N-CSR 1 fp0081020-1_ncsr.htm

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)

434 Fayetteville St., Suite 500

 

Raleigh, NC 27601

 

(Address of principal executive offices) (Zip code)

 

James T. Gillespie, President
Sterling Capital Funds
434 Fayetteville St., Suite 500
Raleigh, NC 27601

 

(Name and address of agent for service)

 

Registrant’s telephone number, including area code: (800) 228-1872

 

Date of fiscal year end: September 30

 

Date of reporting period: September 30, 2022

 

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, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

 

 

 

Item 1. Reports to Stockholders.

 

(a)The Report to Shareholders is attached herewith.

 

 

(graphic) 

 

 

Sterling Capital Funds

 

Table of Contents   

 

Letter from the President and the Investment Advisor 1
Fund Summary  
Sterling Capital Behavioral Large Cap Value Equity Fund 2
Sterling Capital Mid Value Fund 4
Sterling Capital Behavioral Small Cap Value Equity Fund 6
Sterling Capital Special Opportunities Fund 8
Sterling Capital Equity Income Fund 10
Sterling Capital Behavioral International Equity Fund 12
Sterling Capital SMID Opportunities Fund 14
Sterling Capital Mid Cap Relative Value Fund 16
Sterling Capital Real Estate Fund 18
Sterling Capital Small Cap Value Fund 20
Sterling Capital Ultra Short Bond Fund 22
Sterling Capital Short Duration Bond Fund 24
Sterling Capital Intermediate U.S. Government Fund 26
Sterling Capital Total Return Bond Fund 28
Sterling Capital Long Duration Corporate Bond Fund 30
Sterling Capital Quality Income Fund 32
Sterling Capital North Carolina Intermediate Tax-Free Fund 34
Sterling Capital South Carolina Intermediate Tax-Free Fund 36
Sterling Capital Virginia Intermediate Tax-Free Fund 38
Sterling Capital West Virginia Intermediate Tax-Free Fund 40
Summary of Portfolio Holdings 42
Expense Example 46
Schedules of Portfolio Investments  
Sterling Capital Behavioral Large Cap Value Equity Fund 52
Sterling Capital Mid Value Fund 55
Sterling Capital Behavioral Small Cap Value Equity Fund 56
Sterling Capital Special Opportunities Fund 60
Sterling Capital Equity Income Fund 61
Sterling Capital Behavioral International Equity Fund 62
Sterling Capital SMID Opportunities Fund 65
Sterling Capital Mid Cap Relative Value Fund 66
Sterling Capital Real Estate Fund 68
Sterling Capital Small Cap Value Fund 69
Sterling Capital Ultra Short Bond Fund 71
Sterling Capital Short Duration Bond Fund 75
Sterling Capital Intermediate U.S. Government Fund 79
Sterling Capital Total Return Bond Fund 82
Sterling Capital Long Duration Corporate Bond Fund 90
Sterling Capital Quality Income Fund 96
Sterling Capital North Carolina Intermediate Tax-Free Fund 101
Sterling Capital South Carolina Intermediate Tax-Free Fund 104
Sterling Capital Virginia Intermediate Tax-Free Fund 106
Sterling Capital West Virginia Intermediate Tax-Free Fund 108
Financial Statements 111
Notes to Financial Statements 163
Report of Independent Registered Public Accounting Firm 189
Other Information 191
Board of Trustees 192
Liquidity Risk Management Program 194
Notice of Privacy Policy & Practices 195

 

 

Letter from the President and the Investment Advisor

 

Dear Shareholders:

 

We are pleased to present this Sterling Capital Funds annual report covering the 12 months from October 1, 2021, to September 30, 2022.

 

Equity markets posted negative returns over the 12-month period under review. Stocks peaked in November 2021 after a robust year, and then declined throughout the balance of the period. A few brief market upswings were not enough to reverse the trend, and markets ended the period with double-digit declines across all cap sizes in both domestic and international markets. The theme for the period was high inflation. Efforts by central banks, particularly the Federal Reserve (the Fed), to bring rising prices back under control was one of the main factors driving both stock and bond prices lower.

 

During the fourth quarter of 2021, equity markets generally posted strong returns despite historically high inflation in the U.S. and tighter Fed policy. U.S. equities outperformed international equities, while large cap stocks generally outperformed their small cap counterparts. Markets began to slide near the end of the year as concerns grew over whether the Fed’s policies could bring inflation under control while still avoiding a recession. Interest rates in the fourth quarter were flat, with the 10-year Treasury yield beginning and ending the quarter at 1.52%. However, the credit spread between corporate bonds and Treasuries widened over the course of the final three months of 2021 as bond markets adjusted to the Fed’s more aggressive tone.

 

The New Year brought fresh concerns about the economy and a new round of market selloffs. Every major segment of the global equity markets we monitor ended the first quarter of 2022 in negative territory as market volatility, fears of persistent high levels of inflation, and a major geopolitical crisis in the form of the Russia/Ukraine conflict weighed on investor confidence. These concerns persisted throughout the second and third quarters of 2022 as investors largely lost their appetite for risk amid persistent inflation and steep rate hikes by the Fed.

 

The Fed raised the federal funds rate—a key short-term interest rate—by 75 basis points in June, which represented the largest rate increase in more than 28 years. It was a larger increase than the financial markets had anticipated. The tone of the Fed’s comments left investors optimistic that a soft economic landing was still possible, however, and so investors regained some of their appetite for risk. Equity markets rebounded strongly, even weathering a second 75-basis point hike in July. But a speech by Fed Chair Jerome Powell on August 25 indicated the Fed expected it

     

would take more time to get inflation back under control and that there would be “some pain to households and businesses” in the meantime. The hawkish tone pushed equity markets lower, and a higher-than-expected inflation reading in mid-September helped maintain the downward pressure through the end of the period. The Fed elected to raise short-term interest rates by another 75 basis points at the end of September—the third major rate increase in four months. The first three quarters of 2022 saw negative declines in both stocks and bonds, leaving investors with few good options for how to weather the uncertainty.

 

Once again, large cap stocks generally outperformed small caps for the first three quarters of 2022, while domestic equity markets were only slightly stronger than international markets over the same time frame. The S&P 500®1 was down 23.9% year-to-date (YTD) through September 30, while the MSCI2 EAFE Large Cap Index declined 27.1%. Among small cap stocks, the Russell 2000®3 fell 25.1%, compared to a 32.1% drop in the MSCI EAFE Small Cap Index. Emerging markets continued to struggle, and the MSCI Emerging Markets Index lost 27.0% over the same timeframe.

 

Bond yields during the first quarter of 2022 reflected the evolving views on higher inflation. The yield curve briefly inverted for the first time since 2019 but ended the quarter nearly flat. Upward pressure on bond yields continued throughout the second and third quarters of 2022, however, pushing the yield curve solidly into inverted territory. Yields on 10-year Treasuries ended the period at 3.8% (up from 1.52% at the start of 2022) while yields on two-year Treasuries ended the period at 4.2% (up from 0.73% at the start of 2022). The surge in interest rates negatively affected bond returns, and the Bloomberg4 U.S. Aggregate Bond Index was down 14.6% YTD through September 30.

 

Domestic macro-economic data told a story of strong economic growth gradually giving way in the face of major economic headwinds—most notably inflation, which reached an annualized rate of 8.5% in March 2022 and remained a stubbornly high 8.2% by September 2022. Gross Domestic Product (GDP) increased at an annualized rate of 6.9% in the final quarter of 2021, only to shift to a decline of 1.6% on an annual basis for the first quarter of 2022, followed by a decline of 0.6% for the second quarter. Despite successive quarters of negative GDP growth, other areas of the economy indicated continued strength, including the employment picture. The monthly unemployment rate continued to reflect strong economic fundamentals, declining from 4.6% in October 2021 to 3.6% in March 2022, after which it remained mostly level, ending at 3.5% in September 2022.

     

The S&P 500 fell 15.47% (total return) during the 12 months under review. Small-cap stocks fared far worse than their large cap counterparts over the same period, with the Russell 2000 losing 23.50% (total return). International markets also declined sharply, with the MSCI EAFE Index down 25.13% (net return) and the MSCI Emerging Markets Index losing 27.80% (net return) for the 12-month period.

 

The Energy sector posted the strongest returns among U.S. stocks, even though the sector declined for the period. The bulk of that outperformance came in the first quarter of 2022, with Energy stocks gaining 39.0% compared to a 4.6% decline for the S&P 500. The quarterly gain was driven by rising demand for energy as economic activity resumed post pandemic, and by the spike in oil prices triggered by the Russia/Ukraine conflict. Energy remained within the top three performing sectors across the rest of the period. By comparison, the Communications Services sector strongly underperformed the broader markets, remaining one of the bottom two performing sectors with double-digit declines in each of the final three quarters of the period.

 

We will continue to monitor the evolving economic and market climate and will manage the Sterling Capital Funds accordingly. Thank you for your confidence in Sterling Capital Management. We look forward to serving your investment needs during the months and years ahead.

 

If you have any questions, please call us at 1-800-228-1872.

 

Sincerely,  

 

(graphic) 

 

James T. Gillespie  

President  

Sterling Capital Funds  

 

(graphic)

 

Jeffrey J. Schappe, CFA  

Managing Director  

Sterling Capital Management LLC  



 

1“S&P 500®” is a registered service mark of Standard & Poor’s Corporation, which does not sponsor and is in no way affiliated with the Sterling Capital Funds. The S&P 500® Index is generally considered to be representative of the performance of the stock market as a whole. The index does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. A Fund’s performance reflects the deduction of fees for these services. Investors cannot invest directly in an index, although they can invest in its underlying securities.

2The MSCI Inc. is an American financial company headquartered in New York, NY, and serves as a global provider of equity and other market indices. The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

3The “Russell 2000®” is a registered service mark of FTSE Russell, which does not sponsor and is in no way affiliated with the Sterling Capital Funds. The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000® Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set.

4“Bloomberg®” and the Bloomberg indices are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”), which does not sponsor and is in no way affiliated with the Sterling Capital Funds. The Bloomberg U.S. Aggregate Bond Index is an unmanaged index composed of securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. It is not possible to invest in the Bloomberg U.S. Aggregate Bond Index, which is unmanaged and does not incur fees and charges.

 

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, Truist Financial Corporation 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 Truist Financial Corporation 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.

1

 

Sterling Capital Behavioral Large Cap Value Equity Fund

 

Portfolio Managers

 

Sterling Capital Behavioral Large Cap Value Equity Fund (the “Fund”) is managed by Portfolio Managers Robert W. Bridges, CFA, Senior Managing Director, and Robert O. Weller, CFA, Executive Director, for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Robert W. Bridges, CFA

 

Robert W. Bridges, CFA, Senior Managing Director, CIO and Head of Equity, joined Sterling Capital in 1996 and has investment experience since 1991. He has been co-portfolio manager of the Behavioral Large Cap Value Equity Fund since August 2013. Bob is a graduate of Wake Forest University, where he received a B.S. in Business. He holds the Chartered Financial Analyst designation.

 

Robert O. Weller, CFA

 

Robert O. Weller, CFA, Executive Director, joined Sterling Capital in 2012 and has investment experience since 1996. He has been co-portfolio manager of the Behavioral Large Cap Value Equity Fund since August 2013. Rob is a graduate of Loyola University Maryland, where he received a B.B.A. in Finance. He holds the Chartered Financial Analyst designation.

 

Investment Considerations

 

The overall results of the Fund will be dependent on the process and ability of the Adviser to apply “behavioral finance” principles to recognize a company’s value, earnings revisions and price momentum. The Fund may invest in undervalued securities which may not appreciate in value as anticipated or remain undervalued for longer than anticipated. The overall results of the Fund will be dependent on the process and ability of the Adviser to recognize a company’s value. The Fund may invest in REITs (Real Estate Investment Trusts), the value of which will be affected by conditions of the real estate industry. The Fund may also invest in exchange-traded funds (ETFs); thus shareholders may bear additional costs and the ETF may not exactly replicate the performance it seeks to track.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares outperformed its current benchmark, the Russell 1000® Value Index.

 

Q. What factors affected the Fund’s performance?

 

A. Equities struggled during the period under review, including U.S. large-cap stocks. March 2022 saw the first of a series of short-term interest rate hikes by the Federal Reserve (Fed), in response to persistently high inflation. The Fed’s actions pushed long-term interest rates to their highest levels in 20 years, raising concerns among investors about an economic slowdown and the potential for a recession. Investors responded to the Feds moves by adopting a risk-off attitude, which led to significant volatility in equity markets. Within this context, large-cap value equities outperformed their growth counterparts for the period, marking two consecutive years of outperformance. The Fund’s absolute returns benefited from its strong exposure to value-oriented stocks.

 

The Fund applies principles of behavioral finance to its investment strategy. This process is designed to capitalize on known investor biases

and heuristics (mental shortcuts) by accounting for the impact on markets of behavioral factors such as greed, fear, and ego.

 

The Fund’s positive performance relative to its benchmark was primarily driven by a higher exposure to value compared to its benchmark. This focus on value beyond that of the value-based benchmark is a feature of its behavioral finance-based strategy. The Fund’s momentum strategy also boosted relative returns.

 

Stock selection within Financials were the primary detractor from the Fund’s relative returns. Diversified financials, in particular, harmed the Fund’s return relative to its benchmark.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

Russell 1000® Value Index measures the performance of value style of investing in Large Cap U.S. stocks. The Russell 1000® Value Index contains those Russell 1000 securities with less-than-average growth orientation. Securities in the Russell 1000® Value Index generally have lower price-to-book and price-to-earnings ratios than those in the Russell 2000® Growth Index.



 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

2

 

 (graphic)

 

Average Annual Total Returns      
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 10/9/92 -15.02% 2.84% 7.09%
Class C Shares** 2/1/01 -10.50% 3.30% 6.94%
Institutional Shares 10/9/92 -9.62% 4.32% 7.99%
Class R6 Shares 2/1/181 -9.48% 4.39% 8.03%
Russell 1000® Value Index N/A -11.36% 5.29% 9.17%
Bloomberg U.S. 1000 Value N/A -8.23% 5.95% 9.67%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark.

 

*Reflects 5.75% maximum sales charge.

**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).

1Class R6 Shares were not in existence prior to 2/1/18. Performance for periods prior to 2/1/18 is based on the performance of Institutional Shares.

 

The Russell 1000® Value Index is a widely recognized index of common stocks that measures the performance of the large-cap value sector of the U.S. equity market. The index is unmanaged and does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

 

The Bloomberg US 1000 Value Index provides exposure to companies with superior value factor scores based on their earnings yield, valuation, dividend yield, and growth.

3

 

Sterling Capital Mid Value Fund

 

Portfolio Managers

 

Sterling Capital Mid Value Fund (the “Fund”) is managed by Portfolio Managers Patrick W. Rau, CFA, Managing Director, William C. Smith, CFA, Executive Director and Lee D. Houser, CFA, Executive Director for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Patrick W. Rau, CFA

 

Patrick W. Rau, CFA, Managing Director, joined Sterling Capital Management in 2001 and has investment experience since 1993. Patrick has been co-portfolio manager of Mid Value Fund since August 2021. Patrick received his A.B. in Political Science from Duke University and his MBA from Vanderbilt University. He holds the Chartered Financial Analyst designation.

 

William C. Smith, CFA

 

William C. Smith, CFA, Executive Director, joined Sterling Capital Management in 2015 and has investment experience since 2002. Will has been co-portfolio manager of the Mid Value Fund since August 2021 and served as associate portfolio manager of the Fund from February 2021 to August 2021. Will received his B.E. in Structural Engineering from Vanderbilt University and his MBA from the London Business School. He holds the Chartered Financial Analyst designation.

 

Lee D. Houser, CFA

 

Lee D. Houser, CFA, Executive Director, joined Sterling Capital Management in 2006 and has investment experience since 1999. Lee has been associate portfolio manager of the Mid Value Fund since February 2021. Lee received his B.S. in Mathematics and Economics from James Madison University, where he was a summa cum laude graduate, and his MBA from Duke University. He holds the Chartered Financial Analyst designation.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares underperformed its current benchmark, the Russell Midcap® Value Index.

 

Q. What factors affected the Fund’s performance?

 

A. U.S. equity markets tumbled during the latter half of the period in response to higher and unexpectedly persistent inflation. Intra-quarter volatility and a weakening economy were primary concerns during the period.

 

Favorable stock selection in the Health Care, Materials and Financials sectors as well as an overweight to Health Care contributed to the Fund’s relative performance. An underweight to the strong-performing

Energy sector detracted performance. Adverse stock selection within the Consumer Discretionary and Information Technology sectors and an overweight to Consumer Discretionary also hindered relative performance.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

Russell Midcap® Value Index measures the performance of value style of investing in Mid Cap U.S. stocks. The Russell Midcap® Value Index contains those Russell Mid Cap securities with less-than-average growth orientation. Securities in the Russell Midcap® Value Index generally have lower price-to-book and price-to-earnings ratios than those in the Russell Midcap® Growth Index.



Portfolio composition is as of September 30, 2022 and is subject to change and risk.

4

 

(graphic) 

 

Average Annual Total Returns      
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 8/1/96 -22.22% 1.70% 7.45%
Class C Shares** 7/25/01 -18.06% 2.15% 7.29%
Institutional Shares 8/1/96 -17.30% 3.18% 8.36%
Class R6 Shares 2/1/181 -17.18% 3.25% 8.40%
Russell Midcap® Value Index N/A -13.56% 4.76% 9.44%
Bloomberg U.S. Mid Cap Value N/A -10.14% 5.98% 10.41%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark.

 

*Reflects 5.75% maximum sales charge.

**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).

1Class R6 Shares were not in existence prior to 2/1/18. Performance for periods prior to 2/1/18 is based on the performance of Institutional Shares.

 

The Fund is measured against the Russell Midcap® Value Index, an unmanaged index, which 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. The index is unmanaged and does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

 

The Bloomberg US Mid Cap Value Index is a float market-cap-weighted index based on an equal-weighted combination of four factors:

earnings yield, valuation, dividend yield, and growth.

