[KAYNE ANDERSON LOGO]
Semi-Annual Report
June 30, 1999
<PAGE>
[KAYNE ANDERSON LOGO]
TABLE OF CONTENTS
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LETTER TO SHAREHOLDERS..................................................... 2
INVESTMENT ADVISOR COMMENTS AND PORTFOLIOS OF INVESTMENTS
Rising Dividends Fund............................................. 3
Small Cap Rising Dividends Fund................................... 8
International Rising Dividends Fund............................... 12
Intermediate Total Return Bond Fund............................... 18
Intermediate Tax-Free Bond Fund................................... 22
STATEMENTS OF ASSETS AND LIABILITIES....................................... 28
STATEMENTS OF OPERATIONS................................................... 30
STATEMENTS OF CHANGES IN NET ASSETS........................................ 32
FINANCIAL HIGHLIGHTS....................................................... 34
NOTES TO FINANCIAL STATEMENTS.............................................. 38
GRAPHIC
<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, 1999. 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, large capitalization companies which exemplify strong management,
financial strength and consistent growth.
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:
Once again, U.S. large cap stocks provided a solid return for the first six
months of this year. As of June 30, 1999, the Fund is up 12.97% vs. 12.38% for
its benchmark, the S&P 500. Positive economic factors, including continued low
inflation, increased corporate profitability, and sustained improvements in
productivity propelled the increase in the market, as well as the Fund.
For the first six months of 1999, the sectors in which the Fund was most heavily
weighted included Technology, Financial, Healthcare and Consumer Staples. The
Technology sector provided the most significant amount of growth over the first
six months, and the Fund benefited by an increase in the sector weighting during
this time. Specifically, companies including EDS, Hewlett Packard and IBM helped
boost the sector. EDS appears to be successfully reengineering itself under new
management. Hewlett Packard announced the separation of the company into two
distinct entities, each with a more focused mission. And IBM continues to
demonstrate strong leadership, and is experiencing rapid growth in the services
segment of the technology industry.
The Financial sector also turned in a strong performance, with Wells Fargo
posting gains, reflecting the progress in achieving merger synergies from the
combination of Norwest Bank and the "old" Wells Fargo. While the Healthcare
sector did not experience universally positive returns, our selections within
that sector nonetheless managed to also contribute positively to the Fund's
overall return.
Of the heaviest-weighted sectors, only Consumer Staples had a negative effect on
the Fund's performance. The economic turmoil in foreign markets affected the
sector in general, and companies like Gillette, McDonald's and Procter & Gamble
declined as a result. These companies, as well as all Consumer Staples, should
benefit as the foreign economies continue to recover.
As we proceed in to the latter half of 1999, we have made some changes in the
holdings of the Fund. Our holdings in IBM were increased, reflecting our
confidence in their management. A new position was also established in AT&T,
reflecting our belief in management's strategic realignment of the company to
create a broadband platform for the delivery of bundled telecom, video and data
services. We sold Royal Dutch Petroleum, which had appreciated strongly, in
order to fund both the IBM and AT&T purchases. We traded our position in
Franklin Resources to fund an increase in our holdings of Fannie Mae. The swap
of Fannie Mae for Franklin Resources improves the Fund's characteristics by
adding a stock that has both a lower P/E ratio and a lower beta (less market
risk).
3
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KAYNE ANDERSON RISING DIVIDENDS FUND
OUTLOOK
Our outlook for the domestic economy is for continued moderate growth with low
inflation. We believe that international economies will begin to recover over
the next year, which will benefit our multinational companies, particularly the
branded consumer-oriented positions. Going forward, our focus will continue to
be on positioning the Core Portfolio for consistent long-term growth. We believe
that the companies in the portfolio can produce earnings growth averaging 13%
to 14% annually with low variability.
4
<PAGE>
KAYNE ANDERSON RISING DIVIDENDS FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 98.5% Value
- --------------------------------------------------------------------------------
BASIC MATERIALS / CHEMICALS: 3.7%
40,130 PPG Industries, Inc..................................... $ 2,370,178
-----------
CAPITAL GOODS / ELECTRICAL EQUIPMENT: 7.1%
38,450 Emerson Electric Company................................ 2,417,543
19,300 General Electric Company................................ 2,180,900
-----------
4,598,443
-----------
CONSUMER CYCLICAL / ENTERTAINMENT & LEISURE: 3.6%
74,290 The Walt Disney Company................................. 2,289,060
-----------
CONSUMER CYCLICAL / RESTAURANTS: 3.5%
54,020 McDonald's Corporation.................................. 2,231,701
-----------
CONSUMER STAPLES / BEVERAGES: 1.9%
19,970 Coca-Cola Co............................................ 1,248,125
-----------
CONSUMER STAPLES / CONSUMER PRODUCTS: 7.3%
60,610 Gillette Company........................................ 2,485,010
25,160 Procter & Gamble Company................................ 2,245,530
-----------
4,730,540
-----------
CONSUMER STAPLES / FOODS: 7.4%
48,430 BestFoods............................................... 2,397,285
22,040 Hershey Foods Corporation............................... 1,308,625
12,060 Wm. Wrigley Jr., Company................................ 1,085,400
-----------
4,791,310
-----------
CAPITAL GOODS / MANUFACTURING (DIVERSIFIED): 3.9%
30,940 Illinois Tool Works Inc................................. 2,537,080
-----------
ENERGY / PETROLEUM - INTERNATIONAL: 3.6%
30,430 Exxon Corporation....................................... 2,346,913
-----------
FINANCIAL / BANKING: 4.0%
60,720 Wells Fargo & Company................................... 2,595,780
-----------
5
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KAYNE ANDERSON RISING DIVIDENDS FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
FINANCIAL / FINANCIAL SERVICES: 8.5%
39,780 Federal National Mortgage Association................... $ 2,719,958
32,440 State Street Boston Corporation......................... 2,769,565
-----------
5,489,523
-----------
FINANCIAL / INSURANCE: 3.8%
32,610 Marsh & McLennan Companies Inc.......................... 2,462,055
-----------
HEALTH CARE / DRUGS & HOSPITAL SUPPLIES: 12.1%
53,770 Abbott Laboratories..................................... 2,446,535
26,980 Johnson & Johnson....................................... 2,644,041
36,280 Merck & Co., Inc........................................ 2,684,720
-----------
7,775,296
-----------
HEALTH CARE / MEDICAL DEVICES: 4.3%
35,170 Medtronics, Inc......................................... 2,738,863
-----------
TECHNOLOGY / COMPUTERS & OFFICE EQUIPMENT: 9.8%
26,900 Hewlett-Packard Company................................. 2,703,451
28,220 International Business Machine.......................... 3,647,436
-----------
6,350,887
-----------
TECHNOLOGY / DATA SERVICES: 7.9%
58,360 Automatic Data Processing Inc........................... 2,567,840
44,490 Electronic Data Systems Corporation..................... 2,516,466
-----------
5,084,306
-----------
TECHNOLOGY / SEMICONDUCTORS: 4.1%
43,920 Intel Corporation....................................... 2,613,240
-----------
TELECOMMUNICATION: 2.0%
22,900 AT&T Corporation........................................ 1,278,106
-----------
TOTAL COMMON STOCKS (Cost $49,492,341).................. 63,531,406
-----------
6
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KAYNE ANDERSON RISING DIVIDENDS FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Value
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $49,492,341*): 98.5%.............................. $63,531,406
OTHER ASSETS LESS LIABILITIES: 1.5%..................... 984,402
-----------
NET ASSETS: 100.0% ..................................... $64,515,808
===========
* Cost for Federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation......................... $14,724,181
Gross unrealized depreciation......................... (685,116)
-----------
Net unrealized appreciation......................... $14,039,065
===========
See accompanying Notes to Financial Statements.
7
<PAGE>
KAYNE ANDERSON SMALL CAP RISING DIVIDENDS FUND
OBJECTIVE:
The goals of the KAYNE ANDERSON SMALL CAP FUND are:
* To build a diversified portfolio of the next generation of high quality
"blue chip" companies.
* To produce returns typical of small 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 potential strong growth of small
companies while assuming less financial and stock market risk.
