Kayne Anderson Mutual Funds -- Logo
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS............................................ 2
INVESTMENT ADVISER COMMENTS AND PORTFOLIOS OF INVESTMENTS
Rising Dividends Fund....................................... 3
Small-Mid Cap Rising Dividends Fund......................... 8
International Rising Dividends Fund......................... 13
Intermediate Total Return Bond Fund......................... 19
Intermediate Tax-Free Bond Fund............................. 24
STATEMENTS OF ASSETS AND LIABILITIES.............................. 30
STATEMENTS OF OPERATIONS.......................................... 32
STATEMENTS OF CHANGES IN NET ASSETS............................... 34
FINANCIAL HIGHLIGHTS.............................................. 36
NOTES TO FINANCIAL STATEMENTS..................................... 40
<PAGE>
Dear Shareholder:
We are pleased to express our appreciation for your investment in the Kayne
Anderson Mutual Funds. If you are new to the Kayne Anderson family of investors,
we welcome you.
This semi-annual report contains financial statements for each of the Funds for
the period ended June 30, 1998. In addition, there are reports on the individual
funds. In each case, the objective of the fund is stated and the portfolio
manager has written a commentary and an outlook. We hope that you will find
these comments interesting and timely.
As investment advisors, we have managed private accounts for both equity and
fixed-income investors for many years. We are delighted to be able to offer
these mutual funds for our clients so that diversification among asset classes
can be readily accomplished. Through these funds, shareholders can structure a
diversified portfolio consistent with their personal investment objectives and
goals.
We thank you again for your investment in the Kayne Anderson family of No-Load
Mutual Funds. We at Kayne Anderson are committed to assisting shareholders with
the realization of their financial goals. As always, we welcome your questions
and comments.
Sincerely,
/s/ Richard A. Kayne /s/ Allan M. Rudnick
Richard A. Kayne Allan M. Rudnick
Chairman President
2
<PAGE>
Kayne Anderson Rising Dividends Fund
Objective:
- ----------
The Rising Dividends Fund (the "Fund") is invested in a diversified
portfolio of high-quality, growing companies which are leaders in their
respective industries.
The investment goals of the Fund are to keep pace in a strong market
environment, outperform during a weak market and, secondarily, provide rising
dividend income throughout the entire market cycle. Our disciplined approach
allows us to pursue above-average growth with lower volatility than the general
market.
Commentary:
- -----------
Although some sectors certainly did not fully participate, the overall
market did very well during the first half of the year. The economic
environment, characterized by strong corporate profit growth and minimal
inflation concerns, helped support the continuing gains in the U.S. stock
market, and your fund participated nicely in those gains.
For the first six months of this year, the Fund was most heavily
weighted in the Financial, Technology, and Consumer Cyclical sectors. The best
performing sector for the Fund was the Financial sector, which also turned out
to be the Fund's largest sector weighting. Companies such as Morgan Stanley Dean
Witter & Co. and Franklin Resources continued to benefit from increasing demand
for financial products and services. In addition, General Re Corp., a leading
property/casualty reinsurance company, announced in June it was being acquired
by Warren Buffett's Berkshire Hathaway, further enhancing the Fund's performance
in this sector.
Within the Technology sector, the Fund took advantage of relatively
weak price performance of semiconductor manufacturers Intel and Linear
Technology and added to their existing positions. We believe that Intel will
actually benefit from the trend towards cheaper PC's due to the expansion of
this market, while its technological superiority should lead to gains in market
share for its high-end products. With respect to Linear Technology, we continue
to be impressed by the company's highly proprietary products and industry
leading profitability.
The Consumer Cyclical sector was another strong performing sector for
the Fund. For example, Cintas Corp. and McDonalds Corp. had year-to-date returns
in excess of 30% and 40%, respectively. In April, we increased our holdings in
Equifax Inc., the nation's leading credit reporting company. Equifax possesses
some of the best economic qualities of the many companies we follow: the
business requires minimal capital investment and carries no inventory; there is
limited competition due to high barriers to entry; and the company generates
strong free cash flow which has been used to repurchase its common stock and
acquire companies in related markets.
Outlook:
- --------
Although as we write this letter we are experiencing a market
correction, over the long term we continue to believe that many factors are
still intact for a continuation of the positive stock markets we have been
enjoying for the past few years.
3
<PAGE>
Kayne Anderson Rising Dividends Fund
The major trend-favorable factors include:
o low inflation and stable interest rates
o favorable demographics (baby boomers are now savers)
o highly productive corporate sector
o technological innovation
o strong, stable currency
o fiscally responsible government
The key concerns of investors are primarily focused on three areas:
(1) potential inflation, (2) corporate profits growth, and (3) developments in
Asia.
We do not see inflation as a problem at this time, and we do not
expect that the Federal Reserve Board will raise interest rates in this
environment. For example, commodity prices such as crude oil, aluminum, wheat
and gold were down substantially over the past 12 months. Due to declines in
demand from Asia, coupled with pricing pressure developing from exporters to the
U.S. with devalued currencies, we expect that it will continue to be difficult
for corporations to raise prices through the remainder of this year. Regarding
wage growth, moderate compensation growth is being offset by gains in
productivity.
Regarding U.S. corporate profit growth, the first quarter results were
positive and we expect that the full year will remain positive as well.
Although the U.S. economy is not immune, the impact of recent
developments in Asia is mitigated by: (1) a strong domestic economy, (2)
geographic diversification of our foreign trade, and (3) our multinational
corporations having established global power brands which are growing at
favorable rates.
The U.S. economy has a vibrant domestic sector. Foreign trade
represents less than 15% of total Gross Domestic Product (GDP), which is less
than half the percentage seen in most of the other G-7 nations. U.S. trade is
divided roughly into three equal geographic blocks, namely Europe, the Americas,
and Asia. Although Asia has weakened, demand from several countries in Europe
and the Americas has increased, which partially offsets any weakness. Certainly,
the widely publicized negative effects of Asian conditions are material for some
companies and industries. However, we believe that the effect on total U.S.
economic growth and corporate profits will be moderate.
We caution that we do not expect a quick resolution of the Asian
problems. Some historical perspective can be gained by looking back at the U.S.
banking and S&L crisis in 1990-1991. Although the immediate liquidity crisis was
addressed and solved in 1991, the economic drag on the economy continued well
into 1993. Asia lacks the flexibility enjoyed by U.S. leaders at that time, and
in some countries there is a lack of sophisticated leadership to handle the
current problems. It is unlikely that this situation will be considered
normalized before mid-1999 at the earliest. Of course, one of the consequences
has been to highlight the relative attractiveness of dollar-denominated assets,
which increases the flow of funds into U.S. stocks and bonds.
As we continue to focus our research efforts on high quality,
industry-leading growth companies with shareholder-friendly management, we are
confident that a diversified portfolio of these superior companies will offer
very satisfying returns to investors over the long-term.
4
<PAGE>
Kayne Anderson Rising Dividends Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited)
- -----------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 93.3% Market Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basic Materials / Chemicals: 6.1%
23,470 Du Pont (E.I.) de Nemours..................................... $ 1,751,449
17,280 PPG Industries, Inc........................................... 1,202,040
-----------
2,953,489
-----------
Capital Goods / Electrical Equipment: 6.9%
12,200 Emerson Electric Company...................................... 736,575
12,000 General Electric Company...................................... 1,092,000
8,040 Minnesota Mining & Manufacturing Company...................... 660,788
16,700 W.W. Grainger Corporation..................................... 831,869
-----------
3,321,232
-----------
Consumer Cyclical / Entertainment & Leisure: 3.8%
17,220 The Walt Disney Company....................................... 1,809,176
-----------
Consumer Cyclical / Restaurants: 4.8%
33,460 McDonald's Corporation........................................ 2,308,740
-----------
Consumer Cyclical / Services: 6.0%
22,080 Cintas Corporation............................................ 1,126,080
47,870 Equifax, Inc.................................................. 1,738,279
-----------
2,864,359
-----------
Consumer Staples / Beverages: 2.1%
12,040 Coca-Cola Company............................................. 1,029,420
-----------
Consumer Staples / Consumer Products: 3.9%
16,740 Gillette Company.............................................. 948,949
10,000 Procter & Gamble Company...................................... 910,625
-----------
1,859,574
-----------
Consumer Staples / Foods: 6.4%
32,510 BestFoods..................................................... 1,887,612
1 Corn Product Int., Inc. (When Issued)......................... 34
12,000 Wm. Wrigley, Jr., Company..................................... 1,176,000
-----------
3,063,646
-----------
</TABLE>
5
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Kayne Anderson Rising Dividends Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Energy / Petroleum - International: 5.7%
12,000 Exxon Corporation............................................. $ 855,750
16,220 Mobil Corporation............................................. 1,242,858
11,640 Royal Dutch Petroleum Corporation............................. 638,017
---------
2,736,625
---------
Financial / Banking: 8.0%
33,950 Banc One Corporation.......................................... 1,894,834
15,750 Fifth Third Bancorp........................................... 992,250
25,000 Norwest Corporation........................................... 934,375
---------
3,821,459
---------
Financial / Financial Services: 10.4%
24,240 Franklin Resources, Inc....................................... 1,308,960
26,840 Morgan Stanley Dean Witter.................................... 2,452,505
18,000 State Street Boston Corporation............................... 1,251,000
---------
5,012,465
---------
Financial / Insurance: 4.0%
3,850 General Re Corporation........................................ 975,975
15,450 Marsh & McLennan Cos., Inc.................................... 933,759
---------
1,909,734
---------
Health Care / Drugs & Hospital Supplies: 11.7%
18,700 Abbott Laboratories........................................... 764,362
27,120 Johnson & Johnson............................................. 2,000,100
19,100 Medtronic, Inc................................................ 1,217,625
12,410 Merck & Company, Inc.......................................... 1,659,838
---------
5,641,925
---------
Technology / Computers & Office Equipment: 1.5%
12,100 Hewlett-Packard Company....................................... 724,488
---------
Technology / Data Services: 5.1%
19,920 Automatic Data Processing, Inc................................ 1,451,670
24,990 Electronic Data Systems Corporation........................... 999,600
---------
2,451,270
---------
</TABLE>
6
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Kayne Anderson Rising Dividends Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology / Semiconductors: 6.9%
25,280 Intel Corporation............................................. $ 1,873,880
23,850 Linear Technology Corporation................................. 1,438,453
-----------
3,312,333
-----------
Total Common Stocks (cost $28,097,986)........................ 44,819,935
-----------
Total Investments in Securities (cost $28,097,986+): 93.3%.... 44,819,935
Other Assets less Liabilities: 6.7%........................... 3,211,796
-----------
Net Assets: 100.0% ........................................... $48,031,731
===========
+ Cost for Federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation................................. $16,842,301
Gross unrealized depreciation................................. (120,352)
-----------
Net unrealized appreciation......................... $16,721,949
===========
</TABLE>
See accompanying Notes to Financial Statements.
