ck0001612930-20240131
TABLE
OF CONTENTS
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Sales
Charges – Class A1 Shares |
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Sales
Charge Reductions and Waivers |
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Contingent
Deferred Sales Charge – Class C Shares |
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Contingent
Deferred Sales Charge Waivers – Class A Shares, Class A1 Shares and Class
C Shares |
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ANGEL OAK
MULTI-STRATEGY INCOME FUND
SUMMARY |
Investment
Objective
The
investment objective of the Angel Oak Multi-Strategy Income Fund (the “Fund”) is
current income.
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold and sell
shares of the Fund. You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and examples
below.
You
may qualify for sales charge discounts or waivers if you and your family invest,
or agree to invest in the future, at least $100,000 in Class A shares of the
Fund. More information about these and other discounts or
waivers is available from your financial professional, in the sections “Sales
Charges—Class A Shares” on page 43 of the Prospectus, and in “Appendix A—Waivers
and Discounts Available from Intermediaries.”
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Shareholder
fees (fees paid directly from your
investment) |
Class
A |
Class C |
Institutional
Class |
Maximum
Sales Charge (Load) Imposed on Purchases (as a % of the offering
price) |
2.25% |
| None |
| None |
Maximum
Deferred Sales Charge (Load) (as a % of amount redeemed) |
None ¹ |
| 1.00% ² |
| None |
Annual Fund Operating Expenses (expenses that you pay
each year as a
percentage of the value of your investment)
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Management
Fees |
0.89% |
0.89% |
0.89% |
Distribution
and Service (12b-1) Fees |
0.25% |
1.00% |
0.00% |
Other
Expenses3 |
0.99% |
0.99% |
0.99% |
Acquired
Fund Fees and Expenses |
0.03% |
0.03% |
0.03% |
Total
Annual Fund Operating Expenses |
2.16% |
2.91% |
1.91% |
Less
Fee Waiver4 |
-0.02% |
-0.02% |
-0.02% |
Total
Annual Fund Operating Expenses After Fee Waiver |
2.14% |
2.89% |
1.89% |
1 There is no initial sales charge on purchases of Class A shares of
$500,000 or more, however, a contingent deferred sales charge of up to 1.00%
will be imposed if such Class A shares are redeemed within twelve (12) months of
their purchase.
2 The Fund charges this fee on Class C shares redeemed within one
year of purchase.
3 “Other Expenses” include
interest expense of 0.87% for each of Class A, Class C, and Institutional Class
shares. Interest expense is borne by the Fund separately from the management
fees paid to Angel Oak Capital Advisors, LLC (the “Adviser”). Excluding interest
expense of the Fund, Total Annual Fund Operating Expenses After Fee Waiver are
1.27%, 2.02% and 1.02% for Class A, Class C, and Institutional Class shares,
respectively.
4 The Adviser has
contractually agreed to waive its fees through at least May 31, 2025 to the extent necessary to
offset the proportionate share of the management fees incurred by the Fund
through its investment in an underlying fund for which the Adviser also serves
as investment adviser. This arrangement may only be changed or eliminated by the
Board of Trustees upon 60 days’ written notice to the
Adviser.
Expense
Example
The
following examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The examples assume that
you invest $10,000 in the Fund for the time periods indicated and then redeem or
continue to hold all of your shares at the end of those periods. The examples
also assume that your investment has a 5% return each year and that the Fund’s
operating expenses remain the same. The expenses below reflect any applicable
expense limit and/or fee waiver for the first year only. Although your actual
costs may be higher or lower and the Fund’s actual return may be greater or less
than the hypothetical 5%, based on these assumptions your costs would
be:
If you redeem
your shares at the end of each period:
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| One
Year |
Three
Years |
Five
Years |
Ten
Years |
Class
A shares |
$437 |
$884 |
$1,356 |
$2,660 |
Class
C shares |
$394 |
$899 |
$1,531 |
$3,232 |
Institutional
Class shares |
$290 |
$692 |
$1,119 |
$2,309 |
Angel
Oak Multi-Strategy Income Fund 2
If
you do not redeem your shares:
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| One
Year |
Three
Years |
Five
Years |
Ten
Years |
Class
A shares |
$437 |
$884 |
$1,356 |
$2,660 |
Class
C shares |
$292 |
$899 |
$1,531 |
$3,232 |
Institutional
Class shares |
$290 |
$692 |
$1,119 |
$2,309 |
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in
annual operating expenses or in the example above, affect the Fund’s
performance. During the most recent fiscal year ended January 31, 2024, the
portfolio turnover rate for the Fund was 32% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund invests primarily in agency and non-agency residential mortgage-backed
securities (“RMBS”), commercial mortgage-backed securities (“CMBS”),
collateralized loan obligations (“CLOs”), collateralized debt obligations
(“CDOs”), collateralized mortgage obligations (“CMOs”), collateralized bond
obligations (“CBOs”), asset-backed securities (“ABS”), including securities
backed by assets such as unsecured consumer loans, credit card receivables,
student loans, automobile loans, loans financing solar energy systems, and
residential and commercial real estate, and other debt securitizations
(collectively, “Structured Products”); mortgage loans, secured and unsecured
consumer loans, commercial loans and pools of such loans (collectively,
“Loans”); corporate debt, including bank-issued subordinated debt; equity
securities of banks, real estate investment trusts, or other issuers; and U.S.
Treasury and U.S. government agency securities.
The
Fund may invest up to 20% of its net assets in CLOs, which are backed by a pool
of loans, as well as CDOs, which may be backed by a pool of debt. CLOs and CDOs
are similar to CMOs, but differ as to the type of underlying loan or debt.
The
Fund may invest in the securities of other investment companies, including those
that are part of the same group of investment companies as the Fund, that pursue
an investment strategy that supports the Fund’s investment objective.
The
Fund will concentrate its investments in agency and non-agency residential
mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities
(“CMBS”) (collectively, “MBS”). This means that, under normal circumstances, the
Fund will invest more than 25% of its total assets in MBS (measured at the time
of purchase). The Fund will not concentrate its investments in any other group
of industries. The Fund’s policy to concentrate its investments in MBS is
fundamental and may not be changed without shareholder approval.
The
fixed income instruments in which the Fund invests may include those of issuers
from the United States and other countries. The Fund’s investments in foreign
debt securities will typically be denominated in U.S. dollars.
The Fund may invest up to 15% of its net assets in investments that
are deemed to be illiquid, which may include private placements, certain Rule
144A securities (which are subject to resale restrictions), and securities of
issuers that are bankrupt or in default.
The
Fund may invest, without limitation, in securities of any maturity and duration.
Maturity refers to the length of time until a debt security’s principal is
repaid with interest. Duration is a measure used to determine the sensitivity of
a security’s price to changes in interest rates that incorporates a security’s
yield, coupon, final maturity and call and put features and prepayment exposure
into one measure with a higher duration indicating greater sensitivity to
interest rates. For example, if a portfolio has a duration of two years, and
interest rates increase (fall) by 1%, the portfolio would decline (increase) in
value by approximately 2%. However, duration may not accurately reflect the true
interest rate sensitivity of instruments held by the Fund and, therefore the
Fund’s exposure to changes in interest rates.
The
Fund’s investments in RMBS and ABS will span a broad segment of consumer
creditworthiness segments, which will include exposure to prime, near-prime, and
subprime consumers.
The
Fund may invest in high-yield securities and securities that are not rated by
any rating agencies. These “high-yield” securities (also known as “junk bonds”)
will be rated BB+ or lower by Standard & Poor’s Rating Group (“S&P”) or
will be of equivalent quality rating from another Nationally Recognized
Statistical Ratings Organization. If a bond is unrated, the Adviser may
determine whether it is of comparable quality and therefore eligible for the
Fund’s investment. Although the Fund will not acquire investments of issuers
that are in default at the time of investment, the Fund may hold such securities
if an investment subsequently defaults.
The
Fund may implement its strategy by making investments directly or, to comply
with certain regulations, through a wholly-owned and controlled subsidiary of
the Fund organized as a statutory trust under the laws of the state of Delaware
(each, a “Subsidiary”). The Subsidiary may invest in residential and commercial
real estate whole loans, participations in such loans or instruments
Angel
Oak Multi-Strategy Income Fund 3
representing
the right to receive interest payments and principal due on such loans. The
Subsidiary may invest in residential and commercial real estate loans of any
credit rating or no credit rating, including without limit in loans that are
rated below investment grade. The principal risks of investments in the
Subsidiary are the same as those relating to residential loans and mortgages.
See “Residential Loans and Mortgages Risk.” The allocation of the Fund’s
investments, if any, in the Subsidiary will vary over time, and the Subsidiary’s
investments will also vary and may not include all of the types of investments
described above. In the future, the Fund may form one or more additional
wholly-owned and controlled subsidiaries.
In
pursuing its investment objectives or for hedging purposes, the Fund may utilize
short selling, borrowing and various types of derivative instruments, including
swaps, futures contracts, and options, although not all such derivatives will be
used at all times. Such derivatives may trade over-the-counter or on an exchange
and may principally be used for one or more of the following purposes:
speculation, currency hedging, duration management, credit deterioration
hedging, hedges against broad market movements, or to pursue the Fund’s
investment objective. The Fund may borrow to the maximum extent permitted by
applicable law. The Fund may also invest in repurchase agreements and borrow
through reverse repurchase agreements.
The
Fund’s allocation of its assets into various asset classes within its investment
strategy will depend on the views of the Adviser as to the best value relative
to what is currently presented in the marketplace. Investment decisions are made
based on fundamental research and analysis to identify issuers with the ability
to improve their credit profile over time with attractive valuations, resulting
in both income and potential capital appreciation. In selecting investments, the
Adviser may consider maturity, yield and ratings information and opportunities
for price appreciation among other criteria. The Adviser also analyzes a variety
of factors when selecting investments for the Fund, such as collateral quality,
credit support, structure and market conditions. The Adviser attempts to
diversify risks that arise from position sizes, geography, ratings, duration,
deal structure and collateral values. The Adviser will also seek to invest in
securities that have relatively low volatility. The Adviser seeks to limit risk
of principal by targeting assets that it considers undervalued. From time to
time, the Fund may allocate its assets so as to focus on particular types of
securities.
As part of its investment process, the Adviser also considers certain
environmental, social and governance (“ESG”) and sustainability factors that it
believes could have a material negative or positive impact on the risk profiles
of the issuers or underlying collateral assets of certain securities in which
the Fund may invest. These determinations may not be conclusive, and securities
that may be negatively impacted by such factors may be purchased and retained by
the Fund while the Fund may divest or not invest in securities that may be
positively impacted by such factors. The Adviser may sell investments if it
determines that any of the mentioned factors have changed materially from its
initial analysis, that other factors indicate that an investment is no longer
earning a return commensurate with its risk, or that a different security will
better help the Fund achieve its investment objective.
Principal Risks
The
principal risks of investing in the Fund are summarized below. You should
carefully consider the Fund’s investment risks before deciding whether to invest
in the Fund. There may be circumstances that could prevent the Fund from
achieving its investment objective and you may lose money by investing in the
Fund. An investment in the Fund is not a deposit at a
bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
•Fixed-Income
Instruments Risks. The Fund will invest in fixed-income instruments and securities. Such
investments may be secured, partially secured or unsecured and may be unrated,
and whether or not rated, may have speculative characteristics. The market price
of the Fund’s investments will change in response to changes in interest rates
and other factors. Generally, when interest rates rise, the values of
fixed-income instruments fall, and vice versa. In typical interest rate
environments, the prices of longer-term fixed-income instruments generally
fluctuate more than the prices of shorter-term fixed-income instruments as
interest rates change. In addition, a fund with a longer average portfolio
duration will be more sensitive to changes in interest rates than a fund with a
shorter average portfolio duration. A fund with a negative average portfolio
duration may decline in value as interest rates decrease. Most high yield
investments pay a fixed rate of interest and are therefore vulnerable to
inflation risk (inflation rates are currently elevated relative to normal
conditions). The obligor of a fixed-income instrument may not be able or willing
to pay interest or to repay principal when due in accordance with the terms of
the associated agreement.
•General
Market Risk.
The capital markets may experience periods of disruption, instability and
volatility. Political, geopolitical, natural and other events, including war,
terrorism, trade disputes, government shutdowns, market closures, natural and
environmental disasters, epidemics, pandemics and other public health crises and
related events have led, and in the future may lead, to economic uncertainty,
decreased economic activity, increased market volatility and other disruptive
effects on U.S. and global economies and markets. Such conditions may materially
and adversely affect the markets globally and in the jurisdictions in which the
Fund invests, which may have a negative impact on the Fund’s performance. The
Fund’s net asset value (“NAV”) and investment return will fluctuate based upon
changes in the value of its portfolio securities.
•Credit
Risk. Credit risk is the risk that the Fund could lose money if the issuer
or guarantor of a fixed income security, or the counterparty to a derivative
contract, is unable or unwilling to meet its financial
obligations.
•Interest
Rate Risk. The Fund is exposed to risks associated with changes in interest
rates, including the possibility that, in a period of rising interest rates,
securities may exhibit additional volatility and may lose
value.
Angel
Oak Multi-Strategy Income Fund 4
•Prepayment
Risk.
When interest rates decline, fixed income securities with stated interest rates
may have the principal paid earlier than expected, requiring the Fund to invest
the proceeds at generally lower interest rates.
•Structured
Products Risks.
The Fund may invest in Structured Products, including CLOs, CDOs, CMOs, CBOs,
and other asset-backed securities and debt securitizations. Some Structured
Products have credit ratings, but are typically issued in various classes with
various priorities. Normally, Structured Products are privately offered and sold
(that is, they are not registered under the securities laws), which means less
information about the security may be available as compared to publicly offered
securities and only certain institutions may buy and sell them. As a result,
investments in Structured Products may be characterized by the Fund as illiquid
securities. An active dealer market may exist for Structured Products that
qualify for Rule 144A transactions, but there can be no assurance that such a
market will exist or will be active enough for the Fund to sell such securities.
In addition to the typical risks associated with fixed-income securities and
asset-backed securities, CLOs and CDOs carry additional risks including, but not
limited to: (i) the possibility that distributions from collateral securities
will not be adequate to make interest or other payments; (ii) the risk that the
collateral may default, decline in value or quality or be downgraded by a rating
agency; (iii) the Fund may invest in tranches of Structured Products that are
subordinate to other tranches; (iv) the structure and complexity of the
transaction and the legal documents could lead to disputes among investors
regarding the characterization of proceeds; (v) risk of forced “fire sale”
liquidation due to technical defaults such as coverage test failures; and (vi)
the Structured Product’s manager may perform poorly. The senior and junior
tranches of Structured Products may have floating or variable interest rates
based on LIBOR and are subject to the risks associated with securities tied to
LIBOR, including the risks associated with the pending replacement of LIBOR with
an alternative reference rate. The Fund may also invest in the equity tranches
of a Structured Product, which typically represent the first loss position in
the Structured Product, are unrated and are subject to higher risks. Equity
tranches of Structured Products typically do not have a fixed coupon and
payments on equity tranches will be based on the income received from the
underlying collateral and the payments made to the senior tranches, both of
which may be based on floating rates based on
LIBOR.
•Borrowing
Risks and Leverage Risks.
Borrowing for investment purposes creates leverage, which will exaggerate the
effect of any change in the value of securities in the Fund’s portfolio on the
Fund’s NAV and, therefore, may increase the volatility of the Fund. Money
borrowed will be subject to interest and other costs (including commitment fees
and/or the cost of maintaining minimum average balances). Unless the income and
capital appreciation, if any, on securities acquired with borrowed funds exceed
the cost of borrowing, the use of leverage will diminish the investment
performance of the Fund.
•Extension
Risk. An issuer could exercise its right to pay principal on an obligation
held by the Fund (such as a mortgage-backed security) later than expected. This
may happen when there is a rise in interest rates. Under these circumstances,
the value of the obligation will decrease, and the Fund will also suffer from
the inability to reinvest in higher yielding securities.
•Concentration
in Certain Mortgage-Backed Securities Risk. The risks of concentrating in residential mortgage-backed securities
(agency and non-agency) and commercial mortgage-backed securities include
susceptibility to changes in lending standards, interest rates and lending
rates, and the risks associated with the market’s perception of issuers, the
creditworthiness of the parties involved and investing in real estate
securities.
•U.S.
Government Securities Risks. U.S. government securities are not guaranteed against price movement
and may decrease in value. Some U.S. government securities are supported by the
full faith and credit of the U.S. Treasury, while others may be supported only
by the discretionary authority of the U.S. government to purchase certain
obligations of a federal agency or U.S. government sponsored enterprise (“GSE”)
or only by the right of the issuer to borrow from the U.S. Treasury. While the
U.S. government provides financial support to such agencies and GSEs, no
assurance can be given that the U.S. government will always do so. Other
obligations are backed solely by the GSE’s own resources. Investments in
securities issued by GSEs that are not backed by the U.S. Treasury are subject
to higher credit risk than those that are backed by the U.S.
Treasury.
•Mortgage-Backed
and Asset-Backed Securities Risks. Mortgage-backed
and other
asset-backed
securities are subject to the risks of traditional fixed-income instruments.
However, they are also subject to prepayment risk and extension risk, meaning
that if interest rates fall, the underlying debt may be repaid ahead of
schedule, reducing the value of the Fund’s investments and if interest rates
rise, there may be fewer prepayments, which would cause the average bond
maturity to rise, increasing the potential for the Fund to lose money.
Mortgage-backed and other asset-backed securities are also susceptible to
changes in lending standards and lending rates. In addition, mortgage-backed
securities comprised of subprime mortgages and investments in other asset-backed
securities collateralized by subprime loans may be subject to a higher degree of
credit risk and valuation risk. Additionally, such securities may be subject to
a higher degree of liquidity risk, because the liquidity of such investments may
vary dramatically over time.
Certain
mortgage-backed securities may be secured by pools of mortgages on
single-family, multi-family properties, as well as commercial properties.
Similarly, asset-backed securities may be secured by pools of loans, such as
corporate loans, student loans, automobile loans and credit card receivables.
The credit risk on such securities is affected by homeowners or borrowers
defaulting on their loans. The values of assets underlying mortgage-backed and
asset-backed securities may decline and therefore may not be adequate to cover
underlying investors. Some mortgage-backed and asset-backed securities have
experienced extraordinary weakness and volatility in recent years. Possible
legislation in the area of residential mortgages,
Angel
Oak Multi-Strategy Income Fund 5
credit cards, corporate loans and other loans that may collateralize
the securities in which the Fund may invest could negatively impact the value of
the Fund’s investments. To the extent the Fund focuses its investments in
particular types of mortgage-backed or asset-backed securities, the Fund may be
more susceptible to risk factors affecting such types of
securities.
•Unrated
Securities Risks. Unrated securities may be less liquid than comparable rated
securities and involve the risk that Angel Oak may not accurately evaluate the
security’s comparative credit rating.
•Residential
Loans and Mortgages Risk. In addition to interest rate, default and other risks of fixed
income securities, investments in whole loans and debt instruments backed by
residential loans or mortgages, (or pools of loans or mortgages) carry
additional risks, including the possibility that the quality of the collateral
may decline in value and the potential for the liquidity of residential loans
and mortgages to vary over time. These risks are greater for subprime
residential and mortgage loans. Because they do not trade in a liquid market,
residential loans typically can only be sold to a limited universe of
institutional investors and may be difficult for the Fund to value. In addition,
in the event that a loan is foreclosed on, the Fund could become the owner (in
whole or in part) of any collateral, which may include, among other things, real
estate or other real or personal property, and the Fund would bear the costs and
liabilities of owning, holding or disposing of such property.
•Management
Risk.
The Fund may not meet its investment objective based on the Adviser’s success or
failure to implement investment strategies for the
Fund.
•Sector
Risk.
To the extent the Fund invests more heavily in particular sectors of
the economy, its performance will be especially sensitive to developments that
significantly affect those sectors.
•Floating
or Variable Rate Securities Risk.
Floating or variable rate securities pay interest at rates that adjust in
response to changes in a specified interest rate or reset at predetermined dates
(such as the end of a calendar quarter). Securities with floating or variable
interest rates are generally less sensitive to interest rate changes than
securities with fixed interest rates, but may decline in value if their interest
rates do not rise as much, or as quickly, as comparable market interest rates.
Although floating or variable rate securities are generally less sensitive to
interest rate risk than fixed rate securities, they are subject to credit,
liquidity and default risk and may be subject to legal or contractual
restrictions on resale, which could impair their
value.
•Liquidity
and Valuation Risks. It may be difficult for the Fund to purchase and sell particular
investments within a reasonable time at a fair price, or the price at which it
has been valued for purposes of the Fund’s net asset value, causing the Fund to
be less liquid and unable to sell securities for what the Adviser believes is
the appropriate price of the investment. Valuation of portfolio investments may
be difficult, such as during periods of market turmoil or reduced liquidity and
for investments that trade infrequently or irregularly. In these and other
circumstances, an investment may be valued using fair value methodologies, which
are inherently subjective, reflect good faith judgments based on available
information and may not accurately estimate the price at which the Fund could
sell the investment at that time. Based on its investment strategies, a
significant portion of the Fund’s investments can be difficult to value and
potentially less liquid and therefore particularly prone to these
risks.
•Other
Investment Companies Risks.
The Fund will incur higher and duplicative expenses when it invests in mutual
funds, exchange-traded funds (“ETFs”), and other investment companies, which may
include those that are part of the same group of investment companies as the
Fund (“affiliated underlying funds”). There is also the risk that the Fund may
suffer losses due to the investment practices of the underlying funds. When the
Fund invests in other investment companies, the Fund will be subject to
substantially the same risks as those associated with the direct ownership of
securities held by such investment companies. ETFs may be less liquid than other
investments, and thus their share values more volatile than the values of the
investments they hold. Investments in ETFs are also subject to the following
risks: (i) the market price of an ETF’s shares may trade above or below their
net asset value; (ii) an active trading market for an ETF’s shares may not
develop or be maintained; and (iii) trading of an ETF’s shares may be halted for
a number of reasons.
The
Adviser may be subject to potential conflicts of interest in allocating the
Fund’s assets to underlying funds, such as a potential conflict in selecting
affiliated underlying funds over unaffiliated underlying funds. In addition, the
Fund’s portfolio managers may be subject to potential conflicts of interest in
allocating the Fund’s assets among underlying funds, as certain of the Fund’s
portfolio managers may also manage an affiliated underlying fund in which the
Fund may invest. Both the Adviser and the Fund’s portfolio managers have a
fiduciary duty to the Fund to act in the Fund’s best interest when selecting
underlying funds. Under the oversight of the Board of Trustees, the Adviser will
carefully analyze any such potential conflicts of interest and will take steps
to minimize and, where possible, eliminate them.
•Bank
Subordinated Debt Risks.
Banks may issue subordinated debt securities, which have a lower priority to
full payment behind other more senior debt securities. In addition to the risks
generally associated with fixed income instruments (e.g., interest rate risk,
credit risk, etc.), bank subordinated debt is also subject to risks inherent to
banks. Because banks are highly regulated and operate in a highly competitive
environment, it may be difficult for a bank to meet its debt obligations. Banks
Angel
Oak Multi-Strategy Income Fund 6
also may be affected by changes in legislation and regulations
applicable to the financial markets. Bank subordinated debt is often issued by
smaller community banks that may be overly concentrated in a specific geographic
region, lack the capacity to comply with new regulatory requirements or lack
adequate capital. Subordinated debt, senior debt and preferred securities of
banks and diversified financials companies are subject to the risks generally
associated with the financials sector. See “Financials Sector
Risk.”
•Financials
Sector Risk. The Fund may invest in companies in the financials sector, and
therefore the performance of the Fund could be negatively impacted by events
affecting this sector. This sector can be significantly affected by changes in
interest rates, government regulation, the rate of defaults on corporate,
consumer and government debt, the availability and cost of capital, and fallout
from the housing and sub-prime mortgage crisis that began in 2007. This sector
has experienced significant losses in the past, and the impact of more stringent
capital requirements and of past or future regulation on any individual
financial company or on the sector as a whole cannot be predicted. In recent
years, cyber attacks and technology malfunctions and failures have become
increasingly frequent in this sector and have caused significant
losses.
•Rating
Agencies Risks.
Ratings are not an absolute standard of quality, but rather general indicators
that reflect only the view of the originating rating agencies from which an
explanation of the significance of such ratings may be obtained. There is no
assurance that a particular rating will continue for any given period of time or
that any such rating will not be revised downward or withdrawn entirely. Such
changes may negatively affect the liquidity or market price of the securities in
which the Fund invests. The ratings of Structured Products may not adequately
reflect the credit risk of those assets due to their
structure.
•Floating
Rate Risk.
Instruments in which the Fund invests may pay interest at floating rates or may
be subject to interest caps or floors tied to floating rates. The Fund and
issuers of instruments in which the Fund invests may also obtain financing at
floating rates. Derivative instruments utilized by the Fund and/or issuers of
instruments in which the Fund may invest may also reference floating rates. The
Fund also may utilize leverage or borrowings primarily based on floating rates.
Some instruments in which the Fund has invested are or were tied to forms of the
London Interbank Offered Rate (“LIBOR”). LIBOR was the basic rate of interest
used in lending transactions between banks on the London interbank market and
has been widely used as a reference for setting the interest rate on loans
globally. As a result of benchmark reforms, publication of most LIBOR settings
has ceased. Some LIBOR settings continue to be published but only on a
temporary, synthetic and non-representative basis. All such synthetic LIBOR
settings are expected to be discontinued by September 30, 2024. When
publication of applicable synthetic LIBOR settings ceases, any still outstanding
instruments or investments using synthetic LIBOR settings are expected to
transition to alternative floating rate benchmarks. Regulated entities have
generally ceased entering into new LIBOR contracts in connection with regulatory
requirements. As a result of legislative mechanisms and industry-wide efforts to
replace LIBOR with alternative floating-rate benchmarks, LIBOR has been replaced
with an alternative already in many instruments. The transition from LIBOR may
have effects on the value, liquidity or return on certain Fund investments that
continue to reference or previously referenced LIBOR. In addition, there may be
costs associated with the transition from LIBOR. Any pricing adjustments to the
Fund’s investments resulting from the transition to an alternative reference
rate may also adversely affect the Fund’s performance and/or NAV. To the extent
that any replacement rate differs from that utilized for a Structured Product
that holds those securities, the Structured Product would experience an interest
rate mismatch between its assets and liabilities. Some instruments that
referenced LIBOR were transitioned to alternative reference rates as a result of
certain legislative transition mechanisms such as the Adjustable Interest Rate
(LIBOR) Act. This law provides a statutory fallback mechanism on a nationwide
basis for certain contracts to replace LIBOR with a benchmark rate that is
selected by the Board of Governors of the Federal Reserve System based on the
Secured Overnight Financing Rate (“SOFR”) where the related contract contains
no, or insufficient, fallback provisions. In addition, the transition from LIBOR
to any alternative reference rate may also introduce operational risks in the
Fund’s accounting, financial reporting, investment servicing, liability
management and other aspects of the Fund’s business. Completion of the
transition from LIBOR to alternative reference rates could lead to significant
short-term and long-term uncertainty and market instability. It remains
uncertain how such changes would affect the Fund, issuers of instruments in
which the Fund invests and financial markets
generally.
•Large
Shareholder Transactions Risk.
Shares of the Fund are offered to certain other investment companies, large
retirement plans and other large investors. As a result, the Fund is subject to
the risk that those shareholders may purchase or redeem a large amount of shares
of the Fund. To satisfy such large shareholder redemptions, the Fund may have to
sell portfolio securities at times when it would not otherwise do so, which may
negatively impact the Fund’s NAV and liquidity. In addition, large purchases of
Fund shares could adversely affect the Fund’s performance to the extent that the
Fund does not immediately invest cash it receives and therefore holds more cash
than it ordinarily would. Large shareholder activity could also generate
increased transaction costs and cause adverse tax
consequences.
•Illiquid
Investments Risks. The Fund may, at times, hold illiquid investments, by virtue of the
absence of a readily available market for certain of its investments, or because
of legal or contractual restrictions on sales. The Fund could lose money if it
is unable to dispose of an investment at a time or price that is most beneficial
to the Fund.
Angel
Oak Multi-Strategy Income Fund 7
•Regulatory
and Legal Risks. U.S. and non-U.S. government agencies and other regulators regularly
adopt new regulations and legislatures enact new statutes that affect the
investments held by the Fund, the strategies used by the Fund or the level of
regulation or taxation that applies to the Fund. These statutes and regulations
may impact the investment strategies, performance, costs and operations of the
Fund or the taxation of its shareholders.
•Community
Bank Risks. The Fund’s investments in community banks may make the Fund more
economically vulnerable in the event of a downturn in the banking industry,
including economic downturns impacting a particular region. Community banks may
also be subject to greater lending risks than larger banks, including the risks
associated with mortgage loans, and may have fewer resources to devote towards
employing and retaining strong management employees and implementing a thorough
compliance program. Additionally, community banks are subject to substantial
regulations that could adversely affect their ability to operate and the value
of the Fund investments, including from future banking
regulations.
•High-Yield
Securities Risks. High-yield securities (also known as junk bonds) carry a greater
degree of risk and are more volatile than investment grade securities and are
considered speculative. High-yield securities may be issued by companies that
are restructuring, are smaller and less creditworthy, or are more highly
indebted than other companies. This means that they may have more difficulty
making scheduled payments of principal and interest. Changes in the value of
high-yield securities are influenced more by changes in the financial and
business position of the issuing company than by changes in interest rates when
compared to investment grade securities. The Fund’s investments in high-yield
securities expose it to a substantial degree of credit risk.
•Reverse
Repurchase Agreement Risks. A
reverse repurchase agreement is the sale by the Fund of a debt obligation to a
party for a specified price, with the simultaneous agreement by the Fund to
repurchase that debt obligation from that party on a future date at a higher
price. Similar to borrowing, reverse repurchase agreements provide the Fund with
cash for investment purposes, which creates leverage and subjects the Fund to
the risks of leverage. Reverse repurchase agreements also involve the risk that
the other party may fail to return the securities in a timely manner or at all.
The Fund could lose money if it is unable to recover the securities and/or if
the value of collateral held by the Fund, including the value of the investments
made with cash collateral, is less than the value of
securities.
•Derivatives
Risks.
The Fund’s derivatives and other similar instruments (collectively referred to
in this section as “derivatives” or “derivative instruments”) have risks,
including the imperfect correlation between the value of such instruments and
the underlying assets, rate or index; the loss of principal, including the
potential loss of amounts greater than the initial amount invested in the
derivative instrument; the possible default of the other party to the
transaction; and illiquidity of the derivative investments. Changes in the value
of a derivative may also create margin delivery or settlement payment
obligations for the Fund. If a counterparty becomes bankrupt or otherwise fails
to perform its obligations under a derivative contract due to financial
difficulties, the Fund may experience significant delays in obtaining any
recovery under the derivative contract in a bankruptcy or other reorganization
proceeding. Certain derivatives may give rise to a form of leverage. Leverage
magnifies the potential for gain and the risk of loss. The use of derivatives is
also subject to operational risk which refers to risk related to potential
operational issues, including documentation issues, settlement issues, system
failures, inadequate controls, and human error, as well as legal risk which
refers to the risk of loss resulting from insufficient documentation,
insufficient capacity or authority of counterparty, or legality or
enforceability of a contract. Derivatives are also subject to market risk which
refers to the risk that markets could experience a change in volatility that
adversely impacts fund returns and the fund’s obligations and exposures. Certain
of the Fund’s transactions in derivatives could also affect the amount, timing
and character of distributions to shareholders, which may result in the Fund
realizing more short-term capital gain and ordinary income subject to tax at
ordinary income tax rates than it would if it did not engage in such
transactions, which may adversely impact the Fund’s after-tax returns.
The
derivative instruments and techniques that the Fund may principally use include:
◦Futures.
A
futures contract is a standardized agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a specific future time. A
decision as to whether, when and how to use futures involves the exercise of
skill and judgment and even a well-conceived futures transaction may be
unsuccessful because of market behavior or unexpected events. In addition to the
derivatives risks discussed above, the prices of futures can be highly volatile,
using futures can lower total return, and the potential loss from futures can
exceed the Fund’s initial investment in such
contracts.
◦Options.
If the Fund buys an option, it buys a legal contract giving it the right to buy
or sell a specific amount of the underlying instrument or futures contract on
the underlying instrument at an agreed-upon price typically in exchange for a
premium paid by the Fund. If the Fund sells an option, it sells to another
person the right to buy from or sell to the Fund a specific amount of the
underlying instrument or futures contract on the underlying instrument at an
agreed-upon price typically in exchange for a premium received by the Fund. A
decision as to whether, when and how to use options involves the exercise of
skill and judgment and even a well-conceived option transaction may be
unsuccessful because of market behavior or unexpected events. The prices of
options can be highly volatile and the use of options can lower total
returns.
Angel
Oak Multi-Strategy Income Fund 8
◦Swaps.
A swap contract is an agreement between
two parties pursuant to which the parties exchange payments at specified dates
on the basis of a specified notional amount, with the payments calculated by
reference to specified securities, indexes, reference rates, currencies or other
instruments. Swap agreements are particularly subject to counterparty credit,
liquidity, valuation, correlation, leverage, operational and legal risk. Swaps
could result in losses if interest rate or foreign currency exchange rates or
credit quality changes are not correctly anticipated by the Fund or if the
reference index, security or investments do not perform as expected. The use of
credit default swaps can result in losses if the Fund’s assumptions regarding
the creditworthiness of the underlying obligation prove to be
incorrect.
•RIC-Related
Risks of Investments Generating Non-Cash Taxable Income. Certain
of the Fund’s investments, particularly, debt obligations, such as zero coupon
bonds, that will be treated as having “market discount” and/or original issue
discount (“OID”) for U.S. federal income tax purposes and certain CLOs that may
be considered passive foreign investment companies or controlled foreign
corporations, will require the Fund to recognize taxable income in excess of the
cash generated on those investments in that tax year, which could cause the Fund
to have difficulty satisfying the annual distribution requirements applicable to
regulated investment companies (“RICs”) and avoiding Fund-level U.S. federal
income and/or excise taxes.
•Risks
Relating to Fund’s RIC Status. To qualify and remain eligible for the special tax treatment accorded
to a RIC and its shareholders under the Internal Revenue Code of 1986, as
amended, the Fund must meet certain source-of-income, asset diversification and
annual distribution requirements. If the Fund fails to qualify as a RIC for any
reason and becomes subject to corporate tax, the resulting corporate taxes could
substantially reduce its net assets, the amount of income available for
distribution and the amount of its distributions.
•Short
Sales Risks. The Fund may make short sales of securities, which involves selling a
security it does not own in anticipation that the price of the security will
decline. Short sales may involve substantial risk and leverage. Short sales
expose the Fund to the risk that it will be required to buy the security sold
short when the security has appreciated in value or is unavailable, thus
resulting in a loss to the Fund. Short sales also involve the risk that losses
may exceed the amount invested and may be unlimited.