The following table demonstrates our commitment to these goals:
<TABLE>
<CAPTION>
KAYNE RUSSELL
ANDERSON 2000
QUALITY SMALL CAP INDEX
- ------- --------- -------
<S> <C> <C> <C>
Return on Equity - Past 5 Years 21.6% 14.3% MORE PROFITABLE
Long-Term Debt/Total Capital 19.6% 40.1% LESS FINANCIAL RISK
Interest Expense Coverage 9.8X 5.6X LESS FINANCIAL RISK
Earnings Variance - Past 10 Years 32.9% 72.6% MORE DEPENDABLE
A Rated by S&P 70.0% 9.5% BETTER QUALITY
GROWTH
Earnings Per Share Growth - Past 5 Years 14.0% 14.1% RECOVERY
Earnings Per Share Growth - Past 10 Years 13.7% 7.7% RECESSION
Dividend Per Share Growth - Past 5 Years 13.9% 10.8% RECOVERY
Dividend Per Share Growth - Past 10 Years 12.6% 5.3% RECESSION
Capital Generation - {ROE x (1-Payout)} 15.2% 11.0% FASTER GROWTH
VALUE
P/E Ratio - Latest 12 months 22.2 27.8 BETTER VALUE
Dividend Yield 1.6% 1.3% BETTER INCOME
MARKET CHARACTERISTICS
$ Weighted Average Market Cap last 4 quarters $1,290 million $870 million COMPARABLE SIZE
Monthly Standard Deviation - Since Inception 12.4% 15.7% LESS MARKET RISK
</TABLE>
Notes: Data as of June 30, 1999
Data is obtained from the Frank Russell Company and CompuStat and is assumed to
be reliable.
S&P 500 standard deviation is 12.4%.
8
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KAYNE ANDERSON SMALL CAP RISING DIVIDENDS FUND
COMMENTARY:
After a weak first quarter in which the Russell 2000 was down 5.4%, small stocks
strongly outperformed large stocks during the second quarter, with the Russell
2000 up 15.6%. For the first six months ended June 30, 1999, the Fund's total
return was 9.33% vs. 9.28% for the Russell 2000. Activity was higher than normal
for the first six months, all due to success. Two of our strongest performers in
1998, Cintas Corporation and Linear Technology, grew into mid-cap companies and
therefore were sold. Two other holdings, Ballard Medical Products and TCA Cable
TV, received acquisition offers at premium prices. We replaced these holdings
with 1) Claire's Stores, a mall based retailer of fashion accessories for
teenage girls that enjoys industry-leading profitability due to its strong brand
name and pricing flexibility; 2) Strayer Education, the nation's most profitable
post-secondary education company; 3) Hooper Holmes, the premier provider of
physical examination services for the life insurance industry; and 4) Benjamin
Moore, the nation's third largest paint manufacturer that focuses solely on the
professional painter who is willing to pay premium prices for premium products
and service.
OUTLOOK:
Small stocks are beginning to outperform large stocks after a multi-year period
of lagging performance. Institutional investors are shifting money from large
cap stocks into small cap and many large cap companies are using their richly
valued stock as currency in small company takeovers. Our current Small Cap
portfolio now sells at a price-to-earnings (P/E) ratio 15% lower than the P/E
ratio of the S&P 500 Index of large stocks indicating good value. Our portfolio
has sold as high as a 30% premium over the past decade. We own high quality
companies growing faster than the S&P 500. These are reasons why we expect this
portfolio to once again sell at a premium P/E ratio to the S&P 500 in the
future.
KAYNE ANDERSON SMALL CAP P/E VERSUS S&P 500 P/E
6/89 129.67% 10/92 90.30% 2/96 101.49%
7/89 122.28% 11/92 91.68% 3/96 97.14%
8/89 122.71% 12/92 96.37% 4/96 100.73%
9/89 120.58% 1/93 92.82% 5/96 100.97%
10/89 118.91% 2/93 91.24% 6/96 98.94%
11/89 118.24% 3/93 90.20% 7/96 93.66%
12/89 115.00% 4/93 86.34% 8/96 95.44%
1/90 110.00% 5/93 87.01% 9/96 92.80%
2/90 100.00% 6/93 85.26% 10/96 93.42%
3/90 94.11% 7/93 83.11% 11/96 90.37%
4/90 104.29% 8/93 83.57% 12/96 94.90%
5/90 105.88% 9/93 94.92% 1/97 88.17%
6/90 104.46% 10/93 89.75% 2/97 87.98%
7/90 108.17% 11/93 90.26% 3/97 89.36%
8/90 104.42% 12/93 92.74% 4/97 87.27%
9/90 104.66% 1/94 89.27% 5/97 89.77%
10/90 103.24% 2/94 89.73% 6/97 87.30%
11/90 105.56% 3/94 92.84% 7/97 87.58%
12/90 115.00% 4/94 89.89% 8/97 91.52%
1/91 110.00% 5/94 87.06% 9/97 90.31%
2/91 105.00% 6/94 92.90% 10/97 91.63%
3/91 115.00% 7/94 92.11% 11/97 91.92%
4/91 105.00% 8/94 91.95% 12/97 84.45%
5/91 105.00% 9/94 98.64% 1/98 83.65%
6/91 92.39% 10/94 96.52% 2/98 83.92%
7/91 87.82% 11/94 97.32% 3/98 81.18%
8/91 86.34% 12/94 114.34% 4/98 82.89%
9/91 80.48% 1/95 112.05% 5/98 82.66%
10/91 82.25% 2/95 113.31% 6/98 76.55%
11/91 87.19% 3/95 134.21% 7/98 74.18%
12/91 95.00% 4/95 128.48% 8/98 71.58%
1/92 93.00% 5/95 125.54% 9/98 70.68%
2/92 91.00% 6/95 129.23% 10/98 72.89%
3/92 90.87% 7/95 122.42% 11/98 71.05%
4/92 88.00% 8/95 128.00% 12/98 69.84%
5/92 88.81% 9/95 121.15% 1/99 75.12%
6/92 90.00% 10/95 113.82% 2/99 76.66%
7/92 98.00% 11/95 111.57% 3/99 73.21%
8/92 96.00% 12/95 103.69% 4/99 76.24%
9/92 95.22% 1/96 101.65% 5/99 84.39%
6/99 82.58%
Price/Earnings ratio for the stocks currently in the Kayne Anderson Small Cap
Fund divided by the Price / Earnings ratio of the Standard & Poors 500 Index.
Source: CompuStat
9
<PAGE>
KAYNE ANDERSON SMALL CAP RISING DIVIDENDS FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 96.7% Value
- --------------------------------------------------------------------------------
BASIC MATERIALS / PACKAGING: 9.0%
40,427 Bemis Company.......................................... $ 1,606,973
25,749 Liqui-Box Corporation.................................. 1,384,008
-----------
2,990,981
-----------
BASIC MATERIALS / PAINTS AND COATING: 4.3%
15,118 Benjamin Moore & Co.................................... 1,420,147
-----------
CAPITAL GOODS / MACHINERY EQUIPMENT: 8.5%
60,427 Federal Signal Corporation............................. 1,280,297
24,894 Nordson Corporation.................................... 1,524,757
-----------
2,805,054
-----------
CONSUMER CYCLICALS / FURNITURE: 5.3%
76,952 LA-Z Boy Chair Company................................. 1,769,896
-----------
CONSUMER CYCLICALS / RETAIL: 4.7%
60,130 Claire's Stores Inc.................................... 1,540,831
-----------
CONSUMER CYCLICALS / SERVICES: 5.5%
59,552 Strayer Education Inc.................................. 1,827,502
-----------
CONSUMER STAPLES / FOOD: 4.6%
39,157 Tootsie Roll Industries, Inc........................... 1,512,439
-----------
ENERGY / OIL & GAS PRODUCTION: 3.5%
32,494 Devon Energy Corporation............................... 1,161,661
-----------
FINANCE / INSURANCE: 7.8%
57,834 American Heritage Life Insurance Corporation........... 1,416,934
34,253 Mutual Risk Management Ltd............................. 1,143,193
-----------
2,560,127
-----------
FINANCE / BANKING: 8.9%
71,107 National Commerce Bancorp.............................. 1,555,466
61,092 Washington Federal, Inc................................ 1,370,752
-----------
2,926,218
-----------
10
<PAGE>
KAYNE ANDERSON SMALL CAP RISING DIVIDENDS FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 96.7% Value
- --------------------------------------------------------------------------------
FINANCE / FINANCIAL SERVICES: 9.0%
70,442 Eaton Vance Corporation................................ $ 2,425,846
11,430 Fiduciary Trust Company................................ 545,809
-----------
2,971,655
-----------
HEALTH CARE / DRUGS & HOSPITAL SUPPLIES: 9.2%
70,450 Hooper Holmes Inc...................................... 1,435,419
53,900 Landauer Inc........................................... 1,590,051
-----------
3,025,470
-----------
TECHNOLOGY / COMPUTER & OFFICE EQUIPMENT: 5.4%
76,462 Reynolds & Reynolds Inc., Class A...................... 1,782,520
-----------
TECHNOLOGY / SOFTWARE & SERVICE: 5.4%
113,005 Timberline Software Corporation........................ 1,779,828
-----------
TRANSPORTATION/ AIR TRANSPORT: 5.6%
73,216 Air Express International Corporation.................. 1,857,857
-----------
TOTAL COMMON STOCKS (Cost $28,608,593)................. 31,932,186
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $28,608,593*): 96.7%............................. 31,932,186
OTHER ASSETS LESS LIABILITIES: 3.3%.................... 1,077,698
-----------
NET ASSETS: 100.0% .................................... $33,009,884
===========
* Cost for Federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation........................ $ 3,837,377
Gross unrealized depreciation........................ (513,784)
-----------
Net unrealized appreciation........................ $ 3,323,593
===========
See accompanying Notes to Financial Statements.
