##### 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, 2010
 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
(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
 
 Yes þ No o
 Yes o Noo
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



TABLE OF CONTENTS
 PagePART IItem 1. Financial StatementsSchedule of Investments as of February 28, 2010
    
    
    2Schedule of Investments as of November 30, 2009
    
    
    6Statement of Assets and Liabilities as of
February 28, 2010 and November 30, 2009
    
    
    10Statement of Operations for the three months
ended February 28, 2010, and February 28, 2009
    
    
    11Statement of Changes in Net Assets for the
three months ended February 28, 2010 and for
the year ended November 30, 2009
    
    
    12Statement of Cash Flows for the three months
ended February 28, 2010 and February 28, 2009
    
    
    13Notes to 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
    
    
    41Item 4. Controls and Procedures
    
    
    42PART IIItem 1. Legal Proceedings
    
    
    43Item 1A. Risk Factors
    
    
    43Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 3. Defaults Upon Senior Securities
    
    
    43Item 4. Submission of Matters to a Vote of Security Holders
    
    
    43Item 5. Other Information
    
    
    43Item 6. Exhibits
    
    
    43Exhibit 10.7Exhibit 31.1Exhibit 31.2Exhibit 32.1
   1




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 SCHEDULE OF INVESTMENTS
 AS OF FEBRUARY 28, 2010
 (amounts in 000s)
 (UNAUDITED)
 No. ofDescription
    
    Shares/Units
    
    
    ValueLong-Term Investments  121.4%Equity Investments(a)  95.8%United States  95.8%Private MLP(b)(c)  54.1%Direct Fuels Partners, L.P.  Class A Common Units(d)
    
    
    2,500
    
    
    $
    27,500Direct Fuels Partners, L.P.  Convertible Preferred Units(d)(e)
    
    
    143
    
    
    
    2,529Direct Fuels Partners, L.P.  Class D Preferred Units(d)(f)
    
    
    61
    
    
    
    1,211International Resource Partners LP
    
    
    1,500
    
    
    
    36,000Quest Midstream Partners, L.P.(g)
    
    
    361
    
    
    
    1,803VantaCore Partners LP(d)
    
    
    1,465
    
    
    
    24,89993,942Publicly Traded MLP and MLP Affiliate(h)  41.7%Capital Product Partners L.P.(i)
    
    
    113
    
    
    
    985Copano Energy, L.L.C.
    
    
    249
    
    
    
    5,922DCP Midstream Partners, LP
    
    
    109
    
    
    
    3,350Eagle Rock Energy Partners, L.P.(i)
    
    
    1,113
    
    
    
    6,255Eagle Rock Energy Partners, L.P. (b)(i)(j)
    
    
    146
    
    
    
    823Enbridge Energy Management, L.L.C.(k)
    
    
    35
    
    
    
    1,730Enbridge Energy Partners, L.P.
    
    
    91
    
    
    
    4,665Energy Transfer Equity, L.P.
    
    
    77
    
    
    
    2,474Energy Transfer Partners, L.P.
    
    
    66
    
    
    
    3,045Enterprise GP Holdings L.P.
    
    
    7
    
    
    
    280Enterprise Products Partners L.P.
    
    
    193
    
    
    
    6,333Exterran Partners, L.P.
    
    
    82
    
    
    
    1,805Global Partners LP (i)
    
    
    142
    
    
    
    3,522Holly Energy Partners, L.P.
    
    
    11
    
    
    
    460Inergy, L.P.
    
    
    99
    
    
    
    3,583Kinder Morgan Management, LLC(k)
    
    
    29
    
    
    
    1,638MarkWest Energy Partners, L.P.
    
    
    74
    
    
    
    2,180Martin Midstream Partners L.P.
    
    
    45
    
    
    
    1,439Navios Maritime Partners L.P.(i)
    
    
    56
    
    
    
    879ONEOK Partners, L.P.
    
    
    74
    
    
    
    4,510Plains All American Pipeline, L.P.(d)
    
    
    103
    
    
    
    5,694Quicksilver Gas Services LP (i)
    
    
    34
    
    
    
    684Regency Energy Partners LP
    
    
    89
    
    
    
    1,892Targa Resources Partners LP
    
    
    37
    
    
    
    923TC PipeLines, LP
    
    
    9
    
    
    
    341
   2




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF FEBRUARY 28, 2010
(amounts in 000s)
(UNAUDITED)
 No. ofDescription
    
    Shares/Units
    
    
    ValuePublicly Traded MLP and MLP Affiliate(h)  (Continued)Teekay LNG Partners L.P.
    
    
    83
    
    
    $
    2,256Teekay Offshore Partners L.P.
    
    
    23
    
    
    
    434Teekay Tankers Ltd.
    
    
    1
    
    
    
    12TransMontaigne Partners L.P.(i)
    
    
    46
    
    
    
    1,272Western Gas Partners, LP
    
    
    54
    
    
    
    1,159Williams Partners L.P.
    
    
    45
    
    
    
    1,76672,311Other Private Equity(c)  0.0%ProPetro Services, Inc.  Warrants(b)(l)
    
    
    2,905
    
    
    
    Trident Resources Corp.  Warrants(m)
    
    
    100
    
    
    
    Total Equity Investments (Cost $175,404)
    
    
    
    
    
    
    166,253
 Interest
    
    
    Maturity
    
    
    PrincipalRate
    
    
    Date
    
    
    AmountEnergy Debt Investments(c)  25.6%United States  24.2%Upstream  10.5%Antero Resources Finance Corp.
    
    
    9.375
    %
    
    
    12/01/17
    
    
    $
    9,500
    
    
    
    9,690Hilcorp Energy Company
    
    
    7.750
    
    
    
    11/01/15
    
    
    
    2,885
    
    
    
    2,806Hilcorp Energy Company
    
    
    8.000
    
    
    
    02/15/20
    
    
    
    1,700
    
    
    
    1,632NFR Energy LLC
    
    
    9.750
    
    
    
    02/15/17
    
    
    
    2,000
    
    
    
    1,955Petroleum Development Corporation
    
    
    12.000
    
    
    
    02/15/18
    
    
    
    2,000
    
    
    
    2,10018,183Midstream and Other  9.3%Energy Future Holdings Corp.(n)
    
    
    10.000
    
    
    
    01/15/20
    
    
    
    5,000
    
    
    
    5,100Niska Gas Storage US LLC
    
    
    8.875
    
    
    
    03/15/18
    
    
    
    2,500
    
    
    
    2,500North American Energy Alliance LLC
    
    
    10.875
    
    
    
    06/01/16
    
    
    
    1,000
    
    
    
    1,060Texas Competitive Electric Holdings (n)
    
    
    (o
    )
    
    
    10/10/14
    
    
    
    9,209
    
    
    
    7,45916,119Oilfield Services  2.3%ProPetro Services, Inc.(b)
    
    
    (p
    )
    
    
    02/15/13
    
    
    
    35,000
    
    
    
    4,000Coal  2.1%Drummond Company, Inc.
    
    
    7.375
    
    
    
    02/15/16
    
    
    
    4,000
    
    
    
    3,730Total United States (Cost $70,432)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,032Canada  1.4%Upstream  1.4%Athabasca Oil Sands Corp.(q) (Cost $2,434)
    
    
    13.000
    
    
    
    07/30/11
    
    
    
    (r
    )
    
    
    2,517Total Energy Debt Investments (Cost $72,866)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,549Total Long-Term Investments (Cost $248,270)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    210,802
   3




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF FEBRUARY 28, 2010
(amounts in 000s)
(UNAUDITED)
 Interest
    
    
    MaturityDescription
    
    Rate
    
    
    Date
    
    
    ValueShort-Term Investments  6.5%Repurchase Agreements  6.5%J.P. Morgan
Securities Inc.
(Agreements dated
2/26/2010 to be
repurchased at $11,320),
collateralized by
$11,654 in U.S.
Treasury bonds (Cost
$11,320)
    
    
    0.020
    %
    
    
    03/01/10
    
    
    $
    11,320Total Investments  127.9% (Cost $259,590)
    
    
    
    
    
    
    
    
    
    
    222,122Senior Secured Revolving Credit Facility Borrowings
    
    
    
    
    
    
    
    
    
    
    (61,000
    )Other Assets in Excess of Total Liabilities
    
    
    
    
    
    
    
    
    
    
    12,466Net Assets
    
    
    
    
    
    
    
    
    
    $
    173,588
 
 (a)
    