5

 

Sterling Capital Behavioral Small Cap Value Equity Fund

 

Portfolio Managers

 

Sterling Capital Behavioral Small Cap Value Equity Fund (the “Fund”) is managed by Portfolio Managers Robert W. Bridges, CFA, Senior Managing Director, and Robert O. Weller, CFA, Executive Director, for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Robert W. Bridges, CFA

 

Robert W. Bridges, CFA, Senior Managing Director, CIO and Head of Equity, joined Sterling Capital in 1996 and has investment experience since 1991. He has been co-portfolio manager of the Behavioral Small Cap Value Equity Fund since June 2013. Bob is a graduate of Wake Forest University, where he received a B.S. in Business. He holds the Chartered Financial Analyst designation.

 

Robert O. Weller, CFA

 

Robert O. Weller, CFA, Executive Director, joined Sterling Capital in 2012 and has investment experience since 1996. He has been co-portfolio manager of the Behavioral Small Cap Value Equity Fund since June 2013. Rob is a graduate of Loyola University Maryland, where he received a B.B.A. in Finance. He holds the Chartered Financial Analyst designation.

 

Investment Considerations

 

The overall results of the Fund will be dependent on the process and ability of the Adviser to apply “behavioral finance” principles to recognize a company’s value, earnings revisions and price momentum. The Fund may invest in undervalued securities which may not appreciate in value as anticipated or remain undervalued for longer than anticipated. Investments made in small to mid-capitalization companies are subject to greater risks than large company stocks due to limited resources and inventory as well as more sensitive to adverse conditions.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares outperformed its benchmark, the Russell 2000® Value Index.

 

Q. What factors affected the Fund’s performance?

 

A. Small-cap equities struggled in the face of unfavorable economic conditions during the 12-month period under review. Inflation soared throughout the period, leading to a series of hikes in short-term interest rates by the Federal Reserve (Fed), beginning in March and continuing throughout the period. The Fed’s action pushed long-term interest rates to their highest levels in 20 years, raising concerns among investors about an economic slowdown and the potential for a recession. Markets responded by displaying significant volatility. In this challenging environment, the Fund’s absolute returns suffered, as small-cap stocks underperformed their large-cap counterparts. In general, small-cap stocks tend to be more affected by market volatility than larger-cap stocks, since smaller companies typically lack the resources of larger companies. The Fund’s absolute returns were especially hurt by its holdings in Health Care.

The Fund applies principles of behavioral finance to its investment strategy. This process is designed to capitalize on known investor biases and heuristics (mental shortcuts) by accounting for the impact on markets of behavioral factors such as greed, fear, and ego.

 

The Fund’s positive performance relative to its benchmark was primarily driven by a higher exposure to value compared to its benchmark. This focus on value beyond that of the value-based benchmark is a feature of its behavioral finance-based strategy. The Fund’s momentum strategy, focusing on stocks that have recently outperformed the market and exhibit increasing earnings estimates, also contributed to relative returns.

 

Stock selection in the Health Care sector, specifically health care equipment and services, was the primary detractor from relative returns.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

Russell 2000® Value Index measures the performance of value style of investing in small cap U.S. stocks. The Russell 2000® Value Index contains those Russell 2000 securities with less-than-average growth orientation. Securities in the Russell 2000® Value Index generally have lower price-to-book and price-to-earnings ratios than those in the Russell 2000® Growth Index.



Portfolio composition is as of September 30, 2022 and is subject to change and risk.

6

 

(graphic)

 

Average Annual Total Returns      
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 1/29/10    -18.46% 1.07% 7.07%
Class C Shares** 1/29/10 -14.19% 1.50% 6.89%
Institutional Shares 1/2/97 -13.35% 2.53% 7.96%
Class R6 Shares 2/1/181 -13.29% 2.59% 8.00%
Russell 2000® Value Index N/A -17.69% 2.87% 7.94%
Bloomberg U.S. 2000 Value N/A -17.07% 3.66% 9.01%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com. Performance would have been lower without waivers in effect.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark.

 

*Reflects 5.75% maximum sales charge.

**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).

1Class R6 Shares were not in existence prior to 2/1/18. Performance for periods prior to 2/1/18 is based on the performance of Institutional Shares.

 

The Russell 2000® Value Index is a widely recognized index of common stocks that measures the performance of the small-cap value sector of the U.S. equity market. The index is unmanaged and does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

 

The Bloomberg US 2000 Value Index is a float market-cap-weighted benchmark of the lower 2000 in capitalization of the Bloomberg U.S. 3000 Index that provides exposure to companies with superior value factor scores based on their earnings yield, valuation, dividend yield, and growth.

7

 

Sterling Capital Special Opportunities Fund

 

Portfolio Managers

 

Sterling Capital Special Opportunities Fund (the “Fund”) is managed by Portfolio Managers Joshua L. Haggerty, CFA, Executive Director and Daniel A. Morrall, Executive Director for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Joshua L. Haggerty, CFA

 

Joshua L. Haggerty, CFA, Executive Director, joined the CHOICE Asset Management team of BB&T Scott & Stringfellow in 2005, which integrated with Sterling Capital in January 2013. He has investment experience since 1998. He has been co-portfolio manager of the Special Opportunities Fund since July 2021 and was associate portfolio manager of the Fund from February 2016 to July 2021. Josh is a graduate of James Madison University where he received his B.B.A. in Finance. He holds the Chartered Financial Analyst designation.

 

Daniel A. Morrall

 

Daniel A. Morrall, Executive Director, joined Sterling Capital Management in 2014 and has investment experience since 2001. Dan has been co-portfolio manager of the Special Opportunities Fund since December 2021 and was associate portfolio manager of the Fund from July 2021 to December 2021. Dan received his B.S. in Business and Economics from Washington and Lee University, his MBA from Columbia Business School, and his M.S.I.T. from Capella University.

 

Investment Considerations

 

The overall results of the Fund will be dependent on the process and ability of the Adviser to apply “behavioral finance” principles to recognize a company’s value, earnings revisions and price momentum. The Fund may invest in undervalued securities which may not appreciate in value as anticipated or remain undervalued for longer than anticipated. The overall results of the Fund will be dependent on the process and ability of the Adviser to recognize a company’s value. The Fund may invest in REITs (Real Estate Investment Trusts), the value of which will be affected by conditions of the real estate industry. The Fund may also invest in exchange-traded funds (ETFs); thus shareholders may bear additional costs and the ETF may not exactly replicate the performance it seeks to track.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional shares slightly trailed its benchmark, the Russell 3000® Index.

 

Q. What factors affected the Fund’s performance?

 

A. The Russell 3000® Index fell -17.6% over the 12-month period. Record high inflation led the Federal Reserve to raise rates multiple times, which took a toll on equity multiples. From an economic standpoint, GDP contracted in the first and second quarters of 2022. On the geopolitical front, Russia invaded Ukraine, China reinstated COVID-19 lockdowns and Europe scrambled to secure natural gas ahead of the winter season. These factors impacted areas of the market differently, with defensive sectors performing better and higher multiple and more speculative stocks falling most.

 

The Fund’s biggest headwind was its lack of exposure to more defensive sectors such as consumer staples and utilities. Our zero weighting in these two sectors was a combined 137 basis point (bp) headwind over the 12-month period. Add in a zero weight in Energy and the headwind increases to 304 bps. We are bottoms-up, fundamental stock pickers, not top-down allocators. Therefore, it’s encouraging that our stock selection added 206 bps of relative performance during the fiscal year. For example, within the communications services sector our stock selection added 150 bps of relative performance, led by T-Mobile’s 18.9% return during our holding period. At the same time, our overweight in the sector, which fell 39.4% (based on the Russell 3000 communication services sector’s performance), cost the fund 95 bps of relative performance.

 

Our rationale for not owning a utility or a consumer staple stemmed from the lack of growth opportunities and elevated valuations, yet we continued to research companies in those areas to be ready when an opportunity presents itself. Meanwhile, we’ve found more attractive stocks in the healthcare sector, where our overweight added 98 bps of relative performance and our stock selection added an additional 144 bps. At the end of the fiscal year, both the utilities and staples sectors traded above their 20-year average on forward price-to-earnings, while healthcare remained slightly below, continuing to support our relative exposures.

 

The largest individual stock contributors to the portfolio were: 1) UnitedHealth Group (+31%), the largest managed-care operator in the U.S., which delivered a

series of strong quarterly reports and raised its 2022 outlook; 2) Pharmaceutical drug developer Bristol Myers (+23%), which rallied as it made progress in advancing its large pipeline of drugs, including the recent FDA approval of Deucravacitinib for moderate to severe psoriasis; 3) auto parts retailer AutoZone (+26%) executed well on its growth ambitions in the do-it-for-me (DIFM) category (commercial repair garages), a $76 billion addressable market. AutoZone has delivered six consecutive quarters of DIFM same-store sales above 20%, resulting in meaningful share gains.

 

The biggest individual stock detractors from the portfolio were: 1) Cable operator Comcast (-46%), which reported decelerating growth in net new broadband subscribers at the same time competition ramped up from wireless and telecom providers; 2) Alphabet (-28%) slumped, as advertising revenue growth slowed and YouTube advertising revenues declined year-over-year in the September quarter; 3) beverage can maker Ball Corporation (-46%), typically a defensive business, was impacted by its decision to exit Russia, where its three facilities delivered 8% of annual operating income, and meaningful price increases by beverage companies that resulted in a steep slowdown in beverage consumption and therefore fewer cans.

 

The portfolio ended the fiscal year positioned well relative to our four investment pillars, with the median holding expected to grow faster than the median Russell 3000 constituent, generating higher returns on equity, with lower leverage and at a cheaper valuation.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

Russell 3000® Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000® Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are included.

 

We believe our team’s relentless focus on time-tested “pillars” such as return on capital, financial flexibility, above average earnings growth, and favorable valuations will continue to serve investors well as navigation instruments that cut through fog of uncertainty in the years ahead. We will continue to be eager, disciplined, and centered on client success. Thank you for your ongoing confidence in us.



Portfolio composition is as of September 30, 2022 and is subject to change and risk.

8

 

 (graphic)

 

Average Annual Total Returns      
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 6/2/03 -23.57% 5.58% 9.75%
Class C Shares** 6/2/03 -19.53% 6.04% 9.58%
Institutional Shares 6/2/03 -18.74% 7.11% 10.68%
Class R6 Shares 2/1/181 -18.66% 7.19% 10.72%
Russell 3000® Index N/A -17.63% 8.62% 11.39%
Bloomberg U.S. 3000 N/A -18.08% 8.59% 11.36%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark.

 

*Reflects 5.75% maximum sales charge.

**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).

1Class R6 Shares were not in existence prior to 2/1/18. Performance for periods prior to 2/1/18 is based on the performance of Institutional Shares.

 

The Fund is measured against the Russell 3000® Index, an unmanaged index that is generally considered to be representative of the performance of the stock market as a whole. The index does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

 

The Bloomberg US 3000 Index is a float market-cap-weighted benchmark of the 3000 most highly capitalized U.S. companies.

9

 

Sterling Capital Equity Income Fund

 

Portfolio Managers*

 

Sterling Capital Equity Income Fund (the “Fund”) is managed by Portfolio Managers Adam B. Bergman, CFA, Executive Director and Charles J. Wittmann, CFA, Executive Director for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Adam B. Bergman, CFA

 

Adam B. Bergman, CFA, Executive Director, joined the CHOICE Asset Management team of Scott & Stringfellow in 2007, which integrated with Sterling Capital Management in January 2013. He has investment experience since 1996. He has been co-portfolio manager of the Equity Income Fund since July 2021 and was associate portfolio manager of the Fund from February 2016 to July 2021. Adam is a graduate of the University of Virginia’s McIntire School of Commerce where he received his B.S. in Commerce. He holds the Chartered Financial Analyst designation.

 

Charles J. Wittmann, CFA

 

Charles J. Wittmann, CFA, Executive Director, joined Sterling Capital Management in 2014 and has investment experience since 1995. He has been co-portfolio manager of the Equity Income Fund since December 2021 and was associate portfolio manager of the Fund from July 2021 to December 2021. Chip received his B.A. in Economics from Davidson College and his MBA from Duke University's Fuqua School of Business. He earned the Certificate in ESG Investing, which is developed, administered and awarded by the CFA Society of the United Kingdom. He holds the Chartered Financial Analyst designation.

 

Investment Considerations

 

The Fund invests primarily in dividend-paying securities. These securities may be undervalued and their value could be negatively affected by a rise in interest rates. The Fund may engage in writing covered call options on securities. By writing covered call options, the Fund limits its opportunity to profit from an increase in the price of the underlying stock above the premium and the strike price, but continues to bear the risk of a decline in the stock price. While the Fund receives premiums for writing covered call options, the price it realizes from the exercise of an option could be substantially below a stock’s current market price.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares outperformed its current benchmark, the Russell 1000® Value Index.

 

Q. What factors affected the Fund’s performance?

 

A. Spurred by inflation that spiked to its highest level since 1981, the Federal Reserve raised the Federal Funds rate to 3.25% from 0.25%, a level where it stood for two years as we exited the COVID-19 crisis. While the consumer price index declined slightly to 8.2% from earlier in the year, the year-over-year change in the rate of inflation remains elevated. With unemployment levels sitting at 3.5%, close to historic lows, it appears the Federal Reserve has continued space to raise short term interest rates in its vigorous efforts to curb inflation. Concerns over higher inflation, higher interest rates, and the resulting impacts to the economy placed pressure on overall equity markets, with investors taking a more risk-adverse stance during the year.

 

The Fund benefited relative to its benchmark, posting a (-5.6%) total return for the Institutional share class relative to the (-11.4%) return for its benchmark. Investors turned to “value” stocks during the year with “value” outperforming “growth” as measured by the Russell Indices by a two to one margin. The focus on valuation and strong balance sheets benefitted our portfolio as those two characteristics represent two of our four investment pillars that have remained constant for over twenty years.

 

Our top contributor over the past year was EOG Resources, which explores and produces crude oil and natural gas primarily in the United States. As the price of crude oil rose from $80 to over $120, EOG Resources shares benefitted with the move in the commodity. Elevance Health, the former Anthem, appreciated as lower medical losses from COVID-19 enabled the company to report higher profitability during the year. In addition, one of our other healthcare stocks, Abbvie, was a strong contributor as growth in its Rivoq and Skyrizi

pharmaceutical franchises offset concerns for slower growth in its Humira pharmaceuticals franchise.

 

Detractors included Fidelity National Information Services that has experienced market share headwinds from recent entrants in the electronic payments market. We believe the continued secular shift from cash and checks to digital payments should benefit Fidelity National. In addition, its diversified business model includes exposure to e-commerce and core banking software that should provide a solid foundation for future growth. Medtronic was another detractor during the year after they experienced headwinds in both their diabetes and infant formula businesses. With a compelling valuation and exposure to robotic surgery opportunities, we continue to maintain a constructive outlook for Medtronic. Finally, Cisco experienced supply chain constraints, primarily from China, limiting its ability to meet demand for its communication infrastructure products. We believe having too much demand relative to meeting supply is a high class problem and that as its supply chain challenges are resolved, the company is in an enviable position to take advantage of the secular growth in data and data management.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000® companies with lower price-to-book ratios and lower expected growth values. The Russell 1000® Value Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment. The index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect value characteristics.

 

*Effective November 8, 2022, Adam B. Bergman no longer serves as co-portfolio manager of the Fund and Jeremy M. Lopez was added as co-portfolio manager of the Fund.



Portfolio composition is as of September 30, 2022 and is subject to change and risk.

10

 

(graphic) 

 

Average Annual Total Returns      
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 6/30/04 -11.26% 8.26% 9.21%
Class C Shares** 6/30/04 -6.57% 8.72% 9.04%
Institutional Shares 6/30/04 -5.64% 9.82% 10.14%
Class R6 Shares 2/1/181 -5.54% 9.92% 10.19%
Russell 1000® Value Index N/A -11.36% 5.29% 9.17%
Bloomberg U.S. 1000 Value N/A -8.23% 5.95% 9.67%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark.

 

*Reflects 5.75% maximum sales charge.

**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).

1Class R6 Shares were not in existence prior to 2/1/18. Performance for periods prior to 2/1/18 is based on the performance of Institutional Shares.

 

The Fund is measured against the Russell 1000® Value Index, an unmanaged index that is generally considered to be representative of the performance of the stock market as a whole. The index does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

 

The Bloomberg US 1000 Value Index provides exposure to companies with superior value factor scores based on their earnings yield, valuation, dividend yield, and growth.

11

 

Sterling Capital Behavioral International Equity Fund

 

Portfolio Managers

 

Sterling Capital Behavioral International Equity Fund (the “Fund”) is managed by Portfolio Managers Robert W. Bridges, CFA, Senior Managing Director, and Robert O. Weller, CFA, Executive Director, for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Robert W. Bridges, CFA

 

Robert W. Bridges, CFA, Senior Managing Director, CIO and Head of Equity, joined Sterling Capital in 1996 and has investment experience since 1991. He has been co-portfolio manager of the Behavioral International Equity Fund since inception. Bob is a graduate of Wake Forest University, where he received a B.S. in Business. He holds the Chartered Financial Analyst designation.

 

Robert O. Weller, CFA

 

Robert O. Weller, CFA, Executive Director, joined Sterling Capital in 2012 and has investment experience since 1996. He has been co-portfolio manager of the Behavioral International Equity Fund since inception. Rob is a graduate of Loyola University Maryland, where he received a B.B.A. in Finance. He holds the Chartered Financial Analyst designation.

 

Investment Considerations

 

The overall results of the Fund will be dependent on the process and ability of the Adviser to apply “behavioral finance” principles to recognize a company’s value, earnings revisions and market momentum. The Fund will invest in foreign securities which may be more volatile and less liquid due to currency fluctuation, political instability, and social and economic risks. The Fund may invest in REITs (Real Estate Investment Trusts), the value of which will be affected by conditions of the real estate industry, and exchange-traded funds (ETFs). Investing in ETFs may cause shareholders to bear additional costs, and an ETF may not exactly replicate the performance it seeks to track.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares outperformed its current benchmark, the MSCI EAFE® Net Index.

