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 811-06719
Sterling Capital Funds
(Exact name of registrant as specified in charter)
3605 Glenwood Avenue, Suite 100
Raleigh, NC 27612
(Address of principal executive offices) (Zip code)
James T. Gillespie, President
Sterling Capital Funds
3605 Glenwood Avenue, Suite 100
Raleigh, NC 27612
(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: June 30, 2016
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.
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
PULSUS UT LIBERA TM
STERLING
CAPITAL FUNDS
STERLING CAPITAL STRATTON MUTUAL FUNDS
SEMI-ANNUAL REPORT
JUNE 30, 2016
May lose value • Not FDIC insured • Not insured by any government agency • Not guaranteed by the bank • Not a deposit
Notice of Privacy Policy & Practices
Sterling Capital Funds recognizes and respects the privacy expectations of our customers.1 We provide this notice to you so that you will know what kinds of information we collect about our customers and the circumstances in which that information may be disclosed to third parties who are not affiliated with the Sterling Capital Funds.
Collection of Customer Information
We collect nonpublic personal information about our customers from the following sources:
| • | Account Applications and other forms, which may include a customer’s name, address, social security number, and information about a customer’s investment goals and risk tolerance; |
| • | Account History, including information about the transactions and balances in a customer’s accounts; and |
| • | Correspondence, written, telephonic or electronic between a customer and the Sterling Capital Funds or service providers to the Sterling Capital Funds. |
Disclosure of Customer Information
We may disclose all of the consumer information outlined above to third parties who are not affiliated with the Sterling Capital Funds:
| • | as permitted by law — for example with service providers who maintain or service shareholder accounts for the Sterling Capital Funds or to a shareholder’s broker or agent; and |
| • | to perform marketing services on our behalf or pursuant to a joint marketing agreement with another financial institution. |
Security of Customer Information
We require service providers to the Sterling Capital Funds:
| • | to maintain policies and procedures designed to assure only appropriate access to, and use of information about customers of the Sterling Capital Funds; and |
| • | to maintain physical, electronic and procedural safeguards that comply with applicable legal standards to guard nonpublic personal information of customers of the Sterling Capital Funds. |
We will adhere to the policies and practices described in this notice regardless of whether you are a current or former customer of the Sterling Capital Funds.
| 1 | For purposes of this notice, the terms “customer” or “customers” includes both individual shareholders of the Sterling Capital Funds and individuals who provide nonpublic personal information to the Sterling Capital Funds, but do not invest in Sterling Capital Funds shares. |
DEAR FELLOW SHAREHOLDER:
Financial markets experienced intense volatility during the first half of 2016 but ultimately managed to post gains for the six-month period. Stocks advanced despite sluggish global economic growth and persistent signs of weakness in many economies, which continued to dampen investor sentiment. China’s struggle to shift from a manufacturing economy to a consumer-based economy, Japan’s adoption of negative interest rates and uncertainty about U.S. monetary policy all contributed to a market correction early in the period. Meanwhile, the U.K.’s “Brexit” vote to leave the eurozone led to more market turmoil late in the period. Between these spikes in volatility, investors responded positively to a variety of mixed economic news, including modest GDP growth in the U.S., a disappointing payroll report during the spring and a rebound in oil prices, ultimately pushing stock prices higher. The higher oil prices helped push energy stocks up, while more defensive sectors, such as utilities, health care and telecommunications, all outperformed.
U.S. equities experienced both a sharp correction and a rapid recovery during the first quarter, with the S&P 500 Index falling 10.5% during the first month and a half of the year and then gaining strongly over the next several weeks. Stocks continued to rally into the second quarter until the June 23rd Brexit vote triggered steep market declines. The results of the vote, which surprised markets, pushed investors into perceived safe havens in the equity markets, including the consumer staples and utilities sectors, and increased the attractiveness of yield-oriented investments such as REITs. Despite the drama of the post-Brexit sell-off, however, fallout from the vote did not have a major effect on overall performance during the period as a whole. The Russell 3000 Index, which tracks the broad market, ended the six-month period up 3.84%. Large-cap stocks performed best in this environment. The Russell 1000 Index of large-cap stocks gained 3.74% over the six months, while the Russell 2000 Index of small-cap stocks rose just 2.22%. In recent years growth stocks have dominated U.S. market returns, but value stocks outperformed during the six months under review. Value-oriented shares, which tend to deliver higher dividend yields and feature lower volatility, are often more attractive to investors during periods of economic uncertainty or decline.
As the Brexit process plays out, we believe it will continue to send out ripples — and potentially waves — into the global economy. We expect any additional turbulence will keep pressure on domestic Treasury rates, thus prolonging a desire among investors for yield-oriented domestic equities. During a period of tumultuous global events and volatile markets, we view the slow and steady growth of the U.S. economy as a reassuring sign of stability. As long as the U.S. economy remains the envy of global investors, our markets will be the beneficiaries. During the remainder of the year we expect consumer spending, housing and an uptick in delayed capital spending to continue driving modest economic growth in the U.S.
Thank you for your confidence in Sterling Capital Management. We look forward to serving your investment needs during the months and years ahead, and we encourage you to call us at 1-800-228-1872 with any questions.
Sincerely yours,
|
| |
James T. Gillespie | Gerald M. Van Horn, CFA | |
President, Sterling Capital Funds | Executive Director, Sterling Capital | |
Management LLC |
1
Past performance does not guarantee future results. Mutual fund investing involves risk including the possible loss of principal.
This report is authorized for distribution only when preceded or accompanied by a prospectus. Please read the prospectus carefully before investing or sending money. Sterling Capital Management LLC (“Sterling Capital”) serves as investment advisor to the Sterling Capital Funds (each a “Fund” and collectively, the “Funds”) and is paid a fee for its services. Shares of the Funds are not deposits or obligations of, or guaranteed or endorsed by, Branch Banking and Trust Company or its affiliates. The Funds are not insured by the FDIC or any other government agency. The Funds currently are distributed by Sterling Capital Distributors, LLC. The distributor is not affiliated with Branch Banking and Trust Company or its affiliates.
The foregoing information and opinions are for general information only. Sterling Capital does not guarantee their accuracy or completeness, nor assume liability for any loss, which may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sale of any security or as offering individual or personalized investment advice.
2
PORTFOLIO MANAGER’S COMMENTARY
Sterling Capital Stratton Mid Cap Value Fund — Shawn M. Gallagher, CFA
Q. How did the Fund perform during the six-month period between January 1, 2016, and June 30, 2016?
A. The Fund’s Institutional Shares underperformed their benchmark, the Russell Midcap Value Index.
Q. What factors affected the Fund’s performance?
A. Signs of slowing global growth drove a spike in investor uncertainty early in the period, leading to steep market losses. Later in the period, the U.K.’s June 23 vote to exit the eurozone drove investors into a second flight to safety, which favored more defensive sectors, particularly the utilities and consumer staples sectors. Investors also favored REITs, given their increased demand for income amid falling interest rates. Between these two periods of volatility, stocks generally performed well. A weaker US dollar helped drive growth in commodity-oriented sectors, such as energy. The rebound among energy stocks — particularly shares of exploration and production (E&P) and oilfield service companies — delivered the strongest boost to the Fund’s absolute return for the period. More cyclical sectors, including the materials, technology and consumer discretionary sectors, lagged.
The Fund underperformed its benchmark for the period, in large part due to sector allocation decisions. A significant underweight position in utilities and a modest overweight position in the banking industry were key detractors from relative results. Falling interest rates created a challenging environment for banks, while also making utilities stocks’ relatively high yields more attractive to investors. Stock selection also weighed on results, particularly among the Fund’s holdings in the chemicals industry. Investments in a domestic producer of nitrogen fertilizer dragged on relative results due to weakness in nitrogen fertilizer prices. A lack of exposure to the metals and mining industry also hurt performance, as that industry benefited from sharply higher prices.
The Fund’s stock selection in the energy and utilities sectors added to relative performance. In particular, the Fund’s February purchase of a new holding in the E&P space and additions it made throughout the period to existing energy holdings helped. An overweight position to the strongly performing consumer staples sector also benefited.
Portfolio holdings are as of 6/30/16. They are subject to change and risk at any time. The Fund invests primarily in stocks of mid cap companies which may be subject to greater earnings and price volatility in comparison to larger companies. Mid-sized companies may have limited product lines or financial resources, and may be dependent upon a particular niche of the market. The Fund may invest in undervalued stocks which may affect the Fund’s value if the stocks do not appreciate as anticipated or remain undervalued for longer than anticipated. The Fund may invest in REITs, which may be negatively affected by conditions in the real estate industry, such as declining property values due to unanticipated economic developments.
The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher. Performance data current to the most recent month-end may be obtained at www.sterlingcapitalfunds.com. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
3
PORTFOLIO MANAGER’S COMMENTARY
Sterling Capital Stratton Mid Cap Value Fund — Shawn M. Gallagher, CFA
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
STERLING CAPITAL STRATTON MID CAP VALUE FUND, THE RUSSELL MIDCAP® VALUE INDEX1,
THE RUSSELL MIDCAP® INDEX2 AND THE RUSSELL 3000® VALUE INDEX3
TEN YEAR PERFORMANCE (6/30/06 - 6/30/16)4
Performance quoted represents past performance and does not guarantee future results. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than shown here. Performance data current to the most recent month-end is available at www.sterlingcapitalfunds.com. Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. Returns shown include the reinvestment of all dividends and other distributions. The performance shown here (for periods prior to the date of commencement of operations on November 16, 2015) is that of Stratton Mid Cap Value Fund (the “Predecessor Fund”), whose shares were reorganized into Institutional Shares of the Fund at the close of business on November 13, 2015. Because the Fund had no investment operations prior to the closing of the reorganization, and based on the similarity of the Fund to the Predecessor Fund, the Predecessor Fund is treated as the survivor of the reorganization for accounting and performance reporting purposes. Accordingly, all performance and other information shown for the Fund for periods prior to November 16, 2015 is that of the Predecessor Fund. Performance for Class A Shares and Class C Shares, prior to the date of commencement of operations on November 16, 2015, is based on the performance of the shares of the Predecessor Fund.
| 1 | The Russell Midcap® Value Index is an unmanaged index that measures the performance of the mid-cap value segment of the U.S. equity universe. It includes those Russell Midcap® Index companies with lower price-to-book ratios and lower forecasted growth values. It is not possible to invest directly in an index. |
| 2 | The Russell Midcap® Index is an unmanaged index that measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap® Index is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. It is not possible to invest directly in an index. |
| 3 | The Russell 3000® Value Index is an unmanaged index that measures the performance of those Russell 3000® Index companies with lower price-to-book ratios and lower forecasted growth values. The Russell 3000® Index is comprised of the 3000 largest companies in the U.S. equity market and represents approximately 98% (as of June 30, 2016) of the investable U.S. equity market. It is not possible to invest directly in an index. |
| 4 | Effective May 1, 2013, the benchmark of the Fund was changed from the Russell 3000® Value Index to the Russell Midcap® Value Index. The Fund’s broad-based securities market index was changed to provide a more accurate comparison of the Fund’s performance against the returns of an index comprised of securities with similar characteristics to those of the Fund. It is not possible to invest directly in an index. |
| 5 | The Fund’s annual operating expenses, as stated in the current prospectus. Refer to the Financial Highlights for a more current expense ratio. |
| 6 | Reflects 5.75% maximum sales charge. |
4
PORTFOLIO MANAGER’S COMMENTARY
Sterling Capital Stratton Real Estate Fund — Andrew T. DiZio, CFA
Q. How did the Fund perform during the six-month period between January 1, 2016, and June 30, 2016?
A. The Fund’s Institutional Shares outperformed their benchmark, the FTSE NAREIT All Equity REITs Index.
Q. What factors affected the Fund’s performance?
A. In general, real estate securities had a strong first half of 2016. The combination of declining interest rates and global uncertainty drove a market-wide flight to safety and yield, which benefited REIT stocks. The general flight to U.S.-based sources of consistent cash flows helped REITs rebound more quickly than other equities after the June 23 vote by the U.K. to exit the eurozone, which caused markets to fall sharply near the end of the period. The Fund’s holdings in the data centers, specialty and infrastructure sub-sectors were the most substantial contributors to absolute returns. Data centers, in particular, posted strong returns as businesses of all sizes continued to migrate their internal and external functions to the cloud.
