Preliminary Proxy Statement
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.
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Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12 |
KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
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Proposed maximum aggregate value of transaction: |
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Total fee paid: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identity
the filing for which the offsetting fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing. |
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Amount Previously Paid: |
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Form, Schedule or Registration Statement No.: |
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Date Filed: |
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717 Texas Avenue, Suite 3100
Houston, TX 77002
1-877-657-3863
May 28, 2010
Dear Fellow Stockholder:
You are cordially invited to attend the 2010 Annual Meeting of Stockholders of Kayne Anderson
Energy Development Company (the Company) on June 30, 2010 at 8:00 a.m. Central Time at 717 Texas
Avenue, Suite 3100, Houston, TX 77002.
The matters scheduled for consideration at the meeting are:
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the election of two directors of the Company; |
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a proposal to authorize the Company to sell shares of its common stock at a price below
net asset value per share, subject to certain conditions, as more fully discussed in the
enclosed proxy statement; |
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a proposal to authorize the Board of Directors to withdraw the Companys election to be
treated as a business development company under the Investment Company Act of 1940, as more
fully described in the enclosed proxy statement; and |
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the ratification of the selection of PricewaterhouseCoopers LLP as the Companys
independent registered public accounting firm for its fiscal year ending November 30, 2010. |
Enclosed with this letter are answers to questions you may have about the proposals, the
formal notice of the meeting, the proxy statement, which gives detailed information about the
proposals and why the Board of Directors recommends that you vote to approve them, and an actual
written proxy for you to sign and return. If you have any questions about the enclosed proxy or
need any assistance in voting your shares, please call 1-877-657-3863.
Your vote is important. Please complete, sign, and date the enclosed proxy card, and return it
in the enclosed envelope. This will ensure that your vote is counted, even if you cannot attend the
meeting in person.
Sincerely,
Kevin S. McCarthy
Chairman of the Board of Directors,
CEO and President
TABLE OF CONTENTS
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ANSWERS TO SOME IMPORTANT QUESTIONS
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WHAT AM I BEING ASKED TO VOTE FOR ON THIS PROXY? |
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This proxy contains four proposals: |
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Proposal One the election of two Class I Directors to each serve until the
Companys 2013 Annual Meeting of Stockholders and until their successors are duly
elected and qualified. The directors currently serving in Class I are Albert L. Richey
and Robert V. Sinnott. Messrs. Richey and Sinnott each have terms that will expire at
the Companys 2010 Annual Meeting of Stockholders and the Companys Board of Directors
has nominated each of them for re-election at the meeting. |
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The election of each of Mr. Richey and Mr. Sinnott as a Class I Director requires the
affirmative vote of the holders of a majority of shares of common stock outstanding as of
the Record Date. |
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Proposal Two a proposal to authorize the Company to sell shares of its common
stock at a price below net asset value per share, subject to certain conditions, for a
period expiring on the date of the Companys 2011 Annual Meeting of Stockholders. |
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Approval of Proposal Two requires: (1) the affirmative vote of a majority of all common
stockholders of record as of the Record Date and (2) the affirmative vote of a majority
of the votes cast by the holders of common stock. |
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Proposal Three a proposal to authorize the Board of Directors to withdraw the
Companys election to be treated as a business development company under the Investment
Company Act of 1940. |
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Approval of Proposal Three requires the affirmative vote of either (1) 67% or more of the
votes cast by the holders of the Companys common stock present at the Annual Meeting, if
the holders of more than 50% of the outstanding shares of the Companys common stock are
present or represented by proxy, or (2) more than 50% of the outstanding shares of common
stock, whichever is less. |
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Proposal Four the ratification of the selection of PricewaterhouseCoopers LLP
as the Companys independent registered public accounting firm for its fiscal year
ending November 30, 2010. |
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Approval of Proposal Four requires the affirmative vote of a majority of the votes cast
by the holders of the Companys common stock outstanding as of the Record Date. |
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HOW DOES THE BOARD OF DIRECTORS SUGGEST THAT I VOTE? |
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The Board of Directors of the Company unanimously recommends that you
vote FOR all proposals on the enclosed proxy card. |
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HOW CAN I VOTE? |
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If your shares are held in Street Name by a broker or bank, you will
receive information regarding how to instruct your bank or broker to
vote your shares. If you are a stockholder of record, you may
authorize the persons named as proxies on the enclosed proxy card to
cast the votes you are entitled to cast at the meeting by completing,
signing, dating and returning the enclosed proxy card. Stockholders of
record or their duly authorized proxies also may vote in person if
able to attend the meeting. However, even if you plan to attend the
meeting, we urge you to return your proxy card. That will ensure that
your vote is cast should your plans change. |
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CAN I VIEW THE PROXY STATEMENT AND ANNUAL REPORT ON THE INTERNET? |
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Yes. The proxy statement and Annual Report are available on the
Internet at www.kaynefunds.com/KedSECFilings.php. |
This information summarizes information that is included in more
detail in the proxy statement. We urge you to
read the proxy statement carefully.
If you have questions, call 1-877-657-3863.
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717 Texas Avenue, Suite 3100
Houston, TX 77002
1-877-657-3863
NOTICE OF 2010 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Kayne Anderson Energy Development Company:
NOTICE IS HEREBY GIVEN that the 2010 Annual Meeting of Stockholders of Kayne Anderson Energy
Development Company, a Maryland corporation (the Company), will be held on June 30, 2010 at
8:00 a.m. Central Time at 717 Texas Avenue, Suite 3100, Houston, TX 77002, to consider and vote on
the following matters as more fully described in the accompanying proxy statement:
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To elect two Class I Directors of the Company, each such director to hold office until
the 2013 Annual Meeting of Stockholders and until his successor is duly elected and
qualified; |
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To approve a proposal to authorize the Company to sell shares of its common stock at a
price below net asset value per share, subject to certain conditions; |
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To approve a proposal to authorize the Board of Directors to withdraw the Companys
election to be treated as a business development company under the Investment Company Act
of 1940; |
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To ratify the selection of PricewaterhouseCoopers LLP as the Companys independent
registered public accounting firm for its fiscal year ending November 30, 2010; and |
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To transact any other business that may properly come before the meeting or any
adjournment or postponement thereof. |
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Stockholders of record as of the close of business on May 25, 2010 are entitled to notice of
and to vote at the meeting (or any adjournment or postponement of the meeting). |
By Order of the Board of Directors of the Company,
David J. Shladovsky
Secretary
May 28, 2010
Houston, Texas
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717 Texas Avenue, Suite 3100
Houston, TX 77002
1-877-657-3863
PROXY STATEMENT
2010 ANNUAL MEETING OF STOCKHOLDERS
JUNE 30, 2010
This proxy statement is being sent to you by the Board of Directors of Kayne Anderson Energy
Development Company, a Maryland corporation (the Company, we, us, or our). The Board of
Directors is asking you to complete, sign, date and return the enclosed proxy card, permitting your
votes to be cast at the annual meeting (the Annual Meeting) of stockholders called to be held on
June 30, 2010 at 8:00 a.m. Central Time at 717 Texas Avenue, Suite 3100, Houston, TX 77002.
Stockholders of record at the close of business on May 25, 2010 (the Record Date) are entitled to
vote at the Annual Meeting. You are entitled to one vote for each share of common stock you hold on
each matter on which holders of such shares are entitled to vote. This proxy statement and enclosed
proxy are first being mailed to stockholders on or about June 4, 2010.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2010 ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON JUNE 30, 2010: You should have received our Annual Report to
stockholders for the fiscal year ended November 30, 2009. If you would like another copy of the
Annual Report, please write us at the address shown at the top of this page or call us at
1-877-657-3863. The report will be sent to you without charge. Our reports can be accessed on our
website (www.kaynefunds.com/KedSECFilings.php) or on the Securities and Exchange Commissions (the
SEC) website (www.sec.gov).
KA Fund Advisors, LLC (KAFA), a subsidiary of Kayne Anderson Capital Advisors, L.P.,
(KACALP and together with KAFA, Kayne Anderson), externally manages and advises us pursuant to
our investment management agreement. KAFA is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. Kayne Anderson is a leading investor in both public
and private energy companies. At March 31 2010, Kayne Anderson managed approximately $9.0 billion,
including $7.5 billion in securities of energy companies. Kayne Anderson may be contacted at the
address listed above.
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PROPOSAL ONE
ELECTION OF DIRECTORS
Under our charter, our Board of Directors (the Board) is divided into three classes
(Class I, Class II and Class III) of equal size. We currently have six directors.
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Term* |
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Directors |
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3-year term until 2010
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Albert L. Richey |
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Robert V. Sinnott |
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II
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3-year term until 2011
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William R. Cordes |
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Barry R. Pearl |
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III
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3-year term until 2012
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Kevin S. McCarthy |
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William L. Thacker |
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Each director serves a three-year term until the Annual Meeting of Stockholders for the
designated year and until his successor has been duly elected and qualified. |
The directors whose terms are expiring at this years Annual Meeting are the Class I
directors, Albert L. Richey and Robert V. Sinnott. The Board has nominated them for re-election at
the Annual Meeting, each to serve for a term of three years (until the 2013 Annual Meeting of
Stockholders) and until his successor has been duly elected and qualified.
The Board knows of no reason why any of the nominees listed below will be unable to serve, and
each nominee has consented to serve if elected. If any of the nominees are unable to serve or for
good cause will not serve because of an event not now anticipated, the persons named as proxies may
vote for other persons designated by the Board. The persons named as proxies on the accompanying
proxy card intend to vote at the Annual Meeting (unless otherwise directed) FOR the election of
each of Messrs. Richey and Sinnott as our directors.
The following tables set forth each nominees and each remaining directors name and age;
position(s) with us and length of time served; principal occupation during the past five years; and
other directorships held during the past five years. The address for all nominees and directors is
717 Texas Avenue, Suite 3100, Houston, Texas, 77002. Additional biographical information on each
nominee and remaining director follows the table.
The directors who are not interested persons, as defined in the Investment Company Act of
1940, as amended (the 1940 Act), of Kayne Anderson or our underwriters in offerings of our
securities from time to time, as defined in the 1940 Act, are referred to herein as Independent
Directors. None of our Independent Directors, nor any of their immediate family members, has ever
been a director, officer or employee of Kayne Anderson or its affiliates.
For information regarding the Funds executive officers and their compensation, please refer
to Information About Executive Officers and Compensation Discussion and Analysis below.
5
NOMINEE FOR DIRECTOR WHO IS NOT AN INTERESTED PERSON
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Position(s) Held with |
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Number of |
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Registrant, |
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Portfolios in |
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Proposed Term of |
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Fund Complex(1) |
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Other Directorships |
Name |
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Office/ |
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Principal Occupations During Past |
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Overseen by |
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Held by Director During |
(Year Born) |
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Time of Service |
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Five Years |
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Director |
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Past Five Years |
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Albert L. Richey
(born 1949) |
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Director. 3-year
term (until the 2013
Annual Meeting of
Stockholders).
Served since 2006.
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Vice President of
Anadarko Petroleum
Corporation since
2008; Vice
President of
Corporate
Development from
2005 to 2008; Vice
President and
Treasurer from 1995
to 2005; and
Treasurer from 1987
to 1995.
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Current:
Boys & Girls Clubs of Houston
Boy Scouts of America |
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The 1940 Act requires the term Fund Complex to be defined to include registered investment
companies advised by the Companys investment adviser, KAFA, and, as a result, as of February
28, 2010, the Fund Complex included Kayne Anderson MLP Investment Company (KYN) and Kayne
Anderson Energy Total Return Fund, Inc. (KYE), both closed-end investment companies
registered under the 1940 Act that are managed by KAFA. |
NOMINEE FOR DIRECTOR WHO IS AN INTERESTED PERSON
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Position(s) Held with |
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Number of |
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Registrant, |
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Portfolios in |
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Proposed Term of |
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Other Directorships |
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Five Years |
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Director |
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Past Five Years |
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Robert V. Sinnott (1)
(born 1949) |
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Director. 3-year
term (until the 2013
Annual Meeting of
Stockholders).
Served since 2006.
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President, Chief
Investment Officer
and Senior Managing
Director of Energy
Investments of
KACALP since 1992.
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1 |
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Current:
Plains All American Pipeline, L.P. (pipeline MLP) |
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Mr. Sinnott is an interested person of the Company because he is employed as the President
of KACALP. |
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REMAINING DIRECTORS WHO ARE NOT INTERESTED PERSONS
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Registrant, |
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Proposed Term of |
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Other Directorships |
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Time of Service |
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Five Years |
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Director |
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Past Five Years |
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William R. Cordes |
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Director. 3-year term |
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Retired from Northern Border Pipeline |
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1 |
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Current: |
(born 1948) |
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(until the 2011 Annual Meeting of Stockholders). Served since 2008. |
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Company
in April 2007 after serving as
President from October 2000 to
April 2007. Chief Executive Officer
of Northern Border Partners, L.P.
from October 2000 to April 2006.
President of Northern Natural Gas
Company from 1993 to 2000.
President of Transwestern Pipeline
Company from 1996 to 2000. |
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Boardwalk Pipeline
Partners, LP (pipeline MLP)
Prior:
Northern Border Partners,
L.P. (midstream MLP) |
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Barry R. Pearl |
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Director. 3-year term |
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Executive Vice President of Kealine, LLC, |
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Current: |
(born 1949) |
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(until the 2011
Annual Meeting of
Stockholders).
Served since 2006.
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a private developer
and operator of
petroleum
infrastructure
facilities (and its
affiliate WesPac
Energy LLC, an
energy
infrastructure
developer), since
February 2007.
Provided management
consulting services
from January 2006
to February 2007.
President of Texas
Eastern Products
Pipeline Company,
LLC (the general
partner of TEPPCO
Partners, L.P.) from
February 2001 to
December 2005.
Chief Executive
Officer and
director of TEPPCO
Partners, L.P. from
May 2002 to
December 2005; and
Chief Operating
Officer from
February 2001 to
May 2002. |
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Targa Resources Partners
LP (midstream MLP)
Magellan Midstream
Partners, L.P. (midstream MLP)
Prior:
Seaspan Corporation
(containership chartering)
TEPPCO Partners, L.P.
(midstream MLP) |
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William L. Thacker |
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Director. 3-year term |
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Retired from the Board of Texas Eastern |
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Current: |
(born 1945) |
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(until the 2011
Annual Meeting of
Stockholders).
Served since 2006.
