Notice of
2001
Annual Meeting
of Stockholders
and
Proxy Statement
[LOGO] MONTGOMERY
MONTGOMERY STREET
INCOME SECURITIES, INC.
This page
intentionally
left blank.
[LOGO] MONTGOMERY
MONTGOMERY STREET
INCOME SECURITIES, INC.
101 California Street, Suite 4100
San Francisco, CA 94111
June 1, 2001
To the Stockholders:
The Annual Meeting of Stockholders of Montgomery Street Income Securities,
Inc. (the "Company") is to be held at 10:00 a.m., Pacific time, on Thursday,
July 12, 2001 at the offices of the Company, 101 California Street, Suite 4100,
San Francisco, California. A Proxy Statement regarding the meeting, a proxy card
for your vote at the meeting and an envelope -- postage prepaid -- in which to
return your proxy are enclosed.
At the Annual Meeting the stockholders will elect the Company's Directors
and consider the approval of the continuance of the Management and Investment
Advisory Agreement between the Company and Zurich Scudder Investments, Inc. In
addition, the stockholders present will hear a report on the Company. There will
be an opportunity to discuss matters of interest to you as a stockholder.
Your Directors recommend that the stockholders vote in favor of each of the
foregoing matters.
Respectfully,
/s/ James C. Van Horne /s/ Victor L. Hymes
James C. Van Horne Victor L. Hymes
Chairman of the Board President
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STOCKHOLDERS ARE URGED TO SIGN THE PROXY CARD AND MAIL IT IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE SO AS TO ENSURE A QUORUM AT THE MEETING. THIS IS
IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES.
- --------------------------------------------------------------------------------
MONTGOMERY STREET INCOME SECURITIES, INC.
Notice of Annual Meeting of Stockholders
To the Stockholders of
Montgomery Street Income Securities, Inc.:
Please take notice that the Annual Meeting of Stockholders of Montgomery
Street Income Securities, Inc. (the "Company") has been called to be held at the
offices of the Company, 101 California Street, Suite 4100, San Francisco,
California on Thursday, July 12, 2001 at 10:00 a.m., Pacific time, for the
following purposes:
(1) To elect six Directors of the Company to hold office until the
next Annual Meeting or until their respective successors shall have been
duly elected and qualified.
(2) To approve or disapprove the continuance of the Management and
Investment Advisory Agreement between the Company and Zurich Scudder
Investments, Inc.
Those present and the appointed proxies will also transact such other
business as may properly come before the meeting or any adjournments thereof.
Holders of record of the shares of common stock of the Company at 5:00
p.m., Eastern time, on May 18, 2001 are entitled to vote at the meeting or any
adjournments thereof.
By order of the Board of Directors,
/s/ Maureen E. Kane
June 1, 2001 Maureen E. Kane, Secretary
- --------------------------------------------------------------------------------
IMPORTANT -- We urge you to sign and date the enclosed proxy card and return it
in the enclosed addressed envelope which requires no postage and is intended for
your convenience. Your prompt return of the enclosed proxy card may save the
Company the necessity and expense of further solicitations to ensure a quorum at
the Annual Meeting. If you can attend the meeting and wish to vote your shares
in person at that time, you will be able to do so.
- --------------------------------------------------------------------------------
MONTGOMERY STREET INCOME SECURITIES, INC.
101 CALIFORNIA STREET, SUITE 4100
SAN FRANCISCO, CALIFORNIA 94111
(415) 981-8191
PROXY STATEMENT
RECORD DATE: May 18, 2001 MAILING DATE: June 1, 2001
Introduction
The Board of Directors of Montgomery Street Income Securities, Inc. (the
"Company") is soliciting proxies for use at the Annual Meeting of Stockholders
(the "Annual Meeting"). The Annual Meeting will be held at the offices of the
Company, 101 California Street, Suite 4100, San Francisco, California on
Thursday, July 12, 2001 at 10:00 a.m., Pacific time. The Board of Directors is
also soliciting proxies for use at any adjournment of the Annual Meeting. This
Proxy Statement is furnished in connection with that solicitation.
The Company may solicit proxies by mail, telephone, telegram, and personal
interview. In addition, the Company may request personnel of Zurich Scudder
Investments, Inc. ("Zurich Scudder" or the "Investment Manager") to assist in
the solicitation of proxies by mail, telephone, telegram, and personal interview
for no separate compensation. It is anticipated that the Company will request
brokers, custodians, nominees, and fiduciaries who are record owners of stock to
forward proxy materials to their principals and obtain authorization for the
execution of proxies. The Company will pay the cost of soliciting proxies. Upon
request, the Company will reimburse the brokers, custodians, nominees, and
fiduciaries for their reasonable expenses in forwarding proxy materials to their
principals.
You may revoke the enclosed proxy at any time insofar as not yet exercised
by the appointed proxies. You may do so by:
o written notice to the Company, c/o Scudder Investments Service
Company, P.O. Box 219153, Kansas City, MO 64121-9153, Attn: Manager,
Proxy Department;
o written notice to the Company at the address set forth under the above
letterhead;
o giving a later proxy; or
o attending the Annual Meeting and voting your shares in person.
1
In order to hold the Annual Meeting, a majority of the shares entitled to
be voted must have been received by proxy or be present at the Annual Meeting.
Proxies that are returned marked to abstain from or withhold voting, as well as
proxies returned by brokers or others who have not received voting instructions
on some matters and do not have discretion to vote for their clients on those
matters ("broker non-votes"), will be counted towards this majority of shares.
Withheld votes, abstentions and broker non-votes will not be counted in favor
of, but will have no other effect on, the vote for proposal (1). Abstentions
will, and broker non-votes may, have the effect of a "no" vote for proposal (2).
