<PAGE> 1
KEYCO BOND FUND, INC.
27777 FRANKLIN ROAD - SUITE 1850
SOUTHFIELD, MICHIGAN 48034
(248) 353-0790
November 17, 2000
To Our Shareholders:
We are pleased to send you this Annual Report of Keyco Bond Fund, Inc. for the
year ended September 30, 2000.
Net investment income for the year was $1,431,311 or $1.129 per share, down
$10,340 from $1,441,651 or $1.138 per share last year. Most of this change was
caused by a $9,150 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, interest rates remained relatively stable. There was a
modest increase of $62,482 or 0.02% in the fair market value of the portfolio.
Longer bonds tended to increase in value and shorter and intermediate bonds
tended to decrease in value.
During the year, 16 bonds were either called, sold or matured for total proceeds
of $1,835,498. Near the beginning of the fiscal year when interest rates were
rising, we took the opportunity to improve yields and extend maturities. As a
result, the Fund realized a capital loss of $104,172. For tax purposes, the Fund
has a capital loss carryover of $104,314.
Cash from these dispositions was reinvested in bonds maturing in sixteen to
twenty-two years. Portfolio turnover was 7.2%, lower than in the previous two
fiscal years.
The net asset value of the Fund was $20.45 per share on September 30, 2000, a
decrease of $.02 per share from the prior year. The weighted average annual
yield on the bonds in the Fund as of September 30, 2000 was 6% based on cost,
and 5.8% based on market value, and the weighted average maturity was 9.1 years.
The Board of Directors, on October 24, 2000, declared quarterly dividends which
total $1.12 per share for the year ending September 30, 2001. All shareholders
will be sent quarterly dividend payments on November 1, 2000, February 1, 2001,
May 1, 2001, August 1, 2001 and November 1, 2001.
The Annual Meeting of Shareholders of Keyco Bond Fund, Inc. will be held at
27777 Franklin Road, Suite 1850, Southfield, Michigan, on Tuesday, December 12,
2000, at 11:00 a.m. for the purpose of electing Directors and ratifying the
selection of PricewaterhouseCoopers LLP as our auditors.
Mark Schlussel and David Page continue to serve as independent outside
Directors, and their remuneration remains at $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
Joel D. Tauber
President
Enclosures
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KEYCO BOND FUND, INC.
REPORT ON AUDIT OF FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2000
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KEYCO BOND FUND, INC.
CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS.................................................................................1
FINANCIAL STATEMENTS
Statement of Assets and Liabilities ..............................................................................2
Statement of Operations...........................................................................................3
Statement of Changes in Net Assets................................................................................4
Notes to Financial Statements...................................................................................5-6
SUPPLEMENTAL SCHEDULES
Schedule of Portfolio Investments...............................................................................7-8
Financial Highlights..............................................................................................9
</TABLE>
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[PRICEWATERHOUSE COOPERS LETTERHEAD]
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 including
the schedule of portfolio investments, and the related statements of operations
and of changes in net assets, and the financial highlights present fairly, in
all material respects, the financial position of Keyco Bond Fund, Inc. (the
"Fund") at September 30, 2000, 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 accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(thereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements 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. We believe that our
audits, which included confirmation of securities at September 30, 2000 by
