UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSRS
Investment Company Act file number 811-2341
MONTGOMERY STREET INCOME SECURITIES, INC.
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(Exact Name of Registrant as Specified in Charter)
101 California Street, Suite 4100
San Francisco, CA 94111
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2663
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Salvatore Schiavone
Two International Place
Boston, Massachusetts 02110
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(Name and Address of Agent for Service)
Date of fiscal year end: 12/31
Date of reporting period: 6/30/2004
ITEM 1. REPORT TO STOCKHOLDERS
[Scudder Investments logo]
Montgomery Street
Income Securities Semiannual Report to StockholdersJune 30, 2004 |
Portfolio Management Review |
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In the following interview, Portfolio Manager Gary Bartlett discusses the recent market environment and strategy in managing Montgomery Street Income Securities during its most recent semiannual period ended June 30, 2004.
The investments of Montgomery Street Income Securities Inc. (the "fund") provided a total return based on net asset value (NAV) of 0.71% for the six-month period ended June 30, 2004.1 The total market value return based on the fund's NYSE-traded shares was -3.41% for the same period. Past results are not necessarily indicative of future performance of the fund. Investment return and principal value will fluctuate.
1 Total NAV returns reflect changes in net asset value per share during each period and assume that dividends and capital gain distributions, if any, were reinvested. These percentages are not an indication of the performance of a shareholder's investment in the fund based on market price.The total NAV return of the fund exceeded the return of the unmanaged Lehman Brothers Aggregate Bond Index, which posted a total return of 0.15% for the six-month period.2 The fund outperformed the 0.11% average return of the Lipper Corporate Debt Funds BBB-Rated category for closed-end funds for the six months ended June 30, 2004.3 The fund's return is behind the average return of the category for the one-year period, but it outpaced the average returns of the category for the three-, five- and 10-year periods. The fund ranked 11, 5, 4 and 5 for the one- three-, five- and 10-year periods, respectively. There were 13 funds in the category for the one-year period and 14 funds in the category for the remaining periods.4 Rankings are historical and do not guarantee future results. Rankings are based on the fund's total return with dividends and any capital gains reinvested.
2 The Lehman Brothers Aggregate Bond Index is an unmanaged index representing domestic taxable investment grade bonds, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities with average maturities of one year or more. Index returns assume reinvestment of dividends and capital gains and, unlike fund returns, do not reflect fees and expenses. It is not possible to invest directly into an index.3 The Lipper Corporate Debt Funds BBB-Rated category for closed-end funds includes funds that invest at least 65% of their assets in corporate and government debt issues rated in the top four grades. It is not possible to invest directly into an index or a category.The fund's market price stood at $17.61 as of June 30, 2004, compared with $18.55 at the close of 2003. The market price discount of the shares, as a percentage of NAV, was 9.4% on June 30, 2004. The fund paid a quarterly dividend of $0.31 on April 30, 2004. Shares of closed-end funds frequently trade at a discount to net asset value. The price of the fund's shares is determined by a number of factors, several of which are beyond the control of the fund. Therefore, the fund cannot predict whether its shares will trade at, below or above net asset value.
Q: Will you describe the investment environment for bonds during the semiannual period?
A: After rallying in the first quarter, the Treasury market sold off sharply in the second quarter. Yields rose in response to a strong rebound in employment and higher reported inflation. Against this backdrop, the Lehman Brothers Aggregate Bond Index gained 0.15% on an absolute basis for the six-month period. The benchmark 10-year Treasury note increased some 36 basis points in yield, to 4.62%, and the yield curve flattened as the two-year Treasury note was 88 basis points higher, ending at 2.72%.5 The long-awaited shift in monetary policy became a reality as the quarter came to a close. The Federal Open Market Committee, after preparing the market for a policy change, increased the federal funds
4 Source: Lipper Inc.5 The yield curve is a graph with a left-to-right line that shows how high or low yields are, from the shortest to the longest maturities. Typically (and when the yield curve is characterized as "steep." this is especially true) the line rises from left to right as investors who are willing to tie up their money for a longer period are rewarded with higher yields.Treasury Bond Yield Curve (as of 12/31/03 and 6/30/04) |
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Source: Bloomberg as of 6/30/04
Performance is historical and does not guarantee future results.
rate by 25 basis points, to 1.25%, but suggested a "measured" pace of monetary policy tightening going forward. The shift was well anticipated, and as a result Treasuries actually rallied in response.
Q: What were the biggest contributors to fund performance during the six-month period?
A: The most significant driver of performance for the period was the portfolio's allocation to high-yield bonds. The high-yield sector, as measured by the CS First Boston High Yield Index, returned 2.47% for the period, which outpaced high-quality bonds.6 Despite higher interest rates and expectations for less accommodative monetary policy going forward, the sector continued to benefit from improving credit quality, a low default rate and a favorable economic backdrop. In addition, the fund's high-yield holdings outperformed the market, which added value.
6 The CS First Boston High Yield Index is an unmanaged trader-priced portfolio constructed to mirror the global high-yield debt market.Sector Distribution |
 |
[] [] [] [] [] | Corporate Bonds
US Government Agency
Sponsored Pass-Throughs
Foreign Bonds - US$
Denominated
Asset Backed
Municipal Investments
| 39%
21%
11%
6%
6%
| [] [] [] [] | US Government-Sponsored
Agencies
US Government Backed
Collateralized Mortgage
Obligations
Cash Equivalents
|
6%
5%
4%
2%
|
As of June 30, 2004
Sector distribution is subject to change.
Percentages are based on total market value.
Quality Distribution |
|  |
[] [] [] [] [] [] [] [] | AAA
AA
A
BBB
BB
B or below
Treasuries
Agencies
| 15%
3%
11%
21%
6%
10%
6%
28%
|
|
As of June 30, 2004
Quality distribution is subject to change.
Percentages are based on total market value.
The ratings of Moody's Investors Service, Inc (Moody's) and Standard & Poor's Corporation (S&P) represent these companies' opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The fund's credit quality does not remove market risk.
Individual security selection in the investment-grade credit sector also contributed to relative results. From a subsector perspective, investments in better-performing subsectors added to performance. These included electric utilities, autos, and other industrials. We were also able to identify opportunities within subsectors such as banks and telecom, where the headline was negative. Significant value was added relative to the benchmark returns in those subsectors through a combination of good security selection and the avoidance of the issuers that were the worst performers.
Q: How is the fund positioned?
A: As of June 30, 2004, the portfolio continues to maintain a large allocation to high-yield bonds. At current spread levels, we believe high-yield remains attractive relative to high-quality bonds. However, in our opinion most of the spread tightening is behind us and we expect outperformance to come primarily from incremental yield. While macroeconomic risks, including higher interest rates, are a concern, strong fundamentals, a low default rate and a sound economic backdrop should be supportive of the sector.
With the general level of investment-grade corporate spreads representing fair value in our view, our focus on security selection was even more critical as a means to add value. We believe that carefully selected medium-quality corporate issues will continue to aid returns over the near term, owing to their potential yield advantage and potential for selective spread tightening. As a result of our security selection work, holdings emphasized selected BBB-rated utilities and paper/packing issues. In financials, we favored insurance and bank preferred issues in lieu of generic bank and finance names. We also found value in selected higher-quality holdings, including asset-backed securities and corporate issues.
The portfolio continued to be managed with leverage, which was approximately 16% as of June 30, 2004. The market environment for leverage continued to be marginally favorable, despite the flattening of the yield curve during the six months.
This was true as the yield curve remained historically steep and mortgage supply was concentrated in forward months versus demand in near months. When investors need to purchase bonds in the current period, but origination is concentrated in future periods, it is frequently advantageous to sell mortgages in the near month and purchase them forward. The goal is to make forward purchases at a lower price and higher yield and, at the same time, shelter the underlying mortgages from prepayments.
The fund invests in individual bonds whose yields and market values fluctuate so that your investment may be worth more or less than its original cost. Yields and market value will fluctuate in response to changing interest rates and may be affected by the prepayment of mortgage-backed securities. The fund's investments in foreign securities are subject to currency fluctuation, political climate and economic changes, and risk of loss of principal and interest. All of these factors may result in greater share price volatility.
The views expressed in this report reflect those of the portfolio manager only through the end of the period of the report as stated on the cover. The manager's views are subject to change at any time based on market and other conditions and should not be construed as a recommendation.
Fund shares are not FDIC-insured and are not deposits or other obligations of, or guaranteed by, any bank. Fund shares involve investment risk, including possible loss of principal.
Past performance is no guarantee of future results.
This report is sent to stockholders of Montgomery Street Income Securities, Inc. for their information. It is not a prospectus, circular, or representation intended for use in the purchase or sale of shares of the fund or of any securities mentioned in the report. |
Dividends Declared
The fund paid a dividend of $0.31 per share on July 30, 2004.
Limited Share Repurchases
The fund is authorized to repurchase a limited number of shares of the fund's common stock from time to time when the shares are trading at less than 95% of their NAV. Repurchases are limited to a number of shares each calendar quarter approximately equal to the number of new shares issued under the fund's Dividend Reinvestment and Cash Purchase Plan with respect to income earned for the second preceding calendar quarter. There were 27,000 shares repurchased during the six months ended June 30, 2004. Up to 14,000 shares may be repurchased during the third quarter of 2004.
Dividend Reinvestment and Cash Purchase Option
The fund maintains an optional Dividend Reinvestment and Cash Purchase Plan (the "Plan") for the automatic reinvestment of your dividends and capital gain distributions in the shares of the fund. Stockholders who participate in the Plan can also purchase additional shares of the fund through the Plan's voluntary cash investment feature. We recommend that you consider enrolling in the Plan to build your investment. The Plan's features, including the voluntary cash investment feature, are described beginning on page 35 of this report.
Changes in Chairman, Committee Members and Officers
On June 18, 2004, the Board of Directors appointed Julian F. Sluyters as President and Chief Executive Officer of the fund.
