137 | 38,349 | 123,318 | ||||||||||||
Interest and dividends receivable - affiliated | — | 15 | — | — | ||||||||||||
Receivable for investments sold | 49,956 | — | — | 6,097 | ||||||||||||
Receivable for capital shares issued | 12,465 | — | 36,122 | 70,923 | ||||||||||||
Prepaid and other expenses | 20,223 | 5,485 | 34,384 | 18,456 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets | 17,919,414 | 4,881,643 | 31,116,415 | 18,151,427 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities: | ||||||||||||||||
Cash overdraft | — | — | — | 1,223 | ||||||||||||
Payable for investments purchased | 32,475 | — | 110,703 | 619,818 | ||||||||||||
Payable for capital shares redeemed | 56,001 | 1,286 | 27,704 | 54,398 | ||||||||||||
Accrued expenses and other payables: | ||||||||||||||||
Investment advisory fees | 9,163 | 1,047 | 21,422 | 7,391 | ||||||||||||
Administration fees | 1,558 | — | 2,713 | 1,508 | ||||||||||||
Accounting out-of-pocket fees | 739 | 511 | 617 | 5,521 | ||||||||||||
Audit fees | 10,482 | 2,846 | 17,861 | 9,410 | ||||||||||||
Compliance service fees | 18 | 5 | 30 | 16 | ||||||||||||
Trustee fees | 29 | 8 | 50 | 27 | ||||||||||||
Printing fees | 3,868 | 1,053 | 6,603 | 3,497 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Liabilities | 114,333 | 6,756 | 187,703 | 702,809 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Assets: | $ | 17,805,081 | $ | 4,874,887 | $ | 30,928,712 | $ | 17,448,618 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net Assets Consist of: | ||||||||||||||||
Capital | $ | 35,302,598 | $ | 10,003,685 | $ | 22,336,357 | $ | 15,954,448 | ||||||||
Accumulated undistributed net investment income | 5,747 | 2,383 | 37,897 | 477,971 | ||||||||||||
Accumulated realized gain (loss) | (20,972,683 | ) | (5,891,219 | ) | 3,288,262 | 303,476 | ||||||||||
Net unrealized appreciation (depreciation) | 3,469,419 | 760,038 | 5,266,196 | 712,723 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Assets | $ | 17,805,081 | $ | 4,874,887 | $ | 30,928,712 | $ | 17,448,618 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Shares of Beneficial Interest Outstanding (Unlimited number of shares authorized, no par value) | 1,967,051 | 706,154 | 1,842,970 | 1,642,624 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Asset Value — offering and redemption price per share | $ | 9.05 | $ | 6.90 | $ | 16.78 | $ | 10.62 | ||||||||
|
|
|
|
|
|
|
| |||||||||
(a) Investments at cost - unaffiliated | $ | 14,304,250 | $ | 1,957,579 | $ | 25,741,364 | $ | 17,219,910 | ||||||||
(b) Investments at cost - affiliated | $ | — | $ | 2,158,389 | $ | — | $ | — |
See accompanying notes to the financial statements.
16
Table of Contents
Sterling Capital Variable Insurance Funds |
Statements of Operations
For the Year Ended December 31, 2012
Sterling Capital Select Equity VIF | Sterling Capital Strategic Allocation Equity VIF | Sterling Capital Special Opportunities VIF | Sterling Capital Total Return Bond VIF | |||||||||||||
Investment Income: | ||||||||||||||||
Interest income | $ | — | $ | — | $ | — | $ | 625,144 | ||||||||
Dividend income - unaffiliated | 423,884 | 57,528 | 565,285 | 24,168 | ||||||||||||
Dividend income - affiliated | — | 25,339 | — | — | ||||||||||||
Foreign taxes withheld | (3,049 | ) | — | (9,448 | ) | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total investment income | 420,835 | 82,867 | 555,837 | 649,312 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Expenses: | ||||||||||||||||
Investment advisory fees (See Note 5) | 143,125 | 13,647 | 274,644 | 97,702 | ||||||||||||
Administration fees (See Note 5) | 19,989 | — | 34,406 | 18,337 | ||||||||||||
Accounting out-of-pocket fees | 6,380 | 3,518 | 6,406 | 34,739 | ||||||||||||
Audit fees | 19,706 | 5,356 | 33,634 | 17,898 | ||||||||||||
Compliance service fees (See Note 5) | 219 | 60 | 374 | 198 | ||||||||||||
Custodian fees | 2,011 | 274 | 2,732 | 1,909 | ||||||||||||
Fund accounting fees (See Note 5) | 1,765 | 480 | 3,022 | 1,606 | ||||||||||||
Insurance fees | 18,628 | 5,000 | 32,172 | 17,227 | ||||||||||||
Legal fees | 9,625 | 2,530 | 16,359 | 8,505 | ||||||||||||
Printing fees | 11,068 | 4,130 | 17,028 | 10,303 | ||||||||||||
Transfer agent fees (See Note 5) | 6,614 | 1,793 | 11,266 | 6,044 | ||||||||||||
Trustee fees | 1,913 | 519 | 3,270 | 1,739 | ||||||||||||
Other fees | 2,414 | 1,004 | 3,804 | 2,395 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total expenses before waivers | 243,457 | 38,311 | 439,117 | 218,602 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Less expenses waived by the Investment Advisor (See Note 5) | (30,172 | ) | — | — | (6,260 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net expenses | 213,285 | 38,311 | 439,117 | 212,342 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net investment income | 207,550 | 44,556 | 116,720 | 436,970 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Realized and Unrealized Gain: | ||||||||||||||||
Net realized gain from: | ||||||||||||||||
Investments - unaffiliated | 1,532,467 | 177,971 | 3,344,125 | 490,488 | ||||||||||||
Investments - affiliated | — | 101,784 | — | — | ||||||||||||
Distributions from unaffiliated funds | — | 1,250 | — | — | ||||||||||||
Distributions from affiliated funds | — | 33,009 | — | — | ||||||||||||
Change in unrealized appreciation/depreciation on investments | 1,115,741 | 328,916 | 1,217,194 | 180,859 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net realized and unrealized gain | 2,648,208 | 642,930 | 4,561,319 | 671,347 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Change in net assets from operations | $ | 2,855,758 | $ | 687,486 | $ | 4,678,039 | $ | 1,108,317 | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes to the financial statements.
17
Table of Contents
Sterling Capital Variable Insurance Funds |
Statements of Changes in Net Assets
Sterling Capital Select Equity VIF | Sterling Capital Strategic Allocation Equity VIF | |||||||||||||||
For the Year Ended December 31, 2012 | For the Year Ended December 31, 2011 | For the Year Ended December 31, 2012 | For the Year Ended December 31, 2011 | |||||||||||||
From Investment Activities: | ||||||||||||||||
Operations: | ||||||||||||||||
Net investment income (loss) | $ | 207,550 | $ | 272,072 | $ | 44,556 | $ | 52,995 | ||||||||
Net realized gain | 1,532,467 | 594,772 | 314,014 | 81,981 | ||||||||||||
Change in unrealized appreciation/depreciation | 1,115,741 | (1,778,016 | ) | 328,916 | (569,273 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Change in net assets from operations | 2,855,758 | (911,172 | ) | 687,486 | (434,297 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Distributions to Shareholders From: | ||||||||||||||||
Net investment income | (192,318 | ) | (264,006 | ) | (46,937 | ) | (50,968 | ) | ||||||||
Net realized gains | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Change in net assets from shareholders distributions | (192,318 | ) | (264,006 | ) | (46,937 | ) | (50,968 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Capital Transactions: | ||||||||||||||||
Proceeds from shares issued | 95,460 | 473,691 | 23,818 | 230,099 | ||||||||||||
Distributions reinvested | 192,318 | 264,006 | 46,937 | 50,968 | ||||||||||||
Value of shares redeemed | (6,429,972 | ) | (6,596,389 | ) | (1,379,994 | ) | (1,922,281 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Change in net assets from capital transactions | (6,142,194 | ) | (5,858,692 | ) | (1,309,239 | ) | (1,641,214 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Change in net assets | (3,478,754 | ) | (7,033,870 | ) | (668,690 | ) | (2,126,479 | ) | ||||||||
Net Assets: | ||||||||||||||||
Beginning of year | 21,283,835 | 28,317,705 | 5,543,577 | 7,670,056 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
End of year | $ | 17,805,081 | $ | 21,283,835 | $ | 4,874,887 | $ | 5,543,577 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Accumulated undistributed net investment income | $ | 5,747 | $ | — | $ | 2,383 | $ | 2,924 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Share Transactions: | ||||||||||||||||
Issued | 10,701 | 60,431 | 3,623 | 34,273 | ||||||||||||
Reinvested | 21,560 | 32,304 | 6,997 | 7,852 | ||||||||||||
Redeemed | (733,268 | ) | (790,647 | ) | (207,077 | ) | (287,640 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Change in Shares | (701,007 | ) | (697,912 | ) | (196,457 | ) | (245,515 | ) | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes to the financial statements.