    Unless otherwise noted, equity investments are common units/common shares.(b)
    
    Fair valued and restricted security. See Notes 2, 4 and 8.(c)
    
    Unless otherwise noted, security is treated as an eligible portfolio company (EPC) under
the Investment Company Act of 1940, as amended (the 1940 Act).(d)
    
    The Company believes that it may be an affiliate of Direct Fuels Partners, L.P. (Direct
Fuels) and VantaCore Partners LP and that it is an affiliate of Plains All American Pipeline, L.P. See
Note 6  Agreements and Affiliations.(e)
    
    The Convertible Preferred Units consist of three classes  Class A, B and C. Each series has
a liquidation preference of $20.00 per unit and is convertible into Class A Common Units. See
Note 8   Restricted Securities.(f)
    
    The Class D Preferred Units are senior to Direct Fuels other series of Preferred Units and
Common Units. The Class D Preferred Units are being issued by Direct Fuels to the holders of
common units and preferred units in lieu of a cash distribution in the Companys fiscal first
quarter. See Note 8  Restricted Securities.(g)
    
    Security is non-income producing.(h)
    
    Unless otherwise noted, security is not treated as an EPC under the 1940 Act. As a business
development company, the Company is generally prohibited from acquiring assets other than
qualifying assets unless at least 70% of its total assets (excluding deferred tax assets) are
qualifying assets under the 1940 Act. As of February 28, 2010, the percentage of the Companys
total assets (excluding deferred tax assets) that are qualifying assets was 71.3%. See Note 3
 Qualifying Assets Under the 1940 Act.(i)
    
    All or a portion of the Companys holdings in this security are treated as an EPC under the
1940 Act. See Note 3  Qualifying Assets Under the 1940 Act.(j)
    
    Unregistered common units which were placed in escrow for a period of 18 months following the
sale of Millennium Midstream Partners, L.P. (the escrow account will be released on April 1,
2010). The valuation of these common units reflects the Companys expected recovery from the
escrow account.(k)
    
    Distributions are paid-in-kind.   4




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF FEBRUARY 28, 2010
(amounts in 000s)
(UNAUDITED)
 (l)
    
    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.(m)
    
    Warrants are non-income producing and expire on November 30, 2013.(n)
    
    Energy Future Holdings Corp., formerly TXU Corp., is a privately-held energy company with a
portfolio of competitive and regulated energy subsidiaries. Texas Competitive Electric
Holdings is a wholly owned subsidiary of Energy Future Holdings Corp.(o)
    
    Floating rate senior secured first lien term loan facility. Security pays interest at a rate
of LIBOR + 350 basis points (3.73% as of February 28, 2010).(p)
    
    Floating rate senior secured second lien term loan facility. Securitys default interest rate
is LIBOR + 1100 basis points, but the Company is not accruing interest income on this
security. See Note 2  Investment Income.(q)
    
    Security is not treated as an EPC under the 1940 Act.(r)
    
    Securitys principal amount is 2,500 Canadian dollars.   5




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 SCHEDULE OF INVESTMENTS
 AS OF NOVEMBER 30, 2009
 (amounts in 000s)
 No. ofDescription
    
    Shares/Units
    
    
    ValueLong-Term Investments  118.9%Equity Investments(a)  95.6%United States  95.6%Private MLP(b)(c)  56.1%Direct Fuels Partners, L.P.  Class A Common Units(d)
    
    
    2,500
    
    
    $
    30,000Direct Fuels Partners, L.P.  Class A Convertible Preferred Units(d)(e)
    
    
    96
    
    
    
    1,765Direct Fuels Partners, L.P.  Class B Convertible Preferred Units(d)(f)
    
    
    27
    
    
    
    503Direct Fuels Partners, L.P.  Class C Convertible Preferred Units(d)(g)
    
    
    20
    
    
    
    402International Resource Partners LP
    
    
    1,500
    
    
    
    34,500Quest Midstream Partners, L.P.(h)
    
    
    361
    
    
    
    1,713VantaCore Partners LP(d)
    
    
    1,465
    
    
    
    25,63294,515Publicly Traded MLP and MLP Affiliate(i)  39.5%Calumet Specialty Products Partners, L.P.
    
    
    22
    
    
    
    398Capital Product Partners L.P.(j)
    
    
    113
    
    
    
    860Copano Energy, L.L.C.
    
    
    74
    
    
    
    1,502Copano Energy, L.L.C.  Unregistered, Class D Units(b)
    
    
    76
    
    
    
    1,491DCP Midstream Partners, LP
    
    
    91
    
    
    
    2,295Duncan Energy Partners L.P.
    
    
    3
    
    
    
    74Eagle Rock Energy Partners, L.P.(j)(k)
    
    
    1,113
    
    
    
    5,264Eagle Rock Energy Partners, L.P. (b)(j)(l)
    
    
    148
    
    
    
    686Enbridge Energy Management, L.L.C.(m)
    
    
    27
    
    
    
    1,320Enbridge Energy Partners, L.P.
    
    
    91
    
    
    
    4,489Energy Transfer Equity, L.P.
    
    
    119
    
    
    
    3,506Energy Transfer Partners, L.P.
    
    
    37
    
    
    
    1,606Enterprise Products Partners L.P.
    
    
    223
    
    
    
    6,634Exterran Partners, L.P.
    
    
    82
    
    
    
    1,590Global Partners LP (j)
    
    
    142
    
    
    
    3,331Holly Energy Partners, L.P.
    
    
    11
    
    
    
    396Inergy, L.P.
    
    
    99
    
    
    
    3,280Kinder Morgan Management, LLC(m)
    
    
    34
    
    
    
    1,730K-Sea Transportation Partners L.P.
    
    
    8
    
    
    
    83Magellan Midstream Holdings, L.P.
    
    
    57
    
    
    
    2,342MarkWest Energy Partners, L.P.
    
    
    108
    
    
    
    2,768Martin Midstream Partners L.P.
    
    
    49
    
    
    
    1,283Navios Maritime Partners L.P.(j)
    
    
    56
    
    
    
    792ONEOK Partners, L.P.
    
    
    18
    
    
    
    1,077Plains All American Pipeline, L.P.(d)
    
    
    103
    
    
    
    5,200Quicksilver Gas Services LP (j)
    
    
    20
    
    
    
    426Regency Energy Partners LP
    
    
    154
    
    
    
    3,066Targa Resources Partners LP
    
    
    37
    
    
    
    737TC PipeLines, LP
    
    
    10
    
    
    
    352
   6




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF NOVEMBER 30, 2009
(amounts in 000s)
 No. ofDescription
    
    Shares/Units
    
    
    ValuePublicly Traded MLP and MLP Affiliate(i)  (Continued)Teekay LNG Partners L.P.
    
    
    102
    
    
    $
    2,485Teekay Offshore Partners L.P.
    
    
    23
    
    
    
    413TransMontaigne Partners L.P.(j)
    
    
    46
    
    
    
    1,198Williams Partners L.P.
    
    
    139
    
    
    
    3,92366,597Other Private Equity(c)  0.0%ProPetro Services, Inc.  Warrants(b)(n)
    
    
    2,905
    
    
    
    Trident Resources Corp.  Warrants(o)
    
    
    100
    
    
    
    Total Equity Investments (Cost $175,611)
    
    
    
    
    
    
    161,112
 Interest
    
    
    Maturity
    
    
    PrincipalRate
    
    
    Date
    
    
    AmountEnergy Debt Investments(c)  23.3%United States  21.8%Upstream  9.4%Antero Resources Finance Corp.
    
    
    9.375
    %
    
    
    12/01/17
    
    
    $
    7,500
    
    
    
    7,519Hilcorp Energy Company
    
    
    7.750
    
    
    
    11/01/15
    
    
    
    6,585
    
    
    
    6,338Petroleum Development Corporation
    
    
    12.000
    
    
    
    02/15/18
    
    
    
    2,000
    
    
    
    2,02015,877Midstream & Other  6.0%Energy Future Holdings Corp.(p)
    
    
    (q
    )
    
    
    10/10/14
    
    
    
    9,209
    
    
    
    6,861North American Energy Alliance LLC
    
    
    10.875
    
    
    
    06/01/16
    
    
    
    1,000
    
    
    
    1,042Targa Resources, Inc.
    
    
    8.500
    
    
    
    11/01/13
    
    
    
    2,155
    
    
    
    2,11210,015Oilfield Services  4.2%Dresser, Inc.
    
