SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A) of the Securities
Exchange Act of 1934 (Amendment No.__ )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [X ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MONTGOMERY STREET INCOME SECURITIES, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identity the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
Notice of
2003
Annual Meeting
of Stockholders
and
Proxy Statement
Montgomery Street
Income Securities, Inc.
MONTGOMERY
101 California Street, Suite 4100
Montgomery Street
San Francisco, California 94111
(415) 981-8191 Income Securities, Inc.
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May 29, 2003
To the Stockholders:
The Annual Meeting of Stockholders of Montgomery Street Income
Securities, Inc. (the "Fund") is to be held at 10:00 a.m. (Pacific time) on
Thursday, July 10, 2003 at the offices of the Fund, 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 card are enclosed.
At the Annual Meeting, the stockholders will elect the Fund's Directors
and consider the approval of the continuance of the Management and Investment
Advisory Agreement between the Fund and Deutsche Investment Management Americas
Inc. In addition, the stockholders present will hear a report of the Fund. There
will be an opportunity to discuss matters of interest to you as a stockholder.
The enclosed Proxy Statement provides greater detail about each
proposal. The Board of Directors of the Fund recommends that the stockholders
vote in favor of each proposal.
To vote, simply fill out the enclosed proxy card -- be sure to sign and
date it -- and return it to us in the enclosed postage-prepaid envelope. Your
vote is very important to us. Thank you for your response and for your continued
investment with the Fund.
Respectfully,
/s/James C. Van Horne /s/Richard T. Hale
James C. Van Horne Richard T. Hale
Chairman of the Board President
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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 (the "Annual
Meeting") of Montgomery Street Income Securities, Inc. (the "Fund") has been
called to be held at the offices of the Fund, 101 California Street, Suite 4100,
San Francisco, California 94111, on Thursday, July 10, 2003 at 10:00 a.m.
(Pacific time), for the following purposes:
(1) To elect five Directors of the Fund to hold office until the
next Annual Meeting or until their respective successors shall have been
duly elected and qualified.
(2) To approve the continuance of the Management and Investment
Advisory Agreement between the Fund and Deutsche Investment Management
Americas Inc.
Those present and the appointed proxies will also transact such other
business, if any, as may properly come before the Annual Meeting or any
adjournments or postponements thereof.
Holders of record of the shares of common stock of the Fund at 5:00
p.m. (Eastern time), on May 9, 2003 are entitled to vote at the Annual Meeting
or any adjournments or postponements thereof.
In the event that the necessary quorum to transact business or the vote
required to approve any proposal is not obtained at the Annual Meeting, the
persons named as proxies on the enclosed proxy card may propose one or more
adjournments of the Annual Meeting to permit, in accordance with applicable law,
further solicitation of proxies with respect to that proposal. Any such
adjournment as to a matter 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 FOR any 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.
By order of the Board of Directors,
/s/Maureen E. Kane, Secretary
May 29, 2003 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
Fund the necessity of further solicitations to ensure a quorum at the Annual
Meeting. If you can attend the Annual 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 9, 2003 MAILING DATE: May 29, 2003
Introduction
The Board of Directors of Montgomery Street Income Securities, Inc.
(the "Fund") 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
Fund, 101 California Street, Suite 4100, San Francisco, California 94111, on
Thursday, July 10, 2003 at 10:00 a.m. (Pacific time). The Board of Directors is
also soliciting proxies for use at any adjournment or postponement of the Annual
Meeting. This Proxy Statement is furnished in connection with this solicitation.
The Fund may solicit proxies by mail, telephone, telegram, and personal
interview. Georgeson Shareholder Communications, Inc., 17 State Street, New
York, New York 10004, has been engaged to assist in the solicitation of proxies
for the Fund, at an estimated cost of $8,000, plus expenses. The Fund will pay
the cost of soliciting proxies. In addition, the Fund may request personnel of
Deutsche Investment Management Americas Inc. (the "Investment Manager") to
assist in the solicitation of proxies for no separate compensation. It is
anticipated that the Fund 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. Upon request,
the Fund 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 it has not yet
been exercised by the appointed proxies. You may do so by:
o written notice to the Fund, c/o Scudder Investments Service Company,
P.O. Box 219066, Kansas City, MO 64121-9066, Attn: Manager, Proxy
Department;
o written notice to the Fund 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.
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 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 have the effect of a "no" vote on Proposal 2. Broker non-votes will have
the effect of a "no" vote on Proposal 2 if such vote is determined on the basis
of obtaining the affirmative vote of more than 50% of the outstanding shares of
the Fund. Broker non-votes will not constitute "yes" or "no" votes for Proposal
2 but will be counted in determining the voting securities "present" if such
vote is determined on the basis of the affirmative vote of 67% of the voting
securities of the Fund present at the Annual Meeting. Broker non-votes are not
likely to be relevant to the Annual Meeting because the Fund has been advised by
the New York Stock Exchange that each of the Proposals to be voted upon by the
stockholders involves matters that the New York Stock Exchange considers to be
routine and within the discretion of brokers to vote if customer instructions
are not received.
In the event that the necessary quorum to transact business or the vote
required to approve any proposal is not obtained at the Annual Meeting, the
persons named as proxies on the enclosed proxy card may propose one or more
adjournments of the Annual Meeting to permit, in accordance with applicable law,
further solicitation of proxies with respect to that proposal. Any such
adjournment as to a matter 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 FOR any 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 record date for determination of stockholders entitled to receive
notice of the Annual Meeting and to vote at the Annual Meeting or any
adjournments or postponements thereof, was May 9, 2003 at 5:00 p.m., Eastern
time (the "Record Date").
As of the Record Date, there were issued and outstanding 10,369,029
shares of common stock of the Fund, constituting all of the Fund's then
outstanding securities. Each share of common stock is entitled to one vote. The
following table sets forth, for each Director, the President of the Fund and the
Directors and executive officers as a group, the amount of shares beneficially
owned in the Fund as of April 30, 2003. Each Director's and the President's
individual beneficial shareholdings in the Fund constituted
2
less than 1% of the outstanding shares of the Fund, and, as a group, the
Directors and executive officers owned beneficially less than 1% of the
outstanding shares of the Fund. The total for the group included 40,919 shares
held with sole investment and voting power and 3,765 shares held with shared
investment and voting power.
