1363890--2/16/2007--KAYNE_ANDERSON_ENERGY_DEVELOPMENT

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Our success is dependent upon the members of our investment adviser s senior professionals, and the loss of any of them could severely and detrimentally affect our operations. Our investment adviser s senior professionals have limited experience managing a business development company and we cannot assure you that their past experience will be sufficient to manage our company as a business development company. We may be unable to obtain additional financing on terms that are acceptable to us, which could inhibit the growth of our business and adversely affect our performance. We operate in a highly competitive market for investment opportunities. Senior professionals of our investment adviser provide services to other investors, which could reduce the amount of time and effort that they devote to us, which could negatively impact our performance. 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. There may be uncertainty as to the value of our portfolio investments. We will be subject to income tax if we are unable to qualify as a RIC. We pay our investment adviser a base management fee based upon our total assets, 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 be obligated to pay our investment adviser incentive compensation even if we incur a loss or experience a decrease in net assets. 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. Regulations governing our operation as a business development company will affect our ability to, and the way in which we, raise additional capital. If we issue Leverage Instruments, you will be exposed to additional risks, including the risk that our use of leverage can magnify the effect of any losses we incur. If certain of our Targeted 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 to be treated as a business development company. 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. We may experience fluctuations in our quarterly results. Inflation may cause the real value of our investments to decline. 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. 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. 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 the lack of available public information. The lack of liquidity in our investments might prevent us from disposing of them at opportune times and prices. Our investments in thinly traded securities may be difficult to trade and value. Our prospective investments in small and developing portfolio companies may be risky. Our equity investments may decline in value. The debt securities in which we invest are subject to credit risk and prepayment risk. High oil and gas prices may increase alternative sources of capital available to Energy Companies and reduce demand for our Targeted Investments. 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. The Greenfield Ventures in which we seek to invest may involve energy projects with limited or no operating history on a non-recourse basis in arrangements where the venture s obligations will be secured solely by the underlying assets of the project. Numerous factors may adversely affect the project s ability to generate sufficient revenues to enable it to meet its obligations. Economic downturns could harm our portfolio companies operations and ability to satisfy their obligations to their respective lenders and other investors, including us. The marine transportation companies in which we invest are and will continue to be substantially affected by the highly cyclical nature of the tanker industry, which cyclicality is beyond our control. 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. 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. Numerous factors may reduce the distributions paid by an Energy Company to us, which in turn may reduce the dividends we pay to our common stockholders. Our portfolio investments may be 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. 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 investments in Limited Partnerships are subject to special risks arising from conflicts of interest and tax characterization. The publicly traded MLP securities in which we invest are subject to price fluctuations. We may invest a portion of our assets in foreign securities. Investing in foreign securities typically involves more risks than investing in U.S. securities. 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. Risks Related to Our Common Stock We may be unable to invest a significant portion of the net proceeds from our initial public offering on acceptable terms in an appropriate timeframe. We may not be able to pay dividends and our dividends may not grow over time. We may have difficulty paying our required dividends if we recognize income before or without receiving cash representing such income. An investment in our common stock will involve certain tax risks that could negatively impact our common stockholders. An investment in our shares is not intended for investors seeking short-term profit potential. 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 and distributions. Shares of closed-end management investment companies, including business development companies, may trade at a discount from net asset value. We may make investments with which you may not agree. Certain provisions of Maryland law and our Charter and Bylaws could hinder, delay or prevent a change in control of our company.

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1363890--2/16/2007--KAYNE_ANDERSON_ENERGY_DEVELOPMENT_CO