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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: 811-23871
KKR Asset-Based Income Fund
(Exact name of registrant as specified in charter)
555 California Street, 50th Floor, San Francisco, CA 94104
(Address of principal executive offices) (Zip code)
Lori Hoffman, Esq.
Thomas Murphy
KKR Credit Advisors (US) LLC
555 California Street
50th Floor
San Francisco, California 94104
(Name and address of agent for service)
Registrant’s telephone number, including area code: (415) 315-3620
Date of fiscal year end: December 31, 2024
Date of reporting period: June 30, 2024
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Item 1. Reports to Stockholders.
| (a) | The Report to Shareholders is attached herewith. |
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KKR Asset-Based Income Fund
Semi-Annual Report
June 30, 2024
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KKR Asset-Based Income Fund (the “Fund”) publicly 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, and the reports for the last month in each quarter are made publicly 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 the Fund voted proxies relating to portfolio securities during the most recent period 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 Fund’s Statement of Additional Information includes information about the Fund’s Trustees and is available without charge, upon request, by calling 855-844-8655 and by visiting the Commission’s website at www.sec.gov.
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Schedule of Investments Summary Table
As of June 30, 2024, the Fund’s portfolio composition, as a percentage of net assets, was as follows:
| Investments in securities | % of Net Assets | |||
Asset-Backed Securities | 54.1% | |||
Mortgage-Backed Securities | 33.1% | |||
Senior Loans | 8.8% | |||
Private Equity | 0.2% | |||
Money Market Fund | 5.1% | |||
|
| |||
Total investments in securities | 101.3% | |||
See accompanying notes to financial statements.
3
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Schedule of Investments
(in thousands, except share data)
| Issuer | Asset | Effective Interest Rate | Maturity Date | Par | Fair Value | |||||||||
Asset-Backed Securities — 54.1% | ||||||||||||||
Auto — 7.2% | ||||||||||||||
Ally Auto Receivables Trust | Class A3, Series 2022-3 | 5.07% | 4/15/2027 | 2,397 | $ | 2,390 | ||||||||
Exeter Automobile Receivables Trust | Class C, Series 2022-1A | 2.56% | 6/15/2028 | 4,323 | 4,275 | |||||||||
Hyundai Auto Receivables Trust | Class A3, Series 2022-A | 2.22% | 10/15/2026 | 1,571 | 1,543 | |||||||||
Octane Receivables Trust (a) | Class D, Series 2022-2A | 7.70% | 2/20/2030 | 10,000 | 10,340 | |||||||||
Santander Drive Auto Receivables Trust (b) | Class B, Series 2022-2 | 3.44% | 9/15/2027 | 2,722 | 2,690 | |||||||||
VStrong Auto Receivables Trust (a) | Class C, Series 2024-A | 6.44% | 7/15/2030 | 1,933 | 1,959 | |||||||||
VStrong Auto Receivables Trust (a) | Class D, Series 2024-A | 7.29% | 7/15/2030 | 1,933 | 1,993 | |||||||||
Westlake Automobile Receivables Trust (a) | Class C, Series 2021-3A | 1.58% | 1/15/2027 | 5,340 | 5,273 | |||||||||
Infrastructure Credit — 9.8% | ||||||||||||||
Adams Outdoor Advertising LP (a) | Class A2, Series 2023-1 | 6.97% | 7/15/2053 | 20,000 | 20,732 | |||||||||
ALLO Issuer LLC (a) | Class A2, Series 2023-1A | 6.20% | 6/20/2053 | 17,069 | 17,250 | |||||||||
Hotwire Funding LLC (a) | Class B, Series 2023-1A | 7.00% | 5/20/2053 | 4,500 | 4,579 | |||||||||
Single Family Rental — 12.4% | ||||||||||||||
AMSR Trust (a) | Class E2, Series 2022-SFR3 | 4.00% | 10/17/2039 | 1,250 | 1,137 | |||||||||
AMSR Trust (a) | Class E2, Series 2023-SFR1 | 4.00% | 4/17/2040 | 5,939 | 5,284 | |||||||||
Bridge Trust (a) | Class E1, Series 2022-SFR1 | 6.30% | 11/17/2037 | 15,000 | 14,498 | |||||||||
FirstKey Homes Trust (a) | Class E2, Series 2022-SFR3 | 3.50% | 7/17/2038 | 20,000 | 18,566 | |||||||||
FRTKL (a) | Class E1, Series 2021-SFR1 | 2.37% | 9/17/2038 | 1,750 | 1,569 | |||||||||
FRTKL (a) | Class E2, Series 2021-SFR1 | 2.52% | 9/17/2038 | 8,900 | 7,965 | |||||||||
Progress Residential Trust (a) | Class E2, Series 2022-SFR3 | 5.60% | 4/17/2039 | 2,166 | 2,069 | |||||||||
Progress Residential Trust (a) | Class E2, Series 2023-SFR1 | 6.60% | 3/17/2040 | 2,500 | 2,457 | |||||||||
Small Business Loans — 9.9% | ||||||||||||||
CPC Asset Securitization I LLC (a) | Class A, Series 2021-1A | 3.58% | 11/16/2026 | 13,000 | 12,751 | |||||||||
CPC Asset Securitization II LLC (a) | Class A, Series 2023-1A | 7.53% | 3/15/2029 | 11,930 | 11,967 | |||||||||
Libertas Asset Securitization LLC (a)(c) | Class A1, Series 2023-1A | 7.67% | 7/16/2029 | 17,955 | 18,048 | |||||||||
Solar Development Lending — 7.2% | ||||||||||||||
GoodLeap Sustainable Home Solutions Trust (a) | Class A, Series 2023-2GS | 5.70% | 5/20/2055 | 9,294 | 9,014 | |||||||||
Mosaic Solar Loan Trust (a) | Class B, Series 2023-3A | 7.37% | 11/20/2053 | 15,545 | 16,066 | |||||||||
Sunnova Helios XI Issuer LLC (a) | Class B, Series 2023-A | 5.60% | 5/20/2050 | 6,069 | 5,974 | |||||||||
Student Loans — 3.3% | ||||||||||||||
College Ave Student Loans LLC (a) | Class C, Series 2023-A | 6.06% | 5/25/2055 | 3,000 | 2,895 | |||||||||
College Ave Student Loans LLC (a) | Class D, Series 2023-A | 6.89% | 5/25/2055 | 2,000 | 1,965 | |||||||||
College Ave Student Loans LLC (a) | Class E, Series 2023-A | 8.49% | 5/25/2055 | 4,000 | 3,966 | |||||||||
SMB Private Education Loan Trust (a) | Class C, Series 2023-B | 6.36% | 10/16/2056 | 5,000 | 4,988 | |||||||||
Unsecured Consumer — 4.3% | ||||||||||||||
Marlette Funding Trust (a) | Class C, Series 2023-3A | 7.06% | 9/15/2033 | 7,170 | 7,268 | |||||||||
Marlette Funding Trust (a) | Class D, Series 2023-3A | 8.04% | 9/15/2033 | 3,500 | 3,619 | |||||||||
See accompanying notes to financial statements.
