##### Table of Contents





UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
      FORM 10-Q
      þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED
    AUGUST 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD
    FROM           TO    COMMISSION FILE NUMBER:
    814-00725
      KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 (Exact name of registrant as
    specified in its charter)
   Maryland(State of Incorporation)

20-4991752(I.R.S. Employer
    Identification Number)717 Texas Avenue, Suite 3100
    Houston, Texas

77002(Zip Code)(Address of principal executive
    offices)    Registrants telephone number, including area code:
 (713) 493-2020
      þ o
    Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ




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##### 





TABLE OF
    CONTENTS
  PagePART IItem 1.


Financial StatementsConsolidated Schedule of Investments as of
    August 31, 2008


3Consolidated Schedule of Investments as of
    November 30, 2007


6Consolidated Statement of Assets and Liabilities
    as of August 31, 2008 and November 30, 2007


11Consolidated Statement of Operations for the
    three and nine months ended August 31, 2008 and
    August 31, 2007


12Consolidated Statement of Changes in Net Assets
    for the nine months ended August 31, 2008 and for the year
    ended November 30, 2007


13Consolidated Statement of Cash Flows for the nine
    months ended August 31, 2008 and August 31, 2007


14Notes to Consolidated Financial Statements


15Item 2.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


33Item 3.


Quantitative and Qualitative Disclosures about
    Market Risk


39Item 4.


Controls and Procedures


40PART IIItem 1.


Legal Proceedings


41Item 1A.


Risk Factors


41Item 2.


Unregistered Sales of Equity Securities and Use
    of Proceeds


41Item 3.


Defaults Upon Senior Securities


41Item 4.


Submission of Matters to a Vote of Security
    Holders


41Item 5.


Other Information


41Item 6.


Exhibits


42EXHIBIT 10.9EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1   2




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KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANYCONSOLIDATED SCHEDULE OF INVESTMENTSAS OF AUGUST 31, 2008
    (amounts in 000s)
    (UNAUDITED)
  No. ofDescription:

Shares/Units


ValueLong-Term Investments  133.7%Equity Investments(a)  116.6%United States  116.6%Publicly Traded MLP and MLP Affiliate(b)  34.2%Atlas Energy Resources, LLC


131



$4,587Atlas Pipeline Partners, L.P.


73



2,502BreitBurn Energy Partners L.P.


73



1,208Calumet Specialty Products Partners, L.P.


80



1,148Capital Product Partners L.P.


40



626Constellation Energy Partners LLC


51



702Copano Energy, L.L.C.  Unregistered, Class D
    Units(c)


76



1,886Copano Energy, L.L.C.


80



2,541Crosstex Energy, L.P.(c)


28



706Crosstex Energy, L.P.


114



2,903DCP Midstream Partners, LP.


75



1,842Duncan Energy Partners L.P.


67



1,217Eagle Rock Energy Partners, L.P.


29



416El Paso Pipeline Partners, L.P.


19



345Enbridge Energy Management, L.L.C.(d)


24



1,232Enbridge Energy Partners L.P.


72



3,463Energy Transfer Equity, L.P.


44



1,277Energy Transfer Partners, L.P.


52



2,301Enterprise Products Partners L.P.


253



7,459Exterran Partners, L.P.


77



1,715Global Partners LP.


130



1,616Hiland Partners, LP


10



473Inergy, L.P.


78



2,048Kinder Morgan Management, LLC(d)


15



817K-Sea Transportation Partners L.P.


7



190Legacy Reserves LP.


8



149Magellan Midstream Partners, L.P.


58



2,149MarkWest Energy Partners, L.P.


57



1,956Martin Midstream Partners L.P.


59



1,845ONEOK Partners, L.P.


91



5,466OSG America L.P.


46



548Penn Virginia Resource Partners, L.P.


21



511Pioneer Southwest Energy Partners L.P.


2



44Plains All American Pipeline, L.P.(e)


103



4,897Regency Energy Partners LP.


46



1,146Spectra Energy Partners, LP


32



733Targa Resources Partners LP


64



1,537TC PipeLines, LP


67



2,299Teekay LNG Partners L.P.


63



1,440Teekay Offshore Partners L.P.


52



842TEPPCO Partners, L.P.


52



1,667TransMontaigne Partners L.P.


6



148Western Gas Partners, LP


60



919Williams Partners L.P.


104



3,16076,676    3




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KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
    AS OF AUGUST 31, 2008
    (amounts in 000s)
    (UNAUDITED)
  No. ofDescription:

Shares/Units


ValuePrivate MLP(c)(f)  82.4%Direct Fuels Partners, L.P.(e)


2,500



$52,000International Resource Partners LP


1,500



36,000Millennium Midstream Partners, LP(e)


2,375



60,111Quest Midstream Partners, L.P.


350



6,125VantaCore Partners LP(e)


1,465



30,568184,804Other Private Equity(f)  0.0%ProPetro Services, Inc.  Warrants(c)(g)


2,905



Trident Resources Corp.  Warrants(h)


100



7575Total Equity Investments (Cost $233,405)






261,555   Interest


Maturity


PrincipalRate


Date


AmountFixed Income
    Investments(f)  17.1%United States  16.0%Midstream  1.4%Targa Resources, Inc.


8.50
%


11/01/13


$
2,580


$
2,451Targa Resources Investments, Inc.


(i)



2/09/15



1,019



7393,190Upstream  1.6%Hilcorp Energy Company


7.75



11/01/15



4,000



3,620Oilfield Services  13.0%Dresser, Inc.


(j)



5/04/15



5,000



4,831ProPetro Services, Inc.(c)


(k)



2/15/13



35,000



20,000Stallion Oilfield Services Ltd.


(l)



7/18/12



5,000



4,22529,056Total United States (Cost $49,247)














35,866    4




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KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    CONSOLIDATED SCHEDULE OF INVESTMENTS (CONCLUDED)
    AS OF AUGUST 31, 2008
    (amounts in 000s)
    (UNAUDITED)
  Interest


Maturity


PrincipalDescription

Rate


Date


Amount


ValueCanada  1.1%Upstream  1.1%Athabasca Oil Sands Corp.(b) (Cost $2,434)


13.00
%


7/30/11



2,500


$
2,400Total Fixed Income Investments (Cost $51,681)














38,266Total Long-Term Investments (Cost $285,086)














299,821Short-Term Investments  2.3%Repurchase Agreements  2.3%Bear, Stearns & Co. Inc. (Agreements dated 8/29/08 to
    be repurchased at $5,058), collateralized by $5,205 inU.S. Treasury Notes (Cost $5,057)


1.98



9/01/08







5,057Total Investments  136.0% (Cost $290,143)














304,878Senior Secured Revolving Credit Facility Borrowings














(77,500
)Other Liabilities in Excess of Other Assets














(3,189
)Net Assets













$
224,189     (a)
    
    Unless otherwise noted, equity investments are common
    units/common shares.(b)
    
    Security is not treated as an eligible portfolio security for
    purposes of business development company (BDC)
    qualification.(c)
    
    Fair valued and restricted security (see Notes 2, 3 and 7).(d)
    
    Distributions are paid in-kind.(e)
    
