SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under 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 identify 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:
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NOTICE OF
2002
ANNUAL MEETING
OF STOCKHOLDERS
AND
PROXY STATEMENT
[MONTGOMERY LOGO]
MONTGOMERY STREET
INCOME SECURITIES, INC.
MONTGOMERY STREET
INCOME SECURITIES, INC.
101 CALIFORNIA STREET, SUITE 4100
SAN FRANCISCO, CALIFORNIA 94111
(415) 981-8191
July 19, 2002
IMPORTANT NEWS FOR
MONTGOMERY STREET INCOME SECURITIES, INC. STOCKHOLDERS
While we encourage you to read the full text of the enclosed Proxy
Statement, here's a brief overview of some matters affecting the Fund that will
be the subject of a stockholder vote.
Q & A: QUESTIONS AND ANSWERS
Q. WHAT IS HAPPENING?
A. On April 5, 2002, pursuant to a Transaction Agreement between Zurich
Financial Services ("Zurich Financial") and Deutsche Bank AG
("Deutsche Bank"), Deutsche Bank acquired 100% of Zurich Scudder
Investments, Inc. (the "Investment Manager"), the Fund's investment
manager. Because of this transaction (the "Transaction"), the
Investment Manager is now part of Deutsche Asset Management and has
changed its name to Deutsche Investment Management Americas Inc. IN
ORDER FOR THE INVESTMENT MANAGER TO CONTINUE TO SERVE AS INVESTMENT
MANAGER OF THE FUND, THE FUND'S STOCKHOLDERS MUST APPROVE A NEW
MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT.
The enclosed Proxy Statement gives you additional information on Deutsche
Bank and the proposed new management and investment advisory agreement as
well as certain other matters. You are being asked to vote on the new
management and investment advisory agreement for the Fund and the election
of Directors that act on behalf of the Fund. THE BOARD OF DIRECTORS OF THE
FUND, INCLUDING THOSE MEMBERS WHO ARE NOT AFFILIATED WITH THE INVESTMENT
MANAGER OR DEUTSCHE BANK, RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE
NEW MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT AND THE ELECTION OF EACH
OF THE NOMINEES FOR DIRECTOR.
Q. WHY AM I BEING ASKED TO VOTE ON THE PROPOSED NEW MANAGEMENT AND
INVESTMENT ADVISORY AGREEMENT?
A. The Investment Company Act of 1940, which regulates mutual funds in
the United States such as the Fund, requires a stockholder vote to
approve a new investment management agreement whenever there is a
"change in control" of a fund's investment manager. The Transaction
resulted in such a change of control and, therefore, stockholder
approval of a new management and investment advisory agreement with
the Fund is required in order for the Investment Manager to continue
serving as the Fund's investment manager.
The Board of Directors of the Fund has approved an interim agreement with
the Investment Manager to allow the Investment Manager to continue
providing services to the Fund while stockholder approval of the new
management and investment advisory agreement is pending. As required by
applicable law, the interim agreement is scheduled to expire on September
2, 2002, unless terminated sooner.
If stockholders do not approve the new management and investment advisory
agreement, the interim agreement will end and the Board of Directors of
the Fund will take such action as it deems to be in the best interests of
the Fund and its stockholders.
Q. HOW HAS THE TRANSACTION WITH DEUTSCHE BANK AFFECTED ME AS A FUND
STOCKHOLDER?
A. Your investment in the Fund has not changed as a result of the
Transaction. You still own the same shares in the Fund, and the value of
your investment has not changed as a result of the Transaction with
Deutsche Bank. The Fund's new management and investment advisory agreement
will still be with the Investment Manager, except that the Investment
Manager is now a part of Deutsche Bank's investment management
organization and many of the personnel and resources of Deutsche Asset
Management are involved in managing the Fund.
The new management and investment advisory agreement would have a new
management fee schedule that, for assets in excess of $100 million, would
be lower than the management fee schedule under the prior management and
investment advisory agreement, which was in effect immediately prior to
the closing of the Transaction. In addition, the Investment Manager would
be authorized, subject to further Board approval, to appoint certain
affiliates as sub-advisers. The Investment Manager would retain full
responsibility for the actions of any such sub-advisers. Otherwise, the
terms of the new management and investment advisory agreement are
substantially identical to the terms of the management and investment
advisory agreement in effect immediately prior to the closing of the
Transaction.