Stock selection drove the Fund’s relative outperformance for the six-month period. Specific holdings in the health care and residential subsectors, such as the Fund’s investments in REITs with exposure to hospital and medical office property and its lack of exposure to skilled nursing facilities, added the most to relative performance. Changing Medicare reimbursement plans hurt skilled nursing operators, which drove investors out of REITs with assets in that industry and into hospital and medical office property landlords, which helped the Fund. In the residential subsector, holdings of REITs with exposure to student housing assets and properties in the Sunbelt states — the southernmost states in the lower 48 — benefited as rising supply hurt high-end urban rentals. Stock selection in the data centers, office, specialty, and industrial subsectors also aided performance.
Choice of stocks in the retail subsector, and particularly a specific shopping center REIT, dragged on the Fund’s relative performance. The Fund chose to sell the holding after the company’s board of directors announced accounting irregularities and fired its management team. The stock subsequently rebounded when no further issues came to light and a reputable CEO took over. The Fund’s overweight position in the lodging subsector also dragged on results, as this area tends to underperform during periods of economic uncertainty. Stock selection in the self-storage subsector also detracted.
Portfolio holdings are as of 6/30/16. They are subject to change and risk at any time. The Fund may invest in REITs, which may be negatively affected by conditions in the real estate industry, such as declining property values due to unanticipated economic developments. The Fund may invest in debt securities which may fall in value if interest rates rise. The Fund may also invest in foreign securities which may cause greater volatility and less liquidity due to currency fluctuations, political instability and other economic factors.
The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher. Performance data current to the most recent month-end may be obtained at www.sterlingcapitalfunds.com. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
5
PORTFOLIO MANAGER’S COMMENTARY
Sterling Capital Stratton Real Estate Fund — Andrew T. DiZio, CFA
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
STERLING CAPITAL STRATTON REAL ESTATE FUND,
THE FTSE NAREIT ALL EQUITY REITs INDEX1 AND THE S&P 500® INDEX2
TEN YEAR PERFORMANCE (6/30/06 - 6/30/16)
Performance quoted represents past performance and does not guarantee future results. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than shown here. Performance data current to the most recent month-end is available at www.sterlingcapitalfunds.com. Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. Returns shown include the reinvestment of all dividends and other distributions. The performance shown here (for periods prior to the date of commencement of operations on November 16, 2015) is that of Stratton Real Estate Fund (the “Predecessor Fund”), whose shares were reorganized into Institutional Shares of the Fund at the close of business on November 13, 2015. Because the Fund had no investment operations prior to the closing of the reorganization, and based on the similarity of the Fund to the Predecessor Fund, the Predecessor Fund is treated as the survivor of the reorganization for accounting and performance reporting purposes. Accordingly, all performance and other information shown for the Fund for periods prior to November 16, 2015 is that of the Predecessor Fund. Performance for Class A Shares and Class C Shares, prior to the date of commencement of operations on November 16, 2015, is based on the performance of the shares of the Predecessor Fund.
| 1 | The FTSE NAREIT All Equity REITs Index is an unmanaged market-capitalization-weighted index of all tax-qualified equity REITs listed on the NYSE, AMEX and NASDAQ that have 50% or more of their gross invested book assets invested directly or indirectly in the equity ownership of real estate. As of June 30, 2016, the FTSE NAREIT All Equity REITs Index was comprised of 183 REITs. It is not possible to invest directly in an index. |
| 2 | The S&P 500® Index is a widely recognized, unmanaged index of 500 common stocks that is generally considered to be representative of the U.S. stock market as a whole. It is not possible to invest directly in an index. |
| 3 | The Fund’s annual operating expenses, as stated in the current prospectus. Refer to the Financial Highlights for a more current expense ratio. |
| 4 | Reflects 5.75% maximum sales charge. |
6
PORTFOLIO MANAGER’S COMMENTARY
Sterling Capital Stratton Small Cap Value Fund — Gerald M. Van Horn, CFA
Q. How did the Fund perform during the six-month period between January 1, 2016, and June 30, 2016?
A. The Fund’s Institutional Shares underperformed their benchmark, the Russell 2000 Value Index.
Q. What factors affected the Fund’s performance?
A. Equity markets posted generally strong returns over the first half of 2016, bookended by periods of volatility. The market suffered losses early in the year amid concerns about slowing global growth, and again later in the period with the U.K.’s June 23 vote to exit the eurozone. The latter event sent small-cap equities into a steep decline over a two-day period, but the market rallied in the last week of the period, recouping nearly all of the losses that followed the vote. Even so, the post-Brexit sell-off increased investors’ desires for quality and perceived safety, which benefited defensive sectors such as consumer staples and utilities — the sectors that most contributed to the Fund’s absolute returns. The energy sector also contributed strongly to absolute returns, as a weaker U.S. dollar and a rebound in oil prices helped more commodity-oriented sectors. All sectors in the portfolio except technology and producer durables generated positive returns.
The Fund’s relative underperformance was in large part due to negative stock selection in several sectors, including the technology, producer durables and materials and processing sectors. For instance, holdings of a communications and security product supplier dragged on relative results early in the period after the firm reported weak fourth-quarter earnings. Meanwhile, shares of a provider of application and network performance management products fell when the company lowered its 2016 revenue guidance. A weak macroeconomic outlook is expected to lower capital expenditures by service providers, which would drive down company revenues. A lack of exposure to the metals and minerals industry also weighed on the Fund’s relative results, as that industry benefited from sharply higher metal prices.
The Fund’s stock selection in the health care, energy, consumer discretionary and utilities sectors added to relative performance. In health care, shares of a pharmaceutical packaging and delivery system manufacturer rose due to a stronger-than-expected earnings report early in the period, which resulted from growth in its packaging systems. Meanwhile, the Fund’s lack of exposure to the underperforming pharmaceutical and biotechnology industry also added to relative results. Among consumer discretionary stocks, holdings of a hunting and outdoor equipment retailer added to results on continued talks of a strategic takeover. Shares of an RV manufacturer rose on strong earnings-per-share data midway through the period and favorable demographics that saw more new buyers entering the market.
Portfolio holdings are as of 6/30/16. They are subject to change and risk at any time. The Fund is suitable for those who are comfortable with the high degree of market risk and illiquidity concerns that may come with small cap stock investing. The Fund may invest in strategies that are considered risky or invest in stocks of companies that are undervalued which may cause greater volatility and less liquidity. The Fund may invest in REITs, which may be negatively affected by conditions in the real estate industry, such as declining property values due to unanticipated economic developments.
The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher. Performance data current to the most recent month-end may be obtained at www.sterlingcapitalfunds.com. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
7
PORTFOLIO MANAGER’S COMMENTARY
Sterling Capital Stratton Small Cap Value Fund — Gerald M. Van Horn, CFA
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
STERLING CAPITAL STRATTON SMALL CAP VALUE FUND,
THE RUSSELL 2000® VALUE INDEX1 AND THE RUSSELL 2000® INDEX2
TEN YEAR PERFORMANCE (6/30/06 - 6/30/16)
Performance quoted represents past performance and does not guarantee future results. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than shown here. Performance data current to the most recent month-end is available at www.sterlingcapitalfunds.com. Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. Returns shown include the reinvestment of all dividends and other distributions. The performance shown here (for periods prior to the date of commencement of operations on November 16, 2015) is that of Stratton Small Cap Value Fund (the “Predecessor Fund”), whose shares were reorganized into Institutional Shares of the Fund at the close of business on November 13, 2015. Because the Fund had no investment operations prior to the closing of the reorganization, and based on the similarity of the Fund to the Predecessor Fund, the Predecessor Fund is treated as the survivor of the reorganization for accounting and performance reporting purposes. Accordingly, all performance and other information shown for the Fund for periods prior to November 16, 2015 is that of the Predecessor Fund. Performance for Class A Shares and Class C Shares, prior to the date of commencement of operations on November 16, 2015, is based on the performance of the shares of the Predecessor Fund.
| 1 | The Russell 2000® Value Index measures the performance of those Russell 2000® Index companies with lower price-to-book ratios and lower forecasted growth values. It is not possible to invest directly in an index. |
| 2 | The Russell 2000® Index is an unmanaged index comprised of the smallest 2000 companies in the Russell 3000® Index, representing approximately 9% of the Russell 3000® Index total market capitalization. The Russell 3000® Index is comprised of the 3000 largest companies in the U.S. equity market and represents approximately 98% (as of June 30, 2016) of the investable U.S. equity market. It is not possible to invest directly in an index. |
| 3 | The Fund’s annual operating expenses, as stated in the current prospectus. Refer to the Financial Highlights for a more current expense ratio. |
| 4 | Reflects 5.75% maximum sales charge. |
8
FUND HIGHLIGHTS June 30, 2016 (unaudited)
Sterling Capital Stratton Mid Cap Value Fund
| Semi-Annual Portfolio Changes | ||
New Holdings (% of Net Assets) | Eliminated Holdings | |
| Devon Energy Corp. (2.0%) | American Airlines Group, Inc. | |
| Hanover Insurance Group, Inc. (1.4%) | Macy’s, Inc. | |
| HD Supply Holdings, Inc. (2.0%) | RLJ Lodging Trust | |
| Hudson Pacific Properties, Inc. (1.4%) | SVB Financial Group | |
| The Greenbrier Companies, Inc. |
Sector Categories (% of Net Assets) | ||||||||||||||||
Financials | 27.2 | % | Health Care | 11.0 | % | Energy | 7.2 | % | ||||||||
Information Technology | 15.5 | % | Materials | 7.9 | % | Industrials | 3.7 | % | ||||||||
Consumer Discretionary | 11.4 | % | Consumer Staples | 7.5 | % | Utilities | 3.4 | % | ||||||||
Ten Largest Holdings* | ||||||||
| Market Value | % of NA | |||||||
Casey’s General Stores, Inc. | $ | 2,143,613 | 3.4 | % | ||||
Southwest Gas Corp. | 2,093,686 | 3.4 | % | |||||
Mohawk Industries, Inc. | 2,087,360 | 3.4 | % | |||||
Activision Blizzard, Inc. | 2,001,315 | 3.2 | % | |||||
Avery Dennison Corp. | 1,921,075 | 3.1 | % | |||||
The Macerich Co. | 1,818,807 | 2.9 | % | |||||
Highwoods Properties, Inc. | 1,737,120 | 2.8 | % | |||||
PTC, Inc. | 1,638,488 | 2.6 | % | |||||
Zimmer Biomet Holdings, Inc. | 1,552,902 | 2.5 | % | |||||
Ingredion, Inc. | 1,397,628 | 2.2 | % | |||||
| $ | 18,391,994 | 29.5 | % | |||||
| * | Excludes short-term holdings. |
Portfolio holdings are subject to change, subject to risk and may not represent current compositions of the portfolio.
9
FUND HIGHLIGHTS June 30, 2016 (unaudited)
Sterling Capital Stratton Real Estate Fund
| Semi-Annual Portfolio Changes | ||
New Holdings (% of Net Assets) | Eliminated Holdings | |
| Apartment Investment & Management Co. (2.1%) | Brixmor Property Group, Inc. | |
| Corporate Office Properties Trust (1.8%) | Campus Crest Communities, Inc. | |
| Equinix, Inc. (3.6%) | Chesapeake Lodging Trust | |
| Kite Realty Group Trust (1.4%) | Equity Residential | |
| Hersha Hospitality Trust | ||
| Omega Healthcare Investors, Inc. |
Sector Categories (% of Net Assets) | ||||||||||
Retail | 26.0 | % | Health Care | 9.5 | % | |||||
Specialized | 20.7 | % | Hotel & Resort | 5.9 | % | |||||
Residential | 15.8 | % | Industrial | 3.9 | % | |||||
Office | 13.8 | % | Diversified | 3.6 | % | |||||
Ten Largest Holdings* | ||||||||
| Market Value | % of NA | |||||||
Simon Property Group, Inc. | $ | 9,273,993 | 8.6 | % | ||||
Crown Castle International Corp. | 4,057,200 | 3.8 | % | |||||
Digital Realty Trust, Inc. | 3,923,640 | 3.6 | % | |||||
Equinix, Inc. | 3,877,300 | 3.6 | % | |||||
Ventas, Inc. | 3,859,460 | 3.6 | % | |||||
Essex Property Trust, Inc. | 3,649,440 | 3.4 | % | |||||
The Macerich Co. | 3,415,600 | 3.2 | % | |||||
UDR, Inc. | 3,322,800 | 3.1 | % | |||||
Acadia Realty Trust | 3,108,000 | 2.9 | % | |||||
General Growth Properties, Inc. | 3,101,280 | 2.9 | % | |||||
| $ | 41,588,713 | 38.7 | % | |||||
| * | Excludes short-term holdings. |
Portfolio holdings are subject to change, subject to risk and may not represent current compositions of the portfolio.