18
Table of Contents
Sterling Capital Special Opportunities VIF | Sterling Capital Total Return Bond VIF | |||||||||||||
For the | For the Year Ended December 31, 2011 | For the Year Ended December 31, 2012 | For the Year Ended December 31, 2011 | |||||||||||
$116,720 | $ | (21,746 | ) | $ | 436,970 | $ | 657,479 | |||||||
3,344,125 | 1,460,907 | 490,488 | 645,611 | |||||||||||
1,217,194 | (2,880,794 | ) | 180,859 | (148,416 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||
4,678,039 | (1,441,633 | ) | 1,108,317 | 1,154,674 | ||||||||||
|
|
|
|
|
|
|
| |||||||
(85,547 | ) | — | (521,025 | ) | (714,012 | ) | ||||||||
(1,422,090 | ) | (1,463,601 | ) | (518,065 | ) | (678,181 | ) | |||||||
|
|
|
|
|
|
|
| |||||||
(1,507,637 | ) | (1,463,601 | ) | (1,039,090 | ) | (1,392,193 | ) | |||||||
|
|
|
|
|
|
|
| |||||||
637,311 | 2,957,322 | 1,212,865 | 4,818,430 | |||||||||||
1,507,637 | 1,463,601 | 1,039,090 | 1,392,193 | |||||||||||
(9,953,282 | ) | (9,293,407 | ) | (4,350,979 | ) | (7,891,763 | ) | |||||||
|
|
|
|
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(7,808,334 | ) | (4,872,484 | ) | (2,099,024 | ) | (1,681,140 | ) | |||||||
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(4,637,932 | ) | (7,777,718 | ) | (2,029,797 | ) | (1,918,659 | ) | |||||||
35,566,644 | 43,344,362 | 19,478,415 | 21,397,074 | |||||||||||
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$30,928,712 | $ | 35,566,644 | $ | 17,448,618 | $ | 19,478,415 | ||||||||
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$37,897 | $ | 4,750 | $ | 477,971 | $ | 417,221 | ||||||||
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38,231 | 177,554 | 113,176 | 445,293 | |||||||||||
90,840 | 100,384 | 97,428 | 130,342 | |||||||||||
(601,876 | ) | (573,708 | ) | (404,427 | ) | (734,049 | ) | |||||||
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(472,805 | ) | (295,770 | ) | (193,823 | ) | (158,414 | ) | |||||||
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19
Table of Contents
Sterling Capital Variable Insurance Funds |
Financial Highlights
The financial highlights table is intended to help you understand the Funds’ financial performance for the past 5 years. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions).
Investment Activities | Distributions | |||||||||||||||||||||||||||
Net Asset Value, Beginning of Year | Net investment income (loss)(a) | Net realized/ unrealized gains (losses) on investments | Total from Investment Activities | Net investment income | Net realized gains on investments | Total Distributions | ||||||||||||||||||||||
Sterling Capital Select Equity VIF | ||||||||||||||||||||||||||||
Year Ended December 31, 2012 | $ | 7.98 | 0.09 | 1.07 | 1.16 | (0.09 | ) | — | (0.09 | ) | ||||||||||||||||||
Year Ended December 31, 2011 | $ | 8.41 | 0.09 | (0.43 | ) | (0.34 | ) | (0.09 | ) | — | (0.09 | ) | ||||||||||||||||
Year Ended December 31, 2010 | $ | 7.61 | 0.09 | 0.81 | 0.90 | (0.10 | ) | — | (0.10 | ) | ||||||||||||||||||
Year Ended December 31, 2009 | $ | 6.49 | 0.07 | 1.12 | 1.19 | (0.07 | ) | — | (0.07 | ) | ||||||||||||||||||
Year Ended December 31, 2008 | $ | 13.69 | 0.16 | (4.63 | ) | (4.47 | ) | (0.16 | ) | (2.57 | ) | (2.73 | ) | |||||||||||||||
Sterling Capital Strategic Allocation Equity VIF(c) | ||||||||||||||||||||||||||||
Year Ended December 31, 2012 | $ | 6.14 | 0.05 | 0.77 | 0.82 | (0.06 | ) | — | (0.06 | ) | ||||||||||||||||||
Year Ended December 31, 2011 | $ | 6.68 | 0.05 | (0.54 | ) | (0.49 | ) | (0.05 | ) | — | (0.05 | ) | ||||||||||||||||
Year Ended December 31, 2010 | $ | 5.90 | 0.07 | 0.81 | 0.88 | (0.10 | ) | — | (0.10 | ) | ||||||||||||||||||
Year Ended December 31, 2009 | $ | 4.75 | 0.06 | 1.14 | 1.20 | (0.05 | ) | — | (0.05 | ) | ||||||||||||||||||
Year Ended December 31, 2008 | $ | 10.33 | 0.09 | (3.50 | ) | (3.41 | ) | (0.10 | ) | (2.07 | ) | (2.17 | ) | |||||||||||||||
Sterling Capital Special Opportunities VIF | ||||||||||||||||||||||||||||
Year Ended December 31, 2012 | $ | 15.36 | 0.06 | (d) | 2.13 | 2.19 | (0.05 | ) | (0.72 | ) | (0.77 | ) | ||||||||||||||||
Year Ended December 31, 2011 | $ | 16.60 | (0.01 | ) | (0.61 | ) | (0.62 | ) | — | (0.62 | ) | (0.62 | ) | |||||||||||||||
Year Ended December 31, 2010 | $ | 14.29 | (0.04 | ) | 2.36 | 2.32 | (0.01 | ) | — | (0.01 | ) | |||||||||||||||||
Year Ended December 31, 2009 | $ | 10.27 | (0.03 | ) | 4.47 | 4.44 | — | (0.42 | ) | (0.42 | ) | |||||||||||||||||
Year Ended December 31, 2008 | $ | 16.03 | 0.02 | (5.28 | ) | (5.26 | ) | (0.02 | ) | (0.48 | ) | (0.50 | ) | |||||||||||||||
Sterling Capital Total Return Bond VIF | ||||||||||||||||||||||||||||
Year Ended December 31, 2012 | $ | 10.61 | 0.26 | 0.38 | 0.64 | (0.31 | ) | (0.32 | ) | (0.63 | ) | |||||||||||||||||
Year Ended December 31, 2011 | $ | 10.73 | 0.36 | 0.28 | 0.64 | (0.39 | ) | (0.37 | ) | (0.76 | ) | |||||||||||||||||
Year Ended December 31, 2010 | $ | 10.37 | 0.40 | 0.39 | 0.79 | (0.41 | ) | (0.02 | ) | (0.43 | ) | |||||||||||||||||
Year Ended December 31, 2009 | $ | 9.94 | 0.41 | 0.42 | 0.83 | (0.40 | ) | — | (0.40 | ) | ||||||||||||||||||
Year Ended December 31, 2008 | $ | 10.02 | 0.41 | (0.08 | ) | 0.33 | (0.41 | ) | — | (0.41 | ) |
* | During the periods certain fees were voluntarily waived (See Note 5 in the Notes to the Financial Statements). If such reductions had not occurred, the ratios would have been as indicated. |
(a) | Per share net investment income (loss) has been calculated using the average daily shares method. |
(b) | Total return ratios assume reinvestment of distributions at net asset value. Total return ratios do not reflect charges pursuant to the terms of the insurance contracts funded by separate accounts that invest in the Fund’s shares. |
(c) | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
(d) | For the year ended December 31, 2012, net investment income per share reflects a special dividend which amounted to $0.02 per share. Excluding the special dividend, the ratio of net investment income to average net assets would have been 0.25% per share. |
See accompanying notes to the financial statements.
