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Trustees and Officers |
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(Unaudited) September 30, 2022 |
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Name, Address, and
Year of Birth(1) |
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Position with Trust |
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Term of Office
and Length of Time Served |
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Principal Occupation(s) During Past 5 Years |
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Number of
Portfolios Overseen(2) |
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Other Directorships Held by Trustee
During Past 5 Years |
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Independent Trustees |
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Joseph J. Ciprari, 1964 |
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Trustee |
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Class II (2025)*/Since Inception |
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President, Remo Consultants, a real estate financial consulting firm. Formerly, Managing Director, UBS AG. Formerly, Managing Director, Ally Securities LLC. |
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22 |
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None |
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John C. Salter, 1957 |
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Trustee |
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Class III (2023)*/Since Inception |
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Partner, Stark Municipal Brokers. Formerly, Managing Director, Municipals, Tullet Prebon Financial Services LLC (d/b/a Chapdelaine). Formerly, Partner, Stark, Salter & Smith, a securities brokerage firm specializing in tax
exempt bonds. |
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22 |
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None |
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Raymond B. Woolson, 1958 |
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Trustee |
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Class I (2024)*/Since Inception |
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President, Apogee Group, Inc., a company providing financial consulting services. |
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22 |
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Independent Trustee, DoubleLine ETF (an open-end investment company with 2 portfolios). Independent Trustee, Advisors Series Trust (an
open-end investment company with 35 portfolios)(3) |
(1) The address of each Independent Trustee is c/o DoubleLine Funds, 2002 North Tampa Street, Suite 200, Tampa, FL, 33602.
(2) Includes each series of DoubleLine Funds Trust, DoubleLine Opportunistic Credit Fund, DoubleLine Income Solutions Fund, and DoubleLine Yield
Opportunities Fund.
(3) Quasar Distributors, LLC serves as the principal underwriter of DoubleLine Funds Trust and Advisors Series Trust.
* The common shareholders of the Fund are expected to vote to elect trustees of the relevant class at the annual shareholders meeting in the year indicated
above.
The following Trustee is an interested person of the Fund as defined in the 1940 Act because he is an officer of the Adviser and holds direct or
indirect ownership interests in DoubleLine Capital LP and DoubleLine Alternatives LP. Additionally, Mr. Redell is an officer of the Fund.
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Name, Address, and
Year of Birth(1) |
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Position with Trust |
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Term of Office
and Length of Time Served |
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Principal Occupation(s) During Past 5 Years |
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Number of
Portfolios Overseen(2) |
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Other Directorships Held by Trustee
During Past 5 Years |
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Interested Trustee |
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Ronald R. Redell, 1970 |
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Trustee, Chairman, President and Chief Executive Officer |
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Class I (2024)*/Since Inception |
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Trustee, Chairman, President, and Chief Executive Officer, DoubleLine Income Solutions Fund (since January 2013); President, DoubleLine Group LP (since January 2019 and Executive from January
2013 to January 2019); Trustee, Chairman, President and Chief Executive Officer, DoubleLine Opportunistic Credit Fund (since July 2011); Executive, DoubleLine Capital (since July 2010); President, DoubleLine Funds Trust (since January
2010). |
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22 |
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Interested Trustee, DoubleLine ETF Trust |
(1) The address of each Interested Trustee is c/o DoubleLine Funds, 2002 North Tampa Street, Suite 200, Tampa, FL, 33602.
(2) Includes each series of DoubleLine Funds Trust, DoubleLine Opportunistic Credit Fund, DoubleLine Income Solutions Fund, and DoubleLine Yield
Opportunities Fund.
* The common shareholders of the Fund are expected to vote to elect trustees of the relevant class at the annual shareholders
meeting in the year indicated above.
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42 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
Officers
The officers of the Trust who are not also Trustees of the Fund are:
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Name, Address, and
Year of Birth(1) |
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Position with Trust |
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Term of Office
and Length of Time Served |
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Principal Occupation(s) During Past 5 Years |
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Henry V. Chase, 1949 |
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Treasurer and Principal Financial and Accounting Officer |
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Indefinite/Since January 2020 |
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Treasurer and Principal Financial and Accounting Officer, DoubleLine Funds Trust (since January 2020); Treasurer and Principal Financial and Accounting Officer, DoubleLine Yield Opportunities
Fund (since January 2020); Treasurer and Principal Financial and Accounting Officer, DoubleLine Income Solutions Fund (since January 2020); Treasurer and Principal Financial and Accounting Officer, DoubleLine Opportunistic Credit Fund
(since January 2020); Chief Financial Officer, DoubleLine Capital (since January 2013); Vice President, DoubleLine Yield Opportunities Fund (since November 2019); Vice President, DoubleLine Income Solutions Fund (since May 2019); Vice
President, DoubleLine Funds Trust (since May 2019); Vice President, DoubleLine Opportunistic Credit Fund (since May 2019). |
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Youse Guia, 1972 |
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Chief Compliance Officer |
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Indefinite/Since March 2018 |
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Chief Compliance Officer, DoubleLine Yield Opportunities Fund (since November 2019); Chief Compliance Officer, DoubleLine Capital (since March 2018); Chief Compliance Officer, DoubleLine
Equity LP (since March 2018); Chief Compliance Officer, DoubleLine Funds Trust (since March 2018); Chief Compliance Officer, DoubleLine Opportunistic Credit Fund (since March 2018); Chief Compliance Officer, DoubleLine Income Solutions Fund
(since March 2018). Formerly, Executive Vice President and Deputy Chief Compliance Officer, Pacific Investment Management Company LLC (PIMCO) (from April 2014 to February 2018); Chief Compliance Officer, PIMCO Managed Accounts Trust
(from September 2014 to February 2018); Chief Compliance Officer, PIMCO-sponsored closed-end funds (from September 2014 to February 2018); Chief Compliance Officer,
PIMCO Flexible Credit Income Fund (from February 2017 to February 2018). Formerly, Head of Compliance, Allianz Global Investors U.S. Holdings LLC (from October 2012 to March 2014); Chief Compliance Officer, Allianz Funds, Allianz Multi-Strategy Trust, Allianz Global Investors Sponsored Closed-End Funds, Premier Multi-Series VIT and The Korea Fund, Inc. (from
October 2004 to December 2013). |
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Winnie Han, 1988 |
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Assistant Treasurer |
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Indefinite/Since May 2017 |
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Assistant Treasurer, DoubleLine Yield Opportunities Fund (since November 2019); Assistant Treasurer, DoubleLine Income Solutions Fund (since May 2017); Assistant Treasurer, DoubleLine
Funds Trust (since May 2017); Assistant Treasurer, DoubleLine Opportunistic Credit Fund (since May 2017); Assistant Treasurer, DoubleLine Capital (since March 2017); Formerly, Investment Accounting Supervisor, Alexandria Real Estate Equities,
Inc. (June 2016 to March 2017); Formerly, Manager, PricewaterhouseCoopers (January 2011 to June 2016). |
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Cris Santa Ana, 1965 |
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Vice President and Secretary |
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Indefinite/Vice President Since Inception and Secretary Since July 2018 |
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Vice President and Secretary, DoubleLine Yield Opportunities Fund (since November 2019); Vice President, DoubleLine Income Solutions Fund (since January 2013); Vice President, DoubleLine
Opportunistic Credit Fund (since July 2011); Vice President, DoubleLine Funds Trust (since April 2011); Chief Risk Officer, DoubleLine Capital (since June 2010). Formerly, Chief Operating Officer, DoubleLine Capital (from December 2009 through May
2010). |
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Earl A. Lariscy, 1966 |
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Vice President and Assistant Secretary |
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Indefinite/Vice President Since Since May 2012 and Assistant Secretary Since Inception |
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Vice President and Secretary, DoubleLine Yield Opportunities Fund (since November 2019); Vice President and Assistant Secretary, DoubleLine Income Solutions Fund (since January 2013); Vice
President, DoubleLine Funds Trust (since May 2012); Vice President and Assistant Secretary, DoubleLine Opportunistic Credit Fund (since May 2012 and inception, respectively); General Counsel, DoubleLine Capital (since April 2010). |
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David Kennedy, 1964 |
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Vice President |
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Indefinite/Since May 2012 |
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Vice President and Secretary, DoubleLine Yield Opportunities Fund (since November 2019); Vice President, DoubleLine Income Solutions Fund (since January 2013); Vice President, DoubleLine
Funds Trust (since May 2012); Vice President, DoubleLine Opportunistic Credit Fund (since May 2012); Manager, Trading and Settlements, DoubleLine Capital (since December 2009). |
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Annual Report |
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September 30, 2022 |
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43 |
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Trustees and
Officers (Cont.) |
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Name, Address, and
Year of Birth(1) |
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Position with Trust |
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Term of Office
and Length of Time Served |
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Principal Occupation(s) During Past 5 Years |
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Patrick A. Townzen, 1978 |
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Vice President |
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Indefinite/Since September 2012 |
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Vice President and Secretary, DoubleLine Yield Opportunities Fund (since September 2019); Vice President, DoubleLine Income Solutions Fund (since January 2013); Vice President, DoubleLine Funds Trust (since September 2012); Vice
President, DoubleLine Opportunistic Credit Fund (since September 2012); Director of Operations, DoubleLine Capital (since March 2018). Formerly, Manager of Operations, DoubleLine Capital (from September 2012 to March 2018). |
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Brady J. Femling, 1987 |
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Vice President |
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Indefinite/Since May 2017 |
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Vice President, DoubleLine Yield Opportunities Fund (since November 2019); Vice President, DoubleLine Income Solutions Fund (since May 2017); Vice President, DoubleLine Opportunistic Credit Fund (since May 2017); Vice President,
DoubleLine Funds Trust (since May 2017); Senior Fund Accountant, DoubleLine Capital (Since April 2013). Fund Accounting Supervisor, ALPS Fund Services (From October 2009 to April 2013). |
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Neal L. Zalvan, 1973 |
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Vice President |
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Indefinite/Vice President Since May 2017 |
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Vice President, DoubleLine Yield Opportunities Fund (since November 2019); Vice President, DoubleLine Opportunistic Credit Fund (since May 2017); Vice President, DoubleLine Funds Trust (since May 2016); Vice President, DoubleLine
Income Solutions Fund (since May 2016); Legal/Compliance, DoubleLine Group LP (since January 2013); Formerly, Anti-Money Laundering Officer, DoubleLine Yield Opportunities Fund (from November 2019 to September
2020); Anti-Money Laundering Officer, DoubleLine Capital, DoubleLine Opportunistic Credit Fund, DoubleLine Income Solutions Fund, DoubleLine Equity LP and DoubleLine Alternatives (from March 2016 to September
2020). |
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Grace Walker, 1970 |
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Assistant Treasurer |
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Indefinite/Since January 2020 |
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Assistant Treasurer, DoubleLine Funds Trust (since January 2020); Assistant Treasurer, DoubleLine Income Solutions Fund (since January 2020); Assistant Treasurer, DoubleLine Opportunistic Credit Fund (since January 2020); Assistant
Treasurer, DoubleLine Yield Opportunities Fund (since January 2020); Treasurer, DoubleLine Funds (Luxembourg) and DoubleLine Cayman Unit Trust (since March 2017). Formerly, Assistant Treasurer, DoubleLine Income Solutions Fund (from January 2013 to
May 2017); Assistant Treasurer, DoubleLine Opportunistic Credit Fund (from March 2012 to May 2017); Assistant Treasurer, DoubleLine Funds Trust (from March 2012 to May 2017). |
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Adam D. Rossetti, 1978 |
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Vice President |
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Indefinite/Since February 2019 |
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Vice President, DoubleLine Yield Opportunities Fund (since September 2019); Vice President, DoubleLine Funds Trust (since February 2019); Vice President, DoubleLine Income Solutions Fund (since February 2019); Vice President,
DoubleLine Opportunistic Credit Fund (since February 2019); Chief Compliance Officer, DoubleLine Alternatives LP (since June 2015); Legal/ Compliance, DoubleLine Group LP (since April 2015). Formerly, Chief Compliance Officer, DoubleLine Capital
(from August 2017 to March 2018); Chief Compliance Officer, DoubleLine Equity LP (from August 2017 to March 2018); Chief Compliance Officer, DoubleLine Funds Trust (from August 2017 to March 2018); Chief Compliance Officer, DoubleLine
Income Solutions Fund (from August 2017 to March 2018); Chief Compliance Officer, DoubleLine Opportunistic Credit Fund (from August 2017 to March 2018); Vice President and Counsel, PIMCO (from April 2012 to April 2015). |
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Jeffery J. Sherman, 1977 |
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Vice President |
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Indefinite/Since Inception |
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Deputy Chief Investment Officer, DoubleLine (since June 2016); President and Portfolio Manager, DoubleLine Alternatives LP (since April 2015 and May 2015, respectively); Vice President, DoubleLine Income Solutions Fund (since
January 2013); Vice President, DoubleLine Opportunistic Credit Fund (since July 2011); Portfolio Manager, DoubleLine Capital (since September 2010); Fixed Income Asset Allocation, DoubleLine Capital (since December 2009). |
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Dawn Oswald, 1980 |
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Vice President |
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Indefinite/Since January 2020 |
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Vice President, DoubleLine Funds Trust (since January 2020); Vice President, DoubleLine Yield Opportunities Fund (since January 2020); Vice President, DoubleLine Income Solutions Fund (since January 2020); Vice President, DoubleLine
Opportunistic Credit Fund (since January 2020); Pricing Manager, DoubleLine Capital (since January 2018). Formerly, Operations Specialist, DoubleLine Capital (from July 2016 to January 2018). Global Securities Fixed Income Valuation Senior Analyst,
Capital Group (from April 2015 to July 2016). Global Securities Fair Valuation Analyst, Capital Group (from January 2010 to April 2015). |
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44 |
|
DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
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Name, Address, and
Year of Birth(1) |
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Position with Trust |
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Term of Office
and Length of Time Served |
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Principal Occupation(s) During Past 5 Years |
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Robert Herron, 1987 |
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Vice President |
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Indefinite/Since June 2020 |
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Vice President, DoubleLine Funds Trust (since June 2020); Vice President, DoubleLine Yield Opportunities Fund (since June 2020); Vice President, DoubleLine Income Solutions Fund (since June 2020); Vice President, DoubleLine
Opportunistic Credit Fund (since June 2020). ManagerRisk Analytics, DoubleLine Capital (since January 2017); Formerly, AnalystRisk Analytics, DoubleLine Capital (from October 2011 to January 2017). |
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Jose Sarmenta, 1975 |
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Anti-Money Laundering Officer |
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Indefinite/Since September 2020 |
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Anti-Money Laundering Officer, DoubleLine Funds Trust (since September 2020); Anti-Money Laundering Officer, DoubleLine Yield Opportunities Fund
(since September 2020); Anti-Money Laundering Officer, DoubleLine Opportunistic Credit Fund (since September 2020); Anti-Money Laundering Officer, DoubleLine Income
Solutions Fund (since September 2020); Compliance Analyst, DoubleLine Capital (since October 2019); Formerly, Compliance Manager, Anti-Money Laundering Manager for CIM Group (from November 2017 to
October 2019); Governance and Risk Manager for PennyMac Financial Services Inc. (from July 2015 to November 2017). |
(1) The address of each officer is c/o DoubleLine Funds, 2002 North Tampa Street, Suite 200, Tampa, FL, 33602.
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Annual Report |
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September 30, 2022 |
|
45 |
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Summary of Updated Information Regarding the Fund |
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(Unaudited) September 30, 2022 |
The following
information in this annual report is a summary of certain information about the Fund and the changes since the Funds last annual report to shareholders for the fiscal year ended September 30, 2021. This information may not reflect all of
the changes that have occurred since you invested in the Fund.
Investment Objective and Strategies
There have been no material changes to the Funds investment objective or principal investment strategies since the Funds last annual report to
shareholders.
The following summarizes the Funds current investment objective and principal investment strategies:
Investment Objective
To seek a
high level of total return, with an emphasis on current income. The Fund cannot assure you that it will achieve its investment objective. The Funds investment objective may be changed by the Board without prior notice to or approval of the
Funds shareholders.
Principal Investment Strategies
Under normal market conditions, the Fund will seek to achieve its investment objective by investing in a portfolio of investments selected for its potential to
provide a high level of total return, with an emphasis on current income. The Fund may invest in debt securities and other income-producing investments of issuers anywhere in the world, including in emerging markets, and may invest in investments of
any credit quality. As of September 30, 2022, the Fund invests substantially, and may thereafter continue to invest substantially, in debt instruments of below investment grade quality (including debt securities commonly referred to as
high yield securities or junk bonds) and unrated instruments. The Fund may invest in securities of any or no maturity or negative duration, and there are no limits on the duration of the Funds portfolio.
The Funds investment adviser, DoubleLine Capital LP (DoubleLine or the Adviser), allocates the Funds assets among sectors of
the debt market, and among investments within those sectors, in an attempt to construct a portfolio providing the potential for a high level of total return, with an emphasis on current income, consistent with what DoubleLine considers an
appropriate level of risk in light of market conditions prevailing at the time. In managing the Funds investments, the Adviser uses a controlled risk approach. The techniques of this approach attempt to control the principal risk components of
the fixed-income markets and include consideration of:
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the relative values and fundamentals of the different sectors of the debt market |
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the relative values of securities within a sector |
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the shape of the yield curve; and |
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fluctuations in the overall level of interest rates. |
DoubleLine selects investments over time to implement its long-term strategic investment view. It also buys and sells securities opportunistically in response to
short-term market, economic, political, or other developments or otherwise as opportunities may present themselves. DoubleLine manages the Fund under an integrated risk management framework overseen by the Funds portfolio management team and
DoubleLines risk management team. DoubleLine expects that the Fund will normally not invest more than 50% of its total assets in a single sector of the debt market (excluding the U.S. Government securities sector), as determined by the
Adviser. Generally, the sectors of the debt market among which the Adviser expects to allocate the Funds assets principally from time to time include, among others, commercial mortgage-backed securities, agency residential mortgage-backed securities, non-agency residential mortgage-backed securities, non-mortgage-related asset-backed securities, investment grade corporate debt, high yield
corporate debt, bank and other loans, international sovereign debt, emerging market debt, collateralized loan obligations (CLOs), U.S. Government securities, and municipal debt. The Fund has historically had and may continue to have
significant holdings of securitized credit, such as commercial mortgage-backed securities, non-agency residential mortgage- backed
securities, non-mortgage-related asset-backed securities and CLOs.
Within each sector, the Fund may invest
in debt securities and other income-producing investments based on DoubleLines assessment of the potential returns and risks of particular securities and other investments within that sector. Such securities may include, by way of example,
mortgage-related securities of any kind, including commercial and residential mortgage-backed securities; other asset-backed securities; below investment grade debt (including debt securities commonly referred to as high yield or
junk bonds); debt securities issued by domestic or foreign (including emerging market) corporate or other issuers; obligations of foreign (including emerging market) sovereigns or their agencies or instrumentalities; supra-national
obligations;
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46 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
CLOs, including commercial real estate CLOs (CRE CLOs); equity, mortgage, or hybrid real estate investment trust (REIT) securities; bank loans and assignments and other
fixed and floating rate loans (including, among others, senior loans, second lien or other subordinated or unsecured loans, delayed funding
loans, debtor-in-possession loans, exit facilities and revolving credit facilities); municipal securities and other debt securities issued by state or local
governments and their agencies, authorities and by other government-sponsored
enterprises; payment-in-kind securities; zero-coupon bonds; convertible bonds and securities;
inflation-indexed bonds; structured notes and other hybrid instruments; credit-linked trust certificates; preferred securities; commercial paper; and cash and cash equivalents. The Fund may also invest without limit in securities issued or
guaranteed by the U.S. Government or its agencies, instrumentalities or sponsored corporations; however, as of September 30, 2022, the Fund has invested, and may thereafter continue to invest, substantially in debt securities and other
income-producing investments that involve substantially greater credit risk than those investments. The rate of interest on the debt and other income-producing investments that the Fund may purchase may be fixed, floating, or variable.
The Fund may invest in mortgage-backed securities of any kind. Mortgage-backed securities may include, among other things, securities issued or guaranteed by the
U.S. Government or its agencies, instrumentalities or sponsored corporations or securities of domestic or foreign private issuers. Mortgage-backed securities may be issued or guaranteed by banks or other financial institutions, other private
issuers, special-purpose vehicles established for such purpose, or government agencies or instrumentalities. Privately-issued mortgage-backed securities include any mortgage-backed security other than those issued or guaranteed as to principal or
interest by the U.S. Government or its agencies, instrumentalities or sponsored corporations.