    The Company believes that it is an affiliate of Plains All
    American, L.P., and that it may be an affiliate of Direct Fuels
    Partners, L.P., Millennium Midstream Partners, LP and VantaCore
    Partners LP (see Note 5).(f)
    
    Unless otherwise noted, security is treated as an eligible
    portfolio security for purposes of BDC qualification.(g)
    
    Warrants relate to the Companys floating rate senior
    secured second lien term loan facility with ProPetro Services,
    Inc. These warrants are non-income producing and expire on
    February 15, 2017.(h)
    
    Warrants are non-income producing and expire on
    November 30, 2013.(i)
    
    Floating rate senior secured term loan facility. Interest is
    paid in-kind at a rate of LIBOR + 500 basis points (7.89%
    as of August 31, 2008)(j)
    
    Floating rate senior secured second lien term loan facility.
    Security pays interest at a rate of LIBOR + 575 basis
    points (8.56% as of August 31, 2008).(k)
    
    Floating rate senior secured second lien term loan facility.
    Securitys default interest rate is LIBOR + 900 basis
    points, but the Company is not accruing interest income on this
    security (see Note 2  Investment Income).(l)
    
    Floating rate senior secured second lien term loan facility.
    Security pays interest at a rate of LIBOR + 525 basis
    points (8.05% as of August 31, 2008).    5




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KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANYCONSOLIDATED SCHEDULE OF INVESTMENTS
    AS OF NOVEMBER 30, 2007
    (amounts in 000s)
  No. ofDescription:

Shares/Units


ValueLong-Term Investments(a)  133.3%Equity Investments(b)  96.1%Publicly Traded MLP and MLP Affiliate(c)(d) 
    37.8%Atlas Energy Resources, LLC  Unregistered(e)


131



$3,905Atlas Pipeline Partners, L.P.


46



2,083BreitBurn Energy Partners L.P.  Unregistered(e)


73



2,102Buckeye Partners, L.P.


41



1,960Calumet Specialty Products Partners, L.P.


104



3,842Capital Product Partners L.P.(f)


24



593Constellation Energy Partners LLC  Unregistered(e)


65



2,184Copano Energy, L.L.C.


8



320Copano Energy, L.L.C.  Unregistered(e)


72



2,590Crosstex Energy, L.P.


24



815DCP Midstream Partners, LP


62



2,509Duncan Energy Partners L.P.


53



1,214Eagle Rock Energy Partners, L.P.


24



512El Paso Pipeline Partners, L.P.(g)


9



218Enbridge Energy Management, L.L.C.(f)(h)


66



3,404Enbridge Energy Partners L.P.


17



858Energy Transfer Equity, L.P.


61



2,091Energy Transfer Partners, L.P.


17



896Enterprise Products Partners L.P.


220



6,875Exterran Partners, L.P.(i)


40



1,390Global Partners LP


114



3,137Hiland Holdings GP, LP


10



244Hiland Partners, LP


31



1,470Inergy, L.P.


64



2,051Kinder Morgan Management, LLC(f)(h)


111



5,572K-Sea Transportation Partners L.P.


12



429Legacy Reserves LP


35



754Magellan Midstream Partners, L.P.


65



2,859MarkWest Energy Partners, L.P.


95



3,113Martin Midstream Partners L.P.


50



1,908NuStar Energy L.P.(j)


11



647ONEOK Partners, L.P.


94



5,650OSG America L.P.(g)


1



27Penn Virginia Resource Partners, L.P.


9



244Plains All American Pipeline, L.P.


103



5,374    6




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KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
    AS OF NOVEMBER 30, 2007
    (amounts in 000s)
  No. ofDescription:

Shares/Units


ValueRegency Energy Partners LP


46



$1,419SemGroup Energy Partners, L.P.


40



1,073Spectra Energy Partners, LP


32



791Targa Resources Partners LP


60



1,702TC PipeLines, LP


84



3,086Teekay LNG Partners L.P.


77



2,277Teekay Offshore Partners L.P.(f)


54



1,398TEPPCO Partners, L.P.


80



3,158Williams Partners L.P.


95



3,92292,666Private MLP  56.2%Direct Fuels Partners, L.P.(e)(k)


2,500



46,675Direct Fuels Partners, L.P.  Warrants(e)(l)


2,500



4,575International Resource Partners LP(e)(m)


1,500



30,000Millennium Midstream Partners, LP(e)(n)


2,375



44,223Millennium Midstream Partners, LP  Warrants(e)(o)


2,375



3,278Quest Midstream Partners, L.P.(e)(p)


350



7,000VantaCore Partners LP(e)(q)


91



1,916137,667Other Private Equity  2.1%Knight, Inc.  Preferred Stock(r)


5



4,965ProPetro Services, Inc.  Warrants(e)(s)


2,905



109Trident Resources Corp.  Warrants(t)


100



755,149Total Equity Investments (Cost $220,334)






235,482     7




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KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
    AS OF NOVEMBER 30, 2007
    (amounts in 000s)
  Interest

Maturity


PrincipalDescription:

Rate

Date


Amount


ValueFixed Income Investments  37.2%Midstream  7.2%SemGroup, L.P.

8.75%


11/15/15


$
9,000


$
8,595Targa Resources, Inc.

8.50


11/01/13



4,580



4,488Targa Resources, Inc.

(u)


10/31/12



1,664



1,637Targa Resources, Inc.

(v)


10/31/12



2,983



2,93417,654Upstream  5.3%Beryl Oil and Gas LP

(w)


7/14/11



2,933



2,890CDX Funding, LLC

(x)


3/31/13



4,550



4,345SandRidge Energy Inc.

(y)


4/14/12



5,700



5,70012,935Oilfield Services  18.7%Dresser, Inc.

(z)


5/04/15



5,000



4,800ProPetro Services, Inc.(e)

(aa)


2/15/13



35,000



34,326Seitel, Inc.

9.75


2/15/14



2,000



1,730Stallion Oilfield Services Ltd.

(bb)


7/18/12



5,000



4,92545,781Aggregates and Mining  6.0%VantaCore Partners LP(e)(cc)

9.00


5/21/27



7,000



7,350VantaCore Partners LP(e)

(dd)


5/21/14



7,500



7,50014,850Total Fixed Income Investments (Cost $89,779)












91,220Total Long-Term Investments (Cost $310,113)












326,702Short-Term Investments  10.2%U.S. Treasury Bills  5.8%U.S. Treasury Bills  (Cost $14,251)

3.075


2/28/08



14,358



14,250Repurchase Agreements  4.4%Bear, Stearns & Co. Inc. (Agreements dated 11/30/07 to
    be repurchased at $10,772), collateralized by $11,105 inU.S. Treasury Bonds (Cost $10,769)

3.15


12/01/07







10,769Total Short-Term Investments (Cost $25,020)












25,019Total Investments  143.5% (Cost $335,133)












351,721Senior Secured Revolving Credit Facility Borrowings












(85,000
)Treasury Secured Revolving Credit Facility Borrowings












(14,000
)Other Liabilities in Excess of Other Assets












(7,588
)Net Assets











$
245,133     (a)
    
    Unless otherwise noted, security is treated as an eligible
    portfolio security for purposes of BDC qualification.(b)
    