7
<PAGE>
Kayne Anderson Small-Mid Cap Rising Dividends Fund
Objective:
- ----------
The objectives of the Small-Mid Cap Rising Dividends Fund are:
o To build a diversified portfolio of the next generation of high
quality "blue chip" companies.
o To produce returns typical of small and mid sized stocks, but
with no more risk than the S&P 500 Index of large stocks.
In summary, we strive to buy stock in high quality companies at
discount prices in order to allow clients to participate in the strong growth of
small and mid-sized companies while assuming less financial and stock market
risk.
Our commitment to these objectives is demonstrated by the following
table comparing the characteristics of the Fund's portfolio holdings with those
of the relevant indices:
<TABLE>
<CAPTION>
KAIM
Small-Mid Cap Russell Russell
Rising 2000 2500
Dividends Index Index
<S> <C> <C> <C> <C>
Quality
- -------------------------------------------------------------------------------------------------------------------------
Return on Equity - Past 5 Years 28.2% 14.1% 14.6% More Profitable
Long-Term Debt/Total Capital 28.3% 38.1% 40.7% Less Financial Risk
Earnings Variance 23.0% 61.5% 60.8% More Dependable
A Rated by S&P 63.0% 9.4% 14.8% Better Quality
- -------------------------------------------------------------------------------------------------------------------------
Growth
- -------------------------------------------------------------------------------------------------------------------------
Earnings Per Share Growth - Past 10 Years 18.0% 8.1% 9.1% Faster Growth
Earnings Per Share Growth - Past 5 Years 18.0% 15.8% 14.5% No Recession
Dividends Per Share Growth - Past 10 Years 14.6% 5.6% 5.8% Faster Growth
Dividends Per Share Growth - Past 5 Years 16.1% 9.5% 7.3% No Recession
Capital Generatino - {ROE x (1 - Payout)} 16.6% 10.79% 14.6% Faster Growth
- -------------------------------------------------------------------------------------------------------------------------
Value
- -------------------------------------------------------------------------------------------------------------------------
P/E Ratio - Latest 12 months 28.1 25.5 25.6 Better Value
Dividend Yield 1.4% 1.2% 1.3% Better Incme
- -------------------------------------------------------------------------------------------------------------------------
Market Characteristics
- -------------------------------------------------------------------------------------------------------------------------
$ Weighted Average Market Capitalization $920 million* $790 million $1.7 billion Comparable Size
Monthly Standard Deviation - Since Inception 9.1% 12.7% 11.5% Less Market Risk
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
Data as of June 30, 1998.
Data is obtained from the Frank Russell Company and is assumed to be reliable.
Securities held by the Fund are subject to change. * Excludes companies over $3
billion in market cap.
Commentary:
- -----------
Stocks of small-sized companies, as measured by the Russell 2000
Index, once again trailed large stocks, as measured by the S&P 500 Index, during
the first half of 1998. Investors continued to flock to large, liquid companies.
Our focus on high quality small stocks allowed us to avoid much of the small cap
weakness. For the first six months ended June 30, 1998, the Fund's total return
was 12.1%, while the Russell 2000 Index returned 4.9% and the Russell 2500 Index
returned 5.6%.
8
<PAGE>
Kayne Anderson Small-Mid Cap Rising Dividends Fund
The Fund's most recent trade involved selling Mylan Labs and
purchasing Landauer Inc. Landauer, which accounts for 5.1% of the Fund's net
assets, is the leading provider of analytical services to measure exposure
levels to radiation. Typical customers include hospitals, medical and dental
offices, university and national laboratories, and nuclear power plants. The
service includes the manufacture of various types of radiation detection
monitors, the distribution and collection of the monitors to and from clients,
and the analysis, reporting and long-term storage of exposure findings.
Landauer's financial characteristics are excellent: 1) no capital is required to
grow the business; 2) capital spending is only 5% of sales; and 3) ROE is over
40% despite having no debt and 57% of net worth in cash.
After several years of severe price declines, Mylan Labs, a
manufacturer of generic drugs, has been able to substantially increase prices
over the last several quarters. The stock has responded, rising over 40%
year-to-date. With the bulk of pricing increases completed and the stock
appreciating so strongly, we are eliminating the position. The table below shows
the differences in fundamentals and valuation between the two companies.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Price / Earnings Current 1998 Est Estimated Long Term Market
1997 1998 Yield ROE Growth Debit to Capital Capitalization
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LDR 20.9 19.4 4.2% 47.1% 10% 0% $255 Million
MYL 47.6 30.5 0.5% 16.3% 15% 0% $3.7 Billion
S&P 500 24.9 23.4 1.4% 16.8% 6% 34% $55 Billion
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Outlook:
- --------
The multi-year period lagging performance of small-cap stocks over
large-cap stocks has created compelling value in the group. The value can be
seen in the following 10 year chart of relative price / earnings ratio for the
stocks comprising the Kayne Anderson Small-Mid Cap Rising Dividends Fund. That
is, the price / earnings ratio of our current portfolio divided by the price /
earnings ratio of the S&P 500 Index of large stocks. Acknowledging that we have
been experienced a period of extremely strong equity returns, we remain
encouraged by the relative valuation level and believe the outlook for the
Rising Dividends small stocks is positive.
Small Cap Rising Dividends / Standard & Poors 500 Index
Relative Price / Earnings Ratio
[PLOT POINTS TO COME]
Price / Earnings ratio for the stocks currently in the Small-Mid Cap Rising
Dividends Fund divided by the Price / Earnings ratio of the Standard & Poors 500
Index. Source: CompuStat
Note: The stated returns are fee subsidized by the advisor. The unsubsidized
returns for the Fund are 12.09% and 21.13%, year-to-date and 12-months
ending June 30, 1998, respectively.
