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| Notes to Financial Statements |
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(Unaudited) March 31, 2023 |
1. Organization
DoubleLine Yield Opportunities Fund (the “Fund”) is organized as a non-diversified, limited term, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund was organized as a Massachusetts business trust on September 17,
2019 and commenced operations on February 26, 2020. The Fund is listed on the New York Stock Exchange (“NYSE”) under the symbol “DLY”. The Fund’s investment objective is to seek a high level of total return, with an
emphasis on current income.
The Fund has a limited term and intends to terminate as of the first business day following the twelfth anniversary of the
effective date of the Fund’s initial registration statement, February 25, 2032 (the “Dissolution Date”); provided that the Fund’s Board of Trustees (the “Board”) may, by a vote of the majority of the Board and
seventy-five percent (75%) of the Continuing Trustees, as such term is defined in the Fund’s Second Amended and Restated Agreement and Declaration of Trust (a “Board Action Vote”), without shareholder approval, extend the Dissolution
Date (i) once for up to one year, and (ii) once for up to an additional six months, to a date up to and including the eighteenth month after the initial Dissolution Date, which later date shall then become the Dissolution Date. At the
Dissolution Date, each holder of common shares of beneficial interest (“Common Shareholder”) would be paid a pro rata portion of the Fund’s net assets as determined as of the Dissolution Date. The Board may, by a Board Action Vote,
cause the Fund to conduct a tender offer, as of a date within twelve months preceding the Dissolution Date (as may be extended as described above), to all Common Shareholders to purchase 100% of the then outstanding common shares of the Fund at a
price equal to the net asset value (“NAV”) per common share on the expiration date of the tender offer (an “Eligible Tender Offer”). In an Eligible Tender Offer, the Fund will offer to purchase all Common Shares held by each
Common Shareholder; provided that if the number of properly tendered Common Shares would result in the Fund having aggregate net assets below $200 million (the “Dissolution Threshold”), the Eligible Tender Offer will be canceled, no
Common Shares will be repurchased pursuant to the Eligible Tender Offer, and the Fund will terminate as otherwise scheduled.
The fiscal year end for the
Fund is September 30, and the period covered by these Financial Statements is for the six months ended March 31, 2023 (the “period end”).
2. Significant Accounting Policies
The Fund is an investment company that applies the accounting and reporting guidance issued in Topic 946, “Financial Services— Investment
Companies”, by the Financial Accounting Standards Board (“FASB”). The following is a summary of the significant accounting policies of the Fund. These policies are in conformity with accounting principles generally accepted in the
United States of America (“US GAAP”).
A. Security Valuation. The Fund has adopted US GAAP fair value accounting standards which establish a definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the
various inputs and valuation techniques used to develop the measurements of fair value and a discussion of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:
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• |
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Level 1—Unadjusted quoted market prices in active markets for identical securities |
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• |
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Level 2—Quoted prices for identical or similar assets in markets that are not active, or inputs derived from
observable market data |
| |
• |
|
Level 3—Significant unobservable inputs (including the reporting entity’s estimates and assumptions)
|
Valuations for domestic and foreign fixed income securities are normally determined on the basis of evaluations provided by independent
pricing services. Vendors typically value such securities based on one or more inputs described in the following table which is not intended to be a complete list. The table provides examples of inputs that are commonly relevant for valuing
particular classes of fixed income securities in which the Fund is authorized to invest. However, these classifications are not exclusive, and any of the inputs may be used to value any other class of fixed-income securities. Securities that use
similar valuation techniques and inputs as described in the following table are categorized as Level 2 of the fair value hierarchy. To the extent the significant inputs are unobservable, the values generally would be categorized as
Level 3. Assets and liabilities may be transferred between levels.
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Semi-Annual Report |
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March 31, 2023 |
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21 |
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| Notes to Financial
Statements (Cont.) |
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| Fixed-income class |
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Examples of Inputs |
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| All |
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Benchmark yields, transactions, bids, offers, quotations from dealers and trading systems, new issues, spreads and other relationships observed in the markets among
comparable securities; and proprietary pricing models such as yield measures calculated using factors such as cash flows, financial or collateral performance and other reference data (collectively referred to as “standard
inputs”) |
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| Corporate bonds and notes;
convertible securities |
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Standard inputs and underlying equity of the issuer |
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| US bonds and notes of government and government
agencies |
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Standard inputs |
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| Residential and commercial mortgage-backed obligations;
asset-backed obligations (including collateralized loan obligations) |
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Standard inputs and cash flows, prepayment information, default rates, delinquency and loss assumptions, collateral characteristics, credit enhancements and specific deal
information, trustee reports |
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| Bank loans |
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Standard inputs |
Investments in registered open-end management investment companies will be valued based
upon the NAV of such investments and are categorized as Level 1 of the fair value hierarchy.
Common stocks, exchange-traded funds and financial
derivative instruments, such as futures contracts or options contracts, that are traded on a national securities or commodities exchange, are typically valued at the last reported sales price, in the case of common stocks and exchange-traded funds,
or, in the case of futures contracts or options contracts, the settlement price determined by the relevant exchange. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level 1
of the fair value hierarchy.
Over-the-counter financial derivative
instruments, such as forward currency exchange contracts, options contracts, or swap agreements, derive their values from underlying asset prices, indices, reference rates, other inputs or a combination of these factors. These instruments are
normally valued on the basis of evaluations provided by independent pricing services or broker dealer quotations. Depending on the instrument and the terms of the transaction, the value of the derivative instruments can be estimated by a pricing
service provider using a series of techniques, such as simulation pricing models. The pricing models use issuer details and other inputs that are observed from actively quoted markets such as indices, spreads, interest rates, curves, dividends and
exchange rates. Derivatives that use similar valuation techniques and inputs as described above are normally categorized as Level 2 of the fair value hierarchy.
The Fund’s holdings in whole loans, securitizations and certain other types of alternative lending-related instruments may be valued based on prices
provided by a third-party pricing service.
Senior secured floating rate loans for which an active secondary market exists to a reliable degree will be
valued at the mean of the last available bid/ask prices in the market for such loans, as provided by an independent pricing service. Where an active secondary market does not exist to a reliable degree in the judgment of DoubleLine Capital LP (the
“Adviser” or “DoubleLine Capital”), such loans will be valued at fair value based on certain factors.
In respect of certain commercial
real estate-related, residential real estate-related and certain other investments for which a limited market may exist, the Fund may value such investments based on appraisals conducted by an independent valuation advisor or a similar pricing
agent. However, an independent valuation firm may not be retained to undertake an evaluation of an asset unless the NAV, market price and other aspects of an investment exceed certain significance thresholds.
The Board of Trustees has adopted a pricing and valuation policy for use by the Fund and its Valuation Designee (as defined below) in calculating the Fund’s
NAV. Pursuant to Rule 2a-5 under the 1940 Act, the Fund has designated the Adviser as its “Valuation Designee” to perform all of the fair value determinations as well as to perform all of the
responsibilities that may be performed by the Valuation Designee in accordance with Rule 2a-5. The Valuation Designee is authorized to make all necessary determinations of the fair values of portfolio
securities and other assets for which market quotations are not readily available or if it is deemed that the prices obtained from brokers and dealers or independent pricing services are unreliable.
