nvcsrs
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 811-22435
Kayne Anderson Energy Development Company
(Exact name of registrant as specified in charter)
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717 Texas Avenue, Suite 3100, Houston, Texas
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77002 |
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(Address of principal executive offices)
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(Zip code) |
David Shladovsky, Esq.
KA Fund Advisors, LLC, 717 Texas Avenue, Suite 3100, Houston, Texas 77002
(Name and address of agent for service)
Registrants telephone number, including area code: (713) 493-2020
Date of fiscal year end: November 30, 2011
Date of reporting period: May 31, 2011
Form N-CSR is to be used by management investment companies to file reports with the
Commission not later than 10 days after the transmission to stockholders of any report that is
required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of
1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the
Commission will make this information public. A registrant is not required to respond to the
collection of information contained in Form N-CSR unless the Form displays a currently valid Office
of Management and Budget (OMB) control number. Please direct comments concerning the accuracy of
the information collection burden estimate and any suggestions for reducing the burden to
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The
OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. §
3507.
Item 1. Reports to Stockholders.
The report of Kayne Anderson Energy Development Company (the Registrant) to
stockholders for the semi-annual period ended May 31, 2011 is attached below.
CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: This report of Kayne Anderson Energy
Development Company (the Company) contains forward-looking statements as defined under the
U.S. federal securities laws. Generally, the words believe, expect, intend, estimate,
anticipate, project, will and similar expressions identify forward-looking statements, which
generally are not historical in nature. Forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to materially differ from the Companys historical
experience and its present expectations or projections indicated in any forward-looking statements.
These risks include, but are not limited to, changes in economic and political conditions;
regulatory and legal changes; master limited partnership (MLP) industry risk; leverage risk;
valuation risk; interest rate risk; tax risk; and other risks discussed in the Companys filings
with the Securities and Exchange Commission (SEC). You should not place undue reliance on
forward-looking statements, which speak only as of the date they are made. The Company undertakes
no obligation to update or revise any forward-looking statements made herein. There is no assurance
that the Companys investment objectives will be attained.
CONTENTS
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Page
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1
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6
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7
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10
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11
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12
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13
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14
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16
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32
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34
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37
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38
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS: This report of Kayne Anderson Energy
Development Company (the Company) contains
forward-looking statements as defined under the
U.S. federal securities laws. Generally, the words
believe, expect, intend,
estimate, anticipate,
project, will and similar expressions
identify forward-looking statements, which generally are not
historical in nature. Forward-looking statements are subject to
certain risks and uncertainties that could cause actual results
to materially differ from the Companys historical
experience and its present expectations or projections indicated
in any forward-looking statements. These risks include, but are
not limited to, changes in economic and political conditions;
regulatory and legal changes; master limited partnership
(MLP) industry risk; leverage risk; valuation risk;
interest rate risk; tax risk; and other risks discussed in the
Companys filings with the Securities and Exchange
Commission (SEC). You should not place undue
reliance on forward-looking statements, which speak only as of
the date they are made. The Company undertakes no obligation to
update or revise any forward-looking statements made herein.
There is no assurance that the Companys investment
objectives will be attained.
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
MANAGEMENT DISCUSSION
(UNAUDITED)
Company
Overview
We are a non-diversified, closed-end management investment
company organized under the laws of the State of Maryland. We
are a taxable corporation, paying federal and applicable state
taxes on our taxable income. Our operations are externally
managed and advised by our investment adviser, KA
Fund Advisors, LLC (KAFA), pursuant to an
investment management agreement. Our investment objective is to
generate both current income and capital appreciation primarily
through equity and debt investments. We will seek to achieve
this objective by investing at least 80% of our total assets in
securities of Energy Companies. A key focus area for our
investments is equity and debt investments in private and public
entities structured as limited partnerships (MLPs).
We also expect to continue to evaluate equity and debt
investments in Upstream, Midstream and Other Energy Companies.
Energy Companies, Midstream Energy
Companies, Upstream Energy Companies and
Other Energy Companies are each defined in
Note 1 Organization.
Portfolio
Activity
On April 18, 2011, we sold our investment in International
Resource Partners LP (IRP) to James River Coal
Company for cash proceeds of $95.0 million. An additional
$6.3 million was placed in escrow pursuant to the terms of
the purchase agreement pending the satisfaction of certain
post-closing obligations or the expiration of certain time
periods. As of May 31, 2011, we recorded a receivable of
$7.1 million on our balance sheet, which reflects our
estimated fair value of the escrow plus certain post-closing
adjustments.
As previously disclosed, our goal is to redeploy a significant
amount of the after-tax proceeds from the IRP sale into
similarly structured private investments over the next twelve
months. Pending such investments, we invested substantially all
of the gross proceeds from the IRP sale in public MLPs and
traded debt securities during the second half of the quarter.
Any future private investments will be funded through the sale
of portfolio securities.
In August 2011, we expect to make income tax payments of
approximately $19 million. These tax payments are primarily
associated with the sale of IRP and other non-recurring income.
We intend to fund such tax payments primarily through the sale
of portfolio securities.
Operating results at Direct Fuels Partners, L.P. (Direct
Fuels) improved substantially during the quarter. Also
during the quarter, Direct Fuels sold its biodiesel business.
Proceeds from the sale, including the reduction in working
capital needs, along with a cash tax refund related to 2010
biodiesel production, were used to repay approximately
$11 million of debt. As a result, the partnership was able
to amend its credit agreement to allow the payment of cash
distributions to its preferred and common unit holders for the
first time since the fourth quarter of 2009. Additionally,
because of Direct Fuels reduced debt levels and improving
operating results, we expect Direct Fuels to continue paying
$0.45 per common unit for the remainder of 2011.
During the quarter, we began accruing interest on our first lien
debt investment in ProPetro Services, Inc.
(ProPetro). As a result of the debt restructuring
that was completed in January and substantially improved
operating results, we now expect to be repaid the full face
value plus accrued interest when the notes mature. Interest is
paid-in-kind
until their February 2012 maturity date. As of May 31,
2011, we valued the first lien notes at $11.1 million (face
value) and our ProPetro common shares at $5.6 million.
ProPetro is currently exploring strategic alternatives, which
may result in a sale of all or a portion of its assets or
businesses.
Results
of Operations For the Three Months Ended
May 31, 2011
Investment Income. Investment income totaled
$5.3 million and consisted primarily of net dividends and
distributions and interest income on our debt investments. We
received $4.1 million of cash dividends and distributions,
of which $0.5 million was treated as a return of capital
during the period. During fiscal 2010, we estimated the return
of capital portion of cash distributions received from IRP to be
$1.4 million; however, during the second quarter, we
reduced this amount to zero in accordance with tax reporting
information received from IRP.
1
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
MANAGEMENT DISCUSSION
(UNAUDITED)
During the quarter, we received $1.7 million of interest
income, of which $0.6 million was
paid-in-kind
interest from ProPetro. We also received $0.7 million of
paid-in-kind
dividends, of which $0.5 million was from VantaCore
Partners LP. These
paid-in-kind
dividends are not included in investment income, but are
reflected as an unrealized gain.
Operating Expenses. Operating expenses totaled
$2.4 million, including $1.4 million of investment
management fees; $0.5 million of interest expense and
$0.5 million of other operating expenses. Interest expense
included $0.1 million of amortization of debt issuance
costs. Investment management fees were equal to an annual rate
of 1.75% of average total assets.
Net Investment Income. Our net investment
income totaled $1.9 million and included a current income
tax expense of $0.6 million and a deferred income tax
expense of $0.4 million.
Net Realized Gains. We had net realized gains
from investments of $51.6 million, after taking into
account a current income tax expense of $19.3 million and a
deferred income tax expense of $9.4 million. The majority
of the pre-tax gains of $80.3 million are attributable to
the sale of IRP, for which we realized a gain of
$73.9 million. As a result of the IRP sale, we expect to
utilize all of our federal and state net operating losses and
capital loss carry forwards and have therefore incurred a
current income tax expense and related liability.
Net Change in Unrealized Losses. We had net
unrealized losses of $40.2 million. The net unrealized loss
consisted of $63.0 million of unrealized losses from
investments and a deferred income tax benefit of
$22.8 million. Approximately $66.3 million of these
unrealized losses are a result of the reversal of the unrealized
gain attributable to IRP that was realized upon the sale of our
investment during the quarter.
Net Increase in Net Assets Resulting from
Operations. We had an increase in net assets
resulting from operations of $13.3 million. This increase
is composed of a net investment income of $1.9 million; net
realized gains of $51.6 million; and net unrealized loss of
$40.2 million, as noted above.
Distributions
to Common Stockholders
We pay quarterly distributions to our common stockholders,
funded in part by net distributable income (NDI)
generated from our portfolio investments. NDI is the amount of
income received by us from our portfolio investments less
operating expenses, subject to certain adjustments as described
below. NDI is not a financial measure under the accounting
principles generally accepted in the United States of America
(GAAP). Refer to the Reconciliation of NDI to
GAAP section below for a reconciliation of this measure to
our results reported under GAAP.
Income from portfolio investments includes (a) cash
dividends and distributions,
(b) paid-in-kind
dividends received (i.e., stock dividends), and
(c) interest income from debt securities and commitment
fees from private investments in public equity
(PIPE).
Operating expenses include (a) investment management fees
paid to KAFA, (b) other expenses (mostly attributable to
fees paid to other service providers) and (c) interest
expense.
2
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
MANAGEMENT DISCUSSION
(UNAUDITED)
Net
Distributable Income (NDI)
(amounts
in millions, except for per share amounts)
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Three Months
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Ended
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May 31,
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2011
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Distributions and Other Income from Investments
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Dividends and Distributions
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$
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4.1
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Paid-In-Kind
Dividends and Distributions
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0.7
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Interest Income
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1.0
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Paid-In-Kind
Interest and Other
Income(1)
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0.7
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Total Distributions and Other Income from Investments
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6.5
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Expenses
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Investment Management Fee
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(1.4
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Other Expenses
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(0.5
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Total Management Fee and Other Expenses
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(1.9
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Interest Expense
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(0.4
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Net Distributable Income (NDI)
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$
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4.2
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Weighted Average Shares Outstanding
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10.3
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NDI per Weighted Average Share Outstanding
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$
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0.41
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(1) |
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Other income includes $0.1 million of commitment fees from
PIPE investments, which is recorded as a reduction to the cost
of the investment. |
Payment of future distributions is subject to Board of Directors
approval, as well as meeting the covenants of our credit
facility. In determining our quarterly distribution to common
stockholders, our Board of Directors considers a number of
factors which include, but are not limited to:
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NDI generated in the current quarter;
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Expected NDI over the next twelve months;
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The extent to which NDI is comprised of
paid-in-kind
(PIK) interest and distributions;
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Expected liquidity events at our portfolio companies; and
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Realized and unrealized gains generated by the portfolio.
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On June 30, 2011, we declared our quarterly distribution of
$0.38 per common share for the fiscal second quarter for a total
of $3.9 million. This distribution amount represents an
increase of $0.07 per share (22.6%) over the prior
quarters distribution and represents an increase of
$0.04-$0.05 per share over our prior distribution guidance. The
distribution will be paid on July 22, 2011 to common
stockholders of record on July 13, 2011.
The Companys distribution increase was higher than the
prior distribution guidance as a result of several positive
developments at the Company during the quarter. First, the
Company successfully invested the proceeds from the sale of IRP
in public MLPs and quoted debt investments. Second, the
Companys net distributable income increased as a result of
greater than expected contributions from Direct Fuels and
ProPetro. The Company believes the current distribution level is
sustainable based on expected results of its current portfolio.
3
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
MANAGEMENT DISCUSSION
(UNAUDITED)
Reconciliation
of NDI to GAAP
The difference between distributions and other income from
investments in the NDI calculation and total investment income
as reported in our Statement of Operations is reconciled as
follows:
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GAAP recognizes that a significant portion of the cash
distributions received from MLPs is characterized as a return of
capital and therefore excluded from investment income, whereas
the NDI calculation includes the return of capital portion of
such distributions.
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NDI includes the value of dividends
paid-in-kind,
whereas such amounts are not included as investment income for
GAAP purposes during the period received, but rather are
recorded as unrealized gains upon receipt.
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NDI includes commitment fees from PIPE investments, whereas such
amounts are generally not included in investment income for GAAP
purposes, but rather are recorded as a reduction to the cost of
the investment.
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Many of our investments in debt securities were purchased at a
discount or premium to the par value of such security. When
making such investments, we consider the securitys yield
to maturity which factors in the impact of such discount (or
premium). Interest income reported under GAAP includes the
non-cash accretion of the discount (or amortization of the
premium) based on the effective interest method. When we
calculate interest income for purposes of determining NDI, in
order to better reflect the yield to maturity, the accretion of
the discount (or amortization of the premium) is calculated on a
straight-line basis to the earlier of the expected call date or
the maturity date of the debt security.
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The treatment of expenses included in NDI also differs from what
is reported in the Statement of Operations as follows:
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The non-cash amortization or write-offs of capitalized debt
issuance costs related to our debt financings is included in
interest expense for GAAP purposes, but is excluded from our
calculation of NDI.
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Liquidity
and Capital Resources
As of May 31, 2011, we had approximately $5.0 million
in short-term investments, in the form of a repurchase
agreement. Our repurchase agreement is collateralized by
U.S. Treasury securities, and our counterparty is
J.P. Morgan Securities Inc.
Our senior secured revolving credit facility (the Credit
Facility) has a $70 million commitment and a
three-year term (maturing on March 30, 2013). Outstanding
loan balances under the Credit Facility accrue interest at an
annual rate equal to LIBOR plus 2.00% based on the current
borrowings and the current borrowing base. If borrowings exceed
the borrowing base attributable to quoted securities
(generally defined as equity investments in public MLPs and
investments in bank debt and high yield bonds that are traded),
the interest rate will increase to LIBOR plus 3.00%. We pay a
commitment fee of 0.50% per annum on any unused amounts of the
Credit Facility.
Our borrowing base, subject to certain limitations, is generally
calculated by multiplying the fair value of each of our
investments by an advance rate. The total contribution to our
borrowing base from private MLPs is limited to no more than 25%
of the total borrowing base, and there is a $7 million
limit of borrowing base contribution from any single issuer.
