UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Item 1.  Shareholder Report

Avenue Income Credit Strategies Fund

Manager Commentary

October 31, 2016 (unaudited)

Dear Shareholder,

We are pleased to present the 2016 Annual Report for Avenue Income Credit Strategies Fund (the "Fund"). The following Manager Commentary covers the one year period ended October 31, 2016.

Fund Objective and Principal Investment Strategy

The Fund's primary investment objective is to seek a high level of current income with a secondary objective of capital appreciation. Depending on market conditions and the Fund's outlook over time, the Fund seeks to achieve its investment objectives by opportunistically investing primarily in loan and debt instruments (and loan-related or debt-related instruments, including repurchase and reverse repurchase agreements and derivative instruments) of issuers that operate in a variety of industries and geographic regions.

Performance¹

For the one year period ended October 31, 2016, the Fund had a total return of 10.86% based on net asset value, and 8.75% based on market value per share. The average annual total return from January 27, 2011 (inception) through October 31, 2016, was 5.17% based on net asset value per share, and 1.66% based on market value per share.^2,3 The closing price of the Fund's shares as of October 31, 2016 on the New York Stock Exchange was $12.60 per share representing a -13.88% discount to the Fund's net asset value per share of $14.63.

Returns

The Fund invests across a range of assets. The below indices cover asset classes that Avenue Capital Management II, L.P. (the "Adviser") believes are the same as, or similar to, the asset classes to which the Fund's assets are exposed (in whole or in part).

Performance data shown represents past performance and does not guarantee future results. Current and future performance may be lower or higher than the performance data shown. Investment returns and principal value will fluctuate, and when sold, your investment may be worth more or less than its original cost. All returns assume reinvestment of all dividends. The Fund is subject to various fees and expenses which include advisory fees, operating expenses, investment related expenses (including but not limited to interest on borrowings) and extraordinary expenses, and the performance shown above reflects the deduction of such fees and expenses. The performance above reflects fee waivers and/or expense reimbursements made by the Fund's Investment Adviser. Absent such waivers and/or reimbursements, the Fund's returns would be lower. Performance information is not annualized, unless otherwise noted. The Fund commenced operations on January 27, 2011. Current performance for the most recent month end can be obtained by calling (877) 525-7330. An independent accountant has not audited, reviewed or compiled the performance results.

Factors Affecting Performance

The Fund continues to utilize fundamental analysis to drive our investment approach and individual security selection.

Avenue Income Credit Strategies Fund

Manager Commentary (continued)

We believe that our approach of analyzing each investment on the merits of issuer, industry and rating has benefitted performance and should, in our opinion, continue to allow us to select credits that are likely to be drivers of alpha.

The top issuer contributors were:

Ø Whiting Petroleum Corporation, Transocean Inc., Oasis Petroleum Inc., Halcon Resources LLC and EP Energy5             

The top issuer detractors were:

Ø Ameren Energy Generating Company, Bennu Holdings LLC, La Paloma, Wise Metals Group LLC/Wise Alloys Finance Corp and Navios Maritime Holdings6

During the period, the Fund’s use of leverage decreased from 31.6% to 30.3% as a percentage of managed assets and the leverage amount decreased from $90,000,000 to $83,000,000.

Market Outlook

While the Adviser focuses the majority of its research on fundamental company and industry analysis, it is also cognizant of the macro risks that could positively or negatively impact the asset classes we invest in and risk assets in general. The following is a summary of the key macro risks we are currently monitoring:

Ø The election in the U.S. since the outcome could have positive and negative impacts on specific sectors.

Ø Commodity prices, supply and demand especially in the Oil and Gas markets since this has driven volatility and market returns in the credit and distressed markets.

Ø The negative reaction and subsequent global market sell-off following the U.K.’s Brexit vote in the second quarter was short-lived. By August, the U.K. FTSE 100 and German DAX indices had recovered losses and hit year-to-date highs, while the S&P 500, Dow Jones Industrial Average and NASDAQ indices each hit all-time highs for the first time since 1999.7

Ø the Bank of England lowering its benchmark interest rate to 0.25% and announcing that it would resume quantitative easing;8

Ø Theresa May replacing David Cameron as Prime Minister, as she was perceived to be in the “soft Brexit” camp at that time;

Ø the sterling declining to a 31-year low against the dollar, which should help exporters and provide a benefit to multinationals;9 and

Ø surprisingly resilient U.K. economic data, (e.g., U.K. September PMIs at 53.9).10

There is risk in the UK that stagflation takes hold, where growth is slow and inflation is high, which would be a negative for risk assets.

Ø With respect to the U.S., the 3rd quarter GDP of 2.9% is a positive development and could be indicative of better growth prospects. Economists expect 4th quarter GDP growth to decline to 2.3%, and the market will be closely watching other economic indicators to read whether this rate is sustainable.11 As a result of higher inflation expectations and a resilient labor market, markets expect the Federal Reserve to continue to increase rates. Deviation from this timeline, whether caused by the results of the US Election or other unexpected shifts in the underlying economic data could produce volatility.