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| Issuer | Asset | Effective Interest Rate | Maturity Date | Par | Fair Value | |||||||||
OneMain Financial Issuance Trust (a) | Class C, Series 2023-1A | 6.38% | 6/14/2038 | 7,500 | $ | 7,627 | ||||||||
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TOTAL ASSET-BACKED SECURITIES (Cost $228,110) | $ | 232,717 | ||||||||||||
Mortgage-Backed Securities — 33.1% | ||||||||||||||
Home Equity Investments — 4.8% | ||||||||||||||
Unison Trust (a)(c)(d) | Class A, Series 2023-1 | 6.50% | 5/25/2033 | 13,972 | 13,070 | |||||||||
Unison Trust (a) | Class A, Series 2023-2 | 6.50% | 11/25/2053 | 3,127 | 2,925 | |||||||||
Unlock HEA Trust (a) | Class A, Series 2024-1 | 7.00% | 4/25/2039 | 4,962 | 4,893 | |||||||||
Investor Loans — 2.8% | ||||||||||||||
Verus Securitization Trust (a)(e) | Class M1, Series 2022-INV1 | 5.84% | 8/25/2067 | 10,927 | 10,684 | |||||||||
Verus Securitization Trust (a)(e) | Class M1, Series 2022-INV2 | 6.80% | 10/25/2067 | 1,500 | 1,502 | |||||||||
Non-Qualified Mortgage — 17.9% | ||||||||||||||
Credit Suisse Mortgage Trust (a)(e) | Class M1, Series 2022-ATH3 | 7.10% | 8/25/2067 | 20,876 | 21,003 | |||||||||
GCAT Trust (a)(e) | Class M1, Series 2022-NQM4 | 5.75% | 8/25/2067 | 7,500 | 7,247 | |||||||||
Imperial Fund Mortgage Trust (a)(d) | Class M1, Series 2022-NQM5 | 6.25% | 8/25/2067 | 4,000 | 3,922 | |||||||||
Imperial Fund Mortgage Trust (a)(e) | Class M1, Series 2022-NQM7 | 7.53% | 11/25/2067 | 16,788 | 17,081 | |||||||||
PRKCM Trust (a)(e) | Class M1, Series 2022-AFC2 | 6.21% | 8/25/2057 | 2,420 | 2,371 | |||||||||
Verus Securitization Trust (a)(e) | Class M1, Series 2022-8 | 6.12% | 9/25/2067 | 1,530 | 1,486 | |||||||||
Verus Securitization Trust (a)(e) | Class M1, Series 2023-1 | 6.94% | 12/25/2067 | 2,000 | 1,994 | |||||||||
Verus Securitization Trust (a)(e) | Class M1, Series 2023-2 | 7.57% | 3/25/2068 | 4,000 | 4,092 | |||||||||
Verus Securitization Trust (a)(e) | Class M1, Series 2023-3 | 7.93% | 3/25/2068 | 2,000 | 2,068 | |||||||||
Verus Securitization Trust (a)(e) | Class M1, Series 2023-4 | 7.40% | 5/25/2068 | 10,000 | 10,134 | |||||||||
Verus Securitization Trust (a)(e) | Class M1, Series 2023-INV1 | 7.56% | 2/25/2068 | 6,300 | 6,344 | |||||||||
Second Lien/HELOC — 7.6% | ||||||||||||||
FIGRE Trust (a)(e) | Class A, Series 2023-HE2 | 6.51% | 5/25/2053 | 3,809 | 3,838 | |||||||||
FIGRE Trust (a)(e) | Class B, Series 2023-HE2 | 7.69% | 5/25/2053 | 4,542 | 4,664 | |||||||||
Saluda Grade Alternative Mortgage Trust (a)(e) | Class A2, Series 2023-SEQ3 | 6.89% | 6/1/2053 | 5,829 | 5,867 | |||||||||
Saluda Grade Alternative Mortgage Trust (a)(e) | Class A3, Series 2023-SEQ3 | 7.12% | 6/1/2053 | 10,127 | 10,255 | |||||||||
Saluda Grade Alternative Mortgage Trust (a)(e) | Class M1, Series 2023-SEQ3 | 8.71% | 6/1/2053 | 3,722 | 3,857 | |||||||||
Towd Point Mortgage Trust (a)(e) | Class M1, Series 2024-CES3 | 6.81% | 5/25/2064 | 3,939 | 3,964 | |||||||||
|
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TOTAL MORTGAGE-BACKED SECURITIES (Cost $140,337) | $ | 143,261 | ||||||||||||
Senior Loans — 8.8% | ||||||||||||||
Aviation Leasing — 3.0% | ||||||||||||||
Genesis Aircraft Services Ltd (c)(e)(f) | TL 1L DD 08/23 | 8.22% - 8.69% | 7/31/2029 | 12,986 | 12,944 | |||||||||
Small Business Loans — 5.1% | ||||||||||||||
BHG Funding LLC (c) | TL 1L A2 05/23 | 7.07% | 5/19/2036 | 19,361 | 19,116 | |||||||||
BHG Funding LLC (c) | TL 2L B2 05/23 | 8.12% | 5/19/2036 | 1,694 | 1,668 | |||||||||
BHG Funding LLC (c)(e) | TL 3L C2 05/23 | 12.92% | 5/19/2036 | 1,695 | 1,603 | |||||||||
Solar Development Lending — 0.7% | ||||||||||||||
SunPower Financial (b)(c)(e)(f) | Revolver 1L 06/23 | 6.73% (SOFR + 2.50%) | 8/30/2054 | 1,507 | 1,507 | |||||||||
SunPower Financial (b)(c) | TL 1L 11/23 | 6.65% | 8/30/2054 | 1,942 | 1,942 | |||||||||
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TOTAL SENIOR LOANS (Cost $39,186) | $ | 38,780 | ||||||||||||
See accompanying notes to financial statements.