4
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
MANAGEMENT DISCUSSION
(UNAUDITED)
As of May 31, 2011, we had $67.0 million of borrowings
under our Credit Facility (at an interest rate of 2.21%), which
represented 49.6% of our borrowing base of $135.2 million
(52.7% of our borrowing base of $127.1 million attributable
to quoted securities). As of July 14, 2011, we had
$62.0 million of borrowings under our Credit Facility (at
an interest rate of 2.19%), which represented 47.2% of our
borrowing base of $131.3 million (50.3% of our borrowing
base of $123.2 million attributable to quoted securities).
The maximum amount that we can borrow under our Credit Facility
is limited to the lesser of our commitment amount of
$70.0 million and our borrowing base.
We expect to pay estimated income taxes of approximately
$19.0 million in August 2011, which will be funded
primarily through the sale of portfolio securities.
5
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
PORTFOLIO SUMMARY
(UNAUDITED)
Portfolio
Investments by Category*
* As a percentage of total investments.
Top 10
Holdings by Issuer
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Percent of Total
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Investments as of
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Public/
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Equity/
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May 31,
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November 30,
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Holding
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Private
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Debt
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Sector
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2011
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2010
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1.
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Direct Fuels Partners, L.P.
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Private
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Equity
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Midstream
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13.1
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%
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10.4
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%
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2.
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VantaCore Partners LP
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Private
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Equity
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Aggregates
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5.7
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8.2
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3.
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ProPetro Services, Inc.
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Private
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Equity/Debt
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Oilfield Services
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5.2
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1.6
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4.
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Energy Transfer Partners, L.P.
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Public
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Equity
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Midstream
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4.9
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2.0
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5.
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Enterprise Products Partners L.P.
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Public
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Equity
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Midstream
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4.8
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2.3
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6.
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ONEOK Partners, L.P.
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Public
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Equity
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Midstream
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4.3
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2.2
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7.
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Buckeye Partners, L.P.
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Public
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Equity
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Midstream
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3.8
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8.
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Energy Transfer Equity, L.P.
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Public
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Equity
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Midstream
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3.3
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9.
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Regency Energy Partners LP
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Public
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Equity
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Midstream
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3.0
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10.
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Penn Virginia Resource Partners, L.P.
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Public
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Equity
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Midstream
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2.8
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6
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF MAY 31, 2011
(amounts in 000s)
(UNAUDITED)
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No. of
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Description
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Shares/Units
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Value
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Long-Term Investments 134.8%
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Equity
Investments(1)
110.2%
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United States 110.2%
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Public MLP, MLP Affiliates and Other Equity
79.9%
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Alliance Holdings GP, L.P.
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46
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$
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2,166
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Buckeye Partners, L.P.
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192
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12,199
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Capital Product Partners L.P.
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225
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2,093
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Chesapeake Midstream Partners, L.P.
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37
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960
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Copano Energy, L.L.C.
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232
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7,787
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Crestwood Midstream Partners LP
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77
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2,148
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DCP Midstream Partners, LP
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204
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8,257
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El Paso Pipeline Partners, L.P.
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174
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5,977
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Enbridge Energy Partners, L.P.
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234
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7,197
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Energy Transfer Equity, L.P.
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249
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10,486
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Energy Transfer Partners, L.P.
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335
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15,937
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Enterprise Products Partners L.P.
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368
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15,322
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Exterran Partners, L.P.
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197
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5,060
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Global Partners LP
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205
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5,311
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Holly Energy Partners, L.P.
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11
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588
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Inergy, L.P.
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96
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3,553
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Kinder Morgan Management,
LLC(2)
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85
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5,577
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MarkWest Energy Partners, L.P.
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55
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2,604
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Martin Midstream Partners L.P.
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28
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1,076
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Navios Maritime Partners L.P.
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26
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493
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ONEOK Partners, L.P.
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165
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13,785
|
|
Penn Virginia Resource Partners, L.P.
|
|
|
348
|
|
|
|
8,997
|
|
Plains All American Pipeline,
L.P.(3)
|
|
|
103
|
|
|
|
6,396
|
|
Regency Energy Partners L.P.
|
|
|
183
|
|
|
|
4,615
|
|
Regency Energy Partners L.P.
Unregistered(4)
|
|
|
208
|
|
|
|
5,064
|
|
SandRidge Mississippian
Trust I(5)
|
|
|
92
|
|
|
|
2,479
|
|
Spectra Energy Partners, LP
|
|
|
32
|
|
|
|
1,025
|
|
Targa Resources Partners LP
|
|
|
95
|
|
|
|
3,292
|
|
TC PipeLines, LP
|
|
|
147
|
|
|
|
6,772
|
|
Teekay LNG Partners L.P.
|
|
|
56
|
|
|
|
1,986
|
|
Teekay Offshore Partners L.P.
|
|
|
23
|
|
|
|
671
|
|
Teekay Tankers Ltd.
|
|
|
78
|
|
|
|
717
|
|
Tesoro Logistics
LP(5)
|
|
|
192
|
|
|
|
4,772
|
|
TransMontaigne Partners L.P.
|
|
|
60
|
|
|
|
2,071
|
|
VOC Energy
Trust(5)
|
|
|
97
|
|
|
|
2,099
|
|
Western Gas Partners, LP
|
|
|
44
|
|
|
|
1,541
|
|
Williams Partners L.P.
|
|
|
133
|
|
|
|
7,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,095
|
|
|
|
|
|
|
|
|
|
|
Private MLP and Other
Equity(3)(4)
30.3%
|
|
|
|
|
|
|
|
|
Direct Fuels Partners, L.P. Class A Common Units
|
|
|
2,500
|
|
|
|
32,500
|
|
Direct Fuels Partners, L.P. Convertible Preferred
Units(6)
|
|
|
143
|
|
|
|
2,882
|
|
Direct Fuels Partners, L.P. Class D Preferred
Units(7)
|
|
|
324
|
|
|
|
6,723
|
|
Plains All American GP LLC
|
|
|
3
|
|
|
|
5,302
|
|
See accompanying notes to financial statements.
7
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF MAY 31, 2011
(amounts in 000s)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
No. of
|
|
|
|
|
Description
|
|
Shares/Units
|
|
|
Value
|
|
|
Private MLP and Other Equity(3)(4) (continued)
|
|
|
|
|
|
|
|
|
ProPetro Services,
Inc.(8)
|
|
|
150,097
|
|
|
$
|
5,614
|
|
VantaCore Partners
LP(2)
|
|
|
1,465
|
|
|
|
17,210
|
|
VantaCore Partners LP Preferred
Units(2)(9)
|
|
|
70
|
|
|
|
1,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,356
|
|
|
|
|
|
|
|
|
|
|
Total Equity Investments (Cost $237,017)
|
|
|
259,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Maturity
|
|
|
Principal
|
|
|
|
|
|
|
Rate
|
|
|
Date
|
|
|
Amount
|
|
|
|
|
|
Debt Investments 24.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States 23.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midstream 8.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crestwood Holdings Partners, LLC
|
|
|
(10)
|
|
|
|
10/1/16
|
|
|
$
|
6,984
|
|
|
|
7,220
|
|
Crestwood Midstream Partners LP
|
|
|
7.750
|
%
|
|
|
4/1/19
|
|
|
|
8,335
|
|
|
|
8,397
|
|
Genesis Energy, L.P.
|
|
|
7.875
|
|
|
|
12/15/18
|
|
|
|
2,120
|
|
|
|
2,125
|
|
Gibson Energy, Inc.
|
|
|
10.000
|
|
|
|
1/15/18
|
|
|
|
2,000
|
|
|
|
2,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upstream 7.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrizo Oil & Gas, Inc.
|
|
|
8.625
|
|
|
|
10/15/18
|
|
|
|
5,875
|
|
|
|
6,272
|
|
Clayton Williams Energy, Inc.
|
|
|
7.750
|
|
|
|
4/1/19
|
|
|
|
2,850
|
|
|
|
2,850
|
|
Eagle Rock Energy Partners, L.P.
|
|
|
8.375
|
|
|
|
6/1/19
|
|
|
|
3,000
|
|
|
|
3,011
|
|
Laredo Petroleum, Inc.
|
|
|
9.500
|
|
|
|
2/15/19
|
|
|
|
4,500
|
|
|
|
4,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Energy 7.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calumet Specialty Products Partners, L.P.
|
|
|
9.375
|
|
|
|
5/1/19
|
|
|
|
2,000
|
|
|
|
2,111
|
|
Foresight Energy LLC
|
|
|
9.625
|
|
|
|
8/15/17
|
|
|
|
5,000
|
|
|
|
5,475
|
|
ProPetro Services,
Inc.(3)(4)
|
|
|
(11)
|
|
|
|
2/15/12
|
|
|
|
11,058
|
|
|
|
11,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States (Cost $79,251)
|
|
|
55,783
|
|
|
|
|
|
|
Canada 0.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upstream 0.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern Pacific Resources Corp. (Cost $2,050)
|
|
|
(12)
|
|
|
|
1/15/16
|
|
|
|
2,000
|
|
|
|
2,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt Investments (Cost $81,301)
|
|
|
57,823
|
|
|
|
|
|
|
Total Long-Term Investments (Cost $318,318)
|
|
|
317,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term Investment 2.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase Agreement 2.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.P. Morgan Securities Inc. (Agreement dated 5/31/2011 to be
repurchased at $5,016), collateralized by $5,040 in U.S.
Treasury securities (Cost $5,016)
|
|
|
0.001
|
|
|
|
6/1/11
|
|
|
|
|
|
|
|
5,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments 136.9% (Cost $323,334)
|
|
|
322,290
|
|
|
|
|
|
|
Senior Secured Credit Facility Borrowings
|
|
|
(67,000
|
)
|
Other Liabilities in Excess of Other Assets
|
|
|
(19,847
|
)
|
|
|
|
|
|
Net Assets
|
|
$
|
235,443
|
|
|
|
|
|
|
See accompanying notes to financial statements.
8
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF MAY 31, 2011
(amounts in 000s)
(UNAUDITED)
|
|
|
(1) |
|
Unless otherwise noted, equity investments are common
units/common shares. |
|
(2) |
|
All or a portion of distributions are
paid-in-kind. |
|
(3) |
|
The Company believes that it may be an affiliate of Direct Fuels
Partners, L.P. (Direct Fuels) and VantaCore Partners
LP (VantaCore) and that it is an affiliate of Plains
All American GP LLC, Plains All American Pipeline, L.P. and
ProPetro Services, Inc. (ProPetro). See
Note 6 Agreements and Affiliations. |
|
(4) |
|
Fair valued and restricted security. See Notes 2, 3 and 9. |
|
(5) |
|
Security is not currently paying cash distributions but is
expected to pay cash distributions within the next
12 months. |
|
(6) |
|
The Convertible Preferred Units consist of three
classes Class A, B and C. Each class has a
liquidation preference of $20.00 per unit and is convertible
into Class A Common Units. See Note 9
Restricted Securities. |
|
(7) |
|
The Class D Preferred Units are senior to Direct
Fuels Convertible Preferred Units and Class A Common
Units. The Class D Preferred Units have a liquidation
preference of $20.00 per unit. See Note 9
Restricted Securities. |
|
(8) |
|
Security is non-income producing. |
|
(9) |
|
The Preferred Units have a liquidation preference of $17.50 per
unit and were issued on February 15, 2011 and May 16,
2011 by VantaCore to holders of the Common and Preferred Units
to the extent that such units did not receive full cash
distributions on those dates. The shortfall in the cash
distribution was paid in Preferred Units, in lieu of cash. The
Preferred Units are senior to VantaCores Common Units. See
Note 9 Restricted Securities. |
|
(10) |
|
Floating rate first lien senior secured term loan. Security pays
interest at a rate of LIBOR + 850 basis points, with a 2%
LIBOR floor (10.50% as of May 31, 2011). |
|
(11) |
|
Floating rate first lien term loan. Effective January 28,
2011, security pays interest in-kind that is added to the
outstanding principal of the term loan at a rate of LIBOR +
1,000 basis points, with a 5% LIBOR floor (15.00% as of
May 31, 2011). See Note 2 Investment
Income. |
|
(12) |
|
Floating rate second lien secured term loan. Security pays
interest at a rate of LIBOR + 850 basis points, with a 2%
LIBOR floor (10.50% as of May 31, 2011). |
See accompanying notes to financial statements.
9
|
|
|
|
|
ASSETS
|
Investments, at fair value:
|
|
|
|
|
Non-affiliated (Cost $207,973)
|
|
$
|
228,464
|
|
Affiliated (Cost $110,345)
|
|
|
88,810
|
|
Short-term investments (Cost $5,016)
|
|
|
5,016
|
|
|
|
|
|
|
Total investments (Cost $323,334)
|
|
|
322,290
|
|
Receivable for securities sold
|
|
|
306
|
|
Interest, dividends and distributions receivable
|
|
|
1,127
|
|
Other receivables
|
|
|
7,075
|
|
Debt issuance costs, prepaid expenses and other assets
|
|
|
921
|
|
|
|
|
|
|
Total Assets
|
|
|
331,719
|
|
|
|
|
|
|
|
LIABILITIES
|
Senior secured revolving credit facility
|
|
|
67,000
|
|
Current income tax liability
|
|
|
19,956
|
|
Deferred income tax liability, net
|
|
|
7,258
|
|
Investment management fee payable
|
|
|
1,388
|
|
Accrued directors fees and expenses
|
|
|
73
|
|
Accrued expenses and other liabilities
|
|
|
601
|
|
|
|
|
|
|
Total Liabilities
|
|
|
96,276
|
|
|
|
|
|
|
NET ASSETS
|
|
$
|
235,443
|
|
|
|
|
|
|
NET ASSETS CONSIST OF
|
|
|
|
|
Common stock, $0.001 par value (200,000,000 shares
authorized; 10,302,464 shares issued and outstanding)
|
|
$
|
10
|
|
Paid-in capital
|
|
|
198,660
|
|
Accumulated net investment loss, net of income taxes, less
dividends
|
|
|
(14,476
|
)
|
Accumulated net realized gains on investments, net of income
taxes
|
|
|
52,671
|
|
Net unrealized losses on investments, net of income taxes
|
|
|
(1,422
|
)
|
|
|
|
|
|
NET ASSETS
|
|
$
|
235,443
|
|
|
|
|
|
|
NET ASSET VALUE PER SHARE
|
|
$
|
22.85
|
|
|
|
|
|
|
See accompanying notes to financial statements.
