KIO - KIO And The Beauty Of Closed-End Fund Leverage

• One of the reasons KKR Income Opportunities Fund can pay out 7.8% distributions with over 100% earnings coverage is cheap institutional leverage that costs it less than 1% per annum.
• The "naked yield" on its investment portfolio (without the benefit of leverage) is 7.3% (and even lower, 6%, after fund expenses unrelated to leverage).
• But with the advantage of leverage, that yield on shareholders' investment, after all expenses including the cost of the leverage itself, jumps to 8.5%.
• Even higher (8.8%) for shareholders purchasing at the current 3.6% discount.
• I have called this the "alchemy" of closed-end funds, but whatever you call it, it's why so many investors have been attracted to CEFs as an investment vehicle.

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