1363890--2/13/2009--KAYNE_ANDERSON_ENERGY_DEVELOPMENT

related topics

{investment, property, distribution}

{loan, real, estate}

{stock, price, share}

{debt, indebtedness, cash}

{tax, income, asset}

{interest, director, officer}

{competitive, industry, competition}

{condition, economic, financial}

{cost, contract, operation}

{operation, natural, condition}

{stock, price, operating}

{loss, insurance, financial}

{provision, law, control}

{personnel, key, retain}

{acquisition, growth, future}

{control, financial, internal}

There may be uncertainty as to the value of our portfolio investments. Our use of Leverage Instruments and any additional such use exposes you to additional risks, including the risk that our use of leverage can magnify the effect of any losses we incur. We pay our investment adviser a base management fee based upon our total assets (excluding deferred taxes), which may create an incentive for our investment adviser to cause us to incur more leverage than is prudent in order to maximize its compensation. We pay our investment adviser incentive compensation based on our portfolio s performance. This arrangement may lead our investment adviser to recommend riskier or more speculative investments in an effort to maximize its incentive compensation. We may experience fluctuations in our quarterly results. We are exposed to risks associated with changes in interest rates because increases in market interest rates may both reduce the value of a portion of our portfolio investments and increase our cost of capital. We are a relatively new company with a limited operating history. Our success is dependent upon the members of our investment advisers senior professionals, and the loss of any of them could severely and detrimentally affect our operations. We may be obligated to pay our investment adviser incentive compensation even if we incur a loss or experience a decrease in net assets. Changes in laws or regulations governing our operations and those of our portfolio companies or our investment adviser may adversely affect our business or cause us to alter our business strategy. Our board of directors may change most of our operating policies and strategies without prior notice or stockholder approval, the effects of which may adversely affect your investment in our common stock. Our ability to recognize the benefits of our deferred tax asset is dependent on future cash flows and taxable income. Our investment adviser s liability is limited under the investment management agreement, and we agree to indemnify our investment adviser against certain liabilities, which may lead our investment adviser to act in a riskier manner on our behalf than it would when acting for its own account. Our ability to grow further will depend on our ability to raise capital. We operate in a highly competitive market for investment opportunities. Senior professionals of our investment adviser provide advisory services to other investment vehicles that may have common investment objectives with ours, and may face conflicts of interest in allocating investments. Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital. If certain of our investments are deemed not to be qualifying assets, we could be precluded from investing in this strategic manner, or deemed to be in violation of the 1940 Act, in which case we may not qualify as a BDC. Risks Related to Our Investments The energy industry is subject to many risks. Investing in private companies may be riskier than investing in publicly traded companies due to a lack of available public information. Our investments in small and developing portfolio companies may be risky. The lack of liquidity in our investments might prevent us from selling them in a timely manner at prices that we believe represent fair value. Our investments in thinly traded securities may be difficult to trade and value. Our equity and debt investments may decline in value. The debt securities in which we invest are subject to credit risk. Economic recessions or downturns could impair our portfolio companies financial positions and operating results and affect the industries in which we invest, which could, in turn, harm our operating results. Numerous factors may reduce the interest, dividends or distributions paid by an Energy Company to us, which in turn may reduce the dividends we pay to our common stockholders. Our portfolio companies may incur debt or issue securities that rank in right of payment equally with, or senior to, our investments in such companies. As a result, the holders of such debt or other obligations may be entitled to payments of principal and interest or other payments prior to any payments to us, preventing us from obtaining the full value of our investment in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company. Second priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us. Our portfolio investments are concentrated in a limited number of portfolio companies in the energy industry, which will subject us to a risk of significant loss if any of these companies were to suffer a significant loss. When we are a debt or non-controlling equity investor in a portfolio company, we generally will not be in a position to control the entity, and management of the portfolio company may make decisions that could decrease the value of our portfolio holdings. Our investments in Limited Partnerships are subject to special risks arising from conflicts of interest and tax characterization. Terrorist attacks, acts of war or natural disasters may affect any market for our common stock, impact the businesses in which we invest and harm our business, operating results and financial condition. We may not have sufficient funds to make follow-on investments. Our decision not to make a follow-on investment may have a negative impact on a portfolio company in need of such an investment or may result in a missed opportunity for us. Our use of derivatives instruments may result in losses greater than if they had not been used and the counterparty in a derivative transaction may default on its obligations. The transaction expenses for our investments in private companies may be higher than customary brokerage commissions. An investment in our common stock will involve certain tax risks that could negatively impact our common stockholders. Future offerings of Leverage Instruments, which would be senior to our common stock upon liquidation, or equity securities, could dilute our existing stockholders and may be senior to our common stock for the purposes of dividends. Shares of closed-end management investment companies, including business development companies, may trade at a discount from net asset value. Certain provisions of Maryland law and our Charter and Bylaws could hinder, delay or prevent a change in control of our company.

Full 10-K form ▸

1363890--2/13/2009--KAYNE_ANDERSON_ENERGY_DEVELOPMENT_CO