nvcsr
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: November 30, 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 fiscal year ended November 30, 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.
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
LETTER TO STOCKHOLDERS
January 27,
2012
Dear Fellow
Stockholders:
We are pleased to report another year of very strong
performance, marking the second consecutive year of significant
increases in net asset value. The primary driver of our results
was the performance of our private investments, where a number
of important events took place during the year. First, we sold
our equity investment in International Resource Partners LP
(IRP) for approximately $100 million, which is
more than three times our initial investment. This has been our
most successful investment since inception. Second, we saw a
substantial recovery in the value of our investment in ProPetro
Services, Inc., which completed a successful balance sheet
restructuring and expanded its pressure pumping business.
Finally, Direct Fuels Partners, L.P. completed a two-year
restructuring of its business and resumed paying cash
distributions during the year. Another important factor in our
performance was the flexibility that resulted from our decision
last year to withdraw the Companys election to be treated
as a business development company. Because of that decision, we
were able to invest the proceeds from IRP in public MLP equities
while we seek new private investment opportunities.
We were also very pleased to resume increasing our quarterly
distributions to shareholders during the year. Over the course
of the last twelve months, we have increased our quarterly
distribution by 30% or nine cents per share (from 30 cents to 39
cents). This was made possible by the reinvestment of the
proceeds from IRP and by increased cash distributions from our
public and private investments.
The biggest trend in the energy sector is the accelerating
development of unconventional reserves, which are more commonly
referred to as shale plays. It became even more
evident in 2011 that these unconventional reserves will be
increasingly important to domestic energy supply. While this has
had a negative impact on natural gas prices, it is expected to
lead to a substantial increase in demand for midstream assets.
Regardless of price, once the natural gas has been produced, it
needs to be transported to market through midstream assets. In
fact, a recent report by the Interstate Natural Gas Association
of America estimates that $250 billion of new midstream
infrastructure will be required over the next two decades. As a
result, the visibility for growth projects is as good as it has
ever been in the MLP and Midstream sectors that we target for
investment. We are optimistic about the prospects for the
Company in 2012 and plan to selectively make additional private
investments that meet our risk adjusted return expectations.
MLP
Market Overview
The performance of the public MLP sector affects us in several
ways. First, it directly impacts the value of our public MLPs
and MLP affiliates, which represented approximately 57% of our
long-term investments as of November 30, 2011. Second, it
indirectly impacts our private MLPs, which are generally valued
at a discount to the value of comparable public MLPs. The health
of the IPO market for MLPs and the merger and acquisitions
(M&A) market are also important for the ultimate
monetization of these private MLPs. Finally, we continue to
believe that strong market conditions for public MLPs will lead
to additional private MLP investment opportunities.
MLPs performed very well during the fiscal year, with a 9.5%
total return for the Alerian MLP Index. We believe that MLP
market performance was driven by strong distribution growth and
increased demand for yield securities by individual investors.
We think that MLPs are being increasingly viewed by market
participants as a distinct asset class with very attractive
total return characteristics. Fiscal 2011 marked the twelfth
straight year MLPs outperformed the S&P 500 index. Over
that 12-year
period, MLPs have generated a total return of over 700% versus a
total return of 12% for the S&P 500 index. With an average
yield of 6.0% for the group as of January 26, 2012 and
distribution growth prospects of 6% to 7% for 2012, we continue
to view MLPs as a very compelling investment opportunity.
MLP distribution growth accelerated during the year, as MLPs
benefited from acquisitions and development projects and
management teams became increasingly comfortable with the
current operating environment. Distributions grew 6.3% during
2011 compared to 4.6% in 2010 and 2.8% in 2009. We believe that
prospects
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KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
LETTER TO STOCKHOLDERS
for distribution growth in 2012 look as strong or better than
2011, as the need for new midstream assets to transport, process
and store unconventional reserves is leading to substantial new
growth projects. This point is well illustrated by recent
increases in distribution guidance provided by certain MLPs;
Kinder Morgan Energy Partners, ONEOK Partners, Plains All
American Pipeline and Targa Resources Partners have all recently
increased their targeted distribution growth rates for 2012. We
believe this is a reflection of a strong operating environment
and an attractive backlog of growth projects for these
partnerships.
Capital expenditures by MLPs, including both acquisitions and
new growth projects, continued at robust levels in 2011. We
estimate that MLPs completed $31 billion in acquisitions
and spent $16 billion on new projects during the year.
There were two notable transactions that are not included in the
totals above: Kinder Morgan, Inc.s acquisition of
El Paso Corporation ($38 billion transaction) and
Energy Transfer Equitys acquisition of Southern Union
Company ($9 billion transaction). In both transactions, the
general partner of an MLP is acquiring a corporation with
substantial midstream assets. The expectation is that the
general partner will subsequently drop down such
midstream assets to their affiliated MLP. We think these
transactions are noteworthy for a few reasons. First, they
highlight the strategic value of the MLP structure and the
valuation differential between MLPs and
C-corporations.
They also highlight the benefits of strong corporate
sponsorship, as well as the options available to the general
partners to enhance the growth prospects of their affiliated
MLPs. Lastly, both transactions enabled the acquirers to
substantially increase their exposure to unconventional
resources.
Access to capital markets is critical in order to finance these
growth projects and capital markets activity for MLPs reached a
new high in calendar 2011, surpassing activity levels in 2010
despite the volatility in the stock market. MLPs raised
$13 billion in follow-on equity offerings and
$21 billion in debt during calendar 2011. Much of the
equity was used to finance acquisitions and growth projects,
while MLPs took advantage of historically low interest rates to
refinance their debt.
Calendar 2011 was also a very active year for initial public
offerings (IPOs) in the MLP space, with 14 IPOs totaling
$5.3 billion. There was great variability in the quality of
the IPOs and, as a result, we opted not to participate in
several of these deals. Not surprisingly, the aftermarket
performance of these deals was mixed. There were nine deals
which were up for the year with an average return of
over 20% but five deals had negative returns for the
year. We expect the IPO market to remain active and we plan to
continue to be selective in our participation.
Energy
Market Overview
As we mentioned last year, the biggest story in the domestic
energy business is the development of unconventional
reserves, which is an industry term that refers to oil and
natural gas reserves produced using advanced drilling and
completion techniques. This trend has continued in 2011 and the
development of unconventional reserves could be one of the
biggest stories as it relates to the long-term impact on the
domestic economy. Examples of unconventional reserves include
the Barnett Shale, Haynesville Shale, Woodford Shale,
Fayetteville Shale, Eagle Ford Shale, Marcellus Shale, Bakken
Shale, as well as developing plays such as the Utica Shale,
Niobrara Shale and Tuscaloosa Marine Shale.
The rapid development of unconventional reserves has
fundamentally changed the domestic energy industry. Natural gas
production, which declined from 2000 to 2005, has increased by
24% since 2006. In 2011, natural gas production is expected to
increase by 6.5% compared to 2010 levels, which is the largest
annual increase since the mid-1980s. Domestic crude oil
production grew in each of the last three years; 2009 was the
first
year-over-year
increase in production since the early 1990s. Crude oil
production has increased by 14% since 2008 and is projected to
grow by 10% to 15% over the next five to ten years.
Significant amounts of capital are being spent by energy
companies to develop these reserves. In fact, major oil
companies, foreign oil companies and national oil companies
spent approximately $50 billion in 2011 (after spending
over $60 billion in 2010) to acquire unconventional
reserves, either directly or through joint ventures. After
shunning domestic opportunities in favor of international
projects for many years, major oil companies are
2
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
LETTER TO STOCKHOLDERS
now devoting significant capital and resources to domestic
unconventional resources. We believe their technical expertise,
capital discipline and financial resources will ensure these
resources are developed in a prudent fashion.
This trend is very important for the MLPs and Midstream
companies, as development of these new reserves will require
substantial amounts of new midstream infrastructure. We agree
with industry estimates that $250 billion will need to be
spent building midstream assets over the next two decades to
facilitate the development of unconventional reserves. We
believe this will provide attractive investment opportunities
for the Midstream sector and help drive future distribution
growth for these companies.
Turning to commodity prices, the price of crude oil was up
during the year as a result of demand growth, a weaker
U.S. dollar and reduced production from Libya. Prices
peaked in the spring on concerns of social unrest in the Middle
East / North Africa and declined significantly during
the summer on concerns about the U.S. economy and European
debt crisis. We expect crude oil prices to trade in a range of
$90 to $100/barrel over the next few years as growing demand
from developing countries will offset continued weakness in the
European and North American markets.
Natural gas prices declined steadily during 2011, as production
growth was much higher than demand growth. Current prices are
well below $3/mcf and we believe that the market will be
oversupplied for years to come. While lower gas prices are a
negative for conventional dry gas wells, many of the gas wells
being drilled currently are focused on areas with wet
gas. Wet gas is natural gas that has a high natural gas
liquids, or NGL, content. Because NGL prices are more closely
correlated with crude oil prices, these wet gas wells are
economic even at very low natural gas prices due to the high
price of the associated NGLs.
The focus on wet gas, as well as the price differential between
natural gas and NGLs, has created significant opportunities for
MLPs and Midstream companies to build additional natural gas
processing and NGL fractionation assets. In addition, as a
result of the expectation of continued growth in natural gas
supply, certain energy companies are actively looking to develop
LNG export facilities in the U.S. with the plan of selling
natural gas to international markets where prices are much
higher.
2011
Performance
We are very pleased with our strong performance in fiscal 2011.
The most visible measure of this performance is the
Companys stock price, which rose 11.0% during the year
compared to 3.2% for the Alerian MLP Index and 5.6% for the
S&P 500 Index. Because we pay quarterly distributions, we
believe a better measure of our performance is Net Asset Value
Return, which is equal to the change in net asset value per
share plus the cash distributions paid during the period,
assuming reinvestment through our dividend reinvestment program.
Our Net Asset Value Return was an impressive 20.3% for fiscal
2011, well in excess of the 9.5% total return of the Alerian MLP
Index. Another measure of the Companys performance is
Market Return, which is equal to the change in share price plus
the cash distributions paid during the period, assuming
reinvestment through our dividend reinvestment program. Our
Market Return was 19.3% for fiscal 2011.
The most significant change in our portfolio during the year
occurred in April when we sold our equity investment in IRP to
James River Coal Company for approximately $100 million in
cash net to the Company. IRP had grown to be our largest private
MLP and the sales price we received was more than three times
our initial $30 million investment made in June 2007. This
was our second successful monetization of a private MLP and
validates our investment strategy of targeting growth oriented
partnerships in the early stages of development. The proceeds
from the IRP sale were invested primarily in public MLPs as a
means of generating attractive returns while we seek new private
investment opportunities. As a consequence, our portfolio
allocation of public MLPs grew to 57% as of November 30,
2011, compared to 31% at the beginning of our fiscal year. The
other main components of our portfolio at year end were traded
debt securities (16%) and private investments, including private
MLPs (26%).
Each segment of our portfolio performed well during the year.
Our portfolio of public MLPs had a total return of 9.3% compared
to the 9.5% total return for the Alerian MLP index. Our
portfolio of traded bank debt and high yield debt had a total
return of 12.1% compared a total return of 7.5% for the Merrill
Lynch Energy High Yield
3
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
LETTER TO STOCKHOLDERS
Index. By the far the greatest contributor to our 2011 results
was the performance of our private investments, which generated
a total return of 64% for the year.
As of November 30, 2011, our private investments consisted
of holdings in Direct Fuels Partners, L.P. (Direct
Fuels), VantaCore Partners LP (VantaCore) and
ProPetro Services, Inc. (ProPetro), as well as a new
investment in Plains All American GP LLC (PAA GP).
The value of our investments in Direct Fuels and ProPetro rose
significantly over the course of the year, as both companies
completed multi-year balance sheet restructurings and saw their
respective businesses rebound very strongly. The experience of
both companies exemplifies the need to take a longer term view
of prospects for mid-sized private companies recovering from
downturns in their business sectors. ProPetro was an exceptional
performer, increasing more than 500% (from $5 million to
$29 million) during the year, while the common units of
Direct Fuels increased by 56%. Our investment in PAA GP also
performed very well with a total return of 23% since investment,
while the common units of VantaCore declined by 39% as demand
for construction aggregates has declined further.
Our largest private investment is in Direct Fuels, a leading
specialty refiner and fuel terminal operator in the
Dallas-Fort Worth area. During the year, Direct Fuels
concluded a multi-year effort to sell non-strategic assets, cut
costs and focus on its core business of transmix refining and
fuel terminalling. As part of this effort, the partnership sold
its biodiesel refining business and used the proceeds to reduce
leverage. As the year progressed, Direct Fuels succeeded in
growing its transmix volumes and saw earnings improve
dramatically due to volume growth and the favorable refining
spreads embedded in some of its key supply contracts. Later in
the fiscal year, the partnership was able to restructure key
contracts to extend their term and ensure a more predictable
cash flow profile for the business. The dramatic improvement in
performance allowed Direct Fuels to resume paying full quarterly
cash distributions in May 2011 on our preferred and common
equity investments, while continuing to reduce leverage. The
partnership is currently considering amendments to its credit
facility that would allow for more financial flexibility
commensurate with its new contract profile and may redeem some
preferred equity over the next year. We are pleased with
managements transformation of the business and are
optimistic that Direct Fuels will show sustained, stable
financial results going forward.
ProPetro is an oilfield service company that provides a number
of different services including pressure pumping, flowback and
well services. The company completed a debt restructuring in
early 2011 that reduced its leverage and provided much needed
operating flexibility. As part of the restructuring, we
exchanged our second lien debt investment for a combination of
first lien debt and equity. Since that time, the company has
enjoyed very strong demand for its pressure pumping and flowback
services associated with oil drilling in the Permian Basin of
West Texas. The improvement in financial results has been
dramatic, with record results in 2011. In fact, the
companys EBITDA in 2011 was roughly four times higher than
2010 results. ProPetro has added new equipment to support
growing demand and expects results over the next twelve months
to increase significantly from 2011 levels. With the improved
operating results, the company is considering further balance
sheet restructuring that would include refinancing existing debt
and is considering strategic alternatives as well.
