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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANIES
Investment Company Act file number: 811-2957
Keyco Bond Fund, Inc.
(Exact name of registrant as specified in charter)
| 27777 Franklin Road, Suite 1630 | ||
| Southfield, Michigan | 48034 | |
| (Address of principal executive offices) | (Zip code) |
Joel D. Tauber, President
Keyco Bond Fund, Inc.
27777 Franklin Road, Suite 1630
Southfield, Michigan 48034
(Name and Address of agent for service)
Keyco Bond Fund, Inc.
27777 Franklin Road, Suite 1630
Southfield, Michigan 48034
(Name and Address of agent for service)
Registrant’s telephone number, including area code: (248) 353-0790
Date of fiscal year end: September 30
Date of reporting period: March 31, 2009
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Semi-Annual Report to Shareholders.
KEYCO BOND FUND, INC.
27777 Franklin Road — Suite 1630
Southfield, Michigan 48034
(248) 353-0790
27777 Franklin Road — Suite 1630
Southfield, Michigan 48034
(248) 353-0790
May 20, 2009
To Our Shareholders:
We are pleased to send you this Semi-Annual Report of Keyco Bond Fund, Inc. for the six months ended March 31, 2009. Included in this mailing are the Fund’s financial statements, Management’s Discussion of Fund Performance, Additional Information and the Fund’s Privacy Policy.
In November 2008, the Board of Directors declared quarterly dividends totaling $.89 per share for the year ending September 30, 2009. This amount is subject to revision in September 2009 based upon actual net investment income for the year. Regular dividends of $.31 and capital gain dividends of $.0008 per share have been paid during the six months ended March 31, 2009. Dividends are paid quarterly on the first business day of February, May, August and November.
As a result of an amendment to the Michigan Business Tax Act and interpretations of the original law by the State and in consultation with Grant Thornton, the Fund’s auditors, it has been determined that the Fund will not have any liability for the Michigan Business Tax. We have applied for a refund of the estimated taxes paid for the prior year.
The Annual Meeting of Shareholders of Keyco Bond Fund, Inc. was held on December 16, 2008. At the meeting, Gail A. Dishell, Mark E. Schlussel, David K. Page, Thomas E. Purther and Ellen T. Horing were elected Directors and the selection of Grant Thornton LLP as registered independent auditor was ratified and confirmed.
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
President
Enclosures
1
KEYCO BOND FUND, INC.
Management’s Discussion of Fund Performance
for Six Months Ended March 31, 2009
Management’s Discussion of Fund Performance
for Six Months Ended March 31, 2009
The Fund’s primary investment objective is to earn as high a level of current interest income exempt from federal income taxes as is available from municipal bonds, consistent with prudent investment management and preservation of capital. Capital appreciation is a minor investment objective of the Fund.
Net Investment Income
The Fund’s net investment income is primarily dependent upon interest rates at the times the bonds in the portfolio were purchased.
Net investment income for the six-month period was $549,190 or $.43 per share compared with $541,523 or $.43 per share last year. This $7,667 increase was the net result of a decrease of $10,392 in interest income and a decrease of $18,059 in expenses. A significant portion of the decrease in expenses is the expected recovery of $9,000 of estimated Michigan Business Tax paid for the year ended September 30, 2008, as it has been determined that the Fund is not subject to this tax.
As of March 31, 2009, the weighted average annual yield on the Fund’s portfolio based on both cost and market value was 5.1%.
Valuation of Bonds and Net Asset Value
Because the municipal bonds in the Fund’s portfolio are not actively traded and market quotations are not readily available, the bonds are stated at fair value. The fair value for each bond is provided by the Fund’s custodian, who uses a matrix pricing system.
The Fund’s net asset value is calculated by subtracting the Fund’s liabilities from its assets. The valuation of the Fund’s most significant assets, its bond portfolio, is affected by market interest rates and maturity and call dates. When market rates increase, the value of the bond portfolio decreases. When market rates decrease, the value of the bond portfolio increases. Longer maturity dates magnify the effect of interest rate changes.
