<PAGE>
KEYCO BOND FUND, INC.
27777 Franklin Road - Suite 1850
Southfield, Michigan 48034
(248) 353-0790
May 22, 1998
To Our Shareholders:
We are pleased to send you this Semi-Annual Report of Keyco Bond Fund, Inc.
for the six-month period ended March 31, 1998.
Net investment income for the six months was $754,426 or $.60 per share
compared with $772,914 or $.61 per share last year. The $18,488 decrease
resulted primarily from lower interest income. Interest income decreased
because interest rates on new bonds purchased in recent years have been
lower than the interest rates on the bonds which they replaced.
During the period, ten bonds were called or sold. The $3,168,738 proceeds
from these dispositions were reinvested in bonds maturing in ten to sixteen
years. Portfolio turnover for the six-month period was 11.9%.
The net asset value of the Fund was $27,397,370 or $21.62 per share at March
31, 1998, which was an increase of $274,312 or $.22 per share from September
30, 1997. This increase is primarily from net investment income and
realized gains on investments which have not yet been distributed. As of
March 31, 1998, the weighted average annual yield on the Fund's portfolio
was 6.2% based on cost and 5.8% based on market value, and the weighted
average maturity was 10.2 years.
In October 1997 the Board declared quarterly dividends which total $1.21 per
share for the year ending September 30, 1998. Dividends of $.44 per share
have been declared for the six months ended March 31, 1998. Additional
dividend payment dates are May 1, August 3, and November 2, 1998.
The Annual Meeting of Shareholders of Keyco Bond Fund, Inc. was held
December 16, 1997. At the meeting, Gail A. Dishell, Mark E. Schlussel,
David K. Page, Thomas E. Purther and Ellen T. Horing were elected Directors,
and the selection of Coopers & Lybrand as independent auditors was ratified
and confirmed.
If you have any questions concerning the Fund or the attached information,
please feel free to call me.
On behalf of the Board of Directors,
/S/ Joel D. Tauber
President
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Keyco Bond Fund, Inc.
Statement of Assets and Liabilities
as of March 31, 1998
ASSETS
Investments in securities, at fair value (cost $25,135,976) $27,035,597
Cash 83,989
Receivable for investments sold 1,097,488
Accrued interest receivable 523,551
Other assets 740
----------
Total assets 28,741,365
----------
LIABILITIES
Payable for investments purchased 1,343,995
----------
Total liabilities 1,343,995
----------
Net assets applicable to outstanding capital shares,
equivalent to $21.62 per share based on 1,267,258
shares of capital stock outstanding $27,397,370
==========
The accompanying notes are an integral part of the
financial statements.
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Keyco Bond Fund, Inc.
Statement of Operations
for the six months ended March 31, 1998
Interest income $ 789,143
Expenses:
Legal and accounting $ 25,856
Custodial fee 6,000
Directors' fees 2,000
Miscellaneous expense 861
---------
Total expenses 34,717
--------
Net investment income 754,426
Realized gain on investments:
Proceeds from calls and sales 3,168,738
Cost of securities called or sold 3,026,146
---------
Realized gain on investments 142,592
Unrealized depreciation of investments:
Investments held, March 31,1998:
At cost 25,135,976
At fair value 27,035,597
----------
Balance, March 31, 1998 1,899,621
Less balance, September 30, 1997 1,964,734
----------
Unrealized depreciation of investments (65,113)
---------
Increase in net assets resulting from operations $ 831,905
=========
The accompanying notes are an integral part
of the financial statements.
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Keyco Bond Fund, Inc.
Statement of Changes in Net Assets
for the six months ended March 31, 1998 and 1997
1998 1997
---- ----
Net assets, beginning of period $27,123,058 $26,796,112
---------- ----------
Changes in net assets from operations:
Net investment income 754,426 772,914
Realized gain (loss) on investments 142,592 (1,715)
Unrealized depreciation of investments (65,113) (113,181)
---------- ----------
Increase in net assets from operations 831,905 658,018
Changes in net assets from capital transactions:
Dividends declared from net investment income (557,593) (773,027)
----------- -----------
Net increase (decrease) in net assets 274,312 (115,009)
---------- ----------
Net assets, end of period $27,397,370 $26,681,103
========== ==========
The accompanying notes are an integral part of
the financial statements.
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Keyco Bond Fund, Inc.
Notes to Financial Statements
1. Significant Accounting Policies:
Keyco Bond Fund, Inc. (the "Fund") has registered under the
Investment Company Act of 1940, as amended, as a closed-end,
diversified management company. The Fund 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 Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting
principles.
a. Security Valuation: The Fund 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 Fund'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 Fund'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 March 31, 1998 $ 25,345
Additional paid-in capital 730,733
Retained earnings prior to July 1, 1979 24,093,500
Accumulated undistributed net investment income 505,579
Accumulated undistributed net realized gain from
securities transactions 142,592
Net unrealized appreciation of investments,
March 31, 1998 1,899,621
---------
Net assets, March 31, 1998 $27,397,370
===========
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 $3,388,230 and $3,168,738,
respectively.