•Uncertain
Tax Treatment. Below investment grade instruments may present special tax issues
for the Fund. U.S. federal income tax rules are not entirely clear about issues
such as when the Fund may cease accruing interest, OID or market discount, when
and to what extent deductions may be taken for bad debts or worthless
instruments, how payments received on obligations in default should be allocated
between principal and income and whether exchanges of debt obligations in a
bankruptcy or workout context are taxable, which may make it difficult for the
Fund to satisfy the annual distribution requirements applicable to
RICs.
•Equity
Market Risk. Equity securities are susceptible to general stock market
fluctuations and to volatile increases and decreases in value. The equity market
may experience declines, and companies whose equity securities are in the Fund’s
portfolio may not increase their earnings at the rate anticipated. The Fund’s
net asset value and investment return will fluctuate based upon changes in the
value of its portfolio securities.
•Subsidiary
Risk. To the extent the Fund invests through the Subsidiary, it will be
exposed to the risks associated with the Subsidiary’s investments. The
Subsidiary is not registered as an investment company under the 1940 Act and,
therefore, will not be subject to the investor protections and substantive
regulation of the 1940 Act, although the Subsidiary will be managed pursuant to
all applicable 1940 Act compliance policies and procedures of the Fund. Changes
in the laws of the United States and/or the jurisdiction in which the Subsidiary
is organized could result in the inability of the Fund and/or the Subsidiary to
operate as described in this Prospectus and could adversely affect the
Fund.
•Repurchase
Agreement Risks. Repurchase agreements typically involve the acquisition by the Fund
of fixed-income securities from a selling financial institution such as a bank
or broker-dealer. The Fund may incur a loss if the other party to a repurchase
agreement is unwilling or unable to fulfill its contractual obligations to
repurchase the underlying security.
Performance
The following performance information provides some indication
of the risks of investing in the Fund. The bar chart shows
changes in the performance of the Class A shares of the Fund from year-to-year.
The table below shows how the average annual total returns of the Fund’s Class
A, Class C, and Institutional Class shares compare over time to those of a
broad-based securities market index.
The
Fund is the successor to the investment performance of the Angel Oak
Multi-Strategy Income Fund (the “Predecessor Multi-Strategy Income Fund”) as a
result of the reorganization of the Predecessor Multi-Strategy Income Fund into
the Fund on April 10, 2015. Accordingly, the performance information shown below
for periods prior to April 10, 2015 is that of the Predecessor Multi-Strategy
Income Fund. The Predecessor Multi-Strategy Income Fund was also advised by the
Adviser and had the same investment objective, policies, and strategies as the
Fund.
Performance
information represents only past performance, before and after taxes, and does
not necessarily indicate future results. Updated performance
information is available online at www.angeloakcapital.com or by calling
(855) 751-4324 (toll free).
Angel
Oak Multi-Strategy Income Fund 9
Annual
Total Returns for Class A Shares
(for
years ended December 31st)
Sales loads
are not reflected in the bar chart. If these amounts were reflected, returns
would be less than those shown.
The
calendar year-to-date total return as of March 31, 2024 for the
Fund’s Class A shares was 1.74%. During the periods shown in the chart,
the highest quarterly return was 7.25% (for the quarter ended
June 30,
2020) and the lowest quarterly
return was -12.68% (for the quarter ended
March 31,
2020).
Angel Oak Multi-Strategy Income Fund
Average Annual Total Returns
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For
the period ended December 31, 2023 |
1
Year |
5
Years |
10
Years |
Since
Inception
(6/28/11) |
Since
Inception
(8/16/12) |
Since
Inception
(8/4/15) |
Class
A |
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– Return
Before Taxes |
2.66% |
-0.84% |
1.47% |
3.70% |
N/A |
N/A |
– Return
After Taxes on Distributions1 |
0.28% |
-2.78% |
-0.69% |
1.54% |
N/A |
N/A |
– Return
After Taxes on Distributions and Sale of Fund
Shares1 |
1.53% |
-1.41% |
0.20% |
1.96% |
N/A |
N/A |
Class
C |
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– Return
Before Taxes |
3.20% |
-1.17% |
N/A |
N/A |
N/A |
0.25% |
Institutional
Class |
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– Return
Before Taxes |
5.34% |
-0.17% |
1.96% |
N/A |
2.58% |
N/A |
Bloomberg
U.S. Aggregate Bond Index (reflects
no deduction for fees, expenses, and
taxes) |
5.53% |
1.10% |
1.81% |
1.99% |
1.54% |
1.39% |
NOTE: Class
A shares commenced operations on June 28, 2011 as part of the
Predecessor Multi-Strategy Income Fund and Institutional Class shares commenced
operations on August 16, 2012 as part of the Predecessor Multi-Strategy Income
Fund.
1 After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor’s tax
situation and may differ from those shown. In certain
cases, the figure representing “Return After Taxes on Distributions and Sale of
Fund Shares” may be higher than the other return figures for the same period,
since a higher after-tax return results when a capital loss occurs upon
redemption and provides an assumed tax deduction that benefits the
investor. After-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements such as 401(k) plans or individual retirement
accounts. After-tax
returns are shown for Class A only, and after-tax returns for other classes will
vary.
Portfolio
Management
Investment
Adviser.
Angel Oak Capital Advisors, LLC.
Portfolio
Managers.
Berkin
Kologlu, Senior Portfolio Manager of the Adviser, has been a portfolio manager
of the Fund since 2013.
Kin
Lee, Senior Portfolio Manager of the Adviser, has been a portfolio manager of
the Fund since 2016.
Sreeniwas
(Sreeni) V. Prabhu, Managing Partner, Co-CEO, and Group Chief Investment Officer
of the Adviser, has been a portfolio manager of the Fund since
2015.
Namit
Sinha, Chief Investment Officer of the Adviser, has been a portfolio manager of
the Fund since 2024.
Angel
Oak Multi-Strategy Income
Fund 10
Clayton
Triick, CFA®, Head of Portfolio Management, Public Strategies of the Adviser,
has been a portfolio manager of the Fund since 2019.
Purchase
and Sale of Fund Shares
You
may purchase or redeem Class A, Class C, and Institutional Class shares of the
Fund on any business day by written request via mail (Angel Oak Multi-Strategy
Income Fund, c/o U.S. Bank Global Fund Services, P.O. Box 701, Milwaukee, WI
53201-0701), by wire transfer, or by telephone at (855) 751‑4324 (toll
free) or through certain financial intermediaries. Investors who wish to
purchase or redeem Fund shares through a financial intermediary should contact
the financial intermediary directly. The minimum initial and subsequent
investment amounts for each class of shares are shown below.
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Share
Class |
Minimum
Initial Investment |
Minimum
Additional Investment |
Class
A Shares—All
account types |
$1,000 |
$100 |
Class
C Shares—All
account types |
$1,000 |
$100 |
Institutional
Class Shares—All
account types |
$500,000 |
$100 |
Tax
Information
The
Fund’s distributions are taxed as ordinary income or capital gains, unless you
are investing through a tax-deferred arrangement, such as a 401(k) plan or an
individual retirement account. Such tax-deferred arrangements may be taxed later
upon withdrawal of monies from those arrangements.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase Fund shares through a broker-dealer or other financial intermediary
(such as a bank or trust company), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create conflicts of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary’s website
for more information.
Angel
Oak Multi-Strategy Income
Fund 11
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ANGEL OAK
ULTRASHORT INCOME FUND
SUMMARY |
Investment
Objective
The
Angel Oak UltraShort Income Fund (the “Fund”) seeks to provide current
income
while seeking to minimize price volatility and maintain
liquidity.
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold and sell
shares of the Fund. You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and examples
below.
You may qualify for sales charge discounts or waivers if you
and your family invest, or agree to invest in the future, at least
$100,000 in Class A1 shares of the
Fund. More information about these and other discounts or
waivers is available from your financial professional, in the sections “Sales
Charges—Class A1 Shares” on page 44 of the Prospectus, and in “Appendix
A—Waivers and Discounts Available from
Intermediaries.”
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Shareholder
fees (fees paid directly from your
investment) |
Class
A |
Class A1 |
Institutional
Class |
Maximum
Sales Charge (Load) Imposed on Purchases (as a % of the offering
price) |
None |
1.50% |
None |
Maximum
Deferred Sales Charge (Load) (as a % of amount redeemed) |
None |
0.50% ¹ |
None |
Annual Fund Operating Expenses (expenses that you pay
each year as a
percentage of the value of your investment)
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Management
Fees |
0.44% |
0.44% |
0.44% |
Distribution
and Service (12b-1) Fees |
0.25% |
0.25% |
0.00% |
Other
Expenses |
0.15% |
0.15% |
0.15% |
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Total
Annual Fund Operating Expenses |
0.84% |
0.84% |
0.59% |
Less
Fee Waiver/Expense Reimbursement2 |
-0.24% |
-0.24% |
-0.24% |
Total
Annual Fund Operating Expenses After Fee Waiver/Expense
Reimbursement2 |
0.60% |
0.60% |
0.35% |
1 There is no initial sales charge on purchases of Class A1 shares
of $250,000 or more, however, a contingent deferred sales charge of up to 0.50%
will be imposed if such Class A1 shares are redeemed within twelve (12) months
of their purchase.
2 Angel Oak Capital
Advisors, LLC (the “Adviser”) has contractually agreed to waive its fees and/or
reimburse certain expenses (exclusive of any front-end sales loads, taxes,
interest on borrowings, dividends on securities sold short, brokerage
commissions, 12b-1 fees, acquired fund fees and expenses, expenses incurred in
connection with any merger or reorganization and extraordinary expenses) to
limit the Total Annual Fund Operating Expenses After Fee Waiver/Expense
Reimbursement to 0.35% of the Fund’s average daily net assets (the “Expense
Limit”) through May 31, 2025. The contractual arrangement may
only be changed or eliminated by the Board of Trustees upon 60 days’ written
notice to the Adviser. The Adviser may recoup from the Fund any waived amount or
reimbursed expenses pursuant to this agreement if such recoupment does not cause
the Fund’s Total Annual Fund Operating Expenses after such recoupment to exceed
the lesser of (i) the Expense Limit in effect at the time of the waiver or
reimbursement and (ii) the Expense Limit in effect at the time of recoupment and
the recoupment is made within three years after the end of the month in which
the Adviser incurred the expense.
Expense
Example
The following examples are intended to help you compare the cost
of investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in the Fund for the time periods
indicated and then redeem or continue to hold all of your shares at the end of
those periods. The examples also assume that your investment has a 5% return
each year and that the Fund’s operating expenses remain the same. The expenses
below reflect the Expense Limit for the first year only. Although your actual
costs may be higher or lower and the Fund’s actual return may be greater or less
than the hypothetical 5%, based on these assumptions your costs would
be:
If you redeem
your shares at the end of each period:
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| One
Year |
Three
Years |
Five
Years |
Ten
Years |
Class
A shares |
$61 |
$244 |
$442 |
$1,015 |
Class
A1 shares |
$262 |
$390 |
$586 |
$1,150 |
Institutional
Class shares |
$36 |
$165 |
$305 |
$715 |
Angel
Oak UltraShort Income Fund 12
If
you do not redeem your shares:
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| One
Year |
Three
Years |
Five
Years |
Ten
Years |
Class
A shares |
$61 |
$244 |
$442 |
$1,015 |
Class
A1 shares |
$210 |
$390 |
$586 |
$1,150 |
Institutional
Class shares |
$36 |
$165 |
$305 |
$715 |
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These costs, which are not reflected in
annual operating expenses or in the example above, affect the Fund’s
performance. During the most recent fiscal year ended January 31, 2024, the
portfolio turnover rate for the Fund was 46% of the average value of its
portfolio.
Principal Investment
Strategies
In
pursuing its investment objective, the Fund will, under normal circumstances,
invest in securities which cause the Fund to have a dollar-weighted average
maturity of less than two years and a dollar-weighted average duration of less
than one year.
The
Fund invests primarily in agency and non-agency residential mortgage-backed
securities (“RMBS”), asset-backed securities (“ABS”), including securities
backed by assets such as credit card receivables, student loans, automobile
loans, and residential and commercial real estate, collateralized loan
obligations (“CLOs”), collateralized debt obligations (“CDOs”), collateralized
mortgage obligations (“CMOs”), and other debt securitizations (collectively,
“Structured Products”); corporate debt and other debt securities; and U.S.
Treasury and U.S. government agency securities.
The
Fund may invest up to 30% of its net assets in CLOs.
The
Fund may invest in the securities of other investment companies (including those
that are part of the same group of investment companies as the Fund) that pursue
an investment strategy that supports the Fund’s investment objective.
The
Fund will concentrate its investments in agency and non-agency residential
mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities
(“CMBS”) (collectively, “MBS”). This means that, under normal circumstances, the
Fund will invest more than 25% of its total assets in MBS (measured at the time
of purchase). The Fund will not concentrate its investments in any other group
of industries. The Fund’s policy to concentrate its investments in MBS is
fundamental and may not be changed without shareholder approval.
The Fund may invest up to 15% of its net assets in investments that
are deemed to be illiquid, which may include private placements, certain Rule
144A securities (which are subject to resale restrictions), and securities of
issuers that are bankrupt or in default.
The
Fund is not a money market fund and does not seek to maintain a stable net asset
value (“NAV”).
The
Fund may engage in active and frequent trading of its portfolio securities.
The
Fund may invest, without limitation, in securities of any maturity and duration,
but, under normal circumstances, the Fund will have a dollar-weighted average
maturity of less than two years and a dollar-weighted average duration of less
than one year. Maturity refers to the length of time until a debt security’s
principal is repaid with interest. Duration is a measure used to determine the
sensitivity of a security’s price to changes in interest rates. Duration
incorporates a security’s yield, coupon, final maturity, call and put features
and prepayment exposure into one measure, with a higher duration indicating
greater sensitivity to interest rates. For example, if a portfolio has a
duration of two years, and interest rates increase (fall) by 1%, the portfolio
would decline (increase) in value by approximately 2%. However, duration may not
accurately reflect the true interest rate sensitivity of instruments held by the
Fund and, therefore the Fund’s exposure to changes in interest rates.
The
Fund’s investments in RMBS and ABS will span a broad segment of consumer
creditworthiness segments, which will include exposure to prime, near-prime, and
subprime consumers.
The
Fund may invest in high-yield securities and securities that are not rated by
any rating agencies. These “high-yield” securities (also known as “junk bonds”)
will be rated BB+ or lower by Standard & Poor’s Rating Group (“S&P”) or
will be of equivalent quality rating from another Nationally Recognized
Statistical Ratings Organization. If a bond is unrated, the Adviser may
determine whether it is of comparable quality and therefore eligible for the
Fund’s investment. Although the Fund will not acquire investments of issuers
that are in default at the time of investment, the Fund may hold such securities
if an investment subsequently defaults.
In
pursuing its investment objective or for hedging purposes, the Fund may utilize
short selling, borrowing, and various types of derivative instruments, including
structured products, swaps, futures contracts, and options, although the Adviser
expects that not all such derivatives will be used at all times. Such
derivatives may trade over-the-counter or on an exchange and may principally be
Angel
Oak UltraShort Income Fund 13
used
for one or more of the following purposes: speculation, currency hedging,
duration management, credit deterioration hedging, hedges against broad market
movements, or to pursue the Fund’s investment objective. The Fund may borrow to
the maximum extent permitted by applicable law. The Fund may also invest in
reverse repurchase agreements.
The
Fund’s allocation of its assets into various asset classes within its investment
strategy will depend on the views of the Adviser as to the best value relative
to what is currently available in the marketplace. Investment decisions are made
based on fundamental research and analysis to identify issuers with the ability
to improve their credit profile over time with attractive valuations, resulting
in both income and potential capital appreciation. In selecting investments, the
Adviser may consider maturity, yield, and ratings information and opportunities
for price appreciation among other criteria. The Adviser also analyzes a variety
of factors when selecting investments for the Fund, such as collateral quality,
credit support, structure and market conditions. The Adviser attempts to
diversify risks that arise from position sizes, geography, ratings, duration,
deal structure and collateral values. The Adviser will also seek to invest in
securities that have relatively low volatility. The Adviser seeks to limit risk
of principal by targeting assets that it considers undervalued. From time to
time, the Fund may allocate its assets so as to focus on particular types of
securities.
As part of its investment process, the Adviser also considers certain
environmental, social and governance (“ESG”) and sustainability factors that it
believes could have a material negative or positive impact on the risk profiles
of the issuers or underlying collateral assets of certain securities in which
the Fund may invest. These determinations may not be conclusive, and securities
that may be negatively impacted by such factors may be purchased and retained by
the Fund while the Fund may divest or not invest in securities that may be
positively impacted by such factors. The Adviser may sell investments if it
determines that any of the mentioned factors have changed materially from its
initial analysis or that other factors indicate that an investment is no longer
earning a return commensurate with its risk or that a different security will
better help the Fund achieve its investment objective.
Principal Risks
The
principal risks of investing in the Fund are summarized below. You should
carefully consider the Fund’s investment risks before deciding whether to invest
in the Fund. There may be circumstances that could prevent the Fund from
achieving its investment objective and you may lose money by investing in the
Fund. An investment in the Fund is not a deposit at a
bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
•Fixed-Income
Instruments Risks. The Fund will invest in fixed-income instruments and securities. Such
investments may be secured, partially secured or unsecured and may be unrated,
and whether or not rated, may have speculative characteristics. The market price
of the Fund’s investments will change in response to changes in interest rates
and other factors. Generally, when interest rates rise, the values of
fixed-income instruments fall, and vice versa. In typical interest rate
environments, the prices of longer-term fixed-income instruments generally
fluctuate more than the prices of shorter-term fixed-income instruments as
interest rates change. In addition, a fund with a longer average portfolio
duration will be more sensitive to changes in interest rates than a fund with a
shorter average portfolio duration. A fund with a negative average portfolio
duration may decline in value as interest rates decrease. Most high yield
investments pay a fixed rate of interest and are therefore vulnerable to
inflation risk (inflation rates are currently elevated relative to normal
conditions). The obligor of a fixed-income instrument may not be able or willing
to pay interest or to repay principal when due in accordance with the terms of
the associated agreement.
•General
Market Risk.
The capital markets may experience periods of disruption, instability and
volatility. Political, geopolitical, natural and other events, including war,
terrorism, trade disputes, government shutdowns, market closures, natural and
environmental disasters, epidemics, pandemics and other public health crises and
related events have led, and in the future may lead, to economic uncertainty,
decreased economic activity, increased market volatility and other disruptive
effects on U.S. and global economies and markets. Such conditions may materially
and adversely affect the markets globally and in the jurisdictions in which the
Fund invests, which may have a negative impact on the Fund’s performance. The
Fund’s net asset value (“NAV”) and investment return will fluctuate based upon
changes in the value of its portfolio securities.
•Credit
Risk. Credit risk is the risk that the Fund could lose money if the issuer
or guarantor of a fixed income security, or the counterparty to a derivative
contract, is unable or unwilling to meet its financial
obligations.
•Interest
Rate Risk. The Fund is exposed to risks associated with changes in interest
rates, including the possibility that, in a period of rising interest rates,
securities may exhibit additional volatility and may lose
value.
•Prepayment
Risk. When interest rates decline, fixed income securities with stated
interest rates may have the principal paid earlier than expected, requiring the
Fund to invest the proceeds at generally lower interest rates.
•Structured
Products Risks.
The Fund may invest in Structured Products, including CLOs, CDOs, CMOs, and
other asset-backed securities and debt securitizations. Some Structured Products
have credit ratings, but are typically issued in various classes with various
priorities. Normally, Structured Products are privately offered and sold (that
is, they are not registered under the securities laws), which means less
information about the security may be available as compared to publicly offered
securities and only certain institutions may buy and sell them. As a result,
investments in Structured Products may be characterized by the Fund as illiquid
securities. An active dealer market may exist for Structured Products that
qualify for Rule 144A
Angel
Oak UltraShort Income Fund 14
transactions,
but there can be no assurance that such a market will exist or will be active
enough for the Fund to sell such securities. In addition to the typical risks
associated with fixed-income securities and asset-backed securities, CLOs and
CDOs carry additional risks including, but not limited to: (i) the possibility
that distributions from collateral securities will not be adequate to make
interest or other payments; (ii) the risk that the collateral may default,
decline in value or quality or be downgraded by a rating agency; (iii) the Fund
may invest in tranches of Structured Products that are subordinate to other
tranches; (iv) the structure and complexity of the transaction and the legal
documents could lead to disputes among investors regarding the characterization
of proceeds; (v) risk of forced “fire sale” liquidation due to technical
defaults such as coverage test failures; and (vi) the Structured Product’s
manager may perform poorly. The senior and junior tranches of Structured
Products may have floating or variable interest rates based on LIBOR and are
subject to the risks associated with securities tied to LIBOR, including the
risks associated with the pending replacement of LIBOR with an alternative
reference rate. The Fund may also invest in the equity tranches of a Structured
Product, which typically represent the first loss position in the Structured
Product, are unrated and are subject to higher risks. Equity tranches of
Structured Products typically do not have a fixed coupon and payments on equity
tranches will be based on the income received from the underlying collateral and
the payments made to the senior tranches, both of which may be based on floating
rates based on LIBOR.
•Borrowing
Risks and Leverage Risks.
Borrowing for investment purposes creates leverage, which will exaggerate the
effect of any change in the value of securities in the Fund’s portfolio on the
Fund’s NAV and, therefore, may increase the volatility of the Fund. Money
borrowed will be subject to interest and other costs (including commitment fees
and/or the cost of maintaining minimum average balances). Unless the income and
capital appreciation, if any, on securities acquired with borrowed funds exceed
the cost of borrowing, the use of leverage will diminish the investment
performance of the Fund.
•Extension
Risk. An issuer could exercise its right to pay principal on an
obligation held by the Fund (such as a mortgage-backed security) later than
expected. This may happen when there is a rise in interest rates. Under these
circumstances, the value of the obligation will decrease, and the Fund will also
suffer from the inability to reinvest in higher yielding
securities.
•Concentration
in Certain Mortgage-Backed Securities Risk. The risks of concentrating in residential mortgage-backed securities
(agency and non-agency) and commercial mortgage-backed securities include
susceptibility to changes in lending standards, interest rates and lending
rates, and the risks associated with the market’s perception of issuers, the
creditworthiness of the parties involved and investing in real estate
securities.
•U.S.
Government Securities Risks. U.S. government securities are not guaranteed against price movement
and may decrease in value. Some U.S. government securities are supported by the
full faith and credit of the U.S. Treasury, while others may be supported only
by the discretionary authority of the U.S. government to purchase certain
obligations of a federal agency or U.S. government sponsored enterprise (“GSE”)
or only by the right of the issuer to borrow from the U.S. Treasury. While the
U.S. government provides financial support to such agencies and GSEs, no
assurance can be given that the U.S. government will always do so. Other
obligations are backed solely by the GSE’s own resources. Investments in
securities issued by GSEs that are not backed by the U.S. Treasury are subject
to higher credit risk than those that are backed by the U.S.
Treasury.
•Unrated
Securities Risks. Unrated securities may be less liquid than comparable rated
securities and involve the risk that Angel Oak may not accurately evaluate the
security’s comparative credit rating.
•Mortgage-Backed
and Asset-Backed Securities Risks. Mortgage-backed
and other
asset-backed
securities are subject to the risks of traditional fixed-income instruments.
However, they are also subject to prepayment risk and extension risk, meaning
that if interest rates fall, the underlying debt may be repaid ahead of
schedule, reducing the value of the Fund’s investments and if interest rates
rise, there may be fewer prepayments, which would cause the average bond
maturity to rise, increasing the potential for the Fund to lose money.
Mortgage-backed and other asset-backed securities are also susceptible to
changes in lending standards and lending rates. In addition, mortgage-backed
securities comprised of subprime mortgages and investments in other asset-backed
securities collateralized by subprime loans may be subject to a higher degree of
credit risk and valuation risk. Additionally, such securities may be subject to
a higher degree of liquidity risk, because the liquidity of such investments may
vary dramatically over time.
Certain mortgage-backed securities may be secured by pools of
mortgages on single-family, multi-family properties, as well as commercial
properties. Similarly, asset-backed securities may be secured by pools of loans,
such as corporate loans, student loans, automobile loans and credit card
receivables. The credit risk on such securities is affected by homeowners or
borrowers defaulting on their loans. The values of assets underlying
mortgage-backed and asset-backed securities may decline and therefore may not be
adequate to cover underlying investors. Some mortgage-backed and asset-backed
securities have experienced extraordinary weakness and volatility in recent
years. Possible legislation in the area of residential mortgages, credit cards,
corporate loans and other loans that may collateralize the securities in which
the Fund may invest could negatively impact the value of the Fund’s investments.
To the extent the Fund focuses its investments in particular types of
mortgage-backed or asset-backed securities, the Fund may be more susceptible to
risk factors affecting such types of securities.
•Management
Risk. The Fund may not meet its investment objective based on the
Adviser’s success or failure to implement investment strategies for the
Fund.
Angel
Oak UltraShort Income Fund 15
•Sector
Risk.
To the extent the Fund invests more heavily in particular sectors of
the economy, its performance will be especially sensitive to developments that
significantly affect those sectors.
•Floating
or Variable Rate Securities Risk. Floating or variable rate securities pay interest at rates that
adjust in response to changes in a specified interest rate or reset at
predetermined dates (such as the end of a calendar quarter). Securities with
floating or variable interest rates are generally less sensitive to interest
rate changes than securities with fixed interest rates, but may decline in value
if their interest rates do not rise as much, or as quickly, as comparable market
interest rates. Although floating or variable rate securities are generally less
sensitive to interest rate risk than fixed rate securities, they are subject to
credit, liquidity and default risk and may be subject to legal or contractual
restrictions on resale, which could impair their value.
•Liquidity
and Valuation Risks. It may be difficult for the Fund to purchase and sell particular
investments within a reasonable time at a fair price, or the price at which it
has been valued for purposes of the Fund’s net asset value, causing the Fund to
be less liquid and unable to sell securities for what the Adviser believes is
the appropriate price of the investment. Valuation of portfolio investments may
be difficult, such as during periods of market turmoil or reduced liquidity and
for investments that trade infrequently or irregularly. In these and other
circumstances, an investment may be valued using fair value methodologies, which
are inherently subjective, reflect good faith judgments based on available
information and may not accurately estimate the price at which the Fund could
sell the investment at that time. Based on its investment strategies, a
significant portion of the Fund’s investments can be difficult to value and
potentially less liquid and therefore particularly prone to these
risks.
•Portfolio
Turnover Risk. Frequent trading increases the Fund’s portfolio turnover rate and
may increase transaction costs, such as brokerage commissions, dealer mark-ups
and may result in higher taxes when Fund shares are held in a taxable account.
Increased transaction costs could detract from the Fund’s
performance.
•Other
Investment Companies Risks.
The Fund will incur higher and duplicative expenses when it invests in mutual
funds, exchange-traded funds (“ETFs”), and other investment companies, which may
include those that are part of the same group of investment companies as the
Fund (“affiliated underlying funds”). There is also the risk that the Fund may
suffer losses due to the investment practices of the underlying funds. When the
Fund invests in other investment companies, the Fund will be subject to
substantially the same risks as those associated with the direct ownership of
securities held by such investment companies. ETFs may be less liquid than other
investments, and thus their share values more volatile than the values of the
investments they hold. Investments in ETFs are also subject to the following
risks: (i) the market price of an ETF’s shares may trade above or below their
net asset value; (ii) an active trading market for an ETF’s shares may not
develop or be maintained; and (iii) trading of an ETF’s shares may be halted for
a number of reasons.
The
Adviser may be subject to potential conflicts of interest in allocating the
Fund’s assets to underlying funds, such as a potential conflict in selecting
affiliated underlying funds over unaffiliated underlying funds. In addition, the
Fund’s portfolio managers may be subject to potential conflicts of interest in
allocating the Fund’s assets among underlying funds, as certain of the Fund’s
portfolio managers may also manage an affiliated underlying fund in which the
Fund may invest. Both the Adviser and the Fund’s portfolio managers have a
fiduciary duty to the Fund to act in the Fund’s best interest when selecting
underlying funds. Under the oversight of the Board of Trustees, the Adviser will
carefully analyze any such potential conflicts of interest and will take steps
to minimize and, where possible, eliminate them.
•Rating
Agencies Risks.
Ratings are not an absolute standard of quality, but rather general indicators
that reflect only the view of the originating rating agencies from which an
explanation of the significance of such ratings may be obtained. There is no
assurance that a particular rating will continue for any given period of time or
that any such rating will not be revised downward or withdrawn entirely. Such
changes may negatively affect the liquidity or market price of the securities in
which the Fund invests. The ratings of Structured Products may not adequately
reflect the credit risk of those assets due to their
structure.
•Floating
Rate Risk.
Instruments in which the Fund invests may pay interest at floating rates or may
be subject to interest caps or floors tied to floating rates. The Fund and
issuers of instruments in which the Fund invests may also obtain financing at
floating rates. Derivative instruments utilized by the Fund and/or issuers of
instruments in which the Fund may invest may also reference floating rates. The
Fund also may utilize leverage or borrowings primarily based on floating rates.
Some instruments in which the Fund has invested are or were tied to forms of the
London Interbank Offered Rate (“LIBOR”). LIBOR was the basic rate of interest
used in lending transactions between banks on the London interbank market and
has been widely used as a reference for setting the interest rate on loans
globally. As a result of benchmark reforms, publication of most LIBOR settings
has ceased. Some LIBOR settings continue to be published but only on a
temporary, synthetic and non-representative basis. All such synthetic LIBOR
settings are expected to be discontinued by September 30, 2024. When
publication of applicable synthetic LIBOR settings ceases, any still outstanding
instruments or investments using synthetic LIBOR settings are expected to
transition to alternative floating rate benchmarks. Regulated entities have
generally ceased entering into new LIBOR contracts in connection with regulatory
requirements. As a result of legislative mechanisms and industry-wide efforts to
replace LIBOR with alternative floating-rate benchmarks, LIBOR has been replaced
with an alternative
Angel
Oak UltraShort Income Fund 16
already
in many instruments. The transition from LIBOR may have effects on the value,
liquidity or return on certain Fund investments that continue to reference or
previously referenced LIBOR. In addition, there may be costs associated with the
transition from LIBOR. Any pricing adjustments to the Fund’s investments
resulting from the transition to an alternative reference rate may also
adversely affect the Fund’s performance and/or NAV. To the extent that any
replacement rate differs from that utilized for a Structured Product that holds
those securities, the Structured Product would experience an interest rate
mismatch between its assets and liabilities. Some instruments that referenced
LIBOR were transitioned to alternative reference rates as a result of certain
legislative transition mechanisms such as the Adjustable Interest Rate (LIBOR)
Act. This law provides a statutory fallback mechanism on a nationwide basis for
certain contracts to replace LIBOR with a benchmark rate that is selected by the
Board of Governors of the Federal Reserve System based on the Secured Overnight
Financing Rate (“SOFR”) where the related contract contains no, or insufficient,
fallback provisions. In addition, the transition from LIBOR to any alternative
reference rate may also introduce operational risks in the Fund’s accounting,
financial reporting, investment servicing, liability management and other
aspects of the Fund’s business. Completion of the transition from LIBOR to
alternative reference rates could lead to significant short-term and long-term
uncertainty and market instability. It remains uncertain how such changes would
affect the Fund, issuers of instruments in which the Fund invests and financial
markets generally.
•Large
Shareholder Transactions Risk.
Shares of the Fund are offered to certain other investment companies, large
retirement plans and other large investors. As a result, the Fund is subject to
the risk that those shareholders may purchase or redeem a large amount of shares
of the Fund. To satisfy such large shareholder redemptions, the Fund may have to
sell portfolio securities at times when it would not otherwise do so, which may
negatively impact the Fund’s NAV and liquidity. In addition, large purchases of
Fund shares could adversely affect the Fund’s performance to the extent that the
Fund does not immediately invest cash it receives and therefore holds more cash
than it ordinarily would. Large shareholder activity could also generate
increased transaction costs and cause adverse tax
consequences.
•Illiquid
Investments Risks. The Fund may, at times, hold illiquid investments, by virtue of the
absence of a readily available market for certain of its investments, or because
of legal or contractual restrictions on sales. The Fund could lose money if it
is unable to dispose of an investment at a time or price that is most beneficial
to the Fund.
•NAV
Risk. The Fund is not a money market fund, does not attempt to maintain a
stable NAV, and is not subject to the rules that govern the quality, maturity,
liquidity and other features of securities that money market funds may purchase.
Under normal conditions, the Fund’s investment may be more susceptible than a
money market fund to interest rate risk, valuation risk, credit risk, and other
risks relevant to the Fund’s investments. The Fund’s NAV per share will
fluctuate.
•Regulatory
and Legal Risks. U.S. and non-U.S. government agencies and other regulators regularly
adopt new regulations and legislatures enact new statutes that affect the
investments held by the Fund, the strategies used by the Fund or the level of
regulation or taxation that applies to the Fund. These statutes and regulations
may impact the investment strategies, performance, costs and operations of the
Fund or the taxation of its shareholders.
•High-Yield
Securities Risks. High-yield securities (also known as junk bonds) carry a greater
degree of risk and are more volatile than investment grade securities and are
considered speculative. High-yield securities may be issued by companies that
are restructuring, are smaller and less creditworthy, or are more highly
indebted than other companies. This means that they may have more difficulty
making scheduled payments of principal and interest. Changes in the value of
high-yield securities are influenced more by changes in the financial and
business position of the issuing company than by changes in interest rates when
compared to investment grade securities. The Fund’s investments in high-yield
securities expose it to a substantial degree of credit risk.
•Reverse
Repurchase Agreement Risks. A
reverse repurchase agreement is the sale by the Fund of a debt obligation to a
party for a specified price, with the simultaneous agreement by the Fund to
repurchase that debt obligation from that party on a future date at a higher
price. Similar to borrowing, reverse repurchase agreements provide the Fund with
cash for investment purposes, which creates leverage and subjects the Fund to
the risks of leverage. Reverse repurchase agreements also involve the risk that
the other party may fail to return the securities in a timely manner or at all.
The Fund could lose money if it is unable to recover the securities and/or if
the value of collateral held by the Fund, including the value of the investments
made with cash collateral, is less than the value of
securities.
•Derivatives
Risks.
The Fund’s derivatives and other similar instruments (collectively referred to
in this section as “derivatives” or “derivative instruments”) have risks,
including the imperfect correlation between the value of such instruments and
the underlying assets, rate or index; the loss of principal, including the
potential loss of amounts greater than the initial amount invested in the
derivative instrument; the possible default of the other party to the
transaction; and illiquidity of the derivative investments. Changes in the value
of a derivative may also create margin delivery or settlement payment
obligations for the Fund. If a counterparty becomes bankrupt or otherwise fails
to perform its obligations under a derivative contract due to financial
difficulties, the Fund may experience significant delays in obtaining any
recovery under the derivative contract in a bankruptcy or other reorganization
proceeding. Certain derivatives may give rise to a form of leverage. Leverage
magnifies the potential for gain and the risk of loss. The use of derivatives is
also subject to operational
Angel
Oak UltraShort Income Fund 17
risk
which refers to risk related to potential operational issues, including
documentation issues, settlement issues, system failures, inadequate controls,
and human error, as well as legal risk which refers to the risk of loss
resulting from insufficient documentation, insufficient capacity or authority of
counterparty, or legality or enforceability of a contract. Derivatives are also
subject to market risk which refers to the risk that markets could experience a
change in volatility that adversely impacts fund returns and the fund’s
obligations and exposures. Certain of the Fund’s transactions in derivatives
could also affect the amount, timing and character of distributions to
shareholders, which may result in the Fund realizing more short-term capital
gain and ordinary income subject to tax at ordinary income tax rates than it
would if it did not engage in such transactions, which may adversely impact the
Fund’s after-tax returns.
