1WS Credit Income Fund (OWSCX) N-CSRSCertified semi-annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-23368

1WS Credit Income Fund

(Exact name of registrant as specified in charter)

299 Park Avenue, 25^th Floor

New York, New York 10171

(Address of principal executive offices)

Kurt A. Locher

c/o 1WS Credit Income Fund

Chief Executive Officer

299 Park Avenue, 25^th Floor

New York, New York 10171

(Name and Address of Agent for Service)

Registrant’s telephone number, including area code: (212) 377-4810

Date of fiscal year end:   October 31

Date of reporting period: October 31, 2020 – October 31, 2021

Item 1.  Reports to Stockholders.

(a)

Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports are no longer sent by mail, unless you specifically request paper copies of the reports. Instead, the reports are made available on the Fund’s website at www.1wscapital.com and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically by calling (833) 834-4923 or by contacting your financial intermediary, such as a broker-dealer or bank.

You may elect to receive all future shareholder reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the Fund, you can call (833) 834-4923 to let the Fund know you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held in your account if you invest through a financial intermediary.

Table of Contents

The 1WS Credit Income Fund (the “Fund”) is a closed-end interval fund launched in March 2019. As of October 31, 2021, the Fund has gross assets under management of approximately $156 million (approximately $111 million net assets). The Fund is a non-diversified, closed-end investment management company with an investment objective seeking attractive risk-adjusted total returns through generating income and capital appreciation. The Fund invests primarily in a wide array of predominantly structured credit and securitized debt instruments.

Overview 

The U.S. economy continues to recover from the effects of the COVID pandemic, and it remains our core view that this will be the backdrop for the foreseeable future. COVID uncertainty continues to affect global economies, and economic indicators during the third quarter underperformed expectations of a post-COVID return to a "new normal.” Health concerns have curtailed travel and service sector activity, as highlighted by the modest employment gains over the period. Continued uncertainty regarding the pace of economic activity will probably remain high heading into the winter months until a sustained reduction in COVID cases is actually realized.

For now, we believe that investors consensus is in line with the Federal Reserve’s base line forecast for a measured reduction in monetary stimulus - beginning with a measured reduction in monthly asset purchases. However, we believe that the Fed’s base case scenario for a slow and measured reduction in future monetary stimulus is in large part underpinned by the belief that recent inflationary pressures are largely transitory and that future inflationary pressures and expectations will remain contained. However, rising labor costs and labor shortages in many sectors are adding to ongoing global supply chain disruptions that continue to plague the U.S. economy and have contributed to the acceleration in inflation. Rapidly rising home prices and rent growth is also contributing to consumer price inflation and, more recently, rising global energy prices have moved to center stage.

While interest rates have moved modestly higher over the year, they remain low in a historical context and realized interest rate volatility has remained largely contained. Similarly, credit spreads as measured by the Bloomberg U.S. Corporate Credit Indices remain on the lower end of their one-year and longer-term historical ranges. The challenge facing fixed income investors, in our opinion, remains identifying attractively priced return opportunities in an environment where both Treasury yields and credit spreads are trading at the lower end of their historical ranges. For unhedged long-only fixed income investors, even a modest increase in Treasury yields can result in duration losses that could offset yield earned, and result in negative total returns. For instance, despite fiscal year-to-date credit spreads tightening on the Bloomberg U.S. Aggregate index, duration losses due to rising Treasury yields have resulted in a negative -.48% total return. While the Fund hedges interest rate risk, we do not believe that higher interest rates in-and-of-themselves pose a substantial risk factor to credit generally, actual results will depend upon the level and volatility of interest rate moves as well as their fundamental underpinnings.

Net Return Performance as of 10/31/21*

Comparison of the Change in Value of a $10,000 Investment

The chart above assumes an initial investment of $10,000 made on March 4, 2019 (commencement of operations). Returns shown include the reinvestment of all dividends. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or share repurchases. In the absence of fee waivers and reimbursements, when they are necessary to keep expenses at the expense cap, total return would be reduced.

Performance data quoted represents past performance, which is not a guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. You can obtain performance data current to the most recent month end by calling (833) 834-4923 or visiting www.1wscapital.com. Investors cannot invest directly in an index.

The Fund seeks to pay quarterly distributions. To provide a stable quarterly distribution, the Fund may pay distributions at a rate different than the amount of net income actually earned by the Fund during the period. The character of distributable income for each fiscal period depends on the aggregate gains and losses realized by the Fund during the year. Distributions are determined on a tax basis, which may differ from amounts recorded in the accounting records. The Fund paid distributions during fiscal year 2021 in the aggregate amount of $1.20 per share. Please refer to the Consolidated Financial Highlights and Note 11 - Tax Basis Information for additional information.

