KEYCO BOND FUND, INC.
27777 Franklin Road - Suite 1850
Southfield, Michigan 48034
(810) 353-0790
November 22, 1996
To Our Shareholders:
We are pleased to send you this Annual Report of Keyco Bond Fund, Inc. for
the year ended September 30, 1996.
During the fiscal year, market interest rates for tax-exempt municipal
securities fluctuated within a relatively narrow range, ending the year at
approximately the same level as at the beginning of the year. Therefore,
market interest rate changes had very little effect on the valuation of the
Fund's bond portfolio.
During the year, nine bonds were either called, sold or matured for total
proceeds of $2,451,928. Because most of the disposals were at a premium
price in excess of par and in excess of their purchase prices, the Fund
realized a gain of $82,033. This capital gain exceeded available tax loss
carryforwards, and therefore, the Board of Directors declared a special
capital gain dividend of $23,822 ($.018798 per share) which was paid in
October 1996.
The cash from these dispositions was reinvested in bonds maturing in seven
to sixteen years. Portfolio turnover was 9.2%, similar to fiscal year 1995
and significantly lower than fiscal years 1994 and 1993.
Net investment income for the year was $1,569,495 or $1.24 per share
compared with $1,582,127 or $1.25 per share last year. The $12,632 decrease
was the net effect of $11,761 lower interest income and $871 higher
expenses. Interest income decreased because interest rates have fallen
since the bonds that have been called were acquired, and as a result the new
purchases yield less income.
The net asset value of the Fund was $21.14 per share on September 30, 1996,
which was a slight decrease of only $.04 per share from the prior year. The
weighted average annual yield on the bonds in the Fund as of September 30,
1996 was 6.5% based on cost, and 6.1% based on market value, and the
weighted average maturity was 10.3 years.
The Board of Directors, on November 4, 1996, declared monthly dividends
which total $1.23 per share for the year ending September 30, 1997. For
administrative efficiency, the Board also voted to continue the policy of
paying dividends on a monthly basis to shareholders whose monthly payment is
at least $500. Shareholders with accrued but unpaid dividends exceeding
$500 on April 1 and October 1 will be paid semi-annually in those months.
The remaining shareholders will continue to receive only one dividend
payment, which will be made in October 1997.
The Annual Meeting of Shareholders of Keyco Bond Fund, Inc. will be held at
27777 Franklin Road, Suite 1850, Southfield, Michigan, on Tuesday, December
17, 1996, at 11:00 a.m. for the purpose of electing Directors and ratifying
the selection of Coopers & Lybrand as our auditors.
Mark Schlussel and David Page continue to serve as independent outside
Directors, and their remuneration is $1,000 each per meeting. In addition,
the fund pays $25,000 annually for certain administrative services and
office space.
If you have any questions concerning the Fund or the enclosed information,
please call me.
On behalf of the Board of Directors,
Joel D. Tauber
President
Enclosure
Report of Independent Accountants
To the Stockholders and Board of Directors of
Keyco Bond Fund, Inc.:
In planning and performing our audit of the financial statements and
financial highlights of the Keyco Bond Fund, Inc., for the year ended
September 30, 1996, we considered its internal control structure, including
procedures for safeguarding securities, in order to determine our auditing
procedures for the purpose of expressing our opinion on the financial
statements and financial highlights and to comply with the requirements of
Form N-SAR, and not to provide assurance on the internal control structure.
The management of the Keyco Bond Fund, Inc. is responsible for establishing
and maintaining an internal control structure. In fulfilling this
responsibility, estimates and judgments by management are required to assess
the expected benefits and related costs of internal control structure
policies and procedures. Two of the objectives of an internal control
structure are to provide management with reasonable, but not absolute,
assurance that assets are safeguarded against loss from unauthorized use or
disposition and that transactions are executed in accordance with
management's authorization and recorded properly to permit preparation of
financial statements in conformity with generally accepted accounting
principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that it
may become inadequate because of changes in conditions or that the
effectiveness of the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be
material weaknesses under standards established by the American Institute of
Certified Public Accountants. A material weakness is a condition in which
the design or operation of the specific internal control structure elements
does not reduce to a relatively low level the risk that errors or
irregularities in amounts that would be material in relation to the
financial statements and financial highlights being audited may occur and
not be detected within a timely period by employees in the normal course of
performing their assigned functions. However, we noted no matters involving
the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses, as defined above, as
of September 30, 1996.
This report is intended solely for the information and use of management of
Keyco Bond Fund, Inc. and the Securities and Exchange Commission.
/S/ Coopers & Lybrand
Detroit, Michigan
October 25, 1996
Keyco Bond Fund, Inc.