10
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
May 31, 2011
|
|
|
May 31, 2011
|
|
|
INVESTMENT INCOME
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
Dividends and Distributions:
|
|
|
|
|
|
|
|
|
Non-affiliated investments
|
|
$
|
2,247
|
|
|
$
|
3,576
|
|
Affiliated investments
|
|
|
1,869
|
|
|
|
3,061
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions
|
|
|
4,116
|
|
|
|
6,637
|
|
Return of capital
|
|
|
(521
|
)
|
|
|
(2,413
|
)
|
|
|
|
|
|
|
|
|
|
Net dividends and distributions
|
|
|
3,595
|
|
|
|
4,224
|
|
Interest and other income non-affiliated investments
|
|
|
1,105
|
|
|
|
2,150
|
|
Interest income affiliated investments
|
|
|
558
|
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
5,258
|
|
|
|
6,932
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
|
1,388
|
|
|
|
2,639
|
|
Professional fees
|
|
|
155
|
|
|
|
248
|
|
Directors fees and expenses
|
|
|
77
|
|
|
|
152
|
|
Administration fees
|
|
|
44
|
|
|
|
87
|
|
Insurance
|
|
|
35
|
|
|
|
69
|
|
Custodian fees
|
|
|
13
|
|
|
|
24
|
|
Other expenses
|
|
|
162
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
Total expenses before interest expense
|
|
|
1,874
|
|
|
|
3,513
|
|
Interest expense
|
|
|
469
|
|
|
|
906
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,343
|
|
|
|
4,419
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income Before Income Taxes
|
|
|
2,915
|
|
|
|
2,513
|
|
Current income tax expense
|
|
|
(646
|
)
|
|
|
(646
|
)
|
Deferred income tax expense
|
|
|
(397
|
)
|
|
|
(249
|
)
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
|
1,872
|
|
|
|
1,618
|
|
|
|
|
|
|
|
|
|
|
REALIZED AND UNREALIZED GAINS (LOSSES)
|
|
|
|
|
|
|
|
|
Net Realized Gains
|
|
|
|
|
|
|
|
|
Investments non-affiliated
|
|
|
6,357
|
|
|
|
1,235
|
|
Investments affiliated
|
|
|
73,909
|
|
|
|
73,909
|
|
Current income tax expense
|
|
|
(19,310
|
)
|
|
|
(19,310
|
)
|
Deferred income tax expense
|
|
|
(9,345
|
)
|
|
|
(7,460
|
)
|
|
|
|
|
|
|
|
|
|
Net Realized Gains
|
|
|
51,611
|
|
|
|
48,374
|
|
|
|
|
|
|
|
|
|
|
Net Change in Unrealized Gains (Losses)
|
|
|
|
|
|
|
|
|
Investments non-affiliated
|
|
|
(9,541
|
)
|
|
|
39,912
|
|
Investments affiliated
|
|
|
(53,470
|
)
|
|
|
(70,924
|
)
|
Deferred income tax benefit
|
|
|
22,824
|
|
|
|
11,048
|
|
|
|
|
|
|
|
|
|
|
Net Change in Unrealized Losses
|
|
|
(40,187
|
)
|
|
|
(19,964
|
)
|
|
|
|
|
|
|
|
|
|
Net Realized and Unrealized Gains
|
|
|
11,424
|
|
|
|
28,410
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
$
|
13,296
|
|
|
$
|
30,028
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
11
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
May 31, 2011
|
|
|
For the Year Ended
|
|
|
|
(Unaudited)
|
|
|
November 30, 2010
|
|
|
OPERATIONS
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
$
|
1,618
|
|
|
$
|
(1,803
|
)
|
Net realized gains
|
|
|
48,374
|
|
|
|
7,569
|
|
Net change in unrealized gains (losses)
|
|
|
(19,964
|
)
|
|
|
47,448
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets Resulting from Operations
|
|
|
30,028
|
|
|
|
53,214
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS AND DISTRIBUTIONS
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
(6,268
|
)(1)
|
|
|
(5,154
|
)(2)
|
Distributions return of capital
|
|
|
|
(1)
|
|
|
(7,090
|
)(2)
|
|
|
|
|
|
|
|
|
|
Dividends and Distributions
|
|
|
(6,268
|
)
|
|
|
(12,244
|
)
|
|
|
|
|
|
|
|
|
|
CAPITAL STOCK TRANSACTIONS
|
|
|
|
|
|
|
|
|
Issuance of 35,804 and 102,682 shares of common stock from
reinvestment of dividends
|
|
|
642
|
|
|
|
1,532
|
|
|
|
|
|
|
|
|
|
|
Increase in Net Assets from Capital Stock Transactions
|
|
|
642
|
|
|
|
1,532
|
|
|
|
|
|
|
|
|
|
|
Total Increase in Net Assets
|
|
|
24,402
|
|
|
|
42,502
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
211,041
|
|
|
|
168,539
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
235,443
|
|
|
$
|
211,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This is an estimate of the characterization of the distributions
paid to common stockholders for the six months ended
May 31, 2011 as either a dividend (ordinary income) or
distribution (return of capital). This estimate is based solely
on the Companys operating results during the period and
does not reflect the expected result during the fiscal year. The
actual characterization of the common stock distributions made
during the current period will not be determinable until after
the end of the fiscal year when the Company can determine
earnings and profits and, therefore, it may differ from the
preliminary estimates. |
|
(2) |
|
The information presented in each of these items is a
characterization of a portion of the total dividends and
distributions paid to common stockholders for the fiscal year
ended November 30, 2010 as either dividends (ordinary
income) or distributions (return of capital). This
characterization is based on the Companys earnings and
profits. |
See accompanying notes to financial statements.
12
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
30,028
|
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
|
|
|
|
|
Purchase of long-term investments
|
|
|
(169,444
|
)
|
Proceeds from sale of long-term investments
|
|
|
170,197
|
|
Purchase of short-term investments, net
|
|
|
(2,941
|
)
|
Realized gains on investments
|
|
|
(75,144
|
)
|
Return of capital distributions
|
|
|
2,413
|
|
Unrealized losses on investments
|
|
|
31,012
|
|
Current income tax expense
|
|
|
19,956
|
|
Deferred income tax benefit
|
|
|
(3,339
|
)
|
Amortization of bond premium
|
|
|
2
|
|
Increase in receivable for securities sold
|
|
|
(306
|
)
|
Decrease in interest, dividends and distributions receivable
|
|
|
70
|
|
Increase in other receivables
|
|
|
(7,075
|
)
|
Decrease in prepaid expenses and other assets
|
|
|
121
|
|
Increase in investment management fee payable
|
|
|
238
|
|
Decrease in accrued expenses and other liabilities
|
|
|
(162
|
)
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
|
(4,374
|
)
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
Proceeds from revolving credit facility
|
|
|
10,000
|
|
Cash distributions to stockholders
|
|
|
(5,626
|
)
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
4,374
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
|
|
|
CASH BEGINNING OF PERIOD
|
|
|
|
|
|
|
|
|
|
CASH END OF PERIOD
|
|
$
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
Non-cash financing activities not included herein consist of
reinvestment of distributions pursuant to the Companys
dividend reinvestment plan of $642 for the six months ended
May 31, 2011.
During the six months ended May 31, 2011, there were no
state income taxes paid and interest paid was $682.
During the six months ended May 31, 2011, the Company
received $2,652 of
paid-in-kind
dividends and distributions and $558 of
paid-in-kind
interest. See Note 2 Investment Income.
See accompanying notes to financial statements.
13
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
FINANCIAL HIGHLIGHTS
(amounts in 000s, except share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
Months Ended
|
|
|
For the Year Ended
|
|
|
September 21, 2006
|
|
|
|
May 31, 2011
|
|
|
November 30,
|
|
|
through
|
|
|
|
(Unaudited)
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
November 30, 2006
|
|
|
Per Share of Common
Stock(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
20.56
|
|
|
$
|
16.58
|
|
|
$
|
16.10
|
|
|
$
|
23.95
|
|
|
$
|
24.03
|
|
|
$
|
23.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
0.15
|
|
|
|
(0.18
|
)
|
|
|
0.10
|
|
|
|
0.09
|
|
|
|
0.08
|
|
|
|
(0.07
|
)
|
Net realized and unrealized gain (loss) on investments
|
|
|
2.76
|
|
|
|
5.39
|
|
|
|
1.68
|
|
|
|
(5.89
|
)
|
|
|
1.18
|
|
|
|
0.78
|
|
Net change in unrealized losses conversion to
taxable corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from investment operations
|
|
|
2.91
|
|
|
|
5.21
|
|
|
|
1.78
|
|
|
|
(6.18
|
)
|
|
|
1.26
|
|
|
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends(2)
|
|
|
(0.61
|
)
|
|
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.95
|
)
|
|
|
|
|
Distributions from net realized long-term capital
gains(2)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.15
|
)
|
|
|
|
|
Distributions return of
capital(2)
|
|
|
|
|
|
|
(0.69
|
)
|
|
|
(1.30
|
)
|
|
|
(1.67
|
)
|
|
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Dividends and Distributions
|
|
|
(0.61
|
)
|
|
|
(1.20
|
)
|
|
|
(1.30
|
)
|
|
|
(1.67
|
)
|
|
|
(1.34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of shares issued in reinvestment of dividends
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
22.85
|
|
|
$
|
20.56
|
|
|
$
|
16.58
|
|
|
$
|
16.10
|
|
|
$
|
23.95
|
|
|
$
|
24.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value per share, end of period
|
|
$
|
19.34
|
|
|
$
|
18.21
|
|
|
$
|
13.53
|
|
|
$
|
9.63
|
|
|
$
|
23.14
|
|
|
$
|
22.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment return based on market
value(4)
|
|
|
9.8
|
%
|
|
|
45.8
|
%
|
|
|
56.0
|
%
|
|
|
(54.8
|
)%
|
|
|
9.3
|
%
|
|
|
(10.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Data and
Ratios(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period
|
|
$
|
235,443
|
|
|
$
|
211,041
|
|
|
$
|
168,539
|
|
|
$
|
162,687
|
|
|
$
|
240,758
|
|
|
$
|
240,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of expenses to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
|
2.3
|
%
|
|
|
2.1
|
%
|
|
|
2.0
|
%
|
|
|
0.4
|
%
|
|
|
3.1
|
%
|
|
|
2.4
|
%
|
Other expenses
|
|
|
0.7
|
|
|
|
1.0
|
|
|
|
1.3
|
|
|
|
1.1
|
|
|
|
0.9
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3.0
|
|
|
|
3.1
|
|
|
|
3.3
|
|
|
|
1.5
|
|
|
|
4.0
|
|
|
|
3.7
|
|
Interest expense
|
|
|
0.8
|
|
|
|
0.9
|
|
|
|
0.8
|
|
|
|
2.0
|
|
|
|
1.0
|
|
|
|
|
|
Management fee waivers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses (excluding tax expense)
|
|
|
3.8
|
|
|
|
4.0
|
|
|
|
4.1
|
|
|
|
3.5
|
|
|
|
4.6
|
|
|
|
3.2
|
|
Tax expense
|
|
|
14.5
|
|
|
|
16.3
|
|
|
|
6.9
|
|
|
|
|
(7)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses(6)
|
|
|
18.3
|
%
|
|
|
20.3
|
%
|
|
|
11.0
|
%
|
|
|
3.5
|
%
|
|
|
5.4
|
%
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net investment income (loss) to average net assets
|
|
|
1.4
|
%
|
|
|
(1.0
|
)%
|
|
|
0.7
|
%
|
|
|
0.4
|
%
|
|
|
0.3
|
%
|
|
|
(0.3
|
)%
|
Net increase (decrease) in net assets resulting from operations
to average net assets
|
|
|
13.0
|
%(8)
|
|
|
28.3
|
%
|
|
|
11.3
|
%
|
|
|
(29.5
|
)%
|
|
|
5.1
|
%
|
|
|
3.0
|
%(8)
|
Portfolio turnover rate
|
|
|
57.0
|
%(8)
|
|
|
33.4
|
%
|
|
|
20.9
|
%
|
|
|
27.0
|
%
|
|
|
28.8
|
%
|
|
|
5.6
|
%(8)
|
Average net assets
|
|
$
|
230,279
|
|
|
$
|
188,307
|
|
|
$
|
160,847
|
|
|
$
|
211,531
|
|
|
$
|
246,468
|
|
|
$
|
234,537
|
|
Average shares of common stock outstanding
|
|
|
10,281,277
|
|
|
|
10,212,289
|
|
|
|
10,116,071
|
|
|
|
10,073,398
|
|
|
|
10,014,496
|
|
|
|
10,000,060
|
|
Average amount of borrowings outstanding under the Credit
Facilities
|
|
$
|
57,330
|
|
|
$
|
54,956
|
|
|
$
|
53,422
|
|
|
$
|
75,563
|
|
|
$
|
32,584
|
|
|
|
|
|
Average amount of borrowings outstanding per share of common
stock during the period
|
|
$
|
5.58
|
|
|
$
|
5.38
|
|
|
$
|
5.28
|
|
|
$
|
7.50
|
|
|
$
|
3.25
|
|
|
|
|
|
See accompanying notes to financial statements.
14
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
FINANCIAL HIGHLIGHTS
(amounts in 000s, except share and per share
amounts)
|
|
|
(1) |
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Based on average shares of common stock outstanding for each of
the periods ended. |
|
(2) |
|
The information presented for the six months ended May 31,
2011 is an estimate of the characterization of the distributions
paid based on the Companys operating results during the
period. The information presented in each of the other periods
is a characterization of a portion of the total distributions
paid to common stockholders as either dividends (ordinary
income) or distributions (long term capital gains or return of
capital) and is based on the Companys earnings and profits. |
|
(3) |
|
For the fiscal year ended November 30, 2007 and prior
periods, the Company was treated as a regulated investment
company (RIC) under the U.S. Internal Revenue Code
of 1986, as amended. Since December 1, 2007, the Company
has been taxed as a corporation, and, as a result, the
categorization of distributions from net realized long-term
capital gains is no longer applicable. |
|
(4) |
|
Total investment return is calculated assuming a purchase of
common stock at the market price on the first day and a sale at
the current market price on the last day of the period reported.