During the reporting period, interest rates for short-term and intermediate-term bonds decreased. Rates for long-term bonds were volatile but ended the period at rates similar to those at the beginning of the period.
2
KEYCO BOND FUND, INC.
Management’s Discussion of Fund Performance
for Six Months Ended March 31, 2009
Page 2
Management’s Discussion of Fund Performance
for Six Months Ended March 31, 2009
Page 2
Valuation of Bonds and Net Asset Value (continued)
The net asset value of the Fund was $25,357,055 or $20.01 per share at March 31, 2009, an increase of $743,082 or $.59 per share from September 30, 2008. This change was the result of undistributed income of $156,340, unrealized undistributed gains of $12,550 and unrealized appreciation of investments of $574,192.
The weighted average maturity was 10.7 years, somewhat more than the prior year end weighted average maturity of 9.5 years.
Asset Allocation
The bond portfolio is allocated by state/territory as follows:
Other
During the period, eight bonds were called, sold or matured for total proceeds of $1,974,631. Cash from these dispositions was reinvested in bonds maturing in 18 to 23 years. Portfolio turnover was 7.9%
3
KEYCO BOND FUND, INC.
Additional Information
March 31, 2009
Additional Information
March 31, 2009
Obtaining Quarterly Portfolio Holdings
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available on the SEC’s web site at http://www.sec.gov. The Fund’s Form N-Q may be viewed and copied at the SEC’s Public Reference Room in Washington DC. Information regarding the operation of the SEC’s Public Reference Room may be obtained by calling 1-202-551-8090. For a complete list of the Fund’s portfolio holdings, a copy of the Fund’s most recent quarterly holding report, semi-annual report, or annual report may be requested by writing Keyco Bond Fund, Inc., 27777 Franklin Road, Suite 1630, Southfield, MI 48034.
Information on Proxy Voting Policies, Procedures and Records
The Fund has not adopted policies and procedures with respect to voting proxies because the Fund does not invest in voting securities. The Fund has not voted any proxies.
4
Keyco Bond Fund, Inc.
Financial Statements
March 31, 2009
Financial Statements
March 31, 2009
Index
| Page | ||||
Financial Statements | ||||
| 6 | ||||
| 7 | ||||
| 8 | ||||
| 9 | ||||
| 10 | ||||
| 13 | ||||
5
Keyco Bond Fund, Inc.
Statement of Assets and Liabilities
March 31, 2009 (unaudited)
March 31, 2009 (unaudited)
Assets | ||||
| Investments in securities, at fair value (cost $24,680,755) | $ | 24,806,908 | ||
| Cash | 111,948 | |||
| Accrued interest receivable | 438,927 | |||
| Michigan Business Tax receivable | 9,000 | |||
| Other assets | 679 | |||
| Total assets | 25,367,462 | |||
Liabilities | ||||
| Accounts payable | 10,388 | |||
| Federal income tax withheld | 19 | |||
| Total liabilities | 10,407 | |||
Net Assets | $ | 25,357,055 | ||
Net Assets consist of: | ||||
| Capital stock, $.02 par value; 3,000,000 shares authorized; 1,267,258 shares issued and outstanding | $ | 25,345 | ||
| Additional paid-in capital | 730,733 | |||
| Retained earnings prior to July 1, 1979 | 24,093,500 | |||
| Accumulated undistributed net investment income | 368,774 | |||
| Accumulated undistributed net realized gain from security transactions | 12,550 | |||
| Net unrealized appreciation of investments, March 31, 2009 | 126,153 | |||
| $ | 25,357,055 | |||
| Net Asset Value per share ($25,357,055 / 1,267,258 shares outstanding) | $ | 20.01 | ||
The accompanying notes are an integral part of these financial statements.
6
Keyco Bond Fund, Inc.
