##### 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 1934
 For the quarterly period ended February 28, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For 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
    
    20-4991752(State of Incorporation)
    
    (I.R.S. Employer Identification Number)1100 Louisiana, Suite 4550Houston, Texas
    
    77002(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (713) 493-2020
 N/A
 
 þ o
  o o þ
 o þ




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TABLE OF CONTENTS
 PagePART IItem 1. Financial StatementsConsolidated Schedule of Investments as of February 28, 2007
    
    
    3Schedule of Investments as of November 30, 2006
    
    
    6Consolidated Statement of Assets and Liabilities as of February 28, 2007 and November 30, 2006
    
    
    9Consolidated Statement of Operations for the three months ended February 28, 2007
    
    
    10Consolidated Statement of Changes in Net Assets for the three months ended February 28, 2007
and for the period September 21, 2006 through November 30, 2006
    
    
    11Consolidated Statement of Cash Flows for the three months ended February 28, 2007
    
    
    12Notes to Consolidated Financial Statements
    
    
    13Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    26PART IIItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults Upon Senior Securities
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    27EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 CONSOLIDATED SCHEDULE OF INVESTMENTS
AS OF FEBRUARY 28, 2007
(amounts in 000s)
(UNAUDITED)
 No. ofShares/Units/Description:
    
    Warrants
    
    
    ValueLong-Term Investments  75.4%Equity Investments(a)  48.9%Publicly Traded MLP and MLP Affiliate(b)  28.6%Atlas Pipeline Partners, L.P.
    
    
    40
    
    
    $
    1,941BreitBurn Energy Partners L.P.
    
    
    11
    
    
    
    296Calumet Specialty Products Partners, L.P.
    
    
    108
    
    
    
    4,445Crosstex Energy, L.P.
    
    
    14
    
    
    
    538DCP Midstream Partners, LP
    
    
    64
    
    
    
    2,382Duncan Energy Partners L.P.(c)
    
    
    34
    
    
    
    818Enbridge Energy Management, L.L.C.(d)(e)
    
    
    34
    
    
    
    1,753Enbridge Energy Partners L.P.
    
    
    30
    
    
    
    1,576Energy Transfer Equity, L.P.
    
    
    208
    
    
    
    7,006Enterprise Products Partners L.P.
    
    
    198
    
    
    
    6,033Global Partners LP
    
    
    78
    
    
    
    2,252Hiland Holdings GP, LP
    
    
    21
    
    
    
    608Hiland Partners, LP
    
    
    32
    
    
    
    1,747Inergy, L.P.
    
    
    27
    
    
    
    832Kinder Morgan Management, LLC(d)(e)
    
    
    153
    
    
    
    7,668Magellan Midstream Partners, L.P.
    
    
    35
    
    
    
    1,473MarkWest Energy Partners, L.P.
    
    
    64
    
    
    
    4,173Martin Midstream Partners L.P.
    
    
    35
    
    
    
    1,269Natural Resources Partners L.P.
    
    
    2
    
    
    
    145ONEOK Partners, L.P.
    
    
    84
    
    
    
    5,412Plains All American Pipeline, L.P.
    
    
    51
    
    
    
    2,853Plains All American Pipeline, L.P(f)
    
    
    51
    
    
    
    2,824Regency Energy Partners LP
    
    
    17
    
    
    
    479Targa Resources Partners LP
    
    
    48
    
    
    
    1,147TC PipeLines, LP
    
    
    22
    
    
    
    782Teekay LNG Partners L.P.
    
    
    47
    
    
    
    1,737Teekay Offshore Partners L.P (d)
    
    
    23
    
    
    
    691TEPPCO Partners, L.P.
    
    
    42
    
    
    
    1,787Universal Compression Partners, L.P.
    
    
    68
    
    
    
    2,007Valero L.P.
    
    
    17
    
    
    
    1,072Williams Partners L.P.
    
