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
811-23289
(Exact name of registrant as specified in charter)
3344 Peachtree Rd. NE, Suite 1725
Atlanta, Georgia 30326
(Address of principal executive offices) (Zip code)
Adam Langley, President
3344 Peachtree Rd. NE, Suite 1725
Atlanta, Georgia 30326
(Name and address of agent for service)
Copy to:
Douglas P. Dick
Stephen T. Cohen
Dechert LLP
1900 K Street NW
Washington, DC 20006
404-953-4900
Registrant’s telephone number, including area code
Date of fiscal year end: January 31
Date of reporting period: January 31, 2024
Item 1. Reports to Stockholders.
| (a) |
Annual Report
January 31, 2024
Angel Oak Strategic Credit Fund
Angel Oak Capital Advisors, LLC
3344 Peachtree Road NE
Suite 1725
Atlanta, GA 30326
(404)
953-4900
Table of Contents
| 1 | ||||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| 7 | ||||
| 8 | ||||
| 9 | ||||
| 11 | ||||
| 18 | ||||
| 28 | ||||
| 29 | ||||
| 36 | ||||
Angel Oak Strategic Credit Fund
How did the Fund perform during the period?
For the
12-month
period that ended January 31, 2024, the Angel Oak Strategic Credit Fund’s Institutional Shares (ASCIX) returned 9.92%1
, while the Fund’s FI Shares (ASCNX) returned 9.92%2
. During the same period, the Fund’s benchmark, the Bloomberg U.S. Aggregate Bond Index, returned 2.10%. What were the main contributors to and detractors from the Fund’s performance during the period?
All sectors but the
non-agency
commercial mortgage-backed securities (CMBS) allocation, which only made up 1.19% of Fund assets at the end of the period, have outperformed the benchmark for the one-year
period. Non-agency
residential mortgage-backed securities (RMBS) currently stand at 68.33% of the Fund and produced a total return of 13.73% for the trailing 12 months, contributing 9.48% to the Fund’s performance. At the end of the period, the estimated yield for the non-agency
RMBS portion was 8.09%. Lower rates, lower volatility, and tighter credit spreads resulted in solid performance for most areas of mortgage credit. We favor an overweight to U.S. residential mortgage credit at this point in the economic cycle for its robust fundamentals, including record amounts of home equity, surging wages, and a systemic supply-and-demand
Non-qualified
mortgages and mortgage insurance remain the Fund’s largest subsector holdings in residential mortgage credit, each at approximately 20% of the portfolio. The asset-backed securities (ABS) allocation added 0.93% for the period on a total return of 5.59%. The collateral performance of some of the deals backed by subprime auto and consumer loans was a detractor from performance for the period given that some of the weaker borrowers struggled with inflation and higher borrowing cost. We still see opportunity for further spread tightening through the end of 2024 and find the
all-in
yields offered to be quite attractive. The sector allocation continued to focus on short-duration, lower-rated tranches, mostly in the subprime auto and consumer loan sectors. At the end of the period, ABS was approximately 15.8% of the Fund, consisting primarily of 9.76% ABS consumer and 5.29% auto. The average market price was $87.43, with an average yield to worst of 7.78% and an effective duration of 1.85. What is your outlook for 2024, and how is the Fund positioned?
It appears that the policy landscape is undergoing a notable shift, marked by our anticipation of decelerating economic growth, reduced inflationary pressures, and heightened unemployment levels throughout 2024.
We were early in our expectation that growth would slow meaningfully in 2023. However, the narrative of late-cycle dynamics is gaining momentum. The growth trajectory is showing signs of alteration, particularly evident in the fourth quarter of 2023, with global central banks taking proactive measures ahead of potential preemptive cuts by the Federal Reserve (the Fed) in
mid-2024.
Lending standards remain in notably restrictive territory, and the fiscal tailwinds experienced in 2023 are expected to diminish in the coming year. While we were humbled by the Fed’s use of financial stability tools in lieu of easing the federal funds rate in 2023, we believe expectations of slower growth, lower inflation, and higher unemployment will shift the Fed toward easier monetary policy, reducing the likelihood of additional financial accidents. We will be mindful of financial stability tools, or “Fed puts,” and the balance sheet as powerful stability mechanisms to address future financial stability risks, but we think the use of Fed puts is less likely in 2024, despite the reality that regional banks are not out of the woods yet. Even after the significant move lower in U.S. Treasury yields during the fourth quarter of 2023, we expect a continued decrease in yields in 2024 in a bull-steepening move, given our expectations of slower growth, lower inflation, and the beginning of the Fed easing cycle in 2024. We believe any easing cycle will support lower interest rate volatility, which should in turn support the outperformance of mortgages and securitized credit versus corporate credit after they lagged in 2023 due to elevated interest rate volatility. We also believe 2024 will be even better for income-focused investors after last year’s mixed performance of fixed income, given the overall increase in rates and elevated levels of volatility. We believe that a plethora of opportunities exists across fixed income, particularly in mortgage and securitized products, given the historically high current yield environment coupled with attractive credit spreads.
We continue to favor high-quality securitized products versus corporate credit. We remain selective and focused on high-quality areas with stable credit fundamentals, which include agency and consumer ABS. From a credit standpoint, we maintain an overweight position in securitized credit with an emphasis on mortgage credit.
non-agency
RMBS, collateralized loan obligations, and short-to-medium-duration
1 |
The return shown is based on net asset values calculated for shareholder transactions and may differ from the return shown in the financial highlights, which reflects adjustments made to the net asset values in accordance with accounting principles generally accepted in the United States of America. |
2 |
Returns presented are without load. Please reference the investments results section of the report for with load returns. |
1
Past performance is not a guarantee of future results.
Investing involves risk; principal loss is possible. The Fund’s shares will not be listed on an exchange in the foreseeable future, if at all. It is possible that a repurchase offer may be oversubscribed, in which case shareholders may only have a portion of their shares repurchased. Quarterly repurchase offers and liquidity are limited. The Fund’s derivative investments have risks, including the imperfect correlation between the value of such instruments and the underlying asset, rate, or index, which creates the possibility that the loss on such instruments may be greater than the gain in the value of the underlying asset, rate, or index; the loss of principal; the possible default of the other party to the transaction; and illiquidity of the derivative investments. The Fund may invest in illiquid securities and restricted securities. Investments in restricted securities could have the effect of increasing the amount of the Fund’s assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase these securities. The Fund will be subject to risks associated with adverse political and economic developments in foreign countries, including seizure or nationalization of foreign deposits, the imposition of economic sanctions, different legal systems and laws relating to bankruptcy and creditors’ rights, and the potential inability to enforce legal judgments, all of which could cause the Fund to lose money on its investments in
non-U.S.
securities. Changes in interest rates generally will cause the value of fixed-income instruments held by the Fund to vary inversely to such changes. Below-investment-grade instruments are commonly referred to as “junk” or high-yield instruments, and are regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal. Lower-grade instruments may be particularly susceptible to economic downturns. The price paid by the Fund for asset-backed securities, including CLOs; the yield the Fund expects to receive from such securities; and the average life of such securities are based on a number of factors, including the anticipated rate of prepayment of the underlying assets. Mortgage-backed securities are subject to the general risks associated with investing in real estate securities; that is, they may lose value if the value of the underlying real estate to which a pool of mortgages relates declines. For more information on these risks and other risks of the Fund, please see the Prospectus. Definitions:
Agency Residential Mortgage-Backed Securities (Agency RMBS): Issued or guaranteed by the U.S. government or a GSE, such as the Government National Mortgage Association (GNMA or Ginnie Mae), Federal National Mortgage Association (FNMA or Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac). GNMA bonds are backed by the full faith and credit of the U.S. government and thus are free from default risk. While FNMA and Freddie Mac securities lack this same backing, the risk of default is negligible.
Asset-Backed Securities (ABS): Securities created by buying and bundling loans—such as residential mortgage loans, commercial loans or student loans—and creating securities backed by those assets, which are then sold to investors.
Bloomberg U.S. Aggregate Bond Index: An unmanaged index that measures the performance of the investment-grade universe of bonds issued in the United States. The index includes institutionally traded U.S. Treasury, government-sponsored, mortgage, and corporate securities. It is not possible to invest directly in an index.
Collateralized Loan Obligation (CLO): A single security backed by a pool of debt.
Credit Spread: The difference in yield between two bonds of similar maturity but different credit quality.
Effective Duration: Measures a portfolio’s sensitivity to changes in interest rates. Generally, the longer the effective duration, the greater the price change relative to interest rate movements.
Federal Funds Rate: A target interest rate set by the central bank in its efforts to influence short-term interest rates as part of its monetary policy strategy.
Non-Agency
Commercial Mortgage-Backed Security (Non-Agency
CMBS): A type of mortgage-backed security that is secured by loans on commercial properties that are not issued or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, or any other United States federal GSE or a United States federal government agency. Non-Agency
Residential Mortgage-Backed Securities (Non-Agency
RMBS): Securities issued by private institutions such as trusts and special purpose vehicles (SPVs). These bonds are not guaranteed by the U.S. government or GSEs. They typically have a more sophisticated subordination structure, which redirects the aggregate principal and interest cash flows of the underlying collateral to the individual RMBS bonds based on a set of rules, which are designed to create tranches with specific risk, coupon, and maturity characteristics. Non-Qualified
Mortgage (Non-QM):
A loan that does not meet the standards of a qualified mortgage and uses non-traditional
methods of income verification to help a borrower get approved for a home loan. Spread: The difference in yield between two bonds of similar maturity but different credit quality.
Subprime: Subprime mortgages are extended to borrowers with low credit scores. In general, these borrowers have damaged credit or limited credit history, along with minimal income and asset verification. Due to the higher default risk associated with these borrowers, lenders tend to charge a higher interest rate on subprime loans.
Tranche: A portion of debt or structured financing. Each portion, or tranche, is one of several related securities offered at the same time but with different risks, rewards, and maturities. A senior tranche is the highest tranche of a security, (i.e., the one deemed least risky). A mezzanine tranche is a small layer positioned between the senior tranche and a junior tranche (unrated, typically called equity tranche).
Yield to Worst (YTW): The lowest potential yield that can be received on a bond without the issuer actually defaulting.
2
Investment Results – (Unaudited)
Angel Oak Strategic Credit Fund
Total Return Based on a $50,000 Investment
The chart above assumes an initial investment of $50,000 made on December 26, 2017 (commencement of operations). Returns shown include the reinvestment of all dividends. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or share repurchases. In the absence of fee waivers and reimbursements, when they are necessary to keep expenses at the expense cap, total return would be reduced. Past performance is not predictive of future performance. Investment return and principal value will fluctuate so that your shares, when repurchased, may be worth more or less than the original cost. Performance data current to the most recent month-end can be obtained by calling (855) 751-4324. Index returns do not reflect the effects of fees or expenses. It is not possible to invest directly in an index.
Annualized Expense Ratios (1) | ||
Institutional Class |
2.31% | |
Class FI |
2.31% | |
(1) Reflects expense ratios as stated in the Fund’s current prospectus dated May 31, 2023, as supplemented December 8, 2023, and January 10, 2024.
Total Returns
(1)
(For the year ended January 31, 2024)
Average Annual Returns | ||||||||
One Year |
Three Year |
Five Year |
Since Inception (2) | |||||
Angel Oak Strategic Credit Fund – Institutional Class |
9.92% (3) |
7.31% | 6.37% | 6.19% | ||||
Angel Oak Strategic Credit Fund – Class FI without load |
9.92% | N/A | N/A | 8.02% | ||||
Angel Oak Strategic Credit Fund – Class FI with load |
6.92% | N/A | N/A | 6.19% | ||||
Bloomberg U.S. Aggregate Bond Index (4) |
2.10% | -3.17% | 0.83% | 0.92% (5) | ||||
(1) Return figures reflect any change in price per share and assume the reinvestment of all distributions. Total returns for Class FI Shares, with load, include the maximum 3.00% deferred sales charge.
(2) Inception date is December 26, 2017, for Institutional Class Shares and July 12, 2022, for Class FI Shares.
(3) The return shown is based on net asset values calculated for shareholder transactions and may differ from the return shown in the financial highlights, which reflects adjustments made to the net asset values in accordance with accounting principles generally accepted in the United States of America.
(4) The Bloomberg U.S. Aggregate Bond Index measures the performance of the investment-grade, fixed-rate bond market, including government and credit securities, agency pass-through securities, asset-backed securities and commercial mortgage-backed securities. Performance figures include the change in value of the bonds in the index and the reinvestment of interest. The index return does not reflect expenses. You cannot invest directly in an index; however, an individual can invest in exchange-traded funds or other investment vehicles that attempt to track the performance of a benchmark index.
(5) The return shown for the Bloomberg U.S. Aggregate Bond Index is from the inception date of the Institutional Class Shares. The Bloomberg U.S. Aggregate Bond Index return from the inception date of the Class FI Shares is 1.11%.
3
Summary of Fund Expenses – (Unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and other expenses of the Fund. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this table, 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 = $8.60), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account value 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 value and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the 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. Therefore, the second line of the table below is useful in comparing ongoing costs only and will not help you determine the relative costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value |
Ending Account Value |
Expenses Paid During Period (1) |
Annualized Expense Ratio | |||||||
Institutional Class |
Actual | $1,000.00 | $1,058.10 | $10.69 | 2.06% | |||||
| Hypothetical (2) |
$1,000.00 | $1,014.82 | $10.46 | 2.06% | ||||||
Class FI |
Actual | $1,000.00 | $1,058.10 | $10.69 | 2.06% | |||||
| Hypothetical (2) |
$1,000.00 | $1,014.82 | $10.46 | 2.06% | ||||||
(1) Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by the number of days (184) in the most recent six month period and divided by the number of days in the most recent twelve month period (365). The annualized expense ratios reflects fee waiver and expense limitation arrangements, including interest expense, in effect during the period. The “Financial Highlights” tables in the Fund’s financial statements, included in the report, also show the gross expense ratios, without such reimbursements.
(2) Hypothetical assumes 5% annual return before expenses.
4
Portfolio Holdings – (Unaudited)
The investment objective of Angel Oak Strategic Credit Fund is to seek total return.
*As a percentage of total investments. The percentages presented in the table above may differ from those in the Schedule of Investments because the percentages in the Schedule of Investments are calculated based on net assets.
5
Angel Oak Strategic Credit Fund
Statement of Assets and Liabilities
January 31, 2024
Assets |
|||||
Investments in securities at fair value* |
$97,239,773 | ||||
Deposit at broker for swaps* |
1,189,005 | ||||
Dividends and interest receivable |
435,190 | ||||
Deposit at broker for futures* |
14,346 | ||||
Receivable for Fund shares sold |
289 | ||||
Prepaid expenses |
28,718 | ||||
Total Assets |
98,907,321 |
||||
Liabilities |
|||||
Payable for reverse repurchase agreements |
1,549,393 | ||||
Net swap premiums received |
514,845 | ||||
Payable for distributions to shareholders |
400,373 | ||||
Payable for investments purchased |
250,000 | ||||
Depreciation on swap agreements |
102,890 | ||||
Payable to Adviser |
100,795 | ||||
Payable to administrator, fund accountant, and transfer agent |
31,176 | ||||
Interest payable for reverse repurchase agreements |
4,329 | ||||
Payable to custodian |
1,150 | ||||
Other accrued expenses |
51,694 | ||||
Total Liabilities |
3,006,645 |
||||
Net Assets |
$95,900,676 |
||||
Net Assets consist of: |
|||||
Paid-in capital |
$99,576,686 | ||||
Total distributable earnings (accumulated deficit) |
(3,676,010 | ) | |||
Net Assets |
$95,900,676 |
||||
Class FI: |
|||||
Net Assets |
$19,462,219 | ||||
Shares outstanding (unlimited number of shares authorized, no par value) |
|||||
Net asset value (“NAV”) and offering price per share |
$ |
||||
Institutional Class: |
|||||
Net Assets |
$76,438,457 | ||||
Shares outstanding (unlimited number of shares authorized, no par value) |
|||||
Net asset value (“NAV”) and offering price per share |
$ |
||||
*Identified Cost: |
|||||
Investments in securities |
$100,126,653 | ||||
Required margin held as collateral for swaps |
478,250 | ||||
Required margin held as collateral for futures contracts |
80 | ||||
See accompanying notes which are an integral part of these financial statements.