    Unless otherwise noted, equity investments are common/units
    common shares.    8




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
    AS OF NOVEMBER 30, 2007
    (amounts in 000s)
   (c)
    
    Security is not treated as an eligible portfolio security for
    purposes of BDC qualification.(d)
    
    Unless otherwise noted, a security is treated as a publicly
    traded partnership for regulated investment company
    (RIC) qualification purposes. To qualify as a RIC
    for tax purposes, the Company may directly invest up to 25% of
    its total assets in equity and debt securities of entities
    treated as publicly traded partnerships. At November 30,
    2007, the Company had 23.0% of its total assets invested in
    securities treated as publicly traded partnerships. From
    inception through the fiscal year ended November 30, 2007,
    it was the Companys intention to be treated as a RIC for
    tax purposes. On January 22, 2008, the Company announced
    that it would no longer intend to be treated as a RIC under the
    Code.(e)
    
    Fair valued and restricted security (see Notes 2, 3 and 7).(f)
    
    Security is not treated as a publicly traded partnership for RIC
    qualification purposes.(g)
    
    Security is currently non-income producing but is expected to
    pay distributions within the next 12 months.(h)
    
    Distributions are paid in-kind.(i)
    
    Prior to August 20, 2007, security was known as Universal
    Compression Partners, L.P., as disclosed on our Schedule of
    Investments as of November 30, 2006.(j)
    
    Prior to April 2, 2007, security was known as Valero L.P.,
    as disclosed on our Schedule of Investments as of
    November 30, 2006.(k)
    
    Class B common units are owned directly and indirectly by
    the Companys subsidiaries, KED DF Investment Partners, LP
    and KED DF Investment GP, LLC. The Class B common units are
    redeemable at the option of Direct Fuels Partners, L.P. at the
    price of $20.00 per unit.(l)
    
    Warrants are non-income producing, expire on June 8, 2017
    and provide the Company the right to purchase 2,500 Class A
    common units at a price of $20.00 per unit.(m)
    
    Common units are owned directly and indirectly by the
    Companys subsidiaries, KED LCP Investment Partners, LP and
    KED LCP Investment GP, LLC.(n)
    
    Class B common units are owned directly and indirectly by
    the Companys subsidiaries, KED MME Investment Partners, LP
    and KED MME Investment GP, LLC. The Class B common units
    are redeemable at the option of Millennium Midstream Partners,
    LP at the price of $20.00 per unit.(o)
    
    Warrants are non-income producing, expire on December 28,
    2016 and provide the Company the right to purchase 2,375
    Class A common units at a price of $20.00 per unit.(p)
    
    Common units are owned directly and indirectly by the
    Companys subsidiaries, KED MME Investment Partners, LP and
    KED MME Investment GP, LLC.(q)
    
    Common units are owned directly and indirectly by the
    Companys subsidiaries, KED VP Investment Partners, LP and
    KED VP Investment GP, LLC.(r)
    
    Preferred stock of Knight, Inc. (f.k.a, Kinder Morgan, Inc.)
    paying a fixed dividend rate of 8.33% until August 12, 2012
    and LIBOR + 390 basis points thereafter. The maturity date
    for this security is August 12, 2057.(s)
    
    Warrants relate to the Companys floating rate senior
    secured second lien term loan facility with ProPetro Services,
    Inc. These warrants are non-income producing and expire on
    February 15, 2017.(t)
    
    Warrants are non-income producing and expire on
    November 30, 2013.(u)
    
    Floating rate letter of credit facility. Security pays interest
    at a rate of LIBOR less 12.5 basis points (5.07% as of
    November 30, 2007).    9




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KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    CONSOLIDATED SCHEDULE OF INVESTMENTS (CONCLUDED)
    AS OF NOVEMBER 30, 2007
    (amounts in 000s)
   (v)
    
    Floating rate senior secured first lien term loan facility.
    Security pays interest at a rate of LIBOR + 200 basis
    points (7.20% as of November 30, 2007).(w)
    
    Prior to May 23, 2007, security was known as Coldren
    Resources, Inc. Floating rate senior secured first lien term
    loan. Security pays interest at a rate of LIBOR + 400 basis
    points (9.70% as of November 30, 2007).(x)
    
    Floating rate senior secured second lien term loan facility.
    Security pays interest at a rate of
    LIBOR + 625 basis points (11.39% as of
    November 30, 2007).(y)
    
    Floating rate unsecured bridge loan facility. Security pays
    interest at a rate of LIBOR + 363 basis points (8.85% as of
    November 30, 2007).(z)
    
    Floating rate senior secured second lien term loan facility.
    Security pays interest at a rate of
    LIBOR + 575 basis points (11.13% as of
    November 30, 2007).  (aa)
    
    Floating rate senior secured second lien term loan facility.
    Security pays interest at a rate of
    LIBOR + 900 basis points (14.23% as of
    November 30, 2007).  (bb)
    
    Floating rate senior secured second lien term loan facility.
    Security pays interest at a rate of
    LIBOR + 450 basis points (9.38% as of
    November 30, 2007).  (cc)
    
    Fixed rate subordinated convertible note. Security is
    convertible into 350,000 common units at a conversion price of
    $20.00 per common unit.  (dd)
    
    Floating rate senior secured second lien term loan facility.
    Security pays interest at a rate of
    LIBOR + 550 basis points (10.73% as of
    November 30, 2007).    10




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KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANYCONSOLIDATED STATEMENT OF ASSETS AND
    LIABILITIES(amounts in 000s, except share and per share
    amounts)
  August 31,2008


November 30,(Unaudited)


2007ASSETSInvestments, at fair value:Non-affiliated (Cost  $165,487 and $195,941,
    respectively)

$
152,245


$
205,811Affiliated (Cost  $119,599 and $114,172, respectively)


147,576



120,891U.S. Treasury Bills, at fair value (Cost  $0 and
    $14,251, respectively)






14,250Repurchase agreements (Cost  $5,057 and $10,769,
    respectively)


5,057



10,769Total investments (Cost  $290,143 and $335,133,
    respectively)


304,878



351,721Deposits with brokers


123



121Receivable for securities sold


431



766Interest, dividends and distributions receivable, net


381



1,515Debt issuance costs, prepaid expenses and other assets


821



1,264Total Assets


306,634



355,387LIABILITIESSenior secured revolving credit facility


77,500



85,000Treasury secured revolving credit facility






14,000Payable for securities purchased






6,967Investment management fee payable


1,339



1,355Accrued directors fees and expenses


75



78Accrued expenses and other liabilities


1,154



863Deferred tax liability


2,377



1,991Total Liabilities


82,445



110,254NET ASSETS

$
224,189


$
245,133NET ASSETS CONSIST OFCommon stock, $0.001 par value (200,000,000 shares
    authorized at August 31, 2008 and November 30, 2007;
    10,102,986 and 10,050,446 shares issued and outstanding at
    August 31, 2008 and November 30, 2007, respectively)

$
10


$
10Paid-in capital


220,195



231,535Accumulated net investment loss, net of income taxes, less
    dividends


(3,215
)


(409
)Accumulated net realized losses on investments, net of income
    taxes


(1,828
)


