Investment Company Act file number

(811-22543)

KKR Income Opportunities Fund

(Exact name of registrant as specified in charter)

KKR Credit Advisors (US) LLC

555 California Street, 50th Floor

San Francisco, California

94104

(Address of principal executive offices)

(Zip code)

U.S. Bancorp Fund Services. LLC

615 East Michigan Street

Milwaukee, WI 53202

(Name and address of agent for service)

Registrant’s telephone number, including area code:

(415) 315-3620

Date of fiscal year end:

October 31, 2015

Date of reporting period:

July 31, 2015

Income Opportunities Fund

July 31, 2015

Par†

Value

HIGH YIELD SECURITIES - 76.6%

Aerospace & Defense - 1.3%

Bombardier, Inc.

6.125%, 01/15/2023 (a)(g)

4,327,000

$

3,504,870

Air Freight & Logistics - 3.9%

XPO Logistics, Inc.

7.875%, 09/01/2019 (a)

5,317,000

5,682,544

6.500%, 06/15/2022 (a)

4,986,000

4,904,977

10,587,521

Banks - 3.9%

Novo Banco SA

N/A, 02/19/2049 (a)(g)(i)

EUR

8,602,000

1,417,071

N/A, 02/27/2051 (a)(g)(i)

EUR

3,601,000

563,559

N/A, 04/09/2052 (g)(i)

EUR

246,000

37,148

SquareTwo Financial Corp.

11.625%, 04/01/2017 (d)(e)

14,720,000

8,537,600

10,555,378

Building Products - 3.9%

Builders FirstSource, Inc.

10.750%, 08/15/2023 (a)

2,678,000

2,744,950

New Enterprise Stone & Lime Co., Inc.

13.000%, 03/15/2018 (c)

7,245,000

7,824,600

10,569,550

Construction Materials - 7.3%

Cemex Materials LLC

7.700%, 07/21/2025 (a)

13,760,000

14,637,200

Summit Materials Holdings LP

10.500%, 01/31/2020

4,869,000

5,258,520

19,895,720

Diversified Telecommunication Services - 4.1%

Windstream Corp.

7.750%, 10/15/2020

6,101,000

5,586,228

Zayo Group LLC

6.375%, 12/31/2025 (a)

5,517,000

5,454,934

11,041,162

Electric Utilities - 2.9%

Dynegy, Inc.

6.750%, 11/01/2019 (a)

789,000

814,642

7.375%, 11/01/2022 (a)

3,359,000

3,474,886

7.625%, 11/01/2024 (a)

3,507,000

3,620,978

7,910,506

Electronic Equipment, Instruments & Components - 3.5%

Artesyn Technologies, Inc.

9.750%, 10/15/2020 (a)

9,594,000

9,594,000

Energy Equipment & Services - 0.6%

Bristow Group, Inc.

6.250%, 10/15/2022

1,827,000

1,726,515

Par†

Value

HIGH YIELD SECURITIES - 76.6% (continued)

Food & Staples Retailing - 1.3%

Brake Bros Ltd.

7.125%, 12/15/2018 (a)(g)

GBP

2,166,000

$

3,497,531

Hotels, Restaurants & Leisure - 3.4%

Boyd Gaming Corp.

9.000%, 07/01/2020

3,583,000

3,896,513

Eldorado Resorts, Inc.

7.000%, 08/01/2023 (a)

5,394,000

5,407,485

9,303,998

Household Durables - 0.4%

The Hillman Group, Inc.

6.375%, 07/15/2022 (a)

1,107,000

1,057,185

Insurance - 1.9%

Towergate

8.750%, 04/02/2020 (a)(d)(e)(g)

GBP

3,310,813

5,015,208

IT Services - 0.8%

iPayment Investors LP

9.500%, 12/15/2019 (a)

2,068,148

2,039,711

Life Sciences Tools & Services - 0.6%

Labcosynlab

8.250%, 07/01/2023 (a)(g)

EUR

851,000

939,751

Pharmaceutical Products Developement, Inc.