The calculation also assumes reinvestment of distributions, if
any, at actual prices pursuant to the Companys dividend
reinvestment plan. |
|
(5) |
|
Unless otherwise noted, ratios are annualized. |
|
(6) |
|
For the year ended November 30, 2008, total expenses
exclude 0.4% relating to bad debt expense for the ratio of
expenses to average net assets. |
|
(7) |
|
For the year ended November 30, 2008, the Company accrued
deferred income tax benefits of $33,264 (15.5% of average net
assets) primarily related to unrealized losses on investments.
Realization of a deferred tax benefit is dependent on whether
there will be sufficient taxable income of the appropriate
character within the carryforward periods to realize a portion
or all of the deferred tax benefit. Because it could not have
been predicted whether the Company would incur a benefit in the
future, a deferred income tax expense of 0% was assumed. |
|
(8) |
|
Not annualized. |
See accompanying notes to financial statements.
15
Kayne Anderson Energy Development Company (the
Company) was organized as a Maryland corporation on
May 24, 2006. The Company is an externally managed,
non-diversified closed-end management investment company. The
Company commenced investment operations on September 21,
2006. The Companys shares of common stock are listed on
the New York Stock Exchange (NYSE) under the symbol
KED. Prior to November 30, 2007, the Company
was treated as a regulated investment company (RIC)
under the U.S. Internal Revenue Code of 1986, as amended
(the Code). Since December 1, 2007, the Company
has been taxed as a corporation. See Note 4
Income Taxes.
From inception through July 6, 2010, the Company had
elected to be treated as a business development company
(BDC) under the Investment Company Act of 1940, as
amended (the 1940 Act). On June 30, 2010, the
Companys stockholders approved the withdrawal of its
election to be treated as a BDC under the 1940 Act, and on
July 7, 2010, the Company filed the withdrawal with the
SEC, which was effective upon receipt. The Company is also no
longer subject to the requirement that 70% of its portfolio must
be comprised of qualifying assets, which generally
include domestic private companies.
The Companys investment objective is to generate both
current income and capital appreciation primarily through equity
and debt investments. The Company seeks to achieve this
objective by investing at least 80% of its total assets in
securities of companies that derive the majority of their
revenue from activities in the energy industry (Energy
Companies), including: (a) Midstream Energy
Companies, which are businesses that operate assets used to
gather, transport, process, treat, terminal and store natural
gas, natural gas liquids, propane, crude oil or refined
petroleum products; (b) Upstream Energy Companies, which
are businesses engaged in the exploration, extraction and
production of natural resources, including natural gas, natural
gas liquids and crude oil, from onshore and offshore geological
reservoirs; and (c) Other Energy Companies, which are
businesses engaged in owning, leasing, managing, producing,
processing and selling of coal and coal reserves; the marine
transportation of crude oil, refined petroleum products,
liquefied natural gas, as well as other energy-related natural
resources using tank vessels and bulk carriers; and refining,
marketing and distributing refined energy products, such as
motor gasoline and propane, to retail customers and industrial
end-users.
|
|
2.
|
Significant
Accounting Policies
|
A. Use of Estimates The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States of America
(GAAP) requires management to make estimates and
assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenue and expenses during the period. Actual results could
differ materially from those estimates.
B. Cash and Cash Equivalents Cash and
cash equivalents include short-term, liquid investments with an
original maturity of three months or less and include money
market fund accounts and repurchase agreements.
C. Calculation of Net Asset Value The
Company determines its net asset value as of the close of
regular session trading on the NYSE no less frequently than the
last business day of each quarter. Net asset value is computed
by dividing the value of the Companys assets (including
accrued interest and distributions), less all of its liabilities
(including accrued expenses, distributions payable and any
borrowings) by the total number of common shares outstanding.
D. Investment Valuation Readily
marketable portfolio securities listed on any exchange other
than the NASDAQ Stock Market, Inc. (NASDAQ) are
valued, except as indicated below, at the last sale price on the
business day as of which such value is being determined. If
there has been no sale on such day, the securities are valued at
the mean of the most recent bid and ask prices on such day.
Securities admitted to trade on the NASDAQ
16
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
are valued at the NASDAQ official closing price. Portfolio
securities traded on more than one securities exchange are
valued at the last sale price on the business day as of which
such value is being determined at the close of the exchange
representing the principal market for such securities.
Equity securities traded in the
over-the-counter
market, but excluding securities admitted to trading on the
NASDAQ, are valued at the closing bid prices. Debt securities
that are considered bonds are valued by using the mean of the
bid and ask prices provided by an independent pricing service.
For debt securities that are considered bank loans, the fair
market value is determined by using the mean of the bid and ask
prices provided by the syndicate bank or principal market maker.
When price quotes are not available, fair market value will be
based on prices of comparable securities. In certain cases, the
Company may not be able to purchase or sell debt securities at
the quoted prices due to the lack of liquidity for these
securities.
Exchange-traded options and futures contracts are valued at the
last sale price at the close of trading in the market where such
contracts are principally traded or, if there was no sale on the
applicable exchange on such day, at the mean between the quoted
bid and ask price as of the close of trading on such exchange.
The Companys portfolio includes securities that are
privately issued or illiquid. For these securities, as well as
any other portfolio security held by the Company for which
reliable market quotations are not readily available, valuations
are determined in good faith by the Board of Directors of the
Company under a valuation policy and a consistently applied
valuation process. Unless otherwise determined by the Board of
Directors, the following valuation process, approved by the
Board of Directors, is used for such securities:
|
|
|
|
|
Investment Team Valuation. The
applicable investments are valued by senior professionals of
KA Fund Advisors, LLC (KAFA) responsible
for the portfolio investments.
|
|
|
|
Investment Team Valuation
Documentation. Preliminary valuation
conclusions are documented and discussed with senior management
of KAFA. Such valuations are submitted to the Valuation
Committee (a committee of the Board of Directors) on a quarterly
basis.
|
|
|
|
Valuation Committee. The Valuation
Committee meets each quarter to consider new valuations
presented by KAFA, if any, which were made in accordance with
procedures adopted by the Board of Directors in such quarter.
The Valuation Committees valuation determinations are
subject to ratification by the Board of Directors.
|
|
|
|
Valuation Firm. No less frequently than
quarterly, a third-party valuation firm engaged by the Board of
Directors reviews the valuation methodologies and calculations
employed for these securities. The independent valuation firm
provides third-party valuation consulting services to the Board
of Directors which consist of certain limited procedures that
the Company identified and requested them to perform. For the
six months ended May 31, 2011, the independent valuation
firm performed limited procedures on investments in five
portfolio companies, comprising approximately 27.1% of the total
investments as of May 31, 2011. The independent valuation
firm also performed certain limited procedures on the
Companys $7,075 receivable (as of May 31, 2011) associated
with the sale of its investment in International Resource
Partners LP (IRP). Upon completion of the limited
procedures, the independent valuation firm concluded that the
fair value of those investments subjected to the limited
procedures did not appear to be unreasonable.
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|
|
|
Board of Directors Determination. The
Board of Directors considers the valuations provided by KAFA and
the Valuation Committee and ratifies valuations for the
applicable securities at each quarterly board meeting. The Board
of Directors considers the reports provided by the third-party
valuation firm in reviewing and determining in good faith the
fair value of the applicable portfolio securities.
|
During the course of such valuation process, whenever possible,
privately-issued equity and debt investments are valued using
comparisons of valuation ratios of the portfolio companies that
issued such equity and debt
17
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
securities to any peer companies that are publicly traded. The
value derived from this analysis is then discounted to reflect
the illiquid nature of the investment. The Company also utilizes
comparative information such as acquisition transactions, public
offerings or subsequent equity sales to corroborate its
valuations. Due to the inherent uncertainty of determining the
fair value of investments that do not have a readily available
market value, the fair value of the Companys investments
in privately-issued securities may differ significantly from the
values that would have been used had a ready market existed for
such investments, and the differences could be material.
Factors that the Company may take into account in fair value
pricing its investments include, as relevant, the portfolio
companys ability to make payments and its earnings and
discounted cash flow, the markets in which the portfolio company
does business, comparison to publicly traded securities, the
nature and realizable value of any collateral and other relevant
factors.
Unless otherwise determined by the Board of Directors,
securities that are convertible into or otherwise will become
publicly traded (e.g., through subsequent registration or
expiration of a restriction on trading) will be valued through
the process described above, using a valuation based on the
market value of the publicly traded security less a discount.
The discount will initially be equal in amount to the discount
negotiated at the time of purchase. To the extent that such
securities are convertible or otherwise become publicly traded
within a time frame that may be reasonably determined, KAFA will
determine an applicable discount in accordance with a
methodology approved by the Valuation Committee.
On April 18, 2011, the Company completed its sale of IRP. A
portion of the total consideration was placed in escrow with the
balance being paid in cash. Proceeds will be released from the
escrow upon satisfaction of certain post-closing obligations or
the expiration of certain time periods. The other receivable
represents the Companys estimated fair value of its
portion of the escrow ($5,040) and its post-closing purchase
price adjustment ($2,035).
At May 31, 2011, the Company held 40.2% of its net assets
applicable to common stockholders (28.5% of total assets) in
securities and other receivables that were fair valued pursuant
to the procedures adopted by the Board of Directors. The
aggregate fair value of these securities ($87,478) and other
receivables ($7,075) at May 31, 2011 was $94,553. See
Note 9 Restricted Securities.
E. Repurchase Agreements The Company has
agreed to purchase securities from financial institutions
subject to the sellers agreement to repurchase them at an
agreed-upon
time and price (repurchase agreements). The
financial institutions with whom the Company enters into
repurchase agreements are banks and broker/dealers which KAFA
considers creditworthy. The seller under a repurchase agreement
is required to maintain the value of the securities as
collateral, subject to the agreement, at not less than the
repurchase price plus accrued interest. KAFA monitors daily the
mark-to-market
of the value of the collateral, and, if necessary, requires the
seller to maintain additional securities, so that the value of
the collateral is not less than the repurchase price. Default by
or bankruptcy of the seller would, however, expose the Company
to possible loss because of adverse market action or delays in
connection with the disposition of the underlying securities.
F. Security Transactions Security
transactions are accounted for on the date the securities are
purchased or sold (trade date). Realized gains and losses are
reported on an identified cost basis.
G. Derivative Financial Instruments The
Company may utilize derivative financial instruments in its
operations.
Interest rate swap contracts. The
Company may use interest rate swap contracts to hedge against
increasing interest expense on its leverage resulting from
increases in short term interest rates. The Company does not
hedge any interest rate risk associated with portfolio holdings.
Interest rate transactions the Company may use for hedging
purposes may expose it to certain risks that differ from the
risks associated with its portfolio holdings. A decline in
interest rates may result in a decline in the value of the swap
contracts, which, everything else being held constant,
18
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
would result in a decline in the net assets of the Company. In
addition, if the counterparty to an interest rate swap or cap
defaults, the Company would not be able to use the anticipated
net receipts under the interest rate swap or cap to offset its
cost of financial leverage.
Interest rate swap contracts are recorded at fair value with
changes in value during the reporting period, and amounts
accrued under the agreements, included as unrealized gains or
losses in the Statement of Operations. Monthly cash settlements
under the terms of interest rate swap agreements are recorded as
realized gains or losses in the Statement of Operations. The
Company generally values interest rate swap contracts based on
dealer quotations, if available, or by discounting the future
cash flows from the stated terms of the interest rate swap
agreement by using interest rates currently available in the
market.
Option contracts. The Company is
exposed to financial market risks including changes in the
valuations of its investment portfolio. The Company may purchase
or write (sell) call options. A call option on a security is a
contract that gives the holder of the option, in return for a
premium, the right to buy from the writer of the option the
security underlying the option at a specified exercise price at
any time during the term of the option.
The Company would normally purchase call options in anticipation
of an increase in the market value of securities of the type in
which it may invest. The Company would ordinarily realize a gain
on a purchased call option if, during the option period, the
value of such securities exceeded the sum of the exercise price,
the premium paid and transaction costs; otherwise the Company
would realize either no gain or a loss on the purchased call
option. The Company may also purchase put option contracts. If a
purchased put option is exercised, the premium paid increases
the cost basis of the securities sold by the Company.
The Company may also write (sell) call options with the purpose
of generating income or reducing its ownership of certain
securities. The writer of an option on a security has the
obligation upon exercise of the option to deliver the underlying
security upon payment of the exercise price.
When the Company writes a call option, an amount equal to the
premium received by the Company is recorded as a liability and
is subsequently adjusted to the current fair value of the option
written. Premiums received from writing options that expire
unexercised are treated by the Company on the expiration date as
realized gains from investments. If the Company repurchases a
written call option prior to its exercise, the difference
between the premium received and the amount paid to repurchase
the option is treated as a realized gain or loss. If a call
option is exercised, the premium is added to the proceeds from
the sale of the underlying security in determining whether the
Company has realized a gain or loss. The Company, as the writer
of an option, bears the market risk of an unfavorable change in
the price of the security underlying the written option.
H. Return of Capital Estimates
Distributions received from the Companys
investments in public and private master limited partnerships
(MLPs) generally are comprised of income and return
of capital. The Company records investment income and return of
capital based on estimates made at the time such distributions
are received. Such estimates are based on historical information
available from MLPs and other industry sources. These estimates
may subsequently be revised based on information received from
MLPs after their tax reporting periods are concluded.
The following table sets forth the Companys estimated
return of capital for distributions received from its public and
private MLPs, both as a percentage of total distributions and in
thousands of dollars. The return of capital
19
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
portion of the distributions is a reduction to investment
income, results in an equivalent reduction in the cost basis of
the associated investments and increases Net Realized Gains and
Net Change in Unrealized Gains during the period.
|
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|
|
|
|
|
|
|
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Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
May 31, 2011
|
|
|
May 31, 2011
|
|
|
Return of capital portion of dividends and distributions received
|
|
|
13
|
%
|
|
|
36
|
%
|
Return of capital attributable to Net Realized Gains
|
|
$
|
305
|
|
|
$
|
491
|
|
Return of capital attributable to Net Change in
Unrealized Gains
|
|
|
216
|
|
|
|
1,922
|
|
|
|
|
|
|
|
|
|
|
Total return of capital
|
|
$
|
521
|
|
|
$
|
2,413
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended May 31, 2011, the
Company estimated the return of capital portion of distributions
received to be $1,946 (47%) and $3,838 (58%), respectively.