Q. WILL THE INVESTMENT MANAGEMENT FEE RATE BE THE SAME UPON APPROVAL OF
THE NEW MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT?
A. No, as noted above, the investment management fee rate applicable to the
Fund under the new management and investment advisory agreement would be
lower for assets in excess of $100 million than that under the prior
management and investment advisory agreement. Effective July 1, 2002, the
Investment Manager has voluntarily implemented this lower management fee
schedule for assets in excess of $100 million under the interim agreement.
Q. HOW DOES THE FUND'S BOARD RECOMMEND THAT I VOTE?
A. After careful consideration, the Board of Directors of the Fund, including
those members who are not affiliated with the Investment Manager or
Deutsche Bank, recommends that you vote in favor of the new management and
investment advisory agreement. The reasons for its recommendation are
discussed in more detail in the enclosed Proxy Statement under "Board
Considerations" in Proposal 2.
Q. WILL THE FUND PAY FOR THE PROXY SOLICITATION AND LEGAL COSTS
ASSOCIATED WITH THE TRANSACTION?
A. No, neither you nor the Fund will bear any costs associated with the
Transaction. The Investment Manager has agreed to bear these costs.
Q. HOW CAN I VOTE MY SHARES?
A. You may choose from one of the following options as described in
more detail on the proxy card:
- by mail, using the enclosed proxy card and return envelope; or
- in person at the stockholder meeting.
Q. WHOM SHOULD I CALL FOR ADDITIONAL INFORMATION ABOUT THIS PROXY
STATEMENT?
A. Please call Georgeson Shareholder Communications, the Fund's
information agent, toll free at (866) 214-4433.
[MONTGOMERY LOGO]
MONTGOMERY STREET 101 California Street, Suite 4100
INCOME SECURITIES, INC. San Francisco, California 94111
July 19, 2002
To the Stockholders:
On April 5, 2002, Deutsche Bank AG ("Deutsche Bank") acquired Zurich
Scudder Investments, Inc., the Fund's investment manager (the "Investment
Manager"). Upon closing of this transaction (the "Transaction"), the Investment
Manager became part of Deutsche Asset Management, the marketing name in the
United States for the asset management activities of Deutsche Bank and certain
of its subsidiaries, and changed its name to Deutsche Investment Management
Americas Inc. Because of the Transaction, it is necessary for the stockholders
of the Fund to approve a new management and investment advisory agreement in
order for the Investment Manager to continue serving as investment manager.
Important facts about the Transaction are outlined below:
- The Transaction did not affect the number of shares you own or the
value of those shares.
- The investment management fee rate applicable to the Fund under the
new management and investment advisory agreement would be lower for
assets in excess of $100 million than the fee rate under the prior
management and investment advisory agreement, which was in effect
immediately prior to the closing of the Transaction. Effective July
1, 2002, the Investment Manager has voluntarily implemented this
lower investment management fee rate.
- The Fund's new management and investment advisory agreement would
still be with the Investment Manager, and, except with respect to
the fee rate and as noted below, the terms of the new management and
investment advisory agreement would be substantially identical to
the terms of the management and investment advisory agreement in
effect immediately prior to the closing of the Transaction. The
Investment Manager has been combined with and integrated into
Deutsche Bank's investment management organization, and many of the
personnel and resources of Deutsche Asset Management are now
involved in managing the Fund. Under the new management and
investment advisory agreement, the Investment Manager would be
authorized, subject to further Board approval, to appoint certain
affiliates as sub-advisers. The Investment Manager will retain full
responsibility for the actions of any such sub-advisers.
- The Board of Directors of the Fund, including those who are not
affiliated with the Investment Manager or Deutsche Bank, has
carefully evaluated the Transaction and
recommends you vote in favor of the new management and investment
advisory agreement.
You are also being asked to elect the Directors that act on behalf of the
Fund. In addition, the stockholders present will hear a report on the Fund.
There will be an opportunity to discuss matters of interest to you as a
stockholder.
PLEASE TAKE THE TIME TO READ THE ENCLOSED MATERIALS CAREFULLY.
The question and answer section that begins on the front cover of the
Proxy Statement offers a brief overview of the proposals that require
stockholder approval. The Proxy Statement itself provides greater detail about
the proposals, why they are being made and how they apply to the Fund. THE BOARD
OF DIRECTORS RECOMMENDS THAT YOU 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. If we do not hear from you by August 5,
2002, our proxy solicitor may contact you. Thank you for your response and for
your continued investment with the Fund.