 

Q. What factors affected the Fund’s performance?

 

A. International equities struggled over the 12-month period in the face of multiple challenges. Central banks around the world responded to persistently high inflation by raising interest rates and reducing balance sheets. These moves raised investor concerns about slowing economic growth, including the potential for recessions. As a result, investors sold stocks en masse, creating significant volatility in markets worldwide. Geopolitical uncertainty, in particular the ongoing conflict in Ukraine, also contributed to market volatility. In the face of these challenges, international equities fared worse than U.S. equities during the period. However, international value-oriented companies outperformed their growth-oriented counterparts during the period.

 

The Fund applies principles of behavioral finance to its investment strategy. This process is designed to capitalize on known investor biases

and heuristics (mental shortcuts) by accounting for the impact on markets of behavioral factors such as greed, fear and ego.

 

The Fund’s positive performance relative to its benchmark was primarily driven by a higher exposure to value compared to its benchmark. This focus on value beyond that of the value-based benchmark is a feature of its behavioral finance-based strategy. The Fund’s momentum strategy, focusing on stocks that have recently outperformed the market and exhibit increasing earnings estimates, also contributed to relative returns.

 

Stock selection in the Health Care sector was the primary detractor from relative returns. In particular, investments in pharmaceuticals, biotechnology, and life sciences were significant detractors from the Fund’s return relative to its benchmark.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

MSCI EAFE® Net Index measures the performance of the developed stock markets of Europe, Australasia, and the Far East.



Portfolio composition is as of September 30, 2022 and is subject to change and risk.

12

 

 (graphic)

 

Average Annual Total Returns      
As of September 30, 2022 Inception Date 1 Year 5 Years Since Inception
Class A Shares* 11/28/14 -28.76% -6.94% -2.02%
Class C Shares** 11/28/14 -24.92% -6.54% -2.01%
Institutional Shares 11/28/14 -24.27% -5.61% -1.06%
Class R6 Shares 2/1/181 -24.13% -5.55% -1.03%
MSCI EAFE® Net Index 11/30/14 -25.13% -0.84% 1.37%
Bloomberg Developed Markets ex North America Large and Mid Cap 11/28/14 -24.55% 0.29% 1.90%

 

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit ww.sterlingcapitalfunds.com. Performance would have been lower without limitations and/or waivers in effect.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark.

 

*Reflects 5.75% maximum sales charge.

**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).

1Class R6 Shares were not in existence prior to 2/1/18. Performance for periods prior to 2/1/18 is based on the performance of Institutional Shares.

 

Fund is measured against the MSCI EAFE® Net Index, an unmanaged Index which is generally representative of large- and mid-cap equity across developed markets countries around the world, excluding the U.S. and Canada. The index does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

 

The Bloomberg Developed Markets ex North America Large and Mid Cap Index is a float market-cap-weighted equity benchmark that covers 85% market cap of the measured market.

13

 

Sterling Capital SMID Opportunities Fund

 

Portfolio Managers

 

Sterling Capital SMID Opportunities Fund (the “Fund”) is managed by Portfolio Managers Lee D. Houser, CFA, Executive Director and James L. Curtis, CFA, Director for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Lee D. Houser, CFA

 

Lee D. Houser, CFA, Executive Director, joined Sterling Capital Management in 2006 and has investment experience since 1999. Lee has been co-portfolio manager of the SMID Opportunities Fund since August 2021. Lee received his B.S. in Mathematics and Economics from James Madison University, where he was a summa cum laude graduate, and his MBA from Duke University. He holds the Chartered Financial Analyst designation.

 

James L. Curtis, CFA

 

James L. Curtis, CFA, Director, first worked at Sterling Capital Management from 1999 to 2001 and rejoined the firm in 2020. He has investment experience since 1996. Jim has been co-portfolio manager of the SMID Opportunities Fund since August 2021. Jim received his B.S.B.A. in Finance from the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School and his MBA in Finance from Emory University’s Goizueta Business School. He holds the Chartered Financial Analyst designation.

 

Investment Considerations

 

The Fund uses a multi-style approach and invests in both growth and value-oriented companies. A growth investment style may be particularly sensitive to market conditions. Value investing involves the risk that an investment made in undervalued securities may not appreciate in value as anticipated or remain undervalued for long periods of time. The Fund invests in small and middle capitalization companies which may be riskier, more volatile and vulnerable to economic, market and industry changes than investments in larger more established companies. As a result, share price changes may be more erratic or trade less frequently in lesser quantities.

 

 

 

Q. How did the Fund perform during the period from its inception on October 1, 2021, to September 30, 2022?

 

A. The Fund’s Institutional Shares outperformed the Russell 2500™ Index.

 

Q. What factors affected the Fund’s performance?

 

A. The Russell 2500™ Index posted negative returns during the 12-month period as the stock market experienced broad-based declines off its mid-November peak in 2021. The Russian invasion of Ukraine in the spring of 2022 added to investor uncertainty and market risk. The crisis also had direct effects on the global economy, including increases in food and energy prices. At the same time, the Federal Reserve began a process of monetary tightening in early 2022, including interest rate hikes, to rein in stubbornly high inflation. High beta1 and growth stocks underperformed, and additional tightening could mean a market characterized by higher volatility and a general downward trend in the future.

 

Stock selection within the Health Care and Information Technology sectors was the largest contributor to the Fund’s relative outperformance versus its benchmark. For example, the Fund’s investment in an out-of-favor health care company with a strong management team within the inpatient rehabilitation facilities industry added to relative results as it was able to invest in this company at an attractive absolute and relative valuation due to the company’s transitory headwinds. The company outperformed during the period, which added to relative results. Within

 

the Information Technology sector, investments in companies with strong cash flow generation and lower valuations helped boost the Fund’s relative performance.

 

Stock selection within the Materials and Energy sectors, along with an underweighting of the Energy sector, were the primary detractors from the Fund’s performance relative to its benchmark. The Fund’s investment in a market-dominant aluminum can manufacturer detracted from relative results. End-demand for this company’s products declined more than anticipated, particularly in its very large North American market.

 

Despite exiting the year slightly overweight to the Energy sector, an initial underweight allocation to Energy detracted from the Fund’s overall performance. Energy companies benefited from a confluence of events during the period under review, including the Russo-Ukrainian War, limited U.S. production of oil, and increased dividends and stock buybacks.

 

1. Beta attempts to measure the relative risk. A Beta rating above 1.0 indicates greater volatility than the market. A Beta rating below 1.0 indicates lower volatility than the market.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

Russell 2500™ Index is a market cap-weighted index that includes the smallest 2,500 companies covered in the Russell 3000 universe of United States-based listed equities.

 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

14

 

 

Average Annual Total Returns
As of September 30, 2022 Inception Date 1 Year 5 Years Since Inception
Class A Shares* 9/30/16 -22.86% 2.44% 4.82%
Class C Shares** 9/30/16 -18.83% 2.88% 5.07%
Institutional Shares 9/30/16 -17.95% 3.92% 6.12%
Russell 2500® Index 9/30/16 -21.11% 5.45% 7.42%
Bloomberg U.S. 2500 9/30/16 -21.99% 5.08% 7.16%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com. Performance would have been lower without limitations and/or waivers in effect.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark. 

*Reflects 5.75% maximum sales charge.
**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).

 

The Russell 2500® Index is a widely recognized index of common stocks that measures the performance of the small and mid cap sector of the U.S. equity market. The index is unmanaged and does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

 

The Bloomberg US 2500 Index is a float market-cap-weighted benchmark of the lower 2500 in capitalization of the Bloomberg U.S. 3000 Index.

15

 

Sterling Capital Mid Cap Relative Value Fund

 

Portfolio Managers

 

Sterling Capital Mid Cap Relative Value Fund (the “Fund”) is managed by Portfolio Managers Shawn M. Gallagher, CFA, Executive Director and Andrew T. DiZio, CFA, Executive Director for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Shawn M. Gallagher, CFA

 

Shawn M. Gallagher, CFA, Executive Director, joined Stratton Management Company in 2005 and Sterling Capital Management as part of a business acquisition in 2015. He has investment experience since 2003 and has been co-portfolio manager of the Mid Cap Value Fund since November 2015. Shawn received his B.S. in Finance from Pennsylvania State University. He holds the Chartered Financial Analyst designation and is a member of the CFA Society of Philadelphia and the CFA Institute.

 

Andrew T. DiZio, CFA

 

Andrew T. DiZio, CFA, Executive Director, joined Stratton Management Company in 2012 and Sterling Capital Management as part of a business acquisition in 2015. He has investment experience since 2003. Andy has been co-portfolio manager of the Mid Cap Value Fund since August 2021 and was associate portfolio manager of the Fund from November 2015 to August 2021. Andy received his B.S. in Finance with a minor in Economics from Pennsylvania State University. He holds the Chartered Financial Analyst designation and is a member of the CFA Society of Philadelphia and the CFA Institute.

 

Investment Considerations

 

Mid-capitalization companies are generally riskier than large company stocks due to greater volatility and less liquidity. Value stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periods of time.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares underperformed its benchmark, the Russell Midcap® Value Index.

 

Q. What factors affected the Fund’s performance?

 

A. Equity markets peaked at the start of the 12-month period under review. A nearly 20-month-long rally, fueled by economic stimulus that began in March 2020 at the outset of the pandemic, peaked in the middle of November 2021. Worsening supply chain disruptions, inflation concerns, monetary policy uncertainty, and geopolitical risks generated strong economic headwinds that overpowered any optimism generated by a tight labor market. As 2022 progressed, signs that inflation was accelerating pushed the Federal Reserve into an increasingly hawkish posture and led to a series of interest rate hikes that pushed rates to their highest levels in more than a decade. Concerns about inflation soon gave way to fears of an economic slowdown driven by rising rates. As a result, investors moved away from perceived risk in favor of more defensive securities and relative safety. Mid cap equities suffered in this challenging environment. The Fund’s holdings within the Consumer Discretionary, Real Estate, and Health Care sectors dragged on absolute performance, while investments in Energy, Consumer Staples, Industrials, and Utilities sectors added on an absolute basis.

The Fund changed its name on February 1, 2022. The Sterling Capital Stratton Mid Cap Value Fund is now known as the Sterling Capital Mid Cap Relative Value Fund. The management team and the Fund’s objectives remain the same.

 

Stock selection within the Utilities sector was the biggest detractor from the Fund’s relative performance, along with an underweight allocation to the outperforming sector. The Fund’s investment in a natural gas and propane distributor dragged on relative results as the company’s earnings suffered from unseasonably warm weather domestically and in Europe over the winter. Stock selection in the Materials sector also weighed on results, as the Fund’s exposure to several producers of packaged goods underperformed due to inflationary pressures.

 

Stock selection within the Industrials sector was the biggest contributor to relative results. In particular, investments in a maker of commercial building materials and a provider of technology services to the U.S. government both outperformed for the period. Stock selection in the Financials and Communication Services sectors also added to results on a relative basis.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

Russell Midcap® Value Index measures the performance of value style of investing in Mid Cap U.S. stocks. The Russell Midcap® Value Index contains those Russell Mid Cap securities with less-than-average growth orientation. Securities in the Russell Midcap® Value Index generally have lower price-to-book and price-to-earnings ratios than those in the Growth Index.

 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

16

 

 

Average Annual Total Returns
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 11/13/15 -18.85% 2.44% 7.61%
Class C Shares** 11/13/15 -14.45% 2.97% 7.74%
Institutional Shares 9/30/72 -13.68% 3.92% 8.44%
Russell Midcap® Value Index N/A -13.56% 4.76% 9.44%
Bloomberg U.S. Mid Cap Value N/A -10.14% 5.98% 10.41%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. The performance shown here (for periods prior to the date of commencement of operations on November 16, 2015) is that of 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. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com. Performance would have been lower without waivers in effect.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark. 

*Reflects 5.75% maximum sales charge.
**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).

 

The Fund is measured against the Russell Midcap® Value Index, an unmanaged index, which 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. The index is unmanaged and does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

 

The Bloomberg US Mid Cap Value Index is a float market-cap-weighted index based on an equal-weighted combination of four factors: earnings yield, valuation, dividend yield, and growth.

17

 

Sterling Capital Real Estate Fund

 

Portfolio Managers

 

Sterling Capital Real Estate Fund (the “Fund”) is managed by Portfolio Managers Andrew T. DiZio, CFA, Executive Director and Shawn M. Gallagher, CFA, Executive Director for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Andrew T. DiZio, CFA

 

Andrew T. DiZio, CFA, Executive Director, joined Stratton Management Company in 2012 and Sterling Capital Management as part of a business acquisition in 2015. He has investment experience since 2003. Andy is co-portfolio manager of the Real Estate Fund and has managed the Fund since November 2015. Andy received his B.S. in Finance with a minor in Economics from Pennsylvania State University. He holds the Chartered Financial Analyst designation and is a member of the CFA Society of Philadelphia and the CFA Institute.

 

Shawn M. Gallagher, CFA

 

Shawn M. Gallagher, CFA, Executive Director, joined Stratton Management Company in 2005 and Sterling Capital Management as part of a business acquisition in 2015. He has investment experience since 2003. Shawn has been co-portfolio manager of the Real Estate Fund since August 2021 and was associate portfolio manager of the Fund from November 2015 to August 2021. Shawn received his B.S. in Finance from Pennsylvania State University. He holds the Chartered Financial Analyst designation and is a member of the CFA Society of Philadelphia and the CFA Institute.

 

Investment Considerations

 

Real Estate Funds may be subject to a higher degree of market risk because of concentration in a specific industry or geographic sector. Risks include declines in value of real estate, general and economic conditions, changes in the value of the underlying property and defaults by borrowers.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares underperformed its benchmark, the FTSE NAREIT All Equity REITs Index.

 

Q. What factors affected the Fund’s performance?

 

A. The Federal Reserve (Fed) continued to tighten short-term interest rates throughout the 12-month period as it attempted to bring persistently high inflation back under control. The Fed’s actions helped interest rates rise to their highest levels in more than a decade. In particular, the rise in rates for the 10-year U.S. Treasury had a negative effect on REIT share prices over the past 12 months: Higher interest rates tend to negatively impact the value of real estate, as they lead to a reduction in the discounted value of a property’s future cash flow. The Fund’s holdings struggled on an absolute basis in this challenging environment. However, holdings of a few REITs were acquired or taken private at premium valuations during the period, based on negotiations that predated the market declines. These transactions added to the Fund’s absolute returns for the 12-month period under review.

 

The Fund changed its name on February 1, 2022. The Sterling Capital Stratton Real Estate Fund is now known as the Sterling Capital Real Estate Fund. The management team and the Fund’s objectives remain the same.

 

The Fund’s stock selection in the Self Storage and Health Care subsectors was the largest detractor from relative results. Within the Fund’s holdings of Self Storage REITs, the lack of exposure to the benchmark’s largest

constituent weighed on results, as the company outperformed after several years of underperformance. Among Health Care names, the Fund’s focus on REITs with concentrations of senior living and hospital properties dragged on relative performance, as REITs with more exposure to skilled nursing outperformed during the period.

 

The Fund benefited on a relative basis from its stock selection in the Residential and Specialty subsectors. An overweight allocation to a student housing REIT added meaningfully, as the company was taken private in an all-cash transaction. Similarly, the acquisition of a casino landlord by a public competitor added to relative results in the Specialty subsector. The stock-based transaction benefited the Fund, as investors awarded better valuations to casino landlords after their steady rent collection throughout the pandemic.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

FTSE NAREIT All Equity REITs Index contains all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real properly that also meet minimum size and liquidity criteria. The FTSE NAREIT All Equity REITs Index is designed to present investors with a comprehensive family of REIT performance indexes that spans the commercial real estate space across the U.S. economy. The index series provides investors with exposure to all investment and property sectors. In addition, the more narrowly focused property sector and sub-sector indexes provide the facility to concentrate commercial real estate exposure in more selected markets.

 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

18

 

 

Average Annual Total Returns
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 11/13/15 -23.27% 2.90% 6.13%
Class C Shares** 11/13/15 -19.19% 3.36% 6.22%
Institutional Shares 5/31/08 -18.39% 4.39% 6.95%
Class R6 Shares 1/31/201 -18.31% 4.47% 6.99%
S&P 500® Index N/A -15.47% 9.24% 11.70%
FTSE NAREIT All Equity REITs Index N/A -16.27% 4.10% 6.99%
Bloomberg U.S. 3000 REIT2 N/A -16.55% 4.10% N/A

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. The performance shown here (for periods prior to the date of commencement of operations on November 16, 2015) is that of 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. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com. Performance would have been lower without waivers in effect.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmarks. 

*Reflects 5.75% maximum sales charge.
**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).
1Class R6 Shares were not in existence prior to 2/1/18. Performance for periods prior to 2/1/18 is based on the performance of Institutional Shares.
2The Bloomberg U.S. 3000 REIT Index began on 9/30/2015, and the line graph for the Index begins at the same value as the Fund’s Institutional Class on that date.

 

The Fund is measured against the FTSE NAREIT All Equity REITs Index, an unmanaged index, which contains all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property that also meet minimum size and liquidity criteria. The Fund is also measured against the S&P 500® Index, an unmanaged index, which is generally considered to be representative of the performance of the stock market as a whole. The indices do not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities. The Bloomberg US 3000 REIT Index is a float market-capitalization-weighted index that provides exposure to companies classified as per the Bloomberg Industry Classification System (BICS) with a level 3 sub-industry of REIT.

19

 

Sterling Capital Small Cap Value Fund

 

Portfolio Managers

 

Sterling Capital Small Cap Value Fund (the “Fund”) is managed by Portfolio Managers Gerald M. Van Horn, CFA, Executive Director, Shawn M. Gallagher, CFA, Executive Director and Andrew T. DiZio, CFA, Executive Director for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Gerald M. Van Horn, CFA

 

Gerald M. Van Horn, CFA, Executive Director, joined Stratton Management Company in 1998 and Sterling Capital as part of a business acquisition in August 2015. He has investment experience since 1996. Jerry has been lead portfolio manager for the Sterling Capital Small Cap Value Fund since inception on November 2015 and the predecessor fund since 2000. He received his B.A. in Economics from The College of New Jersey and holds the Chartered Financial Analyst designation.