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Products
Pipeline Company,
LLC in May 2002
after serving as
Chairman from March
1997 to May 2002;
Chief Executive
Officer from
January 1994 to May
2002; and
President, Chief
Operating Officer
and Director from
September 1992 to
January 1994. |
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Copano Energy, L.L.C.
(midstream MLP)
Mirant Corporation
(electricity generation and
sales)
Prior: |
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Pacific Energy Partners,
L.P. (midstream MLP) |
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REMAINING DIRECTOR WHO IS AN INTERESTED PERSON
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Position(s) Held with |
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Number of |
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Registrant, |
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Portfolios in |
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Proposed Term of |
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Fund Complex |
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Other Directorships |
Name |
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Office/ |
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Principal Occupations During Past |
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Held by Director During |
(Year Born) |
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Time of Service |
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Five Years |
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Director |
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Past Five Years |
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Kevin S. McCarthy
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Chairman of the Board of
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Senior Managing Director of KACALP |
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3 |
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Current: |
(1)(2) (born 1959)
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Directors, President and Chief
Executive Officer.
3-year term as a
director (until the
2012 Annual Meeting
of Stockholders),
elected annually as
an officer. Served
since 2006.
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since June 2004 and
of KAFA since 2006.
President and Chief
Executive Officer of KYN
and KYE since inception
(KYN inception in 2004 and
KYE inception in 2005).
Global Head of Energy at
UBS Securities LLC from
November 2000 to May 2004.
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KYN
KYE
Range Resources
Corporation (oil and
natural gas company)
Clearwater Natural
Resources, LLC (coal
mining)
Direct Fuels Partners,
L.P. (transmix refining and
fuels distribution)
ProPetro Services, Inc.
(oilfield services) |
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(1) |
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Mr. McCarthy is an interested person of the Company because he is employed as a Senior
Managing Director with KACALP and KAFA. |
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Mr. McCarthy currently serves on the Boards of Directors of KYN and KYE. |
DIRECTOR COMPENSATION
Pursuant to its charter, our Nominating, Corporate Governance and Compensation Committee,
which is established by our Board, is responsible for overseeing the compensation of our
Independent Directors. The following table sets forth the compensation paid by us during the fiscal
year ended November 30, 2009 to the Independent Directors. No compensation is paid to directors who
are interested persons. We have no retirement or pension plans or any compensation plans under
which our equity securities were authorized for issuance.
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Fees Earned or |
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Paid in Cash |
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Name |
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(Total Compensation) |
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Independent Directors |
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William R. Cordes |
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$ |
71,000 |
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Barry R. Pearl |
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$ |
72,000 |
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Albert L. Richey |
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$ |
67,000 |
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William L. Thacker |
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$ |
71,000 |
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Interested Directors |
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Kevin S. McCarthy(1) |
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None |
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Robert V. Sinnott |
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None |
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(1) |
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Mr. McCarthy is the only one of our directors who also serves on the Boards of Directors of
KYN and KYE, the other funds in the fund complex. |
Our directors and officers who are interested persons because of their employment by Kayne
Anderson, including all our executive officers, serve without any compensation from us. Each of our
Independent Directors receives a $55,000 annual retainer for serving as a director. In addition,
our Independent Directors receive fees for each meeting attended as follows: $2,000 per Board
meeting; $1,000 per Audit Committee meeting; and $1,000 for other committee meetings. The Chairman
of the Audit Committee receives an additional $5,000 annually for serving as Chairman. Committee
meeting fees are not paid unless the meeting is separate from regular
full Board meetings and exceeds 15 minutes in duration. The Independent Directors are reimbursed for expenses
incurred as a result of attendance at meetings of the Board and its committees.
8
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board has three standing committees: (1) the Audit Committee, (2) the Valuation Committee
and (3) the Nominating, Corporate Governance and Compensation Committee.
Audit Committee
The Audit Committee is responsible for overseeing our accounting and financial reporting
process, our system of internal controls, audit process and evaluating and appointing our
independent auditors (subject also to Board approval). The members of our Audit Committee are
William R. Cordes, Albert L. Richey and William L. Thacker, each of whom is independent for
purposes of the 1940 Act and applicable New York Stock Exchange (the NYSE) Corporate Governance
Listing Standards. Mr. Cordes currently serves as Chairman of the Audit Committee. The Board has
determined that William R. Cordes, Albert L. Richey and William L. Thacker each qualify as an
audit committee financial expert (as defined in Item 407(d)(5) of Regulation S-K
Valuation Committee
The Valuation Committee is responsible for the oversight of our pricing procedures and the
valuation of our securities in accordance with such procedures. The members of our Valuation
Committee are Barry R. Pearl, Albert L. Richey, William L. Thacker and Kevin S. McCarthy, each of
whom, except for Mr. McCarthy, is independent for purposes of the 1940 Act and applicable NYSE
Corporate Governance Listing Standards.
Nominating, Corporate Governance and Compensation Committee
The Nominating, Corporate Governance and Compensation Committee is responsible for appointing
and nominating all persons to the Board, overseeing the composition of the Board and the
implementation of our corporate governance policies and overseeing the compensation of the
Independent Directors. Our Board has adopted a charter for the Nominating, Corporate Governance and
Compensation Committee (the Nominating, Corporate Governance and Compensation Committee Charter),
which is available on our website (www.kaynefunds.com). Our corporate governance guidelines are
also available on our website and in print to any stockholder who requests them. The members of the
Nominating, Corporate Governance and Compensation Committee are William R. Cordes, Barry R. Pearl,
Albert L. Richey and William L. Thacker, each of whom is independent for purposes of the 1940 Act
and applicable NYSE Corporate Governance Listing Standards. If there is no vacancy on the Board,
the Board will not actively seek recommendations from other parties, including stockholders. When a
vacancy on the Board occurs and nominations are sought to fill such vacancy, the Nominating,
Corporate Governance and Compensation Committee may seek nominations from those sources it deems
appropriate in its discretion, including our stockholders. Prior to making a final recommendation
to the Board, the Nominating, Corporate Governance and Compensation Committee may conduct personal
interviews with the candidates it concludes are the most qualified.
The Nominating, Corporate Governance and Compensation Committee has not established specific,
minimum qualifications that must be met by an individual for the Committee to recommend that
individual for nomination as a director. The Nominating, Corporate Governance and Compensation
Committee expects to seek referrals for candidates to consider for nomination from a variety of
sources, including current directors, our management, our investment adviser and our counsel, and
may also engage a search firm to identify or evaluate or assist in identifying or evaluating
candidates. Prior to making a final recommendation to the Board, the Nominating, Corporate
Governance and Compensation Committee may conduct personal interviews with the candidates it
concludes are the most qualified. As set forth in the Nominating, Corporate Governance and
Compensation Committee Charter, in evaluating candidates for a position on the Board, the Committee
considers a variety of factors, including, as appropriate:
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the candidates knowledge in matters relating to the investment company and to the energy industry; |
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any experience possessed by the candidate as a director or senior officer of public companies; |
9
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the candidates educational background; |
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the candidates reputation for high ethical standards and personal and professional integrity; |
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any specific financial, technical or other expertise possessed by the candidate,
and the extent to which such expertise would complement the Boards existing mix of
skills and qualifications; |
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the candidates perceived ability to contribute to the ongoing functions of the
Board, including the candidates ability and commitment to attend meetings regularly and
work collaboratively with other members of the Board; |
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the candidates ability to qualify as an independent director for purposes of the
1940 Act, the candidates independence from our service providers and the existence of
any other relationships that might give rise to a conflict of interest or the appearance
of a conflict of interest; and |
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such other factors as the Committee determines to be relevant in light of the
existing composition of the Board and any anticipated vacancies or other transitions
(e.g., whether or not a candidate is an audit committee financial expert under the
federal securities laws). |
The Nominating, Corporate Governance and Compensation Committee also considers issues of
diversity, such as diversity of gender, race and national origin, education, professional
experience and differences in viewpoints and skills. The Nominating, Corporate Governance and
Compensation Committee does not have a formal policy with respect to diversity; however, the Board
and the Committee believe that it is important that the Board members represent diverse viewpoints.
The Nominating, Corporate Governance and Compensation Committee considers nominees properly
recommended by stockholders. To submit a recommendation for nomination as a candidate for a
position on the Board, stockholders shall mail such recommendation to our Secretary, at our
address, 717 Texas Avenue, Suite 3100, Houston, Texas 77002. Such recommendation shall include the
following information: (a) evidence of stock ownership of the person or entity recommending the
candidate (if submitted by one of our stockholders); (b) a full description of the proposed
candidates background, including his or her education, experience, current employment, and date of
birth; (c) names and addresses of at least three professional references for the candidate; (d)
information as to whether the candidate is an interested person in relation to us, as such term
is defined in the 1940 Act, and such other information that may be considered to impair the
candidates independence; and (e) any other information that may be helpful to the Nominating,
Corporate Governance and Compensation Committee in evaluating the candidate. Any such
recommendation must contain sufficient background information concerning the candidate to enable
the Nominating, Corporate Governance and Compensation Committee to make a proper judgment as to the
candidates qualifications. If a recommendation is received with satisfactorily completed
information regarding a candidate during a time when a vacancy exists on the Board or during such
other time as the Nominating, Corporate Governance and Compensation Committee is accepting
recommendations, the recommendation will be forwarded to the Chair of the Nominating, Corporate
Governance and Compensation Committee and will be evaluated in the same manner as other candidates
for nomination. Recommendations received at any other time will be kept on file until such time as
the Nominating, Corporate Governance and Compensation Committee is accepting recommendations, at
which point they may be considered for nomination. The Nominating, Corporate Governance and
Compensation Committee met two times during the fiscal year.
The Nominating, Corporate Governance and Compensation Committee also reviews with management
our Compensation Discussion and Analysis to be included in proxy statements and other filings.
10
Board of Director and Committee Meetings Held
The following table shows the number of meetings held for the Company during the fiscal year
ended November 30, 2009:
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Board of Directors |
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4 |
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Audit Committee |
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4 |
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Valuation Committee |
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4 |
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Nominating, Corporate Governance and Compensation Committee. |
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1 |
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All directors attended at least 75% of the aggregate of (1) the total number of meetings of
the Board and (2) the total number of meetings held by all committees of the Board on which they
served. The Company does not currently have a policy with respect to Board member attendance at
annual meetings.
Please refer to Corporate Governance on page 30 below for a review of the Boards
leadership structure, role in risk oversight and other matters.
INFORMATION ABOUT EACH DIRECTORS QUALIFICATIONS,
EXPERIENCE, ATTRIBUTES OR SKILLS
The Board believes that each of its directors has the qualifications, experience, attributes
and skills (Director Attributes) appropriate to their continued service as directors of the
Company in light of the Companys business and structure. Each of the directors has a demonstrated
record of business and/or professional accomplishment that indicates that they have the ability to
critically review, evaluate and access information provided to them. Certain of these business and
professional experiences are set forth in detail in the charts above. In addition, each of the
directors has served on boards for organizations other than the Company, and each of the directors
has served on the Board of the Company for a number of years. They therefore have substantial
boardroom experience and, in their service to the Company, have gained substantial insight as to
the operation of the Company and have demonstrated a commitment to discharging oversight duties as
directors in the interests of stockholders.
In addition to the information provided in the charts above, certain additional information
regarding the directors and their Director Attributes is provided below. The information provided
below, and in the charts above, is not all-inclusive. Many Director Attributes involve intangible
elements, such as intelligence, integrity and work ethic, along with the ability to work together,
to communicate effectively, to exercise judgment and ask incisive questions, and commitment to
stockholder interests. The Board annually conducts a self-assessment wherein the effectiveness of
the Board and individual directors is reviewed. In conducting its annual self-assessment, the
Board has determined that the directors have the appropriate attributes and experience to continue
to serve effectively as directors of the Company.
Information about Independent Directors
William R. Cordes has worked in the natural gas industry for more than 35 years, including
positions as Chief Executive Officer of Northern Border Partners, L.P. (now ONEOK Partners, L.P.) and
President of Northern Natural Gas Company and Transwestern Pipeline Company. Mr. Cordes began his
career with Northern Natural Gas Company in 1970, and held a number of accounting, regulatory
affairs and executive positions in the natural gas retail and interstate pipeline divisions of the
company. Mr. Cordes currently serves on the Board of Directors of Boardwalk Pipeline Partners, LP,
where he serves as a member of the Audit and Conflicts Committee, and he has served on the board of
the Interstate Natural Gas Association of America and as past Chairman of the Midwest Energy
Association. Mr. Cordes graduated from the University of Nebraska with a degree in Business
Administration. Mr. Cordes extensive executive experience in the MLP sector and the energy
industry, as well as his board experience as a director of several energy-related companies, allows
him to provide the Board with insight into the energy industry in general and natural gas pipelines
in particular.
11
Barry R. Pearl is Executive Vice President of Kealine LLC (and its affiliate WesPac Energy
LLC), a private developer and operator of petroleum infrastructure facilities. Mr. Pearl is a
member of the Board of Directors of Targa Resources Partners LP, where he serves as Chairman of
the Audit and Conflicts Committee. Mr. Pearl is also a member of the Board of Directors of Magellan
Midstream Partners, L.P., where he serves as a member of the Audit Committee. From 2006
to 2010 Mr. Pearl was a member of the Board of Directors of Seaspan Corporation. Mr. Pearl
was elected President of Texas Eastern Products Pipeline Company, LLC in February 2001 and
Chief Executive Officer and director of TEPPCO Partners, L.P. (TEPPCO) in May 2002, where he
served until December 31, 2005. Mr. Pearl was previously Chief Operating Officer of TEPPCO from
February 2001 until May 2002. Prior to joining TEPPCO, Mr. Pearl was Vice President Finance and
Administration, Treasurer, Secretary and Chief Financial Officer of Maverick Tube Corporation from
June 1998. Mr. Pearl was Senior Vice President and Chief Financial Officer of Santa Fe Pacific
Pipeline Partners, L.P. from 1995 until 1998, and Senior Vice President, Business Development from
1992 to 1995. Mr. Pearl is past Chairman of the Executive Committee of the Association of Oil
Pipelines. Mr. Pearl graduated from Indiana University in 1970 with a Bachelor of Arts degree in
Mathematics. He received a Master of Arts degree in Operations Research from Yale University in
1972 and a Master in Business Administration degree from Denver University in 1975. In addition to
his extensive executive experience in the MLP sector and the energy industry, as well as his board
experience as a director of several energy-related companies, Mr. Pearl brings to the Board many
years of experience as the chairman of the audit committees of several public companies.