VantaCore is an aggregate mining and asphalt company operating
in Tennessee and Southern Louisiana. Demand for VantaCores
products is closely tied to the level of construction activity
in the commercial, residential and infrastructure sectors. As a
result, VantaCores business was directly impacted by the
decrease in construction during the recession, although this was
buffered in its Tennessee market by large multi-year projects
already underway. VantaCores results again fell short of
expectations in 2011, as the construction market continued to
languish and its large legacy projects were completed. The
partnership continued to make strides in improving operations,
reducing costs and breaking into new markets during the year,
and we believe that the business has stabilized. It is very
difficult, however, to predict the timing of the recovery in
demand for construction aggregates. VantaCores ability to
pay cash distributions to us is constrained by limitations in
its Senior Credit facility. During fiscal 2011, approximately
25% of the distributions we received from VantaCore were paid in
cash, with the balance
paid-in-kind
in the form of preferred equity. We expect to continue to
receive a significant portion of our VantaCore distribution in
the form of
paid-in-kind
equity until the fundamentals in the construction aggregates
market improve.
4
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
LETTER TO STOCKHOLDERS
The Companys debt investments generated total returns of
12.1% in fiscal 2011. These returns were substantially better
than a total return of 3.7% for the Merrill Lynch High Yield
index and a total return of 7.5% for the Merrill Lynch Energy
High Yield index. Our portfolio outperformed these high yield
market indices because of our debt investments in E&P
companies and midstream companies that had exposure to shale
plays. Much of our performance was attributable to the first six
months of our fiscal year, as bond prices rallied strongly and
the Merrill Lynch High Yield index traded below a 7% yield.
Based on concerns about valuation levels, we reduced our
allocation to debt investments during the last six months of the
year.
2012
Outlook
The outlook for the MLP sector in 2012 remains strong as
development of the unconventional resources has created
tremendous growth opportunities. We believe this will translate
into increased distribution growth rates for MLPs during fiscal
2012. Further, we believe the sector has good visibility for
distribution growth for many years as a result of the long-term
investments required by the shale plays. That outlook, coupled
with historically low interest rates and a dearth of attractive
yield alternatives for investors, reinforces our belief that
MLPs remain attractively valued. We expect that distribution
growth in the 6% to 7% range in 2012 will lead to low
double-digit total returns in the MLP sector. As a result, we
find it very attractive to allocate much of our portfolio in
public MLPs while we continue to seek new private investments.
We will focus on sourcing new private investments during 2012
and continue to target an allocation of 50% to 70% of our
portfolio in private investments. We intend to be very patient
and selective in making these investments and will utilize the
flexibility to invest in public MLPs and debt securities until
we find private investment opportunities that meet our
investment criteria. We see many more competing sources of
capital targeting investments in private midstream companies
than when we commenced operations. In our view, some of these
investors are accepting returns that do not adequately
compensate them for the risk of their investments, especially
when compared to the expected returns in the public MLP sector.
While we prefer to structure our private investments as private
MLPs, we will consider investing in other structures. Whatever
the structure, we will only invest in private companies if those
investments support paying our cash distribution and earn a
return that is commensurate with the risk of such investment.
We look forward to continuing to execute on our business plan of
achieving high after-tax total returns by investing in public
MLPs, private companies and energy company debt. We invite you
to visit our website at kaynefunds.com for the latest updates.
Sincerely,
Kevin S. McCarthy
Chairman of the Board of Directors,
President and Chief Executive Officer
5
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
PORTFOLIO SUMMARY
(UNAUDITED)
Portfolio
Investments by Category
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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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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13.3
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%
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10.4
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%
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2.
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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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8.9
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1.6
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3.
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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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4.
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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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5.2
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2.3
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5.
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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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4.7
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2.2
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6.
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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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3.7
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2.0
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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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3.7
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8.
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Penn Virginia Resource Partners, L.P.
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Public
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Equity/Debt
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Midstream
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3.6
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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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3.5
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10.
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Crestwood Midstream Partners LP
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Public
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Equity/Debt
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Midstream
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3.3
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0.7
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* Includes cash and repurchase agreement (if any).
6
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.
Results
of Operations For the Three Months Ended
November 30, 2011
Investment Income. Investment income totaled
$3.3 million and consisted primarily of net dividends and
distributions and interest income on our debt investments. We
received $4.8 million of cash dividends and distributions,
of which $2.9 million was treated as a return of capital
during the period. During the quarter, we received
$1.4 million of interest income, of which $0.4 million
was
paid-in-kind
interest from ProPetro Services, Inc. (ProPetro). We
also received $0.6 million of
paid-in-kind
dividends, of which $0.4 million was from VantaCore
Partners LP (VantaCore). These
paid-in-kind
dividends are not included in investment income, but are
reflected as an unrealized gain.
Operating Expenses. Operating expenses totaled
$2.2 million, including $1.4 million of investment
management fees, $0.5 million of interest expense and
$0.3 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 $0.6 million and included a current income
tax expense of $0.3 million and a deferred income tax
expense of $0.2 million.
Net Realized Losses. We had net realized
losses from investments of $1.3 million, after taking into
account a current income tax benefit of $0.3 million and a
deferred income tax expense of $1.2 million.
Net Change in Unrealized Gains. We had a net
change in unrealized gains of $15.0 million. The net change
consisted of $22.9 million of unrealized gains from
investments and a deferred income tax expense of
$7.9 million.
Net Increase in Net Assets Resulting from
Operations. We had an increase in net assets
resulting from operations of $14.3 million. This increase
was composed of net investment income of $0.6 million; net
realized losses of $1.3 million; and net unrealized gains
of $15.0 million, as noted above.
Results
of Operations For the Fiscal Year Ended
November 30, 2011
Investment Income. Investment income totaled
$13.1 million and consisted primarily of net dividends and
distributions and interest income on our debt investments. We
received $15.9 million of cash dividends and distributions,
of which $8.2 million was treated as a return of capital
during the year. During the third quarter of 2011, we received
2010 tax reporting information that was used to decrease our
prior year return of capital estimate by a total of
$1.1 million. During the year, we received
$5.4 million of interest income, of which $1.4 million
was
paid-in-kind
interest from ProPetro. We also received $4.1 million of
paid-in-kind
dividends, of which $2.2 million was from VantaCore and
$1.4 million was from Direct Fuels Partners, L.P. (Direct
Fuels). These
paid-in-kind
dividends are not included in investment income, but are
reflected as an unrealized gain.
Operating Expenses. Operating expenses totaled
$9.0 million, including $5.4 million of investment
management fees, $1.9 million of interest expense and
$1.7 million of other operating expenses. Interest expense
7
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
MANAGEMENT DISCUSSION
(UNAUDITED)
included $0.4 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 $2.6 million and included a current income
tax expense of $1.0 million and a deferred income tax
expense of $0.5 million.
Net Realized Gains. We had net realized gains
from investments of $49.4 million, after taking into
account a current income tax expense of $20.1 million and a
deferred income tax expense of $8.8 million.
Net Change in Unrealized Losses. We had a net
change in unrealized losses of $12.3 million. The net
change consisted of $19.5 million of unrealized losses from
investments and a deferred income tax benefit of
$7.2 million. Approximately $59.6 million of these
unrealized losses were a result of the reversal of the
unrealized gain attributable to International Resource Partners
LP (IRP) that was realized upon the sale of our
investment during the second quarter of fiscal 2011.
Net Increase in Net Assets Resulting from
Operations. We had an increase in net assets
resulting from operations of $39.7 million. This increase
was composed of net investment income of $2.6 million; net
realized gains of $49.4 million; and net unrealized losses
of $12.3 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
investments).
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.
8
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
MANAGEMENT DISCUSSION
(UNAUDITED)
Net
Distributable Income (NDI)
(amounts
in millions, except for per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Fiscal Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
|
|
2011
|
|
|
2011
|
|
|
Distributions and Other Income from Investments
|
|
|
|
|
|
|
|
|
Dividends and Distributions
|
|
$
|
4.8
|
|
|
$
|
15.9
|
|
Paid-In-Kind
Dividends and Distributions
|
|
|
0.6
|
|
|
|
4.1
|
|
Interest Income
|
|
|
1.0
|
|
|
|
4.0
|
|
Paid-In-Kind
Interest and Other
Income(1)(2)
|
|
|
0.4
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
Total Distributions and Other Income from Investments
|
|
|
6.8
|
|
|
|
25.5
|
|
Expenses
|
|
|
|
|
|
|
|
|
Investment Management Fee
|
|
|
(1.4
|
)
|
|
|
(5.4
|
)
|
Other Expenses
|
|
|
(0.3
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
Total Management Fee and Other Expenses
|
|
|
(1.7
|
)
|
|
|
(7.1
|
)
|
Interest Expense
|
|
|
(0.4
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
Net Distributable Income (NDI)
|
|
$
|
4.7
|
|
|
$
|
16.9
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding
|
|
|
10.3
|
|
|
|
10.3
|
|
NDI per Weighted Average Share Outstanding
|
|
$
|
0.46
|
|
|
$
|
1.64
|
|
|
|
|
|
|
|
|
|
|
Distributions paid per Common
Share(3)
|
|
$
|
0.39
|
|
|
$
|
1.46
|
|
|
|
|
(1) |
|
Includes
paid-in-kind
interest from our senior secured term loan in ProPetro. During
the first quarter of fiscal 2012, we expect certain terms of our
senior secured term loan to be modified in conjunction with an
amendment of ProPetros senior secured debt. We expect the
interest rate to be reduced to 13.0% (from 15.0%) and the
maturity date to be extended to June 30, 2013 (from
February 15, 2012). |
|
|
|
(2) |
|
Includes $0.03 million and $0.11 million of commitment
fees from PIPE investments, which are recorded as reductions to
the cost of the investments. |
|
(3) |
|
The distribution of $0.39 per share for the fourth quarter of
fiscal 2011 will be paid to common stockholders on February 3,
2012. Distributions for fiscal 2011 include the distributions
paid in April 2011, July 2011, October 2011 and the distribution
to be paid in February 2012. |
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:
|
|
|
|
|
NDI generated in the current quarter;
|
|
|
|
Expected NDI over the next twelve months;
|
|
|
|
The extent to which NDI is comprised of
paid-in-kind
(PIK) interest and distributions;
|
|
|
|
The impact of potential liquidity events at our portfolio
companies; and
|
|
|
|
Realized and unrealized gains generated by the portfolio.
|
On January 18, 2012, we declared our quarterly distribution
of $0.39 per common share for the fiscal fourth quarter for a
total of $4.0 million. The distribution will be paid on
February 3, 2012 to common stockholders of record on
January 30, 2012.
9
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:
|
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
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.
|
The treatment of expenses included in NDI also differs from what
is reported in the Statement of Operations as follows:
|
|
|
|
|
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.
|
Liquidity
and Capital Resources
On November 14, 2011, we amended our senior secured
revolving credit facility (the Credit Facility) to
increase the total commitment amount from $70.0 million to
$85.0 million and extended the maturity date by one year to
March 30, 2014. The syndicate of lenders remains the same,
with each lender increasing its commitment proportionally. All
other terms of the Credit Facility remain substantially the
same. 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 $8.5 million
limit of borrowing base contribution from any single issuer.
As of November 30, 2011, we had $77.0 million of
borrowings under our Credit Facility (at an interest rate of
2.26%), which represented 59.9% of our borrowing base of
$128.5 million (66.8% of our borrowing base of
$115.2 million attributable to quoted securities). At
November 30, 2011, our asset coverage ratio under the
Investment Company Act of 1940, as amended (the 1940
Act), was 409%.
As of January 19, 2012, we had $79.0 million borrowed
under our Credit Facility (at an interest rate of 2.29%), and we
had $1.8 million of cash. Our borrowings represented 57.5% of
our borrowing base of $137.4 million (65.1% of our
borrowing base of $121.3 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 $85.0 million and our borrowing base.