These amounts were decreased by $1,425 attributable to tax
reporting information related to the Companys investment
in IRP received in the second quarter of 2011. During fiscal
2010, the Company estimated the return of capital portion of
the cash distributions received from IRP to be $1,425; however,
during the second quarter the Company reduced this amount to
zero in accordance with the tax reporting information received.
As a result, the return of capital percentage for the three and
six months ended May 31, 2011 was 13% and 36%, respectively.
I. Investment Income The Company records
dividends and distributions on the ex-dividend date. Interest
income is recognized on the accrual basis, including
amortization of premiums and accretion of discounts to the
extent that such amounts are expected to be collected. When
investing in securities with payment in-kind interest, the
Company will accrue interest income during the life of the
security even though it will not be receiving cash as the
interest is accrued. To the extent that interest income to be
received is not expected to be realized, a reserve against
income is established. During the three and six months ended
May 31, 2011, the Company did not have a reserve against
interest income, since all interest income accrued is expected
to be received.
Many of the Companys debt securities were purchased at a
discount or premium to the par value of the security. The
non-cash accretion of a discount to par value increases interest
income while the non-cash amortization of a premium to par value
decreases interest income. The amount of these non-cash
adjustments can be found in the Companys Statement of Cash
Flows. The non-cash accretion of a discount increases the cost
basis of the debt security, which results in an offsetting
unrealized loss. The non-cash amortization of a premium
decreases the cost basis of the debt security which results in
an offsetting unrealized gain. To the extent that par value is
not expected to be realized, the Company discontinues accruing
the non-cash accretion of the discount to par value of the debt
security.
During the quarter, the Company began accruing
paid-in-kind
interest on its first lien debt investment in ProPetro Services,
Inc. (ProPetro). As a result of the debt
restructuring that was completed on January 28, 2011, and
substantially improved operating results, the Company now
expects to be repaid the full face value plus accrued interest
when the notes mature in February 2012. During the three and six
months ended May 31, 2011, the Company recognized $558 of
paid-in-kind
interest that increased the outstanding principal of the
Companys investment in the ProPetro debt investment.
The Company receives or has received
paid-in-kind
dividends in the form of additional units from its investments
in Direct Fuels Partners, L.P., VantaCore Partners LP, Enbridge
Energy Management, L.L.C. and Kinder Morgan Management, LLC. The
additional units are not reflected in investment income during
the period
20
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
received but are recorded as unrealized gains upon receipt.
During the three and six months ended May 31, 2011, the
Company received the following paid-in-kind dividends.
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|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
May 31, 2011
|
|
|
May 31, 2011
|
|
|
Direct Fuels Partners, L.P.
|
|
$
|
|
|
|
$
|
1,395
|
|
VantaCore Partners LP
|
|
|
543
|
|
|
|
1,107
|
|
Enbridge Energy Management, L.L.C.
|
|
|
1
|
|
|
|
67
|
|
Kinder Morgan Management, LLC
|
|
|
73
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
Total stock dividends
|
|
$
|
617
|
|
|
$
|
2,652
|
|
|
|
|
|
|
|
|
|
|
J. Distributions to Stockholders
Distributions to common stockholders are
recorded on the ex-dividend date. The estimated characterization
of the distributions paid to common stockholders will be either
a dividend (ordinary income) or distribution (return of
capital). This estimate is based on the Companys operating
results during the period. The actual characterization of the
common stock distributions made for the current year will not be
determinable until after the end of the fiscal year when the
Company can determine earnings and profits and, therefore, it
may differ from the preliminary estimates.
K. Income Taxes The Company is taxed as
a corporation and pays federal and applicable state corporate
taxes on its taxable income. The Company invests its assets
primarily in MLPs, which generally are treated as partnerships
for federal income tax purposes. As a limited partner in the
MLPs, the Company includes its allocable share of the MLPs
taxable income in computing its own taxable income. Current
income taxes reflect the amount of income taxes that the Company
expects to be payable as of a measurement date applying the
provisions of the enacted tax laws. Deferred income taxes
reflect (i) taxes on unrealized gains/(losses), which are
attributable to the temporary difference between fair market
value and tax basis, (ii) the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes and (iii) the net tax benefit
of accumulated net operating and capital losses. To the extent
the Company has a deferred tax asset, consideration is given as
to whether or not a valuation allowance is required. The need to
establish a valuation allowance for deferred tax assets is
assessed periodically by the Company based on the Income Tax
Topic of the Financial Accounting Standards Board
(FASB) Accounting Standards Codification that it is
more likely than not that some portion or all of the deferred
tax asset will not be realized. In the assessment for a
valuation allowance, consideration is given to all positive and
negative evidence related to the realization of the deferred tax
asset. This assessment considers, among other matters, the
nature, frequency and severity of current and cumulative losses,
forecasts of future profitability (which are highly dependent on
future cash distributions from the Companys MLP holdings),
the duration of statutory carryforward periods and the
associated risk that operating and capital loss carryforwards
may expire unused.
The Company may rely to some extent on information provided by
MLPs, which may not necessarily be timely, to estimate taxable
income allocable to the MLP units held in the portfolio and to
estimate the associated current or deferred tax liability. Such
estimates are made in good faith. From time to time, as new
information becomes available, the Company modifies its
estimates or assumptions regarding the current or deferred tax
liability.
The Companys policy is to classify interest and penalties
associated with underpayment of federal and state income taxes,
if any, as income tax expense on its Statement of Operations. As
of May 31, 2011, the Company does not have any interest or
penalties associated with the underpayment of any income taxes.
All tax years since inception remain open and subject to
examination by tax jurisdictions.
L. Indemnifications Under the
Companys organizational documents, its officers and
directors are indemnified against certain liabilities arising
out of the performance of their duties to the Company. In
addition, in the
21
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
normal course of business, the Company enters into contracts
that provide general indemnification to other parties. The
Companys maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made
against the Company that have not yet occurred, and may not
occur. However, the Company has not had prior claims or losses
pursuant to these contracts and expects the risk of loss to be
remote.
M. Foreign Currency Translations The
books and records of the Company are maintained in
U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis: (i) market value
of investment securities, assets and liabilities at the rate of
exchange as of the valuation date; and (ii) purchases and
sales of investment securities, income and expenses at the
relevant rates of exchange prevailing on the respective dates of
such transactions.
The Company does not isolate that portion of gains and losses on
investments in equity and debt securities which is due to
changes in the foreign exchange rates from that which is due to
changes in market prices of equity securities. Accordingly,
realized and unrealized foreign currency gains and losses with
respect to such securities are included in the reported net
realized and unrealized gains and losses on investment
transactions balances.
Net realized foreign exchange gains or losses represent gains
and losses from transactions in foreign currencies and foreign
currency contracts, foreign exchange gains or losses realized
between the trade date and settlement date on security
transactions, and the difference between the amounts of interest
and dividends recorded on the Companys books and the
U.S. dollar equivalent of such amounts on the payment date.
Net unrealized foreign exchange gains or losses represent the
difference between the cost of assets and liabilities (other
than investments) recorded on the Companys books from the
value of the assets and liabilities (other than investments) on
the valuation date.
As required by the Fair Value Measurement and Disclosures of the
FASB Accounting Standards Codification, the Company has
performed an analysis of all assets and liabilities measured at
fair value to determine the significance and character of all
inputs to their fair value determination.
The fair value hierarchy prioritizes the inputs to valuation
techniques used to measure fair value into the following three
broad categories:
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|
Level 1 Quoted unadjusted prices for
identical instruments in active markets traded on a national
exchange to which the Company has access at the date of
measurement.
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|
Level 2 Quoted prices for similar
instruments in active markets; quoted prices for identical or
similar instruments in markets that are not active; and
model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets.
Level 2 inputs are those in markets for which there are few
transactions, the prices are not current, little public
information exists or instances where prices vary substantially
over time or among brokered market makers.
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|
|
Level 3 Model derived valuations in
which one or more significant inputs or significant value
drivers are unobservable. Unobservable inputs are those inputs
that reflect the Companys own assumptions that market
participants would use to price the asset or liability based on
the best available information.
|
Note that the valuation levels below are not necessarily an
indication of the risk or liquidity associated with the
underlying investment. For instance, the Companys
repurchase agreements, which are collateralized by
U.S. Treasury notes, are generally high quality and liquid;
however, the Company reflects these repurchase agreements as
Level 2 because the inputs used to determine fair value may
not always be quoted prices in an active market.
22
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
The following table presents the Companys assets measured
at fair value on a recurring basis at May 31, 2011, and the
Company presents these assets by security type and description
on its Schedule of Investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Prices with Other
|
|
|
One or More
|
|
|
|
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments
|
|
$
|
259,451
|
|
|
$
|
183,031
|
|
|
$
|
|
|
|
$
|
76,420
|
|
Debt investments
|
|
|
57,823
|
|
|
|
|
|
|
|
46,765
|
|
|
|
11,058
|
|
Short-term investments
|
|
|
5,016
|
|
|
|
|
|
|
|
5,016
|
|
|
|
|
|
Other
receivables(1)
|
|
|
7,075
|
|
|
|
|
|
|
|
|
|
|
|
7,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
329,365
|
|
|
$
|
183,031
|
|
|
$
|
51,781
|
|
|
$
|
94,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On April 18, 2011, the Company completed its sale of IRP. A
portion of the total consideration was placed in escrow with the
balance being paid in cash. Proceeds will be released from the
escrow upon satisfaction of certain post-closing obligations or
the expiration of certain time periods. The other receivable
represents the Companys estimated fair value of its
portion of the escrow ($5,040) and its post-closing purchase
price adjustment ($2,035). |
The Company did not have any liabilities that were measured at
fair value on a recurring basis at May 31, 2011. For the
three and six months ended May 31, 2011, there were no transfers
between Level 1 and Level 2.
In May 2011, the FASB issued Accounting Standards Update
(ASU)
No. 2011-04
Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRSs. ASU
No. 2011-04
establishes common requirements for measuring fair value and for
disclosing information about fair value measurements in
accordance with U.S. GAAP and International Financial
Reporting Standards (IFRSs). ASU
No. 2011-04
is effective for interim and annual periods beginning after
December 15, 2011 and is applied prospectively. Management
is currently evaluating the impact ASU
No. 2011-04
may have on financial statement disclosures.
In January 2010, the FASB issued ASU
No. 2010-06
Improving Disclosures about Fair Value Measurements.
ASU 2010-06
amends FASB Accounting Standards Codification Topic, Fair Value
Measurements and Disclosures, to require additional disclosures
regarding fair value measurements. Certain disclosures required
are effective for the Companys fiscal year beginning
December 1, 2011 and for interim periods within that fiscal
year.
The following tables present the Companys assets measured
at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the three and six
months ended May 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, 2011
|
|
|
|
Total
|
|
|
Debt
|
|
|
Equity
|
|
|
Balance February 28, 2011
|
|
$
|
161,577
|
|
|
$
|
7,000
|
|
|
$
|
154,577
|
|
Sale(1)
|
|
|
(102,045
|
)
|
|
|
|
|
|
|
(102,045
|
)
|
Realized gains
|
|
|
73,909
|
|
|
|
|
|
|
|
73,909
|
|
Unrealized gains (losses),
net(2)
|
|
|
(51,556
|
)
|
|
|
4,058
|
|
|
|
(55,614
|
)
|
Purchases
|
|
|
5,050
|
|
|
|
|
|
|
|
5,050
|
|
Issuances
|
|
|
543
|
|
|
|
|
|
|
|
543
|
|
Settlements(3)
|
|
|
7,075
|
|
|
|
|
|
|
|
7,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance May 31, 2011
|
|
$
|
94,553
|
|
|
$
|
11,058
|
|
|
$
|
83,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended May 31, 2011
|
|
|
|
Total
|
|
|
Debt
|
|
|
Equity
|
|
|
Balance November 30, 2010
|
|
$
|
143,811
|
|
|
$
|
4,500
|
|
|
$
|
139,311
|
|
Sale(1)
|
|
|
(102,045
|
)
|
|
|
|
|
|
|
(102,045
|
)
|
Realized gains
|
|
|
73,909
|
|
|
|
|
|
|
|
73,909
|
|
Unrealized gains (losses),
net(2)
|
|
|
(40,749
|
)
|
|
|
6,558
|
|
|
|
(47,307
|
)
|
Purchases
|
|
|
10,050
|
|
|
|
|
|
|
|
10,050
|
|
Issuances
|
|
|
2,502
|
|
|
|
|
|
|
|
2,502
|
|
Settlements(3)
|
|
|
7,075
|
|
|
|
|
|
|
|
7,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance May 31, 2011
|
|
$
|
94,553
|
|
|
$
|
11,058
|
|
|
$
|
83,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Relates to the sale of the Companys investment in IRP. |
|
(2) |
|
Of the $51,556 and $40,749 of net unrealized losses presented
above, $66,364 and $59,614 of unrealized loss, respectively,
result from the reversal of the unrealized gain attributable to
IRP that was realized upon the sale of the Companys
investment during the fiscal second quarter 2011. The remaining
unrealized gains of $14,808 and $18,865 relate to investments
that are still held at May 31, 2011, and the Company
includes these unrealized gains in the Statement of
Operations Net Change in Unrealized Gains (Losses). |
|
(3) |
|
Relates to the receivable that the Company expects to receive in
connection with the sale of IRP for the fair value of its
portion of the escrow ($5,040) and its post-closing purchase
price adjustment ($2,035). |
The purchases of $5,050 and $10,050 for the three and six months
ended May 31, 2011 relate to the Companys private
investment in public equity (PIPE) investment in
Regency Energy Partners L.P. and the Companys investment
in Plains All American GP LLC. The issuances of $543 and $2,502
for the three and six months ended May 31, 2011 relate to
the issuance of Class D Preferred Units of Direct Fuels and
the issuance of Preferred Units of VantaCore.