Stockholders who hold their shares through a broker or other nominee are urged
to forward their voting instructions.
In the event that sufficient votes in favor of any proposal are not
received by July 12, 2001, the persons named as proxies on the enclosed proxy
card may propose one or more adjournments of the meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of the holders of a majority of the shares present in person or by proxy at the
session of the Annual Meeting to be adjourned. The persons named as proxies on
the enclosed proxy card will vote in favor of such adjournment those proxies
which they are entitled to vote in favor of the proposal for which further
solicitation of proxies is to be made. They will vote against any such
adjournment those proxies required to be voted against such proposal. The costs
of any such additional solicitation and of any adjourned session will be borne
by the Company.
The record date for determination of stockholders entitled to receive
notice of the Annual Meeting and to vote at the Annual Meeting or any
adjournments thereof, was May 18, 2001 at 5:00 p.m., Eastern time (the "Record
Date").
2
As of the Record Date, there were issued and outstanding 10,286,037 shares
of common stock of the Company, constituting all of the Company's then
outstanding securities. Each share of common stock is entitled to one vote. As
of March 31, 2001, each Director, the President and all Directors and Officers
as a group, beneficially owned shares of the Company's common stock as follows:
Aggregate Dollar Range of Equity
Securities in All Registered
Dollar Range of Investment Companies Overseen by
Equity Securities Director in Family of Investment
Position in the Fund ^(1) Companies ^(4)
--------- ------------------ --------------
James C. Van Horne........ Chairman of the $10,001 - $50,000 $10,001 - $50,000
Board and
Director
Victor L. Hymes........... President $0 - $10,000 $0 - $10,000
John C. Atwater........... Director over $100,000 over $100,000
Richard J. Bradshaw^(2)... Director $10,001 - $50,000 $10,001 - $50,000
Maryellie K. Johnson...... Director over $100,000 over $100,000
John T. Packard^(3)....... Director $0 - $10,000 $0 - $10,000
Wendell G. Van Auken...... Director over $100,000 over $100,000
- ---------------------
^(1) The information as to beneficial ownership is based on statements
furnished to the Company by each person named. Unless otherwise indicated,
each person has sole voting and investment power over the shares reported.
As a group, the Directors and Officers (12 in number) owned 39,715 shares
or 0.38% of the shares of the Fund. The total for the group includes
37,475 shares held with sole investment and voting power and 2,240 shares
held with shared investment and voting power.
^(2) Shared investment and voting power over the shares reported.
^(3) Mr. Packard became a Director on April 1, 2001.
^(4) "Family of Investment Companies" means funds that share the same
investment adviser or principal underwriter and hold themselves out to
investors as related companies for purposes of investment and investment
services.
To the best of the Company's knowledge, as of March 31, 2001, no person
owned beneficially more than 5% of the Company's outstanding shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, and
Section 30(h) of the Investment Company Act of 1940, as amended (the "1940
Act"), as applied to a closed-end fund, require 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 any exchange on which the fund's securities
are traded. Such persons are required by SEC regulations to furnish the fund
with copies of all such reports.
3
Based on a review of reports furnished to the Fund by its reporting persons
and written representations from certain of such persons that no year-end
reports were required, all filings by the Fund's reporting persons for the
fiscal year ended December 31, 2000 required by Section 16(a) of the Securities
and Exchange Act of 1934 were timely, except that Harold D. Kahn was late in
filing his initial statement of ownership on Form 3, and Maryellie K. Johnson
was late in filing a purchase of shares on Form 4.
The Company provides periodic reports to all stockholders which highlight
relevant information, including investment results and a review of portfolio
strategy. You may receive an additional copy of the annual report for the fiscal
year ended December 31, 2000, without charge, by calling 1-800-349-4281 or
1-800-294-4366 or writing the Company at 101 California Street, Suite 4100, San
Francisco, CA 94111.
PROPOSAL 1 -- ELECTION OF DIRECTORS
Six Directors are to be elected at the Annual Meeting as the Directors of
the Company. They are to be elected to hold office until the next annual meeting
or until their successors are elected and qualified. The persons named on the
accompanying proxy card, if granted authority to vote in the election of
Directors, intend to vote at the Annual Meeting for the election of the nominees
named below as the six Directors of the Company. In the unanticipated event that
any nominee for Director cannot be a candidate at the Annual Meeting, the
appointed proxies will vote their proxy in favor of the remainder of the
nominees and, in addition, in favor of such substitute nominee(s) (if any) as
the Board of Directors shall designate. Alternatively, the proxies may vote in
favor of a resolution reducing the number of Directors to be elected at the
Annual Meeting. Each of the nominees is now a Director of the Company and,
except for Mr. Packard, each was elected to serve as a Director at the 2000
Annual Meeting of Stockholders. On December 15, 2000, the Board of Directors
appointed Mr. Packard as a Director of the Company, effective April 1, 2001. All
nominees have consented to be nominated and to serve if elected.
The Board of Directors considers possible candidates to fill vacancies on
the Board of Directors, reviews the qualifications of candidates recommended by
stockholders and others, recommends the slate of Director candidates to be
proposed for election by stockholders at the annual meeting, and sets policies
regarding retirement from the Board. Stockholders wishing to recommend any
Director candidate should submit in writing a brief description of the
candidate's business experience and other information relevant to the
candidate's qualifications to serve as a Director. In order to be considered at
the 2002 annual meeting, submission should be made by February 1, 2002.
Information Concerning Nominees
The following table sets forth certain information concerning each of the
nominees as a Director of the Company. The address of all of the nominees is c/o
Zurich Scudder Investments, Inc., 101 California Street, Suite 4100, San
Francisco, CA 94111.