11
<PAGE>
KAYNE ANDERSON INTERNATIONAL RISING DIVIDENDS FUND
OBJECTIVE:
The goal of the INTERNATIONAL RISING DIVIDENDS FUND is to achieve superior
long-term results by investing in the best quality international companies. We
pursue this goal through a focused investment philosophy that relies on the
following principles: (1) commitment to quality; (2) long-term vision; (3)
independent fundamental research; (4) broad diversification; and (5)
valuation-driven decision process. We define quality companies as those
possessing a global competitive advantage, management excellence, financial
strength and flexibility, 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, 1999, the Kayne Anderson International Rising
Dividends Fund had a total return of +12.0% versus +4.1% for the MSCI EAFE index
(in dollar terms). Once again the fund outperformed the average diversified
international mutual funds tracked by Lipper, which rose by 6.9%.
During the first half-year, the best performing market was Japan, with the
Nikkei index rising 20.85% in dollar terms. Although European equity markets
performed satisfactorily expressed in local currency--the Euro 100 index
increased +12.15%--the actual return for dollar-based investors was slightly
negative (-0.85%), reflecting the close to 12% decline in the Euro/dollar
exchange rate since the beginning of the year. Thus, the +4.1% increased in the
value of the MSCI EAFE index is entirely explained by the performance of the
Japanese market, which capitalization accounts for 20% of the world's market
capitalization outside the USA. The US dollar appreciated +6.6% against the Yen
to 121.10 (Y)/$, +11.3%% against the Euro to 1.03 $/EUR, and +4.9% against the
Sterling Pound at 1.5778 $/(pound). The strength of the dollar reflects the
significantly higher level of interest rates in the USA than in the rest of the
world. Short-term US interest rates reached 5% at the end of June, while they
were cut to 2.5% in Continental Europe in early April and remained close to 0%
in Japan.
At the end of June 1999, the Fund showed a 3.3% cash position. The four largest
countries represented were the United Kingdom (33.2%), The Netherlands (11.6%).
Japan (10.2%), and France (10.1%). The performance of the fund during the
reviewed period is all the more satisfactory as most of the fund assets were
concentrated in Europe. The fund's large positions in European multinational
companies, whose earnings benefit from a stronger dollar, accounted for most of
the outperformance. Moreover, our stock selections in Asia performed
particularly well (BHP, Canon, Sony, and HSBC.) Finally, the fund performance
benefited from its exposure to a few international integrated oil companies
(Total-Fina, Repsol, and Royal Dutch Shell), which posted sharp gains following
the more than 50% increase in crude oil prices.
Among this first half winners we can name Repsol, the Spanish oil refining
company, that sharply increased after it announced its bid to take over
Argentina's YPF. Also, BOC, the British industrial gas producer, rose strongly
after three of its main competitors approached the company to engage in merger
talks. Among the losers, we should mention Elsevier and Rentokil, which
underperformed after issuing profit warnings for 1999. Nevertheless, we remain
committed to these two very well managed, financially strong companies.
12
<PAGE>
KAYNE ANDERSON INTERNATIONAL RISING DIVIDENDS FUND
NEW PURCHASES:
Ahold NV:
Headquartered in the Netherlands, Ahold is a leading global food retailer with
strong positions in Europe and the USA and operations in Latin America and Asia.
Ahold has a respected and experienced management team, a geographically
diversified store base, and outstanding operational expertise. It aims to become
the world's largest food retailer.
Compass Plc:
Based in the UK, Compass is the world's leading food service organization,
working on-site at client locations. It operates in 50 countries. The outlook
for contact catering is very bright, with particularly strong potential outside
the US. Compass enjoys a strong competitive edge due to its highly tailored
market approach, its dominant size, and its global reach.
Unilever NV:
One of the world's largest consumer product organizations. After several years
of aggressive restructuring, the group is now focused on its three core
businesses: foods, cleaning products, and personal care products. With a third
of its sales coming from emerging markets, Unilever is well positioned to
benefit from excellent long-term growth in the developing world.
The country allocation of the fund on June 30th, 1999 was:
<TABLE>
<CAPTION>
UNITED
AUSTRALIA CASH FINLAND FRANCE GERMANY HONG KONG JAPAN MEXICO NETHERLANDS SPAIN SWEDEN SWITZERLAND KINGDOM
- --------- ---- ------- ------ ------- --------- ----- ------ ----------- ----- ------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2.9% 3.3% 3.2% 10.1% 3.7% 2.9% 10.2% 2.5% 11.6% 5.0% 3.5% 7.9% 33.2%
</TABLE>
OUTLOOK:
Looking forward, we anticipate adding to our exposure to Japan, and reducing our
allocation to the British market. Although Japan is not entirely out of the
woods, it appears that its economy is starting to bottom out and that its sick
banking system is healing. More importantly, a growing number of companies are
willing to take over the control of their destiny and therefore are following
the restructuring path taken earlier by their US and European peers. We also
believe that a stronger economy in Europe, which is expected for the second part
of the year, will have a positive impact on the Euro/$ parity. More generally,
we feel confident that the selective international investor will continue to be
rewarded by the continued adaptation of foreign countries and firms to the
discipline of the free market.
13
<PAGE>
KAYNE ANDERSON INTERNATIONAL RISING DIVIDENDS FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 96.7% Value
- --------------------------------------------------------------------------------
AUSTRALIA: 2.9%
40,732 Broken Hill Proprietary ADR............................. $ 964,839
-----------
FINLAND: 3.2%
11,578 Nokia Corporation ADR................................... 1,060,110
-----------
FRANCE: 10.1%
16,712 AXA-UAP S.A. ADR........................................ 1,041,367
17,285 Groupe Danone S.A. ADR.................................. 904,221
21,001 Total S.A. ADR.......................................... 1,353,252
-----------
3,298,840
-----------
GERMANY: 3.7%
34,866 SAP AG.................................................. 1,207,236
-----------
HONG KONG/ CHINA: 2.9%
15,000 Hong Kong & China Gas Co. Ltd. Warrants (Exp. 9/30/99).. 2,436
2,639 HSBC Holdings Plc ADR................................... 962,591
-----------
965,027
-----------
JAPAN: 10.2%
28,000 Canon Inc............................................... 805,056
26,000 Kao Corporation......................................... 730,366
8,000 Sony Corporation........................................ 862,561
22,000 Uni_Charm .............................................. 954,269
-----------
3,352,252
-----------
MEXICO: 2.5%
34,401 Panamerican Beverages Inc. Class A ADR.................. 819,173
-----------
NETHERLANDS: 11.6%
34,453 Elsevier N.V. ADR....................................... 813,953
23,690 ING Groep N.V........................................... 1,282,402
25,000 Koninklijke Ahold N.V................................... 860,967
11,821 Unilever N.V............................................ 824,515
-----------
3,781,837
-----------
14
<PAGE>
KAYNE ANDERSON INTERNATIONAL RISING DIVIDENDS FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
SPAIN: 5.0%
45,110 Endesa S.A. ADR......................................... $ 958,587
32,811 Repsol S.A. ADR......................................... 666,473
-----------
1,625,060
-----------
SWEDEN: 3.5%
34,943 L.M. Ericsson Telephone ADR............................. 1,150,935
-----------
SWITZERLAND: 7.9%
10,674 Nestle S.A. ADR......................................... 961,600
11,938 Novartis AG ADR......................................... 871,589
2,516 Union Bank of Switzerland............................... 751,479
-----------
2,584,668
-----------
UNITED KINGDOM: 33.2%
60,162 Allied Zurich Plc ADR................................... 756,266
17,390 Astrazeneca Plc ADR..................................... 681,471
17,471 Astrazeneca Plc......................................... 675,795
28,465 BOC Group Plc ADR....................................... 1,147,495
23,740 Cable & Wireless Plc ADR................................ 940,697
80,000 Compass Group Plc....................................... 793,169
18,820 Diageo Plc ADR.......................................... 809,260
112,613 Invensys Plc ADR........................................ 1,066,839
31,448 Pearson Plc ............................................ 638,955
182,000 Rentokil Initial Plc.................................... 710,019
9,124 Reuters Group Plc ADR................................... 739,615
53,993 Tomkins Plc ADR......................................... 985,373
4,586 Vodafone Group Plc ADR.................................. 903,443
-----------
10,848,397
-----------
TOTAL COMMON STOCKS (Cost $27,441,823).................. 31,658,374
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $27,441,823*): 96.7%.............................. 31,658,374
OTHER ASSETS LESS LIABILITIES: 3.3%..................... 1,076,228
-----------
NET ASSETS: 100.0% ..................................... $32,734,602
===========
15
<PAGE>
KAYNE ANDERSON INTERNATIONAL RISING DIVIDENDS FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
* Cost for Federal income tax purposes is the same.