6
Angel Oak Strategic Credit Fund
Statement of Operations
For the Year Ended January 31, 2024
Investment Income |
|||||
Interest |
$ | 9,390,713 | |||
Dividends |
4,400 | ||||
Total Investment Income |
9,395,113 |
||||
Expenses |
|||||
Investment Advisory (See Note 5) |
1,105,751 | ||||
Interest expense |
368,176 | ||||
Fund accounting |
87,031 | ||||
Legal |
67,670 | ||||
Transfer agent |
54,253 | ||||
Registration |
43,336 | ||||
Administration |
40,353 | ||||
Trustee |
37,132 | ||||
Audit & tax |
30,249 | ||||
Printing |
13,450 | ||||
Compliance |
11,300 | ||||
Custodian |
6,093 | ||||
Insurance |
5,707 | ||||
Miscellaneous |
20,687 | ||||
Total Expenses |
1,891,188 |
||||
Net Investment Income (Loss) |
7,503,925 |
||||
Realized and Unrealized Gain (Loss) on Investments |
|||||
Net realized gain (loss) on investments |
658,547 | ||||
Net realized gain (loss) on futures contracts |
147 | ||||
Net realized gain (loss) on swaps |
(5,681 | ) | |||
Net change in unrealized appreciation/depreciation on investments |
521,874 | ||||
Net change in unrealized appreciation/depreciation on futures contracts |
614 | ||||
Net change in unrealized appreciation/depreciation on swaps |
(102,890 | ) | |||
Net realized and unrealized gain (loss) on investments |
1,072,611 |
||||
Net increase (decrease) in net assets resulting from operations |
$ |
8,576,536 |
|||
See accompanying notes which are an integral part of these financial statements.
7
Angel Oak Strategic Credit Fund
Statements of Changes in Net Assets
For the Year Ended January 31, 2024 |
For the Year Ended January 31, 2023 (a) | |||||||||
Increase (Decrease) in Net Assets due to: |
||||||||||
Operations |
||||||||||
Net investment income (loss) |
$7,503,925 | $5,136,432 | ||||||||
Net realized gain (loss) on investment transactions, futures contracts, and swaps |
653,013 | (214,652 | ) | |||||||
Net change in unrealized appreciation/depreciation on investments, futures contracts, and swaps |
419,598 | (3,557,022 | ) | |||||||
Net increase (decrease) in net assets resulting from operations |
8,576,536 |
1,364,758 |
||||||||
Distributions to Shareholders |
||||||||||
Distributions, Class FI |
(1,253,571 | ) | (421,986 | ) | ||||||
Distributions, Institutional Class |
(6,139,297 | ) | (4,767,458 | ) | ||||||
Total distributions to shareholders |
(7,392,868 |
) |
(5,189,444 |
) | ||||||
Capital Transactions – Class FI |
||||||||||
Proceeds from shares sold |
8,515,000 | 9,200,000 | ||||||||
Reinvestment of distributions |
1,253,571 | 421,986 | ||||||||
Total Class FI |
9,768,571 |
9,621,986 |
||||||||
Capital Transactions – Institutional Class |
||||||||||
Proceeds from shares sold |
5,745,047 | 68,506,156 | ||||||||
Reinvestment of distributions |
122,230 | 323,098 | ||||||||
Cost of shares repurchased (See Note 7) |
(1,369,686 | ) | (9,123,500 | ) | ||||||
Total Institutional Class |
4,497,591 |
59,705,754 |
||||||||
Net increase (decrease) in net assets resulting from capital transactions |
14,266,162 |
69,327,740 |
||||||||
Total Increase (Decrease) in Net Assets |
15,449,830 |
65,503,054 |
||||||||
Net Assets |
||||||||||
Beginning of year or period |
80,450,846 | 14,947,792 | ||||||||
End of year or period |
$ |
95,900,676 |
$ |
80,450,846 |
||||||
Share Transactions – Class FI |
||||||||||
Shares sold |
414,029 | 437,236 | ||||||||
Shares issued in reinvestment of distributions |
60,897 | 20,609 | ||||||||
Total Class FI |
474,926 |
457,845 |
||||||||
Share Transactions – Institutional Class |
||||||||||
Shares sold |
280,103 | 3,205,714 | ||||||||
Shares issued in reinvestment of distributions |
5,947 | 15,243 | ||||||||
Shares repurchased (See Note 7) |
(66,627 | ) | (432,053 | ) | ||||||
Total Institutional Class |
219,423 |
2,788,904 |
||||||||
Net increase (decrease) in share transactions |
694,349 |
3,246,749 |
||||||||
(a) Class FI commenced operations on July 12, 2022. |
||||||||||
See accompanying notes which are an integral part of these financial statements.
8
Angel Oak Strategic Credit Fund – Class FI
Financial Highlights
(For a share outstanding during each year or period)
For the Year or Period Ended January 31, | ||||||||||
2024 |
2023 (a) | |||||||||
Selected Per Share Data: |
||||||||||
Net asset value, beginning of year or period |
$20.62 |
$21.13 |
||||||||
Income from investment operations: |
||||||||||
Net investment income (loss) |
1.75 | 0.98 | ||||||||
Net realized and unrealized gain (loss) on investments (b) |
0.20 | (0.46 | ) | |||||||
Total from investment operations |
1.95 | 0.52 | ||||||||
Less distributions to shareholders: |
||||||||||
From net investment income |
(1.71 | ) | (1.03 | ) | ||||||
Total distributions |
(1.71 | ) | (1.03 | ) | ||||||
Net asset value, end of year or period |
$20.86 |
$20.62 |
||||||||
Total return (c) |
9.92 | % | 2.58 | %(d) | ||||||
Ratios and Supplemental Data: |
||||||||||
Net assets, end of year or period (000’s omitted) |
$19,46 | 2 | $9,43 | 9 | ||||||
Interest expense to average net assets (e) |
0.42 | % | 0.13 | % | ||||||
Ratio of expenses to average net assets before waiver and reimbursement/recoupment (e)(f) |
2.14 | % | 1.86 | % | ||||||
Ratio of expenses to average net assets after waiver and reimbursement/recoupment (e)(f) |
2.14 | % | 1.03 | %(g) | ||||||
Ratio of net investment income (loss) to average net assets before waiver and reimbursement/recoupment (e)(f) |
8.50 | % | 7.75 | % | ||||||
Ratio of net investment income (loss) to average net assets after waiver and reimbursement/recoupment (e)(f) |
8.50 | % | 8.58 | %(g) | ||||||
Portfolio turnover rate (c) |
49 | % | 29 | %(h) | ||||||
Reverse repurchase agreements, end of year or period (000’s omitted) |
$1,54 | 9 | $6,79 | 6 | ||||||
Asset coverage per $1,000 unit of senior indebtedness (i) |
$62,89 | 6 | $12,83 | 8 | ||||||
| (a) | Class commenced operations on July 12, 2022. |
| (b) | Net realized and unrealized gain (loss) per share may include balancing amounts necessary to reconcile the change in net asset value per share for the period, and may not reconcile with the aggregate gain/(loss) in the Statement of Operations due to share transactions for the year or period. |
| (c) | Not annualized for periods of less than one year. |
| (d) | Total return would have been lower if no expense waiver was in place. |
| (e) | Annualized for periods less than one year. |
| (f) | Includes interest expense. |
| (g) | Effective January 1, 2023, the expense limitation agreement was terminated. Prior to January 1, 2023, the expense cap was 0.75%. See Note 5. |
| (h) | Figure presented represents turnover for the Fund as a whole for the entire fiscal period. |
| (i) | Calculated by subtracting the Fund’s total liabilities (not including borrowings) from the Fund’s total assets and dividing by the total number of senior indebtedness, where one unit equals $1,000 of senior indebtedness. |
See accompanying notes which are an integral part of these financial statements.
9
Angel Oak Strategic Credit Fund – Institutional Class
Financial Highlights
(For a share outstanding during each year)
For the Year Ended January 31, | |||||||||||||||||||||||||
2024 |
2023 |
2022 |
2021 |
2020 | |||||||||||||||||||||
Selected Per Share Data: |
|||||||||||||||||||||||||
Net asset value, beginning of year |
$20.61 |
$22.76 |
$23.03 |
$24.73 |
$24.49 |
||||||||||||||||||||
Income from investment operations: |
|||||||||||||||||||||||||
Net investment income (loss) |
1.74 | 1.84 | 3.22 | (a) | 2.01 | 1.69 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investments (b) |
0.22 | (2.06 | ) | (0.32 | ) | (1.72 | ) | 0.22 | |||||||||||||||||
Total from investment operations |
1.96 | (0.22 | ) | 2.90 | 0.29 | 1.91 | |||||||||||||||||||
Less distributions to shareholders: |
|||||||||||||||||||||||||
From net investment income |
(1.71 | ) | (1.93 | ) | (3.17 | ) | (1.99 | ) | (1.67 | ) | |||||||||||||||
Total distributions |
(1.71 | ) | (1.93 | ) | (3.17 | ) | (1.99 | ) | (1.67 | ) | |||||||||||||||
Net asset value, end of year |
$20.86 |
$20.61 |
$22.76 |
$23.03 |
$24.73 |
||||||||||||||||||||
Total return (c) |
9.98 | % | -0.78 | %(d) | 13.31 | % | 2.04 | % | 8.01 | % | |||||||||||||||
Ratios and Supplemental Data: |
|||||||||||||||||||||||||
Net assets, end of year (000’s omitted) |
$76,43 | 8 | $71,01 | 2 | $14,94 | 8 | $14,08 | 6 | $12,34 | 7 | |||||||||||||||
Interest expense to average net assets (e) |
0.42 | % | 0.08 | % | N/A | N/A | N/A | ||||||||||||||||||
Ratio of expenses to average net assets before waiver and reimbursement/recoupment (e) |
2.14 | %(f) | 1.96 | %(f) | 3.36 | % | 5.59 | % | 5.44 | % | |||||||||||||||
Ratio of expenses to average net assets after waiver and reimbursement/recoupment (e) |
2.14 | %(f) | 0.93 | %(f)(g) | 0.75 | % | 0.75 | % | 0.75 | % | |||||||||||||||
Ratio of net investment income (loss) to average net assets before waiver and reimbursement/recoupment (e) |
8.48 | %(f) | 7.56 | %(f) | 11.27 | % | 4.47 | % | 2.25 | % | |||||||||||||||
Ratio of net investment income (loss) to average net assets after waiver and reimbursement/recoupment (e) |
8.48 | %(f) | 8.59 | %(f)(g) | 13.88 | % | 9.31 | % | 6.94 | % | |||||||||||||||
Portfolio turnover rate (c) |
49 | % | 29 | % | 52 | % | 74 | % | 73 | % | |||||||||||||||
Reverse repurchase agreements, end of year or period (000’s omitted) |
$1,54 | 9 | $6,79 | 6 | N/A | N/A | N/A | ||||||||||||||||||
Asset coverage per $1,000 unit of senior indebtedness (h) |
$62,89 | 6 | $12,83 | 8 | N/A | N/A | N/A | ||||||||||||||||||
(a) Calculated using the average shares outstanding method. |
|||||||||||||||||||||||||
(b) Net realized and unrealized gain (loss) per share may include balancing amounts necessary to reconcile the change in net asset value per share for the year, and may not reconcile with the aggregate gain/(loss) in the Statement of Operations due to share transactions for the year. |
|||||||||||||||||||||||||
(c) Not annualized for periods of less than one year. |
|||||||||||||||||||||||||
(d) Total return would have been lower if no expense waiver was in place. |
|||||||||||||||||||||||||
(e) Annualized for periods less than one year. |
|||||||||||||||||||||||||
(f) Includes interest expense. |
|||||||||||||||||||||||||
(g) Effective January 1, 2023, the expense limitation agreement was terminated. Prior to January 1, 2023, the expense cap was 0.75%. See Note 5. |
|||||||||||||||||||||||||
(h) Calculated by subtracting the Fund’s total liabilities (not including borrowings) from the Fund’s total assets and dividing by the total number of senior indebtedness, where one unit equals $1,000 of senior indebtedness. |
|||||||||||||||||||||||||
See accompanying notes which are an integral part of these financial statements.
10
Angel Oak Strategic Credit Fund
Schedule of Investments
January 31, 2024
Principal Amount |
Value |
|||||||
Asset-Backed Securities — 15.98% |
||||||||
Automobile — 5.34% |
||||||||
American Credit Acceptance Receivables Trust, Series 2022-1, Class F,4.870%, 11/13/2028 (a) |
$100,000 | $96,333 | ||||||
Avid Automobile Receivables Trust, Series 2021-1, Class D, 1.990%, 4/17/2028 (a) |
1,000,000 | 967,384 | ||||||
Avis Budget Rental Car Funding LLC, Series 2020-1A, Class D, 3.340%, 8/20/2026 (a) |
700,000 | 660,904 | ||||||
CAL Receivables LLC, Series 2022-1, Class B,9.696% (SOFR30A + 4.350%), 10/15/2026 (a)(b) |
600,000 | 601,123 | ||||||
Carvana Auto Receivables Trust, Series 2022-P3, Class D, 6.490%, 9/10/2029 |
453,000 | 466,492 | ||||||
Hertz Vehicle Financing LLC, Series 2022-4A, Class D, 6.560%, 9/25/2026 (a) |
265,000 | 259,661 | ||||||
Lendbuzz Securitization Trust, Series 2023-3A, Class B, 9.170%, 4/16/2029 (a) |
251,000 | 265,035 | ||||||
Research-Driven Pagaya Motor Asset Trust, Series 2021-2A, Class A, 2.650%, 3/25/2030 (a) |
229,084 | 214,872 | ||||||
Santander Consumer Auto Receivables Trust, Series 2021-AA, Class F, 5.790%, 8/15/2028 (a) |
250,000 | 242,097 | ||||||
Tricolor Auto Securitization Trust, Series 2022-1A, Class F, 9.800%, 7/16/2029 (a) |
100,000 | 99,229 | ||||||
United Auto Credit Securitization Trust, Series 2022-2, Class D, 6.840%, 1/10/2028 (a) |
1,000,000 | 995,336 | ||||||
US Auto Funding Trust, Series 2022-1A, Class A, 3.980%, 4/15/2025 (a) |
51,703 | 50,538 | ||||||
US Auto Funding Trust, Series 2022-1A, Class D, 9.140%, 7/15/2027 (a) |
1,450,000 | 145 | ||||||
Veros Automobile Receivables Trust, Series 2023-1, Class D, 11.460%, 8/15/2030 (a) |
200,000 | 206,951 | ||||||
| 5,126,100 | ||||||||
Consumer — 9.87% |
||||||||
ACHV ABS Trust, Series 2023-3PL, Class D, 8.360%, 8/19/2030 (a) |
250,000 | 259,266 | ||||||
Aqua Finance Trust, Series 2021-A, Class C, 3.140%, 7/17/2046 (a) |
300,000 | 217,297 | ||||||
Conn’s Receivables Funding LLC, Series 2022-A, Class B, 9.520%, 12/15/2026 (a) |
193,952 | 195,158 | ||||||
Foundation Finance Trust, Series 2021-2A, Class D, 5.730%, 1/15/2042 (a) |
100,000 | 94,212 | ||||||
Foundation Finance Trust, Series 2023-1A, Class D, 9.180%, 12/15/2043 (a) |
400,000 | 402,915 | ||||||
LendingClub Receivables Trust, Series 2019-1, Class CERT, 7/17/2045 (a) |
17,660 | 24,672 | ||||||
Lendingpoint Asset Securitization Trust, Series 2022-A, Class E, 7.020%, 6/15/2029 (a) |
100,000 | 21,006 | ||||||
Lendingpoint Asset Securitization Trust, Series 2022-B, Class C, 8.450%, 10/15/2029 (a) |
900,000 | 672,822 | ||||||
Marlette Funding Trust, Series 2023-2A, Class D, 7.920%, 6/15/2033 (a) |
250,000 | 256,665 | ||||||
Marlette Funding Trust, Series 2023-4A, Class B, 8.150%, 12/15/2033 (a) |
560,000 | 582,739 | ||||||
Momnt Technologies Trust, Series 2023-1A, Class B, 8.290%, 3/20/2045 (a) |
500,000 | 504,963 | ||||||
Pagaya AI Debt Selection Trust, Series 2021-1, Class C, 4.090%, 11/15/2027 (a) |
249,897 | 228,899 | ||||||
Pagaya AI Debt Selection Trust, Series 2021-3, Class C, 3.270%, 5/15/2029 (a) |
199,989 | 175,303 | ||||||
Pagaya AI Debt Selection Trust, Series 2021-5, Class C, 3.930%, 8/15/2029 (a) |
299,965 | 271,675 | ||||||
Pagaya AI Debt Selection Trust, Series 2022-1, Class C, 4.888%, 10/15/2029 (a) |
99,987 | 86,203 | ||||||
Pagaya AI Debt Selection Trust, Series 2022-3, Class B, 8.050%, 3/15/2030 (a) |
499,951 | 505,635 | ||||||
Pagaya AI Debt Selection Trust, Series 2022-5, Class B, 10.310%, 6/17/2030 (a) |
499,981 | 516,694 | ||||||
Pagaya AI Debt Selection Trust, Series 2023-1, Class B, 9.435%, 7/15/2030 (a) |
399,944 | 409,654 | ||||||
Pagaya AI Debt Selection Trust, Series 2023-3, Class B, 9.570%, 12/16/2030 (a) |
399,920 | 411,190 | ||||||
Prosper Marketplace Issuance Trust, Series 2023-1A, Class D, 11.240%, 7/16/2029 (a) |
300,000 | 306,273 | ||||||
Purchasing Power Funding, Series 2021-A, Class D, 4.370%, 10/15/2025 (a) |
293,462 | 292,177 | ||||||
Republic Finance Issuance Trust, Series 2020-A, Class D, 7.000%, 11/20/2030 (a) |
500,000 | 478,791 | ||||||
Republic Finance Issuance Trust, Series 2021-A, Class D, 5.230%, 12/22/2031 (a) |
200,000 | 182,926 | ||||||
Upgrade Master Pass-Thru Trust, Series 2021-PT2, Class A, 13.886%, 5/15/2027 (a)(c) |
409,060 | 337,142 | ||||||
Upstart Pass-Through Trust, Series 2021-ST9, Class CERT, 11/20/2029 (a) |
200,000 | 57,414 | ||||||
Upstart Pass-Through Trust, Series 2022-ST1, Class CERT, 3/20/2030 (a) |
100,000 | 27,184 | ||||||
Upstart Securitization Trust, Series 2021-1, Class C, 4.060%, 3/20/2031 (a) |
382,668 | 375,300 | ||||||
Upstart Securitization Trust, Series 2022-1, Class C, 5.710%, 3/20/2032 (a) |
200,000 | 115,069 | ||||||
Upstart Securitization Trust, Series 2022-2, Class C, 8.430%, 5/20/2032 (a) |
500,000 | 440,352 | ||||||
See accompanying notes which are an integral part of these financial statements.
