-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WSZSVstyV248LGKyqNRBjS50XTz3IzRSCHasIjmNuMqJthUvCG70WVMSq6g5l94s cCi3tLVcmnE/nEtL1Vmvxw== 0000950147-97-000621.txt : 19970912 0000950147-97-000621.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950147-97-000621 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970908 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAYNE ANDERSON MUTUAL FUNDS CENTRAL INDEX KEY: 0001018593 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07705 FILM NUMBER: 97676796 BUSINESS ADDRESS: STREET 1: 1800 AVENUE OF THE STARS, 2ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90067 MAIL ADDRESS: STREET 1: 1800 AVENUE OF THE STARS, 2ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90067 N-30D 1 ANNUAL REPORT Kayne Anderson Mutual Funds TABLE OF CONTENTS - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS................................................ 3 COMMENTS FROM INVESTMENT ADVISOR...................................... 4 PORTFOLIOS OF INVESTMENTS Rising Dividends Fund........................................ 13 Small-Mid Cap Rising Dividends Fund.......................... 16 International Rising Dividends Fund.......................... 19 Intermediate Total Return Bond Fund.......................... 23 Intermediate Tax-Free Bond Fund.............................. 25 STATEMENTS OF ASSETS AND LIABILITIES.................................. 28 STATEMENTS OF OPERATIONS.............................................. 30 STATEMENTS OF CHANGES IN NET ASSETS................................... 32 FINANCIAL HIGHLIGHTS.................................................. 34 NOTES TO FINANCIAL STATEMENTS......................................... 36 Kayne Anderson Mutual Funds Investor Notes - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to express our appreciation for your investment in the Kayne Anderson Mutual Funds. If you are new to the Kayne Anderson family of investors, we welcome you. This semi-annual report contains financial statements for each of the Funds for the period ended June 30, 1997. In addition, there are reports on the individual Funds. In each case, the goal and objective of the Fund is stated and the portfolio manager has written a commentary and an outlook. We hope that you will find these comments interesting and timely. As investment advisors, we have managed private accounts for both equity and fixed-income investors for many years. We are delighted to be able to offer these Mutual Funds for our clients so that diversification among asset classes can be readily accomplished. Through these Funds, shareholders can structure a diversified portfolio consistent with their personal investment objectives and goals. We thank you again for your investment in the Kayne Anderson family of No-Load Mutual Funds. We at Kayne Anderson are committed to assisting shareholders with the realization of their financial goals. As always, we welcome your questions and comments. Sincerely, /s/ Richard A. Kayne /s/ Allan M. Rudnick Richard A. Kayne Allan M. Rudnick Chairman President 3 Kayne Anderson Rising Dividends Fund ------------------------------------ Objective: - ---------- The investment goals of the Rising Dividends Fund are to: own the highest quality, low debt companies; keep pace in rising stock markets; outperform during weak stock markets; and provide rising dividend income. We adhere to a disciplined investment approach that allows us to pursue above-average growth with lower volatility than the general market. The stocks we own are high-quality growth companies that are industry leaders. Many of them could be characterized as "visionary companies" with well-defined core ideologies that drive their organization. These ideologies keep management and employees focused, and product development and corporate growth on track. Commentary: - ----------- As this is written, stock prices continue making new highs, with the market up approximately 20% for the first six months of 1997. The dynamic stock market continues to reflect the many fundamental positives in the economy that have been widely written about over the past few years. The strong performance of the Fund for the first six months of this year continues to indicate that investors want to own companies that are able to consistently produce double digit earnings and dividend growth. For the first six months of this year, the Fund was most heavily weighted in the Consumer Staples, Financial and Technology sectors. Individual stocks that outperformed during this time period were concentrated in the Financial sector. In particular, Franklin Resources, State Street Corp. and Marsh & McLennan, which have underlying businesses tied to the securities markets, benefited from rising stock prices. In the Consumer Staples sector, the Fund owns companies such as Gillette, Kellogg and Wrigley. In addition, we purchased CPC International and Kimberly-Clark Corp. during the year. CPC International is a global packaged foods company whose brands include Best Foods and Hellmann's dressings, Entenmann's pastries, Thomas' English muffins and Skippy peanut butter. Kimberly Clark is an international consumer products company. A common theme in many of the Consumer Staples positions is a strong international presence. These multinational companies are expected to benefit from the millions of new consumers coming into the global marketplace. Within the technology sector, hardware companies such as Motorola, L.M. Ericsson and Hewlett Packard have been strong as of late. On the other hand, computer services companies such as Automatic Data Processing, Electronic Data Systems and Equifax have lagged recently, creating good value in that sector. We recently visited Motorola at their headquarters in Chicago and came away impressed with the company's ability to continue to be a leader in a number of high-growth areas, such as cellular telephone ground stations. This company is well positioned to take advantage of the fact that only 3% of the world's population is penetrated by wireless communications. 4 Outlook: - -------- Regarding stock prices, in past periods when inflation was as low as the 2.5% rate expected for 1997, the market P/E (price/earnings) ratio ranged from 18 to 22. As of June 30, 1997, the S&P 500 traded at about 21 times consensus estimated earnings for 1997 and 19.7 times consensus earnings for 1998. Therefore, stocks in general are not particularly overpriced given the very favorable inflation outlook. Inflation is of primary importance for a number of reasons. First, if inflation is low, interest rates should stay at current levels or perhaps move lower, and investors will not be tempted to sell stocks and buy bonds to "lock in" more attractive bond yields. Second, a low-inflation environment allows businesses to plan better, control costs more effectively and show more durable profit growth. Third, the quality of earnings is much better, reflecting the relative absence of "inflation profits" tied to marked-up inventories. Investors tend to accord a higher P/E ratio to earnings growth that comes from unit sales growth rather than price increases. As long as the Federal Reserve Board, led by Alan Greenspan, continues to remain committed to low inflation, we remain optimistic on this point. Another major positive is the continued growth of world-wide markets. All over the world, we see more and more consumers achieving the discretionary income thresholds needed to be able to enjoy the products distributed by multinational companies. From Eastern Europe to Latin America to China, government policies are being structured to allow citizens to become gainfully employed in the expanding private sector. The markets are opening up for corporations to build plants, employ people and sell products to these consumers. We see positives in the supply/demand aspects of the market as well. Due to cash mergers, "leveraged buy outs" and stock repurchases, the net shrinkage in share supply is at an annual rate of $102 billion so far this year. In addition, recently released Federal Reserve data shows that at the end of March, only 48% of the $12.6 trillion in financial assets in the hands of individuals was invested in stocks or stock mutual funds. That is well below the highs seen in the 1960s. Finally, many of the "baby boomers" are just entering their prime years for saving and investing. We expect to see them continuing to invest into the next decade. So, to summarize, the inflation rate is positive for stock valuations and real corporate profit growth, emerging international economies are providing new markets for growth, and demand for stocks should remain high. Our approach to this environment is to buy only quality growth companies that pay rising dividends and have relatively low debt. These companies also tend to be global in their scope of operations. We further discipline ourselves to have a portfolio that is diversified across all major economic segments. Although a short-term "correction" may come at any time, we continue to believe that a diversified portfolio of well-selected, quality growth, rising dividends companies will show very satisfactory total returns to investors who take a long-term view. 5 Kayne Anderson Small-Mid Cap Rising Dividends Fund -------------------------------------------------- Objective: - ---------- The goal of the Small-Mid Cap Rising Dividends Fund is to build a diversified portfolio of the next generation of high quality "blue chip" companies. Using Rising Dividends criteria, we seek to produce small-mid cap stock returns, but with less risk. We focus on the highest quality companies to allow clients to participate in the strong growth of small companies while assuming less financial and stock market risk. Commentary: - ----------- Your portfolio owns stock in "America's best bank" according to U.S. Banker magazine (National Commerce Bancorp), the nation's most profitable semiconductor company according to electronics industry statistics (Linear Technology), and the "Cable operator of the year" according to Cablevision magazine (TCA Cable TV). This is a portfolio of industry leaders, despite the fact that the companies have not yet grown to become