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:
[X ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] 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
2004
Annual Meeting
of Stockholders
and
Proxy Statement
Montgomery Street
Income Securities, Inc.
101 California Street, Suite 4100 [MONTGOMERY LOGO]
San Francisco, California 94111 Montgomery Street
(415) 981-8191 Income Securities, Inc.
May 28, 2004
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
Friday, July 16, 2004 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; consider approval of the continuance of the Management and Investment
Advisory Agreement between the Fund and Deutsche Investment Management Americas
Inc.; and consider approval of the modification of the Fund's fundamental
investment policies regarding securities lending and investments in other
investment companies. 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
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 Friday, July 16, 2004 at 10:00 a.m. (Pacific
time), for the following purposes:
Item 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.
Item 2 To approve the continuance of the Management and Investment
Advisory Agreement between the Fund and Deutsche Investment
Management Americas Inc.
Item 3 To approve the modification or elimination of the following
fundamental investment policies of the Fund:
Item 3.1 Securities Lending
Item 3.2 Investments in Other Investment Companies
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 14, 2004 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
May 28, 2004 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 14, 2004 MAILING DATE: May 28, 2004
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
Friday, July 16, 2004 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.
1
Stockholders will vote separately on Proposal 1, Proposal 2 and
Proposals 3.1 and 3.2. On Proposal 1, abstentions and broker non-votes will not
be counted in favor of, but will have no other effect on, the result of the
vote. On Proposals 2, 3.1 and 3.2, abstentions will have the effect of a "no"
vote. If Proposal 2, 3.1 or 3.2 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 have the effect of a "no" vote. If Proposal 2, 3.1 or 3.2 is
determined on the basis of obtaining the affirmative vote of 67% of the voting
securities of the Fund present at the Annual Meeting, broker non-votes will be
counted in determining the voting securities "present", but will not constitute
"yes" or "no" votes. Broker non-votes are likely to be relevant to the Annual
Meeting because the Fund has been advised by the New York Stock Exchange that
Proposals 3.1 and 3.2 are not considered to be routine matters as to which
brokers would have discretion to vote for their clients. Accordingly,
stockholders are urged to forward their voting instructions promptly.
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 14, 2004 at 5:00 p.m., Eastern
time (the "Record Date").
As of the Record Date, there were issued and outstanding 10,381,076
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 chief executive officer of
the Fund and the Directors and executive officers as a group, as of May 14,
2004, the amount of shares beneficially owned in the Fund, the dollar range of
securities owned in the Fund, and the aggregate dollar range of all
shareholdings in all funds advised by the Investment Manager and holding
themselves out as related for purposes of investment and investor services
("Family of Investment Companies"). Each Director's and the chief executive
officer's individual beneficial shareholdings in the Fund constituted 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.
2
Aggregate Dollar Range of
Amount of Shares Dollar Range of Equity Securities in all
Beneficially Owned Equity Securities Funds Overseen in Family of
Position in the Fund in the Fund(1) Investment Companies(4)
-------- ----------- ----------- --------------------
Independent Directors
James C. Van Horne Chairman and 2,500 $10,000 - $50,000 $10,000 - $50,000
Director
Richard J. Bradshaw(2) Director 6,475 Over $100,000 Over $100,000
Maryellie K. Johnson Director 11,360 Over $100,000 Over $100,000
Wendell G. Van Auken Director 19,782 Over $100,000 Over $100,000
Interested Director(3)
John T. Packard Director 500 $1 - $10,000 $1 - $10,000
Chief Executive Officer
Richard T. Hale President 1,000 $10,000 - $50,000 Over $100,000
All Directors and
Executive Officers as a
Group(4)
--------------------------------
(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) Sole voting and investment power over the shares reported.
(3) 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.
(4) The total for the group included 39,512 shares held with sole voting and
investment power and 2,105 shares held with shared voting and investment
power.
To the Fund's knowledge, as of May 14, 2004, no person owned
beneficially more than 5% of the Fund's outstanding shares.
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.