Net unrealized appreciation consists of:
Gross unrealized appreciation......................... $ 5,110,086
Gross unrealized depreciation......................... (893,535)
-----------
Net unrealized appreciation......................... $ 4,216,551
===========
See accompanying Notes to Financial Statements.
16
<PAGE>
KAYNE ANDERSON INTERNATIONAL RISING DIVIDENDS FUND
PORTFOLIO OF INVESTMENTS BY INDUSTRY AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Industry Percentage
- --------------------------------------------------------------------------------
Beer, Wine and Distilled Beverages............................... 2.5%
Beverages........................................................ 5.4
Books............................................................ 2.5
Chemicals & Allied Products...................................... 8.7
Commercial Banking............................................... 3.9
Communications Equipment......................................... 6.8
Communication Service............................................ 2.0
Computer & Other Data Processing Services........................ 3.7
Crude Petroleum & Natural Gas.................................... 5.0
Drugs............................................................ 4.7
Drugs, Proprietors and Sundries.................................. 2.1
Eating & Drinking Places......................................... 2.4
Electric Service................................................. 2.9
Electronic Components & Accessories.............................. 3.3
Electronic Industrial Apparatus.................................. 2.5
Food Beverage & Tobacco.......................................... 2.8
Foreign Banks and Branches and Agencies.......................... 2.3
Gas Production & Distribution.................................... 0.0
Groceries & Related Products..................................... 2.5
Grocery Stores................................................... 2.6
Holding Offices.................................................. 8.4
Household Audio and Video Equipment.............................. 2.6
Medical Instruments and Supplies................................. 3.0
Miscellaneous Business Services.................................. 2.2
Oil and Gas Field Services....................................... 4.1
Security and Commodity Services.................................. 2.3
Telephone Communication.......................................... 5.5
-----
Total Investments................................................ 96.7
-----
Other Assets less Liabilities.................................... 3.3
-----
Net Assets....................................................... 100.0%
=====
See accompanying Notes to Financial Statements.
17
<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:
For the six months ended June 30, 1999, the fund per share net asset value
decreased $0.40, from $11.01 to $10.61. After expenses, the Fund's total return
(principal gain or loss and income) was -1.25%.
As of June 30th, the three largest sectors represented in the Fund were: U.S.
Treasury (54%), U.S. Agency (12%), and Industrial (12%). The three largest
individual credits held in the portfolio were U.S Treasury (54%), Federal
National Mortgage Association (12%), and Government National Mortgage
Association (6%).
OUTLOOK:
The Federal Reserve raised interest rates at their June meeting citing strong
economic activity and creeping wage inflation. Although indicating a neutral
stance in policy going forward, the marketplace is cautious, fearing further
tightening if inflation statistics continue to rise. Inflation, as measured by
the Consumer Price Index, has risen to 2% for the 12 month period ending June
30, a rise from 1.6% last December. We will continue to watch the inflation
statistics and their impact on interest rates.
Within individual sectors, supply forces are at work. The supply of new U.S.
Treasury debt continues to dwindle due to a U.S. government budget surplus.
Corporate yield spreads are expanding in response to the huge supply currently
coming to market, highlighted by Ford Motor Co.'s $7 billion in global bonds
issued at quarter-end. Prepayments on real estate loans continue to slow and we
believe our premium coupon GNMA bonds should perform well relative to other
mortgage backed securities.
SECTOR DIVERSIFICATION
JUNE 30, 1999
U.S. MORTGAGE- ASSET- YANKEE/ CASH &
TREASURY BACKED BACKED EURO INDUSTRIAL FINANCE EQUIVALENTS AGENCY
- -------- ------ ------ ---- ---------- ------- ----------- ------
53% 6% 2% 2% 11% 12% 2% 12%
Note: The stated returns are fee subsidized by the advisor. the unsubsidized
return for the fund is -1.32% for the six months ending June 30, 1999.
18
<PAGE>
KAYNE ANDERSON INTERMEDIATE TOTAL RETURN BOND FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Par Value LONG-TERM DEBT SECURITIES: 97.8% Value
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS: 53.4%
----------------------------------------------------
U.S. Treasury Notes/Bonds
$ 376,000 6.875% due 08/31/1999.............................. $ 377,292
875,000 6.250% due 10/31/2001.............................. 887,578
2,050,000 11.875% due 11/15/2003............................. 2,520,860
1,330,000 7.250% due 08/15/2004.............................. 1,413,125
551,000 5.875% due 11/15/2005.............................. 550,828
507,000 5.625% due 05/15/2008.............................. 496,701
-----------
Total U.S. Treasury Obligations..................... 6,246,384
-----------
U.S. AGENCY OBLIGATIONS: 12.4%
----------------------------------------------------
Federal National Mortgage Association
420,000 6.100% due 02/10/2000.............................. 421,565
600,000 5.625% due 05/14/2004.............................. 586,150
350,000 7.700% due 08/10/2004.............................. 350,762
87,000 6.950% due 11/13/2006.............................. 87,161
-----------
Total U.S Agency Obligations........................ 1,445,638
-----------
MORTGAGE-BACKED / PASS-THROUGH SECURITIES: 5.9%
----------------------------------------------------
Government National Mortgage Association
11,206 8.000% due 11/15/2021.............................. 11,533
17,815 8.500% due 12/15/2022.............................. 18,677
228,772 8.000% due 07/15/2023.............................. 235,442
162,915 8.500% due 08/15/2025.............................. 170,799
53,582 8.500% due 06/15/2026.............................. 56,175
139,196 8.000% due 09/15/2026.............................. 143,254
59,125 8.000% due 11/15/2026.............................. 60,848
-----------
Total Mortgage-Backed/Pass-Through Securities....... 696,728
-----------
ASSET-BACKED RECEIVABLES: 1.8%
----------------------------------------------------
WFS Financial Owner Trust
210,000 6.800% due 12/20/2003.......................... 211,342
-----------
19
<PAGE>
KAYNE ANDERSON INTERMEDIATE TOTAL RETURN BOND FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Par Value Value
- --------------------------------------------------------------------------------
CORPORATE BONDS: 24.3%
----------------------------------------------------
AUTO RENTALS: 1.5%
$175,000 Ryder System Inc., 7.480% due 05/15/2000............ $ 176,477
-----------
BEVERAGES: 2.6%
70,000 Anheuser Busch Companies, 6.750% due 11/01/2006..... 68,797
236,000 Coca-Cola Enterprises, 6.375% due 08/01/2001........ 237,026
-----------
305,823
-----------
COMMUNICATION SERVICES: 1.5%
175,000 TCI Communications Inc., 6.375% due 05/01/2003...... 174,162
-----------
DEPARTMENT STORES: 0.6%
70,000 Sears Roebuck Company, 9.450% due 07/25/2001........ 73,511
-----------
FINANCE: 12.0%
280,000 AT & T Capital Corporation, 7.500% due 11/15/2000... 281,759
175,000 Bear Stearns Company, 6.625% due 10/01/2004......... 172,912
70,000 Beneficial Corporation, 6.600% due 09/26/2001....... 70,258
175,000 Finova Capital Corporation, 6.450% due 06/01/2000... 175,426
255,000 Ford Motor Credit Corporation, 6.250% due
11/08/2000........................................ 255,599
192,000 General Motors Acceptance Corportation,
7.125% due 05/01/2003............................. 193,681
70,000 Household Finance Company, 8.000% due 08/15/2004.... 70,211
175,000 Lehman Brothers Holdings, 8.875% due 03/01/2002..... 183,084
-----------
1,402,930
-----------
INDUSTRIAL: 2.2%
70,000 Allied Signal Inc., 9.200% due 02/15/2003........... 75,377
175,000 Caterpillar Inc., 8.440% due 11/26/2003............. 185,876
-----------
261,253
-----------
MOTION PICTURE PRODUCTION & OTHER SERVICES: 2.4%
278,000 The Walt Disney Company, 6.375% due 03/30/2001...... 279,592
-----------
20
<PAGE>
KAYNE ANDERSON INTERMEDIATE TOTAL RETURN BOND FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Par Value Value
- --------------------------------------------------------------------------------
YANKEEEURO: 1.5%
$175,000 Cable & Wireless, 6.375% due 03/06/2003............. $ 172,240
-----------
Total Corporate Bonds............................... 2,845,988
-----------
TOTAL LONG-TERM DEBT SECURITIES (Cost $11,597,669).. 11,446,080
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $11,597,669*): 97.8%.......................... 11,446,080
OTHER ASSETS LESS LIABILITIES: 2.2%................. 254,825
-----------
NET ASSETS: 100.0%.................................. $11,700,905
===========
* Cost for Federal income tax purposes is the same.
