Angel Oak Financial Strategies Income Term Trust

10/07/2024 | Press release | Distributed by Public on 10/07/2024 11:12

Semi Annual Report by Investment Company Form N CSRS

Angel Oak Financial Strategies Income Term Trust
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
811-23358
Angel Oak Financial Strategies Income Term 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:
Stephen T. Cohen
Matthew E. Barsamian
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: July 31, 2024
Item 1. Reports to Sto
ck
holders.
(a)
Semi-Annual Report
July 31, 2024
Angel Oak Financial Strategies Income Term Trust
Angel Oak Capital Advisors, LLC
3344 Peachtree Road NE
Suite 1725
Atlanta, GA 30326
(404)
953-4900
Table of Contents
Management's Discussion of Fund Performance
1
Investment Results
2
Portfolio Holdings
4
Statement of Assets and Liabilities
5
Statement of Operations
6
Statement of Cash Flows
7
Statements of Changes in Net Assets
8
Financial Highlights
9
Schedule of Investments
10
Notes to the Financial Statements
17
Additional Information
27
Angel Oak Financial Strategies Income Term Trust
HOW DID THE FUND PERFORM DURING THE PERIOD?
The Angel Oak Financial Strategies Income Term Trust (the Fund) returned 8.77% based on market price and 4.56% based on net asset value (NAV) for the six-month period ending July 31, 2024. The Fund outperformed the Bloomberg U.S. Aggregate Bond Index, the Fund's benchmark, by 688 basis points (bps) based on market price and 267 bps based on NAV, as the benchmark returned 1.89% over the same period.
WHAT FACTORS INFLUENCED PERFORMANCE?
Sentiment around the banking sector and pricing on the underlying bonds have begun to recover as the regional bank failures of spring 2023 move further into the rearview mirror. Second-quarter 2024 bank earnings showed continued resilience: deposit costs have stabilized, deposit durations are shortening, securities portfolios are being repositioned, capital levels are improving, and leading indicators for credit are decelerating. Community bank debt primary market issuance has also resumed.
HOW WAS THE FUND POSITIONED DURING THE PERIOD?
The Fund remained focused on the financial sector, with key overweights to community bank debt and nonbank financials debt.
Top Contributors
h
Banks; insurance; asset managers
Top Detractors
i
Real estate investment trusts; business development companies
Past performance is not a guarantee of future results.
Investing involves risk; principal loss is possible. An investment in the Fund includes, but is not limited to, risks and considerations related to: banks and diversified financial companies, business development companies, closed-end funds, conflicts of interest, convertible securities, credit, derivatives, distributions, equity, extensions, fixed income instruments, floating or variable rate securities, foreign securities, high-yield securities, illiquid securities, industry concentration, interest rate, large investors, leverage, limited investment opportunities, limited term, liquidity and valuation, management, market, market discounts, maturity and duration, portfolio turnover, prepayments, rating agencies, real estate investment trusts, registered investment companies, regulatory and legal, repurchase agreements, reverse repurchase agreements, senior debt, subordinated debt, preferred securities of banks and diversified financial companies, structured products, trust preferred securities, uncertain tax treatment, unrated securities, U.S. government securities, and other risks.
For more information on these risks and other risks of the Fund, please see the Fund's annual report to shareholders.
1
Investment Results - (Unaudited)
Angel Oak Financial Strategies Income Term Trust
Total Return Based on a $10,000 Investment
The chart above assumes an initial investment of $10,000 made on May 31, 2019 (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 sale 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. Performance data current to the most recent month-end can be obtained by calling (855) 751-4324. Index returns do not reflect the effects of fees or expenses. It is not possible to invest directly in an index.
Market Price
$12.63
NAV
$13.80
Premium (Discount) to NAV
-8.48%
Market Price Distribution Rate
(1)
10.36%
NAV Distribution Rate
(1)
9.48%
(1) Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or Market Price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital ("ROC") of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice.
The amount of the Fund's distributions during the last fiscal year exceeded the amount of the Fund's income and gains. As a result, some of the Fund's distributions constituted a ROC to shareholders.
Total Returns
(1)
(For the period ended July 31, 2024)
Average Annual Returns
One Year
Three Year
Five Year
Since Inception
(2)
Angel Oak Financial Strategies Income Term Trust - NAV
9.73%
-2.58%
0.16% 0.34%
Angel Oak Financial Strategies Income Term Trust - Market Price
18.22% -2.95% -0.85% -0.69%
Bloomberg U.S. Aggregate Bond Index
(3)
5.10% -2.63% 0.19% 0.46%
(1) Return figures reflect any change in price per share and assume the reinvestment of all distributions under the Fund's dividend reinvestment plan.
2
Investment Results - (Unaudited) (continued)
(2) Inception date is May 31, 2019.
(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.
3
Portfolio Holdings - (Unaudited)
The investment objective of Angel Oak Financial Strategies Income Term Trust is to seek current income with a secondary objective of total return.
*
As a percentage of total investments. The percentages presented in the table above may differ from those in the Schedule of Investments because the percentages in the
Schedule
of Investments are calculated based on net assets.
4
Angel Oak Financial Strategies Income Term Trust
Statement of Assets and Liabilities
July 31, 2024 (Unaudited)
Assets
Investments in securities at fair value*
$ 482,543,241
Dividends and interest receivable
5,412,974
Prepaid expenses
74,787
Total Assets
488,031,002
Liabilities
Payable for senior notes (par value of $85,000,000 less unamortized deferred issuance costs of $508,130)
84,491,870
Payable for reverse repurchase agreements
56,688,000
Payable to Adviser
556,393
Interest payable for reverse repurchase agreements
162,686
Interest payable for senior notes
140,556
Payable to administrator, fund accountant, and transfer agent
32,912
Payable for distributions to shareholders
4,879
Payable to custodian
3,483
Other accrued expenses
49,496
Total Liabilities
142,130,275
Net Assets
$
345,900,727
Net Assets consist of:
Paid-in capital
$ 414,653,621
Total distributable earnings (accumulated deficit)
(68,752,894 )
Net Assets
$
345,900,727
Shares outstanding (unlimited number of shares authorized, no par value)
25,062,638
Net asset value ("NAV") and offering price per share
$13.80
*Identified Cost:
Investments in securities
$ 525,811,741
See accompanying notes which are an integral part of these financial statements.
5
Angel Oak Financial Strategies Income Term Trust
Statement of Operations
For the Period Ended July 31, 2024 (Unaudited)
Investment Income
Interest
$ 14,106,725
Dividends
1,399,592
Total Investment Income
15,506,317
Expenses
Investment Advisory (See Note 6)
3,256,518
Interest & commissions (See Note 9)
3,116,589
Service Fees (See Note 6)
168,857
Legal
66,841
Administration
37,546
Printing
35,264
Fund accounting
29,917
Trustee
29,191
Audit & tax
19,316
Registration
14,271
Transfer agent
13,715
Custodian
11,383
Compliance
5,650
Insurance
4,006
Miscellaneous
22,886
Total Expenses
6,831,950
Fees contractually recouped by Adviser (See Note 6)
10,660
Net Expenses
6,842,610
Net Investment Income (Loss)
8,663,707
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) from:
Investments
(748,680 )
Net change in unrealized appreciation/depreciation on:
Investments
7,394,938
Net realized and unrealized gain (loss) on investments
6,646,258
Net increase (decrease) in net assets resulting from operations
$
15,309,965
See accompanying notes which are an integral part of these financial statements.
6
Angel Oak Financial Strategies Income Term Trust
Statement of Cash Flows
For the Period Ended July 31, 2024 (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations
$15,309,965
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
(71,860 )
Sales of short-term investments, net
1,735,381
Purchases of investments
(19,850,867 )
Proceeds from sales of long-term investments
23,828,864
Net change in unrealized appreciation/depreciation on investments
(7,394,938 )
Net realized (gain) loss on investments
748,680
Change in:
Receivable for investments sold
409,486
Dividends and interest receivable
(142,313 )
Prepaid expenses
(60,315 )
Interest payable for reverse repurchase agreements
12,313
Payable to Adviser
11,378
Payable to administrator, fund accountant and transfer agent
4,313
Payable to custodian
(215 )
Other accrued expenses
(36,090 )
Net cash provided by (used in) operating activities
14,503,782
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to shareholders
(16,396,211 )
Proceeds from reverse repurchase agreements
56,688,000
Repayments of reverse repurchase agreements
(54,865,000 )
Net amortization of deferred issuance costs of senior notes
69,429
Net cash provided by (used in) financing activities
(14,503,782
)
Net change in cash
- 
CASH:
Beginning Balance
- 
Ending Balance
$- 
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest
$2,997,847
Cash held in money market investments
$1,653,560
The accompanying notes are an integral part of these financial statements.
7
Angel Oak Financial Strategies Income Term Trust
Statements of Changes in Net Assets
For the Period Ended

July 31, 2024 (Unaudited)
For the Year Ended

January 31, 2024
Increase (Decrease) in Net Assets due to:
Operations
Net investment income (loss)
$8,663,707 $17,783,910
Net realized gain (loss) on investment transactions
(748,680 ) (3,535,008 )
Net change in unrealized appreciation/depreciation on investments
7,394,938 (6,668,735 )
Net increase (decrease) in net assets resulting from operations
15,309,965
7,580,167
Distributions to Shareholders
Total distributions
(8,663,707 ) (17,813,675 )
Return of capital
(7,727,259 ) (12,512,118 )
Total distributions to shareholders
(16,390,966
)
(30,325,793
)
Total Increase (Decrease) in Net Assets
(1,081,001
)
(22,745,626
)
Net Assets
Beginning of year or period
346,981,728 369,727,354
End of year or period
$345,900,727
$346,981,728
See accompanying notes which are an integral part of these financial statements.
8
Angel Oak Financial Strategies Income Term Trust
Financial Highlights 
(For a share outstanding during each year or period) 
For the

