DIRECTORS JOHN C. ATWATER
RICHARD J. BRADSHAW
MARYELLIE K. MOORE
WENDELL G. VAN AUKEN
JAMES C. VAN HORNE
Chairman
OFFICERS JOHN T. PACKARD
President
DANIEL PIERCE
Vice President
STEPHEN A. WOHLER
Vice President
BRUCE H. GOLDFARB
Vice President and
Assistant Secretary
JOHN R. HEBBLE
Treasurer
MAUREEN E. KANE
Vice President and Secretary
KATHRYN L. QUIRK
Vice President and
Assistant Secretary
INVESTMENT Scudder Kemper Investments, Inc.
MANAGER 101 California Street, Suite 4100
San Francisco, CA 94111
TRANSFER EquiServe
AGENT P.O. Box 8200
Boston, MA 02266-8200
CUSTODIAN Chase Manhattan Bank, N.A.
4 Chase Metro Tech Center
18th Floor
Brooklyn, NY 11245
LEGAL COUNSEL Howard, Rice, Nemerovski,
Canady, Falk & Rabkin
Three Embarcadero Center
Seventh Floor
San Francisco, CA 94111
INDEPENDENT Ernst & Young LLP
AUDITORS 200 Clarendon Street
Boston, MA 02116
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MONTGOMERY
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MONTGOMERY
STREET
INCOME
SECURITIES
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2
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Semiannual Report
June 30, 1999
SCUDDER
<PAGE>
101 California Street, Suite 4100
San Francisco, CA 94111
(415) 981-8191
Dear Stockholder:
The investments of Montgomery Street Income Securities, Inc. (the "Fund")
produced a total return based on net asset value (NAV) of -1.22% for the quarter
ended June 30, 1999. The total NAV return of the Fund underperformed the
unmanaged Lehman Brothers Aggregate Bond Index, an index we use for comparative
purposes, which had a total return of -0.88% for the quarter. The June 30, 1999
NAV per share was $19.38 vs. $19.98 at the end of the first quarter, reflecting
a downward bias in bond prices that more than offset income earned during the
quarter. The market price of the Fund's shares, which trade on the New York
Stock Exchange, was $17.69 per share at the end of June, which compared with
$19.13 at the end of March, 1999. The market price discount of the shares as a
percentage of the NAV rose to almost 9% at quarter-end.
On July 16, 1999, the Board of Directors declared a $0.34 dividend payable on
July 30, 1999, to shareholders of record on July 20, 1999.
The Market and Economic Conditions
Following a first quarter in which "riskier" fixed-income sectors performed
well, the second quarter proved to be more troublesome for investors. Mortgages,
corporates, and asset-backed securities all underperformed U.S. Treasuries. As
in the first quarter, interest rates rose across the yield curve, with yields on
some long Treasury issues topping 6.5% in late June. Most economic measures
pointed to continued robust domestic growth, with Gross Domestic Product (GDP)
still on pace for 4% annual growth. The labor markets remained tight, and
consumer sentiment and spending stayed strong. Inflation, a constant source of
concern for the bond markets, showed enough of an increase to weigh on
investors' minds. This was evidenced by a particularly strong Consumer Price
Index (CPI) figure released in April, as well as rising oil prices throughout
the period.
Investors' perceptions about Federal Reserve policies shifted as the quarter
progressed. Two-year Treasury notes yielded as little as 15 basis points over
the Federal Funds rate early in the quarter, a signal that the market did not
expect a rate hike any time soon. Given the aforementioned economic strength and
uptick in inflation, this spread increased to almost 100 basis points by late
June. The Federal Reserve validated the market's concern by raising short-term
interest rates by 25 basis points, to 5%, on the last day of the quarter. The
graph on page 3 illustrates the increase in interest rates across the most
liquid Treasury issues, with intermediate yields rising by over one-half of one
percent.
In the first quarter, the corporate, mortgage and asset-backed sectors of the
bond market rebounded admirably from 1998's abysmal performance. However,
investors' complacency with these riskier sectors did not last long. Yield
spreads began to widen in May relative to U.S. Treasuries, as the corporate bond
market was faced with a deluge of new issues. Many corporations sought to
complete their financing needs early in the year in anticipation of Year
2000-related illiquidity. With many Wall Street firms enjoying a profitable
year, they had little appetite to boost their inventories. This, combined with a
risk-averse investor base, drove yield spreads to levels approaching those of
last fall.
The cheapening of the corporate sector extended to the mortgage market, which
was faced with its own set of problems. As interest rates rose, the durations of
mortgage-backed securities, which were estimated to be very short last year,
began to lengthen. This adjustment engendered more selling of mortgages. As a
result, both corporates and mortgages produced negative excess returns versus
Treasuries for the second quarter. The Fund's overweighting of these positions
contributed to its underperformance for the quarter.
2
<PAGE>
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE
U.S. Treasury Yield Curve
LINE CHART DATA:
- -----------------------------
Yield to Maturity (%)
-------------------------
Fed Funds Fed Funds
6/30/99 3/31/99
------- -------
4.763 4.47
5.03 4.52
5.05 4.71
5.52 4.98
5.54 5
5.65 5.1
5.79 5.23
5.97 5.62
The following graph shows the yield advantage of ten-year A-rated industrial
bonds over ten-year Treasury notes. Wider spreads indicate the relative
attractiveness of corporate issues. As illustrated, events of the second quarter
pushed spreads back near the wide levels of last fall. While 1998's yield spread
widening was ignited by a global financial crisis and subsequent
flight-to-quality, this year's widening is more technical in nature, primarily
attributable to the onset of Year 2000 fears and an imbalance of supply and
demand. The fundamental financial shape of the corporate, mortgage and
asset-backed sectors remains sound.