4
Year First
Nominee (Age) Principal Occupation or Employment Became a
and Directorships in Publicly Held Companies Director
------------- --------------------------------------------- ---------
Independent Directors
---------------------
John C. Atwater (40) Mr. Atwater is President of Prime Property Capital, Inc. (real 1994
estate investment firm).
Richard J. Bradshaw Mr. Bradshaw is currently Executive Director of Cooley Godward LLP 1991
(53) (law firm). From October 1992 to April 1997, he was Executive
Director of Orrick, Herrington & Sutcliffe (law firm).
Maryellie K. Johnson Ms. Johnson is an international shipping consultant. From 1989 to 1989
(65) 1998, she was a Director of London and Overseas Freighters, Ltd.
(oil tanker operator). Prior to 1989, she served as Treasurer of
Alexander and Baldwin, Inc. (shipping and property development)
and Matson Navigation Company, Inc. (containerized freight
service). She was a Trustee of the University of San Francisco
from 1992 to 2000.
Wendell G. Van Auken Mr. Van Auken is a General Partner of several venture capital 1994
(56) funds affiliated with Mayfield Fund. He also serves as a Director
of Advent Software (portfolio software company) and Netcentives,
Inc. (Internet marketing company).
James C. Van Horne Dr. Van Horne is the A.P. Giannini Professor of Finance, Graduate 1985
(65) School of Business, at Stanford University, a position he has held
from September 1965 to August 1975 and from September 1976 to
present. He also serves as a Director of United Bank of
California, EFTC Corp. (electronic manufacturing services), and
Bailard, Biehl & Kaiser Opportunity Fund Group, Inc. and as a
Trustee of the Bailard, Biehl & Kaiser Fund Group (both registered
investment companies).
Interested Director^(1)
----------------------
John T. Packard (67) Mr. Packard has been an Advisory Managing Director of Weiss, Peck 2001
& Greer, LLC (broker-dealer offering private investment management
services) since February 2000. From 1985 to 1998, he was a
Managing Director, and from 1999 to 2000, he was an Advisory
Managing Director, of Scudder Kemper Investments, Inc. (the
Company's investment manager), serving as the President of the
Company from 1988 to February 2000.
-------------------
^(1) Mr. Packard may be considered an "interested" Director, as defined in the
Investment Company Act of 1940, as amended, by reason of his ownership of
securities of the Investment Manager, his affiliation with a registered
broker-dealer and his past relationships with the Company and the
Investment Manager.
5
The primary responsibility of the Board of Directors is to represent the
interests of the stockholders of the Company and to provide oversight of the
management of the Company. The slate of nominees proposed for election as
Directors of the Company is composed of one individual who is considered an
"interested" ("Interested") Director within the meaning of the Investment
Company Act of 1940, as amended (the "1940 Act"), and five individuals who are
considered not "interested" ("Independent") Directors. The SEC has adopted rules
that will require a majority of the board members of a registered investment
company to be "independent" if the company takes advantage of certain exemptive
rules under the 1940 Act. If the nominees proposed for election as Directors of
the Company are elected, 83% of the Board of Directors will be composed of
Independent Directors. As required by the SEC's rules, each of the nominees who
will be considered an Independent Director, if elected, was selected and
nominated solely by the current Independent Directors of the Company.
Board and Committee Meetings
The Board of Directors has an Executive Committee, a Valuation Committee
and an Audit Committee. In 2000, the Board of Directors held four meetings. The
Executive Committee and Valuation Committee did not meet, and the Audit
Committee held one meeting. Each Director attended at least 75% of the total
number of meetings of the Board of Directors and of all Committees of the Board
on which he or she served in 2000, except Mr. Atwater, who attended 50% of such
meetings, and Ms. Johnson, who attended 60% of such meetings.
Executive Committee
The Executive Committee is authorized to exercise all powers of the Board
of Directors permitted to be exercised under the Maryland General Corporation
Law. The Committee is composed of three Independent Directors (Messrs. Van
Horne, Atwater and Bradshaw).
Valuation Committee
The Valuation Committee is delegated the power and duty to determine the
value of the portfolio assets of the Company pursuant to the valuation policies
adopted by the Board of Directors. The Committee is composed of three
Independent Directors (Ms. Johnson and Messrs. Van Auken and Van Horne).
Audit Committee
The Audit Committee oversees the accounting and financial reporting
policies and practices of the Company, its internal controls and, as
appropriate, the internal controls of certain service providers to the Company.
The Audit Committee also oversees the quality and objectivity of the Company's
financial statements and the independent audit thereof and acts as a liaison
between the Company's independent auditors and the full Board of Directors.
The Audit Committee is composed of three Independent Directors (Messrs. Van
Auken, Atwater and Bradshaw) and is governed by a written charter adopted by the
Board (a copy of which is attached hereto as Appendix A), that sets forth in
greater detail the Committee's purposes, duties and powers.
Audit Committee Report
At a special meeting of the Audit Committee held on February 23, 2001, the
Committee reviewed the Company's audited financial statements and discussed the
financial statements with Zurich
6
Scudder and the independent auditors. The Committee discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees). In addition,
the Committee discussed with the independent auditors the auditors' independence
from management and reviewed the written disclosures and letter required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees) which had been previously provided. Based on these reviews and
discussions, the Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's annual report to
stockholders for the 2000 fiscal year.