    
    (r
    )
    
    
    05/04/15
    
    
    
    5,000
    
    
    
    4,575ProPetro Services, Inc.(b)
    
    
    (s
    )
    
    
    02/15/13
    
    
    
    35,000
    
    
    
    2,5007,075Coal  2.2%Drummond Company, Inc.
    
    
    7.375
    
    
    
    02/15/16
    
    
    
    4,000
    
    
    
    3,770Total United States (Cost $67,224)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,737Canada  1.5%Upstream  1.5%Athabasca Oil Sands Corp.(t) (Cost $2,434)
    
    
    13.000
    
    
    
    7/30/11
    
    
    
    (u
    )
    
    
    2,510Total Energy Debt Investments (Cost $69,658)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,247Total Long-Term Investments (Cost $245,269)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,359
   7




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF NOVEMBER 30, 2009
(amounts in 000s)
 Interest
    
    
    MaturityDescription
    
    Rate
    
    
    Date
    
    
    ValueShort-Term Investments  2.8%Repurchase Agreements  2.8%J.P. Morgan
Securities Inc.
(Agreements dated
11/30/2009 to be
repurchased at $4,710),
collateralized by
4,798 in U.S.
Treasury note (Cost
$4,710)
    
    
    0.070
    %
    
    
    12/01/09
    
    
    $
    4,710Total Investments  121.7% (Cost $249,979)
    
    
    
    
    
    
    
    
    
    
    205,069Senior Secured Revolving Credit Facility Borrowings
    
    
    
    
    
    
    
    
    
    
    (56,000
    )Other Assets in Excess of Total Liabilities
    
    
    
    
    
    
    
    
    
    
    19,470Net Assets
    
    
    
    
    
    
    
    
    
    $
    168,539
 
 (a)
    
    Unless otherwise noted, equity investments are common units/common shares.(b)
    
    Fair valued and restricted security. See Notes 2, 4 and 8.(c)
    
    Unless otherwise noted, security is treated as an eligible portfolio company (EPC) under
the Investment Company Act of 1940, as amended (the 1940 Act).(d)
    
    The Company believes that it may be an affiliate of Direct Fuels Partners, L.P and VantaCore
Partners LP and that is an affiliate of Plains All American, L.P. See Note 6  Agreements and
Affiliations.(e)
    
    The Class A Convertible Preferred Units are convertible into Class A Common Units on a
one-for-one basis at a price of $20.00 per unit.(f)
    
    The Class B Convertible Preferred Units are convertible into Class A Common Units on a
one-for-one basis at a price of $18.50 per unit.(g)
    
    The Class C Convertible Preferred Units are convertible into Class A Common Units on a
one-for-one basis at a price of $15.50 per unit.(h)
    
    Security is non-income producing.(i)
    
    Unless otherwise noted, security is not treated as an EPC under the 1940 Act. As a business
development company, the Company is generally prohibited from acquiring assets other than
qualifying assets unless at least 70% of its total assets (excluding deferred tax assets) are
qualifying assets under the 1940 Act. As of November 30, 2009, the percentage of the Companys
total assets (excluding deferred tax assets) that are qualifying assets was 70.5%. See Note 3
 Qualifying Assets Under the 1940 Act.(j)
    
    All or a portion of the Companys holdings in this security are treated as an EPC under the
1940 Act. See Note 3  Qualifying Assets Under the 1940 Act.(k)
    
    Common units are unregistered but may be sold pursuant to Rule 144 under the Securities Act
of 1933, as amended (the Securities Act).   8




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
SCHEDULE OF INVESTMENTS
AS OF NOVEMBER 30, 2009
(amounts in 000s)
 (l)
    
    Unregistered common units which were placed in escrow for a period of 18 months following the
sale of Millennium Midstream Partners, L.P. (the escrow account will be released on April 1,
2010).(m)
    
    Distributions are paid-in-kind.(n)
    
    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.(o)
    
    Warrants are non-income producing and expire on November 30, 2013.(p)
    
    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.(q)
    
    Floating rate senior secured second lien term loan facility. Security pays interest at a rate
of LIBOR + 350 basis points (3.78% as of November 30, 2009).(r)
    
    Floating rate senior secured second lien term loan facility. Security pays interest at a rate
of LIBOR + 575 basis points (5.99% as of November 30, 2009).(s)
    
    Floating rate senior secured second lien term loan facility. Securitys default interest rate
is LIBOR + 1100 basis points, but the Company is not accruing interest income on this
security. See Note 2  Investment Income.(t)
    
    Security is not treated as an EPC under the 1940 Act.(u)
    
    Securitys principal amount is 2,500 Canadian dollars.   9




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 STATEMENT OF ASSETS AND LIABILITIES
 (amounts in 000s, except share and per share amounts)
 February 28,2010
    
    
    November 30,(Unaudited)
    
    
    2009ASSETSInvestments, at fair value:Non-affiliated (Cost  $176,025 and $172,244)
    
    $
    148,969
    
    
    $
    136,857Affiliated (Cost  $72,245 and $73,025)
    
    
    61,833
    
    
    
    63,502Repurchase agreements (Cost  $11,320 and $4,710)
    
    
    11,320
    
    
    
    4,710Total investments (Cost  $259,590 and $249,979)
    
    
    222,122
    
    
    
    205,069Deferred income tax asset
    
    
    15,698
    
    
    
    20,135Receivable for securities sold
    
    
    3,515
    
    
    
    14Interest, dividends and distributions receivable, net
    
    
    536
    
    
    
    410Debt issuance costs, prepaid expenses and other assets
    
    
    223
    
    
    
    392Total Assets
    
    
    242,094
    
    
    
    226,020LIABILITIESSenior secured revolving credit facility
    
    
    61,000
    
    
    
    56,000Payable for securities purchased
    
    
    5,957
    
    
    
    17Investment management fee payable
    
    
    913
    
    
    
    858Accrued directors fees and expenses
    
    
    77
    
    
    
    74Accrued expenses and other liabilities
    
    
    559
    
    
    
    532Total Liabilities
    
    
    68,506
    
    
    
    57,481NET ASSETS
    
    $
    173,588
    
    
    $
    168,539NET ASSETS CONSIST OFCommon stock, $0.001 par value (200,000,000 shares authorized at
February 28, 2010 and November 30, 2009; 10,190,383 and 10,163,978
shares issued and outstanding at February 28, 2010 and November 30,
2009, respectively)
    
    $
    10
    
    
    $
    10Paid-in capital
    
    
    200,906
    
    
    
    203,576Accumulated net investment loss, net of income taxes, less distributions
    
    
    (3,082
    )
    
    
    (2,869
    )Accumulated net realized losses on investments, net of income taxes
    
    
    (48
    )
    
    
    (3,272
    )Net unrealized losses on investments, net of income taxes
    
    
    (24,198
    )
    
    
    (28,906
    )NET ASSETS
    
    $
    173,588
    
    
    $
    168,539NET ASSET VALUE PER SHARE
    
    $
    17.03
    
    
    $
    16.58
   10




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 STATEMENT OF OPERATIONS
 (amounts in 000s)
 (UNAUDITED)
 Three Months EndedFebruary 28,
    
    
    February 28,2010
    
    
    2009INVESTMENT INCOMEIncomeDividends and Distributions:Non-affiliated investments
    
    $
    1,748
    
    
    $
    2,678Affiliated investments
    
    
    791
    
    
    
    1,949Total dividends and distributions
    
    
    2,539
    
    
    
    4,627Return of capital
    
    
    (2,063
    )
    
    
    (4,124
    )Net dividends and distributions
    
    
    476
    
    
    
    503Interest and other income
    
    
    940
    
    
    
    730Total investment income
    
    
    1,416
    
    
    
    1,233ExpensesBase investment management fees
    
    
    913
    
    
    
    777Professional fees
    
    
    162
    
    
    
    224Directors fees and expenses
    
    
    75
    
    
    
    75Administration fees
    
    
    35
    
    
    
    53Insurance
    
    
    37
    
    
    
    37Custodian fees
    
    
    16
    
    
    
    15Other expenses
    
    
    134
    
    
    
    205Total Expenses  Before Interest Expense
    
    
    1,372
    
    
    
    1,386Interest expense
    
    
    379
    
    
    
    384Total Expenses
    
    
    1,751
    
    
    
    1,770Net Investment Loss  Before Income Taxes
    
    
    (335
    )
    
    
    (537
    )Deferred income tax benefit
    
    
    122
    
    
    
