N-Q 1 d723057dnq.htm MONTGOMERY STREET INCOME SECURITIES, INC. FORM N-Q Montgomery Street Income Securities, Inc. Form N-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number: 811-02340

Montgomery Street Income Securities, Inc.

(Exact name of registrant as specified in charter)

225 West Wacker Drive, Suite 1200

Chicago, Illinois 60606

(Address of principal executive office)

Mark D. Nerud

225 West Wacker Drive, Suite 1200

Chicago, Illinois 60606

(Name and address of agent for service)

Registrant’s telephone number, including area code: (312) 338-5801

Date of fiscal year end: December 31

Date of Reporting Period: January 1, 2014 – March 31, 2014

Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q 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 the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

Item 1. Schedule of Investments.

Montgomery Street Income Securities, Inc.

Investment Portfolio   March 31, 2014 (Unaudited)

 

 

 

 

 

    Principal
Amount ($)		     Value ($)  

Corporate Bonds 57.7%

  

Consumer Discretionary 4.1%

  

Cablevision Systems Corp.
Term Loan B,
2.65%, 04/09/20 (a)

     199,000        196,339   

COX Communications Inc.,
6.25%, 06/01/18 (b)

     263,000        299,782   

CSC Holdings LLC,
8.63%, 02/15/19

     2,000,000        2,390,000   

D.R. Horton Inc.,
3.63%, 02/15/18

     700,000        710,500   

Daimler Finance North America LLC,
1.30%, 07/31/15 (b)

     200,000        201,404   

Daimler Finance North America LLC,
3.00%, 03/28/16 (c)

     300,000        311,914   

MGM Resorts International,
7.50%, 06/01/16

     1,000,000        1,113,750   

NBCUniversal Media LLC,
2.88%, 04/01/16

     300,000        311,891   

Nissan Motor Acceptance Corp.,
2.65%, 09/26/18 (c)

     400,000        404,728   

TCI Communications Inc.,
8.75%, 08/01/15

     35,000        38,778   

Time Warner Cable Inc.,
8.75%, 02/14/19

     100,000        126,536   

Time Warner Cable Inc.,
8.25%, 04/01/19

     290,000        361,428   

Viacom Inc., 4.25%, 09/15/15

     200,000        210,117   

Wynn Las Vegas LLC,
5.38%, 03/15/22

     500,000        521,875   

Wynn Macau Ltd.,
5.25%, 10/15/21 (b)

     500,000        508,750   
   

 

 

  
    7,707,792   

Consumer Staples 1.8%

  

Altria Group Inc.,
9.70%, 11/10/18 (d)

     664,000        871,799   

Altria Group Inc.,
9.25%, 08/06/19 (d)

     111,000        146,512   

ConAgra Foods Inc.,
1.90%, 01/25/18

     800,000        793,436   

Kraft Foods Group Inc.,
2.25%, 06/05/17

     600,000        615,134   

Kraft Foods Group Inc.,
5.38%, 02/10/20

     268,000        305,706   

Reynolds American Inc.,
1.05%, 10/30/15

     250,000        249,820   

Reynolds Group Issuer Inc.,
7.13%, 04/15/19

     300,000        317,250   
   

 

 

  
    3,299,657   

Energy 10.3%

  

AK Transneft OJSC Via TransCapitalInvest Ltd.,
8.70%, 08/07/18

     2,150,000        2,510,125   
    Principal
Amount ($)		     Value ($)  

Anadarko Petroleum Corp.,
6.45%, 09/15/36

     800,000        946,234   

Arch Coal Inc.,
9.88%, 06/15/19

     100,000        87,000   

Arch Coal Inc.,
7.25%, 06/15/21

     100,000        75,500   

BP Capital Markets Plc,
3.63%, 05/08/14

     521,000        522,690   

Canadian Natural Resources Ltd.,
0.61%, 03/30/16 (a)

     50,000        49,976   

Canadian Oil Sands Ltd.,
7.75%, 05/15/19 (b)

     1,000,000        1,214,447   

Canadian Oil Sands Ltd.,
4.50%, 04/01/22 (b)

     1,000,000        1,033,744   

Dolphin Energy Ltd.,
5.50%, 12/15/21 (b)

     800,000        903,000   

El Paso Pipeline Partners Operating Co. LLC,
6.50%, 04/01/20

     1,000,000        1,144,970   

Energy Transfer Partners LP,
8.50%, 04/15/14

     161,000        161,485   

MarkWest Energy Partners LP,
5.50%, 02/15/23

     500,000        513,750   

MarkWest Energy Partners LP,
4.50%, 07/15/23

     200,000        192,500   

Midcontinent Express Pipeline LLC,
6.70%, 09/15/19 (b)

     400,000        407,582   

Novatek OAO via Novatek Finance Ltd.,
6.60%, 02/03/21 (b)

     800,000        833,000   

Petrobras Global Finance BV,
2.59%, 03/17/17 (a)

     1,200,000        1,204,500   

Petrobras International Finance Co.,
7.88%, 03/15/19

     300,000        342,261   

Petroleos Mexicanos,
8.00%, 05/03/19

     300,000        366,000   

Pioneer Natural Resources Co.,
6.88%, 05/01/18

     2,000,000        2,339,288   

Pioneer Natural Resources Co.,
7.20%, 01/15/28

     200,000        246,310   

Plains All American Pipeline LP,
8.75%, 05/01/19

     1,000,000        1,278,414   

Pride International Inc.,
6.88%, 08/15/20

     621,000        741,597   

Ras Laffan Liquefied Natural Gas Co. Ltd. III, 5.30%, 09/30/20

     710,200        763,891   

Rockies Express Pipeline LLC,
3.90%, 04/15/15 (b)

     200,000        201,500   

Rosneft Finance SA,
7.88%, 03/13/18

     500,000        558,750   

Targa Resources Partners LP,
5.25%, 05/01/23

     400,000        396,000   
 

 

 

 

See accompanying Notes to Investment Portfolio.

Montgomery Street Income Securities, Inc.

Investment Portfolio   March 31, 2014 (Unaudited)

 

 

 

 

 

    Principal
Amount ($)		     Value ($)  

Transcontinental Gas Pipe Line Co. LLC,
6.40%, 04/15/16

     250,000        275,629   
   

 

 

  
    19,310,143   

Financials 30.3%

  

Abbey National Treasury Services Plc,
1.82%, 04/25/14 (a)

     800,000        800,755   

Ally Financial Inc.,
4.63%, 06/26/15

     900,000        932,669   

Ally Financial Inc.,
3.50%, 01/27/19

     800,000        800,000   

American Express Co.,
6.15%, 08/28/17

     500,000        576,417   

American Tower Corp.,
3.40%, 02/15/19

     300,000        307,511   

Banco Bradesco SA,
2.34%, 05/16/14 (a) (b)

     500,000        500,162   

Banco de Credito del Peru,
4.25%, 04/01/23 (b)

     200,000        191,750   

Banco do Brasil SA,
6.00%, 01/22/20 (b)

     500,000        541,875   

Banco Santander Brasil SA,
4.50%, 04/06/15

     300,000        309,000   

Banco Santander Brasil SA,
4.50%, 04/06/15 (b)