Albert L. Richey is a Vice President at Anadarko Petroleum Corporation. From 2005 through 2008
he served as Vice President, Corporate Development. Mr. Richey joined Anadarko in 1987 as Manager
of Treasury Operations. He was named Treasurer later that year and was named Vice President in
1995. Mr. Richeys background in the oil and gas industry includes The Offshore Company (a
predecessor company to Transocean Ltd.), United Energy Resources and Sandefer Oil & Gas. Mr. Richey
received a Bachelor of Science degree in Commerce in 1971 from the University of Virginia. In 1974,
he earned a Master of Business Administration degree from the Darden Graduate School of Business at
the University of Virginia. He serves as a member of the Board of Directors for the Boys & Girls
Clubs of Houston and Boy Scouts of America. In addition to his background in the energy industry,
Mr. Richeys professional experience related to financial matters and his role as an executive in
one of the largest independent domestic exploration and production companies equip him to offer
further insights to the Board.
William L. Thacker is a member of the Board of Directors of Copano Energy, L.L.C., where he
serves as Chairman of the Board of Directors, and as a member of the Compensation and Nominating
and Governance Committees. Mr. Thacker is a member of the Board of Directors of Mirant Corporation
where he serves as Chairman of the Compensation Committee. From April 2004 until November 2006 he
was also a member of the Board of Directors of Pacific Energy Management, LLC, the general partner
of Pacific Energy GP, LP, which was in turn the general partner of Pacific Energy Partners, L.P. He
served as Chairman of the Nominating and Governance Committee of Pacific Energy Management, LLC.
Mr. Thacker joined Texas Eastern Products Pipeline Company, LLC (the general partner of TEPPCO) in
September 1992 as President, Chief Operating Officer and Director. He was elected Chief Executive
Officer in January 1994. In March 1997, he was named to the additional position of Chairman of the
Board, which he held until his retirement in May 2002. Prior to joining Texas Eastern Products
Pipeline Company, LLC, Mr. Thacker was President of Unocal Pipeline Company from 1986 until 1992.
Mr. Thacker is past Chairman of the Executive Committee of the Association of Oil Pipelines and has
served as a member of the Board of Directors of the American Petroleum Institute. Mr. Thacker holds
a Bachelor of Mechanical Engineering degree from the Georgia Institute of Technology and a Master
of Business Administration degree from Lamar University. Mr. Thacker has extensive experience in
the MLP sector and the energy industry. In addition, Mr. Thacker brings to the Board many years of
experience as a board member of several publicly-traded energy companies.
12
Information about Interested Directors
Kevin S. McCarthy serves as the Companys Chairman, President, Chief Executive Officer and
co-portfolio manager. Since July 2004, he has served as the Chairman, President, Chief Executive
Officer and co-portfolio manager of Kayne Anderson MLP Investment Company, and since May 2005, he
has served as the Chairman, President, Chief Executive Officer and co-portfolio manager of Kayne
Anderson Energy Total Return Fund, Inc. Mr. McCarthy has served as a Senior Managing Director at
KACALP since June 2004 and of KAFA since 2006. Prior to that, he was Global Head of Energy at UBS
Securities LLC. In this role, he had senior responsibility for all of UBS energy investment
banking activities. Mr. McCarthy was with UBS Securities from 2000 to 2004. From 1995 to 2000, Mr.
McCarthy led the energy investment banking activities of Dean Witter Reynolds and PaineWebber
Incorporated. He began his investment banking career in 1984. He earned a BA degree in Economics
and Geology from Amherst College in 1981 and an MBA degree in Finance from the University of
Pennsylvanias Wharton School in 1984. Mr. McCarthys position of influence and responsibility at
the Company and the Adviser, combined with his experience advising energy companies as an
investment banker, make him a valued member of the Board.
Robert V. Sinnott is President, Chief Investment Officer and Senior Managing Director of
Energy Investments of KACALP. Mr. Sinnott is a member of the Board of Directors of Plains All
American Pipeline, L.P. He joined Kayne Anderson in 1992. From 1986 to 1992, Mr. Sinnott was Vice
President and senior securities officer of Citibanks Investment Banking Division, concentrating in
high-yield corporate buyouts and restructuring opportunities. From 1981 to 1986, he served as
Director of Corporate Finance for United Energy Resources, a pipeline company. Mr. Sinnott began
his career in the financial industry in 1976 as a Vice President and Debt Analyst for Bank of
America in its oil and gas finance department. Mr. Sinnott graduated from the University of
Virginia in 1971 with a BA degree in Economics. In 1976, he received an MBA degree in Finance from
Harvard University. Mr. Sinnotts extensive experience investing in energy companies and serving
as a board member of a public MLP enable him to provide valuable insights to the Board.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS OF THE COMPANY, INCLUDING ALL OF THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES TO THE BOARD.
13
PROPOSAL TWO
APPROVAL TO SELL SHARES OF COMMON STOCK AT A PRICE BELOW
NET ASSET VALUE PER SHARE
Summary
The 1940 Act prohibits the Company from selling shares of its common stock at a net price,
after deducting underwriting fees and offering expenses, below the current net asset value (NAV)
per share of such stock, except with the consent of a majority of its common stockholders or under
certain other circumstances. The Company may be presented with potential investments that KAFA
believes are sufficiently attractive to justify selling shares of the Companys common stock at a
price below its then-current NAV per share, which could be made only if the Company raises
additional capital in that manner. The Board of Directors is seeking the required stockholder
approval so the Company may sell shares of its common stock at a price below its then-current NAV
per share, subject to certain conditions discussed below. If approved, the authorization would be
effective for a period expiring on the date of the Companys 2011 Annual Meeting of Stockholders,
which is expected to be held in June 2011.
Rationale
The Company expects that it will be periodically presented with opportunities to acquire
securities at attractive prices that may lead to an increase in NAV over the long term, including
securities of privately-held companies and publicly traded securities purchased at a discount to
current market value in negotiated transactions. The Company believes that having the ability to
issue its common stock at a price below NAV could benefit its stockholders by providing it the
flexibility to enter into such negotiated transactions, which have the potential to increase the
Companys NAV per share over the long term.
These negotiated transactions often require the Company to commit capital in a relatively
short period of time, and such commitments cannot be contingent upon future financings. Because the
Company generally attempts to remain fully invested and it does not intend to maintain cash for the
purpose of making these investments, the Company may be unable to capitalize on investment
opportunities presented to it unless it is confident that it can raise equity capital without
seeking stockholder approval on a case by case basis.
NAV and Share Price History of the Companys Common Stock
The Companys common stock has traded both at a premium and at a discount in relation to its
NAV. The following table sets forth a comparison of the Companys NAV per share and the comparable
closing price of the Companys common stock, as reported on the NYSE as of the last day of each
fiscal quarter since the inception of the Company.
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Closing |
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Premium/ |
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NAV |
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Price |
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February 28, 2010 |
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$ |
17.03 |
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$ |
15.07 |
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(12 |
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November 30, 2009 |
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16.58 |
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13.53 |
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(18 |
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August 31, 2009 |
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16.02 |
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11.64 |
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(27 |
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May 31, 2009 |
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15.70 |
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12.33 |
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(21 |
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February 28, 2009 |
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15.23 |
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9.09 |
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(40 |
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November 30, 2008 |
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16.10 |
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9.63 |
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(40 |
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August 31, 2008 |
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22.19 |
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22.85 |
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3 |
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May 31, 2008 |
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23.51 |
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23.87 |
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2 |
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February 29, 2008 |
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23.41 |
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23.76 |
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1 |
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November 30, 2007 |
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24.39 |
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23.14 |
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(5 |
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August 31, 2007 |
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24.65 |
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25.10 |
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2 |
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May 31, 2007 |
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25.52 |
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26.41 |
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3 |
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February 28, 2007 |
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25.01 |
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24.95 |
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0 |
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November 30, 2006 |
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24.19 |
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22.32 |
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(8 |
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14
Conditions for Selling the Companys Common Stock at a Price Below NAV
If this proposal is approved, the Company does not anticipate selling its common stock at a
price below its NAV unless it has identified attractive near-term investment opportunities that
KAFA reasonably believes will lead to a long-term increase in NAV. In determining whether or not to
sell additional shares of the Companys common stock at a price below the NAV per share, the Board
of Directors will have duties to act in the best interest of the Company and its stockholders. To
the extent the Company issues shares of its common stock at a price below NAV in a publicly
registered transaction, the Companys market capitalization and the amount of its publicly tradable
common stock will increase, thus affording all common stockholders greater liquidity.
The Company will only sell shares of its common stock at a price below NAV per share if both
of the following conditions are met:
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A majority of the Companys Independent Directors makes a determination, based on
information and a recommendation from KAFA, that the investment(s) to be made with the net
proceeds of such issuance will lead to a long-term increase in NAV. |
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Immediately following the offering of common stock, after deducting offering expenses
and underwriting fees and commissions, the NAV per share of the Companys common stock, as
determined at any time within two business days of pricing of the common stock to be sold,
would not have been diluted by greater than a total of 5% of such value per share of all
outstanding common stock. The Company will not be subject to a maximum number of shares
that can be sold or a defined minimum sales price per share in any offering so long as the
aggregate number of shares offered and the price at which such shares are sold in one
transaction (or a series of related transactions) together would not result in dilution of
the NAV per share of the Companys common stock in excess of the 5% limitation. |
Factors to Consider
Before voting on this proposal or giving proxies with regard to this matter, common
stockholders should consider the potentially dilutive effect of the issuance of shares of the
Companys common stock at a price less than NAV per share on the NAV per share of common stock
then-outstanding. Any sale of common stock at a price below NAV would result in an immediate
dilution to existing common stockholders. Common stockholders should also consider that holders of
the Companys common stock have no subscription, preferential or pre-emptive rights to additional
shares of the common stock proposed to be authorized for issuance, and thus any future issuance of
common stock will dilute such stockholders holdings of common stock as a percentage of shares
outstanding.
The two examples below assume that the Company has an NAV of $17.50 per share with 10.0
million shares outstanding and that the underwriting fees, commissions and expenses are 5% of the
gross offering price per share.
Example 1. A gross offering price of $15.75 per share (10% below NAV) would result in a net
offering price of $14.96 per share after deducting the underwriting fees, commissions and expenses.
The maximum number of shares that the Company could issue in this example is 5.1 million shares
before reaching the cap of 5% dilution to NAV per share, or $0.88 per share.
Example 2. A gross offering price of $14.00 per share (20% below NAV) would result in a net
offering price of $13.30 per share after deducting the underwriting fees, commissions and expenses.
The maximum number of shares that the Company could issue in this example is approximately 2.6
million shares before reaching the cap of 5% dilution to NAV per share, or $0.88 per share.
As discussed above, the Company will only sell shares of its common stock at a net price below
NAV per share so long as the relevant offering would not result in dilution of the NAV per share in
excess of 5%. However, it is possible that the Company could effect multiple offerings of its
common stock, each of which would meet the 5% limitation, but which would cumulatively result in a
dilutive effect of greater than 5% of the NAV per share. The Company intends to consider any
series of related transactions as one transaction for the purposes of the 5% limit on NAV dilution.
15
The issuance of the additional shares of common stock will also have an effect on the gross
amount of management fees paid by the Company to KAFA. The Companys investment advisory agreement
with KAFA provides for a management fee payable to KAFA as compensation for managing the investment
portfolios of the Company computed as a percentage of assets under management. The increase in the
Companys asset base that would result from any issuance of shares of common stock proposed to be
authorized by common stockholders in this proposal would increase assets of the Company under
management, and would cause a corresponding increase in the gross amount of management fees paid to
KAFA, but would not increase or decrease the management fee as a percentage of assets under
management. However, by increasing the size of the Companys asset base and number of shares
outstanding, the Company may be able to reduce its fixed expenses both as a percentage of total
assets and on a per share basis.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS OF THE COMPANY, INCLUDING ALL OF THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY VOTE FOR THE PROPOSAL TO ALLOW THE COMPANY TO SELL
SHARES OF ITS COMMON STOCK AT A PRICE BELOW NAV PER SHARE.
16
PROPOSAL THREE
APPROVAL TO AUTHORIZE THE BOARD TO WITHDRAW THE COMPANYS ELECTION
TO BE TREATED AS A BUSINESS DEVELOPMENT COMPANY
UNDER THE INVESTMENT COMPANY ACT OF 1940
Summary
The Company is a non-diversified, closed-end management investment company that, in connection
with its initial public offering, elected to be treated as a business development company (BDC)
as defined in Section 54 of the 1940 Act. As a BDC, the Company is subject to the requirement that
70% of its portfolio must be comprised of qualifying assets (the 70% Test). See Background
Description of Qualifying Assets and EPCs below for the definition of qualifying assets. The
Company has satisfied the 70% Test by owning eligible portfolio companies (EPCs), which are
generally defined as private companies with a principal place of business in the United States.
On May 12, 2010, the Board unanimously approved the proposal to authorize the Company to
withdrawal its election to be treated as a BDC under the 1940 Act. If the Companys stockholders
approve this proposal, the withdrawal will become effective upon receipt by the SEC of the
Companys election to withdraw. Upon such withdrawal, the Company will become fully subject to the
provisions of the 1940 Act that regulate closed-end investment companies.
In making this recommendation, the Board has evaluated and discussed the feasibility of the
Company continuing as a BDC. The Adviser and the Board support this proposal for the following
reasons: (i) to provide the Company with more flexibility in meeting its investment objective, (ii)
to ensure that the Company has the ability to obtain sources of leverage on reasonable terms, and
(iii) to maintain adequate liquidity to repay a portion of the Companys outstanding leverage in
the event of a market downturn.
If this proposal is approved, the Company would remain a non-diversified closed-end management
investment company under the 1940 Act. The Companys investment objective would remain unchanged,
but it would no longer be required to meet the 70% Test and other provisions of the 1940 Act
applicable only to BDCs. See Impact of Withdrawal of Election for a summary of the changes if
this proposal is approved. Additionally, if this proposal is approved and the BDC election is
withdrawn, the Companys investment management agreement with its Adviser will be amended to remove
the incentive fee paid to the Adviser (see Related Amendment of Investment Management Agreement to
Remove Incentive Fee).
The 1940 Act provides that a BDC may not change the nature of its business, so as to cease to
be or withdraw its election as a BDC, unless it receives the approval of a majority of its issued
and outstanding voting securities. Accordingly, the Company is hereby seeking stockholder
authorization to approve the withdrawal of the Companys election to be treated as a BDC.
