N-CSRS 1 d364449dncsrs.htm N-CSRS N-CSRS
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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 (811-23474)

 

 

KKR Credit Opportunities Portfolio

(Exact name of registrant as specified in charter)

 

 

555 California Street, 50th Floor

San Francisco, CA 94104

(Address of principal executive offices) (Zip code)

 

 

Annette O’Donnell-Butner

KKR Credit Advisors (US) LLC

555 California Street, 50th Floor

San Francisco, CA 94104

(Name and address of agent for service)

 

 

(415) 315-3620

Registrant’s telephone number, including area code

 

 

Date of fiscal year end: October 31, 2022

Date of reporting period: April 30, 2022

 

 

 


Table of Contents

Item 1. Reports to Stockholders.

 


Table of Contents

LOGO

KKR Credit Opportunities Portfolio

Semi-Annual Report

April 30, 2022


Table of Contents
LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Table of Contents

 

 

Management’s Discussion of Fund Performance

     1  

Consolidated Schedule of Investments

     4  

Consolidated Statement of Assets and Liabilities

     16  

Consolidated Statement of Operations

     17  

Consolidated Statements of Changes in Net Assets

     18  

Consolidated Statement of Cash Flows

     19  

Financial Highlights

     20  

Notes to Consolidated Financial Statements

     24  

Approval of Investment Advisory Agreement

     38  

 

 

 

The KKR Credit Opportunities Portfolio (the “Fund”) files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the “Commission”) for the first and third quarters of each fiscal year on Form N-PORT within sixty days after the end of the period. The Fund’s Form N-PORT is available on the Commission’s website at http://www.sec.gov.

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, as well as information relating to how a Fund voted proxies relating to portfolio securities during the most recent year ended June 30 will be available (i) without charge, upon request, by calling 855-862-6092; and (ii) on the Commission’s website at http://www.sec.gov.

INFORMATION ABOUT THE FUND’S TRUSTEES

The statement of additional information includes information about the Fund’s Trustees and is available without charge, upon request, by calling 855-862-6092 and by visiting the Commission’s website at www.sec.gov or the Fund’s website at kkrfunds.com/kcop.

 

 


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LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Management’s Discussion of Fund Performance

Looking Back on the Markets — April 30, 2022

As we began to witness this January, 2022 was certainly going to look and feel very different than the year prior. Closing out 2021 the market began to grapple with discrepancies in perception versus reality after a year of unprecedented and record-breaking issuance, performance and deal activity. January quickly snapped us back to the staunch reality of inflationary pressures, a hawkish Fed and an increasingly tepid market environment. Many of the market’s performance drivers over the last 24 months were borne out of the crisis manifested from the onset of COVID-19 in the first quarter of 2020. We are now starting to witness expansive ripple effects unfold as the Fed sits between a rock and a hard place to combat historically high levels of inflation and a devastating war in Europe that has sent geopolitical shockwaves through the global markets.

The S&P is off to its worst start since 1939 and the NASDAQ has sold off nearly 21% as of April 30th, catapulting a shutdown of the IPO market and igniting a new fear of slowing growth. On the credit side, the globalization of markets over the last decade, which also fueled growth, is starting to experience the impacts of the impending Fed unwind. Although we have been highlighting this for some time, it is now apparent due to the exacerbated market conditions which have prompted volatility in asset pricing, currencies and FX derivatives and fund flows across the ecosystem. Importantly, this market is now highlighting the decoupling of the stock market and credit markets which will be an important dynamic for portfolio construction and asset allocation across investment portfolios. Additionally, given the intrinsic relationship between fund flows and market making — this event kick started a domino effect on the heels of Russia’s invasion of Ukraine — the primary credit calendar froze and universally stalled capital markets activities. This resulted in the redirection of deal flow from issuers and simultaneously ignited private credit market activity. We are now experiencing credit moving from one segment of the market as a result of the volatility and decoupling effect to another segment — privates. Private credit investors have been excited about this recent flow as it brings forth bigger businesses and capital structures to lend to. On the rate side, the short end of the curve first experienced considerable movement and then flipped to the long end in the last weeks of April. Long duration assets such as investment grade bonds and high yield BB’s endured rate pain while floating rate leveraged loans weathered the mark to market storm, ending the quarter near flat. As a stark pall of uncertainty ensued, cash reserves continued to increase and pending mergers and acquisitions sought to find a new capital base and home. However, it is important to highlight that the increased dispersion in the market is more tied to technical headwinds than it is to fundamentals.

As the March 16th Federal Open Market Committee (“FOMC”) meeting grew near, we saw the market find more of its footing, albeit cautiously and almost akin to a sigh of relief, as Fed Chair Powell finally confirmed what the market and market participants already were expecting: a 25 basis point increase to the Federal Funds rate. With the FOMC meeting under our belts and now the great debate focused on how many hikes we could potentially see in 2022, the global credit markets continued to recalibrate with large inflows into bank loans and outflows out of high yield. The outsized swath of flows, both institutional and retail, were moderated by the on-going supply demand imbalance technical in the market, which we will discuss further in this note. While Russia’s attack on Ukraine, coupled with inflation and a rising rate environment have introduced additional complexity for market participants to navigate, the demand for consistent income, down-side protection and preservation of capital remains persistent and is arguably even more important than ever before.

Furthermore, the current rotation from fixed to floating interest rates has been an asset allocation call versus a specific credit thesis or selection. Market participants are shifting into floating rate for the sake of the floating rate over the quality of the credit and over liquidity. This lack of acknowledgement highlights favoring a technical attribute over credit selection and also confirms that the market is not experiencing a traditional flight to quality, which often happens in markets wrought with concern and lack of conviction. In many cases, the exact opposite is happening as the loan market has a higher concentration of single B assets and lower rated assets than the high yield or investment grade markets.

 

 

 

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LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Notwithstanding the exogenous shock the crisis in Ukraine has catalyzed across the global markets, and in Europe in particular, the market volatility has been orderly until recently in Q2. There continues to be growing anxiety around what the future holds. It is important to remember there is still plenty of dry powder sitting on the sidelines assessing the market’s moves but simultaneously the market construct has created less incentive for investors to lean into risk.

Overall, the U.S. has been more insulated from the immediate shocks of the geopolitical crisis, although, not immune. In Europe, the conflict has already taken a toll, most notably stunting growth which many believe is likely to eventually lead to a recession. Globally, we have been witnessing the severe impact on commodity prices, currency depreciation coupled with foreign exchange volatility, and further exacerbation to existing inflationary headwinds. On the whole, U.S. Bank Loans closed out the first quarter nearly flat at -0.10%,2 demonstrating the greatest resilience across asset classes. At the same time, European Bank Loans ended the quarter -0.50%,3 CLO Liabilities -0.33%,4 U.S. High Yield -4.51%,5 and European High Yield -4.83%6 on a total return basis as of March 31, 2022. As we compared public liquid credit returns to private credit returns, which are in the low single digits for the first quarter, it has become clear there is dispersion between asset classes.

The market ride is likely to continue to be bumpy but we think it is prudent to stick with conviction, fundamentals and seek out opportunity through the volatile moments. The globalization of markets we have witnessed has created an influential interdependency amongst a broad range of macroeconomic inputs that can result in volatility. In the same vein, this globalization effect has also prompted a decoupling amongst market segments such as fund flows and stocks and credit that will take some time to filter through the system. With the market still demanding a “show me” fundamental results story as corporate earnings roll in, acute attention paid on margin compression, currency fluctuations and the long-term net effects of slowing growth, we believe there could be real dispersion on the horizon. We are living through an environment where the Fed has openly acknowledged there is a need to actively dampen consumer demand to temper inflation but the supply side headwinds cannot be controlled by the Fed, further spotlighting the interconnectedness and globalization of the markets. If inflation continues to stay elevated coupled with slowing growth, credit should become an even larger portion of an investment portfolio.

Overall, we think this all points to the perpetual need for a diverse and sustainable approach to investing in corporate credit, an approach that marries the fundamentals and bottom up analysis with the swift ability to act, pivot and execute across a holistic set of solutions and broad range of market segments and capital bases. As a result, we have real time access to market movements that informs our views and promotes our ability to execute with speed and certainty across all of our core competencies. At our core we are long term fundamental credit investors focused on delivering consistent returns with downside protection. The scale and breadth of KKR’s global portfolio means that our team is in the market all day, every day, sharing insights globally and working collaboratively to identify, extract and underwrite value. That is one element that is unique to us — we operate as one global team and the value of leadership and teamwork is unparalleled when it all comes together in a challenging environment. Given this market is going to test the time of patience, we believe it is important to have dry powder to lean in when there is volatility, scaled capital to address a multitude of investment scenarios and to remember to stay focused on the long term goal — delivering for our clients.

Background and Fund Performance

KKR Credit Opportunities Portfolio (“KCOP” or, the “Fund”) is a diversified, closed-end management investment company that continuously offers its shares and is operated as an “interval fund.” The Fund’s investment objective is to seek to provide attractive risk-adjusted returns and high current income.

 

 

 

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Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

The Fund seeks to achieve its investment objectives by investing in a select portfolio with exposure to two primary credit strategies:

 

  1.

Opportunistic Credit, a conviction-based approach investing in a portfolio consisting primarily of publicly traded high yield bonds, first- and second-lien secured bank loans and structured credit (e.g., collateralized loan obligations (“CLOs”) and mezzanine debt) and

  2.

Private Credit, which includes directly originated hard and financial asset-based lending, corporate mezzanine debt, as well as directly originated first-lien, second-lien and unitranche senior loans to upper middle-market companies.

Under normal market conditions, the Fund will invest at least 80% of its Managed Assets (as defined below) in senior and subordinated corporate debt and debt related instruments, including bonds, secured bank loans, convertible securities, structured products, convertible debt securities, repurchase agreements, and municipal securities.

The Fund expects, under normal circumstances, to invest 70-80% of its Managed Assets in the Opportunistic Credit strategy and 20-30% of its Managed Assets in the Private Credit Strategy, though the Fund’s allocation in investments could vary from these guidelines at any time in the Fund’s discretion. On at least a quarterly basis, the Fund’s Investment Committee will meet to, among other things, review and establish the allocation percentage between the Opportunistic Credit Strategy and Private Credit Strategy for the ensuing period. The Investment Committee will consider factors such as KKR’s macro-economic and market outlooks, assessment of the relative risk and return of each strategy, and other factors in making its determination. “Managed Assets” means the total assets of the Fund (including any assets attributable to borrowings for investment purposes) minus the sum of the Fund’s accrued liabilities (other than liabilities representing borrowings for investment purposes).

As of April 30, 2022, the Fund held 63.04% of its net assets in first and second-lien leveraged loans, 62.16% of its net assets in high-yield corporate debt, 6.96% of its net assets in asset backed securities, 5.33% of its net assets in equities and other investments. KCOP’s investments represented obligations and equity interests in 298 positions across a diverse group of industries. The top ten issuers represented 32.7% of the Fund’s net assets while the top five industry groups represented 49.00% of the Fund’s net assets. The Fund’s Securities and Exchange Commission 30-day yield for Class D, Class I, Class T, and Class U were 7.33%, 7.60%, 6.81% and 6.81%, respectively.

Business Updates

We thank you for your partnership and continued investment in KCOP. We look forward to continued communications and will keep you apprised of the progress of KCOP specifically and the leveraged finance market place generally. Fund information is available on our website at kkrfunds.com/kcop.

 

 

References:

1.

Bloomberg as of April 29, 2022.

2. 

S&P LSTA and KKR Credit Analysis as of March 31, 2022.

3. 

S&P LCD and KKR Credit Analysis as of March 31, 2022.

4. 

S&P LSTA and KKR Credit Analysis as of March 31, 2022.

5. 

ICE BofAML and KKR Credit Analysis as of March 31, 2022.

6. 

S&P LCD and KKR Credit Analysis as of March 31, 2022.

 

 

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LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Consolidated Schedule of Investments

 

                                                                                                                                                                                                                                                                                                                                            
Issuer   Asset   Reference Rate & Spread   Interest Rate     Maturity Date     Country   Currency   Par     Fair Value     Footnotes

Leveraged Loans - 63.04%

                 

Aerospace & Defense - 3.48%

Amentum Services Inc

  TL 2L 12/21   SOFR (6M) + 7.50%     8.53%       2/15/2030     USA   USD     2,767,140     $ 2,700,175     (a) (b) (d)

Arcfield Acquisition Corp

  Revolver 1L 03/22   LIBOR (3M) + 5.75%     7.08%       3/10/2027     USA   USD     143,583       (718   (a) (b) (e)

Arcfield Acquisition Corp

  TL 1L 03/22   LIBOR (3M) + 5.75%     7.08%       3/10/2028     USA   USD     989,130       984,184     (a) (b) (d)

EaglePicher Technologies LLC

  TL 2L 02/18   LIBOR (1M) + 7.25%     8.01%       3/8/2026     USA   USD     2,506,459       2,280,878     (d)

Sequa Corp

  TL 1L 07/20   LIBOR (3M) + 6.75%     7.75%       11/28/2023     USA   USD     7,908,353       7,921,559     (a) (d)

Sequa Corp

  TL 1L B 06/20   LIBOR (3M) + 9.00%     10.00%       7/31/2025     USA   USD     396,887       412,762     (a) (b) (d)

Sequa Corp

  TL 2L 07/20   LIBOR (3M) + 10.75%     11.75%       4/28/2024     USA   USD     4,642,245       4,628,318     (a) (d)

Ultra Electronics Holdings PLC

  TL 1L B 11/21   LIBOR (3M) + 3.75%     5.08%       11/17/2028     USA   USD     133,190       132,341     (a) (d)

Ultra Electronics Holdings PLC

  TL 1L B 11/21   EURIBOR (3M) + 3.75%     3.75%       11/17/2028     LUX   EUR     104,000       108,888     (a) (d)

Alternative Carriers - 1.37%

Segra

  TL 1L B 08/21   LIBOR (1M) + 4.50%     5.51%       10/4/2028     USA   USD     7,673,284       7,535,395     (d)

Apparel, Accessories & Luxury Goods - 2.87%

Varsity Brands Inc

  TL 1L 11/17   LIBOR (1M) + 3.50%     4.50%       12/16/2024     USA   USD     16,411,022       15,843,529     (d)

Application Software - 8.12%

Applied Systems Inc

  TL 2L 02/21   LIBOR (3M) + 5.50%     6.51%       9/19/2025     USA   USD     106,592       106,782     (d)

Community Brands Inc

  Revolver 1L 02/22   SOFR (3M) + 5.75%     7.08%       2/23/2028     USA   USD     60,610       (1,212   (a) (b) (e)

Community Brands Inc

  TL 1L 02/22   SOFR (3M) + 5.75%     7.08%       2/23/2028     USA   USD     1,030,300       1,009,694     (a) (b) (d)

Community Brands Inc

  TL 1L DD 02/22   SOFR (3M) + 5.75%     7.08%       2/23/2028     USA   USD     121,212       (2,424   (a) (b) (e)

Epicor Software Corp

  TL 2L 07/20   LIBOR (1M) + 7.75%     8.75%       7/31/2028     USA   USD     1,544,288       1,579,683     (d)

Follett Software Co

  Revolver 1L 08/21   LIBOR (3M) + 5.75%     7.08%       8/31/2027     USA   USD     136,050       (1,034   (a) (b) (e)

Follett Software Co

  TL 1L 08/21   LIBOR (3M) + 5.75%     7.08%       8/31/2028     USA   USD     1,545,833       1,534,085     (a) (b) (d)

Med-Metrix

  Revolver 1L 09/21   LIBOR (3M) + 6.00%     0.50%       9/15/2027     USA   USD     158,828           (a) (b) (e)

Med-Metrix

  TL 1L 09/21   LIBOR (3M) + 6.00%     7.00%       9/15/2027     USA   USD     1,264,270       1,265,155     (a) (b) (d)

Med-Metrix

  TL 1L DD 09/21   LIBOR (3M) + 6.00%     1.00%       9/15/2027     USA   USD     635,312       127,507     (a) (b) (e)

Misys Ltd

  TL 1L 04/17   LIBOR (3M) + 3.50%     4.74%       6/13/2024     USA   USD     2,885,768       2,806,640     (d)

Misys Ltd

  TL 2L 04/17   LIBOR (3M) + 7.25%     8.49%       6/13/2025     USA   USD     9,735,446       9,390,665     (d)

SAMBA Safety Inc

  Revolver 1L 09/21   LIBOR (3M) + 5.75%     2.05%       9/1/2027     USA   USD     41,810       10,231     (a) (b) (e)

SAMBA Safety Inc

  TL 1L 09/21   LIBOR (3M) + 5.75%     6.76%       9/1/2027     USA   USD     469,144       466,658     (a) (b) (d)

SAMBA Safety Inc

  TL 1L DD 09/21   LIBOR (3M) + 5.75%     1.00%       9/1/2027     USA   USD     104,520       (554   (a) (b) (e)

Solera LLC

  TL 2L 06/21   LIBOR (1M) + 8.00%     9.00%       6/4/2029     USA   USD     16,105,314       16,038,156     (d)

TIBCO Software Inc

  TL 2L 02/20   LIBOR (1M) + 7.25%     8.02%       3/3/2028     USA   USD     10,435,002       10,441,524     (d)

 

See accompanying notes to consolidated financial statements.

