nv30bv2
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
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.
Our Top
Ten Portfolio Investments as of August 31, 2011
Listed below are our top ten portfolio investments by issuer as
of August 31, 2011.
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Percent of
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Public/
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Equity/
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Amount
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Long-Term
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Holding
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Private
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Debt
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Sector
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($ in millions)
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Investments
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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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$
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42.1
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14.1
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%
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2
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VantaCore Partners L.P.
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Private
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Equity
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Aggregates
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18.0
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6.0
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3
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ProPetro Services, Inc.
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Private
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Equity/Debt
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Oilfield Services
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17.0
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5.7
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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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15.5
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5.2
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5
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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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14.5
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4.8
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6
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ONEOK Partners, L.P.
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Public
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Equity
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Midstream
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13.0
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4.4
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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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12.2
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4.1
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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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Coal
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11.9
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4.0
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9
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Energy Transfer Equity, L.P.
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Public
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Equity
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Midstream
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10.1
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3.4
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10
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Regency Energy Partners L.P.
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Public
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Equity
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Midstream
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9.3
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3.1
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$
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163.6
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54.8
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%
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Results
of Operations For the Three Months Ended
August 31, 2011
Investment Income. Investment income totaled
$2.9 million and consisted primarily of net dividends and
distributions and interest income on our debt investments. We
received $4.5 million of cash dividends and distributions,
of which $2.9 million was treated as a return of capital
during the period. During the fiscal second and third quarters
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 second quarter, we
received information from International Resource Partners
(IRP) that reduced the return of capital estimate by
$1.4 million. In the third quarter, we increased the return
of capital estimate by $0.3 million based on tax reporting
information from other portfolio investments. During the
quarter, we received $1.3 million of interest income, of
which $0.4 million was
paid-in-kind
interest from ProPetro. We also received $0.8 million of
paid-in-kind
dividends, of which $0.6 million was from VantaCore
Partners LP. These
paid-in-kind
dividends are not included in investment income, but are
reflected as an unrealized gain.
Operating Expenses. Operating expenses totaled
$2.4 million, including $1.4 million of investment
management fees, $0.5 million of interest expense and
$0.5 million of other operating expenses. Interest expense
1
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
MANAGEMENT DISCUSSION
(UNAUDITED)
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 $0.3 million and included a current income
tax expense of $0.1 million and a deferred income tax
expense of $0.1 million.
Net Realized Gains. We had net realized gains
from investments of $2.3 million, after taking into account
a current income tax expense of $1.1 million and a deferred
income tax expense of $0.1 million.
Net Change in Unrealized Losses. We had net
unrealized losses of $7.3 million. The net unrealized loss
consisted of $11.3 million of unrealized losses from
investments and a deferred income tax benefit of
$4.0 million.
Net Decrease in Net Assets Resulting from
Operations. We had a decrease in net assets
resulting from operations of $4.7 million. This decrease is
composed of a net investment income of $0.3 million; net
realized gains of $2.3 million; and net unrealized loss of
$7.3 million, as noted above.
Distributions
to Common Stockholders
We pay quarterly distributions to our common stockholders,
funded in part by net distributable income (NDI)
generated from our portfolio investments. NDI is the amount of
income received by us from our portfolio investments less
operating expenses, subject to certain adjustments as described
below. NDI is not a financial measure under the accounting
principles generally accepted in the United States of America
(GAAP). Refer to the Reconciliation of NDI to
GAAP section below for a reconciliation of this measure to
our results reported under GAAP.
Income from portfolio investments includes (a) cash
dividends and distributions,
(b) paid-in-kind
dividends received (i.e., stock dividends), and
(c) interest income from debt securities and commitment
fees from private investments in public equity (PIPE
investments).
Operating expenses include (a) investment management fees
paid to KAFA, (b) other expenses (mostly attributable to
fees paid to other service providers) and (c) interest
expense.
Net
Distributable Income (NDI)
(amounts
in millions, except for per share amounts)
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Three Months
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Ended
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August 31,
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2011
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Distributions and Other Income from Investments
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Dividends and Distributions
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$
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4.5
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Paid-In-Kind
Dividends and Distributions
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0.8
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Interest Income
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0.9
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Paid-In-Kind
Interest and Other Income
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0.4
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Total Distributions and Other Income from Investments
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6.6
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Expenses
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Investment Management Fee
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(1.4
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Other Expenses
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(0.5
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Total Management Fee and Other Expenses
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(1.9
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Interest Expense
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(0.4
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Net Distributable Income (NDI)
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$
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4.3
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Weighted Average Shares Outstanding
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10.3
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NDI per Weighted Average Share Outstanding
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$
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0.42
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2
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
MANAGEMENT DISCUSSION
(UNAUDITED)
Payment of future distributions is subject to Board of Directors
approval, as well as meeting the covenants of our credit
facility. In determining our quarterly distribution to common
stockholders, our Board of Directors considers a number of
factors which include, but are not limited to:
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NDI generated in the current quarter;
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Expected NDI over the next twelve months;
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The extent to which NDI is comprised of
paid-in-kind
(PIK) interest and distributions;
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The impact of potential liquidity events at our portfolio
companies; and
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Realized and unrealized gains generated by the portfolio.
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On October 5, 2011, we declared our quarterly distribution
of $0.38 per common share for the fiscal third quarter for a
total of $3.9 million. The distribution will be paid on
October 28, 2011 to common stockholders of record on
October 19, 2011.
Reconciliation
of NDI to GAAP
The difference between distributions and other income from
investments in the NDI calculation and total investment income
as reported in our Statement of Operations is reconciled as
follows:
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GAAP recognizes that a significant portion of the cash
distributions received from MLPs is characterized as a return of
capital and therefore excluded from investment income, whereas
the NDI calculation includes the return of capital portion of
such distributions.
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NDI includes the value of dividends
paid-in-kind,
whereas such amounts are not included as investment income for
GAAP purposes during the period received, but rather are
recorded as unrealized gains upon receipt.
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NDI includes commitment fees from PIPE investments, whereas such
amounts are generally not included in investment income for GAAP
purposes, but rather are recorded as a reduction to the cost of
the investment.
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Many of our investments in debt securities were purchased at a
discount or premium to the par value of such security. When
making such investments, we consider the securitys yield
to maturity, which factors in the impact of such discount (or
premium). Interest income reported under GAAP includes the
non-cash accretion of the discount (or amortization of the
premium) based on the effective interest method. When we
calculate interest income for purposes of determining NDI, in
order to better reflect the yield to maturity, the accretion of
the discount (or amortization of the premium) is calculated on a
straight-line basis to the earlier of the expected call date or
the maturity date of the debt security.
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The treatment of expenses included in NDI also differs from what
is reported in the Statement of Operations as follows:
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The non-cash amortization or write-offs of capitalized debt
issuance costs related to our debt financings is included in
interest expense for GAAP purposes, but is excluded from our
calculation of NDI.
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Liquidity
and Capital Resources
As of August 31, 2011, we had approximately
$3.3 million in short-term investments, in the form of a
repurchase agreement. Our repurchase agreement is collateralized
by U.S. Treasury securities, and our counterparty is
J.P. Morgan Securities Inc.
Our senior secured revolving credit facility (the Credit
Facility) has a $70.0 million commitment maturing on
March 30, 2013. Outstanding loan balances under the Credit
Facility accrue interest at an annual rate equal to
3
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
MANAGEMENT DISCUSSION
(UNAUDITED)
LIBOR plus 2.00% based on the current borrowings and the current
borrowing base. If borrowings exceed the borrowing base
attributable to quoted securities (generally defined
as equity investments in public MLPs and investments in bank
debt and high yield bonds that are traded), the interest rate
will increase to LIBOR plus 3.00%. We pay a commitment fee of
0.50% per annum on any unused amounts of the Credit Facility.
Our borrowing base, subject to certain limitations, is generally
calculated by multiplying the fair value of each of our
investments by an advance rate. The total contribution to our
borrowing base from private MLPs is limited to no more than 25%
of the total borrowing base, and there is a $7 million
limit of borrowing base contribution from any single issuer.
As of August 31, 2011, we had $70.0 million of
borrowings under our Credit Facility (at an interest rate of
2.21%), which represented 56.6% of our borrowing base of
$123.7 million (61.8% of our borrowing base of
$113.4 million attributable to quoted securities). At
August 31, 2011, our asset coverage ratio under the
Investment Company Act of 1940, as amended (the 1940
Act), was 425%.
As of October 14, 2011, we had $69.0 million of
borrowings under our Credit Facility (at an interest rate of
2.24%), which represented 56.8% of our borrowing base of
$121.6 million (62.1% of our borrowing base of
$111.1 million attributable to quoted securities). The
maximum amount that we can borrow under our Credit Facility is
limited to the lesser of our commitment amount of
$70.0 million and our borrowing base.
Recent
Developments
On July 13, 2011, we received $2.0 million from James
River Coal Company (James River). This payment was
our pro rata share of a post-closing adjustment associated with
the sale of IRP to James River.
On August 3, 2011, VantaCore Partners, L.P.
(VantaCore) issued 0.3 million Class B
Preferred Units for $4.4 million. We purchased
0.1 million units ($1.9 million investment) in this
transaction. VantaCore used the proceeds from this preferred
stock issuance to acquire a quarry owned by a third party.