Mortgage-backed securities may include, without limitation,
interests in pools of residential mortgages or commercial mortgages, and may relate to domestic or non-U.S. mortgages. Mortgage-backed securities also include, but are not limited to, securities
representing interests in, collateralized or backed by, or whose values are determined in whole or in part by reference to, any number of mortgages or pools of mortgages or the payment experience of such mortgages or pools of mortgages, including
Real Estate Mortgage Investment Conduits (REMICs), which could include re-securitizations of REMICs (Re-REMICs), credit
default swaps, mortgage pass-through securities, mortgage servicing rights, inverse floaters, collateralized mortgage obligations (CMOs), multiclass pass-through securities, private mortgage pass-through securities, stripped mortgage
securities (generally interest-only and principal-only securities), credit risk transfer securities, and debt instruments collateralized or secured by other mortgage-related assets. The collateral backing mortgage-backed securities in which the Fund
may invest may include, without limitation,
performing, non-performing and/or re-performing loans, non-qualifying mortgage loans, and loans
secured by a single asset and issued by a single borrower. The commercial mortgage-backed securities in which the Fund may invest may also include securitizations backed by a single mortgage on a single property. The Fund may invest in bonds,
including unguaranteed mezzanine bonds and subordinate bonds, securitized through Freddie Macs K-Deal program, which securitizes mortgage loans backed by multi-family apartment
properties.
The Fund may invest in asset-backed securities of any type, including securitizations of a wide variety of
non-mortgage-related receivables, such as credit card and automobile finance receivables, student loans, consumer loans, loans issued or sponsored by online or similar retail or alternative lending platforms,
installment loan contracts, home equity loans, mobile home loans, boat loans, business and small business loans, project finance loans, airplane leases, and leases of various other types of real and personal property, and other income streams, such
as income from renewable energy projects and franchise rights. The loans underlying the asset-backed securities and similar obligations in which the Fund may invest may include loans that contain fewer or less restrictive constraints on the borrower
than certain other types of loans (covenant-lite loans) and loans of subprime quality.
In pursuing its investment objective, the Fund may invest
significantly in residential and/or commercial real estate or mortgage- related loans, consumer loans, business and small business loans, construction or project finance loans, or other types of loans, which loans may include secured and unsecured
notes, senior loans, second lien loans or other types of subordinated loans, or mezzanine loans, any of which may be covenant-lite or loans of subprime quality. The Fund may make direct investments in individual loans or in pools of loans and in
whole loans as well as in loan participations or assignments, itself or with other clients of the Adviser or its related parties. In addition, although, as of September 30, 2022, the Fund has no present intention to do so, the Fund may itself
or in conjunction with others originate any of the foregoing types of loans. The Fund intends to hire third-party service providers to service loans the Fund originates, if any. The Fund may also be involved in, or finance, the origination of loans
to corporations, other legal entities or individuals, including foreign entities and individuals.
The Fund may invest in any level of the capital structure
of an issuer of mortgage- or asset-backed securities, including subordinated or residual tranches, risk retention tranches of collateralized mortgage-backed securities or other eligible securitizations, and the equity or first loss
tranche (such as the E Notes of aircraft asset-backed securities). The Fund may invest in mortgage- or asset-backed securities that are designed to have leveraged investment exposure to the underlying mortgages or assets. The Fund may
also gain or
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Annual Report |
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September 30, 2022 |
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47 |
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Summary of Updated Information Regarding the Fund (Cont.) |
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adjust its exposure to mortgage- or asset-backed securities through derivatives, such as credit default swap or futures transactions. The Fund may also invest in credit risk transfer securities
that, while not backed by mortgage loans, have credit exposure to a pool of mortgage loans acquired by the government-sponsored entity or private entity issuing the securities.
Certain mortgage- and other asset-backed securities in which the Fund may invest may represent an inverse interest-only class of security for which the holders
are entitled to receive no payments of principal and are entitled only to receive interest at a rate that will vary inversely with a specified index or reference rate, or a multiple thereof. The Fund may invest in collateralized debt obligations
(CDOs) (including CLOs and collateralized bond obligations (CBOs)) and other structured products sponsored or managed by, or otherwise affiliated with, the Adviser or related parties of the Adviser. Such investments may
include investments in debt or equity interests issued by the CDO or structured product as well as investments purchased on the secondary market, and the Fund may invest in any tranche of the CDO or structured product, including an equity tranche.
The Fund may invest in debt instruments of any credit quality and may invest without limit in debt securities that are at the time of investment rated below
investment grade or unrated securities judged by DoubleLine to be of comparable quality. Notwithstanding the foregoing, the Fund will not acquire any corporate bond, CLO, corporate loan, or sovereign and quasi sovereign obligation that is rated at
the time of investment Caa1 or below by Moodys Investors Service, Inc. (Moodys) and CCC+ or below by S&P Global Ratings (S&P) or Fitch, Inc. (Fitch) or any such securities that are unrated
if it would cause the Fund to have more than 20% of its total managed assets invested in such investments. The 20% limitation does not apply to rated or unrated mortgage- and asset-backed securities of any kind (e.g. commercial mortgage-backed
securities and residential mortgage-backed securities) or loans or other obligations secured, collateralized or supported by real estate or real estate related assets of any kind (e.g., mortgages). In the case of split ratings, DoubleLine will
categorize the security according to the highest rating assigned. In addition, the Fund will not purchase securities that are in default as to the repayment of principal and/or interest at the time of acquisition by the Fund.
The Fund will normally invest at least 25% of its total assets in issuers involved in one or more real estate-related industries. Investments in issuers involved
in real estate-related industries include, without limitation, investments in mortgage-related obligations issued or guaranteed by government agencies or other government entities or by private originators or issuers; instruments of any kind that
are backed by or that provide exposure to one or more real estate-related mortgages; interests in issuers that deal in, hold, or invest in mortgages, real estate, or other real estate-related assets; real estate investment trusts of any kind;
instruments whose performance is based on or relates to payments made on real estate mortgages or other real estate- related obligations; instruments secured by any interest in real estate; and other investments that the Adviser determines provide
exposure to real estate or one or more of the foregoing.
The Fund may invest without limit in securities of foreign issuers and may invest up to 30% of its
total managed assets in securities of issuers domiciled or organized in emerging market countries. For these purposes, an emerging market country is a country that, at the time the Fund invests in the related fixed income instruments, is
classified as an emerging or developing economy by any supranational organization such as the World Bank or the United Nations, or related entities, or is considered an emerging market country for purposes of constructing a major emerging market
securities index. The Fund may take positions in various foreign (non-U.S.) currencies, including by actual holdings of those currencies and through forward, futures, swap, and option contracts with
respect to foreign currencies, for hedging, or as a substitute for actual purchases or sales of the currencies in question; the Fund may also invest without limit in investments denominated in currencies other than the U.S. dollar, including the
local currencies of emerging markets. The Fund may (but is not required to) attempt to hedge some of its exposure to foreign currencies in order to reduce the risk of loss due to fluctuations in currency exchange rates relative to the U.S. dollar.
The Adviser monitors the duration of the Funds portfolio securities to seek to assess and, in its discretion, adjust the Funds exposure to
interest rate risk. However, the Fund may invest in securities of any or no maturity or negative duration, and there are no limits on the duration of the Funds portfolio. The Adviser retains broad discretion to modify the Funds duration
within a wide range, including the discretion to construct a portfolio of investments for the Fund with a negative duration. Duration is a measure of the expected life of a fixed income instrument that is used to determine the sensitivity of a
securitys price to changes in interest rates. The Adviser may seek to manage the dollar-weighted average effective duration of the Funds portfolio through the use of derivatives and other instruments (including, among others, Treasury
futures and other futures contracts, inverse floaters, interest rate swaps, total return swaps, and options, including options on swap agreements (swaptions)). The Fund may incur costs in implementing duration management strategies, and
there can be no assurance that the Fund will engage in duration management strategies or that any duration management strategy employed by the Fund will be successful.
The Fund may invest in common stocks and other equity securities from time to time, including, among others, those it has received through the conversion of a
convertible security held by the Fund or in connection with the restructuring of a debt security. The Fund may invest in securities that have not been registered for public sale, including securities eligible for purchase
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48 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
and sale pursuant to Rule 144A or Regulation S under the Securities Act of 1933, as amended, and other securities issued in private placements. The Fund also may invest without limit in
securities of other open- or closed-end investment companies, including exchange-traded funds (ETFs) and investment companies sponsored or managed by the Adviser or its related parties.
The Fund may invest in securities of companies with small and medium market capitalizations.
Portfolio securities may be sold at any time. Sales may occur
when the Adviser determines to take advantage of what it considers to be a better investment opportunity, when the portfolio managers believe the portfolio securities no longer represent relatively attractive investment opportunities, when there is
perceived deterioration in the credit fundamentals of the issuer, or when the individual security has reached the portfolio managers sell target. The Fund will not invest in securities in default at time of purchase, however, the Fund is not
required to sell any securities that default after acquisition.
The Fund may invest indirectly by investing in derivatives or through wholly-owned and
controlled subsidiaries (each, a Subsidiary). The Fund may be exposed to the different types of investments described herein through its investments in a Subsidiary. The allocation of the Funds assets to a Subsidiary will vary from
time to time and the Funds portfolio may include some or all of the investments described herein.
Non-Diversification. The Fund is
a non-diversified investment company, and so may invest a greater percentage of its assets in the securities of a single issuer than investment companies that are diversified.
Note Regarding Investment Limitations
Where the foregoing states that the Fund or the Adviser will not, or does not intend to, make investments in excess of a stated percentage of the Funds
total assets, total assets includes amounts of leverage obtained through borrowings, any preferred shares that may be outstanding, the use of reverse repurchase agreements, or dollar roll transactions. With respect to any reverse
repurchase agreement or dollar roll transaction, total assets includes any proceeds from the sale of an asset of the Fund to a counterparty in such a transaction, in addition to the value of the asset subject to the reverse repurchase
agreement or dollar roll transaction, as of the relevant measuring date. Except as otherwise noted, all percentage limitations apply only at the time of investment.
Derivatives
The Fund may use
various derivatives strategies for hedging purposes or to gain, or reduce, long or short exposure to one or more asset classes, issuers, currencies or reference assets, or to manage the dollar-weighted average effective duration of the Funds
portfolio. The Fund also may enter into derivatives transactions with the purpose or effect of creating investment leverage. The Fund reserves the right to invest in derivatives of any kind and for any investment purpose, including, for example, the
following: futures contracts and options on futures contracts, in order to gain efficient long or short investment exposures as an alternative to cash investments or to hedge against portfolio exposures; interest rate swaps, in order to gain
indirect long or short exposures to interest rates, issuers, or currencies or to hedge against portfolio exposures; and total return swaps and credit derivatives, put and call options, and exchange-traded and structured notes, in order to take
indirect long or short positions on indexes, securities, currencies, commodities or other indicators of value or to hedge against portfolio exposures. The Fund may, for hedging purposes or as a substitute for direct long or short investments in debt
securities, make use of credit default swaps. The Fund may engage in short sales, either to earn additional return or to hedge existing investments.
Leverage
As of September 30, 2022, the Fund uses leverage through borrowings. The Fund may seek to use leverage through a
variety of measures, including the issuance of preferred shares or a combination of borrowings and the issuance of preferred shares. The Fund may also use reverse repurchase agreements and dollar roll transactions.
The Fund also may enter into transactions other than borrowings, the issuance of preferred shares, reverse repurchase agreements and dollar roll transactions
that may give rise to a form of leverage or that have leverage embedded in them including, among others, transactions involving credit default swap contracts and/or other transactions. Other such transactions include loans of portfolio securities,
transactions involving derivative instruments, short sales and when-issued, delayed delivery, and forward commitment transactions.
Under normal market
conditions, the Fund will not (i) issue preferred shares, (ii) borrow money through loans or draw on lines of credit from banks or other credit facilities, (iii) enter into reverse repurchase agreements or dollar roll transactions, or
(iv) write credit default swaps with the intention on the part of the Adviser to create investment leverage, if as a result the amount of investment leverage the Adviser determines to be attributable to the activities listed in (i) through
(iv) above in the aggregate would exceed 50% of the Funds total assets (including, for purposes of the 50% limit, the amounts of leverage obtained through
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Annual Report |
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September 30, 2022 |
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49 |
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Summary of Updated Information Regarding the Fund (Cont.) |
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such activities) (the 50% leverage policy). Written credit default swaps entered into by the Fund to hedge, manage or reduce risk or to equitize a cash position (i.e., obtain
investment exposure in an amount equal to or less than the Funds position in cash, cash equivalents, high-quality short-term debt instruments and other similar investments) will not be considered to have been made for the purpose of creating
investment leverage and therefore will not be subject to the 50% leverage policy; the Adviser generally will determine whether an investment has the effect of creating investment leverage by evaluating the effect of the investment on the exposure
and risk profile of the Fund as a whole. It is possible that following the incurrence of any amount of investment leverage, the value of the assets of the Fund will decline due to market conditions or other factors and that the 50% leverage limit
will as a result be exceeded.
Any line of credit, borrowings or other form of leverage used by the Fund is subject to renewal periodically, and there can be
no assurance that the form of leverage will be renewed in the future.
The Fund will use leverage opportunistically and may choose to increase, decrease, or
eliminate its use of leverage over time and from time to time based on DoubleLines assessment of the yield curve environment, interest rate trends, market conditions, and other factors.
The Fund may make secured loans of its portfolio securities, on either a short-term or long-term basis, amounting to not more than 331⁄3% of its total assets.
Effects of Leverage
U.S. Bank National Association has made available to the Fund a $350,000,000 committed credit facility. As of September 30, 2022, the amount
of total outstanding borrowings was $225,000,000. Interest charged is at the rate of one-month daily 2-Day lag Secured Overnight Financing Rate
(SOFR) plus 0.10% plus 1.10%, subject to certain conditions that may cause the rate of interest to increase. This rate represents a floating rate of interest that may change over time. The Fund will also be responsible for paying a non-usage fee of 0.125% on the unused amount, should the unused amount be $75,000,000 or less. Should the unused amount be more than $75,000,000,
the non-usage fee increases to 0.25% on the unused amount. The credit facility will terminate by the earlier of February 27, 2023 or the date the committed amount is reduced to $0.
Assuming the Fund uses leverage in the form of borrowings representing 23.56% of the Funds total managed assets (including the amounts of leverage obtained
through such borrowings), which reflects approximately the percentage of the Funds total assets attributable to such borrowings as of September 30, 2022, at an annual effective interest expense of 4.37% payable by the Fund on such
borrowings (based on market interest rates as of September 30, 2022), the annual return that the Funds portfolio must experience in order to cover such costs of the borrowings would be 1.03%.
The information below is designed to illustrate the effects of leverage through the use certain of senior securities under the 1940 Act and does not reflect the
Funds use of certain other forms of economic leverage achieved through the use of other instruments or transactions, such as reverse repurchase agreements, dollar roll transactions, credit default swaps, total return swaps or other derivative
instruments. These figures are merely estimates based on current market conditions, used for illustration purposes only.
These assumed investment portfolio
returns are hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced or expected to be experienced by the Fund. Your actual returns may be greater or less than those appearing below. In addition, actual
expenses associated with borrowings or other forms of leverage, if any, used by the Fund may vary frequently and may be significantly higher or lower than the rate used for the example below.
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Assumed Portfolio Total Return |
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(10.00 |
)% |
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(5.00 |
)% |
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0.00 |
% |
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5.00% |
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10.00% |
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Common Share Total Return |
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(14.43 |
)% |
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(7.89 |
)% |
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(1.35 |
)% |
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5.19% |
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11.73% |
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Common Shares total return is composed of two elementsthe distributions paid by the Fund to holders of Common Shares (the
amount of which is largely determined by the net investment income of the Fund after paying interest expenses on the Funds leveraging transactions as described above and other Fund expenses) and gains or losses on the value of the securities
and other instruments the Fund owns. As required by SEC rules, the table assumes that the Fund is more likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0%, the Fund must assume that the
income it receives on its investments is entirely offset by Fund expenses and losses in the value of those investments.
The Funds willingness to use
leverage, and the extent to which leverage is used at any time, will depend on many factors, including, among other things, DoubleLines assessment of the yield curve environment, interest rate trends, market conditions and other factors.
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50 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
Principal Risk Factors
Investing in the Fund involves risks, including the risk that you may receive little or no return on
your investment or that you may lose part or even all of your investment. The section below does not describe all risks associated with an investment in the Fund. Additional risks and uncertainties also may adversely affect and impair the Fund.
Limited Prior History
The Fund
commenced investment operations on February 26, 2020. It has a limited history of operations and is subject to all of the business risks and uncertainties associated with any new business.
Market Discount Risk
As with any
stock, the price of the Funds common shares of beneficial interest (the Common Shares) will fluctuate with market conditions and other factors. If you sell your Common Shares, the price received may be more or less than your
original investment. The Common Shares are designed for long-term investors and should not be treated as trading vehicles. Shares of closed-end management investment companies frequently trade at a discount
from their NAV. The Fund cannot assure you that Common Shares will trade at a price equal to or higher than NAV in the future, and they may trade at a price lower than NAV. In addition to the Funds NAV, the Funds market price may be
affected by factors related to the Fund such as dividend payments (which will in turn be affected by Fund expenses, including the costs of the Funds leverage, amounts of interest payments made by the Funds portfolio holdings,
appreciation/depreciation of the Funds portfolio holdings, regulations affecting the timing and character of Fund distributions, and other factors), portfolio credit quality, liquidity, call protection, market supply and demand and similar
factors relating to the Funds portfolio holdings. The Funds market price may also be affected by general market or economic conditions, including market trends affecting securities values generally or values of closed-end fund shares more specifically.
Limited Term and Tender Offer Risk
In accordance with the Funds Agreement and Declaration of Trust (the Declaration of Trust), the Fund intends to terminate as of
the first business day following the twelfth anniversary of the effective date of the Funds initial registration statement, February 25, 2032 (the Dissolution Date); provided that the Board may, by a vote of a majority of the
Board and seventy-five percent (75%) of the Continuing Trustees, as defined below (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 Funds net assets as determined as of the Dissolution Date. Continuing Trustees are the members of the Board who either (i) have been a member of the
Board for a period of at least thirty-six months (or since the commencement of the Funds operations, if less than thirty-six months) or (ii) were
nominated to serve as a member of the Board by a majority of the Continuing Trustees then members of the Board.
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 NAV per Common Share on the expiration date of the tender offer (the 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. If an Eligible Tender Offer is conducted and the number of properly tendered Common Shares would result in the Fund having aggregate net assets greater than
or equal to the Dissolution Threshold, all Common Shares properly tendered and not withdrawn will be purchased by the Fund pursuant to the terms of the Eligible Tender Offer. Following the completion of an Eligible Tender Offer, the Board may, by a
Board Action Vote, eliminate the Dissolution Date and scheduled termination of the Fund without shareholder approval and the Fund would continue to operate indefinitely thereafter. The Board may, to the extent it deems appropriate and without
shareholder approval, adopt a plan of liquidation at any time preceding the anticipated Dissolution Date, which plan of liquidation may set forth the terms and conditions for implementing the termination of the existence of the Fund, including the
commencement of the winding down of its investment operations and the making of one or more liquidating distributions to Common Shareholders prior to the Dissolution Date.
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 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. In addition, the
Fund is not a target term fund and thus does not seek to return the Funds initial public offering price per Common Share upon
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September 30, 2022 |
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51 |
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Summary of Updated Information Regarding the Fund (Cont.) |
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termination of the Fund or in a tender offer. The Fund does not limit its 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. In particular, the Funds portfolio may still have large exposures to illiquid securities as the
Dissolution Date approaches, and losses due to portfolio liquidation may be significant.
Beginning one year before the Dissolution Date (the Wind-Down
Period), the Fund may begin liquidating all or a portion of the Funds portfolio, and the Fund may deviate from its investment strategy and may not achieve its investment objective. As a result, during the Wind-Down Period, the
Funds distributions may decrease, and such distributions may include a return of capital. It is expected that Common Shareholders will receive cash in any liquidating distribution from the Fund, regardless of their participation in the
Funds automatic dividend reinvestment plan. However, if on the Dissolution Date the Fund owns securities or other investments for which no market exists or securities or other investments that are trading at depressed prices, such securities
or other investments may be placed in a liquidating trust. The Fund cannot predict the amount, if any, of securities or other investments that will be required to be placed in a liquidating trust. The disposition of portfolio investments by the Fund
could also cause market prices of such instruments, and hence the NAV and market price of the Common Shares, to decline.
Moreover, in conducting such
portfolio transactions, the Fund may need to deviate from its investment policies and may not achieve its investment objective. The Funds portfolio composition may change as its portfolio holdings mature or are called or sold in anticipation
of an Eligible Tender Offer or the Dissolution Date. During such period(s), it is possible that the Fund will hold a greater percentage of its total assets in shorter term and lower yielding securities and cash and cash equivalents than it would
otherwise, which may impede the Funds ability to achieve its investment objective and adversely impact the Funds performance and distributions to Common Shareholders, which may in turn adversely impact the market value of the Common
Shares. In addition, the Fund may be required to reduce its leverage, which could also adversely impact its performance. The additional cash or cash equivalents held by the Fund could be obtained through reducing the Funds distributions to
Common Shareholders and/or holding cash in lieu of reinvesting, which could limit the ability of the Fund to participate in new investment opportunities. The Fund does not limit its investments to securities having a maturity date prior to or around
the Dissolution Date, which may exacerbate the foregoing risks and considerations. A Common Shareholder may be subject to the foregoing risks over an extended period of time, particularly if the Fund conducts an Eligible Tender Offer and is also
subsequently terminated by or around the Dissolution Date.