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| Issuer | Asset | Effective Interest Rate | Shares | Fair Value | ||||||||
Private Equity — 0.2% | ||||||||||||
Solar Development Lending — 0.2% | ||||||||||||
SunPower Financial (b)(c) | Private Equity (SPV) | 837,452 | $ | 910 | ||||||||
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TOTAL PRIVATE EQUITY (Cost $837) | $ | 910 | ||||||||||
|
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TOTAL INVESTMENTS (Cost $408,470) — 96.2% | $ | 415,668 | ||||||||||
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Money Market Fund — 5.1% | ||||||||||||
U.S. Government Securities — 5.1% | ||||||||||||
Fidelity Investments Money Market Treasury Portfolio (g) | Class I | 5.19% | 22,214,051 | 22,214 | ||||||||
|
| |||||||||||
TOTAL MONEY MARKET FUND (Cost $22,214) | $ | 22,214 | ||||||||||
|
| |||||||||||
TOTAL INVESTMENTS INCLUDING MONEY MARKET FUND (Cost $430,684) — 101.3% |
| $ | 437,882 | |||||||||
|
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LIABILITIES EXCEEDING OTHER ASSETS, NET — (1.3)% | (5,730 | ) | ||||||||||
|
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NET ASSETS — 100.0% | $ | 432,152 | ||||||||||
|
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DD | Delayed draw term loan | |
SOFR | Secured Overnight Financing Rate | |
SPV | Special Purpose Vehicle | |
TL | Term loan | |
1L | First lien | |
2L | Second lien | |
3L | Third lien | |
(a) | 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. | ||
(b) | Security considered restricted. | |
(c) | Value determined using significant unobservable inputs. | |
(d) | Debt obligation initially issued at one coupon which converts to a higher coupon at a specified date. The rate shown is the rate at June 30, 2024. | |
(e) | Variable rate securities. The effective rate shown is based on the latest available information as of June 30, 2024. Certain variable rate securities are | |
| based on a published reference rate and spread. Interest rates for certain variable rate securities are determined by the issuer, or agent, and are based on | ||
| current market conditions, and these securities do not indicate a reference rate and spread in their description. | ||
(f) | Investment is a partially funded commitment. | |
(g) | Rate represents the money market fund’s average 7-day yield as of June 30, 2024. |
See accompanying notes to financial statements.
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Statement of Assets and Liabilities
As of June 30, 2024
(in thousands, except share and per share data)
Assets | ||||
Investments, at fair value (cost $408,470) | $ | 415,668 | ||
Cash and cash equivalents | 22,214 | |||
Dividends and interest receivable | 1,527 | |||
Due from Adviser | 31 | |||
Other assets | 682 | |||
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Total Assets | 440,122 | |||
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Liabilities | ||||
Distributions payable to Shareholders | 6,682 | |||
Administration and custody fees payable | 310 | |||
Investment advisory fees payable | 125 | |||
Trustees’ fees payable | 47 | |||
Other accrued expenses | 405 | |||
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Total Liabilities | 7,569 | |||
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Series A Cumulative Preferred Shares, net (515 shares authorized, issued and outstanding) | 401 | |||
Commitments and Contingencies (Note 8) | ||||
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Net Assets | $ | 432,152 | ||
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Net Assets: | ||||
Paid-in capital ($0.001 par value, unlimited shares authorized) | $ | 424,982 | ||
Total distributable earnings | 7,170 | |||
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Total Net Assets | $ | 432,152 | ||
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Net Asset Value Per Share: | ||||
425,389 shares outstanding | $ | 1,015.90 | ||
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See accompanying notes to financial statements.
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For the Six Months Ended June 30, 2024
(in thousands)
Investment Income | ||||
Interest income | $ | 14,335 | ||
Dividend income | 406 | |||
Other income | 31 | |||
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Total Investment Income | 14,772 | |||
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Expenses | ||||
Investment advisory fees | 1,076 | |||
Administration and custody fees | 327 | |||
Audit and tax fees | 114 | |||
Legal fees | 99 | |||
Insurance expenses | 67 | |||
Transfer agent fees | 62 | |||
Trustees’ fees | 47 | |||
Other expenses | 88 | |||
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Total Expenses | 1,880 | |||
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Fees waived by the Adviser | (323 | ) | ||
Expense limitation | (188 | ) | ||
Reimbursement of expense limitation | 30 | |||
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Net Expenses | 1,399 | |||
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Net Investment Income | 13,373 | |||
|
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Net Realized and Unrealized Gain (Loss) on Investments | ||||
Net Realized Gain (Loss) From: | ||||
Investments | 28 | |||
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Net Realized Gain | 28 | |||
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Net Change in Net Unrealized Appreciation (Depreciation) From: | ||||
Investments | 3,149 | |||
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Net Change in Net Unrealized Appreciation | 3,149 | |||
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Net Realized and Unrealized Gain on Investments | 3,177 | |||
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Distributions from net income paid to Series A Cumulative Preferred Shareholders | (31 | ) | ||
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Net Increase in Net Assets resulting from operations | $ | 16,519 | ||
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See accompanying notes to financial statements.
