##### 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
    FEBRUARY 28, 2009ORo

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(Address of principal executive
    offices)

77002(Zip
    Code)    Registrants telephone number, including area code:
 (713) 493-2020
     þ o
  12b-2
  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
    February 28, 2009


2Consolidated Schedule of Investments as of
    November 30, 2008


6Consolidated Statement of Assets and Liabilities
    as of February 28, 2009 and November 30, 2008


10Consolidated Statement of Operations for the
    three months ended February 28, 2009 and February 29,
    2008


11Consolidated Statement of Changes in Net Assets
    for the three months ended February 28, 2009 and for the
    year ended November 30, 2008


12Consolidated Statement of Cash Flows for the
    three months ended February 28, 2009 and February 29,
    2008


13Notes to Consolidated Financial Statements


14Item 2.


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


34Item 3.


Quantitative and Qualitative Disclosures about
    Market Risk


38Item 4.


Controls and Procedures


39PART 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


41EX-10.4EX-31.1EX-31.2EX-32.1   1




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KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANYCONSOLIDATED SCHEDULE OF INVESTMENTS
    AS OF FEBRUARY 28, 2009
    (amounts in 000s)
    (UNAUDITED)
  No. ofDescription

Shares/Units


ValueLong-Term Investments  108.3%Equity Investments(a)  93.5%United States  93.5%Publicly Traded MLP and MLP Affiliate(b)  34.2%Atlas Energy Resources, LLC


124


$
1,649Atlas Pipeline Partners, L.P.


55



314BreitBurn Energy Partners L.P.


47



293Calumet Specialty Products Partners, L.P.


67



804Capital Product Partners L.P.


40



273Constellation Energy Partners LLC


19



36Copano Energy, L.L.C.  Unregistered, Class D
    Units(c)


76



928Copano Energy, L.L.C.


75



1,068Crosstex Energy, L.P.


152



525DCP Midstream Partners, LP.


72



779Duncan Energy Partners L.P.


20



334Eagle Rock Energy Partners, L.P.


26



121Eagle Rock Energy Partners, L.P. 
    Unregistered(c)(d)(e)


1,530



6,828Enbridge Energy Management, L.L.C.(f)


25



689Enbridge Energy Partners L.P.


106



3,031Energy Transfer Equity, L.P.


112



2,199Energy Transfer Partners, L.P.


57



2,068Enterprise Products Partners L.P.


249



5,378Exterran Partners, L.P.


83



1,014Global Partners LP.


140



1,498Hiland Partners, LP


16



119Inergy Holdings, L.P.


20



558Inergy, L.P.


89



2,002Kinder Morgan Management, LLC(f)


35



1,452K-Sea Transportation Partners L.P.


11



190Magellan Midstream Holdings, L.P.


115



1,837MarkWest Energy Partners, L.P.


77



829Martin Midstream Partners L.P.


59



1,098Navios Maritime Partners L.P.


20



153ONEOK Partners, L.P.


42



1,778OSG America L.P.


47



312Penn Virginia Resource Partners, L.P.


38



440Plains All American Pipeline, L.P.(g)


103



3,961    2




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KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    CONSOLIDATED SCHEDULE OF INVESTMENTS
    AS OF FEBRUARY 28, 2009
    (amounts in 000s)
    (UNAUDITED)
  No. ofDescription

Shares/Units


ValuePublicly Traded MLP and MLP Affiliate(b) 
    (Continued)Quicksilver Gas Services LP


18


$
215Regency Energy Partners LP


66



681Targa Resources Partners LP


86



724TC PipeLines, LP


58



1,507Teekay LNG Partners L.P.


83



1,534Teekay Offshore Partners L.P.


59



702TEPPCO Partners, L.P.


61



1,396Williams Partners L.P.


113



1,24252,559Private MLP(c)(h)  59.3%Direct Fuels Partners, L.P.(g)


2,500



37,500International Resource Partners LP


1,500



24,750Quest Midstream Partners, L.P.(g)


350



2,625VantaCore Partners LP(g)


1,465



26,36491,239Other Private Equity(h)  0.0%ProPetro Services, Inc.  Warrants(c)(i)


2,905



Trident Resources Corp.  Warrants(j)


100



7575Total Equity Investments (Cost $200,780)






143,873     3




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    CONSOLIDATED SCHEDULE OF INVESTMENTS
    AS OF FEBRUARY 28, 2009
    (amounts in 000s)
    (UNAUDITED)
  Interest


Maturity


PrincipalDescription

Rate


Date


Amount


ValueFixed Income Investments(h)  14.8%United States  13.8%Midstream  6.1%DCP Midstream, LLC


9.75
%


3/15/19


$
1,000


$
969Knight, Inc.


6.50



9/01/12



7,530



7,078Targa Resources, Inc.


8.50



11/01/13



2,155



1,3589,405Upstream  2.0%Hilcorp Energy Company


7.75



11/01/15



4,000



3,060Oilfield Services  4.7%Dresser, Inc.


(k
)


5/04/15



5,000



2,050ProPetro Services, Inc.(c)


(l
)


2/15/13



35,000



4,500Stallion Oilfield Services Ltd.


(m
)


7/18/12



5,000



7507,300Other  1.0%Energy Future Holdings Corp.