correspondence with the custodian, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
October 20, 2000
1
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KEYCO BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
<TABLE>
<S> <C>
ASSETS
Investments in securities, at fair value (cost $24,715,248) $25,663,698
Cash 194,063
Accrued interest receivable 504,505
----------------
Total assets 26,362,266
----------------
LIABILITIES
Payable for investment purchased 194,549
Dividends payable 253,452
----------------
Total liabilities 448,001
----------------
Net assets applicable to outstanding capital shares,
equivalent to $20.45 per share based on 1,267,258
shares of capital stock outstanding $25,914,265
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 6
KEYCO BOND FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C>
Interest income $ 1,487,005
Expenses
Legal and accounting 37,293
Custodial fee 14,750
Directors' fees 2,000
Miscellaneous expense 1,651
---------------
Total expenses 55,694
---------------
Net investment income 1,431,311
Realized loss on investments
Proceeds from calls and sales 1,835,498
Cost of securities called or sold 1,939,670
---------------
Realized loss on investments (104,172)
Unrealized appreciation of investments
Investments held, September 30, 2000
At cost 24,715,248
At fair value 25,663,698
---------------
Unrealized appreciation, September 30, 2000 948,450
Less unrealized appreciation, September 30, 1999 885,968
---------------
Unrealized appreciation of investments 62,482
---------------
Net loss on investments (41,690)
---------------
Increase in net assets resulting from operations $ 1,389,621
===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 7
KEYCO BOND FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Net assets, beginning of year $25,943,973 $27,190,818
---------------- ----------------
Changes in net assets from operations
Net investment income 1,431,311 1,441,651
Net realized loss on investments (104,172) (59,523)
Changes in unrealized appreciation (depreciation) of investments 62,482 (1,184,299)
---------------- ----------------
Net increase in net assets resulting from operations 1,389,621 197,829
Changes in net assets from capital transactions
Dividends declared from net investment income (1,419,329) (1,444,674)
---------------- ----------------
Net decrease in net assets (29,708) (1,246,845)
---------------- ----------------
Net assets, end of year $25,914,265 $25,943,973
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 8
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.
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.
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.
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.
OTHER
The Fund follows industry practice and records security transactions on
the trade date. Cost of securities sold is determined by specific
identification. Distributions to shareholders are recorded on the
ex-dividend date. Interest income is recognized on an accrual basis.
ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
5
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KEYCO BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
2. NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL SHARES
Details of net assets applicable to outstanding capital shares are as
follows:
<TABLE>
<S> <C>
Capital stock, $.02 par value; 3,000,000 shares authorized;
1,267,258 shares issued and outstanding at September 30, 2000 $ 25,345
Additional paid-in capital 730,733
Retained earnings prior to July 1, 1979 24,093,500
Accumulated undistributed net investment income 279,932
Accumulated undistributed net realized loss from
securities transactions (163,695)
Net unrealized appreciation of investments, September 30, 2000 948,450
---------------
Net assets, September 30, 2000 $ 25,914,265
===============
</TABLE>
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 $1,969,032 and $1,835,498, 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.
6
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KEYCO BOND FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 2000