household names. Relative Price/Earnings Ratio Date P/E Relative to S&P 500 ---- ----------------------- 7/87 115.44% 8/87 118.71% 9/87 126.31% 10/87 121.10% 11/87 129.26% 12/87 137.75% 1/88 136.07% 2/88 141.85% 3/88 146.74% 4/88 148.03% 5/88 145.02% 6/88 163.32% 7/88 157.87% 8/88 154.55% Price Earnings ratio for the stocks currently in the Small-Mid Cap Rising Dividends Fund dividend by the Price/Earnings ratio of the Standard & Poor's 500 Index. Source: CompuStat 6 Small and mid-sized companies have recently trailed large companies in stock price performance. However, financial results of small and mid-sized companies in general are strong - not trailing. The combination of strong financial results and trailing stock prices has made our Small-Mid Cap Rising Dividends Fund available at a price/earnings ratio lower than that for the Standard & Poor's 500 Index today. By comparison, the norm over the past decade for the companies currently held by the Fund has been a price/earnings ratio 20% above that of the S&P 500. We believe the availability of industry leading companies at a discount price/earnings ratio creates an attractive investment opportunity. Outlook: - -------- A benign economy continues to provide an environment where revenues, earnings, and dividends grow nicely for our holdings. There is little commodity price volatility to disturb the business development of our basic materials companies - Bemis, Hach and Liqui-Box. Strong business investment is creating favorable demand for our capital goods companies - Diebold, Nordson and Wireless Telecom. And our financial companies, American Heritage Life, Eaton Vance, Mutual Risk Management, National Commerce Bancorp, United Asset Management and Washington Federal Savings, continue to prosper in this low and stable interest rate environment. 7 Kayne Anderson International Rising Dividends Fund -------------------------------------------------- Objective: - ---------- The goal of the International Rising Dividends Fund is to achieve consistent above-average returns by investing in carefully selected international stocks from a universe of very high quality companies. Our investment universe is comprised of companies with a history of consistent increases in dividends and a low debt level. Generally, we focus our investments on businesses with a global franchise rather than on local firms. Although we favor broad international diversification, we are not looking to replicate the country allocation of our benchmark, the MSCI EAFE (Europe, Australia and Far East) Index. Commentary: - ----------- During the first half of 1997, the Fund's net asset value increased by 20.0%, while the MSCI EAFE Index was up 11.4% in dollar terms. The European equity markets were very strong (up 20% on average in dollar terms), while the Japanese market, a big component of the EAFE Index, rose only 7% in dollar terms. Although the yen/dollar parity remained unchanged at the end of the quarter compared to its level at the end of last year (115(Y)/$), the dollar rose strongly against all Continental European currencies (e.g. up 13% against the German Mark). It is worth noting that the strength of the dollar did not prevent investors from achieving good returns on their European investments. In fact, a rising dollar positively impacts the profits of foreign export companies, which now feel relieved from the competitive pressure of an undervalued dollar. The Fund, which is dominated by investments in foreign multinational companies, is particularly well positioned to reap the full benefit of the currency market's current trend. At the end of June 1997, the four largest countries represented in the Fund were the United Kingdom (30.8%), France (11.7%), Japan (11.2%) and Hong Kong (11.1%). Less than 5% of Fund assets were invested in short-term money market instruments. Our under-weighted position in Japan--compared to its weight in the EAFE index of about 30%--has helped us to out-perform that benchmark for two reasons: (1) the Nikkei returned only 7% during the first half of 1997 and (2) our stock selection in Japan has out-performed the market average significantly. As an example, Rohm (a leading Japanese semi-conductor company) has almost doubled in price since we first bought it in February. Additionally, Nintendo (video games manufacturer), Kao (personal products manufacturer), and Seven-Eleven Japan (retailer) have seen their stock prices rising between 25% and 35% since the beginning of the year. Thus, our selective approach in Japan has paid off handsomely during the period. Some other strong performers in the Fund include HSBC Holding (+43%), one of the world's largest banks with a unique position in Asia, and Novartis (+41%), the world's largest drug company, born in January when Sandoz and Ciba-Geigy in Switzerland were merged. We were also happy to learn that two of the Fund's holdings, Guinness Plc. and Grand Metropolitan Plc. have decided to merge and create what should become the incontestable world leader in branded spirits (GMG Brands). 8 The country allocation of the Fund at June 30, 1997 was: Aust 3.2% Spain 4.5% UK 30.8% Sweden 6.5% France 11.7% Japan 11.2% Switzerland 6.5% Netherland 7.0% Hong Kong 11.1% Malaysia 2.7% Cash 4.8% ------ 100.0% Outlook: - -------- As we wrote at the end of last year, the long-term prospects for international equities remain excellent, although in the short-term some foreign stocks and markets may have run out of steam after recent strong performances. Many of the best managed foreign companies are restructuring their operations, increasingly focusing on their core businesses, and adopting a more shareholder-friendly attitude, much like American companies did 10 or 15 years ago. Over time, we are confident that the market will more richly value the stocks of those outstanding companies. This is a powerful movement that we see developing over the next five to 10 years. 9 Kayne Anderson Intermediate Total Return Bond Fund -------------------------------------------------- Objective: - ---------- The objective of the Intermediate Total Return Bond Fund is to seek total return through current income and capital appreciation, with principal preservation a secondary consideration. The Fund seeks to achieve its objective by investing primarily in high-quality, intermediate maturity debt securities. Studies show that intermediate maturity debt securities can, over time, achieve a majority of the return of long-term maturity debt without the associated level of risk. Commentary: - ----------- During the first half of 1997, the Fund's net asset value decreased $0.10, from $10.65 to $10.54. The total return, i.e. principal gain or loss with income was 2.28%* for the Fund, compared with 2.83% for the Lehman Brothers Intermediate Government/Corporate Bond Index. During the first quarter, the Fund was still in the process of diversifying its initial holdings. During that period, the overall level of interest rates for intermediate bonds rose approximately 55 basis points (0.55%). By June 30, 1997, after slightly more than eight months of operations, Fund assets were fully invested in intermediate-term taxable bonds. The three largest sectors represented in the Fund were: U.S. Treasury (41%), Finance (16%), and Industrial (15%). The three largest individual credits held in the portfolio were the U.S Treasury (41%), the Government National Mortgage Association (11%), and the Federal National Mortgage Association (5%). Mortgage Backed 11% Asset Backed 4% Industrial 15% Finance 16% Cash Equivalent 8% Agency 5% U.S. Treasury 41% ---- 100% Outlook: - -------- The Federal Reserve is expected to keep its current policy stance towards the level of interest rates for the remainder of the third quarter. We will seek to distribute more fully the average maturity of the portfolio as opportunities in the market arise. * Past performance is not predictive of future performance, shares, when redeemed, may be worth more or less than their original cost. 10 Kayne Anderson Intermediate Tax-Free Bond Fund ---------------------------------------------- Objective: - ---------- The objective of the Intermediate Tax-Free Bond Fund is to seek current income exempt from federal income tax consistent with preservation of capital. The Fund seeks to achieve its objective by investing primarily in high-quality, intermediate maturity debt securities, interest from which is exempt from federal income tax. Part of the income from this Fund may also be exempt from state income tax depending on the State of the shareholder's residence. Studies show that intermediate maturity debt securities, over time, can achieve a majority of the return of long-term debt securities without the associated level of risk. Commentary: - ----------- During the first half of 1997, the Fund's net asset value increased $0.01, from $10.65 to $10.66. The total return, i.e. principal gain or loss with income was 1.58%* for the Fund, compared to 2.42% for the Lehman Brothers 5-year Municipal Bond Index for the same time period. During the first quarter, the Fund was still in the process of investing its initial holdings. During the period, the overall level of interest rates for intermediate maturity bonds rose approximately 55 basis points (0.55%). By June 30, 1997, after slightly more than eight months of operations, Fund assets were fully invested in federally tax-exempt municipal securities. One of the goals of the Fund is to achieve a high level of diversification among various municipal bond sectors. So far, we have achieved this goal by diversifying the Fund among seven sectors within the municipal bond market. The three largest sectors represented in the Fund were general obligation bonds (32%), electric utility bonds (16%), and miscellaneous revenue bonds (13%). The Fund was also invested in municipalities that are located in 12 different states and territories. The three largest states represented in the Fund were California (34%), New York (19%), and Washington (8%). Cash & Equivalents 3% Prerefunded 8% Education 6% Transportation 13% Industrial Development 6% Housing 4% Hospital 12% Electric 16% General Obligation 32% ---- 100% 11 Outlook: - -------- The Federal Reserve is expected to keep its current interest rate policy for the remainder of the third quarter. Municipal bonds should continue to perform well relative to most taxable bond sectors. We will seek to lengthen the average maturity of securities in the Fund as opportunities in the market arise. * Past performance is not predictive of future performance, shares, when redeemed, may be worth more or less than their original cost. 12 Kayne Anderson Rising Dividends Fund ------------------------------------