If the Fund conducts an Eligible Tender Offer, the Fund anticipates that funds to pay the
aggregate purchase price of shares accepted for purchase pursuant to the tender offer will be first derived from any cash on hand and then from the proceeds from the sale of portfolio investments held by the Fund. In addition, the Fund may be
required to dispose of portfolio investments in connection with any reduction in the Funds outstanding leverage necessary in order to maintain the Funds desired leverage ratios following a tender offer. The risks related to the
disposition of securities in connection with the Funds dissolution also would be present in connection with the disposition of securities in connection with an Eligible Tender Offer. It is likely that during the pendency of a tender offer, and
possibly for a time thereafter, the Fund will hold a greater than normal percentage of its total assets in cash and cash equivalents, which may impede the Funds ability to achieve its investment objective and decrease returns to shareholders.
The tax effect of any such dispositions of portfolio investments will depend on the difference between the price at which the investments are sold and the tax basis of the Fund in the investments. Any capital gains recognized on such dispositions,
as reduced by any capital losses the Fund realizes in the year of such dispositions and by any available capital loss carryforwards, will be distributed to shareholders as capital gain dividends (to the extent of net long-term capital gains over net
short-term capital losses) or ordinary dividends (to the extent of net short-term capital gains over net long-term capital losses) during or with respect to such year, and such distributions will generally be taxable to Common Shareholders. If the
Funds tax basis for the investments sold is less than the sale proceeds, the Fund will recognize capital gains, which the Fund will be required to distribute to Common Shareholders. In addition, the Funds purchase of tendered Common
Shares pursuant to a tender offer will have tax consequences for tendering Common Shareholders and may have tax consequences for non-tendering Common Shareholders.
The purchase of Common Shares by the Fund pursuant to a tender offer will have the effect of increasing the proportionate interest in the Fund of non-tendering Common Shareholders. All Common Shareholders remaining after a tender offer may be subject to proportionately higher expenses due to the reduction in the Funds total assets resulting
from payment for the tendered Common Shares. Such reduction in the Funds total assets may result in less investment flexibility, reduced diversification and greater volatility for the Fund, and may have an adverse effect on the Funds
investment performance. Such reduction in the Funds total assets may also cause Common Shares to become thinly traded or otherwise negatively impact secondary trading of Common Shares. A reduction in net assets, and the corresponding increase
in the Funds expense ratio, could result in lower returns and put the Fund at a disadvantage relative to its peers and potentially cause the Funds Common Shares to trade at a wider discount to NAV than it otherwise would. Furthermore,
the portfolio of the Fund following an Eligible Tender Offer could be significantly
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52 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
different and, therefore, Common Shareholders retaining an investment in the Fund could be subject to greater risk. For example, the Fund may be required to sell its more liquid, higher quality
portfolio investments to purchase Common Shares that are tendered in an Eligible Tender Offer, which would leave a less liquid, lower quality portfolio for remaining shareholders. The prospects of an Eligible Tender Offer may attract arbitrageurs
who would purchase the Common Shares prior to the tender offer for the sole purpose of tendering those shares which could have the effect of exacerbating the risks described herein for shareholders retaining an investment in the Fund following an
Eligible Tender Offer.
The Fund is not required to conduct an Eligible Tender Offer. If the Fund conducts an Eligible Tender Offer, there can be no
assurance that the number of tendered Common Shares would not result in the Fund having aggregate net assets below the Dissolution Threshold, in which case the Eligible Tender Offer will be canceled, no Common Shares will be repurchased pursuant to
the Eligible Tender Offer and the Fund will dissolve on the Dissolution Date (subject to possible extensions). The Adviser has a conflict of interest in recommending to the Board that the Dissolution Date be eliminated and the Fund have a perpetual
existence, because the Adviser would continue to earn fees for managing the Fund. The Fund is not required to conduct additional tender offers following an Eligible Tender Offer and conversion to perpetual existence. Therefore, remaining Common
Shareholders may not have another opportunity to participate in a tender offer.
Leverage Risk
The Funds use of leverage (as described under Leverage in the Funds Investment Objective and Strategies above) creates the opportunity for
increased net income and capital appreciation, but also creates special risks for Common Shareholders. There is no assurance that the Funds leveraging strategies will be successful. Leverage is a speculative technique that exposes the Fund to
greater risk and increased costs. The interest expense payable by the Fund with respect to its reverse repurchase agreements, dollar roll transactions or similar transactions, borrowings and/or dividends payable with respect to any outstanding
preferred shares may be based on shorter-term interest rates that periodically reset. So long as the Funds portfolio investments provide a higher rate of return (net of applicable Fund expenses) than the interest expenses, dividend expenses
and other costs to the Fund of such leverage, the investment of the proceeds thereof should generate more income than will be needed to pay the costs of the leverage. If so, and all other things being equal, the excess would be used to pay higher
dividends to Common Shareholders than if the Fund were not so leveraged. If, however, interest rates rise relative to the rate of return on the Funds portfolio, the interest and other costs to the Fund of leverage, including interest expenses
on borrowings, the dividend rate on any outstanding preferred shares and/or the cost of the use of reverse repurchase agreements and dollar rolls or similar transactions, could exceed the rate of return on the debt obligations and other investments
held by the Fund, thereby reducing the return to Common Shareholders.
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 the Funds use of leverage will result in a higher investment return on the Common Shares, and it may result in losses. In addition, fees and
expenses of any form of leverage used by the Fund will be borne entirely by the Common Shareholders and not by preferred shareholders, if any, and will reduce the investment return of the Common Shares. In addition, any preferred shares issued by
the Fund may pay cumulative dividends, which may tend to increase leverage risk.
Leverage creates several major types of risks for Common Shareholders,
including:
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the likelihood of greater volatility of NAV and market price of Common Shares, and of the investment return to
Common Shareholders, than a comparable portfolio without leverage; |
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the possibility either that Common Share dividends will fall if the interest and other costs of leverage rise, or
that dividends paid on Common Shares will fluctuate because such costs vary over time; |
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the effects of leverage in a declining market or a rising interest rate environment, as leverage is likely to cause
a greater decline in the NAV of the Common Shares than if the Fund were not leveraged and may result in a greater decline in the market value of the Common Shares; and |
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the Funds creditors, counterparties to the Funds leveraging transactions and any preferred shareholders
of the Fund will have priority of payment over the Funds Common Shareholders. |
The use by the Fund of reverse repurchase agreements
and dollar roll transactions or similar transactions to obtain leverage also involves special risks. For instance, the market value of the securities that the Fund is obligated to repurchase under a reverse repurchase agreement may decline below the
repurchase price and the securities may not be returned to the Fund.
In addition to borrowings, an issuance of preferred shares, reverse repurchase
agreements and/or dollar roll transactions or similar transactions, the Funds use of other transactions that may give rise to a form of leverage (including, among others, credit default
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Summary of Updated Information Regarding the Fund (Cont.) |
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swap contracts and other transactions, loans of portfolio securities, transactions involving derivative instruments, short sales, and when issued, delayed delivery, and forward commitment
transactions) gives rise to the associated leverage risks described above, and may adversely affect the Funds income, distributions, and total returns to Common Shareholders. The Fund also may seek to offset derivatives positions against one
another or against other assets in an attempt to manage effective market exposure resulting from derivatives in its portfolio. To the extent that any positions do not behave in relation to one another as expected by the Adviser, the Fund may perform
as if it is leveraged through use of these derivative strategies.
Counterparties to the Funds other leveraging transactions (e.g., total return swaps,
reverse repurchases, loans of portfolio securities, short sales and when-issued, delayed delivery and forward commitment transactions, credit default swaps, basis swaps and other swap agreements, futures and forward contracts, call and put options
or other derivatives), if any, would have seniority over the Funds Common Shares.
Regulations or guidance issued by applicable regulators including
the SEC or the Commodity Futures Trading Commission (the CFTC) or their staffs could, among other things, restrict the Funds ability to engage in leveraging and derivatives transactions (for example, by making certain types of
derivatives transactions no longer available to the Fund) and/or increase the costs of such leveraging and derivatives transactions (for example, by increasing margin or capital requirements), and the Fund may be unable to execute its investment
strategy as a result.
The Funds ability to utilize leverage, invest in accordance with its principal investment strategies, and make distributions to
Common Shareholders may also be limited by asset coverage requirements applicable to the use of certain transactions that may involve leverage, restrictions imposed by the Funds creditors, and guidelines or restrictions imposed by rating
agencies that provide ratings for preferred shares or in connection with liquidity arrangements for preferred shares.
Because the fees received by the
Adviser are based on the total managed assets of the Fund (including assets attributable to any reverse repurchase agreements, dollar roll transactions or similar transactions, borrowings, and 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), the Adviser has a financial incentive to cause the Fund to use leverage, which creates a conflict of
interest between the Adviser, on the one hand, and the Common Shareholders, on the other hand.
Liquidity Risk
Liquidity risk is the risk that the Fund may invest in securities that trade in lower volumes and may be less liquid than other investments or that the
Funds investments may become less liquid in response to market developments or adverse investor perceptions. Illiquidity may be the result of, for example, low trading volumes, lack of a market maker, or contractual or legal restrictions that
limit or prevent the Fund from selling securities or closing positions. When there is no willing buyer and investments cannot be readily sold or closed out, the Fund may have to sell an investment at a substantially lower price than the price at
which the Fund last valued the investment for purposes of calculating its NAV or may not be able to sell the investments at all, each of which would have a negative effect on the Funds performance and may cause the Fund to hold an investment
longer than the Adviser would otherwise determine. In addition, if the Fund sells investments with extended settlement times (e.g., certain kinds of loans), the settlement proceeds from the sales will not be available to the Fund for a substantial
period of time. The Fund may be forced to sell other investment positions with shorter settlement cycles when the Fund would not otherwise have done so, which may adversely affect the Funds performance. Additionally, the market for certain
investments may become illiquid under adverse market or economic conditions (e.g., if interest rates rise or fall significantly, if there is significant inflation or deflation, increased selling of debt securities generally across other
funds, pools and accounts, changes in investor perception, or changes in government intervention in the financial markets) independent of any specific adverse changes in the conditions of a particular issuer. In such cases, shares of the Fund, due
to the difficulty in purchasing and selling such securities or instruments, may decline in value or the Fund may be unable to achieve its desired level of exposure to a certain issuer or sector. During periods of substantial market disruption, a
large portion of the Funds assets could potentially experience significant levels of illiquidity. The values of illiquid investments are often more volatile and may be more difficult to fair value than those of more liquid comparable
investments.
Portfolio Management Risk
Portfolio management risk is the risk that an investment strategy may fail to produce the intended results. There can be no assurance that the Fund will achieve
its investment objective. The Advisers judgments about the attractiveness, value and potential appreciation of particular asset classes, sectors, securities, or other investments may prove to be incorrect and may not anticipate actual market
movements or the impact of economic conditions generally. No matter how well a portfolio manager evaluates market conditions, the investments a portfolio manager chooses may fail to produce the intended result, and you could lose money on your
investment in the Fund.
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54 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
Valuation Risk
Valuation risk is 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 Funds NAV. The valuation of the Funds 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. As a result, there can be no assurance that fair value pricing will result in adjustments to the prices of securities or other assets, or that fair value pricing will reflect actual market
value, and it is possible that the fair value determined for a security or other asset will be materially different from quoted or published prices, from the prices used by others for the same security or other asset and/or from the value that
actually could be or is realized upon the sale of that security or other asset.
Investment and Market Risk
An investment in Common Shares is subject to investment risk, including the possible loss of the entire principal amount invested. An investment in Common Shares
represents an indirect investment in the securities and other instruments owned by the Fund. The market price of securities and other instruments may go up or down, sometimes rapidly or unpredictably. Securities may decline in value due to factors
affecting markets generally, particular industries represented in those markets, or the issuer itself. The values of securities may decline due to general market conditions that are not specifically related to a particular issuer, such as real or
perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. Equity securities generally have greater price volatility than bonds and
other debt securities. Common Shares are subject to 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, political, economic or market developments, 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. These risks may be heightened for fixed
income securities due to the current historically low interest rate environment.
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 Funds investments may affect
the Funds 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
Credit risk is the
risk that an issuer or counterparty will fail to pay its obligations to the Fund when they are due. If an investments issuer or counterparty fails to pay interest or otherwise fails to meet its obligations to the Fund, the Funds income
might be reduced and the value of the investment might fall or be lost entirely. Financial strength and solvency of an issuer are the primary factors influencing credit risk. 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 securitys or other instruments credit quality or value and an issuers or counterpartys 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 issuers goods and services, as well as the historical and prospective earnings of the issuer and the value of its assets.
Credit risk is heightened to the extent the Fund has fewer counterparties.
In addition, lack of or inadequacy of collateral or credit enhancements for a
fixed income security may affect its credit risk. Credit risk of a security may change over time, and securities which are rated by rating agencies may be subject to downgrade, which may have an indirect impact on the market price of securities.
Ratings are only opinions of the agencies issuing them as to the likelihood of re-payment. They are not guarantees as to quality and they do not reflect market risk.
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Annual Report |
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September 30, 2022 |
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55 |
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Summary of Updated Information Regarding the Fund (Cont.) |
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During periods of deteriorating economic
conditions, such as recessions or periods of rising unemployment, delinquencies and losses generally increase, sometimes dramatically, with respect to debt securities and other obligations of all kinds. The effects of the COVID-19 virus, and governmental responses to the effects of the virus, may result in increased delinquencies and losses in respect of all investments held by the Fund, and have other, potentially unanticipated,
adverse effects on such investments and the markets for those investments.
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. Bonds and other debt instruments typically have a positive duration. The value of a debt instrument with positive
duration will generally decline if interest rates increase. Certain other investments, such as inverse floaters and certain derivative instruments, may have a negative duration. The value of instruments with a negative duration will generally
decline if interest rates decrease. Inverse floaters, interest-only and principal-only securities are especially sensitive to interest rate changes, which can affect not only their prices but can also change the income flows and repayment
assumptions about those investments. The prices of long-term debt obligations generally fluctuate more than prices of short-term debt obligations as interest rates change. Because the Funds weighted average effective duration generally will
fluctuate as interest rates change, the Common Share NAV and market price per share may tend to fluctuate more in response to changes in market interest rates than if the Fund invested mainly in short-term debt securities. During periods of rising
interest rates, the average life of certain types of securities may extend due to lower than expected rates of pre-payments, which could cause the securities durations to extend and expose the securities
to more price volatility. This may lock in a below market yield, increase the securitys duration and reduce the securities value. In addition to directly affecting debt securities, rising interest rates also may have an adverse effect on
the value of any equity securities held by the Fund. The Funds use of leverage will tend to increase Common Share interest rate risk. DoubleLine may use certain strategies, including investments in structured notes or interest rate futures
contracts or swap, cap, floor or collar transactions, for the purpose of reducing the interest rate sensitivity of the Funds portfolio, although there is no assurance that it will do so or that such strategies will be successful. Recently,
there have been inflationary price movements, which have caused the fixed income securities markets to experience heightened levels of interest rate volatility and liquidity risk. The risks associated with rising interest rates may be particularly
acute in the current market environment because the Federal Reserve Board recently raised rates and may continue to do so.
Yield curve risk is the risk
associated with either a flattening or steepening of the yield curve. The yield curve is a representation of market interest rates of obligations with durations of different lengths. When the yield curve is steep, longer-term obligations
bear higher rates of interest than similar shorter-term obligations; when the curve flattens, the difference between those interest rates is reduced. If the yield curve is inverted, longer term obligations bear lower interest
rates than shorter term obligations. If the Funds portfolio is structured to perform favorably in a particular interest rate environment, a change in the yield curve could result in losses to the Fund.
Variable and floating rate debt securities are generally less sensitive to interest rate changes, but may decline in value if their interest rates do not rise as
much, or as quickly, as interest rates in general. Conversely, floating rate securities will not generally increase in value at all or to the same extent as fixed rate instruments when interest rates decline. Inverse floating rate debt securities
may decrease in value if interest rates increase.
Inverse floating rate debt securities also may exhibit greater price volatility than a fixed rate debt
obligation with similar credit quality. When the Fund holds variable or floating rate securities, a decrease (or, in the case of inverse floating rate securities, an increase) in market interest rates will adversely affect the income received from
such securities and the NAV of the Common Shares.
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:
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Redemption RiskDebt 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. |
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Extension RiskThis is 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. |
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56 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
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Liquidity RiskCertain debt securities may be substantially less liquid than many other securities, such as
U.S. Government securities or common shares or other equity securities. |
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Spread RiskWider credit spreads and decreasing market values typically represent a deterioration of the debt
securitys credit soundness and a perceived greater likelihood or risk of default by the issuer. |
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Limited Voting RightsDebt 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. |
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Prepayment/Reinvestment RiskMany types of debt securities, including floating rate loans, mortgage-backed
securities and asset-backed securities, may reflect an interest in periodic payments made by borrowers. Although debt securities and other obligations typically mature after a specified period of time, borrowers may pay them off sooner. When a
prepayment happens, all or a portion of the obligation will be prepaid. A borrower is more likely to prepay an obligation which bears a relatively high rate of interest. This means that in times of declining interest rates, there is a greater
likelihood that the Funds higher yielding securities will be pre-paid and the Fund will probably be unable to reinvest those proceeds in an investment with as great a yield, causing the Funds yield
to decline. Securities subject to prepayment risk generally offer less potential for gains when prevailing interest rates fall. If the Fund buys those investments at a premium, accelerated prepayments on those investments could cause the Fund to
lose a portion of its principal investment and result in lower yields to shareholders. The increased likelihood of prepayment when interest rates decline also limits market price appreciation, especially with respect to certain loans,
mortgage-backed securities and asset-backed securities. The effect of prepayments on the price of a security may be difficult to predict and may increase the securitys price volatility. Interest-only and principal-only securities are
especially sensitive to interest rate changes, which can affect not only their prices but can also change the income flows and repayment assumptions about those investments. Income from the Funds portfolio may decline when the Fund invests the
proceeds from investment income, sales of portfolio securities or matured, traded or called debt obligations. A decline in income received by the Fund from its investments is likely to have a negative effect on the dividend levels and market price,
NAV and/or overall return of the Common Shares. |
The Funds investments in debt securities may include, but are not limited to,
senior, junior, secured and unsecured bonds, notes and other debt securities, and may be fixed rate, floating rate, zero coupon and inflation linked, among other things. The Fund may invest in convertible bonds, which are fixed income securities
that are exercisable into other debt or equity securities, and synthetic convertible securities, which are created through a combination of separate securities that possess the two principal characteristics of a traditional convertible
security, i.e., an income-producing security (income-producing component) and the right to acquire an equity security (convertible component). The market value of a debt security may be affected by the credit
rating of the issuer, the issuers performance, perceptions of the issuer in the marketplace, management performance, financial leverage and reduced demand for the issuers goods and services. There is a risk that the issuers of the debt
securities in which the Fund may invest may not be able to meet their obligations on interest or principal payments at the time called for by an instrument.
Mortgage-Backed Securities Risks
Mortgage-backed securities include, among other things, participation interests in pools of residential mortgage loans purchased from individual lenders by a
federal agency or originated and issued by private lenders and involve, among others, the following risks:
Credit and Market Risks of Mortgage-Backed
Securities. Investments by the Fund in fixed rate and floating rate mortgage-backed securities will entail credit risks (i.e., the risk of non-payment of interest
and principal) and market risks (i.e., the risk that interest rates and other factors could cause the value of the instrument to decline). Many issuers or servicers of mortgage-backed securities guarantee timely payment of interest and
principal on the securities, whether or not payments are made when due on the underlying mortgages. This kind of guarantee generally increases the quality of a security, but does not mean that the securitys market value and yield will not
change. The values of mortgage-backed securities may change because of changes in the markets perception of the credit quality of the assets held by the issuer of the mortgage-backed securities or an entity, if any, providing credit support in
respect of the mortgage-backed securities. In addition, an unexpectedly high rate of defaults on the mortgages held by a mortgage pool may limit substantially the pools ability to make payments of principal or interest to the Fund as a holder
of such securities, reducing the values of those securities or in some cases rendering them worthless. The Fund also may purchase securities that are not guaranteed or subject to any credit support. An investment in a privately issued
mortgage-backed security is generally less liquid and subject to greater credit risks than an investment in a mortgage-backed security that is issued or otherwise guaranteed by a federal government agency or sponsored corporation.
Mortgage-backed securities may be structured similarly to collateralized debt obligations (CDOs) and may be subject to similar risks. For example,
the cash flows from the collateral held by the mortgage-backed security may be split into two or more portions,
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Annual Report |
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September 30, 2022 |
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57 |
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Summary of Updated Information Regarding the Fund (Cont.) |
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called tranches, varying in risk and yield. Senior tranches are paid from the cash flows from the underlying assets before the junior tranches and equity or first loss tranches.
Losses are first borne by the equity tranches, next by the junior tranches, and finally by the senior tranches. Interest holders in senior tranches are entitled to the lowest interest rates but are generally subject to less credit risk than more
junior tranches because, should there be any default, senior tranches are typically paid first. The most junior tranches, such as equity tranches, typically are due to be paid the highest interest rates but suffer the highest risk of loss should the
holder of an underlying mortgage loan default. If some loans default and the cash collected by the issuer of the mortgage-backed security is insufficient to pay all of its investors, those in the lowest, most junior tranches suffer losses first.