(n
)


10/10/14



2,487



1,502Total United States (Cost $58,446)














21,267Canada(o)  1.0%Upstream  1.0%Athabasca Oil Sands Corp.(Cost $2,434)


13.00



7/30/11



2,500



1,488Total Fixed Income Investments (Cost $60,880)














22,755Total Long-Term Investments (Cost $261,660)














166,628Short-Term Investments  3.3%Repurchase Agreements  3.3%J.P. Morgan Securities Inc. (Agreements dated 2/27/2009 to be
    repurchased at $5,063), collateralized by $5,218 in U.S.
    Treasury notes (Cost $5,063)


0.18



3/02/09







5,063Total Investments  111.6% (Cost $266,723)














171,691     4




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    CONSOLIDATED SCHEDULE OF INVESTMENTS
    AS OF FEBRUARY 28, 2009
    (amounts in 000s)
    (UNAUDITED)
  No. ofDescription

Contracts


ValueLiabilitiesCall Option Contracts Written(p)United StatesPublicly Traded MLP and MLP AffiliatePenn Virginia Resource Partners, L.P., call option expiring
    03/21/09 @ $15.00


125


$
(1
)Williams Partners L.P., call option expiring 03/21/09 @ $17.50


35



Total Call Option Contracts Written (Premiums received
    $18)






(1
)Senior Secured Revolving Credit Facility Borrowings






(52,000
)Other Liabilities






(2,282
)Total Liabilities






(54,283
)Other Assets






36,414Total Liabilities in Excess of Other Assets






(17,869
)Net Assets





$
153,822     (a)
    
    Unless otherwise noted, equity investments are common
    units/common shares.(b)
    
    Unless otherwise noted, security is not treated as a qualifying
    asset under the 1940 Act. The Company determines if at least 70%
    of its total assets (excluding deferred tax assets) are
    qualifying assets under the 1940 Act no less frequently than
    quarterly. As of February 28, 2009, the percentage of the
    Companys total assets (excluding deferred tax assets) that
    are qualifying assets was 72.1%.(c)
    
    Fair valued and restricted security (see Notes 2, 3 and 8).(d)
    
    Security is treated as a qualifying asset under the 1940 Act.(e)
    
    The Companys investment in Eagle Rock Energy Partners,
    L.P. consists of 1,530 unregistered common units, of which 517
    unregistered common units ($2,158 fair value at
    February 28, 2009) were placed in escrow for a period
    of 18 months following the sale of Millennium Midstream
    Partners, L.P.(f)
    
    Distributions are paid in-kind.(g)
    
    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., VantaCore Partners LP, and Quest Midstream
    Partners, L.P. (see Note 5).(h)
    
    Unless otherwise noted, security is treated as a qualifying
    asset under the 1940 Act.(i)
    
    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.(j)
    
    Warrants are non-income producing and expire on
    November 30, 2013.(k)
    
    Floating rate senior secured second lien term loan facility.
    Security pays interest at a rate of LIBOR + 575 basis
    points (6.99% as of February 28, 2009).(l)
    
    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).(m)
    
    Floating rate senior secured second lien term loan facility.
    Security pays interest at a rate of LIBOR + 650 basis
    points (7.74% as of February 28, 2009).(n)
    
    Floating rate senior secured second lien term loan facility.
    Security pays interest at a rate of LIBOR + 350 basis
    points (3.95% as of February 28, 2009). Energy Future
    Holdings Corp., formerly TXU Corp., is a privately-held energy
    company with a portfolio of competitive and regulated energy
    subsidiaries, including TXU Energy, Oncor and Luminant.(o)
    
    Security is not treated as a qualifying asset under the 1940 Act.(p)
    
    Security is non-income producing.    5




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KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANYCONSOLIDATED SCHEDULE OF INVESTMENTS
    AS OF NOVEMBER 30, 2008
    (amounts in 000s)
  No. ofDescription

Shares/Units


ValueLong-Term Investments  112.0%Equity Investments(a)  93.6%United States  93.6%Publicly Traded MLP and MLP Affiliate(b)  36.9%Atlas Energy Resources, LLC


131


$
2,198Atlas Pipeline Partners, L.P.


65



471BreitBurn Energy Partners L.P.


47



399Calumet Specialty Products Partners, L.P.


67



613Capital Product Partners L.P.


40



346Constellation Energy Partners LLC


35



181Copano Energy, L.L.C.  Unregistered, Class D
    Units(c)


76



750Copano Energy, L.L.C.


75



900Crosstex Energy, L.P.


152



907DCP Midstream Partners, LP


74



607Duncan Energy Partners L.P.


54



704Eagle Rock Energy Partners, L.P.


27



215Eagle Rock Energy Partners, L.P. 
    Unregistered(c)(d)(e)


1,595



11,823El Paso Pipeline Partners, L.P.


18



319Enbridge Energy Management, L.L.C.(f)


24



687Enbridge Energy Partners L.P.


100



2,821Energy Transfer Equity, L.P.


65



1,064Energy Transfer Partners, L.P.


74



2,438Enterprise Products Partners L.P.


258



5,524Exterran Partners, L.P.


82



894Global Partners LP


140



1,596Hiland Partners, LP


16



167Holly Energy Partners, L.P.


1



4Inergy Holdings, L.P.


20



410Inergy, L.P.


88



1,469Kinder Morgan Management, LLC(f)


35



1,439K-Sea Transportation Partners L.P.


12



177Magellan Midstream Partners, L.P.


56



1,678MarkWest Energy Partners, L.P.


77



981Martin Midstream Partners L.P.


59



1,042Navios Maritime Partners L.P.


10



43ONEOK Partners, L.P.


82



3,839OSG America L.P.


46



214Penn Virginia Resource Partners, L.P.


41



527    6




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    CONSOLIDATED SCHEDULE OF INVESTMENTS
    AS OF NOVEMBER 30, 2008
    (amounts in 000s)
  No. ofDescription

Shares/Units


ValuePublicly Traded MLP and MLP Affiliate(b) 
    (Continued)Plains All American Pipeline, L.P.(g)


103


$
3,514Regency Energy Partners LP


66



602Spectra Energy Partners, LP


28



565Targa Resources Partners LP


86



742TC PipeLines, LP


59



1,337Teekay LNG Partners L.P.


83



1,166Teekay Offshore Partners L.P.


