N-Q 1 dnq.htm dnq.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-22394

CHOU AMERICA MUTUAL FUNDS
Three Canal Plaza, Suite 600
Portland, Maine 04101

Michael J. McKeen, Principal Financial Officer
Three Canal Plaza, Suite 600
Portland, Maine 04101
207-347-2000

Francine J. Rosenberger, Esq.
K&L Gates LLP
1601 K Street, N.W.
Washington, D.C. 20006-1600


Date of fiscal year end: December 31

Date of reporting period: July 1, 2011 – September 30, 2011

 
 
 
 


Item 1.  Schedule of Investments.


         
CHOU EQUITY OPPORTUNITY FUND
 
SCHEDULE OF INVESTMENTS
   
SEPTEMBER 30, 2011 (Unaudited)
 
         
 
 
   
Security
             
 
Shares
 
Description
         
Value
 
Common Stock - 73.9%
               
Communications - 21.1%
               
 
515,726
 
Overstock.com, Inc. (a)
       
$
4,780,780
 
 
210,900
 
Sprint Nextel Corp. (a)
         
641,136
 
 
2,880,000
 
UTStarcom Holdings Corp. (a)
         
2,937,600
 
                 
8,359,516
 
Consumer Discretionary - 23.9%
               
 
200,000
 
Aeropostale, Inc. (a)
         
2,162,000
 
 
954,800
 
Office Depot, Inc. (a)
         
1,966,888
 
 
66,000
 
RadioShack Corp.
         
766,920
 
 
36,112
 
Ryanair Holdings PLC, ADR (a)
         
929,884
 
 
31,000
 
Sears Holdings Corp. (a)
         
1,783,120
 
 
116,100
 
The Gap, Inc.
         
1,885,464
 
                 
9,494,276
 
Consumer Staples - 1.4%
               
 
209,310
 
Alliance One International, Inc. (a)
         
510,717
 
 
4,200
 
MannKind Corp. (a)
         
15,918
 
 
20,000
 
Village Farms International, Inc. (a)
         
23,666
 
                 
550,301
 
Financials - 22.7%
               
 
120,200
 
Asta Funding, Inc.
         
974,822
 
 
18
 
Berkshire Hathaway, Inc., Class A (a)
         
1,922,400
 
 
70,000
 
Citigroup, Inc.
         
1,793,400
 
 
80,300
 
Flagstone Reinsurance Holdings SA
         
622,325
 
 
300,000
 
MBIA, Inc. (a)
         
2,181,000
 
 
16,000
 
The Goldman Sachs Group, Inc.
         
1,512,800
 
                 
9,006,747
 
Information Technology - 0.1%
               
 
3,200
 
Dell, Inc. (a)
         
45,280
 
Materials - 4.7%
               
 
124,000
 
AbitibiBowater, Inc. (a)
         
1,860,000
 
Total Common Stock
               
(Cost $35,064,876)
           
29,316,120
 
                     
     
Security
             
 
Principal
 
Description
 
Rate
 
Maturity
 
Value
 
Corporate Convertible Bonds - 4.4%
             
Consumer Staples - 4.4%
               
$
3,100,000
 
MannKind Corp.
 
           3.75
%
12/15/13
 
1,774,750
 
Total Corporate Convertible Bonds
             
(Cost $1,666,444)
           
1,774,750
 
                     
     
Security
             
 
Shares
 
Description
         
Value
 
Warrants - 5.2%
               
 
286,000
 
Bank of America Corp. (a)
         
775,060
 
 
95,386
 
JPMorgan Chase & Co. (a)
         
888,043
 
 
51,000
 
Wells Fargo & Co. (a)
         
393,210
 
Total Warrants
               
(Cost $3,005,921)
           
2,056,313
 
Total Investments in Securities - 83.5%
             
(Cost $39,737,241)*
         
$
33,147,183
 
Other Assets & Liabilities, Net – 16.5%
         
6,528,982
 
Net Assets – 100.0%
         
$
39,676,165
 
                     



ADR 
American Depository Receipt
PLC 
Public Limited Company
(a) 
Non-income producing security.
 
 
*Cost for federal income tax purposes is substantially the same as for financial statement purposes and net unrealized depreciation consists of:
 

Gross Unrealized Appreciation
$
651,954
   
Gross Unrealized Depreciation
 
(7,242,012
)
 
Net Unrealized Depreciation
$
(6,590,058
)
 
             


The Fund has a three-tier fair value hierarchy. The basis of the tiers is dependent upon the various “inputs” used to determine the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:
 
Level 1 – quoted prices in active markets for identical assets
 
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
 
Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
 
 
The following is a summary of the inputs used to value the Fund’s investments as of September 30, 2011.
 