3
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, 2003, were timely.
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, 2003, 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
At the Annual Meeting, stockholders will be asked to elect five
individuals to constitute the Board of Directors of the Fund. Each Director so
elected will hold office until the next annual meeting or until the election and
qualification of a successor. The five individuals listed below under
"Information Concerning Nominees" were nominated for election as Directors of
the Fund by the Fund's present Board of Directors. The five nominees are
currently Directors of the Fund and each was elected to serve as a Director at
the 2003 Annual Meeting of Stockholders.
The persons named as proxies on the enclosed proxy card intend to vote
for all of the nominees named below, unless authority to vote for any or all of
the nominees is withheld. 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.
Information Concerning Nominees
Each of the nominees is listed below. The address of each nominee is
c/o Montgomery Street Income Securities, Inc., 101 California Street, Suite
4100, San Francisco, California 94111. Each nominee has consented to be
nominated and to serve if elected.
- --------------------------------------------------------------------------------------------------------------------
Year First
Nominee Principal Occupation or Employment during Past Five Years Became a
(Age) and Directorships in Publicly Held Companies Director
----- -------------------------------------------- --------
Independent Directors
---------------------
Richard J. Mr. Bradshaw is the Executive Director of Cooley Godward LLP 1991
Bradshaw (55) (law firm).
Maryellie K. Ms. Johnson is a private investor. From 1989 to 1998, she was a Director 1989
Johnson of London and Overseas Freighters, Ltd. (oil tanker operator).
(68)
4
Wendell G. Van Mr. Van Auken is a General Partner of several venture capital funds affiliated 1994
Auken (59) with Mayfield Fund. He also serves as a Director of Advent Software (portfolio
software company).
James C. Dr. Van Horne is the A.P. Giannini Professor of Finance, Graduate School of 1985
Van Horne Business, Stanford University. He also serves as a Director of Suntron Corp.
(68) (electronic manufacturing services) and Bailard, Biehl & Kaiser Opportunity
Fund Group, Inc. (registered investment company).
Interested Director
-------------------
John T. Packard Mr. Packard has been a Managing Director of Weiss, Peck & Greer 2001
(70) 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.
Mr. Packard may be considered an "interested person" of the Fund as
defined in the 1940 Act (an "Interested Person") by reason of his past
relationships with the Fund and the Investment Manager. He is referred to as an
"Interested Director." Each of the remaining four nominees is not an Interested
Person and is referred to as an "Independent Director."
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, 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.
Each nominee 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, 2003, none of the nominees beneficially owned
securities of the Investment Manager or any person directly or indirectly
controlling, controlled by or under common control with the Investment Manager.
Board of Directors; Nominations; Board and Committee Meetings
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 Board of Directors does not have a nominating committee or a
charter relating to the nomination of Directors. The full Board considers
possible candidates to fill vacancies on the Board of Directors, reviews the
qualifications of candidates recommended by stockholders and
5
others, and recommends the slate of nominees to be proposed for election by
stockholders at the annual meeting. As noted above, individuals who would be
considered Independent Directors, if elected, are selected and nominated solely
by the Independent Directors of the Fund (currently, Messrs. Bradshaw, Van Auken
and Van Horne and Ms. Johnson). In light of the fact that 80% of the Board of
Directors is composed of Independent Directors and the remaining Director (Mr.
Packard) is not presently affiliated with the Investment Manager, the Board
believes that it is appropriate for the full Board to participate in the
consideration of Director candidates. 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. Submissions should be
addressed to the Chairman of the Board of Directors, Montgomery Street Income
Securities, Inc., 101 California Street, Suite 4100, San Francisco, CA 94111. In
order to be considered at the 2005 annual meeting, submission should be made by
January 24, 2005.
The Board of Directors has an Executive Committee, a Valuation
Committee and an Audit Committee. In 2003, the Board of Directors held five
meetings, the Audit Committee held four meetings, and the Valuation Committee
held one meeting. The Executive Committee did not meet in 2003. 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 2003.