9.375%, 10/15/2017 (a)(c)

654,000

667,897

1,607,648

Media - 10.2%

Block Communications, Inc.

7.250%, 02/01/2020 (a)

66,000

66,660

Cequel Communications Holdings LLC

5.125%, 12/15/2021 (a)

107,000

99,376

7.750%, 07/15/2025 (a)

6,573,000

6,457,973

Clear Channel Outdoor, Inc., Series B

7.625%, 03/15/2020

5,597,000

5,880,348

Intelsat Jackson Holdings SA

5.500%, 08/01/2023 (g)

4,150,000

3,755,750

Virgin Media, Inc.

6.375%, 04/15/2023 (a)(g)

1,873,000

1,957,285

5.250%, 01/15/2026 (a)(g)

9,702,000

9,362,430

27,579,822

Metals & Mining - 2.7%

Ryerson, Inc.

9.000%, 10/15/2017

7,289,000

7,197,888

Multi-Utilities - 1.2%

Calpine Corp.

7.875%, 01/15/2023 (a)

3,053,000

3,276,251

Par†

Value

HIGH YIELD SECURITIES - 76.6% (continued)

Oil, Gas & Consumable Fuels - 3.4%

Bill Barrett Corp.

7.000%, 10/15/2022

7,699,000

$

6,370,922

Hilcorp Energy I LP (Hilcorp Finance Co.)

7.625%, 04/15/2021 (a)

2,864,000

2,949,920

9,320,842

Road & Rail - 1.9%

The Kenan Advantage Group, Inc.

7.875%, 07/31/2023 (a)

5,160,000

5,237,400

Semiconductors & Semiconductor Equipment - 1.4%

Micron Technology, Inc.

5.250%, 01/15/2024 (a)

3,979,000

3,819,840

Software - 2.0%

Datatel, Inc.

9.625%, 12/01/2018 (a)(c)(d)(e)

1,741,000

1,758,410

TIBCO Software, Inc.

11.375%, 12/01/2021 (a)

3,594,000

3,616,462

5,374,872

Specialty Retail - 6.4%

Guitar Center, Inc.

6.500%, 04/15/2019 (a)

4,408,000

4,000,260

J.C. Penney Corp., Inc.

7.950%, 04/01/2017

298,000

311,410

5.750%, 02/15/2018

1,617,000

1,572,533

8.125%, 10/01/2019

7,272,000

7,253,820

5.650%, 06/01/2020

2,516,000

2,264,400

The Mens Wearhouse, Inc.

7.000%, 07/01/2022

1,979,000

2,107,635

17,510,058

Textiles, Apparel & Luxury Goods - 2.5%

Hot Topic, Inc.

12.000%, 05/15/2019 (a)(c)

1,286,000

1,273,140

9.250%, 06/15/2021 (a)

5,488,000

5,625,200

6,898,340

Wireless Telecommunication Services - 5.1%

GCI, Inc.

6.750%, 06/01/2021

6,100,000

6,237,250

6.875%, 04/15/2025

4,076,000

4,147,330

Sprint Corp.

7.875%, 09/15/2023

1,642,000

1,572,543

T-Mobile USA, Inc.

6.625%, 11/15/2020

1,800,000

1,872,000

13,829,123

TOTAL HIGH YIELD SECURITIES (amortized cost $216,409,577)

207,950,939

Par†

Value

LEVERAGED LOANS - 59.1%

Building Products - 1.5%

Gypsum Management & Supply, Inc., TL 2L 03/14

7.750%, 04/01/2022 (b)

4,300,230

$

4,144,347

Chemicals - 0.1%

Emerald Performance Materials LLC, TL 2L 07/14

7.750%, 08/01/2022 (b)

268,490

267,902

Communications Equipment - 0.3%

Riverbed Technology, Inc., TL 1L 02/15

6.000%, 04/25/2022 (b)

933,820

946,076

Construction Materials - 3.0%

Hanson Building Products North America, TL 1L B 02/15

6.500%, 03/14/2022 (b)