Period Ended

July 31, 2024

(Unaudited)
For the Year or Period Ended January 31,
2024
2023
2022
2021
2020 (a)
Selected Per Share Data:
Net asset value, beginning of year or period
$13.84
$14.75
$17.62
$18.69
$20.53
$20.00
Income from investment operations:
Net investment income (loss)
0.35 (b) 0.71 (b) 0.72 (b) 0.73 (b) 0.82 0.55
Net realized and unrealized gain (loss) on investments (c)
0.26 (0.41 ) (2.36 ) 0.37 (1.41 ) 0.80
Total from investment operations
0.61 0.30 (1.64 ) 1.10 (0.59 ) 1.35
Less distributions to shareholders:
From net investment income
(0.34 ) (0.71 ) (0.73 ) (0.77 ) (0.79 ) (0.67 )
Return of capital
(0.31 ) (0.50 ) (0.50 ) (0.54 ) (0.46 ) (0.15 )
Total distributions
(0.65 ) (1.21 ) (1.23 ) (1.31 ) (1.25 ) (0.82 )
Capital share transactions:
Dilution due to rights offering
-  -  -  (0.84 ) (d) -  - 
Offering costs due to rights offering
-  -  -  (0.02 ) (d) -  - 
Total capital share transactions
-  -  -  (0.86 ) -  - 
Net asset value, end of year or period
$13.80
$13.84
$14.75
$17.62
$18.69
$20.53
Total return on net asset value (e)(f)
4.56 % 2.37 % -9.57 % 1.11 % -2.71 % 6.89 %
Total return on market value (e)(g)
8.77 % 1.09 % -11.97 % 2.99 % -12.70 % 10.86 %
Ratios and Supplemental Data:
Net assets, end of year or period (000's omitted)
$345,901 $346,982 $369,727 $357,855 $284,580 $236,462
Ratio of expenses to average net assets before waiver and reimbursement/recoupment (h)
3.98 % 3.92 % 3.63 % 3.22 % 3.34 % 2.41 %
Ratio of expenses to average net assets before waiver and reimbursement/recoupment excluding interest and merger expense (h)
2.16 % 2.17 % 2.17 % 2.18 % 2.25 % 1.93 %
Ratio of expenses to average net assets after waiver and reimbursement/recoupment (h)
3.99 % 3.92 % 3.63 % 3.27 % 3.20 % 1.91 %
Ratio of expenses to average net assets after waiver and reimbursement/recoupment excluding interest and merger expense (h)
2.17 % 2.17 % 2.17 % 2.23 % 2.11 % 1.43 %
Ratio of expenses to average managed assets after waiver and reimbursement/recoupment excluding interest and merger expense. Average managed assets represent the total assets of the fund, including the assets attributable to the proceeds from any forms of financial leverage, less liabilities, other than liabilites related to any form of leverage (h)
1.54 % 1.55 % 1.52 % 1.59 % 1.50 % 1.25 %
Ratio of net investment income (loss) to average net assets before waiver and reimbursement/recoupment (h)
5.05 % 5.10 % 4.51 % 4.02 % 4.05 % 3.58 %
Ratio of net investment income (loss) to average net assets after waiver and reimbursement/recoupment (h)
5.06 % 5.10 % 4.51 % 3.97 % 4.19 % 4.08 %
Portfolio turnover rate (e)
4 % 5 % 6 % 14 % 25 % 21 %
(a) Fund commenced operations on May 31, 2019.
(b) Net investment income/(loss) per share has been calculated based on average shares outstanding during the year or period.
(c) Net realized and unrealized gain (loss) per share may include balancing amounts necessary to reconcile the change in net asset value per share for the period, and may not reconcile with the aggregate gain/(loss) in the Statement of Operations due to share transactions for the year or period.
(d) Amount represents per share impact related to a rights offering. See Note 10.
(e) Not annualized for periods less than one year.
(f) Total return on net asset value is computed based upon the net asset value of common stock on the first business day and the closing net asset value on the last business day of the year or period. Dividends and distributions are assumed to be reinvested at the prices obtained under the Fund's dividend reinvestment plan.
(g) Total return on market value is computed based upon the New York Stock Exchange market price of the Fund's shares and includes the effect of brokerage commissions. Dividends and distributions are assumed to be reinvested at the prices obtained under the Fund's dividend reinvestment plan.
(h) Annualized for periods less than one year.
See accompanying notes which are an integral part of these financial statements.
9
Angel Oak Financial Strategies Income Term Trust
Schedule of Investments
July 31, 2024 (Unaudited)
Par
Value
CORPORATE OBLIGATIONS - 130.6%
Financial - 130.6% (a)
A10 Capital LLC, 5.88%, 08/17/2026 (b)
$4,000,000 $ 3,723,635
Alpine Banks of Colorado, 5.88% to 06/15/2025 then 3 mo. Term SOFR + 5.69%, 06/15/2030 (b)(c)
4,000,000 3,804,380
American Coastal Insurance Corp., 7.25%, 12/15/2027
3,670,000 3,495,665
Ameris Bancorp, 4.25% to 12/15/2024 then 3 mo. Term SOFR + 2.94%, 12/15/2029 (c)
1,250,000 1,218,455
Ameris Bank, 5.88% to 06/01/2025 then 3 mo. Term SOFR + 3.89%, 05/31/2030 (c)
4,000,000 3,770,473
Amur Equipment Finance, Inc., 6.13%, 03/15/2026 (b)
1,500,000 1,470,888
ANB Corp., 4.00% to 09/30/2025 then 3 mo. Term SOFR + 3.88%, 09/30/2030 (b)
2,500,000 2,296,441
Arbor Realty SR, Inc., 7.75%, 03/30/2026 (b)
3,000,000 2,803,075
Arbor Realty Trust, Inc., 5.00%, 04/30/2026
2,000,000 1,785,927
Arena Finance LLC, 6.75%, 09/30/2025 (b)(c)
2,000,000 1,912,500
Avidbank Holdings, Inc., 5.00% to 12/30/2024 then 3 mo. Term SOFR + 3.60%, 12/30/2029 (b)
6,000,000 5,769,442
B Riley Financial, Inc.
6.38%, 02/28/2025 (d)
1,000,000 967,600
5.50%, 03/31/2026 (d)
1,000,000 844,000
5.00%, 12/31/2026 (d)
2,000,000 1,452,800
6.00%, 01/31/2028 (d)
3,000,000 2,095,200
Banc of California, Inc.
5.25%, 04/15/2025 (c)
3,000,000 2,963,498
4.38% to 10/30/2025 then 3 mo. Term SOFR + 4.20%, 10/30/2030
1,675,000 1,502,599
Bancorp Bank, 4.75%, 08/15/2025 (c)
1,500,000 1,438,860
BancPlus Corp., 6.00% to 06/15/2025 then 3 mo. Term SOFR + 5.86%, 06/15/2030 (b)
5,000,000 4,760,849
Bank of America Corp.
5.82% to 09/15/2028 then SOFR + 1.57%, 09/15/2029
1,000,000 1,033,099
5.87% to 09/15/2033 then SOFR + 1.84%, 09/15/2034 (c)
1,000,000 1,046,140
BankGuam Holding Co.
6.35% to 05/15/2024 then 3 mo. LIBOR US + 4.66%, 06/30/2029 (e)
9,000,000 8,702,597
4.75% to 07/01/2026 then 3 mo. Term SOFR + 4.13%, 07/01/2031 (b)
3,000,000 2,710,655
Banksouth Holding Co., 9.54% (3 mo. LIBOR US + 4.02%), 07/30/2029 (b)(e)
5,000,000 4,925,000
Banterra Bank, 9.72% (3 mo. LIBOR US + 4.12%), 06/07/2029 (e)
7,500,000 7,298,160
Banterra Corp., 8.00% to 06/30/2027 then 3 mo. Term SOFR + 3.85%, 09/30/2032 (b)
1,250,000 1,181,250
Bar Harbor Bankshares, 4.63% to 12/01/2024 then 3 mo. Term SOFR + 3.27%, 12/01/2029
6,000,000 5,843,625
BayCom Corp., 5.25% to 09/15/2025 then 3 mo. Term SOFR + 5.21%, 09/15/2030
2,598,000 2,316,414
Bayfirst Financial Corp., 4.50% to 06/30/2026 then SOFR + 3.78%, 06/30/2031 (b)
1,000,000 881,995
Berkshire Hills Bancorp, Inc., 5.50% to 07/01/2027 then 3 mo. Term SOFR + 2.49%, 07/01/2032
1,000,000 870,000
Big Poppy Holdings, 6.50%, 07/01/2027
3,500,000 3,080,000
Byline Bancorp, Inc., 6.00% to 07/01/2025 then 3 mo. Term SOFR + 5.88%, 07/01/2030 (c)
6,000,000 5,667,180
CB Financial Services, Inc., 3.88% to 12/15/2026 then 3 mo. Term SOFR + 2.80%, 12/15/2031 (b)
5,500,000 4,235,794
CB&T Holding Corp., 6.25% to 12/15/2025 then 3 mo. Term SOFR + 6.02%, 12/15/2030 (b)
5,000,000 3,950,000
Central Bancshares, Inc., 5.63% (3 mo. LIBOR US + 0.04%), 06/30/2029 (b)(e)
5,000,000 4,809,798
Central Pacific Financial Corp., 4.75% to 11/01/2025 then 3 mo. Term SOFR + 4.56%, 11/01/2030
1,000,000 965,250
Citizens Community Bancorp, Inc.
6.00% to 09/01/2025 then 3 mo. Term SOFR + 5.91%, 09/01/2030 (b)
2,000,000 1,870,000
4.75% to 04/01/2027 then 3 mo. Term SOFR + 3.29%, 04/01/2032 (b)
1,500,000 1,290,000
Clear Blue Financial Holdings LLC, 5.38%, 12/30/2028 (b)(c)(f)
10,000,000 8,225,000
See accompanying notes which are an integral part of these financial statements.
10
Angel Oak Financial Strategies Income Term Trust
Schedule of Investments - (continued)
July 31, 2024 (Unaudited)
Par
Value
CORPORATE OBLIGATIONS - (continued)
Financial - (continued)
Clear Street Holdings LLC, 6.00%, 10/15/2025 (b)(c)
$ 5,000,000 $ 4,806,250
CoastalSouth Bancshares, Inc., 5.95% to 09/15/2025 then 3 mo. Term SOFR + 5.82%, 09/15/2030 (b)
2,000,000 1,877,916
Colony Bankcorp, Inc., 5.25% to 05/20/2027 then 3 mo. Term SOFR + 2.65%, 05/20/2032 (b)
1,000,000 856,564
Columbia Banking System, Inc., 10.84% (3 mo. Term SOFR + 5.52%), 12/10/2025 (b)
6,500,000 6,404,744
Commercial Credit Group, Inc., 4.88%, 05/30/2026 (b)
1,500,000 1,404,456
Community Heritage Financial, Inc., 5.75% to 10/30/2024 then 3 mo. LIBOR US + 4.40%, 10/30/2029 (b)(e)
4,500,000 4,401,026
ConnectOne Bancorp, Inc., 5.75% to 06/15/2025 then 3 mo. Term SOFR + 5.61%, 06/15/2030 (c)
2,500,000 2,436,360
CRB Group, Inc., 6.50% to 09/01/2025 then 3 mo. Term SOFR + 6.38%, 09/01/2030 (b)(c)
2,000,000 1,890,000
Customers Bancorp, Inc., 2.88% to 08/15/2026 then 3 mo. Term SOFR + 2.35%, 08/15/2031
1,000,000 817,956
Customers Bank, 9.05% (3 mo. LIBOR US + 3.44%), 06/26/2029 (b)(c)(e)
4,500,000 4,277,582
Dime Community Bancshares, Inc., 5.00% to 05/15/2027 then 3 mo. Term SOFR + 2.18%, 05/15/2032
1,250,000 1,109,618
Eagle Bancorp, Inc., 5.75%, 09/01/2024
1,000,000 997,464
EF Holdco / EF Cayman Hold / Ellington Fin REIT Cayman/TRS / EF Cayman Non-MTM, 5.88%, 04/01/2027 (b)(c)
5,000,000 4,745,656
Enterprise Bancorp, Inc., 5.25% to 07/15/2025 then 3 mo. Term SOFR + 5.18%, 07/15/2030
3,500,000 3,417,954
Equity Bancshares, Inc., 7.00% to 06/30/2025 then 3 mo. Term SOFR + 6.88%, 06/30/2030 (c)
9,000,000 8,865,000
Evans Bancorp, Inc., 6.00% to 07/15/2025 then SOFR + 5.90%, 07/15/2030 (c)
4,000,000 3,791,960
EverBank Financial Corp.
5.75%, 07/02/2025
1,000,000 979,335
10.30% (3 mo. Term SOFR + 4.97%), 03/15/2026
1,000,000 984,598
FedNat Holding Co., 7.75%, 03/15/2029 (f)(g)
7,000,000 1,120,000
Fidelity Federal Bancorp
6.00% to 11/01/2024 then 3 mo. Term SOFR + 4.65%, 11/01/2029 (b)(c)
2,000,000 1,940,000
4.50% to 03/30/2026 then 3 mo. Term SOFR + 3.84%, 03/30/2031 (b)
1,000,000 867,613
Fidelity Financial Corp., 5.00% to 04/30/2027 then 3 mo. Term SOFR + 2.47%, 04/30/2032 (b)
5,000,000 4,350,000
Fifth Third Bancorp, 5.63% to 01/29/2031 then SOFR + 1.84%, 01/29/2032 (c)
1,000,000 1,013,283
Financial Institutions, Inc., 4.38% to 10/15/2025 then 3 mo. Term SOFR + 4.27%, 10/15/2030
3,000,000 2,720,728
FineMark Holdings, Inc., 8.56% (3 mo. Term SOFR + 3.23%), 06/30/2028
1,000,000 951,597
First Bancshares, Inc., 4.25% to 10/01/2025 then 3 mo. Term SOFR + 4.13%, 10/01/2030
1,000,000 949,191
First Bank, Inc., 5.50% to 06/01/2025 then 3 mo. Term SOFR + 5.38%, 06/01/2030
1,500,000 1,449,577
First Business Financial Services, Inc., 5.50% to 08/15/2024 then SOFR + 4.33%, 08/15/2029 (b)(c)
9,500,000 9,500,000
First Help Financial LLC, 6.00%, 11/15/2026 (b)
5,000,000 4,650,407
First Merchants Corp., 4.75% to 12/18/2024 then 3 mo. Term SOFR + 3.11%, 12/18/2029
1,500,000 1,445,205
First Northwest Bancorp, 3.75% to 03/30/2026 then 3 mo. Term SOFR + 3.00%, 03/30/2031
1,000,000 855,912
First Paragould Bankshares, Inc., 8.70% (3 mo. Term SOFR + 3.36%), 12/15/2027 (b)
2,250,000 2,170,664
FirstBank, Inc., 4.50% to 09/01/2025 then SOFR + 4.39%, 09/01/2030 (c)
3,500,000 3,327,193
Firstsun Capital Bancorp, 6.00% to 07/01/2025 then 3 mo. Term SOFR + 5.89%, 07/01/2030 (b)(c)
5,500,000 5,407,165
Five Star Bancorp, 6.00% to 09/01/2027 then SOFR + 3.29%, 09/01/2032 (b)
1,000,000 890,000
Flagstar Bancorp, Inc., 4.13% to 11/01/2025 then 3 mo. Term SOFR + 3.91%, 11/01/2030
2,375,000 2,008,419
Flushing Financial Corp., 3.13% to 12/01/2026 then 3 mo. Term SOFR + 2.04%, 12/01/2031
2,000,000 1,500,000
FNB Corp., 7.98% (3 mo. Term SOFR + 2.66%), 02/14/2029
600,000 565,147
Forbright, Inc., 5.75% to 12/01/2024 then 3 mo. Term SOFR + 4.39%, 12/01/2029 (b)
2,000,000 1,900,000
See accompanying notes which are an integral part of these financial statements.
11
Angel Oak Financial Strategies Income Term Trust
Schedule of Investments - (continued)
July 31, 2024 (Unaudited)
Par
Value
CORPORATE OBLIGATIONS - (continued)
Financial - (continued)
Franklin BSP Capital Corp., 4.85%, 12/15/2024 (b)
$ 2,000,000 $ 1,983,750
Georgia Banking Co., Inc., 4.13% to 06/15/2026 then 3 mo. Term SOFR + 3.40%, 06/15/2031 (b)
1,000,000 864,441
Golden Pear Funding HoldCo LLC, 6.38%, 12/22/2026
5,000,000 4,657,824
Golden State Bank, 4.50% to 12/15/2026 then 3 mo. Term SOFR + 3.35%, 12/15/2031 (b)
1,000,000 858,170
Goldman Sachs Group, Inc.
7.28% (3 mo. Term SOFR + 2.01%), 10/28/2027 (c)
1,000,000 1,027,798
6.48% to 10/24/2028 then SOFR + 1.77%, 10/24/2029 (c)
1,000,000 1,056,334
Hallmark Financial Services, Inc., 6.25%, 08/15/2029 (f)
9,182,000 3,213,700
Hanmi Financial Corp., 3.75% to 09/01/2026 then 3 mo. Term SOFR + 3.10%, 09/01/2031
3,500,000 2,964,515
HBT Financial, Inc., 4.50% to 09/15/2025 then 3 mo. Term SOFR + 4.37%, 09/15/2030 (b)
3,000,000 2,779,608
Hilltop Holdings, Inc., 6.13% to 05/15/2030 then 3 mo. Term SOFR + 5.80%, 05/15/2035
250,000 213,750
Home BancShares, Inc./AR, 5.50% to 07/31/2025 then 3 mo. Term SOFR + 5.35%, 07/31/2030 (b)
1,500,000 1,436,614
HomeStreet, Inc., 3.50% to 01/30/2027 then 3 mo. Term SOFR + 2.15%, 01/30/2032
3,000,000 2,014,981
Hometown Financial Group, Inc., 8.75%, 03/15/2027 (b)(c)
2,000,000 2,023,449
Independent Bank Corp., 5.95% to 05/31/2025 then 3 mo. Term SOFR + 5.83%, 05/31/2030 (b)
1,000,000 979,105
Independent Bank Group, Inc.
4.00% to 09/15/2025 then 3 mo. Term SOFR + 3.89%, 09/15/2030
1,000,000 955,900
8.38% to 08/15/2029 then 3 mo. Term SOFR + 4.61%, 08/15/2034
2,000,000 2,000,000
Investar Holding Corp., 5.13% to 12/30/2024 then SOFR + 3.75%, 12/30/2029 (b)
4,000,000 3,853,093
JPMorgan Chase & Co., 6.25% to 10/23/2033 then SOFR + 1.81%, 10/23/2034
1,000,000 1,078,481
Kingstone Cos., Inc., 12.00%, 12/30/2024 (b)
4,811,000 4,726,807
Luther Burbank Corp., 6.50%, 09/30/2024 (b)
2,000,000 1,991,572
Maple Financial Holdings, Inc., 5.00% to 02/15/2026 then 3 mo. Term SOFR + 4.67%, 02/15/2031 (b)
2,000,000 1,821,151
Marble Point Loan Financing Ltd. / MPLF Funding I LLC, 7.50%, 11/16/2025 (b)(c)
1,500,000 1,426,875
Mercantile Bank Corp., 3.25% to 01/30/2027 then SOFR + 2.12%, 01/30/2032
1,500,000 1,170,000