Communications with the Board of Directors
The Board of Directors provides a process for stockholders to send
communications to the Board. Correspondence should be sent by U.S. mail or
courier service to the Chairman of the Board of Directors, Montgomery Street
Income Securities, Inc., 101 California Street, Suite 4100, San Francisco, CA
94111. It is the general policy of the Fund that the Directors should be
represented at the Annual Meeting. All of the Directors attended the last Annual
Meeting, which was held on July 10, 2003.
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 two Independent Directors (Messrs.
Van Horne 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 over financial
reporting and, as the Audit Committee
6
deems appropriate, the internal controls of certain service providers to the
Fund. The Audit Committee also oversees the quality, objectivity and integrity
of the Fund's financial statements and the independent audit thereof, exercises
direct responsibility for the appointment, compensation, retention and oversight
of the work performed by the independent auditors, reviews the independent
auditors' qualifications and independence, 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 and Bradshaw and Ms. Johnson). 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. A copy of the charter is attached hereto as Exhibit A.
Audit Committee Report
At a special meeting of the Audit Committee held on February 25, 2004,
the Committee reviewed the Fund's audited financial statements and discussed the
financial 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). 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 2003
fiscal year.
The Audit Committee:
Wendell G. Van Auken, Chair
Richard J. Bradshaw
Maryellie K. Johnson
Independent Auditors
At a meeting held on April 16, 2004, 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, 2004, to examine the Fund's books and accounts and to certify the
Fund's financial statements. The Fund's financial statements for the fiscal
years ended December 31, 2002 and 2003 were audited by E&Y. The following table
shows fees billed by E&Y during the 2002 and 2003 fiscal years: (i) for audit,
audit-related, tax and other services provided to the Fund, and (ii) for audit,
audit-related, tax and other services provided to the Investment Manager and
entities controlling, controlled by, or under common control with the Investment
Manager that provide ongoing services to the Fund (the "Advisor Entities").
7
Year Audit Fees(1) Audit Related Fees(2) Tax Fees(3) All Other Fees(4)(5)
--------- ----------------- ------------------------- ------------- ------------------------
Advisor Advisor Advisor
Fund Fund Entities Fund Entities Fund Entities
------ ------ -------- ------ -------- ------ --------
2002 $59,459 $0 $212,800 $8,250 $0 $0 $ 963,492
2003 $46,800 $0 $112,900 $7,500 $0 $0 $3,742,000
- ----------------------------------
(1) "Audit Fees" are the aggregate fees billed for professional services for
the audit of the Fund's annual financial statements and services
provided in connection with statutory and regulatory filings or
engagements.
(2) "Audit Related Fees" are the aggregate fees billed for assurance and
related services reasonably related to the performance of the audit or
review of financial statements and are not reported under "Audit Fees."
(3) "Tax Fees" are the aggregate fees billed for professional services for
tax advice, tax compliance and tax planning.
(4) "All Other Fees" are the aggregate fees billed for products and services
other than "Audit Fees," "Audit Related Fees" and "Tax Fees."
(5) In addition to the amounts shown in the table, E&Y received an aggregate
amount of $3,532,290 in the 2003 fiscal year and $3,318,645 in the 2002
fiscal year for all services performed on behalf of other funds advised
by the Investment Manager.
Audit Committee Pre-Approval Procedures. The Audit Committee has
adopted procedures for the pre-approval by the Audit Committee of (i) the
engagement of the Fund's independent auditors to provide audit and non-audit
services to the Fund and (ii) the engagement of the Fund's independent auditors
to provide non-audit services to the Investment Manager or the Advisor Entities
that relate directly to the Fund's operations and financial reporting. If time
does not permit, the Chairman of the Audit Committee is authorized to
pre-approve the engagement of the independent auditors on behalf of the Audit
Committee. The independent auditors and the Investment Manager are required to
report on the initiation of any such engagement at the next regular Audit
Committee meeting.