9
<PAGE>
Kayne Anderson Small-Mid Cap Rising Dividends Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited)
- ---------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 97.7% Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basic Materials / Packaging: 8.4%
31,189 Bemis Company................................................. $ 1,274,850
27,776 Liqui-Box Corporation......................................... 1,315,888
-----------
2,590,738
-----------
Capital Goods / Electronic Equipment: 1.7%
18,456 Diebold, Inc.................................................. 532,917
-----------
Capital Goods / Machinery Equipment: 7.1%
49,216 Federal Signal Corporation.................................... 1,196,564
21,357 Nordson Corporation........................................... 1,003,779
-----------
2,200,343
-----------
Consumer Cyclicals / Furniture: 5.1%
27,990 LA-Z Boy Chair Company........................................ 1,581,435
-----------
Consumer Cyclical / Services: 4.6%
27,996 Cintas Corporation............................................ 1,427,796
-----------
Consumer Staples / Food: 4.0%
15,925 Tootsie Roll Industries, Inc.................................. 1,222,244
-----------
Consumer Staples / Food Chain: 3.6%
65,148 Smart & Final, Inc............................................ 1,115,659
-----------
Energy / Oil & Gas Production: 4.4%
38,579 Devon Energy Corporation...................................... 1,347,854
-----------
Finance / Banking: 4.7%
1,971 National Commerce Bancorp..................................... 82,536
49,563 Washington Federal, Inc....................................... 1,369,192
-----------
1,451,728
-----------
Finance / Financial Services: 4.7%
31,210 Eaton Vance Corporation....................................... 1,445,413
-----------
</TABLE>
10
<PAGE>
Kayne Anderson Small-Mid Cap Rising Dividends Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited), Continued
- ---------------------------------------------------------------------------------------------------------
Shares Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance / Insurance: 14.9%
66,712 American Heritage Life Investment Corporation................. $ 1,542,715
28,283 HSB Group, Inc................................................ 1,513,141
42,406 Mutual Risk Management, Ltd................................... 1,545,169
-----------
4,601,025
-----------
Health Care / Drugs & Hospital Supplies: 9.9%
70,814 Ballard Medical Products...................................... 1,274,652
52,500 Landauer Inc.................................................. 1,568,437
6,749 Mylan Labs, Inc............................................... 202,892
-----------
3,045,981
-----------
Technology / Computer & Office Equipment: 4.8%
82,120 Reynolds & Reynolds, Inc., Class A............................ 1,493,557
-----------
Technology / Semiconductors: 3.5%
18,213 Linear Technology Corporation................................. 1,098,471
-----------
Technology / Software & Services: 7.0%
91,308 Timberline Software Corporation............................... 2,151,445
-----------
Transportation / Air Transport: 4.8%
55,180 Air Express International Corporation......................... 1,476,065
-----------
Utilities / Cable Television: 4.5%
23,373 TCA Cable TV, Inc............................................. 1,402,380
-----------
Total Common Stocks (cost $28,492,557)........................ 30,185,051
-----------
Total Investments in Securities (cost $28,492,557+): 97.7%.... 30,185,051
Other Assets less Liabilities: 2.3%........................... 705,313
-----------
Net Assets: 100.0% ........................................... $30,890,364
===========
</TABLE>
11
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Kayne Anderson Small-Mid Cap Rising Dividends Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited), Continued
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C>
+Cost for Federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation............................... $ 3,135,753
Gross unrealized depreciation............................... (1,443,259)
-----------
Net unrealized appreciation....................... $ 1,692,494
===========
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE>
Kayne Anderson International Rising Dividends Fund
First Half 1998 Commentary
--------------------------
Objective:
- ----------
The goal of the International Rising Dividends Fund is to achieve
superior long-term results by investing in the best, high-quality international
companies. We pursue this goal through a focused investment philosophy that
relies on the following principles: (1) a commitment to quality; (2) long-term
vision; (3) independent fundamental research; (4) broad diversification; and (5)
a value driven decision process. We define quality companies as those possessing
a global competitive advantage, management excellence, financial strength and
flexibility, a high level of profitability and consistency of earnings. We seek
to diversify the fund across countries and industries but do not aim to
replicate the country allocation of our benchmark, the MSCI EAFE (Europe,
Australia, and the Far East) Index.
Commentary:
- -----------
For the six months ended June 30, 1998, the Fund's total return was
17.8%, while the MSCI EAFE Index returned 16.1% in dollar terms. Moreover the
average performance of International mutual funds tracked by Lipper Analytical
was 15.8%. After an already strong 1997, the European equity markets continued
to move upward (25.5% on average in dollar terms), while the Japanese market, a
big component of the EAFE index, declined by 2.9% in dollar terms. During the
period under review, the US dollar continued to appreciate against the Japanese
currency rising 6.3% to 138 Yen/$, while remaining relatively stable against the
German Mark and the Sterling Pound at, respectively, 1.78 DM/$ and 1.67
$/(pound).
At the end of June 1998, 6.1% of the Fund's assets were invested in
cash and other items. The four largest countries represented in the Fund were
the United Kingdom (24.1%), Japan (16.4%), France (12.7%), and the Netherlands
(9.0%). The major change in the portfolio during the last six months was the
gradual increase of the Fund's weight in Japanese equities, which accounted for
less than 10% of the fund's assets at the start of the year. We built new
positions in two outstanding Japanese companies: Canon and Unicharm.
The performance of most developed markets outside Japan has been quite
remarkable during the first part of 1998. This may appear paradoxical given the
increased risks for the global financial markets associated with the worsening
of the Asian economic situation. Japan's shrinking economy and its troubled
banking system have added to the deflationary pressures in Asia and worsened the
economic crisis in the region. We expect that the Japanese government will
commit to taking the necessary, albeit painful, steps required to bolster its
economy, including tax cuts and a restructuring of the financial system.
Ironically, the uncertainty in Asia has proved to be a boon for both
the U.S. and European equity markets, as it has kept interest rates low and
inflation under control. Kayne Anderson's International Mutual Fund portfolio,
which is mostly invested in European stocks, has profited from investors'
gravitation to quality. Our investment strategy, focusing exclusively on the
best, high-quality stocks
13
<PAGE>
Kayne Anderson International Rising Dividends Fund
around the world, has buffered the Fund's portfolio against the negative impact
of the Asian crisis. Although we hold some direct investments in Hong Kong and
Japan, most of our Asian exposure is through multinational companies, such as
Nestle and Nokia, that are well positioned to flourish when the Asian economy
rebounds.
The country allocation of the Fund on June 30, 1998 was:
Australia 4.0% Finland 4.4% Cash 6.1% Spain 4.7%
Sweden 3.1% France 12.7% Japan 16.4% Malaysia 0.2%
Hong Kong 8.2% Netherlands 9.0% Switzerland 7.1% UK 24.1%
Outlook:
- --------
The long term outlook for International investment remains bright,
driven by deregulation, restructuring, and more corporate
shareholder-friendliness outside the USA. On the medium term, Europe's economy
is picking up while interest rates are still on a downward path. The advent of
the Euro next year represents the final step for the creation of a large
consumer market and the world's second largest economy. As difficulties are
mounting for Japan, which is beginning truly to feel the pain of several years
of status quo, we feel confident that Japan will engage itself, sooner or later,
on the path of reforms.
Our conservative, disciplined and focused-on-quality investment
approach should provide potential investors with the necessary comfort to remain
committed for the long term to the international equity asset class.
Note: The stated returns are fee subsidized by the advisor. The unsubsidized
returns for the Fund are 17.76% and 16.49%, year-to-date and 12-months
ending June 30, 1998, respectively.
14
<PAGE>
Kayne Anderson International Rising Dividends Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited)
- -----------------------------------------------------------------------------------------------------------
Shares COMMON STOCKS: 93.9% Market Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Australia: 4.0%
78,129 Broken Hill Proprietary ADR................................. $ 1,323,818
-----------
Finland: 4.4%
19,770 Nokia Corporation ADR....................................... 1,434,561
-----------
France: 12.7%
14,594 AXA-UAP S.A. ADR............................................ 829,122
16,872 Groupe Danone S.A. ADR...................................... 927,960
30,580 Louis Vuitton Moet Hennessey ADR............................ 1,207,910
18,650 Total S.A. ADR.............................................. 1,219,244
-----------
4,184,236
-----------
Hong Kong / China: 8.2%
57,284 Hong Kong & China Gas Company Ltd. ADR...................... 65,052
730,000 Hong Kong & China Gas Company............................... 829,061
3,776 Hong Kong & Shanghai Banking PLC ADR........................ 923,462
46,090 Hong Kong Telecom, Ltd. ADR................................. 869,949
-----------
2,687,524
-----------
Japan: 16.4%
40,000 Canon Inc................................................... 911,854
930 Kao Corporation ADR......................................... 143,401
80,000 Kao Corporation............................................. 1,238,964
9,857 Nintendo Company Ltd. ADR................................... 114,080
6,000 Nintendo Company Ltd........................................ 557,968
12,000 Rohm Company................................................ 1,237,516
2 Seven Eleven Japan ADR...................................... 119
32,000 Uni-Charm................................................... 1,190,331
-----------
5,394,233
-----------
Malaysia: 0.2%
37,198 Genting Berhad ADR.......................................... 67,265
-----------
Netherlands: 9.0%
49,299 Elsevier N.V. ADR........................................... 1,478,970
16,720 Polygram N.V. ADR........................................... 850,630
7,976 Unilever N.V. ADR........................................... 629,605
-----------
2,959,205
-----------
</TABLE>
15
<PAGE>
Kayne Anderson International Rising Dividends Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited), Continued
- -----------------------------------------------------------------------------------------------------------
Shares Market Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Spain: 4.7%
30,741 Endesa S.A. ADR............................................. $ 664,774
15,650 Repsol S.A. ADR............................................. 860,750
---------
1,525,524
---------
Sweden: 3.1%
49,321 Astra AB-ADR, Class A....................................... 1,011,081
---------
Switzerland: 7.1%
6,162 Nestle S.A. ADR............................................. 659,338
10,290 Novartis AG ADR............................................. 856,136
8,139 Roche Holdings, Ltd., ADR................................... 799,245
---------
2,314,719
---------
United Kingdom: 24.1%
43,159 BAT Industries Plc ADR...................................... 871,272
29,000 BOC Group Plc............................................... 786,625
15,610 Cable & Wireless Plc ADR.................................... 575,619
18,230 Diageo Plc ADR.............................................. 878,458
1,813 Marks and Spencer Plc ADR................................... 99,280
73,000 Marks and Spencer Plc....................................... 664,900
13,949 Pearson Plc ADR............................................. 256,013
30,000 Pearson Plc................................................. 549,999
4,315 Rentokil Initial Plc ADR.................................... 310,661
13,055 Reuters Holding Plc ADR..................................... 894,268
13,790 Siebe Plc ADR............................................... 551,746
18,369 Tomkins Plc ADR............................................. 420,191
8,432 Vodafone Group Plc ADR...................................... 1,062,959
----------
7,921,991
----------
Total Common Stocks (cost $28,676,203)...................... 30,824,157
----------
Total Investments in Securities (cost $28,676,203+): 93.9%.. 30,824,157
Other Assets less Liabilities: 6.1%......................... 2,000,535
-----------
Net Assets: 100.0% ......................................... $32,824,692
===========
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE>
Kayne Anderson International Rising Dividends Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited), Continued
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C>
+Cost for Federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation.............................. $ 3,370,273
Gross unrealized depreciation.............................. (1,222,319)
-----------
Net unrealized appreciation...................... $ 2,147,954
===========
</TABLE>
17
<PAGE>
Kayne Anderson International Rising Dividends Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS BY INDUSTRY at June 30, 1998 (Unaudited)
- ---------------------------------------------------------------------------------------------------------
Industry Percentage
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Amusement & Recreation Services............................ 2.0%
Audio/Video Home Products.................................. 2.6
Beverages.................................................. 5.7
Books...................................................... 4.5
Chemicals & Allied Products................................ 9.8
Cigarettes................................................. 2.6
Communications Equipment................................... 4.4
Cosmetics & Personal Care.................................. 0.4
Crude Petroleum & Natural Gas.............................. 10.4
Dolls, Toys, Games & Sports................................ 2.0
Drugs...................................................... 9.0
Electric Services.......................................... 2.2
Electronic Components & Accessories........................ 1.7
Electronic Industrial Apparatus............................ 6.6
Family Clothing Stores..................................... 0.3
Food Beverage & Tobacco.................................... 5.5
Grocery & Related Products................................. 1.9
Holding Offices............................................ 5.3
Miscellaneous Manufacturing Industries..................... 0.9
Newspapers................................................. 0.8
Retail Stores.............................................. 2.0
Services Allied with Exchange of Security.................. 2.7
Surgical, Medical, Dental Instruments & Supplies........... 1.3
Telephone Communications................................... 9.3
-----
Total Investments.......................................... 93.9
Other Assets less Liabilities.............................. 6.1
-----
Net Assets................................................. 100.0%
=====
</TABLE>
See accompanying Notes to Financial Statements.