Portfolio Composition¹ and Gross Return Attribution²

With an eye toward potentially increasing market volatility, we see little in the way of changing fundamentals that would cause us to reevaluate our desired portfolio positioning over the near term. We believe the ongoing COVID recovery will continue to fuel economic growth, although speed and duration will be a function of COVID dynamics, public policy measures, and other macro themes. Consumer credit performance has remained strong and, in aggregate, has improved relative to pre-pandemic levels in our opinion. We believe this will continue to support strong consumer fundamentals well into the new year. The increase in residential home prices continues, strengthening the credit outlook for existing residential mortgage credit outstanding. Increased savings by individuals over the course of the pandemic, rising property values for homeowners, and the combination of wage gains and improving employment rates should support a very favorable outlook for consumer credit across a number of asset classes. Opportunities within commercial real estate have also been an area of our recent investment focus. The disparate impact COVID-related shutdowns have had across various property types and geographies has created a number of attractive investment opportunities in our opinion. The multifamily sector continues to experience strong rental demand and rising rent growth, and COVID recovery themes continue to emerge within stressed sectors, such as travel and leisure, office and retail.

Portfolio Activity 

We continued to realize positive portfolio returns across the various asset classes and investment strategies within our portfolio. During the second half of the fiscal year ending in October, residential mortgages realized strong gains as the continued strength in the housing sector and expiration of many forbearance plans led to obvious improvements in headline fundamentals, which in our opinion, led to the decline in delinquencies and improvement in cash flows. Similarly, strong underlying consumer fundamentals have increased investor demand for consumer credit. We realized strong gains across our consumer ABS portfolios, particularly within the unsecured consumer sector.

Given the supportive fundamentals, we continue to look for opportunities to gain credit exposure to the consumer sector. While significant spread compression across all credit sectors has made many investment profiles less compelling, we continue to identify segments of the market that we feel are more attractively priced and generally offer positive credit convexity to the upside. While the market has migrated to a more optimistic fundamental outlook, as reflected in asset prices, we believe that having a differentiated view of issuer specific credit fundamentals or capital structure can help to identify opportunities in new issue or with off-the-run originators.

An improving labor market and rising prices for single family housing has provided strong fundamental credit support for the residential mortgage backed sector (RMBS). Based on the S&P CoreLogic Case-Shiller U.S. National Home Price Index, year-over-year (YoY) home price appreciation (HPA) was up 19.8% in August, its largest annual increase on record, as pandemic induced demand for single family housing combined with historically low mortgage rates outpaced available inventories. While we believe rising home prices and higher mortgage rates in 2022 will likely slow the pace of future HPA, we believe the supply/demand imbalance is likely to keep upward pressure on home prices over the intermediate term. Our investment focus within the RMBS sector continues to be concentrated in identifying portfolios of seasoned loans with higher delinquency and/or forbearance balances. We believe fulcrum exposures primarily off of legacy pools continue to offer attractive positive credit convexity for those with the requisite underwriting skills to differentiate the many nuanced collateral and structural characteristics.

Within the non-dollar ABS and RMBS sectors, we continued to actively reposition our portfolios during the period. The resurgence of new-issue supply in the U.K. and Europe has created increasing opportunities for us to reposition the portfolio and capture what we believe are attractive discounts to intrinsic value lower in the capital structure. We have previously highlighted that the credit curve remains meaningfully steeper in the U.K. and Europe relative to the U.S. due to investment constraints that limit many non-U.S. investors to investment-grade securities only. While investment-grade demand is strong and generally many times oversubscribed for new issue securitization transactions, we believe we have been able to capitalize on a number of opportunities in below-investment-grade tranches through pre-emptive pricing or negotiating backstop bids with originators for the below-investment-grade tranches. An originator’s economics in a securitization is heavily weighted to the execution of the investment-grade tranches. By providing an early outlet for the non-investment grade tranches we believe we have been able to source larger allocations at a discount to intrinsic value and benchmark pricing.

Within the commercial real estate (CRE) sector, ongoing uncertainty regarding future property economics and appropriate market discount rates continues to create opportunities in individual properties and select sectors, in our opinion for those with the requisite underwriting experience. Within CMBS we have observed increasing opportunities of stressed/distressed securities in seasoned post-crisis CMBS deals as these deals approach their balloon/maturity dates and the market begins to discount the future ability of individual loans to refinance. We believe many investors who had purchased these securities in the past as attractive yield substitutes, lack the CRE underwriting skills to evaluate and manage these exposures as disparate credit profiles begin to emerge in the underlying loan pools. In our opinion, this has and will increasingly result in rotational selling, which can provide attractive investment opportunities for those with the appropriate credit underwriting skills. We have also continued to add subordinate exposure off of new issue Single Asset Single Borrower (SASB) transactions. We have been targeting below investment grade through first loss exposure on deals backed by Tier 1 properties/sponsors and where we have strong conviction into our visibility of underwritten valuation metrics. The underlying loans are generally on new or newly refinanced properties with updated operating performance and valuation metrics. The subordinate debt in many cases, is trading at attractive discounts to the underlying loan, and we see value in the relative steepness of the capital structure.