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Statements of Changes in Net Assets
(in thousands)
For the Six Months June 30, 2024 | For the Period from May 3, 2023 (commencement of operations) to December 31, 2023 | |||||||
|
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Increase (decrease) in net assets resulting from operations: | ||||||||
Net investment income | $ | 13,373 | $ | 16,690 | ||||
Net realized gain (loss) | 28 | (96) | ||||||
Net change in unrealized appreciation | 3,149 | 4,049 | ||||||
Distributions from net income paid to Series A Cumulative Preferred Shareholders | (31 | ) | (41) | |||||
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Increase in Net Assets resulting from Operations | 16,519 | 20,602 | ||||||
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Distributions to Shareholders from: | ||||||||
Total distributable earnings | (13,331 | ) | (16,638) | |||||
|
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Total Distributions to Shareholders | (13,331 | ) | (16,638) | |||||
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Shareholder Transactions (Note 7) | ||||||||
Net proceeds from sale of shares | — | 425,000 | ||||||
|
| |||||||
Increase in Net Assets from Shareholder Transactions | — | 425,000 | ||||||
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Net Increase in Net Assets | 3,188 | 428,964 | ||||||
Net Assets: | ||||||||
Beginning of period | 428,964 | — | ||||||
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End of period | $ | 432,152 | $ | 428,964 | ||||
|
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See accompanying notes to financial statements.
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For the Six Months Ended June 30, 2024
(in thousands)
Cash Flows from Operating Activities: | ||||
Net increase in net assets resulting from operations | $ | 16,519 | ||
| Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: | ||||
Proceeds from sales and paydowns of investments | 25,994 | |||
Purchases of investments | (19,401) | |||
Net change in unrealized appreciation on investments | (3,149) | |||
Net accretion of discounts and premiums | (747) | |||
Net realized gain on investment security transactions | (28) | |||
Changes in assets and liabilities: | ||||
Increase in other assets | (299) | |||
Decrease in due to Adviser | (174) | |||
Decrease in audit and tax fees payable | (121) | |||
Increase in dividends and interest receivable | (51) | |||
Increase in receivable due from Adviser | (31) | |||
Decrease in administration and custody fees payable | (26) | |||
Decrease in other expenses payable | (18) | |||
Decrease in investment advisory fees payable | (3) | |||
Increase in Trustees’ fees payable | 16 | |||
Decrease in prepaid expenses | 150 | |||
|
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Net cash provided by operating activities | 18,631 | |||
|
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Cash Flows from Financing Activities: | ||||
Distributions paid to shareholders | (13,527) | |||
|
| |||
Net cash used in financing activities | (13,527) | |||
|
| |||
Net Increase in Cash and Cash Equivalents | 5,104 | |||
|
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Cash and Cash Equivalents: | ||||
Beginning balance | 17,110 | |||
|
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Ending balance | $ | 22,214 | ||
|
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See accompanying notes to financial statements.
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| For the Six Months Ended June 30, 2024 (Unaudited) | For the Period from May 3, 2023(1) to December 31, 2023 | |||||||
|
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Common Shares | ||||||||
Per Share Operating Performance(2) | ||||||||
Net asset value, beginning of period | $ | 1,008.40 | $ | 1,000.00 | ||||
Income from operations: | ||||||||
Net investment income(2) | 31.44 | 41.29 | ||||||
Net realized and unrealized gain | 7.40 | 8.12 | ||||||
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Total income from operations | 38.84 | 49.41 | ||||||
Distributions from: | ||||||||
Net Investment Income | (31.34 | ) | (41.01 | ) | ||||
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Net asset value, end of period | $ | 1,015.90 | $ | 1,008.40 | ||||
|
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Total return(3) | 3.95 | % | 4.97 | % | ||||
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Ratio to average net assets(4) | ||||||||
Expenses, before waiver and reimbursement | 0.87 | % | 0.99 | % | ||||
Expenses, after waiver and reimbursement | 0.65 | % | 0.68 | % | ||||
Net investment income, before waiver and reimbursement | 5.99 | % | 5.70 | % | ||||
Net investment income, after waiver and reimbursement | 6.21 | % | 6.01 | % | ||||
Supplemental data | ||||||||
Net assets, end of period (000’s) | $ | 432,152 | $ | 428,964 | ||||
Portfolio turnover rate(3) | 4.38 | % | 6.27 | % | ||||
| (1) | Common Shares commenced operations on May 3, 2023. |
| (2) | Per share calculations were performed using the average shares outstanding for the period. |
| (3) | Total return and Portfolio turnover rate are for the period indicated and have not been annualized. Total return assumes a purchase of common share 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. |
| (4) | Annualized. |
See accompanying notes to financial statements.
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1. Organization
KKR Asset-Based Income Fund (the “Fund”) was organized on February 10, 2023 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 May 3, 2023. The Fund seeks to provide attractive risk-adjusted returns. The Fund is non-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”).
2. Summary of Significant Accounting Policies
Basis of Presentation — The accompanying 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 (“FASB”) Accounting Standards Codification Topic 946, Financial Services — Investment Companies. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in these financial statements. Actual results could differ from those estimates.
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 designated the Adviser as the valuation designee to perform fair valuations pursuant to Rule 2a-5 under the 1940 Act (the “Valuation Designee”). The Valuation Designee has primary responsibility for implementing the Fund’s valuation policies and procedures.
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 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.
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.
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.
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
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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.
For the six months ended June 30, 2024, there have been no significant changes to the Fund’s fair value methodologies.
Senior Loans — Senior loans hold the most senior position in the capital structure of a borrower and in most circumstances are fully collateralized by assets of the borrower. They are generally repaid before unsecured bank loans, corporate bonds, subordinated debt, trade creditors and preferred or common shareholders. Substantial increases in interest rates could cause an increase in loan defaults as borrowers might lack resources to meet higher debt service requirements. The value of the Fund’s assets could also be affected by other uncertainties such as economic developments affecting the market for senior secured term loans or affecting borrowers generally.