The
derivative instruments and techniques that the Fund may principally use include:
◦Futures.
A
futures contract is a standardized agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a specific future time. A
decision as to whether, when and how to use futures involves the exercise of
skill and judgment and even a well-conceived futures transaction may be
unsuccessful because of market behavior or unexpected events. In addition to the
derivatives risks discussed above, the prices of futures can be highly volatile,
using futures can lower total return, and the potential loss from futures can
exceed the Fund’s initial investment in such
contracts.
◦Options.
If the Fund buys an option, it buys a legal contract giving it the right to buy
or sell a specific amount of the underlying instrument or futures contract on
the underlying instrument at an agreed-upon price typically in exchange for a
premium paid by the Fund. If the Fund sells an option, it sells to another
person the right to buy from or sell to the Fund a specific amount of the
underlying instrument or futures contract on the underlying instrument at an
agreed-upon price typically in exchange for a premium received by the Fund. A
decision as to whether, when and how to use options involves the exercise of
skill and judgment and even a well-conceived option transaction may be
unsuccessful because of market behavior or unexpected events. The prices of
options can be highly volatile and the use of options can lower total
returns.
◦Swaps.
A swap contract is an agreement between
two parties pursuant to which the parties exchange payments at specified dates
on the basis of a specified notional amount, with the payments calculated by
reference to specified securities, indexes, reference rates, currencies or other
instruments. Swap agreements are particularly subject to counterparty credit,
liquidity, valuation, correlation, leverage, operational and legal risk. Swaps
could result in losses if interest rate or foreign currency exchange rates or
credit quality changes are not correctly anticipated by the Fund or if the
reference index, security or investments do not perform as expected. The use of
credit default swaps can result in losses if the Fund’s assumptions regarding
the creditworthiness of the underlying obligation prove to be
incorrect.
•RIC-Related
Risks of Investments Generating Non-Cash Taxable Income. Certain
of the Fund’s investments, particularly, debt obligations, such as zero coupon
bonds, that will be treated as having “market discount” and/or original issue
discount (“OID”) for U.S. federal income tax purposes and certain CLOs that may
be considered passive foreign investment companies or controlled foreign
corporations, will require the Fund to recognize taxable income in excess of the
cash generated on those investments in that tax year, which could cause the Fund
to have difficulty satisfying the annual distribution requirements applicable to
regulated investment companies (“RICs”) and avoiding Fund-level U.S. federal
income and/or excise taxes.
•Risks
Relating to Fund’s RIC Status. To qualify and remain eligible for the special tax treatment accorded
to a RIC and its shareholders under the Internal Revenue Code of 1986, as
amended, the Fund must meet certain source-of-income, asset diversification and
annual distribution requirements. If the Fund fails to qualify as a RIC for any
reason and becomes subject to corporate tax, the resulting corporate taxes could
substantially reduce its net assets, the amount of income available for
distribution and the amount of its distributions.
•Short
Sales Risks. The Fund may make short sales of securities, which involves selling a
security it does not own in anticipation that the price of the security will
decline. Short sales may involve substantial risk and leverage. Short sales
expose the Fund to the risk that it will be required to buy the security sold
short when the security has appreciated in value or is unavailable, thus
resulting in a loss to the Fund. Short sales also involve the risk that losses
may exceed the amount invested and may be unlimited.
•Uncertain
Tax Treatment. Below investment grade instruments may present special tax issues
for the Fund. U.S. federal income tax rules are not entirely clear about issues
such as when the Fund may cease accruing interest, OID or market discount, when
and to what extent deductions may be taken for bad debts or worthless
instruments, how payments received on obligations in default should be allocated
between principal and income and whether exchanges of debt obligations in a
bankruptcy or workout context are taxable, which may make it difficult for the
Fund to satisfy the annual distribution requirements applicable to
RICs.
Angel
Oak UltraShort Income Fund 18
•Repurchase
Agreement Risks. Repurchase agreements typically involve the acquisition by the Fund
of fixed-income securities from a selling financial institution such as a bank
or broker-dealer. The Fund may incur a loss if the other party to a repurchase
agreement is unwilling or unable to fulfill its contractual obligations to
repurchase the underlying security.
Performance
The following performance information provides some indication
of the risks of investing in the Fund. The bar chart shows
changes in the performance of the Institutional Class shares of the Fund from
year-to-year. The table below shows how the average annual total returns of the
Fund’s Class A, Class A1, and Institutional Class compare over time to those of
three indexes. The Bloomberg US Aggregate Bond Index serves as the fund’s
regulatory index and provides a broad measure of market performance. The
Bloomberg Short Treasury 9-12 Months Index and the Bloomberg Short Term
Government/Corporate Index are the fund’s additional indexes and are more
representative of the fund’s investment universe than the regulatory
index.
Performance
information represents only past performance, before and after taxes, and does
not necessarily indicate future results. Updated performance
information is available online at www.angeloakcapital.com or by calling
(855) 751-4324 (toll free).
Annual Total Returns for Institutional Class
Shares
(for
years ended December 31st)
The
calendar year-to-date total return as of March 31, 2024 for the
Fund’s Institutional Class shares was 1.98%. During the period shown in the chart,
the highest quarterly return was 4.11% (for the quarter ended
June 30,
2020) and the lowest quarterly
return was -3.72% (for the quarter ended
March 31,
2020).
Angel Oak UltraShort Income Fund
Average Annual Total Returns
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
For
the period ended December 31, 2023 |
1
Year |
5
Year |
Since
Inception
(4/02/18) |
Since
Inception (4/30/18) |
Since
Inception (7/22/22) |
Institutional
Class |
|
|
|
| |
– Return
Before Taxes |
7.01% |
2.04% |
2.17% |
N/A |
N/A |
– Return
After Taxes on Distributions1 |
5.07% |
0.95% |
1.06% |
N/A |
N/A |
– Return
After Taxes on Distributions and Sale of Fund
Shares1 |
4.12% |
1.09% |
1.19% |
N/A |
N/A |
Class
A |
|
|
|
| |
– Return
Before Taxes |
6.72% |
1.79% |
N/A |
1.89% |
N/A |
Class
A1 |
|
|
|
| |
– Return
Before Taxes |
4.60% |
N/A |
N/A |
N/A |
2.45% |
Bloomberg
US Aggregate Bond Index
(reflects no deduction for fees, expenses, and
taxes) |
5.53% |
1.10% |
1.21% |
1.37% |
0.41% |
Bloomberg
Short Treasury: 9-12 Months Index
(reflects
no deduction for fees, expenses, and
taxes) |
5.01% |
1.82% |
1.86% |
1.87% |
3.80% |
Bloomberg
Short Term Government/Corporate Index
(reflects
no deduction for fees, expenses, and
taxes) |
5.19% |
1.98% |
2.01% |
2.01% |
4.27% |
1 After-tax
returns are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor’s tax
situation and may differ from those shown. In certain cases, the figure representing “Return After
Taxes on Distributions and Sale of Fund Shares” may be higher than the other
return figures for the same period,
Angel
Oak UltraShort Income Fund 19
since a higher after-tax return results
when a capital loss occurs upon redemption and provides an assumed tax deduction
that benefits the investor. After-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements such as 401(k) plans or individual retirement
accounts. After-tax
returns are shown for Institutional Class only, and after-tax returns for other
classes will vary.
Portfolio
Management
Investment
Adviser.
Angel Oak Capital Advisors, LLC.
Portfolio
Managers.
Sreeniwas
(Sreeni) V. Prabhu, Managing Partner, Co-CEO, and Group Chief Investment Officer
of the Adviser, has been a portfolio manager of the Fund since its inception in
2018.
Namit
Sinha, Chief Investment Officer of the Adviser, has been a portfolio manager of
the Fund since 2024.
Clayton
Triick, CFA, Head of Portfolio Management, Public Strategies of the Adviser, has
been a portfolio manager of the Fund since its inception in 2018.
Purchase
and Sale of Fund Shares
You
may purchase or redeem Class A, Class A1, and Institutional Class shares of the
Fund on any business day by written request via mail (Angel Oak UltraShort
Income Fund, c/o U.S. Bank Global Fund Services, P.O. Box 701, Milwaukee, WI
53201-0701), by wire transfer, or by telephone at (855) 751-4324 (toll
free) or through certain financial intermediaries. Investors who wish to
purchase or redeem Fund shares through a financial intermediary should contact
the financial intermediary directly. The minimum initial and subsequent
investment amounts for each class of shares are shown below.
|
|
|
|
|
|
|
| |
Share
Class |
Minimum
Initial Investment |
Minimum
Additional Investment |
Class
A Shares—All
account types |
$1,000 |
$100 |
Class
A1 Shares—All
account types |
$1,000 |
$100 |
Institutional
Class Shares—All
account types |
$500,000 |
$100 |
Tax
Information
The
Fund’s distributions are taxed as ordinary income or capital gains, unless you
are investing through a tax-deferred arrangement, such as a 401(k) plan or an
individual retirement account. Such tax-deferred arrangements may be taxed later
upon withdrawal of monies from those arrangements.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase Fund shares through a broker-dealer or other financial intermediary
(such as a bank or trust company), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create conflicts of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary’s website
for more information.
Angel
Oak UltraShort Income Fund 20
ADDITIONAL
INFORMATION
ABOUT
THE
FUNDS’
OBJECTIVES,
PRINCIPAL
INVESTMENT
STRATEGIES,
AND
PRINCIPAL
INVESTMENT
RISKS
The
following information is in addition to, and should be read along with, the
description of the Angel Oak Multi-Strategy Income Fund’s (the “Multi-Strategy
Income Fund”) and the Angel Oak UltraShort Income Fund’s (the “UltraShort Income
Fund”) (each a “Fund” and together, the “Funds”) investment objectives,
principal investment strategies and principal investment risks in the summary
sections above.
Investment
Objective
Each
Fund’s investment objective is not fundamental and may be changed without
shareholder approval. Each Fund will provide 60 days’ advance notice of any
change in its investment objective.
Principal
Investment Strategies of the Multi-Strategy Income Fund
The
Fund invests primarily in agency and non-agency residential mortgage-backed
securities (“RMBS”), commercial mortgage-backed securities (“CMBS”),
collateralized loan obligations (“CLOs”), collateralized debt obligations
(“CDOs”), collateralized mortgage obligations (“CMOs”), collateralized bond
obligations (“CBOs”), asset-backed securities (“ABS”), including securities
backed by assets such as unsecured consumer loans, credit card receivables,
student loans, automobile loans, loans financing solar energy systems, and
residential and commercial real estate, and other debt securitizations
(collectively, “Structured Products”); mortgage loans, secured and unsecured
consumer loans, commercial loans and pools of such loans (collectively,
“Loans”); corporate debt, including bank-issued subordinated debt; equity
securities of banks, real estate investment trusts, or other issuers; and U.S.
Treasury and U.S. government agency securities.
The
Fund will concentrate its investment in agency and non-agency residential
mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities
(“CMBS”) (collectively, “MBS”). This means that, under normal circumstances, the
Fund will invest more than 25% of its total assets in MBS (measured at the time
of purchase). The Fund will not concentrate its investments in any other group
of industries. The Fund’s policy to concentrate its investments in MBS is
fundamental and may not be changed without shareholder approval.
The
Fund may make direct investments in mortgage loans, and the Adviser has the sole
discretion to select the mortgage loans in which the Fund will
invest.
The
Fund may invest in other investment companies, including closed-end investment
companies and open-end investment companies, which may operate as traditional
mutual funds, exchange-traded funds (“ETFs”), or business development companies
(“BDCs”). The other investment companies in which the Fund invests may be part
of the same group of investment companies as the Fund.
The
Fund may invest, without constraint, in a variety of instruments that are not
limited with respect to their issuer, quality, maturity, currency, structure,
yield, duration, or any other characteristic. The Fund’s investments in RMBS and
ABS will span a broad segment of consumer creditworthiness segments, which will
include exposure to prime, near-prime, and subprime consumers.
The
Fund’s portfolio may include significant investments in high-yield securities
and fixed-income securities that are not rated by any rating agencies. Such
bonds, if rated, will be in the lower rating categories of the major rating
agencies (BB+ or lower by Standard & Poor’s Ratings Group (“S&P”) or an
equivalent rating from another National Recognized Statistical Ratings
Organization) or will be determined by the Adviser to be of similar quality.
The
fixed income instruments in which the Fund invests may include those of issuers
from the United States and other countries. The Fund’s investments in foreign
debt securities will typically be denominated in U.S. dollars.
The
Fund may invest up to 15% of its net assets in investments that are deemed to be
illiquid, which may include private placements, certain Rule 144A securities
(which are subject to resale restrictions), and securities of issuers that are
bankrupt or in default.
The
Fund may implement its strategy by making investments directly or, to comply
with certain regulations, through one or more wholly-owned and controlled
subsidiaries formed by the Fund and organized in the United States (each, a
“Subsidiary”). A Subsidiary may invest in residential and commercial real estate
whole loans, including second lien loans such as home equity line of credit
(“HELOC”) loans, participations in such loans or instruments representing the
right to receive interest payments and principal due on such loans. The
Subsidiary may invest in residential and commercial real estate loans of any
credit rating or no credit rating, including without limit in loans that are
rated below investment grade. The principal risks of investments in the
Subsidiary are the same as those relating to residential loans and mortgages.
See “Residential Loans and Mortgages Risk.” The allocation of the Fund’s
investments, if any, in a Subsidiary will vary over time, and a Subsidiary’s
investments will also vary and may not include all of the types of investments
described above.
The
Fund’s use of borrowing, short sales, derivatives and reverse repurchase
agreements may be deemed to create leverage, which can increase the Fund’s
volatility and the effect, positive or negative, of the Fund’s investments on
its NAV. The 1940 Act generally limits the extent to which the Fund may utilize
bank borrowings to one-third of the Fund's total assets at the time utilized.
The Fund’s use of derivatives and other similar instruments is subject to a
value-at-risk leverage limit, certain derivatives risk management program, and
reporting requirements under Rule 18f-4. In the future, the Fund could qualify
as a “limited derivatives user” as defined in Rule 18f-4 (or its use of
derivatives and other similar instruments could satisfy the conditions of
certain exemptions from the rule), in which case the Fund would not be required
to comply with such requirements.
Derivatives,
which are instruments that have a value based on another instrument, exchange
rate or index, may be used as substitutes for securities in which the Fund can
invest. The Fund uses derivatives to gain or adjust exposure to markets,
sectors, securities and currencies and to manage exposure to risks relating to
creditworthiness, interest rate spreads, volatility and changes in yield curves.
In certain market environments, the Fund may use interest rate swaps and futures
contracts to help protect its portfolio from interest rate risk. The Fund may
also utilize foreign currency transactions, including currency options and
forward currency contracts, to hedge non-U.S. Dollar investments or to establish
or adjust exposure to particular foreign securities, markets or currencies. The
Fund’s hedging strategies may include the use of derivatives with underlying
instruments that are not specified in the Fund’s principal investment strategies
(for example, the Fund may invest in total return swaps on the S&P 500 Index
to hedge against broad market exposure).
The
Fund’s portfolio of fixed-income instruments will depend on the views of the
Adviser as to the best value relative to what is currently presented in the
marketplace. The Fund’s portfolio managers lead a team of sector specialists
responsible for researching opportunities within their sector and making
recommendations to the Fund’s portfolio managers. In selecting investments, the
Adviser may consider maturity, yield and ratings information and opportunities
for price appreciation among other criteria.
As
part of its investment process, the Adviser also considers certain
environmental, social and governance (“ESG”) and sustainability factors that it
believes could have a material negative or positive impact on the risk profiles
of the issuers or underlying collateral assets of certain securities in which
the Fund may invest. These determinations may not be conclusive, and securities
that may be negatively impacted by such factors may be purchased and retained by
the Fund while the Fund may divest or not invest in securities that may be
positively impacted by such factors. The Adviser may sell investments if it
determines that any of the mentioned factors have changed materially from its
initial analysis or that other factors indicate that an investment is no longer
earning a return commensurate with its risk or that a different security will
better help the Fund achieve its investment objective.
In
evaluating a security’s ESG and sustainability factors, the Adviser will use its
own proprietary assessments of such factors and may also reference standards as
set forth by recognized global organizations, including the United Nations’
Sustainable Development Goals (“UN SDGs”), the United Nations’ Principles for
Responsible Investing (“UN PRI”), the Carbon Disclosure Project (“CDP”), the
International Sustainability Standards Board (“ISSB”) and the Global Reporting
Initiative (“GRI”). Examples of the types of factors the Adviser may consider as
part of its proprietary assessment, include, without limitation: environmental
issues, such as carbon emissions and energy efficiency; social issues, such as
affordable housing and community investment; and corporate governance issues,
such as board independence and diversity. The Fund may also invest in other
investment companies that focus on ESG and sustainability factors.
Additionally,
the Adviser may engage proactively with issuers or trustees to encourage them to
improve their ESG and sustainability factors. In this regard, the Adviser may
engage in direct dialogue with company management, including through in-person
meetings, phone calls, electronic communications, and letters. These engagement
activities are designed to facilitate the Adviser’s efforts to identify
opportunities for issuers and trustees to improve their ESG and sustainability
practices and to work collaboratively with managers and trustees to establish
concrete objectives and to develop a plan for meeting those objectives. The Fund
may invest in securities issued by companies or securitization platforms whose
ESG and sustainability practices, at the time of the investment, do not fully
meet the Adviser’s proprietary standards, with the expectation that the
Adviser’s engagement efforts and/or the company’s own initiatives will lead to
improvements in ESG and sustainability practices over time. It may also exclude
those issuers or securitization platforms that are not receptive to the
Adviser’s engagement efforts, as determined in the Adviser’s sole discretion.
ESG and sustainability factors will not be considered with respect to
investments in U.S. Treasury and U.S. government agency securities, money market
instruments, and derivatives.
Principal
Investment Strategies of the UltraShort Income Fund
In
pursuing its objective, the Fund will, under normal circumstances, invest in
securities which cause the Fund to have a dollar-weighted average maturity of
less than two years and a dollar-weighted average duration of less than one
year.
The
Fund invests primarily in agency and non-agency residential mortgage-backed
securities (“RMBS”), asset-backed securities (“ABS”), including securities
backed by assets such as unsecured consumer loans, credit card receivables,
student loans, automobile loans, loans financing solar energy systems, and
residential and commercial real estate, collateralized loan obligations
(“CLOs”), collateralized debt obligations (“CDOs”), collateralized mortgage
obligations (“CMOs”), and other debt securitizations (collectively, “Structured
Products”); corporate debt and other debt securities; and U.S. Treasury and U.S.
government agency securities.
The
Fund will concentrate its investments in agency and non-agency residential
mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities
(“CMBS”) (collectively, “MBS”). This means that, under normal circumstances, the
Fund will invest more than 25% of its total assets in MBS (measured at the time
of purchase). The Fund will not concentrate its investments in any other group
of industries. The Fund’s policy to concentrate its investments in MBS is
fundamental and may not be changed without shareholder approval.
The
Fund may invest in other investment companies, including closed-end investment
companies and open-end investment companies, which may operate as traditional
mutual funds, exchange-traded funds (“ETFs”) or business development companies
(“BDCs”). The other investment companies in which the Fund invests may be part
of the same group of investment companies as the Fund.
The
Fund may invest, without constraint, in a variety of instruments that are not
limited with respect to their issuer, quality, currency, structure, yield, or
any other characteristic. The Fund’s investments in RMBS and ABS will span a
broad segment of consumer creditworthiness segments, which will include exposure
to prime, near-prime, and subprime consumers.
The
fixed income instruments in which the Fund invests may include those of issuers
from the United States and other countries. The Fund’s investments in foreign
debt securities will typically be denominated in U.S. dollars.
The
Fund may invest up to 15% of its net assets in investments that are deemed to be
illiquid, which may include private placements, certain Rule 144A securities
(which are subject to resale restrictions), and securities of issuers that are
bankrupt or in default.
The
Fund may engage in active and frequent trading of its portfolio securities which
may result in higher portfolio turnover. Higher portfolio turnover may result in
the Fund paying higher levels of transaction costs and generating greater tax
liabilities for shareholders.
The
Fund’s use of borrowing, short sales, derivatives, and reverse repurchase
agreements may be deemed to create leverage, which can increase the Fund’s
volatility and the effect, positive or negative, of the Fund’s investments on
its NAV. The 1940 Act generally limits the extent to which the Fund may utilize
bank borrowings to one-third of the Fund's total assets at the time utilized.
The Fund’s use of derivatives and other similar instruments is subject to a
value-at-risk leverage limit, certain derivatives risk management program, and
reporting requirements under Rule 18f-4. In the future, the Fund could qualify
as a “limited derivatives user” as defined in Rule 18f-4 (or its use of
derivatives and other similar instruments could satisfy the conditions of
certain exemptions from the rule), in which case the Fund would not be required
to comply with such requirements.
Derivatives,
which are instruments that have a value based on another instrument, exchange
rate or index, may be used as substitutes for securities in which the Fund can
invest. The Fund uses derivatives to gain or adjust exposure to markets,
sectors, securities, and currencies and to manage exposure to risks relating to
creditworthiness, interest rate spreads, volatility, and changes in yield
curves. In certain market environments, the Fund may use interest rate swaps and
futures contracts to help protect its portfolio from interest rate risk. The
Fund may also utilize foreign currency transactions, including currency options
and forward currency contracts, to hedge non-U.S. Dollar investments or to
establish or adjust exposure to particular foreign securities, markets or
currencies. The Fund’s hedging strategies may include the use of derivatives
with underlying instruments that are not specified in the Fund’s principal
investment strategies (for example, the Fund may invest in total return swaps on
the S&P 500 Index to hedge against broad market exposure).
The
Fund’s portfolio of fixed-income instruments will depend on the views of the
Adviser as to the best value relative to what is currently presented in the
marketplace. The Fund’s portfolio managers lead a team of sector specialists
responsible for researching opportunities within their sector and making
recommendations to the Fund’s portfolio managers. In selecting investments, the
Adviser may consider maturity, yield and ratings information and opportunities
for price appreciation among other criteria.
As
part of its investment process, the Adviser also considers certain
environmental, social and governance (“ESG”) and sustainability factors that it
believes could have a material negative or positive impact on the risk profiles
of the issuers or underlying collateral assets of certain securities in which
the Fund may invest. These determinations may not be conclusive, and securities
that may be negatively impacted by such factors may be purchased and retained by
the Fund while the Fund may divest or not invest in securities that may be
positively impacted by such factors. The Adviser may sell investments if it
determines that any of the mentioned factors have changed materially from its
initial analysis or that other factors indicate that an investment is no longer
earning a return commensurate with its risk or that a different security will
better help the Fund achieve its investment objective.
In
evaluating a security’s ESG and sustainability factors, the Adviser will use its
own proprietary assessments of such factors and may also reference standards as
set forth by recognized global organizations, including the United Nations’
Sustainable Development Goals (“UN SDGs”), the United Nations’ Principles for
Responsible Investing (“UN PRI”), the Carbon Disclosure Project (“CDP”), the
International Sustainability Standards Board (“ISSB”) and the Global Reporting
Initiative (“GRI”). Examples of the types of factors the Adviser may consider as
part of its proprietary assessment, include, without limitation: environmental
issues, such as carbon emissions and energy efficiency; social issues, such as
affordable housing and community investment; and corporate governance issues,
such as board independence and diversity. The Fund may also invest in other
investment companies that focus on ESG and sustainability factors.
Additionally,
the Adviser may engage proactively with issuers or trustees to encourage them to
improve their ESG and sustainability factors. In this regard, the Adviser may
engage in direct dialogue with company management, including through in-person
meetings, phone calls, electronic communications, and letters. These engagement
activities are designed to facilitate the Adviser’s efforts to identify
opportunities for issuers and trustees to improve their ESG and sustainability
practices and to work collaboratively with managers and trustees to establish
concrete objectives and to develop a plan for meeting those objectives. The Fund
may invest in securities issued by companies or securitization platforms whose
ESG and sustainability practices, at the time of the investment, do not fully
meet the Adviser’s proprietary standards, with the expectation that the
Adviser’s engagement efforts and or the company’s own initiatives will lead to
improvements in ESG and sustainability practices over time. It may also exclude
those issuers or securitization platforms that are not receptive to the
Adviser’s engagement efforts, as determined in the Adviser’s sole discretion.
ESG and sustainability factors will not be considered with respect to
investments in U.S. Treasury and U.S. government agency securities, money market
instruments, and derivatives.
Temporary
Defensive Positions
From
time to time, each Fund may take temporary defensive positions that are
inconsistent with its principal investment strategies, in attempting to respond
to adverse market, economic, political or other conditions. In such instances, a
Fund may hold up to 100% of its assets in cash; short-term U.S. government
securities and government agency securities; investment grade money market
instruments; investment grade fixed-income securities; repurchase agreements;
commercial paper and cash equivalents. Each Fund may invest in the securities
described above at any time to maintain liquidity, pending selection of
investments by the Adviser, or if the Adviser believes that sufficient
investment opportunities that meet the Fund’s investment criteria are not
available. By keeping cash on hand, a Fund may be able to meet shareholder
redemptions without selling securities and realizing gains and losses. As a
result of engaging in these temporary measures, the applicable Fund may not
achieve its investment objective.
Principal
Risks of Investing in the Funds
The
principal risks of investing in the Funds are summarized below. You should
carefully consider a Fund’s investment risks before deciding whether to invest
in the Fund. There may be circumstances that could prevent a Fund from achieving
its investment objective and you may lose money by investing in the Fund. An
investment in a Fund is not a deposit at a bank and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government
agency.
•Bank
Subordinated Debt Risk (Multi-Strategy
Income Fund only).
Banks
may issue subordinated debt securities, which have a lower priority to full
payment behind other more senior debt securities. This means, for example, that
if the issuing bank were to become insolvent, subordinated debt holders may not
receive a full return of their principal because the bank would have to satisfy
the claims of senior debt holders first. In addition to the risks generally
associated with fixed income instruments (e.g., interest rate risk, credit risk,
etc.), bank subordinated debt is also subject to risks inherent to banks.
Because banks are highly regulated and operate in a highly competitive
environment, it may be difficult for a bank to meet its debt obligations. Banks
also may be affected by changes in legislation and regulations applicable to the
financial markets. This is especially true in light of the large amount of
regulatory developments in recent years. Bank subordinated debt is often issued
by smaller community banks that may be overly concentrated in a specific
geographic region, lack the capacity to comply with new regulatory requirements
or lack adequate capital. Smaller banks may also have a lower capacity to
withstand negative developments in the market in general. If any of these or
other factors were to negatively affect a bank’s operations, the bank could fail
to make payments on its debt obligations, which would hurt a Fund’s bank
subordinated debt investments. Subordinated debt, senior debt and preferred
securities of banks and diversified financials companies are subject to the
risks generally associated with the financials sector. See “Financials Sector
Risk.”
•Borrowing
Risks and Leverage Risks.
Borrowing for investment purposes creates leverage, which will exaggerate the
effect of any change in the value of securities in the Fund’s portfolio on the
Fund’s net asset value (“NAV”) and, therefore, may increase the volatility of
the Fund. Money borrowed will be subject to interest and other costs (including
commitment fees and/or the cost of maintaining minimum average balances). Unless
the income and capital appreciation, if any, on securities acquired with
borrowed funds exceed the cost of borrowing, the use of leverage will diminish
the investment performance of the Fund. In addition, pursuant to an exemptive
order from the U.S. Securities and Exchange Commission (“SEC”), a Fund may
borrow from another Fund for temporary purposes, to the extent such
participation is consistent with the Fund’s and the lending Fund’s investment
objective and investment policies.
•Community
Bank Risks (Multi-Strategy
Income Fund only).
A Fund’s investments in community banks may make the Fund more economically
vulnerable in the event of a downturn in the banking industry. Community banks
may face heightened risks of failure during times of economic downturns,
including those impacting a particular region, than larger banks. Community
banks may also be subject to greater lending risks than larger banks, including
the risks associated with mortgage loans. The ability of management of financial
institutions to identify, measure, monitor and control the risks of an
institution’s activities and to ensure a financial institution’s safe, sound and
efficient operation in compliance with applicable laws and regulations are
critical. Community banks may have fewer resources to devote towards employing
and retaining strong management employees and implementing a thorough compliance
program. Additionally, banking institutions are subject to substantial
regulations that
could
adversely affect their ability to operate and the value of a Fund’s investments,
including from future banking regulations. Ownership of the stock of certain
types of regulated banking institutions may subject the Fund to additional
regulations. Investments in banking institutions and transactions related to
Fund investments may require approval from one or more regulatory authorities.
If a Fund were deemed to be a bank holding company or thrift holding company,
bank holding companies or thrift holding companies that invest in the Fund would
be subject to certain restrictions and regulations.
•Concentration
in Certain Mortgage-Backed Securities Risk.
Concentration risk results from maintaining exposure to the performance of the
residential and commercial mortgages held in the mortgage-backed securities in
which a Fund will invest. The risk of concentrating in these types of
investments is that a Fund will be susceptible to the risks associated with
mortgage-backed securities as discussed below, changes in lending standards,
interest rates and lending rates, and the risks associated with the market’s
perception of issuers, the creditworthiness of the parties involved and
investing in real estate securities.
•Covenant
Lite Loan Risk.
A Fund may obtain exposure to “covenant lite” loans. Covenants contained in loan
documentation are intended to protect lenders by imposing certain restrictions
and other limitations on a borrower’s operations or assets and by providing
certain information and consent rights to lenders. Covenant lite loans may lack
financial maintenance covenants that in certain situations can allow lenders to
claim a default on the loan to seek to protect the interests of the lenders. The
absence of financial maintenance covenants in a covenant lite loan might result
in a lower recovery in the event of a default by the borrower. Covenant lite
loans have become much more prevalent in recent years.
•Credit
Risk.
A Fund could lose money if the issuer or guarantor of a fixed income security,
or the counterparty to a derivatives contract or repurchase agreement, is unable
or unwilling, or is perceived (whether by market participants, rating agencies,
pricing services or otherwise) as unable or unwilling, to make timely principal
and/or interest payments, or to otherwise honor its obligations. The downgrade
of the credit of a security held by a Fund may decrease its value. Securities
are subject to varying degrees of credit risk, which are often reflected in
credit ratings. Measures such as average credit quality may not accurately
reflect the true credit risk of a Fund. This is especially the case if a Fund
consists of securities with widely varying credit ratings. Therefore, if a Fund
has an average credit rating that suggests a certain credit quality, the Fund
may in fact be subject to greater credit risk than the average would suggest.
This risk is greater to the extent a Fund uses leverage or derivatives in
connection with the management of the Fund. In addition, under current
conditions, there is an increasing amount of issuers that are unprofitable, have
little cash on hand and/or are unable to pay the interest owed on their debt
obligations and the number of such issuers may increase if demand for their
goods and services falls, borrowing costs rise due to governmental action or
inaction or other reasons. Also, the issuer, guarantor or counterparty may
suffer adverse changes in its financial condition or reduced demand for its
goods and services or be adversely affected by economic, political, public
health or social conditions that could lower the credit quality (or the market’s
perception of the credit quality) of the issuer or instrument, leading to
greater volatility in the price of the instrument and in shares of a Fund.
If
an issuer, guarantor or counterparty declares bankruptcy or is declared
bankrupt, a Fund would likely be adversely affected in its ability to receive
principal or interest owed or otherwise to enforce the financial obligations of
the other party. A Fund may be subject to increased costs associated with the
bankruptcy process and experience losses as a result of the deterioration of the
financial condition of the issuer, guarantor or counterparty. The risks to a
Fund related to such bankruptcies are elevated given the currently distressed
economic, market, labor and public health conditions.
•Cybersecurity
Risk.
With the increased use of technologies such as the Internet and the dependence
on computer systems to perform business and operational functions, funds (such
as a Fund) and their service providers may be prone to operational and
information security risks resulting from cyberattacks and/or technological
malfunctions. In general, cyberattacks are deliberate, but unintentional events
may have similar effects. Cyberattacks include, among others, stealing or
corrupting data maintained online or digitally, preventing legitimate users from
accessing information or services on a website, releasing confidential
information without authorization, and causing operational disruption.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause a Fund, the Adviser, and/or other
service providers (including custodians and financial intermediaries) to suffer
data breaches or data corruption. Additionally, cybersecurity failures or
breaches of the electronic systems of a Fund, the Adviser, or such Fund’s other
service providers, market makers, Authorized Participants or the issuers of
securities in which the Fund invests have the ability to cause disruptions and
negatively impact the Fund’s business operations, potentially resulting in
financial losses to the Fund and its respective shareholders. For instance,
cyberattacks or technical malfunctions may interfere with the processing of
shareholder or other transactions, affect a Fund’s ability to calculate its NAV,
cause the release of private shareholder information or confidential Fund
information, impede trading, cause reputational damage, and subject such Fund to
regulatory fines, penalties or financial losses, reimbursement or other
compensation costs, and additional compliance costs. Cyberattacks or technical
malfunctions may render records of Fund assets and transactions, shareholder
ownership of Fund Shares, and other data integral to the functioning of the Fund
inaccessible or inaccurate or incomplete. A Fund may also incur substantial
costs for cybersecurity risk management in order to prevent cyber incidents in
the future. A Fund and its shareholders could be negatively impacted as a
result.
•Derivatives
Risks.
A Fund’s derivatives and other similar investments (referred to collectively in
this section as “derivatives” or “derivative investments”) have risks similar to
their underlying instruments and may have additional risks, including the
imperfect
correlation between the value of such instruments and the underlying instrument,
rate or index, which creates the possibility that the loss on such instruments
may be greater than the gain in the value of the underlying instrument, rate or
index; the loss of principal; the possible default of the other party to the
transaction; illiquidity of the derivative investments; risks arising from
margin requirements and settlement payment obligations; and risks arising from
mispricing or valuation complexity. The use of derivatives is also subject to
operational risk which refers to risk related to potential operational issues,
including documentation issues, settlement issues, system failures, inadequate
controls, and human error, as well as legal risk which refers to the risk of
loss resulting from insufficient documentation, insufficient capacity or
authority of counterparty, or legality or enforceability of a contract.