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE
The Yield Advantage of 10-Year Industrial vs. 10-Year Treasury in basis points
LINE CHART DATA:
- -----------------------------
69
69
58
62
67
63
1995 60
58
49
65
58
57
58
61
59
65
60
58
1996 58
59
60
55
56
59
58
58
58
60
59
58
1997 54
62
50
48
46
46
46
48
51
72
75
75
1998 72
67
60
70
84
82
95
115
135
105
120
95
1999 100
98
90
100
115
124
Corporate earnings continue to be strong and the economy has shown little sign
of slowing and, thus, we feel that yield spreads have widened to levels that are
very attractive on a historical basis. Corporate bonds have the most value when
their yield advantage is wide, and the prospects for the economy are for steady
and profitable economic growth. This is consistent with our economic outlook. As
seen from the chart, the yield advantage of corporate over Treasury issues,
although narrower than last October, is still attractively wide on a historical
basis.
3
<PAGE>
The Portfolio
The duration of the portfolio as of June 30 was 5.7 years, slightly higher than
5.5 years at the end of the first quarter. (Duration is a measure of the
portfolio's sensitivity to interest rates. If interest rates were to rise by 1%,
the value of a portfolio with a duration of 5.1 years would decline by about
5.1%.) Much of the increase in duration was attributable to the lengthening of
the Fund's mortgage holdings as the average maturity of the portfolio actually
declined from 9.6 years to 9.1 years. In early May, the leveraged amount was
increased to roughly 10% of the portfolio, again with the use of mortgage dollar
rolls. The average yield advantage to the Fund over its cost of funds was 2.74%,
resulting in about $0.01 per share in income. We continue to feel that short to
intermediate corporate securities represent compelling value and seek to add
corporate bond exposure in this area. As leverage was increased, the duration of
the portfolio was reduced slightly to lower the overall interest rate
sensitivity of the portfolio.
The pie chart below shows the portfolio's sector weightings at the end of June.
Corporate securities represented 71% of the Fund, up from 68% as of March 31,
1999. The remainder of the portfolio consisted of government agency-backed
mortgages, asset-backed securities, and U.S. Treasuries. Proceeds generated with
the additional leverage were used to add domestic, high quality corporate and
high yield securities, primarily in the short-intermediate sector. New
investment grade issues purchased included: Conoco, Inc., Comdisco, Inc., Sprint
Capital Corporation, TRW, Inc., and Wachovia Corporation. In the high yield
sector, Intermedia Communications, Level 3 Communications, Chancellor Media,
Harrah's, Lyondell Chemical, and Lear were added. Issues sold during the quarter
included: Cox Communications Inc., Newport News Shipbuilding Inc., Equistar
Chemicals, Ensco International Inc., Federal Mogul Corporation, and Hutchison
Whampoa Limited. The net result of the transactions was a decline of roughly
three years in average maturity, and a slight decline in weighted average
quality.
Sector Distribution
- ---------------------------
Asset-Backed 3.0%
Industrial 42.3%
Utility 10.3%
Finance 18.4%
Mortgage 22.8%
Treasury 3.1%
Cash 0.1%
- ---------------------------
100.0%
- ---------------------------
THE PRINTED DOCUMENT CONTAINS A PIE CHART HERE WITH DATA FROM THE ABOVE CHART.
The Fund's commitment to energy-related issues was reduced from 11.2% to 9.2%,
as the area benefited from strong relative performance attributable to a rebound
in oil prices during the quarter. The Fund also had a significant exposure to
cable, media, and telecommunications industries (20.6%) at the end of the
quarter. These industries have lagged other industrial credits recently as
merger and acquisition-related issuances have caused yield spreads to widen.
Nonetheless, the securities in the portfolio should benefit from the good
long-term prospects of these global telecommunications firms. Nearly 15% of the
Fund was invested in bank
4
<PAGE>
and other finance credits, a sector that continues to boast good asset quality
and strong balance sheets. This sector has also been affected by a large volume
of issuances as issuers seek to boost capital prior to the approach of Y2K.
The Fund's mortgage position declined to 22.8% during the second quarter due to
the paydown of existing holdings. During the quarter, the Fund swapped some of
its GNMA 7.5% pass-through certificates for FHLMC 7% pass-throughs. These
securities were rolled forward (sold, with an agreement to repurchase) to
provide the additional leverage for the overall portfolio. Even though the
securities were rolled, the Fund did have exposure to their price performance.
The performance of the pass-throughs the Fund held was less than that of
comparable Treasuries during the quarter.
Quality Breakdown
- ---------------------------
Gov't/Agency 22.1%
Cash 0.1%
AAA 3.9%
AA 6.3%
A 13.0%
BBB 32.2%
BB 15.5%
B 6.2%
CCC 0.7%
- ---------------------------
100.0%
- ---------------------------
THE PRINTED DOCUMENT CONTAINS A PIE CHART HERE WITH DATA FROM THE ABOVE CHART.
The Fund's investment policy allows the portfolio to hold up to 30% of total
assets in foreign denominated securities, preferreds, convertibles, private
placements, and below investment grade debt securities. As of quarter end, the
Fund held 23.4% of its assets in these categories, up from that held three
months prior, with 22.5% of the portfolio below investment grade in terms of
credit rating. Borden, Inc. (BB+ rated) remained the largest below investment
grade holding. The company, which produces packaged food, adhesives, and
housewares, represented 1.7% of the total portfolio. The quality breakdown for
the portfolio is shown in the pie chart above.
Before expenses, the investment grade portion of the portfolio, including
mortgages, returned -1.6%. The below investment grade (high yield) portion of
the portfolio had a total return before expenses of -0.13% for the quarter. The
high yield portion benefited from strong demand in high yield securities and
insufficient supply.
