UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
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 1575 Southfield, Michigan | 48034 |
| (Address of principal executive offices) | (Zip code) |
Joel D. Tauber, President
Keyco Bond Fund, Inc.
27777 Franklin Road, Suite 1575
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, 2022
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.
KEYCO BOND FUND, INC.
Table of Contents
Page
EX-99.302CERT
EX-99.906CERT
2
Item 1. Semi-Annual Report to Shareholders.
KEYCO BOND FUND, INC.
27777 Franklin Road - Suite 1575
Southfield, Michigan 48034
(248) 353-0790
May 26, 2022
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, 2022. Included in this mailing are the Fund’s financial statements, Management’s Discussion of Fund Performance, Additional Information including the actions taken at the December 2021 annual meeting and at the March 2022 special meeting and the Fund’s Privacy Policy.
We want to highlight, as reported in the Additional Information, that the shareholders unanimously approved a new investment objective that permits the Fund to invest in equity securities. The first equity purchase occurred in April.
In November 2021, the Board of Directors declared dividends to be disbursed equal to the Fund’s net investment income for the year ending September 30, 2022. Regular dividends of $11.10 per share have been paid during the six months ended March 31, 2022. In addition, a regular dividend of $11.00 per share was paid on May 2, 2022. Dividends are paid quarterly on the last business day of January and the first business day of May, August and November.
We also wish to let you know that the Fund recently moved to a new suite. The letterhead above reports the Fund’s new address.
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
3
KEYCO BOND FUND, INC.
Management’s Discussion of Fund Performance
For the Six Months Ended March 31, 2022
The Fund’s primary investment objective is to receive 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 achieved through an investment in equity securities is a secondary 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 $263,447 or $21.26 per share compared with $323,519 or $26.11 per share for the six-month period ended March 31, 2021.
Interest income continued to decline as bonds purchased provide less income than those they replaced. As a result of low interest rates, most of the bonds purchased during this period, particularly those purchased during the first four months, will mature or be called in 16 months or less. Most of these new purchases have extremely low interest rates. During 2022, interest rates have begun to increase. As rates rise, we expect to purchase bonds with higher yields.
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 an evaluation methodology.
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.
The net asset value of the Fund was $25,179,023 or $2,032.20 per share at March 31, 2022, a decrease of $1,003,549 or $81 per share from September 30, 2021. This change was the result of undistributed income of $125,918 and a reduction in unrealized appreciation of investments of $1,129,467. Interest rates spiked in March causing the decrease in the value of the bond portfolio.
4
KEYCO BOND FUND, INC.
Management’s Discussion of Fund Performance
For the Six Months Ended March 31, 2022
Page 2
The weighted average maturity was 13.4 years, a decline from the prior year-end weighted average maturity of 13.6 years. Due to the unfavorable interest rate situation during most of the period, the Fund purchased a number of bonds that will mature or be called in the short term.
Asset Allocation
The bond portfolio is allocated by state as follows:
Other
During the period, ten bonds were called or matured for total proceeds of $1,870,000. Cash from these dispositions was reinvested in bonds to mature in eight months to 24 years. Portfolio turnover was 7.6%.
5
KEYCO BOND FUND, INC.
March 31, 2022
RESULTS OF MEETINGS OF SHAREHOLDERS
The annual meeting of shareholders was held on Wednesday, December 15, 2021. The results of the votes taken on the proposals before the shareholders are reported below. Each vote represents one share held on the record date for the meeting.
| Item 1. | Election of Directors |
| Number of Shares | ||||
| Withheld | ||||
| Nominee | For | Authority | ||
| Mark E. Schlussel | 12,376 | 0 | ||
| Steve Milgrom | 12,376 | 0 | ||
| Thomas E. Purther | 12,376 | 0 | ||
| Ellen T. Horing | 12,376 | 0 | ||
| Michael Pullman | 12,376 | 0 | ||
| Item 2. | Ratify the selection of registered independent accountants |
Ratify the selection of Sanville & Company as the Fund’s registered independent public accountants for the year ending September 30, 2022
| Number | ||
| of Shares | ||
| For | 11,520 | |
| Against | 0 | |
| Abstain | 856 |
A special meeting of shareholders was held on Wednesday, March 23, 2022. The results of the vote taken on the proposal before the shareholders is reported below. Each vote represents one share hold on the record date for the meeting.