 

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Credit Opportunities Portfolio
 

April 30, 2022

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Issuer   Asset   Reference Rate & Spread   Interest Rate   Maturity Date   Country   Currency   Par     Fair Value     Footnotes

Auto Parts & Equipment - 0.36%

Innovative XCessories & Services LLC

  TL 1L 02/20   LIBOR (3M) + 4.25%   5.00%   3/5/2027   USA   USD     1,235,716     $ 1,150,760     (d)

Rough Country LLC

  TL 2L 07/21   LIBOR (3M) + 6.50%   7.51%   7/30/2029   USA   USD     861,230       840,776     (d)

Broadcasting - 3.53%

NEP Broadcasting LLC

  TL 1L 05/20   LIBOR (3M) + 8.25%   9.25%   6/1/2025   USA   USD     151,540       156,087     (a) (b) (d)

NEP Broadcasting LLC

  TL 1L B 09/18   LIBOR (1M) + 3.25%   4.01%   10/20/2025   USA   USD     6,374,666       6,271,078     (d)

NEP Broadcasting LLC

  TL 2L 09/18   LIBOR (1M) + 7.00%   7.76%   10/19/2026   USA   USD     13,482,722       13,047,365     (d)

Building Products - 1.06%

DiversiTech Holdings Inc

  TL 2L B 12/21   LIBOR (3M) + 6.75%   7.76%   12/15/2029   USA   USD     1,945,020       1,896,394     (d)

VC GB Holdings Inc (Visual Comfort)

  TL 2L 06/21   LIBOR (3M) + 6.75%   7.76%   7/23/2029   USA   USD     4,110,401       3,948,554     (d)

Construction & Engineering - 2.87%

Brand Energy & Infrastructure Services Inc

  TL 1L 05/17   LIBOR (3M) + 4.25%   5.40%   6/21/2024   USA   USD     717,716       683,990     (d)

Total Safety US Inc

  TL 1L B 07/19   LIBOR (6M) + 6.00%   7.01%   8/18/2025   USA   USD     6,703,640       6,534,675     (d)

USIC Holdings Inc

  TL 2L 05/21   LIBOR (1M) + 6.50%   7.26%   5/14/2029   USA   USD     2,682,939       2,669,524     (d)

Yak Access LLC

  TL 1L B 05/18   LIBOR (3M) + 5.00%   5.51%   7/11/2025   USA   USD     6,809,083       5,919,102     (a) (d)

Construction Machinery & Heavy Trucks - 1.48%

Accuride Corp

  TL 1L B 10/17   LIBOR (3M) + 5.25%   6.26%   11/17/2023   USA   USD     8,685,298       8,167,567     (d)

Data Processing & Outsourced Services - 0.56%

Encora Digital Inc

  TL 1L 12/21   LIBOR (3M) + 5.50%   6.83%   12/13/2028   CYM   USD     1,652,370       1,619,089     (a) (b) (d)

Encora Digital Inc

  TL 1L 12/21   9.75%   9.75%   12/13/2029   CYM   USD     437,979       424,840     (a) (b) (d) (f)

Encora Digital Inc

  TL 1L DD 12/21   LIBOR (3M) + 5.50%   6.83%   12/13/2028   CYM   USD     398,160       (8,019   (a) (b) (e)

West Corp

  TL 1L 09/17   LIBOR (3M) + 4.00%   5.00%   10/10/2024   USA   USD     1,141,288       1,071,623     (d)

Department Stores - 0.11%

Belk Inc

  TL 1L 02/21   LIBOR (3M) + 7.50%   8.50%   7/31/2025   USA   USD     53,180       52,582     (a) (d)

Belk Inc

  TL 1L EXIT 02/21   8.00% PIK, 5.00%   13.00%   7/31/2025   USA   USD     951,960       568,501     (a) (d) (f)

Distributors - 1.73%

Caldic BV

  TL 1L B 01/22   SOFR (6M) + 4.00%   5.33%   2/4/2029   NLD   USD     108,660       107,528     (d)

Caldic BV

  TL 1L B 02/22   EURIBOR (6M) + 4.00%   4.00%   2/4/2029   NLD   EUR     61,831       64,645     (d)

Caldic BV

  TL 2L 03/22   SOFR (3M) + 7.25%   8.58%   12/30/2029   NLD   USD     6,499,085       6,320,360     (a) (b) (d)

Parts Town LLC

  TL 1L 11/21   LIBOR (3M) + 5.50%   6.83%   11/1/2028   USA   USD     1,771,618       1,757,268     (a) (b) (d)

Parts Town LLC

  TL 1L DD 11/21   LIBOR (1M) + 5.50%   6.83%   11/1/2028   USA   USD     1,294,328       1,283,844     (a) (b) (d)

Diversified Metals & Mining - 0.02%

Foresight Energy LLC

  TL 1L A 06/20   LIBOR (1M) + 8.00%   9.50%   6/30/2027   USA   USD     123,016       123,016     (a) (b) (d)

Diversified Support Services - 0.19%

Access CIG LLC

  TL 2L 02/18   LIBOR (1M) + 7.75%   8.21%   2/27/2026   USA   USD     143,000       142,166     (d)

VFS Global Services Pvt Ltd

  TL 1L B 06/17   SONIA (1M) + 4.00%   4.72%   7/29/2024   LUX   GBP     711,402       886,566     (d)

 

See accompanying notes to consolidated financial statements.

 

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Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

                                                                                                                                                                                                                                                                                                                                            
Issuer   Asset   Reference Rate & Spread   Interest Rate     Maturity Date   Country   Currency   Par     Fair Value     Footnotes

Education Services - 1.48%

Jostens Inc

  TL 1L 12/18   LIBOR (3M) + 5.50%     6.51%     12/19/2025   USA   USD     8,129,487     $ 8,129,487     (d)

Electronic Equipment & Instruments - 0.67%

Excelitas Technologies Corp

  TL 2L 10/17   LIBOR (3M) + 7.50%     8.50%     12/1/2025   USA   USD     3,690,005       3,701,536     (a) (d)

Environmental & Facilities Services - 1.24%

48Forty Solutions LLC

  Revolver 1L 03/22   SOFR (1M) + 5.75%     7.08%     11/30/2026   USA   USD     610,068       90,290     (a) (b) (e)

48Forty Solutions LLC

  TL 1L 02/22   SOFR (1M) + 5.75%     7.00%     11/30/2026   USA   USD     4,759,482       4,749,963     (a) (b) (d)

48Forty Solutions LLC

  TL 1L 03/22   SOFR (3M) + 5.75%     7.08%     11/30/2026   USA   USD     1,974,240       1,970,292     (a) (b) (d)

48Forty Solutions LLC

  TL 1L DD 03/22   SOFR (3M) + 5.75%     7.08%     11/30/2026   USA   USD     1,203,805       (2,408   (a) (b) (e)

Financial Exchanges & Data - 0.14%

IntraFi Network LLC

  TL 2L 11/21   LIBOR (1M) + 6.25%     6.75%     11/5/2029   USA   USD     751,420       744,608     (d)

Health Care Equipment - 4.80%

Drive DeVilbiss Healthcare LLC

  TL 1L 03/21   LIBOR (3M) + 5.50%     10.51%     6/1/2025   USA   USD     19,575,807       18,825,369     (d) (f)

Orchid Orthopedic Solutions LLC

  TL 1L 02/19   LIBOR (3M) + 4.50%     5.51%     3/5/2026   USA   USD     6,973,649       6,346,020     (d)

PartsSource Inc

  Revolver 1L 10/21   LIBOR (3M) + 5.75%     7.08%     8/21/2026   USA   USD     87,104       (1,699   (a) (b) (e)

PartsSource Inc

  TL 1L 10/21   LIBOR (3M) + 5.75%     7.08%     8/23/2028   USA   USD     1,332,277       1,306,298     (a) (b) (d)

PartsSource Inc

  TL 1L DD 08/21   LIBOR (3M) + 5.75%     1.00%     8/23/2028   USA   USD     464,562       (9,059   (a) (b) (e)

Health Care Facilities - 0.85%

Lakefield Veterinary Group

  TL 1L 11/21   LIBOR (1M) + 5.50%     6.83%     11/23/2028   USA   USD     2,216,178       2,182,049     (a) (b) (d)

Lakefield Veterinary Group

  TL 1L DD 11/21   LIBOR (3M) + 5.50%     6.83%     11/23/2028   USA   USD     1,268,665       337,583     (a) (b) (e)

ScionHealth

  TL 1L B 12/21   LIBOR (1M) + 5.25%     6.01%     12/17/2028   USA   USD     2,452,134       2,157,878     (a) (d)

Health Care Services - 1.44%

               

Affordable Care Inc

  Revolver 1L 08/21   LIBOR (3M) + 5.50%     0.50%     8/2/2027   USA   USD     177,081       (708   (a) (b) (e)

Affordable Care Inc

  TL 1L 08/21   LIBOR (3M) + 5.50%     6.51%     8/2/2028   USA   USD     1,595,927       1,589,544     (a) (b) (d)

Affordable Care Inc

  TL 1L DD 08/21   LIBOR (1M) + 5.50%     1.01%     8/2/2028   USA   USD     599,452       47,946     (a) (b) (e)

American Vision Partners

  Revolver 1L 09/21   LIBOR (3M) + 5.75%     0.50%     9/30/2026   USA   USD     158,140       (1,629   (a) (b) (e)

American Vision Partners

  TL 1L 09/21   LIBOR (3M) + 5.75%     6.76%     9/30/2027   USA   USD     1,919,644       1,899,871     (a) (b) (d)

American Vision Partners

  TL 1L DD 09/21   LIBOR (3M) + 5.75%     1.00%     9/30/2027   USA   USD     790,690       (8,144   (a) (b) (e)

Amerivet Partners Management Inc

  Revolver 1L 02/22   SOFR (3M) + 5.50%     6.83%     2/25/2028   USA   USD     197,240       (4,142   (a) (b) (e)

Amerivet Partners Management Inc

  TL 1L 02/22   SOFR (3M) + 5.50%     6.30%     2/25/2028   USA   USD     2,252,490       2,205,188     (a) (b) (d)

Amerivet Partners Management Inc

  TL 1L DD 02/22   SOFR (3M) + 5.50%     6.30%     2/25/2028   USA   USD     1,577,920       (33,136   (a) (b) (e)

Novotech Pty Ltd

  TL 1L 01/22   SOFR (3M) + 5.75%     6.51%     1/13/2028   AUS   USD     1,144,851       1,121,376     (a) (b) (d)

Novotech Pty Ltd

  TL 1L 01/22   BBSY (1M) + 5.75%     5.75%     1/13/2028   AUS   AUD     1,579,895       1,092,011     (a) (b) (d)

Novotech Pty Ltd

  TL 1L DD 01/22   SOFR (3M) + 5.75%     6.55%     1/13/2028   AUS   USD     266,244       (5,459   (a) (b) (e)

Paradigm Acquisition Corp

  TL 2L 10/18 LC   LIBOR (3M) + 7.50%     7.85%     10/26/2026   USA   USD     11,538       11,365     (d)

 

See accompanying notes to consolidated financial statements.

 

6


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April 30, 2022

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Issuer   Asset   Reference Rate & Spread   Interest Rate   Maturity Date   Country   Currency   Par     Fair Value     Footnotes

Health Care Technology - 0.07%

athenahealth Inc

  TL 1L 01/22   SOFR (1M) + 3.50%   4.02%   2/15/2029   USA   USD     367,585     $ 363,219     (a)

athenahealth Inc

  TL 1L DD 01/22   SOFR (1M) + 3.50%   1.75%   2/15/2029   USA   USD     54,442       (646   (a) (e)

Hotels, Resorts & Cruise Lines - 0.51%

B&B Hotels SAS

  TL 1L B3A 01/20   EURIBOR (6M) + 3.88%   3.88%   7/31/2026   FRA   EUR     1,886,660       1,903,806     (d)

B&B Hotels SAS

  TL 1L B4 03/21   EURIBOR (6M) + 5.50%   5.50%   7/31/2026   FRA   EUR     337,480       354,453     (d)

Piolin BidCo SAU

  TL 1L B 05/20   EURIBOR (3M) + 7.50%   7.50%   9/16/2026   ESP   EUR     539,891       571,791     (d)

Household Products - 2.52%

Polyconcept North America Inc

  TL 1L B 08/16   LIBOR (6M) + 4.50%   6.00%   8/16/2023   USA   USD     13,910,310       13,872,613     (d)

Human Resource & Employment Services - 1.75%

Insight Global LLC

  Revolver 1L 09/21   LIBOR (3M) + 6.00%   1.54%   9/22/2027   USA   USD     427,591       79,190     (a) (b) (e)

Insight Global LLC

  TL 1L 02/22   LIBOR (1M) + 6.00%   7.01%   9/22/2028   USA   USD     1,050,861       1,035,309     (a) (b) (d)

Insight Global LLC

  TL 1L 09/21   LIBOR (3M) + 6.00%   7.01%   9/22/2028   USA   USD     5,428,703       5,348,358     (a) (b) (d)

Oxford Global Resources LLC

  Revolver 1L 08/21   LIBOR (3M) + 6.00%   3.22%   8/17/2027   USA   USD     128,823       88,888     (a) (b) (e)

Oxford Global Resources LLC

  TL 1L 08/21   LIBOR (3M) + 6.00%   7.10%   8/17/2027   USA   USD     1,486,869       1,503,820     (a) (b) (d)

Oxford Global Resources LLC

  TL 1L DD 08/21   LIBOR (3M) + 6.00%   1.00%   8/17/2027   USA   USD     257,645       2,937     (a) (b) (e)

SIRVA Worldwide Inc

  TL 1L 07/18   LIBOR (3M) + 5.50%   6.30%   8/4/2025   USA   USD     1,649,287       1,551,155     (d)

SIRVA Worldwide Inc

  TL 2L 07/18   LIBOR (3M) + 9.50%   10.42%   8/3/2026   USA   USD     59,000       50,224     (d)

Industrial Machinery - 1.28%

CPM Holdings Inc

  TL 2L 10/18   LIBOR (1M) + 8.25%   8.71%   11/16/2026   USA   USD     371,172       369,316     (d)

Engineered Machinery Holdings Inc

  TL 2L 08/21   LIBOR (3M) + 6.00%   7.01%   5/21/2029   USA   USD     297,640       297,640     (d)

SPX Corp

  TL 1L B 03/22   SOFR (1M) + 4.50%   5.83%   3/18/2029   USA   USD     4,855,080       4,739,772     (d)

Time Manufacturing Co

  Revolver 1L 12/21   LIBOR (3M) + 6.50%   3.44%   12/1/2027   USA   USD     153,560       111,891     (a) (b) (e)

Time Manufacturing Co

  TL 1L 12/21   LIBOR (3M) + 6.50%   7.83%   12/1/2027   USA   USD     928,406       904,360     (a) (b) (d)

Time Manufacturing Co

  TL 1L 12/21   EURIBOR (3M) + 6.50%   7.25%   12/1/2027   DEU   EUR     598,500       613,558     (a) (b) (d)

Time Manufacturing Co

  TL 1L DD 12/21   LIBOR (3M) + 6.50%   1.00%   12/1/2027   USA   USD     279,199       (7,231   (a) (b) (e)

Insurance Brokers - 1.05%

Alera Group Intermediate Holdings Inc

  TL 1L 09/21   LIBOR (1M) + 5.50%   6.26%   10/2/2028   USA   USD     660,212       651,233     (a) (b) (d)

Alera Group Intermediate Holdings Inc

  TL 1L DD 09/21   LIBOR (1M) + 5.50%   3.59%   10/2/2028   USA   USD     187,590       178,629     (a) (b) (e)

Alera Group Intermediate Holdings Inc

  TL 1L DD 12/21   LIBOR (3M) + 5.50%   6.26%   10/2/2028   USA   USD     540,718       3,461     (a) (b) (e)

Foundation Risk Partners Corp

  Revolver 1L 10/21   LIBOR (3M) + 5.75%   0.50%   10/29/2027   USA   USD     141,750       (1,970   (a) (b) (e)

Foundation Risk Partners Corp

  TL 1L 03/22   SOFR (1M) + 5.75%   6.55%   10/29/2028   USA   USD     840,128       828,450     (a) (b) (d)

Foundation Risk Partners Corp

  TL 1L 10/21   LIBOR (3M) + 5.75%   7.08%   10/29/2028   USA   USD     1,342,420       1,323,760     (a) (b) (d)

Foundation Risk Partners Corp

  TL 1L DD 03/22   SOFR (3M) + 5.75%   6.55%   10/29/2028   USA   USD     3,360,512       (46,711   (a) (b) (e)

Foundation Risk Partners Corp

  TL 1L DD 10/21   LIBOR (1M) + 5.75%   3.48%   10/29/2028   USA   USD     291,830       235,301     (a) (b) (e)

Galway Partners Holdings LLC

  Revolver 1L 09/21   LIBOR (3M) + 5.25%   0.50%   9/30/2027   USA   USD     205,492       (4,151   (a) (b) (e)

Galway Partners Holdings LLC

  TL 1L 09/21   LIBOR (3M) + 5.25%   6.26%   9/29/2028   USA   USD     2,639,201       2,585,888     (a) (b)

 

See accompanying notes to consolidated financial statements.