Limited Share Repurchases
The Fund is authorized to repurchase a limited number of shares of the Fund's
common stock from time to time when the shares are trading at less than 95% of
their NAV. Repurchases are limited to a number of shares each calendar quarter
approximately equal to the number of new shares issued under the Fund's Dividend
Reinvestment and Cash Purchase Plan with respect to income earned for the second
preceding calendar quarter. There were 14,000 shares repurchased during the
second quarter of 1999, representing 0.14% of the outstanding shares of the
Fund. Up to 14,002 shares may be repurchased during the third quarter of 1999.
5
<PAGE>
Year 2000 Readiness
Like other registered investment companies and financial business organizations
worldwide, the Fund could be adversely affected if computer systems on which the
Fund relies, which primarily include those used by the Fund's adviser, its
affiliates, or other service providers, are unable to correctly process
date-related information on and after January 1, 2000. This risk is commonly
called the Year 2000 issue (Y2K Issue). Failure to successfully address the Y2K
Issue could result in interruptions to and other material adverse effects on the
Fund's business and operations such as problems with calculating net asset
value. The adviser has commenced a review of the Year 2000 issue as it may
affect the Fund and is taking steps it believes are reasonably designed to
address the Y2K Issue, although there can be no assurances that these steps will
be sufficient. In addition, there can be no assurances that the Y2K Issue will
not have an adverse effect on the companies whose securities are held by the
Fund or on global markets or economies generally. To the extent that the impact
on a fund holding or on markets or economies is negative it could seriously
affect the Fund's performance. The foregoing is a Year 2000 readiness disclosure
under the Year 2000 Information and Readiness Disclosure Act.
Dividend Reinvestment and Cash Purchase Option
The Fund maintains an optional Dividend Reinvestment and Cash Purchase Plan (the
"Plan") for the automatic reinvestment of your dividends and capital gains
distributions in the shares of the Fund. This Plan also allows you to make
additional cash investments in Fund shares. We recommend that you consider
enrolling in the Plan to build your investments. State Street Bank and Trust
Company is the Fund's Plan Agent, and the Plan's features are described
beginning on page 21 of this report.
Annual Meeting Results
At the July 8, 1999 annual meeting, the shareholders elected the five directors
which appeared in your proxy statement. The selection of Ernst & Young LLP as
the Fund's independent auditors for the fiscal year ending December 31, 1999 was
ratified. Shareholders also approved the continuance of the management and
investment advisory agreement between the Fund and Scudder Kemper Investments.
Please see the table entitled "Stockholder Meeting Results" on page 24 for more
detailed information about the votes cast at the annual meeting.
At the July 8, 1999 Board meeting, James C. Van Horne was re-elected Chairman of
the Board and Kristin L. Bradbury and Almond G. Goduti were appointed as Vice
Presidents.
6
<PAGE>
Portfolio Management Team
On July 30, 1999, the Fund announced that Kelly D. Babson, Kristin L. Bradbury,
and Almond G. Goduti were named co-lead portfolio managers. All three are senior
portfolio managers in the Global Bond Group of Scudder Kemper Investments. Ms.
Bradbury has been a member of the Fund's portfolio management team since 1995
and Mr. Goduti has been a member since 1998. Steven A. Wohler, who had been lead
portfolio manager since 1988, retired from Scudder Kemper Investments effective
July 30.
Thank you for being a shareholder.
Sincerely,
/s/John T. Packard /s/Kelly D. Babson
John T. Packard Kelly D. Babson
President Co-Lead Portfolio Manager
/s/Almond G. Goduti /s/Kristin L. Bradbury
Almond G. Goduti Kristin L. Bradbury
Co-Lead Portfolio Manager Co-Lead Portfolio Manager
- --------------------------------------------------------------------------------
This report is sent to stockholders of Montgomery Street Income Securities, Inc.
for their information. It is not a prospectus, circular, or representation
intended for use in the purchase or sale of shares of the Fund or of any
securities mentioned in the report.
- --------------------------------------------------------------------------------
7
<PAGE>
INVESTMENT OBJECTIVES
Your Fund is a closed-end diversified management investment company registered
under the Investment Company Act of 1940, investing and reinvesting its assets
in a portfolio of selected securities. The Fund's primary investment objective
is to seek as high a level of current income as is consistent with prudent
investment risks, from a diversified portfolio primarily of debt securities.
Capital appreciation is a secondary objective.
PRINCIPAL INVESTMENT POLICIES
Investment of your Fund is guided by the following principal investment
policies:
At least 70% of total assets must be invested in: straight debt securities
(other than municipal securities) rated within the four highest grades assigned
by Moody's Investors Service, Inc. or Standard & Poor's Corporation; bank debt
of comparable quality; U.S. government or agency securities; commercial paper;
cash; cash equivalents; or Canadian government, provincial, or municipal
securities (not in excess of 25% of total assets).
Up to 30% of total assets (the "30% basket") may be invested in U.S. or foreign
securities that are straight debt securities, whether or not rated, convertible
securities, preferred stocks, or dividend-paying utility company common stock.
Not more than 25% of total assets may be invested in securities of any one
industry (neither utility companies as a whole nor finance companies as a whole
are considered an "industry" for the purposes of this limitation).
Not more than 5% of total assets may be invested in securities of any one
issuer, other than U.S. government or agency securities.
The Fund may invest money pursuant to repurchase agreements so long as the Fund
is initially wholly secured with collateral consisting of securities in which
the Fund can invest under its investment objectives and policies. In addition,
investment in repurchase agreements must not, at the time of any such loan, be
as a whole more than 20% -- and be as to any one borrower more than 5% -- of the
Fund's total assets.
The Fund may loan portfolio securities so long as the Fund is continuously
secured by collateral at least equal to the market value of the securities
loaned. In addition, loans of securities must not, at the time of any such loan,
be as a whole more than 10% of the Fund's total assets.