6
| Item 1. | Approve new investment objective |
The Company’s primary investment objective is to receive current interest income exempt from federal income taxes as is available from Municipal Bonds (defined below) and as is consistent with prudent investment management and preservation of capital, and capital appreciation achieved through an investment in equity securities will be a secondary objective of the Company.
The Company defines Municipal Bonds as debt obligations issued by or on behalf of states, territories and possessions of the United States, the District of Columbia, their respective political subdivisions, agencies and instrumentalities, the interest from which is exempt from federal income tax in the opinion of bond counsel for the issuers.
| Number of Shares | ||
| For | 12,370 | |
| Against | 0 | |
| Abstain | 0 |
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-PORT starting with the report for June 30, 2020. Form N-PORT is available on the SEC’s web site at http://www.sec.gov. 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 1575, Southfield, MI 48034.
INFORMATION ON PROXY VOTING POLICIES, PROCEDURES AND RECORDS
The Fund has adopted policies and procedures whereby the Fund will “mirror vote” proxies. “Mirror vote” means voting “in the same proportion as the vote of all other holders of such security” as defined in the Investment Company Act of 1940. The Fund has not voted any proxies.
7
Keyco Bond Fund, Inc.
Portfolio of Investments in Securities
March 31, 2022 (unaudited)
| Principal | Fair | |||||||
| Long-Term State and Municipal Obligations - 95.7% | Amount | Value | ||||||
| Michigan - 46.9% | ||||||||
| Bay City, Michigan, School District, 3.5%, November 1, 2034 (Q-SBLF enhanced) | $ | 400,000 | $ | 409,532 | ||||
| Beaverton, Michigan, Schools, 2%, May 1, 2022 (Q-SBLF enhanced) | 280,000 | 280,218 | ||||||
| Beaverton, Michigan, Schools, 2%, May 1, 2023 (Q-SBLF enhanced) | 175,000 | 175,445 | ||||||
| Berkley, Michigan, School District, 4%, May 1, 2040 (Q-SBLF enhanced) | 500,000 | 520,690 | ||||||
| Byron Center, Michigan, Public Schools, 4%, May 1, 2039 (Q-SBLF enhanced) | 200,000 | 215,504 | ||||||
| Center Line, Michigan, Public Schools, 5%, May 1, 2042 (Q-SBLF enhanced) | 500,000 | 565,765 | ||||||
| Chesaning, Michigan, Union Schools, 3%, May 1, 2022 (Q-SBLF enhanced) | 200,000 | 200,322 | ||||||
| Dansville, Michigan, Schools, 4%, May 1, 2042 (Q-SBLF enhanced) | 250,000 | 260,135 | ||||||
| Escanaba, Michigan, Area Public Schools, 3.25%, May 1, 2028 (Q-SBLF enhanced) | 400,000 | 405,724 | ||||||
| Fowlerville, Michigan, Community Schools, 3%, May 1, 2025 (Q-SBLF enhanced) (Pre-refunded) | 500,000 | 500,790 | ||||||
| Fruitport, Michigan, Community Schools, 5%, May 1, 2043 (Q-SBLF enhanced) | 500,000 | 557,220 | ||||||
| Gibraltar, Michigan, School District, 5%, May 1, 2037 (Q-SBLF enhanced) | 250,000 | 285,750 | ||||||
| Godfrey-Lee, Michigan, Public Schools, 4%, May 1, 2043 (Q-SBLF enhanced) | 250,000 | 272,142 | ||||||
| Godfrey-Lee, Michigan, Public Schools, 4%, May 1, 2046 (Q-SBLF enhanced) | 300,000 | 324,600 | ||||||
| Macomb Interceptor Drain, Drainage District, County of Macomb, Michigan, 4%, May 1, 2036 | 500,000 | 533,580 | ||||||
| Michigan State Building Authority, Revenue, 5%, October 15, 2029 | 250,000 | 261,705 | ||||||
| Michigan State Building Authority, Revenue, 4%, October 15, 2036 | 350,000 | 370,359 | ||||||
| Michigan State Building Authority, Revenue, 4%, April 15, 2040 | 250,000 | 261,075 | ||||||
| Michigan State Building Authority, Revenue, 5%, October 15, 2045 | 325,000 | 351,071 | ||||||