Statement of Assets and Liabilities
as of September 30, 1996
ASSETS
Investments in securities, at fair value (cost $24,783,412) $26,411,627
Cash 30,326
Accrued interest receivable 542,476
----------
Total assets 26,984,429
----------
LIABILITIES
Dividends payable 182,734
Accrued liabilities 5,583
----------
Total liabilities 188,317
----------
Net assets applicable to outstanding capital shares,
equivalent to $21.14 per share based on 1,267,258
shares of capital stock outstanding $26,796,112
==========
The accompanying notes are an integral part of the
financial statements.
Keyco Bond Fund, Inc.
Statement of Operations
for the year ended September 30, 1996
Interest income $1,623,365
Expenses:
Legal and accounting $37,973
Custodial fee 12,000
Directors' fees 2,000
Miscellaneous expense 1,897
------
Total expenses 53,870
---------
Net investment income 1,569,495
Realized gain on investments:
Proceeds from maturity, calls and sales 2,451,928
Cost of securities matured, called or
sold 2,369,895
---------
Realized gain on investments 82,033
Unrealized appreciation of investments:
Investments held, September 30, 1996:
At cost 24,783,412
At fair value 26,411,627
----------
Balance, September 30, 1996 1,628,215
Less balance, September 30, 1995 1,728,685
----------
Unrealized depreciation of invest-
ments (100,470)
---------
Increase in net assets resulting from
operations $1,551,058
=========
The accompanying notes are an integral part of the financial statements.
Keyco Bond Fund, Inc.
Statement of Changes in Net Assets
for the years ended September 30, 1996 and 1995
1996 1995
Net assets, beginning of period $26,840,276 $26,264,357
---------- ----------
Changes in net assets from operations:
Net investment income 1,569,495 1,582,127
Realized gain (loss) on investments 82,033 (31,097)
Unrealized appreciation (depreciation)
of investments (100,470) 608,961
---------- ----------
Increase in net assets from operations 1,551,058 2,159,991
Changes in net assets from capital
transactions:
Dividends declared from net investment
income (1,571,400) (1,584,072)
Dividends declared from net capital
gains (23,822) -
---------- ----------
Net increase (decrease) in net assets (44,164) 575,919
---------- ----------
Net assets, end of year $26,796,112 $26,840,276
========== ===========
The accompanying notes are an integral part of the financial statements.
Keyco Bond Fund, Inc.
Notes to Financial Statements
1. Significant Accounting Policies:
Keyco Bond Fund, Inc. (the "Company") has registered under the
Investment Company Act of 1940, as amended, as a closed-end,
diversified management company. The Company became qualified as a
regulated investment company under the Internal Revenue Code on
October 1, 1979. Management intends to distribute to the
shareholders substantially all earnings from that date. The
following is a summary of significant accounting policies followed
by the Company in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting
principles.
a. Security Valuation: The Company has invested substantially
all of its assets in long-term state and municipal debt
obligations. Investments in these tax-exempt securities are
stated at fair value. The fair value of the investments is
provided by the Company's custodian, who utilizes a matrix
pricing system. Due principally to a decrease in interest
rates, the fair value of the investments is currently above
cost, resulting in unrealized appreciation. The principal
amount of each bond, as reflected in the schedule of
portfolio investments, is due at maturity when the bond must
be redeemed by the issuer.
b. Federal Income Taxes: It is the Company's intention to
comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to
distribute all of its income to its shareholders.
Therefore, no federal income tax provision is recorded.
c. Other: Security transactions are accounted for on a trade-
date basis. Cost of securities sold is determined by
specific identification. Distributions to shareholders are
recorded when declared. Interest on investments is recorded
as earned.
2. Net Assets Applicable to Outstanding Capital Shares:
Details of net assets applicable to outstanding capital shares are
as follows:
Capital stock, $.02 par value;
authorized 3,000,000 shares;
issued and outstanding 1,267,258
shares at September 30, 1996 $25,345
Additional paid-in capita 730,733
Retained earnings prior to July 1,
1979 24,093,500
Accumulated undistributed net
investment income 318,319
Net unrealized appreciation of
investments, September 30, 1996 1,628,215
----------
Net assets, September 30, 1996 $26,796,112
==========
3. Purchases and Dispositions of Securities:
The cost of purchases and the proceeds from dispositions of
securities, other than United States government obligations and
short-term notes, aggregated $2,464,068 and $2,451,928,
respectively.
4. Portfolio Manager:
Effective October 19, 1994, the Board of Directors determined that
the Company will no longer retain the services of an investment
advisor or a third-party portfolio manager, but rather the Company,
acting through its officers and with the review provided by the
Board, will make investment decisions internally.
