KAYNE ANDERSON
MUTUAL FUNDS
================================================================================
SEMI-ANNUAL REPORT
KAYNE ANDERSON LARGE CAP FUND
KAYNE ANDERSON SMALL CAP FUND
KAYNE ANDERSON INTERNATIONAL FUND
KAYNE ANDERSON INTERMEDIATE TOTAL RETURN BOND FUND
KAYNE ANDERSON CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
================================================================================
For the Six Months
Ended June 30, 2000
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
TABLE OF CONTENTS
SHAREHOLDER LETTER ......................................................... 1
KAYNE ANDERSON LARGE CAP FUND
Goal ..................................................................... 2
Commentary ............................................................... 2
Outlook .................................................................. 2
Schedule of Investments .................................................. 3
KAYNE ANDERSON SMALL CAP FUND
Goal ..................................................................... 6
Commentary ............................................................... 7
Outlook .................................................................. 8
Schedule of Investments .................................................. 9
KAYNE ANDERSON INTERNATIONAL FUND
Goal ..................................................................... 12
Commentary ............................................................... 12
New Purchases ............................................................ 13
Outlook .................................................................. 14
Schedule of Investments .................................................. 15
KAYNE ANDERSON INTERMEDIATE TOTAL RETURN BOND FUND
Goal ..................................................................... 19
Commentary ............................................................... 19
Outlook .................................................................. 19
Schedule of Investments .................................................. 20
KAYNE ANDERSON CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
Goal ..................................................................... 23
Commentary ............................................................... 23
Outlook .................................................................. 23
Schedule of Investments .................................................. 24
STATEMENTS OF ASSETS AND LIABILITIES ....................................... 28
STATEMENTS OF OPERATIONS ................................................... 30
STATEMENTS OF CHANGES IN NET ASSETS ........................................ 32
FINANCIAL HIGHLIGHTS ....................................................... 34
NOTES TO FINANCIAL STATEMENTS .............................................. 39
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
Dear Shareholder:
We are pleased to express appreciation for your investment in the Kayne
Anderson Mutual Funds. If you are new to the Kayne Anderson family of investors,
we welcome you.
The enclosed semi-annual report contains a commentary and June 30, 2000
financial statements for each of our mutual funds. In each commentary, the
portfolio manager reviews the objectives, performance and outlook for the fund.
We hope that you will find these comments interesting and timely.
As an investment adviser, we have managed private accounts for both equity
and fixed-income investors for many years. We are delighted to be able to offer
our mutual funds to you 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 Mutual Funds.
We are committed to assisting you with the realization of your 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
Chief Investment Officer Chief Executive Officer
Kayne Anderson Investment Management, LLC
1
<PAGE>
KAYNE ANDERSON LARGE CAP FUND
GOAL
The KAYNE ANDERSON LARGE CAP FUND (the "Fund") invests in high-quality,
large-capitalization companies that enjoy global dominance, excellent
management, financial strength and consistent growth. Our intent is to be
long-term owners of some of the world's finest companies.
COMMENTARY
During the second quarter of 2000, most large-cap stock indices produced
negative total returns. Specifically, the S&P 500 returned -2.66%, while the Dow
Jones Industrials and Nasdaq returned -3.98% and -13.23%, respectively. In
contrast, the Fund produced a POSITIVE return in the second quarter. For the
first six months ended June 30, 2000, the Fund's total return was 2.46% vs.
-0.42% for the S&P 500.
During the last few months, we added three new names to the Fund. Specifically,
we purchased Home Depot, Gap Inc. and Cisco Systems. We are attracted to Home
Depot's business model of 23% to 25% EPS growth, the new EXPO Design Centers (a
potential home run), and an S&P relative price to earnings (P/E) ratio of 148%
versus a target range of 130% to 210%. We like Gap because comparable store
sales comparisons are easing, management can get the company back on fashion
trend, the online stores can tap the global potential of the brand and the stock
is very cheap. We bought Cisco because the company is the leader in a rapidly
growing, important technology sector and the overall sell-off for the technology
group afforded us the opportunity to buy well below the 52-week high of $82.
We also sold two positions in the last few months, one in financial services and
one in entertainment. Both sales involved companies that had appreciated
strongly to high levels. We believed that the combination of high valuation and
short-term earnings growth above sustainable long-term trends was reason enough
to sell the positions. We replaced them with securities with more favorable
valuation characteristics.
OUTLOOK
Looking forward from a macro perspective, we understand that rising interest
rates and some slowing of economic growth tend to limit upside potential in the
stock market. However, we believe that the engineering by the Federal Reserve
toward a less frenetic economic pace, in combination with ample global capacity
and productivity gained from technology spending, should allow inflation to be
constrained to an acceptable rate.
Our view of the next five years is that earnings growth will be the engine that
powers stock returns, because we are not counting on P/E expansion from today's
levels. Based on this premise, over the last year and a half we have been
systematically increasing the expected long-term earnings growth rate of
securities held in the Fund. Today, the anticipated growth rate is 15% to 16%,
up from 12% to 13% two years ago. Importantly, this has been accomplished while
retaining the consistency of earnings growth that is a key feature of Kayne
Anderson portfolios. As we have previously indicated, we believe a portfolio
with underlying profits growing at a rate in the mid-teens provides a strong
underpinning for long-term capital appreciation.
Past performance is not indicative of future results. For the one and five years
ended June 30, 2000, the Fund is up 5.51% and 19.76%, annualized, respectively.
Since the Fund's inception on May 1, 1995 through June 30, 2000 the Fund is up
20.01% annualized. Each of the above mentioned securities account for 2.06%,
1.84% and 3.56% of the Fund as of June 30, 2000.
2
<PAGE>
KAYNE ANDERSON LARGE CAP FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 2000 (UNAUDITED)
SHARES VALUE
--------------------------------------------------------------------------------
COMMON STOCKS: 99.5%
BASIC MATERIALS/CHEMICALS: 2.3%
74,610 PPG Industries, Inc. ............................. $ 3,306,156
------------
CAPITAL GOODS/ELECTRICAL EQUIPMENT: 6.8%
52,780 Emerson Electric Co. ............................. 3,186,592
121,260 General Electric Co. ............................. 6,426,780
------------
9,613,372
------------
CONSUMER STAPLES/BEVERAGES: 4.2%
103,360 Coca-Cola Co. .................................... 5,936,740
------------
CONSUMER STAPLES/CONSUMER PRODUCTS: 3.2%
78,950 Procter & Gamble Co. ............................. 4,519,887
------------
CONSUMER STAPLES/FOODS: 4.8%
59,060 BestFoods ........................................ 4,089,905
33,260 Wm. Wrigley, Jr., Co. ............................ 2,667,036
------------
6,756,941
------------
CONSUMER STAPLES/RESTAURANTS: 3.6%
153,510 McDonald's Corp .................................. 5,056,236
------------
CAPITAL GOODS/MANUFACTURING (DIVERSIFIED): 1.8%
45,120 Illinois Tool Works, Inc. ........................ 2,571,840
------------
ELECTRONIC MEASURE INSTRUMENT: 0.9%
16,937 Agilent Technologies, Inc.* ...................... 1,249,104
------------
ENERGY/PETROLEUM - INTERNATIONAL: 3.6%
64,170 Exxon Mobil Corp. ................................ 5,037,345
------------
FINANCIAL/BANKING: 4.2%
152,080 Wells Fargo & Co. ................................ 5,893,100
------------
FINANCIAL/FINANCIAL SERVICES: 3.3%
89,820 Fannie Mae ....................................... 4,687,481
------------
FINANCIAL/INSURANCE: 7.4%
32,240 Marsh & McLennan Companies, Inc. ................. 3,367,065
59,600 American International Group ..................... 7,003,000
------------
10,370,065
------------
3
<PAGE>
KAYNE ANDERSON LARGE CAP FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 2000 (UNAUDITED) - (CONTINUED)
SHARES VALUE
--------------------------------------------------------------------------------
HEALTH CARE/DRUGS & HOSPITAL SUPPLIES: 15.1%
72,410 Johnson & Johnson ................................ $ 7,376,769
81,310 Merck & Co., Inc ................................. 6,230,379
158,930 Pfizer, Inc. ..................................... 7,628,640
------------
21,235,788
------------
HEALTH CARE/MEDICAL DEVICES: 2.1%
59,730 Medtronics, Inc. ................................. 2,975,301
------------
RETAIL/APPAREL: 1.8%
83,000 Gap, Inc. (The) .................................. 2,593,750
------------
RETAIL/BUILDING PRODUCTS: 2.1%
58,100 Home Depot, Inc. (The) ........................... 2,901,369
------------
TECHNOLOGY/COMMUNICATIONS EQUIPMENT: 5.5%
78,700 Cisco Systems, Inc.* ............................. 5,002,369
45,200 Lucent Technologies, Inc ......................... 2,678,100
------------
7,680,469
------------
TECHNOLOGY/COMPUTERS & OFFICE EQUIPMENT: 8.2%
44,410 Hewlett-Packard Co. .............................. 5,545,699
54,310 International Business Machines Corp. ............ 5,950,339
------------
11,496,038
------------
TECHNOLOGY/DATA SERVICES: 6.8%
119,050 Automatic Data Processing, Inc. .................. 6,376,616
78,530 Electronic Data Systems Corp ..................... 3,239,362
------------
9,615,978
------------
TECHNOLOGY/SEMICONDUCTORS: 6.0%
62,680 Intel Corp ....................................... 8,379,532
------------
TECHNOLOGY/SOFTWARE: 3.4%
59,390 Miscrosoft Corp.* ................................ 4,751,200
------------
TELECOMMUNICATION SERVICES/TELEPHONE: 2.4%
106,750 AT&T Corp ........................................ 3,375,969
------------
TOTAL COMMON STOCKS
(cost $123,578,327) ....................................... 140,003,661
------------
4
<PAGE>
KAYNE ANDERSON LARGE CAP FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 2000 (UNAUDITED) - (CONTINUED)
VALUE
--------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(cost $123,578,327+): 99.5% .............................. $140,003,661
Other Assets less Liabilities: 0.5% ........................... 652,995
------------
NET ASSETS: 100.0% ............................................ $140,656,656
============
* Non-income producing securities.
+ At June 30, 2000, the basis of investments for federal income tax purposes
was the same as their cost for financial reporting purposes. Unrealized
appreciation and depreciation were as follows:
Gross unrealized appreciation ............................ $ 25,011,294
Gross unrealized depreciation ............................ (8,585,960)
------------
Net unrealized appreciation .............................. $ 16,425,334
============
See accompanying Notes to Financial Statements.
5
<PAGE>
KAYNE ANDERSON SMALL CAP FUND
GOAL
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 strong growth of small companies
while assuming less financial and stock market risk.
The following table demonstrates our commitment to these objectives. Our
portfolio combines: (1) quality comparable to that of the high-quality
benchmark, the S&P 500 Index of large stocks; (2) growth comparable to that of
the high-growth benchmark, the Russell 2000 Small Cap Growth Index; and (3)
value comparable to that of the deep-value benchmark, the Russell 2000 Small Cap
Value Index.