10
FUND HIGHLIGHTS June 30, 2016 (unaudited)
Sterling Capital Stratton Small Cap Value Fund
| Semi-Annual Portfolio Changes | ||
New Holdings (% of Net Assets) | Eliminated Holdings | |
| Callon Petroleum Co. (1.5%) | Bloomin’ Brands, Inc. | |
| First Industrial Realty Trust, Inc. (1.3%) | Compass Minerals International, Inc. | |
| US Concrete, Inc. (1.2%) | Dean Foods Co. | |
| Jarden Corp. | ||
| Solera Holdings, Inc. | ||
| Trinity Industries, Inc. |
Sector Categories (% of Net Assets) | ||||||||||||||||
Financials | 35.3 | % | Utilities | 8.0 | % | Materials | 5.5 | % | ||||||||
Information Technology | 15.5 | % | Consumer Discretionary | 7.9 | % | Energy | 3.7 | % | ||||||||
Industrials | 11.9 | % | Health Care | 5.8 | % | Consumer Staples | 3.3 | % | ||||||||
Ten Largest Holdings* | ||||||||
| Market Value | % of NA | |||||||
Casey’s General Stores, Inc. | $ | 36,533,478 | 3.3 | % | ||||
West Pharmaceutical Services, Inc. | 33,030,564 | 3.0 | % | |||||
PAREXEL International Corp. | 30,984,120 | 2.8 | % | |||||
PolyOne Corp. | 25,901,400 | 2.4 | % | |||||
Belden, Inc. | 25,862,508 | 2.4 | % | |||||
EnerSys | 25,503,710 | 2.3 | % | |||||
Take-Two Interactive Software, Inc. | 25,030,992 | 2.3 | % | |||||
Southwest Gas Corp. | 23,373,722 | 2.1 | % | |||||
PTC, Inc. | 23,297,721 | 2.1 | % | |||||
Silgan Holdings, Inc. | 22,374,808 | 2.0 | % | |||||
| $ | 271,893,023 | 24.7 | % | |||||
| * | Excludes short-term holdings. |
Portfolio holdings are subject to change, subject to risk and may not represent current compositions of the portfolio.
11
SCHEDULE OF INVESTMENTS June 30, 2016 (unaudited)
Sterling Capital Stratton Mid Cap Value Fund
| Number of Shares | Market Value (Note 1) | |||||||
COMMON STOCKS – 94.8% | ||||||||
Consumer Discretionary – 11.4% | ||||||||
Magna International, Inc. | 29,540 | $ | 1,035,968 | |||||
Mohawk Industries, Inc.† | 11,000 | 2,087,360 | ||||||
PulteGroup, Inc. | 49,700 | 968,653 | ||||||
Royal Caribbean Cruises, Ltd. | 15,400 | 1,034,110 | ||||||
Thor Industries, Inc. | 19,000 | 1,230,060 | ||||||
VF Corp. | 12,200 | 750,178 | ||||||
|
| |||||||
| 7,106,329 | ||||||||
|
| |||||||
Consumer Staples – 7.5% | ||||||||
Casey’s General Stores, Inc. | 16,300 | 2,143,613 | ||||||
Edgewell Personal Care Co. | 13,200 | 1,114,212 | ||||||
Ingredion, Inc. | 10,800 | 1,397,628 | ||||||
|
| |||||||
| 4,655,453 | ||||||||
|
| |||||||
Energy – 7.2% | ||||||||
Cabot Oil & Gas Corp. | 39,300 | 1,011,582 | ||||||
Devon Energy Corp. | 34,200 | 1,239,750 | ||||||
Phillips 66 | 16,300 | 1,293,242 | ||||||
Superior Energy Services, Inc. | 51,800 | 953,638 | ||||||
|
| |||||||
| 4,498,212 | ||||||||
|
| |||||||
Financials – 27.2% | ||||||||
Affiliated Managers Group, Inc.† | 7,200 | 1,013,544 | ||||||
American Financial Group, Inc. | 15,000 | 1,108,950 | ||||||
Ameriprise Financial, Inc. | 11,800 | 1,060,230 | ||||||
DDR Corp. REIT | 49,600 | 899,744 | ||||||
East West Bancorp, Inc. | 25,100 | 857,918 | ||||||
EastGroup Properties, Inc. REIT | 15,600 | 1,075,152 | ||||||
First Republic Bank/CA | 17,400 | 1,217,826 | ||||||
Hanover Insurance Group, Inc. | 10,500 | 888,510 | ||||||
Highwoods Properties, Inc. REIT | 32,900 | 1,737,120 | ||||||
Hudson Pacific Properties, Inc. REIT | 30,000 | 875,400 | ||||||
Huntington Bancshares, Inc. | 93,300 | 834,102 | ||||||
KeyCorp | 92,100 | 1,017,705 | ||||||
The Macerich Co. REIT | 21,300 | 1,818,807 | ||||||
Mid-America Apartment Communities, Inc. REIT | 12,300 | 1,308,720 | ||||||
Torchmark Corp. | 20,400 | 1,261,128 | ||||||
|
| |||||||
| 16,974,856 | ||||||||
|
| |||||||
Health Care – 11.0% | ||||||||
Becton, Dickinson & Co. | 7,800 | 1,322,802 | ||||||
ICON Plc† | 17,400 | 1,218,174 | ||||||
Mylan NV† | 15,400 | 665,896 | ||||||
PerkinElmer, Inc. | 16,300 | 854,446 | ||||||
Thermo Fisher Scientific, Inc. | 8,500 | 1,255,960 | ||||||
| Number of Shares | Market Value (Note 1) | |||||||
Health Care – continued | ||||||||
Zimmer Biomet Holdings, Inc. | 12,900 | $ | 1,552,902 | |||||
|
| |||||||
| 6,870,180 | ||||||||
|
| |||||||
Industrials – 3.7% | ||||||||
HD Supply Holdings, Inc.† | 35,300 | 1,229,146 | ||||||
United Rentals, Inc.† | 15,700 | 1,053,470 | ||||||
|
| |||||||
| 2,282,616 | ||||||||
|
| |||||||
Information Technology – 15.5% | ||||||||
Activision Blizzard, Inc. | 50,500 | 2,001,315 | ||||||
Arrow Electronics, Inc.† | 15,900 | 984,210 | ||||||
CDW Corp. | 27,600 | 1,106,208 | ||||||
Fiserv, Inc.† | 12,600 | 1,369,998 | ||||||
NetScout Systems, Inc.† | 31,300 | 696,425 | ||||||
NXP Semiconductors NV† | 12,400 | 971,416 | ||||||
PTC, Inc.† | 43,600 | 1,638,488 | ||||||
Skyworks Solutions, Inc. | 13,900 | 879,592 | ||||||
|
| |||||||
| 9,647,652 | ||||||||
|
| |||||||
Materials – 7.9% | ||||||||
Avery Dennison Corp. | 25,700 | 1,921,075 | ||||||
Berry Plastics Group, Inc.† | 35,100 | 1,363,635 | ||||||
CF Industries Holdings, Inc. | 33,000 | 795,300 | ||||||
Westlake Chemical Corp. | 20,400 | 875,568 | ||||||
|
| |||||||
| 4,955,578 | ||||||||
|
| |||||||
Utilities – 3.4% | ||||||||
Southwest Gas Corp. | 26,600 | 2,093,686 | ||||||
|
| |||||||
Total Common Stocks | 59,084,562 | |||||||
|
| |||||||
See accompanying Notes to Financial Statements.
12
SCHEDULE OF INVESTMENTS June 30, 2016 (unaudited) (continued)
Sterling Capital Stratton Mid Cap Value Fund
| Number of Shares | Market Value (Note 1) | |||||||
MONEY MARKET FUND – 4.5% |
| |||||||
Federated Treasury Obligations Fund, Institutional Shares | $ | 2,791,072 | $ | 2,791,072 | ||||
|
| |||||||
Total Money Market Fund | 2,791,072 | |||||||
|
| |||||||
Total Investments — 99.3% | 61,875,634 | |||||||
Other Assets Less Liabilities — 0.7% |
| 421,431 | ||||||
|
| |||||||
NET ASSETS — 100.0% | $ | 62,297,065 | ||||||
|
| |||||||
REIT – Real Estate Investment Trust
| † | Non-income producing security |
| * | Represents the current yield as of report date. |
| ** | Aggregate cost is $49,983,024 and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 14,969,105 | ||
Gross unrealized depreciation | (3,076,495 | ) | ||
|
| |||
Net unrealized appreciation | $ | 11,892,610 | ||
|
|
See accompanying Notes to Financial Statements.
13
SCHEDULE OF INVESTMENTS June 30, 2016 (unaudited)
Sterling Capital Stratton Real Estate Fund
| Number of Shares | Market Value (Note 1) | |||||||
COMMON STOCKS – 99.2% | ||||||||
Diversified – 3.6% | ||||||||
American Assets Trust, Inc. | 42,000 | $ | 1,782,480 | |||||
WP Carey, Inc. | 30,000 | 2,082,600 | ||||||
|
| |||||||
| 3,865,080 | ||||||||
|
| |||||||
Health Care – 9.5% | ||||||||
Healthcare Trust of America, Inc. Class A | 79,500 | 2,571,030 | ||||||
Medical Properties Trust, Inc. | 120,000 | 1,825,200 | ||||||
Ventas, Inc. | 53,000 | 3,859,460 | ||||||
Welltower, Inc. | 26,000 | 1,980,420 | ||||||
|
| |||||||
| 10,236,110 | ||||||||
|
| |||||||
Hotel & Resort – 5.9% | ||||||||
Marriott International, Inc. Class A | 21,000 | 1,395,660 | ||||||
RLJ Lodging Trust | 60,000 | 1,287,000 | ||||||
Ryman Hospitality Properties, Inc. | 46,000 | 2,329,900 | ||||||
Summit Hotel Properties, Inc. | 100,000 | 1,324,000 | ||||||
|
| |||||||
| 6,336,560 | ||||||||
|
| |||||||
Industrial – 3.9% | ||||||||
EastGroup Properties, Inc. | 29,000 | 1,998,680 | ||||||
First Industrial Realty Trust, Inc. | 80,000 | 2,225,600 | ||||||
|
| |||||||
| 4,224,280 | ||||||||
|
| |||||||
Office – 13.8% | ||||||||
Alexandria Real Estate Equities, Inc. | 23,000 | 2,380,960 | ||||||
Corporate Office Properties Trust | 65,000 | 1,922,050 | ||||||
Highwoods Properties, Inc. | 50,000 | 2,640,000 | ||||||
Hudson Pacific Properties, Inc. | 74,000 | 2,159,320 | ||||||
SL Green Realty Corp. | 26,000 | 2,768,220 | ||||||
Vornado Realty Trust | 30,000 | 3,003,600 | ||||||
|
| |||||||
| 14,874,150 | ||||||||
|
| |||||||
Residential – 15.8% | ||||||||
American Campus Communities, Inc. | 52,000 | 2,749,240 | ||||||
Apartment Investment & Management Co. Class A | 52,000 | 2,296,320 | ||||||
Equity Lifestyle Properties, Inc. | 27,000 | 2,161,350 | ||||||
Essex Property Trust, Inc. | 16,000 | 3,649,440 | ||||||
Mid-America Apartment Communities, Inc. | 27,000 | 2,872,800 | ||||||
UDR, Inc. | 90,000 | 3,322,800 | ||||||
|
| |||||||
| 17,051,950 | ||||||||
|
| |||||||
Retail – 26.0% | ||||||||
Acadia Realty Trust | 87,500 | 3,108,000 | ||||||
| Number of Shares | Market Value (Note 1) | |||||||
Retail – continued | ||||||||
Federal Realty Investment Trust | 16,000 | $ | 2,648,800 | |||||
General Growth Properties, Inc. | 104,000 | 3,101,280 | ||||||
Kite Realty Group Trust | 55,000 | 1,541,650 | ||||||
The Macerich Co. | 40,000 | 3,415,600 | ||||||
National Retail Properties, Inc. | 50,000 | 2,586,000 | ||||||
Simon Property Group, Inc. | 42,757 | 9,273,993 | �� | |||||
Tanger Factory Outlet Centers, Inc. | 58,000 | 2,330,440 | ||||||
|
| |||||||
| 28,005,763 | ||||||||
|
| |||||||
Specialized – 20.7% | ||||||||
Communications Sales & Leasing, Inc. | 75,000 | 2,167,500 | ||||||
Crown Castle International Corp. | 40,000 | 4,057,200 | ||||||
CubeSmart | 90,000 | 2,779,200 | ||||||
Digital Realty Trust, Inc. | 36,000 | 3,923,640 | ||||||
EPR Properties | 32,000 | 2,581,760 | ||||||
Equinix, Inc. | 10,000 | 3,877,300 | ||||||
Sovran Self Storage, Inc. | 27,000 | 2,832,840 | ||||||
|
| |||||||
| 22,219,440 | ||||||||
|
| |||||||
Total Common Stocks | 106,813,333 | |||||||
|
| |||||||
MONEY MARKET FUND – 0.5% |
| |||||||
Federated Treasury Obligations Fund, Institutional Shares 0.24%* | $ | 501,958 | 501,958 | |||||
|
| |||||||
Total Money Market Fund | 501,958 | |||||||
|
| |||||||
Total Investments — 99.7% | 107,315,291 | |||||||
Other Assets Less Liabilities — 0.3% |
| 301,112 | ||||||
|
| |||||||
NET ASSETS — 100.0% | $ | 107,616,403 | ||||||
|
| |||||||
| * | Represents the current yield as of report date. |
| ** | Aggregate cost is $67,705,069 and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 39,760,939 | ||||||
Gross unrealized depreciation | (150,717 | ) | ||||||
|
| |||||||
Net unrealized appreciation | $ | 39,610,222 | ||||||
|
|
See accompanying Notes to Financial Statements.
