Sterling Capital Stratton Real Estate Fund Overview

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1 Sterling Capital Stratton Real Estate Fund Overview Investment Objective The Sterling Capital Stratton Real Estate Fund seeks total return through investment in real estate securities. The Fund invests primarily in common stock of real estate and real estate-related companies. We believe that real estate assets are an important part of a diversified portfolio and can provide an attractive combination of capital appreciation and current income. We view real estate securities as offering investors a cost-effective, liquid way to participate in the asset class. The Fund uses a combination of quantitative and qualitative measures, including underlying real estate values, earnings multiples, geographic and tenant concentrations, balance sheet metrics, company strategies, and management capability, to identify the most attractive securities on a relative valuation basis within each property subsector. Effective November 16, 2015, Sterling Capital Management changed the name of the Stratton Real Estate Fund to the Sterling Capital Stratton Real Estate Fund. The name was changed as a result of the Stratton Fund being reorganized into the Sterling Capital Funds. Fund Information Performance Portfolio Manager Ticker Fund Net Assets Andrew T. DiZio, CFA STMDX $91 million Minimum Investment $2,000 Total Operating Expenses (1) 0.96% Inception Date May 30, 1980 (1) For fiscal year ended 12/31/14 (2) (3) The FTSE NAREIT All Equity REIT Index is the Fund s primary benchmark. The MSCI US REIT Index is a widely followed real estate index. See page 5 for additional details The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher. Performance data current to the most recent month-end may be obtained at: or call (888) The investment return and principal value of an investment will fluctuate so that shares, when re-deemed, may be worth more or less than their original cost. Investors may incur a fee of 1.50% if shares are redeemed or exchanged within 120 days of purchase. Annualized Q YTD 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs. Sterling Capital Stratton Real Estate Fund 0.59% -5.27% 7.75% 9.13% 10.89% 6.94% FTSE NAREIT All Equity REIT Index (2) 0.99% -4.51% 7.84% 9.04% 11.86% 6.75% MSCI US REIT Index (3) 2.06% -4.26% 9.47% 9.45% 11.95% 6.80% Key Quarterly Performance Notes The Fund posted a total return of 0.59% during the three month period ended September 30, The Fund underperformed the FTSE NAREIT All Equity REIT Index by 40 basis points and the MSCI US REIT Index by 147 basis points in the quarter. Absolute Performance Drivers: Third quarter REIT performance was more diverse than recent quarters, with property subsector returns varying widely. Within the portfolio, Self Storage, Residential, and Retail were the top performing subsectors. Lodging was the worst performer by far, falling over 10% in a quarter where the overall portfolio was nearly flat. Relative Performance Drivers: Underperformance versus the FTSE NAREIT All Equity REIT Index was driven primarily by negative stock selection within the Health Care subsector and an overweight of Lodging, partially offset by benefits from both allocation and stock selection within Retail, Diversified, and Infrastructure. This information must be preceded or accompanied by the current Prospectus for the Funds. You should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. The Prospectus should be read carefully before investing.