| Michigan State Housing Development Authority, Rental Housing Revenue, Series A-2, 4.5%, October 1, 2036 (Pre-refunded) | 500,000 | 500,000 | ||||||
| Michigan State Housing Development Authority, Rental Housing Revenue, Series A, 4.625%, October 1, 2039 | 500,000 | 507,855 | ||||||
| Michigan State Trunk Line, 5%, November 15, 2022 | 250,000 | 255,643 | ||||||
| Michigan State Trunk Line, 4%, November 15, 2046 | 225,000 | 241,475 | ||||||
| Niles, Michigan, Community Schools, 4%, May 1, 2035 (Q-SBLF enhanced) | 400,000 | 420,792 | ||||||
| Pinckney, Michigan, Community Schools, 5%, May 1, 2035 (Q-SBLF enhanced) | 500,000 | 552,490 | ||||||
| Rockford, Michigan, Public Schools, 4%, May 1, 2039 (Q-SBLF enhanced) | 800,000 | 821,512 | ||||||
| Saginaw, Michigan, Water Supply System, Revenue, 4%, July 1, 2041 (AGM insured) | 250,000 | 273,290 | ||||||
| University of Michigan, Revenue, 4%, April 1, 2043 | 250,000 | 268,532 | ||||||
| Walled Lake, Michigan, Consolidated School District, 5%, May 1, 2037 (Q-SBLF enhanced) (Pre-refunded) | 485,000 | 509,041 | ||||||
| Warren Woods, Michigan, Public Schools, 5%, May 1, 2037 (Q-SBLF enhanced) | 250,000 | 282,420 | ||||||
| Woodhaven-Brownstown, Michigan, School District, 5%, May 1, 2040 (Q-SBLF enhanced) | 375,000 | 410,846 | ||||||
| 11,795,523 | ||||||||
The accompanying notes are an integral part of these financial statements.
8
Keyco Bond Fund, Inc.
Portfolio of Investments in Securities - Continued
March 31, 2022 (unaudited)
| Principal | Fair | |||||||
| Long-Term State and Municipal Obligations - 95.7% | Amount | Value | ||||||
| Arizona - 2.1% | ||||||||
| Arizona Board of Regents, University of Arizona System, Revenue, 5%, June 1, 2038 (Pre-refunded) | $ | 250,000 | $ | 259,618 | ||||
| Arizona Board of Regents, University of Arizona System, Revenue, 4%, June 1, 2045 | 250,000 | 261,597 | ||||||
| 521,215 | ||||||||
| Colorado - 0.5% | ||||||||
| Weld County, Weld County School District No. 6, 4%, December 1, 2045 (School District Intercept Program guarantee) | 125,000 | 136,445 | ||||||
| District of Columbia - 1.1% | ||||||||
| District of Columbia, Income Tax Secured Revenue, 4%, May 1, 2045 | 250,000 | 268,802 | ||||||
| Florida - 2.4% | ||||||||
| Miami-Dade County, Florida, Subordinate Special Obligation Refunding, 5%, October 1, 2035 (Pre-refunded) | 210,000 | 213,933 | ||||||
| Florida State Board of Education, Public Education, Capital Outlay, 2018, Series B, 4%, June 1, 2044 | 200,000 | 215,258 | ||||||
| St. Petersburg, Florida, Public Utility, Revenue, 4%, October 1, 2030 (Pre-refunded) | 175,000 | 177,424 | ||||||
| 606,615 | ||||||||
| Georgia - 2.2% | ||||||||
| Georgia State Housing and Finance Authority, 3.5%, December 1, 2030 | 155,000 | 156,163 | ||||||
| Georgia State Housing and Finance Authority, 3.45%, December 1, 2032 | 405,000 | 406,539 | ||||||
| 562,702 | ||||||||
| Hawaii - 2.1% | ||||||||
| Hawaii State, Series FG, 4%, October 1, 2036 | 500,000 | 533,705 | ||||||
| Illinois - 1.9% | ||||||||
| Rock Island County, Illinois, Public Building Revenue, 4%, December 1, 2045 | 475,000 | 484,581 | ||||||
| Indiana - 2.0% | ||||||||
| Greater Clark Building Corporation, Indiana, First Mortgage, Series 2018, 4%, January 15, 2038 | 455,000 | 488,847 | ||||||
| Iowa - 0.6% | ||||||||
| Ankeny, Iowa, Community School District, 5%, June 1, 2023 | 145,000 | 150,578 | ||||||
| Louisiana - 0.8% | ||||||||
| Louisiana Public Facilities, Hospital, Revenue, 5%, July 1, 2042 (Pre-refunded) | 190,000 | 191,822 | ||||||
| Maine - 0.6% | ||||||||
| Maine State Housing Authority, Mortgage Purchase, 2018 Series B, 3.75%, November 15, 2038 | 155,000 | 157,395 | ||||||
The accompanying notes are an integral part of these financial statements.