14
SCHEDULE OF INVESTMENTS June 30, 2016 (unaudited)
Sterling Capital Stratton Small Cap Value Fund
| Number of Shares | Market Value (Note 1) | |||||||
COMMON STOCKS – 96.9% | ||||||||
Consumer Discretionary – 7.9% | ||||||||
Brinker International, Inc. | 411,900 | $ | 18,753,807 | |||||
Cabela’s, Inc.† | 307,189 | 15,377,881 | ||||||
Cooper Tire & Rubber Co. | 470,200 | 14,021,364 | ||||||
Starz Class A† | 576,300 | 17,242,896 | ||||||
Thor Industries, Inc. | 324,600 | 21,014,604 | ||||||
|
| |||||||
| 86,410,552 | ||||||||
|
| |||||||
Consumer Staples – 3.3% | ||||||||
Casey’s General Stores, Inc. | 277,800 | 36,533,478 | ||||||
|
| |||||||
Energy – 3.7% | ||||||||
Cabot Oil & Gas Corp. | 400,700 | 10,314,018 | ||||||
Callon Petroleum Co.† | 1,448,000 | 16,261,040 | ||||||
Carrizo Oil & Gas, Inc.† | 385,150 | 13,807,627 | ||||||
|
| |||||||
| 40,382,685 | ||||||||
|
| |||||||
Financials – 35.3% | ||||||||
Affiliated Managers Group, Inc.† | 115,700 | 16,287,089 | ||||||
American Campus Communities, Inc. REIT | 414,900 | 21,935,763 | ||||||
Community Bank System, Inc. | 446,350 | 18,340,521 | ||||||
First Industrial Realty Trust, Inc. REIT | 500,000 | 13,910,000 | ||||||
First Midwest Bancorp, Inc. | 804,150 | 14,120,874 | ||||||
Glacier Bancorp, Inc. | 569,600 | 15,139,968 | ||||||
Hanover Insurance Group, Inc. | 215,000 | 18,193,300 | ||||||
Highwoods Properties, Inc. REIT | 406,564 | 21,466,579 | ||||||
IBERIABANK Corp. | 245,350 | 14,654,755 | ||||||
MB Financial, Inc. | 493,950 | 17,920,506 | ||||||
Medical Properties Trust, Inc. REIT | 1,268,750 | 19,297,688 | ||||||
Northwest Bancshares, Inc. | 947,921 | 14,057,668 | ||||||
Ryman Hospitality Properties, Inc. REIT | 377,600 | 19,125,440 | ||||||
Selective Insurance Group, Inc. | 558,250 | 21,330,733 | ||||||
Signature Bank† | 167,200 | 20,886,624 | ||||||
SL Green Realty Corp. REIT | 173,300 | 18,451,251 | ||||||
SVB Financial Group† | 142,400 | 13,550,784 | ||||||
Talmer Bancorp, Inc. Class A | 944,000 | 18,096,480 | ||||||
Umpqua Holdings Corp. | 891,891 | 13,797,554 | ||||||
United Bankshares, Inc. | 478,950 | 17,965,415 | ||||||
Webster Financial Corp. | 578,700 | 19,646,865 | ||||||
Wintrust Financial Corp. | 357,000 | 18,207,000 | ||||||
|
| |||||||
| 386,382,857 | ||||||||
|
| |||||||
Health Care – 5.8% | ||||||||
PAREXEL International Corp.† | 492,750 | 30,984,120 | ||||||
West Pharmaceutical Services, Inc. | 435,300 | 33,030,564 | ||||||
|
| |||||||
| 64,014,684 | ||||||||
|
| |||||||
| Number of Shares | Market Value (Note 1) | |||||||
Industrials – 11.9% | ||||||||
Crane Co. | 314,900 | $ | 17,861,128 | |||||
EnerSys | 428,850 | 25,503,710 | ||||||
JetBlue Airways Corp.† | 1,198,800 | 19,852,128 | ||||||
MasTec, Inc.† | 710,850 | 15,866,172 | ||||||
Moog, Inc. Class A† | 375,325 | 20,237,524 | ||||||
Oshkosh Corp. | 340,900 | 16,264,339 | ||||||
United Rentals, Inc.† | 220,541 | 14,798,301 | ||||||
|
| |||||||
| 130,383,302 | ||||||||
|
| |||||||
Information Technology – 15.5% |
| |||||||
Anixter International, Inc.† | 267,800 | 14,268,384 | ||||||
Belden, Inc. | 428,400 | 25,862,508 | ||||||
CACI International, Inc. Class A† | 206,800 | 18,696,788 | ||||||
Cardtronics, Inc.† | 350,375 | 13,948,429 | ||||||
NetScout Systems, Inc.† | 615,150 | 13,687,087 | ||||||
ON Semiconductor Corp.† | 1,614,850 | 14,242,977 | ||||||
PTC, Inc.† | 619,950 | 23,297,721 | ||||||
Qorvo, Inc.† | 368,150 | 20,343,969 | ||||||
Take-Two Interactive Software, Inc.† | 660,100 | 25,030,992 | ||||||
|
| |||||||
| 169,378,855 | ||||||||
|
| |||||||
Materials – 5.5% | ||||||||
PolyOne Corp. | 735,000 | 25,901,400 | ||||||
Silgan Holdings, Inc. | 434,800 | 22,374,808 | ||||||
US Concrete, Inc.† | 207,600 | 12,644,916 | ||||||
|
| |||||||
| 60,921,124 | ||||||||
|
| |||||||
Utilities – 8.0% | ||||||||
Avista Corp. | 489,586 | 21,933,453 | ||||||
El Paso Electric Co. | 419,631 | 19,835,957 | ||||||
Portland General Electric Co. | 504,750 | 22,269,570 | ||||||
Southwest Gas Corp. | 296,960 | 23,373,722 | ||||||
|
| |||||||
| 87,412,702 | ||||||||
|
| |||||||
Total Common Stocks | 1,061,820,239 | |||||||
|
| |||||||
See accompanying Notes to Financial Statements.
15
SCHEDULE OF INVESTMENTS June 30, 2016 (unaudited) (continued)
Sterling Capital Stratton Small Cap Value Fund
| Number of Shares | Market Value (Note 1) | |||||||
MONEY MARKET FUND – 1.8% |
| |||||||
Federated Treasury Obligations Fund, Institutional Shares 0.24%* | $ | 19,363,951 | $ | 19,363,951 | ||||
|
| |||||||
Total Money Market Fund | 19,363,951 | |||||||
|
| |||||||
Total Investments — 98.7% | 1,081,184,190 | |||||||
Other Assets Less Liabilities — 1.3% |
| 14,314,628 | ||||||
|
| |||||||
NET ASSETS — 100.0% | $ | 1,095,498,818 | ||||||
|
| |||||||
REIT – Real Estate Investment Trust
| † | Non-income producing security |
| * | Represents the current yield as of report date. |
| ** | Aggregate cost is $626,076,021 and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 459,122,237 | ||||||
Gross unrealized depreciation | (4,014,068 | ) | ||||||
|
| |||||||
Net unrealized appreciation | $ | 455,108,169 | ||||||
|
|
See accompanying Notes to Financial Statements.
16
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2016 (unaudited)
| Mid Cap Value Fund | Real Estate Fund | Small Cap Value Fund | ||||||||||
ASSETS: | ||||||||||||
Investments in securities at value (cost $49,983,024, $67,705,069 and $626,076,021, respectively) (Note 1) | $ | 61,875,634 | $ | 107,315,291 | $ | 1,081,184,190 | ||||||
Cash | 514 | 104 | 3,323 | |||||||||
Dividends receivable | 34,796 | 353,078 | 1,704,080 | |||||||||
Receivable for shares sold | — | 14,009 | 1,422,211 | |||||||||
Receivable for investment securities sold | 580,188 | — | 13,526,628 | |||||||||
Prepaid expenses | 13,658 | 17,287 | 41,318 | |||||||||
|
|
|
|
|
| |||||||
Total Assets | 62,504,790 | 107,699,769 | 1,097,881,750 | |||||||||
|
|
|
|
|
| |||||||
LIABILITIES: | ||||||||||||
Payable for shares redeemed | 9,010 | 7,633 | 1,174,507 | |||||||||
Payable for investment securities purchased | 143,062 | — | — | |||||||||
Advisory fees | 35,032 | 47,108 | 769,978 | |||||||||
Audit fees | 3,533 | 5,649 | 65,037 | |||||||||
Accounting/Administration services fees | 9,216 | 12,130 | 100,131 | |||||||||
Distribution (12b-1) fees | 5 | 24 | 45 | |||||||||
Compliance service fees | 253 | 378 | 4,358 | |||||||||
Transfer Agent fees | 2,790 | 3,668 | 136,645 | |||||||||
Printing and Postage expenses | 2,290 | 3,758 | 69,330 | |||||||||
Directors’ fees | 152 | 285 | 4,327 | |||||||||
Other expenses and liabilities | 2,382 | 2,733 | 58,574 | |||||||||
|
|
|
|
|
| |||||||
Total Liabilities | 207,725 | 83,366 | 2,382,932 | |||||||||
|
|
|
|
|
| |||||||
NET ASSETS: | $ | 62,297,065 | $ | 107,616,403 | $ | 1,095,498,818 | ||||||
|
|
|
|
|
| |||||||
SOURCE OF NET ASSETS: | ||||||||||||
Paid-in capital | $ | 50,215,104 | $ | 63,515,036 | $ | 574,217,909 | ||||||
Undistributed net investment income | 45,552 | 1,646,405 | 939,485 | |||||||||
Accumulated net realized gain on investments | 143,799 | 2,844,740 | 65,233,255 | |||||||||
Net unrealized appreciation on investments | 11,892,610 | 39,610,222 | 455,108,169 | |||||||||
|
|
|
|
|
| |||||||
Net Assets | $ | 62,297,065 | $ | 107,616,403 | $ | 1,095,498,818 | ||||||
|
|
|
|
|
| |||||||
See accompanying Notes to Financial Statements.