<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 $ 512,535
Capac, Michigan, Community School District, 6.25%, July 2003 100,000 96,920 102,394
Central Michigan University, 5.3%, October 2006 70,000 66,345 71,492
Crosswell and Lexington, Michigan, Community Schools Building
and Site, 6%, May 2016 500,000 500,000 508,990
Dearborn, Michigan, Sewage Disposal System Revenue, 5.125%,
April 2016 110,000 101,748 107,187
Detroit, Michigan, FSA, Series A, 5%, April 2019 640,000 601,811 585,760
Detroit, Michigan, Distributable State Aid, 5.2%, May 2007 520,000 516,001 531,315
Detroit, Michigan, City School District, 4.95%, May 2005 200,000 186,398 201,050
Detroit, Michigan, Sewage Disposal, Series A, 5.7%, July 2013 20,000 21,345 20,957
Detroit, Michigan, Sewage Disposal, Series A, 5.7%, July 2013 80,000 85,381 82,095
Detroit, Michigan, Sewage Disposal, Series B, 5.25%, July 2015 500,000 484,270 493,395
East Detroit, Michigan, School District, 4.9%, May 2016 500,000 494,290 465,375
Grand Rapids, Michigan, Sanitary Sewer System, 6%, January 2012 500,000 500,000 519,160
Jackson County, Michigan, 5%, April 2006 300,000 277,173 304,029
Lansing, Michigan, School District, 6.8%, May 2004 460,000 512,067 493,106
Lincoln, Michigan, Consolidated School District, 5%, May 2018 170,000 170,000 159,941
Madison, Michigan, District Public Schools, 5.125%, May 2018 750,000 711,555 711,233
Michigan Municipal Bond Authority Revenue, Local Government
Wayne County, PJ-GRP 1213, 7.4%, December 2002 1,075,000 1,065,497 1,138,737
Michigan Municipal Bond Authority Revenue, State Revolving Fund,
6.5%, October 2010 550,000 599,769 597,421
Michigan Municipal Bond Authority Revenue, State Revolving Fund,
6.55%, October 2013 100,000 109,445 105,812
Michigan Municipal Bond Authority Revenue, Local Government
Loan Program, 6%, December 2013 130,000 134,940 135,665
Michigan Municipal Bond Authority Revenue, Local Government
Loan Program, 5.375%, November 2017 150,000 154,161 146,957
Michigan Public Power Agency Revenue, Belle River, 5.25%,
January 2018 425,000 410,418 412,297
Michigan State Building Authority Revenue, 5.125%, October 2008 100,000 91,772 101,120
Michigan State Building Authority Revenue, Series I, 5.875%,
October 2008 400,000 428,888 417,988
Michigan State Building Revenue, Series I, 5.3%, October 2012 500,000 418,505 502,395
Michigan State Building Authority Revenue, Series I, 5%, October 2014 40,000 40,000 40,000
Michigan State Housing Development Authority, Rental Housing
Revenue, 5.375%, April 2004 70,000 71,537 71,647
Michigan State Housing Development Authority, Rental Housing
Revenue, 5.6%, April 2006 500,000 489,640 517,055
Michigan State University Revenue, 6.125%, August 2010 1,200,000 1,190,892 1,246,584
Michigan State Trunk Line, Series A, 5.75%, October 2012 190,000 188,991 194,615
Michigan State Trunk Line, Series A, 5.75%, October 2012 60,000 59,682 60,997
Michigan State House of Representatives Certificates of Participation,
5%, August 2020 460,000 406,525 422,988
Pinckney, Michigan, Community Schools, Livingston and Washtenaw
Counties, 5.5%, May 2004 300,000 268,500 306,189
Plymouth-Canton, Michigan, Community School District 5.5%, May 2013 100,000 104,191 101,607
Portage, Michigan, Public Schools, 5.7%, May 2012 230,000 227,619 239,681
Saginaw Valley State University General Revenue, Michigan, 5.25%,
July 2019 610,000 569,478 587,339
</TABLE>
7
<PAGE> 11
KEYCO BOND FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
<TABLE>
<CAPTION>
LONG-TERM STATE AND PRINCIPAL FAIR
MUNICIPAL OBLIGATIONS AMOUNT COST VALUE
<S> <C> <C> <C>
South Lyon, Michigan, Community Schools, 6.25%, May 2014 $ 55,000 $ 58,592 $ 56,192
Standish-Sterling, Michigan, Community Schools, 5.1%, May 2018 150,000 136,501 141,030
Sturgis, Michigan, Government Hospital, 6.55%, October 2000 325,000 308,750 325,000
Sturgis, Michigan, Government Hospital, 6.6%, October 2001 250,000 237,500 252,670
University of Michigan, Hospital Revenue, 7%, December 2021 75,000 78,366 76,820
Wayland, Michigan, Unified School District, 5.125%, May 2017 1,025,000 976,231 979,182
Wayne County, Michigan, Airport Revenue, Series B, 5.25%,
December 2015 135,000 136,832 131,547