2 Sterling Capital Stratton Real Estate Fund Market Commentary Real Estate Market Review The third quarter of 2015 was generally characterized by a stabilization of REIT shares after second quarter s negative absolute performance. As global growth concerns increased through the quarter, REIT performance relative to the broader market improved. The FTSE NAREIT All Equity REIT Index gained 0.99% this past quarter, 743 basis points better than the S&P 500. Interest rate movements again influenced REIT performance, with the sector outperforming broader markets as the 10 year U.S. Treasury yield fell to 2.06% at quarter end from 2.34% at June 30. Self Storage was the top-performing subsector in the quarter. The combination of limited new supply, persistent demand improvement from individuals and small businesses, and the technology advantage enjoyed by the few large operators in a highly fragmented industry supported continued NOI growth. Residential and Retail REITs were also relative outperformers in the quarter. Apartment rental rate increases re-accelerated during the spring leasing season, driving positive earnings revisions for Residential REITs. Retail landlords benefitted from an improving U.S. consumer and retailers demand for top locations, which many of the REITs can offer. Lodging was the worst performing subsector of the quarter by far. Concerns over a demand slowdown driven by falling inbound international travel and reductions in corporate travel were abetted by multiple public company guidance cuts. Outlook Third quarter s global growth scare, driven by concerns over a slowdown in Chinese growth, Middle East unrest, and ongoing dysfunction in American politics all served as a reminder that stocks, such as REITs, with growing streams of contractual cash flows have an important place in the prudent investor s portfolio. We believe market volatility will remain elevated in coming quarters, supporting demand for REITs and other companies with predictable cash flow. There currently exists a disconnect between public market valuations and private market pricing for properties, with REITs trading below the value of their assets. Moreover, REITs are, in our opinion, of higher quality (physical properties, balance sheets, and management teams) than at any time in the industry s public history and are drawing increased interest from private equity and sovereign wealth firms looking to own real estate as well as an operating platform. Should REIT discounts to net asset value persist, we believe that the five REITs acquired by private equity investors this year will represent just the beginning of a medium-term privatization trend. Our strategy remains focused on owning REITs that create value organically through property development, redevelopment, and improved leasing economics. We look for these internal growth, or value creation, strategies to meaningfully outperform over the long-term, regardless of the interest rate environment. Subsector Performance: U.S. Equity REIT Market Self Storage Residential Retail Health Care Industrial/Office Diversified Infrastructure Timber Lodging FTSE NAREIT Al Equity REIT Index % Total Return by Property Subsector - 3Q This chart depicts the total return performance of the constituents of the FTSE NAREIT All Equity REIT Index by property type. Constituents are separated by the type of real estate owned, with each security included in only one category. The bar adjacent to each property type shows the equity market cap weighted total percentage return. Categories are determined by FTSE NAREIT. 2

3 Sterling Capital Stratton Real Estate Fund Third Quarter 2015 Performance Attribution Analysis Top Contributors Simon Property Group CubeSmart Mid-America Apartment Comm UDR, Inc. Sovran Self Storage Bottom Contributors Medical Properties Trust Chesapeake Lodging Trust Communications Sales & Leasing Starwood Hotels & Resorts RLJ Lodging Trust Relative Return: Sector Allocation (%) Relative Return: Stock Selection (%) Relative Contributors Stock selection within, as well as an overweight allocation to, the Retail subsector. Fund holdings Simon Property Group and Federal Realty were notable relative outperformers. Infrastructure subsector. Fund holding Crown Castle International was a notable relative outperformer. Diversified subsector. Fund holdings W.P. Carey and Digital Realty were relative outperformers Diversified Health Care Industrial/ Office Relative Return: Total Effect (%) Infrastructure Lodging Other Residential Retail Self Storage Timber Relative Detractors An overweight allocation to the Lodging subsector, including ownership of Marriott and Starwood which are non-reits in the Other subsector. The negative impact was partially offset by positive Lodging REIT stock selection. Stock selection within the Health Care subsector. Medical Properties Trust was a meaningful underperformer. Self Storage subsector. Despite outperforming the REIT market, Sovran Self Storage underperformed its subsector peer group Diversified Health Care Industrial/ Office Infrastructure Lodging Other Residential Retail Self Storage Timber 3

4 Sterling Capital Stratton Real Estate Fund Portfolio Characteristics Subsector Allocation Retail: 27.02% Residential: 16.16% Industrial/Office: % Health Care: 9.42% Lodging: 8.67% Diversified: 7.01% Relative Subsector Exposures Retail Other Lodging Resi dential Self Storage Health Care Top 10 Holdings % of Net Assets (1) Infrastructure: 6.42% Self Storage: 5.47% Other: 3.40% Cash: 2.88% Timber: 0.00% Simon Property Group, Inc. 8.60% Crown Castle International Corp. 5.18% UDR, Inc. 3.40% The Macerich Company 3.36% General Growth Properties, Inc. 3.27% Essex Property Trust, Inc. 3.18% SL Green Realty Corp. 3.08% Vornado Realty Trust 2.97% Acadia Realty Trust 2.88% Equity Residential 2.88% (1) Current and future portfolio holdings are subject to change and risk at any time Infrastructure Industrial/Office Timber Diversified Portfolio Characteristics % Over/Under Weighting versus FTSE NAREIT All Equity REIT Index Sterling Capital Stratton Real Estate Fund FTSE NAREIT All Equity REIT Index Number of Holdings Median Market Cap $6,034mm $2,731mm Wgt. Avg. Market Cap $13,984mm $16,596mm Price/FFO 16.6x 17.2x Price/ReNAV 95% 95% Wgt. Avg. Dividend Yield (2) 2.98% (SEC Yield) 3.75% Estimated 1-2 Year FFO Growth Rate 8.9% 7.7% Net Debt / EBITDA 5.1x 4.8x Beta (3 Year, Weekly) Terms and definitions for portfolio characteristics can be found on page 5. (2) The Fund s SEC Yield (defined on p. 5) and the weighted average yield of the Index. The Fund s weighted average yield was 3.67% as-of September 30,