Aggregate Dollar Range of
Amount of Shares Dollar Range of Equity Equity Securities in all
Beneficially Owned Securities in the Funds Overseen in Family of
Position in the Fund Fund(1) Investment Companies
-------- ------------------ ---------------------- ---------------------------
Independent Directors
James C. Van Horne..............Chairman of the 2,500 $10,000 - $50,000 $10,000 - $50,000
Board and Director
John C. Atwater(2)..............Director 7,100 Over $100,000 Over $100,000
Richard J. Bradshaw(3)..........Director 3,765 $50,000 - $100,000 $50,000 - $100,000
Maryellie K. Johnson............Director 11,360 Over $100,000 Over $100,000
Wendell G. Van Auken............Director 18,459 Over $100,000 Over $100,000
Interested Director(4)
John T. Packard.................Director 500 $1 - $10,000 $1 - $10,000
Richard T. Hale.................President 1,000 $10,000 - $50,000 Over $100,000
All Directors and Executive 44,684
Officers as a Group
- ---------------------
(1) The information as to beneficial ownership is based on statements
furnished to the Fund by each Director and officer. Unless otherwise
indicated, each person has sole voting and investment power over the
shares reported.
(2) Mr. Atwater is not standing for reelection at the Annual Meeting.
(3) Shared investment and voting power over the shares reported.
(4) Mr. Packard may be considered an "interested person" of the Fund, as
defined in the Investment Company Act of 1940, as amended (the "1940
Act"), by reason of his past relationships with the Fund and the
Investment Manager.
To the Fund's knowledge, as of April 30, 2003, no person owned
beneficially more than 5% of the Fund's outstanding shares.
3
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and Section 30(h) of the 1940 Act, as applied to a closed-end fund,
require a fund's officers and directors, investment manager, affiliated persons
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.
Based on a review of reports filed by the Fund's reporting persons, and
written representations by the reporting persons that no year-end reports were
required for such persons, all filings required by Section 16(a) of the 1934 Act
for the fiscal year ended December 31, 2002, were timely, except that David
Wasserman (a former Director of Zurich Scudder Investments, Inc.) and J.
Christopher Gagnier filed a Form 3 late.
The Fund 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, 2002, without charge, by calling 1-800-349-4281 or
1-800-294-4366 or writing the Fund at 101 California Street, Suite 4100, San
Francisco, CA 94111.
PROPOSAL 1 -- ELECTION OF DIRECTORS
Five Directors are to be elected at the Annual Meeting as the Directors
of the Fund. 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 five Directors of the Fund. 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 Fund and each was
elected to serve as a Director at the 2002 Annual Meeting of Stockholders. Mr.
Atwater is not standing for re-election as a Director and the authorized number
of Directors has been reduced to five. 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
4
stockholders at the annual meeting, and sets policies regarding retirement from
the Board of Directors. 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 2004 annual meeting,
submission should be made by January 30, 2004.
Information Concerning Nominees
The following table sets forth certain information concerning each of
the nominees as a Director of the Fund. Unless otherwise noted, (i) each of the
nominees has engaged in the principal occupation(s) noted in the following table
for at least the most recent five years, although not necessarily in the same
capacity, and (ii) the address of each nominee is c/o Montgomery Street Income
Securities, Inc., 101 California Street, Suite 4100, San Francisco, CA 94111.
The term of office for each Director is until the next annual meeting of
stockholders or until the election and qualification of a successor.
Year First
Principal Occupation or Employment Became a
Nominee (Age) and Directorships in Publicly Held Companies Director
- -------------------- ------------------------------------------------------------------- -----------
Independent Directors
---------------------
Richard J. Bradshaw Mr. Bradshaw is the Executive Director of Cooley Godward LLP (law 1991
(54) firm).
Maryellie K. Johnson Ms. Johnson is a private investor. From 1989 to 1998, she was a 1989
(67) Director of London and Overseas Freighters, Ltd. (oil tanker
operator).
Wendell G. Van Auken Mr. Van Auken is a General Partner of several venture capital 1994
(58) funds affiliated with Mayfield Fund. He also serves as a Director
of Advent Software (portfolio software company).
James C. Van Horne Dr. Van Horne is the A.P. Giannini Professor of Finance, Graduate 1985
(67) School of Business, Stanford University. He also serves as a
Director of Suntron Corp. (electronic manufacturing services), and
Bailard, Biehl & Kaiser Opportunity Fund Group, Inc. (registered
investment company).
5
Year First
Principal Occupation or Employment Became a
Nominee (Age) and Directorships in Publicly Held Companies Director
- -------------------- ------------------------------------------------------------------- -----------
Interested Director(1)
---------------------
John T. Packard (69) Mr. Packard has been a Managing Director of Weiss, Peck & Greer 2001
Investments (investment adviser and broker-dealer) since January
2002 and was an Advisory Managing Director of the same firm from
February 2000 to January 2002. From 1985 to 1998, he was a
Managing Director, and from 1999 to 2000, he was an Advisory
Managing Director, of the Investment Manager, serving as the
President of the Fund from 1988 to February 2000.
- -------------------
(1) Mr. Packard may be considered an "interested person" of the Fund, as
defined in the 1940 Act, by reason of his past relationships with the Fund
and the Investment Manager.
Each Director serves as a board member of one portfolio in the complex
of funds that hold themselves out as related companies for purposes of
investment or investor services or are managed by the Investment Manager or its
affiliated persons (the "Fund Complex").
As of December 31, 2002, none of the Directors beneficially owned
securities of the Investment Manager or any person directly or indirectly
controlling, controlled by or under common control with the Investment Manager.
The primary responsibility of the Board of Directors is to represent
the interests of the stockholders of the Fund and to provide oversight of the
management of the Fund. The slate of nominees proposed for election as Directors
of the Fund is composed of one individual (the "Interested Director") who is
considered an "interested person" of the Fund within the meaning of the 1940 Act
(an "Interested Person"), and four individuals (the "Independent Directors") who
are not considered Interested Persons. A majority of the board members of a
registered investment company must not be Interested Persons for the company to
take advantage of certain exemptive rules under the 1940 Act. If the nominees
proposed for election as Directors of the Fund are elected, 80% 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 Fund.
6
Board and Committee Meetings
The Board of Directors has an Executive Committee, a Valuation
Committee and an Audit Committee. In 2002, the Board of Directors held five
meetings, the Audit Committee held two meetings, and the Valuation Committee
held one meeting. The Executive Committee did not meet in 2002. 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 2002, except Mr.
Atwater, who attended 71% of the 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 currently composed of three Independent
Directors (Messrs. Van Horne, Atwater and Bradshaw).
Valuation Committee
The Valuation Committee reviews Valuation Procedures adopted by the
Board of Directors, determines the fair value of the portfolio assets of the
Fund as needed in accordance with the Valuation Procedures and performs such
other tasks as the full Board of Directors deems necessary. 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 Fund, its internal controls and, as appropriate,
the internal controls of certain service providers to the Fund. The Audit
Committee also oversees the quality and objectivity of the Fund's financial
statements and the independent audit thereof and acts as a liaison between the
Fund's independent auditors and the full Board of Directors.
