MADISON BOND FUND, INC.
6411 Mineral Point Road
Madison, WI 53705
(608) 273-2020
(800) 767-0300
Securities & Exchange Commission
Attention: Filing Desk
450 Fifth Street NW
Washington, DC 20549
Re: Madison Bond Fund, Inc.
Registration No. 33-31800
Dear Sirs:
Enclosed are copies of the Madison Bond Fund, Inc. Second Quarter Report
which was recently mailed to shareholders.
This filing is intended to fulfill the requirements of Section 24(b) and
Section 30(b)(2) of the Inevestment Company Act.
Sincerely,
Katherine L. Frank
Vice President/Secretary
KLF:mh
Enclosures
August, 1996
Dear Shareholder:
While most experts expected 1996 to be a quiet year in the investment
world, that clearly hasn't been the case. Following the impressive gains in
1995, the bond market fell sharply in the first 5 months of 1996 before
stabilizing in June and July. Year-to-date the Madison Bond Fund is essentially
flat with a total return of .2% through August 9. Once again, we have had to
play defense to protect against the plunge in bond prices. The good news is
that along with higher rates has come a brighter outlook.
THE RECENT PAST:
Bond market declines are often linked to specific events or a series of
events that serve as a `catalyst''. For example, in 1990, it was the rise in
oil prices surrounding the Iraq crisis. And then in 1994, action by the Federal
Reserve to raise short term interest rates sparked a massive decline. This
year, the catalyst has been unusually large job growth and the resulting
escalation in inflation expectations.
Popular belief at the outset of the year called for a weak economy, modest
inflation, further Fed rate cuts and a balanced budget. The reality has been a
stronger economy, some ominous signs of building inflation, rising fears that
the Federal Reserve will soon need to raise rates to slow the economy, and no
balanced budget. Once again, perception did not meet with reality. THE RESULT:
Weakness in the bond market as interest rates climbed sharply through May.
LOOKING AHEAD:
It appears as though the bond market has done the Fed's job by moving
interest rates higher, without the Fed taking action. The general higher
pattern of interest rates may itself slow the economy during the second half of
the year. Any downward revision of economic growth forecasts will prove
positive for the bond market. We believe that 1996 will not prove to be a
replay of 1994. In fact, the second half of the year could be a `reversal of
fortunes', featuring more attractive yields and the possibility of capital
gains as interest rates move slightly lower.
Our early-year decision to keep risk relatively low has proven to be
correct. After a substantial rise in interest rates, we have purchased
additional bonds for your fund in order to take advantage of an oversold market
and set ourselves up to enjoy more favorable results over the balance of the
year.
If we may provide additional information, please do not hesitate to call.
Best regards.
Sincerely,
Katherine L. Frank
Vice President
<TABLE>
MADISON BOND FUND, INC.
STATEMENT OF NET ASSETS (unaudited)
SCHEDULE OF INVESTMENTS
June 30, 1996
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
-------- ----------
<S> <C> <C>
FIXED INCOME INVESTMENTS -93.0%
- -------------------------------
TREASURY SECURITIES - 49.7%
U.S. Treasury Notes 6.50% due 11/30/96 $250,000 $ 251,113
U.S. Treasury Notes 6.25% due 5/31/00 340,000 338,350
U.S. Treasury Notes 5.875% due 2/15/04 515,000 492,266