    
    60
    
    
    
    2,592Williams Partners L.P.  Class B Units, Unregistered(f)
    
    
    23
    
    
    
    945Williams Partners L.P.  Unregistered(f)
    
    
    8
    
    
    
    34071,623Private MLP  19.0%Millennium Midstream Partners, LP(f)(g)
    
    
    2,375
    
    
    
    43,599Millennium
Midstream Partners, LP  Warrants(f)(h)
    
    
    2,375
    
    
    
    3,91947,518Other
Private Equity  1.3%ProPetro
Services, Inc.  Warrants(i)(j)
    
    
    2,905
    
    
    
    2,469Trident
Resources Corp.  Warrants(k)
    
    
    167
    
    
    
    6673,136Total
Equity Investments (Cost $108,893)
    
    
    
    
    
    
    122,277
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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONTINUED)
AS OF FEBRUARY 28, 2007
(amounts in 000s)
(UNAUDITED)
 Interest
    
    
    Maturity
    
    
    PrincipalDescription:
    
    Rate
    
    
    Date
    
    
    Amount
    
    
    ValueFixed Income Investments  26.5%United States  19.9%Midstream  2.8%SemGroup, L.P.
    
    
    8.750
    %
    
    
    11/15/15
    
    
    $
    4,500
    
    
    $
    4,567Targa Resources, Inc.
    
    
    (l
    )
    
    
    10/31/12
    
    
    
    486
    
    
    
    490Targa Resources, Inc.
    
    
    (m
    )
    
    
    10/31/12
    
    
    
    2,004
    
    
    
    2,0227,079Upstream  4.1%CDX Funding, LLC
    
    
    (n
    )
    
    
    3/31/13
    
    
    
    4,550
    
    
    
    4,596Coldren Resources, Inc.
    
    
    (o
    )
    
    
    7/14/11
    
    
    
    416
    
    
    
    419Coldren Resources, Inc.
    
    
    (p
    )
    
    
    7/14/11
    
    
    
    2,584
    
    
    
    2,610SandRidge Energy Inc.
    
    
    (q
    )
    
    
    11/20/07
    
    
    
    2,500
    
    
    
    2,51310,138Other Energy  13.0%ProPetro
Services, Inc.(j)
    
    
    (r
    )
    
    
    2/15/13
    
    
    
    35,000
    
    
    
    32,531Total United States  (Cost $49,010)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,748Canada  6.6%Upstream  6.6%Trident Exploration Corp.
    
    
    (s
    )
    
    
    4/26/11
    
    
    
    5,500
    
    
    
    5,747Trident Resources Corp.
    
    
    (t
    )
    
    
    11/22/11
    
    
    
    10,000
    
    
    
    10,872Total Canada  (Cost $14,886)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,619Total Fixed Income Investments (Cost $63,896)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,367Total Long-Term Investments (Cost $172,789)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    188,644Short-Term Investments  24.9%Repurchase Agreements  24.9%Bear, Stearns & Co. Inc. (Agreements
dated 2/28/07 to be repurchased at
$62,346), collateralized by $64,148 in
U.S. Government Agencies (Cost $62,337)
    
    
    5.270
    
    
    
    3/01/07
    
    
    
    
    
    
    
    62,337Total Investments  100.3% (Cost $235,126)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,981Total Liabilities in Excess of Other Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (867
    )Net Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    250,114
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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
CONSOLIDATED SCHEDULE OF INVESTMENTS (CONCLUDED)
AS OF FEBRUARY 28, 2007
(amounts in 000s except per unit amounts)
(UNAUDITED)
 
 (a)
    
    Unless otherwise noted, equity investments are common units/common shares.(b)
    
    Unless otherwise noted, 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
February 28, 2007, the Company had 24.4% of its total assets invested in securities treated as publicly
traded partnerships. It is the Companys intention to be treated as a RIC for tax purposes.(c)
    
    Security is currently non-income producing but is expected to pay distributions within the next 12 months.(d)
    
    Security is not treated as a publicly traded partnership for RIC qualification purposes.(e)
    
    Distributions are paid in-kind.(f)
    
    Fair valued securities, restricted from public sale. (see Notes 2 and 5).(g)
    
    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.(h)
    
    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.(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)
    
    Fair valued security (see Note 2).(k)
    
    Warrants relate to the Companys floating rate unsecured term loan facility with Trident Resources Corp. These
warrants are non-income producing and expire on November 30, 2013.(l)
    