9
Keyco Bond Fund, Inc.
Portfolio of Investments in Securities - Continued
March 31, 2022 (unaudited)
| Principal | Fair | |||||||
| Long-Term State and Municipal Obligations - 95.7% | Amount | Value | ||||||
| Maryland - 0.5% | ||||||||
| Montgomery County, Maryland, Housing Opportunities Commission, 0.55%, January 1, 2025 (FHA risk sharing mortgage insurance) | $ | 135,000 | $ | 129,481 | ||||
| Minnesota - 0.4% | ||||||||
| Rochester, Minnesota, Health Care Facilities, Revenue, 4%, November 15, 2039 (when issued) | 100,000 | 108,774 | ||||||
| Nevada - 1.1% | ||||||||
| Clark County, Nevada, General Obligation (Limited Tax) Park Improvement, Series 2018, 4%, December 1, 2038 | 250,000 | 270,730 | ||||||
| New Hampshire - 3.7% | ||||||||
| New Hampshire Municipal Bond Bank, 2016 Series D, 4%, August 15, 2039 | 875,000 | 926,275 | ||||||
| New York - 9.6% | ||||||||
| New York, New York City, Transitional Finance Authority, Revenue, 4%, Fiscal 2017, August 1, 2035 | 275,000 | 288,813 | ||||||
| New York, New York City, Transitional Finance Authority, Revenue, 4%, Fiscal 2017, August 1, 2037 | 250,000 | 261,207 | ||||||
| New York, New York City, Transitional Finance Authority, Revenue, 4%, Fiscal 2017, August 1, 2041 | 335,000 | 347,804 | ||||||
| New York, New York City, Transitional Finance Authority, Revenue, 4%, Fiscal 2019, August 1, 2041 | 140,000 | 146,723 | ||||||
| New York, New York City, Transitional Finance Authority, Building Aid, Revenue, 4%, July 15, 2040 | 250,000 | 258,455 | ||||||
| New York, New York, City Municipal Water Finance Authority, Water and Sewer System Revenue, Fiscal 2016 Subseries CC-1, 4%, June 15, 2038 | 75,000 | 79,722 | ||||||
| New York State Dormitory Authority, State Personal Income Tax Revenue, Series 2018A, 4%, March 15, 2043 | 300,000 | 316,497 | ||||||
| New York State Environmental Facilities Corporation, State Clean Water and Drinking Water, 4%, June 15, 2046 | 500,000 | 525,350 | ||||||
| New York State Mortgage Agency, 3.1%, April 1, 2028 | 200,000 | 200,686 | ||||||
| 2,425,257 | ||||||||
| Ohio - 1.4% | ||||||||
| Fairborn, Ohio, City School District, 4%, December 1, 2043 | 345,000 | 359,280 | ||||||
| Pennsylvania - 5.2% | ||||||||
| Pennsylvania State, Series 1, 4%, June 15, 2033 | 550,000 | 568,508 | ||||||
| Pennsylvania State, Second Series, 4%, August 15, 2035 | 500,000 | 524,690 | ||||||
| West View, Pennsylvania, Water Authority, Revenue, 4%, November 15, 2039 | 200,000 | 211,502 | ||||||
| 1,304,700 | ||||||||
The accompanying notes are an integral part of these financial statements.
