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 [ ] 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
2005
Annual Meeting
of Stockholders
and
Proxy Statement
Montgomery Street
Income Securities, Inc.
101 California Street, Suite 4500
[LOGO]
San Francisco, California 94111 Montgomery Street
1-800-349-4281 Income Securities, Inc.
This page intentionally left blank
May 20, 2005
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 14, 2005 at the offices of the Fund, 101 California Street, Suite
4500, 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 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/Richard J. Bradshaw /s/Julian F. Sluyters
Richard J. Bradshaw Julian F. Sluyters
Chairman of the Board President and Chief Executive Officer
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 4500,
San Francisco, California 94111, on Thursday, July 14, 2005 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.
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 13, 2005 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/Bruce A. Rosenblum
May 20, 2005 Bruce A. Rosenblum, 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 4500
SAN FRANCISCO, CALIFORNIA 94111
1-800-349-4281
PROXY STATEMENT
RECORD DATE: May 13, 2005 MAILING DATE: May 20, 2005
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 4500, San Francisco, California 94111, on
Thursday, July 14, 2005 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 $1,500, 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.
1
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
each of the Proposals to be voted upon by the stockholders involves matters that
the New York Stock Exchange traditionally 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 13, 2005 at 5:00 p.m., Eastern
time (the "Record Date").
As of the Record Date, there were issued and outstanding 10,376,765
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, nominee for Director, and chief
executive officer of the Fund, and the Directors and executive officers as a
group, as of April 30, 2005, 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, nominee's and
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 Equity Securities in all
Beneficially Owned Dollar Range of Equity Funds Overseen in Family of
Position in the Fund(1) Securities in the Fund Investment Companies
-------- ----------- ---------------------- --------------------
Independent Directors
Richard J. Bradshaw Chairman and 7,475(2) Over $100,000 Over $100,000
Director
Maryellie K. Johnson(3) Director 11,360 Over $100,000 Over $100,000
John T. Packard Director 500 $1 - $10,000 Over $100,000
Wendell G. Van Auken Director 21,414 Over $100,000 Over $100,000
James C. Van Horne Director 2,500 $10,000 - $50,000 $10,000 - $50,000
Victor L. Hymes Nominee 0 0 $1 - $10,000
Chief Executive
Officer
Richard T. Hale(4) President 1,000 $10,000 - $50,000 Over $100,000
Julian F. Sluyters(4) President and 0 0 Over $100,000
Chief Executive
Officer
All Directors and 44,249(5) Over $100,000 Over $100,000
Executive Officers as a
Group
-------------------
(1) The information as to beneficial ownership is based on statements
furnished to the Fund by each Director, nominee and executive officer.
Unless otherwise indicated, each person has sole voting and investment
power over the shares reported.
(2) Includes 4,890 shares held with sole voting and investment power and
2,585 shares held with shared voting and investment power.
(3) Ms. Johnson is not standing for reelection.
(4) Mr. Sluyters succeeded Mr. Hale as President of the Fund effective
June 18, 2004.
(5) Includes 41,664 shares held with sole voting and investment power and
2,585 shares held with shared voting and investment power.
To the Fund's knowledge, as of May 13, 2005, 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
3
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, 2004, 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, 2004, without charge, by calling 1-800-349-4281 or
writing the Fund at 101 California Street, Suite 4500, 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. Each of the nominees, except
for Mr. Hymes, is currently a Director of the Fund and was elected to serve as a
Director at the 2004 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
4500, 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 (56) (law firm). He has acted as Chairman of the Board of the Fund since July 2004.
4
Year First
Nominee Principal Occupation or Employment during Past Five Years Became a
(Age) and Directorships in Publicly Held Companies Director
----- -------------------------------------------- --------
John T. Packard Since January 2005 Mr. Packard has been Executive Vice President of McWilliams 2001
(71) Packard LLC d/b/a Mt. Eden Investment Advisors. He was an Advisory Managing
Director of Weiss, Peck & Greer Investments (investment adviser and
broker-dealer) from February 2000 to January 2002 and a Managing Director from
January 2002 to December 2004. Mr. Packard was a Managing Director of the
Investment Manager from 1985 to 1998 and an Advisory Managing Director from
1999 to 2000, and served as the President of the Fund from 1988 to February
2000.