The Company has undertaken several steps to meet the requirements for withdrawal of its
election to be treated as a BDC, including: (i) preparing a plan of operations in contemplation of
such a change to the status of the Company, and (ii) consulting with outside counsel as to the
requirements for withdrawing its election as a BDC. As of the date hereof, the Company believes
that it meets the requirements for filing an application to withdraw its election to be treated as
a BDC.
Reasons for the Proposed Withdrawal of the Company as a BDC
Increased Flexibility to Achieve Investment Objective
The Companys investment objective is to generate both current income and capital
appreciation. Under the current restrictions applicable to BDCs, the Company may not be able to
optimize its portfolio to achieve the highest level of current income and capital appreciation
under certain market conditions. For example, over the past several quarters, the Company has not
identified any additional private MLPs that offer sufficient risk-adjusted returns and that are
also consistent with its investment objectives. As a result, during that time period, it has
invested a substantial portion (21%) of its portfolio in debt securities of private energy companies.
While these debt securities have provided very attractive returns over the past four quarters, the
potential returns going forward may be less than the potential returns the Company could achieve by
purchasing securities of publicly traded companies. For example, the Company is not currently able
to invest more than 30% of its portfolio in public MLPs, even if it believes that public MLPs have
better risk-adjusted returns than its portfolio of debt securities of private energy companies.
The Board believes that it is in the best interests of the Company to be able to modify its
portfolio allocation based on market conditions at such time and based on the relative
risk-adjusted returns of its target investments, without being constrained by the 70% Test.
17
By having the flexibility to invest a larger percentage of the Companys portfolio in publicly
traded securities, the Company would have greater flexibility to make additional investments in
private MLPs when such opportunities arise. As a result of the New Credit Facility (as defined
below), the Company believes that it will be necessary to finance new investments in private MLPs
with the issuance of additional equity. As a result, it may be necessary to temporarily invest the
proceeds of any such equity issuance in public MLPs prior to identifying a private MLP investment
opportunity. This would not be permissible if the Company were to remain a BDC, and the Board
believes that it would not be prudent to commit capital to invest in a private MLP without
pre-financing a substantial portion of such investment.
If this proposal is approved, the Companys investment objective would remain unchanged, and
its target mix of portfolio investments would be revised as follows: Under normal market
conditions, the Companys portfolio investments will be allocated (i) between 50% and 70% in
private MLPs, (ii) between 30% and 50% in public MLPs and (iii) between 0% and 20% in debt
securities of public and private energy companies. The Company expects, based on market conditions
as of the date of this proxy statement, to reduce its holdings of debt securities by approximately
5% to 10% and increase its holdings of public MLPs by 5% to 10%. Such allocations may change if
the Company finds an opportunity to invest in a private MLP that meets its investment objectives.
Increased Ability to Utilize Leverage
The Company intends to continue utilizing leverage to enhance the total returns of its
portfolio. While the Company has the ability to utilize various forms of leverage including a
credit facility, senior notes and other borrowings, as well as preferred stock historically, it
has only been able to access leverage at attractive costs through its credit facility. The
Company currently expects to use leverage in an aggregate amount equal to 20% to 30% of total
assets (inclusive of assets obtained through such leverage). At February 28, 2010, the Company had
$61 million borrowed on a senior secured revolving credit facility (25% of total assets).
During the credit crisis of late 2008 and 2009, access to credit through the bank market
became more restrictive and more expensive. In fact, the BDC that the Company has historically
considered to be its closest peer in terms of investment objectives and portfolio composition was
not able to renew its credit facility and was required to liquidate a portion of its portfolio
holdings in order to repay in full its credit facility. The Company believes it is important to
hold a larger portion of its portfolio in public securities in order to manage leverage during
market downturns. During the market volatility experienced in 2008 and 2009, the Company was able
to manage its leverage ratios by monetizing a portion of such holdings to repay borrowings.
The Company recently announced that it has entered into a new senior secured revolving credit
facility (the New Credit Facility). The New Credit Facility substantially reduced the borrowing
base attributable to private MLPs and contains a provision that would increase the cost of such
facility if the outstanding borrowings exceed the borrowing base of the quoted securities
(generally defined as publicly traded MLPs and quoted debt investments). Under normal market
conditions, the Company does not anticipate that outstanding borrowings will exceed the borrowing
base attributable to quoted securities (i.e., it will not borrow against its private MLP holdings).
During the process of establishing the New Credit Facility, the Company came to believe that the
lenders are very reluctant to lend against equity investments in private companies and, generally
speaking, are more hesitant to lend to BDCs than to other closed-end funds. The Company believes
that it was able to secure the New Credit Facility at attractive rates in large part due to the
liquidity attributes of the quoted securities in the Companys portfolio. If the Companys
portfolio had been composed predominately of illiquid securities, the terms of the New Credit
Facility would have been much less favorable, and the Company may not have been able to secure a
new facility.
18
Background
Description of Qualifying Assets and EPCs
As a BDC, the Company is generally prohibited from acquiring assets other than qualifying
assets unless, after giving effect to the acquisition, at least 70% of its total assets (excluding
deferred tax assets) are qualifying assets. Qualifying assets generally include securities of EPCs,
cash, cash equivalents, U.S. government securities and high-quality debt instruments maturing in
one year or less from the time of investment. Under the 1940 Act, an EPC includes (i) all private
companies whose securities are not listed on a national securities exchange (including certain
follow-on investments in companies that were EPCs at the time of the Companys initial investment
but that no longer meet the test to be considered an EPC), and (ii) domestic operating companies
with securities listed on a national securities exchange so long as their market capitalization is
less than $250 million (computed as of any date in the 60-day period prior to the BDCs acquisition
of the companys securities).
Portfolio Investments
The Companys long-term investments as of February 28, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
Percent of Long-Term |
|
|
|
|
|
|
($ in millions) |
|
|
Investments |
|
|
Considered an EPC |
|
Private MLPs |
|
$ |
94 |
|
|
|
45 |
% |
|
Yes |
Publicly Traded MLP and MLP Affiliates |
|
|
72 |
|
|
|
34 |
|
|
No(1) |
Debt Investments |
|
|
45 |
|
|
|
21 |
|
|
Yes |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
211 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
(1) |
|
Certain of the Companys publicly-traded MLP and MLP affiliate
investments are considered EPCs (i.e., they had a market
capitalization of less than $250 million at the time of purchase). As
of February 28, 2010, $9.0 million of such investments met this
criterion. |
Impact of Withdrawal of Election
If the proposal is approved, the Companys structure will remain largely unchanged. The
Company will remain subject to the applicable provisions of the 1940 Act. Rather than being
subject to special 1940 Act provisions that are specific to BDCs, the Company will instead be fully
subject to the provisions of the 1940 Act applicable to a non-diversified closed-end management
company (a closed-end fund). Many of the key legal provisions that relate to closed-end funds
also apply to BDCs. The following table outlines certain key similarities and differences in the
structure and governance of the Company if the proposal is approved:
|
|
|
|
|
|
|
Before Proposed Change |
|
After Proposed Change |
Type of Fund |
|
BDC |
|
Closed-end fund |
Governed by the 1940 Act |
|
Yes |
|
Yes |
Subject to the 70% Test |
|
Yes |
|
No |
Annual Base Management Fee(1) |
|
1.75% |
|
1.75% |
Incentive Management Fee |
|
Yes |
|
No |
Maximum Leverage under 1940 Act(2) |
|
50% |
|
33% |
Independent Directors |
|
Majority |
|
Majority |
Tax Status |
|
C-corporation |
|
C-corporation |
Distribution Policy |
|
Quarterly |
|
Quarterly |
Tax Reporting |
|
Form 1099-DIV |
|
Form 1099-DIV |
Unrelated Business Taxable Income (UBTI) |
|
No |
|
No |
|
|
|
(1) |
|
As a percentage of average total assets |
|
(2) |
|
Under the 1940 Act, the Companys outstanding indebtedness may not
exceed 50% of its total assets as a BDC and 33% of its total assets as
a closed-end fund. |
19
If the proposal is approved, the Companys distribution policy would remain unchanged, and no
impact is expected on the amount or frequency of the Companys distributions as a result of
withdrawing its BDC election. The Company would cease to file documents under the Securities Act of
1934, as amended (the 1934 Act) but would be subject to the filing requirements of the 1940 Act.
As a result, the Company would file quarterly and annual reports that will be similar in nature to
its current reports. The Company would not be obligated to meet the requirements of Section 404 of
the Sarbanes-Oxley Act of 2002.
Related Amendment of the Investment Management Agreement to Remove the Incentive Fee
The Companys current investment management agreement with the Adviser provide for (i) a base
management fee at an annual rate of 1.75% of average total assets (the Base Management Fee) and
(ii) an incentive fee payable to the Adviser. As a BDC, the Company is permitted to pay the
Adviser an incentive fee. Such fee consists of two parts. The first part of the incentive fee (the
Net Investment Income Fee) equals 20% of the excess, if any, of net investment income (as
adjusted) over a quarterly hurdle rate equal to 1.875% (7.50% annualized) of average net assets for
the quarter. The second part of the incentive fee (the Capital Gains Fee) equals (1) 20% of (a)
cumulative net realized capital gains less (b) any unrealized capital losses at such time, less (2)
the aggregate amount of all Capital Gains Fees paid to KAFA in prior periods. Please refer to
Footnote 6 of the Companys 10-K for the year ended November 30, 2009 for a description of the
incentive fees payable to the Adviser.
Such incentive fee is prohibited if the Company is a closed-end fund and, as a result, the
Company would amend its investment management agreement to remove the incentive fee provisions once
it no longer is treated as a BDC under the 1940 Act, leaving only the base fee mentioned above.
There would be no change to the Base Management Fee.
Timeline for Withdrawal
If the Companys stockholders approve this proposal, the withdrawal will become effective upon
receipt by the SEC of the Companys application for withdrawal on Form N-54C. It is anticipated
that such application for withdrawal will be submitted as soon as practicable after the
stockholders approve this proposal.
Once the Companys application for withdrawal of its BDC election is filed with the SEC, the
Company will no longer be subject to the regulatory provisions of the 1940 Act applicable to BDCs
generally, including regulations related to its capital structure and portfolio holdings.
Vote Required
The 1940 Act provides that a BDC may not withdraw its election as a BDC unless it receives the
approval of the holders of a majority of its outstanding voting securities. For purposes of this
proposal, a majority of the outstanding voting securities means the vote of (i) 67% or more of
the shares present at the Meeting, if the holders of 50% or more of the outstanding voting
securities of the Company are present or represented by proxy or (ii) more than 50% of the voting
securities, whichever is less. All abstentions and broker non-votes will be considered a vote
against this proposal.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS OF THE COMPANY, INCLUDING ALL OF THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AUTHORIZE THE BOARD TO WITHDRAW THE COMPANYS
ELECTION TO BE TREATED AS A BUSINESS DEVELOPMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940.
20
PROPOSAL FOUR
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee and the Board of Directors of the Company, including all of the Companys
Independent Directors, have selected PricewaterhouseCoopers LLP as the independent registered
public accounting firm for the Company for the year ending November 30, 2010 and are submitting the
selection of PricewaterhouseCoopers LLP to the stockholders for ratification.
PricewaterhouseCoopers LLP has audited the financial statements of the Company since inception
and has informed us that it has no direct or indirect material financial interest in the Company or
in Kayne Anderson.
A representative of PricewaterhouseCoopers LLP will be present at the Annual Meeting
to make a statement, if such representative so desires, and to respond to stockholders questions.
The Audit Committee normally meets two times each year with representatives of
PricewaterhouseCoopers LLP to discuss the scope of their engagement, review the financial
statements of the Company and the results of their examination.
INDEPENDENT ACCOUNTING FEES AND POLICIES
Audit and Related Fees
Audit Fees. The aggregate fees billed to us by PricewaterhouseCoopers LLP during fiscal years
2009 and 2008 for professional services rendered with respect to the audit of our financial
statements were $320,000 and $282,000, respectively.
Audit-Related Fees. We were not billed by PricewaterhouseCoopers LLP for any fees for
assurance and related services reasonably related to the performance of the audits of our annual
financial statements for either of the past two fiscal years.
Tax Fees. For professional services for tax compliance, tax advice and tax planning for fiscal
years 2009 and 2008, we were billed by PricewaterhouseCoopers LLP for fees in the amounts of
$181,000 and $206,000, respectively.
All Other Fees. We were not billed by PricewaterhouseCoopers LLP for any fees for services
other than those described above during either of the past two fiscal years.
Aggregate Non-Audit Fees. We were not billed by PricewaterhouseCoopers LLP for any amounts for
any non-audit services during either of the past two fiscal years. In addition, neither Kayne
Anderson nor any entity controlling, controlled by, or under common control with Kayne Anderson
that provides ongoing services to us, was billed by PricewaterhouseCoopers LLP for any non-audit
services during either of the last two fiscal years.
Audit Committee Pre-Approval Policies and Procedures
Before the auditor is (i) engaged by us to render audit, audit related or permissible
non-audit services to us or (ii) with respect to non-audit services to be provided by the auditor
to Kayne Anderson or any entity in the investment company complex, if the nature of the services
provided relate directly to our operations or financial reporting, either: (a) the Audit Committee
shall pre-approve such engagement; or (b) such engagement shall be entered into pursuant to
pre-approval policies and procedures established by the Audit Committee. Any such policies and
procedures must be detailed as to the particular service and not involve any delegation of the
Audit Committees responsibilities to Kayne Anderson. The Audit Committee may delegate to one or
more of its members the authority to grant pre-approvals. The pre-approval policies and procedures
shall include the requirement that the decisions of any member to whom authority is delegated under
this provision shall be presented to the full Audit Committee at its next scheduled meeting. Under
certain limited circumstances, pre-approvals are not required if certain de minimis thresholds are not exceeded, as such thresholds are set forth by the Audit
Committee and in accordance with applicable SEC rules and regulations.