     600,000        618,000   

Banco Santander Chile,
3.75%, 09/22/15 (b)

     500,000        516,095   

Banco Votorantim SA,
5.25%, 02/11/16 (b)

     400,000        413,000   

Bank of America Corp.,
3.63%, 03/17/16

     400,000        419,596   

Bank of America Corp.,
6.00%, 09/01/17

     115,000        130,486   

Bank of America Corp.,
2.65%, 04/01/19

     800,000        802,797   

Banque PSA Finance SA,
2.14%, 04/04/14 (a) (c)

     300,000        299,976   

Barclays Bank Plc,
10.18%, 06/12/21 (b)

     1,400,000        1,876,462   

Barclays Bank Plc,
7.63%, 11/21/22

     300,000        330,750   

BBVA Bancomer SA,
4.50%, 03/10/16 (b)

     500,000        528,750   

BBVA Bancomer SA,
6.50%, 03/10/21 (b)

     400,000        432,500   

Bear Stearns Cos. LLC,
6.40%, 10/02/17

     400,000        461,749   

BNP Paribas,
7.78% (callable at 100
beginning 07/02/18) (e) (f), EUR

     300,000        489,451   

CBA Capital Trust II,
6.02% (callable at 100
beginning 03/15/16) (b) (e) (f)

     200,000        211,500   

Citigroup Inc.,
6.01%, 01/15/15

     1,482,000        1,544,711   

Cooperatieve Centrale Raiffeisen-Boerenleenbank BA,
11.00% (callable at 100
beginning 06/30/19) (b) (e) (f)

     1,000,000        1,327,500   
    Principal
Amount ($)		     Value ($)  

Credit Suisse AG,
5.75%, 09/18/25, EUR

     300,000        449,977   

DNB Bank ASA,
3.20%, 04/03/17 (b)

     400,000        420,194   

Export-Import Bank of Korea,
4.00%, 01/11/17

     2,700,000        2,909,625   

Export-Import Bank of Korea,
4.00%, 01/29/21

     200,000        210,324   

Ford Motor Credit Co. LLC,
1.33%, 08/28/14 (a)

     200,000        200,774   

Ford Motor Credit Co. LLC,
7.00%, 04/15/15

     500,000        531,890   

Ford Motor Credit Co. LLC,
5.63%, 09/15/15

     2,000,000        2,132,032   

Ford Motor Credit Co. LLC,
2.50%, 01/15/16

     200,000        205,374   

Ford Motor Credit Co. LLC,
3.98%, 06/15/16

     500,000        529,834   

Goldman Sachs Group Inc.,
5.95%, 01/18/18

     650,000        736,283   

Goldman Sachs Group Inc.,
6.15%, 04/01/18

     600,000        686,077   

Goldman Sachs Group Inc.,
6.00%, 06/15/20

     2,000,000        2,297,410   

HBOS Plc,
6.75%, 05/21/18 (b)

     700,000        793,249   

Host Hotels & Resorts LP,
6.00%, 11/01/20

     450,000        493,706   

HSBC Finance Corp.,
6.68%, 01/15/21

     300,000        350,118   

ICICI Bank Ltd.,
4.75%, 11/25/16 (b)

     300,000        315,930   

International Lease Finance Corp.,
7.13%, 09/01/18 (b)

     1,700,000        1,976,250   

IPIC GMTN Ltd.,
5.88%, 03/07/18, EUR

     200,000        336,665   

JPMorgan Chase & Co.,
6.30%, 04/23/19

     2,500,000        2,940,057   

JPMorgan Chase Bank NA,
1.00%, 05/31/17 (a), EUR

     100,000        136,223   

JPMorgan Chase Bank NA,
6.00%, 10/01/17

     600,000        683,588   

Korea Exchange Bank,
3.13%, 06/26/17 (b)

     400,000        415,326   

Lazard Group LLC,
6.85%, 06/15/17

     500,000        568,556   

LBG Capital No.1 Plc,
7.88%, 11/01/20 (b)

     450,000        492,033   

LBG Capital No.2 Plc,
15.00%, 12/21/19, GBP

     100,000        242,235   

Merrill Lynch & Co. Inc.,
6.88%, 04/25/18

     2,400,000        2,831,016   

Morgan Stanley,
6.63%, 04/01/18

     1,000,000        1,166,034   

Morgan Stanley,
7.30%, 05/13/19

     800,000        970,514   

Morgan Stanley, 5.50%, 01/26/20

     2,850,000        3,215,253   

Rabobank Capital Funding Trust III, 5.25% (callable at 100 beginning 10/21/16) (c) (e) (f)

     800,000        839,000   

 

 

 

 

See accompanying Notes to Investment Portfolio.

Montgomery Street Income Securities, Inc.

Investment Portfolio   March 31, 2014 (Unaudited)

 

 

 

 

 

    Principal
Amount ($)		     Value ($)  

RCI Banque SA,
2.11%, 04/11/14 (a) (c)

     600,000        600,123   

Russian Agricultural Bank OJSC Via RSHB Capital SA,
6.30%, 05/15/17

     300,000        308,580   

Sberbank of Russia Via SB Capital SA,
5.50%, 07/07/15

     700,000        726,250   

Sberbank Via SB Capital SA,
5.40%, 03/24/17

     600,000        623,250   

Shinhan Bank,
4.13%, 10/04/16 (b)

     200,000        213,429   

SLM Corp.,
3.88%, 09/10/15

     1,000,000        1,030,000   

SLM Corp.,
8.45%, 06/15/18

     500,000        588,750   

SLM Corp.,
5.50%, 01/15/19

     200,000        211,558   

Springleaf Finance Corp.,
6.90%, 12/15/17

     500,000        548,750   

State Bank of India,
3.25%, 04/18/18 (b)

     800,000        790,688   

Sumitomo Mitsui Financial Group Inc.,
4.44%, 04/02/24 (c)

     350,000        350,376   

Sydney Airport Finance Co. Pty Ltd.,
5.13%, 02/22/21 (b) (d)

     2,100,000        2,273,386   

UBS AG,
7.63%, 08/17/22

     300,000        351,906   

UBS AG Stamford,
5.88%, 12/20/17

     175,000        200,547   

Union Bank NA,
0.99%, 09/26/16 (a)

     500,000        504,942   

USB Capital IX,
3.50% (callable at 100
beginning 02/07/13) (e) (f)

     625,000        521,875   

Ventas Realty LP,
3.13%, 11/30/15

     100,000        103,778   

Weyerhaeuser Co.,
7.38%, 10/01/19

     1,000,000        1,215,862   
   

 

 

  
    56,603,059   

Health Care 1.7%

    

Boston Scientific Corp.,
6.40%, 06/15/16

     1,200,000        1,330,170   

HCA Inc.,
6.50%, 02/15/20

     1,700,000        1,904,000   
   

 

 

  
    3,234,170   

Industrials 1.2%

    

Asciano Finance Ltd.,
5.00%, 04/07/18 (b)

     300,000        322,222   
    Principal
Amount ($)		     Value ($)  