Meridian Corp., 5.38% to 12/30/2024 then 3 mo. Term SOFR + 3.95%, 12/30/2029 (c)
4,000,000 3,860,000
MidWestOne Financial Group, Inc., 5.75% to 07/30/2025 then 3 mo. Term SOFR + 5.68%, 07/30/2030 (c)
5,000,000 4,550,000
Morgan Stanley
6.32% (SOFR + 0.95%), 02/18/2026
1,000,000 1,002,836
6.63% to 11/01/2033 then SOFR + 2.05%, 11/01/2034 (c)
1,000,000 1,098,690
MS Transverse Insurance Group LLC, 6.00%, 12/15/2026 (b)
5,000,000 4,798,483
Nano Financial Holdings, Inc., 13.00%, 07/01/2026 (b)(c)(f)
5,000,000 5,000,000
National Bank of Indianapolis Corp., 5.50% to 09/15/2024 then 3 mo. LIBOR US + 4.21%, 09/15/2029 (b)(e)
7,000,000 6,799,964
NewtekOne, Inc., 8.13%, 02/01/2025 (b)
1,250,000 1,254,812
NexBank Capital, Inc.
4.00% to 08/15/2026 then 3 mo. Term SOFR + 3.39%, 08/15/2031 (b)
2,000,000 1,689,550
6.00%, 07/15/2032 (b)
1,500,000 1,311,409
Northern Bancorp, Inc., 4.75% to 12/30/2024 then 3 mo. Term SOFR + 3.28%, 12/30/2029 (b)
2,000,000 1,921,219
Northpointe Bancshares, Inc., 6.00% to 09/30/2024 then 3 mo. Term SOFR + 4.91%, 09/30/2029 (b)
4,000,000 3,940,000
Northwest Bancshares, Inc., 4.00% to 09/15/2025 then 3 mo. Term SOFR + 3.89%, 09/15/2030
1,000,000 939,522
Oakstar Bancshares, Inc., 4.25% to 04/15/2026 then 3 mo. Term SOFR + 3.52%, 04/15/2031 (b)
1,000,000 854,757
Obsidian Insurance Holdings, Inc., 6.50%, 12/30/2025 (b)(c)
5,000,000 4,837,500
OceanFirst Financial Corp., 5.25% to 05/15/2025 then 3 mo. Term SOFR + 5.10%, 05/15/2030
1,000,000 962,935
Old National Bancorp, 5.25% to 06/30/2025 then SOFR + 5.13%, 06/30/2030
3,000,000 2,800,755
See accompanying notes which are an integral part of these financial statements.
12
Angel Oak Financial Strategies Income Term Trust
Schedule of Investments - (continued)
July 31, 2024 (Unaudited)
Par
Value
CORPORATE OBLIGATIONS - (continued)
Financial - (continued)
Olney Bancshares of Texas, Inc., 4.00% to 03/15/2026 then 3 mo. Term SOFR + 3.32%, 03/15/2031 (b)
$ 1,000,000 $ 864,481
Origin Bank, 4.25% to 02/15/2025 then 3 mo. LIBOR US + 2.82%, 02/15/2030 (e)
2,500,000 2,225,000
Pacific Premier Bancorp, Inc.
5.75%, 09/03/2024 (b)(c)
2,000,000 1,997,528
5.38% to 06/15/2025 then 3 mo. Term SOFR + 5.17%, 06/15/2030 (c)
5,000,000 4,762,928
PCAP Holdings LP, 6.50%, 07/15/2028 (b)
2,000,000 1,812,168
Peapack-Gladstone Financial Corp., 8.14% (3 mo. Term SOFR + 2.80%), 12/15/2027
2,150,000 2,060,820
Peoples Bancorp, Inc., 9.46% (3 mo. Term SOFR + 4.21%), 07/31/2029 (b)
5,000,000 4,925,000
PhenixFIN Corp., 5.25%, 11/01/2028 (d)
1,750,000 1,565,200
Piedmont Bancorp, Inc., 5.75% to 09/01/2025 then 3 mo. Term SOFR + 5.62%, 09/01/2030 (b)
2,500,000 2,347,285
Preferred Bank, 3.38% to 06/15/2026 then 3 mo. Term SOFR + 2.78%, 06/15/2031
2,500,000 2,150,000
Premia Holdings Ltd., 6.90%, 09/23/2030 (b)
9,000,000 8,842,500
Primis Financial Corp., 5.40% to 09/01/2025 then 3 mo. Term SOFR + 5.31%, 09/01/2030 (c)
2,000,000 1,910,000
Provident Financial Services, Inc., 9.00% to 05/15/2029 then 3 mo. Term SOFR + 4.77%, 05/15/2034 (c)
4,118,000 4,225,522
Queensborough Co., 6.00% to 10/15/2025 then 3 mo. Term SOFR + 5.88%, 10/15/2030 (b)
3,000,000 2,805,770
RBB Bancorp, 4.00% to 04/01/2026 then 3 mo. Term SOFR + 3.29%, 04/01/2031
1,500,000 1,316,582
Reliant Bancorp, Inc., 5.13% to 12/15/2024 then 3 mo. Term SOFR + 3.77%, 12/15/2029
500,000 486,747
River Financial Corp., 4.00% to 03/15/2026 then 3 mo. Term SOFR + 3.42%, 03/15/2031 (b)
1,000,000 862,028
Salisbury Bancorp, Inc., 3.50% to 03/31/2026 then SOFR + 2.80%, 03/31/2031
1,000,000 835,600
Sandy Spring Bancorp, Inc., 4.25% to 11/15/2024 then 3 mo. Term SOFR + 2.88%, 11/15/2029
2,000,000 1,752,116
SCRE Intermediate Holdco LLC, 6.50%, 02/15/2027 (b)
2,000,000 1,823,785
Shore Bancshares, Inc., 4.75% to 10/15/2025 then 3 mo. Term SOFR + 4.58%, 10/15/2030
1,000,000 914,986
Silver Queen Financial Services, Inc., 8.95% (3 mo. Term SOFR + 3.60%), 12/01/2027 (b)(c)
3,800,000 3,658,963
Simmons First National Corp., 6.00% to 07/31/2025 then 3 mo. Term SOFR + 5.92%, 07/31/2030 (b)
5,000,000 4,724,351
SmartFinancial, Inc., 8.14% (3 mo. Term SOFR + 2.81%), 10/02/2028 (b)(c)
2,190,000 2,128,906
South Street Securities Funding LLC, 6.25%, 12/30/2026 (b)
6,000,000 5,483,110
Southern Financial Corp., 4.88% to 10/20/2026 then 3 mo. Term SOFR + 3.93%, 10/20/2031 (b)
1,500,000 1,309,721
Stellar Bancorp, Inc., 4.70% to 10/01/2024 then SOFR + 3.39%, 10/01/2029 (c)
1,750,000 1,737,880
Summit Financial Group, Inc., 3.25% to 12/01/2026 then 3 mo. Term SOFR + 2.30%, 12/01/2031
2,000,000 1,640,000
Texas State Bankshares, Inc., 9.15% (3 mo. LIBOR US + 3.55%), 06/15/2029 (b)(e)
4,000,000 3,851,018
Trinitas Capital Management LLC, 6.00%, 07/30/2026 (b)(c)
6,000,000 5,707,500
Trinity Capital, Inc., 7.00%, 01/16/2025 (d)
6,268,725 6,313,860
Triumph Financial, Inc., 4.88% to 11/27/2024 then SOFR + 3.59%, 11/27/2029
9,000,000 8,775,000
Tulsa Valley Bancshares Corp., 5.00% to 04/15/2026 then 3 mo. Term SOFR + 4.21%, 04/15/2031 (b)
1,250,000 1,126,817
United Community Banks, Inc., 5.00% to 06/15/2025 then 3 mo. Term SOFR + 4.87%, 06/15/2030
1,000,000 965,384
Universal Insurance Holdings, Inc., 5.63%, 11/30/2026
7,000,000 6,746,207
Univest Financial Corp., 7.25% to 11/15/2027 then 3 mo. Term SOFR + 3.10%, 11/15/2032
1,250,000 1,105,708
US Metro Bancorp, Inc., 5.65% to 11/01/2025 then 3 mo. Term SOFR + 5.43%, 11/01/2030 (b)(c)
3,000,000 2,817,722
VCT Holdings LLC, 6.00%, 12/30/2026 (b)
5,000,000 4,506,250
Velocity Commercial Capital LLC, 7.13%, 03/15/2027 (b)
3,000,000 2,820,986
Veritex Holdings, Inc., 4.75% to 11/15/2024 then 3 mo. Term SOFR + 3.47%, 11/15/2029
1,750,000 1,603,002
See accompanying notes which are an integral part of these financial statements.
13
Angel Oak Financial Strategies Income Term Trust
Schedule of Investments - (continued)
July 31, 2024 (Unaudited)
Par
Value
CORPORATE OBLIGATIONS - (continued)
Financial - (continued)
Volunteer State Bancshares, Inc., 5.75% to 11/15/2024 then 3 mo. Term SOFR + 4.37%, 11/15/2029 (b)
$ 2,000,000 $ 1,939,473
VyStar Credit Union, 4.25%, 03/15/2032 (b)
3,000,000 2,535,833
Webster Financial Corp., 3.88% to 11/01/2025 then 3 mo. Term SOFR + 3.69%, 11/01/2030
1,000,000 925,221
Wells Fargo & Co.
5.20% to 01/23/2029 then SOFR + 1.50%, 01/23/2030 (c)
1,000,000 1,009,320
6.49% to 10/23/2033 then SOFR + 2.06%, 10/23/2034 (c)
1,000,000 1,086,363
White River Bancshares Co., 5.88% to 12/31/2024 then 3 mo. Term SOFR + 4.42%, 12/31/2029 (b)
5,000,000 4,822,837
Wintrust Financial Corp., 4.85%, 06/06/2029 (c)
5,000,000 4,699,119
Zions Bancorp NA, 3.25%, 10/29/2029
2,000,000 1,714,284
451,586,015
TOTAL CORPORATE OBLIGATIONS (Cost $492,432,983)
451,586,015
PREFERRED STOCKS - 6.8%
Shares
Financial - 3.4%
B Riley Financial, Inc. Series B, 7.38%, Perpetual
27,310 570,233
Clear Street Group, Inc. Series QIB, 7.00%, Perpetual (b)(h)
80,000 1,520,000
Dime Community Bancshares, Inc. 5.50%, Perpetual
25,000 467,750
First Citizens BancShares, Inc. Series A, 5.38%, Perpetual
140,000 3,080,000
First Merchants Corp. Series A, 7.50%, Perpetual
40,000 1,003,200
Goldman Sachs Group, Inc., 7.50% to 05/10/2029 then 5 yr. CMT Rate + 2.81%, Perpetual
2,000,000 2,065,371
Northpointe Bancshares, Inc.,
Series QIB, 8.25% to 12/30/2025 then SOFR + 7.99%, Perpetual (b)
80,000 1,915,542
OceanFirst Financial Corp., Series A, 7.00% to 05/15/2025 then SOFR + 6.85%, Perpetual
19,500 483,600
United Fidelity Bank Series QIB, 7.00%, Perpetual (b)(f)
1,000 731,000
11,836,696
Real Estate Investment Trust - 3.4%
AGNC Investment Corp. Series C, 10.67% (3 mo. Term SOFR + 5.37%), Perpetual
40,000 1,026,000
Annaly Capital Management, Inc. Series F, 10.59% (3 mo. Term SOFR + 5.25%), Perpetual
40,000 1,024,400
Ellington Financial, Inc.
6.75% to 10/30/2024 then 3 mo. LIBOR US + 5.20%, Perpetual (e)
20,000 494,600
Series B, 6.25% to 1/30/2027 then 5 yr. CMT Rate + 4.99%, Perpetual
80,000 1,716,000
Inpoint Commercial Real Estate Income, Inc. Series A, 6.75%, Perpetual
80,000 1,559,992
Lument Finance Trust, Inc. Series A, 7.88%, Perpetual
40,000 829,924
Rithm Capital Corp., Series D, 7.00% to 11/15/2026 then 5 yr. CMT Rate + 6.22%, Perpetual
200,000 4,684,000
TPG RE Finance Trust, Inc. Series C, 6.25%, Perpetual
30,000 554,400
11,889,316
TOTAL PREFERRED STOCKS (Cost $25,945,903)
23,726,012
See accompanying notes which are an integral part of these financial statements.
14
Angel Oak Financial Strategies Income Term Trust
Schedule of Investments - (continued)
July 31, 2024 (Unaudited)
COMMON STOCKS - 1.1%
Shares
Value
Financial - 0.7%
Eagle Bancorp, Inc.
14,600 $ 314,192
East West Bancorp, Inc.
4,600 404,294
Independent Bank Corp.
7,500 481,125
Pinnacle Financial Partners, Inc.
4,300 414,176
Plumas Bancorp
5,700 246,639
Western Alliance Bancorp
5,300 426,438
2,286,864
Real Estate Investment Trust - 0.4%
AGNC Investment Corp.
30,500 305,305
Annaly Capital Management, Inc.
15,000 298,650
Ellington Financial, Inc.
15,750 199,867
PennyMac Mortgage Investment Trust
13,000 179,010
Redwood Trust, Inc.
25,750 187,203
Rithm Capital Corp.
25,000 290,250
1,460,285
TOTAL COMMON STOCKS (Cost $3,964,011)
3,747,149
WARRANTS - 0.3%
Contracts
Financial
-
0.3%
Kingstone Cos., Inc., Expires 12/30/2025, Exercise Price $1.00 (b)(i)
233,775 911,722
TOTAL WARRANTS (Cost $-)
911,722
BANK LOANS - 0.2%
Par
Energy - 0.2%
BJ Services LLC, 0.00% (3 mo. LIBOR US), 07/01/2025 (e)(f)
$815,896 758,783
TOTAL BANK LOANS (Cost $815,284)
758,783
CONVERTIBLE OBLIGATIONS - 0.0% (j)
Financial - 0.0% (j)
FedNat Holding Co., 5.00%, 04/19/2026 (b)(f)(g)
1,000,000 160,000
TOTAL CONVERTIBLE OBLIGATIONS (Cost $1,000,000)
160,000
SHORT-TERM INVESTMENTS - 0.5%
Shares
Money Market Funds - 0.5%
First American Government Obligations Fund - Class U, 5.25% (k)
1,653,560 1,653,560
TOTAL SHORT-TERM INVESTMENTS (Cost $1,653,560)
1,653,560
TOTAL INVESTMENTS - 139.5% (Cost $525,811,741)
482,543,241
Liabilities in Excess of Other Assets - (39.5%)
(136,642,514 )
TOTAL NET ASSETS - 100.0%
$345,900,727
Percentages are stated as a percent of net assets.
CMT-Constant Maturity Treasury Rate
See accompanying notes which are an integral part of these financial statements.
15
Angel Oak Financial Strategies Income Term Trust
Schedule of Investments - (continued)
July 31, 2024 (Unaudited)
LIBOR-London Interbank Offered Rate
SOFR-Secured Overnight Financing Rate
(a)
To the extent that the Fund invests more heavily in a particular industry or sector of the economy, its performance will be especially sensitive to developments that significantly affect those industries or sectors.
(b)
Security is exempt from registration under Rule 144A or Section 4(a)(2) of the Securities Act of 1933. The security may be resold in transactions exempt from registration, normally to qualified institutional buyers. These securities are determined to be liquid by the Adviser, under the procedures established by the Fund's Board of Trustees, unless otherwise denoted. As of July 31, 2024, the value of these securities total $259,065,370 or 74.9% of the Fund's net assets.
(c)
All or a portion of security has been pledged as collateral in connection with open reverse repurchase agreements. At July 31, 2024, the value of securities pledged amounted to $103,403,267.
(d)
Security issued as a "Baby Bond", with a par value of $25 per bond. The principal balance disclosed above represents the issuer's outstanding principal that corresponds to the bonds held in the Fund.
(e)
Securities referencing LIBOR are expected to transition to an alternative reference rate by the security's next scheduled coupon reset date.
(f)
As of July 31, 2024, the Fund has fair valued these securities under the procedures established by Angel Oak Capital Advisors, LLC as Valuation Designee pursuant to Rule 2a-5 under the Investment Company Act of 1940. The value of these securities amounted to $19,208,483 or 5.6% of net assets. Value determined using significant unobservable inputs.
(g)
Issuer is currently in default. Income is not being accrued.
(h)
Coupon rate is variable based on the weighted average coupon of the underlying collateral. To the extent the weighted average coupon of the underlying assets which comprise the collateral increases or decreases, the coupon rate of this security will increase or decrease correspondingly. The rate disclosed is as of July 31, 2024.
(i)
Non-income producing security.
(j)
Represents less than 0.05% of net assets.
(k)
The rate shown represents the 7-day effective yield as of July 31, 2024.
Schedule of Open Reverse Repurchase Agreements
Counterparty
Interest
Rate
Trade
Date
Maturity Date
Net Closing
Amount
Face Value
Lucid Management and Capital Partners LP
6.78 % 07/18/2024 08/15/2024 $ 31,290,234 $31,126,000
Lucid Management and Capital Partners LP
6.93 % 07/18/2024 09/03/2024 553,967 549,000
Lucid Management and Capital Partners LP
7.15 % 07/11/2024 10/10/2024 8,047,953 7,905,000
Lucid Management and Capital Partners LP
6.93 % 07/18/2024 10/17/2024 17,407,657 17,108,000
Total
$
57,299,811
$56,688,000
See accompanying notes which are an integral part of these financial statements.
16
Angel Oak Financial Strategies Income Term Trust
Notes to the Financial Statements
July 31, 2024 (Unaudited)
NOTE 1. ORGANIZATION
Angel Oak Financial Strategies Income Term Trust (the "Fund") is organized as a Delaware statutory trust under a Declaration of Trust dated June 14, 2018. The Fund is registered under the Investment Company Act of 1940, as amended (the "1940 Act") and, since May 31, 2022, has operated as a diversified
closed-end
management investment company listed on the New York Stock Exchange ("NYSE"). Please see the table below for a summary of Fund specific information:
Ticker
Investment Objective
Commencement of Operations
FINS
Current Income & Total Return 05/31/19