11
Angel Oak Strategic Credit Fund
Schedule of Investments – (continued)
January 31, 2024
Principal Amount |
Value |
|||||||
Upstart Securitization Trust, Series 2023-1, Class C, 11.100%, 2/20/2033 (a) |
$ | 500,000 | $ | 505,738 | ||||
Upstart Securitization Trust, Series 2023-3, Class B, 8.250%, 10/20/2033 (a) |
500,000 | 506,477 | ||||||
| 9,461,811 | ||||||||
Credit Card — 0.19% |
||||||||
Continental Finance Credit Card ABS Master Trust, Series 2020-1A, Class C,5.750%, 12/15/2028 (a) |
200,000 | 178,873 | ||||||
Solar — 0.58% |
||||||||
Goodleap Sustainable Home Solutions Trust, Series 2023-2GS, Class B,7.800%, 5/20/2055 (a) |
500,000 | 501,686 | ||||||
Mosaic Solar Loan Trust, Series 2018-1A, Class C, 0.000%, 6/22/2043 (a)(d) |
45,297 | 41,254 | ||||||
Mosaic Solar Loan Trust, Series 2019-1A, Class B, 0.000%, 12/21/2043 (a)(d) |
21,050 | 16,818 | ||||||
| 559,758 | ||||||||
TOTAL ASSET-BACKED SECURITIES (Cost — $16,817,675) |
$15,326,542 |
|||||||
Collateralized Loan Obligations — 6.09% |
||||||||
AMMC Ltd., Series 2024-30A, Class D, 4.500% (TSFR3M + 4.500%), 1/15/2037 (a)(b) |
250,000 | 250,000 | ||||||
Atlas Senior Loan Fund Ltd., Series 2023-21A, Class D2,12.818% (TSFR3M + 7.500%), 7/20/2035 (a)(b) |
600,000 | 609,115 | ||||||
Blackrock MT Hood CLO LLC, Series 2023-1A, Class VDN, 4/20/2035 (a)(c) |
1,000,000 | 530,000 | ||||||
Carlyle US CLO Ltd., Series 2017-4A, Class C, 8.376% (TSFR3M + 3.062%), 1/15/2030 (a)(b) |
500,000 | 495,103 | ||||||
Ivy Hill Middle Market Credit Fund Ltd., Series 9A, Class DRR, 9.266% (TSFR3M + 3.950%), 4/23/2034 (a)(b) |
500,000 | 468,439 | ||||||
KKR Static CLO Trust, Series 2022-2A, Class D, 10.848%(TSFR3M + 5.530%), 10/20/2031 (a)(b) |
1,000,000 | 1,004,602 | ||||||
LCM LP, Series 40A, Class D2, 12.254% (TSFR3M + 6.940%), 1/15/2036 (a)(b) |
1,000,000 | 1,004,747 | ||||||
Palmer Square Loan Funding Ltd., Series 2022-3A, Class C,10.714% (TSFR3M + 5.400%), 4/15/2031 (a)(b) |
1,000,000 | 1,007,757 | ||||||
THL Credit Wind River CLO Ltd., Series 2018-1A, Class E,11.076% (TSFR3M + 5.762%), 7/15/2030 (a)(b) |
500,000 | 472,317 | ||||||
TOTAL COLLATERALIZED LOAN OBLIGATIONS (Cost — $5,795,289) |
$5,842,080 |
|||||||
Commercial Mortgage-Backed Securities — 1.07% |
||||||||
GS Mortgage Securities Corp. Trust, Series 2018-TWR, Class G,9.556% (TSFR1M + 4.222%), 7/15/2031 (a)(b) |
311,000 | 24,226 | ||||||
Med Trust, Series 2021-MDLN, Class G, 10.697% (TSFR1M + 5.364%), 11/15/2038 (a)(b) |
995,224 | 947,256 | ||||||
X-Caliber Mortgage Trust, Series 2020-1, Class B1,12.967% (TSFR1M + 7.614%), 2/6/2024 (a)(b) |
47,766 | 47,573 | ||||||
X-Caliber Mortgage Trust, Series 2021-9, Class B1,13.473% (TSFR1M + 8.120%), 3/1/2024 (a)(b) |
50,000 | 7,789 | ||||||
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Cost — $1,336,070) |
$1,026,844 |
|||||||
Commercial Mortgage-Backed Securities — U.S. Government Agency — 0.13% |
||||||||
Federal Home Loan Mortgage Corp., Series 2017-KF41, Class B, 7.959% (SOFR30A + 2.614%), 11/25/2024 (a)(b) |
129,217 | 125,830 | ||||||
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES — U.S. GOVERNMENT AGENCY (Cost — $128,873) |
$125,830 |
|||||||
See accompanying notes which are an integral part of these financial statements.
12
Angel Oak Strategic Credit Fund
Schedule of Investments – (continued)
January 31, 2024
Shares |
Value |
|||||||
Common Stocks — 0.42% |
||||||||
Financial — 0.42% |
||||||||
Essent Group Ltd. |
4,400 | $ | 242,704 | |||||
NMI Holdings, Inc. (e) |
5,000 | 159,600 | ||||||
TOTAL COMMON STOCKS (Cost — $299,270) |
$402,304 |
|||||||
Principal Amount |
||||||||
Corporate Obligations — 5.37% |
||||||||
Communications — 0.49% |
||||||||
Gray Television, Inc., 5.375%, 11/15/2031 (a) |
$600,000 | 472,352 | ||||||
Consumer, Cyclical — 0.51% |
||||||||
Carnival Corp., 6.000%, 5/1/2029 (a) |
500,000 | 484,811 | ||||||
Consumer, Non-cyclical — 0.50% |
||||||||
Upbound Group, Inc., 6.375%, 2/15/2029 (a) |
500,000 | 477,105 | ||||||
Energy — 1.25% |
||||||||
Greenfire Resources Ltd., 12.000%, 10/1/2028 (a) |
400,000 | 414,830 | ||||||
New Fortress Energy, Inc., 6.500%, 9/30/2026 (a) |
500,000 | 484,603 | ||||||
Shelf Drilling Holdings Ltd., 9.625%, 4/15/2029 (a) |
300,000 | 291,502 | ||||||
| 1,190,935 | ||||||||
Financial — 2.22% |
||||||||
Freedom Mortgage Corp., 6.625%, 1/15/2027 (a) |
500,000 | 480,687 | ||||||
OneMain Finance Corp., 9.000%, 1/15/2029 |
500,000 | 526,660 | ||||||
PennyMac Financial Services, Inc., 5.750%, 9/15/2031 (a) |
500,000 | 461,931 | ||||||
United Wholesale Mortgage LLC, 5.500%, 4/15/2029 (a) |
700,000 | 661,815 | ||||||
| 2,131,093 | ||||||||
Industrial — 0.40% |
||||||||
Great Lakes Dredge & Dock Corp., 5.250%, 6/1/2029 (a) |
450,000 | 387,958 | ||||||
TOTAL CORPORATE OBLIGATIONS (Cost — $4,739,531) |
$5,144,254 |
|||||||
Residential Mortgage-Backed Securities — 66.76% |
||||||||
A&D Mortgage LLC, Series 2024-NQM1, Class B1, 8.604%, 2/25/2069 (a)(c) |
1,000,000 | 1,003,222 | ||||||
American Home Mortgage Assets Trust, Series 2006-6, Class XP, 0.046%, 12/25/2046 (c)(f) |
802,637 | 6,154 | ||||||
American Home Mortgage Investment Trust, Series 2006-3, Class 3A2, 6.750%, 12/25/2036 (g) |
310,976 | 88,172 | ||||||
Bellemeade Re Ltd., Series 2023-1, Class B1, 12.045% (SOFR30A + 6.700%), 10/25/2033 (a)(b) |
400,000 | 400,490 | ||||||
BRAVO Residential Funding Trust, Series 2021-NQM2, Class A3, 1.435%, 3/25/2060 (a)(c) |
340,056 | 318,627 | ||||||
BRAVO Residential Funding Trust, Series 2021-A, Class A1, 4.991%, 10/25/2059 (a)(g)(h) |
465,024 | 452,026 | ||||||
CIM Trust, Series 2021-NR3, Class A1, 2.566%, 6/25/2057 (a)(g) |
2,311,316 | 2,265,258 | ||||||
COLT Mortgage Loan Trust, Series 2021-1, Class M1, 2.287%, 6/25/2066 (a)(c) |
1,500,000 | 999,654 | ||||||
Corevest American Finance Trust, Series 2020-4, Class D, 2.712%, 12/15/2052 (a) |
770,000 | 620,531 | ||||||
Countrywide Home Loan Mortgage Pass Through Trust, Series 2007-18, Class 1A1,6.000%, 11/25/2037 |
78,557 | 34,280 | ||||||
CountryWide Home Loan Mortgage Pass-Through Trust, Series 2004-29, Class 1X,0.000%, 2/25/2035 (c)(f) |
1,160,665 | 1,728 | ||||||
Credit Suisse Mortgage Trust, Series 2017-RPL1, Class B4, 2.964%, 7/25/2057 (a)(c) |
1,465,846 | 278,232 | ||||||
Credit Suisse Mortgage Trust, Series 2022-RPL3, Class A1, 3.758%, 3/25/2061 (a)(c) |
2,983,585 | 2,974,306 | ||||||
See accompanying notes which are an integral part of these financial statements.
13
Angel Oak Strategic Credit Fund
Schedule of Investments – (continued)
January 31, 2024
Principal Amount |
Value |
|||||||
Credit Suisse Mortgage Trust, Series 2021-NQM2, Class M1, 2.282%, 2/25/2066 (a)(c) |
$ | 1,215,000 | $ | 754,227 | ||||
Credit Suisse Mortgage Trust, Series 2022-ATH1, Class B1, 4.651%, 1/25/2067 (a)(c) |
2,000,000 | 1,658,336 | ||||||
Credit Suisse Mortgage Trust, Series 2022-ATH1, Class B2, 4.651%, 1/25/2067 (a)(c) |
2,000,000 | 1,595,798 | ||||||
Credit Suisse Mortgage Trust, Series 2022-NQM5, Class M1, 5.169%, 5/25/2067 (a)(c) |
1,000,000 | 830,829 | ||||||
Credit Suisse Mortgage Trust, Series 2022-NQM4, Class A3, 4.819%, 6/25/2067 (a)(g)(h) |
883,163 | 844,856 | ||||||
DSLA Mortgage Loan Trust, Series 2004-AR2, Class X2, 0.000%, 11/19/2044 (c)(f) |
310,617 | 237 | ||||||
Eagle RE Ltd., Series 2023-1, Class M2, 10.545% (SOFR30A + 5.200%), 9/26/2033 (a)(b) |
500,000 | 519,395 | ||||||
Eagle RE Ltd., Series 2021-2, Class M2, 9.595% (SOFR30A + 4.250%), 4/25/2034 (a)(b) |
2,250,000 | 2,341,575 | ||||||
Ellington Financial Mortgage Trust, Series 2021-2, Class M1, 2.296%, 6/25/2066 (a)(c) |
2,410,000 | 1,595,013 | ||||||
Ellington Financial Mortgage Trust, Series 2021-2, Class B1, 3.202%, 6/25/2066 (a)(c) |
2,000,000 | 1,187,714 | ||||||
FIGRE Trust, Series 2023-HE3, Class A, 6.436%, 1/25/2042 (a) |
1,085,136 | 1,105,049 | ||||||
GCAT Trust, Series 2020-NQM2, Class M1, 3.589%, 4/25/2065 (a)(c)(h) |
1,500,000 | 1,265,229 | ||||||
GSAA Home Equity Trust, Series 2006-15, Class AF6, 6.376%, 9/25/2036 (g) |
39,761 | 10,654 | ||||||
GSAA Home Equity Trust, Series 2006-18, Class AF3A, 5.772%, 11/25/2036 (c) |
122,914 | 37,257 | ||||||
GS Mortgage-Backed Securities Corp. Trust, Series 2020-PJ3, Class B6,3.423%, 10/25/2050 (a)(c) |
1,662,904 | 635,434 | ||||||
GS Mortgage-Backed Securities Corp. Trust, Series 2020-PJ6, Class B6,2.774%, 5/25/2051 (a)(c) |
995,828 | 331,755 | ||||||
GS Mortgage-Backed Securities Trust, Series 2020-NQM1, Class B1, 5.143%, 9/27/2060 (a)(c) |
2,408,000 | 2,042,844 | ||||||
GS Mortgage-Backed Securities Trust, Series 2020-NQM1, Class B2, 6.659%, 9/27/2060 (a)(c) |
2,975,000 | 2,806,630 | ||||||
GS Mortgage-Backed Securities Trust, Series 2021-NQM1, Class B1, 3.207%, 7/25/2061 (a)(c) |
2,000,000 | 1,315,872 | ||||||
Home Partners of America Trust, Series 2021-2, Class F, 3.799%, 12/17/2026 (a) |
384,844 | 341,362 | ||||||
Home RE Ltd., Series 2023-1, Class M2, 11.345% (SOFR30A + 6.000%), 10/25/2033 (a)(b) |
2,000,000 | 2,112,880 | ||||||
Home RE Ltd., Series 2021-2, Class B1, 9.495% (SOFR30A + 4.150%), 1/25/2034 (a)(b) |
760,000 | 728,801 | ||||||
Home RE Ltd., Series 2022-1, Class M1C, 10.845% (SOFR30A + 5.500%), 10/25/2034 (a)(b) |
2,000,000 | 2,093,428 | ||||||
JP Morgan Chase Bank, Series 2021-CL1, Class M5,9.195% (SOFR30A + 3.850%), 3/25/2051 (a)(b) |
45,743 | 41,920 | ||||||
JP Morgan Chase Bank, Series 2021-CL1, Class B,12.245% (SOFR30A + 6.900%), 3/25/2051 (a)(b) |
75,000 | 73,219 | ||||||
JP Morgan Chase Bank, Series 2020-CL1, Class M5,11.050% (TSFR1M + 5.714%), 10/25/2057 (a)(b) |
140,562 | 144,653 | ||||||
JP Morgan Mortgage Trust, Series 2021-11, Class AX1, 0.224%, 1/25/2052 (a)(c)(f) |
81,148,601 | 927,691 | ||||||
JP Morgan Mortgage Trust, Series 2022-6, Class B6, 2.826%, 11/25/2052 (a)(c) |
1,265,736 | 347,583 | ||||||
JP Morgan Mortgage Trust, Series 2022-6, Class B5, 3.304%, 11/25/2052 (a)(c) |
1,265,000 | 441,848 | ||||||
JP Morgan Mortgage Trust, Series 2022-6, Class B4, 3.304%, 11/25/2052 (a)(c) |
3,030,175 | 1,278,322 | ||||||
JP Morgan Mortgage Trust, Series 2023-6, Class B6, 6.260%, 12/26/2053 (a)(c) |
330,000 | 165,364 | ||||||
JP Morgan Mortgage Trust, Series 2023-6, Class B5, 6.260%, 12/26/2053 (a)(c) |
411,000 | 249,803 | ||||||
JP Morgan Mortgage Trust, Series 2023-6, Class B4, 6.260%, 12/26/2053 (a)(c) |
530,927 | 422,761 | ||||||
New Residential Mortgage Loan Trust, Series 2022-SFR2, Class E1, 4.000%, 9/4/2039 (a) |
850,000 | 771,786 | ||||||
New Residential Mortgage Loan Trust, Series 2019-6A, Class B6, 4.394%, 9/25/2059 (a)(c) |
167,057 | 105,194 | ||||||
Oaktown Re Ltd., Series 2021-2, Class M2, 9.045% (SOFR30A + 3.700%), 4/25/2034 (a)(b) |
1,500,000 | 1,442,822 | ||||||
Oaktown Re Ltd., Series 2021-2, Class B1, 9.745% (SOFR30A + 4.400%), 4/25/2034 (a)(b) |
1,500,000 | 1,399,448 | ||||||
Progress Residential Trust, Series 2021-SFR1, Class F, 2.757%, 4/17/2038 (a) |
1,400,000 | 1,272,573 | ||||||
Progress Residential Trust, Series 2021-SFR9, Class F, 4.053%, 11/17/2040 (a) |
500,000 | 430,090 | ||||||
PRPM LLC, Series 2024-RCF1, Class M2, 4.000%, 1/25/2054 (a)(g) |
550,000 | 434,311 | ||||||
PRPM LLC, Series 2022-5, Class A1, 6.900%, 9/27/2027 (a)(g) |
1,807,863 | 1,821,272 | ||||||
Radnor RE Ltd., Series 2021-2, Class B1, 11.345% (SOFR30A + 6.000%), 11/25/2031 (a)(b) |
1,000,000 | 1,044,391 | ||||||
Radnor RE Ltd., Series 2022-1, Class M1B, 12.095% (SOFR30A + 6.750%), 9/25/2032 (a)(b) |
1,000,000 | 1,069,439 | ||||||
Radnor RE Ltd., Series 2023-1, Class M2, 11.195% (SOFR30A + 5.850%), 7/25/2033 (a)(b) |
1,000,000 | 1,051,596 | ||||||
Radnor RE Ltd., Series 2023-1, Class B1, 12.595% (SOFR30A + 7.250%), 7/25/2033 (a)(b) |
1,125,000 | 1,134,551 | ||||||
Radnor RE Ltd., Series 2021-1, Class M1C, 8.045% (SOFR30A + 2.700%), 12/27/2033 (a)(b) |
2,000,000 | 2,015,444 | ||||||
See accompanying notes which are an integral part of these financial statements.