The Audit Committee is composed of three Independent Directors (Messrs.
Van Auken, Atwater and Bradshaw). It is expected that Ms. Johnson will be
appointed to replace Mr. Atwater on the Audit Committee following the Annual
Meeting. In accordance with the New York Stock Exchange listing standards, none
of the Committee members has a relationship with the Fund that may interfere
with the exercise of his independence from management and the Fund, and each
Committee member meets the independence requirements of the New York Stock
Exchange listing standards. The Audit Committee is governed by a written charter
adopted by the Board of Directors 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 26, 2003,
the Committee reviewed the Fund's audited financial statements and discussed the
financial
7
statements with the Investment Manager 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
those reviews and discussions, the Committee recommended to the Board of
Directors that the audited financial statements be included in the Fund's annual
report to stockholders for the 2002 fiscal year.
The Audit Committee:
Wendell G. Van Auken, Chair
John C. Atwater
Richard J. Bradshaw
8
Independent Auditors
At a meeting held on April 11, 2003, the Independent Directors and the
full Board of Directors, voting separately, unanimously selected Ernst & Young
LLP ("E&Y") as the Fund's independent auditors, for the fiscal year ending
December 31, 2003, to examine the Fund's books and accounts and to certify the
Fund's financial statements. The Fund's financial statements for the fiscal year
ended December 31, 2002 were audited by E&Y. The following table sets forth the
aggregate fees billed for professional services rendered by E&Y(1):
Financial Information Systems
Audit Fees(2) Design and Implementation Fees(3) All Other Fees(3)
------------- --------------------------------- -----------------
$45,000 $0 $1,650,000
- -------------------
(1) In addition to the amount shown in the table, E&Y received an aggregate
amount of $4,066,895 for all services performed on behalf of other funds
advised by the Investment Manager.
(2) The fees disclosed under the caption "Audit Fees" are the aggregate fees
for professional services rendered for the audit of the Fund for the most
recent fiscal year.
(3) The fees disclosed under the captions "Financial Information Systems
Design and Implementation Fees" and "All Other Fees" include fees billed
for services rendered, if any, for the most recent fiscal year to the
Fund, the Investment Manager and all entities controlling, controlled by,
or under common control with the Investment Manager that provide services
to the Fund.
The Fund's Audit Committee gave careful consideration to the non-audit
related services provided by E&Y to the Fund, the Investment Manager and
entities controlling, controlled by or under common control with the Investment
Manager that provide services to the Fund, 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.
Representatives of E&Y are not expected to be present at the Annual
Meeting, but will be available by telephone to respond to appropriate questions
posed by stockholders or management and to make a statement if they desire to do
so.
9
Officers of the Fund
The following table sets forth certain information concerning each
officer of the Fund. The address of each officer is c/o Montgomery Street Income
Securities, Inc., 101 California Street, Suite 4100, San Francisco, CA 94111.
Year First
Present Office with the Fund; Became an
Name (Age) Principal Occupation or Employment(1) Officer(2)
---------- ------------------------------------- ----------
Richard T. Hale (57) President; Managing Director, Deutsche Investment 2002
Management Americas Inc. (2003 to present); Managing
Director, Deutsche Bank Securities Inc. (formerly
Deutsche Banc Alex. Brown Inc.) and Deutsche Asset
Management (1999 to present); Director and President,
Investment Company Capital Corp.(registered investment
advisor) (1996 to present); Director, Deutsche Global
Funds, Ltd. (2000 to present), CABEI Fund (2000 to
present), North American Income Fund (2000 to present)
(registered investment companies), Scudder Global
Opportunities Fund (since 2003); Director/Officer
Deutsche/Scudder Mutual Funds (various dates)
(registered investment companies); Vice President,
Deutsche Asset Management, Inc. (2000 to present);
formerly, Director, ISI Family of Funds (registered
investment companies) (1992-1999).
Gary W. Bartlett (43) Vice President; Managing Director, Deutsche Asset 2002
Management.
J. Christopher Gagnier (45) Vice President; Managing Director, Deutsche Asset 2002
Management.
Judith A. Hannaway (49) Vice President; Managing Director, Deutsche Asset 2001
Management.
10
Year First
Present Office with the Fund; Became an
Name (Age) Principal Occupation or Employment(1) Officer(2)
---------- ------------------------------------- ----------
Maureen E. Kane (41) Vice President and Secretary; Vice President, Deutsche 1999
Asset Management.
Charles A. Rizzo (45) Treasurer and Chief Financial Officer; Director, 2003
Deutsche Asset Management (2000 to present); formerly,
Vice President and Department Head, BT Alex. Brown
Incorporated (now Deutsche Bank Securities Inc.)
(1998-1999); Senior Manager, Coopers & Lybrand L.L.P.
(now PricewaterhouseCoopers LLP) (1993-1998).
- -------------------
(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 Ms. Kane) are also officers or
directors of other funds advised by the Investment Manager. Messrs.
Bartlett, Gagnier and Rizzo and Ms. Hannaway own securities of Deutsche
Bank AG.
(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 Fund for his or her
services. The Fund does not compensate its officers or employees, since the
Investment Manager makes these individuals available to the Fund to serve
without compensation from the Fund. 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, 2002, total
compensation (including reimbursement of expenses) for all Directors as a group
was $82,972.
11
The Compensation Table below provides the following data:
Column (1) Each Director who received compensation from the Fund.
Column (2) Aggregate compensation received by a Director from the Fund.
Column (3) Total compensation received by a Director from the Fund and Fund
Complex. No member of the Board serves as a Director or Trustee for any other
fund in the Fund Complex nor does any Director receive any pension or
retirement benefits from the Fund.
Compensation Table
for the fiscal year ended December 31, 2002
------------------------------------------------------------------------------------------
(1) (2) (3)
------------------------------------------------------------------------------------------
Total Compensation From the
Name of Person, Aggregate Compensation Fund and Fund Complex
Position from the Fund Paid to Director*
------------------------------------------------------------------------------------------
Independent Directors
John C. Atwater $10,000 $10,000
Director
Richard J. Bradshaw $10,000 $10,500
Director
Maryellie K. Johnson $9,500 $10,000
Director
Wendell G. Van Auken $10,000 $10,500
Director
James C. Van Horne $26,000 $26,500
Chairman
Interested Director
John T. Packard $10,000 $10,500
Director
------------------------------------------------------------------------------------------
- ------------
* Includes $500 paid by the Investment Manager to each Director who attended
a special Board meeting held in April 2002 to consider approval of an
Interim Investment Management and Advisory Agreement in connection with
the acquisition of the Fund's former investment manager by Deutsche Bank
AG.