The Fund may borrow funds to purchase securities, provided that the aggregate
amount of such borrowings may not exceed 30% of the Fund's assets (including
aggregate borrowings), less liabilities (excluding such borrowings).
The Fund may enter into forward foreign currency sale contracts to hedge
portfolio positions, provided, among other things, that such contracts have a
maturity of one year or that at the time of purchase, the Fund's obligations
under such contracts do not exceed either the market value of portfolio
securities denominated in the foreign currency or 15% of the Fund's total
assets.
Subject to adoption of Board guidelines, the Fund may enter into interest rate
futures contracts and purchase or write options on interest rate futures
contracts, provided, among other things, that the Fund's obligations under such
instruments may not exceed the market value of the Fund's assets not subject to
the 30% basket.
8
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.1%
(under 1 year)
<S> <C> <C>
American Express Capital Corp., 5.25%, 7/6/1999 (Cost $230,000) .... 230,000 230,000
----------
- -----------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM BONDS -- 44.1%
(1 - 8 years)
U.S. Treasury Obligations -- 3.4%
U.S. Treasury Bond, 9.375%, 2/15/2006 .............................. 2,000,000 2,370,320
U.S. Treasury Note, 5.625%, 2/15/2006 .............................. 3,000,000 2,955,000
U.S. Treasury Note, 6.25%, 2/15/2007 ............................... 1,500,000 1,528,365
----------
6,853,685
----------
Collaterized Mortgage Obligations -- 1.9%
First Union-Lehman Brothers-Bank of America , Series 1998-C2, 6.28%,
6/18/2007 (d) .................................................... 3,905,083 3,844,829
----------
Consumer Discretionary -- 1.0%
Hotels & Casinos
Harrah's Operating Co., Inc., 7.875%, 12/15/2005 ................... 2,000,000 1,930,000
----------
Consumer Staples -- 3.8%
Food & Beverage
Bass America Inc., 6.625%, 3/1/2003 (d) ............................ 4,000,000 3,992,040
The Great Atlantic & Pacific Tea Company, Inc., 7.7%, 1/15/2004 .... 3,825,000 3,750,068
----------
7,742,108
----------
Communications -- 4.1%
Cellular Telephone -- 1.1%
ComCast Cellular Holdings Corp., 9.5%, 5/1/2007 (d) ................ 2,000,000 2,240,000
----------
Telephone/Communications -- 3.0%
AT&T Capital Corp., 6.875%, 1/16/2001 .............................. 3,000,000 3,001,260
WorldCom, Inc., 6.4%, 8/15/2005 .................................... 3,000,000 2,934,900
----------
5,936,160
----------
Durables -- 1.5%
Automobiles
Lear Corp., 7.96%, 5/15/2005 ....................................... 3,000,000 2,909,940
----------
Energy -- 4.3%
Oilfield Services/Equipment -- 1.5%
Petroleum Geo-Services, 7.5%, 3/31/2007 ............................ 3,000,000 2,993,280
----------
Oil & Gas Production -- 2.8%
Belden & Blake Corp., 9.875%, 6/15/2007 ............................ 2,000,000 1,520,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($)* Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Conoco Inc., 5.9%, 4/15/2004 ................................ 2,000,000 1,951,560
Louis Dreyfus Natural Gas Corp. senior note, 9.25%, 6/15/2004 2,000,000 2,125,000
----------
5,596,560
----------
Financial -- 7.2%
Banks -- 3.5%
Capital One Bank, 6.57%, 1/27/2003 (d) ...................... 3,000,000 2,939,700
Wachovia Corp., 6.7%, 6/21/2004 ............................. 4,000,000 4,001,360
----------
6,941,060
----------
Consumer Finance -- 1.5%
Ford Motor Credit Co., 7.5%, 1/15/2003 (d) .................. 3,000,000 3,092,790
----------
Real Estate -- 2.2%
GS Escrow Corp., 7%, 8/1/2003 ............................... 3,000,000 2,900,625
ProLogis Trust (REIT), 7.05%, 7/15/2006 ..................... 1,500,000 1,444,530
----------
4,345,155
----------
Manufacturing -- 2.2%
Diversified Manufacturing
Lyondell Chemical Co., 9.625%, 5/1/2007 ..................... 1,400,000 1,428,000
TRW, Inc., 6.625%, 6/1/2004 ................................. 3,000,000 2,935,560
----------
4,363,560
----------
Media -- 3.1%
Cable Television
Charter Communication Holdings LLC, 8.25%, 4/1/2007 ......... 2,500,000 2,381,250
TCI-Communications, Inc., 8%, 8/1/2005 ...................... 3,500,000 3,681,685
----------
6,062,935
----------
Service Industries -- 6.6%
Environmental Services -- 0.7%
Allied Waste North America, 7.375%, 1/1/2004 ................ 1,500,000 1,410,000
----------
Miscellaneous Commercial Services -- 3.0%
Cendant Corp., 7.75%, 12/1/2003 (d) ......................... 3,000,000 3,037,830
Comdisco Inc., 6%, 1/30/2002 (d) ............................ 3,000,000 2,957,790
----------
5,995,620
----------
Investments -- 2.9%
Lehman Brothers Holdings, Inc., 7.25%, 10/15/2003 ........... 3,000,000 3,015,510
Merrill Lynch & Co., 5.71%, 1/15/2002 ....................... 2,750,000 2,712,298
----------
5,727,808
----------
Transportation -- 2.5%
Airlines
Continental Airlines Inc., 9.5%, 12/15/2001 ................. 2,000,000 2,072,740
Northwest Airlines Corp., 8.52%, 4/7/2004 ................... 3,000,000 2,906,430
----------
4,979,170
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Principal Market
Amount ($)* Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities -- 2.5%
Electric Utilities
CalEnergy Co., Inc, 7.23%, 9/15/2005 .................................... 2,000,000 1,980,000
Niagara Mohawk Power Corp., 7.25%, 10/1/2002 ............................ 3,000,000 3,015,000
----------
4,995,000
----------
TOTAL INTERMEDIATE-TERM BONDS (Cost $90,069,992) ........................ 87,959,660
----------
