KEYCO BOND FUND, INC.
27777 Franklin Road - Suite 1850
Southfield, Michigan 48034
(248) 353-0790
November 21, 1997
To Our Shareholders:
We are pleased to send you this Annual Report of Keyco Bond Fund, Inc. for
the year ended September 30, 1997.
Net investment income for the year was $1,550,704 or $1.22 per share
compared with $1,569,495 or $1.24 per share last year. The $18,791
decrease was due to $17,020 less interest income and $1,771 higher expenses.
Interest income decreased because interest rates on new bonds purchased in
recent years were lower than the matured or called bonds which they
replaced.
During the fiscal year, market interest rates declined, and as a result, the
value of the Fund's bond portfolio increased by $336,519 or 1.3%.
During the year, five bonds were either called, sold or matured for total
proceeds of $935,069. Because some of the disposals were at a premium price
in excess of par and in excess of their purchase prices, a capital gain
dividend of $12,236 ($.009655 per share) was paid in October 1997.
The cash from these dispositions was reinvested in bonds maturing in ten to
seventeen years. Portfolio turnover was 3%, lower than recent years. We
expect turnover to increase next year as several of our bonds have been
prerefunded for early call.
The net asset value of the Fund was $21.40 per share on September 30, 1997,
which was an increase of $.26 per share from the prior year. The weighted
average annual yield on the bonds in the Fund as of September 30, 1997 was
6.5% based on cost, and 6.0% based on market value, and the weighted average
maturity was 9.1 years.
The Board of Directors, on October 22, 1997, declared quarterly dividends
which total $1.21 per share for the year ending September 30, 1998. All
shareholders will receive the quarterly dividends to be paid on November 3,
1997, February 2, 1998, May 1, 1998, August 3, 1998 and November 2, 1998.
The Annual Meeting of Shareholders of Keyco Bond Fund, Inc. will be held at
27777 Franklin Road, Suite 1850, Southfield, Michigan on Tuesday, December
16, 1997, 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,
/S/ Joel D. Tauber
President
Enclosures
KEYCO BOND FUND, INC.
REPORT ON AUDIT OF FINANCIAL STATEMENTS
for the year ended September 30, 1997
Keyco Bond Fund, Inc.
Contents
Report of Independent Accountants
Financial Statements:
Statement of Assets and Liabilities as of September 30, 1997
Statement of Operations for the Year Ended September 30, 1997
Statement of Changes in Net Assets for the Years
Ended September 30, 1997 and 1996
Notes to Financial Statements
Supplemental Schedules:
Schedule of Portfolio Investments, September 30, 1997
Financial Highlights for the Years Ended September 30,
1997, 1996, 1995, 1994 and 1993
Report of Independent Accountants
To the Board of Directors and Shareholders of
Keyco Bond Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Keyco Bond Fund, Inc., including the schedule of portfolio investments, as
of September 30, 1997, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 1997 by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Keyco Bond Fund, Inc. as of September 30, 1997, the results of its
operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
/S/ Coopers & Lybrand L.L.P.
Detroit, Michigan
October 24, 1997
Keyco Bond Fund, Inc.
Statement of Assets and Liabilities
as of September 30, 1997
ASSETS
Investments in securities, at fair value (cost $24,773,892) $26,738,626
Cash 34,862
Accrued interest receivable 535,340
----------
Total assets 27,308,828
----------
LIABILITIES
Dividends payable 183,621
Accrued liabilities 2,149
----------
Total liabilities 185,770
----------
Net assets applicable to outstanding capital shares,
equivalent to $21.40 per share based on 1,267,258
shares of capital stock outstanding $ 27,123,058
==========
The accompanying notes are an integral part of the
financial statements.
Keyco Bond Fund, Inc.
Statement of Operations
for the year ended September 30, 1997
Interest income $1,606,345
Expenses:
Legal and accounting $ 40,118
Custodial fee 12,000
Directors' fees 2,000
Miscellaneous expense 1,523
---------
Total expenses 55,641
--------
Net investment income 1,550,704
Realized gain on investments:
Proceeds from maturity, calls and sales 935,069
Cost of securities matured, called or sold 924,383
---------
Realized gain on investments 10,686
Unrealized appreciation of investments:
Investments held, September 30, 1997:
At cost 24,773,892
At fair value 26,738,626
----------
Balance, September 30, 1997 1,964,734
Less balance, September 30, 1996 1,628,215
----------
Unrealized appreciation of investments 336,519
Increase in net assets resulting from operations $1,897,909
=========
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, 1997 and 1996
1997 1996
---- ----
Net assets, beginning of period $26,796,112 $26,840,276
---------- ----------
Changes in net assets from operations:
Net investment income 1,550,704 1,569,495
Realized gain on investments 10,686 82,033
Unrealized appreciation (depreciation)
of investments 336,519 (100,470)
---------- ----------
Increase in net assets from operations 1,897,909 1,551,058
Changes in net assets from capital
transactions:
Dividends declared from net investment
income (1,558,727) (1,571,400)
Dividends declared from net capital
gains ( 12,236) ( 23,822)
---------- ----------
Net increase (decrease) in net assets 326,946 ( 44,164)
---------- ----------
Net assets, end of year $27,123,058 $26,796,112
========== ==========
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.
d. Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
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 $ 25,345
Additional paid-in capital 730,733
Retained earnings prior to July 1, 1979 24,093,500
Accumulated undistributed net investment income 308,746
Net unrealized appreciation of investments,
September 30, 1997 1,964,734
---------
Net assets, September 30, 1997 $27,123,058
==========
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 $914,864 and $935,069, 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, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Long-Term State and Principal Fair
Municipal Obligations Amount Cost Value
- --------------------- --------- ---- -----
Avondale, Michigan, School District, 7.5%, May 2003 $ 500,000 $ 500,000 $ 515,578
Avondale, Michigan, School District, 7.5%, May 2004 700,000 700,000 721,809
Bay City, Michigan, Electric Utility Revenue, 6.6%, January 2012 500,000 494,900 544,824
Capac, Michigan, Community School District, 6.25%, July 2003 100,000 96,920 102,439
Central Michigan University, 5.3%, October 2006 70,000 66,345 72,820
Crosswell and Lexington, Michigan, Community Schools
Building and Site, 6%, May 2016 500,000 500,000 520,344
Dearborn, Michigan, School District, 6.7%, May 1999 100,000 108,744 104,230
Dearborn, Michigan, School District, 6.7%, May 2000 135,000 147,775 143,626
Detroit, Michigan, Distributable State Aid, 5.2%, May 2007 520,000 516,001 536,614
Detroit, Michigan, City Distributable State Aid, 7.2%, May 2009 1,000,000 995,000 1,068,240
Detroit, Michigan, City School District, 4.95%, May 2005 200,000 186,398 202,896
Grand Rapids, Michigan, Sanitary Sewer System, 6%, January 2012 500,000 500,000 522,156
Jackson County, Michigan, 5%, April 2006 300,000 277,173 307,482
Lansing, Michigan, School District, 6.8%, May 2004 460,000 512,067 520,823
Marquette County, Michigan, Wastewater Treatment System,
6%, December 2007 175,000 154,553 180,504
Marquette County, Michigan, Wastewater Treatment System,
6%, December 2008 170,000 149,913 175,320
Michigan Municipal Bond Authority Revenue, Local Government
Wayne County, PJ-GRP 1213, 7.4%, December 2002 1,075,000 1,065,497 1,221,512
Michigan Municipal Bond Authority Revenue, State Revolving
Fund, 6.5%, October 2010 550,000 599,769 625,998
Michigan Municipal Bond Authority Revenue, State Revolving
Fund, 6.55%, October 2013 100,000 109,445 111,648
Michigan Municipal Bond Authority Revenue, Local Government
Loan Program, 6%, December 2013 130,000 134,940 138,474
Michigan State Building Authority Revenue, 5.125%, October 2008 100,000 91,772 102,138
Michigan State Building Revenue, Series I, 5.3%, October 2012 500,000 418,505 501,940
Michigan State Building Authority Revenue, Series I, 5%, October 2014 500,000 500,000 496,043
Michigan State Housing Development Authority, Rental Housing
Revenue, 5.375%, April 2004 70,000 71,537 73,380
Michigan State Housing Development Authority, Rental Housing
Revenue, 5.6%, April 2006 500,000 489,640 529,471
Michigan State Trunk Line, Series A, 5.75%, October 2012 250,000 248,673 258,432
Michigan State University Revenue, 6.125%, August 2010 1,200,000 1,190,892 1,264,987
Pinckney, Michigan, Community Schools, Livingston and
Washtenaw Counties, 5.5%, May 2004 300,000 268,500 306,224
Portage, Michigan, Public Schools, 5.7%, May 2012 230,000 227,619 238,727
South Lyon Community School District, Counties of Oakland,
Washtenaw and Livingston, State of Michigan Building
Site Bonds, 7.8%, May 2014 500,000 500,000 521,330
Sturgis, Michigan, Government Hospital, 6.55%, October 2000 325,000 308,750 331,910
Sturgis, Michigan, Government Hospital, 6.6%, October 2001 250,000 237,500 255,251
University of Michigan, Hospital Revenue, 7%, December 2021 75,000 78,366 82,716
West Bloomfield, Michigan, School District, 5%, May 2006 100,000 92,357 102,807
Wyandotte, Michigan, Downtown Development, 6.25%, December 2008 750,000 727,440 846,584
Alaska State Housing Finance Corporation, 6.1%, June 2007 155,000 155,000 161,441