    Floating rate letter of credit facility. Security pays interest at a rate of LIBOR + 225 basis points
(7.61% as of February 28, 2007).(m)
    
    Floating rate senior secured first lien term loan facility. Security pays interest at a rate of LIBOR +
225 basis points (7.61% as of February 28, 2007).(n)
    
    Floating rate senior secured second lien term loan facility. Security pays interest at a rate of LIBOR +
525 basis points (10.61% as of February 28, 2007).(o)
    
    Floating rate letter of credit facility. Security pays interest at a rate of LIBOR less 12.5 basis points
(5.24% as of February 28, 2007).(p)
    
    Floating rate senior secured first lien term loan. Security pays interest at a rate of LIBOR + 400 basis
points (9.36% as of February 28, 2007).(q)
    
    Floating rate senior unsecured bridge loan facility. Security pays interest at a rate of LIBOR + 450
basis points (10.19% as of February 28, 2007).(r)
    
    Floating rate senior secured second lien term loan facility. Security pays interest at a rate of LIBOR +
900 basis points (14.36% as of February 28, 2007).(s)
    
    Floating rate senior secured second lien term loan facility. Security pays interest at a rate of LIBOR +
750 basis points (12.86% as of February 28, 2007).(t)
    
    Floating rate unsecured term loan facility. Interest is paid-in-kind at a rate of LIBOR + 1200 basis
points (17.36% as of February 28, 2007).  5




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 SCHEDULE OF INVESTMENTS  AS OF NOVEMBER 30, 2006  (amounts in 000s)
 No. ofDescription:
    
    Shares/Units/Warrants
    
    
    ValueLong-Term Investments  44.0%Equity Investments(a)  26.4%Publicly Traded MLP and MLP Affiliate  26.0%Atlas Pipeline Partners, L.P.
    
    
    40
    
    
    $
    1,934BreitBurn Energy Partners L.P.(b)
    
    
    12
    
    
    
    259Calumet Specialty Products Partners, L.P.
    
    
    113
    
    
    
    4,294Crosstex Energy, L.P.
    
    
    9
    
    
    
    349DCP Midstream Partners, LP
    
    
    64
    
    
    
    2,141Enbridge Energy Management, L.L.C.(c)(d)
    
    
    34
    
    
    
    1,663Enbridge Energy Partners L.P.
    
    
    30
    
    
    
    1,494Energy Transfer Equity, L.P.
    
    
    220
    
    
    
    6,389Energy Transfer Partners, L.P.
    
    
    3
    
    
    
    175Enterprise Products Partners L.P.
    
    
    195
    
    
    
    5,502Global Partners LP
    
    
    82
    
    
    
    1,935Hiland Holdings GP, LP(b)
    
    
    21
    
    
    
    508Hiland Partners, LP
    
    
    30
    
    
    
    1,603Inergy, L.P.
    
    
    27
    
    
    
    794Kinder Morgan Management, LLC(c)(d)
    
    
    212
    
    
    
    9,746Magellan Midstream Partners, L.P.
    
    
    30
    
    
    
    1,161MarkWest Energy Partners, L.P.
    
    
    64
    
    
    
    3,639MarkWest Hydrocarbon, Inc.(c)
    
    
    14
    
    
    
    584Martin Midstream Partners L.P.
    
    
    45
    
    
    
    1,396Natural Resources Partners L.P.
    
    
    4
    
    
    
    220Natural Resources Partners L.P.  Subordinated Units
    
    
    8
    
    
    
    439ONEOK Partners, L.P.
    
    
    84
    
    
    
    5,101Plains All American Pipeline, L.P.
    
    
    51
    
    
    
    2,596Regency Energy Partners LP
    
    
    17
    
    
    
    469TC PipeLines, LP
    
    
    18
    
    
    
    587Teekay LNG Partners L.P.
    
    
    47
    
    
    
    1,490TEPPCO Partners, L.P.
    
    
    42
    
    
    
    1,646Universal Compression Partners, L.P.(b)
    
    
    68
    
    
    
    1,681Valero L.P.
    
    
    16
    
    
    
    867Williams Partners L.P.
    