Ø In addition to the continued impact of the U.K.’s Brexit vote, European growth is expected to continue to slow from 1.9% in Q2 2016 to 1.8% in Q3 and 1.6% in Q4 of 2016.12 The broader European markets have been bolstered by the ECB’s QE program, which is scheduled to end in March of 2017 although it will likely

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Avenue Income Credit Strategies Fund

Manager Commentary (continued)

continue to purchase securities at a reduced level.13 While the Merrill Lynch European High Yield index was up 3.5%, the European banking sector continued to be an area of concern during the third quarter.14 By mid-July, Italian bank equities were down 50% year-to-date following a European Banking Authority report showing that Italian NPLs reached 18% of total loans.15,16 In addition, Deutsche Bank continued to struggle and the stock hit an all-time low in September.17 Investors are concerned about the size of the fine ($14 billion) that the U.S. Department of Justice proposed Deutsche Bank pay to settle mortgage-backed securities probes stemming from the financial crisis.18

Ø In Asia, all eyes are on China’s economy and growth story, which have seemed to stabilize. Capital flows have been estimated at $620 billion equivalent year-to-date and China’s foreign reserves have been drawn down by $164 billion in order to defend the CNY currency as it has depreciated 2.7% year-to-date to September 30, 2016.19,20 China’s GDP is expected to slow to 6.4% in 2017 and 6.0% in 2018.21 The Caixin China PMI returned to above 50 in the third quarter (from below 50 since the first quarter of last year).22 Strong growth in Chinese home sales and surging home prices also continued, causing government officials to express concern over a possible property bubble.23 In response, major cities are rolling out measures to dampen speculative buying and curb soaring prices.24 In addition, policy easing continued throughout the region, as Japan and South Korea announced fiscal stimulus programs, and central banks, including those in Australia, India, Indonesia, and Malaysia, cut policy rates during the quarter.

While there is likely to be continued volatility in the near term for credit and risk assets25, we believe the strength of the global recovery, central bank policy, and political risks continue to impact equity, credit, commodity and foreign exchange markets. The Adviser’s investment team will continue working diligently to identify attractive investment opportunities across the performing, stressed and distressed universe on a global basis. We appreciate your continued interest and support.

Avenue Capital Management II, L.P.

December , 2016

Alternative investments are speculative and involve substantial risks. It is possible that investors may lose some or all of their investment. An investment in the Fund is not appropriate for all investors, and the Fund is not intended to be a complete investment program.

The views and opinions in the preceding discussion are subject to change. There is no guarantee that any market forecast set forth in the discussion will be realized. This material represents an assessment of the market environment at a specific point in time, should not be relied upon as investment advice and is not intended to predict or depict performance of any investment.

1                   Performance data shown represents past performance and does not guarantee future results. Current and future performance may be lower or higher than the performance data shown. Investment returns and principal value will fluctuate, and when sold, your investment may be worth more or less than its original cost. All returns assume reinvestment of all dividends. The Fund is subject to various fees and expenses which include advisory fees, operating expenses, investment related expenses (including but not limited to interest on borrowings) and extraordinary expenses, and the performance shown above reflects the deduction of such fees and expenses. The performance above reflects fee waivers and/or expense reimbursements made by the Fund’s Adviser. Absent such waivers and/or reimbursements, the Fund’s returns would be lower. Performance information is not annualized, unless otherwise noted. Current performance for the most recent month end can be obtained by calling (302) 375-6045. An independent accountant has not audited, reviewed or compiled the performance results.

2                   Includes dilution of approximately $0.97 to NAV per share resulting from the Fund’s transferable rights offering, which expired on May 17, 2013. In connection with such offering, the Fund issued 3,268,518 additional common shares at a subscription price per share below the then-current NAV per share of the Fund.

3

Avenue Income Credit Strategies Fund

Manager Commentary (concluded)

October 31, 2016 (unaudited)

³  Includes dilution of approximately $0.94 to NAV per share resulting from the Fund's transferable rights offering, which expired on March 23, 2012. In connection with such offering, the Fund issued 2,450,466 additional common shares at a subscription price per share below the then-current NAV per share of the Fund.

⁴  Index information was compiled from sources that Avenue Capital Management II, L.P. believes to be reliable. No representation or guarantee is made hereby with respect to the accuracy or completeness of such data. The Bloomberg Barclays U.S. Corporate High Yield Index comprises issues that have at least $150 million par value outstanding, a maximum credit rating of Ba1 or BB+ (excluding defaulted issues) and at least one year to maturity. The CS Leveraged Loan Index is designed to mirror the investible universe of the $US-denominated leveraged loan market. Investors cannot invest directly in an index, and index performance does not reflect the deduction of any fees or expenses. There are material differences between such indices and the Fund, including without limitation that such indices are unmanaged, broadly-based indices, do not reflect payment of management or brokerage fees and differ in numerous other respects from the portfolio composition of the Fund; as a result, the Fund's investment portfolio is materially different from any given index. Indices include reinvestment of dividends and other income.