- ------------------------------------------------------------------------------------------------------------
LONG-TERM BONDS -- 62.8%
(over 8 years)
U.S. Government Pass-Thru -- 20.6%
Federal Home Loan Mortgage Corp., 7%, 7/15/2029 (c) ..................... 7,500,000 7,442,579
Federal National Mortgage Association, 6.5%, 7/1/2029 (c) ............... 14,000,000 13,545,000
Government National Mortgage Association Pass-thru, 7.5%
with various maturities to 11/15/2027 (b) (d) ......................... 19,880,680 20,066,962
----------
41,054,541
----------
Asset Backed -- 3.3%
Greentree Financial Corp., senior subordinated pass-thru certificate,
Series 1993-4 B1, 7.2%, 1/15/2019 (d) ................................. 6,765,104 6,577,214
Collaterized Mortgage Obligation -- 2.3%
DLJ Commercial Mortgage Corp., Series 1998-CG1 A1A, 6.11%,
12/10/2007 (d)......................................................... 4,696,616 4,561,587
----------
Communications -- 5.9%
Telephone/Communications
AT&T Corp., 6%, 3/15/2009 ............................................... 2,000,000 1,879,580
Intermedia Communications, Inc., 8.875%, 11/1/2007 ...................... 2,000,000 1,895,000
Level 3 Communications, 9.125%, 5/1/2008 ................................ 2,000,000 1,975,000
McLeodUSA Inc., 8.125%, 2/15/2009 ....................................... 2,500,000 2,312,500
Sprint Capital Corp., 6.375%, 5/1/2009 .................................. 4,000,000 3,800,000
----------
11,862,080
----------
Consumer Discretionary -- 2.5%
Hotels & Casinos 1.0%
Royal Caribbean International, senior note, 7%, 10/15/2007 .............. 2,000,000 1,935,780
----------
Restaurants 1.5%
Tricon Global Restaurants, 7.65%, 5/15/2008 (d) ......................... 3,000,000 2,985,000
----------
Consumer Staples -- 1.9%
Food & Beverage
Borden Inc., debenture, 9.2%, 3/15/2021 ................................. 4,000,000 3,787,640
----------
Energy -- 7.2%
Oil & Gas Production -- 5.9%
Apache Corp., 7.7%, 3/15/2026 ........................................... 3,310,000 3,285,142
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($)* Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Canadian Forest Oil Ltd., 8.75%, 9/15/2007 .............. 2,000,000 1,930,000
Louisiana Land & Exploration Co., 7.65%, 12/1/2023 ...... 3,000,000 2,972,160
Unocal Corp., 9.4%, 2/15/2011 ........................... 3,000,000 3,456,750
-----------
11,644,052
-----------
Oilfield Services/Equipment -- 1.3%
Transocean Offshore, Inc., 8%, 4/15/2027 ................ 2,500,000 2,601,450
-----------
Financial -- 5.9%
Banks -- 4.4%
Bank United Capital Trust, 10.25%, 12/31/2026 ........... 1,500,000 1,425,000
Bank United Corp., 8%, 3/15/2009 ........................ 2,000,000 1,904,280
CoreStates Bank, 8%, 12/15/2026 ......................... 2,500,000 2,486,500
Royal Bank of Scotland, 7.375%, 4/29/2049 ............... 3,000,000 2,914,500
-----------
8,730,280
-----------
Real Estate -- 1.5%
ERP Operating L.P. Note, 7.57%, 8/15/2026 (d) ........... 3,000,000 3,013,350
-----------
Manufacturing -- 0.7%
Diversified Manufacturing
United Defense Industries, Inc., 8.75%, 11/15/2007 ...... 1,500,000 1,458,750
-----------
Media -- 7.6%
Broadcasting and Entertainment -- 0.9%
Paramount Communications, Inc., 7.5%, 7/15/2023 ......... 2,000,000 1,847,280
-----------
Cable Television -- 4.4%
Cablevision Systems Corp., senior note, 7.875%, 2/15/2018 2,500,000 2,379,650
Chancellor Media Corp., 8%, 11/1/2008 ................... 2,000,000 1,960,000
Time Warner Inc., debenture, 9.125%, 1/15/2013 (d) ...... 4,000,000 4,528,240
-----------
8,867,890
-----------
Print Media -- 2.3%
News America Holdings Inc., 9.25%, 2/1/2013 (d) ......... 4,000,000 4,496,520
-----------
Service Industries -- 2.2%
Environmental Services -- 1.5%
USA Waste Services Inc., 7.125%, 12/15/2007 ............. 3,000,000 2,878,530
-----------
Investments -- 0.7%
Merrill Lynch & Co., Inc., 6%, 2/17/2009 ................ 1,500,000 1,385,700
-----------
Technology -- 1.4%
Military Electronics
Raytheon Co, 6.15%, 11/1/2008 ........................... 3,000,000 2,832,270
-----------
Utilities -- 1.3%
Natural Gas Distributors
ANR Pipeline Co., debenture, 9.625%, 11/1/2021 .......... 2,000,000 2,442,100
-----------
TOTAL LONG-TERM BONDS (Cost $127,817,627) ............... 124,962,014
-----------
- -----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK 0.9%
Walden Residential Properties Inc. (Cost $2,000,000) ........................... 80,000 1,730,000
-----------
- -----------------------------------------------------------------------------------------------------------------------
WARRANTS -- 0.0%
Walden Residential Properties, Inc. Warrants (expire 1/1/2002) ................. 80,000 18,400
-----------
- -----------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK -- 1.0%
United Dominion Realty Trust Inc. "A" (REIT), 9.25%, 4/24/2000 (Cost $2,000,000) 80,000 1,975,000
-----------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 108.9% (Cost $222,117,619) (a) ................... 216,875,074
OTHER ASSETS AND LIABILITIES, NET -- (8.9%) .................................... (17,754,517)
-----------
NET ASSETS -- 100.0% ........................................................... 199,120,557
===========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $222,117,619. At June 30,
1999, net unrealized depreciation for all securities based on tax cost
was $5,242,545. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $1,416,619 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over market value of $6,659,164.