21
For engagements with PricewaterhouseCoopers LLP, the Audit Committee approved in advance all
audit services and non-audit services that PricewaterhouseCoopers LLP provided to us and to Kayne
Anderson (with respect to our operations and financial reporting). None of the services rendered by
PricewaterhouseCoopers LLP to us or Kayne Anderson were pre-approved by the Audit Committee
pursuant to the pre-approval exception under Rule 2.01(c)(7)(i)(C) or Rule 2.01(c)(7)(ii) of
Regulation S-X. The Audit Committee has considered whether the provision of non-audit services
rendered by PricewaterhouseCoopers LLP to Kayne Anderson and any entity controlling, controlled by,
or under common control with Kayne Anderson that were not required to be pre-approved by the Audit
Committee is compatible with maintaining PricewaterhouseCoopers LLPs independence.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors of the Company is responsible for assisting the
Board in monitoring (1) the accounting and reporting policies and procedures of the Company,
(2) the quality and integrity of the Companys financial statements, (3) the Companys compliance
with regulatory requirements, and (4) the independence and performance of the Companys independent
auditors and any internal auditors. Among other responsibilities, the Audit Committee reviews, in
its oversight capacity, the Companys annual financial statements with both management and the
independent auditors and the Audit Committee meets periodically with the independent auditors and
any internal auditors to consider their evaluation of the Companys financial and internal
controls. The Audit Committee also selects, retains, evaluates and may replace the Companys
independent auditors and determines their compensation, subject to ratification of the Board, if
required. The Audit Committee is currently composed of four Directors. The Audit Committee operates
under a written charter (the Audit Committee Charter) adopted and approved by the Board, a copy
of which is available on the Companys website (www.kaynefunds.com). Each committee member is
independent as defined by New York Stock Exchange listing standards.
The Audit Committee, in discharging its duties, has met with and held discussions with
management and the Companys independent auditors and any internal auditors. The Audit Committee
has reviewed and discussed the Companys audited financial statements with management. Management
has represented to the independent auditors that the Companys financial statements were prepared
in accordance with generally accepted accounting principles. The Audit Committee has also discussed
with the independent auditors the matters required to be discussed by Statement on Auditing
Standards No. 61 (Communications with Audit Committees). The Audit Committee has received the
written disclosures and the letter from the Companys independent auditors required by applicable
requirements of the Public Company Accounting Oversight Board regarding the independent auditors
communications with the Audit Committee concerning independence, and has discussed with the
independent auditors the independent auditors independence. As provided in the Audit Committee
Charter, it is not the Audit Committees responsibility to determine, and the considerations and
discussions referenced above do not ensure, that the Companys financial statements are complete
and accurate and presented in accordance with generally accepted accounting principles.
Based on the Audit Committees review and discussions with management and the independent
auditors, the representations of management and the report of the independent auditors to the Audit
Committee, the committee has recommended that the Board include the audited financial statements in
the Companys Annual Report on Form 10-K.
Submitted by the Audit Committee
William R. Cordes
Albert L. Richey
William L. Thacker
22
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS OF THE COMPANY, INCLUDING ALL OF THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANYS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
23
INFORMATION ABOUT EXECUTIVE OFFICERS
The following table sets forth each of our officers name; position(s) with us and length of
time served; principal occupation during the past five years; and other directorships. The address
for all of our officers is 717 Texas Avenue, Suite 3100, Houston, TX 77002. Except for Ron M.
Logan, Jr., all of our officers currently serve in identical offices with KYN and KYE, both
closed-end investment companies registered under the 1940 Act that are managed by KAFA. Additional
biographical information on each officer follows the table.
Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
Position(s) Held with |
|
|
|
Number of |
|
|
|
|
Registrant, |
|
|
|
Portfolios in |
|
|
|
|
Proposed Term of |
|
|
|
Fund Complex |
|
Other Directorships |
Name |
|
Office/ |
|
Principal Occupations During Past |
|
Overseen by |
|
Held by Director During |
(Year Born) |
|
Time of Service |
|
Five Years |
|
Director |
|
Past Five Years |
|
Kevin S. McCarthy
(born 1959)
|
|
Chairman of the
Board of Directors;
President and Chief
Executive Officer.
3-year term as a
director (until the
2012 Annual Meeting
of Stockholders),
elected annually as
an officer. Served
since inception.
|
|
Senior Managing
Director of KACALP
since June 2004 and
of KAFA since 2006.
President and Chief
Executive Officer of
KYN and KYE since
inception (KYN
inception in 2004 and
KYE inception in
2005). Global Head of
Energy at UBS
Securities LLC from
November 2000 to May
2004.
|
|
|
3 |
|
|
KYN
KYE
Range Resources Corporation (oil and natural gas company)
Clearwater Natural Resources, LLC (coal mining)
Direct Fuels Partners, L.P. (transmix refining and fuels distribution)
ProPetro Services, Inc. (oilfield services) |
|
|
|
|
|
|
|
|
|
|
|
Terry A. Hart
(born 1969)
|
|
Chief Financial
Officer and
Treasurer. Elected
annually. Served
since inception.
|
|
Chief Financial
Officer and Treasurer
of KYN and KYE since
December 2005.
Director of
Structured Finance,
Assistant Treasurer,
Senior Vice President
and Controller of
Dynegy, Inc. from
2000 to 2005.
|
|
|
3 |
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
David J. Shladovsky
(born 1960)
|
|
Secretary and Chief
Compliance Officer.
Elected annually.
Served since
inception.
|
|
Managing Director and
General Counsel of
KACALP since 1997 and
of KAFA since 2006.
Secretary and Chief
Compliance Officer of
KYN since 2004 and of
KYE since 2005.
|
|
|
3 |
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
J.C. Frey
(born 1968)
|
|
Executive Vice
President, Assistant
Treasurer and
Assistant Secretary.
Elected annually.
Served as Assistant
Treasurer and
Assistant Secretary
since inception;
served as Executive
Vice President since
June 2008.
|
|
Senior Managing
Director of KACALP
since 2004 and of
KAFA since 2006, and
Managing Director of
KACALP since 2000.
Portfolio Manager of
KACALP since 2000.
Portfolio Manager,
Vice President,
Assistant Secretary
and Assistant
Treasurer of KYN
since 2004 and of KYE
since 2005. Executive
Vice President of KYE
since June 2008
|
|
|
3 |
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
Ron M. Logan
(born 1960)
|
|
Senior Vice
President. Elected
annually. Served
since September
2006.
|
|
Managing director
KACALP and KAFA since
September 2006.
Independent
consultant to several
leading energy firms.
Senior Vice President
of Ferrellgas Inc.
from 2003 to 2005.
Vice President of
Dynegy Midstream
Services from 1997 to
2002.
|
|
|
1 |
|
|
VantaCore
Partners, LP (aggregates MLP)
Clearwater Natural Resources, LLC (coal mining) |
|
|
|
|
|
|
|
|
|
|
|
James C. Baker
(born 1972)
|
|
Executive Vice
President.
Elected annually.
Served as Vice
President from June
2005 to June 2008;
served as Executive
Vice President since
June 2008.
|
|
Senior Managing
Director of KACALP
and KAFA since
February 2008,
Managing Director of
KACALP and KAFA since
December 2004 and
2006, respectively.
Executive Vice
President of KYN and
KYE since June 2008
and Vice President of
KYN from 2005 to 2008
and of KYE from 2005
to 2008.
|
|
|
3 |
|
|
ProPetro
Services, Inc. (oilfield services)
Petris Technology, Inc. (data management for energy companies) |
24
Kevin S. McCarthy serves as the Companys Chairman, President, Chief Executive Officer
and co-portfolio manager. Since July 2004, he has served as the Chairman, President, Chief
Executive Officer and co-portfolio manager of Kayne Anderson MLP Investment Company, and since May
2005, he has served as the Chairman, President, Chief Executive Officer and co-portfolio manager of
Kayne Anderson Energy Total Return Fund, Inc. Mr. McCarthy has served as a Senior Managing Director
at KACALP since June 2004 and of KAFA since 2006. Prior to that, he was Global Head of Energy at
UBS Securities LLC. In this role, he had senior responsibility for all of UBS energy investment
banking activities. Mr. McCarthy was with UBS Securities from 2000 to 2004. From 1995 to 2000, Mr.
McCarthy led the energy investment banking activities of Dean Witter Reynolds and PaineWebber
Incorporated. He began his investment banking career in 1984. He earned a BA degree in Economics
and Geology from Amherst College in 1981 and an MBA degree in Finance from the University of
Pennsylvanias Wharton School in 1984.
Terry A. Hart serves as our Chief Financial Officer and Treasurer. Mr. Hart has served as the
Chief Financial Officer of Kayne Anderson MLP Investment Company and Kayne Anderson Energy Total
Return Fund, Inc. since December 2005. Prior to that, Mr. Hart was with Dynegy, Inc. since its
merger with Illinova Corp. in early 2000, where he served as the Director of Structured Finance,
Assistant Treasurer and most recently as Senior Vice President and Controller. Mr. Hart earned a BS
in Accounting from Southern Illinois University in 1991 and an MBA from the University of Illinois
in 1999.
David J. Shladovsky serves as our Secretary and Chief Compliance Officer. Since July 2004, he
has served as Secretary and Chief Compliance Officer of Kayne Anderson MLP Investment Company and
since May 2005, he has served as Secretary and Chief Compliance Officer of Kayne Anderson Energy
Total Return Fund, Inc. Mr. Shladovsky has served as a Managing Director and General Counsel of
KACALP since 1997 and of KAFA since 2006. Prior to joining Kayne Anderson in 1997, Mr. Shladovsky
was in the private practice of corporate and securities law, most recently as corporate counsel to
Hughes Hubbard & Reed, LLP. Mr. Shladovsky earned a BA in Economics from Brandeis University and a
JD from the Boston University School of Law in 1985.
J.C. Frey serves as our Executive Vice President, Assistant Treasurer, Assistant Secretary and
co-portfolio manager. Mr. Frey has been a Senior Managing Director of KACALP since 2004 and of KAFA
since 2006. Since July 2004, he has served as co-portfolio manager, Vice President (Executive Vice
President since 2008), Assistant Secretary and Assistant Treasurer of Kayne Anderson MLP Investment
Company and since May 2005, he has served as co-portfolio manager, Vice President (Executive Vice
President since 2008), Assistant Secretary and Assistant Treasurer of Kayne Anderson Energy Total
Return Fund, Inc. Mr. Frey began investing in energy company securities on behalf of Kayne Anderson
in 1998 and has served as portfolio manager for several of KACALP funds since their inception in
2000. Prior to joining KACALP in 1997, Mr. Frey was a CPA and audit manager in KPMG Peat Marwicks
financial services group, specializing in banking and finance clients, and loan securitizations.
Mr. Frey earned a BS degree in Accounting from Loyola Marymount University in 1990 and a Masters
degree in Taxation from the University of Southern California in 1991.
Ron M. Logan, Jr. serves as our Senior Vice President. Prior to joining KACALP in 2006, Mr.
Logan was an independent consultant to several leading energy firms. From 2003 to 2005, he served
as Senior Vice President of Ferrellgas Inc. with responsibility for the firms supply, wholesale,
transportation, storage, and risk management activities. Before joining Ferrellgas, Mr. Logan was
employed for six years by Dynegy Midstream Services where he was Vice President of the Louisiana
Gulf Coast Region and also headed the companys business development activities. Mr. Logan began
his career with Chevron Corporation in 1984, where he held positions of increasing responsibility
in marketing, trading and commercial development through 1997. Mr. Logan earned a BS degree in
Chemical Engineering from Texas A&M University in 1983 and an MBA from The University of Chicago in
1994.
James C. Baker serves as our Executive Vice President. Mr. Baker is a Senior Managing Director
of KACALP and of KAFA and is Executive Vice President of Kayne Anderson MLP Investment Company and
Kayne Anderson Energy Total Return Fund, Inc. Prior to joining KACALP in 2004, Mr. Baker was a
Director in the energy investment banking group at UBS Securities LLC. At UBS, he focused on
securities underwriting and mergers and acquisitions in the energy industry. Prior to joining UBS
in 2000, Mr. Baker was an Associate in the energy
investment banking group at PaineWebber Incorporated. He earned a BBA degree in Finance from
the University of Texas at Austin in 1995 and an MBA degree in Finance from Southern Methodist
University in 1997.
25
COMPENSATION DISCUSSION AND ANALYSIS
Pursuant to an investment management agreement between KAFA (our external manager) and us, our
external manager is responsible for supervising the investments and reinvestments of the Companys
assets. Our external manager, at its own expense, maintains staff and employs personnel as it
determines is necessary to perform its obligations under the investment management agreement. We
pay management fees to our external manager for its advisory and other services performed under the
investment management agreement.
Our executive officers who manage our regular business are employees of our external manager
or its affiliates. Accordingly, we do not pay any salaries, bonuses or other compensation to our
executive officers. We do not have employment agreements with our executive officers. We do not
provide pension or retirement benefits, perquisites, or other personal benefits to our executive
officers. We do not maintain any compensation plans under which our equity securities are
authorized for issuance. We do not have arrangements to make payments to our executive officers
upon their termination or in the event of a change in control of the Company.
The investment management agreement does not require our external manager to dedicate specific
personnel to fulfilling its obligation to us under the investment management agreement, or require
personnel to dedicate a specific amount of time. In their capacities as executive officers or
employees of our external manager or its affiliates, they devote a portion of their time to our
affairs as required for the performance of the duties of our external manager under the investment
management agreement.
Our executive officers are compensated by our external manager. We understand that our
external manager takes into account the performance of the Company as a factor in determining the
compensation of certain of its senior managers, and such compensation may be increased depending on
the Companys performance. In addition to compensation for services performed for the Company,
certain of our executive officers receive compensation for services performed for various
investment funds of our external manager. However, our external manager cannot segregate and
identify that portion of the compensation awarded to, earned by or paid to our executive officers
that relates exclusively to their services to us.
26
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of March 31, 2010 the number of shares of our common stock
beneficially owned by each of our current directors and executive officers as a group, and certain
beneficial owners, according to information furnished to us by such persons. Based on statements
publicly filed with the SEC, as of March 31, 2010 we are aware of two persons who beneficially own
more than 5% of our outstanding common stock. Beneficial ownership is determined in accordance with
Rule 13d-3 under the 1934 Act and, unless indicated otherwise, includes voting or investment power
with respect to the securities.
