UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number
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811-02340
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Montgomery Street Income Securities, Inc.
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(Exact name of registrant as specified in charter)
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225 West Wacker Drive, Suite 1200
Chicago, Illinois
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60606
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(Address of principal executive offices)
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(Zip code)
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Mark D. Nerud
225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606
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(Name and address of agent for service)
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Registrants telephone number, including area code:
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(312) 338-5801
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Date of fiscal year end:
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December 31
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Date of reporting period:
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July 1, 2012 September 30, 2012
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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.
(the Fund)
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Investment Portfolio
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as of September 30, 2012 (Unaudited)
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Principal
Amount ($)
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Value ($)
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Corporate Bonds (57.7%)
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Consumer Discretionary 2.1%
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Aviation Capital Group, 7.13%, 10/15/20 (a)
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$
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600,000
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$
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629,658
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COX Communications Inc., 6.25%, 06/01/18 (a)
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263,000
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315,642
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CSC Holdings Inc., 8.63%, 02/15/19
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2,000,000
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2,370,000
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NBCUniversal Media LLC, 2.88%, 04/01/16
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300,000
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317,760
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TCI Communications Inc., 8.75%, 08/01/15
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35,000
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42,316
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Time Warner Cable Inc., 8.25%, 04/01/19
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290,000
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389,244
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4,064,620
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Consumer Staples 2.2%
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Altria Group Inc., 9.70%, 11/10/18
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1,014,000
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1,452,353
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Altria Group Inc., 9.25%, 08/06/19
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169,000
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239,965
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Constellation Brands Inc., 4.63%, 03/01/23
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900,000
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918,000
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Kraft Foods Group Inc., 2.25%, 06/05/17 (b)
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600,000
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617,703
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Kraft Foods Group Inc., 5.38%, 02/10/20 (b)
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268,000
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318,519
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Mondelez International Inc., 5.38%, 02/10/20
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244,000
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294,353
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Reynolds Group Issuer Inc., 7.13%, 04/15/19
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300,000
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316,500
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4,157,393
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Energy 10.7%
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Anadarko Petroleum Corp., 6.45%, 09/15/36
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800,000
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991,154
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BP Capital Markets Plc, 3.75%, 06/17/13
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24,000
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24,521
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BP Capital Markets Plc, 3.63%, 05/08/14
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521,000
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546,354
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Canadian Oil Sands Ltd., 7.75%, 05/15/19 (a)
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1,000,000
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1,260,014
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Canadian Oil Sands Ltd., 4.50%, 04/01/22 (a)
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1,000,000
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1,072,916
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Coffeyville Resources LLC, 9.00%, 04/01/15 (a)
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1,011,000
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1,079,243
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Dolphin Energy Ltd., 5.50%, 12/15/21 (a)
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800,000
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925,200
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El Paso Pipeline Partners Operating Co. LLC, 6.50%, 04/01/20
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1,000,000
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1,186,336
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Energy Transfer Partners LP, 8.50%, 04/15/14
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161,000
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177,395
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Gazprom OAO, 9.25%, 04/23/19 (a)
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300,000
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390,750
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Midcontinent Express Pipeline LLC, 6.70%, 09/15/19 (a)
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400,000
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425,573
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Novatek Finance Ltd., 6.60%, 02/03/21 (a)
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800,000
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935,040
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Odebrecht Drilling Norbe VIII/IX Ltd., 6.35%, 06/30/21 (a)
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291,000
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327,230
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OGX Petroleo e Gas Participacoes SA, 8.38%, 04/01/22 (a)
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800,000
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696,000
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Petrobras International Finance Co., 5.38%, 01/27/21
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1,100,000
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1,239,448
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Pioneer Natural Resources Co., 6.88%, 05/01/18
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2,000,000
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2,428,242
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Pioneer Natural Resources Co., 7.20%, 01/15/28
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200,000
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250,148
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Plains All American Pipeline LP, 8.75%, 05/01/19
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1,000,000
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1,344,653
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Pride International Inc., 6.88%, 08/15/20
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621,000
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786,139
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Ras Laffan Liquefied Natural Gas Co. Ltd. III, 4.00%, 09/30/20
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839,800
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944,775