In August 2011, we made income tax payments of
$14.1 million. These tax payments were primarily associated
with the sale of IRP and other non-recurring income. We estimate
that we will make remaining tax payments of $7.1 million in
November 2011. We expect these payments to be funded primarily
through the sale of portfolio securities.
4
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF AUGUST 31, 2011
(amounts in 000s)
(UNAUDITED)
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No. of
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Description
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Shares/Units
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Value
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Long-Term Investments 131.3%
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Equity
Investments(1)
108.3%
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United States 108.3%
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Public MLP, MLP Affiliate and Other Public Equity
77.2%
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Alliance Holdings GP, L.P.
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46
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$
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2,194
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Boardwalk Pipeline Partners, LP
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36
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904
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Buckeye Partners, L.P.
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111
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6,988
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Buckeye Partners, L.P. Unregistered, Class B
Units(2)(3)
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93
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5,174
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Capital Product Partners L.P.
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225
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1,529
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Chesapeake Midstream Partners, L.P.
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37
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1,022
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Crestwood Midstream Partners LP
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80
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2,054
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Crude Carriers
Corp.(4)
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81
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762
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DCP Midstream Partners, LP
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211
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8,186
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El Paso Pipeline Partners, L.P.
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179
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6,585
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Enbridge Energy Partners, L.P.
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270
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7,685
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Energy Transfer Equity, L.P.
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265
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10,120
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Energy Transfer Partners, L.P.
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321
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14,462
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Enterprise Products Partners L.P.
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368
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15,518
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Exterran Partners, L.P.
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213
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4,866
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Global Partners LP
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205
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4,083
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Inergy, L.P.
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96
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2,717
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Kinder Morgan Management,
LLC(2)
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91
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5,522
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MarkWest Energy Partners, L.P.
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55
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2,633
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Navios Maritime Partners L.P.
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26
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409
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Oiltanking Partners,
L.P.(5)
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60
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1,432
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ONEOK Partners, L.P.
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299
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13,006
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Penn Virginia Resource Partners, L.P.
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348
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9,011
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Plains All American Pipeline,
L.P.(6)
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103
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6,231
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Regency Energy Partners L.P.
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392
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9,357
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SandRidge Permian
Trust(5)
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166
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3,127
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Spectra Energy Partners, LP
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34
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1,000
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Targa Resources Partners LP
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100
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3,439
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TC PipeLines, LP
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118
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5,140
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Teekay LNG Partners L.P.
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56
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1,879
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Teekay Offshore Partners L.P.
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23
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621
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Teekay Tankers Ltd.
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78
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505
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Tesoro Logistics LP
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189
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4,432
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TransMontaigne Partners L.P.
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59
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2,010
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VOC Energy Trust
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97
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2,167
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Western Gas Partners, LP
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43
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1,576
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Williams Partners L.P.
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130
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7,054
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175,400
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Private MLP and Other Private
Equity(3)(6) 31.1%
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Direct Fuels Partners, L.P. Class A Common Units
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2,500
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32,500
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Direct Fuels Partners, L.P. Convertible Preferred
Units(7)
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144
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2,911
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Direct Fuels Partners, L.P. Class D Preferred
Units(8)
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324
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6,723
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Plains All American GP LLC
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3
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5,151
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ProPetro Services,
Inc.(4)
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150,097
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5,519
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See accompanying notes to financial statements.
5
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF AUGUST 31, 2011
(amounts in 000s)
(UNAUDITED)
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No. of
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Description
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Shares/Units
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Value
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Private MLP and Other Private
Equity(3)(6)
(continued)
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VantaCore Partners
LP(2)
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1,465
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$
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13,914
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VantaCore Partners LP Class A Preferred
Units(2)(9)
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113
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1,750
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VantaCore Partners LP Class B Preferred
Units(2)(10)
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133
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2,335
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70,803
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Total Equity Investments (Cost $233,323)
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|
246,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Maturity
|
|
|
Principal
|
|
|
|
|
|
|
Rate
|
|
|
Date
|
|
|
Amount
|
|
|
|
|
|
Debt Investments 23.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States 22.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midstream 6.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crestwood Holdings Partners, LLC
|
|
|
(11)
|
|
|
|
10/1/16
|
|
|
$
|
6,819
|
|
|
|
6,887
|
|
Crestwood Midstream Partners LP
|
|
|
7.750
|
%
|
|
|
4/1/19
|
|
|
|
8,335
|
|
|
|
8,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upstream 6.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrizo Oil & Gas, Inc.
|
|
|
8.625
|
|
|
|
10/15/18
|
|
|
|
3,000
|
|
|
|
3,075
|
|
CrownRock LP
|
|
|
10.000
|
|
|
|
8/15/16
|
|
|
|
3,250
|
|
|
|
3,024
|
|
Eagle Rock Energy Partners, L.P.
|
|
|
8.375
|
|
|
|
6/1/19
|
|
|
|
1,000
|
|
|
|
984
|
|
Laredo Petroleum, Inc.
|
|
|
9.500
|
|
|
|
2/15/19
|
|
|
|
6,500
|
|
|
|
6,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Energy 9.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calumet Specialty Products Partners, L.P.
|
|
|
9.375
|
|
|
|
5/1/19
|
|
|
|
2,000
|
|
|
|
1,940
|
|
Foresight Energy LLC
|
|
|
9.625
|
|
|
|
8/15/17
|
|
|
|
5,000
|
|
|
|
5,050
|
|
Penn Virginia Resource Partners, L.P.
|
|
|
8.250
|
|
|
|
4/15/18
|
|
|
|
2,925
|
|
|
|
2,852
|
|
ProPetro Services,
Inc.(3)(6)
|
|
|
(12)
|
|
|
|
2/15/12
|
|
|
|
11,487
|
|
|
|
11,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States (Cost $75,446)
|
|
|
50,207
|
|
|
|
|
|
|
Canada 0.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upstream 0.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern Pacific Resources Corp. (Cost $2,042)
|
|
|
(13)
|
|
|
|
1/15/16
|
|
|
|
1,995
|
|
|
|
2,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt Investments (Cost $77,488)
|
|
|
52,212
|
|
|
|
|
|
|
Total Long-Term Investments (Cost $310,811)
|
|
|
298,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase Agreement 1.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.P. Morgan Securities Inc. (Agreement dated 8/31/2011 to be
repurchased at $3,332), collateralized by $3,352 in U.S.
Treasury securities (Cost $3,332)
|
|
|
|
|
|
|
9/1/11
|
|
|
|
|
|
|
|
3,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments 132.8% (Cost $314,143)
|
|
|
301,747
|
|
|
|
|
|
|
Senior Secured Credit Facility Borrowings
|
|
|
(70,000
|
)
|
Other Liabilities in Excess of Other Assets
|
|
|
(4,471
|
)
|
|
|
|
|
|
Net Assets
|
|
$
|
227,276
|
|
|
|
|
|
|
See accompanying notes to financial statements.
6
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF AUGUST 31, 2011
(amounts in 000s)
(UNAUDITED)
|
|
|
(1) |
|
Unless otherwise noted, equity investments are common
units/common shares. |
|
(2) |
|
All or a portion of distributions are
paid-in-kind. |
|
(3) |
|
Fair valued and restricted security. See Notes 2, 3 and 9. |
|
(4) |
|
Security is non-income producing. |
|
(5) |
|
Security is not currently paying cash distributions, but is
expected to pay cash distributions within the next
12 months. |
|
(6) |
|
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. |
|
(7) |
|
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. |
|
(8) |
|
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. |
|
(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 August 31, 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
August 31, 2011). See Note 2 Investment
Income. |
|
(13) |
|
Floating rate second lien secured term loan. Security pays
interest at a rate of LIBOR + 850 basis points, with a 2%
LIBOR floor (10.50% as of August 31, 2011). |
See accompanying notes to financial statements.
7
|
|
|
|
|
ASSETS
|
Investments, at fair value:
|
|
|
|
|
Non-affiliated (Cost $198,429)
|
|
$
|
209,894
|
|
Affiliated (Cost $112,382)
|
|
|
88,521
|
|
Repurchase agreement (Cost $3,332)
|
|
|
3,332
|
|
|
|
|
|
|
Total investments (Cost $314,143)
|
|
|
301,747
|
|
Receivable for securities sold
|
|
|
1,247
|
|
Interest, dividends and distributions receivable
|
|
|
1,110
|
|
Other receivables
|
|
|
5,040
|
|
Debt issuance costs, prepaid expenses and other assets
|
|
|
788
|
|
|
|
|
|
|
Total Assets
|
|
|
309,932
|
|
|
|
|
|
|
|
LIABILITIES
|
Senior secured revolving credit facility
|
|
|
70,000
|
|
Current income tax liability
|
|
|
7,107
|
|
Deferred income tax liability
|
|
|
3,388
|
|
Payable for securities purchased
|
|
|
52
|
|
Investment management fee payable
|
|
|
1,402
|
|
Accrued directors fees and expenses
|
|
|
79
|
|
Accrued expenses and other liabilities
|
|
|
628
|
|
|
|
|
|
|
Total Liabilities
|
|
|
82,656
|
|
|
|
|
|
|
NET ASSETS
|
|
$
|
227,276
|
|
|
|
|
|
|
NET ASSETS CONSIST OF
|
|
|
|
|
Common stock, $0.001 par value (200,000,000 shares
authorized; 10,326,069 shares issued and outstanding)
|
|
$
|
10
|
|
Paid-in capital
|
|
|
199,115
|
|
Accumulated net investment loss, net of income taxes, less
dividends
|
|
|
(18,056
|
)
|
Accumulated net realized gains on investments, net of income
taxes
|
|
|
54,964
|
|
Net unrealized losses on investments, net of income taxes
|
|
|
(8,757
|
)
|
|
|
|
|
|
NET ASSETS
|
|
$
|
227,276
|
|
|
|
|
|
|
NET ASSET VALUE PER SHARE
|
|
$
|
22.01
|
|
|
|
|
|
|
See accompanying notes to financial statements.