14
Angel Oak Strategic Credit Fund
Schedule of Investments – (continued)
January 31, 2024
Principal Amount |
Value |
|||||||
Saluda Grade Mortgage LLC, Series 2022-INV1, Class A3, 4.637%, 4/25/2067 (a)(c) |
$ | 943,005 | $ | 866,638 | ||||
Saluda Grade Mortgage Funding LLC, Series 2023-FIG4, Class A, 6.718%, 11/25/2053 (a)(c) |
1,962,003 | 2,021,194 | ||||||
Saluda Grade Mortgage Funding LLC, Series 2023-FIG3, Class B, 7.712%, 8/25/2053 (a) |
934,193 | 959,643 | ||||||
Seasoned Credit Risk Transfer Trust, Series 2019-3, Class M, 4.750%, 10/25/2058 (c) |
1,800,000 | 1,702,483 | ||||||
Triangle Re Ltd., Series 2021-3, Class M2, 9.095% (SOFR30A + 3.750%), 2/25/2034 (a)(b) |
1,600,000 | 1,600,062 | ||||||
Verus Securitization Trust, Series 2021-5, Class M1, 2.331%, 9/25/2066 (a)(c) |
450,000 | 266,639 | ||||||
Verus Securitization Trust, Series 2022-7, Class M1, 5.365%, 7/25/2067 (a)(c) |
750,000 | 656,617 | ||||||
Wells Fargo Credit Risk Transfer Securities Trust, Series 2015-WF1, Class 1M2, 10.709% (SOFR30A + 5.364%), 11/25/2025 (a)(b) |
10,657 | 7,690 | ||||||
Western Mortgage Reference Notes, Series 2021-CL2, Class M3,9.445% (SOFR30A + 4.100%), 7/25/2059 (a)(b) |
1,443,219 | 1,451,128 | ||||||
Western Mortgage Reference Notes, Series 2021-CL2, Class M5,11.845% (SOFR30A + 6.500%), 7/25/2059 (a)(b) |
420,796 | 410,332 | ||||||
Western Mortgage Reference Notes, Series 2021-CL2, Class B,13.845% (SOFR30A + 8.500%), 7/25/2059 (a)(b) |
400,000 | 397,378 | ||||||
TOTAL RESIDENTIAL MORTGAGE-BACKED SECURITIES (Cost — $65,918,112) |
$64,023,740 |
|||||||
Residential Mortgage-Backed Securities - U.S. Government Agency Credit Risk Transfer — 2.35% |
||||||||
Federal Home Loan Mortgage Corp., Series 2022-HQA1, Class M2, 10.595% (SOFR30A + 5.250%), 3/25/2042 (a)(b) |
1,000,000 | 1,078,221 | ||||||
Federal Home Loan Mortgage Corp., Series 2022-HQA1, Class B2, 16.345% (SOFR30A + 11.000%), 3/25/2042 (a)(b) |
1,000,000 | 1,145,000 | ||||||
Federal Home Loan Mortgage Corp., Series 2018-SPI3, Class B, 4.156%, 8/25/2048 (a)(c) |
30,989 | 22,767 | ||||||
TOTAL RESIDENTIAL MORTGAGE-BACKED SECURITIES - U.S. GOVERNMENT AGENCY CREDIT RISK TRANSFER (Cost — $1,989,642) |
$2,245,988 |
|||||||
Shares |
||||||||
Short-Term Investments — 3.23% |
||||||||
Money Market Funds — 3.23% |
||||||||
First American Government Obligations Fund, Class U, 5.271% (i) |
3,102,191 | 3,102,191 | ||||||
TOTAL SHORT-TERM INVESTMENTS (Cost — $3,102,191) |
$3,102,191 |
|||||||
TOTAL INVESTMENTS — 101.40% (Cost — $100,126,653) |
$97,239,773 |
|||||||
Liabilities in Excess of Other Assets — (1.40%) |
(1,339,097 | ) | ||||||
NET ASSETS — 100.00% |
$95,900,676 |
|||||||
LIBOR: London Inter-Bank Offered Rate
SOFR: Secured Overnight Financing Rate
SOFR30A: Secured Overnight Financing Rate 30 Day Average
TSFRM: Term Secured Overnight Financing Rate
| (a) | Security exempt from registration under Rule 144A or Section 4(a)(2) of the Securities Act of 1933. The security may be resold in transactions exempt from registration, normally to qualified institutional buyers. These securities are determined to be liquid by the Adviser, under the procedures established by the Fund’s Board of Trustees, unless otherwise denoted. At January 31, 2024, the value of these securities amounted to $90,861,160 or 94.75% of net assets. |
See accompanying notes which are an integral part of these financial statements.
15
Angel Oak Strategic Credit Fund
Schedule of Investments – (continued)
January 31, 2024
| (b) | Variable or floating rate security based on a reference index and spread. Certain securities are fixed to variable and currently in the fixed phase. Securities that reference SOFR may have been subject to a credit spread adjustment, particularly legacy holdings that previously referenced LIBOR and have transitioned to SOFR as the base lending rate. Rate disclosed is the rate in effect as of January 31, 2024. |
| (c) | Variable rate security. The coupon is based on an underlying pool of assets. Rate disclosed is the rate in effect as of January 31, 2024. |
| (d) | Principal only security. |
| (e) | Non-income producing security. |
| (f) | Interest only security. |
| (g) | Step-up bond that pays an initial coupon rate for the first period and then a higher coupon rate for the following periods. Rate disclosed is the rate in effect as of January 31, 2024. |
| (h) | All or a portion of the security has been pledged as collateral in connection with open reverse repurchase agreements. At January 31, 2024, the value of securities pledged amounted to $2,562,111. |
| (i) | Rate disclosed is the seven day yield as of January 31, 2024. |
Schedule of Open Futures Contracts
Short Futures Contracts |
Expiration Month |
Number of Contracts |
Notional Value |
Value & Unrealized Appreciation (Depreciation) | ||||||||||
5 Year ERIS Aged Standard Swap Future |
June 2024 | (1 | ) | ($ | 96,554 | ) | $94 | |||||||
Schedule of Open Reverse Repurchase Agreements
Counterparty |
Interest Rate |
Trade Date |
Maturity Date |
Net Closing Amount |
Face Value | ||||||||||||||||||||
Goldman Sachs & Co. |
7.282% | 1/18/2024 | 2/20/2024 | $1,257,718 | $1,249,379 | ||||||||||||||||||||
Goldman Sachs & Co. |
6.782% | 1/18/2024 | 2/20/2024 | 301,879 | 300,014 | ||||||||||||||||||||
Total |
$1,549,393 |
||||||||||||||||||||||||
A reverse repurchase agreement, although structured as a sale and repurchase obligation, acts as a financing transaction under which the Fund will effectively pledge certain assets as collateral to secure a short-term loan. Generally, the other party to the agreement makes the loan in an amount less than the fair value of the pledged collateral. At the maturity of the reverse repurchase agreement, the Fund will be required to repay the loan and interest and correspondingly receive back its collateral. While used as collateral, the pledged assets continue to pay principal and interest which are for the benefit of the Fund.
Schedule of Centrally Cleared Credit Default Swaps - Buy Protection
(a)
Reference Obligation |
Implied Credit Spread at 1/31/2024 (b) |
Pay (Receive) Fixed Rate |
Payment Frequency |
Maturity Date |
Counterparty |
Notional Amount (c) |
Value |
Premium Paid (Received) |
Unrealized Appreciation (Depreciation) | |||||||||||||||||||||||||||||||||||||
Markit. CDX.NA.HY (d) |
3.587% |
5.000 | % | Quarterly | 12/20/2028 | Wells Fargo Securities, LLC |
$ | 10,000,000 | ($ | 617,735 | ) | ($ | 514,845 | ) | ($ | 102,890 | ) | |||||||||||||||||||||||||||||
| (a) | If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
| (b) | Implied credit spreads, represented in absolute terms, utilized in determining the fair value of credit default swap agreements on U.S. municipal issues, corporate issues or sovereign issues of an emerging country as of year end serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit |
See accompanying notes which are an integral part of these financial statements.
16
Angel Oak Strategic Credit Fund
Schedule of Investments – (continued)
January 31, 2024
| derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced entity or obligation. |
| (c) | The maximum potential amount the Fund could be required to pay as seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement. |
| (d) | Centrally cleared swap, clearing agent: Intercontinental Exchange. |
See accompanying notes which are an integral part of these financial statements.
17
Angel Oak Strategic Credit Fund
Notes to the Financial Statements
January 31, 2024
NOTE 1. ORGANIZATION
Angel Oak Strategic Credit Fund (the “Trust” or the “Fund”), a Delaware statutory trust organized on August 18, 2017, is a continuously offered, diversified,
closed-end
management investment company as defined in the Investment Company Act of 1940 as amended (the “1940 Act”). The Trust’s sole series is the Fund. The Trust’s Agreement and Declaration of Trust authorizes the issuance of an unlimited number of shares. Please see the table below for a summary of class specific information: Ticker |
Investment Strategy |
Commencement of Operations |
Front-End Sales Charge |
Back-End Sales Charge |
12b-1 Fees |
|||||||||||||||||
Strategic Credit Fund |
||||||||||||||||||||||
Class A |
ASCAX | Total Return | N/A | 2.25 | % | N/A | 0.25 | % | ||||||||||||||
Class U |
ASCUX | N/A | N/A | 1.50 | % | N/A | ||||||||||||||||
Class FI |
ASCNX | 07/12/2022 | N/A | 3.00 | % | N/A | ||||||||||||||||
Institutional Class |
ASCIX | 12/26/2017 | N/A | N/A | N/A | |||||||||||||||||
The Fund operates as an “interval fund” pursuant to Rule
23c-3
under the 1940 Act. The Board of Trustees (“Board”) of the Fund has adopted a fundamental policy that the Fund will make quarterly repurchase offers pursuant to Rule 23c-3
under the 1940 Act, as such rule may be amended from time to time, for between 5% and 25% of the shares of beneficial interest (“Shares”) outstanding at net asset value (“NAV”), unless suspended or postponed in accordance with regulatory requirements. Each repurchase pricing shall occur no later than the 14th
day after the Repurchase Request Deadline (as defined in the Fund’s Prospectus), or the next business day if the 14th
day is not a business day. The Fund will not be required to repurchase Shares at a shareholder’s option nor will Shares be exchangeable for units, interests or shares of any investment of the Fund. In connection with each repurchase offer, it is possible that the Fund may offer to repurchase only the minimum amount of 5% of its outstanding Shares. It is also possible that a repurchase offer may be oversubscribed, with the result that shareholders may only be able to have a portion of their Shares repurchased. The Fund does not intend to list its Shares for trading on any national securities exchange. The Fund does not expect any secondary market to develop for the Shares in the foreseeable future. The Shares are, therefore, not readily marketable. Even though the Fund will make quarterly repurchase offers to repurchase a portion of the Shares to provide liquidity to shareholders, investors should consider the Shares to be illiquid. The Fund’s fundamental policy requires the Fund to make repurchase offers every three months. Quarterly repurchases occur in the months of March, June, September, and December. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements in accordance with the accounting principles generally accepted in the United States of America (“GAAP”). The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Codification Topic 946, .
Financial Services-Investment Companies
Securities Valuation and Fair Value Measurements
| • | Level 1: quoted prices in active markets for identical securities |
| • | Level 2: other significant observable inputs (including, but not limited to, quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
| • | Level 3: significant unobservable inputs (including the Fund’s own assumptions in determining fair value of investments based on the best information available) |
The inputs or methodology used for valuing securities are not an indication of the risks associated with investing in those securities.
18
Angel Oak Strategic Credit Fund
Notes to the Financial Statements - (continued)
January 31, 2024
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES – (continued)
Investments in registered
open-end
management investment companies, including money market funds, will be valued based upon the NAV of such investments and are categorized as Level 1 of the fair value hierarchy. Fair values for long-term debt securities, including asset-backed securities (“ABS”), mortgage-backed securities (“MBS”), collateralized loan obligations (“CLOs”), and corporate obligations are normally determined on the basis of valuations provided by independent pricing services. Vendors typically value such securities based on one or more inputs, including but not limited to, benchmark yields, transactions, bids, offers, quotations from dealers and trading systems, new issues, spreads and other relationships observed in the markets among comparable securities; and pricing models such as yield measurers calculated using factors such as cash flows, financial or collateral performance and other reference data. In addition to these inputs, cash flows, prepayment information, default rates, delinquency and loss assumptions, collateral characteristics, credit enhancements and specific deal information may be utilized. Securities that use similar valuation techniques and inputs are categorized as Level 2 of the fair value hierarchy. To the extent the significant inputs are unobservable; the values generally would be categorized as Level 3.