Like bond investments, the value of fixed rate mortgage-backed securities will tend to rise when interest rates fall, and fall when rates rise. Floating rate mortgage-backed securities generally tend to have more moderate changes in price when
interest rates rise or fall, but their current yield will generally be affected. In addition, the mortgage-backed securities market in general may be adversely affected by changes in governmental legislation or regulation. Factors that could affect
the value of a mortgage-backed security include, among other things, the types and amounts of insurance which an individual mortgage or that specific mortgage-backed security carries, the default and delinquency rate of the mortgage pool, the amount
of time the mortgage loan has been outstanding, the loan-to-value ratio of each mortgage and the amount of overcollateralization or undercollateralization of a
mortgage pool. 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 issuers securities.
The residential mortgage market in the United States has experienced difficulties at times, and the same or similar events may adversely affect the performance
and market value of certain of the Funds mortgage-related investments. Delinquencies and losses on residential mortgage loans (especially subprime and second-lien mortgage loans) generally increase in a recession and potentially could begin to
increase again. A decline in or flattening of housing values may exacerbate such delinquencies and losses. Borrowers with adjustable rate mortgage loans may be more sensitive to changes in interest rates, which affect their monthly mortgage
payments, and may be unable to secure replacement mortgages at comparably low interest rates. Reduced investor demand for mortgage-related securities could result in limited new issuances of mortgage-related securities and limited liquidity in the
secondary market for mortgage-related securities, which can adversely affect the market value of mortgage-related securities and limit the availability of attractive investment opportunities for the Fund.
The values of mortgage-backed securities may be substantially dependent on the servicing of the underlying mortgage pools, and therefore are subject to risks
associated with the negligence or malfeasance by their servicers and to the credit risk of their servicers. In certain circumstances, the mishandling of related documentation also may affect the rights of security holders in and to the underlying
collateral.
Some government sponsored mortgage-related securities are backed by the full faith and credit of the United States. The Government National
Mortgage Association (Ginnie Mae), the principal guarantor of such securities, is a wholly owned United States government corporation within the Department of Housing and Urban Development. Other government-sponsored mortgage-related
securities are not backed by the full faith and credit of the United States government. Issuers of such securities include Fannie Mae (formally known as the Federal National Mortgage Association) and Freddie Mac (formally known as the Federal Home
Loan Mortgage Corporation). Fannie Mae is a government-sponsored corporation which is subject to general regulation by the Secretary of Housing and Urban Development. Pass-through securities issued by Fannie Mae are guaranteed as to timely payment
of principal and interest by Fannie Mae. Freddie Mac is a stockholder-owned corporation chartered by Congress and subject to general regulation by the Department of Housing and Urban Development. Participation certificates representing interests in
mortgages from Freddie Macs national portfolio are guaranteed as to the timely payment of interest and ultimate collection of principal by Freddie Mac. The U.S. government has provided financial support to Fannie Mae and Freddie Mac in the
past, but there can be no assurances that it will support these or other government-sponsored entities in the future.
During periods of deteriorating
economic conditions, such as recessions or periods of rising unemployment, delinquencies and losses generally increase, sometimes dramatically, with respect to securitizations involving mortgage loans and other obligations underlying mortgage-backed
securities. The effects of the COVID-19 virus, and governmental responses to the effects of the virus, may result in increased delinquencies and losses and have other, potentially unanticipated,
adverse effects on such investments and the markets for those investments.
Liquidity Risk of Mortgage-Backed
Securities. The liquidity of mortgage-backed securities varies by type of security; at certain times the Fund may encounter difficulty in disposing of such investments. Investments in privately issued mortgage-backed
securities may have less liquidity than mortgage-backed securities that are issued by a federal government agency or sponsored corporation. Because mortgage-backed securities have the potential to be less liquid than other securities, the Fund may
be more susceptible to liquidity risks than funds that invest in other securities. In the past, in stressed markets, certain types of mortgage- backed securities
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58 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
suffered periods of illiquidity when disfavored by the market. It is possible that the Fund may be unable to sell a mortgage-backed security at a desirable time or at the value the Fund has
placed on the investment.
Commercial Mortgage-Backed Securities (CMBS) Risks. CMBS include securities that
reflect an interest in, or are secured by, mortgage loans on commercial real property. Many of the risks of investing in commercial mortgage-backed securities reflect the risks of investing in the real estate securing the underlying mortgage loans.
These risks reflect the effects of local and other economic conditions on real estate markets, the ability of tenants to make loan payments and the ability of a property to attract and retain tenants. Commercial mortgage-backed securities may be
less liquid and exhibit greater price volatility than other types of mortgage- or asset-backed securities.
With respect to risk retention tranches (i.e.,
eligible residual interests initially held by the sponsors of collateralized mortgage-backed securities and other eligible securitizations pursuant to the U.S. Risk Retention Rules), a third-party purchaser, such as the Fund, must hold its retained
interest, unhedged, for at least five years following the closing of the securitization transaction, after which it is entitled to transfer its interest in the securitization to another person that meets the requirements for a third-party purchaser.
Even after the required holding period has expired, due to the limited market for such investments, no assurance can be given as to what, if any, exit strategies will ultimately be available for any given position. In addition, there is limited
guidance on the application of the laws and regulations applicable to such investments. There can be no assurance that the applicable federal agencies charged with the implementation of the Final U.S. Risk Retention Rules (the FDIC, the Comptroller
of the Currency, the Federal Reserve Board, the SEC, the Department of Housing and Urban Development, and the Federal Housing Finance Agency) could not take positions in the future that differ from the interpretation of such rules taken or embodied
in such securitizations, or that the Final U.S. Risk Retention Rules will not change. Furthermore, in situations where the Fund invests in risk retention tranches of securitizations structured by third parties, the Fund may be required to execute
one or more letters or other agreements, the exact form and nature of which will vary (each, a Risk Retention Agreement) under which it will make certain undertakings designed to ensure such securitization complies with the Final U.S.
Risk Retention Rules. Such Risk Retention Agreements may include a variety of representations, warranties, covenants and other indemnities, each of which may run to various transaction parties. If the Fund breaches any undertakings in any Risk
Retention Agreement, it will be exposed to claims by the other parties thereto, including for any losses incurred as a result of such breach.
Prepayment, Extension and Redemption Risks of Mortgage-Backed Securities. Mortgage-backed securities may reflect an interest in
monthly payments made by the borrowers who receive the underlying mortgage loans. Although the underlying mortgage loans are for specified periods of time, such as 20 or 30 years, the borrowers can, and historically have often paid them off sooner.
When a prepayment happens, a portion of the mortgage-backed security which represents an interest in the underlying mortgage loan will be prepaid. A borrower is more likely to prepay a mortgage which bears a relatively high rate of interest. This
means that in times of declining interest rates, a portion of the Funds higher yielding securities are likely to be redeemed and the Fund will probably be unable to replace them with securities having as great a yield. Prepayments can result
in lower yields to shareholders. The increased likelihood of prepayment when interest rates decline also limits market price appreciation. This is known as prepayment risk. Mortgage-backed securities also are subject to extension risk. Extension
risk is the possibility that rising interest rates may cause prepayments to occur at a slower than expected rate. This particular risk may effectively change a security which was considered short or intermediate term into a long-term security. The
values of long-term securities generally fluctuate more widely in response to changes in interest rates than short or intermediate-term securities. In addition, a mortgage-backed security may be subject to redemption at the option of the issuer. If
a mortgage-backed security held by the Fund is called for redemption, the Fund will be required to permit the issuer to redeem or pay-off the security, which could have an adverse effect on the Funds
ability to achieve its investment objective.
Collateralized Mortgage Obligations (CMOs) Risks. CMOs are debt
obligations collateralized by mortgage loans or mortgage pass-through securities. The expected average life of CMOs is determined using mathematical models that incorporate prepayment assumptions and other factors that involve estimates of future
economic and market conditions. These estimates may vary from actual future results, particularly during periods of extreme market volatility. Further, under certain market conditions, the average weighted life of certain CMOs may not accurately
reflect the price volatility of such securities. For example, in periods of supply and demand imbalances in the market for such securities and/or in periods of sharp interest rate movements, the prices of CMOs may fluctuate to a greater extent than
would be expected from interest rate movements alone. CMOs issued by private entities are not obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities and are not guaranteed by any government agency, although the
securities underlying a CMO may be subject to a guarantee. Therefore, if the collateral securing the CMO, as well as any third party credit support or guarantees, is insufficient to make payments when due, the holder could sustain a loss.
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Annual Report |
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September 30, 2022 |
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Summary of Updated Information Regarding the Fund (Cont.) |
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Adjustable Rate Mortgages
(ARMs) Risks. ARMs contain maximum and minimum rates beyond which the mortgage interest rate may not vary over the lifetime of the security. In addition, many ARMs provide for additional limitations on the
maximum amount by which the mortgage interest rate may adjust for any single adjustment period. Alternatively, certain ARMs contain limitations on changes in the required monthly payment. In the event that a monthly payment is not sufficient to pay
the interest accruing on an ARM, any excess interest is added to the principal balance of the mortgage loan, which is repaid through future monthly payments. If the monthly payment for such an instrument exceeds the sum of the interest accrued at
the applicable mortgage interest rate and the principal payment required at such point to amortize the outstanding principal balance over the remaining term of the loan, the excess is used to reduce the then-outstanding principal balance of the ARM.
In addition, certain ARMs may provide for an initial fixed, below-market or teaser interest rate. During this initial fixed-rate period, the payment due from the related mortgagor may be less than that of a traditional loan. However, after the
teaser rate expires, the monthly payment required to be made by the mortgagor may increase significantly when the interest rate on the mortgage loan adjusts. This increased burden on the mortgagor may increase the risk of delinquency or default on
the mortgage loan and in turn, losses on the mortgage-backed security into which that loan has been bundled.
Interest and Principal Only Securities
Risks. Stripped mortgage-backed securities are usually structured with two classes that receive different portions of the interest and principal distributions on a pool of debt instruments, such as mortgage loans. In one
type of stripped mortgage-backed security, one class will receive all of the interest from the mortgage assets (the interest-only, or IO class), while the other class will receive all of the principal from the mortgage assets (the
principal-only, or PO class). The yield to maturity (the expected rate of return on a bond if held until the end of its lifetime) on an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the
underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on the Funds yield to maturity from these securities. If the assets underlying the IO class experience greater than anticipated prepayments
of principal, the Fund may fail to recoup fully, or at all, its initial investment in these securities. PO class securities tend to decline in value if prepayments are slower than anticipated.
Inverse Floaters and Related Securities Risks. Investments in inverse floaters and similar instruments expose the Fund to the
same risks as investments in debt securities and derivatives, as well as other risks, including those associated with increased volatility. An investment in these securities typically will involve greater risk than an investment in a fixed rate
security. Distributions on inverse floaters and similar instruments will typically bear an inverse relationship to short-term interest rates and typically will be reduced or, potentially, eliminated as interest rates rise. The rate at which interest
is paid on an inverse floater may vary by a magnitude that exceeds the magnitude of the change in a reference rate of interest (typically a short-term interest rate). The effect of the reference rate multiplier in inverse floaters is associated with
greater volatility in their market values. Investments in inverse floaters and similar instruments that have mortgage-backed securities underlying them will expose the Fund to the risks associated with those mortgage-backed securities and the values
of those investments may be especially sensitive to changes in prepayment rates on the underlying mortgage-backed securities.
Foreign Investing Risk
Investments in foreign securities or in issuers with significant exposure to foreign markets may involve greater risks than investments in domestic securities. To
the extent that investments are made in a limited number of countries, events in those countries will have a more significant impact on the Fund. As compared to U.S. companies, foreign issuers generally disclose less financial and other information
publicly and are subject to less stringent and less uniform accounting, auditing, and financial reporting standards. In addition, there may be limited information generally regarding factors affecting a particular foreign market, issuer, or
security.
Foreign countries typically impose less thorough regulations on brokers, dealers, stock exchanges, corporate insiders and listed companies than
does the United States and foreign securities markets may be less liquid and more volatile than domestic markets. Investment in foreign securities involves higher costs than investment in U.S. securities, including higher transaction and custody
costs as well as the imposition of additional taxes by foreign governments, and as a result investments in foreign securities may be subject to issues relating to security registration or settlement. In addition, security trading and custody
practices abroad may offer less protection to investors such as the Fund. Political, social or financial instability, civil unrest, geopolitical tensions, wars, and acts of terrorism are other potential risks that could adversely affect an
investment in a foreign security or in foreign markets or issuers generally. Settlement of transactions in some foreign markets may be delayed or may be less frequent than in the United States which could affect the liquidity of the Funds
portfolio. Custody practices and regulations abroad may offer less protection to investors, such as the Fund, and the Fund may be limited in its ability to enforce contractual rights or obligations.
Because foreign securities generally are denominated and pay dividends or interest in foreign currencies, and the Fund may hold various foreign currencies from
time to time, the value of the Funds assets, as measured in U.S. dollars, can be affected unfavorably by changes in exchange rates with respect to the U.S. dollar or with respect to other foreign currencies or by unfavorable currency
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60 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
regulations imposed by foreign governments. If the Fund invests in securities issued by foreign issuers, the Fund may be subject to these risks even if the investment is denominated in United
States dollars. This risk may be heightened with respect to issuers whose revenues are principally earned in a foreign currency but whose debt obligations have been issued in United States dollars or other hard currencies.
Foreign issuers may become subject to sanctions imposed by the U.S. or another country or other governmental or
non-governmental organizations, which could result in the immediate freeze of the foreign issuers assets or securities and/or make their securities worthless. The imposition of such sanctions, such as
sanctions imposed against Russia, Russian entities and Russian individuals in 2022, could impair the market value of the securities of such foreign issuers and limit the Funds ability to buy, sell, receive or deliver the securities. Sanctions,
or the threat of sanctions, may cause volatility in regional and global markets and may negatively impact the performance of various sectors and industries, as well as companies in other countries, which could have a negative effect on the
performance of the Fund.
Continuing uncertainty as to the status of the European Economic and Monetary Union (EMU) and the potential for certain
countries to withdraw from the institution has created significant volatility in currency and financial markets generally. Any partial or complete dissolution of the EU could have significant adverse effects on currency and financial markets, and on
the values of the Funds portfolio investments. On January 31, 2020, the UK left the EU (commonly known as Brexit). An agreement between the UK and the EU governing their future trade relationship became effective
January 1, 2021, but critical aspects of the relationship remain unresolved and subject to further negotiation and agreement. Brexit has resulted in volatility in European and global markets and could have negative long-term impacts on
financial markets in the UK and throughout Europe. There is still considerable uncertainty relating to the potential consequences of the exit, how the negotiations for new trade agreements will be conducted, and whether the UKs exit will
increase the likelihood of other countries also departing the EU. During this period of uncertainty, the negative impact on not only the UK and European economies, but the broader global economy, could be significant, potentially resulting in
increased market volatility and illiquidity, political, economic, and legal uncertainty, and lower economic growth for companies that rely significantly on Europe for their business activities and revenues. Any further exits from the EU, or the
possibility of such exits, or the abandonment of the euro, may cause additional market disruption globally and introduce new legal and regulatory uncertainties.
If one or more EMU countries were to stop using the euro as its primary currency, the Funds investments in such countries may be redenominated into a
different or newly adopted currency. As a result, the value of those investments could decline significantly and unpredictably. In addition, securities or other investments that are redenominated may be subject to liquidity risk and the risk that
the Fund may not be able to value investments accurately to a greater extent than similar investments currently denominated in euros. To the extent a currency used for redenomination purposes is not specified in respect of certain EMU-related investments, or should the euro cease to be used entirely, the currency in which such investments are denominated may be unclear, making such investments particularly difficult to value or dispose of.
The Fund may incur additional expenses to the extent it is required to seek judicial or other clarification of the denomination or value of such securities.
Foreign Currency Risk
Currency
risk is the risk that fluctuations in exchange rates may adversely affect the value of the Funds investments. Currency risk includes both the risk that currencies in which the Funds investments are traded and/or in which the Fund
receives income, or currencies in which the Fund has taken an active investment position, will decline in value relative to other currencies. In the case of hedging positions, currency risk includes the risk that the currency the Fund is seeking
exposure to will decline in value relative to the foreign currency being hedged. Currency exchange rates fluctuate significantly for many reasons, including changes in supply and demand in the currency exchange markets, actual or perceived changes
in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks, or supranational agencies such as the International Monetary Fund, and currency controls or other political and economic developments in the
U.S. or abroad. The currencies of certain emerging market countries have experienced devaluations relative to the U.S. dollar, and future devaluations may adversely affect the value of assets denominated in such currencies. A devaluation of the
currency in which portfolio securities are denominated will negatively impact the value of those securities.
Except as otherwise provided in the Funds
principal investment strategies, the Fund may take derivatives (or spot) positions in currencies to which the Fund is exposed through its investments. This presents the risk that the Fund could lose money on both its currency exposure through a
portfolio investment and its currency exposure through a derivatives (or spot) position. The Fund also may take overweighted or underweighted currency positions and/or hedge the currency exposure of the securities in which it has invested. The Fund
may take positions in currencies different from the currencies in which its portfolio investments are denominated. As a result, the Funds currency exposure may differ (in some cases significantly) from the currency exposure of its investments
and/or its benchmarks.
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Annual Report |
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September 30, 2022 |
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61 |
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Summary of Updated Information Regarding the Fund (Cont.) |
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Exposure to emerging market currencies may
entail greater risk than exposure to developed market currencies.
Emerging Markets Risk
Investing in emerging market countries, as compared to foreign developed markets, involves substantial additional risk due to more limited information about the
issuer and/or the security; higher brokerage costs; different accounting, auditing and financial reporting standards; less developed legal systems and thinner trading markets; the possibility of currency blockages or transfer restrictions; an
emerging market countrys dependence on revenue from particular commodities or international aid; and the risk of expropriation, nationalization or other adverse political or economic developments.
Political and economic structures in many emerging market countries may undergo significant evolution and rapid development, and such countries may lack the
social, political and economic stability characteristics of more developed countries. Some emerging market countries have a greater degree of economic, political and social instability than the U.S. and other developed countries. Such social,
political and economic instability could disrupt the financial markets in which the Fund invests and adversely affect the value of its investment portfolio. Some of these countries have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private companies. In addition, unanticipated political or social developments may affect the value of investments in emerging markets and the availability of additional investments in these
markets. The small size, limited trading volume and relative inexperience of the securities markets in these countries may make investments in securities traded in emerging markets illiquid and more volatile than investments in securities traded in
more developed countries, and the Fund may be required to establish special custodial or other arrangements before making investments in securities traded in emerging markets. There may be little financial or accounting information available with
respect to issuers of emerging market securities, and it may be difficult as a result to assess the value or prospects of an investment in such securities.
The securities markets of emerging market countries may be substantially smaller, less developed, less liquid and more volatile than the major securities markets
in the United States and other developed nations. The limited size of many securities markets in emerging market countries and limited trading volume in issuers compared to the volume in U.S. securities or securities of issuers in other developed
countries could cause prices to be erratic for reasons other than factors that affect the quality of the securities and investments in emerging markets can become illiquid. In addition, emerging market countries exchanges and broker-dealers
may generally be subject to less regulation than their counterparts in developed countries. Emerging market securities markets, exchanges and market participants may lack the regulatory oversight and sophistication necessary to deter or detect
market manipulation in such exchanges or markets, which may result in losses to the Fund to the extent it holds investments trading in such exchanges or markets. Brokerage commissions and
dealer mark-ups, custodial expenses and other transaction costs are generally higher in emerging market countries than in developed countries. As a result, funds that invest in emerging market
countries have operating expenses that are higher than funds investing in other securities markets.
The Public Company Accounting Oversight Board, which
regulates auditors of U.S. public companies, is unable to inspect audit work papers in certain foreign countries. Investors in foreign countries often have limited rights and few practical remedies to pursue shareholder claims, including class
actions or fraud claims, and the ability of the SEC, the U.S. Department of Justice and other authorities to bring and enforce actions against foreign issuers or foreign persons is limited. Regulatory regimes outside of the U.S. may not require or
enforce corporate governance standards comparable to that of the U.S., which may result in less protections for investors in such issuers and make such issuers more susceptible to actions not in the best interest of the issuer or its investors.
Emerging market countries may have different clearance and settlement procedures than in the U.S., including significantly longer settlement cycles for purchases
and sales of securities, and in certain markets there may be times when settlements fail to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Further, custody practices abroad may offer less
protection generally to investors, such as the Fund, and satisfactory custodial services for investment securities may not be available in some emerging market countries, which may result in the Fund incurring additional costs and delays in
transporting and custodying such securities outside such countries. Delays in settlement or other problems could result in periods when the Funds assets are uninvested and no return is earned thereon. The Funds inability to make intended
security purchases due to settlement problems or the risk of intermediary counterparty failures could cause the Fund to miss attractive investment opportunities. The inability to dispose of a portfolio security due to settlement problems could
result either in losses to the Fund due to subsequent declines in the value of such portfolio security or, if the Fund has entered into a contract to sell the security, could result in possible liability to the purchaser. The currencies of certain
emerging market countries have experienced devaluations relative to the U.S. dollar, and future devaluations may adversely affect the value of assets denominated in such currencies. Many emerging market countries have experienced substantial, and in
some periods extremely high, rates of inflation or deflation for many years, and future inflation may adversely affect the economies and securities markets of such countries.