⁵  The top contributors are evaluated on a total profit and loss basis, which includes realized and unrealized market value gains and losses, impact from foreign exchange transactions, and accrued interest. The list of top contributors does not represent all investments held, purchased or sold during the reporting period and is based on the Adviser's books and records. As of the reporting date of October 31, 2016, the positions listed represented the following percentages of the Fund on a market value basis: Whiting Petroleum Corporation 2.7%, Transocean Inc. 5.9%, Oasis Petroleum Inc. 1.8%, Halcon Resources LLC 3.8% and EP Energy 5.6%.

⁶  The top detractors are evaluated on a total profit and loss basis, which includes realized and unrealized market value gains and losses, impact from foreign exchange transactions, and accrued interest. The list of top detractors does not represent all investments held, purchased or sold during the reporting period and is based on the Adviser's books and records. As of the reporting date of October 31, 2016, the positions listed represented the following percentages of the Fund on a market value basis: Ameren Energy Generating Company 0.0%, Bennu Holdings LLC 0.0%, La Paloma 0.6%, Wise Metals Group LLC / Wise Alloys Finance Corp 0.0% and Navios Maritime Holdings 2.0%,

⁷  Commerzbank, Quarterly Review Catalysts, October 6, 2016 and Bloomberg as of October 26, 2016.

⁸  Commerzbank, Quarterly Review Catalysts, October 6, 2016 and Bloomberg as of October 26, 2016.

⁹  Bloomberg, Pound Tumbles to 31-Year Low as Brexit Starts to Inflict Damage, July 5, 2016.

¹⁰  Bloomberg as of October 26, 2016.

¹¹  Bloomberg as of November 10, 2016.

¹²  Bloomberg as of November 10, 2016.

¹³  Goldman Sachs Economic Research, European Economics Daily: ECB — The semantics of 'tapering', October 25, 2016.

¹⁴  Bloomberg as of October 26, 2016.

¹⁵  Bloomberg as of October 26, 2016.

¹⁶  Deutsche Bank Research, The House View, September 7, 2016.

¹⁷  Commerzbank, Quarterly Review Catalysts, October 6, 2016.

¹⁸  Aruna Viswanatha, Jenny Strasburg and Eyk Henning, "Deutsche Bank Is Asked to Pay $14 Billion to Resolve U.S. Probe Into Mortgage Securities," Wall Street Journal, September 16, 2016.

¹⁹  Bloomberg as of November 10, 2016.

²⁰  Bloomberg as of November 29, 2016

²¹  Bloomberg as of November 10, 2016.

²²  Bloomberg as of October 12, 2016.

²³  Katy Barnato, "Why China's Property Bubble May Be Inflating," CNBC, September 20, 2016.

²⁴  Yan, Shang, Miao Han and Emma Dong, "Chinese Cities Introduce Curbs to Cool Overheated Property," Bloomberg News, October 2, 2016.

²⁵  Risk assets generally refer to assets that have a significant degree of price volatility, such as equities, commodities, high-yield bonds, real estate and currencies.

Avenue Income Credit Strategies Fund

Financial Data^(a)

October 31, 2016 (unaudited)

Security Type^(b)

Ratings^(c)

Geographic Allocation^(d)

Top Five Industries^(f)

Top 10 Largest Holdings^(g)

(a)  Holdings are subject to change without notice. Calculated as a percent of managed assets as of the date of this document. Where applicable, percentages may not add to 100% due to rounding.

(b)  Security Type, as defined by Avenue Capital Management II, L.P. (the "Investment Adviser"), is sourced from Bloomberg as well as developed via internal classifications.

(c)  Ratings information represent Standard & Poor's ratings on instruments in the portfolio. Ratings are provided for informational purposes only and may change over time. Standard & Poor's rates securities from AAA (highest quality) to C (lowest quality), and D to indicate securities in default. BB and below are considered below investment grade securities. Greater risk, such as increased volatility, limited liquidity, prepayment, non-payment and increased default risk, is inherent in portfolios that invest in high yield ("junk") bonds. The Fund may invest all or a substantial portion of its assets in below investment grade securities which are often referred to as high yield or "junk" securities.

(d)  The geographic allocation is based on where the Investment Adviser believes the country of risk to be. Country of risk is the country where the majority of the company's operations are based or where it is headquartered. Investment in non-U.S. securities is subject to the risk of currency fluctuations and to economic and political risks associated with such foreign countries.

(e)  Cash and Cash Equivalents includes cash as well as other non-investment asset and liabilities (net), excluding borrowings under credit facilities.

(f)  Industries are represented using GICS classifications.

(g)  The holdings of the Fund are calculated based on Issuer as opposed to Issue. The number of Issues the Fund owns will be significantly higher than the number of Issuers set forth herein.

(h)  Loans may include senior secured, senior unsecured and subordinated loan obligations.