We continued to actively trade securities within the CLO sector in an attempt to capture relative value opportunities; however, volatility within the leveraged loan and CLO sectors has been limited. The significant decline in corporate defaults in 2021 to historical lows has compressed market spreads and reduced market volatility in the leveraged corporate sectors overall. Despite this, CLOs remain among the highest nominal yielding securities within credit markets, and we believe this will continue to support strong demand in a yield hungry investment environment. Retail flows have been positive, and with reflationary uncertainty growing, we believe demand for floating rate CLOs will continue to support future performance.

Outlook 

We believe the COVID recovery theme will continue to fuel economic growth in the U.S. and provide a supportive backdrop for securitized credit markets well into the new year. The challenge will be to identify attractively priced return opportunities in an environment where both Treasury yields and credit spreads are trading at the lower end of their historical range. We believe this limits potential excess return opportunities, particularly in long-bias, carry-driven risk premia strategies. As a result, we continue to look for opportunities where we can gain positive credit convexity in securities/sectors in which we believe the improving underlying fundamentals or the investor expectations of future performance will act as a repricing catalyst. Changing capital structures that result in the deleveraging of a security’s risk profile can provide another catalyst for repricing. We continue to look for opportunities lower in the capital structure where we believe differentiated credit underwriting is the key to uncovering value.

Investing in the Fund may be considered speculative and involves a high degree of risk, including the risk of possible substantial loss of your investment.

Prior to investing, Investors should carefully consider the investment objectives, risks, charges and expenses of 1WS Credit Income Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained by calling (833) 834-4923 or visiting www.1wscapital.com. The prospectus should be read carefully before investing.

1WS Credit Income Fund is distributed by ALPS Distributors, Inc. ALPS Distributors, Inc. is not affiliated with 1WS Capital Advisors, LLC or One William Street Capital Management, L.P.

Risk Disclosures 

Past performance is not a guarantee of future results. There is no assurance that the Fund will meet its investment objective.

Limited liquidity is provided to shareholders only through the Fund’s quarterly repurchase offers for no less than 5% of the Fund’s shares outstanding at net asset value. There is no guarantee that a shareholders will be able to sell all of the shares they desire to sell in a quarterly repurchase offer. The Fund is suitable only for investors who can bear the risks associated with the limited liquidity of the Fund and should be viewed as a long-term investment. The Fund’s investments may be negatively affected by the broad investment environment in the real estate market, the debt market and/or the equity securities market. The value of the Fund’s investments will increase or decrease based on changes in the prices of the investments it holds. This will cause the value of the Fund’s shares to increase or decrease. The Fund is “non-diversified” under the Investment Company Act of 1940 and, thus, changes in the financial condition or market value of a single issuer may cause a greater fluctuation in the Fund’s net asset value than in a “diversified” fund. Diversification does not eliminate the risk of experiencing investment losses. The Fund is not intended to be a complete investment program. The Fund expects most of its investments to be in securities that are rated below investment grade or would be rated below investment grade if they were rated. Below investment grade instruments or “junk securities” are particularly susceptible to economic downturns compared to higher rated investments. While the Fund may employ hedging techniques to seek to minimize interest rate risk, there can be no assurance that it will engage in such techniques at any given time or that such techniques would be successful. As such, the Fund is subject to interest rate risk and may decline in value as interest rates rise. The Fund may use leverage to achieve its investment objective, which involves risks, including the increased likelihood of net asset value volatility and the increased risk that fluctuations in interest rates on borrowings will reduce the return to investors. In addition to the normal risks associated with investing, investing in international and emerging markets involves risk of capital loss from unfavorable fluctuations in currency values, differences in generally accepted accounting principles or from social, economic or political instability in other nations. The Fund may employ hedging techniques to seek to minimize foreign currency risk. There can be no assurance that it will engage in such techniques at any given time or that such techniques would be successful. The Fund may invest in derivatives, which, depending on market conditions and the type of derivative, are more volatile than other investments and could magnify the Fund’s gains or losses. An investment in shares should be considered only by investors who can assess and bear the illiquidity and other risks associated with such an investment.

Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. Mortgage-backed and asset-backed securities are affected by interest rates, financial health of issuers/originators, creditworthiness of entities providing credit enhancements and the value of underlying assets. Fixed-income securities present issuer default risk. Prepayment and extension risk exists because a loan, bond or other investment may be called, prepaid or redeemed before maturity and similar yielding investments may not be available for purchase. Structured finance securities may present risks similar to those of the other types of debt obligations in which the Fund may invest and, in fact, such risks may be of greater significance in the case of structured finance securities. Investing in structured finance securities may be affected by a variety of factors, including priority in the capital structure of the issuer thereof, the availability of any credit enhancement, and the level and timing of payments and recoveries on and the characteristics of the underlying receivables, loans or other assets that are being securitized, among others. Market or other (e.g., interest rate) environments may adversely affect the liquidity of Fund investments, negatively impacting their price. Generally, the less liquid the market at the time the Fund sells a holding, the greater the risk of loss or decline of value to the Fund. Fund performance may be negatively impacted by the economic impact of the COVID-19 pandemic. The COVID-19 pandemic has adversely impacted economies and capital markets around the would in ways that will likely continue for an indeterminate period. The impacts, as well as the uncertainty over impacts to come, of COVID-19 may adversely affect the future performance of the Fund. See the Fund’s prospectus for information on these and other risks.

There can be no assurance that the Fund will achieve its investment objective. Many of the Fund’s investments may be considered speculative and subject to increased risk. Neither One William Street Capital Management, LP nor 1WS Capital Advisors, LLC has managed a 1940-Act registered product prior to managing the fund. 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 all of your investment. The ability of the Fund to achieve its investment objective depends, in part, on the ability of the Adviser to allocate effectively the assets of the Fund among the various securities and investments in which the Fund invests. There can be no assurance that the actual allocations or investment selections will be effective in achieving the Fund’s investment objective or delivering positive returns.

The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice, so actual outcomes and results may differ significantly from the views expressed. These views are subject to change at any time based upon economic, market or other conditions and the portfolio manager disclaims any responsibility to update such views. The views expressed in this report reflect the current views of the portfolio manager as of October 31,2021.

There are limitations when comparing the 1WS Credit Income Fund to indices. Many open-end funds which track these indices offer daily liquidity, while closed-end interval funds offer liquidity on a periodic basis. Deteriorating general market conditions will reduce the value of stock securities. When interest rates rise, the value of bond securities tends to fall. Investing in lower-rated securities involves special risks in addition to the risks associated with investments in investment grade securities, including a high degree of credit risk. Lower-rated securities may be regarded as predominately speculative with respect to the issuer’s continuing ability to meet principal and interest payments. Analysis of the creditworthiness of issuers/issues of lower-rated securities may be more complex than for issuers/issues of higher quality debt securities. There is a risk that issuers will not make payments, resulting in losses to the Fund. In addition, the credit quality of securities may be lowered if an issuer’s financial condition changes. Assets and securities contained within indices are different than the assets and securities contained in the 1WS Credit Income Fund and will therefore have different risk and reward profiles. An investment cannot be made in an index, which is unmanaged and has returns that do not reflect any trading, management or other costs. Please see definitions for a description of the investment indexes selected.

Definitions

ABS: Asset-Backed Securities are instruments secured by financial, physical, and/or intangible assets (e.g., receivables or pools of receivables), and investments in any assets/instruments underlying the foregoing structured/secured obligations.

Basis Points (bps): A basis point is a common unit of measurement for interest rates and credit spreads and is equal to one hundredth of one percent.

Bloomberg U.S. aggregate bond index: The index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).

Bloomberg U.S. Investment Grade Credit Index: The index measures the investment grade, fixed-rate, taxable corporate bond market.

CLO: Collateralized Loan Obligations are instruments that represent debt and equity tranches of collateralized loan obligations and collateralized debt obligations.

CMBS: Commercial Mortgage-Backed Securities are fixed income instruments that are secured by mortgage loans on commercial real property.

ICE BofA US High Yield Index: ICE BofA US High Yield Index tracks the performance of US dollar denominated below investment grade corporate debt publicly issued in the US domestic market.

RMBS: Residential Mortgage-Backed Securities are securities that may be secured by interests in a single residential mortgage loan or a pool of mortgagee loans secured by residential property.

See Notes to Consolidated Financial Statements. 

See Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

Percentages above are stated as a percentage of net assets as of October 31, 2021

Investment Abbreviations: 

LIBOR - London Interbank Offered Rate 

EURIBOR - Euro Interbank Offered Rate 

SONIA IR - Sterling Over Night Index Average 

BOBL - German Federal Government Bond 

GILT - United Kingdom Federal Government Bond 

BBSW - Bank Bill Swap Rate 

T-BILL - U.S. Treasury Bill 

SOFR - Secured Overnight Financing Rate

Reference Rates: 

3M GBP L - 3 Month GBP LIBOR as of October 31, 2021 was 0.23% 

1M EUR L - 1 Month EURIBOR as of October 31, 2021 was (0.56)% 

3M EUR L - 3 Month EURIBOR as of October 31, 2021 was (0.55)% 

1M US L - 1 Month USD LIBOR as of October 31, 2021 was 0.09% 

3M US L - 3 Month USD LIBOR as of October 31, 2021 was 0.13%

See Notes to Consolidated Financial Statements. 