8
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
August 31, 2011
|
|
|
August 31, 2011
|
|
|
INVESTMENT INCOME
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
Dividends and Distributions:
|
|
|
|
|
|
|
|
|
Non-affiliated investments
|
|
$
|
2,764
|
|
|
$
|
6,340
|
|
Affiliated investments
|
|
|
1,720
|
|
|
|
4,781
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions
|
|
|
4,484
|
|
|
|
11,121
|
|
Return of capital
|
|
|
(2,899
|
)
|
|
|
(5,312
|
)
|
|
|
|
|
|
|
|
|
|
Net dividends and distributions
|
|
|
1,585
|
|
|
|
5,809
|
|
Interest and other income non-affiliated investments
|
|
|
871
|
|
|
|
3,021
|
|
Interest affiliated investments
|
|
|
429
|
|
|
|
987
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
2,885
|
|
|
|
9,817
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
|
1,402
|
|
|
|
4,041
|
|
Professional fees
|
|
|
152
|
|
|
|
400
|
|
Directors fees and expenses
|
|
|
76
|
|
|
|
228
|
|
Administration fees
|
|
|
43
|
|
|
|
130
|
|
Insurance
|
|
|
35
|
|
|
|
104
|
|
Custodian fees
|
|
|
15
|
|
|
|
39
|
|
Other expenses
|
|
|
170
|
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
Total expenses before interest expense
|
|
|
1,893
|
|
|
|
5,406
|
|
Interest expense
|
|
|
474
|
|
|
|
1,380
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,367
|
|
|
|
6,786
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income Before Income Taxes
|
|
|
518
|
|
|
|
3,031
|
|
Current income tax expense
|
|
|
(140
|
)
|
|
|
(786
|
)
|
Deferred income tax expense
|
|
|
(43
|
)
|
|
|
(292
|
)
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
|
335
|
|
|
|
1,953
|
|
|
|
|
|
|
|
|
|
|
REALIZED AND UNREALIZED GAINS (LOSSES)
|
|
|
|
|
|
|
|
|
Net Realized Gains
|
|
|
|
|
|
|
|
|
Investments non-affiliated
|
|
|
3,496
|
|
|
|
4,731
|
|
Investments affiliated
|
|
|
(11
|
)
|
|
|
73,898
|
|
Current income tax expense
|
|
|
(1,083
|
)
|
|
|
(20,393
|
)
|
Deferred income tax expense
|
|
|
(109
|
)
|
|
|
(7,569
|
)
|
|
|
|
|
|
|
|
|
|
Net Realized Gains
|
|
|
2,293
|
|
|
|
50,667
|
|
|
|
|
|
|
|
|
|
|
Net Change in Unrealized Gains (Losses)
|
|
|
|
|
|
|
|
|
Investments non-affiliated
|
|
|
(9,029
|
)
|
|
|
30,883
|
|
Investments affiliated
|
|
|
(2,324
|
)
|
|
|
(73,248
|
)
|
Deferred income tax benefit
|
|
|
4,018
|
|
|
|
15,066
|
|
|
|
|
|
|
|
|
|
|
Net Change in Unrealized Losses
|
|
|
(7,335
|
)
|
|
|
(27,299
|
)
|
|
|
|
|
|
|
|
|
|
Net Realized and Unrealized Gains (Losses)
|
|
|
(5,042
|
)
|
|
|
23,368
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS
|
|
$
|
(4,707
|
)
|
|
$
|
25,321
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
9
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
August 31, 2011
|
|
|
For the Year Ended
|
|
|
|
(Unaudited)
|
|
|
November 30, 2010
|
|
|
OPERATIONS
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
$
|
1,953
|
|
|
$
|
(1,803
|
)
|
Net realized gains
|
|
|
50,667
|
|
|
|
7,569
|
|
Net change in unrealized gains (losses)
|
|
|
(27,299
|
)
|
|
|
47,448
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets Resulting from Operations
|
|
|
25,321
|
|
|
|
53,214
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS AND DISTRIBUTIONS
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
(10,183
|
)(1)
|
|
|
(5,154
|
)(2)
|
Distributions return of capital
|
|
|
|
(1)
|
|
|
(7,090
|
)(2)
|
|
|
|
|
|
|
|
|
|
Dividends and Distributions
|
|
|
(10,183
|
)
|
|
|
(12,244
|
)
|
|
|
|
|
|
|
|
|
|
CAPITAL STOCK TRANSACTIONS
|
|
|
|
|
|
|
|
|
Issuance of 59,409 and 102,682 shares of common stock from
reinvestment of dividends
|
|
|
1,097
|
|
|
|
1,532
|
|
|
|
|
|
|
|
|
|
|
Total Increase in Net Assets
|
|
|
16,235
|
|
|
|
42,502
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
211,041
|
|
|
|
168,539
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
227,276
|
|
|
$
|
211,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This is an estimate of the characterization of the distributions
paid to common stockholders for the nine months ended
August 31, 2011 as either a dividend (ordinary income) or
distribution (return of capital). This estimate is based solely
on the Companys operating results during the period and
does not reflect the expected result during the fiscal year. The
actual characterization of the common stock distributions made
during the current period will not be determinable until after
the end of the fiscal year when the Company can determine
earnings and profits and, therefore, it may differ from the
preliminary estimates. |
|
(2) |
|
The information presented in each of these items is a
characterization of a portion of the total dividends and
distributions paid to common stockholders for the fiscal year
ended November 30, 2010 as either dividends (ordinary
income) or distributions (return of capital). This
characterization is based on the Companys earnings and
profits. |
See accompanying notes to financial statements.
10
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
25,321
|
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
|
|
|
|
|
Purchase of long-term investments
|
|
|
(192,318
|
)
|
Proceeds from sale of long-term investments
|
|
|
201,155
|
|
Purchase of short-term investments, net
|
|
|
(1,257
|
)
|
Realized gains on investments
|
|
|
(78,629
|
)
|
Return of capital distributions
|
|
|
5,312
|
|
Unrealized losses on investments
|
|
|
42,365
|
|
Amortization of bond premiums, net
|
|
|
10
|
|
Increase in receivable for securities sold
|
|
|
(1,247
|
)
|
Decrease in interest, dividends and distributions receivable
|
|
|
87
|
|
Increase in other receivables
|
|
|
(5,040
|
)
|
Amortization of deferred debt issuance costs
|
|
|
276
|
|
Increase in prepaid expenses and other assets
|
|
|
(22
|
)
|
Increase in current income tax liability
|
|
|
7,107
|
|
Decrease in deferred income tax liability
|
|
|
(7,209
|
)
|
Increase in payable for securities purchased
|
|
|
52
|
|
Increase in investment management fee payable
|
|
|
252
|
|
Increase in accrued directors fees and expenses
|
|
|
6
|
|
Decrease in accrued expenses and other liabilities
|
|
|
(135
|
)
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
|
(3,914
|
)
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
Proceeds from revolving credit facility
|
|
|
13,000
|
|
Cash distributions to stockholders
|
|
|
(9,086
|
)
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
3,914
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
|
|
|
CASH BEGINNING OF PERIOD
|
|
|
|
|
|
|
|
|
|
CASH END OF PERIOD
|
|
$
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
Non-cash financing activities not included herein consist of
reinvestment of distributions pursuant to the Companys
dividend reinvestment plan of $1,097 for the nine months ended
August 31, 2011.
During the nine months ended August 31, 2011, there were
$13,400 of federal income taxes paid and $676 of state income
taxes paid. Interest paid was $1,122.
During the nine months ended August 31, 2011, the Company
received $3,486 of
paid-in-kind
dividends and distributions and $987 of
paid-in-kind
interest. See Note 2 Investment Income.
See accompanying notes to financial statements.