Respectfully,
James C. Van Horne
Chairman of the Board
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 ANNUAL 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 (the "Annual
Meeting") of Montgomery Street Income Securities, Inc. (the "Fund") has been
called to be held at the offices of the Fund, 101 California Street, Suite 4100,
San Francisco, California 94111, on Thursday, August 15, 2002 at 10:00 a.m.,
Pacific time, for the following purposes:
(1) To elect six Directors of the Fund to hold office until the next
Annual Meeting or until their respective successors shall have been duly
elected and qualified.
(2) To approve a new Management and Investment Advisory Agreement
for the Fund with 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 July 12, 2002 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,
July 19, 2002 Maureen E. Kane, Secretary
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND IS INTENDED FOR
YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD MAY SAVE THE
FUND THE NECESSITY OF FURTHER SOLICITATIONS TO ENSURE A QUORUM AT THE ANNUAL
MEETING. IF YOU CAN ATTEND THE ANNUAL MEETING AND WISH TO VOTE YOUR SHARES IN
PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
MONTGOMERY STREET INCOME SECURITIES, INC.
101 CALIFORNIA STREET, SUITE 4100
SAN FRANCISCO, CALIFORNIA 94111
(415)981-8191
PROXY STATEMENT
RECORD DATE: July 12, 2002 MAILING DATE: July 19, 2002
INTRODUCTION
The Board of Directors of Montgomery Street Income Securities, Inc. (the
"Fund") is soliciting proxies for use at the Annual Meeting of Stockholders (the
"Annual Meeting"). The Annual Meeting will be held at the offices of the Fund,
101 California Street, Suite 4100, San Francisco, California 94111, on Thursday,
August 15, 2002 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. In addition, the Fund may request personnel of Deutsche Investment
Management Americas Inc. (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 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.
Georgeson Shareholder Communications, Inc. ("Georgeson"), 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 $9,000, plus expenses. The costs
and expenses connected with the solicitation of proxies will be borne by the
Investment Manager. As the Annual Meeting date approaches, certain stockholders
of the Fund may receive a telephone call from a representative of Georgeson if
their votes have not yet been received.
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:
- written notice to the Fund, c/o Scudder Investments Service Company,
P.O. Box 219153, Kansas City, MO 64121-9153, Attn: Manager, Proxy
Department;
- written notice to the Fund at the address set forth under the above
letterhead;
- giving a later proxy; or
- 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. Abstentions, withheld votes and broker
non-votes will not be counted in favor of, but will have no other effect on, the
vote for Proposal 1. Abstentions will have the effect of a "no" vote on Proposal
2. Broker non-votes will have the effect of a "no" vote on Proposal 2 if such
vote is determined on the basis of obtaining the affirmative vote of more than
50% of the outstanding shares of the Fund. Broker non-votes will not constitute
"yes" or "no" votes for Proposal 2 and will be disregarded in determining the
voting securities "present" if such vote is determined on the basis of the
affirmative vote of 67% of the voting securities of the Fund present at the
Annual Meeting. Broker non-votes are not likely to be relevant to the Annual
Meeting because the Fund has been advised by the New York Stock Exchange that
each of the Proposals to be voted upon by the stockholders involves matters that
the New York Stock Exchange considers to be routine and within the discretion of
brokers to vote if no customer instructions are 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 July 12, 2002 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 Fund, constituting all of the Fund's then outstanding
securities. Each share of common stock is entitled to one vote. As of May 31,
2002, each Director and the President beneficially owned shares of the Fund's
common stock as set forth below. As of such date, as a group, the Directors and
officers (13 in number) beneficially owned 39,073 shares or 0.38% of the
shares of the Fund. The total for the group includes 35,908 shares held with
sole investment and voting power and 3,165 shares held with shared investment
and voting power.