 

Shawn M. Gallagher, CFA

 

Shawn M. Gallagher, CFA, Executive Director, joined Stratton Management Company in 2005 and Sterling Capital Management as part of a business acquisition in 2015. He has investment experience since 2003 and is associate portfolio manager of the Sterling Capital Small Cap Value Fund. Shawn received his B.S. in Finance from Pennsylvania State University. He holds the Chartered Financial Analyst designation and is a member of the CFA Society of Philadelphia and the CFA Institute.

 

Andrew T. DiZio, CFA

 

Andrew T. DiZio, CFA, Executive Director, joined Stratton Management Company in 2012 and Sterling Capital Management as part of a business acquisition in 2015. He has investment experience since 2003 and is associate portfolio manager of the Sterling Capital Small Cap Value Fund. Andy received his B.S. in Finance with a minor in Economics from Pennsylvania State University. He holds the Chartered Financial Analyst designation and is a member of the CFA Society of Philadelphia and the CFA Institute.

 

Investment Considerations

 

Small cap company stocks are generally riskier than large company stocks due to greater volatility and less liquidity. Value stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periods of time.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares outperformed its benchmark, the Russell 2000® Value Index.

 

Q. What factors affected the Fund’s performance?

 

A. Equity markets experienced a broad-based sell off that began in November 2022 and continued throughout the balance of the 12-month period under review. The Federal Reserve (Fed) continued to tighten short-term interest rates, with the goal of reducing persistently high inflation to historic levels. The Fed’s moves pushed long-term interest rates to their highest levels in 20 years, putting pressure on equity valuations and raising concerns among investors about the potential for a near-term economic slowdown, including the potential for a recession. The Fund’s absolute returns suffered in this challenging environment. In particular, the Fund’s holdings in the Health Care, Materials, and Communication Services sectors lagged on an absolute basis, while holdings in the Consumer Staples, Utilities, and Energy sectors posted the strongest absolute returns for the period.

 

The Fund changed its name on February 1, 2022. The Sterling Capital Stratton Small Cap Value Fund is now known as the Sterling Capital Small Cap Value Fund. The management team and the Fund’s objectives remain the same.

Stock selection within the Consumer Staples sector was the biggest contributor to the Fund’s relative results, along with an overweight allocation to the sector. In particular, investments in a warehouse club operator and a convenience store operator added to results, as both companies benefited from an increase in price-conscious shopping as consumers responded to higher inflation. Stock selection in the Information Technology sector also added to relative performance, most notably the Fund’s investment in a semiconductor manufacturer, which outperformed. Stock selection in Consumer Discretionary also added to results, as did an underweight allocation to this underperforming sector.

 

The Fund’s underweight allocation to the outperforming Energy sector weighed on relative results. Stock selection in the Materials sector also lagged on results, as an investment in a diversified specialty chemical company underperformed.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

Russell 2000® Value Index measures the performance of value style of investing in small cap U.S. stocks. The Russell 2000® Value Index contains those Russell 2000 securities with less-than-average growth orientation. Securities in the Russell 2000® Value Index generally have lower price-to-book and price-to-earnings ratios than those in the Russell 2000® Growth Index.

 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

20

 

 

Average Annual Total Returns
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 11/13/15 -19.07% 1.97% 7.81%
Class C Shares** 11/13/15 -14.79% 2.42% 7.89%
Institutional Shares 4/12/93 -13.93% 3.45% 8.63%
Class R6 Shares 1/31/201 -13.84% 3.51% 8.66%
Russell 2000® Value Index N/A -17.69% 2.87% 7.94%
Bloomberg U.S. 2000 Value N/A -17.07% 3.66% 9.01%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. The performance shown here (for periods prior to the date of commencement of operations on November 16, 2015) is that of Sterling Capital 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. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark. 

*Reflects 5.75% maximum sales charge.
**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).
1Class R6 Shares were not in existence prior to 2/1/18. Performance for periods prior to 2/1/18 is based on the performance of Institutional Shares.

 

The Russell 2000® Value Index is a widely recognized index of common stocks that measures the performance of the small-cap value sector of the U.S. equity market. The index is unmanaged and does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

 

The Bloomberg US 2000 Value Index is a float market-cap-weighted benchmark of the lower 2000 in capitalization of the Bloomberg U.S. 3000 Index that provides exposure to companies with superior value factor scores based on their earnings yield, valuation, dividend yield, and growth.

21

 

Sterling Capital Ultra Short Bond Fund

 

Portfolio Managers

 

Sterling Capital Ultra Short Bond Fund (the “Fund”) is managed by Portfolio Managers Mark M. Montgomery, CFA, Senior Managing Director, Byron G. Mims, CFA, Executive Director, and Jeffrey D. Ormsby, CFA, Executive Director, for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Mark M. Montgomery, CFA

 

Mark M. Montgomery, CFA, Senior Managing Director, CIO and Head of Fixed Income, joined Sterling Capital in 1997 and has investment experience since 1990. He has been co-portfolio manager of the Ultra Short Bond Fund since its inception. Mark received his B.S. in Marketing with a minor in Public Administration and his MBA from Drexel University. He holds the Chartered Financial Analyst designation.

 

Byron G. Mims, CFA

 

Byron G. Mims, CFA, Executive Director, joined Sterling Capital in 2012 and has investment experience since 2006. He has been co-portfolio manager of the Ultra Short Bond Fund since February 2020. Byron received his B.S. in Economics from North Carolina State University. He holds the Chartered Financial Analyst designation.

 

Jeffrey D. Ormsby, CFA

 

Jeffrey D. Ormsby, CFA, Executive Director, joined Sterling Capital in 2011 and has investment experience since 2006. He has been co-portfolio manager of the Ultra Short Bond Fund since February 2020. Jeff received his B.S. in Economics from North Carolina State University and his MBA from UNC’s Kenan-Flagler Business School. He holds the Chartered Financial Analyst designation.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares underperformed its current benchmark, the FTSE 6 Month Treasury Bill Index.

 

Q. What factors affected the Fund’s performance?

 

A. The Federal Reserve hiked rates significantly over the year as higher-than-desired inflation turned out to be more persistent than expected. Interest rates across the curve rose significantly, with the six-month Treasury rate rising 386 basis points from near zero at the beginning of the period and the two-year rate rising over 400 basis points. The dramatic move in rates and the concern that actions by the Federal Reserve may put the economy into a significant recession in order to slow inflation weighed on risk assets, causing them to underperform Treasuries meaningfully.

 

The Fund was managed with longer duration than the benchmark throughout the year, which detracted from relative performance as interest rates rose significantly. The Fund’s exposure to longer key rates,

which underperformed shorter key rates as the front end of the yield curve steepened, also detracted from relative performance.

 

The Fund’s exposure to risk assets detracted from relative performance as most risk assets underperformed Treasuries over the period. The switch from accommodative monetary policy to quantitative tightening and large hikes in rates created concern that economic growth may falter, dragging corporate and consumer balance sheets down with it. Exposure to corporate bonds and securitized investments including asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS) all hurt relative performance as they underperformed similar-duration Treasuries during the period.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

FTSE 6 Month Treasury Bill Index is an average of the six-month Treasury bill month-end rates from the last six months. This family of indices measures return equivalents of yield averages and the instruments are not marked to market.

 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

22

 

 

Average Annual Total Returns
As of September 30, 2022 Inception Date 1 Year 5 Years Since Inception
Class A Shares* 11/30/12 -1.07% 1.10% 0.82%
Institutional Shares 11/30/12 -0.82% 1.37% 1.08%
FTSE 6 Month Treasury Bill Index 11/30/12 0.66% 1.21% 0.74%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com. Performance would have been lower without limitations and/or waivers in effect.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark. 

*Reflects 0.5% maximum sales charge.

 

The Fund is measured against the FTSE 6 Month Treasury Bill Index, which measures the performance of Treasury bills with a maturity of six months or less. The index does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

23

 

Sterling Capital Short Duration Bond Fund

 

Portfolio Managers

 

Sterling Capital Short Duration Bond Fund (the “Fund”) is managed by Portfolio Managers Mark M. Montgomery, CFA, Senior Managing Director, and Peter L. Brown, CFA, Managing Director, for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Mark M. Montgomery, CFA

 

Mark M. Montgomery, CFA, Senior Managing Director, CIO and Head of Fixed Income, joined Sterling Capital in 1997 and has investment experience since 1990. He has been co-portfolio manager of the Short Duration Bond Fund since February 2011. Mark received his B.S. in Marketing with a minor in Public Administration and his MBA from Drexel University. He holds the Chartered Financial Analyst designation.

 

Peter L. Brown, CFA

 

Peter L. Brown, CFA, Managing Director, joined Sterling Capital in 2004 and has investment experience since 2000. He has been co-portfolio manager of the Short Duration Bond Fund since February 2020. Pete received a B.S. in Statistics with minors in Business Management, Marketing and Communications from Cornell University, and a MBA from Wake Forest University. He holds the Chartered Financial Analyst designation.

 

Investment Considerations

 

The Fund is subject to the same risks as the underlying bonds in the portfolio such as credit, prepayment, call and interest rate risk. As interest rates rise, the value of bond prices will decline and an investor may lose money. The Fund may invest in more aggressive investments, such as foreign securities, which may expose the Fund to currency and exchange rate fluctuations; mortgage-backed securities sensitive to interest rates; and high yield debt (also known as junk bonds), all of which may cause greater volatility and less liquidity.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021, and September 30, 2022?

 

A. The Fund’s Institutional Shares outperformed its current benchmark, the ICE BofA Merrill Lynch 1-3 Year U.S. Corporate Government Index.

 

Q. What factors affected the Fund’s performance?

 

A. A sustained rise in inflation forced the Federal Reserve (Fed) to enact restrictive monetary policy, which drove a rapid rise in interest rates and a sharp drop in bond prices.

 

The shift in the Fed’s policy stance prompted investors to lower their expectations for economic growth. The combination of higher interest rate volatility and a worsening growth outlook lowered demand for non-government asset classes such as corporate bonds and securitized assets. This trend dragged on the Fund’s absolute returns.

 

The Fund’s duration was managed short of the benchmark and therefore, the portfolio was less sensitive to interest rate movements. The large increase in interest rates therefore, benefitted the Fund relative to the benchmark.

 

The front end of the yield curve, which is more sensitive to real and projected changes to the federal funds rate, moved higher at a much faster pace than the long end of the curve, which is more sensitive to long-term growth expectations. The Fund benefitted from this move through its barbelled curve positioning, whereby it carried an overweight allocation to the 5-year portion of the curve while underweighting the 1-to 2-year portion of the curve.

Municipal securities generally performed better than corporate bonds and other risk assets as investors looked for safer investments. The Fund’s overweight allocation to taxable municipals boosted relative returns.

 

The Fund began the period with an overweight allocation to corporate bonds and other non-government asset classes, such as asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS), as compared to Treasuries. The deteriorating growth outlook and aggressive global monetary policy shift caused investors to seek safety in Treasuries, causing a widening in risk premia for corporate bonds, ABS and CMBS, which weighed on the Fund’s relative performance.

 

The early part of 2022 was marked by heavy corporate issuance in the financial sector as banks and insurance companies sought to secure funding before an expected increase in interest rates. This jump in supply weighed on returns of financials and dragged on the Fund’s relative performance due to its overweight allocation to the sector.

 

The general risk-off tone to the market during the period caused lower quality securities to underperform higher quality ones. The Fund’s overweight to below investment grade and BBB-rated securities versus A-rated and AA-rated bonds also detracted from relative returns.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

ICE BofA 1-3 Year U.S. Corporate/Government Index includes fixed rate debt issues rated investment grade or higher by Moody’s and S&P. All issues have at least one year to three years to maturity and an outstanding par value of at least $300 million. All returns are market value weighted inclusive of accrued interest. The total return includes price appreciation/depreciation and income as a percentage of the original investment. The total return index is rebalanced monthly by market capitalization.

 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

24

 

 

Average Annual Total Returns
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 11/30/92 -6.95% 0.45% 0.77%
Class C Shares** 1/31/12 -5.73% 0.11% 0.22%
Institutional Shares 11/30/92 -4.78% 1.12% 1.23%
Class R6 Shares 2/1/211 -4.70% 0.99% 1.03%
ICE BofA Merrill Lynch 1-3 Year U.S. Corporate Government Index N/A -5.15% 0.71% 0.82%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com. Performance would have been lower without limitations and/or waivers in effect.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark. 

*Reflects 5.75% maximum sales charge.
**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).
1Class R6 Shares were not in existence prior to 2/1/18. Performance for periods prior to 2/1/18 is based on the performance of Institutional Shares.

 

The Fund is measured against the ICE BofA Merrill Lynch 1-3 Year U.S. Corporate Government Index, which consists of securities with a maturity from one to three years. The index does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

25

 

Sterling Capital Intermediate U.S. Government Fund

 

Portfolio Managers

 

Sterling Capital Intermediate U.S. Government Fund (the “Fund”) is managed by Executive Directors and Portfolio Managers Michael Sun and Jeffrey D. Ormsby, CFA for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Michael Z. Sun, CFA

 

Michael Z. Sun, CFA, Executive Director, joined Sterling Capital in 2009 and has investment experience since 1998. He has been co-portfolio manager of the Intermediate U.S. Government Fund since February 2019. Michael received his M.A. in Economics from Bowling Green State University, his M.S. in Urban & Regional Study from Beijing University and his B.S. in Geography from Nanjing University. He holds the Chartered Financial Analyst designation.

 

Jeffrey D. Ormsby, CFA

 

Jeffrey D. Ormsby, CFA, Executive Director, joined Sterling Capital in 2011 and has investment experience since 2006. He has been co-portfolio manager of the Ultra Short Bond Fund since February 2020. Jeff received his B.S. in Economics from North Carolina State University and his MBA from UNC’s Kenan-Flagler Business School. He holds the Chartered Financial Analyst designation.

 

Investment Considerations

 

The Fund is subject to the same risks as the underlying bonds in the portfolio such as credit, prepayment, call and interest rate risk. As interest rates rise, the value of bond prices will decline and an investor may lose money. The Fund may invest in mortgage-backed securities, which tend to be more sensitive to changes in interest rates. The Fund invests in securities issued or guaranteed by the U.S. government or its agencies (such as Fannie Mae or Freddie Mac). Although U.S. government securities issued directly by the U.S. government are guaranteed by the U.S. Treasury, other U.S. government securities issued by an agency or instrumentality of the U.S. government may not be. No assurance can be given that the U.S. government would provide financial support to its agencies and instrumentalities if not required to do so by law.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares underperformed its current benchmark, the Bloomberg U.S. Government Intermediate Index.

 

Q. What factors affected the Fund’s performance?

 

A. The Federal Reserve (Fed) raised short-term interest rates five times during the 12-month period under review. The increases amounted to a cumulative rate hike of 3% and were aimed at curbing the highest rate of inflation experienced in the U.S. since the 1980s. Rising interest rates were expected to slow economic growth, but there remained much uncertainty on whether the Fed could avoid a sharp economic downturn as it cooled inflation. Fearing a possible recession, investors flocked to traditionally safer assets, such as Treasuries, which caused these securities to outperform other fixed-income products with similar durations.

 

The Fund’s heavy exposure to agency mortgages hurt its relative performance, as agency mortgages underperformed Treasuries of the same duration. Rising interest rates caused borrowers to make fewer voluntary prepayments, which in turn increased the duration of the securities.

Extending the Fund’s duration further dragged on performance. Another factor in the Fund’s underperformance, was its off-benchmark exposure to corporate bonds, asset-backed securities, and commercial mortgage-backed securities. These types of securities all underperformed as investors adopted a risk-off attitude during the period and fled to the relative safety of Treasuries.

 

The Fund’s relative returns benefited from its bias toward securities with longer durations, as long-term Treasury yields rose less than short-term yields.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

Bloomberg Intermediate Government Index is an unmanaged index composed of securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities. It is not possible to invest in the Bloomberg Intermediate Government Index, which is unmanaged and does not incur fees and charges.

 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

26

 

 

Average Annual Total Returns
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 10/9/92 -12.90% -1.03% -0.26%
Class C Shares** 2/1/01 -11.81% -1.38% -0.82%
Institutional Shares 10/9/92 -10.90% -0.41% 0.18%
Bloomberg U.S. Government Intermediate Index N/A -9.18% 0.18% 0.59%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com. Performance would have been lower without limitations and/or waivers in effect.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark. 

*Reflects 2% maximum sales charge.
**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).

 

The Fund is measured against the Bloomberg U.S. Government Intermediate Index, an unmanaged index comprised of all publicly issued non-convertible domestic debt of the U.S. government or any agency there of, or corporate debt guaranteed by the U.S. government all with outstanding principal of $1 million and maturity between one and ten years. The index does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

27

 

Sterling Capital Total Return Bond Fund

 

Portfolio Managers

 

Sterling Capital Total Return Bond Fund (the “Fund”) is managed by Portfolio Managers Mark M. Montgomery, CFA, Senior Managing Director, and Peter L. Brown, CFA, Managing Director, for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Mark M. Montgomery, CFA

 

Mark M. Montgomery, CFA, Senior Managing Director, CIO and Head of Fixed Income, joined Sterling Capital in 1997 and has investment experience since 1990. He has been co-portfolio manager of the Total Return Bond Fund since January 2008. Mark received his B.S. in Marketing with a minor in Public Administration and his MBA from Drexel University. He holds the Chartered Financial Analyst designation.

 

Peter L. Brown, CFA

 

Peter L. Brown, CFA, Managing Director, joined Sterling Capital in 2004 and has investment experience since 2000. He has been co-portfolio manager of the Total Return Bond Fund since February 2020. Pete received a B.S. in Statistics with minors in Business Management, Marketing and Communications from Cornell University, and a MBA from Wake Forest University. He holds the Chartered Financial Analyst designation.