On July 16, 2004, the Board of Directors appointed Richard J. Bradshaw, already a Director of the fund, as Chairman of the Board of the fund, replacing James C. Van Horne, who remains a Director of the fund. The Board also appointed Dr. Van Horne to the fund's Audit Committee, replacing Mr. Bradshaw. The Board of Directors then appointed Bruce A. Rosenblum as Vice President and Secretary of the fund.
Proxy Voting
Information about how the fund voted any proxies related to its portfolio securities during the 12-month period ended June 30 is available on the fund investment manager's Web site - scudder.com (type "proxy voting" in the search field) - or on the SEC's Web site - www.sec.gov.
Investment Objectives and Policies |
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Investment Objectives
Your fund is a closed-end diversified management investment company registered under the Investment Company Act of 1940 (the "1940 Act"), investing and reinvesting its assets in a portfolio of selected securities. The fund's primary investment objective is to seek as high a level of current income as is consistent with prudent investment risks, from a diversified portfolio primarily of debt securities. Capital appreciation is a secondary objective.
Principal Investment Policies Effective as of June 30, 2004
Investment of your fund is guided by the following principal investment policies:
Under normal circumstances, the fund will invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in income producing securities.1
1 The fund will provide stockholders with at least 60 days' notice prior to making any changes to this 80% investment policy.At least 70% of total assets must be invested in: straight debt securities (other than municipal securities) rated within the four highest grades assigned by Moody's Investors Service, Inc. or Standard & Poor's Corporation; bank debt of comparable quality; US government or agency securities; commercial paper; cash; cash equivalents; or Canadian government, provincial, or municipal securities (not in excess of 25% of total assets).
Up to 30% of total assets (the "30% basket") may be invested in US or foreign securities that are straight debt securities, whether or not rated, convertible securities and preferred stocks.
Not more than 25% of total assets may be invested in securities of any one industry (finance companies as a whole are not considered an "industry" for the purposes of this limitation).
Not more than 5% of total assets may be invested in securities of any one issuer, other than US government or agency securities.
The fund may invest money pursuant to repurchase agreements so long as the fund is initially wholly secured with collateral consisting of securities in which the fund can invest under its investment objectives and policies. In addition, investment in repurchase agreements must not, at the time of any such loan, be as a whole more than 20% - and be as to any one borrower more than 5% - of the fund's total assets.
The fund may loan portfolio securities so long as the fund is continuously secured by collateral at least equal to the market value of the securities loaned. In addition, loans of securities must not, at the time of any such loan, be as a whole more than 10% of the fund's total assets.
The fund may borrow funds to purchase securities, provided that the aggregate amount of such borrowings may not exceed 30% of the fund's assets (including aggregate borrowings), less liabilities (excluding such borrowings).
The fund may enter into forward foreign currency sale contracts to hedge portfolio positions, provided, among other things, that such contracts have a maturity of one year or less or that at the time of purchase, the fund's obligations under such contracts do not exceed either the market value of portfolio securities denominated in the foreign currency or 15% of the fund's total assets.
Subject to adoption of Board guidelines, the fund may enter into interest rate futures contracts and purchase or write options on interest rate futures contracts, provided, among other things, that the fund's obligations under such instruments may not exceed the market value of the fund's assets not subject to the 30% basket.
It is the intention of the fund to invest exclusively in non-voting securities. Under normal circumstances, the fund does not intend to exercise conversion, exchange or other rights to purchase common stock or other equity securities, or otherwise to hold voting securities. In the unlikely event that the fund does come into possession of any voting securities, the fund intends to dispose of such securities as soon as it is reasonably practicable and prudent to do so.
Investment Policy Modified Effective July 16, 2004
The fund investment policy regarding loaning portfolio securities described under "Principal Investment Policies" in the second paragraph of page 11 of this report was modified by stockholder vote at the fund's Annual Meeting of Stockholders (see page 37 for results of the Meeting), effective July 16, 2004, to provide as follows:
The fund may lend its portfolio securities to the extent permitted under the 1940 Act, as it may be amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time.
Investment Policy Eliminated
The following fund investment policy was eliminated by stockholder vote at the fund's Annual Meeting of Stockholders (see page 37 for results of the Meeting), effective July 16, 2004:
The fund will not purchase the securities of any other investment company, except in connection with a merger, consolidation, acquisition of assets or other reorganization approved by the fund's stockholders.
As a result of the elimination of this policy, the fund may invest in other investment companies to the extent permitted by the 1940 Act.
Investment Portfolio as of June 30, 2004 (Unaudited) | |
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| Principal Amount ($) | Value ($) |
|
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Corporate Bonds 46.5% |
Consumer Discretionary 6.7%
|
Adesa, Inc., 7.625%, 6/15/2012
| 100,000
| 100,875
|
Bally Total Fitness Holdings Corp., 10.5%, 7/15/2011
| 145,000
| 136,300
|
Boca Resorts, Inc., 9.875%, 4/15/2009
| 200,000
| 210,500
|
Buffets, Inc., 11.25%, 7/15/2010
| 60,000
| 62,700
|
Cablevision Systems Corp.:
|
|
|
144A, 5.67%, 4/1/2009* | 155,000
| 158,875
|
144A, 8.0%, 4/15/2012 | 35,000
| 34,475
|
Carrols Corp., 9.5%, 12/1/2008
| 95,000
| 98,325
|
Choctaw Resort Development Enterprises, 9.25%, 4/1/2009
| 245,000
| 263,375
|
Circus & Eldorado, 10.125%, 3/1/2012
| 140,000
| 140,700
|
Comcast Cable Communications, 8.375%, 3/15/2013
| 116,000
| 136,178
|
Cox Communications, Inc.:
|
|
|
6.75%, 3/15/2011 | 290,000
| 312,997
|
7.5%, 8/15/2004 | 1,000,000
| 1,005,925
|
CSC Holdings, Inc., 7.875%, 12/15/2007
| 245,000
| 254,800
|
DaimlerChrysler NA Holdings Corp., 4.75%, 1/15/2008
| 460,000
| 463,812
|
Dex Media East LLC/Financial, 12.125%, 11/15/2012
| 555,000
| 647,962
|
DIMON, Inc., Series B, 9.625%, 10/15/2011
| 455,000
| 459,550
|
EchoStar DBS Corp., 6.375%, 10/1/2011
| 190,000
| 187,150
|
General Motors Corp., 8.25%, 7/15/2023
| 270,000
| 282,758
|
Herbst Gaming, Inc., 144A, 8.125%, 6/1/2012
| 85,000
| 86,169
|
International Game Technology, 8.375%, 5/15/2009
| 245,000
| 288,228
|
Jacobs Entertainment Co., 11.875%, 2/1/2009
| 255,000
| 280,500
|
Kellwood Co., 7.625%, 10/15/2017
| 85,000
| 90,258
|
Liberty Media Corp., Series A, 3.02%, 9/17/2006*
| 3,000,000
| 3,055,590
|
LIN Television Corp., 6.5%, 5/15/2013
| 80,000
| 77,200
|
Mail-Well I Corp., 144A, 7.875%, 12/1/2013
| 105,000
| 95,550
|
Mandalay Resort Group, 7.625%, 7/15/2013
| 10,000
| 9,975
|
Mediacom LLC, 9.5%, 1/15/2013
| 160,000
| 154,400
|
MGM Mirage, Inc. 8.375%, 2/1/2011
| 155,000
| 161,975
|