(19
)Net unrealized gains on investments, net of income taxes


9,027



14,016NET ASSETS

$
224,189


$
245,133NET ASSET VALUE PER SHARE

$
22.19


$
24.39    11




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANYCONSOLIDATED STATEMENT OF OPERATIONS(amounts in 000s)
    (UNAUDITED)
  Three Months Ended


Nine Months EndedAugust 31,


August 31,


August 31,


August 31,2008


2007


2008


2007INVESTMENT INCOMEIncomeDividends and Distributions:Non-affiliated investments

$
2,217


$
1,039


$
6,477


$
2,536Affiliated investments


2,749



1,397



7,831



2,615Total dividends and distributions


4,966



2,436



14,308



5,151Return of capital


(3,825
)


(2,187
)


(12,844
)


(4,625
)Net dividends and distributions


1,141



249



1,464



526Interest:Non-affiliated investments (after foreign taxes withheld of $2
    for the three and nine months ended August 31, 2008)


648



2,208



3,882



7,684Affiliated investments


85



366



373



408Total interest


733



2,574



4,255



8,092Total investment income


1,874



2,823



5,719



8,618ExpensesBase investment management fees


1,328



1,251



4,052



3,428Incentive investment management fees






(409
)






Bad debt expense










830



Professional fees


229



299



719



707Directors fees


76



73



240



210Administration fees


54



59



202



173Insurance


38



39



113



117Custodian fees


20



21



61



53Other expenses


162



126



441



295Total Expenses  Before Base Investment Management Fee
    Waivers and Interest Expense


1,907



1,459



6,658



4,983Base investment management fee waivers






(351
)






(973
)Interest expense


1,003



944



3,549



944Total Expenses


2,910



2,052



10,207



4,954Net Investment Income (Loss)  Before Income
    Taxes


(1,036
)


771



(4,488
)


3,664Deferred income tax benefit


386



233



1,682



331Net Investment Income (Loss)


(650
)


1,004



(2,806
)


3,995REALIZED AND UNREALIZED GAINS (LOSSES)Net Realized Gains (Losses)Investments


(6,340
)


400



(2,851
)


3,544Foreign currency transactions


(30
)






(30
)


Deferred income tax benefit


2,370







1,072



Net Realized Gains (Losses)


(4,000
)


400



(1,809
)


3,544Net Change in Unrealized Gains (Losses)Investments


(6,985
)


(5,596
)


(1,852
)


7,316Foreign currency translations


3







3



Deferred income tax benefit (expense)


2,598



(550
)


688



(900
)Deferred income tax expense  conversion to a taxable
    corporation










(3,828
)


Net Change in Unrealized Gains (Losses)


(4,384
)


(6,146
)


(4,989
)


6,416Net Realized and Unrealized Gains (Losses)


(8,384
)


(5,746
)


(6,798
)


9,960NET INCREASE (DECREASE) IN NET ASSETS
    RESULTING FROM OPERATIONS

$
(9,034
)

$
(4,742
)

$
(9,604
)

$
13,955    12




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANYCONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS(amounts in 000s, except share amounts)
  Nine MonthsEnded


For the YearAugust 31,


Ended2008


November 30,(Unaudited)


2007OPERATIONSNet investment income (loss)

$
(2,806
)

$
3,606Net realized gains (losses)


(1,809
)


5,523Net change in unrealized gains (losses)


(1,161
)


6,251Net change in unrealized losses  conversion to
    taxable corporation


(3,828
)


Net Increase (Decrease) in Net Assets Resulting from
    Operations


(9,604
)


15,380DIVIDENDS AND DISTRIBUTIONSDividends






(9,478
)(2)Distributions  net realized long-term capital gains






(1,573
)(2)Distributions  return of capital


(12,523
)(1)


(2,415
)(2)Dividends and Distributions


(12,523
)


(13,466
)CAPITAL STOCK TRANSACTIONSIssuance of 52,540 and 50,386 shares of common stock from
    reinvestment of dividends


1,183



1,272Underwriting discount and offering expenses






33Net Increase in Net Assets from Capital Stock Transactions


1,183



1,305Total Increase (Decrease) in Net Assets


(20,944
)


3,219NET ASSETSBeginning of period


245,133



241,914End of period

$
224,189


$
245,133     (1)
    
    This is an estimate of the characterization of a portion of the
    total dividends paid to common stockholders for the nine months
    ended August 31, 2008 as either a dividend (ordinary
    income) or distribution (return of capital). This estimate is
    based on the Companys operating results during the period.
    The actual characterization of the common stock dividends made
    during the current year will not be determinable until after the
    end of the fiscal year when the Company can determine earnings
    and profits and, therefore, 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 paid to
    common stockholders for the fiscal year ended November 30,
    2007 as either dividends (ordinary income) or distributions
    (long-term capital gains or return of capital). This
    characterization is based on the Companys earnings and
    profits.   13




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANYCONSOLIDATED STATEMENT OF CASH FLOWS(amounts in 000s)
    (UNAUDITED)
  Nine Months EndedAugust 31,


August 31,2008


2007CASH FLOWS FROM OPERATING ACTIVITIESNet increase (decrease) in net assets resulting from operations

$
(9,604
)

$
13,955Adjustments to reconcile net increase in net assets resulting
    from operations to net cash provided by operating activities:Purchase of long-term investments


(58,886
)


(274,292
)Sale of U.S. Treasury Bills


14,250



Proceeds from sale of long-term investments


68,597



48,101Sale of short-term investments, net


5,712



132,388Realized losses (gains) on investments, net of $30 for foreign
    currency transactions


2,881



(3,544
)Return of capital distributions


12,844



4,625Unrealized losses (gains) on investments


1,852



(7,316
)Increase in deferred tax liability


386



569Accretion of bond discount


(407
)


(354
)Increase in deposits with brokers


(2
)


(18
)Decrease in receivable for securities sold


335



517Decrease (increase) in interest, dividend and distributions
    receivable


1,134



(1,006
)Decrease (increase) in debt issuance costs, prepaid expenses and
    other assets


443



(939
)Increase (decrease) in payable for securities purchased


(6,967
)


4,574Increase (decrease) in investment management fee payable


(16
)


323Increase (decrease) in accrued directors fees and expenses


(3
)


12Increase in accrued expenses and other liabilities


291



55Net Cash Provided by (Used in) Operating Activities


32,840



(82,350
)CASH FLOWS FROM FINANCING ACTIVITIESUnderwriting discount and offering expenses






33Borrowings from (repayments of) senior secured revolving credit
    facility


(7,500
)


66,000Borrowings from (repayments of) treasury secured revolving
    credit facility


(14,000
)


25,000Cash distributions to shareholders


(11,340
)


(8,683
)Net Cash Provided by (Used in) Financing Activities


(32,840
)


82,350NET INCREASE (DECREASE) IN CASH






CASH  BEGINNING OF PERIOD






CASH  END OF PERIOD

$



$
            14




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(amounts in 000s, except per share amounts)
    (UNAUDITED)
  1.
    ORGANIZATION    2.
    SIGNIFICANT
    ACCOUNTING POLICIES  Use of Estimates
  Interim Periods Form 10-Q Form 10-K
  Principles of Consolidation
    Calculation of Net Asset Value
  Investment Valuation
 15