U.S. Treasury Notes 5.25% due 1/31/01 800,000 762,670
U.S. Treasury Notes 6.25% due 8/31/96 500,000 500,898
TOTAL TREASURY SECURITIES $ 2,345,297
-----------
CMO/REMIC SECURITIES - 11.9%
Residential Funding 7.0% due 12/25/07 $140,401 $ 140,006
Ryland Accept. Corp. 9.0% due 8/01/18 133,794 136,637
FNMA Remic 6.75% due 5/25/19 300,000 286,968
-----------
TOTAL CMO/REMIC SECURITIES $ 563,611
-----------
CORPORATE BONDS - 31.4%
Price/Costco Wholesale Corp. 5.75% due 5/15/02 $250,000 $ 230,607
Morgan Stanley 8.10% due 6/24/02 200,000 210,402
Norwest Financial 7.0% due 01/15/03 240,000 239,369
Reynolds Metals 9.0% due 08/15/03 200,000 217,445
Ford Motor Credit Co. 7.75% due 3/15/05 250,000 256,953
U.S. West Capital Funding Inc. 6.75% due
10/1/05 100,000 95,557
Kohls Corp. 6.70% due 2/1/06 250,000 234,532
-----------
TOTAL CORPORATE BONDS $ 1,484,865
-----------
TOTAL FIXED INCOME INVESTMENTS $ 4,393,773
-----------
SHORT TERM INVESTMENTS - 5.5%
- -----------------------------
VARIABLE RATE DEMAND NOTES
American Family Financial Services 5.08% due
7/1/96 $112,251 $ 112,251
Pitney Bowes Credit Corp. 5.08% due 7/1/96 61,058 61,058
Wisconsin Electric Power Corp. 5.12% due
7/1/96 84,517 84,517
-----------
TOTAL SHORT TERM INVESTMENTS $ 257,826
-----------
CASH & RECEIVABLES LESS LIABILITIES -1.5% $ 72,307
- ----------------------------------------- -----------
TOTAL NET ASSETS --
Equivalent to $20.61 per share on 229,196.035
shares
of $.01 par value capital stock outstanding
(authorized capital stock - 5,600,000 shares).
$ 4,723,906
===========
<FN>
See Accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
MADISON BOND FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS (unaudited)
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
-----------------------------
<S> <C> <C>
INVESTMENT ACTIVITIES
Net Investment Income $ 126,132 $ 176,596
Income Distributions to Shareholders
($.27 and $.30 per share, respectively) (63,836) (90,616)
----------- ----------
Increase in Undistributed Net Investment Income $ 62,296 $ 85,980
---------- ---------
Net Realized (Losses) from Security Transactions $ 52,056 $ (88,882)
Net Realized Gain Distribution to Shareholders 0 0
Increase (Decrease) in Undistributed Realized
Gains (Losses) $ 52,056 $ (88,882)
---------- ----------
Increase (Decrease) in Unrealized Appreciation $ (250,483) $ 450,644
----------- ---------
Increase (Decrease) in Undistributed Net
Assets Derived From Investment Activities $ (136,131) $ 447,742
=========== =========
SHARES SOLD AND REDEEMED
Net Proceeds from Shares Issued
(539 and 3,570 shares, respectively) $ 11,135 $ 72,094
Net Asset Value of Shares Issued in
Distributions
(2,323 and 3,265 shares, respectively) 47,618 66,669
---------- ---------
$ 58,753 $ 138,763
Cost of Shares Redeemed
(47,228 and 85,025 shares, respectively) (990,620) $(1,699,351)
----------- -----------
(Decrease) in Net Assets from Sale and
Redemption of Fund Shares $ (931,867) $(1,560,588)
=========== ===========
NET ASSETS
Balance at Beginning of Period (Including
undistributed net income of ($22) and $492,
respectively) $5,791,904 $7,165,836
Net Increase (Decrease) from Investment
Activities (136,131) 447,742
Net (Decrease) from Shares Sold and Redeemed (931,867) (1,560,588)
----------- ----------
Balance at End of Period (Including
undistributed net investment income of $62,274
and $86,472 respectively) $4,723,906 $6,052,990
========== ==========
<FN>
See Accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
MADISON BOND FUND, INC.