    
    60
    
    
    
    2,32162,983Other Equity  0.4%Trident Resources Corp.  Warrants(e)
    
    
    167
    
    
    
    917Total Equity Investments (Cost $57,585)
    
    
    
    
    
    
    63,900
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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS (CONTINUED)
AS OF NOVEMBER 30, 2006
(amounts in 000s)
 Interest
    
    
    Maturity
    
    
    PrincipalDescription:
    
    Rate
    
    
    Date
    
    
    Amount
    
    
    ValueFixed Income Investments  17.6%United States  11.1%Midstream  6.2%SemGroup, L.P.
    
    
    8.750
    %
    
    
    11/15/15
    
    
    $
    7,500
    
    
    $
    7,575Targa Resources, Inc.
    
    
    (f
    )
    
    
    10/31/12
    
    
    
    486
    
    
    
    488Targa Resources, Inc.
    
    
    (g
    )
    
    
    10/31/12
    
    
    
    2,004
    
    
    
    2,012Targa Resources, Inc.
    
    
    (h
    )
    
    
    10/31/07
    
    
    
    4,843
    
    
    
    4,84914,924Upstream  4.9%CDX Funding, LLC
    
    
    (i
    )
    
    
    3/31/13
    
    
    
    6,300
    
    
    
    6,355Coldren Resources, Inc.
    
    
    (j
    )
    
    
    7/14/11
    
    
    
    416
    
    
    
    419Coldren Resources, Inc.
    
    
    (k
    )
    
    
    7/14/11
    
    
    
    2,584
    
    
    
    2,603SandRidge Energy Inc.
    
    
    (l
    )
    
    
    11/20/07
    
    
    
    2,500
    
    
    
    2,50611,883Total United States  (Cost $26,794)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,807Canada  6.5%Upstream  6.5%Trident Exploration Corp.
    
    
    (m
    )
    
    
    4/26/11
    
    
    
    5,500
    
    
    
    5,638Trident Resources Corp.
    
    
    (n
    )
    
    
    11/22/11
    
    
    
    10,000
    
    
    
    10,200Total Canada  (Cost $14,401)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,838Total Fixed Income Investments (Cost $41,195)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,645Total Long-Term Investments (Cost $98,780)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,545Short-Term Investments  55.9%Repurchase Agreement  55.9%Bear, Stearns & Co. Inc. (Agreement dated 11/30/06 to be repurchased at $135,154),
collateralized by $139,055 in U.S. Treasury Strips (Cost $135,134)
    
    
    5.270
    
    
    
    12/01/06
    
    
    
    
    
    
    
    135,134Total Investments  99.9% (Cost $233,914)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    241,679Other Assets in Excess of Total Liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    235Net Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    241,914
  7




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS (CONCLUDED)
AS OF NOVEMBER 30, 2006
(amounts in 000s)
 
 (a)
    
    Unless otherwise noted, equity investments are common units/common shares.(b)
    
    Security is currently non-income producing but is expected to pay distributions within the next 12 months.(c)
    
    Security is not 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, 2006, the Company had 21.1% of its total assets invested in securities treated as publicly
traded partnerships. It is the Companys intention to be treated as a RIC for tax purposes.(d)
    
    Distributions are paid in-kind.(e)
    
    Warrants relate to the floating rate unsecured term loan facility with Trident Resources Corp. These
warrants are non-income producing and expire on November 30, 2013.(f)
    
    Floating rate letter of credit facility. Security pays interest at a rate of LIBOR + 225 basis points
(7.62% as of November 30, 2006).(g)
    
    Floating rate senior secured first lien term loan facility. Security pays interest at a rate of LIBOR +
225 basis points (7.62% as of November 30, 2006).(h)
    
    Floating rate senior secured first lien bridge loan facility. Security pays interest at a rate of LIBOR +
225 basis points (7.62% as of November 30, 2006).(i)
    
    Floating rate senior secured second lien term loan facility. Security pays interest at a rate of LIBOR +
525 basis points (10.62% as of November 30, 2006).(j)
    
    Floating rate letter of credit facility. Security pays interest at a rate of LIBOR less 12.5 basis points
(5.25% as of November 30, 2006).(k)
    
    Floating rate senior secured first lien term loan. Security pays interest at a rate of LIBOR + 400 basis
points (9.39% as of November 30, 2006).(l)
    