20
Table of Contents
Ratios/Supplemental Data | ||||||||||||||||||||||||||
Net Asset Value, End of Year | Total Return(b) | Net Assets, End of Year (000) | Ratio of net expenses to average net assets | Ratio of net investment income (loss) to average net assets | Ratio of expenses to average net assets* | Portfolio turnover rate | ||||||||||||||||||||
$ | 9.05 | 14.53 | % | $ | 17,805 | 1.06 | % | 1.04 | % | 1.22 | % | 64.31 | % | |||||||||||||
$ | 7.98 | (4.04 | )% | $ | 21,284 | 0.97 | % | 1.11 | % | 1.21 | % | 69.66 | % | |||||||||||||
$ | 8.41 | 11.93 | % | $ | 28,318 | 0.94 | % | 1.22 | % | 1.21 | % | 63.34 | % | |||||||||||||
$ | 7.61 | 18.50 | % | $ | 32,124 | 1.00 | % | 1.01 | % | 1.24 | % | 137.52 | % | |||||||||||||
$ | 6.49 | (37.43 | )% | $ | 35,978 | 0.81 | % | 1.52 | % | 1.16 | % | 49.73 | % | |||||||||||||
$ | 6.90 | 13.41 | % | $ | 4,875 | 0.70 | % | 0.82 | % | 0.70 | % | 32.83 | % | |||||||||||||
$ | 6.14 | (7.32 | )% | $ | 5,544 | 0.58 | % | 0.80 | % | 0.67 | % | 6.80 | % | |||||||||||||
$ | 6.68 | 14.98 | % | $ | 7,670 | 0.40 | % | 1.21 | % | 0.68 | % | 64.81 | % | |||||||||||||
$ | 5.90 | 25.24 | % | $ | 7,947 | 0.41 | % | 1.21 | % | 0.66 | % | 18.04 | % | |||||||||||||
$ | 4.75 | (38.22 | )% | $ | 8,528 | 0.31 | % | 1.15 | % | 0.59 | % | 61.04 | % | |||||||||||||
$ | 16.78 | 14.33 | % | $ | 30,929 | 1.28 | % | 0.34 | %(d) | 1.28 | % | 18.13 | % | |||||||||||||
$ | 15.36 | (3.53 | )% | $ | 35,567 | 1.25 | % | (0.05 | )% | 1.25 | % | 26.68 | % | |||||||||||||
$ | 16.60 | 16.24 | % | $ | 43,344 | 1.24 | % | (0.28 | )% | 1.27 | % | 39.24 | % | |||||||||||||
$ | 14.29 | 43.53 | % | $ | 40,162 | 1.26 | % | (0.28 | )% | 1.29 | % | 32.57 | % | |||||||||||||
$ | 10.27 | (33.71 | )% | $ | 26,684 | 1.10 | % | 0.14 | % | 1.18 | % | 35.80 | % | |||||||||||||
$ | 10.62 | 6.10 | % | $ | 17,449 | 1.16 | % | 2.39 | % | 1.20 | % | 144.71 | % | |||||||||||||
$ | 10.61 | 6.10 | % | $ | 19,478 | 1.07 | % | 3.32 | % | 1.17 | % | 131.16 | % | |||||||||||||
$ | 10.73 | 7.73 | % | $ | 21,397 | 1.07 | % | 3.70 | % | 1.20 | % | 140.32 | % | |||||||||||||
$ | 10.37 | 8.57 | % | $ | 22,062 | 0.94 | % | 4.09 | % | 1.24 | % | 109.12 | % | |||||||||||||
$ | 9.94 | 3.38 | % | $ | 20,996 | 0.81 | % | 4.11 | % | 1.03 | % | 152.74 | % |
21
Table of Contents
Sterling Capital Variable Insurance Funds |
December 31, 2012
1. | Organization: |
Sterling Capital Variable Insurance Funds (the “Trust”) was organized on November 8, 2004, and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end investment company established as a Massachusetts business trust. The Trust commenced operations on May 1, 2005 and presently offers shares of Sterling Capital Select Equity VIF, Sterling Capital Strategic Allocation Equity VIF, Sterling Capital Special Opportunities VIF, and Sterling Capital Total Return Bond VIF (referred to individually as a “Fund” and collectively as the “Funds”). The Trust is authorized to issue an unlimited number of shares of beneficial interest without par value. Shares of the Funds are offered through variable annuity contracts offered through the separate accounts of participating insurance companies. All Funds are “diversified” funds.
Sterling Capital Strategic Allocation Equity VIF invests primarily in underlying mutual funds and exchange traded funds as opposed to individual securities. By owning shares of underlying investment companies (including exchange traded funds), Sterling Capital Strategic Allocation Equity VIF invests, to varying degrees, in securities of U.S. and non-U.S. companies, including small and medium sized companies, and in fixed-income securities. In addition, Sterling Capital Strategic Allocation Equity VIF’s exposure to underlying equity funds may include funds that invest in real estate or other similar securities and invest in derivatives.
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Funds may enter into contracts with their vendors and others that provide for general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds. However, based on experience, the Funds expect that risk of loss to be remote.
2. | Significant Accounting Policies: |
The following is a summary of significant accounting policies followed by the Funds in preparation of their financial statements. The policies are in conformity with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts. Actual results could differ from those estimates.
Securities Valuation — Investments in securities, the principal market for which is a securities exchange or an over-the-counter market, are valued at their latest available sale price (except for those securities that are traded on NASDAQ, which will be valued at the NASDAQ official closing price) or in the absence of such a price, by reference to the latest available bid price in the principal market in which such securities are normally traded. The Funds may also use an independent pricing service approved by the Board of Trustees (the “Board”) to value certain securities, including the use of electronic and matrix techniques. Short-term obligations without significant credit risk that mature in 60 days or less are valued at either amortized cost or original cost plus interest, which approximates fair value. Investments in open-end investment companies, including the underlying funds in which Sterling Capital Strategic Allocation Equity VIF invests, are valued at their respective net asset values as reported by such companies. Investments in closed-end investment companies and exchange traded funds are valued at their market values based upon the latest available sale price or, absent such a price, by reference to the latest available bid prices in the principal market in which such securities are normally traded. The differences between cost and fair value of investments are reflected as either unrealized appreciation or depreciation. Securities for which market quotations are not readily available or deemed unreliable (e.g., an approved pricing service does not provide a price, a furnished price is in error, certain stale prices, or an event occurs that materially affects the furnished price) will be fair valued in accordance with procedures established in good faith under the general supervision of the Board. No securities were valued in accordance with these procedures as of December 31, 2012.
Fair Value Measurements — The objective of a fair value measurement is to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Accordingly, the fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
• Level 1 – quoted prices in active markets for identical securities
• Level 2 – based on other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
22
Table of Contents
Sterling Capital Variable Insurance Funds |
Notes to Financial Statements — (continued)
December 31, 2012
• Level 3 – based on significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. During the fiscal year ended December 31, 2012 there were no significant changes to the valuation policies and procedures.