PORTFOLIO CHARACTERISTICS
<TABLE>
<CAPTION>
RUSSELL RUSSELL
KAYNE RUSSELL RUSSELL S&P 2000 2000
ANDERSON 2000 2500 500 GROWTH VALUE
SMALL CAP INDEX INDEX INDEX INDEX INDEX
--------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
QUALITY
Return on Equity - Past 5 Years 22.7% 13.9% 14.5% 24.5% 14.5% 13.6% MORE PROFITABLE
Long-Term Debt/Total Capital 20.7% 34.8% 37.3% 39.5% 24.6% 48.3% LESS FINANCIAL RISK
Interest Expense Coverage 14 x 6 x 5.5 x 5.5 x 12.8 x 3.8 x LESS FINANCIAL RISK
Earnings Variance - Past 10 Years 34.2% 66.5% 62.5% 42.8% 83.8% 55.9% MORE DEPENDABLE
A Rated by S&P 42.7% 10.0% 14.2% 49.9% 4.1% 17.3% BETTER QUALITY
GROWTH
Earnings Per Share Growth - Past 5 Years 19.4% 13.1% 10.8% 17.3% 17.6% 10.8% RECOVERY
Earnings Per Share Growth - Past 10 Years 15.3% 9.4% 9.9% 14.7% 13.1% 8.0% RECESSION
Dividend Per Share Growth - Past 5 Years 15.9% 8.9% 7.8% 10.9% 9.0% 8.8% RECOVERY
Dividend Per Share Growth - Past 10 Years 12.8% 5.9% 5.9% 9.7% 6.6% 5.7% RECESSION
Capital Generation - {ROE x (1-Payout)} 16.9% 11.1% 11.1% 17.5% 13.5% 9.1% FASTER GROWTH
VALUE
P/E Ratio - Latest 12 months 19.0 26.9 25.1 28.7 128.2 13.6 BETTER VALUE
Dividend Yield 1.4% 1.5% 1.5% 1.1% 0.2% 3.0% BETTER INCOME
MARKET CHARACTERISTICS
$ Weighted Average Market Cap $ 1.3 b $ 1.2 b $ 2.8 b $148.3 b $ 1.4 b $ 0.8 b COMPARABLE SIZE
Quarterly Standard Deviation -
Since Inception 11.7% 17.2% 15.3% 12.6% 22.5% 14.4% LESS MARKET RISK
</TABLE>
Notes: Data as of June 30, 2000
Data is obtained from the Frank Russell Company and CompuStat and is assumed to
be reliable.
6
<PAGE>
COMMENTARY
Small cap markets were down modestly in the second quarter following a modest
first quarter advance. Year-to-date, the markets have produced a mid-single
digit return. By avoiding the second quarter decline, the Fund is ahead of the
indices year-to-date. This is very much in keeping with our investment objective
of generating the returns of the asset class, but with much less risk. Since
inception, Kayne Anderson's small cap portfolio has historically declined much
less often and to a much lesser degree than the overall markets. As illustrated
below, this year provides a good example. At the March 10th market peak, the
Russell 2000 small cap benchmark was up 20% with Kayne Anderson's portfolio up
single digits. Through the subsequent 25% market decline, our portfolio
continued to advance.
Chart courtesy of Bloomberg.
Russell 2000 Kayne Russell 2000 Kayne
Date Index Anderson Date Index Anderson
---- ----- -------- ---- ----- --------
12/31/1999 0 0 4/3/2000 2.24% 2.90%
1/3/2000 -1.65% -0.94% 4/4/2000 0.27% 1.75%
1/4/2000 -5.22% -3.58% 4/5/2000 2.63% 3.58%
1/5/2000 -5.14% -3.37% 4/6/2000 5.50% 5.60%
1/6/2000 -5.83% -3.10% 4/7/2000 7.58% 5.40%
1/7/2000 -3.26% -2.56% 4/10/2000 2.76% 3.17%
1/10/2000 -0.57% -2.02% 4/11/2000 1.07% 3.31%
1/11/2000 -2.41% -2.90% 4/12/2000 -2.24% 3.31%
1/12/2000 -2.91% -3.51% 4/13/2000 -3.08% 2.16%
1/13/2000 -0.71% -3.10% 4/14/2000 -10.11% -1.42%
1/14/2000 0.56% -2.97% 4/17/2000 -9.01% -1.35%
1/18/2000 1.73% 0.54% 4/18/2000 -3.70% 2.02%
1/19/2000 3.03% -2.36% 4/19/2000 -3.67% 2.90%
1/20/2000 4.46% -2.90% 4/20/2000 -4.54% 2.77%
1/21/2000 5.78% -2.90% 4/24/2000 -7.17% 1.96%
1/24/2000 3.61% -3.51% 4/25/2000 -3.11% 4.05%
1/25/2000 3.34% -3.91% 4/26/2000 -4.06% 2.16%
1/26/2000 3.23% -4.12% 4/27/2000 -2.01% 2.83%
1/27/2000 2.43% -4.72% 4/28/2000 0.30% 2.77%
1/28/2000 -0.03% -5.13% 5/1/2000 2.81% 4.39%
1/31/2000 -1.69% -5.87% 5/2/2000 0.12% 2.56%
2/1/2000 -0.20% -4.86% 5/3/2000 -1.82% 1.48%
2/2/2000 1.02% -4.39% 5/4/2000 -0.56% 2.56%
2/3/2000 3.34% -3.98% 5/5/2000 1.60% 4.18%
2/4/2000 4.11% -2.16% 5/8/2000 -0.93% 2.43%
2/7/2000 5.48% -2.02% 5/9/2000 -2.75% 1.82%
2/8/2000 6.49% -1.55% 5/10/2000 -6.04% 0.74%
2/9/2000 6.19% -0.94% 5/11/2000 -3.04% 4.45%
2/10/2000 7.42% -1.89% 5/12/2000 -2.74% 4.39%
2/11/2000 6.41% -2.83% 5/15/2000 -1.37% 5.94%
2/14/2000 6.97% -2.29% 5/16/2000 0.24% 7.22%
2/15/2000 7.03% -2.09% 5/17/2000 -1.01% 6.34%
2/16/2000 8.52% -1.82% 5/18/2000 -2.73% 5.67%
2/17/2000 10.63% -0.54% 5/19/2000 -4.96% 3.64%
2/18/2000 8.11% -2.77% 5/22/2000 -6.55% 3.37%
2/22/2000 7.17% -2.70% 5/23/2000 -9.06% 2.90%
2/23/2000 8.95% -1.08% 5/24/2000 -8.52% 4.52%
2/24/2000 9.77% -1.69% 5/25/2000 -9.62% 3.64%
2/25/2000 10.30% -1.28% 5/26/2000 -9.39% 3.44%
2/28/2000 10.49% -0.47% 5/30/2000 -5.56% 4.93%
2/29/2000 14.45% 1.48% 5/31/2000 -5.66% 5.67%
3/1/2000 16.56% 1.75% 6/1/2000 -2.43% 8.43%
3/2/2000 15.71% 0.94% 6/2/2000 1.64% 10.93%
3/3/2000 18.45% 2.02% 6/5/2000 1.69% 9.51%
3/6/2000 19.20% 1.55% 6/6/2000 1.37% 9.38%
3/7/2000 17.97% 2.70% 6/7/2000 2.34% 9.78%
3/8/2000 17.82% 3.17% 6/8/2000 1.94% 8.30%
3/9/2000 20.07% 4.25% 6/9/2000 3.63% 8.23%
3/10/2000 19.63% 3.31% 6/12/2000 0.74% 7.89%
3/13/2000 16.92% 2.63% 6/13/2000 1.78% 7.22%
3/14/2000 13.52% 1.89% 6/14/2000 0.97% 5.87%
3/15/2000 10.72% 3.98% 6/15/2000 1.49% 7.15%
3/16/2000 13.77% 7.83% 6/16/2000 1.78% 7.35%
3/17/2000 13.87% 7.42% 6/19/2000 3.57% 6.21%
3/20/2000 8.81% 4.79% 6/20/2000 4.15% 5.94%
3/21/2000 9.52% 2.90% 6/21/2000 4.53% 5.20%
3/22/2000 13.16% 3.98% 6/22/2000 2.03% 4.66%
3/23/2000 13.68% 3.71% 6/23/2000 1.12% 4.32%
3/24/2000 13.72% 4.52% 6/26/2000 2.30% 5.20%
3/27/2000 13.65% 3.24% 6/27/2000 0.66% 3.71%
3/28/2000 10.76% 2.23% 6/28/2000 3.22% 5.60%
3/29/2000 7.58% 1.21% 6/29/2000 1.55% 6.14%
3/30/2000 5.31% 1.01% 6/30/2000 2.47% 4.39%
3/31/2000 6.80% 2.97%
Two of our holdings, Air Express International and Duff & Phelps Credit Rating,
were acquired at premium prices by larger companies during the first half of
this year. This follows the acquisition of three of our holdings by larger
companies in 1999. We believe the reasons for this exceptional acquisition
activity are clear. Relative to the S&P 500 Index, at June 30, 2000, the
holdings in our portfolio exhibit the superior quality and growth
characteristics shown above. They grow faster than the companies of the S&P 500
Index. Yet, as shown in the graph on page 8, our companies sell near the
steepest discount ever to the S&P 500 Index. As a result, large companies see
the opportunity to use their more richly valued common stocks as currency to buy
high quality, fast growing, small companies, such as our holdings, at discount
prices.
The stock market volatility noted in the chart above created profit-taking
opportunities in some of our holdings. Proceeds from partial sales in these
holdings, along with proceeds from Air Express and Duff & Phelps, were
reinvested in the following companies. Each of these companies is an industry
profit leader.
* ABM Industries - Largest U.S. based facilities services outsourcer -
janitorial, security, parking, lighting, engineering
* C.H. Robinson - Largest intra-national freight forwarder. Manages flow of
goods across customers' supply chain
* CSG Systems International - Customer billing for 45% of all U.S. cable
subscribers and 50% of all U.S. DBS subscribers
* Catalina Marketing - Dominant supplier of individualized electronic coupons
delivered at the checkout counter in real-time
* E.W. Blanch Holdings - Leading independent re-insurance broker, provides
integrated risk management solutions
* FactSet Research Systems - On-line financial data that is built into the
investment industry's analytical systems
* Fair, Isaac & Company - Industry leading credit decision-making tools.
Enables off-line & on-line financial transactions.
* HEICO Corp. Class A - World's largest non-OEM manufacturer of jet engine
replacement parts
* Jones Pharma - Sole-source drugs produce industry's highest profit margins
7
<PAGE>
OUTLOOK
Small stocks have outperformed large stocks so far this year following a
multi-year period of lagging performance. 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 20% 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
companies higher in quality and growing faster than the S&P 500. Thus we believe
our portfolio will again sell at a premium P/E ratio to that of the S&P 500 in
the future.