8,123,314

8,148,740

Diversified Telecommunication Services - 5.3%

Lightower Fiber LLC, TL 2L 04/13

8.000%, 04/12/2021 (b)

2,667,589

2,660,920

Lightower Fiber LLC, TL 2L Incremental 05/15

8.000%, 04/12/2021 (b)

8,856,239

8,834,098

The Telx Group, Inc., TL 2L 04/14

7.500%, 04/09/2021 (b)

2,792,306

2,822,854

14,317,872

Electronic Equipment, Instruments & Components - 2.3%

TTM Technologies, Inc., TL 1L B 02/15

6.000%, 05/31/2021 (b)

6,462,344

6,325,019

Energy Equipment & Services - 0.6%

Proserv Acquisition LLC, TL 1L B1 12/14 (US Tranche)

6.375%, 12/22/2021 (b)(g)

1,135,924

959,856

Proserv Acquisition LLC, TL 1L B2 12/14 (UK Tranche)

5.657%, 12/22/2021 (b)(g)

666,738

563,393

1,523,249

Food & Staples Retailing - 7.3%

Brake Bros Ltd., TL 2L D2 10/07

6.829%, 03/13/2017 (b)(c)(g)

GBP

7,977,194

12,321,329

California Pizza Kitchen, Inc., TL 1L B 07/11

5.250%, 03/29/2018 (b)

5,733,762

5,663,896

Grocery Outlet, Inc., TL 2L 09/14

9.250%, 10/21/2022 (b)

1,805,430

1,807,687

19,792,912

Food Products - 3.2%

CSM Bakery Products, TL 2L 07/13

8.750%, 07/03/2021 (b)(e)

5,300,000

5,061,500

CTI Foods Holding Co. LLC, TL 2L 05/13

8.250%, 06/28/2021 (b)

3,800,000

3,728,750

8,790,250

Par†

Value

LEVERAGED LOANS - 59.1% (continued)

Health Care Providers & Services - 0.4%

Genoa (QoL), TL 2L 03/15

8.750%, 04/28/2023 (b)

1,044,260

$

1,049,481

Health Care Technology - 0.2%

Greenway Medical Technologies, TL 2L 10/13

9.250%, 11/04/2021 (b)

476,428

469,282

Hotels, Restaurants & Leisure - 4.7%

Caesars Entertainment Operating Co., Inc., TL 1L B6 01/08

8.937%, 03/01/2017 (b)(d)(e)(f)(j)

10,469,808

9,283,892

Caesars Entertainment Operating Co., Inc., TL 1L B7 05/14

11.750%, 01/28/2018 (b)(d)(e)(f)(j)

4,028,914

3,480,982

12,764,874

Household Durables - 0.1%

Algeco Scotsman Global Sarl, TL PIK 04/13

15.750%, 05/01/2018 (c)(e)(g)

363,252

165,414

Household Products - 2.8%

The Sun Products Corp., TL 1L B 03/13

5.500%, 03/23/2020 (b)

7,769,079

7,577,300

Insurance - 0.0%

AssuredPartners, Inc., TL 2L 03/14

7.750%, 04/02/2022 (b)(e)

11,123

11,178

IT Services - 3.5%

iPayment Investors LP, TL 1L B 05/11

6.750%, 05/08/2017 (b)

9,522,742

9,481,080

Leisure Products - 1.0%

BRG Sports, TL 2L 04/14

10.250%, 04/15/2022 (b)

2,809,440

2,823,487

Media - 2.3%

Catalina Marketing Corp., TL 1L 04/14

4.500%, 04/09/2021 (b)

2,620,900

2,247,422

Learfield Communications, Inc., TL 2L 10/13

8.750%, 10/08/2021 (b)

3,210,180

3,214,192

NEP Broadcasting LLC, TL 2L 01/13

10.000%, 07/22/2020 (b)

711,260

711,854

6,173,468

Software - 15.8%

Applied Systems, Inc., TL 2L 01/14

7.500%, 01/24/2022 (b)