59



588TEPPCO Partners, L.P.


61



1,392Western Gas Partners, LP


67



902Williams Partners L.P.


115



1,609Williams Pipeline Partners L.P.


20



29760,161Private MLP(c)(h)  56.6%Direct Fuels Partners, L.P.(g)


2,500



37,500International Resource Partners LP


1,500



24,000Quest Midstream Partners, L.P.(g)


350



4,637VantaCore Partners LP(g)


1,465



25,99892,135Other Private Equity(h)  0.1%ProPetro Services, Inc.  Warrants(c)(i)


2,905



Trident Resources Corp.  Warrants(j)


100



7575Total Equity Investments (Cost $211,596)






152,371     7




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KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    CONSOLIDATED SCHEDULE OF INVESTMENTS
    AS OF NOVEMBER 30, 2008
    (amounts in 000s)
  Interest


Maturity


PrincipalDescription

Rate


Date


Amount


ValueFixed Income Investments(h)  18.4%United States  17.2%Midstream  4.7%Knight, Inc.


6.50
%


9/01/12


$
7,530


$
6,024Targa Resources, Inc.


8.50



11/01/13



2,155



1,185Targa Resources Investments, Inc.


(k
)


2/09/15



1,046



4717,680Upstream  1.8%Hilcorp Energy Company


7.75



11/01/15



4,000



2,860Oilfield Services  9.7%Dresser, Inc.


(l
)


5/04/15



5,000



3,150ProPetro Services, Inc.(c)


(m
)


2/15/13



35,000



10,000Stallion Oilfield Services Ltd.


(n
)


7/18/12



5,000



2,62515,775Other  1.0%Energy Future Holdings Corp.


(o
)


10/10/14



2,500



1,725Total United States (Cost $58,061)














28,040Canada(p)  1.2%Upstream  1.2%Athabasca Oil Sands Corp. (Cost $2,434)


13.00



7/30/11



2,500



1,873Total Fixed Income Investments (Cost $60,495)














29,913Total Long-Term Investments (Cost $272,091)














182,284Short-Term Investments  3.9%Repurchase Agreements(d)  3.9%J.P. Morgan Securities Inc. (Agreements dated 11/28/08 to be
    repurchased at $6,325), collateralized by $6,513 in U.S.
    Treasury notes (Cost $6,325)


0.10



12/01/08







6,325Total Investments  115.9% (Cost $278,416)














188,609Senior Secured Revolving Credit Facility Borrowings














(57,000
)Other Assets in Excess of Other Liabilities














31,078Net Assets













$
162,687     (a)
    
    Unless otherwise noted, equity investments are common
    units/common shares.(b)
    
    Unless otherwise noted, security is not treated as a qualifying
    asset under the 1940 Act. The Company determines if at least 70%
    of its total assets (excluding deferred tax assets) are
    qualifying assets under the 1940 Act no less frequently than
    quarterly. As of November 30, 2008, the percentage of the
    Companys total assets (excluding deferred tax assets) that
    are qualifying assets was 73.9%.    8




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KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    CONSOLIDATED SCHEDULE OF INVESTMENTS
    AS OF NOVEMBER 30, 2008
    (amounts in 000s)
  (c)
    
    Fair valued and restricted security (see Notes 2, 3 and 8).(d)
    
    Security is treated as a qualifying asset under the 1940 Act.(e)
    
    The Companys investment in Eagle Rock Energy Partners,
    L.P. consists of 1,595 unregistered common units, of which 582
    unregistered common units ($4,069 fair value at
    November 30, 2008) were placed in escrow for a period
    of 18 months following the sale of Millennium Midstream
    Partners, LP.(f)
    
    Distributions are paid in-kind.(g)
    
    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., VantaCore Partners LP and Quest Midstream
    Partners, L.P. (see Note 5).(h)
    
    Unless otherwise noted, security is treated as a qualifying
    asset under the 1940 Act.(i)
    
    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.(j)
    
    Warrants are non-income producing and expire on
    November 30, 2013.(k)
    
    Floating rate senior secured term loan facility. Interest is
    paid in-kind at a rate of LIBOR + 500 basis points (9.11%
    as of November 30, 2008)(l)
    
    Floating rate senior secured second lien term loan facility.
    Security pays interest at a rate of LIBOR + 575 basis
    points (7.99% as of November 30, 2008).(m)
    
    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).(n)
    
    Floating rate senior secured second lien term loan facility.
    Security pays interest at a rate of LIBOR + 600 basis
    points (8.51% as of November 30, 2008).(o)
    
    Floating rate senior secured second lien term loan facility.
    Security pays interest at a rate of LIBOR + 350 basis
    points (5.27% as of November 30, 2008). Energy Future
    Holdings Corp., formerly TXU Corp., is a privately-held energy
    company with a portfolio of competitive and regulated energy
    subsidiaries, including TXU Energy, Oncor and Luminant.(p)
    
    Security is not treated as a qualifying asset under the 1940 Act.    9




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANYCONSOLIDATED STATEMENT OF ASSETS AND
    LIABILITIES
    (amounts in 000s, except share and per share
    amounts)
  February 28,2009


November 30,(Unaudited)


2008ASSETSInvestments, at fair value:Non-affiliated (Cost  $180,063 and $188,740,
    respectively)

$
96,178


$
110,635Affiliated (Cost  $81,597 and $83,351, respectively)


70,450



71,649Repurchase agreements (Cost  $5,063 and $6,325,
    respectively)


5,063



6,325Total investments (Cost  $266,723 and $278,416,
    respectively)


171,691



188,609Deposits with brokers


141



123Deferred income tax asset


34,334



31,370Receivable for securities sold


639



688Interest, dividends and distributions receivable, net


581



403Debt issuance costs, prepaid expenses and other assets


719



981Total Assets


208,105



222,174LIABILITIESSenior secured revolving credit facility


52,000



57,000Payable for securities purchased


502



60Investment management fee payable


779



1,074Current income tax payable


100



100Call option contracts written, at fair value (Premiums
    received  $18)