10
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF NOVEMBER 30, 2011
(amounts in 000s)
|
|
|
|
|
|
|
|
|
|
|
No. of
|
|
|
|
|
Description
|
|
Shares/Units
|
|
|
Value
|
|
|
Long-Term Investments 134.4%
|
|
|
|
|
|
|
|
|
Equity
Investments(1)
112.2%
|
|
|
|
|
|
|
|
|
United States 112.2%
|
|
|
|
|
|
|
|
|
Public MLP, MLP Affiliate and Other Equity
77.1%
|
|
|
|
|
|
|
|
|
Alliance Holdings GP, L.P.
|
|
|
66
|
|
|
$
|
3,365
|
|
Boardwalk Pipeline Partners, LP
|
|
|
26
|
|
|
|
675
|
|
Buckeye Partners, L.P.
|
|
|
101
|
|
|
|
6,441
|
|
Buckeye Partners, L.P. Class B
Units(2)(3)
|
|
|
94
|
|
|
|
5,406
|
|
Capital Product Partners L.P.
|
|
|
352
|
|
|
|
2,183
|
|
Chesapeake Granite Wash
Trust(4)
|
|
|
12
|
|
|
|
245
|
|
Crestwood Midstream Partners LP
|
|
|
79
|
|
|
|
2,355
|
|
Crosstex Energy, L.P.
|
|
|
26
|
|
|
|
400
|
|
DCP Midstream Partners, LP
|
|
|
211
|
|
|
|
9,043
|
|
El Paso Pipeline Partners, L.P.
|
|
|
180
|
|
|
|
5,892
|
|
Enbridge Energy Partners, L.P.
|
|
|
275
|
|
|
|
8,518
|
|
Energy Transfer Equity, L.P.
|
|
|
265
|
|
|
|
9,339
|
|
Energy Transfer Partners, L.P.
|
|
|
275
|
|
|
|
12,036
|
|
Enterprise Products Partners L.P.
|
|
|
368
|
|
|
|
16,747
|
|
Exterran Partners, L.P.
|
|
|
213
|
|
|
|
4,635
|
|
Global Partners LP
|
|
|
205
|
|
|
|
4,235
|
|
Inergy, L.P.
|
|
|
202
|
|
|
|
4,875
|
|
Kinder Morgan Management,
LLC(2)
|
|
|
93
|
|
|
|
6,573
|
|
MarkWest Energy Partners, L.P.
|
|
|
55
|
|
|
|
2,950
|
|
Oiltanking Partners, L.P.
|
|
|
59
|
|
|
|
1,699
|
|
ONEOK Partners, L.P.
|
|
|
299
|
|
|
|
15,130
|
|
Penn Virginia Resource Partners, L.P.
|
|
|
360
|
|
|
|
8,769
|
|
Plains All American Pipeline,
L.P.(5)
|
|
|
103
|
|
|
|
6,665
|
|
Regency Energy Partners LP
|
|
|
485
|
|
|
|
11,151
|
|
SandRidge Permian Trust
|
|
|
166
|
|
|
|
3,171
|
|
Targa Resources Corp.
|
|
|
29
|
|
|
|
1,016
|
|
Targa Resources Partners LP
|
|
|
101
|
|
|
|
3,785
|
|
TC PipeLines, LP
|
|
|
79
|
|
|
|
3,782
|
|
Teekay LNG Partners L.P.
|
|
|
62
|
|
|
|
1,983
|
|
Teekay Offshore Partners L.P.
|
|
|
28
|
|
|
|
781
|
|
Teekay Offshore Partners L.P.
Unregistered(3)
|
|
|
105
|
|
|
|
2,714
|
|
Tesoro Logistics LP
|
|
|
189
|
|
|
|
5,158
|
|
TransMontaigne Partners L.P.
|
|
|
38
|
|
|
|
1,152
|
|
VOC Energy Trust
|
|
|
75
|
|
|
|
1,562
|
|
Western Gas Partners, LP
|
|
|
38
|
|
|
|
1,447
|
|
Williams Partners L.P.
|
|
|
130
|
|
|
|
7,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183,437
|
|
|
|
|
|
|
|
|
|
|
Private MLP and Other Private
Equity(3)(5)
35.1%
|
|
|
|
|
|
|
|
|
Direct Fuels Partners, L.P. Class A Common Units
|
|
|
2,500
|
|
|
|
33,125
|
|
Direct Fuels Partners, L.P. Convertible Preferred
Units(6)
|
|
|
144
|
|
|
|
2,909
|
|
Direct Fuels Partners, L.P. Class D Preferred
Units(7)
|
|
|
324
|
|
|
|
6,538
|
|
Plains All American GP LLC
|
|
|
3
|
|
|
|
5,908
|
|
ProPetro Services,
Inc.(8)
|
|
|
150,097
|
|
|
|
16,743
|
|
VantaCore Partners
LP(2)
|
|
|
1,465
|
|
|
|
13,914
|
|
VantaCore Partners LP Class A Preferred
Units(2)(9)
|
|
|
140
|
|
|
|
2,164
|
|
See accompanying notes to financial statements.
11
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF NOVEMBER 30, 2011
(amounts in 000s)
|
|
|
|
|
|
|
|
|
|
|
No. of
|
|
|
|
|
Description
|
|
Shares/Units
|
|
|
Value
|
|
|
Private MLP and Other Private
Equity(3)(5) (continued)
|
|
|
|
|
|
|
|
|
VantaCore Partners LP Class B Preferred
Units(2)(10)
|
|
|
133
|
|
|
$
|
2,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,636
|
|
|
|
|
|
|
|
|
|
|
Total Equity Investments (Cost $231,566)
|
|
|
|
|
|
|
267,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Maturity
|
|
|
Principal
|
|
|
|
|
|
|
Rate
|
|
|
Date
|
|
|
Amount
|
|
|
|
|
|
Debt Investments 22.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States 21.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midstream 6.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crestwood Holdings Partners, LLC
|
|
|
(11)
|
|
|
|
10/1/16
|
|
|
$
|
6,672
|
|
|
|
6,772
|
|
Crestwood Midstream Partners LP
|
|
|
7.750
|
%
|
|
|
4/1/19
|
|
|
|
8,335
|
|
|
|
8,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upstream 5.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrizo Oil & Gas, Inc.
|
|
|
8.625
|
|
|
|
10/15/18
|
|
|
|
3,000
|
|
|
|
2,992
|
|
CrownRock LP
|
|
|
10.000
|
|
|
|
8/15/16
|
|
|
|
3,250
|
|
|
|
3,283
|
|
Eagle Rock Energy Partners, L.P.
|
|
|
8.375
|
|
|
|
6/1/19
|
|
|
|
1,000
|
|
|
|
995
|
|
Laredo Petroleum, Inc.
|
|
|
9.500
|
|
|
|
2/15/19
|
|
|
|
6,500
|
|
|
|
6,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Energy 9.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calumet Specialty Products Partners, L.P.
|
|
|
9.375
|
|
|
|
5/1/19
|
|
|
|
2,000
|
|
|
|
1,930
|
|
Foresight Energy LLC
|
|
|
9.625
|
|
|
|
8/15/17
|
|
|
|
5,000
|
|
|
|
5,000
|
|
Penn Virginia Resource Partners, L.P.
|
|
|
8.250
|
|
|
|
4/15/18
|
|
|
|
2,925
|
|
|
|
2,896
|
|
ProPetro Services,
Inc.(3)(4)
|
|
|
(12)
|
|
|
|
2/15/12
|
|
|
|
11,923
|
|
|
|
11,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States (Cost $75,744)
|
|
|
50,769
|
|
|
|
|
|
|
Canada 0.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upstream 0.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern Pacific Resources Corp. (Cost $2,035)
|
|
|
(13)
|
|
|
|
1/7/16
|
|
|
|
1,990
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt Investments (Cost $77,779)
|
|
|
52,769
|
|
|
|
|
|
|
Total Long-Term Investments 134.4% (Cost
$309,345)
|
|
|
319,842
|
|
|
|
|
|
|
Senior Secured Credit Facility Borrowings
|
|
|
(77,000
|
)
|
Other Liabilities in Excess of Other Assets
|
|
|
(4,812
|
)
|
|
|
|
|
|
Net Assets
|
|
$
|
238,030
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unless otherwise noted, equity investments are common
units/common shares. |
|
(2) |
|
All or a portion of distributions are
paid-in-kind. |
|
(3) |
|
Fair valued and restricted security. See Notes 2, 3 and 9
in Notes to Financial Statements. |
|
(4) |
|
Security is not currently paying cash distributions, but is
expected to pay cash distributions within the next
12 months. |
|
(5) |
|
The Company believes that it may be an affiliate of Direct Fuels
Partners, L.P. (Direct Fuels) and that it is an
affiliate of Plains All American GP LLC, Plains All American
Pipeline, L.P., ProPetro Services, Inc. (ProPetro)
and VantaCore Partners LP (VantaCore). See
Note 6 Agreements and Affiliations. |
See accompanying notes to financial statements.
12
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF NOVEMBER 30, 2011
(amounts in 000s)
|
|
|
(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 Class A Preferred Units have a liquidation preference of
$17.50 per unit and were issued by VantaCore to holders of the
Common and Class A Preferred Units to the extent that such units
did not receive full cash distributions. The Class A Preferred
Units are senior to VantaCores Common Units in liquidation
preference. See Note 9 Restricted Securities. |
|
(10) |
|
The Class B Preferred Units have a liquidation preference
of $17.50 per unit and were issued on August 3, 2011 in
connection with VantaCores acquisition of a quarry owned
by a
third-party.
After one year of issuance, the holders of Class B
Preferred Units will receive 0.25 common units of VantaCore for
each Class B Preferred Unit held. The Class B
Preferred Units have a minimum quarterly distribution of $0.3825
per unit and are senior to all other equity classes of VantaCore
in liquidation preference. See Note 9
Restricted Securities. |
|
(11) |
|
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 November 30, 2011). |
|
(12) |
|
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
November 30, 2011). See Note 2 Investment
Income. |
|
(13) |
|
Floating rate second lien secured term loan. Security pays
interest at a base rate of 3.25% + 750 basis points (10.75%
as of November 30, 2011). |
See accompanying notes to financial statements.
13
|
|
|
|
|
ASSETS
|
Investments, at fair value:
|
|
|
|
|
Non-affiliated (Cost $197,053)
|
|
$
|
217,618
|
|
Affiliated (Cost $112,292)
|
|
|
102,224
|
|
|
|
|
|
|
Total investments (Cost $309,345)
|
|
|
319,842
|
|
Cash
|
|
|
1,517
|
|
Income tax receivable
|
|
|
332
|
|
Receivable for securities sold
|
|
|
1,199
|
|
Interest, dividends and distributions receivable
|
|
|
1,014
|
|
Other receivable
|
|
|
5,030
|
|
Debt issuance costs, prepaid expenses and other assets
|
|
|
1,301
|
|
|
|
|
|
|
Total Assets
|
|
|
330,235
|
|
|
|
|
|
|
|
LIABILITIES
|
Senior secured revolving credit facility
|
|
|
77,000
|
|
Deferred income tax liability
|
|
|
12,642
|
|
Payable for securities purchased
|
|
|
418
|
|
Investment management fee payable
|
|
|
1,386
|
|
Accrued directors fees and expenses
|
|
|
73
|
|
Accrued expenses and other liabilities
|
|
|
686
|
|
|
|
|
|
|
Total Liabilities
|
|
|
92,205
|
|
|
|
|
|
|
NET ASSETS
|
|
$
|
238,030
|
|
|
|
|
|
|
NET ASSETS CONSIST OF
|
|
|
|
|
Common stock, $0.001 par value (200,000,000 shares
authorized; 10,342,730 shares issued and outstanding)
|
|
$
|
10
|
|
Paid-in capital
|
|
|
199,445
|
|
Accumulated net investment loss, net of income taxes, less
dividends
|
|
|
(21,369
|
)
|
Accumulated net realized gains on investments, net of income
taxes
|
|
|
53,686
|
|
Net unrealized gains on investments, net of income taxes
|
|
|
6,258
|
|
|
|
|
|
|
NET ASSETS
|
|
$
|
238,030
|
|
|
|
|
|
|
NET ASSET VALUE PER SHARE
|
|
$
|
23.01
|
|
|
|
|
|
|
See accompanying notes to financial statements.
14
|
|
|
|
|
INVESTMENT INCOME
|
|
|
|
|
Income
|
|
|
|
|
Dividends and Distributions:
|
|
|
|
|
Non-affiliated investments
|
|
$
|
9,129
|
|
Affiliated investments
|
|
|
6,802
|
|
|
|
|
|
|
Total dividends and distributions
|
|
|
15,931
|
|
Return of capital
|
|
|
(8,252
|
)
|
|
|
|
|
|
Net dividends and distributions
|
|
|
7,679
|
|
Interest and other income non-affiliated investments
|
|
|
3,971
|
|
Interest affiliated investments
|
|
|
1,423
|
|
|
|
|
|
|
Total investment income
|
|
|
13,073
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Investment management fees
|
|
|
5,427
|
|
Professional fees
|
|
|
509
|
|
Directors fees and expenses
|
|
|
288
|
|
Administration fees
|
|
|
173
|
|
Insurance
|
|
|
133
|
|
Custodian fees
|
|
|
53
|
|
Other expenses
|
|
|
552
|
|
|
|
|
|
|
Total expenses before interest expense
|
|
|
7,135
|
|
Interest expense
|
|
|
1,874
|
|
|
|
|
|
|
Total expenses
|
|
|
9,009
|
|
|
|
|
|
|
Net Investment Income Before Income Taxes
|
|
|
4,064
|
|
Current income tax expense
|
|
|
(1,044
|
)
|
Deferred income tax expense
|
|
|
(456
|
)
|
|
|
|
|
|
Net Investment Income
|
|
|
2,564
|
|
|
|
|
|
|
REALIZED AND UNREALIZED GAINS (LOSSES)
|
|
|
|
|
Net Realized Gains
|
|
|
|
|
Investments non-affiliated
|
|
|
4,388
|
|
Investments affiliated
|
|
|
73,898
|
|
Current income tax expense
|
|
|
(20,120
|
)
|
Deferred income tax expense
|
|
|
(8,777
|
)
|
|
|
|
|
|
Net Realized Gains
|
|
|
49,389
|
|
|
|
|
|
|
Net Change in Unrealized Gains (Losses)
|
|
|
|
|
Investments non-affiliated
|
|
|
39,985
|
|
Investments affiliated
|
|
|
(59,456
|
)
|
Deferred income tax benefit
|
|
|
7,187
|
|
|
|
|
|
|
Net Change in Unrealized Losses
|
|
|
(12,284
|
)
|
|
|
|
|
|
Net Realized and Unrealized Gains
|
|
|
37,105
|
|
|
|
|
|
|
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
$
|
39,669
|
|
|
|
|
|
|
See accompanying notes to financial statements.