Aviation Capital Group Corp.,
7.13%, 10/15/20 (b)

     600,000        673,048   

AWAS Aviation Capital Ltd.,
7.00%, 10/17/16 (b)

     712,000        736,920   

Masco Corp.,
6.63%, 04/15/18

     400,000        448,000   
   

 

 

  
    2,180,190   

Information Technology 0.6%

    

Activision Blizzard Inc. Term Loan B,
3.25%, 09/15/20 (a)

     84,750        84,665   

Dell Inc. Term Loan B,
3.75%, 09/24/18 (a)

     975,000        970,398   
   

 

 

  
    1,055,063   

Materials 2.2%

    

Anglo American Capital Plc,
9.38%, 04/08/14 (b)

     543,000        543,969   

Dow Chemical Co.,
8.55%, 05/15/19 (d)

     990,000        1,268,000   

Georgia-Pacific LLC,
5.40%, 11/01/20 (b)

     1,600,000        1,794,665   

Metalloinvest Finance Ltd.,
5.63%, 04/17/20 (b)

     400,000        376,000   

Walter Energy Inc.,
9.88%, 12/15/20

     150,000        98,625   
   

 

 

  
    4,081,259   

Telecommunication Services 3.5%

    

AT&T Inc.,
0.65%, 03/30/17 (a)

     500,000        499,701   

Crown Castle International Corp.,
5.25%, 01/15/23

     500,000        508,125   

Qtel International Finance Ltd.,
4.75%, 02/16/21 (b)

     300,000        321,780   

Rogers Communications Inc.,
7.50%, 03/15/15

     179,000        190,748   

Telecom Italia Capital SA,
7.00%, 06/04/18

     100,000        113,375   

Telecom Italia SpA,
7.38%, 12/15/17, GBP

     650,000        1,210,370   

Telecom Italia SpA,
6.38%, 06/24/19, GBP

     300,000        537,311   

Telefonica Emisiones SAU,
3.73%, 04/27/15

     1,400,000        1,440,898   

Verizon Communications Inc.,
1.76%, 09/15/16 (a)

     700,000        720,078   

Verizon Communications Inc.,
4.50%, 09/15/20

     1,000,000        1,086,444   
   

 

 

  
    6,628,830   

Utilities 2.0%

    

Centrais Eletricas Brasileiras SA,
6.88%, 07/30/19

     400,000        432,000   

 

 

 

 

See accompanying Notes to Investment Portfolio.

Montgomery Street Income Securities, Inc.

Investment Portfolio   March 31, 2014 (Unaudited)

 

 

 

 

 

    Principal
Amount ($)		     Value ($)  

Duquesne Light Holdings Inc.,
6.40%, 09/15/20 (b)

     400,000        465,823   

Energy Future Intermediate Holding Co. LLC,
10.00%, 12/01/20 (b)

     1,000,000        1,053,750   

Florida Power Corp.,
5.80%, 09/15/17

     195,000        222,428   

Korea East-West Power Co. Ltd.,
2.50%, 07/16/17 (b)

     1,400,000        1,429,939   

Saudi Electricity Global Sukuk Co. 2,
5.06%, 04/08/43 (c)

     200,000        189,500   
    3,793,440   
   

Total Corporate Bonds
(cost $102,332,138)

   

     107,893,603   
   

 

 

  

Non-U.S. Government Agency Asset-Backed Securities 5.8%

   

Aegis Asset Backed Securities Trust REMIC, (2005, 3, M1),
0.62%, 08/25/35 (a)

     1,010,052        995,504   

American Airlines Pass-Through Trust, (2013, 2, A),
4.95%, 01/15/23 (c)

     388,160        417,272   

Banc of America Funding Trust REMIC, (2004, A, 1A3),
5.84%, 09/20/34 (a)

     325,900        326,545   

Banc of America Mortgage Securities Inc. REMIC, (2005, H, 2A5),
2.77%, 09/25/35 (a)

     781,946        708,616   

Bayview Commercial Asset Trust, Interest Only REMIC, (2007, 2A, IO),
4.70%, 07/25/37 (a) (b)

     3,366,366        26,449   

Bayview Commercial Asset Trust, Interest Only REMIC, (2007, 4A, IO),
3.86%, 09/25/37 (a) (b)

     3,764,053        261,423   

Bear Stearns Adjustable Rate Mortgage Trust REMIC, (2004, 6, 2A1),
2.83%, 09/25/34 (a)

     528,756        494,128   

Citigroup Mortgage Loan Trust Inc. REMIC, (2004, NCM2, 1CB2),
6.75%, 08/25/34

     130,647        140,461   

Continental Airlines Inc. Pass-Through Trust, (2009, 1, A),
9.00%, 07/08/16

     1,549,954        1,770,822   

Countrywide Alternative Loan Trust REMIC, (2006, 0A10, 4A1),
0.34%, 08/25/46 (a)

     39,407        28,878   

Credit Suisse First Boston Mortgage Securities Corp. REMIC, (2004, AR8, 2A1),
2.56%, 09/25/34 (a)

     719,414        728,578   
    Principal
Amount ($)		     Value ($)  

Credit-Based Asset Servicing and
Securitization LLC REMIC,
(2006, SC1, A),
0.42%, 05/25/36 (a) (b)

     64,611        60,117   

Holmes Master Issuer Plc, (2011,
1A, A3),
1.63%, 10/15/54 (a) (b), EUR

     317,022        437,943   

IndyMac INDX Mortgage Loan
Trust REMIC, (2005, AR14, 2A1A),
0.45%, 07/25/35 (a)

     54,288        47,377   

Inwood Park CDO Ltd., (2006, 1A, A1A),
0.46%, 01/20/21 (a) (b)

     108,012        107,178   

Nationstar NIM Ltd. Trust, (2007, A, A),
9.79%, 03/25/37 (g) (h)

     22,008        —   

Truman Capital Mortgage Loan Trust REMIC, (2006, 1, A),
0.41%, 03/25/36 (a) (b)

     1,231,898        1,145,229   

United Air Lines Inc. 2009-1 Pass-Through Trust, (2009,
1A, O),
10.40%, 11/01/16

     925,087        1,049,974   

Washington Mutual Mortgage
Pass-Through Certificates
REMIC, (2005, AR16, 1A3),
2.36%, 12/25/35 (a)

     1,145,655        1,085,139   

Washington Mutual Mortgage
Pass-Through Certificates
REMIC, (2006, 5, 2CB1),
6.00%, 07/25/36

     1,137,853        856,143   

Wells Fargo Mortgage Backed Securities Trust REMIC, (2006, 1, A3),
5.00%, 03/25/21

     164,123        167,949   
   

Total Non-U.S. Government Agency Asset-Backed Securities
(cost $10,878,220)

    

     10,855,725   
   

 

 

  

Government and Agency Obligations 24.6%

  

Government Securities 24.6%

  

Sovereign 7.6%

  

Australia Government Bond,
5.50%, 04/21/23, AUD

     386,000        398,651   

Banco Nacional de Desenvolvimento Economico e Social,
5.50%, 07/12/20 (b)