 

7


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LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

                                                                                                                                                                                                                                                                                                                                            
Issuer   Asset   Reference Rate & Spread   Interest Rate   Maturity Date   Country   Currency   Par     Fair Value     Footnotes

Galway Partners Holdings LLC

  TL 1L DD 09/21   LIBOR (3M) + 5.25%   0.50%   9/29/2028   USA   USD     289,583     $ (5,850   (a) (b) (e)

Integrity Marketing Group LLC

  TL 1L DD 12/21   LIBOR (3M) + 5.50%   6.83%   8/27/2025   USA   USD     2,952,345       54,323     (a) (b) (e)

IT Consulting & Other Services - 2.38%

3Pillar Global Inc

  Revolver 1L 11/21   LIBOR (3M) + 6.00%   7.33%   11/23/2026   USA   USD     186,240       (1,918   (a) (b) (e)

3Pillar Global Inc

  TL 1L 11/21   LIBOR (3M) + 5.75%   7.08%   11/23/2027   USA   USD     1,950,624       1,930,533     (a) (b) (d)

3Pillar Global Inc

  TL 1L DD 11/21   LIBOR (3M) + 6.00%   7.33%   11/23/2027   USA   USD     620,800       (6,394   (a) (b) (e)

PSAV Inc

  TL 1L B1 12/20   0.25% PIK, LIBOR (6M) + 3.25%   4.50%   3/3/2025   USA   USD     9,347,453       8,731,129     (d) (f)

PSAV Inc

  TL 1L B3 12/20  

10.00% PIK, 5.00%

  15.00%   10/15/2026   USA   USD     612,264       697,219     (d) (f)

PSAV Inc

  TL 2L 02/18   LIBOR (3M) + 7.25%   8.25%   9/1/2025   USA   USD     2,000,843       1,775,748     (d)

Leisure Facilities - 0.90%

United PF Holdings LLC

  TL 1L 01/20   LIBOR (3M) + 4.00%   5.33%   12/30/2026   USA   USD     5,057,082       4,911,690     (d)

United PF Holdings LLC

  TL 1L 06/20   LIBOR (3M) + 8.50%   9.51%   12/30/2026   USA   USD     56,130       56,972     (d)

Leisure Products - 2.17%

Areas Worldwide SASU

  TL 1L B1 06/19   EURIBOR (6M) + 4.75%   4.75%   7/1/2026   ESP   EUR     12,328,214       11,955,877     (d)

Life & Health Insurance - 0.60%

Luxembourg Life Fund - Absolute Return Fund II

  TL 1L 02/22   SOFR (3M) + 7.50   8.83%   2/10/2027   LUX   USD     3,333,330       3,308,997     (a) (b)

Life Sciences Tools & Services - 1.03%

PAREXEL International Corp

  TL 2L 07/21   LIBOR (1M) + 6.50%   7.26%   11/15/2029   USA   USD     5,766,010       5,679,520     (a) (b) (d)

Marine Ports & Services - 1.54%

Direct ChassisLink Inc

  TL 2L B 04/19   LIBOR (3M) + 6.75%   7.74%   4/10/2026   USA   USD     8,523,150       8,469,880     (d)

Movies & Entertainment - 0.19%

Cast & Crew Entertainment Services LLC

  TL 1L 01/19   LIBOR (1M) + 3.50%   4.26%   2/9/2026   USA   USD     1,043,829       1,040,478     (d)

Oil & Gas Equipment & Services - 0.44%

Caprock Midstream LLC

  TL 1L B 10/18   LIBOR (1M) + 4.75%   5.51%   11/3/2025   USA   USD     2,409,502       2,406,491     (d)

Personal Products - 0.16%

Pretium Packaging LLC

  TL 1L 09/21   LIBOR (1M) + 4.00%   4.73%   10/2/2028   USA   USD     65,705       63,898     (d)

Pretium Packaging LLC

  TL 2L 09/21   LIBOR (3M) + 6.75%   7.48%   10/1/2029   USA   USD     810,470       792,883     (a) (b) (d)

Property & Casualty Insurance - 0.59%

Alacrity Solutions Group LLC

  Revolver 1L 12/21   PRIME (3M) + 4.25%   7.75%   12/22/2027   USA   USD     505,280       47,850     (a) (b)

Alacrity Solutions Group LLC

  TL 1L 12/21   LIBOR (1M) + 5.25%   6.00%   12/22/2028   USA   USD     3,244,720       3,195,076     (a) (b) (d)

Real Estate Operating Companies - 1.29%

Opendoor Labs Inc

  TL 2L DD 10/21   10.00%   10.00%   4/1/2026   USA   USD     11,000,000       7,134,887     (a) (b)

 

See accompanying notes to consolidated financial statements.

 

8


Table of Contents
LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

                                                                                                                                                                                                                                                                                                                                            
Issuer   Asset   Reference Rate & Spread   Interest Rate   Maturity Date     Country   Currency   Par     Fair Value     Footnotes

Real Estate Services - 0.40%

SitusAMC Holdings Corp

  TL 1L 12/21   LIBOR (1M) + 5.75%   6.50%     12/22/2027     USA   USD     2,236,030     $ 2,206,514     (a) (b) (d)

Research & Consulting Services - 0.18%

Element Materials Technology Group US Holdings Inc

  TL 1L B 03/22   EURIBOR (3M) + 4.25%   4.25%     4/12/2029     GBR   EUR     51,387       54,251     (d)

Element Materials Technology Group US Holdings Inc

  TL 1L B 04/22   SOFR (3M) + 4.25%   5.05%     4/12/2029     USA   USD     148,059       147,813    

Element Materials Technology Group US Holdings Inc

  TL 1L B 05/17   LIBOR (3M) + 3.50%   4.51%     6/28/2024     USA   USD     78,591       78,512     (d)

Element Materials Technology Group US Holdings Inc

  TL 1L DD 04/22   SOFR (1M) + 4.25%   0.50%     4/12/2029     USA   USD     61,978       (103  

TMF Group Holding BV

  TL 2L 12/17   EURIBOR (6M) + 6.88%   6.88%     5/4/2026     NLD   EUR     693,210       722,435     (d)

Security & Alarm Services - 0.07%

Monitronics International Inc

  TL 1L EXIT 08/19   LIBOR (3M) + 7.50%   8.75%     3/29/2024     USA   USD     516,829       400,542     (d)

Specialized Consumer Services - 0.24%

Learning Care Group Inc

  TL 1L B 05/20   LIBOR (6M) + 8.50%   9.52%     3/13/2025     USA   USD     276,927       279,697     (a) (d)

Learning Care Group Inc

  TL 2L 03/18   LIBOR (6M) + 7.50%   8.50%     3/13/2026     USA   USD     194,997       193,778     (a) (d)

SavATree LLC

  Revolver 1L 10/21   LIBOR (3M) + 5.50%   0.50%     10/12/2028     USA   USD     128,932       (748   (a) (b)

SavATree LLC

  TL 1L 10/21   LIBOR (3M) + 5.50%   6.51%     10/12/2028     USA   USD     848,826       843,903     (a) (b) (d)

SavATree LLC

  TL 1L DD 10/21   LIBOR (3M) + 5.50%   0.50%     10/12/2028     USA   USD     154,719       (897   (a) (b)

Specialized REITs - 0.58%

Pretium Partners LLC P2

  TL 1L 12/21   11.00%   11.00%     12/16/2029     USA   USD     3,270,612       3,205,200     (a) (b) (d)

Specialty Chemicals - 3.70%

Aruba Investments Inc

  TL 2L 10/20   LIBOR (6M) + 7.75%   8.50%     11/24/2028     USA   USD     465,220       463,185     (d)

Flint Group GmbH

  TL 1L 01/17   LIBOR (1M) + 4.25%   5.25%     9/21/2023     DEU   USD     1,172,229       1,131,828     (d) (f)

Flint Group GmbH

  TL 1L B 04/14   0.75% PIK, EURIBOR (3M) + 4.25%   5.75%     9/21/2023     DEU   EUR     3,513,883       3,577,084     (d) (f)

Flint Group GmbH

  TL 1L B3 05/15   0.75% PIK, EURIBOR (3M) + 4.25%   5.75%     9/21/2023     DEU   EUR     72,055       73,351     (d) (f)

Flint Group GmbH

  TL 1L B4 11/15   0.75% PIK, EURIBOR (3M) + 4.25%   5.75%     9/21/2023     DEU   EUR     623,968       635,190     (d) (f)

Flint Group GmbH

  TL 1L B5 02/17   0.75% PIK, EURIBOR (3M) + 4.25%   5.75%     9/21/2023     DEU   EUR     457,727       465,961     (d) (f)

Flint Group GmbH

  TL 1L B6 03/17   0.75% PIK, EURIBOR (3M) + 4.25%   5.75%     9/21/2023     DEU   EUR     35,969       36,616     (d) (f)

Flint Group GmbH

  TL 1L B7 04/14   0.75% PIK, EURIBOR (3M) + 4.25%   5.75%     9/21/2023     DEU   EUR     79,794       81,229     (d) (f)

Flint Group GmbH

  TL 1L C 04/14   LIBOR (1M) + 4.25%   5.25%     9/21/2023     USA   USD     194,610       187,902     (d) (f)

Vantage Specialty Chemicals Inc

  TL 1L B 10/17   LIBOR (3M) + 3.50%   4.62%     10/28/2024     USA   USD     13,145,304       12,729,058     (d)

Vantage Specialty Chemicals Inc

  TL 2L 10/17   LIBOR (3M) + 8.25%   9.25%     10/27/2025     USA   USD     1,045,139       1,019,664     (d)

Tires & Rubber - 0.59%

American Tire Distributors Inc

  TL 1L B 10/21   LIBOR (3M) + 6.25%   6.92%     10/8/2028     USA   USD     3,274,880       3,255,951     (d)

Trucking - 0.44%

Kenan Advantage Group Inc/The

  TL 2L 08/21   LIBOR (1M) + 7.25%   8.01%     9/1/2027     USA   USD     2,498,320       2,432,739     (d)
             

 

 

   

 

 

   
TOTAL LEVERAGED LOANS (amortized cost $352,838,710)             379,545,761     $ 347,429,295    

 

See accompanying notes to consolidated financial statements.

 

9


Table of Contents
LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

                                                                                                                                                                                                                                                                  
Issuer   Asset   Maturity Date     Country   Currency   Par     Fair Value     Footnotes

High Yield Securities - 62.16%

Airlines - 1.57%

American Airlines Group Inc

  3.750% 03/2025     3/1/2025     USA   USD     5,809,000     $ 5,193,101     (d) (h)

Delta Air Lines Inc

  4.375% 04/2028     4/19/2028     USA   USD     3,691,000       3,459,205     (d)

Alternative Carriers - 1.22%

Zayo Group LLC

  6.125% 03/2028     3/1/2028     USA   USD     8,000,000       6,710,520     (d) (h)

Apparel, Accessories & Luxury Goods - 0.43%

Varsity Brands Inc

  8.000% 12/2024     12/22/2024     USA   USD     2,387,000       2,387,000     (a) (b) (d) (h)

Application Software - 1.68%

Cision Ltd

  9.500% 02/2028     2/15/2028     USA   USD     10,042,000       9,279,461     (d) (h)

Auto Parts & Equipment - 2.05%

BBB Industries LLC

  9.250% 08/2025     8/1/2025     USA   USD     3,456,000       3,619,020     (d) (h)

Wheel Pros Inc

  6.500% 05/2029     5/15/2029     USA   USD     10,121,000       7,705,219     (d) (h)

Automotive Retail - 1.58%

Mavis Discount Tire Inc

  6.500% 05/2029     5/15/2029     USA   USD     9,975,000       8,691,267     (d) (h)

Biotechnology - 0.55%

Intercept Pharmaceuticals Inc

  3.250% 07/2023     7/1/2023     USA   USD     189,000       182,385     (d)

Radius Health Inc

  3.000% 09/2024     9/1/2024     USA   USD     2,953,000       2,869,947     (d)

Broadcasting - 1.18%

Spotify USA Inc

  0.000% 03/2026     3/15/2026     USA   USD     7,930,000       6,496,652     (d) (g)

Building Products - 11.66%

Acproducts Inc (aka Cabinetworks)

  6.375% 05/2029     5/15/2029     USA   USD     17,269,000       10,384,800     (d) (h)

LBM Borrower LLC

  6.250% 01/2029     1/15/2029     USA   USD     14,818,000       12,077,707     (d) (h)

LBM Borrower LLC

  7.750% 04/2027     4/1/2027     USA   USD     8,550,000       7,321,023     (d) (h)

MI Windows and Doors Inc

  5.500% 02/2030     2/1/2030     USA   USD     2,045,000       1,771,379     (d) (h)

PrimeSource Building Products Inc

  5.625% 02/2029     2/1/2029     USA   USD     8,400,000       6,458,399     (d) (h)

PrimeSource Building Products Inc

  6.750% 08/2029     8/1/2029     USA   USD     7,522,000       6,032,734     (d) (h)

SRS Distribution Inc

  6.000% 12/2029     12/1/2029     USA   USD     13,809,000       12,133,830     (d) (h)

SRS Distribution Inc

  6.125% 07/2029     7/1/2029     USA   USD     9,167,000       8,101,245     (d) (h)

Cable & Satellite - 2.16%

CSC Holdings LLC (Altice USA)

  5.000% 11/2031     11/15/2031     USA   USD     2,754,000       2,133,662     (d) (h)

CSC Holdings LLC (Altice USA)

  5.750% 01/2030     1/15/2030     USA   USD     5,101,000       4,242,731     (d) (h)

RCN Grande (Radiate)

  6.500% 09/2028     9/15/2028     USA   USD     6,272,000       5,527,263     (d) (h)

Commercial Printing - 1.12%

Multi-Color Corp

  10.500% 07/2027     7/15/2027     USA   USD     4,947,000       4,780,781     (d) (h)

Multi-Color Corp

  5.875% 10/2028     11/1/2028     USA   USD     1,497,000       1,371,532     (d) (h)

Commodity Chemicals - 2.02%

Cornerstone Chemical Co

  6.750% 08/2024     8/15/2024     USA   USD     7,989,000       7,109,251     (d) (h)

SI Group Inc

  6.750% 05/2026     5/15/2026     USA   USD     4,943,000       4,037,615     (d) (h)

 

See accompanying notes to consolidated financial statements.

 

10


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Issuer   Asset   Maturity Date   Country   Currency   Par     Fair Value     Footnotes

Construction & Engineering - 0.30%

Maxim Crane Works LP / Maxim Finance Corp

  10.125% 08/2024   8/1/2024   USA   USD     1,650,000     $ 1,640,050     (d) (h)

Construction Materials - 0.11%

Cemex Materials LLC

  7.700% - 07/2025   7/21/2025   USA   USD     554,000       589,594     (d) (h)

Data Processing & Outsourced Services - 1.99%

West Corp

  8.500% 10/2025   10/15/2025   USA   USD     2,569,000       2,304,560     (d) (h)

Xerox Business Services /Conduent

  6.000% 11/2029   11/1/2029   USA   USD     9,425,000       8,682,970     (d) (h)

Department Stores - 0.00%

JC Penney Corp Inc

  8.625% 03/2025   3/15/2025   USA   USD     97,819           (a) (b) (c) (h)

Electronic Components - 2.30%

CommScope Inc

  6.000% 06/2025   6/15/2025   USA   USD     7,686,000       6,734,858     (d) (h)

CommScope Inc

  7.125% 07/2028   7/1/2028   USA   USD     6,833,000       5,458,132     (d) (h)

CommScope Inc

  8.250% 03/2027   3/1/2027   USA   USD     577,000       491,154     (d) (h)

Health Care Equipment - 0.99%

Haemonetics Corp

  0.000% 03/2026   3/1/2026   USA   USD     6,892,000       5,475,005     (d) (g)

Health Care Facilities - 2.20%

AHP Health Partners Inc

  5.750% 07/2029   7/15/2029   USA   USD     1,589,000       1,444,639     (d) (h)

CHS/Community Health Systems, Inc.

  6.125% 04/2030   4/1/2030   USA   USD     2,234,000       1,839,867     (d) (h)

CHS/Community Health Systems, Inc.

  6.875% 04/2028   4/1/2028   USA   USD     3,254,000       2,558,051     (d) (h)

CHS/Community Health Systems, Inc.

  6.875% 04/2029   4/15/2029   USA   USD     599,000       526,257     (d) (h)

LifePoint Hospitals Inc

  5.375% 01/2029   1/15/2029   USA   USD     6,718,000       5,752,288     (d) (h)

Health Care Technology - 0.48%

athenahealth Inc

  6.500% 02/2030   2/15/2030   USA   USD     2,859,000       2,634,740     (a) (d) (h)

Hotels, Resorts & Cruise Lines - 7.76%

Carnival Corp

  5.750% 03/2027   3/1/2027   USA   USD     12,506,000       11,345,443     (d) (h)

Carnival Corp

  6.000% 05/2029   5/1/2029   USA   USD     6,033,000       5,423,607     (d) (h)

NCL Corp Ltd

  1.125% 02/2027   2/15/2027   USA   USD     490,000       430,465     (d) (h)

NCL Corp Ltd

  3.625% 12/2024   12/15/2024   USA   USD     5,007,000       4,663,920     (d) (h)

NCL Corp Ltd

  6.125% 03/2028   3/15/2028   USA   USD     833,000       750,833     (d) (h)

Royal Caribbean Cruises Ltd

  5.500% 04/2028   4/1/2028   USA   USD     12,840,000       11,738,456     (d) (h)

Viking Cruises Ltd

  5.000% 02/2028   2/15/2028   USA   USD     4,466,000       4,037,041     (d) (h)

Viking Cruises Ltd

  7.000% 02/2029   2/15/2029   USA   USD     4,923,000       4,387,698     (d) (h)

Industrial Conglomerates - 0.82%

Unifrax I LLC / Unifrax Holding Co

  5.250% 09/2028   9/30/2028   USA   USD     3,573,000       3,155,817     (d) (h)

Unifrax I LLC / Unifrax Holding Co

  7.500% 09/2029   9/30/2029   USA   USD     1,674,000       1,374,865     (d) (h)

Industrial Machinery - 1.12%

SPX Corp

  8.750% 04/2030   4/1/2030   USA   USD     6,824,000       6,155,726     (d) (h)

 

See accompanying notes to consolidated financial statements.