11
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
FINANCIAL HIGHLIGHTS
(amounts in 000s, except share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
Months Ended
|
|
|
For the Year Ended
|
|
|
September 21, 2006
|
|
|
|
August 31, 2011
|
|
|
November 30,
|
|
|
through
|
|
|
|
(Unaudited)
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
November 30, 2006
|
|
|
Per Share of Common
Stock(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
20.56
|
|
|
$
|
16.58
|
|
|
$
|
16.10
|
|
|
$
|
23.95
|
|
|
$
|
24.03
|
|
|
$
|
23.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
0.19
|
|
|
|
(0.18
|
)
|
|
|
0.10
|
|
|
|
0.09
|
|
|
|
0.08
|
|
|
|
(0.07
|
)
|
Net realized and unrealized gain (loss) on investments
|
|
|
2.27
|
|
|
|
5.39
|
|
|
|
1.68
|
|
|
|
(5.89
|
)
|
|
|
1.18
|
|
|
|
0.78
|
|
Net change in unrealized losses conversion to
taxable corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from investment operations
|
|
|
2.46
|
|
|
|
5.21
|
|
|
|
1.78
|
|
|
|
(6.18
|
)
|
|
|
1.26
|
|
|
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends(2)
|
|
|
(0.99
|
)
|
|
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.95
|
)
|
|
|
|
|
Distributions from net realized long-term capital
gains(2)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.15
|
)
|
|
|
|
|
Distributions return of
capital(2)
|
|
|
|
|
|
|
(0.69
|
)
|
|
|
(1.30
|
)
|
|
|
(1.67
|
)
|
|
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Dividends and Distributions
|
|
|
(0.99
|
)
|
|
|
(1.20
|
)
|
|
|
(1.30
|
)
|
|
|
(1.67
|
)
|
|
|
(1.34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of shares issued in reinvestment of dividends
|
|
|
(0.02
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
22.01
|
|
|
$
|
20.56
|
|
|
$
|
16.58
|
|
|
$
|
16.10
|
|
|
$
|
23.95
|
|
|
$
|
24.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value per share, end of period
|
|
$
|
20.52
|
|
|
$
|
18.21
|
|
|
$
|
13.53
|
|
|
$
|
9.63
|
|
|
$
|
23.14
|
|
|
$
|
22.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment return based on market
value(4)
|
|
|
18.8
|
%
|
|
|
45.8
|
%
|
|
|
56.0
|
%
|
|
|
(54.8
|
)%
|
|
|
9.3
|
%
|
|
|
(10.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Data and
Ratios(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period
|
|
$
|
227,276
|
|
|
$
|
211,041
|
|
|
$
|
168,539
|
|
|
$
|
162,687
|
|
|
$
|
240,758
|
|
|
$
|
240,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of expenses to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
|
2.3
|
%
|
|
|
2.1
|
%
|
|
|
2.0
|
%
|
|
|
0.4
|
%
|
|
|
3.1
|
%
|
|
|
2.4
|
%
|
Other expenses
|
|
|
0.8
|
|
|
|
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
|
|
|
8.1
|
|
|
|
16.3
|
|
|
|
6.9
|
|
|
|
|
(7)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses(6)
|
|
|
12.0
|
%
|
|
|
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
|
|
|
11.0
|
%(8)
|
|
|
28.3
|
%
|
|
|
11.3
|
%
|
|
|
(29.5
|
)%
|
|
|
5.1
|
%
|
|
|
3.0
|
%(8)
|
Portfolio turnover rate
|
|
|
64.6
|
%(8)
|
|
|
33.4
|
%
|
|
|
20.9
|
%
|
|
|
27.0
|
%
|
|
|
28.8
|
%
|
|
|
5.6
|
%(8)
|
Average net assets
|
|
$
|
229,271
|
|
|
$
|
188,307
|
|
|
$
|
160,847
|
|
|
$
|
211,531
|
|
|
$
|
246,468
|
|
|
$
|
234,537
|
|
Average shares of common stock outstanding
|
|
|
10,291,837
|
|
|
|
10,212,289
|
|
|
|
10,116,071
|
|
|
|
10,073,398
|
|
|
|
10,014,496
|
|
|
|
10,000,060
|
|
Average amount of borrowings outstanding under the Credit
Facilities
|
|
$
|
60,055
|
|
|
$
|
54,956
|
|
|
$
|
53,422
|
|
|
$
|
75,563
|
|
|
$
|
32,584
|
|
|
|
|
|
Asset coverage of total
debt(9)
|
|
|
424.7
|
%
|
|
|
470.2
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Average amount of borrowings outstanding per share of common
stock during the period
|
|
$
|
5.84
|
|
|
$
|
5.38
|
|
|
$
|
5.28
|
|
|
$
|
7.50
|
|
|
$
|
3.25
|
|
|
|
|
|
See accompanying notes to financial statements.
12
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 for the nine months ended
August 31, 2011 is an estimate of the characterization of
the distributions paid based on the Companys operating
results during the period. The information presented in each of
the other periods is a characterization of a portion of the
total distributions paid to common stockholders as either
dividends (ordinary income) or distributions (long term capital
gains or return of capital) and is based on the Companys
earnings and profits. |
|
(3) |
|
For the fiscal year ended November 30, 2007 and prior
periods, the Company was treated as a regulated investment
company (RIC) under the U.S. Internal Revenue Code
of 1986, as amended. Since December 1, 2007, the Company
has been taxed as a corporation, and, as a result, the
categorization of distributions from net realized long-term
capital gains is no longer applicable. |
|
(4) |
|
Total investment return is calculated assuming a purchase of
common stock at the market price on the first day and a sale at
the current market price on the last day of the period reported.
The calculation also assumes reinvestment of distributions, if
any, at actual prices pursuant to the Companys dividend
reinvestment plan. |
|
(5) |
|
Unless otherwise noted, ratios are annualized. |
|
(6) |
|
For the year ended November 30, 2008, total expenses
exclude 0.4% relating to bad debt expense for the ratio of
expenses to average net assets. |
|
(7) |
|
For the year ended November 30, 2008, the Company accrued
deferred income tax benefits of $33,264 (15.5% of average net
assets) primarily related to unrealized losses on investments.
Realization of a deferred tax benefit is dependent on whether
there will be sufficient taxable income of the appropriate
character within the carryforward periods to realize a portion
or all of the deferred tax benefit. Because it could not have
been predicted whether the Company would incur a benefit in the
future, a deferred income tax expense of 0% was assumed. |
|
(8) |
|
Not annualized. |
|
(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.
13
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.
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|
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 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
14
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
are valued at the NASDAQ official closing price. Portfolio
securities traded on more than one securities exchange are
valued at the last sale price on the business day as of which
such value is being determined at the close of the exchange
representing the principal market for such securities.
Equity securities traded in the
over-the-counter
market, but excluding securities admitted to trading on the
NASDAQ, are valued at the closing bid prices. Debt securities
that are considered bonds are valued by using the mean of the
bid and ask prices provided by an independent pricing service.
For debt securities that are considered bank loans, the fair
market value is determined by using the mean of the bid and ask
prices provided by the 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:
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|
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|
|
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.
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|
|
|
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.
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|
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.
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|
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|
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 nine
months ended August 31, 2011, the independent valuation
firm performed limited procedures on investments in five
portfolio companies, comprising approximately 29.0% of the total
investments as of August 31, 2011. The independent
valuation firm also performed certain limited procedures on the
Companys $5,040 receivable (as of August 31, 2011)
associated with the sale of its investment in International
Resource Partners LP (IRP). Upon completion of the
limited procedures, the independent valuation firm concluded
that the fair value of those investments subjected to the
limited procedures did not appear to be unreasonable.
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|
Board of Directors Determination. The
Board of Directors 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
15
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
securities to any peer companies that are publicly traded. The
value derived from this analysis is then discounted to reflect
the illiquid nature of the investment. Due to the inherent
uncertainty of determining the fair value of investments that do
not have a readily available market value, the fair value of the
Companys investments in privately-issued securities may
differ significantly from the values that would have been used
had a ready market existed for such investments, and the
differences could be material.
Factors that the Company may take into account in fair value
pricing its investments include, as relevant, the portfolio
companys ability to make payments and its earnings and
discounted cash flow, the markets in which the portfolio company
does business, comparison to publicly traded securities, the
nature and realizable value of any collateral and other relevant
factors.
Unless otherwise determined by the Board of Directors,
securities that are convertible into or otherwise will become
publicly traded (e.g., through subsequent registration or
expiration of a restriction on trading) 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,
KAFA will determine an applicable discount in accordance with a
methodology approved by the Valuation Committee.
On April 18, 2011, the Company completed its sale of IRP. A
portion of the total consideration was placed in escrow with the
balance being paid in cash. Proceeds will be released from the
escrow upon satisfaction of certain post-closing obligations or
the expiration of certain time periods. The other receivable
represents the Companys estimated fair value of its
portion of the escrow ($5,040). On July 13, 2011, the
Company received proceeds totaling $2,035 for certain
post-closing adjustments relating to the sale of IRP.
At August 31, 2011, the Company held 40.7% of its net
assets applicable to common stockholders (29.8% of total assets)
in securities and other receivables that were fair valued
pursuant to the procedures adopted by the Board of Directors.
The aggregate fair value of these securities ($87,464) and other
receivables ($5,040) at August 31, 2011 was $92,504.
See Note 9 Restricted Securities.
E. Repurchase Agreements The Company has
agreed to purchase securities from financial institutions
subject to the sellers agreement to repurchase them at an
agreed-upon
time and price (repurchase agreements). The
financial institutions with whom the Company enters into
repurchase agreements are banks and broker/dealers which KAFA
considers creditworthy. The seller under a repurchase agreement
is required to maintain the value of the securities as
collateral, subject to the agreement, at not less than the
repurchase price plus accrued interest. KAFA monitors daily the
mark-to-market
of the value of the collateral, and, if necessary, requires the
seller to maintain additional securities, so that the value of
the collateral is not less than the repurchase price. Default by
or bankruptcy of the seller would, however, expose the Company
to possible loss because of adverse market action or delays in
connection with the disposition of the underlying securities.