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Rockies Express Pipeline LLC, 3.90%, 04/15/15 (b)
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1,800,000
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1,773,000
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SandRidge Energy Inc., 7.50%, 03/15/21
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900,000
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927,000
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TNK-BP Finance SA, 7.88%, 03/13/18
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500,000
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605,000
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Transcontinental Gas Pipe Line Corp., 6.40%, 04/15/16
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250,000
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290,482
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20,626,613
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Financials 34.5%
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Abbey National Treasury Services Plc, 2.03%, 04/25/14 (c)
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800,000
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793,994
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ABN Amro North American Holding Preferred Capital Repackage Trust I, 6.52% (callable at 100 beginning 11/08/12) (b) (d) (e)
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1,000,000
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925,000
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Ally Financial Inc., 4.63%, 06/26/15
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900,000
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922,947
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American Express Co., 6.15%, 08/28/17
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500,000
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608,217
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American Express Credit Corp., 7.30%, 08/20/13
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700,000
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741,658
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American International Group Inc., 8.25%, 08/15/18
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500,000
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642,955
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Principal
Amount ($)
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Value ($)
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Asciano Finance Ltd., 5.00%, 04/07/18 (a)
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$
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300,000
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$
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322,190
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Australia & New Zealand Banking Group Ltd., 5.10%, 01/13/20 (a)
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400,000
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457,714
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Banco Bradesco SA, 2.54%, 05/16/14 (b) (c)
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500,000
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503,517
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Banco do Brasil SA, 6.00%, 01/22/20 (a)
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500,000
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588,750
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Banco Santander Brasil SA, 4.50%, 04/06/15 (a)
|
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100,000
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102,625
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Banco Santander Brasil SA, 4.50%, 04/06/15
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300,000
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307,875
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Banco Santander Chile, 3.75%, 09/22/15 (a)
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500,000
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516,472
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Banco Votorantim SA, 5.25%, 02/11/16 (a)
|
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400,000
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424,000
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Bank of America Corp., 6.00%, 09/01/17
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115,000
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133,018
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Banque PSA Finance, 2.25%, 04/04/14 (b) (c)
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300,000
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294,101
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Barclays Bank Plc, 10.18%, 06/12/21 (b)
|
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1,400,000
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1,818,782
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BBVA Bancomer SA, 4.50%, 03/10/16 (a)
|
|
500,000
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527,500
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BBVA Bancomer SA, 6.50%, 03/10/21 (a)
|
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400,000
|
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438,200
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BNP Paribas, 7.78% (callable at 100 beginning 07/02/18) (d) (e), EUR
|
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500,000
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641,176
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BPCE SA, 2.19%, 02/07/14 (b) (c)
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|
700,000
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705,079
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Capital One Capital V, 10.25%, 08/15/39
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1,000,000
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1,030,000
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CBA Capital Trust II, 6.02% (callable at 100 beginning 03/15/16) (a) (d) (e)
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200,000
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200,000
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Citigroup Inc., 6.01%, 01/15/15
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2,200,000
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2,411,031
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Citigroup Inc., 8.50%, 05/22/19
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1,235,000
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1,633,295
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Commonwealth Bank of Australia, 1.12%, 03/17/14 (a) (c)
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|
200,000
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|
200,850
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Commonwealth Bank of Australia, 5.00%, 10/15/19 (a)
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50,000
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57,377
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Credit Agricole SA, 1.90%, 01/21/14 (b) (c)
|
|
400,000
|
|
401,274
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|
DNB Bank ASA, 3.20%, 04/03/17 (a)
|
|
400,000
|
|
417,760
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Export-Import Bank of Korea, 4.00%, 01/11/17
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2,700,000
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2,955,736
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Export-Import Bank of Korea, 4.00%, 01/29/21
|
|
200,000
|
|
217,902
|
|
Fibria Overseas Finance Ltd., 7.50%, 05/04/20
|
|
100,000
|
|
109,000
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Fibria Overseas Finance Ltd., 6.75%, 03/03/21 (a)
|
|
200,000
|
|
213,500
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|
Ford Motor Credit Co. LLC, 5.63%, 09/15/15
|
|
2,000,000
|
|
2,186,136
|
|
Ford Motor Credit Co. LLC, 2.50%, 01/15/16
|
|
200,000
|
|
202,448
|
|
Goldman Sachs Group Inc., 5.95%, 01/18/18
|
|
650,000
|
|
754,810
|
|
Goldman Sachs Group Inc., 6.15%, 04/01/18
|
|
600,000
|
|
700,307
|
|
Goldman Sachs Group Inc., 6.00%, 06/15/20
|
|
2,000,000
|
|
2,306,078
|
|
HBOS Plc, 6.75%, 05/21/18 (b)
|
|
700,000
|
|
710,500
|
|
HSBC Bank Plc, 5.00%, 03/20/23, GBP
|
|
500,000
|
|
838,663
|
|
HSBC Finance Corp., 6.68%, 01/15/21
|
|
300,000
|
|
347,915
|
|
International Lease Finance Corp., 7.13%, 09/01/18 (a)
|
|
1,700,000
|
|
1,980,500
|
|
Intesa Sanpaolo SpA, 2.83%, 02/24/14 (b) (c)
|
|
800,000
|
|
788,073
|
|
IPIC GMTN Ltd., 4.00%, 03/14/21, EUR
|
|
200,000
|
|
299,020
|
|
JPMorgan Chase & Co., 6.30%, 04/23/19
|
|
2,500,000
|
|
3,073,302
|
|
Korea Exchange Bank, 3.13%, 06/26/17 (a)
|
|
400,000
|
|
415,799
|
|
Lazard Group LLC, 6.85%, 06/15/17
|
|
500,000
|
|
564,303
|
|
LBG Capital No.1 Plc, 7.87%, 08/25/20, GBP
|
|
1,000,000
|
|
1,567,846
|
|
LBG Capital No.1 Plc, 7.88%, 11/01/20 (b)
|
|
450,000
|
|
450,000
|
|
Merrill Lynch & Co. Inc., 6.88%, 04/25/18
|
|
2,400,000
|
|
2,875,474
|
|
Metropolitan Life Global Funding I, 1.10%, 01/10/14 (b) (c)
|
|
300,000
|
|
301,625
|
|
Morgan Stanley, 6.63%, 04/01/18
|
|
1,000,000
|
|
1,148,940
|
|
Morgan Stanley, 7.30%, 05/13/19
|
|
800,000
|
|
943,996
|
|
Morgan Stanley, 5.50%, 01/26/20