KAYNE ANDERSON SMALL CAP P/E VERSUS S&P 500 P/E
DATE P/E RELATIVE TO S&P 500 DATE P/E RELATIVE TO S&P 500
---- ----------------------- ---- -----------------------
6/90 97.27% 7/95 127.30%
7/90 93.61% 8/95 131.98%
8/90 90.26% 9/95 127.36%
9/90 90.00% 10/95 121.81%
10/90 88.96% 11/95 121.33%
11/90 85.19% 12/95 111.78%
12/90 86.00% 1/96 113.17%
1/91 83.00% 2/96 114.07%
2/91 80.00% 3/96 110.86%
3/91 81.00% 4/96 121.56%
4/91 80.00% 5/96 122.95%
5/91 80.00% 6/96 120.88%
6/91 79.72% 7/96 117.25%
7/91 77.12% 8/96 118.75%
8/91 76.41% 9/96 120.26%
9/91 68.57% 10/96 120.26%
10/91 71.07% 11/96 111.05%
11/91 76.20% 12/96 119.21%
12/91 74.00% 1/97 113.95%
1/92 76.00% 2/97 107.94%
2/92 82.00% 3/97 117.85%
3/92 90.87% 4/97 115.72%
4/92 87.17% 5/97 122.13%
5/92 88.89% 6/97 120.65%
6/92 90.00% 7/97 108.49%
7/92 86.00% 8/97 117.14%
8/92 90.00% 9/97 115.25%
9/92 91.71% 10/97 118.98%
10/92 89.63% 11/97 116.29%
11/92 92.59% 12/97 101.95%
12/92 95.57% 1/98 101.97%
1/93 93.51% 2/98 100.20%
2/93 90.05% 3/98 95.09%
3/93 93.55% 4/98 92.99%
4/93 90.01% 5/98 92.03%
5/93 90.22% 6/98 86.72%
6/93 87.75% 7/98 86.46%
7/93 86.59% 8/98 84.68%
8/93 86.71% 9/98 79.66%
9/93 98.26% 10/98 81.14%
10/93 94.83% 11/98 80.65%
11/93 93.91% 12/98 75.11%
12/93 95.57% 1/99 77.88%
1/94 95.82% 2/99 76.14%
2/94 95.60% 3/99 73.92%
3/94 97.17% 4/99 74.81%
4/94 94.44% 5/99 80.12%
5/94 92.52% 6/99 83.82%
6/94 98.04% 7/99 73.61%
7/94 95.61% 8/99 69.08%
8/94 95.56% 9/99 80.34%
9/94 102.84% 10/99 72.85%
10/94 100.19% 11/99 71.36%
11/94 103.26% 12/99 76.89%
12/94 121.51% 1/00 75.42%
1/95 115.83% 2/00 83.29%
2/95 114.82% 3/00 73.26%
3/95 132.67% 4/00 76.43%
4/95 128.57% 5/00 78.47%
5/95 124.82% 6/00 77.19%
6/95 131.91%
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
Robert Schwarzkopf, CFA, Portfolio Manager
Sandi Gleason, CFA, Portfolio Manager
8
<PAGE>
KAYNE ANDERSON SMALL CAP FUND
SCHEDULE OF INVESTMENTS at June 30, 2000 (Unaudited)
SHARES VALUE
--------------------------------------------------------------------------------
COMMON STOCK: 98.0%
BASIC MATERIALS/PACKAGING: 4.7%
42,007 Bemis Co. ........................................ $ 1,412,485
14,049 Liqui-Box Corp. .................................. 695,425
------------
2,107,910
------------
BASIC MATERIALS/PAINTS AND COATING: 2.7%
49,414 Benjamin Moore & Co. ............................. 1,192,113
------------
CAPITAL GOODS/AEROSPACE & DEFENSE: 1.7%
63,910 HEICO Corp. - Class A ............................ 782,897
------------
CAPITAL GOODS/MACHINERY EQUIPMENT: 5.5%
73,077 Federal Signal Corp. ............................. 1,205,771
24,894 Nordson Corp. .................................... 1,260,259
------------
2,466,030
------------
CONSUMER CYCLICALS/ADVERTISING: 4.1%
17,760 Catalina Marketing Corp.* ........................ 1,811,520
------------
CONSUMER CYCLICALS/FURNITURE: 3.6%
114,952 LA-Z Boy, Inc. ................................... 1,609,328
------------
CONSUMER CYCLICALS/RETAIL: 4.5%
104,390 Claire's Stores, Inc. ............................ 2,009,508
------------
CONSUMER CYCLICALS/SERVICES: 5.5%
48,635 ABM Industries, Inc. ............................. 1,118,605
55,542 Strayer Education, Inc. .......................... 1,333,008
------------
2,451,613
------------
CONSUMER STAPLES/FOOD: 4.9%
62,971 Tootsie Roll Industries, Inc. .................... 2,203,985
------------
ENERGY/OIL & GAS PRODUCTION: 3.8%
29,969 Devon Energy Corp. ............................... 1,683,883
------------
FINANCE/BANKING: 5.9%
101,117 National Commerce Bancorp ........................ 1,624,192
55,632 Washington Federal, Inc. ......................... 1,015,284
------------
2,639,476
------------
9
<PAGE>
KAYNE ANDERSON SMALL CAP FUND
SCHEDULE OF INVESTMENTS at June 30, 2000 (Unaudited) - (Continued)
SHARES VALUE
--------------------------------------------------------------------------------
FINANCE/FINANCIAL SERVICES: 12.4%
32,022 Eaton Vance Corp. ................................ $ 1,481,018
40,000 FactSet Research Systems, Inc. ................... 1,130,000
31,860 Fair, Isaac and Company, Inc ..................... 1,401,840
34,008 Fiduciary Trust Co. .............................. 1,547,389
------------
5,560,247
------------
FINANCE/INSURANCE: 1.5%
32,010 E.W. Blanch Holdings, Inc. ....................... 650,203
------------
HEALTH CARE/DRUGS & HOSPITAL SUPPLIES: 10.9%
132,440 Hooper Holmes, Inc ............................... 1,059,520
64,170 Jones Pharma, Inc. ............................... 2,562,789
80,520 Landauer, Inc. ................................... 1,253,092
------------
4,875,401
------------
TECHNOLOGY/COMPUTER & INTEGRATED SYSTEMS: 10.8%
76,162 Reynolds & Reynolds Inc. - Class A ............... 1,389,956
68,640 Jack Henry & Associates .......................... 3,440,580
------------
4,830,536
------------
TECHNOLOGY/ELECTRONICS: 5.3%
57,850 Dallas Semiconductor Corp ........................ 2,357,388
------------
TECHNOLOGY/SOFTWARE & SERVICE: 6.4%
43,630 CSG Systems International, Inc.* ................. 2,446,007
59,036 Timberline Software Corp. ........................ 431,701
------------
2,877,708
------------
TRANSPORTATION SERVICES: 3.8%
34,660 C.H. Robinson Worldwide, Inc ..................... 1,715,670
------------
TOTAL COMMON STOCKS
(cost $42,616,859) ........................................ 43,825,416
------------
10
<PAGE>
KAYNE ANDERSON SMALL CAP FUND
SCHEDULE OF INVESTMENTS at June 30, 2000 (Unaudited) - (Continued)
VALUE
--------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(cost $42,616,859+): 98.0% ............................... $ 43,825,416
Other Assets less Liabilities: 2.0% ........................... 901,921
------------
NET ASSETS: 100.0% ............................................ $ 44,727,337
============
* Non-income producing security.
+ At June 30, 2000, the basis of investments for federal income tax purposes
was the same as their cost for financial reporting purposes. Unrealized
appreciation and depreciation were as follows:
Gross unrealized appreciation ............................ $ 6,117,585
Gross unrealized depreciation ............................ (4,909,028)
------------
Net unrealized appreciation .............................. $ 1,208,557
============
See accompanying Notes to Financial Statements.
11
<PAGE>
KAYNE ANDERSON INTERNATIONAL FUND
GOAL
The goal of the KAYNE ANDERSON INTERNATIONAL 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 levels 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-month period ended June 30, 2000, the Kayne Anderson International
Fund produced a total return of +0.31% versus a decline of 3.95% for the MSCI
EAFE index (in dollar terms). Since March 10th, the date that marks the
beginning of the US Nasdaq market collapse, the Fund returned +6.24% compared to
a 3.69% decline for the benchmark. The Fund's balanced, long-term oriented
investment approach has again shown its defensive characteristics in times of
market turmoil.
Speculation around TMT stocks (Technology, Media, Telecommunications) that
developed in the second half of 1999 continued unabated during the first two
months of 2000, as none of the feared Y2K-related computer problems manifested.
At the beginning of March, the valuation levels reached by most TMT stocks
around the world could not be justified by fundamentals anymore, which led
market participants to rotate their portfolios out of TMT stocks in favor of
more defensive, reasonably priced sectors such as food, beverage,
pharmaceuticals, and financials. This phenomenon was particularly acute in
Europe where media, telecommunications, and software and computer services
groups fell sharply, while beverages, pharmaceuticals, and insurance groups rose
significantly. In Japan, a similar phenomenon took place, with dramatic declines
in the Internet area. The well publicized collapse of 1999 stock market darlings
Softbank and Hikari Tushin confirmed our previously stated opinion that
complacent, short-term-oriented investors would pay a hefty price for ignoring
fundamentals.
At the end of June, the four largest countries represented in the Fund were the
United Kingdom (22.6%), Japan (22.4%), France (16.2%), and The Netherlands
(10.3%). We continued to add to our Japanese equity position, purchasing during
the first quarter a few high-quality stocks which were already sharply down at
the time we purchased them: Fujitsu, Matsushita Electric, NTT, and Sumitomo
Bank. We also took advantage of sharp declines in the TMT sectors to buy Alcatel
and Telefonica. In order to finance those purchases, we sold Elsevier, and
Tomkins, which were not meeting our expectations, and Uni-Charm, which reached
our target price. We also took profits in some of the portfolio winners
(Ericsson, SAP, Reuters and others).
Among the first-half 2000 winners, were Alcatel (+49%), Canon (+24%), Ericsson
(+22%), Danone (+17%), AXA (+15%), Diageo (+13%), and Astra-Zeneca (+13%). The
losers included Panamco (-26%), Unilever (-19%) and Rentokil-Initial (-39%), and
Minebea (-27%). We have seen during last three months a sector broadening of the
market that bodes well for our diversified investment approach.
12
<PAGE>
NEW PURCHASES
FUJITSU
Based in Japan, Fujitsu is a leading provider of comprehensive information
technology and network solutions for the global marketplace. It manufactures
computers, communication equipment and semiconductors, and provides Internet
connection services through @nifty, the largest Internet provider in Japan. We
believe Fujitsu should benefit from a focus on the Internet (new slogan:
"Everything on the Internet"), a reorganization of existing businesses, and the
current trend towards greater IT-related capital spending in Japan.