    192Net Investment Loss
    
    
    (213
    )
    
    
    (345
    )REALIZED AND UNREALIZED GAINS (LOSSES)Net Realized Gains (Losses)Investments
    
    
    5,046
    
    
    
    (2,547
    )Foreign currency transactions
    
    
    31
    
    
    
    (6
    )Options
    
    
    
    
    
    
    Deferred income tax benefit (expense)
    
    
    (1,853
    )
    
    
    912Net Realized Gains (Losses)
    
    
    3,224
    
    
    
    (1,641
    )Net Change in Unrealized Gains (Losses)Investments
    
    
    7,441
    
    
    
    (5,222
    )Foreign currency translations
    
    
    (27
    )
    
    
    2Options
    
    
    
    
    
    
    17Deferred income tax benefit (expense)
    
    
    (2,706
    )
    
    
    1,860Net Change in Unrealized Gains (Losses)
    
    
    4,708
    
    
    
    (3,343
    )Net Realized and Unrealized Gains (Losses)
    
    
    7,932
    
    
    
    (4,984
    )NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS
    
    $
    7,719
    
    
    $
    (5,329
    )
   11




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 STATEMENT OF CHANGES IN NET ASSETS
 (amounts in 000s, except share amounts)
 Three MonthsEnded
    
    
    For the YearFebruary 28,
    
    
    Ended2010
    
    
    November 30,(Unaudited)
    
    
    2009OPERATIONSNet investment income (loss)
    
    $
    (213
    )
    
    $
    1,073Net realized gains (losses)
    
    
    3,224
    
    
    
    (10,736
    )Net change in unrealized gains
    
    
    4,708
    
    
    
    27,892Net Increase in Net Assets Resulting from Operations
    
    
    7,719
    
    
    
    18,229DIVIDENDS AND DISTRIBUTIONSDividends
    
    
    (3,011
    )(1)
    
    
    Distributions  return of capital
    
    
    (38
    )(1)
    
    
    (13,143
    )(2)Dividends and Distributions
    
    
    (3,049
    )
    
    
    (13,143
    )CAPITAL STOCK TRANSACTIONSIssuance of 26,405 and 60,992 shares of common stock from
reinvestment of dividends
    
    
    379
    
    
    
    766Increase in Net Assets from Capital Stock Transactions
    
    
    379
    
    
    
    766Total Increase in Net Assets
    
    
    5,049
    
    
    
    5,852NET ASSETSBeginning of period
    
    
    168,539
    
    
    
    162,687End of period
    
    $
    173,588
    
    
    $
    168,539
 
 (1)
    
    This is an estimate of the characterization of the distributions paid to common stockholders
for the three months ended February 28, 2010 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, 2009 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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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 STATEMENT OF CASH FLOWS
 (amounts in 000s)
 (UNAUDITED)
 Three Months EndedFebruary 28,
    
    
    February 28,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIESNet increase (decrease) in net assets resulting from operations
    
    $
    7,719
    
    
    $
    (5,329
    )Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash provided (used) by operating activities:Purchase of long-term investments
    
    
    (23,020
    )
    
    
    (4,706
    )Proceeds from sale of long-term investments
    
    
    23,117
    
    
    
    8,632Sale (purchase) of short-term investments, net
    
    
    (6,610
    )
    
    
    1,262Realized losses (gains) on investments
    
    
    (5,046
    )
    
    
    2,553Return of capital distributions
    
    
    2,063
    
    
    
    4,124Unrealized losses (gains) on investments
    
    
    (7,441
    )
    
    
    5,203Deferred income tax expense (benefit)
    
    
    4,437
    
    
    
    (2,964
    )Accretion of bond discount
    
    
    (116
    )
    
    
    (166
    )Increase in deposits with brokers
    
    
    
    
    
    
    (18
    )Amortization of debt issuance costs
    
    
    130
    
    
    
    57Decrease (increase) in receivable for securities sold
    
    
    (3,501
    )
    
    
    49Increase in interest, dividends and distributions receivable
    
    
    (126
    )
    
    
    (178
    )Decrease in prepaid expenses and other assets
    
    
    39
    
    
    
    205Increase in payable for securities purchased
    
    
    5,940
    
    
    
    442Increase (decrease) in investment management fee payable
    
    
    55
    
    
    
    (295
    )Increase in accrued directors fees and expenses
    
    
    3
    
    
    
    Increase in option contracts written
    
    
    
    
    
    
    17Increase (decrease) in accrued expenses and other liabilities
    
    
    27
    
    
    
    (352
    )Net Cash Provided by (Used in) Operating Activities
    
    
    (2,330
    )
    
    
    8,536CASH FLOWS FROM FINANCING ACTIVITIESBorrowings from (repayments of) senior secured revolving credit facility
    
    
    5,000
    
    
    
    (5,000
    )Cash distributions to stockholders
    
    
    (2,670
    )
    
    
    (3,536
    )Net Cash Provided by (Used in) Financing Activities
    
    
    2,330
    
    
    
    (8,536
    )NET CHANGE IN CASH
    
    
    
    
    
    
    CASH  BEGINNING OF PERIOD
    
    
    
    
    
    
    CASH  END OF PERIOD
    
    $
    
    
    
    $
    
 
     13




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 NOTES TO FINANCIAL STATEMENTS
 (amounts in 000s, except per share amounts)
 (UNAUDITED)
 1. ORGANIZATION
   2. SIGNIFICANT ACCOUNTING POLICIES
 Use of Estimates
 Reclassifications
 Calculation of Net Asset Value
 Investment Valuation
  14




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except 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.
 
    
    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 three
months ended February 28, 2010, the independent valuation firm provided limited
procedures on investments in six portfolio companies, comprising approximately 44.5% of
the total investments as of February 28, 2010. 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 FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
   e.g.
   Repurchase Agreements
 Security Transactions
 Derivative Financial Instruments
  16




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
 Interest rate swap contracts.
  Option contracts.
    Return of Capital Estimates
  17




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
  Three Months EndedFebruary 28,
    
    
    February 28,2010
    
    
    2009Distributions received, return of capital portion
    
    
    81
    %
    
    
    89
    %Return of capital  attributable to Net Realized Gains
    
    $
    872
    
    
    $
    569Return of capital  attributable to Net Change in Unrealized Gains
    
    
    1,191
    
    
    
    3,555Total return of capital
    
    $
    2,063
    
    
    $
    4,124
 Investment Income
    Three Months EndedFebruary 28,2010
    
    
    2009Enbridge Energy Management, L.L.C.
    
    $
    27
    
    
    $
    24Kinder Morgan Management, LLC
    
    
    36
    
    
    
    36Direct Fuels Partners L.P.
    
    
    1,211
    
    
    
    Total stock dividends
    
    $
    1,274
    
    
    $
    60
 Distributions to Stockholders
  18




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




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
  3. QUALIFYING ASSETS UNDER THE 1940 ACT
   February 28,2010
    
    
    November 30,(Unaudited)
    
    
    2009Qualifying assets:Private MLPs and other private equity
    
    $
    93,942
    
    
    $
    94,515Publicly traded MLP and MLP Affiliate investments:Capital Products Partners L.P.(1)
    
    
    636
    
    
    
    555Eagle Rock Energy Partners, L.P.(2)
    
    
    7,078
    
    
    
    5,950Global Partners LP(1)
    
    
    414
    
    
    
    392Navios Maritime Partners L.P.(1)
    
    
    879
    
    
    
    792Quicksilver Gas Services LP(1)
    
    
    271
    
    
    
    281TransMontaigne Partners L.P.(1)
    
    
    1,272
    
    
    
    1,198$
    10,550
    
    
    $
    9,168Energy debt investments
    
    
    42,032
    
    
    
    36,737Repurchase agreement and deposits with brokers
    
    
    11,320
    
    
    
    4,710Receivable for securities sold
    
    
    3,515
    
    
    
    14Qualifying assets
    
    $
    161,359
    
    
    $
    145,144Total assets:Total assets
    
    $
    242,094
    
    
    $
    226,020Less: deferred income tax asset
    
    
    (15,698
    )
    
    
    (20,135
    )Total assets, net
    
    $
    226,396
    
    
    $
    205,885Qualifying assets as a percentage of total assets
    
    
    71.3
    %
    
    
    70.5
    %
 
 (1)
    
    Securities of publicly traded MLPs were designated as EPCs since their total market
capitalization was less than $250 million within the 60 day period prior to their purchase.(2)
    