Statement of Operations
For the Six Months Ended March 31, 2009 (unaudited)
For the Six Months Ended March 31, 2009 (unaudited)
| Interest income | $ | 603,075 | ||||||
| Expenses | ||||||||
| Legal and accounting | $ | 49,071 | ||||||
| Custodial fee | 8,549 | |||||||
| Directors’ fees | 3,000 | |||||||
| Miscellaneous expense | 2,265 | |||||||
| Michigan Business Tax | (9,000 | ) | ||||||
| Total expenses | 53,885 | |||||||
| Net investment income | 549,190 | |||||||
| Realized gain on investments | ||||||||
| Proceeds from sale, calls and maturity | 1,974,631 | |||||||
| Cost of securities sold, called or matured | 1,961,037 | |||||||
| Realized gain on investments | 13,594 | |||||||
| Unrealized appreciation of investments | ||||||||
| Investments held, March 31, 2009 | ||||||||
| At cost | 24,680,755 | |||||||
| At fair value | 24,806,908 | |||||||
| Unrealized appreciation, March 31, 2009 | 126,153 | |||||||
| Less: Unrealized depreciation, September 30, 2008 | (448,039 | ) | ||||||
| Unrealized appreciation of investments | 574,192 | |||||||
| Net gain on investments | 587,786 | |||||||
| Increase in net assets resulting from operations | $ | 1,136,976 | ||||||
The accompanying notes are an integral part of these financial statements.
7
Keyco Bond Fund, Inc.
Statement of Changes in Net Assets
For the Six Months Ended March 31, (unaudited)
For the Six Months Ended March 31, (unaudited)
| 2009 | 2008 | |||||||
| Net assets, beginning of year | $ | 24,613,973 | $ | 25,804,887 | ||||
| Changes in net assets from operations | ||||||||
| Net investment income | 549,190 | 541,523 | ||||||
| Net realized gain on investments | 13,594 | 13,714 | ||||||
| Changes in unrealized appreciation (depreciation) of investments | 574,192 | (91,055 | ) | |||||
| Net increase in net assets resulting from operations | 1,136,976 | 464,182 | ||||||
| Changes in net assets from capital transactions | ||||||||
| Dividends declared from net investment income | (392,850 | ) | (392,850 | ) | ||||
| Dividends declared from net capital gains | (1,044 | ) | (1,181 | ) | ||||
| Total distributions | (393,894 | ) | (394,031 | ) | ||||
| Net increase in net assets | 743,082 | 70,151 | ||||||
| Net assets, end of period (including undistributed net investment income of $368,774 and $350,883 at March 31, 2009 and 2008) | $ | 25,357,055 | $ | 25,875,038 | ||||
The accompanying notes are an integral part of these financial statements.
8
Keyco Bond Fund, Inc.
Financial Highlights (unaudited)
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 for the years ended September 30.
| Six Months | |||||||||||||||||||||||
| Ended | |||||||||||||||||||||||
| 03/31/09 | Years Ended September 30 | ||||||||||||||||||||||
| (unaudited) | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
Per share operating performance | |||||||||||||||||||||||
| Net asset value, beginning of period | $ | 19.42 | $ | 20.36 | $ | 20.67 | $ | 21.00 | $ | 21.32 | |||||||||||||
| Net investment income | 0.43 | 0.96 | 0.92 | 0.97 | 0.93 | ||||||||||||||||||
| Net realized and unrealized gain (loss) on investments | 0.47 | (0.89 | ) | (0.27 | ) | (0.31 | ) | (0.29 | ) | ||||||||||||||
| Total from investment operations | 0.90 | 0.07 | 0.65 | 0.66 | 0.64 | ||||||||||||||||||
| Less distributions from | |||||||||||||||||||||||
| Net investment income | (0.31 | ) | (0.95 | ) | (0.92 | ) | (0.97 | ) | (0.93 | ) | |||||||||||||
| Net realized gain on investments | — | (0.06 | ) | (0.04 | ) | (0.02 | ) | (0.03 | ) | ||||||||||||||