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Percent of |
|
Name of Beneficial Owner of Common Stock |
|
Shares |
|
|
Class(1) |
|
Independent Directors |
|
|
|
|
|
|
|
|
William R. Cordes |
|
|
2,000 |
|
|
|
* |
|
Barry R. Pearl |
|
|
4,537 |
|
|
|
* |
|
Albert L. Richey |
|
|
12,561 |
|
|
|
* |
|
William L. Thacker |
|
|
2,000 |
|
|
|
* |
|
Interested Director |
|
|
|
|
|
|
|
|
Kevin S. McCarthy(2) |
|
|
25,540 |
|
|
|
* |
|
Robert V. Sinnott(2) |
|
|
29,000 |
|
|
|
* |
|
Executive Officers |
|
|
|
|
|
|
|
|
Terry A. Hart |
|
|
1,256 |
|
|
|
* |
|
David. J. Shladovsky |
|
|
1,739 |
|
|
|
* |
|
J.C. Frey |
|
|
11,764 |
|
|
|
* |
|
Ron M. Logan, Jr. |
|
|
497 |
|
|
|
|
|
James C. Baker |
|
|
9,790 |
|
|
|
* |
|
All Directors and Executive Officers as a Group (11 persons) |
|
|
100,684 |
|
|
|
* |
|
Cedar Hill and Associates
120 South LaSalle St, Suite 1750
Chicago, IL 60603-3447 |
|
|
1,027,328 |
|
|
|
10.1 |
% |
|
Burgundy Asset Management Ltd.
181 Bay Street, Suite 4510
Toronto, Ontario M5J 2T3
Canada |
|
|
800,266 |
|
|
|
7.9 |
% |
|
|
|
* |
|
Less than 1% of class. |
|
(1) |
|
Based on 10,190,383 shares of common stock outstanding as of March 31, 2010. |
|
(2) |
|
Does not include 60 shares of our common stock held by KAFA, a subsidiary of KACALP, a
limited partnership in which Messrs. McCarthy and Sinnott are each a Senior Managing Director
and each have ownership interests, because neither of them individually or acting together may
exercise voting or investment power with respect to such shares. We believe by virtue of these
arrangements Messrs. McCarthy and Sinnott should not be deemed to have indirect beneficial
ownership of such shares. |
27
The following table sets forth the dollar range of our equity securities beneficially owned by
our directors and the nominees as of March 31, 2010 (beneficial ownership being determined in
accordance with Rule 16a-1(a)(2) of the 1934 Act).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Dollar |
|
|
|
|
|
|
|
Range (1) of Equity |
|
|
|
|
|
|
|
Securities in All |
|
|
|
|
|
|
|
Registered Investment |
|
|
|
Dollar Range (1) of |
|
|
Companies (2) |
|
|
|
Our Equity |
|
|
Overseen by Director |
|
Director |
|
Securities |
|
|
in Fund Complex(3) |
|
Independent Directors |
|
|
|
|
|
|
|
|
William R. Cordes |
|
$ |
10,001-$50,000 |
|
|
$ |
10,001-$50,000 |
|
Barry R. Pearl |
|
$ |
50,001-$100,000 |
|
|
$ |
50,001-$100,000 |
|
Albert L. Richey |
|
Over $100,000 |
|
|
Over $100,000 |
|
William L. Thacker |
|
$ |
10,001-$50,000 |
|
|
$ |
10,001-$50,000 |
|
Interested Director |
|
|
|
|
|
|
|
|
Kevin S. McCarthy |
|
Over $100,000 |
|
|
Over $100,000 |
|
Robert V. Sinnott |
|
Over $100,000 |
|
|
Over $100,000 |
|
|
|
|
(1) |
|
Dollar ranges are as follows: none; $1-$10,000; $10,001-$50,000; $50,001-$100,000 or over
$100,000. |
|
(2) |
|
For purposes of this table, amounts in this column include our equity securities even though
we are not a registered investment company. |
|
(3) |
|
Mr. McCarthy is the only one of our directors who also serves on the Boards of Directors of
KYN and KYE, both registered investment companies advised by KAFA. |
As of March 31, 2010, the Independent Directors and nominees and their respective immediate
family members did not own beneficially or of record any class of securities of Kayne Anderson or
any person directly or indirectly controlling, controlled by, or under common control with Kayne
Anderson. As of March 31, 2010, certain officers of Kayne Anderson, including all of our officers,
own, in the aggregate, approximately $2.2 million of our common stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the 1934 Act, our directors and executive officers, and any
persons holding more than 10% of our common stock, are required to report their beneficial
ownership in our securities and any changes therein to the SEC and to us. We are required to report
herein any failure to file such reports by applicable due dates for filings. Based on our review of
any Forms 3, 4 and 5 filed by such persons, we believe that during the fiscal year, all
Section 16(a) filing requirements applicable to such persons were met in a timely manner.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We are party to an investment management agreement with KAFA, the managing member of which is
KACALP, an entity in which two of our directors have ownership interests. Our executive officers
have employment relationships with KAFA or KACALP and certain executive officers also have
ownership interests in KACALP. Pursuant to the terms of the investment management agreement, KAFA
provides us with the office facilities and certain administrative services necessary to conduct our
day-to-day operations.
KAFA manages two closed-end management investment companies registered under the 1940 Act KYN, a
publicly traded MLP fund; and KYE, a publicly traded non-diversified energy fund. KAFA also serves
as investment advisor to KA First Reserve, LLC (KAFR), which is a private investment fund that
invests in MLPs. KACALP manages several private investment funds (together with other funds advised
by Kayne Anderson, Affiliated Funds). Some of the Affiliated Funds have investment objectives
that are similar to or overlap with our investment objectives. Kayne Anderson may at some time in
the future, manage other investment funds with the same investment objectives as our investment objectives. In addition, KACALP manages private funds
with an investment focus of making private equity investments in upstream energy companies. These
funds will have priority over us with respect to such investments, and, as a result, our ability to
invest in non-publicly traded equity securities of upstream energy companies could be limited.
28
Our investment opportunities may be limited by affiliations of our investment adviser and its
senior professionals with limited partnerships or other energy companies. Additionally, to the
extent that Kayne Anderson sources and structures private investments in MLPs, certain employees of
Kayne Anderson may become aware of actions planned by publicly traded energy companies, such as
acquisitions, that may not be announced to the public. It is possible that we could be precluded
from investing in a publicly traded energy company about which Kayne Anderson has material
non-public information; however, it is Kayne Andersons intention to ensure that any material
non-public information available to certain Kayne Anderson employees not be shared with those
employees responsible for the purchase and sale of publicly traded energy company securities.
Under the 1940 Act, we and our affiliates, including Affiliated Funds, are generally precluded
from co-investing in certain private placements of securities such as our targeted investments.
Kayne Anderson will allocate private investment opportunities among their respective clients,
including us, based on allocation policies that take into account several suitability factors,
including the size of the investment opportunity, the amount each client has available for
investment and the clients investment objectives. These allocation policies may result in the
allocation of investment opportunities to an Affiliated Fund rather than to us. The policies
contemplate that Kayne Anderson will exercise discretion, based on several factors relevant to the
determination, in allocating the entirety, or a portion, of such investment opportunities to an
Affiliated Fund, in priority to other prospectively interested advisory clients, including us. In
this regard, when applied to specified investment opportunities that would normally be suitable for
us, the allocation policies may result in certain Affiliated Funds having greater priority than us
to participate in such opportunities depending on the totality of the considerations, including,
among other things, our available capital for investment, our existing holdings, applicable tax and
diversification standards to which we may then be subject and the ability to efficiently liquidate
a portion of our existing portfolio in a timely and prudent fashion in the time period required to
fund the transaction.
Our Independent Directors will review any investment decisions that may present potential
conflicts of interest between Kayne Anderson and us in accordance with specific procedures and
policies adopted by the Board.
KAFA may be offered non-monetary benefits or soft dollars by brokers to induce KAFA to
engage those brokers to execute securities transactions on behalf of us. These soft dollars may
take the form of research regarding securities investments, and may be available for use by KAFA in
connection with transactions in which we do not participate.
Employees of Kayne Anderson who are designated as access persons may engage in personal
securities transactions, including transactions involving securities that are currently held by us
or, in limited circumstances, that are being considered for purchase or sale by us, subject to
certain general restrictions and procedures set forth in our code of ethics. The personal
securities transactions of the access persons of Kayne Anderson will be governed by its code of
ethics. See Corporate Governance Code of Ethics below.
29
CORPORATE GOVERNANCE
Board Leadership Structure
The Companys business and affairs are managed under the direction of its Board of Directors,
including the duties performed for us pursuant to our investment management agreement. Among other
things, the directors set broad policies for the Company, approve the appointment of the Companys
investment adviser, administrator and officers, and approves the engagement, and reviews the
performance of, the Companys independent registered accounting firm. The role of the Board and of
any individual director is one of oversight and not of management of the day-to-day affairs of the
Company.
The Board of Directors currently consists of six directors, four of whom are not interested
persons, as defined in the 1940 Act. We refer to these individuals as our Independent
Directors. As part of each regular Board meeting, the Independent Directors meet separately from
Kayne Anderson and, as part of at least one Board meeting each year, with the Companys Chief
Compliance Officer. The Board reviews its leadership structure periodically as part of its annual
self-assessment process and believes that its structure is appropriate to enable the Board to
exercise its oversight of the Company.
Under the Companys Bylaws, the Board of Directors may designate a Chairman to preside over
meetings of the Board of Directors and meetings of stockholders, and to perform such other duties
as may be assigned to him or her by the Board. The Company does not have an established policy as
to whether the Chairman of the Board shall be an Independent Director and believes that its
flexibility to determine its Chairman and reorganize its leadership structure from time to time is
in the best interests of the Company and its stockholders.
Presently, Mr. McCarthy serves as Chairman of the Board of Directors. Mr. McCarthy is an
interested person of the Company, as defined in the 1940 Act, by virtue of his employment
relationship with Kayne Anderson. The Company believes that Mr. McCarthys history with the
Company, familiarity with the Kayne Anderson investment platform and extensive experience in the
field of energy-related investments qualifies him to serve as the Chairman of the Board. The Board
has determined that the composition of the Audit and Nominating Committees are appropriate means to
address any potential conflicts of interest that may arise from the Chairmans status as an
interested person of the Company. The Board of Directors believes that this Board leadership
structurea combined Chairman of the Board and Chief Executive Officer and committees led by
Independent Directorsis the optimal structure for the Company at this time. Since the Chief
Executive Officer has the most extensive knowledge of the various aspects of the Companys business
and is directly involved in managing both the day-to-day operations and long-term strategy of the
Company, the Board has determined that Mr. McCarthy is the most qualified individual to lead the
Board and serve in the key position as Chairman. The Board has also concluded that this structure
allows for efficient and effective communication with the Board.
The Companys Board of Directors does not currently have a designated lead independent
director. Instead, all of the Independent Directors play an active role on the Board of Directors.
The Independent Directors compose a majority of the Companys Board of Directors, and are closely
involved in all material deliberations related to the Company. The Board of Directors believes
that, with these practices, each Independent Director has an equal stake in the Boards actions and
oversight role and equal accountability to the Company and its stockholders.
Board Role in Risk Oversight
The Board oversees the services provided by Kayne Anderson, including certain risk management
functions. Risk management is a broad concept comprised of many disparate elements (such as, for
example, investment risk, issuer and counterparty risk, compliance risk, operational risk and
business continuity risk). Consequently, Board oversight of different types of risks is handled in
different ways, and the Board implements its risk oversight function both as a whole and through
Board committees. In the course of providing oversight, the Board and its committees receive
reports on the Companys activities, including regarding the Companys investment portfolio and its
financial accounting and reporting. The Board also meets at least quarterly with the Companys
Chief Compliance Officer, who reports on the compliance of the Company with the federal securities
laws and the Companys internal compliance policies and procedures. The Audit Committees meetings
with the Companys independent public accounting firm also contribute to its oversight of certain
internal control risks. In addition, the Board meets periodically with representatives of the Company and Kayne Anderson to receive
reports regarding the management of the Company, including certain investment and operational
risks, and the Independent Directors are encouraged to communicate directly with senior management.
30
The Company believes that Board roles in risk oversight must be evaluated on a case-by-case
basis and that its existing role in risk oversight is appropriate. Management believes that the
Company has robust internal processes in place and a strong internal control environment to
identify and manage risks. However, not all risks that may affect the Company can be identified or
processes and controls developed to eliminate or mitigate their occurrence or effects, and some
risks are beyond any control of the Company or Kayne Anderson, its affiliates or other service
providers.
Diversity in Nominees for Director
The Nominating Committee evaluates candidates qualifications for Board membership. The
Nominating Committee takes diversity of a particular candidate and overall diversity of the Board
into account when considering and evaluating candidates for Director. While the Nominating
Committee has not adopted a particular definition of diversity or a particular policy with regard
to the consideration of diversity in identifying candidates, when considering a candidates and the
Boards diversity, the Nominating Committee generally considers the manner in which each
candidates leadership, independence, interpersonal skills, financial acumen, integrity and
professional ethics, educational and professional background, prior director or executive
experience, industry knowledge, business judgment and specific experiences or expertise would
compliment or benefit the Board and, as a whole, contribute to the ability of the Board to oversee
the Company. The Nominating Committee may also consider other factors or attributes as they may
determine appropriate in their judgment. The Nominating Committee believes that the significance
of each candidates background, experience, qualifications, attributes or skills must be considered
in the context of the Board as a whole. As a result, the Nominating Committee has not established
any litmus test or quota relating to these matters that must be satisfied before an individual may
serve as a Director. The Board believes that Board effectiveness is best evaluated at a group
level, through its annual self-assessment process. Through this process, the Board considers
whether the Board as a whole has an appropriate level of sophistication, skill and business acumen
and the appropriate range of experience and background.
Communications Between Stockholders and the Board of Directors
Stockholders may send communications to the Board of Directors. Communications should be
addressed to the Secretary of the Company at our principal offices at 717 Texas Avenue, Suite 3100,
Houston, TX 77002. The Secretary will forward any communications received directly to the Board of
Directors.
Code of Ethics
We have adopted a supplemental antifraud code of ethics which applies to, among others, our
principal and senior financial officers, including our principal executive officer and principal
financial officer. Our supplemental antifraud code of ethics is filed as Exhibit 14.1 of our Annual
Report on Form 10-K, filed with the SEC on February 16, 2007 and can be accessed via the SECs
Internet site at www.sec.gov. We intend to disclose any amendments to or waivers of required
provisions of this code on Form 8-K, for so long as we are subject to 8-K reporting requirements as
a BDC.
We have also adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that
establishes personal trading procedures for employees designated as access persons. Access persons
may engage in personal securities transactions, including transactions involving securities that
are currently held by us or, in limited circumstances, that are being considered for purchase or
sale by us, subject to certain general restrictions and procedures set forth in our code of ethics.
Our code of ethics is filed as Exhibit 99.2(R)(1) to pre-effective Amendment No. 5 to our
Registration Statement on Form N-2, filed with the SEC on September 18, 2006 and can be accessed
via the SECs Internet site. We also have a code of business conduct, which is available on our
website and in print to any stockholder who requests it.