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62 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
When debt and similar obligations issued by foreign issuers are denominated in a currency (e.g., the U.S. dollar or the euro) other than the local currency of the issuer, the subsequent
strengthening of the non-local currency against the local currency will generally increase the burden of repayment on the issuer and may increase significantly the risk of default by the issuer.
Emerging market countries have and may in the future impose capital controls, foreign currency controls and repatriation controls. In addition, some currency
hedging techniques may be unavailable in emerging market countries, and the currencies of emerging market countries may experience greater volatility in exchange rates as compared to those of developed countries.
Collateralized Debt Obligations Risk
CDOs include CBOs, CLOs, and other similarly structured securities. A CBO is a trust which may be backed by a diversified pool of high risk, below investment
grade fixed income securities. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, second lien loans or other types of subordinate loans,
and mezzanine loans, including loans that may be rated below investment grade or equivalent unrated loans and including loans that may be covenant-lite. CDOs may charge management fees and administrative expenses. The cash flows from the CDO trust
are generally split into two or more portions, called tranches, varying in risk and yield. Senior tranches are paid from the cash flows from the underlying assets before the junior tranches and equity or first loss tranches. Losses are
first borne by the equity tranches, next by the junior tranches, and finally by the senior tranches. Holders of interests in the senior tranches are entitled to the lowest interest rate payments but those interests generally involve less credit risk
as they are typically paid before junior tranches. The most junior tranches, such as equity tranches, typically are entitled to be paid the highest interest rate payments but suffer the highest risk of loss should the holder of an underlying debt
instrument default. If some debt instruments go into default and the cash collected by the CDO is insufficient to pay all of its investors, those in the lowest, most junior tranches suffer losses first. Since it is partially protected from defaults,
a senior tranche from a CDO trust typically has higher ratings and lower potential yields than the underlying securities, and can be rated investment grade. Despite the protection from the equity tranche, more senior CDO tranches can experience
substantial losses due to actual defaults, increased sensitivity to defaults due to collateral default and disappearance of protecting tranches, market anticipation of defaults and aversion to CDO securities as a class.
The risks of an investment in a CDO depend largely on the quality and type of the collateral and the tranche of the CDO in which the Fund invests. Normally,
CBOs, CLOs and other CDOs are privately offered and sold, and thus are not registered under the securities laws. As a result, there may be a limited secondary market for investments in CDOs and such investments 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 issuers 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 in which the Fund may invest include obligations backed by,
among others, motor vehicle installment sales or installment loan contracts; home equity loans; leases of various types of real, personal and other property (including those relating to aircrafts, telecommunication, energy, and/or other
infrastructure assets and infrastructure-related assets); receivables from credit card agreements; student loans; consumer loans; mobile home loans; boat loans; business and small business loans; project finance loans; airplane leases; and other non-mortgage-related income streams, such as income from renewable energy projects and franchise rights. They may also include asset-backed securities backed by whole loans or fractions of whole loans issued by
alternative lending platforms and securitized by those platforms or other entities (such as third-party originators or brokers). Any of these loans may be of sub-prime quality or made to an obligor with a sub-prime credit history.
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. Such
loans, including those made by alternative lending platforms, may be difficult to value, may have limited payment histories, and may be subject to significant changes in value over time as economic conditions change. Therefore, the values of
asset-backed securities backed by lower quality loans, including those of sub-prime quality, may suffer significantly greater declines in value due to defaults, payment delays or a perceived increased risk of
default, especially during periods when economic conditions worsen. In addition, most or all securities backed by the collateral described above do not involve any credit enhancement provided by the U.S. government or any other party, and certain
asset-backed securities do not have the benefit of a security interest in the related collateral.
Asset-backed securities tend to increase in value less
than traditional debt securities of similar maturity and credit quality when interest rates decline, but are subject to a similar risk of decline in market value during periods of rising interest rates. Certain
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Annual Report |
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September 30, 2022 |
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63 |
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Summary of Updated Information Regarding the Fund (Cont.) |
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assets underlying asset-backed securities are subject to prepayment, which may reduce the overall return to asset-backed security holders. In a period of declining interest rates, pre-payments on asset-backed securities may increase and the Fund may be unable to reinvest those prepaid amounts in investments providing the same rate of interest as
the pre-paid obligations.
The values of asset-backed securities may also be substantially dependent on the
servicing of and diligence performed by their servicers or sponsors or the originating alternative lending platforms. For example, the Fund may suffer losses due to a servicers, sponsors or platforms negligence or malfeasance, such
as through the mishandling of certain documentation affecting security holders rights in and to underlying collateral or the failure to update or collect accurate and complete borrower information. In addition, the values of asset-backed
securities may be adversely affected by the credit quality of the servicer, sponsor or originating alternative lending platform, as applicable. Certain services, sponsors or originating alternative lending platforms may have limited operating
histories to evaluate. The insolvency of a servicer, sponsor or originating alternative lending platform may result in added costs and delays in addition to losses associated with a decline in the value of underlying assets. The Fund also may
experience delays in payment or losses on its investments if the full amount due on underlying collateral is not realized, which may occur because of unanticipated legal or administrative costs of enforcing the contracts, depreciation or damage to
the collateral securing certain contracts, under-collateralization or other factors.
Credit Default Swaps Risk
A credit default swap is an agreement between the Fund and a counterparty that enables the Fund to buy or sell protection against a credit event related to a
particular issuer. One party, acting as a protection buyer, makes periodic payments, which may be based on, among other things, a fixed or floating rate of interest, to the other party, a protection seller, in exchange for a promise by the
protection seller to make a payment to the protection buyer if a negative credit event (such as a delinquent payment or default) occurs with respect to a referenced bond or group of bonds. Credit default swaps may also be structured based on the
debt of a basket of issuers, rather than a single issuer, and may be customized with respect to the default event that triggers purchase or other factors (for example, the Nth default within a basket, or defaults by a particular combination of
issuers within the basket, may trigger a payment obligation). As a credit protection seller in a credit default swap contract, the Fund would be required to pay the par (or other agreed-upon) value of a referenced debt obligation to the counterparty
following certain negative credit events as to a specified third-party debtor, such as default by a U.S. or non-U.S. corporate issuer on its debt obligations. In return for its obligation, the Fund
would receive from the counterparty a periodic stream of payments, which may be based on, among other things, a fixed or floating rate of interest, over the term of the contract provided that no event of default has occurred. If no default occurs,
the Fund would keep the stream of payments, and would have no payment obligations to the counterparty. The Fund may sell credit protection in order to earn additional income and/or to take a synthetic long position in the underlying security or
basket of securities.
The Fund may enter into credit default swap contracts as protection buyer in order to hedge against the risk of default on the debt of
a particular issuer or basket of issuers or attempt to profit from a deterioration or perceived deterioration in the creditworthiness of the particular issuer(s) (also known as buying credit protection). This would involve the risk that the
investment may expire worthless and would only generate gain in the event of an actual default by the issuer(s) of the underlying obligation(s) (or, as applicable, a credit downgrade or other indication of financial instability). It would also
involve the risk that the seller may fail to satisfy its payment obligations to the Fund. The purchase of credit default swaps involves costs, which will reduce the Funds return.
A protection seller may have to pay out amounts following a negative credit event greater than the value of the reference obligation delivered to it by its
counterparty and the amount of periodic payments previously received by it from the counterparty. When the Fund acts as a seller of a credit default swap, it is exposed to, among other things, leverage risk because if an event of default occurs the
seller must pay the buyer the full notional value of the reference obligation. Each party to a credit default swap is subject to the credit risk of its counterparty. The value of the credit default swap to each party will change, at times
significantly, based on changes in the actual or perceived creditworthiness of the underlying issuer.
A protection buyer may lose its investment and recover
nothing should an event of default not occur. The Fund may seek to realize gains on its credit default swap positions, or limit losses on its positions, by selling those positions in the secondary market. There can be no assurance that a liquid
secondary market will exist at any given time for any particular credit default swap or for credit default swaps generally.
The parties to a credit default
swap are generally required to post collateral to each other. If the Fund posts initial or periodic collateral to its counterparty, it may not be able to recover that collateral from the counterparty in accordance with the terms of the swap. In
addition, if the Fund receives collateral from its counterparty, it may be delayed or prevented from realizing on the collateral in the event of the insolvency or bankruptcy of the counterparty (or of its affiliates). The Fund may exit its
obligations under a credit default swap only by terminating the contract and paying applicable breakage fees, or by entering into an offsetting
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64 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
credit default swap position, which may cause the Fund to incur more losses. There can be no assurance that the Fund will be able to exit a credit default swap position effectively when it seeks
to do so.
U.S. Government Securities Risk
Some U.S. Government securities, such as Treasury bills, notes, and bonds and mortgage-backed securities guaranteed by the Government National Mortgage
Association (Ginnie Mae), are supported by the full faith and credit of the United States; others are supported by the right of the issuer to borrow from the U.S. Treasury; others are supported by the discretionary authority of the U.S. Government
to purchase the agencys obligations; still others are supported only by the credit of the issuing agency, instrumentality, or enterprise. Although U.S. Government-sponsored enterprises may be chartered or sponsored by Congress, they are not
funded by Congressional appropriations, and their securities are not issued by the U.S. Treasury, their obligations 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.
In addition, certain governmental entities have been subject to
regulatory scrutiny regarding their accounting policies and practices and other concerns that may result in legislation, changes in regulatory oversight and/or other consequences that could adversely affect the credit quality, availability or
investment character of securities issued or guaranteed by these entities.
The events surrounding the U.S. federal government debt ceiling and any resulting
agreement (and similar political, economic and other developments) could adversely affect the Funds ability to achieve its investment objective. For example, a downgrade of the long-term sovereign credit rating of the U.S. could increase
volatility in both stock and bond markets, result in higher interest rates and lower Treasury prices and increase the costs of all kinds of debt. These events and similar events in other areas of the world could have significant adverse effects on
the economy generally and could result in significant adverse impacts on issuers of securities held by the Fund and the Fund itself. The Adviser cannot predict the effects of these or similar events in the future on the U.S. economy and securities
markets or on the Funds portfolio. The Adviser may not timely anticipate or manage existing, new or additional risks, contingencies or developments. In recent periods, the values of U.S. Government securities have been affected substantially
by increased demand for them around the world. Changes in the demand for U.S. Government securities may occur at any time and may result in increased volatility in the values of those securities.
Sovereign Debt Obligations Risk
Investments in countries government debt obligations involve special risks. Certain countries have historically experienced, and may continue to experience,
high rates of inflation, high interest rates, exchange rate fluctuations, large amounts of external debt, balance of payments and trade difficulties and extreme poverty and unemployment. The issuer or governmental authority that controls the
repayment of a countrys debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A debtors willingness or ability to repay principal and interest due in a timely manner
may be affected by, among other factors, its cash flow situation and, in the case of a government debtor, the extent of its foreign currency reserves or its inability to sufficiently manage fluctuations in relative currency valuations, the
availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the government debtors policy towards principal international lenders such as the International
Monetary Fund and the political and social constraints to which a government debtor may be subject. Government debtors may default on their debt and also may be dependent on expected disbursements from foreign governments, multilateral agencies and
others abroad to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a debtors implementation of economic reforms and/or
economic performance and the timely service of such debtors obligations.
Failure to implement such reforms, achieve such levels of economic
performance or repay principal or interest when due may result in the cancellation of such third parties commitments to lend funds to the government debtor, which may further impair such debtors ability or willingness to service its
debts on a timely basis.
As a result of the foregoing, a government obligor may default on its obligations. If such an event occurs, the Fund may have
limited (or no) legal recourse against the issuer and/or guarantor. Remedies must, in some cases, be pursued in the courts of the defaulting party itself, and the ability of the holder of foreign government debt securities to obtain recourse may be
subject to the political climate in the relevant country. In addition, no assurance can be given that the holders of more senior fixed income securities, such as commercial bank debt, will not contest payments to the holders of other foreign
government debt securities in the event of default under their commercial bank loan agreements. There is no bankruptcy proceeding by which sovereign debt on which governmental entities have defaulted may be collected in whole or in part. In
addition, foreign governmental entities may enjoy various levels of sovereign immunity, and it may be difficult or impossible to bring a legal action against a foreign governmental entity or to enforce a judgment against such an entity.
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Annual Report |
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September 30, 2022 |
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65 |
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Summary of Updated Information Regarding the Fund (Cont.) |
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Government obligors in emerging market
countries are among the worlds largest debtors to commercial banks, other governments, international financial organizations and other financial institutions. The issuers of the government debt securities in which the Fund may invest have in
the past experienced substantial difficulties in servicing their external debt obligations, which led to defaults on certain obligations and the restructuring of certain indebtedness. Restructuring arrangements have included, among other things,
reducing and rescheduling interest and principal payments by negotiating new or amended credit agreements, and obtaining new credit to finance interest payments. Holders of certain foreign government debt securities may be requested to participate
in the restructuring of such obligations and to extend further loans to their issuers. There can be no assurance that the foreign government debt securities in which the Fund may invest will not be subject to similar restructuring arrangements or to
requests for new credit, which may adversely affect the Funds holdings. Furthermore, certain participants in the secondary market for such debt may be directly involved in negotiating the terms of these arrangements and may therefore have
access to information not available to other market participants.
Loan Risk
Investments in loans are generally subject to the same risks as investments in other types of debt obligations, including, among others, credit risk, interest
rate risk, prepayment risk, and extension risk. In addition, in many cases loans are subject to the risks associated with below-investment grade securities. This means loans are often subject to significant credit risks, including a greater
possibility that the borrower will be adversely affected by changes in market or economic conditions and may default or enter bankruptcy. This risk of default will increase in the event of an economic downturn or a substantial increase in interest
rates (which will increase the cost of the borrowers debt service).
The interest rates on floating rate loans typically adjust only periodically.
Accordingly, adjustments in the interest rate payable under a loan may trail prevailing interest rates significantly, especially if there are limitations placed on the amount the interest rate on a loan may adjust in a given period. Certain floating
rate loans have a feature that prevents their interest rates from adjusting if market interest rates are below a specified minimum level. When interest rates are low, this feature could result in the interest rates of those loans becoming fixed at
the applicable minimum level until interest rates rise above that level. Although this feature is intended to result in these loans yielding more than they otherwise would when interest rates are low, the feature might also result in the prices of
these loans becoming more sensitive to changes in interest rates should interest rates rise but remain below the applicable minimum level.
In addition,
investments in loans may be difficult to value and may be illiquid. Floating rate loans generally are subject to legal or contractual restrictions on resale. The liquidity of floating rate loans, including the volume and frequency of secondary
market trading in such loans, varies significantly over time and among individual floating rate loans. For example, if the credit quality of the borrower related to a floating rate loan unexpectedly declines significantly, secondary market trading
in that floating rate loan can also decline. The secondary market for loans may be subject to irregular trading activity, wide bid/ask spreads, and extended trade settlement periods, which may increase the expenses of the Fund or cause the Fund to
be unable to realize the full value of its investment in the loan, resulting in a material decline in the Funds NAV.
During periods of severe market
stress, it is possible that the market for loans may become highly illiquid. In such an event, the Fund may find it difficult to sell loans it holds, and, for loans it is able to sell in such circumstances, the trade settlement period may be longer
than anticipated.
The Fund may make loans directly to borrowers or may acquire an interest in a loan by means of an assignment or a participation. In an
assignment, the Fund may be required generally to rely upon the assigning financial institution to demand payment and enforce its rights against the borrower, but would otherwise be entitled to the benefit of all of the financial institutions
rights in the loan. The Fund may also purchase a participating interest in a portion of the rights of a lending institution in a loan. In such case, the Fund will generally be entitled to receive from the lending institution amounts equal to the
payments of principal, interest and premium, if any, on the loan received by the institution, but generally will not be entitled to enforce its rights directly against the agent bank or the borrower, and must rely for that purpose on the lending
institution.
Investments in loans through a purchase of a loan, loan origination or a direct assignment of a financial institutions 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 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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66 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
Loans and
certain other forms of direct indebtedness may not be classified as securities under the federal securities laws and, therefore, when the Fund purchases such instruments, it may not be entitled to the protections against fraud and
misrepresentation contained in the federal securities laws.
Additional risks of investments in loans may include:
Agent/Intermediary Risk. If the Fund holds a loan through another financial intermediary, as is the case with a participation,
or relies on another financial intermediary to administer the loan, as is the case with most multi-lender facilities, the Funds receipt of principal and interest on the loan and the value of the Funds loan investment will depend at least
in part on the credit standing of the financial intermediary and therefore will be subject to the credit risk of the intermediary. The Fund will be required to rely upon the financial intermediary from which it purchases a participation interest to
collect and pass on to the Fund such payments and to enforce the Funds rights and may not be able to cause the financial intermediary to take what it considers to be appropriate action. As a result, an insolvency, bankruptcy or reorganization
of the financial intermediary may delay or prevent the Fund from receiving principal, interest and other amounts with respect to the Funds interest in the loan. In addition, if the Fund relies on a financial intermediary to administer a loan,
the Fund is subject to the risk that the financial intermediary may be unwilling or unable to demand and receive payments from the borrower in respect of the loan, or otherwise unwilling or unable to perform its administrative obligations.
Highly Leveraged Transactions Risk. The Fund may invest in loans made in connection with highly leveraged transactions. These
transactions may include operating loans, leveraged buyout loans, leveraged capitalization loans and other types of acquisition financing. Those loans are subject to greater credit and liquidity risks than other types of loans. If the Fund
voluntarily or involuntarily sold those types of loans, it might not receive the full value it expected.
Stressed, Distressed or Defaulted Borrowers
Risk. The Fund can also invest in loans of borrowers that are experiencing, or are likely to experience, financial difficulty. These loans are subject to greater credit and liquidity risks than other types of loans. In
addition, the Fund can invest in loans of borrowers that have filed for bankruptcy protection or that have had involuntary bankruptcy petitions filed against them by creditors. Various laws enacted for the protection of debtors may apply to loans. A
bankruptcy proceeding or other court proceeding could delay or limit the ability of the Fund to collect the principal and interest payments on that borrowers loans or adversely affect the Funds rights in collateral relating to a loan. If
a lawsuit is brought by creditors of a borrower under a loan, a court or a trustee in bankruptcy could take certain actions that would be adverse to the Fund. For example:
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Other creditors might convince the court to set aside a loan or the collateralization of the loan as a
fraudulent conveyance or preferential transfer. In that event, the court could recover from the Fund the interest and principal payments that the borrower made before becoming insolvent. There can be no assurance that the
Fund would be able to prevent that recapture. |
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A bankruptcy court may restructure the payment obligations under the loan so as to reduce the amount to which the
Fund would be entitled. |
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The court might discharge the amount of the loan that exceeds the value of the collateral. |
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The court could subordinate the Funds rights to the rights of other creditors of the borrower under applicable
law, decreasing, potentially significantly, the likelihood of any recovery on the Funds investment. |
Limited Information
Risk. Because there may be limited public or other information available regarding loan investments, the Funds investments in such instruments may be particularly dependent on the analytical abilities of the
Funds portfolio managers.
Interest Rate Benchmarks Risk. Interest rates on loans typically adjust periodically often
based on changes in a benchmark rate plus a premium or spread over the benchmark rate. The benchmark rate may be LIBOR, the Prime Rate, or other base lending rates used by commercial lenders (each as defined in the applicable loan agreement).
Some benchmark rates may reset daily; others reset less frequently. The interest rate on LIBOR- and SOFR- based loans is reset periodically, typically based on a
period between 30 days and one year. Certain floating or variable rate loans may permit the borrower to select an interest rate reset period of up to one year or longer. Investing in loans with longer interest rate reset periods may increase
fluctuations in the Funds NAV as a result of changes in interest rates. Interest rates on loans with longer periods between benchmark resets will typically trail market interest rates in a rising interest rate environment.
Certain loans may permit the borrower to change the base lending rate during the term of the loan. One benchmark rate may not adjust to changing market or
interest rates to the same degree or as rapidly as another, permitting the borrower the option to
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select the benchmark rate that is most advantageous to it and less advantageous to the Fund. To the extent the borrower elects this option, the interest income and total return the Fund earns on
the investment may be adversely affected as compared to other investments where the borrower does not have the option to change the base lending or benchmark rate.
The administrator of LIBOR no longer publishes most LIBOR settings on a representative basis and is expected to cease publication of a majority of U.S. dollar
LIBOR settings on a representative basis after June 30, 2023. There are obstacles to converting certain securities and transactions to new reference rates. 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.