    Floating rate senior unsecured bridge loan facility. Security pays interest at a rate of LIBOR + 450
basis points (11.00% as of November 30, 2006).(m)
    
    Floating rate senior secured second lien term loan facility. Security pays interest at a rate of LIBOR +
750 basis points (12.88% as of November 30, 2006).(n)
    
    Floating rate unsecured term loan facility. Interest is paid-in-kind at a rate of LIBOR + 1200 basis
points (17.37% as of November 30, 2006).  8




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
(amounts in 000s, except share and per share amounts)
 February 28,2007
    
    
    November 30,(Unaudited)
    
    
    2006ASSETSInvestments, at fair value (Cost  $172,789 and $98,780, respectively)
    
    $
    188,644
    
    
    $
    106,545Repurchase agreement (Cost  $62,337 and $135,134, respectively)
    
    
    62,337
    
    
    
    135,134Total investments (Cost  $235,126 and $233,914, respectively)
    
    
    250,981
    
    
    
    241,679Deposits with brokers
    
    
    116
    
    
    
    101Receivable for securities sold
    
    
    26
    
    
    
    567Interest, dividends and distributions receivable
    
    
    939
    
    
    
    931Receivable for offering costs
    
    
    
    
    
    
    200Prepaid expenses and other assets
    
    
    114
    
    
    
    126Total Assets
    
    
    252,176
    
    
    
    243,604LIABILITIESInvestment management fee payable, net of fee waivers
    
    
    925
    
    
    
    571Accrued directors fees and expenses
    
    
    71
    
    
    
    63Accrued expenses and other liabilities
    
    
    1,066
    
    
    
    1,056Total Liabilities
    
    
    2,062
    
    
    
    1,690NET ASSETS
    
    $
    250,114
    
    
    $
    241,914NET ASSETS CONSIST OFCommon stock, $0.001 par value (10,000,060 shares issued and outstanding and
200,000,000 shares authorized at February 28, 2007 and November 30, 2006,
respectively)
    
    $
    10
    
    
    $
    10Paid-in capital
    
    
    233,216
    
    
    
    233,216Undistributed net investment income
    
    
    87
    
    
    
    864Accumulated net realized gains on investments
    
    
    960
    
    
    
    59Net unrealized gains on investments
    
    
    15,841
    
    
    
    7,765NET ASSETS
    
    $
    250,114
    
    
    $
    241,914NET ASSET VALUE PER SHARE
    
    $
    25.01
    
    
    $
    24.19
  9




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED FEBRUARY 28, 2007
(amounts in 000s)
(UNAUDITED)
 INVESTMENT INCOMEIncomeDividends and distributions
    
    $
    879Return of capital
    
    
    (791
    )Net
dividends and distributions
    
    
    88Interest
    
    
    2,702Total investment income
    
    
    2,790ExpensesBase investment management fees
    
    
    1,058Incentive investment management fees
    
    
    177Professional fees
    
    
    156Reports to stockholders
    
    
    83Directors fees
    
    
    63Administration fees
    
    
    56Insurance
    
    
    38Custodian fees
    
    
    15Other expenses
    
    
    65Total Expenses  Before Investment Management Fee Waivers
    
    
    1,711Base investment management fee waivers
    
    
    (303
    )Total Expenses
    
    
    1,408Net
Investment Income  Before Income Taxes
    
    
    1,382Current income tax benefit
    
    
    41Net Investment Income
    
    
    1,423REALIZED AND UNREALIZED GAINSNet Realized GainsInvestments
    
    
    901Net Change in Unrealized GainsInvestments
    
    
    8,090Deferred
income tax expense
    
    
    (14
    )Net Change in Unrealized Gains
    
    
    8,076Net Realized and Unrealized Gains
    
    
    8,977NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
    
    $
    10,400
  10




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
(amounts in 000s, except share amounts)
 Period EndedThree Months
    
    
    September 21,Ended February 28,
    
    
    2006* through2007
    
    
    November 30,(Unaudited)
    
    
    2006OPERATIONSNet investment income
    
    $
    1,423
    
    
    $
    864Net realized gains
    
    
    901
    
    
    
    59Net change in unrealized gains
    
    
    8,076
    
    
    