10
Keyco Bond Fund, Inc.
Portfolio of Investments in Securities - Continued
March 31, 2022 (unaudited)
| Principal | Fair | |||||||
| Long-Term State and Municipal Obligations - 95.7% | Amount | Value | ||||||
| Tennessee - 2.1% | ||||||||
| Clarksville, Tennessee, Water, Sewer and Gas, Revenue, 5%, February 2023 | $ | 175,000 | $ | 180,093 | ||||
| Metropolitan Government of Nashville and Davidson County, Tennessee, General Obligation, 5%, July 1, 2023 | 335,000 | 348,457 | ||||||
| 528,550 | ||||||||
| Texas - 7.1% | ||||||||
| Canadian River, Texas, Municipal Water Authority, Revenue, 4%, February 15, 2023 | 100,000 | 102,079 | ||||||
| Corpus Christi, Texas, Independent School District, 4%, August 15, 2034 (Texas Permanent School Fund guarantee) | 250,000 | 263,837 | ||||||
| Crosby, Texas, Independent School District, 5%, February 15, 2043 (Texas Permanent School Fund guarantee) (Pre-refunded) | 250,000 | 261,153 | ||||||
| Houston, Texas, Independent School District, 4%, June 1, 2029 (Texas Permanent School Fund guarantee) | 350,000 | 359,180 | ||||||
| Prosper, Texas, 4%, February 15, 2035 | 265,000 | 275,616 | ||||||
| University of Houston, Texas, Revenue, 3%, February 15, 2028 | 340,000 | 343,737 | ||||||
| Waco, Texas, 3.125%, February 1, 2036 | 180,000 | 180,243 | ||||||
| 1,785,845 | ||||||||
| Virginia - 1.4% | ||||||||
| Richmond, Virginia, Public Utility, Revenue, 5%, January 15, 2043 (Pre-refunded) | 250,000 | 256,898 | ||||||
| Virginia Public Building Authority, Public Facilities, Revenue, 5%, August 1, 2023 | 100,000 | 104,267 | ||||||
| 361,165 | ||||||||
| Total long-term state and municipal obligations | ||||||||
| (Cost $23,838,298) - 95.7% | 24,098,287 | |||||||
| Money Market Fund - 4.2% | Shares | |||||||
| Goldman Sachs Financial Square Government Fund, Institutional Shares, 0.23%* | ||||||||
| (Cost $1,067,134) | 1,067,134 | 1,067,134 | ||||||
| Total investments (Cost $24,905,432) - 99.9% | 25,165,421 | |||||||
| Other assets less liabilities, net - 0.1% | 13,602 | |||||||
| Net assets (100%) | $ | 25,179,023 | ||||||
| * Seven-day yield. | ||||||||
The accompanying notes are an integral part of these financial statements.
11
Keyco Bond Fund, Inc.
Statement of Assets and Liabilities
March 31, 2022 (unaudited)
| Assets | ||||
| Investments in securities, at fair value (cost $24,905,432) | $ | 25,165,421 | ||
| Cash | 28,296 | |||
| Interest and dividend receivable | 319,232 | |||
| Other | 450 | |||
| Total assets | 25,513,399 | |||
| Liabilities | ||||
| Payable for investments purchased | 324,541 | |||
| Accrued expenses | 9,835 | |||
| Total liabilities | 334,376 | |||
| Net Assets | $ | 25,179,023 | ||
| Net Assets consist of: | ||||
| Paid-in capital | $ | 754,004 | ||
| Total distributable earnings | 24,425,019 | |||
| Net Assets | $ | 25,179,023 | ||
| Capital stock shares issued and outstanding ($2.04 par value, 29,411 shares authorized) | 12,390 | |||
| Net Asset Value per share | $ | 2,032.20 | ||
The accompanying notes are an integral part of these financial statements.