NTT
NTT is the leading telecom service provider in Japan, and, we believe, stands to
benefit from the rapid growth in Internet and data transmission by leveraging
its strength to own the lucrative last mile to customers. In addition, it has
announced plans to cut costs and reduce capital expenditures in the next three
years, increasing free cash flow. We believe that NTT's valuation is attractive,
considering profitability improvements in its wireline businesses and its
rapidly growing subsidiaries, which include NTT DOCOMO (a wireless service
operator) and OCN (the second-largest ISP in Japan).
MATSUSHITA ELECTRIC
Matsushita Electric Industrial ("MEI") is the world's largest consumer
electronics company. We believe MEI should be a major beneficiary of rapid
growth in the digital and network sectors, based on its technological
leadership, production capabilities, and strong brand names. Its management team
has devised a reorganization plan in order to improve operating and financial
efficiency and to maximize shareholder value. We believe MEI should also benefit
from the economic recovery in Asia through its exposure to Asian emerging
markets, and particularly China.
ALCATEL
Headquartered in France, Alcatel is a leading telecommunications equipment
supplier. As a clear leader in ADSL and ATM technology (particularly after its
recent take-over of Newbridge Networks of Canada), we believe Alcatel is well
positioned to benefit from the internet-linked "broadband" explosion. We believe
the company will achieve strong earnings growth this year due to a sustained
top-line expansion and sharp margin improvement, providing the catalyst for the
stock to close the valuation gap it has suffered versus its peer group.
13
<PAGE>
The country allocation of the fund on June 30th, 2000 was:
Australia Finland France Germany Hong Kong Japan Mexico
--------- ------- ------ ------- --------- ----- ------
3.1% 2.3% 16.2% 2.9% 2.7% 22.4% 1.6%
Netherlands Spain Sweden Switzerland UK Cash
----------- ----- ------ ----------- ----- ----
10.3% 6.4% 2.1% 7.2% 22.6% 0.2%
OUTLOOK
We welcome the return to more realistic valuation levels of the so-called "new
economy" stocks. The sector broadening that we have witnessed since mid-March,
which we believe will continue, should greatly benefit our well diversified
equity portfolio.
In our opinion, the outlook for international developed equity markets remains
very positive. The European equity markets continue to be supported by strong
fundamentals; economic growth is accelerating, and corporate restructuring, M&A
activity, pension and fiscal reforms, and technological advances should continue
to attract international capital flows over the next few years. In Japan,
globalization and the continued maturation of the domestic economy are putting
intense pressure on the corporate sector, which is poised to experience profound
changes. Although we remain cautious about the short-term, we believe that
corporate restructuring and merger and acquisition activities are likely to
drive the Japanese equity markets to significantly higher levels over the next
few years.
We continue to believe that an investment strategy that focuses exclusively on
the highest quality foreign companies constitutes a long-term winning strategy
for the prudent investor.
Jean-Baptiste Nadal, CFA
Portfolio Manager
Past performance is no indication of future performance. For the one year ended
June 30, 2000 the Fund was up 17.39%. From inception (October 18, 1996) through
June 30, 2000 the Fund's annualized return has been 20.42%. The Fund invests in
international securities which carry a greater risk then domestic securities.
14
<PAGE>
KAYNE ANDERSON INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS at June 30, 2000 (Unaudited)
SHARES VALUE
------ -----
COMMON STOCKS: 99.8%
AUSTRALIA: 3.1%
74,732 Broken Hill Proprietary ADR ......................... $ 1,774,885
------------
FINLAND: 2.3%
26,272 Nokia Corp. ADR ..................................... 1,311,958
------------
FRANCE: 16.2%
10,780 Air Liquide ......................................... 1,407,534
36,000 Alcatel S.A. ........................................ 2,364,005
24,712 Axa ADR ............................................. 1,966,149
72,570 Groupe Danone S.A. ADR .............................. 1,954,854
20,871 Total Fina Elf S.A. ADR ............................. 1,603,154
9,295,696
------------
GERMANY: 2.9%
34,866 SAP AG ADR .......................................... 1,636,523
------------
HONG KONG/CHINA: 2.7%
1 Hong Kong & China Gas ............................... 1
26,834 Hong Kong & Shanghai Banking ADR .................... 1,554,695
------------
1,554,696
------------
JAPAN: 22.4%
34,000 Canon Inc. .......................................... 1,690,079
55,000 Fujitsu ............................................. 1,900,300
26,000 Kao Corp. ........................................... 793,070
60,000 Matsushita Electric Industrial Co., Ltd. ............ 1,553,382
114,000 Minebea Co., Ltd .................................... 1,427,417
90 Nippon Telegraph & Telphone Co. ..................... 1,194,690
116,000 Shiseido Co. ........................................ 1,791,005
16,000 Sony Corp. .......................................... 1,491,245
80,000 Sumitomo Bank, Ltd (The) ............................ 979,096
------------
12,820,284
------------
MEXICO: 1.6%
61,291 Panamerican Beverages Inc. - Class A ................ 915,534
------------
15
<PAGE>
KAYNE ANDERSON INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS at June 30, 2000 (Unaudited) - (Continued)
SHARES VALUE
------ -----
NETHERLANDS: 10.3%
57,000 Ahold N.V. .......................................... $ 1,679,722
20,910 Heineken N.V. ....................................... 1,274,159
28,562 ING Groep N.V. ...................................... 1,932,908
22,821 Unilever N.V. ....................................... 981,303
------------
5,868,092
------------
SPAIN: 6.4%
54,110 Endesa S.A. ADR ..................................... 1,055,145
81,811 Repsol S.A. ADR ..................................... 1,620,880
46,900 Telefonica S.A. ..................................... 1,008,660
------------
3,684,685
------------
SWEDEN: 2.1%
59,052 Ericsson L.M. Telephone ADR ......................... 1,181,040
------------
SWITZERLAND: 7.2%
12,674 Nestle S.A. ADR ..................................... 1,272,411
41,876 Novartis AG ADR ..................................... 1,675,040
8,072 Union Bank of Switzerland ........................... 1,183,346
------------
4,130,797
------------
UNITED KINGDOM: 22.6%
106,622 Allied Zurich Plc ................................... 1,264,953
23,921 Astrazeneca Plc ..................................... 1,120,299
31,510 Cable & Wireless Plc ADR ............................ 1,577,469
110,000 Compass Group Plc ................................... 1,453,650
42,240 Diageo Plc ADR ...................................... 1,502,160
174,613 Invensys Plc ADR .................................... 1,309,824
31,448 Pearson Plc ......................................... 1,002,562
438,600 Rentokil Initial Plc ................................ 998,736
13,304 Reuters Group Plc ADR ............................... 1,329,568
32,930 Vodafone Airtouch Plc ADR ........................... 1,364,537
------------
12,923,758
------------
TOTAL COMMON STOCKS
(cost $48,376,666) ........................................... 57,097,948
------------
16
<PAGE>
KAYNE ANDERSON INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS at June 30, 2000 (Unaudited) - (Continued)
VALUE
-----
TOTAL INVESTMENTS IN SECURITIES
(cost $48,376,666+): 99.8% .................................. $57,097,948
Other Assets less Liabilities: 0.2% .............................. 104,030
-----------
NET ASSETS: 100.0% ............................................... $57,201,978
===========
+ At June 30, 2000, the basis of investments for federal income
tax purposes was the same as their cost for financial
reporting purposes. Unrealized appreciation and depreciation
were as follows:
Gross unrealized appreciation ............................... $10,640,911
Gross unrealized depreciation ............................... (1,919,629)
-----------
Net unrealized appreciation ................................. $ 8,721,282
===========
ADR - American depositary receipt.
See accompanying Notes to Financial Statements.
17
<PAGE>
KAYNE ANDERSON INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS BY INDUSTRY at June 30, 2000 (Unaudited)
INDUSTRY PERCENTAGE
-------- ----------
Beer, Wine and Distilled Beverages ............................... 4.9%
Beverages ........................................................ 3.8
Chemical & Allied Products ....................................... 4.5
Commercial Banking ............................................... 6.1
Communication Services ........................................... 5.6
Communications Equipment ......................................... 11.8
Computer & Other Data Processing Services ........................ 2.9
Crude Petroleum & Natural Gas .................................... 6.0
Drugs ............................................................ 2.9
Drugs, Proprietors and Sundries .................................. 2.0
Eating & Drinking Places ......................................... 2.5
Electric Services ................................................ 1.8
Electrical Industrial Apparatus .................................. 3.0
Electronic Components & Accessories .............................. 2.3
Food Beverage & Tobacco .......................................... 3.4
Foreign Banks and Branches & Agencies ............................ 3.8
Groceries & Related Products ..................................... 1.7
Grocery Stores ................................................... 2.9
Holding Offices .................................................. 2.2
Household Audio & Video Equipment ................................ 5.3
Insurance Carriers ............................................... 3.4
Miscellaneous Business Services .................................. 1.7
Miscellaneous Chemial Products ................................... 2.5
Miscellaneous Electronic Machinery
Equipment & Supplies ........................................... 2.5
Oil and Gas Field Services ....................................... 2.8
Security and Commodity Services .................................. 2.3
Telephone Communication .......................................... 5.2
-----
Total Investments ................................................ 99.8
Other Assets less Liabilities .................................... 0.2
-----
Net Assets ....................................................... 100.0%
=====
See accompanying Notes to Financial Statements.
18
<PAGE>
KAYNE ANDERSON INTERMEDIATE TOTAL RETURN BOND FUND
GOAL
The goal of the KAYNE ANDERSON 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 goal by
investing primarily in high-quality, intermediate-maturity debt securities. The
Fund follows the premise 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
The first half of 2000 has been a volatile time in both the fixed income and
equity markets. Fixed income markets have responded not only to the actions of
the Federal Reserve Board and the movements in equity markets, but also to
virtually every comment made by a member of the Fed. Overall, it has been
positive for the Intermediate Total Return Bond Fund, which is up 3.11% year to
date as of June 30, 2000. The fund has benefited from our short to neutral
duration relative to our benchmark, and our current weighting in U.S.
Treasuries. While the spreads have been widening in the corporate and agency
sectors, the treasury sector has performed well for a couple of reasons: first,
there is a "scarcity" factor currently affecting U.S. Treasuries as the issuance
level declines (We have seen the portion of the Lehman Government/Corporate
Index represented by US Government debt fall from 80% in December 1994 to 63%
this month.); second, as mentioned above, the volatility in the markets always
lends support to the treasury sector.
