N-CSR 1 d473950dncsr.htm ANGEL OAK FUNDS AR - AOFT Angel Oak Funds AR - AOFT
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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 811-22980

 

 

Angel Oak Funds Trust

(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, 2023

 

 

 


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Item 1. Reports to Stockholders.

(a)


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LOGO

 

Annual Report

January 31, 2023

Angel Oak Multi-Strategy Income Fund

Angel Oak Financials Income Impact Fund

(formerly “Angel Oak Financials Income Fund”)

Angel Oak High Yield Opportunities Fund

Angel Oak UltraShort Income Fund

Angel Oak Total Return Bond Fund

(formerly “Angel Oak Core Impact Fund”)

Angel Oak UltraShort Income ETF

Angel Oak Income ETF

 

Angel Oak Capital Advisors, LLC

3344 Peachtree Road NE

Suite 1725

Atlanta, GA 30326

(404) 953-4900


Table of Contents

Table of Contents

 

Letter to Shareholders

     1  

Investment Results

     16  

Summary of Funds’ Expenses

     25  

Portfolio Holdings

     27  

Statements of Assets and Liabilities

     31  

Statements of Operations

     33  

Statement of Cash Flows

     35  

Statements of Changes in Net Assets

     36  

Financial Highlights

     43  

Schedules of Investments

     57  

Notes to the Financial Statements

     131  

Report of the Independent Registered Public Accounting Firm

     152  

Additional Information

     153  

Notice of Privacy Policy and Practices

     164  


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Dear Shareholder,

The great bond bear market of 2022 left a swath of destruction in financial assets, especially in long-duration fixed income. Market participants around the globe were completely offsides for the parabolic inflation experienced in 2022, leading to a surge in rates, a spike in interest rate volatility, wider credit spreads, significant fixed-income outflows, and the worst performance of the traditional 60/40 portfolio since 1931. A Federal Reserve (the “Fed”) that was supposed to be on hold at zero until 2023 hiked rates 17 times in 2022, humbling market participants in a historic policy panic. Not only did implied interest rate volatility spike, but it also has remained elevated for the longest period of time since the Global Financial Crisis. While we expected higher inflation, a higher target rate, and quantitative tightening (QT), we did not foresee the Russian invasion of Ukraine, the subsequent food and energy shock, the historic policy panic of the Federal Open Market Committee, or the volatility storm that ensued.

While shorter-duration areas of securitized credit, which we focused on, outperformed areas of traditional fixed income for most of 2022, persistently elevated interest rate volatility, QT, and a buyer’s strike by banks and money managers led to an eventual spread blowout in securitized credit. The sharp move wider in credit spreads began at the end of the third quarter of 2022 and bled into the fourth quarter, weighing on performance heading into year-end.

The interest rate volatility storm of 2022 put immense pressure on mortgage-backed securities and our favored areas of securitized credit, but we believe encouraging signs are emerging to indicate we are nearing peak policy and can expect declining volatility in 2023. In our view, a decline in interest rate volatility will be very supportive for mortgage and securitized product spreads in 2023. In addition, while we expect the Fed and banks will remain largely absent from purchase activity in 2023 because QT will continue for most of the year, we believe money manager and pension allocations back into fixed income (in order to take advantage of the opportunities in securitized credit) will be enough to offset the lack of demand, particularly in the most risk-remote areas of the capital structure.

Pandemics and wars are difficult to anticipate using our typical macroeconomic indicators, but we believe our focus on sustainable fundamentals in high-quality areas of securitized credit positions us to outperform over the long-run credit cycle, as the bond bear market of 2022 created years of total return potential. For most investors, loss-adjusted yields have potentially reached equity-like return hurdles, ranging from 6% to 15% in senior secured cash flows. In our view, bonds are the new stocks in 2023, and we encourage investors to take note of that when they assess the carnage of the 2022 bond bear market. We believe the relative value of securitized credit stands out across risk assets when considering the new 40/60 portfolio in 2023.

As we move into 2023, we leave behind a year that marked the worst performance of the traditional 60/40 portfolio since 1931. While investors spent 2022 focused on weathering the storm, investors will spend 2023 taking advantage of the opportunities it created. Most fixed-income asset classes look cheap today, but we believe that very few exhibit the sustainable fundamentals, robust structural protections, and crisis-level credit spreads that we see in U.S. securitized credit. Presenting the possibility of equity-like returns, we believe securitized credit should be a focal point of fixed-income portfolios as the era of the 40/60 portfolio begins.

Thank you for your continued support.

Respectfully yours,

Sam Dunlap

Chief Investment Officer, Public Strategies

The opinions expressed are subject to change at any time, are not guaranteed, and should not be considered investment advice. Please refer to the Schedule of Investments in this report for a complete list of Funds’ holdings.

Must be accompanied or preceded by a prospectus.

Mutual fund investing involves risk. Principal loss is possible.

The Angel Oak Funds are distributed by Quasar Distributors, LLC.

 

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Angel Oak Multi-Strategy Income Fund

How did the Fund perform during the period?

For the 12-month period that ended January 31, 2023, the Fund’s Institutional Shares (ANGIX) returned -10.98%, while the Fund’s A Shares (ANGLX) and C Shares (ANGCX) returned -11.28% and -11.88%, respectively.1 During the same period, the Fund’s benchmark, the Bloomberg U.S. Aggregate Bond Index, returned -8.36%.

What were the main contributors to and detractors from the Fund’s performance during the period?

Non-agency residential mortgage-backed securities (NA RMBS) currently stand at approximately 68% of the Fund and produced a total return of -12.27% during the period, detracting 8.64% from Fund performance. From a dollar price perspective, NA RMBS prices in our strategy are at levels last seen in 2011, and loss-adjusted yields range from 6% to 15% in high-quality cash flows with robust structural credit protection and backed by U.S. homes. We favor most subsectors of NA RMBS due to deeply discounted dollar prices with prepayment and call upside potential, as the market is currently priced for maximum extension. The opportunity to own very attractive loss-adjusted yields is available in most NA RMBS subsectors, but in the current environment, we prefer the following subsectors: senior and mezzanine tranches of prime jumbo 2.0, senior and mezzanine tranches of non-qualified mortgages, senior legacy NA RMBS, mortgage insurance, and reperforming loan securitizations. These sectors have been under significant pressure, particularly in the second half of 2022, but in our view offer extraordinarily attractive total return potential from here. We expect NA RMBS spreads to tighten on the heels of declining implied volatility and peak policy in 2023. Spread tightening coupled with current loss-adjusted yields approaching 10% in our strategy increase the potential for double-digit total return opportunities on the heels of the prior volatility storms.

Stable fundamentals have been evident in NA RMBS over the past several years, but the technical picture has been challenging due to robust issuance in 2021 and 2022. However, we expect the technical picture to improve in 2023, as the bond bear market of 2022 made securitization and mortgage origination dynamics extraordinarily challenging. Not only is mortgage origination expected to decline dramatically, but NA RMBS supply also is expected to plummet in 2023 after years of significant gross issuance. In fact, we expect gross issuance to decline by 60% in 2023. Given our expectations of improving demand from money managers and pensions in 2023, the lack of supply in a shrinking market with stable fundamentals presents a favorable technical backdrop for potential spread tightening.

Asset-backed securities (ABS) are the Fund’s second-largest exposure, at 10%, and they produced a total return of -6.64% during the period, detracting 0.17% from Fund performance. Delinquency rates on consumer loan products such as credit cards and auto loans are also starting to normalize, increasing from historically low levels. While we are cautious about subprime versus prime consumer areas of ABS, often the perceived credit weakness ahead is less than what is priced into current valuations. ABS spreads are near their widest levels since April/May 2020. In our view, even the bottom tranches of the subprime auto and consumer loan ABS sectors should hold up well, as the cushions are sufficient for a slow deterioration to a mild recession. Diversification with respect to issuers, deals, and tenure shows attractive value within the space. Seasoning and robust structural support coupled with the deeply discounted prices of most areas of consumer ABS more than compensate investors for the perceived credit risk ahead, considering our expectations of a mild recession in 2023.

What is your outlook for 2023, and how is the Fund positioned?

Looking to 2023, we believe equity earnings will begin to come under pressure as the Fed rate hikes take hold. We think this will be beneficial to fixed-income flows, and we see them turning positive in the first quarter of 2023, considering how under-allocated U.S. households are to fixed income and how enticing yield levels are. Also, we expect interest rate volatility to decline as the Fed reaches the end of this hiking cycle, and we expect issuance volumes to slow, which should be very supportive of mortgage and structured product spreads. We believe structured credit will be a primary focus for allocators, as some areas of AAA structured credit trade wider than BBB corporate bonds, and current coupon agency mortgage-backed securities spreads are comparable to the entire Bloomberg U.S. Corporate Investment Grade Index and come with government backing.

 

1 Returns presented are without load. Please reference the investments results section of the report for with load returns.

 

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Past performance is not a guarantee of future results.

Investing involves risk; principal loss is possible. Investments in debt securities typically decrease when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and nonrated securities present a greater risk of loss to principal and interest than higher-rated securities do. Investments in asset-backed and mortgage-backed securities include additional risks that investors should be aware of, including credit risk, prepayment risk, possible illiquidity, and default, as well as increased susceptibility to adverse economic developments. Derivatives involve risks different from – and in certain cases, greater than – the risks presented by more traditional investments. Derivatives may involve certain costs and risks such as illiquidity, interest rate, market, credit, management, and the risk that a position could not be closed when most advantageous. Investing in derivatives could lead to losses that are greater than the amount invested. The Fund may make short sales of securities, which involves the risk that losses may exceed the original amount invested. The Fund may use leverage, which may exaggerate the effect of any increase or decrease in the value of securities in the Fund’s portfolio or higher and duplicative expenses when it invests in mutual funds, ETFs, and other investment companies. For more information on these risks and other risks of the Fund, please see the Prospectus.

Bond ratings are grades given to the bonds to indicate their credit quality as determined by rating agencies including, but not limited to, S&P and Moody’s. The firm evaluates a bond issuer’s financial strength, or its ability to pay a bond’s principal and interest in a timely fashion. Ratings are expressed as letters ranging from AAA, which is the highest grade, to D, which is the lowest grade. In limited situations, when a rating agency has not issued a formal rating, the adviser will classify the security as nonrated.

Definitions:

Agency Mortgage-Backed Securities (AMBS): Securities issued or guaranteed by the U.S. government or a government-sponsored enterprise (GSE).

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.

Bloomberg U.S. Corporate Investment Grade Index: An index that measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers.

Cash Flow: Periodic coupons received by the bondholder during their holding period.

Non-Agency Residential Mortgage-Backed Securities (NA RMBS): Securities issued by private institutions such as trusts and special-purpose vehicles. 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 flow 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.

Prime Jumbo: Prime jumbo mortgages are non-agency loans typically because the lending amount exceeds the conforming loan limits. These tend to be high-quality mortgages with high credit scores that, for the most part, comply with agency mortgage underwriting guidelines.

Reperforming Loan (RPL): A mortgage that had become delinquent because the borrower fell behind on payments by at least 90 days but returned to “performing” status because the borrower has resumed making payments.

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.

 

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Angel Oak Financials Income Impact Fund

How did the Fund perform during the period?

For the 12-month period that ended January 31, 2023, the Fund’s Institutional Shares (ANFIX) returned -5.37% while the Fund’s A Shares (ANFLX) and C Shares (AFLCX) returned -5.59% and -6.79%, respectively.1 During the same period, the Fund’s benchmark, the Bloomberg U.S. Aggregate 3-5 Year Index, returned -4.85%.

What were the main contributors to and detractors from the Fund’s performance during the period?

The financial sector accounts for substantially all of the Fund’s assets. There are three areas of primary focus within the financial sector: community bank debt, nonbank financials debt, and community bank equity. The Fund’s financial sector asset allocation comprises 72% of assets in community bank debt, 20% of assets in nonbank financials, and 6% of assets in community bank equities. In addition, 1% of Fund assets are in cash and other assets.

Financials debt modestly underperformed the benchmark due to the rally in rates in January 2023. Community bank sub-debt in particular tends to lag broader corporate credit spread tightening and widening given the niche market characteristics of the asset class and its low duration profile.

Despite the significant volatility of 2022, banks have proven resilient, helped by top line growth, strong credit quality, and higher earnings. Net interest margin (NIM) expanded rapidly as the Fed raised rates faster than anticipated, and loan demand surged post-pandemic. As a minor offset, fee income declined, with mortgage refinancings grinding to a halt as interest rates rose, posing only a modest headwind when compared with the growth in net interest income.

By contrast, the normalization of liquidity proved more of a trial than anticipated. The unprecedented deposit inflows from the Paycheck Protection Program and negligible loan growth during COVID-19 drove historically low loan-to-deposit ratios and rapid growth in banks’ securities portfolios. As rates rose, unrealized losses began accruing in investment portfolios, impacting accumulated other comprehensive income (AOCI) and tangible capital levels. Given the conservative nature of banks’ securities portfolios, we do not expect material permanent impairments, but the unrealized losses have caused banks to become more prudent in terms of capital management (pausing share buybacks) as well as to take steps to minimize further volatility (moving parts of portfolios from “available for sale” to “held to maturity”). While the subsequent rate moves should help alleviate some of the AOCI pressure, these constraints could negatively impact banks that are running on thinner levels of capital and liquidity.

What is your outlook for 2023, and how is the Fund positioned?

As we sit late in the Fed rate hike cycle, banks are nearing peak NIM expansion while credit remains early cycle. We believe 2023 is setting up to be a more difficult year from a fundamental earnings perspective, as banks hit peak NIM early in 2023 and top-line slows while credit costs increase over the balance of the year. Underlying balance sheet strength, including historically low levels of credit losses, coupled with tighter underwriting and high levels of capital, drives our positive view on bank debt in the year ahead. By contrast, we expect bank equities will generally be under pressure from slowing earnings growth, though there are pockets of opportunity in the community bank space, particularly as mergers and acquisitions (M&A) rebound.

We expect banks are near peak NIM expansion and higher funding costs will supersede higher loan yields going forward. Concurrently, we expect loan growth will decelerate in the face of tighter financial conditions (tighter underwriting, wider spreads, and slowing demand).

Additionally, we expect pandemic-related stimulus programs will make for a credit cycle unlike any other. Consumers and businesses benefited from these government stimulus programs throughout the COVID-19 period, resulting in higher levels of liquidity and historically low credit losses for the banking sector. As inflation eats into excess savings, higher interest rates impact loan affordability, and unemployment rises, loan losses will rise from today’s trough levels. Lower-income consumers in particular will increasingly have to prioritize their payments, focusing first on food, shelter, and energy. The good news? Banks are well equipped to handle the coming credit normalization given high levels of reserves and capital. We also note that banks have significantly de-risked their lending portfolios post-Global Financial Crisis (GFC).

 

1Returns presented are without load. Please reference the investments results section of the report for with load returns.

 

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We believe 2023 could experience heightened M&A activity. Expenses remain high against the current inflationary backdrop, and we expect M&A will accelerate as rate hikes run their course and funding costs move higher. Compensation costs account for the bulk of banks’ expense bases, and technology remains a necessary investment, both from a cybersecurity and a competitive perspective. Bank M&A is a value-enhancing proposition to both the acquirer and acquiree, as cost savings are material and measurable.

We prefer traditional spread-based business models (community banks) versus regional and money center banks at this point in the cycle. We expect community banks will benefit from their relationship-driven business models, strong core deposit franchises, and lower consumer exposure.

We expect credit normalization over the course of 2023, from levels that are currently better than 2019/pre-COVID-19. Nonperforming asset levels remain strong, sitting at the lowest level since the GFC. Industry profitability and capital levels remain strong, providing a sizable cushion for any adverse credit events. We remain disciplined in our underwriting, with particular emphasis on credit, liquidity, and interest rate risks.