Park Place Entertainment Corp., 9.375%, 2/15/2007
| 30,000
| 32,588
|
PEI Holding, Inc., 11.0%, 3/15/2010
| 180,000
| 208,800
|
Petro Stopping Centers, 144A, 9.0%, 2/15/2012
| 345,000
| 341,550
|
Premier Entertainment Biloxi LLC\Finance, 144A, 10.75%, 2/1/2012
| 110,000
| 115,500
|
PRIMEDIA, Inc.:
|
|
|
144A, 6.615%, 5/15/2010* | 165,000
| 167,269
|
8.875%, 5/15/2011 | 150,000
| 148,500
|
Reader's Digest Association, Inc., 6.5%, 3/1/2011
| 70,000
| 68,337
|
Rent-Way, Inc., 11.875%, 6/15/2010
| 55,000
| 60,362
|
Schuler Homes, Inc., 10.5%, 7/15/2011
| 300,000
| 342,375
|
Scientific Games Corp., 12.5%, 8/15/2010
| 147,000
| 170,887
|
Sinclair Broadcast Group, Inc.:
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8.0%, 3/15/2012 | 370,000
| 378,325
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8.75%, 12/15/2011 | 130,000
| 139,100
|
Six Flags, Inc., 8.875%, 2/1/2010
| 20,000
| 19,800
|
Sonic Automotive, Inc., 8.625%, 8/15/2013
| 120,000
| 125,100
|
TCI-Communications, Inc., 6.875%, 2/15/2006
| 450,000
| 475,277
|
Toys "R" Us, Inc.:
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7.375%, 10/15/2018 | 365,000
| 337,169
|
7.875%, 4/15/2013 | 100,000
| 100,375
|
United Auto Group, Inc., 9.625%, 3/15/2012
| 215,000
| 235,425
|
Venetian Casino Resort LLC, 11.0%, 6/15/2010
| 145,000
| 167,475
|
VICORP Restaurants, Inc., 144A, 10.5%, 4/15/2011
| 115,000
| 114,425
|
Wheeling Island Gaming, Inc., 10.125%, 12/15/2009
| 140,000
| 148,400
|
Williams Scotsman, Inc., 9.875%, 6/1/2007
| 135,000
| 133,987
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Worldspan LP/WS Finance Corp., 9.625%, 6/15/2011
| 105,000
| 107,100
|
| 13,395,228 |
Consumer Staples 0.6%
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Agrilink Foods, Inc., 11.875%, 11/1/2008
| 46,000
| 48,645
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Gold Kist, Inc., 144A, 10.25%, 3/15/2014
| 140,000
| 151,900
|
North Atlantic Trading Co., 144A, 9.25%, 3/1/2012
| 175,000
| 169,313
|
Pinnacle Foods Holding Corp., 144A, 8.25%, 12/1/2013
| 85,000
| 82,025
|
Standard Commercial Corp., 144A, 8.0%, 4/15/2012
| 120,000
| 117,600
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Stater Brother's Holdings, Inc.:
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144A, 5.06%, 6/15/2010* | 165,000
| 167,681
|
144A, 8.125%, 6/15/2012 | 135,000
| 135,506
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Swift & Co., 12.5%, 1/1/2010
| 85,000
| 90,950
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United Agri Products, 144A, 8.25%, 12/15/2011
| 70,000
| 78,050
|
Wornick Co., 144A, 10.875%, 7/15/2011
| 100,000
| 102,250
|
| 1,143,920 |
Energy 5.9%
|
Avista Corp., 9.75%, 6/1/2008
| 310,000
| 364,250
|
Chesapeake Energy Corp.:
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144A, 7.5%, 6/15/2014 | 40,000
| 41,200
|
9.0%, 8/15/2012 | 120,000
| 135,000
|
Citgo Petroleum Corp., 11.375%, 2/1/2011
| 465,000
| 539,400
|
Devon Energy Corp., 7.95%, 4/15/2032
| 810,000
| 935,619
|
Devon Financing Corp., 7.875%, 9/30/2031
| 1,240,000
| 1,422,847
|
Duke Capital Corp., 4.302%, 5/18/2006
| 800,000
| 812,768
|
El Paso Production Holdings Corp., 7.75%, 6/1/2013
| 365,000
| 334,887
|
FirstEnergy Corp., Series B, 6.45%, 11/15/2011
| 230,000
| 238,455
|
National Fuel Gas Co., 6.7%, 11/21/2011
| 1,000,000
| 1,109,202
|
Newpark Resources, Inc., Series B, 8.625%, 12/15/2007
| 205,000
| 208,075
|
Pemex Project Funding Master Trust, 8.5%, 2/15/2008
| 1,896,000
| 2,085,600
|
Pioneer Natural Resources Co., 9.625%, 4/1/2010
| 150,000
| 184,014
|
Range Resources Corp., 144A, 7.375%, 7/15/2013
| 50,000
| 49,750
|
Southern Natural Gas, 8.875%, 3/15/2010
| 210,000
| 229,425
|
Stone Energy Corp., 8.25%, 12/15/2011
| 240,000
| 250,200
|
Tri-State Generation & Transmission Association, 144A, 7.144%, 7/31/2033
| 2,000,000
| 2,076,160
|
Williams Cos., Inc.:
|
|
|
144A, 6.75%, 4/15/2009 | 80,000
| 78,600
|
8.125%, 3/15/2012 | 70,000
| 74,725
|
8.75%, 3/15/2032 | 240,000
| 240,000
|
XTO Energy, Inc., 4.9%, 2/1/2014
| 545,000
| 513,156
|
| 11,923,333 |
Financials 8.3%
|
Agfirst Farm Credit Bank, 8.393%, 12/15/2016*
| 1,170,000
| 1,322,006
|
Ahold Finance USA, Inc., 6.25%, 5/1/2009
| 405,000
| 396,900
|
American General Finance Corp., 4.625%, 5/15/2009
| 1,555,000
| 1,557,247
|
AmeriCredit Corp., 9.25%, 5/1/2009
| 315,000
| 331,537
|
BF Saul REIT, 7.5%, 3/1/2014
| 290,000
| 287,100
|
Capital One Bank:
|
|
|
5.0%, 6/15/2009 | 540,000
| 541,546
|
5.125%, 2/15/2014 | 245,000
| 231,826
|
Consolidated Communications Holdings, 144A, 9.75%, 4/1/2012
| 100,000
| 101,500
|
DA-Lite Screen Co., Inc., 144A, 9.5%, 5/15/2011
| 150,000
| 156,000
|
Dollar Financial Group, Inc.:
|
|
|
9.75%, 11/15/2011 | 145,000
| 151,525
|
144A, 9.75%, 11/15/2011 | 20,000
| 20,900
|
E*TRADE Financial Corp., 144A, 8.0%, 6/15/2011
| 250,000
| 248,750
|
Farm Credit Bank of Texas, 7.561%, 12/15/2013*
| 490,000
| 488,045
|
Farmers Insurance Exchange, 144A, 8.625%, 5/1/2024
| 260,000
| 291,221
|
Ford Motor Credit Co.:
|
|
|
5.8%, 1/12/2009 | 400,000
| 403,760
|
6.875%, 2/1/2006 | 1,425,000
| 1,494,678
|
7.0%, 10/1/2013 | 285,000
| 287,698
|
General Motors Acceptance Corp.:
|
|
|
5.625%, 5/15/2009 | 1,350,000
| 1,347,295
|
6.875%, 9/15/2011 | 825,000
| 845,870
|
Goldman Sachs Group, Inc., 6.345%, 2/15/2034
| 450,000
| 422,583
|
iStar Financial, Inc., 6.0%, 12/15/2010
| 240,000
| 238,500
|
NiSource Finance Corp., 7.875%, 11/15/2010
| 1,500,000
| 1,719,589
|
OneAmerica Financial Partners, 144A, 7.0%, 10/15/2033
| 680,000
| 670,738
|
Poster Financial Group, 144A, 8.75%, 12/1/2011
| 190,000
| 193,325
|
PXRE Capital Trust I, 8.85%, 2/1/2027
| 140,000
| 140,175
|
R.H. Donnelly Finance Corp., 10.875%, 12/15/2012
| 255,000
| 295,800
|
RAM Holdings Ltd., 144A, 6.875%, 4/1/2024
| 1,105,000
| 1,030,305
|
Republic New York Corp., 5.875%, 10/15/2008
| 285,000
| 300,644
|
Thornburg Mortgage, Inc., 8.0%, 5/15/2013
| 180,000
| 182,700
|
UGS Corp., 144A, 10.0%, 6/1/2012
| 50,000
| 53,250
|
Universal City Development, 11.75%, 4/1/2010
| 255,000
| 295,162
|
Verizon Global Funding Corp., 7.25%, 12/1/2010
| 607,000
| 678,611
|
| 16,726,786 |
Health Care 1.5%
|
AmerisourceBergen Corp., 7.25%, 11/15/2012
| 180,000
| 184,500
|
Curative Health Services, Inc., 144A, 10.75%, 5/1/2011
| 75,000
| 72,000
|
Hanger Orthopedic Group, Inc., 10.375%, 2/15/2009
| 125,000
| 127,813
|
Health Care Service Corp., 144A, 7.75%, 6/15/2011
| 1,500,000
| 1,708,251
|
InSight Health Services Corp., 9.875%, 11/1/2011
| 90,000
| 96,300
|
Interactive Health LLC, 144A, 7.25%, 4/1/2011
| 135,000
| 120,150
|
Team Health, Inc., 144A, 9.0%, 4/1/2012
| 65,000
| 62,400
|
Tenet Healthcare Corp.:
|
|
|
6.375%, 12/1/2011 | 560,000
| 490,000
|
144A, 9.875%, 7/1/2014 | 50,000
| 50,875
|
| 2,912,289 |
Industrials 4.5%
|
Aearo Co. I, 144A, 8.25%, 4/15/2012
| 105,000
| 107,100
|
Allied Waste North America, Inc., 144A, 5.75%, 2/15/2011
| 388,000
| 367,630
|
AMI Semiconductor, Inc., 10.75%, 2/1/2013
| 132,000
| 154,110
|
Amsted Industries, Inc., 144A, 10.25%, 10/15/2011
| 50,000
| 54,250
|
Argo-Tech Corp., 144A, 9.25%, 6/1/2011
| 130,000
| 133,900
|
BAE System 2001 Asset Trust, "B", Series B 2001, 144A, 7.156%, 12/15/2011
| 693,543
| 738,196
|
Browning-Ferris Industries:
|
|
|
7.4%, 9/15/2035 | 20,000
| 17,800
|
9.25%, 5/1/2021 | 125,000
| 135,000
|
Clean Harbors, Inc., 144A, 11.25%, 7/15/2012
| 95,000
| 95,950
|
Collins & Aikman Floor Cover, Series B, 9.75%, 2/15/2010
| 300,000
| 304,500
|
Collins & Aikman Products, 10.75%, 12/31/2011
| 225,000
| 226,125
|
Cornell Companies, Inc., 144A, 10.75%, 7/1/2012
| 140,000
| 141,400
|
Corrections Corp. of America, 9.875%, 5/1/2009
| 225,000
| 249,750
|
Dana Corp.:
|
|
|
7.0%, 3/1/2029 | 380,000
| 364,800
|
9.0%, 8/15/2011 | 175,000
| 204,750
|
Delta Air Lines, Inc., Series 02-1, 6.417%, 7/2/2012
| 1,230,000
| 1,272,280
|