The Audit Committee:
Wendell G. Van Auken, Chair
John C. Atwater
Richard J. Bradshaw
Independent Auditors
At a meeting held on April 13, 2001, the Independent Directors and the full
Board of Directors, voting separately, unanimously selected Ernst & Young LLP
("E&Y") as the Company's independent auditors, for the fiscal year ending
December 31, 2001, to examine the Company's books and accounts and to certify
the Company's financial statements. The Company's financial statements for the
fiscal year ended December 31, 2000 were audited by E&Y. The following table
sets forth the aggregate fees billed for professional services rendered by E&Y:
Financial Information Systems
Audit Fees^(1) Design and Implementation Fees All Other Fees^(2)
------------- ------------------------------ -----------------
$57,000 $0 $3,000
The fees disclosed in the table above under the caption "Audit Fees" are
the aggregate fees for professional services rendered for the audit of the
Company for the most recent fiscal year. The fees disclosed under the captions
"Financial Information Systems Design and Implementation Fees" and "All Other
Fees" include fees billed for services, if any, during the most recent calendar
year to the Company, Zurich Scudder and all entities controlling, controlled by,
or under common control with Zurich Scudder that provide services to the
Company.
The Company's audit committee gave careful consideration to the non-audit
related services provided by E&Y to the Company, Zurich Scudder and entities
controlling, controlled by or under common control with Zurich Scudder that
provide services to the Company, and, based in part on certain representations
and information provided by E&Y, determined that the provision of these services
was compatible with maintaining E&Y's independence.
- -------------------
^(1) E&Y also serves as the independent auditor for other Zurich
Scudder-advised funds, and receives audit and other fees for services
performed for these funds.
^(2) In addition to the amount shown in the table for the Company, E&Y billed
fees in the aggregate amount of $1,998,000 for services performed for
Zurich Scudder and other related entities that provide support for the
operations of the Company.
7
Officers of the Company
The following persons are Officers of the Company:
Present Office with the Company; Year First Became
Name (Age) Principal Occupation or Employment (1) an Officer (2)
---------- -------------------------------------- --------------
Victor L. Hymes (43) President; Managing Director of Zurich Scudder. 2000
John R. Hebble (42) Treasurer; Senior Vice President of Zurich Scudder. 1998
Maureen E. Kane (39) Vice President and Secretary; Vice President of 1999
Zurich Scudder since December 1997; prior thereto,
Assistant Vice President of State Street Bank and
Trust Company (1997); Associate Staff Attorney of
FMR Corp. (investment management firm) (1996-1997).
Kathryn L. Quirk (48) Vice President and Assistant Secretary; Managing 1988
Director of Zurich Scudder.
Harry E. Resis (55) Vice President; Managing Director of Zurich 2000
Scudder.
Robert S. Cessine (51) Vice President; Managing Director of Zurich 2000
Scudder.
-------------------
^(1) Unless otherwise stated, all Officers have been associated with the
Investment Manager for more than five years, although not necessarily in
the same capacity. All Officers, except Mr. Hymes, are also officers or
directors of other funds managed by the Investment Manager. All Officers,
except Ms. Kane, own securities of the Investment Manager.
^(2) All Officers are appointed annually by, and serve at the discretion of, the
Board of Directors.
Remuneration of Directors and Officers
Each Director receives remuneration from the Company for his or her
services. The Company does not compensate its Officers or employees, since the
Investment Manager makes these individuals available to the Company to serve
without compensation from the Company. Remuneration to Directors consists of
Directors' fees composed in each case of a quarterly retainer of $2,000 (except
the Chairman of the Board, whose quarterly retainer is $6,000) and a fee of $500
for each Board meeting attended and $250 for each committee meeting attended, as
well as any related expenses. For the fiscal year ended December 31, 2000, total
compensation (including reimbursement of expenses) for all Directors as a group
was $65,934.
The Compensation Table below provides in tabular form the following data:
Column (1) All Directors who receive compensation from the Company.
Column (2) Aggregate compensation received by a Director from the
Company.
Column (3) Total compensation received by a Director from the Company,
the Investment Manager and from all other funds managed by the
Investment Manager. No member of the Board serves as a Director or
Trustee for any other fund in the complex of funds managed by the
Investment Manager nor does any Director receive any pension or
retirement benefits from the Company.
8
Compensation Table
for the fiscal year ended December 31, 2000
--------------------------------------------------------------------------
(1) (2) (3)
--------------------------------------------------------------------------
Total Compensation
From the Company and
Name of Person, Aggregate Compensation Fund Complex
Position from the Company Paid to Director
--------------------------------------------------------------------------
John C. Atwater
Director $ 9,000 $ 9,000
Richard J. Bradshaw
Director $10,250 $10,250
Maryellie K. Johnson
Director $ 9,500 $ 9,500
Wendell G. Van Auken $10,250 $10,250
Director
James C. Van Horne $26,000 $26,000
Chairman
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Recommendation and Required Vote
The Board of Directors recommends a vote FOR election of each of the
nominees for Director. Election of the nominees for Director requires the
affirmative vote of a plurality of the votes cast in person or by proxy at the
Annual Meeting.
PROPOSAL 2 -- APPROVAL OR DISAPPROVAL OF THE CONTINUANCE OF THE
MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT BETWEEN THE COMPANY
AND ZURICH SCUDDER
Zurich Scudder, 345 Park Avenue, New York, New York, acts as investment
adviser to and manager for the Company pursuant to a Management and Investment
Advisory Agreement dated September 7, 1998 (the "Agreement"). The continuance of
the Agreement was last approved by a vote of the stockholders on July 13, 2000
and the Board of Directors on April 13, 2001. The Agreement continues in effect
until July 31 of each year, provided its continuance is specifically approved at
least annually by the vote of a majority of the Directors who are not parties to
the Agreement or Interested Persons of the Company or the Investment Manager
cast in person at a meeting called for the purpose of voting on such approval,
and by the vote of either the Board of Directors or a majority of the Company's
outstanding voting securities. The Agreement may be terminated on 60 days'
written notice, without penalty, by a majority vote of the Board of Directors,
by the vote of a majority of the Company's outstanding voting securities, or by
the Investment Manager, and automatically terminates in the event of its
assignment.