 

Investment Considerations

 

The Fund is subject to the same risks as the underlying bonds in the portfolio such as credit, prepayment, call and interest rate risk. As interest rates rise, the value of bond prices will decline and an investor may lose money. The Fund may invest in foreign securities, which may expose the fund to currency and exchange rate fluctuations; and mortgage-backed securities sensitive to interest rates; and high yield debt (also known as junk bonds), all of which may cause greater volatility and less liquidity. Derivatives may be more sensitive to changes in market conditions and may amplify risks.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares underperformed its current benchmark, the Bloomberg U.S. Aggregate Bond Index.

 

Q. What factors affected the Fund’s performance?

 

A. A sustained rise in inflation during the period forced the Federal Reserve (Fed) to enact restrictive monetary policy, which drove a rapid rise in interest rates and a sharp drop in bond prices.

 

The shift in the Fed’s policies prompted investors to lower their expectations for economic growth. The combination of higher interest rate volatility and a worsening growth outlook lowered demand for non-government asset classes such as corporate bonds and securitized assets. This trend dragged on the Fund’s absolute returns.

 

The Fund began the period with an overweight allocation to corporate bonds and other non-government asset classes, such as asset-back securities (ABS) and commercial mortgage-backed securities CMBS, as compared to Treasuries. The deteriorating outlook for economic growth and aggressive global monetary policy shift caused investors to seek safety in Treasuries. This, in turn, caused a widening in risk premia for corporate bonds, ABS and CMBS, which weighed on the Fund’s relative performance.

 

The early part of 2022 witnessed heavy corporate bond issuance in the financial sector as banks and insurance companies sought to secure funding before an expected increase in interest rates. The jump in supply weighed on the returns of financials and hurt the Fund’s relative performance due to an above-benchmark exposure to the sector.

The general risk-off tone to the market during the period caused lower quality securities to underperform higher quality ones. As a result, the Fund’s overweight allocation to BBB-rated securities versus A-rated and AA-rated bonds also detracted from relative returns.

 

The Fund’s duration was managed short of the benchmark and therefore the portfolio was less sensitive to moves in interest rates. The large increase in interest rates therefore benefitted the Fund versus the benchmark. The front end of the yield curve, which is more sensitive to real changes and projected changes to the federal funds rate, moved higher at a much faster pace than the long end of the curve, which is more sensitive to long-term growth expectations. The Fund benefitted from this move through its barbelled curve positioning, whereby the Fund carried an overweight allocation to the 20-year and 30-year parts of the curve while it underweighted the 5- to 10-year area.

 

The Fed’s plan to end their monthly asset purchase program and to begin shrinking their balance sheet caused turmoil in the market for agency mortgage-backed securities (MBS). Exceptionally high levels of interest rate volatility contributed to the weakness in the sector as well. The Fund’s underweight to agency MBS in favor of ABS and CMBS boosted relative returns.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

Bloomberg U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-troughs), ABS and CMBS (agency and non-agency).

 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

28

 

 

Average Annual Total Returns
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 11/30/99 -19.81% -1.21% 0.58%
Class C Shares** 2/1/01 -15.64% -0.79% 0.41%
Institutional Shares 11/30/99 -14.81% 0.20% 1.42%
Class R6 Shares 1/31/181 -14.72% 0.30% 1.47%
Bloomberg U.S. Aggregate Bond Index N/A -14.60% -0.27% 0.89%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com. Performance would have been lower without limitations and/ or waivers in effect.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark. 

*Reflects 5.75% maximum sales charge.
**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).
1Class R6 Shares were not in existence prior to 2/1/18. Performance for periods prior to 2/1/18 is based on the performance of Institutional Shares.

 

The Fund is measured against the Bloomberg U.S. Aggregate Bond Index, an unmanaged index, which is a market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of at least one year. The index is unmanaged and does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

29

 

Sterling Capital Long Duration Corporate Bond Fund

 

Portfolio Managers

 

Sterling Capital Long Duration Corporate Bond Fund (the “Fund”) is managed by Portfolio Managers Mark M. Montgomery, CFA, Senior Managing Director, and Peter L. Brown, CFA, Managing Director, for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Mark M. Montgomery, CFA

 

Mark M. Montgomery, CFA, Senior Managing Director, CIO and Head of Fixed Income, joined Sterling Capital in 1997 and has investment experience since 1990. He has been co-portfolio manager of the Corporate Fund since inception. Mark received his B.S. in Marketing with a minor in Public Administration and his MBA from Drexel University. He holds the Chartered Financial Analyst designation.

 

Peter L. Brown, CFA

 

Peter L. Brown, CFA, Managing Director, joined Sterling Capital in 2004 and has investment experience since 2000. He has been co-portfolio manager of the Corporate Fund since February 2020. Pete received a B.S. in Statistics with minors in Business Management, Marketing and Communications from Cornell University, and a MBA from Wake Forest University. He holds the Chartered Financial Analyst designation.

 

Investment Considerations

 

The Fund is subject to the same risks as the underlying bonds in the portfolio such as credit, prepayment, call and interest rate risk. As interest rates rise, the value of bond prices will decline and an investor may lose money. The Fund may invest in more aggressive investments, such as foreign securities, which may expose the fund to currency and exchange rate fluctuations; mortgage-backed securities sensitive to interest rates; and high yield debt (also known as junk bonds), all of which may cause greater volatility and less liquidity. Derivatives may be more sensitive to changes in market conditions and may amplify risks.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares underperformed its current benchmark, the Bloomberg Long U.S. Corporate Index.

 

Q. What factors affected the Fund’s performance?

 

A. A sustained rise in inflation forced the Federal Reserve (Fed) to enact restrictive monetary policies, which drove a rapid rise in interest rates and a sharp drop in bond prices. The shift in the Fed’s policy stance prompted investors to lower their expectations for economic growth. The combination of higher interest rate volatility and a worsening growth outlook lowered demand for non-government asset classes, especially corporate bonds.

 

On January 31, 2022, the Fund’s name changed from the Sterling Capital Corporate Bond Fund to the Sterling Capital Long Duration Corporate Bond Fund. At that time, the Fund’s benchmark changed from the Bloomberg U.S. Intermediate Corporate Bond Index to the Bloomberg U.S. Long Corporate Bond Index. This shift required a significant extension of the average maturity and duration of the Fund’s holdings.

 

Before the benchmark change, below-investment grade holdings in a pharmaceutical company and an aluminum manufacturer underperformed their investment grade counterparts, detracting from the Fund’s relative performance. An underweight allocation to an airplane manufacturer also weighed on relative returns as the company outperformed with the recovery in global travel.

The Fund’s shorter duration positioning made it less sensitive to interest rate risk than the benchmark, which boosted relative returns. Positions in the Energy sector benefitted the Fund’s relative returns after the energy industry experienced a sustained period of ratings upgrades in 2021. And the Fund’s off-benchmark position in below investment grade securities also boosted results relative to its benchmark.

 

The early part of 2022, witnessed heavy corporate issuance in the financial sector, which weighed on that sector’s returns. This trend developed after the Fund’s strategy shift and hurt the Fund’s relative performance due to an overweight to Financials. The general risk-off tone to the market during the period caused lower quality securities to underperform higher quality, and the Fund’s overweight to BBB-rated securities, also contributed negatively to relative returns.

 

An underweighting to 20-year Treasuries boosted relative returns as they underperformed the longer end of the curve. The Fund’s non-index position in Treasury securities helped boost relative returns. An overweight position to the utility sector also helped; as essential services, utilities are generally less sensitive to economic cycles.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

Bloomberg Long U.S. Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers that have a remaining maturity of ten years or more.

 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

30

 

 

Average Annual Total Returns
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 1/31/131 -29.19% -3.49% -0.46%
Class C Shares** 1/31/131 -28.37% -3.80% -0.99%
Institutional Shares 6/30/112 -27.52% -2.84% -0.02%
Class R6 Shares 1/31/223 -27.47% -2.82% -0.01%
Bloomberg Long U.S. Corporate Index N/A -28.40% 1.14% 1.80%
Bloomberg Corporate Intermediate Bond Index N/A -12.30% 0.65% 1.75%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark. 

*Reflects 2% maximum sales charge.
**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).
1Class A and C Shares were not in existence prior to 2/1/13. Performance for periods prior to 2/1/13 is based on the performance of Institutional Shares and has been adjusted for maximum CDSC to the class applicable but does not include 12b-1 fees, which if reflected, would have caused performance of Class A and C Shares to be lower.
2The Fund converted Class S Shares into Institutional Shares effective 2/1/13.
3Class R6 Shares were not in existence prior to 1/31/22. Performance for periods prior to 1/31/22 is based on the performance of Institutional Shares.

 

The Fund is measured against the Bloomberg U.S. Long Corporate Bond Index, which measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers that have a remaining maturity of ten years or more. The index does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

31

 

Sterling Capital Quality Income Fund

 

Portfolio Managers

 

Sterling Capital Quality Income Fund (the “Fund”) is managed by Executive Directors and portfolio managers Michael Z. Sun, CFA, Jeffrey D. Ormsby, CFA and Byron G. Mims, CFA, for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Michael Z. Sun, CFA

 

Michael Z. Sun, CFA, Executive Director, joined Sterling Capital in 2009 and has investment experience since 1998. He has been co-portfolio manager of the Quality Income Fund since February 2014. Michael received his M.A. in Economics from Bowling Green State University, his M.S. in Urban & Regional Study from Beijing University and his B.S. in Geography from Nanjing University. He holds the Chartered Financial Analyst designation.

 

Jeffrey D. Ormsby, CFA

 

Jeffrey D. Ormsby, CFA, Executive Director, joined Sterling Capital in 2011 and has investment experience since 2006. He has been co-portfolio manager of the Quality Income Fund since February 2016. Jeff received his B.S. in Economics from North Carolina State University and his MBA from UNC’s Kenan-Flagler Business School. He holds the Chartered Financial Analyst designation.

 

Byron G. Mims, CFA

 

Byron G. Mims, CFA, Executive Director, joined Sterling Capital in 2012 and has investment experience since 2006. He has been co-portfolio manager of the Quality Income Fund since February 2016. Byron received his B.S. in Economics from North Carolina State University. He holds the Chartered Financial Analyst designation.

 

Investment Considerations

 

The Fund is subject to the same risks as the underlying bonds in the portfolio such as credit, prepayment, call and interest rate risk. As interest rates rise, the value of bond prices will decline and an investor may lose money. The Fund may invest in more aggressive investments, such as foreign securities, which may expose the Fund to currency and exchange rate fluctuations; mortgage-backed securities sensitive to interest rates; and high yield debt (also known as junk bonds), all of which may cause greater volatility and less liquidity.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares outperformed its benchmark, the Bloomberg U.S. Mortgage Backed Securities Index.

 

Q. What factors affected the Fund’s performance?

 

A. This year was dominated by shifting monetary policy, as persistently high and broadening inflation drove the Federal Reserve to quickly wind down quantitative easing (QE) early in 2022, initiate and then substantially accelerate their pace of interest rate hikes in the Spring and Summer, and actively shift towards quantitative tightening (QT) via balance sheet runoff in September of 2022. This sharp pace of policy tightening had a significant impact on market interest rates, with two-year Treasury yields rising just over 4 percent during the period, with 10-year rates rose 2.37 percent.

 

Absolute performance was negative across all major subsectors given the sharp rise in interest rates across the yield curve. Agency MBS posted the largest negative absolute performance as sharply higher interest rates caused agency MBS durations to extend as prepayment speed expectations declined. Additionally, spreads in the agency MBS sector widened significantly following the Federal Reserve’s shift from supporting MBS valuations via QE to allowing its balance sheet to shrink via QT by the end of the period.

From a relative perspective, the fund’s underweight to agency MBS in favor of agency CMOs, consumer ABS, and non-agency CMBS all contributed positively to relative performance. While consumer ABS and non-agency CMBS moderately lagged Treasuries during the period as concerns about a potential economic slowdown grew, both sectors easily outperformed agency MBS during the period. Security selection within our agency MBS holdings also contributed to relative outperformance due to our underweight on lower coupon securities, which materially lagged higher coupon securities as the Fed exited that market.

 

The largest driver of relative outperformance came from the fund’s short duration positioning relative to the benchmark, which allowed for significant outperformance given the sharp move up in interest rates. On the negative side, the Fund’s overweight to the front-end of the yield curve and underweight to 10-year and longer parts of the curve detracted from relative performance as the curve bear flattened during the period, with short term yields rising significantly more than longer term yields.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

Bloomberg U.S. Mortgage Backed Securities Index covers the mortgage-backed pass-through securities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). It is formed by grouping the universe of individual fixed rate MBS pools into generic aggregates.

 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

32

 

 

Average Annual Total Returns
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 1/31/131 -12.67% -0.52% 0.73%
Class C Shares** 1/31/131 -11.45% -0.82% 0.24%
Institutional Shares 6/30/112 -10.69% 0.12% 1.19%
Bloomberg U.S. Mortgage Backed Securities Index N/A -13.98% -0.92% 0.51%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark. 

*Reflects 2% maximum sales charge.
**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).
1Class A and C Shares were not in existence prior to 2/1/13. Performance for periods prior to 2/1/13 is based on the performance of Institutional Shares and has been adjusted for maximum CDSC to the class applicable but does not include 12b-1 fees, which if reflected, would have caused performance of Class A and C Shares to be lower.
2The Fund converted Class S Shares into Institutional Shares effective 2/1/13.

 

The Fund is measured against the Bloomberg U.S. Mortgage Backed Securities Index. The index measures the performance of investment grade fixed-rate mortgage-backed pass-through securities of Ginnie Mae, Fannie Mae, and Freddie Mac. The index is unmanaged and does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

33

 

Sterling Capital North Carolina Intermediate Tax-Free Fund

 

Portfolio Managers

 

Sterling Capital North Carolina Intermediate Tax-Free Fund (the “Fund”) is managed by Portfolio Managers Robert F. Millikan, CFA, Executive Director and Michael P. McVicker, Executive Director for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Robert F. Millikan, CFA

 

Robert F. Millikan, CFA, Executive Director, joined BB&T Asset Management in 2000 and Sterling Capital through merger in October 2010. He has investment experience since 1990 and joined the team that manages each of the Tax-Free Bond Funds in February 2000. He is a graduate of Wake Forest University where he received his B.A. in Economics. He holds the Chartered Financial Analyst designation.

 

Michael P. McVicker

 

Michael P. McVicker, Executive Director, joined Sterling Capital in 1992 and has investment experience since 1992. He has been associate portfolio manager for each of the Tax-Free Bond Funds since February 2016. Michael is a graduate of the University of North Carolina – Charlotte where he received his B.S.B.A. in Finance with a minor in Psychology.

 

Investment Considerations

 

The Fund is subject to the same risks as the underlying bonds in the portfolios such as credit, prepayment and interest rate risk. As interest rates rise, the value of bond prices will decline and an investor may lose money. The Fund is non-diversified and may invest a greater percentage of its assets in a single issuer than funds that are more diversified. Furthermore, the Fund invests primarily in municipal obligations issued by North Carolina and its political subdivisions and therefore will be affected by economic, political or other events affecting North Carolina.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares outperformed its current benchmark, the ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index.

 

Q. What factors affected the Fund’s performance?

 

A. In response to the highest inflation levels experienced in decades, the Federal Reserve (Fed) pursued a series of aggressive hikes in the federal funds rate. The rate hikes drove an increase in interest rates across the entire yield curve, although short-term rates rose higher than long-term rates, leading to an inversion of the two-year to 10-year yield curve. Low unemployment and strong economic activity drove the Fed to raise rates five times during the 12-month period. The Fed raised the federal funds rate target by 25 and 50 basis points in March and May, respectively. They then opted for super-sized increases of 75 basis points each in June, July, and September. The cumulative rate increase was 300 basis points or 3% for the period. Consequently, one-year AAA municipal rates began at 0.13% and ended at 3.06%. Five-year rates began at 0.50% and ended at 3.12%. Ten-year rates began at 1.14% and ended at 3.30%. Twenty-year 

rates began at 1.47% and ended at 3.73%. A year of rising rates hurt the absolute performance of the Fund as bond prices move in the opposite direction of yields.

 

Anticipating rate hikes, the Fund reduced its average duration, which contributed to its outperformance relative to its benchmark. The Fund’s bias toward securities with AAA and AA ratings was also a contributing factor, as higher-quality bonds outperformed lower-quality bonds for the period as investors adopted a risk-off attitude for most of the period.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index is an unmanaged index composed of securities that are SEC-registered, tax-exempt, and dollar denominated. The index covers the intermediate U.S. investment grade fixed rate municipal bond market, with index components for municipal securities. It is not possible to invest in the ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index, which is unmanaged and does not incur fees and charges.

 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

34

 

 

Average Annual Total Returns
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 10/16/92 -10.71% -0.45% 0.51%
Class C Shares** 1/31/12 -9.61% -0.79% -0.04%
Institutional Shares 10/16/92 -8.78% 0.18% 0.96%
ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index N/A -9.43% 0.69% 1.66%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark. 

*Reflects 2% maximum sales charge.
**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).

 

The Fund is measured against the ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index, an unmanaged index, which is representative of municipal bonds. The index does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

35

 

Sterling Capital South Carolina Intermediate Tax-Free Fund

 

Portfolio Managers

 

Sterling Capital South Carolina Intermediate Tax-Free Fund (the “Fund”) is managed by Portfolio Managers Robert F. Millikan, CFA, Executive Director and Michael P. McVicker, Executive Director for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Robert F. Millikan, CFA

 

Robert F. Millikan, CFA, Executive Director, joined BB&T Asset Management in 2000 and Sterling Capital through merger in October 2010. He has investment experience since 1990 and joined the team that manages each of the Tax-Free Bond Funds in February 2000. He is a graduate of Wake Forest University where he received his B.A. in Economics. He holds the Chartered Financial Analyst designation.

 

Michael P. McVicker

 

Michael P. McVicker, Executive Director, joined Sterling Capital in 1992 and has investment experience since 1992. He has been associate portfolio manager for each of the Tax-Free Bond Funds since February 2016. Michael is a graduate of the University of North Carolina – Charlotte where he received his B.S.B.A. in Finance with a minor in Psychology.