Eagle-Picher, Inc., 9.75%, 9/1/2013
| 100,000
| 107,500
|
Erico International Corp., 144A, 8.875%, 3/1/2012
| 105,000
| 107,100
|
Flextronics International Ltd., 6.5%, 5/15/2013
| 170,000
| 165,750
|
Golden State Petroleum Transportation, 8.04%, 2/1/2019
| 125,000
| 126,773
|
Hercules, Inc.:
|
|
|
144A, 6.75%, 10/15/2029 | 190,000
| 182,400
|
11.125%, 11/15/2007 | 240,000
| 280,800
|
Hornbeck Offshore Services, Inc., 10.625%, 8/1/2008
| 230,000
| 250,987
|
ISP Chemco, Inc., Series B, 10.25%, 7/1/2011
| 240,000
| 267,000
|
ISP Holdings, Inc., Series B, 10.625%, 12/15/2009
| 120,000
| 132,000
|
Joy Global, Inc., 8.75%, 3/15/2012
| 10,000
| 11,200
|
Kansas City Southern:
|
|
|
7.5%, 6/15/2009 | 285,000
| 285,000
|
9.5%, 10/1/2008 | 155,000
| 168,369
|
Laidlaw International, Inc., 10.75%, 6/15/2011
| 170,000
| 185,512
|
Meritage Corp., 7.0%, 5/1/2014
| 190,000
| 180,500
|
Millennium America, Inc.:
|
|
|
7.625%, 11/15/2026 | 365,000
| 312,075
|
9.25%, 6/15/2008 | 100,000
| 107,500
|
144A, 9.25%, 6/15/2008 | 145,000
| 155,875
|
Mobile Mini, Inc., 9.5%, 7/1/2013
| 85,000
| 93,075
|
Samsonite Corp., 144A, 8.875%, 6/1/2011
| 140,000
| 144,900
|
Sea Containers Ltd., 10.5%, 5/15/2012
| 125,000
| 125,469
|
Seabulk International, Inc., 9.5%, 8/15/2013
| 100,000
| 102,625
|
Ship Finance International Ltd., 144A, 8.5%, 12/15/2013
| 240,000
| 231,600
|
Technical Olympic USA, Inc.:
|
|
|
7.5%, 3/15/2011 | 90,000
| 83,700
|
10.375%, 7/1/2012 | 180,000
| 187,650
|
Tenneco Automotive, Inc., 11.625%, 10/15/2009
| 15,000
| 16,125
|
The Brickman Group, Ltd., Series B, 11.75%, 12/15/2009
| 115,000
| 132,250
|
United Rentals North America, Inc., 6.5%, 2/15/2012
| 260,000
| 245,700
|
Westlake Chemical Corp., 8.75%, 7/15/2011
| 135,000
| 146,475
|
| 9,103,451 |
Information Technology 0.1%
|
Activant Solutions, Inc., 10.5%, 6/15/2011
| 135,000
| 142,425
|
Itron, Inc., 144A, 7.75%, 5/15/2012
| 30,000
| 30,075
|
| 172,500 |
Materials 2.4%
|
ARCO Chemical Co., 9.8%, 2/1/2020
| 550,000
| 539,000
|
Caraustar Industries, Inc., 9.875%, 4/1/2011
| 140,000
| 139,300
|
Dayton Superior Corp., 10.75%, 9/15/2008
| 145,000
| 145,725
|
Dow Chemical Co., 7.0%, 8/15/2005
| 425,000
| 443,604
|
Equistar Chemicals LP:
|
|
|
8.75%, 2/15/2009 | 220,000
| 229,350
|
10.625%, 5/1/2011 | 20,000
| 22,200
|
Euramax International, Inc., 8.5%, 8/15/2011
| 130,000
| 135,200
|
Georgia-Pacific Corp.:
|
|
|
7.375%, 12/1/2025 | 185,000
| 173,900
|
144A, 8.0%, 1/15/2024 | 385,000
| 385,000
|
9.375%, 2/1/2013 | 315,000
| 360,675
|
Huntsman Advanced Materials LLC, 144A, 11.0%, 7/15/2010
| 215,000
| 242,412
|
Huntsman International LLC, 11.625%, 10/15/2010
| 215,000
| 237,575
|
IMC Global, Inc., 10.875%, 8/1/2013
| 240,000
| 286,200
|
International Steel Group, Inc., 144A, 6.5%, 4/15/2014
| 360,000
| 337,500
|
Mueller Group Inc., 144A, 5.919%, 11/1/2011*
| 70,000
| 72,800
|
Omnova Solutions, Inc., 11.25%, 6/1/2010
| 75,000
| 81,750
|
Owens-Brockway Glass Container, 8.25%, 5/15/2013
| 345,000
| 356,212
|
Pliant Corp.:
|
|
|
Step-up coupon, 0% to 12/15/2006, 11.15% to 6/15/2009 | 85,000
| 71,613
|
11.125%, 9/1/2009 | 95,000
| 101,650
|
TriMas Corp., 9.875%, 6/15/2012
| 320,000
| 339,200
|
United States Steel LLC, 9.75%, 5/15/2010
| 172,000
| 190,490
|
| 4,891,356 |
Telecommunication Services 2.7%
|
American Cellular Corp., Series B, 10.0%, 8/1/2011
| 435,000
| 375,187
|
Cincinnati Bell, Inc.:
|
|
|
7.2%, 11/29/2023 | 150,000
| 140,250
|
8.375%, 1/15/2014 | 445,000
| 396,050
|
Continental Cable, 9.0%, 9/1/2008
| 1,326,000
| 1,545,285
|
GCI, Inc., 144A, 7.25%, 2/15/2014
| 190,000
| 181,450
|
Insight Midwest LP, 9.75%, 10/1/2009
| 55,000
| 58,025
|
MCI, Inc.:
|
|
|
6.688%, 5/1/2009 | 410,000
| 379,250
|
7.735%, 5/1/2014 | 50,000
| 44,750
|
Nextel Communications, Inc., 5.95%, 3/15/2014
| 260,000
| 239,200
|
Northern Telecom Capital, 7.875%, 6/15/2026
| 340,000
| 326,400
|
Qwest Corp.:
|
|
|
5.625%, 11/15/2008 | 940,000
| 918,850
|
7.25%, 9/15/2025 | 115,000
| 100,050
|
Triton PCS, Inc., 8.5%, 6/1/2013
| 95,000
| 89,775
|
Verizon Pennsylvania, 5.65%, 11/15/2011
| 728,000
| 738,568
|
| 5,533,090 |
Utilities 13.8%
|
AES Corp., 144A, 8.75%, 5/15/2013
| 20,000
| 21,425
|
American Electric Power Co., Inc., 6.125%, 5/15/2006
| 2,000,000
| 2,099,530
|
Appalachian Power Co., 6.8%, 3/1/2006
| 1,000,000
| 1,058,313
|
Cleveland Electric Illuminating Co., 144A, 5.65%, 12/15/2013
| 635,000
| 617,926
|
CMS Energy Corp., 8.5%, 4/15/2011
| 190,000
| 193,800
|
Consolidated Edison, Inc., 8.125%, 5/1/2010
| 1,115,000
| 1,315,998
|
Consumers Energy Co., 6.25%, 9/15/2006
| 2,500,000
| 2,626,500
|
DPL, Inc., 6.875%, 9/1/2011
| 400,000
| 403,000
|
Duke Energy Corp., Series D, 7.375%, 3/1/2010
| 1,500,000
| 1,667,097
|
Entergy Gulf States, Inc., 6.2%, 7/1/2033
| 400,000
| 368,883
|
First Energy Corp., 7.375%, 11/15/2031
| 2,020,000
| 2,105,412
|
Illinova Corp., 11.5%, 12/15/2010
| 365,000
| 431,612
|
Kansas City Power & Light Co., 7.125%, 12/15/2005
| 1,300,000
| 1,376,705
|
Metropolitan Edison Co., 144A, 4.875%, 4/1/2014
| 1,470,000
| 1,370,106
|
New York State Gas & Electric, 4.375%, 11/15/2007
| 1,240,000
| 1,250,619
|
NRG Energy, Inc., 144A, 8.0%, 12/15/2013
| 610,000
| 616,100
|
Pacific Gas & Electric Co., 6.05%, 3/1/2034
| 695,000
| 653,686
|
PG&E Corp., 144A, 6.875%, 7/15/2008
| 245,000
| 256,025
|
PP&L Capital Funding, 7.75%, 4/15/2005
| 2,000,000
| 2,072,814
|
Progress Energy, Inc., 6.75%, 3/1/2006
| 1,050,000
| 1,107,258
|
PSI Energy, Inc.:
|
|
|
8.57%, 12/27/2011 | 1,250,000
| 1,510,265
|
8.85%, 1/15/2022 | 1,225,000
| 1,566,798
|
TNP Enterprises, Inc., Series B, 10.25%, 4/1/2010
| 200,000
| 207,000
|
Westar Energy, Inc., 6.0%, 7/1/2014
| 705,000
| 716,262
|
Xcel Energy, Inc., 7.0%, 12/1/2010
| 2,000,000
| 2,212,356
|
| 27,825,490 |
Total Corporate Bonds (Cost $92,813,397)
| 93,627,443 |
|
Foreign Bonds - US$ Denominated 12.9% |
Abitibi-Consolidated, Inc., 144A, 5.02%, 6/15/2011*
| 70,000
| 70,175
|
Alestra SA de RL de CV, 8.0%, 6/30/2010
| 105,000
| 84,000
|
Axtel SA, 144A, 11.0%, 12/15/2013
| 245,000
| 232,138
|
BCP Caylux Holdings Luxembourg SCA, 144A, 9.625%, 6/15/2014
| 250,000
| 259,062
|
Biovail Corp., 7.875%, 4/1/2010
| 280,000
| 276,500
|
Cascades, Inc., 7.25%, 2/15/2013
| 265,000
| 263,675
|
Celulosa Arauco y Constitucion SA, 8.625%, 8/15/2010
| 805,000
| 935,442
|
Citigroup (JSC Severstal), 144A, 9.25%, 4/19/2014
| 240,000
| 212,400
|
Conproca SA de CV, 12.0%, 6/16/2010
| 225,000
| 279,000
|
CP Ships Ltd., 10.375%, 7/15/2012
| 205,000
| 234,212
|
Crown Euro Holdings SA, 10.875%, 3/1/2013
| 245,000
| 279,300
|
Deutsche Telekom International Finance BV:
|
|
|
8.25%, 6/15/2005 | 1,500,000
| 1,577,141
|
8.75%, 6/15/2030 | 650,000
| 791,138
|
Eircom Funding, 8.25%, 8/15/2013
| 210,000
| 218,400
|
Encana Holdings Finance Corp., 5.8%, 5/1/2014
| 1,515,000
| 1,541,288
|
Fage Dairy Industry SA, 9.0%, 2/1/2007
| 140,000
| 142,100
|
Glaxosmithkline Capital PLC, 2.375%, 4/16/2007
| 1,830,000
| 1,779,426
|
Inmarsat Finance PLC, 144A, 7.625%, 6/30/2012
| 250,000
| 241,875
|
Innova S. de R.L., 9.375%, 9/19/2013
| 235,000
| 246,162
|
INTELSAT, 6.5%, 11/1/2013
| 50,000
| 44,172
|
Jefra Cosmetics International, Inc., 10.75%, 5/15/2011
| 225,000
| 250,875
|
Kabel Deutschland GmbH, 144A, 10.625%, 7/1/2014
| 180,000
| 184,950
|
LeGrand SA, 8.5%, 2/15/2025
| 225,000
| 231,750
|
Luscar Coal Ltd., 9.75%, 10/15/2011
| 230,000
| 258,750
|
Mantis Reef Ltd., 144A, 4.692%, 11/14/2008
| 1,925,000
| 1,901,271
|
Millicom International Cellular SA, 144A, 10.0%, 12/1/2013
| 160,000
| 162,400
|
Mizuho Financial Group, 8.375%, 12/29/2049
| 1,255,000
| 1,292,650
|
Mobile Telesystems Financial, 144A, 8.375%, 10/14/2010
| 170,000
| 160,225
|
New ASAT (Finance) Ltd., 144A, 9.25%, 2/1/2011
| 185,000
| 183,150
|
Nortel Networks Corp., 6.875%, 9/1/2023
| 85,000
| 75,225
|
Nortel Networks Ltd., 6.125%, 2/15/2006
| 470,000