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| 22 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) March 31, 2023 |
The following is a
summary of the fair valuations according to the inputs used to value the Fund’s investments as of March 31, 2023:
|
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| Category |
|
|
|
|
|
|
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| Investments in Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Level 1 |
|
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|
|
|
|
|
|
|
|
|
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| Short Term Investments |
|
|
|
|
|
|
|
$ |
11,056,142 |
|
|
|
|
| Preferred Stocks |
|
|
|
|
|
|
|
|
7,804,000 |
|
|
|
|
| Real Estate Investment Trusts |
|
|
|
|
|
|
|
|
7,119,000 |
|
|
|
|
| Total Level 1 |
|
|
|
|
|
|
|
|
25,979,142 |
|
|
|
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| Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
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| Non-Agency Commercial Mortgage Backed Obligations |
|
|
|
|
|
|
|
$
|
201,353,494
|
|
|
|
|
| US Corporate Bonds |
|
|
|
|
|
|
|
|
143,200,974 |
|
|
|
|
| Non-Agency Residential Collateralized Mortgage
Obligations |
|
|
|
|
|
|
|
|
136,571,908 |
|
|
|
|
| Foreign Corporate Bonds |
|
|
|
|
|
|
|
|
133,943,121 |
|
|
|
|
| Collateralized Loan Obligations |
|
|
|
|
|
|
|
|
126,681,890 |
|
|
|
|
| Bank Loans |
|
|
|
|
|
|
|
|
82,485,463 |
|
|
|
|
| Foreign Government Bonds, Foreign Agencies and Foreign Government Sponsored Corporations |
|
|
|
|
|
|
|
|
19,568,182 |
|
|
|
|
| Asset Backed Obligations |
|
|
|
|
|
|
|
|
18,235,633 |
|
|
|
|
| US Government and Agency Mortgage Backed Obligations |
|
|
|
|
|
|
|
|
17,575,120 |
|
|
|
|
| Total Level 2 |
|
|
|
|
|
|
|
|
879,615,785 |
|
|
|
|
| Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset Backed Obligations |
|
|
|
|
|
|
|
$ |
6,731,876 |
|
|
|
|
| Collateralized Loan Obligations |
|
|
|
|
|
|
|
|
2,550,500 |
|
|
|
|
| Foreign Corporate Bonds |
|
|
|
|
|
|
|
|
48,264 |
|
|
|
|
| Preferred Stocks |
|
|
|
|
|
|
|
|
2,607 |
|
|
|
|
| Escrow Notes |
|
|
|
|
|
|
|
|
— |
|
|
|
|
| Total Level 3 |
|
|
|
|
|
|
|
|
9,333,247 |
|
|
|
|
| Total |
|
|
|
|
|
|
|
$ |
914,928,174 |
|
See the Schedule of Investments for further disaggregation of investment categories.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
|
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|
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|
|
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|
|
|
|
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|
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|
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| |
|
|
|
Fair Value as
of 9/30/2022 |
|
Net Realized
Gain (Loss) |
|
Net Change in
Unrealized
Appreciation
(Depreciation)(c) |
|
Net Accretion
(Amortization) |
|
Purchases(a) |
|
Sales(b) |
|
Transfers Into
Level 3(d) |
|
Transfers Out
of Level 3(d) |
|
Fair Value as of
3/31/2023 |
|
Net Change in
Unrealized
Appreciation
(Depreciation)
on
securities
held at
3/31/2023(c) |
| Investments in Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset Backed Obligations |
|
|
|
|
|
|
|
$ |
12,701,366 |
|
|
|
$ |
— |
|
|
|
$ |
(6,059,979 |
) |
|
|
$ |
— |
|
|
|
$ |
90,489 |
|
|
|
$ |
— |
|
|
|
$ |
— |
|
|
|
$ |
— |
|
|
|
$ |
6,731,876 |
|
|
|
$ |
(6,031,849 |
) |
| Collateralized Loan Obligations |
|
|
|
|
|
|
|
|
2,923,176 |
|
|
|
|
— |
|
|
|
|
(372,676 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
2,550,500 |
|
|
|
|
(372,676 |
) |
| Foreign Corporate Bonds |
|
|
|
|
|
|
|
|
— |
|
|
|
|
16,515 |
|
|
|
|
258,419 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(226,670 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
48,264 |
|
|
|
|
68,105 |
|
| Preferred Stocks |
|
|
|
|
|
|
|
|
10,223 |
|
|
|
|
— |
|
|
|
|
(7,616 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
2,607 |
|
|
|
|
(7,616 |
) |
| Escrow Notes |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
| Common Stocks |
|
|
|
|
|
|
|
|
234,840 |
|
|
|
|
(235,427 |
) |
|
|
|
246,465 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(245,878 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
| Total |
|
|
|
|
|
|
|
$ |
15,869,605 |
|
|
|
$ |
(218,912 |
) |
|
|
$ |
(5,935,387 |
) |
|
|
$ |
— |
|
|
|
$ |
90,489 |
|
|
|
$ |
(472,448 |
) |
|
|
$ |
— |
|
|
|
$ |
— |
|
|
|
$ |
9,333,247 |
|
|
|
$ |
(6,344,036 |
) |
| (a) |
Purchases include all purchases of securities, payups and corporate actions. |
| (b) |
Sales include all sales of securities, maturities, and paydowns. |
| (c) |
Any difference between Net Change in Unrealized Appreciation (Depreciation) and Net Change in Unrealized Appreciation (Depreciation) on securities held
at March 31, 2023 may be due to a security that was not held or categorized as Level 3 at either period end. |
| (d) |
Transfers into or out of Level 3 can be attributed to changes in the availability of pricing sources and/or in the
observability of significant inputs used to measure the fair value of those instruments. |
|
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|
|
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|
|
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|
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|
Semi-Annual Report |
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| |
|
March 31, 2023 |
|
23 |
|
|
|
| Notes to Financial
Statements (Cont.) |
|
|
The following is a summary of quantitative
information about Level 3 Fair Value Measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| |
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|
Fair Value as of
3/31/2023 |
|
Valuation
Techniques |
|
Unobservable
Input |
|
Unobservable Input Values
(Weighted Average)(e) |
|
Impact to valuation from an increase to input |
|
|
|
|
|
|
|
| Asset Backed Obligations |
|
|
|
|
|
|
|
$ |
6,731,876 |
|
|
Market Comparables |
|
Market Quotes |
|
|
|
$28.75-$15,323.35
($3,095.12 |
) |
|
Significant changes in the market quotes would have resulted in direct and proportional changes in the fair value of the security |
|
|
|
|
|
|
|
| Collateralized Loan Obligations |
|
|
|
|
|
|
|
$ |
2,550,500 |
|
|
Market Comparables |
|
Market Quotes |
|
|
|
$51.01 ($51.01 |
) |
|
Significant changes in the market quotes would have resulted in direct and proportional changes in the fair value of the security |
|
|
|
|
|
|
|
| Foreign Corporate Bonds |
|
|
|
|
|
|
|
$ |
48,264 |
|
|
Market Comparables |
|
Market Quotes |
|
|
|
$0.62-$1.38
($1.33 |
) |
|
Significant changes in the market quotes would have resulted in direct and proportional changes in the fair value of the security |
|
|
|
|
|
|
|
| Preferred Stocks |
|
|
|
|
|
|
|
$ |
2,607 |
|
|
Market Comparables |
|
Market Quotes |
|
|
|
$0.26 ($0.26 |
) |
|
Significant changes in the market quotes would have resulted in direct and proportional changes in the fair value of the security |
|
|
|
|
|
|
|
| Escrow Notes |
|
|
|
|
|
|
|
$ |
— |
|
|
Income Approach |
|
Expected Value |
|
|
|
$0.00 ($0.00 |
) |
|
Significant changes in the expected value would have resulted in direct changes in the fair value of the security |
| (e) |
Unobservable inputs were weighted by the relative fair value of the instruments.
|
B. Federal Income Taxes.
The Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all of its taxable income to its shareholders and otherwise comply with the provisions of Subchapter M of the Internal Revenue
Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies. Therefore, no provision for federal income taxes has been made.
The Fund may be subject to a nondeductible 4% excise tax calculated as a percentage of certain undistributed amounts of net investment income and net capital
gains.
The Fund has followed the authoritative guidance on accounting for and disclosure of uncertainty in tax positions, which requires the Fund to
determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Fund has determined that there was no
effect on the financial statements from following this authoritative guidance. In the normal course of business, the Fund is subject to examination by federal, state and local jurisdictions, where applicable, for tax years for which applicable
statutes of limitations have not expired. The Fund identifies its major tax jurisdictions as U.S. Federal, the Commonwealth of Massachusetts, the State of Florida and the State of California. The Fund’s tax returns are subject to examination by
relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return but which can be extended to six years in certain circumstances.
C. Security Transactions, Investment Income.
Investment securities transactions are accounted for on trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Interest income, including non-cash
interest, is recorded on an accrual basis. Discounts/premiums on debt securities purchased, which may include residual and subordinate notes, are accreted/amortized over the life of the respective securities using the effective interest method
except for certain deep discount bonds where management does not expect the par value above the bond’s cost to be fully realized. Dividend income and corporate action transactions, if any, are recorded on the
ex-date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of securities received. Paydown gains and losses on
mortgage-related and other asset-backed securities are recorded as components of interest income on the Statement of Operations.
D. Dividends and Distributions to Shareholders. Dividends from net investment income will be declared and paid monthly. The Fund will distribute
any net realized long or short-term capital gains at least annually. Distributions are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with income tax regulations which may differ from US GAAP. Permanent book and tax basis
differences relating to shareholder distributions will result in reclassifications between paid-in capital, undistributed (accumulated) net investment income (loss), and/or undistributed (accumulated) realized
gain (loss).
|
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| 24 |
|
DoubleLine Yield Opportunities Fund |
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|
|
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|
|
|
| |
|
(Unaudited) March 31, 2023 |
Undistributed
(accumulated) net investment income or loss may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or capital gain remaining at fiscal year end is distributed in the following year.
E. Use of Estimates. The preparation of financial
statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements,
as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
F. Share Valuation. The NAV per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and
other assets, minus all liabilities (including estimated accrued expenses), by the total number of shares outstanding, rounded to the nearest cent. The Fund’s NAV is typically calculated on days when the NYSE opens for regular trading.
G. Unfunded Loan Commitments. The Fund
may enter into certain credit agreements, of which all or a portion may be unfunded. As of March 31, 2023, the Fund had no unfunded positions.
The Fund may also enter into certain credit agreements designed to provide standby short term or “bridge” financing to a borrower. Typically the
borrower is not economically incented to draw on the bridge loan. The Fund is obligated to fund these commitments at the borrower’s discretion. At the end of the period, the Fund maintained with its custodian liquid investments having an
aggregate value at least equal to the par value of its unfunded loan commitments and bridge loans. As of March 31, 2023, the Fund had no outstanding bridge loan commitments.
H. Guarantees and Indemnifications. Under the
Fund’s organizational documents, each Trustee and officer of the Fund is indemnified, to the extent permitted by the 1940 Act, against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the
normal course of business, the Fund enters into contracts that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these contracts.
3. Related Party Transactions
The Adviser provides the Fund with investment management services under an Investment Management Agreement (the “Agreement”). Under the Agreement, the
Adviser manages the investment of the assets of the Fund, places orders for the purchase and sale of its portfolio securities and is responsible for providing certain resources to assist with the day-to-day management of the Fund’s business affairs. As compensation for its services, the Adviser is entitled to a monthly fee at the annual rate of 1.35% of the average daily total managed assets of
the Fund. Total managed assets means the total assets of the Fund (including assets attributable to any reverse repurchase agreements, dollar roll transactions or similar transactions, borrowings, and/or preferred shares that may be outstanding)
minus accrued liabilities (other than liabilities in respect of reverse repurchase agreements, dollar roll transactions or similar transactions, and borrowings). For purposes of calculating total managed assets, the liquidation preference of any
preferred shares outstanding shall not be considered a liability. DoubleLine Asset Management Company LLC, a wholly owned subsidiary of the Adviser, owned xx shares of the Fund as of the period end. The Adviser has arrangements with DoubleLine Group
LP to provide personnel and other resources to the Fund.