1



Accrued directors fees and expenses


76



76Accrued expenses and other liabilities


825



1,177Total Liabilities


54,283



59,487NET ASSETS

$
153,822


$
162,687NET ASSETS CONSIST OFCommon stock, $0.001 par value (200,000,000 shares
    authorized at February 28, 2009 and November 30, 2008;
    10,102,986 shares issued and outstanding at
    February 28, 2009 and November 30, 2008)

$
10


$
10Paid-in capital


212,417



215,953Accumulated net investment loss, net of income taxes, less
    dividends


(4,287
)


(3,942
)Accumulated net realized gains on investments, net of income
    taxes


5,823



7,464Net unrealized losses on investments, net of income taxes


(60,141
)


(56,798
)NET ASSETS

$
153,822


$
162,687NET ASSET VALUE PER SHARE

$
15.23


$
16.10    10




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANYCONSOLIDATED STATEMENT OF OPERATIONS
    (amounts in 000s)
    (UNAUDITED)
  Three Months EndedFebruary 28,


February 29,2009


2008INVESTMENT INCOMEIncomeDividends and Distributions:Non-affiliated investments

$
2,678


$
1,936Affiliated investments


1,949



2,541Total dividends and distributions


4,627



4,477Return of capital


(4,124
)


(4,322
)Net dividends and distributions


503



155Interest and other income:Non-affiliated investments


730



2,405Affiliated investments






96Total interest and other income


730



2,501Total investment income


1,233



2,656ExpensesBase investment management fees


777



1,380Professional fees


224



260Directors fees


75



72Administration fees


53



55Insurance


37



37Custodian fees


15



20Other expenses


205



183Total Expenses  Before Interest Expense


1,386



2,007Interest expense


384



1,684Total Expenses


1,770



3,691Net Investment Loss  Before Income Taxes


(537
)


(1,035
)Deferred income tax benefit


192



397Net Investment Loss


(345
)


(638
)REALIZED AND UNREALIZED GAINS (LOSSES)Net Realized Gains (Losses)Investments


(2,547
)


2,086Foreign currency transactions


(6
)


Deferred income tax benefit (expense)


912



(776
)Net Realized Gains (Losses)


(1,641
)


1,310Net Change in Unrealized Gains (Losses)Investments


(5,222
)


(4,096
)Foreign currency translations


2



Options


17



Deferred income tax benefit


1,860



1,524Deferred income tax expense  conversion to a taxable
    corporation






(3,828
)Net Change in Unrealized Losses


(3,343
)


(6,400
)Net Realized and Unrealized Losses


(4,984
)


(5,090
)NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS

$
(5,329
)

$
(5,728
)    11




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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)
  Three MonthsEnded


For the YearFebruary 28,


Ended2009


November 30,(Unaudited)


2008OPERATIONSNet investment loss

$
(345
)

$
(3,532
)Net realized gains (losses)


(1,641
)


7,483Net change in unrealized losses


(3,343
)


(67,004
)Net change in unrealized losses  conversion to
    taxable corporation






(3,810
)Net Decrease in Net Assets Resulting from Operations


(5,329
)


(66,863
)DIVIDENDS AND DISTRIBUTIONSDividends






Distributions  return of capital


(3,536
)(1)


(16,766
)(2)Dividends and Distributions


(3,536
)


(16,766
)CAPITAL STOCK TRANSACTIONSIssuance of 52,540 shares of common stock from reinvestment
    of dividends






1,183Increase in Net Assets from Capital Stock Transactions






1,183Total Decrease in Net Assets


(8,865
)


(82,446
)NET ASSETSBeginning of period


162,687



245,133End of period

$
153,822


$
162,687     (1)
    
    This is an estimate of the characterization of a portion of the
    total distributions paid to common stockholders for the three
    months ended February 28, 2009 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
    distributions made during the current year will not be
    determinable until after the end of the fiscal year when the
    Company can determine earnings and profits and, therefore, 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 distributions paid to
    common stockholders for the fiscal year ended November 30,
    2008 as either dividends (ordinary income) or distributions
    (return of capital). This characterization is based on the
    Companys earnings and profits.   12




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANYCONSOLIDATED STATEMENT OF CASH FLOWS
    (amounts in 000s)
    (UNAUDITED)
  Three Months EndedFebruary 28,


February 29,2009


2008CASH FLOWS FROM OPERATING ACTIVITIESNet decrease in net assets resulting from operations

$
(5,329
)

$
(5,728
)Adjustments to reconcile net increase in net assets resulting
    from operations to net cash provided by operating activities:Purchase of long-term investments


(4,706
)


(11,784
)Sale of U.S. Treasury Bills






14,250Proceeds from sale of long-term investments


8,632



37,901Sale of short-term investments, net


1,262



2,712Realized losses (gains) on investments


2,553



(2,086
)Return of capital distributions


4,124



4,322Unrealized losses on investments


5,203



4,096Deferred income tax provision (benefit)


(2,964
)


2,683Accretion of bond discount


(166
)


(172
)Increase in deposits with brokers


(18
)


(1
)Decrease (increase) in receivable for securities sold


49



(4,711
)Increase in interest, dividends and distributions receivable


(178
)


(52
)Decrease in prepaid expenses and other assets


262



214Increase (decrease) in payable for securities purchased


442



(6,060
)Increase (decrease) in investment management fee payable


(295
)


25Decrease in accrued directors fees and expenses






(7
)Increase in option contracts written


17



Increase (decrease) in accrued expenses and other liabilities


(352
)