     400,000        428,500   

Brazil Notas do Tesouro Nacional,
10.00%, 01/01/21, BRL

     4,730,000        1,895,761   

Brazil Notas do Tesouro Nacional,
10.00%, 01/01/23, BRL

     190,000        74,491   

Brazil Notas do Tesouro Nacional, 10.00%, 01/01/25, BRL

     2,510,000        960,249   

Italy Buoni Poliennali Del Tesoro, 3.50%, 06/01/18, EUR

     100,000        147,726   

Italy Buoni Poliennali Del Tesoro, 3.75%, 05/01/21, EUR

     800,000        1,181,622   

Slovenia Government International Bond, 4.70%, 11/01/16 (b), EUR

     400,000        597,990   

Spain Government Bond, 3.75%, 10/31/18, EUR

     1,000,000        1,500,241   

Spain Government Bond, 2.75%, 04/30/19, EUR

     4,115,000        5,912,375   

Spain Government Bond, 5.85%, 01/31/22, EUR

     685,000        1,143,579   
   

 

 

  
    14,241,185   

U.S. Treasury Securities 17.0%

    

U.S. Treasury Bond, 3.63%, 08/15/43

     2,500,000        2,530,470   

U.S. Treasury Bond, 0.00%, 11/15/43 (i)

     1,800,000        593,568   

U.S. Treasury Bond, 3.75%, 11/15/43

     1,900,000        1,967,093   

U.S. Treasury Note, 0.25%, 09/15/14

     100,000        100,082   

U.S. Treasury Note, 0.25%, 09/30/14

     500,000        500,410   

U.S. Treasury Note, 0.25%, 10/31/14

     100,000        100,102   

U.S. Treasury Note, 0.25%, 11/30/14

     500,000        500,547   

U.S. Treasury Note, 0.25%, 01/31/15

     400,000        400,438   

 

 

 

Montgomery Street Income Securities, Inc.

Investment Portfolio   March 31, 2014 (Unaudited)

 

 

 

 

 

    Contracts/
Principal
Amount ($)		     Value ($)  

U.S. Treasury Note,
0.25%, 02/28/15

     300,000        300,305   

U.S. Treasury Note,
0.25%, 03/31/15

     100,000        100,109   

U.S. Treasury Note,
1.00%, 05/31/18

     1,500,000        1,472,929   

U.S. Treasury Note,
1.50%, 02/28/19

     2,350,000        2,327,233   

U.S. Treasury Note,
1.75%, 05/15/23

     10,100,000        9,357,488   

U.S. Treasury Note,
2.50%, 08/15/23

     7,590,000        7,482,670   

U.S. Treasury Note,
2.75%, 11/15/23

     1,800,000        1,808,296   

U.S. Treasury Note,
2.75%, 02/15/24

     2,300,000        2,305,391   
   

 

 

  
    31,847,131   

U.S. Government Agency Mortgage-Backed Securities 0.0%

  

Federal Home Loan Mortgage Corp. 0.0%

  

Federal Home Loan Mortgage Corp. REMIC,
7.00%, 08/15/21

     9,625        10,582   
   

Total Government and Agency Obligations
(cost $45,779,814)

   

     46,098,898   

Purchased Options 0.1%

  

Interest Rate Put Swaption,
3 month LIBOR versus
3.45% fixed, Expiration 09/21/15, BBP

     22        214,286   
   

 

 

  

Total Purchased Options (cost $174,446)

  

     214,286   

Short Term Investments 10.5%

    

U.S. Treasury Securities 7.0%

    

U.S. Treasury Bill, 0.06%, 04/17/14 (j)

     13,037,000        13,036,693   

Certificates of Deposit 1.5%

    

Credit Suisse,
0.56%, 08/24/15

     500,000        499,859   
    Contracts/
Principal
Amount ($)		     Value ($)  

Credit Suisse,
0.61%, 01/28/16

     800,000        800,368   

Intesa Sanpaolo SpA,
1.65%, 04/07/15

     1,500,000        1,500,095   

Federal Home Loan Mortgage Corp. 1.6%

  

Federal Home Loan Mortgage Corp.,
0.08%, 07/01/14 (k)

     2,200,000        2,199,778   

Federal Home Loan Mortgage Corp.,
0.09%, 10/23/14 (k)

     800,000        799,726   

Federal Home Loan Bank 0.4%

    

Federal Home Loan Bank,
0.05%, 05/02/14 (k)

     700,000        699,982   
   

 

 

  

Total Short Term Investments
(cost $19,535,665)

   

     19,536,501   
   

 

 

  

Total Investments—98.7%
(cost $178,700,283)

   

     184,599,013   

Total Forward Sales Commitments -(0.9%)
(proceeds $1,654,219)

   

     (1,655,391 ) 

Other Assets and Liabilities, Net 2.2%

  

    4,052,633   
   

 

 

  
   

Total Net Assets—100%

  

  $ 186,996,255   
   

 

 

  

Forward Sales Commitments (0.9%)

  

U.S. Government Agency
Mortgage-Backed Securities
(0.9%)

    

Federal National Mortgage Association, 5.50%, 04/15/44, TBA (l)

   $ (1,500,000 )    $ (1,655,391 ) 
   

 

 

  

Total Forward Sales Commitments
(cost $1,654,219)

    $ (1,655,391 ) 
   

 

 

  
 
(a) Floating rate note. Floating rate notes are securities whose yields vary with a designated market index or market rate. Rate stated was in effect as of March 31, 2014.
(b) Rule 144A or Section 4(2) of the Securities Act of 1933 security which is restricted to resale. The Fund’s investment adviser has deemed these securities to be liquid based on procedures approved by the Fund’s Board of Directors. As of March 31, 2014, the aggregate value of Rule 144A or Section 4(2) liquid securities was $31,234,233 (16.6% of net assets).
(c) Rule 144A or Section 4(2) of the Securities Act of 1933 security which is restricted to resale. The Fund’s investment adviser has deemed these securities to be illiquid based on procedures approved by the Fund’s Board of Directors. See Restricted Securities in the Notes to Investment Portfolio.
(d) The interest rate for this security is inversely affected by upgrades or downgrades to the credit rating of the issuer.
(e) Perpetual maturity security.
(f) Interest rate is fixed until stated call date and variable thereafter.

 

See accompanying Notes to Investment Portfolio.

Montgomery Street Income Securities, Inc.

Investment Portfolio   March 31, 2014 (Unaudited)

 

 

 

 

 

(g) Security is in default relating to principal and/or interest.
(h) Non-income producing security.
(i) Security issued with a zero coupon. Income is recognized through the accretion of discount.
(j) All or a portion of the security is pledged or segregated as collateral.
(k) This security is a direct debt of the agency and not collateralized by mortgages.
(l) All or a portion of the investment was sold on a delayed delivery basis. As of March 31, 2014, the total proceeds of investments sold on a delayed delivery basis was $1,654,219.