Recommendation and Required Vote
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.
The Board of Directors recommends that the stockholders of the Fund
vote FOR the election of each of the nominees for Director.
12
PROPOSAL 2 -- APPROVAL OF THE CONTINUANCE OF THE MANAGEMENT AND INVESTMENT
ADVISORY AGREEMENT FOR THE FUND WITH DEUTSCHE INVESTMENT
MANAGEMENT AMERICAS INC.
Deutsche Investment Management Americas Inc., 345 Park Avenue, New
York, New York, acts as manager for and investment adviser to the Fund pursuant
to a Management and Investment Advisory Agreement dated August 15, 2002 (the
"Agreement"). The Agreement was first approved by a vote of the stockholders on
August 15, 2002, in connection with the acquisition of the Fund's former
investment manager by Deutsche Bank AG on April 5, 2002 (the "Transaction"). The
Transaction resulted in an "assignment", as that term is defined in the 1940
Act, of the investment advisory agreement then in effect (the "Prior
Agreement"). As required by the 1940 Act, the Prior Agreement provided for its
automatic termination in the event of its assignment and, accordingly, the Prior
Agreement terminated on April 5, 2002. In anticipation of the Transaction and
the consequent termination of the Prior Agreement, the Board of Directors of the
Fund approved an interim investment advisory agreement between the Fund and the
Investment Manager (the "Interim Agreement") to be effective upon the closing of
the Transaction, in order to permit the Investment Manager to provide services
to the Fund while stockholder approval of a new management and investment
advisory agreement was pending. The Interim Agreement terminated on August 15,
2002.
The Agreement was last approved by the Board of Directors on April 11,
2003. 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 Fund 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 Fund'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 Fund's
outstanding voting securities, or by the Investment Manager, and automatically
terminates in the event of its assignment.
Services Provided
The Agreement requires the Investment Manager to provide management and
investment advisory services to the Fund. It requires the Investment Manager to
provide statistical and research facilities and services, to supervise the
composition of the Fund's portfolio, to determine the nature and timing of
changes therein and the manner of effectuating such changes and to cause the
purchase and sale of portfolio securities, subject to overall supervision by the
Fund's Board of Directors. In addition to providing management and investment
advisory services, the Investment Manager pays for office space, all necessary
office facilities, basic business equipment, supplies, utilities, prop-
13
erty casualty insurance, telephone services and the costs of keeping the Fund's
general accounts and records. The Agreement requires the Investment Manager to
arrange, if desired by the Board of Directors of the Fund, for officers or
employees of the Investment Manager to serve, with or without compensation from
the Fund, as Officers, Directors or employees of the Fund.
The Agreement provides that, with the prior approval of the Board of
Directors, including a majority of the Independent Directors, and to the extent
permissible by law, the Investment Manager may appoint certain of its affiliates
as sub-advisers to perform certain of the Investment Manager's duties. If such
an appointment were made, the Investment Manager would be authorized to adjust
the duties to be performed, the amount of assets to be managed and the fees to
be paid to any such sub-advisers. Any such appointment would not result in an
increase in the fee rate paid by the Fund; fees incurred by any such sub-adviser
would be paid by the Investment Manager.
The Agreement provides that the Investment Manager will not be liable
or responsible for any acts or omissions of any predecessor manager and neither
the Investment Manager nor any director, officer, agent or employee of the
Investment Manager will be liable or responsible to the Fund or its stockholders
except for willful misfeasance, bad faith, gross negligence or reckless
disregard of their respective duties. The Agreement also provides that the Fund
will hold the Investment Manager harmless from judgments, but not expenses of
defense or settlements, rendered 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 of a
majority of the Board of Directors of the Fund. There must, however, have been
an express finding that such acts or omissions did not constitute willful
misfeasance, bad faith, gross negligence or reckless disregard of the Investment
Manager's 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
Fund up to and including $100 million; 0.45 of 1% of the value of the net assets
of the Fund over $100 million and up to and including $150 million; 0.40 of 1%
of the value of the net assets of the Fund over $150 million and up to and
including $200 million; and 0.35 of 1% of the value of the net assets of the
Fund over $200 million. For purposes of computing the monthly fee, the value of
net assets of the Fund is determined as of the close of business on the last
business day of each month. For the fiscal year ended December 31, 2002, the
Fund paid the Investment Manager an aggregate fee of $938,758.
The Agreement provides that the Fund bear all expenses incurred in the
operation of the Fund -- except those that the Investment Manager expressly
assumes in the Agreement. Such expenses borne by the Fund include: (a) all costs
and expenses incident to
14
(i) the registration of the Fund under the 1940 Act, or (ii) any public offering
of shares of the Fund, 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 Fund 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 Fund 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 custodian appointed by the Fund 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
Fund; (e) broker's commissions chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; (f) all taxes,
including securities issuance and transfer taxes, and corporate fees payable by
the Fund to Federal, state or other governmental agencies; (g) the cost and
expense of engraving or printing stock certificates representing shares of the
Fund; (h) fees involved in registering and maintaining registrations of the Fund
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 Fund 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 Fund,
including without limitation, legal services rendered in connection with the
Fund's corporate and financial structure and relations with its stockholders,
issuance of Fund shares, and registrations and qualifications of securities
under Federal, state and other laws; (m) association dues; (n) interest payable
on Fund borrowings; (o) fees and expenses incident to the listing of Fund 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.
Expense Limitations
The Agreement provides that if expenses of the Fund (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 Fund. The
specified limitation is 1 1/2 % of the first $30 million of the Fund's average
net assets plus 1% of the Fund's average net assets in excess of $30 million.
The
15
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 Fund 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 Fund's gross income (including gains from the sale of securities without
offset or deduction for losses, unpaid interest on debt securities in the Fund's
portfolio, and dividends declared but not paid on equity securities in the
Fund's portfolio). This limitation provides that if, for any fiscal year, the
expenses of the Fund described in the preceding paragraph -- less any amount
payable by the Investment Manager to the Fund on account of the first expense
limitation -- exceed 25% of the Fund's gross income for the year, the Investment
Manager will promptly pay the excess to the Fund; provided, however, that the
Investment Manager will not be obligated to pay any amount to the Fund during
any fiscal year in excess of the amount of the advisory fee for such year.
For the fiscal year ended December 31, 2002, the Fund's expenses did
not exceed these limitations.