Avenue Income Credit Strategies Fund

Schedule of Investments

October 31, 2016

Avenue Income Credit Strategies Fund

Schedule of Investments (continued)

October 31, 2016

Avenue Income Credit Strategies Fund

Schedule of Investments (continued)

October 31, 2016

Avenue Income Credit Strategies Fund

Schedule of Investments (continued)

October 31, 2016

Percentages are calculated as a percentage of net assets as of October 31, 2016.

(a)  Securities exempt from registration under Rule 144a of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, to Qualified Institutional Investors as defined in Rule 144a promulgated under the Securities Act of 1933, as amended.

(b)  For fair value measurement disclosure purposes, security is categorized as Level 3.

(c)  Defaulted security. Issuer in bankruptcy.

(d)  Interest rates on Senior Loans may be fixed or may float periodically. On floating rate Senior Loans, the interest rates typically are adjusted based on a base rate plus a premium or spread over the base rate. The base rate usually is a standard inter-bank offered rate, such as LIBOR, the prime rate offered by one or more major U.S. banks, or the certificate of deposit rate or other base lending rates used by commercial lenders. Floating rate Senior Loans adjust over different time periods, including daily, monthly, quarterly, semi-annually or annually.

(e)  Non-income producing.

Avenue Income Credit Strategies Fund

Schedule of Investments (continued)

October 31, 2016

(f)  Amount shown represents less than 0.05% of net assets.

PIK — Payment in Kind

PLC — Public Limited Company

Geographic Allocation of Investments:

The geographic allocation is based on where Avenue Capital Management II L.P., the "Investment Adviser", believes the country of risk to be. Country of risk is traditionally the country where the majority of the company's operations are based or where it is headquartered.

Forward Foreign Currency Contracts:

CAD — Canadian Dollar

EUR — Euro Currency

GBP — British Pound

Avenue Income Credit Strategies Fund

Schedule of Investments (concluded)

October 31, 2016

Swap Contracts:

At October 31, 2016, outstanding swap contracts were as follows:

Sell Protection:

*  If the Fund is the seller of credit protection, the notional amount is the maximum potential amount of future payments the Fund could be required to make if a credit event, as defined in the credit default swap agreement, were to occur. At October 31, 2016, such maximum potential amount for all open credit default swaps in which the Fund is the seller was $3,500,000.

**  The fixed rate represents the fixed annual rate of interest paid by the Fund (as a buyer of protection) or received by the Fund (as a seller of protection) annually on the notional amount of the credit default swap contract.

***  Implied credit spreads are an indication of the seller's performance risk, related to the likelihood of a credit event occurring that would require a seller to make payment to a buyer. Implied credit spreads are used to determine the value of swap contracts and reflect the cost of buying/selling protection, which may include upfront payments made to enter into the contract. Therefore, higher spreads would indicate a greater likelihood that a seller will be obligated to perform (i.e., make payment) under the swap contract. Increasing values, in absolute terms and relative to notional amounts, are also indicative of greater performance risk. Implied credit spreads for credit default swaps on credit indexes are linked to the weighted average spread across the underlying reference obligations included in a particular index.

Avenue Income Credit Strategies Fund

Statement of Assets and Liabilities

October 31, 2016

Avenue Income Credit Strategies Fund

Statement of Operations

For the year ended October 31, 2016

Avenue Income Credit Strategies Fund

Statement of Changes In Net Assets

Avenue Income Credit Strategies Fund

Statement of Cash Flows

For the year ended October 31, 2016

  Non-cash transactions for the year ended October 31, 2016 include $5,397,775 of non-cash exchanges and $652,468 of payment in-kind interest income.

Avenue Income Credit Strategies Fund

Financial Highlights

Selected data for a share outstanding throughout each year

Avenue Income Credit Strategies Fund

Financial Highlights

Selected data for a share outstanding throughout each year

¹  Per share amounts have been calculated using average shares outstanding.

²  Total market value return is computed based upon the New York Stock Exchange market price of the Fund's shares and excludes the effects of brokerage commissions. Total net asset value return measures the changes in value over the year indicated, taking into account dividends as reinvested. Dividends and distributions are assumed for purposes of these calculations to be reinvested at prices obtained under the Fund's dividend reinvestment plan.

³  Includes dilution (net of offering costs) of approximately $0.94 to NAV per share resulting from the Fund's transferrable rights offering, which expired on March 23, 2012. In connection with such offering, the Fund issued 2,450,466 additional common shares at a subscription price per share below the then-current NAV per share of the Fund.

⁴  Includes dilution (net of offering costs) of approximately $0.97 to NAV per share resulting from the Fund's transferrable rights offering, which expired on May 17, 2013. In connection with such offering, the Fund issued 3,268,518 additional common shares at a subscription price per share below the then-current NAV per share of the Fund.

⁵  For the years ended October 31, 2016, October 31, 2015 and October 31 2014, the ratio of expenses to average net assets excludes dividend and interest expenses on securities sold short, interest expense, commitment fee and loan servicing fees.

⁶  Calculated by subtracting the Fund's total liabilities (not including borrowings) from the Fund's total assets and dividing by the total number of senior indebtedness units, where one unit equals $1,000 of senior indebtedness.

