Our Funds: Chou Opportunity Fund || Chou Income Fund

Chou Income Fund

Investment Objective

The investment objective of the Chou Income Fund (the “Income Fund”) is to provide capital appreciation and income production, with capital preservation as a secondary consideration.

Principal Investment Strategies

Under normal market conditions, the Income Fund will invest at least 80% of its net assets in fixed-income securities (which includes other forms of indebtedness), financial instruments that provide exposure to fixed-income securities, and preferred stock. The Income Fund’s fixed-income investments principally will include U.S. and non-U.S. government and municipal securities, distressed securities, corporate debt (both investment grade and below-investment grade), income trusts, bank debt and deposits, commercial paper, variable and floating rate securities, Rule 144A securities, pay-in-kind securities, loan participation interests, mortgage or asset-backed securities, preferred stock and convertible securities. The Income Fund also may invest in money market funds that invest principally in U.S. Treasury bills, notes and bonds and repurchase agreements backed by such securities. The Income Fund may invest in fixed-income securities in both developed markets and emerging markets. Portfolio holdings are typically concentrated without limits as to factors such as geography, the size of an issuer, the issuer’s earnings or the industry in which an issuer operates.

The Income Fund may invest in distressed securities and corporate bonds or other indebtedness that are rated below-investment grade. These are securities generally rated in the lower rating categories (“Baa3” or lower by Moody’s Investors Service (“Moody’s”) or “BBB-” or lower by Standard & Poor’s Ratings Group (“S&P”), or a comparable rating) by at least one nationally recognized statistical rating organization at the time of investment or, if unrated, are determined to be of comparable quality by the Portfolio Manager.

Chou may also invest the Income Fund’s assets in short-term fixed-income securities or bank deposits during periods of high market valuations and volatility. This strategy may permit Chou to preserve capital while awaiting more favorable market conditions.

The Income Fund may invest up to 20% of its net assets in equity securities (other than preferred stock and convertible securities), including common stock, American Depositary Receipts (“ADRs”), pooled investment vehicles, including private equity, hedge funds, rights, and warrants.

The Income Fund may use financial instruments (including derivatives) as part of its principal investment strategies, as more fully described in the prospectus. The Income Fund may also lend securities in its portfolio in order to earn additional income and manage its portfolio. Cash collateral received in connection with a loan of a portfolio security will generally be invested in short-term investments such as repurchase agreements or money market funds.

Principal Risks

The Income Fund’s net asset value (“NAV”) and investment return will fluctuate based upon changes in the value of its portfolio securities. You could lose money on your investment in the Income Fund or the Income Fund could underperform other investments. An investment in the Income Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. For the primary risk details, please read our Prospectus.

Fees & Expenses

Shareholder Fees (fees paid directly from your investment)  
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of the sale price) None
Maximum Deferred Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions (as a percentage of the offering price) None
Redemption Fee (as a percentage of amount redeemed within 120 days of purchase, if applicable) 2.00%
Exchange Fee None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the offering price)  
Management Fees 1.00%
Distribution/Service (12b-1) Fees 0.00%
Other Expenses 1.10%
Total Annual Fund Operating Expenses 2.10%
Waivers and Reimbursements (0.90)%
Total Annual Fund Operating Expenses After Waivers and Reimbursements(1) 1.20%

(1) Chou America Management Inc. (“Chou” or the “Adviser”) has contractually agreed to waive a portion of its fee and/or reimburse Income Fund expenses to limit Total Annual Fund Operating Expenses (excluding other expenses, taxes, leverage interest, acquired fund fees and expenses, dividends or interest on short positions, other interest expenses, brokerage commissions, and extraordinary expenses such as litigation) to 1.20% through at least May 1, 2018 (“Expense Cap”). The Expense Cap may be changed or eliminated at any time with the consent of the Board of Trustees of Chou America Mutual Funds (the “Board”). Net Annual Fund Operating Expenses will increase if exclusions from the Expense Cap apply.

Top Holdings

As of June 30, 2017
Ranking Security Name Security Type Percentage of Assets
1
UNION BANK INSTL TR DEPO Cash
22.64%
2.A
    EXCO RESOURCES TL 1.75L (12.5% CASH-15.0% PIK Oct-26-2020) Term Loan
12.25%
2.B
    EXCO RESOURCES INC (8.50% Apr-15-2022) Bond
0.68%
2.C
    EXCO RESOURCES INC Common Stock
0.18%
EXCO RESOURCES (TOTAL)  
13.11%
3
ASCENT CAPITAL GROUP INC (CONV 4.00% Jul-15-2020) Convertible Bond
12.25%
4
UKRLANDFARMING PLC (10.875% Mar-26-2018) Bond
7.00%
5
WOW UNLIMITED MEDIA INC Common Stock
6.94%
6
WESTMORELAND COAL CO (8.75% Jan-01-2022) Bond
5.06%
7
RESOLUTE FOREST PRODUCTS (5.88% May-15-2023) Bond
4.47%
8.A
    SEARS ROEBUCK ACCEPTANCE (7.00% Jul-15-2042) Preferred Stock
2.61%
8.B
    SEARS ROEBUCK ACCEPTANCE (7.40% Feb-01-2043) Preferred Stock
1.86%
  SEARS ROEBUCK ACCEPTANCE (TOTAL)  
4.47%
9
INTERNATIONAL AUTOMATIVE COMPONENTS (9.125% Jun-01-2018) Bond
4.46%
10
VALEANT PHARMACEUTICALS (6.125% Apr-15-2025) Bond
3.88%
  TOTAL TOP 10 HOLDINGS  
84.30%