Mortgage-Backed and Asset-Backed Securities — The Fund invests in mortgage-backed securities (“MBS”) and asset-backed securities (“ABS”). ABS represent interests in pools of underlying hard and financial assets. MBS are created from pools of residential or commercial mortgage loans. These securities typically provide a monthly
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payment that consists of principal and/or interest payments. Interest payments may be determined by fixed or adjustable rates.
Unfunded Loan Commitments — Unfunded loan commitments may be partially or wholly unfunded. During the contractual period, the Fund is obliged to provide funding to the borrower upon demand.
When-Issued Securities — The Fund may purchase and sell securities on a when-issued basis, including To Be Announced (“TBA”) securities. These transactions are made conditionally because a security, although authorized, has not yet been issued in the market. A commitment by the Fund is made regarding these transactions to purchase or sell securities for a predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. The Fund may sell when-issued securities before they are delivered, which may result in a capital gain or loss. Risk may arise upon entering these contracts from the potential inability of a counterparty to meet the terms of their contracts, or if the issuer does not issue the securities due to political, economic, or other factors.
Investment Transactions — Investment transactions are accounted for on the trade date, the date the order to buy or sell is executed. Interest income is accrued as earned. Dividends are recorded on the ex-dividend date. Discounts are accreted and premiums are amortized using the effective interest method over the holding period of the investment. Paydown gains and losses on MBS and ABS are recorded as an adjustment to interest income. Realized gains and losses are calculated on the specific identified cost basis.
Cash and Cash Equivalents — Cash and cash equivalents include cash on hand, cash held in banks and highly liquid investments with original maturities of three or fewer months. Cash equivalents consist solely of money market funds with financial institutions. As of June 30, 2024, the Fund was invested in the Fidelity Investments Money Market Treasury Portfolio — Class I.
Distributions to Shareholders — Distributions of net investment income are declared and paid quarterly and distributable net realized capital gains, if any, are declared and distributed at least annually. Distributions to shareholders are recorded on the ex-dividend date.
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 investment company taxable income and capital gains to its shareholders based on the Fund’s fiscal year end of December 31.
To avoid imposition of a 4.0% excise tax on undistributed income applicable to regulated investment companies, the Fund intends to declare each year as dividends at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the one year period 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 50.0%) 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 year (2023). However, management’s conclusions regarding tax positions taken may be subject to review and adjustment at a later date based on factors including,
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but not limited to, examination by tax authorities, on-going analysis of and changes to tax laws, regulations and interpretations thereof.
As of June 30, 2024, 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 Statement of Operations. During the six months ended June 30, 2024, the Fund did not incur any interest or penalties.
3. Risk Considerations
The Fund invests mainly in ABS, MBS and senior loans. These investments may involve certain risks, including, but not limited to, those described below:
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, the conflict between Russia and Ukraine, the conflict between Hamas and Israel, rapid interest rate changes, heightened inflation, supply chain disruptions, geopolitical risks, economic sanctions and volatility in the banking and financial sector have disrupted global economies and financial markets, and their prolonged economic impact is uncertain. Market, economic and political conditions and events are outside the Adviser’s control and could adversely affect the Fund’s operations and performance and 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 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.
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.
For more information on these and other risks, refer to the Fund’s private placement memorandum.
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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 in arrears by the Fund, in an amount equal to 0.50% of the Fund’s month end net assets (the “Management Fee”). The Adviser has agreed to temporarily reduce its Management Fee to an annual rate of 0.35% of the Fund’s month end net assets until the Fund’s aggregate net assets are equal to or greater than $1.0 billion. When the Fund’s aggregate net assets are equal to or greater than $1.0 billion, the Adviser’s agreement to temporarily reduce its Management Fee will terminate, and the Adviser will receive a Management Fee at an annual rate of 0.50% of the Fund’s month end net assets. The aforementioned limitation to the Management Fee may be extended, terminated or modified by the Adviser in its sole discretion and at any time.
During the six months ended June 30, 2024, the Adviser earned a Management Fee of $1.1 million and waived fees of $0.3 million.
Expense Limitation and Reimbursement Agreement — 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 of 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 0.30% of the Fund’s month end net assets.
“Specified Expenses” is defined to include all expenses incurred in the business of the Fund, including organization and offering expenses, with the exception of (i) the Management Fee; (ii) fees, costs and expenses of identifying, sourcing, investigating (and conducting diligence with respect to), evaluating, structuring, consummating, registering, holding, rating, monitoring or disposing potential and actual portfolio investments, including (a) brokerage commissions, clearing and settlement charges, investment banking fees, bank charges, custodial fees, placement, syndication and solicitation fees, arranger fees, expenses relating to short sales, sales commissions, and other investment, execution, closing and administrative fees, costs and expenses, (b) any travel-related costs and expenses incurred in connection therewith (including costs and expenses of accommodations and meals, costs and expenses related to attending trade association meetings, conferences or similar meetings for purposes of evaluating actual or potential investment opportunities, and with respect to travel on non-commercial aircraft, costs of travel at a comparable business class commercial airline rate) including any such expenses incurred in connection with attendance at meetings of relevant investment committees and portfolio management committees, (c) expenses associated with portfolio and risk management including hedging transactions and related costs, (d) fees, costs and expenses incurred in the organization, operation, administration, restructuring or dissolution, liquidation and termination of any entities through which the Fund makes investments (including costs associated with establishing and maintaining a permanent residence in certain jurisdictions, such as employee compensation and benefits, allocable rent and other overhead of entities established to manage or administer such entities including entities in which KKR or its affiliates have an interest), and (e) fees, costs and expenses of outside counsel, accountants, auditors, consultants and other similar advisors and service providers incurred in connection with designing, implementing and monitoring participation by portfolio companies or other issuers in compliance and operational “best practices” programs and initiatives; (iii) dividend/interest payments (including any dividend payments, interest expenses, commitment fees, or other expenses related to any leverage incurred by the Fund); (iv) taxes; and (v) extraordinary expenses (as determined in the sole discretion of the Adviser).