Equity securities, including preferred stocks, that are traded on a national securities exchange, except those listed on the Nasdaq Global Market
®
, Nasdaq Global Select Market®
and the Nasdaq Capital Market®
exchanges (collectively, “Nasdaq”), are valued at the last sale price at the close of that exchange. Securities traded on Nasdaq will be valued at the Nasdaq Official Closing Price. If, on a particular day, an exchange-listed or Nasdaq security does not trade, then: (i) the security shall be valued at the mean between the most recent quoted bid and asked prices at the close of the exchange; or (ii) the security shall be valued at the latest sales price on the Composite Market (defined below) for the day such security is being valued. “Composite Market” means a consolidation of the trade information provided by national securities and foreign exchanges and over-the-counter (“OTC”) markets as published by a pricing service. In the event market quotations or Composite Market pricing are not readily available, fair value will be determined in accordance with the procedures adopted by the Board of Trustees (“Board”). All equity securities that are not traded on a listed exchange are valued at the last sale price at the close of the OTC market. If a non-exchange listed security does not trade on a particular day, then the mean between the last quoted bid and asked price will be used as long as it continues to reflect the value of the security. If the mean is not available, then bid price can be used as long as the bid price continues to reflect the value of the security. Otherwise, fair value will be determined in accordance with the procedures adopted by the Board. These securities will generally be categorized as Level 3 securities. When using the market quotations or close prices provided by the pricing service and when the market is considered active, the security will be classified as a Level 1 security. Sometimes, an equity security owned by the Fund will be valued by the pricing service with factors other than market quotations or when the market is considered inactive. When this happens, the security will be classified as a Level 2 security. Short term debt securities having a maturity of 60 days or less are generally valued at amortized cost, which approximates fair market value. These investments are categorized as Level 2 of the fair value hierarchy. Reverse repurchase agreements and repurchase agreements are priced at their acquisition cost, and assessed for credit adjustments which represents fair value. These securities will generally be categorized as Level 2 securities.
Financial derivative instruments, such as futures contracts, that are traded on a national securities or commodities exchange are typically valued at the settlement price determined by the relevant exchange. Swaps, such as credit default swaps, interest-rate swaps and currency swaps, are valued by a pricing service. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level 1 of the fair value hierarchy. OTC financial derivative instruments, such as certain futures contracts or swap agreements, derive their values from underlying asset prices, indices, reference rates, other inputs or a combination of these factors. These instruments are normally valued on the basis of evaluations provided by independent pricing services or broker dealer quotations. Derivatives that use similar valuation techniques as described above are typically categorized as Level 2 of the fair value hierarchy.
Securities may be fair valued in accordance with the fair valuation procedures approved by the Board. The Valuation and Risk Management Oversight Committee is generally responsible for overseeing the Fund’s valuation processes and reports quarterly to the Board. The Board has selected Angel Oak Capital Advisors, LLC (the “Adviser”) as the Valuation Designee. As such, the Valuation Committee of the Adviser has been delegated the responsibilities for making all necessary determinations of the fair value of portfolio securities and other assets for which market quotations are not readily available or if the prices obtained from independent pricing services are deemed to be unreliable indicators of market or fair value. Representatives of the Valuation Designee’s Valuation Committee report quarterly to the Valuation and Risk Management Oversight Committee.
day-to-day
19
Angel Oak Strategic Credit Fund
Notes to the Financial Statements - (continued)
January 31, 2024
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES – (continued)
The following is a summary of the investments by their inputs used to value the Fund’s net assets as of January 31, 2024:
Level 1 |
Level 2 |
Level 3 |
Total | |||||
Assets |
||||||||
Asset-Backed Securities |
$– | $15,326,542 | $– | $15,326,542 | ||||
Collateralized Loan Obligations |
– | 5,842,080 | – | 5,842,080 | ||||
Commercial Mortgage-Backed Securities |
– | 1,026,844 | – | 1,026,844 | ||||
Commercial Mortgage-Backed Securities – U.S. Government Agency |
– | 125,830 | – | 125,830 | ||||
Common Stocks |
402,304 | – | – | 402,304 | ||||
Corporate Obligations |
– | 5,144,254 | – | 5,144,254 | ||||
Residential Mortgage-Backed Securities |
– | 64,023,740 | – | 64,023,740 | ||||
Residential Mortgage-Backed Securities – U.S. Government Agency Credit Risk Transfer |
– | 2,245,988 | – | 2,245,988 | ||||
Short-Term Investments |
3,102,191 | – | – | 3,102,191 | ||||
Total |
$3,504,495 | $93,735,278 | $– | $97,239,773 | ||||
Other Financial Instruments |
||||||||
Assets |
||||||||
Futures Contracts* |
$94 | $– | $– | $94 | ||||
Liabilities |
||||||||
Swaps* |
– | (102,890) | – | (102,890) | ||||
Reverse Repurchase Agreements |
– | (1,549,393) | – | (1,549,393) | ||||
Total |
$94 | ($1,652,283) | $– | ($1,652,189) |
| * | Futures and swaps are reflected at the unrealized appreciation (depreciation) on the instrument as presented in the Schedule of Open Futures Contracts and Schedule of Centrally Cleared Credit Default Swaps. |
See the Schedule of Investments for further disaggregation of investment categories. During the year ended January 31, 2024, the Fund did not recognize any transfer to or from Level 3.
Federal Income Taxes:
The Fund has adopted financial reporting rules regarding recognition and measurement of tax positions taken or expected to be taken on a tax return. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense on the Statement of Operations. During the year ended January 31, 2024, the Fund did not incur any interest or penalties. The Fund has reviewed all open tax years and major jurisdictions and concluded that no provision for income tax would be required in the Fund’s financial statements. The Fund’s Federal and state income and Federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
Security Transactions and Income Recognition:
ex-date.
Paydown gains and losses on mortgage-related and other ABS are recorded as components of interest income on the Statement of Operations. Payments received from certain investments held by the Fund may be comprised of dividends, capital gains and return of capital. The Fund originally estimates the expected classification of such payments. The amounts may subsequently be reclassified upon receipt of the information from the issuer. The actual character of distributions to the Fund’s shareholders will be reflected in the Form 1099 received by shareholders after the end of the calendar year. 20
Angel Oak Strategic Credit Fund
Notes to the Financial Statements - (continued)
January 31, 2024
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES – (continued)
Distributions to Shareholders:
ex-dividend
date. The treatment for financial reporting purposes of distributions made to shareholders during the period from net investment income or net realized capital gains may differ from their ultimate treatment for federal income tax purposes. These differences are caused primarily by differences in the timing of the recognition of certain components of income, expense or realized capital gain for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of the net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications will have no effect on net assets, results of operations or net asset value per share of the Fund. For the year ended January 31, 2024, there were no reclassifications. Share Valuation:
Use of Estimates:
Indemnifications:
Cash and Cash Equivalents:
30-90
days. Short-term investments can include U.S. Government securities and government agency securities, investment grade money market instruments, investment grade fixed-income securities, repurchase agreements, commercial paper and cash equivalents. Cash equivalents are extremely low risk assets that are liquid and easily converted into cash. These investments are only considered equivalents if they are readily available and are not restricted by some agreement. When the Adviser believes market, economic or political conditions are unfavorable for investors, the Adviser may invest up to 100% of a Fund’s net assets in cash, cash equivalents or other short-term investments. Unfavorable market or economic conditions may include excessive volatility or a prolonged general decline in the securities markets, or the U.S. economy. The Adviser also may invest in these types of securities or hold cash while looking for suitable investment opportunities or to maintain liquidity. Included in Investments in securities at fair value on the Statement of Assets and Liabilities are investments in First American money market funds held at major financial institutions totaling $3,102,191. Reverse Repurchase Agreements:
21
Angel Oak Strategic Credit Fund
Notes to the Financial Statements - (continued)
January 31, 2024
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES – (continued)
The gross obligations for secured borrowing by the type of collateral pledged and remaining time to maturity on reverse repurchase contracts is as follows:
Reverse Repurchase Agreements |
Overnight and Continuous |
Up to 30 Days |
30-90 Days |
Greater than 90 Days |
Total | |||||
| Residential Mortgage-Backed Securities | $– | $1,549,393 | $– | $– | $1,549,393 | |||||
Total |
$– | $1,549,393 | $– | $– | $1,549,393 | |||||
| Gross amount of reverse repurchase agreements in Balance Sheet Offsetting Information Table | $1,549,393 | |||||||||
| Amounts related to agreements not included in offsetting disclosure in Balance Sheet Offsetting Information Table | $– | |||||||||
NOTE 3. RISKS ASSOCIATED WITH PORTFOLIO ASSETS
Mortgage-Backed and Asset-Backed Securities Risks:
Subordinated Debt of Banks and Diversified Financial Companies:
Structured Products:
Futures Contracts:
During the period a futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by on a daily basis to reflect the fair value of the contract at the end of each day’s trading. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from the closing transaction and the Fund’s cost of entering into a contract. The use of futures contracts involves the risk of illiquid markets or imperfect
“marking-to-market”
correlation between the value of the instruments and the underlying securities, or that the counterparty will fail to perform its obligations.
Angel Oak Strategic Credit Fund
Notes to the Financial Statements - (continued)
January 31, 2024
NOTE 3. RISKS ASSOCIATED WITH PORTFOLIO ASSETS – (continued)
Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Should market conditions move unexpectedly, the Fund may not achieve the anticipated benefits of the futures contract and may realize a loss. See Note 4 for information on futures contract activity during the year ended January 31, 2024.
Swaps:
A credit default swap agreement may reference one or more debt securities or obligations that are not currently held by the Fund. The Fund is permitted to enter into a credit default swap as either the protection buyer or seller in the discretion of the Adviser. When buying protection under a credit default swap, the Fund is generally obligated to pay the protection seller an upfront or periodic stream of payments over the term of the contract until a credit event occurs, such as a default of the reference obligation. If no credit event occurs, the Fund may recover nothing if the swap is held through the termination date. However, if a credit event does occur, the Fund may receive the full notional value of the swap in exchange for the face amount of the obligations underlying the swap, the value of which may have significantly decreased. When selling protection under a credit default swap, the Fund receives an upfront or periodic stream of payments over the term of the contract provided that a credit event does not occur. However, as the seller of protection, the Fund effectively adds leverage to its portfolio because it gains exposure to the notional amount of the swap. Entering into a credit default swap may subject the Fund to greater risk than if the Fund had invested in the reference obligation directly. In addition to general market risks, credit default swaps also involve illiquidity risk, counter-party risk (for OTC swaps) and credit risk.
Swap agreements are primarily entered into by institutional investors and the value of such agreements may be extremely volatile. Certain swap agreements are traded OTC between two parties, while other more standardized swaps must be transacted through a Futures Commission Merchant and centrally cleared and exchange traded. While central clearing and exchange-trading are intended to reduce counterparty credit and liquidity risk, they do not make a swap transaction risk-free. The current regulatory environment regarding swap agreements is subject to change. The Adviser will continue to monitor these developments, particularly to the extent regulatory changes affect the Fund’s ability to enter into swap agreements. See Note 4 for information on swap activity during the year ended January 31, 2024.
Common and Preferred Stocks:
The fundamental risk of investing in stock is the risk that the value of the stock might decrease. Stock values fluctuate in response to the activities of an individual company or in response to general market and/or economic conditions. Historically, common stocks have provided greater long-term returns and have entailed greater short-term risks than preferred stocks, fixed-income and money market investments. The market values of all securities, including common and preferred stocks, is based upon the market’s perception of value and not necessarily the book value of an issuer or other objective measures of a company’s worth. If you invest in the Fund, you should be willing to accept the risks of the stock market (to the extent that a Fund invests in common stock) and should consider an investment in the Fund only as a part of your overall investment portfolio.
Macroeconomic Risks:
23
Angel Oak Strategic Credit Fund
Notes to the Financial Statements - (continued)
January 31, 2024
NOTE 4. DERIVATIVE TRANSACTIONS
The value and effect of derivative instruments on the Statement of Assets and Liabilities as of January 31, 2024, was as follows:
Derivatives |
Type of Derivative Risk |
Statement of Assets and Liabilities Location |
Fair Value of Deposit at Broker for Futures and Swaps |
Value of Unrealized Appreciation (Depreciation)* | ||||
Futures Contracts |
Interest Rate | Deposit at broker for futures | $14,346 | $94 | ||||
Swaps |
Credit | Deposit at broker for swaps | $1,189,005 | ($102,890) |
| * | Represents the value of unrealized appreciation (depreciation) as presented in the Schedule of Open Futures Contracts and Schedule of Centrally Cleared Credit Default Swaps. |
The effect of derivative instruments on the Statement of Operations for the year ended January 31, 2024, was as follows:
Derivatives |
Type of Derivative Risk |
Location of Gain (Loss) on Derivatives in Income |
Realized Gain (Loss) on Derivatives | |||
Futures Contracts |
Interest Rate | Net realized gain (loss) on futures contracts |
$147 | |||
Swaps |
Credit | Net realized gain (loss) on swaps | ($5,681) |
Derivatives |
Type of Derivative Risk |
Location of Gain (Loss) on Derivatives in Income |
Change in Unrealized Appreciation/Depreciation on Derivatives | |||
Futures Contracts |
Interest Rate | Net change in unrealized appreciation/depreciation on futures contracts |
$614 | |||
Swaps |
Credit | Net change in unrealized appreciation/depreciation on swaps | ($102,890) |
The average monthly notional value of the short futures contracts and long swap contracts during the year ended January 31, 2024, was ($99,207) and $1,538,462, respectively.
Balance Sheet Offsetting Information
During the ordinary course of business, the Fund may enter into transactions subject to enforceable netting agreements or other similar arrangements (“netting agreements”). Generally, the right to offset in netting agreements allows the Fund to offset any exposure to a specific counterparty with any collateral received or delivered to that counterparty based on the terms of the agreement. Generally, the Fund manages its cash collateral and securities collateral on a counterparty basis. As of January 31, 2024, the Fund was not subject to any netting agreements.
The following table provides a summary of offsetting financial liabilities and derivatives and the effect of derivative instruments on the Statement of Assets and Liabilities as of January 31, 2024.
Gross Amounts Not Offset in Statement of Assets and Liabilities | ||||||||||||
Gross Amounts of Recognized Assets/Liabilities |
Gross Amounts Offset in Statement of Assets and Liabilities |
Net Amounts of Assets/Liabilities Presented in Statement of Assets and Liabilities |
Financial Instruments* |
Cash Collateral Pledged* |
Net Amount | |||||||
Assets: |
||||||||||||
Futures Contracts |
$94 | $– | $94** | $– | $– | $94 | ||||||
Liabilities: |
||||||||||||
Swaps |
$102,890 | $– | $102,890*** | $– | $102,890 | $– | ||||||
Reverse Repurchase Agreements |
$1,549,393 | $– | $1,549,393 | $1,549,393 | $– | $– | ||||||
| * | The amount is limited to the net amounts of financial assets and liabilities and accordingly does not include excess collateral pledged. |
24
Angel Oak Strategic Credit Fund
Notes to the Financial Statements - (continued)
January 31, 2024
NOTE 4. DERIVATIVE TRANSACTIONS – (continued)
| ** Represents | the value of unrealized appreciation (depreciation) as presented in the Schedule of Open Futures Contracts, which is included in deposit at broker for futures on the Statement of Assets and Liabilities. |
| *** | Represents the value of unrealized appreciation (depreciation) as presented in the Schedule of Centrally Cleared Credit Default Swaps, which is included in deposit at broker for swaps on the Statement of Assets and Liabilities. |
NOTE 5. FEES AND OTHER RELATED PARTY TRANSACTIONS
Under the terms of the investment advisory agreement, on behalf of the Fund (the “Agreement”), the Adviser manages the Fund’s investments subject to oversight of the Trustees. As compensation for its management services, the Fund is obligated to pay the Adviser a fee computed and accrued daily and paid monthly at an annual rate of 1.25% of the average daily net assets of the Fund.
From April 1, 2020, through December 31, 2022, the Adviser contractually agreed to waive its fees and/or reimburse certain expenses (exclusive of any
front-end
sales loads, taxes, interest on borrowings, dividends on securities sold short, brokerage commissions, 12b-1
fees, acquired fund fees and expenses, expenses incurred in connection with any merger or reorganization and extraordinary expenses) to limit the Total Annual Fund Operating Expenses after fee waiver/expense reimbursement to 0.75% (“Expense Limit”) of the Fund’s average daily net assets. Effective January 1, 2023, the Expense Limit was terminated. Prior to January 1, 2023, the Expense Limit excluded certain expenses and consequently, the total annual fund operating expenses after fee waiver/expense reimbursement may have been higher than the Expense Limit. The Adviser may recoup from the Fund any waived amount or reimbursed expenses with respect to the Fund pursuant to the prior agreement if such recoupment does not cause the Fund to exceed the Expense Limit in place at the time of the waiver and the recoupment is made within three years after the end of the month in which the Adviser incurred the expenses. During the year ended January 31, 2024, the Adviser had $487,007 of previously waived expenses expire. The amounts subject to repayment by the Fund, pursuant to the aforementioned conditions at January 31, 2024, are included in the table below.