The Fund will terminate on or before May 31, 2031 (the "Termination Date"); provided, that if the Board of Trustees (the "Board") believes that, under then-current market conditions, it is in the best interest of the Fund to do so, the Fund may extend the Termination Date: (i) once for up to one year (i.e., up to May 31, 2032), and (ii) once for up to an additional six months (i.e., up to November 30, 2032), in each case upon the affirmative vote of a majority of the Board and without approval of the Fund's shareholders. In determining whether to extend the Termination Date, the Board may consider the inability to sell the Fund's assets in a time frame consistent with termination due to lack of market liquidity or other extenuating circumstances. Additionally, the Board may determine that market conditions are such that it is reasonable to believe that, with an extension, the Fund's remaining assets will appreciate and generate income in an amount that, in the aggregate, is meaningful relative to the cost and expense of continuing the operation of the Fund.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements in accordance with the accounting principles generally accepted in the United States of America ("GAAP"). The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board ("FASB") Accounting Codification Topic 946,
Financial Services-Investment Companies.
Securities Valuation and Fair Value Measurements
: The Fund records its investments at fair value in accordance with fair valuation accounting standards which establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion of changes in valuation techniques and related inputs, if any, during the period. In addition, these standards require expanded disclosure for each major category of assets. These inputs are summarized in the three broad levels listed below:
•
Level 1: quoted prices in active markets for identical securities
•
Level 2: other significant observable inputs (including, but not limited to, quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
•
Level 3: significant unobservable inputs (including the Fund's own assumptions in determining fair value of investments based on the best information available)
The inputs or methodology used for valuing securities are not an indication of the risks associated with investing in those securities.
Investments in registered
open-end
management investment companies, including money market funds, will be valued based upon the NAV of such investments and are categorized as Level 1 of the fair value hierarchy.
Fair values for long-term debt securities, including corporate and convertible obligations, are normally determined on the basis of valuations provided by independent pricing services. Vendors typically value such securities based on one or more inputs, including but not limited to, benchmark yields, transactions, bids, offers, quotations from dealers and trading systems, new issues, spreads and other relationships observed in the markets among comparable securities; and pricing models such as yield measurers calculated using factors such as cash flows, financial or collateral performance and other reference data. In addition to these inputs, cash flows, prepayment information, default rates, delinquency and loss assumptions, collateral characteristics, credit enhancements and specific deal information may be utilized. Securities that use similar valuation techniques and inputs are categorized as Level 2 of the fair value hierarchy. To the extent the significant inputs are unobservable; the values generally would be categorized as Level 3.
17
Angel Oak Financial Strategies Income Term Trust
Notes to the Financial Statements - (continued)
July 31, 2024 (Unaudited)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - (continued)
Equity securities, including preferred stocks, that are traded on a national securities exchange, except those listed on the Nasdaq Global Market
®
, Nasdaq Global Select Market
®
, and the Nasdaq Capital Market
®
exchanges (collectively, "Nasdaq"), are valued at the last sale price at the close of that exchange. Securities traded on Nasdaq will be valued at the Nasdaq Official Closing Price. If, on a particular day, an exchange-listed or Nasdaq security does not trade, then: (i) the security shall be valued at the mean between the most recent quoted bid and asked prices at the close of the exchange; or (ii) the security shall be valued at the latest sales price on the Composite Market (defined below) for the day such security is being valued. "Composite Market" means a consolidation of the trade information provided by national securities and foreign exchanges and over-the-counter ("OTC") markets as published by a pricing service. In the event market quotations or Composite Market pricing are not readily available, fair value will be determined in accordance with the procedures adopted by the Board. All equity securities that are not traded on a listed exchange are valued at the last sale price at the close of the OTC market. If a
non-exchange
listed security does not trade on a particular day, then the mean between the last quoted bid and asked price will be used as long as it continues to reflect the value of the security. If the mean is not available, then bid price can be used as long as the bid price continues to reflect the value of the security. Otherwise, fair value will be determined in accordance with the procedures adopted by the Board. These securities will generally be categorized as Level 3 securities. When using the market quotations or close prices provided by the pricing service and when the market is considered active, the security will be classified as a Level 1 security. Sometimes, an equity security owned by the Fund will be valued by the pricing service with factors other than market quotations or when the market is considered inactive. When this happens, the security will be classified as a Level 2 security.
Short term debt securities having a maturity of 60 days or less are generally valued at amortized cost, which approximates fair market value. These investments are categorized as Level 2 of the fair value hierarchy. Reverse repurchase agreements and repurchase agreements are priced at their acquisition cost, and assessed for credit adjustments, which represents fair value. These securities will generally be categorized as Level 2 securities.
Fair values for bank loans are normally determined on the basis of valuations provided by independent pricing services. Vendors typically value such securities based on one or more inputs, including but not limited to, historical and projected financial information, governing legal documents, discussions with related personnel, remittance data and various other documents and schedules available from public or private sources. Securities that use similar valuation techniques and inputs are categorized as Level 2 of the fair value hierarchy. In the absence of a valuation from an independent pricing service, fair value will be determined in accordance with the procedures adopted by the Board. To the extent the significant inputs are unobservable; the values generally would be categorized as Level 3.
Securities may be fair valued in accordance with the fair valuation procedures approved by the Board. The Valuation and Risk Management Oversight Committee is generally responsible for overseeing the Fund's valuation processes and reports quarterly to the Board. The Board has selected Angel Oak Capital Advisors, LLC (the "Adviser") as the Valuation Designee. As such, the Valuation Committee of the Adviser has been delegated the
day-to-day
responsibilities for making all necessary determinations of the fair value of portfolio securities and other assets for which market quotations are not readily available or if the prices obtained from independent pricing services are deemed to be unreliable indicators of market or fair value. Representatives of the Valuation Designee's Valuation Committee report quarterly to the Valuation and Risk Management Oversight Committee.
The following is a summary of the investments by their inputs used to value the Fund's net assets as of July 31, 2024:
Level 1
Level 2
Level 3
Total
Assets
Corporate Obligations
$- $434,027,315 $17,558,700 $451,586,015
Preferred Stocks
17,010,499 5,984,513 731,000 23,726,012
Common Stocks
3,747,149 - - 3,747,149
Warrants
- 911,722 - 911,722
Bank Loans
- - 758,783 758,783
Convertible Obligations
- - 160,000 160,000
Short-Term Investments
1,653,560 - - 1,653,560
Total
$22,411,208 $440,923,550 $19,208,483 $482,543,241
Other Financial Instruments
Liabilities
Reverse Repurchase Agreements
$- ($56,688,000) $- ($56,688,000)
18
Angel Oak Financial Strategies Income Term Trust
Notes to the Financial Statements - (continued)
July 31, 2024 (Unaudited)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - (continued)
See the Schedule of Investments for further disaggregation of investment categories. During the period ended July 31, 2024, the Fund recognized $758,783 of transfers from Level 2 to Level 3 for securities lacking observable market data due to a decrease in relevant market activity. During the period ended July 31, 2024, the Fund recognized $1,689,550 of transfers from Level 3 to Level 2 due to an increase in relevant market activity. See the summary of quantitative information about Level 3 Fair Value Measurements for more information.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
Balance as of
01/31/24
Amortization/
Accretion/
Distributions
Net
Realized
Gain
(Loss)
Change in Net
Unrealized
Appreciation/
Depreciation
Purchases
Sales
Transfers
Into Level 3
Transfers
Out of
Level 3
Balance as of
07/31/24
Bank Loans
$- $- $- $- $- $- $758,783 $- $758,783
Convertible Obligations
160,000 - - - - - - - 160,000
Corporate Obligations
14,194,174 8,171 - 45,905 5,000,000 - - (1,689,550) 17,558,700
Preferred Stocks
728,000 - - 3,000 - - - - 731,000
Total
$15,082,174 $8,171 $- $48,905 $5,000,000 $- $758,783 ($1,689,550) $19,208,483
The total change in unrealized appreciation/depreciation included in the Statement of Operations attributable to Level 3 investments still held at July 31, 2024, is ($46,277).
The following is a summary of quantitative information about Level 3 Fair Value Measurements:
Fair Value as of
07/31/24
Valuation Techniques
Unobservable Input*
Range**
Weighted Average
Unobservable Input
Bank Loans
$758,783 Model Valuation Estimated recovery from insurance receivable $93.00 Recovery Estimate: 93%
Convertible Obligations
$160,000 Model Valuation Estimated recovery from proposed Chapter 11 liquidation plan $16.00 Recovery Estimate: 16%
Corporate Obligations
$5,000,000 Consensus Pricing Trading colors of comparable securities and other deals with similar coupons and characteristics $100.00 $100.00
Corporate Obligations
$1,120,000 Model Valuation Estimated recovery from proposed Chapter 11 liquidation plan $16.00 Recovery Estimate: 16%
Corporate Obligations
$8,225,000 Consensus Pricing Priced to yield using trading colors of comparable securities and other deals with similar coupons and characteristics $82.25 Yield: 9.5%
Corporate Obligations
$3,213,700 Model Valuation Capital coverage for senior notes and liquidity haircut $35.00 N/A
Preferred Stocks
$731,000 Consensus Pricing Priced to yield using trading colors of comparable securities and other deals with similar coupons and characteristics $731.00 Yield: 9.7%
*
Significant increases and decreases in the unobservable inputs used to determine fair value of Level 3 assets could result in significantly higher or lower fair value measurements. An increase to the unobservable input would result in an increase to the fair value. A decrease to the unobservable input would have the opposite effect.
**
Each input presents information for one security and reflects the value as of July 31, 2024.
19
Angel Oak Financial Strategies Income Term Trust
Notes to the Financial Statements - (continued)
July 31, 2024 (Unaudited)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - (continued)
Federal Income Taxes:
The Fund intends to elect and continue to qualify to be taxed as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended. If so qualified, the Fund generally will not be subject to federal income tax to the extent it distributes substantially all of its net investment income and capital gains to shareholders. The Fund generally intends to operate in a manner such that it will not be liable for federal income or excise taxes.
The Fund has adopted financial reporting rules regarding recognition and measurement of tax positions taken or expected to be taken on a tax return. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense on the Statement of Operations. During the period ended July 31, 2024, the Fund did not incur any interest or penalties. The Fund has reviewed all open tax years and major jurisdictions and concluded that no provision for income tax is required in the Fund's financial statements. The Fund's Federal and state income and Federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
Security Transactions and Income Recognition:
Investment security transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Interest income and expense is recorded on an accrual basis. Discounts and premiums on securities purchased are accreted or amortized using the effective yield method, based on each security's estimated life and recoverable principal and recorded in interest income on the Statement of Operations. Dividend income and corporate transactions, if any, are recorded on the
ex-date.
Paydown gains and losses on mortgage related and other ABS are recorded as components of interest income on the Statement of Operations. Payments received from certain investments held by the Fund may be comprised of dividends, capital gains and return of capital. The Fund originally estimates the expected classification of such payments. The amounts may subsequently be reclassified upon receipt of the information from the issuer. The actual character of distributions to the Fund's shareholders will be reflected in the Form 1099 received by shareholders after the end of the calendar year.