Derivatives are also subject to market risk which refers to the risk that
markets could experience a change in volatility that adversely impacts fund
returns and the fund’s obligations and exposures. If a counterparty becomes
bankrupt or otherwise fails to perform its obligations under a derivative
contract due to financial difficulties, a Fund may experience significant delays
in obtaining any recovery under the derivative contract in a bankruptcy or other
reorganization proceeding, or may not recover at all. In addition, in the event
of the insolvency of a counterparty to a derivative transaction, the derivative
contract would typically be terminated at its fair market value. If a Fund is
owed this fair market value in the termination of the derivative contract and
its claim is unsecured, the Fund will be treated as a general creditor of such
counterparty, and will not have any claim with respect to the underlying
instrument. Certain of the derivative investments in which a Fund may invest
may, in certain circumstances, give rise to a form of financial leverage, which
may magnify the risk of owning such instruments. The ability to successfully use
derivative investments depends on the ability of the Adviser to predict
pertinent market movements, which cannot be assured. In addition, amounts paid
by a Fund as premiums and cash or other assets held in margin accounts with
respect to the Fund’s derivative investments would not be available to the Fund
for other investment purposes, which may result in lost opportunities for gain.
Regulation
of the derivatives market presents additional risks to a Fund and may limit the
ability of a Fund to use, and the availability or performance of, such
instruments.
The
derivative instruments and techniques that a Fund may principally use include:
◦Futures.
A
futures contract is a standardized agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a specific future time. The
value of a futures contract tends to increase and decrease in tandem with the
value of the underlying instrument. Depending on the terms of the particular
contract, futures contracts are settled through either physical delivery of the
underlying instrument on the settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether, when and how to use
futures involves the exercise of skill and judgment and even a well-conceived
futures transaction may be unsuccessful because of market behavior or unexpected
events. In addition to the derivatives risks discussed above, the prices of
futures can be highly volatile, using futures can lower total return, and the
potential loss from futures can exceed a Fund’s initial investment in such
contracts.
◦Options.
If a Fund buys an option, it buys a legal contract giving it the right to buy or
sell a specific amount of the underlying instrument or futures contract on the
underlying instrument at an agreed-upon price typically in exchange for a
premium paid by the Fund. If a Fund sells an option, it sells to another person
the right to buy from or sell to the Fund a specific amount of the underlying
instrument or futures contract on the underlying instrument at an agreed-upon
price typically in exchange for a premium received by the Fund. A decision as to
whether, when and how to use options involves the exercise of skill and judgment
and even a well-conceived option transaction may be unsuccessful because of
market behavior or unexpected events. The prices of options can be highly
volatile and the use of options can lower total returns.
◦Swaps.
A
swap contract is an agreement between two parties pursuant to which the parties
exchange payments at specified dates on the basis of a specified notional
amount, with the payments calculated by reference to specified securities,
indexes, reference rates, currencies or other instruments. Most swap agreements
provide that when the period payment dates for both parties are the same, the
payments are made on a net basis (i.e., the two payment streams are netted
out, with only the net amount paid by one party to the other). A Fund’s
obligations or rights under a swap contract entered into on a net basis will
generally be equal only to the net amount to be paid or received under the
agreement, based on the relative values of the positions held by each
counterparty. Swap agreements are particularly subject to counterparty credit,
liquidity, valuation, correlation, leverage, operational and legal risk. Certain
standardized swaps are now subject to mandatory central clearing requirements
and are required to be exchange-traded. While central clearing and
exchange-trading are intended to reduce counterparty and liquidity risk, they do
not make swap transactions risk-free. Swaps could result in losses if interest
rate or foreign currency exchange rates or credit quality changes are not
correctly anticipated by a Fund or if the reference index, security or
investments do not perform as expected. A Fund’s use of swaps may include those
based on the credit of an underlying investment, commonly referred to as “credit
default swaps.” Where a Fund is the buyer of a credit default swap contract, it
would be entitled to receive the par (or other agreed-upon) value of a
referenced debt obligation from the counterparty to the contract only in the
event of a default or similar event by a third party on the debt obligation. If
no default occurs, a Fund would have paid to the counterparty a periodic stream
of payments over the term of the contract and received no
benefit
from the contract. When a Fund is the seller of a credit default swap contract,
it receives the stream of payments but is obligated to pay an amount equal to
the par (or other agreed-upon) value of a referenced debt obligation upon the
default or similar event of that obligation. The use of credit default swaps can
result in losses if a Fund’s assumptions regarding the creditworthiness of the
underlying obligation prove to be incorrect. Periodically, the CFTC and
exchanges change the position limits to which futures, options on futures and
some swaps are subject. To the extent these contracts are traded, the Fund may
be constrained by how many contracts it may trade. The Commodity Futures Trading
Commission in October 2020 adopted amendments to its position limits rules that
establish certain new and amended position limits for 25 specified physical
commodity futures and related options contracts traded on exchanges, other
futures contracts and related options directly or indirectly linked to such 25
specified contracts, and any over the counter transactions that are economically
equivalent to the 25 specified contracts. The Adviser will need to consider
whether the exposure created under these contracts might exceed the new and
amended limits in anticipation of the applicable compliance dates, and the
limits may constrain the ability of a Fund to use such contracts.
•Equity
Market Risk
(Multi-Strategy
Income Fund only).
A Fund’s investments in equity securities may subject the Fund to volatility and
the following risks: (i) prices of stock may fall over short or extended periods
of time; (ii) cyclical movements of the equity market may cause the value of the
Fund’s securities to fluctuate drastically from day to day; and (iii) individual
companies may report poor results or be negatively affected by industry and or
economic trends and developments.
•Extension
Risk.
An issuer could exercise its right to pay principal on an obligation held by a
Fund (such as a mortgage-backed security) later than expected. This may happen
when there is a rise in interest rates. Under these circumstances, the value of
the obligation will decrease, and a Fund will also suffer from the inability to
reinvest in higher yielding securities.
•Financials
Sector Risk
(Multi-Strategy
Income Fund only).
Companies
in the group of industries related to banks and diversified financials are often
subject to extensive governmental regulation and intervention, which may
adversely affect the scope of their activities, the prices they can charge and
the amount of capital they must maintain. Governmental regulation may change
frequently and may have significant adverse consequences for companies in the
group of industries related to banks and diversified financials, including
effects not intended by such regulation. The impact of past or future regulation
in various countries on any individual financial company or on the industries as
a whole cannot be predicted. The Fund’s emphasis on community banks may make a
Fund more economically vulnerable in the event of a downturn in the banking
industry. Community banks may face heightened risks of failure during times of
economic downturns than larger banks. Community banks may also be subject to
greater lending risks than larger banks.
Certain
risks may impact the value of investments in the group of industries related to
banks and diversified financials more severely than those of investments outside
these industries, including the risks associated with companies that operate
with substantial financial leverage. Companies in the group of industries
related to banks and diversified financials may also be adversely affected by
increases in interest rates and loan losses, decreases in the availability of
money or asset valuations, credit rating downgrades and adverse conditions in
other related markets.
Insurance
companies are subject to extensive government regulation in some countries and
can be significantly affected by changes in interest rates, general economic
conditions, price and marketing competition, the imposition of premium rate caps
or other changes in government regulation or tax law. Different segments of the
insurance industry can be significantly affected by mortality and morbidity
rates, environmental clean-up costs and catastrophic events such as earthquakes,
hurricanes and terrorist acts.
During
the financial crisis that began in 2007, the deterioration of the credit markets
impacted a broad range of mortgage, asset-backed, auction rate, sovereign debt
and other markets, including U.S. and non-U.S. credit and interbank money
markets, thereby affecting a wide range of financial institutions and markets. A
number of large financial institutions failed during that time, merged with
stronger institutions or had significant government infusions of capital.
Instability in the financial markets caused certain financial companies to incur
large losses. Some financial companies experienced declines in the valuations of
their assets, took actions to raise capital (such as the issuance of debt or
equity securities), or even ceased operations. Some financial companies borrowed
significant amounts of capital from government sources and may face future
government-imposed restrictions on their businesses or increased government
intervention. Those actions caused the securities of many financial companies to
decline in value.
The
group of industries related to banks and diversified financials is also a target
for cyber attacks and may experience technology malfunctions and disruptions. In
recent years, cyber attacks and technology failures have become increasingly
frequent and have caused significant losses.
Risks
specific to the bank and diversified financial group of industries also may
include:
◦Asset
Quality and Credit Risk.
When financial institutions loan money, commit to loan money or enter into a
letter of credit or other contract with a counterparty, they incur credit risk,
or the risk of losses if their borrowers do not repay their loans or their
counterparties fail to perform according to the terms of their contract. The
companies in which a
Fund
will invest offer a number of products which expose them to credit risk,
including loans, leases and lending commitments, derivatives, trading account
assets and assets held-for-sale. Financial institutions allow for and create
loss reserves against credit risks based on an assessment of credit losses
inherent in their credit exposure (including unfunded credit commitments). This
process, which is critical to their financial results and condition, requires
difficult, subjective and complex judgments, including forecasts of economic
conditions and how these economic predictions might impair the ability of their
borrowers to repay their loans. As is the case with any such assessments, there
is always the chance that the financial institutions in which a Fund invests
will fail to identify the proper factors or that they will fail to accurately
estimate the impacts of factors that they identify. Failure to identify credit
risk factors or the impact of credit factors may result in increased
non-performing assets, which will result in increased loss reserve provisioning
and reduction in earnings. Poor asset quality can also affect earnings through
reduced interest income which can impair a bank’s ability to service debt
obligations or to generate sufficient income for equity holders. Bank failure
may result due to inadequate loss reserves, inadequate capital to sustain credit
losses or reduced earnings due to non-performing assets. A Fund will not have
control over the asset quality of the financial institutions in which the Fund
will invest, and these institutions may experience substantial increases in the
level of their non-performing assets which may have a material adverse impact on
the Fund’s investments.
◦Capital
Risk.
A bank’s capital position is extremely important to its overall financial
condition and serves as a cushion against losses. U.S. banking regulators have
established specific capital requirements for regulated banks. Federal banking
regulators proposed amended regulatory capital regulations in response to the
Dodd-Frank Act and the international capital and liquidity requirements set
forth by the Basel Committee on Banking Supervision (“Basel III”) protocols
which would impose even more stringent capital requirements. In the event that a
regulated bank falls below certain capital adequacy standards, it may become
subject to regulatory intervention including, but not limited to, being placed
into a FDIC-administered receivership or conservatorship. The regulatory
provisions under which the regulatory authorities act are intended to protect
depositors. The deposit insurance fund and the banking system are not intended
to protect shareholders or other investors in other securities issued by a bank
or its holding company. The effect of inadequate capital can have a potentially
adverse consequence on the institution’s financial condition, its ability to
operate as a going concern and its ability to operate as a regulated financial
institution and may have a material adverse impact on a Fund’s investments.
◦Earnings
Risk.
Earnings are the primary means for financial institutions to generate capital to
support asset growth, to provide for loan losses and to support their ability to
pay dividends to shareholders. The quantity as well as the quality of earnings
can be affected by excessive or inadequately managed credit risk that may result
in losses and require additions to loss reserves, or by high levels of market
risk that may unduly expose an institution’s earnings to volatility in interest
rates. The quality of earnings may also be diminished by undue reliance on
extraordinary gains, nonrecurring events, or favorable tax effects. Future
earnings may be adversely affected by an inability to forecast or control
funding and operating expenses, net interest margin compression improperly
executed or ill-advised business strategies, or poorly managed or uncontrolled
exposure to other risks. Deficient earnings can result in inadequate capital
resources to support asset growth or insufficient cash flow to meet the
financial institution’s near term obligations. Under certain circumstances, this
may result in the financial institution being required to suspend operations or
the imposition of a cease-and-desist order by regulators which could potentially
impair a Fund’s investments.
◦Management
Risk.
The ability of management to identify, measure, monitor and control the risks of
an institution’s activities and to ensure a financial institution’s safe, sound
and efficient operation in compliance with applicable laws and regulations are
critical. Depending on the nature and scope of an institution’s activities,
management practices may need to address some or all of the following risks:
credit, market, operating, reputation, strategic, compliance, legal, liquidity
and other risks. A Fund will not have direct or indirect control over the
management of the financial institutions in which the Fund will invest and,
given the Fund’s long-term investment strategy, it is likely that the management
teams and their policies may change. The inability of management to operate
their financial institution in a safe, sound and efficient manner in compliance
with applicable laws and regulations, or changes in management of financial
institutions in which a Fund invests, may have an adverse impact on the Fund’s
investment.
◦Litigation
Risk.
Financial institutions face significant legal risks in their businesses, and the
volume of claims and amount of damages and penalties claimed in litigation and
regulatory proceedings against financial institutions remain high. Substantial
legal liability or significant regulatory action against the companies in which
a Fund invests could have material adverse financial effects or cause
significant reputational harm to these companies, which in turn could seriously
harm their business prospects. Legal liability or regulatory action against the
companies in which a Fund invests could have material adverse financial effects
on the Fund and adversely affect the Fund’s earnings and book value.
◦Market
Risk.
The financial institutions in which a Fund will invest are directly and
indirectly affected by changes in market conditions. Market risk generally
represents the risk that values of assets and liabilities or revenues will be
adversely
affected by changes in market conditions. Market risk is inherent in the
financial instruments associated with the operations and activities including
loans, deposits, securities, short-term borrowings, long-term debt, trading
account assets and liabilities, and derivatives of the financial institutions in
which a Fund will invest. Market risk includes, but is not limited to,
fluctuations in interest rates, equity and futures prices, changes in the
implied volatility of interest rates, equity and futures prices and price
deterioration or changes in value due to changes in market perception or actual
credit quality of the issuer. Accordingly, depending on the instruments or
activities impacted, market risks can have wide ranging, complex adverse effects
on the operations and overall financial condition of the financial institutions
in which a Fund will invest as well as adverse effects on the Fund’s results
from operations and overall financial condition.
◦Monetary
Policy Risk.
Monetary policies have had, and will continue to have, significant effects on
the operations and results of financial institutions. There can be no assurance
that a particular financial institution will not experience a material adverse
effect on its net interest income in a changing interest rate environment.
Factors such as the liquidity of the global financial markets, and the
availability and cost of credit may significantly affect the activity levels of
customers with respect to the size, number and timing of transactions.
Fluctuation in interest rates, which affect the value of assets and the cost of
funding liabilities, are not predictable or controllable, may vary and may
impact economic activity in various regions.
◦Competition.
The group of industries related to banks and diversified financials, including
the banking sector, is extremely competitive, and it is expected that the
competitive pressures will increase. Merger activity in the financial services
industry has resulted in and is expected to continue to result in, larger
institutions with greater financial and other resources that are capable of
offering a wider array of financial products and services. The group of
industries related to banks and diversified financials has become considerably
more concentrated as numerous financial institutions have been acquired by or
merged into other institutions. The majority of financial institutions in which
a Fund will invest will be relatively small with significantly fewer resources
and capabilities than larger institutions; this size differential puts them at a
competitive disadvantage in terms of product offering and access to capital.
Technological advances and the growth of e-commerce have made it possible for
non-financial institutions and non-bank financial institutions to offer products
and services that have traditionally been offered by banking and other financial
institutions. It is expected that the cross-industry competition and
inter-industry competition will continue to intensify and may be adverse to the
financial institutions in which a Fund invests.
◦Regulatory
Risk.
Financial institutions, including community banks, are subject to various state
and federal banking regulations that impact how they conduct business, including
but not limited to how they obtain funding, their ability to operate, and the
value of a Fund’s investments. Changes to these regulations could have an
adverse effect on their operations and operating results and a Fund’s
investments. The Funds expect to make long-term investments in financial
institutions that are subject to various state and federal regulations and
oversight. Congress, state legislatures and the various bank regulatory agencies
frequently introduce proposals to change the laws and regulations governing the
banking industry in response to the Dodd-Frank Act, Consumer Financial
Protection Bureau (the “CFPB”) rulemaking or otherwise. The likelihood and
timing of any proposals or legislation and the impact they might have on the
Fund’s investments in financial institutions affected by such changes cannot be
determined and any such changes may be adverse to a Fund’s investments.
Ownership of the stock of certain types of regulated banking institutions may
subject a Fund to additional regulations. Investments in banking institutions
and transactions related to a Fund’s investments may require approval from one
or more regulatory authorities. If a Fund were deemed to be a bank holding
company or thrift holding company, bank holding companies or thrift holding
companies that invest in the Fund would be subject to certain restrictions and
regulations.
•Fixed-Income
Instruments Risks. Changes
in interest rates generally will cause the value of fixed-income instruments
held by a Fund to vary inversely to such changes. Prices of longer-term
fixed-income instruments generally fluctuate more than the prices of
shorter-term fixed income instruments as interest rates change. In addition, a
fund with a longer average portfolio duration will be more sensitive to changes
in interest rates than a fund with a shorter average portfolio duration.
Duration is a measure used to determine the sensitivity of a security’s price to
changes in interest rates that incorporates a security’s yield, coupon, final
maturity and call features, among other characteristics. However, duration may
not accurately reflect the true interest rate sensitivity of instruments held by
a Fund and, therefore the Fund’s exposure to changes in interest rates. If an
issuer calls or redeems an instrument held by a Fund during a time of declining
interest rates, a Fund might need to reinvest the proceeds in an investment
offering a lower yield, and therefore may not benefit from any increase in value
as a result of declining interest rates.
Fixed-income
instruments that are fixed-rate are generally more susceptible than floating
rate instruments to price volatility related to changes in prevailing interest
rates. The prices of floating rate fixed-income instruments tend to have less
fluctuation in response to changes in interest rates, but will have some
fluctuation, particularly when the next interest rate adjustment on such
security is further away in time or adjustments are limited in amount over time.
A Fund may invest in short-term securities that, when interest rates decline,
affect the Fund’s yield as these securities mature or are sold and the Fund
purchases new
short-term
securities with lower yields. Subordinated debt securities that receive payments
of interest and principal after other more senior security holders are paid
carry the risk that the issuer will not be able to meet its obligations and that
the subordinated investments may lose value. An obligor’s willingness and
ability to pay interest or to repay principal due in a timely manner may be
affected by its cash flow.
Fixed-income
and debt market conditions are highly unpredictable and some parts of the market
are subject to dislocations. In response to serious economic disruptions,
governmental authorities and regulators may enact significant fiscal and
monetary policy changes, including providing direct capital infusions into
companies, creating new monetary programs and lowering interest rates
considerably. These actions can present heightened risks to fixed-income and
debt instruments, and such risks could be even further heightened if these
actions are reversed or are ineffective in achieving their desired outcomes. Low
or negative interest rates magnify the Fund’s susceptibility to interest rate
risk and diminishing yield and performance. Recently, interest rates in the U.S.
and many other countries have risen from historically low levels. Fluctuations
in interest rates expose fixed-income and debt markets to significant volatility
and reduced liquidity for the Fund's investments.
•Floating
or Variable Rate Securities Risk.
Floating
or variable rate securities pay interest at rates that adjust in response to
changes in a specified interest rate or reset at predetermined dates (such as
the end of a calendar quarter). Securities with floating or variable interest
rates are generally less sensitive to interest rate changes than securities with
fixed interest rates, but may decline in value if their interest rates do not
rise as much, or as quickly, as comparable market interest rates. Conversely,
floating or variable rate securities will not generally increase in value if
interest rates decline. The impact of interest rate changes on floating or
variable rate securities is typically mitigated by the periodic interest rate
reset of the investments. Floating or variable rate securities can be rated
below investment grade or unrated; therefore, a Fund relies heavily on the
analytical ability of the Adviser. Lower-rated floating or variable rate
securities are subject to many of the same risks as high yield securities,
although these risks are reduced when the instruments are senior and secured as
opposed to many high yield securities that are junior and unsecured. Floating or
variable rate securities are often subject to restrictions on resale, which can
result in reduced liquidity.
•Floating
Rate Risk.
Instruments in which a Fund invests may pay interest at floating rates or may be
subject to interest caps or floors tied to floating rates. A Fund and issuers of
instruments in which a Fund invests may also obtain financing at floating rates.
Derivative instruments utilized by a Fund and/or issuers of instruments in which
a Fund may invest may also reference floating rates. A Fund also may utilize
leverage or borrowings primarily based on floating rates. Some instruments in
which a Fund has invested are or were tied to forms of the London Interbank
Offered Rate (“LIBOR”). LIBOR was the basic rate of interest used in lending
transactions between banks on the London interbank market and has been widely
used as a reference for setting the interest rate on loans globally. As a result
of benchmark reforms, publication of most LIBOR settings has ceased. Some LIBOR
settings continue to be published but only on a temporary, synthetic and
non-representative basis. All such synthetic LIBOR settings are expected to be
discontinued by September 30, 2024. When publication of applicable
synthetic LIBOR settings ceases, any still outstanding instruments or
investments using synthetic LIBOR settings are expected to transition to
alternative floating rate benchmarks. Regulated entities have generally ceased
entering into new LIBOR contracts in connection with regulatory requirements. As
a result of legislative mechanisms and industry-wide efforts to replace LIBOR
with alternative floating-rate benchmarks, LIBOR has been replaced with an
alternative already in many instruments. The transition from LIBOR may have
effects on the value, liquidity or return on certain Fund investments that
continue to reference or previously referenced LIBOR. In addition, there may be
costs associated with the transition from LIBOR. Any pricing adjustments to a
Fund’s investments resulting from the transition to an alternative reference
rate may also adversely affect the Fund’s performance and/or NAV. To the extent
that any replacement rate differs from that utilized for a Structured Product
that holds those securities, the Structured Product would experience an interest
rate mismatch between its assets and liabilities. Some instruments that
referenced LIBOR were transitioned to alternative reference rates as a result of
certain legislative transition mechanisms such as the Adjustable Interest Rate
(LIBOR) Act. This law provides a statutory fallback mechanism on a nationwide
basis for certain contracts to replace LIBOR with a benchmark rate that is
selected by the Board of Governors of the Federal Reserve System based on the
Secured Overnight Financing Rate (“SOFR”) where the related contract contains
no, or insufficient, fallback provisions. In addition, the transition from LIBOR
to any alternative reference rate may also introduce operational risks in a
Fund’s accounting, financial reporting, investment servicing, liability
management and other aspects of the Fund’s business. Completion of the
transition from LIBOR to alternative reference rates could lead to significant
short-term and long-term uncertainty and market instability. It remains
uncertain how such changes would affect a Fund, issuers of instruments in which
a Fund invests and financial markets generally.
Alteration
of the terms of a debt instrument or a modification of the terms of other types
of contracts to replace LIBOR or another interbank offered rate (“IBOR”) with a
new reference rate could result in a taxable exchange and the realization of
income and gain/loss for U.S. federal income tax purposes. The IRS has issued
final regulations regarding the tax consequences of the transition from IBOR to
a new reference rate in debt instruments and non-debt contracts. Under the final
regulations, alteration or modification of the terms of a debt instrument to
replace an operative rate that uses a discontinued IBOR with a qualified rate
(as defined in the final regulations) including true up payments equalizing the
fair market value of contracts before and after such IBOR transition, to add a
qualified rate as a fallback rate to a contract whose operative rate uses a
discontinued
IBOR or to replace a fallback rate that uses a discontinued IBOR with a
qualified rate would not be taxable. The IRS may provide additional guidance,
with potential retroactive effect.
•Foreign
Securities Risks.
Certain
foreign countries may impose exchange control regulations, restrictions on
repatriation of profit on investments or of capital invested, local taxes on
investments, and restrictions on the ability of issuers of non-U.S. securities
to make payments of principal and interest to investors located outside the
country, whether from currency blockage or otherwise. In addition, the Funds
will be subject to risks associated with adverse political and economic
developments in foreign countries, including seizure or nationalization of
foreign deposits, the imposition of economic or trade sanctions, different legal
systems and laws relating to bankruptcy and creditors’ rights and the potential
inability to enforce legal judgments, all of which could cause a Fund to lose
money on its investments in non-U.S. securities. The type and severity of
sanctions and other similar measures, including counter sanctions and other
retaliatory actions, that may be imposed could vary broadly in scope, and their
impact is difficult to ascertain. These types of measures may include, but are
not limited to, banning a sanctioned country or certain persons or entities
associated with such country from global payment systems that facilitate
cross-border payments, restricting the settlement of securities transactions by
certain investors, and freezing the assets of particular countries, entities or
persons. The imposition of sanctions and other similar measures could, among
other things, result in a decline in the value and/or liquidity of securities
issued by the sanctioned country or companies located in or economically tied to
the sanctioned country, downgrades in the credit ratings of the sanctioned
country's securities or those of companies located in or economically tied to
the sanctioned country, currency devaluation or volatility, and increased market
volatility and disruption in the sanctioned country and throughout the world.
Sanctions and other similar measures could directly or indirectly limit or
prevent a Fund from buying and selling securities (in the sanctioned country and
other markets), significantly delay or prevent the settlement of securities
transactions, and adversely impact a Fund's liquidity and performance. The cost
of servicing external debt will also generally be adversely affected by rising
international interest rates, as many external debt obligations bear interest at
rates which are adjusted based upon international interest rates. Because
non-U.S. securities may trade on days when a Fund’s shares are not priced, NAV
may change at times when the Fund’s shares cannot be sold.
Foreign
banks and securities depositories at which a Fund holds its foreign securities
and cash may be recently organized or new to the foreign custody business and
may be subject to only limited or no regulatory oversight. Additionally, many
foreign governments do not supervise and regulate stock exchanges, brokers and
the sale of securities to the same extent as does the United States and may not
have laws to protect investors that are comparable to U.S. securities laws.
Settlement and clearance procedures in certain foreign markets may result in
delays in payment for or delivery of securities not typically associated with
settlement and clearance of U.S. investments.
Less
information may be publicly available with respect to foreign issuers than is
available with respect to U.S. companies. Accounting standards in non-U.S.
countries may differ from U.S. accounting standards. If the accounting standards
in another country do not require as much detail as U.S. accounting standards,
it may be more difficult to completely and accurately assess a company’s
financial condition. The volume of transactions on foreign stock exchanges is
generally lower than the volume of transactions on U.S. exchanges. Therefore,
the market for securities that trade on foreign stock exchanges may be less
liquid and their prices may be more volatile than securities that trade on U.S.
securities.
In
recent years, the European financial markets have experienced volatility and
adverse trends due to concerns about economic downturns in, or rising government
debt levels of, several European countries. These events may spread to other
countries in Europe, including countries that do not use the Euro. These events
may affect the value and liquidity of certain of the Fund’s investments.
•General
Market Risk. The
capital markets may experience periods of disruption, instability and volatility
due to, among other things, social, political, economic and other conditions and
events such as natural disasters, terrorism, epidemics and pandemics. Such
conditions may materially and adversely affect the markets globally and the
issuers, industries, governments and jurisdictions in which a Fund invests,
which may have a negative impact on a Fund’s performance. These impacts can be
exacerbated by failures of governments and societies to adequately respond to an
emerging event or threat.
The
NAV of a Fund and investment return will fluctuate based upon changes in the
value of its portfolio securities. The market value of securities in which a
Fund invests is based upon the market’s perception of value and is not
necessarily an objective measure of the securities’ value. Other general market
risks include: (i) the market may not recognize what the Adviser believes to be
the true value or growth potential of the securities held by the Fund; (ii) the
earnings of the companies in which a Fund invests will not continue to grow at
expected rates, thus causing the price of the underlying securities to decline;
(iii) the smaller a company’s market capitalization, the greater the potential
for price fluctuations and volatility of its securities due to lower trading
volume for the securities, less publicly available information about the company
and less liquidity in the market for the security; (iv) the potential for price
fluctuations in the security of a medium capitalization company may be greater
than that of a large capitalization company; (v) the Adviser’s judgment as to
the growth potential or value of a security may prove to be wrong; and
(vi) a decline in investor demand for the securities held by a Fund also
may adversely affect the value of the securities.
In
addition, securities in a Fund’s portfolio may cause a Fund to lose value and/or
underperform in comparison to securities in general financial markets, a
particular financial market or other asset classes due to a number of factors,
including inflation (or expectations for inflation), deflation (or expectations
for deflation), interest rates, global demand for particular products or
resources, market instability, debt crises and downgrades, embargoes, tariffs,
sanctions and other trade barriers, regulatory events, other governmental trade
or market control programs and related geopolitical events. In addition, the
value of a Fund’s investments may be negatively affected by the occurrence of
global events, such as war, terrorism, environmental disasters, natural
disasters or events, country instability, and infectious disease
epidemics/pandemics. These events could reduce consumer demand or economic
output, result in market closures, travel restrictions or quarantines, and
significantly adversely impact the economy. Governmental and quasi-governmental
authorities and regulators throughout the world have previously responded to
serious economic disruptions with a variety of significant fiscal and monetary
policy changes, including but not limited to, direct capital infusions into
companies, new monetary programs and dramatically lower interest rates. An
unexpected or sudden reversal of these policies, or the ineffectiveness of these
policies, could increase volatility in securities markets, which could adversely
affect a Fund’s investments. Any market disruptions could also prevent a Fund
from executing advantageous investment decisions in a timely manner. Increasing
interconnectivity between global economies and financial markets can lead to
events or conditions in one country, region or financial market adversely
impacting a different country, region or financial market. Thus, investors
should closely monitor current market conditions to determine whether a Fund
meets their individual financial needs and tolerance for risk.
•High-Yield
Securities Risks.
Below
investment grade instruments are commonly referred to as “junk” or high-yield
instruments and are regarded as predominantly speculative with respect to the
issuer’s capacity to pay interest and repay principal. Lower grade instruments
may be particularly susceptible to economic downturns. It is likely that a
prolonged or deepening economic recession could adversely affect the ability of
the issuers of such instruments to repay principal and pay interest thereon,
increase the incidence of default for such instruments and severely disrupt the
market value of such instruments.
Lower
grade instruments, though higher yielding, are characterized by higher risk. The
retail secondary market for lower grade instruments, which are often thinly
traded or subject to irregular trading, may be less liquid than that for higher
rated instruments. Such instruments can be more difficult to sell and to value
than higher rated instruments because there is generally less public information
available about such securities. As a result, subjective judgment may play a
greater role in valuing such instruments. Adverse conditions could make it
difficult at times for a Fund to sell certain instruments or could result in
lower prices than those used in calculating the Fund’s NAV. Because of the
substantial risks associated with investments in lower grade instruments,
investors could lose money on their investment in the Fund, both in the
short-term and the long-term.
•Illiquid
Investments Risks. A
Fund may invest up to 15% of its net assets in illiquid investments. A Fund may
also invest in restricted securities. Investments in restricted securities could
have the effect of increasing the amount of a Fund’s assets invested in illiquid
investments if qualified institutional buyers are unwilling to purchase these
securities.
Illiquid
and restricted investments may be difficult to dispose of at a fair price at the
times when a Fund believes it is desirable to do so. The market price of
illiquid and restricted investments generally is more volatile than that of more
liquid investments, which may adversely affect the price that a Fund pays for or
recovers upon the sale of such investments. Illiquid and restricted investments
are also more difficult to value, especially in challenging markets. The
Adviser’s judgment may play a greater role in the valuation process. Investment
of a Fund’s assets in illiquid and restricted securities may restrict the Fund’s
ability to take advantage of market opportunities. To dispose of an unregistered
security, a Fund, where it has contractual rights to do so, may have to cause
such security to be registered. A considerable period may elapse between the
time the decision is made to sell the security and the time the security is
registered, thereby enabling a Fund to sell it. Contractual restrictions on the
resale of securities vary in length and scope and are generally the result of a
negotiation between the issuer and acquirer of the securities. In either case, a
Fund would bear market risks during that period. Liquidity risk may impact a
Fund’s ability to meet shareholder redemptions and as a result, the Fund may be
forced to sell securities at inopportune prices.
Certain
fixed-income instruments are not readily marketable and may be subject to
restrictions on resale. Fixed-income instruments may not be listed on any
national securities exchange and no active trading market may exist for certain
of the fixed-income instruments in which a Fund will invest. Where a secondary
market exists, the market for some fixed-income instruments may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement
periods. Trade settlement periods may take longer than seven days for
transactions of leveraged loans, meaning it could take the Fund significant time
to receive money after selling its investments. In addition, dealer inventories
of certain securities are at historic lows in relation to market size, which
indicates a potential for reduced liquidity as dealers may be less able to “make
markets” for certain fixed-income securities.
Certain
Structured Products, including CLOs, CDOs, CMOs, CBOs, and other asset-backed
securities and debt securitizations, may be thinly traded or have a limited
trading market. Structured Products are typically privately offered and sold,
and thus, are not registered under the securities laws, which means less
information about the security may be available as compared to publicly offered
securities and only certain institutions may buy and sell them. As a result,
investments in Structured Products may be characterized by a Fund as illiquid
securities.
•Interest
Rate Risk.
Rising interest rates tend to extend the duration of securities, making them
more sensitive to changes in interest rates. The value of longer-term securities
generally changes more in response to changes in interest rates than
shorter-term securities. As a result, in a period of rising interest rates,
securities may exhibit additional volatility and may lose value. Recently,
interest rates in the United States and many other countries have risen from
historically low levels. Changing interest rates, including rates that fall
below zero, may have unpredictable effects on markets, including market
volatility, and may adversely affect the Fund's performance. A change in
interest rates may be sudden and significant, with unpredictable effects on the
financial markets and the Fund's investments. Should interest rates decrease,
the Fund's investments in certain variable-rate and fixed rate debt securities
may be adversely affected.
•Large
Shareholder Transactions Risk.
Shares of the Funds are offered to certain other investment companies, large
retirement plans and other large investors. As a result, a Fund is subject to
the risk that those shareholders may purchase or redeem a large amount of shares
of the Fund. To satisfy such large shareholder redemptions, a Fund may have to
sell portfolio securities at times when it would not otherwise do so, which may
negatively impact the Fund’s NAV and liquidity. In addition, large purchases of
Fund shares could adversely affect a Fund’s performance to the extent that the
Fund does not immediately invest cash it receives and therefore holds more cash
than it ordinarily would. Large shareholder activity could also generate
increased transaction costs and cause adverse tax consequences.
•Liquidity
and Valuation Risks.
It may be difficult for a Fund to purchase and sell particular investments
within a reasonable time at a favorable price. The capacity of traditional
fixed-income market makers has not kept pace with the consistent growth in the
fixed-income markets in recent years, which has led to reductions in the
capacity of such market makers to engage in fixed-income trading and, as a
result, dealer inventories of corporate fixed-income and floating rate
instruments are at or near historic lows relative to market size. These concerns
may be more pronounced in the case of high yield fixed-income and floating rate
instruments than higher quality fixed-income instruments. Market makers tend to
provide stability and liquidity to debt-securities markets through their
intermediary services, and their reduced capacity and number could lead to
diminished liquidity and increased volatility in the fixed-income markets. As a
result, a Fund could be unable to pay redemption proceeds within the allowable
time period due to adverse market conditions, an unusually high volume of
redemption requests or other reasons, unless it sells other portfolio
investments under unfavorable conditions, thereby adversely affecting the Fund.
In addition, a Fund’s ability to sell an instrument under favorable conditions
may also be negatively impacted by, among other things, the sale of the same or
similar instruments by other market participants at the same time.