9
Services Provided
The Agreement requires the Investment Manager to provide investment
management and advisory services to the Company. It provides that the Investment
Manager will provide statistical and research facilities and services, supervise
the composition of the Company's portfolio, determine the nature and timing of
changes therein and the manner of effectuating such changes and cause the
purchase and sale of portfolio securities, subject to control by the Company's
Board of Directors. In addition to providing investment management and advisory
services, the Investment Manager pays for office space, all necessary office
facilities, basic business equipment, supplies, utilities, property casualty
insurance, telephone services and the costs of keeping the Company's books and
records. The Agreement requires the Investment Manager to arrange, if desired by
the Board of Directors of the Company, for officers or employees of the
Investment Manager to serve, with or without compensation from the Company, as
Officers, Directors or employees of the Company.
The Agreement provides that the Investment Manager will not be liable for
any acts or omissions of any predecessor adviser and neither the Investment
Manager nor any director, officer, agent or employee of the Investment Manager
will be liable or responsible to the Company or its stockholders except for
willful misfeasance, bad faith, gross negligence or reckless disregard of their
respective duties or breach of fiduciary duty. The Agreement also provides that
the Company will hold the Investment Manager harmless from judgments against it
resulting from acts or omissions in the performance of its obligations under the
Agreement which are specifically the result of written instructions of the
President, any Vice President or a majority of the Board of Directors of the
Company. There must, however, be an express finding that such acts or omissions
did not constitute willful misfeasance, bad faith, gross negligence or reckless
disregard of duties.
Fees and Expenses
The Agreement provides that the Investment Manager be paid an annual fee,
payable monthly, equal to 0.50 of 1% of the value of the net assets of the
Company up to and including $150 million, 0.45 of 1% of the value of the net
assets of the Company over $150 million and up to and including $200 million,
and 0.40 of 1% of the value of the net assets of the Company over $200 million.
For purposes of computing the monthly fee, the value of net assets of the
Company is determined as of the close of business on the last business day of
each month. For the fiscal year ended December 31, 2000 the Company paid the
Investment Manager an aggregate fee of $933,117.
The Agreement provides that the Company bear all expenses incurred in the
operation of the Company -- except those that the Investment Manager expressly
assumes in the Agreement. Such expenses borne by the Company include (a) all
costs and expenses incident to: (i) the registration of the Company under the
1940 Act, or (ii) any public offering of shares of the Company, for cash or
otherwise, including those costs and expenses relating to the registration of
shares under the Securities Act of 1933, as amended (the "Securities Act"), the
qualification of shares of the Company under state securities laws, the printing
or other reproduction and distribution of any registration statement (and all
amendments thereto) under the Securities Act, the preliminary and final
prospectuses included therein, and any other necessary documents incident to any
public offering, the advertising of shares of the Company and the review by the
National Association of Securities Dealers, Inc. of any underwriting
arrangements; (b) the charges and expenses of any registrar or any
10
custodian appointed by the Company for the safekeeping of its cash, portfolio
securities and other property; (c) the charges and expenses of auditors
(including the preparation of tax returns); (d) the charges and expenses of any
stock transfer, dividend agent or registrar appointed by the Company; (e)
broker's commissions chargeable to the Company in connection with portfolio
securities transactions to which the Company is a party; (f) all taxes,
including securities issuance and transfer taxes, and corporate fees payable by
the Company to federal, state or other governmental agencies; (g) the cost and
expense of engraving or printing stock certificates representing shares of the
Company; (h) fees involved in registering and maintaining registrations of the
Company and of its shares with the SEC and various states and other
jurisdictions; (i) all expenses of stockholders' and Directors' meetings and of
preparing, printing and mailing proxy statements and quarterly, semiannual and
annual reports to stockholders; (j) fees and travel expenses of Directors of the
Company who are not directors, officers or employees of the Investment Manager
or its "affiliates" (as defined in the 1940 Act) ("Affiliates"); (k) all fees
and expenses incident to any dividend or distribution reinvestment program; (l)
charges and expenses of outside legal counsel in connection with matters
relating to the Company, including without limitation, legal services rendered
in connection with the Company's corporate and financial structure and relations
with its stockholders, issuance of Company shares, and registrations and
qualifications of securities under federal, state and other laws; (m)
association dues; (n) interest payable on Company borrowings; (o) fees and
expenses incident to the listing of Company shares on any stock exchange; (p)
costs of information obtained from sources other than the Investment Manager or
its Affiliates relating to the valuation of portfolio securities; and (q)
postage.
Scudder Investments Service Company, an Affiliate of the Investment
Manager, serves as the Company's transfer agent, dividend disbursing agent and
dividend reinvestment and cash purchase plan agent, pursuant to an agreement
dated November 17, 2000 (the "Agency Agreement"). The Agency Agreement provides
that the Company pay Scudder Investments Service Company a minimum annual fee of
$16,200 or, if the Company exceeds the minimum annual fee, an annual account
charge of $7.50 per open account and $2.50 per closed account. The Company also
pays a transaction fee per certificate processed of $1.50, plus out-of-pocket
expenses and fees for special projects. For the period from November 17, 2000 to
December 31, 2000, the Company paid an aggregate fee of $1,980 to Scudder
Investments Service Company. It is expected that Scudder Investments Service
Company will continue to provide services to the Company whether or not
continuance of the Agreement with the Investment Manager is approved at the
Annual Meeting.
11
Expense Limitations
The Agreement provides that if expenses of the Company (including the
advisory fee but excluding interest, taxes, brokerage commissions and
extraordinary expenses) in any fiscal year exceed a specified expense
limitation, the Investment Manager will pay the excess to the Company. The
specified limitation is 11/2% of the first $30 million of the Company's average
net assets plus 1% of the Company's average net assets in excess of $30 million.