31
Compensation Committee Interlocks and Insider Participation
During the last fiscal year, the Nominating, Corporate Governance and Compensation Committee
consisted of William R. Cordes, Barry R. Pearl, Albert L. Richey and William L. Thacker, each of
whom is independent for purposes of the 1940 Act and applicable NYSE Corporate Governance Listing
standards. During the fiscal year ended November 30, 2009, none of our executive officers served as
members of the compensation committee or as directors of another entity which had an executive
officer serving on our Board of Directors or our Nominating, Corporate Governance and Compensation
Committee.
NOMINATING, CORPORATE GOVERNANCE AND COMPENSATION COMMITTEE REPORT
The Nominating, Corporate Governance and Compensation Committee of the Board of Directors has
reviewed and discussed with management the Companys Compensation Discussion and Analysis required
by Item 402(b) of SEC Regulation S-K. Based on this review and discussion, the Nominating,
Corporate Governance and Compensation Committee recommended to the Board of Directors of the
Company that the Compensation Discussion and Analysis be included in this proxy statement and
incorporated into our Annual Report on Form 10-K for the fiscal year ended November 30, 2009.
Submitted by the Nominating, Corporate Governance and Compensation Committee
William R. Cordes
Barry R. Pearl
Albert L. Richey
William L. Thacker
32
OTHER MATTERS
The Board of Directors knows of no other matters that are intended to be brought before the
meeting. If other matters are properly presented at the Annual Meeting, the proxies named in the
enclosed form of proxy will vote on those matters in their sole discretion.
MORE INFORMATION ABOUT THE MEETING
Outstanding Stock
At the Record Date, we had 10,215,995 shares of stock issued and outstanding.
To the knowledge of our management:
|
|
|
As of March 31, 2010, there were two entities holding beneficially more than 5% of our
outstanding Common Stock. |
|
|
|
|
As of March 31, 2010, none of our directors owned 1% or more of our outstanding Common
Stock. |
|
|
|
|
As of March 31, 2010, our officers and directors owned, as a group, less than 1% of our
outstanding Common Stock. |
How Proxies Will Be Voted
All proxies solicited by the Board of Directors that are properly executed and received at or
prior to the Annual Meeting, and that are not revoked, will be voted at the Annual Meeting. Votes
will be cast in accordance with the instructions marked on the enclosed proxy card. If no
instructions are specified, the persons named as proxies will cast such votes FOR the proposals. We
know of no other matters to be presented at the Annual Meeting. However, if another proposal is
properly presented at the Annual Meeting, the votes entitled to be cast by the persons named as
proxies on the enclosed proxy card will cast such votes in their sole discretion.
How To Vote
If your shares are held in Street Name by a broker or bank, you will receive information
regarding how to instruct your bank or broker to cast your votes. If you are a stockholder of
record, you may authorize the persons named as proxies to cast the votes you are entitled to cast
at the meeting by completing, signing, dating and returning the enclosed proxy card. Stockholders
of record or their duly authorized proxies may vote in person if able to attend the Annual Meeting.
Expenses and Solicitation of Proxies
The expenses of preparing, printing and mailing the enclosed proxy card, the accompanying
notice and this proxy statement, tabulation expenses, and all other costs, in connection with the
solicitation of proxies will be borne by the Company. We may also reimburse banks, brokers and
others for their reasonable expenses in forwarding proxy solicitation material to the beneficial
owners of our shares. In order to obtain the necessary quorum at the meeting, additional
solicitation may be made by mail, telephone, telegraph, facsimile or personal interview by
representatives of the Company, Kayne Anderson, our transfer agent, or by brokers or their
representatives or by a solicitation firm that may be engaged by the Company to assist in proxy
solicitations. If a proxy solicitor is retained by the Company, the costs associated with all proxy
solicitation are not anticipated to exceed $4,000. We will not pay any of our representatives or
Kayne Anderson any additional compensation for their efforts to supplement proxy solicitation.
Dissenters or Appraisal Rights
Our stockholders have no dissenters or appraisal rights.
33
Revoking a Proxy
At any time before it has been voted, you may revoke your proxy by: (1) sending a letter
revoking your proxy to the Secretary of the Company at our offices located at 717 Texas Avenue,
Suite 3100, Houston, Texas, 77002; (2) properly executing and sending a later-dated proxy; or
(3) attending the Annual Meeting, requesting return of any previously delivered proxy, and voting
in person.
Quorum and Adjournment
The presence, in person or by proxy, of holders of shares entitled to cast a majority of the
votes entitled to be cast constitutes a quorum for the purposes of the Annual Meeting. If a quorum
is not present in person or by proxy at the Annual Meeting, the chairman of the Annual Meeting may
adjourn the meeting to a date not more than 120 days after the original Record Date without notice
other than announcement at the Annual Meeting.
Required Vote
Proposal One. The election of each of Mr. Richey and Mr. Sinnott as a Class I Director
requires the affirmative vote of the holders of a majority of shares of common stock outstanding as
of the Record Date. For the purposes of determining whether the majority of the votes entitled to
be cast by the common stockholders has elected a nominee, each common share is entitled to one
vote. For the purposes of Proposal One, abstentions, if any, will have the same effect as votes
against the election of Mr. Ritchie and/or Mr. Sinnott, as the case may be, although they will be
considered present for purposes of determining the presence of a quorum at the Annual Meeting.
Because brokers are permitted by applicable regulations to vote shares as to which
instructions have not been received from the beneficial owners or the persons entitled to vote in
uncontested elections of directors, it is anticipated that there will be few, if any, broker
non-votes in connection with Proposal One. However, broker non-votes, if any, will have the same
effect as a vote against the nominee, although they would be considered present for purposes of
determining a quorum.
Proposal Two. The approval of a proposal to authorize the Company to sell shares of its common
stock at a price less than the NAV per share, subject to certain conditions, requires: (1) the
affirmative vote of a majority of all common stockholders of record as of the Record Date and
(2) the affirmative vote of a majority of the votes cast by the holders of common stock outstanding
as of the Record Date. For the purpose of determining whether a majority of the common stockholders
of record approved this proposal, abstentions and broker non-votes, if any, will have the effect of
a vote against Proposal Two. For the purpose of determining whether a majority of votes cast
approved this proposal, abstentions and broker non-votes, if any, will have no effect on the
outcome.
Proposal Three. The approval of a proposal to authorize the Board of Directors to withdraw
the Companys election to be treated as a business development company under the 1940 Act.
Approval of Proposal Three requires the affirmative vote of either (1) 67% or more of the votes
cast by the holders of the Companys common stock present at the Annual Meeting, if the holders of
more than 50% of the outstanding shares of the Companys common stock are present or represented by
proxy, or (2) more than 50% of the outstanding shares of common stock, whichever is less. All
abstentions and broker non-votes will be considered a vote against this proposal.
Proposal Four. PricewaterhouseCoopers LLP will be ratified as the Companys independent
registered public accounting firm by the affirmative vote of a majority of the votes cast by the
holders of Common Stock outstanding as of the Record Date. For the purposes of determining whether
the majority of the votes entitled to be cast by the common stockholders has ratified
PricewaterhouseCoopers LLP, each common share is entitled to one vote. For purposes of the vote on
Proposal Four, abstentions and broker non-votes will not be counted as votes cast and will have no
effect on the result of the vote.
INVESTMENT ADVISER
KA Fund Advisors, LLC is our investment adviser. Its principal office is located at 717 Texas
Avenue, Suite 3100, Houston, Texas, 77002.
34
ADMINISTRATOR
Ultimus Fund Solutions, LLC (the Administrator) provides certain administrative services for
us, including but not limited to preparing and maintaining books, records, and tax and financial
reports, and monitoring compliance with regulatory requirements. The Administrator is located at
225 Pictoria Drive, Suite 450, Cincinnati, OH 45246.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g. brokers) to satisfy
the delivery requirements for proxy statements and annual reports with respect to two or more
stockholders sharing the same address by delivering a single proxy statement and annual report
addressed to those stockholders. This process, which is commonly referred to as householding,
potentially means extra convenience for stockholders and cost savings for companies.
This year a number of brokers with account holders who are the Companys stockholders will be
householding its proxy materials. A single proxy statement will be delivered to multiple
stockholders sharing an address unless contrary instructions have been received from the affected
stockholders. If you have received notice from your broker that it will be householding
communications to your address, householding will continue until you are notified otherwise or
until you revoke your consent. If, at any time, you no longer wish to participate in householding
and would prefer to receive a separate proxy statement and annual report, please notify your
broker. Stockholders who currently receive multiple copies of the proxy statement and annual report
at their addresses and would like to request householding of their communications should contact
their brokers.
STOCKHOLDER PROPOSALS
Our current Bylaws provide that in order for a stockholder to nominate a candidate for
election as a director at an annual meeting of stockholders or propose business for consideration
at such meeting, written notice containing the information required by the current Bylaws must be
delivered to the Secretary of the Company at 717 Texas Avenue, Suite 3100, Houston, Texas 77002,
not later than 5:00 p.m. Central Time on the 120th day, and not earlier than the 150th day, prior
to the first anniversary of the date of mailing of the notice for the preceding years annual
meeting; provided, however that in the event that the date of the annual meeting is advanced or
delayed by more than 30 days from the first anniversary of the date of the preceding years annual
meeting (and in the case of the first annual meeting of stockholders), notice by the stockholder to
be timely must be so delivered not earlier than the 150th day prior to the date of such annual
meeting and not later than 5:00 p.m. Central Time on the later of the 120th day prior to the date
of such annual meeting or the tenth day following the day on which public announcement of the date
of such meeting is first made. Accordingly, a stockholder nomination or proposal intended to be
considered at the 2010 Annual Meeting must be received by the Secretary of the Company on or after
[January 5, 2011], and prior to 5:00 p.m. Pacific Time on [February 4], 2011. However, under the
rules of the SEC, if a stockholder wishes to submit a proposal for possible inclusion in our 2011
proxy statement pursuant to Rule 14a-8(e) of the 1934 Act, we must receive it not less than 120
calendar days before the anniversary of the date our proxy statement was released to stockholders
for the previous years annual meeting. Accordingly, a stockholders proposal under Rule 14a-8(e)
must be received by us on or before [February 4], 2011 in order to be included in our proxy
statement and proxy card for the 2011 Annual Meeting. All nominations and proposals must be in
writing.
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By Order of the Board of Directors
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David J. Shladovsky
Secretary |
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May 28, 2010
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APPENDIX A
KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
AUDIT COMMITTEE CHARTER
(Adopted September 5, 2006)
The Board of Directors (the Board) of Kayne Anderson Energy Development Company (the
Company) shall have an Audit Committee (the Audit Committee).
I. Statement of Purpose and Function
The function of the Audit Committee is oversight; it is managements responsibility to
maintain appropriate systems for accounting and internal controls, and the Auditors
responsibility to plan and carry out the audit in accordance with auditing standards generally
accepted in the United States. The Auditor is ultimately responsible to the Board and the Audit
Committee.
The purposes of the Audit Committee are to:
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assist the Board in its oversight of (1) the integrity, quality and objectivity
of the Companys financial statements and the independent audit thereof, (2) the
Companys compliance with legal and regulatory requirements, (3) the independent
auditors qualifications and independence, and (4) the performance of the Companys
internal audit function and the Companys independent auditor (the Auditor), (5) the
Companys accounting and financial reporting policies and practices by reviewing
disclosures made to the Audit Committee by the Companys certifying officers and the
Auditor about any significant deficiency in, or material change in the operation of,
the Companys internal controls or material weaknesses therein, and any fraud involving
KA Fund Advisors, LLC (the Advisor) or any employees or other persons who have a
significant role in the Companys internal controls; |
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prepare an audit committee report as required by the Securities and Exchange
Commission to be included in the Companys annual proxy statement; |
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select, oversee and approve the compensation of the Auditor and to act as
liaison between the Auditor and the Board; and |
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conduct an annual performance evaluation of the Audit Committee. |
The Audit Committee shall have the resources and authority appropriate to discharge its
responsibilities, including the authority to retain special counsel and other experts or
consultants at the expense of the Company.
II. Committee Composition
The Audit Committee shall be comprised of at least three directors, all of whom shall be
independent directors (i.e., directors who are not interested persons of the Company as defined
in the Investment Company Act of 1940, as amended, and who are free of any other relationship that,
in the opinion of the Board, would interfere with their exercise of independent judgment as Audit
Committee members). Each member shall be appointed by the Board, and a majority of the independent
directors of the Board also shall approve each appointment.
The Board shall designate one member as Audit Committee Chairman.
Members of the Audit Committee shall be financially literate, as such qualification is
interpreted by the Board in its business judgment, or shall become financially literate within a
reasonable period of time after his or her appointment to the Audit Committee. In addition, at
least one member of the Audit Committee shall have accounting or related financial management
expertise, as the Board interprets such qualification in its business judgment.
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The Audit Committee shall consider whether one or more members of the Audit Committee is an
Audit Committee financial expert,1 as such term is defined by the Securities and
Exchange Commission, and whether any such expert is independent.2 The Audit Committee
shall report the results of its deliberations to the Board for further action as appropriate,
including, but not limited to, a determination by the Board that the Audit Committee membership
includes or does not include one or more Audit Committee financial experts and any related
disclosure to be made concerning this matter.
III. Duties and Responsibilities
The Audit Committee shall meet with the finance and other personnel of the Company and the
Advisor as necessary and appropriate to fulfill the Committees oversight role. The Audit Committee
shall have unrestricted access to the Auditor and the Companys administrator.
To carry out its purposes, the Audit Committee shall have the following duties and powers
(such listing is not intended to limit the authority of the Audit Committee in achieving its
purposes):
1. Selection of Auditor and Approval of Fees.
(a) The Audit Committee shall pre-approve the selection of the Auditor and shall recommend
the selection, retention or termination of the Auditor to the Board and, in connection therewith,
shall evaluate the independence of the Auditor, including an evaluation of the extent to which
the Auditor provides any consulting, auditing or non-audit services to the Advisor or its
affiliates. The Audit Committee shall review the Auditors specific representations as to its
independence.
(b) The Audit Committee shall review and approve the fees charged by the Auditor for audit
and non-audit services to be provided to the Company in accordance with the pre-approval
requirements set forth below. The Company shall provide for appropriate funding, as determined by
the Audit Committee, to compensate the Auditor for any authorized service provided to the
Company.