    7,765Net Increase in Net Assets Resulting from Operations
    
    
    10,400
    
    
    
    8,688DIVIDENDSDividends from net investment income
    
    
    (2,200
    )
    
    
    CAPITAL STOCK TRANSACTIONSProceeds from initial public offering of 10,000,000 shares of common stock
    
    
    
    
    
    
    250,000Underwriting discounts and offering expenses
    
    
    
    
    
    
    (16,775
    )Net
Increase in Net Assets from Capital Stock Transactions
    
    
    
    
    
    
    233,225Total Increase in Net Assets
    
    
    8,200
    
    
    
    241,913NET ASSETSBeginning of period
    
    
    241,914
    
    
    
    1End of
period(1)
    
    $
    250,114
    
    
    $
    241,914
 
 *
    
    Commencement of operations(1)
    
    Includes undistributed net investment income of $87 and $864, respectively.  11




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED FEBRUARY 28, 2007
(amounts in 000s)
(UNAUDITED)
 CASH FLOWS FROM OPERATING ACTIVITIESNet increase in net assets resulting from operations
    
    $
    10,400Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:Purchase of investments
    
    
    (89,211
    )Proceeds from sale of investments
    
    
    15,358Sale of short-term investments, net
    
    
    72,797Realized gains on investments
    
    
    (901
    )Return of capital distributions
    
    
    791Unrealized gains on investments
    
    
    (8,090
    )Accretion of bond discount
    
    
    (46
    )Increase in deposits with brokers
    
    
    (15
    )Decrease in receivable for securities sold
    
    
    541Increase in interest, dividend and distributions receivables
    
    
    (8
    )Decrease in receivable for offering costs
    
    
    200Decrease in prepaid expenses and other assets
    
    
    12Increase in investment management fee payable
    
    
    354Increase in accrued directors fees and expenses
    
    
    8Increase in accrued expenses and other liabilities
    
    
    10Net Cash Provided by Operating Activities
    
    
    2,200CASH FLOWS FROM FINANCING ACTIVITIESCash distributions to shareholders
    
    
    (2,200
    )Net Cash Used in Financing Activities
    
    
    (2,200
    )NET CHANGE IN CASH
    
    
    CASH  BEGINNING OF PERIOD
    
    
    CASH  END OF PERIOD
    
    $
    
  12




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in 000s, except share and per share amounts)
(UNAUDITED)
 1. ORGANIZATION
  2. SIGNIFICANT ACCOUNTING POLICIES
 Use of Estimates
 Interim Periods
 Principles of Consolidation
 Calculation of Net Asset Value
 Investment Valuation
 13




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##### Table of Contents




    
    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). Such
valuations will be submitted to the Valuation Committee (a committee of the board of
directors) on a quarterly basis, and until determinations of the Valuation Committee are
made with respect to such valuations, they will stand for intervening periods of time
unless a senior officer of KAFA determines that 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 on or about the end of
each quarter to consider new valuations presented by KAFA, if any, which were made in
accordance with the Valuation Procedures in such quarter. Between meetings of the
Valuation Committee, a senior officer of KAFA is authorized to make valuation
determinations. 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. Initially the independent third-party
valuation firm is Duff & Phelps, LLC.
    
    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.
   e.g.
 14




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Repurchase Agreements
 Short Sales
  i.e.
  15




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##### Table of Contents



Option Writing
  Security Transactions
 Investment Income and Return of Capital Estimates
 Dividends and Distributions to Stockholders
 Partnership Accounting Policy
 Income Taxes
  16




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##### Table of Contents



February 28,
    
    
    November 30,2007
    
    
    2006Undistributed
net investment income
    
    $
    146
    
    
    $
    997Undistributed capital gains
    
    
    960
    
    
    
    Unrealized appreciation
    
    
    15,855
    
    
    
    7,765Total distributable earnings
    
    $
    16,961
    
    
    $
    8,762
   February 28,
    
    
    November 30,2007
    
    
    2006Gross unrealized appreciation of investments
    
    $
    15,930
    
    
    $
    7,919Gross unrealized depreciation of investments
    
    
    (75
    )
    