5 Risk Considerations: The Fund will invest in Real Estate Investment Trusts ( REITs ) which may be negatively affected by conditions in the real estate industry such as declining property values due to unanticipated economic developments. The Fund may invest in debt securities which may fall in value if interest rates rise. The Fund may also invest in foreign securities which may cause greater volatility and less liquidity due to currency fluctuations., political instability, and other economic factors. Index Details The FTSE NAREIT All Equity REIT Index is an unmanaged index (with no defined investment objective). The Index contains all tax-qualified REITs with more than 50% of total assets in qualifying real estate assets, other than mortgages secured by real property, that also meet minimum size and liquidity criteria. Indices are not securities that can be purchased or sold, and their total returns are reflective of unmanaged portfolios. The returns include reinvestment of interest, capital gains and dividends. The Stratton Real Estate Fund is benchmarked against this index. The MSCI US REIT Index is an unmanaged index (with no defined investment objective). The Index broadly and fairly represents the equity REIT opportunity set with proper screens to ensure that the index is investable and replicable. The index represents approximately 85% of the US REIT universe. Indices are not securities that can be purchased or sold, and their total returns are reflective of unmanaged portfolios. The returns include reinvestment of interest, capital gains and dividends. As the only U.S. REIT index calculated daily in real time, the MSCI Index is well-known to investors and returns are shown tor comparison purposes only. Terms and Definitions Portfolio Characteristics on page 4 are measured by the following calculations and methodologies as of the end of the period under discussion: Market Cap: Total value of shares outstanding Price: Common stock price FFO: Funds from operations, or FFO, is considered by industry analysts as an appropriate measure of earnings performance for an equity REIT. Generally, FFO adjusts net income for non-cash charges such as depreciation and amortization of rental properties, impairment charges, gains/losses on sales of real estate, and extraordinary items. FFO is not a generally accepted account principle (GAAP), but has been defined by the National Association of Real Estate Investment Trusts (NAREIT) as a standard measure since ReNAV: Real Estate Net Asset Value, or ReNAV, is a commonly used metric to estimate the adjusted book value of a Real Estate Investment Trust (REIT). NAV is the mark-to-market value of a company s common equity calculated by applying an estimate of private market values to the company s real estate and other assets and deducting all liabilities. NAV is often presented on a per-share basis. SEC Yield: A non-money market fund's SEC yield is based on a formula mandated by the Securities and Exchange Commission (SEC) that calculates a fund's hypothetical annualized income as a percentage of its assets. The Fund s income, for the purposes of this calculation, is based on the projected dividend yield of the fund's holdings over a trailing 30 day period. This hypothetical income will differ (at times, significantly) from the fund's actual experience; as a result, income distributions from the fund may be higher or lower than implied by the SEC yield. 1-2 Year Estimated Growth: FactSet mean consensus estimate of 1-2 year FFO growth Net Debt: Debt minus cash EBITDA: Earnings before interest, taxes, depreciation, and amortization Beta: Three year beta versus the FTSE NAREIT All Equity REIT Index. Beta is a measure of volatility, or systematic risk. Sterling Capital Management LLC a separate subsidiary of BB&T Corporation, serves as investment adviser to the Sterling Capital Funds and is paid a fee for its services. Shares of the Sterling Capital Funds are not deposits or obligations of, or guaranteed or endorsed by, Branch Banking and Trust Company or its affiliates. The funds are not insured by the FDIC or any other government agency. The funds are distributed by Sterling Capital Distributors LLC, which is not affiliated with Branch Banking and Trust Company or its affiliates. 5