The summary of inputs used to determine the fair value of each Fund’s investments as of December 31, 2012 is as follows:
Investments in Securities | Level 1– Quoted Prices | Level 2– Other Significant Observable Inputs | Level 3– Significant Unobservable Inputs | Total | ||||||||||||
Sterling Capital Select Equity VIF | $ | 17,773,669(a) | $ | — | $ — | $ | 17,773,669 | |||||||||
Sterling Capital Strategic Allocation Equity VIF | 4,876,006(a) | — | — | 4,876,006 | ||||||||||||
Sterling Capital Special Opportunities VIF | 31,007,560(a) | — | — | 31,007,560 | ||||||||||||
Sterling Capital Total Return Bond VIF | 377,969(b) | 17,554,664(a) | — | 17,932,633 |
(a) | Industries or security types are disclosed in the Schedules of Portfolio Investments. |
(b) | Represents investment companies and/or certain preferred stocks. |
The Fund’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period. There were no transfers between Level 1 and Level 2 during the fiscal year ended December 31, 2012, except for Sterling Capital Total Return Bond VIF. There were transfers from Level 2 to Level 1 during the fiscal year ended December 31, 2012 due to recharacterization of level in the fair value hierarchy of certain preferred stocks. A quoted price was obtained for those preferred stocks for the fiscal year ended December 31, 2012 whereas the price was based on other significant observable inputs for the fiscal year ended December 31, 2011.
2012 Transfer from Level 2 to Level 1 | ||||
Sterling Capital Total Return Bond VIF | $109,452 |
Security Transactions and Related Income — During the period, security transactions are accounted for no later than one business day after trade date. For financial reporting purposes, however, security transactions are accounted for on the trade date of the last business day of the reporting period. Interest income is recognized on the accrual basis and includes, where applicable, the amortization/accretion of premium or discount. Dividend income is recorded on the ex-dividend date. Gains or losses realized from sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds.
When-Issued and Forward Commitments — The Funds may purchase securities on a “when-issued” basis. The Funds record when-issued securities on the trade date and pledge assets with a value at least equal to the purchase commitment for payment of the securities purchased. The value of the securities underlying when-issued or forward commitments to purchase securities, and any subsequent fluctuation in their value, is taken into account when determining the net asset value of the Funds commencing with the date the Funds agree to purchase the securities. The Funds do not accrue interest or dividends on “when-issued” securities until the underlying securities are received.
Mortgage Dollar Rolls — Sterling Capital Total Return Bond VIF may sell mortgage-backed securities for delivery in the current month and simultaneously contract to repurchase substantially similar (same type, coupon and maturity) securities on a specific future date at an agreed-upon price. The fair value of the securities that the Fund is required to purchase may decline below the agreed upon repurchase price of those securities. Pools of mortgages collateralizing those securities may have different prepayment histories than those sold. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. Proceeds of the sale will be invested in additional instruments for the Fund, and the income from these investments will generate income for the Fund. If such income does not exceed the income, capital appreciation and gain or loss that would have been realized on the securities sold as part of the dollar roll, the use of this technique will diminish the investment performance of the Fund compared with what the performance would have been without the use of dollar rolls. The Funds account for mortgage dollar roll transactions as purchases and sales.
23
Table of Contents
Sterling Capital Variable Insurance Funds |
Notes to Financial Statements — (continued)
December 31, 2012
Expenses and Allocation Methodology — Expenses directly attributable to a Fund are charged to that Fund. Expenses not directly attributable to a Fund are allocated proportionately among all Funds daily in relation to the net assets of each Fund or on another reasonable basis. Expenses which are attributable to both the Funds and Sterling Capital Funds are allocated across the Funds and Sterling Capital Funds, based upon relative net assets or on another reasonable basis.
Distributions to Shareholders — Dividends from net investment income are declared and paid quarterly for the Funds, with the exception of Sterling Capital Total Return Bond VIF, in which case dividends from net investment income are declared daily and paid monthly. Distributable net realized gains, if any, are declared and distributed at least annually. Distributions to shareholders which exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
The character of income and gains distributed are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., disposition of market discount and market premium bonds, paydown gains and losses, mortgage dollar roll gains and losses, investments in real estate investment trusts (REITs), regulated investment companies (RICs), investments in partnerships and the character of distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences do not require reclassification. These reclassifications have no impact on net assets or net asset values per share.
As of December 31, 2012, these reclassifications were as follows:
Decrease Paid-in-Capital | Increase (Decrease) Net Investment Income | Increase (Decrease) Realized Gain (Loss) | ||||||||||
Sterling Capital Select Equity VIF | $ | — | $ | (9,485 | ) | $ | 9,485 | |||||
Sterling Capital Strategic Allocation Equity VIF | — | 1,840 | (1,840 | ) | ||||||||
Sterling Capital Special Opportunities VIF | (3,372 | ) | 1,974 | 1,398 | ||||||||
Sterling Capital Total Return Bond VIF | — | 144,805 | (144,805 | ) |
Federal Income Taxes — It is the policy of each Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code of 1986, as amended, and to make distributions of net investment income and net realized capital gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income tax is required in the Funds’ financial statements.
3. | Purchases and Sales of Securities: |
Purchases and sales of securities (excluding U.S. Government Securities and securities maturing less than one year from acquisition) for the fiscal year ended December 31, 2012 were as follows:
Purchases | Sales | |||||||
Sterling Capital Select Equity VIF | $ | 12,641,399 | $ | 18,317,040 | ||||
Sterling Capital Strategic Allocation Equity VIF | 1,756,006 | 2,991,563 | ||||||
Sterling Capital Special Opportunities VIF | 5,828,700 | 13,907,129 | ||||||
Sterling Capital Total Return Bond VIF | 10,058,489 | 8,663,495 |
Purchases and sales of U.S. Government Securities (excluding securities maturing less than one year from acquisition) for the fiscal year ended December 31, 2012 for the Sterling Capital Total Return Bond VIF were $17,154,734 and $18,022,835, respectively.
24
Table of Contents
Sterling Capital Variable Insurance Funds |
Notes to Financial Statements — (continued)
December 31, 2012
4. | Investments in Affiliated Issuers: |
A summary of Sterling Capital Strategic Allocation Equity VIF’s transactions in the shares of affiliated issuers during the fiscal year ended December 31, 2012 is set forth below:
Shares Held at December 31, 2011 | Shares Purchased | Shares Sold | Shares Held at December 31, 2012 | Value at December 31, 2012 | Dividend Income January 1, 2012- December 31, 2012 | Distributions and Net Realized Gain (Loss) January 1, 2012- December 31, 2012 | ||||||||||||||||||||||
Sterling Capital Equity Income Fund, Institutional Class | 24,835 | 173 | 8,061 | 16,947 | $ | 269,290 | $ | 4,808 | $ | 20,800 | ||||||||||||||||||
Sterling Capital Equity Index Fund, Institutional Class | 6,607 | 66 | 2,306 | 4,367 | 41,703 | 621 | (1,689 | ) | ||||||||||||||||||||
Sterling Capital International Fund, Institutional Class | 125,310 | — | 125,310 | — | — | — | 27,454 | |||||||||||||||||||||
Sterling Capital Mid Value Fund, Institutional Class | 38,986 | 10,669 | 19,313 | 30,342 | 435,106 | 4,356 | 61,267 | |||||||||||||||||||||
Sterling Capital Select Equity Fund, Institutional Class | 90,720 | 27,449 | 35,082 | 83,087 | 1,044,409 | 13,515 | (6,325 | ) | ||||||||||||||||||||
Sterling Capital Small Value Fund, Institutional Class | 11,128 | 1,000 | 3,355 | 8,773 | 107,729 | — | 5,584 | |||||||||||||||||||||
Sterling Capital Special Opportunities Fund, Institutional Class | 13,912 | 28,529 | 6,657 | 35,784 | 660,576 | 2,013 | 27,748 | |||||||||||||||||||||
Sterling Capital U.S. Treasury Money Market Fund, Institutional Class | 76,801 | 23,357,263 | 23,434,064 | — | — | 11 | — | |||||||||||||||||||||
Sterling Capital Ultra Short Bond Fund, Institutional Class | — | 7,943 | 4,605 | 3,338 | 33,380 | 15 | (46 | ) | ||||||||||||||||||||
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Total Affiliates | 388,299 | 23,433,092 | 23,638,753 | 182,638 | $ | 2,592,193 | $ | 25,339 | $ | 134,793 | ||||||||||||||||||
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5. | Related Party Transactions: |
Under the terms of the investment advisory agreement, Sterling Capital Management LLC (“Sterling Capital” or the “Advisor”) is entitled to receive fees based on a percentage of the average daily net assets of the Funds. These fees are accrued daily and payable on a monthly basis and are reflected on the Statements of Operations as “Investment advisory fees.” Sterling Capital waived investment advisory fees and reimbursed certain expenses for the Funds referenced below which are not subject to recoupment and are included on the Statements of Operations as “Less expenses waived by the Investment Advisor.” Information regarding these transactions for the fiscal year ended December 31, 2012 is as follows:
Contractual Fee Rate | Fee Rate after Voluntary Waivers | |||
Sterling Capital Select Equity VIF | 0.70%1,2 | 0.60%1,2 | ||
Sterling Capital Strategic Allocation Equity VIF | 0.25% | 0.25% | ||
Sterling Capital Special Opportunities VIF | 0.80% | 0.80% | ||
Sterling Capital Total Return Bond VIF | 0.50%2,3 | 0.50%2,3 |
1 | The contractual fee rate was 0.74% and the fee rate after voluntary waivers was 0.50% prior to May 1, 2012. |
2 | For a portion of the fiscal year ended December 31, 2012, Sterling Capital voluntarily reimbursed certain expenses of the Funds. Voluntary reimbursements of expenses are not subject to recoupment in subsequent fiscal periods, and may be discontinued at any time. |
3 | The contractual fee rate was 0.60% and the fee rate after voluntary waivers was 0.50% prior to May 1, 2012. |
During the period covered by this report, pursuant to a sub-advisory agreement with Sterling Capital, Scott & Stringfellow LLC (Scott & Stringfellow), a wholly owned subsidiary of BB&T Corporation, serves as the sub-advisor to Sterling Capital Special Opportunities VIF, subject to the general supervision of the Board and Sterling Capital. For its services, Scott & Stringfellow is entitled to a fee, payable by Sterling Capital. Please see Note 8 for important additional information.