4. Purchases and Sales of Securities
For the period ended March 31, 2023, purchases and sales of investments, excluding U.S. Government securities and short term investments, were $43,046,510
and $67,036,343, respectively. There were no transactions in U.S. Government securities (defined as long-term U.S. Treasury bills, notes and bonds) during the period.
5. Income Tax Information
The tax character of distributions for the Fund was as follows:
|
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|
| |
|
|
|
Period
Ended March 31,
2023 |
|
Year Ended
September 30, 2022 |
|
|
|
|
| Distributions Paid From: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ordinary Income |
|
|
|
|
|
|
|
$ |
33,571,635 |
|
|
|
$ |
64,251,930 |
|
|
|
|
|
| Return of Capital |
|
|
|
|
|
|
|
|
— |
|
|
|
|
2,891,339 |
|
|
|
|
|
| Total Distributions Paid |
|
|
|
|
|
|
|
$ |
33,571,635 |
|
|
|
$ |
67,143,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report |
|
| |
|
March 31, 2023 |
|
25 |
|
|
|
| Notes to Financial
Statements (Cont.) |
|
|
The amount and character of tax-basis distributions and composition of net assets, including undistributed (accumulated) net investment income (loss), are finalized at fiscal year-end; accordingly, tax-basis balances have not been determined as of the date of this report.
The cost basis of investments for federal
income tax purposes as of September 30, 2022, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tax Cost of Investments |
|
|
|
|
|
|
|
$ |
1,134,116,680 |
|
|
|
|
| Gross Tax Unrealized Appreciation |
|
|
|
|
|
|
|
|
20,002,065 |
|
|
|
|
| Gross Tax Unrealized Depreciation |
|
|
|
|
|
|
|
|
(215,436,420 |
) |
|
|
|
| Net Tax Unrealized Appreciation (Depreciation) |
|
|
|
|
|
|
|
|
(195,434,355 |
) |
As of September 30, 2022, the components of accumulated earnings (losses) for income tax purposes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Tax Unrealized Appreciation (Depreciation) |
|
|
|
|
|
|
|
$ |
(195,434,355 |
) |
|
|
|
| Other Accumulated Gains (Loss) |
|
|
|
|
|
|
|
|
(23,785,974 |
) |
|
|
|
| Total Accumulated Earnings (Loss) |
|
|
|
|
|
|
|
|
(219,220,329 |
) |
As of September 30, 2022, $23,570,308 was available as a capital loss carryforward.
The Fund may elect to defer to the first day of the next taxable year all or part of any late-year ordinary loss or post-October capital loss. As of
September 30, 2022, the Fund deferred, on a tax basis, qualified late year losses of $0.
Additionally, US GAAP requires that certain components of
net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or NAV per share. The permanent differences primarily relate to paydown losses, swaps, market
discount and return of capital. For the year ended September 30, 2022, the following table shows the reclassifications made:
|
|
|
|
|
|
|
|
|
|
|
| Paid-in Capital |
|
Total
Distributable
Earnings (Loss) |
|
|
| |
|
$(3,308,724) |
|
|
|
$ |
3,308,724 |
|
If the Fund estimates that a portion of its regular distributions to shareholders may be comprised of amounts from sources other
than net investment income, as determined in accordance with the Fund’s policies and practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. For these purposes, the Fund
estimates the source or sources from which a distribution is paid, to the close of the period as of which it is paid, in reference to its expected tax character. It is important to note that differences exist between the Fund’s daily internal
accounting records and practices, the Fund’s financial statements presented in accordance with US GAAP, and recordkeeping practices under income tax regulations. It is possible that the Fund may not issue a Section 19 Notice in
situations where the Fund’s financial statements prepared later and in accordance with US GAAP might later report that the sources of those distributions included capital gains and/or a return of capital. Please visit https://doubleline.com/closed-end-funds/ for the most recent Section 19 Notice, if applicable. Information provided to you on a Section 19 notice is an estimate only
and subject to change; final determination of a distribution’s tax character will be reported on Form 1099 DIV sent to shareholders for the calendar year.
6. Share Transactions
For the period ended March 31, 2023 or the year ended September 30, 2022, the Fund did not have any share transactions.
7. Trustees Fees
Trustees who are not affiliated with the Adviser and its affiliates received, as a group, fees of $49,458 from the Fund during the period ended March 31,
2023. These trustees may elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the Fund, are treated as if invested in shares of the Fund or other funds managed by the Adviser
and its affiliates. These amounts represent general, unsecured liabilities of the Fund and vary according to the total returns of the selected funds. Trustees Fees in the Fund’s Statement of Operations are shown as $49,458 which includes
$55,405 in current fees (either paid in cash or deferred) and a decrease of $5,947 in the value of the deferred amounts. Certain trustees and officers of the Fund are also officers of the Adviser; such trustees and officers are not compensated by
the Fund.
|
|
|
|
|
|
|
|
|
|
|
| 26 |
|
DoubleLine Yield Opportunities Fund |
|
|
|
|
|
|
|
|
|
|
|
| |
|
(Unaudited) March 31, 2023 |
8. Bank Loans
The Fund
may make loans directly to borrowers and may acquire or invest in loans made by others (“loans”). The Fund may acquire a loan interest directly by acting as a member of the original lending syndicate. Alternatively, the Fund may acquire
some or all of the interest of a bank or other lending institution in a loan to a particular borrower by means of a novation, an assignment or a participation. The loans in which the Fund may invest include those that pay fixed rates of interest and
those that pay floating rates—i.e., rates that adjust periodically by reference to a base lending rate, plus a spread. These base lending rates are primarily the London Interbank Offered Rate (LIBOR) or the Secured Overnight Financing
Rate (SOFR) and secondarily, the prime rate offered by one or more major United States banks (the Prime Rate). Base lending rates may be subject to a floor, or minimum rate. Rates for SOFR are generally 1 or 3-month tenors and may also be subject to
a credit spread adjustment. The Fund may purchase and sell interests in bank loans on a when-issued and delayed delivery basis, with payment delivery scheduled for a future date.
Securities purchased on a delayed delivery basis are marked-to-market daily and no income accrues to the Fund prior to the date the Fund actually takes delivery
of such securities. These transactions are subject to market fluctuations and are subject, among other risks, to the risk that the value at delivery may be more or less than the trade purchase price.
9. Credit Facility
Prior to February 27, 2023, U.S. Bank, National Association (the “Bank”) made available to the Fund a $300,000,000 revolving credit facility and a
$50,000,000 term loan. Interest was charged at the rate of one-month daily two-day lag secured overnight financing rate (“SOFR”) plus 0.10% plus 1.10% (applicable margin), subject to certain conditions that may cause the rate of interest
to increase. This rate represented a floating rate of interest that may change over time. The Fund was also responsible for paying a non-usage fee (“commitment fee”) of 0.25% if the exposure is less than 75% of the commitment amount and
0.125% if the exposure is 75% or greater of the commitment amount.
On February 27, 2023, the credit agreement between the Bank and the Fund was amended.
Under terms of the amended agreement, the Bank has made available to the Fund a $150,000,000 committed credit facility and a $100,000,000 term loan (together, the “credit facility”) to February 26, 2024, subject to earlier termination in
accordance with its terms. Under the amended agreement, interest is charged at the rate of one-month daily SOFR plus 0.10% plus 1.15% (applicable margin). This rate represents a floating rate of interest that may change over time.
The Fund pledges its assets as collateral to secure obligations under the credit facility. The Fund retains the risk and rewards of the ownership of assets
pledged to secure obligations under the credit facility. As of March 31, 2023, the amount of total outstanding borrowings was $185,000,000 which approximates fair value. The borrowings are categorized as Level 2 within the fair value
hierarchy.
For the period ended March 31, 2023, the Fund’s activity under the credit facility was as follows:
|
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|
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|
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|
|
Maximum
Amount Available |
|
Average
Borrowings |
|
Maximum
Amount
Outstanding |
|
Interest
Expense |
|
Commitment
Fee |
|
Average
Interest
Rate |
|
|
|
|
|
|
| |
|
$250,000,000 |
|
|
|
$ |
195,329,670 |
|
|
|
$ |
225,000,000 |
|
|
|
$ |
5,330,038 |
|
|
|
$ |
172,569 |
|
|
|
|
5.43% |
|
10. Principal Risks
Below are summaries of some, but not all, of the principal risks of investing in the Fund, each of which could adversely affect the Fund’s NAV, market price,
yield, and total return. The Fund’s prospectus provided additional information regarding these and other risks of investing in the Fund at the time of the initial public offering of the Fund’s shares.