19Net Cash Provided by Operating Activities


8,536



35,621CASH FLOWS FROM FINANCING ACTIVITIESRepayments of senior secured revolving credit facility


(5,000
)


(17,500
)Repayments of treasury secured revolving credit facility






(14,000
)Cash distributions to shareholders


(3,536
)


(4,121
)Net Cash Used in Financing Activities


(8,536
)


(35,621
)NET INCREASE (DECREASE) IN CASH






CASH  BEGINNING OF PERIOD






CASH  END OF PERIOD

$



$
      Supplemental disclosure of cash flow information:During the three months ended February 28, 2009, there were
    no state income taxes paid and interest paid was $846. During
    the three months ended February 29, 2008, there were no
    state income taxes paid and interest paid was $1,466.   13




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##### Table of Contents





KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and 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
 14




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
        
    Investment Team Valuation.  The applicable
    investments are valued by senior professionals of KA
    Fund Advisors, LLC (KAFA) responsible for the
    portfolio investments.
    Investment Team Valuation
    Documentation.  Preliminary valuation conclusions
    are documented and discussed with senior management of KAFA.
    Such valuations are submitted to the Valuation Committee (a
    committee of the board of directors) on a quarterly basis. These
    valuations 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. Such adjustments may
    occur on the date that the Company calculates the dividend
    reinvestment plan net asset value.
    Valuation Committee.  The Valuation Committee
    meets 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 are subject to ratification by the
    board.
    Valuation Firm.  No less frequently than
    quarterly, a third-party valuation firm engaged by the board of
    directors reviews the valuation methodologies and calculations
    employed for these securities. The independent valuation firm
    provides third-party valuation consulting services to the board
    of directors which consist of certain limited procedures that
    the Company identified and requested them to perform. For the
    quarter ended February 28, 2009, the independent valuation
    firm provided limited procedures on investments in seven
    portfolio companies comprising approximately 60.3% of the total
    investments (67.3% of net assets and 49.7% of total assets) at
    fair value as of February 28, 2009. 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 considers the valuations provided by KAFA and the
    Valuation Committee and ratifies valuations for the applicable
    securities at each quarterly board meeting. The board of
    directors considers the reports provided by the third-party
    valuation firm in reviewing and determining in good faith the
    fair value of the applicable portfolio securities.   15




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KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
      e.g.
  SFAS No. 157. Fair Value
    Measurements
        Repurchase Agreements agreed-upon
 16




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
  Security Transactions
  Return of Capital Estimates
    For the Three Months EndedFebruary 28,


February 29,2009


2008Distributions received, estimated as return of capital portion


89
%


97
%Return of capital  attributable to Net Realized Gains

$
569


$
236Return of capital  attributable to Net Change in
    Unrealized Gains


3,555



4,086Total return of capital

$
4,124


$
4,322   Investment Income 93-1, Financial Accounting and Reporting for High-Yield Debt
    Securities by Investment Companies
    Distributions to Stockholders
  Income Taxes
   17




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
  Accounting for Income Taxes
    Accounting for Uncertainty
    in Income Taxes
  Indemnifications
  Foreign Currency Translations
     18




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
    Option Writing
  3.
    FAIR
    VALUE  SFAS No. 157. Fair Value
    Measurements
      
    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. 19




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
     Quoted Prices in


Prices with Other


One or MoreActive Markets


Observable Inputs


Unobservable InputsAssets at Fair Value

Total


(Level 1)


(Level 2)


(Level 3)Long-Term Investments

$
166,628


$
44,803


$
18,330


$
103,495Liabilities at Fair
    ValueOption Contracts Written

$
1






$
1



     Three Months EndedFebruary 28,2009Balance  November 30, 2008

$
114,708Transfers out of Level 3


(454
)Realized gains


Unrealized losses, net


(10,759
)Purchases, issuances or settlements


Balance  February 28, 2009

$
103,495       4.
    INCOME
    TAXES    February 28,2009


November 30,(Unaudited)


2008Deferred tax assets:Organizational costs

$
19


$
19Net operating loss carryforwards


6,106



4,846Net unrealized losses on investment securities


30,540



28,329Deferred tax liabilities:Basis reduction of investments in MLPs


(2,331
)


(1,824
)Total net deferred tax asset

$
34,334


$
31,370  20




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
              February 28,2009


November 30,(Unaudited)


2008Gross unrealized appreciation of investments

$
282


$
2,205Gross unrealized depreciation of investments


(82,130
)


(78,069
)Net unrealized appreciation before tax

$
(81,848
)

$
(75,864
)  21




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
    For the Three Months EndedFebruary 28,


February 29,2009


2008Deferred income tax benefit  net investment loss

$
192


$
397Deferred income tax benefit (expense)  realized
    losses (gains)


912



(776
)Deferred income tax benefit  unrealized losses


1,860



1,524Deferred income tax expense  conversion to a taxable
    corporation






(3,828
)Income tax benefit (expense)

$
2,964


$
(2,683
)     5.
    AGREEMENTS
    AND AFFILIATIONS  Administration Agreement
    Investment Management Agreement
  Base Management Fee.
 22




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
    Incentive Fee.
  payment-in-kind
     23




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
    For the Three Months EndedFebruary 28,


February 29,2009


2008Base management fees

$
777


$
1,380   Portfolio Companies
      Affiliated
    Investments.
  Direct Fuels Partners, L.P.
  Plains All American, L.P.
 24




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
  Quest Midstream Partners, L.P. 
  VantaCore Partners LP 
  Non-Affiliated
    Investments.
  International Resource Partners LP 
  6.
    OPTION
    CONTRACTS    Number ofContracts


PremiumOptions outstanding at beginning of period






Options written


160



18Options outstanding at end of period


160


$
18   SFAS No. 161. Disclosures about
    Derivative Instruments and Hedging Activities Accounting for Derivative Instruments
    and Hedging Activities
   25