 

11


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Issuer   Asset   Maturity Date   Country   Currency   Par     Fair Value     Footnotes

Insurance Brokers - 4.24%

Alliant Holdings I Inc

  5.875% 11/2029   11/1/2029   USA   USD     2,014,000     $ 1,880,703     (d) (h)

Hub International Ltd

  5.625% 12/2029   12/1/2029   USA   USD     1,888,000       1,734,581     (d) (h)

National Financial Partners Corp

  6.875% 08/2028   8/15/2028   USA   USD     22,176,000       19,731,650     (d) (h)

Integrated Oil & Gas - 1.19%

Occidental Petroleum Corp

  0.000% 10/2036   10/10/2036   USA   USD     4,886,000       2,524,401     (g)

Occidental Petroleum Corp

  4.100% 02/2047   2/15/2047   USA   USD     2,828,000       2,358,807     (d)

Occidental Petroleum Corp

  4.200% 03/2048   3/15/2048   USA   USD     2,038,000       1,692,141     (d)

Leisure Facilities - 2.44%

ClubCorp Club Operations Inc

  8.500% 09/2025   9/15/2025   USA   USD     3,608,000       3,360,563     (d) (h)

Merlin Entertainments PLC

  4.500% 11/2027   11/15/2027   IRL   EUR     3,444,000       3,260,844     (d) (h)

Merlin Entertainments PLC

  6.625% 11/2027   11/15/2027   IRL   USD     7,389,000       6,814,099     (d) (h)

Oil & Gas Storage & Transportation - 4.09%

Genesis Energy

  5.625% 06/2024   6/15/2024   USA   USD     7,725,000       7,585,332     (d)

Genesis Energy

  6.500% 10/2025   10/1/2025   USA   USD     8,199,000       7,799,914     (d)

Global Partners LP / GLP Finance Corp

  6.875% 01/2029   1/15/2029   USA   USD     613,000       598,412     (d)

Global Partners LP / GLP Finance Corp

  7.000% 08/2027   8/1/2027   USA   USD     415,000       406,190     (d)

NGL Energy Partners LP / NGL Energy Finance Corp

  7.500% 02/2026   2/1/2026   USA   USD     6,506,000       6,139,972     (d) (h)

Pharmaceuticals - 0.36%

Revance Therapeutics Inc

  1.750% 02/2027   2/15/2027   USA   USD     2,287,000       2,005,413     (d)

Real Estate Services - 0.72%

Redfin Corp

  0.000% 10/2025   10/15/2025   USA   USD     5,701,000       3,983,574     (d) (g)

Soft Drinks - 0.08%

Triton Water Holdings Inc

  6.250% 04/2029   4/1/2029   USA   USD     564,000       467,567     (d) (h)

Specialty Stores - 2.63%

Douglas Holding AG

  6.000% 04/2026   4/8/2026   DEU   EUR     8,654,000       8,221,277     (d) (h)

Douglas Holding AG

  8.250% 10/2026   10/1/2026   DEU   EUR     6,894,559       6,278,271     (d) (f) (h)

Trading Companies & Distributors - 1.12%

TruckPro LLC

  11.000% 10/2024   10/15/2024   USA   USD     3,746,000       3,939,443     (d) (h)

White Cap Construction Supply Inc

  6.875% 10/2028   10/15/2028   USA   USD     2,443,000       2,241,611     (d) (h)
         

 

 

   

 

 

   

TOTAL HIGH YIELD SECURITIES (amortized cost $388,325,172)

    396,360,378     $ 342,698,530    

 

See accompanying notes to consolidated financial statements.

 

12


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Issuer   Asset   Reference Rate & Spread   Interest Rate   Maturity Date   Country   Currency   Par     Fair Value     Footnotes

Collateralized Loan Obligations - 6.96%

Specialized Finance - 6.96%

522 Funding CLO LTD

  MORGN 2019-5A ER   SOFR (3M) + 6.76%   7.13%   4/15/2035   USA   USD     1,260,712     $ 1,227,352     (b) (h)

AGL CLO 7 Ltd

  AGL 2020-7A ER   LIBOR (3M) + 6.35%   7.41%   7/15/2034   USA   USD     1,187,688       1,141,993     (b) (h)

Aimco CDO

  AIMCO 2021-16A E   LIBOR (3M) + 6.20%   6.42%   1/17/2035   USA   USD     1,075,210       1,053,895     (b) (h)

ALM Loan Funding Ltd

  ALM 2020-1A D   LIBOR (3M) + 6.00%   7.04%   10/15/2029   USA   USD     865,360       851,664     (b) (h)

ARES CLO Ltd

  ARESE 15A E   EURIBOR (3M) + 6.11%   3.20%   1/15/2036   IRL   EUR     879,000       881,041     (b) (h)

Ares LXV CLO Ltd

  ARES 2022-65A E   SOFR (3M) + 7.10%   7.05%   7/25/2034   USA   USD     1,078,040       1,078,040     (b) (h)

Ballyrock CDO Ltd

  BALLY 2020-14A D   LIBOR (3M) + 7.00%   8.06%   1/20/2034   USA   USD     250,000       241,489     (b) (h)

Ballyrock CLO Ltd

  BALLY 2019-1A DR   LIBOR (3M) + 6.75%   7.79%   7/15/2032   USA   USD     431,180       416,937     (b) (h)

Battalion CLO Ltd

  BATLN 2021-22A E   LIBOR (3M) + 6.95%   8.01%   1/22/2035   USA   USD     383,168       375,919     (b) (h)

Bbam US Clo I Ltd

  BBAM 2022-1A D   SOFR (3M) + 6.80%   7.49%   4/15/2035   USA   USD     1,285,000       1,252,124     (b) (h)

Broad River BSL Funding CLO

  BDRVR 2020-1A ER   LIBOR (3M) + 6.50%   7.56%   7/20/2034   USA   USD     1,500,000       1,473,560     (b) (h)

Carlyle Global Market Strategies

  CGMS 2020-2A DR   LIBOR (3M) + 6.70%   7.88%   1/25/2035   USA   USD     640,460       638,866     (b) (h)

Carlyle Global Market Strategies

  CGMS 2021-8A E   LIBOR (3M) + 6.50%   7.54%   10/15/2034   USA   USD     370,690       353,640     (b) (h)

Carlyle Global Market Strategies

  CGMS 2021-9A E   LIBOR (3M) + 6.63%   7.69%   10/20/2034   USA   USD     819,560       796,386     (b) (h)

CarVal CLO

  CARVL 2021-1A E   LIBOR (3M) + 6.60%   7.66%   7/20/2034   USA   USD     2,000,000       1,936,322     (b) (h)

CarVal CLO

  CARVL 2021-2A E   LIBOR (3M) + 6.75%   6.96%   10/15/2034   USA   USD     446,919       434,470     (b) (h)

CFIP CLO Ltd

  CFIP 2021-1A E   LIBOR (3M) + 6.97%   8.03%   1/20/2035   USA   USD     445,082       436,506     (b) (h)

CIFC Funding Ltd

  CIFC 2021-7A E   LIBOR (3M) + 6.35%   7.53%   1/23/2035   USA   USD     644,186       613,717     (b) (h)

CVC Cordatus Loan Fund XVIII DAC

  CORDA 18A ER   EURIBOR (3M) + 6.06%   6.06%   7/29/2034   IRL   EUR     1,198,000       1,186,365     (b) (h)

Dryden Senior Loan Fund

  DRSLF 2021-92A E   LIBOR (3M) + 6.50%   6.63%   11/20/2034   USA   USD     463,342       452,778     (b) (h)

Eaton Vance CDO Ltd

  EATON 2020-2A ER   LIBOR (3M) + 6.50%   7.54%   1/15/2035   USA   USD     510,460       496,822     (b) (h)

Elmwood CLO

  ELMW5 2020-2A ER   LIBOR (3M) + 6.10%   7.16%   10/20/2034   USA   USD     1,500,000       1,453,652     (b) (h)

Elmwood CLO

  ELMW6 2020-3A ER   LIBOR (3M) + 6.50%   7.56%   10/20/2034   USA   USD     558,701       543,670     (b) (h)

Goldentree Loan Management US Clo 12 Ltd

  GLM 2022-12A E   SOFR (3M) + 7.25%   3.82%   4/20/2034   USA   USD     291,777       288,994     (b) (h)

Golub Capital Partners CLO Ltd

  GCBSL 2021-58A E   LIBOR (3M) + 6.81%   7.01%   1/25/2035   USA   USD     549,013       539,712     (b) (h)

Guardia 1 Ltd

  GUARD 2019-1A D   7.11%   7.11%   10/20/2037   USA   USD     1,550,000       1,362,607     (b) (h)

Gulf Stream Meridian

  GSM 2021-6A D   LIBOR (3M) + 6.36%   7.42%   1/15/2037   USA   USD     1,118,253       1,054,969     (b) (h)

Kayne CLO 7 Ltd

  KAYNE 2020-1A E   LIBOR (3M) + 6.50%   7.56%   4/17/2033  

USA

  USD     310,460       305,272     (b) (h)

Madison Park Funding Ltd

  MDPK 2021-52A E   LIBOR (3M) + 6.50%   7.64%   1/22/2035   USA   USD     742,891       730,405     (b) (h)

Madison Park Funding Ltd

  MDPK 2021-59A E   LIBOR (3M) + 6.60%   7.41%   1/18/2034   USA   USD     814,787       802,583     (b) (h)

Madison Park Funding XLV Ltd

  MDPK 2020-45A ER   LIBOR (3M) + 6.35%   7.41%   7/15/2034   USA   USD     429,000       418,299     (b) (h)

Morgan Stanley Eaton Vance CLO Ltd

  MSEV 2021-1A E   LIBOR (3M) + 6.75%   7.93%   10/20/2034   USA   USD     520,000       505,227     (b) (h)

Neuberger Berman CLO Ltd

  NEUB 2021-46A E   LIBOR (3M) + 6.25%   7.31%   1/20/2036   USA   USD     1,067,761       1,039,015     (b) (h)

 

See accompanying notes to consolidated financial statements.

 

13


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Issuer   Asset   Reference Rate & Spread   Interest Rate     Maturity Date     Country   Currency   Par     Fair Value     Footnotes

Oak Hill Credit Partners

  OAKC 2021-10A E   LIBOR (3M) + 6.25%     6.47%       1/18/2036     USA   USD     497,312     $ 488,010     (b) (h)

Otranto Park

  OTOPK 1A E   EURIBOR (3M) + 7.05 %     7.05%       5/15/2035     USA   EUR     428,000       437,951     (b) (h)

Octagon Investment Partners Ltd

  OCT56 2021-1A E   LIBOR (3M) + 6.53%     7.57%       10/16/2034     USA   USD     383,000       367,720     (b) (h)

Palmer Square CLO Ltd

  PFIXD 2019-1A E   7.11%     7.11%       4/20/2037     USA   USD     930,641       850,336     (b) (h)

Park Avenue Institutional Advisers CLO Ltd

  PAIA 2021-2A E   LIBOR (3M) + 7.01%     8.05%       7/15/2034     USA   USD     2,230,970       2,128,157     (b) (h)

Pikes Peak CLO

  PIPK 2021-9A E   LIBOR (3M) + 6.58%     7.80%       10/27/2034     USA   USD     405,000       395,448     (b) (h)

Post CLO

  POST 2021-1A E   LIBOR (3M) + 6.45%     7.49%       10/15/2034     USA   USD     250,000       241,091     (b) (h)

PPM CLO 4 Ltd

  PPMC 2020-4A ER   LIBOR (3M) + 6.50%     7.54%       10/18/2034     USA   USD     332,741       324,546     (b) (h)

Rad CLO Ltd

  RAD 2021-14A E   LIBOR (3M) + 6.50%     6.70%       1/15/2035     USA   USD     335,000       328,456     (b) (h)

Rad CLO Ltd

  RAD 2021-15A E   LIBOR (3M) + 6.20%     6.42%       1/20/2034     USA   USD     928,117       912,764     (b) (h)

REESE PARK CLO LTD

  RESPK 2020-1A ER   LIBOR (3M) + 6.50%     7.56%       10/15/2034     USA   USD     1,375,020       1,335,242     (b) (h)

Regatta Funding Ltd

  REG20 2021-2A E   LIBOR (3M) + 6.25%     7.29%       10/15/2034     USA   USD     208,000       201,763     (b) (h)

Regatta Funding Ltd

  REG21 2021-3A E   LIBOR (3M) + 6.75%     7.81%       10/20/2034     USA   USD     321,680       315,179     (b) (h)

Regatta Funding Ltd

  REG23 2021-4A E   LIBOR (3M) + 6.70%     7.76%       1/20/2035     USA   USD     804,000       790,791     (b) (h)

Sand Trust 2001-1

  SAND 2021-1A E   LIBOR (3M) + 6.80%     7.84%       10/15/2034     USA   USD     643,000       637,087     (b) (h)

Sound Point CLO Ltd

  SNDPT 2021-1A E   LIBOR (3M) + 6.85%     8.03%       4/25/2034     USA   USD     290,000       276,482     (b) (h)

Sound Point Euro CLO

  SNDPE 2A ER   EURIBOR (3M) + 6.34%     6.34%       1/26/2036    

IRL

  EUR     500,000       518,363     (b) (h)

Symphony CLO Ltd

  SYMP 2020-22A E   LIBOR (3M) + 6.25%     7.31%       4/18/2033     USA   USD     598,680       581,583     (b) (h)

TICP CLO Ltd

  TICP 2017-9A E   LIBOR (3M) + 5.60%     6.66%       1/20/2031     USA   USD     738,460       714,353     (b) (h)

Trinitas Euro CLO II DAC

  TRNTE 2A ER   EURIBOR (3M) + 7.23%     7.23%       4/15/2035     USA   EUR     1,770,566       1,844,455     (b) (h)
             

 

 

   

 

 

   

TOTAL COLLATERALIZED LOAN OBLIGATIONS (amortized cost $41,155,651)

    41,584,887     $ 40,074,068    
Issuer   Asset        Preferred Rate     Maturity Date     Country   Currency   Shares     Fair Value     Footnotes

Equity & Other Investments - 5.33%

Application Software - 0.01%

Med-Metrix

  Common Stock         USA   USD     597     $ 39,747     (a) (b)

Med-Metrix

  8.000% 12/2050       4.18%       12/16/2050     USA   USD     597       31,172     (a) (b) (d)

Diversified Metals & Mining - 0.05%

Foresight Energy LLC

  Common Stock         USA   USD     17,979       253,396     (a) (b)

Health Care Services - 0.19%

Affordable Care Inc

  11.750% 12/2069       12.68%       12/31/2069     USA   USD     677,000       687,778     (a) (b) (d)

American Vision Partners

  Private Equity         USA   USD     49,770       48,023     (a) (b)

Amerivet Partners Management Inc

  11.500% 12/2059       11.50%       12/31/2059     USA   USD     298       292,947     (a) (b) (d)

Health Care Technology - 2.37%

athenahealth Inc

  Athena Minerva Agg LLC       USA   USD     12,641,498       13,040,590     (a) (b)

Hotels, Resorts & Cruise Lines - 0.64%

Hilton Grand Vacations Inc

  Common Stock         USA   USD     75,777       3,548,637    

 

See accompanying notes to consolidated financial statements.

 

14


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LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

                                                                                                                                                                                                                                                                                                                                            
Issuer   Asset        Preferred Rate     Maturity Date     Country   Currency   Shares     Fair Value     Footnotes

Leisure Facilities - 0.33%

Pure Gym Ltd

  Fitness AggLP        

GBR

  GBP     1,416,469     $ 1,828,593     (a) (b)

Residential REITs - 1.50%

Avenue One PropCo

  KC AO Member LLC REIT       USA   USD     8,257,528       8,257,528     (a) (b)

Specialized REITs - 0.24%

Pretium Partners LLC P2

  SFR 2021-1 Holdings LLC       USA   USD     1,635,306       1,334,115     (a) (b)
             

 

 

   

 

 

   

TOTAL EQUITY & OTHER INVESTMENTS (cost $28,681,494)

    24,772,819     $ 29,362,526    
                                                                                                                                                                                                                             
Issuer   Asset   Country   Currency   Shares     Fair Value     Footnotes

Trade Claim - 0.00%

Health Care Facilities - 0.00%

Quorum Health Corp

  Trade Claim   USA   USD     212,000     $ 19,546     (a) (b)
       

 

 

   

 

 

   

TOTAL TRADE CLAIM (cost $85,850)

    212,000     $ 19,546    
       

 

 

   

 

 

   

TOTAL INVESTMENTS (cost $811,086,877) - 137.82%

    842,475,845     $ 759,583,965    
       

 

 

   

 

 

   

LIABILITIES EXCEEDING OTHER ASSETS, NET - (37.82)%

 

    (208,468,450  
         

 

 

   

NET ASSETS - 100.00%

 

  $ 551,115,515    
         

 

 

   

 

TL   Term loan  
DD   Delayed draw term loan  
1L   First lien  
2L   Second lien  
(a)   Security considered restricted.  
(b)   Value determined using significant unobservable inputs.  
(c)   Non-income producing security.  
(d)   Investment is held as collateral for the fund’s credit facility.  
(e)   Investment is an unfunded or partially funded commitment.  
(f)   Represents a payment-in-kind (“PIK”) security which may pay interest/dividend in additional par/shares.  
(g)   Zero coupon bond.  
(h)   Securities exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may only be resold to qualified institutional buyers in transactions exempt from registration.  