17
STATEMENTS OF ASSETS AND LIABILITIES (continued)
June 30, 2016 (unaudited)
| Mid Cap Value Fund | Real Estate Fund | Small Cap Value Fund | ||||||||||
NET ASSETS: | ||||||||||||
Class A Shares | $ | 18,451 | $ | 89,019 | $ | 71,121 | ||||||
Class C Shares | 1,042 | 11,136 | 36,606 | |||||||||
Institutional Shares | 62,277,572 | 107,516,248 | 1,095,391,091 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 62,297,065 | $ | 107,616,403 | $ | 1,095,498,818 | ||||||
|
|
|
|
|
| |||||||
SHARES OUTSTANDING (Unlimited number of shares authorized, no par value): | ||||||||||||
Class A Shares | 347 | 2,197 | 971 | |||||||||
Class C Shares | 20 | 275 | 502 | |||||||||
Institutional Shares | 1,171,557 | 2,650,304 | 14,942,000 | |||||||||
|
|
|
|
|
| |||||||
Total | 1,171,924 | 2,652,776 | 14,943,473 | |||||||||
|
|
|
|
|
| |||||||
NET ASSET VALUE: | ||||||||||||
Class A Shares | $ | 53.10 | 1 | $ | 40.53 | 2 | $ | 73.24 | 3 | |||
|
|
|
|
|
| |||||||
Class C Shares | $ | 52.89 | 4 | $ | 40.43 | 5 | $ | 72.95 | 6 | |||
|
|
|
|
|
| |||||||
Institutional Shares | $ | 53.16 | $ | 40.57 | $ | 73.31 | ||||||
|
|
|
|
|
| |||||||
Maximum Sales Charge - Class A Shares | 5.75 | % | 5.75 | % | 5.75 | % | ||||||
|
|
|
|
|
| |||||||
Maximum Offering Price - Class A Shares | $ | 56.34 | $ | 43.00 | $ | 77.71 | ||||||
|
|
|
|
|
| |||||||
| 1 | Net Asset Value is calculated using unrounded Net Assets of $18,450.87 divided by unrounded shares outstanding of 347.496. |
| 2 | Net Asset Value is calculated using unrounded Net Assets of $89,018.85 divided by unrounded shares outstanding of 2,196.597. |
| 3 | Net Asset Value is calculated using unrounded Net Assets of $71,121.41 divided by unrounded shares outstanding of 971.063. |
| 4 | Net Asset Value is calculated using unrounded Net Assets of $1,041.86 divided by unrounded shares outstanding of 19.697. |
| 5 | Net Asset Value is calculated using unrounded Net Assets of $11,136.08 divided by unrounded shares outstanding of 275.452. |
| 6 | Net Asset Value is calculated using unrounded Net Assets of $36,605.61 divided by unrounded shares outstanding of 501.777. |
See accompanying Notes to Financial Statements.
18
STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2016 (unaudited)
| Mid Cap Value Fund | Real Estate Fund | Small Cap Value Fund | ||||||||||
INCOME: | ||||||||||||
Dividends (net of foreign withholding tax of $2,215, $0 and $0, respectively) | $ | 325,752 | $ | 2,048,399 | $ | 6,798,980 | ||||||
Interest | 2,061 | 1,352 | 22,481 | |||||||||
|
|
|
|
|
| |||||||
Total Income | 327,813 | 2,049,751 | 6,821,461 | |||||||||
|
|
|
|
|
| |||||||
EXPENSES: | ||||||||||||
Advisory fees (Note 2) | 211,530 | 279,284 | 4,651,229 | |||||||||
Accounting/Administration services fees | 30,146 | 47,043 | 524,977 | |||||||||
Audit fees | 3,573 | 5,751 | 64,896 | |||||||||
Compliance service fees | 397 | 604 | 6,994 | |||||||||
Custodian fees | 1,944 | 2,764 | 26,637 | |||||||||
Directors’ fees | 2,607 | 4,172 | 48,896 | |||||||||
Distribution fees - Class C Shares | 23 | 83 | 147 | |||||||||
Legal fees | 3,318 | 5,265 | 62,727 | |||||||||
Miscellaneous expenses | 2,792 | 3,560 | 32,699 | |||||||||
Printing and Postage expenses | 5,975 | 9,043 | 103,203 | |||||||||
Registration fees | 17,462 | 20,942 | 35,229 | |||||||||
Transfer Agent fees | 11,889 | 28,853 | 326,923 | |||||||||
|
|
|
|
|
| |||||||
Total Expenses | 291,656 | 407,364 | 5,884,557 | |||||||||
Less expenses waived by the Investment Advisor | (5,207 | ) | (4,042 | ) | — | |||||||
|
|
|
|
|
| |||||||
Net Expenses | 286,449 | 403,322 | 5,884,557 | |||||||||
|
|
|
|
|
| |||||||
Net Investment Income | 41,364 | 1,646,429 | 936,904 | |||||||||
|
|
|
|
|
| |||||||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: | ||||||||||||
Net realized gain (loss) on investments | (146,054 | ) | 845,412 | 65,233,254 | ||||||||
Net increase (decrease) in unrealized appreciation/depreciation on investments | 754,501 | 10,938,165 | (13,832,996 | ) | ||||||||
|
|
|
|
|
| |||||||
Net Realized and Unrealized Gain on Investments | 608,447 | 11,783,577 | 51,400,258 | |||||||||
|
|
|
|
|
| |||||||
Net Increase in Net Assets Resulting From Operations | $ | 649,811 | $ | 13,430,006 | $ | 52,337,162 | ||||||
|
|
|
|
|
| |||||||
See accompanying Notes to Financial Statements.
19
STATEMENTS OF CHANGES IN NET ASSETS
| Mid Cap Value Fund | Real Estate Fund | |||||||||||||||
| 6 Months Ended 6/30/16 | Year Ended 12/31/15 | 6 Months Ended 6/30/16 | Year Ended 12/31/15 | |||||||||||||
OPERATIONS: | ||||||||||||||||
Net investment income | $ | 41,364 | $ | 186,166 | $ | 1,646,429 | $ | 1,794,066 | ||||||||
Net realized gain (loss) on investments | (146,054 | ) | 3,434,727 | 845,412 | 2,114,745 | |||||||||||
Net increase (decrease) in unrealized appreciation/depreciation on investments | 754,501 | (4,693,757 | ) | 10,938,165 | (2,819,062 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Increase (Decrease) in Net Assets Resulting From Operations | 649,811 | (1,072,864 | ) | 13,430,006 | 1,089,749 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
DISTRIBUTIONS TO SHAREHOLDERS: | ||||||||||||||||
From net investment income: | ||||||||||||||||
Class A Shares | — | (3 | ) | (108 | ) | — | ||||||||||
Class C Shares | — | (2 | ) | (982 | ) | — | ||||||||||
Institutional Shares | — | (182,047 | ) | (1,308,182 | ) | (1,627,288 | ) | |||||||||
From realized gains on investments: | ||||||||||||||||
Class A Shares | — | (34 | ) | — | (14 | ) | ||||||||||
Class C Shares | — | (34 | ) | — | (14 | ) | ||||||||||
Institutional Shares | — | (2,143,152 | ) | — | (1,262,436 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Distributions | — | (2,325,272 | ) | (1,309,272 | ) | (2,889,752 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
CAPITAL SHARE TRANSACTIONS:1 | (2,718,646 | ) | (6,874,381 | ) | (704,884 | ) | 3,999,047 | |||||||||
|
|
|
|
|
|
|
| |||||||||
REDEMPTION FEES: | — | 1,267 | — | 17,326 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Increase (Decrease) in Net Assets | (2,068,835 | ) | (10,271,250 | ) | 11,415,850 | 2,216,370 | ||||||||||
NET ASSETS: | ||||||||||||||||
Beginning of period | 64,365,900 | 74,637,150 | 96,200,553 | 93,984,183 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
End of period (including undistributed net investment income of $45,552, $4,188, $1,646,405, and $1,309,248 respectively) | $ | 62,297,065 | $ | 64,365,900 | $ | 107,616,403 | $ | 96,200,553 | ||||||||
|
|
|
|
|
|
|
| |||||||||
See accompanying Notes to Financial Statements.
20
STATEMENTS OF CHANGES IN NET ASSETS (continued)
| Small Cap Value Fund | ||||||||
| 6 Months Ended 6/30/16 | Year Ended 12/31/15 | |||||||
OPERATIONS: | ||||||||
Net investment income | $ | 936,904 | $ | 1,267,734 | ||||
Net realized gain on investments | 65,233,254 | 27,326,647 | ||||||
Net decrease in unrealized appreciation/depreciation on investments | (13,832,996 | ) | (83,141,134 | ) | ||||
|
|
|
| |||||
Net Increase (Decrease) in Net Assets Resulting From Operations | 52,337,162 | (54,546,753 | ) | |||||
|
|
|
| |||||
DISTRIBUTIONS TO SHAREHOLDERS: | ||||||||
From net investment income: | ||||||||
Class A Shares | — | (1 | ) | |||||
Institutional Shares | — | (1,265,088 | ) | |||||
From realized gains on investments: | ||||||||
Class A Shares | — | (14 | ) | |||||
Class C Shares | — | (14 | ) | |||||
Institutional Shares | — | (16,420,880 | ) | |||||
|
|
|
| |||||
Total Distributions | — | (17,685,997 | ) | |||||
|
|
|
| |||||
CAPITAL SHARE TRANSACTIONS:1 | (113,417,010 | ) | (184,968,586 | ) | ||||
|
|
|
| |||||
REDEMPTION FEES: | — | 86,432 | ||||||
|
|
|
| |||||
Total Increase (Decrease) in Net Assets | (61,079,848 | ) | 257,114,904 | |||||
NET ASSETS: | ||||||||
Beginning of period | 1,156,578,666 | 1,413,693,570 | ||||||
|
|
|
| |||||
End of period (including undistributed net investment income of $939,485 and $2,581, respectively) | $ | 1,095,498,818 | $ | 1,156,578,666 | ||||
|
|
|
| |||||
| 1 | A summary of capital share transactions is on the following page. |
See accompanying Notes to Financial Statements.
21
CAPITAL SHARE TRANSACTIONS
| Mid Cap Value Fund | ||||||||||||||||
| 6 Months Ended 6/30/16 | Year Ended 12/31/151 | |||||||||||||||
| Shares | Value | Shares | Value | |||||||||||||
Shares issued: | ||||||||||||||||
Class A Shares | 327 | $ | 15,826 | 19 | $ | 1,026 | ||||||||||
Class C Shares | — | — | 19 | 1,026 | ||||||||||||
Institutional Shares | 871 | 52,807 | 15,241 | 854,761 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Shares Issued | 1,198 | 68,633 | 15,279 | �� | 856,813 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Shares reinvested from net investment income and capital gains distributions: | ||||||||||||||||
Class A Shares | — | — | 1 | 36 | ||||||||||||
Class C Shares | — | — | 1 | 36 | ||||||||||||
Institutional Shares | — | — | 37,319 | 1,917,811 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Shares Reinvested | — | — | 37,321 | 1,917,883 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Shares redeemed: | ||||||||||||||||
Institutional Shares | (54,103 | ) | (2,787,279 | ) | (172,529 | ) | (9,649,077 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net Decrease | (52,905 | ) | $ | (2,718,646 | ) | (119,929 | ) | $ | (6,874,381 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
| Real Estate Fund | ||||||||||||||||
| 6 Months Ended 6/30/16 | Year Ended 12/31/151 | |||||||||||||||
| Shares | Value | Shares | Value | |||||||||||||
Shares issued: | ||||||||||||||||
Class A Shares | 2,142 | $ | 77,923 | 29 | $ | 1,026 | ||||||||||
Class C Shares | 243 | 8,839 | 29 | 1,026 | ||||||||||||
Institutional Shares | 91,161 | 3,202,037 | 429,902 | 16,116,223 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Shares Issued | 93,546 | 3,288,799 | 429,960 | 16,118,275 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Shares reinvested from net investment income and capital gains distributions: | ||||||||||||||||
Class A Shares | 25 | 982 | 1 | 14 | ||||||||||||
Class C Shares | 2 | 107 | 1 | 14 | ||||||||||||
Institutional Shares | 27,369 | 1,098,322 | 67,718 | 2,369,591 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Shares Reinvested | 27,396 | 1,099,411 | 67,720 | 2,369,619 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Shares redeemed: | ||||||||||||||||
Institutional Shares | (139,554 | ) | (5,093,094 | ) | (405,726 | ) | (14,488,847 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net Increase (Decrease) | (18,612 | ) | $ | (704,884 | ) | 91,954 | $ | 3,999,047 | ||||||||
|
|
|
|
|
|
|
| |||||||||
See accompanying Notes to Financial Statements.