18
<PAGE>
Kayne Anderson Mutual Funds -- Logo
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS .................................................... 2
INVESTMENT ADVISER COMMENTS AND PORTFOLIOS OF INVESTMENTS
Rising Dividends Fund ............................................ 3
Small-Mid Cap Rising Dividends Fund .............................. 8
International Rising Dividends Fund .............................. 13
Intermediate Total Return Bond Fund .............................. 19
Intermediate Tax-Free Bond Fund .................................. 24
STATEMENTS OF ASSETS AND LIABILITIES ...................................... 30
STATEMENTS OF OPERATIONS .................................................. 32
STATEMENTS OF CHANGES IN NET ASSETS ....................................... 34
FINANCIAL HIGHLIGHTS ...................................................... 36
NOTES TO FINANCIAL STATEMENTS ............................................. 40
<PAGE>
Kayne Anderson Intermediate Total Return Bond Fund
Objective:
- ----------
The objective of the Intermediate Total Return Bond Fund is to seek
total return through current income and capital appreciation, with principal
preservation a secondary consideration. The Fund seeks to achieve its objective
by investing primarily in high quality, intermediate maturity debt securities.
Studies show that intermediate maturity debt securities can, over time, achieve
a majority of the return of long-term maturity debt without the associated level
of risk.
Commentary:
- -----------
Year-to-date, the Fund's net asset value increased $0.09, from $10.75
to $10.84. After Fund expenses, the total return (principal gain or loss and
income) was 3.07% for the Fund and 3.46% for the Lehman Brothers Intermediate
Government/Corporate Bond Index. For the 12-month period ending June 30, 1998,
the total returns were 8.02% and 8.54% for the Fund and the Index, respectively.
As of June 30th, the three largest sectors represented in the Fund
were: U.S. Treasury (59.6%), Finance (9.4%), and U.S. Agency (8.8%). The three
largest individual credits held in the portfolio were U.S. Treasury (59.6%),
Federal National Mortgage Association (8.8%), and Government National Mortgage
Association (7.0%).
Outlook:
- --------
The Federal Reserve is expected to maintain its current policy towards
the level of interest rates for the remainder of the year. While consumer
spending is currently strong, events abroad are likely to slow the pace of
domestic economic growth. Increases in wages have outpaced prices of goods and
services, but this growth is also likely to slow. This combination of Fed
inaction and slowing growth should keep interest rate volatility moving lower
and most interest rates in their narrow trading range for the balance of the
year.
Within individual sectors, both technical and fundamental forces are
at work. The supply of new U.S. Treasury debt continues to dwindle due to a
budget surplus expected this year and beyond. Foreign buyers continue to buy
U.S. Treasuries as a safe haven and a vehicle for investing in the strong U.S.
dollar. Corporate yield spreads are widening with slower earnings growth and a
slower domestic economy. Higher than expected prepayments in real estate loans
have limited the return for higher coupon mortgage backed securities. We will
concentrate more of the portfolio in 5-year non-callable maturities to seek to
take advantage of a steepening yield curve that should result from slower
economic growth.
19
<PAGE>
Kayne Anderson Intermediate Total Return Bond Fund
SECTOR DIVERSIFICATION
JUNE 30, 1998
Mortgage-Backed 7% U.S. Treasury 60%
Asset-Backed 1% Agency 9%
Industrial and Cash
Miscellaneous Corp. 12% & Equivalents 2%
Finance 9%
Note: The stated returns are fee subsidized by the advisor. The unsubsidized
returns for the Fund are 3.01% and 7.27%, year-to-date and 12-month
ending June 30, 1998, respectively. For the period October 28, 1996
(commencement of operations) through June 30, 1998 the average annual
return for the Fund was 6.28%. The unsubsidized return for the same
period was 5.31%.
20
<PAGE>
Kayne Anderson Intermediate Total Return Bond Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited)
- ---------------------------------------------------------------------------------------------------------
Principal Amount LONG-TERM DEBT SECURITIES: 97.6% Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS: 59.6%
------------------------------------------------------------
U.S. Treasury Notes / Bonds
$4,000,000 6.875%, due 8/31/1999..................................... $ 4,061,248
6,500,000 6.250%, due 10/31/2001.................................... 6,636,091
3,300,000 7.250%, due 8/15/2004..................................... 3,592,875
2,000,000 11.875%, due 11/15/2003................................... 2,578,124
-----------
Total U.S. Treasury Obligations........................ 16,868,338
-----------
U.S. AGENCY OBLIGATIONS: 8.8%
------------------------------------------------------------
Federal National Mortgage Association (FNMA)
1,200,000 6.100%, due 2/10/2000..................................... 1,208,088
250,000 6.950%, due 11/13/2006.................................... 256,810
1,000,000 7.700%, due 8/10/2004..................................... 1,021,199
-----------
Total U.S. Agency Obligations.......................... 2,486,097
-----------
MORTGAGE-BACKED / PASS-THROUGH SECURITIES: 7.0%
------------------------------------------------------------
Government National Mortgage Association (GNMA)
710,018 8.500%, due 8/15/2025..................................... 749,513
224,810 8.500%, due 6/15/2026..................................... 237,315
736,816 8.000%, due 9/15/2026..................................... 764,217
211,248 8.000%, due 11/15/2026.................................... 219,104
-----------
Total Mortgage-Backed / Pass-Through Securities........ 1,970,149
-----------
ASSET-BACKED RECEIVABLES: 0.7%
------------------------------------------------------------
200,000 WFS Financial Owner Trust, 6.800%, due 12/20/2003........... 202,938
-----------
CORPORATE BONDS: 21.5%
------------------------------------------------------------
Auto Rentals: 1.8%
500,000 Ryder System, Inc., 7.480%, due 5/15/2000................... 512,400
-----------
</TABLE>
21
<PAGE>
Kayne Anderson Intermediate Total Return Bond Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited), Continued
- ---------------------------------------------------------------------------------------------------------
Principal Amount LONG-TERM DEBT SECURITIES Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beverages: 1.4%
$200,000 Anheuser Busch Companies, 6.750%, due 11/01/2006............... $ 204,353
200,000 Coca-Cola Enterprises, 6.375%, due 8/01/2001................... 202,500
----------
406,853
----------
Communication Services: 1.8%
500,000 TCI Communications, Inc., 6.375%, due 5/01/2003................ 505,000
----------
Department Stores: 0.8%
200,000 Sears Roebuck Company, 9.450%, due 7/25/2001................... 218,400
----------
Finance: 9.4%
500,000 Bear Stearns Co., 6.625%, due 10/01/1997....................... 506,250
200,000 Beneficial Corp., 6.600%, due 9/26/2001........................ 203,100
500,000 Finova Capital Corp., 6.450%, due 6/01/2000.................... 502,500
500,000 Ford Motor Credit Corp., 6.250%, due 11/08/2000................ 503,812
200,000 General Motors Acceptance Corp., 7.125%, due 5/01/2003......... 208,729
200,000 Household Finance Co., 8.000%, due 8/15/2004................... 203,885
500,000 Lehman Brothers Holdings, 8.875%, due 3/01/2002................ 543,272
----------
2,671,548
----------
Industrial: 2.7%
200,000 Allied Signal, Inc., 9.200%, due 2/15/2003..................... 225,382
500,000 Catapillar, 8.440%, due 11/26/1991............................. 553,600
----------
778,982
----------
Motion Picture Production & Other Services: 1.8%
500,000 Walt Disney Company, 6.375%, due 3/30/2001..................... 505,701
----------
YankeeEuro: 1.8%
500,000 Cable & Wireless, 6.375%, due 3/06/2003........................ 500,000
----------
Total Corporate Bonds..................................... 6,098,884
----------
Total Long-Term Debt Securities (cost $27,480,289)............. 27,626,406
----------
</TABLE>
See accompanying Notes to Financial Statements.