Currencies:

 

AUD - Australian Dollar    JPY - Japanese Yen
BRL - Brazilian Real    MXN - Mexican Peso
EUR - European Currency Unit (Euro)    USD - United States Dollar
GBP - British Pound   

Abbreviations:

 

ABS - Asset Backed Securities    NIM - Net Interest Margin
CDO - Collateralized Debt Obligation    OTC - Over the counter
Euribor - Europe Interbank Offered Rate Grade    REMIC - Real Estate Mortgage Investment Conduit
iTraxx - Group of international credit derivative indices monitored by the International Index Company    TBA - To Be Announced (Securities purchased on a delayed delivery basis)
LIBOR - London Interbank Offered Rate   

Counterparty Abbreviations:

 

BBP - Barclays Bank Plc   
GSB - Goldman Sachs Bank   
GSI - Goldman Sachs International   

See accompanying Notes to Investment Portfolio.

Montgomery Street Income Securities, Inc.

Notes to Investment Portfolio   March 31, 2013 (Unaudited)

 

 

 

 

 

Restricted Securities. Restricted securities are purchased in private placement transactions and cannot be sold without prior registration unless the sale is pursuant to an exemption under the Securities Exchange Act of 1933, as amended. The following table consists of restricted securities held by Montgomery Street Income Securities Inc. (the “Fund”) at March 31, 2014, that have not been deemed liquid, by the Fund’s investment adviser.

 

     Initial
Acquisition
Date		      Cost      Ending
Value		      Percent of
Net Assets		  

American Airlines Pass-Through Trust , 4.95%, 01/15/23

      01/24/2014       $ 413,937       $ 417,272         0.2 % 

Banque PSA Finance SA , 2.14%, 04/04/14

      09/29/2013         300,000         299,976         0.2   

Daimler Finance North America LLC , 3.00%, 03/28/16

      03/07/2014         312,848         311,914         0.2   

Nissan Motor Acceptance Corp. , 2.65%, 09/26/18

      03/24/2014         406,238         404,728         0.2   

RCI Banque SA , 2.11%, 04/11/14

      04/06/2011         600,000         600,123         0.3   

Rabobank Capital Funding Trust III , 5.25%, 10/21/16

      03/24/2010         728,163         839,000         0.4   

Saudi Electricity Global Sukuk Co. 2 , 5.06%, 04/08/43

      03/26/2013         200,000         189,500         0.1   

Sumitomo Mitsui Financial Group Inc. , 4.44%, 04/02/24

      03/27/2014         350,000         350,376         0.2   
     

 

 

     

 

 

     

 

 

  
      $ 3,311,186       $ 3,412,889         1.8 % 
     

 

 

     

 

 

     

 

 

  

Security Valuation. Under the Fund’s valuation policy and procedures, the Fund’s Board of Directors (the “Board”) has delegated the daily operational oversight of the securities valuation function to Jackson Fund Services (“JFS” or “Administrator”), a division of Jackson National Asset Management, LLC. The Board has delegated to the Pricing Committee of JFS (“Pricing Committee”), the authority to approve determinations of fair valuations of securities for which market quotations are not readily available as well as to supervise JFS in the performance of its responsibilities pursuant to the valuation policy and procedures. The Pricing Committee consists of the Fund’s Chief Executive Officer, Chief Financial Officer and Chief Compliance Officer. For those securities fair valued under procedures adopted by the Board, the Pricing Committee reviews and affirms the reasonableness of the fair valuation determinations after considering all relevant information that is reasonably available. The Pricing Committee’s fair valuation determinations are subject to review by the Chair of the Fund’s Valuation Committee on a monthly basis and the Board at its next regularly scheduled meeting covering the calendar quarter in which the fair valuation was determined.

Investments are stated at value determined as of the close of regular trading (generally, 4:00 PM Eastern Time) on the New York Stock Exchange (“NYSE”) on each day the exchange is open for trading. Debt securities are valued by independent pricing services approved by, or at the direction of, the Board. If the pricing services are unable to provide valuations, debt securities are valued at the most recent bid quotation for a long position and ask quotation for a short position or an evaluated price, as applicable, obtained from a broker/dealer or widely used quotation system. Fixed income securities with a remaining maturity of sixty days or less maturing at par, are valued at amortized cost, unless it is determined that such price does not approximate market value. Forward foreign currency contracts are generally valued at the forward foreign currency exchange rate as of the close of the NYSE. Futures contracts traded on an exchange are valued at the settlement price. If the settlement price is not available, exchange traded futures are valued at the last sales price as of the close of business on the local exchange. Options traded on an exchange are valued at the last traded price as of the close of business on the local exchange. If the last trade is determined not to be representative of fair value, exchange traded options are valued at the last bid. Centrally cleared swap agreements, listed on a multilateral or trade facility platform, such as a registered exchange, are valued by the respective exchange. The exchange determines a daily settlement price via pricing models which use, as appropriate, its members’ actionable levels across complete term structures along with external third party prices for centrally cleared credit default swaps and underlying rates including overnight index swap rates and forward interest rates for centrally cleared interest rate swaps. Over the counter (“OTC”) derivatives, including options and swap agreements, are generally valued by approved pricing services. If the pricing services are unable to provide valuations, OTC derivatives are valued at the most recent bid quotation or evaluated price, as applicable, obtained from a broker/dealer or by pricing models using observable inputs. Pricing services utilized to value debt and derivative instruments may use various pricing techniques which take into account appropriate factors such as yield, credit quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings, broker quotes and other relevant data.

Montgomery Street Income Securities, Inc.

Notes to Investment Portfolio   March 31, 2014 (Unaudited)

 

 

 

 

 

Market quotations may not be readily available for certain debt and derivative investments. If market quotations are not readily available or if it is determined that a quotation of an investment does not represent market value, then the investment is valued at a “fair value” as determined in good faith using procedures approved by the Board. Although there can be no assurance, in general, the fair value of a security is the amount the owner of such security might reasonably expect to receive upon its current sale. Situations that may require a security to be fair valued may include instances where a security is thinly traded or restricted as to resale. In addition, securities may be fair valued based on the occurrence of a significant event. Significant events may be specific to a particular issuer, such as mergers, restructurings or defaults. Alternatively, significant events may affect an entire market, such as natural disasters or government actions. Securities are fair valued based on observable and unobservable inputs including the Administrator‘s own assumptions in determining fair value. Under the procedures approved by the Board, the Administrator may rely on independent pricing services or other sources, including the Fund’s Adviser, to assist in determining the fair value of a security. Factors considered to determine fair value include the correlation with price movement of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading or other market data. The value of an investment for purposes of calculating the Fund’s net asset value (“NAV”) can differ depending on the source and method used to determine the value.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosure”

This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. Various inputs are used in determining the value of the Fund’s investments under FASB ASC Topic 820 guidance. The inputs are summarized into three broad categories.

Level 1 includes valuations based on unadjusted quoted prices of identical securities in active markets, including valuations for securities listed on an exchange.

Level 2 includes valuations determined from significant direct or indirect observable inputs. Direct observable inputs include broker quotes, third party prices, closing prices of similar securities in active markets, closing prices for identical or similar securities in non-active markets. Indirect significant observable inputs include factors such as interest rates, yield curves, prepayment speeds or credit ratings. Level 2 generally includes valuations of vendor evaluated debt instruments, broker quotes in active markets, securities valued at amortized cost, centrally cleared swap agreements, modeled OTC derivatives contracts and swap agreements valued by pricing services.