(b) Effective maturities will be shorter due to prepayments.
(c) Mortgage dollar roll
(d) At June 30, 1999, these securities and pools, in part or in whole, have
been segregated to cover mortgage dollar rolls.
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments, at market (identified cost $222,117,619) ............... $ 216,875,074
Cash ................................................................ 154
Interest and dividends receivable ................................... 4,129,931
Other assets ........................................................ 39,832
--------------
Total Assets 221,044,991
--------------
LIABILITIES
Payables for investments purchased --
mortgage dollar roll ............................................. $ 21,705,000
Accrued management fee .............................................. 81,422
Other payables and accrued expenses ................................. 138,012
--------------
Total Liabilities 21,924,434
--------------
NET ASSETS, at market value ...................................... 199,120,557
--------------
NET ASSETS
Net assets consist of:
Undistributed net investment income .............................. $ 3,637,390
Net unrealized appreciation (depreciation) on investments ........ (5,242,545)
Accumulated net realized gain (loss) ............................. 113,803
Paid-in capital .................................................. 200,611,909
--------------
NET ASSETS, at market value ...................................... $ 199,120,557
--------------
Net Asset Value Per Share ($199,120,557 / 10,273,089 shares of
common stock outstanding, $.001 par value, 30,000,000
shares authorized) .................................................. $ 19.38
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME
Income:
<S> <C> <C>
Interest ................................................................. $ 7,410,374
Dividends ................................................................ 184,500
-----------
7,594,874
Expenses:
Management and investment advisory fee ................................... $ 489,890
Directors' fees and expenses ............................................. 32,970
Services to shareholders ................................................. 39,271
Custodian ................................................................ 6,994
Reports to shareholders .................................................. 46,639
Auditing ................................................................. 31,241
Legal .................................................................... 31,356
State franchise tax ...................................................... 172
Other .................................................................... 33,127 711,660
----------- -----------
Net Investment Income 6,883,214
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) from:
Investment securities .................................................... 267,601
-----------
Net unrealized appreciation (depreciation) during the period on:
Investment securities .................................................... (9,303,816)
-----------
Net gain (loss) on investments .............................................. (9,036,215)
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ............................................................. $(2,153,001)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1999 December 31,
INCREASE (DECREASE) IN NET ASSETS (Unaudited) 1998
------------------ ------------------
<S> <C> <C>
Operations:
Net investment income ............................................. $ 6,883,214 $ 13,969,899
Net realized gain (loss) from investment transactions and foreign
currency related transactions during the period ................ 267,601 182,309
Net unrealized appreciation (depreciation) on investments and
foreign currency related transactions during the period ........ (9,303,816) (3,515,703)
-------------- --------------
Net increase (decrease) in net assets resulting from operations ... (2,153,001) 10,636,505
-------------- --------------
Dividends to shareholders from:
Net investment income .......................................... (3,492,893) (14,027,923)
-------------- --------------
Net realized gains on investment transactions .................. -- (205,189)
-------------- --------------
Fund share transactions:
Reinvestment of dividends from net investment income ........... 252,108 1,050,337
Cost of shares redeemed ........................................ (255,089) --
-------------- --------------
Net increase (decrease) in net assets from Fund share
transactions ................................................... (2,981) 1,050,337
-------------- --------------
Increase (decrease) in net assets ................................. (5,648,875) (2,546,270)
Net assets at beginning of period ................................. 204,769,432 207,315,702
-------------- --------------
Net assets at end of period (including undistributed net investment
income of $3,637,390 and $247,069, respectively) ............... $ 199,120,557 $ 204,769,432
============== ==============
Other Information
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ......................... 10,273,464 10,219,267
-------------- --------------
Shares issued to shareholders in reinvestment of dividends
from net investment income ..................................... 13,627 54,197
Shares redeemed ................................................... (14,002) --
-------------- --------------
Net increase (decrease) in Fund shares ............................ (375) 54,197
-------------- --------------
Shares outstanding at end of period ............................... 10,273,089 10,273,464
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data (a) for a share outstanding
throughout each period and other performance information derived from the
financial statements and market price data.