Sterling Capital serves as the administrator to the Funds pursuant to an administration agreement. The Funds except Sterling Capital Strategic Allocation Equity VIF pay their portion of a fee to Sterling Capital for providing administration services based on the aggregate assets of the Funds except Sterling Capital Strategic Allocation Equity VIF and the Sterling Capital Funds, excluding the assets of Sterling Capital Strategic Allocation Conservative Fund, Sterling Capital Strategic Allocation Balanced Fund, Sterling Capital Strategic Allocation Growth Fund, Sterling Capital Strategic Allocation Equity Fund, Sterling Capital Corporate Fund and Sterling Capital Securitized Opportunities Fund, at a rate of 0.1075% on the first $3.5 billion of
25
Table of Contents
Sterling Capital Variable Insurance Funds |
Notes to Financial Statements — (continued)
December 31, 2012
average net assets; 0.075% on the next $1 billion of average net assets; 0.06% on the next $1.5 billion of average net assets; and 0.04% of average net assets over $6 billion. Prior to July 1, 2012, the administration fee with respect to the first $3.5 billion of average net assets was 0.11%. This fee is accrued daily and payable on a monthly basis. Expenses incurred are reflected on the Statements of Operations as “Administration fees.” Pursuant to a sub-administration agreement with Sterling Capital, BNY Mellon Investment Servicing (US) Inc. (“BNY Mellon” or the “Sub-Administrator”), serves as the sub-administrator to the Funds subject to the general supervision of the Board and Sterling Capital. For these services, BNY Mellon is entitled to a fee payable by Sterling Capital.
BNY Mellon serves as the Funds’ fund accountant and transfer agent and receives compensation by the Funds for these services. Expenses incurred are reflected on the Statements of Operations as “Fund accounting fees” and “Transfer agent fees.”
Sterling Capital’s Chief Compliance Officer (“CCO”) serves as the Funds’ CCO. The CCO’s compensation is reviewed and approved by the Funds’ Board and paid by Sterling Capital. However, the Funds reimburse Sterling Capital for their allocable portion of the CCO’s salary. Expenses incurred for the Funds are reflected on the Statements of Operations as “Compliance service fees.”
For the fiscal year ended December 31, 2012, the Funds paid $123 in brokerage fees to Scott & Stringfellow, related to the execution of purchases and sales of the Funds’ portfolio investments.
The Trust has adopted a Variable Contract Owner Servicing Plan (the “service plan”) under which the Funds may pay a fee computed daily and paid monthly, at an annual rate of up to 0.25% of the average daily net assets of the Funds. A servicing agent may periodically waive all or a portion of its servicing fees. For the fiscal year ended December 31, 2012 the Funds did not participate in any service plan.
Certain Officers and a Trustee of the Funds are affiliated with Sterling Capital or the Sub-Administrator. Such Officers and Trustee receive no compensation from the Funds for serving in their respective roles. Each of the Trustees who are not interested persons (as defined in the 1940 Act) of the Trust who serve on the Board are compensated at the annual rate of $40,000 plus $5,000 for each regularly scheduled quarterly meeting attended, $4,000 for each special meeting attended in person and $3,000 for each special meeting attended by telephone, plus reimbursement for certain out of pocket expenses. The Trustee who is an interested person as defined in the 1940 Act of the Trust, but not affiliated with Sterling Capital is compensated at the annual rate of $40,000 plus $4,000 for each regularly scheduled quarterly meeting attended, $3,200 for each special meeting attended in person and $2,400 for each special meeting attended by telephone, plus reimbursement for certain out of pocket expenses. Each Trustee serving on a Committee of the Board receives a fee of $4,000 for each Committee meeting attended in person and $3,000 for each Committee meeting attended by telephone, plus reimbursement for certain out of pocket expenses. Committee meeting fees are only paid when such Committee meetings are not held in conjunction with a regular board meeting. Additionally, the Chairman of the Board and the Audit Committee Chairman each receive an annual retainer of $15,000, and the Chairman of the Nominations Committee receives additional compensation at the rate of $1,000 for each meeting over which he or she presides as Chairman. The fees are allocated across the Trust and the Sterling Capital Funds based upon relative net assets.
6. | Line of Credit: |
U.S. Bank, N.A. has made available a credit facility to the Funds, pursuant to a Credit Agreement (the “Agreement”). The primary purpose of the Agreement is to allow the Funds to avoid security liquidations that Sterling Capital believes are unfavorable to shareholders. Under the Agreement, Select Equity VIF, Total Return Bond VIF and Special Opportunities VIF have a commitment amount of $2,800,000, $1,500,000, and $2,600,000, respectively. Outstanding principal amounts under the Agreement bear interest at a rate per annum equal to the Prime Rate minus two percent (2%), but never at a rate of less than one percent (1%) per annum. The Agreement expires on March 31, 2013. During the fiscal year ended December 31, 2012 the Funds did not utilize the line of credit.
7. | Federal Tax Information: |
Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statements of Operations. During the period, the Funds did not incur any interest or penalties.
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Sterling Capital Variable Insurance Funds |
Notes to Financial Statements — (continued)
December 31, 2012
Management has analyzed the Funds’ tax positions taken on federal income tax returns for all open tax years (current year and prior three tax years), and has concluded that no provision for federal income tax is required in the Funds’ financial statements. The Funds’ federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
Under the Regulated Investment Company Modernization Act of 2010, capital losses originating in taxable years beginning after December 22, 2010 (“post-enactment capital losses”) are carried forward indefinitely. Furthermore, post-enactment capital losses will retain their character as either short-term or long-term capital losses rather than being considered all short-term capital losses as under previous law.
At December 31, 2012, the following Funds had net capital loss carryforwards available to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Amount With No Expiration* | ||||||||||
Long-term Losses | Amount | Expires | ||||||||
Sterling Capital Select Equity VIF | $ — | $ | 17,459,184 | 2016 | ||||||
Sterling Capital Select Equity VIF | — | 3,263,903 | 2017 | |||||||
Sterling Capital Strategic Allocation Equity VIF | — | 2,264,206 | 2016 | |||||||
Sterling Capital Strategic Allocation Equity VIF | — | 1,989,928 | 2017 | |||||||
Sterling Capital Strategic Allocation Equity VIF | — | 1,467,590 | 2018 | |||||||
Sterling Capital Strategic Allocation Equity VIF | 5,238 | — | — |
* | Post-Enactment Losses: Must be utilized prior to losses subject to expiration. |
Capital loss carryforwards utilized in the current year were $1,516,380 for Sterling Capital Select Equity VIF.