Reference Rates: (continued) 

3M T-Bill - 3 Month Treasury Bill as of October 31, 2021 was 0.06% 

1M SONIA IR - 1 Month SONIA as of October 31, 2021 was 0.05% 

3M SONIA IR - 3 Month SONIA as of October 31, 2021 was 0.05% 

1M BBSW - 1 Month BBSW as of October 31, 2021 was 0.01% 

30D US SOFR - 30 Day US SOFR as of October 31, 2021 was 0.05%

See Notes to Consolidated Financial Statements. 

DERIVATIVE INSTRUMENTS

FUTURES CONTRACTS

See Notes to Consolidated Financial Statements.

CREDIT DEFAULT SWAP CONTRACTS - SELL PROTECTION (OVER THE COUNTER)^(a)

Credit default swaps pay quarterly.

See Notes to Consolidated Financial Statements.

October 31, 2021

See Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

For the Year Ended October 31, 2021

See Notes to Consolidated Financial Statements.

For the Year Ended October 31, 2021

THE FOLLOWING TABLE PROVIDES A RECONCILIATION OF RESTRICTED CASH AND UNRESTRICTED CASH AND FOREIGN CURRENCY WITHIN THE CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

See Notes to Consolidated Financial Statements.

For a Share Outstanding Throughout the Periods Presented

See Notes to Consolidated Financial Statements.

For a Share Outstanding Throughout the Period Presented

See Notes to Consolidated Financial Statements.

October 31, 2021

NOTE 1. ORGANIZATION

1WS Credit Income Fund (“1WS Credit” or the “Fund”) is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management investment company that continuously offers its shares of beneficial interest (‘‘Shares’’). 1WS Credit operates as an interval fund under Rule 23c-3 of the 1940 Act and, as such, has adopted a policy to make quarterly repurchase offers at a price equal to net asset value (‘‘NAV’’) per Share of at least 5% of outstanding Shares.

1WS Credit’s investment objective is to seek attractive risk-adjusted total returns through generating income and capital appreciation. 1WS Credit will seek to achieve its investment objective by investing primarily in a wide array of structured credit and securitized debt instruments. There can be no assurance that the Fund’s investment objective will be achieved.

1WS Credit was organized as a Delaware statutory trust on July 20, 2018 pursuant to an Agreement and Declaration of Trust governed by the laws of the State of Delaware. 1WS Credit had no operations from that date to March 4, 2019, commencement of operations, other than those related to organizational matters and the registration of its Shares under applicable securities laws. 1WS Credit wholly owns and consolidates 1WSCI Sub I, LLC (the “Cayman Islands SPV”), an exempted company incorporated in the Cayman Islands on February 22, 2019. The Cayman Islands SPV is an investment vehicle formed to make certain investments on behalf of 1WS Credit. 1WS Credit is the managing and sole member of the Cayman Islands SPV pursuant to a limited liability agreement dated March 1, 2019. Where context requires, the “Fund” includes both the Fund and the Cayman Island SPV.

1WS Capital Advisors, LLC (the ‘‘Adviser’’ or ‘‘1WS’’) serves as the investment adviser of the Fund. 1WS is a Delaware limited liability company that is registered as an investment adviser with the Securities and Exchange Commission (the ‘‘SEC’’) under the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’). The Adviser is controlled by its managing member, One William Street Capital Management, L.P. (‘‘OWS’’), which is also registered with the SEC as an investment adviser. The Fund’s portfolio manager and other personnel of the Adviser have substantial experience in managing investments and investment funds, including funds which have investment programs similar to that of the Fund.

The Fund currently offers Institutional (“Class I”) Shares and Brokerage Class ("Class A-2") Shares (collectively, the "Share Classes"). Both Share Classes of the Fund are being offered on a continuous basis at the NAV per Share calculated each day. Class A-2 Shares are offered subject to a maximum sales charge of 3.00% of their offering price and an asset-based distribution/shareholder servicing fee not to exceed 0.75% of its net assets and Class I shares are not subject to any sales load or asset-based distribution fee. Class A-2 Shares purchased without a sales charge may be subject to a 1.50% contingent deferred sales charge ("CDSC"). The Fund received exemptive relief from the SEC to issue multiple classes of Shares and to impose asset-based distribution fees as applicable. Class I and Class A-2 shares commenced operations on March 4, 2019 and May 1, 2021, respectively.

Each class represents an interest in the same assets of the Fund and classes are identical except for differences in their sales charge structures and ongoing service and distribution charges. All classes of shares have equal voting privileges except that each class has exclusive voting rights with respect to its service and/or distribution plans. The Fund's income, expenses (other than class specific service and distribution fees) and realized and unrealized gains and losses are allocated proportionately each day based upon the relative net assets of each class.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and are stated in United States dollars. The Fund is considered an investment company under GAAP and follows the accounting and reporting guidance for investment companies under Financial Accounting Standards Board’s (‘’FASB’’) Accounting Standards Codification (‘’ASC’’) 946, Financial Services-Investment Companies, including accounting for investments at fair value.