    Represents units received as partial consideration related to the sale of Millennium
Midstream Partners, L.P. (Millennium was a Private MLP investment) to Eagle Rock Energy
Partners, L.P. on October 1, 2008. BDC rules consider securities received as consideration
from the sale of an EPC to be an EPC.  20




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
 4. FAIR VALUE
   
    
    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.
   Quoted Prices in
    
    
    Prices with Other
    
    
    One or MoreActive Markets
    
    
    Observable Inputs
    
    
    Unobservable InputsAssets at Fair Value
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Equity investments
    
    $
    166,253
    
    
    $
    71,488
    
    
    $
    
    
    
    $
    94,765Energy debt investments
    
    
    44,549
    
    
    
    
    
    
    
    40,549
    
    
    
    4,000Repurchase agreement
    
    
    11,320
    
    
    
    
    
    
    
    11,320
    
    
    
    Total assets at fair value
    
    $
    222,122
    
    
    $
    71,488
    
    
    $
    51,869
    
    
    $
    98,765
  Quoted Prices in
    
    
    Prices with Other
    
    
    One or MoreActive Markets
    
    
    Observable Inputs
    
    
    Unobservable InputsAssets at Fair Value
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Equity investments
    
    $
    161,112
    
    
    $
    64,420
    
    
    $
    
    
    
    $
    96,692Energy debt investments
    
    
    39,247
    
    
    
    
    
    
    
    36,747
    
    
    
    2,500Repurchase agreement
    
    
    4,710
    
    
    
    
    
    
    
    4,710
    
    
    
    Total assets at fair value
    
    $
    205,069
    
    
    $
    64,420
    
    
    $
    41,457
    
    
    $
    99,192
   21




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
   Equity
    
    
    Energy Debt
    
    
    TotalBalance  November 30, 2009
    
    $
    96,692
    
    
    $
    2,500
    
    
    $
    99,192Transfers out of Level 3
    
    
    (1,500
    )
    
    
    
    
    
    
    (1,500
    )Realized gains (losses)
    
    
    
    
    
    
    
    
    
    
    Unrealized gains (losses), net
    
    
    (1,638
    )
    
    
    1,500
    
    
    
    (138
    )Purchases, issuances or settlements
    
    
    1,211
    
    
    
    
    
    
    
    1,211Balance  February 28, 2010
    
    $
    94,765
    
    
    $
    4,000
    
    
    $
    98,765
   Equity
    
    
    Energy Debt
    
    
    TotalBalance  November 30, 2008
    
    $
    104,708
    
    
    $
    10,000
    
    
    $
    114,708Transfers out of Level 3
    
    
    (454
    )
    
    
    
    
    
    
    (454
    )Realized gains (losses)
    
    
    
    
    
    
    
    
    
    
    Unrealized losses, net
    
    
    (5,259
    )
    
    
    (5,500
    )
    
    
    (10,759
    )Purchases, issuances or settlements
    
    
    
    
    
    
    
    
    
    
    Balance  February 28, 2009
    
    $
    98,995
    
    
    $
    4,500
    
    
    $
    103,495
    22




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
 5. INCOME TAXES
  February 28,2010
    
    
    November 30,(Unaudited)
    
    
    2009Deferred tax assets:Organizational costs
    
    $
    17
    
    
    $
    18Net operating loss carryforwards
    
    
    2,279
    
    
    
    2,442Net capital loss carryforwards
    
    
    6,129
    
    
    
    7,333Net unrealized losses on investment securities
    
    
    9,119
    
    
    
    11,703Deferred tax liabilities:Basis reductions resulting from estimated return of capital
    
    
    (1,846
    )
    
    
    (1,361
    )Total net deferred tax asset
    
    $
    15,698
    
    
    $
    20,135
        23




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
  February 28,2010
    
    
    November 30,(Unaudited)
    
    
    2009Gross unrealized appreciation of investments
    
    $
    27,689
    
    
    $
    22,300Gross unrealized depreciation of investments
    
    
    (51,896
    )
    
    
    (53,601
    )Net unrealized depreciation before tax
    
    $
    (24,207
    )
    
    $
    (31,301
    )
  Three Months EndedFebruary 28,
    
    
    February 28,2010
    
    
    2009Deferred income tax benefit  net investment loss
    
    $
    122
    
    
    
    192Deferred income tax benefit (expense)  realized losses (gains)
    
    
    (1,853
    )
    
    
    912Deferred income tax benefit (expense)  unrealized losses (gains)
    
    
    (2,706
    )
    
    
    1,860Income tax benefit (expense)
    
    $
    (4,437
    )
    
    $
    2,964
   6. AGREEMENTS AND AFFILIATIONS
 Administration Agreement
 Investment Management Agreement
 Base Investment Management Fee.
  24




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
 Incentive Fee.
     Three Months EndedFebruary 28,
    
    
    February 28,2010
    
    
    2009Base investment management fees
    
    $
    913
    
    
    $
    777
  25




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
 Portfolio Companies
   Affiliated Investments.
 Direct Fuels Partners, L.P.
 Plains All American Pipeline, L.P.
 VantaCore Partners LP 
  26




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
 Non-Affiliated Investments.
 International Resource Partners LP
 Quest Midstream Partners, L.P. 
  7. INVESTMENT TRANSACTIONS
  8. RESTRICTED SECURITIES
   27




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KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
  Number ofUnits,Warrants, or
    
    
    
    
    
    
    
    
    
    
    Fair Value
    
    
    Percent
    
    
    PercentAcquisition
    
    Type of
    
    Principal ($)
    
    
    Cost
    
    
    Fair
    
    
    per Unit/
    
    
    of Net
    
    
    of TotalInvestment
    
    Security
    
    Date
    
    Restriction
    
    (in 000s)
    
    
    Basis
    
    
    Value
    
    
    Warrant
    
    
    Assets
    
    
    AssetsDirect Fuels Partners, L.P (1)
    
    Class A Common Units
    
    6/11/07
    
    (2)
    
    
    2,500
    
    
    $
    41,817
    
    
    $
    27,500
    
    
    $
    11.00
    
    
    
    15.8
    %
    
    
    11.4
    %Direct Fuels Partners, L.P.
    
    Class A Convertible Preferred Units(3)
    
    5/14/09
    
    (2)
    
    
    96
    
    
    
    1,952
    
    
    
    1,669
    
    
    
    17.30
    
    
    
    1.0
    
    
    
    0.7Direct Fuels Partners, L.P.
    
    Class B Convertible Preferred Units(3)
    
    8/25/09
    
    (2)
    
    
    27
    
    
    
    538
    
    
    
    477
    
    
    
    17.75
    
    
    
    0.3
    
    
    
    0.2Direct Fuels Partners, L.P.
    
    Class C Convertible Preferred Units(3)
    
    11/20/09
    
    (2)
    
    
    20
    
    
    
    408
    
    
    
    383
    
    
    
    18.85
    
    
    
    0.2
    
    
    
    0.2Direct Fuels Partners, L.P.
    
    Class D Preferred Units
    
    (4)
    
    (2)
    
    
    61
    
    
    
    
    
    
    
    1,211
    
    
    
    20.00
    
    
    
    0.7
    
    
    
    0.5Eagle Rock Energy Partners, L.P.
    
    Common Units
    
    10/01/08
    
    (5)
    
    
    146
    
    
    
    1,543
    
    
    
    823
    
    
    
    5.60
    
    
    
    0.5
    
    
    
    0.3International Resource Partners
LP(6)
    
    Class A Units
    
    6/12/07
    
    (2)
    
    
    1,500
    
    
    
    27,893
    
    
    
    36,000
    
    
    
    24.00
    
    
    
    20.7
    
    
    
    14.9ProPetro Services, Inc.
    
    Warrants
    
    2/15/07
    
    (2)
    
    
    2,905
    
    
    
    2,469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ProPetro Services, Inc.
    
    Secured Term Loan
    
    2/15/07
    
    (2)
    
    $
    35,000
    
    
    
    33,320
    
    
    
    4,000
    
    
    
    n/a
    
    
    
    2.3
    
    
    
    1.6Quest Midstream Partners, L.P.
    