| 472,350
|
PacifiCorp Australia LLC, 144A, 6.15%, 1/15/2008
| 1,000,000
| 1,056,252
|
Petroleum Geo-Services ASA, 10.0%, 11/5/2010
| 445,000
| 460,575
|
QBE Insurance Group Ltd., 144A, 5.647%, 7/1/2023*
| 750,000
| 713,468
|
Rogers Wireless Communications, Inc., 144A, 6.375%, 3/1/2014
| 140,000
| 128,800
|
Royal Bank of Scotland Group PLC, 9.118%, 3/31/2049
| 2,000,000
| 2,410,000
|
Sappi Papier Holding AG, 144A, 7.5%, 6/15/2032
| 470,000
| 515,032
|
Shaw Communications, Inc.:
|
|
|
Series B, 7.25%, 4/6/2011 | 265,000
| 274,995
|
8.25%, 4/11/2010 | 105,000
| 114,188
|
Stena AB, 9.625%, 12/1/2012
| 50,000
| 55,500
|
Tembec Industries, Inc., 8.5%, 2/1/2011
| 515,000
| 520,150
|
TFM SA de CV:
|
|
|
10.25%, 6/15/2007 | 420,000
| 415,800
|
11.75%, 6/15/2009 | 310,000
| 302,250
|
12.5%, 6/15/2012 | 55,000
| 58,644
|
Tyco International Group SA:
|
|
|
5.8%, 8/1/2006 | 810,000
| 844,748
|
6.375%, 2/15/2006 | 145,000
| 152,236
|
6.75%, 2/15/2011 | 28,000
| 30,424
|
6.875%, 1/15/2029 | 1,215,000
| 1,271,996
|
United Mexican States:
|
|
|
5.875%, 1/15/2014 | 40,000
| 38,440
|
6.625%, 3/3/2015 | 25,000
| 24,812
|
7.5%, 4/8/2033 | 330,000
| 319,440
|
Vicap SA, 11.375%, 5/15/2007
| 45,000
| 44,100
|
Vitro SA de CV, Series A, 144A, 11.75%, 11/1/2013
| 195,000
| 178,913
|
Vivendi Universal SA, Series B, 9.25%, 4/15/2010
| 395,000
| 466,870
|
WPP Finance Corp., 144A, 5.875%, 6/15/2014
| 615,000
| 617,520
|
Total Foreign Bonds - US$ Denominated (Cost $25,901,642)
| 25,896,355 |
|
Asset Backed 7.1% |
Automobile Receivables 1.6%
|
Chase Manhattan Auto Owner Trust, "A4", Series 2003-B, 2.57%, 2/16/2010
| 760,000
| 742,715
|
Drive Auto Receivables Trust, "A4", Series 2002-1, 144A, 4.09%, 1/15/2008
| 775,000
| 786,094
|
MMCA Automobile Trust, "A4", Series 2002-2, 4.3%, 3/15/2010
| 1,610,000
| 1,625,479
|
| 3,154,288 |
Credit Card Receivables 4.0%
|
Bank One Issuance Trust, "A1", Series 2002-A1, 1.349%, 1/15/2010*
| 8,000,000
| 8,013,573 |
Home Equity Loans 1.5%
|
Asset Backed Securities Corp. Home Equity, "A", Series 2003-HE2, 144A, 7.0%, 4/17/2033
| 278,601
| 279,993
|
Renaissance NIM Trust, "NOTE", Series 2002-C, 144A, 8.353%, 12/25/2032
| 3,188
| 3,196
|
Residential Asset Securities Corp., "AI6", Series 2000-KS1, 7.905%, 2/25/2031
| 1,376,400
| 1,458,509
|
Southern Pacific Secured Assets Corp., "A8", Series 1998-2, 6.37%, 7/25/2029
| 1,377,650
| 1,376,367
|
| 3,118,065 |
Total Asset Backed (Cost $14,342,359)
| 14,285,926 |
|
US Government Backed 6.5% |
US Treasury Bond:
|
|
|
6.0%, 2/15/2026 | 742,000
| 799,534
|
7.25%, 5/15/2016 | 265,000
| 320,370
|
US Treasury Note:
|
|
|
3.125%, 10/15/2008 | 1,035,000
| 1,014,260
|
4.375%, 8/15/2012 | 435,000
| 432,978
|
7.0%, 7/15/2006 | 9,690,000
| 10,498,892
|
Total US Government Backed (Cost $13,397,980)
| 13,066,034 |
|
US Government Sponsored Agencies 6.9% |
Federal Home Loan Bank, 1.092%**, 7/7/2004
| 4,000,000
| 3,999,280
|
Federal Home Loan Mortgage Corp., 2.875%, 12/15/2006
| 10,000,000
| 9,902,550
|
Total US Government Sponsored Agencies (Cost $14,132,587)
| 13,901,830 |
|
US Government Agency Sponsored Pass-Throughs 24.9% |
Federal Home Loan Mortgage Corp., 6.0%, 5/1/2017
| 2,723,261
| 2,841,662
|
Federal National Mortgage Association:
|
|
|
4.5%, 12/1/2018 (c) | 9,000,000
| 8,791,875
|
5.0%, 12/1/2017 (c) | 13,000,000
| 13,012,194
|
5.5%, 12/1/2033 (c) | 9,000,000
| 8,955,000
|
6.0%, 12/1/2032 (c) | 13,000,000
| 13,268,125
|
6.0%, 1/1/2023 | 950,731
| 980,913
|
6.5% with various maturities from 5/1/2017 until 11/1/2024 | 1,375,393
| 1,446,626
|
7.5%, 2/1/2033 | 127,320
| 129,031
|
9.0%, 5/1/2009 | 690,463
| 748,646
|
Total US Government Agency Sponsored Pass-Throughs (Cost $49,671,350)
| 50,174,072 |
|
Collateralized Mortgage Obligations 4.6% |
Bank of America Alternative Loan Trust, "2A1", Series 2004-4, 6.0%, 5/25/2034
| 791,656
| 809,122
|
Bank of America-First Union Commercial Mortgage, Inc., "A1", Series 2001-3, 4.89%, 4/11/2037
| 774,598
| 786,677
|
DLJ Mortgage Acceptance Corp., "A1B", Series 1997-CF2, 144A, 6.82%, 10/15/2030
| 707,886
| 754,174
|
Fannie Mae Whole Loan, "5A", Series 2004-W2, 7.5%, 3/25/2044
| 1,364,261
| 1,461,888
|
Federal Home Loan Mortgage Corp.:
|
|
|
"TE", Series 2780, 5.0%, 1/15/2033 | 1,130,000
| 1,082,329
|
"CH", Series 2390, 5.5%, 12/15/2016 | 590,000
| 600,014
|
"LA", Series 1343, 8.0%, 8/15/2022 | 504,425
| 531,429
|
Federal National Mortgage Association, "QC", Series 2002-11, 5.5%, 3/25/2017
| 855,000
| 873,619
|
Federal National Mortgage Association Grantor Trust, "A2", Series 2002-T19, 7.0%, 7/25/2042
| 356,750
| 377,932
|
Master Alternative Loan Trust:
|
|
|
"3A1", Series 2004-5, 6.5%, 6/25/2034 | 766,435
| 791,668
|
"8A1", Series 2004-3, 7.0%, 4/25/2034 | 651,749
| 682,646
|
Structured Asset Securities Corp., "2A1", Series 2003-1, 6.0%, 2/25/2018
| 426,062
| 442,111
|
Total Collateralized Mortgage Obligations (Cost $9,344,323)
| 9,193,609 |
|
Municipal Investments 7.7% |
Delaware, NJ, Port Authority Revenue, Port District Project, Series A, 7.46%, 1/1/2011 (b)
| 1,000,000
| 1,147,380
|
Fultondale, AL, Core City, General Obligation, 6.4%, 2/1/2022 (b)
| 1,340,000
| 1,409,975
|
Guin, AL, County General Obligation, Series B, 8.25%, 6/1/2027 (b)
| 1,515,000
| 1,759,127
|
Idaho, Higher Education Revenue, Nazarene College Facilities, 8.34%, 11/1/2016 (d)
| 1,000,000
| 1,088,440
|
Illinois, State General Obligation, 4.95%, 6/1/2023
| 665,000
| 607,537
|
Metropolitan Washington, DC, Apartment Authority System, Series C, 5.39%, 10/1/2015 (b)
| 1,365,000
| 1,363,171
|
Pell City, AL, Core City GO, 5.4%, 8/1/2017 (b)
| 1,385,000
| 1,336,456
|
Reeves County, TX, County General Obligation Lease, Certificate of Participation, Series IBC, 7.25%, 6/1/2011 (b)
| 1,100,000
| 1,147,487
|
Richmond, CA, General Obligation, Limited Pension Obligations, Series A, 7.19%, 8/1/2009 (b)
| 1,070,000
| 1,204,413
|
St. Paul, MN, Sales & Special Tax Revenue, Series A, 6.94%, 11/1/2019 (b)
| 2,000,000
| 2,092,440
|
Texas, Multi-Family Housing Revenue, Housing & Community Affairs Multi-Family, 6.85%, 12/1/2020 (b)
| 1,500,000
| 1,575,810
|
Washington, Industrial Development Revenue, 4.0%, 10/1/2012 (b)
| 915,000
| 852,332
|
Total Municipal Investments (Cost $16,117,111)
| 15,584,568 |
|
Convertible Bond 0.0% |
DIMON, Inc., 6.25%, 3/31/2007 (Cost $124,063)
| 140,000
| 128,800 |
|
Shares
| Value ($) |
|
|
Preferred Stock 0.0% |
TNP Enterprises, Inc., 14.5%, "D", PIK (Cost $53,244)
| 690
| 77,297 |
|
Convertible Preferred Stock 0.0% |
Hercules Trust II, 6.75% (Cost $55,060)
| 90
| 67,500 |
|
| Principal Amount ($) | Value ($) |
|
|
Government National Mortgage Association 0.3% |
Government National Mortgage Association, 6.5%, 11/20/2033 (Cost $612,018)
| 581,059
| 603,820 |
|
Repurchase Agreements 2.8% |
State Street Bank and Trust Co., 1.17%, dated 6/30/2004, to be repurchased at $5,609,731 on 7/1/2004
(Cost $5,609,549) (e)
| 5,609,549
| 5,609,549 |
| % of Net Assets | Value ($) |
|
|
Total Investment Portfolio (Cost $242,174,683) (a)
| 120.2 | 242,216,803 |
Other Assets and Liabilities, Net
| (20.2) | (40,668,054) |
Net Assets
| 100.0 | 201,548,749 |
* Floating rate securities are securities whose yields vary with a designated market index or market rate, such as the coupon-equivalent of the US Treasury bill rate. These securities are shown at their current rate as of June 30, 2004.** Annualized yield at time of purchase; not a coupon rate.(a) The cost for federal income tax purposes was $243,307,416. At June 30, 2004, net unrealized depreciation for all securities based on tax cost was $1,090,613. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $2,744,515 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $3,835,128.(b) Bond is insured by one of these companies:Insurance Coverage
| As a % of total
investment portfolio
|
AMBAC
| AMBAC Assurance Corp.