The preparation of these consolidated financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statement and accompanying notes. The Adviser believes that the estimates utilized in preparing the financial statements are reasonable and prudent; however, actual results could differ from such estimates and the differences could be material.

Consolidation: 1WS Credit consolidates its investment in the Cayman Islands SPV because 1WS Credit is the sole shareholder of this entity. In accordance with ASC 810, Consolidation, the accompanying consolidated financial statements include the Cayman Islands SPV’s assets and liabilities and results of operations. All investments held by the Cayman Islands SPV are disclosed in the Consolidated Schedule of Investments. All intercompany accounts and transactions have been eliminated upon consolidation.

Investment Transactions: Investment transactions are accounted for on a trade-date basis for financial reporting purposes and amounts payable or receivable for trades not settled at the time of year end are reflected as liabilities and assets, respectively. Interest is recorded on an accrual basis. Realized gains and losses on investment transactions reflected in the consolidated statement of operations are recorded on a first-in, first-out basis. Premiums on fixed-income securities and discounts on non-distressed fixed-income securities are amortized and recorded within interest income in the consolidated statement of operations.

October 31, 2021

The Fund may enter into derivative contracts for hedging purposes or to gain synthetic exposures to certain investments (“Derivatives”). Derivatives are financial instruments whose values are based on an underlying asset, index, or reference rate and include futures, swaps, swaptions, options, or other financial instruments with similar characteristics.

The Board of Trustees (the “Board”) has adopted valuation policies and procedures for the Fund and has delegated the day-to-day responsibility for fair value determinations to the Adviser and the Administrator (defined below). The Fund’s valuation committee (the “Valuation Committee”) (comprised of officers of the Adviser and established pursuant to the policies and procedures adopted by the Board) has the day-to-day responsibility for overseeing the implementation of the Fund’s valuation policies and procedures and fair value determinations (subject to review and ratification by the Board).

Fund Valuation: Class I and Class A-2 Shares are offered at NAV. The NAV per share of each class is determined daily. The Fund's NAV per share is calculated by subtracting liabilities (including accrued expenses and indebtedness) from the total assets of the Fund (the value of the investments plus cash or other assets, including interest accrued but not yet received). The Fund's NAV is then allocated pro-rata between the share classes, adjusting for share class specific liabilities. The NAV of each share class is then divided by the total number of Shares outstanding of each share class at each day's end.

NOTE 3. PORTFOLIO VALUATION:

ASC 820 Fair Value Measurement defines fair value as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 establishes a fair value hierarchy for inputs used in measuring fair value and maximizes the use of observable inputs and minimizes the use of unobservable inputs by prioritizing the use of the most observable input when available.

Valuation inputs broadly refer to the assumptions market participants would use in pricing the asset or liability, including assumptions about risk. ASC 820 distinguishes between: (i) observable inputs, which are based on market data obtained from parties independent of the reporting entity, and (ii) unobservable inputs, which reflect the Adviser’s own assumptions about the judgments market participants would use. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is deemed significant to the fair value measurement. When a valuation uses multiple inputs from varying levels of the fair value hierarchy, the hierarchy level is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Generally, the Fund expects to be able to obtain pricing from independent third-party sources on many of its investments. However, in certain circumstances where such inputs are difficult or impractical to obtain or such inputs are deemed unreliable, we may fair value certain investments using internal manager marks. As of October 31, 2021, 0.63% of the investments held by the Fund were valued using internal manager marks.

The following factors may be pertinent in determining fair value: security covenants, call protection provisions and information rights; cash flows, the nature and realizable value of any collateral; the debt instrument's ability to make payments; the principal markets and financial environment in which the debt instrument operates; publicly available financial ratios of peer companies; changes in interest rates for similar debt instruments; and enterprise values, among other relevant factors.

Determination of fair value involves subjective judgments and estimates not susceptible to substantiation by auditing procedures. Due to the inherent uncertainty of determining the fair value of investments that do not have readily available market quotations, the fair value of these investments may differ significantly from the values that would have been used had such market quotations existed for such investments, and any such differences could be material. Accordingly, under current accounting standards, the notes to the Fund’s consolidated financial statements will refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on the Fund’s financial statements.

October 31, 2021

The following tables summarize the Fund’s financial instruments classified as assets and liabilities measured at fair value by level within the fair value hierarchy as of October 31, 2021:

There were no changes in valuation technique. Certain Collateralized Loan Obligation Securities were transferred from Level 2 to Level 3 as the market provided less transparency at October 31, 2021 than in the previous year.