    Common Units
    
    10/30/07
    
    (2)
    
    
    361
    
    
    
    6,584
    
    
    
    1,803
    
    
    
    5.00
    
    
    
    1.0
    
    
    
    0.7VantaCore Partners LP (7)
    
    Class A Common Units
    
    5/21/07,
    
    (2)8/04/08
    
    
    
    
    1,465
    
    
    
    23,835
    
    
    
    24,899
    
    
    
    17.00
    
    
    
    14.4
    
    
    
    10.3Total of securities
valued in accordance
with procedures
established by the
board of directors(8)
    
    
    
    
    
    $
    140,359
    
    
    $
    98,765
    
    
    
    
    
    
    
    56.9
    %
    
    
    40.8
    %Antero Resources Finance Corp.
    
    Senior Notes
    
    (9)
    
    (2)
    
    $
    9,500
    
    
    $
    9,604
    
    
    $
    9,690
    
    
    
    n/a
    
    
    
    5.6
    %
    
    
    4.0
    %Athabasca Oil Sands Corp.
    
    Senior Notes
    
    (9)
    
    (2)
    
    $
    2,500
    
    
    
    2,434
    
    
    
    2,517
    
    
    
    n/a
    
    
    
    1.5
    
    
    
    1.0Energy Future Holdings Corp.
    
    Senior Notes
    
    (9)
    
    (2)
    
    $
    5,000
    
    
    
    5,185
    
    
    
    5,100
    
    
    
    n/a
    
    
    
    2.9
    
    
    
    2.1Hilcorp Energy Company
    
    Senior Notes
    
    (9)
    
    (2)
    
    $
    2,885
    
    
    
    2,767
    
    
    
    2,806
    
    
    
    n/a
    
    
    
    1.6
    
    
    
    1.2Hilcorp Energy Company
    
    Senior Notes
    
    (9)
    
    (2)
    
    $
    1,700
    
    
    
    1,671
    
    
    
    1,632
    
    
    
    n/a
    
    
    
    0.9
    
    
    
    0.7NFR Energy LLC
    
    Senior Notes
    
    (9)
    
    (2)
    
    $
    2,000
    
    
    
    1,975
    
    
    
    1,955
    
    
    
    n/a
    
    
    
    1.1
    
    
    
    0.8Niska Gas Storage US, LLC
    
    Senior Notes
    
    (9)
    
    (2)
    
    $
    2,500
    
    
    
    2,511
    
    
    
    2,500
    
    
    
    n/a
    
    
    
    1.5
    
    
    
    1.0North American Energy Alliance LLC
    
    Senior Notes
    
    (9)
    
    (2)
    
    $
    1,000
    
    
    
    978
    
    
    
    1,060
    
    
    
    n/a
    
    
    
    0.6
    
    
    
    0.4Texas Competitive Electric Holdings
    
    Secured Term Loan
    
    (9)
    
    (2)
    
    $
    9,209
    
    
    
    7,056
    
    
    
    7,459
    
    
    
    n/a
    
    
    
    4.3
    
    
    
    3.1Trident Resources Corp.
    
    Warrants
    
    (9)
    
    (2)
    
    
    100
    
    
    
    411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total of securities
valued by prices
provided by market
maker or independent
pricing service
    
    
    
    
    
    $
    34,592
    
    
    $
    34,719
    
    
    
    
    
    
    
    20.0
    %
    
    
    14.3
    %Total of all restricted securities
    
    
    
    
    
    
    
    
    
    
    
    $
    174,951
    
    
    $
    133,484
    
    
    
    
    
    
    
    76.9
    %
    
    
    55.1
    %
 
 (1)
    
    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.(2)
    
    Unregistered security.(3)
    
    The Direct Fuels Convertible Preferred Units consist of three classes  Class A, B and C.
Each series has a liquidation preference of $20.00 per unit and is convertible into Class A
Common Units. The Class A Preferred Units are convertible into Class A Common Units at a
price of $20.00 per unit. The Class B Preferred Units are convertible into Class A Common
Units at a price of $18.50 per unit. The Class C Preferred Units are convertible into Class A
Common Units at a price of $15.50 per unit.(4)
    
    The Direct Fuels Class D Preferred Units are senior to Direct Fuels other series of
Preferred Units and Common Units. The Class D Preferred Units are being issued by Direct
Fuels to the holders of common units and preferred units in lieu of a cash distribution in the
Companys fiscal first quarter. See Note 8  Restricted Securities.(5)
    
    Unregistered Common Units were placed in escrow for a period of 18 months following the sale
of Millennium Midstream Partners, L.P. (the escrow account will be released on April 1, 2010).
The valuation of these common units reflects the Companys expected recovery from the escrow
account.  28




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
 (6)
    
    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.(7)
    
    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.(8)
    
    Restricted securities that represent Level 3 categorization where reliable market quotes are
not readily available. Securities are valued in accordance with the procedures established by
the board of directors. See Note 2  Significant Accounting Policies.(9)
    
    Restricted securities that represent Level 2 categorization. These securities were acquired
at various dates throughout the three months ended February 28, 2010 and in prior years.
Securities are valued using prices provided by a principal market maker, syndicate bank or an
independent pricing service. See Note 2  Significant Accounting Policies.  Number ofUnits,Warrants, or
    
    
    
    
    
    
    
    
    
    
    Fair Value
    
    
    Percent
    
    
    PercentAcquisition
    
    Type of
    
    Principal ($)
    
    
    Cost
    
    
    Fair
    
    
    per Unit/
    
    
    of Net
    
    
    of TotalInvestment
    
    Security
    
    Date
    
    Restriction
    
    (in 000s)
    
    
    Basis
    
    
    Value
    
    
    Warrant
    
    
    Assets
    
    
    AssetsCopano Energy, L.L.C.
    
    Class D Units
    
    3/14/08
    
    (1)
    
    
    76
    
    
    $
    2,000
    
    
    $
    1,491
    
    
    $
    19.62
    
    
    
    0.9
    %
    
    
    0.6
    %Direct Fuels Partners, L.P (2)
    
    Class A Common Units
    
    6/11/07
    
    (3)
    
    
    2,500
    
    
    
    41,817
    
    
    
    30,000
    
    
    
    12.00
    
    
    
    17.8
    
    
    
    13.3Direct Fuels Partners, L.P.
    
    Class A Convertible Preferred Units
    
    5/14/09
    
    (3)
    
    
    96
    
    
    
    1,952
    
    
    
    1,765
    
    
    
    18.39
    
    
    
    1.1
    
    
    
    0.8Direct Fuels Partners, L.P.
    
    Class B Convertible Preferred Units
    
    8/25/09
    
    (3)
    
    
    27
    
    
    
    538
    
    
    
    503
    
    
    
    18.63
    
    
    
    0.3
    
    
    
    0.2Direct Fuels Partners, L.P.
    
    Class C Convertible Preferred Units
    
    11/20/09
    
    (3)
    
    
    20
    
    
    
    406
    
    
    
    402
    
    
    
    20.10
    
    
    
    0.2
    
    
    
    0.2Eagle Rock Energy Partners, L.P.
    
    Common Units
    
    10/01/08
    
    (4)
    
    
    148
    
    
    
    1,563
    
    
    
    686
    
    
    
    4.64
    
    
    
    0.4
    
    
    
    0.3International Resource Partners
LP(5)
    
    Class A Units
    
    6/12/07
    
    (3)
    
    
    1,500
    
    
    
    28,193
    
    
    
    34,500
    
    
    
    23.00
    
    
    
    20.5
    
    
    
    15.3ProPetro Services, Inc.
    
    Warrants
    
    2/15/07
    
    (3)
    
    
    2,905
    
    
    
    2,469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ProPetro Services, Inc.
    
    Secured Term Loan
    
    2/15/07
    
    (3)
    
    $
    35,000
    
    
    
    33,320
    
    
    
    2,500
    
    
    
    n/a
    
    
    
    1.5
    
    
    
    1.1Quest Midstream Partners, L.P.
    
    Common Units
    
    10/30/07
    
    (3)
    
    
    361
    
    
    
    6,584
    
    
    
    1,713
    
    
    
    4.75
    
    
    
    1.0
    
    
    
    0.8VantaCore Partners LP (6)
    
    Class A Common Units
    
    5/21/07,
    
    (3)8/04/08
    
    
    
    
    1,465
    
    
    
    24,530
    
    
    
    25,632
    
    
    
    17.50
    
    
    
    15.2
    
    
    
    11.3Total of securities
valued in accordance
with procedures
established by the
board of directors(7)
    
    
    
    
    
    $
    143,372
    
    
    $
    99,192
    
    
    
    
    
    
    
    58.9
    %
    
    
    43.9
    %Antero Resources Finance Corp.
    