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
        
    Investment Team Valuation.  The applicable
    investments will initially be valued by the investment
    advisers senior professionals responsible for the
    portfolio investments.
    Investment Team Valuation
    Documentation.  Preliminary valuation conclusions
    will be documented and discussed with senior management of
    KA Fund Advisors, LLC (KAFA), the
    Companys investment adviser. Such valuations will be
    submitted to the Valuation Committee (a committee of the board
    of directors) on a quarterly basis. These valuations will stand
    for intervening periods of time unless a senior officer of KAFA
    determines that material adjustments to such preliminary
    valuations are appropriate to avoid valuations that are stale or
    do not represent fair value.
    Valuation Committee.  The Valuation Committee
    shall meet each quarter to consider new valuations presented by
    KAFA, if any, which were made in accordance with the Valuation
    Procedures in such quarter. The Valuation Committees
    valuation determinations will be subject to ratification by the
    board at its next regular meeting.
    Valuation Firm.  No less frequently than
    quarterly, a third-party valuation firm engaged by the board of
    directors will review 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 consisted of certain
    limited procedures that the Company identified and requested
    them to perform. For the quarter ended August 31, 2008, the
    independent valuation firm provided limited procedures on
    investments in eight portfolio companies comprising
    approximately 68.0% of the total investments at fair value as of
    August 31, 2008. Upon completion of the limited procedures,
    the independent valuation firm concluded that the fair value of
    those investments subjected to the limited procedures did not
    appear to be unreasonable.
    Board of Directors Determination.  The board of
    directors will consider the valuations provided by KAFA and the
    Valuation Committee and ratify valuations for the applicable
    securities at each quarterly board meeting. The board of
    directors will consider the reports provided by the third-party
    valuation firm in reviewing and determining in good faith the
    fair value of the applicable portfolio securities.   16




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
      e.g.
  SFAS No. 157.
        Repurchase Agreements agreed-upon
  Security Transactions
 17




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
  Return of Capital Estimates
    Three Months Ended


Nine Months EndedAugust 31,


August 31,


August 31,


August 31,2008


2007


2008


2007Distributions received,
    estimated as return of capital portion


77
%


90
%


90
%


90
%Return of capital  attributable to Net Realized Gains

$
452


$
37


$
1,055


$
223Return of capital  attributable to Net Change in
    Unrealized Gains


3,373



2,150



11,789



4,402Total return of capital

$
3,825


$
2,187


$
12,844


$
4,625     Investment Income 93-1, Financial Accounting and Reporting for High-Yield Debt
    Securities by Investment Companies
    Dividends and Distributions to Stockholders
  Income Taxes
   18




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
        Indemnifications
  Foreign Currency Translations
       19




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
  3.
    FAIR
    VALUE  SFAS No. 157.
      
    Level 1 Quoted unadjusted prices for
    identical instruments in active markets to which the Company has
    access at the date of measurement.
    Level 2 Quoted prices for similar
    instruments in active markets; quoted prices for identical or
    similar instruments in markets that are not active; and
    model-derived valuations in which all significant inputs and
    significant value drivers are observable in active markets.
    Level 2 inputs are those in markets for which there are few
    transactions, the prices are not current, little public
    information exists or instances where prices vary substantially
    over time or among brokered market makers.
    Level 3 Model derived valuations in
    which one or more significant inputs or significant value
    drivers are unobservable. Unobservable inputs are those inputs
    that reflect the Companys own assumptions that market
    participants would use to price the asset or liability based on
    the best available information.    Prices withQuoted Prices


Otherin Active


Observable


UnobservableMarkets


Inputs


InputsAssets at Fair Value

Total


(Level 1)


(Level 2)


(Level 3)Long-Term Investments

$
299,821


$
74,084


$
18,341


$
207,396    20




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
    Three Months EndedAugust 31, 2008Balance  May 31, 2008

$
198,785Transfers out of Level 3


(12,275
)Realized gains


225Unrealized losses, net


(1,888
)Purchases, issuances or settlements


22,549Balance  August 31, 2008

$
207,396   Nine Months EndedAugust 31, 2008Balance  November 30, 2007

$
197,733Transfers out of Level 3


(18,506
)Realized gains


225Unrealized gains, net


5,395Purchases, issuances or settlements


22,549Balance  August 31, 2008

$
207,396     4.
    INCOME
    TAXES    August 31,2008


November 30,(Unaudited)


2007Deferred tax assets:Organizational costs

$
(17
)

$
Net operating loss carryforwards


(574
)


(581
)Deferred tax liabilities:Net unrealized gains on investment securities


5,711



2,572Tax effect of 2008 net investment loss and net realized loss


(2,743
)


Total net deferred tax liability

$
2,377


$
1,991    21




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
      August 31,2008


November 30,(Unaudited)


2007Gross unrealized appreciation of investments

$
41,015


$
21,716Gross unrealized depreciation of investments


(25,837
)


(5,308
)Net unrealized appreciation before tax

$
15,178


$
16,408     Three Months


Nine MonthsEnded


EndedAugust 31, 2008


August 31, 2008Deferred income tax benefit  net investment loss

$
386


$
1,682Deferred income tax benefit  realized losses


2,370



1,072Deferred income tax benefit  unrealized losses


2,598



688Deferred income tax expense  conversion to a taxable
    corporation






(3,828
)Income tax benefit (expense)

$
5,354


$
(386
)        22




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
    November 30,2007Undistributed ordinary income


Undistributed long-term capital gains


Net unrealized gains on investments

$
16,408Total distributable earnings

$
16,408   5.
    AGREEMENTS
    AND AFFILIATIONS  Investment Management Agreement
    Base Management Fee.
    Incentive Fee.
 23




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
  payment-in-kind
            Portfolio Companies
 24




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
        Affiliated
    Investments.
  Plains All American, L.P.
  Millennium Midstream Partners, LP 
  VantaCore Partners LP 
  Direct Fuels Partners, L.P. 
 25




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
    Non-Affiliated
    Investments.
  International Resource Partners LP 
  Other Affiliations
  6.
    INVESTMENT
    TRANSACTIONS    7.
    RESTRICTED
    SECURITIES  lock-up
 26




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
    Number ofUnits,








FairWarrants, or








Value per


Percent


PercentType of

Principal ($)


Cost


Fair


Unit/


of Net


of TotalInvestment

Security

Restriction

(in 000s)


Basis


Value


Warrant


Assets


AssetsCopano Energy, L.L.C.

Class D Units

(1)


76


$
2,000


$
1,886


$
24.76



0.9
%


0.6
%Crosstex Energy, L.P.

Common Units

(2)


28



825



706



25.40



0.3



0.2Direct Fuels Partners, L.P.

Class A Common Units

(3)


2,500



45,549



52,000



20.80



23.2



17.0International Resource Partners LP

Class A Common Units

(3)


1,500



27,774



36,000



24.00



16.1



11.7Millennium Midstream Partners, LP

Class A Common Units

(3)


2,375



41,620



60,111



25.31



26.8



19.6ProPetro Services, Inc.

Warrants

(3)


2,905



2,469















ProPetro Services, Inc.