15
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended November 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
OPERATIONS
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
$
|
2,564
|
|
|
$
|
(1,803
|
)
|
Net realized gains
|
|
|
49,389
|
|
|
|
7,569
|
|
Net change in unrealized gains (losses)
|
|
|
(12,284
|
)
|
|
|
47,448
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets Resulting from Operations
|
|
|
39,669
|
|
|
|
53,214
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS AND
DISTRIBUTIONS(1)
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
(14,107
|
)
|
|
|
(5,154
|
)
|
Distributions return of capital
|
|
|
|
|
|
|
(7,090
|
)
|
|
|
|
|
|
|
|
|
|
Dividends and Distributions
|
|
|
(14,107
|
)
|
|
|
(12,244
|
)
|
|
|
|
|
|
|
|
|
|
CAPITAL STOCK TRANSACTIONS
|
|
|
|
|
|
|
|
|
Issuance of 76,070 and 102,682 shares of common stock from
reinvestment of dividends
|
|
|
1,427
|
|
|
|
1,532
|
|
|
|
|
|
|
|
|
|
|
Total Increase in Net Assets
|
|
|
26,989
|
|
|
|
42,502
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
211,041
|
|
|
|
168,539
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
238,030
|
|
|
$
|
211,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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 years
ended November 30, 2011 and 2010 as either dividends
(qualified dividend income) or distributions (return of
capital). This characterization is based on the Companys
earnings and profits. |
See accompanying notes to financial statements.
16
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
39,669
|
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
|
|
|
|
|
Purchase of long-term investments
|
|
|
(205,837
|
)
|
Proceeds from sale of long-term investments
|
|
|
212,864
|
|
Proceeds from sale of short-term investments, net
|
|
|
2,075
|
|
Net realized gains on investments
|
|
|
(78,286
|
)
|
Return of capital distributions
|
|
|
8,252
|
|
Net unrealized losses on investments
|
|
|
19,471
|
|
Amortization of bond premium, net
|
|
|
4
|
|
Increase in income tax receivable
|
|
|
(332
|
)
|
Increase in receivable for securities sold
|
|
|
(1,199
|
)
|
Decrease in interest, dividends and distributions receivable
|
|
|
183
|
|
Increase in other receivable
|
|
|
(5,030
|
)
|
Amortization of deferred debt issuance costs
|
|
|
371
|
|
Increase in prepaid expenses and other assets
|
|
|
(95
|
)
|
Increase in deferred income tax liability
|
|
|
2,045
|
|
Increase in payable for securities purchased
|
|
|
418
|
|
Increase in investment management fee payable
|
|
|
236
|
|
Decrease in accrued expenses and other liabilities
|
|
|
(77
|
)
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
|
(5,268
|
)
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
Proceeds from revolving credit facility
|
|
|
20,000
|
|
Costs associated with issuance of senior secured revolving
credit facility
|
|
|
(535
|
)
|
Cash distributions paid to stockholders
|
|
|
(12,680
|
)
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
6,785
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
|
1,517
|
|
CASH BEGINNING OF YEAR
|
|
|
|
|
|
|
|
|
|
CASH END OF YEAR
|
|
$
|
1,517
|
|
|
|
|
|
|
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 $1,427 for the fiscal year ended
November 30, 2011.
During the fiscal year ended November 30, 2011, there were
$19,800 of federal income taxes paid and $1,697 of state income
taxes paid. Interest paid was $1,533.
During the fiscal year ended November 30, 2011, the Company
received $4,100 of
paid-in-kind
dividends and distributions and $1,423 of
paid-in-kind
interest. See Note 2 Investment Income.
See accompanying notes to financial statements.
17
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
FINANCIAL HIGHLIGHTS
(amounts in 000s, except share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the Year Ended
|
|
|
September 21, 2006
|
|
|
|
November 30,
|
|
|
through
|
|
|
|
2011
|
|
|
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)
|
|
|
0.25
|
|
|
|
(0.18
|
)
|
|
|
0.10
|
|
|
|
0.09
|
|
|
|
0.08
|
|
|
|
(0.07
|
)
|
Net realized and unrealized gain (loss) on investments
|
|
|
3.60
|
|
|
|
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
|
|
|
3.85
|
|
|
|
5.21
|
|
|
|
1.78
|
|
|
|
(6.18
|
)
|
|
|
1.26
|
|
|
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends(2)
|
|
|
(1.37
|
)
|
|
|
(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
|
|
|
(1.37
|
)
|
|
|
(1.20
|
)
|
|
|
(1.30
|
)
|
|
|
(1.67
|
)
|
|
|
(1.34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of shares issued in reinvestment of dividends
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
23.01
|
|
|
$
|
20.56
|
|
|
$
|
16.58
|
|
|
$
|
16.10
|
|
|
$
|
23.95
|
|
|
$
|
24.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value per share, end of period
|
|
$
|
20.21
|
|
|
$
|
18.21
|
|
|
$
|
13.53
|
|
|
$
|
9.63
|
|
|
$
|
23.14
|
|
|
$
|
22.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment return based on market
value(4)
|
|
|
19.3
|
%
|
|
|
45.8
|
%
|
|
|
56.0
|
%
|
|
|
(54.8
|
)%
|
|
|
9.3
|
%
|
|
|
(10.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Data and
Ratios(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period
|
|
$
|
238,030
|
|
|
$
|
211,041
|
|
|
$
|
168,539
|
|
|
$
|
162,687
|
|
|
$
|
240,758
|
|
|
$
|
240,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of expenses to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
|
2.4
|
%
|
|
|
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
|
|
|
3.1
|
|
|
|
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)
|
|
|
3.9
|
|
|
|
4.0
|
|
|
|
4.1
|
|
|
|
3.5
|
|
|
|
4.6
|
|
|
|
3.2
|
|
Tax expense
|
|
|
10.0
|
|
|
|
16.3
|
|
|
|
6.9
|
|
|
|
|
(6)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses(7)
|
|
|
13.9
|
%
|
|
|
20.3
|
%
|
|
|
11.0
|
%
|
|
|
3.5
|
%
|
|
|
5.4
|
%
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net investment income (loss) to average net assets
|
|
|
1.1
|
%
|
|
|
(1.0
|
)%
|
|
|
0.7
|
%
|
|
|
0.4
|
%
|
|
|
0.3
|
%
|
|
|
(0.3
|
)%
|
Net increase (decrease) in net assets resulting from operations
to average net assets
|
|
|
17.1
|
%
|
|
|
28.3
|
%
|
|
|
11.3
|
%
|
|
|
(29.5
|
)%
|
|
|
5.1
|
%
|
|
|
3.0
|
%(8)
|
Portfolio turnover rate
|
|
|
68.1
|
%
|
|
|
33.4
|
%
|
|
|
20.9
|
%
|
|
|
27.0
|
%
|
|
|
28.8
|
%
|
|
|
5.6
|
%(8)
|
Average net assets
|
|
$
|
231,455
|
|
|
$
|
188,307
|
|
|
$
|
160,847
|
|
|
$
|
211,531
|
|
|
$
|
246,468
|
|
|
$
|
234,537
|
|
Average shares of common stock outstanding
|
|
|
10,301,878
|
|
|
|
10,212,289
|
|
|
|
10,116,071
|
|
|
|
10,073,398
|
|
|
|
10,014,496
|
|
|
|
10,000,060
|
|
Average amount of borrowings outstanding under the Credit
Facilities
|
|
$
|
62,559
|
|
|
$
|
54,956
|
|
|
$
|
53,422
|
|
|
$
|
75,563
|
|
|
$
|
32,584
|
|
|
|
|
|
Asset coverage of total
debt(9)
|
|
|
409.1
|
%
|
|
|
470.2
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Average amount of borrowings outstanding per share of common
stock during the period
|
|
$
|
6.07
|
|
|
$
|
5.38
|
|
|
$
|
5.28
|
|
|
$
|
7.50
|
|
|
$
|
3.25
|
|
|
|
|
|
See accompanying notes to financial statements.
18
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
FINANCIAL HIGHLIGHTS
(amounts in 000s, except share and per share
amounts)
|
|
|
(1) |
|
Based on average shares of common stock outstanding for each of
the periods ended. |
|
(2) |
|
The information presented in each period 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, 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. |
|
(7) |
|
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. |
|
(8) |
|
Not annualized. |
|
(9) |
|
Calculated pursuant to section 18(a)(1)(A) of the 1940 Act.
Represents the value of total assets less all liabilities not
represented by senior securities representing indebtedness
divided by senior securities representing indebtedness. Under
the 1940 Act, the Company may not declare or make any
distribution on its common stock nor can it incur additional
indebtedness if at the time of such declaration or incurrence
its asset coverage with respect to senior securities
representing indebtedness would be less than 300%. For purposes
of this test, the revolving credit facility is considered a
senior security representing indebtedness. Prior to July 7,
2010, the Company was a business development company
(BDC) under the 1940 Act and not subject to the
requirements of section 18(a)(1)(A) for the asset coverage
of total debt disclosure. |
See accompanying notes to financial statements.
19
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.
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, current and
deferred accrued income taxes, 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 are valued at the
NASDAQ official closing price. Portfolio securities traded on
more than one securities exchange
20
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share
amounts)
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 agent or 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 Company holds securities that are privately issued or
otherwise restricted as to resale. 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 a manner that most fairly reflects fair value
of the security on the valuation date. Unless otherwise
determined by the Board of Directors, the following valuation
process is used for such securities:
|
|
|
|
|
Investment Team Valuation. The
applicable investments are valued by senior professionals of
KA Fund Advisors, LLC (KAFA or the
Adviser) who are responsible for the portfolio
investments.
|
|
|
|
Investment Team Valuation
Documentation. Preliminary valuation
conclusions will be determined by senior management of KAFA.
Such valuations are submitted to the Valuation Committee (a
committee of the Companys Board of Directors) on a
quarterly basis and stand for intervening periods of time.
|
|
|
|
Valuation Committee. The Valuation
Committee meets each quarter to consider valuations presented by
KAFA, if any, which were made in accordance with valuation
procedures adopted by the Board of Directors in such quarter.
The Valuation Committees valuation determinations are
subject to ratification by the Board of Directors at its next
regular meeting.
|
|
|
|
Valuation Firm. No less 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 fiscal
year ended November 30, 2011, the independent valuation
firm performed limited procedures on investments in six
portfolio companies, comprising approximately 32.4% of the total
investments as of November 30, 2011. The independent
valuation firm also performed certain limited procedures on the
Companys $5,030 receivable (as of November 30, 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.
|
|
|
|
Board of Directors Determination. The
Board of Directors meets quarterly to consider the valuations
provided by KAFA and the Valuation Committee, if applicable, and
ratify valuations for the applicable securities. The Board of
Directors considers the report 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, where appropriate,
privately-issued equity and debt investments are valued using
comparisons of financial ratios of the portfolio companies that
issued such equity and debt 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. Due to the inherent uncertainty of determining the
fair value of
21
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share
amounts)
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) are valued through the
process described above, using a valuation based on the fair
value of the publicly-traded security less a discount. The
discount is initially equal in amount to the discount negotiated
at the time the purchase price is agreed to. To the extent that
such securities are convertible or otherwise become publicly
traded within a time frame that may be reasonably determined,
this discount will be amortized on a straight line basis over
such estimated time frame.
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 ($5,030). On July 13, 2011, the
Company received proceeds totaling $2,035 for certain
post-closing adjustments relating to the sale of IRP.
At November 30, 2011, the Company held 45.7% of its net
assets applicable to common stockholders (32.9% of total assets)
in securities and an other receivable that were fair valued
pursuant to the procedures adopted by the Board of Directors.
The aggregate fair value of these securities ($103,679) and the
other receivable ($5,030) at November 30, 2011 was
$108,709. See Note 9 Restricted Securities.
E. Repurchase Agreements The Company has
agreed, from time to time, 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. As
of November 30, 2011, the Company did not have any
repurchase agreements.
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 hedging techniques such as interest rate swaps
to mitigate potential interest rate risk on a portion of the
Companys leverage. Such interest rate swaps would
principally be used to protect the Company against higher costs
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, would result in a decline in the net
assets of the Company. In
22
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share
amounts)
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 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. If the Company writes a call option on a security,
the Company has the obligation upon exercise of the option to
deliver the underlying security upon payment of the exercise
price. The Company will only write call options on securities
that the Company holds in its portfolio (i.e., covered calls).
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 Dividends
and distributions received from the Companys investments
are comprised of income and return of capital. The payments made
by MLPs are categorized as distributions and
payments made by corporations are categorized as
dividends. At the time such dividends and
distributions are received the Company estimates the amount of
such payment that is considered investment income and the amount
that is considered a return of capital. Such estimates are based
on historical information available from each investment and
other industry sources. These estimates may subsequently be
revised based on information received from investments after
their tax reporting periods are concluded.
The following table sets forth (1) the components of total
dividends and distributions from the Companys private and
public investments, (2) the percentage of return of capital
attributable to each category and (3) the estimated total
return of capital portion of the dividends and distributions
received from investments and the amounts that are attributable
to net realized gains (losses) and net change in unrealized
gains (losses). The return of capital portion of the dividends
and distributions received is a reduction to investment income,
results in an
23
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share
amounts)
equivalent reduction in the cost basis of the associated
investments, and increases net realized gains (losses) and net
change in unrealized gains (losses).
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
November 30, 2011
|
|
|
Distributions from private MLPs
|
|
$
|
6,401
|
|
Distributions from public MLPs and dividends from other public
equity investments
|
|
|
9,530
|
|
|
|
|
|
|
Total dividends and distributions from investments
|
|
$
|
15,931
|
|
|
|
|
|
|
Distributions from private MLPs % return of capital
|
|
|
(7
|
)%
|
Distributions from public MLPs and dividends
from other public equity investments % return of
capital
|
|
|
91
|
%
|
Total dividends and distributions % return of capital
|
|
|
52
|
%
|
|
|
|
|
|
Return of capital attributable to net realized gains
(losses)
|
|
$
|
1,098
|
|
Return of capital attributable to net change in
unrealized gains (losses)
|
|
|
7,154
|
|
|
|
|
|
|
Total return of capital
|
|
$
|
8,252
|
|
|
|
|
|
|
During fiscal 2011, the Company received 2010 tax reporting
information that was used to decrease its prior year return of
capital estimate by a total of $1,154. During the second quarter
of fiscal 2011, the Company received information from IRP (a
private MLP) that reduced the return of capital estimate by
$1,425, which resulted in the return of capital percentage for
the private MLPs to be negative 7% for the fiscal year. In the
third quarter of fiscal 2011, the Company increased the return
of capital estimate by $271 based on tax reporting information
from public MLPs and other public equity investments.