Total Waived Expenses Recoverable by the Adviser as of 01/31/24 |
Recoverable Expenses Subject to 36 Month Limit During the Year Ended 01/31/25 |
Recoverable Expenses Subject to 36 Month Limit During the Year Ended 01/31/26 | ||
$972,655 |
$366,867 | $605,788 |
Quasar Distributors, LLC, a wholly-owned subsidiary of Foreside Financial Group, LLC (doing business as ACA Group) (“the Distributor”), acts as the Fund’s principal underwriter in a continuous public offering of the Fund’s shares.
U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services (“Fund Services”), an indirect wholly-owned subsidiary of U.S. Bancorp, serves as the Fund’s Administrator (“Administrator”) and, in that capacity, performs various administrative and accounting services for the Fund. Fund Services also serves as the Fund’s fund accountant and transfer agent. The Administrator prepares various federal and state regulatory filings, reports and returns for the Fund; prepares reports and materials to be supplied to the Trustees; monitors the activities of the Fund’s custodian; coordinates the preparation and payment of the Fund’s expenses and reviews the Fund’s expense accruals. As compensation for its services, the Administrator is entitled to a monthly fee at an annual rate based upon the average daily net assets of the Fund. U.S. Bank, N.A. (the “Custodian”) serves as custodian to the Fund.
The Fund makes reimbursement payments to the Adviser for the salary associated with the office of the Chief Compliance Officer. The compliance fees expensed by the Fund during the year ended January 31, 2024, are included in the Statement of Operations.
Certain officers, Trustees and shareholders of the Fund are also owners or employees of the Adviser and may be compensated by the Fund.
NOTE 6. INVESTMENT TRANSACTIONS
For the year ended January 31, 2024, purchases and sales of investment securities, other than short-term investments and short- term U.S. Government securities, were as follows:
Purchases |
Sales | |
$49,214,736 |
$44,155,344 |
25
Angel Oak Strategic Credit Fund
Notes to the Financial Statements - (continued)
January 31, 2024
NOTE 6. INVESTMENT TRANSACTIONS – (continued)
For the year ended January 31, 2024, there were $2,977,969 of long-term purchases and $6,821,483 of long-term sales of U.S. Government securities for the Fund. These amounts are included in the aggregate purchases and sales of the investment securities displayed in the table above.
NOTE 7. REPURCHASE OFFERS
Shares repurchased during the year ended January 31, 2024, were as follows (See Note 1):
Repurchase Offer Date |
Repurchase Request Deadline |
NAV on Repurchase Pricing Date |
Percentage of Outstanding Shares the Fund Offered to Repurchase |
Number of Shares the Fund Offered to Repurchase |
Percentage of Shares Repurchased to Outstanding Shares |
Number of Shares Repurchased | ||||||
February 24, 2023 |
March 17, 2023 | $20.59 | 5.0% | 200,293 | 0.4% | 17,720 | ||||||
May 26, 2023 |
June 16, 2023 | $20.35 | 5.0% | 209,447 | 0.3% | 14,328 | ||||||
August 25, 2023 |
September 15, 2023 | $20.61 | 5.0% | 228,319 | 0.5% | 24,873 | ||||||
November 24, 2023 |
December 15, 2023 | $20.67 | 5.0% | 228,840 | 0.2% | 9,706 |
NOTE 8. BENEFICIAL OWNERSHIP
The beneficial ownership, either directly or indirectly, of 25% or more of the voting securities of a fund creates a presumption of control of a fund, under Section 2(a)(9) of the 1940 Act. At January 31, 2024, Charles Schwab & Co., Inc. owned, as record shareholder, 75.87% of the outstanding shares of the Fund.
NOTE 9. FEDERAL TAX INFORMATION
The tax characterization of distributions paid for the year ended January 31, 2024, and January 31, 2023, were as follows:
2024 |
2023 |
|||||||
Distributions paid from: |
||||||||
Ordinary Income |
$ | 7,392,868 | $ | 5,189,444 | ||||
Net Long-Term Capital Gain |
– | – | ||||||
At January 31, 2024, the components of distributable earnings (accumulated deficit) on a tax basis were as follows:
Tax Cost of Investments |
$100,126,653 | |||
Unrealized Appreciation* |
2,907,648 | |||
Unrealized Depreciation* |
(5,794,528) | |||
Net Unrealized Appreciation (Depreciation |
($2,886,880) | |||
Undistributed Ordinary Income |
424,096 | |||
Undistributed Long-Term Gain (Loss) |
– | |||
Accumulated Gain (Loss) |
$424,096 | |||
Other Accumulated Gain (Loss) |
(1,213,226) | |||
Total Distributable Earnings (Accumulated Deficit) |
($3,676,010) | |||
| * | Represents aggregated amounts of Fund’s investments, reverse repurchase agreements, futures, and swaps. |
The temporary differences between book basis and tax basis in the Fund are primarily attributable to dividends payable and future contract marked-to-market.
As of January 31, 2024, the Fund had available for federal tax purposes an unused capital loss carryforward of $812,853. For the year ended January 31, 2024, the Fund utilized $655,475 of capital loss carryforwards.
26
Angel Oak Strategic Credit Fund
Notes to the Financial Statements - (continued)
January 31, 2024
NOTE 9. FEDERAL TAX INFORMATION – (continued)
To the extent these carryforwards are used to offset futures gains, it is probable that the amount offset will not be distributed to shareholders. The carryforward expires as follows:
No expiration short-term |
$– | |
No expiration long-term |
$812,853 | |
Total |
$812,853 |
Certain capital losses incurred after October 31 and within the current taxable year, are deemed to arise on the first business day of the Fund’s following taxable year. For the tax year ended January 31, 2024, the Fund did not defer any post-October losses.
NOTE 10. ACCOUNTING PRONOUNCEMENTS AND/OR REGULATORY UPDATES
In June 2022, the FASB issued Accounting Standards Update 2022-03, which amends (“ASU 2022-03”). ASU 2022-03 clarifies guidance for fair value measurement of an equity security subject to a contractual sale restriction and establishes new disclosure requirements for such equity securities. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, and for interim periods within those fiscal years, with early adoption permitted. Management is currently evaluating the impact of these amendments on the financial statements for the fiscal year ending January 31, 2025.
Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
In December 2022, the FASB issued an Accounting Standards Update, ASU 2022-06, (“ASU 2022-06”). ASU 2022-06 is an amendment to ASU 2020-04, which provided optional guidance to ease the potential accounting burden due to the discontinuation of the LIBOR and other interbank-offered based reference rates and which was effective as of March 12, 2020, through December 31, 2022. ASU 2022-06 extends the effective period through December 31, 2024. Management is currently evaluating the impact, if any, of applying ASU 2022-06.
Reference Rate Reform (Topic 848) – Deferral of the Sunset Date of Topic 848
NOTE 11. SUBSEQUENT EVENTS
Management of the Fund has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date these financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments other than the following:
Shares repurchased subsequent to January 31, 2024, were as follows (see Note 1):
Repurchase Offer Date |
Repurchase Request Deadline |
NAV on Repurchase Pricing Date |
Percentage of Outstanding Shares the Fund Offered to Repurchase |
Number of Shares the Fund Offered to Repurchase |
Percentage of Shares Repurchased to Outstanding Shares |
Number of Shares Repurchased | ||||||
February 23, 2024 |
March 15, 2024 | $20.93 | 5.0% | 232,428 | 0.4% | 17,198 |
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Angel Oak Strategic Credit Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedules of investments, open futures contracts, open reverse repurchase agreements, and centrally cleared credit default swaps – buy protection, of Angel Oak Strategic Credit Fund (the “Fund”) as of January 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the related notes, and the financial highlights for each of the five years in the period then ended (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of January 31, 2024, the results its operations for the year then ended, the changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of January 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more funds advised by Angel Oak Capital Advisors, LLC since 2011.
COHEN & COMPANY, LTD.
Milwaukee, Wisconsin
March 29, 2024
28
Additional Information (Unaudited)
1. Shareholder Notification of Federal Tax Status
For the taxable year ended January 31, 2024, certain dividends paid by the Fund may be subject to a maximum tax rate of 23.80% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to designate the maximum amount allowable as taxed at a maximum rate of 23.80%.
For the taxable year ended January 31, 2024, the Fund paid qualified dividend income of 0.00%.
For the taxable year ended January 31, 2024, the percentage of ordinary income dividends paid by the Fund that qualifies for the dividends received deduction available to corporations was 0.00%.
For the taxable year ended January 31, 2024, the Fund did not pay any ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871(k)2(c).
For the taxable year ended January 31, 2024, the percentage of taxable ordinary income distributions that are designated as interest related dividends under Internal Revenue 871(k)1(c) was 68.47%.
2. Disclosure of Portfolio Holdings
The Fund will file a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Part F of Form
N-PORT.
The Fund’s Part F of Form N-PORT
is available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0230.
3. Proxy Voting Policies and Procedures
A description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio securities and information regarding how the Fund voted those proxies during the most recent twelve month period ended June 30, is available without charge upon request by (1) calling the Fund at (855)
751-4324
and (2) from Trust documents filed with the SEC on the SEC’s website at www.sec.gov. 4. Statement Regarding the Basis for the Approval of the Continuance of Investment Advisory Agreement
Pursuant to Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), at a telephonic meeting held on August 17, 2023, and an
in-person
meeting held on September 27-28, 2023
(the “Meetings”), the Board of Trustees (the “Board”) of Angel Oak Strategic Credit Fund (the “Fund”) considered the renewal of the Investment Advisory Agreement (the “Investment Advisory Agreement” or the “Agreement”) between the Fund and Angel Oak Capital Advisors, LLC (the “Adviser” or “Angel Oak”) for a one-year period.
The relevant provisions of the 1940 Act specifically provide that it is the duty of the Board to request and evaluate such information as the Board determines is necessary to allow it to properly consider the renewal of the Agreement, and it is the duty of the Adviser to furnish the Trustees with information that is responsive to their request. Accordingly, in determining whether to renew the Investment Advisory Agreement between the Adviser and the Fund, the Board requested, and the Adviser provided, information and data relevant to the Board’s consideration. This included materials prepared by the Adviser, the Fund’s administrator and an independent third-party data provider (the “Outside Data Provider”) that provided the Board with information regarding the fees and expenses of the Fund, as compared to other
similar closed-end funds.
Following their review and consideration, the Trustees determined that the Investment Advisory Agreement with respect to the Fund would enable shareholders of the Fund to obtain high quality services at a cost that is appropriate, reasonable, and in the best interests of the Fund and its shareholders. Accordingly, the Board, including those Trustees who are not considered to be “interested persons” of the Fund, as that term is defined in the 1940 Act (the “Independent Trustees”), unanimously approved the continuance of the Investment Advisory Agreement. In reaching their decision, the Trustees requested and obtained from the Adviser such information as they deemed reasonably necessary to evaluate the Investment Advisory Agreement. The Trustees also carefully considered the profitability data and comparative fee and expense information prepared by the Adviser. In considering the Investment Advisory Agreement with respect to the Fund, the Trustees evaluated a number of factors that they believed, in light of their reasonable business judgment, to be relevant. They based their decision on the following considerations, among others, although they did not identify any one specific consideration or any particular information that was controlling of their decision:
29
The nature, extent and quality of the advisory services to be provided.
The investment performance of the Fund.
The Trustees observed that the Fund’s Institutional Class shares (which commenced operations in December 2017) had ranked in the first quartile of the Fund’s Peer Group over the three- and five-year periods ended June 30, 2023, and the period since the Fund’s inception, and in the fourth quartile of the Fund’s Peer Group over the
one-year
period ended June 30, 2023. The Trustees further noted that the Fund’s Institutional Class shares had outperformed the Fund’s benchmark index, the Bloomberg U.S. Aggregate Bond Index, over the one-,
three-, and five-year periods ended June 30, 2023, and for the period since the Fund’s inception. On the basis of the Trustees’ assessment of the nature, extent and quality of advisory services provided by Angel Oak, the Trustees concluded that Angel Oak is capable of generating a level of long-term investment performance that is appropriate in light of the Fund’s investment objectives, policies and strategies and competitive with many other investment companies.
The cost of advisory services provided and the level of profitability.
The Board also reviewed the fees that Angel Oak charges its other clients for discretionary portfolio management services, noting that the firm has a variety of account types with different fee arrangements,
including non-U.S. registered
funds (e.g., a UCITS fund) and sub-advised funds
that have investment strategies similar to certain of the Angel Oak Funds. The Board considered the fee rates charged by Angel Oak to manage such funds and accounts. The Board took into account the unique management requirements involved in managing a registered investment company as opposed to other types of funds and accounts. The Board also reviewed detailed profitability information and considered Angel Oak’s current level of profitability with respect to the Fund, and noted that Angel Oak’s profitability was acceptable and not excessive and consistent with applicable industry averages and that Angel Oak is committed to using its own resources to help improve the services it provides for the benefit of the Fund. The Trustees also noted that Angel Oak has provided information regarding its methodology for attributing profitability to the Fund, as opposed to its other lines of business. The Trustees also took into consideration the nature and extent of expenses that are borne directly by Angel Oak from its own financial resources to help to market and promote the Fund. Accordingly, on the basis of the Board’s review of the fees to be charged by Angel Oak for investment advisory services, the investment advisory and other services provided to the Fund by Angel Oak, and the estimated profitability of Angel Oak’s relationship with the Fund, the Board concluded that the level of investment advisory fees and Angel Oak’s profitability are appropriate in light of the investment advisory fees, overall expense ratios and investment performance of comparable
30
investment companies and the historical profitability of the relationship between the Fund and Angel Oak. The Trustees considered the profitability of Angel Oak both before and after the impact of the marketing-related expenses that Angel Oak incurs out of its own resources in connection with its management of the Fund.
The extent to which economies of scale may be realized as the Fund grows and whether the advisory fee reflects possible economies of scale.
the closed-end interval
fund market. The Trustees then noted that they would have the opportunity to periodically re-examine whether
the Fund had achieved economies of scale and the appropriateness of the investment advisory fee payable to Angel Oak with respect to the Fund, in the future, at which time the implementation of fee breakpoints on the Fund could be considered. Finally, the Trustees noted the continued improvements made to the Adviser’s infrastructure and services provided to the Fund, which had been funded by the advisory fees received by the Adviser. Benefits to Angel Oak from its relationship with the Fund (and any corresponding benefits to the Fund).
Other Considerations.
Following further discussion and the consideration of questions raised by the Independent Trustees, the Trustees determined that they had received sufficient information relating to the Fund in order to consider the approval of the Investment Advisory Agreement. It was noted that, in making their determinations, the Trustees had considered and relied upon not only the materials provided to them for use at the Meetings with respect to the proposed contract renewal, but also the information about the Fund and Angel Oak that had been provided to them at the Meetings and throughout the past year in connection with their regular Board meetings. In reaching their conclusion with respect to the continuation of the Investment Advisory Agreement and the level of fees paid under the Investment Advisory Agreement, the Trustees did not identify any one single factor as being controlling, but, rather, the Board took note of a combination of factors that had influenced their decision-making process. They noted the level and quality of investment advisory services provided by the Adviser to the Fund, and they found that these services continued to benefit the Fund and its shareholders and also reflected management’s overall commitment to the continued growth and development of the Fund.
5. Compensation of Trustees
Each Trustee who is not an “interested person” (i.e., an “Independent Trustee”) of the Fund Complex (which includes affiliated registrants not discussed in this report) receives an annual retainer of $65,000 expenses incurred in connection with attendance at meetings. The Fund’s Statement of Additional Information includes additional information about the Trustees and is available upon request by calling toll free (855)
(pro-rated
for any periods less than one year) paid quarterly as well as $12,000 for attending each regularly scheduled meeting in connection with his or her service on the Board. In addition, each Committee Chair as well as the Chair of the Board receives additional annual compensation of $12,000 (pro-rated
for any periods less than one year). Independent Trustees are permitted for reimbursement of out-of-pocket
751-4324.
6. Trustees and Officers
The business of the Fund is managed under the oversight of the Board. The Board meets periodically to review the Fund’s performance, monitor investment activities and practices, and discuss other matters affecting the Fund. The Trustees are fiduciaries for the Fund’s shareholders and are governed by the laws of the State of Delaware in this regard. The names and addresses of the Trustees and officers of the Trust are listed below along with a description of their principal occupations over at least the last five years. The address of each Trustee and Officer of the Trust is c/o Angel Oak Capital Advisors, LLC, 3344 Peachtree Road NE, Suite 1725, Atlanta, GA 30326. The Fund’s Statement of Additional Information includes additional information about the Trustees and is available upon request by calling toll free (855)
751-4324.