6,384,864

6,418,800

Deltek, Inc., TL 2L 06/15

9.500%, 06/26/2023 (b)

7,346,780

7,435,566

iParadigms Holdings LLC, TL 2L 07/14

8.250%, 07/29/2022 (b)

5,719,710

5,691,111

Misys Ltd., TL 2L 06/12

12.000%, 06/12/2019

1,000,000

1,091,750

P2 Energy Solutions, Inc., TL 1L 10/13

5.000%, 10/30/2020 (b)

2,124,025

2,110,750

Par†

Value

LEVERAGED LOANS - 59.1% (continued)

RedPrairie Corp., TL 1L 12/13

6.000%, 12/21/2018 (b)

472,810

$

457,742

RedPrairie Corp., TL 2L 12/12

11.250%, 12/21/2019 (b)

9,231,528

8,506,853

TIBCO Software, Inc., TL 1L 10/14

6.500%, 12/04/2020 (b)(k)

8,968,558

8,999,948

Triple Point Technology, Inc., TL 1L 07/13

5.250%, 07/10/2020 (b)

2,529,573

2,301,911

43,014,431

Specialty Retail - 3.0%

David’s Bridal, Inc., TL 1L B 10/12

5.000%, 10/11/2019 (b)

2,777,420

2,685,071

Gymboree Corp., TL 1L 02/11

5.000%, 02/23/2018 (b)

7,767,509

5,581,615

8,266,686

Trading Companies & Distributors - 1.7%

Maxim Crane Works LP (Maxim Finance Corp.), TL 2L B 11/13

10.250%, 11/26/2018 (b)

4,493,151

4,515,617

TOTAL LEVERAGED LOANS (amortized cost $163,754,399)

160,568,665

Shares

COMMON STOCKS - 5.3%

Health Care Providers & Services - 4.4%

Amedisys, Inc. (d)(e)(f)

271,040

11,825,475

Insurance - 0.7%

Towergate Sun NewCo Common Shares A (d)(e)(g)

8,597

1,036,903

Towergate TopCo Common (d)(e)(g)

540,649

981,923

2,018,826

IT Services - 0.2%

iPayment Investors LP (e)

160,426

622,293

TOTAL COMMON STOCKS (cost $5,278,032)

14,466,594

PREFERRED STOCK - 1.9%

Insurance - 1.9%

Towergate Sun NewCo Preference B

N/A (d)(e)(g)

3,194,971

5,223,916

TOTAL PREFERRED STOCK (cost $4,736,869)

5,223,916

TOTAL INVESTMENTS (amortized cost $390,178,877 ††) (h) - 142.9%

388,210,114

LIABILITIES EXCEEDING OTHER ASSETS, NET - (42.9)%

(116,536,341

)

NET ASSETS - 100.0%

$

271,673,773

†

In U.S. Dollars unless otherwise indicated.

††

At July 31, 2015, the tax basis cost of the Fund’s investments was $390,178,877 and the unrealized appreciation and depreciation were $14,386,504 and $(16,355,267), respectively.

EUR

Euro

GBP

Great British Pound

(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.  The total value of these securities as of July 31, 2015 was $124,539,986, which represent 45.8% of net assets.

(b)

Variable rate security, the coupon rate shown is the effective rate as of July 31, 2015.

(c)

Represents a payment-in-kind (“PIK”) security which may pay interest/dividend in additional par/shares.

(d)

Security considered restricted due to the Adviser’s knowledge of material non-public information. The total value of these securities as of July 31, 2015 was $47,144,309 and represented 17.4% of net assets.

(e)

Security considered illiquid, as defined by the Securities and Exchange Commission.  The total value of these securities as of July 31, 2015 was $53,004,694 and represented 19.5% of net assets.

(f)

Non-income producing security.

(g)

Non-U.S. security.

(h)

All investments are held as collateral for the Fund’s credit facility.

(i)

Zero coupon security.

(j)

Security in Default.