The “Limitation Period” commenced on April 25, 2023 through the later of two years or until the Fund’s aggregate net assets are equal to or greater than $1.5 billion. The Fund will agree to repay these amounts (“Reimbursement
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Payment”) on a monthly basis, but only if and to the extent that Specified Expenses plus the Reimbursement Payment are less than 0.30% of the Fund’s month end net assets during the year. The Fund’s obligation to make Reimbursement Payments expires 36 months from the month 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 June 30, 2024, the amount of Expense Limitation Payments since the inception of the Fund provided by the Adviser was $0.8 million and Reimbursement Payments to the Adviser was $0.2 million. The Fund’s management believes that Reimbursement Payments of the remaining Expense Limitation Payments were not probable as of June 30, 2024.
The following table reflects the Expense Limitation Payments that may become subject to reimbursement (in thousands):
| For the period ended | Amount of Expense Limitation Payment | Eligible for Reimbursement Payment through | ||||
December 31, 2023 | $ | 404 | December 31, 2026 | |||
June 30, 2024 | $ | 188 | June 30, 2027 | |||
Administrator, Custodian and Transfer Agent — KKR Credit Advisors (US) LLC also serves as the Fund’s administrator (the “Administrator”) pursuant to an administration agreement under which the Administrator is responsible for providing administrative and accounting services. The Administrator has also entered into a sub-administration agreement with The Bank of New York Mellon. The Fund has engaged The Bank of New York Mellon as the Fund’s custodian and has engaged BNY Mellon Investment Servicing (US) Inc., as the Fund’s transfer agent.
Distributor — Pursuant to a Distribution Agreement, KKR Capital Markets LLC (the “Distributor”), an affiliate of the Adviser, serves as distributor of the Fund’s shares. The Fund’s shares do not incur distribution or servicing fees.
Other — Certain officers of the Fund are also employees and 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 on a recurring basis as of June 30, 2024, and indicates the fair value hierarchy of the inputs utilized by the Fund to determine such fair value (in thousands):
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Investments in securities: | ||||||||||||||||
Asset-Backed Securities | $ | — | $ | 214,669 | $ | 18,048 | $ | 232,717 | ||||||||
Mortgage-Backed Securities | — | 130,191 | 13,070 | 143,261 | ||||||||||||
Senior Loans | — | — | 38,780 | 38,780 | ||||||||||||
Private Equity | — | — | 910 | 910 | ||||||||||||
Money Market Fund | 22,214 | — | — | 22,214 | ||||||||||||
|
| |||||||||||||||
Total Investments in securities | $ | 22,214 | $ | 344,860 | $ | 70,808 | $ | 437,882 | ||||||||
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The following are the details of the restricted securities of the Fund (in thousands, except share amounts):
| Issuer(1) | Asset | Par/Shares | Cost | Value | Acquisition Date | % of Net Assets | ||||||||||||||||
Asset-Backed Securities | ||||||||||||||||||||||
Santander Drive Auto Receivables Trust | Class B, Series 2022-2 | 2,722 | $ | 2,666 | $ | 2,690 | 10/17/2023 | 0.6 | % | |||||||||||||
Senior Loans | ||||||||||||||||||||||
SunPower Financial | TL 1L DD 11/23 | 1,942 | 1,942 | 1,942 | 11/3/2023 | 0.4 | % | |||||||||||||||
SunPower Financial | Revolver 1L 06/23 | 1,507 | 1,507 | 1,507 | 6/7/2023 | 0.3 | % | |||||||||||||||
Private Equity | ||||||||||||||||||||||
SunPower Financial | Private Equity (SPV) | 837,452 | 837 | 910 | 6/7/2023 | 0.2 | % | |||||||||||||||
|
| |||||||||||||||||||||
| $ | 6,952 | $ | 7,049 | |||||||||||||||||||
|
| |||||||||||||||||||||
| (1) | Refer to the 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 (in thousands):
Asset-Backed Securities | Mortgage-Backed Securities | Senior Loans | Private Equity | Total | ||||||||||||||||
Balance as of December 31, 2023 | $ | — | $ | 15,670 | $ | 43,736 | $ | 1,018 | $ | 60,424 | ||||||||||
Purchases and drawdowns | 6,461 | — | 260 | — | 6,721 | |||||||||||||||
Paydowns | — | (226 | ) | (5,319 | ) | — | (5,545) | |||||||||||||
Paydown gains | — | 24 | — | — | 24 | |||||||||||||||
Accretion of discounts | — | 76 | — | — | 76 | |||||||||||||||
Net change in unrealized appreciation/(depreciation) | (60 | ) | 373 | 103 | (108 | ) | 308 | |||||||||||||
Transfers in(1) | 11,647 | — | — | — | 11,647 | |||||||||||||||
Transfers out(2) | — | (2,847 | ) | — | — | (2,847) | ||||||||||||||
|
| |||||||||||||||||||
Balance as of June 30, 2024 | $ | 18,048 | $ | 13,070 | $ | 38,780 | $ | 910 | $ | 70,808 | ||||||||||
|
| |||||||||||||||||||
Net change in unrealized appreciation/(depreciation) on investments held at June 30, 2024 | $ | (60 | ) | $ | 373 | $ | 103 | $ | (108 | ) | $ | 308 | ||||||||
|
| |||||||||||||||||||
| (1) | Transferred from Level 2 to Level 3 due to a lack of observable market data, resulting from a decrease in market activity for the security. |
| (2) | Transferred from Level 3 to Level 2 because observable market data became available for the security. |
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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 June 30, 2024:
| Financial Asset | Fair Value (in thousands) | Valuation Technique | Unobservable Inputs(1) | Range (Weighted Average)(2) | Impact to Valuation from an Increase in Input | |||||||
Asset-Backed Securities | $ | 18,048 | Yield Analysis | Yield | 7.5% | Decrease | ||||||
Mortgage-Backed Securities | $ | 13,070 | Yield Analysis | Yield | 11.5% | Decrease | ||||||
Senior Loans | $ | 38,780 | Yield Analysis | Yield | 5.8% - 14.1% (8.7%) | Decrease | ||||||
Private Equity | $ | 910 | Discounted Cash Flows | WACC | 41.9% | Decrease | ||||||
| (1) | 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. |
| (2) | 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 June 30, 2024 were as follows (in thousands):
| Investments | ||||
Purchases | $ | 19,401 | ||
Sales | $ | 25,994 | ||
There were no purchases or sales of U.S. Government securities.