22
<PAGE>
Kayne Anderson Intermediate Total Return Bond Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited), Continued
- ---------------------------------------------------------------------------------------------------------
Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Investments in Securities (cost $27,480,289+): 97.6%.... $27,626,406
Other Assets less Liabilities: 2.4%........................... 670,721
-----------
Net Assets: 100.0% ........................................... $28,297,127
===========
+Cost for Federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation................................. $ 153,250
Gross unrealized depreciation................................. (7,133)
-----------
Net unrealized appreciation......................... $ 146,117
===========
</TABLE>
23
<PAGE>
Kayne Anderson Intermediate Tax-Free Bond Fund
Objective:
- ----------
The objective of the Intermediate Tax-Free Bond Fund is to seek
current income exempt from federal income tax consistent with preservation of
capital. The Fund seeks to achieve its objective by investing primarily in high
quality, intermediate maturity debt securities, interest from which is, exempt
from federal income tax. Part of the income from this Fund may also be exempt
from state income tax depending on the state of the shareholder's residence.
Studies show that intermediate maturity debt securities can, over time, achieve
a majority of the return of long-term maturity debt without the associated level
of risk.
Commentary:
- -----------
During the year, the Fund's net asset value decreased $0.02, from
$10.74 to $10.72. After fund expenses, the total return (principal gain or loss
and income) was 1.77% for the Fund and 2.29% for the Lehman Brothers 5-year
Municipal Bond Index for the same time period. For the 12-month period ending
June 30th, the total returns were 4.46% and 6.25% for the Fund and the Index,
respectively.
While invested among eight sectors within the municipal bond market,
the three largest sectors represented in the Fund were: General Obligation
(29.6%), Electric Utility (20.3%), and Hospital (13.2%). The Fund was also
invested in municipalities that are located in 14 different states and
territories. The three states with the highest representation in the Fund were:
California (38%), New York (13%), and Washington (7%).
Outlook:
- --------
Intermediate-to-long maturity municipal bonds are attractively valued
relative to taxable bonds. Record issuance is taking place again this year and
keeping the interest rates on municipals from moving significantly lower.
Revenue bonds continue to outpace the general obligation sector, but the gap
will probably narrow for the second half of the year as the economy slows.
The Federal Reserve is expected to maintain its current interest rate
policy for the remainder of the year. This should keep short interest rates in
their current trading range. We will continue to lengthen the average maturity
of the Fund as opportunities in the market arise.
24
<PAGE>
Kayne Anderson Intermediate Tax-Free Bond Fund
SECTOR DIVERSIFICATION
JUNE 30, 1998
Cash &
Equivalents 3% General Obligation 30%
Prerefunded 7% Electric 20%
Education 3% Water & Sewer 3%
Transportation 13% Hospital 13%
IDR/PCR 5% Housing 3%
Note: The stated returns are fee subsidized by the advisor. The unsubsidized
returns for the Fund are 1.08% and 3.03%, year-to-date and 12-month
ending June 30, 1998, respectively. For the period October 28, 1996
(commencement of operations) through June 30, 1998 the average annual
return for the Fund was 3.60%. The unsubsidized return for the same
period was 2.21%.
25
<PAGE>
Kayne Anderson Intermediate Tax-Free Bond Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
Principal Amount LONG-TERM MUNICIPAL DEBT: 97.1% Market Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
General Obligation: 29.6%
$250,000 California State, 5.375%, dated 3/01/1994, due 3/01/2006............ $ 266,250
200,000 California State Veterans Bond, 6.375%, dated 3/01/1995,
due 2/01/2027..................................................... 204,478
200,000 Hawaii State, 5.250%, dated 3/01/1997, due 3/01/2000................ 203,750
200,000 Los Angeles County, California Public Works, 5.000%,
dated 11/01/1991, due 10/01/2016.................................. 197,500
250,000 Maryland State, 4.750%, dated 8/01/1997, due 8/01/2002.............. 256,563
250,000 Massachusetts State, 5.000%, dated 8/01/1997, due 8/01/2000......... 255,000
200,000 New York, New York, 5.000%, dated 7/28/1994, due 8/01/1998.......... 200,189
250,000 Washoe County, Nevada, 6.750%, dated 3/15/1991,
due 3/15/2000..................................................... 258,125
---------
1,841,855
---------
Education: 3.3%
200,000 University California Revenues, 5.250%, dated , 8/15/1993
due 9/01/2011..................................................... 206,250
---------
Electric: 20.3%
200,000 Colorado Springs Utilities, 6.750%, dated 4/15/1991,
due 11/15/2005.................................................... 218,000
100,000 HillsBorough, Florida Utilities, 7.000%, dated 9/1/1991,
due 8/1/2114...................................................... 109,500
100,000 Northern California Power Agency, 7.150%, dated 12/30/1985,
due 7/01/2024................................................... 103,358
200,000 Piedmont Municipal Power Agency, 6.550%, dated 9/01/1996,
due 1/01/2016..................................................... 201,562
200,000 Puerto Rico Electric Power Authority, 6.000%, dated 8/15/1995,
due 7/01/2000..................................................... 208,250
200,000 Sacramento California Municipal Utilities District, 5.700%,
dated 4/01/1993, due 5/15/2012.................................... 213,000
200,000 Tacoma Washington Electric System Revenue, 5.900%,
dated 9/01/1992, due 1/01/2005.................................... 212,500
---------
1,266,170
---------
</TABLE>
26
<PAGE>
Kayne Anderson Intermediate Tax-Free Bond Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited), Continued
- --------------------------------------------------------------------------------------------------------------------
Principal Amount Market Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hospital: 13.2%
$200,000 California Health Facility Financing Authority, 6.750%,
dated 10/01/1989, due 10/01/2019.................................. $ 209,750
200,000 Dade County Health Facilities Authority, 6.600%, dated 3/01/1987,
due 8/15/2002..................................................... 202,500
200,000 New York Dormitory, 5.000%, dated 3/01/1997, due 8/15/2000.......... 203,750
200,000 New York State Dormatory Authority Revenues, 5.500%,
date 2/01/1998, due 2/15/2003..................................... 208,250
---------
824,250
---------
Housing: 3.4%
200,000 New York Urban Development, 6.000%, dated 1/01/1995,
due 1/01/2001..................................................... 208,500
---------
IDR / PCR: 4.7%
200,000 California Pollution Ctl. Fin., 7.150%, dated 2/01/1991,
due 2/01/2011..................................................... 216,750
75,000 Mercer County Pollution Ctl., 5.850%, dated 6/01/1993,
due 6/01/2023..................................................... 78,094
---------
294,844
---------
Transportation: 12.5%
250,000 Albuquerque, New Mexico Airport, 6.500%, dated 4/15/1989,
due 7/01/2019..................................................... 250,448
200,000 New Jersey State Turnpike Authority, 5.900%, dated 1/01/1992,
due 1/01/2003..................................................... 211,500
200,000 Orange County Airport, 5.500%, dated 4/02/1997, due 7/01/2002....... 208,750
100,000 Orange County, California Local Transportation Authority, 5.750%,
dated 9/01/1992, due 2/15/2005.................................... 107,250
---------
777,948
---------
Prerefunded: 6.7%
150,000 Los Angeles Convention & Exhibit Center, 9.000%,
dated 12/01/1985, due 12/01/2020.................................. 195,375
200,000 Washington Public Power Supply Systems, 7.625%,
dated 10/15/1990, due 7/01/2010................................... 220,250
---------
415,625
---------
</TABLE>
27
<PAGE>
Kayne Anderson Intermediate Tax-Free Bond Fund
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS at June 30, 1998 (Unaudited), Continued
- ------------------------------------------------------------------------------------------------------------------
Par Value Market Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Water & Sewer: 3.4%
$200,000 Los Angeles, California Wastewater System, 5.700%, dated 4/01/1993,
due 6/01/2020....................................................... $ 209,000
-----------
Total Long-Term Municipal Debts (cost $6,003,877)................... 6,044,442
-----------
Total Investments in Securities (cost $6,003,877+): 97.1%........... 6,044,442
Other Assets less Liabilities: 2.9%................................. 181,287
-----------
Net Assets: 100.0% ................................................. $ 6,225,729
===========
+Cost for Federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation....................................... $ 46,563
Gross unrealized depreciation....................................... (5,998)
-----------
Net unrealized appreciation............................... $ 40,565
===========
</TABLE>
See accompanying Notes to Financial Statements.