Term Loan

(3)

$
35,000



32,375



20,000



n/a



8.9



6.5Quest Midstream Partners, L.P.

Common Units

(3)


350



6,626



6,125



17.50



2.7



2.0VantaCore Partners LP

Common Units

(3)


1,465



28,162



30,568



20.87



13.6



10.0Total of securities valued in accordance with procedures
    established by the board of directors(4)

$
187,400


$
207,396







92.5
%


67.6
%Athabasca Oil Sands Corp.

Corporate Bond



$
2,500


$
2,434


$
2,400



n/a



1.1
%


0.8
%Dresser, Inc.

Term Loan



$
5,000



4,797



4,831



n/a



2.2



1.6Hilcorp Energy Company

Corporate Bond



$
4,000



3,806



3,620



n/a



1.6



1.2Stallion Oilfield Services Ltd.

Term Loan



$
5,000



4,918



4,225



n/a



1.9



1.4Targa Resources, Inc.

Corporate Bond



$
2,580



2,625



2,451



n/a



1.1



0.8Targa Resources Investments, Inc.

Term Loan



$
1,019



726



739



n/a



0.3



0.2Trident Resources Corp.

Warrants




100



411



75


$
0.75







Total of securities valued by prices provided by market maker or
    independent pricing service(3)(5)(6)

$
19,717


$
18,341







8.2
%


6.0
%Total of all restricted securities

$
207,117


$
225,737







100.7
%


73.6
%     (1)
    
    Unregistered security of a publicly-traded company.(2)
    
    Security subject to
    lock-up
    agreement.(3)
    
    Unregistered security of a private company.(4)
    
    Restricted securities that represent Level 3 categorization
    under SFAS No. 157 where reliable market quotes are
    not readily available. Securities are valued in accordance with
    the procedures established by the board of directors as more
    fully described in Note 2  Significant
    Accounting Policies.(5)
    
    Securities with a fair market value determined by the mean of
    the bid and ask prices provided by a syndicate bank or principal
    market maker. These securities have limited trading volume and
    are not listed on a national exchange. The syndicate bank or
    principal market maker is the active exchange for such security.(6)
    
    Restricted securities that represent Level 2 categorization
    under SFAS No. 157. Securities are valued using prices
    provided by a principal market maker, syndicate bank or an
    independent pricing service as more fully described in
    Note 2  Significant Accounting Policies. 27




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
     Number ofUnits,








FairWarrants, or








Value per


Percent


PercentType of

Principal ($)





Fair


Unit/


of Net


of TotalInvestment

Security

Restriction

(in 000s)


Cost Basis


Value


Warrant


Assets


AssetsAtlas Energy Resources, LLC

Common Units

(1)(2)(3)


91


$
2,211


$
2,706


$
29.72



1.1
%


0.8
%Atlas Energy Resources, LLC

Common Units

(1)(2)


40



995



1,199



30.15



0.5



0.3BreitBurn Energy Partners L.P.

Common Units

(2)


73



2,271



2,102



28.89



0.9



0.6Constellation Energy Partners LLC

Common Units

(1)(2)(4)


36



1,236



1,217



33.40



0.5



0.3Constellation Energy Partners LLC

Common Units

(1)(2)


29



1,001



967



33.56



0.5



0.3Copano Energy, L.L.C.

Common Units

(1)(2)


72



2,500



2,590



35.91



1.1



0.7Direct Fuels Partners, L.P.

Class B Common Units

(5)


2,500



44,109



46,675



18.67



19.0



13.1Direct Fuels Partners, L.P.

Class A Warrants

(5)


2,500



4,700



4,575



1.83



1.9



1.3International Resource Partners LP

Class A Common Units

(5)


1,500



29,393



30,000



20.00



12.2



8.4Millennium Midstream Partners, LP

Class B Common Units

(5)


2,375



40,635



44,223



18.62



18.0



12.4Millennium Midstream Partners, LP

Class A Warrants

(5)


2,375



3,919



3,278



1.38



1.3



0.9ProPetro Services, Inc.

Warrants

(5)


2,905



2,469



109



0.04







ProPetro Services, Inc.

Term Loan

(5)

$
35,000



32,092



34,326



n/a



14.0



9.7Quest Midstream Partners, L.P.

Common Units

(5)


350



7,000



7,000



20.00



2.9



2.1VantaCore Partners LP

Common Units

(1)(5)


91



1,770



1,916



21.00



0.8



0.5VantaCore Partners LP

Convertible Note

(5)

$
7,000



7,030



7,350



n/a



3.0



2.1VantaCore Partners LP

Term Loan

(5)

$
7,500



7,500



7,500



n/a



3.0



2.1Total of securities valued in accordance with procedures
    established by the board of directors(6)

$
190,831


$
197,733







80.7
%


55.6
%Beryl Oil and Gas LP

Term Loan

(5)(7)

$
2,933


$
2,960


$
2,890



n/a



1.2
%


0.8
%CDX Funding, LLC

Term Loan

(5)(7)

$
4,550



4,645



4,345



n/a



1.8



1.2Dresser, Inc.

Term Loan

(5)(7)

$
5,000



4,775



4,800



n/a



2.0



1.4Knight, Inc.

Preferred Stock

(5)


5



5,031



4,965



n/a



2.0



1.4SandRidge Energy Inc.

Bridge Loan

(5)(7)

$
5,700



5,699



5,700



n/a



2.3



1.6Seitel, Inc.

Corporate Bond

(5)

$
2,000



1,972



1,730



n/a



0.7



0.5SemGroup, L.P.

Corporate Bond

(5)

$
9,000



8,935



8,595



n/a



3.5



2.4Stallion Oilfield Services Ltd.

Term Loan

(5)(7)

$
5,000



4,906



4,925



n/a



2.0



1.4Targa Resources, Inc.

Corporate Bond

(5)

$
4,580



4,604



4,488



n/a



1.8



1.3Targa Resources, Inc.

Letter of Credit

(5)(7)

$
1,664



1,660



1,637



n/a



0.7



0.5Targa Resources, Inc.

Term Loan

(5)(7)

$
2,983



3,001



2,934



n/a



1.2



0.8Trident Resources Corp.