7. Shareholder Transactions
On April 25, 2023, the Fund issued 515 shares of Series A Cumulative Preferred Shares (“CPS”) at an issuance price and liquidation preference of $1,000 per share. The shares accrue dividends at a rate of 12.0% per annum, with interest paid semi-annually in arrears. Unless full cumulative dividends on all outstanding CPS are declared and paid, no dividends shall be declared or paid upon common shares of the Fund. Each holder of CPS is entitled to one vote for each unit of CPS held and are senior to all classes and series of the Fund’s common shares. In the event of any dissolution, liquidation or winding down of the Fund, the CPS holders will be entitled to receive a pro rata distribution, prior to any assets being made available to common shareholders, in an amount equal to the liquidation value of the CPS. At June 30, 2024, the Fund has 515 shares of the CPS outstanding with a total liquidation value of $515,000.
At June 30, 2024, the Fund has unlimited common shares authorized with a par value of $0.001 per share. The Fund had no shareholder transactions during the six months ended June 30, 2024.
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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 June 30, 2024, total unfunded commitments on these credit agreements were $22.6 million.
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/loss and net realized gain/loss 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 or distributable earnings, as appropriate, in the period in which the differences arise.
GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share.
As of December 31, 2023, the Fund’s most recent fiscal year end, the following permanent differences have been reclassified (to)/from the following accounts (in thousands):
| Distributable earnings | Paid-in Capital | |||||
| $ | 18 | $ | (18) | |||
The tax character of distributions declared for the preferred and common shareholders for the period ended December 31, 2023 and the six months ended June 30, 2024 were as follows (in thousands):
| Ordinary Income | Total | |||||||
|
| |||||||
December 31, 2023 | $ | 16,679 | $ | 16,679 | ||||
June 30, 2024* | $ | 13,362 | $ | 13,362 | ||||
| * | The final tax character of any distribution declared during the year ended 2024 will be determined in 2025 and reported to shareholders on IRS Form 1099-DIV in accordance with federal income tax regulations. |
As of December 31, 2023, the Fund’s most recent fiscal year end, the components of total distributable earnings on a tax basis for the Fund are as follows (in thousands):
| Undistributed Ordinary Income | Net Unrealized Depreciation | Other Temporary Differences | Capital Loss Carryforward | |||||||||||
| $ | 33 | $ | 4,049 | $ | (3 | ) | $ | (97 | ) | |||||
Net capital losses earned may be carried forward indefinitely and must retain the character of the original loss. During the year ended December 31, 2023, the Fund did not utilize any capital loss carryforwards. As of December 31, 2023, the Fund had non-expiring short-term capital loss carryforwards of $0.1 million.
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As of December 31, 2023, the Fund’s most recent fiscal year end, 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 (in thousands):
Federal Tax | Aggregate Gross Unrealized Appreciation | Aggregate Gross Unrealized Depreciation | Net Unrealized Appreciation | |||||||||||
| $ | 414,288 | $ | 4,809 | $ | (760 | ) | $ | 4,049 | ||||||
10. Borrowings
The Fund is a party to Master Repurchase Agreements (“MRA”) that governs transactions between the Fund and various counterparties. In a reverse repurchase agreement, the Fund delivers a security in exchange for cash to a counterparty with a simultaneous agreement to repurchase the same or substantially the same security at an agreed upon price and date. The Fund is entitled to receive the principal and interest payments, if any, made on the security delivered to the counterparty during the term of the agreement. Cash received in exchange for securities delivered plus accrued interest payments to be made by the Fund to the counterparty is reflected as a liability in the Statement of Assets and Liabilities. Interest payments made by the Fund to a counterparty is recorded as a component of interest expense in the Statement of Operations. The Fund will segregate assets determined to be liquid by the Adviser or will otherwise cover its obligations under reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the securities retained in lieu of sale by the Fund may decline below the price of the securities the Fund has sold but is obligated to repurchase. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce the Fund’s obligation to repurchase the securities, and the Fund’s use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision. Also, the Fund would bear the risk of loss to the extent that the proceeds of the reverse repurchase agreement are less than the value of the securities subject to such agreements. As of June 30, 2024, the Fund had no reverse repurchase agreements outstanding under the MRA.
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Pursuant to the Fund’s Dividend Reinvestment Plan (the “DRIP”), Shareholders may “opt in” to reinvest all or a portion of the income dividends and/or capital gain distributions to Shareholders in additional Shares of the Fund by providing the required enrollment notice to the Transfer Agent (the “DRIP Administrator”). A Shareholder may terminate participation in the DRIP at any time by notifying the DRIP Administrator before the record date of the next distribution through the Internet, by telephone or in writing to the DRIP Administrator. Shareholders whose Shares are held in the name of a broker or other nominee and who wish to have distributions reinvested may do so only if such a service is provided by the broker or other nominee or if the broker or other nominee permits participation in the DRIP. Shareholders whose Shares are held in the name of a broker or other nominee should contact their broker or nominee. All distributions to Shareholders who do not participate in the DRIP, or have elected to terminate their participation in the DRIP, are paid by wire or check mailed directly to the record holder by or under the direction of the DRIP Administrator when the Board declares a distribution.
The DRIP Administrator maintains all Shareholder accounts in the DRIP and furnishes confirmations of all transactions in the account, including information needed by Shareholders for tax records. Shares in the account of each DRIP participant are held by the DRIP Administrator in non-certificated form in the name of the participant, and each Shareholder’s proxy includes Shares purchased pursuant to the DRIP. The DRIP Administrator will forward all proxy solicitation materials to participants and vote proxies for Shares held under the DRIP in accordance with the instructions of the participants.