 

Investment Considerations

 

The Fund is subject to the same risks as the underlying bonds in the portfolios such as credit, prepayment and interest rate risk. As interest rates rise, the value of bond prices will decline and an investor may lose money. The Fund is non-diversified and may invest a greater percentage of its assets in a single issuer than funds that are more diversified. Furthermore, the Fund invests primarily in municipal obligations issued by South Carolina and its political subdivisions and therefore will be affected by economic, political or other events affecting South Carolina.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares outperformed its current benchmark, the ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index.

 

Q. What factors affected the Fund’s performance?

 

A. In response to the highest inflation levels experienced in decades, the Federal Reserve (Fed) pursued a series of aggressive hikes in the federal funds rate. The rate hikes drove an increase in interest rates across the entire yield curve, although short-term rates rose higher than long-term rates, leading to an inversion of the two-year to 10-year yield curve. Low unemployment and strong economic activity drove the Fed to raise rates five times during the 12-month period. The Fed raised the federal funds rate target by 25 and 50 basis points in March and May, respectively. They then opted for super-sized increases of 75 basis points each in June, July, and September. The cumulative rate increase was 300 basis points or 3% for the period. Consequently, one-year AAA municipal rates began at 0.13% and ended at 3.06%. Five-year rates began at 0.50% and ended at 3.12%. Ten-year rates began at 1.14% and ended at 3.30%. Twenty-year rates began at 1.47% and ended at 3.73%. A year of rising rates hurt the

absolute performance of the Fund as bond prices move in the opposite direction of yields.

 

Anticipating rate hikes, the Fund reduced its average duration, which contributed to its outperformance relative to its benchmark. The Fund’s bias toward higher-quality bonds and underweighting toward BBB-rated bonds benefitted relative performance. Higher-quality bonds outperformed lower-quality bonds as investors adopted a risk-off attitude for most of the period.

 

Volatility in the market prompted a greater volume of buying and selling within the Fund, which led to an increase in the Fund’s transaction costs. These costs were a minor drag on performance relative to the benchmark.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index is an unmanaged index composed of securities that are SEC-registered, tax-exempt, and dollar denominated. The index covers the intermediate U.S. investment grade fixed rate municipal bond market, with index components for municipal securities. It is not possible to invest in the ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index, which is unmanaged and does not incur fees and charges.

 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

36

 

 

Average Annual Total Returns
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 10/20/97 -10.47% -0.30% 0.69%
Class C Shares** 1/31/12 -9.27% -0.64% 0.14%
Institutional Shares 10/20/97 -8.42% 0.35% 1.15%
ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index N/A -9.43% 0.69% 1.66%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark. 

*Reflects 2% maximum sales charge.
**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).

 

The Fund is measured against the ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index, an unmanaged index, which is representative of municipal bonds. The index does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

37

 

Sterling Capital Virginia Intermediate Tax-Free Fund

 

Portfolio Managers

 

Sterling Capital Virginia Intermediate Tax-Free Fund (the “Fund”) is managed by Portfolio Managers Robert F. Millikan, CFA, Executive Director and Michael P. McVicker, Executive Director for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Robert F. Millikan, CFA

 

Robert F. Millikan, CFA, Executive Director, joined BB&T Asset Management in 2000 and Sterling Capital through merger in October 2010. He has investment experience since 1990 and joined the team that manages each of the Tax-Free Bond Funds in February 2000. He is a graduate of Wake Forest University where he received his B.A. in Economics. He holds the Chartered Financial Analyst designation.

 

Michael P. McVicker

 

Michael P. McVicker, Executive Director, joined Sterling Capital in 1992 and has investment experience since 1992. He has been associate portfolio manager for each of the Tax-Free Bond Funds since February 2016. Michael is a graduate of the University of North Carolina – Charlotte where he received his B.S.B.A. in Finance with a minor in Psychology.

 

Investment Considerations

 

The Fund is subject to the same risks as the underlying bonds in the portfolios such as credit, prepayment and interest rate risk. As interest rates rise, the value of bond prices will decline and an investor may lose money. The Fund is non-diversified and may invest a greater percentage of its assets in a single issuer than funds that are more diversified. Furthermore, the Fund invests primarily in municipal obligations issued by Virginia and its political subdivisions and therefore will be affected by economic, political or other events affecting Virginia.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares outperformed its current benchmark, the ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index.

 

Q. What factors affected the Fund’s performance?

 

A. In response to the highest inflation levels experienced in decades, the Federal Reserve (Fed) pursued a series of aggressive hikes in the federal funds rate. The rate hikes drove an increase in interest rates across the entire yield curve, although short-term rates rose higher than long-term rates, leading to an inversion of the two-year to 10-year yield curve. Low unemployment and strong economic activity drove the Fed to raise rates five times during the 12-month period. The Fed raised the federal funds rate target by 25 and 50 basis points in March and May, respectively. The Fed then opted for super-sized increases of 75 basis points each in June, July, and September. The cumulative rate increase was 300 basis points or 3% for the period. Consequently, one-year AAA municipal rates began at 0.13% and ended at 3.06%. Five-year rates began at 0.50% and ended at 3.12%. Ten-year rates began at 1.14% and ended at 3.30%. Twenty-year rates began at 1.47% and ended at 3.73%. A year of rising rates hurt the

absolute performance of the Fund as bond prices move in the opposite direction of yields.

 

Anticipating rate hikes, the Fund reduced its average duration, which contributed to its outperformance relative to its benchmark. The Fund’s bias toward securities with AAA and AA ratings was also a contributing factor, as higher-quality bonds outperformed lower-quality bonds for the period as investors adopted a risk-off attitude for most of the period.

 

Volatility in the market prompted a greater volume of buying and selling within the Fund, which led to an increase in the Fund’s transaction costs. These costs were a minor drag on performance relative to the benchmark.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index is an unmanaged index composed of securities that are SEC-registered, tax-exempt, and dollar denominated. The index covers the intermediate U.S. investment grade fixed rate municipal bond market, with index components for municipal securities. It is not possible to invest in the ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index, which is unmanaged and does not incur fees and charges.

 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

38

 

 

Average Annual Total Returns
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 5/17/99 -10.51% -0.44% 0.47%
Class C Shares** 1/31/12 -9.32% -0.78% -0.08%
Institutional Shares 5/17/99 -8.41% 0.22% 0.93%
ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index N/A -9.43% 0.69% 1.66%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark. 

*Reflects 2% maximum sales charge.
**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).

 

The Fund is measured against the ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index, an unmanaged index, which is representative of municipal bonds. The index does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

39

 

Sterling Capital West Virginia Intermediate Tax-Free Fund

 

Portfolio Managers

 

Sterling Capital West Virginia Intermediate Tax-Free Fund (the “Fund”) is managed by Portfolio Managers Robert F. Millikan, CFA, Executive Director and Michael P. McVicker, Executive Director for Sterling Capital Management LLC (“Sterling Capital”), advisor to the Fund.

 

Robert F. Millikan, CFA

 

Robert F. Millikan, CFA, Executive Director, joined BB&T Asset Management in 2000 and Sterling Capital through merger in October 2010. He has investment experience since 1990 and joined the team that manages each of the Tax-Free Bond Funds in February 2000. He is a graduate of Wake Forest University where he received his B.A. in Economics. He holds the Chartered Financial Analyst designation.

 

Michael P. McVicker

 

Michael P. McVicker, Executive Director, joined Sterling Capital in 1992 and has investment experience since 1992. He has been associate portfolio manager for each of the Tax-Free Bond Funds since February 2016. Michael is a graduate of the University of North Carolina – Charlotte where he received his B.S.B.A. in Finance with a minor in Psychology.

 

Investment Considerations

 

The Fund is subject to the same risks as the underlying bonds in the portfolios such as credit, prepayment and interest rate risk. As interest rates rise, the value of bond prices will decline and an investor may lose money. The Fund is non-diversified and may invest a greater percentage of its assets in a single issuer than funds that are more diversified. Furthermore, the Fund invests primarily in municipal obligations issued by West Virginia and its political subdivisions and therefore will be affected by economic, political or other events affecting West Virginia.

 

 

 

Q. How did the Fund perform during the 12-month period between October 1, 2021 and September 30, 2022?

 

A. The Fund’s Institutional Shares outperformed its current benchmark, the ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index.

 

Q. What factors affected the Fund’s performance?

 

A. In response to the highest inflation levels experienced in decades, the Federal Reserve (Fed) pursued a series of aggressive hikes in the federal funds rate. The rate hikes drove an increase in interest rates across the entire yield curve, although short-term rates rose higher than long-term rates, leading to an inversion of the two-year to 10-year yield curve. Low unemployment and strong economic activity drove the Fed to raise rates five times during the 12-month period. The Fed raised the federal funds rate target by 25 and 50 basis points in March and May, respectively. They then opted for super-sized increases of 75 basis points each in June, July, and September. The cumulative rate increase was 300 basis points or 3% for the period. Consequently, one-year AAA municipal rates began at 0.13% and ended at 3.06%. Five-year rates began at 0.50% and ended at 3.12%. Ten-year rates began at 1.14% and ended at 3.30%. Twenty-year rates began at 1.47% and ended at 3.73%. A year of rising rates hurt the

absolute performance of the Fund as bond prices move in the opposite direction of yields.

 

Anticipating rate hikes, the Fund reduced its average duration, which contributed to its outperformance relative to its benchmark. The Fund’s bias toward securities with AAA and AA ratings was also a contributing factor, as higher-quality bonds outperformed lower-quality bonds for the period as investors adopted a risk-off attitude for most of the period.

 

Volatility in the market prompted a greater volume of buying and selling within the Fund, which led to an increase in the Fund’s transaction costs. These costs were a minor drag on performance relative to the benchmark.

 

A Note on Indices: The volatility of an index varies greatly. All indices are unmanaged and investments cannot be made directly in an index.

 

ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index is an unmanaged index composed of securities that are SEC-registered, tax-exempt, and dollar denominated. The index covers the intermediate U.S. investment grade fixed rate municipal bond market, with index components for municipal securities. It is not possible to invest in the ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index, which is unmanaged and does not incur fees and charges.

 

Portfolio composition is as of September 30, 2022 and is subject to change and risk.

40

 

 

Average Annual Total Returns
As of September 30, 2022 Inception Date 1 Year 5 Years 10 Years
Class A Shares* 12/17/93 -10.03% -0.16% 0.75%
Class C Shares** 1/31/12 -8.85% -0.53% 0.20%
Institutional Shares 12/1/93 -7.93% 0.49% 1.21%
ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index N/A -9.43% 0.69% 1.66%

 

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains, and do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.sterlingcapitalfunds.com.

 

The chart above represents a comparison of a hypothetical $10,000 investment in the indicated share class versus a similar investment in the Fund’s benchmark. 

*Reflects 2% maximum sales charge.
**Reflects the applicable maximum CDSC of 1.00% (applicable only to redemptions within one year of purchase, and as such, are not reflected in the Average Annual Total Returns table since the periods reflected are for a year or longer).

 

The Fund is measured against the ICE BofA Merrill Lynch 2-17 Year Municipal Bond Index, an unmanaged index, which is representative of municipal bonds. The index does not reflect the deduction of expenses associated with a mutual fund, such as investment management and fund accounting fees. Investors cannot invest directly in an index, although they can invest in its underlying securities.

41

 

Sterling Capital Funds

 

Summary of Portfolio Holdings (Unaudited)

 

 

Sterling Capital Funds invested, as a percentage of net assets, in the following industries, countries, states, funds or security types, as of September 30, 2022:

 

   Percentage 
Sterling Capital Behavioral Large Cap Value Equity Fund  of net assets 
Aerospace & Defense    3.1%
Air Freight & Logistics    2.2%
Automobiles    0.5%
Banks    6.1%
Biotechnology    7.3%
Building Products    0.4%
Capital Markets    5.8%
Chemicals    2.6%
Communications Equipment    0.2%
Consumer Finance    1.0%
Diversified Consumer Services   0.6%
Diversified Financial Services    0.3%
Diversified Telecommunication Services    2.5%
Electric Utilities    3.7%
Electrical Equipment    0.5%
Electronic Equipment, Instruments & Components   0.5%
Equity Real Estate Investment Trusts (REITs)    5.2%
Food & Staples Retailing    1.9%
Food Products    3.7%
Gas Utilities    0.5%
Health Care Providers & Services    7.9%
Hotels, Restaurants & Leisure    0.4%
Household Products    0.4%
Insurance    4.5%
IT Services    3.4%
Machinery    2.3%
Media    4.7%
Metals & Mining    1.5%
Mortgage Real Estate Investment Trusts (REITs)    0.8%
Multi-Utilities    2.6%
Oil, Gas & Consumable Fuels    8.8%
Pharmaceuticals    4.5%
Semiconductors & Semiconductor Equipment    3.3%
Specialty Retail    2.8%
Technology Hardware, Storage & Peripherals    0.6%
Thrifts & Mortgage Finance    0.4%
Tobacco    1.7%
Trading Companies & Distributors    0.3%
Money Market Fund    0.2%
    99.7%
   Percentage 
Sterling Capital Mid Value Fund  of net assets 
Auto Components    2.5%
Banks   6.0%
Chemicals    4.0%
Consumer Finance    4.6%
Containers & Packaging    3.2%
Electric Utilities    3.4%
Electrical Equipment    2.3%
Energy Equipment & Services    0.7%
Entertainment    2.5%
Health Care Providers & Services   15.8%
Hotels, Restaurants & Leisure    2.0%
Household Durables    3.9%
Household Products    1.4%
Insurance    9.6%
Interactive Media & Services    1.3%
Internet & Direct Marketing Retail    1.3%
IT Services    5.2%
Machinery    3.2%
Media   2.6%
Oil, Gas & Consumable Fuels    4.3%
Professional Services    5.5%
Real Estate Management & Development    2.6%
Software    2.8%
Specialty Retail    1.8%
Thrifts & Mortgage Finance    3.1%
Trading Companies & Distributors    2.3%
Money Market Fund    2.1%
    100.0%


42

 

Sterling Capital Funds

 

Summary of Portfolio Holdings (Unaudited)

 

 

   Percentage 
Sterling Capital Behavioral Small Cap Value Equity Fund  of net assets 
Aerospace & Defense    0.2%
Air Freight & Logistics   1.7%
Airlines    0.3%
Automobiles    0.4%
Banks   18.1%
Building Products    1.3%
Chemicals    1.8%
Commercial Services & Supplies   1.3%
Communications Equipment   0.3%
Construction & Engineering   0.3%
Consumer Finance    2.3%
Diversified Consumer Services   1.1%
Diversified Financial Services    0.8%
Diversified Telecommunication Services    0.9%
Electric Utilities   1.9%
Electrical Equipment    0.8%
Electronic Equipment, Instruments & Components   2.8%
Energy Equipment & Services   0.4%
Equity Real Estate Investment Trusts (REITs).   7.7%
Food & Staples Retailing   2.1%
Food Products   0.2%
Gas Utilities    0.8%
Health Care Equipment & Supplies    1.7%
Health Care Providers & Services   4.6%
Health Care Technology    0.8%
Hotels, Restaurants & Leisure    0.3%
Household Durables   1.6%
Independent Power and Renewable Electricity Producers   0.3%
Insurance   3.3%
Interactive Media & Services    0.4%
IT Services   0.4%
Leisure Products   0.0%*
Marine    1.4%
Media   1.1%
Metals & Mining   1.9%
Mortgage Real Estate Investment Trusts (REITs)    1.9%
Multiline Retail    1.2%
Multi-Utilities   1.6%
Oil, Gas & Consumable Fuels    4.9%
Paper & Forest Products    0.3%
Pharmaceuticals   3.4%
Professional Services    0.7%
Real Estate Management & Development   3.0%
Road & Rail    1.8%
Semiconductors & Semiconductor Equipment    3.0%
Specialty Retail    4.8%
Textiles, Apparel & Luxury Goods.   0.4%
Thrifts & Mortgage Finance   3.0%
Tobacco   0.4%
Trading Companies & Distributors    3.1%
Wireless Telecommunication Services    0.3%
Money Market Fund   0.6%
    99.7%
   Percentage 
Sterling Capital Special Opportunities Fund  of net assets 
Aerospace & Defense    1.7%
Auto Components    3.0%
Biotechnology   2.9%
Capital Markets    8.0%
Communications Equipment   3.5%
Consumer Finance    1.7%
Containers & Packaging    2.3%
Electronic Equipment, Instruments & Components   1.9%
Entertainment   3.4%
Health Care Equipment & Supplies    2.1%
Health Care Providers & Services   11.3%
Household Durables    1.5%
Interactive Media & Services    5.7%
Internet & Direct Marketing Retail    4.6%
IT Services    12.0%
Life Sciences Tools & Services   8.1%
Media    3.6%
Pharmaceuticals    2.6%
Professional Services    1.9%
Real Estate Management & Development    2.3%
Semiconductors & Semiconductor Equipment    4.4%
Software    7.3%
Specialty Retail    2.4%
Wireless Telecommunication Services    1.8%
Money Market Fund    0.6%
    100.6%

 

   Percentage 
Sterling Capital Equity Income Fund  of net assets 
Aerospace & Defense    1.9%
Air Freight & Logistics   3.2%
Beverages    3.2%
Biotechnology    3.5%
Capital Markets    6.2%
Chemicals    2.0%
Communications Equipment   6.7%
Consumer Finance    2.0%
Electronic Equipment, Instruments & Components    0.2%
Equity Real Estate Investment Trusts (REITs)    2.5%
Food Products    2.1%
Health Care Equipment & Supplies    6.3%
Health Care Providers & Services    8.1%
Hotels, Restaurants & Leisure    4.4%
Industrial Conglomerates   2.6%
Insurance    12.4%
IT Services    7.7%
Multiline Retail    2.4%
Oil, Gas & Consumable Fuels    0.3%
Pharmaceuticals    6.7%
Professional Services    3.6%
Semiconductors & Semiconductor Equipment    3.6%
Software    3.5%
Specialty Retail    3.9%
Money Market Fund    1.0%
    100.0%


*Amount represents less than 0.05%.