| |
• |
|
Limited prior history: The Fund is a newly organized,
non-diversified, limited term closed-end management investment company with a limited history of operations and is subject to all of the business risks and uncertainties
associated with any new business. |
| |
• |
|
Market discount risk: The price of the Fund’s common shares will fluctuate with market
conditions and other factors. Shares of closed-end management investment companies frequently trade at a discount from their net asset value. |
| |
• |
|
Limited term and tender offer risk: Unless the limited term provision of the Fund’s
Declaration of Trust is amended by shareholders in accordance with the Declaration of Trust, or unless the Fund completes a tender offer and converts to perpetual existence, the Fund will terminate on or about February 25, 2032 (the
“Dissolution Date”). The Fund is not a so called “target date” or “life cycle” fund whose asset allocation becomes more conservative over time as its target date, often associated with retirement, approaches. Because
the assets of the Fund will be liquidated in connection with the dissolution, the Fund will incur transaction costs in connection with dispositions of portfolio securities. The Fund does not limit its
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report |
|
| |
|
March 31, 2023 |
|
27 |
|
|
|
| Notes to Financial
Statements (Cont.) |
|
|
| |
investments to securities having a maturity date prior to the Dissolution Date and may be required to sell portfolio securities when it otherwise would not, including at times when market
conditions are not favorable, which may cause the Fund to lose money. |
| |
• |
|
Leverage risk: Leverage is a speculative technique that may expose the Fund to greater risk
and increased costs. When leverage is used, the NAV and market price of the Common Shares and the investment return to Common Shareholders will likely be more volatile. There can be no assurance that a leveraging strategy will be used by the Fund or
that it will be successful. |
| |
• |
|
Liquidity risk: the risk that the Fund may be unable to sell a portfolio investment at a
desirable time or at the value the Fund has placed on the investment. |
| |
• |
|
Portfolio management risk: the risk that an investment strategy may fail to produce the
intended results or that the securities held by the Fund will underperform other comparable funds because of the portfolio managers’ choice of investments. |
| |
• |
|
Valuation risk: the risk that the Fund will not value its investments in a manner that
accurately reflects their market values or that the Fund will not be able to sell any investment at a price equal to the valuation ascribed to that investment for purposes of calculating the Fund’s net asset value. The valuation of the
Fund’s investments involves subjective judgment and some valuations may involve assumptions, projections, opinions, discount rates, estimated data points and other uncertain or subjective amounts, all of which may prove inaccurate. In addition,
the valuation of certain investments held by the Fund may involve the significant use of unobservable and non-market inputs. Certain securities in which the Fund may invest may be more difficult to value
accurately, especially during periods of market disruptions or extreme market volatility. |
| |
• |
|
Investment and market risk: the risk that markets will perform poorly or that the returns
from the securities in which the Fund invests will underperform returns from the general securities markets or other types of investments. Markets may, in response to governmental actions or intervention or general market conditions, including real
or perceived adverse, political, economic or market conditions, tariffs and trade disruptions, inflation, recession, changes in interest or currency rates, lack of liquidity in the bond markets or adverse investor sentiment, or other external
factors, experience periods of high volatility and reduced liquidity. Certain securities may be difficult to value during such periods. The value of securities and other instruments traded in over-the-counter markets, like other market investments, may move up or down, sometimes rapidly and unpredictably. Further, the value of securities and other instruments held by the Fund may decline in value
due to factors affecting securities markets generally or particular industries. Recently, there have been inflationary price movements. As such, fixed income securities markets may experience heightened levels of interest rate volatility and
liquidity risk. The U.S. Federal Reserve has been raising interest rates from historically low levels and may continue to raise interest rates. Any additional interest rate increases in the future could cause the value of the Fund’s holdings to
decrease. |
| |
• |
|
Issuer non-diversification risk: as a non-diversified fund, the Fund may invest its assets in a smaller number of issuers than may a diversified fund. Accordingly, the Fund may be more susceptible to any single economic, political, or regulatory
occurrence than a diversified fund investing in a broader range of issuers. A decline in the market value of one of the Fund’s investments may affect the Fund’s value more than if the Fund were a diversified fund. Some of the issuers in
which the Fund invests also may present substantial credit or other risks. The Fund will be subject to similar risks to the extent that it enters into derivatives transactions with a limited number of counterparties. |
| |
• |
|
Credit risk: the risk that an issuer or counterparty will fail to pay its obligations to
the Fund when they are due. The Fund’s income might be reduced and the value of the investment might fall or be lost entirely. Changes in the financial condition of an issuer or counterparty, changes in specific economic, social or political
conditions that affect a particular type of security, other instrument or an issuer, and changes in economic, social or political conditions generally can increase the risk of default by an issuer or counterparty, which can affect a security’s
or other instrument’s credit quality or value and an issuer’s or counterparty’s ability to pay interest and principal when due. The values of lower-quality debt securities (including debt securities commonly referred to as “high
yield” securities and “junk” bonds) and floating rate loans, tend to be particularly sensitive to these changes. The values of securities also may decline for a number of other reasons that relate directly to the issuer, such as
management performance, financial leverage and reduced demand for the issuer’s goods and services, as well as the historical and prospective earnings of the issuer and the value of its assets. |
| |
• |
|
Interest rate risk: Interest rate risk is the risk that debt instruments will change in
value because of changes in interest rates. The value of an instrument with a longer duration (whether positive or negative) will be more sensitive to changes in interest rates than a similar instrument with a shorter duration.
|
|
|
|
|
|
|
|
|
|
|
|
| 28 |
|
DoubleLine Yield Opportunities Fund |
|
|
|
|
|
|
|
|
|
|
|
| |
|
(Unaudited) March 31, 2023 |
| |
• |
|
Debt securities risk: In addition to certain of the other risks described herein such as
interest rate risk and credit risk, debt securities generally also are subject to the following risks: |
| |
° |
|
Redemption risk: Debt securities sometimes contain provisions that allow for redemption in
the event of tax or security law changes in addition to call features at the option of the issuer. In the event of a redemption, the Fund may not be able to reinvest the proceeds at comparable rates of return. |
| |
° |
|
Extension risk: the risk that if interest rates rise, repayments of principal on certain
debt securities, including, but not limited to, floating rate loans and mortgage-related securities, may occur at a slower rate than expected and the expected maturity of those securities could lengthen as a result. Securities that are subject to
extension risk generally have a greater potential for loss when prevailing interest rates rise, which could cause their values to fall sharply. |
| |
° |
|
Spread risk: Wider credit spreads and decreasing market values typically represent a
deterioration of the debt security’s credit soundness and a perceived greater likelihood or risk of default by the issuer. |
| |
° |
|
Limited voting rights: Debt securities typically do not provide any voting rights, except
in some cases when interest payments have not been made and the issuer is in default. Even in such cases, such rights may be limited to the terms of the debenture or other agreements. |
| |
° |
|
Prepayment/reinvestment risk: the risk that income may decline when the Fund invests
proceeds from investment income, sales of portfolio securities or matured, traded, pre-paid or called debt obligations, negatively effecting dividend levels and market price, NAV and/or overall return of the
common shares. |
| |
° |
|
LIBOR phase out/transition risk: LIBOR is the offered rate for wholesale, unsecured funding
available to major international banks. The terms of many investments, financings or other transactions to which the Fund may be a party have been historically tied to LIBOR. LIBOR may also be a significant factor in relation to payment obligations
under a derivative investment and may be used in other ways that affect the Fund’s investment performance. LIBOR is currently in the process of being phased out. The transition from LIBOR and the terms of any replacement rate(s), including, for
example, SOFR or another rate based on SOFR, may adversely affect transactions that use LIBOR as a reference rate, financial institutions that engage in such transactions, and the financial markets generally. There are significant differences
between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate. As such, the transition away from LIBOR may adversely affect the Fund’s performance. |
| |
• |
|
Mortgage-backed securities risks: include the risks that borrowers may default on their
mortgage obligations or the guarantees underlying the mortgage-backed securities will default or otherwise fail and that, during periods of falling interest rates, mortgage-backed securities will be called or prepaid, which may result in the Fund
having to reinvest proceeds in other investments at a lower interest rate. During periods of rising interest rates, the average life of a mortgage- backed security may extend, which may lock in a below-market interest rate, increase the
security’s duration, and reduce the value of the security. Enforcing rights against the underlying assets or collateral may be difficult, or the underlying assets or collateral may be insufficient if the issuer defaults. The values of certain
types of mortgage-backed securities, such as inverse floaters and interest-only and principal-only securities, may be extremely sensitive to changes in interest rates and prepayment rates. The Fund may invest in mortgage-backed securities that are
subordinate in their right to receive payment of interest and repayment of principal to other classes of the issuer’s securities. |
| |
• |
|
Foreign investment risk: the risk that investments in foreign securities or in issuers with
significant exposure to foreign markets, as compared to investments in U.S. securities or in issuers with predominantly domestic market exposure, may be more vulnerable to economic, political, and social instability and subject to less government
supervision, less protective custody practices, lack of transparency, inadequate regulatory and accounting standards, delayed or infrequent settlement of transactions, and foreign taxes. If the Fund buys securities denominated in a foreign currency,
receives income in foreign currencies or holds foreign currencies from time to time, the value of the Fund’s assets, as measured in U.S. dollars, can be affected unfavorably by changes in exchange rates relative to the U.S. dollar or with
respect to other foreign currencies. Foreign markets are also subject to the risk that a foreign government could restrict foreign exchange transactions or otherwise implement unfavorable currency regulations. In addition, foreign securities may be
subject to currency exchange rates or regulations, the imposition of economic sanctions, tariffs or other government restrictions, higher transaction and other costs, reduced liquidity, and delays in settlement. |
| |
• |
|
Foreign currency risk: the risk that fluctuations in exchange rates may adversely affect
the value of the Fund’s investments denominated in foreign currencies. |
| |
• |
|
Emerging markets risk: the risk that investing in emerging markets, as compared to foreign
developed markets, increases the likelihood that the Fund will lose money, due to more limited information about the issuer and/or the security; higher |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report |
|
| |
|
March 31, 2023 |
|
29 |
|
|
|
| Notes to Financial
Statements (Cont.) |
|
|
| |
brokerage costs; different accounting, auditing and financial reporting standards; less developed legal systems; fewer investor protections; less regulatory oversight; thinner trading markets;
the possibility of currency blockages or transfer restrictions; an emerging market country’s dependence on revenue from particular commodities or international aid; and the risk of expropriation, nationalization or other adverse political or
economic developments. |
| |
• |
|
Collateralized debt obligations (“CDOs”) risk: the risks of an investment in a
collateralized debt obligation (“CDO”) depend largely on the quality and type of the collateral and the tranche of the CDO in which the Fund invests. Normally, collateralized bond obligations (“CBOs”), collateralized loan
obligations (“CLOs”) and other CDOs are privately offered and sold, and thus are not registered under the securities laws. As a result, investments in CDOs may be illiquid. In addition to the risks associated with debt instruments
(e.g., interest rate risk and credit risk), CDOs carry additional risks including, but not limited to: (i) the possibility that distributions from collateral will not be adequate to make interest or other payments; (ii) the quality