F. Security Transactions Security
transactions are accounted for on the date the securities are
purchased or sold (trade date). Realized gains and losses are
reported on an identified cost basis.
G. Derivative Financial Instruments The
Company may utilize derivative financial instruments in its
operations.
Interest rate swap contracts. The
Company may use interest rate swap contracts to hedge against
increasing interest expense on its leverage resulting from
increases in short term interest rates. The Company does not
hedge any interest rate risk associated with portfolio holdings.
Interest rate transactions the Company may use for hedging
purposes may expose it to certain risks that differ from the
risks associated with its portfolio holdings. A decline in
interest rates may result in a decline in the value of the swap
contracts, which, everything else being held constant,
16
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
would result in a decline in the net assets of the Company. In
addition, if the counterparty to an interest rate swap or cap
defaults, the Company would not be able to use the anticipated
net receipts under the interest rate swap or cap to offset its
cost of financial leverage.
Interest rate swap contracts are recorded at fair value with
changes in value during the reporting period, and amounts
accrued under the agreements, included as unrealized gains or
losses in the Statement of Operations. Monthly cash settlements
under the terms of interest rate swap agreements are recorded as
realized gains or losses in the Statement of Operations. The
Company generally values interest rate swap contracts based on
dealer quotations, if available, or by discounting the future
cash flows from the stated terms of the interest rate swap
agreement by using interest rates currently available in the
market.
Option contracts. The Company is
exposed to financial market risks including changes in the
valuations of its investment portfolio. The Company may purchase
or write (sell) call options. A call option on a security is a
contract that gives the holder of the option, in return for a
premium, the right to buy from the writer of the option the
security underlying the option at a specified exercise price at
any time during the term of the option.
The Company would normally purchase call options in anticipation
of an increase in the market value of securities of the type in
which it may invest. The Company would ordinarily realize a gain
on a purchased call option if, during the option period, the
value of such securities exceeded the sum of the exercise price,
the premium paid and transaction costs; otherwise the Company
would realize either no gain or a loss on the purchased call
option. The Company may also purchase put option contracts. If a
purchased put option is exercised, the premium paid increases
the cost basis of the securities sold by the Company.
The Company may also write (sell) call options with the purpose
of generating income or reducing its ownership of certain
securities. The writer of an option on a security has the
obligation upon exercise of the option to deliver the underlying
security upon payment of the exercise price.
When the Company writes a call option, an amount equal to the
premium received by the Company is recorded as a liability and
is subsequently adjusted to the current fair value of the option
written. Premiums received from writing options that expire
unexercised are treated by the Company on the expiration date as
realized gains from investments. If the Company repurchases a
written call option prior to its exercise, the difference
between the premium received and the amount paid to repurchase
the option is treated as a realized gain or loss. If a call
option is exercised, the premium is added to the proceeds from
the sale of the underlying security in determining whether the
Company has realized a gain or loss. The Company, as the writer
of an option, bears the market risk of an unfavorable change in
the price of the security underlying the written option.
H. Return of Capital Estimates 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
17
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
equivalent reduction in the cost basis of the associated
investments, and increases Net Realized Gains (Losses) and Net
Change in Unrealized Gains (Losses).
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|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 31, 2011
|
|
|
August 31, 2011
|
|
|
Distributions from private MLPs
|
|
$
|
1,619
|
|
|
$
|
4,482
|
|
Distributions from public MLPs and dividends from other public
equity investments
|
|
|
2,865
|
|
|
|
6,639
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions from investments
|
|
$
|
4,484
|
|
|
$
|
11,121
|
|
|
|
|
|
|
|
|
|
|
Distributions from private MLPs % return of capital
|
|
|
8
|
%
|
|
|
(19
|
)%
|
Distributions from public MLPs and dividends from other public
equity investments % return of capital
|
|
|
97
|
%
|
|
|
93
|
%
|
Total dividends and distributions % return of capital
|
|
|
65
|
%
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
Return of capital attributable to net realized gains
|
|
$
|
290
|
|
|
$
|
781
|
|
Return of capital attributable to net change in
unrealized gains
|
|
|
2,609
|
|
|
|
4,531
|
|
|
|
|
|
|
|
|
|
|
Total return of capital
|
|
$
|
2,899
|
|
|
$
|
5,312
|
|
|
|
|
|
|
|
|
|
|
During the fiscal second and third quarters of 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, the Company received
information from IRP (a private MLP) that reduced the return of
capital estimate by $1,425. In the third quarter, 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 nine months ended August 31, 2011, the Company
estimated the return of capital portion of distributions
received to be $6,466 (58%). 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 nine months ended August 31, 2011 was
48%.
For the three months ended August 31, 2011, the Company
estimated the return of capital portion of distributions
received to be $2,628 (58%). This amount was increased by $271
attributable to the 2010 tax reporting information received in
the third quarter. As a result, the return of capital percentage
for the three months ended August 31, 2011 was 65%.
I. Investment Income The Company records
dividends and distributions on the ex-dividend date. Interest
income is recognized on the accrual basis, including
amortization of premiums and accretion of discounts to the
extent that such amounts are expected to be collected. When
investing in securities with payment in-kind interest, the
Company will accrue interest income during the life of the
security even though it will not be receiving cash as the
interest is accrued. To the extent that interest income to be
received is not expected to be realized, a reserve against
income is established. During the three and nine months ended
August 31, 2011, the Company did not have a reserve against
interest income, since all interest income accrued is expected
to be received.
Many of the Companys debt securities were purchased at a
discount or premium to the par value of the security. The
non-cash accretion of a discount to par value increases interest
income while the non-cash amortization of a premium to par value
decreases interest income. The amount of these non-cash
adjustments can be found in the Companys Statement of Cash
Flows. The non-cash accretion of a discount increases the cost
basis of the debt security, which results in an offsetting
unrealized loss. The non-cash amortization of a premium
decreases the cost basis of the debt security which results in
an offsetting unrealized gain. To the extent that par value is
not
18
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
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 notes mature in February 2012. During the three and
nine months ended August 31, 2011, the Company recognized
$429 and $987 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
three and nine months ended August 31, 2011, the Company
received the following paid-in-kind dividends.
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|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 31, 2011
|
|
|
August 31, 2011
|
|
|
Direct Fuels Partners, L.P.
|
|
$
|
|
|
|
$
|
1,395
|
|
VantaCore Partners LP
|
|
|
644
|
|
|
|
1,751
|
|
Enbridge Energy Management, L.L.C.
|
|
|
|
|
|
|
67
|
|
Kinder Morgan Management, LLC
|
|
|
98
|
|
|
|
181
|
|
Buckeye Partners, L.P. (Class B Units)
|
|
|
92
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
Total stock dividends
|
|
$
|
834
|
|
|
$
|
3,486
|
|
|
|
|
|
|
|
|
|
|
J. Distributions to Stockholders
Distributions to common stockholders are
recorded on the ex-dividend date. The estimated characterization
of the distributions paid to common stockholders will be either
a dividend (ordinary income) or distribution (return of
capital). This estimate is based on the Companys operating
results during the period. The actual characterization of the
common stock distributions made for the current year will not be
determinable until after the end of the fiscal year when the
Company can determine earnings and profits and, therefore, it
may differ from the preliminary estimates.
K. Income Taxes The Company is taxed as
a corporation and pays federal and applicable state corporate
taxes on its taxable income. The Company invests its assets
primarily in MLPs, which generally are treated as partnerships
for federal income tax purposes. As a limited partner in the
MLPs, the Company includes its allocable share of the MLPs
taxable income in computing its own taxable income. Current
income taxes reflect the amount of income taxes that the Company
expects to be payable as of a measurement date applying the
provisions of the enacted tax laws. Deferred income taxes
reflect (i) taxes on unrealized gains/(losses), which are
attributable to the temporary difference between fair market
value and tax basis, (ii) the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes and (iii) the net tax benefit
of accumulated net operating and capital losses. To the extent
the Company has a deferred tax asset, consideration is given as
to whether or not a valuation allowance is required. The need to
establish a valuation allowance for deferred tax assets is
assessed periodically by the Company based on the Income Tax
Topic of the Financial Accounting Standards Board
(FASB) Accounting Standards Codification that it is
more likely than not that some portion or all of the deferred
tax asset will not be realized. In the assessment for a
valuation allowance, consideration is given to all positive and
negative evidence related to the realization of the deferred tax
asset. This assessment considers, among other matters, the
nature, frequency and severity of current and cumulative losses,
forecasts of future profitability (which are highly dependent on
future cash distributions from the Companys MLP holdings),
the duration of statutory carryforward periods and the
associated risk that operating and capital loss carryforwards
may expire unused.
19
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
The Company may rely to some extent on information provided by
MLPs, which may not necessarily be timely, to estimate taxable
income allocable to the MLP units held in the portfolio and to
estimate the associated current or deferred tax liability. Such
estimates are made in good faith. From time to time, as new
information becomes available, the Company modifies its
estimates or assumptions regarding the current or deferred tax
liability.
The Companys policy is to classify interest and penalties
associated with underpayment of federal and state income taxes,
if any, as income tax expense on its Statement of Operations. As
of August 31, 2011, the Company does not have any interest
or penalties associated with the underpayment of any income
taxes. All tax years since inception remain open and subject to
examination by tax jurisdictions.