Level 3 includes valuations determined from significant unobservable inputs including the Administrator’s own assumptions in determining the fair value of the investment. Inputs used to determine the fair value of Level 3 securities include security specific inputs such as: credit quality, credit rating spreads, issuer news, trading characteristics, call features or maturity; or industry specific inputs such as trading activity of similar markets or securities, changes in the security’s underlying index or comparable securities’ models. Level 3 valuations include certain single source quotes received from brokers (either directly or through a vendor), securities restricted to resale due to market events, newly issued or investments for which reliable quotes are not available.

To assess the continuing appropriateness of security valuation, the Administrator regularly compares prior day prices with current day prices, transaction prices and alternative vendor prices. When the comparison results exceed pre-defined thresholds, the Administrator challenges the prices exceeding tolerance levels with the pricing service or broker. To verify Level 3 unobservable inputs, the Administrator uses a variety of techniques as appropriate to substantiate these valuation approaches including a regular review of key inputs and assumptions, transaction back-testing or disposition analysis and review of related market activity.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

Montgomery Street Income Securities, Inc.

Notes to Investment Portfolio   March 31, 2013 (Unaudited)

 

 

 

 

 

The following table summarizes the Fund’s investments in securities and other financial instruments as of March 31, 2014 by valuation level.

 

     Assets - Investments in Securities  
     Level 1     Level 2     Level 3      Total  

Corporate Bonds

    $     —        $ 107,893,603      $ —         $ 107,893,603   

Non-U.S. Government Agency ABS

      —          10,855,725        —           10,855,725   

Government and Agency Obligations

      —          46,098,898        —           46,098,898   

Purchased Options

      —          214,286        —           214,286   

Short Term Investments

      —          19,536,501        —           19,536,501   
  

 

 

    

 

 

    

 

 

     

 

 

  

Fund Total

    $ —        $ 184,599,013      $ —         $ 184,599,013   
     Liabilities - Investments in Securities  
     Level 1     Level 2     Level 3      Total  

Government and Agency Obligations

    $ —        $ 1,655,391      $ —         $ 1,655,391   
  

 

 

    

 

 

    

 

 

     

 

 

  

Fund Total

    $ —        $ 1,655,391      $ —         $ 1,655,391   
     Assets - Investments in Other Financial Instruments*  
     Level 1     Level 2     Level 3      Total  

Exchange Traded Written Option

    $ 54,798      $ —        $ —         $ 54,798   

Futures Contracts

      37,058        —          —           37,058   

Forward Foreign Currency Contracts

      —          102,601        —           102,601   

OTC Interest Rate Swap Agreements

      —          24,527        —           24,527   

Centrally Cleared Interest Rate Swap Agreements

      —          58,789        —           58,789   

OTC Credit Default Swap Agreements

      —          429,948        —           429,948   

Centrally Cleared Credit Default Swap Agreements

      —          884,443        —           884,443   
  

 

 

    

 

 

    

 

 

     

 

 

  

Fund Total

    $ 91,856      $ 1,500,308      $ —         $ 1,592,164   
     Liabilities - Investments in Other Financial Instruments*  
     Level 1     Level 2     Level 3      Total  

Written Options

    $ (44,109 )    $ (268,320 )    $ —         $ (312,429 ) 

Exchange Traded Written Option

      (6,461 )      —          —           (6,461 ) 

Futures Contract

      (7,740 )      —          —           (7,740 ) 

Forward Foreign Currency Contracts

      —          (115,547 )      —           (115,547 ) 

OTC Interest Rate Swap Agreements

      —          (155,492 )      —           (155,492 ) 

Centrally Cleared Interest Rate Swap Agreements

      —          (49,642 )      —           (49,642 ) 

OTC Credit Default Swap Agreements

      —          (43,096 )      —           (43,096 ) 
  

 

 

    

 

 

    

 

 

     

 

 

  

Fund Total

    $ (58,310 )    $ (632,097 )    $ —         $ (690,407 ) 

 

* Investments in other financial instruments are derivative instruments not reflected in the Investment Portfolio and include written options, futures contracts, forward foreign currency contracts, and swap agreements. All derivatives are reflected at the unrealized appreciation/(depreciation) on the instrument, except for written options which are reflected at value.

The Fund recognizes transfers between levels as of the beginning of the period. There were no transfers into or out of Level 1, 2 or 3 during the period. There were no significant Level 3 valuations for which significant unobservable valuation inputs were developed at March 31, 2014.

Schedule of Open Futures Contracts

 

     Contracts
Long		      Unrealized
Appreciation/
(Depreciation)		  

5-Year USD Deliverable Interest Rate Swap Future, Expiration June 2014

      19       $ (7,740 ) 

90-Day Eurodollar Future, Expiration March 2015

      129         22,666   

90-Day Eurodollar Future, Expiration June 2015

      34         14,392   
     

 

 

  
   $ 29,318   
     

 

 

  

Montgomery Street Income Securities, Inc.

Notes to Investment Portfolio   March 31, 2013 (Unaudited)

 

 

 

 

 

Schedule of Open Forward Foreign Currency Contracts

 

Counterparty

   

Currency
Purchased/Sold

   

Settlement
Date

   

Notional
Amount

    

Currency
Value

    

Unrealized
Gain/(Loss)

  

BBP

    BRL/USD    04/02/2014    BRL      793,425      $ 349,680      $ 23,020   

BBP

    BRL/USD    05/05/2014    BRL      793,424        346,684        641   

BBP

    GBP/USD    06/12/2014    GBP      1,090,000        1,816,209        (1,740 ) 

BBP

    MXN/USD    05/14/2014    MXN      2,975,000        227,130        2,294   

GSB

    MXN/USD    06/25/2014    MXN      8,556,328        651,099        12,782   

BBP

    USD/AUD    04/02/2014    AUD      (483,000 )      (447,936 )      (17,811 ) 

BBP

    USD/BRL    05/05/2014    BRL      (1,137,500 )      (497,026 )      2,326   

BBP

    USD/BRL    06/03/2014    BRL      (500,000 )      (216,757 )      (7,315 ) 

BBP

    USD/BRL    07/02/2014    BRL      (4,263,770 )      (1,834,079 )      (52,386 ) 

BBP

    USD/BRL    08/04/2014    BRL      (1,310,000 )      (558,326 )      (13,197 ) 

BBP

    USD/EUR    04/02/2014    EUR      (60,000 )      (82,659 )      (345 ) 

GSB

    USD/EUR    04/02/2014    EUR      (338,000 )      (465,648 )      (4,212 ) 

BBP

    USD/EUR    04/02/2014    EUR      (1,517,000 )      (2,089,906 )      14,542   

BBP

    USD/EUR    04/02/2014    EUR      (260,000 )      (358,191 )      3,432   

BBP

    USD/EUR    04/02/2014    EUR      (6,770,000 )      (9,326,739 )      (7,868 ) 