| Total distributions | (0.31 | ) | (1.01 | ) | (0.96 | ) | (0.99 | ) | (0.96 | ) | |||||||||||||
| Net asset value, end of period | $ | 20.01 | $ | 19.42 | $ | 20.36 | $ | 20.67 | $ | 21.00 | |||||||||||||
Total return per share net asset value (a) | 4.6 | % | 0.3 | % | 3.1 | % | 3.1 | % | 3.0 | % | |||||||||||||
Ratios and supplemental data | |||||||||||||||||||||||
| Net assets, end of period (in 000s) | $ | 25,357 | $ | 24,614 | $ | 25,805 | $ | 26,194 | $ | 26,610 | |||||||||||||
| Ratio of net investment income to average net assets | 4.4 | %(b) | 4.7 | % | 4.5 | % | 4.7 | % | 4.4 | % | |||||||||||||
| Ratio of expenses to average net assets | 0.4 | %(b) | 0.4 | % | 0.4 | % | 0.4 | % | 0.3 | % | |||||||||||||
| Portfolio turnover rate | 7.9 | %(c) | 12.4 | % | 11.2 | % | 4.7 | % | 10.9 | % | |||||||||||||
| (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. | |
| (b) | Annualized | |
| (c) | Not annualized |
The accompanying notes are an integral part of these financial statements.
9
Keyco Bond Fund, Inc.
Schedule of Portfolio Investments
March 31, 2009 (unaudited)
March 31, 2009 (unaudited)
| Principal | Fair | |||||||||||
| Long-Term State and Municipal Obligations | Amount | Cost | Value | |||||||||
Michigan (41.7% of investment fair value) | ||||||||||||
| Berkley, Michigan, City School District, 5%, May 2019 | $ | 425,000 | $ | 441,093 | $ | 459,778 | ||||||
| Detroit, Michigan, FSA, Series A, 5%, April 2019 | 640,000 | 601,811 | 552,742 | |||||||||
| Detroit, Michigan, City School District, 5.5%, May 2020 | 385,000 | 398,463 | 432,136 | |||||||||
| Detroit, Michigan, City School District, 5%, May 2022 | 500,000 | 517,300 | 561,580 | |||||||||
| Detroit, Michigan, Sewage Disposal, Series A, 5%, July 2022 | 250,000 | 250,000 | 272,078 | |||||||||
| Detroit, Michigan, Sewage Disposal, Series A, 5%, July 2024 | 350,000 | 363,702 | 333,781 | |||||||||
| Dundee, Michigan, Community School District, 5.375%, May 2020 | 365,000 | 359,525 | 384,100 | |||||||||
| Ferndale, Michigan, School District, 5%, May 2022 | 450,000 | 474,485 | 458,914 | |||||||||
| Grand Ledge, Michigan, Public Schools, 5%, May 2022 | 400,000 | 432,496 | 412,880 | |||||||||
| Kalamazoo, Michigan, Hospital Finance Authority, Facilities Revenue, | ||||||||||||
| Bronson Methodist Hospital, 5.25%, May 2018 | 145,000 | 140,959 | 145,074 | |||||||||
| Livonia, Michigan, Public Schools, 5.75%, May 2018 | 380,000 | 395,200 | 401,417 | |||||||||
| Macomb County, Michigan, Building Authority, 5%, March 2021 | 500,000 | 500,000 | 520,425 | |||||||||
| Madison, Michigan, District Public Schools, 5.125%, May 2018 | 750,000 | 711,555 | 752,707 | |||||||||
| Michigan Municipal Bond Authority Revenue, Clean Water, | ||||||||||||
| State Revolving Fund, 5%, October 2022 | 325,000 | 347,633 | 343,047 | |||||||||
| Michigan Municipal Bond Authority Revenue, Clean Water, | ||||||||||||
| State Revolving Fund, 5%, October 2023 | 535,000 | 554,389 | 549,825 | |||||||||
| Michigan State Building Authority Revenue, Series 1, 4.75%, October 2021 | 270,000 | 281,257 | 265,988 | |||||||||
| Michigan State Trunk Line, Series A, 4.75%, November 2020 | 120,000 | 107,835 | 121,085 | |||||||||
| Novi, Michigan, Building Authority, 5.6%, October 2019 | 420,000 | 458,161 | 454,041 | |||||||||
| Rockford, Michigan, Public Schools, 5%, May 2028 | 400,000 | 415,496 | 406,404 | |||||||||
| Saginaw Valley State University General Revenue, Michigan, 5.25%, July 2019 | 85,000 | 79,354 | 86,238 | |||||||||
| Utica, Michigan, Community Schools, 5%, May 2020 | 400,000 | 423,232 | 423,948 | |||||||||