Restrictive Loan Covenants Risk. Borrowers must
comply with various restrictive covenants that may be contained in loan agreements. They may include restrictions on dividend payments and other distributions to stockholders, provisions requiring the borrower to maintain specific financial ratios,
and limits on total debt. They may include requirements that the borrower prepay the loan with any free cash flow. A break of a covenant that is not waived by the agent bank (or the lenders) is normally an event of default that provides the agent
bank or the lenders the right to call the outstanding amount on the loan. If a lender accelerates the repayment of a loan because of the borrowers violation of a restrictive covenant under the loan agreement, the borrower might default in
payment of the loan.
Some of the loans in which the Fund may invest or to which the Fund may obtain exposure may be covenant-lite. Such loans
contain fewer or less restrictive constraints on the borrower than certain other types of loans. Such loans generally do not include terms which allow the lender to monitor the performance of the borrower and declare a default or force a borrower
into bankruptcy restructuring if certain criteria are breached. Under such loans, lenders typically must rely on covenants that restrict a borrower from incurring additional debt or engaging in certain actions. Such covenants can be breached only by
an affirmative action of the borrower, rather than by a deterioration in the borrowers financial condition. Accordingly, the Fund may have fewer rights against a borrower when it invests in or has exposure to such loans and so may have a
greater risk of loss on such investments as compared to investments in or exposure to loans with additional or more conventional covenants.
Senior
Loan and Subordination Risk. In addition to the risks typically associated with debt securities and loans generally, senior loans are also subject to the risk that a court could subordinate a senior loan, which typically
holds a senior position in the capital structure of a borrower, to presently existing or future indebtedness or take other action detrimental to the holders of senior loans.
The Funds investments in senior loans may be collateralized with one or more of (1) working capital assets, such as accounts receivable and inventory,
(2) tangible fixed assets, such as real property, buildings and equipment, (3) intangible assets such as trademarks or patents, or (4) security interests in shares of stock of the borrower or its subsidiaries or affiliates. In the
case of loans to a non-public company, the companys shareholders or owners may provide collateral in the form of secured guarantees and/or security interests in assets they own. However, the value of the collateral may decline after the Fund
buys the senior loan, particularly if the collateral consists of equity securities of the borrower or its affiliates. If a borrower defaults, insolvency laws may limit the Funds access to the collateral, or the lenders may be unable to
liquidate the collateral. A bankruptcy court might find that the collateral securing the senior loan is invalid or require the borrower to use the collateral to pay other outstanding obligations. If the collateral consists of stock of the borrower
or its subsidiaries, the stock may lose all of its value in the event of a bankruptcy, which would leave the Fund exposed to greater potential loss. As a result, a collateralized senior loan may not be fully collateralized and can decline
significantly in value.
If a borrower defaults on a collateralized senior loan, the Fund may receive assets other than cash or securities in full or partial
satisfaction of the borrowers obligation under the senior loan. Those assets may be illiquid, and the Fund might not be able to realize the benefit of the assets for legal, practical or other reasons. The Fund might hold those assets until the
Adviser determined it was appropriate to dispose of them. If the collateral becomes illiquid or loses some or all of its value, the collateral may not be sufficient to protect the Fund in the event of a default of scheduled interest or principal
payments.
The Fund can invest in senior loans that are not secured. If the borrower is unable to pay interest or defaults in the payment of principal, there
will be no collateral on which the Fund can foreclose. Therefore, these loans typically present greater risks than collateralized senior loans.
Due to
restrictions on transfers in loan agreements and the nature of the private syndication of senior loans including, for example, the lack of publicly-available information, some senior loans are not as easily purchased or sold as publicly-traded
securities. Some senior loans and other Fund investments are illiquid, which may make it difficult for the Fund to value them or dispose of them at an acceptable price. Direct investments in senior loans and investments in participation interests in
or assignments of senior loans may be limited.
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68 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
Settlement
Risk. Transactions in many loans settle on a delayed basis, and the Fund may not receive the proceeds from the sale of such loans for a substantial period after the sale. As a result, sale proceeds related to the sale of
such loans may not be available to make additional investments until potentially a substantial period after the sale of the loans.
Collateral
Impairment Risk. Even if a loan to which the Fund is exposed is secured, there can be no assurance that the collateral will, when recovered and liquidated, generate sufficient (or any) funds to offset any losses associated with a defaulting
loan. It is possible that the same collateral could secure multiple loans, in which case the liquidation proceeds of the collateral may be insufficient to cover the payments due on all the loans secured by that collateral. This risk is increased if
the Funds loans are secured by a single asset. There can be no guarantee that the collateral can be liquidated and any costs associated with such liquidation could reduce or eliminate the amount of funds otherwise available to offset the
payments due under the loan. Moreover, the Funds security interests may be unperfected for a variety of reasons, including the failure to make a required filing by the servicer and, as a result, the Fund may not have priority over other
creditors as it expected.
Unsecured Loans Risk. Subordinated or unsecured loans are lower in priority of payment to secured loans and are
subject to the additional risk that the cash flow of the borrower and property securing the loan or debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior secured obligations of the borrower. This risk is
generally higher for subordinated unsecured loans or debt, which are not backed by a security interest in any specific collateral.
Servicer
Risk. The Funds direct and indirect investments in loans are typically serviced by the originating lender or a third-party servicer. In the event that the servicer is unable to service the loan, there can be no
guarantee that a backup servicer will be able to assume responsibility for servicing the loans in a timely or cost-effective manner; any resulting disruption or delay could jeopardize payments due to the Fund in respect of its investments or
increase the costs associated with the Funds investments.
Direct Lending Risk. The Fund may seek to originate loans,
including, without limitation, commercial real estate or mortgage- related-loans or other types of loans, which may be in the form of whole loans, secured and unsecured notes, senior and second lien loans, mezzanine loans or similar investments. The
Fund will be responsible for the expenses associated with originating a loan (whether or not consummated). This may include significant legal and due diligence expenses, which will be indirectly borne by the Fund and Common Shareholders.
Direct lending involves risks beyond those associated with investing in loans. If a loan is foreclosed, the Fund could become owner of any collateral and would
bear the costs and liabilities associated with owning, operating, maintaining and disposing of the collateral. As a result, the Fund may be exposed to losses resulting from default and foreclosure and also operating and maintaining the property. Any
costs or delays involved in the effectuation of a foreclosure of the loan or a liquidation of the underlying assets will further reduce the proceeds and thus increase the loss. There is no assurance that the Fund will correctly evaluate the value of
the assets collateralizing the loan. In the event of a reorganization or liquidation proceeding relating to the borrower, the Fund may lose all or part of the amounts advanced to the borrower. There is no assurance that the protection of the
Funds interests is adequate, including the validity or enforceability of the loan and the maintenance of the anticipated priority and perfection of the applicable security interests. Furthermore, there is no assurance that claims will not be
asserted that might interfere with enforcement of the Funds rights.
There are no restrictions on the credit quality of the Funds loans. Loans
may be deemed to have substantial vulnerability to default in payment of interest and/or principal. There can be no assurance as to the levels of defaults and/or recoveries that may be experienced on loans in which the Fund has invested. Certain of
the loans in which the Fund may invest have uncertainties and/or exposure to adverse conditions, and may be considered to be predominantly speculative. Generally, such loans offer a higher return potential than better quality loans, but involve
greater volatility of price and greater risk of loss of income and principal. The market values of certain of these loans also tend to be more sensitive to changes in economic conditions than better quality loans.
Loans to issuers operating in workout modes or under Chapter 11 of the U.S. Bankruptcy Code or the equivalent laws of member states of the European Union are, in
certain circumstances, subject to certain potential liabilities that may exceed the amount of the loan. For example, under certain circumstances, lenders who have inappropriately exercised control of the management and policies of a debtor may have
their claims subordinated or disallowed or may be found liable for damages suffered by parties as a result of such actions.
Various state licensing
requirements could apply to the Fund with respect to investments in, or the origination and servicing of, loans and similar assets and it may take a substantial period of time for the Fund to obtain any necessary licenses or comply with other
applicable regulatory requirements. The licensing requirements could apply depending on the location of the borrower, the location of the collateral securing the loan, or the location where the Fund or the Adviser operates or has offices. In states
that
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require licensure for or otherwise regulate loan origination, the Fund or Advisor will be required to comply with applicable laws and regulations, including consumer protection and anti-fraud
laws, which could impose restrictions on the Funds or Advisors ability to take certain actions to protect the value of its investments in such assets and impose compliance costs, or the Fund will have to forego investment opportunities
subject to that states laws and regulations. Failure to comply with such laws and regulations could lead to, among other penalties, a loss of the Funds or Advisors license, which in turn could require the Fund to divest assets
located in or secured by real property located in that state. In addition to laws governing the activities of lenders and servicers, some states require purchasers of certain loans to be licensed or registered in order to own loans connected to the
state (e.g., made in the state or secured by property in the state) and, in certain states, to collect a rate of interest above a specified rate. These risks will also apply to issuers and entities in which the Fund invests that hold similar assets,
as well as any origination company or servicer in which the Fund owns an interest. As of September 30, 2022, the Fund does not hold any licenses to originate loans in any states where a license is required, and there can be no assurance that
the Fund will obtain any such licenses timely or ever.
Foreign Loan Risk. Loans involving foreign borrowers may involve
risks not ordinarily associated with exposure to loans to U.S. entities and individuals. The foreign lending industry may be subject to less governmental supervision and regulation than exists in the U.S.; conversely, foreign regulatory regimes
applicable to the lending industry may be more complex and more restrictive than those in the U.S., resulting in higher costs associated with such investments, and such regulatory regimes may be subject to interpretation or change without prior
notice to investors, such as the Fund. Foreign lending may not be subject to accounting, auditing, and financial reporting standards and practices comparable to those in the U.S. Due to differences in legal systems, there may be difficulty in
obtaining or enforcing a court judgment outside the United States.
Lender Liability. A number of judicial decisions have
upheld judgments of borrowers against lending institutions on the basis of various evolving legal theories, collectively termed lender liability. Generally, lender liability is founded on the premise that a lender has violated a duty
(whether implied or contractual) of good faith, commercial reasonableness and fair dealing, or a similar duty owed to the borrower or has assumed an excessive degree of control over the borrower resulting in the creation of a fiduciary duty owed to
the borrower or its other creditors or shareholders. If a loan held by the Fund were found to have been made or serviced under circumstances that give rise to lender liability, the borrowers obligation to repay that loan could be reduced or
eliminated or the Funds recovery on that loan could be otherwise impaired, which would adversely impact the value of that loan. In limited cases, courts have subordinated the loans of a senior lender to a borrower to claims of other creditors
of the borrower when the senior lender or its agents, such as a loan servicer, is found to have engaged in unfair, inequitable or fraudulent conduct with respect to the other creditors. If a loan held by the Fund were subject to such subordination,
it would be junior in right of payment to other indebtedness of the borrower, which could adversely impact the value of that loan.
Below Investment Grade/High Yield Securities Risk
Debt instruments rated below investment grade and debt instruments that are unrated and of comparable or lesser quality are predominantly speculative and
considered vulnerable to nonpayment and their issuers to be dependent on favorable business, financial and economic conditions to meet their financial commitments. They are usually issued by companies without long track records of sales and earnings
or by companies with questionable credit strength. These instruments, which include debt securities 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. This
potential lack of liquidity may make it more difficult for the Fund to value these instruments accurately. An economic downturn could severely affect the ability of issuers (particularly those that are highly leveraged) to service their debt
obligations or to repay their obligations upon maturity.
Distressed and Defaulted Securities Risk
Distressed and defaulted securities risk refers to 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/or 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. Insolvency laws and practices in foreign markets, and especially
emerging market countries are different than those in the U.S. and the effect of these laws and practices cannot be predicted with certainty. Investments in defaulted securities and obligations of distressed issuers are considered speculative and
entail high risk.
REIT Risk
The Fund may invest in REITs. REITs are pooled investment vehicles that own, and typically operate, income-producing real estate. If a REIT meets certain
requirements, including distributing to shareholders substantially all of its taxable income (other than net capital gains), then it is not taxed on the income distributed to shareholders. REITs are subject to management fees and other
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70 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
expenses, and so the Fund will bear its proportionate share of the costs of the REITs operations. There are three general categories of REITs: Equity REITs, Mortgage REITs and Hybrid REITs.
Equity REITs, which invest primarily in direct fee ownership or leasehold ownership of real property and derive most of their income from rents, are generally affected by changes in the values of and incomes from the properties they own. Mortgage
REITs invest mostly in mortgages on real estate, which may secure, for example, construction, development or long-term loans, and the main source of their income is mortgage interest payments. Mortgage REITs may be affected by the credit quality of
the mortgage loans they hold. A hybrid REIT combines the characteristics of equity REITs and mortgage REITs, generally by holding both ownership interests and mortgage interests in real estate, and thus may be subject to risks associated with both
real estate ownership and investments in mortgage-related investments. Along with the risks common to different types of real estate-related investments, REITs, no matter the type, involve additional risk factors, including poor performance by the
REITs manager, adverse changes to the tax laws, and the possible failure by the REIT to qualify for the favorable tax treatment applicable to REITs under the Internal Revenue Code of 1986, as amended (the Code), or an exemption
under the 1940 Act. REITs are not diversified and are heavily dependent on cash flow earned on the property interests they hold.
Equity REITs, which invest
primarily in direct fee ownership or leasehold ownership of real property and derive most of their income from rents, are generally affected by changes in the values of and incomes from the properties they own. Mortgage REITs invest mostly in
mortgages on real estate, which may secure, for example, construction, development or long-term loans, and the main source of their income is mortgage interest payments. Mortgage REITs may be affected by the credit quality of the mortgage loans they
hold. A hybrid REIT combines the characteristics of equity REITs and mortgage REITs, generally by holding both ownership interests and mortgage interests in real estate, and thus may be subject to risks associated with both real estate ownership and
mortgage-related investments. Along with the risks common to different types of real estate-related investments, REITs, no matter the type, involve additional risk factors, including poor performance by the REITs manager, adverse changes to
the tax laws, and the possible failure by the REIT to qualify for the favorable tax treatment applicable to REITs under the Code or an exemption under the 1940 Act. REITs are not diversified and are heavily dependent on cash flow earned on the
property interests they hold.
Mortgage REITs are exposed to the risks specific to the real estate market as well as the risks that relate specifically to
the way in which mortgage REITs are organized and operated. Mortgage REITs receive principal and interest payments from the owners of the mortgaged properties. Accordingly, mortgage REITs are subject to the credit risk of the borrowers to whom they
extend credit, and are subject to the risks described under Mortgage-Backed Securities Risk and Debt Securities Risk. Mortgage REITs are also subject to significant interest rate risk. Mortgage REITs typically use leverage
and many are highly leveraged, which exposes them to the risks of leverage. Leverage risk refers to the risk that leverage created from borrowing may impair a mortgage REITs liquidity, cause it to liquidate positions at an unfavorable time and
increase the volatility of the values of securities issued by the mortgage REIT. The use of leverage may not be advantageous to a mortgage REIT. To the extent that a mortgage REIT incurs significant leverage, it may incur substantial losses if its
borrowing costs increase or if the assets it purchases with leverage decrease in value.
The Funds investment in a REIT may result in the Fund making
distributions that constitute a return of capital to Fund shareholders for federal income tax purposes. In addition, distributions attributable to REITs made by the Fund to Fund shareholders will not qualify for the corporate dividends-received
deduction, or, generally, for treatment as qualified dividend income. Certain distributions made by the Fund attributable to dividends received by the Fund from REITs may qualify as qualified REIT dividends in the hands of non-corporate shareholders.
Real Estate Risk
The value of the Funds portfolio could change in light of factors affecting the real estate sector. Factors affecting real estate values include 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, adequacy of rent to cover operating expenses, and local and, regional,
and general market conditions. The value of real estate-related investments also may be affected by changes in interest rates, macroeconomic developments, and social and economic trends.
To the extent that the Fund invests in real estate related investments, including REITs, real estate-related loans or real-estate linked derivative instruments,
it will be subject to the risks associated with owning real estate and with the real estate industry generally. These include difficulties in valuing and disposing of real estate, the possibility of declines in the value of real estate, risks
related to general and local economic conditions, the possibility of adverse changes in the climate for real estate, environmental liability risks, the risk of increases in property taxes and operating expenses, possible adverse changes in zoning
laws, the risk of casualty or condemnation losses, limitations on rents, the possibility of adverse changes in interest rates and in the credit markets and the possibility of borrowers paying off mortgages sooner than expected, which may lead to
reinvestment of assets at lower prevailing interest rates.
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To the extent that the Fund invests in REITs,
it will also be subject to the risk that a REIT may default on its obligations or go bankrupt. By investing in REITs indirectly through the Fund, a shareholder will indirectly bear his or her proportionate share of the expenses of the REITs. The
Funds investments in REITs could cause the Fund to recognize income in excess of cash received from those securities and, as a result, the Fund may be required to sell portfolio securities, including when it is not advantageous to do so, in
order to make distributions. An investment in a REIT or a real estate-linked derivative instrument that is linked to the value of a REIT is subject to additional risks, such as poor performance by the manager of the REIT, adverse changes to the tax
laws or failure by the REIT to qualify for the favorable tax treatment applicable to REITs under the Code. In addition, some REITs have limited diversification because they invest in a limited number of properties, a narrow geographic area, or a
single type of property. Also, the organizational documents of a REIT may contain provisions that make changes in control of the REIT difficult and time-consuming. Finally, private REITs are not traded on a national securities exchange. As such,
these products may be illiquid. This reduces the ability of the Fund to redeem its investment early. Private REITs are also generally harder to value and may bear higher fees than public REITs.
LIBOR Phase Out/Transition Risk
LIBOR is the offered rate at which major international banks can obtain wholesale, unsecured funding, and LIBOR may be available for different durations (e.g., 1
month or 3 months) and for different currencies. LIBOR may be a significant factor in relation to the Funds payment obligations under a derivative investment, the cost of financing to the Fund or an investments value or return to the
Fund, and may be used in other ways that affect the Funds investment performance. In July 2017, the Financial Conduct Authority (FCA), the United Kingdoms financial regulatory body, announced that after 2021 it will cease its
active encouragement of banks to provide the quotations needed to sustain LIBOR. ICE Benchmark Administration Limited, 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 U.S. dollar LIBOR settings on a representative basis after June 30, 2023. In addition, global regulators have announced that, with limited exceptions, no new LIBOR-based contracts should be entered into
after 2021. Actions by regulators have resulted in the establishment of alternative reference rates to LIBOR in most major currencies. Various financial industry groups have been planning for the transition away from LIBOR to new reference rates,
including, for example, SOFR or another rate based on SOFR but there are obstacles to converting certain securities and transactions to a new reference rates. Markets are developing slowly and questions around liquidity in these new rates and how to
appropriately mitigate any economic value transfer at the time of transition remain a significant concern. For example, there are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured
lending rate. Neither the effect of the transition process nor its ultimate success can yet be known. The transition process might lead to increased volatility and illiquidity in markets for instruments whose terms include LIBOR. It could also lead
to a reduction in the value of some LIBOR-based investments and reduce the effectiveness of related transactions such as hedges. While some LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available by providing for an
alternative rate-setting methodology and/or increased costs for certain LIBOR-related instruments or financing transactions, not all instruments have such provisions and there may be significant uncertainty regarding the effectiveness of any such
alternative methodologies, resulting in prolonged adverse market conditions for the Fund.. There also remains uncertainty and risk regarding the willingness and ability of issuers to include enhanced provisions in new and existing contracts or
instruments. All of the aforementioned may adversely affect the Funds performance, market price or NAV.
Municipal Bond Risk
Investing in the municipal bond market involves the risks of investing in debt securities generally and certain other risks. The amount of public
information available about the municipal bonds in the Funds portfolio is generally less than that for corporate equities or bonds, and the investment performance of the Funds investment in municipal bonds may therefore be more
dependent on the analytical abilities of the Adviser than its investments in taxable bonds. The secondary market for municipal bonds also tends to be less well
developed or liquid than many other securities markets, which may adversely affect the Funds ability to sell municipal bonds at attractive prices.
The
ability of municipal issuers to make timely payments of interest and principal may be diminished during general economic downturns, by litigation, legislation or political events, or by the bankruptcy of the issuer. Laws, referenda, ordinances or
regulations enacted in the future by Congress or state legislatures or the applicable governmental entity could extend the time for payment of principal and/or interest, or impose other constraints on enforcement of such obligations, or on the
ability of municipal issuers to levy taxes. Issuers of municipal securities also might seek protection under the bankruptcy laws. In the event of bankruptcy of such an issuer, the Fund could experience delays in collecting principal and interest and
the Fund may not, in all circumstances, be able to collect all principal and interest to which it is entitled. To enforce its rights in the event of a default in the payment of interest or repayment of principal, or both, the Fund may take
possession of and manage the assets securing the issuers obligations on such securities, which may increase the Funds operating expenses. Any income derived from the Funds ownership or operation of such assets may not be tax
exempt.
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72 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
The Fund may
invest in revenue bonds, which are typically issued to fund a wide variety of capital projects including: electric, gas, water and sewer systems; highways, bridges and tunnels; port and airport facilities; colleges and universities; and hospitals.
Because the principal security for a revenue bond is generally the net revenues derived from a particular facility or group of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source, there is no
guarantee that the particular project will generate enough revenue to pay its obligations, in which case the Funds performance may be adversely affected.
