MADISON BOND FUND, INC.
6411 Mineral Point Road
Madison, WI 53705
(608) 273-2020
March 5, 1996
Securities & Exchange Commission
Attn: Filing Desk
450 Fifth Street NW
Washington, DC 20549
Re: Madison Bond Fund, Inc.
Reg. No. 33-31800
Dear Sirs:
Enclosed please find the Annual Report for the above named
registrant, covering the year ended December 31,1995. This
report has been mailed to all shareholders of record.
This filing is intended to fulfill the requirements of
Section 24(b) and Section 30(b)(2) of the Investment Company
Act.
Sincerely,
Katherine L. Frank
Vice President
Dear Shareholder:
We are pleased to report that the Madison Bond Fund
increased 13.9% in 1995. Last year's explosive recovery was
most welcome following 1994, the worst calendar year return
on record. The boom/bust conditions of the past two years
have been extremely unusual. During this time, your Fund
gained approximately 12%, weathering the storm in 1994, and
participating nicely in 1995.
Early in 1995, we predicted a ``bounce'' in bond prices
as interest rates backed down somewhat after the huge upward
move in 1994. We positioned your Fund to take advantage of
this by being more aggressive in our intermediate bond
holdings. As the year played out, the economy slowed,
inflationary pressures subsided, the Federal Reserve started
lowering interest rates, and bond prices moved higher. While
the rally in the bond market during 1995 led to double digit
returns, it also means that we are once again at the lowest
yields in many decades.
Looking ahead... The question on everyone's mind is
``Should we be concerned about a repeat of 1994?'' or more
optimistically, ``Will the 1995 trend continue?'' Simply
put, another 14% return in 1996 is not expected. Interest
rates would have to drop significantly from their already
low levels to produce double digit returns this year.
Recession fears could produce such a result. However, this
seems unlikely given the momentum in the economy today. On
the other hand, a repeat of 1994 seems improbable as well.
Although yields are back to the levels seen prior to the
disaster in 1994, the environoment is quite different today.
Heading into 1994, the economy was soaring, commodity prices
were rising (feeding an increase in inflationary pressures)
and the Federal Reserve was moving to raise short-term
interest rates in an attempt to slow economic growth.
Today, the economy has weakened in response to the 1994 Fed
tightening, inflationary pressures have subsided and the
Federal Reserve has begun to ease short-term rates.
The likely outcome is that returns in 1996 will
probably be more subdued relative to the past two years. A
return to some normalcy should result in a solid year for
your Fund -- dull in comparison to 1995, but attractive
nonetheless. While the fundamental indicators suggest a
quieter environment this year, the budget debate and the
upcoming elections will undoubtedly provide some excitement
in the months ahead. In addition, interest rates have
already fallen from 8% to 6% based on several key economic
assumptions. If any one of these assumptions fails to
materialize, the market will be vulnerable.
While it is tempting to reflect on 1995, we are quickly
refocusing on getting off to a positive start in 1996. Our
discipline of generating consistent returns with limited
risk should continue to be rewarded in the year ahead. We
wish you the best in 1996.
Sincerely,
Katherine L. Frank
Vice President
MADISON BOND FUND, INC.
STATEMENT OF NET ASSETS
Schedule of Investments
December 31, 1995
Principal Market
Amount Value
------- --------
Fixed Income Investments - 93.6%
-----
Treasury Securities - 49.8%
U.S. Treasury Notes 5.13%
due 3/31/96 $790,000 $ 789,960
U.S. Treasury Notes 6.50%
due 11/30/96 1,200,000 1,213,914
U.S. Treasury Notes 6.25%
due 5/31/00 340,000 352,009
U.S. Treasury Notes 5.88%
due 2/15/04 515,000 526,803
---------
Total Treasury Securities (cost
$2,816,091) $2,882,686
----------
CMO/Remic Securities - 10.7%