| 0.6 |
FGIC
| Financial Guaranty Insurance Company
| 0.6 |
FSA
| Financial Security Assurance
| 1.3 |
MBIA
| Municipal Bond Investors Assurance
| 2.5 |
RADIAN
| RADIAN Asset Assurance Incorporated
| 0.7 |
(c) Mortgage dollar rolls included.(d) Security incorporates a letter of credit or line of credit from a major bank.(e) Repurchase agreement is collateralized by $5,545,000 US Treasury Note, 7.875%, maturing on 11/15/2004 with a value of $5,725,213.Included in the portfolio are investments in mortgage or asset-backed securities which are interests in separate pools of mortgages or assets. Effective maturities of these investments may be shorter than stated maturities due to prepayments. Some separate investments in the Federal National Mortgage Association issues which have similar coupon rates have been aggregated for presentation purposes in the investment portfolio.
144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
PIK: denotes that interest or dividend is paid in kind.
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of June 30, 2004 (Unaudited) |
Assets
|
Investments in securities, at value (cost $242,174,683)
| $ 242,216,803 |
Cash
| 497,474 |
Receivable for investments sold
| 1,507,090 |
Dividends receivable
| 1,463 |
Interest receivable
| 2,773,433 |
Due from Advisor
| 63,676 |
Other assets
| 6,060 |
Total assets
| 247,065,999 |
Liabilities
|
Payable for investments purchased
| 1,544,206 |
Payable for investments purchased - mortgage dollar rolls
| 43,676,358 |
Accrued management fee and investment advisory fees
| 79,377 |
Deferred mortgage dollar roll income
| 92,169 |
Other accrued expenses and payables
| 125,140 |
Total liabilities
| 45,517,250 |
Net assets, at value
| $ 201,548,749 |
Net Assets
|
Net assets consist of:
Undistributed net investment income
| 2,764,139 |
Net unrealized appreciation (depreciation) on investments
| 42,120 |
Accumulated net realized gain (loss)
| (3,699,232) |
Paid-in capital
| 202,441,722 |
Net assets, at value
| $ 201,548,749 |
Net Asset Value per share ($201,548,749 / 10,369,080 shares of common stock outstanding, $.01 par value, 30,000,000 shares authorized)
| $ 19.44 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the six months ended June 30, 2004 (Unaudited) |
Investment Income
|
Income:
Interest
| $ 5,543,054 |
Mortgage dollar roll income
| 923,000 |
Dividends
| 44,706 |
Total Income
| 6,510,760 |
Expenses:
Management and investment advisory fee
| 467,235 |
Services to shareholders
| 13,025 |
Custodian fees
| 12,545 |
Auditing
| 32,410 |
Legal
| 42,971 |
Directors' fees and expenses
| 40,322 |
Reports to shareholders
| 33,764 |
NYSE listing fee
| 16,056 |
Other
| 8,316 |
Total expenses
| 666,644 |
Net investment income
| 5,844,116 |
Realized and Unrealized Gain (Loss) on Investment Transactions
|
Net realized gain (loss) from investments
| (80,541) |
Net unrealized appreciation (depreciation) during the period on investments
| (4,572,988) |
Net gain (loss) on investment transactions
| (4,653,529) |
Net increase (decrease) in net assets resulting from operations
| $ 1,190,587 |
The accompanying notes are an integral part of the financial statements.
Statement of Cash Flows for the six months ended June 30, 2004 (Unaudited) |
Cash Flows from Operating Activities
| |
Investment income received
| $ 5,918,234 |
Mortgage dollar roll income
| 923,000 |
Payment of operating expenses
| (759,389) |
Proceeds from sale and maturities of investments
| 420,610,043 |
Purchases of investments
| (420,842,846) |
Net purchases, sales and maturities of short-term investments
| (608,602) |
Cash generated by operating activities
| $ 5,240,440 |
Cash Flows from Financing Activities
| |
Net decrease in payable for investments purchased - mortgage dollar rolls
| $ (1,124,739) |
Distributions paid (net of reinvestment of distributions)
| (2,988,057) |
Cost of shares repurchased
| (554,041) |
Cash used by financing activities
| (4,666,837) |
Increase (decrease) in cash
| 573,603 |
Cash at beginning of period
| (76,129) |
Cash at end of period
| $ 497,474 |
Reconciliation of Net Increase (Decrease) in Net Assets from Operations to Cash Provided (Used) by Operating Activities
|
Net increase (decrease) in net assets resulting from operations
| $ 1,126,911 |
Net increase (decrease) in cost of investments
| 8,200,608 |
Net increase (decrease) in unrealized appreciation (depreciation) on investments
| (4,572,988) |
Increase (decrease) in receivable for investments sold
| (1,325,043) |
Increase (decrease) in dividends and interest receivable
| 291,824 |
Increase (decrease) in payable for investments purchased
| 1,532,693 |
Increase (decrease) in deferred mortgage dollar roll income
| 15,504 |
Increase (decrease) in accrued expenses
| (26,266) |
Increase (decrease) in other assets
| (2,803) |
Cash generated by operating activities
| $ 5,240,440 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
Increase (Decrease) in Net Assets
| Six Months
Ended
June 30, 2004
(Unaudited) | Year Ended December 31, 2003 |
Operations:
Net investment income
| $ 5,844,116 | $ 11,213,776 |
Net realized gain (loss) on investment transactions
| (80,541) | 6,475,254 |
Net unrealized appreciation (depreciation) on investment transactions during the period
| (4,572,988) | (2,106,834) |
Net increase (decrease) in net assets resulting from operations
| 1,190,587 | 15,582,196 |
Dividends to shareholders from net investment income
| (3,214,496) | (13,372,988) |
Fund share transactions:
Reinvestment of dividends from net investment income
| 227,506 | 945,395 |
Cost of shares repurchased
| (554,041) | (460,013) |
Net increase (decrease) in net assets from Fund share transactions
| (326,535) | 485,382 |
Increase (decrease) in net assets
| (2,350,444) | 2,694,590 |
Net assets at beginning of period
| 203,899,193 | 201,204,603 |
Net assets at end of period (including undistributed net investment income of $2,764,139 and $134,519, respectively)
| $ 201,548,749 | $ 203,899,193 |
Other Information
|
Shares outstanding at beginning of period
| 10,383,340 | 10,357,412 |
Shares issued to shareholders in reinvestment of dividends from net investment income
| 12,740 | 51,228 |
Shares repurchased
| (27,000) | (25,300) |
Net increase (decrease) in Fund shares
| (14,260) | 25,928 |
Shares outstanding at end of period
| 10,369,080 | 10,383,340 |
The accompanying notes are an integral part of the financial statements.