|
|
2,850,000
|
|
3,102,199
|
|
Morgan Stanley, 5.38%, 08/10/20, EUR
|
|
100,000
|
|
138,084
|
|
Russian Agricultural Bank OJSC Via RSHB Capital SA, 6.30%, 05/15/17
|
|
300,000
|
|
329,913
|
|
Rabobank Capital Funding Trust III, 5.25% (callable at 100 beginning 10/21/16) (b) (d) (e)
|
|
800,000
|
|
772,034
|
|
Rabobank Nederland NV, 11.00% (callable at 100 beginning 06/30/19) (b) (d) (e)
|
|
1,000,000
|
|
1,313,750
|
|
RCI Banque SA, 2.22%, 04/11/14 (b) (c)
|
|
600,000
|
|
587,778
|
|
Regions Financial Corp., 4.88%, 04/26/13
|
|
375,000
|
|
382,500
|
|
Royal Bank of Scotland Plc, 5.38%, 09/30/19, EUR
|
|
1,600,000
|
|
2,402,138
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Amount ($)
|
|
Value ($)
|
|
|
|
|
|
|
|
Sberbank, 5.50%, 07/07/15
|
|
$
|
700,000
|
|
$
|
753,480
|
|
Sberbank Via SB Capital SA, 5.40%, 03/24/17
|
|
1,200,000
|
|
1,288,008
|
|
Shinhan Bank, 4.13%, 10/04/16 (a)
|
|
200,000
|
|
215,971
|
|
SLM Corp., 5.38%, 01/15/13
|
|
1,200,000
|
|
1,215,206
|
|
Sydney Airport Finance Co. Pty Ltd., 5.13%, 02/22/21 (a)
|
|
2,100,000
|
|
2,276,631
|
|
TNK-BP Finance SA, 7.50%, 03/13/13
|
|
1,600,000
|
|
1,643,568
|
|
AK Transneft OJSC Via TransCapitalInvest Ltd., 8.70%, 08/07/18
|
|
2,250,000
|
|
2,925,000
|
|
UBS AG Stamford, 5.88%, 12/20/17
|
|
300,000
|
|
355,121
|
|
USB Capital IX, 3.50% (callable at 100 beginning 11/13/12) (d) (e)
|
|
625,000
|
|
535,556
|
|
Ventas Realty LP, 3.13%, 11/30/15
|
|
100,000
|
|
104,206
|
|
Weyerhaeuser Co., 7.38%, 10/01/19
|
|
1,000,000
|
|
1,240,881
|
|
|
|
|
|
|
|
|
|
|
|
66,301,254
|
|
Health Care 2.3%
|
|
|
|
|
|
Boston Scientific Corp., 6.40%, 06/15/16
|
|
1,200,000
|
|
1,389,127
|
|
Fresenius Medical Care Term Loan B, 4.00%, 03/31/13 (c)
|
|
654,370
|
|
654,370
|
|
Fresenius Medical Care Term Loan B, 4.00%, 03/31/13 (c)
|
|
83,850
|
|
83,850
|
|
HCA Inc., 6.50%, 02/15/20
|
|
2,000,000
|
|
2,225,000
|
|
|
|
|
|
|
|
|
|
|
|
4,352,347
|
|
Industrials 0.5%
|
|
|
|
|
|
AWAS Aviation Capital Ltd., 7.00%, 10/17/16 (a)
|
|
856,000
|
|
907,360
|
|
|
|
|
|
|
|
Materials 2.8%
|
|
|
|
|
|
Anglo American Capital Plc, 9.38%, 04/08/14 (b)
|
|
543,000
|
|
605,988
|
|
Cliffs Natural Resources Inc., 5.90%, 03/15/20
|
|
1,000,000
|
|
1,049,861
|
|
Dow Chemical Co., 8.55%, 05/15/19
|
|
990,000
|
|
1,327,552
|
|
Georgia-Pacific LLC, 5.40%, 11/01/20 (a)
|
|
1,600,000
|
|
1,875,240
|
|
Rio Tinto Finance USA Ltd., 9.00%, 05/01/19
|
|
200,000
|
|
273,481
|
|
Teck Resources Ltd., 10.75%, 05/15/19
|
|
180,000
|
|
216,918
|
|
|
|
|
|
|
|
|
|
|
|
5,349,040
|
|
Telecommunication Services 0.5%
|
|
|
|
|
|
British Telecommunications Plc, 1.50%, 12/20/13 (c)
|
|
400,000
|
|
402,632
|
|
Qtel International Finance Ltd., 4.75%, 02/16/21 (a)
|
|
300,000
|
|
332,700
|
|
Rogers Communications Inc., 7.50%, 03/15/15
|
|
179,000
|
|
207,383
|
|
|
|
|
|
|
|
|
|
|
|
942,715
|
|
Utilities 2.1%
|
|
|
|
|
|
Centrais Eletricas Brasileiras SA, 6.88%, 07/30/19
|
|
400,000
|
|
476,720
|
|
Duquesne Light Holdings Inc., 6.40%, 09/15/20 (a)
|
|
400,000
|
|
472,670
|
|
Energy Future Holdings Corp., 10.00%, 01/15/20
|
|
1,000,000
|
|
1,102,500
|
|
Florida Power Corp., 5.80%, 09/15/17
|
|
195,000
|
|
233,702
|
|
Korea Electric Power Corp., 3.00%, 10/05/15 (a)
|
|
1,400,000
|
|
1,459,808
|
|
NRG Energy Inc. Term Loan, 2.51%, 05/05/18 (c)
|
|
112,500
|
|
112,922
|
|
NRG Energy Inc. Term Loan, 4.00%, 05/05/18 (c)
|
|
85,500
|
|
85,821
|
|
|
|
|
|
|
|
|
|
|
|
3,944,143
|
|
Total Corporate Bonds
(cost $103,040,307)
|
|
|
|
110,645,485
|
|
|
|
|
|
|
|
Non-U.S. Government Agency Asset-Backed Securities 8.9%
|
|
|
|
|
|
Aircraft Certificate Owner Trust (insured by MBIA Assurance Corp.), (2003, 1A, D), 6.46%, 09/20/22 (a) (f)
|
|
38,020
|
|
38,210
|
|
Ally Auto Receivables Trust, (2009, B, A3), 1.98%, 10/15/13 (a)
|
|
33,557
|
|
33,583
|
|
American Airlines Pass-Through Trust, (2009, 1A), 10.38%, 07/02/19
|
|
557,594
|
|
603,596
|
|
American Airlines Pass-Through Trust Class A, 8.63%, 10/15/21
|
|
1,940,956
|
|
2,089,051
|
|
Banc of America Funding Corp. REMIC, (2004, A, 1A3), 5.54%, 09/20/34 (c)
|
|
623,332
|
|
641,403
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Amount ($)
|
|
Value ($)
|
|
|
|
|
|
|
|
Banc of America Mortgage Securities Inc. REMIC, (2005, H, 2A5), 3.12%, 09/25/35 (c)
|
|
$
|
1,065,000
|
|
$
|
921,244
|
|
Bayview Commercial Asset Trust, Interest Only REMIC, (2007, 2A, IO), 4.70%, 07/25/37 (a) (c)
|
|
4,142,872
|
|
251,602
|
|
Bayview Commercial Asset Trust, Interest Only REMIC, (2007, 4A, IO), 3.89%, 09/25/37 (a) (c)
|
|
4,621,928
|
|
402,253
|
|
Bayview Financial Acquisition Trust REMIC, (2007, B, 2A1), 0.54%, 08/28/47 (c)
|
|
15,813
|
|
15,809
|
|
Bear Stearns Adjustable Rate Mortgage Trust REMIC, (2004, 6, 2A1), 3.11%, 09/25/34 (c)
|
|
678,726
|
|
602,343
|
|
Citigroup Mortgage Loan Trust Inc. REMIC, (2004, NCM2, 1CB2), 6.75%, 08/25/34
|
|
162,802
|
|
173,442
|
|
Continental Airlines Pass-Through Trust Class A, 9.00%, 07/08/16
|
|
1,714,875
|
|
2,002,117
|
|
Countrywide Alternative Loan Trust REMIC, (2004, 35T2, A4), 6.00%, 02/25/35
|
|
44,015
|
|
44,054
|
|
Countrywide Alternative Loan Trust REMIC, 0.41%, 08/25/46 (c)
|
|
45,366
|
|
27,875
|
|
Credit Suisse First Boston Mortgage Securities Corp. REMIC, (2004, AR8, 2A1), 2.88%, 09/25/34 (c)
|
|
1,170,849
|
|
1,174,040
|
|
Credit-Based Asset Servicing and Securitization LLC REMIC, (2006, SC1, A), 0.49%, 05/25/36 (a) (c)
|
|
86,968
|
|
76,206
|
|
Galaxy CLO Ltd., (2005, 4A, A1VB), 0.74%, 04/17/17 (a) (c)
|
|
455,151
|
|
450,836
|
|
GMAC Mortgage Corp. Loan Trust (insured by Financial Guaranty Insurance Co.) REMIC, (2006, HE3, A2), 5.75%, 10/25/36 (c)
|
|
214,093
|
|
183,352
|
|
Holmes Master Issuer Plc, (2011, 1A, A3), 1.85%, 10/15/54 (a) (c), EUR
|
|
700,000
|
|
911,671
|
|
Indymac Index Mortgage Loan Trust REMIC, 0.52%, 07/25/35 (c)
|
|
58,956
|
|
43,335
|
|
Nationstar NIM Trust, (2007, A, A), 9.79%, 03/25/37
|
|
22,008
|
|
|
|
Residential Asset Securitization Trust REMIC, (2005, A1, A3), 5.50%, 04/25/35
|
|
2,118,205
|
|
2,125,062
|
|
Truman Capital Mortgage Loan Trust REMIC, (2006, 1, A), 0.48%, 03/25/36 (a) (c)
|
|
1,530,470
|
|
1,071,465
|
|
United Air Lines Inc. 2009-1 Pass-Through Trust, 10.40%, 11/01/16
|
|
1,456,087
|
|
1,678,140
|
|
Washington Mutual Mortgage Pass-Through Certificates REMIC, (2005, AR16, 1A3), 2.43%, 12/25/35 (c)
|
|
1,320,000
|
|
1,181,451
|
|
Wells Fargo Mortgage Backed Securities Trust REMIC, (2006, 1, A3), 5.00%, 03/25/21
|
|
334,604
|
|
343,774
|
|
Total Non-U.S. Government Agency Asset-Backed Securities
(cost $17,418,523)
|
|
|
|
17,085,914
|
|
|
|
|
|
|
|
Government and Agency Obligations 39.3%
|
|
|
|
|
|
|
|
|
|
|
|
Government Securities 12.1%
|
|
|
|
|
|
|
|
|
|
|
|
Sovereign 2.3%
|
|
|
|
|
|
Banco Nacional de Desenvolvimento Economico e Social, 5.50%, 07/12/20 (a)
|
|
400,000
|
|
474,000
|
|
Italy Buoni Poliennali Del Tesoro, 4.50%, 07/15/15, EUR
|
|
3,000,000
|
|
4,009,756
|
|
|
|
|
|
|
|
|
|
|
|
4,483,756
|
|
Treasury Inflation Index Securities 0.3%
|
|
|
|
|
|
Australian Government Treasury Inflation Indexed Bond, 4.00%, 08/20/20 (g), AUD
|
|
300,000
|
|
608,116
|
|
|
|
|
|
|
|
U.S. Treasury Securities 9.5%
|
|
|
|
|
|
U.S. Treasury Bond, 5.50%, 08/15/28, TBA (h)
|
|
1,700,000
|
|
2,433,922
|
|
U.S. Treasury Bond, 4.25%, 11/15/40, TBA (h) (i)
|
|
3,300,000
|
|
4,284,845
|
|
U.S. Treasury Bond, 4.38%, 05/15/41
|
|
100,000
|
|
132,500
|
|
U.S. Treasury Bond, 3.13%, 02/15/42
|
|
1,700,000
|
|
1,808,375
|
|
U.S. Treasury Note, 2.00%, 02/15/22, TBA (h)
|
|
6,500,000
|
|
6,760,507
|
|
U.S. Treasury Note, 1.63%, 08/15/22
|
|
2,800,000
|
|
2,796,937
|
|
|
|
|
|
|
|
|
|
|
|
18,217,086
|
|
|
|
|
|
|
|
U.S. Government Agency Mortgage-Backed Securities 27.2%
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Mortgage Corp. 0.0%
|
|
|
|
|
|
Federal Home Loan Mortgage Corp. REMIC, 7.00%, 08/15/21
|
|
12,760
|
|
14,924
|
|
|
|
|
|
|
|
Federal National Mortgage Association 27.2%
|
|
|
|
|
|
Federal National Mortgage Association, 5.50%, 01/01/37
|
|
22,613,944
|
|
24,940,202
|
|
Federal National Mortgage Association, 5.50%, 08/01/37
|
|
24,549,467
|
|
27,243,607
|
|
|
|
|
|
|
|
|
|
|
|
52,183,809
|
|
Total Government and Agency Obligations
(cost $74,805,381)
|
|
|
|
75,507,691
|
|
|
|
|
|
|
|
|
|
|
|
Contracts/
Principal
Amount ($)
|
|
Value ($)
|
|
|
|
|
|
|
|
Purchased Options 0.1%
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Put Swaption, 3 month LIBOR versus 3.45% fixed, Expiration 09/21/15, BBP
|
|
22
|
|
175,026
|
|
Total Purchased Options
(cost $174,446)
|
|
|
|
175,026
|
|
|
|
|
|
|
|
Total Investments - 106.0% (cost $195,438,657)
|
|
|
|
203,414,116
|
|
|
|
|
|
|
|
Total Forward Sales Commitments - (14.6%) (proceeds $28,028,203)
|
|
|
|
(27,954,375
|
)
|
Other Assets and Liabilities, Net 8.6% (i)
|
|
|
|
16,430,375
|
|
|
|
|
|
|
|
Total Net Assets - 100%
|
|
|
|
$
|
191,890,116
|
|
|
|
|
|
|
|
Forward Sales Commitments (14.6%)
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency Mortgage-Backed Securities (14.6%)
|
|
|
|
|
|
Federal National Mortgage Association, 5.50%, 10/15/42
|
|
(25,500,000
|
)
|
(27,954,375
|
)
|
Total Forward Sales Commitments
(cost $28,028,203)
|
|
|
|
(27,954,375
|
)
|
|
|
|
|
|
|
|
Notes to the Investment Portfolio (Unaudited)
(a)
|
Rule 144A or Section 4(2) Liquid Security. The Funds investment adviser has deemed this security to be liquid based on procedures approved by the Funds Board of Directors. As of September 30, 2012, the aggregate value of Rule 144A or Section 4(2) Liquid Securities was $26,170,709 (13.7% of net assets).