 

See accompanying notes to consolidated financial statements.

 

15


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LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Consolidated Statement of Assets and Liabilities

As of April 30, 2022 (Unaudited)

 

                                  

Assets

 

Investments, at value (cost $811,086,877)

  $ 759,583,965  

Cash and cash equivalents

    12,737,406  

Receivable for shares issued

    9,660,758  

Dividends and interest receivable

    9,611,855  

Receivable for investments sold

    7,132,754  

Prepaid expenses

    77,779  
 

 

 

 

Total assets

    798,804,517  
 

 

 

 

Liabilities

 

Credit Facility (net of deferred financing costs of $1,080,779)

    224,575,859  

Payable for investments purchased

    17,703,972  

Distribution payable

    3,717,773  

Investment advisory fees

    643,652  

Distribution fees

    112,896  

Shareholder service fees

    78,097  

Trustees’ fees

    217,961  

Other accrued expenses

    638,792  
 

 

 

 

Total liabilities

    247,689,002  
 

 

 

 

Commitments and Contingencies (Note 8)

 

Net assets

  $ 551,115,515  
 

 

 

 

Net Assets

 

Paid-in capital — (unlimited shares authorized — $0.001 par value)

  $ 594,147,904  

Accumulated deficit

    (43,032,389
 

 

 

 

Net assets

  $ 551,115,515  
 

 

 

 

Class D:

 

Net asset value

  $ 3,772,750  
 

 

 

 

Price per share (162,733 shares)

  $ 23.18  
 

 

 

 

Class I:

 

Net asset value

  $ 236,370,874  
 

 

 

 

Price per share (9,462,688 shares)

  $ 24.98  
 

 

 

 

Class T:

 

Net asset value

  $ 29,610,830  
 

 

 

 

Price per share (1,196,127 shares)

  $ 24.76  
 

 

 

 

Class U:

 

Net asset value

  $ 281,361,061  
 

 

 

 

Price per share (11,805,574 shares)

  $ 23.83  
 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

16


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LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Consolidated Statement of Operations

For the Six Months Ended April 30, 2022 (Unaudited)

 

                                  

Investment income

 

Interest income

  $ 24,282,610  

Other income

    88,686  
 

 

 

 

Total investment income

    24,371,296  
 

 

 

 

Expenses

 

Investment advisory fees

    3,457,870  

Credit facility interest expense

    2,077,233  

Distribution fees

    696,040  

Shareholder service fees

    349,794  

Legal fees

    258,548  

Tax expense

    226,872  

Administration fees

    136,834  

Term loan expense

    115,586  

Audit and tax fees

    100,696  

Trustees’ fees

    71,824  

Transfer agent fees

    64,577  

Custodian fees

    14,326  

Shareholder reporting expense

    11,802  

Other expenses

    138,459  
 

 

 

 

Total expenses prior to expense recoupment

    7,720,461  

Expense recoupment

    173,051  
 

 

 

 

Net expenses

    7,893,512  
 

 

 

 

Net investment income

    16,477,784  
 

 

 

 

Realized and unrealized gains (losses)

 

Net realized losses on

 

Investments

    (938,507

Foreign currency transactions

    (70,072
 

 

 

 

Net realized losses

    (1,008,579

Net change in unrealized depreciation on

 

Investments

    (47,368,849

Foreign currency translation

    (175,322

Deferred Trustees’ fees

    21,954  
 

 

 

 

Net change in unrealized depreciation

    (47,522,217

Net realized and unrealized losses

    (48,530,796
 

 

 

 

Net decrease in net assets resulting from operations

  $ (32,053,012
 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

17


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LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Consolidated Statements of Changes in Net Assets

 

                                                                     
    Six Months Ended
April 30, 2022
(Unaudited)
    Year Ended
October 31,2021
 

(Decrease) increase in net assets resulting from operations

   

Net investment income

  $ 16,477,784     $ 16,327,218  

Net realized (losses) gains

    (1,008,579     9,365,652  

Net change in unrealized depreciation

    (47,522,217     (1,552,656
 

 

 

   

 

 

 

Net (decrease) increase in net assets resulting from operations

    (32,053,012     24,140,214  
 

 

 

   

 

 

 

Distributions to shareholders

   

Class D

    (56,215      

Class I

    (8,274,159     (12,044,654

Class T

    (973,996     (1,396,601

Class U

    (8,340,808     (8,485,656
 

 

 

   

 

 

 

Total distributions

    (17,645,178     (21,926,911
 

 

 

   

 

 

 

Shareholder transactions

   

Class D

   

Subscriptions (162,496 shares)

    3,999,975        

Shares issued in reinvestment of distributions (237 shares)

    5,787        
 

 

 

   

 

 

 
    4,005,762        
 

 

 

   

 

 

 

Class I

   

Subscriptions (1,666,224 shares)

    44,271,186       98,660,406  

Shares issued in reinvestment of distributions (172,149 shares)

    4,645,805       2,046,345  

Shares redeemed (78,141 shares)

    (2,037,314     (708,400
 

 

 

   

 

 

 
    46,879,677       99,998,351  
 

 

 

   

 

 

 

Class T

   

Subscriptions (334,955 shares)

    8,906,514       17,075,904  

Shares issued in reinvestment of distributions (38,859 shares)

    1,041,068       762,845  

Shares redeemed (139,147 shares)

    (3,753,443     (249,395
 

 

 

   

 

 

 
    6,194,139       17,589,354  
 

 

 

   

 

 

 

Class U

   

Subscriptions (4,635,994 shares)

    117,472,328       200,649,530  

Shares issued in reinvestment of distributions (315,831 shares)

    8,139,844       3,830,480  

Shares redeemed (1,101,415 shares)

    (27,441,717     (1,343,331
 

 

 

   

 

 

 
    98,170,455       203,136,679  
 

 

 

   

 

 

 

Net increase in net assets

    105,551,843       322,937,687  

Net assets

   

Beginning of period (16,619,080 shares)

    445,563,672       122,625,985  
 

 

 

   

 

 

 

End of period (22,627,122 shares)

  $ 551,115,515     $ 445,563,672  
 

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements.

 

18


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LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Consolidated Statement of Cash Flows

 

                                  
    Six Months Ended
April 30, 2022
(Unaudited)
 

Cash Flows from Operating Activities:

 

Net decrease in net assets resulting from operations

  $ (32,053,012

Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities:

 

Purchases of investments

    (336,657,494

Proceeds from sales of investments

    117,495,867  

Net change in unrealized depreciation of investments

    47,368,849  

Net accretion of premiums and discounts

    (1,021,201

Net realized loss from investments

    938,507  

Payment-in-kind interest

    (721,182

Amortization of deferred financing costs

    350,117  

Net change in unrealized depreciation on foreign currency translation

    175,322  

Net realized loss on investments (foreign currency related)

    130,911  

Net change in unrealized appreciation on Deferred Trustees’ fees

    (21,954

Changes in assets and liabilities:

 

Decrease in payable for investments purchased

    (38,774,955

Decrease in receivable for investments sold

    27,228,282  

Increase in dividends and interest receivable

    (2,684,245

Increase in investment advisory fees payable

    347,028  

Decrease in due from adviser

    192,059  

Increase in other accrued expenses

    150,994  

Increase in Trustees’ fees payable

    60,574  

Increase in shareholder service fees

    37,694  

Increase in prepaid expenses

    (37,264

Increase in distribution fees

    30,534  
 

 

 

 

Net cash used in operating activities

    (217,464,569
 

 

 

 

Cash Flows from Financing Activities

 

Subscriptions for shares

    177,700,220  

Proceeds from credit facility

    117,368,491  

Paydown of credit facility

    (36,088,400

Shares repurchased

    (33,232,474

Distributions paid to shareholders

    (8,427,600

Payment of financing costs

    (546,825
 

 

 

 

Net cash provided by financing activities

    216,773,412  
 

 

 

 

Effect of exchange rate changes on cash

    1,852,965  
 

 

 

 

Net increase in cash and cash equivalents

    1,161,808  
 

 

 

 

Cash and Cash Equivalents

 

Beginning balance

    11,575,598  
 

 

 

 

Ending balance

  $ 12,737,406  
 

 

 

 

Supplemental disclosure of cash flow information and non-cash financing activities:

 

Cash paid for interest expense

  $ 1,566,065  

Reinvestment of distributions

  $ 13,832,504  

 

See accompanying notes to consolidated financial statements.

 

19


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Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Financial Highlights

 

                                  
    Six Months Ended
April 30, 2022
(Unaudited)***
 

Class D

 

Per share operating performance

 

Net asset value, beginning of period

  $ 25.00  

Loss from investment operations

 

Net investment income(1)

    0.84  

Net realized and unrealized losses

    (1.71
 

 

 

 

Total from investment operations

    (0.87

Distributions from

 

Net investment income

    (0.95
 

 

 

 

Total distributions

    (0.95
 

 

 

 

Net asset value, end of period

  $ 23.18  
 

 

 

 

Total return(2)

    (2.79)%  
 

 

 

 

Ratios to average net assets

 

Expenses, before recoupment

    3.03%**  

Expenses, after recoupment

    3.12%**  

Net investment income, before recoupment

    7.11%**  

Net investment income, after recoupment

    7.02%**  

Supplemental data

 

Net assets, end of period (000’s)

  $ 3,773  

Portfolio turnover rate*

    14.74%(2)  

 

(1) 

Per share calculations were performed using average shares.

(2) 

Total return and Portfolio turnover rate are for the period indicated and have not been annualized.

 

Total return assumes a purchase of common stock at the net asset value on the first day and a sale at the net asset value on the last day of each period reported on the table. Total return assumes reinvestment of dividends and distributions at prices obtained pursuant to the Fund’s dividend reinvestment plan.

*

Portfolio turnover is calculated on the basis of the Fund as a whole.

**

Annualized.

***

The date of commencement of operations for Class D shares was November 2, 2020. The first subscription into Class D did not occur until January 31, 2022.

 

See accompanying notes to consolidated financial statements.

 

20


Table of Contents
LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Financial Highlights

 

    Six Months Ended
April 30, 2022
(Unaudited)
    Year Ended
October 31, 2021
    Period from
Commencement of
Operations to
October 31, 2020***
 

Class I

     

Per share operating performance

     

Net asset value, beginning of period

  $ 27.42     $ 26.08     $ 25.00  

(Loss) income from investment operations

     

Net investment income(1)

    0.92       1.67       1.01  

Net realized and unrealized (losses) gains

    (2.38     1.69       1.10  
 

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.46     3.36       2.11  

Distributions from

     

Net investment income

    (0.98     (1.66     (1.03

Realized gains

          (0.36      
 

 

 

   

 

 

   

 

 

 

Total distributions

    (0.98     (2.02     (1.03
 

 

 

   

 

 

   

 

 

 

Net asset value, end of period

  $ 24.98     $ 27.42     $ 26.08  
 

 

 

   

 

 

   

 

 

 

Total return(2)

    (5.54)%       12.81%       8.71%  
 

 

 

   

 

 

   

 

 

 

Ratios to average net assets

     

Expenses, before recoupment

    2.65%**       2.32%       3.84%**  

Expenses, after recoupment

    2.71%**       2.02%       1.68%**  

Net investment income, before recoupment

    7.01%**       5.73%       3.91%**  

Net investment income, after recoupment

    6.95%**       6.03%       6.06%**  

Supplemental data

     

Net assets, end of period (000’s)

  $ 236,371     $ 211,181     $ 106,962  

Portfolio turnover rate*

    14.74%(2)       78.20%       66.19%(2)  

 

(1) 

Per share calculations were performed using average shares.

(2) 

Total return and Portfolio turnover rate are for the period indicated and have not been annualized.

 

Total return assumes a purchase of common stock at the net asset value on the first day and a sale at the net asset value on the last day of each period reported on the table. Total return assumes reinvestment of dividends and distributions at prices obtained pursuant to the Fund’s dividend reinvestment plan.

*

Portfolio turnover is calculated on the basis of the Fund as a whole.

**

Annualized.

***

The date of commencement of operations for Class I shares was February 28, 2020.

 

See accompanying notes to consolidated financial statements.

 

21


Table of Contents
LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Financial Highlights

 

    Six Months Ended
April 30, 2022
(Unaudited)
    Year Ended
October 31, 2021
    Period from
Commencement of
Operations to
October 31, 2020***
 

Class T

     

Per share operating performance

     

Net asset value, beginning of period

  $ 27.13     $ 25.83     $ 25.00  

(Loss) income from investment operations

     

Net investment income(1)

    0.81       1.45       0.61  

Net realized and unrealized (losses) gains

    (2.31     1.68       0.83  
 

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.50     3.13       1.44  

Distributions from

     

Net investment income

    (0.87     (1.43     (0.61

Realized gains

          (0.36      
 

 

 

   

 

 

   

 

 

 

Total distributions

    (0.87     (1.79     (0.61
 

 

 

   

 

 

   

 

 

 

Net asset value, end of period

  $ 24.76     $ 27.17     $ 25.83  
 

 

 

   

 

 

   

 

 

 

Total return(2)

    (5.86)%       12.03%       6.65%  
 

 

 

   

 

 

   

 

 

 

Ratios to average net assets

     

Expenses, before recoupment

    3.39%**       3.04%       3.54%**  

Expenses, after recoupment

    3.46%**       2.78%       2.49%**  

Net investment income, before recoupment

    6.25%**       5.00%       4.65%**  

Net investment income, after recoupment

    6.18%**       5.27%       5.70%**  

Supplemental data

     

Net assets, end of period (000’s)

  $ 29,611     $ 26,121     $ 8,243  

Portfolio turnover rate*

    14.74%(2)       78.20%       66.19%(2)  

 

(1) 

Per share calculations were performed using average shares.

(2) 

Total return and Portfolio turnover rate are for the period indicated and have not been annualized.

 

Total return assumes a purchase of common stock at the net asset value on the first day and a sale at the net asset value on the last day of each period reported on the table. Total return assumes reinvestment of dividends and distributions at prices obtained pursuant to the Fund’s dividend reinvestment plan.

*

Portfolio turnover is calculated on the basis of the Fund as a whole.

**

Annualized.

***

The date of commencement of operations for Class T shares was June 1, 2020.

 

See accompanying notes to consolidated financial statements.

 

22


Table of Contents
LOGO       
    
Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Financial Highlights

 

    Six Months Ended
April 30, 2022
(Unaudited)
    Year Ended
October 31, 2021
    Period from
Commencement of
Operations to
October 31, 2020***
 

Class U

     

Per share operating performance

     

Net asset value, beginning of period

  $ 26.18     $ 25.00     $ 25.00  

(Loss) income from investment operations

     

Net investment income(1)

    0.78       1.44        

Net realized and unrealized (losses) gains

    (2.28     1.52        
 

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.50     2.96        

Distributions from

     

Net investment income

    (0.85     (1.42      

Realized gains

          (0.36      
 

 

 

   

 

 

   

 

 

 

Total distributions

    (0.85     (1.78      
 

 

 

   

 

 

   

 

 

 

Net asset value, end of period

  $ 23.83     $ 26.18     $ 25.00  
 

 

 

   

 

 

   

 

 

 

Total return(2)

    (5.96)%       11.69%       0.00%  
 

 

 

   

 

 

   

 

 

 

Ratios to average net assets

     

Expenses, before recoupment

    3.40%**       3.01%       0.00%**  

Expenses, after recoupment

    3.47%**       2.87%       0.00%**  

Net investment income, before recoupment

    6.29%**       5.29%       0.00%**  

Net investment income, after recoupment

    6.22%**       5.43%       0.00%**  

Supplemental data

     

Net assets, end of period (000’s)

  $ 281,361     $ 208,262     $ 7,421  

Portfolio turnover rate*

    14.74%(2)       78.20%       66.19%(2)  

 

(1) 

Per share calculations were performed using average shares.

(2) 

Total return and Portfolio turnover rate are for the period indicated and have not been annualized.

 

Total return assumes a purchase of common stock at the net asset value on the first day and a sale at the net asset value on the last day of each period reported on the table. Total return assumes reinvestment of dividends and distributions at prices obtained pursuant to the Fund’s dividend reinvestment plan.

*

Portfolio turnover is calculated on the basis of the Fund as a whole.

**

Annualized.

***

The date of commencement of operations for Class U shares was September 1, 2020.

 

See accompanying notes to consolidated financial statements.

 

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Notes to Consolidated Financial Statements

 

1.

Organization

KKR Credit Opportunities Portfolio (the “Fund”) was organized on September 5, 2019 as a statutory trust under the laws of the State of Delaware. The Fund is a closed-end registered management investment company, which commenced operations on February 28, 2020 and continuously offers its shares and operates as an interval fund. The Fund seeks to provide attractive risk-adjusted returns and generate current income. The Fund is diversified for purposes of the Investment Company Act of 1940, as amended (the “1940 Act”). KKR Credit Advisors (US) LLC serves as the Fund’s investment adviser (the “Adviser”).

As of April 30, 2022, an affiliate of the Adviser owned 17.96% of the outstanding shares of the Fund.

 

2.

Summary of Significant Accounting Policies

Basis of Presentation — The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and are stated in United States (“U.S.”) dollars. The Fund is an investment company following accounting and reporting guidance in Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services — Investment Companies. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in these consolidated financial statements. Actual results could differ from those estimates.