22
CAPITAL SHARE TRANSACTIONS (continued)
| Small Cap Value Fund | ||||||||||||||||
| 6 Months Ended 6/30/16 | Year Ended 12/31/151 | |||||||||||||||
| Shares | Value | Shares | Value | |||||||||||||
Shares issued: | ||||||||||||||||
Class A Shares | 956 | $ | 63,792 | 14 | $ | 1,026 | ||||||||||
Class C Shares | 488 | 33,250 | 14 | 1,026 | ||||||||||||
Institutional Shares | 1,522,068 | 102,421,301 | 3,579,007 | 263,411,131 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Shares Issued | 1,523,512 | 102,518,343 | 3,579,035 | 263,413,183 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Shares reinvested from net investment income and capital gains distributions: | ||||||||||||||||
Class A Shares | — | — | — | 15 | ||||||||||||
Class C Shares | — | — | 1 | 14 | ||||||||||||
Institutional Shares | — | — | 175,712 | 12,073,101 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Shares Reinvested | — | — | 175,713 | 12,073,130 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Shares redeemed: | ||||||||||||||||
Institutional Shares | (3,128,399 | ) | (215,935,353 | ) | (6,296,511 | ) | (460,454,899 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net Decrease | (1,604,887 | ) | $ | (113,417,010 | ) | (2,541,763 | ) | $ | (184,968,586 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
| 1 | Includes capital stock transactions for the predecessor funds: Stratton Mid Cap Value Fund, Stratton Real Estate Fund and Stratton Small Cap Value Fund. |
See accompanying Notes to Financial Statements.
23
NOTES TO FINANCIAL STATEMENTS
June 30, 2016 (unaudited)
Note 1. – Organization
Sterling Capital Funds (the “Trust”) 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. Sterling Capital Funds consists of units of beneficial interest offered to the public (“Series”), each representing interests in one of twenty-five separate investment portfolios (“Sterling Capital Funds”). These financial statements relate to the following Series of the Trust: Sterling Capital Stratton Mid Cap Value Fund (“Mid Cap Value Fund”), Sterling Capital Stratton Real Estate Fund (“Real Estate Fund”) and Sterling Capital Stratton Small Cap Value Fund (“Small Cap Value Fund”) (individually a “Fund” and collectively, the “Funds”). Each of the Funds are “diversified” funds, as defined in the 1940 Act.
The Funds offer to the public the following three classes of Shares: Class A Shares, Class C Shares and Institutional Shares. Class A Shares are subject to a maximum sales charge of 5.75% as a percentage of original purchase price. There is no initial sales charge on purchases of $1 million or more. However, a contingent deferred sales charge (“CDSC”) of up to 1.00% of the purchase price will be charged to the shareholders if the shares are redeemed within two years after purchase. Class C Shares of the Funds are offered without any front-end sales charge but will be subject to a maximum CDSC of 1.00% if redeemed less than one year after purchase. Each class of shares has identical rights and privileges except with respect to the fees paid under the distribution plan, voting rights on matters affecting a single class of shares and the exchange privilege of each class of shares.
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.
Note 2. – Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Funds. The policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the reporting period. Actual results could differ from those estimates.
A. Securities Valuation – Investments of the Funds in securities traded on a national securities exchange or in the over-the-counter market are valued at the closing price on the principal exchange or market (including the NASDAQ Closing Price for securities trading on NASDAQ), typically 4:00 PM EST or, absent such a price, by reference to the latest available bid prices in the principal market in which such securities are normally traded. Investments in open-end investment companies are valued at their respective net asset values as reported by such companies. Securities the principal market for which is not a securities exchange are valued at their latest bid quotations in such principal market. Securities and other assets for which market quotations are not readily available (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 valued at fair value using methods determined in good faith by the Sterling Capital Funds’ Pricing Committee under the supervision of the Board of Trustees.
24
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 2016 (unaudited)
B. 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 as follows:
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.)
Level 3 - based on significant unobservable inputs (including a 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, 2015, there were no significant changes to the Funds’ valuation policies and procedures.
The summary of inputs used to determine the fair value of each Fund’s investments as of June 30, 2016 is as follows:
| Mid Cap Value Fund | Real Estate Fund | Small Cap Value Fund | ||||||||||
Level 1 - Quoted prices * | $ | 61,875,634 | $ | 107,315,291 | $ | 1,081,184,190 | ||||||
Level 2 - Significant observable inputs | — | — | — | |||||||||
Level 3 - Significant unobservable inputs | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Total Market Value of Investments | $ | 61,875,634 | $ | 107,315,291 | $ | 1,081,184,190 | ||||||
|
|
|
|
|
| |||||||
| * | The breakdown of each Fund’s investments into major categories is disclosed in its Schedule of Investments. |
During the six months ended June 30, 2016, the Funds did not recognize any transfers to/from Level 1, 2 or 3. The Funds’ policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
C. Distributions to Shareholders – Distributions to shareholders are recorded on the ex-dividend date. The character of distributions paid to shareholders is determined by reference to income as determined for income tax purposes, after giving effect to temporary differences between the financial reporting and tax basis of assets and liabilities, rather than income as determined for financial reporting purposes.
D. 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. Each class of shares bears its pro-rata portion of expenses attributable to its series, except that each class separately bears expenses related specifically to that class, such as distribution fees. Income and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets or another appropriate basis. Gains or losses on the sale of securities are calculated for accounting and tax purposes on the identified cost basis.
E. Securities Transactions and Related Income – During the period, security transactions are accounted for no later than one business day after the trade date. For financial reporting purposes, however, security transactions as of the last business day of the reporting period are accounted for on the trade date. Interest income is recognized on the accrual basis. 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.
F. REITs – The Funds make certain investments in Real Estate Investment Trusts (“REITs”) which pay dividends to their shareholders based upon available funds from operations. It is quite common for these dividends to exceed the REITs’ taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. Accordingly, a portion of the Funds’ distributions may be designated as a return of capital.
25
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 2016 (unaudited)
Note 3. – Purchases and Sales
Purchases and sales of investments, excluding short-term investments, for the six month period ended June 30, 2016 were as follows:
| Mid Cap Value Fund | Real Estate Fund | Small Cap Value Fund | ||||||||||
Cost of purchases | $ | 4,909,570 | $ | 13,718,234 | $ | 35,747,632 | ||||||
Proceeds of sales | $ | 8,595,922 | $ | 13,776,947 | $ | 161,099,511 | ||||||
Note 4. - 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. Mid Cap Value Fund, Real Estate Fund and Small Cap Value Fund pay the Advisor 0.70%, 0.575% and 0.85%, respectively, of the average net assets of such Fund.
In order to limit the expenses of the shares of the Funds, the Advisor has contractually agreed from the date of commencement of Fund operations through January 31, 2017 to limit each Fund’s total expenses of Class A Shares to: 1.30% for Mid Cap Value Fund, 1.21% for Real Estate Fund, and 1.36% for Small Cap Value Fund. In order to limit the expenses of the shares of the Funds, the Advisor has contractually agreed from the date of commencement of Fund operations through January 31, 2017 to limit each Fund’s total expenses of Class C Shares to: 2.05% for Mid Cap Value Fund, 1.96% for Real Estate Fund, and 2.11% for Small Cap Value Fund. In order to limit the expenses of the shares of the Funds, the Advisor has contractually agreed from the date of commencement of Fund operations through January 31, 2017 to limit each Fund’s total expenses of Institutional Shares to: 1.05% for Mid Cap Value Fund, 0.96% for Real Estate Fund, and 1.11% for Small Cap Value Fund. These contractual limitations may be terminated during this period only by the Board, and will automatically terminate upon termination of the Investment Advisory Agreement between a Fund and the Advisor. Fees waived for the Mid Cap Value Fund and Real Estate Fund in the amount of $5,207 and $4,042, respectively, for the six months ended June 30, 2016 were voluntary waivers by the Advisor and not due to these expense limits.
Sterling Capital serves as the administrator to the Sterling Capital Funds pursuant to an administration agreement. The Funds pay their portion of a fee to Sterling Capital for providing administration services based on each Fund’s average net assets as well as the average net assets of the remaining Series of the Trust (except Sterling Capital Strategic Allocation Balanced Fund and Sterling Capital Strategic Allocation Growth Fund), at a rate of 0.1075% on the first $3.5 billion of 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. 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.
26
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 2016 (unaudited)
Sterling Capital’s Chief Compliance Officer (“CCO”) serves as the Funds’ CCO. The CCO’s compensation is reviewed and approved by the Funds’ Board of Trustees and paid by Sterling Capital. However, the Funds reimburse Sterling Capital for their allocable portion of the CCO’s base salary and incentive pay. As a result, the CCO fee paid by the Funds is only part of the total compensation received by the CCO.
The Funds have adopted a Distribution and Shareholder Services Plan (the “Plan”) in accordance with Rule 12b-1 under the 1940 Act. Sterling Capital Distributors, LLC (“the Distributor”) serves as distributor to the Funds pursuant to a distribution agreement. The Plan provides for payments to the Distributor of up to 0.25% and 1.00% of the average daily net assets of the Class A Shares, and Class C Shares, respectively. The Distributor is entitled to receive commissions on sales of shares of the Funds. For the six months ended June 30, 2016, the Distributor received commissions earned on sales of shares of the Funds of $3,263. The fees may be used by the Distributor to pay banks, broker dealers and other institutions, including affiliates of the Advisor.
Sterling Capital, the Distributor and/or their affiliates may pay out of their own bona fide profits (and not as an additional charge to a fund) compensation to selected affiliated and unaffiliated brokers, dealers and other financial intermediaries in connection with the sale and distribution of the shares and/or the retention and/or servicing of Fund investors and Fund shares. These are additional payments over and above the sales charge (including Rule 12b-1 fees) and service fees paid by the Funds. The amount of these payments is determined at the discretion of the Advisor, the Distributor and/or their affiliates from time to time, may be substantial, and may be different for different financial advisors. Receipt of, or the prospect of receiving, this additional compensation may influence your financial intermediary’s recommendation of a Fund or of a particular share class of a Fund.
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 $70,000 plus $5,000 for each regularly scheduled quarterly meeting attended, $4,000 for each special meeting attended in person and $1,500 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 $1,500 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 receives additional compensation at the annual rate of $20,000, the Audit Committee Chairman receives additional compensation at the annual rate of $15,000, and the Chairman of the Nominations Committee receives additional compensation at the annual rate of $6,000. The fees are allocated across the Trust based upon relative net assets.
Note 5. – Line of Credit
U.S. Bank, N.A. has made available a credit facility to the Trust, pursuant to an umbrella credit agreement (“the Agreement”). The primary purpose of the Agreement is to allow the Trust to avoid security liquidations that Sterling Capital believes are unfavorable to shareholders. Under the Agreement, an aggregate commitment amount of $100,000,000 has been made available for use by all series of the Trust. 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 29, 2017. During the six months ended June 30, 2016, the Funds did not utilize the line of credit.
27
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 2016 (unaudited)
Note 6. – Federal Income Tax Information
It is the policy of each Fund to continue to qualify as a regulated investment company as defined in the Internal Revenue Code of 1986, as amended (the “Code”), by complying with the applicable provisions of the Code 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 was required in the Funds’ financial statements.
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. During the six months ended June 30, 2016, the Funds did not incur any interest or penalties.
Management has analyzed the Funds’ tax positions taken on federal income tax returns for all open tax years (current and prior three tax years), and has concluded that no provision for federal income tax was required in the Funds’ financial statements. The Funds’ federal income and 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.
The tax character of distributions paid during 2015 were as follows:
| Mid Cap Value Fund | Real Estate Fund | Small Cap Value Fund | ||||||||||
Distributions paid from: | ||||||||||||
Ordinary income | $ | 182,052 | $ | 1,631,781 | $ | 1,265,153 | ||||||
Long-term capital gain | 2,143,220 | 1,257,971 | 16,420,844 | |||||||||
|
|
|
|
|
| |||||||
Total Distributions | $ | 2,325,272 | $ | 2,889,752 | $ | 17,685,997 | ||||||
|
|
|
|
|
| |||||||
The tax character of distributions paid during the year ending December 31, 2016, will be reported in the Funds’ December 31, 2016 Annual Report.
