Preliminary Copy
dated May 8, 1998
Notice of
1998
Annual Meeting
of Stockholders
and
Proxy Statement
Montgomery Street
Income Securites, Inc. [LOGO]
101 California Street, Suite 4100 MONTGOMERY STREET
INCOME SECURITIES, INC.
San Francisco, California 94111
(415) 981-8191
[LOGO]
MONTGOMERY STREET 101 California Street, Suite 4100
INCOME SECURITIES, INC. San Francisco, California 94111
May 21, 1998
To the Stockholders:
The Annual Meeting of Stockholders of Montgomery Street Income Securities,
Inc. (the "Company") is to be held at 10:00 a.m., pacific time, on Thursday,
July 9, 1998 at the offices of the Company, 101 California Street, Suite 4100,
San Francisco, California. A Proxy Statement regarding the meeting, a proxy card
for your vote at the meeting and an envelope--postage prepaid--in which to
return your proxy are enclosed.
At the Annual Meeting the stockholders will elect the Company's Directors,
consider the ratification of the selection of Ernst & Young LLP as the Company's
independent auditors, consider the approval of the continuance of the Management
and Investment Advisory Agreement between the Company and Scudder Kemper
Investments, Inc. ("Scudder Kemper") and consider the approval of the
elimination of a fundamental policy with respect to investment in restricted
securities. In addition, the stockholders present will hear a report on the
Company. There will be an opportunity to discuss matters of interest to you as a
stockholder.
Your Directors recommend that the stockholders vote in favor of each of
the foregoing matters.
Respectfully,
/s/ James C. Van Horne /s/ John T. Packard
James C. Van Horne John T. Packard
Chairman of the Board President
- --------------------------------------------------------------------------------
STOCKHOLDERS ARE URGED TO SIGN THE PROXY CARD AND MAIL IT IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE SO AS TO ENSURE A QUORUM AT THE MEETING. THIS IS
IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES.
- --------------------------------------------------------------------------------
MONTGOMERY STREET INCOME SECURITIES, INC.
Notice of Annual Meeting of Stockholders
To the Stockholders of
Montgomery Street Income Securities, Inc.:
Please take notice that the Annual Meeting of Stockholders of Montgomery
Street Income Securities, Inc. (the "Company") has been called to be held at the
offices of the Company, 101 California Street, Suite 4100, San Francisco,
California on Thursday, July 9, 1998 at 10:00 a.m., pacific time, for the
following purposes:
(1) To elect five Directors of the Company to hold office until the
next Annual Meeting or until their respective successors shall have been
duly elected and qualified.
(2) To ratify or reject the action taken by the Board of Directors
in selecting Ernst & Young LLP as the Company's independent auditors for
the fiscal year ending December 31, 1998.
(3) To approve or disapprove the continuance of the Management and
Investment Advisory Agreement between the Company and Scudder Kemper.
(4) To approve or disapprove the elimination of a fundamental policy
with respect to investment in restricted securities.
Those present and the appointed proxies will also transact such other
business as may properly come before the meeting or any adjournments thereof.
Holders of record of the shares of common stock of the Company at 5:00
p.m., eastern time, on May 11, 1998 are entitled to vote at the meeting or any
adjournments thereof.
By order of the Board of Directors,
May 21, 1998 Thomas F. McDonough, Secretary
- --------------------------------------------------------------------------------
IMPORTANT--We urge you to sign and date the enclosed proxy card and return it in
the enclosed addressed envelope which requires no postage and is intended for
your convenience. Your prompt return of the enclosed proxy card may save the
Company the necessity and expense of further solicitations to ensure a quorum at
the Annual Meeting. If you can attend the meeting and wish to vote your shares
in person at that time, you will be able to do so.
- --------------------------------------------------------------------------------
Montgomery Street Income Securities, Inc.
101 California Street, Suite 4100
San Francisco, California 94111
(415) 981-8191
PROXY STATEMENT
RECORD DATE: May 11, 1998 MAILING DATE: May 21, 1998
Introduction
The Board of Directors of Montgomery Street Income Securities, Inc. (the
"Company") is soliciting proxies for use at the Annual Meeting of Stockholders
(the "Annual Meeting"). The Annual Meeting will be held at the offices of the
Company, 101 California Street, Suite 4100, San Francisco, California on
Thursday, July 9, 1998 at 10:00 a.m., pacific time. The Board of Directors is
also soliciting proxies for use at any adjournment of the Annual Meeting. This
Proxy Statement is furnished in connection with that solicitation.
The Company may solicit proxies by mail, telephone, telegram, and personal
interview. In addition, the Company may request personnel of Scudder Kemper (the
"Investment Manager") to assist in the solicitation of proxies by mail,
telephone, telegram, and personal interview for no separate compensation. It is
anticipated that the Company will request brokers, custodians, nominees, and
fiduciaries who are record owners of stock to forward proxy materials to their
principals and obtain authorization for the execution of proxies. The Company
will pay the cost of soliciting proxies. Upon request, the Company will
reimburse the brokers, custodians, nominees, and fiduciaries for their
reasonable expenses in forwarding proxy materials to their principals.