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
      Derivatives not accounted foras hedging instruments

Statement of Assets and

Fair Value as ofunder SFAS No. 133

Liabilities Location

February 28, 2009Call options

Liabilities
    Call option contracts written

$1     Change in UnrealizedGain (Loss)on Derivatives RecognizedDerivatives not accounted for



in Incomeas hedging instruments

Location of Gain (Loss)

For the Three Months Endedunder SFAS No. 133

on Derivatives Recognized in Income

February 28, 2009Call options

Net change in unrealized gains (losses)
    Options

$17   7.
    INVESTMENT
    TRANSACTIONS    For the Three Months EndedFebruary 28,


February 29,2009


2008Securities purchased

$
4,706


$
11,784Securities sold, excluding U.S. Treasuries

$
8,632


$
37,901Sales of U.S. Treasuries






14,250Total securities sold

$
8,632


$
52,151   8.
    RESTRICTED
    SECURITIES  lock-up
 26




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and 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


$
928


$
12.18



0.6
%


0.4
%Direct Fuels Partners, L.P(2)

Class A Common Units

(3)


2,500



44,035



37,500



15.00



24.4



18.0Eagle Rock Energy Partners, L.P.

Common Units

(1)


1,013



12,859



4,670



4.61



3.1



2.2Eagle Rock Energy Partners, L.P.

Common Units

(1)


517



6,025



2,158



4.17



1.4



1.0International Resource Partners LP(4)

Class A Common Units

(3)


1,500



26,694



24,750



16.50



16.1



11.9ProPetro Services, Inc.

Warrants

(3)


2,905



2,469















ProPetro Services, Inc.

Term Loan

(3)

$
35,000



32,652



4,500



n/a



2.9



2.2Quest Midstream Partners, L.P.

Common Units

(3)


350



6,625



2,625



7.50



1.7



1.3VantaCore Partners LP(5)

Common Units

(3)


1,465



26,867



26,364



18.00



17.1



12.7Total of securities valued in accordance with procedures
    established by the board of directors(6)

$
160,226


$
103,495







67.3
%


49.7
%Athabasca Oil Sands Corp.

Corporate Bond



$
2,500


$
2,434


$
1,488



n/a



1.0
%


0.7
%DCP Midstream, LLC

Corporate Bond



$
1,000



992



969



n/a



0.6



0.5Dresser, Inc.

Term Loan



$
5,000



4,812



2,050



n/a



1.3



1.0Energy Future Holdings Corp.

Term Loan



$
2,487



1,973



1,502



n/a



1.0



0.7Hilcorp Energy Company

Corporate Bond



$
4,000



3,816



3,060



n/a



2.0



1.5Knight, Inc.

Corporate Bond



$
7,530



7,084



7,078



n/a



4.6



3.4Stallion Oilfield Services Ltd.

Term Loan



$
5,000



4,927



750



n/a



0.5



0.4Targa Resources, Inc.

Corporate Bond



$
2,155



2,190



1,358



n/a



0.9



0.6Trident Resources Corp.

Warrants




100



411



75


$
0.75







Total of securities valued by prices provided by market maker or
    independent pricing service(3)(7)

$
28,639


$
18,330







11.9
%


8.8
%Total of all restricted securities

$
188,865


$
121,825







79.2
%


58.5
%     (1)
    
    Unregistered security of a publicly-traded company.(2)
    
    The Companys investment in Direct Fuels Partners, L.P.
    includes 200 incentive distribution rights (20% of total
    outstanding incentive distribution rights) for which the Company
    does not assign a value.(3)
    
    Unregistered security of a private company.(4)
    
    The Companys investment in International Resource Partners
    LP includes 10 incentive distribution rights (10% of total
    outstanding incentive distribution rights) for which the Company
    does not assign a value.(5)
    
    The Companys investment in VantaCore Partners LP includes
    1,823 incentive distribution rights (18% of total outstanding
    incentive distribution rights) for which the Company does not
    assign a value.(6)
    
    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.(7)
    
    Restricted securities that represent Level 2 categorization
    under SFAS No. 157. Securities with a fair market value
    determined by the mean of the bid and ask prices provided by a
    syndicate bank, principal market maker or an independent pricing
    service as more fully described in Note 2 
    Significant Accounting Policies. These securities have limited
    trading volume and are not listed on a national exchange. 27




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and 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


$
750


$
9.85



0.5
%


0.3
%Direct Fuels Partners, L.P.(2)

Class A Common Units

(3)


2,500



45,048



37,500



15.00



23.0



16.9Eagle Rock Energy Partners, L.P.

Common Units

(1)


1,013



13,233



7,754



7.65



4.8



3.5Eagle Rock Energy Partners, L.P.

Common Units

(1)


582



6,989



4,069



6.99



2.5



1.8International Resource Partners LP(4)

Class A Units

(3)


1,500



27,234



24,000



16.00



14.8



10.8ProPetro Services, Inc.

Warrants

(3)


2,905



2,469















ProPetro Services, Inc.

Term Loan

(3)

$
35,000



32,550



10,000



n/a



6.1



4.5Quest Midstream Partners, L.P.

Common Units

(3)


350



6,625



4,637



13.25



2.8



2.1VantaCore Partners LP(5)

Class A Common Units

(3)


1,465



27,526



25,998



17.75



16.0



11.7Total of securities valued in accordance with procedures
    established by the board of directors(6)

$
163,674


$
114,708







70.5
%


51.6
%Athabasca Oil Sands Corp.

Corporate Bond



$
2,500


$
2,434


$
1,873



n/a



1.2
%


0.9
%Dresser, Inc.

Term Loan



$
5,000



4,805



3,150



n/a



1.9



1.4Energy Future Holdings Corp.