GSB

    USD/EUR    05/02/2014    EUR      (76,000 )      (104,695 )      79   

BBP

    USD/EUR    05/02/2014    EUR      (8,945,000 )      (12,322,295 )      (10,289 ) 

GSB

    USD/GBP    06/12/2014    GBP      (2,105,000 )      (3,507,449 )      19,510   

BBP

    USD/GBP    06/12/2014    GBP      (148,000 )      (246,605 )      (384 ) 

BBP

    USD/JPY    05/13/2014    JPY      (190,000,000 )      (1,841,228 )      23,975   
             

 

 

    

 

 

  
  $ (30,508,737 )    $ (12,946 ) 
             

 

 

    

 

 

  

Schedule of Written Options

 

     Expiration
Date		      Exercise
Price		      Contracts      Value  

Exchange-Traded Futures Options

  

10-Year U.S. Treasury Note Future Call Option

      04/25/2014         125.5         37       $ (2,891 ) 

10-Year U.S. Treasury Note Future Call Option

      05/23/2014         125.5         38         (8,312 ) 

10-Year U.S. Treasury Note Future Call Option

      05/23/2014         126.0         14         (2,187 ) 

10-Year U.S. Treasury Note Future Put Option

      04/25/2014         122.5         37         (10,406 ) 

10-Year U.S. Treasury Note Future Put Option

      05/23/2014         122.0         52         (20,313 ) 

Index OptioniTraxx Europe Series 20 Put Option, GSI

      06/18/2014         0.9         43         (5,388 ) 

Interest Rate Swaption

            

Put Swaption, 3-Month LIBOR versus 2.50% fixed, BBP

      09/21/2015         N/A         92         (262,932 ) 
        

 

 

     

 

 

  
     313       $ (312,429 ) 
        

 

 

     

 

 

  

Summary of Written Options

 

     Contracts     Premiums  

Options outstanding at December 31, 2013

      1,823      $ 541,431   

Options written during the period

      369        105,960   

Options closed during the period

      (1,015 )      (138,212 ) 

Options expired during the period

      (864 )      (272,449 ) 
  

 

 

    

 

 

  

Options outstanding at March 31, 2014

      313      $ 236,730   
  

 

 

    

 

 

  

Montgomery Street Income Securities, Inc.

Notes to Investment Portfolio   March 31, 2013 (Unaudited)

 

 

 

 

 

Schedule of Exchange Traded Written Options

 

     Expiration
Date		      Exercise
Price		      Contracts      Unrealized
Appreciation/
(Depreciation) 		 

Exchange Traded Options on Futures

            

3-Month Euro Euribor Interest Rate Future Call Option

      12/15/2014         EUR 99.50         66       $ (6,461 ) 

3-Month Euro Euribor Interest Rate Future Put Option

      12/15/2014         EUR 99.50         66         54,798   
        

 

 

     

 

 

  
           132       $ 48,337   
        

 

 

     

 

 

  

Schedule of Interest Rate Swap Agreements

 

Counterparty

   

Floating Rate Index

  

Paying Floating
Rate

   

Fixed Rate

    

Expiration
Date

     

Notional
Amount1

     

Premiums
Paid /
(Received)

    

Unrealized
Appreciation /
(Depreciation)

  

Over the Counter Interest Rate Swap Agreements

                

BBP

    6-Month Australian Bank Bill Short
Term Rate		   Paying      4.00 %      06/18/2019       AUD      2,000,000       $ 25,490      $ (8,464 ) 

GSB

    Brazil Interbank Rate   Paying      8.72 %      01/02/2017       BRL      5,000,000         (8,596 )      (147,028 ) 

BBP

    Mexican Interbank Rate   Paying      6.80 %      12/26/2023       MXN      7,100,000         1,206        9,314   

BBP

    Mexican Interbank Rate   Paying      6.80 %      12/26/2023       MXN      3,000,000         2,757        1,688   

BBP

    Mexican Interbank Rate   Paying      6.80 %      12/26/2023       MXN      34,000,000         43,513        6,866   

GSB

    Mexican Interbank Rate   Paying      6.80 %      12/26/2023       MXN      5,700,000         1,787        6,659   
                  

 

 

    

 

 

  
   $ 66,157      $ (130,965 ) 
                  

 

 

    

 

 

  

 

Counterparty

   

Floating Rate Index

   

Paying/
Receiving
Floating Rate

   

Fixed
Rate

    

Expiration
Date

     

  

   

Notional
Amount1

     

Unrealized
Appreciation /
(Depreciation)

  

Centrally Cleared Interest Rate Swap Agreements

                 

N/A

    3-Month Euribor    Receiving      0.40 %      03/16/2015       EUR      5,500,000       $ (7,170 ) 

N/A

    3-Month LIBOR    Paying      2.00 %      12/18/2018            3,300,000         48,618   

N/A

    3-Month LIBOR    Paying      2.65 %      07/31/2023            1,500,000         (13,605 ) 

N/A

    6-Month Australian Bank Bill Short Term Rate    Paying      4.00 %      06/18/2019       AUD      700,000         10,171   

N/A

    6-Month Euribor    Receiving      2.00 %      09/17/2024       EUR      200,000         (3,040 ) 

N/A

    British Bankers’ Association Yen LIBOR    Paying      1.00 %      09/18/2023       JPY      256,300,000         (25,827 ) 
                   

 

 

  
   $ 9,147   
                   

 

 

  

 

1 

Notional amount is stated in USD unless otherwise noted.

Schedule of Credit Default Swap Agreements

 

Counter-party

   

Reference Obligation

    Implied
Credit
Spread  3		    Fixed
Received
Rate 6		     Expiration
Date		     Notional
Amount 1,5		        Value4         Premiums
Paid /
(Received)		     Unrealized
Appreciation /
(Depreciation)		  

Over the Counter Credit Default Swap Agreements

  

Credit default swap agreements - sell protection 2

  

BBP

   

Anadarko Petroleum Corp., 1.00%, 06/20/17

    0.52%      1.00 %      06/20/2017      $(100,000)   $ 1,543      $ (3,337 )    $ 4,913   

GSI

   

Canadian Natural Resources Ltd., 6.25%, 03/15/38

    0.12%      1.00 %      12/20/2015      (500,000)     7,602        1,714        6,055   

GSI

   

Carlsberg Breweries A/S, 3.38%, 10/13/17

    0.88%      1.00 %      03/20/2019      (137,766)     818        601        263   

BBP

   

Federative Republic of Brazil, 12.25%, 03/06/30

    0.73%      1.00 %      06/20/2016      (1,800,000)     10,822        (5,979 )      17,401   

GSI

   

Federative Republic of Brazil, 12.25%, 03/06/30

    2.22%      1.00 %      03/20/2024      (1,300,000)     (128,843 )      (134,804 )      6,394   

GSI

   

Finmeccanica Finance S.A., 5.75%, 12/12/18

    1.64%      5.00 %      03/20/2018      (275,531)     35,524        16,724        19,259   

GSI

   

Forest Oil Corp., 7.25%, 06/15/19

    8.96%      5.00 %      06/20/2017      (500,000)     (51,677 )      (13,125 )      (37,719 ) 