Related Agreements
Pursuant to a Sub-Administration and Sub-Accounting Agreement dated
April 1, 2003 (the "Sub-Administration Agreement"), between the Investment
Manager, Scudder Fund Accounting Corporation and State Street Bank and Trust
Company ("State Street"), the Investment Manager has delegated certain fund
accounting services and certain record keeping and other administrative services
to State Street. In accordance with the terms of the Sub-Administration
Agreement, State Street is compensated by the Investment Manager, not by the
Fund, for providing such services.
Scudder Investments Service Company ("SISC"), an affiliate of the
Investment Manager, serves as the Fund's transfer agent and dividend disbursing
agent pursuant to an agreement dated November 17, 2000, as amended (the "Agency
Agreement"). The Agency Agreement provides that the Fund pay SISC a minimum
annual fee of $16,200 or, if the Fund exceeds the minimum annual fee, an annual
account charge of $7.50 per open account and $2.50 per closed account. The Fund
also pays a transaction fee per certificate processed of $1.50, plus
out-of-pocket expenses and fees for special projects. For the fiscal year ended
December 31, 2002, the amount charged to the Fund by SISC aggregated $52,961 of
which $12,483 was unpaid as of December 31, 2002.
Pursuant to an Agency Agreement dated January 15, 2003 (the "Agency
Agreement") between SISC and DST Systems, Inc. ("DST"), SISC has appointed DST
to serve as the Fund's Sub-Transfer Agent and Sub-Dividend Disbursing Agent. In
accor-
16
dance with the terms of the Agency Agreement, DST is compensated by SISC, not by
the Fund, for providing such services.
Investment Manager
The Investment Manager is one of the largest and most experienced
investment management firms in the United States. As of December 31, 2002, the
firm had more than $194 billion in assets under management. The principal source
of the Investment Manager's income is professional fees received from providing
continuing investment advice. The Investment Manager provides investment counsel
for many individuals and institutions, including insurance companies,
endowments, industrial corporations and financial and banking organizations.
The Investment Manager is a Delaware corporation. The principal
executive officer of the Investment Manager is Thomas F. Eggers. Each of the
following persons is a director of the Investment Manager: William N. Shiebler
(Chief Executive Officer of Deutsche Asset Management for the Americas Region);
Thomas J. Hughes (Global Head of Deutsche Asset Management); Deborah A.
Flickinger (Global Chief of Staff of Deutsche Asset Management); and Phillip
Freiherr von Girsewald. The business address of the principal executive officer
and each director as it relates to his or her duties at the Investment Manager,
is 345 Park Avenue, New York, New York 10154.
As of April 30, 2003, 100% of the voting securities of the Investment
Manager were held indirectly by Deutsche Bank AG. Deutsche Bank AG, Taunusalage
12, D-60262, Frankfurt am Main, Federal Republic of Germany, is an international
commercial and investment banking group and a leading integrated provider of
financial services to institutions and individuals throughout the world. It is
organized in Germany and is a publicly traded entity. Its shares trade on many
exchanges including the New York Stock Exchange and Xetra (German Stock
Exchange). It is engaged in a wide range of financial services, including
retail, private and commercial banking, investment banking and insurance.
Deutsche Asset Management is the marketing name for the global asset management
services of several affiliated entities that are separately incorporated and
registered as investment advisers, including the Investment Manager. As of
December 31, 2002, Deutsche Asset Management had more than $750 billion in
assets under management.
Exhibit B sets forth the fees and other information regarding
investment companies advised by the Investment Manager that have similar
investment objectives to those of the Fund.
Investment and Brokerage Discretion
The Investment Manager places orders for portfolio transactions with
issuers and with underwriters or other brokers and dealers. In selecting brokers
and dealers with
17
which to place portfolio transactions for the Fund, the Investment Manager seeks
to achieve the most favorable net results.
For the fiscal year ended December 31, 2002, the Fund did not pay any
brokerage commissions to an "affiliated broker," as defined in Item 22(a)(1)(ii)
of Schedule 14A under the Securities Exchange Act of 1934, as amended.
Board Recommendation and Required Vote
At a meeting held on April 11, 2003, the Board of Directors, including
the Independent Directors, voted to continue the Agreement until July 31, 2004
and to recommend that the stockholders of the Fund 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 Fund's custom to submit this matter to the stockholders at the
Annual Meeting. The Fund 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 Fund, took into
account a number of factors. Among such factors were: the long-term investment
record of the Investment Manager in advising the Fund; the experience and
research capabilities of the Investment Manager in fixed-income instruments,
including mortgage-related securities, high-yield bonds and private placements;
the relatively low expenses and expense ratio of the Fund; 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 Fund; 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
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; the purchase from time to
time of portfolio securities from underwriters that are affiliated with the
Investment Manager; possible indirect benefits to the Investment Manager from
serving as the investment manager of the Fund; the results of the Board's review
of alternative investment managers in connection with the Transaction; the
effects of the Transaction and the related changes to the investment, management
and administrative personnel of the Fund and to the investment strategy of the
Fund; and the recent outsourcing of the transfer agency and fund accounting
services formerly provided to the Fund by the Investment Manager and its
affiliates.
18
In considering 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 of the continuance of the Agreement by stockholders requires
the affirmative vote of the holders of a majority of the Fund's outstanding
shares. In this context, "majority" means the lesser of two votes: (1) 67% of
the Fund's outstanding shares present at the Annual Meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy, and
(2) more than 50% of all of the Fund'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
2004. If continuance is not approved at the Annual Meeting, the Board of
Directors will make such arrangements for the management of the Fund, including
continuance of the Agreement, as it believes appropriate and in the best
interests of the Fund.
The Board of Directors recommends that the stockholders of the Fund
vote FOR the continuance of the Agreement.
STOCKHOLDER PROPOSALS FOR 2004 PROXY STATEMENT
Stockholders wishing to submit proposals for inclusion in a proxy
statement for the 2004 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 January 30, 2004. 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 2004 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 by April 14, 2004. 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 or postponements thereof in accordance with their
best judgment.
19
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
May 29, 2003 Secretary
20
INDEX OF EXHIBITS
EXHIBIT A: MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT
EXHIBIT B: MANAGEMENT FEE RATES FOR FUNDS ADVISED BY THE INVESTMENT
MANAGER WITH SIMILAR INVESTMENT OBJECTIVES
This page intentionally left blank.
Exhibit A
MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT
Between
MONTGOMERY STREET INCOME SECURITIES, INC.
and
DEUTSCHE INVESTMENT MANAGEMENT AMERICAS INC.
AGREEMENT made and effective as of the 15th day of August 2002
by and between Montgomery Street Income Securities, Inc., a Maryland corporation
(hereinafter called the "Fund"), and Deutsche Investment Management Americas
Inc. (hereinafter called the "Manager").
