Semi Annual Report by Investment Company Form N CSRS

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number

(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:

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

holders.

(a)

Semi-Annual Report

Suite 1725

Atlanta, GA 30326

(404)

Table of Contents

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

Banks; insurance; asset managers

Top Detractors

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)

Total RetuBased 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 retuwould be reduced. Past performance is not predictive of future performance. Investment retuand 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.

(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 retuof 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

(For the period ended July 31, 2024)

(1) Retufigures 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 retudoes 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.

4

Statement of Assets and Liabilities

July 31, 2024 (Unaudited)

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

5

Statement of Operations

For the Period Ended July 31, 2024 (Unaudited)

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

6

Statement of Cash Flows

For the Period Ended July 31, 2024 (Unaudited)

The accompanying notes are an integral part of these financial statements.

7

Statements of Changes in Net Assets

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

8

Financial Highlights 

(For a share outstanding during each year or period) 

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

9

Schedule of Investments

July 31, 2024 (Unaudited)

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

10

Schedule of Investments - (continued)

July 31, 2024 (Unaudited)

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

11

Schedule of Investments - (continued)

July 31, 2024 (Unaudited)

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

12

Schedule of Investments - (continued)

July 31, 2024 (Unaudited)

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

13

Schedule of Investments - (continued)

July 31, 2024 (Unaudited)

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

14

Schedule of Investments - (continued)

July 31, 2024 (Unaudited)

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

Schedule of Investments - (continued)

July 31, 2024 (Unaudited)

LIBOR-London Interbank Offered Rate

SOFR-Secured Overnight Financing Rate

Schedule of Open Reverse Repurchase Agreements

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

16

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

management investment company listed on the New York Stock Exchange ("NYSE"). Please see the table below for a summary of Fund specific information:

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,

: 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:

The inputs or methodology used for valuing securities are not an indication of the risks associated with investing in those securities.

Investments in registered

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

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

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

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:

18

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:

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:

19

Notes to the Financial Statements - (continued)

July 31, 2024 (Unaudited)

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - (continued)

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.

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

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 retuof 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 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

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.

: 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.

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.

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 are highly liquid assets including coin, currency and short-term investments that typically mature in

days. Short-term investments can include U.S. Government and government agency

20

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.

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 retua 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:

NOTE 3. RISKS ASSOCIATED WITH PORTFOLIO ASSETS

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

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.

The Fund may invest in below investment grade securities, including certain securities issued by U.S.

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,

if unrated, considered by the Adviser to be of comparable quality.

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

Notes to the Financial Statements - (continued)

31, 2024 (Unaudited)

NOTE 3. RISKS ASSOCIATED WITH PORTFOLIO ASSETS - (continued)

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

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.

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

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.

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

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.

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 tuimpact 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

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:

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

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

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:

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:

At January 31, 2024, the components of distributable earnings (accumulated deficit) on a tax basis were as follows:

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

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:

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.

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.

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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 tuallowed 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:

NOTE 11. ACCOUNTING PRONOUNCEMENTS AND/OR REGULATORY UPDATES

In December 2022, the FASB issued an Accounting Standards Update,

("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.

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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

The Fund's Part F of Form

is available on the SEC's website at

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

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)

and (2) from Fund documents filed with the SEC on the SEC's website at

.

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:

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:

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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

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

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

for any periods less than one year). Independent Trustees are permitted for reimbursement of

expenses incurred in connection with attendance at meetings.

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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.

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