    
    (154
    )Net unrealized appreciation
    
    $
    15,855
    
    
    $
    7,765
  Organizational and Offering Costs
 Indemnifications
 17




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##### Table of Contents



3. AGREEMENTS AND AFFILIATIONS
 Investment Management
Agreement
 Base Management Fee.
  Incentive Fee.
   18




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Portfolio
Companies
    Other
Affiliations
 19




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##### Table of Contents



4. INVESTMENT TRANSACTIONS
  5. RESTRICTED SECURITIES
  Number ofShares/Units/
    
    
    
    
    
    Purchase

    
    
    
    
    
    
    Fair
    
    
    Value perWarrants
    
    Acquisition
    
    
    Price
    
    
    Cost
    
    
    Value
    
    
    Share/Unit/
    
    
    Percent of
    
    
    Percent ofInvestment
    
    Security
    
    (in 000s)
    
    Date
    
    
    (in 000s)
    
    
    (in 000s)
    
    
    (in 000s)
    
    

Warrant
    
    
    Net Assets
    
    
    Total AssetsMillennium Midstream Partners, LP
    
    Class B Common Units
    
    2,375
    
    
    12/28/2006
    
    
    $
    43,599
    
    
    $
    43,561
    
    
    $
    43,599
    
    
    $
    18.36
    
    
    
    17.4
    %
    
    
    17.3
    %Millennium Midstream Partners, LP
    
    Warrants
    
    2,375
    
    
    12/28/2006
    
    
    
    3,919
    
    
    
    3,919
    
    
    
    3,919
    
    
    
    1.65
    
    
    
    1.6
    
    
    
    1.6Plains All American Pipeline, L.P.
    
    Common Units
    
    51
    
    
    12/19/2006
    
    
    
    2,500
    
    
    
    2,463
    
    
    
    2,824
    
    
    
    54.97
    
    
    
    1.1
    
    
    
    1.1Williams Partners L.P.
    
    Common Units
    
    8
    
    
    12/13/2006
    
    
    
    291
    
    
    
    287
    
    
    
    340
    
    
    
    42.83
    
    
    
    0.1
    
    
    
    0.1Williams Partners L.P.
    
    Class B Units
    
    23
    
    
    12/13/2006
    
    
    
    821
    
    
    
    811
    
    
    
    945
    
    
    
    41.22
    
    
    
    0.4
    
    
    
    0.4$
    51,130
    
    
    $
    51,041
    
    
    $
    51,627
    
    
    
    
    
    
    
    20.6
    %
    
    
    20.5
    %
 6. COMMON STOCK
  7. FINANCIAL HIGHLIGHTS
  February 28,
    
    
    November 30,2007
    
    
    2006Per Share of Common StockNet asset value, beginning of period
    
    $
    24.19
    
    
    $
    23.32Income from OperationsNet investment income
    
    
    0.14
    
    
    
    0.09Net realized and unrealized gain on investments
    
    
    0.90
    
    
    
    0.78Total income from investment operations
    
    
    1.04
    
    
    
    0.87DividendsDividends from net investment income
    
    
    (0.22
    )
    
    
    Net asset value, end of period
    
    $
    25.01
    
    
    $
    24.19Market value per share, end of period
    
    $
    24.95
    
    
    $
    22.32Total investment return based on market value(1)
    
    
    12.81
    %
    
    
    (10.72
    )%Supplemental Data and Ratios(2)Net assets, end of period
    
    $
    250,114
    
    
    $
    241,914Ratio of expenses to average net assets, including investment management
fee waivers and current and deferred income taxes, if any
    
    
    2.30
    %
    
    
    2.59
    %Ratio of expenses to average net assets, excluding investment management
fee waivers and current and deferred income taxes, if any
    
    
    2.85
    %
    
    
    3.09
    %Ratio of net investment income to average net assets
    
    
    2.37
    %
    
    
    1.89
    %Net increase in net assets resulting from operations to average net assets
    
    
    4.27
    %(3)
    
    
    3.69
    %(3)Portfolio turnover rate
    
    
    10.16

%(4)
    
    
    5.56

%(4)
 20




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##### Table of Contents



(1)
    
    Not annualized. 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.(2)
    
    Unless otherwise noted, ratios are annualized.(3)
    