Term Loan



$
2,500



1,967



1,725



n/a



1.1



0.8Hilcorp Energy Company

Corporate Bond



$
4,000



3,811



2,860



n/a



1.8



1.3Knight, Inc.

Corporate Bond



$
7,530



7,055



6,024



n/a



3.7



2.7Stallion Oilfield Services Ltd.

Term Loan



$
5,000



4,922



2,625



n/a



1.6



1.2Targa Resources, Inc.

Corporate Bond



$
2,155



2,192



1,185



n/a



0.7



0.5Targa Resources Investments, Inc.

Term Loan



$
1,046



760



471



n/a



0.3



0.2Trident Resources Corp.

Warrants




100



411



75


$
0.75



0.0



0.0Total of securities valued by prices provided by market maker or
    independent pricing service(3)(7)

$
28,357


$
19,988







12.3
%


9.0
%Total of all restricted securities

$
192,031


$
134,696







82.8
%


60.6
%     (1)
    
    Unregistered security of a publicly-traded company.(2)
    
    The Companys investment in Direct Fuels Partners, L.P.
    includes 200 incentive distribution rights (20% of total
    outstanding incentive distribution rights) for which the Company
    does not assign a value.(3)
    
    Unregistered security of a private company.(4)
    
    The Companys investment in International Resource Partners
    LP includes 10 incentive distribution rights (10% of total
    outstanding incentive distribution rights) for which the Company
    does not assign a value.(5)
    
    The Companys investment in VantaCore Partners LP includes
    1,823 incentive distribution rights (18% of total outstanding
    incentive distribution rights) for which the Company does not
    assign a value.(6)
    
    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.(7)
    
    Restricted securities that represent Level 2 categorization
    under SFAS No. 157. Securities with a fair market
    value determined by the mean of the bid and ask prices provided
    by a syndicate bank, principal market maker or an independent
    pricing service as more fully described in
    Note 2  Significant Accounting Policies. These
    securities have limited trading volume and are not listed on a
    national exchange. 28




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
  9.
    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
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
         30




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
  10.
    FINANCIAL
    HIGHLIGHTS    February 28,2009


November 30,


November 30,


November 30,(Unaudited)


2008


2007


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

$
16.10


$
24.39


$
24.19


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


(0.03
)


(0.35
)


0.36



0.09Net realized and unrealized gain (loss) on investments


(0.49
)


(5.89
)


1.18



0.78Net change in unrealized losses  conversion to
    taxable corporation






(0.38
)






Total income (loss) from investment operations


(0.52
)


(6.62
)


1.54



0.87Dividends and
    Distributions(2)Dividends










(0.95
)


Distributions from net realized long-term capital gains










(0.15
)


Distributions  return of capital


(0.35
)


(1.67
)


(0.24
)


Total Dividends and Distributions


(0.35
)


(1.67
)


(1.34
)


Net asset value, end of period

$
15.23


$
16.10


$
24.39


$
24.19Market value per share, end of period

$
9.09


$
9.63


$
23.14


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


(2.9
)%


(54.8
)%


9.3
%


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

$
153,822


$
162,687


$
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


3.6
%


3.5
%


2.8
%


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


4.5
%


5.5
%


3.8
%


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


(3.1
)%


(9.6
)%


4.2
%


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


(0.9
)%


(1.6
)%


1.5
%


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


(3.4
)%(6)


(31.1
)%


6.2
%


3.7
%(6)Portfolio turnover rate


2.7
%(6)


27.0
%


28.8
%


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

$
56,944


$
75,563


$
32,584



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

$
5.64


$
7.50


$
3.25



     (1)
    
    Based on average shares of common stock outstanding of
    10,102,986 for the three months ended February 28, 2009,
    10,073,398 for year ended November 30, 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. 31




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
   (2)
    
    The information presented for the three months ended
    February 28, 2009 is a current estimate of the
    characterization of a portion of the total distributions paid to
    common stockholders. The information presented for 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 (return of capital). This
    characterization is based on the Companys earnings and
    profits.(3)
    
    Not annualized for the three months ended February 28, 2009
    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 distributions, 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.  Ratio of Expense to:Average Total Assets


Average Net AssetsFor the Period











For the PeriodEnded











EndedFebruary 28,











February 28,2009


As of November 30,


2009


As of November 30,(Unaudited)


2008


2007


2006


(Unaudited)


2008


2007


2006Management fees


1.5
%


1.7
%


1.7
%


1.6
%


2.0
%


2.4
%


2.0
%


1.7
%Other expenses


1.1



0.8



0.7



1.3



1.6



1.1



0.8



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


2.6
%


2.5
%


2.4
%


2.9
%


3.6
%


3.5
%


2.8
%


3.1
%Interest expense


0.7



1.4



0.9







0.9



2.0



1.0



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


3.3
%


3.9
%


3.3
%


2.9
%


4.5
%


5.5
%


3.8
%


3.1
%Management fee waivers










(0.4
)


(0.4
)










(0.4
)


(0.5
)Bad debt expense






0.3















0.4







Tax expense (benefit)


(5.6
)


(11.1
)


0.7







(7.6
)


(15.5
)


0.8



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


(2.3
)%


(6.9
)%


3.6
%


2.5
%


(3.1
)%


(9.6
)%


4.2
%


2.6
%Average total assets

$
215,140


$
302,007


$
290,922


$
246,802Average net assets

















$
158,255


$
214,818


$
248,734


$
235,199   (6)
    
    Not annualized. 32




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (amounts in 000s, except option contracts written, share
    and per share amounts)
    (UNAUDITED)
   11.
    COMMON
    STOCK    12.
    SUBSEQUENT
    EVENTS     33




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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
       34




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##### Table of Contents



Portfolio
    and Investment Activity
      Number of PortfolioCompanies at


Percent of Long-Term Investments atFebruary 28,


November 30,


February 28,


November 30,2009


2008


2009


2008Publicly Traded MLP and MLP Affiliate


39



43



31.5
%


33.0
%Private MLP


4



4



54.8



50.6Other Private Equity


1



1



0.0



0.0Fixed Income Investments


9



9



13.7



16.453



57



100.0
%


100.0
%   Our
    Top Ten Portfolio Investments as of February 28,
    2009
    PercentPublic/

Equity/



Amount


of TotalInvestment

Private

Debt

Sector

($ in millions)


Assets(1)1.