Interest on municipal obligations, while generally exempt from federal income tax, may not be exempt from federal alternative minimum tax. The Fund does not
expect to be eligible to pass the tax-exempt character of such interest through to Common Shareholders.
Hedging Strategy Risk
Certain of the investment techniques that the Fund may employ for hedging will expose the Fund to
additional or increased risks. For example, there may be an imperfect correlation between changes in the value of the Funds portfolio holdings and hedging positions entered into by the Fund, which may prevent the Fund from achieving the
intended hedge or expose the Fund to risk of loss. In addition, the Funds success in using hedge instruments is subject to the Advisers ability to predict correctly changes in the relationships of such hedge instruments to the
Funds portfolio holdings, and there can be no assurance that the Advisers judgment in this respect will be accurate. Consequently, the use of hedging transactions might result in a poorer overall performance for the Fund, whether or not
adjusted for risk, than if the Fund had not hedged its portfolio holdings. The Adviser is under no obligation to engage in any hedging strategies, and may, in its discretion, choose not to. Even if the Adviser desires to hedge some of the
Funds risks, suitable hedging transactions may not be available or, if available, attractive. A failure to hedge may result in losses to the value of the Funds investments.
Short Sales and Short Position Risk
To the extent the Fund makes use of short sales or takes short positions for investment and/or risk management purposes, the Fund may be subject to certain risks
associated with selling short. Short sales are transactions in which the Fund sells securities or other instruments that the Fund does not own. Short exposure with respect to securities or market segments may also be achieved through the use of
derivative instruments, such as forwards, futures or swaps on indices or on individual securities. When the Fund engages in a short sale or short position on a security or other instrument, it may borrow the security or other instrument sold short
and deliver it to the counterparty. The Fund will ordinarily have to pay a fee or premium to borrow the security and will be obligated to repay the lender of the security any dividends or interest that accrues on the security during the period of
the loan. The amount of any gain from a short sale will be decreased, and the amount of any loss increased, by the amount of the premium, dividends, interest or expenses the Fund pays in connection with the short sale. Short sales and short
positions expose the Fund to the risk that it may be required to cover its short position at a time when the securities underlying the short position or exposure have appreciated in value, thus resulting in a loss to the Fund. The Fund may engage in
short sales when it does not own or have the right to acquire the security sold short at no additional cost. The Funds loss on a short sale or position theoretically could be unlimited in a case in which the Fund is unable, for whatever
reason, to close out its short position. In addition, the Funds short selling strategies may limit its ability to benefit from increases in the markets. Short selling involves a form of financial leverage that may exaggerate any losses
realized by the Fund. Also, there is the risk that the counterparty to a short sale may fail to honor its contractual terms, causing a loss to the Fund.
The
Fund may borrow an instrument from a broker or other institution and sell it to establish a short position in the instrument. The Fund may also enter into a derivative transaction in order to establish a short position with respect to a reference
asset. The Fund may make a profit or incur a loss depending upon whether the market price of the instrument or the value of the position decreases or increases between the date the Fund established the short position and the date on which the Fund
must replace the borrowed instrument or otherwise close out the transaction. An increase in the value of an instrument, index or interest rate with respect to which the Fund has established a short position will result in a loss to the Fund, and
there can be no assurance that the Fund will be able to close out the position at any particular time or at an acceptable price. The loss to the Fund from a short position is potentially unlimited.
Convertible Securities Risk
The
Fund may invest in convertible securities. Convertible securities include bonds, debentures, notes, preferred stock and other securities that may be converted into or exchanged for, at a specific price or formula within a particular period of time,
a prescribed amount of common stock or other equity securities of the same or a different issuer. Convertible securities may entitle the holder to receive interest paid or accrued on debt or dividends paid or accrued on preferred stock until the
security matures or is redeemed, converted or exchanged. The market value of a convertible security is a function of its investment value and its conversion value. A
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securitys investment value represents the value of the security without its conversion feature (i.e., a nonconvertible fixed income security). The investment value may be determined
by reference to its credit quality and the current value of its yield to maturity or probable call date. At any given time, investment value is dependent upon such factors as the general level of interest rates, the yield of similar nonconvertible
securities, the financial strength of the issuer and the seniority of the security in the issuers capital structure. A securitys conversion value is determined by multiplying the number of shares the holder is entitled to receive upon
conversion or exchange by the current price of the underlying security.
Focused Investment Risk
A fund that invests a substantial portion of its assets in a particular market, industry, sector, group of industries or sectors, country, region, group of
countries or asset class is subject to greater risk than a fund that invests in a more diverse investment portfolio. In addition, the value of such a fund is more susceptible to any single economic, market, political, regulatory or other occurrence
affecting, for example, the particular markets, industries, regions, sectors or asset classes in which the fund is invested. This is because, for example, issuers in a particular market, industry, region, sector or asset class may react similarly to
specific economic, market, regulatory, political or other developments. The particular markets, industries, regions, sectors or asset classes in which the Fund may focus its investments may change over time and the Fund may alter its focus at
inopportune times. To the extent the Fund invests in the securities of a limited number of issuers, it is particularly exposed to adverse developments affecting those issuers, and a decline in the market value of a particular security held by the
Fund may affect the Funds performance more than if the Fund invested in the securities of a larger number of issuers. In addition, the limited number of issuers to which the Fund may be exposed may provide the Fund exposure to substantially
the same market, industry, sector, group of industries or sectors, country, region, group of countries, or asset class, which may increase the risk of loss as a result of focusing the Funds investments, as discussed above.
Derivatives Risk
The Funds
use of derivatives may involve risks different from, or greater than, the risks associated with investing in more traditional investments, such as stocks and bonds. Derivatives can be highly complex and may perform in ways unanticipated by the
Adviser and may not be available at the time or price desired. Derivatives positions may also be improperly executed or constructed.
The Funds use of
derivatives involves counterparty risk. In the event a counterparty becomes insolvent, the Fund potentially could lose all or a large portion of the value of its investment in the derivative instrument. Because most derivatives involve contractual
arrangements with a counterparty, the Funds ability to enter into them requires a willing counterparty. The Funds ability to close out or unwind a derivatives position prior to expiration or maturity may also depend on the ability and
willingness of the counterparty to enter into a transaction closing out the position.
Derivatives may be difficult to value and highly illiquid and/or
volatile. The Fund may not be able to close out or sell a derivatives position at a particular time or at an anticipated price. Use of derivatives may affect the amount, timing and character of distributions to shareholders and, therefore, may
increase the amount of taxes payable by taxable shareholders.
The Fund may use derivatives to create investment leverage and the Funds use of
derivatives may otherwise cause its portfolio to be leveraged. Leverage increases the Funds portfolio losses when the value of its investments declines. Since many derivatives involve leverage, adverse changes in the value or level of the
underlying asset, rate, or index may result in a loss substantially greater than the amount invested in the derivative itself. Some derivatives have the potential for unlimited loss, regardless of the size of the initial investment.
When the Fund enters into a derivatives transaction as a substitute for or alternative to a direct cash investment, the Fund is exposed to the risk that the
derivative transaction may not provide a return that corresponds precisely or at all with that of the underlying investment. When the Fund uses a derivative for hedging purposes, it is possible that the derivative will not in fact provide the
anticipated protection, and the Fund could lose money on both the derivative transaction and the exposure the Fund sought to hedge. While hedging strategies involving derivatives can reduce the risk of loss, they can also reduce the opportunity for
gain or even result in losses by offsetting favorable price movements in other Fund investments.
When it enters into a derivatives position, the Fund
typically will be required to post collateral or make margin payments. If markets move against the Funds position, the Fund may be required to post additional assets and may have to dispose of existing investments to obtain assets acceptable
as collateral or margin. This may prevent the Fund from pursuing its investment objective. If the Fund is unable to close out its position, it may be required to continue to make such payments until the position expires or matures. In addition, the
Fund may not be able to recover the full amount of its margin from an intermediary or counterparty if that intermediary or counterparty were to experience financial difficulty.
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74 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
Recent changes
in regulation relating to the Funds use of derivatives and related instruments could potentially limit or impact the Funds ability to invest in derivatives, limit the Funds ability to employ certain strategies that use derivatives
and/or adversely affect the value of derivatives and the Funds performance. For instance, the U.S. government has enacted legislation that provides for regulation of the derivatives market, including clearing, margin, reporting, and
registration requirements, which could restrict the Funds ability to engage in derivatives transactions or increase the cost or uncertainty involved in such transactions. The European Union and the United Kingdom (and some other jurisdictions)
have implemented or are in the process of implementing similar requirements, which will affect the Fund when it enters into a derivatives transaction with a counterparty subject to such requirements.
Rule 18f-4 under the 1940 Act regulates a registered investment companys use of derivative investments
and certain other transactions that create future payment and/or delivery obligations by the Fund. This new rule became operative in August 2022. Among other things, Rule 18f-4 requires funds that invest
in derivative instruments beyond a specified limited amount to apply a value-at-risk based limit to their use of certain derivative instruments and financing
transactions and to adopt and implement a derivatives risk management program. Any funds that use derivative instruments (beyond certain currency and interest rate hedging transactions) in a limited amount is not subject to the full requirements of Rule 18f-4. In addition, Rule 18f-4 may restrict the Funds ability to engage in certain derivatives transactions and certain other transactions and/or increase
the cost of such transactions, which could adversely impact the value or performance of the Fund. Limits or restrictions applicable to the counterparties or issuers, as applicable, with which the Fund may engage in derivative transactions could also
limit or prevent the Fund from using certain instruments.
Risks Related to the Funds Clearing Broker and Central Clearing
Counterparty
Transactions in some types of derivatives, including futures, options on futures, and certain swaps (including interest rate swaps
and index credit default swaps) are required to be (or are capable of being) centrally cleared. In a transaction involving those derivatives (cleared derivatives), the Funds counterparty is a clearing house, rather than a bank or
broker. Since the Fund is not a member of clearing houses and only members of a clearing house (clearing members) can participate directly in the clearing house, the Fund will hold cleared derivatives through accounts at clearing
members. In cleared derivatives positions, the Fund will make payments (including margin payments) to and receive payments from a clearing house through its accounts at clearing members. Clearing members guarantee performance of their clients
obligations to the clearing house. There is a risk that assets deposited by the Fund with any clearing member as margin for cleared derivatives may, in certain circumstances, be used to satisfy losses of other clients of the Funds clearing
member. In addition, the assets of the Fund might not be fully protected in the event of the clearing members bankruptcy, as the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the
clearing members customers for the relevant account class. Similarly, all customer funds held by a clearing member and/or at a clearing house in connection with cleared derivatives are generally held on a commingled omnibus basis and are not
identified to the name of the clearing members individual customers. In the event of the bankruptcy or insolvency of a clearing member or clearing house, the Fund might experience a loss of funds deposited through its clearing member as margin
with the clearing house, a loss of unrealized profits on its open positions, and the loss of funds owed to it as realized profits on closed positions. Such a bankruptcy or insolvency might also cause a substantial delay before the Fund could obtain
the return of funds owed to it by a clearing member who was a member of such clearing house.
In some ways, cleared derivative arrangements are less
favorable to funds than bilateral arrangements. For example, the Fund may be required to provide more margin for cleared derivatives positions than for bilateral derivatives positions. Also, in contrast to a bilateral derivatives position, following
a period of notice to the Fund, a clearing member generally can require termination of an existing cleared derivatives position at any time or an increase in margin requirements above the margin that the clearing member required at the beginning of
a transaction. Clearing houses also have broad rights to increase margin requirements for existing positions or to terminate those positions at any time. Any increase in margin requirements or termination of existing cleared derivatives positions by
the clearing member or the clearing house could interfere with the ability of the Fund to pursue its investment strategy. Further, any increase in margin requirements by a clearing member could expose the Fund to greater credit risk to its clearing
member because margin for cleared derivatives positions in excess of a clearing houses margin requirements may be held by the clearing member. Also, the Fund is subject to risk if it enters into a swap that is required to be cleared (or that
the Adviser expects to be cleared), and no clearing member is willing or able to clear the transaction on the Funds behalf. In those cases, the position might have to be terminated, and the Fund could lose some or all of the benefit of the
position, including loss of an increase in the value of the position and/or loss of hedging protection, or could realize a loss. In addition, the documentation governing the relationship between the Fund and clearing members is drafted by the
clearing members and generally is less favorable to the Fund than typical bilateral derivatives documentation.
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Summary of Updated Information Regarding the Fund (Cont.) |
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Counterparty Risk
The Fund will be subject to credit risk presented by another party (whether a clearing member or clearing house in the case of exchange-traded or
cleared instruments or another third party in the case of over-the-counter instruments) that promises to honor an obligation to the Fund with respect to the
derivative contracts and other instruments, such as repurchase and reverse repurchase agreements, entered into by the Fund. If such a party becomes bankrupt or insolvent or otherwise fails or is unwilling to perform its obligations to the Fund due
to financial difficulties or for other reasons, the Fund may experience significant losses or delays in, or may be prevented from, realizing on any collateral the counterparty has provided in respect of the counterpartys obligations to the
Fund or recovering collateral that the Fund has provided and is entitled to recover. In addition, in the event of the bankruptcy, insolvency or other event of default (e.g., cross-default) of a counterparty to a derivative transaction, the
derivative transaction would typically be terminated at its fair market value. If the Fund is owed this fair market value in the termination of the derivative transaction and its claim is unsecured, the Fund will likely be treated as a general
creditor of such counterparty. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances. Counterparty risk with respect to certain exchange-traded
and over-the-counter derivatives may be further complicated by global financial reform legislation. Subject to certain U.S. federal income tax limitations, the
Fund is not subject to any limit with respect to the number or the value of transactions it can enter into with a single counterparty. To the extent that the Fund enters into multiple transactions with a single or a small number of counterparties,
it will be subject to increased
counterparty risk.
New
regulatory requirements may also limit the ability of the Fund to protect its interests in the event of an insolvency of a derivatives counterparty. In the event of a counterpartys (or its affiliates) insolvency, the Funds ability
to exercise remedies, such as the termination of transactions, netting of obligations and realization on collateral, could be stayed or eliminated under relatively new special resolution regimes adopted in the United States, the European Union, the
United Kingdom, and various other jurisdictions. Such regimes provide government authorities with broad authority to intervene when a financial institution is experiencing financial difficulty. In particular, with respect to counterparties who are
subject to such proceedings in the European Union or the United Kingdom, the liabilities of such counterparties to the Fund could be reduced, eliminated, or converted to equity in such counterparties (sometimes referred to as a bail in).
Unrated Securities Risk
Unrated securities (which are not rated by a rating agency) may be less liquid than comparable rated securities and involve the risk that the Adviser may not
accurately evaluate the securitys comparative credit rating and value. To the extent that the Fund invests in unrated securities, the Funds success in achieving its investment objective may depend more heavily on the Advisers
creditworthiness analysis than if the Fund invested exclusively in rated securities. 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.
Structured Products and Structured Notes Risk
Generally, structured investments are interests in entities organized and operated for the purpose of restructuring the investment characteristics of underlying
investment interests or securities. These investment entities may be structured as trusts or other types of pooled investment vehicles. This type of restructuring generally involves the deposit with or purchase by an entity of the underlying
investments and the issuance by that entity of one or more classes of securities backed by, or representing interests in, the underlying investments or referencing an indicator related to such investments. The cash flow or rate of return on the
underlying investments may be apportioned among the newly issued securities to create different investment characteristics, such as varying maturities, credit quality, payment priorities and interest rate provisions. Structured products include,
among other things, CDOs, mortgage-backed securities, other types of asset-backed securities and certain types of structured notes.
The cash flow or rate of
return on a structured investment may be determined by applying a multiplier to the rate of total return on the underlying investments or referenced indicator. Application of a multiplier is comparable to the use of financial leverage, a speculative
technique. Leverage magnifies the potential for gain and the risk of loss. As a result, a relatively small decline in the value of the underlying investments or referenced indicator could result in a relatively large loss in the value of a
structured product. Holders of structured products indirectly bear risks associated with the underlying investments, index or reference obligation, and are subject to counterparty risk. The Fund generally has the right to receive payments to which
it is entitled only from the structured product, and generally does not have direct rights against the issuer. While certain structured investment vehicles enable the investor to acquire interests in a pool of securities without the brokerage and
other expenses associated with directly holding the same securities, investors in structured vehicles generally pay their share of the investment vehicles administrative and other expenses.
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76 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
Structured
products are generally privately offered and sold, and thus, are not registered under the securities laws. Certain structured products may be thinly traded or have a limited trading market and may have the effect of increasing the Funds
illiquidity to the extent that the Fund, at a particular point in time, may be unable to find qualified buyers for these securities. 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 issuers 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.
Structured notes are derivative securities for which the amount of principal repayment and/or
interest payments is based on the movement of one or more factors. These factors may include, but are not limited to, currency exchange rates, interest rates (such as the prime lending rate or another industry standard floating rate),
referenced bonds and stock indices. Some of these factors may or may not correlate to the total rate of return on one or more underlying instruments referenced in such notes. In some cases, the impact of the movements of these factors may increase
or decrease through the use of multipliers or deflators.
Investments in structured notes involve risks including interest rate risk, credit risk and market
risk. Depending on the factor used and the use of multipliers or deflators, changes in interest rates and movement of the factor may cause significant price fluctuations. Additionally, changes in the reference instrument or security may cause the
interest rate on the structured note to be reduced to zero and any further changes in the reference instrument may then reduce the principal amount payable on maturity. In the case of structured notes where the reference instrument is a debt
instrument, such as credit-linked notes, the Fund will be subject to the credit risk of the issuer of the reference instrument and the issuer of the structured note.
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.
Equity Securities, Small- and Mid-Capitalization Companies and Related Market Risk
The market price of common stocks and other equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may decline
in value due to factors affecting equity securities markets generally, particular industries represented in those markets, or the issuer itself. The values of equity securities may decline due to general market conditions that are not specifically
related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They also may decline due
to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities generally have greater price volatility than bonds and other debt
securities.
Confidential Information Access Risk
In managing the Fund, the Adviser may seek to avoid the receipt of material, non-public information
(Confidential Information) about the issuers of floating rate loans or other investments being considered for acquisition by the Fund or held in the Funds portfolio if the receipt of the Confidential Information would restrict one
or more of the Advisers clients, including, potentially, the Fund, from trading in securities they hold or in which they may invest. In many instances, issuers offer to furnish Confidential Information to prospective purchasers or holders of
the issuers loans or other securities. In circumstances when the Adviser declines to receive Confidential Information from these issuers, the Fund may be disadvantaged in comparison to other investors, including with respect to evaluating the
issuer and the price the Fund would pay or receive when it buys or sells those investments, and the Fund may not take advantage of investment opportunities that it otherwise might have if it had received such Confidential Information. Further, in
situations when the Fund is asked, for example, to grant consents, waivers or amendments with respect to such investments, the Advisers ability to assess such consents, waivers and amendments may be compromised. In certain circumstances, the
Adviser may determine to receive Confidential Information, including on behalf of clients other than the Fund. Receipt of Confidential Information by the Adviser could limit the Funds ability to sell certain investments held by the Fund or
pursue certain investment opportunities on behalf of the Fund, potentially for a substantial period of time.
Restricted Securities,
Rule 144A/Regulation S Securities Risk
The Fund may hold securities that the Fund is prevented or limited by law or the terms of an agreement from
selling (a restricted security). To the extent that the Fund is permitted to sell a restricted security, there can be no assurance that a trading market will exist at any particular time and the Fund may be unable to dispose of the
security promptly at reasonable prices or at all. The Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays in effecting registration. Also, restricted securities may be difficult to value
because market quotations may not be readily available, and the values of restricted
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securities may have significant volatility. Limitations on the resale of restricted securities may have an adverse effect on their marketability, and may prevent the Fund from disposing of them
promptly at reasonable prices. The Fund may have to bear the expense of registering such securities for resale and the risk of substantial delays in effecting such registration.
Inflation/Deflation Risk
Inflation risk is the risk that the value of assets or income from the Funds investments will be worth less in the future as inflation decreases the value
of payments at future dates. As inflation increases, the real value of the Funds portfolio could decline. Recently, inflation rates in the United States and elsewhere have been increasing. There can be no assurance that this trend will not
continue or that efforts to slow or reverse inflation will not harm the economy and asset values. Deflation risk is the risk that prices throughout the economy decline over time. Deflation may have an adverse effect on the creditworthiness of
issuers and may make issuer default more likely, which may result in a decline in the value of the Funds portfolio.
Market
Disruption and Geopolitical Risk
Various market risks can affect the price or liquidity of an issuers securities in which the Fund may
invest. Returns from the securities in which the Fund invests may underperform returns from the various general securities markets. Different types of securities tend to go through cycles of outperformance and underperformance in comparison to the
general securities markets. Adverse events occurring with respect to an issuers performance or financial position can depress the value of the issuers securities. The liquidity in a market for a particular security will affect its value
and may be affected by factors relating to the issuer, as well as the depth of the market for that security. Other market risks that can affect value include a markets current attitudes about types of securities, market reactions to political
or economic events, including litigation, and tax and regulatory effects (including lack of adequate regulations for a market or particular type of instrument). During periods of severe market stress, it is possible that the market for certain
investments held by the Fund, such as loans, may become highly illiquid. In such an event, the Fund may find it difficult to sell the investments it holds, and, for those investments it is able to sell in such circumstances, the sale price may be
significantly lower than, and the trade settlement period may be longer than, anticipated.