Residential Funding 7.0%
due 12/25/07 $150,000 $ 150,093
Ryland Accept. Corp. 9.0%
due 8/01/18 153,132 164,281
FNMA Remic 6.75% due
5/25/19 300,000 307,875
---------
Total CMO/Remic Securities
(cost $601,638) $ 622,249
---------
Corporate Bonds - 33.1%
Ford Capital BV 9.38% due
5/15/01 $300,000 $ 345,969
Price/Costco Wholesale
Corp. 5.75% due 5/15/02 250,000 238,027
Georgia Pacific 9.95% due
6/15/02 235,000 280,826
Morgan Stanley 8.10% due
6/24/02 200,000 221,334
Tenneco, Inc. 7.88% due
10/01/02 125,000 136,149
RJR Nabisco 8.63% due
12/01/02 100,000 104,421
Norwest Financial 7.0% due
01/15/03 340,000 360,015
Reynolds Metals 9.0% due
08/15/03 200,000 231,831
---------
Total Corporate Bonds
(cost $1,842,337) $1,918,572
----------
Total Fixed Income
Investments (cost
$5,260,066) $5,423,507
----------
Short Term Investments -- 5.4%
Variable Rate Demand Notes
American Family Financial
Services 5.49% due 1/1/96 $31,445 $ 31,445
General Mills, Inc. 5.49%
due 1/1/96 107,900 107,900
Sara Lee Corp. 5.47% due
1/1/96 175,305 175,305
---------
Total Short Term
Investments (cost
$314,650) $ 314,650
---------
Cash & Receivables Less
-----------------------
Liabilities - 1.0% $ 53,747
------------------ ---------
TOTAL NET ASSETS --
Equivalent to $21.17 per
share on 273,562.599
shares of $.01 par value capital
stock outstanding
(authorized capital stock
- 5,600,000 shares),
and paid-in capital
aggregated $5,947,098 $5,791,904
==========
See Accompanying Notes to Financial Statements
<TABLE>
Period Ended December 31,
-------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990*
NET ASSET VALUE:
Beginning of year... $19.62 $21.21 $21.14 $21.87 $20.55 $20.00
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income.. $ 1.17 $ 1.15 $ 1.03 $ 1.08 $ 1.22 $ .51
Net realized & unrealized gains
or (losses) on securities 1.55 (1.59) .24 (.21) 1.58 .55
Total from investment operations $ 2.72 $ (.44)$ 1.27 $ .87 $ 2.80 $ 1.06
<CAPTION>
LESS DISTRIBUTIONS:
<S> <C> <C> <C> <C> <C> <C>
Dividends from net income. $(1.17)$(1.15)$(1.03)$(1.04)$(1.27)$ (.51)
Capital gains distributions. .00 .00 (.17) (.15) (.21) .00
Return of capital .00 .00 .00 (.41) .00 .00
<CAPTION>
NET ASSET VALUE:
<S> <C> <C> <C> <C> <C> <C>
End of year $21.17 $19.62 $21.21 $21.14 $21.87 $20.55
TOTAL RETURN 14.11% (2.11%) 6.04% 4.08% 14.01% 5.35%
MADISON BOND FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------- -----------------
Investment Activities
Net Investment Income $330,915 $458,097
Income Distributions to
Shareholders
($1.17and $1.15 per share,
respectively) (331,429) (456,563)
--------- ---------
Increase (Decrease) in
Undistributed Net
Investment Income $ (514) $ 1,534
--------- --------
Net Realized (Losses) from
Security Transactions $(94,831) $(225,357)
--------- ----------
Increase (Decrease) in
Unrealized Appreciation $561,921 $(414,326)
-------- ---------
Increase (Decrease) in
Undistributed Net Assets
Derived From Investment
Activities $466,576 $(638,149)
======== ==========
Shares Sold and Redeemed
Net Proceeds from Shares
Issued
(8,641 and 32,357 shares,
respectively) $179,026 $672,172
Net Asset Value of Shares
Issued in Distributions
(11,855 and 15,387 shares,
respectively) 246,206 309,569
-------- --------
$425,232 $981,741
Cost of Shares Redeemed
(112,086 and 109,879
shares, respectively) (2,265,740) $(2,241,498)
----------- -----------
(Decrease) in Net Assets
from Sale and Redemption
of Fund Shares $(1,840,508) $(1,259,757)
============ ===========
Net Assets
Balance at Beginning of Year
(Including undistributed
net income of $492 and
$(1,041) respectively) $7,165,836 $9,063,742
Net Increase (Decrease) from
Investment Activities 466,576 (638,149)
Net (Decrease) from Shares
Sold and Redeemed (1,840,508) (1,259,757)
----------- ----------
Balance at End of Year
(Including undistributed
net investment income of
($22) and $492
respectively) $5,791,904 $7,165,836
========== ==========
See Accompanying Notes to Financial Statements.
MADISON BOND FUND, INC.