SECTOR DIVERSIFICATION
MORTGAGE-BACKED ......... 7% COMMERCIAL PAPER ....... 2%
CMO ..................... 3% CASH & EQUIVALENTS ..... 1%
INDUSTRIAL .............. 10% AGENCY ................. 1%
FINANCE ................. 9% U.S. TREASURY .......... 67%
OUTLOOK
Since the Fed began its current tightening cycle in June of last year, it has
taken the Federal Funds rate from 4.75% to its current level of 6.50%. Although
it made no change at its last meeting, the Committee has stated that "the risks
continue to be weighted mainly toward conditions that may generate heightened
inflation pressures in the foreseeable future". However, we are beginning to see
the effects of their actions flowing through the economy. Mortgage rates are at
their highest levels since the early 1990's, and we are now seeing some signs of
softening in the demand for housing. Banks are tightening credit standards for
commercial and industrial loans, and unemployment claims continue to trend
higher. Although upcoming inflation reports are likely to be higher than
expected due to oil prices, we do expect the core inflation numbers to be
encouraging. That said, it is still too early to tell what the Fed's next move
will be, but we can expect the fixed income markets to continue to react in
anticipation.
19
<PAGE>
KAYNE ANDERSON INTERMEDIATE TOTAL RETURN BOND FUND
SCHEDULE OF INVESTMENTS at June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------------------------------------------------------------------------------------
<S> <C>
U.S. TREASURY OBLIGATIONS: 65.5%
$2,050,000 U.S. Treasury Bonds, 11.875%, 11/15/2003 ....................................... $ 2,388,250
525,000 U.S. Treasury Notes, 6.250%, 10/31/2001 ........................................ 523,359
4,000,000 U.S. Treasury Notes, 7.500%, 05/15/2002 ........................................ 4,075,000
2,100,000 U.S. Treasury Notes, 6.250%, 02/15/2003 ........................................ 2,094,750
4,980,000 U.S. Treasury Notes, 7.250%, 08/15/2004 ........................................ 5,148,075
1,500,000 U.S. Treasury Notes, 7.875%, 11/15/2004 ........................................ 1,588,125
8,000,000 U.S. Treasury Notes, 7.500%, 02/15/2005 ........................................ 8,392,504
551,000 U.S. Treasury Notes, 5.875%, 11/15/2005 ........................................ 541,702
1,500,000 U.S. Treasury Notes, 6.500%, 10/15/2006 ........................................ 1,517,345
2,000,000 U.S. Treasury Notes, 6.250%, 02/15/2007 ........................................ 2,002,500
2,007,000 U.S. Treasury Notes, 5.625%, 05/15/2008 ........................................ 1,936,129
-----------
Total U.S. Treasury Obligations .............................................................. 30,207,739
-----------
U.S. AGENCY OBLIGATIONS: 3.4%
600,000 Federal National Mortgage Association, 5.625%, 05/14/2004 ...................... 571,876
87,000 Federal National Mortgage Association, 6.950%, 11/13/2006 ...................... 84,557
1,000,000 Federal Home Loan Bank, 5.925%, 04/09/2008 ..................................... 928,851
-----------
Total U.S. Agency Obligations ................................................................ 1,585,284
-----------
MORTGAGE-BACKED/PASS-THROUGH SECURITIES: 10.5%
741,453 Government National Mortgage Association, 7.000%, 07/20/2013 ................... 729,565
9,155 Government National Mortgage Association, 8.000%, 11/15/2021 ................... 9,261
14,075 Government National Mortgage Association, 8.500%, 12/15/2022 ................... 14,420
262,175 Government National Mortgage Association, 8.000%, 07/15/2023 ................... 265,192
109,894 Government National Mortgage Association, 8.500%, 08/15/2025 ................... 112,586
34,036 Government National Mortgage Association, 8.500%, 06/15/2026 ................... 34,870
115,522 Government National Mortgage Association, 8.000%, 09/15/2026 ................... 116,852
51,818 Government National Mortgage Association, 8.000%, 11/15/2026 ................... 52,415
286,358 Federal Home Loan Mortgage Corp., 7.500%, 07/01/2009 ........................... 286,843
625,419 Federal Home Loan Mortgage Corp., 7.500%, 04/01/2014 ........................... 626,003
451,455 Federal Home Loan Mortgage Corp., 7.000%, 04/01/2016 ........................... 441,288
135,335 Federal Home Loan Mortgage Corp., 6.100%, 11/15/2016 ........................... 135,035
1,400,000 Federal National Mortgage Association, 6.000%, 08/25/2008 ...................... 1,342,285
446,607 Federal National Mortgage Association, 7.000%, 05/01/2014 ...................... 436,765
207,570 Federal National Mortgage Association, 8.000%, 01/01/2015 ...................... 210,182
-----------
Total Mortgage-Backed/Pass-Through Securities ................................................ 4,813,562
-----------
</TABLE>
20
<PAGE>
KAYNE ANDERSON INTERMEDIATE TOTAL RETURN BOND FUND
SCHEDULE OF INVESTMENTS at June 30, 2000 (Unaudited) - (Continued)
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------------------------
ASSET-BACKED RECEIVABLES: 0.1%
$ 47,078 WFS Financial Owner Trust, 6.800%,12/20/2003 ......... $ 46,925
----------
CORPORATE BONDS: 19.3%
AEROSPACE: 0.2%
70,000 Honeywell International, 9.200%, 02/15/2003 .......... 73,290
----------
AUTO - CARS/LIGHT TRUCKS: 2.6%
1,250,000 Daimlerchrysler National Holding Corp., 7.200%,
09/01/2009 ......................................... 1,210,700
----------
BEVERAGES: 3.7%
70,000 Anheuser Busch Companies, 6.750%, 11/01/2006 ......... 67,790
236,000 Coca-Cola Enterprises, 6.375%, 08/01/2001 ............ 234,529
1,500,000 Coca-Cola Bottling Co., 6.850%, 11/01/2007 ........... 1,412,645
1,714,964
----------
COMMUNICATION SERVICES: 0.4%
175,000 TCI Communications Inc., 6.375%, 05/01/2003 .......... 170,822
----------
COMPUTERS - MICRO: 1.6%
750,000 Hewlett-Packard Co., 7.150%, 06/15/2005 .............. 753,000
----------
DEPARTMENT STORES: 0.2%
70,000 Sears, Roebuck and Co., 9.450%, 07/25/2001 ........... 71,262
----------
FINANCE: 9.0%
280,000 AT & T Capital Corp., 7.500%, 11/15/2000 ............. 280,458
175,000 Bear Stearns Co., 6.625%, 10/01/2004 ................. 167,716
70,000 Beneficial Corp., 6.600%, 09/26/2001 ................. 69,562
1,000,000 Countrywide Home Loan, 7.450%, 09/16/2003 ............ 988,091
300,000 Ford Motor Credit Corp., 6.700%, 07/16/2004 .......... 289,898
192,000 General Motors Acceptance Corp., 7.125%, 05/01/2003... 191,280
175,000 Lehman Brothers Holdings, 8.875%, 03/01/2002 ......... 178,248
500,000 Lehman Brothers Holdings, 8.750%, 05/15/2002 ......... 509,429
1,000,000 Lehman Brothers Holdings, 7.250%, 10/15/2003 ......... 980,076
500,000 Salomon Inc., 9.250%, 05/01/2001 ..................... 507,259
4,162,017
----------
INDUSTRIAL: 0.4%
175,000 Caterpillar Inc., 8.440%, 11/26/2003 ................. 179,732
----------
MOTION PICTURE PRODUCTION & OTHER SERVICES: 0.6%
278,000 Walt Disney Co. (The), 6.375%, 03/30/2001 ............ 277,349
----------
21
<PAGE>
KAYNE ANDERSON INTERMEDIATE TOTAL RETURN BOND FUND
SCHEDULE OF INVESTMENTS at June 30, 2000 (Unaudited) - (Continued)
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------------------------
RETAIL STORES: 0.6%
$ 300,000 Wal-Mart Stores, 6.550%, 08/10/2004 ................. $ 296,250
-----------
Total Corporate Bonds ............................................ 8,909,386
-----------
TOTAL INVESTMENTS IN SECURITIES
(cost $46,238,574+): 98.8% .................................. 45,562,896
Other Assets less Liabilities: 1.2% .............................. 535,737
-----------
NET ASSETS: 100.0% ............................................... $46,098,633
===========
+ At June 30, 2000, the basis of investments for federal income tax purposes
was the same as their cost for financial reporting purposes. Unrealized
appreciation and depreciation were as follows:
Gross unrealized appreciation ............................... $ 69,875
Gross unrealized depreciation ............................... (745,553)
-----------
Net unrealized depreciation ................................. $ (675,678)
===========
See accompanying Notes to Financial Statements.
22
<PAGE>
KAYNE ANDERSON CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
GOAL
The goal of the KAYNE ANDERSON CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND is to
seek current income exempt from both federal and California income taxes
consistent with preservation of capital. The Fund seeks to achieve its goal by
investing primarily in high-quality, intermediate-maturity debt securities,
interest from which is exempt from federal and California state income taxes.
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
The first half of 2000 has been a volatile time in both the fixed income and
equity markets. Fixed income markets have responded not only to the actions of
the Federal Reserve Board and the movements in equity markets, but also to
virtually every comment made by a member of the Fed. Overall, the Intermediate
California Tax Free Bond Fund has benefited from our intermediate term duration,
as well as our focus on quality, by being up 4.53% year-to-date as of June 30,
2000. The municipal market as a whole is performing well. We are seeing credit
ratings on the rise, as revenues to state and local agencies are up, and new
debt issuance is down. New issue volume peaked in 1998 at $292 billion, in 1999
it dropped to $225 billion, and in 2000 it is approximately 30% below
year-to-date levels last year. We are seeing this scarcity of bonds strongly
effecting the California market. Again, we see the focus on quality in a market
with a scarcity factor as adding value.
SECTOR DIVERSIFICATION
ELECTRIC .................. 7.5% DAILY SAVRS ............... 0.9%
HOSPITAL .................. 12.0% TRANSPORTATION ............ 15.0%
GENERAL OBLIGATION ........ 16.4% PREREFUNDED ............... 11.6%
HOUSING ................... 6.0% EDUCATION ................. 0.7%
IDR/PCR ................... 1.3% WATER & SEWER ............. 27.2%
CASH & EQUIVALENTS ........ 1.4%
OUTLOOK
Since the Fed began its current tightening cycle in June of last year, it has
taken the Federal Funds rate from 4.75% to its current level of 6.50%. Although
it made no change at its last meeting, the Committee has stated that "the risks
continue to be weighted mainly toward conditions that may generate heightened
inflation pressures in the foreseeable future". However, we are beginning to see
the effects of their actions flowing through the economy. Mortgage rates are at
their highest levels since the early 1990's, and we are now seeing some signs of
softening in the demand for housing. Banks are tightening credit standards for
commercial and industrial loans, and unemployment claims continue to trend
higher. Although upcoming inflation reports are likely to be higher than
expected due to oil prices, we do expect the core inflation numbers to be
encouraging. That said, it is still too early to tell what the Fed's next move
will be, but we can expect the fixed income markets to continue to react in
anticipation.
