<PAGE> PAGE 1
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<PAGE> PAGE 2
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011 B00AA01 8-42809
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<PAGE> PAGE 3
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<PAGE> PAGE 4
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<PAGE> PAGE 5
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<PAGE> PAGE 6
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<PAGE> PAGE 7
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<PAGE> PAGE 8
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<PAGE> PAGE 9
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<PAGE> PAGE 10
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<PAGE> PAGE 11
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<PAGE> PAGE 12
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<PAGE> PAGE 13
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<PAGE> PAGE 14
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<PAGE> PAGE 15
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<PAGE> PAGE 16
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<PAGE> PAGE 17
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<PAGE> PAGE 18
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<PAGE> PAGE 19
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<PAGE> PAGE 20
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<PAGE> PAGE 21
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SIGNATURE RITA DAM
TITLE ASSISTANT TREASURER
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON INTERNAL CONTROL STRUCTURE
Board of Trustees
Kayne Anderson Mutual Funds
Los Angeles, California
In planning and performing our audits of the financial statements of
Kayne Anderson Mutual Funds (comprising, respectively, the Rising
Dividends Fund, the Small-Mid Cap Rising Dividends Fund, the
International Rising Dividends Fund, the Intermediate Total Return
Bond Fund, and the Intermediate Tax-Free Bond Fund) for the year
ended December 31, 1996, we considered their internal control
structure, including procedures for safeguarding securities, in order
to determine our auditing procedures for the purpose of expressing
our opinion on the financial statements and to comply with the
requirements of Form N-SAR, not to provide assurance on the internal
control structure.
The management of the Trust is responsible for establishing and maintaining
an internal control structure. In fulfilling this responsibility,
estimates and judgments by management are required to assess the expected
benefits and related costs of internal control structure policies and
procedures. Two of the objectives of an internal control structure are
to provide management with reasonable, but not absolute, assurance that
assets are safeguarded against loss from unauthorized use or disposition,
and that transactions are executed in accordance with management's
authorization and recorded properly to permit preparation of financial
statements in conformity with generally accepted accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that
it may become inadequate because of changes in conditions or that the
effectiveness of the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be
material weaknesses under standards established by the American Institute
of Certified Public Accountants. A material weakness is a condition in
which the design or operation of the specific internal control structure
elements does not reduce to a relatively low level the risk that errors or
irregularities in amounts that would be material in relation to the
financial statements being audited may occur and not be detected
within a timely period by employees in the normal course of performing
their assigned functions. However, we noted no matters involving
the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses, as defined above,
as of December 31, 1996.
This report is intended solely for the information and use of management
and the Securities and Exchange Commission, and should not be used for any
other purpose.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1997