Distributions to Shareholders:
Distributions from the Fund's net investment income are declared and paid monthly. The Fund intends to distribute its net realized long term capital gains and net realized short term capital gains, if any, at least annually. Distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the
ex-dividend
date. The treatment for financial reporting purposes of distributions made to shareholders during the period from net investment income or net realized capital gains may differ from their ultimate treatment for federal income tax purposes. These differences are caused primarily by differences in the timing of the recognition of certain components of income, expense or realized capital gain for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of the net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications will have no effect on net assets, results of operations or net asset value per share of the Fund. For the year ended January 31, 2024, there were no reclassifications.
Share Valuation
: The NAV per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding, rounded to the nearest cent. The Fund's NAV will not be calculated on the days on which the New York Stock Exchange is closed for trading.
Use of Estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the period. Actual results could differ from those estimates.
Indemnifications:
Under the Fund's organizational documents, the Fund will indemnify its officers and trustees for certain liabilities that may arise from performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred.
Cash and Cash Equivalents:
Cash and cash equivalents are highly liquid assets including coin, currency and short-term investments that typically mature in
30-90
days. Short-term investments can include U.S. Government and government agency
20
Angel Oak Financial Strategies Income Term Trust
Notes to the Financial Statements - (continued)
July 31, 2024 (Unaudited)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - (continued)
securities, investment grade money market instruments, investment grade fixed-income securities, repurchase agreements, commercial paper and cash equivalents. Cash equivalents are extremely low risk assets that are liquid and easily converted into cash. These investments are only considered equivalents if they are readily available and are not restricted by some agreement. When the Adviser believes market, economic or political conditions are unfavorable for investors, the Adviser may invest up to 100% of a Fund's net assets in cash, cash equivalents or other short-term investments. Unfavorable market or economic conditions may include excessive volatility or a prolonged general decline in the securities markets, or the U.S. economy. The Adviser also may invest in these types of securities or hold cash while looking for suitable investment opportunities or to maintain liquidity. Included in Investments in unaffiliated securities at fair value on the Statement of Assets and Liabilities are investments in First American money market funds held at major financial institutions totaling $1,653,560.
Reverse Repurchase Agreements:
A reverse repurchase agreement is the sale by the Fund of a security to a party for a specified price, with the simultaneous agreement by the Fund to repurchase that security from that party on a future date at a higher price. Proceeds from securities sold under reverse repurchase agreements are reflected as a liability on the Statement of Assets and Liabilities. Interest payments made are recorded as a component of interest expense on the Statement of Operations. Reverse repurchase agreements involve the risk that the counterparty will become subject to bankruptcy or other insolvency proceedings or fail to return a security to the Fund. In such situations, the Fund may incur losses as a result of a possible decline in the value of the underlying security during the period while the Fund seeks to enforce its rights, a possible lack of access to income on the underlying security during this period, or expenses of enforcing its rights.
The gross obligations for secured borrowing by the type of collateral pledged and remaining time to maturity on reverse repurchase contracts is as follows:
Reverse Repurchase Agreements
Overnight and Continuous
Up to 30 Days
30-90 Days
Greater than
90 Days
Total
Corporate Obligations
$- ($ 31,126,000 ) ($ 25,562,000 ) $- ($ 56,688,000 )
Total
$- ($ 31,126,000 ) ($ 25,562,000 ) $- ($ 56,688,000 )
Gross amount of reverse repurchase agreements in Balance Sheet Offsetting Information Table
($ 56,688,000 )
Amounts related to agreements not included in offsetting disclosure in Balance Sheet Offsetting Information Table
$-
NOTE 3. RISKS ASSOCIATED WITH PORTFOLIO ASSETS
Subordinated Debt of Banks and Diversified Financial Companies:
The Fund may invest in subordinated debt securities, sometimes also called "junior debt," which are debt securities for which the issuer's obligations to make principal and interest payment are secondary to the issuer's payment obligations to more senior debt securities. Such investments will consist primarily of debt issued
by
community banks or savings institutions (or their holding companies), which are subordinated to senior debt issued by the banks and deposits held by the bank, but are senior to trust preferred obligations, preferred stock and common stock issued by the bank.
High Yield Securities:
The Fund may invest in below investment grade securities, including certain securities issued by U.S.
community
banks and other financial institutions. These "high-yield" securities, also known as "junk bonds," will generally be rated BB or lower by S&P or will be of equivalent quality rating from another Nationally Recognized Statistical Ratings Organization,
or
if unrated, considered by the Adviser to be of comparable quality.
Structured Products:
The Fund may invest in certain structured products, including community bank debt securitizations. Normally, structured products are privately offered and sold (that is, they are not registered under the securities laws); however, an active dealer market may exist for structured products that qualify for Rule 144A transactions. The risks of an investment in a structured product depend largely on the type of the collateral securities and the class of the structured product in which the Fund invests. In addition to the normal interest rate, default and other risks of fixed-income securities, structured products carry additional risks, including the possibility that distributions from collateral securities will not be adequate to make interest or other payments, the quality of the collateral may decline in value or default, the Fund may invest in Structured Products that are subordinate to other classes, values may be volatile and disputes with the issuer may produce unexpected investment results.
21
Angel Oak Financial Strategies Income Term Trust
Notes to the Financial Statements - (continued)
July
31, 2024 (Unaudited)
NOTE 3. RISKS ASSOCIATED WITH PORTFOLIO ASSETS - (continued)
Common and Preferred Stocks:
The Fund may invest in common and preferred stock. Common stock represents an equity (ownership) interest in a company, and usually possesses voting rights and earns dividends. Dividends on common stock are not fixed but are declared at the discretion of the issuer. Common stock generally represents the riskiest investment in a company. In addition, common stock generally has the greatest appreciation and depreciation potential because increases and decreases in earnings are usually reflected in a company's stock price. The Fund may also invest in preferred stock. Preferred stock is a class of stock having a preference over common stock as to the payment of dividends and the recovery of investment should a company be liquidated, although preferred stock is usually junior to the debt securities of the issuer. Preferred stock typically does not possess voting rights and its market value may change based on changes in interest rates.
The fundamental risk of investing in stock is the risk that the value of the stock might decrease. Stock values fluctuate in response to the activities of an individual company or in response to general market and/or economic conditions. Historically, common stocks have provided greater long-term returns and have entailed greater short-term risks than preferred stocks, fixed-income, and money market investments. The market values of all securities, including common and preferred stocks, is based upon the market's perception of value and not necessarily the book value of an issuer or
other
objective measures of a company's worth. If you invest in the Fund, you should be willing to accept the risks of the stock market (to the extent that a Fund invests in common stock) and should consider an investment in the Fund only as a part of your overall investment portfolio.
Warrants:
The Fund may invest in warrants. Warrants are securities, typically issued with preferred stock or bonds that give the holder the right to purchase a given number of shares of common stock at a specified price and time. The price of the warrant usually represents a premium over the applicable market value of the common stock at the time of the warrant's issuance. Warrants have
no
voting rights with respect to the common stock, receive no dividends and have no rights with respect to the assets of the issuer. Investments in warrants involve certain risks, including the possible lack of a liquid market for the resale of the warrants, potential price fluctuations due to adverse market conditions or other factors and failure of the price of the common stock to rise. If the warrant is not exercised within the specified time period, it becomes worthless.
Bank Loans and Participations:
The Fund may invest in bank loans and participations, including first-lien, second-lien and unitranche loans of any credit quality, maturity or duration. The bank loans
and
participations in which the Fund will invest may have fixed or floating interest rates, may be senior or subordinated, may be levered loans, and may be rated below investment grade or unrated. The Fund may invest in bank loans through assignments (whereby the Fund assumes the position of the lender to the borrower) or loan participation (whereby the Fund purchases all or a portion of the economic interest in a loan). "Unitranche" loans are loans that combine both senior and subordinate debt into a single loan under which the borrower pays an interest rate intended to reflect the relative risk of the secured and unsecured components of the loan.
Macroeconomic Risks:
Developments such as public health crises, armed conflict, changing interest rates, inflation, supply chain disruptions, geopolitical risks, and economic sanctions may disrupt economic markets and the prolonged economic impacts of these types of developments are uncertain. The operational and financial performance of the issuers of securities in which the Fund invests depends on future developments, including the duration, spread, and conclusion of global events, and such uncertainty may in turn impact the value of the Fund's investments.
NOTE 4. FUND CERTIFICATION
The Fund is listed for trading on the NYSE and has filed with the NYSE its annual chief executive officer certification regarding compliance with the NYSE's listing standards. The Fund filed with the Securities and Exchange Commission ("SEC") the certification of its chief executive officer and principal financial officer required by Section 302 of the Sarbanes-Oxley Act.
NOTE 5. DERIVATIVE TRANSACTIONS
Balance Sheet Offsetting Information
During the ordinary course of business, the Fund may enter into transactions subject to enforceable netting agreements or other similar arrangements ("netting agreements"). Generally, the right to offset in netting agreements allows the Fund to offset any
22
Angel Oak Financial Strategies Income Term Trust
Notes to the Financial Statements - (continued)
July 31, 2024 (Unaudited)
NOTE 5. DERIVATIVE TRANSACTIONS - (continued)
exposure to a specific counterparty with any collateral received or delivered to that counterparty based on the terms of the agreement. Generally, the Fund manages its cash collateral and securities collateral on a counterparty basis. As of July 31, 2024, the Fund was not subject to any netting agreements.
The following table provides a summary of offsetting financial liabilities and derivatives and the effect of derivative instruments on the Statement of Assets and Liabilities as of July 31, 2024:
Gross Amounts Not Offset in
Statement of Assets and Liabilities
Gross Amounts of
Recognized Liabilities
Gross Amounts Offset in
Statement of
Assets and Liabilities
Net Amounts of
Liabilities Presented in
Statement of
Assets and Liabilities
Financial
Instruments
Cash Collateral
Pledged
Net Amount
Reverse Repurchase Agreements ($56,688,000) $- ($56,688,000) ($56,688,000) $- $-
In some instances, the actual collateral received/pledged may be more than the amounts disclosed herein.
NOTE 6. FEES AND OTHER RELATED PARTY TRANSACTIONS
Under the terms of the investment advisory agreement, on behalf of the Fund (the "Agreement"), the Adviser manages the Fund's investments subject to oversight of the Trustees. As compensation for its management services, the Fund is obligated to pay the Adviser a fee computed and accrued daily and paid monthly at an annual rate of 1.35% of the average daily Managed Assets of the Fund. Managed Assets includes total assets (including any assets attributable to borrowing for investment purposes) minus the sum of the Fund's accrued liabilities (other than liabilities representing borrowings for investment purposes) ("Managed Assets").