For the fiscal year ended November 30, 2011, the Company
estimated the return of capital portion of distributions
received to be $9,406 (59%). This amount was reduced by the
total adjustment of $1,154 attributable to the 2010 tax
reporting information. As a result, the return of capital
percentage for the fiscal year ended November 30, 2011 was
52%.
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 fiscal year ended
November 30, 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.
The Company accrued
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
24
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share
amounts)
notes mature. During the fiscal year ended November 30,
2011, the Company recognized $1,423 of
paid-in-kind
interest, which 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., Kinder Morgan Management, LLC and
Buckeye Partners, L.P. (Class B Units). The additional units are
not reflected in investment income during the period received
but are recorded as unrealized gains upon receipt. During the
fiscal year ended November 30, 2011, the Company received
the following paid-in-kind dividends.
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
November 30, 2011
|
|
|
Direct Fuels Partners, L.P.
|
|
$
|
1,395
|
|
VantaCore Partners LP
|
|
|
2,164
|
|
Enbridge Energy Management, L.L.C.
|
|
|
67
|
|
Kinder Morgan Management, LLC
|
|
|
287
|
|
Buckeye Partners, L.P. (Class B Units)
|
|
|
187
|
|
|
|
|
|
|
Total stock dividends
|
|
$
|
4,100
|
|
|
|
|
|
|
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 during 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, the
characterization 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.
For the fiscal year ended
25
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share
amounts)
November 30, 2011, the Company did not have any
interest or penalties associated with the underpayment of any
income taxes. Tax years from 2008 to the present 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 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. Note that the valuation levels below are not
necessarily an indication of the risk or liquidity associated
with the underlying investment.
|
|
|
|
|
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.
|
|
|
|
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.
|
|
|
|
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.
|
26
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share
amounts)
The following table presents the Companys assets measured
at fair value on a recurring basis at November 30, 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
|
|
$
|
267,073
|
|
|
$
|
175,317
|
|
|
$
|
|
|
|
$
|
91,756
|
|
Debt investments
|
|
|
52,769
|
|
|
|
|
|
|
|
40,846
|
|
|
|
11,923
|
|
Other
receivable(1)
|
|
|
5,030
|
|
|
|
|
|
|
|
|
|
|
|
5,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
324,872
|
|
|
$
|
175,317
|
|
|
$
|
40,846
|
|
|
$
|
108,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 ($5,030). On July 13, 2011, the
Company received proceeds totaling $2,035 for certain
post-closing adjustments relating to the sale of IRP. |
The Company did not have any liabilities that were measured at
fair value on a recurring basis at November 30, 2011. For
the fiscal year ended November 30, 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 ASU
No. 2011-04
and does not believe that it will have a material impact on the
Companys financial statements and disclosures.
The following table presents the Companys assets measured
at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the fiscal year
ended November 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Receivable
|
|
|
Debt
|
|
|
Equity
|
|
|
Balance November 30, 2010
|
|
$
|
143,811
|
|
|
$
|
|
|
|
$
|
4,500
|
|
|
$
|
139,311
|
|
Sale(1)
|
|
|
(102,035
|
)
|
|
|
|
|
|
|
|
|
|
|
(102,035
|
)
|
Realized gains (losses)
|
|
|
73,898
|
|
|
|
|
|
|
|
|
|
|
|
73,898
|
|
Unrealized gains (losses),
net(2)
|
|
|
(30,193
|
)
|
|
|
|
|
|
|
7,423
|
|
|
|
(37,616
|
)
|
Purchases
|
|
|
19,452
|
|
|
|
|
|
|
|
|
|
|
|
19,452
|
|
Issuances
|
|
|
3,746
|
|
|
|
|
|
|
|
|
|
|
|
3,746
|
|
Transfer out
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
Settlements(3)
|
|
|
5,030
|
|
|
|
5,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance November 30, 2011
|
|
$
|
108,709
|
|
|
$
|
5,030
|
|
|
$
|
11,923
|
|
|
$
|
91,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Relates to the sale of the Companys investment in IRP. |
|
(2) |
|
Of the $30,193 of net unrealized losses presented above, $59,614
of the unrealized loss results 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 $29,421 relate
to investments that are still |
27
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share
amounts)
|
|
|
|
|
held at November 30, 2011, and the Company includes these
unrealized gains in the Statement of Operations Net
Change in Unrealized Gains (Losses). |
|
(3) |
|
The amount reflects the fair value of the receivable, held in
escrow, that the Company expects to receive in connection with
the sale of IRP. |
The purchases of $19,452 for the fiscal year ended
November 30, 2011 relate to the Companys purchase of
Class B Preferred Units of VantaCore, the investment in
Plains All American GP LLC and private investments in public
equity (PIPE investment) in Regency Energy Partners
LP (Common Units), Teekay Offshore Partners L.P. (Common Units)
and the Class B Units of Buckeye Partners, L.P. The
issuances of $3,746 for the fiscal year ended November 30,
2011 relate to the Class D Preferred Units of Direct Fuels, the
Class A Preferred Units of VantaCore and the Class B Units
of Buckeye Partners, L.P. The Companys investment in the
common units of Regency Energy Partners LP, which is noted as a
transfer out of Level 3 in the table above, became readily
marketable during the fiscal year ended November 30,
2011.
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. During
the fiscal year ended November 30, 2011, primarily as a
result of the sale of its investment in IRP, the Company
incurred a current income tax liability. In August and
November 2011, the Company paid federal income taxes
totaling $19,800 and state income taxes totaling $1,697. At
November 30, 2011, the Company had an income tax receivable of
$332. The receivable is the result of the Companys
estimated income tax payments being greater than its tax
liability at November 30, 2011. The Company intends to file for
refunds with the respective jurisdictions and expects to receive
the amount of the receivable in the first or second fiscal
quarter of 2012. Components of the Companys current and
deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
As of
|
|
|
|
November 30, 2011
|
|
|
Income tax receivable
|
|
$
|
332
|
|
|
|
|
|
|
Deferred tax asset:
|
|
|
|
|
Organizational costs
|
|
$
|
15
|
|
Deferred tax liabilities:
|
|
|
|
|
Net unrealized gains on investment securities
|
|
|
(9,917
|
)
|
Basis reductions resulting from estimated return of capital
|
|
|
(2,740
|
)
|
|
|
|
|
|
Total net deferred tax liability
|
|
$
|
(12,642
|
)
|
|
|
|
|
|
Upon filing its income tax returns for the year ended
November 30, 2010, the Company had federal and state net
operating loss carryforwards of $20,829 and $18,816,
respectively, and capital loss carryforwards of $3,709 that were
fully utilized during fiscal 2011 as a result of the
Companys sale of IRP.
As of November 30, 2011, the identified cost of investments
for federal income tax purposes was $295,850. The cost basis of
investments includes a $13,495 reduction in basis attributable
to the Companys portion of the
28
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share
amounts)
allocated losses from its MLP investments at November 30,
2011. Gross unrealized appreciation and depreciation of
investments for federal income tax purposes were as follows:
|
|
|
|
|
|
|
As of
|
|
|
|
November 30, 2011
|
|
|
Gross unrealized appreciation of investments
|
|
$
|
61,435
|
|
Gross unrealized depreciation of investments
|
|
|
(37,443
|
)
|
|
|
|
|
|
Net unrealized appreciation of investments
|
|
$
|
23,992
|
|
|
|
|
|
|
For the fiscal year ended November 30, 2011, the
Companys effective tax rate was 36.9%. Components of the
Companys income tax benefit (expense) were as follows:
|
|
|
|
|
|
|
For the
|
|
|
|
Fiscal Year Ended
|
|
|
|
November 30, 2011
|
|
|
Current income tax expense net investment income
|
|
$
|
(1,044
|
)
|
Deferred income tax expense net investment income
|
|
|
(456
|
)
|
Current income tax expense realized gains
|
|
|
(20,120
|
)
|
Deferred income tax expense realized gains
|
|
|
(8,777
|
)
|
Deferred income tax benefit unrealized losses
|
|
|
7,187
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
(23,210
|
)
|
|
|
|
|
|
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 fiscal year ended
November 30, 2011, as follows:
|
|
|
|
|
|
|
For the
|
|
|
|
Fiscal Year Ended
|
|
|
|
November 30, 2011
|
|
|
Computed federal income tax at 35%
|
|
$
|
(22,008
|
)
|
State income tax, net of federal tax
|
|
|
(1,195
|
)
|
Other, net
|
|
|
(7
|
)
|
|
|
|
|
|
Total income tax benefit (expense)
|
|
$
|
(23,210
|
)
|
|
|
|
|
|
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 November 30, 2011, the Company did not have any interest
or penalties associated with the underpayment of any income
taxes. Tax years from 2008 to the present 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
29
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share
amounts)
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), which may be
amended from time to time. 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 Adviser, subject to the overall supervision
of the Companys Board of Directors, manages the day-to-day
operations of, and provides investment advisory services to, the
Company. For providing these services, the Adviser receives a
management fee from the Company. In October 2011, the Company
renewed its agreement with the Adviser for a period of one year.
The agreement may be renewed annually upon the approval of the
Companys Board of Directors and a majority of the
Companys Directors who are not interested
persons of the Company, as such term is defined in the
1940 Act.
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 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 fiscal year ended
November 30, 2011 were $5,427.
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
30
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share
amounts)
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
November 30, 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 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 November 30,
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 November 30,
2011, the Company held a 31.0% 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 it
is 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 of November 30, 2011, the Company held no derivative
instruments, and during the fiscal year ended November 30,
2011, the Company did not have any activity involving derivative
instruments. See Note 2 Significant Accounting
Policies.
|
|
8.
|
Investment
Transactions
|
For the fiscal year ended November 30, 2011, the Company
purchased and sold securities in the amount of $205,837 and
$212,864 (excluding short-term investments), respectively.
From time to time, certain of the Companys investments may
be restricted as to resale. For instance, private investments
that are not registered under the Securities Act, as amended,
cannot be offered for public sale in a non-exempt transaction
without first being registered. In other cases, certain of the
Companys investments have restrictions such as
lock-up
agreements that preclude the Company from offering these
securities for public sale.
31
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share
amounts)
At November 30, 2011, the Company held the following
restricted investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units or
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
Percent
|
|
|
|
|
|
Acquisition
|
|
Type of
|
|
Principal ($)
|
|
|
Cost
|
|
|
Fair
|
|
|
Fair Value
|
|
|
of Net
|
|
|
of Total
|
|
Investment
|
|
Security
|
|
Date
|
|
Restriction
|
|
(in 000s)
|
|
|
Basis
|
|
|
Value
|
|
|
Per Unit
|
|
|
Assets
|
|
|
Assets
|
|
|
Level 3
Investments(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buckeye Partners, L.P.
|
|
Class B Units
|
|
6/10/11
|
|
(2)
|
|
|
94
|
|
|
$
|
5,002
|
|
|
$
|
5,406
|
|
|
$
|
57.34
|
|
|
|
2.3
|
%
|
|
|
1.6
|
%
|
Direct Fuels Partners,
L.P.(3)
|
|
Class A Common Units
|
|
6/11/07
|
|
(4)
|
|
|
2,500
|
|
|
|
41,359
|
|
|
|
33,125
|
|
|
|
13.25
|
|
|
|
13.9
|
|
|
|
10.0
|
|
Direct Fuels Partners, L.P.
|
|
Class A Convertible Preferred
Units(5)
|
|
5/14/09
|
|
(4)
|
|
|
96
|
|
|
|
1,952
|
|
|
|
1,939
|
|
|
|
20.10
|
|
|
|
0.8
|
|
|
|
0.6
|
|
Direct Fuels Partners, L.P.
|
|
Class B Convertible Preferred
Units(5)
|
|
8/25/09
|
|
(4)
|
|
|
27
|
|
|
|
538
|
|
|
|
546
|
|
|
|
20.30
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Direct Fuels Partners, L.P.
|
|
Class C Convertible Preferred
Units(5)
|
|
11/20/09
|
|
(4)
|
|
|
20
|
|
|
|
408
|
|
|
|
424
|
|
|
|
20.90
|
|
|
|
0.2
|
|
|
|
0.1
|
|
Direct Fuels Partners, L.P.
|
|
Class D Preferred Units
|
|
(6)
|
|
(4)
|
|
|
324
|
|
|
|
6
|
|
|
|
6,538
|
|
|
|
20.18
|
|
|
|
2.8
|
|
|
|
2.0
|
|
Plains All American GP
LLC(7)
|
|
Common Units
|
|
(8)
|
|
(4)
|
|
|
3
|
|
|
|
4,810
|
|
|
|
5,908
|
|
|
|
1,696
|
|
|
|
2.5
|
|
|
|
1.8
|
|
ProPetro Services, Inc.
|
|
Common Shares
|
|
2/15/07
|
|
(4)
|
|
|
150,097
|
|
|
|
13
|
|
|
|
16,743
|
|
|
|
0.11
|
|
|
|
7.0
|
|
|
|
5.1
|
|
ProPetro Services, Inc.