28
<PAGE>
[This page intentionally left blank.]
29
<PAGE>
Kayne Anderson Mutual Funds
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES at June 30, 1998 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
Rising
Dividends
Fund
----------
<S> <C>
ASSETS
Investments in securities, at market value (cost $28,097,986, $28,492,557, $28,676,203,
$27,480,289, and $6,003,877, respectively) ....................................... $44,819,935
Cash........................................................................................ 1,280,407
Receivables:
Investment securities sold........................................................ 6,379,392
Capital stock sold................................................................ --
Dividends and interest............................................................ 44,826
Prepaid expenses............................................................................ 11,970
Due from investment advisor................................................................. --
Deferred organization expenses.............................................................. 11,644
-----------
Total assets ............................................................ 52,548,174
-----------
LIABILITIES
Payables:
Investment securities purchased................................................... 4,459,547
Distributions to shareholders..................................................... --
Due to investment advisor................................................................... 30,198
Other accrued expenses ..................................................................... 26,698
-----------
Total liabilities........................................................ 4,516,443
-----------
NET ASSETS ........................................................................................... $48,031,731
===========
Number of shares issued and outstanding (unlimited shares authorized without par value) .... 2,436,549
Net asset value, offering and redemption price per share.................................... $ 19.71
===========
COMPOSITION OF NET ASSETS
Paid-in capital............................................................................. $28,247,309
Undistributed (overdistributed) net investment income....................................... 166,932
Undistributed net realized gain on investments.............................................. 2,895,541
Net unrealized appreciation on:
Investments....................................................................... 16,721,949
Foreign currency.................................................................. --
-----------
Net assets .............................................................. $48,031,731
===========
</TABLE>
See accompanying Notes to Financial Statements.
30
<PAGE>
Kayne Anderson Mutual Funds
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Small-Mid Cap International Intermediate Intermediate
Rising Dividends Rising Dividends Total Return Tax-Free
Fund Fund Bond Fund Bond Fund
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$30,185,051 $30,824,157 $27,626,406 $6,044,442
543,117 1,309,665 188,191 28,738
-- -- -- --
144,941 592,003 630 --
28,632 123,470 476,400 126,876
12,526 12,695 18,000 18,455
-- -- -- 5,188
14,096 14,095 14,095 14,095
----------- ----------- ----------- ----------
30,928,363 32,876,085 28,323,722 6,237,794
----------- ----------- ----------- ----------
-- -- -- --
-- -- -- 335
27,310 37,831 14,009 --
10,689 13,562 12,586 11,730
----------- ----------- ----------- ----------
37,999 51,393 26,595 12,065
----------- ----------- ----------- ----------
$30,890,364 $32,824,692 $28,297,127 $6,225,729
=========== =========== =========== ==========
2,100,924 2,209,630 2,611,407 580,573
$ 14.71 $ 14.86 $ 10.84 $ 10.72
=========== =========== =========== ==========
$28,778,878 $30,233,559 $28,166,074 $6,182,689
28,447 263,756 (2,059) (905)
390,545 179,286 (13,005) 3,380
1,692,494 2,147,954 146,117 40,565
-- 137 -- --
----------- ----------- ----------- ----------
$30,890,364 $32,824,692 $28,297,127 $6,225,729
=========== =========== =========== ==========
</TABLE>
31
<PAGE>
Kayne Anderson Mutual Funds
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS - For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
Rising
Dividends
Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Income:
Dividends.................................................................. $ 382,604
Interest .................................................................. 18,427
---------
Total income...................................................... 401,031
---------
Expenses:
Investment advisory fees................................................... 159,243
Custodian fees............................................................. 10,264
Administration fees........................................................ 14,057
Fund accounting fees....................................................... 15,620
Transfer agent fees........................................................ 7,636
Legal fees................................................................. 5,207
Insurance.................................................................. 994
Audit fees................................................................. 3,546
Miscellaneous expenses..................................................... 1,488
Reports to shareholders.................................................... 1,488
Registration fees.......................................................... 8,907
Trustees' fees............................................................. 1,835
Amortization of deferred organization expenses............................. 3,814
---------
Total expenses.................................................... 234,099
Less: Expenses reimbursed/waived.................................. --
---------
Net expenses...................................................... 234,099
---------
Net investment income .................................. 166,932
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments.............................................. 496,727
Net change in unrealized appreciation of investments and foreign currency............ 4,849,438
---------
Net gain (loss) on investments.................................... 5,346,165
---------
Net Increase in Net Assets Resulting from Operations ... $5,513,097
==========
</TABLE>
See accompanying Notes to Financial Statements.
32
<PAGE>
Kayne Anderson Mutual Funds
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Small-Mid Cap International Intermediate Intermediate
Rising Dividends Rising Dividends Total Return Tax-Free
Fund Fund Bond Fund Bond Fund
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 150,127 $ 372,907 $ -- $ --
21,023 41,432 571,679 141,928
--------- --------- -------- ----------
171,150 414,339 571,679 141,928
--------- --------- -------- ----------
92,885 102,181 47,454 14,814
4,924 6,867 1,113 1,263
10,927 10,927 10,927 8,790
15,620 19,340 15,620 15,620
7,629 7,704 7,636 7,636
371 371 744 744
45 45 20 20
3,563 3,563 3,546 3,546
995 997 993 993
496 496 496 496
8,266 8,266 8,176 8,176
1,837 1,837 1,835 1,835
2,107 2,107 2,107 2,107
--------- --------- -------- ----------
149,665 164,701 100,667 66,040
(6,742) (14,118) (11,205) (42,210)
--------- --------- -------- ----------
142,923 150,583 89,462 23,830
--------- --------- -------- ----------
28,227 263,756 482,217 118,098
--------- --------- -------- ----------
390,545 179,286 (9,045) 4,833
1,334,073 1,731,953 76,770 (11,963)
---------- ---------- -------- ----------
1,724,618 1,911,239 67,725 (7,130)
---------- ---------- -------- ----------
$1,752,845 $2,174,995 $549,942 $ 110,968
========== ========== ======== ==========
</TABLE>
33
<PAGE>
Kayne Anderson Mutual Funds
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
Rising
Dividends
Fund
-----------------------------
Six Months Year
INCREASE IN NET ASSETS FROM: Ended Ended
6/30/98# 12/31/97
-------- --------
<S> <C> <C>
OPERATIONS
Net investment income.......................................................... $ 166,932 $ 198,336
Net realized gain (loss) on investments sold................................... 496,727 5,093,470
Net change in unrealized appreciation of investments........................... 4,849,438 4,378,552
--------- ---------
Net increase in net assets resulting from operations ................ 5,513,097 9,670,358
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.......................................................... -- (222,979)
Net realized gain on investments............................................... -- (2,795,680)
--------- ---------
Total distributions to shareholders ................................. -- (3,018,659)
--------- ---------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold...................................................... 7,044,978 11,725,624
Net asset value of shares issued in reinvestment of distributions.............. 2,434,943 -
Cost of shares redeemed........................................................ (2,243,811) (9,212,376)
--------- ---------
Net increase from capital share transactions ........................ 7,236,110 2,513,248
--------- ---------
Total increase in net assets ........................................ 12,749,207 9,164,947
NET ASSETS
Beginning of period ........................................................... 35,282,524 26,117,577
----------- -----------
End of period ........................................................... $48,031,731 $35,282,524
=========== ===========
CHANGE IN SHARES
Shares sold ........................................................... 372,878 752,018
Shares issued in reinvestment of distributions................................. 140,902 -
Shares redeemed ........................................................... (119,074) (534,351)
----------- -----------
Net increase......................................................... 394,706 217,667
=========== ===========
</TABLE>
#Unaudited.
See accompanying Notes to Financial Statements.