The Adviser has also contractually agreed to waive its fees and/or reimburse certain expenses (exclusive of any management fees, front-end sales loads, taxes, interest expenses, dividend and interest expenses related to short sales, brokerage commissions, acquired fund fees and expenses, expenses incurred in connection with any merger or reorganization, any transaction-related expenses and fees arising out of transactions effected on behalf of the Fund, litigation and potential litigation expenses, and other extraordinary expenses not incurred in the ordinary course of the Fund's business) to limit the Fund's Total Annual Fund Operating Expenses to 0.25% of the Fund's Managed Assets (the "Expense Limit") through at least May 31, 2025 (the "Limitation Period"). The Expense Limit may be eliminated at any time by the Board, on behalf of the Fund, upon 60 days' written notice to the Adviser. Prior to the end of the Limitation Period, the Expense Limit may not be terminated by the Adviser without the consent of the Board of Trustees. The Expense Limit is subject to repayment by the Fund within 36 months following the month in which that particular waiver and/or reimbursement occurred, provided that the Fund is able to make the repayment without exceeding the expense limit described above or the expense limitation in effect at the time of the reimbursement (whichever is lower). During the period ended July 31, 2024, the Fund repaid $10,660 of previously waived expenses to the Adviser.
Destra Capital Advisors LLC ("Destra") provides investor support services in connection with the ongoing operation of the Fund. Such services include providing ongoing contact with respect to the Fund and its performance with financial advisors that are representatives of financial intermediaries, and communicating with the NYSE specialist for the shares of the Fund, and with the
closed-end
fund analyst community regarding the Fund on a regular basis. The Fund pays Destra a service fee in an annual amount equal to 0.07% of the average daily value of the Fund's Managed Assets.
U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services ("Fund Services"), an indirect wholly-owned subsidiary of U.S. Bancorp, serves as the Fund's Administrator ("Administrator") and, in that capacity, performs various administrative and accounting services for the Fund. Fund Services also serves as the Fund's fund accountant and transfer agent. The Administrator prepares various federal and state regulatory filings, reports and returns for the Fund; prepares reports and materials to be supplied to the Trustees; monitors the activities of the Fund's custodian; coordinates the preparation and payment of the Fund's expenses and reviews the Fund's expense accruals. As compensation for its services, the Administrator is entitled to a monthly fee at an annual rate based upon the average daily net assets of the Fund. U.S. Bank, N.A. (the "Custodian") serves as custodian to the Fund.
23
Angel Oak Financial Strategies Income Term Trust
Notes to the Financial Statements - (continued)
July 31, 2024 (Unaudited)
NOTE 6. FEES AND OTHER RELATED PARTY TRANSACTIONS - (continued)
The Fund makes reimbursement payments to the Adviser for the salary associated with the Chief Compliance Officer. The compliance fees expensed by the Fund during the period ended July 31, 2024, are included in the Statement of Operations.
Certain officers, Trustees and shareholders of the Fund are also owners or employees of the Adviser.
NOTE 7. INVESTMENT TRANSACTIONS
For the period ended July 31, 2024, purchases and sales of investment securities, other than short-term investments and short-term U.S. Government securities, were as follows:
Purchases
Sales
$19,850,867 $23,828,864
For the period ended July 31, 2024, there were no long-term purchases or long-term sales of U.S. Government securities for the Fund.
NOTE 8. FEDERAL TAX INFORMATION
The tax characterization of distributions paid for the year ended January 31, 2024, and January 31, 2023, were as follows:
2024
2023
Distributions paid from:
Ordinary Income
$17,813,675 $ 16,477,092
Net Long-Term Capital Gain
- -
Return of Capital
12,512,118 11,365,728
Total
$30,325,793 $ 27,842,820
At January 31, 2024, the components of distributable earnings (accumulated deficit) on a tax basis were as follows:
Tax Cost of Investments
$532,443,278
Unrealized Appreciation*
1,578,843
Unrealized Depreciation*
(52,483,620)
Net Unrealized Appreciation (Depreciation)*
($50,904,777)
Undistributed Ordinary Income
-
Undistributed Long-Term Gain (Loss)
-
Accumulated Gain (Loss)
$-
Other Accumulated Gain (Loss)
(16,767,116)
Total Distributable Earnings (Accumulated Deficit)
($67,671,893)
*
Represents aggregated amounts of investments and reverse repurchase agreements in the Fund.
The temporary differences between book basis and tax basis in the Fund are primarily attributable to amortization of callable bonds.
As of January 31, 2024, the Fund had available for federal tax purposes an unused capital loss carryforward of $16,756,992.
24
Angel Oak Financial Strategies Income Term Trust
Notes to the Financial Statements - (continued)
July 31, 2024 (Unaudited)
NOTE 8. FEDERAL TAX INFORMATION - (continued)
To the extent these carryforwards are used to offset futures gains, it is probable that the amount offset will not be distributed to shareholders. The carryforward expires as follows:
No expiration short-term
$11,869,704
No expiration long-term
$4,887,288
Total
$16,756,992
Certain capital losses incurred after October 31 and within the current taxable year, are deemed to arise on the first business day of the Fund's following taxable year. For the tax year ended January 31, 2024, the Fund did not defer any post-October losses.
NOTE 9. SENIOR NOTES
On July 8, 2021, the Fund issued senior unsecured notes ("Notes") in an aggregate amount of $85,000,000 in two fixed-rate series. The Notes were issued in private placement offerings to institutional investors and are not listed on any exchange or automated quotation system. The note purchase agreement (the "Agreement") contains various covenants related to other indebtedness and limits on the Fund's overall leverage. Under the 1940 Act and the terms of the Notes, the Fund may not declare dividends or make other distributions on shares of its common stock or make purchases of such shares if, at any time of the declaration, distribution or purchase, asset coverage with respect to senior securities representing indebtedness (including the Notes) would be less than 300%.
The table below sets forth a summary of the key terms of each series of Notes outstanding at July 31, 2024.
Series
Principal
Outstanding
07/31/24
Payment
Frequency
Unamortized
Offering Costs
Estimated
Fair Value
07/31/24
Fixed Interest
Rate
Maturity Date
A
$40,000,000 Semi-Annual $238,821 $37,495,214 2.35% July 8, 2026
B
$45,000,000 Semi-Annual $269,309 $40,821,068 2.80% July 8, 2028
The average daily balance of senior notes outstanding for the Fund during the period ended July 31, 2024, was $85,000,000 at a weighted average daily interest rate of 2.59%.
The carrying value of the Notes on the Statement of Assets and Liabilities is equal to the principal amount of the Notes less unamortized offering costs. The estimated fair value of the notes was calculated, for disclosure purposes, based on estimated market yields for comparable debt instruments with similar maturity and terms. The Fund would categorize the Senior Notes as Level 2 in the fair value hierarchy.
The Fund shall at all times maintain a current rating given by a Nationally Recognized Statistical Rating Organization ("NRSRO") of at least Investment Grade with respect to the Notes and shall not at any time have any rating given by a NRSRO of less than Investment Grade with respect to the Notes. The Notes have been assigned an 'A1' long-term rating by Moody's Investors Service.
The aggregate accrued interest payable on the Notes as of July 31, 2024, was $140,556 and is included in the Interest Payable for senior notes line item in the Statement of Assets and Liabilities. The Fund paid an origination fee of $854,000 and other expenses on July 13, 2021, which was paid upfront and is being amortized for daily over the life of the Notes. During the period ended July 31, 2024, $1,206,429 of interest expense and amortization of origination fees were included in the Interest and commissions expense line item that is reflected in the Statement of Operations.
At July 31, 2024, the Fund was in compliance with all covenants under the Agreement.
25
Angel Oak Financial Strategies Income Term Trust
Notes to the Financial Statements - (continued)
July 31, 2024 (Unaudited)
NOTE 10. CAPITAL TRANSACTIONS
For the period ended July 31, 2024, there were no capital transactions.
The Board approved a rights offering to participating shareholders of record as of September 20, 2021, which were in turn allowed to subscribe for new common shares of the Fund. Record date shareholders received one right for each common share held on record date. For every three rights held, a holder of the rights was entitled to buy one new common share of the Fund. Record date shareholders who fully exercised all rights initially issued to them in the primary subscription were entitled to buy those common shares that were not purchased by other record date shareholders. The subscription price per common share (the "Subscription Price") was determined based on a formula equal to 92.5% of the average of the last reported sales price of a common share of the Fund on the NYSE on the layoff/expiration dates and each of the four immediately preceding trading days (the "Formula Price"). However, the Formula Price was less than 86% of the Fund's NAV per common share at the close of trading on the NYSE on the layoff/expiration dates, therefore the Subscription Price used was based on 86% of the Fund's NAV per common share at the close of trading on the NYSE on those days. Offering costs were charged to paid-in-capital upon the exercise of the rights.
The shares of common stock issued, subscription price, and offering costs for the rights offering were as follows:
Layoff/Expiration Date
Shares of Common
Stock Issued
Subscription
Price
Offering
Costs
October 6, 2021
410,000 $16.15 $37,920
October 11, 2021
300,000 $16.10 $27,746
October 14, 2021
4,366,333 $16.06 $403,834
NOTE 11. ACCOUNTING PRONOUNCEMENTS AND/OR REGULATORY UPDATES
In December 2022, the FASB issued an Accounting Standards Update,
ASU 2022-06, Reference Rate Reform (Topic 848) - Deferral of the Sunset Date of Topic 848
("ASU 2022-06"). ASU 2022-06 is an amendment to ASU 2020-04, which provided optional guidance to ease the potential accounting burden due to the discontinuation of the LIBOR and other interbank-offered based reference rates and which was effective as of March 12, 2020, through December 31, 2022. ASU 2022-06 extends the effective period through December 31, 2024. Management is currently evaluating the impact, if any, of applying ASU 2022-06.
NOTE 12. SUBSEQUENT EVENTS
Management of the Fund has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date these financial statements were issued. This evaluation did not result in any subsequent events that necessitated disclosures and/or adjustments.
26
Additional Information (Unaudited)
1. Shareholder Notification of Federal Tax Status
For the taxable year ended January 31, 2024, certain dividends paid by the Fund may be subject to a maximum tax rate of 23.80% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to designate the maximum amount allowable as taxed at a maximum rate of 23.80%.
For the taxable year ended January 31, 2024, the Fund paid qualified dividend income of 0.00%.
For the taxable year ended January 31, 2024, the percentage of ordinary income dividends paid by the Fund that qualifies for the dividends received deduction available to corporations was 0.00%.
For the taxable year ended January 31, 2024, the Fund did not pay any ordinary income distributions that are designated as short-term capital gain distributions under Internal Revenue Section 871(k)2(c).
For the taxable year ended January 31, 2024, the percentage of taxable ordinary income distributions that are designated as interest related dividends under Internal Revenue 871(k)1(c) was 86.80%.
2. Disclosure of Portfolio Holdings
The Fund will file a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Part F of Form
N-PORT.
The Fund's Part F of Form
N-PORT
is available on the SEC's website at
http://www.sec.gov
and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling
(800) SEC-0230.
3. Householding
The SEC permits funds to deliver only one copy of certain shareholder documents, including shareholder reports, to fund investors with multiple accounts at the same residential or post office box address. This practice is often called "householding" and it helps eliminate duplicate mailings to shareholders. Unless you have instructed the Fund otherwise, only one copy of a shareholder report will be mailed to multiple Fund shareholders of record who share the same mailing address. If you would like additional copies of a shareholder report, please contact your participating broker-dealer firm or other financial intermediary or, if you hold Fund shares directly with the Fund, you may write to the Fund c/o U.S. Bank Global Fund Services at P.O. Box 701, Milwaukee, WI 53201-0701 or call toll-free (855)751-4324.
4. Proxy Voting Policies and Procedures
A description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio securities and information regarding how the Fund voted those proxies during the most recent twelve month period ended June 30, is available without charge upon request by (1) calling the Fund at (855)
751-4324
and (2) from Fund documents filed with the SEC on the SEC's website at
www.sec.gov
.