28
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 2016 (unaudited)
As of December 31, 2015, the components of distributable earnings on a tax basis were as follows:
| Mid Cap Value Fund | Real Estate Fund | Small Cap Value Fund | ||||||||||
Undistributed net investment income | $ | 4,188 | $ | 1,309,248 | $ | 2,581 | ||||||
Undistributed realized capital gains | 293,885 | 2,113,959 | 1 | |||||||||
Capital loss carryforward | — | — | — | |||||||||
Deferred qualified late-year losses | — | — | — | |||||||||
Unrealized appreciation (depreciation) | 11,134,077 | 28,557,426 | 468,941,165 | |||||||||
|
|
|
|
|
| |||||||
Total Accumulated Earnings | $ | 11,432,150 | $ | 31,980,633 | $ | 468,943,747 | ||||||
|
|
|
|
|
| |||||||
The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the deferral of losses on wash sales.
As of December 31, 2015, Mid Cap Value Fund, Real Estate Fund and Small Cap Value Fund did not have capital loss carryforwards for federal income tax purposes.
Any capital loss, as defined by the Internal Revenue Code, that is realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Mid Cap Value Fund, Real Estate Fund and Small Cap Value Fund had no deferred qualified late-year losses for the year ending December 31, 2015.
Permanent differences, incurred during the year ended December 31, 2015, resulting from differences in book and tax accounting have been reclassified at year end to undistributed net investment income, accumulated realized gain and paid-in capital as follows:
| Mid Cap Value Fund | Real Estate Fund | Small Cap Value Fund | ||||||||||
Decrease undistributed net investment income | $ | — | $ | (21 | ) | $ | (64 | ) | ||||
Increase accumulated net realized gain | $ | — | $ | 21 | $ | 64 | ||||||
Note 7. – Subsequent Events
Management has evaluated the impact of all subsequent events on the Funds and has determined that there were no subsequent events requiring recognition or disclosure in the Financial Statements.
29
FINANCIAL HIGHLIGHTS
Sterling Capital Stratton Mid Cap Value Fund
The table below sets forth financial data for a share of capital stock outstanding throughout each period presented.
| Institutional Shares1 | ||||||||||||||||||||||||
| 6 Months Ended | Year Ended December 31, | |||||||||||||||||||||||
| 6/30/16* | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 52.55 | $ | 55.50 | $ | 51.63 | $ | 37.47 | $ | 32.65 | $ | 37.20 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income (loss) | 0.03 | 2 | 0.15 | 2 | 0.02 | 2 | (0.01 | )2 | 0.19 | 2 | 0.13 | 2 | ||||||||||||
Net gains (losses) on securities (both realized and unrealized) | 0.58 | (1.17 | ) | 3.85 | 14.17 | 4.84 | (4.53 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total From Investment Operations | 0.61 | (1.02 | ) | 3.87 | 14.16 | 5.03 | (4.40 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less Distributions | ||||||||||||||||||||||||
Dividends (from net investment income) | — | (0.15 | ) | (0.02 | ) | — | (0.21 | ) | (0.15 | ) | ||||||||||||||
Distributions (from capital gains) | — | (1.78 | ) | — | — | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total Distributions | — | (1.93 | ) | (0.02 | ) | — | (0.21 | ) | (0.15 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Redemption Fees | — | — | 3 | 0.02 | — | 3 | — | 3 | — | 3 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net Asset Value, End of Period | $ | 53.16 | $ | 52.55 | $ | 55.50 | $ | 51.63 | $ | 37.47 | $ | 32.65 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total Return | 1.16 | %4 | (1.75 | %) | 7.54 | % | 37.79 | % | 15.40 | % | (11.84 | %) | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (in 000’s) | $ | 62,278 | $ | 64,364 | $ | 74,637 | $ | 67,937 | $ | 52,697 | $ | 52,374 | ||||||||||||
Ratio of expenses to average net assets | 0.97 | %5 | 1.04 | % | 1.05 | % | 1.16 | % | 1.21 | % | 1.18 | % | ||||||||||||
Ratio of net expenses to average net assets | 0.95 | %5 | 1.04 | % | 1.05 | % | 1.16 | % | 1.21 | % | 1.18 | % | ||||||||||||
Ratio of net investment income (loss) to average net assets | 0.14 | %5 | 0.26 | % | 0.03 | % | (0.02 | %) | 0.54 | % | 0.36 | % | ||||||||||||
Portfolio turnover rate | 8.31 | %4 | 19.28 | % | 55.45 | % | 24.21 | % | 63.11 | % | 33.56 | % | ||||||||||||
| * | Unaudited |
| 1 | Each of the Stratton Small Cap Value Fund, the Stratton Mid Cap Value Fund, and the Stratton Real Estate Fund (collectively, the “Predecessor Funds”) transferred its assets and liabilities to, Sterling Capital Stratton Small Cap Value Fund, Sterling Capital Stratton Mid Cap Value Fund and Sterling Capital Stratton Real Estate Fund, respectively (collectively, the “Fund Mergers”) at the close of business on November 13, 2015. Because the Funds had no investment operations prior to the closing of the Fund Mergers, and based on the similarity of the Funds to the Predecessor Funds, each Predecessor Fund is treated as the survivor of the relevant Fund Merger for accounting and performance reporting purposes. |
| 2 | Calculated based on the average number of shares outstanding during the period. |
| 3 | Amount represents less than $0.01 per share. |
| 4 | Not Annualized |
| 5 | Annualized |
See accompanying Notes to Financial Statements.
30
FINANCIAL HIGHLIGHTS
Sterling Capital Stratton Mid Cap Value Fund
The table below sets forth financial data for a share of capital stock outstanding throughout each period presented.
| Class A Shares | Class C Shares | |||||||||||||||
| 6 Months Ended 6/30/16* | Period Ended 12/31/151 | 6 Months Ended 6/30/16* | Period Ended 12/31/151 | |||||||||||||
Net Asset Value, Beginning of Period | $ | 52.55 | $ | 53.97 | $ | 52.54 | $ | 53.97 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income | (0.02 | )2 | 0.05 | 2 | (0.22 | )2 | — | 2 | ||||||||
Net gains on securities (both realized and unrealized) | 0.57 | 0.44 | 0.57 | 0.45 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total From Investment Operations | 0.55 | 0.49 | 0.35 | 0.45 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Less Distributions | ||||||||||||||||
Dividends (from net investment income) | — | (0.13 | ) | — | (0.10 | ) | ||||||||||
Distributions (from capital gains) | — | (1.78 | ) | — | (1.78 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Distributions | — | (1.91 | ) | — | (1.88 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Asset Value, End of Period | $ | 53.10 | $ | 52.55 | $ | 52.89 | $ | 52.54 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total Return | 1.04 | %3 | 1.00 | %3 | 0.67 | %3 | 0.91 | %3 | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period (in 000’s) | $ | 18 | $ | 1 | $ | 1 | $ | 1 | ||||||||
Ratio of expenses to average net assets | 1.22 | %4 | 0.91 | %4 | 1.94 | %4 | 1.64 | %4 | ||||||||
Ratio of net expenses to average net assets | 1.20 | %4 | 0.91 | %4 | 1.94 | %4 | 1.64 | %4 | ||||||||
Ratio of net investment income (loss) to average net assets | (0.09 | %)4 | 0.72 | %4 | (0.86 | %)4 | (0.01 | %)4 | ||||||||
Portfolio turnover rate | 8.31 | %3 | 19.28 | % | 8.31 | %3 | 19.28 | % | ||||||||
| * | Unaudited |
| 1 | For the period from November 16, 2015 (commencement of operations) to December 31, 2015. |
| 2 | Calculated based on the average number of shares outstanding during the period. |
| 3 | Not Annualized |
| 4 | Annualized |
See accompanying Notes to Financial Statements.
31
FINANCIAL HIGHLIGHTS
Sterling Capital Stratton Real Estate Fund
The table below sets forth financial data for a share of capital stock outstanding throughout each period presented.
| Institutional Shares1 | ||||||||||||||||||||||||
| 6 Months Ended 6/30/16* | Year Ended December 31, | |||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 36.01 | $ | 36.44 | $ | 29.86 | $ | 29.98 | $ | 26.98 | $ | 26.49 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income | 0.62 | 2 | 0.66 | 2 | 0.62 | 2 | 0.49 | 2 | 0.44 | 2 | 0.41 | 2 | ||||||||||||
Net gains (losses) on securities (both realized and unrealized) | 4.44 | (0.04 | ) | 8.47 | 0.21 | 4.50 | 0.99 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total From Investment Operations | 5.06 | 0.62 | 9.09 | 0.70 | 4.94 | 1.40 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less Distributions | ||||||||||||||||||||||||
Dividends (from net investment income) | (0.50 | ) | (0.59 | ) | (0.62 | ) | (0.15 | ) | (0.38 | ) | (0.60 | ) | ||||||||||||
Distributions (from capital gains) | — | (0.47 | ) | (1.89 | ) | (0.67 | ) | (1.56 | ) | (0.31 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total Distributions | (0.50 | ) | (1.06 | ) | (2.51 | ) | (0.82 | ) | (1.94 | ) | (0.91 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Redemption Fees | — | 0.01 | — | 3 | — | 3 | — | 3 | — | 3 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net Asset Value, End of Period | $ | 40.57 | $ | 36.01 | $ | 36.44 | $ | 29.86 | $ | 29.98 | $ | 26.98 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total Return | 14.06 | %4 | 1.85 | % | 30.69 | % | 2.35 | % | 18.61 | % | 5.35 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (in 000’s) | $ | 107,516 | $ | 96,198 | $ | 93,984 | $ | 78,589 | $ | 84,081 | $ | 78,321 | ||||||||||||
Ratio of expenses to average net assets | 0.84 | %5 | 0.89 | % | 0.96 | % | 0.97 | % | 1.01 | % | 1.03 | % | ||||||||||||
Ratio of net expenses to average net assets | 0.83 | %5 | 0.89 | % | 0.96 | % | 0.97 | % | 1.01 | % | 1.03 | % | ||||||||||||
Ratio of net investment income to average net assets | 3.39 | %5 | 1.82 | % | 1.81 | % | 1.55 | % | 1.47 | % | 1.53 | % | ||||||||||||
Portfolio turnover rate | 14.15 | %4 | 15.47 | % | 14.20 | % | 17.75 | % | 27.62 | % | 14.66 | % | ||||||||||||
| * | Unaudited |
| 1 | Each of the Stratton Small Cap Value Fund, the Stratton Mid Cap Value Fund, and the Stratton Real Estate Fund (collectively, the “Predecessor Funds”) transferred its assets and liabilities to, Sterling Capital Stratton Small Cap Value Fund, Sterling Capital Stratton Mid Cap Value Fund and Sterling Capital Stratton Real Estate Fund, respectively (collectively, the “Fund Mergers”) at the close of business on November 13, 2015. Because the Funds had no investment operations prior to the closing of the Fund Mergers, and based on the similarity of the Funds to the Predecessor Funds, each Predecessor Fund is treated as the survivor of the relevant Fund Merger for accounting and performance reporting purposes. |
| 2 | Calculated based on the average number of shares outstanding during the period. |
| 3 | Amount represents less than $0.01 per share. |
| 4 | Not Annualized |
| 5 | Annualized |
See accompanying Notes to Financial Statements.