           
Valuation Inputs
   
Investments in Securities
   
Level 1 - Quoted Prices
$
31,372,433
   
Level 2 - Other Significant Observable Inputs
1,774,750
   
Level 3 - Significant Unobservable Inputs
   
-
   
Total
 
$
33,147,183
   
           


The Level 1 inputs displayed in this table are Common Stock and Warrants. The Level 2 input displayed is a Corporate Convertible Bond. Refer to the Schedule of Investments for a further breakout of each security by type.
 
THE PORTFOLIO OF INVESTMENTS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS WHICH ARE INCLUDED IN THE FUND’S AUDITED ANNUAL REPORT OR SEMI-ANNUAL REPORT. THESE REPORTS INCLUDE ADDITIONAL INFORMATION ABOUT THE FUND’S SECURITY VALUATION POLICIES AND ABOUT CERTAIN SECURITY TYPES INVESTED BY THE FUND.
 

 
 
 
 

         
CHOU INCOME OPPORTUNITY FUND
 
SCHEDULE OF INVESTMENTS
   
SEPTEMBER 30, 2011 (Unaudited)
 
         
 
                     
 
   
Security
             
 
Shares
 
Description
         
Value
 
Equity Securities - 2.6%
               
Common Stock - 2.6%
               
Energy - 2.6%
               
 
22,365
 
Compton Petroleum Corp. (a)
       
$
133,627
 
Materials - 0.0%
               
 
49
 
AbitibiBowater, Inc. (a)
         
735
 
Total Common Stock
               
(Cost $252,220)
           
134,362
 
Total Equity Securities
               
(Cost $252,220)
           
134,362
 
                     
 
Principal
 
Description
 
 Rate
 
Maturity
 
Value
 
Fixed Income Securities - 85.2%
               
Corporate Convertible Bonds - 36.8%
             
Communications - 0.8%
               
$
30,000
 
Level 3 Communications, Inc.
 
6.50
%
10/01/16
 
42,750
 
Consumer Staples - 23.8%
               
 
2,137,000
 
MannKind Corp.
 
3.75
 
12/15/13
 
1,223,433
 
Financials - 8.1%
               
 
1,000,000
 
CompuCredit Holdings Corp.
 
5.88
 
11/30/35
 
413,750
 
Materials - 4.1%
               
 
400,000
 
USEC, Inc.
 
5.00
 
10/01/14
 
211,000
 
Total Corporate Convertible Bonds
               
(Cost $2,137,964)
           
1,890,933
 
                     
Corporate Non-Convertible Bonds - 14.3%
             
Communications - 13.0%
               
 
40,000
 
Dex One Corp.
 
12.00
 
01/29/17
 
8,600
 
 
220,000
 
Level 3 Communications, Inc. (b)
 
11.88
 
02/01/19
 
210,100
 
 
300,000
 
Media General, Inc.
 
11.75
 
02/15/17
 
238,500
 
 
270,320
 
Morris Publishing Group, LLC
 
10.00
 
09/01/14
 
208,146
 
                 
665,346
 
Materials - 1.3%
               
 
267,000
 
Abitibi Consolidated, Inc. (Escrow Shares) (c)
0.00
 
12/23/49
 
1,335
 
 
170,000
 
Abitibi Consolidated, Inc. (Escrow Shares) (c)
0.00
 
12/23/49
 
850
 
 
100,000
 
Catalyst Paper Corp. (b)
 
11.00
 
12/15/16
 
65,500
 
                 
67,685
 
Total Corporate Non-Convertible Bonds
             
(Cost $875,950)
           
733,031
 
                     
Foreign Government Bonds - 5.2%
             
 
600,000
 
Hellenic Republic Government Bond
 
4.60
 
09/20/40
 
266,878
 
Total Foreign Government Bonds
               
(Cost $260,513)
           
266,878
 
                     
Syndicated Loans - 15.3%
               
 
1,715,251
 
RH Donnelley, Inc. (d)
 
9.00
 
10/24/14
 
787,180
 
Total Syndicated Loans
               
(Cost $1,423,373)
             