12
Keyco Bond Fund, Inc.
For the Six Months Ended March 31, 2022 (unaudited)
| Interest income | $ | 351,588 | ||||||
| Dividend income | 205 | |||||||
| Total investment income | 351,793 | |||||||
| Expenses | ||||||||
| Administration fees (Note 5) | $ | 29,000 | ||||||
| Professional fees | 39,905 | |||||||
| Custodial fee | 6,652 | |||||||
| Directors’ fees | 5,000 | |||||||
| Insurance | 450 | |||||||
| Miscellaneous | 7,339 | |||||||
| Total expenses | 88,346 | |||||||
| Net investment income | 263,447 | |||||||
| Realized and unrealized gain (loss) on investments | ||||||||
| Realized gain on investments | — | |||||||
| Net change in unrealized appreciation (depreciation) of investments | (1,129,467 | ) | ||||||
| Net realized and unrealized gain (loss) on investments | (1,129,467 | ) | ||||||
| Net decrease in net assets resulting from operations | $ | (866,020 | ) |
The accompanying notes are an integral part of these financial statements.
13
Statements of Changes in Net Assets
| Six Months | ||||||||
| Ended | ||||||||
| March 31, | Year Ended | |||||||
| 2022 | Sept. 30, | |||||||
| (unaudited) | 2021 | |||||||
| Increase (decrease) in net assets from operations | ||||||||
| Net investment income | $ | 263,447 | $ | 639,725 | ||||
| Net realized gain on investments | — | 18,455 | ||||||
| Changes in unrealized appreciation (depreciation) of investments | (1,129,467 | ) | (272,324 | ) | ||||
| Net increase (decrease) in net assets resulting from operations | (866,020 | ) | 385,856 | |||||
| Distributions to shareholders | ||||||||
| From net investment income | (137,529 | ) | (639,725 | ) | ||||
| Total decrease in net assets | (1,003,549 | ) | (253,869 | ) | ||||
| Net Assets | ||||||||
| Beginning of period | 26,182,572 | 26,436,441 | ||||||
| End of period | $ | 25,179,023 | $ | 26,182,572 | ||||
The accompanying notes are an integral part of these financial statements.
14
Financial Highlights
| Six Months | ||||||||||||||||||||||||
| Ended | ||||||||||||||||||||||||
| 3/31/2022 | Years Ended September 30 | |||||||||||||||||||||||
| (unaudited) | 2021 | 2020 | 2019 | 2018 | 2017 | |||||||||||||||||||
| Per share operating performance | ||||||||||||||||||||||||
| Net asset value, beginning of period | $ | 2,113.20 | $ | 2,133.69 | $ | 2,115.00 | $ | 2,001.16 | $ | 2,056.98 | $ | 2,107.34 | ||||||||||||
| Net investment income | 21.26 | 51.63 | 58.35 | 62.59 | 65.23 | 66.20 | ||||||||||||||||||
| Net realized and unrealized gain (loss) on investments | (91.16 | ) | (20.49 | ) | 18.68 | 113.81 | (55.87 | ) | (50.39 | ) | ||||||||||||||
| Total from investment operations | (69.90 | ) | 31.14 | 77.03 | 176.40 | 9.36 | 15.81 | |||||||||||||||||
| Less distributions from | ||||||||||||||||||||||||
| Net investment income | (11.10 | ) | (51.63 | ) | (58.34 | ) | (62.56 | ) | (65.18 | ) | (66.17 | ) | ||||||||||||
| Net asset value, end of period | $ | 2,032.20 | $ | 2,113.20 | $ | 2,133.69 | $ | 2,115.00 | $ | 2,001.16 | $ | 2,056.98 | ||||||||||||
| Total return per share net asset value (a) | -3.3 | %(c) | 1.5 | % | 3.7 | % | 8.9 | % | 0.5 | % | 0.8 | % | ||||||||||||
| Ratios and supplemental data | ||||||||||||||||||||||||
| Net assets, end of period (in 000s) | $ | 25,179 | $ | 26,183 | $ | 26,436 | $ | 26,205 | $ | 24,794 | $ | 25,486 | ||||||||||||
| Ratio of net investment income to average net assets | 2.0 | %(b) | 2.4 | % | 2.7 | % | 3.0 | % | 3.2 | % | 3.2 | % | ||||||||||||
| Ratio of expenses to average net assets | 0.7 | %(b) | 0.5 | % | 0.4 | % | 0.4 | % | 0.4 | % | 0.5 | % | ||||||||||||
| Portfolio turnover rate | 7.6 | %(c) | 14.7 | % | 5.3 | % | 6.0 | % | 20.3 | % | 19.2 | % | ||||||||||||
| (a) | Total return in the table above represents the rate that the investor would have earned or lost on an investment in the Fund if there were reinvestment of dividends. |
| (b) | Annualized |
| (c) | Not annualized |
The accompanying notes are an integral part of these financial statements.