L. Indemnifications Under the
Companys organizational documents, its officers and
directors are indemnified against certain liabilities arising
out of the performance of their duties to the Company. In
addition, in the normal course of business, the Company enters
into contracts that provide general indemnification to other
parties. The Companys maximum exposure under these
arrangements is unknown, as this would involve future claims
that may be made against the Company that have not yet occurred,
and may not occur. However, the Company has not had prior claims
or losses pursuant to these contracts and expects the risk of
loss to be remote.
M. Foreign Currency Translations The
books and records of the Company are maintained in
U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis: (i) market value
of investment securities, assets and liabilities at the rate of
exchange as of the valuation date; and (ii) purchases and
sales of investment securities, income and expenses at the
relevant rates of exchange prevailing on the respective dates of
such transactions.
The Company does not isolate that portion of gains and losses on
investments in equity and debt securities which is due to
changes in the foreign exchange rates from that which is due to
changes in market prices of equity securities. Accordingly,
realized and unrealized foreign currency gains and losses with
respect to such securities are included in the reported net
realized and unrealized gains and losses on investment
transactions balances.
Net realized foreign exchange gains or losses represent gains
and losses from transactions in foreign currencies and foreign
currency contracts, foreign exchange gains or losses realized
between the trade date and settlement date on security
transactions, and the difference between the amounts of interest
and dividends recorded on the Companys books and the
U.S. dollar equivalent of such amounts on the payment date.
Net unrealized foreign exchange gains or losses represent the
difference between the cost of assets and liabilities (other
than investments) recorded on the Companys books from the
value of the assets and liabilities (other than investments) on
the valuation date.
As required by the Fair Value Measurement and Disclosures of the
FASB Accounting Standards Codification, the Company has
performed an analysis of all assets and liabilities measured at
fair value to determine the significance and character of all
inputs to their fair value determination.
The fair value hierarchy prioritizes the inputs to valuation
techniques used to measure fair value into the following three
broad categories:
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|
|
|
|
Level 1 Quoted unadjusted prices for
identical instruments in active markets traded on a national
exchange to which the Company has access at the date of
measurement.
|
|
|
|
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
|
20
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
|
|
|
|
|
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.
|
Note that the valuation levels below are not necessarily an
indication of the risk or liquidity associated with the
underlying investment. For instance, the Companys
repurchase agreements, which are collateralized by
U.S. Treasury notes, are generally high quality and liquid;
however, the Company reflects these repurchase agreements as
Level 2 because the inputs used to determine fair value may
not always be quoted prices in an active market.
The following table presents the Companys assets measured
at fair value on a recurring basis at August 31, 2011, and
the Company presents these assets by security type and
description on its Schedule of Investments.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
246,203
|
|
|
$
|
170,226
|
|
|
$
|
|
|
|
$
|
75,977
|
|
Debt investments
|
|
|
52,212
|
|
|
|
|
|
|
|
40,725
|
|
|
|
11,487
|
|
Short-term investments
|
|
|
3,332
|
|
|
|
|
|
|
|
3,332
|
|
|
|
|
|
Other
receivables(1)
|
|
|
5,040
|
|
|
|
|
|
|
|
|
|
|
|
5,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
306,787
|
|
|
$
|
170,226
|
|
|
$
|
44,057
|
|
|
$
|
92,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On April 18, 2011, the Company completed its sale of IRP. A
portion of the total consideration was placed in escrow with the
balance being paid in cash. Proceeds will be released from the
escrow upon satisfaction of certain post-closing obligations or
the expiration of certain time periods. The other receivable
represents the Companys estimated fair value of its
portion of the escrow ($5,040). 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 August 31, 2011. For the
three and nine months ended August 31, 2011, there were no
transfers between Level 1 and Level 2.
In May 2011, the FASB issued Accounting Standards Update
(ASU)
No. 2011-04
Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRSs. ASU
No. 2011-04
establishes common requirements for measuring fair value and for
disclosing information about fair value measurements in
accordance with U.S. GAAP and International Financial
Reporting Standards (IFRSs). ASU
No. 2011-04
is effective for interim and annual periods beginning after
December 15, 2011 and is applied prospectively. Management
is currently evaluating ASU
No. 2011-04
and does not believe that it will have a material impact on the
Companys financial statements and disclosures.
21
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
The following tables present the Companys assets measured
at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the three and nine
months ended August 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 31, 2011
|
|
|
|
Total
|
|
|
Debt
|
|
|
Equity
|
|
|
Balance May 31, 2011
|
|
$
|
94,553
|
|
|
$
|
11,058
|
|
|
$
|
83,495
|
|
Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized losses
|
|
|
(11
|
)
|
|
|
|
|
|
|
(11
|
)
|
Unrealized gains (losses), net
|
|
|
(2,465
|
)
|
|
|
429
|
|
|
|
(2,894
|
)
|
Purchases
|
|
|
6,868
|
|
|
|
|
|
|
|
6,868
|
|
Issuances
|
|
|
644
|
|
|
|
|
|
|
|
644
|
|
Transfer out
|
|
|
(5,050
|
)
|
|
|
|
|
|
|
(5,050
|
)
|
Settlements(1)
|
|
|
(2,035
|
)
|
|
|
|
|
|
|
(2,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 31, 2011
|
|
$
|
92,504
|
|
|
$
|
11,487
|
|
|
$
|
81,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended August 31, 2011
|
|
|
|
Total
|
|
|
Debt
|
|
|
Equity
|
|
|
Balance November 30, 2010
|
|
$
|
143,811
|
|
|
$
|
4,500
|
|
|
$
|
139,311
|
|
Sale(2)
|
|
|
(102,045
|
)
|
|
|
|
|
|
|
(102,045
|
)
|
Realized gains (losses)
|
|
|
73,898
|
|
|
|
|
|
|
|
73,898
|
|
Unrealized gains (losses),
net(3)
|
|
|
(43,214
|
)
|
|
|
6,987
|
|
|
|
(50,201
|
)
|
Purchases
|
|
|
16,918
|
|
|
|
|
|
|
|
16,918
|
|
Issuances
|
|
|
3,146
|
|
|
|
|
|
|
|
3,146
|
|
Transfer out
|
|
|
(5,050
|
)
|
|
|
|
|
|
|
(5,050
|
)
|
Settlements(4)
|
|
|
5,040
|
|
|
|
|
|
|
|
5,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 31, 2011
|
|
$
|
92,504
|
|
|
$
|
11,487
|
|
|
$
|
81,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On July 13, 2011, the Company received proceeds totaling
$2,035 for certain post-closing adjustments relating to the sale
of IRP. |
|
(2) |
|
Relates to the sale of the Companys investment in IRP. |
|
(3) |
|
Of the $43,214 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 $16,400 relate
to investments that are still held at August 31, 2011, and
the Company includes these unrealized gains in the Statement of
Operations Net Change in Unrealized Gains (Losses). |
|
(4) |
|
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 $6,868 and $16,918 for the three and nine
months ended August 31, 2011 relate to the Companys
purchase of Class B Preferred Units of VantaCore, a private
investment in public equity (PIPE investment) in
Regency Energy Partners L.P., the investment in Plains All
American GP LLC and the Class B Units of Buckeye Partners, L.P.
The issuances of $644 and $3,146 for the three and nine months
ended August 31, 2011 relate to the issuance of Class D
Preferred Units of Direct Fuels and the issuance of Class A
Preferred Units of VantaCore. The Companys investment in
the common units of Regency Energy Partners L.P., which is noted
as a
22
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
transfer out of Level 3 in the tables above, became readily
marketable during the three and nine months ended
August 31, 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. At
May 31, 2011, primarily as a result of the sale of its
investment in IRP, the Company incurred a current income tax
liability. In August 2011, the Company paid federal income taxes
of $13,400 and state income taxes of $676, which was a
significant portion of its total liability. The current tax
liability at August 31, 2011 relates primarily to the
remaining tax liability associated with the IRP sale and is
expected to be paid in November 2011. Components of the
Companys current and deferred tax assets and liabilities
are as follows:
|
|
|
|
|
|
|
As of
|
|
|
|
August 31, 2011
|
|
|
Current tax liability
|
|
$
|
(7,107
|
)
|
|
|
|
|
|
Deferred tax asset:
|
|
|
|
|
Organizational costs
|
|
$
|
15
|
|
Deferred tax liabilities:
|
|
|
|
|
Net unrealized gains on investment securities
|
|
|
(1,505
|
)
|
Basis reductions resulting from estimated return of capital
|
|
|
(1,898
|
)
|
|
|
|
|
|
Total net deferred tax liability
|
|
$
|
(3,388
|
)
|
|
|
|
|
|
During the second quarter, as a result of the Companys
sale of IRP, the Company utilized all of its estimated federal
and state net operating loss carryforwards of $20,829 and
$18,816, respectively.
During the second quarter, the Company also utilized all of its
capital loss carryforward of $3,709.