Years Ended December 31, | 2004a | 2003 | 2002 | 2001b | 2000 | 1999 |
Selected Per Share Data
|
Net asset value, beginning of period
| $ 19.64 | $ 19.43 | $ 19.00 | $ 18.83 | $ 18.37 | $ 19.93 |
Income (loss) from investment operations:
Incomec
| .63 | 1.20 | 1.36 | 1.45 | 1.48 | 1.49 |
Operating expensesc
| (.07) | (.12) | (.14) | (.14) | (.13) | (.14) |
Net investment incomec
| .56 | 1.08 | 1.22 | 1.31 | 1.35 | 1.35 |
Net realized and unrealized gain (loss) on investment transactions
| (.45) | .42 | .54 | .20 | .46 | (1.55) |
Total from investment operations | .11 | 1.50 | 1.76 | 1.51 | 1.81 | (.20) |
Less distributions from:
Net investment income
| (.31) | (1.29) | (1.33) | (1.34) | (1.35) | (1.36) |
Net asset value, end of period
| $ 19.44 | $ 19.64 | $ 19.43 | $ 19.00 | $ 18.83 | $ 18.37 |
Per share market value, end of period
| $ 17.61 | $ 18.55 | $ 19.02 | $ 18.53 | $ 17.38 | $ 15.50 |
Price range on New York Stock Exchange for each share of Common Stock outstanding during the period (Unaudited):
High ($)
| 19.39 | 20.45 | 19.67 | 19.95 | 17.38 | 19.94 |
Low ($)
| 16.55 | 17.50 | 17.91 | 17.65 | 15.06 | 15.06 |
Total Return
|
Based on market value (%)d
| (3.41)** | 4.53 | 10.12 | 14.57 | 21.65 | (14.90) |
Based on net asset value (%)d
| .71** | 8.22 | 9.71 | 8.49 | 11.21 | (.05) |
Ratios to Average Net Assets and Supplemental Data
|
Net assets, end of period ($ millions)
| 202 | 204 | 201 | 196 | 193 | 189 |
Ratio of expenses (%)
| .66* | .63 | .72 | .71 | .69 | .70 |
Ratio of net investment income (%)
| 5.76* | 5.47 | 6.36 | 6.78 | 7.32 | 7.01 |
Portfolio turnover rate (%)e
| 128* | 160 | 259 | 143 | 131 | 82 |
a For the six months ended June 30, 2004. (Unaudited).b As required, effective January 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premiums on debt securities. In addition, paydowns on mortgage-backed securities which were included in realized gain/loss on investment transactions prior to January 1, 2001 are included as interest income. The effect of this change for the period ended December 31, 2001 was to decrease net investment income by $0.03, increase net realized and unrealized gains and losses per share by $0.03, and decrease the ratio of net investment income to average net assets from 6.92% to 6.78%. Per share, ratios and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation.c Based on average shares outstanding during the period.d Total return based on net asset value reflects changes in the Fund's net asset value during the period. Total return based on market value reflects changes in market value. Each figure includes reinvestment of dividends. These figures will differ depending upon the level of any discount from or premium to net asset value at which the Fund's shares trade during the period.e The portfolio turnover rates excluding mortgage dollar roll transactions are stated in the Financial Highlights. The portfolio turnover rates including mortgage dollar roll transactions were 351%, 426%, 520%, 356%, 335% and 209%, for the periods ended June 30, 2004, December 31, 2003, December 31, 2002, December 31, 2001, December 31, 2000 and December 31, 1999, respectively.* Annualized** Not annualizedNotes to Financial Statements (Unaudited) |
|
|
A. Significant Accounting Policies
Montgomery Street Income Securities, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a closed-end, diversified management investment company.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Debt securities are valued by independent pricing services approved by the Directors of the Fund. If the pricing services are unable to provide valuations, the securities are valued at the most recent bid quotation or evaluated price, as applicable, obtained from a broker-dealer. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Directors.
Repurchase Agreements. The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund, through its custodian or sub-custodian bank, receives delivery of the underlying securities, the amount of which at the time of purchase and each subsequent business day is required to be maintained at such a level that the market value is equal to at least the principal amount of the repurchase price plus accrued interest. The custodian or agent bank holds the collateral in a separate account until the agreement matures. If the value of the securities falls below the principal amount of the repurchase agreement plus accrued interest, the financial institution deposits additional collateral by the following business day. If the financial institution either fails to deposit the required additional collateral or fails to repurchase the securities as agreed, the Fund has the right to sell the securities and recover any resulting loss from the financial institution. If the financial institution enters into bankruptcy, the Fund's claims on the collateral may be subject to legal proceedings.
Mortgage Dollar Rolls. The Fund may enter into mortgage dollar rolls in which the Fund sells to a bank or broker/dealer (the "counterparty") mortgage-backed securities for delivery in the current month and simultaneously contracts to repurchase similar, but not identical, securities on a fixed date. The counterparty receives all principal and interest payments, including prepayments, made on the security while it is the holder. The Fund receives compensation as consideration for entering into the commitment to repurchase. The compensation is paid in the form of a lower price for the security upon its repurchase, or alternatively, a fee. Mortgage dollar rolls may be renewed with a new sale and repurchase price and a cash settlement made at each renewal without physical delivery of the securities subject to the contract.
Mortgage dollar rolls may be treated for purposes of the 1940 Act as borrowings by the Fund because they involve the sale of a security coupled with an agreement to repurchase. A mortgage dollar roll involves costs to the Fund. For example, while the Fund receives compensation as consideration for agreeing to repurchase the security, the Fund forgoes the right to receive all principal and interest payments while the counterparty holds the security. These payments to the counterparty may exceed the compensation received by the Fund, thereby effectively charging the Fund interest on its borrowing. Further, although the Fund can estimate the amount of expected principal prepayment over the term of the mortgage dollar roll, a variation in the actual amount of prepayment could increase or decrease the cost of the Fund's borrowing.
Certain risks may arise upon entering into mortgage dollar rolls from the potential inability of counterparties to meet the terms of their commitments. Additionally, the value of such securities may change adversely before the Fund is able to repurchase them. There can be no assurance that the Fund's use of the cash that it receives from a mortgage dollar roll will provide a return that exceeds its borrowing costs.
Delayed Delivery Securities. The Fund may purchase securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase a security, the transaction is recorded and the value of the security is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the Fund until payment takes place. At the time the Fund enters into this type of transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment.
Certain risks may arise upon entering into delayed delivery securities from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic, or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.
Federal Income Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Accordingly, the Fund paid no federal income taxes and no federal income tax provision was required.
At December 31, 2003, the Fund had a net tax basis capital loss carryforward of approximately $2,304,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until December 31, 2010, the expiration date, whichever occurs first.
Distribution of Income and Gains. Distributions of net investment income, if any, are made quarterly. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed and, therefore, will be distributed to shareholders at least annually. An additional distribution may be made to the extent necessary to avoid the payment of a four percent federal excise tax. The Fund uses the specific identification method for determining realized gain or loss on investments sold for both financial and federal income tax reporting purposes.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to investments in mortgage-backed securities, foreign-denominated securities and premium amortization on debt securities. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
Statement of Cash Flows. Information on financial transactions which have been settled through the receipt and disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows represents the cash position in the Fund's custodian bank at June 30, 2004. Significant non-cash activity from market discount accretion has been excluded from the Statement of Cash Flows.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. All premiums and discounts, with the exception of mortgage-backed securities, are amortized/accreted for financial reporting purposes.
B. Purchases and Sales of Securities
During the six months ended June 30, 2004, purchases and sales (excluding US Treasury securities, short-term investments and mortgage dollar roll transactions) of investment securities aggregated $102,892,265 and $80,492,956, respectively. Purchases and sales of US Treasury securities aggregated $51,829,038 and $73,310,708, respectively. Purchases and sales of mortgage dollar roll transactions aggregated $267,666,642 and $267,563,698, respectively.
C. Related Parties
Management and Investment Advisory Agreement. Under the Management and Investment Advisory Agreement (the "Agreement") with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), the Fund agrees to pay the Advisor for the services rendered, an annual fee, payable monthly, equal to 0.50 of 1% of the value of net assets of the Fund up to and including $100 million; 0.45 of 1% of the value of the net assets of the Fund over $100 million and up to and including $150 million; 0.40% of 1% of the value of the net assets of the Fund over $150 million and up to and including $200 million; and 0.35 of 1% of the value of the net assets of the Fund over $200 million.
The Agreement also provides that the Advisor will reimburse the Fund for all expenses (excluding interest, taxes, brokerage commissions and extraordinary expenses) borne by the Fund in any fiscal year in excess of the sum of one and one-half percent of the first $30 million of average net assets and one percent of average net assets in excess of $30 million. Further, if annual expenses as defined in the Agreement exceed 25% of the Fund's annual gross income, the excess will be reimbursed by the Advisor.
For the six months ended June 30, 2004, the fees pursuant to the Agreement amounted to $467,235, equivalent to an effective annualized rate of 0.46% of the Fund's average monthly net assets.
Service Provider Fees. Scudder Investments Service Company ("SISC"), an affiliate of the Advisor, is the transfer, dividend-paying and shareholder service agent for the Fund. For the six months ended June 30, 2004, the amount charged to the Fund by SISC aggregated $12,293, of which $7,322 is unpaid at June 30, 2004.
Directors' Fees and Expenses. The Fund pays each Director not affiliated with the Advisor retainer fees plus specified amounts for attended board and committee meetings.
D. Share Repurchases
The Fund is authorized to effect periodic repurchases of its shares in the open market from time to time when the Fund's shares trade at a discount to their NAV. During the six months ended June 30, 2004, the Fund purchased 27,000 shares of common stock on the open market at a total cost of $554,041.
Dividend Reinvestment and Cash Purchase Plan |
|
|
All registered stockholders of the fund's Common Stock are offered the opportunity of participating in a Dividend Reinvestment and Cash Purchase Plan (the "Plan"). Registered stockholders, on request or on becoming registered stockholders, are mailed information regarding the Plan, including a form by which they may elect to participate in the Plan and thereby cause their future net investment income dividends and capital gains distributions to be invested in shares of the fund's Common Stock. UMB Bank, N.A. is the agent (the "Plan Agent") for stockholders who elect to participate in the Plan.
If a stockholder chooses to participate in the Plan, the stockholder's dividends and capital gains distributions will be promptly invested, automatically increasing the stockholder's holdings in the fund. If the fund declares a dividend or capital gains distributions payable either in cash or in stock of the fund, the stockholder will automatically receive stock. If the market price per share on the payment date for the dividend (the "Valuation Date") equals or exceeds the net asset value per share, the fund will issue new shares to the stockholder at the greater of the following on the Valuation Date: (a) net asset value per share or (b) 95% of the market price per share. If the market price per share on the Valuation Date is less than the net asset value per share, the fund will issue new shares to the stockholder at the market price per share on the Valuation Date. In either case, for federal income tax purposes the stockholder will be deemed to receive a distribution equal to the market value on the Valuation Date of the new shares issued. If dividends or capital gains distributions are payable only in cash, then the stockholder will receive shares purchased on the New York Stock Exchange or otherwise on the open market. In this event, for federal income tax purposes the amount of the distribution will equal the cash distribution paid. State and local taxes may also apply. All reinvestments are in full and fractional shares, carried to three decimal places.
