<PAGE>
KEYCO BOND FUND, INC.
27777 Franklin Road - Suite 1850
Southfield, Michigan 48034
(248) 353-0790
November 20, 1998
To Our Shareholders:
We are pleased to send you this Annual Report of Keyco Bond Fund, Inc. for
the year ended September 30, 1998.
Net investment income for the year was $1,499,756 or $1.18 per share
compared with $1,550,704 or $1.22 per share last year. Most of this change
was caused by a $51,335 decline in interest income as bonds purchased in
recent years yielded less 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 $105,533 or 0.4%.
During the year, 14 bonds were either called or sold for total proceeds of
$3,829,888. Because some of the disposals were at a premium price in excess
of amortized cost, a capital gain dividend of $158,018 ($.12469 per share)
was paid in November 1998.
The cash from these dispositions was reinvested in bonds maturing in ten to
nineteen years. Portfolio turnover was 13.8%, which was higher than recent
years as a result of early calls and the lower interest rate environment.
The net asset value of the Fund was $21.46 per share on September 30, 1998,
an increase of $.06 per share from the prior year. The weighted average
annual yield on the bonds in the Fund as of September 30, 1998 was 6.1%
based on cost, and 5.6% based on market value, and the weighted average
maturity was 8.7 years.
The Board of Directors, on October 28, 1998, declared quarterly dividends
which total $1.14 per share for the year ending September 30, 1999. All
shareholders will be sent quarterly dividend payments on November 2, 1998,
February 1, 1999, May 3, 1999, August 2, 1999 and November 1, 1999.
The Annual Meeting of Shareholders of Keyco Bond Fund, Inc. will be held at
27777 Franklin Road, Suite 1850, Southfield, Michigan on Wednesday, December
16, 1998, at 11:00 a.m. for the purpose of electing Directors and ratifying
the selection of PricewaterhouseCoopers 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
<PAGE>
KEYCO BOND FUND, INC.
REPORT ON AUDIT OF FINANCIAL STATEMENTS
for the year ended September 30, 1998
Keyco Bond Fund, Inc.
Contents
Report of Independent Accountants
Financial Statements:
Statement of Assets and Liabilities as of September 30, 1998
Statement of Operations for the Year Ended September 30, 1998
Statement of Changes in Net Assets for the Years
Ended September 30, 1998 and 1997
Notes to Financial Statements
Supplemental Schedules:
Schedule of Portfolio Investments, September 30, 1998
Financial Highlights for the Years Ended September 30,
1998, 1997, 1996, 1995 and 1994
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Keyco Bond Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities of
Keyco Bond Fund, Inc., including the schedule of portfolio investments, as
of September 30, 1998, 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 present fairly, in all material respects, the
financial position of Keyco Bond Fund, Inc. as of September 30, 1998, 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. 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 which
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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.
Our procedures included confirmation of securities owned as of September 30,
1998 by correspondence with the custodian. We believe that our audits
provide a reasonable basis for the opinion expressed above.
/S/ PricewaterhouseCoopers LLP
October 23, 1998
<PAGE>
Keyco Bond Fund, Inc.
Statement of Assets and Liabilities
as of September 30, 1998
ASSETS
Investments in securities, at fair value (cost $24,777,098) $26,847,365
Cash 179,949
Accrued interest receivable 511,610
-----------
Total assets 27,538,924
-----------
LIABILITIES
Dividends payable 348,106
-----------
Total liabilities 348,106
-----------
Net assets applicable to outstanding capital shares,
equivalent to $21.46 per share based on 1,267,258
shares of capital stock outstanding $27,190,818
===========
The accompanying notes are an integral part of the
financial statements.
<PAGE>
Keyco Bond Fund, Inc.
Statement of Operations
for the year ended September 30, 1998
Interest income $1,555,010
Expenses:
Legal and accounting $ 39,638
Custodial fee 12,000
Directors' fees 2,000
Miscellaneous expense 1,616
-----------
Total expenses 55,254
----------
Net investment income 1,499,756
Realized gain on investments:
Proceeds from calls and sales 3,829,888
Cost of securities called or sold 3,676,017
-----------
Realized gain on investments 153,871
Unrealized appreciation of investments:
Investments held, September 30, 1998:
At cost 24,777,098
At fair value 26,847,365
-----------
Balance, September 30, 1998 2,070,267
Less balance, September 30, 1997 1,964,734
-----------
Unrealized appreciation of investments 105,533
----------
Increase in net assets resulting from operations $1,759,160
==========
The accompanying notes are an integral part
of the financial statements.
<PAGE>
Keyco Bond Fund, Inc.