Basis of Consolidation — The Fund’s Consolidated Financial Statements include balances of both the Fund and its wholly owned subsidiary. All interfund transactions have been eliminated upon consolidation.

Valuation of Investments — The Board of Trustees (the “Board”) of the Fund has adopted valuation policies and procedures to ensure investments are valued in a manner consistent with GAAP as required by the 1940 Act. The Board has delegated primary responsibility in ensuring these valuation policies and procedures are followed, including those relating to fair valuation, to the Adviser.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity for disclosure purposes.

Assets and liabilities recorded at fair value on the Consolidated Statement of Assets and Liabilities are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined under GAAP, are directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, and are as follows:

Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

The types of assets generally included in this category are common stocks listed in active markets.

Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability.

The types of assets and liabilities generally included in this category are high yield securities and certain leveraged loans.

 

 

 

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Level 3 — Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

The types of assets generally included in this category are certain collateralized loan obligations, leveraged loans, common stocks not actively traded and preferred stocks not actively traded.

A significant decrease in the volume and level of activity for the asset or liability is an indication that transactions or quoted prices may not be representative of fair value because in such market conditions there may be increased instances of transactions that are not orderly. In those circumstances, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value.

The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market, and the current market condition. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Fund in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset. The variability of the observable inputs affected by the factors described above may cause transfers between Levels 1, 2 and/or 3, which the Fund recognizes at the beginning of the period during which the inputs change.

Many financial assets and liabilities have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that the Fund and others are willing to pay for an asset. Ask prices represent the lowest price that the Fund and others are willing to accept for an asset. For financial assets and liabilities whose inputs are based on bid-ask prices, the Fund does not require that fair value always be a predetermined point in the bid- ask range. The Fund’s policy is to allow for mid-market pricing and adjust to the point within the bid-ask range that meets the Fund’s best estimate of fair value.

Depending on the relative liquidity in the markets for certain assets, the Fund may transfer assets to Level 3 if it determines that observable quoted prices, obtained directly or indirectly, are not available.

Investments are generally valued based on quotations from third party pricing services, unless such a quotation is unavailable or is determined to be unreliable or inadequately representing the fair value of the particular assets. In that case, valuations are based on either valuation data obtained from one or more other third party pricing sources, including broker dealers selected by the Adviser, or will reflect the Valuation Committee’s good faith determination of fair value based on other factors considered relevant. For assets classified as Level 3, valuations are based on various factors including financial and operating data of the company, company specific developments, market valuations of comparable companies and model projections.

Certain unfunded investments in delayed draw term loans and revolving lines of credit may at times be priced at less than par value resulting in a financial liability in the Consolidated Schedule of Investments. These values are temporary and the funding of the commitment will result in these investments valued as financial assets. The interest rates shown for unfunded commitments in the Consolidated Schedule of Investments represents the commitment fee the fund earns on the undrawn amounts.

For the six months ended April 30, 2022, there have been no significant changes to the Fund’s fair value methodologies.

Investment Transactions — Investment transactions are accounted for on the trade date, the date the order to buy or sell is executed. Amortization and accretion is calculated using the effective interest method over the holding period of the investment. Realized gains and losses are calculated on the specific identified cost basis.

 

 

 

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Cash and Cash Equivalents — Cash and cash equivalents includes cash on hand, cash held in banks and highly liquid investments with original maturities of three or fewer months.

Foreign Currency Transactions — The books and records of the Fund are maintained in U.S. dollars. All investments denominated in foreign currency are converted to the U.S. dollar using prevailing exchange rates at the end of the reporting period. Income, expenses, gains and losses on investments denominated in foreign currency are converted to the U.S. dollar using the prevailing exchange rates on the dates when the transactions occurred.

The Fund bifurcates that portion of the results of operations resulting from changes in foreign exchange rates on investments and interest from the fluctuations arising from changes in market prices of securities held.

Distributions to Shareholders — Distributions are accrued and declared daily and paid monthly, and distributable net realized capital gains, if any, are declared and distributed at least annually.

Term Loan Income — Term Loan Income consists of transaction fees including, but not limited to, assignment, transfer, administration and amendment fees. Fee and other income is recorded when earned, and is recognized in Other income on the Consolidated Statement of Operations.

Income Taxes — The Fund has elected to be treated and has qualified, and intends to continue to qualify in each taxable year, as a “regulated investment company” under Subchapter M of the Internal Revenue Code of 1986, as amended, and in conformity with the Regulated Investment Company Modernization Act of 2010. The Fund will not be subject to federal income tax to the extent the Fund satisfies the requirements under Section 851 of the Internal Revenue Code, including distributing all of its gross investment company taxable income and capital gains to its shareholders based on the Fund’s fiscal year end of October 31.

To avoid imposition of a 4.00% excise tax on undistributed income applicable to regulated investment companies, the Fund intends to declare each year as dividends in each calendar year at least 98.00% of its net investment income (earned during the calendar year) and 98.20% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years.

The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether it is “more-likely-than-not” (i.e., greater than 50.00%) that each tax position will be sustained upon examination by a taxing authority based on the technical merits of the position. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions for the open tax years (2020-2021). However, management’s conclusions regarding tax positions taken may be subject to review and adjustment at a later date based on factors including, but not limited to, examination by tax authorities, on-going analysis of and changes to tax laws, regulations and interpretations thereof.

As of April 30, 2022, the Fund did not have a liability for any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Consolidated Statement of Operations. During the six months ended April 30, 2022, the Fund did not incur any interest or penalties.

Repurchase Offers — The Fund operates as an interval fund pursuant to Rule 23c-3 under the 1940 Act and, as such, has adopted a fundamental policy to make quarterly repurchase offers, at NAV, of no less than 10.00% and no more than 25.00% of the Fund’s shares outstanding on the Repurchase Request Deadline (as defined below). There is no guarantee that shareholders will be able to sell all of the shares they desire to sell in a quarterly repurchase offer, although each shareholder will have the right to require the Fund to purchase at least 10.00% of such shareholder’s shares in each quarterly repurchase. Liquidity will be provided to shareholders only through the Fund’s quarterly repurchases. Shareholders will be notified in writing of each quarterly repurchase offer and the date the repurchase offer ends (the “Repurchase Request Deadline”).

 

 

 

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3.

Risk Considerations

The Fund invests mainly in leveraged loans, high yield securities, common stocks not actively traded and preferred stocks. These investments may involve certain risks, including, but not limited to, those described below:

COVID-19 and Global Economic and Market conditions — The Fund is materially affected by market, economic and political conditions and events, such as natural disasters, epidemics and pandemics, wars, supply chain disruptions, economic sanctions, globally and in the jurisdictions and sectors in which it invests or operates, including factors affecting interest rates, the availability of credit, currency exchange rates and trade barriers. For example, COVID-19 has adversely impacted, and any future outbreaks could adversely impact, the markets and economy in general, including the companies in which the Fund invests, and could harm Fund performance. Epidemics and pandemics, such as the COVID-19 outbreak, have and may further result in, among other things, travel restrictions, closure of international borders, certain businesses and securities markets, restrictions on securities trading activities, quarantines, supply chain disruptions and reduced consumer demand, as well as general concern and uncertainty. The COVID-19 outbreak has had, and will continue to have, a material adverse impact on the global economy, including the U.S. economy, as cross border commercial activity and market sentiment have been negatively impacted by the outbreak and government and other measures seeking to contain its spread. Market, economic and political conditions and events are outside the Adviser’s control and could adversely affect the liquidity and value of the Fund’s investments and reduce the ability of the Fund to make attractive new investments.

Leverage Risk — Leverage is a speculative technique that may expose the Fund to greater risk and increased costs. When leverage is used, the net asset value and market price of the Fund’s shares and the Fund’s investment return will likely be more volatile.

Market Risk — Bond markets rise and fall daily. As with any investment with performance tied to these markets, the value of an investment in the Fund will fluctuate, which means that shareholders could lose money.

Interest Rate Risk — Interest rates will rise and fall over time. During periods when interest rates are low, the Fund’s yield and total return also may be low. Changes in interest rates also may affect the Fund’s share price and a sharp rise in interest rates could cause the Fund’s share price to fall. The longer the Fund’s duration, the more sensitive to interest rate movements its share price is likely to be.

Credit Risk — The Fund is subject to the risk that a decline in the credit quality of an investment could cause the Fund to lose money or underperform. The Fund could lose money if the issuer or guarantor of an investment fails to make timely principal or interest payments or otherwise honor its obligations.

Liquidity Risk — A particular investment may be difficult to purchase or sell. The Fund may be unable to sell illiquid securities at an advantageous time or price.

Prepayment and Extension Risk — The Fund’s investments are subject to the risk that the investments may be paid off earlier or later than expected. Either situation could cause the Fund to hold investments paying lower than market rates of interest, which could hurt the Fund’s yield or share price.

High Yield Risk — High yield securities and unrated securities of similar credit quality (sometimes called junk bonds) that the Fund may invest in are subject to greater levels of credit and liquidity risks. High yield securities are considered primarily speculative with respect to the issuer’s continuing ability to make principal and interest payments.

Foreign Investment Risk — The Fund’s investments in securities of foreign issuers may involve certain risks that are greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates (the currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, the U.S. dollar will

 

 

 

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decline in value relative to the currency being hedged) or exchange control regulations (including limitations on currency movements and exchanges); differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may be heightened in connection with investments in emerging markets.

Issuer Risk — The value of securities may decline for a number of reasons that directly relate to the issuer, such as its financial strength, management performance, financial leverage and reduced demand for the issuer’s goods and services, as well as the historical and prospective earnings of the issuer and the value of its assets.

 

4.

Agreements

Investment Advisory Agreement — The Adviser provides day-to-day portfolio management services to the Fund and has discretion to purchase and sell investments in accordance with the Fund’s objectives, policies, and restrictions. For the services it provides to the Fund, the Adviser receives an annual fee, payable monthly by the Fund, in an amount equal to 1.30% of the Fund’s average daily Managed Assets (the “Investment Advisory Fee”). The Adviser has voluntarily agreed to temporarily reduce its Investment Advisory Fee to an annual rate of 0.65% of the Fund’s average daily Managed Assets from March 1, 2020, until June 30, 2021, and to an annual rate of 1.00% from July 1, 2021 until September 30, 2022. Effective October 1, 2022, the Adviser’s agreement to temporarily reduce its Investment Advisory Fee will terminate and the Adviser will receive an Investment Advisory Fee at an annual rate of 1.30% of the Fund’s average daily Managed Assets. “Managed Assets” means the total assets of the Fund (including any assets attributable to borrowings for investment purposes) minus the sum of the Fund’s accrued liabilities (other than liabilities representing borrowings for investment purposes).

During periods when the Fund is using leverage, the Investment Advisory Fee paid to the Adviser will be higher than if the Fund does not use leverage because the Investment Advisory Fee paid is calculated based on the Fund’s Managed Assets, which includes the assets purchased through leverage. During the six months ended April 30, 2022, the Adviser earned an Investment Advisory Fee of $3.5 million.

The Fund has entered into an Expense Limitation and Reimbursement Agreement (the “Expense Limitation Agreement”) with the Adviser pursuant to which the Adviser will agree to waive its monthly fee and pay, absorb or reimburse some or all the Fund’s “Specified Expenses” (as defined below), an “Expense Limitation Payment,” for each month during the Limitation Period (as defined below) to the extent necessary so that, for any fiscal year, the Fund’s Specified Expenses do not exceed 0.40% of the average daily value of the Fund’s net assets. “Specified Expenses” of the Fund means all expenses incurred in the business of the Fund, including organizational and operating expenses, with the exception of: (i) the Management Fee (as defined in the Fund’s prospectus), (ii) the Service Fee (as defined in the Fund’s prospectus), (iii) the Distribution Fee (as defined in the Fund’s prospectus), (iv) brokerage costs, (v) dividend/interest payments (including any dividend payments, interest expenses, commitment fees, or other expenses related to any leverage incurred by the Fund), (vi) taxes, and (vii) extraordinary expenses (as determined in the sole discretion of the Adviser). The “Limitation Period” commenced on February 28, 2020 and ends on December 31, 2022. The Fund will agree to repay these amounts (“Reimbursement Payment”) on a monthly basis, but only if and to the extent that Specified Expenses plus the Reimbursement Payment are less than 0.40% of the average daily value of the Fund’s net assets during the fiscal year (or, if a lower expense limit is then in effect, such lower limit). The Fund’s obligation to make Reimbursement Payments expires three years from the end of the fiscal year in which such fees are foregone or expense is incurred by the Adviser.

The Expense Limitation Agreement terminates at the end of the Limitation Period, but may be renewed by the mutual agreement of the Adviser and the Fund for successive terms.

As of April 30, 2022, the amount of Expense Limitation Payments since the inception of the Fund provided by the Adviser is $2.2 million.

 

 

 

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The following table reflects the Expense Limitation Payments that may become subject to reimbursement:

 

For the period ended

   Amount of Expense
Limitation Payment
       Eligible for
Reimbursement
Payment through
 

October 31, 2020

   $ 1,084,637          October 31, 2023  

October 31, 2021

     832,625          October 31, 2024  
  

 

 

      
   $ 1,917,262       
  

 

 

      

KKR Capital Markets LLC (the “Distributor”), an affiliate of the Adviser, is the principal underwriter and distributor of the shares and serves in that capacity on a best effort basis, subject to various conditions. Shares will be offered through other brokers, dealers and other financial intermediaries (referred to as “selling agents”) that have entered into selling agreements with the Distributor. Selling agents typically receive the sales load with respect to Class T shares purchased by their clients. The Distributor does not retain any portion of the sales load. Class T shares are sold subject to a maximum sales load of up to 2.00% of the offering price. However, purchases of Class T shares may be eligible for a sales load discount. The selling agents may, in their sole discretion, reduce or waive the sales load on a non-scheduled basis in individual cases. Class I shares and Class U shares are not subject to a sales load; however, investors could be required to pay brokerage commissions on purchases and sales of Class I shares and Class U shares to their selling agents.

The Fund pays the Distributor an ongoing fee (the “Shareholder Servicing Fee”) that is calculated and accrued monthly at an annualized rate of 0.25% of the net assets of the Fund attributable to Class D shares, Class T shares and Class U shares. The Shareholder Servicing Fee is for personal services provided to Shareholders and/or the maintenance of Shareholder accounts services and to reimburse the Distributor for related expenses incurred. The Distributor will generally pay all or a portion of the Shareholder Servicing Fee to the selling agents that sell Class D shares, Class T shares and Class U shares. During the six months ended April 30, 2022, the Fund incurred shareholder servicing fees of $0.3 million.

In addition, the Fund pays the Distributor an ongoing distribution fee (the “Distribution Fee”) that is calculated and accrued monthly at an annualized rate of 0.50% of the net assets of the Fund attributable to Class T shares and Class U shares. The Distribution Fee is for the sale and marketing of the Class T shares and Class U shares and to reimburse the Distributor for related expenses incurred. The Distributor will generally pay all or a portion of the Distribution Fee to the selling agents that sell Class T shares and Class U shares. During the six months ended April 30, 2022, the Fund incurred distribution fees of $0.7 million.

Payment of the Distribution Fee and the Shareholder Servicing Fee is governed by the Fund’s Distribution and Service Plan. Class I shares do not incur a Shareholder Servicing Fee or Distribution Fee, and Class D shares do not incur a Distribution Fee.

Administrator, Custodian and Transfer Agent — U.S. Bancorp Fund Services, LLC (“Fund Services” or “Administrator”), doing business as U.S. Bank Global Fund Services, serves as the Fund’s administrator pursuant to an administration agreement under which the Administrator provides administrative and accounting services.

U.S. Bank N.A. (the “Custodian”) serves as the Fund’s custodian pursuant to a custody agreement. The Custodian is an affiliate of Fund Services.

Fund Services serves as the Fund’s transfer agent pursuant to a transfer agency agreement.

Deferred Trustees’ Compensation — The Fund has a Deferred Trustees’ Compensation plan (the “Plan”) that allows the Independent Trustees to defer compensation to a future payment period. The compensation is invested in shares of the Fund. The value of a participating Independent Trustee’s deferral account is based on the shares of deferred amounts as designated by the participating Independent Trustees. Changes in the value of

 

 

 

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the Independent Trustees’ deferral account are included in the Consolidated Statement of Operations. The accrued obligations under the Plan, including unrealized appreciation (depreciation), are included on the Consolidated Statement of Assets and Liabilities.

Other — Certain officers of the Fund are also officers of the Adviser. Such officers are paid no fees by the Fund for serving as officers of the Fund.

 

5.