| Warren, Michigan, Water and Sewer Revenue, 5.25%, November 2019 | 500,000 | 534,250 | 553,130 | |||||||||
| Wayland, Michigan, Union School District, 5%, May 2026 | 650,000 | 678,178 | 638,898 | |||||||||
| West Ottawa, Michigan, Public School District, Series A, 5%, May 2022 | 125,000 | 127,302 | 140,789 | |||||||||
| West Ottawa, Michigan, Public School District, Series A, 5%, May 2022 | 440,000 | 448,105 | 454,815 | |||||||||
| Zeeland, Michigan, Public Schools, 5%, May 2023 | 225,000 | 235,348 | 222,914 | |||||||||
| 10,035,000 | 10,277,129 | 10,348,734 | ||||||||||
10
Keyco Bond Fund, Inc.
Schedule of Portfolio Investments — Continued
March 31, 2009 (unaudited)
Schedule of Portfolio Investments — Continued
March 31, 2009 (unaudited)
| Principal | Fair | |||||||||||
| Long-Term State and Municipal Obligations | Amount | Cost | Value | |||||||||
Other States and Territories (58.3% of investment fair value) | ||||||||||||
| California State Various Purposes, 5%, June 2024 | $ | 475,000 | $ | 483,716 | $ | 447,521 | ||||||
| Colorado State Board of Governors University Enterprise System Revenue, 5.25%, March 2027 | 200,000 | 214,120 | 204,404 | |||||||||
| Collier County, Florida, School Board Certificates of Participation, 4.625%, February 2026 | 425,000 | 441,516 | 388,034 | |||||||||
| Florida State Turnpike Authority, Turnpike Revenue, Department of Transportation, 5%, July 2027 | 500,000 | 500,000 | 492,320 | |||||||||
| Gainesville, Florida, Utilities System Revenue, 6.5%, October 2014 | 665,000 | 642,467 | 774,958 | |||||||||
| Hawaii State, Series DN, 5.5%, August 2028 | 500,000 | 498,775 | 540,085 | |||||||||
| Honolulu, Hawaii, New Public Housing Authority, 5.75%, August 2009 | 700,000 | 622,804 | 712,012 | |||||||||
| Chicago, Illinois, Board of Education, Dedicated Revenue, 5%, December 2027 | 470,000 | 470,000 | 469,967 | |||||||||
| Illinois State, 4.85%, October 2024 | 425,000 | 435,625 | 430,444 | |||||||||
| Southern Illinois University Revenue, 5%, April 2026 | 750,000 | 798,225 | 708,802 | |||||||||
| Springfield, Illinois, Water Revenue, 5.5%, March 2032 | 500,000 | 488,420 | 512,090 | |||||||||
| Lawrence, Massachusetts, State Qualified, 5%, April 2027 | 500,000 | 531,910 | 510,165 | |||||||||
| Clark County, Nevada, 5%, November 2024 | 300,000 | 324,111 | 287,652 | |||||||||
| Mercer County, New Jersey, Improvement Authority Revenue, State Justice Complex, 6.4%, January 2018 | 500,000 | 463,270 | 596,405 | |||||||||
| Metropolitan Transportation Authority, New York, Revenue, 5%, November 2025 | 350,000 | 361,494 | 341,873 | |||||||||
| New York, New York, CIFG-TCRS, CIFG, Series O, 5%, June 2022 | 325,000 | 347,051 | 328,065 | |||||||||
| New York, New York, TCRS, Series M, 5%, April 2025 | 315,000 | 323,026 | 309,891 | |||||||||
| New York, New York, City Transitional Finance Authority Future Tax Secured Refunding, Series A-1, 4.375%, November 2024 | 500,000 | 498,350 | 505,930 | |||||||||
| New York, New York, City Municipal Water Finance Authority, Water and Sewer System Revenue, Series DD, 5.625%, June 2028 | 500,000 | 494,450 | 528,825 | |||||||||
| Western Nassau County, New York, Water Authority, Water System Revenue, 5%, May 2024 | 500,000 | 523,050 | 506,250 | |||||||||
| Toledo, Ohio, City School District, 5%, December 2025 | 250,000 | 258,100 | 254,138 | |||||||||
| Erie County, Hospital Authority PA Revenue, Erie County Geriatric Center, U. S. Treasury, 6.25%, July 2011 | 240,000 | 238,454 | 250,872 | |||||||||
11