2. Meetings with Auditor. The Audit Committee shall meet with the Auditor prior to the
commencement of substantial work on the audit and following the conclusion of the audit, as
well as such other times as the Committee shall deem necessary or appropriate. The Chairman of
the Audit Committee shall meet with the Auditor informally as needed. The Audit Committee shall
ensure that the Auditor reports directly to the Audit Committee.
3. Reports by Auditor. The Audit Committee shall request the Auditor to report at least
annually concerning, and shall engage the Auditor in discussions regarding, the following and
other pertinent matters:
(a) the arrangements for and scope of the annual audit and any special audits;
(b) all critical accounting policies and practices to be used;
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Notwithstanding any such identification, each
member of the Audit Committee is expected to contribute significantly to the
work of the Committee. Moreover, identification as an audit committee
financial expert will not increase the duties, obligations or liability of the
identified person as compared to the duties, obligations and liability imposed
on that person as a member of the Audit Committee and of the Board. |
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For purposes of this finding of
independence only, in order to be considered independent, any such expert
must not only be independent for purposes of the Investment Company Act but
also must satisfy the additional requirement that he or she may not, other than
in his or her capacity as a member of the Audit Committee, the Board, or any
other Board committee, accept directly or indirectly any consulting, advisory,
or other compensatory fee from the Company. for appropriate funding, as
determined by the Audit Committee, to compensate the Auditor for any authorized
service provided to the Company. |
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(c) any matters of concern relating to the Companys annual audited financial statements and
quarterly financial statements, including: (i) any adjustments to such statements recommended by
the Auditor, or other results of said audit(s), and (ii) all alternative treatments of financial
information within generally accepted accounting principles that have been discussed with
management, the ramifications of the use of such alternative disclosures and treatments, and the
treatment preferred by the Auditor;
(d) any audit problems or difficulties and managements response;
(e) any material written communication between the Auditor and management such as any
management letter or schedule of unadjusted differences;
(f) all non-audit services provided to any entity in the Investment Company Complex1 that
were not pre-approved by the Audit Committee;
(g) the amount of all fees received by the Auditor for providing services of any type to the
Advisor and any affiliate controlled by the Advisor, and confirmation that the Auditor has not
provided any prohibited non-audit services;
(h) the Auditors comments with respect to the Companys financial policies, procedures and
internal accounting controls and responses thereto by the Companys officers, the Advisor and
administrator, as well as other personnel;
(i) confirmation of the form of written opinion the Auditor proposes to render to the Board
and stockholders of the Company, and discussion or reporting on the general nature of the
disclosures to be made in Form 10-K or Form 10-Q;
(j) the adequacy and effectiveness of relevant accounting internal controls and procedures
and the quality of the staff implementing those controls and procedures;
(k) periodic reports concerning relevant regulatory changes and new accounting
pronouncements that significantly affect the value of the Companys assets and its financial
reporting;
(l) disclosures to the Auditors and the Audit Committee by the Companys chief executive or
chief financial officer of (i) any material weaknesses in internal controls, (ii) any significant
deficiencies in the design or operation of internal controls that could adversely affect the
Companys ability to record, process, summarize, and report financial data and, (iii) any fraud,
whether or not material, that involves management of other employees who have a significant role
in the Companys internal controls, and (iv) any other matters that could jeopardize the
Companys ability to file its financial statements with the Securities and Exchange Commission or
the certifying officers ability to certify the Companys Form 10-K or Form 10-Q;
(m) confirmation that the Auditor is in compliance with the audit partner rotation
requirements applicable to the engagement with the Company;
(n) the Auditors internal quality-control procedures, including any material issues raised
by the most recent internal quality-control review, or peer review, of the Auditor, or by any
inquiry or investigation by governmental or professional authorities, within the preceding five
years, respecting one or more independent audits carried out by the Auditor, and any steps taken
to deal with any such issues;
(o) all relationships between the Auditor and the Company, and between the Auditor and the
Advisor (to assess the Auditors independence); and
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Investment Company Complex means the
Company, the Advisor and any entity controlled by, controlling or under common
control with the Advisor if such entity is an investment adviser or is engaged
in the business of providing administrative, custodian, underwriting or
transfer agent services to the Company or the Advisor. written report to the
Audit Committee concerning these matters prior to the date the audited
financial statements are filed with the Securities and Exchange Commission and
released to the public. |
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(p) the opportunity to report on any other matter that the Auditor deems necessary or
appropriate to discuss with the Audit Committee.
In order to ensure that the Audit Committee has had an opportunity to review the Auditors
report and other required communications relating to the annual audit of the Companys financial
statements prior to the date the audited financial statements are filed with the Securities and
Exchange Commission and released to the public (i.e., within 60 days following the end of the
Companys fiscal year), the Audit Committee shall either meet with the Auditor or, in lieu of a
meeting, require the Auditor to deliver a
4. Meetings with Management and the Advisor. The Audit Committee shall periodically meet
with its management and the Advisor to discuss such items as it deems appropriate, including
but not limited to the Companys annual audited financial statements, including the Companys
disclosures under Managements Discussion of Fund Performance.
5. Discussion of Other Important Items. The Audit Committee shall meet to discuss and
give due consideration to the following items:
(a) major issues regarding accounting principles and financial statement presentations,
including any significant changes in the Companys selection or application of accounting
principles and their effect on the Company, and major issues as to the adequacy of the Companys
internal controls and any special audit steps adopted in light of material control deficiencies;
(b) analyses prepared by management and/or the Auditor setting forth significant financial
reporting issues and judgments made in connection with the preparation of the financial
statements, including analyses of the effects of alternative GAAP methods on the financial
statements;
(c) the effect of regulatory and accounting initiatives on the financial statements of the
Company;
(d) earnings press releases, and financial information and earnings guidance provided to
analysts and rating agencies (such discussion may be done generally, i.e., discussion of the
types of information to be disclosed and the type of presentation to be made), and the Audit
Committee is not required to discuss in advance each earnings release or each instance in which
the Company may provide earnings guidance;
(e) policies with respect to risk assessment and risk management; and
(f) hiring policies with respect to employees or former employees of the Auditor.
6. Evaluation of Audit Related Services and Permissible Non-Audit Services.
(a) The Audit Committee shall evaluate all audit related services performed or to be
performed by the Auditor for the Company. The Audit Committee shall regularly review with the
Auditor any difficulties the Auditor encountered in the course of the audit work, including any
restrictions on the scope of the Auditors activities or on access to requested information, and
any significant disagreements with management. Among the items the Audit Committee may want to
review with the Auditor are: any accounting adjustments that were noted or proposed by the
Auditor but were passed (as immaterial or otherwise); any communications between the audit team
and the Auditors national office respecting auditing or accounting issues presented by the
engagement; and any management or internal control letter issued, or proposed to be issued,
by the Auditor to the Company. The review should also include discussion of the responsibilities,
budget and staffing of the Companys internal audit function.
(b) The Audit Committee shall also evaluate all permissible non-audit services performed or
to be performed by the Auditor for the Company or (i) the Advisor and (ii) any entity
controlling, controlled by, or under common control with the Advisor that provides ongoing
services to the Company, if the nature of the services provided relate directly to the operations
or financial reporting of the Company, to ensure that such services do not impair the
independence of the Auditor. Audit related services are assurance and
related services that are reasonably related to the performance of the audit or review of the Companys financial
statements or that are traditionally performed by the independent auditor that do not impair the
independence of the Auditor. Permissible non-audit services include tax compliance, tax planning,
tax advice and other routine and recurring services that do not impair the independence of the
Auditor.
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7. Pre-Approval of Auditor Services.
(a) Pre-Approval Requirements for Services to Company. Before the Auditor is engaged by the
Company to render audit related or permissible non-audit services, either:
(i) The Audit Committee shall pre-approve such engagement; or
(ii) Such engagement shall be entered into pursuant to pre-approval policies and
procedures established by the Audit Committee. Any such policies and procedures must (1) be
detailed as to the particular service and (2) not involve any delegation of the Audit
Committees responsibilities to the Advisor. The Audit Committee may delegate to one or more
of its members the authority to grant pre-approvals. The pre-approval policies and procedures
shall include the requirement that the decisions of any member to whom authority is delegated
under this Section shall be presented to the full Audit Committee at its next scheduled
meeting.
(iii) De Minimis Exceptions to Pre-Approval Requirements. Pre-approval for a service
provided to the Company other than audit, review or attest services is not required if:
(1) the aggregate amount of all such non-audit services provided to the Company constitutes
not more than 5 percent of the total amount of revenues paid by the Company to the Auditor
during the fiscal year in which the non-audit services are provided; (2) such services were
not recognized by the Company at the time of the engagement to be non-audit services; and
(3) such services are promptly brought to the attention of the Audit Committee and are
approved by the Audit Committee or by one or more members of the Audit Committee to whom
authority to grant such approvals has been delegated by the Audit Committee.
(b) Pre-Approval of Non-Audit Services Provided to the Advisor and Others. The Audit
Committee shall pre-approve any non-audit services proposed to be provided by the Auditor to
(i) the Advisor and (ii) any entity in the investment company complex (see note 3), if the
nature of the services provided relate directly to the operations or financial reporting of the
Company.
Application of De Minimis Exception: The De Minimis exceptions set forth above under
Section 5(a) apply to pre-approvals under this Section (b) as well, except that the total amount
of revenues calculation for Section 5(b) services is based on the total amount of revenues paid
to the Auditor by the Company and any other entity that has its services approved under this
Section (i.e., the Advisor or any control person).
8. Prohibited Activities of the Auditor. The Audit Committee shall confirm with the
Auditor that the Auditor who is performing the audit for the Company is not performing
contemporaneously (during the audit and professional engagement period) any impermissible
non-audit services for the Company or the Advisor (see Section III.2(f)).
9. Establishment of Procedures Regarding Concerns or Complaints. The Audit Committee
shall establish procedures for (i) the receipt, retention, and treatment of complaints received
by the Company regarding accounting, internal accounting controls, or auditing matters, and
(ii) the confidential, anonymous submission by employees of the Company, the Advisor, the
administrator, the lead underwriters, or any other provider of accounting related services for
the Company, of concerns regarding questionable accounting or auditing matters.
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10. Reporting. The Audit Committee Chairman shall report to the Board the
recommendations and determinations of the Audit Committee, as well as the results of any Audit
Committee reviews.1
11. Minutes. The Audit Committee shall prepare minutes of all meetings of the Committee.
IV. Amendment.
The Audit Committee shall review this Charter on an annual basis and recommend any changes to
the Board. This Charter may be amended by a vote of a majority of the Board.
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This report shall include any issues that
arise with respect to the quality or integrity of the Companys financial
statements, the Companys compliance with legal or regulatory requirements, the
performance and independence of the Auditor, or the performance of the
Companys internal compliance function. |
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APPENDIX B
PROXY
KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
THE 2010 ANNUAL MEETING OF STOCKHOLDERS JUNE 30, 2010
The undersigned stockholder of Kayne Anderson Energy Development Company, a Maryland corporation
(the Company), hereby appoints David J. Shladovsky and James C. Baker, or either of them, as
proxies for the undersigned, with full power of substitution in each of them, to attend the 2010
Annual Meeting of Stockholders of the Company (the Annual Meeting) to be held at 717 Texas
Avenue, Suite 3100, Houston, TX 77002, on June 30, 2010, at 8:00 a.m. Central Time and any
adjournment or postponement thereof, to cast on behalf of the undersigned all votes that the
undersigned is entitled to cast at such Annual Meeting and otherwise to represent the undersigned
at the Annual Meeting with all powers possessed by the undersigned if personally present at the
Annual Meeting. The undersigned hereby acknowledges receipt of the Notice of the Annual Meeting and
the accompanying Proxy Statement, the terms of each of which are incorporated by reference, and
revokes any proxy heretofore given with respect to such Annual Meeting.
The votes entitled to be cast by the undersigned will be cast as instructed below. If this Proxy is
executed but no instruction is given, the votes entitled to be cast by the undersigned will be cast
for each of the proposals. Additionally, the votes entitled to be cast by the undersigned will be
cast in the discretion of the Proxy holder on any other matter that may properly come before the
Annual Meeting or any adjournment or postponement thereof.
YOUR VOTE IS IMPORTANT. PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY PROMPTLY USING THE ENCLOSED POSTMARKED ENVELOPE.
6 PLEASE DETACH AT PERFORATION BEFORE MAILING 6
KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
ANNUAL MEETING PROXY CARD
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AUTHORIZED SIGNATURES |
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THIS SECTION MUST BE COMPLETED |
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Please sign exactly as your name appears. If the
shares are held jointly, each holder should sign.
When signing as an attorney, executor, administrator,
trustee, guardian, officer of a corporation or other
entity or in another representative capacity, please
indicate your full title under signature(s).
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Signature
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Signature(s)(if held jointly)
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(continued from reverse side)
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PROXY
KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY
ANNUAL MEETING PROXY CARD
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BELOW AND, IF NO CHOICE IS INDICATED, WILL BE VOTED FOR EACH PROPOSAL.
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THE ELECTION OF CLASS III DIRECTORS FOR TERMS OF THREE YEARS AND UNTIL THEIR SUCCESSORS ARE
ELECTED AND QUALIFIED. |
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FOR THE NOMINEE LISTED BELOW
NOMINEE: ALBERT L. RICHEY |
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WITHHOLD FROM THE NOMINEE LISTED BELOW |
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FOR THE NOMINEE LISTED BELOW
NOMINEE: ROBERT V. SINNOTT |
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WITHHOLD FROM THE NOMINEE LISTED BELOW |
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THE APPROVAL OF A PROPOSAL TO AUTHORIZE THE COMPANY TO SELL SHARES OF ITS COMMON STOCK AT A
PRICE LESS THAN THE NET ASSET VALUE PER SHARE. |
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o FOR |
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THE APPROVAL OF A PROPOSAL TO AUTHORIZE THE BOARD OF DIRECTORS TO WITHDRAW THE COMPANYS
ELECTION TO BE TREATED AS A BUSINESS DEVELOPMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF
1940. |
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o FOR |
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THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANYS INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING NOVEMBER 30, 2010. |
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o FOR |
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o AGAINST |
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o ABSTAIN |
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TO VOTE AND OTHERWISE REPRESENT THE UNDERSIGNED ON ANY OTHER MATTER THAT MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF IN THE DISCRETION OF THE PROXY
HOLDER. |
The proxy statement and the Companys most recent Annual Report are available on the Internet at
www.kaynefunds.com/KedSECFilings.php.