PORTFOLIO OF INVESTMENTS at June 30, 1997 (Unaudited) - ------------------------------------------------------------------------------------------------------------------- Shares COMMON STOCKS: 96.6% Market Value - ------------------------------------------------------------------------------------------------------------------- Basic Materials / Chemicals: 6.4% 10,920 Du Pont (E.I.) de Nemours............................................... $ 686,595 18,500 Monsanto Company........................................................ 796,656 17,280 PPG Industries, Inc..................................................... 1,004,400 ----------- 2,487,651 ----------- Capital Goods / Electrical Equipment: 9.5% 12,200 Emerson Electric........................................................ 671,763 12,000 General Electric Company................................................ 784,500 15,380 Illinois Tool Works, Inc................................................ 768,039 8,040 Minnesota Mining & Manufacturing Company................................ 820,080 8,350 W.W. Grainger Corporation............................................... 652,866 ----------- 3,697,248 ----------- Communication Services / Telecommunications: 2.8% 17,220 SBC Communications, Inc................................................. 1,065,488 ----------- Consumer Cyclical / Entertainment & Leisure: 1.9% 9,000 The Walt Disney Company................................................. 722,250 ----------- Consumer Cyclical / Publishing & Broadcasting: 2.0% 7,970 Gannett Company, Inc.................................................... 787,038 ----------- Consumer Cyclical / Restaurants: 2.5% 19,950 McDonald's Corporation.................................................. 963,834 ----------- Consumer Cyclical / Services: 4.3% 24,130 Cintas Corporation...................................................... 1,658,938 ----------- Consumer Staples / Beverages: 4.1% 12,040 Coca-Cola Company....................................................... 812,700 11,500 Nestle S.A. ADR......................................................... 759,645 ----------- 1,572,345 -----------
13 Kayne Anderson Rising Dividends Fund ------------------------------------
PORTFOLIO OF INVESTMENTS at June 30, 1997 (Unaudited), Continued - ------------------------------------------------------------------------------------------------------------------- Shares Market Value - ------------------------------------------------------------------------------------------------------------------- Consumer Staples / Consumer Products: 5.7% 8,370 Gillette Company........................................................ $ 793,058 14,260 Kimberly-Clark Corporation.............................................. 709,434 5,000 Procter & Gamble Company................................................ 706,250 ----------- 2,208,742 ----------- Consumer Staples / Foods: 7.6% 8,190 CPC International, Inc.................................................. 756,039 9,650 Kellogg Company......................................................... 825,425 13,100 Sara Lee Corporation.................................................... 545,288 12,000 Wm. Wrigley, Jr., Company............................................... 804,000 ----------- 2,930,752 ----------- Energy / Gas: 5.3% 12,000 Exxon Corporation....................................................... 738,000 9,700 Mobil Corporation....................................................... 677,788 11,640 Royal Dutch Petroleum Company ADR....................................... 632,925 ----------- 2,048,713 ----------- Financial / Banking: 5.1% 14,250 Banc One Corporation.................................................... 690,234 7,000 Fifth Third Bancorp..................................................... 574,218 12,500 Norwest Corporation..................................................... 703,125 ----------- 1,967,577 ----------- Financial / Financial Services: 6.3% 20,000 Equifax, Inc............................................................ 743,750 12,120 Franklin Resources, Inc................................................. 879,458 18,000 State Street Boston Corporation......................................... 832,500 ----------- 2,455,708 ----------- Financial / Insurance: 7.8% 20,088 Cincinnati Financial Corporation........................................ 1,586,952 3,850 General Re Corporation.................................................. 700,700 10,300 Marsh & McLennan Cos., Inc.............................................. 735,163 ----------- 3,022,815 ----------- Health Care / Drugs & Hospital Supplies: 9.2% 9,350 Abbott Laboratories..................................................... 624,113 32,984 Astra AB-ADR, Class A................................................... 626,696 12,020 Johnson & Johnson....................................................... 773,788
14 Kayne Anderson Rising Dividends Fund ------------------------------------
PORTFOLIO OF INVESTMENTS at June 30, 1997 (Unaudited), Continued - ------------------------------------------------------------------------------------------------------------------- Shares Market Value - ------------------------------------------------------------------------------------------------------------------- Health Care / Drugs & Hospital Supplies, continued 9,550 Medtronic, Inc.......................................................... $ 773,550 7,480 Merck & Company, Inc.................................................... 774,179 ----------- 3,572,326 ----------- Technology / Computers & Office Equipment: 1.7% 12,100 Hewlett-Packard Company................................................. 677,600 ----------- Technology / Data Services: 8.3% 19,920 Automatic Data Processing, Inc.......................................... 936,240 39,230 Electronic Data Systems................................................. 1,608,429 10,510 Reuters Holdings PLC, ADR............................................... 662,130 ----------- 3,206,799 ----------- Technology / Telecommunications Equipment: 4.4% 20,620 L.M. Ericsson Tel-Sp, ADR............................................... 811,912 11,870 Motorola, Inc........................................................... 902,119 ----------- 1,714,031 ----------- Utilities: 1.7% 27,000 DPL, Inc................................................................ 664,875 ----------- Total Common Stocks (cost $25,234,039).................................. 37,424,730 ----------- Total Investments in Securities (cost $25,234,039+): 96.6%.............. 37,424,730 Other Assets less Liabilities: 3.4%..................................... 1,304,817 ----------- Net Assets: 100.0% ..................................................... $38,729,547 =========== + Cost for federal income tax purpose is the same. Net unrealized appreciation consists of: Gross unrealized appreciation........................................... $12,209,451 Gross unrealized depreciation........................................... (18,760) ----------- Net unrealized appreciation....................................... $12,190,691 ===========
See accompanying Notes to Financial Statements. 15 Kayne Anderson Small-Mid Cap Rising Dividends Fund
PORTFOLIO OF INVESTMENTS at June 30, 1997 (Unaudited) - ------------------------------------------------------------------------------------------------------------------- Shares COMMON STOCKS: 84.2% Market Value - ------------------------------------------------------------------------------------------------------------------- Basic Materials / Packaging: 8.2% 3,000 Bemis Company........................................................... $ 129,750 4,860 Liqui-Box Corporation................................................... 164,025 ----------- 293,775 ----------- Basic Materials / Specialty Chemicals: 0.9% 1,555 Hach Company............................................................ 30,711 ----------- Capital Goods / Electronic Equipment: 8.0% 2,860 Diebold, Inc............................................................ 111,540 15,840 Wireless Telecommunications Group, Inc.................................. 175,230 ----------- 286,770 ----------- Capital Goods / Machinery Equipment: 5.2% 2,925 Nordson Corporation..................................................... 187,931 ----------- Computer & Office Equipment: 3.7% 8,530 Reynolds & Reynolds, Inc................................................ 134,348 ----------- Consumer Cyclical / Services: 4.3% 2,255 Cintas Corporation...................................................... 155,031 ----------- Consumer Staples / Food Chain: 3.9% 5,720 Smart & Final, Inc...................................................... 140,140 ----------- Consumer Staples / Food: 1.7% 1,370 Tootsie Roll Industries, Inc............................................ 60,961 ----------- Energy / Oil & Gas Production: 4.7% 4,615 Devon Energy Corporation................................................ 169,601 ----------- Finance / Insurance: 6.7% 5,310 American Heritage Life Investment Corporation........................... 175,230 1,240 Hartford Steam Boiler................................................... 66,185 ----------- 241,415 -----------
16 Kayne Anderson Small-Mid Cap Rising Dividends Fund