The Agreement provides that extraordinary expenses, such as litigation expenses
and the cost of issuing new shares, are excluded expenses for purposes of the
expense limitations described in this paragraph and the immediately succeeding
paragraph and that the Investment Manager will not be obligated to pay any
amount to the Company during any fiscal year in excess of the amount of the
advisory fee for such fiscal year.
The Agreement also provides for a second expense limitation, relating to
the Company's gross income (including gains from the sale of securities without
offset for losses, unpaid interest on debt securities in the Company's
portfolio, and dividends declared but not paid on equity securities in the
Company's portfolio). This limitation provides that if, for any fiscal year, the
expenses of the Company described in the preceding paragraph -- less any amount
payable by the Investment Manager to the Company on account of the first expense
limitation -- exceed 25% of the Company's gross income for the year, the
Investment Manager will promptly pay the excess to the Company.
For the fiscal year ended December 31, 2000, the Company's expenses did not
exceed these limitations.
Investment Manager
The Investment Manager is one of the largest and most experienced
investment management firms in the United States. As of December 31, 2000, the
firm had more than $370 billion in assets under management, of which $260
billion represents funds managed for third-party institutional and retail
customers. The principal source of the Investment Manager's income is
professional fees received from providing continuing investment advice.
The Investment Manager is a Delaware corporation. Steven Gluckstern^(1) is the
Chairman of the Board and a Director, Edmond D. Villani^(2) is the President,
Chief Executive Officer and a Director, Kathryn L. Quirk^(2) is the General
Counsel, Chief Compliance Officer and Secretary, Farhan Sharaff^(2) is the Chief
Investment Officer, Chris C. DeMaio^(2) is the Treasurer, each of Nicholas
Bratt^(2) and Lynn S. Birdsong^(2) are Corporate Vice Presidents and Directors,
and Laurence W. Cheng^(3), Martin Feinstein^(2) and Gunther Gose^(3) are
Directors of the Investment Manager. The principal occupation of Edmond D.
Villani, Kathryn L. Quirk, Farhan Sharaff, Chris C. DeMaio, Nicholas Bratt and
Lynn S. Birdsong is serving as a Managing Director of the Investment Manager;
the principal occupation of Steven Gluckstern is serving as Chief Executive
Officer of the Global Asset Businesses of Zurich Financial Services; the
principal occupation of Laurence W. Cheng is serving as a senior partner of
Capital Z Partners, an investment fund; the principal occupation of Martin
Feinstein is serving as Chief Executive Officer of Farmers Insurance Group; and
the principal occupation of Gunther Gose is serving as the Chief Financial
Officer of Zurich Insurance Company.
12
As of March 31, 2001, the outstanding securities of the Investment Manager were
held of record 1.3% by Zurich Insurance Company^(1); 35.8% and 16.1% by Zurich
Holding Company of America ("ZHCA")^(4) and Zurich Financial Services (UKISA)
Limited,^(5) respectively, each a wholly owned subsidiary of Zurich Insurance
Company; 27.1% by ZKI Holding Corporation ("ZKIH")^(6), a wholly owned
subsidiary of ZHCA; 15.6% by Stephen R. Beckwith, Lynn S. Birdsong, Kathryn L.
Quirk and Edmond D. Villani in their capacity as representatives (the
"Management Representatives") of the Investment Manager's management holders and
retiree holders pursuant to a Second Amended and Restated Security Holders
Agreement (the "Security Holders Agreement") among the Investment Manager,
Zurich Insurance Company, ZHCA, ZKIH, the Management Representatives, the
management holders, the retiree holders and Edmond D. Villani, as trustee of
Zurich Scudder's Executive Defined Contribution Plan Trust (the "Trust"); and
4.1% by the Trust. Zurich Insurance Company is a wholly owned subsidiary of
Zurich Group Holding^(3), 57% of whose shares is held by Zurich Financial
Services^(3) and 43% of whose shares is held by Allied Zurich p.l.c.^(5), a
wholly owned subsidiary of Zurich Financial Services.
Pursuant to the Security Holders Agreement, the Board of Directors of the
Investment Manager consists of four directors designated by the
Zurich-affiliated stockholders and three directors designated by the Management
Representatives.
The Security Holders Agreement requires the approval of a majority of the
directors designated by the Management Representatives for certain decisions,
including changing the name of Zurich Scudder, effecting an initial public
offering before April 15, 2005, causing Zurich Scudder to engage substantially
in non-investment management and related business, making material acquisitions
or divestitures, making material changes in Zurich Scudder's capital structure,
dissolving or liquidating Zurich Scudder, or entering into certain affiliated
transactions with Zurich Financial Services. The Security Holders Agreement also
provides for various put and call rights with respect to Zurich Scudder stock
held by the management holders and the retiree holders, limitations on Zurich's
ability to purchase other asset management companies outside of Zurich Scudder,
rights of Zurich to repurchase Zurich Scudder stock upon termination of
employment of Zurich Scudder personnel, and registration rights for stock held
by the management holders and the retiree holders.
------------------------
^(1) 54 Thompson Street, Third Floor, New York, NY
^(2) 345 Park Avenue, New York, NY 10154
^(3) Mythenquai 2, P.O. Box CH-8022, Zurich, Switzerland
^(4) 1400 American Lane, Schaumburg, IL 60196
^(5) 22 Arlington Street, London SW1A, 1RW United Kingdom
^(6) 222 South Riverside Plaza, Chicago, IL 60606
13
The following are open-end funds with investment objectives similar to
those of the Company, for whom the Investment Manager provides investment
management services:
Total Net Assets Management Compensation
as of (as of April 30, 2001)
April 30, 2001 on an Annual Basis Based on the Value of
Name (000 omitted) Average Daily Net Assets
---- ------------- ------------------------
Kemper Income and Capital $421,470 0.55 of 1%; 0.52 of 1% on net assets in Preservation Fund
excess of $250 million; 0.50 of 1% on net assets in excess
of $1 billion; 0.48 of 1% on net assets in excess of $2.5
billion; 0.45 of 1% on net assets in excess of $5 billion;
0.43 of 1% on net assets in excess of $7.5 billion; 0.41 of
1% on net assets in excess of $10 billion; 0.40 of 1% on
excess net assets in excess of $12.5 billion.