of the collateral may decline in value or default; (iii) the possibility that the Fund may invest in CDOs that are subordinate to other classes of the issuer’s securities; and (iv) the complex structure of the security may not be
fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results. |
| |
• |
|
Asset-backed securities investment risk: Asset-backed securities involve the risk that
borrowers may default on the obligations backing them and that the values of and interest earned on such investments will decline as a result. Loans made to lower quality borrowers, including those of
sub-prime quality, involve a higher risk of default. |
| |
• |
|
Credit default swaps risk: Credit default swaps provide exposure to one or more reference
obligations but involve greater risks than investing in the reference obligation directly, and expose the Fund to liquidity risk, counterparty risk and credit risk. A buyer of a credit default swap will lose its investment and recover nothing should
no event of default occur. When the Fund acts as a seller of a credit default swap, it is exposed to many of the same risks of leverage described herein since if an event of default occurs the seller must pay the buyer the full notional value of the
reference obligation(s). |
| |
• |
|
U.S. Government securities risk: the risk that debt securities issued or guaranteed by
certain U.S. Government agencies, instrumentalities, and sponsored enterprises are not supported by the full faith and credit of the U.S. Government, and so investments in their securities or obligations issued by them involve greater risk than
investments in other types of U.S. Government securities. |
| |
• |
|
Sovereign debt obligations risk: the risk that investments in debt obligations of sovereign
governments may lose value due to the government entity’s unwillingness or inability to repay principal and interest when due in accordance with the terms of the debt or otherwise in a timely manner. |
| |
• |
|
Loan risk: the risk that (i) if the Fund holds a loan through another financial
institution, or relies on a financial institution to administer the loan, its receipt of principal and interest on the loan may be subject to the credit risk of that financial institution; (ii) any collateral securing a loan may be insufficient
or unavailable to the Fund because, for example, the value of the collateral securing a loan can decline, be insufficient to meet the obligations of the borrower, or be difficult to liquidate, and the Fund’s rights to collateral may be limited
by bankruptcy or insolvency laws; (iii) investments in highly leveraged loans or loans of stressed, distressed, or defaulted issuers may be subject to significant credit and liquidity risk; (iv) a bankruptcy or other court proceeding could
delay or limit the ability of the Fund to collect the principal and interest payments on that borrower’s loans or adversely affect the Fund’s rights in collateral relating to a loan; (v) there may be limited public information
available regarding the loan and the relevant borrower(s); (vi) the use of a particular interest rate benchmark, such as LIBOR (or any comparable successor or alternative benchmark), may limit the Fund’s ability to achieve a net return to
shareholders that consistently approximates the average published Prime Rate of U.S. banks; (vii) the prices of certain floating rate loans that include a feature that prevents their interest rates from adjusting if market interest rates are
below a specified minimum level may appreciate less than other instruments in response to changes in interest rates should interest rates rise but remain below the applicable minimum level; (viii) if a borrower fails to comply with various
restrictive covenants that may be found in loan agreements, the borrower may default in payment of the loan; (ix) if the Fund invests in loans that contain fewer or less restrictive constraints on the borrower than certain other types of loans
(“covenant lite” loans), it may have fewer rights against the borrowers of such loans, including fewer protections against the possibility of default and fewer remedies in the event of default; (x) the loan is unsecured;
(xi) there is a limited secondary market; (xii) transactions in loans may settle on a delayed basis, and the Fund may not receive the proceeds from the sale of a loan for a substantial period of time after the sale, which may result in
sale proceeds related to the sale of loans not being available to make additional investments or to meet the Fund’s redemption obligations until potentially a substantial period after the sale of the loans; (xiii) loans may be difficult to
value and may be illiquid, which may adversely affect an investment in the Fund. Investments in loans through a purchase of a loan, loan origination or a direct assignment of a financial institution’s interests with respect to a loan may
involve additional risks to the Fund. For example, if a loan is foreclosed, the Fund could become owner, in whole or in part, of any collateral, which could include, among other assets, real estate or
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DoubleLine Yield Opportunities Fund |
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(Unaudited) March 31, 2023 |
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other real or personal property, and would bear the costs and liabilities associated with owning and holding or disposing of the collateral. In addition, it is conceivable that under emerging
legal theories of lender liability, the Fund as holder of a partial interest in a loan could be held liable as co-lender for acts of the agent lender. |
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Below investment grade/high yield securities risk: Debt instruments rated below investment
grade or debt instruments that are unrated and of comparable or lesser quality are predominantly speculative. These instruments, commonly known as “junk bonds,” have a higher degree of default risk and may be less liquid than higher-rated
bonds. These instruments may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of high yield investments generally, general economic downturn, and less
secondary market liquidity. |
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Defaulted securities risk: the significant risk of the uncertainty of repayment of
defaulted securities (e.g., a security on which a principal or interest payment is not made when due) and obligations of distressed issuers. Because the issuer of such securities is in default and is likely to be in distressed financial condition,
repayment of defaulted securities and obligations of distressed issuers (including insolvent issuers or issuers in payment or covenant default, in workout or restructuring or in bankruptcy or insolvency proceedings) is subject to significant
uncertainties. |
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Real estate risk: the risk that real estate-related investments may decline in value as a
result of factors affecting the real estate sector, such as the supply of real property in certain markets, changes in zoning laws, delays in completion of construction, changes in real estate values, changes in property taxes, levels of occupancy,
and local and regional and general market conditions. Along with the risks common to different types of real estate-related investments, real estate investment trusts (“REITs”), no matter the type, involve additional risk factors,
including poor performance by the REIT’s manager, adverse changes to the tax laws, and the possible failure by the REIT to qualify for the favorable tax treatment available to REITs under the Internal Revenue Code, or the exemption from
registration under the 1940 Act. REITs are not diversified and are heavily dependent on cash flow earned on the property interests they hold. |
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Derivatives risk: the risk that an investment in derivatives will not perform as
anticipated by the Adviser, may not be available at the time or price desired, cannot be closed out at a favorable time or price, will increase the Fund’s transaction costs, or will increase the Fund’s volatility; that derivatives may
create investment leverage; that, when a derivative is used as a substitute for or alternative to a direct cash investment, the transaction may not provide a return that corresponds precisely or at all with that of the cash investment; that the
positions may be improperly executed or constructed; that the Fund’s counterparty will be unable or unwilling to perform its obligations; or that, when used for hedging purposes, derivatives will not provide the anticipated protection, causing
the Fund to lose money on both the derivatives transaction and the exposure the Fund sought to hedge. Recent changes in regulation relating to the Fund’s use of derivatives and related instruments could potentially limit or impact the
Fund’s ability to invest in derivatives, limit the Fund’s ability to employ certain strategies that use derivatives and/or adversely affect the value of derivatives and the Fund’s performance. ICE Benchmark Administration, the
administrator of LIBOR, ceased publication of most LIBOR settings on a representative basis at the end of 2021 and is expected to cease publication of a majority of the U.S. dollar LIBOR settings on a representative basis after June 30, 2023.
There remains uncertainty regarding the future utilization of LIBOR and the nature of any replacement rate. As such, the potential effect of a transition away from LIBOR on the Fund or the financial instruments in which the Fund invests cannot yet
be determined. |
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Counterparty risk: the risk that the Fund will be subject to credit risk presented with
respect to the counterparties to derivative contracts and other instruments, such as repurchase and reverse repurchase agreements, entered into directly by the Fund or held by special purpose or structured vehicles in which the Fund invests; that
the Fund’s counterparty will be unable or unwilling to perform its obligations; that the Fund will be unable to enforce contractual remedies if its counterparty defaults; that if a counterparty (or an affiliate of a counterparty) becomes
bankrupt, the Fund may experience significant delays in obtaining any recovery under the derivative contract or may obtain limited or no recovery in a bankruptcy or other insolvency proceeding. To the extent that the Fund enters into multiple
transactions with a single or a small set of counterparties, it will be subject to increased counterparty risk. |
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Unrated securities risk: 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 and value. Some or all of the unrated instruments in which the Fund may invest will involve credit risk comparable to or
greater than that of rated debt securities of below investment grade quality. |
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Structured products and structured notes risk: the risk that an investment in a structured
product, which includes, among other things, CDOs, mortgage-backed securities, other types of asset-backed securities and certain types of structured notes, may decline in value due to changes in the underlying instruments, indexes, interest rates
or other factors on which the product is based (“reference measure”). Depending on the reference measure used and the use of multipliers or deflators |
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| Notes to Financial
Statements (Cont.) |
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(if any), changes in interest rates and movement of the reference measure may cause significant price and cash flow fluctuations. 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 underlying investments will not be adequate to make interest or other payments; (ii) the
quality of the underlying investments may decline in value or default; (iii) the possibility that the security may be subordinate to other classes of the issuer’s securities; (iv) the complex structure of the security may not be fully
understood at the time of investment and may produce disputes with the issuer or unexpected investment results; and (v) because the structured products are generally privately offered and sold, they may be thinly traded or have a limited
trading market, which may increase the Fund’s illiquidity and reduce the Fund’s income and the value of the investment, and the Fund may be unable to find qualified buyers for these securities. |
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Issuer risk: Issuer risk is the risk that the market price of securities may go up or down,
sometimes rapidly or unpredictably, including due to factors affecting securities markets generally, particular industries represented in those markets, or the issuer itself. |
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Market disruption and geopolitical risk: the risk that markets may, in response to
governmental actions or intervention, political, economic or market developments, or other external factors, experience periods of high volatility and reduced liquidity, which may cause the Fund to sell securities at times when it would otherwise
not do so, and potentially at unfavorable prices. |
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Tax risk: to qualify as a regulated investment company under the Internal Revenue Code, the
Fund must meet requirements regarding, among other things, the source of its income. Certain investments do not give rise to qualifying income for this purpose. Any income the Fund derives from investments in instruments that do not generate
qualifying income must be limited to a maximum of 10% of the Fund’s annual gross income. If the Fund were to earn non-qualifying income in excess of 10% of its annual gross income, it could fail to
qualify as a regulated investment company for that year. If the Fund were to fail to qualify as a regulated investment company, the Fund would be subject to tax and shareholders of the Fund would be subject to the risk of diminished returns.