Net unrealized depreciation consists of:
Gross unrealized appreciation..................... $ 8,385
Gross unrealized depreciation..................... (159,974)
-----------
Net unrealized depreciation..................... $ (151,589)
===========
See accompanying Notes to Financial Statements.
21
<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 six months, the Fund's net asset value decreased $0.20, from $10.77
to $10.57. After expenses, the Fund's total return (principal gain or loss and
income) for the six months was 0.03%.
While invested among eight sectors within the municipal bond market, the three
largest sectors represented in the Fund were: General Obligation (26%), Electric
Utility (15%), and Transportation (12%). The Fund was also invested in
municipalities that are located in 19 different states and territories. The four
states with the highest representation in the Fund were: California (41%), New
York (5%), Hawaii (5%), and New Jersey (5%).
OUTLOOK:
Long maturity municipal bonds are attractively valued relative to taxable bonds,
while intermediate and short maturities are relatively expensive. While less
than last year, issuance was high in the first six months of the year at over
$113 billion, and helped to keep interest rates on municipal bonds higher.
The Federal Reserve raised interest rates at their June meeting citing strong
economic activity and creeping wage inflation. Although indicating a neutral
stance in policy going forward, the marketplace is cautious, fearing further
tightening if inflation statistics continue to rise. Inflation, as measured by
the Consumer Price Index, has risen to 2% for the 12 month period ending June
30, a rise from 1.6% last December. We will continue to watch the inflation
statistics and their impact on interest rates.
SECTOR DIVERSIFICATION
JUNE 30, 1999
<TABLE>
<CAPTION>
GENERAL TRANSPOR- WATER & PRE- CASH &
OBLIGATION ELECTRIC HOSPITAL HOUSING IDR/PCR TATION EDUCATION SEWER REFUNDED EQUIVALENTS
- ---------- -------- -------- ------- ------- ------ --------- ----- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
26% 15% 8% 6% 12% 12% 4% 4% 11% 2%
</TABLE>
Note: The stated returns are fee subsidized by the advisor. The unsubsidized
return for the fund is -0.36% For the six months ending June 30, 1999.
22
<PAGE>
KAYNE ANDERSON INTERMEDIATE TAX-FREE BOND FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED)
- ---------------------------------------------------------------------------------------
Par Value MUNICIPAL DEBT: 94.4% Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
GENERAL OBLIGATION: 25.7%
$100,000 California State, 6.500% dated 03/01/1998 due 03/01/2002...... $ 106,000
175,000 California State, 5.250% dated 04/01/1998 due 10/01/2005...... 183,093
250,000 California State, 5.25% dated 02/01/1999 due 02/01/2006...... 260,625
250,000 California State, 5.375% dated 03/01/1994 due 03/01/2006...... 262,500
65,000 California State, 5.250% dated 11/01/1996 due 06/01/2011...... 66,300
250,000 California State, 5.250% dated 11/01/1996 due 06/01/2016...... 249,375
California State Veterans Bonds,
100,000 6.250% dated 03/01/1995 due 02/01/2014....................... 101,070
California State Veterans Bond
200,000 6.375% dated 03/01/1995 due 02/01/2027....................... 202,234
200,000 Hawaii State, 5.250% dated 03/01/1997 due 03/01/2000......... 202,294
195,000 Indiana Bond Bank, 6.600% dated 02/01/1991 due 01/01/2003..... 205,237
Los Angeles County California Public Works
200,000 5.000% 11/01/1997 due 10/01/2016............................. 194,000
250,000 Massachusetts State, 5.000% dated 08/01/1997 due 08/01/2000... 253,397
100,000 Nevada State, 5.600% dated 07/01/1996 due 05/15/2009.......... 104,750
Puerto Rico Public Buildings Authority
60,000 5.750% dated 06/01/1993 due 07/01/2015....................... 61,725
Salt Lake City Utah Redevelopment Agency
150,000 5.500% dated 08/01/1997 due 10/01/2008...................... 154,312
250,000 Washoe County Nevada, 6.750% dated 03/15/1991
due 03/15/2000.............................................. 257,677
-----------
2,864,589
-----------
EDUCATION: 3.7%
Pinal County Arizona School District
200,000 6.000% dated 10/01/1992 due 07/01/2004....................... 210,250
University of California Revenues
200,000 5.250% dated 08/15/1993 due 09/01/2011....................... 204,000
-----------
414,250
-----------
ELECTRIC: 15.1%
Colorado Springs Utilities
200,000 6.750% dated 04/15/1991 due 11/15/2005....................... 213,500
HillsBorough Florida Utilities
100,000 7.000% dated 09/01/1991 due 08/01/2114....................... 107,000
Knoxville Tennessee Electric Revenue
400,000 5.000% dated 11/01/1998 due 07/01/1998....................... 375,500
</TABLE>
23
<PAGE>
KAYNE ANDERSON INTERMEDIATE TAX-FREE BOND FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- ---------------------------------------------------------------------------------------
Par Value Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ELECTRIC, CONTINUED
Lower Colorado River Texas Authority
$100,000 5.250% dated 05/01/1993 due 01/01/2015....................... $ 99,125
Massachusetts State Power
75,000 5.875% dated 08/01/1992 due 07/01/2003....................... 78,187
Piedmont Municipal Power Agency
85,000 6.550% dated 09/01/1996 due 01/01/2016....................... 85,513
Puerto Rico Electric Power Authority
200,000 6.000% dated 08/15/1995 due 07/01/2000....................... 205,000
Sacramento California Municipal Utilities District
200,000 5.700% dated 04/01/1993 due 05/15/2012....................... 208,750
Tacoma Washington Electric System Revenue
200,000 5.900% dated 09/01/1992 due 01/01/2005....................... 209,750
Washington Public Power Supply Systems
100,000 4.750% dated 05/01/1993 due 07/01/1999....................... 100,000
-----------
1,682,325
-----------
HOSPITAL: 8.2%
Dade County Health Facilities Authority
200,000 6.600% dated 03/01/1987 due 08/15/2002....................... 202,380
New Jersey Health Facility Financing Authority
300,000 6.800% dated 04/01/192 due 07/01/2011........................ 319,500
New York Dormatory Authority
200,000 5.000% dated 03/01/1997 due 08/15/2000....................... 202,500
New York State Dormatory Authority
200,000 5.500% dated 02/01/1998 due 02/15/2003....................... 205,750
-----------
930,130
-----------
HOUSING: 6.3%
California Housing Finance Agency
260,000 4.350% dated 12/01/1998 due 08/01/2008....................... 249,925
New York Urban Development
200,000 6.000% dated 01/01/1995 due 01/01/2001....................... 204,750
Santa Clara County California Housing
250,000 4.250% dated 11/01/1998 due 11/01/2007....................... 245,938
-----------
700,613
-----------
</TABLE>
24
<PAGE>
KAYNE ANDERSON INTERMEDIATE TAX-FREE BOND FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- ---------------------------------------------------------------------------------------
Par Value Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
IDR/PCR: 8.3%
California Pollution Control Financing Authority
$200,000 7.150% dated 02/01/1991 due 02/01/2011 ...................... $ 211,250
California Pollution Control Financing Authority
200,000 5.850% dated 11/01/1993 due 12/01/2023....................... 204,000
Gallup, New Mexico Pollution Control Revenue
250,000 6.650% dated 04/15/1992 due 08/15/2017....................... 257,188
Mercer County, North Dakota Pollution Control
75,000 5.850% 06/01/1993 due 06/01/2023............................. 77,156
Jefferson County
180,000 5.300% dated 08/17/1994 due 08/01/1999....................... 180,095
-----------
929,689
-----------
TRANSPORTATION: 12.2%
Colorado Springs Colorado Airport
105,000 6.900% dated 09/15/1992 due 01/01/2012....................... 113,400
Denver Colorado City & County Airport
200,000 8.100% dated 05/01/1990 due 11/15/2000....................... 210,000
Hawaii State Airports System
250,000 7.500% dated 10/01/1990 due 07/01/2005....................... 261,816
Hawaii State Airports Revenue
100,000 5.750% dated 04/01/1994 due 07/01/2009....................... 105,000
New Jersey State Turnpike Authority
200,000 5.900% dated 01/01/1992 due 01/01/2003....................... 208,500
Orange County Airport