All Non-Audit Fees. The aggregate non-audit fees billed by E&Y for
services rendered to the Fund, the Investment Manager and the Advisor Entities
during the 2002 and 2003 fiscal years were $971,742 and $3,749,500,
respectively. The Audit Committee considered whether E&Y's provision of
non-audit services to the Investment Manager and the Advisor Entities that were
not pre-approved by the Audit Committee 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.
8
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(3) President; Managing Director, Deutsche Investment 2002
(58) Management Americas Inc. (2003 to present); Managing
Director, Deutsche Bank Securities Inc. (formerly Deutsche
Banc Alex. Brown Inc.) and Deutsche Asset Management, Inc.
(1999 to present); Director and President, Investment
Company Capital Corp. (registered investment advisor)
(since 1996); Director, Deutsche Global Funds, Ltd. (since
2000) and Scudder Global Opportunities Funds SICAV (since
2003); Director/Officer Deutsche/Scudder Mutual Funds
(various dates) (registered investment companies);
formerly, Director, ISI Family of Funds (registered
investment companies) (1992-1999).
Gary W. Bartlett Vice President; Managing Director, Deutsche Asset 2002
(44) Management.
Andrew P. Cestone Vice President; Managing Director, Deutsche Asset 2003
(34) Management.
Maureen E. Kane(4) Vice President and Secretary; Vice President, Deutsche 1999
(42) Asset Management.
Charles A. Rizzo Treasurer and Chief Financial Officer; Managing Director 2003
(46) (2000 to present); Vice President and Department Head, BT
Alex. Brown Incorporated (now Deutsche Bank
Securities Inc.) (1998-1999).
- ----------------------------------
(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. All
officers (except Mr. Hale) own securities of Deutsche Bank AG, the
ultimate parent of the Investment Manager.
(2) All officers are appointed annually by, and serve at the discretion of,
the Board of Directors.
(3) Mr. Hale will be retiring from Deutsche Asset Management on June 18,
2004 and, accordingly, will resign as President of the Fund effective
as of that date.
(4) Ms. Kane will be leaving Deutsche Asset Management on May 31, 2004 and,
accordingly, will resign as Secretary of the Fund effective as of that
date.
9
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. For the fiscal year ended December 31, 2003,
the Directors' remuneration consisted of a quarterly retainer of $2,000 (except
for the Chairman of the Board, whose quarterly retainer was $6,000) and a fee of
$500 for each Board meeting attended and $250 for each committee meeting
attended, plus any related expenses. Effective January 1, 2004, the quarterly
retainers were increased to $7,000 for the Chairman of the Board, $4,000 for the
Chairman of the Audit Committee, and $3,000 for each of the other Directors, and
the meeting fees were increased to $750 for each Board meeting attended and $500
for each committee meeting attended. For the fiscal year ended December 31,
2003, total compensation (including reimbursement of expenses) for all Directors
as a group was $74,435.
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 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, 2003
------------------------------------------------------------------------------------------
(1) (2) (3)
------------------------------------------------------------------------------------------
Aggregate Total Compensation from Fund and
Name of Person, Compensation Fund Complex
Position from Fund Paid to Director
------------------------------------------------------------------------------------------
Independent Directors
------------------------------------------------------------------------------------------
Richard J. Bradshaw $11,000 $11,000
Director
Maryellie K. Johnson $10,250 $10,250
Director
Wendell G. Van Auken $11,250 $11,250
Director
James C. Van Horne $26,500 $26,500
Chairman
------------------------------------------------------------------------------------------
Interested Director
------------------------------------------------------------------------------------------
John T. Packard $10,500 $10,500
Director
10
Board 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.
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"). A
copy of the Agreement is attached hereto as Exhibit B.
The Agreement was last approved by the Board of Directors on April 16,
2004. 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
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, property 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, for officers or employees of the
Investment Manager to serve, with or without compensation from the Fund, as
Directors, officers or employees of the Fund.
11
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. 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, 2003, the
Fund paid the Investment Manager an aggregate fee of $942,258.
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 (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
12
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 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, 2003, the Fund's expenses did
not exceed these limitations.