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Operational and Information Security Risks: An investment in the Fund, like any fund, can
involve operational risks arising from factors such as processing errors, human errors, inadequate or failed internal or external processes, failures in systems and technology, changes in personnel and errors caused by third-party service providers.
The occurrence of any of these failures, errors or breaches could result in investment losses to the Fund, a loss of information, regulatory scrutiny, reputational damage or other events, any of which could have a material adverse effect on the
Fund. While the Fund seeks to minimize such events through controls and oversight, there may still be failures that could cause losses to the Fund. |
11. Recently Issued Accounting Pronouncements
In June 2022, the FASB issued Accounting Standards Update 2022-03, which amends Fair Value Measurement (Topic 820):
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 clarifies guidance for fair
value measurement of an equity security subject to a contractual sale restriction and establishes new disclosure requirements for such equity securities. ASU 2022-03 is effective for fiscal years beginning
after December 15, 2023 and for interim periods within those fiscal years, with early adoption permitted. Management is currently evaluating the impact of these amendments on the Fund’s financial statements.
12. Subsequent Events
In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial
statements were issued. The Fund has determined there are no subsequent events that would need to be disclosed in the Fund’s financial statements.
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| 32 |
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DoubleLine Yield Opportunities Fund |
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| Evaluation of Advisory Agreement by Board of Trustees |
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(Unaudited) March 31, 2023 |
DoubleLine Total Return Bond Fund
DoubleLine Core Fixed Income Fund
DoubleLine Emerging Markets Fixed Income Fund
DoubleLine Multi-Asset Growth Fund
DoubleLine Cayman Multi-Asset Growth Fund I Ltd.
DoubleLine Low Duration Bond Fund
DoubleLine Floating Rate Fund
DoubleLine Shiller Enhanced CAPE®
DoubleLine Flexible Income Fund
DoubleLine Low Duration Emerging Markets Fixed Income Fund
DoubleLine Selective Credit Fund
DoubleLine Long Duration Total Return Bond Fund
DoubleLine Strategic Commodity Fund
DoubleLine Strategic Commodity Ltd.
DoubleLine Global Bond Fund
DoubleLine Infrastructure Income Fund
DoubleLine Shiller Enhanced International CAPE®
DoubleLine Real Estate and Income Fund
DoubleLine Emerging Markets Local Currency Bond Fund
DoubleLine Income Fund
DoubleLine Multi-Asset Trend Fund
DoubleLine Multi-Asset Trend Ltd.
DoubleLine Opportunistic Credit Fund
DoubleLine Income Solutions Fund
DoubleLine Yield Opportunities Fund
At a
meeting held in February 2023 (the “February Meeting”), the Boards of Trustees (the “Board” or the “Trustees”) of the DoubleLine open-end mutual funds and closed-end funds listed above (the “Funds”) approved the continuation of the investment advisory and sub-advisory agreements (the “Advisory Agreements”)
between DoubleLine and those Funds. That included approval by the Trustees who are not “interested persons” (as defined in the Investment Company Act of 1940, as amended (the “1940 Act”)) of the Funds (the “Independent
Trustees”) voting separately. When used in this summary, “DoubleLine” or “Management” refers collectively to DoubleLine Capital LP and/or to DoubleLine Alternatives LP, as appropriate in the context.
The Trustees’ determination to approve the continuation of each Advisory Agreement was made on the basis of each Trustee’s business judgment after an
evaluation of all of the relevant information provided to the Trustees, including information provided for their consideration at their February Meeting and at meetings held in preparation for the February Meeting with management and representatives
of Strategic Insight, an independent third-party provider of investment company data (“Strategic Insight”), and additional information requested by the Independent Trustees. The Independent Trustees also met outside the presence of
management prior to the February Meeting to consider the materials and information related to the proposed continuation of the Advisory Agreements.
The
Trustees also meet regularly with investment advisory, compliance, risk management, operational, and other personnel from DoubleLine and regularly review detailed information, presented both orally and in writing, regarding the services performed by
DoubleLine for the benefit of the Funds, DoubleLine’s investment program for each Fund, the performance of each Fund, the fees and expenses of each Fund, and the operations of each Fund. In considering whether to approve the continuation of the
Advisory Agreements, the Trustees took into account information presented to them over the course of the past year.
This summary describes a number, but not
necessarily all, of the most important factors considered by the Board and the Independent Trustees. Individual Trustees may have given different weights to certain factors and assigned various degrees of materiality to information received in
connection with the approval process. No single factor was determined to be decisive or controlling. In all their deliberations, the Independent Trustees were advised by independent counsel.
The Trustees considered the nature, extent, and quality of the services, including the expertise and experience of investment personnel, provided and expected to
be provided by DoubleLine to each Fund. In this regard, the Trustees considered that DoubleLine provides a full investment program for the Funds and noted DoubleLine’s representation that it seeks to provide attractive returns with a strong
emphasis on risk management. The Board considered in particular the difficulty of managing debt-related portfolios, noting that managing such portfolios requires a portfolio management team to balance a number of factors,
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| Evaluation of Advisory Agreement by Board of Trustees (Cont.) |
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which may include, among others, securities of varying maturities and durations, actual and anticipated interest rate changes and market volatility, prepayments, collateral management,
counterparty management, pay-downs, credit events, workouts, and net new issuances. In their evaluation of the services provided by DoubleLine and the Funds’ contractual relationships with DoubleLine, the
Trustees considered generally the long-term performance record of the firm’s portfolio management personnel, including, among others, Mr. Jeffrey Gundlach, and the strong historical investor interest in products managed by DoubleLine.
The Trustees reviewed reports prepared by Strategic Insight (the “Strategic Insight Reports”) that compared, among other information, each Fund’s
net management fee rate and net total expense ratio (Class I shares with respect to the open-end Funds) against the net management fee rate and net total expense ratio of a group of peers selected by Strategic
Insight, and each Fund’s performance records (Class I shares with respect to the open-end Funds) for the one-year, three-year (where applicable), and five-year
(where applicable) periods ended October 31, 2022, against the performance records of those funds in each Fund’s Morningstar category and the performance of the Fund’s broad-based benchmark index. In preparation for the February
Meeting, the Independent Trustees met with Strategic Insight representatives twice to review the comparative information set out in the Strategic Insight Reports, the methodologies used by Strategic Insight in compiling those reports and selecting
the peer groups used within those reports, and the considerations for evaluating the comparative information presented in those reports. The Independent Trustees also considered the information Strategic Insight provided regarding the challenges
Strategic Insight encountered in assembling appropriate peer groups for a number of the Funds due to, among other factors, the limited number of possible peer funds with substantially similar principal investment strategies, investment approaches
and/or advisory fee structures for certain of the Funds. Where applicable, the Trustees also received information from DoubleLine, including regarding factors to consider in evaluating a Fund’s performance relative to its peer groups and the
factors that contributed to the underperformance of certain Funds relative to their peer groups or benchmark indices.
In respect of the open-end Funds, the Trustees considered generally Management’s description of investment conditions in the fixed-income markets in recent years and their effects on the Funds. Management noted that, in the
period following the height of the COVID-19 pandemic, the rapid increase in interest rates, followed by the actions of the Federal Reserve Board to counteract inflationary pressures, had a significant adverse
effect on the values of outstanding debt securities. Management noted that this was particularly the case in respect of many of the mortgage-backed and other asset-backed securities in which many of the Funds invest. The Trustees considered
Management’s statements that these developments hurt both the absolute and relative performance records of many of the Funds, but that the performance of many of those Funds has improved in more recent periods.