|
|
Secured Term Loan
|
|
2/15/07
|
|
(4)
|
|
$
|
11,923
|
|
|
|
37,212
|
|
|
|
11,923
|
|
|
|
n/a
|
|
|
|
5.0
|
|
|
|
3.6
|
|
VantaCore Partners
LP(9)
|
|
Class A Common Units
|
|
(8)
|
|
(4)
|
|
|
1,465
|
|
|
|
21,101
|
|
|
|
13,914
|
|
|
|
9.50
|
|
|
|
5.8
|
|
|
|
4.2
|
|
VantaCore Partners LP
|
|
Class A Preferred Units
|
|
(10)
|
|
(4)
|
|
|
140
|
|
|
|
|
|
|
|
2,164
|
|
|
|
15.50
|
|
|
|
0.9
|
|
|
|
0.7
|
|
VantaCore Partners
LP(11)
|
|
Class B Preferred Units
|
|
8/3/11
|
|
(4)
|
|
|
133
|
|
|
|
1,833
|
|
|
|
2,335
|
|
|
|
17.50
|
|
|
|
1.0
|
|
|
|
0.7
|
|
Teekay Offshore Partners L.P.
|
|
Common Units
|
|
11/25/11
|
|
(2)
|
|
|
105
|
|
|
|
2,500
|
|
|
|
2,714
|
|
|
|
25.95
|
|
|
|
1.1
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
116,734
|
|
|
$
|
103,679
|
|
|
|
|
|
|
|
43.5
|
%
|
|
|
31.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
Investments(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calumet Specialty Products Partners, L.P.
|
|
Senior Notes
|
|
4/15/11
|
|
(2)
|
|
$
|
2,000
|
|
|
$
|
2,000
|
|
|
$
|
1,930
|
|
|
|
n/a
|
|
|
|
0.8
|
%
|
|
|
0.6
|
%
|
Crestwood Holdings Partners, LLC
|
|
Secured Term Loan
|
|
(8)
|
|
(4)
|
|
$
|
6,672
|
|
|
|
6,584
|
|
|
|
6,772
|
|
|
|
n/a
|
|
|
|
2.9
|
|
|
|
2.1
|
|
Crestwood Midstream Partners LP
|
|
Senior Notes
|
|
(8)
|
|
(2)
|
|
$
|
8,335
|
|
|
|
8,352
|
|
|
|
8,210
|
|
|
|
n/a
|
|
|
|
3.5
|
|
|
|
2.5
|
|
CrownRock LP
|
|
Senior Notes
|
|
8/12/11
|
|
(4)
|
|
$
|
3,250
|
|
|
|
3,020
|
|
|
|
3,283
|
|
|
|
n/a
|
|
|
|
1.4
|
|
|
|
1.0
|
|
Eagle Rock Energy Partners, L.P.
|
|
Senior Notes
|
|
5/24/11
|
|
(2)
|
|
$
|
1,000
|
|
|
|
993
|
|
|
|
995
|
|
|
|
n/a
|
|
|
|
0.4
|
|
|
|
0.3
|
|
Foresight Energy LLC
|
|
Senior Notes
|
|
8/6/10
|
|
(4)
|
|
$
|
5,000
|
|
|
|
4,972
|
|
|
|
5,000
|
|
|
|
n/a
|
|
|
|
2.1
|
|
|
|
1.5
|
|
Laredo Petroleum, Inc.
|
|
Senior Notes
|
|
(8)
|
|
(4)
|
|
$
|
6,500
|
|
|
|
6,722
|
|
|
|
6,768
|
|
|
|
n/a
|
|
|
|
2.8
|
|
|
|
2.0
|
|
Southern Pacific Resources Corp.
|
|
Secured Term Loan
|
|
5/5/11
|
|
(4)
|
|
$
|
1,990
|
|
|
|
2,035
|
|
|
|
2,000
|
|
|
|
n/a
|
|
|
|
0.8
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,678
|
|
|
$
|
34,958
|
|
|
|
|
|
|
|
14.7
|
%
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of all restricted securities
|
|
$
|
151,412
|
|
|
$
|
138,637
|
|
|
|
|
|
|
|
58.2
|
%
|
|
|
42.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Securities are valued using inputs reflecting the Companys
own assumptions as more fully described in
Note 2 Significant Accounting Policies. |
|
(2) |
|
Unregistered or restricted security of a public company. |
|
(3) |
|
The Companys investment in Direct Fuels includes 200
incentive distribution rights (20% of total outstanding
incentive distribution rights) for which the Company assigns a
value of zero. |
|
(4) |
|
Unregistered security of a private company. |
|
(5) |
|
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. |
|
(6) |
|
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 in lieu
of cash distributions. |
|
(7) |
|
In determining the fair value for Plains All American GP, LLC
(PAA GP), the Companys valuation is based on
publicly available information. Robert V. Sinnott, the CEO of
KACALP, sits on PAA GPs board of directors (see Note
6 Agreements and Affiliations for more
detail). Certain private investment funds |
32
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share
amounts)
|
|
|
|
|
managed by KACALP may value their investment in PAA GP based on
non-public information, and, as a result, such valuation may be
different than the Companys valuation. |
|
(8) |
|
These securities were acquired at various dates throughout the
fiscal year ended November 30, 2011 and/or in prior years. |
|
(9) |
|
The Companys investment in VantaCore includes 1,823
incentive distribution rights (18% of total outstanding
incentive distribution rights) for which the Company assigns a
value of zero. |
|
(10) |
|
The VantaCore Class A Preferred Units are senior to the
VantaCore Common Units in liquidation preference. The
Class A Preferred Units have a liquidation preference of
$17.50 per unit and were issued by VantaCore to holders of the
common and preferred units to the extent that such units did not
receive full cash distributions. |
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The Class B Preferred Units have a liquidation preference
of $17.50 per unit and were issued on August 3, 2011 in
connection with VantaCores acquisition of a quarry owned
by a
third-party.
After one year of issuance, the holders of Class B
Preferred Units will receive 0.25 common units of VantaCore for
each Class B Preferred Unit held. The Class B
Preferred Units have a minimum quarterly distribution of $0.3825
per unit and are senior to all other equity classes of VantaCore
in liquidation preference. |
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(12) |
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These securities have a fair market value determined by the mean
of the bid and ask prices provided by an agent or 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. |
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10.
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Senior
Secured Revolving Credit Facility
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On November 14, 2011, the Company amended its then existing
amended and restated senior secured revolving credit facility
(the Credit Facility) to increase the total
commitment amount from $70,000 to $85,000 and extended the
maturity date by one year to March 30, 2014. The syndicate of
lenders remains the same, with each lender increasing its
commitment proportionally. Additionally, all other terms of the
Credit Facility remain substantially the same. 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 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 $85,000 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
33
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share
amounts)
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 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 Credit Facility restricts the Company in
the amount of distributions the Company may pay to stockholders
to no more than the amount of Distributable Cash Flow for the
current and prior three quarters. As of November 30, 2011,
the Company had $77,000 borrowed under its Credit Facility (at
an interest rate of 2.26%), which represented 59.9% and 66.8% of
its borrowing base and quoted borrowing base of $128,547 and
$115,211, respectively. The maximum amount that the Company can
borrow under its Credit Facility is limited to the lesser of the
commitment amount of $85,000 and its borrowing base.
As of November 30, 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 fiscal year
ended November 30, 2011 were as follows:
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Shares outstanding at November 30, 2010
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10,266,660
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Shares issued through reinvestment of dividends and distributions
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76,070
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Shares outstanding at November 30, 2011
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10,342,730
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On January 18, 2012, the Company declared its quarterly
distribution of $0.39 per common share for the fiscal fourth
quarter for a total of $4,034. The distribution is payable on
February 3, 2012 to stockholders of record on
January 30, 2012.
34
To the Board of Directors and Stockholders of
Kayne Anderson Energy Development Company
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and the
related statements of operations, of changes in net assets
applicable to common stockholders and of cash flows and the
financial highlights present fairly, in all material respects,
the financial position of Kayne Anderson Energy Development
Company (the Company) at November 30, 2011, and
the results of its operations and cash flows for the year then
ended, the changes in its net assets applicable to common
stockholders for each of the two years in the period then ended
and the financial highlights for each of the periods presented,
in conformity with accounting principles generally accepted in
the United States of America. These financial statements and
financial highlights (hereafter referred to as financial
statements) are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits,
which included confirmation of securities at November 30,
2011 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
January 30, 2012
35
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
(UNAUDITED)
Rev.
01/2011
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FACTS
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WHAT DOES KAYNE ANDERSON ENERGY
DEVELOPMENT COMPANY (KED) DO WITH YOUR PERSONAL
INFORMATION?
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Why?
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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.
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What?
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The types of personal information we collect and share depend on
the product or service you have with us. This information can
include:
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n Social
Security number and account balances
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n Payment
history and transaction history
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n Account
transactions and wire transfer instructions
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When you are no longer our customer, we continue to share
your information as described in this notice.
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How?
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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.
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Can you limit
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Reasons we can share your
personal information
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Does KED share?
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this sharing?
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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
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Yes
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No
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For our marketing purposes
to offer our products and services to you
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No
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No
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For joint marketing with other financial companies
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No
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We dont share
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For our affiliates everyday business
purposes
information about your transactions and experiences
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No
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We dont share
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For our affiliates everyday business
purposes
information about your creditworthiness
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No
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We dont share
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For nonaffiliates to market to you
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No
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We dont share
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Questions?
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Call
877-657-3863
or go to
http://www.kaynefunds.com
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36
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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37
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
(UNAUDITED)
Kayne Anderson Energy Development Company, a Maryland
corporation (the Company), has adopted 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
38
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.
39
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
40
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
(UNAUDITED)
The Companys Board of Directors has approved the
continuation of the Companys Investment Management
Agreement (the Agreement) with KA
Fund Advisors, LLC (the Adviser) for an
additional one-year term.
During the course of each year and in connection with its
consideration of the Agreement, the Board of Directors received
various written materials from the Adviser, including
(i) information on the advisory personnel of the Adviser;
(ii) information on the internal compliance procedures of
the Adviser; (iii) comparative information showing how the
Companys proposed fee schedule compares to other
registered investment companies and business development
companies that follow investment strategies similar to those of
the Company; (iv) information regarding brokerage and
portfolio transactions; (v) comparative information showing
how the Companys performance compares to other registered
investment companies and business development companies that
follow investment strategies similar to those of the Company;
and (vi) information on any legal proceedings or regulatory
audits or investigations affecting the Adviser.
After receiving and reviewing these materials, the Board of
Directors, at an in-person meeting called for such purpose,
discussed the terms of the Agreement. Representatives from the
Adviser attended the meeting and presented additional oral and
written information to the Board of Directors to assist in its
considerations. The Adviser also discussed its expected
profitability from its relationship with the Company under the
Agreement. The Directors who are not parties to the Agreement or
interested persons (as defined in the 1940 Act) of
any such party (the Independent Directors) also met
in executive session to further discuss the terms of the
Agreement and the information provided by the Adviser.
The Independent Directors reviewed various factors, detailed
information provided by the Adviser at the meeting and at other
times throughout the year, and other relevant information and
factors including the following, no single factor of which was
dispositive in their decision whether to approve the Agreement:
The
nature, extent, and quality of the services to be provided by
the Adviser
The Independent Directors considered the scope and quality of
services that have been provided by the Adviser under the
Agreement. The Independent Directors considered the quality of
the investment research capabilities of the Adviser and the
other resources the Adviser has dedicated to performing services
for the Company, including the high caliber of portfolio
managers and research analysts involved, the significant
resources dedicated to monitoring the Companys private
investments and the large team of investment, accounting, legal,
trading and compliance professionals at the Adviser responsible
for the Company. The quality of other services, including the
Advisers assistance in the coordination of the activities
of some of the Companys other service providers, the
provision of certain administrative, compliance, reporting and
financial services by the Adviser, the identification and
negotiation of investment opportunities for the Company, the
call strategy used and the responsible handling of the leverage
target, also was considered. The Independent Directors also
considered the nature and quality of the services provided by
the Adviser to the Company in light of their experience as
Directors of the Company, their confidence in the Advisers
integrity and competence gained from that experience and the
Advisers responsiveness to questions, concerns or requests
for information raised or made by them in the past. The
Independent Directors noted the high quality of services
provided by the Adviser when the market faced significant
turmoil and continued to experience various challenges as well
as the Advisers efforts to maximize returns and its
leadership position in the markets in which it invests. The
Independent Directors concluded that the Adviser has the quality
and depth of personnel and investment methods essential to
performing its duties under the Agreement and that the nature
and the proposed cost of such advisory services are fair and
reasonable in light of the services provided.
The
Companys performance under the management of the
Adviser
The Independent Directors reviewed information pertaining to the
performance of the Company. This data compared the
Companys performance to the performance of certain other
registered investment companies and business development
companies that follow investment strategies similar to those of
the Company as well as specialized and more general market
indexes. The comparative information showed that the performance
of the
41
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
INVESTMENT MANAGEMENT AGREEMENT APPROVAL DISCLOSURE
(UNAUDITED)
Company compares favorably to other similar closed-end funds,
including the Companys closest peer fund, as well as its
composite benchmark since the start of fiscal year 2010. The
comparative information also showed that the Company
outperformed various business development companies following
similar investment strategies as the Company during periods
since the beginning of fiscal years 2007, 2010 and 2011. The
Independent Directors noted that in addition to the information
received for this meeting, the Independent Directors also
receive detailed performance information for the Company at each
regular Board of Directors meeting during the year. The
Independent Directors did not consider the performance of any
separate account managed by the Adviser as there were no
accounts similar enough to be relevant. The Independent
Directors then noted that they were supportive of the
Advisers efforts to increase distributions to stockholders
in the future.