Warrants

(5)(7)


100



411



75


$
0.75







Total of securities valued by prices provided by market maker or
    independent pricing service(8)

$
48,599


$
47,084







19.2
%


13.3
%Total of all restricted securities









$
239,430


$
244,817







99.9
%


68.9
%     (1)
    
    Security subject to
    lock-up
    agreement.(2)
    
    Unregistered security of a publicly-traded company.(3)
    
    These exchange listed Common Units were converted from
    Class D units on November 14, 2007.(4)
    
    These exchange listed Common Units were converted from
    Class F units on November 12, 2007.(5)
    
    Unregistered security of a private company.(6)
    
    Restricted securities where reliable market quotes are not
    readily available. Securities are valued in accordance with the
    procedures established by the board of directors as more fully
    described in Note 2  Significant Accounting
    Policies.(7)
    
    Securities with a fair market value determined by the mean of
    the bid and ask prices provided by a syndicate bank or principal
    market maker. These securities have limited trading volume and
    are not listed on a national exchange. The syndicate bank or
    principal market maker is the active exchange for such security. 28




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
   (8)
    
    Restricted securities that are valued using prices provided by a
    principal market maker, syndicate bank or an independent pricing
    service as more fully described in Note 2 
    Significant Accounting Policies.  8.
    SENIOR
    SECURED AND TREASURY SECURED REVOLVING CREDIT
    FACILITIES          Investment Facility 
 29




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
    9.
    FINANCIAL
    HIGHLIGHTS    August 31,2008


November 30,


November 30,(Unaudited)


2007


2006Per Share of Common StockNet asset value, beginning of period

$
24.39


$
24.19


$
23.32Income (Loss) from
    Operations(1)Net investment income (loss)


(0.28
)


0.36



0.09Net realized and unrealized gain (loss) on investments


(0.29
)


1.18



0.78Net change in unrealized losses  conversion to
    taxable corporation


(0.38
)






Total income (loss) from investment operations


(0.95
)


1.54



0.87Dividends and
    Distributions(2)Dividends






(0.95
)


Distributions from net realized long-term capital gains






(0.15
)


Distributions  return of capital


(1.25
)


(0.24
)


Total Dividends and Distributions


(1.25
)


(1.34
)


Net asset value, end of period

$
22.19


$
24.39


$
24.19Market value per share, end of period

$
22.85


$
23.14


$
22.32Total investment return based on market
    value(3)


4.3
%


9.3
%


(10.7
)%Supplemental Data and
    Ratios(4)Net assets, end of period

$
224,189


$
245,133


$
241,914Ratio of expenses to average net
    assets:(5)Excluding investment management fee waivers, deferred income
    taxes, interest expense and bad debt expense


3.3
%


2.8
%


3.1
%Excluding investment management fee waivers, deferred income
    taxes and bad debt expense


5.4
%


3.8
%


3.1
%Including investment management fee waivers, deferred income
    taxes and bad debt expense


6.1
%


4.2
%


2.6
%Ratio of net investment income (loss) to average net assets


(1.6
)%


1.5
%


1.9
%Net increase (decrease) in net assets resulting from operations
    to average net assets


(4.1
)%(6)


6.2
%


3.7
%(6)Portfolio turnover rate


19.2
%(6)


28.8
%


5.6
%(6)Average amount of borrowings outstanding under the Credit
    Facilities

$
79,111


$
32,584



Average amount of borrowings outstanding per share of common
    stock during the period

$
7.86


$
3.25



  30




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONTINUED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
    (1)
    
    Based on average shares of common stock outstanding of
    10,063,607 for the nine months ended August 31, 2008,
    10,014,496 for the year ended November 30, 2007 and
    10,000,060 for the period of September 21, 2006 through
    November 30, 2006.(2)
    
    The information presented for the nine months ended
    August 31, 2008 is a current estimate of the
    characterization of a portion of the total dividends paid to
    common stockholders. The information presented for each of the
    other periods is a characterization of a portion of the total
    dividends paid to common stockholders as either dividends
    (ordinary income) or distributions (long-term capital gains or
    return of capital). This characterization is based on the
    Companys earnings and profits.(3)
    
    Not annualized for the nine months ended August 31, 2008
    and for the period September 21, 2006 through
    November 30, 2006. 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 dividends, if any, at actual prices pursuant to
    the Companys dividend reinvestment plan.(4)
    
    Unless otherwise noted, ratios are annualized.(5)
    
    The following table sets forth the components of the ratio of
    expenses to average total assets and average net assets.  August 31, 2008 (Unaudited)


November 30, 2007


November 30, 2006Ratio of Expense to


Ratio of Expense to


Ratio of Expense toAverage


Average


Average


Average


Average


AverageTotal Assets


Net Assets


Total Assets


Net Assets


Total Assets


Net AssetsManagement fees


1.7
%


2.3
%


1.7
%


2.0
%


1.6
%


1.7
%Other expenses


0.7



1.0



0.7



0.8



1.3



1.4Total expenses  excluding management fee waivers,
    deferred income taxes, interest expense and bad debt expense


2.4
%


3.3
%


2.4
%


2.8
%


2.9
%


3.1
%Interest expense


1.5



2.1



0.9



1.0







Total expenses  excluding management fee waivers,
    deferred income taxes and bad debt expense


3.9
%


5.4
%


3.3
%


3.8
%


2.9
%


3.1
%Management fee waivers










(0.4
)


(0.4
)


(0.4
)


(0.5
)Bad debt expense


0.3



0.5















Deferred tax expense


0.2



0.2



0.7



0.8







Total expenses  including management fee waivers,
    deferred income taxes and bad debt expense


4.4
%


6.1
%


3.6
%


4.2
%


2.5
%


2.6
%Average total assets

$
321,966






$
290,922






$
246,802Average net assets





$
232,069






$
248,734






$
235,199   (6)
    
    Not annualized.  10.
    COMMON
    STOCK    Shares outstanding at November 30, 2007


10,050,446Shares issued through reinvestment of dividends and distributions


52,540Shares outstanding at August 31, 2008


10,102,986  31




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (CONCLUDED)
    (amounts in 000s, except per share amounts)
    (UNAUDITED)
  11.
    SUBSEQUENT
    EVENTS         32




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##### Table of Contents



ITEM 2.  MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS.  The following discussions should be read together with the
    unaudited consolidated financial statements and the notes
    thereto included in this report and with the audited
    consolidated financial statements and notes thereto included in
    our Annual Report on
    Form 10-K.
  Forward-Looking
    Statements
  Form 10-Q
  
    Our future operating results;
    Our business prospects and the prospects of our portfolio
    companies and their ability to achieve their objectives;
    Our ability to make investments consistent with our investment
    objective;
    The impact of investments that we expect to make;
    Our contractual arrangements and relationships with third
    parties;
    The dependence of our future success on the general economy and
    its impact on the energy industry;
    Our expected debt and equity financings and investments;
    The adequacy of our cash resources and working capital; and
    The timing of cash flows, if any, from the operations of our
    portfolio companies.    Overview
       33




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##### Table of Contents



Current
    Business Market and Climate
    Portfolio
    and Investment Activity
      Percent of Long-Term InvestmentsAugust 31,


November 30,2008


2007Publicly Traded MLP and MLP Affiliate


25.6
%


28.4
%Private MLP


61.6



42.1Other Private Equity


0.0



1.6Fixed Income Investments


12.8



27.9100.0
%


100.0
%        34




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##### Table of Contents



Our
    Top Ten Portfolio Investments as of August 31,
    2008
  (1)
  PercentPublic/



Amount


of TotalInvestment

Private

Sector

($ in millions)


Assets1.


Millennium Midstream Partners,
    LP(2)

Private

Midstream  Specialty
    Processing and Distribution

$
60.1



19.6
%2.


Direct Fuels Partners,
    L.P.(3)

Private

Midstream  Gas Gathering


52.0



17.03.


International Resource Partners
    LP(4)

Private

Coal


36.0



11.74.


VantaCore Partners
    LP(5)

Private

Aggregates and Mining


30.6



10.05.


ProPetro Services,
    Inc.(6)

Private

Oilfield Services


20.0



6.56.


Enterprise Products Partners L.P.