You may revoke the enclosed proxy at any time insofar as not yet exercised
by the appointed proxies. You may do so by:
o written notice to the Company, c/o State Street Bank and Trust
Company, P.O. Box 8200, Boston, MA 02266-8200, Attn: Manager, Proxy
Department;
o written notice to the Company at the address set forth under the
above letterhead;
o giving a later proxy; or
o attending the Annual Meeting and voting your shares in person.
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 which are returned marked to abstain from or withhold voting, as well as
proxies returned by brokers or others who have not received voting instructions
on some matters and do not have discretion to vote for their clients on those
matters ("broker non-votes"), will be counted towards this majority of shares.
Withheld votes, abstentions and broker non-votes will not be counted in favor
of, but will have no other effect on, the vote for proposals (1) and (2).
Abstentions will, and broker non-votes may, have the effect of a "no" vote for
proposals
1
(3) and (4). Stockholders who hold their shares through a broker or other
nominee are urged to forward their voting instructions.
In the event that sufficient votes in favor of any proposal are not
received by July 9, 1998, the persons named as proxies on the enclosed proxy
card may propose one or more adjournments of the meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of the holders of a majority of the shares present in person or by proxy at the
session of the Annual Meeting to be adjourned. The persons named as proxies on
the enclosed proxy card will vote in favor of such adjournment those proxies
which they are entitled to vote in favor of the proposal for which further
solicitation of proxies is to be made. They will vote against any such
adjournment those proxies required to be voted against such proposal. The costs
of any such additional solicitation and of any adjourned session will be borne
by the Company.
The record date for determination of stockholders entitled to receive
notice of the Annual Meeting and to vote at the Annual Meeting or any
adjournments thereof, was May 11, 1998 at 5:00 p.m., eastern time (the "Record
Date").
As of the Record Date, there were issued and outstanding _________ shares
of common stock of the Company, constituting all of the Company's then
outstanding securities. Each share of common stock is entitled to one vote. As
of March 31, 1998, each Director, and all Directors and Officers as a group,
beneficially owned shares of the Company's common stock as follows:
Shares
Position Owned (1)
-------- ---------
James C. Van Horne .................. Chairman of the Board
and Director 2,500
John T. Packard ..................... President 500
John C. Atwater(2) .................. Director 1,100
Richard J. Bradshaw(3) .............. Director 2,240
Otto W. Butz(3) ..................... Director 332
Maryellie K. Moore .................. Director 2,360
Wendell G. Van Auken ................ Director 9,008
All Directors and Officers as a
group (12 in number)(4) ......... 22,340
- ----------
(1) The information as to beneficial ownership is based on statements
furnished to the Company by each person named. Unless otherwise indicated,
each person has sole voting and investment power over the shares reported.
As a group, the Directors and Officers owned less than 1/4 of 1% of the
shares of the Fund.
(2) Mr. Atwater purchased 1,000 of his shares after March 31, 1998.
(3) Shared investment and voting power over the shares reported.
(4) The total for the group includes 16,668 shares held with sole investment
and voting power and 5,672 shares held with shared investment and voting
power.
2
To the best of the Company's knowledge, as of March 31, 1998, no person
owned beneficially more than 5% of the Company's outstanding shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, and
Section 30(h) of the Investment Company Act of 1940, as amended (the "1940
Act"), require the Company's Officers, Directors, Investment Manager, affiliates
of the Investment Manager, and persons who beneficially own more than ten
percent of the Company's common stock ("Reporting Persons"), to file reports of
ownership of the Company's common stock and changes in such ownership with the
Securities and Exchange Commission (the "SEC") and the New York Stock Exchange.
Such persons are required by SEC regulations to furnish the Company with copies
of all such filings.
Based solely upon its review of the copies of such reports received by it
and written representations from certain Reporting Persons that no year-end
reports were required for those persons, the Company believes that during the
fiscal year ended December 31, 1997, all filing requirements applicable to its
Reporting Persons were complied with.
The Company provides periodic reports to all stockholders which highlight
relevant information, including investment results and a review of portfolio
strategy. You may receive an additional copy of the annual report for the fiscal
year ended December 31, 1997, without charge, by calling 1-800-552-2556 or
writing the Company at 101 California Street, Suite 4100, San Francisco, CA
94111.
PROPOSAL 1--ELECTION OF DIRECTORS
Five Directors are to be elected at the Annual Meeting as the five
Directors of the Company. They are to be elected to hold office until the next
annual meeting or until their successors are elected and qualified. The persons
named on the accompanying proxy card, if granted authority to vote in the
election of Directors, intend to vote at the Annual Meeting for the election of
the nominees named below as the five Directors of the Company. In the
unanticipated event that any nominee for Director cannot be a candidate at the
Annual Meeting, the appointed proxies will vote their proxy in favor of the
remainder of the nominees and, in addition, in favor of such substitute
nominee(s) (if any) as the Board of Directors shall designate. Alternatively,
the proxies may vote in favor of a resolution reducing the number of Directors
to be elected at the Annual Meeting. Each of the nominees is now a Director of
the Company and each was elected to serve as a Director at the 1997 Annual
Meeting of Stockholders. All nominees have consented to be nominated and to
serve if elected.