As of August 31, 2011, the identified cost of investments
for federal income tax purposes was $300,555. The cost basis of
investments includes a $13,589 reduction in basis attributable
to the Companys portion of the allocated losses from its
MLP investments at August 31, 2011. Gross unrealized
appreciation and depreciation of investments for federal income
tax purposes were as follows:
|
|
|
|
|
|
|
As of
|
|
|
|
August 31, 2011
|
|
|
Gross unrealized appreciation of investments
|
|
$
|
39,499
|
|
Gross unrealized depreciation of investments
|
|
|
(38,307
|
)
|
|
|
|
|
|
Net unrealized appreciation of investments
|
|
$
|
1,192
|
|
|
|
|
|
|
23
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
For the three and nine months ended August 31, 2011, the
Companys effective tax rate was 35.6%. Components of the
Companys income tax benefit (expense) were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 31, 2011
|
|
|
August 31, 2011
|
|
|
Current income tax expense net investment income
|
|
$
|
(140
|
)
|
|
$
|
(786
|
)
|
Deferred income tax expense net investment income
|
|
|
(43
|
)
|
|
|
(292
|
)
|
Current income tax expense realized gains
|
|
|
(1,083
|
)
|
|
|
(20,393
|
)
|
Deferred income tax expense realized gains
|
|
|
(109
|
)
|
|
|
(7,569
|
)
|
Deferred income tax benefit unrealized losses
|
|
|
4,018
|
|
|
|
15,066
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$
|
2,643
|
|
|
$
|
(13,974
|
)
|
|
|
|
|
|
|
|
|
|
Total income taxes were different from the amount computed by
applying the federal statutory income tax rate of 35% to the net
investment loss and realized and unrealized gains (losses) on
investments before taxes for the three and nine months ended
August 31, 2011, as follows:
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
August 31, 2011
|
|
|
August 31, 2011
|
|
|
Computed federal income tax at 35%
|
|
$
|
2,573
|
|
|
$
|
(13,753
|
)
|
State income tax, net of federal tax
|
|
|
70
|
|
|
|
(435
|
)
|
Other, net
|
|
|
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefit (expense)
|
|
$
|
2,643
|
|
|
$
|
(13,974
|
)
|
|
|
|
|
|
|
|
|
|
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 August 31, 2011, the Company did not have any interest
or penalties associated with the underpayment of any income
taxes. All tax years since inception remain open and subject to
examination by tax jurisdictions.
The Companys investment objective is to generate both
current income and capital appreciation primarily through equity
and debt investments. Under normal circumstances, the Company
intends to invest at least 80% of total assets in securities of
Energy Companies. A key focus area for the Companys
investments in the energy industry is equity and debt
investments in Midstream Energy Companies structured as limited
partnerships. The Company also invests in equity and debt
securities of Other Energy Companies and debt securities in
Upstream Energy Companies. A substantial portion of the cash
flow received by the Company is derived from investments in
equity securities of MLPs. The amount of cash that an MLP has
available for distributions and the tax character of such
distributions are dependent upon the amount of cash generated by
the MLPs operations. The Company may, for defensive
purposes, temporarily invest all or a significant portion of its
assets in investment grade securities, short-term debt
securities and cash or cash equivalents. To the extent the
Company uses this strategy, it may not achieve its investment
objectives.
|
|
6.
|
Agreements
and Affiliations
|
A. Administration Agreement The Company
has entered into an Administration Agreement (the
Administration Agreement) with Ultimus
Fund Solutions, LLC (Ultimus). Pursuant to the
Administration Agreement, Ultimus will provide certain
administrative services for the Company. The Administration
Agreement has
24
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
automatic one-year renewals unless earlier terminated by either
party as provided under the terms of the Administration
Agreement.
B. Investment Management Agreement The
Company has entered into an investment management agreement with
KAFA under which the Company has material future rights and
commitments. Pursuant to the investment management agreement,
KAFA has agreed to serve as investment adviser. Payments under
the investment management agreement include a management fee and
reimbursement of certain expenses.
Investment Management Fee. The Company pays an
amount equal on an annual basis to 1.75% of average total assets
to KAFA as compensation for services rendered. This amount is
payable each quarter after the end of the quarter. For purposes
of calculating the management fee, the average total
assets for each quarterly period are determined by
averaging the total assets at the last day of that quarter with
the total assets at the last day of the prior quarter. Total
assets (excluding deferred taxes) shall equal gross asset value
(which includes assets attributable to or proceeds from the use
of leverage instruments), minus the sum of accrued and unpaid
distributions on common and preferred stock and accrued
liabilities (other than liabilities associated with leverage and
deferred taxes). Liabilities associated with leverage include
the principal amount of any borrowings, commercial paper or
notes that the Company may issue, the liquidation preference of
outstanding preferred stock, and other liabilities from other
forms of leverage such as short positions and put or call
options held or written by the Company.
The Companys management fees for the three and nine months
ended August 31, 2011 were $1,402 and $4,041, respectively.
C. Portfolio Companies From time to
time, the Company may control or may be an
affiliate of one or more portfolio companies, each
as defined in the 1940 Act. In general, under the 1940 Act, the
Company would control a portfolio company if the
Company owned 25% or more of its outstanding voting securities
and would be an affiliate of a portfolio company if
the Company owned 5% or more of its outstanding voting
securities. The 1940 Act contains prohibitions and restrictions
relating to transactions between investment companies and their
affiliates (including the Companys investment adviser),
principal underwriters and affiliates of those affiliates or
underwriters.
The Company believes that there is significant ambiguity in the
application of existing SEC staff interpretations of the term
voting security to complex structures such as
limited partnership interests of the kind in which the Company
invests. As a result, it is possible that the SEC staff may
consider that certain securities investments in limited
partnerships are voting securities under the staffs
prevailing interpretations of this term. If such determination
is made, the Company may be regarded as a person affiliated with
and controlling the issuer(s) of those securities for purposes
of Section 17 of the 1940 Act.
In light of the ambiguity of the definition of voting
securities, the Company does not intend to treat any class of
limited partnership interests that it holds as voting
securities unless the security holders of such class
currently have the ability, under the partnership agreement, to
remove the general partner (assuming a sufficient vote of such
securities, other than securities held by the general partner,
in favor of such removal) or the Company has an economic
interest of sufficient size that otherwise gives it the de facto
power to exercise a controlling influence over the partnership.
The Company believes this treatment is appropriate given that
the general partner controls the partnership, and without the
ability to remove the general partner or the power to otherwise
exercise a controlling influence over the partnership due to the
size of an economic interest, the security holders have no
control over the partnership.
Affiliated
Investments.
Direct Fuels Partners, L.P. At
August 31, 2011, the Company held a 39.9% limited
partnership interest in Direct Fuels Partners, L.P.
(Direct Fuels). The Company believes that the
limited partnership interests of Direct Fuels should not be
considered voting securities for purposes of the 1940 Act
because of the limited scope and
25
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
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 August 31,
2011, the Company held 19.1% of ProPetro Services, Inc.
(ProPetro) outstanding common stock. The
Companys President and Chief Executive Officer and one of
its Executive Vice Presidents serve as directors on
ProPetros board of directors. The Company believes that it
is an affiliate of ProPetro by virtue of its common stock
ownership and its participation on its board of directors.
VantaCore Partners LP At August 31,
2011, the Company held a 30.9% 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 required by the Derivative and Hedging Topic of the FASB
Accounting Standards Codification, the following are the
derivative instruments and hedging activities of the Company.
See Note 2 Significant Accounting Policies.
As of August 31, 2011, the Company held no derivative
instruments, and during the three and nine months ended
August 31, 2011, the Company did not have any activity
involving derivative instruments.
|
|
8.
|
Investment
Transactions
|
For the nine months ended August 31, 2011, the Company
purchased and sold securities in the amount of $192,318 and
$201,155 (excluding short-term investments), respectively.
From time to time, certain of the Companys investments may
be restricted as to resale. For instance, private investments
that are not registered under the Securities Act, as amended,
cannot be offered for public sale in a non-exempt transaction
without first being registered. In other cases, certain of the
Companys investments have restrictions such as
lock-up
agreements that preclude the Company from offering these
securities for public sale.