STATEMENTS OF OPERATIONS
Year Ended Year Ended
Dec. 31, 1995 Dec.31, 1994
Income:
Interest $412,281 $556,524
-------- --------
Expenses:
Auditing Fee $ 4,822 $ 4,841
Custodial Fee 2,826 3,485
Directors' Fee 3,000 2,250
Distribution Fee 15,079 20,829
Fidelity Bond 1,242 1,242
Investment Advisor Fee 30,159 41,658
Legal Fee 1,219 1,102
Licensing Fee 3,182 3,323
Printing Cost 2,874 2,557
Transfer Agent Fee 13,009 13,031
Other Fees 3,954 4,109
------- -------
$81,366 $98,427
------- -------
Net Investment Income $330,915 $458,097
======== ========
Ratio of Expenses to Income 19.7% 17.7%
Realized (Losses) on
Investments:
Proceeds from Sale $5,201,198 $7,043,031
Cost 5,296,029 7,268,388
--------- ---------
Net Realized (Losses) $(94,831) $(225,357)
--------- ----------
Unrealized Appreciation
(Depreciation) on
Investments:
Balance, Beginning of Year $(398,480) $ 15,846
Balance, End of Year 163,441 (398,480)
------- ---------
Increase (Decrease) in Unrealized
Appreciation (Depreciation) $ 561,921 $ (414,326)
------------ -----------
Net Realized (Losses) and
Increase (Decrease) in
Unrealized Appreciation
(Depreciation) $467,090 $(639,683)
======== =========
See Accompanying Notes to Financial Statements.
GROWTH OF $10,000 CHART
MADISON BOND FUND AVERAGE ANNUAL TOTAL RETURN
1 YEAR 9.03%
5 YEARS 6.52%
NOTES TO FINANCIAL STATEMENTS December 31, 1995 and 1994
(1) Significant Accounting Principles
Madison Bond Fund, Inc. began operations on April 23,
1990. The Fund is registered under the Investment
Company Act of 1940 as amended as an open-end management
company. The following is a summary of significant
accounting principles followed by the Fund in the
preparation of its financial statements. The policies are
in conformity with generally accepted accounting
principles.
(a) The market quotation for each security is the last
reported sale price on a national securities
exchange. Other securities for which quotations are
not readily available are valued at fair value as
determined by the Board of Directors. Short-term
securities (maturing within 60 days) are valued on
the basis of amortized cost. Securities with
maturities in excess of 60 days are valued at market
value.
(b) No provision is made for Federal income taxes since
it is the intention of the Fund to comply with the
provisions of the Internal Revenue Code available to
investment companies, and to make the requisite
distribution to shareholders of taxable income which
will be sufficient to relieve it from all or
substantially all Federal income taxes.
(c) All percentages for the various classifications
relate to total net assets.
(d) The Fund follows industry practice and records
security transactions on the trade date. Interest
income is accrued on a daily basis.
(2) Cost of Investments Purchased and Proceeds of Investments
Sold
For the year ended December 31, 1995, the purchases and
sales of investment securities (excluding short-term
securities) were $3,318,195 and $5,201,198 respectively
(purchases and sales of U.S. government obligations were
$3,168,795 and $4,445,645, respectively).
(3) Net Realized Gains and Losses On Investments
Net realized gains and losses on investments are computed
on the basis of specifically identified certificates.
During the year ended December 31, 1995, net realized
losses would have been $(94,144) if computed on the basis
of average cost.
(4) Federal Income Tax Carryover
As of December 31, 1995, the Company had a capital loss
carryover for federal income tax purposes of
approximately $320,000 which expires as follows:
2002 $225,000
2003 95,000
---------
$320,000
(5) Aggregate Cost of Securities and Undistributed Income or
Capital Gains
The aggregate cost of securities for Federal income tax
purposes is $5,260,066. The aggregate gross unrealized
appreciation for all securities in which there is an
excess of value over tax cost is $164,110. The aggregate
gross unrealized depreciation for all securities in which
there is an excess of tax cost over value amounts to
$669. The net unrealized appreciation at December 31,
1995 for all securities is $163,441. Through the year
ended December 31, 1995, the accumulated undistributed
net investment income is ($22), and the accumulated
realized capital loss is ($321,348).
(6) Investment Advisory Agreement
The investment advisory agreement with Madison Investment
Advisors, Inc., provides for an annual management fee of
.50 of 1% of the average daily net assets. Such fees are
remitted quarterly. The annual fee is reduced to the
extent that the Fund's total annual operating expenses
(including the advisory fee and distribution fee, but
excluding interest and taxes) exceeds 2% of average daily
net assets. The advisor's fee was not so reduced for the
year ended December 31, 1995.