In accordance with the Board of Directors' retirement policy, Otto W. Butz
is not standing for re-election. Dr. Butz has served as a Director of the
Company since 1975.
Information Concerning Nominees
The following table sets forth certain information concerning each of the
nominees as a Director of the Company.
3
Year First
Principal Occupation or Employment Became a
Nominee (Age) and Directorships in Publicly Held Companies Director
------------- -------------------------------------------- --------
John C. Mr. Atwater is Managing Partner of Prime Property 1994
Atwater (37) Capital, Inc. (real estate investment firm). He also
serves as a Director of SNK Oaks Development, Inc.
Richard J. Mr. Bradshaw is currently Executive Director of 1991
Bradshaw (49) Cooley Godward LLP (law firm). From October 1992
to April 1997, he was Executive Director of Orrick,
Herrington & Sutcliffe (law firm).
Maryellie K. Ms. Moore is an international shipping consultant 1989
Moore (62) and has been a Director of London and Overseas
Freighters, Ltd. since January 1989. Prior to 1989,
she served as Treasurer of Alexander and Baldwin,
Inc. (shipping company) and Matson Navigation
Company, Inc. (containerized freight service). She
has been a Trustee of the University of San Francisco
since 1992.
Wendell G. Mr. Van Auken is a General Partner of several 1994
Van Auken venture capital funds affiliated with Mayfield
(53) Fund. He also serves as a Director of Advent
Software (portfolio software company).
James C. Van Dr. Van Horne is the A.P. Giannini Professor of 1985
Horne (62) Finance, Graduate School of Business, at Stanford
University, a position he has held from September
1965 to August 1975 and from September 1976 to
present. He also serves as a Director of the Sanwa
Bank California and Bailard, Biehl & Kaiser
International Fund Group, Inc. and as a Trustee
of the Bailard, Biehl & Kaiser Fund Group (both
registered investment companies).
Committees of the Board--Board Meetings
The Board of Directors, in addition to an Executive Committee, has an
Audit Committee and a Nominating Committee.
In 1997, the Board of Directors held five meetings and the Executive
Committee did not meet. 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 during his or her tenure as a Director of the Company,
with the exception of Ms. Moore, who attended 63% of the total number of
meetings.
Audit Committee
The Audit Committee held two meetings during 1997. The current members of
the Audit Committee are Messrs. Van Auken and Bradshaw and Ms. Moore. One of the
Audit Committee's responsibilities is to approve the scope of the audit of the
books and accounts of the Company to be conducted by its independent auditors,
including all services performed, whether audit or non-audit related. Another
responsibility is to meet with the independent auditors and receive their
reports on audits. The Audit Committee, or one of its members, in carrying out
the Audit Committee's responsibilities, is empowered to meet and confer with, or
receive the written reports of, Officers and employees of the Company, the
custodian of its assets, and the Investment Manager.
4
Nominating Committee
The Nominating Committee held one meeting in 1997. The current members of
this committee are Messrs. Atwater and Butz and Ms. Moore. The responsibilities
of this committee are to recommend possible candidates to fill vacancies on the
Board of Directors, to review the qualifications of candidates recommended by
others, to recommend to the Board the slate of Director candidates to be
proposed for election by stockholders at the annual meeting, and to recommend to
the Board policies and criteria regarding retirement from the Board. The
Nominating Committee will consider nominees recommended by stockholders. Those
wishing to submit the name of any individual should submit in writing a brief
description of the proposed nominee's business experience and other information
relevant to the qualifications of the individual to serve as a Director. In
order to be considered at the 1999 annual meeting, submission should be made by
January 22,1999.
Officers of the Company
The following persons are Officers of the Company:
Year First
Present Office with the Company; Became an
Name (Age) Principal Occupation or Employment (1) Officer (2)
---------- -------------------------------------- -----------
John R. Hebble (39) Assistant Treasurer; Senior Vice President 1998
of Scudder Kemper
Thomas F. McDonough (51) Vice President, Secretary and Treasurer; 1988
Senior Vice President of Scudder Kemper
John T. Packard (64) President; Managing Director of Scudder 1988
Kemper
Daniel Pierce (64) Vice President; Managing Director of 1988
Scudder Kemper
Kathryn L. Quirk (45) Vice President and Assistant Secretary; 1988
Managing Director of Scudder Kemper
Stephen A. Wohler (49) Vice President; Managing Director of 1988
Scudder Kemper
- ----------
(1) Unless otherwise stated, all Officers have been associated with the
Investment Manager for more than five years, although not necessarily in
the same capacity. All Officers, except Mr. Packard, are also officers or
directors of other funds managed by the Investment Manager. All Officers
own securities of the Investment Manager.
(2) All Officers are appointed annually by, and serve at the discretion of,
the Board of Directors.