WHEREAS, the Fund engages in business as a closed-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended; and
WHEREAS, the Manager is registered as an investment adviser
under the Investment Advisers Act of 1940 and is engaged in the business of
providing investment advice; and
WHEREAS, the Fund desires to retain the Manager to render such
services in the manner and on the terms and conditions hereinafter set forth;
and
WHEREAS, the Manager desires to perform such services in the
manner and on the terms and conditions hereinafter set forth;
NOW, THEREFORE, this Agreement
WITNESSETH:
that in consideration of the foregoing and of the premises and covenants
hereinafter contained, the Fund and the Manager agree as follows:
1. The Fund hereby employs the Manager to provide investment advisory,
statistical and research facilities and services, to supervise the
composition of the Fund's portfolio, to determine the nature and timing of
changes therein and the manner of effectuating such changes and to cause
the purchase and sale of portfolio securities, subject to overall
supervision by the Fund's Board of Directors, all for the period and on
the terms set forth in this Agreement. The Manager hereby accepts such
employment and agrees to render the services and to assume the obligations
herein set forth, for the compensation herein provided.
2. The Manager shall, at its expense:
(a) Furnish to the Fund research and statistical and other factual
information and reports with respect to securities held by the Fund
or which the Fund might
A-1
purchase. It shall also furnish to the Fund such information as may
be appropriate concerning developments which may affect issuers of
securities held by the Fund or which the Fund might purchase or the
business in which such issuers may be engaged. Such statistical and
other factual information and reports shall include information and
reports on industries, businesses, corporations and all types of
securities which the Fund is empowered to purchase, whether or not
the Fund has at any time any holdings in such industries,
businesses, corporations or securities.
(b) Furnish to the Fund, from time to time, advice, information and
recommendations with respect to the acquisition, holding or disposal
by the Fund of securities in which the Fund is permitted to invest
in accordance with its investment objectives, policies and
limitations ("Eligible Securities"), and subject to overall
supervision of the Board of Directors of the Fund, arrange purchases
and sales of Eligible Securities on behalf of the Fund.
(c) Furnish to the Fund necessary assistance in, as reasonably requested
by the Fund:
(i) The preparation and filing of all reports (including Form
N-SAR) now or hereafter required by Federal or other laws or
regulations.
(ii) The preparation and filing of prospectuses and registration
statements (including Form N-2) and amendments thereto that
may be required by Federal or other laws or by the rule or
regulation of any duly authorized commission or administrative
body. However, the Manager shall not be obligated to pay the
costs of preparation, printing or mailing of prospectuses
being used in connection with sales of the Fund's shares or
otherwise, unless otherwise provided herein.
(iii) The preparation and filing of all proxy materials.
(iv) Making arrangements for all Board and stockholders meetings
and, to the extent requested by the Board of Directors of the
Fund, participating in those meetings.
(v) The preparation and filing of quarterly, semiannual and annual
reports and other communications to stockholders.
(vi) Responding to questions and requests from stockholders, the
financial press and the financial services community.
(vii) Providing data to the various publications and services which
track fund performance.
A-2
(viii)Providing information and reports to the New York Stock
Exchange and any other exchange on which the Fund's shares are
listed.
(ix) The valuation of the Fund's portfolio on a weekly basis.
(x) The maintenance of the accounting records (including book and
tax) of the Fund required by Federal and other laws and
regulations.
(xi) Providing information to and answering questions of the Fund's
auditors.
(xii) Monitoring the services, and reviewing the records, provided
by the transfer agent and registrar, the dividend disbursing
agent and the custodian.
(d) Furnish the necessary personnel to provide the services set forth
herein.
(e) Furnish to the Fund office space at such place as may be agreed upon
from time to time, and all necessary office facilities, basic
business equipment, supplies, utilities, property casualty insurance
and telephone service for managing the affairs and investments and
keeping the general accounts and records of the Fund (exclusive of
the necessary records of any transfer agent, registrar, dividend
disbursing or reinvesting agent, or custodian), and arrange, if
desired by the Board of Directors of the Fund, for officers or
employees of the Manager to serve, without or with compensation from
the Fund, as officers, directors or employees of the Fund.
(f) Advise the Board of Directors of the Fund promptly of any change in
any senior investment or administrative personnel providing services
to the Fund.
3. Subject to the prior approval of a majority of the members of the Fund's
Board of Directors, including a majority of the Directors who are not
"interested persons," as defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act"), the Manager may, through a
sub-advisory agreement or other arrangement, delegate to any other company
that the Manager controls, is controlled by, or is under common control
with, or to specified employees of any such company, or to more than one
such company, to the extent permitted by applicable law, certain of the
Manager's duties enumerated in paragraph 2 hereof; provided, that the
Manager shall continue to supervise the services provided by such
companies or employees and any such delegation shall not relieve the
Manager of any of its obligations hereunder.
Subject to the provisions of this Agreement, the duties of any sub-adviser
or delegate, the portion of portfolio assets of the Fund that the
sub-adviser or delegate shall manage and the fees to be paid to the
sub-adviser or delegate by the Manager under and pursuant to any
sub-advisory agreement or other arrangement entered into in accordance
with this Agreement may be adjusted from time to time by the
A-3
Manager, subject to the prior approval of a majority of the members of the
Fund's Board of Directors, including a majority of the Directors who are not
"interested persons," as defined in the Investment Company Act.
4. Except as otherwise expressly provided herein, the Fund assumes and shall
pay or cause to be paid all costs and expenses of the Fund, including,
without limitation: (a) all costs and expenses incident to: (i) the
registration of the Fund under the Investment Company Act, or (ii) any
public offering of shares of the Fund, 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 Fund 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 Fund 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 custodian appointed by the Fund for
the safekeeping of its cash, portfolio securities and other property; (c)
the charges and expenses of auditors (including preparation of tax
returns); (d) the charges and expenses of any stock transfer, dividend
agent or registrar appointed by the Fund; (e) broker's commissions
chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; (f) all taxes, including
securities issuance and transfer taxes, and corporate fees payable by the
Fund to Federal, state or other governmental agencies; (g) the cost and
expense of engraving or printing of stock certificates representing shares
of the Fund; (h) fees involved in registering and maintaining
registrations of the Fund and of its shares with the Securities and
Exchange Commission 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
Fund who are not directors, officers or employees of the Manager or its
"affiliates" (as defined in the Investment Company Act); (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 Fund, including without limitation, legal services
rendered in connection with the Fund's corporate and financial structure
and relations with its stockholders, issuance of Fund shares, and
registrations and qualifications of securities under Federal, state and
other laws; (m) association dues; (n) interest payable on Fund borrowings;
(o) fees and expenses incident to the listing of Fund shares on any stock
exchange; (p) costs of information obtained from sources other than the
Manager or its
A-4
"affiliates" (as defined in the Investment Company Act) relating to the
valuation of portfolio securities; and (q) postage.