The
costs of the services to be provided by the Adviser and the
profits to be realized by the Adviser and its affiliates from
the relationship with the Company
The Independent Directors considered the profitability of the
services provided by the Adviser, recognizing that it is
difficult to make comparisons of profitability from investment
advisory contracts. The Independent Directors considered that
the Advisers relationship with the Company is a less
significant source of revenue than the other investment
companies managed by the Adviser. The Independent Directors
considered certain benefits the Adviser realizes due to its
relationship with the Company. In particular, they noted that
the Adviser has soft dollar arrangements under which certain
brokers may provide industry research to the Advisers
portfolio managers through the use of a portion of the brokerage
commissions generated from the Advisers trading activities
on behalf of the Company. The Independent Directors acknowledged
that the Companys stockholders also benefit from these
soft dollar arrangements because the Adviser is able to receive
this research, which is used in the management of the
Companys portfolio, by aggregating securities trades.
The Independent Directors also considered the Companys
management fee under the Agreement in comparison to the
management fees of funds within the Companys peer group
and believed such comparisons to be acceptable to the Company.
The Independent Directors noted that although the Company
withdrew its election as a business development company, the
Companys focus on private investments makes the management
of the Company much closer to that of a business development
company. The Advisers successful handling of the past
market downturn and related leverage challenges, its track
record in managing tax issues in rising and declining markets
and its robust valuation process for private investments were
also noted by the Independent Directors as relevant
considerations in evaluating the reasonableness of the
management fee. Based on those comparisons, the Independent
Directors concluded that the management fee remains reasonable.
The
extent to which economies of scale would be realized as the
Company grows and whether fee levels reflect these economies of
scale for the benefit of stockholders
The Independent Directors also considered possible economies of
scale that the Adviser could achieve in its management of the
Company. They considered the anticipated asset levels of the
Company, the information provided by the Adviser relating to its
estimated costs, and information comparing the fee rate to be
charged by the Adviser with fee rates charged by other
unaffiliated investment advisers to their investment company
clients. The Independent Directors also considered the
Advisers commitment to retaining its current professional
staff in a competitive environment for investment professionals.
The Independent Directors concluded that the fee structure was
reasonable in view of the information provided by the Adviser.
The Independent Directors also noted that the fee structure
currently does not provide for a sharing of any economies of
scale that might be experienced from substantial future growth
of the Company. The Independent Directors recognized that the
Companys size has remained relatively small and below the
scale to result in any notable economies.
Based on the review of the Board of Directors of the Company,
including their consideration of each of the factors discussed
above and the materials requested from and provided by the
Adviser, the Board concluded, in agreement with the
recommendation of the Independent Directors, that the Company
and its stockholders received
42
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
INVESTMENT MANAGEMENT AGREEMENT APPROVAL DISCLOSURE
(UNAUDITED)
reasonable value in return for the advisory fees and other
amounts paid to the Adviser by the Company under the Agreement,
that stockholders could expect to receive reasonable value in
return for the advisory fees and other amounts proposed to be
paid to the Adviser by the Company under the Agreement and that
the approval of the continuation of the Agreement was in the
best interests of stockholders of the Company.
43
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
Position(s)
|
|
|
|
Other Directorships Held by
|
Name,
|
|
Held with Company,
|
|
Principal Occupations
|
|
Director/Officer During
|
(Year Born)
|
|
Term of Office/Time of Service
|
|
During Past Five Years
|
|
Past Five Years
|
|
William R. Cordes
(born 1948)
|
|
Director. 3-year term (until the 2014 Annual Meeting of
Stockholders). Served since 2008
|
|
Retired from Northern Border Pipeline Company in March 2007
after serving as President from October 2000 to March 2007.
Chief Executive Officer of Northern Border Partners, L.P. from
October 2000 to April 2006. President of Northern Natural Gas
Company from 1993 to 2000. President of Transwestern Pipeline
Company from 1996 to 2000.
|
|
Current:
Kayne
Anderson Midstream/Energy Fund, Inc. (KMF)
Boardwalk
Pipeline Partners, LP (midstream MLP)
Prior:
Northern
Border Partners, L.P. (midstream MLP)
|
|
|
|
|
|
|
|
Barry R. Pearl
(born 1949)
|
|
Director. 3-year term (until the 2014 Annual Meeting of
Stockholders). Served since 2006
|
|
Executive Vice President of Kealine, LLC, a private developer
and operator of petroleum infrastructure facilities (and its
affiliate WesPac Energy LLC, an energy infrastructure
developer), since February 2007. Provided management consulting
services from January 2006 to February 2007. President of Texas
Eastern Products Pipeline Company, LLC (TEPPCO) (the
general partner of TEPPCO Partners, L.P.) from February 2001 to
December 2005. Chief Executive Officer and director of TEPPCO
from May 2002 to December 2005; and Chief Operating Officer from
February 2001 to May 2002.
|
|
Current:
KMF
Targa
Resources Partners LP (midstream MLP)
Magellan
Midstream Partners, L.P. (midstream MLP)
Peregrine
Midstream Partners LLC (natural gas storage MLP)
Prior:
Seaspan
Corporation (containership chartering)
TEPPCO
Partners, L.P. (midstream MLP)
|
|
|
|
|
|
|
|
Albert L. Richey
(born 1949)
|
|
Director. 3-year term (until the 2013 Annual Meeting of
Stockholders). Served since 2006
|
|
Vice President of Anadarko Petroleum Corporation since December
2008; Vice President of Corporate Development from December 2005
to December 2008; Vice President and Treasurer from 1995 to
2005; and Treasurer from 1987 to 1995.
|
|
Current:
Boys & Girls Clubs of Houston
|
|
|
|
|
|
|
|
William L. Thacker
(born 1945)
|
|
Director. 3-year term (until the 2012 Annual Meeting of
Stockholders). Served since 2006
|
|
Retired from the Board of TEPPCO in May 2002 after serving as
Chairman from March 1997 to May 2002; Chief Executive Officer
from January 1994 to May 2002; and President, Chief Operating
Officer and Director from September 1992 to January 1994.
|
|
Current:
KMF
Copano
Energy, L.L.C.
(midstream MLP)
GenOn
Energy, Inc.
(electricity generation and sales)
Prior:
Pacific
Energy Partners, L.P. (midstream MLP)
|
44
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
INFORMATION CONCERNING DIRECTORS AND CORPORATE OFFICERS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
Position(s)
|
|
|
|
Other Directorships Held by
|
Name,
|
|
Held with Company,
|
|
Principal Occupations
|
|
Director/Officer During
|
(Year Born)
|
|
Term of Office/Time of Service
|
|
During Past Five Years
|
|
Past Five Years
|
|
Kevin S.
McCarthy(2)
(born 1959)
|
|
Chairman of the Board of Directors, President and Chief
Executive Officer of the Company since inception. 3-year term as
a director (until the 2012 Annual Meeting of Stockholders),
elected annually as an officer.
|
|
Senior Managing Director of KACALP since June 2004 and of KAFA
since 2006. President and Chief Executive Officer of Kayne
Anderson MLP Investment Company (KYN); Kayne
Anderson Energy Total Return Fund, Inc. (KYE); and
KMF since inception (KYN inception in 2004; KYE inception in
2005 and KMF inception in 2010). Global Head of Energy at UBS
Securities LLC from November 2000 to May 2004.
|
|
Current:
KYN
KYE
KMF
Range
Resources Corporation
(oil and natural gas company)
Direct
Fuel Partners, L.P.
(transmix refining and fuels distribution)
ProPetro
Services, Inc.
(oilfield services)
Prior:
Clearwater
Natural Resources, L.P. (coal mining MLP)
International
Resource Partners LP (coal mining MLP)
K-Sea
Transportation Partners LP (shipping MLP)
|
|
|
|
|
|
|
|
Robert V.
Sinnott(3)
(born 1949)
|
|
Director. 3-year term (until the 2013 Annual Meeting of
Stockholders). Served since 2006.
|
|
President, Chief Executive Officer and Senior Managing Director
of Energy Investments of KACALP since 1992.
|
|
Plains
All American Pipeline, L.P. (midstream
MLP)
|
|
|
|
(1) |
|
Each Director oversees two registered investment companies in
the fund complex. |
|
(2) |
|
Mr. McCarthy is an interested person of the
Company by virtue of his employment relationship with Kayne
Anderson. |
|
(3) |
|
Mr. Sinnott is an interested person of the
Company because he is employed as the President of KACALP. |
Additional information regarding the Companys directors is
contained in the Companys Statement of Additional
Information, the most recent version of which can be found on
the Companys website at www.kaynefunds.com or is
available without charge, upon request, by calling
(877) 657-3863.
45
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
INFORMATION CONCERNING DIRECTORS AND CORPORATE OFFICERS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Directorships Held by
|
Name,
|
|
Position(s)
|
|
Principal Occupations
|
|
Director/Officer During
|
(Year Born)
|
|
Held with Company, Term of Office/Time of Service
|
|
During Past Five Years
|
|
Past Five Years
|
|
James C. Baker
(born 1972)
|
|
Executive Vice President. Elected annually. Served as Vice
President from June 2005 to June 2008; served as Executive Vice
President since June 2008.
|
|
Senior Managing Director of KACALP and KAFA since February 2008,
Managing Director of KACALP and KAFA since December 2004 and
2006, respectively. Vice President of KYN and KYE from 2005 to
2008. Executive Vice President of KYN and KYE since June 2008
and KMF since October 2008.
|
|
Current:
ProPetro
Services, Inc.
(oilfield services)
Petris
Technology, Inc.
(data management for energy companies)
Prior:
K-Sea
Transportation Partners LP (shipping MLP)
|
|
|
|
|
|
|
|
J.C. Frey
(born 1968)
|
|
Executive Vice President, Assistant Treasurer and Assistant
Secretary. Elected annually. Served as Assistant Treasurer and
Assistant Secretary since inception; served as Executive Vice
President since June 2008.
|
|
Senior Managing Director of KACALP since 2004 and of KAFA since
2006 and Managing Director of KACALP since 2000. Portfolio
Manager of KACALP since 2000, Co-Portfolio Manager, Vice
President, Assistant Secretary and Assistant Treasurer of KYN
since 2004 and of KYE since 2005. Executive Vice President of
KYN and KYE since June 2008 and KMF since October 2010.
|
|
None
|
|
|
|
|
|
|
|
Terry A. Hart
(born 1969)
|
|
Chief Financial Officer and Treasurer. Elected annually. Served
since inception.
|
|
Chief Financial Officer and Treasurer of KYN and KYE since
December 2005 and KMF since October 2010. Director of Structured
Finance, Assistant Treasurer, Senior Vice President and
Controller of Dynegy, Inc. from 2000 to 2005.
|
|
None
|
|
|
|
|
|
|
|
Ron M. Logan, Jr.
(born 1960)
|
|
Senior Vice President Elected annually. Served since September
2006.
|
|
Managing Director KACALP and KAFA since September 2006.
Independent consultant to several leading energy firms. Senior
Vice President of Ferrellgas Inc. from 2003 to 2005. Vice
President of Dynegy Midstream Services from 1997 to 2002.
|
|
VantaCore
Partners LP
(aggregates MLP)
|
|
|
|
|
|
|
|
David J. Shladovsky
(born 1960)
|
|
Secretary and Chief Compliance Officer. Elected annually. Served
since inception.
|
|
Managing Director and General Counsel of KACALP since 1997 and
of KAFA since 2006. Secretary and Chief Compliance Officer of
KYN since 2004; KYE since 2005 and KMF since October 2010.
|
|
None
|
|
|
|
|
|
|
|
Jody C. Meraz (born 1978)
|
|
Vice President.
Elected annually.
Served since 2011.
|
|
Senior Vice President of KACALP and KAFA since 2011. Vice
President of KACALP from 2007 to 2011. Associate of KACALP
and KAFA from 2005 to 2006. Vice President of KYN, KYE and
KMF since 2011.
|
|
None
|
46
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
(UNAUDITED)
The Companys Chief Executive Officer has filed an annual
certification with the NYSE that, as of the date of the
certification, he was unaware of any violation by the Company of
the NYSEs corporate governance listing standards.
PROXY
VOTING AND PORTFOLIO HOLDINGS INFORMATION
(UNAUDITED)
The policies and procedures that the Company uses to determine
how to vote proxies relating to its portfolio securities are
available:
|
|
|
|
|
without charge, upon request, by calling
(888) 533-1232;
|
|
|
|
on the Companys website,
http://www.kaynefunds.com; and
|
|
|
|
on the website of the Securities and Exchange Commission,
http://www.sec.gov.
|
Information regarding how the Company voted proxies relating to
portfolio securities during the most recent
12-month
period ended June 30 is available without charge, upon request,
by calling
(888) 533-1232,
and on the SECs website at
http://www.sec.gov
(see
Form N-PX).
The Company files 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
are 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 also makes its
Form N-Q
and
Form N-30B-2
available on its website at
http://www.kaynefunds.com.
47
|
|
|
Directors and Corporate Officers
|
|
|
Kevin S. McCarthy
|
|
Chairman of the Board of Directors,
President and Chief Executive Officer
|
William R. Cordes
|
|
Director
|
Barry R. Pearl
|
|
Director
|
Albert L. Richey
|
|
Director
|
Robert V. Sinnott
|
|
Director
|
William L. Thacker
|
|
Director
|
Terry A. Hart
|
|
Chief Financial Officer and Treasurer
|
David J. Shladovsky
|
|
Chief Compliance Officer and Secretary
|
J.C. Frey
|
|
Executive Vice President, Assistant
Secretary and Assistant Treasurer
|
James C. Baker
|
|
Executive Vice President
|
Ron M. Logan, Jr.
|
|
Senior Vice President
|
Jody C. Meraz
|
|
Vice President
|
|
|
|
Investment Adviser
|
|
Administrator
|
KA Fund Advisors, LLC
717 Texas Avenue, Suite 3100
Houston, TX 77002
|
|
Ultimus Fund Solutions, LLC
350 Jericho Turnpike, Suite 206
Jericho, NY 11753
|
|
|
|
1800 Avenue of the Stars, Third Floor
|
|
Stock Transfer Agent and Registrar
|
Los Angeles, CA 90067
|
|
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
|
|
|
|
Custodian
|
|
Independent Registered Public Accounting Firm
|
JPMorgan Chase Bank, N.A.
|
|
PricewaterhouseCoopers LLP
|
14201 North Dallas Parkway, Second Floor
Dallas, TX 75254
|
|
350 South Grand Avenue
Los Angeles, CA 90071
|
|
|
|
|
|
Legal Counsel
|
|
|
Paul Hastings LLP
55 Second Street, 24th Floor
San Francisco, CA 94105
|
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.