Scudder Income Fund $702,100 0.650 of 1%; 0.600 of 1% on net assets in excess of $200
million; 0.550 of 1% on net assets in excess of $500
million; 0.525 of 1% on net assets in excess of $1 billion;
0.500 of 1% on net assets in excess of $1.5 billion.
From time to time, directors, officers and employees of the Investment
Manager may have transactions with various banks, including the Company's
custodian bank. It is the Investment Manager's opinion that the terms and
conditions of those transactions that have occurred were not influenced by
existing or potential custodial or other Company relationships.
The information set forth in this Proxy Statement concerning the Investment
Manager and its affiliates has been provided by the Investment Manager.
Investment and Brokerage Discretion
The Investment Manager has primary responsibility for the selection of
brokers and dealers (including futures commission merchants) through which the
Company's portfolio transactions are executed, subject to periodic review by the
Company's Board of Directors. To the maximum extent feasible, the Investment
Manager places orders for portfolio transactions through Scudder Investor
Services, Inc. (a corporation registered as a broker/dealer and a subsidiary of
the Investment Manager), which in turn will place orders on behalf of the
Company with the issuer, underwriters or other brokers and dealers. Scudder
Investor Services, Inc. receives no commissions, fees or other remuneration from
the Company for this service. Allocation of trades will be supervised by the
Investment Manager.
14
Recommendation and Required Vote
At a meeting held on April 13, 2001, the Board of Directors, including a
majority of the Directors who were not Interested Persons of the Company or the
Investment Manager, approved the continuance of the Agreement until July 31,
2002 and recommended that the stockholders approve its continuance at the Annual
Meeting. Although approval by stockholders of the continuance of the Agreement
is not required by the terms of the Agreement or by applicable law, it has been
the Company's custom to submit this matter to the stockholders at the Annual
Meeting. The Company may discontinue this practice in the future in its
discretion.
In approving the continuance of the Agreement, the Board of Directors,
considering the best interests of the stockholders of the Company, took into
account a number of factors. Among such factors were: the long-term investment
record of the Investment Manager in advising the Company; the experience and
research capabilities of the Investment Manager in fixed-income instruments,
including mortgage-related securities and private placements; the relatively low
expenses and expense ratio of the Company; the Investment Manager's access to
quality service providers at reasonable cost due to the size of its assets under
management; the quality of the administrative services to the Company; the
experience of the Investment Manager in administering other open- and closed-end
funds; the availability and responsiveness of the Investment Manager and its
attention to internal controls and procedures; the extent and quality of
information provided to the Board of Directors and stockholders; the continuity
in the Company's investment and administrative personnel; the financial
resources of the Investment Manager and its ability to retain capable personnel;
the Investment Manager's financial condition, profitability and assets under
management; the provision of transfer agency and related services to the Fund by
an Affiliate of the Investment Manager; possible indirect benefits to the
Investment Manager from serving as adviser of the Company; and the effects of
recent organizational changes implemented by the Investment Manager.
In reviewing the continuance of the Agreement, the Board of Directors
reviewed, among other information, extensive written and oral reports and
compilations from the Investment Manager, including comparative data from
independent sources as to investment performance, advisory fees and other
expenses. The Board of Directors also received a separate written and oral
report from Gifford Fong Associates, an independent investment consultant
engaged by the Board of Directors specializing in quantitative fixed-income
investment analysis.
Approval by stockholders requires the affirmative vote of the holders of a
majority of the Company's outstanding shares. In this context, "majority" means
the lesser of two votes: (1) 67% of the Company's outstanding shares present at
a meeting if the holders of more than 50% of the outstanding shares are present
in person or by proxy, or (2) more than 50% of all of the Company's outstanding
shares. If continuance of the Agreement is approved at the Annual Meeting, the
Agreement will continue until annual review of the question of continuance by
the Board or the stockholders in 2002. If continuance is not approved at the
Annual Meeting, the Board of Directors will make such arrangements for the
management of the Company, including continuance of the Agreement, as it
believes appropriate and in the best interests of the Company.
15
STOCKHOLDER PROPOSALS FOR 2002 PROXY STATEMENT
Stockholders wishing to submit proposals for inclusion in a proxy statement
for the 2002 meeting of stockholders of the Fund, should send their written
proposals to the Fund, at 101 California Street, Suite 4100, San Francisco,
California 94111, by February 1, 2002. The timely submission of a proposal does
not guarantee its inclusion.
The Fund may exercise discretionary voting authority with respect to
stockholder proposals for the 2002 meeting of stockholders which are not
included in the proxy statement and form of proxy, if notice of such proposals
is not received by the Fund at the above address on or before April 17, 2002.
Even if timely notice is received, the Fund may exercise discretionary voting
authority in certain other circumstances. Discretionary voting authority is the
ability to vote proxies that stockholders have executed and returned to the Fund
on matters not specifically reflected on the form of proxy.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than those mentioned in this Proxy Statement. The appointed
proxies will vote on any other business that comes before the Annual Meeting or
any adjournments thereof in accordance with their best judgment.
Please complete and sign the enclosed proxy card and return it in the
envelope provided so that the Annual Meeting may be held and action may be taken
on the matters described in this Proxy Statement with the greatest possible
number of shares participating. This will not preclude your voting in person if
you attend the Annual Meeting.