43

 

Sterling Capital Funds

 

Summary of Portfolio Holdings (Unaudited)

 

 

   Percentage 
Sterling Capital Behavioral International Equity Fund  of net assets 
Australia   6.0%
Austria    0.8%
Belgium   0.9%
China    0.3%
Denmark   0.5%
Finland    0.9%
France   12.1%
Germany   8.2%
Hong Kong    2.2%
Ireland    0.5%
Israel    1.9%
Italy    4.0%
Japan    25.1%
Netherlands    4.7%
Norway    0.8%
Singapore    2.2%
Spain    2.6%
Sweden    1.3%
Switzerland    8.0%
United Kingdom    14.6%
United States    0.7%
Money Market Fund    0.6%
    98.9%

 

   Percentage 
Sterling Capital SMID Opportunities Fund  of net assets 
Aerospace & Defense   2.0%
Auto Components   3.2%
Banks   5.7%
Capital Markets   2.3%
Chemicals   3.5%
Commercial Services & Supplies   4.9%
Communications Equipment   3.4%
Consumer Finance   3.3%
Containers & Packaging   3.1%
Entertainment   2.5%
Equity Real Estate Investment Trusts (REITs)   3.0%
Health Care Equipment & Supplies   5.9%
Health Care Providers & Services   6.1%
Household Durables   3.6%
Independent Power and Renewable Electricity Producers   4.4%
Insurance   4.8%
IT Services   17.8%
Machinery   3.0%
Media   1.5%
Oil, Gas & Consumable Fuels   6.1%
Professional Services   2.6%
Real Estate Management & Development   1.4%
Software   2.7%
Specialty Retail   1.5%
Money Market Fund   1.7%
    100.0%
   Percentage 
Sterling Capital Mid Cap Relative Value Fund  of net assets 
Auto Components   1.7%
Banks   7.3%
Building Products   3.1%
Capital Markets   2.8%
Chemicals   2.6%
Communications Equipment   1.0%
Construction & Engineering   1.6%
Containers & Packaging   4.4%
Electronic Equipment, Instruments & Components   6.9%
Entertainment   3.5%
Equity Real Estate Investment Trusts (REITs).   7.2%
Food & Staples Retailing   4.6%
Food Products   2.2%
Gas Utilities   4.5%
Health Care Equipment & Supplies   3.4%
Household Durables   1.4%
Insurance   7.6%
IT Services   2.3%
Leisure Products   1.1%
Life Sciences Tools & Services   6.7%
Machinery   1.9%
Oil, Gas & Consumable Fuels   6.2%
Professional Services   3.3%
Real Estate Management & Development   1.3%
Semiconductors & Semiconductor Equipment   1.2%
Software   3.0%
Trading Companies & Distributors   2.1%
Money Market Fund   4.6%
    99.5%

 

   Percentage 
Sterling Capital Real Estate Fund  of net assets 
Diversified   1.5%
Health Care   7.9%
Hotel & Resort   2.8%
Industrial   12.6%
Office   4.6%
Real Estate Development   1.1%
Residential   17.8%
Retail   10.4%
Specialized   38.3%
Money Market Fund   2.1%
    99.1%


44

 

Sterling Capital Funds

 

Summary of Portfolio Holdings (Unaudited)

 

 

   Percentage 
Sterling Capital Small Cap Value Fund  of net assets 
Aerospace & Defense   2.4%
Auto Components   1.4%
Banks   18.2%
Capital Markets   1.7%
Chemicals   2.7%
Construction & Engineering   3.0%
Electric Utilities   2.5%
Electrical Equipment   2.2%
Electronic Equipment, Instruments & Components   4.2%
Entertainment   1.6%
Equity Real Estate Investment Trusts (REITs)   6.7%
Food & Staples Retailing   9.5%
Gas Utilities   2.7%
Household Durables   2.5%
Insurance   7.8%
Life Sciences Tools & Services   2.6%
Machinery   6.1%
Oil, Gas & Consumable Fuels   3.6%
Professional Services   3.9%
Semiconductors & Semiconductor Equipment   6.0%
Software   2.6%
Specialty Retail   1.4%
Trading Companies & Distributors   3.2%
Money Market Fund   1.5%
    100.0%

 

   Percentage 
Sterling Capital Ultra Short Bond Fund  of net assets 
Asset Backed Securities   20.8%
Collateralized Mortgage Obligations   0.7%
Commercial Mortgage-Backed Securities   16.3%
Commercial Paper   1.4%
Corporate Bonds   55.8%
Municipal Bonds   0.9%
U.S. Treasury Notes   1.8%
Money Market Fund   2.3%
    100.0%

 

   Percentage 
Sterling Capital Short Duration Bond Fund  of net assets 
Asset Backed Securities   9.9%
Collateralized Mortgage Obligations   3.4%
Commercial Mortgage-Backed Securities   9.0%
Corporate Bonds   56.3%
Municipal Bonds   4.4%
U.S. Treasury Notes   16.1%
Money Market Fund   1.4%
    100.5%

 

   Percentage 
Sterling Capital Intermediate U.S. Government Fund  of net assets 
Asset Backed Securities   2.0%
Collateralized Mortgage Obligations   14.5%
Commercial Mortgage-Backed Securities   24.3%
Corporate Bonds   2.1%
Mortgage-Backed Securities   28.3%
Municipal Bonds   0.8%
U.S. Government Agencies   13.1%
U.S. Treasury Notes   13.1%
Money Market Fund   4.5%
    102.7%
   Percentage 
Sterling Capital Total Return Bond Fund  of net assets 
Asset Backed Securities   16.0%
Collateralized Mortgage Obligations   1.9%
Commercial Mortgage-Backed Securities   15.3%
Corporate Bonds   25.6%
Mortgage-Backed Securities   21.1%
Municipal Bonds   4.4%
U.S. Treasury Bonds   9.1%
U.S. Treasury Notes   6.0%
Money Market Fund   1.3%
    100.7%

 

   Percentage 
Sterling Capital Long Duration Corporate Bond Fund  of net assets 
Corporate Bonds   95.2%
U.S. Government Agencies   0.3%
U.S. Treasury Bonds   2.4%
Money Market Fund   0.7%
    98.6%

 

   Percentage 
Sterling Capital Quality Income Fund  of net assets 
Asset Backed Securities   20.3%
Collateralized Mortgage Obligations   16.6%
Commercial Mortgage-Backed Securities   25.4%
Corporate Bonds   0.9%
Mortgage-Backed Securities   29.6%
U.S. Treasury Bonds   1.3%
U.S. Treasury Notes   4.2%
Money Market Fund   2.1%
    100.4%

 

   Percentage 
Sterling Capital North Carolina Intermediate Tax-Free Fund  of net assets 
North Carolina Municipal Bonds   95.5%
Money Market Fund   3.1%
    98.6%

 

   Percentage 
Sterling Capital South Carolina Intermediate Tax-Free Fund  of net assets 
South Carolina Municipal Bonds   97.8%
Money Market Fund   1.1%
    98.9%

 

   Percentage 
Sterling Capital Virginia Intermediate Tax-Free Fund  of net assets 
District of Columbia Municipal Bonds   2.1%
Virginia Municipal Bonds   94.5%
Money Market Fund   5.2%
    101.8%

 

   Percentage 
Sterling Capital West Virginia Intermediate Tax-Free Fund  of net assets 
West Virginia Municipal Bonds   96.1%
Money Market Fund   2.9%
    99.0%


45

 

Sterling Capital Funds

 

Expense Example (Unaudited)

 

  

As a shareholder of the Sterling Capital Funds (each, a “Fund” and collectively, the “Funds”), you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchases and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses.

 

These examples are 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. These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from April 1, 2022 through September 30, 2022.

 

Actual Example

 

The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

 

Beginning

Account Value

4/1/22

Ending

Account Value

9/30/22

Expenses Paid

During Period*

4/1/22 - 9/30/22

Annualized

Expense Ratio

During Period

4/1/22 - 9/30/22

Sterling Capital Behavioral Large Cap Value Equity Fund        
Class A Shares $1,000.00 $828.46 $4.81 1.05%
Class C Shares 1,000.00 825.72 8.24 1.80%
Institutional Shares 1,000.00 829.63 3.67 0.80%
Class R6 Shares 1,000.00 830.38 2.80 0.61%
Sterling Capital Mid Value Fund        
Class A Shares 1,000.00 778.80 5.08 1.14%
Class C Shares 1,000.00 776.19 8.42 1.89%
Institutional Shares 1,000.00 779.78 3.97 0.89%
Class R6 Shares 1,000.00 780.49 3.57 0.80%
Sterling Capital Behavioral Small Cap Value Equity Fund        
Class A Shares 1,000.00 811.31 5.22 1.15%
Class C Shares 1,000.00 808.13 8.61 1.90%
Institutional Shares 1,000.00 812.11 4.04 0.89%
Class R6 Shares 1,000.00 812.27 3.63 0.80%
Sterling Capital Special Opportunities Fund        
Class A Shares 1,000.00 794.09 5.17 1.15%
Class C Shares 1,000.00 790.99 8.49 1.89%
Institutional Shares 1,000.00 795.01 4.05 0.90%
Class R6 Shares 1,000.00 795.49 3.69 0.82%
Sterling Capital Equity Income Fund        
Class A Shares 1,000.00 868.99 4.97 1.06%
Class C Shares 1,000.00 865.56 8.46 1.81%
Institutional Shares 1,000.00 869.90 3.80 0.81%
Class R6 Shares 1,000.00 870.38 3.33 0.71%
Sterling Capital Behavioral International Equity Fund        
Class A Shares 1,000.00 778.26 4.10 0.92%
Class C Shares 1,000.00 774.58 7.43 1.67%
Institutional Shares 1,000.00 778.26 2.99 0.67%
Class R6 Shares 1,000.00 779.36 2.77 0.62%
Sterling Capital SMID Opportunities Fund        
Class A Shares 1,000.00 796.31 4.68 1.04%
Class C Shares 1,000.00 793.13 8.05 1.79%
Institutional Shares 1,000.00 797.01 3.56 0.79%
Sterling Capital Mid Cap Relative Value Fund        
Class A Shares 1,000.00 837.27 5.07 1.10%
Class C Shares 1,000.00 834.56 8.05 1.75%
Institutional Shares 1,000.00 838.32 3.92 0.85%

46

 

Sterling Capital Funds

 

Expense Example (Unaudited)

 

  

Beginning

Account Value

4/1/22

Ending

Account Value

9/30/22

Expenses Paid

During Period*

4/1/22 - 9/30/22

Annualized

Expense Ratio

During Period

4/1/22 - 9/30/22

Sterling Capital Real Estate Fund      
Class A Shares $1,000.00 $751.02 $4.74 1.08%
Class C Shares 1,000.00 748.37 8.02 1.83%
Institutional Shares 1,000.00 751.91 3.65 0.83%
Class R6 Shares 1,000.00 752.36 3.21 0.73%
Sterling Capital Small Cap Value Fund      
Class A Shares 1,000.00 816.84 5.78 1.27%
Class C Shares 1,000.00 813.81 9.18 2.02%
Institutional Shares 1,000.00 817.86 4.65 1.02%
Class R6 Shares 1,000.00 818.20 4.19 0.92%
Sterling Capital Ultra Short Bond Fund      
Class A Shares 1,000.00 999.03 2.61 0.52%
Institutional Shares 1,000.00 1,000.28 1.35 0.27%
Sterling Capital Short Duration Bond Fund      
Class A Shares 1,000.00 976.84 3.72 0.75%
Class C Shares 1,000.00 974.29 7.37 1.49%
Institutional Shares 1,000.00 979.22 2.43 0.49%
Class R6 Shares 1,000.00 978.49 2.03 0.41%
Sterling Capital Intermediate U.S. Government Fund      
Class A Shares 1,000.00 938.21 3.64 0.75%
Class C Shares 1,000.00 934.53 7.27 1.50%
Institutional Shares 1,000.00 938.35 2.43 0.50%
Sterling Capital Total Return Bond Fund      
Class A Shares 1,000.00 909.40 3.35 0.70%
Class C Shares 1,000.00 905.19 6.93 1.45%
Institutional Shares 1,000.00 909.65 2.15 0.45%
Class R6 Shares 1,000.00 911.00 1.68 0.35%
Sterling Capital Long Duration Corporate Bond Fund      
Class A Shares 1,000.00 795.39 3.15 0.70%
Class C Shares 1,000.00 790.95 6.47 1.44%
Institutional Shares 1,000.00 796.40 2.03 0.45%
Class R6 Shares 1,000.00 796.76 1.62 0.45%
Sterling Capital Quality Income Fund      
Class A Shares 1,000.00 935.57 4.12 0.85%
Class C Shares 1,000.00 933.42 7.32 1.51%
Institutional Shares 1,000.00 936.86 2.91 0.60%
Sterling Capital North Carolina Intermediate Tax-Free Fund      
Class A Shares 1,000.00 956.91 4.12 0.84%
Class C Shares 1,000.00 953.25 7.79 1.59%
Institutional Shares 1,000.00 957.15 2.89 0.59%
Sterling Capital South Carolina Intermediate Tax-Free Fund      
Class A Shares 1,000.00 960.24 4.28 0.87%
Class C Shares 1,000.00 956.61 7.95 1.62%
Institutional Shares 1,000.00 961.12 3.05 0.62%
Sterling Capital Virginia Intermediate Tax-Free Fund      
Class A Shares 1,000.00 960.69 4.13 0.84%
Class C Shares 1,000.00 957.10 7.75 1.58%
Institutional Shares 1,000.00 961.90 2.90 0.59%

47

 

Sterling Capital Funds

  

Expense Example (Unaudited)

 

 

Beginning

Account Value

4/1/22

Ending

Account Value

9/30/22

Expenses Paid

During Period*

4/1/22 - 9/30/22

Annualized

Expense Ratio

During Period

4/1/22 - 9/30/22

Sterling Capital West Virginia Intermediate Tax-Free Fund      
Class A Shares $1,000.00 $958.66 $4.12 0.84%
Class C Shares 1,000.00 954.18 7.69 1.57%
Institutional Shares 1,000.00 958.94 2.90 0.59%

 

*Expenses are equal to the average account value over the period multiplied by the Fund’s annualized expense ratio, multiplied by 182 days divided by 365 (to reflect the six month period).

48

 

Sterling Capital Funds

 

Expense Example (Unaudited) 

 

  

Hypothetical Example for Comparison Purposes

 

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the 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 year. You may use this information to compare the ongoing costs of investing in a Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

 

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

Beginning

Account Value

4/1/22

Ending

Account Value

9/30/22

Expenses Paid

During Period*

4/1/22 - 9/30/22

Annualized

Expense Ratio

During Period

4/1/22 - 9/30/22

Sterling Capital Behavioral Large Cap Value Equity Fund        
Class A Shares $1,000.00 $1,019.80 $5.32 1.05%
Class C Shares 1,000.00 1,016.04 9.10 1.80%
Institutional Shares 1,000.00 1,021.06 4.05 0.80%
Class R6 Shares 1,000.00 1,022.01 3.09 0.61%
Sterling Capital Mid Value Fund        
Class A Shares 1,000.00 1,019.35 5.77 1.14%
Class C Shares 1,000.00 1,015.59 9.55 1.89%
Institutional Shares 1,000.00 1,020.61 4.51 0.89%
Class R6 Shares 1,000.00 1,021.06 4.05 0.80%
Sterling Capital Behavioral Small Cap Value Equity Fund        
Class A Shares 1,000.00 1,019.30 5.82 1.15%
Class C Shares 1,000.00 1,015.54 9.60 1.90%
Institutional Shares 1,000.00 1,020.61 4.51 0.89%
Class R6 Shares 1,000.00 1,021.06 4.05 0.80%
Sterling Capital Special Opportunities Fund        
Class A Shares 1,000.00 1,019.30 5.82 1.15%
Class C Shares 1,000.00 1,015.59 9.55 1.89%
Institutional Shares 1,000.00 1,020.56 4.56 0.90%
Class R6 Shares 1,000.00 1,020.96 4.15 0.82%
Sterling Capital Equity Income Fund        
Class A Shares 1,000.00 1,019.75 5.37 1.06%
Class C Shares 1,000.00 1,015.99 9.15 1.81%
Institutional Shares 1,000.00 1,021.01 4.10 0.81%
Class R6 Shares 1,000.00 1,021.51 3.60 0.71%
Sterling Capital Behavioral International Equity Fund        
Class A Shares 1,000.00 1,020.46 4.66 0.92%
Class C Shares 1,000.00 1,016.70 8.44 1.67%
Institutional Shares 1,000.00 1,021.71 3.40 0.67%
Class R6 Shares 1,000.00 1,021.96 3.14 0.62%
Sterling Capital SMID Opportunities Fund        
Class A Shares 1,000.00 1,019.85 5.27 1.04%
Class C Shares 1,000.00 1,016.09 9.05 1.79%
Institutional Shares 1,000.00 1,021.11 4.00 0.79%
Sterling Capital Mid Cap Relative Value Fund        
Class A Shares 1,000.00 1,019.55 5.57 1.10%
Class C Shares 1,000.00 1,016.29 8.85 1.75%
Institutional Shares 1,000.00 1,020.81 4.31 0.85%

49

 

Sterling Capital Funds

 

Expense Example (Unaudited)

 

  