787,180
 
                     
U.S. Government & Agency Obligations - 13.6%
             
U.S. Treasury Securities - 13.6%
             
 
700,000
 
U.S. Treasury Bill (e)
 
0.00
 
11/17/11
 
699,999
 
Total U.S. Government & Agency Obligations
             
(Cost $699,999)
           
699,999
 
Total Fixed Income Securities
               
(Cost $5,397,799)
           
4,378,021
 
Total Investments in Securities - 87.8%
             
(Cost $5,650,019)*
         
$
4,512,383
 
Other Assets & Liabilities, Net – 12.2%
         
624,600
 
Net Assets – 100.0%
            $
5,136,983
 
                     
 
LLC 
Limited Liability Company
(a)
Non-income producing security.
(b)
Security exempt from registration under Rule 144A under the Securities Act of 1933. At the period end, the value of these securities amounted to $275,600 or 5.4% of net assets.
(c)
Security fair valued in accordance with procedures adopted by the Board of Trustees. At the period end, the value of these securities amounted to $2,185 or 0.0% of net assets.
(d)
Variable rate security. Rate presented is as of September 30, 2011.
(e)
Rate presented is yield to maturity.


 
*Cost for federal income tax purposes is substantially the same as for financial statement purposes and net unrealized depreciation consists of:
 
Gross Unrealized Appreciation
$
22,293
   
Gross Unrealized Depreciation
 
(1,159,929
)
 
Net Unrealized Depreciation
$
(1,137,636
)
 
             


The Fund has a three-tier fair value hierarchy. The basis of the tiers is dependent upon the various “inputs” used to determine the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:
 
Level 1 – quoted prices in active markets for identical assets
 
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
 
Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
 
 
The following is a summary of the inputs used to value the Fund’s investments as of September 30, 2011.
 

                           
     
Level 1
   
Level 2
   
Level 3
   
Total
 
Common Stock
                       
   Energy
 
$
133,627
 
$
-
 
$
-
 
$
133,627
 
   Materials
   
735
   
-
   
-
   
735
 
Corporate Convertible Bonds
-
   
1,890,933
   
-
   
1,890,933
 
Corporate Non-Convertible Bonds
-
   
730,846
   
2,185
   
733,031
 
Foreign Government Bonds
-
   
266,878
   
-
   
266,878
 
Syndicated Loans
 
-
   
787,180
   
-
   
787,180
 
U.S. Government & Agency Obligations    
-
   
699,999
   
-
   
699,999
 
Total
 
$
134,362
 
$
4,375,836
 
$
2,185
 
$
4,512,383
 
 
                         


The following is a reconciliation of Level 3 assets (at either the beginning or ending of the period) for which significant unobservable inputs were used to determine fair value.
 
           
   
Corporate Non-Convertible Bonds
 
Balance as of 12/31/10
 
$
6,555
   
Change in Unrealized Appreciation / (Depreciation)
   
(4,370
)
 
Balance as of 09/30/11
 
$
2,185
   
Net change in unrealized appreciation / (depreciation) from 
     investments held as of 09/30/11
 
$
(4,370
)
 
           


THE PORTFOLIO OF INVESTMENTS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS WHICH ARE INCLUDED IN THE FUND’S AUDITED ANNUAL REPORT OR SEMI-ANNUAL REPORT. THESE REPORTS INCLUDE ADDITIONAL INFORMATION ABOUT THE FUND’S SECURITY VALUATION POLICIES AND ABOUT CERTAIN SECURITY TYPES INVESTED BY THE FUND.

 
 
 
 

Item 2.  Controls and Procedures.
(a) The registrant’s Principal Executive and Principal Financial Officers have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) are effective, based on their evaluation of these disclosure controls and procedures required by Rule 30a-3(b) under the Act and Rule 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934 as of a date within 90 days of the filing date of this report.
 
 (b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 3.  Exhibits
Certifications as required by Rule 30a-2(a) under the Act 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.


CHOU AMERICA MUTUAL FUNDS

           
 
By:
 
/s/ Francis S.M. Chou
   
     
Francis S.M. Chou, Principal Executive Officer
           
 
Date:
 
November 3, 2011
   
           


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:
 
/s/ Francis S.M. Chou
   
     
Francis S.M. Chou, Principal Executive Officer
           
 
Date:
 
November 3, 2011
   
           
 
By:
 
/s/ Michael J. McKeen
   
     
Michael J. McKeen, Principal Financial Officer
           
 
Date:
 
November 3, 2011