/s/ Maureen E. Kane
Maureen E. Kane
June 1, 2001 Secretary
16
Appendix A
MONTGOMERY STREET INCOME SECURITIES, INC.
Audit Committee Charter
This document constitutes the Charter of the Audit Committee (the
"Committee") of the Board of Directors of Montgomery Street Income Securities,
Inc. (the "Fund"). The Committee was established by the Board of Directors of
the Fund to provide oversight with respect to the accounting and financial
reporting policies and practices of the Fund.
1. Organization. The Committee shall be composed of three or more members of
the Fund's Board of Directors who are not "interested persons" (as defined
in the Investment Company Act of 1940) of the Fund. Each member of the
Committee shall be financially literate, as such qualification is
interpreted by the Board of Directors in its business judgment (or must
become financially literate within a reasonable period of time after his or
her appointment to the Committee). At least one member of the Committee
must have accounting or related financial management expertise, as the
Board of Directors interprets such qualification in its business judgment.
2. Meetings. The Committee shall meet on a regular basis as necessary or
--------
appropriate and is empowered to hold special meetings as circumstances
require.
3. Committee Purposes. The purposes of the Committee are as follows:
------------------
(a) To oversee the accounting and financial reporting policies and
practices of the Fund, their internal controls and, as appropriate,
the internal controls of certain service providers to the Fund;
(b) To oversee the quality and objectivity of the Fund's financial
statements and the independent audit thereof; and
(c) To act as a liaison between the Fund's independent auditors and the
full Board of Directors.
The function of the Audit Committee is oversight; it is management's
responsibility to maintain or arrange for the maintenance of
appropriate systems for accounting and internal controls, and the
auditor's responsibility to plan and carry out a proper audit.
4. Duties and Powers. To carry out the purposes specified in Paragraph 3
-----------------
above, the Committee shall have the following duties and powers:
(a) To recommend to the Board of Directors the selection of the Fund's
independent auditors, on the condition that the independent auditors
are ultimately accountable to the Board of Directors and the Committee
and that the Committee and the Board of Directors shall have the
ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the independent auditors (or to nominate the
outside auditor to be proposed for shareholder approval in any proxy
statement);
17
(b) To request and evaluate on an annual basis a formal written statement
from the independent auditor delineating all significant relationships
between the independent auditor and the Fund and the Investment
Adviser and recommend that the Board of Directors take appropriate
action, if any, in response to the independent auditors' report to
satisfy itself of the auditors' independence.
(c) To meet with the Fund's independent auditors, including private
meetings as necessary (i) to review the arrangements for and scope of
the annual audit of the Fund and any special audits; (ii) to review
the Fund's audited financial statements and discuss any matters of
concern relating thereto, including any adjustments to such statements
recommended by the auditors, regulatory and tax compliance matters
considered in the preparation of the financial statements, or other
results of said audit(s); (iii) to consider the auditors' comments
with respect to the Fund's financial policies and procedures and
internal accounting controls, and management's responses thereto; and
(iv) to review the form of the opinion the auditors propose to render
to the Board of Directors and the shareholders of the Fund;
(d) To determine whether to recommend to the Board of Directors that the
Fund's audited financial statements be included in the Annual Report
and to perform such additional functions as may be required under
rules and regulations promulgated by the Securities and Exchange
Commission and the New York Stock Exchange;
(e) To meet regularly with the chief financial and accounting officers of
the Fund to discuss any matters addressed herein that the Committee
believes should be raised with said officers;
(f) To review such other matters or information that the Committee
believes may be relevant to the auditors, the audit engagement, or the
Fund's financial policies and procedures or internal accounting
controls;
(g) To report its activities to the full Board of Directors on a regular
basis and to make such recommendations with respect to the above and
other matters as the Committee may deem necessary or appropriate.
5. Resources and Authority. The Committee shall have the resources and
authority appropriate for purposes of discharging its responsibilities
under this Charter, including the authority to consult with counsel and/or
to retain such experts or consultants as the Committee deems necessary or
appropriate to fulfill such responsibilities at the expense of the Fund.
6. Periodic Review of Charter. The Committee shall review this Charter at
--------------------------
least annually and recommend any changes to the full Board of Directors.
Amended as of April 13, 2001
18
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PROXY MONTGOMERY STREET INCOME SECURITIES, INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Annual Meeting of Stockholders -- July 12, 2001
The undersigned hereby appoints Victor L. Hymes, Maureen E. Kane and John
R. Hebble, each with the power of substitution, as proxies for the undersigned,
to vote all shares of Montgomery Street Income Securities, Inc. (the "Company")
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
of the Company to be held at the offices of the Company, 101 California Street,
Suite 4100, San Francisco, California, on Thursday, July 12, 2001 at 10:00 a.m.,
Pacific time, and at any adjournments thereof.
Unless otherwise specified in the squares provided, the undersigned's vote will
be cast FOR Proposals 1 and 2.
1. The election of six Directors.
Nominees: J.C. Atwater, R.J. Bradshaw, M.K. Johnson, J.T. Packard, W.G. Van Auken, J.C. Van Horne
FOR ALL NOMINEES /___/ WITHHELD FROM ALL NOMINEES /___/
/___/
-----------------------------------------
For all nominees except as noted above
2. Approval of the continuance of the Management and Investment Advisory FOR /___/ AGAINST /___/ ABSTAIN /___/
Agreement between the Company and Zurich Scudder Investments, Inc.
(continued on other side)
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Annual Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED
Please sign exactly as your name or names appear
hereon. When signing as attorney, executor,
administrator, trustee or guardian, please give
your full title as such.
Signature Date
---------------------- --------
Signature Date
---------------------- --------
Montgomery Street
Income Securities, Inc.
101 California Street, Suite 4100
San Francisco, California 94111
(415) 981-8191