    Not annualized.(4)
    
    Not annualized. Calculated based on the sales of long-term investments
of $15,358 and $3,153, respectively, divided by the monthly average
long-term investment balance of $151,094 and $56,730, respectively. 7. SUBSEQUENT EVENT
  21




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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 Form 10-K .
 Forward-Looking Statements
  
    
    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
   22




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##### Table of Contents



Portfolio and Investment Activity
     Our Top Ten Portfolio Investments as of February 28, 2007
  PercentPublic /
    
    
    
    
    
    
    Amount
    
    
    of TotalInvestment
    
    Private
    
    
    Sector
    
    
    ($ in millions)
    
    
    Assets1.
    
    
    Millennium Midstream Partners, LP(1)
    
    Private
    
    Midstream
    
    $
    47.5
    
    
    
    18.8
    %2.
    
    
    ProPetro Services, Inc.(2)
    
    Private
    
    Oilfield Services
    
    
    35.0
    
    
    
    13.93.
    
    
    Trident Resources Corp.(3)
    
    Private
    
    Upstream
    
    
    17.3
    
    
    
    6.94.
    
    
    Kinder Morgan Management, LLC
    
    Public
    
    Midstream
    
    
    7.7
    
    
    
    3.05.
    
    
    Energy Transfer Equity, L.P.
    
    Public
    
    Midstream
    
    
    7.0
    
    
    
    2.86.
    
    
    Enterprise Products Partners L.P.
    
    Public
    
    Midstream
    
    
    6.0
    
    
    
    2.47.
    
    
    Plains All American, L.P.(4)
    
    Public
    
    Midstream
    
    
    5.7
    
    
    
    2.38.
    
    
    ONEOK Partners, L.P.
    
    Public
    
    Midstream
    
    
    5.4
    
    
    
    2.19.
    
    
    CDX Funding, LLC
    
    Private
    
    Upstream
    
    
    4.6
    
    
    
    1.810.
    
    
    SemGroup, L.P.
    
    Private
    
    Midstream
    
    
    4.6
    
    
    
    1.8TOTAL
    
    
    
    
    
    
    
    
    
    $
    140.8
    
    
    
    55.8
    %
 23




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##### Table of Contents



(1)
    
    Our investment in Millennium Midstream Partners, LP
(Millennium) includes 2,375,000 Class B common
units, which represents a 39% limited partners interest; 2,375,000
Class A warrants and 212
incentive distribution rights.(2)
    
    Our investment in ProPetro Services, Inc. includes a senior secured second lien term loan and
2,904,620 warrants.(3)
    
    Our investment in Trident Resources Corp. includes our investment in Trident Exploration
Corp., the wholly-owned, primary subsidiary of Trident Resources Corp.(4)
    
    Our investment in Plains All American, L.P. includes our
investment in common units, restricted from
public sale. Results of Operations
  Investment Income.
 Operating Expenses.
 Net Investment Income.
 Net Realized Gains.
 Net Change in Unrealized Appreciation on Investments.
 Net Increase in Net Assets Resulting from Operations.
 Liquidity and Capital Resources
  Contractual Obligations
   24




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##### Table of Contents



Dividends
   Critical Accounting Policies
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  Interest Rate Risk.
  Portfolio Investment Valuation.
   25




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ITEM 4. CONTROLS AND PROCEDURES.
 Evaluation of Controls and Procedures
 26




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##### Table of Contents



PART II
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS.
  Our internal control over financial reporting may not be adequate and our independent auditors may
not be able to certify as to its adequacy, which could have a significant and adverse effect on our
business and reputation.
  
 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
  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 Administrative Services 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. *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 herewith31.2
    
    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 herewith32.1
    
    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filed herewith
 
 *
    
    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. 27




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 SIGNATURES
  KAYNE ANDERSON ENERGY DEVELOPMENTCOMPANYDate: April 13, 2007By:
    
    /s/ Kevin S. McCarthyKevin S. McCarthyChairman of the Board of Directors,President and Chief Executive Officer(Principal Executive Officer)Date: April 13, 2007By:
    
    /s/ Terry A. HartTerry A. HartChief Financial Officer and Treasurer(Principal Financial Officer)
 28