Avenue Income Credit Strategies Fund

Notes to Financial Statements

October 31, 2016

1. Organization

Avenue Income Credit Strategies Fund (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. The Fund's primary investment objective is to seek a high level of current income, with a secondary objective of capital appreciation. The Fund commenced operations on January 27, 2011.

2. Significant Accounting Policies

The following is a summary of significant accounting policies of the Fund in preparation of the financial statements.

The net asset value ("NAV") per Common Share is generally determined daily by State Street Bank and Trust Company ("State Street") as of the close of the regular trading session on the New York Stock Exchange ("NYSE") on the days the NYSE is open for business. The NAV per share of the Common Shares is determined by calculating the total value of the Fund assets (the value of the securities, plus cash and/or other assets, including interest accrued but not yet received), deducting its total liabilities (including accrued expenses and liabilities), and dividing the result by the number of Common Shares outstanding at the Fund.

SECURITY VALUATION — Corporate Bonds and Notes (including convertible and municipal bonds) and unlisted equities are valued using an evaluated quote provided by independent pricing services. Evaluated quotes provided by the pricing services may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institutional-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term debt securities purchased with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates market value.

Senior Loans are valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as ratings, tranche type, industry, company performance, spread, individual trading characteristics, institutional-size trading in similar groups of securities and other market data.

Credit default swaps are valued using a pricing service, or, if the pricing service does not provide a value, by quotes provided by the selling dealer or financial institution.

Equity securities listed on a U.S. stock exchange, including shares of exchange-traded funds, are valued at the latest quoted sales price on valuation date. Securities listed on a foreign exchange are valued at their closing price.

Forward foreign currency contracts are valued using quoted foreign exchange rates as of the close of the regular trading session on the NYSE (generally 4:00 pm Eastern Time) on the days the NYSE is open for business. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rate quotations supplied by a third party pricing service. If events materially affecting the price of foreign portfolio securities occur between the time when their price was last determined on such foreign securities exchange or market and the time when the Fund's net asset value was last calculated, such securities may be valued at their fair value as determined in good faith in accordance with procedures established by the Board of Trustees of the Fund (the "Board").

Where reliable market quotes are not readily available from a third party pricing service, investments are valued, where possible, using independent market indicators provided by independent pricing sources approved

Avenue Income Credit Strategies Fund

Notes to Financial Statements (continued)

October 31, 2016

by the Board. Any investment and other assets or liabilities for which current market quotations are not readily available are valued at fair value as determined in good faith in accordance with procedures established by the Board.

SECURITY TRANSACTIONS AND INVESTMENT INCOME — Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost. Interest income is determined on the basis of coupon interest accrued using the effective interest method which adjusts for amortization of premiums and accretion of discounts. For those issuers who are not paying in full, interest is recognized only if amounts are reasonably estimable and (considered to be) collectable. Discounts or premiums on debt securities purchased are accreted or amortized, respectively, to interest income over the lives of the respective securities, subject to collectability. Dividend income and distributions are recorded on the ex-dividend date (except for certain foreign dividends which may be recorded as soon as the Fund is informed of such dividend) net of applicable withholding taxes.

FEDERAL INCOME TAXES — The Fund has elected to be treated as, and intends to continue to qualify as, a regulated investment company by qualifying with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and distributing substantially all of its ordinary income and long-term capital gains, if any, each year. Accordingly, no provision for U.S. federal income or excise taxes is required in the financial statements.

MUNICIPAL BONDS — The amount of public information available about municipal bonds is generally less than for corporate equities or bonds, meaning that the investment performance of municipal bond investments may be more dependent on the analytical abilities of the investment adviser than stock or corporate bond investments. The secondary market for municipal bonds also tends to be less well-developed and less liquid than many other securities markets, which may limit an owner's ability to sell its bonds at attractive prices. The spread between the price at which an obligation can be purchased and the price at which it can be sold may widen during periods of market distress. Less liquid obligations can become more difficult to value and be subject to erratic price movements. The increased presence of non-traditional participants or the absence of traditional participants in the municipal markets may lead to greater volatility in the markets.

SENIOR LOANS — The Fund purchases assignments of, and participations in, senior secured floating rate and fixed rate loans ("Senior Loans") originated, negotiated and structured by a U.S. or foreign commercial bank, insurance company, finance company or other financial institution (the "Agent") for a lending syndicate of financial institutions (the "Lender"). When purchasing an assignment, the Fund typically succeeds to all the rights and obligations under the loan of the assigning Lender and becomes a lender under the credit agreement with respect to the debt obligation purchased. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an assignment may differ from, and be more restricted than, those held by the assigning Lender. Participation typically results in a contractual relationship only with the institution participating out the interest, not with the borrower. In purchasing participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement or any rights of setoff against the borrower, and the Fund may not directly benefit from the collateral supporting the debt obligation in which it has purchased the participation. As a result, the Fund will be exposed to the credit risk of both the borrower and the institution selling the participation.

FOREIGN CURRENCY TRANSLATION — Investment valuations, other assets, and liabilities initially expressed in foreign currencies are translated each business day into U.S. dollars based upon current exchange

Avenue Income Credit Strategies Fund

Notes to Financial Statements (continued)

October 31, 2016

rates. Purchases and sales of foreign investment securities and income and expenses denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates in effect on the respective dates of such transactions. Recognized gains or losses on investment transactions attributable to changes in foreign currency exchange rates are recorded for financial statement purposes as net realized gains and losses on investments. That portion of unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately presented.

FORWARD FOREIGN CURRENCY CONTRACTS — The Fund may enter into forward foreign currency contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. The Fund may enter into such forward contracts for hedging purposes. The forward foreign currency contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until such time as the contracts have been closed. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. In addition, these contracts may involve market risk in excess of the unrealized appreciation (depreciation) reflected in the Fund's Statement of Assets and Liabilities. It is the Fund's policy to net the unrealized appreciation and depreciation amounts for the same counterparty in presenting related amounts in the Statement of Assets and Liabilities.

Currently, the Fund executes all foreign currency contracts through State Street. Due to the Fund's custodial contract with State Street, the Fund is able to avoid certain transaction fees and collateral requirements normally incurred with executing foreign currency contracts with third party brokers. It is the Fund's policy to net the unrealized appreciation and depreciation amounts for the same counterparty in presenting related amounts in the Statement of Assets and Liabilities.

SHORT SALES — The Fund may engage in short sales. A short sale is a transaction in which the Fund sells an instrument that it does not own in anticipation that the market price will decline. To deliver the securities to the buyer, the Fund arranges through a broker to borrow the securities and, in so doing, the Fund becomes obligated to replace the securities borrowed at their market price at the time of replacement. When selling short, the Fund intends to replace the securities at a lower price and therefore, profit from the difference between the cost to replace the securities and the proceeds received from the sale of the securities. When the Fund makes a short sale, the proceeds it receives from the sale will be held on behalf of a broker until the Fund replaces the borrowed securities. The Fund may have to pay a premium to borrow the securities and must pay any dividends or interest payable on the securities until they are replaced. Such dividends and/or interest and any security borrowing fees are recorded as an expense to the Fund. The Fund's obligation to replace the securities borrowed in connection with a short sale will be secured by collateral deposited with the broker that consists of cash and/or liquid securities. In addition, the Fund will place in a segregated account an amount of cash and/or liquid securities equal to the difference, if any, between (i) the market value of the securities sold at the time they were sold short, and (ii) any cash and/or liquid securities deposited as collateral with the broker in connection with the short sale. Short sales involve certain risks and special considerations. If the Fund incorrectly predicts that the price of the borrowed security will decline, the Fund will have to replace the securities with securities with a greater value than the amount received from the sale. As a result, losses from short sales differ from losses that could be incurred from a purchase of a security, because losses from short sales may be unlimited, whereas losses from purchases can equal only the total amount invested.

CREDIT DEFAULT SWAPS — An over the counter ("OTC") credit default swap is an agreement between two parties to exchange the credit risk of a particular issuer or reference entity. Certain types of credit default swaps are exchange-listed and subject to clearing. In a credit default swap transaction, a buyer pays periodic fees in

Avenue Income Credit Strategies Fund

Notes to Financial Statements (continued)

October 31, 2016

return for payment by the seller which is contingent upon an adverse credit event occurring in the underlying issuer or reference entity. The seller collects periodic fees from the buyer and profits if the credit of the underlying issuer or reference entity remains stable or improves while the swap is outstanding, but the seller in a credit default swap contract would be required to pay an agreed upon amount to the buyer (which may be the entire notional amount of the swap) in the event of a defined adverse credit event with respect to the reference entity. A buyer of a credit default swap is said to buy protection whereas a seller of a credit default swap is said to sell protection. The Fund uses credit default swaps on corporate issuers to provide a measure of protection against defaults of the issuers (i.e., to reduce risk where the Fund owns or has exposure to the referenced obligation) or to take an active long or short position with respect to the likelihood of a particular issuer's default.

Swaps generally do not involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to swaps is limited to the net amount of payments that the Fund is contractually obligated to make. However, because some swap agreements have a leverage component, adverse changes in the value or level of the underlying asset, reference rate, or index, among other factors, can result in a loss substantially greater than the amount invested in the swap itself. If the other party to a swap defaults, the Fund's risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive and could be in excess of the amounts recognized on the Fund's Statement of Assets and Liabilities.

Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on corporate or sovereign issues as of period end are disclosed in the Schedule of Investments and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads and increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced entity's credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

The maximum potential amount of future payments (undiscounted) that the Fund as a seller of protection could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the agreement. Notional amounts of all credit default swap agreements outstanding as of October 31, 2016 for which the Fund is a seller of protection are disclosed in the Schedule of Investments. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy protection credit default swap agreements entered into by the Fund for the same referenced entity or entities.