The Trustees considered that a number of the open-end Funds achieved performance at levels above the medians of their
peers for the three-year period ended October 31, 2022. Those Funds included DoubleLine Emerging Markets Fixed Income Fund, DoubleLine Emerging Markets Local Currency Bond Fund, DoubleLine Low Duration Bond Fund, DoubleLine Floating Rate Fund,
DoubleLine Infrastructure Income Fund, DoubleLine Low Duration Emerging Markets Fixed Income Fund, DoubleLine Shiller Enhanced International CAPE® and DoubleLine Selective Credit Fund. In
addition, the Trustees noted that a number of Funds had experienced performance at levels below the medians of their peers for the three-year period ended October 31, 2022, but their performance had improved to levels above their peer group
medians for the one-year period ended the same date. Those Funds included DoubleLine Total Return Bond Fund, DoubleLine Core Fixed Income Fund, and DoubleLine Long Duration Total Return Bond Fund. The Trustees
noted improvements in the performance of DoubleLine Strategic Commodity Fund and DoubleLine Global Bond Fund, whereby each Fund was in the fourth comparative quartile for the three-year period and in the second quartile for the one-year period. In addition, the Trustees considered that DoubleLine Income Fund, which had been in the fourth comparative quartile for the three-year period, performed for the
one-year period at the 60th comparative percentile, which represented substantial improvement in the Fund’s performance. The Trustees determined that
the performance of each of those Funds supported the continuation of the Advisory Agreements.
With respect to DoubleLine Shiller Enhanced CAPE®, the Trustees considered Management’s statement that recent periods have been highly unusual in that the performance of both fixed-income and equity securities have been significantly
adversely affected by market factors. Management noted that, because the Fund has approximately equal exposures to both fixed-income and equity securities, its performance had been affected particularly adversely over the period. The Trustees
considered Management’s view that the Fund might be expected to experience a significant improvement in performance as one or both of those markets recover. With respect to DoubleLine Multi-Asset Growth Fund, the Trustees considered similarly
that the Fund’s exposure to both fixed-income and equity securities had resulted in significant underperformance in recent periods, and that the Fund’s typically large exposure to fixed-income securities compared to peer funds had affected
its comparative performance significantly. With respect to DoubleLine Multi-Asset Trend Fund, the Trustees considered the Fund’s limited operating history and noted that it was important to provide the Fund’s portfolio management team
sufficient time to establish a longer performance history.
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| 34 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) March 31, 2023 |
With respect to
DoubleLine Real Estate and Income Fund, the Trustees considered that the Fund has very few assets and that DoubleLine was receiving no management fee from the Fund but rather was subsidizing its expenses.
On the basis of all of these factors, the Trustees determined that the historical performance records of the Funds, and the factors cited by Management in
respect of underperforming Funds, were consistent with the continuance of the Advisory Agreement(s) for each of the Funds
The Trustees considered the
portion of the Strategic Insight Reports covering the open-end Funds’ net management fees and net total expenses relative to their expense peer groups. The Trustees considered DoubleLine’s pricing
policy for its advisory fees and that DoubleLine does not seek to be a lowest cost provider, nor does it have a policy to set its advisory fees below the median of a Fund’s peers, but rather seeks to set fees at a competitive level that
reflects DoubleLine’s demonstrated significant expertise and experience in the investment strategies that if offers.
The Trustees considered the
expenses of each of the open-end Funds. They noted that all but six of the Funds had net total expense ratios at or below the medians of their peers. They noted that each of the six Funds with net total
expense ratios above their peer medians (DoubleLine Total Return Bond Fund, DoubleLine Emerging Markets Fixed Income Fund, DoubleLine Emerging Markets Local Currency Bond Fund, DoubleLine Infrastructure Income Fund, DoubleLine Multi-Asset Growth
Fund, and DoubleLine Flexible Income Fund) had net total expense ratios within three basis points of the medians. They noted that DoubleLine Infrastructure Income Fund had a net total expense ratio slightly above the peer medians with respect to two
of the peer groups presented by Strategic Insight and that the Fund had a net total expense ratio below the median for one of the peer groups presented by Strategic Insight. Similarly, the Trustees noted that the large majority of the Funds paid net
advisory fees below the medians of their peer groups. Two of the Funds, DoubleLine Core Fixed Income Fund and DoubleLine Low Duration Bond Fund, whose net advisory fees were 2.9 and 1.6 basis points above their peer medians, respectively,
nonetheless incurred net total expenses at rates lower than their peers. DoubleLine Total Return Bond Fund paid net advisory fees at a rate 5 basis points above its peer median, but incurred net total expenses at a rate close to its peer median.
DoubleLine Strategic Commodity Fund, whose net advisory fee was 17.1 basis points above its peer median, incurred net total expenses at a rate equal to the peer median. The remaining two of those Funds, DoubleLine Emerging Markets Fixed Income Fund
and DoubleLine Flexible Income Fund, paid net advisory fees at a rate 9 basis points above their peer medians, but incurred net total expenses at rates close to their peer medians, 2.8 basis points and 1 basis point, respectively, above the peer
medians. The Trustees determined that neither the net advisory fees nor the net total expense ratios of any of the Fund appeared, on the basis of all of the information available to them, unreasonable or such as to call into question the
continuation of the Funds’ Advisory Agreements.
On the basis of these considerations and others and in the exercise of their business judgment, the
Trustees determined to approve the Agreements for the proposed additional one-year term.
In respect of the closed-end Funds, the Trustees considered the information in the Strategic Insight Reports regarding the Funds’ performance records and net management fees and net total expenses, based on each Fund’s net
assets (excluding the principal amount of borrowings) and, separately, on each Fund’s total managed assets (including the principal amount of borrowings). The Trustees considered DoubleLine’s statement that the recent volatility in
fixed-income markets had had a significant adverse effect on the performance of the closed-end funds, and the reasons why that volatility had caused the Funds to underperform many or most of their peers.
(References to a Fund’s net total expense ratio below are to that ratio excluding investment related expenses, such as interest on leverage.)
As to
DoubleLine Income Solutions Fund (“DSL”), the Trustees noted that the Fund’s net total expense ratio (excluding investment related expenses) was below the median of its expense peer group on both a net assets and a total managed
assets basis and that its net management fee rate was above, though near, the median of its expense group on both a net assets and a total managed assets basis. The Trustees considered DoubleLine’s statement that, although the Fund has
outperformed its benchmark index and a number of its peer funds over various periods in the past, the Fund’s recent underperformance due to the recent market volatility has had the effect of reducing the Fund’s average annual returns
compared to peers and the benchmark over longer time periods. The Trustees considered DoubleLine’s description of the factors leading to the Fund’s substantial underperformance in recent periods, its confirmation that it has remained
consistent in its approach to managing the Fund, and factors that lead DoubleLine to expect improved performance in coming periods.
As to DoubleLine
Opportunistic Credit Fund (“DBL”), the Trustees noted that DBL’s net management fees were in the second quartile of the Fund’s expense group on a net assets basis and in the fourth quartile of the expense group on a total managed
assets basis. The Trustees also noted that DBL’s net total expense ratio was shown in the Strategic Insight Report to be in the third quartile of the Fund’s expense group on a net assets basis and in the fourth quartile of the expense
group on a total managed assets basis.
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| Evaluation of Advisory Agreement by Board of Trustees (Cont.) |
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In no case were the Fund’s net management fees or net total expenses the highest among its peers. The Trustees considered DoubleLine’s statement that, although the Fund performed in the
fourth quartile for the three- and five-year periods, the Fund’s performance improved for the one-year period, with the Fund performing in the third-quartile of its Morningstar peer group. The Trustees
also noted that the Fund outperformed its benchmark index for the one-, three-, and five-year periods shown in the Strategic Insight Report. The Trustees considered DoubleLine’s description of the factors
leading to the Fund’s substantial underperformance and factors that have led to the recent improvement of the Fund’s relative perfomance and to DoubleLine’s expectation that performance will continue to improve.
As to DoubleLine Yield Opportunities Fund (“DLY”), the Trustees noted that DLY was only relatively recently organized and that it has only a limited
operating history. The Trustees noted that while the Fund performed in the fourth quartile for the one-year period of its Morningstar peer group, it outperformed its benchmark index for the one-year period shown in the Strategic Insight Report and for the life of the Fund. They considered the factors cited by DoubleLine for the Fund’s underperformance, including in particular the high level of
volatility in fixed-income markets in the periods since the Fund’s organization. In considering the fees and expenses of the Fund, the Trustees took into account DoubleLine’s statement that the Fund’s terms at its initial offering
differed from many closed-end funds that came to market before it in that DoubleLine, as the Fund’s sponsor, bore all of the Fund’s initial organizational and offering expenses and that the Fund has
a limited life, and that funds offered pursuant to such arrangements tend to pay higher advisory fees than funds whose sponsors do not bear those organizational and offering expenses and the related risks. The Trustees considered that Strategic
Insight had developed an expense group comprising Funds with similar fee and expense arrangements. The Trustees noted that the Fund’s net advisory fees, though above the median of its peers both on a net assets and a total managed assets basis,
was not the highest of its expense group. The Trustees considered similarly that the Fund’s net total expense ratio was above the median of the Fund’s expense peer group on both a net assets and a total managed assets basis, though not the
highest of its expense group.
The Trustees noted that each of DSL, DBL, and DLY had employed leverage during some or all of the periods shown in the
Strategic Insight Reports, and considered information from DoubleLine that they receive quarterly showing that each Fund earned a positive spread on its investment leverage, after taking into account any expenses related to the leverage, including
incremental management fees.
As to all of the open- and closed-end Funds, Trustees considered that DoubleLine
provides a variety of other services to the Funds in addition to investment advisory services, including, among others, a number of back-office services, valuation services, derivatives risk management services, compliance services, liquidity
monitoring services, certain forms of information technology services (such as internal reporting), assistance with accounting and distribution services, and supervision and monitoring of the Funds’ other service providers. The Trustees
considered DoubleLine’s ongoing efforts to keep the Trustees informed about matters relevant to the Funds and their shareholders. The Trustees also considered the nature and structure of the Funds’ compliance program, including the
policies and procedures of the Funds and their various service providers (including DoubleLine). The Trustees considered the quality of those non-investment advisory services and determined that their quality
appeared to support the continuation of the Funds’ arrangements with DoubleLine.