5. Annual Meeting of Shareholders
At the Annual Meeting of Shareholders held on June 25, 2024, shareholders approved the election of Alvin R. Albe, Jr. and Cheryl M. Pate as Class I Trustees to the Board of Trustees to serve a three-year term expiring in 2027 based on the following results:
For
Against
Abstain
To Elect Alvin R. Albe, Jr.
16,256,587 5,567,707 218,782
To Elect Cheryl M. Pate
16,281,505 5,536,445 225,127
Shareholders also ratified the selection of Cohen & Company, Ltd. as the Fund's independent registered public accounting firm for the fiscal year ending January 31, 2025, based on the following results:
For
Against
Abstain
To Approve Cohen & Company, Ltd.
20,948,157 891,773 203,150
27
6. Dividend Reinvestment Plan
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), distributions of dividends and capital gains are automatically reinvested in Shares of the Fund by Fund Services, as Plan Agent. Unless a shareholder indicates another option on the account application or otherwise
opts-out,
shareholders holding at least one full Share of the Fund will be automatically enrolled in the Plan. Shareholders who do not participate in the Plan will receive all distributions in cash.
If the Fund declares a dividend or distribution payable either in cash or in Shares of the Fund and the market price of Shares on the payment date for the distribution or dividend equals or exceeds the Fund's NAV per Share, the Fund will issue Shares to participants at a value equal to the higher of NAV or 95% of the market price. The number of additional Shares to be credited to each participant's account will be determined by dividing the dollar amount of the distribution or dividend by the higher of NAV or 95% of the market price. If the market price is lower than NAV, or if dividends or distributions are payable only in cash, then participants will receive Shares purchased by the Plan Agent on participants' behalf on the NYSE or otherwise on the open market. If the market price exceeds NAV before the Plan Agent has completed its purchases, the average per Share purchase price may exceed NAV, resulting in fewer Shares being acquired than if the Fund had issued new Shares.
There are no brokerage charges with respect to Shares issued directly by the Fund. However, whenever Shares are purchased or sold on the NYSE or otherwise on the open market, each participant will pay a pro rata portion of brokerage trading fees. Currently, dividend reinvestment plan participants that direct the sale of Shares through the Plan Agent are subject to a $25.00 fee plus a sales commission of $4.95.
The reinvestment of dividends and net capital gains distributions does not relieve participants of any income tax that may be payable on such dividends or distributions. Purchases of additional Shares of the Fund will be made on the open market. There is no transaction fee, and each participant will pay a pro rata share of brokerage commissions incurred in connection with purchases made on the open market. Shareholders can also sell Fund Shares held in the Plan account at any time by contacting the Plan Agent by telephone or in writing. The Plan Agent will mail a check to you (less applicable brokerage trading fees) on the settlement date, which is three business days after your Shares have been sold. If you choose to sell your Shares through your broker, you will need to request that the Plan Agent electronically transfer your Shares to your broker through the Direct Registration System.
Shareholders participating in the Plan may withdraw from the Plan at any time by contacting the Plan Agent by telephone or in writing. Such termination will be effective immediately if the notice is received by the Plan Agent prior to any dividend or distribution record date; otherwise, such termination will be effective on the first trading day after the payment date for such dividend or distribution, with respect to any subsequent dividend or distribution. If you withdraw, your Shares will be credited to your account; or, if you wish, the Plan Agent will sell your full and fractional Shares and send you the proceeds, less a fee currently set at $25.00 and less a sales commission currently set at $4.95. If a shareholder does not maintain at least one whole Share in the Plan account, the Plan Agent may terminate such shareholder's participation in the Plan after written notice. Upon termination, shareholders will be sent a check for the cash value of any fractional Share in the Plan account, less any applicable broker commissions and taxes. Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund and the Plan Agent reserve the right to amend or terminate the Plan. Participants generally will receive written notice at least 60 days before the effective date of any amendment. In the case of termination, participants will receive written notice at least 60 days before the record date for the payment of any dividend or distribution by the Funds.
All correspondence or additional information about the Plan should be directed to Fund Services in writing at 615 East Michigan Street, Milwaukee, Wisconsin 53202.
7. Compensation of Trustees
Each Trustee who is not an "interested person" (i.e., an "Independent Trustee") of the Fund Complex (which includes affiliated registrants not discussed in this report) receives an annual retainer of $65,000
(pro-rated
for any periods less than one year) paid quarterly as well as $12,000 for attending each regularly scheduled meeting in connection with his or her service on the Board. In addition, each Committee Chair as well as the Chair of the Board receives additional annual compensation of $12,000
(pro-rated
for any periods less than one year). Independent Trustees are permitted for reimbursement of
out-of-pocket
expenses incurred in connection with attendance at meetings.
28
8. Trustees and Officers
The business of the Fund is managed under the oversight of the Board. The Board meets periodically to review the Fund's performance, monitor investment activities and practices, and discuss other matters affecting the Fund. The Trustees are fiduciaries for the Fund's shareholders and are governed by the laws of the State of Delaware in this regard. The names and addresses of the Trustees and officers of the Fund are listed below along with a description of their principal occupations over at least the last five years. The address of each Trustee and Officer of the Fund is c/o Angel Oak Capital Advisors, LLC, 3344 Peachtree Road NE, Suite 1725, Atlanta, GA 30326.
Name and
Year of Birth
Position with
the Fund
Term of Office
and Length of
Time Served
Principal
Occupation(s) During
Past 5 Years
Number of
Portfolios
in Fund
Complex
(1)
Overseen
by Trustee
Other Directorships Held
During the Past 5 Years
Independent Trustees
(2)
Ira P. Cohen
1959
Independent Trustee,
Chair
(Class III)
Trustee since 2018,
Chair since 2019;
3 year term
Executive Vice President, Recognos Financial (investment industry data analysis provider) (2015-2021); Independent financial services consultant (since 2005). 9 Trustee, Valued Advisers Trust (since 2010); Trustee, Apollo Diversified Real Estate Fund (formerly, Griffin Institutional Access Real Estate Fund) (since 2014); Trustee, Angel Oak Funds Trust (since 2014); Trustee, Angel Oak Strategic Credit Fund (since 2017); Trustee, U.S. Fixed Income Trust (since 2019); Trustee, Angel Oak Credit Opportunities Term Trust (since 2021); Trustee, Angel Oak Dynamic Financial Strategies Income Term Trust (2019-2022); Trustee, Apollo Credit Fund (formerly, Griffin Institutional Access Credit Fund)
(2017-2022).
Alvin R. Albe, Jr.
1953
Independent Trustee (Class I) Since 2018; 3 year term Retired. 9 Trustee, Angel Oak Funds Trust (since 2014); Trustee, Angel Oak Strategic Credit Fund (since 2017); Trustee, Angel Oak Credit Opportunities Term Trust (since 2021); Trustee, Angel Oak Dynamic Financial Strategies Income Term Trust
(2019-2022).
29
Name and
Year of Birth
Position with
the Fund
Term of Office
and Length of
Time Served
Principal
Occupation(s) During
Past 5 Years
Number of
Portfolios
in Fund
Complex
(1)
Overseen
by Trustee
Other Directorships Held
During the Past 5 Years
Keith M. Schappert
1951
Independent Trustee (Class II) Since 2018; 3 year term President, Schappert Consulting LLC (investment industry consulting) (since 2008); Retired, President and CEO of JP Morgan Investment Management. 9 Trustee, Angel Oak Funds Trust (since 2014); Trustee, Angel Oak Strategic Credit Fund (since 2017); Trustee, Angel Oak Credit Opportunities Term Trust (since 2021); Trustee, Angel Oak Dynamic Financial Strategies Income Term Trust
(2019-2022);
Director, Commonfund Capital, Inc. (2015-2022); Trustee, Mirae Asset Discovery Funds (2010-2023).
Andrea N. Mullins
1967
Independent Trustee (Class II) Since 2019; 3 year term Private Investor; Independent Contractor, SWM Advisors (since 2014). 9 Trustee and Audit Committee Chair, Valued Advisers Trust (since 2013, Chair since 2017); Trustee, Angel Oak Funds Trust (since 2019); Trustee, Angel Oak Strategic Credit Fund (since 2019); Angel Oak Credit Opportunities Term Trust (since 2021); Trustee and Audit Committee Chair, NXG Cushing Midstream Energy Fund (formerly, Cushing MLP & Infrastructure Fund) (since 2021); Trustee and Audit Committee Chair, NXG NextGen Infrastructure Income Fund (formerly, Cushing NextGen Infrastructure Income Fund) (since 2021); Trustee, Angel Oak Dynamic Financial Strategies Income Term Trust
(2019-2022);
Trustee and Audit Committee Chair, Cushing Mutual Funds Trust
(2021-2023).
30
Name and
Year of Birth
Position with
the Fund
Term of Office
and Length of
Time Served
Principal
Occupation(s) During
Past 5 Years
Number of
Portfolios
in Fund
Complex
(1)
Overseen
by Trustee
Other Directorships Held
During the Past 5 Years
Interested Trustees
Cheryl M. Pate
1976
Interested Trustee (Class I) Since 2023; 3 year term Senior Portfolio Manager, Angel Oak Capital Advisors, LLC (investment management) (since 2017). 9 Trustee, Angel Oak Funds Trust (since 2022); Trustee, Angel Oak Strategic Credit Fund (since 2022); Trustee, Angel Oak Credit Opportunities Term Trust (since 2022); Trustee, Angel Oak Dynamic Financial Strategies Income Term Trust
(2022-2022).
Clayton Triick
(3)
1986
Interested Trustee (Class III)
Since 2024; Through 2026
Head of Portfolio Management, Public Strategies, Angel Oak Capital Advisors, LLC (since 2024); Senior Portfolio Manager, Angel Oak Capital Advisors, LLC (2011-2024). 9
Trustee, Angel Oak Funds Trust (since 2024); Trustee, Angel Oak Strategic Credit Fund (since 2024); Trustee, Angel Oak Credit Opportunities Term Trust (since 2024).
(1)
The Fund Complex includes the Fund, each series of Angel Oak Funds Trust, Angel Oak Strategic Credit Fund, and Angel Oak Credit Opportunities Term Trust.
(2)
The Trustees of the Fund who are not "interested persons" of the Fund as defined in the 1940 Act ("Independent Trustees").
(3)
Mr. Triick was appointed Interested Trustee on June 25, 2024.
31
Name and
Year of Birth
Position with the Fund
Term of Office and Length of Time Served
Principal Occupation(s) During Past 5 Years
Officers
Adam Langley
1967
President Since 2022; indefinite term (other offices held 2015-2022) Chief Operating Officer, Angel Oak Capital Advisors, LLC (since 2021); Chief Compliance Officer, Angel Oak Capital Advisors, LLC (2015-2022); Chief Compliance Officer of Falcons I, LLC (2018-2022); Chief Compliance Officer, Angel Oak Funds Trust (2015-2022); Chief Compliance Officer, Angel Oak Strategic Credit Fund (2017-2022); Chief Compliance Officer, Angel Oak Dynamic Financial Strategies Income Term Trust (2019-2022); Chief Compliance Officer, Angel Oak Credit Opportunities Term Trust (2021-2022); Chief Compliance Officer, Angel Oak Commercial Real Estate Solutions (2021-2022); Chief Compliance Officer, Buckhead One Financial Opportunities, LLC (2015-2022); Chief Compliance Officer, Angel Oak Capital Partners II, LLC (2016-2022); Chief Compliance Officer, Hawks I, LLC
(2018-2022).
Michael Colombo
1984
Secretary Since 2023; indefinite term Chief Risk Officer, Angel Oak Capital Advisors, LLC (since 2023); Director of Valuation, Angel Oak Capital Advisors, LLC (2022-2023); Director of Trade Operations, Intercontinental Exchange, Inc. (2022); Manager of Trade Operations, Intercontinental Exchange, Inc.
(2019-2022);
Lead Analyst, Trade Operations, Intercontinental Exchange, Inc. (2018-2019).
Patrick Journy
1984
Treasurer Since 2024; indefinite term
Chief Accounting Officer, Angel Oak Mortgage REIT (since 2022); Chief Financial Officer, JFQ Lending Inc.
(2020-2022);
Chief Financial Officer, Mortgage Asset Management, LLC
(2018-2022).
Chase Eldredge
1989
Chief Compliance Officer Since 2022; indefinite term Chief Compliance Officer, Angel Oak Capital Advisors, LLC (since 2022); Chief Compliance Officer of Falcons I, LLC (since 2022); Chief Compliance Officer, Angel Oak Funds Trust (since 2022); Chief Compliance Officer, Angel Oak Strategic Credit Fund (since 2022); Chief Compliance Officer, Angel Oak Credit Opportunities Term Trust (since 2022); Senior Compliance Officer, Angel Oak Capital Advisors, LLC (2020-2022); Compliance Officer, Angel Oak Capital Advisors, LLC (2017-2020).
Each officer holds office at the pleasure of the Board.
32
INVESTMENT ADVISER
Angel Oak Capital Advisors, LLC
3344 Peachtree Road NE, Suite 1725
Atlanta, GA 30326
SHAREHOLDER SERVICER
Destra Capital Advisors LLC
444 N. Wilson Avenue
Bozeman, MT 59715
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Cohen & Company, Ltd.
342 North Water Street, Suite 830
Milwaukee, WI 53202
LEGAL COUNSEL
Dechert LLP
1900 K Street NW
Washington, DC 20006
CUSTODIAN
U.S. Bank National Association
1555 North Rivercenter Drive, Suite 302
Milwaukee, WI 53212
ADMINISTRATOR, TRANSFER AGENT, AND FUND ACCOUNTANT
U.S Bancorp Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
SAR-FINS