OTC swap payments received or made at the beginning of the measurement period are reflected as such and represent payments made or received upon entering into the swap agreement to compensate for differences between the stated terms of the swap agreement and prevailing market conditions (credit spreads, interest rates, and other relevant factors). These upfront payments are amortized to realized gains or losses over the life of the swap or are recorded as realized gains or losses upon termination or maturity of the swap. A liquidation payment received or made at the termination of the swap is recorded as realized gain or loss. Net periodic payments received or paid by the Fund are included as part of realized gains or losses. Changes in market value, if any, are reflected as a component of net changes in unrealized appreciation/depreciation on the Fund's Statement of Operations. The Fund segregates assets in the form of cash or liquid securities (i) in an amount equal to the notional amount of the credit default swaps of which it is the seller and; (ii) in an amount equal to any unrealized depreciation of the credit default swaps of which it is the buyer, marked to market on a daily basis.

Avenue Income Credit Strategies Fund

Notes to Financial Statements (continued)

October 31, 2016

Certain swap contracts may be centrally cleared ("centrally cleared swaps"), whereby all payments made or received by the Fund pursuant to the contract are with a central clearing party (CCP) rather than the original counterparty. Central clearing is designed to reduce counterparty risk compared to uncleared swaps because central clearing interposes the CCP as the counterparty to each participant's swap, but it does not eliminate those risks completely. For centrally cleared swaps, the daily change in valuation is recorded as a receivable or payable for variation margin and settled in cash with the CCP daily. Upfront payments or receipts, if any, are recorded as Premium paid or received, net for OTC swap contracts, respectively, and amortized over the life of the swap contract as realized gains or losses. For financial reporting purposes, unamortized upfront payments, if any, are netted with unrealized appreciation or depreciation on swap contracts to determine the market value of swaps. Upon entering into centrally cleared swaps, the Fund is required to deposit with the CCP, either in cash or securities, an amount equal to a certain percentage of the notional amount (initial margin), which is subject to adjustment. Credit default swap transactions involve certain risks, including the risk that the seller may be unable to fulfill the transaction.

REPURCHASE AGREEMENTS — The Fund may engage in repurchase agreements with broker-dealers, banks and other financial institutions to earn incremental income on temporarily available cash which would otherwise be uninvested. A repurchase agreement is a short-term investment in which the purchaser (i.e., the Fund) acquires ownership of a security and the seller agrees to repurchase the obligation at a future time and set price, thereby determining the yield during the holding period. Such agreements are carried at the contract amount, which is considered to represent fair value. It is the Fund's policy that the value of collateral pledged (the securities received), which consists primarily of U.S. government securities and those of its agencies or instrumentalities, is not less than the repurchase price and is held by the custodian bank for the benefit of the Fund until maturity of the repurchase agreement. Repurchase agreements involve certain risks, including bankruptcy or other default of a seller of a repurchase agreement.

UNFUNDED LOAN COMMITMENTS — The Fund may enter into certain credit agreements all or a portion of which may be unfunded. The Fund is obligated to fund these commitments at the borrower's discretion. These commitments are disclosed in the accompanying Schedule of Investments. At October 31, 2016, the Fund had no outstanding unfunded loan commitments.

INDEMNIFICATIONS — In the normal course of business, the Fund enters into general business contracts that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund expects the risk of material loss to be remote and no amounts have been recorded for such arrangements.

BASIS OF PREPARATION AND USE OF ESTIMATES — These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which require the use of estimates and assumptions by the Investment Adviser, as defined in Note 4, that affect the reported amounts and disclosures in these financial statements. Actual amounts and results could differ from these estimates, and such differences could be material.

The Fund is considered an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 946, Financial Service — Investment Companies.

Avenue Income Credit Strategies Fund

Notes to Financial Statements (continued)

October 31, 2016

STATEMENT OF CASH FLOWS — The cash amount shown in the Statement of Cash Flows of the Fund is the amount included in the Fund's Statement of Assets and Liabilities and represents the cash (including foreign currency) on hand at State Street, the Fund's custodian.

INTEREST EXPENSE — Interest expense primarily relates to the Fund's participation in a revolving credit facility. Interest expense is recorded as incurred.

3. Distributions

The Fund intends to make regular monthly distributions of net investment income to holders of Common Shares ("Common Shareholders"). The Fund expects to pay its Common Shareholders annually all or substantially all of its investment company taxable income. In addition, at least annually, the Fund intends to distribute all or substantially all of its net capital gains, if any. Distributions from net realized gains for book purposes may include short-term capital gains which are ordinary income for tax purposes. Distributions to Common Shareholders are recorded on the ex-dividend date. The amount of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These "book-tax" differences are considered either temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal income tax treatment. Temporary differences do not require reclassification. To the extent distributions exceed current and accumulated earnings and profits for federal income tax purposes they are reported to shareholders as return of capital.