4. Portfolio Manager:
The Fund does not retain the services of an investment advisor or a
third-party portfolio manager. The Fund, acting through its
officers and with the review provided by the Board, makes investment
decisions internally.
5. Related Parties:
Legal and accounting expenses incurred include $12,500 for
accounting and administrative services provided by an entity owned
by an officer of the Fund.
<PAGE>
Keyco Bond Fund, Inc.
Schedule of Portfolio Investments
March 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Long-Term State and Principal Fair
Municipal Obligations Amount Cost Value
- ----------------------------------------------------------------- --------- --------- --------
Avondale, Michigan, School District, 7.5%, May 2004 $ 115,000 $ 115,000 $ 116,324
Bay City, Michigan, Electric Utility Revenue, 6.6%, January 2012 500,000 494,900 541,265
Capac, Michigan, Community School District, 6.25%, July 2003 100,000 96,920 102,473
Central Michigan University, 5.3%, October 2006 70,000 66,345 73,207
Crosswell and Lexington, Michigan, Community Schools
Building and Site, 6%, May 2016 500,000 500,000 522,470
Dearborn, Michigan, School District, 6.7%, May 1999 100,000 108,744 103,161
Dearborn, Michigan, School District, 6.7%, May 2000 135,000 147,775 142,386
Detroit, Michigan, Distributable State Aid, 5.2%, May 2007 520,000 516,001 545,693
Detroit, Michigan, City Distributable State Aid, 7.2%, May 2009 1,000,000 995,000 1,055,460
Detroit, Michigan, City School District, 4.95%, May 2005 200,000 186,398 204,914
Detroit, Michigan, Sewage Disposal, Series A, 5.7%, July 2013 100,000 106,726 103,959
Farmington, Michigan, Public School District, 5%, May 2011 210,000 212,283 212,283
Grand Haven, Michigan, Electric Revenue, 5.25%, July 2013 1,000,000 1,024,780 1,012,540
Grand Rapids, Michigan, Sanitary Sewer System, 6%, January 2012 500,000 500,000 524,685
Jackson County, Michigan, 5%, April 2006 300,000 277,173 308,361
Lansing, Michigan, School District, 6.8%, May 2004 460,000 512,067 520,725
Marquette County, Michigan, Wastewater Treatment System,
6%, December 2007 175,000 154,553 180,572
Marquette County, Michigan, Wastewater Treatment System,
6%, December 2008 170,000 149,913 175,387
Michigan Municipal Bond Authority Revenue, Local Government
Wayne County, PJ-GRP 1213, 7.4%, December 2002 1,075,000 1,065,497 1,215,503
Michigan Municipal Bond Authority Revenue, State Revolving
Fund, 6.5%, October 2010 550,000 599,769 625,339
Michigan Municipal Bond Authority Revenue, State Revolving
Fund, 6.55%, October 2013 100,000 109,445 111,165
Michigan Municipal Bond Authority Revenue, Local Government
Loan Program, 6%, December 2013 130,000 134,940 140,076
Michigan State Building Authority Revenue, 5.125%, October 2008 100,000 91,772 103,171
Michigan State Building Authority Revenue, Series I,
5.875%, October 2008 400,000 428,888 425,028
Michigan State Building Revenue, Series I, 5.3%, October 2012 500,000 418,505 508,975
Michigan State Building Authority Revenue, Series I, 5%, October 2014 440,000 440,000 440,176
Michigan State Housing Development Authority, Rental Housing
Revenue, 5.375%, April 2004 70,000 71,537 73,830
Michigan State Housing Development Authority, Rental Housing
Revenue, 5.6%, April 2006 500,000 489,640 532,860
Michigan State University Revenue, 6.125%, August 2010 1,200,000 1,190,892 1,269,312
Michigan State Trunk Line, Series A, 5.75%, October 2012 250,000 248,673 258,697
Milan, Michigan, Area Schools, 5%, May 2013 300,000 299,985 299,985
Pinckney, Michigan, Community Schools, Livingston and
Washtenaw Counties, 5.5%, May 2004 300,000 268,500 306,264
Plymouth-Canton, Michigan, Community School District,
5.5%, May 2013 100,000 104,191 103,550
Portage, Michigan, Public Schools, 5.7%, May 2012 230,000 227,619 240,334
South Lyon, Michigan, Community Schools, 6.25%, May 2014 55,000 58,592 57,740
South Lyon Community School District, Counties of Oakland,
Washtenaw and Livingston, State of Michigan Building
Site Bonds, 7.8%, May 2014 500,000 500,000 511,705
Sturgis, Michigan, Government Hospital, 6.55%, October 2000 325,000 308,750 328,988
Sturgis, Michigan, Government Hospital, 6.6%, October 2001 250,000 237,500 252,980
University of Michigan, Hospital Revenue, 7%, December 2021 75,000 78,366 81,827
West Bloomfield, Michigan, School District, 5%, May 2006 100,000 92,357 103,697