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 1999 --------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .. $ 19.93 $20.29 $19.54 $19.94 $17.72 $20.13
--------- ------ ------ ------ ------ ------
Income from investment operations:
Income .............................. .74 1.51 1.56 1.53 1.57 1.51
Operating expenses .................. (.07) (.14) (.14) (.15) (.14) (.14)
--------- ------ ------ ------ ------ ------
Net investment income ............... .67 1.37 1.42 1.38 1.43 1.37
Net realized and unrealized
gain (loss) ....................... (.88) (.34) .77 (.38) 2.19 (2.42)
--------- ------ ------ ------ ------ ------
Total from investment operations ...... (.21) 1.03 2.19 1.00 3.62 (1.05)
--------- ------ ------ ------ ------ ------
Less distributions from:
Net investment income ............... (.34) (1.37) (1.44) (1.40) (1.40) (1.36)
Net Realized gains from investment
transactions ...................... -- (.02) -- -- -- --
--------- ------ ------ ------ ------ ------
(.34) (1.39) (1.44) (1.40) (1.40) (1.36)
--------- ------ ------ ------ ------ ------
Net asset value, end of period ........ $19.38 $19.93 $20.29 $19.54 $19.94 $17.72
--------- ------ ------ ------ ------ ------
Per share market value, end of period . $17.69 $19.75 $19.50 $17.38 $18.00 $15.75
========= ====== ====== ====== ====== ======
Price range on New York Stock
Exchange for each share of Common Stock
outstanding during the period (Unaudited):
High ............................... $19.94 $20.38 $19.94 $19.50 $19.13 $20.25
Low ................................ $17.69 $18.75 $17.25 $16.75 $15.75 $15.25
Total Investment Return
Per share market value (%) .......... (8.80)** 8.74 21.15 4.54 23.69 (13.54)
Per share net asset value (%) (b) ... (.97)** 5.46 12.09 6.08 21.78 (4.51)
Ratios and Supplemental Data
Net assets, end of period ($ millions) 199 205 207 198 201 178
Ratio of operating expenses to
average daily net assets (%) ........ .71* .70 .71 .76 .73 .71
Ratio of net investment income to
average daily net assets (%) ........ 6.84* 6.83 7.17 7.07 7.45 7.28
Portfolio turnover rate (%) ........... 76.0(c)* 49.8 162.2(c) 92.1 76.4 137.0
</TABLE>
- -----------------
(a) Based on monthly average shares outstanding during the period.
(b) Total investment returns reflect changes in net asset value per share
during each period and assumes that dividends and capital gains
distributions, if any, were reinvested. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market value.
(c) The portfolio turnover rates including mortgage dollar roll transactions
were 169.0% and 218.1%, for the periods ended June 30, 1999, and December
31, 1997, respectively.
* Annualized
** Not annualized
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
Note A -- SIGNIFICANT ACCOUNTING POLICIES. Montgomery Street Income Securities,
Inc. (the "Fund") is registered under the Investment Company Act of 1940, as
amended, as a closed-end diversified management investment company. The Fund's
financial statements are prepared in accordance with generally accepted
accounting principles which require the use of management estimates.
Significant accounting policies are summarized as follows:
Valuation of Investments -- Portfolio debt securities purchased with
remaining maturities greater than sixty days are valued by pricing agents
approved by the officers of the Fund, whose quotations reflect
broker/dealer supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations,
the most recent bid quotation supplied by a bona fide market maker shall be
used. Money market investments purchased with an remaining maturity of
sixty days or less are valued at amortized cost. All other securities are
valued at their fair value as determined in good faith by the Valuation
Committee of the Board of Directors of the Fund.
Mortgage Dollar Rolls -- The Fund may enter into mortgage dollar rolls in
which the Fund sells mortgage securities for delivery in the current month
and simultaneously contracts to repurchase similar, but not identical,
securities on a fixed date. The Fund receives compensation as consideration
for entering into the commitment to repurchase. The compensation is
recorded as deferred income and amortized to income over the roll period.
The counterparty receives all principal and interest payments, including
prepayments, made in respect of the security while it is the holder.
Mortgage dollar rolls may be renewed with a new purchase and repurchase
price fixed and a cash settlement made at each renewal without physical
delivery of the securities subject to the contract.
Federal Income Taxes -- The Fund's policy is to comply with the
requirements of the Internal Revenue Code of 1986, as amended, which are
applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. The Fund, accordingly, paid no federal
income taxes and no federal income tax provision was required.
From November 1 through December 31, 1998, the Fund incurred approximately
$190,000 of net realized capital losses. As permitted by tax regulations,
the Fund intends to elect to defer these losses and treat them as arising
in the year ending December 31, 1999.
Distribution of Income and Gains -- Distributions of net investment income
are made quarterly. During any particular year, net realized gains from
investment transactions, in excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed and, therefore will be
distributed to shareholders. An additional distribution may be made to the
extent necessary to avoid the payment of a four percent federal excise tax.
The Fund uses the specific identification method for determining realized
gain or loss on investments sold for both financial and federal income tax
reporting purposes.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles
(GAAP). These differences relate primarily to investments in mortgage
backed securities and foreign denominated securities. As a result, net
investment income and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during
such period. Accordingly, the Fund may periodically make reclassifications
among certain of its capital accounts without impacting the net asset value
of the Fund.
Other -- Investment security transactions are accounted for on a trade-date
basis. Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Interest income is recorded on the accrual basis.
Note B -- MANAGEMENT AND INVESTMENT ADVISORY FEE. Under the Fund's Management
Agreement (the "Agreement") with Scudder Kemper Investments, Inc. ("Scudder
Kemper" or the "Adviser"), the Fund agrees to pay the Adviser for services
rendered, an annual fee, payable monthly, equal to 0.50 of 1% of the value of
the net assets of the Fund up to and including $150 million; 0.45 of 1% of the
value of the net assets of the Fund over $150 million and up to and including
$200 million; and 0.40 of 1% of the value of the net assets of the Fund over
$200 million. The Management Agreement also provides that the Adviser will
reimburse the Fund for all expenses (excluding interest, taxes, brokerage
commissions, and extraordinary expenses) borne by the Fund in any fiscal year in
excess of the sum of one and one-half percent of the first $30 million of
average net assets and one percent of average net assets in excess of $30
million. Further, if annual expenses as defined in the Management Agreement
exceed 25% of the Fund's annual gross income, the excess will be reimbursed by
the Adviser. For the six months ended June 30, 1999, the fees pursuant to the
Management Agreement amounted to $489,890, equivalent to an effective annualized
rate of 0.49% of the Fund's average monthly net assets.
None of the Directors are affiliated with the Adviser. For the six months ended
June 30, 1999, Directors' fees and expenses aggregated $32,970.