5
Remuneration of Directors and Officers
Each Director receives remuneration from the Company for his or her
services. The Company does not compensate its Officers or employees, since the
Investment Manager makes these individuals available to the Company to serve
without compensation from the Company. Remuneration to Directors consists of
Directors' fees composed in each case of a quarterly retainer of $2,000 (except
the Chairman of the Board, whose quarterly retainer is $6,000) and a fee of $500
for each Board meeting attended and $250 for each committee meeting attended as
well as any related expenses. For the fiscal year ended December 31, 1997, total
compensation (including reimbursement of expenses) for all Directors as a group
was $81,689.
The Compensation Table below provides in tabular form the following data:
Column (1) All Directors who receive compensation from the Company.
Column (2) Aggregate compensation received by a Director from the Company.
Column (3) Total compensation received by a Director from the Company, the
Investment Manager and from all other funds managed by the Investment
Manager. No member of the Board serves as a Director or Trustee for any
other fund in the complex of funds managed by the Investment Manager nor
does any Director receive any pension or retirement benefits from the
Company.
Compensation Table
for the year ended December 31, 1997
-----------------------------------------------------------------------------------
(1) (2) (3)
Total Compensation
Aggregate From the Company
Name of Person, Compensation and Fund Complex
Position from the Company* Paid to Director*
-----------------------------------------------------------------------------------
John C. Atwater
Director $10,750 $10,750
Richard J. Bradshaw
Director 11,000 11,000
Otto W. Butz
Director 10,750 10,750
Maryellie K. Moore
Director 10,250 10,250
Wendell G. Van Auken
Director 11,000 11,000
James C. Van Horne
Chairman 26,500 26,500
- ----------
* Includes $500 per Director voluntarily paid by Scudder, Stevens & Clark,
Inc. ("Scudder") for attendance at a Special Board meeting dealing with
the alliance between Scudder and Zurich Insurance Company, which was
implemented on December 31, 1997.
6
Recommendation and Required Vote
The Board of Directors recommends a vote FOR election of each of the
nominees for Director. Election of the nominees for Director requires the
affirmative vote of a plurality of the votes cast in person or by proxy at the
Annual Meeting.
PROPOSAL 2--RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
At a meeting held on April 10, 1998, a majority of the Directors who were
not "interested persons," as defined in the 1940 Act ("Interested Persons") of
the Company, selected Ernst & Young LLP as the Company's independent auditors,
for the fiscal year ending December 31, 1998, to examine the Company's books and
accounts and to certify the Company's financial statements. Under the 1940 Act,
this selection must be submitted to the stockholders for ratification or
rejection at the Annual Meeting. If the selection of Ernst & Young LLP is not
ratified by stockholders, the Board of Directors will consider the selection of
another accounting firm.
It is anticipated that a representative of Ernst & Young LLP will not be
present at the Annual Meeting but will be available by conference telephone to
respond to appropriate questions. The representative will be given an
opportunity to make any desired statement.
Recommendation and Required Vote
The Board of Directors recommends a vote FOR the ratification of the
selection of Ernst & Young LLP as the Company's independent auditors. The
ratification of the selection of Ernst & Young LLP requires the affirmative vote
of a majority of the votes cast in person or by proxy at the Annual Meeting.
PROPOSAL 3--APPROVAL OR DISAPPROVAL OF THE CONTINUANCE OF THE
MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT BETWEEN
THE COMPANY AND SCUDDER KEMPER
Scudder Kemper, 345 Park Avenue, New York, New York, acts as investment
adviser to and manager for the Company pursuant to a Management and Investment
Advisory Agreement dated December 31, 1997 (the "Agreement"). The Agreement was
approved by a vote of the stockholders on October 10, 1997 in connection with
the alliance of Scudder and the Zurich Insurance Company ("Zurich"). The
Agreement is effective by its terms until July 31, 1998 and will continue from
year to year thereafter provided its continuance is specifically approved at
least annually by the vote of a majority of the Directors who are not parties to
the Agreement or Interested Persons of the Company or the Investment Manager
cast in person at a meeting called for the purpose of voting on such approval,
and by the vote of either the Board of Directors or a majority of the Company's
outstanding voting securities. The Agreement may be terminated on 60 days'
written notice, without penalty, by a majority vote of the Board of Directors,
by the vote of a majority of the Company's outstanding voting securities, or by
the Investment Manager, and automatically terminates in the event of its
assignment.
Services Provided
The Agreement requires the Investment Manager to provide investment
management and advisory services to the Company. It provides that the Investment
Manager will provide statistical and research facilities and services, supervise
the composition of the Company's portfolio, determine the nature and timing of
changes therein and the manner of effectuating such changes and cause the
7
purchase and sale of portfolio securities, subject to control by the Company's
Board of Directors. In addition to providing investment management and advisory
services, the Investment Manager pays for office space, all necessary office
facilities, basic business equipment, supplies, utilities, property casualty
insurance, telephone services and the costs of keeping the Company's books and
records. The Agreement requires the Investment Manager to arrange, if desired by
the Board of Directors of the Company, for officers or employees of the
Investment Manager to serve, with or without compensation from the Company, as
Officers, Directors or employees of the Company.