The tax character of distributions paid to shareholders during the fiscal year ended December 31, 2012, were as follows:
Distributions paid from | ||||||||||||
Ordinary Income | Net Long-Term Gains | Total Distributions Paid* | ||||||||||
Sterling Capital Select Equity VIF | $ | 192,318 | $ | — | $ | 192,318 | ||||||
Sterling Capital Strategic Allocation Equity VIF | 46,937 | — | 46,937 | |||||||||
Sterling Capital Special Opportunities VIF | 85,547 | 1,422,090 | 1,507,637 | |||||||||
Sterling Capital Total Return Bond VIF | 542,470 | 496,620 | 1,039,090 |
The tax character of distributions paid to shareholders during the fiscal year ended December 31, 2011, were as follows:
Distributions paid from | ||||||||||||
Ordinary Income | Net Long-Term Gains | Total Distributions Paid* | ||||||||||
Sterling Capital Select Equity VIF | $ | 264,006 | $ | — | $ | 264,006 | ||||||
Sterling Capital Strategic Allocation Equity VIF | 50,968 | — | 50,968 | |||||||||
Sterling Capital Special Opportunities VIF | 44,822 | 1,418,779 | 1,463,601 | |||||||||
Sterling Capital Total Return Bond VIF | 1,031,540 | 360,653 | 1,392,193 |
* | Total Distributions paid may differ from the Statements of Changes in Net Assets because distributions are recognized when actually paid for tax purposes. |
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Sterling Capital Variable Insurance Funds |
Notes to Financial Statements — (continued)
December 31, 2012
At December 31, 2012, the components of accumulated earnings (deficit) on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long Term Capital Gains | Accumulated Earnings | Accumulated Capital and Other Losses | Unrealized Appreciation (Depreciation)* | Total Accumulated Earnings (Deficit) | |||||||||||||||||||
Sterling Capital Select Equity VIF | $ | 5,747 | $ | — | $ | 5,747 | $ | (20,723,087 | ) | $ | 3,219,823 | $ | (17,497,517 | ) | ||||||||||
Sterling Capital Strategic Allocation Equity VIF | 2,383 | — | 2,383 | (5,726,962 | ) | 595,781 | (5,128,798 | ) | ||||||||||||||||
Sterling Capital Special Opportunities VIF | 24,973 | 3,344,117 | 3,369,090 | — | 5,223,265 | 8,592,355 | ||||||||||||||||||
Sterling Capital Total Return Bond VIF | 584,587 | 244,246 | 828,833 | — | 665,337 | 1,494,170 |
* | The primary differences between book basis and tax basis unrealized appreciation (depreciation) were due to the deferral of losses on wash sales and timing of income recognition related to investments in hybrid securities and partnerships, and the deferral of market discount and premium until point of sale. |
At December 31, 2012, federal income tax cost, gross unrealized appreciation and gross unrealized depreciation on securities were as follows:
Tax Cost | Gross Tax Unrealized Appreciation | Gross Tax Unrealized Depreciation | Net Tax Unrealized Appreciation | |||||||||||||
Sterling Capital Select Equity VIF | $ | 14,553,846 | $ | 3,504,927 | $ | (285,104 | ) | $ | 3,219,823 | |||||||
Sterling Capital Strategic Allocation Equity VIF | 4,280,225 | 760,038 | (164,257 | ) | 595,781 | |||||||||||
Sterling Capital Special Opportunities VIF | 25,784,295 | 6,539,830 | (1,316,565 | ) | 5,223,265 | |||||||||||
Sterling Capital Total Return Bond VIF | 17,267,296 | 754,560 | (89,223 | ) | 665,337 |
8. | Subsequent Events: |
Management has evaluated the need for disclosure and/or adjustments resulting from subsequent events through the date the financial statements were issued, and has noted the following:
Effective January 1, 2013, George F. Shipp, the portfolio manager of the Sterling Capital Special Opportunities VIF, and Chief Investment Officer of Scott & Stringfellow (“Sub-Advisor”) became an employee of Sterling Capital. As a result, the sub-advisory agreement between the Advisor and the Sub-Advisor terminated, and the Sub-Advisor no longer provides Sub-Advisory services to the Fund. Mr. Shipp continues to serve as portfolio manager of the Fund, and the Fund continues to pursue its current investment objective and strategies.
On February 21, 2013, the Board approved a Plan of Liquidation with respect to Sterling Capital Strategic Allocation Equity VIF. It is expected that the Fund will be liquidated on or about April 26, 2013. After paying in full all known or reasonably ascertainable liabilities of the Fund, including without limitation all charges, taxes and expenses of the Fund, whether due, accrued or anticipated, that have been incurred or are expected to be incurred by the Fund, the Fund will distribute to its shareholders their pro rata share of the proceeds.
On February 21, 2013, the Board also approved certain changes with respect to the Sterling Capital Select Equity VIF. Effective as of May 1, 2013, it is expected that the Fund will be renamed the Sterling Capital Equity Income VIF and the Fund’s investment objective, principal strategies, principal risks, non-fundamental investment restrictions and portfolio management will change.
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Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
Sterling Capital Variable Insurance Funds:
We have audited the accompanying statements of assets and liabilities of the Sterling Capital Select Equity VIF, Sterling Capital Strategic Allocation Equity VIF, Sterling Capital Special Opportunities VIF and Sterling Capital Total Return Bond VIF (collectively, the “Funds”), four of the funds constituting Sterling Capital Variable Insurance Funds, including the schedules of portfolio investments, as of December 31, 2012, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 securities owned as of December 31, 2012, by correspondence with the custodian, transfer agent of the underlying funds and brokers or by other appropriate auditing procedures. 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 the financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds comprising the Sterling Capital Variable Insurance Funds as of December 31, 2012, the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
February 26, 2013
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Sterling Capital Variable Insurance Funds |
December 31, 2012
Notice to Shareholders (Unaudited)
All amounts and percentages below are based on financial information available as of the date of this annual report and, accordingly are subject to change. For each item it is the intention of the Funds to report the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended December 31, 2012, each Fund is reporting the following items with regard to distributions paid during the year.
Long-Term Capital Gain | Qualified Dividend Income % | (for corporate shareholders) Dividends Received Deduction % | U.S. Government Income | |||||||||||||
Sterling Capital Select Equity VIF | $ | — | 100.00 | % | 100.00 | % | 0.00 | % | ||||||||
Sterling Capital Strategic Allocation Equity VIF | — | 100.00 | % | 63.46 | % | 0.66 | % | |||||||||
Sterling Capital Special Opportunities VIF | 1,422,090 | 100.00 | % | 100.00 | % | 0.00 | % | |||||||||
Sterling Capital Total Return Bond VIF | 496,620 | 0.08 | % | 0.08 | % | 1.70 | % |
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Sterling Capital Variable Insurance Funds |
December 31, 2012
A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available (i) without charge, upon request, by calling 1-800-228-1872; and (ii) on the Securities and Exchange Commission’s (the “Commission”) website at http://www.sec.gov.
Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 1-800-228-1872 and (ii) on the Commission’s website at http://www.sec.gov.