200,000 5.500% dated 04/02/1997 due 07/01/2002....................... 207,000
San Francisco California City
250,000 5.500% dated 05/01/1999 due 05/01/2005....................... 261,562
-----------
1,367,278
-----------
PREREFUNDED: 10.6%
California Health Facility Financing Authority
200,000 6.750% dated 10/01/1989 due 10/01/2019....................... 205,609
California State
185,000 5.250% dated 11/01/1996 due 06/01/2011....................... 194,018
Los Angeles Convention & Exhibit Center
150,000 9.000% dated 12/01/1985 due 12/01/2020....................... 187,687
</TABLE>
25
<PAGE>
KAYNE ANDERSON INTERMEDIATE TAX-FREE BOND FUND
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- ---------------------------------------------------------------------------------------
Par Value Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
PREREFUNDED, CONTINUED
Orange County California Local Transporation Authority
$100,000 5.750% dated 09/01/1992 due 02/15/2005....................... $ 105,750
Washington Public Power Supply Systems
200,000 7.625% dated 10/15/1990 due 07/01/2010....................... 213,751
Webb County Partnership
275,000 5.250% dated 10/01/1997 due 10/01/2022....................... 283,251
-----------
1,190,066
-----------
WATER & SEWER: 4.3%
Contra Costa California Water District
275,000 5.250% dated 07/01/1993 due 10/01/2016....................... 276,375
Los Angeles California Wastewater System
200,000 5.700% dated 04/01/1993 due 06/01/2020....................... 207,251
-----------
483,626
-----------
TOTAL MUNICIPAL DEBT (Cost $10,685,362)....................... 10,562,566
-----------
VARIABLE RATE MUNICIPAL DEBT: 3.6%
--------------------------------------------------------------
400,000 California State Economic Development, 0.000%+
dated 05/15/1998 due 04/01/2008 (Cost $400,000).............. 400,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost $11,085,362*): 98.0%.................................... 10,962,566
OTHER ASSETS LESS LIABILITIES: 2.0%........................... 220,133
-----------
NET ASSETS: 100.0%............................................ $11,182,699
===========
+ Non-income producing security.
* Cost for Federal income tax purposes is the same.
Net unrealized depreciation consists of:
Gross unrealized appreciation............................... $ 26,917
Gross unrealized depreciation............................... (149,713)
-----------
Net unrealized depreciation............................... $ (122,796)
===========
</TABLE>
See accompanying Notes to Financial Statements.
26
<PAGE>
This page intentionally left blank.
27
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------
RISING
DIVIDENDS
FUND
-----------
<S> <C>
ASSETS
Investments in securities at value (cost of $49,492,341, $28,608,593, $27,441,823,
$11,597,669 and $11,085,362, respectively) .................................. $63,531,406
Cash .............................................................................. 623,309
Foreign Cash ...................................................................... --
Receivables
Investment securities sold .................................................. 1,594,280
Dividends and interest ...................................................... 65,120
Prepaid expenses .................................................................. 12,681
Due from investment advisor (Note 3) .............................................. --
Deferred organization costs ....................................................... 5,846
-----------
Total assets .......................................................... 65,832,642
-----------
LIABILITIES
Payables:
Investments securities purchased ............................................ 1,255,896
Distributions to shareholders ............................................... --
Due to investment advisor (Note 3) ................................................ 42,218
Accrued expenses .................................................................. 18,720
-----------
Total liabilities ........................................................... 1,316,834
-----------
NET ASSETS .............................................................................. $64,515,808
===========
Number of shares issued and outstanding (unlimited shares authorized, no par value) 3,399,813
===========
Net asset value, offering and redemption price per share .......................... $ 18.98
===========
COMPOSITION OF NET ASSETS
Paid-in capital ................................................................... $45,565,218
Undistributed (overdistributed) net investment income ............................. 3,176
Undistributed net realized gain (loss) on investments ............................. 4,908,349
Net unrealized appreciation (depreciation) on investments and foreign currency .... 14,039,065
-----------
Net assets ........................................................................ $64,515,808
===========
</TABLE>
See accompanying Notes to Financial Statements.
28
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
- --------------------------------------------------------------------------------
SMALL CAP INTERNATIONAL INTERMEDIATE INTERMEDIATE
RISING DIVIDENDS RISING DIVIDENDS TOTAL RETURN TAX-FREE
FUND FUND BOND FUND BOND FUND
---------------- ---------------- ------------ -----------
$31,932,186 $31,658,374 $11,446,080 $10,962,566
2,596,754 1,012,108 86,558 143,113
-- 8,448 -- --
-- -- -- --
50,472 53,204 168,705 204,729
18,166 16,896 20,382 16,733
-- -- 3,544 2,262
9,847 10,618 9,847 9,847
----------- ----------- ----------- -----------
34,607,425 32,759,648 11,735,116 11,339,250
----------- ----------- ----------- -----------
1,574,859 -- -- 108,199
-- 1,249 33,093 35,868
21,495 19,786 -- --
1,187 4,011 1,118 12,484
----------- ----------- ----------- -----------
1,597,541 25,046 34,211 156,551
----------- ----------- ----------- -----------
$33,009,884 $32,734,602 $11,700,905 $11,182,699
2,021,500 1,896,155 1,103,094 1,057,802
$ 16.33 $ 17.26 $ 10.61 $ 10.57
$27,323,562 $24,780,818 $11,733,049 $11,311,678
(457) (13,000) (9,650) (5,851)
2,363,186 3,750,325 129,095 (332)
3,323,593 4,216,459 (151,589) (122,796)
----------- ----------- ----------- -----------
$33,009,884 $32,734,602 $11,700,905 $11,182,699
=========== =========== =========== ===========
29
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
STATEMENTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
RISING
DIVIDENDS
FUND
----------
INVESTMENT INCOME:
Income:
Dividend income ...................................... $ 361,700
Interest income ...................................... 11,134
----------
Total income ................................... 372,834
----------
Expenses:
Investment advisory fees (Note 3) .................... 208,079
Custodian fees ....................................... 7,439
Administration fees .................................. 18,831
Fund accounting fees ................................. 16,336
Transfer agent fees .................................. 11,136
Legal fees ........................................... 5,463
Insurance ............................................ 643
Audit fees ........................................... 6,943
Miscellaneous expenses ............................... 1,736
Reports to shareholders .............................. 2,736
Registration fees .................................... 8,688
Trustees fees ........................................ 1,933
Amortization of deferred organization costs .......... 3,531
----------
Total expenses ................................. 293,494
Expenses recouped (reimbursed) (Note 3) ........ --
Expenses paid indirectly (Note 3) .............. --
----------
Net expenses ................................... 293,494
----------
Net investment income ...................................... 79,340
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments .................... 4,663,814
Net unrealized appreciation (depreciation) of
investments and foreign currency ......................... 2,264,819
----------
Net gain (loss) on investments ....................... 6,928,633
----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .. $7,007,973
==========
See accompanying Notes to Financial Statements.