PORTFOLIO OF INVESTMENTS at June 30, 1997 (Unaudited), Continued - ------------------------------------------------------------------------------------------------------------------- Shares Market Value - ------------------------------------------------------------------------------------------------------------------- Finance / Banking: 4.5% 2,440 National Commerce Bancorp............................................... $ 53,680 4,235 Washington Federal, Inc................................................. 108,787 ----------- 162,467 ----------- Finance / Financial Services: 7.3% 3,570 Eaton Vance Corporation................................................. 99,291 5,770 United Asset Management Corporation..................................... 163,363 ----------- 262,654 ----------- Health Care / Drugs & Hospital Supplies: 8.5% 9,450 Ballard Medical Products................................................ 189,591 7,945 Mylan Labs, Inc......................................................... 117,189 ----------- 306,780 ----------- Miscellaneous / Business Services: 3.4% 2,630 Mutual Risk Management, Ltd............................................. 120,651 ----------- Miscellaneous / Diversified: 4.6% 6,570 Federal Signal Corporation.............................................. 165,071 ----------- Technology / Semiconductors: 4.1% 2,845 Linear Technology Corporation........................................... 147,229 ----------- Utilities / Cable Television: 4.5% 4,285 TCA Cable TV, Inc....................................................... 161,222 ----------- Total Common Stocks (cost $2,761,142)................................... 3,026,757 ----------- Total Investments in Securities (cost $2,761,142+): 84.2%............... 3,026,757 Other Assets less Liabilities: 15.8%.................................... 567,908 ----------- Net Assets: 100.0% ..................................................... $ 3,594,665 ===========
17 Kayne Anderson Small-Mid Cap Rising Dividends Fund
PORTFOLIO OF INVESTMENTS at June 30, 1997 (Unaudited), Continued - ------------------------------------------------------------------------------------------------------------------- Market Value - ------------------------------------------------------------------------------------------------------------------- +Cost for federal income tax purpose is the same. Net unrealized appreciation consists of: Gross unrealized appreciation........................................... $ 303,064 Gross unrealized depreciation........................................... (37,449) ----------- Net unrealized appreciation....................................... $ 265,615 ===========
See accompanying Notes to Financial Statements. 18 Kayne Anderson International Rising Dividends Fund
PORTFOLIO OF INVESTMENTS at June 30, 1997 (Unaudited) - ------------------------------------------------------------------------------------------------------------------- Shares COMMON STOCKS: 95.2% Market Value - ------------------------------------------------------------------------------------------------------------------- Australia: 3.3% 2,200 Broken Hill Proprietary ADR............................................. $ 119,000 ----------- France: 11.7% 3,370 Axa S.A. ADR............................................................ 106,576 3,390 Groupe Danone S.A. ADR.................................................. 112,134 1,900 Lafarge S.A. ADR........................................................ 39,034 1,000 Louis Vuitton Moet Hennessey ADR........................................ 53,875 2,200 Total S.A. ADR.......................................................... 111,375 ----------- 422,994 ----------- Hong Kong: 11.1% 56,000 Hong Kong & China Gas Company Ltd. ADR.................................. 112,034 300 Hong Kong & Shanghai Banking ADR........................................ 90,225 8,526 Hong Kong Telecom, Ltd. ADR............................................. 199,295 ----------- 401,554 ----------- Japan: 11.2% 1,000 Kao Corporation ADR..................................................... 138,949 5,300 Nintendo Company Ltd. ADR............................................... 55,580 1,000 Rohm Company............................................................ 102,980 1,400 Seven Eleven Japan ADR.................................................. 105,951 ----------- 403,460 ----------- Malaysia: 2.7% 20,000 Genting Berhad ADR...................................................... 95,876 ----------- Netherlands: 7.0% 3,000 Elsevier, N.V. ADR...................................................... 101,438 2,000 Polygram, N.V. ADR...................................................... 107,625 200 Unilever, N.V. ADR...................................................... 43,600 ----------- 252,663 ----------- Spain: 4.5% 1,200 Empresa Nacional Elec. ADR.............................................. 102,075 1,400 Repsol S.A. ADR......................................................... 59,413 ----------- 161,488 -----------
19 Kayne Anderson International Rising Dividends Fund
PORTFOLIO OF INVESTMENTS at June 30, 1997 (Unaudited), Continued - ------------------------------------------------------------------------------------------------------------------- Shares Market Value - ------------------------------------------------------------------------------------------------------------------- Sweden: 6.5% 10,374 Astra AB A Shares ADR................................................... $ 197,106 1,000 Ericsson (L.M.) Telephone ADR........................................... 39,375 ----------- 236,481 ----------- Switzerland: 6.5% 900 Nestle S.A. ADR......................................................... 59,450 1,800 Novartis AG ADR......................................................... 144,089 320 Roche Holdings, Ltd., ADR............................................... 28,985 ----------- 232,524 ----------- United Kingdom: 30.7% 4,000 Bat Industries PLC ADR.................................................. 73,250 2,200 Cable & Wireless PLC ADR................................................ 61,463 2,050 Carlton Communications PLC ADR.......................................... 88,150 2,000 Grand Metropolitan PLC.................................................. 78,375 1,000 Guinness PLC ADR........................................................ 48,930 1,950 Marks and Spencer PLC ADR............................................... 96,972 10,000 Pearson PLC ADR......................................................... 115,752 4,640 Rentokil Initial PLC ADR................................................ 162,941 1,500 Reuters Holding PLC ADR................................................. 94,500 3,000 Siebe PLC ADR........................................................... 101,556 4,000 Tomkins PLC ADR......................................................... 71,500 2,400 Vodafone Group PLC ADR.................................................. 116,250 ----------- 1,109,639 ----------- Total Common Stocks (cost $2,998,614)................................... 3,435,679 ----------- Total Investments in Securities (cost $2,998,614+): 95.2%............... 3,435,679 Other Assets less Liabilities: 4.8%..................................... 174,967 ----------- Net Assets: 100.0% ..................................................... $ 3,610,646 ===========
See accompanying Notes to Financial Statements. 20 Kayne Anderson International Rising Dividends Fund
PORTFOLIO OF INVESTMENTS at June 30, 1997 (Unaudited), Continued - ------------------------------------------------------------------------------------------------------------------- Market Value - ------------------------------------------------------------------------------------------------------------------- +Cost for federal income tax purpose is the same. Net unrealized appreciation consists of: Gross unrealized appreciation........................................... $ 476,940 Gross unrealized depreciation........................................... (39,875) ----------- Net unrealized appreciation....................................... $ 437,065 ===========
21 See accompanying Notes to Financial Statements. Kayne Anderson International Rising Dividends Fund
PORTFOLIO OF INVESTMENTS BY INDUSTRIES at June 30, 1997 (Unaudited) - ------------------------------------------------------------------------------------------------------------------- Equity Percentage - ------------------------------------------------------------------------------------------------------------------- Amusement & Recreation Services......................................... 2.7% Audio/Video Home Products............................................... 5.4% Bank.................................................................... 2.5% Beverages............................................................... 3.5% Beverages/Luxury Goods.................................................. 1.5% Books................................................................... 2.8% Cigarettes/Insurance.................................................... 2.0% Conglomorate or Miscellaneous........................................... 2.0% Concrete Gypsum & Plaster Products...................................... 1.1% Cosmetics & Personal Care............................................... 3.8% Crude Petroleum & Natural Gas........................................... 4.7% Dolls, Toys, Games & Sports............................................. 1.5% Drugs................................................................... 10.3% Electric Services....................................................... 2.8% Electronic Components................................................... 2.9% Electronic Components & Accessories..................................... 2.8% Family Clothing Stores.................................................. 2.7% Foods................................................................... 6.1% Gas..................................................................... 3.1% Grocery Stores.......................................................... 2.9% Insurance............................................................... 3.0% Iron Ores............................................................... 3.3% Miscellaneous Manufacturing Industries.................................. 4.5% Newspapers.............................................................. 5.8% Telephone Communications................................................ 11.5% ----- Total Investments....................................................... 95.2% Other Assets less Liabilities........................................... 4.8% ----- Net Assets.............................................................. 100.0% =====