13
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, 2003, the amount charged to the Fund by SISC aggregated $36,304, of
which $14,489 was unpaid as of December 31, 2003. It is expected that SISC will
continue to provide these services after the Agreement is approved.
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
accordance 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, 2003, the
firm had more than $174 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. William N. Shiebler
is the principal executive officer of the Investment Manager. The directors are
Mr. Shiebler, Jeffrey S. Wallace and Evelyn B. Tressitt. The principal
occupations of the principal executive officer and each director are as follows:
Mr. Shiebler is Chief Executive Officer of Deutsche Asset Management Americas;
Mr. Wallace is Chief Financial Officer of Deutsche Asset Management Americas;
and Ms. Tressitt is Chief Operating Officer of Deutsche Asset Management
Americas. 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, 2004, 100% of the voting securities of the Investment
Manager were held indirectly by Deutsche Bank AG. The Investment Manager is a
wholly-owned subsidiary of
14
Deutsche Bank Americas Holding Corp., which, in turn, is a wholly-owned
subsidiary of Taunus Corporation. Taunus Corporation is a wholly-owned
subsidiary of 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.
Exhibit C 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 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, 2003, 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 16, 2004, the Board of Directors, including
the Independent Directors, voted to continue the Agreement until July 31, 2005
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 terms of the
Agreement, including the fees charged and the ability to terminate the Agreement
on 60 days' notice; 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
15
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 underwritten by affiliates of 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;
the outsourcing of the transfer agency and fund accounting services formerly
provided to the Fund by the Investment Manager and its affiliates; and the
involvement or potential involvement of the Investment Manager in regulatory or
other legal proceedings.
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
2005. 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.
PROPOSAL 3 - APPROVAL OF THE MODIFICATION OR ELIMINATION OF FUNDAMENTAL
INVESTMENT POLICIES OF THE FUND REGARDING SECURITIES LENDING AND INVESTMENTS IN
OTHER INVESTMENT COMPANIES.
The 1940 Act requires an investment company to adopt investment
policies governing certain specified activities, which can be changed only by a
stockholder vote. The 1940 Act also permits an investment company to designate
other activities which can be changed only by a stockholder vote. Policies that
cannot be changed without a stockholder vote are referred to in this Proxy
Statement as "fundamental" policies.
16
The Investment Manager has proposed that the Fund participate in a
securities lending program with other funds for which the Investment Manager
acts as adviser. The Fund's current fundamental policies on securities lending
and investments in other investment companies effectively preclude the Fund's
participation in the program. In order to allow the Fund to participate in the
securities lending program, the Investment Manager has proposed that the
securities lending policy be modified and the policy on investments in other
investment companies be eliminated.
Proposal 3.1: Modification of the fundamental policy on lending to allow
securities lending to the extent permitted under the 1940 Act, as amended, and
as interpreted or modified by regulatory authority having jurisdiction, from
time to time.
The Fund is required under the 1940 Act to adopt a fundamental policy
with respect to the making of loans. The Fund's current policy prohibits the
Fund from making loans, except that the Fund may (i) purchase debt securities,
(ii) lend its portfolio securities in any amount not greater than 10% of its
assets, at market value computed at the time of making such a loan, provided
that such loans are continuously secured by collateral at least equal to the
market value for securities loaned, and (iii) lend funds pursuant to repurchase
agreements, initially on a wholly secured basis, provided that the collateral
securing such loans falls within one or more of the categories of securities in
which the Fund can invest under its investment objectives and policies and
provided further that such loans must not, at the time of any such loan, be as a
whole more than 20% - and be as to any one borrower more than 5% - of the Fund's
total assets at market value.
It is proposed that clause (ii) of the policy regarding lending be
modified to allow the Fund to lend its portfolio securities to the extent
permitted under the 1940 Act, as it may be amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. The
Fund would continue to be permitted to purchase debt securities and to lend
funds pursuant to repurchase agreements, as provided in clauses (i) and (iii) of
the current policy.