Public

Midstream


7.5



2.47.


Quest Midstream Partners,
    L.P.(7)

Private

Midstream


6.1



2.08.


ONEOK Partners, L.P.

Public

Midstream


5.5



1.89.


Plains All American Pipeline, L.P.

Public

Midstream


4.9



1.610.


Dresser, Inc.

Private

Oilfield Services


4.8



1.6TOTAL





$
227.5



74.2
%     (1)
    
    Total assets were $306.6 million as of August 31, 2008.(2)
    
    Our investment in Millennium Midstream Partners, LP includes
    2,375,000 Class A common units, which represents a 39%
    limited partnership interest, and 212 incentive distribution
    rights (21% of total outstanding incentive distribution rights).(3)
    
    Our investment in Direct Fuels Partners, L.P. includes 2,500,000
    Class A common units, which represents a 38% limited
    partnership interest, and 200 incentive distribution rights (20%
    of total outstanding incentive distribution rights).(4)
    
    Our investment in International Resource Partners LP includes
    1,500,000 Class A common units, which represents a 28%
    limited partnership interest and 10 incentive distribution
    rights (10% of total outstanding incentive distribution rights).(5)
    
    Our investment in VantaCore Partners LP includes 1,464,673
    common units ($30.6 million), which represents a 39%
    limited partnership interest, and 1,823 incentive
    distribution rights (18% of total outstanding incentive
    distribution rights).(6)
    
    Our investment in ProPetro Services, Inc. includes a senior
    secured second lien term loan ($20.0 million) and 2,904,620
    warrants ($0).(7)
    
    Our investment in Quest Midstream Partners, L.P. includes
    350,000 common units, which represents a 2.5% limited
    partnership interest.  Results
    of Operations  For the three and nine months ended
    August 31, 2008
    Investment Income.
 35




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##### Table of Contents



K-1
  Operating Expenses.
  Net Investment Loss.
  Net Realized Losses.
  Net Change in Unrealized Gains (Losses).
  Net Decrease in Net Assets Resulting from
    Operations.
    Results
    of Operations  For the three and nine months ended
    August 31, 2007
    Investment Income.
  Operating Expenses.
  Net Investment Income.
 36




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##### Table of Contents



Net Realized Gains.
  Net Change in Unrealized Gains (Losses).
  Net Increase (Decrease) in Net Assets Resulting from
    Operations.
  Liquidity
    and Capital Resources
      co-arrangers.
         37




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##### Table of Contents



Contractual
    Obligations
  Investment Management Agreement.
      Payments by Period ($ in millions)Less Than 1








More Than 5Total


Year


1-3 Years


3-5 Years


YearsInvestment
    Facility(1)

$
77.5






$
77.5







     (1)
    
    At August 31, 2008, $22.5 million remained
    available for borrowing under our Investment Facility.  Dividends
        Off-Balance
    Sheet Arrangements
   38




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##### Table of Contents



Critical
    Accounting Policies
  Form 10-K Form 10-K.
  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.    Interest Rate Risk.
        Impact of Market Prices on Portfolio Investment
    Valuation.
   39




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##### Table of Contents



ITEM 4.
    CONTROLS
    AND PROCEDURES.  Evaluation
    of Controls and Procedures.
  Form 10-Q, Rule 13a-15(e)
  Changes
    in Internal Control Over Financial Reporting
     40




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##### Table of Contents



PART II  ITEM 1.
    LEGAL
    PROCEEDINGS.    ITEM 1A.
    RISK
    FACTORS.  Form 10-K
  ITEM 2.
    UNREGISTERED
    SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.    ITEM 3.
    DEFAULTS
    UPON SENIOR SECURITIES.    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS.    Proposal One
  Nominee

For


WithheldWilliam R. Cordes


7,134,418



249,681Barry R. Pearl


7,134,081



250,018     Proposal Two:
  Holders in Favor

Total Holders3

6Votes in Favor

Votes Against

Votes Withheld4,550,809

737,079

92,818     ITEM 5.
    OTHER
    INFORMATION.   41




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##### Table of Contents



ITEM 6.
    EXHIBITS  Form 10-Q:
  ExhibitNumber

Description3
.1

Charter  Form of Articles of Amendment and
    Restatement*3
.2

Amended and Restated Bylaws.*4
.1

Form of Common Stock Certificate.*10
.1

Form of Investment Management Agreement between Registrant and
    KA Fund Advisors, LLC.*10
.2

Form of Administration Agreement between Registrant and Bear
    Stearns Funds Management Inc.*10
.3

Form of Custody Agreement between Registrant and The Custodial
    Trust Company.*10
.4

Form of Dividend Reinvestment Plan.*10
.5

Form of Transfer Agency Agreement between Registrant and
    American Stock Transfer & Trust Company.*10
.6

Form of Accounting Services Agreement between Registrant and
    Ultimus Fund Solutions, LLC.*10
.7

Senior Secured Revolving Credit Agreement between Registrant,
    the lenders party thereto, SunTrust Bank, as administrative
    agent for the lenders, and Citibank, N.A. as syndication agent,
    dated June 4, 2007.**10
.8

First Amendment to Senior Secured Revolving Credit Agreement
    between Registrant, the lenders party thereto, SunTrust Bank, as
    Administrative Agent for the Lenders, and Citibank N.A., as
    Syndication Agent, dated February 21, 2008.***10
.9

Second Amendment to Senior Secured Revolving Credit Agreement
    between Registrant, the lenders party thereto, SunTrust Bank, as
    Administrative Agent for the Lenders, and Citibank N.A., as
    Syndication Agent, dated September 19, 2008 
    filed herewith.31
.1

Certification by Chief Executive Officer pursuant to Exchange
    Act
    Rule 13a-14(a),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002  filed herewith.31
.2

Certification by Chief Financial Officer pursuant to Exchange
    Act
    Rule 13a-14(a),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002  filed herewith.32
.1

Certification by Chief Executive Officer and Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of
    2002  furnished herewith.99
.1

Form of Amended Dividend Reinvestment Plan.**99
.2

Form of Fee Waiver Relating to Treasury Credit Investments
    between Registrant and KA Fund Advisors, LLC.**     *
    
    Previously filed as an exhibit to Registrants
    Pre-Effective Amendment No. 5 to its Registration Statement
    on
    Form N-2
    (File
    No. 333-134829)
    as filed with the Securities and Exchange Commission on
    September 18, 2006 and incorporated by reference herein.**
    
    Previously filed as an exhibit to Registrants Quarterly
    Report on
    Form 10-Q
    (File
    No. 814-00725),
    as filed with the Securities and Exchange Commission on
    July 16, 2007 and incorporated by reference herein.

***
    
    Previously filed as an exhibit to Registrants Current
    Report on
    Form 8-K
    (File
    No. 814-00725)
    as filed with the Securities and Exchange Commission on
    February 27, 2008 and incorporated by reference herein. 42




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
  SIGNATURES
      By:
    /s/  Kevin
    S. McCarthy  Kevin S. McCarthy
  Chairman of the Board of Directors,
  President and Chief Executive Officer
    By:
    /s/  Terry
    A. Hart   Terry A. Hart
  Chief Financial Officer and Treasurer
   43