See accompanying Notes to Financial Statements. 22 Kayne Anderson Intermediate Total Return Bond Fund
PORTFOLIO OF INVESTMENTS at June 30, 1997 (Unaudited) - ------------------------------------------------------------------------------------------------------------------- Principal Amount LONG-TERM DEBT SECURITIES: 93.1% Market Value - ------------------------------------------------------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS: 41.4% -------------------------------------------------- U.S. Treasury Notes $1,500,000 6.250%, due 10/31/2001................................................. $1,493,905 700,000 7.250%, due 8/15/2004.................................................. 729,968 ----------- Total U.S. Treasury Obligations (cost $2,249,842)....................... 2,223,873 ----------- U.S. AGENCY OBLIGATIONS: 16.0% -------------------------------------------------- 250,000 Federal National Mortgage Association (FNMA) 6.950%, due 11/13/2006................................................. 247,963 1,000,000 Government National Mortgage Association (GNMA) 8.500%, due 6/15/2026.................................................. 307,096 8.000%, due 11/15/2026................................................. 303,363 ----------- Total U.S. Agency Obligations (cost $859,299)........................... 858,422 ----------- CORPORATE BONDS: 35.7% -------------------------------------------------- Beverages: 3.7% 200,000 Anheuser Busch Companies, 6.750%, due 11/1/2006......................... 195,438 ----------- Commercial Banking: 3.7% 200,000 Capital One Bank, 6.730%, due 6/4/1998.................................. 200,813 ----------- Finance: 16.8% 75,000 Ford Motor Credit Corp., 6.250%, due 11/08/2000......................... 74,040 200,000 General Motors Acceptance Corp., 7.125%, due 5/01/2003.................. 201,905 200,000 Household Finance Co., 8.000%, due 8/15/2004............................ 204,981 200,000 Sears Roebuck Co., 9.450%, due 7/15/2001................................ 218,460 200,000 WFS Financial Owner Trust, 6.800%, due 12/20/2003....................... 200,880 ----------- 900,266 ----------- Industrial: 4.1% 200,000 Allied Signal, Inc., 9.200%, due 2/15/2003.............................. 221,853 -----------
See accompanying Notes to Financial Statements. 23 Kayne Anderson Intermediate Total Return Bond Fund
PORTFOLIO OF INVESTMENTS at June 30, 1997 (Unaudited), Continued - ------------------------------------------------------------------------------------------------------------------- Principal Amount LONG-TERM DEBT SECURITIES Market Value - ------------------------------------------------------------------------------------------------------------------- Mortgage Bankers & Brokers: 3.7% $200,000 Beneficial Corp., 6.600%, due 9/26/2001................................. $ 198,520 ----------- Motion Picture Production & Other Services: 3.7% 200,000 The Walt Disney Company, 6.375%, due 3/30/2001.......................... 198,939 ----------- Total Corporate Bonds (cost $1,935,194)................................. 1,915,829 ----------- Total Long-Term Debt Securities (cost $5,044,335)....................... 4,998,124 ----------- COMMERCIAL PAPER: 6.3% -------------------------------------------------- 340,000 Ford Motor Credit Corp., 6.110%, due 7/1/1997 (cost $340,000)........... 340,000 ----------- Total Investments in Securities (cost $5,384,335+): 99.4%............... 5,338,124 Other Assets less Liabilities: 0.6%..................................... 34,615 ----------- Net Assets: 100.0% ..................................................... $ 5,372,739 =========== +Cost for federal income tax purpose is the same. Net unrealized depreciation consists of: Gross unrealized appreciation........................................... $ 1,019 Gross unrealized depreciation........................................... (47,230) ----------- Net unrealized depreciation....................................... $ (46,211) ===========
24 Kayne Anderson Intermediate Tax-Free Bond Fund
PORTFOLIO OF INVESTMENTS at June 30, 1997 (Unaudited) - ------------------------------------------------------------------------------------------------------------------- Principal Amount LONG-TERM MUNICIPAL DEBT: 97.0% Market Value - ------------------------------------------------------------------------------------------------------------------- General Obligation: 32.7% $250,000 California State, 5.375%, dated 3/1/1994, due 3/1/2006.................. $ 259,688 220,000 California State Franchise Tax, 6.900%, dated 7/1/1989, due 10/1/2006.......................................................... 236,775 200,000 California State Veterans Bond, 6.375%, dated 3/1/1995, due 2/1/2027........................................................... 202,750 200,000 Hawaii State, 5.250%, dated 3/1/1997, due 3/1/2000...................... 204,500 200,000 Maricopa County Arizona Series E, 5.550%, dated 6/1/1996, due 7/1/2004........................................................... 204,718 200,000 New York Dormatory, 5.000%, dated 3/1/1997, due 8/15/2000............... 201,750 200,000 New York, New York, 5.000%, dated 7/28/1994, due 8/1/1998............... 201,704 200,000 New York Urban Development, 5.000%, dated 8/1/1995, due 1/1/2001........................................................... 207,500 ----------- 1,719,385 ----------- Electric: 16.5% 200,000 Colorado Springs Utilities, 6.750%, dated 4/15/1991, due 11/15/2005......................................................... 217,500 200,000 Puerto Rico Electric Power Authority, 6.000%, dated 8/15/1995, due 7/1/2000.......................................................... 209,250 200,000 Piedmont Municipal Power Agency, 6.550%, dated 9/1/1996, due 1/1/2016.......................................................... 200,554 25,000 Riverside California Electric Revenue, 5.800%, dated 3/1/1991, due 10/1/1997......................................................... 25,120 200,000 Tacoma Washington Electric System, 5.900%, dated 9/1/1992, due 1/1/2005.......................................................... 211,750 ----------- 864,174 ----------- Hospital: 7.9% 200,000 California Health Facility Financing Authority, 6.750%, dated 3/1/1987, due 10/1/2019.......................................... 211,250 200,000 Dade County Health Facilities Authority, 6.600%, dated 3/1/1987, due 8/15/2002.......................................................... 204,452 ----------- 415,702 -----------
25 Kayne Anderson Intermediate Tax-Free Bond Fund
PORTFOLIO OF INVESTMENTS at June 30, 1997 (Unaudited), Continued - ------------------------------------------------------------------------------------------------------------------- Principal Amount Market Value - ------------------------------------------------------------------------------------------------------------------- IDR / PCR: 5.9% $100,000 California Pollution Control Financing Authority, 8.875%, dated 12/1/1987, due 1/1/2010.......................................... $ 103,833 200,000 Matagorda County Navigation District Texas, 7.700%, dated 2/1/1989, due 2/1/2019.......................................... 207,216 ----------- 311,049 ----------- Miscellaneous Revenue: 13.2% 200,000 Municipal Assistance Corporation for New York, 4.000%, dated 3/1/1997, due 7/1/1998........................................... 200,424 100,000 New Mexico St. Severance Tax, 5.800%, dated 9/1/1991, due 7/1/1999........................................................... 101,000 135,000 California School Cash Reserve, 4.750%, dated 7/2/1997, due 7/2/1998........................................................... 136,172 250,000 Washoe County Nevada, 6.750%, dated 3/15/1991, due 3/15/2000.......................................................... 258,090 ----------- 695,686 ----------- Transportation: 12.8% 250,000 Albuquerque, New Mexico Airport, 6.500%, dated 4/15/1989, due 7/1/2019........................................................... 252,597 200,000 Los Angeles California Harbor Department Revenue, 6.000%, dated 1/1/1995, due 8/1/2001........................................... 211,000 200,000 Orange County Airport, 5.500%, dated 4/2/1997, due 7/1/2002............. 207,500 ----------- 671,097 ----------- Prerefunded: 8.0% 150,000 Los Angeles Convention & Exhibit Center, 9.000%, dated 12/1/1985, due 12/1/2020........................................ 194,813 200,000 Washington Public Power Supply Systems, 7.625%, dated 10/15/1990, due 7/1/2010........................................ 223,750 ----------- 418,563 ----------- Total Long-Term Municipal Debts (cost $5,089,541)....................... 5,095,656 ----------- VARIABLE RATE MUNICIPAL DEBT: 3.8% - ------------------------------------------------------------------------------------------------------------------- 200,000 New York, New York, 3.550%*, dated 8/18/1993, due 8/15/2023 (cost $200,000).......................................... 200,000 -----------
26 Kayne Anderson Intermediate Tax-Free Bond Fund
PORTFOLIO OF INVESTMENTS at June 30, 1997 (Unaudited), Continued - ------------------------------------------------------------------------------------------------------------------- Market Value - ------------------------------------------------------------------------------------------------------------------- Total Investments in Securities (cost $5,289,541+): 100.8%.............. $ 5,295,656 Liabilities in excess of Other Assets: (0.8)%........................... (42,427) ----------- Net Assets: 100.0% ..................................................... $ 5,253,229 =========== +Cost for federal income tax purpose is the same. Net unrealized appreciation consists of: Gross unrealized appreciation........................................... $ 13,569 Gross unrealized depreciation........................................... (7,454) ----------- Net unrealized appreciation....................................... $ 6,115 =========== *The variable-rate security is subject to a demand feature which reduces the remaining maturity. The stated rate is the rate in effect on June 30, 1997.
