<PAGE> PAGE 1
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<PAGE> PAGE 2
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<PAGE> PAGE 3
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<PAGE> PAGE 4
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<PAGE> PAGE 5
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<PAGE> PAGE 6
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<PAGE> PAGE 7
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<PAGE> PAGE 8
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<PAGE> PAGE 9
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<PAGE> PAGE 10
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<PAGE> PAGE 11
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<PAGE> PAGE 12
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<PAGE> PAGE 13
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<PAGE> PAGE 14
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<PAGE> PAGE 16
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<PAGE> PAGE 17
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<PAGE> PAGE 19
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<PAGE> PAGE 20
050 000400 N
051 000400 N
052 000400 N
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062 A000400 Y
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064 A000400 Y
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067 000400 N
068 A000400 N
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<PAGE> PAGE 21
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<PAGE> PAGE 22
074 Y000400 0
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<PAGE> PAGE 23
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050 000500 N
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<PAGE> PAGE 24
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<PAGE> PAGE 25
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SIGNATURE RITA DAM
TITLE ASSISTANT TREASURER
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REPORT OF
INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
To the Shareholders and Board of Trustees
of
Kayne Anderson Mutual Funds
Los Angeles, California
We have audited the accompanying
statements of
assets and liabilities of Kayne Anderson
Mutual
Funds (comprising, respectively, the Rising
Dividends Fund, the Small Cap Rising
Dividends
Fund, the International Rising Dividends
Fund, the
Intermediate Total Return Bond Fund, and
the
California Intermediate Tax-Free Fund),
including
the portfolios of investments, as of
December 31,
1999, and the related statements of
operations for
the year then ended, the statements of
changes in
net assets for each of the two years in the
period
then ended, and the financial highlights for
each of
the three years in the period then ended.
These
financial statements and financial highlights
are the
responsibility of the Fund's management.
Our
responsibility is to express an opinion on
these
financial statements and financial highlights
based
on our audits. The financial highlights for
each of
the periods ended December 31, 1996 and
1995
were audited by other auditors whose report
dated
February 4, 1997 expressed an unqualified
opinion
on the financial highlights.
We conducted our audits in accordance with
generally accepted auditing standards.
Those
standards require that we plan and perform
the
audits to obtain reasonable assurance about
whether the financial statements and
financial
highlights are free of material misstatement.
An
audit includes examining, on a test basis,
evidence
supporting the amounts and disclosures in
the
financial statements. Our procedures
included
confirmation of securities owned as of
December
31, 1999, by correspondence with the
custodian
and brokers. An audit also includes
assessing the
accounting principles used and significant
estimates made by management, as well as
evaluating the overall financial statement
presentation. We believe our audits provide
a
reasonable basis for our opinion.
In our opinion, the financial statements and
financial
highlights referred to above present fairly, in
all
material respects, the financial position of
each of the
Funds comprising Kayne Anderson Mutual
Funds as
of December 31, 1999, the results of their
operations
for the year then ended, the changes in their
net
assets for each of the two years in the period
then
ended, and the financial highlights for each
of the
three years in the period then ended in
conformity
with generally accepted accounting
principles.
BRIGGS, BUNTING & DOUGHERTY,
LLP
Philadelphia, Pennsylvania
January 28, 2000
Special Meeting of Shareholders
A special meeting of shareholders at the
offices of the administrator for the funds,
BISYS Fund Services, 3435 Stelzer Road,
Columbus, Ohio 43219, on November 1999, for
the following purposes:
1. A proposal to approve an Agreement
and Plan of Reorganization (the
"Plan") for each Fund, and the
transactions contemplated thereby,
which include (a) the transfer of
all of the assets of Sefton Equity
Value Fund, Sefton Small Company
Value Fund, Sefton U.S. Government
Fund, and Sefton California Tax-
Free Fund (each, a "Target Fund") to
Kayne Anderson Rising Dividends
Fund, Kayne Anderson Small Cap Rising
Dividends Fund and Kayne Anderson
Intermediate Total Return Bond Fund
and Kayne Anderson
Intermediate Tax-Free Bond Fund (each,
an
"Acquiring Fund"), respectively,
in exchange for shares of the
corresponding Acquiring Fund,
and the assumption by each Acquiring
Fund of stated liabilities of the
corresponding Target Fund, (b) the
distribution of shares of the
corresponding Acquiring Fund to
shareholders of each Target Fund,
and, for the Sefton Small Company
Value Fund shareholders only, (c)
the immediate increase to $3 billion
as the maximum market
capitalization of small cap companies in
which
the Sefton Small Company Value
Fund may invest.
2. Any other business that properly
comes before the meeting.
SHAREHOLDERS OF EACH TARGET
FUND
WILL VOTE SEPARATELY ON THE PLAN
FOR
THAT TARGET FUND. Only
shareholders of record at the close of
business
on October 14, 1999 (the Record
Date), will be entitled to receive
this notice and to vote at the
meeting.
Special Meeting of Shareholders
A Special Meeting of Shareholders of
the Kayne Anderson Intermediate Tax-Free
Bond Fund (the "Fund") were held at the
offices of Kayne Anderson Investment
Management, LLC on November 4, 1999 for
the following purposes:
1. To approve a change in the investment
objective of the Kayne Anderson
Intermediate Tax-Free Bond Fund, which
used to seek current income exempt from
federal income tax by investing primarily
in investment-grade municipal bonds, to
instead seek current income exempt from
both federal and California personal
income taxes by investing primarily in
investment-grade California municipal
bonds.
2. To approve a change of the Fund's sub-
classification under the Investment
Company Act of 1940, as amended, from a
diversified investment company to a non-
diversified investment company, and
approve the elimination of the Fund's
corresponding investment restriction
regarding diversification.
3. To transact such other business as may
properly come before the Meeting, or any
adjournments thereto.
Shareholders of record at the close of
business on September 29, 1999 are entitled to
notice of, and to vote at, the Meeting. The
Fund is a series of Kayne Anderson Mutual
Funds, a Delaware business trust.