23
<PAGE>
KAYNE ANDERSON CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
SCHEDULE OF INVESTMENTS AT March June 30, 31, 2000 (UNAUDITED) (Continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------
<S> <C>
LONG-TERM MUNICIPAL DEBT: 97.7%
GENERAL OBLIGATION: 16.4%
$ 100,000 California State, 6.500%, 03/01/2002 ............................................... $ 103,500
250,000 California State, 5.375%, 03/01/2006 ............................................... 261,250
825,000 California State, 6.250%, 04/01/2008 ............................................... 907,500
250,000 California State, 5.250%, 06/01/2016 ............................................... 247,188
100,000 California State Veterans Bonds, 6.250%, 02/01/2014 ................................ 100,065
895,000 California State Veterans Bonds, 5.150%, 12/01/2014 ................................ 869,269
200,000 California State Veterans Bonds, 6.375%, 02/01/2027 ................................ 200,076
1,000,000 California State Public Works, 5.250%, 12/01/2008 .................................. 1,042,500
200,000 Los Angeles County, California Public Works, 5.000%, 10/01/2016 .................... 192,250
1,000,000 Oakland, California, 5.875%, 06/15/2019 ............................................ 1,018,750
----------
4,942,348
----------
EDUCATION: 0.7%
200,000 University of California Revenues, 5.250%, 09/01/2011 .............................. 203,500
----------
ELECTRIC: 7.5%
1,000,000 M-S-R Public Power Agency California, 6.000%, 07/01/2020 ........................... 1,017,500
1,000,000 Northern California Public Power Agency, 5.000%, 07/01/2015 ........................ 967,500
85,000 Piedmont Municipal Power Agency, 6.550%, 01/01/2016 ................................ 85,090
200,000 Sacramento, California Municipal Utilities District, 5.700%, 05/15/2012 ............ 207,500
----------
2,277,590
----------
HOSPITAL: 12.0%
1,000,000 California Health Facilities Financing Authority, 6.250%, 10/01/2013 ............... 1,036,250
1,000,000 California Health Facilities Authority Revenues, 5.000%, 11/15/2013 ................ 982,500
200,000 Dade County Health Facilities Authority, 6.600%, 08/15/2002 ........................ 200,320
1,000,000 Stockton, California Health Facilities, 5.350%, 12/01/2009 ......................... 947,500
500,000 Stockton, California Health Facilities, 5.450%, 12/01/2010 ......................... 472,500
----------
3,639,070
----------
HOUSING: 6.0%
960,000 California Housing Finance Agency, 5.950%, 08/01/2014 .............................. 987,600
800,000 California Housing Finance Agency, 5.900%, 08/01/2017 .............................. 812,000
----------
1,799,600
----------
IDR/PCR: 1.3%
200,000 California Pollution Control Financing Authority, 7.150%, 02/01/2011 ............... 203,000
200,000 California Pollution Control Financing Authority, 5.850%, 12/01/2023 ............... 200,250
----------
403,250
----------
</TABLE>
24
<PAGE>
KAYNE ANDERSON CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
SCHEDULE OF INVESTMENTS at June 30, 2000 (Unaudited) - (Continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------
<S> <C>
TRANSPORTATION: 15.0%
$ 250,000 Long Beach, California Harbor Revenues, 6.000%, 05/15/2006 ................................. $ 267,187
-----------
200,000 Orange County Airport, 5.500%, 07/01/2002 .................................................. 204,000
1,000,000 Oakland, California Port Authority, 5.600%, 11/01/2019 ..................................... 1,003,750
1,000,000 San Francisco, California Bay Area Rapid, 5.500%, 07/01/2015 ............................... 1,013,750
1,000,000 San Francisco, California Port Authority, 5.900%, 07/01/2009 ............................... 1,055,000
1,000,000 San Francisco, California City & County Airport, 5.375%, 05/01/2017 ........................ 991,250
-----------
4,534,937
-----------
PREREFUNDED: 11.6%
1,000,000 California Educational Facilities Authority Revenues Pomona College, 6.125%, 02/15/2008 .... 1,045,000
150,000 Los Angeles Convention & Exhibit Center, 9.000%, 12/01/2020 ................................ 182,250
100,000 Orange County, California Local Transporation Authority, 5.750%, 02/15/2005 ................ 104,125
1,000,000 University of California Revenues, 6.300%, 09/01/2015 ...................................... 1,075,000
1,000,000 West Covina, California Queen of the Valley Hospital, 6.500%, 08/15/2014 ................... 1,095,000
-----------
3,501,375
-----------
WATER & SEWER: 27.2%
275,000 Contra Costa, California Water District, 5.250%, 10/01/2016 ................................ 271,906
700,000 Los Angeles, California Wastewater System, 5.000%, 06/01/2014 .............................. 687,750
200,000 Los Angeles, California Wastewater System, 5.700%, 06/01/2020 .............................. 200,750
1,000,000 Marina, California Municipal Water District, 5.550%, 07/01/2013 ............................ 1,013,750
1,000,000 Mountain View, California Shoreline Regional Park, 5.500%, 08/01/2021 ...................... 983,750
1,000,000 Rancho, California Water District Financing Authority, 5.875%, 11/01/2010 .................. 1,068,750
1,000,000 Redlands, California Financing Authority, 5.000%, 09/01/2017 ............................... 948,750
1,000,000 San Francisco, California City and County Public Utility, 6.000%, 11/01/2015 ............... 1,013,750
1,000,000 San Jose Clara, California Water, 5.375%, 11/15/2015 ....................................... 1,006,250
1,000,000 Tulare, California Sewer Revenue, 5.700%, 11/15/2015 ....................................... 1,027,500
-----------
8,222,906
-----------
TOTAL LONG-TERM MUNICIPAL DEBT (cost $28,910,333) ...................................................... 29,524,576
-----------
VARIABLE RATE MUNICIPAL DEBT: 0.9%
175,000 California Statewide Communities Development Authority, 4.000%, 08/15/2027* ................ 175,000
100,000 California Statewide Communities Development Authority, 4.000%, 04/01/2028* ................ 100,000
-----------
TOTAL VARIABLE RATE MUNICIPAL DEBT (cost $275,000) ..................................................... 275,000
-----------
</TABLE>
25
<PAGE>
KAYNE ANDERSON CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
SCHEDULE OF INVESTMENTS at June 30, 2000 (Unaudited) - (Continued)
VALUE
--------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(cost $29,185,333+): 98.6% .................................. $29,799,576
Other Assets less Liabilities: 1.4% .............................. 426,772
-----------
NET ASSETS: 100.0% ............................................... $30,226,348
===========
* Variable rate security. The interest rate shown reflects the rate currently
in effect.
+ At June 30, 2000, the basis of investments for federal income tax purposes
was the same as their cost for financial reporting purposes. Unrealized
appreciation and depreciation were as follows:
Gross unrealized appreciation ............................... $ 829,966
Gross unrealized depreciation ............................... (215,723)
-----------
Net unrealized appreciation ................................. $ 614,243
===========
See accompanying Notes to Financial Statements.
26
<PAGE>
This page has been intentionally left blank.
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES at June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP
FUND FUND
------------- ------------
<S> <C> <C>
ASSETS
Investments in securities, at cost ...................... $ 123,578,327 $ 42,616,859
============= ============
Investments in securities, at value ..................... $ 140,003,661 $ 43,825,416
Cash .................................................... 685,995 892,180
Receivables:
Dividends and interest ................................. 121,190 77,857
Tax reclaim ............................................ -- --
Prepaid expenses ........................................ 153 258
------------- ------------
Total assets ........................................ 140,810,999 44,795,711
------------- ------------
LIABILITIES
Payables:
Distributions to shareholders .......................... -- --
Due to advisor ......................................... 87,019 41,722
------------- ------------
Accrued expenses ........................................ 67,324 26,652
Total liabilities ................................... 154,343 68,374
------------- ------------
NET ASSETS .............................................. $ 140,656,656 $ 44,727,337
============= ============
Number of shares issued and outstanding
(unlimited shares authorized, no par value) ............ 7,372,855 2,890,937
------------- ------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 19.08 $ 15.47
============= ============
COMPONENTS OF NET ASSETS
Paid-in capital ......................................... $ 120,261,443 $ 48,608,827
Accumulated net investment income (loss) ................ (5,247) (2,105)
Accumulated net realized gain (loss) on investments ..... 3,975,126 (5,087,942)
Net unrealized appreciation (depreciation) on investments
and foreign currency ................................... 16,425,334 1,208,557
------------- ------------
Net assets .......................................... $ 140,656,656 $ 44,727,337
============= ============
</TABLE>
See accompanying Notes to Financial Statements.
28
<PAGE>
CALIFORNIA
INTERMEDIATE INTERMEDIATE
INTERNATIONAL TOTAL RETURN TAX-FREE BOND
FUND BOND FUND FUND
------------- ------------ ------------
$48,376,666 $ 46,238,574 $ 29,185,333
=========== ============ ============
$57,097,948 $ 45,562,896 $ 29,799,576
76,768 13,051 115,273
70,066 786,383 453,404
34,271 -- --
285 137 --
----------- ------------ ------------
57,279,338 46,362,467 30,368,253
----------- ------------ ------------
-- 202,522 115,956
56,719 27,749 9,810
20,641 33,563 16,139
----------- ------------ ------------
77,360 263,834 141,905
----------- ------------ ------------
$57,201,978 $ 46,098,633 $ 30,226,348
=========== ============ ============
3,094,008 4,402,650 2,875,069
----------- ------------ ------------
$ 18.49 $ 10.47 $ 10.51
=========== ============ ============
$47,628,004 $ 47,071,792 $ 29,750,079
52,555 1,552 4,540
799,720 (299,033) (142,514)
8,721,699 (675,678) 614,243
----------- ------------ ------------
$57,201,978 $ 46,098,633 $ 30,226,348
=========== ============ ============
29
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
STATEMENTS OF OPERATIONS For the Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP
FUND FUND
----------- -----------
<S> <C> <C>
INVESTMENT INCOME
Income
Dividends ............................................. $ 741,244 $ 359,795
Interest .............................................. 79,989 19,398
----------- -----------
Total income ....................................... 821,233 379,193
----------- -----------
Expenses
Advisory fees ......................................... 503,557 187,050
Registration expense .................................. 19,208 15,961
Fund accounting fees .................................. 21,571 17,992
Administration fees ................................... 30,582 16,059
Transfer agent fees ................................... 12,747 11,694
Trustee fees .......................................... 4,195 4,193
Audit fees ............................................ 5,063 4,018
Custodian fees ........................................ 15,813 10,716
Legal fees ............................................ 7,215 2,437
Amortization of deferred organization costs ........... -- 1,484
Reports to shareholders ............................... 2,089 2,998
Insurance expense ..................................... 602 177
Miscellaneous ......................................... 1,713 2,058
----------- -----------
Total expenses ..................................... 624,355 276,837
Add: expenses recouped by advisor .................. -- 8,847
Less: fees waived and expenses absorbed ............ -- --
Less: expenses paid indirectly ..................... -- --
----------- -----------
Net expenses ....................................... 624,355 285,684
----------- -----------
NET INVESTMENT INCOME ........................... 196,878 93,509
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on investments ................ 5,201,582 2,623,605
Net unrealized appreciation (depreciation) on
investments and foreign currency ...................... (1,831,859) (982,279)
----------- -----------
Net realized and unrealized gain on investments
and foreign currency ................................ 3,369,723 1,641,326
----------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................ $ 3,566,601 $ 1,734,835
=========== ===========
</TABLE>
* Net of foreign tax withheld of $48,845.