Keyco Bond Fund, Inc.
Schedule of Portfolio Investments — Continued
March 31, 2009 (unaudited)
Schedule of Portfolio Investments — Continued
March 31, 2009 (unaudited)
| Principal | Fair | |||||||||||
| Long-Term State and Municipal Obligations | Amount | Cost | Value | |||||||||
Other States and Territories (continued) | ||||||||||||
| Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue, 6.25%, July 2012 | $ | 500,000 | $ | 544,085 | $ | 518,005 | ||||||
| Puerto Rico Electric Power Authority, Power Revenue, Series PP, 5%, July 2023 | 575,000 | 617,038 | 493,074 | |||||||||
| Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority, 1998 Series A, 5.375%, October 2013 | 435,000 | 454,144 | 435,339 | |||||||||
| Puerto Rico Public Finance Corporation Commonwealth Appropriation, 5.375%, June 2017 | 565,000 | 560,232 | 651,750 | |||||||||
| Canutillo, Texas, Independent School District, 5%, August 2023 | 450,000 | 458,931 | 458,006 | |||||||||
| Conroe, Texas, Independent School District and Schoolhouse, 5.3%, February 2020 | 35,000 | 35,626 | 35,048 | |||||||||
| Corpus Christi, Texas, Business and Job Development Corporate Sales Tax Revenue, 5%, September 2021 | 475,000 | 483,906 | 485,512 | |||||||||
| Frisco, Texas, Certificates of Obligation, 5.25%, February 2018 | 500,000 | 527,364 | 532,305 | |||||||||
| Houston, Texas, Airport System Revenue, Series B, 5.5%, July 2020 | 730,000 | 763,366 | 748,432 | |||||||||
| 14,155,000 | 14,403,626 | 14,458,174 | ||||||||||
| Total investments | $ | 24,190,000 | $ | 24,680,755 | $ | 24,806,908 | ||||||
The accompanying notes are an integral part of these financial statements.
12
Keyco Bond Fund, Inc.
Notes to Financial Statements (unaudited)
| 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 accounting principles generally accepted in the United States of America. | ||
| 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. In the unlikely event that the Fund’s custodian is unable to value one or more of the bonds, the valuation(s) will be obtained from a brokerage firm that markets municipal bonds or a source referred by that brokerage firm. The Fund’s policies require that the Board of Directors (“Board”) be notified that this alternative valuation method was used at the next regularly scheduled meeting of the Board. The ability of issuers of debt instruments held by the Fund to meet their obligations may be affected by economic and political developments in a specific state or region. | ||
| In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”). This statement defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements in financial statements. The various inputs that may be used to determine the value of the Fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing are not necessarily an indication of the risk associated with investing in those securities. |
| Level 1: | Quoted prices in active markets for identical securities. | ||
| Level 2: | Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.). | ||
| Level 3: | Significant unobservable inputs (including the Fund’s own assumptions used to determine the fair value of the investments). |
| The following table summarizes the Fund’s investments as of March 31, 2009, based on the inputs used to value them: |
| Investments | ||||
| Valuation Inputs | in Securities | |||
| Level 1: Quoted prices | $ | — | ||
| Level 2: Other significant observable inputs | 24,806,908 | |||
| Level 3: Significant unobservable inputs | — | |||
| Total | $ | 24,806,908 | ||
13
Keyco Bond Fund, Inc.