34
<PAGE>
Kayne Anderson Mutual Funds
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Small-Mid Cap International Intermediate Intermediate
Rising Dividends Rising Dividends Total Return Tax-Free
Fund Fund Bond Fund Bond Fund
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months Year Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended Ended Ended
6/30/98# 12/31/97 6/30/98# 12/31/97 6/30/98# 12/31/97 6/30/98# 12/31/97
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 28,227 $ 18,287 $ 263,756 $ 25,041 $ 482,217 $ 292,768 $ 118,098 $ 176,838
390,545 237,764 179,286 20,183 (9,045) (5,750) 4,833 (1,453)
1,334,073 336,930 1,731,953 397,529 76,770 102,483 (11,963) 58,234
---------- -------- --------- -------- --------- --------- --------- ---------
1,752,845 592,981 2,174,995 442,753 549,942 389,501 110,968 233,619
---------- -------- --------- -------- --------- --------- --------- ---------
-- (23,419) -- (30,206) (484,276) (298,892) (119,003) (181,326)
-- (22,399) -- (20,183) -- -- -- --
---------- -------- --------- -------- --------- --------- --------- ---------
-- (45,818) -- (50,389) (484,276) (298,892) (119,003) (181,326)
---------- -------- --------- -------- --------- --------- --------- ---------
23,132,027 8,244,623 24,518,139 6,170,378 21,855,466 933,235 275,193 787,429
22,187 -- 31,595 396 433,400 261,111 139,661 157,563
(510,646) (3,105,616) (912,333) (605,671) (318,194) (57,661) (196,293) (106,522)
---------- -------- --------- -------- --------- --------- --------- ---------
22,643,568 5,139,007 23,637,401 5,565,103 21,970,672 1,136,685 218,561 838,470
---------- -------- --------- -------- --------- --------- --------- ---------
24,396,413 5,686,170 25,812,396 5,957,467 22,036,338 1,227,294 210,526 890,763
6,493,951 807,781 7,012,296 1,054,829 6,260,789 5,033,495 6,015,203 5,124,440
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
$30,890,364 $6,493,951 $32,824,692 $7,012,296 $28,297,127 $6,260,789 $6,225,729 $6,015,203
=========== ========== =========== ========== =========== ========== ========== ==========
1,641,541 656,347 1,721,787 507,753 2,018,203 87,412 25,677 73,658
1,691 - 2,505 28 40,195 24,683 13,025 14,770
(37,108) (234,584) (70,746) (48,344) (29,353) (5,200) (18,265) (10,049)
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
1,606,124 421,763 1,653,546 459,437 2,029,045 106,895 20,437 78,379
=========== ========== =========== ========== =========== ========== ========== ==========
</TABLE>
35
<PAGE>
Kayne Anderson Mutual Funds
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- ------------------------------------------------------------------------------------------------------------------------------------
Rising
Dividends
Fund
------------------------------------------------------------------
Six Months Year Year 5/1/95*
Ended Ended Ended to
6/30/98# 12/31/97 12/31/96 12/31/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............................. $ 17.28 $ 14.32 $ 12.63 $ 10.65
------- ------- ------- -------
Income from investment operations:
Net investment income.................................. 0.07 0.10 0.08 0.07
Net realized and unrealized gain (loss)
on investments............................... 2.36 4.34 2.35 2.13
------- ------- ------- -------
Total income from investment operations.......................... 2.43 4.44 2.43 2.20
------- ------- ------- -------
Less distributions:
Dividends from net investment income................... 0.00 (0.11) (0.08) (0.07)
Distributions from net capital gains................... 0.00 (1.37) (0.66) (0.15)
------- ------- ------- -------
Total distributions ............................................. 0.00 (1.48) (0.74) (0.22)
------- ------- ------- -------
Net asset value, end of period................................... $ 19.71 $ 17.28 $ 14.32 $ 12.63
======= ======= ======= =======
Total return ............................................. 14.24%** 30.99% 19.09% 20.65%**
Net assets, end of period (in 000's)............................. $48,032 $35,283 $26,118 $20,613
$30,890 $ 6,494 $ 808...................................... $32,824 $ 7,012 $ 1,055
Ratio of expenses to average net assets:
Before expense reimbursement........................... - - - -
After expense reimbursement............................ 1.10%+ 1.18% 1.37% 1.31%+
After expense reimbursement and expenses
paid indirectly.............................. - - - -
Ratio of net investment income to average net assets:
(net of expense reimbursement, if applicable).......... 0.78%+ 0.55% 0.59% 0.94%+
Portfolio turnover rate.......................................... 9% 51% 23% 28%
Average commission per unit...................................... $.0600 $ .0600 $ .0600 -
</TABLE>
#Unaudited.
*Commencement of operations.
**Not annualized.
+Annualized.
36
<PAGE>
Kayne Anderson Mutual Funds
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Small-Mid Cap International
Rising Dividends Rising Dividends
Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------
Six Months Year 10/18/96* Six Months Year 10/18/96*
Ended Ended to Ended Ended to
6/30/98# 12/31/97 12/31/96 6/30/98# 12/31/97 12/31/96
---------- -------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
$ 13.12 $ 11.06 $ 10.65 $ 12.61 $ 10.91 $ 10.65
------- ------- ------- ------- ------- -------
0.01 0.02 0.02 0.12 0.04 0.01
1.58 2.14 0.41 2.13 1.75 0.26
------- ------- ------- ------- ------- -------
1.59 2.16 0.43 2.25 1.79 0.27
------- ------- ------- ------- ------- -------
0.00 (0.05) (0.02) 0.00 (0.05) (0.01)
0.00 (0.05) 0.00 0.00 (0.04) 0.00
------- ------- ------- ------- ------- -------
0.00 (0.10) (0.02) 0.00 (0.09) (0.01)
------- ------- ------- ------- ------- -------
$ 14.71 $ 13.12 $ 11.06 $ 14.86 $ 12.61 $ 10.91
======= ======= ======= ======= ======= =======
12.12%** 19.46% 4.00%** 17.84%** 16.42% 2.56%**
1.36%+ 3.22% 18.91%+ 1.53%+ 3.41% 15.74%+
1.30%+ 1.30% 1.30%+ 1.40%+ 1.40% 1.40%+
- - - - - -
0.26%+ 0.45% 1.58%+ 2.45%+ 0.61% 1.14%+
13% 47% 0% 8% 29% 0%
$ .0600 $ .0637 $ .0955 $ .0350 $ .0666 $ .0936
</TABLE>
See accompanying Notes to Financial Statements.
37
<PAGE>
Kayne Anderson Mutual Funds
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout each period
- --------------------------------------------------------------------------------
Net asset value, beginning of period............................................
Income from investment operations:
Net investment income.................................................
Net realized and unrealized gain (loss) on investments................
Total income from investment operations.........................................
Less distributions:
From net investment income............................................
From net realized gains...............................................
Total distributions ............................................................
Net asset value, end of period..................................................
Total return ...................................................................
Net assets, end of period (in 000's)............................................
Ratio of expenses to average net assets:
Before expense reimbursement..........................................
After expense reimbursement...........................................
After expense reimbursement and expenses paid indirectly..............
Ratio of net investment income to average net assets
(net of expense reimbursement, if applicable).........................
Portfolio turnover rate.........................................................
Average commission per unit.....................................................
#Unaudited.
*Commencement of operations.
**Not annualized.
+Annualized.
See accompanying Notes to Financial Statements.
38
<PAGE>
Kayne Anderson Mutual Funds
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Intermediate Intermediate
Total Return Tax-Free
Bond Fund Bond Fund
- ----------------------------------------------------------------------------------------------------------------------------
Six Months Year 10/28/96* Six Months Year 10/28/96*
Ended Ended to Ended Ended to
6/30/98# 12/31/97 12/31/96 6/30/98# 12/31/97 12/31/96
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$10.75 $10.59 $10.65 $10.74 $10.64 $10.65
------ ------ ------ ------ ------ ------
0.24 0.56 0.09 0.20 0.34 0.01
------ ------ ------ ------ ------ ------
0.09 0.18 (0.07) (0.02) 0.11 (0.01)
------ ------ ------ ------ ------ ------
0.33 0.74 0.02 0.18 0.45 0.00
(0.24) (0.58) (0.08) (0.20) (0.35) (0.01)
0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
(0.24) (0.58) (0.08) (0.20) (0.35) (0.01)
------ ------ ------ ------ ------ ------
$10.84 $10.75 $10.59 $10.72 $10.74 $10.64
====== ====== ====== ====== ====== ======
3.07%** 7.19% 0.20%** 1.77%** 4.26% 0.02%**
$28,297 $6,261 $5,033 $6,226 $6,015 $5,124
1.07%+ 2.23% 2.10%+ 2.23%+ 2.29% 2.08%+
0.95%+ 0.95% 0.95%+ 0.80%+ 1.56% 1.81%+
- - - - 0.95% 0.95%+
5.12%+ 5.35% 4.72%+ 3.99%+ 2.58% 0.60%+
3% 27% 0% 28% 40% 0%
- - - - - -
</TABLE>
39
<PAGE>
Kayne Anderson Mutual Funds
NOTES TO FINANCIAL STATEMENTS at June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
Kayne Anderson Mutual Funds (the "Trust") was organized as a business
trust in Delaware on May 29, 1996 and is registered under the Investment Company
Act of 1940 as a diversified, open-end management investment company. The Trust
currently consists of five seperate diversified series: Rising Dividends Fund,
Small-Mid Cap Rising Dividends Fund, International Rising Dividends Fund,
Intermediate Total Return Bond Fund, and Intermediate Tax-Free Bond Fund (each a
"Fund" and collectively the "Funds").