2
AGGREGATE DOLLAR
DOLLAR RANGE RANGE OF EQUITY AMOUNT OF
OF EQUITY SECURITIES IN ALL SECURITIES
SECURITIES IN FUNDS OVERSEEN IN OWNED IN THE
POSITION THE FUND(1) FUND COMPLEX FUND
-------- ----------- ------------ ----
INDEPENDENT DIRECTORS
- --------------------
James C. Van Horne Chairman of the $10,001-$50,000 $10,001-$50,000 2,500
Board and
Director
John C. Atwater Director Over $100,000 Over $100,000 7,100
Richard J. Bradshaw(2) Director $50,001-$100,000 $50,001-$100,000 3,165
Maryellie K. Johnson Director Over $100,000 Over $100,000 11,360
John T. Packard Director $1-$10,000 Over $100,000 500
Wendell G. Van Auken Director Over $100,000 Over $100,000 13,448
INTERESTED DIRECTOR(3)
- ----------------------
Richard T. Hale President $10,001-$50,000 Over $100,000 1,000
- -------------------
(1) The information as to beneficial ownership is based on statements
furnished to the Fund by each person named. Unless otherwise indicated,
each person has sole voting and investment power over the shares reported.
(2) Shared investment and voting power over the shares reported.
(3) Mr. Packard may be considered an "interested person" of the Fund, as
defined in the 1940 Act, by reason of his past relationships with the Fund
and the Investment Manager.
To the best of the Fund's knowledge, as of May 31, 2002, 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, and
Section 30(h) of the Investment Company Act of 1940, as amended (the "1940
Act"), as applied to a closed - end fund, require a fund's officers and
directors, investment manager, affiliates of the investment manager, and persons
who beneficially own more than ten percent of a registered class of the fund's
outstanding securities ("reporting persons"), to file reports of ownership of
the fund's securities and changes in such ownership with the Securities and
Exchange Commission (the "SEC") and any exchange on which the fund's securities
are traded. Such persons are required by SEC regulations to furnish the fund
with copies of all such reports.
Based on a review of reports filed by the Fund's Directors and officers,
the Investment Manager, officers and directors of the Investment Manager,
affiliated persons of the Investment Manager and beneficial holders of ten
percent or more of the Fund's outstanding shares, 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 Securities and Exchange Act of 1934
for the
3
fiscal year ended December 31, 2001, were timely, except that Martin D.
Feinstein, formerly a director of Zurich Scudder Investments, Inc., filed a Form
3 late, and Scudder Investments Marketing Services, Inc. filed a Form 3 late and
failed to file a Form 5 with respect to such late filing.
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, 2001, WITHOUT CHARGE, BY CALLING 1-800-349-4281 OR
1-800-294-4366 OR WRITING THE FUND AT 101 CALIFORNIA STREET, SUITE 4100, SAN
FRANCISCO, CA 94111.
PROPOSAL 1 -- ELECTION OF DIRECTORS
Six Directors are to be elected at the Annual Meeting as the Directors of
the Fund. They are to be elected to hold office until the next annual meeting or
until their successors are elected and qualified. The persons named on the
accompanying proxy card, if granted authority to vote in the election of
Directors, intend to vote at the Annual Meeting for the election of the nominees
named below as the six Directors of the Fund. In the unanticipated event that
any nominee for Director cannot be a candidate at the Annual Meeting, the
appointed proxies will vote their proxy in favor of the remainder of the
nominees and, in addition, in favor of such substitute nominee(s) (if any) as
the Board of Directors shall designate. Alternatively, the proxies may vote in
favor of a resolution reducing the number of Directors to be elected at the
Annual Meeting. Each of the nominees is now a Director of the Fund and each was
elected to serve as a Director at the 2001 Annual Meeting of Stockholders. All
nominees have consented to be nominated and to serve if elected.
The Board of Directors considers possible candidates to fill vacancies on
the Board of Directors, reviews the qualifications of candidates recommended by
stockholders and others, recommends the slate of Director candidates to be
proposed for election by stockholders at the annual meeting, and sets policies
regarding retirement from the Board of Directors. Stockholders wishing to
recommend any Director candidate should submit in writing a brief description of
the candidate's business experience and other information relevant to the
candidate's qualifications to serve as a Director. In order to be considered at
the 2003 annual meeting, submission should be made within a reasonable time
before the solicitation of proxies for such meeting.
INFORMATION CONCERNING NOMINEES
The following table sets forth certain information concerning each of the
nominees as a Director of the Fund. Unless otherwise noted, (i) each of the
nominees has engaged in the principal occupation(s) noted in the following table
for at least the most recent five years, although not necessarily in the same
capacity, and (ii) the address of each nominee is c/o Deutsche Asset Management,
101 California Street, Suite 4100, San Francisco, CA 94111.
4
YEAR
FIRST
BECAME
PRINCIPAL OCCUPATION OR EMPLOYMENT A
NOMINEE (AGE) AND DIRECTORSHIPS IN PUBLICLY HELD COMPANIES DIRECTOR
- ------------- -------------------------------------------- --------
INDEPENDENT DIRECTORS
---------------------
JOHN C. Mr. Atwater is President of Prime Property 1994
ATWATER (41) Capital, Inc. (real estate investment firm).