See accompanying Notes to Financial Statements. 27 Kayne Anderson Mutual Funds
STATEMENTS OF ASSETS AND LIABILITIES at June 30, 1997 (Unaudited) - ---------------------------------------------------------------------------------------------------------------------- Rising Dividends Fund ----------- ASSETS Investments in securities, at market value (cost $25,234,039, $2,761,142, $2,998,614, $5,384,335 and $5,289,541, respectively) (Note 2A) ......................................... $37,424,730 Cash.......................................................................................... 1,272,135 Receivables: Capital stock sold...................................................................... -- Dividends and interest.................................................................. 51,640 Prepaid expenses.............................................................................. 17,123 Deferred organization expenses (Note 2D)...................................................... 19,326 ----------- Total assets ..................................................................... 38,784,954 ----------- LIABILITIES Payable for investment securities purchased................................................... -- Distributions to shareholders................................................................. -- Accrued expenses ............................................................................. 3,582 Due to Investment Advisor (Note 3)............................................................ 51,825 ----------- Total liabilities................................................................. 55,407 ----------- NET ASSETS ........................................................................................ $38,729,547 =========== Number of shares issued and outstanding (unlimited shares authorized without par value) ...... 2,267,515 Net asset value per share..................................................................... $ 17.08 =========== COMPOSITION OF NET ASSETS Paid-in capital............................................................................... $25,009,312 Undistributed (overdistributed) net investment income......................................... 162,154 Accumulated net realized gain (loss) on investments........................................... 1,367,390 Net unrealized appreciation (depreciation) of investments..................................... 12,190,691 ----------- Net assets ....................................................................... $38,729,547 ===========
See accompanying Notes to Financial Statements. 28 Kayne Anderson Mutual Funds
- ------------------------------------------------------------------------------------------------------ Small-Mid Cap International Intermediate Intermediate Rising Dividends Rising Dividends Total Return Tax-Free Fund Fund Bond Fund Bond Fund - ------------------------------------------------------------------------------------------------------ $3,026,757 $3,435,679 $5,338,124 $5,295,656 573,977 172,559 3,762 16,087 214 -- -- -- 5,959 15,757 70,944 107,815 8,396 8,535 11,543 11,587 18,328 18,328 18,327 18,327 - ------------------------------------------------------------------------------------------------------ 3,633,631 3,650,858 5,442,700 5,449,472 - ------------------------------------------------------------------------------------------------------ -- -- -- 136,169 -- -- 23,452 15,137 7,707 9,027 8,061 680 31,259 31,185 38,448 44,257 - ------------------------------------------------------------------------------------------------------ 38,966 40,212 69,961 196,243 - ------------------------------------------------------------------------------------------------------ $3,594,665 $3,610,646 $5,372,739 $5,253,229 ====================================================================================================== 296,783 284,038 509,829 492,945 $ 12.11 $ 12.71 $ 10.54 $ 10.66 ====================================================================================================== $3,324,678 $3,130,110 $5,423,887 $5,248,512 9,922 22,179 (476) (423) (5,550) 21,292 (4,461) (975) 265,615 437,065 (46,211) 6,115 - ------------------------------------------------------------------------------------------------------ $3,594,665 $3,610,646 $5,372,739 $5,253,229 ======================================================================================================
29 Kayne Anderson Mutual Funds
STATEMENTS OF OPERATIONS - For the Six Months ended June 30, 1997 (Unaudited) - ------------------------------------------------------------------------------------------------------------------- Rising Dividends Fund ----------- INVESTMENT INCOME: Income: Dividends............................................................................... $ 300,910 Interest................................................................................ 35,597 ----------- Total income...................................................................... 336,507 ----------- Expenses: Investment advisory fees (Note 3)....................................................... 124,645 Fund accounting fees.................................................................... 15,428 Registration fees....................................................................... 10,190 Transfer agent fees..................................................................... 8,263 Administration fees..................................................................... 7,466 Audit fees.............................................................................. 5,951 Amortization of deferred organization expenses (Note 2D)................................ 3,804 Custodian fees.......................................................................... 5,519 Legal fees.............................................................................. 4,716 Trustees' fees.......................................................................... 1,798 Reports to shareholders................................................................. 1,488 Insurance............................................................................... 568 Miscellaneous fees...................................................................... 1,488 ----------- Total expenses.................................................................... 191,324 Less: Expenses paid indirectly (Note 2F).......................................... -- Expenses reimbursed......................................................... -- ----------- Net expenses...................................................................... 191,324 ----------- Net investment income ...................................................... 145,183 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments....................................................... 1,266,366 Net change in unrealized appreciation (depreciation) of investments........................... 4,696,732 ----------- Net gain (loss) on investments.................................................... 5,963,098 ----------- Net Increase in Net Assets Resulting from Operations ....................... $ 6,108,281 ===========
See accompanying Notes to Financial Statements. 30 Kayne Anderson Mutual Funds
- ------------------------------------------------------------------------------------------------------ Small-Mid Cap International Intermediate Intermediate Rising Dividends Rising Dividends Total Return Tax-Free Fund Fund Bond Fund Bond Fund - ------------------------------------------------------------------------------------------------------ $ 14,937 $ 30,278 $ - $ - 5,715 6,854 160,216 93,703 - ------------------------------------------------------------------------------------------------------ 20,652 37,132 160,216 93,703 - ------------------------------------------------------------------------------------------------------ 7,741 10,769 12,668 12,775 15,689 19,636 15,689 15,689 8,301 8,301 8,301 8,301 8,263 8,262 8,263 8,263 7,319 7,319 6,993 6,992 1,992 1,992 1,993 1,993 2,090 2,090 2,090 2,090 992 2,039 868 942 362 362 812 812 1,798 1,798 1,748 1,748 579 579 513 513 145 147 180 181 1,138 1,138 1,138 1,138 - ------------------------------------------------------------------------------------------------------ 56,409 64,432 61,256 61,437 -- -- -- (22,946) (44,543) (48,530) (37,186) (14,925) - ------------------------------------------------------------------------------------------------------ 11,866 15,902 24,070 23,566 - ------------------------------------------------------------------------------------------------------ 8,786 21,230 136,146 70,137 - ------------------------------------------------------------------------------------------------------ (5,550) 21,292 (4,461) (975) 244,124 418,456 (13,076) 11,821 - ------------------------------------------------------------------------------------------------------ 238,574 439,748 (17,537) 10,846 - ------------------------------------------------------------------------------------------------------ $247,360 $460,978 $118,609 $80,983 ======================================================================================================
31 Kayne Anderson Mutual Funds
STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------------------------------------------- Rising Dividends Fund - ------------------------------------------------------------------------------------------------------------------- Six Months Year INCREASE IN NET ASSETS FROM: ended ended 6/30/97+ 12/31/96 - ------------------------------------------------------------------------------------------------------------------- OPERATIONS Net investment income........................................................ $ 145,183 $ 140,942 Net realized gain (loss) on investments...................................... 1,266,366 1,246,299 Net change in unrealized appreciation (depreciation) of investments.......... 4,696,732 2,813,912 ----------- ----------- Net increase (decrease) in net assets resulting from operations ....... 6,108,281 4,201,153 ----------- ----------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Net investment income........................................................ - (131,956 Net realized gain on investments............................................. - (1,145,275 ----------- ----------- Total dividends and distributions to shareholders ..................... - (1,277,231 ----------- ----------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold.................................................... 8,562,501 4,811,059 Net asset value of shares issued on reinvestment of distributions............ - 1,266,895 Cost of shares redeemed...................................................... (2,058,812) (3,497,629 ----------- ----------- Net increase from capital share transactions .......................... 6,503,689 2,580,325 ----------- ----------- Total increase in net assets .......................................... 12,611,970 5,504,247 NET ASSETS: Beginning of period.......................................................... 26,117,577 20,613,330 ----------- ----------- End of period ............................................................... $38,729,547 $26,117,577 =========== =========== CHANGE IN SHARES Shares sold ................................................................. 575,745 479,298 Shares issued in reinvestment of distributions............................... - 86,655 Shares redeemed.............................................................. (132,405) (245,124) ----------- ----------- Net increase........................................................... 443,340 191,481 =========== ===========
*Commencement of operations. +Unaudited. See accompanying Notes to Financial Statements. 32 Kayne Anderson Mutual Funds
- ----------------------------------------------------------------------------------------------------------------- Small-Mid Cap International Intermediate Intermediate Rising Dividends Rising Dividends Total Return Tax-Free Fund Fund Bond Fund Bond Fund - ----------------------------------------------------------------------------------------------------------------- Six Months 10/18/96* Six Months 10/18/96* Six Months 10/28/96* Six Months 10/28/96* ended to ended to ended to ended to 6/30/97+ 12/31/96 6/30/97+ 12/31/96 6/30/97+ 12/31/96 6/30/97+ 12/31/96 - ----------------------------------------------------------------------------------------------------------------- $ 8,786 $ 1,406 $ 21,230 $ 1,366 $ 136,146 $ 41,630 $ 70,137 $ 5,308 (5,550) - 21,292 - (4,461) - (975) - 244,124 21,491 418,456 18,609 (13,076) (33,135) 11,821 (5,706) - ----------------------------------------------------------------------------------------------------------------- 247,360 22,897 460,978 19,975 118,609 8,495 80,983 (398) - ----------------------------------------------------------------------------------------------------------------- - (1,102) - (1,249) (140,320) (38,764) (70,832) (5,868) - - - - - - - - - ----------------------------------------------------------------------------------------------------------------- - (1,102) - (1,249) (140,320) (38,764) (70,832) (5,868) - ----------------------------------------------------------------------------------------------------------------- 2,773,390 759,908 2,325,079 1,009,948 283,094 5,000,000 158,788 5,104,514 - 1,078 - 1,155 116,868 38,764 55,857 1,192 (233,866) - (230,240) - (39,007) - (96,007) - - ----------------------------------------------------------------------------------------------------------------- 2,539,524 760,986 2,094,839 1,011,103 360,955 5,038,764 118,638 5,105,706 - ----------------------------------------------------------------------------------------------------------------- 2,786,884 782,781 2,555,817 1,029,829 339,244 5,008,495 128,789 5,099,440 807,781 25,000 1,054,829 25,000 5,033,495 25,000 5,124,440 25,000 - ----------------------------------------------------------------------------------------------------------------- $3,594,665 $807,781 $3,610,646 $1,054,829 $5,372,739 $5,033,495 $5,253,229 $5,124,440 ================================================================================================================== 349,950 244,062 70,592 206,518 94,185 26,887 469,484 14,993 - 98 - 115 11,158 3,636 5,267 112 (20,315) - (19,155) - (3,683) - (9,072) - - ----------------------------------------------------------------------------------------------------------------- 223,747 70,690 187,363 94,300 34,362 473,120 11,188 479,410 ==================================================================================================================
33 Kayne Anderson Mutual Funds
FINANCIAL HIGHLIGHTS For a capital share outstanding throughout each period - -------------------------------------------------------------------------------------------------------------------- Rising Dividends Fund --------------------------------------- Six Months Year 5/1/95* ended ended to 6/30/97++ 12/31/96 12/31/95 --------------------------------------- Net asset value, beginning of period.................................... $14.32 $12.63 $10.65 --------------------------------------- Income from investment operations: Net investment income............................................. 0.06 0.08 0.07 Net realized and unrealized gain (loss) on investments............ 2.70 2.35 2.13 --------------------------------------- Total income from investment operations................................. 2.76 2.43 2.20 --------------------------------------- Less distributions: Dividends from net investment income.............................. 0.00 (0.08) (0.07) Distributions from net capital gains.............................. 0.00 (0.66) (0.15) --------------------------------------- Total distributions..................................................... 0.00 (0.74) (0.22) --------------------------------------- Net asset value, end of period.......................................... $17.08 $14.32 $12.63 ======================================= Total return............................................................ 19.27%** 19.09% 20.65% Net assets, end of period (in 000's).................................... $38,730 $26,118 $20,613 Ratio of expenses to average net assets: Before expense reimbursement...................................... 1.15%+ 1.37%+ 1.31% After expense reimbursement....................................... - - - Ratio of net investment income to average net assets: (net of expense reimbursement).................................... 0.87%+ 0.59%+ 0.94% Portfolio turnover rate................................................. 20% 23% 28 Average commission paid per share***.................................... $.0683 $.0600 - *Commencement of operations. **Not annualized. ***A fund is required to disclose its average commission rate paid per share for security trades on which commissions are charged. This amount may vary from fund to fund depending on the mix of trades executed in various markets where trading practices and commission structures may differ. This rule took effect on September 30, 1996 and is not required for periods prior to that date. +Annualized. ++Unaudited.
34 Kayne Anderson Mutual Funds
- ---------------------------------------------------------------------------------------------------------------- Small-Mid Cap International Intermediate Intermediate Rising Dividends Rising Dividends Total Return Tax-Free Fund Fund Bond Fund Bond Fund - ---------------------------------------------------------------------------------------------------------------- Six Months 10/18/96* Six Months 10/18/96* Six Months 10/28/96* Six Months 10/28/96* ended to ended to ended to ended to 6/30/97++ 12/31/96 6/30/97++ 12/31/96 6/30/97++ 12/31/96 6/30/97++ 12/31/96 - ---------------------------------------------------------------------------------------------------------------- $11.06 $10.65 $10.91 $ 10.65 $10.59 $10.65 $10.64 $10.65 - ---------------------------------------------------------------------------------------------------------------- 0.02 0.02 0.07 0.01 0.29 0.09 0.15 0.01 1.03 0.41 1.73 0.26 (0.05) (0.07) 0.02 (0.01) - ---------------------------------------------------------------------------------------------------------------- 1.05 0.43 1.80 0.27 0.24 0.02 0.17 0.00 - ---------------------------------------------------------------------------------------------------------------- 0.00 (0.02) 0.00 (0.01) (0.29) (0.08) (0.15) (0.01) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 - ---------------------------------------------------------------------------------------------------------------- 0.00 (0.02) 0.00 (0.01) (0.29) (0.08) (0.15) (0.01) - ---------------------------------------------------------------------------------------------------------------- $12.11 $11.06 $12.71 $10.91 $10.54 $10.59 $10.66 $10.64 ================================================================================================================ 9.49%** 4.00%** 16.50%** 2.56%** 2.28%** 0.20%** 1.58%** 0.02%** $5,595 $ 808 $3,611 $1,055 $5,373 $5,033 $5,253 $5,124 6.14%+ 18.91%+ 5.65%+ 15.74%+ 2.42%+ 2.10%+ 2.40%+ 2.08%+ 1.30%+ 1.30%+ 1.40%+ 1.40%+ 0.95%+ 0.95%+ 0.95%+ 0.95%+ 0.96%+ 1.58%+ 1.86%+ 1.14%+ 5.37%+ 4.72%+ 2.74%+ 0.60%+ 7% - 4% - 28% - 18% - $.0701 $.0955 $.0610 $.0936 - - - -