(k)

Unsettled bank loan. Interest rate may not be available as of July 31, 2015.

Level 1

Level 2

Level 3

Total

Investments in securities and cash equivalents

High yield securities

$

—

$

207,950,939

$

—

$

207,950,939

Leveraged loans

—

 160,403,251

 165,414

 160,568,665

Common stocks

 11,825,475

—

 2,641,119

 14,466,594

Preferred stock

—

—

 5,223,916

 5,223,916

Cash equivalents

 13,651,658

—

—

  13,651,658

Total investments in securities and cash equivalents

$

25,477,133

$

368,354,190

$

8,030,449

$

401,861,772

Level 1

Level 2

Level 3

Total

Financial derivative instruments

Assets — Forward foreign currency contracts

$

—

$

275,433

$

—

$

275,433

Liabilities — Forward foreign currency contracts

—

(844,611

)

—

(844,611

)

Total financial derivative instruments

$

—

$

(569,178

)

$

—

$

(569,178

)

% of Net Assets

United States

124.0

%

United Kingdom

15.4

%

Luxembourg

1.4

%

Canada

1.3

%

Portugal

0.8

%

142.9

%

Liabilities Exceeding Other Assets, Net

(42.9

)%

100.0

%

The following are the details of the restricted securities held by the Fund as of July 31, 2015:

% of

Acquisition

Amortized

Net

Par/Shares

date(s)

Cost

Value

Assets

Amedisys, Inc.

271,040

08/05/2013 – 08/08/2013

$

3,799,456

$

11,825,475

4.4

%

Caesars Entertainment Operating Co., Inc., TL 1L B6 01/08 , 8.937%, 03/01/2017

10,469,808

05/07/2014 – 09/16/2014

 9,986,688

 9,283,892

3.4

%

Caesars Entertainment Operating Co., Inc., TL 1L B7 05/14 , 11.750%, 01/28/2018

4,028,914

05/14/2014 –09/03/2014

 3,925,916

 3,480,982

1.3

%

Datatel, Inc., 9.625%, 12/01/2018

1,741,000

11/14/2013 – 05/05/2015

 1,735,602

 1,758,410

0.7

%

SquareTwo Financial Corp., 11.625%, 04/01/2017

14,720,000

07/30/2013 –07/01/2014

14,995,828

8,537,600

3.1

%

Towergate, 8.750%, 04/02/2020

3,310,813

04/02/2015

 5,022,557

 5,015,208

1.9

%

Towergate Sun NewCo Common Shares A

8,597

04/02/2015

 15

 1,036,903

0.4

%

Towergate Sun NewCo Preference B

3,194,971

04/02/2015

 4,736,869

 5,223,916

1.9

%

Towergate TopCo Common

540,649

04/02/2015

 815,841

 981,923

0.3

%

Leveraged Loans

Common Stock

Preferred Stock

Beginning Balance at October 31, 2014

$

—

$

—

$

—

Purchases

—

1,478,561

4,736,869

Transfer in and/or out of Level 3(1)

295,136

—

—

Settlements

53,129

—

—

Net Change in Appreciation/(Depreciation)

(182,851

)

1,162,558

487,047

Balance as of July 31, 2015

$

165,414

$

2,641,119

$

5,223,916

Net Change in Appreciation/(Depreciation) on

Investments held at July 31, 2015

$

(182,851

)

$

1,162,558

$

487,047

Financial

Fair Value as of

Valuation

Unobservable

Ranges (Weighted

Asset

July 31, 2015

Technique

Inputs

Average)

Leveraged Loan

$

165,414

Yield Analysis

Yield

36%

EBIDTA Multiple

8.6x

Net Leverage

8.6x

Common Stock

$

2,641,119

Market Comparables

LTM EBIDTA Multiple

8.1x–10.1x(9.6x)

Fwd EBIDTA Multiple

8.1x-9.0x(8.8.x)

Illiquidity Discount

10%-10%(10)%

Discounted Cash Flow

WACC

12%