31
Name and Year of Birth |
Position with the Trust |
Term of Office and Length of Time Served |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex (1) Overseen by Trustee |
Other Directorships Held During the Past 5 Years | |||||
Independent Trustees (2) | ||||||||||
Ira P. Cohen 1959 |
Independent Trustee, Chair | Trustee since 2017, Chair since 2017; indefinite term |
Executive Vice President, Recognos Financial (investment industry data analysis provider) (2015-2021); Independent financial services consultant (since 2005). |
10 | Trustee, Valued Advisers Trust (since 2010); Trustee, Apollo Diversified Real Estate Fund (formerly, Griffin Institutional Access Real Estate Fund) (since 2014); Trustee, Angel Oak Funds Trust (since 2014); Trustee, Angel Oak Financial Strategies Income Term Trust (since 2018); Trustee, U.S. Fixed Income Trust (since 2019); Trustee, Angel Oak Credit Opportunities Term Trust (since 2021); Trustee, Angel Oak Dynamic Financial Strategies Income Term Trust (2019-2022); Trustee, Apollo Credit Fund (formerly, Griffin Institutional Access Credit Fund) (2017-2022). | |||||
Alvin R. Albe, Jr. 1953 |
Independent Trustee | Since 2017; indefinite term | Retired. | 10 | Trustee, Angel Oak Funds Trust (since 2014); Trustee, Angel Oak Financial Strategies Income Term Trust (since 2018); Trustee, Angel Oak Credit Opportunities Term Trust (since 2021); Trustee, Angel Oak Dynamic Financial Strategies Income Term Trust (2019-2022). | |||||
32
Name and Year of Birth |
Position with the Trust |
Term of Office and Length of Time Served |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex (1) Overseen by Trustee |
Other Directorships Held During the Past 5 Years | |||||
Keith M. Schappert 1951 |
Independent Trustee |
Since 2017; indefinite term |
President, Schappert Consulting LLC (investment industry consulting) (since 2008); Retired, President and CEO of JP Morgan Investment Management. |
10 |
Trustee, Angel Oak Funds Trust (since 2014); Trustee, Angel Oak Financial Strategies Income Term Trust (since 2018); Trustee, Angel Oak Credit Opportunities Term Trust (since 2021); Trustee, Angel Oak Dynamic Financial Strategies Income Term Trust (2019-2022); Director, Commonfund Capital, Inc. (2015-2022); Trustee, Mirae Asset Discovery Funds (2010-2023). | |||||
Andrea N. Mullins 1967 |
Independent Trustee |
Since 2019; indefinite term |
Private Investor; Independent Contractor, SWM Advisors (since 2014). |
10 |
Trustee and Audit Committee Chair, Valued Advisers Trust (since 2013, Chair since 2017); Trustee, Angel Oak Funds Trust (since 2019); Trustee, Angel Oak Financial Strategies Income Term Trust (since 2019); Trustee, Angel Oak Credit Opportunities Term Trust (since 2021); Trustee and Audit Committee Chair, NXG Cushing Midstream Energy Fund (formerly, Cushing MLP & Infrastructure Fund) (since 2021); Trustee and Audit Committee Chair, NXG NextGen Infrastructure Income Fund (formerly, Cushing NextGen Infrastructure Income Fund) (since 2021); Trustee, Angel Oak Dynamic Financial Strategies Income Term Trust (2019-2022); Trustee and Audit Committee Chair, Cushing Mutual Funds Trust (2021-2023). |
33
Name and Year of Birth |
Position with the Trust |
Term of Office and Length of Time Served |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex (1) Overseen by Trustee |
Other Directorships Held During the Past 5 Years | |||||
Interested Trustees | ||||||||||
Samuel R. Dunlap, III 1979 |
Interested Trustee | Since 2019; indefinite term | Chief Investment Officer-Public Strategies, Angel Oak Capital Advisors, LLC (investment management) (since 2009). | 10 | Trustee, Angel Oak Funds Trust (since 2019); Trustee, Angel Oak Credit Opportunities Term Trust (since 2021): Trustee, Angel Oak Financial Strategies Income Term Trust (since 2022); Trustee, Angel Oak Dynamic Financial Strategies Income Term Trust (2019-2022). | |||||
Cheryl M. Pate 1976 |
Interested Trustee | Since 2022; indefinite term | Senior Portfolio Manager, Angel Oak Capital Advisors, LLC (investment management) (since 2017). | 10 | Trustee, Angel Oak Funds Trust (since 2022); Trustee, Angel Oak Credit Opportunities Term Trust (since 2022); Trustee, Angel Oak Financial Strategies Income Term Trust (since 2023); Trustee, Angel Oak Dynamic Financial Strategies Income Term Trust (2022-2022). | |||||
| (1) | The Fund Complex includes the Fund, each series of Angel Oak Funds Trust, Angel Oak Financial Strategies Income Term Trust, and Angel Oak Credit Opportunities Term Trust. |
| (2) | The Trustees of the Trust who are not “interested persons” of the Trust as defined in the 1940 Act (“Independent Trustees”). |
34
Name and Year of Birth |
Position with the Trust |
Term of Office and Length of Time Served |
Principal Occupation(s) During Past 5 Years | |||
Officers | ||||||
Adam Langley 1967 |
President | Since 2022; indefinite term (other offices held 2015-2022) | Chief Operating Officer, Angel Oak Capital Advisors, LLC (since 2021); Chief Compliance Officer, Angel Oak Capital Advisors, LLC (2015-2022); Chief Compliance Officer of Falcons I, LLC (2018-2022); Chief Compliance Officer, Angel Oak Funds Trust (2015-2022); Chief Compliance Officer, Angel Oak Financial Strategies Income Term Trust (2018-2022); Chief Compliance Officer, Angel Oak Dynamic Financial Strategies Income Term Trust (2019-2022); Chief Compliance Officer, Angel Oak Credit Opportunities Term Trust (2021-2022); Chief Compliance Officer, Angel Oak Commercial Real Estate Solutions (2021-2022); Chief Compliance Officer, Buckhead One Financial Opportunities, LLC (2015-2022); Chief Compliance Officer, Angel Oak Capital Partners II, LLC (2016-2022); Chief Compliance Officer, Hawks I, LLC (2018-2022). | |||
Michael Colombo 1984 |
Secretary | Since 2023; indefinite term | Chief Risk Officer, Angel Oak Capital Advisors, LLC (since 2023); Director of Valuation, Angel Oak Capital Advisors, LLC (2022-2023); Director of Trade Operations, Intercontinental Exchange, Inc. (2022); Manager of Trade Operations, Intercontinental Exchange, Inc. (2019-2022); Lead Analyst, Trade Operations, Intercontinental Exchange, Inc. (2018-2019). | |||
Daniel Fazioli 1981 |
Treasurer | Since 2015; indefinite term | Chief Accounting Officer, Angel Oak Capital Advisors, LLC (since 2015). | |||
Chase Eldredge 1989 |
Chief Compliance Officer | Since 2022; indefinite term | Chief Compliance Officer, Angel Oak Capital Advisors, LLC (since 2022); Chief Compliance Officer of Falcons I, LLC (since 2022); Chief Compliance Officer, Angel Oak Funds Trust (since 2022); Chief Compliance Officer, Angel Oak Financial Strategies Income Term Trust (since 2022); Chief Compliance Officer, Angel Oak Credit Opportunities Term Trust (since 2022); Senior Compliance Officer, Angel Oak Capital Advisors, LLC (2020-2022); Compliance Officer, Angel Oak Capital Advisors, LLC (2017-2020). | |||
Each Trustee holds office for an indefinite term and until the earlier of: the Trust’s next meeting of shareholders and the election and qualification of his/her successor; or until the date a trustee dies, resigns or is removed in accordance with the Trust’s Declaration of Trust and
By-laws.
Each Trustee shall serve during the lifetime of the Trust until he or she: (a) dies; (b) resigns; (c) has reached the mandatory retirement age, if any, as set by the Trustees; (d) is declared incompetent by a court of appropriate jurisdiction; or (e) is removed, or, if sooner, until the next meeting of shareholders called for the purpose of electing Trustees and until the election and qualification of his or her successor. Each officer holds office at the pleasure of the Board. 35
Angel Oak Strategic Credit Fund
Notice of Privacy Policy & Practices
Your privacy is important to us. We are committed to maintaining the confidentiality, integrity and security of your personal information. When you provide personal information, we believe that you should be aware of policies to protect confidentiality of that information.
We collect the following nonpublic personal information about you:
| • | Information we receive from you on or in applications or other forms, correspondence, or conversations, including, but not limited to, your name, address, phone number, social security number, assets, income and date of birth; and |
| • | Information about your transactions with us, our affiliates, or others, including, but not limited to, your account number and balance, payments history, parties to transactions, cost basis information, and other financial information. |
We do not disclose any nonpublic personal information about our current or former shareholders to nonaffiliated third parties, except as permitted by law. For example, we are permitted by law to disclose all of the information we collect, as described above, to our transfer agent to process your transactions. Furthermore, we restrict access to your nonpublic personal information to those persons who require such information to provide products or services to you. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information.
In the event that you hold shares of the Fund through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary would govern how your nonpublic personal information would be shared with nonaffiliated third parties.
36
INVESTMENT ADVISER
Angel Oak Capital Advisors, LLC
3344 Peachtree Road NE, Suite 1725
Atlanta, GA 30326
DISTRIBUTOR
Quasar Distributors, LLC
3 Canal Plaza, Suite 100,
Portland, ME 04101
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Cohen & Company, Ltd.
342 North Water Street, Suite 830
Milwaukee, WI 53202
LEGAL COUNSEL
Dechert LLP
1900 K Street NW
Washington, DC 20006
CUSTODIAN
U.S. Bank National Association
1555 North Rivercenter Drive, Suite 302
Milwaukee, WI 53212
ADMINISTRATOR, TRANSFER AGENT, AND FUND ACCOUNTANT
U.S Bancorp Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
This report is intended only for the information of shareholders or those who have received the Fund’s prospectus which contains information about the Fund’s management fee and expenses. Please read the prospectus carefully before investing.
AR-ASCIX
| (b) | Not applicable. |
Item 2. Code of Ethics.
The registrant has adopted a code of ethics that applies to the registrant’s Principal Executive Officer and Principal Financial Officer. The registrant has not made any substantive amendments to its code of ethics during the period covered by this report. The registrant has not granted any waivers from any provisions of the code of ethics during the period covered by this report.
A copy of the registrant’s Code of Ethics is filed herewith.
Item 3. Audit Committee Financial Expert.
The registrant’s board of trustees has determined that there is at least one audit committee financial expert serving on its audit committee. Mr. Alvin R. Albe, Jr. is the “audit committee financial expert” and is considered to be “independent” as each term is defined in Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
The registrant has engaged its principal accountant to perform audit services, audit-related services, tax services and other services during the past two fiscal years. “Audit services” refer to performing an audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. “Audit-related services” refer to the assurance and related services by the principal accountant that are reasonably related to the performance of the audit. “Tax services” refer to professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. The following table details the aggregate fees billed or expected to be billed for each of the last two fiscal years for audit fees, audit-related fees, tax fees and other fees by the principal accountant.
| FYE 01/31/2024 | FYE 01/31/2023 | |||||||
| (a) Audit Fees |
$ | 26,000 | $ | 25,000 | ||||
| (b) Audit-Related Fees |
$ | 0 | $ | 0 | ||||
| (c) Tax Fees |
$ | 4,000 | $ | 4,000 | ||||
| (d) All Other Fees |
$ | 0 | $ | 0 | ||||
The Audit, Financial and Administrative Oversight Committee has not adopted written pre-approval policies and procedures. Instead, the Committee has the duty and responsibility to pre-approve all auditing services and permissible non-auditing services to be provided to the Fund in accordance with its Charter and the 1940 Act. In addition, the Committee considers matters with respect to the principal accountant’s independence each year. The Committee did not approve any of the audit-related, tax or other non-audit fees described above pursuant to the “de minimis exceptions” set forth in Rule 2-01(c)(7)(i)(C) and Rule 2-01(c)(7)(ii) of Regulation S-X.
1
The Audit, Financial and Administrative Oversight Committee also has the duty and responsibility to pre-approve those non-audit services provided to the Fund’s investment adviser (and entities controlling, controlled by or under common control with the investment adviser that provide ongoing services to the Fund) where the engagement relates directly to the operations or financial reporting of the Fund in accordance with the Charter of the Committee and the 1940 Act. The Committee considered whether the provision of any non-audit services rendered to the Adviser and any entity controlling, controlled by, or under common control with the Adviser that provides ongoing services to the Fund that were not pre-approved by the Committee because the engagement did not relate directly to the operations and financial reporting of the Fund is compatible with maintaining the principal accountant’s independence.
The percentage of fees billed by Cohen & Company, Ltd. applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows:
| FYE 01/31/2024 | FYE 01/31/2023 | |||||||
| Audit-Related Fees |
0 | % | 0 | % | ||||
| Tax Fees |
0 | % | 0 | % | ||||
| All Other Fees |
0 | % | 0 | % | ||||
All of the principal accountant’s hours spent on auditing the registrant’s financial statements for the most recent fiscal year were attributed to work performed by full-time permanent employees of the principal accountant.
The following table indicates the non-audit fees billed or expected to be billed by the registrant’s accountant for services to the registrant and to the registrant’s investment adviser (and any other controlling entity) for the last two years.
| Non-Audit Related Fees |
FYE 01/31/2024 | FYE 01/31/2023 | ||||||
| Registrant |
$ | 4,000 | $ | 4,000 | ||||
| Registrant’s Investment Adviser |
$ | 0 | $ | 0 | ||||
The audit committee of the board of trustees has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser is compatible with maintaining the principal accountant’s independence and has concluded that the provision of such non-audit services by the accountant has not compromised the accountant’s independence.
The registrant has not been identified by the U.S. Securities and Exchange Commission as having filed an annual report issued by a registered public accounting firm branch or office that is located in a foreign jurisdiction where the Public Company Accounting Oversight Board is unable to inspect or completely investigate because of a position taken by an authority in that jurisdiction.
The registrant is not a foreign issuer.
2
Item 5. Audit Committee of Listed Registrants.
Not applicable to registrants who are not listed issuers (as defined in Rule 10A-3 under the Securities Exchange Act of 1934).
Item 6. Investments.
Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.
3
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
ANGEL OAK FUNDS TRUST
ANGEL OAK STRATEGIC CREDIT FUND
ANGEL OAK FINANCIAL STRATEGIES INCOME TERM TRUST
PROXY VOTING
The Boards of Trustees (the “Board”) of Angel Oak Funds Trust, Angel Oak Strategic Credit Fund, and Angel Oak Financial Strategies Income Term Trust (each, a “Trust” and together, the “Trusts”) and the Trusts’ respective series, if any, (each, a “Fund” and together with the Trusts, the “Funds”) recognizes that the Board’s right to vote proxies for Trust holdings is an important responsibility and a significant Trust asset. Consistent with its fiduciary duties and duty to report each Funds’ proxy voting record pursuant to Rule 30b1-4 under the Investment Company Act of 1940, the Board has adopted this proxy voting policy on behalf of the Funds to reflect its commitment to ensure that proxies are voted in a manner consistent with the best interests of the Funds’ shareholders.
Delegation
The Board recognizes that the investment adviser of the Funds, Angel Oak Capital Advisors, LLC (the “Adviser”), as the entity that selects the individual securities that comprise each Fund’s portfolio, is the most knowledgeable and best suited to monitor corporate actions, analyze proxy proposals, make voting decisions, and ensure that proxies are submitted in a timely fashion. The Board therefore delegates the authority to vote proxies to the Adviser, subject to the supervision of the Board.
The Board must approve the Adviser’s proxy voting policies and procedures. The Board will monitor the implementation of these policies to ensure that the Adviser’s voting decisions:
| • | are consistent with the Adviser’s fiduciary duty to the Funds and their shareholders; |
| • | seek to maximize shareholder return and the value of Fund investments; |
| • | promote sound corporate governance; and |
| • | are consistent with each Fund’s investment objective and policies. |
Consistent with its duties under this Policy, the Adviser shall monitor and review corporate actions of companies in which a Fund has invested, obtain all information sufficient to allow an informed vote on all proxy solicitations, ensure that all proxy votes are cast in a timely fashion, and maintain all records required to be maintained by the Fund under Rule 30b1-4 and other provisions of the 1940 Act. The Adviser will perform these duties in accordance with the Adviser’s proxy voting policy, a copy of which has been presented to the Board for its review. The Adviser will promptly provide to the Board any updates to its proxy voting policy where such updates are both material and are not solely operational in nature.