See accompanying Notes to Financial Statements. 35 Kayne Anderson Mutual Funds NOTES TO FINANCIAL STATEMENTS at June 30, 1997 (Unaudited) - -------------------------------------------------------------------------------- NOTE 1 - ORGANIZATION Kayne Anderson Mutual Funds (the "Trust") was organized as a business trust in Delaware on May 29, 1996 and is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Trust currently consists of five separate diversified series: Rising Dividends Fund, Small-Mid Cap Rising Dividends Fund, International Rising Dividends Fund, Intermediate Total Return Bond Fund, and Intermediate Tax-Free Bond Fund (each a "Fund" and collectively the "Funds"). Between May 29, 1996 and the respective dates of commencement of operations, the Funds had no operations other than those related to organizational matters and the sale of 2,347 shares of the Small-Mid Cap Rising Dividends Fund, the International Rising Dividends Fund, the Intermediate Total Return Bond Fund, and the Intermediate Tax-Free Bond Fund to Kayne Anderson Investment Management, the Funds' investment advisor, for $25,000, respectively. On October 4, 1996, the shareholders of the Kayne Anderson Rising Dividends Fund (the "Predecessor Fund"), a series of shares of Professionally Managed Portfolios, entered into a tax-free reorganization pursuant to which they agreed to exchange their Predecessor Fund shares for shares of the Rising Dividends Fund series of the Trust, which had no operations prior to the reorganization. The Predecessor Fund is deemed to be the accounting survivor and, accordingly, the statements of operations and changes in net assets, and the financial highlights include the operations of the Predecessor Fund for periods prior to the reorganization. The Rising Dividends Fund seeks long-term capital appreciation, with dividend income as a secondary consideration. The Fund invests primarily in equity securities, usually common stocks, of companies of all sizes. The Small-Mid Cap Rising Dividends Fund seeks long-term capital appreciation, with dividend income as a secondary consideration. The Fund invests primarily in equity securities, usually common stocks, of small and mid-capitalization companies, which the Fund currently considers to be companies having market capitalizations of not more than $3 billion. The International Rising Dividends Fund seeks long-term capital appreciation, with dividend income as a secondary consideration. The Fund invests primarily in equity securities, usually common stocks, of companies outside the U.S. generally having total market capitalizations of $1 billion or more. The Intermediate Total Return Bond Fund seeks to obtain maximum total return, primarily through current income with capital appreciation as a secondary consideration. The Fund invests primarily in investment grade debt securities and seeks to maintain an average maturity of three to ten years. The Intermediate Tax-Free Bond Fund seeks current income exempt from federal income tax consistent with preservation of capital. The Fund invests primarily in investment grade debt securities and may maintain an average maturity of more than ten years. There can be no assurances that the Funds will be able to achieve their investment objectives. The value of Fund shares fluctuates daily and may be worth more or less than their purchase price when redeemed. 36 Kayne Anderson Mutual Funds NOTES TO FINANCIAL STATEMENTS at June 30, 1997 (Unaudited), Continued - -------------------------------------------------------------------------------- NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Funds. These policies are in conformity with generally accepted accounting principles. A. Security Valuation: The Funds' investments are carried at market value. Securities listed on an exchange or quoted on a national market system are valued at the last sale price. Other securities are valued at the last quoted bid price. Securities for which market quotations are not readily available, if any, are valued at an independent pricing service or determined following procedures approved by the Board of Trustees. Short-term investments are valued at amortized cost, which approximates market value. B. Federal Income Taxes: It is the Funds' policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. Therefore, no federal income tax provision is required. C. Securities Transactions, Dividends and Distributions: As is common in the industry, security transactions are accounted for on the trade date. Dividend income and distributions to shareholders are recorded on the ex-dividend date. D. Deferred Organization Expenses: All of the expenses incurred by the Advisor in connection with the organization and registration of the Funds' shares will be borne by the Funds and are being amortized to expense on a straight-line basis over a period of five years. E. Accounting Estimates: In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. F. Expenses Paid Indirectly: The Intermediate Tax-Free Bond Fund's custodian, fund accounting and transfer agency fees for the six months ended June 30, 1997 were reduced by $22,946 as a result of earning credits from overnight cash balances with its custodian bank. NOTE 3 - INVESTMENT ADVISORY AND MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES For the six months ended June 30, 1997, Kayne Anderson Investment Management (the "Advisor") provided the Funds with investment management services under an Investment Advisory Agreement. The Advisor furnished all investment advice, office space and certain administrative services, and provides personnel as needed by the Funds. As compensation for its services, the Advisor is entitled to a monthly fee at the annual rate of the following based upon the average daily net assets of the Funds: 37 Kayne Anderson Mutual Funds NOTES TO FINANCIAL STATEMENTS at June 30, 1997 (Unaudited), Continued - -------------------------------------------------------------------------------- Rising Dividends Fund 0.75% Small-Mid Cap Rising Dividends Fund 0.85% International Rising Dividends Fund 0.95% Intermediate Total Return Bond Fund 0.50% Intermediate Tax-Free Bond Fund 0.50% Although not required to do so, the Investment Advisor has agreed to waive or reimburse the expenses of each Fund to the extent necessary so that its ratio of operating expenses to average net assets will not exceed the following levels. Overall operating expenses for each Fund will not fall below the applicable percentage limitation until the Investment Advisor has been fully reimbursed for fees foregone and expenses paid by the Advisor under this agreement: Rising Dividends Fund 1.20% Small-Mid Cap Rising Dividends Fund 1.30% International Rising Dividends Fund 1.40% Intermediate Total Return Bond Fund 0.95% Intermediate Tax-Free Bond Fund 0.95% Pursuant to these expense limitation provisions, the Advisor reimbursed the Small-Mid Cap Rising Dividends Fund $44,543, the International Rising Dividends Fund $48,530, the Intermediate Total Return Bond Fund $37,186, and the Intermediate Tax-Free Bond Fund $14,925 during the six months ended June 30, 1997. Investment Company Administration Corporation (the "Administrator") acts as the Fund's Administrator under an Administration Agreement. The Administrator prepares various federal and state regulatory filings, reports and returns for the Fund; prepares reports and materials to be supplied to the trustees; monitors the activities of the Fund's custodian, transfer agent and accountants; coordinates the preparation and payment of Fund expenses and reviews the Fund's expense accruals. For its services, the Trust has agreed to pay the Administrator an annual fee equal to 0.075% of the first $40 million of the Trust's average daily net assets, 0.05% of the next $40 million, 0.025% of the next $40 million, and 0.01% thereafter, subject to a minimum annual fee of $30,000 per Fund. First Fund Distributors, Inc. (the "Distributor") acts as the Fund's principal underwriter in a continuous public offering of the Fund's shares. The Distributor is an affiliate of the Administrator. Certain officers and Trustees of the Trust are also officers and/or directors of the Advisor. 38 Kayne Anderson Mutual Funds NOTES TO FINANCIAL STATEMENTS at June 30, 1997 (Unaudited), Continued - -------------------------------------------------------------------------------- NOTE 4 - PURCHASES AND SALES OF SECURITIES For the six months ended June 30, 1997, the cost of purchases and the proceeds from sales of securities, excluding short-term securities and U.S. Government securities, were as follows: Fund Purchases Sales ----------------------------------- ----------- ----------- Rising Dividends Fund $11,894,962 $ 6,246,570 Small-Mid Cap Rising Dividends Fund 2,341,522 123,669 International Rising Dividends Fund 2,287,326 73,383 Intermediate Total Return Bond Fund 1,808,992 0 Intermediate Tax-Free Bond Fund 3,730,841 800,182 The Intermediate Total Return Bond Fund sold $1,341,268 of U.S. Government securities, but did not purchase any of these securities. There were no purchases or sales of U.S. Government securities by the Rising Dividends Fund, Small-Mid Cap Rising Dividends Fund, International Rising Dividends Fund and the Intermediate Tax-Free Bond Fund. 39 Advisor Kayne Anderson Investment Management 1800 Avenue of the Stars, 2nd Floor Los Angeles, California 90067 (310) 556-2721 o Distributor First Fund Distributors, Inc. 4455 East Camelback Road, Suite 261E Phoenix, Arizona 85018 o Custodian and Transfer Agent Investors Bank & Trust Company 200 Clarendon Street Boston, Massachusetts 02116 o Auditors Briggs, Bunting & Dougherty, LLP Two Logan Square, Suite 2121 Philadelphia, Pennsylvania 19103 o Legal Counsel Paul, Hastings, Janofsky & Walker, LLP 345 California Street San Francisco, California 94104 This report is intended for shareholders of Kayne Anderson Mutual Funds and may not be used as sales literature unless preceded or accompanied by a current prospectus. (Kayne Anderson Mutual Funds Color Logo) Semi-Annual Report June 30, 1997 -----END PRIVACY-ENHANCED MESSAGE-----