The Companys taxes include current and deferred income
taxes. Current income taxes reflect the estimated income tax
liability of the Company as of a measurement date. Deferred
income taxes reflect (i) taxes on unrealized
gains/(losses), which are attributable to the difference between
fair market value and tax basis, (ii) the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes and (iii) the net tax benefit
of accumulated net operating and capital losses, if any. At
May 31, 2011, primarily as a result of the sale of its
investment in IRP, the Company has incurred a current income tax
liability. In August 2011, the Company expects to pay income
taxes of approximately $19 million, which is less than the
current tax liability at May 31, 2011 due to estimated
taxable losses that are projected for the remainder of fiscal
2011. Components of the Companys current and deferred tax
assets and liabilities are as follows:
|
|
|
|
|
|
|
As of
|
|
|
|
May 31, 2011
|
|
|
Current tax liability
|
|
$
|
(19,956
|
)
|
24
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
|
|
|
|
|
|
|
As of
|
|
|
|
May 31, 2011
|
|
|
Deferred tax asset:
|
|
|
|
|
Organizational costs
|
|
$
|
16
|
|
Deferred tax liabilities:
|
|
|
|
|
Net unrealized gains on investment securities
|
|
|
(4,741
|
)
|
Basis reductions resulting from estimated return of capital
|
|
|
(2,533
|
)
|
|
|
|
|
|
Total net deferred tax liability
|
|
$
|
(7,258
|
)
|
|
|
|
|
|
At May 31, 2011, as a result of the Companys sale of
IRP, the Company expects to utilize all of its estimated federal
and state net operating loss carryforwards of $19,877 and
$17,864, respectively (amounts as of November 30, 2010).
At May 31, 2011, the Company also expects to utilize all of
its capital loss carryforward of $3,315 (amount as of
November 30, 2010).
As of May 31, 2011, the identified cost of investments for
federal income tax purposes was $307,633. The cost basis of
investments includes a $15,701 reduction in basis attributable
to the Companys portion of the allocated losses from its
MLP investments at May 31, 2011. Gross unrealized
appreciation and depreciation of investments for federal income
tax purposes were as follows:
|
|
|
|
|
|
|
As of
|
|
|
|
May 31, 2011
|
|
|
Gross unrealized appreciation of investments
|
|
$
|
50,315
|
|
Gross unrealized depreciation of investments
|
|
|
(35,658
|
)
|
|
|
|
|
|
Net unrealized appreciation of investments
|
|
$
|
14,657
|
|
|
|
|
|
|
For the three and six months ended May 31, 2011, the
Companys effective tax rate was 35.6%. Components of the
Companys income tax benefit (expense) were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
May 31, 2011
|
|
|
May 31, 2011
|
|
|
Current income tax expense net investment income
|
|
$
|
(646
|
)
|
|
$
|
(646
|
)
|
Deferred income tax expense net investment income
|
|
|
(397
|
)
|
|
|
(249
|
)
|
Current income tax expense realized gains
|
|
|
(19,310
|
)
|
|
|
(19,310
|
)
|
Deferred income tax expense realized gains
|
|
|
(9,345
|
)
|
|
|
(7,460
|
)
|
Deferred income tax benefit unrealized losses
|
|
|
22,824
|
|
|
|
11,048
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
(6,874
|
)
|
|
$
|
(16,617
|
)
|
|
|
|
|
|
|
|
|
|
25
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
Total income taxes were different from the amount computed by
applying the federal statutory income tax rate of 35% to the net
investment loss and realized and unrealized gains (losses) on
investments before taxes for the three and six months ended
May 31, 2011, as follows:
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
May 31, 2011
|
|
|
May 31, 2011
|
|
|
Computed expected federal income tax expense
|
|
$
|
(7,059
|
)
|
|
$
|
(16,326
|
)
|
State income tax, net of federal tax expense
|
|
|
(29
|
)
|
|
|
(505
|
)
|
Other, net
|
|
|
214
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
(6,874
|
)
|
|
$
|
(16,617
|
)
|
|
|
|
|
|
|
|
|
|
The Companys policy is to classify interest and penalties
associated with underpayment of federal and state income taxes,
if any, as income tax expense on its Statement of Operations. As
of May 31, 2011, the Company did not have any interest or
penalties associated with the underpayment of any income taxes.
All tax years since inception remain open and subject to
examination by tax jurisdictions.
The Companys investment objective is to generate both
current income and capital appreciation primarily through equity
and debt investments. Under normal circumstances, the Company
intends to invest at least 80% of total assets in securities of
Energy Companies. A key focus area for the Companys
investments in the energy industry is equity and debt
investments in Midstream Energy Companies structured as limited
partnerships. The Company also invests in equity and debt
securities of Other Energy Companies and debt securities in
Upstream Energy Companies. A substantial portion of the cash
flow received by the Company is derived from investments in
equity securities of MLPs. The amount of cash that an MLP has
available for distributions and the tax character of such
distributions are dependent upon the amount of cash generated by
the MLPs operations. The Company may, for defensive
purposes, temporarily invest all or a significant portion of its
assets in investment grade securities, short-term debt
securities and cash or cash equivalents. To the extent the
Company uses this strategy, it may not achieve its investment
objectives.
|
|
6.
|
Agreements
and Affiliations
|
A. Administration Agreement The Company
has entered into an Administration Agreement (the
Administration Agreement) with Ultimus
Fund Solutions, LLC (Ultimus). Pursuant to the
Administration Agreement, Ultimus will provide certain
administrative services for the Company. The Administration
Agreement has automatic one-year renewals unless earlier
terminated by either party as provided under the terms of the
Administration Agreement.
B. Investment Management Agreement The
Company has entered into an investment management agreement with
KAFA under which the Company has material future rights and
commitments. Pursuant to the investment management agreement,
KAFA has agreed to serve as investment adviser. Payments under
the investment management agreement include a management fee and
reimbursement of certain expenses.
Investment Management Fee. The Company pays an
amount equal on an annual basis to 1.75% of average total assets
to KAFA as compensation for services rendered. This amount is
payable each quarter after the end of the quarter. For purposes
of calculating the management fee, the average total
assets for each quarterly period are determined by
averaging the total assets at the last day of that quarter with
the total assets at the last day of the prior quarter. Total
assets (excluding deferred taxes) shall equal gross asset value
(which includes assets attributable to or proceeds from the use
of leverage instruments), minus the sum of accrued and unpaid
distributions on common and
26
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
preferred stock and accrued liabilities (other than liabilities
associated with leverage and deferred taxes). Liabilities
associated with leverage include the principal amount of any
borrowings, commercial paper or notes that the Company may
issue, the liquidation preference of outstanding preferred
stock, and other liabilities from other forms of leverage such
as short positions and put or call options held or written by
the Company.
The Companys management fees for the three and six months
ended May 31, 2011 were $1,388 and $2,639.
Following stockholder approval on June 30, 2010, the
Company withdrew its election to be treated as a BDC under the
1940 Act on July 7, 2010. In conjunction with this
withdrawal, the Company amended its investment management
agreement and is no longer subject to the incentive fee
provisions of the prior agreement.
C. Portfolio Companies From time to
time, the Company may control or may be an
affiliate of one or more portfolio companies, each
as defined in the 1940 Act. In general, under the 1940 Act, the
Company would control a portfolio company if the
Company owned 25% or more of its outstanding voting securities
and would be an affiliate of a portfolio company if
the Company owned 5% or more of its outstanding voting
securities. The 1940 Act contains prohibitions and restrictions
relating to transactions between investment companies and their
affiliates (including the Companys investment adviser),
principal underwriters and affiliates of those affiliates or
underwriters.
The Company believes that there is significant ambiguity in the
application of existing SEC staff interpretations of the term
voting security to complex structures such as
limited partnership interests of the kind in which the Company
invests. As a result, it is possible that the SEC staff may
consider that certain securities investments in limited
partnerships are voting securities under the staffs
prevailing interpretations of this term. If such determination
is made, the Company may be regarded as a person affiliated with
and controlling the issuer(s) of those securities for purposes
of Section 17 of the 1940 Act.
In light of the ambiguity of the definition of voting
securities, the Company does not intend to treat any class of
limited partnership interests that it holds as voting
securities unless the security holders of such class
currently have the ability, under the partnership agreement, to
remove the general partner (assuming a sufficient vote of such
securities, other than securities held by the general partner,
in favor of such removal) or the Company has an economic
interest of sufficient size that otherwise gives it the de facto
power to exercise a controlling influence over the partnership.
The Company believes this treatment is appropriate given that
the general partner controls the partnership, and without the
ability to remove the general partner or the power to otherwise
exercise a controlling influence over the partnership due to the
size of an economic interest, the security holders have no
control over the partnership.
Affiliated
Investments.
Direct Fuels Partners, L.P. At May 31,
2011, the Company held a 39.9% limited partnership interest in
Direct Fuels Partners, L.P. (Direct Fuels). The
Company believes that the limited partnership interests of
Direct Fuels should not be considered voting securities for
purposes of the 1940 Act because of the limited scope and
character of the rights of such securities. The Companys
President and Chief Executive Officer serves as a director on
the board of the general partner for Direct Fuels. Although the
Company does not own any interest in the general partner of
Direct Fuels, it believes that it may be an affiliate of Direct
Fuels under the 1940 Act by virtue of its participation on the
board of the general partner.
Plains All American GP LLC and Plains All American Pipeline,
L.P. Robert V. Sinnott is a member of the
Companys Board of Directors and a senior executive of
Kayne Anderson Capital Advisors, L.P. (KACALP), the
managing member of KAFA. Mr. Sinnott also serves as a
director on the board of Plains All American GP LLC
(Plains GP), the general partner of Plains All
American Pipeline, L.P. Members of senior management of KACALP
and KAFA and various affiliated funds managed by KACALP own
units of Plains GP. Various advisory clients of KACALP and
KAFA, including the Company, own units in Plains All American
Pipeline, L.P. The
27
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
Company believes that it is an affiliate of Plains GP and Plains
All American, L.P. under the 1940 Act by virtue of (i) the
ownership interests in the general partner by the Company and
other affiliated Kayne Anderson funds and (ii) Mr.
Sinnotts participation on the board of Plains GP.
ProPetro Services, Inc. At May 31, 2011,
the Company held 19.1% of ProPetro Services, Inc.
(ProPetro) outstanding common stock. The
Companys President and Chief Executive Officer and one of
its Executive Vice Presidents serve as directors on
ProPetros board of directors. The Company believes that it
is an affiliate of ProPetro by virtue of its common stock
ownership and its participation on its board of directors.
VantaCore Partners LP At May 31, 2011,
the Company held a 30.5% limited partnership interest in
VantaCore Partners LP (VantaCore). The Company
believes that the limited partnership interests of VantaCore
should not be considered voting securities for purposes of the
1940 Act because of the limited scope and character of the
rights of such securities. One of the Companys Senior Vice
Presidents serves as Chairman of the board of directors of the
general partner for VantaCore. Although the Company does not own
any interest in the general partner of VantaCore, it believes
that it may be an affiliate of VantaCore under the 1940 Act by
virtue of its participation on the board of the general partner.
|
|
7.
|
Derivative
Financial Instruments
|
As required by the Derivative and Hedging Topic of the FASB
Accounting Standards Codification, the following are the
derivative instruments and hedging activities of the Company.
See Note 2 Significant Accounting Policies.
As of May 31, 2011, the Company held no derivative
instruments, and during the three and six months ended
May 31, 2011, the Company did not have any activity
involving derivative instruments.
|
|
8.
|
Investment
Transactions
|
For the six months ended May 31, 2011, the Company
purchased and sold securities in the amount of $169,444 and
$170,197 (excluding short-term investments), respectively.
From time to time, certain of the Companys investments may
be restricted as to resale. For instance, private investments
that are not registered under the Securities Act cannot be
offered for public sale in a non-exempt transaction without
first being registered. In other cases, certain of the
Companys investments have restrictions such as
lock-up
agreements that preclude the Company from offering these
securities for public sale.
28
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
At May 31, 2011, the Company held the following restricted
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units, or
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
Percent
|
|
|
|
|
|
Acquisition
|
|
Type of
|
|
Principal ($)
|
|
|
Cost
|
|
|
Fair
|
|
|
Fair Value
|
|
|
of Net
|
|
|
of Total
|
|
Investment
|
|
Security
|
|
Date
|
|
Restriction
|
|
(in 000s)
|
|
|
Basis
|
|
|
Value
|
|
|
per Unit
|
|
|
Assets
|
|
|
Assets
|
|
|
Level 3
Investments(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Fuels Partners,
L.P.(2)
|
|
Class A Common Units
|
|
6/11/07
|
|
(3)
|
|
|
2,500
|
|
|
$
|
41,359
|
|
|
$
|
32,500
|
|
|
$
|
13.00
|
|
|
|
13.8
|
%
|
|
|
9.8
|
%
|
Direct Fuels Partners, L.P.
|
|
Class A Convertible Preferred
Units(4)
|
|
5/14/09
|
|
(3)
|
|
|
96
|
|
|
|
1,952
|
|
|
|
1,919
|
|
|
|
19.90
|
|
|
|
0.8
|
|
|
|
0.6
|
|
Direct Fuels Partners, L.P.
|
|
Class B Convertible Preferred
Units(4)
|
|
8/25/09
|
|
(3)
|
|
|
27
|
|
|
|
538
|
|
|
|
540
|
|
|
|
20.10
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Direct Fuels Partners, L.P.
|
|
Class C Convertible Preferred
Units(4)
|
|
11/20/09
|
|
(3)
|
|
|
20
|
|
|
|
408
|
|
|
|
423
|
|
|
|
20.80
|
|
|
|
0.2
|
|
|
|
0.1
|
|
Direct Fuels Partners, L.P.
|
|
Class D Preferred Units
|
|
(5)
|
|
(3)
|
|
|
324
|
|
|
|
5
|
|
|
|
6,723
|
|
|
|
20.75
|
|
|
|
2.9
|
|
|
|
2.0
|
|
Plains All American GP LLC
|
|
Common Units
|
|
12/23/10,
|
|
(3)
|
|
|
3
|
|
|
|
4,956
|
|
|
|
5,302
|
|
|
|
1,522
|
|
|
|
2.3
|
|
|
|
1.6
|
|
|
|
|
|
12/31/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ProPetro Services, Inc.
|
|
Common Shares
|
|
2/15/07
|
|
(3)
|
|
|
150,097
|
|
|
|
12
|
|
|
|
5,614
|
|
|
|
0.04
|
|
|
|
2.4
|
|
|
|
1.7
|
|
ProPetro Services, Inc.
|
|
Secured Term Loan
|
|
2/15/07
|
|
(3)
|
|
$
|
11,058
|
|
|
|
36,346
|
|
|
|
11,058
|
|
|
|
n/a
|
|
|
|
4.7
|
|
|
|
3.4
|
|
Regency Energy Partners L.P.