Between May 29, 1996 and the respective dates of commencement of
operations, the Funds had no operations other than those related to
organizational matters and the sale of 2,347 shares of 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 to Kayne Anderson
Investment Management, LLC, the Funds' investment advisor, for $25,000,
respectively. On October 4, 1996 the shareholders of the Kayne Anderson Rising
Dividends Fund (the "Predecessor Fund"), a series of shares of Professionally
Managed Portfolios, entered into a tax-free reorganization pursuant to which
they agreed to exchange their Predecessor Fund shares for shares of the Rising
Dividends Fund series of the Trust, which had no operations prior to the
reorganization. The Predecessor Fund is deemed to be the accounting survivor and
accordingly the statement of changes in net assets and the financial highlights
include the operations of the Predecessor Fund for periods prior to the
reorganization.
The Rising Dividends Fund seeks long-term capital appreciation, with
dividend income as a secondary consideration. The Fund invests primarily in
equity securities, usually common stocks, of companies of all sizes.
The Small-Mid Cap Rising Dividends Fund seeks long-term capital
appreciation, with dividend income as a secondary consideration. The Fund
invests primarily in equity securities, usually common stocks, of small and
mid-capitalization companies, which the Fund currently considers to be companies
having total market capitalizations of not more than $3 billion.
The International Rising Dividends Fund seeks long-term capital
appreciation, with dividend income as a secondary consideration. The Fund
invests primarily in equity securities, usually common stocks, of companies
outside the U.S. generally having total market capitalizations of $1 billion or
more.
The Intermediate Total Return Bond Fund seeks to obtain maximum total
return, primarily through current income with capital appreciation as a
secondary consideration. The Fund invests primarily in investment grade debt
securities and seeks to maintain an average maturity of three to ten years.
The Intermediate Tax-Free Bond Fund seeks current income exempt from
Federal income tax consistent with preservation of capital. The Fund invests
primarily in investment grade debt securities and may maintain an average
maturity of more than ten years.
There can be no assurances that the Funds will be able to achieve
their investment objectives. The value of Fund shares fluctuates daily and may
be worth more or less than their purchase price when redeemed.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Funds. These policies are in conformity with
generally accepted accounting principles.
40
<PAGE>
Kayne Anderson Mutual Funds
NOTES TO FINANCIAL STATEMENTS at June 30, 1998 (Unaudited), Continued
- --------------------------------------------------------------------------------
A. Security Valuation: The Fund's investments are carried at
market value. Securities listed on an exchange or quoted on
a national market system are valued at the last sale price.
Other securities are valued at the last quoted bid price.
Securities for which market quotations are not readily
available, if any, are valued at an independent pricing
service or determined following procedures approved by the
Board of Trustees. Short-term investments are valued at
amortized cost, which approximates market value.
B. Federal Income Taxes: It is the Fund's policy to comply with
the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute
substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. At
December 31, 1997 the Intermediate Total Return Bond Fund
and the Intermediate Tax-Free Bond Fund had capital loss
carryforwards available for Federal income tax purposes of
$3,960 and $1,083, respectively, which expire in 2005.
C. Security Transactions, Dividends and Distributions: As is
common in the industry, security transactions are accounted
for on the trade date. Interest income is recognized on the
accrual basis. Bond discounts and premiums are amortized
over their respective lives. Dividend income and
distributions to shareholders are recorded on the
ex-dividend date.
D. Deferred Organization Expenses: All of the expenses incurred
by the Advisor in connection with the organization and
registration of the Fund's shares will be borne by the Fund
and are being amortized to expense on a straight-line basis
over a period of five years.
E. Accounting Estimates: In preparing financial statements in
conformity with generally accepted accounting principles,
management makes estimates and assumptions with respect to
expenses that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well
as the reported amounts of expenses during the period.
Actual results could differ from those estimates.
F. Expenses Paid Indirectly: The Intermediate Tax-Free Bond
Fund's custodian, fund accounting and transfer agency fees
for the period January 1, 1997 to December 31, 1997 were
reduced by $34,315 as a result of earning credits from
overnight cash balances with its custodian bank. There were
no such credits for the six months ended June 30, 1998.
NOTE 3 - INVESTMENT ADVISORY AND MANAGEMENT FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
For the six months ended June 30, 1998, Kayne Anderson Investment
Management, LLC (the "Advisor") provided the Funds with investment management
services under an Investment Advisory Agreement. The Advisor furnished all
investment advice, office space and certain administrative services, and
provides personnel as needed by the Funds. The Advisor is entitled to a monthly
fee at the following annual rates based upon the average daily net assets of the
Funds:
Rising Dividends Fund ................................... 0.75%
Small-Mid Cap Rising Dividends Fund ....................... .0.85%
41
<PAGE>
Kayne Anderson Mutual Funds
NOTES TO FINANCIAL STATEMENTS at June 30, 1998 (Unaudited), Continued
- --------------------------------------------------------------------------------
International Rising Dividends Fund.................... 0.95%
Intermediate Total Return Bond Fund.................... 0.50%
Intermediate Tax-Free Bond Fund........................ 0.50%
Although not required to do so, the Advisor has agreed to waive or
reimburse the expenses of each Fund to the extent necessary so that its ratio of
operating expenses to average net assets will not exceed the following levels.
Overall operating expenses for each Fund will not fall below the applicable
percentage limitation until the Investment Advisor has been fully reimbursed for
fees foregone and expenses paid by the Advisor under this agreement:
Rising Dividends Fund ............................... 1.20%
Small-Mid Cap Rising Dividends Fund ................... 1.30%
International Rising Dividends Fund.................... 1.40%
Intermediate Total Return Bond Fund.................... 0.95%
Intermediate Tax-Free Bond Fund........................ 0.75%
Pursuant to these expense limitation provisions, the Advisor
reimbursed the Small-Mid Cap Rising Dividends Fund $6,742, the International
Rising Dividends Fund $14,118, the Intermediate Total Return Bond Fund $11,205,
and the Intermediate Tax-Free Bond Fund $42,210 during the six months ended June
30, 1998.
The Funds executed certain investment security transactions through KA
Associates, an affiliate of the Funds' Advisor. Commissions paid by the Funds to
this affiliate during the six months ended June 30, 1998 were as follows:
International Rising Dividends Fund.................... $35,095
Small-Mid Cap Rising Dividends Fund.................... $ 1,962
Investment Company Administration Corporation (the "Administrator")
acts as the Funds' Administrator under an Administration Agreement. The
Administrator prepares various federal and state regulatory filings, reports and
returns for the Funds; prepares reports and materials to be supplied to the
trustees; monitors the activities of the Funds' custodian, transfer agent and
accountants; coordinates the preparation and payment of Fund expenses and
reviews the Funds' expense accruals. For its services, each Fund has agreed to
pay the Administrator an annual fee equal to 0.075% of the first $40 million of
its average daily net assets, 0.05% of the next $40 million, 0.025% of the next
$40 million, and 0.01% thereafter, subject to a minimum annual fee of $30,000
per Fund.
First Fund Distributors, Inc. (the "Distributor") acts as the Funds'
principal underwriter in a continuous public offering of the Funds' shares. The
Distributor is an affiliate of the Administrator.
Certain officers and Trustees of the Fund are also officers and/or
directors of the Advisor.
42
<PAGE>
Kayne Anderson Mutual Funds
NOTES TO FINANCIAL STATEMENTS at June 30, 1998 (Unaudited), Continued
- --------------------------------------------------------------------------------
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 1998, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities and U.S.
Government securities were as follows:
Fund Purchases Sales
--------- -----
Rising Dividends Fund $ 7,266,637 $3,963,126
Small-Mid Cap Rising Dividends Fund $24,833,710 $2,799,272
International Rising Dividends Fund $23,730,984 $1,746,128
Intermediate Total Return Bond Fund $ 4,607,757 $ 652,514
Intermediate Tax-Free Bond Fund $ 1,850,986 $1,651,542
The Intermediate Total Return Bond Fund purchased $18,046,148, and
sold $126,276, respectively, of U.S. Government securities. There were no
purchases or sales of U.S. Government securities by Rising Dividends Fund,
Small-Mid Cap Rising Dividends Fund, International Rising Dividends Fund, and
Intermediate Tax-Free Bond Fund.
During the six months ended June 30, 1998, the International Rising
Dividends Fund realized gains in the amount of $41,377 from the "in-kind"
distribution of appreciated securities to a redeeming shareholder.
43
<PAGE>
Advisor
Kayne Anderson Investment Management, LLC
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90067
(310) 556-2721
o
Distributor
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, Arizona 85018
o
Custodian and Transfer Agent
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
o
Auditors
Briggs, Bunting & Dougherty, LLP
Two Logan Square, Suite 2121
Philadelphia, Pennsylvania 19103
o
Legal Counsel
Paul, Hastings, Janofsky & Walker, LLP
345 California Street, 29th Floor
San Francisco, California 94104
This report is intended for the shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
(Kayne Anderson
Mutual Funds
Color Logo)
Semi-Annual Report
June 30, 1998