    Senior Notes
    
    (8)
    
    (3)
    
    $
    7,500
    
    
    $
    7,527
    
    
    $
    7,519
    
    
    
    n/a
    
    
    
    4.5
    %
    
    
    3.3
    %Athabasca Oil Sands Corp.
    
    Senior Notes
    
    (8)
    
    (3)
    
    $
    2,500
    
    
    
    2,434
    
    
    
    2,510
    
    
    
    n/a
    
    
    
    1.5
    
    
    
    1.1Dresser, Inc.
    
    Secured Term Loan
    
    (8)
    
    (3)
    
    $
    5,000
    
    
    
    4,834
    
    
    
    4,575
    
    
    
    n/a
    
    
    
    2.7
    
    
    
    2.0Drummond Company, Inc.
    
    Senior Notes
    
    (8)
    
    (3)
    
    $
    4,000
    
    
    
    3,500
    
    
    
    3,770
    
    
    
    n/a
    
    
    
    2.2
    
    
    
    1.7Energy Future Holdings Corp.
    
    Secured Term Loan
    
    (8)
    
    (3)
    
    $
    9,209
    
    
    
    6,968
    
    
    
    6,861
    
    
    
    n/a
    
    
    
    4.1
    
    
    
    3.0Hilcorp Energy Company
    
    Senior Notes
    
    (8)
    
    (3)
    
    $
    6,585
    
    
    
    6,065
    
    
    
    6,338
    
    
    
    n/a
    
    
    
    3.8
    
    
    
    2.8North American Energy Alliance LLC
    
    Senior Notes
    
    (8)
    
    (3)
    
    $
    1,000
    
    
    
    977
    
    
    
    1,042
    
    
    
    n/a
    
    
    
    0.6
    
    
    
    0.5Trident Resources Corp.
    
    Warrants
    
    (8)
    
    (3)
    
    
    100
    
    
    
    411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total of securities
valued by prices provided
by market maker or
independent pricing service
    
    
    
    
    
    $
    32,716
    
    
    $
    32,615
    
    
    
    
    
    
    
    19.4
    %
    
    
    14.4
    %Total of all restricted securities
    
    
    
    
    
    
    
    
    
    
    
    $
    176,088
    
    
    $
    131,807
    
    
    
    
    
    
    
    78.3
    %
    
    
    58.3
    %
 
 (1)
    
    Unregistered security of a publicly traded company for which there is currently no
established market. The Class D Units of Copano Energy, L.L.C. are expected to convert to
public units in February 2010.(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.(4)
    
    Unregistered Common Units were placed in escrow for a period of 18 months following the sale
of Millennium Midstream Partners, L.P. (the escrow account will be released on April 1, 2010).  29




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
 (5)
    
    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.(6)
    
    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.(7)
    
    Restricted securities that represent Level 3 categorization where reliable market quotes are
not readily available. Securities are valued in accordance with the procedures established by
the board of directors. See Note 2  Significant Accounting Policies.(8)
    
    Restricted securities that represent Level 2 categorization. These securities were acquired
at various dates throughout the year ended November 30, 2009 and in prior years. Securities
are valued using prices provided by a principal market maker, syndicate bank or an independent
pricing service. See Note 2  Significant Accounting Policies. 9. SENIOR SECURED REVOLVING CREDIT FACILITY
     30




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##### Table of Contents



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




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
 10. FINANCIAL HIGHLIGHTS
  February 28,2010
    
    
    November 30(Unaudited)
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Per Share of Common Stock(1)Net asset value, beginning of period
    
    $
    16.58
    
    
    $
    16.10
    
    
    $
    24.39
    
    
    $
    24.19
    
    
    $
    23.32Net investment income (loss)
    
    
    (0.02
    )
    
    
    0.10
    
    
    
    (0.35
    )
    
    
    0.36
    
    
    
    0.09Net realized and unrealized gain (loss) on investments
    
    
    0.77
    
    
    
    1.68
    
    
    
    (5.89
    )
    
    
    1.18
    
    
    
    0.78Net change in unrealized losses  conversion to taxable corporation
    
    
    
    
    
    
    
    
    
    
    (0.38
    )
    
    
    
    
    
    
    Total income (loss) from investment operations
    
    
    0.75
    
    
    
    1.78
    
    
    
    (6.62
    )
    
    
    1.54
    
    
    
    0.87Dividends(2)
    
    
    (0.30
    )
    
    
    
    
    
    
    
    
    
    
    (0.95
    )
    
    
    Distributions from net realized long-term capital gains(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.15
    )
    
    
    Distributions  return of capital(2)
    
    
    
    
    
    
    (1.30
    )
    
    
    (1.67
    )
    
    
    (0.24
    )
    
    
    Total Dividends and Distributions
    
    
    (0.30
    )
    
    
    (1.30
    )
    
    
    (1.67
    )
    
    
    (1.34
    )
    
    
    Net asset value, end of period
    
    $
    17.03
    
    
    $
    16.58
    
    
    $
    16.10
    
    
    $
    24.39
    
    
    $
    24.19Market value per share, end of period
    
    $
    15.07
    
    
    $
    13.53
    
    
    $
    9.63
    
    
    $
    23.14
    
    
    $
    22.32Total investment return based on market value(3)
    
    
    13.7
    %
    
    
    56.0
    %
    
    
    (54.8
    )%
    
    
    9.3
    %
    
    
    (10.7
    )%Supplemental Data and Ratios(4)Net assets, end of period
    
    $
    173,588
    
    
    $
    168,539
    
    
    $
    162,687
    
    
    $
    245,133
    
    
    $
    241,914Ratio of expenses to average net assets:(5)Management fees
    
    
    2.2
    %
    
    
    2.0
    %
    
    
    2.4
    %
    
    
    2.0
    %
    
    
    1.7
    %Other expenses
    
    
    1.1
    %
    
    
    1.3
    %
    
    
    1.1
    %
    
    
    0.8
    %
    
    
    1.4
    %Subtotal
    
    
    3.3
    %
    
    
    3.3
    %
    
    
    3.5
    %
    
    
    2.8
    %
    
    
    3.1
    %Interest expense
    
    
    0.9
    %
    
    
    0.8
    %
    
    
    2.0
    %
    
    
    1.0
    %
    
    
    Management fee waivers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    )%
    
    
    (0.5
    )%Tax expense (benefit)
    
    
    10.5
    %
    
    
    6.9
    %
    
    
    (15.5
    )%
    
    
    0.8
    %
    
    
    Total expenses(6)
    
    
    14.7
    %
    
    
    11.0
    %
    
    
    (10.0
    )%
    
    
    4.2
    %
    
    
    2.6
    %Ratio of net investment income (loss) to average net assets
    
    
    (0.5
    )%
    
    
    0.7
    %
    
    
    (1.6
    )%
    
    
    1.5
    %
    
    
    1.9
    %Net increase (decrease) in net assets resulting from operations to
average net assets
    
    
    4.5
    %(7)
    
    
    11.3
    %
    
    
    (31.1
    )%
    
    
    6.2
    %
    
    
    3.7
    %(7)Portfolio turnover rate
    
    
    11.2
    %(7)
    
    
    20.9
    %
    
    
    27.0
    %
    
    
    28.8
    %
    
    
    5.6
    %(7)Average net assets
    
    $
    171,064
    
    
    $
    160,847
    
    
    $
    214,818
    
    
    $
    248,734
    
    
    $
    235,199Average shares of common stock outstanding
    
    
    10,173,073
    
    
    
    10,116,071
    
    
    
    10,073,398
    
    
    
    10,014,496
    
    
    
    10,000,060Average amount of borrowings outstanding under the Credit
Facilities
    
    $
    58,011
    
    
    $
    53,422
    
    
    $
    75,563
    
    
    $
    32,584
    
    
    
    Average amount of borrowings outstanding per share of common stock
during the period
    
    $
    5.70
    
    
    $
    5.28
    
    
    $
    7.50
    
    
    $
    3.25
    
    
    
    
 
 (1)
    
    Based on average shares of common stock outstanding for each of the periods ended.(2)
    
    The information presented for the three months ended February 28, 2010 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.  32




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(amounts in 000s, except per share amounts)
(UNAUDITED)
 (3)
    
    Not annualized for the three months ended February 28, 2010 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 for each period in the Companys Financial Highlights. Three Months EndedFebruary 28, 2010
    
    
    Year Ended November 30,(Unaudited)
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Management fees
    