To
the extent that there is not an established liquid market for instruments in
which a Fund invests, or there is a reduced number or capacity of traditional
market makers with respect to certain instruments, trading in such instruments
may be relatively inactive or irregular. In addition, during periods of reduced
market liquidity or market turmoil, or in the absence of readily accessible
market quotations for an investment in a Fund’s portfolio, the ability of the
Fund to assign an accurate daily value to that investment may be limited and the
Adviser, on behalf of the Fund, may be required to perform a fair valuation of
the instrument. Fair value determinations are inherently subjective and reflect
good faith judgments based on available information. Accordingly, there can be
no assurance that the determination of an instrument’s fair value, conducted in
accordance with the valuation procedures, will in fact approximate the price at
which a Fund could sell that instrument at the time of the fair valuation. The
Funds rely on various sources of information to value investments and calculate
net asset value. The Funds may obtain pricing information from third parties
that are believed to be reliable. In certain cases, this information may be
unavailable or this information may be inaccurate because of errors by the third
parties, technological issues, absence of current or reliable market data or
otherwise, which could impact a Fund’s ability to accurately value its
investments or calculate its NAV.
Investors
who purchase or redeem shares of a Fund on days when the Fund is holding
instruments that have been fair valued may receive fewer or more shares or lower
or higher redemption proceeds than they would have received if the instruments
had not been fair valued or if the Fund had employed an alternative valuation
methodology. Such risks may be more pronounced in a rising interest rate
environment, and, to the extent the Fund that holds a significant percentage of
fair valued or otherwise difficult to value securities, it may be particularly
susceptible to the risks associated with valuation. For additional information
about valuation determinations, see “Determination of Net Asset Value” below.
Portions of a Fund’s portfolio that are fair valued or difficult to value vary
from time to time. A Fund’s shareholder reports contain detailed information
about a Fund’s holdings that are fair valued or difficult to value, including
values of such holdings as of the dates of the reports.
•Management
Risk.
Each Fund is actively managed and its performance may reflect the Adviser’s
ability to make decisions which are suited to achieving a Fund’s investment
objective. Additionally, the Adviser’s consideration of certain ESG factors when
making investment decisions may affect a Fund’s performance relative to that of
funds that do not consider ESG factors. Due to its active management, a Fund
could underperform other funds with a similar investment objective.
•Mortgage-Backed
and Asset-Backed Securities Risks. The
price paid by a Fund for asset-backed securities, the yield the Fund expects to
receive from such securities and the average life of such securities are based
on a number of factors, including the anticipated rate of prepayment of the
underlying assets. The value of these securities may be significantly affected
by changes in lending standards, interest rates and lending rates, and the risks
associated with the market’s perception of issuers, the creditworthiness of the
parties involved, and investing in real estate securities. The foregoing risks
or similar developments
may
adversely impact the default risk for the properties and loans underlying
mortgage-backed securities investments, the value of and income generated by
these investments, and could also result in reduced mortgage-backed securities
liquidity. The foregoing risks or similar developments may adversely impact the
default risk for the properties and loans underlying mortgage-backed securities
investments, the value of and income generated by these investments, and could
also result in reduced mortgage-backed securities liquidity.
The
ability of a Fund to successfully utilize these instruments may depend on the
ability of the Fund’s Adviser to forecast interest rates and other economic
factors correctly. These securities may have a structure that makes their
reaction to interest rate changes and other factors difficult to predict, making
their value highly volatile.
In
addition to the risks associated with other asset-backed securities as described
above, mortgage-backed securities are subject to the general risks associated
with investing in real estate securities; that is, they may lose value if the
value of the underlying real estate to which a pool of mortgages relates
declines. In addition, mortgage-backed securities comprised of subprime
mortgages and investments in other asset-backed securities collateralized by
subprime loans may be subject to a higher degree of credit risk and valuation
risk. Additionally, such securities may be subject to a higher degree of
liquidity risk, because the liquidity of such investments may vary dramatically
over time.
In
addition, CMOs, which are mortgage-backed securities that are typically
collateralized by mortgage loans or mortgage pass-through securities, and
multi-class pass-through securities, are commonly structured as equity interests
in a trust composed of mortgage loans or other mortgage-backed securities. CMOs
are usually issued in multiple classes, often referred to as “tranches,” with
each tranche having a specific fixed or floating coupon rate and stated maturity
or final distribution date. Under the traditional CMO structure, the cash flows
generated by the mortgages or mortgage pass-through securities in the collateral
pool are used to first pay interest and then pay principal to the holders of the
CMOs. Subject to the provisions of individual CMO issues, the cash flow
generated by the underlying collateral (to the extent it exceeds the amount
required to pay the stated interest) is used to retire the bonds. As a result of
these and other structural characteristics, CMOs entail greater market,
prepayment and liquidity risks than other mortgage-backed securities, and may be
more volatile or less liquid than other mortgage-backed securities.
Mortgage-backed
securities may be issued by governments or their agencies and instrumentalities,
such as, in the United States, Ginnie Mae, Fannie Mae and Freddie Mac. They may
also be issued by private issuers but represent an interest in or are
collateralized by pass-through securities issued or guaranteed by a government
or one of its agencies or instrumentalities. In addition, mortgage-backed
securities may be issued by private issuers and be collateralized by securities
without a government guarantee. Such securities usually have some form of
private credit enhancement.
Pools
created by private issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. Notwithstanding that such pools may
be supported by various forms of private insurance or guarantees, there can be
no assurance that the private insurers or guarantors will be able to meet their
obligations under the insurance policies or guarantee arrangements. A Fund may
invest in private mortgage pass-through securities without such insurance or
guarantees. Any mortgage-backed securities that are issued by private issuers
are likely to have some exposure to subprime loans as well as to the mortgage
and credit markets generally. In addition, such securities are not subject to
the underwriting requirements for the underlying mortgages that would generally
apply to securities that have a government or government-sponsored entity
guarantee, thereby increasing their credit risk. The risk of non-payment is
greater for mortgage-related securities that are backed by mortgage pools that
contain subprime loans, but a level of risk exists for all loans. Market factors
adversely affecting mortgage loan repayments may include a general economic
downturn, high unemployment, a general slowdown in the real estate market, a
drop in the market prices of real estate, or an increase in interest rates
resulting in higher mortgage payments by holders of adjustable rate mortgages.
•NAV
Risk (UltraShort
Income Fund only).
The Fund is not a money market fund, does not attempt to maintain a stable NAV,
and is not subject to the rules that govern the quality, maturity, liquidity and
other features of securities that money market funds may purchase. Under normal
conditions, the Fund’s investment may be more susceptible than a money market
fund to interest rate risk, valuation risk, credit risk, and other risks
relevant to the Fund’s investments. The Fund’s NAV per share will
fluctuate.
•Other
Investment Companies Risks. Because
the Funds generally invest in other investment companies (including those that
are part of the same group of investment companies as the Funds (“affiliated
underlying funds”)) that invest in fixed-income securities, risks associated
with investments in other investment companies will include fixed-income
securities risks. In addition to the brokerage costs associated with a Fund’s
purchase and sale of the underlying securities, ETFs and mutual funds incur fees
that are separate from those of a Fund. As a result, a Fund’s shareholders will
indirectly bear a proportionate share of the operating expenses of the ETFs and
mutual funds, in addition to Fund expenses. Because a Fund is not required to
hold shares of underlying funds for any minimum period, it may be subject to,
and may have to pay, short-term redemption fees imposed by the underlying funds.
ETFs are subject to additional risks such as the fact that the market price of
its shares may trade above or below its NAV or an active market may not develop.
A Fund has no control over the investments and related risks taken by the
underlying funds in which it invests.
In
addition to risks generally associated with investments in investment company
securities, ETFs are subject to the following risks that do not apply to
traditional mutual funds: (i) the market price of an ETF’s shares may be
above or below its NAV; (ii) an active trading market for an ETF’s shares
may not develop or be maintained; (iii) the ETF may employ an investment
strategy that utilizes high leverage ratios; (iv) trading of an ETF’s
shares may be halted if the listing exchange’s officials deem such action
appropriate; and (v) underlying ETF shares may be de-listed from the
exchange or the activation of market-wide “circuit breakers” (which are tied to
large decreases in stock prices) may temporarily stop stock trading.
A
Fund’s investments in other investment companies may include investments in
closed-end funds (“CEFs”). Shares of CEFs frequently trade at a price per share
that is less than a fund’s NAV. There can be no assurance that the market
discount on shares of any CEF purchased by a Fund will ever decrease or that
when the Fund seeks to sell shares of a CEF it can receive the NAV of those
shares. CEFs have lower levels of daily volume when compared to open-end
companies. There are greater risks involved in investing in securities with
limited market liquidity.
The
Adviser may be subject to potential conflicts of interest in allocating a Fund’s
assets to underlying funds, such as a potential conflict in selecting affiliated
underlying funds over unaffiliated underlying funds. In addition, a Fund’s
portfolio managers may be subject to potential conflicts of interest in
allocating the Fund’s assets among underlying funds, as certain of the Fund’s
portfolio managers may also manage an affiliated underlying fund in which the
Fund may invest. Both the Adviser and a Fund’s portfolio managers have a
fiduciary duty to a Fund to act in the Fund’s best interest when selecting
underlying funds. Under the oversight of the Board of Trustees, the Adviser will
carefully analyze any such potential conflicts of interest and will take steps
to minimize and, where possible, eliminate them.
Additionally,
to the extent that a Fund serves as an “acquired fund” to another affiliated or
unaffiliated investment company, the Fund’s ability to invest in other
investment companies and private funds may be limited and, under these
circumstances, the Fund’s investments in other investment companies and private
funds will be consistent with applicable law and/or exemptive rules adopted by
or exemptive orders obtained from the SEC. For example, to the extent the Fund
serves as an acquired fund in a fund of funds arrangement in reliance on Rule
12d1-4 under the Investment Company Act, the Fund would be prohibited from
purchasing or otherwise acquiring the securities of an investment company or
private fund if, after such purchase or acquisition, the aggregate value of the
Fund’s investments in such investment companies and private funds would exceed
10% of the value of the Fund’s total assets, subject to limited exceptions
(including for investments in money market funds).
•Portfolio
Turnover Risk.
A
Fund’s annual portfolio turnover rate may vary greatly from year to year, as
well as within a given year. The portfolio turnover rate is not considered a
limiting factor in the execution of investment decisions for a Fund. High
portfolio turnover may result in the realization of net short-term capital gains
by a Fund which, when distributed to shareholders, will be taxable as ordinary
income. A high portfolio turnover may increase a Fund’s current and accumulated
earnings and profits, resulting in a greater portion of the Fund’s distributions
being treated as a dividend to the Fund’s shareholders. In addition, a higher
portfolio turnover rate results in correspondingly greater brokerage and other
transactional expenses that are borne by a Fund.
•Prepayment
Risk. When
interest rates decline, fixed income securities with stated interest rates may
have their principal paid earlier than expected. This may result in a Fund
having to reinvest that money at lower prevailing interest rates, which can
reduce the returns of the Fund.
•Rating
Agencies Risk. Rating
agencies may fail to make timely changes in credit ratings and an issuer’s
current financial condition may be better or worse than a rating indicates. In
addition, rating agencies are subject to an inherent conflict of interest
because they are often compensated by the same issuers whose securities they
grade.
•Regulatory
and Legal Risks.
U.S. and non-U.S. government agencies and other regulators regularly adopt new
regulations and legislatures enact new statutes that affect the investments held
by the Fund, the strategies used by the Fund or the level of regulation or
taxation that applies to the Fund. These statutes and regulations and any future
statutes and regulations may impact the investment strategies, performance,
costs and operations of the Fund or the taxation of its shareholders. Changes in
government legislation, regulation and/or intervention may change the way the
Adviser or the Fund is regulated, affect the expenses incurred directly by the
Fund and the value of its investments and limit and/or preclude the Fund’s
ability to implement, or increase the Fund’s costs associated with implementing,
its investments strategies. Changes to tax laws and regulations may also result
in certain tax consequences for the Fund and/or investors. Government regulation
may change frequently and may have significant adverse consequences. Moreover,
government regulation may have unpredictable and unintended effects. In addition
to exposing the Fund to potential new costs and expenses, additional regulation
or changes to existing regulation may also require changes to the Fund’s
investment practices. The Adviser cannot predict the effects of any new
governmental regulation that may be implemented, and there can be no assurance
that any new governmental regulation will not adversely affect the Fund’s
ability to achieve its respective investment objective.
•REIT
Risk
(Multi-Strategy
Income Fund only).
Investments in REITs involve unique risks. REITs may have limited financial
resources, may trade less frequently and in limited volume, and may be more
volatile than other securities. The value of a REIT may also rise and fall in
response to the management skill and creditworthiness of the issuer. In
addition, to the extent the Fund holds interests in REITs, it is expected that
investors in the Fund will bear two layers of asset-based management fees and
expenses
(directly at the Fund level and indirectly at the REIT level). The risks of
investing in REITs include certain risks associated with the direct ownership of
real estate and the real estate industry in general. These include risks related
to general, regional and local economic conditions; fluctuations in interest
rates and property tax rates; shifts in zoning laws, environmental regulations
and other governmental action such as the exercise of eminent domain; cash flow
dependency; increased operating expenses; lack of availability of mortgage
funds; losses due to natural disasters; overbuilding; losses due to casualty or
condemnation; changes in property values and rental rates; the management or
development of properties, which may be subject to mortgage loans that are
subject to the risk of default; and other factors.
•Repurchase
Agreement Risks. Repurchase
agreements typically involve the acquisition by a Fund of fixed-income
securities from a selling financial institution such as a bank or broker-dealer.
The agreement provides that a Fund will sell the securities back to the
institution at a fixed time in the future. Repurchase agreements involve the
risk that a seller will become subject to bankruptcy or other insolvency
proceedings or fail to repurchase a security from a Fund. In such situations, a
Fund may incur losses including as a result of (i) a possible decline in
the value of the underlying security during the period while a Fund seeks to
enforce its rights thereto, (ii) a possible lack of access to income on the
underlying security during this period, and (iii) expenses of enforcing its
rights.
•Residential
Loans and Mortgages Risk (Multi-Strategy
Income Fund only).
A Fund may acquire residential loans and mortgages (including through
participations, assignments and whole loans) from third-party mortgage
originators. In addition to interest rate, default and other risks of fixed
income securities, residential loans and mortgages carry additional risks,
including the possibility that the quality of the collateral may decline in
value and the potential for the liquidity of residential loans and mortgages to
vary over time. In addition, in the event that a loan is foreclosed on, a Fund
could become the owner (in whole or in part) of any collateral, which may
include, among other things, real estate or other real or personal property, and
the Fund would bear the costs and liabilities of owning, holding or disposing of
such property. These risks are greater for subprime residential and mortgage
loans.
A
Fund may also experience difficulty disposing of loans, which do not trade in a
liquid market and typically can only be sold to a limited number of
institutional investors. The absence of a liquid market for these instruments
could adversely impact their value and may inhibit a Fund’s ability to dispose
of them at times when it would be desirable to do so, including in response to
particular economic events, such as a deterioration in the creditworthiness of
the borrower. Because they do not trade in a liquid market residential loans may
also be difficult for a Fund to value.
Investing
in loans may subject a Fund to greater levels of credit risk, call risk,
settlement risk and liquidity risk than other types of fixed income instruments.
Transactions involving loans may also involve greater costs than transactions
involving more actively traded securities. In addition, a number of factors,
including restrictions on transfers, irregular trading activity and wide bid/ask
spreads, and extended trade settlement periods may make it more difficult for a
Fund to acquire, dispose of or accurately price such instruments relative to
other types of investments. As a result, a Fund may not be able to realize the
full value for loans and there may be extended delays in the Fund’s receipt of
proceeds from the sale of a loan, which could adversely impact the Fund’s
performance. Because transactions in many loans are subject to extended trade
settlement periods, proceeds from the sale of a loan may not be immediately
available to a Fund. As a result, proceeds related to the sale of loans may not
be available to make additional investments or to meet a Fund’s repurchase
obligations for a period after the sale of the loans, and, as a result, the Fund
may have to sell other investments or engage in borrowing transactions if
necessary to raise cash to meet its obligations.
When
acquiring residential loans, a Fund relies on third-party mortgage originators
to originate mortgage loans that comply with applicable law. Mortgage loan
originators and brokers are subject to strict and evolving consumer protection
laws and other legal obligations with respect to the origination of residential
mortgage loans. These laws may be highly subjective and open to interpretation
and, as a result, a regulator or court may determine that that there has been a
violation where an originator or servicer of mortgage loans reasonably believed
that the law or requirement had been satisfied. Failure or alleged failure of
originators or servicers to comply with these laws and regulations could subject
a Fund, as an assignee or purchaser of these loans or securities backed by these
loans, to, among other things, delays in foreclosure proceedings, increased
litigation expenses, monetary penalties and defenses to foreclosure, including
by recoupment or setoff of finance charges and fees collected, and in some cases
could also result in rescission of the affected residential mortgage loans,
which could adversely impact a Fund’s business and financial results. While some
of these laws may not explicitly hold a Fund responsible for the legal
violations of these third parties, federal and state agencies and private
litigants have increasingly sought to impose such liability. Various regulators
and plaintiffs’ lawyers have also sought to hold assignees of mortgage loans
liable for the alleged violations of the originating lender under theories of
express or implied assignee liability. Accordingly, a Fund may be subject to
fines, penalties or civil liability based upon the conduct of the mortgage
lenders that originated the mortgage loans such Fund holds.
Despite
a Fund’s efforts to manage credit risk related to the residential mortgage loans
the Fund acquires, there are many aspects of credit risk that the Fund cannot
control. A Fund’s due diligence process may not be effective at preventing or
limiting compliance violations or borrower delinquencies and defaults, and the
loan servicing companies that service the mortgage loans may not comply with
applicable servicing regulations or investor requirements. Prior to acquiring
loans, a Fund will perform
due
diligence and the Fund will rely on resources and data available to it from the
seller, which may be limited. A Fund’s due diligence efforts may not detect
matters that could lead to losses. If a Fund’s due diligence processes are not
adequate, and the Fund fails to detect certain loan defects or compliance issues
related to origination, the Fund may incur losses. A Fund could also incur
losses if a counterparty that sold the Fund a loan is unwilling or unable (e.g.,
due to its financial condition) to repurchase that loan or asset or pay damages
to the Fund if the Fund determines subsequent to purchase that one or more of
the representations or warranties made to the Fund in connection with the sale
was inaccurate. There may be less readily available information about loans and
their underlying borrowers than is the case for other types of investments and
issuers. In addition, because loans may not be considered “securities,”
investors in loans, such as a Fund, may not be entitled to rely on the
anti-fraud protections of the federal securities laws, although they may be
entitled to certain contractual remedies.
The
mortgage loans that a Fund purchases, and in which the Fund directly and
indirectly invests through RMBS, CMBS or other investments, may be concentrated
in a specific state or states. Weak economic conditions in these locations or
any other location (which may or may not affect real property values), may
affect the ability of borrowers to repay their mortgage loans on time.
Properties in certain jurisdictions may be more susceptible than homes located
in other parts of the country to certain types of uninsurable hazards, such as
earthquakes, floods, hurricanes, wildfires and other natural disasters. Declines
in the residential real estate market of a particular jurisdiction may reduce
the values of properties located in that jurisdiction, which would result in an
increase in the loan-to-value ratios. Any increase in the market value of
properties located in a particular jurisdiction would reduce the loan-to-value
ratios of the mortgage loans and could, therefore, make alternative sources of
financing available to the borrowers at lower interest rates, which could result
in an increased rate of prepayment of the mortgage loans.
•Reverse
Repurchase Agreement Risks. A
reverse repurchase agreement is the sale by a Fund of a debt obligation to a
party for a specified price, with the simultaneous agreement by the Fund to
repurchase that debt obligation from that party on a future date at a higher
price. Similar to borrowing, reverse repurchase agreements provide a Fund with
cash for investment purposes, which creates leverage and subjects a Fund to the
risks of leverage, including increased volatility. Reverse repurchase agreements
also involve the risk that the other party may fail to return the securities in
a timely manner or at all. A Fund could lose money if it is unable to recover
the securities and the value of collateral held by the Fund, including the value
of the investments made with cash collateral, is less than the value of
securities. Reverse repurchase agreements also create Fund expenses and require
that a Fund have sufficient cash available to purchase the debt obligations when
required. Reverse repurchase agreements also involve the risk that the market
value of the debt obligation that is the subject of the reverse repurchase
agreement could decline significantly below the price at which a Fund is
obligated to repurchase the security. In the event the buyer of securities under
a reverse repurchase agreement files for bankruptcy or becomes insolvent, a
Fund’s use of the proceeds from the sale of the securities may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce a Fund’s obligations to repurchase the securities. Reverse repurchase
agreements also may be viewed as borrowings made by the Fund and are a form of
leverage which also may increase the volatility of the Fund.
•RIC-Related
Risks of Investments Generating Non-Cash Taxable Income. Certain
of a Fund’s investments, particularly, debt obligations, such as zero coupon
bonds, that will be treated as having “market discount” and/or original issue
discount (“OID”) for U.S. federal income tax purposes and certain CLOs that may
be considered passive foreign investment companies or controlled foreign
corporations, will require the Fund to recognize taxable income in a taxable
year in excess of the cash generated on those investments during that year. In
particular, a Fund expects to invest in debt obligations that will be treated as
having “market discount” and/or OID for U.S. federal income tax purposes.
Additionally, some of the structured products or issuers in which a Fund invests
may be considered passive foreign investment companies, or under certain
circumstances, controlled foreign corporations. Because a Fund may be required
to recognize income in respect of these investments before, or without
receiving, cash representing such income, the Fund may have difficulty
satisfying the annual distribution requirements applicable to RICs and avoiding
Fund-level U.S. federal income and/or excise taxes. Accordingly, a Fund may be
required to sell assets, including at potentially disadvantageous times or
prices, raise additional debt or equity capital, make taxable distributions of
its shares or debt securities, or reduce new investments, to obtain the cash
needed to make these income distributions. If a Fund liquidates assets to raise
cash, the Fund may realize gain or loss on such liquidations; in the event the
Fund realizes net capital gains from such liquidation transactions, the Fund
shareholders may receive larger capital gain distributions than they would in
the absence of such transactions.
•Risks
Relating to a Fund’s RIC Status. To
qualify and remain eligible for the special tax treatment accorded to a RIC and
its shareholders under the Internal Revenue Code of 1986, as amended (the
“Code”), a Fund must meet certain source-of-income, asset diversification and
annual distribution requirements. Very generally, to qualify as a RIC, a Fund
must derive at least 90% of its gross income for each taxable year from
dividends, interest, payments with respect to certain securities loans, gains
from the sale or other disposition of stock, securities or foreign currencies,
net income from certain publicly traded partnerships or other income derived
with respect to its business of investing in stock or other securities. A Fund
must also meet certain asset diversification requirements at the end of each
quarter of each of its taxable years. Failure to meet these diversification
requirements on the last day of a quarter may result in a Fund having to dispose
of certain investments quickly to prevent the loss of RIC status. Any such
dispositions could be made at disadvantageous prices or times, and may result in
substantial losses to a Fund. In addition, to be eligible for the special tax
treatment accorded RICs, a Fund must meet the annual distribution
requirement,
requiring it to distribute with respect to each taxable year an amount at least
equal to 90% of the sum of its “investment company taxable income” (generally
its taxable ordinary income and realized net short-term capital gains in excess
of realized net long-term capital losses, if any, and determined without regard
to any deduction for dividends paid) and its net tax-exempt income (if any), to
its shareholders. If a Fund fails to qualify as a RIC for any reason and becomes
subject to corporate tax, the resulting corporate taxes could substantially
reduce its net assets, the amount of income available for distribution and the
amount of its distributions. Such a failure would have a material adverse effect
on a Fund and its shareholders. In addition, a Fund could be required to
recognize unrealized gains, pay substantial taxes and interest and make
substantial distributions to re-qualify as a RIC.
•Second
Lien Risk (Multi-Strategy
Income Fund only).
Second
lien loans, such as HELOC loans, are generally subject to similar risks as those
associated with investments in senior loans. However, the risks associated with
second lien loans are higher than the risks of loans with first priority over
the collateral because in the event of default on a second lien loan, the first
priority lien holder has first claim to the underlying collateral of the loan.
It is possible that no collateral value would remain for the second priority
lien holder and therefore result in a loss of investment to the Fund. Second
lien loans also generally have greater price volatility than senior loans and
may be less liquid. Second lien loans are generally of below investment grade
quality, and therefore share the same risks as other below investment grade
securities.
•Sector
Risk. To
the extent a Fund invests more heavily in particular sectors of the economy, its
performance will be especially sensitive to developments that significantly
affect those sectors.
•Short
Sales Risks
.
If
a security sold short increases in price, a Fund will incur a loss. Short sales
involve the risk that losses may exceed the amount invested and may be
unlimited. A Fund will ordinarily engage in short sales where it does not own or
have the immediate right to acquire the security sold short, and as such must
borrow those securities to make delivery to the buyer under the short sale
transaction. A Fund may not be able to borrow a security that it needs to
deliver or it may not be able to close out a short position at an acceptable
price and may have to sell related long positions earlier than it had expected.
Thus, a Fund may not be able to successfully implement its short sale strategy
due to limited availability of desired securities or for other reasons. Also,
there is the risk that the counterparty to a short sale may fail to honor its
contractual terms, causing a loss to a Fund.
In
times of unusual or adverse market, economic, regulatory or political
conditions, a Fund may not be able, fully or partially, to implement its short
selling strategy. Periods of unusual or adverse market, economic, regulatory or
political conditions generally may exist for as long as six months and, in some
cases, much longer.
•Structured
Products Risks.
A Fund may invest in Structured Products, including CLOs, CDOs, CMOs, CBOs, and
other asset-backed securities and debt securitizations. Structured Products are
subject to the normal interest rate, default and other risks associated with
fixed-income securities and asset-backed securities. Additionally, 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 or other
asset-backed security in which a Fund invests. A Fund generally may have the
right to receive payments only from the Structured Product, and generally does
not have direct rights against the issuer or the entity that sold the underlying
collateral assets. Such collateral may be insufficient to meet payment
obligations and the quality of the collateral may decline in value or default.
Also, the class of the Structured Product may be subordinate to other classes,
values may be volatile, and disputes with the issuer may produce unexpected
investment results.
The
ability of the Structured Product to make distributions will be subject to
various limitations, including the terms and covenants of the debt it issues.
For example, performance tests (based on interest coverage or other financial
ratios or other criteria) may restrict a Fund’s ability, as holder of the equity
interests in a Structured Product, to receive cash flow from these investments.
There is no assurance any such performance tests will be satisfied. Also, a
Structured Product may take actions that delay distributions in order to
preserve ratings and to keep the cost of present and future financings lower or
the Structured Product may be obligated to retain cash or other assets to
satisfy over-collateralization requirements commonly provided for holders of the
Structured Product’s debt. As a result, there may be a lag, which could be
significant, between the repayment or other realization on a loan or other
assets in, and the distribution of cash out of, a Structured Product, or cash
flow may be completely restricted for the life of the Structured Product. If a
Fund does not receive cash flow from any such Structured Product that is
necessary to satisfy the annual distribution requirement for maintaining a
Fund’s RIC status, and a Fund is unable to obtain cash from other sources
necessary to satisfy this requirement, a Fund could fail to maintain its status
as a RIC, which would have a material adverse effect on a Fund’s financial
performance.
Structured
Products are typically privately offered and sold, and thus, are not registered
under the securities laws, which means less information about the security may
be available as compared to publicly offered securities and only certain
institutions may buy and sell them. As a result, investments in certain
Structured Products or other asset-backed securities may be characterized by a
Fund as illiquid securities. An active dealer market may exist for Structured
Products that can be resold in Rule 144A transactions, but there can be no
assurance that such a market will exist or will be active enough for a Fund to
sell such securities. A Fund may invest in any tranche of a Structured Product,
including the subordinated/equity tranches. If applicable accounting
pronouncements or SEC staff guidance require a Fund to consolidate the
Structured Product’s financial statements
with
a Fund’s financial statements, any debt issued by the Structured Product would
be generally treated as if it were issued by a Fund. Further, there can be no
assurance that a bankruptcy court, in the exercise of its broad equitable
powers, would not order that a Fund’s assets and liabilities be substantively
consolidated with those of a Structured Product, rather than kept separate, and
that creditors of the Structured Product would have claims against the
consolidated bankruptcy estate (including a Fund’s assets). If a Structured
Product is not consolidated with a Fund, a Fund’s only interest in the
Structured Product will be the value of its retained subordinated interest and
the income allocated to it, which may be more or less than the cash a Fund
received from the Structured Product, and none of the Structured Product’s
liabilities would be reflected as a Fund’s liabilities. If the assets of a
Structured Product are not consolidated with a Fund’s assets and liabilities,
then the leverage incurred by such Structured Product may or may not be treated
as borrowings by a Fund for purposes applicable limitations on a Fund’s ability
to issue debt.
In
addition to the general risks associated with fixed-income securities discussed
herein, Structured Products carry additional risks, including, but not limited
to: (i) the possibility that distributions from collateral securities will not
be adequate to make interest or other payments; (ii) the quality of the
collateral may default, decline in value or quality or be downgraded by a rating
agency; (iii) the possibility that the investments in Structured Products are
subordinate to other classes or tranches thereof; (iv) the complex structure of
the security may not be fully understood at the time of investment and may
produce disputes among investors or with the issuer or unexpected investment
results; and (v) a forced “fire sale” liquidation may occur due to technical
defaults such as coverage test failures.
The
activities of the issuers of certain Structured Products will generally be
directed by a collateral manager. In a Fund’s capacity as holder of interests in
such a Structured Product, a Fund is generally not able to make decisions with
respect to the management, disposition or other realization of any investment,
or other decisions regarding the business and affairs, of the Structured
Product. Consequently, the success of the securitizations in will depend, in
part, on the financial and managerial expertise of the collateral manager.
To
the extent that an affiliate of the Adviser serves as the sponsor and/or
collateral manager of a Structured Product in which a Fund invests, or the
Adviser or its affiliates hold other interests in Structured Products in which a
Fund invests, a Fund may be limited in its ability to participate in certain
transactions with the Structured Product and may not be able to dispose of its
interests in the Structured Product if no secondary market exists for the
interests. Even if a secondary market exists, the Adviser or its affiliates at
times may possess material non-public information that may restrict a Fund’s
ability to dispose of its interests in the Structured Product. A Fund does not
currently contemplate making investments in any specific investments sponsored
by the Adviser or an affiliate; however, to the extent a Fund does, it will do
so only as permitted under the 1940 Act and the rules thereunder.
To
the extent the Fund invests in the equity tranches of a Structured Product, such
investments typically represent the first loss position, are unrated and are
subject to greater risk. To the extent that any losses are incurred by the
Structured Product in respect of any collateral, such losses will be borne first
by the owners of the equity interests, which may include the Fund. Any equity
interests that a Fund holds in a Structured Product will not be secured by the
assets of the Structured Product or guaranteed by any party, and a Fund will
rank behind all creditors of the Structured Product, including the holders of
the secured notes issued by the Structured Product. Equity interests are
typically subject to certain payment restrictions in the indenture governing the
senior tranches. Accordingly, equity interests may not be paid in full, may be
adversely impacted by defaults by a relatively small number of underlying assets
held by the Structured Product and may be subject to up to 100% loss. Structured
Products may be highly levered, and therefore equity interests may be subject to
a higher risk of loss, including the potential for total loss. The market value
of equity interests may be significantly affected by a variety of factors,
including changes in interest rates, changes in the market value of the
collateral held by the securitization, defaults and recoveries on that
collateral and other risks associated with that collateral. The leveraged nature
of equity interest is likely to magnify these impacts. Equity interests
typically do not have a fixed coupon and payments on equity interests will be
based on the income received from the underlying collateral and the payments
made to the senior tranches, both of which may be based on floating rates. While
the payments on equity interest will be variable, equity interests may not offer
the same level of protection against changes in interest rates as other floating
rate instruments. Equity interests are typically illiquid investments and
subject to extensive transfer restrictions, and no party is under any obligation
to make a market for equity interests. At times, there may be no market for
equity interests, and a Fund may not be able to sell or otherwise transfer
equity interests at their fair value, or at all, in the event that it determines
to sell them.
•Subsidiary
Risk (Multi-Strategy
Income Fund only).
To the extent the Fund invests through a Subsidiary, it will be exposed to the
risks associated with the Subsidiary’s investments. Subsidiaries will not be
registered as investment companies under the 1940 Act and, therefore, will not
be subject to the investor protections and substantive regulation of the 1940
Act, although any Subsidiary will be managed pursuant all applicable 1940 Act
compliance policies and procedures of the Fund. Changes in the laws of the
United States and/or the jurisdiction in which a Subsidiary is organized could
result in the inability of the Fund and/or the Subsidiary to operate as
described in this prospectus and could adversely affect the Fund.
•Uncertain
Tax Treatment.
A Fund may invest a portion of its net assets in below investment grade
instruments. Investments in these types of instruments and certain other
instruments may present special tax issues for the Fund. U.S. federal income tax
rules
are not entirely clear about issues such as when the Fund may cease accruing
interest, OID or market discount, when and to what extent deductions may be
taken for bad debts or worthless instruments, how payments received on
obligations in default should be allocated between principal and income and
whether exchanges of debt obligations in a bankruptcy or workout context are
taxable. Although a Fund will seek to address these and other issues to the
extent necessary to seek to ensure that it distributes sufficient income that it
does not become subject to U.S. federal income or excise tax, no assurances can
be given that the Fund will not be adversely affected as a result of such
issues.
•Unrated
Securities Risks.
A Fund may purchase unrated securities which are not rated by a rating agency if
the Adviser determines that the security is of comparable quality to a rated
security that the Fund may purchase. Unrated securities may be less liquid than
comparable rated securities and involve the risk that the Adviser may not
accurately evaluate the security’s comparative credit rating. Analysis of
creditworthiness of issuers of high yield securities may be more complex than
for issuers of higher-quality debt securities. To the extent that a Fund
purchases unrated securities, the Fund’s success in achieving its investment
objective may depend more heavily on the Adviser’s creditworthiness analysis
than if the Fund invested exclusively in rated securities.
•U.S.
Government Securities Risks.
Some obligations issued or guaranteed by U.S. government agencies,
instrumentalities or GSEs, including, for example, pass-through certificates
issued by Ginnie Mae, are supported by the full faith and credit of the U.S.
Treasury. Other obligations issued by or guaranteed by federal agencies or GSEs,
such as securities issued by Fannie Mae or Freddie Mac, are supported by the
discretionary authority of the U.S. government to purchase certain obligations
of the federal agency or GSE, while other obligations issued by or guaranteed by
federal agencies or GSEs, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the U.S. Treasury. The
maximum potential liability of the issuers of some U.S. government securities
held by a Fund may greatly exceed their current resources, including their legal
right to support from the U.S. Treasury. It is possible that these issuers will
not have the funds to meet their payment obligations in the future.
Disclosure
of Portfolio Holdings
Information
about the Funds’ policies and procedures with respect to disclosure of the
Funds’ portfolio holdings is included in the Statement of Additional Information
(“SAI”).
MANAGEMENT
OF
THE
FUNDS
Adviser.