(a) As of the end of the period covered by this report, the Registrant has adopted a code of ethics
that applies to the Registrants principal executive officer, principal financial officer,
principal accounting officer, or persons performing similar functions.
(c) and (d) During the period covered by this report, there was no amendment to, and no waiver,
including implicit waiver, was granted from, any provision of the Registrants code of ethics that
applies to the Registrants principal executive officer, principal financial officer, principal
accounting officer, or persons performing similar functions.
(f)(1) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit (EX-99.CODE ETH) a copy
of its code of ethics that applies to its principal executive officer, principal financial officer,
principal accounting officer, or persons performing similar functions.
Item 3. Audit Committee Financial Expert.
(a)(1) The Registrants board of directors has determined that the Registrant has three audit
committee financial experts serving on its audit committee.
(a)(2) The audit committee financial experts are William R. Cordes, Albert L. Richey, and William
L. Thacker. Messrs. Cordes, Richey, and Thacker are independent for purposes of this Item.
Item 4. Principal Accountant Fees and Services.
(a) through (d) The information in the table below is provided for professional services rendered
to the Registrant by its independent registered public accounting firm, PricewaterhouseCoopers LLP,
during the Registrants (a) last fiscal year ended
November 30, 2011, and (b) fiscal year ended
November 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Audit Fees |
|
$ |
243,400 |
|
|
$ |
222,000 |
|
Audit-Related Fees |
|
|
|
|
|
|
|
|
Tax Fees |
|
|
159,000 |
|
|
|
159,000 |
|
All Other Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
402,400 |
|
|
$ |
381,000 |
|
|
|
|
|
|
|
|
(e)(1) Audit Committee Pre-Approval Policies and Procedures.
With
respect to the table above, Audit Fees are the aggregate
fees billed for professional services for the audit of the
Registrants annual financial statements and services provided
in connection with statutory and regulatory filings or engagements.
Audit-Related Fees are the aggregate fees billed for
assurance and related services reasonably related to the performance
of the audit of the Registrants financial statements and are
not reported under Audit Fees. Tax Fees are
the aggregate fees billed for professional services for tax
compliance, tax advice and tax planning.
Before the auditor is (i) engaged by the Registrant to render audit, audit related or permissible
non-audit services to the Registrant or (ii) with respect to non-audit services to be provided by
the auditor to the Registrants investment adviser or any entity in the investment Registrant
complex, if the nature of the services provided relate directly to the operations or financial
reporting of the Registrant, either: (a) the Audit Committee shall pre-approve such engagement; or
(b) such engagement shall be entered into pursuant to pre-approval policies and procedures
established by the Audit Committee. Any such policies and procedures must be detailed as to the
particular service and not involve any delegation of the Audit Committees responsibilities to the
Registrants investment adviser. The Audit Committee may delegate to one or more of its members the
authority to grant pre-approvals. The pre-approval policies and procedures shall include the
requirement that the decisions of any member to whom authority is delegated under this provision be
presented to the full Audit Committee at its next scheduled meeting. Under certain limited
circumstances, pre-approvals are not required if certain de minimis thresholds are not exceeded, as
such thresholds are set forth by the Audit Committee and in accordance with applicable Securities
and Exchange Commission rules and regulations.
(e)(2) None of the services provided to the Registrant described in paragraphs (b) through (d) of
this Item 4 were pre-approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule
2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees billed by PricewaterhouseCoopers LLP for services rendered to the
Registrant for the fiscal year ended November 30, 2011 was $159,000, and $159,000 for the fiscal
year ended November 30, 2010. There were no non-audit fees billed by PricewaterhouseCoopers LLP for
services rendered to the Registrants investment adviser (not including any sub-adviser whose role
is primarily portfolio management and is subcontracted with or overseen by another investment
adviser) or any entity controlling, controlled by, or under common control with the investment
adviser that provides ongoing services to the Registrant for each of the last two fiscal years.
(h) No disclosures are required by this Item 4(h).
Item 5. Audit Committee of Listed Registrants.
The Registrant has a separately-designated standing Audit Committee established in accordance with
Section 3(a)(58)(A) of the Securities and Exchange Act of 1934 (the Exchange Act), as amended.
William R, Cordes (Chair), Albert L. Richey and William L. Thacker are the members of the
Registrants Audit Committee.
Item 6. 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.
The Registrant has delegated the voting of proxies relating to its voting securities to its
investment adviser, KA Fund Advisors, LLC (the Adviser). The respective Proxy Voting Policies and
Procedures of the Registrant and the Adviser are attached as Exhibit 99.VOTEREG and Exhibit
99.VOTEADV hereto.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a)(1) As
of November 30, 2011, the following individuals (the Portfolio Managers) are primarily
responsible for the day-to-day management of the Registrants portfolio:
Kevin S. McCarthy is the Registrants President, Chief Executive Officer and co-portfolio
manager and has served as the President, Chief Executive Officer and co-portfolio manager of Kayne
Anderson MLP Investment Company (KYN) since June 2004, of Kayne Anderson Energy Total Return
Fund, Inc. (KYE) since May 2005 and of Kayne Anderson Midstream/Energy Fund, Inc. (KMF) since
November 2010. Mr. McCarthy has served as a Senior Managing Director of Kayne Anderson Capital
Advisors, L.P. (KACALP) since June 2004 and of the Adviser (collectively with KACALP, Kayne
Anderson) since 2006. Prior to that, he was Global Head of Energy at UBS Securities LLC. In this
role, he had senior responsibility for all of UBS energy investment banking activities. Mr.
McCarthy was with UBS Securities from 2000 to 2004. From 1995 to 2000, Mr. McCarthy led the energy
investment banking activities of Dean Witter Reynolds and then PaineWebber Incorporated. He began
his investment banking career in 1984. He earned a BA degree in Economics and Geology from Amherst
College in 1981, and an MBA degree in Finance from the University of Pennsylvanias Wharton School
in 1984.
J.C. Frey is the Registrants Executive Vice President, Assistant Secretary, Assistant
Treasurer and co-portfolio manager and a Senior Managing Director of Kayne Anderson. He serves as
portfolio manager of Kayne Andersons funds investing in MLP securities, including serving as a
co-portfolio manager, Assistant Secretary and Assistant Treasurer of KYN since June 2004 and of KYE
since May 2005, Vice President of KYN from June 2004 through June 2008 and of KYE from May 2005
through June 2008, Executive Vice President of KYN and KYE since June 2008, and Executive Vice
President, Assistant Treasurer, Assistant Secretary and co-portfolio manager of KMF
since November 2010. Mr. Frey began investing in MLPs on behalf of Kayne Anderson in 1998 and has
served as
portfolio manager of Kayne Andersons MLP funds since their inception in 2000. In
addition to the closed-end funds, Mr. Frey manages approximately
$3 billion in assets in MLPs and
midstream companies and other Kayne Anderson funds. Prior to joining Kayne Anderson in 1997, Mr.
Frey was a CPA and audit manager in KPMG Peat Marwicks financial services group, specializing in
banking and finance clients and loan securitizations. Mr. Frey graduated from Loyola Marymount
University with a BS degree in Accounting in 1990. In 1991, he received a Masters degree in
Taxation from the University of Southern California.
(a)(2)(i) and (ii) Other Accounts Managed by Portfolio Managers:
The following table reflects information regarding accounts for which the Portfolio Managers
have day-to-day management responsibilities (other than the Registrant). Accounts are grouped into
three categories: (i) registered investment companies, (ii) other pooled investment vehicles, and
(iii) other accounts. To the extent that any of these accounts pay advisory fees that are based on
account performance, this information will be reflected in a separate table below. Information is
shown as of November 30, 2011. Asset amounts are approximate and have been rounded.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered |
|
|
|
|
|
|
Investment Companies |
|
Other Pooled |
|
|
|
|
(excluding the Registrant) |
|
Investment Vehicles |
|
Other Accounts |
|
|
|
|
|
|
Total Assets |
|
|
|
|
|
Total Assets |
|
|
|
|
|
Total Assets |
|
|
Number of |
|
in the Accounts |
|
Number of |
|
in the Accounts |
|
Number of |
|
in the Accounts |
Portfolio Manager |
|
Accounts |
|
($ in millions) |
|
Accounts |
|
($ in millions) |
|
Accounts |
|
($ in millions) |
Kevin S. McCarthy |
|
|
3 |
|
|
$ |
5,613 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
J.C. Frey |
|
|
3 |
|
|
$ |
5,613 |
|
|
|
|
|
|
|
N/A |
|
|
|
6 |
|
|
$ |
219 |
|
(a)(2)(iii) Other Accounts that Pay Performance-Based Advisory Fees Managed by Portfolio Managers:
The following table reflects information regarding accounts for which the Portfolio Managers have day-to-day management responsibilities (other than the Registrant) and with respect to which the advisory fee is based on the performance of the account. Information is shown as
of November 30, 2011. Asset amounts are approximate and have been rounded.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered |
|
|
|
|
|
|
Investment Companies |
|
Other Pooled |
|
|
|
|
(excluding the Registrant) |
|
Investment Vehicles |
|
Other Accounts |
|
|
|
|
|
|
Total Assets |
|
|
|
|
|
Total Assets |
|
|
|
|
|
Total Assets |
|
|
Number of |
|
in the Accounts |
|
Number of |
|
in the Accounts |
|
Number of |
|
in the Accounts |
Portfolio Manager |
|
Accounts |
|
($ in millions) |
|
Accounts |
|
($ in millions) |
|
Accounts |
|
($ in millions) |
Kevin S. McCarthy |
|
|
|
|
|
|
N/A |
|
|
|
2 |
|
|
$ |
498 |
|
|
|
|
|
|
|
N/A |
|
J.C. Frey |
|
|
|
|
|
|
N/A |
|
|
|
14 |
|
|
$ |
2,528 |
|
|
|
2 |
|
|
$ |
51 |
|
(a)(2)(iv) Potential Material Conflicts of Interest:
Some of the other accounts managed by Messrs. McCarthy and Frey have investment strategies that are
similar to those of the Registrant. However, Kayne Anderson manages potential conflicts of interest
by allocating investment opportunities in accordance with its written allocation policies and
procedures.
(a)(3)
Compensation of Each Portfolio Manager, as of November 30, 2011:
Messrs. McCarthy and Frey are compensated by KACALP through partnership distributions from KACALP,
based on the amount of assets they manage, and they receive a portion of the advisory fees
applicable to those accounts, which, with respect to certain accounts, as noted above, are based in
part on the performance of those accounts.
Additional benefits received by Messrs. McCarthy and Frey are normal and customary benefits
provided by investment advisers.
(a)(4) As
of November 30, 2011, the end of the Registrants most recently completed fiscal year,
the dollar range of equity securities beneficially owned by each Portfolio Manager in the
Registrant is shown below:
Kevin S. McCarthy: $500,001-$1,000,000
J.C. Frey: $100,001-$500,000
Through their limited partnership interests in KACALP, which owns shares of Registrants common
stock, Messrs. McCarthy and Frey could be deemed to also indirectly own a portion of Registrants
securities.
(b) Not Applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company 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 and principal financial officers have evaluated the
Registrants disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment
Company Act of 1940, as amended (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, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the
1940 Act and Rule 13a-15(b) under the Exchange Act.
(b) The Registrants principal executive and principal financial officers 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 second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to materially affect, the
Registrants internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of Ethics attached hereto as EX-99.CODE ETH.
(a)(2) Separate certifications of Principal Executive and Principal Financial Officers
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 attached hereto as EX-99.CERT.
(b) Certification of Principal Executive and Principal Financial Officers pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 attached hereto as EX-99.906 CERT.
(99) Proxy Voting Policies of the Registrant attached hereto as EX-99.VOTEREG.
(99) Proxy Voting Policies of the Adviser attached hereto as EX-99.VOTEADV.
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
|
|
Date: February 7, 2012 |
By: |
/s/ Kevin S. McCarthy
|
|
|
|
Kevin S. McCarthy |
|
|
|
Chairman of the Board of
Directors,
President and Chief Executive Officer |
|
|
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.
|
|
|
|
|
|
|
|
Date: February 7, 2012 |
By: |
/s/ Kevin S. McCarthy
|
|
|
|
Kevin S. McCarthy |
|
|
|
Chairman of the Board of
Directors,
President and Chief Executive Officer |
|
|
|
|
|
Date: February 7, 2012 |
By: |
/s/ Terry A. Hart
|
|
|
|
Terry A. Hart |
|
|
|
Chief Financial Officer and Treasurer |
|
Exhibit Index
(a)(1) Code of Ethics attached hereto as EX-99.CODE ETH.
(a)(2) Separate certifications of Principal Executive and Principal Financial Officers
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 attached hereto as EX-99.CERT.
(b) Certification of Principal Executive and Principal Financial Officers pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 attached hereto as EX-99.906 CERT.
(99) Proxy Voting Policies of the Registrant attached hereto as EX-99.VOTEREG.
(99) Proxy Voting Policies of the Adviser attached hereto as EX-99.VOTEADV.