30
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
SMALL CAP INTERNATIONAL INTERMEDIATE INTERMEDIATE
RISING DIVIDENDS RISING DIVIDENDS TOTAL RETURN TAX-FREE
FUND FUND BOND FUND BOND FUND
---------------- ---------------- ------------ -----------
$ 271,345 $ 421,177 $ -- $ --
16,578 14,794 571,490 232,564
---------- ---------- ---------- ----------
287,923 435,971 571,490 232,564
---------- ---------- ---------- ----------
140,274 163,361 50,597 26,217
5,455 7,943 4,472 1,439
12,377 12,888 7,589 9,919
16,364 21,076 17,356 18,236
7,636 7,636 7,636 8,636
6,488 9,353 3,388 1,289
45 45 92 92
2,728 1,728 1,728 1,728
1,240 1,240 1,240 744
744 744 744 248
8,296 8,258 8,348 7,615
2,933 2,933 3,933 1,933
2,107 2,107 2,107 2,107
---------- ---------- ---------- ----------
206,687 239,312 109,230 80,203
7,593 1,197 (13,534) (39,581)
-- -- -- (1,264)
---------- ---------- ---------- ----------
214,280 240,509 95,696 39,358
---------- ---------- ---------- ----------
73,643 195,462 475,794 193,206
---------- ---------- ---------- ----------
2,682,777 3,750,325 91,140 (212)
(125,197) 85,099 (711,227) (199,160)
---------- ---------- ---------- ----------
2,557,580 3,835,424 (620,087) (199,372)
---------- ---------- ---------- ----------
$2,631,223 $4,030,886 $ (144,293) $ (6,166)
========== ========== ========== ==========
<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
6/30/99# 12/31/98
----------- -----------
<S> <C> <C>
OPERATIONS
Net investment income............................................... $ 79,340 $ 256,507
Net realized gain (loss) on investments sold........................ 4,663,814 5,326,022
Net unrealized appreciation (depreciation)
of investments and foreign currency............................. 2,264,819 (98,265)
----------- -----------
Increase (decrease) in net assets resulting from operations... 7,007,973 5,484,264
----------- -----------
Distributions to shareholders:
Net investment income............................................... (76,164) (262,588)
Net realized gains on investments................................... (778,417) (6,701,884)
Return of capital................................................... -- --
----------- -----------
Total distributions........................................... (854,581) (6,964,472)
----------- -----------
Capital share transactions:
Proceeds from shares sold........................................... 40,600,765 12,570,871
Net asset value of shares issued on reinvestment of distributions... 835,847 9,358,197
Cost of shares redeemed............................................. (31,654,954) (7,150,626)
----------- -----------
Net increase (decrease) from capital share transactions....... 9,781,658 14,778,442
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS .............................. 15,935,050 13,298,234
----------- -----------
NET ASSETS
Beginning of period....................................................... 48,580,758 35,282,524
----------- -----------
End of period............................................................. $64,515,808 $48,580,758
=========== ===========
CHANGE IN SHARES
Shares sold......................................................... 2,204,901 692,639
Shares issued on reinvestment of distributions...................... 44,602 527,641
Shares redeemed..................................................... (1,701,519) (410,214)
----------- -----------
Net increase (decrease)....................................... 547,984 810,066
=========== ===========
</TABLE>
# Unaudited.
See accompanying Notes to Financial Statements.
32
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
<TABLE>
<CAPTION>
SMALL 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
6/30/99# 12/31/98 6/30/99# 12/31/98 6/30/99# 12/31/98 6/30/99# 12/31/98
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 73,643 $ 97,381 $ 195,462 $ 231,082 $ 475,794 $ 1,185,729 $ 193,206 $ 265,556
2,682,777 (168,179) 3,750,325 750,612 91,140 131,606 (212) 5,204
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
(125,197) 3,090,369 85,099 3,715,222 (711,227) 490,291 (199,160) 23,836
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
2,631,223 3,019,571 4,030,886 4,696,916 (144,293) 1,807,626 (6,166) 294,596
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
(74,100) (101,850) (208,462) (206,890) (485,444) (1,189,978) (200,733) (268,129)
(151,412) -- -- (750,612) -- (89,690) -- (3,871)
-- (313,138) -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
(225,512) (414,988) (208,462) (957,502) (485,444) (1,279,668) (200,733) (272,000)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
32,530,879 26,726,710 35,517,882 27,482,344 8,820,936 23,343,075 9,722,538 3,766,151
215,310 432,070 191,643 964,005 450,710 1,228,220 157,398 292,998
(35,158,534) (3,240,796) (42,232,907) (3,762,499) (25,271,142) (3,029,904) (7,881,330) (705,956)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
(2,412,345) 23,917,984 (6,523,382) 24,683,850 (15,999,496) 21,541,391 1,998,606 3,353,193
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
(6,634) 26,522,567 (2,700,958) 28,423,264 (16,629,233) 22,069,349 1,791,707 3,375,789
33,016,518 6,493,951 35,435,560 7,012,296 28,330,138 6,260,789 9,390,992 6,015,203
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
$33,009,884 $33,016,518 $32,734,602 $35,435,560 $11,700,905 $28,330,138 $11,182,699 $9,390,992
=========== =========== =========== =========== =========== =========== =========== ==========
2,078,515 1,897,692 2,100,646 1,923,801 815,525 2,153,359 905,922 350,249
13,226 29,469 11,137 63,755 41,539 93,163 14,635 27,265
(2,265,709) (226,493) (2,500,407) (258,861) (2,327,255) (274,756) (734,855) (65,550)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
(173,968) 1,700,668 (388,624) 1,728,695 (1,470,191) 1,971,766 185,702 311,964
=========== =========== =========== =========== =========== =========== =========== ==========
</TABLE>
33
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------
RISING
DIVIDENDS
FUND
- ----------------------------------------------------------------------------------------------------------
Six Months Year Year Year 05/01/95*
Ended Ended Ended Ended to
6/30/99# 12/31/98 12/31/97 12/31/96 12/31/95
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 17.03 $ 17.28 $ 14.32 $ 12.63 $ 10.65
------- ------- ------- ------- -------
Income from investment operations
Net investment income.................... - 0.11 0.10 0.08 0.07
Net realized and unrealized gains
on investments......................... 2.20 2.38 4.34 2.35 2.13
------- ------- ------- ------- -------
Total from investment operations...... 2.20 2.49 4.44 2.43 2.20
------- ------- ------- ------- -------
Distributions:
From net investment income............... (0.02) (0.11) (0.11) (0.08) (0.07)
From net realized gains.................. (0.23) (2.63) (1.37) (0.66) (0.15)
Return of capital........................ - - - - -
------- ------- ------- ------- -------
Total distributions................... (0.25) (2.74) (1.48) (0.74) (0.22)
------- ------- ------- ------- -------
Net asset value, end of period.............. $ 18.98 $ 17.03 $ 17.28 $ 14.32 $ 12.63
------- ------- ------- ------- -------
Total return................................ 11.45%** 14.14% 30.99% 19.09% 20.65%**
Net assets at end of period (in 000's)...... $64,516 $48,581 $35,283 $26,118 $20,613
Ratio of expenses to average net assets.....
Before expense reimbursement/
recoupment............................ 1.06%*** 1.11% 1.18% 1.37% 1.31%***
After expense reimbursement/
recoupment............................ 1.06%*** 1.11% 1.18% 1.37% 1.31%***
After expense reimbursement/
recoupment and excluding expenses
paid indirectly....................... 1.06%*** 1.11% 1.18% 1.37% 1.31%***
Ratio of net investment income to average...
net assets (net of expense reimbursement/
recoupment).............................. 0.29%*** 0.57% 0.55% 0.59% 0.94%***
Portfolio turnover rate..................... 28% 76% 51% 23% 28%
</TABLE>
# Unaudited.
* Commencement of operations.
** Not annualized.
*** Annualized.
See accompanying Notes to Financial Statements.