The Trustees considered information provided by DoubleLine relating to
its historical and continuing commitment to hire the necessary personnel and to invest in technology enhancements to support DoubleLine’s ability to provide services to the Funds. The Trustees concluded that it appeared that DoubleLine
continued to have sufficient quality and depth of personnel, resources, and investment methods to continue to provide services of the same nature and quality as DoubleLine has historically provided to the Funds.
The Trustees considered materials relating to the fees charged by DoubleLine to non-Fund clients for which DoubleLine
employs investment strategies substantially similar to one or more Funds’ investment strategies, including institutional separate accounts advised by DoubleLine and mutual funds for which DoubleLine serves as subadviser. The Trustees noted the
information DoubleLine provided regarding certain institutional separate accounts advised by it and funds subadvised by it that are subject to fee schedules that differ from, and are in most cases lower than, the rates paid by a Fund with
substantially similar investment strategies. The Trustees noted DoubleLine’s representations that administrative, compliance, operational, legal, and other burdens of providing investment advice to mutual funds exceed in many respects those
required to provide advisory services to non-mutual fund clients, such as institutional accounts for retirement or pension plans, which may have differing contractual requirements. The Trustees noted
DoubleLine’s representations that DoubleLine also bears substantially greater legal and other responsibilities and risks in managing and sponsoring mutual funds than in managing private accounts or in
sub-advising mutual funds sponsored by others, and that the services and resources required of DoubleLine when it sub-advises mutual funds sponsored by others
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| 36 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) March 31, 2023 |
generally are less extensive than those required of DoubleLine to serve the Funds, because, where DoubleLine serves as a sub-adviser, many of the
sponsorship, operational, and compliance responsibilities related to the advisory function are retained by the primary adviser.
The Trustees reviewed
information as to general estimates of DoubleLine’s profitability with respect to each Fund, taking into account, among other things, information about both the direct and the indirect benefits to DoubleLine from managing the Funds. The
Trustees considered information provided by DoubleLine as to the methods it uses, and the assumptions it makes, in calculating its profitability. The Trustees considered representations from DoubleLine that its compensation program, which is
comprised of several components, including base salary, discretionary bonus and potential equity participation in DoubleLine, enables DoubleLine to attract, retain, and motivate highly qualified and experienced employees. The Trustees noted that
DoubleLine experienced significant profitability in respect of certain of the Funds, but noted that in those cases it would be appropriate to consider that profitability in light of various other considerations such as the nature, extent, and
quality of the services provided by DoubleLine, the relative long-term performance of the relevant Funds, the consistency and transparency of the Funds’ investment operations over time, and the competitiveness of the management fees and total
operating expenses of the Funds. The Trustees separately considered in this respect information provided by DoubleLine regarding its reinvestment in its business to accommodate changing regulatory requirements and to maintain its ability to provide
high-quality services to the Funds.
In their evaluation of economies of scale, the Trustees considered, among other things, the pricing of the Funds and
DoubleLine’s reported profitability, and that a number of the open-end Funds had achieved significant size. They noted also that none of the Funds has breakpoints in its advisory fee schedule, though the
Trustees considered management’s view that the fee schedules for the Funds remained consistent with DoubleLine’s original pricing philosophy of proposing an initial management fee rate that generally, when taking into account expense
limitations (where applicable), reflects reasonably foreseeable economies of scale. In this regard, the Trustees noted also that the information provided by Strategic Insight supported the view that the net management fees of the largest open-end Funds remained competitively priced. The Trustees separately noted that DoubleLine had agreed to continue in place the expense limitation arrangements for a number of the Funds at current levels for an
additional one-year period, with the prospect of recouping any waived fees or reimbursed expenses at a later date. In evaluating economies of scale more generally, the Trustees also noted ongoing changes to
the regulatory environment, which required DoubleLine to re-invest in its business and infrastructure. Based on these factors and others, the Trustees concluded that it was not necessary at the present time to
implement breakpoints for any of the Funds, although they would continue to consider the question periodically in the future.
With regard to DSL, DBL, and
DLY, the Trustees noted that these Funds have not increased in assets significantly from their initial offerings due principally to their status as closed-end investment companies and that there were therefore
no substantial increases in economies of scale realized with respect to these Funds since their inception. The Trustees noted DoubleLine’s view that the levels of its profitability in respect of DSL, DBL, and DLY are appropriate in light of the
investment it has made in these Funds, the quality of the investment management and other teams provided by it, and its continued investments in its own business.
On the basis of these considerations as well as others and in the exercise of their business judgment, the Trustees determined that they were satisfied with the
nature, extent, and quality of the services provided to each Fund under its Advisory Agreement(s); that it appeared that the management fees paid by each Fund to DoubleLine were generally within the range of management fees paid by its peer funds,
and generally reasonable in light of the services provided, the quality of the portfolio management teams, and each Fund’s performance to date; that the fees paid by each Fund did not appear inappropriate in light of the fee schedules charged
to DoubleLine’s other clients with substantially similar investment strategies (where applicable) in light of the differences in the services provided and the risks borne by DoubleLine; that the profitability of each Fund to DoubleLine did not
appear excessive or such as to preclude continuation of the Fund’s Advisory Agreement(s); that absence of breakpoints in any Fund’s management fee did not render that Fund’s fee unreasonable or inappropriate under the circumstances,
although the Trustees would continue to consider the topic over time; and that it would be appropriate to approve each Advisory Agreement for an additional one-year period.
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Semi-Annual Report |
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March 31, 2023 |
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37 |
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| Statement Regarding the Fund’s Liquidity Risk Management
Program |
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(Unaudited) March 31, 2023 |
The Fund has adopted
a liquidity risk management program. The program’s principal objectives include mitigating the risk that a Fund is unable to meet its redemption obligations timely and supporting the Fund’s compliance with its limits on investments in
illiquid assets. For the period ended March 31, 2023, the program administrator determined that the program supported the Fund’s ability to meet reasonably foreseeable redemption requests, reduced the risk of significant dilution from
redemptions and supported the Adviser’s management of the Fund’s liquidity profile. The program includes a number of elements that support the assessment and management of liquidity risk, including the periodic classification and re-classification of the Fund’s investments into groupings based on the Adviser’s view of their liquidity. There can be no assurance that the program will achieve its objectives. Please refer to your
Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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| 38 |
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DoubleLine Yield Opportunities Fund |
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| Federal Tax Information |
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(Unaudited) March 31, 2023 |
For the fiscal year
ended September 30, 2022, certain dividends paid by the Fund may be subject to a maximum tax rate of 15% (20% for taxpayers with taxable income greater than $459,750 for single individuals and $517,200 for married couples filing jointly), as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 and The Tax Cuts and Jobs Act of 2017. The percentage of dividends declared from ordinary income designated as qualified dividend income was as follows:
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| Qualified Dividend Income |
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0.00% |
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For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received
deduction for the fiscal year ended September 30, 2022, was as follows:
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| Dividends Received Deduction |
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0.00% |
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The percentage of taxable ordinary income distributions that are designated as short-term capital gain distributions under
Internal Revenue Section 871(k)(2)(c) for the fiscal year ended September 30, 2022, was as follows:
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| Qualified Short-term Gains |
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0.00% |
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The percentage of taxable ordinary income distributions that are designated as interest related dividends under Internal Revenue
Section 871(k)(1)(c) for the fiscal year ended September 30, 2022, was as follows:
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| Qualified Interest Income |
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76.03% |
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Shareholders are advised to consult their own tax adviser with respect to the tax consequences of their investment in the Fund.
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Semi-Annual Report |
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March 31, 2023 |
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39 |
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| Portfolio Managers |
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(Unaudited) March 31, 2023 |
The portfolio
managers of the Fund are Jeffrey E. Gundlach (since the Fund’s inception) and Jeffrey J. Sherman (since the Fund’s inception). Since the Fund’s last annual report to shareholders, there have been no changes in the persons who are
primarily responsible for the day-to-day management of the Fund’s portfolio.
Information About Proxy Voting
Information about how the Fund voted proxies relating to portfolio securities held during the most recent twelve month period ended June 30th is available no
later than the following August 31st without charge, upon request, by calling 877-DLine11 (877-354-6311) or email
fundinfo@doubleline.com and on the SEC’s website at www.sec.gov.
A description of the Fund’s proxy voting policies and procedures is available
(i) without charge, upon request, by calling 877-DLine11 (877-354-6311) or email fundinfo@doubleline.com; and (ii) on
the SEC’s website at www.sec.gov.
Information About Portfolio Holdings
The Fund intends to disclose its portfolio holdings on a quarterly basis by posting the holdings on the Fund’s website. The disclosure will be made by
posting the Annual, Semi-Annual and Part F of Form N-PORT filings on the Fund’s website.
The Fund is required
to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Part F of Form N-PORT. When available, the Fund’s Part F of Form
N-PORT is available on the SEC’s website at www.sec.gov.
Householding—Important Notice Regarding Delivery of Shareholder Documents
In an effort to conserve resources, the Fund intends to reduce the number of duplicate Annual and Semi-Annual Reports you receive by sending only one copy of
each to addresses where we reasonably believe two or more accounts are from the same family. If you would like to discontinue householding of your accounts, please call toll-free 877-DLine11 (877-354-6311) to request individual copies of these documents. We will begin sending individual copies thirty days after receiving your request to stop householding.