Wendell G. Van Mr. Van Auken is a Managing Director of several venture capital funds 1994
Auken (60) affiliated with Mayfield. 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 Bailard
(69) Opportunity Fund Group, Inc. (registered investment company) and Suntron
Corp. (electronic manufacturing services). Dr. Van Horne was Chairman of the
Board of the Fund from July 1992 to July 2004.
Victor L. Hymes Since April 2004 Mr. Hymes has been CEO and Chief Investment Officer of Legato Nominee
(47) Capital Management LLC (investment adviser). He was Chief Operating Officer
and Chief Investment Officer of Cazenave Partners, LLC (investment adviser)
from January 2003 to January 2004. Mr. Hymes was a Managing Director of the
Investment Manager from January 1997 to April 2002, and served as the President
of the Fund from February 2000 to April 2002. Mr. Hymes owned securities of
the Investment Manager until May 2002.
A majority of the board members of a registered investment company must
not be interested persons ("Interested Persons") of the company, as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"), for the company
to take advantage of certain exemptive rules under the 1940 Act. Directors of
the Fund who are not Interested Persons are referred to in this Proxy Statement
as "Independent Directors." If the nominees proposed for election as Directors
of the Fund are elected, all the members of the Board of Directors will be
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, except Mr. Hymes, currently 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 April 30, 2005, 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.
5
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 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, must be selected and nominated solely by the
Independent Directors of the Fund. In light of the fact that all the members of
the Board of Directors are Independent Directors, 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 4500, San Francisco, CA 94111. In order to be considered at the 2006
annual meeting, submission should be made by January 21, 2006.
The Board of Directors has an Executive Committee, a Valuation
Committee and an Audit Committee. In 2004, the Board of Directors held six
meetings, the Valuation Committee held one meeting, and the Audit Committee held
three meetings. The Executive Committee did not meet in 2004. 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 2004.
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 4500, 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 16, 2004.
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.
Bradshaw and Van Horne).
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
6
Messrs. Van Auken and Van Horne). It is expected that Mr. Hymes, if elected,
will replace Ms. Johnson on the Valuation Committee following the Annual
Meeting.
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 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, Packard and Van Horne). 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 to this Proxy Statement as Exhibit A.
Audit Committee Report
At meetings of the Audit Committee held on February 15, 2005 and April
8, 2005, the Committee reviewed the Fund's audited financial statements and
discussed the financial statements with management 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 2004
fiscal year.
The Audit Committee:
Wendell G. Van Auken, Chair
John T. Packard
James C. Van Horne
Independent Auditors
The Fund's financial statements for the fiscal years ended December 31,
2003 and 2004 were audited by Ernst & Young LLP ("E&Y"). The following table
shows fees billed by E&Y during the 2003 and 2004 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
Fiscal Year Ended 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
---- ---- -------- ---- -------- ---- --------
December 31, 2004 $56,000 $0 $347,500 $5,900 $0 $0 $331,501
December 31, 2003 $46,800 $0 $112,900 $7,500 $0 $0 $3,742,000
- ------------------------
(1) "Audit Fees" are the aggregate fees billed for professional services
rendered 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 services in
connection with the assessment of internal controls and additional
related procedures that are 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,"
and include fees for services in connection with risk management and
process improvement initiatives for the Investment Manager and other
related entities that provide support for the operations of the Fund.
(5) In addition to the amounts shown in the table, E&Y received an
aggregate amount of $3,830,009 in the 2004 fiscal year and $3,532,290
in the 2003 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 and the Advisor Entities during the 2003 and 2004
fiscal years were $3,749,500 and $337,401, respectively. The Audit Committee
considered whether E&Y's provision of non-audit services to the Advisor Entities
that were not pre-approved by the Audit Committee were compatible with
maintaining E&Y's independence.