There is no charge to participants for reinvesting regular distributions and capital gains distributions; however, the Fund reserves the right to amend the DRIP to include a service charge payable by the participants. Any fees of the DRIP Administrator for handling the reinvestment of regular distributions and capital gains distributions are included in the fee to be paid by the Fund to the DRIP Administrator. There are no brokerage charges with respect to Shares issued directly by the Fund as a result of regular distributions or capital gains distributions payable either in Shares or in cash.
The reinvestment of such dividends or distributions does not relieve participants of any income tax that may be payable on such dividends or distributions. See “Material U.S. Federal Income Tax Considerations” in the SAI.
The Fund reserves the right to amend or terminate the DRIP at any time. Any expenses of the DRIP will be borne by the Fund. All correspondence or questions concerning the DRIP should be directed to the DRIP Administrator.
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Protection and Security of Your Personal Information
Kohlberg Kravis Roberts & Co. L.P. (“KKR”) respects our investors’ right to privacy. All financial companies choose how they share personal information. Consumers have the right under U.S. federal law to limit some, but not all, sharing of personal information. U.S. federal law also requires us to inform you how we collect, share and protect your personal information. Investors may also have additional limiting rights under their respective State’s law. This notice is provided by KKR, its affiliates, and funds (“KKR”, “we”, or “us”). Please read this notice carefully to understand what we do, and call us at (212) 750-8300 if you have any questions.
The Personal Information We Collect and How We Collect It
We collect the following types of personal information about individuals who are our investors:
| • | Information we receive from investors in subscription agreements, questionnaires and in other forms, such as name, address, account information, social security number, the types and amounts of investments, statements of net worth, telephone number, and other contact information; |
| • | Information we receive from investors, affiliates and other companies about investors’ transactions with us, our affiliates, or other financial institutions with which we have relationships; and |
| • | Information we receive from third parties such as demographic information and information collected to comply with law and regulation. |
When you are no longer an investor with us, we continue to share your information as described in this notice.
How and Why We Share Personal Information
This section lists reasons why financial companies can share their customers’ personal information. With respect to each reason, we explain whether KKR chooses to share for this reason and, if we do share, whether you can limit this sharing.
| • | For everyday business purposes: KKR shares personal information for everyday business purposes, such as to |
| • | process your transactions; |
| • | provide financial products or services to you; |
| • | maintain your investment(s); |
| • | secure business services, including printing, mailing, and processing or analyzing data; |
| • | secure professional services, including accounting and legal services; or |
| • | respond to court orders and legal investigations. |
You cannot limit sharing by KKR for everyday business purposes.
| • | For our marketing purposes: KKR shares personal information for our marketing purposes so that we can offer products and services to you. You cannot limit sharing by KKR for this reason. |
| • | For joint marketing with other financial companies: KKR does not share personal information for joint marketing with other financial companies. |
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| • | For use by affiliates in providing products and services to you: KKR shares personal information for our affiliates’ use in providing you with products and services that meet your financial services needs. You cannot limit sharing by KKR for this reason. |
| • | For the everyday business purposes of affiliates: KKR does not share personal information, including information about your credit worthiness, with our affiliates for their everyday business purposes. |
| • | For use by affiliates to market to you: KKR does not share personal information with affiliates so that they can market to you. |
| • | For use by non-affiliates to market to you: KKR does not share personal information with non-affiliates so that they can market to you. |
U.S. Federal law gives you the right to limit sharing of your personal information only for use (i) by affiliates everyday business purposes (information about your creditworthiness), (ii) by affiliates to market to you, and (iii) by non-affiliates to market to you. U.S. State laws and individual companies may give you additional rights to limit sharing.
How We Protect Your Personal Information
To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.
Definitions
Affiliates: Companies related by common ownership or control. They can be financial and nonfinancial companies. KKR does not share with our affiliates, except to provide you products and services that meet your financial needs.
Non-affiliates: Companies not related by common ownership or control. They can be financial and nonfinancial companies. KKR does not share with non-affiliates so they can market to you.
Joint Marketing: A formal agreement between nonaffiliated financial companies that together market financial products and services to you. KKR does not jointly market.
Notice is hereby given, in accordance with Section 23(c) of the Investment Company Act of 1940 and the rules promulgated thereunder, that the Fund may from time to time purchase its shares at net asset value.
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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 Registrant.
Not applicable for semi-annual report.
Item 6. Investments.
| (a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this Form N-CSR. |
| (b) | Not applicable to the registrant. |
| Item 7. | Financial Statements and Financial Highlights for Open-End Management Investment Companies. |
Not applicable.
Item 8. Changes in and Disagreements with Accountants for Open-End Management Investment Companies.
Not applicable.
| Item 9. | Proxy Disclosures for Open-End Management Investment Companies. |
Not applicable.
Item 10. Remuneration Paid to Trustees, Officers, and Others of Open-End Management Investment Companies.
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Not applicable.
Item 11. Statement Regarding Basis for Approval of Investment Advisory Contract.
Not applicable.
Item 12. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable for semi-annual report.
Item 13. Portfolio Managers of Closed-End Management Investment Companies.
(a)(1) Not applicable for semi-annual report.
(a)(2) Not applicable for semi-annual report.
(a)(3) Not applicable for semi-annual report.
(a)(4) Not applicable for semi-annual report.
(b) As of the date of this filing, there have been no changes in any of the portfolio managers identified in the most recent annual report on Form N-CSR.
Item 14. 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).
Item 15. 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 16. 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
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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 period covered by this report that materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 17. 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 18. Recovery of Erroneously Awarded Compensation.
(a) Not applicable.
(b) Not applicable.
Item 19. Exhibits.
(a)(1) Not applicable.
(a)(2) Not applicable for semi-annual report.
(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 Asset-Based Income Fund
By | /s/ Christopher Mellia | |||
Christopher Mellia, President | ||||
(principal executive officer) |
Date August 21, 2024
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/ Christopher Mellia | |||
Christopher Mellia, President | ||||
(principal executive officer) |
Date August 21, 2024
By | /s/ Thomas Murphy | |||
Thomas Murphy, Chief Financial Officer, Chief | ||||
Accounting Officer and Treasurer | ||||
(principal financial officer) |
Date August 21, 2024