5. Related Parties:
Legal and accounting expenses incurred include $25,000 for
accounting and administrative services provided by an entity owned
by an officer of the Fund.
Keyco Bond Fund, Inc.
Schedule of Portfolio Investments
September 30, 1996
<TABLE>
<CAPTION>
Long-Term State and Principal Fair
Municipal Obligations Amount Cost Value
- ----------------------------------- --------- --------- -----------
<S> <C> <C> <C>
Avondale, Michigan, School District,
7.5%, May 2003 $ 500,000 $ 500,000 $531,519
Avondale, Michigan, School District,
7.5%, May 2004 700,000 700,000 744,126
Bay City, Michigan, Electric Utility
Revenue, 6.6%, January 2012 500,000 494,900 524,700
Capac, Michigan, Community School
District, 6.25%, July 2003 100,000 96,920 102,349
Central Michigan University, 5.3%,
October 2006 70,000 66,345 70,957
Chippewa Valley, Michigan, Schools,
7.75%, May 2002 500,000 502,600 526,479
Crosswell and Lexington, Michigan,
Community Schools Building and Site,
6%, May 2016 500,000 500,000 510,964
Dearborn, Michigan, School District,
6.7%, May 1999 100,000 108,744 105,878
Dearborn, Michigan, School District,
6.7%, May 2000 135,000 147,775 145,026
Detroit, Michigan, City Distributable
State Aid, 7.2%, May 2009 1,000,000 995,000 1,085,752
Detroit, Michigan, City School
District, 4.95%, May 2005 200,000 186,398 196,968
Grand Rapids, Michigan, Sanitary Sewer
System, 6%, January 2012 500,000 500,000 510,850
Jackson County, Michigan, 5%,
April 2006 300,000 277,173 298,205
Lansing, Michigan, School District,
6.8%, May 2004 460,000 512,067 516,392
Marquette County, Michigan, Wastewater
Treatment System, 6%, December 2007 175,000 154,553 180,353
Marquette County, Michigan, Wastewater
Treatment System, 6%, December 2008 170,000 149,913 175,171
Michigan Municipal Bond Authority
Revenue, Local Government Wayne
County, PJ-GRP 1213, 7.4%,
December 2002 1,075,000 1,065,497 1,222,178
Michigan Municipal Bond Authority
Revenue, State Revolving Fund,
6.5%, October 2010 550,000 599,769 617,140
Michigan Municipal Bond Authority
Revenue, State Revolving Fund,
6.55%, October 2013 100,000 109,445 110,804
Michigan State Building Authority
Revenue, 5.125%, October 2008 100,000 91,772 98,546
Michigan State Building Revenue,
Series I, 5.3%, October 2012 500,000 418,505 480,200
Michigan State Building Authority
Revenue, Series I, 5%, October 2014 500,000 500,000 471,649
Michigan State Housing Development
Authority, Rental Housing Revenue,
5.375%, April 2004 70,000 71,537 71,979
Michigan State Housing Development
Authority, Rental Housing Revenue,
5.6%, April 2006 500,000 489,640 516,387
Michigan State Trunk Line, Series A,
5.75%, October 2012 250,000 248,673 252,778
Michigan State University Revenue,
6.125%, August 2010 1,200,000 1,190,892 1,244,672
Pinckney, Michigan, Community Schools,
Livingston and Washtenaw Counties,
5.5%, May 2004 300,000 268,500 306,131
Portage, Michigan, Public Schools,
5.7%, May 2012 230,000 227,619 232,475
South Lyon Community School District,
Counties of Oakland, Washtenaw and
Livingston, State of Michigan
Building Site Bonds, 7.8%, May 2014 500,000 500,000 538,507
Sturgis, Michigan, Government Hospital,
6.55%, October 2000 325,000 308,750 331,388
Sturgis, Michigan, Government Hospital,
6.6%, October 2001 250,000 237,500 254,849
University of Michigan, Hospital
Revenue, 7%, December 2021 75,000 78,366 83,247
West Bloomfield, Michigan, School
District, 5%, May 2006 100,000 92,357 99,619
Wyandotte, Michigan, Downtown
Development, 6.25%, December 2008 750,000 727,440 816,079
Alaska State Housing Finance
Corporation, 6.1%, June 2007 155,000 155,000 161,306
Alaska State Housing Finance
Corporation, 6.2%, June 2008 285,000 285,000 296,602
California State, 5.7%, August 2003 500,000 481,055 511,530
California State, 5.7%, August 2004 250,000 237,263 255,032
Brevard County, Florida, Health
Facilities Authority Revenue,
Hospital-Holmes Regional Medical
Center, 7.4%, October 2003 240,000 240,000 247,796
Gainsville, Florida, Utilities