See accompanying Notes to Financial Statements.
30
<PAGE>
CALIFORNIA
INTERMEDIATE INTERMEDIATE
INTERNATIONAL TOTAL RETURN TAX-FREE BOND
FUND BOND FUND FUND
--------- ----------- -----------
$ 488,339* $ -- $ --
29,283 1,548,832 871,538
--------- ----------- -----------
517,622 1,548,832 871,538
--------- ----------- -----------
240,894 121,521 79,958
13,209 17,075 16,515
21,699 18,566 15,964
16,820 17,125 10,977
10,478 9,369 10,134
4,225 4,213 4,219
4,098 3,955 4,018
11,635 9,173 3,132
6,098 4,941 2,889
1,728 1,484 1,480
1,179 1,123 603
142 212 172
1,428 52 918
--------- ----------- -----------
333,633 208,809 150,979
20,785 20,997 --
-- -- (31,148)
-- (73) (2,712)
--------- ----------- -----------
354,418 229,733 117,119
--------- ----------- -----------
163,204 1,319,099 754,419
--------- ----------- -----------
799,774 (40,344) 14,116
(169,863) 222,126 543,815
--------- ----------- -----------
629,911 181,782 557,931
--------- ----------- -----------
$ 793,115 $ 1,500,881 $ 1,312,350
========= =========== ===========
31
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LARGE CAP
FUND
--------------------------------
SIX MONTHS ENDED YEAR ENDED
6/30/00# 12/31/99
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS
Net investment income ................................................ $ 196,878 $ 189,903
Net realized gain (loss) on investments .............................. 5,201,582 5,505,297
Net unrealized appreciation (depreciation) on investments
and foreign currency ................................................ (1,831,859) 3,127,462
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.... 3,566,601 8,822,662
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ........................................... (202,125) (199,281)
From net realized gain ............................................... (163,625) (6,052,026)
------------- -------------
TOTAL DISTRIBUTIONS ............................................... (365,750) (6,251,307)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Shares issued in exchange for Sefton Funds ........................... -- 56,532,609
Proceeds from shares sold ............................................ 28,604,510 49,326,207
Net asset value of shares issued on reinvestment of distributions.... 291,003 6,164,507
Cost of shares redeemed .............................................. (14,944,479) (39,670,665)
------------- -------------
NET INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS ........... 13,951,034 72,352,658
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........................ 17,151,885 74,924,013
NET ASSETS
Beginning of period ................................................ 123,504,771 48,580,758
------------- -------------
END OF PERIOD ...................................................... $ 140,656,656 $ 123,504,771
============= =============
Accumulated net investment income ..................................... $ -- $ --
============= =============
CHANGE IN CAPITAL SHARES
Shares issued in exchange for Sefton Funds ............................ -- 2,888,694
Shares sold ........................................................... 1,547,828 2,670,917
Shares issued on reinvestment of distributions ........................ 15,397 336,104
Shares redeemed ....................................................... (805,861) (2,132,053)
------------- -------------
Net increase (decrease) ............................................... 757,364 3,763,662
============= =============
</TABLE>
# Unaudited.
See accompanying Notes to Financial Statements.
32
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA
INTERMEDIATE INTERMEDIATE
SMALL CAP INTERNATIONAL TOTAL RETURN TAX-FREE BOND
FUND FUND BOND FUND FUND
---------------------------- ---------------------------- ---------------------------- ----------------------------
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
6/30/00# 12/31/99 6/30/00# 12/31/99 6/30/00# 12/31/99 6/30/00# 12/31/99
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 93,509 $ 182,504 $ 163,204 $ 214,584 $ 1,319,099 $ 1,018,493 $ 754,419 $ 601,042
2,623,605 2,615,590 799,774 4,945,967 (40,344) 101,815 14,116 (156,510)
(982,279) (1,587,364) (169,863) 4,760,202 222,126 (1,442,513) 543,815 (768,087)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,734,835 1,210,730 793,115 9,920,753 1,500,881 (322,205) 1,312,350 (323,555)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(95,614) (192,974) (117,343) (228,995) (1,349,646) (996,864) (750,119) (612,951)
-- (1,995,755) -- (3,423,689) -- (37,955) -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(95,614) (2,188,729) (117,343) (3,652,684) (1,349,646) (1,034,819) (750,119) (612,951)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- 15,192,065 -- -- -- 40,785,659 -- 38,536,951
8,989,202 39,706,761 41,377,352 49,868,493 2,843,124 11,764,071 11,662,133 16,527,584
80,000 2,104,853 90,621 3,440,942 836,846 939,429 266,615 547,899
(12,978,153) (42,045,131) (25,531,638) (54,423,193) (11,136,748) (27,058,097) (24,126,565) (22,204,986)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(3,908,951) 14,958,548 15,936,335 (1,113,758) (7,456,778) 26,431,062 (12,197,817) 33,407,448
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(2,269,730) 13,980,549 16,612,107 5,154,311 (7,305,543) 25,074,038 (11,635,586) 32,470,942
46,997,067 33,016,518 40,589,871 35,435,560 53,404,176 28,330,138 41,861,934 9,390,992
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 44,727,337 $ 46,997,067 $ 57,201,978 $ 40,589,871 $ 46,098,633 $ 53,404,176 $ 30,226,348 $ 41,861,934
============ ============ ============ ============ ============ ============ ============ ============
$ -- $ -- $ 52,555 $ 6,694 $ 1,552 $ 32,099 $ 4,540 $ 240
============ ============ ============ ============ ============ ============ ============ ============
-- 998,150 -- -- -- 3,858,624 -- 3,694,818
599,855 2,550,670 2,316,550 2,899,614 273,327 1,094,407 1,128,071 1,558,667
5,086 142,735 4,930 186,992 80,629 88,042 25,908 52,149
(884,319) (2,716,708) (1,425,093) (3,173,764) (1,068,997) (2,496,667) (2,346,973) (2,109,671)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(279,378) 974,847 896,387 (87,158) (715,041) 2,544,406 (1,192,994) 3,195,963
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
33
<PAGE>
KAYNE ANDERSON LARGE CAP FUND
FINANCIAL HIGHLIGHTS For a capital share outstanding throughout each period
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31, 05/01/95*
ENDED ----------------------------------------- THROUGH
06/30/00# 1999 1998 1997 1996 12/31/95
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $ 18.67 $ 17.03 $ 17.28 $ 14.32 $ 12.63 $ 10.65
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 0.03 0.04 0.11 0.10 0.08 0.07
Net realized and unrealized gain
on investments ....................... 0.43 2.71 2.38 4.34 2.35 2.13
------- ------- ------- ------- ------- -------
Total income from investment operations... 0.46 2.75 2.49 4.44 2.43 2.20
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ............. (0.03) (0.04) (0.11) (0.11) (0.08) (0.07)
From net realized gain ................. (0.02) (1.07) (2.63) (1.37) (0.66) (0.15)
------- ------- ------- ------- ------- -------
Total distributions ...................... (0.05) (1.11) (2.74) (1.48) (0.74) (0.22)
------- ------- ------- ------- ------- -------
Net asset value, end of period ........... $ 19.08 $ 18.67 $ 17.03 $ 17.28 $ 14.32 $ 12.63
======= ======= ======= ======= ======= =======
Total return ............................. 2.46%** 16.33% 14.14% 30.99% 19.09% 20.65%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions).... $ 140.7 $ 123.5 $ 48.6 $ 35.3 $ 26.1 $ 20.6
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before fees waived and expenses
absorbed or recouped................... 0.93%*** 1.03% 1.11% 1.18% 1.37% 1.31%***
After fees waived and expenses
absorbed or recouped................... 0.93%*** 1.03% 1.11% 1.18% 1.37% 1.31%***
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS
(after fees waived and expenses
absorbed or recouped)................. 0.29%*** 0.28% 0.57% 0.55% 0.59% 0.94%***
Portfolio turnover rate .............. 26%** 33% 76% 51% 23% 28%**
</TABLE>
# Unaudited.
* Commencement of operations.
** Not annualized.
*** Annualized.
See accompanying Notes to Financial Statements.
34
<PAGE>
KAYNE ANDERSON SMALL CAP FUND
FINANCIAL HIGHLIGHTS For a capital share outstanding throughout each period
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31, 10/18/96*
ENDED ---------------------------- THROUGH
06/30/00# 1999 1998 1997 12/31/96
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $14.82 $15.04 $13.12 $11.06 $10.65
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 0.03 0.07 0.05 0.02 0.02
Net realized and unrealized gain
on investments ....................... 0.65 0.47 2.07 2.14 0.41
------ ------ ------ ------ ------
Total income from investment operations... 0.68 0.54 2.12 2.16 0.43
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
From net investment income ............. (0.03) (0.07) (0.05) (0.05) (0.02)
From net realized gain ................. -- (0.69) -- (0.05) --
From paid-in capital ................... -- -- (0.15) -- --
------ ------ ------ ------ ------
Total distributions ...................... (0.03) (0.76) (0.20) (0.10) (0.02)
------ ------ ------ ------ ------
Net asset value, end of period ........... $15.47 $14.82 $15.04 $13.12 $11.06
====== ====== ====== ====== ======
Total return ............................. 4.61%** 3.64% 16.17% 19.46% 4.00%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions).... $ 44.7 $ 47.0 $ 33.0 $ 6.5 $ 0.8
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before fees waived and expenses
absorbed or recouped .................. 1.26%*** 1.34% 1.35% 3.22% 18.91%***
After fees waived and expenses
absorbed or recouped .................. 1.30%*** 1.30% 1.30% 1.30% 1.30%***
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS
(after fees waived and expenses
absorbed or recouped) ................ 0.43%*** 0.53% 0.38% 0.45% 1.58%***
Portfolio turnover rate .............. 36%** 50% 28% 47% 0%**
</TABLE>
# Unaudited.
* Commencement of operations.
** Not annualized.
*** Annualized.
See accompanying Notes to Financial Statements.