26
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
At August 31, 2011, the Company held the following
restricted investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units or
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
Percent
|
|
|
|
|
|
Acquisition
|
|
Type of
|
|
Principal ($)
|
|
|
Cost
|
|
|
Fair
|
|
|
Fair Value
|
|
|
of Net
|
|
|
of Total
|
|
Investment
|
|
Security
|
|
Date
|
|
Restriction
|
|
(in 000s)
|
|
|
Basis
|
|
|
Value
|
|
|
Per Unit
|
|
|
Assets
|
|
|
Assets
|
|
|
Level 3
Investments(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buckeye Partners, L.P.
|
|
Class B Units
|
|
6/10/11
|
|
(2)
|
|
|
93
|
|
|
$
|
5,002
|
|
|
$
|
5,174
|
|
|
$
|
55.85
|
|
|
|
2.3
|
%
|
|
|
1.7
|
%
|
Direct Fuels Partners,
L.P.(3)
|
|
Class A Common Units
|
|
6/11/07
|
|
(4)
|
|
|
2,500
|
|
|
|
41,359
|
|
|
|
32,500
|
|
|
|
13.00
|
|
|
|
14.3
|
|
|
|
10.5
|
|
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
|
|
|
|
426
|
|
|
|
21.00
|
|
|
|
0.2
|
|
|
|
0.1
|
|
Direct Fuels Partners, L.P.
|
|
Class D Preferred Units
|
|
(6)
|
|
(4)
|
|
|
324
|
|
|
|
6
|
|
|
|
6,723
|
|
|
|
20.75
|
|
|
|
3.0
|
|
|
|
2.2
|
|
Plains All American GP LLC
|
|
Common Units
|
|
(7)
|
|
(4)
|
|
|
3
|
|
|
|
4,885
|
|
|
|
5,151
|
|
|
|
1,478
|
|
|
|
2.3
|
|
|
|
1.7
|
|
ProPetro Services, Inc.
|
|
Common Shares
|
|
2/15/07
|
|
(4)
|
|
|
150,097
|
|
|
|
13
|
|
|
|
5,519
|
|
|
|
0.04
|
|
|
|
2.4
|
|
|
|
1.8
|
|
ProPetro Services, Inc.
|
|
Secured Term Loan
|
|
2/15/07
|
|
(4)
|
|
$
|
11,487
|
|
|
|
36,776
|
|
|
|
11,487
|
|
|
|
n/a
|
|
|
|
5.1
|
|
|
|
3.7
|
|
VantaCore Partners
LP(8)
|
|
Class A Common Units
|
|
(7)
|
|
(4)
|
|
|
1,465
|
|
|
|
21,425
|
|
|
|
13,914
|
|
|
|
9.50
|
|
|
|
6.1
|
|
|
|
4.4
|
|
VantaCore Partners LP
|
|
Class A Preferred Units
|
|
(9)
|
|
(4)
|
|
|
113
|
|
|
|
|
|
|
|
1,750
|
|
|
|
15.50
|
|
|
|
0.8
|
|
|
|
0.6
|
|
VantaCore Partners
LP(10)
|
|
Class B Preferred Units
|
|
8/3/11
|
|
(4)
|
|
|
133
|
|
|
|
1,868
|
|
|
|
2,335
|
|
|
|
17.50
|
|
|
|
1.0
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
114,232
|
|
|
$
|
87,464
|
|
|
|
|
|
|
|
38.5
|
%
|
|
|
28.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2
Investments(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calumet Specialty Products Partners, L.P.
|
|
Senior Notes
|
|
4/15/11
|
|
(2)
|
|
$
|
2,000
|
|
|
$
|
2,000
|
|
|
$
|
1,940
|
|
|
|
n/a
|
|
|
|
0.9
|
%
|
|
|
0.6
|
%
|
Crestwood Holdings Partners, LLC
|
|
Secured Term Loan
|
|
(7)
|
|
(4)
|
|
$
|
6,819
|
|
|
|
6,726
|
|
|
|
6,887
|
|
|
|
n/a
|
|
|
|
3.0
|
|
|
|
2.2
|
|
Crestwood Midstream Partners LP
|
|
Senior Notes
|
|
(7)
|
|
(2)
|
|
$
|
8,335
|
|
|
|
8,353
|
|
|
|
8,002
|
|
|
|
n/a
|
|
|
|
3.5
|
|
|
|
2.6
|
|
CrownRock LP
|
|
Senior Notes
|
|
8/12/11
|
|
(4)
|
|
$
|
3,250
|
|
|
|
3,012
|
|
|
|
3,024
|
|
|
|
n/a
|
|
|
|
1.3
|
|
|
|
1.0
|
|
Eagle Rock Energy Partners, L.P.
|
|
Senior Notes
|
|
5/24/11
|
|
(2)
|
|
$
|
1,000
|
|
|
|
993
|
|
|
|
984
|
|
|
|
n/a
|
|
|
|
0.5
|
|
|
|
0.3
|
|
Foresight Energy LLC
|
|
Senior Notes
|
|
8/6/10
|
|
(4)
|
|
$
|
5,000
|
|
|
|
4,972
|
|
|
|
5,050
|
|
|
|
n/a
|
|
|
|
2.2
|
|
|
|
1.6
|
|
Laredo Petroleum, Inc.
|
|
Senior Notes
|
|
(7)
|
|
(4)
|
|
$
|
6,500
|
|
|
|
6,729
|
|
|
|
6,906
|
|
|
|
n/a
|
|
|
|
3.0
|
|
|
|
2.2
|
|
Southern Pacific Resources Corp.
|
|
Secured Term Loan
|
|
5/5/11
|
|
(4)
|
|
$
|
1,995
|
|
|
|
2,042
|
|
|
|
2,005
|
|
|
|
n/a
|
|
|
|
0.9
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,827
|
|
|
$
|
34,798
|
|
|
|
|
|
|
|
15.3
|
%
|
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of all restricted securities
|
|
$
|
149,059
|
|
|
$
|
122,262
|
|
|
|
|
|
|
|
53.8
|
%
|
|
|
39.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Securities are valued using inputs reflecting the Companys
own assumptions as more fully described in
Note 2 Significant Accounting Policies. |
|
(2) |
|
Unregistered 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) |
|
These securities were acquired at various dates throughout the
nine months ended August 31, 2011 and/or in prior years. |
27
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
|
|
|
(8) |
|
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. |
|
(9) |
|
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. |
|
(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. |
|
|
|
(11) |
|
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. |
|
|
10.
|
Senior
Secured Revolving Credit Facility
|
On March 30, 2010, the Company replaced its then existing
senior secured revolving credit facility with an amended and
restated senior secured revolving credit facility (the
Credit Facility). The Credit Facility has
availability of $70,000 and a three year commitment maturing on
March 30, 2013. Outstanding loan balances accrue interest
daily at a rate equal to LIBOR plus 2.00% based on current
borrowings and the current borrowing base. If borrowings exceed
the borrowing base attributable to quoted securities
(generally defined as equity investments in public MLPs and
investments in bank debt and high yield bonds which are traded),
the interest rate will increase to LIBOR plus 3.00%. The Company
paid an upfront fee of 0.50% on the $70,000 commitment and pays
a commitment fee of 0.50% per annum on any unused amounts of the
Credit Facility.
The obligations under the Credit Facility are collateralized by
substantially all of the Companys assets and are
guaranteed by any of the Companys future subsidiaries,
other than special purpose subsidiaries. The Credit Facility
contains affirmative and reporting covenants and certain
financial ratio and restrictive covenants, including:
(a) maintaining a ratio, on a consolidated basis, of total
assets (excluding deferred tax assets) less liabilities (other
than indebtedness and deferred tax liabilities) to aggregate
indebtedness of the Company of not less than 3.0:1.0,
(b) maintaining the value of the portion of the
Companys portfolio that can be converted into cash within
specified time periods and valuations at no less than 10% of the
principal amount outstanding under the Credit Facility during
any period when adjusted outstanding principal amounts exceed a
specified threshold percentage of the Companys adjusted
borrowing base, (c) maintaining consolidated net assets at
each fiscal quarter end of not less than the greater of: 40% of
the consolidated total assets of the Company and its
subsidiaries, and $70,000 plus 25% of the net proceeds from any
issuance of equity securities by the Company and its
subsidiaries subsequent to the closing of the Credit Facility,
(d) limitations on additional indebtedness,
(e) limitations on liens, (f) limitations on mergers
and other fundamental changes, (g) limitations on dividends
and other specified restricted payments, (h) limitations on
disposition of assets, (i) limitations on transactions with
affiliates, (j) limitations on agreements that prohibit
liens on properties of the Company and its subsidiaries,
(k) limitations on sale and leaseback transactions,
(l) limitations on specified hedging transactions,
(m) limitations on changes in accounting treatment and
reporting practices, (n) limitations on specified
amendments to the Companys investment management agreement
during the continuance of a default, (o) limitations on the
aggregate amount of unfunded commitments, and
(p) limitations on establishing deposit, securities or
similar accounts not subject to control agreements in favor of
the lenders. The Credit Facility also contains customary
representations and warranties and events of default.
Under the terms of the Credit Facility, if an investment becomes
non-performing, it will reduce the Companys borrowing base
and could cause the Company to be in default under the terms of
its loans under the Credit Facility.
28
KAYNE
ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
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 Company is restricted in paying
distributions to stockholders to no more than the amount of
Distributable Cash Flow for the current and prior three
quarters. As of August 31, 2011, the Company had $70,000
borrowed under its Credit Facility (at an interest rate of
2.21%), which represented 56.6% and 61.8% of its borrowing base
and quoted borrowing base of $123,727 and $113,369,
respectively. The maximum amount that the Company can borrow
under its Credit Facility is limited to the lesser of the
commitment amount of $70,000 and its borrowing base.
As of August 31, 2011, the Company was in compliance with
all financial and operational covenants required by the Credit
Facility.
The Company has 200,000,000 shares of common stock
authorized. Transactions in common shares for the nine months
ended August 31, 2011 were as follows:
|
|
|
|
|
Shares outstanding at November 30, 2010
|
|
|
10,266,660
|
|
Shares issued through reinvestment of dividends and distributions
|
|
|
59,409
|
|
|
|
|
|
|
Shares outstanding at August 31, 2011
|
|
|
10,326,069
|
|
|
|
|
|
|
On October 5, 2011, the Company declared its quarterly
distribution of $0.38 per common share for the fiscal third
quarter for a total of $3,924. The distribution is payable on
October 28, 2011 to stockholders of record on
October 19, 2011.
29
|
|
|
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.