Angel Oak Capital Advisors, LLC, 3344 Peachtree Road NE, Suite 1725,
Atlanta, Georgia 30326, serves as investment adviser to the Funds. The Adviser
has overall supervisory management responsibility for the general management and
investment of each Fund’s portfolio. The Adviser was formed in 2009 and provides
advisory services to registered investment companies, unregistered funds,
institutions, and other investors. As of January 31, 2024, the Adviser had
assets under management of approximately $9.58 billion. The Adviser is 93.3%
owned by Angel Oak Asset Management Holdings, LLC.
The
Multi-Strategy Income Fund is required to pay the Adviser a fee equal to 0.89%
of the Fund’s average daily net assets. The UltraShort Income Fund is required
to pay the Adviser a fee equal to 0.44% of the Fund’s average daily net assets.
A discussion of the factors that the Board of Trustees considered in approving
the continuation of the Funds’ advisory agreement is available in the Funds’
annual
report
for the fiscal year ended January 31, 2024.
The
Adviser has contractually agreed to waive its fees and/or reimburse certain
expenses (exclusive of any front-end sales loads, taxes, interest on borrowings,
dividends on securities sold short, brokerage commissions, 12b-1 fees, acquired
fund fees and expenses, expenses incurred in connection with any merger or
reorganization and extraordinary expenses) to limit the Total Annual Fund
Operating Expenses after Fee Waiver/Expense Reimbursement to 0.99% of the
Multi-Strategy Income Fund’s average daily net assets and 0.35% of the
UltraShort Income Fund’s average daily net assets (the “Expense Limits”) through
May 31, 2025. The Expense Limits exclude certain expenses (e.g., 12b-1
fees), and consequently, each Fund’s Total Annual Fund Operating Expenses after
Fee Waiver/Expense Reimbursement may be higher than such Fund’s Expense Limit.
The contractual fee waivers and expense reimbursements may be changed or
eliminated at any time by the Board of Trustees, on behalf of a Fund, upon 60
days’ written notice to the Adviser. The contractual fee waivers and expense
reimbursements may not be terminated by the Adviser without the consent of the
Board of Trustees. The Adviser may recoup from a Fund any waived amount or
reimbursed expenses with respect to the Fund pursuant to this agreement if such
recoupment does not cause the Fund to exceed the current Expense Limit or the
Expense Limit in place at the time of the waiver or reimbursement (whichever is
lower) and the recoupment is made within three years after the end of the month
in which the Adviser incurred the expense.
In
addition, the Adviser has contractually agreed through at least May 31, 2025 to
waive the amount of each Fund’s management fee to the extent necessary to offset
the proportionate share of the management fees incurred by the Fund through its
investment in an underlying fund for which the Adviser also serves as investment
adviser. This arrangement may only be changed or eliminated by the Board of
Trustees upon 60 days’ written notice to the Adviser.
After
fee waivers, expense reimbursements, and recoupments, the advisory fee paid to
the Adviser for the fiscal year ended January 31, 2024 was equal to 0.86%
of the Multi-Strategy Income Fund’s average daily net assets and 0.20% of the
UltraShort Income Fund’s average daily net assets.
If
you invest in a Fund through an investment adviser, bank, broker-dealer, 401(k)
plan, trust company or other financial intermediary, the policies and fees for
transacting business may be different than those described in this Prospectus.
Some financial intermediaries may charge transaction fees and may set different
minimum investments or limitations on buying or selling shares. Some financial
intermediaries do not charge a direct transaction fee, but instead charge a fee
for services such as sub-transfer agency, accounting and/or shareholder services
that the financial intermediary provides on a Fund’s behalf. This fee may be
based on the number of accounts or may be a percentage of the average value of a
Fund’s shareholder accounts for which the financial intermediary provides
services. The applicable Fund may pay a portion of this fee, which is intended
to compensate the financial intermediary for providing the same services that
would otherwise be provided by the Fund’s transfer agent (the “Transfer Agent”)
or other service providers if the shares were purchased directly from the Fund.
To the extent that these fees are not paid by the applicable Fund, the Adviser
may pay a fee to financial intermediaries for such services.
Management
of any Subadviser to a Fund. The
Funds, the Trust and the Adviser have obtained an exemptive order with respect
to the Funds that permits the Funds to operate in a “manager of managers”
structure whereby the Adviser, subject to certain conditions, can hire new
subadvisers for the Funds, and materially amend the terms of subadvisory
agreements with subadvisers, each subject to Board approval but without
obtaining prior shareholder approval. Consequently, under the exemptive order,
the Adviser has the ultimate responsibility (subject to oversight by the Board)
to oversee the subadvisers and recommend their hiring, termination, and
replacement. Within 90 days of retaining a new subadviser, shareholders of the
Fund(s) will receive notification of the change. The manager of managers
structure enables the Funds to operate with greater efficiency and without
incurring the expense and delays associated with obtaining shareholder approval
of subadvisory agreements. The structure does not permit investment advisory
fees paid by the Funds to be increased or change the Adviser's obligations under
its investment advisory agreement with the Trust. Furthermore, any subadvisory
agreements with affiliates of the Funds or the Adviser will require shareholder
approval.
PORTFOLIO
MANAGERS
The
Adviser’s investment team includes:
Berkin
Kologlu is a Senior Portfolio Manager of the Adviser and a Portfolio Manager of
the Multi-Strategy Income Fund. Mr. Kologlu has over two decades of experience
in fixed income products and focuses on building and managing strategies within
the Collateralized Loan Obligation (CLO) market. Prior to joining the Adviser,
he spent the previous six years as an Executive Director at UBS, covering
structured products and client solutions. Prior to UBS, Mr. Kologlu worked at
Bank of America, where he focused on the structuring and marketing of CLOs and
synthetic Collateralized Debt Obligations (CDO) backed by corporate credit.
Before Bank of America, Mr. Kologlu worked in Turkey as a commercial banker,
where he was responsible for lending to large cap corporations. He received his
MBA from Duke University’s Fuqua School of Business and his B.S. in Civil
Engineering from Bogazici University in Istanbul, Turkey.
Kin
Lee is a Senior Portfolio Manager of the Adviser and a Portfolio Manager of the
Multi-Strategy Income Fund. Mr. Lee focuses on building and managing strategies
within the Commercial Mortgage-Backed Securities (CMBS) market. Mr. Lee began
his career in 1993 and most recently served as Executive Director at Nomura
Securities International from 2012 until he joined the Adviser in 2014. He also
held the previous role of Head of CMBS Trading for both Mizuho Securities and
RBS Greenwich Capital. Mr. Lee also worked in CMBS trading with Credit Suisse
and Donaldson, Lufkin, & Jenrette. Mr. Lee holds a B.S. in Industrial
Management and Economics from Carnegie Mellon University.
Sreeniwas
(Sreeni) V. Prabhu is Managing Partner, Co-CEO and Group Chief Investment
Officer of the Adviser and a Portfolio Manager of each Fund. Prior to
co-founding the Adviser in 2009, Mr. Prabhu was the Chief Investment Officer of
the $25 billion investment portfolio at Washington Mutual Bank for three years
and was also part of the macro asset strategy team at the bank. Prior to joining
Washington Mutual Bank, Mr. Prabhu worked for six years at SunTrust Bank in
Atlanta, where he was responsible for investment strategies and served as head
portfolio manager for the $3 billion commercial mortgage-backed securities
portfolio. He began his career at SunTrust in 1998 as a bank analyst focused on
asset/liability management and liquidity strategies. Mr. Prabhu holds a B.B.A.
in Economics from Georgia College and State University and an M.B.A. in Finance
from Georgia State University.
Namit
Sinha is Chief Investment Officer of the Adviser and a Portfolio Manager of each
Fund. Mr. Sinha has over 15 years of experience in fixed income products
including structured credit. Prior to Angel Oak, Mr. Sinha spent four years as
Senior Vice President at Canyon Capital and established the residential loan
trading business in addition to covering its structured products operations.
Prior to joining Canyon, Mr. Sinha worked at Nomura as Executive Director of
Mortgage Trading and was involved in the acquisition and financing of
non-performing loans, reperforming loans, non-qualified mortgages, and prime
jumbo loans. Prior to that, Mr. Sinha worked at both Lehman Brothers and
Barclays as a non-agency whole loan trader. Mr. Sinha holds an M.S. from Rutgers
University, and a Bachelor of Technology degree from the Indian Institute of
Technology Bombay in Mumbai, India.
Clayton
Triick, CFA®, is Head of Portfolio Management, Public Strategies of the Adviser
and a Portfolio Manager of each Fund. Mr. Triick leads the investment approach
and asset allocation strategy across the Adviser’s public mutual funds and
exchange-traded
funds.
He also leads the investment committee. Mr. Triick emphasizes taking a full
market cycle, team-based approach, to fixed income investing. He has deep
experience across all aspects of investing in structured credit including credit
analysis, trading, and risk management. He regularly contributes insights to
national media outlets such as the Financial Times, Wall Street Journal, and
Barron’s. Mr. Triick has been in the investment management industry since 2008.
Prior to joining Angel Oak in 2011, Mr. Triick worked for YieldQuest Advisors,
where he was a member of the investment committee focusing on interest rate
risk, currency risk, and commodity exposures of the portfolios alongside
directly managing the closed-end fund allocations within portfolios and
individual accounts. Mr. Triick holds a B.B.A. in Finance from the Farmer School
of Business at Miami University in Oxford, Ohio and holds the Chartered
Financial Analyst (CFA®) designation.
The
Funds’ SAI provides additional information about each Fund’s portfolio managers,
including their compensation structure, other accounts managed, and ownership of
shares of the Funds.
CHOOSING
A SHARE
CLASS
Each
Fund offers three classes of shares. The Multi-Strategy Income Fund offers Class
A, Class C and Institutional Class shares. The UltraShort Income Fund offers
Class A, Class A1 and Institutional Class shares. Each class of shares is
designed for specific types of investors and has its own fee structure, allowing
you to choose the class that best meets your situation. The class that may be
best for you depends on a number of factors, including the amount and the length
of time that you expect to invest. Not all financial intermediaries make all
classes of shares available to their clients. Third parties making Fund shares
available to their clients determine which share class(es) to make
available.
Class A
shares are available through registered broker-dealers, banks, advisers and
other financial institutions. Class A shares of the Multi-Strategy Income
Fund are purchased at net asset value, plus an initial sales charge and subject
to 12b-1 fees. For the Multi-Strategy Income Fund, there is no initial sales
charge on purchases of Class A shares of $500,000 or more; however, a contingent
deferred sales charge (“CDSC”) of up to 1.00% will be imposed if such Class A
shares are redeemed within twelve (12) months of their purchase. Class A
shares of the UltraShort Income Fund are purchased at net asset value without
any initial sales charge or CDSC and are subject to 12b-1 fees. Class A shares
are intended for (i) investors who meet the investment minimum for
Class A shares, (ii) investors investing through omnibus accounts held
by financial intermediaries that charge transaction fees and have entered into
arrangements with the Fund’s distributor to offer Class A shares and
(iii) retirement plans whose sponsors or administrators have entered into
arrangements with the Fund’s distributor.
Class
A1 shares are available through registered broker-dealers, banks, advisers and
other financial institutions. Class A1 shares of the UltraShort Income Fund are
purchased at net asset value, plus an initial sales charge and subject to 12b-1
fees. There is no initial sales charge on purchases of Class A1 shares of
$250,000 or more; however, a CDSC of up to 0.50% will be imposed if such Class
A1 shares are redeemed within twelve (12) months of their purchase. Class A1
shares are intended for (i) investors who meet the investment minimum for
Class A1 shares, (ii) investors investing through omnibus accounts held by
financial intermediaries that charge transaction fees and have entered into
arrangements with the Fund’s distributor to offer Class A1 shares and
(iii) retirement plans whose sponsors or administrators have entered into
arrangements with the Fund’s distributor.
Class
C shares are available through registered broker-dealers, banks, advisers and
other financial institutions. Class C shares are purchased at net asset value
without deducting a sales charge and are subject to 12b-1 fees. You do not pay
an initial sales charge on purchases of Class C shares, and all of your purchase
payment is immediately invested in the applicable Fund. If you redeem your Class
C shares within 12 months of purchase, you will be subject to a 1.00% CDSC,
based on the lower of the shares’ net asset value at the time of purchase or
current net asset value. Any shares acquired by reinvestment of distributions
will be redeemed without a CDSC. Class C shares are intended for (i) investors
who meet the investment minimum for Class C shares and (ii) investors seeking
the advice and assistance of a financial adviser, who will typically receive
compensation for those services. Class C shares are not intended for investors
investing at least $500,000 in a Fund.
The
Distributor generally will pay the dealer of record selling Class C shares up to
1.00% of the purchase price of the Class C shares it sells, consisting of a
sales commission of 0.75% of the purchase price plus an advance of the first
year shareholder servicing fee of 0.25% for such shares. The Distributor will
retain all payments received by it relating to Class C shares for the first year
after they are purchased. The portion of the payments to the Distributor that
constitutes a sales commission of up to 0.75% of the purchase price is intended
in part to permit the Distributor to recoup a portion of the sales commissions
to dealers plus financing costs, if any. After the first full year, the
Distributor will make quarterly payments to dealers and institutions based on
the average net asset value of Class C shares that are attributable to
shareholders for whom the dealers and institutions are designated as dealers of
record. These payments will consist of a sales commission of 0.75% and a
shareholder servicing fee of 0.25%.
Institutional
Class shares are purchased at net asset value and are not subject to any 12b-1
fees. Institutional Class shares can be purchased directly through the
distributor or other financial institutions, which may charge transaction fees
with respect to your purchase. Institutional Class shares are intended for (i)
investors who meet the investment minimum for Institutional Class shares;
(ii) institutional investors (e.g., financial institutions, corporations,
trusts, foundations); (iii) funds of funds; (iv) pension plans whose sponsors or
administrators have entered into arrangements with the Funds’ distributor; (v)
investors investing through omnibus accounts held by financial intermediaries
that charge transaction fees and have entered into arrangements with the Funds’
distributor
to offer Institutional Class shares; (vi) current and former trustees of the
Funds; and (vii) other investors that have been approved by the applicable Fund
or the Adviser.
The
minimum initial investment in a Fund is $1,000 for all account types for Class
A, Class A1, and Class C shares and $500,000 for all account types for
Institutional Class shares. The Adviser may, in its sole discretion, waive these
minimums for accounts participating in an automatic investment program and in
certain other circumstances. A Fund may waive or lower investment minimums for
investors who invest in the Fund through an asset-based fee program made
available through a financial intermediary. If your investment is aggregated
into an omnibus account established by an investment adviser, broker or other
intermediary, the account minimums apply to the omnibus account, not to your
individual investment. The financial intermediary may also impose minimum
requirements that are different from those set forth in this Prospectus. If you
choose to purchase or redeem shares directly from a Fund, you will not incur
charges on purchases and redemptions. However, if you purchase or redeem shares
through a broker-dealer or another intermediary, you may be charged a fee by
that intermediary.
Information
about sales charges, including applicable waivers, breakpoints, and discounts to
the sales charges, is fully disclosed in this Prospectus, which is available,
free of charge, on the Funds’ website at www.angeloakcapital.com. The Funds
believe that it is very important that an investor fully consider all aspects of
their investment and be able to access all relevant information in one location.
Therefore, the Funds do not make the sales charge information available to
investors on the website independent of the Prospectus.
DISTRIBUTION
PLAN
The
Funds have adopted a plan under Rule 12b-1 of the 1940 Act with respect to Class
A, Class A1, and Class C shares, as applicable (the “Plan”).
The
Plan provides that each Fund will pay a distribution fee of 0.25% of the average
daily net assets of the Class A and Class A1 shares of the applicable Fund
in connection with the distribution of such class’s shares or the provision of
personal services to such class’s shareholders, including, but not necessarily
limited to, compensation to underwriters, dealers and selling personnel, the
printing and mailing prospectuses to other than current Fund shareholders, the
printing and mailing of sales literature. The Plan allows each Fund to pay a fee
of 1.00% of the average daily net assets of the Class C shares of the applicable
Fund (0.75% to help defray the cost of distributing Class C shares and 0.25% for
servicing Class C shareholders) in connection with 12b-1 Expenses. The Class A
and A1 distribution fee may include up to 0.25% of the average daily net assets
of the Fund’s applicable Class A and Class A1 shares for shareholder services.
The Distributor may pay all or a portion of these fees to any registered
securities dealer, financial institution or any other person who renders
assistance in distributing or promoting the sale of such class’s shares, or who
provides certain shareholder services, pursuant to a written
agreement.
Over
time, 12b‑1 fees will increase the cost of your investment and may cost you more
than paying other types of sales charges because these fees are paid out of each
Fund’s assets on an on-going basis.
SALES
CHARGES
– CLASS A
SHARES
Class A
shares of each Fund are purchased at the public offering price. For the
Multi-Strategy Income Fund, the public offering price is the next determined NAV
per share plus a sales charge as shown in the table below. The UltraShort Income
Fund does not impose a sales charge on its Class A Shares. Certain persons may
be entitled to purchase Class A shares of a Fund without paying a sales
charge. See “Waivers of Sales Charge – Class A Shares and Class A1 Shares.” The
table below also shows the portion of the sales charge that may be paid to the
broker-dealer or financial intermediary through whom you purchased your
Class A shares.
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| Sales Charge as a % of: |
|
| |
Amount
of Investment |
| Public
Offering Price |
| Net
Amount Invested |
| Dealer Concession As
a % of Public Offering Price |
|
Less
than $100,000 |
| 2.25 |
% |
| 2.30 |
% |
| 2.25 |
% |
|
$100,000
but less than $250,000 |
| 1.75 |
% |
| 1.78 |
% |
| 1.75 |
% |
|
$250,000
but less than $500,000 |
| 1.25 |
% |
| 1.27 |
% |
| 1.25 |
% |
|
$500,000
or more |
| None |
* |
None |
* |
1.00% |
|
*A
maximum CDSC of up to 1.00% will be imposed on redemptions of these shares
(exclusive of shares purchased with reinvested dividends and/or distributions)
within the first 12 months after the initial sale. The UltraShort Income
Fund does not impose a CDSC on its Class A Shares. The Adviser intends to pay a
1.00% concession to financial advisers who place an order of $500,000 or more
for a single purchaser.
SALES
CHARGES
– CLASS A1
SHARES
Class A1
shares of the UltraShort Income Fund are purchased at the public offering price.
The public offering price is the next determined NAV per share plus a sales
charge as shown in the table below. Certain persons may be entitled to purchase
Class A1 shares of a Fund without paying a sales charge. See “Waivers of Sales
Charge – Class A Shares and Class A1 Shares.” The table below
also
shows the portion of the sales charge that may be paid to the broker-dealer or
financial intermediary through whom you purchased your Class A1
shares.
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| Sales Charge as a % of: |
| |
Amount
of Investment |
| Public
Offering Price |
| Net
Amount Invested |
| Dealer Concession As
a % of Public Offering Price |
Less
than $100,000 |
| 1.50 |
% |
| 1.52 |
% |
| 1.50 |
% |
$100,000
but less than $250,000 |
| 1.00 |
% |
| 1.01 |
% |
| 1.00 |
% |
$250,000
or more |
| None |
* |
None |
* |
0.50 |
% |
*A
maximum CDSC of up to 0.50% will be imposed on redemptions of these shares
(exclusive of shares purchased with reinvested dividends and/or distributions)
within the first 12 months after the initial sale. The Adviser intends to
pay a 0.50% concession to financial advisers who place an order of $250,000 or
more for a single purchaser.
SALES
CHARGE
REDUCTIONS
AND WAIVERS
The
following sections discuss ways to obtain discounts on purchases and waivers of
the CDSC for Class A shares of the Multi-Strategy Income Fund and Class A1
shares of the UltraShort Income Fund.
The
availability of sales charge waivers and discounts may depend on the particular
financial intermediary or type of account through which you purchase or hold
Fund shares. The Funds’ sales charge waivers and discounts described in this
Prospectus are available for Fund share purchases made directly from the Fund
(or the Distributor) and are generally available through financial
intermediaries. The sales charge waivers and discounts available through certain
other financial intermediaries are set forth in “Appendix A-Waivers and
Discounts Available from Intermediaries” attached to this Prospectus, which may
differ from the sales charge waivers and discounts available for purchases made
directly from the Fund (or the Distributor). Please contact your financial
intermediary for information about which classes of shares of the Funds they
offer and to take advantage of the sales charge waivers and discounts described
in this Prospectus or in Appendix A.
Rights
of Accumulation – Class A Shares and Class A1 Shares. Any
“purchaser” (as defined below) may buy Class A and Class A1 shares of a
Fund, as applicable, at a reduced sales charge by aggregating the dollar amount
of the new purchase and the total net amount invested in all Class A, Class
A1 and Class C shares of the Funds (including the Class A and Class A1 Shares of
the UltraShort Income Fund) then held by the purchaser and applying the sales
charge applicable to such aggregate. To obtain such discount, the purchaser must
provide sufficient information at the time of purchase to permit verification
that the purchase qualifies for the reduced sales charge. The rights of
accumulation is subject to modification or discontinuance at any time with
respect to all shares purchased thereafter.
For
purposes of determining the applicable sales charge discount, a “purchaser”
includes an individual, the individual’s spouse and the individual’s children
under the age of 21, purchasing Class A shares and/or Class A1 shares for
the individual’s own account or account with the individual’s spouse and/or
children; or a trustee or other fiduciary purchasing Class A shares and/or
Class A1 shares for a single fiduciary account although more than one
beneficiary may be involved; or employees of a common employer, provided that
purchases are aggregated and submitted by a single source and quarterly
confirmation of such purchases can be provided to that single source; or an
organized group, provided that the purchases are made through a central
administrator, or a single dealer.
Letter
of Intent – Class A Shares and Class A1 Shares. A
Letter of Intent (the “LOI”) provides an opportunity for an investor to obtain a
reduced sales charge by aggregating investments over a 13-month period, provided
that the investor refers to such LOI when placing orders. For purposes of an
LOI, the “Amount of Investment” as referred to in the preceding sales charge
tables includes all purchases of Class A shares of a Fund (including the
Class A Shares of the UltraShort Income Fund) and Class A1 Shares of the
UltraShort Income Fund over the 13-month period plus the value of all shares
previously purchased and still owned. The 13-month period may begin up to 90
days before the date of execution of an LOI. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The LOI imposes no obligation to purchase or sell additional
shares and provides for a price adjustment depending upon the actual amount
purchased within such period. The LOI provides that the first purchase following
execution of the LOI must be at least 2.25% (or 1.50% for Class A1 shares of the
UltraShort Income Fund) of the amount of the intended overall purchase, and that
2.25% (or 1.50% for Class A1 shares of the UltraShort Income Fund) of the amount
of the intended purchase normally will be held in escrow in the form of shares
pending completion of the intended purchase. If the total investments under the
LOI are less than the intended amount and thereby qualify for a higher sales
charge than actually paid, the appropriate number of escrowed shares is redeemed
and the proceeds are used towards satisfaction of the obligation to pay the
increased sales charge. If a redemption order is received for an account prior
to the satisfaction of the LOI, any shares not held in escrow will be redeemed
first. Shares held in escrow will then be redeemed and a portion of the proceeds
will be used to satisfy the obligation to pay the higher sales charge. Please
contact the Funds’ Transfer Agent to obtain an LOI application at (855)
751-4324.
Shareholder’s
Responsibility With Respect to Breakpoint Discounts. To
obtain any of the Class A or Class A1 sales charge discounts set forth
above, you must inform your financial adviser of the existence of any eligible
amounts under any Rights of Accumulation or LOI, in accounts held by family
members at the time of purchase. You must inform your financial adviser of all
shares of the Funds held (i) in your account(s) at the financial adviser,
(ii) in your account(s) by another financial intermediary, and
(iii) in any other accounts held at any financial intermediary belonging to
family members. IF YOU FAIL TO INFORM YOUR FINANCIAL ADVISER OR THE FUNDS OF ALL
ELIGIBLE HOLDINGS OR PLANNED PURCHASES, YOU MAY NOT RECEIVE A SALES CHARGE
DISCOUNT TO WHICH YOU WOULD OTHERWISE BE ENTITLED. The Funds will require the
names and account numbers of all accounts claimed in connection with a request
for a sales charge discount. You may also be required to provide verification of
holdings (such as account statements and/or copies of documents that reflect the
original purchase cost of your holdings) that qualify you for a sales charge
reduction. As
such, it is very important that you retain all records that may be needed to
substantiate an original purchase price of your holdings, as the Funds, the
Transfer Agent, and financial intermediaries may not maintain this
information.
Waivers
of Sales Charge – Class A Shares and Class A1 Shares. Class A
and Class A1 shares of a Fund, as applicable, may be purchased at NAV under the
following circumstances, provided that you notify the applicable Fund in advance
that the trade qualifies for this privilege. The Funds reserve the right to
modify or terminate these arrangements at any time.
•Purchases
by: (i) current and former officers, Trustees/Directors, and employees of the
Funds, the Adviser, or any of the Adviser’s current affiliates and those that
may in the future be created, (ii) legal counsel to the Funds. At the direction
of such persons, their family members (regardless of age), and any employee
benefit plan established by any of the foregoing entities may also purchase
shares at NAV.
•Purchases
by bank employees who provide services in connection with agreements between the
bank and unaffiliated brokers or dealers concerning sales of shares of the
Funds.
•Purchases
by financial institutions, acting as a fiduciary, investing for the accounts of
their customers if they are not eligible to purchase shares of the applicable
Fund’s Institutional Class.
•Purchases
made directly with a Fund where no financial intermediary is specified.
•Investments
made by plan level and/or participant retirement accounts that are for the
purpose of repaying a loan taken from such accounts.
•Purchases
resulting from the reinvestment of a distribution.
•Purchases
through eligible Retirement Plans.
Retirement
Plans
“Retirement
Plans” include 401(k) plans, 457 plans, employer-sponsored 403(b) plans, rabbi
trusts, profit-sharing plans, non-qualified deferred compensation plans and
other similar employer-sponsored retirement plans. Retirement Plans do not
include individual retirement vehicles, such as traditional and Roth individual
retirement accounts, Coverdell education savings accounts, individual 403(b)(7)
custodial accounts, Keogh plans, SEPs, SARSEPs, SIMPLE IRAs or similar
accounts.
Contingent
Deferred Sales Charge and Dealer Concession – Class A Shares. There
is no initial sales charge on purchases of Class A shares of $500,000 or more,
however, a CDSC of up to 1.00% will be imposed if such Class A shares are
redeemed within twelve (12) months of their purchase, based on the lower of the
shares’ NAV at the time of purchase or current NAV.
Any
Class A shares acquired by reinvestment of distributions and dividends will be
redeemed without a CDSC.
The
UltraShort Income Fund does not impose a CDSC on its Class A
Shares.
The
Distributor may pay a concession of up to 1.00% to a dealer of record for
purchase amounts of $500,000 or more. In such cases, starting in the thirteenth
month after purchase, the dealer of record will also receive an annual
distribution and/or shareholder servicing fee of up to 0.25% of the average
daily net assets represented by the Class A shares held by its clients. Prior to
the thirteenth month, the Distributor will retain this fee. Where the dealer of
record does not receive the payment of this commission, the dealer of record
will instead receive the annual distribution and/or shareholder servicing fee
starting immediately after purchase. Please contact your dealer of record for
more information.
Contingent
Deferred Sales Charge and Dealer Concession – Class A1 Shares. There
is no initial sales charge on purchases of Class A1 shares of $250,000 or more,
however, a CDSC of up to 0.50% will be imposed if such Class A1 shares are
redeemed within twelve (12) months of their purchase, based on the lower of the
shares’ NAV at the time of purchase or current NAV.
Any
Class A1 shares acquired by reinvestment of distributions and dividends will be
redeemed without a CDSC.
The
Distributor may pay a concession of up to 0.50% to a dealer of record for
purchase amounts of $250,000 or more. In such cases, starting in the thirteenth
month after purchase, the dealer of record will also receive an annual
distribution and/or shareholder servicing fee of up to 0.25% of the average
daily net assets represented by the Class A1 shares held by its clients. Prior
to the thirteenth month, the Distributor will retain this fee. Where the dealer
of record does not receive the payment of this
commission,
the dealer of record will instead receive the annual distribution and/or
shareholder servicing fee starting immediately after purchase. Please contact
your dealer of record for more information.
CONTINGENT
DEFERRED
SALES
CHARGE
–
CLASS C
SHARES
Class
C shares are subject to a CDSC of 1.00% if you redeem your shares within twelve
(12) months of purchase, based on the lower of the shares’ NAV at time of
purchase or current NAV. Any Class C shares acquired by reinvestment of
distributions will be redeemed without a CDSC.
CONTINGENT
DEFERRED
SALES
CHARGE
WAIVERS
–
CLASS
A SHARES,
CLASS
A1 SHARES,
AND
CLASS C
SHARES
In
determining whether a CDSC is payable, a Fund will first redeem shares of the
applicable share class not subject to any charge. The Funds’ Distributor
receives the entire amount of any CDSC you pay. No CDSC is applied in the
following instances:
•The
redemption is due to the death or post-purchase disability of a shareholder or
settlor of a living trust account.
•Redemptions
from retirement plans qualified under Section 401 of the Code. The CDSC will be
waived for benefit payments made directly to plan participants. Benefit payments
will include, but are not limited to, payments resulting from death, disability,
retirement, separation from service, required minimum distributions (as
described under Section 401(a)(9) of the Code), in-service distributions,
hardships, loans, and qualified domestic relations orders. The CDSC waiver will
not apply in the event of termination of the plan or transfer of the plan to
another financial intermediary.
•Shares
sold as part of a required minimum distribution for IRA and retirement accounts
pursuant to the Internal Revenue Code.
•In
the case of a divorce, where there exists a court decree that requires
redemption of the shares.
•When
shares are involuntarily redeemed due to low balance or other
reasons.
•When
shares are redeemed in accordance with the applicable Fund’s Systematic
Withdrawal Program (“SWP”).
•Circumstances
that the officers of the Fund, in their discretion, deem to warrant a waiver of
the CDSC.
•For
Class A and Class A1 shares, the redemption relates to shares for which no
commission was paid to the dealer of record (as described above).
Documentation
may be required prior to the waiver of the CDSC, including death certificates,
physicians’ certificates, etc., in applicable instances.
Under
certain circumstances, the Funds’ Distributor may change the concession to
dealers and may also compensate dealers out of its own assets. Dealers engaged
in the sale of shares of the Funds may be deemed to be underwriters under the
Securities Act of 1933. The Funds’ Distributor retains the entire sales charge
on all direct initial investments in the Funds and on all investments in
accounts with no designated dealer of record and any portion of a sales charge
that is not re-allowed to a broker-dealer or financial
intermediary.
CDSC
waivers and discounts available through certain financial intermediaries are set
forth in Appendix
A—Waivers and Discounts Available from Intermediaries,
attached to this Prospectus, which may differ from the CDSC waivers and
discounts available for purchases made directly from a Fund (or the
Distributor), as described in this Prospectus.
The
sales charge you pay may be higher or lower than the percentages described in
the table above due to rounding. This is because the dollar amount of the sales
charge is determined by subtracting the NAV of the shares purchased from the
offering price, which is calculated to two decimal places using standard
rounding criteria. The impact of rounding may vary with the size of the
investment and the NAV of the shares.
ADDITIONAL
PAYMENTS
TO
DEALERS
In
addition to dealer concessions and payments made by the Distributor for
distribution and shareholder servicing, the Adviser or its affiliates, at their
own expense and out of their own assets, may make additional payments
(“Additional Payments”) to, or enter into arrangements with, financial
intermediaries or other persons in consideration of services, arrangements,
significant investments in Fund shares or other activities that the Adviser and
its affiliates believe may, among other things, benefit a Fund’s business,
facilitate investment in Fund shares or otherwise benefit the Fund’s
shareholders. Additional Payments include payments to certain selling or
shareholder servicing agents for the Funds, which includes broker-dealers. These
Additional Payments are made in connection with the sale and distribution of
shares of the Funds or for services to the Funds and their shareholders. These
Additional Payments, which may be significant, are paid by the Adviser or its
affiliates, out of their own resources, which may include profits derived from
servicing the Funds. Such payments by such parties may create an incentive for
these financial institutions to recommend that you purchase Fund shares.
Payments of the type described above are sometimes referred to as revenue
sharing payments.
In
return for these Additional Payments, the Adviser expects to receive certain
marketing or servicing advantages that are not generally available to mutual
funds that do not make such payments. Such advantages are expected to include,
without limitation, significant investments in the Fund; placement of the Funds
on a list of mutual funds offered as investment options to the selling agent’s
clients (sometimes referred to as “Shelf Space”); access to the selling agent’s
registered representatives; and the ability to assist in training and educating
the selling agent’s registered representatives.
Certain
selling or shareholder servicing agents receive these Additional Payments to
supplement amounts payable by the Funds under their distribution plan pursuant
to Rule 12b-1 under the 1940 Act (described below). In exchange, these agents
provide services including, but not limited to, establishing and maintaining
accounts and records; answering inquiries regarding purchases, exchanges and
redemptions; processing and verifying purchase, redemption and exchange
transactions; furnishing account statements and confirmations of transactions;
processing and mailing monthly statements, prospectuses, shareholder reports and
other SEC-required communications; and providing the types of services that
might typically be provided by the Transfer Agent (e.g., the maintenance of
omnibus or omnibus-like accounts, the use of the National Securities Clearing
Corporation for the transmission of transaction information and the transmission
of shareholder mailings) or other service providers.
The
Additional Payments may create potential conflicts of interests between an
investor and a selling agent who is recommending a particular mutual fund over
other mutual funds. Before investing, you should consult with your financial
consultant and review carefully any disclosure by the selling agent as to what
monies they receive from mutual fund advisers and distributors, as well as how
your financial consultant is compensated.
HOW
TO
BUY
SHARES
This
section explains how you can purchase shares of the Funds. If you are opening a
new account, an account application is available online at
www.angeloakcapital.com or by calling (855) 751-4324. For Fund shares held
through brokerage and other types of accounts, please consult your Financial
Intermediary.
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Buying
Shares |
Opening
an Account |
Adding
to an Account |
Through
a Financial Intermediary |
Contact
your Financial Intermediary |
Contact
your Financial Intermediary |
By
Mail (with Check) |
• Mail
your completed application (along with other required documents) and a
check to:
(Fund
Name)
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
WI 53201-0701 |
• Write
your account number on your check
• Send
your check with (a) a completed investment slip from a prior statement or
confirmation or (b) letter of instruction to:
(Fund
Name)
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
WI 53201-0701 |
By
Wire |
• Submit
your completed application (along with other required documents as
specified in the application). An account will be established for you and
you will be contacted with the account number.
• Instruct
your financial institution to wire your money using the instructions found
in the “Purchase by Wire” section of this Prospectus. |
• Call
to notify us of your incoming wire
• Instruct
your financial institution to wire your money using the instructions found
in the “Purchase by Wire” section of this Prospectus. |
By
Telephone |
Not
accepted for initial purchases |
• If
you have telephone purchase privileges on the account, you may purchase
additional shares using the bank account on record by calling (855)
751-4324. |
By
Automatic Investment Plan |
Not
accepted for initial purchases |
• Complete
the Automatic Investment Plan section of the application or submit a
letter of instruction if your account was opened without this being
done.
• Attach
a voided check or savings deposit slip to your application or letter of
instruction.