Direct Fuels Partners,
    L.P.(2)

Private

Equity

Midstream

$
37.5



18.0
%2.

VantaCore Partners
    LP(3)

Private

Equity

Aggregates and Mining


26.4



12.73.

International Resource Partners
    LP(4)

Private

Equity

Coal


24.8



11.94.

Knight, Inc.

Private

Debt

Midstream


7.1



3.45.

Eagle Rock Energy Partners,
    L.P.(5)

Public

Equity

Midstream/Upstrean


6.9



3.36.

Enterprise Products Partners L.P.

Public

Equity

Midstream


5.4



2.67.

ProPetro Services,
    Inc.(6)

Private

Debt

Oilfield Services


4.5



2.28.

Plains All American Pipeline, L.P.

Public

Equity

Midstream


3.9



1.99.

Hilcorp Energy Company

Private

Debt

Upstream


3.1



1.510.

Enbridge Energy Partners L.P.

Public

Equity

Midstream


3.0



1.4$
122.6



58.9
%  35




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##### Table of Contents



(1)
    
    Total assets were $208.1 million as of February 28,
    2009.(2)
    
    Our investment in Direct Fuels Partners, L.P. includes 2,500,000
    common units, which represents a 38% limited partnership
    interest, and 200 incentive distribution rights (20% of total
    outstanding incentive distribution rights).(3)
    
    Our investment in VantaCore Partners LP includes 1,464,673
    common units, which represents a 39% limited partnership
    interest, and 1,823 incentive distribution rights (18% 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)
    
    Following the sale of Millennium Midstream Partners, L.P. to
    Eagle Rock completed on October 1, 2008, our investment
    initially consisted of 1,700,050 unregistered common units, of
    which 687,022 were placed in escrow for a period of
    18 months. Following our estimated post-closing working
    capital adjustments, our investment in Eagle Rock consists of
    1,530,274 unregistered common units of which 517,237
    unregistered common units have been placed into escrow for up to
    18 months pending claims that could reduce the purchase
    price. Our investment in Eagle Rock includes $4.7 million
    of unregistered common units, $2.1 million unregistered
    common units that have been placed into escrow and
    $0.1 million in common units that are freely tradeable.(6)
    
    Our investment in ProPetro Services, Inc. includes a senior
    secured second lien term loan ($35.0 million principal and
    $4.5 million fair value) and 2,904,620 warrants to which we
    have assigned no value.  Results
    of Operations  For the three months ended
    February 28, 2009
    Investment Income.
  Operating Expenses.
  Net Investment Loss.
  Net Realized Losses.
  Net Change in Unrealized Losses.
  Net Decrease in Net Assets Resulting from
    Operations.
  Results
    of Operations  For the three months ended
    February 29, 2008
    Investment Income.
 36




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##### Table of Contents



Operating Expenses.
  Net Investment Loss.
  Net Realized Gains (Losses).
  Net Change in Unrealized Gains (Losses).
  Net Decrease in Net Assets Resulting from
    Operations.
  Liquidity
    and Capital Resources
          Contractual
    Obligations
  Investment Management Agreement.
 37




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##### Table of Contents



Payments by Period ($ in millions)Less Than 1








More Than 5Total


Year


1-3 years


3-5 years


YearsInvestment
    Facility(1)

$
52.0






$
52.0







     (1)
    
    The maximum amount that we can borrow under our credit facility
    is limited to the lesser of the commitment amount of
    $100 million and our borrowing base. As of
    February 28, 2009, we had a borrowing base of
    $61.9 million.  Distributions
        Off-Balance
    Sheet Arrangements
    Critical
    Accounting Policies
  Form 10-K Form 10-K.
 ITEM 3.  QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.    Interest Rate Risk.
 38




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##### Table of Contents



Impact of Market Prices on Portfolio Investment
    Valuation.
   ITEM 4.  CONTROLS
    AND PROCEDURES.  Evaluation
    of Controls and Procedures.
  Rule 13a-15(e)
 39




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##### Table of Contents



Changes
    in Internal Control Over Financial Reporting
     40




---



##### 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.   ITEM 5.  OTHER
    INFORMATION.   ITEM 6.  EXHIBITS  Form 10-Q:
 41




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##### Table of Contents



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 Ultimus
    Fund Solutions, LLC.**10
.3

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

Form of Amended Dividend Reinvestment Plan  filed
    herewith.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.*****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 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 Current
    Report on
    Form 8-K
    (File
    No. 814-00725),
    as filed with the Securities and Exchange Commission on
    March 6, 2008 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.*****
    
    Previously filed as an exhibit to Registrants Quarterly
    Report on Form
    10-Q (File
    No. 814-00725)
    as filed with the SEC on October 10, 2008 and incorporated
    by reference herein. 42




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##### Table of Contents



KAYNE
    ANDERSON ENERGY DEVELOPMENT COMPANY
  SIGNATURES
    KAYNE ANDERSON ENERGY DEVELOPMENT COMPANYDate: April 9, 2009

By: /s/  Kevin
    S. McCarthyKevin
    S. McCarthy
    Chairman of the Board of Directors,
    President and Chief Executive OfficerDate: April 9, 2009

By: /s/  Terry
    A. HartTerry
    A. Hart
    Chief Financial Officer and Treasurer  43