Fair Value

The following table presents information about the Fund’s assets measured at fair value on a recurring basis as of April 30, 2022, and indicates the fair value hierarchy of the inputs utilized by the Fund to determine such fair value:

 

                                                                                                           
    Level 1     Level 2     Level 3     Total  

Leveraged loans

  $     $ 264,903,425     $ 82,525,870     $ 347,429,295  

High yield securities

          340,311,530       2,387,000       342,698,530  

Collateralized loan obligations

                40,074,068       40,074,068  

Common & preferred stocks

    3,548,637             25,833,435       29,382,072  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 3,548,637     $ 605,214,955     $ 150,820,373     $ 759,583,965  
 

 

 

   

 

 

   

 

 

   

 

 

 

The following are the details of the restricted securities held by the Fund:

 

Issuer

  Asset   Par/Shares     Cost     Fair Value     Acquisition
Date
    % of
Net
Assets
 

Common Stock

           

Foresight Energy LLC

 

Common Stock

    17,979     $ 200,230     $ 253,396       6/30/2020       0.05%  

Med-Metrix

 

Common Stock

    597       29,862       39,747       9/15/2021       0.01%  

High Yield

           

athenahealth Inc

 

6.500% 02/2030

    2,859,000       2,859,000       2,634,740       1/27/2022       0.48%  

Preferred Stock

           

Affordable Care Inc

 

11.750% 12/2069

    677,000       663,528       687,778       8/2/2021       0.12%  

Amerivet Partners Management Inc

 

11.500% 12/2059

    298       287,561       292,947       2/25/2022       0.05%  

Med-Metrix

 

8.000% 12/2050

    597       29,862       31,172       9/15/2021       0.01%  

Private Equity

           

American Vision Partners

 

Private Equity

    49,770       49,770       48,023       9/30/2021       0.01%  

athenahealth Inc

 

Athena Minerva Agg LLC

    12,641,498       12,641,498       13,040,590       2/15/2022       2.37%  

Avenue One PropCo

 

KC AO Member LLC REIT

    8,257,528       8,257,528       8,257,528       1/20/2022       1.50%  

Pretium Partners LLC P2

 

SFR 2021-1 Holdings LLC

    1,635,306       1,602,600       1,334,115       12/16/2021       0.24%  

Pure Gym Ltd

 

Fitness Agg LP

    1,416,469       1,925,990       1,828,593       1/20/2022       0.33%  

Revolver

           

3Pillar Global Inc

 

Revolver 1L 11/21

    186,240             (1,918     11/23/2021       0.00%  

48Forty Solutions LLC

 

Revolver 1L 03/22

    610,068       91,510       90,290       3/11/2022       0.02%  

Affordable Care Inc

 

Revolver 1L 08/21

    177,081             (708     8/2/2021       0.00%  

American Vision Partners

 

Revolver 1L 09/21

    158,140             (1,629     9/30/2021       0.00%  

Amerivet Partners Management Inc

 

Revolver 1L 02/22

    197,240             (4,142     2/25/2022       0.00%  

Arcfield Acquisition Corp

 

Revolver 1L 03/22

    143,583             (718     3/10/2022       0.00%  

Community Brands Inc

 

Revolver 1L 02/22

    60,610             (1,212     2/24/2022       0.00%  

Foundation Risk Partners Corp

 

Revolver 1L 10/21

    141,750             (1,970     10/29/2021       0.00%  

Galway Partners Holdings LLC

 

Revolver 1L 09/21

    205,492             (4,151     9/30/2021       0.00%  

Insight Global LLC

 

Revolver 1L 09/21

    427,591       85,518       79,190       9/22/2021       0.01%  

Med-Metrix

 

Revolver 1L 09/21

    158,828                   9/15/2021       0.00%  

PartsSource Inc

 

Revolver 1L 10/21

    87,104             (1,699     10/18/2021       0.00%  

 

 

 

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Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Issuer

  Asset   Par/Shares     Cost     Fair Value     Acquisition
Date
    % of
Net
Assets
 

SAMBA Safety Inc

 

Revolver 1L 09/21

    41,810     $ 10,081     $ 10,231       9/1/2021       0.00%  

SavATree LLC

 

Revolver 1L 10/21

    128,932             (748     10/12/2021       0.00%  

Time Manufacturing Co

 

Revolver 1L 12/21

    153,560       115,868       111,891       12/1/2021       0.02%  

Leveraged Loans

           

3Pillar Global Inc

 

TL 1L 11/21

    1,950,624       1,932,534       1,930,533       11/23/2021       0.35%  

3Pillar Global Inc

 

TL 1L DD 11/21

    620,800             (6,394     11/23/2021       0.00%  

48Forty Solutions LLC

 

TL 1L DD 03/22

    1,203,805             (2,408     3/11/2022       0.00%  

48Forty Solutions LLC

 

TL 1L 03/22

    1,974,240       1,955,081       1,970,292       3/11/2022       0.36%  

48Forty Solutions LLC

 

TL 1L 02/22

    4,759,482       4,715,981       4,749,963       2/11/2022       0.86%  

Affordable Care Inc

 

TL 1L 08/21

    1,595,927       1,581,666       1,589,544       8/2/2021       0.29%  

Affordable Care Inc

 

TL 1L DD 08/21

    599,452       44,987       47,946       8/2/2021       0.01%  

Alera Group Intermediate Holdings Inc

 

TL 1L 09/21

    660,212       654,160       651,233       9/30/2021       0.12%  

Alera Group Intermediate Holdings Inc

 

TL 1L DD 12/21

    540,718       5,703       3,461       12/16/2021       0.00%  

Alera Group Intermediate Holdings Inc

 

TL 1L DD 09/21

    187,590       179,461       178,629       9/30/2021       0.03%  

American Vision Partners

 

TL 1L DD 09/21

    790,690             (8,144     9/30/2021       0.00%  

American Vision Partners

 

TL 1L 09/21

    1,919,644       1,902,313       1,899,871       9/30/2021       0.34%  

Amerivet Partners Management Inc

 

TL 1L 02/22

    2,252,490       2,230,633       2,205,188       2/25/2022       0.40%  

Amerivet Partners Management Inc

 

TL 1L DD 02/22

    1,577,920             (33,136     2/25/2022       -0.01%  

Arcfield Acquisition Corp

 

TL 1L 03/22

    989,130       979,473       984,184       3/10/2022       0.18%  

athenahealth Inc

 

TL 1L 01/22

    367,585       365,794       363,219       1/27/2022       0.07%  

athenahealth Inc

 

TL 1L DD 01/22

    54,442             (646     1/27/2022       0.00%  

Belk Inc

 

TL 1L EXIT 02/21

    951,960       593,540       568,501       2/24/2021       0.10%  

Belk Inc

 

TL 1L 02/21

    53,180       52,595       52,582       2/24/2021       0.01%  

Community Brands Inc

 

TL 1L DD 02/22

    121,212             (2,424     2/24/2022       0.00%  

Community Brands Inc

 

TL 1L 02/22

    1,030,300       1,010,315       1,009,694       2/24/2022       0.18%  

Encora Digital Inc

 

TL 1L 12/21

    1,652,370       1,621,033       1,619,089       12/20/2021       0.29%  

Encora Digital Inc

 

TL 1L DD 12/21

    398,160             (8,019     12/20/2021       0.00%  

Encora Digital Inc

 

TL 1L 12/21

    437,979       425,435       424,840       12/20/2021       0.08%  

Excelitas Technologies Corp

 

TL 2L 10/17

    3,690,005       3,623,625       3,701,536       11/17/2017       0.67%  

Foresight Energy LLC

 

TL 1L A 06/20

    123,016       123,016       123,016       6/30/2020       0.02%  

Foundation Risk Partners Corp

 

TL 1L 03/22

    840,128       827,616       828,450       4/14/2022       0.15%  

Foundation Risk Partners Corp

 

TL 1L DD 03/22

    3,360,512             (46,711     4/14/2022       -0.01%  

Foundation Risk Partners Corp

 

TL 1L DD 10/21

    291,830       235,295       235,301       10/29/2021       0.04%  

Foundation Risk Partners Corp

 

TL 1L 10/21

    1,342,420       1,323,733       1,323,760       10/29/2021       0.24%  

Galway Partners Holdings LLC

 

TL 1L DD 09/21

    289,583             (5,850     9/30/2021       0.00%  

Galway Partners Holdings LLC

 

TL 1L 09/21

    2,639,201       2,595,570       2,585,888       4/18/2022       0.47%  

Insight Global LLC

 

TL 1L 02/22

    1,050,861       1,045,743       1,035,309       2/28/2022       0.19%  

Insight Global LLC

 

TL 1L 09/21

    5,428,703       5,379,108       5,348,358       9/22/2021       0.97%  

Integrity Marketing Group LLC

 

TL 1L DD 12/21

    2,952,345       38,793       54,323       12/3/2021       0.01%  

Learning Care Group Inc

 

TL 1L B 05/20

    276,927       273,152       279,697       5/21/2020       0.05%  

Learning Care Group Inc

 

TL 2L 03/18

    194,997       190,373       193,778       2/11/2021       0.04%  

Med-Metrix

 

TL 1L 09/21

    1,264,270       1,252,943       1,265,155       9/15/2021       0.23%  

Med-Metrix

 

TL 1L DD 09/21

    635,312       121,370       127,507       9/15/2021       0.02%  

Novotech Pty Ltd

 

TL 1L 01/22

    1,144,851       1,120,350       1,121,376       1/14/2022       0.20%  

Novotech Pty Ltd

 

TL 1L DD 01/22

    266,244             (5,459     1/14/2022       0.00%  

Novotech Pty Ltd

 

TL 1L 01/22

    1,579,895       1,115,715       1,092,011       1/14/2022       0.20%  

Opendoor Labs Inc

 

TL 2L DD 10/21

    11,000,000       7,329,587       7,134,887       10/1/2021       1.29%  

Parts Town LLC

 

TL 1L 11/21

    1,771,618       1,763,733       1,757,268       11/10/2021       0.32%  

Parts Town LLC

 

TL 1L DD 11/21

    1,294,328       1,282,225       1,283,844       11/10/2021       0.23%  

PartsSource Inc

 

TL 1L 10/21

    1,332,277       1,318,457       1,306,298       10/18/2021       0.24%  

PartsSource Inc

 

TL 1L DD 08/21

    464,562             (9,059     10/18/2021       0.00%  

Pretium Partners LLC P2

 

TL 1L 12/21

    3,270,612       3,208,244       3,205,200       12/16/2021       0.58%  

SAMBA Safety Inc

 

TL 1L DD 09/21

    104,520             (554     9/1/2021       0.00%  

SAMBA Safety Inc

 

TL 1L 09/21

    469,144       464,971       466,658       9/1/2021       0.08%  

SavATree LLC

 

TL 1L DD 10/21

    154,719             (897     10/12/2021       0.00%  

 

 

 

31


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Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Issuer

  Asset   Par/Shares     Cost     Fair Value     Acquisition
Date
    % of
Net
Assets
 

SavATree LLC

 

TL 1L 10/21

    848,826     $ 843,227     $ 843,903       10/12/2021       0.15%  

ScionHealth

 

TL 1L B 12/21

    2,452,134       2,288,201       2,157,878       12/17/2021       0.39%  

Sequa Corp

 

TL 1L 07/20

    7,908,353       7,868,843       7,921,559       7/31/2020       1.44%  

Sequa Corp

 

TL 2L 07/20

    4,642,245       4,610,782       4,628,318       4/26/2017       0.84%  

Sequa Corp

 

TL 1L B 06/20

    396,887       391,707       412,762       7/27/2020       0.07%  

SitusAMC Holdings Corp

 

TL 1L 12/21

    2,236,030       2,214,996       2,206,514       12/22/2021       0.40%  

Time Manufacturing Co

 

TL 1L DD 12/21

    279,199             (7,231     12/1/2021       0.00%  

Time Manufacturing Co

 

TL 1L 12/21

    928,406       908,956       904,360       12/1/2021       0.16%  

Time Manufacturing Co

 

TL 1L 12/21

    598,500       663,082       613,558       12/1/2021       0.11%  

Ultra Electronics Holdings PLC

 

TL 1L B 11/21

    133,190       132,857       132,341       11/17/2021       0.02%  

Ultra Electronics Holdings PLC

 

TL 1L B 11/21

    104,000       117,138       108,888       11/17/2021       0.02%  

Yak Access LLC

 

TL 1L B 05/18

    6,809,083       6,427,099       5,919,102       6/29/2018       1.07%  

Trade Claim

           

Quorum Health Corp

 

Trade Claim

    212,000       90,722       19,546       6/1/2018       0.00%  
     

 

 

     

Total

      $ 110,292,339     $ 109,171,522      
     

 

 

     

 

(1)

Refer to the Consolidated Schedule of Investments for more details on securities listed.

The following is a reconciliation of the investments in which significant unobservable inputs (Level 3) were used in determining value:

 

    Leveraged
Loans
    High Yield
Securities
    Collateralized
Loan
Obligations
    Common &
Preferred
Stocks
 

Balance as of October 31, 2021

  $ 32,241,562     $     $ 13,182,021     $ 1,049,183  

Transfer into Level 3

          2,388,886              

Purchases

    61,643,504             28,153,499       24,715,627  

Sales and paydowns

    (11,166,616           (53,100      

Settlements

    29,573       4,602       16,699        

Net change in (depreciation)/appreciation

    (235,766     (6,488     (1,226,113     68,625  

Net realized gains

    13,613             1,062        
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of April 30, 2022

  $ 82,525,870     $ 2,387,000     $ 40,074,068     $ 25,833,435  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net change in (depreciation)/appreciation on investments held at April 30, 2022

  $ (124,283   $ (6,488   $ (452,372   $ 29,168  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

32


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Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 as of April 30, 2022:

 

Financial

Asset

   Fair Value      Valuation
Technique(1)
   Unobservable
Inputs(2)
   Range
(Weighted
Average)(3)
 

Leveraged Loans

   $ 82,525,870      Yield Analysis    Yield      8% - 11% (10%)  
         Discount margin      0% - 4% (2%)  
         EBITDA multiple      2.0x - 25.8x (14.4x)  
                   Net leverage      0.0x - 8.9x (6.3x)  

Collateralized Loan Obligations

   $ 40,074,068      Yield analysis    Discount margin      0% - 7.9% (7.1%)  
      Discounted cash flows    Probability of default      2%  
                   Constant prepayment rate      20%  

Common & Preferred Stock

   $ 25,833,435      Market comparables    LTM EBITDA      16.5x  
         FWD EBITDA      2.0x  
         Illiquidity discount      15%  
              Discounted Cash Flows    WACC      25%  

High Yield Securities

   $ 2,387,000      Yield Analysis    Yield      8%  
         Discount margin      1%  
         EBITDA multiple      13.1x  
                   Net leverage      10.7x  

 

(1)

For the assets that have more than one valuation technique, the Fund may rely on the techniques individually or in aggregate based on a weight ascribed to each one ranging from 0.00%-100.00%. When determining the weighting ascribed to each valuation methodology, the Fund considers, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis and the expected hold period and manner of realization for the investment. These factors can result in different weightings among the investments and in certain instances, may result in up to a 100.00% weighting to a single methodology.

 

(2)

The significant unobservable inputs used in the fair value measurement of the Fund’s assets and liabilities may include the last twelve months (“LTM”) EBITDA multiple, weighted average cost of capital, discount margin, probability of default, loss severity and constant prepayment rate. In determining certain of these inputs, management evaluates a variety of factors including economic, industry and market trends and developments, market valuations of comparable companies, and company specific developments including potential exit strategies and realization opportunities. Significant increases or decreases in any of these inputs in isolation could result in significantly lower or higher fair value measurement.

 

(3)

Weighted average amounts are based on the estimated fair values.

 

6.

Investment Transactions

The cost of investments purchased and the proceeds from the sale of investments, other than short-term investments, for the six months ended April 30, 2022 were as follows:

 

Purchases

   $333,117,620

Sales

   $104,614,684

There were no purchases or sales of U.S. Government securities.

 

 

 

33


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April 30, 2022

(Unaudited)

   

 

7.

Repurchase Offers

As a fundamental policy, which may not be changed without shareholder approval, the Fund offers shareholders the opportunity to request the repurchase of their shares on a quarterly basis. The Fund is required to offer to repurchase not less than 10.00% of its outstanding shares with each repurchase offer and under normal market conditions, the Board expects to authorize a 10.00% offer (“Repurchase Offer). The Fund may not offer to repurchase more than 25.00% of its outstanding shares during any offer. Quarterly repurchases will occur in the months of January, April, July and October.

The time and dates by which Repurchase Offers must be received in good order (“Repurchase Request Deadline”) are generally 4:00 p.m. Eastern time on the first Friday of the month in which the repurchase occurs. The repurchase price will be the Fund’s NAV determined on the repurchase pricing date, which will be a date not more than 14 calendar days following the Repurchase Request Deadline (“Repurchase Pricing Date”). Payment for all shares repurchased pursuant to these offers will be made not later than seven calendar days after the Repurchase Pricing Date (“Repurchase Payment Deadline”). Under normal circumstances, it is expected that the Repurchase Request Deadline will be the same date as the Repurchase Pricing Date. If the tendered shares have been purchased immediately prior to the tender, the Fund will not release repurchase proceeds until payment for the tendered shares has settled.

If more shares are tendered for repurchase than the Fund has offered to repurchase, the Board may, but is not obligated to, increase the number of shares to be repurchased by up to 2.00% of the shares outstanding on the Repurchase Request Deadline. If there are still more shares tendered than are offered for repurchase, shares will be repurchased on a pro rata basis.

During the six months ended April 30, 2022, the Fund completed two quarterly repurchase offers. In these offers, the Fund offered to repurchase no less than 10.00% of the number of its outstanding shares as of the Repurchase Pricing Dates. The result of the repurchase offers were as follows:

 

Repurchase

Request Deadline

  Percentage of
Outstanding
Share the
Fund Offered
to Repurchase(1)
    Repurchase
Pricing Date
  Pricing
Date NAV
    Amount
Repurchased
    Number of
Shares
Repurchased
(all classes)
    Percentage of
Outstanding
Shares
Repurchased
 

14-Jan-22

    10.00   18-Jan-22   $ 26.68     $ 8,543,858       321,365       1.74

8-Apr-22

    10.00   11-Apr-22   $ 25.07     $ 24,688,616       997,338       4.58

 

(1)

If total repurchase request exceeds 10.00% of the Fund’s outstanding shares, the Fund may increase the number of shares that it is offering to repurchase by up to an additional 2.00% of its total outstanding shares.