(b) Not applicable.

Item 2. Code of Ethics.

Not applicable for semi-annual reports.

Item 3. Audit Committee Financial Expert.

Not applicable for semi-annual reports.

Item 4. Principal Accountant Fees and Services.

Not applicable for semi-annual reports.

Item 5. Audit Committee of Listed Registrants.

Not applicable for semi-annual reports.

Item 6. Investments.

Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.

Item 7. Financial Statements and Financial Highlights for Open-EndInvestment Companies.

Not applicable to closed-endinvestment companies.

Item 8. Changes in and Disagreements with Accountants for Open-EndInvestment Companies.

Not applicable to closed-endinvestment companies.

Item 9. Proxy Disclosure for Open-EndInvestment Companies.

Not applicable to closed-endinvestment companies.

Item 10. Remuneration Paid to Directors, Officers, and Others of Open-EndInvestment Companies.

Not applicable to closed-endinvestment companies.

Item 11. Statement Regarding Basis for Approval of Investment Advisory Contract.

Not applicable.

Item 12. Disclosure of Proxy Voting Policies and Procedures for Closed-EndManagement Investment Companies.

Not applicable for semi-annual reports.

Item 13. Portfolio Managers of Closed-EndManagement Investment Companies.

Not applicable for semi-annual reports.

Item 14. Purchases of Equity Securities by Closed-EndManagement Investment Company and Affiliated Purchasers.

There were no purchases made by or on behalf of the Registrant or any "affiliated purchaser," as defined in Rule 10b-18(a)(3)under the Securities Exchange Act of 1934, as amended, of shares of the Registrant's equity securities that are registered by the Registrant pursuant to Section 12 of the Exchange Act made in the period covered by this report.

Item 15. Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's board of trustees.

Item 16. Controls and Procedures.

(a)

The Registrant's Principal Executive Officer and Principal Financial Officer have reviewed the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c)under the Investment Company Act of 1940 (the "Act")) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b)under the Act and Rules 13a-15(b)or 15d-15(b)under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant's service provider.

(b)

There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d)under the Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.

Item 17. Disclosure of Securities Lending Activities for Closed-EndManagement Investment Companies

The registrant did not engage in securities lending activities during the fiscal period reported on this Form N-CSR.

Item 18. Recovery of Erroneously Awarded Compensation.

(a) Not Applicable.

(b) Not Applicable.

Item 19. Exhibits.

(a)

(1) Any code of ethics or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Not Applicable.

(2) Any policy required by the listing standards adopted pursuant to Rule 10D-1under the Exchange Act (17 CFR 240.10D-1)by the registered national securities exchange or registered national securities association upon which the registrant's securities are listed. Not Applicable.

(3) A separate certification for each Principal Executive Officer and Principal Financial Officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)).Filed herewith. (4) Any written solicitation to purchase securities under Rule 23c-1under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable.

(5)

Change in the registrant's independent public accountant. Provide the information called for by Item 4 of Form 8-Kunder the Exchange Act (17 CFR 249.308). Unless otherwise specified by Item 4, or related to and necessary for a complete understanding of information not previously disclosed, the information should relate to events occurring during the reporting period. There was no change in the registrant's independent public accountant for the period covered by this report.

(b)

Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant) Angel Oak Financial Strategies Income Term Trust

By (Signature and Title)* 

/s/ Adam Langley

Adam Langley, President (Principal Executive Officer)

Date October 1, 2024      

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title)* 

/s/ Adam Langley

Adam Langley, President (Principal Executive Officer)

Date October 1, 2024      

By (Signature and Title)* 

/s/ Patrick Journy

Patrick Journy, Treasurer (Principal Financial Officer)

Date October 1, 2024      

*

Print the name and title of each signing officer under his or her signature.