The following table discloses the purchase of Level 3 portfolio investments as well as the value of transfers into or out of Level 3 for the year ended October 31, 2021 of the Fund’s Level 3 portfolio investments:

October 31, 2021

The following table presents additional information about the valuation methodologies and inputs used for investments that are measured at fair value and categorized within Level 3 as of October 31, 2021:

Quantitative Information about Level 3 Fair Value Measurements

Federal Income Taxes: The Fund has elected to be treated as a regulated investment company under the Internal Revenue Code of 1986, as amended (the ‘‘Code’’). The Fund intends to elect to be treated for federal income tax purposes, and intends to qualify annually, as a regulated investment company (a ‘‘RIC’’) under Subchapter M of the Internal Revenue Code (the ‘‘Code’’). As a RIC, the Fund generally will not have to pay Fund-level federal income taxes on any ordinary income or capital gains that the Fund distributes to shareholders from our tax earnings and profits.

For the year ended October 31, 2021, the Fund did not have a tax liability. The Fund files U.S. federal, state, and local tax returns as required. The Fund’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations which is generally three years after the filing of the tax return for federal purposes and four years for most state returns.

Distributions to Shareholders: The Fund intends to declare and pay substantially all of its net investment income to shareholders in the form of dividends on a quarterly basis. The Fund also intends to distribute substantially all net realized capital gains at least annually.

NOTE 4. FEES AND EXPENSES

Investment Advisory: Under an investment advisory agreement between the Fund and the Adviser (the “Advisory Agreement”), the Fund pays the Adviser a fee at the annualized rate of 1.50% of the daily gross assets of the Fund (the “Management Fee”). For the one-year period beginning on March 1, 2021, the Adviser has voluntarily agreed to reduce the Management Fee to 1.25% of the Fund’s daily gross assets.

Expense Limitation and Reimbursement Agreement: Pursuant to an expense limitation and reimbursement agreement (the “Expense Limitation Agreement”), the Adviser agrees to waive the fees payable to it under the Investment Advisory Agreement and/or to pay or absorb operating expenses of the Fund, including, without limitation, organization and offering expenses (excluding brokerage and transactional expenses; borrowing and other investment-related costs and fees including interest and commitment fees; short dividend expense; acquired fund fees; taxes; litigation and indemnification expenses; judgments; and extraordinary expenses not incurred in the ordinary course of the Fund’s business – collectively, the “Exclusions”), to the extent necessary to limit the Other Expenses of the Fund (as set forth in the Fund’s Prospectus) less the Exclusions to 0.50% per annum of the Fund’s daily gross assets. The Expense Limitation Agreement will remain in effect until March 1, 2023, unless and until the Trustees approve its modification or termination.

As of October 31, 2021, the advisor reimbursed fees under the Expense Limitation Agreement which are recoupable as follows:

Officer and Trustee Compensation: The Fund pays each member of the Board of Trustees who is not a director, officer, employee or affiliate of OWS a $15,000 annual retainer, $2,500 per board meeting and $1,000 for each committee meeting. The Chair of the Audit Committee and Nominating Committee each receives an additional $5,000 annual retainer. None of the executive officers receive compensation from the Fund.

Distribution and Servicing Fees: The Fund has entered into a distribution agreement (the ‘‘Distribution Agreement’’) with ALPS Distributors, Inc. (the ‘‘Distributor’’), pursuant to which the Distributor is serving as the Fund’s principal underwriter and acts as the distributor of the Fund’s Shares on a best efforts basis, subject to various conditions.

October 31, 2021

Class A-2 Shares of the Fund are subject to ongoing distribution and shareholder servicing fees that may be used to compensate Intermediaries for selling shares of the Fund, and providing, or arranging for the provision of, Shareholder Services (the “Shareholder Servicing Fees”), and ongoing distribution and/or marketing services to the Fund (the “Distribution Fees”). The Distribution Fees and Shareholder Servicing Fees, as applicable, are accrued daily and paid monthly in an amount not to exceed, in the aggregate for Class A-2 Shares, 0.75% (on an annualized basis) of the net asset value of Class A-2 Shares of the Fund. For each class of shares of the Fund, under no circumstances shall Shareholder Servicing Fees exceed 0.25% of the net asset value of such class. For the year ended October 31, 2021, Class A-2 shares expensed $389 for Shareholder Servicing Fees and Distribution Fees.

Fund Administration and Accounting Fees and Expenses: ALPS Fund Services, Inc. ("ALPS" or the "Administrator") serves as the Fund’s administrator and provides various administration, fund accounting, investor accounting and taxation services to the Fund (which are in addition to the services provided by the Adviser, as described above). In consideration of these services, the Fund pays the Administrator, on a monthly basis. The Fund will reimburse the Administrator for certain out-of-pocket expenses incurred on behalf of the Fund.