Statement of Changes in Net Assets
for the years ended September 30, 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 1,499,756 1,550,704
Realized gain on investments 153,871 10,686
Unrealized appreciation of investments 105,533 336,519
----------- -----------
Increase in net assets from operations 1,759,160 1,897,909
Changes in net assets from capital transactions:
Dividends declared from net
investment income (1,533,382) (1,558,727)
Dividends declared from net capital gains ( 158,018) ( 12,236)
---------- ----------
Net increase in net assets 67,760 326,946
---------- ----------
Net assets, end of period $27,190,818 $27,123,058
=========== ===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
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 September 30, 1998 $ 25,345
Additional paid-in capital 730,733
Retained earnings prior to July 1, 1979 24,093,500
Accumulated undistributed net investment income 270,973
Net unrealized appreciation of investments,
September 30, 1998 2,070,267
-----------
Net assets, September 30, 1998 $27,190,818
===========
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 $3,679,223 and $3,829,888,
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 $25,000 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
September 30, 1998
<TABLE>
<CAPTION>
Long-Term State and Principal Fair
Municipal Obligations Amount Cost Value
--------- ---- -----
<S> <C> <C> <C>
Bay City, Michigan, Electric Utility Revenue, 6.6%, January 2012 $ 500,000 $ 494,900 $ 541,260
Capac, Michigan, Community School District, 6.25%, July 2003 100,000 96,920 102,595
Central Michigan University, 5.3%, October 2006 70,000 66,345 74,530
Crosswell and Lexington, Michigan, Community Schools
Building and Site, 6%, May 2016 500,000 500,000 528,470
Dearborn, Michigan, School District, 6.7%, May 1999 100,000 108,744 101,989
Dearborn, Michigan, School District, 6.7%, May 2000 135,000 147,775 141,689
Detroit, Michigan, Distributable State Aid, 5.2%, May 2007 520,000 516,001 559,858
Detroit, Michigan, City Distributable State Aid, 7.2%, May 2009 1,000,000 995,000 1,042,030
Detroit, Michigan, City School District, 4.95%, May 2005 200,000 186,398 209,718
Detroit, Michigan, Sewage Disposal, Series A, 5.7%, July 2013 100,000 106,726 106,163
Farmington, Michigan, Public School District, 5%, May 2011 210,000 212,283 218,312
Grand Haven, Michigan, Electric Revenue, 5.25%, July 2013 1,000,000 1,024,780 1,031,430
Grand Rapids, Michigan, Sanitary Sewer System, 6%, January 2012 500,000 500,000 543,620
Jackson County, Michigan, 5%, April 2006 300,000 277,173 311,079
Lansing, Michigan, School District, 6.8%, May 2004 460,000 512,067 528,103
Marquette County, Michigan, Wastewater Treatment System,
6%, December 2007 175,000 154,553 179,270
Marquette County, Michigan, Wastewater Treatment System,
6%, December 2008 170,000 149,913 174,148
Michigan Municipal Bond Authority Revenue, Local Government
Wayne County, PJ-GRP 1213, 7.4%, December 2002 1,075,000 1,065,497 1,220,190
Michigan Municipal Bond Authority Revenue, State Revolving
Fund, 6.5%, October 2010 550,000 599,769 634,601
Michigan Municipal Bond Authority Revenue, State Revolving
Fund, 6.55%, October 2013 100,000 109,445 111,922
Michigan Municipal Bond Authority Revenue, Local Government
Loan Program, 6%, December 2013 130,000 134,940 142,074
Michigan Municipal Bond Authority Revenue, Local Government
Loan Program, 5.375%, November 2017 150,000 154,161 155,949
Michigan State Building Authority Revenue, 5.125%, October 2008 100,000 91,772 105,500
Michigan State Building Authority Revenue, Series I, 5.875%,
October 2008 400,000 428,888 429,076
Michigan State Building Revenue, Series I, 5.3%, October 2012 500,000 418,505 520,450
Michigan State Building Authority Revenue, Series I, 5%, October 2014 440,000 440,000 445,887
Michigan State Housing Development Authority, Rental Housing
Revenue, 5.375%, April 2004 70,000 71,537 75,069
Michigan State Housing Development Authority, Rental Housing
Revenue, 5.6%, April 2006 500,000 489,640 539,955
Michigan State University Revenue, 6.125%, August 2010 1,200,000 1,190,892 1,311,324
Michigan State Trunk Line, Series A, 5.75%, October 2012 250,000 248,673 267,945
Milan, Michigan, Area Schools, 5%, May 2013 300,000 299,985 307,599
Pinckney, Michigan, Community Schools, Livingston and
Washtenaw Counties, 5.5%, May 2004 300,000 268,500 306,390
Plymouth-Canton, Michigan, Community School District,
5.5%, May 2013 100,000 104,191 105,176
Portage, Michigan, Public Schools, 5.7%, May 2012 230,000 227,619 243,733