Events surrounding
the COVID-19 pandemic have contributed to, and may continue to contribute to, significant market volatility, reductions in economic activity, market closures, and declines in global financial markets.
These effects and the effects of other infectious illness outbreaks, epidemics or pandemics may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession. Governmental
responses may exacerbate other pre-existing political, social, economic, market and financial risks. These events may have a significant adverse effect on the Funds performance and on the liquidity of
the Funds investments and have the potential to impair the ability of the Adviser or the Funds other service providers to serve the Fund and could lead to operational disruptions that negatively impact the Fund.
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. During those periods, the Fund may have to sell securities at times when it would otherwise not do so, and potentially at unfavorable prices. Securities may be difficult to value during such periods. Market risk involves the risk that the
value of the Funds investment portfolio will change, potentially frequently and in large amounts, as the prices of its investments go up or down. During periods of severe market stress, it is possible that the market for some or all of the
Funds investments may become highly volatile and/or illiquid. In such an event, the Fund may find it difficult to sell some or all of its investments and, for certain assets, the trade settlement period may be longer than anticipated. The
fewer the number of issuers in which the Fund invests and/or the greater the use of leverage, the greater the potential volatility of the Funds portfolio. Recently there have been inflationary price movements, which have caused the fixed
income securities low markets to experience heightened levels of interest rate, volatility and liquidity risk.
The United States government and the Federal
Reserve and foreign governments and central banks may take steps to support financial markets. They might, for example, take steps to support markets and economic activity generally and to set or maintain low interest rates, such as by purchasing
bonds or making financing broadly available to investors. Such actions may be intended to support certain asset classes or segments of the markets, but not others, and can have disproportionate, adverse, and unexpected effects on some asset classes
or sectors, including those in which the Fund invests. For example, efforts by governments to provide debt relief to certain consumers or market participants or to support certain aspects of the market could significantly and adversely affect the
value of the Funds investments, the Funds earnings, or the Funds risk profile, and have other unintended or unexpected effects. Other measures taken by governments and regulators, including, for example, steps to reverse, withdraw,
curtail or taper such activities, could have a material adverse effect on prices for the Funds portfolio of investments and on the management of the Fund. The withdrawal of support, failure of efforts in response to a financial or other
crisis, or investor perception that those efforts are not succeeding could negatively affect financial markets generally as well as the values and liquidity of the Funds investments.
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78 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
Federal, state,
and other governments, their regulatory agencies, or self regulatory organizations may take actions that affect the regulation of the securities in which the Fund invests or the issuers of such securities in ways that are unforeseeable. Legislation
or regulation also may change the way in which the Fund or the Adviser are regulated. Such legislation, regulation, or other government action could limit or preclude the Funds ability to achieve its investment objective and affect the
Funds performance.
Political, social or financial instability, civil unrest, geopolitical tensions, wars, natural disasters and acts of terrorism are
other potential risks that could adversely affect the Funds investments or markets generally. In addition, political developments in foreign countries or the United States may at times subject such countries to sanctions from the U.S.
government, foreign governments and/or international institutions that could negatively affect the Funds investments in issuers located in, doing business in or with assets in such countries. Any or all of the risks described herein can
increase some or all of the other risks associated with the Funds investments, including, among others, counterparty risk, debt securities risks, liquidity risk, and valuation risk.
Continuing uncertainty as to the status of the euro and the European Economic and Monetary Union (EMU) and the potential for certain countries (such
as those in the UK) to withdraw from the institution has created significant volatility in currency and financial markets generally. Any partial or complete dissolution of the EU could have significant adverse effects on currency and financial
markets, and on the values of the Funds portfolio investments. In January 2020, the United Kingdom withdrew from the EU. During an 11-month transition period, the UK and the EU agreed to a Trade and
Cooperation Agreement which sets out the agreement for certain parts of the future relationship between the EU and the UK from January 1, 2021. The Trade and Cooperation Agreement does not include an agreement on financial services which is yet
to be agreed. From January 1, 2021, EU law ceased to apply in the UK. However, many EU laws have been transposed into English law and these transposed laws will continue to apply until such time as they are repealed, replaced or amended.
Depending on the terms of any future agreement between the EU and the UK on financial services, substantial amendments to English law may occur. Significant uncertainty remains in the market regarding the ramifications of these developments, and the
range and potential implications of possible political, regulatory, economic and market outcomes are difficult to predict. The markets may be further disrupted and adversely affected by the withdrawal at various times given the uncertainty
surrounding the countrys trade, financial, and other arrangements.
Russias military invasion of Ukraine in February 2022, the resulting
responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries
have imposed broad-ranging economic sanctions on Russia, certain Russian individuals, banking entities and corporations, and Belarus as a response to Russias invasion of Ukraine, and may impose sanctions on other countries that provide
military or economic support to Russia. The extent and duration of Russias military actions and the repercussions of such actions (including any retaliatory actions or countermeasures that may be taken by those subject to sanctions, including
cyber attacks) are impossible to predict, but could result in significant market disruptions, including in certain industries or sectors, such as the oil and natural gas markets, and may negatively affect global supply chains, inflation and global
growth. These and any related events could significantly impact the Funds performance and the value of an investment in the Fund, even if the Fund does not have direct exposure to Russian issuers or issuers in other countries affected by the
invasion.
The Fund may continue to issue additional shares and to make additional investments in instruments in accordance with the Funds principal
investment strategies to strive to meet the Funds investment objective under all types of market
conditions, including unfavorable market conditions.
Portfolio Turnover Risk
The
length of time the Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the Fund is known as portfolio turnover. Portfolio turnover generally involves a number of direct and
indirect costs and expenses to the Fund, including, for example, brokerage commissions, dealer mark-ups and bid/ask spreads, and transaction costs on the sale of securities and reinvestment in other
securities, and may result in the realization of taxable capital gains (including short-term capital gains, which are generally taxable to shareholders subject to tax at ordinary income rates). Portfolio turnover risk includes the risk that frequent
purchases and sales of portfolio securities may result in higher Fund expenses and may result in larger distributions of taxable capital gains to investors as compared to a fund that trades less frequently.
Legal and Regulatory Risk
Legal,
tax and regulatory changes (which may apply with retroactive effect) could occur and may adversely affect the Fund and its ability to pursue its investment strategies and/or increase the costs of implementing such strategies. New (or revised) laws
or regulations may be imposed by the CFTC, the SEC, the Internal Revenue Service (IRS), the U.S. Federal Reserve or other banking regulators, other governmental regulatory authorities or self-regulatory organizations that supervise the
financial markets that
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Annual Report |
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September 30, 2022 |
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79 |
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Summary of Updated Information Regarding the Fund (Cont.) |
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could adversely affect the Fund. In particular, these agencies have implemented or are implementing a variety of new rules pursuant to financial reform legislation in the United States. The EU,
the United Kingdom and some other jurisdictions have implemented or are implementing similar requirements. The Fund also may be adversely affected by changes in the enforcement or interpretation of existing statutes and rules by these governmental
regulatory authorities or self-regulatory organizations.
In addition, the securities and derivatives markets are subject to comprehensive statutes,
regulations and margin requirements. The CFTC, the SEC, the Federal Deposit Insurance Corporation, other regulators and self-regulatory organizations and exchanges are authorized under these statutes, regulations and otherwise to take extraordinary
actions in the event of market emergencies. The Fund and the Adviser have historically been eligible for exemptions from certain regulations. However, there is no assurance that the Fund and the Adviser will continue to be eligible for such
exemptions.
The SEC has in the past adopted interim rules requiring reporting of all short positions above a certain de minimis threshold and may adopt
(pursuant to recent proposals) rules requiring monthly public disclosure in the future. In addition, other non-U.S. jurisdictions where the Fund may trade have adopted reporting requirements. If the
Funds short positions or its strategy become generally known, it could have a significant effect on the Advisers ability to implement its investment strategy. In particular, it would make it more likely that other investors could cause a
short squeeze in the securities held short by the Fund forcing the Fund to cover its positions at a loss. Such reporting requirements may also limit the Advisers ability to access management and other personnel at certain companies where the
Adviser seeks to take a short position. In addition, if other investors engage in copycat behavior by taking positions in the same issuers as the Fund, the cost of borrowing securities to sell short could increase drastically and the availability of
such securities to the Fund could decrease drastically. Such events could make the Fund unable to execute its investment strategy.
The SEC and regulatory
authorities in other jurisdictions may adopt (and in certain cases, have adopted) bans on new or increases in short sales of certain securities, including short positions on such securities acquired through swaps, in response to market events. Bans
on short selling and such short positions may make it impossible for the Fund to execute certain investment strategies and may have a material adverse effect on the Funds ability to generate returns.
Rules implementing the credit risk retention requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) for
asset-backed securities require the sponsor of certain securitization vehicles (or a majority owned affiliate of such sponsor) to retain, and to refrain from transferring, selling, conveying to a third party, or hedging the credit risk on a portion
of the assets transferred, sold, or conveyed through the issuance of the asset-backed securities of such vehicle, subject to certain exceptions. These requirements may increase the costs to originators, securitizers, and, in certain cases,
collateral managers of securitization vehicles in which the Fund may invest, which costs could be passed along to the Fund as an investor in such vehicles. In addition, the costs imposed by the risk retention rules on originators, securitizers
and/or collateral managers may result in a reduction of the number of new offerings of asset-backed securities and thus in fewer investment opportunities for the Fund. A reduction in the number of new securitizations could also reduce liquidity in
the markets for certain types of financial assets that are typically held by securitization vehicles, which in turn could negatively affect the returns on the Funds investment in asset-backed securities.
Tax Risk
The Fund has elected to
be treated as a regulated investment company (RIC) under the Code and intends each year to qualify and be eligible to be treated as such. If the Fund qualifies as a RIC, it generally will not be subject to U.S. federal income tax on its
net investment income or net short-term or long-term capital gains, distributed (or deemed distributed) to shareholders, provided that, for each taxable year, the Fund distributes (or is treated as distributing) to its shareholders an amount equal
to or exceeding 90% of its investment company taxable income as that term is defined in the Code (which includes, among other things, dividends, taxable interest and the excess of any net short-term capital gains over net long-term
capital losses, as reduced by certain deductible expenses). The Fund intends to distribute all or substantially all of its investment company taxable income and net capital gain each year. In order for the Fund to qualify as a RIC in any taxable
year, the Fund must meet certain asset diversification tests and at least 90% of its gross income for such year must be certain types of qualifying income. If for any taxable year the Fund were to fail to meet the income or diversification test
described above, the Fund could in some cases cure the failure, including by paying a fund-level tax and, in the case of a diversification test failure, disposing of certain assets. Some of the income and gain that the Fund may recognize, such as
income and gain from real estate assets received upon foreclosure of a loan held by the Fund, generally does not constitute qualifying income, and whether certain other income and gain that the Fund may recognize constitutes qualifying income is not
certain. The Funds investments therefore may be limited by the Funds intention to qualify as a RIC and may bear on the Funds ability to so qualify.
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80 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
The Fund may
hold certain investments that do not give rise to qualifying income through one or more wholly-owned and controlled Subsidiaries treated as U.S. corporations for U.S. federal income tax purposes. Such Subsidiaries will be required to pay U.S.
corporate income tax on their earnings, which ultimately will reduce the yield on such investments. Depending on the assets held by the Subsidiary and other considerations, a Subsidiary may qualify and elect to be treated as a REIT for federal
income tax purposes, in which case such Subsidiary generally would not be subject to U.S. corporate income tax to the extent such Subsidiary timely distributes all its income and gain. The Fund may not invest more than 25% of its total assets in
(i) any one Subsidiary or (i) two or more Subsidiaries that are treated as being in the same, similar or related trades or businesses for purposes of the diversification tests applicable to RICs.
If the Fund were ineligible to or otherwise did not cure such failure for any year, or were otherwise to fail to qualify as a RIC accorded special tax treatment
in any taxable year, it would be treated as a corporation subject to U.S. federal income tax, thereby subjecting any income earned by the Fund to tax at the corporate level and, when such income is distributed, to a further tax as dividends at the
shareholder level to the extent of the Funds current or accumulated earnings and profits.
Repurchase Agreements Risk
In the event of a default or bankruptcy by a selling financial institution under a repurchase agreement, the Fund will seek to sell the underlying
security serving as collateral. However, this could involve certain costs or delays, and, to the extent that proceeds from any sale were less than the repurchase price, the Fund could suffer a loss.
Zero-Coupon Bond Risk
Zero-coupon
bonds are issued at a significant discount from their principal amount in lieu of paying interest periodically. Because zero-coupon bonds do not pay current interest in cash, their value is subject
to greater fluctuation in response to changes in market interest rates than bonds that pay interest currently. Zero-coupon bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may
involve greater credit risks than bonds paying interest currently in cash. The Fund is required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders even though the investments do not make
any current interest payments. Thus, it may be necessary at times for the Fund to liquidate other investments in order to satisfy its distribution requirements under the Code.
Operational and Information Security Risks
The Fund and its service providers depend on complex information technology and communications systems to conduct business functions, making them susceptible to
operational and information security risks. Any problems relating to the performance and effectiveness of security procedures used by the Fund or its service providers to protect the Funds assets, such as algorithms, codes, passwords, multiple
signature systems, encryption and telephone call-backs, may have an adverse impact on an investment in the Fund. For example, design or system failures or malfunctions, human error, faulty software or data processing systems, power or communications
outages, acts of God, or cyber- attacks may lead to operational disruptions and potential losses to the Fund. Cyber-attacks include, among other behaviors, stealing or corrupting data maintained online or digitally, denial of service attacks on
websites, the unauthorized release of confidential information and causing operational disruption. Successful cyber-attacks against, or security breakdowns of, the Fund or its Adviser, custodian, fund accountant, fund administrator, transfer agent,
pricing vendors and/or other third party service providers may adversely impact the Fund and its shareholders. For instance, cyber-attacks or other operational issues may interfere with the processing of shareholder transactions, impact the
Funds ability to calculate its NAV, cause the release of private shareholder information or confidential Fund information, impede trading, cause reputational damage, and subject the Fund to regulatory fines, penalties or financial losses,
reimbursement or other compensation costs, and/or additional compliance costs. The Fund also may incur substantial costs for cybersecurity risk management in order to guard against any cyber incidents in the future.
Furthermore, as the Funds assets grow, it may become a more appealing target for cybersecurity threats such as hackers and malware. In general,
cyber-attacks result from deliberate attacks but unintentional events may have effects similar to those caused by cyber-attacks. Additionally, outside parties may attempt to fraudulently induce employees of the Fund or the Adviser or its service
providers to disclose sensitive information in order to gain access to the Funds infrastructure. Similar types of risks also are present for issuers of securities in which the Fund invests, which could result in material adverse consequences
for such issuers, and may cause the Funds investment in such securities to lose value. In addition, cyber- attacks involving a counterparty to the Fund could affect such a counterpartys ability to meet its obligations to the Fund, which
may result in losses to the Fund and its shareholders. In addition, the adoption of work-from-home arrangements by the Fund, the Adviser or its service providers could increase all of the above risks, create additional data and information
accessibility concerns, and make the Fund, the Adviser or its service providers more susceptible to operational disruptions, any of which could adversely impact their operations. While the Fund or its service providers may have established business
continuity plans and systems designed to guard against such operational
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Summary of Updated Information Regarding the Fund (Cont.) |
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failures and cyber-attacks and the adverse effects of such events, there are inherent limitations in such plans and systems including the possibility that certain risks have not been identified,
in large part because different, evolving or unknown threats or risks may emerge in the future. The Adviser and the Fund do not control the business continuity and cybersecurity plans and systems put in place by third-party service providers, and
such third-party service providers may have no or limited indemnification obligations to the Adviser or the Fund.
Preferred
Securities Risk
In addition to many of the risks associated with both debt securities (e.g., interest rate risk and credit risk) and common
shares or other equity securities, preferred securities typically contain provisions that allow an issuer, under certain conditions, to skip (in the case of noncumulative preferred securities) or defer (in the case of cumulative preferred
securities) dividend payments. If the Fund owns a preferred security that is deferring its distributions, the Fund may be required to report income for tax purposes while it is not receiving any distributions.
In addition, preferred securities typically do not provide any voting rights, except in some cases in which dividends are in arrears beyond a certain time
period, which varies by issue. Preferred securities are generally subordinated to bonds and other debt instruments in a companys capital structure in terms of priority to corporate income and liquidation payments, and therefore will be subject
to greater credit risk than those debt instruments. Preferred securities may be substantially less liquid than many other securities.
Other Investment Companies Risk
As a shareholder in an investment company, the Fund will bear its ratable share of that investment companys expenses, and would remain subject to payment of
the Funds investment management fees with respect to the assets so invested. Common Shareholders would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. In addition, these other
investment companies may use leverage, in which case an investment would subject the Fund to additional risks associated with leverage.
Anti-Takeover Provisions Risk
The
Funds Declaration of Trust includes provisions that could limit the ability of other entities or persons to acquire control of the Fund or to convert the Fund to open-end status. These
provisions in the Declaration of Trust could have the effect of depriving the Common Shareholders of opportunities to sell their Common Shares at a premium over the then-current market price of the Common Shares or at NAV.
Fund Organizational Structure
At
a meeting on May 19, 2022, the Board of Trustees (the Board) adopted Amended and Restated Bylaws, dated May 19, 2022 (the Amended and Restated Bylaws).
Among other changes, the Amended and Restated Bylaws establish certain minimum qualifications for individuals nominated, elected, appointed, and/or qualified to
serve as Trustees, including additional qualifications specific to serving as a Trustee who is not an interested person (as defined in the Investment Company Act of 1940) of the Fund. The Amended and Restated Bylaws also authorize the Board to
require Trustees and nominees for election to the Board to agree to comply with such policies relating to corporate governance, business ethics, confidentiality, and other matters as the Board may establish in its discretion.
The Amended and Restated Bylaws require persons desiring to bring shareholder proposals or nominations before an annual meeting of shareholders to provide longer
advance notice to the Fund than did the existing Bylaws. The Amended and Restated Bylaws also require compliance with additional procedural and informational requirements in connection with the advance notice of shareholder proposals or nominations,
including, for example, information that may be relevant to assessing an individuals qualifications to serve as a Trustee and his or her investment alignment with other shareholders of the Fund. The Amended and Restated Bylaws require that a
shareholder making a proposal or nomination to be considered at a meeting of shareholders must have held shares of the Fund for at least one year at the time of delivering notice of the proposal or nomination. Any shareholder considering making a
proposal or nomination should carefully review and comply with those and the other provisions of the Amended and Restated Bylaws.
The Amended and Restated
Bylaws provide that, with respect to an election of Trustees, a nominee receiving the affirmative vote of a plurality of the shares voted at any meeting at which a quorum as to the election of Trustees is present shall be elected, except that, with
respect to a Contested Election, a nominee receiving the affirmative vote of a majority of the shares outstanding and entitled to vote with respect to the election of Trustees at any meeting at which a quorum as to the election of Trustees is
present shall be elected (the Majority Voting Standard). A Contested Election means any election of Trustees in which the number of
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82 |
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DoubleLine Yield Opportunities Fund |
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(Unaudited) September 30, 2022 |
persons nominated for election as Trustees with respect to a given class or series of shares in accordance with the Amended and Restated Bylaws exceeds the number of Trustees to be elected with
respect to such class or series, with the determination that any election of Trustees is a Contested Election to be made by the Secretary or any Assistant Secretary of the Fund prior to such election of Trustees. The Amended and Restated Bylaws
provide that, in the event that a current Trustee is not reelected and no successor to such Trustee is elected and qualified (in either case, because the required vote or quorum is not obtained or for any other reason), that current Trustee shall
continue to serve as a Trustee and remain a member of the relevant class of Trustees, holding office for an additional three-year term.
The provisions of
the Amended and Restated Bylaws described above may have the effect of delaying a change of control of the Fund.
The preceding discussion is only a
high-level summary of certain aspects of the Amended and Restated Bylaws, and is qualified in its entirety by reference to the Amended and Restated Bylaws. Shareholders should refer to the Amended and Restated Bylaws for more information. A copy of
the Amended and Restated Bylaws is filed as an exhibit to this Form N-CSR. The Amended and Restated Bylaws also may be obtained at no charge by calling 1 (877) DLINE 11 / 1 (877) 354-6311.
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Annual Report |
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Portfolio Managers |
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(Unaudited) September 30, 2022 |
The portfolio
managers for the Fund are Jeffrey E. Gundlach (since the Funds inception) and Jeffrey J. Sherman (since the Funds inception). Since the Funds 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 Funds 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 SECs website at www.sec.gov.
A description of the Funds 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 SECs 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 Funds website. The disclosure will be made by
posting the Annual, Semi-Annual and Part F of Form N-PORT filings on the Funds 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 Funds Part F of Form
N-PORT is available on the SECs website at www.sec.gov.
HouseholdingImportant 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.