34
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
SMALL CAP INTERNATIONAL
RISING DIVIDENDS RISING DIVIDENDS
FUND FUND
-------------------------------------------- ---------------------------------------------
Six Months Year Year 10/18/96* Six Months Year Year 10/18/96*
Ended Ended Ended to Ended Ended Ended to
6/30/99# 12/31/98 12/31/97 12/31/96 6/30/99# 12/31/98 12/31/97 12/31/96
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$15.04 $13.12 $11.06 $10.65 $15.51 $12.61 $10.91 $10.65
------ ------ ------ ------ ------ ------ ------ ------
-- 0.05 0.02 0.02 (0.01) 0.08 0.04 0.01
1.41 2.07 2.14 0.41 1.87 3.25 1.75 0.26
------ ------ ------ ------ ------ ------ ------ ------
1.41 2.12 2.16 0.43 1.86 3.33 1.79 0.27
------ ------ ------ ------ ------ ------ ------ ------
(0.04) (0.05) (0.05) (0.02) (0.11) (0.08) (0.05) (0.01)
(0.08) -- (0.05) -- -- (0.35) (0.04) --
-- (0.15) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
(0.12) (0.20) (0.10) (0.02) (0.11) (0.43) (0.09) (0.01)
------ ------ ------ ------ ------ ------ ------ ------
$16.33 $15.04 $13.12 $11.06 $17.26 $15.51 $12.61 $10.91
====== ====== ====== ====== ====== ====== ====== ======
8.58%** 16.17% 19.46% 4.00%** 11.28%** 26.47% 16.42% 2.56%**
1.25%*** 1.35% 3.22% 18.91%*** 1.39%*** 1.45% 3.41% 15.74%***
1.30%*** 1.30% 1.30% 1.30%*** 1.40%*** 1.38% 1.40% 1.40%***
1.30%*** 1.30% 1.30% 1.30%*** 1.40%*** 1.38% 1.40% 1.40%***
0.45%*** 0.38% 0.45% 1.58%*** 1.14%*** 0.85% 0.61% 1.14%***
33% 28% 47% --% 38% 28% 29% --%
</TABLE>
35
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------
INTERMEDIATE
TOTAL RETURN
BOND FUND
-----------------------
Six Months Year
Ended Ended
6/30/99# 12/31/98
-------- --------
<S> <C> <C>
Net asset value, beginning of period............................. $ 11.01 $ 10.75
------- -------
Income from investment operations
Net investment income...................................... 0.22 0.51
Net realized and unrealized gains (loss) on investments.... (0.36) 0.30
------- -------
Total from investment operations..................... (0.14) 0.81
------- -------
Distributions:
From net investment income................................. (0.26) (0.51)
From net realized gains.................................... - (0.04)
------- -------
Total distributions.................................. (0.26) (0.55)
------- -------
Net asset value, end of period (in 000's)........................ $10.61 $11.01
======= =======
Total return..................................................... (1.25%)** 7.61%
Net assets at end of period (in 000's)........................... $11,701 $28,330
Ratio of expenses to average net assets
Before expense reimbursement/recoupment.................. 1.08%*** 1.00%
After expense reimbursement/recoupment................... 0.95%*** 0.94%
After expense reimbursement/recoupment and
excluding expenses paid indirectly................... 0.95%*** 0.94%
Ratio of net investment income to average
net assets (net of expense reimbursement/recoupment) ...... 4.72%*** 4.93%
Portfolio turnover rate.......................................... 28% 49%
</TABLE>
# Unaudited.
* Commencement of operations.
** Not annualized.
*** Annualized.
See accompanying Notes to Financial Statements.
36
<PAGE>
INTERMEDIATE INTERMEDIATE
TOTAL RETURN TAX-FREE
BOND FUND BOND FUND
---------------------- -----------------------------------------------
Year 10/28/96* Six Months Year Year 10/28/96*
Ended to Ended Ended Ended to
12/31/97 12/31/96 6/30/99# 12/31/98 12/31/97 12/31/96
-------- -------- -------- -------- -------- --------
$10.59 $10.65 $10.77 $10.74 $10.64 $10.65
------ ------ ------ ------ ------ ------
0.56 0.09 (0.01) 0.43 0.34 0.01
0.18 (0.07) 0.01 0.03 0.11 (0.01)
------ ------ ------ ------ ------ ------
0.74 0.02 -- 0.46 0.45 --
------ ------ ------ ------ ------ ------
(0.58) (0.08) (0.20) (0.43) (0.35) (0.01)
-- -- -- -- -- --
------ ------ ------ ------ ------ ------
(0.58) (0.08) (0.20) (0.43) (0.35) (0.01)
------ ------ ------ ------ ------ ------
$10.75 $10.59 $10.57 $10.77 $10.74 $10.64
====== ====== ====== ====== ====== ======
7.19% 0.20%** 0.03%** 4.37% 4.26% 0.02%**
$6,261 $5,033 $11,183 $9,391 $6,015 $5,124
2.23% 2.10%*** 1.53%*** 2.23% 2.29% 2.08%***
0.95% 0.95%*** 0.77%*** 0.77% 1.56% 1.81%***
0.95% 0.95%*** 0.75%*** 0.77% 0.95% 0.95%***
5.35% 4.72%*** 3.68%*** 3.88% 2.58% 0.60%
27% -- % 9% 47% 40% -- %
37
<PAGE>
KAYNE ANDERSON MUTUAL FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1999 (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 separate diversified series: Rising Dividends Fund,
Small 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 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 "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 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 generally having a total
market capitalization of $1 billion or more.
The Small 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.
38
<PAGE>
KAYNE ANDERSON MUTUAL FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
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.
A. SECURITY VALUATION: The Funds' investments are carried at 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 by 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 Funds' policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of their
taxable income to shareholders. Therefore, no Federal income tax
provision is required. At December 31, 1998 the Small Cap Rising
Dividends Fund had a capital loss carryforward available for Federal
income tax purposes of $107,282 which expires in 2006.
C. SECURITY TRANSACTIONS, DIVIDENDS AND DISTRIBUTIONS: 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 COSTS: 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.
NOTE 3 - INVESTMENT ADVISORY AND MANAGEMENT FEES AND OTHER TRANSACTIONS
WITH AFFILIATES
For the six months ended June 30, 1999, the Advisor provided the Funds with
investment management services under an Investment Advisory Agreement (the
"Agreement"). Under the Agreement the Advisor furnishes all investment advice,
office space and certain administrative services, and provides personnel as
needed by the Funds. As compensation for its services, the Advisor is entitled
to a monthly fee at the annual rate of the following based upon the average
daily net assets of the Funds:
39
<PAGE>
KAYNE ANDERSON MUTUAL FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Rising Dividends Fund............................................... 0.75%
Small Cap Rising Dividends Fund..................................... 0.85%
International Rising Dividends Fund................................. 0.95%
Intermediate Total Return Bond Fund................................. 0.50%
Intermediate Tax-Free Bond Fund..................................... 0.50%
Pursuant to an expense reimbursement agreement the Advisor has agreed to
reimburse the funds' expenses through December 31, 1999 to:
Rising Dividends Fund............................................... 1.20%
Small 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
Intermediate Total Return Bond Fund $13,534 and the Intermediate Tax-Free Bond
Fund $39,581 during the six months ended June 30, 1999.
The Agreement further provides that the Advisor may seek reimbursement from
the funds for any fees foregone and expenses paid pursuant to these expense
limitation provisions. However, such reimbursement will be made only if the
actual expenses incurred by the fund in any of the three following years are
less than the applicable expense limitation provisions outlined above. During
the six months ended June 30, 1999 the actual expenses incurred by certain of
the Funds fell below the applicable expense limitation provisions. Accordingly,
the Advisor recouped $7,593 of previously waived fees from the Small Cap Rising
Dividends Fund and $1,197 of previously waived fees from the International
Rising Dividends Fund. At June 30, 1999, the Advisor has waived fees and
reimbursed other fund expenses amounting to $99,547 for the Small Cap Rising
Dividends Fund, $118,705 for the International Rising Dividends Fund, $110,224
for the Intermediate Total Return Bond Fund, and $182,419 for the Intermediate
Tax-Free Fund which may be reimbursable in the future.
The Funds executed certain investment security transactions through KA
Associates, Inc., an affiliate of the Funds' Advisor. Commissions paid by the
Funds to this affiliate during the six months ended June 30, 1999 were as
follows:
Small Cap Rising Dividends Fund..................................... $3,459
International Rising Dividends Fund................................. $6,931
Investment Company Administration, L.L.C. (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
40
<PAGE>
KAYNE ANDERSON MUTUAL FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Administrator an annual fee equal to 0.075% of the first $40 million of the its
average daily net assets, 0.050% of the next $40 million, 0.025% of the next $40
million, and 0.010% 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.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 1999, 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.......................... $23,848,571 $15,556,778
Small Cap Rising Dividends Fund................ $10,882,506 $13,825,080
International Rising Dividends Fund............ $12,960,451 $20,685,249
Intermediate Total Return Bond Fund............ $ 468,800 $ 5,779,788
Intermediate Tax-Free Bond Fund................ $ 2,537,887 $ 886,895
The Intermediate Total Return Bond Fund purchased $5,220,916, and sold
$14,667,233, of U.S. Government securities. There were no purchases or sales of
U.S. Government securities by Rising Dividends Fund, Small Cap Rising Dividends
Fund, International Rising Dividends Fund and Intermediate Tax-Free Bond Fund.
During the six months ended June 30, 1999 the Small Cap Rising Dividends
Fund, the International Rising Dividends Fund and the Intermediate Total Return
Bond Fund realized gains in the amount of $425,583, $1,512,223 and $98,710,
respectively, from the "in-kind" distribution of appreciated securities to a
redeeming shareholder.
41
<PAGE>
ADVISOR
Kayne Anderson Investment Management, LLC
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California 90067
(310) 556-2721
*
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, Arizona 85018
*
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
*
AUDITORS
Briggs, Bunting & Dougherty, LLP
Two Logan Square, Suite 2121
Philadelphia, Pennsylvania 19103
*
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.