|
(b)
|
Restricted Rule 144A or Section 4(2) security. Rule 144A or Section 4(2) of the Securities Act of 1933, as amended, provides an exemption from the registration requirements for resale of this security to institutional buyers.
|
(c)
|
Floating rate note. Floating rate notes are securities whose yields vary with a designated market index or market rate. These securities are shown at their current rate as of September 30, 2012.
|
(d)
|
Perpetual maturity security.
|
(e)
|
Interest rate is fixed until stated call date and variable thereafter.
|
(f)
|
Security fair valued in good faith in accordance with the procedures established by the Funds Board of Directors. As of September 30, 2012, the value of fair valued securities was $38,210 (0.0% of net assets).
|
(g)
|
Foreign or U.S. Treasury inflation indexed note, par amount is not adjusted for inflation.
|
(h)
|
Investment purchased on a delayed delivery basis. As of September 30, 2012, the total cost of investments purchased on a delayed delivery basis was $13,239,365.
|
(i)
|
All or a portion of the security or cash pledged as collateral for open futures contracts or swap agreements. Total value of securities or cash pledged as of September 30, 2012 was $1,961,611.
|
Abbreviations:
AUD Australian Dollar
BBP - Barclays Bank PLC
BCL - Barclays Capital Inc.
BRL Brazilian Real
BOA - Bancamerica Securities/Bank of America NA
CAD - Canadian Dollar
CDX Credit Default Swap Index
CNY Chinese Yuan
EUR - European Currency Unit (Euro)
EURIBOR Europe Interbank Offered Rate
GBP - British Pound
GSB - Goldman Sachs Bank USA
GSC - Goldman Sachs & Co.
GSI - Goldman Sachs International
JPY - Japanese Yen
KRW - Korean Won
LIBOR London Interbank Offered Rate
MBIA - Municipal Bond Investors Assurance
MXN Mexican Peso
NIM - Net Interest Margin
NOK - Norwegian Krone
REMIC - Real Estate Mortgage Investment Conduit
TBA To Be Announced (Securities purchased on a delayed delivery basis)
SGD Singapore Dollar
USD - United States Dollar
ZAR South African Rand
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 Rule 144A securities held by the Fund at September 30, 2012 that have not been deemed liquid by the Funds investment adviser.
|
|
Initial
Acquisition
Date
|
|
Cost
|
|
Ending
Value
|
|
Percent of
Net Assets
|
|
ABN AMRO Holding NA, 6.52% (callable at 100 beginning 11/08/12)
|
|
03/31/2010
|
|
$
|
861,539
|
|
$
|
925,000
|
|
0.5
|
%
|
Anglo American Capital Plc, 9.38%, 04/08/14
|
|
04/03/2009
|
|
543,000
|
|
605,988
|
|
0.3
|
|
BPCE SA, 2.19%, 02/07/14
|
|
02/01/2011
|
|
699,515
|
|
705,079
|
|
0.4
|
|
Banco Bradesco SA, 2.54%, 05/16/14
|
|
05/10/2011
|
|
500,000
|
|
503,517
|
|
0.3
|
|
Banque PSA Finance, 2.25%, 04/04/14
|
|
03/29/2011
|
|
300,000
|
|
294,101
|
|
0.1
|
|
Barclays Bank Plc, 10.18%, 06/12/21
|
|
03/22/2010
|
|
1,751,258
|
|
1,818,782
|
|
0.9
|
|
Credit Agricole SA, 1.90%, 01/21/14
|
|
01/14/2011
|
|
400,000
|
|
401,274
|
|
0.2
|
|
HBOS Plc, 6.75%, 05/21/18
|
|
10/11/2010
|
|
713,181
|
|
710,500
|
|
0.4
|
|
Intesa Sanpaolo SpA, 2.83%, 02/24/14
|
|
02/15/2011
|
|
800,000
|
|
788,073
|
|
0.4
|
|
Kraft Foods Group Inc., 2.25%, 06/05/17
|
|
05/31/2012
|
|
598,970
|
|
617,703
|
|
0.3
|
|
Kraft Foods Group Inc., 5.38%, 02/10/20
|
|
07/25/2012
|
|
321,575
|
|
318,519
|
|
0.2
|
|
LBG Capital No.1 Plc, 7.88%, 11/01/20
|
|
03/25/2010
|
|
412,968
|
|
450,000
|
|
0.2
|
|
Metropolitan Life Global Funding I, 1.10%, 01/10/14
|
|
01/05/2011
|
|
300,000
|
|
301,625
|
|
0.2
|
|
RCI Banque SA, 2.22%, 04/11/14
|
|
04/06/2011
|
|
600,000
|
|
587,778
|
|
0.3
|
|
Rabobank Capital Funding Trust III, 5.25% (callable at 100 beginning 10/21/16)
|
|
03/25/2010
|
|
727,297
|
|
772,034
|
|
0.4
|
|
Rabobank Nederland NV, 11.00% (callable at 100 beginning 06/30/19)
|
|
03/30/2010
|
|
1,194,408
|
|
1,313,750
|
|
0.7
|
|
Rockies Express Pipeline LLC, 3.90%, 04/15/15
|
|
04/20/2012
|
|
1,698,866
|
|
1,773,000
|
|
0.9
|
|
|
|
|
|
$
|
12,422,577
|
|
$
|
12,886,723
|
|
6.7
|
%
|
Security Valuation.
Under the Funds valuation policy and procedures, the Funds 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 Funds 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 Committees fair valuation determinations are subject to review by the Chair of the Funds 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 or 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 a liquid 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 a liquid exchange are valued at the last traded price as of the close of business
on the local exchange. If the last trade is determined to not be representative of fair value, exchange traded options are valued at the last bid. Options traded on an illiquid exchange are valued at the most recent bid quotation obtained from a broker/dealer. Centrally cleared swap agreements are valued by the exchange via pricing models using observable inputs. 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 used to value debt and derivative securities may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings, broker quotes and other relevant data.
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 Administrators own assumptions in determining fair value. Under the procedures adopted by the Board, the Administrator may rely on independent pricing services or other sources 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 Funds net asset value (NAV) can differ depending on the source and method used to determine the value.
Financial Accounting Standards Board (FASB) Accounting Standards Update (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 Funds investments under FASB ASC Topic 820 guidance. The inputs are summarized into three broad categories.
Level 1 includes exchange listed prices.
Level 2 includes valuations determined from significant direct or indirect observable inputs. Direct observable inputs include broker quotes, closing prices of similar securities in active markets, closing prices for identical or similar securities in non-active markets or corporate action or reorganization entitlement values. Indirect significant observable inputs include factors such as interest rates, yield curves, prepayment speeds or credit ratings. Level 2 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 Administrators 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 securitys 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 substantiate 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.
The following table summarizes the Funds investments in securities and other financial instruments as of September 30, 2012 by valuation level.
|
|
Assets - Investments in Securities
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Corporate Bonds
|
|
$
|
|
|
$
|
110,645,485
|
|
$
|
|
|
$
|
110,645,485
|
|
Non-U.S. Government ABS
|
|
|
|
17,085,914
|
|
|
|
17,085,914
|
|
Government and Agency Obligations
|
|
|
|
75,507,691
|
|
|
|
75,507,691
|
|
Purchased Options
|
|
|
|
175,026
|
|
|
|
175,026
|
|
Fund Total
|
|
$
|
|
|
$
|
203,414,116
|
|
$
|
|
|
$
|
203,414,116
|
|
|
|
Liabilities - Investments in Securities
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Government and Agency Obligations
|
|
$
|
|
|
$
|
(27,954,375
|
)
|
$
|
|
|
$
|
(27,954,375
|
)
|
Fund Total
|
|
$
|
|
|
$
|
(27,954,375
|
)
|
$
|
|
|
$
|
(27,954,375
|
)
|
|
|
Assets - Other Financial Instruments*
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Futures Contracts
|
|
$
|
7,380
|
|
$
|
|
|
$
|
|
|
$
|
7,380
|
|
Forward Foreign Currency Contracts
|
|
|
|
177,151
|
|
|
|
177,151
|
|
Interest Rate Swap Agreements
|
|
|
|
252,484
|
|
|
|
252,484
|
|
Credit Default Swap Agreements
|
|
|
|
525,549
|
|
|
|
525,549
|
|
Centrally Cleared Swap Agreements
|
|
|
|
242,036
|
|
|
|
242,036
|
|
Fund Total
|
|
$
|
7,380
|
|
$
|
1,197,220
|
|
$
|
|
|
$
|
1,204,600
|
|
|
|
Liabilities - Other Financial Instruments*
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Written Options
|
|
$
|
|
|
$
|
(166,232
|
)
|
$
|
|
|
$
|
(166,232
|
)
|
Forward Foreign Currency Contracts
|
|
|
|
(73,845
|
)
|
|
|
(73,845
|
)
|
Interest Rate Swap Agreements
|
|
|
|
(9,755
|
)
|
|
|
(9,755
|
)
|
Credit Default Swap Agreements
|
|
|
|
(75,356
|
)
|
|
|
(75,356
|
)
|
Centrally Cleared Swap Agreements
|
|
|
|
(3,076
|
)
|
|
|
(3,076
|
)
|
Fund Total
|
|
$
|
|
|
$
|
(328,264
|
)
|
$
|
|
|
$
|
(328,264
|
)
|
* 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. Purchased options are included in the investment portfolio. 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 material transfers into or out of Level 1, 2 or 3 during the period. There were no material Level 3 valuations for which significant unobservable valuation inputs were developed at September 30, 2012.
FASB ASC Topic 815, Derivatives and Hedging.
This standard includes the requirement for enhanced qualitative disclosures about objectives and strategies for using derivative instruments and disclosures regarding credit-related contingent features in derivative instruments, as well as quantitative disclosures in the semi-annual and annual financial statements about fair value, gains and losses and volume of activity for derivative instruments. Information about these instruments is disclosed in the context of each instruments primary underlying risk exposure that is categorized as credit, equity price, interest rate, and foreign currency
exchange rate risk. The objectives, strategies and underlying risks for each instrument are discussed in the following paragraphs.
Futures Contracts.
The Fund may be subject to interest rate risk in the normal course of pursuing its investment objective. The Fund entered into futures contracts to manage exposure to or hedge changes in interest rates, as a substitute for investment in physical securities and as an efficient means of adjusting overall exposure to certain markets as part of its investment strategy. A futures contract is a standardized contract obligating two parties to exchange a specified asset at an agreed upon price and date. Upon entering into a futures contract, the Fund is required to deposit with the broker an amount of cash or cash equivalents equal to a certain percentage of the contract amount known as the initial margin. The Fund receives from or pays to the counterparty an amount of cash equal to the daily fluctuation in the value of the contracts. Such receipts or payments, known as the variation margin, are recorded by the Fund until the contracts are terminated at which time realized gains and losses are recognized. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin recorded by the Fund. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in value of the securities held by the Fund and the prices of the futures contracts and the possibility the Fund may not be able to enter into a closing transaction because of an illiquid market. With futures, there is minimal counterparty risk to the Fund since futures contracts are exchange traded and the exchanges clearinghouse, acting as counterparty to all exchange traded futures, guarantees the futures contracts against default.
The Fund has claimed an exclusion from the definition of the term commodity pool operator under the Commodity Exchange Act and, therefore, it is not subject to registration or regulation as a commodity pool operator under that Act.
Schedule of Open Futures Contracts
|
|
Contracts
Long
|
|
Unrealized
Appreciation
|
|
3-Month Euro Euribor Interest Rate Future, Expiration September 2014
|
|
1
|
|
$
|
4,582
|
|
3-Month Euro Euribor Interest Rate Future, Expiration December 2014
|
|
1
|
|
885
|
|
3-Month Euro Euribor Interest Rate Future, Expiration March 2015
|
|
1
|
|
964
|
|
3-Month Euro Euribor Interest Rate Future, Expiration June 2015
|
|
1
|
|
949
|
|
|
|
|
|
$
|
7,380
|
|
Forward Foreign Currency Contracts.
The Fund may be subject to foreign currency exchange rate risk in the normal course of pursuing its investment objective. The Fund entered into forward foreign currency contracts to minimize foreign currency risk on portfolio securities denominated in foreign currencies and as part of its overall investment strategy. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date. The use of forward foreign currency contracts does not eliminate fluctuations in the underlying prices of the Funds portfolio securities, but it does establish a fixed rate of currency exchange that can be achieved in the future. The market value of a forward foreign currency contact fluctuates with changes in foreign currency exchange rates. Forward foreign currency contracts are marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss and as a receivable or payable from forward foreign currency contracts. Upon settlement, delivery or receipt of the currency, a realized gain or loss is recorded, which is equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Forward foreign currency contracts involve market risk in excess of the receivable or payable related to forward foreign currency contracts recorded by the Fund. Although contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. Additionally, the Fund could be exposed to the risk of a previously hedged position becoming unhedged if the counterparty to a contract is unable to meet the terms of the contract or if the value of the currency changes unfavorably to the offsetting currency.
Schedule of Open Forward Foreign Currency Contracts
Counterparty
|
|
Currency
Purchased/Sold
|
|
Settlement
Date
|
|
Notional
Amount
|
|
Currency
Value
|
|
Unrealized
Gain/(Loss)
|
|
BCL
|
|
BRL/USD
|
|
10/02/2012
|
|
BRL
|
373,611
|
|
$
|
184,294
|
|
$
|
3,106
|
|
BCL
|
|
BRL/USD
|
|
10/02/2012
|
|
BRL
|
6,341
|
|
3,128
|
|
(21
|
)
|
BCL
|
|
BRL/USD
|
|
12/04/2012
|
|
BRL
|
2,928,640
|
|
1,433,292
|
|
3,292
|
|
BCL
|
|
BRL/USD
|
|
12/04/2012
|
|
BRL
|
40,642
|
|
19,890
|
|
(110
|
)
|
BCL
|
|
CAD/USD
|
|
12/20/2012
|
|
CAD
|
488,000
|
|
495,479
|
|
(3,261
|
)
|
BCL
|
|
CNY/USD
|
|
10/15/2012
|
|
CNY
|
943,575
|
|
149,944
|
|
1,373
|
|
BCL
|
|
CNY/USD
|
|
02/01/2013
|
|
CNY
|
9,363,750
|
|
1,474,691
|
|
(25,309
|
)
|
BCL
|
|
CNY/USD
|
|
02/01/2013
|
|
CNY
|
3,781,800
|
|
595,593
|
|
(4,407
|
)
|
BCL
|
|
CNY/USD
|
|
08/05/2013
|
|
CNY
|
1,741,964
|
|
271,225
|
|
(9,239
|
)
|
BCL
|
|
EUR/USD
|
|
12/17/2012
|
|
EUR
|
85,000
|
|
109,321
|
|
(558
|
)
|
BCL
|
|
KRW/USD
|
|
12/06/2012
|
|
KRW
|
511,260,000
|
|
458,488
|
|
7,522
|
|
BCL
|
|
MXN/USD
|
|
12/03/2012
|
|
MXN
|
6,006,739
|
|
463,716
|
|
11,895
|
|
BCL
|
|
NOK/USD
|
|
11/21/2012
|
|
NOK
|
2,906,000
|
|
506,279
|
|
8,564
|
|
GSC
|
|
SGD/USD
|
|
10/22/2012
|
|
SGD
|
1,128,477
|
|
919,530
|
|
18,283
|
|
GSC
|
|
USD/AUD
|
|
11/01/2012
|
|
AUD
|
(2,069,000
|
)
|
(2,139,917
|
)
|
14,533
|
|
BCL
|
|
USD/BRL
|
|
10/02/2012
|
|
BRL
|
(379,952
|
)
|
(187,423
|
)
|
(365
|
)
|
BCL
|
|
USD/BRL
|
|
12/04/2012
|
|
BRL
|
(6,341
|
)
|
(3,104
|
)
|
17
|
|
BCL
|
|
USD/CNY
|
|
10/15/2012
|
|
CNY
|
(943,575
|
)
|
(149,944
|
)
|
56
|
|
BCL
|
|
USD/CNY
|
|
02/01/2013
|
|
CNY
|
(13,847,499
|
)
|
(2,180,833
|
)
|
(11,263
|
)
|
BCL
|
|
USD/CNY
|
|
08/05/2013
|
|
CNY
|
(96,440
|
)
|
(15,016
|
)
|
(31
|
)
|
BCL
|
|
USD/CNY
|
|
08/05/2013
|
|
CNY
|
(943,575
|
)
|
(146,915
|
)
|
(306
|
)
|
BCL
|
|
USD/EUR
|
|
12/17/2012
|
|
EUR
|
(3,159,000
|
)
|
(4,062,866
|
)
|
91,159
|
|
GSC
|
|
USD/EUR
|
|
12/17/2012
|
|
EUR
|
(4,559,000
|
)
|
(5,863,440
|
)
|
17,351
|
|
BCL
|
|
USD/GBP
|
|
12/12/2012
|
|
GBP
|
(1,370,000
|
)
|
(2,211,801
|
)
|
(18,975
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(9,876,389
|
)
|
$
|
103,306
|
|
Options Contracts.
The Fund may be subject to foreign currency exchange and interest rate risk in the normal course of pursuing its investment objective. During the period, the Fund purchased and sold (wrote) option contracts to manage exposure to or hedge changes in interest rates.
An option is a contract that gives the purchaser of the option, in return for a premium paid, the right to buy a specified underlying instrument from the writer of the option (in the case of a call option), or to sell a specified underlying instrument to the writer of the option (in the case of a put option) at a designated price during the term of the option. When the Fund purchases an option, the premium paid by the Fund is recorded as an asset and is subsequently marked-to-market to reflect the current value of the option. Premiums paid for purchasing options which expire are treated as realized losses. Premiums paid for purchasing options which are exercised or closed are added to the cost basis of the underlying investment or offset against the proceeds of the underlying investment transaction to determine realized gain or loss. Purchasing call options tends to increase the Funds exposure to the underlying instrument. Purchasing put options tends to decrease the Funds exposure to the underlying instrument. The risks associated with purchasing options are limited to premiums paid and the failure of the counterparty to honor its obligation under the contract. When the Fund writes a call or put option, the premium received by the Fund is recorded as a liability and is subsequently marked-to-market to reflect the current value of the option. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are added to the proceeds of the underlying investment transaction or reduce the cost basis of the underlying investment to determine the realized gain or loss. Writing call options tends to decrease the Funds exposure to the underlying instrument. Writing put options tends to increase the Funds exposure to the underlying instrument. The risk associated with writing an option that is exercised is that an unfavorable change in the price of the security underlying the option could result in the Fund buying the underlying security at a price higher than the current value or selling the underlying security at a price lower than the current market value. There is also the risk the Fund may not be able to enter into a closing
transaction if the market is illiquid. Options written by the Fund do not give rise to counterparty credit risk, as they obligate the Fund, not the counterparty, to perform.
The Fund may also buy and sell (write) call and put options on futures, currencies and swaps agreements (swaptions). Swaptions are similar to options on securities except that instead of purchasing the right to buy or sell a security, the writer or purchaser of the swap option is granting or buying the right to enter into a previously agreed upon interest rate swap agreement at any time before the expiration of the option. Swaptions are illiquid investments.
Options contracts involve, to varying degrees, risk of loss in excess of the premium paid or received recorded by the Fund. The primary risks associated with the use of option contracts on futures contracts involve similar risks to trading in the underlying futures contracts, including the imperfect correlation between the change in value of the securities held by the Fund and the prices of the underlying futures contracts and the possibility the Fund may not be able to enter into a closing transaction because of an illiquid market. Option contracts entered into by the Fund during the period were traded on public markets that are regulated by the Commodities Futures Trading Commission. Similar to futures contracts, there is minimal counterparty risk to the Fund since the options on futures contracts traded by the Fund were exchange traded and the exchanges clearing house, as counterparty to all exchange traded options, guarantees the options contracts against default.
Schedule of Written Options
|
|
Expiration
Date
|
|
Exercise
Price
|
|
Contracts
|
|
Value
|
|
Interest Rate Put Swaption, 3 month LIBOR versus 0.85% fixed, BBP
|
|
10/15/2017
|
|
N/A
|
|
9
|
|
$
|
(316
|
)
|
Interest Rate Put Swaption, 3 month LIBOR versus 0.85% fixed, BBP
|
|
10/15/2017
|
|
N/A
|
|
9
|
|
(3,308
|
)
|
Interest Rate Put Swaption, 3 month LIBOR versus 2.50% fixed, BBP
|
|
10/23/2020
|
|
N/A
|
|
92
|
|
(162,601
|
)
|
Interest Rate Put Swaption, 3 month LIBOR versus 1.00% fixed, GSC
|
|
10/15/2017
|
|
N/A
|
|
17
|
|
(7
|
)
|
|
|
|
|
|
|
127
|
|
$
|
(166,232
|
)
|
Summary of Written Options
|
|
Contracts
|
|
Premiums
|
|
Options outstanding at December 31, 2011
|
|
(133
|
)
|
$
|
(61,614
|
)
|
Options written during the period
|
|
(220
|
)
|
(284,735
|
)
|
Options closed during the period
|
|
177
|
|
139,255
|
|
Options expired during the period
|
|
49
|
|
33,239
|
|
Options outstanding at September 30, 2012
|
|
(127
|
)
|
$
|
(173,855
|
)
|
Swap Agreements.
Swap agreements are bilaterally negotiated agreements between the Fund and a counterparty to exchange or swap investment cash flows, assets, foreign currencies or market-linked returns at specified, future intervals. Swap agreements are privately negotiated in the OTC market (OTC swaps) or may be executed in a multilateral or other trade facility platform, such as a registered exchange (centrally cleared swaps). Swap agreements are illiquid investments. If the Fund transacts in OTC swap agreements, they are a party to International Swaps and Derivatives Association, Inc. (ISDA) Master Agreements (ISDA Master Agreements) with select counterparties. The ISDA Master Agreements govern transactions in OTC derivatives, including swap agreements and forward foreign currency contracts, and maintain provisions for general obligations, representations, agreements, collateral and events of default or termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Any election to early termination could be material to the financial statements. The amount of collateral exchanged is based on provisions within the ISDA Master Agreements and is determined by the net exposure with the counterparty and is not identified for a specific OTC swap agreement. The Funds collateral (delivered to counterparties), as of September 30, 2012, is identified with a footnote in the Investment Portfolio.
Swap agreements are marked-to-market daily and change in value is recorded by the Fund as an unrealized gain or loss. OTC swap premiums paid or received at the beginning of the measurement period which are recorded by the Fund represent payments made or received upon entering into the OTC swap agreement to compensate for differences between the stated terms of the swap agreement and prevailing market conditions relating to credit spreads, interest rates, currency exchange rates and other relevant factors as appropriate. These upfront payments are amortized over the life of the swap agreement and recorded as a realized gain or loss upon termination or maturity of the swap agreement. A liquidation payment received or made at the termination of the OTC swap agreement is recorded as realized gain or loss. Net periodic payments received or paid by the Fund are included as part of realized gain or loss.
Upon entering into a centrally cleared swap agreement, a Fund is required to deposit with a designated swap dealer through the exchanges clearinghouse an amount of cash or cash equivalent equal to a certain percentage of the centrally cleared swap agreement known as the initial margin. The Fund receives from or pays to a designated swap dealer through the exchanges clearinghouse an amount of cash equal to the daily fluctuation in the value of the centrally cleared swap agreement. Such receipts or payments, known as the variation margin, are recorded by the Fund until the contracts are terminated at which time realized gains and losses are recognized. Centrally cleared swap agreements involve to varying degrees, risk of loss in excess of the variation margin recorded by the Fund.
Entering into swap agreements involves, to varying degrees, elements of credit and market risk in excess of the unrealized gain or loss recorded by the Fund. Such risks involve the possibility that there will be no liquid market for these agreements, that there may be unfavorable changes in the value of underlying securities and that the counterparty to the agreements may default on its obligation to perform. In addition, entering into swap agreements involves documentation risk resulting from the possibility that the parties to the swap agreement may disagree as to the meaning of contractual terms in the agreement. The credit risk associated with contracts is reduced by master netting arrangements to the extent that if an event of default occurs, all amounts with the counterparty are terminated and settled on a net basis. The Funds overall exposure to credit risk subject to master netting arrangements can change substantially within a short period, as it is affected by each transaction subject to the arrangement.
Interest Rate Swap Agreements.
The Fund may be subject to interest rate risk in the normal course of pursuing its investment objective. The Fund entered into interest rate swap agreements to manage duration, to manage interest rate and yield curve exposure and as a substitute for investment in physical securities. Interest rate swap agreements involve the exchange by the Fund with another party of their respective commitments to pay or receive interest with respect to the notional amount of principal. Interest rate swap agreements that the Fund entered into include fixed-for-floating rate swaps, under which a party agrees to pay a fixed rate in exchange for receiving a floating rate tied to a benchmark and floating-for-fixed rate swaps, under which a party agrees to pay a floating rate in exchange for receiving a fixed rate.
The Funds maximum risk of loss from counterparty credit risk for an interest rate swap agreement is the discounted net value of the cash flows to be received from the counterparty over the contracts remaining life, to the extent this amount is positive. This risk is mitigated by having a master netting arrangement between the Fund and the counterparty and by posting of collateral by the counterparty to the Fund to cover the Funds exposure to the counterparty.
Schedule of Interest Rate Swap Agreements
Counterparty
|
|
Floating Rate Index
|
|
Fund Paying
Floating Rate
|
|
Fixed Rate
|
|
Expiration Date
|
|
Notional
Amount
(1)
|
|
Unrealized
Appreciation /
(Depreciation)
|
|
BBP
|
|
Mexican Interbank Rate
|
|
Paying
|
|
5.60
|
%
|
09/06/2016
|
|
MXN
|
22,000,000
|
|
$
|
11,752
|
|
BBP
|
|
Mexican Interbank Rate
|
|
Paying
|
|
5.60
|
%
|
09/06/2016
|
|
MXN
|
6,000,000
|
|
4,529
|
|
BBP
|
|
Mexican Interbank Rate
|
|
Paying
|
|
5.60
|
%
|
09/06/2016
|
|
MXN
|
12,900,000
|
|
10,376
|
|
BBP
|
|
Mexican Interbank Rate
|
|
Paying
|
|
6.65
|
%
|
06/02/2021
|
|
MXN
|
2,000,000
|
|
7,781
|
|
BBP
|
|
Mexican Interbank Rate
|
|
Paying
|
|
6.65
|
%
|
06/02/2021
|
|
MXN
|
3,000,000
|
|
12,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
Floating Rate Index
|
|
Fund Paying
Floating Rate
|
|
Fixed Rate
|
|
Expiration Date
|
|
Notional
Amount
(1)
|
|
Unrealized
Appreciation /
(Depreciation)
|
|
GSC
|
|
3-Month South African Johannesburg Interbank Rate
|
|
Paying
|
|
6.00
|
%
|
09/19/2017
|
|
ZAR
|
9,000,000
|
|
4,790
|
|
GSC
|
|
Brazil Interbank Rate
|
|
Paying
|
|
8.26
|
%
|
01/02/2015
|
|
BRL
|
17,000,000
|
|
$
|
11,407
|
|
GSC
|
|
Brazil Interbank Rate
|
|
Paying
|
|
8.26
|
%
|
01/02/2015
|
|
BRL
|
6,000,000
|
|
748
|
|
GSC
|
|
Brazil Interbank Rate
|
|
Paying
|
|
8.26
|
%
|
01/02/2015
|
|
BRL
|
4,000,000
|
|
806
|
|
GSC
|
|
Brazil Interbank Rate
|
|
Paying
|
|
9.93
|
%
|
01/02/2015
|
|
BRL
|
1,400,000
|
|
23,895
|
|
GSC
|
|
Mexican Interbank Rate
|
|
Paying
|
|
5.60
|
%
|
09/06/2016
|
|
MXN
|
118,000,000
|
|
159,486
|
|
GSC
|
|
Mexican Interbank Rate
|
|
Paying
|
|
5.60
|
%
|
09/06/2016
|
|
MXN
|
3,600,000
|
|
4,769
|
|
GSC
|
|
Mexican Interbank Rate
|
|
Paying
|
|
5.25
|
%
|
09/06/2019
|
|
MXN
|
18,800,000
|
|
(9,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
242,729
|
|
(1)Notional amount is stated in USD unless otherwise noted.
Credit Default Swap Agreements.
The Fund may be subject to credit risk in the normal course of pursuing its investment objective. The Fund used credit default swap agreements on corporate issues, sovereign issues and indices to manage credit exposure used in combination with cash bonds exposure to take advantage of spread variances between cash bonds and the credit default swap agreement and to hedge the underlying exposure to the cash bonds. Credit default swap agreements involve one party making a stream of payments (referred to as the buyer of protection) to another party (the seller of protection) in exchange for the right to receive a specified return if a credit event occurs for the referenced entity, obligation or index. A credit event is defined under the terms of each swap agreement and may include, but is not limited to, underlying entity default, bankruptcy, write-down, principal shortfall or interest shortfall. If a credit event occurs and cash settlement is not elected, a variety of other deliverable obligations may be delivered in lieu of the specific referenced obligation. The ability to deliver other obligations may result in a cheapest-to-deliver option (the buyer of protections right to choose the deliverable obligation with the lowest value following a credit event).
As a seller of protection, the Fund will generally receive from the buyer of protection a premium in return for such protection and/or a fixed rate of income throughout the term of the swap if there is no credit event. As a seller, the Fund adds leverage to its portfolio because, in addition to its total net assets, the Fund is subject to investment exposure on the notional amount of the swap. 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 pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. Until a credit event occurs, recovery values are determined by market makers considering either industry standard recovery rates or entity specific factors and considerations. When a credit event occurs, the recovery value is determined by a facilitated auction, administered by ISDA, whereby a minimum number of allowable broker bids, together with a specified valuation method, are used to calculate the settlement value.
The Fund may use credit default swap agreements on corporate or sovereign issues to provide a measure of protection against defaults of the issuers (i.e., to reduce risk where the Fund owns or has exposure to the referenced obligation) or to take an active long or short position with respect to the likelihood of a particular issuers default. If a credit event occurs and cash settlement is not elected, a variety of other deliverable obligations may be delivered in lieu of the specific referenced obligation. The ability to deliver other obligations may result in a cheapest-to-deliver option (the buyer of protections right to choose the deliverable obligation with the lowest value following a credit event).
The Fund may use credit default swap agreements on credit indices to hedge a portfolio of credit default swap agreements or bonds, to protect investors owning bonds against default and to speculate on changes in credit quality. A credit index is a basket of credit instruments or exposures designed to represent a portion of the credit market. These indices consist of reference credits that are considered to be the liquid entities in the credit default swap market based on the index sector. Components of the indices may include, but are not limited to, investment grade securities, high yield securities, asset-backed securities and emerging market securities. These components can be determined based upon various credit ratings within each sector. Credit indices are traded using credit default swaps with standardized terms including a fixed spread and standard maturity dates. An index credit default swap references all the issuers in the index, and if there is a credit event, the credit event is settled based on that issuers weight in the index. The composition of the indices changes periodically, usually every six months, and for most indices, each issuer has an equal weight in the index.
Either as a seller of protection or a buyer of protection of a credit default swap agreement, the Funds maximum risk of loss from counterparty risk is the fair value of the agreement. This risk is mitigated by having a master netting arrangement between the Fund and the counterparty and by obtaining collateral from the counterparty to cover the Funds exposure to the counterparty. The maximum potential amount of future payments (undiscounted) that the Fund as a seller of protection could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the agreement. Notional amounts of all credit default swap agreements outstanding, at September 30, 2012, for which the Fund is a seller of protection, are disclosed in the following tables. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement or net amounts received from the settlement of buy protection credit default swap agreements entered into by the Fund for the same referenced entity or entities.
Schedule of Credit Default Swap Agreements
Counterparty
|
|
Reference Obligation
|
|
Implied
Credit
Spread
(4)
|
|
Fixed
Received /
Pay Rate
(7)
|
|
Expiration
Date
|
|
Notional
Amount
(1),(6)
|
|
Value
(5)
|
|
Unrealized
Appreciation /
(Depreciation)
|
|
Over the Counter Credit Default Swap Agreements
|
|
|
|
|
|
|
|
|
|
Credit default swap agreements - sell protection
(2)
|
|
|
|
|
|
|
|
|
|
BBP
|
|
Anadarko Petroleum Corp., 5.95%, 09/15/16
|
|
1.62
|
%
|
1.00
|
%
|
06/20/2017
|
|
$
|
(100,000
|
)
|
$
|
(2,784
|
)
|
$
|
583
|
|
GSI
|
|
Arcelormittal, 6.13%, 06/01/18
|
|
4.54
|
%
|
1.00
|
%
|
03/20/2016
|
|
(900,000
|
)
|
(100,680
|
)
|
(71,951
|
)
|
GSI
|
|
Canadian Natural Resources Ltd., 6.25%, 03/15/38
|
|
0.75
|
%
|
1.00
|
%
|
12/20/2015
|
|
(500,000
|
)
|
4,028
|
|
2,871
|
|
BBP
|
|
CDX.NA.IG.17
|
|
N/A
|
|
1.00
|
%
|
12/20/2016
|
|
(300,000
|
)
|
2,430
|
|
1,271
|
|
GSI
|
|
CDX.NA.IG.17
|
|
N/A
|
|
1.00
|
%
|
12/20/2016
|
|
(300,000
|
)
|
2,430
|
|
1,597
|
|
BBP
|
|
CDX.NA.IG.18
|
|
N/A
|
|
1.00
|
%
|
06/20/2017
|
|
(1,400,000
|
)
|
6,370
|
|
1,445
|
|
BOA
|
|
CDX.NA.IG.18
|
|
N/A
|
|
1.00
|
%
|
06/20/2017
|
|
(1,600,000
|
)
|
7,280
|
|
(2,666
|
)
|
GSI
|
|
CDX.NA.IG.18
|
|
N/A
|
|
1.00
|
%
|
06/20/2017
|
|
(4,100,000
|
)
|
18,656
|
|
36,904
|
|
BBP
|
|
Federal Republic of Germany, 6.00%, 06/20/16
|
|
0.50
|
%
|
0.25
|
%
|
09/20/2017
|
|
(1,000,000
|
)
|
(12,430
|
)
|
18,012
|
|
GSI
|
|
Federal Republic of Germany, 6.00%, 06/20/16
|
|
0.50
|
%
|
0.25
|
%
|
09/20/2017
|
|
(1,400,000
|
)
|
(17,402
|
)
|
14,026
|
|
BBP
|
|
Federative Republic of Brazil, 12.25%, 03/06/30
|
|
0.84
|
%
|
1.00
|
%
|
06/20/2016
|
|
(2,400,000
|
)
|
14,431
|
|
21,903
|
|
GSI
|
|
Federative Republic of Brazil, 12.25%, 03/06/30
|
|
1.07
|
%
|
1.00
|
%
|
09/20/2017
|
|
(1,400,000
|
)
|
(5,081
|
)
|
25,817
|
|
GSI
|
|
Forest Oil Corp., 7.25%, 06/15/19
|
|
5.71
|
%
|
5.00
|
%
|
06/20/2017
|
|
(1,000,000
|
)
|
(28,517
|
)
|
(739
|
)
|
GSI
|
|
Gazprom International BV, 5.63%, 07/22/13
|
|
1.88
|
%
|
1.00
|
%
|
03/20/2017
|
|
(2,000,000
|
)
|
(75,828
|
)
|
91,048
|
|
BBP
|
|
Japanese Government Bond, 2.00%, 03/21/22
|
|
0.81
|
%
|
1.00
|
%
|
09/20/2017
|
|
(900,000
|
)
|
8,184
|
|
4,082
|
|
GSI
|
|
Japanese Government Bond, 2.00%, 03/21/22
|
|
0.81
|
%
|
1.00
|
%
|
09/20/2017
|
|
(600,000
|
)
|
5,456
|
|
2,449
|
|
GSI
|
|
MGM Resorts International, 7.63%, 01/15/17
|
|
1.67
|
%
|
5.00
|
%
|
03/20/2014
|
|
(1,000,000
|
)
|
48,819
|
|
21,596
|
|
GSI
|
|
NRG Energy Inc., 8.50%, 06/15/19
|
|
3.65
|
%
|
5.00
|
%
|
03/20/2017
|
|
(200,000
|
)
|
11,064
|
|
25,675
|
|
GSI
|
|
NRG Energy Inc., 5.00%, 06/20/17
|
|
3.85
|
%
|
5.00
|
%
|
06/20/2017
|
|
(600,000
|
)
|
29,513
|
|
64,929
|
|
GSI
|
|
NRG Energy Inc., 8.50%, 06/15/19
|
|
3.85
|
%
|
5.00
|
%
|
06/20/2017
|
|
(1,000,000
|
)
|
49,188
|
|
121,966
|
|
BBP
|
|
Peoples Republic of China, 4.75%, 10/29/13
|
|
0.56
|
%
|
1.00
|
%
|
06/20/2016
|
|
(1,800,000
|
)
|
29,033
|
|
4,903
|
|
GSI
|
|
Russian Federation, 7.50%, 03/31/30
|
|
1.45
|
%
|
1.00
|
%
|
09/20/2017
|
|
(700,000
|
)
|
(15,280
|
)
|
24,713
|
|
GSI
|
|
United Mexican States, 5.95%, 03/19/19
|
|
0.97
|
%
|
1.00
|
%
|
09/20/2017
|
|
(1,600,000
|
)
|
1,997
|
|
27,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
Reference Obligation
|
|
Implied
Credit
Spread
(4)
|
|
Fixed
Received /
Pay Rate
(7)
|
|
Expiration
Date
|
|
Notional
Amount
(1),(6)
|
|
Value
(5)
|
|
Unrealized
Appreciation /
(Depreciation)
|
|
BBP
|
|
United Mexican States, 7.50%, 04/08/33
|
|
0.74
|
%
|
1.00
|
%
|
06/20/2016
|
|
(1,200,000
|
)
|
11,645
|
|
11,086
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(28,000,000
|
)
|
$
|
(7,478
|
)
|
$
|
449,187
|
|
Credit default swap agreements - purchase protection
(3)
|
|
|
|
|
|
|
|
|
|
GSI
|
|
Intesa Sanpaolo SpA, 4.75%, 06/15/17
|
|
N/A
|
|
1.00
|
%
|
09/20/2014
|
|
$
|
385,515
|
|
$
|
14,025
|
|
$
|
1,006
|
|
|
|
|
|
|
|
|
|
|
|
$
|
385,515
|
|
$
|
14,025
|
|
$
|
1,006
|
|
Centrally Cleared Credit Default Swap Agreements
|
|
|
|
|
|
|
|
|
|
Credit default swap agreements - sell protection
(2)
|
|
|
|
|
|
|
|
|
|
n/a
|
|
CDX.NA.IG.18
|
|
N/A
|
|
1.00
|
%
|
06/20/2017
|
|
$
|
(70,550,000
|
)
|
$
|
(306,321
|
)
|
$
|
242,036
|
|
n/a
|
|
CDX.NA.IG.19
|
|
N/A
|
|
1.00
|
%
|
12/20/2017
|
|
(6,900,000
|
)
|
(2,205
|
)
|
(3,076
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
(77,450,000
|
)
|
$
|
(308,526
|
)
|
$
|
238,960
|
|
(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)If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the referenced obligation agreement and deliver the referenced obligation or underlying securities comprising the referenced index or (ii) receive 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 referenced obligation or underlying securities comprising the referenced index.
(4)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 entitys credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the applicable agreement.
(5)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 entitys credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.
(6)The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer 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.
(7)If the Fund is a buyer of protection, the Fund pays the fixed rate. If the Fund is a seller of protection, the Fund receives the fixed rate.
Reverse Repurchase Agreements.
For the 52 days the reverse repurchase agreements were outstanding, the average daily balance and the weighted average interest rate, for the period ended September 30, 2012 were $16,213,769 and 0.26%, respectively. At September 30, 2012, the reverse repurchase agreement outstanding was as follows:
Repurchase
Amount
|
|
Counterparty
|
|
Interest
Rate
|
|
Maturity
Date
|
|
|
|
|
|
|
|
|
|
$
|
1,000,000
|
|
GSC
|
|
0.33
|
%
|
10/11/12
|
|
|
|
|
|
|
|
|
|
|
Income Tax Information.
At September 30, 2012, the aggregate cost of investment securities for income tax purposes was $195,509,240. Net unrealized appreciation aggregated to $7,904,876, of which $9,441,252 related to appreciated investment securities and $(1,536,376) related to depreciated investment securities.
For additional information on the Funds policies regarding investments and other significant accounting matters, please refer to the Funds 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 registrants 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 Commissions rules and forms.
(b)
There has been no change in the registrants 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 registrants last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting.
Item 3. Exhibits.
Certifications pursuant to Rule 30a-2(a) under the Act 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:
|
November 29, 2012
|
|
|
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:
|
November 29, 2012
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Daniel W. Koors
|
|
|
|
Daniel W. Koors
|
|
|
|
Treasurer and Principal Financial Officer
|
|
|
|
|
|
|
Date:
|
November 29, 2012
|
|
|
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.
|
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