|
|
Common Units
|
|
5/2/11
|
|
(6)
|
|
|
208
|
|
|
|
4,917
|
|
|
|
5,064
|
|
|
|
24.31
|
|
|
|
2.1
|
|
|
|
1.5
|
|
VantaCore Partners
LP(7)
|
|
Class A Common Units
|
|
5/21/07,
|
|
(3)
|
|
|
1,465
|
|
|
|
21,486
|
|
|
|
17,210
|
|
|
|
11.75
|
|
|
|
7.3
|
|
|
|
5.2
|
|
|
|
|
|
8/04/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VantaCore Partners LP
|
|
Preferred Units
|
|
(8)
|
|
(3)
|
|
|
70
|
|
|
|
|
|
|
|
1,125
|
|
|
|
16.00
|
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
111,979
|
|
|
$
|
87,478
|
|
|
|
|
|
|
|
37.2
|
%
|
|
|
26.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
Investments(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calumet Specialty Products Partners, L.P.
|
|
Senior Notes
|
|
4/15/11
|
|
(6)
|
|
$
|
2,000
|
|
|
$
|
2,000
|
|
|
$
|
2,111
|
|
|
|
n/a
|
|
|
|
0.9
|
%
|
|
|
0.6
|
%
|
Clayton Williams Energy, Inc.
|
|
Senior Notes
|
|
3/11/11,
|
|
(6)
|
|
$
|
2,850
|
|
|
|
2,847
|
|
|
|
2,850
|
|
|
|
n/a
|
|
|
|
1.2
|
|
|
|
0.9
|
|
|
|
|
|
4/26/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crestwood Holdings Partners, LLC
|
|
Secured Term Loan
|
|
(10)
|
|
(3)
|
|
$
|
6,984
|
|
|
|
6,885
|
|
|
|
7,220
|
|
|
|
n/a
|
|
|
|
3.1
|
|
|
|
2.2
|
|
Crestwood Midstream Partners LP
|
|
Senior Notes
|
|
3/25/11,
|
|
(6)
|
|
$
|
8,335
|
|
|
|
8,353
|
|
|
|
8,397
|
|
|
|
n/a
|
|
|
|
3.5
|
|
|
|
2.5
|
|
|
|
|
|
4/27/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eagle Rock Energy Partners, L.P.
|
|
Senior Notes
|
|
5/24/11
|
|
(6)
|
|
$
|
3,000
|
|
|
|
2,978
|
|
|
|
3,011
|
|
|
|
n/a
|
|
|
|
1.3
|
|
|
|
0.9
|
|
Foresight Energy LLC
|
|
Senior Notes
|
|
8/6/10
|
|
(3)
|
|
$
|
5,000
|
|
|
|
4,970
|
|
|
|
5,475
|
|
|
|
n/a
|
|
|
|
2.3
|
|
|
|
1.6
|
|
Genesis Energy, L.P.
|
|
Senior Notes
|
|
11/12/10
|
|
(6)
|
|
$
|
2,120
|
|
|
|
2,120
|
|
|
|
2,125
|
|
|
|
n/a
|
|
|
|
0.9
|
|
|
|
0.6
|
|
Laredo Petroleum, Inc.
|
|
Senior Notes
|
|
1/12/11,
|
|
(3)
|
|
$
|
4,500
|
|
|
|
4,597
|
|
|
|
4,804
|
|
|
|
n/a
|
|
|
|
2.0
|
|
|
|
1.5
|
|
|
|
|
|
4/26/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern Pacific Resources Corp.
|
|
Secured Term Loan
|
|
5/5/11
|
|
(3)
|
|
$
|
2,000
|
|
|
|
2,050
|
|
|
|
2,040
|
|
|
|
n/a
|
|
|
|
0.9
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,800
|
|
|
$
|
38,033
|
|
|
|
|
|
|
|
16.1
|
%
|
|
|
11.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of all restricted securities
|
|
$
|
148,779
|
|
|
$
|
125,511
|
|
|
|
|
|
|
|
53.3
|
%
|
|
|
37.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Securities are valued using inputs reflecting the Companys
own assumptions as more fully described in
Note 2 Significant Accounting Policies. |
|
(2) |
|
The Companys investment in Direct Fuels includes 200
incentive distribution rights (20% of total outstanding
incentive distribution rights) for which the Company does not
assign a value. |
|
(3) |
|
Unregistered security of a private company. |
|
(4) |
|
The Direct Fuels Convertible Preferred Units consist of three
classes Class A, B and C. Each class has a
liquidation preference of $20.00 per unit and is convertible
into Class A Common Units. The Class A Preferred Units
are convertible into Class A Common Units at a price of
$20.00 per unit. The Class B Preferred Units are
convertible into Class A Common Units at a price of $18.50
per unit. The Class C Preferred Units are convertible into
Class A Common Units at a price of $15.50 per unit. |
|
(5) |
|
The Direct Fuels Class D Preferred Units are senior to
Direct Fuels Convertible Preferred Units and Class A
Common Units. During the three months ended February 28,
2011, the Company received Class D Preferred Units on
February 15 in lieu of cash distributions. |
|
(6) |
|
Unregistered security of a public company. |
29
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
|
|
|
(7) |
|
The Companys investment in VantaCore includes 1,823
incentive distribution rights (18% of total outstanding
incentive distribution rights) for which the Company does not
assign a value. |
|
(8) |
|
The VantaCore Preferred Units are senior to the VantaCore Common
Units. The Preferred Units have a liquidation preference of
$17.50 per unit and were issued on February 15, 2011 and
May 16, 2011 by VantaCore to holders of the common and
preferred units to the extent that such units did not receive
full cash distributions on those dates. The shortfall in the
cash distribution was paid in preferred units, in lieu of cash. |
|
(9) |
|
These securities have a fair market value determined by the mean
of the bid and ask prices provided by a syndicate bank,
principal market maker or an independent pricing service as more
fully described in Note 2 Significant
Accounting Policies. These securities have limited trading
volume and are not listed on a national exchange. |
|
(10) |
|
These securities were acquired at various dates throughout the
six months ended May 31, 2011 and in prior years. |
|
|
10.
|
Senior
Secured Revolving Credit Facility
|
On March 30, 2010, the Company replaced its then existing
senior secured revolving credit facility with an amended and
restated senior secured revolving credit facility (the
Credit Facility). The Credit Facility has
availability of $70,000 and a three year commitment maturing on
March 30, 2013. Outstanding loan balances accrue interest
daily at a rate equal to LIBOR plus 2.00% based on current
borrowings and the current borrowing base. If borrowings exceed
the borrowing base attributable to quoted securities
(generally defined as equity investments in public MLPs and
investments in bank debt and high yield bonds which are traded),
the interest rate will increase to LIBOR plus 3.00%. The Company
paid an upfront fee of 0.50% on the $70,000 commitment and pays
a commitment fee of 0.50% per annum on any unused amounts of the
Credit Facility.
The obligations under the Credit Facility are collateralized by
substantially all of the Companys assets and are
guaranteed by any of the Companys future subsidiaries,
other than special purpose subsidiaries. The Credit Facility
contains affirmative and reporting covenants and certain
financial ratio and restrictive covenants, including:
(a) maintaining a ratio, on a consolidated basis, of total
assets (excluding deferred tax assets) less liabilities (other
than indebtedness and deferred tax liabilities) to aggregate
indebtedness of the Company of not less than 3.0:1.0,
(b) maintaining the value of the portion of the
Companys portfolio that can be converted into cash within
specified time periods and valuations at no less than 10% of the
principal amount outstanding under the Credit Facility during
any period when adjusted outstanding principal amounts exceed a
specified threshold percentage of the Companys adjusted
borrowing base, (c) maintaining consolidated net assets at
each fiscal quarter end of not less than the greater of: 40% of
the consolidated total assets of the Company and its
subsidiaries, and $70,000 plus 25% of the net proceeds from any
issuance of equity securities by the Company and its
subsidiaries subsequent to the closing of the Credit Facility,
(d) limitations on additional indebtedness,
(e) limitations on liens, (f) limitations on mergers
and other fundamental changes, (g) limitations on dividends
and other specified restricted payments, (h) limitations on
disposition of assets, (i) limitations on transactions with
affiliates, (j) limitations on agreements that prohibit
liens on properties of the Company and its subsidiaries,
(k) limitations on sale and leaseback transactions,
(l) limitations on specified hedging transactions,
(m) limitations on changes in accounting treatment and
reporting practices, (n) limitations on specified
amendments to the Companys investment management agreement
during the continuance of a default, (o) limitations on the
aggregate amount of unfunded commitments, and
(p) limitations on establishing deposit, securities or
similar accounts not subject to control agreements in favor of
the lenders. The Credit Facility also contains customary
representations and warranties and events of default.
Under the terms of the Credit Facility, if an investment becomes
non-performing, it will reduce the Companys borrowing base
and could cause the Company to be in default under the terms of
its loans under the Credit Facility. Debt investments are
generally characterized as non-performing if such investments
are in default of any payment obligations, and private MLP
equity investments are generally characterized as non-performing
if such investments
30
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
fail to pay cash distributions, in their most recent fiscal
quarter, that are greater than 80% of their minimum quarterly
distribution amount.
Under the terms of the Credit Facility, if borrowings exceed 90%
of borrowing base, the Company is restricted in paying
distributions to stockholders to no more than the amount of
Distributable Cash Flow for the current and prior three
quarters. As of May 31, 2011, the Company had $67,000
borrowed under its Credit Facility (at an interest rate of
2.21%), which represented 49.6% and 52.7% of its borrowing base
and quoted borrowing base of $135,152 and $127,092,
respectively. The maximum amount that the Company can borrow
under its Credit Facility is limited to the lesser of the
commitment amount of $70,000 and its borrowing base.
As of May 31, 2011, the Company was in compliance with all
financial and operational covenants required by the Credit
Facility.
The Company has 200,000,000 shares of common stock
authorized. Transactions in common shares for the six months
ended May 31, 2011 were as follows:
|
|
|
|
|
Shares outstanding at November 30, 2010
|
|
|
10,266,660
|
|
Shares issued through reinvestment of dividends and distributions
|
|
|
35,804
|
|
|
|
|
|
|
Shares outstanding at May 31, 2011
|
|
|
10,302,464
|
|
|
|
|
|
|
On June 30, 2011, the Company declared its quarterly
distribution of $0.38 per common share for the fiscal second
quarter for a total of $3,915. The distribution is payable on
July 22, 2011 to stockholders of record on July 13,
2011.
31
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
(UNAUDITED)
Rev.
01/2011
|
|
|
|
|
|
|
|
FACTS
|
|
WHAT DOES KAYNE ANDERSON ENERGY
DEVELOPMENT COMPANY (KED) DO WITH YOUR PERSONAL
INFORMATION?
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Why?
|
|
Financial companies choose how they share your personal
information. Federal law gives consumers the right to limit some
but not all sharing. Federal law also requires us to tell you
how we collect, share, and protect your personal information.
Please read this notice carefully to understand what we do.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
What?
|
|
The types of personal information we collect and share depend on
the product or service you have with us. This information can
include:
|
|
|
|
|
n Social
Security number and account balances
|
|
|
|
|
n Payment
history and transaction history
|
|
|
|
|
n Account
transactions and wire transfer instructions
|
|
|
|
|
When you are no longer our customer, we continue to share
your information as described in this notice.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
How?
|
|
All financial companies need to share customers personal
information to run their everyday business. In the section
below, we list the reasons financial companies can share their
customers personal information; the reasons KED chooses to
share; and whether you can limit this sharing.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Can you limit
|
|
|
Reasons we can share your
personal information
|
|
|
Does KED share?
|
|
|
this sharing?
|
|
|
For our everyday business purposes
such as to process your transactions, maintain your
account(s), respond to court orders and legal investigations, or
report to credit bureaus
|
|
|
Yes
|
|
|
No
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For our marketing purposes
to offer our products and services to you
|
|
|
Yes
|
|
|
No
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For joint marketing with other financial companies
|
|
|
No
|
|
|
We dont share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For our affiliates everyday business
purposes
information about your transactions and experiences
|
|
|
No
|
|
|
We dont share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For our affiliates everyday business
purposes
information about your creditworthiness
|
|
|
No
|
|
|
We dont share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For nonaffiliates to market to you
|
|
|
No
|
|
|
We dont share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Questions?
|
|
Call
877-657-3863
or go to
http://www.kaynefunds.com
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32
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
PRIVACY POLICY NOTICE
(UNAUDITED)
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Who we are
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Who is providing this notice?
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KED
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What we do
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How does KED
protect my personal information?
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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.
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Access to your personal information is on a
need-to-know
basis. KED has adopted internal policies to protect your
non-public personal information.
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How does KED
collect my personal information?
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We collect your personal information, for example, when you
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n Open
an account or provide account information
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n Buy
securities from us or make a wire transfer
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n Give
us your contact information
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We also collect your personal information from other companies.
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Why cant I limit all sharing?
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Federal law gives you the right to limit only
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n sharing
for affiliates everyday business purposes
information about your creditworthiness
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n affiliates
from using your information to market to you
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n sharing
for nonaffiliates to market to you
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State laws and individual companies may give you additional
rights to limit sharing.
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Definitions
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Affiliates
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Companies related by common ownership or control. They can be
financial and nonfinancial companies.
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n KED
does not share with our affiliates.
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Nonaffiliates
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Companies not related by common ownership or control. They can
be financial and nonfinancial companies.
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n KED
does not share with nonaffiliates so they can market to you.
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Joint marketing
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A formal agreement between nonaffiliated financial companies
that together market financial products or services to you.
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n KED
does not jointly market.
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Other important information
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None.
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33
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
(UNAUDITED)
Kayne Anderson Energy Development Company, a Maryland
corporation (the Company), hereby adopts the
following plan (the Plan) with respect to
distributions declared by its Board of Directors (the
Board) on shares of its Common Stock:
1. Unless a stockholder specifically elects to receive cash
as set forth below, all distributions hereafter declared by the
Board shall be payable in shares of the Common Stock of the
Company, and no action shall be required on such
stockholders part to receive a distribution in stock.
2. Such distributions shall be payable on such date or
dates as may be fixed from time to time by the Board to
stockholders of record at the close of business on the record
date(s) established by the Board for the distribution involved.
3. The Company may use newly-issued shares of its Common
Stock or purchase shares in the open market in connection with
the implementation of the plan. The number of shares to be
issued to a stockholder shall be based on share price equal to
95% of the closing price of the Companys Common Stock one
day prior to the dividend payment date.