The Funds file complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Form N-Q is filed with the Commission within 60 days of the end of the quarter to which it relates, and is available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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BOARD CONSIDERATION OF ADVISORY AND SUB-ADVISORY AGREEMENTS (UNAUDITED)
The Board of Trustees, at a meeting held on August 15-16, 2012, approved the continuance of the investment advisory agreement between Sterling Capital Variable Insurance Funds (the “Trust”) and Sterling Capital Management LLC (“Sterling Capital”), which serves as investment adviser to each series of the Trust (the “Funds”) for a new term running through January 31, 2013. The Board of Trustees also approved the continuance of the sub-advisory agreement (the “Sub-Advisory Agreement”) of Sterling Capital with Scott & Stringfellow, LLC (“Scott & Stringfellow” and, together with Sterling Capital, the “Advisers”), with respect to the Sterling Capital Special Opportunities VIF for a new term running through January 31, 2013. At a meeting held on November 14, 2012, the Board of Trustees approved the further continuance of the Advisory Agreement between the Trust and Sterling Capital for a new term running through January 31, 2014. At the meeting held on November 14, 2012, the Board of Trustees also approved the termination of the Sub-Advisory Agreement effective as of January 1, 2013, in connection with the anticipated transaction by which the portfolio manager of the Sterling Capital Special Opportunities VIF would become an employee of Sterling Capital and would continue to serve as portfolio manager of the Fund in such capacity. The Board approved the continuation of the Advisory Agreements two times in 2012 in order to adjust the Board’s contract review schedule for future years. As a result of this schedule change, the Board will have additional time for its review and deliberations in future years. All of the above referenced agreements are collectively referred to herein as the “Advisory Agreements” and are performed by the “Advisers.”
The Trustees reviewed extensive material in connection with their consideration of the Advisory Agreements, including data from an independent provider of mutual fund data (as assembled by the Trust’s administrator), which, where applicable, included comparisons with industry averages for comparable funds for advisory fees, 12b-1 fees, and total fund expenses. The data reflected Sterling Capital fee waivers in place, as well as Sterling Capital’s contractual investment advisory fee levels. The Board was assisted in its review by independent legal counsel, who provided memoranda detailing the legal standards for review of the Advisory Agreements. To facilitate its review, the Board received a detailed presentation by Sterling Capital, which included a fund-by-fund analysis of each Fund’s investment process and performance. Presentations were also provided by each entity proposed to be utilized by Sterling Capital as a sub-adviser. The Board also received and considered fund-by-fund profitability information from the Advisers. The Independent Trustees met outside the presence of management and the Advisers with their independent legal counsel as part of their deliberations.
In their deliberations regarding the Advisory Agreements, each Trustee attributed different weights to various factors involved in an analysis of the Advisory Agreements, and in each case no factor alone was considered determinative. The Trustees determined that the overall arrangements between the Trust and the Advisers, as provided in the Advisory Agreements, were fair and reasonable and that the continuance of the Advisory Agreements was in the best interests of each applicable Fund and its shareholders.
The matters addressed below were considered and discussed by the Trustees in reaching their conclusions.
Nature, Extent and Quality of Services Provided by the Advisers — The Trustees received and considered information regarding the nature, extent, and quality of the services provided to each Fund under the Advisory Agreements. The Trustees took into account information furnished throughout the year at Trustee meetings, as well as materials furnished specifically in connection with the annual review process. The Trustees considered the background and experience of each Adviser’s senior management and the expertise of investment personnel of each Adviser responsible for the day-to-day management of each Fund. The Trustees considered the overall reputation, and the capabilities and commitment of the Advisers to provide high quality service to the Funds.
The Trustees received information concerning the investment philosophy and investment processes applied or to be applied by the Advisers in managing the Funds as well as each Adviser’s Form ADV. The Trustees also considered information regarding regulatory compliance and compliance with the investment policies of the Funds. The Trustees also considered each Adviser’s trading practices, including Scott & Stringfellow, which engages in affiliated brokerage for portfolio trades for the Funds it sub-advises. The Trustees also considered the procedures of the Advisers designed to fulfill the Advisers’ fiduciary duty to the Funds with respect to possible conflicts of interest, including the Advisers’ codes of ethics (regulating the personal trading of its officers and employees).
Based on their review, the Trustees concluded that, with respect to the nature, extent and quality of services to be provided by the Advisers, the nature and extent of responsibilities was consistent with mutual fund industry norms, and that the quality of the services provided or to be provided by the Advisers was or was expected to be satisfactory or better.
Investment Performance — The Trustees considered performance results of each Fund in absolute terms and relative to each Fund’s benchmark and peer group. In the Trustees’ review of performance, long- and short-term performance were considered. In conducting their review, the Trustees particularly focused on Funds where performance compared unfavorably with peers.
After reviewing the performance of each Fund, and taking into consideration the management style, investment strategies, and prevailing market conditions during the prior year and for longer periods, the Trustees concluded that the performance of each Fund was acceptable or better or that, in cases where performance issues were encountered, Sterling Capital was appropriately addressing the situation.
Cost of Services, Including the Profits Realized by the Advisers and Affiliates — The Trustees considered peer group comparable information with respect to the advisory fees charged by Sterling Capital to each of the Funds, taking into consideration both
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contractual and actual (i.e., after fee waivers) fee levels. The Trustees also considered the advisory fee waivers in place for certain Funds. The Trustees concluded that the investment advisory and sub-advisory fees (collectively, the “investment advisory fees”) paid by the Funds fell within an acceptable range as compared to peer groups, and were fair and reasonable.
As part of their review, the Trustees considered benefits to Sterling Capital aside from investment advisory fees. The Trustees reviewed administration fees received by Sterling Capital and considered the fallout benefits to Sterling Capital such as the research services available to Sterling Capital by reason of brokerage commissions generated by the Funds’ turnover. The Trustees also considered benefits to Sterling Capital’s affiliates, including brokerage commissions received by Scott & Stringfellow for executing trades on behalf of the Sterling Capital Special Opportunities Variable Insurance Fund. With respect to Scott & Stringfellow, the Trustees noted that brokerage commissions were paid at a standard commission rate, which was consistent with that used by Sterling Capital with respect to all equity funds of the Trust and that such brokerage arrangements were considered by Scott & Stringfellow to be advantageous.
The Trustees also considered information from Sterling Capital regarding fees for separate accounts managed by Sterling Capital with investment objectives and strategies similar to those of comparable Funds. The Trustees noted that management of the Funds was a much more intensive process than management of separate accounts, including daily fluctuations in the size of the Funds and the need to comply with extensive and complex restrictions set by applicable regulation or established in controlling disclosure documents, and therefore the Trustees concluded that the differences between the services that Sterling Capital provides to the Funds and those it provides to separate accounts substantially limit the probative value of comparisons to those other clients.
The Trustees also considered the reasonableness of the current and proposed advisory fees in the context of the profitability of the Advisers. In determining whether all investment advisory fees were reasonable, the Trustees reviewed profitability information provided by the Advisers with respect to investment advisory services. With respect to such information, the Trustees recognized that such profitability data was generally unaudited and represented an Adviser’s own determination of its and its affiliates’ revenues from the contractual services provided or expected to be provided to the Funds, less expenses of providing such services. Expenses include direct and indirect costs and were calculated using an allocation methodology developed by the Adviser. The Trustees also recognized that it is difficult to make comparisons of profitability from fund investment advisory and sub-advisory contracts, because comparative information is not generally publicly available and could be affected by numerous factors. Based on their review, the Trustees concluded that the profitability of the Advisers as a result of their relationships with the Funds was acceptable.
Based on the foregoing, the Trustees concluded that the fees proposed under the Advisory Agreements were fair and reasonable, in light of the services and benefits provided or expected to be provided to each Fund.
Economies of Scale — The Trustees also considered whether fee levels reflect economies of scale and whether economies of scale would be produced by the growth of the Funds’ assets. The Trustees also considered the advisory fee waivers in place for certain Funds and found that the waivers were a reasonable way to provide the benefits of economies of scale to shareholders of such Funds. The Trustees concluded that each Fund’s advisory fee levels fairly reflected such economies of scale as might exist at current asset levels.
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Sterling Capital Variable Insurance Funds |
Information about Trustees and Officers (Unaudited)
Overall responsibility for the management of the Funds rests with its Board of Trustees (“Trustees”), who are elected by the Shareholders of the Funds. The Trustees elect the officers of the Funds to supervise actively its day-to-day operations. The names of the Trustees, birthdates, term of office and length of time served, principal occupations during the past five years, number of portfolios overseen and directorships held outside of the Funds are listed in the two tables immediately following. The business address of the persons listed below is 434 Fayetteville Street, Fifth floor, Raleigh, North Carolina 27601.