• Mail
the completed application or letter and voided check or savings deposit
slip.
• Your
purchase will be electronically debited from the bank account on record as
directed in your request. |
General
Notes for Buying Shares
Unless
purchased through a Financial Intermediary, all investments must be made by
check, ACH, or wire. All purchase checks must be in U.S. dollars drawn on a
domestic financial institution. The Funds will not accept payment in cash or
money orders. To prevent check fraud, the Funds will not accept third party
checks, Treasury checks, credit card checks, traveler’s checks or starter checks
for the purchase of shares. The Funds are unable to accept post-dated checks or
any conditional order or payment.
•Checks
for all accounts, including individual, sole proprietorship, joint, Uniform
Gifts to Minors Act (“UGMA”) or Uniform Transfers to Minors Act (“UTMA”)
accounts, the check must be made payable to the name of the Fund. A $25 charge
may be imposed on any returned payment; you will also be responsible for any
losses suffered by the Funds as a result.
•ACH
refers to the “Automated Clearing House” System maintained by the Federal
Reserve Bank, which allows banks to process checks, transfer funds and perform
other tasks. Your financial institution may charge you a fee for this service. A
$25 charge may be imposed on any rejected transfers; you will also be
responsible for any losses suffered by the Funds as a result.
•Wires
instruct your financial institution with whom you have an account to make a
Federal Funds wire payment to us. Your financial institution may charge you a
fee for this service.
Purchase
through Financial Intermediaries. You
may buy, sell and exchange shares of the Funds through certain financial
intermediaries and their agents and other authorized designees that have made
arrangements with the Funds and are authorized to buy, sell and exchange shares
of the Funds (collectively, “Financial Intermediaries”). When placing an order
through a Financial Intermediary, your order is deemed to be received by the
Funds when the Financial Intermediary receives the order and will be priced at
the applicable Fund’s NAV next computed after the order is received by a
Financial Intermediary. A Financial Intermediary may hold your shares in an
omnibus account in the Financial Intermediary’s name and the Financial
Intermediary may maintain your individual ownership records. The applicable Fund
may pay the Financial Intermediary for maintaining individual ownership records
as well as providing other shareholder services. Financial Intermediaries may
charge fees for the services they provide to you in connection with processing
your transaction order or maintaining your account with them. Financial
Intermediaries are responsible for placing your order correctly and promptly
with the Funds, forwarding payment promptly, as well as ensuring that you
receive copies of the Funds’ Prospectus. If you transmit your order with these
Financial Intermediaries before the close of a Fund (generally 4:00 p.m.,
Eastern Time) on a day that the New York Stock Exchange (“NYSE”) is open for
business, your order will be priced at the applicable Fund’s NAV next computed
after it is received by the Financial Intermediary. Investors should check with
their Financial Intermediary to determine if it is subject to these
arrangements.
Purchase
by Mail. Follow
the instructions outlined in the table above. Only actual receipt by the
Transfer Agent (i.e., having physically retrieved delivered materials from a
delivery service or post office box) of materials mailed constitutes receipt by
the Transfer Agent. The Funds do not consider the U.S. Postal Service or other
independent delivery services to be their agents. Therefore, deposits in the
mail or with such services, or receipt at the Transfer Agent’s post office box
of purchase orders or redemption requests, do not constitute receipt by the
Transfer Agent.
Purchase
by Wire.
If you are making your first investment in the Funds, before you wire funds,
please contact the Transfer Agent by phone to make arrangements with a telephone
service representative to submit your completed Account Application via mail,
overnight delivery or facsimile. Upon receipt of your completed Account
Application, your account will be established and a service representative will
contact you to provide your new account number and wiring instructions. If you
do not receive this information within one business day, you may call the
Transfer Agent at (855) 751-4324.
For
either initial or subsequent investments, prior to sending the wire, please call
the Transfer Agent at (855) 751-4324 to advise the Transfer Agent of your wire
to ensure proper credit upon receipt. Your bank must include the name of the
Fund, your name and account number so that your wire can be correctly applied.
|
| |
Instruct
your bank to send the wire to: |
U.S. Bank,
N.A. 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 ABA
#075000022 Credit: U.S. Bancorp Fund Services, LLC Account
#112-952-137 Further Credit: (Fund Name and Class) (Shareholder
Name, Shareholder Account #) |
Your
bank may impose a fee for investments by wire. Wired funds must be received
prior to the close of a Fund (generally, 4:00 p.m., Eastern Time) to be
eligible for same day pricing. The Funds and the Transfer Agent are not
responsible for the consequences of delays resulting from the banking or Federal
Reserve wire system or from incomplete wiring instructions. If you have
questions about how to invest by wire, you may call the Funds at (855)
751-4324.
Purchase
by Telephone.
If you did not decline telephone options on your Account Application and your
account has been open for 7 business days, you may purchase additional shares
from your bank account upon request by telephoning the Transfer Agent toll free
at (855) 751‑4324. You may not make your initial purchase of Fund shares by
telephone. Telephone orders will be accepted via electronic funds transfer from
your pre-designated bank account through the Automated Clearing House (“ACH”)
network. You must have banking information established on your account prior to
making a purchase. Only bank accounts held at domestic institutions that are ACH
members may be used for telephone transactions. If your order is received prior
to the close of a Fund (generally, 4:00 p.m. Eastern Time), shares will be
purchased at the price next calculated. Once you place a telephone request, it
cannot be canceled or modified after the close of regular trading on the NYSE
(generally, 4:00 p.m., Eastern time). For security reasons, requests by
telephone may be recorded.
Automatic
Investment Plan.
For your convenience, the Funds offer an Automatic Investment Plan (“AIP”).
Under the AIP, after you make your initial investment, you may authorize the
Funds to withdraw automatically from your personal checking or savings account
an amount that you wish to invest, which must be at least $100 on a monthly or
quarterly basis. If you wish to enroll in the AIP, complete the “Automatic
Investment Plan” section in the Account Application or call the Transfer Agent
at (855) 751-4324 for additional information. To participate in the AIP, your
bank or financial institution must be a member of the ACH network. The Funds may
terminate or modify this privilege at any time. You may terminate your
participation in the AIP at any time by notifying the Transfer Agent at least
five days prior to the effective date. A fee ($25) will be charged if your bank
does not honor the AIP draft for any reason.
The
AIP is a method of using dollar cost averaging as an investment strategy that
involves investing a fixed amount of money at regular time intervals. However, a
program of regular investment cannot ensure a profit or protect against a loss
as a result of declining markets. By continually investing the same amount, you
will be purchasing more shares when the price is low and fewer shares when the
price is high. Please call (855) 751-4324 for additional information regarding
the Funds’ AIP.
Tax-Sheltered
Retirement Plans.
Shares of the Funds may be an appropriate investment for tax-sheltered
retirement plans, including: individual retirement plans (IRAs); simplified
employee pension plans (SEPs); 401(k) plans; qualified corporate pension and
profit-sharing plans (for employees); tax-deferred investment plans (for
employees of public school systems and certain types of charitable
organizations); and other qualified retirement plans. You should contact
the Transfer Agent at (855) 751-4324 to obtain the procedure to open an IRA or
SEP plan, as well as more specific information regarding these retirement plan
options. Please consult with an attorney or tax adviser regarding these
plans. You must pay custodial fees for your IRA by redemption of sufficient
shares of the Funds from the IRA unless you pay the fees directly to the IRA
custodian. Call the Transfer Agent about the IRA custodial fees at (855)
751-4324.
Purchases-In-Kind.
Under certain circumstances, you may purchase shares of a Fund by transferring
securities to the Fund in exchange for Fund shares (“in-kind purchase”). In-kind
purchases may be made only upon the approval of the Adviser and upon the
determination that the securities are acceptable investments for the Fund and
are purchased consistent with the Fund’s procedures relating to in-kind
purchases. The Funds reserve the right to amend or terminate this practice at
any time. Please contact the Funds at (855) 751-4324 before
sending any securities. Please see the SAI for additional details.
HOW
TO SELL SHARES
The
Funds process redemption orders received in good order, promptly. “Good Order”
means your redemption request includes: (1) the name of the Fund, (2) the
number of shares or dollar amount to be redeemed, (3) the account number, and
(4) signatures by all of the shareholders whose names appear on the account
registration. Proceeds will generally be sent no later than seven calendar days
after a Fund receives your redemption request. If a Fund class has not yet
collected payment for the shares you are selling, it may delay sending
redemption proceeds until it receives payment, which may be up to 15 calendar
days. This delay will not apply if you purchased your shares via wire payment.
|
|
|
|
| |
Selling
Shares |
|
Through
a Financial Intermediary |
• Contact
your Financial Intermediary |
By
Mail |
• Prepare
a written request including:
• Your
name(s) and signature(s)
• Your
account number
• The
Fund name and class
• The
dollar amount or number of shares you want to sell
• How
and where to send the redemption proceeds
• Obtain
a signature guarantee (if required) (See “Signature Guarantee Requirements
below”)
• Obtain
other documentation (if required)
• Mail
us your request and documentation. |
By
Wire |
• Wire
redemptions are only available if your redemption is for $2,500 or more
and you provided a voided check or saving deposit slip to establish bank
instructions on your account application.
• Call
us with your request (unless you declined telephone redemption privileges
on your account application) (See “Telephone or Wire Redemption”)
or
• Mail
us your request (See “By Mail”). |
By
Telephone |
• Call
us with your request (unless you declined telephone redemption privileges
on your account application)
• Provide
the following information:
• Your
account number
• Exact
name(s) in which the account is registered
• Additional
form of identification
• Redemption
proceeds will be:
• Mailed
to you or
• Electronically
credited to your account at the financial institution identified on your
account application. |
Systematically |
• Complete
the systematic withdrawal program section of the application
• Attach
a voided check or savings deposit slip to your application
• Mail
us your completed application
• Redemption
proceeds will be electronically credited to your account at the financial
institution identified on your account application or sent by check to
your address of record. |
General
Notes for Selling Shares
In
general, orders to sell or “redeem” shares may be placed either directly with
the Funds, the Transfer Agent or with your Financial Intermediary. You may
redeem part or all of your Fund shares at the next determined NAV after a Fund
receives your order. You should request your redemption prior to the close of a
Fund, generally 4:00 p.m., Eastern Time, to obtain that day’s closing NAV.
Redemption requests received after the close of a Fund will be treated as though
received on the next business day.
The
Fund typically expects to send redemption proceeds on the next business day (a
day when the NYSE is open for normal business) after the redemption request is
received in good order and prior to market close, regardless of whether the
redemption proceeds are sent via check, wire, or ACH transfer. Under unusual
circumstances, the Fund may suspend redemptions, or postpone payment for up to
seven days, as permitted by federal securities law. If you did not purchase your
shares via wire, the Fund may delay payment of your redemption proceeds for up
to 15 calendar days from date of purchase or until your purchase amount has
cleared, whichever occurs first.
The
Fund typically expects to meet redemption requests by paying out proceeds from
cash or cash equivalent portfolio holdings, or by selling portfolio holdings or
using the proceeds from maturing securities. In stressed market conditions,
redemption methods may include paying redemption proceeds to you in whole or in
part by a distribution of securities from the Fund’s portfolio (a “redemption
in-kind”). If the Fund pays your redemption proceeds by a distribution of
securities, you could incur brokerage or other charges in converting the
securities to cash and will bear any market risks associated with such
securities until they are converted
into
cash. For federal income tax purposes, redemptions paid in securities are taxed
in the same manner as redemptions paid in cash.
Through
a Financial Intermediary.
You may redeem Fund shares through your Financial Intermediary. In addition to
the Funds’ redemption procedures, redemptions made through a Financial
Intermediary may be subject to procedures established by that institution. Your
Financial Intermediary is responsible for sending your order to the Funds and
for crediting your account with the proceeds. For redemption through Financial
Intermediaries, orders will be processed at the NAV per share next effective
after receipt of the order by the Financial Intermediary. Please keep in mind
that your Financial Intermediary may charge additional fees for its services.
Investors should check with their Financial Intermediary to determine if it is
subject to these arrangements.
By
Mail.
You may redeem Fund shares by simply sending a written request to the Transfer
Agent. Please provide the name of the Fund, account number and state the number
of shares or dollar amount you would like redeemed. The letter should be signed
by all shareholders whose names appear on the account registration. Redemption
requests will not become effective until all documents have been received in
good form by the Funds. Additional documents are required for certain types of
shareholders, such as corporations, partnerships, executors, trustees,
administrators, or guardians (i.e., corporate
resolutions, or trust documents indicating proper authorization). Shareholders
should contact the Funds for further information concerning documentation
required for redemption of Fund shares.
Shareholders
who have an IRA or other retirement plan must indicate on their written
redemption request whether or not to withhold federal income tax. Redemption
requests failing to indicate an election not to have tax withheld will generally
be subject to a 10% withholding tax. Shares held in IRA and other retirement
accounts may be redeemed by telephone at (855) 751-4324. Investors will be asked
whether or not to withhold taxes from any distribution.
Telephone
or Wire Redemption.
You may redeem Fund shares by telephone unless you declined telephone redemption
privileges on your Account Application. You may also request telephone
redemption privileges after your account is opened by calling the Transfer Agent
at (855) 751-4324 for additional information. A signature guarantee or a
signature verification from a Signature Verification Program member or other
acceptable form of authentication from a financial institution source will be
required of shareholders to qualify for or to change telephone redemption
privileges on an existing account. During periods of high market activity, you
may encounter higher than usual wait times. Please allow sufficient time to
ensure that you will be able to complete your telephone transaction prior to
market close. If you are unable to contact the Transfer Agent by telephone, you
may also mail the requests to the Funds at the address listed above. Once a
telephone transaction has been placed, it cannot be canceled or modified after
the close of regular trading on the NYSE (generally, 4:00 p.m., Eastern
Time).
You
may redeem up to $100,000 in shares by calling the Transfer Agent at (855)
751-4324 prior to the close of a Fund, generally 4:00 p.m., Eastern Time.
Redemption proceeds will be sent on the next business day to the mailing address
that appears on the Funds’ records. Per your request, redemption proceeds may be
wired or may be sent by electronic funds transfer via the ACH network to your
pre-designated bank account. The minimum amount that may be wired is $2,500. The
Transfer Agent will charge a $15 wire fee from your redemption proceeds from any
complete share redemption or share specific redemptions. For partial
redemptions, any wire fee will be deducted from your remaining account balance.
You will not incur any charge when proceeds are sent via the ACH network;
however, most ACH transfers require two days for the bank account to receive
credit. Telephone redemptions cannot be made if you notify the Transfer Agent of
a change of address within 30 days before the redemption
request.
Prior
to executing instructions received to redeem shares by telephone, the Funds will
use reasonable procedures to confirm that the telephone instructions are
genuine. The telephone call may be recorded and the caller may be asked to
verify certain personal identification information. If an account has more than
one owner or authorized person, the Funds will accept telephone instructions
from any one owner or authorized person. If the Funds or their agents follow
these procedures, they cannot be held liable for any loss, expense, or cost
arising out of any telephone redemption request that is reasonably believed to
be genuine. This includes any fraudulent or unauthorized request. The Funds may
change, modify or terminate these privileges at any time upon at least a 60-day
notice to shareholders.
Systematic
Withdrawal Program.
The Funds offer a SWP whereby shareholders or their representatives may request
a redemption in a predetermined amount each month or calendar quarter. Proceeds
can be sent via check to the address on the account or proceeds can be sent by
electronic funds transfer via the ACH network to a designated bank account. To
start this program, your account must have Fund shares with a value of at least
$2,500, and the minimum amount that may be withdrawn each month or quarter is
$250. This program may be terminated or modified by a shareholder or the Funds
at any time without charge or penalty. You may also elect to terminate your
participation in this Plan at any time by contacting the Transfer Agent at least
five calendar days prior to the next withdrawal.
A
withdrawal under the SWP involves a redemption of Fund shares, and may result in
a gain or loss for federal income tax purposes. In addition, if the amount
withdrawn exceeds the dividends credited to your account, the account ultimately
may be depleted. To establish the SWP, complete the SWP section of the Account
Application. Please call (855) 751-4324 for additional information regarding the
SWP.
ACCOUNT
AND
TRANSACTION
POLICIES
Exchange
Privilege.
Except as described below, you may exchange all or a portion of your shares in a
Fund for shares in an identically registered account of the same class of
another Angel Oak mutual fund, and you may exchange all or a portion of your
Class A1 shares of the UltraShort Income Fund for Class A shares of another
Angel Oak mutual fund. Additionally, except as described below, you may convert
your shares in a Fund for shares of another class of the same Fund if you meet
the minimum investment requirements for the class into which you would like to
convert. Any new account established through an exchange will be subject to the
minimum investment requirements applicable to the shares acquired. Exchanges
will be executed on the basis of the relative NAV of the shares exchanged.
Consequently, you may receive fewer shares or more shares than originally owned,
depending on that day’s net asset values. Your total value of the initially held
shares, however, will equal the total value of the converted shares. The
exchange privilege may be exercised only in those states where the class of
shares of the fund being acquired legally may be sold. Be sure to read the
current Prospectus for the fund into which you are exchanging.
You
may not exchange Class A shares of the UltraShort Income Fund for shares of any
other Angel Oak mutual fund. Additionally, you may not exchange Class A shares
of the UltraShort Income Fund for shares of another class of the UltraShort
Income Fund or of any other Angel Oak mutual fund.
Sales
loads (including contingent deferred sales loads) and redemption fees are not
applied to any exchange of all or a portion of your shares in the Fund for
shares of another Angel Oak mutual fund.
An
exchange of shares in a Fund for shares of another fund is considered to be a
sale of shares for federal income tax purposes on which you may realize a
taxable capital gain or loss unless you are a tax-exempt investor or hold your
shares through a tax-deferred account such as a 401(k) plan or an individual
retirement account. Such tax-deferred arrangements may be taxed later upon
withdrawal of monies from those arrangements. A conversion of shares of one
class to shares of a different class within the same Fund is generally not a
taxable transaction for federal income tax purposes.
Conversion
of Class C Shares.
Effective on or about December 1, 2020 (the “Class C Conversion Date”), all
Class C shares of a Fund that were purchased eight years or more prior to the
Class C Conversion Date will automatically convert to Class A shares of the same
Fund. After the Class C Conversion Date, all Class C shares of a Fund held in
accounts directly with the Fund’s transfer agent will automatically convert to
Class A shares of the same Fund on or about the third calendar day of the month
following the eight-year anniversary of purchase. If the third calendar day
falls on a non-business day, the conversion(s) will occur on the next business
day. After the Class C Conversion Date, all Class C shares of a Fund held
through a financial intermediary (subject to the exceptions noted below) will
automatically convert to Class A shares of the same Fund following the
eight-year anniversary of purchase. Although the timing of this conversion may
differ from the timing stated above, it is expected to occur during the month
following the eight-year anniversary of purchase. Such conversions will be
affected on the basis of the relative net asset values of the Class C and Class
A shares involved in the conversion. When Class C shares convert, any other
Class C shares that were acquired by the shareholder by the reinvestment of
dividends or distributions will also convert to Class A shares on a pro rata
basis. Class C shares held through a financial intermediary in an omnibus
account will be converted into Class A shares only if the intermediary can
document that the shareholder has met the required holding period. It is the
financial intermediary’s (and not the Funds’) responsibility to keep records and
to ensure that the shareholder is credited with the proper holding period. Not
all financial intermediaries are able to track purchases to credit individual
shareholders’ holding periods. In particular, group retirement plans held
through third party intermediaries that hold Class C shares in an omnibus
account in certain instances do not track participant level share lot aging.
Please consult with your financial intermediary about your eligibility to
exercise this conversion privilege.
Frequent
Purchases and Redemptions of Shares of the UltraShort Income Fund.
The UltraShort Income Fund does not impose restrictions on the frequency of
purchases and redemptions of shares of the Fund. The Fund is expected to
appeal to investors seeking short-term investments, and such frequent purchases
and redemptions of Fund shares are not expected to harm other shareholders of
the Fund, although they may result in additional costs for the Fund. Because the
Fund is designed to accommodate frequent purchases and sales of Fund shares, the
Board has determined not to approve a written, established policy to prevent
such frequent transactions, although it reserves the right to adopt such a
policy in the future if it determines that such policy is necessary for the
protection of existing shareholders.
Additionally,
in an effort to discourage abusive trading practices and minimize harm to the
UltraShort Income Fund and its shareholders, the Fund reserves the right, in its
sole discretion, to reject any purchase order (including those as part of an
exchange), in whole or in part, for any reason (including, without limitation,
purchases by persons whose trading activity in Fund shares is believed by the
Adviser to be harmful to the Fund) and without prior notice.
Tools
to Combat Frequent Transactions of the Multi-Strategy Income Fund.
The Multi-Strategy Income Fund is intended for long-term investors and does not
accommodate frequent transactions. Short-term “market-timers” who engage in
frequent purchases, redemptions or exchanges can disrupt the Fund’s investment
program and create additional transaction costs that are borne by all of the
Fund’s shareholders. The Board has adopted policies and procedures that are
designed to discourage excessive, short-term trading and other abusive trading
practices that may disrupt portfolio management strategies and harm performance.
In addition, the Multi-Strategy Income Fund discourages excessive, short-term
trading and other abusive trading practices and may use a variety of techniques
to monitor trading activity and detect abusive trading practices. These steps
may include, among other things, the
imposition
of redemption fees, if necessary, monitoring trading activity, or using fair
value pricing when appropriate, under procedures as adopted by the Fund’s Board
of Trustees when the Adviser determines current market prices are not readily
available. As approved by the Board, these techniques may change from time to
time as determined by the Fund in its sole discretion.
In
an effort to discourage abusive trading practices and minimize harm to the Fund
and its shareholders, the Fund reserves the right, in its sole discretion, to
reject any purchase order (including those as part of an exchange), in whole or
in part, for any reason (including, without limitation, purchases by persons
whose trading activity in Fund shares is believed by the Adviser to be harmful
to the Fund) and without prior notice. The Fund may decide to restrict purchase,
sale and exchange activity in its shares based on various factors, including
whether frequent purchase, sale or exchange activity will disrupt portfolio
management strategies and adversely affect the Fund’s performance. Although
these efforts are designed to discourage abusive trading practices, these tools
cannot eliminate the possibility that such activity will occur. The Fund seeks
to exercise its judgment in implementing these tools to the best of its ability
in a manner that it believes is consistent with shareholder
interests.
Identifying
Abusive Trading Activity.
Due to the complexity and subjectivity involved in identifying abusive trading
activity and the volume of shareholder transactions the Funds handle, there can
be no assurance that the Funds’ efforts will identify all trades or trading
practices that may be considered abusive. In particular, since the Funds receive
purchase, sale and exchange orders through Financial Intermediaries that use
group or omnibus accounts, the Funds cannot always detect frequent trading.
However, the Funds will work with Financial Intermediaries as necessary to
discourage shareholders from engaging in abusive trading practices and, except
for the UltraShort Income Fund, to impose restrictions on excessive trades. In
this regard, the Funds have entered into information sharing agreements with
Financial Intermediaries pursuant to which these intermediaries are required to
provide to the Funds, at the Funds’ request, certain information relating to
their customers investing in the Funds through non-disclosed or omnibus
accounts. The Funds will use this information to attempt to identify abusive
trading practices. Financial Intermediaries are contractually required to follow
any instructions from the Funds to restrict or prohibit future purchases from
shareholders that are found to have engaged in abusive trading in violation of
the Funds’ policies. However, the Funds cannot guarantee the accuracy of the
information provided to them from Financial Intermediaries and cannot ensure
that they will always be able to detect abusive trading practices that occur
through non-disclosed and omnibus accounts. As a consequence, the Funds’ ability
to monitor and discourage abusive trading practices in omnibus accounts may be
limited.
Proceeds.
Proceeds will generally be sent no later than seven calendar days after the
applicable Fund receives your redemption request. If elected on your account
application, you may have the proceeds of the redemption request sent by check
to your address of record, by wire to a pre-determined bank, or by electronic
funds transfer via the ACH network to the bank account designated by you on your
fund account application. When proceeds are sent via the ACH network, the funds
are usually available in your bank account in 2-3 business days.
Check
Clearance.
The proceeds from a redemption request may be delayed up to 15 calendar days
from the date of the receipt of a purchase by check or electronic funds transfer
through the ACH network until the payment for the purchase clears. If the
payment does not clear, you will be responsible for any losses suffered by the
applicable Fund as well as a $25 service charge imposed by the Transfer Agent.
This delay can be avoided by purchasing shares by wire.
Suspension
of Redemptions.
We may temporarily suspend the right of redemption or postpone payments under
certain emergency circumstances or when the SEC orders a
suspension.
Signature
Guarantees.
The Transfer Agent may require a signature guarantee for certain requests. A
signature guarantee assures that your signature is genuine and protects you from
unauthorized transactions. A signature guarantee, from either a Medallion
program member or a non-Medallion program member, is required in the following
situations:
•For
all redemption requests in excess of $100,000;
•When
a redemption is received by the Transfer Agent and the account address has
changed within the last 30 calendar days;
•When
requesting a change in ownership on your account; or
•When
redemption proceeds are payable or sent to any person, address or bank account
not on record.
In
addition to the situations described above, the Funds and/or the Transfer Agent
may require a signature guarantee in other instances based on the circumstances
relative to the particular situation. Non-financial transactions including
establishing or modifying certain services on an account may require a signature
guarantee, signature verification from a Signature Validation Program member, or
other acceptable form of authentication from a financial institution source.
Signature guarantees will generally be accepted from domestic banks, brokers,
dealers, credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations, as well as from
participants in the New York Stock Exchange Medallion Signature Program and the
Securities Transfer Agents Medallion Program (“STAMP”). A notary public is not
an acceptable signature guarantor. The Funds reserve the right to waive any
signature requirement at their discretion.
Customer
Identification Program.
Please note that, in compliance with the USA PATRIOT Act of 2001, the Transfer
Agent will verify certain information on your account application as part of the
Funds’ Anti-Money Laundering Program. As requested on the Account Application,
you must supply your full name, date of birth, social security number and
permanent street address. If you are opening the account in the name of a legal
entity (e.g.,
partnership, limited liability company, business trust, corporation, etc.), you
must
also
supply the identity of the beneficial owners. Mailing addresses containing only
a P.O. Box will not be accepted. If you do not supply the necessary
information, the Transfer Agent may not be able to open your account. Please
contact the Transfer Agent at (855) 751-4324 if you need additional assistance
when completing your application. If the Transfer Agent is unable to verify your
identity or that of another person authorized to act on your behalf, or if it
believes it has identified potentially criminal activity, the Funds reserve the
right to temporarily limit additional share purchases, close your account or
take any other action they deem reasonable or required by law.
No
Certificates.
The Funds do not issue share certificates.
Right
to Reject Purchases. The
Funds reserve the right to restrict, reject, or cancel within one business day,
without any prior notice, any purchase order, including transactions that, in
the judgment of the Adviser, represent excessive trading, may be disruptive to
the management of a Fund’s portfolio, may increase a Fund’s transaction costs,
administrative costs or taxes, and those that may otherwise be detrimental to
the interests of a Fund and its shareholders. The purpose of such action is to
limit increased Fund expenses incurred when certain investors buy and sell
shares of the Funds for the short-term when the markets are highly volatile. The
Funds’ right to cancel or revoke such purchase orders would be limited to within
one business day following receipt by the Funds of such purchase
orders.
Redemption
In-Kind.
The Funds generally pay redemption proceeds in cash. However, each Fund reserves
the right to pay redemption proceeds to you by a distribution of liquid
securities from the Fund’s portfolio (a “redemption in-kind”). It is not
expected that the Funds would do so except during unusual market conditions. If
a Fund pays your redemption proceeds by a distribution of liquid securities, you
could incur brokerage or other charges in subsequently converting the securities
to cash and will bear any market risks associated with such securities until
they are converted into cash. A redemption in-kind is treated as a taxable
transaction and a sale of the redeemed shares, generally resulting in capital
gain or loss to you, subject to certain loss limitation rules.
Small
Accounts.
To reduce our expenses, if the value of your account falls below $1,000, the
Funds may ask you to increase your balance. If after 30 days, the account
value is still below $1,000, the Funds may close your account and send you the
proceeds. The Funds will not close your account if it falls below these amounts
solely as a result of a reduction in your account’s market value.
Householding.
In an effort to decrease costs, the Funds will reduce the number of duplicate
Prospectuses, supplements, and certain other shareholder documents that you
receive by sending only one copy of each to those addresses shown by two or more
accounts. Please call the Transfer Agent toll free at (855) 751-4324 to request
individual copies documents. The Funds will begin sending individual copies 30
days after receiving your request. This policy does not apply to account
statements.
Confirmations.
If
you purchase shares directly from the Funds, you will receive monthly statements
detailing Fund balances and all transactions completed during the prior month
and a confirmation of each transaction. Automatic reinvestments of distributions
and systematic investments/withdrawals may be confirmed only by monthly
statement. You should verify the accuracy of all transactions in your account as
soon as you receive your confirmations and monthly statements.
Policy
on Prohibition of Foreign Shareholders.
Shares of the Funds have not been registered for sale outside of the United
States. Accordingly, the Funds generally require that all shareholders must be
U.S. persons with a valid U.S. taxpayer identification number to open an
account with the Funds. The Funds generally do not sell shares to investors
residing outside the United States, even if they are United States citizens or
lawful permanent residents, except to investors with United States military APO
or FPO addresses or other investors meeting eligibility requirements as
determined by the Adviser. The Funds reserve the right to close the account
within 5 business days if clarifying information or documentation is not
received.
Canceled
or Failed Payments.
The Funds accept checks and ACH transfers at full value subject to collection.
If the Funds do not receive your payment for shares or you pay with a check or
ACH transfer that does not clear, your purchase will be canceled within 2
business days of bank notification. You will be responsible for any actual
losses or expenses incurred by the Funds or the Transfer Agent as a result of
the cancellation, and the Funds may redeem shares you own in the account (or
another identically registered account that you maintain with the Transfer
Agent) as reimbursement. The Funds and their agents have the right to reject or
cancel any purchase or exchange (purchase side only) due to nonpayment.
Lost
Accounts. The
Transfer Agent may consider your account “lost” if correspondence to your
address of record is returned as undeliverable on two consecutive occasions,
unless the Transfer Agent receives your new address. When an account is “lost,”
all distributions on the account will be reinvested in additional Fund shares.
In addition, the amount of any outstanding cash distribution checks (unpaid for
six months or more) or checks that have been returned to the Transfer Agent will
be reinvested at the then-current NAV and the checks will be canceled. However,
checks will not be reinvested into accounts with a zero balance.
Unclaimed
Property.
Your mutual fund account may be transferred to your state of residence if no
activity occurs within your account during the “inactivity period” specified in
your state’s abandoned property laws. Investors with a state of residence in
Texas have the ability to designate a representative to receive legislatively
required unclaimed property due diligence notifications. Please contact the
Texas Comptroller of Public Accounts for further information.
Other.
To the extent authorized by law, each Fund reserves the right to discontinue
offering shares at any time, to merge or reorganize itself or a class of shares,
or to cease operations and liquidate at any time. A liquidation may have adverse
tax consequences to shareholders. If a Fund were to liquidate, shareholders will
receive a liquidating distribution in cash or in-kind equal to their
proportionate interest in the Fund. A liquidating distribution would generally
be a taxable event to shareholders, resulting in a gain or loss for tax
purposes, depending upon a shareholder’s basis in his or her shares of the Fund.
A shareholder would not be entitled to any refund or reimbursement of expenses
borne, directly or indirectly, by the shareholder (such as sales loads, account
fees, or fund expenses), and a shareholder may receive an amount in liquidation
less than their original investment.
Lost
Shareholder.
It is important that the Funds maintain a correct address for each investor. An
incorrect address may cause an investor’s account statements and other mailings
to be returned to the Funds. Based upon statutory requirements for returned
mail, the Funds will attempt to locate the investor or rightful owner of the
account. If the Funds are unable to locate the investor, then they will
determine whether the investor’s account can legally be considered abandoned.
The Funds are legally obligated to escheat (or transfer) abandoned property to
the appropriate state’s unclaimed property administrator in accordance with
statutory requirements. The investor’s last known address of record determines
which state has jurisdiction. For IRA accounts escheated to a state under these
abandoned property laws, the escheatment will generally be treated as a taxable
distribution to you; federal and any applicable state income tax will be
withheld.
DETERMINATION
OF
NET
ASSET
VALUE
The
price you pay for your shares is based on the applicable Fund’s NAV, plus any
applicable sales charge. Each Fund’s NAV is calculated at the close of trading
(normally 4:00 p.m. Eastern Time) on each day the NYSE is open for business
(the NYSE is closed on weekends, most federal holidays and Good Friday). Each
Fund’s NAV is calculated by dividing the value of the Fund’s total assets
(including interest and dividends accrued but not yet received) minus
liabilities (including accrued expenses) by the total number of shares
outstanding. Requests to purchase and sell shares are processed at the NAV next
calculated after the Funds receive your order in proper form. If the NYSE is
closed due to inclement weather, technology problems or any other reason on a
day it would normally be open for business, or the NYSE has an unscheduled early
closing on a day it has opened for business, each Fund reserves the right to
treat such day as a business day and accept purchase and redemption orders
until, and calculate a Fund’s NAV as of, the normally scheduled close of regular
trading on the NYSE for that day, so long as Fund management believes there
remains an adequate market to meet purchase and redemption orders for that
day.
In
the event a Fund holds portfolio securities that trade in foreign markets or
that are primarily listed on foreign exchanges that trade on weekends or other
days when the Fund does not price its shares, the NAV of the Fund’s shares may
change on days when shareholders will not be able to purchase or redeem the
Fund’s shares.
In
calculating a Fund’s NAV, portfolio investments for which market quotations are
readily available are valued at market value, which is ordinarily determined
based on official closing prices or the last reported sale prices of an
instrument. Where no such closing price or sale price is reported, market value
is determined based on quotes obtained from market makers or prices supplied by
one or more third-party pricing source (“Pricing Services”), which may include
evaluated prices. The types of investments in which the Funds typically invest
are generally valued on the basis of evaluated prices provided by Pricing
Services. Such prices may be based on a number of factors, including, among
other things, information obtained from market makers and estimates based on
recent market prices for investments with similar characteristics. If market or
evaluated prices are not readily available (including when they are not
reliable), or if an event occurs after the close of the trading market but
before the calculation of the applicable NAV that materially affects the values,
assets may be valued at a fair value, pursuant to guidelines established by the
Adviser as the Fund’s valuation designee. For example, the Funds may be
obligated to fair value a foreign security because many foreign markets operate
at times that do not coincide with those of the major U.S. markets. Events that
could affect the values of foreign portfolio holdings may occur between the
close of the foreign market and the time of determining the NAV, and would not
otherwise be reflected in the NAV. When pricing securities using the fair value
guidelines, the Adviser (with the assistance of their Pricing Services and other
service providers) seek to assign the value that represents the amount that a
Fund might reasonably expect to receive upon a current sale of the securities.
The fair value guidelines include the consideration of pricing information from
one or more Pricing Service, which information is monitored by the Adviser
daily. The Board of Trustees oversees the Adviser’s implementation of the fair
value guidelines.