If stockholders approve the proposed modification to the current
securities lending policy, the Fund would be able to lend its portfolio
securities in amounts greater than 10% of its assets, subject to the
requirements of the 1940 Act and the rules and interpretations thereunder.
Pursuant to an exemptive order granted to the Fund by the SEC in 1977 (the "Fund
Order"), the Fund may not make a securities loan if more than 33 1/3% of its
total assets (at market value at the time of making the loan) would be on loan.
Accordingly, the proposed modification to the fund's current securities lending
policy will effectively increase the securities lending capacity of the Fund
from 10% to 33 1/3% of total assets.
If proposals 3.1 and 3.2 are approved, the Investment Manager intends
to ask the Board to approve the Fund's participation in the Investment Manager's
securities lending program and to authorize the Fund to lend its portfolio
securities in any amount up to the limit permissible by law. The increase in the
Fund's securities lending capacity from 10% to 33 1/3% is being sought to make
it cost-effective for the Fund to participate in this securities lending
program.
Under the proposed securities lending program, the Fund may lend its
investment securities to approved institutional borrowers who need to borrow
securities in order to complete
17
certain transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, the Fund attempts to increase its net investment income through the
receipt of interest or the investment of cash collateral on the loan. Any gain
or loss in the market price of the securities loaned that might occur during the
term of the loan belongs to the Fund. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially. However, loans will be made only to borrowers
selected by the Fund's delegate after a commercially reasonable review of
relevant facts and circumstances, including the creditworthiness of the
borrower.
Pursuant to an exemptive order granted to an affiliate of the
Investment Manager by the SEC (the "Investment Manager Order"), cash collateral
on the loan received by the Fund may be invested in a money market fund managed
by the Investment Manager. The Investment Manager will receive advisory and
other fees for managing the cash collateral invested in the money market fund.
If stockholders approve the proposed modification to the current
securities lending policy, the policy will no longer require that any loans be
continuously secured by collateral at least equal to the market value for
securities loaned. However, the Fund Order contains a similar requirement. The
Fund Order also requires, among other things, that the Fund receive all
dividends, interest or other distributions on loaned securities; that the Fund
receive a reasonable return on the loan either from a loan fee or premium or
from investment of the cash collateral; that the Fund pay no fees except
reasonable fees to a custodian or loan broker subject to certain conditions; and
that the Fund call the loan in time to vote on any material event affecting the
Fund's investment. Since the granting of the Fund Order, the guidelines of the
SEC staff on the securities lending activities of funds have evolved. The Fund
may elect to follow those guidelines or other rules or interpretations under the
1940 Act in lieu of the Fund Order, even if those guidelines or other rules or
interpretations are less restrictive than the Fund Order.
Proposal 3.2: Elimination of the fundamental policy prohibiting investments in
other investment companies.
The Fund's current policy prohibits the Fund from purchasing the
securities of any other investment company, except in connection with a merger,
consolidation, acquisition of assets or other reorganization approved by the
Fund's stockholders. At the time it was adopted, the current policy was required
by the securities laws of various states. Since that time, federal law has
pre-empted the authority of the states to impose additional requirements on
investment companies. As a result, the current policy is no longer necessary to
comply with state law.
It is proposed that the current policy be eliminated. If stockholders
approve the elimination of the current policy, the Fund would be authorized to
invest in other investment companies to the extent permitted by the 1940 Act and
the rules and interpretations thereunder. Under the 1940 Act, the Fund normally
may not hold more than 3% of the outstanding voting stock of another investment
company and may not invest more than 5% of its total assets in any one
investment company or more than 10% of its total assets in other investment
companies as a group. In addition, the Fund, together with other investment
companies advised by the
18
Investment Manager, normally may not hold more than 10% of the outstanding
voting stock of any closed-end investment company. The 1940 Act also prohibits
the Fund from making loans to persons who control or are under common control
with the Fund.
As noted above, if Proposals 3.1 and 3.2 are approved, the Investment
Manager intends to ask the Board to approve the Fund's participation in a
securities lending program pursuant to which cash collateral received by the
Fund may be invested in a money market fund managed by the Investment Manager.
The elimination of the Fund's current restriction on investments in other
investment companies will permit the Fund to invest cash collateral in the
Investment Manager's money market fund within the limits of the 1940 Act and the
rules and interpretations thereunder and subject to the Investment Manager
Order. The Investment Manager has represented to the Fund that the fees for its
services under the program would be no higher than the fees charged by the
Investment Manager for services of the same nature and quality provided to
unaffiliated third parties. The Investment Manager has also represented to the
Fund that it would not be cost-effective for the Fund to participate in a
standalone securities lending program that does not involve the investment of
cash collateral in the Investment Manager's money market fund.
If stockholders approve Proposal 3.2, the Fund will be permitted to
invest in investment companies other than the Investment Manager's money market
fund for purposes other than the investment of cash collateral from securities
loans. Although the Investment Manager has stated that it does not currently
intend to make any such investments, it may do so in the future, subject to the
limits of the 1940 Act and the rules and interpretations thereunder. The Fund's
investment in the securities of another investment company will result in the
layering of expenses, so that Fund stockholders will bear the expenses of the
Fund and a proportionate share of the expenses of the other investment company.
Board Recommendation and Required Vote
Approval of Proposals 3.1 and 3.2 by stockholders requires the
affirmative vote of the holders of a majority of the Fund's outstanding shares
on each Proposal. 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 the
stockholders fail to approve Proposals 3.1 and 3.2, the current fundamental
policies will remain in effect.
The Board of Directors recommends that the stockholders of the Fund
vote FOR the approval of Proposals 3.1 and 3.2.
19
STOCKHOLDER PROPOSALS FOR 2004 PROXY STATEMENT
Stockholders wishing to submit proposals for inclusion in a proxy
statement for the 2005 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 24, 2005. 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 2005 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 7, 2005. 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.
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 28, 2004 Secretary
20
EXHIBIT 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, who do not
accept directly or indirectly any consulting, advisory or other
compensatory fees from the Fund or from the Fund's investment adviser^1
or its affiliates (except fees for services as a Director), and who
satisfy any requirements with respect to independence, expertise and/or
availability established by the exchange on which the Fund's shares are
traded.
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 review the Fund's accounting and financial reporting
policies and practices, the Fund's internal controls over
financial reporting (including disclosure controls and
procedures) and, as the Committee deems appropriate, the
internal controls over financial reporting of certain Fund
service providers;
(b) To review the quality, objectivity and integrity of the Fund's
financial statements and the independent audit thereof;
(c) To review the Fund's compliance with legal and regulatory
requirements that relate to the Fund's accounting and
financial reporting, internal controls over financial
reporting, and independent audits;
(d) To exercise direct responsibility for the appointment,
compensation, retention and oversight of the work performed by
the Fund's independent auditors for the purpose of preparing
or issuing an audit report or performing other audit, review
or attest services for the Fund, and, in connection therewith,
to review the independent auditors' qualifications and
independence; and
- ----------------------------------
^1 Deutsche Investment Management Americas Inc.
21
(e) To act as a liaison between the independent auditors and the
full Board of Directors; and
(f) To prepare an audit committee report to be included in the
Fund's annual proxy statement.