4. The Board may, in its sole discretion, instruct the
Company to purchase shares of its Common Stock in the open
market in connection with the implementation of the Plan as
follows: If the Companys Common Stock is trading below net
asset value at the time of valuation, upon notice from the
Company, the Plan Administrator (as defined below) will receive
the dividend or distribution in cash and will purchase Common
Stock in the open market, on the New York Stock Exchange or
elsewhere, for the Participants accounts, except that the
Plan Administrator will endeavor to terminate purchases in the
open market and cause the Company to issue the remaining shares
if, following the commencement of the purchases, the market
value of the shares, including brokerage commissions, exceeds
the net asset value at the time of valuation. These remaining
shares will be issued by the Company at a price equal to the
greater of (i) the net asset value at the time of valuation
or (ii) 95% of the then current market price.
5. In a case where the Plan Administrator has terminated
open market purchases and caused the issuance of remaining
shares by the Company, the number of shares received by the
participant in respect of the cash dividend or distribution will
be based on the weighted average of prices paid for shares
purchased in the open market, including brokerage commissions,
and the price at which the Company issues the remaining shares.
To the extent that the Plan Administrator is unable to terminate
purchases in the open market before the Plan Administrator has
completed its purchases, or remaining shares cannot be issued by
the Company because the Company declared a dividend or
distribution payable only in cash, and the market price exceeds
the net asset value of the shares, the average share purchase
price paid by the Plan Administrator may exceed the net asset
value of the shares, resulting in the acquisition of fewer
shares than if the dividend or distribution had been paid in
shares issued by the Company.
6. A stockholder may, however, elect to receive his or its
distributions in cash. To exercise this option, such stockholder
shall notify American Stock Transfer &
Trust Company, the plan administrator and the
Companys transfer agent and registrar (collectively the
Plan Administrator), in writing so that such notice
is received by the Plan Administrator no later than the record
date fixed by the Board for the distribution involved.
7. The Plan Administrator will set up an account for shares
acquired pursuant to the Plan for each stockholder who has not
so elected to receive dividends and distributions in cash (each,
a Participant). The Plan Administrator may hold each
Participants shares, together with the shares of other
Participants, in non-certificated form in the Plan
Administrators name or that of its nominee. Upon request
by a Participant, received no later than three (3) days
prior to the payable date, the Plan Administrator will, instead
of crediting shares to
and/or
carrying shares in a Participants account, issue, without
charge to the Participant, a certificate registered in the
Participants name for the number of whole shares payable
to the Participant and a check for any fractional share less a
broker commission on the sale of such fractional shares. If a
request to terminate a
34
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
DIVIDEND REINVESTMENT PLAN
(UNAUDITED)
Participants participation in the Plan is received less
than three (3) days before the payable date, dividends and
distributions for that payable date will be reinvested. However,
subsequent dividends and distributions will be paid to the
Participant in cash.
8. The Plan Administrator will confirm to each Participant
each acquisition made pursuant to the Plan as soon as
practicable but not later than ten (10) business days after
the date thereof. Although each Participant may from time to
time have an undivided fractional interest (computed to three
decimal places) in a share of Common Stock of the Company, no
certificates for a fractional share will be issued. However,
dividends and distributions on fractional shares will be
credited to each Participants account. In the event of
termination of a Participants account under the Plan, the
Plan Administrator will adjust for any such undivided fractional
interest in cash at the market value of the Companys
shares at the time of termination.
9. The Plan Administrator will forward to each Participant
any Company related proxy solicitation materials and each
Company report or other communication to stockholders, and will
vote any shares held by it under the Plan in accordance with the
instructions set forth on proxies returned by Participants to
the Company.
10. In the event that the Company makes available to its
stockholders rights to purchase additional shares or other
securities, the shares held by the Plan Administrator for each
Participant under the Plan will be added to any other shares
held by the Participant in certificated form in calculating the
number of rights to be issued to the Participant.
11. The Plan Administrators service fee, if any, and
expenses for administering the Plan will be paid for by the
Company.
12. Each Participant may terminate his or its account under
the Plan by so notifying the Plan Administrator via the Plan
Administrators website at www.amstock.com, by filling out
the transaction request form located at the bottom of the
Participants Statement and sending it to American Stock
Transfer and Trust Company, P.O. Box 922, Wall
Street Station, New York, NY
10269-0560
or by calling the Plan Administrator at
(888) 888-0317.
Such termination will be effective immediately. The Plan may be
terminated by the Company upon notice in writing mailed to each
Participant at least 30 days prior to any record date for
the payment of any dividend or distribution by the Company. Upon
any termination, the Plan Administrator will cause a certificate
or certificates to be issued for the full shares held for the
Participant under the Plan and a cash adjustment for any
fractional share to be delivered to the Participant without
charge to the Participant. If a Participant elects by his or its
written notice to the Plan Administrator in advance of
termination to have the Plan Administrator sell part or all of
his or its shares and remit the proceeds to the Participant, the
Plan Administrator is authorized to deduct a $15.00 transaction
fee plus a $0.10 per share brokerage commission from the
proceeds.
13. These terms and conditions may be amended or
supplemented by the Company at any time but, except when
necessary or appropriate to comply with applicable law or the
rules or policies of the Securities and Exchange Commission or
any other regulatory authority, only by mailing to each
Participant appropriate written notice at least 30 days
prior to the effective date thereof. The amendment or supplement
shall be deemed to be accepted by each Participant unless, prior
to the effective date thereof, the Plan Administrator receives
written notice of the termination of his or its account under
the Plan. Any such amendment may include an appointment by the
Plan Administrator in its place and stead of a successor agent
under these terms and conditions, with full power and authority
to perform all or any of the acts to be performed by the Plan
Administrator under these terms and conditions. Upon any such
appointment of any agent for the purpose of receiving dividends
and distributions, the Company will be authorized to pay to such
successor agent, for each Participants account, all
dividends and distributions payable on shares of the Company
held in the Participants name or under the Plan for
retention or application by such successor agent as provided in
these terms and conditions.
35
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
DIVIDEND REINVESTMENT PLAN
(UNAUDITED)
14. The Plan Administrator will at all times act in good
faith and use its best efforts within reasonable limits to
ensure its full and timely performance of all services to be
performed by it under this Plan and to comply with applicable
law, but assumes no responsibility and shall not be liable for
loss or damage due to errors unless such error is caused by the
Plan Administrators negligence, bad faith, or willful
misconduct or that of its employees or agents.
15. These terms and conditions shall be governed by the
laws of the State of Maryland.
Adopted: September 5, 2006
Amended: July 9, 2007
Amended: April 2, 2009
36
The policies and procedures that the Company uses to determine
how to vote proxies relating to its portfolio securities are
available:
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without charge, upon request, by calling
(888) 533-1232;
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on the Companys website,
http://www.kaynefunds.com; and
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on the website of the Securities and Exchange Commission,
http://www.sec.gov.
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Information regarding how the Company voted proxies relating to
portfolio securities during the most recent
12-month
period ended June 30 will be available without charge by
August 31, 2011, upon request, by calling
(888) 533-1232,
and on the SECs website at
http://www.sec.gov
(see
Form N-PX).
The Company intends to file a complete schedule of its portfolio
holdings for the first and third quarters of its fiscal year
with the SEC on
Form N-Q
and
Form N-30B-2.
The Companys
Form N-Q
and
Form N-30B-2
will be available on the SECs website at
http://www.sec.gov
and may be reviewed and copied at the SECs Public
Reference Room in Washington, DC. Information on the operation
of the SECs Public Reference Room may be obtained by
calling 1-202-551-8090. The Company will also make its
Form N-Q
and
Form N-30B-2
available on its website at
http://www.kaynefunds.com.
37
On June 30, 2011, the Company held its annual meeting of
stockholders where the following matters were approved by
stockholders. As of the record date of May 16, 2011 (the
Record Date), the Company had 10,302,464 outstanding
shares of common stock, each of which was entitled to cast one
vote. Represented in person or by proxy at this Meeting were a
total of 8,879,058 shares of common stock, constituting a
quorum.
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(i)
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The election of William R. Cordes and Barry R. Pearl as
Class II directors, each to serve for a term of three years
until the Companys 2014 annual meeting of stockholders and
until his successor is duly elected and qualified.
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The election of each of Mr. Cordes and Mr. Pearl as a
Class II Director requires the affirmative vote of the
holders of a majority of shares of the Companys common
stock outstanding as of the Record Date. For the purposes of
determining whether the majority of the votes entitled to be
cast by the common stockholders has elected a nominee, each
common share is entitled to one vote.
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a.
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In the election of Mr. Cordes, 8,709,954 shares were
cast in favor, and 169,104 withheld authority.
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b.
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In the election of Mr. Pearl, 8,707,962 shares were
cast in favor, and 171,096 shares withheld authority.
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As a result of the vote on this matter, William R. Cordes and
Barry R. Pearl were each elected to serve as directors of the
Company for a
3-year term.
Kevin S. McCarthy and William L. Thacker continued as directors,
and their terms expire on the date of the 2012 annual meeting of
stockholders. Albert L. Richey and Robert V. Sinnott continued
as directors, and their terms expire on the date of the 2013
annual meeting of stockholders.
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(ii)
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The ratification of PricewaterhouseCoopers LLP as the
Companys independent registered public accounting firm for
its fiscal year ending November 30, 2011.
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The approval of this proposal required the affirmative vote of a
majority of the votes cast by the holders of the Companys
common stock outstanding as of the Record Date. With respect to
this proposal, 8,705,117 shares of common stock voted in
favor, 136,871 shares of common stock voted against,
37,070 shares of common stock abstained, and there were no
broker non-votes.
As a result of the vote on this matter, the proposal has been
approved.
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(iii)
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The approval of a proposal to authorize the Company to sell
shares of its common stock at a price below net asset value per
share, effective for a period expiring on the date of the
Companys 2012 annual meeting of stockholders.
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The approval of this proposal requires both of the following:
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a.
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The affirmative vote of a majority of all common stockholders on
the records of the Companys transfer agent as of the
Record Date, which may not reflect the underlying beneficial
owners. With respect to this requirement, 9 holders of common
stock voted in favor, no holders of common stock voted against,
1 holder of common stock abstained, and there were no broker
non-votes out of 10 total common stock holders.
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b.
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The affirmative vote of a majority of the votes cast by the
holders of the Companys common stock outstanding as of the
Record Date. With respect to this requirement,
3,684,879 shares were cast in favor, 303,705 shares
were cast against, 61,850 shares abstained, and there were
4,828,624 broker non-votes.
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As a result of the vote on this matter, the proposal has been
approved.
38
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Directors and Corporate Officers
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Kevin S. McCarthy
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Chairman of the Board of Directors,
President and Chief Executive Officer
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William R. Cordes
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Director
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Barry R. Pearl
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Director
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Albert L. Richey
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Director
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Robert V. Sinnott
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Director
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William L. Thacker
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Director
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Terry A. Hart
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Chief Financial Officer and Treasurer
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David J. Shladovsky
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Chief Compliance Officer and Secretary
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J.C. Frey
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Executive Vice President, Assistant
Secretary and Assistant Treasurer
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James C. Baker
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Executive Vice President
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Ron M. Logan, Jr.
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Senior Vice President
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Jody C. Meraz
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Vice President
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Investment Adviser
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Administrator
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KA Fund Advisors, LLC.
717 Texas Avenue, Suite 3100
Houston, TX 77002
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Ultimus Fund Solutions, LLC
350 Jericho Turnpike, Suite 206
Jericho, NY 11753
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1800 Avenue of the Stars, Second Floor
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Stock Transfer Agent and Registrar
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Los Angeles, CA 90067
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American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
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Custodian
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Independent Registered Public Accounting Firm
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JPMorgan Chase Bank, N.A.
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PricewaterhouseCoopers LLP
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14201 North Dallas Parkway, Second Floor
Dallas, TX 75254
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350 South Grand Avenue
Los Angeles, CA 90071
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Legal Counsel
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Paul, Hastings, Janofsky & Walker LLP
55 Second Street, 24th Floor
San Francisco, CA 94105
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Please visit us on the web at
http://www.kaynefunds.com
or call us toll-free at 1-877-657-3863.
This report, including the financial statements herein, is made
available to stockholders of the Company for their information.
It is not a prospectus, circular or representation intended for
use in the purchase or sale of shares of the Company or of any
securities mentioned in this report.
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Please see the schedule of investments contained in the Report to Stockholders included under
Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment
Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Companies and Affiliated
Purchasers.
None.
Item 10. Submission of Matters to a Vote of Security Holders.
None.
Item 11. Controls and Procedures.
(a) The Registrants principal executive officer and principal financial officer have
evaluated the Registrants disclosure controls and procedures (as defined in rule 30a-3(c) under
the 1940 Act) as of a date within 90 days of this filing and have concluded that the Registrants
disclosure controls and procedures are effective, as of such date, in ensuring that information
required to be disclosed by the Registrant in this Form N-CSR was recorded, processed, summarized,
and reported timely.
(b) The Registrants principal executive officer and principal financial officer are aware of
no changes in the Registrants internal control over financial reporting (as defined in rule
30a-3(d) under the 1940 Act) that occurred during the Registrants last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the Registrants internal
control over financial reporting.
Item 12. Exhibits.
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(a)(1)
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Not applicable for semi-annual reports. |
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(a)(2)
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Separate certifications of Principal Executive and Financial Officers pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 attached hereto as EX-99.CERT. |
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(b)
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Certification of Principal Executive and Financial Officers pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 furnished as EX-99.906 CERT. |
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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.
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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
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Date: July 22, 2011 |
By: |
/s/ Kevin S. McCarthy
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Kevin S. McCarthy |
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Chairman of the Board of Directors,
President and Chief Executive Officer |
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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.
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Date: July 22, 2011 |
By: |
/s/ Kevin S. McCarthy
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Kevin S. McCarthy |
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Chairman of the Board of Directors,
President and Chief Executive Officer |
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Date: July 22, 2011 |
By: |
/s/ Terry A. Hart
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Terry A. Hart |
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Chief Financial Officer and Treasurer |
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Exhibit Index
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(a)(1)
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Not applicable for semi-annual reports. |
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(a)(2)
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Separate certifications of Principal Executive and Financial Officers pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 attached hereto as EX-99.CERT. |
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(b)
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Certification of Principal Executive and Financial Officers pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 furnished as EX-99.906 CERT. |