Notwithstanding
the foregoing, given the subjectivity inherent in fair valuation and the fact
that events could occur after NAV calculation, the actual market prices for a
security may differ from the fair value of that security as determined by the
Funds at the time of NAV calculation. Thus, discrepancies between fair values
and actual market prices may occur on a regular and recurring basis. These
discrepancies do not necessarily indicate that the fair value methodology is
inappropriate. The Adviser will adjust the fair values assigned to securities in
the Funds’ portfolios, to the extent necessary, as soon as market prices become
available. The Adviser (and the Funds’ service providers) continually monitor
and evaluate the appropriateness of their fair value methodologies through
systematic comparisons of fair values to the actual next available market prices
of securities contained in the Funds’ portfolios. To the extent a Fund invests
in other mutual funds, the Fund’s NAV is calculated based, in part, upon the
NAVs of such mutual funds; the prospectuses for those mutual funds in which the
Funds will invest describe the circumstances under which those mutual funds will
use fair value pricing, which, in turn, affects their NAVs.
Because
the Funds rely on various sources to calculate their NAVs, the Funds are subject
to certain operational risks associated with reliance on the Pricing Services
and other third-party service providers and data sources. A Fund’s NAV
calculation may be impacted by operational risks arising from factors such as
failures in systems and technology. Such failures may result in delays in the
calculation of a Fund’s NAV and/or the inability to calculate NAV over extended
time periods. The Funds may be unable to recover any losses associated with such
failures.
DIVIDENDS,
DISTRIBUTIONS,
AND
TAXES
Dividends
and Distributions. Each
Fund typically distributes to its shareholders as dividends all or substantially
all of its net investment income and any realized net capital gains. These
distributions are automatically reinvested in the applicable Fund unless you
request cash distributions on your application or through a written request to
the Funds. Class A shares of a Fund and Class A1 shares of the UltraShort
Income Fund received as a result of the automatic reinvestment of a distribution
are not subject to a sales charge. The Funds expect that their distributions
will consist primarily of income and net realized capital gains. Distributions
from each Fund’s net investment income are accrued daily and typically paid
monthly. Net investment income distributed by the Funds generally will consist
of interest income, if any, and dividends received on investments, less
expenses. The dividends you receive, whether or not reinvested, generally
will be subject to tax as ordinary income except as described
below.
The
dividend distributions described above may result in the payment of
approximately the same amount or percentage to a Fund’s shareholders each
quarter. Section 19(a) of the 1940 Act and Rule 19a-1 thereunder require the
Funds to provide a written statement accompanying any such payment that
adequately discloses its source or sources. Thus, if the source of the dividend
or other distribution were the original capital contribution of the shareholder,
and the payment amounted to a return of capital, the Fund would be required to
provide written disclosure to that effect. Please refer to the Funds' most
recent Section 19(a) notice, available at www.angeloakfunds.com, for additional
information regarding the composition of distributions. Nevertheless, persons
who periodically receive the payment of a dividend or other distribution may be
under the impression that they are receiving net profits when they are not.
Shareholders should read any written disclosure provided pursuant to Section
19(a) and Rule 19a-1 carefully and should not assume that the source of any
distribution from the Fund is net profit.
All
distributions will be reinvested in the shares of the applicable Fund unless you
choose one of the following options: (1) receive dividends in cash while
reinvesting capital gain distributions in additional shares; (2) reinvest
dividends in additional shares and receive capital gains in cash; or (3) receive
all distributions in cash. Dividends are taxable whether reinvested in
additional shares or received in cash. The Funds will send dividends and capital
gain distributions elected to be received as cash to the address of record or
bank of record on the applicable account. If you wish to change your
distribution option, write or call the Transfer Agent at (855) 751-4324 at least
five calendar days prior to the record date of the distribution. Your
distribution option will automatically be converted to having all dividends and
other distributions reinvested in additional shares if any of the following
occur:
•Postal
or other delivery service is unable to deliver checks to the address of record;
or
•Dividend
and capital gain distribution checks are not cashed within 180
days.
Dividend
and capital gain distribution checks issued by a Fund that are not cashed within
180 days will be reinvested in the Fund at the current day’s NAV. When
reinvested, those amounts are subject to risk of loss like any other investment
in the Funds.
Selling
shares (including redemptions) and receiving distributions (whether reinvested
or taken in cash) usually are taxable events to Fund shareholders. These
transactions typically create the following tax liabilities for taxable
accounts:
Summary
of Certain Federal Income Tax Consequences.
Each Fund has elected and intends to qualify each tax year to be subject to tax
as a RIC under Subchapter M of the Code. As a RIC, each Fund generally will not
be subject to federal income tax if it distributes its income as required by the
tax law and satisfies certain other requirements that are described in the
SAI.
Each
Fund generally intends to operate in a manner such that it will not be liable
for federal income or excise taxes.
You
will generally be subject to tax on a Fund’s taxable distributions, regardless
of whether you reinvest them or receive them in cash. The Funds’ taxable
distributions of net investment income (including short-term capital gains) are
generally characterized as ordinary income. The Funds’ distributions of
long-term capital gains, if any, are generally characterized as long-term
capital gains, regardless of how long you have held your shares. Distributions
may also be subject to certain state and local taxes. Some Fund distributions
may also include nontaxable returns of capital. Return of capital distributions
reduce your tax basis in your Fund shares and are treated as gain from the sale
of the shares to the extent your basis would be reduced below zero.
The
maximum U.S. federal income tax rate for individual taxpayers applicable to
long-term capital gains and income from certain qualifying dividends on certain
corporate stock is generally either 15% or 20%, depending on whether the
individual’s income exceeds certain threshold amounts. A shareholder will also
have to satisfy a more than 60-day holding period for the Fund shares with
respect to any distributions of qualifying dividends to obtain the benefit of
the lower tax rates. These rate reductions do not apply to corporate taxpayers.
Given the investment strategies of the Funds, it is not anticipated that a
significant portion of a Fund’s dividends will be eligible for the benefit of
the lower tax rates described above.
An
additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions received from the
Funds and net gains from redemptions or other taxable dispositions of Fund
shares) of U.S. individuals, estates and trusts to the extent that such person’s
“modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold
amounts.
Distributions
of capital gain and distributions of net investment income reduce the NAV of the
applicable Fund’s shares by the amount of the distribution. If you purchase
shares prior to these distributions, you are subject to tax on the distributions
even though the distributions represent a return of your
investment.
The
sale of Fund shares or exchange of Fund shares for shares of another series of
Angel Oak Funds Trust is a taxable transaction for federal income tax purposes.
You will recognize a gain or loss on such transactions equal to the difference,
if any, between the amount of your net sales proceeds and your tax basis in the
Fund shares. Such gain or loss will be capital gain or loss if you held your
Fund shares as capital assets. Any capital gain or loss will generally be
treated as long-term capital gain or loss if you held the Fund shares for more
than one year at the time of the sale or exchange, and otherwise as short-term
capital gain.
The
Funds may be required to withhold federal income tax at the federal backup
withholding rate (currently, 24%) on all taxable distributions and redemption
proceeds otherwise payable to you if you fail to provide the Funds with your
correct taxpayer identification number or to make required certifications, or if
you have been notified by the Internal Revenue Service (“IRS”) that you are
subject to backup withholding. Backup withholding is not an additional tax.
Rather, any amounts withheld may be credited against your federal income tax
liability, so long as you provide the required information or
certification.
Investment
income received by a Fund from sources within foreign countries may be subject
to foreign income taxes withheld at the source. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes in some
cases.
After
December 31 of each year, the Funds will mail you reports containing
information about the income tax classification of distributions paid during the
year.
Federal
law requires that mutual fund companies report their shareholders’ cost basis,
gain/loss, and holding period to the IRS on each Fund’s shareholders’ Form
1099-B. Each Fund has chosen “average cost” as the standing (default) tax lot
identification method for all shareholders. A tax lot identification method is
the way the Funds will determine which specific shares are deemed to be sold
when there are multiple purchases on different dates at differing NAVs, and the
entire position is not sold at one time. Each Fund’s standing tax lot
identification method is the method covered shares will be reported on your Form
1099-B if you do not select a specific tax lot identification method. You may
choose a method different than the Funds’ standing method and will be able to do
so at the time of your purchase or upon the sale of covered shares.
Please
refer to the appropriate IRS regulations or consult your tax advisor with regard
to your personal circumstances.
Shareholders
other than U.S. persons may be subject to a different U.S. federal income tax
treatment, including withholding tax at the rate of 30% on amounts treated as
ordinary dividends from the Funds, as discussed in more detail in the
SAI.
For
further information about the tax effects of investing in the Funds, including
state and local tax matters, please see the SAI and consult your tax
advisor.
THE
TRUST
Each
Fund is a series of the Angel Oak Funds Trust (the “Trust”). The Trust’s
Declaration of Trust (the “Declaration of Trust”) provides for indemnification
and reimbursement of expenses out of a Fund’s assets for any shareholder held
personally liable for obligations of the Fund or the Trust. The Declaration of
Trust provides that the Trust shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of a Fund or the
Trust and satisfy any judgment thereon. All such rights are limited to the
assets of the applicable Fund(s). The Declaration of Trust further provides that
the Trust may maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of the Trust, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. However, the activities of the Trust as an investment
company would not likely give rise to liabilities in excess of the Trust’s total
assets. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance exists and the applicable Funds are unable to meet their obligations.
The Declaration of Trust also provides that shareholders of the Trust may not
bring derivative actions, unless certain conditions are met, including, among
other conditions: (i) shareholders make a pre-suit written demand upon the Board
to bring the action, (ii) shareholders owning shares representing at least a
majority of the outstanding applicable shares join the derivative action (except
with respect to claims arising under the federal securities laws), and (iii) the
Board is given a 30-day period to consider and investigate the request. In
addition, if the Board determines that such an action is not in the best
interest of the Trust or of a particular Fund or class, as applicable, then
(except with respect to claims arising under the federal securities laws) the
complaining shareholders may not bring the derivative action. In the event that
the Board determines that the action should be brought, such action shall be
brought directly by the Trust and not as a derivative action.
The
Declaration of Trust also provides that the Trust shall not in any way be
limited by any present or future law or custom in regard to investment by
fiduciaries. However, nothing in the Declaration of Trust that modifies or
restricts the duties or liabilities of the
Trust’s
trustees shall apply to, or in any way limit, their duties, including the state
law fiduciary duties of loyalty and care, or liabilities with respect to matters
arising under the federal securities laws.
APPENDIX
A—WAIVERS AND DISCOUNTS AVAILABLE FROM INTERMEDIARIES
(not
applicable to the UltraShort Income Fund)
The
availability of certain sales charge waivers and discounts will depend on
whether you purchase your shares directly with a Fund or through a financial
intermediary. Intermediaries may have different policies and procedures
regarding the availability of front-end sales load waivers or contingent
deferred (back-end) sales load (“CDSC”) waivers, which are discussed below. In
all instances, it is the purchaser’s responsibility to notify a Fund or the
purchaser’s financial intermediary at the time of purchase of any relationship
or other facts qualifying the purchaser for sales charge waivers or discounts.
The availability of certain initial or deferred sales charge waivers and
discounts may depend on the particular financial intermediary or type of account
through which you purchase or hold Fund shares. For waivers or discounts not
available through a particular financial intermediary described in this
Appendix
A,
investors will have to purchase Fund shares directly from the Funds (or the
Distributor) or through another intermediary to receive these waivers or
discounts.
Janney
Montgomery Scott LLC (“Janney”)
Effective
May 1, 2020, shareholders purchasing fund shares through a Janney Montgomery
Scott LLC (“Janney”) account will be eligible only for the following load
waivers (front-end sales charge waivers and contingent deferred, or back-end,
sales charge waivers) and discounts, which may differ from those disclosed
elsewhere in this fund’s Prospectus or SAI.
|
| |
Front-end
Sales Load Waivers on Class A Shares available at
Janney |
Shares
purchased through reinvestment of capital gains distributions and dividend
reinvestment when purchasing shares of the same fund (but not any other
fund within the fund family). |
Shares
purchased by employees and registered representatives of Janney or its
affiliates and their family members as designated by
Janney. |
Shares
purchased from the proceeds of redemptions within the same fund family,
provided (1) the repurchase occurs within ninety (90) days following the
redemption, (2) the redemption and purchase occur in the same account, and
(3) redeemed shares were subject to a front-end or deferred sales load
(i.e., right of reinstatement). |
Class
C shares that are no longer subject to a contingent deferred sales charge
and are converted to Class A shares of the same fund pursuant to Janney’s
policies and procedures. |
|
| |
Sales
Charge Waivers on Classes A and C Shares available at
Janney |
Shares
sold upon the death or disability of the shareholder. |
Shares
sold as part of a systematic withdrawal plan as described in the fund’s
Prospectus. |
Shares
purchased in connection with a return of excess contributions from an IRA
account. |
Shares
sold as part of a required minimum distribution for IRA and other
retirement accounts due to the shareholder reaching the qualified age
based on applicable Internal Revenue Service regulations as described in
the Fund’s Prospectus. |
Shares
sold to pay Janney fees but only if the transaction is initiated by
Janney. |
Shares
acquired through a right of
reinstatement. |
|
| |
Front-end
Sales Load Discounts available at Janney: Breakpoints and/or Rights of
Accumulation |
Breakpoints
as described in the Fund’s Prospectus. |
Rights
of accumulation (“ROA”), which entitle shareholders to breakpoint
discounts will be automatically calculated based on the aggregated holding
of fund family assets held by accounts within the purchaser’s household at
Janney. Eligible fund family assets not held at Janney may be included in
the ROA calculation only if the shareholder notifies his or her financial
advisor about such assets. |
Merrill
Lynch
Purchases
or sales of front-end (i.e. Class A) or level-load (i.e., Class C) mutual fund
shares through a Merrill platform or account will be eligible only for the
following sales load waivers (front-end, contingent deferred, or back-end
waivers) and discounts, which differ from those disclosed elsewhere in this
Fund's prospectus. Purchasers will have to buy mutual fund shares directly from
the mutual fund company or through another intermediary to be eligible for
waivers or discounts not listed below.
It
is the client's responsibility to notify Merrill at the time of purchase or sale
of any relationship or other facts that qualify the transaction for a waiver or
discount. A Merrill representative may ask for reasonable documentation of such
facts and Merrill may condition the granting of a waiver or discount on the
timely receipt of such documentation.
Additional
information on waivers and discounts is available in the Merrill Sales Load
Waiver and Discounts Supplement (the “Merrill SLWD Supplement”) and in the
Mutual Fund Investing at Merrill pamphlet at ml.com/funds. Clients are
encouraged to review these documents and speak with their financial advisor to
determine whether a transaction is eligible for a waiver or
discount.
|
| |
Front-end
Load Waivers Available at Merrill |
Shares
of mutual funds available for purchase by employer-sponsored retirement,
deferred compensation, and employee benefit plans (including health
savings accounts) and trusts used to fund those plans provided the shares
are not held in a commission-based brokerage account and shares are held
for the benefit of the plan. For purposes of this provision,
employer-sponsored retirement plans do not include SEP IRAs, Simple IRAs,
SAR-SEPs or Keogh plans |
Shares
purchased through a Merrill investment advisory program |
Brokerage
class shares exchanged from advisory class shares due to the holdings
moving from a Merrill investment advisory program to a Merrill brokerage
account |
Shares
purchased through the Merrill Edge Self-Directed
platform |
Shares
purchased through the systematic reinvestment of capital gains
distributions and dividend reinvestment when purchasing shares of the same
mutual fund in the same account |
Shares
exchanged from level-load shares to front-end load shares of the same
mutual fund in accordance with the description in the Merrill SLWD
Supplement |
Shares
purchased by eligible employees of Merrill or its affiliates and their
family members who purchase shares in accounts within the employee’s
Merrill Household (as defined in the Merrill SLWD
Supplement) |
Shares
purchased by eligible persons associated with the fund as defined in this
prospectus (e.g. the fund’s officers or trustees) |
Shares
purchased from the proceeds of a mutual fund redemption in front-end load
shares provided (1) the repurchase is in a mutual fund within the same
fund family; (2) the repurchase occurs within 90 calendar days from the
redemption trade date, and (3) the redemption and purchase occur in the
same account (known as Rights of Reinstatement). Automated transactions
(i.e. systematic purchases and withdrawals) and purchases made after
shares are automatically sold to pay Merrill’s account maintenance fees
are not eligible for Rights of
Reinstatement |
|
| |
Contingent
Deferred Sales Charge (“CDSC”) Waivers on Front-end, Back-end, and Level
Load Shares Available at Merrill
|
Shares
sold due to the client’s death or disability (as defined by Internal
Revenue Code Section 22(e)(3)) |
Shares
sold pursuant to a systematic withdrawal program subject to Merrill’s
maximum systematic withdrawal limits as described in the Merrill SLWD
Supplement |
Shares
sold due to return of excess contributions from an IRA
account |
Shares
sold as part of a required minimum distribution for IRA and retirement
accounts due to the investor reaching the qualified age based on
applicable IRS regulation |
Front-end
or level-load shares held in commission-based, non-taxable retirement
brokerage accounts (e.g. traditional, Roth, rollover, SEP IRAs, Simple
IRAs, SAR-SEPs or Keogh plans) that are transferred to fee-based accounts
or platforms and exchanged for a lower cost share class of the same mutual
fund |
|
Front-end
Load Discounts Available at Merrill: Breakpoints, Rights of Accumulation
& Letters of Intent |
Breakpoint
discounts, as described in this prospectus, where the sales load is at or
below the maximum sales load that Merrill permits to be assessed to a
front-end load purchase, as described in the Merrill SLWD
Supplement |
Rights
of Accumulation (ROA), as described in the Merrill SLWD Supplement, which
entitle clients to breakpoint discounts based on the aggregated holdings
of mutual fund family assets held in accounts in their Merrill
Household |
Letters
of Intent (LOI), which allow for breakpoint discounts on eligible new
purchases based on anticipated future eligible purchases within a fund
family at Merrill, in accounts within your Merrill Household, as further
described in the Merrill SLWD
Supplement |
Morgan
Stanley Wealth Management
Effective
July 1, 2018, shareholders purchasing Fund shares through a Morgan Stanley
Wealth Management transactional brokerage account will be eligible only for the
following front-end sales charge waivers with respect to Class A shares, which
may differ from and may be more limited than those disclosed elsewhere in the
Funds’ Prospectus or SAI.
|
| |
Front-end
Sales Load Waivers on Class A Shares available at Morgan Stanley Wealth
Management |
Employer-sponsored
retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b)
plans, profit sharing and money purchase pension plans, and defined
benefit plans). For purposes of this provision, employer-sponsored
retirement plans do not include SEP IRAs, Simple IRAs, SAR-SEPs, or Keogh
plans |
Morgan
Stanley employee and employee-related accounts according to Morgan
Stanley’s account linking rules |
Shares
purchased through reinvestment of dividends and capital gains
distributions when purchasing shares of the same Fund |
Shares
purchased through a Morgan Stanley self-directed brokerage
account |
Class
C (i.e., level-load) shares that are no longer subject to a contingent
deferred sales charge and are converted to Class A shares of the same Fund
pursuant to Morgan Stanley Wealth Management’s share class conversion
program |
Shares
purchased from the proceeds of redemptions within the same fund family,
provided (i) the repurchase occurs within 90 days following the
redemption, (ii) the redemption and purchase occur in the same account,
and (iii) redeemed shares were subject to a front-end or deferred sales
charge |
Raymond
James & Associates, Inc., Raymond James Financial Services, Inc. and each
entity’s affiliates (“Raymond James”)
Effective
March 1, 2019, shareholders purchasing fund shares through a Raymond James
platform or account, or through an introducing broker-dealer or independent
registered investment adviser for which Raymond James provides trade execution,
clearance, and/or custody services, will be eligible only for the following load
waivers (front-end sales charge waivers and contingent deferred, or back-end,
sales charge waivers) and discounts, which may differ from those disclosed
elsewhere in the Funds’ Prospectus or SAI.
|
| |
Front-end
Sales Load Waivers on Class A Shares available at Raymond
James |
Shares
purchased in an investment advisory program. |
Shares
purchased within the same fund family through a systematic reinvestment of
capital gains and dividend distributions. |
Employees
and registered representatives of Raymond James or its affiliates and
their family members as designated by Raymond James. |
Shares
purchased from the proceeds of redemptions within the same fund family,
provided (1) the repurchase occurs within 90 days following the
redemption, (2) the redemption and purchase occur in the same account, and
(3) redeemed shares were subject to a front-end or deferred sales load
(known as Rights of Reinstatement). |
A
shareholder in the Fund’s Class C shares will have their shares converted
at net asset value to Class A shares (or the appropriate share class) of
the Fund if the shares are no longer subject to a CDSC and the conversion
is in line with the policies and procedures of Raymond
James. |
|
| |
CDSC
Waivers on Classes A, B and C Shares available at Raymond
James |
Death
or disability of the shareholder. |
Shares
sold as part of a systematic withdrawal plan as described in the Funds’
Prospectus. |
Return
of excess contributions from an IRA Account. |
Shares
sold as part of a required minimum distribution for IRA and retirement
accounts due to the shareholder reaching the qualified age based on
applicable IRS regulations as described in the fund’s
prospectus. |
Shares
sold to pay Raymond James fees but only if the transaction is initiated by
Raymond James. |
Shares
acquired through a right of
reinstatement. |
|
| |
Front-end
Sales Load Discounts available at Raymond James: Breakpoints, Rights of
Accumulation, and/or Letters of Intent |
Breakpoints
as described in this prospectus. |
Rights
of accumulation which entitle shareholders to breakpoint discounts will be
automatically calculated based on the aggregated holding of fund family
assets held by accounts within the purchaser’s household at Raymond James.
Eligible fund family assets not held at Raymond James may be included in
the calculation of rights of accumulation only if the shareholder notifies
his or her financial advisor about such assets. |
Letters
of intent which allow for breakpoint discounts based on anticipated
purchases within a fund family, over a 13-month time period. Eligible fund
family assets not held at Raymond James may be included in the calculation
of letters of intent only if the shareholder notifies his or her financial
advisor about such assets. |
Oppenheimer
& Co. Inc. (“OPCO”)
Effective
May 31, 2021, shareholders purchasing Fund shares through an Oppenheimer &
Co. Inc. (“OPCO”) platform or account are eligible only for the following load
waivers (front-end sales charge waivers and contingent deferred, or back-end,
sales charge waivers) and discounts, which may differ from those disclosed
elsewhere in this Fund’s prospectus or SAI.
|
| |
Front-end
Sales Load Waivers on Class A Shares available at OPCO |
Employer-sponsored
retirement, deferred compensation and employee benefit plans (including
health savings accounts) and trusts used to fund those plans, provided
that the shares are not held in a commission-based brokerage account and
shares are held for the benefit of the plan. |
Shares
purchased by or through a 529 Plan. |
Shares
purchased through an OPCO affiliated investment advisory program.
|
Shares
purchased through reinvestment of capital gains distributions and dividend
reinvestment when purchasing shares of the same fund (but not any other
fund within the fund family). |
Shares
purchased from the proceeds of redemptions within the same fund family,
provided (1) the repurchase occurs within 90 days following the
redemption, (2) the redemption and purchase occur in the same account, and
(3) redeemed shares were subject to a front-end or deferred sales load
(known as Rights of Restatement). |
A
shareholder in the Fund’s Class C Shares will have their shares converted
at net asset value to Class A Shares (or the appropriate share class) of
the Fund if the shares are no longer subject to a CDSC and the conversion
is in line with the policies and procedures of OPCO. |
Employees
and registered representatives of OPCO or its affiliates and their family
members. |
Directors
or Trustees of the Fund, and employees of the Fund’s investment adviser or
any of its affiliates, as described in this prospectus.
|
|
| |
CDSC
Waivers on A, B and C Shares available at OPCO |
Death
or disability of the shareholder. |
Shares
sold as part of a systematic withdrawal plan as described in the Fund’s
Prospectus. |
Return
of excess contributions from an IRA account. |
Shares
sold as part of a required minimum distribution for IRA and retirement
accounts due to the shareholder reaching the qualified age based on
applicable IRS regulations as described in the
Prospectus. |
Shares
sold to pay OPCO fees but only if the transaction is initiated by
OPCO. |
Shares
acquired through a right of
reinstatement. |
|
| |
Front-end
Load Discounts available at OPCO: Breakpoints, Rights of Accumulation
& Letter of Intent |
Breakpoints
as described in this Prospectus. |
Rights
of Accumulation (ROA) which entitle shareholders to breakpoint discounts
will be automatically calculated based on the aggregated holding of fund
family assets held by accounts within the purchaser’s household at OPCO.
Eligible fund family assets not held at OPCO may be included in the ROA
calculation only if the shareholder notifies his or her financial advisor
about such assets. |
Robert
W. Baird & Co. (“Baird”)
Effective
June 15, 2020, shareholders purchasing fund shares through a Baird platform or
account will only be eligible for the following sales charge waivers (front-end
sales charge waivers and CDSC waivers) and discounts, which may differ from
those disclosed elsewhere in this Prospectus or the SAI.
|
| |
Front-End
Sales Charge Waivers on Class A shares Available at
Baird |
Shares
purchased through reinvestment of capital gains distributions and dividend
reinvestment when purchasing shares of the same Fund. |
Shares
purchased by employees and registered representatives of Baird or its
affiliate and their family members as designated by
Baird. |
Shares
purchased using the proceeds of redemptions from a Fund, provided (1) the
repurchase occurs within 90 days following the redemption, (2) the
redemption and purchase occur in the same accounts, and (3) redeemed
shares were subject to a front-end or deferred sales charge (known as
rights of reinstatement). |
A
shareholder in a Fund’s Class C Shares will have their share converted at
net asset value to Class A shares of the same Fund if the shares are no
longer subject to CDSC and the conversion is in line with the policies and
procedures of Baird. |
Employer-sponsored
retirement plans or charitable accounts in a transactional brokerage
account at Baird, including 401(k) plans, 457 plans, employer-sponsored
403(b) plans, profit sharing and money purchase pension plans and defined
benefit plans. For purposes of this provision, employer-sponsored
retirement plans do not include SEP IRAs, Simple IRAs or
SAR-SEPs. |
|
| |
CDSC
Waivers on Class A and C shares Available at Baird |
Shares
sold due to death or disability of the shareholder. |
Shares
sold as part of a systematic withdrawal plan as described in a Fund’s
Prospectus. |
Shares
bought due to returns of excess contributions from an IRA
Account. |
Shares
sold as part of a required minimum distribution for IRA and retirement
accounts due to the shareholder reaching the qualified age based on
applicable Internal Revenue Service regulations as described in a Fund’s
Prospectus. |
Shares
sold to pay Baird fees but only if the transaction is initiated by
Baird. |
Shares
acquired through a right of
reinstatement. |
|
| |
Front-End
Sales Charge Discounts Available at Baird: Breakpoints and/or Rights of
Accumulation |
Breakpoints
as described in this Prospectus. |
Rights
of accumulations which entitles shareholders to breakpoint discounts will
be automatically calculated based on the aggregated holding of Fund assets
held by accounts within the purchaser’s household at Baird. Eligible Fund
assets not held at Baird may be included in the rights of accumulations
calculation only if the shareholder notifies his or her financial advisor
about such assets. |
Letters
of Intent (LOI) allow for breakpoint discounts based on anticipated
purchases of Funds through Baird, over a 13-month period of
time. |
Stifel,
Nicolaus & Company, Incorporated (“Stifel”)
Effective
July 1, 2020, shareholders purchasing Fund shares through a Stifel platform or
account or who own shares for which Stifel or an affiliate is the broker-dealer
of record are eligible for the following additional sales charge waiver.
|
| |
Front-end
Sales Load Waivers on Class A Shares |
Class
C shares that have been held for more than seven (7) years will be
converted to Class A shares of the same Fund pursuant to Stifel’s policies
and procedures. |
FINANCIAL
HIGHLIGHTS
The
financial highlights tables are intended to help you understand the financial
performance of each Fund for the past 5 years or for the period of the
Fund’s operations if less than 5 years by showing the financial performance of
each available class of each Fund. Certain information reflects financial
results for a single Fund share. The financial highlights tables on the
following pages reflect selected per share data and ratios for a share
outstanding of the Fund throughout each period.
The
total returns in the tables represent the rate that an investor would have
earned (or lost) on an investment in the applicable Fund, assuming reinvestment
of all dividends and distributions. The information presented in the tables
below with respect to the Multi-Strategy Income Fund and UltraShort Income Fund
for the fiscal periods or years ended January 31 has been audited by Cohen &
Company, Ltd., an independent registered public accounting firm, whose report,
along with each such Fund’s financial statements, are included in the
annual
report
of the Funds, which is available upon request.
Angel
Oak Multi-Strategy Income Fund – Class A
Consolidated
Financial Highlights (a)
(For
a share outstanding during each year)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| For
the Year Ended January 31, |
|
| 2024 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
Selected
Per Share Data: |
|
|
|
|
|
|
|
|
| |
Net
asset value, beginning of year |
| $ |
8.63 |
|
| $ |
10.24 |
|
| $ |
10.43 |
|
| $ |
11.10 |
|
| $ |
11.04 |
|
Income
from investment operations: |
|
|
|
|
|
|
|
|
| |
Net
investment income (loss) |
| 0.49 |
|
| 0.48 |
|
| 0.47 |
|
| 0.46 |
|
| 0.50 |
|
Net
realized and unrealized gain (loss) on investments (b) |
| (0.13) |
|
| (1.62) |
|
| (0.19) |
|
| (0.68) |
|
| 0.06 |
|
Total
from investment operations |
| 0.36 |
|
| (1.14) |
|
| 0.28 |
|
| (0.22) |
|
| 0.56 |
|
Less
distributions to shareholders: |
|
|
|
|
|
|
|
|
| |
From
net investment income |
| (0.48) |
|
| (0.47) |
|
| (0.47) |
|
| (0.45) |
|
| (0.50) |
|
Total
distributions |
| (0.48) |
|
| (0.47) |
|
| (0.47) |
|
| (0.45) |
|
| (0.50) |
|
Net
asset value, end of year |
| $ |
8.51 |
|
| $ |
8.63 |
|
| $ |
10.24 |
|
| $ |
10.43 |
|
| $ |
11.10 |
|
Total
return (c)(d) |
| 4.38 |
% |
| -11.28 |
% |
| 2.71 |
% |
| -1.76 |
% |
| 5.08 |
% |
Ratios
and Supplemental Data: |
|
|
|
|
|
|
|
|
| |
Net
assets, end of year (000’s omitted) |
| $ |
133,198 |
|
| $ |
150,450 |
|
| $ |
335,439 |
|
| $ |
396,711 |
|
| $ |
496,114 |
|
Ratio
of expenses to average net assets before waiver and
reimbursement/recoupment (e) |
| 2.13 |
% |
| 1.79 |
% |
| 1.29 |
% |
| 1.40 |
% |
| 1.37 |
% |
Ratio
of expenses to average net assets before waiver and
reimbursement/recoupment excluding interest expense (e) |
| 1.26 |
% |
| 1.23 |
% |
| 1.20 |
% |
| 1.21 |
% |
| 1.20 |
% |
Ratio
of expenses to average net assets after waiver and
reimbursement/recoupment (e) |
| 2.11 |
% |
| 1.77 |
% |
| 1.28 |
% |
| 1.38 |
% |
| 1.36 |
% |
Ratio
of expenses to average net assets after wavier and
reimbursement/recoupment excluding interest expense (e) |
| 1.24 |
% |
| 1.21 |
% |
| 1.19 |
% |
| 1.19 |
% |
| 1.19 |
% |
Ratio
of net investment income (loss) to average net assets before waiver and
reimbursement/recoupment (e) |
| 5.78 |
% |
| 4.83 |
% |
| 4.42 |
% |
| 4.41 |
% |
| 4.46 |
% |
Ratio
of net investment income (loss) to average net assets after waiver and
reimbursement/recoupment (e) |
| 5.80 |
% |
| 4.85 |
% |
| 4.43 |
% |
| 4.43 |
% |
| 4.47 |
% |
Portfolio
turnover rate (d) |
| 32 |
% |
| 14 |
% |
| 56 |
% |
| 67 |
% |
| 63 |
% |
|
|
|
|
|
|
|
|
|
| |
(a) Financial
Highlights have been consolidated. |
(b) Net
realized and unrealized gain (loss) per share may include balancing
amounts necessary to reconcile the change in net asset value per share for
the year, and may not reconcile with the aggregate gain/(loss) in the
Statements of Operations due to share transactions for the
year. |
(c) Total
return does not include the effects of sales charges. |
(d) Not
annualized for periods less than one year. |
| |
(e) Annualized
for periods less than one year. |
| |
Angel
Oak Multi-Strategy Income Fund – Class C
Consolidated
Financial Highlights (a)
(For
a share outstanding during each year)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| For
the Year Ended January 31, |
|
| 2024 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
Selected
Per Share Data: |
|
|
|
|
|
|
|
|
| |
Net
asset value, beginning of year |
| $ |
8.54 |
|
| $ |
10.13 |
|
| $ |
10.34 |
|
| $ |
11.00 |
|
| $ |
10.95 |
|
Income
from investment operations: |
|
|
|
|
|
|
|
|
| |
Net
investment income (loss) |
| 0.43 |
|
| 0.39 |
|
| 0.38 |
|
| 0.37 |
|
| 0.41 |
|
Net
realized and unrealized gain (loss) on investments (b) |
| (0.14) |
|
| (1.58) |
|
| (0.20) |
|
| (0.66) |
|
| 0.06 |
|
Total
from investment operations |
| 0.29 |
|
| (1.19) |
|
| 0.18 |
|
| (0.29) |
|
| 0.47 |
|
Less
distributions to shareholders: |
|
|
|
|
|
|
|
|
| |
From
net investment income |
| (0.42) |
|
| (0.40) |
|
| (0.39) |
|
| (0.37) |
|
| (0.42) |
|
Total
distributions |
| (0.42) |
|
| (0.40) |
|
| (0.39) |
|
| (0.37) |
|
| (0.42) |
|
Net
asset value, end of year |
| $ |
8.41 |
|
| $ |
8.54 |
|
| $ |
10.13 |
|
| $ |
10.34 |
|
| $ |
11.00 |
|
Total
return (c)(d) |
| 3.51 |
% |
| -11.88 |
% |
| 1.78 |
% |
| -2.41 |
% |
| 4.27 |
% |
Ratios
and Supplemental Data: |
|
|
|
|
|
|
|
|
| |
Net
assets, end of year (000’s omitted) |
| $ |
33,868 |
|
| $ |
46,512 |
|
| $ |
71,445 |
|
| $ |
87,743 |
|
| $ |
116,328 |
|
Ratio
of expenses to average net assets before waiver and
reimbursement/recoupment (e) |
| 2.88 |
% |
| 2.54 |
% |
| 2.04 |
% |
| 2.15 |
% |
| 2.12 |
% |
Ratio
of expenses to average net assets before waiver and
reimbursement/recoupment excluding interest expense (e) |
| 2.01 |
% |
| 1.98 |
% |
| 1.95 |
|