(7) Distribution Agreement
The Fund has adopted a Distribution Agreement pursuant to
Rule 12B-1 under the Investment Company Act of 1940 which
provides for an annual distribution fee of .25 of 1% of
the Fund's average daily net assets remitted to Madison
Investment Advisors, Inc. quarterly. Such fees are to
compensate Madison Investment Advisors, Inc. for its
expenses incurred on behalf of the Fund under the
Distribution Agreement. The Distribution Agreement
remains in effect only if approved annually by the Fund's
Board of Directors. The maximum amount payable is
limited to actual expenses incurred. The agreement does
not obligate the Fund to reimburse Madison Investment
Advisors, Inc. for all distribution expenses. It is
likely that the annual distribution fees in the first few
years will not reimburse Madison Investment Advisors,
Inc. for distribution costs incurred. In later years
reimbursements based on .25% of net asset value may
exceed current distribution expenses. Any excess will
reduce the unreimbursed costs incurred by Madison
Investment Advisors, Inc. in earlier years.
As of December 31, 1995, the following distribution
expenses have been incurred by Madison Investment
Advisors, Inc.
Net Commissions* $ 4,650
Printing and Typesetting 437
---------
Total 1995 Distribution Expenses
Incurred by MIA. $ 5,087
Unreimbursed Distribution Expenses
at 12/31/94 111,723
1995 Distribution Fees (.25% of
total net assets) (15,079)
1995 Redemption Fees & Alternative
Payment Plan Revenue (39,693)
---------
Unreimbursed Distribution Expenses
at 12/31/95 $ 62,038
========
* Net Commissions represents commission expense less sales
charge revenue.
(8) Sales Charge
There is a sales charge of 2.5% of the offering price
(2.56% of the net amount invested) on the purchase of
Fund shares (unless waived by broker/dealer). The sales
charge will be paid to the broker or dealer at time of
purchase unless the investor chooses the "Alternative
Payment Plan".
If the alternative payment plan is elected, the sales
charge will be deducted from the shareholder's account
beginning the following January 10 after the purchase and
on each January 10 for the following four years. This
annual amount is equal to .50% (.005) of the immediately
preceding December 31 market value of the total original
shares of each purchase.
(9) Other Transactions With Affiliates
Madison Investment Advisors, Inc. also receives all
contingent deferred sales charges imposed on some
redemptions of shares held for less than three years.
The cumulative amount of distribution fees and contingent
deferred sales charges paid to Madison Investment
Advisors, Inc. may not exceed the cumulative amount of
reimbursable distribution expenses as set forth in the
Distribution Plan.
Certain officers and directors of the Fund are also
officers and directors of Madison Investment Advisors,
Inc. The Fund owed Madison Investment Advisors, Inc.
$10,921 as of December 31, 1995.
(10) Contingent Organizational Expenses
Organizational expenses of $15,199 have been paid for by
the investment advisor. When the total net asset value of
the Fund exceeds $5,000,000 the expenses will be
amortized and reimbursed to the investment advisor over
five years.
On August 31, 1992, the net asset value exceeded
$5,000,000 and the Fund began amortizing the accumulated
organizational costs. For the year ended December 31,
1995, $3,039 was amortized and paid to Madison Investment
Advisors, Inc.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of Madison Bond Fund, Inc.
We have audited the accompanying statement of net assets of
Madison Bond Fund, Inc., including the schedule of
investments, as of December 31, 1995, the related statements
of operations and changes in net assets for each of the two
years in the period then ended, and the selected per share
data and ratios for each of the five years and eight months
and seven days in the period then ended. These financial
statements and selected per share data and ratios are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and per share data and ratios 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 per share data
and ratios 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
December 31, 1995, 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 selected per
share data and ratios referred to above present fairly, in
all material respects, the financial position of Madison
Bond Fund, Inc. as of December 31, 1995, the results of its
operations and the changes in its net assets for each of the
two years in the period then ended, and the selected per
share data and ratios for each of the five years and eight
months and seven days in the period then ended, in
conformity with generally accepted accounting principles.
WILLIAMS, YOUNG & ASSOCIATES, LLC
Madison, Wisconsin
January 25, 1996
MADISON BOND FUND, INC.
6411 Mineral Point Road
Madison, WI 53705
(608) 273-2020
(800) 767-0300
ANNUAL REPORT
December 31, 1995
OFFICERS and DIRECTORS
Frank E. Burgess
President, Director
Katherine L. Frank
Vice President, Secretary
Jay R. Sekelsky
Vice President
Christopher C. Berberet
Treasurer
Jacqueline Stoppleworth
Assistant Secretary
James R. Imhoff, Jr.
Director
Edmund B. Johnson
Director
Lorence D. Wheeler
Director
CUSTODIAN, TRANSFER AGENT
and DISBURSING AGENT
Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
(414)765-4124
COUNSEL
Ross & Stevens, S.C.
8000 Excelsior Drive
Madison, Wisconsin 53717-1914
(608)831-2100
AUDITORS
Williams, Young & Associates
P.O. Box 8700
Madison, Wisconsin 53708
(608)274-1980
</TABLE>