Conflicts of Interest
In the event of a conflict between the interests of the Adviser and the Trusts, the Adviser’s policies provide that the conflict may be disclosed to the Board or its delegate, who shall provide direction to vote the proxies. The Board has delegated this authority to the disinterested directors, and the proxy voting direction in such a case shall be determined by a majority of the disinterested directors.
| Proxy Voting Policies and Procedures | Page 1 |
Fund of Funds Arrangements
When voting proxies related to Acquired Funds, as defined in the Trusts’ Fund of Funds Investments Policy, ensure any voting remains compliant with the proxy voting requirements within the Fund of Funds Investments Policy.
Shareholder Reporting
Each Trust will disclose in its annual and semi-annual reports to shareholders that a description (or copy) of the Trust’s proxy voting policies and procedures is available without charge, upon request, by calling toll-free (855) 751-4324 (or another number which connects to the transfer agent) or by accessing the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov. The Trust’s transfer agent will notify the Adviser of any such request of proxy voting procedures. The Adviser will send a description or copy of its proxy voting policies and procedures within three business days of receipt of a request.
Each Trust will file its complete proxy voting record with the SEC on Form N-PX on an annual basis, for the prior 12 months ended June 30, by no later than August 31 of each year. Each Trust also will disclose in its SAI and annual and semi-annual reports to shareholders that its proxy voting record is available without charge, upon request, by calling toll-free (855) 751-4324 (or another number which connects to the transfer agent) or by accessing the SEC’s website. The Trust’s transfer agent will notify the Adviser of any such request of proxy voting records. The Adviser must send the information disclosed in the Trust’s most recently filed Form N-PX within three business days of receipt of a request.
| Proxy Voting Policies and Procedures | Page 2 |
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a)(1) The following provides biographical information about the individuals who are primarily responsible for the day-to-day management of the registrant’s portfolio (“Portfolio Managers”) as of the date of this filing:
Sreeniwas (Sreeni) V. Prabhu is Managing Partner, Co-CEO, and Chief Investment Officer of the Adviser and a Portfolio Manager of the Fund. Prior to co-founding the Adviser in 2009, Mr. Prabhu was the Chief Investment Officer of the $25 billion investment portfolio at Washington Mutual Bank for three years and was also part of the macro asset strategy team at the bank. Prior to joining Washington Mutual Bank, Mr. Prabhu worked for six years at SunTrust Bank in Atlanta, where he was responsible for investment strategies and served as head portfolio manager for the $3 billion commercial mortgage-backed securities portfolio. He began his career at SunTrust in 1998 as a bank analyst focused on asset/liability management and liquidity strategies. Mr. Prabhu holds a B.B.A. in Economics from Georgia College and State University and an M.B.A. in Finance from Georgia State University.
Sam Dunlap is Chief Investment Officer, Public Strategies at the Advisor and a Portfolio Manager of the Fund. Mr. Dunlap is also responsible for managing some of the separately managed accounts for the Advisor’s clients. Mr. Dunlap began his capital markets career in 2002 and has investment experience across multiple sectors of the fixed income market. Prior to joining the Advisor in 2009, Mr. Dunlap spent six years marketing and structuring interest rate derivatives with SunTrust Robinson Humphrey where he focused on both interest rate hedging products and interest rate linked structured notes. Mr. Dunlap’s previous experience included two years at Wachovia in Charlotte, North Carolina supporting the agency mortgage pass-through trading desk. Mr. Dunlap received a B.A. in Economics from the University of Georgia.
Berkin Kologlu is a Senior Portfolio Manager of the Adviser and a Portfolio Manager of the Fund. Mr. Kologlu has over 20 years’ experience in fixed income products and focuses on building and managing strategies within the Collateralized Loan Obligation (CLO) market. He spent the previous six years as an Executive Director at UBS, covering structured products and client solutions. Prior to UBS, Mr. Kologlu worked at Bank of America, where he focused on the structuring and marketing of CLOs and synthetic CDOs backed by corporate credit. Before Bank of America, Mr. Kologlu worked in Turkey as a commercial banker, where he was responsible for lending to large cap corporations. He received his MBA from Duke University’s Fuqua School of Business and his B.S. in Civil Engineering from Bogazici University in Istanbul, Turkey.
6
Matthew R. Kennedy, CFA, is a Head of Corporate Credit and Senior Portfolio Manager of the Adviser and a Portfolio Manager of the Fund. Mr. Kennedy has over 20 years of capital markets and asset management experience. Prior to joining the Adviser in 2016, Mr. Kennedy spent seven years as a portfolio manager with Rainier Investment Management, LLC, where he served as Director of Fixed Income Management and was responsible for managing the Predecessor High Yield Fund among other clients. Mr. Kennedy began his investment career in 1995 at GE Financial Assurance, where he served as a Senior Analyst and made investment recommendations for investment grade, high yield, and private placement portfolios. From 1991 through 1994, he was a CPA and Auditor at Deloitte & Touche. Mr. Kennedy is a member of the CFA Institute and the Seattle Society of Financial Analysts. He holds the Chartered Financial Analyst designation. Mr. Kennedy received his Bachelor of Arts degree in Business Administration, with specializations in Finance and Accounting, from Washington State University.
Colin McBurnette is a Senior Portfolio Manager of the Adviser and a Portfolio Manager of the Fund. Mr. McBurnette focuses on security and portfolio analytics. Prior to joining the Adviser in 2012, Mr. McBurnette worked for Prodigus Capital Management, where he served on the investment committee and ran the analytics group. He was responsible for acquisition and management of their distressed debt portfolio, as well as the development of their proprietary financial technology platform. Previously, Mr. McBurnette worked in the Real Estate Capital Markets group for Wachovia Bank and Wells Fargo where he focused on risk management for their commercial real estate REPO lines. Mr. McBurnette holds a B.B.A. in Finance and in Real Estate from the University of Georgia.
Clayton Triick, CFA, is a Senior Portfolio Manager of the Adviser and a Portfolio Manager of the Fund. Mr. Triick is a portfolio manager within the non-agency and agency RMBS markets and focuses on asset allocation and interest rate risk management of the Financials Income Fund, other Angel Oak funds, and the institutional separately managed accounts. Mr. Triick has 8 years of investment experience across multiple sectors of fixed income. Prior to joining Angel Oak in 2011, Mr. Triick worked for YieldQuest Advisors, where he was a member of the investment committee focusing on interest rate risk, currency risk, and commodity of the portfolios alongside directly managing he closed-end fund allocations within YieldQuest portfolios and individual accounts. Mr. Triick holds a B.B.A. in Finance from the Farmer School of Business at Miami University. He also holds the Chartered Financial Analyst (CFA) designation.
(a)(2) The following provides information on other accounts managed on a day-to-day basis by the Portfolio Managers listed above as of January 31, 2024:
Sreeniwas (Sreeni) V. Prabhu
| Number and Assets of Other Accounts |
Number and Assets of Accounts for which Advisory Fee is Performance Based | |||||||||
| Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts |
Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts | |||||
| 5 | 15 | 0 | 0 | 13 | 0 | |||||
| $3,523,305,327 | $2,537,800,341 | $0 | $0 | $2,127,688,015 | $0 | |||||
7
Sam Dunlap
| Number and Assets of Other Accounts |
Number and Assets of Accounts for which Advisory Fee is Performance Based | |||||||||
| Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts |
Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts | |||||
| 8 | 0 | 16 | 0 | 0 | 0 | |||||
| $3,063,272,252 | $0 | $547,688,909 | $0 | $0 | $0 | |||||
Berkin Kologlu
| Number and Assets of Other Accounts |
Number and Assets of Accounts for which Advisory Fee is Performance Based | |||||||||
| Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts |
Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts | |||||
| 4 | 1 | 5 | 0 | 1 | 0 | |||||
| $2,882,556,912 | $112,496,477 | $467,847,243 | $0 | $112,496,477 | $0 | |||||
Matthew R. Kennedy
| Number and Assets of Other Accounts |
Number and Assets of Accounts for which Advisory Fee is Performance Based | |||||||||
| Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts |
Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts | |||||
| 4 | 1 | 0 | 0 | 1 | 0 | |||||
| $331,650,312 | $112,496,477 | $0 | $0 | $112,496,477 | $0 | |||||
Colin McBurnette
| Number and Assets of Other Accounts |
Number and Assets of Accounts for which Advisory Fee is Performance Based | |||||||||
| Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts |
Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts | |||||
| 9 | 1 | 12 | 0 | 1 | 0 | |||||
| $3,513,214,232 | $112,496,477 | $373,547,564 | $0 | $112,496,477 | $0 | |||||
Clayton Triick
| Number and Assets of Other Accounts |
Number and Assets of Accounts for which Advisory Fee is Performance Based | |||||||||
| Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts |
Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts | |||||
| 9 | 1 | 4 | 0 | 1 | 0 | |||||
| $3,513,214,232 | $112,496,477 | $276,788,424 | $0 | $112,496,477 | $0 | |||||
8
Potential Conflicts of Interest: Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one fund or other account. More specifically, portfolio managers who manage multiple funds and/or other accounts may experience the following potential conflicts: The management of multiple accounts may result in a portfolio manager devoting unequal time and attention to the management of each account. Investment decisions for client accounts are also made consistent with a client’s individual investment objective and needs. Accordingly, there may be circumstances when purchases or sales of securities for one or more client accounts will have an adverse effect on other clients. The Adviser may seek to manage such competing interests by: (1) having a portfolio manager focus on a particular investment discipline; (2) utilizing a quantitative model in managing accounts; and/or (3) reviewing performance differences between similarly managed accounts on a periodic basis to ensure that any such differences are attributable by differences in investment guidelines and timing of cash flows. The Adviser also maintains a Code of Ethics to establish standards and procedures for the detection and prevention of activities by which persons having knowledge of the investments and investment intentions of the Fund may abuse their fiduciary duties to the Fund.
If a portfolio manager identifies a limited investment opportunity that may be suitable for more than one client, the Fund may not be able to take full advantage of that opportunity due to an allocation of filled purchase or sale orders across all eligible accounts. There has been significant growth in the number of firms organized to make investments similar to those which the Fund intends to make, which may result in increased competition to the Fund in obtaining suitable investments. Because the Adviser manages other funds and accounts with similar investments strategies as the Fund that seek to invest in these limited investment opportunities, the Adviser may have to allocate available investment opportunities among the Fund and other funds and accounts it manages. To deal with these situations, the Adviser has adopted Trade Aggregation and Allocation Policies and Procedures for allocating portfolio transactions across multiple accounts. In accordance with these procedures, at times, the Fund may receive a smaller portion of an investment opportunity than desired or certain investment opportunities may be allocated to other funds or accounts managed by the Adviser as part of the allocation procedures.
From time to time, the Fund and other funds or accounts managed by the Adviser may make investments at different levels of an issuer’s capital structure or otherwise in different classes of an issuer’s securities. These investments could inherently give rise to conflicts of interest between or among the Fund and the other holders of various classes of securities. The Adviser and its clients may pursue or enforce rights with respect to an issuer in which the Fund has invested, and those activities may have an adverse effect on the Fund. Prices, availability, liquidity and terms of the Fund’s investments may be negatively impacted by the activities of the Adviser and its clients, and Fund transactions may be impaired or effected at prices or terms that may be less favorable than would otherwise have been the case.
Through the various activities of the Adviser and its affiliates, the Adviser and/or its affiliates may acquire material non-public information or otherwise be restricted from trading in certain potential investments that the Fund otherwise might have purchased or sold.
9
With respect to securities transactions for clients, the Adviser determines which broker to use to execute each order. However, the Adviser may direct securities transactions to a particular broker/dealer for various reasons including receipt of research or participation interests in initial public offerings that may or may not benefit the Fund. To deal with these situations, the Adviser has adopted procedures to help ensure best execution of all client transactions.
Finally, the appearance of a conflict of interest may arise where the Adviser has an incentive, such as a performance-based management fee, which relates to the management of one but not all accounts for which a portfolio manager has day-to-day management responsibilities.
(a)(3) The following describes how the portfolio managers are compensated as of January 31, 2024:
The Portfolio Managers receive an annual base salary from the Adviser. Each of the Portfolio Managers is eligible to receive a discretionary bonus, which is based on: profitability of the Adviser; assets under management; investment performance of managed accounts; compliance with the Adviser’s policies and procedures; contribution to the Adviser’s goals and objectives; anticipated compensation levels of competitor firms; effective research; role and responsibilities; client satisfaction; asset retention; teamwork; leadership; and risk management. Mr. Prabhu has an ownership interest in the Adviser and may receive distributions from the Adviser, which may come from profits generated by the Adviser. Portfolio Managers may have profit sharing interests in the Adviser’s parent company in addition to their salary, bonus, and benefits package.
(a)(4) The following provides information about the dollar range of equity securities in the registrant beneficially owned by the Portfolio Managers as of January 31, 2024:
| Portfolio Manager | Dollar Range of Equity Securities in the Fund | |
| Sreeni V. Prabhu |
None | |
| Berkin Kologlu |
None | |
| Sam Dunlap |
None | |
| Matt Kennedy |
None | |
| Colin McBurnette |
None | |
| Clayton Triick |
None |
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
| Period |
(a) Total Number of Shares (or Units) Purchased |
(b) Average Price Paid per Share (or Unit) |
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
| Month #1 (02/01/23-02/28/23) |
— | — | — | — | ||||||||||||
| Month #2 (03/01/23-03/31/23)(1) |
17,720 | $ | 20.59 | 17,720 | — | |||||||||||
| Month #3 (04/01/23-04/30/23) |
— | — | — | — | ||||||||||||
| Month #4 (05/01/23-05/31/23) |
— | — | — | — | ||||||||||||
| Month #5 (06/01/23-06/30/23)(2) |
14,328 | $ | 20.35 | 14,328 | — | |||||||||||
| Month #6 (07/01/23-07/31/23) |
— | — | — | — | ||||||||||||
| Month #7 (08/01/23-08/31/23) |
— | — | — | — | ||||||||||||
10
| Month #8 (09/01/23-09/30/23)(3) |
24,873 | $ | 20.61 | 24,873 | — | |||||||||||
| Month #9 (10/01/23-10/31/23) |
— | — | — | — | ||||||||||||
| Month #10 (11/01/23-11/30/23) |
— | — | — | — | ||||||||||||
| Month #11 (12/01/23-12/31/23)(4) |
9,706 | $ | 20.67 | 9,706 | — | |||||||||||
| Month #12 (01/01/24-01/31/24) |
— | — | — | — | ||||||||||||
| Total |
66,627 | — | 66,627 | — |
| (1) | On February 24, 2023, the Registrant offered to repurchase up to 5.0% of the Registrant’s total outstanding shares as of March 17, 2023 (the “Repurchase Request Deadline”). On the Repurchase Request Deadline, 17,720 shares representing 0.4% of the Registrant’s total outstanding shares were repurchased. |
| (2) | On May 26, 2023, the Registrant offered to repurchase up to 5.0% of the Registrant’s total outstanding shares as of June 16, 2023. On the Repurchase Request Deadline, 14,328 shares representing 0.3% of the Registrant’s total outstanding shares were repurchased. |
| (3) | On August 25, 2023, the Registrant offered to repurchase up to 5.0% of the Registrant’s total outstanding shares as of September 15, 2023. On the Repurchase Request Deadline, 24,873 shares representing 0.5% of the Registrant’s total outstanding shares were repurchased. |
| (4) | On November 24, 2023, the Registrant offered to repurchase up to 5.0% of the Registrant’s total outstanding shares as of December 15, 2023. On the Repurchase Request Deadline, 9,706 shares representing 0.2% of the Registrant’s total outstanding shares were repurchased. |
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of trustees.
Item 11. Controls and Procedures.
| (a) | The Registrant’s Principal Executive Officer and Principal Financial Officer have reviewed the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant’s service provider. |
| (b) | There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies
The registrant did not engage in securities lending activities during the fiscal year reported on this Form N-CSR.
Item 13. Exhibits.
| (2) | A separate certification for each principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. |
11
| (3) | Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable. |
| (4) | Change in the registrant’s independent public accountant. There was no change in the registrant’s independent public accountant for the period covered by this report. |
| (b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. |
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) Angel Oak Strategic Credit Fund | ||||
| By (Signature and Title)* | /s/ Adam Langley | |||
| Adam Langley, President (Principal Executive Officer) | ||||
| Date March 29, 2024 | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title)* | /s/ Adam Langley | |||
| Adam Langley, President (Principal Executive Officer) | ||||
| Date March 29, 2024 | ||||
| By (Signature and Title)* | /s/ Daniel Fazioli | |||
| Daniel Fazioli, Treasurer (Principal Financial Officer) | ||||
| Date March 29, 2024 | ||||
| * | Print the name and title of each signing officer under his or her signature. |
13