Compliance Fees: ALPS Fund Services, Inc. provides Chief Compliance Officer Services to the Fund. Additionally, ALPS provides services in monitoring and testing the policies and procedures of the Fund in conjunction with requirements under Rule 38a-1 under the 1940 Act. ALPS is compensated under the Chief Compliance Officer Services Agreement.

Legal Fees: Kramer Levin Naftalis & Frankel LLP serves as counsel to the Fund.

Audit Fees: Deloitte & Touche LLP acts as independent registered public accountant for the Fund and in such capacity audits the Fund’s annual financial statements.

Custodian: The Bank of New York Mellon serves as the Fund’s primary custodian.

Transfer Agent: DST Systems, Inc. (“DST”) serves as the Transfer Agent to the Fund. Under the Transfer Agency Agreement, DST is responsible for maintaining all shareholder records of the Fund.

NOTE 5. SECURITIES TRANSACTIONS

Purchases and sales of investments, excluding short-term obligations and including maturities and paydowns, transacted for the year ended October 31, 2021, were as follows:

NOTE 6. INVESTMENTS

Under normal investment conditions, the Fund will invest at least 80% of its assets (including borrowings for investment purposes) in debt obligations.

The securities/instruments acquired by the Fund may include all types of debt and other obligations (‘‘Credit Investments’’), and may have varying terms with respect to collateralization, seniority or subordination, purchase price, convertibility, interest payments and maturity, and may consist of the following: (i) residential and commercial mortgage-backed securities (‘‘MBS’’), as well as real estate loans or pools of such loans; (ii) asset-backed securities (‘‘ABS’’), or other instruments secured by financial, physical, and/or intangible assets (e.g., receivables or pools of receivables), and investments in any assets/instruments underlying the foregoing structured/secured obligations; (iii) debt and equity tranches of collateralized loan obligations (‘‘CLOs’’) and collateralized debt obligations (‘‘CDOs’’); (iv) public and private senior and mezzanine, senior secured or unsecured bonds/loans; and (v) other income producing securities, including investment grade debt, debentures and notes, and deferred interest, payment-in-kind or zero coupon bonds/notes. The Fund may invest without limit in CLOs or CDOs, including the equity tranches of such vehicles.

The Fund may also invest indirectly in any of the foregoing instruments through: (i) investing in other funds, including exchange traded funds (‘‘ETFs’’) and up to 15% of its net assets in funds that are excluded from the definition of ‘‘investment company’’ under the 1940 Act solely by reason of Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, that are primarily invested in Credit Investments (except that investments in MBS, ABS, CLOs or CDOs and other Credit Investments that are not hedge funds or private equity funds are not subject to such 15% limitation); or (ii) entering into derivatives, including long and short positions in credit default swaps, total return swaps, forward contracts, futures and other similar transactions. The Fund may also use derivatives for cash management purposes, to modify interest rate exposure or to hedge positions. The Fund may invest in derivatives without limit, subject to adherence to applicable asset coverage and/or segregation requirements of the 1940 Act. (The Fund counts the foregoing indirect investments in debt obligations towards the Fund’s requirement to invest at least 80% of its assets in debt obligations.)

October 31, 2021

The Fund anticipates that many Credit Investments will be rated below investment grade by rating agencies or would be rated below investment grade if they were rated. Credit Investments that are rated below investment grade (commonly referred to as ‘‘high yield’’ securities or ‘‘junk bonds’’) are regarded as having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.

In seeking to achieve the Fund’s objective, the Fund may also invest a portion of its net assets in (i) U.S. and foreign government obligations, and highly-rated debt instruments (e.g., commercial paper); and (ii) long and short positions in public or private equity securities, which can include ETFs and real estate investment trusts.

The Fund intends to add leverage to its portfolio through direct borrowing and/or through entering into reverse repurchase agreements. Certain of the Fund’s investments may require leverage to achieve the desired risk-adjusted return profile deployed by the Fund.

At any given time, a substantial portion of our portfolio may be illiquid, subjecting the Fund to increased credit risk. If a borrower or obligor or other counterparty on an instrument underlying a Credit Investment is unable to make its payments, we may be greatly limited in our ability to recover any outstanding principal and interest (or other applicable amounts) under such Credit Investment. Our Shares therefore should be purchased only by investors who could afford a possible substantial loss of their investment. There is no geographic or currency limitation on the securities or instruments acquired by the Fund. The Fund may purchase debt or equity securities of non-U.S. governments and corporate entities domiciled outside of the United States, including emerging markets issuers.

NOTE 7. DERIVATIVE INSTRUMENTS

The Fund may enter into derivative transactions in connection with its investing activities. These instruments derive their value, primarily or partially, from the underlying asset, indices, reference rate, or a combination of these factors. Derivatives are subject to various risks similar to non-derivative instruments, such as interest, market, and credit risk.