4. Investment Advisory and Administration Agreements

Under an advisory agreement, Avenue Capital Management II, L.P., the Investment Adviser, an affiliate of Avenue Capital Group, will receive an annual fee, payable monthly, in an amount equal to 1.25% of the Fund's average daily Managed Assets. Managed Assets means the total assets of the Fund (including any assets attributable to money borrowed for investment purposes, including proceeds from (and assets subject to) reverse repurchase agreements, any credit facility and any issuance of preferred shares or notes) minus the sum of the Fund's accrued liabilities (other than Fund liabilities incurred for the purpose of leverage). Other entities advised by the Investment Adviser and its affiliates may have investments in the issuers held by the Fund.

At an "in person" meeting held on December 11, 2015 the Board unanimously approved the amendment and restatement of the currently effective Letter Agreement (an "Expense Limitation Agreement") between the Fund and the Investment Adviser, dated as of December 8, 2011, to extend the term of such Expense Limitation Agreement through and including February 28, 2017. Under the Expense Limitation Agreement, the Investment Adviser has contractually agreed to reimburse the Fund so that the Fund's "Other Expenses" (as such term is used in the Fund's registration statement on Form N-2) are limited to 0.50% per year of the Fund's average daily assets attributable to Common Shares of the Fund (excluding (i) interest, taxes, brokerage commissions and expenditures capitalized in accordance with generally accepted accounting principles, (ii) portfolio transactions and investment related expenses and (iii) extraordinary expenses not incurred in the ordinary course of the Fund's business). The Fund may repay any such reimbursement from the Investment Adviser if, within three years of the reimbursement, the Fund could repay the Investment Adviser without causing the Fund's total Other Expenses to exceed 0.50% per year of the Fund's average daily net assets attributable to Common Shares of the Fund for the fiscal year in which such repayment would occur when such amount repaid to the Investment Adviser is included in the Fund's total Other Expenses. Thus, until those amounts are repaid, the Fund and the

Avenue Income Credit Strategies Fund

Notes to Financial Statements (continued)

October 31, 2016

Common Shareholders will not enjoy any benefit of any reduced expenses. As of October 31, 2016 the expense reductions, including any fee waivers, were $43,040.

Under the terms of the Expense Limitation Agreement, if the Fund's expense ratio declines sufficiently, the Fund may be liable to repay the reimbursement amount to the Investment Adviser until October 31, 2019.

State Street provides, or arranges for the provision of certain administrative services for the Fund, including preparing certain reports and other documents required by federal and/or state laws and regulations. State Street also provides legal administration services, including corporate secretarial services and preparing regulatory filings. For administration related services, State Street receives an annual fee, plus certain out-of-pocket expenses.

The Fund has also contracted with State Street to provide custody, fund accounting and transfer agent services to the Fund. Custody, fund accounting and transfer agent fees are payable monthly based on assets held in custody, investment purchases and sales activity and other factors, plus reimbursement for certain out-of-pocket expenses. In addition, the Fund has entered into repurchase agreements and foreign currency transactions with State Street during the year.

5. Related Party Transactions

Affiliates of the Fund may have lending, brokerage, underwriting, or other business relationships with issuers of securities in which the Fund invests. Morgan Stanley, the global financial services firm, owns an indirect, noncontrolling minority interest in Avenue Capital Group. During the year, the Fund acquired securities in transactions with unaffiliated broker-dealers which were part of underwriting groups in which Morgan Stanley participated.

No shareholder, to the knowledge of the Fund, other than Morgan Stanley and Morgan Stanley Smith Barney LLC (together, "MS") beneficially owned more than ten percent of the Fund's Common Shares.

On February 11, 2016, MS filed an amended beneficial ownership report on Schedule 13G with the SEC stating that as of December 31, 2015 it beneficially owned 1,529,708 Common Shares. Based on the share amounts shown in this filing, the holdings held by MS (assuming the percentage remained constant) represented approximately 11.8%, of the Fund's October 31, 2016 shares outstanding.

Affiliates of the Fund may have lending, brokerage, underwriting, or other business relationships with issuers of securities in which the Fund invests. Morgan Stanley, the global financial services firm, owns an indirect, noncontrolling minority interest in Avenue Capital Group. During the period, the Fund acquired securities in transactions with unaffiliated broker-dealers which were part of underwriting groups in which Morgan Stanley participated.

6. Purchases and Sales of Investments

Purchases and sales of investments, other than short-term obligations and including maturities and principal repayments on Senior Loans, aggregated $242,037,938 and $230,230,316, respectively, for the year ended October 31, 2016.

7. Share Transactions

The Fund is authorized to issue an unlimited number of common shares of beneficial interest at par value $0.001 per common share.

There were no common share transactions during the year ended October 31, 2016.

Avenue Income Credit Strategies Fund

Notes to Financial Statements (continued)

October 31, 2016

8. Federal Tax Information

As of October 31, 2016, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. The Fund's federal tax return filings for the years ended October 31, 2016, October 31, 2015 and October 31, 2014, remain subject to examination by the Internal Revenue Service for a period of three years.

For the year ended October 31, 2016, permanent book tax differences related to foreign currency gains and losses and reclassifications of credit default swap income were identified and reclassified among the components of the Fund's net assets as follows:

The tax character of distributions declared for the years ended October 31, 2016 and October 31, 2015, were as follows: