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SIGNATURE THOMAS F. MCDONOUGH
TITLE VICE PRESIDENT
LETTERHEAD
Ernst & Young LLP
200 Clarendon Street
Boston
Massachusetts 02116-5072
To the Board of Directors
Montgomery Street Income Securities, Inc.
In planning and performing our audit of the financial statements of Montgomery
Street Income Securities, Inc. for the year ended December 31, 1995, we
considered its internal control structure, including procedures for safeguarding
securities, in order to determine our auditing procedures for the purpose of
expressing our opinion on the financial statements and to comply with the
requirements of Form N-SAR, not to provide assurance on the internal control
structure.
The management of Montgomery Street Income Securities, Inc. is responsible for
establishing and maintaining an internal control structure. In fulfilling this
responsibility, estimates and judgments by management are required to assess the
expected benefits and related costs of internal control structure policies and
procedures. Two of the objectives of an internal control structure are to
provide management with reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthorized use or disposition and that
transactions are executed in accordance with management's authorization and
recorded properly to permit preparation of financial statements in conformity
with generally accepted accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and may not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that it may
become inadequate because of changes in conditions or that the effectiveness of
the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce to
a relatively low level the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined above at
December 31, 1995.
This report is intended solely for the information and use of management and the
Securities and Exchange Commission.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
January 22, 1996
Exhibit 77(D)
Investment Policy Addendum
- --------------------------
During the fiscal year, the Board of Directors of Montgomery Street Income
Securities, Inc. adopted investment guidelines for dollar roll transactions.
The Board put restrictions in place to help limit the counterparty and leverage
risks which are sometimes associated with this type of transaction. The Fund
will be able to commit no more than 15% of net assets to dollar rolls at any
time.
Exhibit 77(Q2)
Form of Section 16(a) Disclosure For Proxy Statement and Form
10-K (pursuant to Item 405 of Regulation S-K)
Section 30(f) of the Investment Company Act of 1940, as amended (the "1940
Act"), as applied to a fund, requires the fund's Officers and Directors,
Investment Manager, affiliates of the Investment Manager, and persons who
beneficially own more than ten percent of a registered class of the fund's
outstanding securities ("reporting persons"), to file reports of ownership of
the fund's securities and changes in such ownership with the Securities and
Exchange Commission (the "SEC") and The New York Stock Exchange. Such persons
are required by SEC regulations to furnish the fund with copies of all such
filings.
Based solely upon its review of the copies of such forms received by it, and
written representations from certain reporting persons that no year-end reports
were required for those persons, the Fund believes that during the fiscal year
ended December 31, 1995, all filing requirements applicable to its reporting
persons were complied with.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Montgomery Street Income Securities Annual Report for the fiscal year
ended December 31, 1995 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
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