System Revenue, 6.5%, October 2014 750,000 724,900 812,579
Florida State, Hillsborough County
Expressway, G.O., 5.9%, October 2005 750,000 664,058 750,169
Honolulu, Hawaii, New Public Housing
Authority, 5.75%, August 2008 290,000 258,381 296,171
Honolulu, Hawaii, New Public Housing
Authority, 5.75%, August 2009 700,000 622,804 714,702
Joliet, Illinois Corporate Purpose,
7%, January 2012 100,000 106,994 103,627
Maryland State Health and Higher
Educational Facilities Authority
Revenue Johns Hopkins Hospital
Redevelopment Issue, 6.625%,
July 2008 500,000 500,000 $501,310
Mercer County, New Jersey,
Improvement Authority Revenue,
State Justice Complex, 6.4%,
January 2018 500,000 463,270 538,246
New York, New York, City Municipal
Assistance Corporation, 6%, July
2008 750,000 755,625 774,310
New York, New York, City Municipal
Water Finance Authority, Water-Sewer
System Revenue, 6.75%, June 2016 400,000 412,768 429,952
New York State Refunding, 6.1%,
November 2008 500,000 500,000 521,369
Monroe County, New York, Water
Improvement, 5.5%, December 2008 610,000 589,034 618,769
Ohio State Building Authority, State
Transportation Facilities, 7%,
September 2003 500,000 555,945 546,851
Erie County, Hospital Authority PA
Revenue, Erie County Geriatric
Center, U. S. Treasury, 6.25%,
July 2011 1,000,000 993,560 1,054,290
Puerto Rico Commonwealth Highway
and Transportation Authority Highway
Revenue, 6.25%, July 2012 500,000 544,085 542,446
South Carolina State Housing
Authority, Single Family Mortgage
Purchase, 7%, July 2011 500,000 502,500 509,232
Met. Government Nashville and Davidson
County, Tennessee, Health and
Educational Facilities Board Revenue,
Meharry Medical College-HEW,
collateralized, 7.875%, December 2004 225,000 222,059 253,473
Austin, Texas, Utility System Revenue,
6%, April 2006 500,000 474,565 530,867
Sherman, Texas, New Public Housing
Authority, 5.75%, March 2006 200,000 178,876 204,510
Texas Coastal Water Authority, Water
Convey System Revenue, 8.125%,
December 2017 700,000 712,250 735,257
Virginia State Housing Development
Authority, Multifamily Mortgage
Section 8 Assisted, 8.25%, November
2012 25,000 24,770 25,304
Washington State, Public Power Supply
System, Nuclear Project No. 2
Revenue, 6%, July 2012 500,000 460,000 501,610
---------- ---------- ----------
Total investments $25,215,000 $24,783,412 $26,411,627
========== ========== ==========
</TABLE>
Keyco Bond Fund, Inc.
Financial Highlights
Contained below are per share operating performance data for a share
outstanding, total investment return, ratios and supplemental data. This
information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
Years Ended September 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $21.18 $20.73 $22.02 $21.40 $20.62
----- ----- ----- ----- -----
Net investment income 1.24 1.25 1.25 1.29 1.32
Net realized and unrealized gain (loss)
on investments (.02) .45 (1.28) .76 .78
----- ----- ----- ----- -----
Total from investment operations 1.22 1.70 (.03) 2.05 2.10
----- ----- ----- ----- -----
Less distributions from:
Net investment income (1.24) (1.25) (1.26) (1.32) (1.32)
Net realized gain on investments (.02) - - (.11) -
----- ----- ----- ----- -----
Total distributions (1.26) (1.25) (1.26) (1.43) (1.32)
----- ----- ----- ----- -----
Net asset value, end of period $21.14 $21.18 $20.73 $22.02 $21.40
===== ===== ===== ===== =====
Total Return per Share Net Asset Value (a) 5.8% 8.2% (.1)% 9.6% 10.2%
Ratios and Supplemental Data:
Net assets, end of period (in 000s) $26,796 $26,840 $26,264 $27,905 $27,118
Ratio of net investment income to
average net assets 5.8% 6.0% 5.9% 5.9% 6.3%
Ratio of expenses to average net assets .2% .2% .2% .2% .2%
Portfolio turnover rate 9.2% 9.4% 25.4% 16.5% 2.8%
(a) Total investment return based on per share net asset value reflects the percent return calculated on beginning of period
net asset value and assumes dividends and capital gain distributions were not reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the Company.
</TABLE>