New Auditors. At a meeting held on April 8, 2005, based on Audit
Committee recommendations and approvals, the full Board of Directors unanimously
voted to dismiss E&Y and to approve PricewaterhouseCoopers LLP ("PwC") as the
Fund's independent auditors for the fiscal year ending December 31, 2005 to
examine the Fund's books and accounts and to certify the Fund's financial
statements. During each of the 2003 and 2004 fiscal years and the interim period
between December 31, 2004 and April 7, 2005, there was no disagreement between
E&Y and the Fund on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedures, which disagreement, if not
resolved to the satisfaction of E&Y, would have caused E&Y to make reference to
the subject matter of the disagreement in its audit reports. The audit reports
of E&Y on the Fund's financial statements for the 2003 and 2004 fiscal years did
not contain an adverse opinion or a disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope, or accounting principles.
8
Representatives of E&Y and PwC 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 such
auditors desire to do so.
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 4500, San Francisco, CA 94111.
Year First
Present Office with the Fund; Became an
Name (Age) Principal Occupation or Employment(1) Officer(2)
---------- ---------------------------------- -------
Julian F. Sluyters President and Chief Executive Officer (as of June 18, 2004
(44) 2004); Managing Director, Deutsche Asset Management((3))
(May 2004-present); President and Chief Executive
Officer, UBS Fund Services (2001-2003); Chief
Administrative Officer (1998-2001) and Senior Vice
President and Director of Mutual Fund Operations
(1991-1998), UBS Global Asset Management.
Paul H. Schubert Chief Financial Officer; Managing Director, Deutsche Asset 2004
(42) Management (July 2004-present); Executive Director, Head of
Mutual Fund Services and Treasurer for UBS Global Asset
Management's Family of Funds (1994-2004).
Gary W. Bartlett Vice President; Managing Director, Deutsche Asset 2002
(45) Management.
Andrew P. Cestone Vice President; Managing Director, Deutsche Asset 2003
(35) Management.
Bruce A. Rosenblum Vice President and Secretary; Director, Deutsche Asset 2004
(44) Management (since 2002); Vice President of Deutsche Asset
Management (2000-2002).
Charles A. Rizzo Treasurer; Managing Director, Deutsche Asset Management. 2003
(47)
Philip Gallo Chief Compliance Officer; Managing Director, Deutsche Asset 2004
(42) Management (2003-present); Co-Head of Goldman Sachs Asset
Management Legal (1994-2003).
- ------------------------
(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 also serve in similar capacities as
officers for other funds advised by the Investment Manager or its
affiliates. All officers (except Messrs. Sluyters and Schubert) 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.
9
(3) Deutsche Asset Management is the marketing name in the U.S. for the
asset management activities of Deutsche Bank AG, Deutsche Bank Trust
Company Americas, Deutsche Bank Securities Inc., Deutsche Asset
Management Inc., Deutsche Asset Management Investment Services Ltd.,
Deutsche Investment Management Americas Inc. and Scudder Trust Company.
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 a
quarterly retainer of $3,000 (except the Chairman of the Board, whose quarterly
retainer is $7,000, and the Chairman of the Audit Committee, whose quarterly
retainer is $4,000) and a fee of $750 for each Board meeting attended and $500
for each committee meeting attended, as well as any related expenses. For the
fiscal year ended December 31, 2004, total compensation (including reimbursement
of expenses) for all Directors as a group was $95,679.
The Compensation Table on the following page 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, 2004
- --------------------------------------------------------------------------------
(1) (2) (3)
- --------------------------------------------------------------------------------
Aggregate Total Compensation from
Name of Person, Compensation Fund and Fund Complex
Position from Fund Paid to Director
- --------------------------------------------------------------------------------
Independent Directors
- --------------------------------------------------------------------------------
Richard J. Bradshaw $24,000 $24,000
Board Chairman (effective
7/16/04) and Director
Maryellie K. Johnson(1) $16,500 $16,500
Director
Wendell G. Van Auken $20,500 $20,500
Director and Audit Committee
Chairman
James C. Van Horne $22,750 $22,750
Board Chairman (until
7/16/04) and Director
- --------------------------------------------------------------------------------
10
- --------------------------------------------------------------------------------
(1) (2) (3)
- --------------------------------------------------------------------------------
Aggregate Total Compensation from
Name of Person, Compensation Fund and Fund Complex
Position from Fund Paid to Director
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Interested Director
- --------------------------------------------------------------------------------
John T. Packard(2) $15,000 $15,000
Director
(1) Ms. Johnson is not standing for reelection.
(2) Prior to January 1, 2005, Mr. Packard may have been 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.
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 to this Proxy Statement as Exhibit B.
The Agreement was last approved by the Board of Directors on April 8,
2005. 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.
11
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.
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, 2004, the
Fund paid the Investment Manager an aggregate fee of $940,268.
12
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
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.
13
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, 2004, 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, 225 Franklin Street, Boston, MA 02110. 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, 2004, the amount charged to the Fund by SISC aggregated $23,101, of
which $4,156 was unpaid as of December 31, 2004. It is expected that SISC will
continue to provide these services after the Agreement is approved.
Pursuant to an agreement dated January 15, 2003 (the "Sub-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 Sub-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, 2004, the
firm had more than $172 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
14
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 directors are
William N. Shiebler, William A. Gagliardi and Michael Colon. The directors of
the corporation are also executive officers. The principal occupations of the
principal executive officers are as follows: Mr. Shiebler is President & Chief
Executive Officer of Deutsche Investment Management Americas, Inc. ("DIMA"); Mr.
Gagliardi is Treasurer & Chief Financial Officer of DIMA; and Mr. Colon is Chief
Operating Officer of DIMA. The business address of the principal executive
officers, as it relates to their duties at the Investment Manager, is 345 Park
Avenue, New York, New York 10154.
As of April 30, 2005, 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 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, 2004, 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 8, 2005, the Board of Directors, including
the Independent Directors, voted to continue the Agreement until July 31, 2006
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
15
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.
At the April 8 meeting, the Board of Directors reviewed, among other
information, 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
("GFA"), an independent investment consultant engaged by the Board specializing
in quantitative fixed-income investment analysis. In addition, the Board took
into account information provided at previous meetings and other knowledge about
the Investment Manager the Directors had accumulated over the years.
In approving the continuance of the Agreement, the Board of Directors
considered the following factors, among others:
Nature, Extent and Quality of Services. The Board examined the nature, extent
and quality of the advisory and administrative services provided and to be
provided to the Fund by the Investment Manager and its affiliates. The Board
considered the terms of the Agreement and the experience and qualifications of
the Investment Manager and its personnel in managing fixed-income instruments,
including mortgage-related securities, high-yield bonds and private placements.
The Board also considered the quality of the administrative services provided to
the Fund by the Investment Manager, including the experience of the Investment
Manager in administering other open-and closed-end funds, the extent and quality
of information provided by the Investment Manager to the Board and Fund
stockholders, the Investment Manager's attention to compliance matters, the
Investment Manager's access to and oversight of other Fund service providers,
the recent increase in the Investment Manager's administrative responsibilities,
the absence of material regulatory issues relating to the Fund, and the
involvement or potential involvement of the Investment Manager in regulatory or
other legal proceedings affecting its other funds. Further, the Board considered
the Investment Manager's past organizational changes and turnover in its
personnel, the outsourcing of the transfer agency and fund accounting services
formerly provided to the Fund by the Investment Manager and its affiliates, the
overall commitment of the Investment Manager to the Fund, and the general
financial condition, resources and reputation of the Investment Manager and its
parent. The Board was generally satisfied with the nature, extent and quality of
the advisory and administrative services provided to the Fund.
Investment Performance. The Board reviewed the investment performance of the
Fund over various periods, as compared to the performance of the Fund's
benchmark index and of other similar funds. The Board also reviewed with GFA the
ways in which the investment strategies employed by the Investment Manager
contributed to the Fund's investment performance. The performance data showed
that the Fund's returns for 2003 and 2004, representing the two full years in
which the current investment team had managed the Fund, had exceeded the returns
of the Lehman Brothers Aggregate Bond Index, the Fund's benchmark index. For
2004, the Fund underperformed the average return of the Lipper Corporate Debt
Funds BBB-Rated category for closed-end funds. However, it outperformed the
average return of the peer category for the three, five and 10-year periods. It
was noted that the Fund's allocation to lower quality bonds contributed to its
outperformance in 2004 relative to the benchmark index (which held a lower
16
allocation), as well as to its underperformance in 2004 relative to the peer
category (which tended to hold a greater allocation). This more conservative
risk profile was expected to reduce volatility of returns over the long term.
The Board was generally satisfied with the investment performance of the Fund in
light of its risk profile.
Costs of Services. The Board examined the costs of the services provided and to
be provided to the Fund, including comparable expense information concerning
other similar funds. The management fee charged by the Investment Manager and
the transfer agency fees charged by SISC were among the lowest in the Fund's
Lipper expense group, and the Fund's total expense ratio for 2004 was below the
median for the group. It was noted that the Investment Manager paid certain
administrative expenses of the Fund, including those relating to fund
accounting. It was also noted that, due to the size of its assets under
management, the Investment Manager was able to negotiate lower costs for the
Fund from the Fund's other service providers. The Board reviewed a report
prepared by the Investment Manager comparing the services provided and fees
charged by the Investment Manager to the Fund and to certain non-fund accounts
of the Investment Manager employing similar investment strategies. Although the
fees charged to the non-fund accounts appeared to be lower than those charged to
the Fund, it was noted that the non-fund accounts required the Investment
Manager to perform significantly fewer administrative services. The Board
concluded that the advisory fees and expense ratios of the Funds were generally
competitive.
Profits Realized by the Investment Manager. The Board considered the profits
realized and to be realized by the Investment Manager and its affiliates from
their relationship with the Funds. A preliminary analysis prepared by the
Investment Manager showed that the profitability of the Fund to the Investment
Manager had declined from 2003 to 2004, principally as a result of increased
costs of compliance and administration. The Board acknowledged the inherent
limitations of profitability analyses, including their reliance on various
allocations and assumptions. The Board recognized that the Investment Manager
was entitled to earn a profit for the services it furnishes and concluded, based
on the preliminary information provided, that the profit expected to be earned
by the Investment Manager was not excessive.
Economies of Scale. The Board considered the extent to which economies of scale
would be realized as the Fund grows and whether fee levels reflect these
economies of scale for the benefit of Fund investors. It was noted that, in
2002, the Board had negotiated an additional breakpoint in the advisory fee at
$200 million in assets and that the Fund's assets had not risen appreciably
above that level since that time. It was also noted that the Investment Manager
had shared with the Fund a portion of its savings from the outsourcing of the
fund accounting services provided to the Fund. In its deliberations, the Board
recognized the inherent difficulty of drawing meaningful conclusions regarding
economies of scale with respect to specific advisors and funds.
Other Benefits to the Investment Manager. The Board recognized that the
Investment Manager may have derived other benefits from its relationship with
the Fund, including the receipt by SISC of transfer agency and related fees from
the Fund, the purchase by the Fund from time to time of portfolio securities
underwritten by affiliates of the Investment Manager, the investment of cash
collateral from the Fund's securities lending program in a money market fund
advised and administered by the Investment Manager, the provision by the
Investment
17
Manager of other products and services to Fund stockholders, the use of the Fund
as an investment vehicle for other clients of the Investment Manager, and the
reputational benefit to the Investment Manager from its association with the
Fund.
In addition to the foregoing factors, among others, the Board
considered the results of the Board's review of alternative investment managers
in 2002 in connection with the Transaction and its ability to terminate the
Agreement on 60 days' notice. In its deliberations, the Board did not identify
any particular factor or factors that were all-important or controlling, and
each Director assigned different weights to the various factors considered.
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
2006. 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 2006 PROXY STATEMENT
Stockholders wishing to submit proposals for inclusion in a proxy
statement for the 2006 meeting of stockholders of the Fund should send their
written proposals to the Fund, at 101 California Street, Suite 4500, San
Francisco, California 94111, by January 21, 2006. 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 2006 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 6, 2006. 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.
18
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/Bruce A. Rosenblum
May 20, 2005 Bruce A. Rosenblum, Secretary
19
INDEX OF EXHIBITS
EXHIBIT A: AUDIT COMMITTEE CHARTER
EXHIBIT B: MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT
EXHIBIT C: MANAGEMENT FEE RATES FOR FUNDS
ADVISED BY THE INVESTMENT MANAGER
WITH SIMILAR INVESTMENT OBJECTIVES
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
(e) To act as a liaison between the independent auditors and the full
Board of Directors; and
- ------------------------
(1) Deutsche Investment Management Americas Inc.
(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, 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, representations or communications from the independent
auditors regarding matters within the scope
of the Committee's responsibilities under this Charter; (vi) as the
Committee or the Chairman of the Committee, pursuant to delegation,
may deem necessary, to review and discuss with management and/or the
independent auditors the Fund's semi-annual and quarterly financial
statements; and (vii) 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;
(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; and
(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.
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 April 8, 2005
EXHIBIT B
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 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.
(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 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 "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
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 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 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
EXHIBIT C
MANAGEMENT FEE RATES FOR FUNDS ADVISED BY THE INVESTMENT MANAGER
WITH SIMILAR INVESTMENT OBJECTIVES
Objective Fee Rate+
--------- --------
Closed End Funds
Montgomery Street Income Securities, Inc. High level of current income consistent with 0.500% to $100 million
prudent investment risks through a diversified 0.450% next $50 million
portfolio primarily of debt securities. 0.400% next $50 million
0.350% over $200 million(2)
Scudder High Income Trust Highest current income obtainable consistent 0.850% to $250 million
with reasonable risk with capital gains 0.750% over $250 million(1)
secondary.
Scudder Strategic Income Trust High current income. 0.850%(1)
Open End Funds
Scudder High Income Fund Highest level of current income obtainable from 0.580% to $250 million
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 Fund High income while managing its portfolio in a 0.550% to $250 million
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
Net Assets*
----------
Closed End Funds
Montgomery Street Income Securities, Inc. $ 203,813,918
Scudder High Income Trust $ 196,302,026
Scudder Strategic Income Trust $ 48,690,769
Open End Funds
Scudder High Income Fund $ 2,546,325,997
Scudder Income Fund $ 864,254,265
Objective Fee Rate+
--------- --------
Closed End Funds
Scudder Short Term Bond Fund High income while managing its portfolio in a 0.450% to $1.5 billion
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
Net Assets*
----------
Scudder Short Term Bond Fund $ 945,816,527
* The information provided in the chart is shown as of December 31, 2004.
+ 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.
MONTGOMERY STREET INCOME SECURITIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Annual Meeting of Stockholders -- July 14, 2005
The undersigned hereby appoints Julian F. Sluyters, Bruce A. Rosenblum 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 4500, San Francisco, California 94111, on Thursday, July 14, 2005
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 and FOR Proposal 2.
PLEASE BE SURE TO SIGN AND DATE THIS PROXY ON THE REVERSE SIDE.
(Continued, and to be signed, on the reverse side.)
00F7EE- Montgomery Street - Proxy 9
[ X ] 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.
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FOR all WITHHELD
nominees from all
listed below nominees
(except as listed
noted below) below For Against Abstain
(1) To elect five [ ] [ ] (2) To approve the [ ] [ ] [ ]
Directors of the Fund continuance of the
to hold office until Management and Investment
the next Annual Advisory Agreement for
Meeting or until the Fund with Deutsche
their respective Investment Management
successors shall have Americas Inc.
been duly elected and
qualified.
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Nominees: Richard J. Bradshaw, John T. Packard,
Wendell G. Van Auken, James C. Van Horne,
Victor L. Hymes
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The proxies are authorized to vote in their discretion
(INSTRUCTION: To withhold authority to vote for on any other business which may properly come before
any individual nominee, write that nominee's the Annual Meeting and any adjournments or
name on the space provided below.) postponements thereof.
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PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
______________________________ ENVELOPE. NO POSTAGE IS REQUIRED.
______________________________________
(Signature of Stockholder)
______________________________________
(Signature of joint owner, if any)
Dated ____________________________________________ , 2005
Please sign exactly as your name or names appear. When
signing as an attorney, executor, administrator,
trustee or guardian, please
00F7EE - Montgomery Street - Proxy 9 give your full title as such.
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