GSI

   

Gazprom International BV, 5.63%, 07/22/13

    2.36%      1.00 %      03/20/2017      (2,000,000)     (77,579 )      (166,265 )      89,353   

BBP

   

Kingdom of Spain, 5.50%, 07/30/17

    0.97%      1.00 %      12/20/2018      (300,000)     456        (17,663 )      18,219   

GSI

   

Kingdom of Spain, 5.50%, 07/30/17

    0.97%      1.00 %      12/20/2018      (900,000)     1,367        (40,980 )      42,646   

GSI

   

NRG Energy Inc., 8.50%, 06/15/19

    1.40%      5.00 %      03/20/2017      (200,000)     21,014        (14,306 )      35,653   

BBP

   

People’s Republic of China, 4.25%, 10/28/14

    0.82%      1.00 %      12/20/2018      (1,300,000)     10,643        15,476        (4,400 ) 

GSI

   

People’s Republic of China, 4.75%, 10/29/13

    0.82%      1.00 %      12/20/2018      (350,000)     2,865        3,960        (977 ) 

BBP

   

Petrobas International Finance Co., 8.38%, 12/10/18

    2.14%      1.00 %      06/20/2018      (400,000)     (18,220 )      (18,434 )      347   

BBP

   

Republic of Italy, 6.88%, 09/27/23

    1.25%      1.00 %      12/20/2018      (600,000)     (6,686 )      (46,024 )      39,539   

Montgomery Street Income Securities, Inc.

Notes to Investment Portfolio   March 31, 2014 (Unaudited)

 

 

 

 

 

Counterparty

   

Reference Obligation

   

Implied
Credit
Spread 3

   

Fixed
Received
Rate 6

     

Expiration
Date

     

Notional
Amount 1,5

   

    Value4    

     

Premiums
Paid /

(Received)

     

Unrealized
Appreciation

  

Over the Counter Credit Default Swap Agreements (continued)

  

Credit default swap agreements - sell protection 2 (continued)

  

GSI

   

Republic of Italy, 6.88%, 09/27/23

    0.91%      1.00 %       03/20/2017       $(1,300,000)    $ 3,609       $ (10,947 )     $ 14,989   

GSI

   

Republic of Italy, 6.88%, 09/27/23

    1.25%      1.00 %       12/20/2018       (200,000)      (2,229 )       (13,027 )       10,864   

GSI

   

Russian Federation, 7.50%, 03/31/30

    1.83%      1.00 %       09/20/2017       (700,000)      (19,399 )       (39,779 )       20,614   

BBP

   

United Mexican States, 7.50%, 04/08/33

    0.35%      1.00 %       06/20/2016       (1,200,000)      17,438         1,067         16,772   

BBP

   

United Mexican States, 5.95%, 03/19/19

    0.84%      1.00 %       03/20/2019       (300,000)      2,358         (586 )       3,044   

GSI

   

United Mexican States, 5.95%, 03/19/19

    0.54%      1.00 %       09/20/2017       (1,600,000)      25,349         (25,181 )       51,064   

GSI

   

United Mexican States, 5.95%, 03/19/19

    0.84%      1.00 %       03/20/2019       (1,300,000)      10,220         5,532         5,121   

BBP

   

Virgin Media Finance Plc, 4.88%, 02/15/22

    3.34%      5.00 %       03/20/2021       (413,297)      41,001         16,623         25,066   

BBP

   

Whirlpool Corp., 7.75%, 07/15/16

    0.84%      1.00 %       03/20/2019       (350,000)      2,760         505         2,372   
              

 

   

 

 

     

 

 

     

 

 

  
   $(18,026,594)    $ (109,244 )     $ (488,235 )     $ 386,852   
              

 

   

 

 

     

 

 

     

 

 

  

 

Counterparty

   

Reference Obligation

   

Implied
Credit
Spread 3

   

Fixed
Received
Rate 6

     

Expiration
Date

     

Notional
Amount 1,5

   

    Value4    

     

Unrealized
Appreciation

  

Centrally Cleared Credit Default Swap Agreements

  

Credit default swap agreements - sell protection 2

  

N/A

   

CDX.NA.IG.17

    N/A      1.00 %       12/20/2016       $(600,000)    $ 11,641       $ 2,038   

N/A

   

CDX.NA.IG.18

    N/A      1.00 %       06/20/2017       (7,100,000)      145,550         40,830   

N/A

   

CDX.NA.IG.19

    N/A      1.00 %       12/20/2017       (43,400,000)      890,032         830,456   

N/A

   

iTraxx Europe Series 21

    N/A      1.00 %       06/20/2019       (7,714,880)      93,003         11,119   
              

 

   

 

 

     

 

 

  
   $(58,814,880)    $ 1,140,226       $ 884,443   
              

 

   

 

 

     

 

 

  

 

1 

Notional amount is stated in USD.

2 

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay the buyer of protection an amount equal to the notional amount of the referenced obligation and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap agreement less the recovery value of the reference obligation or underlying securities comprising the referenced index.

3 

Implied credit spreads, represented in absolute terms, utilized in determining the value of credit default swap agreements on corporate issues and sovereign issues serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the applicable agreement.

4 

The prices and resulting values for credit default swap agreements on credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

5 

The maximum potential amount the Fund could be required to pay as a seller of credit protection if a credit event occurs is limited to the total notional amount which is defined under the terms of each swap agreement.

6 

If the Fund is a seller of protection, the Fund receives the fixed rate.

Income Tax Information. At March 31, 2014, the aggregate cost of investment securities for income tax purposes was $178,870,825. Net unrealized appreciation aggregated to $5,728,188 of which $7,382,336 related to appreciated investment securities and $1,654,148 related to depreciated investment securities.

For additional information on the Fund’s policies regarding investments and other significant accounting matters, please refer to the Fund’s most recent annual or semi-annual report.

Item 2. Controls and Procedures.

 

(a) The President/Principal Executive Officer and the Treasurer/Principal Financial Officer of the registrant have concluded, based on their evaluation of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) as of a date within ninety (90) days of the filing date of this report on Form N-Q, that such controls and procedures are effective and that the design and operation of such procedures ensures that information required to be disclosed by the registrant in this report on Form N-Q is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms.

 

(b) There has been no change in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) that occurred during the registrant’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 3. Exhibits.

Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are attached hereto.

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.

 

  Montgomery Street Income Securities, Inc.
By:   /s/ Mark D. Nerud
  Mark D. Nerud
  President and Principal Executive Officer
Date:   May 30, 2014

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/ Mark D. Nerud
 

Mark D. Nerud

President and Principal Executive Officer

Date:  

May 30, 2014

 

By:   /s/ Daniel W. Koors
 

Daniel W. Koors

Treasurer and Principal Financial Officer

Date:   May 30, 2014

Exhibit List

 

Exhibit 3(a):   Certification of the Principal Executive Officer required by Rule 30a-2(a) under the Act.
Exhibit 3(b):   Certification of the Principal Financial Officer required by Rule 30a-2(a) under the Act.