15
Keyco Bond Fund, Inc.
March 31, 2022 (unaudited)
| 1. | Organization |
Keyco Bond Fund, Inc. (the “Fund”) has registered under the Investment Company Act of 1940, as amended, as a closed-end, diversified management investment 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 Fund’s primary investment objective is to receive current interest income exempt from federal income taxes as is available from municipal bonds, consistent with prudent investment management and preservation of capital, and capital appreciation achieved through an investment in equity securities will be a secondary objective.
| 2. | Significant Accounting Policies |
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund is an investment company that follows the accounting and reporting guidance of Accounting Standards Codification Topic 946 applicable to investment companies.
Security Valuations
Processes and Structure
The Fund’s Board of Directors has adopted guidelines for valuing securities including in circumstances in which market quotes are not readily available. In the unlikely event that the entity that provides custodial services for the Fund is unable to value one or more bonds in the portfolio and an alternate resource is used for pricing, the Board is to be notified at its next regularly scheduled meeting.
Hierarchy of Fair Value Inputs
The Fund utilizes various methods to measure the fair value of most of its investments on a recurring basis. U.S. generally accepted accounting principles (GAAP) establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The three levels of inputs are as follows:
| ● | Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access at the measurement date. |
| ● | Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instruments on an inactive market, prices for similar instruments in active markets, interest rates, yield curves, implied volatilities, credit spreads and market-collaborated inputs. |
| ● | Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. |
16
Keyco Bond Fund, Inc.
Notes to Financial Statements – Continued
March 31, 2022 (unaudited)
| 2. | Significant Accounting Policies – Continued |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
Fair Value Measurements
A description of the valuation techniques applied to the Fund’s major category of assets measured at fair value on a recurring basis is as follows. The fair value of the long-term state and municipal obligations is estimated using various techniques which may include information from actual trades for active issues. Evaluations are also based on reviews of current economic conditions, trading levels, spread relationships and the slope of the yield curve. Evaluations are also adjusted for various attributes such as discounts, premiums, credit, use of proceeds and callability. To the extent that the inputs are observable and timely, the values would be categorized in Level 2 of the fair value hierarchy; otherwise, they would be categorized as Level 3.
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
| Securities | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| Long-term state and municipal obligations** | $ | — | $ | 24,098,287 | $ | — | $ | 24,098,287 | ||||||||
| Money market fund | 1,067,134 | — | — | 1,067,134 | ||||||||||||
| Total | $ | 1,067,134 | $ | 24,098,287 | $ | — | $ | 25,165,421 | ||||||||
The Fund did not hold any Level 3 assets during the six-month period ended March 31, 2022. It is the Fund’s policy to recognize transfers into and out of Levels at the end of the reporting period.
** Refer to Portfolio of Investments in Securities for breakdown of municipal bonds held by the Fund.
Federal Income Taxes
It is the Fund’s intention to continue 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. The Fund also intends to distribute sufficient net investment income and net capital gains, if any, so that it will not be subject to excise tax on undistributed income and gains. Therefore, no federal income tax or excise tax provision is required.
17
Keyco Bond Fund, Inc.
Notes to Financial Statements – Continued
March 31, 2022 (unaudited)
2. | Significant Accounting Policies – Continued |
The cost of securities for federal income tax purposes is expected to approximate the cost for financial statement purposes. The Fund’s distributable earnings on a tax basis are determined only at the end of each fiscal year. The unrealized appreciation (depreciation) as of March 31, 2022 was as follows:
| Gross unrealized appreciation | $ | 445,319 | ||
| Gross unrealized depreciation | (185,330 | ) | ||
| Net unrealized appreciation | $ | 259,989 | ||
| Cost of investment securities including short-term investments | $ | 24,905,432 |
The capital loss carryforward of $14,793 at September 30, 2021 qualifies to be carried forward for an unlimited period and will be used to offset any capital gains realized by the Fund in future years. The Fund will not make distributions from capital gains while a capital loss carryforward remains.
The Fund’s management has reviewed all open tax years for federal tax returns and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. There are no unrecognized tax benefits in the financial statements for March 31, 2022. The Fund’s tax returns are subject to examination for federal purposes for the open tax years (2018-20) and for the tax return to be filed for 2021. The Fund has not been subject to interest and/or penalties on its tax return filings. The Fund identifies its major tax jurisdictions as the U.S. federal government and the State of Michigan.
Security Transactions and Related Income
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. Discounts and premiums on securities purchased are accreted or amortized using the constant yield method. Dividend income is recorded on the ex-dividend date.
When-Issued Security
During the period, the Fund purchased a bond on a when-issued basis. Payment and delivery are scheduled to take place after the customary settlement period. The price for the bond and the date when the security is to be delivered are fixed at the time of the transaction. The bond purchased on a when-issued basis is identified as such in the Portfolio of Investments in Securities.
Use of Estimates
The preparation of financial statements in conformity with GAAP principles 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
18
Keyco Bond Fund, Inc.
Notes to Financial Statements – Continued
March 31, 2022 (unaudited)
| 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 $1,858,598 and $1,870,000, respectively, for the six months ended March 31, 2022.
| 4. | Portfolio Management |
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 of Directors, makes investment decisions internally.
| 5. | Related Party Transactions |
Administration fees incurred include $29,000 for accounting, administrative and general office support services provided by Tauber Enterprises, LLC, an entity owned by an officer of the Fund. The agreement is reviewed and renewed annually by the Fund’s Directors.
| 6. | Risks and Uncertainties |
The Fund invests in municipal bonds. Municipal bonds are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with investments in municipal bonds, it is possible that changes in the values of the bonds could occur in the near term and that such changes could materially affect the amounts reported in the Statement of Assets and Liabilities. The ability of issuers of debt instruments held by the Fund to meet their obligations may also be affected by economic and political developments in a specific state or region.
| 7. | Capital Share Transactions |
There were no transactions in capital stock for the year ended September 30, 2021 and the six-month period ended March 31, 2022.
| 8. | Commitments and Contingencies |
In the normal course of business, the Fund may enter into contracts that may contain a variety of representations and warranties and provide general indemnifications. The Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, management considers the risk of loss from such claims to be remote.
| 9. | COVID -19 |
COVID-19, a novel coronavirus first detected in December 2019, was declared a pandemic by the World Health Organization during March 2020. There have been market disruptions associated with the pandemic, and uncertainty exists as to the long-term implications. At this time management is unable to determine the effects, if any, that COVID-19 may have on the bonds in the Fund’s portfolio or on the Fund’s performance.
19
Keyco Bond Fund, Inc.
Notes to Financial Statements – Continued
March 31, 2022 (unaudited)
| 10. | Subsequent Events |
On May 2, 2022, the Fund paid shareholders of record on April 22, 2022, a net investment income distribution of $136,290 equivalent to $11.00 per share.
20
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 to this semi-annual filing.
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.
There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Directors since the Fund last provided disclosure in response to this item.
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.
21
(b) There have been no significant changes in the registrant’s internal control 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 period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
(a)(1) Not applicable.
(a)(2) Not applicable.
(a)(3) Not applicable.
(a)(4) Not applicable.
(b) Not applicable.
Item 13. 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).
22
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 26, 2022
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 26, 2022
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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. |