Across the financial services landscape more broadly, we see select opportunities for investment-grade small-cap insurance senior debt and residential mortgage REIT common and preferred equities. We do not anticipate our subsector allocations within financial services will change materially in 2023.

Past performance is not a guarantee of future results.

Investing involves risk; principal loss is possible. Investments in debt securities typically decrease when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and nonrated securities present a greater risk of loss to principal and interest than higher-rated securities do. Investments in asset-backed and mortgage-backed securities include additional risks that investors should be aware of, including credit risk, prepayment risk, possible illiquidity, and default, as well as increased susceptibility to adverse economic developments. Derivatives involve risks different from – and in certain cases, greater than – the risks presented by more traditional investments. Derivatives may involve certain costs and risks such as illiquidity, interest rate, market, credit, management, and the risk that a position could not be closed when most advantageous. Investing in derivatives could lead to losses that are greater than the amount invested. The Fund may make short sales of securities, which involves the risk that losses may exceed the original amount invested. The Fund may use leverage, which may exaggerate the effect of any increase or decrease in the value of securities in the Fund’s portfolio or higher and duplicative expenses when it invests in mutual funds, ETFs, and other investment companies. The Fund will invest in high-yield securities (also known as “junk bonds”), and securities that are not rated by any rating agencies. These high-yield securities will generally be rated BB or lower by Standard & Poor’s Rating Group or will be of equivalent quality rating from another Nationally Recognized Statistical Ratings Organization. The Fund’s ESG impact investment strategy limits the universe of investment opportunities available to the Fund and will affect the Fund’s exposure to certain issuers, sectors, regions and types of investments, which may result in the Fund forgoing opportunities to buy or sell certain securities when it might otherwise be advantageous to do so. For more information on these risks and other risks of the Fund, please see the Prospectus.

On September 22, 2022, the Fund’s name was changed to “Angel Oak Financials Income Impact Fund,” and certain changes were made to the Fund’s investment strategies. As a result, the Fund’s performance during periods prior to this date may have differed had the Fund’s current investment policies and strategies been in place at those times.

Definitions:

Bloomberg U.S. Aggregate 3-5 Year Index: An index that tracks bonds with 3-to-5-year maturities within the Bloomberg U.S. Aggregate Bond Index.

Community Bank Sub-Debt: Subordinated debentures of financial institutions with total assets of less than $20 billion.

Credit Spread: The difference in yield between two bonds of similar maturity but different credit quality.

Duration: Measures a portfolio’s sensitivity to changes in interest rates. Generally, the longer the duration, the greater the price change relative to interest rate movements.

Net Interest Margin (NIM): NIM is an industry-specific profitability ratio for banks and other financial institutions. It is a measure of the spread a bank earns between interest income and the amount of interest paid out to its depositors, expressed as a percentage of earning assets.

Spread: The difference in yield between two bonds of similar maturity but different credit quality.

 

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Angel Oak High Yield Opportunities Fund

How did the Fund perform during the period?

For the 12-month period that ended January 31, 2023, the Fund’s Institutional Shares (ANHIX) returned -2.89% while the Fund’s A Shares (ANHAX) returned -3.13%.1 During the same period, the Fund’s benchmark, the Bloomberg U.S. High Yield Corporate Bond Index, returned -5.22%.

What were the main contributors to and detractors from the Fund’s performance during the period?

The corporate bond allocation, which accounted for 78.4% of the Fund’s asset allocation as of January 31, 2023, returned -2.26%, outperforming the benchmark return of -5.22%, and accounted for -313 basis points of the total return of the Fund. The largest positive contributor to performance was the energy sector, which was primarily driven by investment selection. The contribution was broad-based across holdings, with the biggest contribution from a position in an offshore jack-up driller that is benefiting from the favorable supply-demand fundamentals for oil and gas, strong demand for drilling rigs, and rising day rates.

Consumer noncyclical was the second-largest positive contributor to performance. The positive attribution was also driven primarily by investment selection. The largest contribution was from a position in a global meat processor and packager that has benefited from an improved supply-demand balance, partly driven by the pandemic, and was upgraded to investment grade.

The largest detractor from performance was the electrics sector. The negative attribution was due to investment selection and entirely attributable to an independent power producer whose primary market is the PJM (Pennsylvania, New Jersey, Maryland), where capacity prices had been weak. The issuer’s financial stress, arising from weak power prices and unexpected losses due to winter storm Uri, was compounded by the need to post additional collateral related to existing hedges that were underwater as forward prices rose.

The Fund initiated its repositioning to include a minimum allocation of 20% to structured products as described in the Fund’s prospectus dated December 31, 2022. The repositioning is taking advantage of the multiple standard deviation widening of non-agency residential mortgage-backed securities (NA RMBS). The structured production allocation contributed 24 basis points to the total return of the Fund.

What is your outlook for 2023, and how is the Fund positioned?

Corporate operating performance has remained relatively positive, with corporations able to raise prices, offsetting inflationary pressures, and maintain margins and cash flow. However, early economic indicators are flashing caution. As a result of tightening monetary policy, economic fundamentals as measured by weakening Institute for Supply Management surveys, sharply tighter commercial and industrial lending standards, and early signs that loan growth has peaked are pointing to weaker aggregate demand and slowing economic growth. Although the Fed has reduced its pace of interest rate increases and could potentially engineer a soft landing, the cumulative interest rate increases to date are having an impact. Corporate credit valuations potentially are not reflective of the impact on corporate credit fundamentals and credit profiles associated with a weaker economic environment. Interest rate-sensitive sectors such as housing, which is also under pressure from the Fed’s quantitative tightening program, have significantly underperformed. Given the recent underperformance of structured products, including NA RMBS and asset-backed securities, relative to corporate credit and in conjunction with the focus on risk and reward, the Fund will increase its allocation to structured products and reduce its allocation to corporate bonds while continuing to emphasize high-quality issuers that generate positive free cash flow and have improving credit profiles.

Past performance is not a guarantee of future results.

Investing involves risk; principal loss is possible. Investments in debt securities typically decrease when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and nonrated securities present a greater risk of loss to principal and interest than higher-rated securities do. Investments in asset-backed and mortgage-backed securities include additional risks that investors should be aware of, including credit risk, prepayment risk, possible illiquidity, and default, as well as increased susceptibility to adverse economic developments. Derivatives involve risks different from – and in certain cases, greater than – the risks presented by more traditional investments. Derivatives may involve certain costs and risks such as illiquidity, interest rate, market, credit, management, and the risk that a position could not be closed when most advantageous. Investing in derivatives could lead to losses that are greater than the amount invested. For more information on these risks and other risks of the Fund, please see the Prospectus.

Definitions:

Basis point (bps): One hundredth of one percent. Used to denote the percentage change in a financial instrument.

Bloomberg U.S. High Yield Corporate Bond Index: An unmanaged market value-weighted index that covers the universe of fixed-rate, non-investment-grade debt. It is not possible to invest directly in an index.

 

1Returns presented are without load. Please reference the investments results section of the report for with load returns.

 

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Free Cash Flow: A financial performance calculation that measures how much operating cash flows exceed capital expenditures.

Institute for Supply Management (ISM): A nonprofit supply management association that publishes three Purchase Managers’ Indexes as part of its ISM Manufacturing Report on Business, which is considered a leading economic indicator.

Non-Agency Residential Mortgage-Backed Securities (NA RMBS): Securities issued by private institutions such as trusts and special purpose vehicles. 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.

Standard Deviation: A statistical measure of portfolio risk used to measure variability of total return around an average, over a specified period of time. The greater the standard deviation over the period, the wider the variability or range of returns and hence, the greater the fund’s volatility – calculated since inception.

 

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Angel Oak UltraShort Income Fund

How did the Fund perform during the period?

For the 12-month period that ended January 31, 2023, the Fund’s Institutional Shares (AOUIX) returned -2.24%, while the Fund’s A Shares (AOUAX) returned -2.42%. During the same period, the Fund’s benchmark, the Bloomberg Short Treasury: 9-12 Months Index, returned 0.18%. Additionally, since inception on July 22, 2022, the Fund’s A1 Shares (AOUNX) returned -0.25% for the period ended January 31, 2023.1 The Fund’s benchmark, the Bloomberg Short Treasury: 9-12 Months Index, was up 0.86% over the same period.

What were the main contributors to and detractors from the Fund’s performance during the period?

The primary contributors to annual performance were income, collateralized loan obligations (CLOs), asset-backed securities (ABS), and Treasuries. The primary detractors were a longer spread duration and higher allocation to securitized credit than the benchmark. The Fund maintained an effective duration similar to the benchmark during the year, while widening credit spreads were the primary cause of underperformance, given the higher allocation to securitized credit and a longer spread duration in credit. Given current valuations, the Fund is set up well to potentially benefit from this much higher-yielding environment and the wide spread basis between securitized and corporate credit.

The government/credit allocation was decreased, as securitized spreads ended the year wider relative to government assets. Government/credit ended the period at 10%/90%. As credit underperformed rates for the period, the Fund looked to make allocation changes in each sector to better position the portfolio for 2023. The government allocation continues to focus on a diversified mix of primarily fixed- and floating-rate agency commercial mortgage-backed securities (CMBS), Treasuries, and cash. The cash allocation was reduced, as the government allocation focused on floating-rate agency CMBS as spreads underperformed and the average price of that allocation reached $98.50, to end the year with an average spread of 76 basis points (bps). The duration of the government allocation is approximately four months.

Shareholder outflows across the entire industry looked to be a headwind for securitized spreads in the fourth quarter of 2022, setting up for a much better technical environment in the first quarter of 2023. Seasonal technicals have the potential to drive spread performance in the first half of the year. We believe markets are beginning to price in peak Fed policy, which would set up an attractive opportunity to own 1-year, fixed-rate, high-quality assets.

The ABS allocation produced a total return of 0.10%, contributing 9 bps to Fund performance. ABS spreads remained volatile throughout the year, ending at +266 in the Fund. The Fund continued to reposition into more-attractive, short-duration ABS bonds throughout the year. The average spread in ABS auto increased to an approximate maximum of 300 bps in the fourth quarter of 2022 but started to tighten in January 2023. Spreads ended the period well wide of the since-inception average.

The residential mortgage credit allocation continued to be under pressure but appears to offer the best relative value in short-duration credit. Residential mortgage credit detracted 2.84% from Fund performance for the period. Agency mortgage spreads reached their widest levels of the cycle at the beginning of the fourth quarter of 2022, putting upward pressure on short-duration AAA non-agency spreads as well. The mortgage credit allocation widened in the fourth quarter of 2022, to an average nominal spread wide of 300 in the Fund but ended the period at 251 bps. Issuance finally eased in the fourth quarter of 2022, and buy axes started to appear late in the quarter after agency mortgage-backed securities (AMBS) spreads started to normalize. From a positioning perspective, the Fund looked to effectively maintain exposure in short-duration, investment-grade tranches of non-QM and prime jumbo floating-rate bonds, as the portfolio management team became more convicted within non-agency residential mortgage-backed securities (NA RMBS) spreads heading into 2023. The allocation to NA RMBS overall decreased to 25% of Fund assets to right-size the allocation amid current levels of high volatility. As volatility subsides over the coming months and quarters, in addition to an expected sharp fall in supply, we believe the NA RMBS allocation should outperform, given current valuations.

CLOs returned 3.32% for the period, contributing 34 bps to Fund performance. CLOs were the star performer in the Fund for the period. The floating-rate component has been a major contributor to performance in 2022. Underlying bank loan performance outperformed fixed-rate, high-yield corporate credit. The Fund’s focus on very-short-maturity, primarily AAA-rated tranches helped reduce the impact of market volatility on prices. Given spread widening and the rapid run-up in front-end rates, short-duration AAA-rated CLO yields are now in the 6%-7% range, providing investors with historically attractive return potential in very high-quality assets that should act like a buffer in uncertain times. The CLO allocation was maintained during the year to end the period at 12% of Fund assets. As of the end of the period, the average price was $99.6 and the yield to effective maturity was 6.2% (a 150 spread). Corporate bonds and CMBS continue to be minor, tactical allocations within the Fund, at approximately 7% of Fund assets in total.

 

1Returns presented are without load. Please reference the investments results section of the report for with load returns.

 

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What is your outlook for 2023, and how is the Fund positioned?

Looking to 2023, we believe equity earnings will begin to come under pressure as the Fed rate hikes take hold. We think this will be beneficial to fixed-income flows, and we see them turning positive in the first quarter of 2023, considering how under-allocated U.S. households are to fixed income and how enticing yield levels are. Also, we expect interest rate volatility to decline as the Fed reaches the end of this hiking cycle, and we expect issuance volumes to slow, which should be very supportive of mortgage and structured product spreads. We believe structured credit will be a primary focus for allocators, as some areas of AAA structured credit trade wider than BBB corporate bonds and current coupon AMBS spreads are comparable to the entire Bloomberg U.S. Corporate Investment Grade Index and come with government backing.

Past performance is not a guarantee of future results.

Investing involves risk; principal loss is possible. 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. 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.

Bond ratings are grades given to the bonds to indicate their credit quality as determined by rating agencies including, but not limited to, S&P and Moody’s. The firm evaluates a bond issuer’s financial strength, or its ability to pay a bond’s principal and interest in a timely fashion. Ratings are expressed as letters ranging from AAA, which is the highest grade, to D, which is the lowest grade. In limited situations, when a rating agency has not issued a formal rating, the adviser will classify the security as nonrated.

Definitions:

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.

Agency Commercial Mortgage-Backed Security (Agency CMBS): A type of mortgage-backed security that is secured by loans on commercial properties that are issued or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, or another United States federal government-sponsored enterprise (GSE) or a United States federal government agency.

Agency Mortgage-Backed Securities (AMBS): Securities issued or guaranteed by the U.S. government or a GSE.

Basis Point (bps): One hundredth of one percent and is used to denote the percentage change in a financial instrument.

Bloomberg Short Treasury: 9-12 Months Index: Measures the performance of U.S. Treasury bills, notes and bonds with a remaining maturity between 9-12 months.

Bloomberg U.S. Corporate Investment Grade Index: An index that measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers.

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.

Current Coupon: Refers to a security that is trading closest to its par value without going over par. In other words, the bond’s market price is at or near to its issued face value.

Duration: Measures a portfolio’s sensitivity to changes in interest rates. Generally, the longer the duration, the greater the price change relative to interest rate movements.

Floating Rate: A floating-rate security is an investment with interest payments that float or adjust periodically based upon a predetermined benchmark.

Non-Agency Residential Mortgage-Backed Securities (NA RMBS): Securities issued by private institutions such as trusts and special purpose vehicles. 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.

Prime Jumbo: Prime jumbo mortgages are non-agency loans typically because the lending amount exceeds the conforming loan limits. These tend to be high-quality mortgages with high credit scores that, for the most part, comply with agency mortgage underwriting guidelines.

Spread: The difference in yield between two bonds of similar maturity but different credit quality.

Spread Duration: A bond’s price sensitivity to spread changes.

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.

Yield-to-Maturity (YTM): The total rate of return that will have been earned by a bond when it makes all interest payments and repays the original principal.

 

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Angel Oak Total Return Bond Fund

How did the Fund perform during the period?

For the 12-month period that ended January 31, 2023, the Fund’s Institutional Shares (AOIIX) returned -8.32%. During the same period, the Fund’s benchmark, the Bloomberg U.S. Aggregate Bond Index, returned -8.36%. The Fund outperformed the benchmark by 4 basis points (bps) during the period.

What were the main contributors to and detractors from the Fund’s performance during the period?

The positive contribution from income and the Fund’s more than 150 bps yield advantage over the benchmark was more than offset by the negative contribution from price performance. Within the credit strategies, the securitized bonds overweight versus corporate bonds was a detractor, as corporate bond spreads outperformed securitized bond spreads. The Fund’s duration was shorter than the benchmark for most of the fourth quarter of 2022 during a period when the yield curve bear flattened significantly, with the 3s/10s curve flattening 276 bps and the 2s/10s curve flattening 130 bps. Duration strategies were a positive contributor to performance, while the underweight to longer-spread-duration corporate credit was a primary detractor.

The Fund’s yield-to-maturity increased to end the period at 6.3%, rising approximately 350 bps over the year, from 2.8%. The effective duration of the Fund increased to a more neutral position as the portfolio management team became more constructive on duration heading into 2023. The average duration ended the year at 6.5, longer than the benchmark of 6.3, and with an average spread of 249 bps. The Fund ended the quarter positioned with a longer duration and a higher yield than the benchmark.

GOVERNMENT ATTRIBUTION

The government and cash allocation increased year over year, from 32% to 38%. The U.S. agency mortgage-backed securities (AMBS) allocation ended the period at 35%, with an overweight to agency residential mortgage-backed securities (RMBS) at 31%, versus agency commercial mortgage-backed securities (CMBS) at 4%. The agency RMBS allocation increased sharply year over year, from 5% to 31%. Agency RMBS are at historically attractive spreads, as rate volatility remains elevated. Agency CMBS was reduced sharply year over year from 17% to 4%. The contribution from the agency RMBS allocation was 15 bps, while the attribution from agency CMBS was -2.68%. The Treasury allocation attribution was -1.12%, while the cash and equivalents attribution was 5 bps.

CREDIT ATTRIBUTION

For the year, the corporate credit allocation decreased 4%, to 21% of Fund assets. The corporate credit allocation had a contribution of -1.19% for the period. The contribution from corporate bonds outperformed the benchmark, primarily due to the underweight duration positioning, in the 4-to-5-year range versus over 7 years for the benchmark. The corporate credit allocation ended the period with a spread advantage of 319 bps versus the benchmark of 117 bps.

Securitized credit underperformed corporate credit for the period, but the spread duration was much shorter than investment-grade corporate bonds in the benchmark. Sharp widening of agency RMBS spreads at the end of the third quarter of 2022 and widening liquidity premiums versus corporate bonds were the main drivers of spread underperformance in the period. The securitized credit allocation had a negative contribution of 2.94% for the period.

What is your outlook for 2023, and how is the Fund positioned?

Looking to 2023, we believe equity earnings will begin to come under pressure as the Fed rate hikes take hold. We think this will be beneficial to fixed-income flows, and we see them turning positive in the first quarter of 2023, considering how under-allocated U.S. households are to fixed income and how enticing yield levels are. Also, we expect interest rate volatility to decline as the Fed reaches the end of this hiking cycle, and we expect issuance volumes to slow, which should be very supportive of mortgage and structured product spreads. We believe structured credit will be a primary focus for allocators, as some areas of AAA structured credit trade wider than BBB corporate bonds, and current coupon AMBS spreads are comparable to the entire Bloomberg U.S. Corporate Investment Grade Index and come with government backing.

Past performance is not a guarantee of future results.

Investments in debt securities typically decrease when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower rated and non-rated securities present a greater risk of loss to principal and interest than higher rated securities. Investments in asset-backed and mortgage-backed securities include additional risks that investors should be aware of including credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments. Derivatives involve risks different from, and in certain cases, greater than the risks presented by more traditional investments. Derivatives may involve certain costs and risks such as illiquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. The Fund may use leverage, which may exaggerate the effect of any increase or decrease in the value of securities in the Fund’s portfolio or higher and duplicative expenses when it invests in mutual funds, ETFs, and other investment companies. For more information on these risks and other risks of the Fund, please see the Prospectus.

 

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Bond ratings are grades given to the bonds to indicate their credit quality as determined by rating agencies including, but not limited to, S&P and Moody’s. The firm evaluates a bond issuer’s financial strength, or its ability to pay a bond’s principal and interest in a timely fashion. Ratings are expressed as letters ranging from AAA, which is the highest grade, to D, which is the lowest grade. In limited situations, when a rating agency has not issued a formal rating, the adviser will classify the security as nonrated.

On December 31, 2022, the Fund’s name was changed from the “Angel Oak Core Impact Fund” to the “Angel Oak Total Return Bond Fund,” and certain changes were made to the Fund’s investment strategies and management team. As a result, the Fund’s performance during periods prior to this date may have differed had the Fund’s current investment policies and strategies been in place at those times.

Definitions:

2s/10s Curve: The difference between the 10-year Treasury rate and the 2-year Treasury rate.

3s/10s Curve: The difference between the 10-year Treasury rate and the 3-month Treasury rate.

Agency Commercial Mortgage-Backed Security (Agency CMBS): A type of mortgage-backed security that is secured by loans on commercial properties that are issued or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, or another United States federal government- sponsored enterprise (GSE) or a United States federal government agency.

Agency Mortgage-Backed Securities (AMBS): Securities issued or guaranteed by the U.S. government or a GSE.

Agency Residential Mortgage-Backed Securities (Agency RMBS): Securities issued or guaranteed by the U.S. government or a government-sponsored enterprise, 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.

Basis Point (bps): One hundredth of one percent and is used to denote the percentage change in a financial instrument.

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.

Bloomberg U.S. Corporate Investment Grade Index: An index that measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers.

Duration: Measures a portfolio’s sensitivity to changes in interest rates. Generally, the longer the duration, the greater the price change relative to interest rate movements.

Spread: The difference in yield between two bonds of similar maturity but different credit quality.

Yield-to-Maturity (YTM): The total rate of return that will have been earned by a bond when it makes all interest payments and repays the original principal.

Yield Curve: The U.S. Treasury yield curve refers to a line chart that depicts the yields of short-term Treasury bills compared to the yields of long-term Treasury notes and bonds. The slope, shape, and level of yield curves may vary over time with changes in interest rates.

 

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Angel Oak UltraShort Income ETF

How did the Fund perform during the period?

Since inception on October 24, 2022, the Angel Oak UltraShort Income ETF (the Fund) returned 1.90% based on market price and 1.92% based on net asset value for the period ended January 31, 2023. The Fund’s benchmark, the Bloomberg U.S. Treasury Bills Index, was up 1.10% over the same period. The Fund, which launched during the fourth quarter of 2022, was focused on ramping up the allocation toward the strategic allocation.

What were the main contributors to and detractors from the Fund’s performance during the period?

The primary contributors to performance were income return from asset-backed securities (ABS) and Treasuries and price return from ABS. The Fund maintained an effective duration in the range of 3-10 months since Fund inception. Given current valuations, the Fund is set up well to potentially benefit from this much higher-yielding environment and the wide basis between securitized and corporate credit.

The government/credit allocation continued to decrease since inception as opportunities were identified in securitized credit, corporate credit, and agencies. Government/credit ended the period at 20%/80%. The portfolio was initially allocated to Treasury bills with a yield north of 4%. By the end of the period, the 20% allocation to government exposure was allocated 67% to Treasuries, 22% to agency commercial mortgage-backed securities (CMBS), and 11% to agency residential mortgage-backed securities (RMBS). The duration of the government allocation is approximately 12 months.

The ABS allocation produced a total return of 2.79%, contributing 1.03% to Fund performance. ABS spreads remained volatile in the fourth quarter of 2022 but started to tighten in January 2023, ending the period at 142 bps (basis points) in the Fund. The Fund continued to reposition into more-attractive, short-duration ABS opportunities. Shareholder outflows across the entire industry looked to be a headwind for securitized spreads in 2022, setting up for a much better technical environment in the first quarter of 2023. Seasonal technicals have the potential to drive spread performance in the first half of 2023. We believe markets are beginning to price in peak Fed policy, setting up an attractive opportunity to own 1-year, fixed-rate, high-quality assets.

The residential mortgage credit allocation continued to be under pressure in the fourth quarter of 2022 but appears to offer the best relative value in short-duration credit. Residential mortgage credit has contributed 18 bps to Fund performance since inception. Agency mortgage spreads reached their widest levels of the cycle at the beginning of the fourth quarter of 2022, putting upward pressure on short-duration AAA non-agency spreads as well. The mortgage credit allocation widened in the fourth quarter of 2022 but started to improve in January 2023. Issuance finally eased in the fourth quarter of 2022, and buy axes started to appear late in the quarter after agency mortgage-backed securities (AMBS) spreads started to normalize. From a positioning perspective, the Fund ramped up exposure in a diversified mix of primarily investment-grade tranches of non-qualified mortgage, nonperforming loans, reperforming loans, prime jumbo, and single-family rental. The portfolio management team believes non-agency mortgage-backed securities spreads are at the most attractive level since the summer of 2020. The allocation ended the year at 19% of Fund assets, with an average spread of 399 bps.

Collateralized loan obligations (CLOs) returned 2.53% since inception, contributing 20 bps to Fund performance. The floating-rate component was a major contributor to CLO performance in 2022 overall. Underlying bank loan performance outperformed fixed-rate, high-yield corporate credit. The Fund’s focus was on very-short-maturity, AAA-rated tranches. The rapid run-up in front-end rates in 2022 had led to short-duration AAA-rated CLO yields in the 6%-7% range, providing investors with historically attractive return potential in very high-quality assets. The CLO allocation ended the period at 8% of Fund assets, with an average price of $99.2 and a yield to effective maturity of 6.2% (a 165 spread). Corporate bonds are a minor, tactical allocation within the Fund, at approximately 4% of Fund assets.

What is your outlook for 2023, and how is the Fund positioned?

Looking to 2023, we believe equity earnings will begin to come under pressure as the Fed rate hikes take hold. We think this will be beneficial to fixed-income flows, and we see them turning positive in the first quarter of 2023, considering how under-allocated U.S. households are to fixed income and how enticing yield levels are. Also, we expect interest rate volatility to decline as the Fed reaches the end of this hiking cycle, and we expect issuance volumes to slow, which should be very supportive of mortgage and structured product spreads. We believe structured credit will be a primary focus for allocators, as some areas of AAA structured credit trade wider than BBB corporate bonds and current coupon AMBS spreads are comparable to the entire Bloomberg U.S. Corporate Investment Grade Index and come with government backing.

 

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Past performance is not a guarantee of future results.

Investing involves risk; principal loss is possible. Investments in debt securities typically decrease when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and nonrated securities present a greater risk of loss to principal and interest than higher-rated securities do. Investments in asset-backed and mortgage-backed securities include additional risks that investors should be aware of, including credit risk, prepayment risk, possible illiquidity, and default, as well as increased susceptibility to adverse economic developments. The Fund is a recently organized investment company with limited operating history. As a result, prospective investors have a limited track record or history on which to base their investment decisions. Derivatives involve risks different from — and in certain cases, greater than — the risks presented by more traditional investments. Derivatives may involve certain costs and risks such as illiquidity, interest rate, market, credit, management, and the risk that a position could not be closed when most advantageous. Investing in derivatives could lead to losses that are greater than the amount invested. The Fund may use leverage, which may exaggerate the effect of any increase or decrease in the value of securities in the Fund’s portfolio or higher and duplicative expenses when it invests in mutual funds, ETFs, and other investment companies. For more information on these risks and other risks of the Fund, please see the Prospectus.

ETFs may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market prices (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. The Fund is an actively managed ETF, which is a fund that trades like other publicly traded securities. The Fund is not an index fund and does not seek to replicate the performance of a specified index.

Bond ratings are grades given to the bonds to indicate their credit quality as determined by rating agencies including, but not limited to, S&P and Moody’s. The firm evaluates a bond issuer’s financial strength, or its ability to pay a bond’s principal and interest in a timely fashion. Ratings are expressed as letters ranging from AAA, which is the highest grade, to D, which is the lowest grade. In limited situations, when a rating agency has not issued a formal rating, the adviser will classify the security as nonrated.

Definitions:

Agency Commercial Mortgage-Backed Security (Agency CMBS): A type of mortgage-backed security that is secured by loans on commercial properties that are issued or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, or another United States federal government-sponsored enterprise (GSE) or a United States federal government agency.

Agency Mortgage-Backed Securities (AMBS): Securities issued or guaranteed by the U.S. government or a GSE.

Agency Residential Mortgage-Backed Securities (Agency RMBS): Securities 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.

Basis Point (bps): One hundredth of one percent and is used to denote the percentage change in a financial instrument.

Bloomberg U.S. Corporate Investment Grade Index: An index that measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers.

Bloomberg U.S. Treasury Bills Index: The Index tracks the market for treasury bills issued by the U.S. government.

Collateralized Loan Obligation (CLO): A single security backed by a pool of debt.

Current Coupon: Refers to a security that is trading closest to its par value without going over par. In other words, the bond’s market price is at or near to its issued face value.

Duration: Measures a portfolio’s sensitivity to changes in interest rates. Generally, the longer the duration, the greater the price change relative to interest rate movements.

Nonperforming Loan (NPL): A loan in which the borrower is in default and has not made any scheduled payments of principal or interest for a certain period of time.

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.

Prime Jumbo: Prime jumbo mortgages are non-agency loans typically because the lending amount exceeds the conforming loan limits. These tend to be high-quality mortgages with high credit scores that, for the most part, comply with agency mortgage underwriting guidelines.

Reperforming Loan (RPL): A mortgage that had become delinquent because the borrower fell behind on payments by at least 90 days but returned to “performing” status because the borrower has resumed making payments.

Single-Family Rental (SFR): Houses or apartments that are designed to be rented by a single family or individual.

Spread: The difference in yield between two bonds of similar maturity but different credit quality.

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.

Yield-to-Maturity (YTM): The total rate of return that will have been earned by a bond when it makes all interest payments and repays the original principal.

 

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Angel Oak Income ETF

How did the Fund perform during the period?

Since inception on November 7, 2022, the Angel Oak Income ETF (the Fund) returned 2.49% based on market price and 2.41% based on net asset value for the period ending January 31, 2023. The Fund’s benchmark, the Bloomberg U.S. Aggregate Bond Index, was up 7.07% over the same period. The Fund, which launched during the fourth quarter of 2022, was focused on ramping up the allocation toward the strategic allocation.

What were the main contributors to and detractors from the Fund’s performance during the period?

The primary contributors to performance were price return from collateralized loan obligations, interest return from Treasuries, and both price and interest return from non-agency residential mortgage-backed securities (NA RMBS). The Fund maintained an effective duration of around three years once ramping up from Fund inception. Inflation data remained challenging and continued to result in dramatically more-hawkish Fed rhetoric and expectations. Structured credit spreads, notably NA RMBS, also continued to widen, while agency mortgage-backed securities (AMBS) reversed course slightly as interest rate volatility continued to soar.

NA RMBS currently stands at approximately 45% of the Fund and produced a total return of 4.00% during the period, contributing 0.87% to Fund performance. From a dollar price perspective, NA RMBS prices in our strategy are at levels last seen in 2011, and loss-adjusted yields range from 6% to 15% in high-quality cash flows, with robust structural credit protection, and are backed by U.S. homes. We favor most subsectors of NA RMBS due to deeply discounted dollar prices with prepayment and call upside potential, as the market is currently priced for maximum extension. The opportunity to own very attractive loss-adjusted yields is available in most NA RMBS subsectors, but in the current environment, we prefer the following subsectors: senior and mezzanine tranches of prime jumbo 2.0, senior and mezzanine tranches of non-qualified mortgages, senior legacy NA RMBS, mortgage insurance, and reperforming loan securitizations. These sectors have been under significant pressure, particularly in the second half of 2022, but in our view offer extraordinarily attractive total return potential from here. We expect NA RMBS spreads to tighten on the heels of declining implied volatility and peak policy in 2023. Spread tightening coupled with current loss-adjusted yields approaching 10% in our strategy increase the potential for double-digit total return opportunities on the heels of the prior volatility storms.

Stable fundamentals have been evident in NA RMBS over the past several years, but the technical picture has been challenging due to robust issuance in 2021 and 2022. However, we expect the technical picture to improve in 2023, as the bond bear market of 2022 made securitization and mortgage origination dynamics extraordinarily challenging. Not only is mortgage origination expected to decline dramatically, but NA RMBS supply also is expected to plummet in 2023 after years of significant gross issuance. In fact, we expect gross issuance to decline by 60% in 2023. Given our expectations of improving demand from money managers and pensions in 2023, the lack of supply in a shrinking market with stable fundamentals presents a favorable technical backdrop for potential spread tightening.

Asset-backed securities (ABS) are the second-largest credit exposure, at 18%, and they produced a total return of 4.45% during the period, contributing 0.38% to Fund performance. Delinquency rates on consumer loan products, such as credit cards and auto loans, are also starting to normalize, increasing from historically low levels. While we are cautious about subprime versus prime consumer areas of ABS, often the perceived credit weakness ahead is less than what is priced into current valuations. ABS spreads are near their widest levels since April/May 2020. In our view, even the bottom tranches of the subprime auto and consumer loan ABS sectors should hold up well, as the cushions are sufficient for a slow deterioration to a mild recession. Diversification with respect to issuers, deals, and tenure shows attractive value within the space. Seasoning and robust structural support coupled with the deeply discounted prices of most areas of consumer ABS more than compensate investors for the perceived credit risk ahead, considering our expectations of a mild recession in 2023.

What is your outlook for 2023, and how is the Fund positioned?

Looking to 2023, we believe equity earnings will begin to come under pressure as the Fed rate hikes take hold. We think this will be beneficial to fixed-income flows, and we see them turning positive in the first quarter of 2023, considering how under-allocated U.S. households are to fixed income and how enticing yield levels are. Also, we expect interest rate volatility to decline as the Fed reaches the end of this hiking cycle, and we expect issuance volumes to slow, which should be very supportive of mortgage and structured product spreads. We believe structured credit will be a primary focus for allocators, as some areas of AAA structured credit trade wider than BBB corporate bonds, and current coupon AMBS spreads are comparable to the entire Bloomberg U.S. Corporate Investment Grade Index and come with government backing.

 

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Past performance is not a guarantee of future results.

Investing involves risk; principal loss is possible. Investments in debt securities typically decrease when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower- rated and non-rated securities present a greater risk of loss to principal and interest than higher rated securities. Investments in asset-backed and mortgage-backed securities include additional risks that investors should be aware of including credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments. The Fund is a recently organized investment company with limited operating history. As a result, prospective investors have a limited track record or history on which to base their investment decisions. Derivatives involve risks different from, and in certain cases, greater than the risks presented by more traditional investments. Derivatives may involve certain costs and risks such as illiquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. The Fund may use leverage, which may exaggerate the effect of any increase or decrease in the value of securities in the Fund’s portfolio or higher and duplicative expenses when it invests in mutual funds, ETFs, and other investment companies. For more information on these risks and other risks of the Fund, please see the Prospectus.

ETFs may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market prices (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. The Fund is an actively managed ETF, which is a fund that trades like other publicly traded securities. The Fund is not an index fund and does not seek to replicate the performance of a specified index.

Bond ratings are grades given to the bonds to indicate their credit quality as determined by rating agencies including, but not limited to, S&P and Moody’s. The firm evaluates a bond issuer’s financial strength, or its ability to pay a bond’s principal and interest in a timely fashion. Ratings are expressed as letters ranging from AAA, which is the highest grade, to D, which is the lowest grade. In limited situations, when a rating agency has not issued a formal rating, the adviser will classify the security as nonrated.

Definitions:

Agency Mortgage-Backed Securities (AMBS): Securities issued or guaranteed by the U.S. government or a government-sponsored enterprise (GSE).

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.

Bloomberg U.S. Corporate Investment Grade Index: An index that measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers.

Cash Flow: Periodic coupons received by the bondholder during their holding period.

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.

Current Coupon: Refers to a security that is trading closest to its par value without going over par. In other words, the bond’s market price is at or near to its issued face value.

Duration: Measures a portfolio’s sensitivity to changes in interest rates. Generally, the longer the duration, the greater the price change relative to interest rate movements.

Non-Agency Residential Mortgage-Backed Securities (NA RMBS): Securities issued by private institutions such as trusts and special-purpose vehicles. 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 flow 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.

Prime Jumbo: Prime jumbo mortgages are non-agency loans typically because the lending amount exceeds the conforming loan limits. These tend to be high-quality mortgages with high credit scores that, for the most part, comply with agency mortgage underwriting guidelines.

Reperforming Loan (RPL): A mortgage that had become delinquent because the borrower fell behind on payments by at least 90 days but returned to “performing” status because the borrower has resumed making payments.

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.

 

15


Table of Contents

Investment Results – (Unaudited)

Angel Oak Multi-Strategy Income Fund

Multi-Strategy 10 Year Plot Points

 

LOGO

The Fund is the successor to the investment performance of the Angel Oak Multi-Strategy Income Fund (the “Predecessor Multi-Strategy Income Fund”) as a result of the reorganization of the Predecessor Multi-Strategy Income Fund into the Fund on April 10, 2015. Accordingly, the performance information shown in the chart above and table below for periods prior to April 10, 2015 is that of the Predecessor Multi-Strategy Income Fund. The Predecessor Multi-Strategy Income Fund was also advised by the Fund’s investment adviser, Angel Oak Capital Advisors, LLC (the “Adviser”), and had the same investment objective, policies, and strategies as the Fund.

The chart above assumes an initial investment of $500,000 made on January 31, 2013. 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 the redemption of Fund shares. 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 redeemed, may be worth more or less than the original cost. Index returns do not reflect the effects of fees or expenses. It is not possible to invest directly in an index.

Total Returns(1)

(For the year ended January 31, 2023)

 

      Average Annual Returns  
      One Year    Three Year     Five Year     Ten Year      Since Inception(2)  

Angel Oak Multi-Strategy Income Fund, Institutional Class

   (10.98%)      (3.41 %)      (0.42 %)      1.78      2.43

Angel Oak Multi-Strategy Income Fund, Class A without load

   (11.28%)      (3.62 %)      (0.68 %)      1.51      3.86

Angel Oak Multi-Strategy Income Fund, Class A with load

   (13.31%)      (4.36 %)      (1.14 %)      1.29      3.66

Angel Oak Multi-Strategy Income Fund, Class C without load

   (11.88%)      (4.34 %)      (1.41 %)      N/A        (0.11 %) 

Angel Oak Multi-Strategy Income Fund, Class C with load

   (12.72%)      (4.34 %)      (1.41 %)      N/A        (0.11 %) 

Bloomberg U.S. Aggregate Bond Index(3)

   (8.36%)      (2.35 %)      0.86     1.43      1.45 %(4) 

(1) Return figures reflect any change in price per share and assume the reinvestment of all distributions. Total returns for Class A Shares, with load, include the maximum 2.25% sales charge. Total returns for Class C Shares, with load, include the maximum 1.00% deferred sales charge.

(2) Inception date is August 16, 2012 for Institutional Class Shares, June 28, 2011 for Class A Shares, and August 4, 2015 for Class C Shares.

(3) 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.

 

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Investment Results – (Unaudited) (continued)

(4) 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 Class A Shares is 1.94% and for Class C Shares is 1.24%.

 

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Investment Results – (Unaudited) (continued)

Angel Oak Financials Income Impact Fund

Total Return Based on a $500,000 Investment

 

LOGO

The chart above assumes an initial investment of $500,000 made on November 3, 2014 (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 the redemption of Fund shares. 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 redeemed, may be worth more or less than the original cost. Index returns do not reflect the effects of fees or expenses. It is not possible to invest directly in an index.

Total Returns(1)

(For the year ended January 31, 2023)

 

      Average Annual Returns  
      One Year    Three Year     Five Year      Since Inception(2)  

Angel Oak Financials Income Impact Fund, Institutional Class

   (5.37%)      (1.30 %)      1.39      1.99

Angel Oak Financials Income Impact Fund, Class A without load

   (5.59%)      (1.54 %)      1.16      1.76

Angel Oak Financials Income Impact Fund, Class A with load

   (7.75%)      (2.28 %)      0.70      1.48

Angel Oak Financials Income Impact Fund, Class C without load

   (6.79%)      (2.44 %)      0.33      0.40

Angel Oak Financials Income Impact Fund, Class C with load

   (7.69%)      (2.44 %)      0.33      0.40

Bloomberg U.S. Aggregate 3-5 Year Index(3)

   (4.85%)      (1.20 %)      1.13      1.25 %(4) 

(1) Return figures reflect any change in price per share and assume the reinvestment of all distributions. Total returns for Class A Shares, with load, include the maximum 2.25% sales charge. Total returns for Class C Shares, with load, include the maximum 1.00% deferred sales charge.

(2) Inception date is November 3, 2014 for Institutional Class and Class A Shares and August 4, 2015 for Class C Shares.

(3) The Bloomberg U.S. Aggregate 3-5 Year Index tracks bonds with 3-5 year maturities within the Bloomberg U.S. Aggregate Bond Index. 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.

(4) The return shown for the Bloomberg U.S. Aggregate 3-5 Year Index is from the inception date of the Institutional Class and Class A Shares. The Bloomberg U.S. Aggregate 3-5 Year Index return from the inception date of the Class C Shares is 1.15%.

 

18


Table of Contents

Investment Results – (Unaudited) (continued)

Angel Oak High Yield Opportunities Fund

Total Return Based on a $500,000 Investment

 

LOGO

The Fund is the successor to the investment performance of the Rainier High Yield Fund (the “Predecessor High Yield Fund”) as a result of the reorganization of the Predecessor High Yield Fund into the Fund on April 15, 2016. Accordingly, the performance information shown in the chart above and table below for periods prior to April 15, 2016 is that of the Predecessor High Yield Fund’s Institutional Shares and Original Shares for the Fund’s Institutional Class and Class A shares, respectively. The Predecessor High Yield Fund was managed by the same portfolio managers as the Fund and when the Predecessor High Yield Fund was reorganized into the Fund had substantially the same investment objectives, policies, and strategies as the Fund.

The chart above assumes an initial investment of $500,000 made on January 31, 2013. 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 the redemption of Fund shares. 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 redeemed, may be worth more or less than the original cost. Index returns do not reflect the effects of fees or expenses. It is not possible to invest directly in an index.

Total Returns(1)

(For the year ended January 31, 2023)

 

      Average Annual Returns  
      One Year    Three Year      Five Year      Ten Year      Since Inception(2)  

Angel Oak High Yield Opportunities Fund, Institutional Class

   (2.89%)      2.16      3.26      4.61      7.44

Angel Oak High Yield Opportunities Fund, Class A without load

   (3.13%)      1.89      2.99      4.36      4.69

Angel Oak High Yield Opportunities Fund, Class A with load

   (5.34%)      1.13      2.51      4.12      4.47

Bloomberg U.S. High Yield Corporate Bond Index(3)

   (5.22%)      1.29      2.96      4.28      8.82 %(4) 

(1) Return figures reflect any change in price per share and assume the reinvestment of all distributions. Total returns for Class A Shares, with load, include the maximum 2.25% sales charge.

(2) Inception date is March 31, 2009 for Institutional Class Shares and July 31, 2012 for Class A Shares.

(3) The Bloomberg U.S. High Yield Corporate Bond Index is an unmanaged market value-weighted index that covers the universe of fixed-rate, non-investment grade debt. 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.

(4) The return shown for the Bloomberg U.S. High Yield Corporate Bond Index is from the inception date of the Institutional Class Shares. The Bloomberg U.S. High Yield Corporate Bond Index return from the inception date of Class A Shares is 4.78%.

 

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Table of Contents

Investment Results – (Unaudited) (continued)

Angel Oak UltraShort Income Fund

Total Return Based on a $500,000 Investment

 

LOGO

The chart above assumes an initial investment of $500,000 made on April 2, 2018 (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 the redemption of Fund shares. 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 redeemed, may be worth more or less than the original cost. Index returns do not reflect the effects of fees or expenses. It is not possible to invest directly in an index.

Total Returns(1)

(For the year ended January 31, 2023)

 

      Average Annual Returns  
      One Year     Three Year     Since Inception(2)  

Angel Oak UltraShort Income Fund, Institutional Class

     (2.24 %)      0.03     1.41

Angel Oak UltraShort Income Fund, Class A

     (2.42 %)      (0.22 %)      1.12

Angel Oak UltraShort Income Fund, Class A1 without load

     N/A       N/A       (0.25 %)(3) 

Angel Oak UltraShort Income Fund, Class A1 with load

     N/A       N/A       (2.25 %)(3) 

Bloomberg Short Treasury: 9-12 Months Index(4)

     0.18     0.47     1.26 %(5) 

Bloomberg Short Term Government/Corporate Index(6)

     1.17     0.77     1.41 %(7) 

(1) Return figures reflect any change in price per share and assume the reinvestment of all distributions. Total returns for Class A1 Shares, with load, include the maximum 1.50% sales charge and the maximum 0.50% deferred sales charge.

(2) Inception date is April 2, 2018 for Institutional Class, April 30, 2018 for Class A Shares, and July 22, 2022 for Class A1 Shares.

(3) Less than one year of activity, figure presented is a cumulative return.

(4) The Bloomberg Short Treasury: 9-12 Months Index measures the performance of U.S. Treasury bills, notes, and bonds with a remaining maturity between 9-12 months. 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 Short Treasury: 9-12 Months Index is from the inception date of the Institutional Class Shares. The Bloomberg Short Treasury: 9-12 Months Index return from the inception date of the Class A Shares is 1.27% and for Class A1 Shares is 0.86%.

 

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Investment Results – (Unaudited) (continued)

(6) The Bloomberg Short Term Government/Corporate Index is an unmanaged index that represents securities that have fallen out of the U.S. Government/Corporate Index because of the standard minimum one year maturity constraint. Sectors include treasuries, agencies, industrials, utilities and financial institutions. 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.

(7) The return shown for the Bloomberg Short Term Government/Corporate Index is from the inception date of the Institutional Class Shares. The Bloomberg Short Term Government/Corporate Index return from the inception date of the Class A Shares is 1.41% and for Class A1 Shares is 1.38%.

 

21


Table of Contents

Investment Results – (Unaudited) (continued)

Angel Oak Total Return Bond Fund

Total Return Based on a $500,000 Investment

 

LOGO

The chart above assumes an initial investment of $500,000 made on June 4, 2021 (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 the redemption of Fund shares. 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 redeemed, may be worth more or less than the original cost. Index returns do not reflect the effects of fees or expenses. It is not possible to invest directly in an index.

Total Returns(1)

(For the year ended January 31, 2023)

 

      Average Annual Returns  
      One Year     Since Inception(2)  

Angel Oak Total Return Bond Fund, Institutional Class

     (8.32 %)      (5.83 %) 

Bloomberg U.S. Aggregate Bond Index(3)

     (8.36 %)      (6.00 %) 

(1) Return figures reflect any change in price per share and assume the reinvestment of all distributions.

(2) Inception date is June 4, 2021.

(3) 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.

 

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Table of Contents

Investment Results – (Unaudited) (continued)

Angel Oak UltraShort Income ETF

Total Return Based on a $10,000 Investment

 

 

LOGO

The chart above assumes an initial investment of $10,000 made on October 24, 2022 (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 the redemption of Fund shares. 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 redeemed, may be worth more or less than the original cost. Index returns do not reflect the effects of fees or expenses. It is not possible to invest directly in an index.

Cumulative Returns(1)

(For the period ended January 31, 2023)

 

      Since  Inception(2)  

Angel Oak UltraShort Income ETF – NAV

     1.92

Angel Oak UltraShort Income ETF – Market Price

     1.90

Bloomberg U.S. Treasury Bills Index(3)

     1.10

Bloomberg Short Term Government/Corporate Index(4)

     1.19

(1) Return figures reflect any change in price per share and assume the reinvestment of all distributions.

(2) Inception date is October 24, 2022.

(3) The Bloomberg U.S. Treasury Bills Index tracks the market for treasury bills issued by the U.S. government. 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.

(4) The Bloomberg Short Term Government/Corporate Total Return Index is an unmanaged index that represents securities that have fallen out of the U.S. Government/Corporate Index because of the standard minimum one year maturity constraint. Sectors include treasuries, agencies, industrials, utilities and financial institutions. 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.

 

23


Table of Contents

Investment Results – (Unaudited) (continued)

Angel Oak Income ETF

Total Return Based on a $10,000 Investment

 

 

LOGO

The chart above assumes an initial investment of $10,000 made on November 7, 2022 (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 the redemption of Fund shares. 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 redeemed, may be worth more or less than the original cost. Index returns do not reflect the effects of fees or expenses. It is not possible to invest directly in an index.

Cumulative Returns(1)

(For the period ended January 31, 2023)

 

      Since  Inception(2)  

Angel Oak Income ETF – NAV

     2.41

Angel Oak Income ETF – Market Price

     2.49

Bloomberg U.S. Aggregate Bond Index(3)

     7.07

(1) Return figures reflect any change in price per share and assume the reinvestment of all distributions.

(2) Inception date is November 7, 2022.

(3) 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.

 

24


Table of Contents

Summary of Funds’ Expenses – (Unaudited)

As a shareholder of the Funds, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees and other expenses of the Funds. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds. 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 lines of the tables below provide information about actual account values and actual expenses. You may use the information in these lines, 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 numbers in the first lines 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 lines of the tables below provide information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the second lines of the tables below are 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.

 

Angel Oak Multi-Strategy Income Fund    Beginning
Account Value
   Ending
Account Value
   Expenses Paid
During  Period(1)
   Annualized
Expense  Ratio

Class A

   Actual    $1,000.00    $945.60    $10.79    2.20%
     Hypothetical(2)    $1,000.00    $1,014.12    $11.17    2.20%

Class C

   Actual    $1,000.00    $942.40    $14.54    2.97%
     Hypothetical(2)    $1,000.00    $1,010.23    $15.05    2.97%

Institutional Class

   Actual    $1,000.00    $946.70    $9.47    1.93%
     Hypothetical(2)    $1,000.00    $1,015.48    $9.80    1.93%

 

Angel Oak Financials Income Impact Fund    Beginning
Account Value
   Ending
Account Value
   Expenses Paid
During  Period(1)
   Annualized
Expense  Ratio

Class A

   Actual    $1,000.00    $962.40    $4.70    0.95%
     Hypothetical(2)    $1,000.00    $1,020.42    $4.84    0.95%

Class C

   Actual    $1,000.00    $958.10    $8.39    1.70%
     Hypothetical(2)    $1,000.00    $1,016.64    $8.64    1.70%

Institutional Class

   Actual    $1,000.00    $963.60    $3.46    0.70%
     Hypothetical(2)    $1,000.00    $1,021.68    $3.57    0.70%

 

Angel Oak High Yield Opportunities Fund    Beginning
Account Value
   Ending
Account Value
   Expenses Paid
During  Period(1)
   Annualized
Expense  Ratio

Class A

   Actual    $1,000.00    $1,027.70    $4.55    0.89%
     Hypothetical(2)    $1,000.00    $1,020.72    $4.53    0.89%

Institutional Class

   Actual    $1,000.00    $1,029.10    $3.22    0.63%
     Hypothetical(2)    $1,000.00    $1,022.03    $3.21    0.63%

 

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Table of Contents

Summary of Funds’ Expenses – (Unaudited) (continued)

 

Angel Oak UltraShort Income Fund    Beginning
Account Value
   Ending
Account Value
   Expenses Paid
During  Period(1)
   Annualized
Expense  Ratio

Class A

   Actual    $1,000.00    $997.00    $3.02    0.60%
     Hypothetical(2)    $1,000.00    $1,022.18    $3.06    0.60%

Class A1

   Actual    $1,000.00    $997.30    $3.02    0.60%
     Hypothetical(2)    $1,000.00    $1,022.18    $3.06    0.60%

Institutional Class

   Actual    $1,000.00    $998.40    $1.76    0.35%
     Hypothetical(2)    $1,000.00    $1,023.44    $1.79    0.35%

 

Angel Oak Total Return Bond Fund    Beginning
Account Value
   Ending
Account Value
   Expenses Paid
During  Period(1)
   Annualized
Expense  Ratio

Institutional Class

   Actual    $1,000.00    $962.90    $2.82    0.57%
     Hypothetical(2)    $1,000.00    $1,022.33    $2.91    0.57%

 

Angel Oak UltraShort Income ETF    Beginning
Account Value
   Ending
Account Value
   Expenses Paid
During Period
   Annualized
Expense  Ratio
     Actual    $1,000.00    $1,019.20    $0.79(3)    0.29%
     Hypothetical(2)    $1,000.00    $1,023.74    $1.48(1)    0.29%

 

Angel Oak Income ETF    Beginning
Account Value
   Ending
Account Value
   Expenses Paid
During Period
   Annualized
Expense  Ratio
     Actual    $1,000.00    $1,024.10    $1.86(4)    0.79%
     Hypothetical(2)    $1,000.00    $1,021.22    $4.02(1)    0.79%

(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 reflect fee waiver and expense limitation arrangements, including interest expense, in effect during the period. The “Financial Highlights” tables in the Funds’ financial statements, included in the report, also show the gross expense ratios, without such reimbursements.

(2) Hypothetical assumes 5% annual return before expenses.

(3) 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 (99) in the most recent period beginning October 24, 2022, and divided by the number of days in the most recent twelve month period (365). The annualized expense ratios reflect fee waiver and expense limitation arrangements, including interest expense, in effect during the period. The “Financial Highlights” tables in the Funds’ financial statements, included in the report, also show the gross expense ratios, without such reimbursements.

(4) 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 (85) in the most recent period beginning November 7, 2022, and divided by the number of days in the most recent twelve month period (365). The annualized expense ratios reflect fee waiver and expense limitation arrangements, including interest expense, in effect during the period. The “Financial Highlights” tables in the Funds’ financial statements, included in the report, also show the gross expense ratios, without such reimbursements.

 

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Table of Contents

Portfolio Holdings – (Unaudited)

The investment objective of Angel Oak Multi-Strategy Income Fund is to seek current income.

 

LOGO

The investment objective of Angel Oak Financials Income Impact Fund is to seek current income with a secondary objective of total return.

 

LOGO

* 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.

(a) Less than 0.005%

 

27


Table of Contents

Portfolio Holdings – (Unaudited) (continued)

The investment objective of Angel Oak High Yield Opportunities Fund is to earn a high level of current income with a secondary objective of capital appreciation.

 

LOGO

The investment objective of Angel Oak UltraShort Income Fund is to provide current income while seeking to minimize price volatility and maintain liquidity.

 

LOGO

* 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.

 

28


Table of Contents

Portfolio Holdings – (Unaudited) (continued)

The investment objective of Angel Oak Total Return Bond Fund is to seek total return.

 

 

LOGO

The investment objective of Angel Oak UltraShort Income ETF is to provide current income while seeking to minimize price volatility and maintain liquidity.

 

 

LOGO

* 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.

 

29


Table of Contents

Portfolio Holdings – (Unaudited) (continued)

The investment objective of Angel Oak Income ETF is to seek current income.

 

 

LOGO

* 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.

 

30


Table of Contents

Statements of Assets and Liabilities

January 31, 2023

 

    Multi-Strategy
Income Fund (a)
  Financials Income
Impact Fund
  High Yield
Opportunities Fund
  UltraShort
Income Fund
  Total Return
Bond Fund

Assets

                   

Investments in unaffiliated securities at fair value*

      $3,560,520,959       $100,451,016       $63,432,926       $688,650,356       $34,425,521

Investments in affiliated securities at fair value*

      126,463,589       —         —         4,880,005       —  

Cash

      356,683       —         —         —         —  

Due from Adviser

      —         9,488       51,384       —         55,244

Deposit at broker for reverse repurchase agreements

      3,907,000       —         —         —         —  

Deposit at broker for futures*

      8,981,067       —         —         979,526       326,000

Deposit at broker for swaps

      240,419       —         —         —         —  

Receivable for Fund shares sold

      53,989,716       279,268       6,917       978,896       —  

Receivable for investments sold

      9,495,294       1,956,056       —         689,950       —  

Dividends and interest receivable

      17,082,734       1,035,363       930,838       1,525,528       145,831

Prepaid expenses

      77,715       30,944       20,907       46,308       16,117
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total Assets

      3,781,115,176       103,762,135       64,442,972       697,750,569       34,968,713
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Liabilities

                   

Payable for credit agreements

      300,000,000       —         —         —         —  

Payable for reverse repurchase agreements (net of unamortized deferred issuance costs of $157,551)

      249,842,609       —         —         —         —  

Payable for investments purchased

      222,284,602       —         980,152       1,133,782       —  

Payable for Fund shares redeemed

      5,927,810       156,415       39,475       1,907,413       —  

Payable for distributions to shareholders

      5,326,803       193,425       230,236       526,569       108,315

Interest payable for credit and reverse repurchase agreements

      3,962,288       —         —         —         —  

Payable to Adviser

      2,151,222       —         —         121,540       —  

Payable to administrator, fund accountant, and transfer agent

      356,709       24,715       16,259       86,890       10,837

12b-1 fees accrued

      71,258       20,838       664       8,734       —  

Payable to custodian

      33,903       949       1,500       8,499       548

Other accrued expenses

      232,072       44,511       63,456       59,874       63,351
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total Liabilities

      790,189,276       440,853       1,331,742       3,853,301       183,051
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net Assets

      $2,990,925,900       $103,321,282       $63,111,230       $693,897,268       $34,785,662
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net Assets consist of:

                   

Paid-in capital

      $4,926,802,063       $163,847,080       $72,223,919       $763,320,378       $40,114,189

Total distributable earnings (accumulated deficit)

      (1,935,876,163 )       (60,525,798 )       (9,112,689 )       (69,423,110 )       (5,328,527 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net Assets

      $2,990,925,900       $103,321,282       $63,111,230       $693,897,268       $34,785,662
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Class A:

                   

Net Assets

      $150,449,905       $5,893,440       $3,416,850       $39,535,947       $—  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Shares outstanding (unlimited number of shares authorized, no par value)

      17,425,567       723,628       321,451       4,134,469       —  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net asset value (“NAV”) per share

      $8.63       $8.14       $10.63       $9.56       $—  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Offering price per share (NAV/0.9775) (b)

      $8.83       $8.33       $10.87       $9.78       $—  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Class C:

                   

Net Assets

      $46,512,313       $4,437,195       $—         $—         $—  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Shares outstanding (unlimited number of shares authorized, no par value)

      5,444,667       553,803       —         —         —  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net asset value (“NAV”) and offering price per share

      $8.54       $8.01       $—         $—         $—  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Minimum redemption price per share (NAV*0.99) (c)

      $8.45       $7.93       $—         $—         $—  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Institutional Class:

                   

Net Assets

      $2,793,963,682       $92,990,647       $59,694,380       $653,847,901       $34,785,662
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Shares outstanding (unlimited number of shares authorized, no par value)

      324,411,989       11,454,484       5,641,855       68,383,148       3,995,616
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net asset value (“NAV”) and offering price per share

      $8.61       $8.12       $10.58       $9.56       $8.71
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Class A1:

                   

Net Assets

      $—         $—         $—         $513,420       $—  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Shares outstanding (unlimited number of shares authorized, no par value)

      —         —         —         53,788       —  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net asset value (“NAV”) per share

      $—         $—         $—         $9.55       $—  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Offering price per share (NAV/0.985) (d)

      $—         $—         $—         $9.70       $—  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Minimum redemption price per share (NAV*0.995) (e)

      $—         $—         $—         $9.50       $—  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

*Identified Cost:

                   

Investments in unaffiliated securities

      $4,283,722,132       $109,617,400       $68,078,848       $719,345,684       $36,947,873

Investments in affiliated securities

      140,994,876       —         —         4,829,286       —  

Required margin held as collateral for futures contracts

      9,672,680       —         —         894,050       215,700

 

(a)

Statement has been consolidated. See Note 1 in the Notes to Financial Statements for basis of consolidation.

(b)

Class A shares impose a maximum 2.25% sales charge on purchases. This fee is not charged to shareholders of the UltraShort Income Fund.

(c)

A contingent deferred sales charge (“CDSC”) of 1.00% may be charged.

(d)

Class A1 shares impose a maximum 1.50% sales charge on purchases.

(e)

A contingent deferred sales charge (“CDSC”) of 0.50% may be charged.

 

See accompanying notes which are an integral part of these financial statements.

 

31


Table of Contents

Statements of Assets and Liabilities

January 31, 2023

 

     UltraShort
Income ETF
   Income ETF

Assets

         

Investments in securities at fair value*

       $47,630,624        $34,038,694

Receivable for investments sold

       4,961        297,689

Dividends and interest receivable

       110,413        109,006
    

 

 

      

 

 

 

Total Assets

       47,745,998        34,445,389
    

 

 

      

 

 

 

Liabilities

         

Payable for investments purchased

       1,200,402        787,436

Payable to Adviser

       11,099        21,654
    

 

 

      

 

 

 

Total Liabilities

       1,211,501        809,090
    

 

 

      

 

 

 

Net Assets

       $46,534,497        $33,636,299
    

 

 

      

 

 

 

Net Assets consist of:

         

Paid-in capital

       $46,090,044        $33,148,155

Total distributable earnings (accumulated deficit)

       444,453        488,144
    

 

 

      

 

 

 

Net Assets

       $46,534,497        $33,636,299
    

 

 

      

 

 

 

Shares outstanding (unlimited number of shares authorized, no par value)

       920,000        1,650,000
    

 

 

      

 

 

 

Net asset value (“NAV”) and offering price per share

       $50.58        $20.39
    

 

 

      

 

 

 

*Identified Cost:

         

Investments in securities

       $47,408,013        $33,749,623

 

See accompanying notes which are an integral part of these financial statements.

 

32


Table of Contents

Statements of Operations

For the Year Ended January 31, 2023

 

    Multi-Strategy
Income Fund (a)
  Financials Income
Impact Fund
  High Yield
Opportunities Fund
  UltraShort
Income Fund
  Total Return
Bond Fund

Investment Income

                   

Interest

      $312,392,328       $6,378,710       $4,131,501       $26,829,199       $1,164,632

Dividends from unaffiliated investments

      4,203,959       354,171       137,366       12       4,564

Dividends from affiliated investments

      4,884,807       —         —         35,975       —  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total Investment Income

      321,481,094       6,732,881       4,268,867       26,865,186       1,169,196
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Expenses

                   

Investment Advisory (See Note 5)

      43,551,583       1,277,665       373,742       5,010,365       179,908

Interest expense

      27,083,966       11,780       25       2,530       217

12b-1 – Class A

      569,799       18,551       10,279       225,133       —  

12b-1 – Class A1

      —         —         —         653       —  

12b-1 – Class C

      590,959       67,506       —         —         —  

Fund accounting

      1,340,010       26,407       34,374       313,260       18,491

Administration

      565,259       40,484       25,949       147,930       21,593

Transfer agent

      541,710       85,023       29,097       117,364       13,888

Legal

      486,019       73,064       62,567       112,292       60,623

Custodian

      287,367       5,825       8,895       60,587       2,760

Trustee

      277,070       40,517       36,743       89,908       35,225

Registration

      253,168       64,879       43,091       203,933       39,735

Printing

      228,229       24,851       7,343       29,854       5,104

Audit & tax

      112,996       31,972       28,202       37,504       27,979

Insurance

      54,224       1,330       631       11,771       340

Compliance

      12,686       12,686       12,686       12,686       12,678

Miscellaneous

      104,868       12,842       5,991       28,989       1,782
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total Expenses

      76,059,913       1,795,382       679,615       6,404,759       420,323
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Fees contractually recouped by Adviser (See Note 5)

      17,063       —         —         —         —  

Fees contractually waived by Adviser (See Note 5)

      (714,385 )       (91,469 )       (233,113 )       (2,190,925 )       (212,352 )

Fees voluntarily waived by Adviser (See Note 5)

      —         (615,523 )       —         —         —  
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net Expenses

      75,362,591       1,088,390       446,502       4,213,834       207,971
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net Investment Income (Loss)

      246,118,503       5,644,491       3,822,365       22,651,352       961,225
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Realized and Unrealized Gain (Loss) on Investments

                   

Net realized gain (loss) on investments in unaffiliated securities

      (354,718,540 )       (3,058,652 )       (1,967,678 )       (36,420,380 )       (2,275,300 )

Net realized gain (loss) on investments on TBA sale commitments

      5,722,656       —         —         —         —  

Net realized gain (loss) on futures contracts

      12,489,421       —         —         6,169,368       (526,553 )

Net realized gain (loss) on swaps

      6,353,207       —         —         —         —  

Net realized gain (loss) on swaptions

      220,000       —         —         —         —  

Net change in unrealized appreciation/depreciation on unaffiliated investments

      (552,212,571 )       (11,304,317 )       (4,234,264 )       (27,689,567 )       (1,506,612 )

Net change in unrealized appreciation/depreciation on affiliated investments

      (11,434,871 )       —         —         50,719       —  

Net change in unrealized appreciation/depreciation on TBA sale commitments

      (4,430,900 )       —         —         —         —  

Net change in unrealized appreciation/depreciation on futures contracts

      32,843,845       —         —         (411,506 )       79,580
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net Realized and Unrealized Gain (Loss) on Investments

      (865,167,753 )       (14,362,969 )       (6,201,942 )       (58,301,366 )       (4,228,885 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net increase (decrease) in net assets resulting from operations

      ($619,049,250 )       ($8,718,478 )       ($2,379,577 )       ($35,650,014 )       ($3,267,660 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

 

(a)

Statement has been consolidated. See Notes 1 in the Notes to Financial Statements for basis of consolidation.

 

See accompanying notes which are an integral part of these financial statements.

 

33


Table of Contents

Statements of Operations

For the Period Ended January 31, 2023

 

     UltraShort
Income ETF (a)
  Income ETF (b)

Investment Income

        

Interest

       $557,337       $362,478
    

 

 

     

 

 

 

Total Investment Income

       557,337       362,478
    

 

 

     

 

 

 

Expenses

        

Investment Advisory (See Note 5)

       57,341       55,848
    

 

 

     

 

 

 

Total Expenses

       57,341       55,848
    

 

 

     

 

 

 

Fees contractually recouped (waived) by Adviser (See Note 5)

       (27,107 )       (11,283 )
    

 

 

     

 

 

 

Net Expenses

       30,234       44,565
    

 

 

     

 

 

 

Net Investment Income (Loss)

       527,103       317,913
    

 

 

     

 

 

 

Realized and Unrealized Gain (Loss) on Investments

        

Net realized gain (loss) on investments

       11,525       29,404

Net change in unrealized appreciation/depreciation on investments

       222,611       289,071
    

 

 

     

 

 

 

Net Realized and Unrealized Gain (Loss) on Investments

       234,136       318,475
    

 

 

     

 

 

 

Net increase (decrease) in net assets resulting from operations

       $761,239       $636,388
    

 

 

     

 

 

 

 

(a)

Fund commenced operations on October 24, 2022.

(b)

Fund commenced operations on November 7, 2022.

 

See accompanying notes which are an integral part of these financial statements.

 

34


Table of Contents

Angel Oak Multi-Strategy Income Fund

Consolidated Statement of Cash Flows (a)

For the Year Ended January 31, 2023

 

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net increase (decrease) in net assets resulting from operations

       ($619,049,250 )

Net adjustments to reconcile net increase (decrease) in net assets from operations to net cash provided by (used in) operating activities:

    

Net amortization and accretion of premium and discount on investments and other cost adjustments

       (16,694,957 )

Net realized paydown gains on mortgage backed and other asset backed securities

       (25,379,318 )

Sales of short-term investments, net

       333,263,459

Purchases of investments

       (732,625,670 )

Proceeds from sales of long-term investments

       3,821,332,769

Net realized (gain) loss on investments

       354,718,540

Net change in unrealized appreciation/depreciation on investments

       563,647,442

Proceeds from TBA sale commitments

       197,062,500

Repayments of TBA sale commitments

       (395,527,344 )

Net realized (gain) loss on investments on TBA sale commitments

       (5,722,656 )

Net change in unrealized appreciation/depreciation on TBA sale commitments

       4,430,900

Change in:

    

Receivable for investments sold

       209,544,347

Dividends and interest receivable

       8,729,697

Prepaid expenses

       75,946

Payable for investments purchased

       (145,631,841 )

Interest payable for credit and reverse repurchase agreements

       3,067,230

Payable to Adviser

       (3,163,413 )

Payable to administrator, fund accountant, and transfer agent

       (72,090 )

Payable to custodian

       (20,943 )

12b-1 fees accrued

       (62,085 )

Other accrued expenses

       10,759
    

 

 

 

Net cash provided by (used in) operating activities

       3,551,934,022
    

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from shares sold

       1,956,902,926

Payment on shares redeemed

       (5,535,435,491 )

Distributions paid to shareholders

       (82,317,786 )

Proceeds from reverse repurchase agreements

       249,842,609

Repayments of reverse repurchase agreements

       (134,796,000 )
    

 

 

 

Net cash provided by (used in) financing activities

       (3,545,803,742 )
    

 

 

 

Net change in cash

       6,130,280
    

 

 

 

CASH AND RESTRICTED CASH:

    

Beginning Balance

       7,354,889
    

 

 

 

Ending Balance

       $13,485,169
    

 

 

 

SUPPLEMENTAL DISCLOSURES:

    

Cash paid for interest

       $24,016,736

Cash held in money market investments

       119,722,714

Non-cash financing activities - distributions reinvested

       171,013,360

Non-cash financing activities - (increase) decrease in receivable for fund shares sold

       (23,774,830 )

Non-cash financing activities - increase (decrease) in payable for fund shares redeemed

       (17,792,520 )

RECONCILIATION OF RESTRICTED AND UNRESTRICTED CASH AT THE BEGINNING OF YEAR TO THE STATEMENTS OF ASSETS AND LIABILITIES:

    

Cash

       $1,331,676

Deposit at broker for reverse repurchase agreements

       2,742,000

Deposit at broker for futures

       3,311,696

Variation margin on futures contracts

       (30,483 )
    

 

 

 
       $7,354,889
    

 

 

 

RECONCILIATION OF RESTRICTED AND UNRESTRICTED CASH AT THE END OF YEAR TO THE STATEMENTS OF ASSETS AND LIABILITIES:

    

Cash

       $356,683

Deposit at broker for reverse repurchase agreements

       3,907,000

Deposit at broker for futures

       8,981,067

Deposit at broker for swaps

       240,419
    

 

 

 
       $13,485,169
    

 

 

 

 

(a)

Statement has been consolidated. See Note 1 in the notes to Financial Statements for basis of consolidation.

 

See accompanying notes which are an integral part of these financial statements.

 

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Table of Contents

Angel Oak Multi-Strategy Income Fund

Consolidated Statements of Changes in Net Assets

 

     For the Year Ended
January 31, 2023 (a)
  For the Year Ended
January 31, 2022 (a)

Increase (Decrease) in Net Assets due to:

        

Operations

        

Net investment income (loss)

       $246,118,503       $323,269,065

Net realized gain (loss) on investment transactions, futures contracts, TBA sale commitments, and swaps

       (329,933,256 )       10,939,721

Net change in unrealized appreciation/depreciation on investments, TBA sale commitments, and futures contracts

       (535,234,497 )       (140,395,761 )
    

 

 

     

 

 

 

Net increase (decrease) in net assets resulting from operations

       (619,049,250 )       193,813,025
    

 

 

     

 

 

 

Distributions to Shareholders

        

Distributions, Class A

       (11,252,681 )       (17,292,024 )

Distributions, Class C

       (2,543,601 )       (3,008,479 )

Distributions, Institutional Class

       (237,275,677 )       (308,374,494 )
    

 

 

     

 

 

 

Total distributions to shareholders

       (251,071,959 )       (328,674,997 )
    

 

 

     

 

 

 

Capital Transactions – Class A

        

Proceeds from shares sold

       55,165,501       113,767,630

Reinvestment of distributions

       8,235,003       13,013,210

Amount paid for shares redeemed

       (207,857,948 )       (181,260,631 )
    

 

 

     

 

 

 

Total Class A

       (144,457,444 )       (54,479,791 )
    

 

 

     

 

 

 

Capital Transactions – Class C

        

Proceeds from shares sold

       2,927,281       8,258,202

Reinvestment of distributions

       1,916,694       2,240,601

Amount paid for shares redeemed

       (19,468,158 )       (25,344,980 )
    

 

 

     

 

 

 

Total Class C

       (14,624,183 )       (14,846,177 )
    

 

 

     

 

 

 

Capital Transactions – Institutional Class

        

Proceeds from shares sold

       1,922,584,974       3,512,961,877

Reinvestment of distributions

       160,861,663       224,826,130

Amount paid for shares redeemed

       (5,290,316,865 )       (2,718,565,354 )
    

 

 

     

 

 

 

Total Institutional Class

       (3,206,870,228 )       1,019,222,653
    

 

 

     

 

 

 

Net increase (decrease) in net assets resulting from capital transactions

       (3,365,951,855 )       949,896,685
    

 

 

     

 

 

 

Total Increase (Decrease) in Net Assets

       (4,236,073,064 )       815,034,713
    

 

 

     

 

 

 

Net Assets

        

Beginning of year

       7,226,998,964       6,411,964,251
    

 

 

     

 

 

 

End of year

       $2,990,925,900       $7,226,998,964
    

 

 

     

 

 

 

Share Transactions – Class A

        

Shares sold

       5,945,445       10,926,212

Shares issued in reinvestment of distributions

       886,923       1,252,277

Shares redeemed

       (22,171,642 )       (17,436,419 )
    

 

 

     

 

 

 

Total Class A

       (15,339,274 )       (5,257,930 )
    

 

 

     

 

 

 

Share Transactions – Class C

        

Shares sold

       326,745       803,571

Shares issued in reinvestment of distributions

       210,355       217,730

Shares redeemed

       (2,142,240 )       (2,459,811 )
    

 

 

     

 

 

 

Total Class C

       (1,605,140 )       (1,438,510 )
    

 

 

     

 

 

 

Share Transactions – Institutional Class

        

Shares sold

       206,660,021       338,829,057

Shares issued in reinvestment of distributions

       17,289,202       21,692,531

Shares redeemed

       (567,448,144 )       (262,126,642 )
    

 

 

     

 

 

 

Total Institutional Class

       (343,498,921 )       98,394,946
    

 

 

     

 

 

 

Net increase (decrease) in share transactions

       (360,443,335 )       91,698,506
    

 

 

     

 

 

 

 

(a)

Statement has been consolidated. See Note 1 in the Notes to Financial Statements for basis of consolidation.

 

See accompanying notes which are an integral part of these financial statements.

 

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Table of Contents

Angel Oak Financials Income Impact Fund

Statements of Changes in Net Assets

 

     For the Year Ended
January 31, 2023
  For the Year Ended
January 31, 2022

Increase (Decrease) in Net Assets due to:

        

Operations

        

Net investment income (loss)

       $5,644,491       $5,942,390

Net realized gain (loss) on investment transactions

       (3,058,652 )       963,613

Net change in unrealized appreciation/depreciation on investments

       (11,304,317 )       1,603,657
    

 

 

     

 

 

 

Net increase (decrease) in net assets resulting from operations

       (8,718,478 )       8,509,660
    

 

 

     

 

 

 

Distributions to Shareholders

        

Distributions, Class A

       (285,634 )       (111,005 )

Distributions, Class C

       (214,360 )       (114,065 )

Distributions, Institutional Class

       (5,252,982 )       (5,723,833 )
    

 

 

     

 

 

 

Total distributions to shareholders

       (5,752,976 )       (5,948,903 )
    

 

 

     

 

 

 

Capital Transactions – Class A

        

Proceeds from shares sold

       7,686,268       2,220,664

Reinvestment of distributions

       274,647       102,282

Amount paid for shares redeemed

       (5,545,874 )       (913,442 )
    

 

 

     

 

 

 

Total Class A

       2,415,041       1,409,504
    

 

 

     

 

 

 

Capital Transactions – Class C

        

Proceeds from shares sold

       6,121,420       463,088

Reinvestment of distributions

       167,176       82,346

Amount paid for shares redeemed

       (4,609,226 )       (2,734,308 )
    

 

 

     

 

 

 

Total Class C

       1,679,370       (2,188,874 )
    

 

 

     

 

 

 

Capital Transactions – Institutional Class

        

Proceeds from shares sold

       36,906,252       60,879,854

Reinvestment of distributions

       2,707,443       3,282,293

Amount paid for shares redeemed

       (92,662,779 )       (41,849,423 )
    

 

 

     

 

 

 

Total Institutional Class

       (53,049,084 )       22,312,724
    

 

 

     

 

 

 

Net increase (decrease) in net assets resulting from capital transactions

       (48,954,673 )       21,533,354
    

 

 

     

 

 

 

Total Increase (Decrease) in Net Assets

       (63,426,127 )       24,094,111
    

 

 

     

 

 

 

Net Assets

        

Beginning of year

       166,747,409       142,653,298
    

 

 

     

 

 

 

End of year

       $103,321,282       $166,747,409
    

 

 

     

 

 

 

Share Transactions – Class A

        

Shares sold

       891,756       246,833

Shares issued in reinvestment of distributions

       32,705       11,405

Shares redeemed

       (671,454 )       (102,033 )
    

 

 

     

 

 

 

Total Class A

       253,007       156,205
    

 

 

     

 

 

 

Share Transactions – Class C

        

Shares sold

       713,037       52,396

Shares issued in reinvestment of distributions

       20,128       9,286

Shares redeemed

       (568,783 )       (309,154 )
    

 

 

     

 

 

 

Total Class C

       164,382       (247,472 )
    

 

 

     

 

 

 

Share Transactions – Institutional Class

        

Shares sold

       4,286,387       6,814,124

Shares issued in reinvestment of distributions

       319,221       366,628

Shares redeemed

       (10,940,708 )       (4,675,741 )
    

 

 

     

 

 

 

Total Institutional Class

       (6,335,100 )       2,505,011
    

 

 

     

 

 

 

Net increase (decrease) in share transactions

       (5,917,711 )       2,413,744
    

 

 

     

 

 

 

 

See accompanying notes which are an integral part of these financial statements.

 

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Table of Contents

Angel Oak High Yield Opportunities Fund

Statements of Changes in Net Assets

 

     For the Year Ended
January 31, 2023
  For the Year Ended
January 31, 2022

Increase (Decrease) in Net Assets due to:

        

Operations

        

Net investment income (loss)

       $3,822,365       $3,780,159

Net realized gain (loss) on investment transactions

       (1,967,678 )       636,570

Net change in unrealized appreciation/depreciation on investments

       (4,234,264 )       (1,827,827 )
    

 

 

     

 

 

 

Net increase (decrease) in net assets resulting from operations

       (2,379,577 )       2,588,902
    

 

 

     

 

 

 

Distributions to Shareholders

        

Distributions, Class A

       (220,212 )       (198,482 )

Distributions, Institutional Class

       (3,644,808 )       (3,642,787 )
    

 

 

     

 

 

 

Total distributions to shareholders

       (3,865,020 )       (3,841,269 )
    

 

 

     

 

 

 

Capital Transactions – Class A

        

Proceeds from shares sold

       5,670,162       2,916,252

Reinvestment of distributions

       218,084       197,215

Amount paid for shares redeemed

       (6,869,415 )       (2,181,125 )
    

 

 

     

 

 

 

Total Class A

       (981,169 )       932,342
    

 

 

     

 

 

 

Capital Transactions – Institutional Class

        

Proceeds from shares sold

       8,512,748       4,653,761

Reinvestment of distributions

       738,044       757,305

Amount paid for shares redeemed

       (13,251,255 )       (2,985,257 )
    

 

 

     

 

 

 

Total Institutional Class

       (4,000,463 )       2,425,809
    

 

 

     

 

 

 

Net increase (decrease) in net assets resulting from capital transactions

       (4,981,632 )       3,358,151
    

 

 

     

 

 

 

Total Increase (Decrease) in Net Assets

       (11,226,229 )       2,105,784
    

 

 

     

 

 

 

Net Assets

        

Beginning of year

       74,337,459       72,231,675
    

 

 

     

 

 

 

End of year

       $63,111,230       $74,337,459
    

 

 

     

 

 

 

Share Transactions – Class A

        

Shares sold

       535,154       245,813

Shares issued in reinvestment of distributions

       20,440       16,652

Shares redeemed

       (651,218 )       (183,742 )
    

 

 

     

 

 

 

Total Class A

       (95,624 )       78,723
    

 

 

     

 

 

 

Share Transactions – Institutional Class

        

Shares sold

       817,887       392,064

Shares issued in reinvestment of distributions

       69,592       64,201

Shares redeemed

       (1,266,858 )       (252,371 )
    

 

 

     

 

 

 

Total Institutional Class

       (379,379 )       203,894
    

 

 

     

 

 

 

Net increase (decrease) in share transactions

       (475,003 )       282,617
    

 

 

     

 

 

 

 

See accompanying notes which are an integral part of these financial statements.

 

38


Table of Contents

Angel Oak UltraShort Income Fund

Statements of Changes in Net Assets

 

     For the Year Ended
January 31, 2023 (a)
  For the Year Ended
January 31, 2022

Increase (Decrease) in Net Assets due to:

        

Operations

        

Net investment income (loss)

       $22,651,352       $13,744,383

Net realized gain (loss) on investment transactions and futures contracts

       (30,251,012 )       (396,109 )

Net change in unrealized appreciation/depreciation on investments and futures contracts

       (28,050,354 )       (7,982,855 )
    

 

 

     

 

 

 

Net increase (decrease) in net assets resulting from operations

       (35,650,014 )       5,365,419
    

 

 

     

 

 

 

Distributions to Shareholders

        

Distributions, Class A

       (1,613,505 )       (1,370,158 )

Distributions, Class A1

       (7,019 )       —  

Distributions, Institutional Class

       (22,436,611 )       (15,915,163 )
    

 

 

     

 

 

 

Total distributions to shareholders

       (24,057,135 )       (17,285,321 )
    

 

 

     

 

 

 

Capital Transactions – Class A

        

Proceeds from shares sold

       79,194,866       173,304,337

Reinvestment of distributions

       1,461,291       1,266,990

Amount paid for shares redeemed

       (207,385,738 )       (68,418,315 )
    

 

 

     

 

 

 

Total Class A

       (126,729,581 )       106,153,012
    

 

 

     

 

 

 

Capital Transactions – Class A1

        

Proceeds from shares sold

       515,011       —  

Reinvestment of distributions

       7,018       —  
    

 

 

     

 

 

 

Total Class A1

       522,029       —  
    

 

 

     

 

 

 

Capital Transactions – Institutional Class

        

Proceeds from shares sold

       629,850,657       1,725,634,613

Reinvestment of distributions

       17,077,383       12,276,225

Amount paid for shares redeemed

       (1,430,986,089 )       (1,031,046,901 )
    

 

 

     

 

 

 

Total Institutional Class

       (784,058,049 )       706,863,937
    

 

 

     

 

 

 

Net increase (decrease) in net assets resulting from capital transactions

       (910,265,601 )       813,016,949
    

 

 

     

 

 

 

Total Increase (Decrease) in Net Assets

       (969,972,750 )       801,097,047
    

 

 

     

 

 

 

Net Assets

        

Beginning of year or period

       1,663,870,018       862,772,971
    

 

 

     

 

 

 

End of year or period

       $693,897,268       $1,663,870,018
    

 

 

     

 

 

 

Share Transactions – Class A

        

Shares sold

       8,128,678       17,237,092

Shares issued in reinvestment of distributions

       151,093       126,149

Shares redeemed

       (21,282,811 )       (6,810,400 )
    

 

 

     

 

 

 

Total Class A

       (13,003,040 )       10,552,841
    

 

 

     

 

 

 

Share Transactions – Class A1

        

Shares sold

       53,053       —  

Shares issued in reinvestment of distributions

       735       —  
    

 

 

     

 

 

 

Total Class A1

       53,788       —  
    

 

 

     

 

 

 

Share Transactions – Institutional Class

        

Shares sold

       64,427,692       171,455,363

Shares issued in reinvestment of distributions

       1,764,255       1,220,931

Shares redeemed

       (146,914,639 )       (102,493,351 )
    

 

 

     

 

 

 

Total Institutional Class

       (80,722,692 )       70,182,943
    

 

 

     

 

 

 

Net increase (decrease) in share transactions

       (93,671,944 )       80,735,784
    

 

 

     

 

 

 

 

(a)

Class A1 commenced operations on July 22, 2022.

 

See accompanying notes which are an integral part of these financial statements.

 

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Table of Contents

Angel Oak Total Return Bond Fund

Statements of Changes in Net Assets

 

     For the Year Ended
January 31, 2023
  For the Period Ended
January 31, 2022 (a)

Increase (Decrease) in Net Assets due to:

        

Operations

        

Net investment income (loss)

       $961,225       $330,201

Net realized gain (loss) on investment transactions and futures contracts

       (2,801,853 )       (11,870 )

Net change in unrealized appreciation/depreciation on investments and futures contracts

       (1,427,032 )       (1,015,740 )
    

 

 

     

 

 

 

Net increase (decrease) in net assets resulting from operations

       (3,267,660 )       (697,409 )
    

 

 

     

 

 

 

Distributions to Shareholders

        

Distributions, Institutional Class

       (994,943 )       (368,515 )
    

 

 

     

 

 

 

Total distributions to shareholders

       (994,943 )       (368,515 )
    

 

 

     

 

 

 

Capital Transactions – Institutional Class

        

Proceeds from shares sold

       31,250       40,197,500

Reinvestment of distributions

       558       1,018

Amount paid for shares redeemed

       (116,137 )       —  
    

 

 

     

 

 

 

Total Institutional Class

       (84,329 )       40,198,518
    

 

 

     

 

 

 

Net increase (decrease) in net assets resulting from capital transactions

       (84,329 )       40,198,518
    

 

 

     

 

 

 

Total Increase (Decrease) in Net Assets

       (4,346,932 )       39,132,594
    

 

 

     

 

 

 

Net Assets

        

Beginning of year or period

       39,132,594       —  
    

 

 

     

 

 

 

End of year or period

       $34,785,662       $39,132,594
    

 

 

     

 

 

 

Share Transactions – Institutional Class

        

Shares sold

       3,235       4,004,770

Shares issued in reinvestment of distributions

       59       102

Shares redeemed

       (12,550 )       —  
    

 

 

     

 

 

 

Total Institutional Class

       (9,256 )       4,004,872
    

 

 

     

 

 

 

Net increase (decrease) in share transactions

       (9,256 )       4,004,872
    

 

 

     

 

 

 

 

(a)

Fund commenced operations on June 4, 2021.

 

See accompanying notes which are an integral part of these financial statements.

 

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Table of Contents

Angel Oak UltraShort Income ETF

Statement of Changes in Net Assets

 

     For the Period Ended
January 31, 2023 (a)

Increase (Decrease) in Net Assets due to:

    

Operations

    

Net investment income (loss)

       $527,103

Net realized gain (loss) on investment transactions

       11,525

Net change in unrealized appreciation/depreciation on investments

       222,611
    

 

 

 

Net increase (decrease) in net assets resulting from operations

       761,239
    

 

 

 

Distributions to Shareholders

    

Distributions

       (316,786 )
    

 

 

 

Total distributions to shareholders

       (316,786 )
    

 

 

 

Capital Transactions

    

Proceeds from shares sold

       46,090,044
    

 

 

 

Net increase (decrease) in net assets resulting from capital transactions

       46,090,044
    

 

 

 

Total Increase (Decrease) in Net Assets

       46,534,497
    

 

 

 

Net Assets

    

Beginning of period

       —  
    

 

 

 

End of period

       $46,534,497
    

 

 

 

Share Transactions

    

Shares sold

       920,000
    

 

 

 

Net increase (decrease) in share transactions

       920,000
    

 

 

 

 

(a)

Fund commenced operations on October 24, 2022.

 

See accompanying notes which are an integral part of these financial statements.

 

41


Table of Contents

Angel Oak Income ETF

Statement of Changes in Net Assets

 

     For the Period Ended
January 31, 2023 (a)

Increase (Decrease) in Net Assets due to:

    

Operations

    

Net investment income (loss)

       $317,913

Net realized gain (loss) on investment transactions

       29,404

Net change in unrealized appreciation/depreciation on investments

       289,071
    

 

 

 

Net increase (decrease) in net assets resulting from operations

       636,388
    

 

 

 

Distributions to Shareholders

    

Distributions

       (148,244 )
    

 

 

 

Total distributions to shareholders

       (148,244 )
    

 

 

 

Capital Transactions

    

Proceeds from shares sold

       33,148,155
    

 

 

 

Net increase (decrease) in net assets resulting from capital transactions

       33,148,155
    

 

 

 

Total Increase (Decrease) in Net Assets

       33,636,299
    

 

 

 

Net Assets

    

Beginning of period

       —  
    

 

 

 

End of period

       $33,636,299
    

 

 

 

Share Transactions

    

Shares sold

       1,650,000
    

 

 

 

Net increase (decrease) in share transactions

       1,650,000
    

 

 

 

 

(a)

Fund commenced operations on November 7, 2022.

 

See accompanying notes which are an integral part of these financial statements.

 

42


Table of Contents

Angel Oak Multi-Strategy Income Fund – Class A

Consolidated Financial Highlights (a)

(For a share outstanding during each year)

 

    For the
Year Ended
January 31, 2023
  For the
Year Ended
January 31, 2022
  For the
Year Ended
January 31, 2021
  For the
Year Ended
January 31, 2020
  For the
Year Ended
January 31, 2019

Selected Per Share Data:

                   

Net asset value, beginning of year

      $10.24       $10.43       $11.10       $11.04       $11.26
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Income from investment operations:

                   

Net investment income (loss)

      0.48       0.47       0.46       0.50       0.52

Net realized and unrealized gain (loss) on investments (b)

      (1.62 )       (0.19 )       (0.68 )       0.06       (0.22 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total from investment operations

      (1.14 )       0.28       (0.22 )       0.56       0.30
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Less distributions to shareholders:

                   

From net investment income

      (0.47 )       (0.47 )       (0.45 )       (0.50 )       (0.52 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total distributions

      (0.47 )       (0.47 )       (0.45 )       (0.50 )       (0.52 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net asset value, end of year

      $8.63       $10.24       $10.43       $11.10       $11.04
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total return (c)(d)

      (11.28 %)       2.71 %       (1.76 %)       5.08 %       2.72 %

Ratios and Supplemental Data:

                   

Net assets, end of year (000’s omitted)

      $150,4 50       $335,4 39       $396,7 11       $496,1 14       $590,3 86

Ratio of expenses to average net assets before waiver and reimbursement/recoupment (e)

      1.79 %       1.29 %       1.40 %       1.37 %       1.35 %

Ratio of expenses to average net assets before waiver and reimbursement/recoupment excluding interest expense (e)

      1.23 %       1.20 %       1.21 %       1.20 %       1.20 %

Ratio of expenses to average net assets after waiver and reimbursement/recoupment (e)

      1.77 %       1.28 %       1.38 %       1.36 %       1.37 %

Ratio of expenses to average net assets after waiver and reimbursement/recoupment excluding interest expense (e)

      1.21 %       1.19 %       1.19 %       1.19 %       1.22 %

Ratio of net investment income (loss) to average net assets before waiver and reimbursement/recoupment (e)

      4.83 %       4.42 %       4.41 %       4.46 %       4.69 %

Ratio of net investment income (loss) to average net assets after waiver and reimbursement/recoupment (e)

      4.85 %       4.43 %       4.43 %       4.47 %       4.67 %

Portfolio turnover rate (d)

      14.14 %       55.99 %       67.45 %       62.94 %       71.49 %

 

(a)

Financial Highlights have been consolidated. See Note 1 in the Notes to Financial Statements for basis of consolidation.

(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 Statements of Operations due to share transactions for the period.

(c)

Total return does not include the effect of sales charges.

(d)

Not annualized for periods less than one year.

(e)

Annualized for periods less than one year.

 

See accompanying notes which are an integral part of these financial statements.

 

43


Table of Contents

Angel Oak Multi-Strategy Income Fund – Class C

Consolidated Financial Highlights (a)

(For a share outstanding during each year)

 

    For the
Year Ended
January 31, 2023
  For the
Year Ended
January 31, 2022
  For the
Year Ended
January 31, 2021
  For the
Year Ended
January 31, 2020
  For the
Year Ended
January 31, 2019

Selected Per Share Data:

                   

Net asset value, beginning of year

      $10.13       $10.34       $11.00       $10.95       $11.17
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Income from investment operations:

                   

Net investment income (loss)

      0.39       0.38       0.37       0.41       0.44

Net realized and unrealized gain (loss) on investments (b)

      (1.58 )       (0.20 )       (0.66 )       0.06       (0.22 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total from investment operations

      (1.19 )       0.18       (0.29 )       0.47       0.22
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Less distributions to shareholders:

                   

From net investment income

      (0.40 )       (0.39 )       (0.37 )       (0.42 )       (0.44 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total distributions

      (0.40 )       (0.39 )       (0.37 )       (0.42 )       (0.44 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net asset value, end of year

      $8.54       $10.13       $10.34       $11.00       $10.95
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total return (c)(d)

      (11.88 %)       1.78 %       (2.41 %)       4.27 %       2.04 %

Ratios and Supplemental Data:

                   

Net assets, end of year (000’s omitted)

      $46,5 12       $71,4 45       $87,7 43       $116,3 28       $102,4 87

Ratio of expenses to average net assets before waiver and reimbursement/recoupment (e)

      2.54 %       2.04 %       2.15 %       2.12 %       2.10 %

Ratio of expenses to average net assets before waiver and reimbursement/recoupment excluding interest expense (e)

      1.98 %       1.95 %       1.96 %       1.95 %       1.95 %

Ratio of expenses to average net assets after waiver and reimbursement/recoupment (e)

      2.52 %       2.03 %       2.13 %       2.11 %       2.12 %

Ratio of expenses to average net assets after waiver and reimbursement/recoupment excluding interest expense (e)

      1.96 %       1.94 %       1.94 %       1.94 %       1.97 %

Ratio of net investment income (loss) to average net assets before waiver and reimbursement/recoupment (e)

      4.17 %       3.69 %       3.67 %       3.70 %       3.94 %

Ratio of net investment income (loss) to average net assets after waiver and reimbursement/recoupment (e)

      4.19 %       3.70 %       3.69 %       3.71 %       3.92 %

Portfolio turnover rate (d)

      14.14 %       55.99 %       67.45 %       62.94 %       71.49 %

 

(a)

Financial Highlights have been consolidated. See Note 1 in the Notes to Financial Statements for basis of consolidation.

(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 Statements of Operations due to share transactions for the period.

(c)

Total return does not include the effect of sales charges.

(d)

Not annualized for periods less than one year.

(e)

Annualized for periods less than one year.

 

See accompanying notes which are an integral part of these financial statements.

 

44


Table of Contents

Angel Oak Multi-Strategy Income Fund – Institutional Class

Consolidated Financial Highlights (a)

(For a share outstanding during each year)

 

    For the
Year Ended
January 31, 2023
  For the
Year Ended
January 31, 2022
  For the
Year Ended
January 31, 2021
  For the
Year Ended
January 31, 2020
  For the
Year Ended
January 31, 2019

Selected Per Share Data:

                   

Net asset value, beginning of year

      $10.21       $10.41       $11.08       $11.02       $11.23
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Income from investment operations:

                   

Net investment income (loss)

      0.49       0.49       0.48       0.53       0.55

Net realized and unrealized gain (loss) on investments (b)

      (1.59 )       (0.19 )       (0.68 )       0.06       (0.21 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total from investment operations

      (1.10 )       0.30       (0.20 )       0.59       0.34
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Less distributions to shareholders:

                   

From net investment income

      (0.50 )       (0.50 )       (0.47 )       (0.53 )       (0.55 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total distributions

      (0.50 )       (0.50 )       (0.47 )       (0.53 )       (0.55 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net asset value, end of year

      $8.61       $10.21       $10.41       $11.08       $11.02
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total return (c)

      (10.98 %)       2.87 %       (1.60 %)       5.45 %       3.05 %

Ratios and Supplemental Data:

                   

Net assets, end of year (000’s omitted)

      $2,793, 964       $6,820, 115       $5,927, 510       $7,153, 385       $6,555, 291

Ratio of expenses to average net assets before waiver and reimbursement/recoupment (d)

      1.54 %       1.04 %       1.15 %       1.12 %       1.10 %

Ratio of expenses to average net assets before waiver and reimbursement/recoupment excluding interest expense (d)

      0.98 %       0.95 %       0.96 %       0.95 %       0.95 %

Ratio of expenses to average net assets after waiver and reimbursement/recoupment (d)

      1.52 %       1.03 %       1.13 %       1.11 %       1.12 %

Ratio of expenses to average net assets after waiver and reimbursement/recoupment excluding interest expense (d)

      0.96 %       0.94 %       0.94 %       0.94 %       0.97 %

Ratio of net investment income (loss) to average net assets before waiver and reimbursement/recoupment (d)

      5.03 %       4.69 %       4.65 %       4.70 %       4.94 %

Ratio of net investment income (loss) to average net assets after waiver and reimbursement/recoupment (d)

      5.05 %       4.70 %       4.67 %       4.71 %       4.92 %

Portfolio turnover rate (c)

      14.14 %       55.99 %       67.45 %       62.94 %       71.49 %

 

(a)

Financial Highlights have been consolidated. See Note 1 in the Notes to Financial Statements for basis of consolidation.

(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 Statements of Operations due to share transactions for the period.

(c)

Not annualized for periods less than one year.

(d)

Annualized for periods less than one year.

 

See accompanying notes which are an integral part of these financial statements.

 

45


Table of Contents

Angel Oak Financials Income Impact Fund – Class A

Financial Highlights

(For a share outstanding during each year)

 

    For the
Year Ended
January 31, 2023
  For the
Year Ended
January 31, 2022
  For the
Year Ended
January 31, 2021
  For the
Year Ended
January 31, 2020
  For the
Year Ended
January 31, 2019

Selected Per Share Data:

                   

Net asset value, beginning of year

      $8.96       $8.80       $9.60       $9.33       $9.45
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Income from investment operations:

                   

Net investment income (loss)

      0.33       0.33       0.34       0.40       0.44

Net realized and unrealized gain (loss) on investments (a)

      (0.82 )       0.15       (0.75 )       0.27       (0.13 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total from investment operations

      (0.49 )       0.48       (0.41 )       0.67       0.31
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Less distributions to shareholders:

                   

From net investment income

      (0.33 )       (0.32 )       (0.38 )       (0.40 )       (0.43 )

Return of capital

                  (0.01 )            
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total distributions

      (0.33 )       (0.32 )       (0.39 )       (0.40 )       (0.43 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net asset value, end of year

      $8.14       $8.96       $8.80       $9.60       $9.33
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total return (b)(c)

      (5.59 %)       5.48 %       (4.16 %)       7.39 %       3.36 %

Ratios and Supplemental Data:

                   

Net assets, end of year (000’s omitted)

      $5,8 93       $4,2 17       $2,7 65       $13,7 20       $7,0 86

Ratio of expenses to average net assets before waiver and reimbursement/recoupment (d)

      1.44 %       1.35 %       1.39 %       1.34 %       1.42 %

Ratio of expenses to average net assets before waiver and reimbursement/recoupment excluding interest expense (d)

      1.43 %       1.35 %       1.37 %       1.34 %       1.42 %

Ratio of expenses to average net assets after waiver and reimbursement/recoupment (d)

      0.95 %       0.94 %       0.96 %       0.94 %       0.94 %

Ratio of expenses to average net assets after waiver and reimbursement/recoupment excluding interest expense (d)

      0.94 %       0.94 %       0.94 %       0.94 %       0.94 %

Ratio of net investment income (loss) to average net assets before waiver and reimbursement/recoupment (d)

      3.29 %       3.14 %       3.63 %       3.78 %       4.22 %

Ratio of net investment income (loss) to average net assets after waiver and reimbursement/recoupment (d)

      3.78 %       3.55 %       4.06 %       4.18 %       4.70 %

Portfolio turnover rate (c)

      11.00 %       32.33 %       29.83 %       35.55 %       45.27 %

 

(a)

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 Statements of Operations due to share transactions for the period.

(b)

Total return does not include the effect of sales charges.

(c)

Not annualized for periods less than one year.

(d)

Annualized for periods less than one year.

 

See accompanying notes which are an integral part of these financial statements.

 

46


Table of Contents

Angel Oak Financials Income Impact Fund – Class C

Financial Highlights

(For a share outstanding during each year)

 

    For the
Year Ended
January 31, 2023
  For the
Year Ended
January 31, 2022
  For the
Year Ended
January 31, 2021
  For the
Year Ended
January 31, 2020
  For the
Year Ended
January 31, 2019

Selected Per Share Data:

                   

Net asset value, beginning of year

      $8.87       $8.72       $9.51       $9.25       $9.37
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Income from investment operations:

                   

Net investment income (loss)

      0.25       0.24       0.30       0.34       0.37

Net realized and unrealized gain (loss) on investments (a)

      (0.85 )       0.16       (0.76 )       0.26       (0.12 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total from investment operations

      (0.60 )       0.40       (0.46 )       0.60       0.25
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Less distributions to shareholders:

                   

From net investment income

      (0.26 )       (0.25 )       (0.32 )       (0.34 )       (0.37 )

Return of capital

                  (0.01 )            
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total distributions

      (0.26 )       (0.25 )       (0.33 )       (0.34 )       (0.37 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net asset value, end of year

      $8.01       $8.87       $8.72       $9.51       $9.25
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total return (b)(c)

      (6.79 %)       4.63 %       (4.79 %)       6.59 %       2.69 %

Ratios and Supplemental Data:

                   

Net assets, end of year (000’s omitted)

      $4,4 37       $3,4 52       $5,5 53       $6,1 62       $2,0 39

Ratio of expenses to average net assets before waiver and reimbursement/recoupment (d)

      2.19 %       2.10 %       2.15 %       2.09 %       2.17 %

Ratio of expenses to average net assets before waiver and reimbursement/recoupment excluding interest expense (d)

      2.18 %       2.10 %       2.12 %       2.09 %       2.17 %

Ratio of expenses to average net assets after waiver and reimbursement/recoupment (d)

      1.70 %       1.69 %       1.72 %       1.69 %       1.69 %

Ratio of expenses to average net assets after waiver and reimbursement/recoupment excluding interest expense (d)

      1.69 %       1.69 %       1.69 %       1.69 %       1.69 %

Ratio of net investment income (loss) to average net assets before waiver and reimbursement/recoupment (d)

      2.51 %       2.38 %       2.97 %       3.02 %       3.49 %

Ratio of net investment income (loss) to average net assets after waiver and reimbursement/recoupment (d)

      3.00 %       2.79 %       3.40 %       3.42 %       3.97 %

Portfolio turnover rate (c)

      11.00 %       32.33 %       29.83 %       35.55 %       45.27 %

 

(a)

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 Statements of Operations due to share transactions for the period.

(b)

Total return does not include the effect of sales charges.

(c)

Not annualized for periods less than one year.

(d)

Annualized for periods less than one year.

 

See accompanying notes which are an integral part of these financial statements.

 

47


Table of Contents

Angel Oak Financials Income Impact Fund – Institutional Class

Financial Highlights

(For a share outstanding during each year)

 

    For the
Year Ended
January 31, 2023
  For the
Year Ended
January 31, 2022
  For the
Year Ended
January 31, 2021
  For the
Year Ended
January 31, 2020
  For the
Year Ended
January 31, 2019

Selected Per Share Data:

                   

Net asset value, beginning of year

      $8.94       $8.79       $9.58       $9.32       $9.44
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Income from investment operations:

                   

Net investment income (loss)

      0.34       0.34       0.38       0.43       0.46

Net realized and unrealized gain (loss) on investments (a)

      (0.81 )       0.15       (0.76 )       0.26       (0.13 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total from investment operations

      (0.47 )       0.49       (0.38 )       0.69       0.33
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Less distributions to shareholders:

                   

From net investment income

      (0.35 )       (0.34 )       (0.40 )       (0.43 )       (0.45 )

Return of capital

                  (0.01 )            
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total distributions

      (0.35 )       (0.34 )       (0.41 )       (0.43 )       (0.45 )
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net asset value, end of year

      $8.12       $8.94       $8.79       $9.58       $9.32
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total return (b)

      (5.37 %)       5.64 %       (3.81 %)       7.55 %       3.61 %

Ratios and Supplemental Data:

                   

Net assets, end of year (000’s omitted)

      $92,9 91       $159,0 78       $134,3 35       $258,3 92       $122,3 63

Ratio of expenses to average net assets before waiver and reimbursement/recoupment (c)

      1.19 %       1.10 %       1.14 %       1.09 %       1.17 %

Ratio of expenses to average net assets before waiver and reimbursement/recoupment excluding interest expense (c)

      1.18 %       1.10 %       1.12 %       1.09 %       1.17 %

Ratio of expenses to average net assets after waiver and reimbursement/recoupment (c)

      0.70 %       0.69 %       0.71 %       0.69 %       0.69 %

Ratio of expenses to average net assets after waiver and reimbursement/recoupment excluding interest expense (c)

      0.69 %       0.69 %       0.69 %       0.69 %       0.69 %

Ratio of net investment income (loss) to average net assets before waiver and reimbursement/recoupment (c)

      3.50 %       3.38 %       3.91 %       4.02 %       4.48 %

Ratio of net investment income (loss) to average net assets after waiver and reimbursement/recoupment (c)

      3.99 %       3.79 %       4.34 %       4.42 %       4.96 %

Portfolio turnover rate (b)

      11.00 %       32.33 %       29.83 %       35.55 %       45.27 %

 

(a)

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 Statements of Operations due to share transactions for the period.

(b)

Not annualized for periods less than one year.

(c)

Annualized for periods less than one year.

 

See accompanying notes which are an integral part of these financial statements.

 

48


Table of Contents

Angel Oak High Yield Opportunities Fund – Class A

Financial Highlights

(For a share outstanding during each year)

 

     For the
Year Ended
January 31, 2023
  For the
Year Ended
January 31, 2022
  For the
Year Ended
January 31, 2021
  For the
Year Ended
January 31, 2020
  For the
Year Ended
January 31, 2019

Selected Per Share Data:

                    

Net asset value, beginning of year

       $11.59       $11.78       $11.76       $11.39       $12.00
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Income from investment operations:

                    

Net investment income (loss)

       0.58       0.58       0.58       0.64       0.65

Net realized and unrealized gain (loss) on investments (a)

       (0.96 )       (0.19 )       0.03       0.37       (0.61 )
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total from investment operations

       (0.38 )       0.39       0.61       1.01       0.04
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Less distributions to shareholders:

                    

From net investment income

       (0.58 )       (0.58 )       (0.59 )       (0.64 )       (0.65 )
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total distributions

       (0.58 )       (0.58 )       (0.59 )       (0.64 )       (0.65 )
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Net asset value, end of year

       $10.63       $11.59       $11.78       $11.76       $11.39
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total return (b)(c)

       (3.13 %)       3.34 %       5.68 %       9.08 %       0.41 %

Ratios and Supplemental Data:

                    

Net assets, end of year (000’s omitted)

       $3,41 7       $4,83 4       $3,98 6       $7,77 1       $2,75 4

Ratio of expenses to average net assets before waiver and reimbursement/recoupment (d)

       1.23 %       1.14 %       1.14 %       1.14 %       1.24 %

Ratio of expenses to average net assets after waiver and reimbursement/recoupment (d)

       0.89 %       0.90 %       0.90 %       0.90 %       0.90 %

Ratio of net investment income (loss) to average net assets before waiver and reimbursement/recoupment (d)

       5.02 %       4.60 %       5.18 %       5.20 %       5.28 %

Ratio of net investment income (loss) to average net assets after waiver and reimbursement/recoupment (d)

       5.36 %       4.84 %       5.42 %       5.44 %       5.62 %

Portfolio turnover rate (c)

       33.48 %       38.15 %       58.02 %       35.80 %       33.27 %

 

(a)

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 Statements of Operations due to share transactions for the period.

(b)

Total return does not include the effect of sales charges.

(c)

Not annualized for periods less than one year.

(d)

Annualized for periods less than one year.

 

See accompanying notes which are an integral part of these financial statements.

 

49


Table of Contents

Angel Oak High Yield Opportunities Fund – Institutional Class

Financial Highlights

(For a share outstanding during each year)

 

     For the
Year Ended
January 31, 2023
  For the
Year Ended
January 31, 2022
  For the
Year Ended
January 31, 2021
  For the
Year Ended
January 31, 2020
  For the
Year Ended
January 31, 2019

Selected Per Share Data:

                    

Net asset value, beginning of year

       $11.54       $11.73       $11.71       $11.35       $11.95
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Income from investment operations:

                    

Net investment income (loss)

       0.60       0.60       0.63       0.67       0.69

Net realized and unrealized gain (loss) on investments (a)

       (0.95 )       (0.18 )       0.01       0.36       (0.61 )
    

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total from investment operations

       (0.35 )       0.42       0.64       1.03       0.08