West Bloomfield, Michigan, School District, 5%, May 2006 100,000 92,357 101,504
Wyandotte, Michigan, Downtown Development, 6.25%,
December 2008 750,000 727,440 821,153
Alaska State Housing Finance Corporation, 6.1%, June 2007 110,000 110,000 115,953
Alaska State Housing Finance Corporation, 6.2%, June 2008 210,000 210,000 221,483
District of Columbia, MBIA, Series B, 6.3%, June 2007 250,000 263,923 262,083
Gainesville, Florida, Utilities System Revenue, 6.5%, October 2014 750,000 724,900 755,175
Honolulu, Hawaii, New Public Housing Authority, 5.75%, August 2008 290,000 258,381 293,787
Honolulu, Hawaii, New Public Housing Authority, 5.75%, August 2009 700,000 622,804 709,002
Maryland State Health and Higher Educational Facilities Authority
Revenue Johns Hopkins Hospital Redevelopment Issue,
6.625%, July 2008 400,000 400,000 425,980
Mercer County, New Jersey, Improvement Authority Revenue,
State Justice Complex, 6.4%, January 2018 500,000 463,270 550,865
Akron, New York, Central School District, 5.9%, June 2014 100,000 108,776 103,725
Metropolitan Transportation Authority, New York, Commuter
Facilities Revenue, 5.25%, July 2017 310,000 299,541 298,276
Monroe County, New York, Water Improvement, 5.5%, December 2008 610,000 589,034 625,000
New York, New York, City Municipal Assistance Corporation, 6%,
July 2008 750,000 755,625 759,037
New York, New York, City Municipal Water Finance Authority,
Water-Sewer System Revenue, 6.75%, June 2016 200,000 206,384 205,248
New York, New York, City Municipal Water Finance Authority,
Water-Sewer System Revenue, 6.75%, June 2016 200,000 206,384 203,880
New York, New York, City Municipal Water Finance Authority,
Water and Sewer System Revenue, 5.125%, June 2022 205,000 194,549 194,549
New York State Refunding, 6.1%, November 2008 500,000 500,000 520,785
Erie County, Hospital Authority PA Revenue, Erie County Geriatric
Center, U. S. Treasury, 6.25%, July 2011 855,000 849,494 884,686
Puerto Rico Commonwealth Highway and Transportation Authority
Highway Revenue, 6.25%, July 2012 500,000 544,085 549,860
Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority, 1998
Series A, 5.375%, October 2013 435,000 454,144 439,863
Puerto Rico Public Finance Corporation Commonwealth
Appropriation, 5.375%, June 2017 565,000 560,231 557,310
Met. Government Nashville and Davidson County, Tennessee,
Health and Educational Facilities Board Revenue, Meharry
Medical College-HEW, collateralized, 7.875%, December 2004 140,000 137,059 149,342
Austin, Texas, Utility System Revenue, 6%, April 2006 500,000 474,565 532,705
Sherman, Texas, New Public Housing Authority, 5.75%, March 2006 200,000 178,876 202,898
------------- ------------- -------------
Total investments $ 25,255,000 $ 24,715,248 $ 25,663,698
============= ============= =============
</TABLE>
8
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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,
----------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 20.47 $ 21.46 $ 21.40 $ 21.14 $ 21.18
Net investment income 1.13 1.13 1.18 1.22 1.24
Net realized and unrealized gain (loss) on investments (0.03) (0.98) 0.21 0.28 (0.02)
---------- ---------- ---------- ---------- ---------
Total from investment operations 1.10 0.15 1.39 1.50 1.22
---------- ---------- ---------- ---------- ---------
Less distributions from
Net investment income (1.12) (1.14) (1.21) (1.23) (1.24)
Net realized gain on investments - - (0.12) (0.01) (0.02)
---------- ---------- ---------- ---------- ---------
Total distributions (1.12) (1.14) (1.33) (1.24) (1.26)
---------- ---------- ---------- ---------- ---------
Net asset value, end of period $ 20.45 $ 20.47 $ 21.46 $ 21.40 $ 21.14
========== ========== ========== ========== =========
TOTAL RETURN PER SHARE NET ASSET VALUE (A) 5.4% 0.7% 6.5% 7.1% 5.8%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $ 25,914 $ 25,944 $ 27,191 $ 27,123 $ 26,796
Ratio of net investment income to average net assets 5.5% 5.4% 5.5% 5.8% 5.8%
Ratio of expenses to average net assets 0.2% 0.2% 0.2% 0.2% 0.2%
Portfolio turnover rate 7.2% 21.6% 13.8% 3.5% 9.2%
</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.
9