Notes to Financial Statements — Continued (unaudited)
Notes to Financial Statements — Continued (unaudited)
| 1. | Significant Accounting Policies — Continued | |
| 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. | ||
| The cost of securities for federal income tax purposes approximates the cost for financial statement purposes. | ||
| The components of distributable earnings on a tax basis were as follows: |
| Undistributed net investment income | $ | 368,774 | ||||||
| Undistributed long-term capital gain | 12,550 | |||||||
| Gross unrealized appreciation | $ | 847,379 | ||||||
| Gross unrealized depreciation | 721,226 | |||||||
| Net unrealized appreciation | 126,153 | |||||||
| $ | 507,477 | |||||||
| The tax character of distributions paid was as follows: |
| March 31, | March 31, | |||||||
| 2009 | 2008 | |||||||
| Tax-exempt income | $ | 392,850 | $ | 392,850 | ||||
| Long-term capital gains | 1,044 | 1,181 | ||||||
| $ | 393,894 | $ | 394,031 | |||||
| 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. |
14
Keyco Bond Fund, Inc.
Notes to Financial Statements — Continued (unaudited)
Notes to Financial Statements — Continued (unaudited)
| 2. | 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 $1,951,645 and $1,974,631, respectively for the six months ended March 31, 2009. | ||
| 3. | 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. | ||
| 4. | Related Party Transactions | |
| Legal and accounting expenses incurred include $19,500 for accounting and administrative services provided by an entity owned by an officer of the Fund. |
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Item 2. Code of Ethics.
| Not applicable to this semi-annual filing. |
Item 3. Audit Committee Financial Expert.
Not applicable to this semi-annual filing.
Item 4. Principal Accountant Fees and Services.
Not applicable to this semi-annual filing.
Item 5. Audit Committee of Listed Registrant.
Not applicable to this semi-annual filing and also because registrant’s shares are not listed for trading on a national securities exchange.
Item 6. Schedule of Investments
This Schedule is included as part of the Semi-Annual Report to Shareholders filed under Item 1 hereof.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable because the registrant invests exclusively in non-voting portfolio securities.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to this semi-annual filing.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
There were no purchases by or on behalf of the registrant or any “affiliated purchaser” of shares of the registrant’s equity securities during the period covered by this report.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
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Item 11. Controls and Procedures.
(a) Based on their evaluation of registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (17 CFR 270.30a-3(c)), within 90 days prior to the filing of this report, the registrant’s principal executive officer and principal financial officer determined that the registrant’s disclosure controls and procedures are appropriately designed to ensure that information required to be disclosed by registrant in the reports that it files under the Securities Exchange Act of 1934 (a) is accumulated and communicated to registrant’s management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure, and (b) is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the U.S. Securities and Exchange Commission.
(b) There have been no significant changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940 (17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
(a)(3) Not applicable.
(b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| KEYCO BOND FUND, INC. | ||||
| By: | /s/ Joel D. Tauber | |||
| Joel D. Tauber, President | ||||
Date: May 20, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ Joel D. Tauber | |||
| Joel D. Tauber, President | ||||
| By: | /s/ Ellen T. Horing | |||
| Ellen T. Horing, Treasurer | ||||
Date: May 20, 2009
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EXHIBIT INDEX
| Exhibit No. | Description | |
| EX.99.302CERT (a)(2) | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| EX.99.906CERT (b) | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |