Dear Shareholder:
Madison Bond Fund Inc. is pleased to report that your fund
gained 2.6% for the year ended December 31, 1996, after
gaining 13.9% in calander year 1995. While the 1996 return
may appear unspectacular, it is quite impressive given the
returns generated in 1995, and the volatility that was seen
in interest rates throughout the year. As a comparison, the
Lehman Government/Corporate Bond Index only gained 2.9% in
1996.
Although volatility in the bond market was quite dramatic
during the year, the underlying fundamentals were rather
quiet and the Federal Reserve Board actually left short-term
interest rates unchanged. The year was an excellent example
of reality not meeting with expectations for bond investors.
Following the generally weak economy in 1995 (GDP dipped
below 2%), forecasters entered 1996 expecting more of the
same. When the economy grew faster than expected, inflation
worries were ignited and long-term interest rates rose from
6% to over 7%. Then in July, when it became apparent that
stronger growth would not be sustained and inflation
remained subdued, the bond market reversed course and
interest rates fell back to levels more in line with the
underlying fundamentals.
Our defensive posture helped to limit the downside during
the first six months of the year. Then, in mid-year
believing that interest rates would not go any higher, we
purchased additional bonds. As a result, your Fund was well
positioned for the subsequent late-year economic slowdown
and bond market rally.
Looking Ahead... The backdrop for the bond market today is
generally favorable relative to 1996. Not only are interest
rates 1% higher than a year ago, but heavy debt burdens
should restrain consumer spending in 1997 keeping a lid on
the economy. In addition, inflation remains under control as
suggested by recent readings of the Consumer and Producer
Price Indices, lower commodity prices, and the 15% decline
in the value of gold. And, the Federal Reserve appears
content to leave short-term interest rates unchanged.
On balance, the positive indicators slightly outweigh the
negatives, and bond yields are in close proximity to their
fair values given our outlook for inflation and the economy.
However, potential concerns remain and warrant close
monitoring. Employment growth has been very strong bringing
the unemployment rate down to an historically low level. In
this tight labor market, wage inflation could easily spiral
out of control should the economy pick up steam. And, the
exuberant stock market, signaling growth and potentially
higher interest rates, is suggesting that we not be
complacent.
We are optimistic about the year ahead. As always, we will
not be distracted from our mission of controlling risk in
your Fund during times of uncertainty. Your continued
confidence in the management of your Fund is appreciated.
Sincerely,
(signature)
Katherine L. Frank
Vice President
<PAGE>
MADISON BOND FUND, INC.
STATEMENT OF NET ASSETS
Schedule of Investments
December 31, 1996
Principal Market
Amount Value
Fixed Income Investments -93.7%
Treasury Securities - 51.5%
U.S. Treasury Notes 5.63% due 1/31/98 $610,000 $610,506
U.S. Treasury Notes 6.25% due 5/31/00 440,000 442,784
U.S. Treasury Notes 5.63% due 2/28/01 430,000 421,778
U.S. Treasury Notes 5.88% due 2/15/04 405,000 394,753
U.S. Treasury Notes 6.50% due 8/15/05 235,000 236,826
Total Treasury Securities (Cost $2,091,681) $2,106,647
CMO/Remic Securities - 10.7%
Residential Funding 7.0% due 12/25/07 $17,855 $17,782
Ryland Accept. Corp. 9.0% due 8/01/18 120,689 125,856
FNMA Remic 6.75% due 5/25/19 300,000 294,375
Total CMO/Remic Securities (Cost $437,127) $438,013
Corporate Bonds - 31.5%
Morgan Stanley 8.10% due 6/24/02 $ 200,000 $212,343
Reynolds Metals 9.0% due 08/15/03 200,000 220,839
Ford Motor Credit Co. 7.75% due 3/15/05160,000 168,151
Columbia/HCA 6.91% due 6/15/05 200,000 200,117
U.S. West Capital Funding Inc. 6.75%
due 10/1/05 100,000 97,841
J.P. Morgan & Co. 6.25% due 12/15/05 200,000 192,279
Kohls Corp. 6.70% due 2/1/06 200,000 193,619
Total Corporate Bonds (Cost $1,292,673) $1,285,189
Total Fixed Income Investments(Cost $3,821,481)$3,829,849
Short Term Investments - 2.2%
Variable Rate Demand Notes
Johnson Controls Inc. 5.23% due 1/1/97 $91,574 $ 91,574
Total Short Term Investments (Cost $91,574) $ 91,574
Cash & Receivables Less Liabilities - 4.1% $166,565
TOTAL NET ASSETS --
Equivalent to $20.63 per share on 198,179.235 shares
of $.01 par value capital stock outstanding
(authorized capital stock - 5,600,000 shares), and paid-in
capital aggregated $4,374,504. $4,087,988
See Accompanying Notes to Financial Statements.
Financial Highlights - Selected Per Share Data and Ratios
<TABLE>
<CAPTION>
Period Ended December 31,
-------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990*
NET ASSET VALUE:
Beginning of year... $21.17 $19.62 $21.21 $21.14 $21.87 $20.55 $20.00
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income.. $1.07 $ 1.17 $ 1.15 $ 1.03 $ 1.08 $ 1.22 $ .51
Net realized & unrealized gains
or (losses) on securities (.55) 1.55 (1.59) .24 (.21) 1.58 .55
Total from invstmt operations $ .52 2.72 $ (.44)$ 1.27 $ .87 $ 2.80 $ 1.06
<CAPTION>
LESS DISTRIBUTIONS:
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends from net income. $(1.06)$(1.17)$(1.15)$(1.03)$(1.04)$(1.27)$ (.51)
Capital gains distributions. .00 .00 .00 (.17) (.15) (.21) .00
Return of capital .00 .00 .00 .00 (.41) .00 .00
<CAPTION>
NET ASSET VALUE:
<S> <C> <C> <C> <C> <C> <C> <C>
End of year $20.63 $21.17 $19.62 $21.21 $21.14 $21.87 $20.55
TOTAL RETURN 2.55% 14.11% (2.11%) 6.04% 4.08% 14.01% 5.35%
<CAPTION>
RATIOS:
<S> <C> <C> <C> <C> <C> <C> <C>
Operating expenses to
average net assets 1.51% 1.35% 1.18% 1.19% 1.51% 1.54% 1.57%
Net income to average net assets 4.86% 5.49% 5.50% 4.92% 5.40% 6.36% 3.65%
Portfolio turnover rate 94.24%57.99% 78.29% 67.59% 95.80% 55.70% .00%
*The Fund began operations on April 23, 1990.
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
MADISON BOND FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
December 31, 1996 December 31, 1995
Investment Activities
Net Investment Income $232,121 $330,915
Income Distributions to
Shareholders($1.06 and
$1.17 per share,
respectively) (230,690) (331,429)
Increase (Decrease) in
Undistributed Net
Investment Income $ 1,431 $ (514)
Net Realized Gain (Losses)
from Security
Transactions $ 23,073 $ (94,831)
Increase (Decrease) in
Unrealized Appreciation$(155,073) $ 561,921
Increase (Decrease) in
Undistributed Net Assets
Derived From Investment
Activities $(130,569) $ 466,576
Shares Sold and Redeemed
Net Proceeds from Shares
Issued (1,799 and 8,641
shares, respectively) $ 38,092 $ 179,026
Net Asset Value of Shares
Issued in Distributions
(8,436 and 11,855 shares,
respectively) 173,253 246,206
$ 211,345 $ 425,232
Cost of Shares Redeemed
(85,618 and 112,086
shares, respectively) (1,784,692) $(2,265,740)
(Decrease) in Net Assets
from Sale and Redemption
of Fund Shares $(1,573,347) $(1,840,508)
Net Assets
Balance at Beginning of Year (Including
undistributed net investment
income of $(22) and $492,
respectively) $ 5,791,904 $ 7,165,836
Net Increase (Decrease)
from Investment
Activities (130,569) 466,576
Net (Decrease) from
Shares Sold and
Redeemed (1,573,347) (1,840,508)
Balance at End of Year
(Including undistributed net
investment income of $1,409
and $(22),
respectively) $ 4,087,988 $5,791,904
See Accompanying Notes to Financial Statements.
<PAGE>
MADISON BOND FUND, INC.
STATEMENTS OF OPERATIONS
Year Ended Year Ended
December 31, 1996 December 31, 1995
Income:
Interest $ 304,230 $ 412,281
Expenses:
Auditing Fee $ 9,642 $ 4,822
Custodial Fee 1,426 2,826
Directors' Fee 3,600 3,000
Distribution Fee 11,940 15,079
Fidelity Bond 941 1,242
Investment Advisor Fee 23,878 30,159
Legal Fee 1,043 1,219
Licensing Fee 2,493 3,182
Printing Cost 3,635 2,874
Transfer Agent Fee 9,641 13,009
Other Fees 3,870 3,954
$ 72,109 $ 81,366
Net Investment Income $ 232,121 $ 330,915
Ratio of Expenses to Income 23.7% 19.7%
Realized Gains (Losses) on Investments:
Proceeds from Sale $ 5,660,514 $ 5,201,198
Cost 5,637,441 5,296,029
Net Realized Gains (Losses)$23,073 $ (94,831)
Unrealized Appreciation (Depreciation) on Investments:
Balance, Beginning of Year$163,441 $ (398,480)
Balance, End of Year 8,368 163,441
Increase (Decrease) in
Unrealized Appreciation $(155,073) $ 561,921
Net Realized Gains (Losses)
and Increase (Decrease)
in Unrealized
Appreciation $(132,000) $ 467,090
GROWTH OF $10,000 CHART
Chart reflects comparisons to the Lehman Intermediate Bond
Index, $17,161, the Madison Bond Fund, $15,193*, and the
Consumer Price Index, $12,547.
MADISON BOND FUND *AVERAGE ANNUAL TOTAL RETURN
1 YEAR 2.55%
5 YEARS 4.81%
Past performance is not a guarantee of future results.
* Reflects the deduction of maximum sales loads
See Accompanying Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS December 31, 1996 and 1995
(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, 1996, the purchases and
sales of investment securities (excluding short-term
securities) were $4,198,857 and $5,660,514 respectively
(purchases and sales of U.S. government obligations were
$3,150,546 and $3,867,794, 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, 1996, net realized gains would
have been $18,528 if computed on the basis of average cost.
(4) Federal Income Tax Carryover
As of December 31, 1996, the Company had a capital loss
carryover for federal income tax purposes of approximately
$298,000 which expires as follows:
2002 $203,000
2003 95,000
$298,000
(5) Aggregate Cost of Securities and Undistributed Income or
Capital Gains
The aggregate cost of securities for Federal income tax
purposes is $3,821,481. The aggregate gross unrealized
appreciation for all securities in which there is an excess
of value over tax cost is $31,648. The aggregate gross
unrealized depreciation for all securities in which there is
an excess of tax cost over value amounts to $23,280. The net
unrealized appreciation at December 31, 1996 for all
securities is $8,368. Through the year ended December 31,
1996, the accumulated undistributed net investment income is
$1,409, and the accumulated realized capital loss is
($298,275).
<PAGE>
NOTES TO FINANCIAL STATEMENTS December 31, 1996 and 1995
(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, 1996.
(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, 1996, the following distribution expenses
have been incurred by Madison Investment Advisors, Inc.
Net Commissions* $ 484
Total 1996 Distribution Expenses Incurred by MIA. 484
Unreimbursed Distribution Expenses at 12/31/95 62,038
1996 Distribution Fees (.25% of total net assets)(11,940)
1996 Redemption Fees & Alternative Payment Plan Revenue
(8,364)
Unreimbursed Distribution Expenses at 12/31/96 $ 42,218
* 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS December 31, 1996 and 1995
Certain officers and directors of the Fund are also officers
and directors of Madison Investment Advisors, Inc. The Fund
owed Madison Investment Advisors, Inc. $7,927 as of December
31, 1996.
(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, 1996, $3,014 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, 1996, 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 six 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, 1996, 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, 1996, 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 six years and eight
months and seven days in the period then ended, in
conformity with generally accepted accounting principles.
WILLIAMS, YOUNG & ASSOCIATES, LLC
(signature)
Madison, Wisconsin
January 24, 1997
<PAGE>
MADISON BOND FUND, INC.
6411 Mineral Point Road
Madison, WI 53705
(608) 273-2020
(800) 767-0300
ANNUAL REPORT
December 31, 1996
OFFICERS and DIRECTORS
Frank E. Burgess
President, Director
Katherine L. Frank
Vice President, Secretary
Jay R. Sekelsky
Vice President
Christopher C. Berberet
Treasurer
Elizabeth A. Hendricks
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
DeWitt Ross & Stevens, S.C.
8000 Excelsior Drive
Madison, Wisconsin 53717-1914
(608)831-2100
AUDITORS
Williams, Young & Associates, LLC
P.O. Box 8700
Madison, Wisconsin 53708
(608)274-1980