5. The Fund agrees to pay to the Manager, as full compensation for the
services to be rendered and expenses to be borne by the Manager hereunder,
an annual fee, payable monthly, equal to .50 of 1% of the value of the net
assets of the Fund up to and including $100 million; .45 of 1% of the
value of the net assets of the Fund over $100 million and up to and
including $150 million; .40 of 1% of the value of the net assets of the
Fund over $150 million up to and including $200 million; and .35 of 1% of
the value of the net assets of the Fund over $200 million. For purposes of
computing the monthly fee, the value of the net assets of the Fund shall
be determined as of the close of business on the last business day of each
month; provided, however, that the fee for the period from the end of the
last month ending prior to termination of this Agreement, for whatever
reason, to the date of termination shall be based on the value of the net
assets of the Fund determined as of the close of business on the date of
termination, and the fee for such period and for the period from the
effective date of this Agreement through the end of the month in which the
effective date falls will be prorated according to the proportion which
such period bears to a full monthly period. Each payment of a monthly fee
to the Manager shall be made within the ten days next following the day as
of which such payment is so computed.
6. (a) In the event the expenses of the Fund, including amounts payable to
the Manager pursuant to paragraph 5 hereof (but excluding interest,
taxes, brokerage commissions and extraordinary expenses, such as
litigation expenses and the cost of issuing new shares), exceed one
and one-half percent (1-1/2%) of the first thirty million dollars
($30,000,000) of the average net assets of the Fund, plus one
percent (1%) of the average net assets of the Fund in excess of
$30,000,000, in each case computed by dividing (i) the sum of the
net asset values of the Fund as of the last business day of each
week of such fiscal year or of each week during such fiscal year
during which this Agreement was in effect, as the case may be, by
(ii) the number of weeks of such fiscal year or the number of weeks
(including a partial week) during which the Agreement is in effect
during such fiscal year, as the case may be, the Manager shall pay
to the Fund the amount of such excess as soon as practicable after
the end of such fiscal year, and in all events prior to the
publication of the annual report of the Fund for such fiscal year;
provided, however, that the Manager shall not be obligated to pay
any amount to the Fund during any fiscal year in excess of the
amount of the advisory fee for such fiscal year.
(b) At the end of each month of each fiscal year of the Fund, the
Manager shall review the expenses of the Fund as outlined in
subparagraph (a) of this
A-5
paragraph 6 which have accrued to and including the period ending
with such month and shall estimate such contemplated expenses to the
end of such fiscal year. If, as a result of such review and
estimate, it appears likely that the expense limitation provided for
in subparagraph (a) of this paragraph 6 will be exceeded for such
fiscal year, the Manager's fee for such month, as provided in
paragraph 5 hereof, shall be reduced, subject to later adjustment,
by an amount equal to a pro rata portion (prorated on the basis of
the remaining months of the year including the month just ending) of
the amount by which the sum of such expenses of the Fund for such
fiscal year are expected to exceed the expense limitation.
(c) If, for any fiscal year of the Fund ending on a date on which this
Agreement is in effect, the expenses of the Fund which are
includable within the expense limitation described in subparagraph
(a) of this paragraph 6 (but reduced by an amount, if any, payable
by the Manager pursuant to subparagraph (a) of this paragraph 6),
exceed twenty-five percent (25%) of the gross income of the Fund for
such fiscal year, the Manager will pay the amount of such excess to
the Fund promptly and in all events prior to the publication of the
Fund's annual report for such fiscal year; provided, however, that
the Manager shall not be obligated to pay any amount to the Fund
during any fiscal year in excess of the amount of the advisory fee
for such fiscal year. For purposes of this subparagraph (c), "gross
income of the Fund" shall include, but not be limited to, gains from
the sale of securities, without offset or deduction for losses from
the sale of securities, unpaid interest on debt securities in the
Fund's portfolio, accrued to and including the last day of such
fiscal year, and dividends declared but not paid on equity
securities in the Fund's portfolio, the record dates for which fall
on or prior to the last day of such fiscal year.
7. The services of the Manager to the Fund are not to be deemed exclusive,
and the Manager shall be free to engage in any other business or to render
investment advisory or management services of any kind to any other
corporation, firm, trust, individual or association, including any other
investment company, so long as its services hereunder are not impaired
thereby. Nothing in this Agreement shall limit or restrict the right of
any director, officer or employee of the Manager to engage in any other
business or to devote his time and attention in part to the management or
other aspects of any other business, whether of a similar or dissimilar
nature.
8. Subject to paragraph 9 hereof, the Manager shall not be responsible for
any action of the Board of Directors of the Fund or any committee thereof
in following or declining to follow any advice or recommendation of the
Manager. The Manager shall be
A-6
entitled to rely on express written instructions of the President or any
Vice President of the Fund or of a majority of the Board of Directors of
the Fund.
9. Neither the Manager, nor any director, officer, agent or employee of the
Manager shall be liable or responsible to the Fund or its stockholders
except for willful misfeasance, bad faith, gross negligence or reckless
disregard of their respective duties. The Fund will hold the Manager
harmless against judgments, but not expenses of defense or settlements,
rendered against the Manager which (a) result from specific actions or
omissions by the Manager in respect of the performance of its obligations
hereunder, which specific acts or omissions occur as a result of express
written instructions of the President or any Vice President of the Fund or
of a majority of the Board of Directors of the Fund, and (b) arise in
actions in which there is an express finding that such specific acts or
omissions did not constitute willful misfeasance, bad faith, gross
negligence or reckless disregard of its duty.
10. The Manager shall not be liable or responsible for any acts or omissions
of any predecessor manager or of any other persons having responsibility
for matters to which this Agreement relates, nor shall the Manager be
responsible for reviewing any such acts or omissions. The Manager shall,
however, be liable for its own acts and omissions subsequent to assuming
responsibility under this Agreement as herein provided.
11. This Agreement shall remain in effect until July 31, 2003, unless sooner
terminated as hereinafter provided. This Agreement shall continue in
effect from year to year thereafter provided its continuance is
specifically approved at least annually by vote of a majority of the
outstanding voting securities of the Fund or by vote of the Board of
Directors of the Fund, and by a majority of the members of the Board of
Directors of the Fund who are not parties to this Agreement or "interested
persons" (as defined in the Investment Company Act) of any party to this
Agreement, which vote must be cast in person at a meeting called for the
purpose of voting on approval of the terms of this Agreement and its
continuance; provided, however, that (a) the Fund may, at any time and
without the payment of any penalty, terminate this Agreement upon sixty
days' written notice to the Manager either by majority vote of the Board
of Directors of the Fund or by the vote of a majority of the outstanding
voting securities of the Fund; (b) this Agreement shall immediately
terminate in the event of its assignment (within the meaning of the
Investment Company Act) unless such automatic termination shall be
prevented by an exemptive order of the Securities and Exchange Commission;
and (c) the Manager may terminate this Agreement without payment of
penalty on sixty days' written notice to the Fund. All notices or
communications hereunder shall be in writing and if sent to the Manager
shall be mailed by first class mail, or delivered, or telegraphed or
telexed and confirmed in writing to the Manager at 345 Park Avenue, New
York, New York 10154, Attn: General Counsel, or at such other address as
the Manager shall have communicated in writing to the Fund, and if sent to
the Fund shall be mailed by first class mail, or delivered, or telegraphed
or telexed and confirmed in
A-7
writing to the Fund at 101 California Street, Suite 4100, San Francisco,
California 94111, Attn: Fund Secretary, or at such other address as the
Fund shall have communicated in writing to the Manager.
12. For purposes of this Agreement, a "majority of the outstanding voting
securities of the Fund" shall be determined in accordance with the
applicable provisions of the Investment Company Act.
13. This Agreement shall be construed in accordance with the laws of the State
of California and the applicable provisions of the Investment Company Act.
To the extent applicable law of the State of California, or any of the
provisions herein, conflict with applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement.
MONTGOMERY STREET INCOME
SECURITIES, INC.
By: /s/ Maureen E. Kane
------------------------------------
Maureen E. Kane, Vice President
DEUTSCHE INVESTMENT MANAGEMENT
AMERICAS INC.
By: /s/ Caroline Pearson
------------------------------------
Caroline Pearson, Managing Director
A-8
EXHIBIT B
MANAGEMENT FEE RATES FOR FUNDS ADVISED BY THE INVESTMENT MANAGER
WITH SIMILAR INVESTMENT OBJECTIVES
Objective Fee Rate+ Net Assets*
--------- -------- ----------
Closed-End Funds
Montgomery Street High level of current income consistent with 0.500% to $100 million $ 201,078,461
Income prudent investment risks through a diversified 0.450% next $50 million
Securities, Inc. portfolio primarily of debt securities. 0.400% next $50 million
0.35% over $200 million(2)
Scudder High Highest current income obtainable consistent 0.850% to $250 million $ 153,820,406
Income Trust with reasonable risk with capital gains 0.750% over $250 million(1)
secondary.
Scudder Strategic High current income. 0.850% of net assets(1) $ 38,998,363
Income Trust
B-1
Objective Fee Rate+ Net Assets*
--------- -------- ----------
Open End Funds
Scudder High Highest level of current income obtainable from 0.580% to $250 million $ 2,436,060,864
Income Fund a diversified portfolio of fixed-income 0.550% next $750 million
securities which the fund's investment manager 0.530% next $1.5 billion
considers consistent with reasonable risk. As a 0.510% next $2.5 billion
secondary objective, the fund will seek capital 0.480% next $2.5 billion
gain where consistent with its primary objective. 0.460% next $2.5 billion
0.440% next $2.5 billion
0.420% over $12.5 billion
Scudder Income High income while managing its portfolio in a 0.550% to $250 million $ 1,063,546,387
Fund way that is consistent with the prudent 0.520% next $750 million
investment of shareholders' capital. 0.500% next $1.5 billion
0.480% next $2.5 billion
0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% over $12.5 billion
B-2
Objective Fee Rate+ Net Assets*
--------- -------- ----------
Scudder Short High income while managing its portfolio in a 0.450% to $1.5 billion $ 1,151,577,184
Term Bond Fund way that is consistent with maintaining a high 0.425% next $500 million
degree of stability of shareholders' capital. 0.400% next $1 billion
0.385% next $1 billion
0.370% next $1 billion
0.355% next $1 billion
0.340% over $6 billion
- ----------------
* The information provided in the chart is shown as of December 31, 2002.
+ Unless otherwise noted, the investment management fee rates provided above
are based on the average daily net assets of a fund. For Scudder High
Income Fund, Scudder Income Fund, and Scudder Short Term Bond Fund, the
Investment Manager has waived, reduced, or otherwise agreed to reduce its
compensation under its applicable contract.
(1) Based on average weekly net assets.
(2) Based on average monthly net assets.
B-3
PROXY MONTGOMERY STREET INCOME SECURITIES, INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Annual Meeting of Stockholders -- July 10, 2003
The undersigned hereby appoints Richard T. Hale, Maureen E. Kane and Charles A.
Rizzo, each with the power of substitution, as proxies for the undersigned, to
vote all shares of Montgomery Street Income Securities, Inc. (the "Fund") which
the undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Fund to be held at the offices of the Fund, 101 California Street, Suite 4100,
San Francisco, California 94111, on Thursday, July 10, 2003 at 10:00 a.m.,
Pacific time, and at any adjournments or postponements thereof.
The undersigned hereby revokes any and all proxies with respect to such shares
previously given by the undersigned. The undersigned acknowledges receipt of the
Proxy Statement relating to the Annual Meeting.
This instruction may be revoked at any time prior to its exercise at the Annual
Meeting by execution of a subsequent proxy card, by written notice to the Fund's
Secretary or by voting in person at the Annual Meeting.
This proxy, if properly executed, will be voted in the manner directed. If no
instructions are indicated on a properly executed proxy, the undersigned's vote
will be cast FOR Proposals 1 and 2.
The Board of Directors of the Fund recommends that stockholders vote FOR the
Proposals.
(1) To elect five Directors of the Fund to hold office until the next Annual FOR all WITHHELD
Meeting or until their respective successors shall have been duly elected nominees listed at from all
and qualified. left (except as nominees
noted at left) listed at left
Nominees: Richard J. Bradshaw, Maryellie K. Johnson, Wendell G. Van Auken, James
C. Van Horne, John T. Packard /_/ /_/
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
(2) To approve the continuance of the Management and Investment Advisory
Agreement for the Fund with Deutsche Investment Management Americas Inc. /_/ /_/ /_/
CONTINUED ON OTHER SIDE
The proxies are authorized to vote in their discretion on any other business
which may properly come before the Annual Meeting and any adjournments or
postponements thereof.
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED.
-------------------------------------------
(Signature of Stockholder)
-------------------------------------------
(Signature of joint owner, if any)
Dated _________________________________________ , 2003
Please sign exactly as your name or names appear.
When signing as an attorney, executor, administrator,
trustee or guardian, please give your full title as such.