Wyandotte, Michigan, Downtown Development, 6.25%, December 2008 750,000 727,440 853,365
Alaska State Housing Finance Corporation, 6.1%, June 2007 150,000 150,000 163,544
Alaska State Housing Finance Corporation, 6.2%, June 2008 280,000 280,000 305,819
California State, 5.7%, August 2003 500,000 481,055 509,810
California State, 5.7%, August 2004 250,000 237,263 254,710
District of Columbia, MBIA, Series B, 6.3%, June 2007 250,000 263,922 270,770
Gainsville, Florida, Utilities System Revenue, 6.5%, October 2014 750,000 724,900 875,407
Honolulu, Hawaii, New Public Housing Authority, 5.75%, August 2008 290,000 258,381 296,873
Honolulu, Hawaii, New Public Housing Authority, 5.75%, August 2009 700,000 622,804 716,352
Joliet, Illinois Corporate Purpose, 7%, January 2012 100,000 106,994 102,462
Maryland State Health and Higher Educational Facilities
Authority Revenue Johns Hopkins Hospital
Redevelopment Issue, 6.625%, July 2008 495,000 495,000 557,593
Mercer County, New Jersey, Improvement Authority Revenue,
State Justice Complex, 6.4%, January 2018 500,000 463,270 583,015
New York, New York, City Municipal Assistance Corporation,
6%, July 2008 750,000 755,625 782,243
Akron, New York, Central School District, 5.9%, June 2014 100,000 108,776 106,699
New York, New York, City Municipal Water Finance Authority,
Water-Sewer System Revenue, 6.75%, June 2016 200,000 206,384 217,270
New York, New York, City Municipal Water Finance Authority,
Water-Sewer System Revenue, 6.75%, June 2016 200,000 206,384 215,382
New York State Refunding, 6.1%, November 2008 500,000 500,000 534,730
Monroe County, New York, Water Improvement,
5.5%, December 2008 610,000 589,034 640,469
Ohio State Building Authority, State Transportation Facilities,
7%, September 2003 350,000 389,162 377,877
Erie County, Hospital Authority PA Revenue, Erie County Geriatric
Center, U. S. Treasury, 6.25%, July 2011 975,000 968,721 1,105,172
Puerto Rico Commonwealth Highway and Transportation
Authority Highway Revenue, 6.25%, July 2012 500,000 544,085 568,060
Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority,
1998 Series A, 5.375%, October 2013 1,000,000 1,044,010 1,044,010
South Carolina State Housing Authority, Single Family Mortgage
Purchase, 7%, July 2011 500,000 502,500 507,530
Met. Government Nashville and Davidson County, Tennessee,
Health and Educational Facilities Board Revenue, Meharry
Medical College-HEW, collateralized, 7.875%, December 2004 205,000 202,059 230,814
Austin, Texas, Utility System Revenue, 6%, April 2006 500,000 474,565 548,175
Sherman, Texas, New Public Housing Authority, 5.75%, March 2006 200,000 178,876 205,066
Virginia State Housing Development Authority, Multifamily
Mortgage Section 8 Assisted, 8.25%, November 2012 25,000 24,770 25,313
---------- ---------- ----------
Total investments $25,335,000 $25,135,976 $27,035,597
========== ========== ==========
</TABLE>
<PAGE>
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>
Six Months
Ended Years Ended September 30,
3/31/98 ----------------------------------
(Unaudited) 1997 1996 1995 1994
---- ---- ---- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period $21.40 $21.14 $21.18 $20.73 $22.02
----- ----- ----- ----- -----
Net investment income 0.60 1.22 1.24 1.25 1.25
Net realized and unrealized gain
(loss) on investments 0.06 0.28 (0.02) 0.45 (1.28)
----- ----- ----- ----- -----
Total from investment operations 0.66 1.50 1.22 1.70 (0.03)
----- ----- ----- ----- -----
Less distributions from:
Net investment income (0.44) (1.23) (1.24) (1.25) (1.26)
Net realized investment income - (0.01) (0.02) - -
----- ----- ----- ----- -----
Total distributions (0.44) (1.24) (1.26) (1.25) (1.26)
----- ----- ----- ----- -----
Net asset value, end of period $21.62 $21.40 $21.14 $21.18 $20.73
===== ===== ===== ===== =====
Total Return per Share Net
Asset Value (a) 3.1%(c) 7.1% 5.8% 8.2% (.1)%
Ratios and Supplemental Data:
Net assets, end of period (in 000s) $27,397 $27,123 $26,796 $26,840 $26,264
Ratio of net investment income to
average net assets 5.5%(b) 5.8% 5.8% 6.0% 5.9%
Ratio of expenses to average net assets .3%(b) .2% .2% .2% .2%
Portfolio turnover rate 11.9%(c) 3.5% 9.2% 9.4% 25.4%
(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
Fund.
(b) Annualized.
(c) Not annualized.
</TABLE>