    
    1.6
    %
    
    
    1.5
    %
    
    
    1.7
    %
    
    
    1.7
    %
    
    
    1.6
    %Other expenses
    
    
    0.8
    
    
    
    1.0
    
    
    
    0.8
    
    
    
    0.7
    
    
    
    1.3Subtotal
    
    
    2.4
    %
    
    
    2.5
    %
    
    
    2.5
    %
    
    
    2.4
    %
    
    
    2.9
    %Interest expense
    
    
    0.6
    
    
    
    0.6
    
    
    
    1.4
    
    
    
    0.9
    
    
    
    Management fee waivers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    (0.4
    )Tax expense (benefit)
    
    
    7.7
    
    
    
    5.1
    
    
    
    (11.1
    )
    
    
    0.7
    
    
    
    Total expenses(6)
    
    
    10.7
    %
    
    
    8.2
    %
    
    
    (7.2
    )%
    
    
    3.6
    %
    
    
    2.5
    %Average total assets
    
    $
    234,057
    
    
    $
    216,705
    
    
    $
    302,007
    
    
    $
    290,922
    
    
    $
    246,802
 (6)
    
    For the year ended November 30, 2008, total expenses exclude 0.4% relating to bad debt
expense for the ratio of expenses to average net assets and 0.3% for the ratio of expenses to
average total assets.(7)
    
    Not annualized. 11. COMMON STOCK
  Shares outstanding at November 30, 2009
    
    
    10,163,978Shares issued through reinvestment of dividends and distributions
    
    
    26,405Shares outstanding at February 28, 2010
    
    
    10,190,383
 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 financial
statements and the notes thereto included in this report and with the audited
financial statements and notes thereto included in our Annual Report on 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 hold or 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 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.
 
    
    We undertake no obligation to update or revise any forward-looking statements made
herein.
 Overview
   34




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##### Table of Contents



Portfolio and Investment Activity
     Number of Portfolio Companies at
    
    
    Percent of Long-Term Investments atFebruary 28,
    
    
    November 30,
    
    
    February 28,
    
    
    November 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Private MLP
    
    
    4
    
    
    
    4
    
    
    
    44.6
    %
    
    
    47.2
    %Publicly Traded MLP and MLP Affiliate
    
    
    30
    
    
    
    31
    
    
    
    34.3
    
    
    
    33.2Other Private Equity
    
    
    1
    
    
    
    1
    
    
    
    0.0
    
    
    
    0.0Energy Debt Investments
    
    
    11
    
    
    
    10
    
    
    
    21.1
    
    
    
    19.646
    
    
    
    46
    
    
    
    100.0
    %
    
    
    100.0
    %
  Our Top Ten Portfolio Investments as of February 28, 2010
  AmountPublic/
    
    Equity/
    
    
    
    ($ in
    
    
    Percent ofInvestment
    
    Private
    
    Debt
    
    Sector
    
    millions)
    
    
    Total Assets(1)1.
    
    
    International Resource Partners
LP(2)
    
    Private
    
    Equity
    
    Coal
    
    $
    36.0
    
    
    
    14.9
    %2.
    
    
    Direct Fuels Partners, L.P.(3)
    
    Private
    
    Equity
    
    Midstream
    
    
    31.2
    
    
    
    12.93.
    
    
    VantaCore Partners LP(4)
    
    Private
    
    Equity
    
    Aggregates
    
    
    24.9
    
    
    
    10.34.
    
    
    Antero Resources Finance Corp.
    
    Private
    
    Debt
    
    Upstream
    
    
    9.7
    
    
    
    4.05.
    
    
    Texas Competitive Electric Holdings
    
    Private
    
    Debt
    
    Utility
    
    
    7.5
    
    
    
    3.16.
    
    
    Eagle Rock Energy Partners, L.P.(5)
    
    Public
    
    Equity
    
    Midstream/Upstream
    
    
    7.1
    
    
    
    2.97.
    
    
    Enterprise Products Partners L.P.
    
    Public
    
    Equity
    
    Midstream
    
    
    6.3
    
    
    
    2.78.
    
    
    Copano Energy, L.L.C
    
    Public
    
    Equity
    
    Midstream
    
    
    5.9
    
    
    
    2.59.
    
    
    Plains All American Pipeline, L.P.
    
    Public
    
    Equity
    
    Midstream
    
    
    5.7
    
    
    
    2.310.
    
    
    Energy Future Holdings Corp.
    
    Private
    
    Debt
    
    Utility
    
    
    5.1
    
    
    
    2.1$
    139.4
    
    
    
    57.7
    %
 
 (1)
    
    Total assets were $242.1 million as of February 28, 2010.(2)
    
    Our investment in International Resource Partners LP includes 1,500,000 Class A Units, which
represents a 23.6% limited partnership interest, and 10 incentive distribution rights (10% of
total outstanding incentive distribution rights).  35




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##### Table of Contents



(3)
    
    Our investment in Direct Fuels Partners, L.P. includes 2,500,000 Class A Common Units; 96,448
Class A Convertible Preferred Units; 26,884 Class B Convertible Preferred Units; 20,315 Class
C Convertible Preferred Units and 60,552 Class D Preferred Units, which represents a 39.0%
limited partnership interest, and 200 incentive distribution rights (20% of total outstanding
incentive distribution rights).(4)
    
    Our investment in VantaCore Partners LP includes 1,464,673 Common Units, which represents a
39.0% limited partnership interest, and 1,823 incentive distribution rights (18% of total
outstanding incentive distribution rights).(5)
    
    Our investment in Eagle Rock Energy Partners, L.P. includes 1,112,944 common units and
146,439 unregistered common units in escrow. Results of Operations  For the three months ended February 28, 2010
  Investment Income.
  Operating Expenses.
 Net Investment Loss.
 Net Realized Gains.
 Net Change in Unrealized Gains.
 Net Increase in Net Assets Resulting from Operations.
  36




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##### Table of Contents



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.
 Liquidity and Capital Resources
        37




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##### Table of Contents



Contractual Obligations
 Investment Management Agreement.
   Payments by Period ($ in Millions)Less Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsExisting Credit Facility(1)
    
    $
    61.0
    
    
    $
    61.0
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    The maximum amount that we can borrow under our Existing Credit Facility is limited to the
lesser of the commitment amount and our borrowing base. As of February 28, 2010, we had a
borrowing base of $85.7 million. Distributions
    Off-Balance Sheet Arrangements
   38




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##### Table of Contents



Critical Accounting Policies
   
    
    Investment Valuation
 
    
    Security Transactions and Investment Income Recognition
 
    
    Income Taxes
 
    
    Return of Capital Estimates
 Investment Valuation.
    
    
    Investment Team Valuation.The applicable investments are valued by senior
professionals of 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.
 
    
    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.
  39




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##### Table of Contents




    
    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 we identify and request them to perform.
 
    
    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.
   e.g.
 Security Transactions and Investment Income Recognition.
 Federal and State Income Taxation.
   40




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##### Table of Contents



Return of Capital Estimates.
 
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  Interest Rate Risk.
   Impact of Market Prices on Portfolio Investment Valuation.
  41




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##### Table of Contents



ITEM 4.
    
    CONTROLS AND PROCEDURES.
 Evaluation of Controls and Procedures.
  Change in Internal Control Over Financial Reporting
   42




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##### Table of Contents



PART II
 
 ITEM 1.
    
    LEGAL PROCEEDINGS.
  
 ITEM 1A.
    
    RISK FACTORS.
  
 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 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.***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
    
    
    Amended and Restated 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 March 31, 2010  filed herewith.
  43




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##### Table of Contents



ExhibitNumber
    
    Description31.1
    
    
    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.
 
 *
    
    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, 2009 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 April 9, 2009 and
incorporated by reference herein.  44




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##### Table of Contents



KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
 
 SIGNATURES
  KAYNE ANDERSON ENERGY DEVELOPMENT COMPANYDate: April 9, 2010
    By:
    /s/  Kevin S. McCarthyKevin S. McCarthyChairman of the Board of Directors,
President and Chief Executive OfficerDate: April 9, 2010
    By:
    /s/  Terry A. HartTerry A. HartChief Financial Officer and Treasurer  45




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##### Table of Contents



EXHIBIT INDEX ExhibitNumber
    
    Description10.7
    
    
    Amended and Restated 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 March 31, 2010  filed herewith.31.1
    
    
    Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  filed herewith.31.2
    
    
    Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  filed herewith.32.1
    
    
    Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002  furnished herewith.