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 (including
disclosure controls and procedures), 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 approve the selection, retention or termination of the
independent auditors, to review and approve the terms and
scope of the annual audit of the Fund and any special audits,
and to approve the fees and other compensation to be paid to
the independent auditors by or on behalf of the Fund;
(b) To request and evaluate on an annual basis a formal written
statement from the independent auditors delineating all
significant relationships that the independent auditors have
with the Fund and the investment adviser and its affiliates,
and to consider whether the provision of non-audit services
rendered by the independent auditors to the Fund and the
Fund's investment adviser and its affiliates is compatible
with the independent auditors' independence;
(c) To obtain and review, at least annually, a report by the
independent auditors describing: the audit firm's internal
quality-control procedures; any material issues raised by the
most recent internal quality-control review, or peer review,
of the audit firm, or by any inquiry or investigation by
governmental or professional authorities, within the preceding
five years, respecting one or more independent audits carried
out by the audit firm, and any steps taken to deal with any
such issues; and (to assess the auditor's independence) all
relationships between the independent auditor and the Fund;
(d) (i) To review and discuss with management and the independent
auditors the Fund's annual audited financial statements and
any interim financial statement, including management's
discussion of the Fund's performance, 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); (ii)
to review with the independent auditor any audit problems or
difficulties and management's response; (iii) to consider the
auditors' comments with respect to the Fund's financial
policies and procedures, internal accounting controls and
disclosure controls and procedures, and management's responses
thereto; (iv) to review the form of the opinion the auditors
propose to render to the Board of Directors and the
shareholders of the Fund; (v) to review any other reports,
22
representations or communications from the independent
auditors regarding matters within the scope of the Committee's
responsibilities under this Charter; and (vi) to consider, at
the Committee's discretion, such other information that the
Committee believes may be relevant to the audit and the Fund's
financial policies and procedures, internal accounting
controls and disclosure controls and procedures;
(e) 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;
(f) To meet separately, periodically, with management and with the
independent auditors to discuss any matters that the Committee
or such parties believe necessary or appropriate to raise, and
to review and consider any reports or communications from any
such parties relating to the operations of the Fund;
(g) To establish procedures for the approval, in advance, of the
engagement of the independent auditors to provide (i) audit or
permissible non-audit services to the Fund, and (ii) non-audit
services to the Fund's investment adviser (and any affiliate
that provides services to the Fund) that relate directly to
the Fund's operations and financial reporting;
(h) To review, annually, with Fund management and the independent
auditors, the Fund's disclosure controls and procedures, a
report by Fund management covering any Form N-CSR filed, and
any required certification of such filing, along with the
results of Fund management's most recent evaluation of the
Fund's disclosure controls and procedures; and
(i) To establish procedures for the receipt, retention and
treatment of complaints received by the Fund regarding
accounting, internal accounting controls or auditing matters
and the confidential, anonymous submission by officers of the
Fund or employees of the investment adviser, administrator,
principal underwriter, or any other provider of accounting
related services to the Fund of concerns regarding suspected
fraud of any type related to the Fund, including without
limitation questionable accounting or auditing matters.
(j) 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.
23
5. Other Responsibilities. The Committee shall (i) discuss generally the
Fund's policies with respect to risk assessment and risk management;
(ii) set clear hiring policies for the Fund and the investment adviser
with respect to employees or former employees of the independent
auditors; (iii) review the Fund's policy with respect to earnings press
releases, as well as to financial information and earnings guidance
provided to analysts and rating agencies; and (iv) review, annually,
the performance of the Committee.
6. Role of Independent Auditors. The Fund's independent auditors are
ultimately accountable to the Committee and must report directly to the
Committee.
7. 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 engage independent
counsel and/or to retain, at the Fund's expense, such experts or
consultants as the Committee deems necessary or appropriate to fulfill
such responsibilities.
8. 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 May 13, 2004
24
MONTGOMERY STREET INCOME SECURITIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Annual Meeting of Stockholders -- July 16, 2004
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 Friday, July 16, 2004 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 Proposal 1, neither FOR nor AGAINST Proposal 2, and AGAINST
Proposals 3.1 and 3.2.
PLEASE BE SURE TO SIGN AND DATE THIS PROXY ON THE REVERSE SIDE.
(Continued, and to be signed, on the reverse side.)
To vote, mark blocks below in blue or black ink as indicated at left
The Board of Directors of the Fund recommends that stockholders vote FOR the Proposals.
FOR all nominees listed below (except as noted below)
WITHHELD from _all nominees _listed below
(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.
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.
(3.1) -To approve the modification of the fundamental investment policy regarding securities lending.
(3.2) -To approve the elimination of the fundamental investment policy regarding investments in other
investment companies.
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 --------------------------------------------- , 2004
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.