South Lyon, Michigan, Community Schools, 6.25%, May 2014 55,000 58,592 58,026
Sturgis, Michigan, Government Hospital, 6.55%, October 2000 325,000 308,750 329,686
Sturgis, Michigan, Government Hospital, 6.6%, October 2001 250,000 237,500 253,553
University of Michigan, Hospital Revenue, 7%, December 2021 75,000 78,366 81,659
Wayne County, Michigan, Airport Revenue, Series B,
5.25%, December 2015 135,000 136,832 140,162
West Bloomfield, Michigan, School District, 5%, May 2006 100,000 92,357 106,619
Wyandotte, Michigan, Downtown Development, 6.25%, December 2008 750,000 727,440 877,492
Alaska State Housing Finance Corporation, 6.1%, June 2007 150,000 150,000 165,884
Alaska State Housing Finance Corporation, 6.2%, June 2008 280,000 280,000 309,848
California State, 5.7%, August 2003 500,000 481,055 508,420
California State, 5.7%, August 2004 250,000 237,263 254,002
District of Columbia, MBIA, Series B, 6.3%, June 2007 250,000 263,922 276,013
Gainesville, Florida, Utilities System Revenue, 6.5%, October 2014 750,000 724,900 757,448
Honolulu, Hawaii, New Public Housing Authority, 5.75%, August 2008 290,000 258,381 297,299
Honolulu, Hawaii, New Public Housing Authority, 5.75%, August 2009 700,000 622,804 717,402
Joliet, Illinois Corporate Purpose, 7%, January 2012 100,000 106,994 101,791
Maryland State Health and Higher Educational Facilities
Authority Revenue Johns Hopkins Hospital
Redevelopment Issue, 6.625%, July 2008 495,000 495,000 570,492
Mercer County, New Jersey, Improvement Authority Revenue,
State Justice Complex, 6.4%, January 2018 500,000 463,270 599,745
New York, New York, City Municipal Assistance Corporation,
6%, July 2008 750,000 755,625 785,888
Akron, New York, Central School District, 5.9%, June 2014 100,000 108,776 108,863
New York, New York, City Municipal Water Finance Authority,
Water-Sewer System Revenue, 6.75%, June 2016 200,000 206,384 217,650
New York, New York, City Municipal Water Finance Authority,
Water-Sewer System Revenue, 6.75%, June 2016 200,000 206,384 215,338
New York State Refunding, 6.1%, November 2008 500,000 500,000 547,980
Monroe County, New York, Water Improvement,
5.5%, December 2008 610,000 589,034 651,389
Ohio State Building Authority, State Transportation Facilities,
7%, September 2003 350,000 389,162 378,675
Erie County, Hospital Authority PA Revenue, Erie County Geriatric
Center, U. S. Treasury, 6.25%, July 2011 955,000 948,850 1,046,604
Puerto Rico Commonwealth Highway and Transportation
Authority Highway Revenue, 6.25%, July 2012 500,000 544,085 588,400
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 1,067,920
South Carolina State Housing Authority, Single Family Mortgage
Purchase, 7%, July 2011 500,000 502,500 508,050
Met. Government Nashville and Davidson County, Tennessee,
Health and Educational Facilities Board Revenue, Meharry
Medical College-HEW, collateralized, 7.875%, December 2004 190,000 187,059 214,326
Austin, Texas, Utility System Revenue, 6%, April 2006 500,000 474,565 562,885
Sherman, Texas, New Public Housing Authority, 5.75%, March 2006 200,000 178,876 205,430
Virginia State Housing Development Authority, Multifamily
Mortgage Section 8 Assisted, 8.25%, November 2012 25,000 24,770 25,322
----------- ----------- -----------
Total investments $24,970,000 $24,777,098 $26,847,365
=========== =========== ===========
</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>
Years Ended September 30,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $21.40 $21.14 $21.18 $20.73 $22.02
------ ------ ------ ------ ------
Net investment income 1.18 1.22 1.24 1.25 1.25
Net realized and unrealized gain (loss)
on investments 0.21 0.28 (0.02) 0.45 (1.28)
------ ------ ------ ------ ------
Total from investment operations 1.39 1.50 1.22 1.70 (.03)
------ ------ ------ ------ ------
Less distributions from:
Net investment income (1.21) (1.23) (1.24) (1.25) (1.26)
Net realized gain on investments (0.12) (0.01) (0.02) - -
------ ------ ------ ------ ------
Total distributions (1.33) (1.24) (1.26) (1.25) (1.26)
------ ------ ------ ------ ------
Net asset value, end of period $21.46 $21.40 $21.14 $21.18 $20.73
====== ====== ====== ====== ======
Total Return per Share Net Asset Value (a) 6.5% 7.1% 5.8% 8.2% (.1)%
Ratios and Supplemental Data:
Net assets, end of period (in 000s) $27,191 $27,123 $26,796 $26,840 $26,264
Ratio of net investment income to
average net assets 5.5% 5.8% 5.8% 6.0% 5.9%
Ratio of expenses to average net assets .2% .2% .2% .2% .2%
Portfolio turnover rate 13.8% 3.5% 9.2% 9.4% 25.4%
</TABLE>
(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.