Alaska State Housing Finance Corporation, 6.2%, June 2008 285,000 285,000 296,850
California State, 5.7%, August 2003 500,000 481,055 512,732
California State, 5.7%, August 2004 250,000 237,263 255,966
District of Columbia, MBIA, Series B, 6.3%, June 2007 250,000 263,922 270,710
Gainsville, Florida, Utilities System Revenue, 6.5%, October 2014 750,000 724,900 844,617
Florida State, Hillsborough County Expressway, G.O., 5.9%,
October 2005 750,000 664,058 762,010
Honolulu, Hawaii, New Public Housing Authority, 5.75%, August 2008 290,000 258,381 296,684
Honolulu, Hawaii, New Public Housing Authority, 5.75%, August 2009 700,000 622,804 715,944
Joliet, Illinois Corporate Purpose, 7%, January 2012 100,000 106,994 103,153
Maryland State Health and Higher Educational Facilities
Authority Revenue Johns Hopkins Hospital
Redevelopment Issue, 6.625%, July 2008 495,000 495,000 550,331
Mercer County, New Jersey, Improvement Authority Revenue,
State Justice Complex, 6.4%, January 2018 500,000 463,270 560,406
New York, New York, City Municipal Assistance Corporation,
6%, July 2008 750,000 755,625 782,861
New York, New York, City Municipal Water Finance Authority,
Water-Sewer System Revenue, 6.75%, June 2016 200,000 206,384 219,404
New York, New York, City Municipal Water Finance Authority,
Water-Sewer System Revenue, 6.75%, June 2016 200,000 206,384 215,682
New York State Refunding, 6.1%, November 2008 500,000 500,000 531,939
Monroe County, New York, Water Improvement,
5.5%, December 2008 610,000 589,034 635,976
Ohio State Building Authority, State Transportation Facilities,
7%, September 2003 350,000 389,162 380,522
Erie County, Hospital Authority PA Revenue, Erie County Geriatric
Center, U. S. Treasury, 6.25%, July 2011 1,000,000 993,560 1,095,950
Puerto Rico Commonwealth Highway and Transportation
Authority Highway Revenue, 6.25%, July 2012 500,000 544,085 564,067
South Carolina State Housing Authority, Single Family Mortgage
Purchase, 7%, July 2011 500,000 502,500 509,833
Met. Government Nashville and Davidson County, Tennessee,
Health and Educational Facilities Board Revenue, Meharry
Medical College-HEW, collateralized, 7.875%, December 2004 215,000 212,059 239,843
Austin, Texas, Utility System Revenue, 6%, April 2006 500,000 474,565 540,398
Sherman, Texas, New Public Housing Authority, 5.75%, March 2006 200,000 178,876 204,895
Texas Coastal Water Authority, Water Convey System Revenue,
8.125%, December 2017 700,000 712,250 706,194
Virginia State Housing Development Authority, Multifamily
Mortgage Section 8 Assisted, 8.25%, November 2012 25,000 24,770 25,309
Washington State, Public Power Supply System, Nuclear
Project No. 2 Revenue, 6%, July 2012 500,000 460,000 505,632
---------- ---------- ----------
Total investments $25,210,000 $24,773,892 $26,738,626
========== ========== =========
</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>
<S> <C> <C> <C> <C> <C>
Years Ended September 30,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period $21.14 $21.18 $20.73 $22.02 $21.40
----- ----- ----- ----- -----
Net investment income 1.22 1.24 1.25 1.25 1.29
Net realized and unrealized gain
(loss) on investments .28 ( .02) .45 (1.28) .76
----- ----- ----- ----- -----
Total from investment operations 1.50 1.22 1.70 (.03) 2.05
----- ----- ----- ----- -----
Less distributions from:
Net investment income (1.23) (1.24) (1.25) (1.26) (1.32)
Net realized gain on investments (.01) (.02) - - (.11)
----- ----- ----- ----- -----
Total distributions (1.24) (1.26) (1.25) (1.26) (1.43)
----- ----- ----- ----- -----
Net asset value, end of period $21.40 $21.14 $21.18 $20.73 $22.02
===== ===== ===== ===== =====
Total Return per Share Net
Asset Value (a) 7.1% 5.8% 8.2% (.1)% 9.6%
Ratios and Supplemental Data:
Net assets, end of period (in 000s) $27,123 $26,796 $26,840 $26,264 $27,905
Ratio of net investment income to
average net assets 5.8% 5.8% 6.0% 5.9% 5.9%
Ratio of expenses to average net assets .2% .2% .2% .2% .2%
Portfolio turnover rate 3.5% 9.2% 9.4% 25.4% 16.5%
(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>