Note C -- PURCHASES AND SALES OF INVESTMENTS. For the six months ended June 30,
1999, purchases and sales of investment securities (excluding direct U.S.
government obligations, short-term investments and mortgage dollar roll
transactions) aggregated $88,626,018 and $73,196,972, respectively. Purchases
and sales of direct U.S. Government obligations aggregated $4,584,141 and
$7,432,379, respectively. Purchases and sales of mortgage dollar roll
transactions aggregated $121,513,125 and $98,587,969, respectively.
19
<PAGE>
STOCKHOLDER MEETING RESULTS
The Annual Meeting of Stockholders of Montgomery Street Income Securities, Inc.
(the "Company") was held on Thursday, July 8, 1999, at the offices of the
Company, 101 California Street, Suite 4100, San Francisco, California. The three
matters voted upon by Stockholders and the resulting votes for each matter are
presented below.
1. The election of five Directors to hold office until the next Annual Meeting
or until their respective successors shall have been duly elected and
qualified.
<TABLE>
<CAPTION>
Director: Number of Votes:
--------- ----------------
For Withheld Broker Non-Votes*
--- -------- -----------------
<S> <C> <C> <C>
John C. Atwater 8,110,446 128,067 0
Richard J. Bradshaw 8,108,811 129,702 0
Maryellie K. Moore 8,109,361 129,152 0
Wendell G. Van Auken 8,115,330 123,183 0
James C. Van Horne 8,108,969 129,544 0
</TABLE>
2. Ratification or rejection of the action taken by the Board of Directors in
selecting Ernst & Young LLP as independent auditors for the fiscal year
ending December 31, 1999.
<TABLE>
<CAPTION>
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
<S> <C> <C> <C> <C>
8,111,507 42,341 84,665 0
3. Approval or disapproval of the continuance of the Management and Investment
Advisory Agreement between the Company and Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
8,040,538 94,294 103,681 0
</TABLE>
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Company from brokers or
nominees when the broker or nominee neither has received instructions from
the beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
20
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
All registered stockholders of the Fund's Common Stock are offered the
opportunity of participating in a Dividend Reinvestment and Cash Purchase Plan
(the "Plan"). Registered stockholders, on request or on becoming registered
stockholders, are mailed information regarding the Plan, including a form by
which they may elect to participate in the Plan and thereby cause their future
net investment income dividends and capital gains distributions to be invested
in shares of the Fund's Common Stock. EquiServe is the agent (the "Plan Agent")
for stockholders who elect to participate in the Plan.
If a stockholder chooses to participate in the Plan, the stockholder's
dividends and capital gains distributions will be promptly invested,
automatically increasing the stockholder's holdings in the Fund. If the Fund
declares a dividend or capital gains distributions payable either in cash or in
stock of the Fund, the stockholder will automatically receive stock. If the
market price per share on the payment date for the dividend (the "Valuation
Date") equals or exceeds the net asset value per share, the Fund will issue new
shares to the stockholder at the greater of the following on the Valuation Date:
(a) net asset value per share or (b) 95% of the market price per share. If the
market price per share on the Valuation Date is less than the net asset value
per share, the Fund will issue new shares to the stockholder at the market price
per share on the Valuation Date. In either case, for federal income tax purposes
the stockholder will be deemed to receive a distribution equal to the market
value on the Valuation Date of the new shares issued. If dividends or capital
gains distributions are payable only in cash, then the stockholder will receive
shares purchased on the New York Stock Exchange or otherwise on the open market.
In this event, for federal income tax purposes the amount of the distribution
will equal the cash distribution paid. State and local taxes may also apply. All
reinvestments are in full and fractional shares, carried to three decimal
places.
Stockholders participating in the Plan can also purchase additional shares
quarterly in any amount from $100 to $3,000 (a "Voluntary Cash Investment") by
sending in a check together with the cash remittance slip which will be sent
with each statement of the stockholder's account. Such additional shares will be
purchased on the open market by the Plan Agent. The purchase price of shares
purchased on the open market, whether pursuant to a reinvestment of dividends
payable only in cash or a Voluntary Cash Investment, will be the average price
(including brokerage commissions) of all shares purchased by the Plan Agent on
the date such purchases are effected. In addition, stockholders may be charged a
service fee in an amount up to 5% of the value of the Voluntary Cash Investment.
Although subject to change, stockholders are currently charged $1 for each
Voluntary Cash Investment.
Stockholders may terminate their participation in the Plan at any time and
elect to receive dividends and other distributions in cash by notifying the Plan
Agent in writing. Such notification must be received not less than 10 days prior
to the record date of any distribution. There is no charge or other penalty for
such termination. The Plan may be terminated by the Fund or the Plan Agent upon
written notice mailed to the stockholders at least 30 days prior to the record
date of any distribution. Upon termination, the Fund will issue certificates for
all full shares held under the Plan and cash for any fractional share.
Alternatively, stockholders may request the Plan Agent to sell any full
shares and remit the proceeds, less a $2.50 service fee and less brokerage
commissions. The sale of shares (including fractional shares) will be a taxable
21
<PAGE>
event for federal income tax purposes and may be taxable for state and local tax
purposes.
The Plan may be amended by the Fund or the Plan Agent at any time. Except
when required by law, written notice of any amendment will be mailed to
stockholders at least 30 days prior to its effective date. The amendment will be
deemed accepted unless written notice of termination is received prior to the
effective date.
An investor holding shares in its own name can participate directly in the
Plan. An investor holding shares in the name of a brokerage firm, bank or other
nominee should contact that nominee, or any successor nominee, to determine
whether the nominee can participate in the Plan on the investor's behalf and to
make any necessary arrangements for such participation.
Additional information, including a copy of the Plan and its Terms and
Conditions and an enrollment form, can be obtained from the Plan Agent by
writing EquiServe, P.O. Box 8209, Boston, MA 02266-8209, or by calling (800)
426-5523.
22
<PAGE>
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intentionally
left blank.