32
FINANCIAL HIGHLIGHTS
Sterling Capital Stratton Real Estate Fund
The table below sets forth financial data for a share of capital stock outstanding throughout each period presented.
| Class A Shares | Class C Shares | |||||||||||||||
| 6 Months Ended 6/30/16* | Period Ended 12/31/151 | 6 Months Ended 6/30/16* | Period Ended 12/31/151 | |||||||||||||
Net Asset Value, Beginning of Period | $ | 36.00 | $ | 34.90 | $ | 35.97 | $ | 34.90 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income | 0.61 | 2 | 0.15 | 2 | 0.34 | 2 | 0.12 | 2 | ||||||||
Net gains on securities (both realized and unrealized) | 4.40 | 1.42 | 4.51 | 1.42 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total From Investment Operations | 5.01 | 1.57 | 4.85 | 1.54 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Less Distributions | ||||||||||||||||
Dividends (from net investment income) | (0.48 | ) | — | (0.39 | ) | — | ||||||||||
Distributions (from capital gains) | — | (0.47 | ) | — | (0.47 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Distributions | (0.48 | ) | (0.47 | ) | (0.39 | ) | (0.47 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net Asset Value, End of Period | $ | 40.53 | $ | 36.00 | $ | 40.43 | $ | 35.97 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total Return | 13.92 | %3 | 4.54 | %3 | 13.51 | %3 | 4.45 | %3 | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period (in 000’s) | $ | 89 | $ | 1 | $ | 11 | $ | 1 | ||||||||
Ratio of expenses to average net assets | 1.09 | %4 | 0.86 | %4 | 1.83 | %4 | 1.59 | %4 | ||||||||
Ratio of net expenses to average net assets | 1.08 | %4 | 0.86 | %4 | 1.83 | %4 | 1.59 | %4 | ||||||||
Ratio of net investment income to average net assets | 3.27 | %4 | 3.30 | %4 | 1.86 | %4 | 2.57 | %4 | ||||||||
Portfolio turnover rate | 14.15 | %3 | 15.47 | % | 14.15 | %3 | 15.47 | % | ||||||||
* Unaudited
| 1 | For the period from November 16, 2015 (commencement of operations) to December 31, 2015. |
| 2 | Calculated based on the average number of shares outstanding during the period. |
| 3 | Not Annualized |
| 4 | Annualized |
See accompanying Notes to Financial Statements.
33
FINANCIAL HIGHLIGHTS
Sterling Capital Stratton Small Cap Value Fund
The table below sets forth financial data for a share of capital stock outstanding throughout each period presented.
| Institutional Shares1 | ||||||||||||||||||||||||
| 6 Months Ended 6/30/16* | Year Ended December 31, | |||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 69.89 | $ | 74.05 | $ | 73.31 | $ | 55.38 | $ | 49.79 | $ | 49.62 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income (loss) | 0.06 | 2 | 0.07 | 2 | 0.02 | 2 | (0.01 | )2 | 0.07 | 2 | (0.06 | )2 | ||||||||||||
Net gains (losses) on securities (both realized and unrealized) | 3.36 | (3.15 | ) | 2.21 | 21.47 | 7.39 | 0.23 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total From Investment Operations | 3.42 | (3.08 | ) | 2.23 | 21.46 | 7.46 | 0.17 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less Distributions | ||||||||||||||||||||||||
Dividends (from net investment income) | — | (0.08 | ) | (0.02 | ) | — | (0.08 | ) | — | |||||||||||||||
Distributions (from capital gains) | — | (1.00 | ) | (1.48 | ) | (3.53 | ) | (1.79 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total Distributions | — | (1.08 | ) | (1.50 | ) | (3.53 | ) | (1.87 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Redemption Fees | — | — | 3 | 0.01 | — | 3 | — | 3 | — | 3 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net Asset Value, End of Period | $ | 73.31 | $ | 69.89 | $ | 74.05 | $ | 73.31 | $ | 55.38 | $ | 49.79 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total Return | 4.89 | %4 | (4.14 | %) | 3.09 | % | 39.24 | % | 15.10 | % | 0.34 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (in 000’s) | $ | 1,095,391 | $ | 1,156,577 | $ | 1,413,694 | $ | 1,161,329 | $ | 829,725 | $ | 771,646 | ||||||||||||
Ratio of expenses to average net assets | 1.08 | %5 | 1.11 | % | 1.11 | % | 1.15 | % | 1.19 | % | 1.20 | % | ||||||||||||
Ratio of net expenses to average net assets | 1.08 | %5 | 1.11 | % | 1.11 | % | 1.15 | % | 1.19 | % | 1.20 | % | ||||||||||||
Ratio of net investment income (loss) to average net assets | 0.17 | %5 | 0.10 | % | 0.03 | % | (0.02 | %) | 0.12 | % | (0.11 | %) | ||||||||||||
Portfolio turnover rate | 3.29 | %4 | 6.33 | % | 11.15 | % | 9.18 | % | 11.02 | % | 15.58 | % | ||||||||||||
| * | Unaudited |
| 1 | Each of the Stratton Small Cap Value Fund, the Stratton Mid Cap Value Fund, and the Stratton Real Estate Fund (collectively, the “Predecessor Funds”) transferred its assets and liabilities to, Sterling Capital Stratton Small Cap Value Fund, Sterling Capital Stratton Mid Cap Value Fund and Sterling Capital Stratton Real Estate Fund, respectively (collectively, the “Fund Mergers”) at the close of business on November 13, 2015. Because the Funds had no investment operations prior to the closing of the Fund Mergers, and based on the similarity of the Funds to the Predecessor Funds, each Predecessor Fund is treated as the survivor of the relevant Fund Merger for accounting and performance reporting purposes. |
| 2 | Calculated based on the average number of shares outstanding during the period. |
| 3 | Amount represents less than $0.01 per share. |
| 4 | Not Annualized |
| 5 | Annualized |
See accompanying Notes to Financial Statements.
34
FINANCIAL HIGHLIGHTS
Sterling Capital Stratton Small Cap Value Fund
The table below sets forth financial data for a share of capital stock outstanding throughout each period presented.
| Class A Shares | Class C Shares | |||||||||||||||
| 6 Months Ended 6/30/16* | Period Ended 12/31/151 | 6 Months Ended 6/30/16* | Period Ended 12/31/151 | |||||||||||||
Net Asset Value, Beginning of Period | $ | 69.90 | $ | 71.71 | $ | 69.88 | $ | 71.71 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income (loss) | (0.03 | )2 | 0.05 | 2 | (0.32 | )2 | (0.01 | )2 | ||||||||
Net losses on securities (both realized and unrealized) | 3.37 | (0.81 | ) | 3.39 | (0.81 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total From Investment Operations | 3.34 | (0.76 | ) | 3.07 | (0.82 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Less Distributions | ||||||||||||||||
Dividends (from net investment income) | — | (0.05 | ) | — | (0.01 | ) | ||||||||||
Distributions (from capital gains) | — | (1.00 | ) | — | (1.00 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Distributions | — | (1.05 | ) | — | (1.01 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Asset Value, End of Period | $ | 73.24 | $ | 69.90 | $ | 72.95 | $ | 69.88 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total Return | 4.78 | %3 | (1.03 | %)3 | 4.39 | %3 | (1.12 | %)3 | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period (in 000’s) | $ | 71 | $ | 1 | $ | 37 | $ | 1 | ||||||||
Ratio of expenses to average net assets | 1.32 | %4 | 1.33 | %4 | 2.07 | %4 | 2.06 | %4 | ||||||||
Ratio of net expenses to average net assets | 1.32 | %4 | 1.33 | %4 | 2.07 | %4 | 2.06 | %4 | ||||||||
Ratio of net investment income (loss) to average net assets | (0.09 | %)4 | 0.58 | %4 | (0.92 | %)4 | (0.15 | %)4 | ||||||||
Portfolio turnover rate | 3.29 | %3 | 6.33 | % | 3.29 | %3 | 6.33 | % | ||||||||
| * | Unaudited |
| 1 | For the period from November 16, 2015 (commencement of operations) to December 31, 2015. |
| 2 | Calculated based on the average number of shares outstanding during the period. |
| 3 | Not Annualized |
| 4 | Annualized |
See accompanying Notes to Financial Statements.
35
ADDITIONAL INFORMATION
(unaudited)
Disclosure of Fund Expenses
As a shareholder of the Funds, you may incur two types of costs: (1) transaction costs such as sales charges (loads) on purchases and (2) ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
Each example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2016 through June 30, 2016.
Actual Expenses
The first line of each table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the numbers in the first line under the heading entitled “Expenses Paid During Six Month Period Ending 6/30/16” to estimate the expenses you paid on your account during this period.
| Beginning Account Value 1/1/16 | Ending Account Value 6/30/16 | Expenses Paid During Six Month Period Ending 6/30/16* | Annualized Expense Ratio During Six Month Period Ending 6/30/16 | |||||||||||||
Mid Cap Value Fund | ||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,010.40 | $ | 6.00 | 1.20 | % | ||||||||
Class C Shares | $ | 1,000.00 | $ | 1,006.70 | $ | 9.68 | 1.94 | % | ||||||||
Institutional Shares | $ | 1,000.00 | $ | 1,011.60 | $ | 4.75 | 0.95 | % | ||||||||
Real Estate Fund | ||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,139.20 | $ | 5.74 | 1.08 | % | ||||||||
Class C Shares | $ | 1,000.00 | $ | 1,135.10 | $ | 9.71 | 1.83 | % | ||||||||
Institutional Shares | $ | 1,000.00 | $ | 1,140.60 | $ | 4.42 | 0.83 | % | ||||||||
Small Cap Value Fund | ||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,047.80 | $ | 6.72 | 1.32 | % | ||||||||
Class C Shares | $ | 1,000.00 | $ | 1,043.90 | $ | 10.52 | 2.07 | % | ||||||||
Institutional Shares | $ | 1,000.00 | $ | 1,048.90 | $ | 5.50 | 1.08 | % | ||||||||
| * | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
36
ADDITIONAL INFORMATION (continued)
(unaudited)
Hypothetical Example for Comparison Purposes
The second line of each table below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare these 5% hypothetical examples 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, such as redemption fees. Therefore, the hypothetical information 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 1/1/16 | Ending Account Value 6/30/16 | Expenses Paid During Six Month Period Ending 6/30/16* | Annualized Expense Ratio During Six Month Period Ending 6/30/16 | |||||||||||||
Mid Cap Value Fund | ||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,018.90 | $ | 6.02 | 1.20 | % | ||||||||
Class C Shares | $ | 1,000.00 | $ | 1,015.22 | $ | 9.72 | 1.94 | % | ||||||||
Institutional Shares | $ | 1,000.00 | $ | 1,020.14 | $ | 4.77 | 0.95 | % | ||||||||
Real Estate Fund | ||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,019.49 | $ | 5.42 | 1.08 | % | ||||||||
Class C Shares | $ | 1,000.00 | $ | 1,015.76 | $ | 9.17 | 1.83 | % | ||||||||
Institutional Shares | $ | 1,000.00 | $ | 1,020.74 | $ | 4.17 | 0.83 | % | ||||||||
Small Cap Value Fund | ||||||||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,018.30 | $ | 6.62 | 1.32 | % | ||||||||
Class C Shares | $ | 1,000.00 | $ | 1,014.57 | $ | 10.37 | 2.07 | % | ||||||||
Institutional Shares | $ | 1,000.00 | $ | 1,019.49 | $ | 5.42 | 1.08 | % | ||||||||
| * | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
37
OTHER INFORMATION
(unaudited)
Proxy Voting
For free information regarding how the Funds voted proxies during the most recent 12-month period ended June 30, or to obtain a free copy of the Funds’ complete proxy voting policies and procedures, call 1-800-228-1872, or visit the SEC’s website at www.sec.gov.
Availability of Quarterly Portfolio Schedules
Each Fund files a schedule of investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. Each Fund’s Form N-Q is available on the SEC’s website at www.sec.gov. The Forms N-Q also may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
38
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
INVESTMENT ADVISOR
Sterling Capital Management LLC
3605 Glenwood Avenue, Suite 100
Raleigh, NC 27612
DISTRIBUTOR
Sterling Capital Distributors, LLC
400 Berwyn Park
899 Cassatt Road
Berwyn, PA 19312
LEGAL COUNSEL
Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, MA 02199
TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
1601 Market Street
Philadelphia, PA 19103
SC Funds
06/16
STERLING CAPITAL FUNDS
©2016 Sterling Capital Funds
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
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, 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) | Not applicable. |
| (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. |
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 Funds |
By (Signature and Title) | /s/ James T. Gillespie | |||
James T. Gillespie, President | ||||
(principal executive officer) | ||||
Date | 8/26/2016 | |||
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 | 8/26/2016 | |||
By (Signature and Title) | /s/ Todd M. Miller | |||
Todd M. Miller, Treasurer | ||||
(principal financial officer) | ||||
Date | 8/26/2016 | |||