 

8.

Commitments and Contingencies

The Fund may enter into certain credit agreements, of which all or a portion may be unfunded. The Fund will maintain sufficient liquidity to fund these commitments at the borrower’s discretion. As of April 30, 2022, unfunded commitments on these credit agreements were as follows:

 

Issuer

  Asset   Total
Commitment
    Unfunded
Commitment
    Fair Value  

Revolver

       

3Pillar Global Inc

 

Revolver 1L 03/22

  $ 143,583     $ 143,583     $ (718

3Pillar Global Inc

 

Revolver 1L 02/22

    60,610       60,610       (1,212

48Forty Solutions LLC

 

Revolver 1L 08/21

    136,050       136,050       (1,034

48Forty Solutions LLC

 

Revolver 1L 09/21

    158,828       158,828        

Affordable Care Inc

 

Revolver 1L 09/21

    41,810       31,358       10,231  

 

 

 

34


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Credit Opportunities Portfolio
 

April 30, 2022

(Unaudited)

   

 

Issuer

  Asset   Total
Commitment
    Unfunded
Commitment
    Fair Value  

Alera Group Intermediate Holdings Inc

 

Revolver 1L 03/22

  $ 610,068     $ 518,558     $ 90,290  

American Vision Partners

 

Revolver 1L 10/21

    87,104       87,104       (1,699

Arcfield Acquisition Corp

 

Revolver 1L 08/21

    177,081       177,081       (708

athenahealth Inc

 

Revolver 1L 09/21

    158,140       158,140       (1,629

Belk Inc

 

Revolver 1L 02/22

    197,240       197,240       (4,142

Encora Digital Inc

 

Revolver 1L 09/21

    427,591       342,073       79,190  

Encora Digital Inc

 

Revolver 1L 08/21

    128,823       39,935       88,888  

Foresight Energy LLC

 

Revolver 1L 12/21

    153,560       37,692       111,891  

Foundation Risk Partners Corp

 

Revolver 1L 10/21

    141,750       141,750       (1,970

Galway Partners Holdings LLC

 

Revolver 1L 09/21

    205,492       205,492       (4,151

Integrity Marketing Group LLC

 

Revolver 1L 11/21

    186,240       186,240       (1,918

Learning Care Group Inc

 

Revolver 1L 12/21

    505,280       449,699       47,850  

Novotech Pty Ltd

 

Revolver 1L 10/21

    128,932       128,932       (748

Leveraged Loans

       

48Forty Solutions LLC

 

TL 1L DD 02/22

    121,212       121,212       (2,424

Affordable Care Inc

 

TL 1L DD 09/21

    635,312       508,250       127,507  

Alera Group Intermediate Holdings Inc

 

TL 1L DD 09/21

    104,520       104,520       (554

Alera Group Intermediate Holdings Inc

 

TL 1L DD 12/21

    398,160       398,160       (8,019

American Vision Partners

 

TL 1L DD 03/22

    1,203,805       1,203,805       (2,408

Amerivet Partners Management Inc

 

TL 1L DD 08/21

    464,562       464,562       (9,059

Amerivet Partners Management Inc

 

TL 1L DD 11/21

    1,268,665       911,544       337,583  

athenahealth Inc

 

TL 1L DD 08/21

    599,452       549,108       47,946  

Belk Inc

 

TL 1L DD 09/21

    790,690       790,690       (8,144

Community Brands Inc

 

TL 1L DD 02/22

    1,577,920       1,577,920       (33,136

Community Brands Inc

 

TL 1L DD 01/22

    266,244       266,244       (5,459

Encora Digital Inc

 

TL 1L DD 01/22

    54,442       54,442       (646

Excelitas Technologies Corp

 

TL 1L DD 08/21

    257,645       257,645       2,937  

Foundation Risk Partners Corp

 

TL 1L DD 12/21

    279,199       279,199       (7,231

Foundation Risk Partners Corp

 

TL 1L DD 09/21

    187,590       6,409       178,629  

Foundation Risk Partners Corp

 

TL 1L DD 12/21

    540,718       529,904       3,461  

Galway Partners Holdings LLC

 

TL 1L DD 03/22

    3,360,512       3,360,512       (46,711

Galway Partners Holdings LLC

 

TL 1L DD 10/21

    291,830       52,473       235,301  

Insight Global LLC

 

TL 1L DD 09/21

    289,583       289,583       (5,850

Insight Global LLC

 

TL 1L DD 12/21

    2,952,345       2,874,108       54,323  

Learning Care Group Inc

 

TL 1L DD 11/21

    620,800       620,800       (6,394

Med-Metrix

 

TL 2L DD 10/21

    11,000,000       3,670,413       7,134,887  

Med-Metrix

 

TL 1L DD 04/22

    61,978       61,978       (103

Novotech Pty Ltd

 

TL 1L DD 10/21

    154,719       154,719       (897
   

 

 

 

Total

    $ 31,130,085     $ 22,308,565     $ 8,393,950  
   

 

 

 

Under the Fund’s organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In the normal course of business, the Fund enters into contracts that contain a variety of representations that provide general indemnifications. The Fund’s maximum liability exposure under these arrangements is unknown, as future claims that have not yet occurred may be made against the Fund. However, based on experience, management expects the risk of loss to be remote.

 

9.

Federal Income Taxes

The timing and characterization of certain income, capital gains, and return of capital distributions are determined annually in accordance with federal tax regulations, which may differ from GAAP. As a result, the net investment income and net realized gains (losses) on investment transactions for a reporting period may differ significantly from distributions during such period. These book to tax differences may be temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in capital, accumulated net

 

 

 

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investment income or accumulated net realized gains (losses), as appropriate, in the period in which the differences arise.

As of October 31, 2021, the following permanent differences have been reclassified (to)/from the following accounts:

 

Undistributed Net
Investment
Income
    Accumulated
Net Realized
Losses
    Paid-in
Capital
 
$ 1,282,621     $ (1,196,996   $ (85,625

The tax character of distributions declared for the year ended October 31, 2021 and the six months ended April 30, 2022 were as follows:

 

       Ordinary
Income
       Realized
Gains
       Total  

October 31, 2021

     $ 21,044,567        $ 882,344        $ 21,926,911  

April 30, 2022*

     $ 17,645,178        $        $ 17,645,178  

 

*

The final tax character of any distribution declared during the six months ended April 30, 2022 will be determined in January 2023 and reported to shareholders on IRS Form 1099-Div in accordance with federal income tax regulations.

As of October 31, 2021, the components of accumulated distributable earnings on a tax basis for the Fund are as follows:

 

Undistributed
Ordinary
Income
    Net
Unrealized
Appreciation
    Undistributed
Long Term
Gains
    Other
Temporary
Differences
    Total
Accumulated
Gains
 
$ 13,961,127     $ 393,335     $ 774,038     $ (8,462,699   $ 6,665,801  

Net capital losses earned may be carried forward indefinitely and must retain the character of the original loss. As of October 31, 2021, the Fund did not have non-expiring capital loss carry-forwards.

As of October 31, 2021, the total cost of securities for federal income tax purposes and the aggregate gross unrealized appreciation and depreciation for securities held by the Fund are as follows:

 

Federal Tax
Cost
    Aggregate
Gross
Unrealized
Appreciation
    Aggregate
Gross
Unrealized
Depreciation
    Net
Unrealized
Appreciation
 
$ 592,178,506     $ 7,964,942     $ (7,571,607   $ 393,335  

 

 

 

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10.

Credit Facility

On August 23, 2021, KCOP Funding LLC, a wholly owned subsidiary of the Fund, entered into a multi-currency credit facility agreement (the “JPM Credit Facility”) with JPMorgan Chase Bank, National Association to borrow up to an aggregate amount of $200.0 million, with options to increase the financing commitment up to $500.0 million. On November 4, 2021 and April 6, 2022, KCOP Funding LLC amended the JPM Credit Facility and increased the commitment to a total outstanding commitment of $250.0 million and $300.0 million, respectively.

The JPM Credit Facility’s initial term ends on August 23, 2023, with options to extend the term up to August 23, 2025. Prior to April 6, 2022, borrowings accrued interest based on the London Interbank Offered Rate, or at a base rate applicable to each currency’s borrowing, plus a spread of 1.60%, or 1.72% for borrowings denominated in the British pound. Beginning April 6, 2022, borrowings accrue interest based on the Secured Overnight Financing Rate, or a base rate applicable to each currency’s borrowing, plus a spread of 1.60% to 1.70%. Commitment fees on the JPM Credit Facility accrue at a rate of 0.35% or 0.65% depending on the utilization levels. The JPM Credit Facility contains certain financial and operating covenants that require the maintenance of ratios and benchmarks throughout the borrowing period. As of April 30, 2022, the Fund is in compliance with these covenants.

The components of interest expense, average interest rates (i.e., base interest rate in effect plus the spread) and average outstanding balances for the Fund’s credit facilities for the six months ended April 30, 2022 were as follows:

 

Stated interest expense

   $ 1,646,730  

Unused commitment fees

     80,386  

Amortization of deferred financing costs

     350,117  
  

 

 

 

Total interest expense

   $ 2,077,233  
  

 

 

 

Weighted average interest rate

     0.87

Average borrowings

   $ 189,463,429  

 

 

 

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Approval of Investment Advisory Agreement

Background

At a meeting of the Board of KKR Credit Opportunities Portfolio (the “Fund”) held on December 16, 2021 (the “Meeting”), the members of the Board, including the Trustees who are not “interested persons” of the Fund (the “Independent Trustees”), as defined in the Investment Company Act of 1940, as amended, considered and unanimously approved the continuance of the investment advisory agreement (the “Investment Advisory Agreement”) between KKR Credit Advisors (US) LLC (the “Adviser”) and the Fund.

Prior to the Meeting, the Independent Trustees received a memorandum from their independent legal counsel concerning the duties and responsibilities of board members in considering approval of the Investment Advisory Agreement. The Board had also received and considered materials it deemed reasonably necessary for its review of the Investment Advisory Agreement, including materials and reports prepared by the Adviser and a third-party service provider comparing fee, expense and performance information to a collection of registered closed-end funds operated as “interval funds” believed by the Adviser to have comparable investment objectives and strategies as well as to peer groups of registered closed-end funds in the same or similar Morningstar categories as the Fund (collectively, the “Peer Funds”).

The Independent Trustees discussed with management and separately with their independent legal counsel the materials provided by management prior to the scheduled board meeting.

In its consideration of the approval of the Investment Advisory Agreement, the Board considered various factors, including the following:

Nature, Extent and Quality of Services

In considering the nature, extent and quality of services provided by the Adviser, the Board relied on their ongoing experience as Trustees of the Fund as well as on the materials provided at and prior to the Meeting. The Board reviewed and considered the nature and extent of the investment advisory services provided by the Adviser under the Investment Advisory Agreement, including portfolio management, investment research and overseeing portfolio transactions. It was further noted that the Adviser coordinates and oversees the provision of services provided to the Fund by other service providers.

The Board reviewed and considered the qualifications, background and experience of the investment team and other key personnel of the Adviser who provide advisory and non-advisory services to the Fund. The Board also considered the resources, operations and practices of the Adviser both generally and in managing the Fund’s portfolio. The Board noted the Adviser’s extensive experience in managing portfolios of loans and fixed income securities, knowledge of loan and fixed income markets, expertise in private credit transactions, and analytical and risk management capabilities. The Board determined that the nature and extent of services provided by the Adviser to the Fund were appropriate and that the Fund should continue to benefit from the nature, extent and quality of these services as a result of the Adviser’s experience, personnel, operations and resources.

Performance, Fees and Expenses of the Fund

The Board considered the performance of the Fund for the one-year and since-inception periods (as of October 31, 2021) under the management of the Adviser on an absolute basis and in comparison to the performance of the Peer Funds. The Board also considered the Adviser’s rationale for including certain funds among the Peer Funds for purposes of comparison, as well as the reasons why the Adviser believes that the Fund’s particular Morningstar category provides an imprecise comparison. The Adviser also discussed with the Board the key contributors and detractors to the Fund’s performance during the period.

 

 

 

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The Board then discussed with the Adviser the Fund’s fees and expenses relative to the Peer Funds and other accounts advised by the Adviser. The Board noted that the Fund’s advisory fee is generally comparable to the fees charged by the Adviser or its affiliates to other clients for which it provides comparable services or uses overlapping portfolio management team members. The Board further noted that the Fund’s advisory fee was lower than the median of the Peer Funds in its Morningstar category. The Board also took into account the impact of leverage on the advisory fee paid by the Fund. In addition to the advisory fee, the Board also reviewed the Fund’s total expense ratio and observed that the Fund’s net expense ratio was lower than the median of the Peer Funds in its Morningstar category. Following its review, in light of the extent and high quality of services that the Fund receives, the Board determined that the Fund’s performance under the management of the Adviser was satisfactory and that the Fund’s fees and expenses were reasonable.

Economies of Scale

The Board considered the size and growth prospects of the Fund and how it relates to the structure of the Fund’s advisory fee schedule, which does not include breakpoints. The Board concluded that the Fund’s advisory and administration fees are appropriate in light of the projected size of the Fund and appropriately reflect the current economic and competitive environment for the Adviser. The Trustees also observed that they will have the opportunity to periodically re-examine whether the Fund has achieved economies of scale in the future as the Fund grows to determine if and how any such economies of scale could be shared with the Fund and its investors.

Profitability of the Adviser and Affiliates

The Board considered the profitability to the Adviser of its relationship with the Fund. The Board had been provided information concerning costs incurred and profits realized by the Adviser under the Investment Advisory Agreement. The Adviser discussed its cost allocation methodology and the reasons why the Adviser believed it to be reasonable. The Board also examined the level of profits that could be expected to accrue to the Adviser from the fees payable under the Investment Advisory Agreement. After discussion and analysis, the Board concluded that the profitability was in no case such as to render the advisory fee excessive.

Other Benefits of the Relationship

The Board considered other benefits to the Adviser and its affiliates derived from their relationship with the Fund. Based on information provided by and discussions with the Adviser, the Board concluded that these benefits did not appear to be material at the present time.

Resources of the Adviser and Relationship with the Fund

The Board considered the financial circumstances of the Adviser and whether the Adviser has the resources necessary to perform its obligations under the Investment Advisory Agreement. The Board also reviewed and considered the relationship between the Fund and the Adviser, including the policies and procedures formulated and adopted by the Adviser for managing the Fund’s operations and the Board’s confidence in the competence and integrity of senior managers and key personnel of the Adviser. The Board concluded that the Adviser has the financial resources necessary to fulfill its obligations under the Investment Advisory Agreement and that it is beneficial for the Fund to continue its relationship with the Adviser.

Other Factors

The Board considered the controls and procedures adopted and implemented by the Adviser and monitored by the Fund’s Chief Compliance Officer and concluded that the conduct of business by the Adviser demonstrates a good faith effort on its part to adhere to high ethical standards in the conduct of the Fund’s business.

 

 

 

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General Conclusion

After considering and weighing all of the above factors, the Board concluded that the advisory fee was reasonable in light of the services provided by the Adviser and it would be in the best interests of the Fund and its shareholders to approve renewal of the Investment Advisory Agreement for another year. In reaching this conclusion the Board did not give particular weight to any single factor referenced above. The Board considered these factors during the Meeting and over the course of numerous meetings, some of which were in executive session with only the Independent Trustees and their counsel present. Individual Board members may have ascribed different weights to these factors in their individual considerations in reaching their unanimous decision to approve the renewal of the Investment Advisory Agreement.

 

 

 

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(b) Not applicable

Item 2. Code of Ethics.

Not applicable for semi-annual report.

Item 3. Audit Committee Financial Expert.

Not applicable for semi-annual report.

Item 4. Principal Accountant Fees and Services.

Not applicable for semi-annual report.

Item 5. Audit Committee of Listed Registrants.

Not applicable for semi-annual report.

Item 6. Investments.

(a) Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.

(b) Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable for semi-annual report.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable for semi-annual report.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

No purchases were made during the reporting period by or on behalf of the registrant or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Exchange Act (17 CFR 240.10b-18(a)(3)), of shares or other units of any class of the registrant’s equity securities that is registered by the registrant pursuant to Section 12 of the Exchange Act (15 U.S.C. 781).


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Item 10. Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of trustees since the registrant last provided disclosure in response to this item.

Item 11. Controls and Procedures.

(a) The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this report on Form N-CSR, that the design and operation of such procedures are effective to provide reasonable assurance that information required to be disclosed by the investment company on Form N-CSR is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

(b) There have been no changes in the registrant’s internal control over financial reporting during the six months ended April 30, 2022 that materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies

The registrant did not engage in securities lending activities during the period reported on this Form N-CSR.

Item 13. Exhibits.

(a)(1) Not applicable.

(a)(2) A separate certification for the principal executive officer and the principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.

(a)(3) Not applicable.

(a)(4) Not applicable.

(b) Certifications pursuant to Section  906 of the Sarbanes-Oxley Act of 2002 are filed herewith.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

KKR Credit Opportunities Portfolio
By  

/s/ Eric Mogelof

Eric Mogelof, President
Date     June 29, 2022                                

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By  

/s/ Eric Mogelof

Eric Mogelof, President
Date     June 29, 2022                                
By  

/s/ Thomas Murphy

Thomas Murphy, Treasurer, Chief Accounting Officer & Chief Financial Officer
Date     June 29, 2022