Stockholders participating in the Plan can also purchase additional shares quarterly in any amount from $100 to $5,000 (a "Voluntary Cash Investment") by sending in a check together with the cash remittance slip, which will be sent with each statement of the stockholder's account, to Scudder Investments Service Company, the Fund's transfer agent or its delegate (the "Transfer Agent"). Such additional shares will be purchased on the open market by the Plan Agent. The purchase price of shares purchased on the open market, whether pursuant to a reinvestment of dividends payable only in cash or a Voluntary Cash Investment, will be the average price (including brokerage commissions) of all shares purchased by the Plan Agent on the date such purchases are effected. In addition, stockholders may be charged a service fee in an amount up to 5% of the value of the Voluntary Cash Investment. Although subject to change, stockholders are currently charged $1 for each Voluntary Cash Investment.
Stockholders may terminate their participation in the Plan at any time and elect to receive dividends and other distributions in cash by notifying the Transfer Agent in writing. Such notification must be received not less than 10 days prior to the record date of any distribution. There is no charge or other penalty for such termination. The Plan may be terminated by the fund upon written notice mailed to the stockholders at least 30 days prior to the record date of any distribution. Upon termination, the fund will issue certificates for all full shares held under the Plan and cash for any fractional share.
Alternatively, stockholders may request the Transfer Agent to instruct the Plan Agent to sell any full shares and remit the proceeds, less a $2.50 service fee and less brokerage commissions. The sale of shares (including fractional shares) will be a taxable event for federal income tax purposes and may be taxable for state and local tax purposes.
The Plan may be amended by the fund at any time. Except when required by law, written notice of any amendment will be mailed to stockholders at least 30 days prior to its effective date. The amendment will be deemed accepted unless written notice of termination is received by the Transfer Agent prior to the effective date.
An investor holding shares in its own name can participate directly in the Plan. An investor holding shares in the name of a brokerage firm, bank or other nominee should contact that nominee, or any successor nominee, to determine whether the nominee can participate in the Plan on the investor's behalf and to make any necessary arrangements for such participation.
Additional information, including a copy of the Plan and its Terms and Conditions and an enrollment form, can be obtained from the Transfer Agent by writing Scudder Investments Service Company, P.O. Box 219066, Kansas City, MO 64121-9066, or by calling 800-294-4366.
For annual report requests, please call Shareholder Services at 800-349-4281 or the Transfer Agent at 800-294-4366.
Stockholder Meeting Results |
|
|
The Annual Meeting of Stockholders of Montgomery Street Income Securities, Inc. (the "fund") was held on July 16, 2004, at the office of the fund, 101 California Street, Suite 4100, San Francisco, California. At the meeting, the following matters were voted upon by the stockholders:
1. To elect five Directors of the fund to hold office until the next Annual Meeting or until their respective successors shall have been duly elected and qualified.
| Number of Votes: |
Directors | For | Withheld |
Richard J. Bradshaw | 6,139,502 | 500,323 |
Maryellie K. Johnson | 6,129,950 | 509,875 |
Wendell G. Van Auken | 6,139,083 | 500,742 |
James C. Van Horne | 6,131,282 | 508,543 |
John T. Packard | 6,016,807 | 623,018 |
2. To approve the continuance of the Management and Investment Advisory Agreement for the fund with Deutsche Investment Management Americas Inc.
Number of Votes: |
For | Against | Abstain |
6,018,070 | 470,893 | 150,862 |
3a. To approve the modification of the fundamental investment policy regarding securities lending.
| Number of Votes: | |
For | Against | Abstain | Broker Non-Votes |
4,616,639 | 773,572 | 249,823 | 999,791 |
3b. To approve the elimination of the fundamental investment policy regarding investments in other investment companies.
| Number of Votes: | |
For | Against | Abstain | Broker Non-Votes |
4,595,994 | 776,502 | 267,539 | 999,790 |
DIRECTORS
RICHARD J. BRADSHAW
Chairman
MARYELLIE K. JOHNSON
JOHN T. PACKARD
WENDELL G. VAN AUKEN
JAMES C. VAN HORNE
OFFICERS
JULIAN F. SLUYTERS
President and Chief Executive Officer
GARY W. BARTLETT
Vice President
ANDREW P. CESTONE
Vice President
CHARLES A. RIZZO
Treasurer and Chief Financial Officer
BRUCE A. ROSENBLUM
Vice President and Secretary
|
Investment Manager | Deutsche Investment Management Americas Inc.
345 Park Avenue
New York, NY 10154 |
Transfer Agent | Scudder Investments Service Company
P.O. Box 219066
Kansas City, MO 64121-9066 |
Custodian | State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110 |
Legal Counsel | Howard, Rice, Nemerovski, Canady, Falk & Rabkin PC
Three Embarcadero Center
San Francisco, CA 94111 |
Independent Registered Public Accounting Firm | Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116 |
This privacy statement is issued by Deutsche Investment Management Americas Inc., Deutsche Asset Management, Inc., Scudder Distributors, Inc., Scudder Investor Services, Inc., Scudder Trust Company, the Scudder Funds and Montgomery Street Income Securities, Inc.
We never sell customer lists or individual client information. We consider privacy fundamental to our client relationships and adhere to the policies and practices described below to protect current and former clients' information. Internal policies are in place to protect confidentiality, while allowing client needs to be served. Only individuals who need to do so in carrying out their job responsibilities may access client information. We maintain physical, electronic and procedural safeguards that comply with federal and state standards to protect confidentiality. These safeguards extend to all forms of interaction with us, including the Internet.
In the normal course of business, clients give us nonpublic personal information on applications and other forms, on our websites, and through transactions with us or our affiliates. Examples of the nonpublic personal information collected are name, address, Social Security number and transaction and balance information. To be able to serve our clients, certain of this client information is shared with affiliated and nonaffiliated third party service providers such as transfer agents, custodians, and broker-dealers to assist us in processing transactions and servicing your account with us. In addition, we may disclose all of the information we collect to companies that perform marketing services on our behalf or to other financial institutions with which we have joint marketing agreements. The organizations described above that receive client information may only use it for the purpose designated by the companies listed above.
We may also disclose nonpublic personal information about you to other parties as required or permitted by law. For example, we are required or we may provide information to government entities or regulatory bodies in response to requests for information or subpoenas, to private litigants in certain circumstances, to law enforcement authorities, or any time we believe it necessary to protect the firm.
Questions on this policy may be sent to:
Scudder Investments
Attention: Correspondence - Chicago
P.O. Box 219415
Kansas City, MO 64121-9415
August 2004
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. [RESERVED]
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. REPURCHASE DISCLOSURE
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(a) (b)
Total Number of Average Price Paid
Period Shares Purchased per Share
- --------------------------------------------------------------------------------
January 1 through January 31 10,000 $ 18.934
February 1 through February 29 4,000 $ 18.842
March 1 through March 31 0 $ -
April 1 through April 30 0 $ -
May 1 through May 31 12,000 $ 17.177
June 1 through June 30 1,000 $ 17.861
- --------------------------------------------------------------------------------
Total 27,000 $ 18.100
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(c)
Total Number of (d)
Period Shares Purchased as Maximum Number of
Part of Publicly Shares that May Yet Be
Announced Plans Purchased Under the
or Programs Plans or Programs
- --------------------------------------------------------------------------------
January 1 through January 31 n/a n/a
February 1 through February 29 n/a n/a
March 1 through March 31 n/a - n/a
April 1 through April 30 n/a - n/a
May 1 through May 31 n/a n/a
June 1 through June 30 n/a n/a
- --------------------------------------------------------------------------------
Total n/a n/a
- --------------------------------------------------------------------------------
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Board of Directors does not have a nominating committee or a charter
relating to the nomination of Directors. The full Board considers possible
candidates to fill vacancies on the Board of Directors, reviews the
qualifications of candidates recommended by stockholders and others, and
recommends the slate of nominees to be proposed for election by stockholders at
the annual meeting. Individuals who would be considered Independent Directors,
if elected, are selected and nominated solely by the Independent Directors of
the Fund (currently, Messrs. Bradshaw, Van Auken and Van Horne and Ms. Johnson).
In light of the fact that 80% of the Board of Directors is composed of
Independent Directors and the remaining Director (Mr. Packard) is not presently
affiliated with the Investment Manager, the Board believes that it is
appropriate for the full Board to participate in the consideration of Director
candidates. Stockholders wishing to recommend any Director candidate should
submit in writing a brief description of the candidate's business experience and
other information relevant to the candidate's qualifications to serve as a
Director. Submissions should be addressed to the Chairman of the Board of
Directors, Montgomery Street Income Securities, Inc., 101 California Street,
Suite 4100, San Francisco, CA 94111.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The Chief Executive and Financial Officers concluded that the Registrant's
Disclosure Controls and Procedures are effective based on the evaluation of the
Disclosure Controls and Procedures as of a date within 90 days of the filing
date of this report.
Fund management has previously identified a significant deficiency relating to
the overall fund expense payment and accrual process. This matter relates
primarily to a bill payment processing issue. There was no material impact to
shareholders, fund net asset value, fund performance or the accuracy of any
fund's financial statements. Fund management discussed this matter with the
Registrant's Audit Committee and auditors, instituted additional procedures to
enhance its internal controls and will continue to develop additional controls
and redesign work flow to strengthen the overall control environment associated
with the processing and recording of fund expenses.
(b) There have been no changes in the registrant's internal control over
financial reporting that occurred during the registrant's last half-year (the
registrant's second fiscal half-year in the case of the annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal controls over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Certification pursuant to Rule 30a-2(a) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as
Exhibit 99.CERT.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as
Exhibit 99.906CERT.
Form N-CSR Item F
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.
Registrant: Montgomery Street Income Securities
By: /s/Julian Sluyters
---------------------------
Julian Sluyters
Chief Executive Officer
Date: August 23, 2004
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.
Registrant: Montgomery Street Income Securities
By: /s/Julian Sluyters
---------------------------
Julian Sluyters
Chief Executive Officer
Date: August 23, 2004
By: /s/Charles A. Rizzo
---------------------------
Charles A. Rizzo
Chief Financial Officer
Date: August 23, 2004