The Agreement provides that the Investment Manager will not be liable for
any acts or omissions of any predecessor adviser and neither the Investment
Manager nor any director, officer, agent or employee of the Investment Manager
will be liable or responsible to the Company or its stockholders except for
willful misfeasance, bad faith, gross negligence or reckless disregard of their
respective duties or breach of fiduciary duty. The Agreement also provides that
the Company will hold the Investment Manager harmless from judgments against it
resulting from acts or omissions in the performance of its obligations under the
Agreement which are specifically the result of written instructions of the
President, any Vice President or a majority of the Board of Directors of the
Company. There must, however, be an express finding that such acts or omissions
did not constitute willful misfeasance, bad faith, gross negligence or reckless
disregard of duties.
Fees and Expenses
The Agreement provides that the Investment Manager be paid an annual fee,
payable monthly, equal to .50 of 1% of the value of the net assets of the
Company up to and including $150 million, .45 of 1% of the value of the net
assets of the Company over $150 million and up to and including $200 million,
and .40 of 1% of the value of the net assets of the Company over $200 million.
For purposes of computing the monthly fee, the value of net assets of the
Company is determined as of the close of business on the last business day of
each month. For the fiscal year ended December 31, 1997 the Company paid the
Investment Manager an aggregate fee of $991,937.
The Agreement provides that the Company bear all expenses incurred in the
operation of the Company--except those that the Investment Manager expressly
assumes in the Agreement. Such expenses borne by the Company include (a) all
costs and expenses incident to: (i) the registration of the Company under the
1940 Act, or (ii) any public offering of shares of the Company, for cash or
otherwise, including those costs and expenses relating to the registration of
shares under the Securities Act of 1933, as amended (the "Securities Act"), the
qualification of shares of the Company under state securities laws, the printing
or other reproduction and distribution of any registration statement (and all
amendments thereto) under the Securities Act, the preliminary and final
prospectuses included therein, and any other necessary documents incident to any
public offering, the advertising of shares of the Company and the review by the
National Association of Securities Dealers, Inc. of any underwriting
arrangements; (b) the charges and expenses of any registrar or any custodian
appointed by the Company for the safekeeping of its cash, portfolio securities
and other property; (c) the charges and expenses of auditors (including the
preparation of tax returns); (d) the charges and expenses of any stock transfer,
dividend agent or registrar appointed by the Company; (e) broker's commissions
chargeable to the Company in connection with portfolio securities transactions
to which the Company is a party; (f) all taxes, including securities issuance
and transfer
8
taxes, and corporate fees payable by the Company to federal, state or other
governmental agencies; (g) the cost and expense of engraving or printing stock
certificates representing shares of the Company; (h) fees involved in
registering and maintaining registrations of the Company and of its shares with
the SEC and various states and other jurisdictions; (i) all expenses of
stockholders' and Directors' meetings and of preparing, printing and mailing
proxy statements and quarterly, semiannual and annual reports to stockholders;
(j) fees and travel expenses of Directors of the Company who are not directors,
officers or employees of the Investment Manager or its "affiliates" (as defined
in the 1940 Act); (k) all fees and expenses incident to any dividend or
distribution reinvestment program; (l) charges and expenses of outside legal
counsel in connection with matters relating to the Company, including without
limitation, legal services rendered in connection with the Company's corporate
and financial structure and relations with its stockholders, issuance of Company
shares, and registrations and qualifications of securities under federal, state
and other laws; (m) association dues; (n) interest payable on Company
borrowings; (o) fees and expenses incident to the listing of Company shares on
any stock exchange; (p) costs of information obtained from sources other than
the Investment Manager or its "affiliates" (as defined in the 1940 Act) relating
to the valuation of portfolio securities; and (q) postage.
Expense Limitations
The Agreement provides that if expenses of the Company (including the
advisory fee but excluding interest, taxes, brokerage commissions and
extraordinary expenses) in any fiscal year exceed a specified expense
limitation, the Investment Manager will pay the excess to the Company. The
specified limitation is 11/2% of the first $30 million of the Company's average
net assets plus 1% of the Company's average net assets in excess of $30 million.
The Agreement provides that extraordinary expenses, such as litigation expenses
and the cost of issuing new shares, are excluded expenses for purposes of the
expense limitations described in this paragraph and the immediately succeeding
paragraph and that the Investment Manager will not be obligated to pay any
amount to the Company during any fiscal year in excess of the amount of the
advisory fee for such fiscal year.
The Agreement also provides for a second expense limitation, relating to
the Company's gross income (including gains from the sale of securities without
offset for losses, unpaid interest on debt securities in the Company's
portfolio, and dividends declared but not paid on equity securities in the
Company's portfolio). This limitation provides that if, for any fiscal year, the
expenses of the Company described in the preceding paragraph--less any amount
payable by the Investment Manager to the Company on account of the first expense
limitation--exceed 25% of the Company's gross income for the year, the
Investment Manager will promptly pay the excess to the Company.
For the fiscal year ended December 31, 1997, the Company's expenses did
not exceed these limitations.
Investment Manager
The Investment Manager is a Delaware corporation. Rolf Hueppi* is the
Chairman of the Board and Director, Edmond D. Villani# is the President, Chief
Executive Officer and Director, Stephen R. Beckwith# is the Treasurer and Chief
Financial Officer, Kathryn L. Quirk# is the General Counsel, Chief Compliance
Officer and Secretary, Lynn S. Birdsong# is a Corporate Vice President and
Director,
9
Cornelia M. Small# is a Corporate Vice President and Director, Laurence Cheng*
is a Director, Steven Gluckstern* is a Director and Marcus Rohrbasser is a
Director of the Investment Manager. The principal occupation of each of Edmond
D. Villani, Stephen R. Beckwith, Kathryn L. Quirk, and Cornelia M. Small is
serving as a Managing Director of the Investment Manager; the principal
occupation of Rolf Hueppi, Laurence Cheng, Steven Gluckstern and Marcus
Rohrbasser is serving as an officer of Zurich.
- ----------
* Mythenquai 2, Zurich, Switzerland
# 345 Park Avenue, New York, New York
The outstanding voting securities of the Investment Manager are held of
record 36.63% by Zurich Holding Company of America ("ZHCA"), a subsidiary of
Zurich; 32.85% by ZKI Holding Corp. ("ZKIH") a subsidiary of Zurich; 20.86% by
Stephen R. Beckwith, Lynn S. Birdsong, Kathryn L. Quirk, Cornelia M. Small and
Edmond D. Villani in their capacity as representatives (the "Management
Representatives") of the Investment Manager's management holders and retiree
holders pursuant to a Second Amended and Restated Security Holders Agreement
among the Investment Manager, Zurich, ZHCA, ZKIH, the Management
Representatives, the management holders, the retiree holders and Edmond D.
Villani, as trustee of Scudder Kemper Investments, Inc. Executive Defined
Contribution Plan Trust (the "Trust"); and 9.66% by the Trust. There are no
outstanding non-voting securities of the Investment Manager.
The Investment Manager or an affiliate manages in excess of $200 billion
in assets for individuals, funds and other organizations. The following are
open- or closed-end funds with investment objectives similar to the Company, for
whom the Investment Manager provides investment management:
Total Net Assets
as of Management Compensation
April 30, 1998 on an Annual Basis Based on the
Name (000 omitted) Value of Average Daily Net Assets
---- ------------- ---------------------------------
AARP Bond Fund for Income $ 0.55 of 1%.*
Kemper Income and Capital $ 0.55 of 1%; 0.52 of 1% on net assets in excess of $250
Preservation Fund million; 0.50 of 1% on net assets in excess of $1
billion; 0.48 of 1%on net assets in excess of $2.5
billion; 0.45 of 1% on net assets in excess of $5
billion; 0.43 of 1% on net assets in excess of $7.5
billion; 0.41 of 1% on net assets over $10 billion; 0.40
of 1% on net assets over $12.5 billion.
Scudder Income Fund $ 0.65 of 1%; 0.60 of 1% on net assets in
excess of $200 million; 0.55 of 1% on net
assets in excess of $500 million.
Scudder Variable Life Investment $ 0.475 of 1%.
Fund - Bond Portfolio
- ----------
10
* Consists of an Individual Fund Fee Rate of 0.28 of 1% plus an Annual Base
Fee in proportion to the ratio of the daily net assets of the fund to the
daily net assets of all of the funds (the "AARP Funds") in the AARP
Investment Program from Scudder (the "Program"). The Annual Base Fee Rate
is: 0.35 of 1% on net assets of the Program up to and including $2
billion; 0.33 of 1% on net assets of the Program in excess of $2 billion
up to and including $4 billion; 0.30 of 1% on net assets of the Program in
excess of $4 billion up to and including $6 billion; 0.28 of 1% on net
assets of the Program in excess of $6 billion up to and including $8
billion; 0.26 of 1% on net assets of the Program in excess of $8 billion
up to and including $11 billion; 0.25 of 1% on net assets of the Program
in excess of $11 billion up to and including $14 billion; and 0.24 of 1%
on net assets of the Program in excess of $14 billion. The fund was
introduced on February 1, 1997. Until July 31, 1998, the Investment
Manager has agreed to waive all or a portion of its management fee and
other expenses for the fund to the extent necessary so that the total
annualized expenses of the fund do not exceed 0.25% of average daily net
assets.
From time to time, directors, officers and employees of the Investment
Manager may have transactions with various banks, including the Company's
custodian bank. It is the Investment Manager's opinion that the terms and
conditions of those transactions that have occurred were not influenced by
existing or potential custodial or other Company relationships.
The information set forth in this Proxy Statement concerning the
Investment Manager and its affiliates has been provided by the Investment
Manager.
Investment and Brokerage Discretion
The Investment Manager has primary responsibility for the selection of
brokers and dealers (including futures commission merchants) through which the
Company's portfolio transactions are executed, subject to periodic review by the
Company's Board of Directors. To the maximum extent feasible, the Investment
Manager places orders for portfolio transactions through Scudder Investor
Services, Inc. (a corporation registered as a broker/dealer and a subsidiary of
the Investment Manager), which in turn will place orders on behalf of the
Company with the issuer, underwriters or other brokers and dealers. In selecting
brokers and dealers with which to place portfolio transactions for the Company,
Scudder Kemper will not consider sales of shares of funds advised by Scudder
Kemper, although it may place such transactions with brokers and dealers that
sell shares of funds advised by Scudder Kemper. Scudder Investor Services, Inc.
receives no commissions, fees or other remuneration from the Company for this
service. Allocation of trades will be supervised by the Investment Manager.
Recommendation and Required Vote
At a meeting held on April 10, 1998, the Board of Directors, including a
majority of the Directors who were not Interested Persons of the Company or the
Investment Manager, approved the continuance of the Agreement until July 31,
1999 and recommended that the stockholders approve its continuance at the Annual
Meeting. Although approval by stockholders of the continuance of the Agreement
is not required by the terms of the Agreement or by applicable law, it has been
the Company's custom to submit this matter to the stockholders at the Annual
Meeting. The Company may discontinue this practice in the future in its
discretion.
In approving the continuance of the Agreement, the Board of Directors,
considering the best interests of the stockholders of the Company, took into
account a number of factors. Among such factors were: the long-term investment
record of the Investment Manager in advising the Company; the experience and
research capabilities of the Investment Manager in fixed-income instruments,
11
including mortgage-related securities and private placements; the relatively low
expenses and expense ratio of the Company; the Investment Manager's access to
quality service providers at reasonable cost due to the size of its assets under
management; the quality of the administrative services to the Company; the
experience of the Investment Manager in administering other open- and closed-end
funds; the availability and responsiveness of the Investment Manager and its
attention to internal controls and procedures; the extent and quality of
information provided to the Board of Directors and stockholders; the continuity
in the Company's investment and administrative personnel; the financial
resources of the Investment Manager and its ability to retain capable personnel;
the Investment Manager's financial condition, profitability and assets under
management; possible indirect benefits to the Investment Manager from serving as
adviser of the Company; and the effects of the recent alliance between Scudder
and Zurich.
In reviewing the continuance of the Agreement, the Board of Directors
reviewed, among other information, extensive written and oral reports and
compilations from the Investment Manager, including comparative data from
independent sources as to investment performance, advisory fees and other
expenses. The Board of Directors also received a separate written and oral
report from Gifford Fong Associates, an independent investment consultant
engaged by the Board of Directors specializing in quantitative fixed-income
investment analysis.
Approval by stockholders requires the affirmative vote of the holders of a
majority of the Company's outstanding shares. In this context, "majority" means
the lesser of two votes: (1) 67% of the Company's outstanding shares present at
a meeting if the holders of more than 50% of the outstanding shares are present
in person or by proxy, or (2) more than 50% of all of the Company's outstanding
shares. If continuance of the Agreement is approved at the Annual Meeting, the
Agreement will continue until annual review of the question of continuance by
the Board or the stockholders in 1999. If continuance is not approved at the
Annual Meeting, the Board of Directors will make such arrangements for the
management of the Company, including continuance of the Agreement, as it
believes appropriate and in the best interests of the Company.
PROPOSAL 4--APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF A FUNDAMENTAL
POLICY WITH RESPECT TO INVESTMENT IN RESTRICTED SECURITIES
The Company's primary investment objective is to seek as high a level of
current income as is consistent with prudent investment risks, from a
diversified portfolio primarily of debt securities. Capital appreciation is a
secondary objective. These objectives are subject to the Company's investment
policies and restrictions. One of the Company's fundamental investment policies,
which may be changed only with stockholder approval, provides that the Company
may not knowingly invest more than 15% of its total assets, at market value at
the time of purchase, in "securities as to which there are legal and/or
contractual restrictions on disposition in all of the principal markets where
traded."
In the past, the Company has adopted certain investment policies,
including the above restriction, which were required by various states. As a
result of the passage of the National Securities Markets Improvement Act of
1996, which pre-empted the various state securities commissions' authority to
require investment companies to adopt investment restrictions that differ from
federal requirements,
12
the above restriction is no longer required. The Company believes that the above
restriction on investments in its present form unduly inhibits investment
flexibility and in the future may restrict the Company's ability to meet its
investment objectives. Therefore, the Company proposes to eliminate this
restriction as a fundamental policy.
The Company may occasionally purchase securities other than in the open
market. While such purchases may often offer attractive opportunities for
investment not otherwise available in the open market, the securities so
purchased are often considered "restricted securities," i.e., securities which
cannot be sold to the public without registration under the Securities Act of
1933 (the "1933 Act") or the availability of an exemption from registration, or
securities which are subject to other legal or contractual restrictions on
resale.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers pursuant to Rule 144A under the 1933 Act, in a privately
negotiated transaction to a limited number of purchasers, in limited quantities
after they have been held for a specified period of time and other conditions
are met pursuant to an exemption from registration, or in a public offering for
which a registration statement is in effect under the 1933 Act. The Company may
be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public, and in such event the Company may be liable
to purchasers of such securities if the registration statement prepared by the
issuer, or the prospectus forming a part of it, is materially inaccurate or
misleading.
The market for Rule 144A securities has developed into an important one
for corporations, both foreign and domestic, who desire to place debt securities
without the delay and expense of the registration process. In many instances,
the securities have provisions that require registration within some time after
issuance. Although 144A securities are restricted, they are not necessarily
illiquid. Depending on the size and financial condition of the issuer and the
development of the trading market, 144A securities can possess liquidity equal
to, or exceeding, that of some registered securities. The Investment Manager has
advised the Company that investments in Rule 144A securities, together with
other securities that may be considered restricted, could from time to time
exceed 15% of the Company's assets. Therefore, the Investment Manager has
recommended that investment in these securities no longer be limited by a
fundamental policy of the Company.
Rule 144A securities are not without risk. The liquidity of 144A
securities may be reduced more than that of freely marketable securities under
adverse market conditions. In addition, many high-yield debt securities, which
are generally subject to greater credit, interest rate and other risks, are
issued as 144A securities. Under its other investment policies, the Company may
not invest more than 30% of its total assets in debt securities that are rated
below the four highest investment grades or purchase any debt security that is
rated below B.
If the proposal to eliminate the restriction on restricted securities is
approved by stockholders, it is the intent of the Board of Directors of the
Company to adopt a nonfundamental policy which would prohibit the Company from
investing more than 15% of its net assets in securities that are deemed
"illiquid". A nonfundamental policy is one which can be changed by a vote of the
Board of Directors. An illiquid security is one that may not be sold in the
ordinary course of business within seven days at approximately the amount at
which the Company has valued the security.
13
Under this nonfundamental policy, the Investment Manager would monitor the
liquidity of the Company's securities subject to the supervision of the Board of
Directors. In reaching liquidity decisions, the Investment Manager would
consider the following factors, among others: (1) the frequency of trades and
quotes for the security; (2) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the market (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the transfer);
and (5) other factors which the Investment Manager deems relevant. It is
expected that most Rule 144A securities would not be deemed illiquid under the
nonfundamental policy and would not, therefore, be subject to the new 15%
limitation. By contrast, the restricted securities covered by the current
restriction, other than Rule 144A securities, would generally be considered to
be illiquid and subject to the new 15% limitation.
Recommendation and Required Vote
The Board of Directors recommends a vote FOR the elimination of the
fundamental policy with respect to investment in restricted securities. The
proposal requires the affirmative vote of a "majority" of the Company's
outstanding shares, as defined above in Proposal 3.
STOCKHOLDER PROPOSALS FOR 1998 PROXY STATEMENT
A rule of the SEC provides for a deadline by which stockholders must
submit any proposals to be considered for inclusion in the Company's proxy
statement for next year's annual meeting. Unless you are otherwise notified, the
deadline for receiving stockholders' proposals for that meeting is January 22,
1999.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than those mentioned in this Proxy Statement. The appointed
proxies will vote on any other business that comes before the Annual Meeting or
any adjournments thereof in accordance with their best judgment.
Please complete and sign the enclosed proxy card and return it in the
envelope provided so that the Annual Meeting may be held and action may be taken
on the matters described in this Proxy Statement with the greatest possible
number of shares participating. This will not preclude your voting in person if
you attend the Annual Meeting.
Thomas F. McDonough
May 21, 1998 Secretary
14
PROXY MONTGOMERY STREET INCOME SECURITIES, INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Annual Meeting of Stockholders--July 9, 1998
The undersigned hereby appoints Thomas F. McDonough, Kathryn L. Quirk and
Daniel Pierce, each with the power of substitution, as proxies for the
undersigned, to vote all shares of Montgomery Street Income Securities, Inc.
(the "Company") which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of the Company to be held at the offices of the Company, 101
California Street, Suite 4100, San Francisco, California, on Thursday, July 9,
1998 at 10:00 a.m., pacific time, and at any adjournments thereof.
Unless otherwise specified in the squares provided, the undersigned's vote will
be cast FOR Proposals 1, 2, 3 and 4.
1. The election of five Directors.
Nominees: J.C. Atwater, R.J. Bradshaw, M.K. Moore, W.G. Van Auken, J.C. Van
Horne
FOR ALL NOMINEES |_| WITHHELD FROM ALL NOMINEES |_|
|_|_______________________________________
For all nominees except as noted above
2. Ratification of the selection of
Ernst & Young LLP as the Company's
independent auditors. FOR |_| AGAINST |_| ABSTAIN |_|
3. Approval of the continuance of the
Management and Investment Advisory
Agreement between the Company and
Scudder Kemper. FOR |_| AGAINST |_| ABSTAIN |_|
4. Approval of the elimination of a
fundamental policy with respect to
investment in restricted securities. FOR |_| AGAINST |_| ABSTAIN |_|
In their discretion, the proxies are
authorized to vote upon such other
business as may properly come before
the Annual Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED.
Please sign exactly as your name or names appear hereon.
When signing as attorney, executor, administrator,
trustee or guardian, please give your full title as such.
Signature__________________________________Date_________
Signature__________________________________Date_________