INDEPENDENT TRUSTEES
Name and Birthdate | Position(s) Held With the Funds | Term of Office/ Time Served | Principal Occupation | Number of Portfolios in Fund Complex Overseen by Trustee* | Other Directorships Held by Trustee | |||||
Thomas W. Lambeth Birthdate: 1/35 | Trustee, Chairman of the Board of Trustees | Indefinite, 8/92 — Present | From January 2001 to present, Senior Fellow, Z. Smith Reynolds Foundation | 26 | None | |||||
Drew T. Kagan Birthdate: 2/48 | Trustee | Indefinite, 8/00 — Present | From September 2010 to present, Chairman, Montecito Advisors, Inc.; from December 2003 to September 2010, CEO, Montecito Advisors, Inc.; from March 1996 to December 2003, President, Investment Affiliate, Inc. | 26 | None | |||||
Laura C. Bingham Birthdate: 11/56 | Trustee | Indefinite, 2/01 — Present | From June 2010 to present, independent consultant; from July 1998 to June 2010, President of Peace College | 26 | None | |||||
Douglas R. Van Scoy Birthdate: 11/43 | Trustee | Indefinite, 5/04 — Present | Retired; from November 1974 to July 2001, employee of Smith Barney (investment banking), most recently as Director of Private Client Group and Senior Executive Vice President | 26 | None | |||||
James L. Roberts Birthdate: 11/42 | Trustee | Indefinite, 11/04 — Present | Retired; from November 2006 to present, Director, Grand Mountain Bancshares, Inc.; from January 1999 to December 2003, President, CEO and Director, Covest Bancshares, Inc. | 26 | None |
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Sterling Capital Variable Insurance Funds |
The following table shows information for the trustees who are, each, an “interested person” of the Funds as defined in the 1940 Act:
INTERESTED TRUSTEES
Name and Birthdate | Position(s) Held With the Funds | Term of Office/ Length of Time Served | Principal Occupation | Number of Portfolios in Fund Complex by Trustee* | Other by Trustee | |||||||
Alexander W. McAlister** Birthdate: 3/60 | Trustee | Indefinite, 11/10 — Present | President, Sterling Capital | 26 | Director, Sterling Capital | |||||||
Alan G. Priest*** Birthdate: 5/52 | Trustee | Indefinite, 7/12 — Present | Retired; from April 1987 to April 2012, Partner, Ropes & Gray LLP | 26 | None |
* | The Sterling Capital Fund Complex consists of two open-end investment management companies: Sterling Capital Funds and Sterling Capital Variable Insurance Funds. |
** | Mr. McAlister is treated by the Funds as an “interested person” (as defined in Section 2(a)(19) of the 1940 Act) of the Funds because he is an officer of the Advisor. |
*** | Mr. Priest is treated by the Fund as an “interested person” (as defined in Section 2(a)(19) of the 1940 Act) of the Funds because he was a partner of a law firm that acted as counsel to the Funds during the past two fiscal years. |
The following table shows information for officers of the Funds:
Name and Birthdate | Position(s) Held With the Funds | Term of Office/ Length of Time Served | Principal Occupation During the Last 5 Years | |||
James T. Gillespie Birthdate: 11/66 | President | Indefinite, President 12/12 — Present | From March 2012 to present, Executive Director, Sterling Capital; From June 2010 to March 2012, Director, Sterling Capital and its predecessors; from August 2008 to June 2010, Vice President Relationship Management, JP Morgan Chase & Co.; from February 2005 to August 2008, Senior Vice President and Manager of Mutual Fund Administration, Sterling Capital and its predecessors | |||
Kenneth R. Cotner Birthdate: 2/59 | Treasurer | Indefinite, 12/12 — Present | From 2001 to present, Chief Operating Officer; Sterling Capital and its predecessors |
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Sterling Capital Variable Insurance Funds |
Name and Birthdate | Position(s) Held With the Funds | Term of Office/ Length of Time Served | Principal Occupation During the Last 5 Years | |||
Todd M. Miller Birthdate: 9/71 | Vice President and Secretary | Indefinite, Vice President, 8/05 — Present; Secretary, 8/10 — Present | From June 2009 to present, Director, Sterling Capital Management LLC and its predecessors; from June 2005 to May 2009, Mutual Fund Administrator; from May 2001 to May 2005, Manager, BISYS Fund Services | |||
Clinton L. Ward Birthdate: 11/69 | Chief Compliance and Anti-Money Laundering Officer | Indefinite, 4/07 — Present | From July 2004 to present, Chief Compliance Officer and Executive Director, Sterling Capital Management LLC and its predecessors | |||
Andrew J. McNally Birthdate: 12/70 | Assistant Treasurer | Indefinite, Assistant Treasurer, 6/10 — Present; Treasurer, 4/07 — 6/10 | From January 2007 to present, Vice President and Senior Director, and from July 2000 to December 2006, Vice President and Director, Fund Accounting and Administration Department, BNY Mellon Investment Servicing (US) Inc. | |||
Julie M. Powers Birthdate: 10/69 | Assistant Secretary | Indefinite, 11/11 — Present | From November 2011 to present, Vice President; from March 2009 to October 2011, Senior Manager and Vice President; from August 2005 to February 2009, Manager and Assistant Vice President, Regulatory Administration Department, BNY Mellon Investment Servicing (US) Inc. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-228-1872.
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Item 2. Code of Ethics.
(a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party (the “Code of Ethics”). |
(c) | There have been no amendments, during the period covered by this report, to a provision of the Code of Ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics definition enumerated in Item 2(b) of Form N-CSR. |
(d) | The registrant has not granted any waivers, including an implicit waiver, from a provision of the “code of ethics” that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in Item 2(b) of Form N-CSR. |
Item 3. Audit Committee Financial Expert.
As of the end of the period covered by the report, the registrant’s board of trustees has determined that Drew Kagan is qualified to serve as an audit committee financial expert serving on its audit committee and that he is “independent,” as defined by Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Audit Fees
(a) | The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $70,300 in 2012 and $68,000 in 2011. |
Audit-Related Fees
(b) | The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item are $0 in 2012 and $0 in 2011. |
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Tax Fees
(c) | The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $7,000 in 2012 and $11,200 in 2011 Fees for both 2012 and 2011 relate to the preparation of federal income and excise tax returns. |
All Other Fees
(d) | The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $0 in 2012 and $0 in 2011. |
(e)(1) | Except as permitted by Rule 2-01(c)(7)(i)(C) of Regulation S-X, the Trust’s Audit Committee must pre-approve all audit and non-audit services provided by the independent accountants relating to the operations or financial reporting of the funds. Prior to the commencement of any audit or non-audit services to a fund, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law. | |
(e)(2) | The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows: |
(b) | N/A |
(c) | 100% |
(d) | N/A |
(f) | The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was zero percent. |
(g) | The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant was $199,900 in 2012 and $94,590 in 2011. |
(h) | The registrant’s audit committee of the board of trustees has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
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Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
(b) | Not applicable. |
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable.
Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable.
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable.
Item 10. | Submission of Matters to a Vote of Security Holders. |
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. | Controls and Procedures. |
(a) | The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (17 CFR 270.30a-3(c))) as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are effective to provide reasonable assurance that information required to be disclosed by the registrant on Form N-CSR is recorded, processed, |
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summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that information required to be disclosed by the registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the registrant’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. |
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Exhibits.
(a)(1) | The registrant’s Code of Ethics is attached hereto. | |
(a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. | |
(a)(3) | Not applicable. | |
(b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) | Sterling Capital Variable Insurance Funds |
By (Signature and Title) | /s/ James T. Gillespie | |
James T. Gillespie, President (principal executive officer) |
Date | 02/28/2013 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title) | /s/ James T. Gillespie | |
James T. Gillespie, President (principal executive officer) |
Date | 02/28/2013 |
By (Signature and Title) | /s/ Kenneth R. Cotner | |
Kenneth R. Cotner, Treasurer (principal financial officer) |
Date | 02/27/2013 |