STATEMENTS OF OPERATIONS (unaudited)
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
<S> <C> <C>
INCOME:
Interest $ 163,058 $ 219,681
--------- ---------
EXPENSES:
Auditing Fee $ 2,404 $ 2,391
Custodial Fee 833 1,667
Directors' Fee 1,800 1,800
Distribution Fee 6,426 7,728
Fidelity Bond 472 616
Investment Advisor Fee 12,850 15,457
Legal Fee 624 819
Licensing Fee 1,489 1,648
Printing Fee 2,909 2,258
Transfer Agent Fee 5,157 6,505
Other Fees 1,962 2,196
--------- ---------
$ 36,926 $ 43,085
--------- ---------
Net Investment Income $ 126,132 $ 176,596
========= =========
Ratio of Expenses to Income 22.6% 19.6%
REALIZED GAINS (LOSSES) ON INVESTMENTS:
Proceeds from Sale $2,883,548 $3,449,991
Cost 2,831,491 3,538,873
--------- ---------
Net Realized Gains (Losses) $ 52,056 $ (88,882)
--------- ----------
UNREALIZED APPRECIATION (DEPRECIATION) ON
INVESTMENTS:
Balance, Beginning of Period $ 163,441 $(398,480)
Balance, End of Period (87,042) 52,164
---------- ---------
Increase (Decrease) in Unrealized Appreciation $(250,483) $ 450,644
---------- ---------
NET REALIZED GAINS (LOSSES) AND INCREASE
(DECREASE) IN UNREALIZED APPRECIATION $(198,426) $ 361,762
========== =========
<FN>
See Accompanying Notes to Financial Statements.
</TABLE>
MADISON BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995
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.
COST OF INVESTMENTS PURCHASED AND PROCEEDS OF INVESTMENTS SOLD
For the period ended June 30, 1996, the purchases and sales of investment
securities (excluding short-term securities) were $2,052,241 and $2,883,548
respectively (purchases and sales of U.S. government obligations were
$1,534,066 and $1,888,654, respectively).
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 period ended June 30, 1996,
net realized gains would have been $49,090 if computed on the basis of
average cost.
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
AGGREGATE COST OF SECURITIES AND UNDISTRIBUTED INCOME OR CAPITAL GAINS
The aggregate cost of securities for Federal income tax purposes is
$4,480,815. The aggregate gross unrealized appreciation for all securities in
which there is an excess of value over tax cost is $13,134. The aggregate
gross unrealized depreciation for all securities in which there is an excess
of tax cost over value amounts to $1,359,327. The net unrealized
depreciation at June 30, 1996 for all securities is ($346,193). Through the
period ended June 30, 1996, the accumulated undistributed net investment
income is $62,274, and the accumulated realized capital loss is ($269,292).
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
period ended June 30, 1996.
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 June 30, 1996, the following distribution expenses have been incurred
by Madison Investment Advisors, Inc.
Net Commissions* $ 412
Printing and Typesetting 0
-----------
Total 1996 Distribution Expenses Incurred by MIA. $ 412
Unreimbursed Distribution Expenses at 12/31/95 62,038
1996 Distribution Fees (.25% of total net assets) (6,426)
1996 Redemption Fees & Altern. Payment Plan Revenue (24,036)
----------
Unreimbursed Distribution Expenses at 6/30/96 $ 31,988
========
* Net Commissions represents commission expense less sales charge
revenue.
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.
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. $9,152 as of June 30, 1996.
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 period ended
June 30, 1996, $1,515 was amortized and paid to Madison Investment Advisors,
Inc.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MADISON BOND
FUND, INC. SEMI-ANNUAL REPORT DATED JUN-30-1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH SEMI-ANNUAL REPORT.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 4739
<INVESTMENTS-AT-VALUE> 4651
<RECEIVABLES> 79
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4733
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9
<TOTAL-LIABILITIES> 9
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5016
<SHARES-COMMON-STOCK> 229
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 62
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 52
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (250)
<NET-ASSETS> 4724
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 163
<OTHER-INCOME> 0
<EXPENSES-NET> 37
<NET-INVESTMENT-INCOME> 126
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<NET-CHANGE-FROM-OPS> (72)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 64
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<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> (1068)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (321)
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<AVERAGE-NET-ASSETS> 5140
<PER-SHARE-NAV-BEGIN> 21.17
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> .23
<PER-SHARE-DIVIDEND> .78
<PER-SHARE-DISTRIBUTIONS> .27
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<PER-SHARE-NAV-END> 20.61
<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