Beginning

Account Value

4/1/22

Ending

Account Value

9/30/22

Expenses Paid

During Period*

4/1/22 - 9/30/22

Annualized

Expense Ratio

During Period

4/1/22 - 9/30/22

Sterling Capital Real Estate Fund        
Class A Shares $1,000.00 $1,019.65 $5.47 1.08%
Class C Shares 1,000.00 1,015.89 9.25 1.83%
Institutional Shares 1,000.00 1,020.91 4.20 0.83%
Class R6 Shares 1,000.00 1,021.41 3.70 0.73%
Sterling Capital Small Cap Value Fund        
Class A Shares 1,000.00 1,018.70 6.43 1.27%
Class C Shares 1,000.00 1,014.94 10.20 2.02%
Institutional Shares 1,000.00 1,019.95 5.16 1.02%
Class R6 Shares 1,000.00 1,020.46 4.66 0.92%
Sterling Capital Ultra Short Bond Fund        
Class A Shares 1,000.00 1,022.46 2.64 0.52%
Institutional Shares 1,000.00 1,023.71 1.37 0.27%
Sterling Capital Short Duration Bond Fund        
Class A Shares 1,000.00 1,021.31 3.80 0.75%
Class C Shares 1,000.00 1,017.60 7.54 1.49%
Institutional Shares 1,000.00 1,022.61 2.48 0.49%
Class R6 Shares 1,000.00 1,023.01 2.08 0.41%
Sterling Capital Intermediate U.S. Government Fund        
Class A Shares 1,000.00 1,021.31 3.80 0.75%
Class C Shares 1,000.00 1,017.55 7.59 1.50%
Institutional Shares 1,000.00 1,022.56 2.54 0.50%
Sterling Capital Total Return Bond Fund        
Class A Shares 1,000.00 1,021.56 3.55 0.70%
Class C Shares 1,000.00 1,017.80 7.33 1.45%
Institutional Shares 1,000.00 1,022.81 2.28 0.45%
Class R6 Shares 1,000.00 1,023.31 1.78 0.35%
Sterling Capital Long Duration Corporate Bond Fund        
Class A Shares 1,000.00 1,021.56 3.55 0.70%
Class C Shares 1,000.00 1,017.85 7.28 1.44%
Institutional Shares 1,000.00 1,022.81 2.28 0.45%
Class R6 Shares 1,000.00 1,022.81 1.83 0.45%
Sterling Capital Quality Income Fund        
Class A Shares 1,000.00 1,020.81 4.31 0.85%
Class C Shares 1,000.00 1,017.50 7.64 1.51%
Institutional Shares 1,000.00 1,022.06 3.04 0.60%
Sterling Capital North Carolina Intermediate Tax-Free Fund        
Class A Shares 1,000.00 1,020.86 4.26 0.84%
Class C Shares 1,000.00 1,017.10 8.04 1.59%
Institutional Shares 1,000.00 1,022.11 2.99 0.59%
Sterling Capital South Carolina Intermediate Tax-Free Fund        
Class A Shares 1,000.00 1,020.71 4.41 0.87%
Class C Shares 1,000.00 1,016.95 8.19 1.62%
Institutional Shares 1,000.00 1,021.96 3.14 0.62%
Sterling Capital Virginia Intermediate Tax-Free Fund        
Class A Shares 1,000.00 1,020.86 4.26 0.84%
Class C Shares 1,000.00 1,017.15 7.99 1.58%
Institutional Shares 1,000.00 1,022.11 2.99 0.59%

50

 

Sterling Capital Funds

 

Expense Example (Unaudited)

 

  

Beginning

Account Value

4/1/22

Ending

Account Value

9/30/22

Expenses Paid

During Period*

4/1/22 - 9/30/22

Annualized

Expense Ratio

During Period

4/1/22 - 9/30/22

Sterling Capital West Virginia Intermediate Tax-Free Fund        
Class A Shares $1,000.00 $1,020.86 $4.26 0.84%
Class C Shares 1,000.00 1,017.20 7.94 1.57%
Institutional Shares 1,000.00 1,022.11 2.99 0.59%

 

*Expenses are equal to the average account value over the period multiplied by the Fund’s annualized expense ratio, multiplied by 182 days divided by 365 (to reflect the six month period).

51

 

Sterling Capital Behavioral Large Cap Value Equity Fund

 

Schedule of Portfolio Investments

September 30, 2022

 

  

Shares      Fair Value 
COMMON STOCKS — 99.5%    
          
    Aerospace & Defense — 3.1%     
2,200   General Dynamics Corp.  $466,774 
1,000   Lockheed Martin Corp.    386,290 
        853,064 
          
    Air Freight & Logistics — 2.2%     
1,800   FedEx Corp.    267,246 
2,200   United Parcel Service, Inc., Class B    355,388 
        622,634 
          
    Automobiles — 0.5%     
3,650   Harley-Davidson, Inc.    127,312 
          
    Banks — 6.1%     
4,453   Bank OZK    176,161 
1,950   Comerica, Inc.    138,645 
5,350   First Hawaiian, Inc.   131,771 
12,450   FNB Corp.   144,420 
10,150   Huntington Bancshares, Inc.   133,777 
3,200   PNC Financial Services Group, Inc. (The)   478,144 
2,000   Popular, Inc.    144,120 
6,400   Regions Financial Corp.    128,448 
3,750   Synovus Financial Corp.    140,662 
1,800   Webster Financial Corp.    81,360 
        1,697,508 
          
    Biotechnology — 7.3%     
2,650   AbbVie, Inc.    355,656 
1,250   Amgen, Inc.    281,750 
7,950   Gilead Sciences, Inc.    490,436 
750   Regeneron Pharmaceuticals, Inc.(a)    516,652 
1,400   Vertex Pharmaceuticals, Inc.(a)    405,356 
        2,049,850 
          
    Building Products — 0.4%     
1,600   Owens Corning    125,776 
          
    Capital Markets — 5.8%     
4,500   Bank of New York Mellon Corp. (The)    173,340 
3,900   Carlyle Group, Inc. (The)    100,776 
2,250   CME Group, Inc.   398,542 
650   LPL Financial Holdings, Inc.    142,012 
6,500   Morgan Stanley    513,565 
1,600   Raymond James Financial, Inc .   158,112 
5,800   Virtu Financial, Inc., Class A    120,466 
        1,606,813 
          
    Chemicals — 2.6%     
1,800   CF Industries Holdings, Inc.    173,250 
4,000   Chemours Co. (The)    98,600 
7,700   Dow, Inc.    338,261 
1,400   Westlake Corp.   121,632 
        731,743 
          
    Communications Equipment — 0.2%     
1,650   Cisco Systems, Inc.   66,000 
Shares      Fair Value 
COMMON STOCKS — (continued)     
          
    Consumer Finance — 1.0%     
1,500   Discover Financial Services   $136,380 
9,300   SLM Corp.    130,107 
        266,487 
          
    Diversified Consumer Services — 0.6%     
3,700   H&R Block, Inc.   157,398 
          
    Diversified Financial Services — 0.3%     
1,950   Apollo Global Management, Inc.    90,675 
          
    Diversified Telecommunication Services — 2.5% 
34,800   AT&T, Inc.    533,832 
4,200   Lumen Technologies, Inc.    30,576 
3,357   Verizon Communications, Inc.    127,465 
        691,873 
          
    Electric Utilities — 3.7%     
4,800   American Electric Power Co., Inc.    414,960 
1,750   Duke Energy Corp.   162,785 
6,900   Southern Co. (The)   469,200 
        1,046,945 
          
    Electrical Equipment — 0.5%     
4,300   nVent Electric PLC   135,923 
         
    Electronic Equipment, Instruments & Components — 0.5% 
2,350   Jabil, Inc.    135,619 
      
    Equity Real Estate Investment Trusts (REITs) — 5.2% 
7,350   Brixmor Property Group, Inc.    135,755 
3,150   EPR Properties    112,959 
6,900   Realty Income Corp.    401,580 
3,350   Simon Property Group, Inc.    300,662 
3,000   Spirit Realty Capital, Inc.    108,480 
13,050   VICI Properties, Inc.    389,542 
        1,448,978 
          
    Food & Staples Retailing — 1.9%     
5,550   Albertsons Cos., Inc., Class A    137,973 
8,950   Kroger Co. (The)    391,563 
        529,536 
          
    Food Products — 3.7%     
5,800   Archer-Daniels-Midland Co.    466,610 
2,550   General Mills, Inc.   195,355 
10,750   Kraft Heinz Co. (The)    358,513 
        1,020,478 
          
    Gas Utilities — 0.5%     
2,200   National Fuel Gas Co.    135,410 
          
    Health Care Providers & Services — 7.9%     
5,400   Centene Corp.(a)    420,174 
1,200   Cigna Corp.    332,964 
6,300   CVS Health Corp.   600,831 
824   Elevance Health, Inc.    374,294 


See accompanying Notes to the Financial Statements.

52

 

Sterling Capital Behavioral Large Cap Value Equity Fund

  

Schedule of Portfolio Investments — (continued)

September 30, 2022

 

 

Shares      Fair Value 
COMMON STOCKS — (continued)   
    Health Care Providers & Services — (continued) 
1,424   McKesson Corp.  $483,975 
        2,212,238 
          
    Hotels, Restaurants & Leisure — 0.4%     
2,600   Boyd Gaming Corp.   123,890 
          
    Household Products — 0.4%     
1,500   Colgate-Palmolive Co.   105,375 
          
    Insurance — 4.5%     
2,150   Aflac, Inc.   120,830 
1,400   Chubb, Ltd.   254,632 
6,500   MetLife, Inc.   395,070 
3,950   Prudential Financial, Inc.   338,831 
4,100   Unum Group   159,080 
        1,268,443 
    IT Services — 3.4%     
5,700   Cognizant Technology Solutions Corp., Class A   327,408 
2,250   Fiserv, Inc.(a)   210,532 
3,350   International Business Machines Corp.   398,014 
        935,954 
          
    Machinery — 2.3%     
3,850   Allison Transmission Holdings, Inc.   129,976 
550   Crane Holdings Co.   48,147 
1,100   Deere & Co.   367,279 
550   Snap-on, Inc.   110,743 
        656,145 
          
    Media — 4.7%     
1,000   Charter Communications, Inc., Class A(a)   303,350 
12,200   Comcast Corp., Class A   357,826 
4,050   Fox Corp., Class A   124,254 
4,250   Fox Corp., Class B   121,125 
894   Nexstar Media Group, Inc.   149,164 
2,000   Omnicom Group, Inc.   126,180 
23,300   Sirius XM Holdings, Inc.   133,043 
        1,314,942 
          
    Metals & Mining — 1.5%     
1,400   Nucor Corp.   149,786 
750   Reliance Steel & Aluminum Co.   130,807 
2,000   Steel Dynamics, Inc.   141,900 
        422,493 
          
    Mortgage Real Estate Investment Trusts (REITs) — 0.8%     
11,400   AGNC Investment Corp.   95,988 
6,350   Starwood Property Trust, Inc.   115,697 
        211,685 
          
    Multi-Utilities — 2.6%     
4,600   Consolidated Edison, Inc.   394,496 
Shares      Fair Value 
COMMON STOCKS — (continued)     
    Multi-Utilities — (continued)     
2,150   Sempra Energy  $322,371 
        716,867 
          
    Oil, Gas & Consumable Fuels — 8.8%     
5,400   ConocoPhillips   552,636 
3,450   EOG Resources, Inc.   385,469 
9,950   Exxon Mobil Corp.   868,734 
5,050   Occidental Petroleum Corp.   310,322 
1,550   Pioneer Natural Resources Co.   335,622 
        2,452,783 
          
    Pharmaceuticals — 4.5%     
9,300   Bristol-Myers Squibb Co.   661,137 
6,750   Merck & Co., Inc.   581,310 
        1,242,447 
          
    Semiconductors & Semiconductor Equipment — 3.3%
776   Broadcom, Inc.   344,552 
750   KLA Corp.   226,972 
5,600   Microchip Technology, Inc.   341,768 
        913,292 
          
    Specialty Retail — 2.8%     
1,200   AutoNation, Inc.(a)   122,244 
190   AutoZone, Inc.(a)   406,967 
200   O'Reilly Automotive, Inc.(a)   140,670 
1,200   Penske Automotive Group, Inc.   118,116 
        787,997 
          
    Technology Hardware, Storage & Peripherals — 0.6% 
10,550   Hewlett Packard Enterprise Co.   126,389 
2,000   HP, Inc.   49,840 
        176,229 
          
    Thrifts & Mortgage Finance — 0.4%     
9,750   MGIC Investment Corp.   124,995 
          
    Tobacco — 1.7%     
11,450   Altria Group, Inc.   462,351 
          
    Trading Companies & Distributors — 0.3% 
3,800   Univar Solutions, Inc.(a)   86,412 
          
    Total Common Stocks     
    (Cost $28,446,579)   27,754,560 


Continued

53

 

Sterling Capital Behavioral Large Cap Value Equity Fund

 

Schedule of Portfolio Investments — (continued)

September 30, 2022

 

 

Shares      Fair Value 
MONEY MARKET FUND — 0.2%    
52,736   Federated Treasury Obligations Fund, Institutional Shares, 2.84%(b)  $52,736 
          
    Total Money Market Fund     
    (Cost $52,736)   52,736 
          
Total Investments  — 99.7%     
(Cost $28,499,315)   27,807,296 
Net Other Assets (Liabilities) — 0.3%   78,165 
NET ASSETS — 100.0%  $27,885,461 

 

 

(a)Represents non-income producing security.
(b)Represents the current yield as of report date.

 

Continued

54

 

Sterling Capital Mid Value Fund

 

Schedule of Portfolio Investments

September 30, 2022

 

  

Shares      Fair Value 
COMMON STOCKS — 97.9%     
    Auto Components — 2.5%     
48,946   Gentex Corp.  $1,166,873 
          
    Banks — 6.0%     
9,843   M&T Bank Corp.   1,735,518 
13,805   SouthState Corp.   1,092,251 
        2,827,769 
          
    Chemicals — 4.0%     
32,785   Corteva, Inc.   1,873,663 
          
    Consumer Finance — 4.6%     
105,399   SLM Corp.   1,474,532 
24,950   Synchrony Financial   703,340 
        2,177,872 
          
    Containers & Packaging — 3.2%     
18,402   Crown Holdings, Inc.   1,491,114 
          
    Electric Utilities — 3.4%     
32,365   ALLETE, Inc.   1,619,868 
          
    Electrical Equipment — 2.3%     
28,926   Sensata Technologies Holding PLC   1,078,361 
          
    Energy Equipment & Services — 0.7%     
24,095   Core Laboratories NV   324,801 
          
    Entertainment — 2.5%     
10,683   Take-Two Interactive Software, Inc.(a)   1,164,447 
          
    Health Care Providers & Services — 15.8% 
23,318   Centene Corp.(a)   1,814,373 
5,651   Cigna Corp.   1,567,983 
19,255   Encompass Health Corp.   870,904 
5,834   Laboratory Corp. of America Holdings   1,194,861 
5,825   McKesson Corp.   1,979,743 
        7,427,864 
          
    Hotels, Restaurants & Leisure — 2.0%     
7,665   Hilton Worldwide Holdings, Inc.   924,552 
          
    Household Durables — 3.9%     
6,524   Mohawk Industries, Inc.(a)   594,924 
51,180   Tempur Sealy International, Inc.   1,235,485 
        1,830,409 
          
    Household Products — 1.4%     
16,805   Spectrum Brands Holdings, Inc.   655,899 
          
    Insurance — 9.6%     
5,517   Enstar Group, Ltd.(a)   935,628 
18,089   Globe Life, Inc.   1,803,473 
9,848   Lincoln National Corp.   432,426 
1,219   Markel Corp.(a)   1,321,664 
        4,493,191 
          
    Interactive Media & Services — 1.3%     
11,281   IAC, Inc.(a)   624,742 
Shares      Fair Value 
COMMON STOCKS — (continued)   
    Internet & Direct Marketing Retail — 1.3% 
16,994   eBay, Inc.  $625,549 
          
    IT Services — 5.2%     
12,718   Euronet Worldwide, Inc.(a)   963,516 
13,637   Global Payments, Inc.   1,473,478 
        2,436,994 
          
    Machinery — 3.2%     
69,482   Trinity Industries, Inc.   1,483,441 
          
    Media — 2.6%     
16,762   Liberty Broadband Corp., Class C(a)   1,237,036 
          
    Oil, Gas & Consumable Fuels — 4.3%     
59,697   CNX Resources Corp.(a)   927,094 
5,019   Pioneer Natural Resources Co.   1,086,764 
        2,013,858 
          
    Professional Services — 5.5%     
13,091   ASGN, Inc.(a)   1,183,034 
12,976   Jacobs Solutions, Inc.   1,407,766 
        2,590,800 
          
    Real Estate Management & Development — 2.6% 
17,987   CBRE Group, Inc., Class A(a)   1,214,302 
          
    Software — 2.8%     
68,875   NCR Corp.(a)   1,309,314 
          
    Specialty Retail — 1.8%     
12,501   CarMax, Inc.(a)   825,316 
          
    Thrifts & Mortgage Finance — 3.1%     
76,210   Radian Group, Inc.   1,470,091 
          
    Trading Companies & Distributors — 2.3% 
35,591   Air Lease Corp.   1,103,677 
          
    Total Common Stocks     
    (Cost $40,213,845)   45,991,803 
          
MONEY MARKET FUND — 2.1%     
      
996,660   Federated Treasury Obligations Fund, Institutional Shares, 2.84%(b)    996,660 
          
    Total Money Market Fund     
    (Cost $996,660)   996,660 
          
Total Investments  — 100.0%     
(Cost $41,210,505)   46,988,463 
Net Other Assets (Liabilities) — 0.0%   (19,293)
NET ASSETS — 100.0%  $46,969,170 

 

 

(a)Represents non-income producing security.
(b)Represents the current yield as of report date.


See accompanying Notes to the Financial Statements.

55

 

Sterling Capital Behavioral Small Cap Value Equity Fund

 

Schedule of Portfolio Investments

September 30, 2022

 

 

Shares      Fair Value 
COMMON STOCKS — 99.1%     
    Aerospace & Defense — 0.2%     
1,318   Textron, Inc.  $76,787 
          
    Air Freight & Logistics — 1.7%     
6,330   Air Transport Services Group, Inc.(a)   152,490 
4,834   Atlas Air Worldwide Holdings, Inc.(a)   461,985 
        614,475 
          
    Airlines — 0.3%     
2,864   Alaska Air Group, Inc.(a)   112,126 
          
    Automobiles — 0.4%     
3,695   Harley-Davidson, Inc.   128,882 
          
    Banks — 18.1%     
3,106   1st Source Corp.   143,808 
5,205   Ameris Bancorp   232,716 
10,590   Associated Banc-Corp   212,647 
8,519   Banc of California, Inc.   136,048 
5,334   Bank OZK   211,013 
5,999   BankUnited, Inc.   204,986 
5,913   Byline Bancorp, Inc.   119,738 
5,561   Cathay General Bancorp   213,876 
3,572   Community Trust Bancorp, Inc.   144