35
<PAGE>
KAYNE ANDERSON INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS For a capital share outstanding throughout each period
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31, 10/18/96*
ENDED ---------------------------- THROUGH
06/30/00# 1999 1998 1997 12/31/96
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $18.47 $15.51 $12.61 $10.91 $10.65
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 0.05 0.12 0.08 0.04 0.01
Net realized and unrealized gain
on investments ....................... 0.01 4.68 3.25 1.75 0.26
------ ------ ------ ------ ------
Total income from investment operations .. 0.06 4.80 3.33 1.79 0.27
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
From net investment income ............. (0.04) (0.12) (0.08) (0.05) (0.01)
From net realized gain ................. -- (1.72) (0.35) (0.04) --
------ ------ ------ ------ ------
Total distributions ...................... (0.04) (1.84) (0.43) (0.09) (0.01)
------ ------ ------ ------ ------
Net asset value, end of period ........... $18.49 $18.47 $15.51 $12.61 $10.91
====== ====== ====== ====== ======
Total return ............................. 0.31%** 31.06% 26.47% 16.42% 2.56%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions).... $ 57.2 $ 40.6 $ 35.4 $ 7.0 $ 1.1
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before fees waived and expenses
absorbed or recouped .................. 1.31%*** 1.47% 1.45% 3.41% 15.74%***
After fees waived and expenses
absorbed or recouped .................. 1.39%*** 1.40% 1.38% 1.40% 1.40%***
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS
(after fees waived and expenses
absorbed or recouped)................. 0.64%*** 0.63% 0.85% 0.61% 1.14%***
Portfolio turnover rate .............. 16%** 57% 28% 29% 0%**
</TABLE>
# Unaudited.
* Commencement of operations.
** Not annualized.
*** Annualized.
See accompanying Notes to Financial Statements.
36
<PAGE>
KAYNE ANDERSON INTERMEDIATE TOTAL RETURN BOND FUND
FINANCIAL HIGHLIGHTS For a capital share outstanding throughout each period
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31, 10/28/96*
ENDED ---------------------------- THROUGH
06/30/00# 1999 1998 1997 12/31/96
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $10.44 $11.01 $10.75 $10.59 $10.65
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................. 0.04 0.50 0.51 0.56 0.09
Net realized and unrealized gain
(loss) on investments ................ 0.04 (0.57) 0.30 0.18 (0.07)
------ ------ ------ ------ ------
Total income from investment operations .. 0.08 (0.07) 0.81 0.74 0.02
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
From net investment income ............. (0.05) (0.49) (0.51) (0.58) (0.08)
From net realized gain ................. -- (0.01) (0.04) -- --
------ ------ ------ ------ ------
Total distributions ...................... (0.05) (0.50) (0.55) (0.58) (0.08)
------ ------ ------ ------ ------
Net asset value, end of period ........... $10.47 $10.44 $11.01 $10.75 $10.59
====== ====== ====== ====== ======
Total return ............................. 3.11%** (0.65)% 7.61% 7.19% 0.20%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions).... $ 46.1 $ 53.4 $ 28.3 $ 6.3 $ 5.0
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before fees waived and expenses
absorbed or recouped .................. 0.86%*** 1.23% 1.00% 2.23% 2.10%***
After fees waived and expenses
absorbed or recouped .................. 0.95%*** 0.94% 0.94% 0.95% 0.95%***
After fees waived, expenses absorbed
or recouped, and paid indirectly,...... 0.95%*** 0.94% 0.94% 0.95% 0.95%***
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS
(after fees waived, expenses absorbed
or recouped, and paid indirectly)..... 5.43%*** 4.94% 4.93% 5.35% 4.72%***
Portfolio turnover rate .............. 4%** 64% 49% 27% 0%**
</TABLE>
# Unaudited.
* Commencement of operations.
** Not annualized.
*** Annualized.
See accompanying Notes to Financial Statements.
37
<PAGE>
KAYNE ANDERSON CALIFORNIA INTERMEDIATE TAX-FREE BOND FUND
FINANCIAL HIGHLIGHTS For a capital share outstanding throughout each period
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31, 10/28/96*
ENDED ---------------------------- THROUGH
06/30/00# 1999 1998 1997 12/31/96
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $10.29 $10.77 $10.74 $10.64 $10.65
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................. 0.24 0.44 0.43 0.34 0.01
Net realized and unrealized gain
(loss) on investments ............... 0.22 (0.48) 0.03 0.11 (0.01)
------ ------ ------ ------ ------
Total income from investment operations ... 0.46 (0.04) 0.46 0.45 0.00
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
From net investment income ............ (0.24) (0.44) (0.43) (0.35) (0.01)
------ ------ ------ ------ ------
Net asset value, end of period ............ $10.51 $10.29 $10.77 $10.74 $10.64
====== ====== ====== ====== ======
Total return .............................. 4.53%** (0.44)% 4.37% 4.26% 0.02%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions) .. $ 30.2 $ 41.9 $ 9.4 $ 6.0 $ 5.1
RATIO OF EXPENSES TO AVERAGE NET ASSETS:
Before fees waived and expenses
absorbed or recouped ................ 0.95%*** 1.37% 2.23% 2.29% 2.08%***
After fees waived and expenses
absorbed or recouped ................ 0.75%*** 0.75% 0.77% 1.56% 1.81%***
After fees waived, expenses absorbed or
recouped, and paid indirectly ....... 0.73%*** 0.71% 0.77% 0.95% 0.95%***
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS
(after fees waived, expenses absorbed
or recouped, and paid indirectly) ... 4.73%*** 4.14% 3.88% 2.58% 0.60%***
Portfolio turnover rate ............... 23%** 65% 47% 40% 0%**
</TABLE>
# Unaudited.
* Commencement of operations.
** Not annualized.
*** Annualized.
See accompanying Notes to Financial Statements.
38
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - ORGANIZATION
Kayne Anderson Mutual Funds (the "Trust") was organized as a Delaware
business trust 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: Large Cap Fund (formerly
Rising Dividends Fund), Small Cap Fund (formerly Small Cap Rising Dividends
Fund), International Fund (formerly International Rising Dividends Fund),
Intermediate Total Return Bond Fund and California 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 Fund, the
International Fund, the Intermediate Total Return Bond Fund and the California
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 Large Cap 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 Large Cap 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 Large Cap 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 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 a total market
capitalization of not more than $3 billion.
The International 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 a total market capitalization 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 California Intermediate Tax-Free Bond Fund seeks current income exempt
from federal and California state 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 Funds' shares fluctuates daily and may be
worth more or less than their purchase price when redeemed. 39
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (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 all of their taxable income to
shareholders. Therefore, no federal income tax provision is required.
At December 31, 1999 the Large Cap Fund, Small Cap Fund, Intermediate
Total Return Bond Fund and the Cali-fornia Intermediate Tax-Free Bond
Fund had capital loss carryforwards available for federal income tax
purposes of $1,205,594, $7,648,002, $253,513 and $2,026, respectively,
which expire in 2007.
C. SECURITY TRANSACTIONS, INVESTMENT INCOME 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
Funds' shares will be borne by the Funds and amortized to expense on a
straight-line basis over a period of five years.
E. ACCOUNTING ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements. Actual result could differ from those estimates.
NOTE 3 - INVESTMENT ADVISORY AND MANAGEMENT FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
The Advisor provides the Funds with investment management services under an
Investment Advisory Agreement (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 following annual rates:
Large Cap Fund 0.75%
Small Cap Fund 0.85%
International Fund 0.95%
Intermediate Total Return Bond Fund 0.50%
California Intermediate Tax-Free Bond Fund 0.50%
40
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
For the six months ended June 30, 2000, the Funds incurred the following
advisory fees:
Large Cap Fund $503,557
Small Cap Fund $187,050
International Fund $240,894
Intermediate Total Return Bond Fund $121,521
California Intermediate Tax-Free Bond Fund $ 79,958
The Funds are responsible for their own operating expenses. The Advisor has
agreed to limit each Fund's total operating expenses by reducing all or a
portion of its fees and reimbursing each Fund for expenses, excluding interest,
so that their ratio of expenses to average net assets will not exceed the
following levels:
Large Cap Fund 1.03%
Small Cap Fund 1.30%
International Fund 1.40%
Intermediate Total Return Bond Fund 0.95%
California Intermediate Tax-Free Bond Fund 0.75%
Any fee waived and/or any Fund expense absorbed by the Advisor pursuant to an
agreed upon expense cap shall be reimbursed by the Fund to the Advisor, if so
requested by the Advisor, provided the aggregate amount of the Fund's current
operating expense for such fiscal year does not exceed the applicable limitation
on Fund expenses. For the six months ended June 30, 2000, the Advisor waived
fees of $31,148 for the California Intermediate Tax-Free Bond Fund. For the six
months ended June 30, 2000, the Advisor recouped fees previously waived and
expenses absorbed of $8,847, $20,785 and $20,997 for Small Cap Fund,
International Fund and Intermediate Total Return Bond Fund, respectively.
At June 30, 2000, the amount available for reimbursement that has been paid
and/or waived by the Advisor on behalf of the Funds are as follows:
Small Cap Fund $ 96,678
International Fund $102,077
Intermediate Total Return Bond Fund $124,759
California Intermediate Tax-Free Bond Fund $259,699
41
<PAGE>
KAYNE ANDERSON MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
At June 30, 2000, the Advisor may recapture a portion of the above amounts
no later than the dates as stated below:
December 31,
-------------------------------------
Funds 2000 2001 2002 2003
----- ---- ---- ---- ----
Small Cap Funds ......................... $69,014 $12,965 $14,699 --
International Funds ..................... 62,340 18,889 20,848 --
Intermediate Total Return Bond Funds .... 49,716 15,132 59,911 --
California Intermediate Tax-Free
Bond Funds ............................ 40,123 99,797 88,631 $31,148
Each Fund must pay its current ordinary operating expenses before the
Advisor is entitled to any reimbursement. Any such reimbursement is also
contingent upon Board of Trustees review and approval prior to the time the
reimbursement is initiated
The Funds executed certain investment security transactions through KA
Associates, Inc., an affiliate of the Funds' Advisor. The Funds paid no
commission to this affiliate during the six months ended June 30, 2000.
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 Funds' expenses and reviews the
Funds' expense accruals. For its services, each Fund pays the 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, 2000, the cost of purchases and the
proceeds from sales of securities, excluding U.S. Government securities and
short-term investments, were as follows:
Fund Purchases Sales
---- --------- -----
Large Cap Fund ..................................... $48,999,194 $34,809,795
Small Cap Fund ..................................... 15,673,205 18,863,134
International Fund ................................. 24,245,224 8,169,370
Intermediate Total Return Bond Fund ................ 1,953,125 575,023
California Intermediate Tax-Free Bond Fund ......... 7,350,000 19,312,622
The Intermediate Total Return Bond Fund purchased $42,447 and sold
$8,010,676 in U.S. Government securities. There were no purchases or sales of
U.S. Government securities by Large Cap Fund, Small Cap Fund, International Fund
and California Intermediate Tax-Free Bond Fund.
42
<PAGE>
================================================================================
ADVISOR
KAYNE ANDERSON INVESTMENT MANAGEMENT, LLC
1800 Avenue of the Stars, 2nd Floor
Los Angeles, California
90067 (800) 222-0380
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 Funds 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.