RICHARD J. Mr. Bradshaw is the Executive Director of 1991
BRADSHAW (54) Cooley Godward LLP (law firm).
MARYELLIE K. Ms. Johnson is a private investor. From 1989 1989
JOHNSON (66) to 1998, she was a Director of London and
Overseas Freighters, Ltd. (oil tanker
operator).
WENDELL G. Mr. Van Auken is a General Partner of several 1994
VAN AUKEN (57) venture capital funds affiliated with
Mayfield 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 1985
HORNE (66) of 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 Suntron Corp. (electronic
manufacturing services), and Bailard, Biehl
& Kaiser Opportunity Fund Group, Inc. and as a
Trustee of the Bailard, Biehl & Kaiser Fund
Group (both registered investment companies).
INTERESTED DIRECTOR(1)
----------------------
JOHN T. Mr. Packard has been Managing Director of 2001
PACKARD (68) Weiss, Peck & Greer, LLC (investment adviser
and broker-dealer) since January 2002 and
was an Advisory Managing Director of the same
firm from February 2000 to January 2002. From
1985 to 1998, he was a Managing Director,
and from 1999 to 2000, he was an Advisory
Managing Director, of the Investment Manager,
serving as the President of the Fund from 1988
to February 2000.
- -------------------
(1) Mr. Packard may be considered an "interested person" of the Fund, as
defined in the 1940 Act, by reason of his past relationships with the Fund
and the Investment Manager.
5
Each Director serves as a board member of one investment company, with one
portfolio, managed by the Investment Manager.
The primary responsibility of the Board of Directors is to represent the
interests of the stockholders of the Fund and to provide oversight of the
management of the Fund. The slate of nominees proposed for election as Directors
of the Fund is composed of one individual (the "Interested Director") who is
considered an "interested person" of the Fund within the meaning of the 1940 Act
(an "Interested Person"), and five individuals (the "Independent Directors") who
are not considered Interested Persons. A majority of the board members of a
registered investment company must not be Interested Persons for the company to
take advantage of certain exemptive rules under the 1940 Act. If the nominees
proposed for election as Directors of the Fund are elected, 83% of the Board of
Directors will be composed of Independent Directors. As required by the SEC's
rules, each of the nominees who will be considered an Independent Director, if
elected, was selected and nominated solely by the current Independent Directors
of the Fund.
BOARD AND COMMITTEE MEETINGS
The Board of Directors has an Executive Committee, a Valuation Committee
and an Audit Committee. In 2001, the Board of Directors held four meetings, and
the Audit Committee held two meetings. The Executive Committee and Valuation
Committee did not meet in 2001. 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 2001.
EXECUTIVE COMMITTEE
The Executive Committee is authorized to exercise all powers of the Board
of Directors permitted to be exercised under the Maryland General Corporation
Law. The Committee is composed of three Independent Directors (Messrs. Van
Horne, Atwater and Bradshaw).
VALUATION COMMITTEE
The Valuation Committee is delegated the power and duty to determine the
value of the portfolio assets of the Fund as needed pursuant to the valuation
policies adopted by the Board of Directors and performs such other tasks as the
full Board of Directors deems necessary. The Committee is composed of three
Independent Directors (Ms. Johnson and Messrs. Van Auken and Van Horne).
AUDIT COMMITTEE
The Audit Committee oversees the accounting and financial reporting
policies and practices of the Fund, its internal controls and, as appropriate,
the internal controls of certain service providers to the Fund. The Audit
Committee also oversees the quality and objectivity of the Fund's financial
statements and the independent audit thereof and acts as a liaison between the
Fund's independent auditors and the full Board of Directors.
6
The Audit Committee is composed of three Independent Directors (Messrs.
Van Auken, Atwater and Bradshaw). In accordance with the New York Stock Exchange
listing standards, none of the Committee members has a relationship with the
Fund that may interfere with the exercise of his independence from management
and the Fund, and each Committee member meets the independence requirements of
the New York Stock Exchange listing standards. The Audit Committee is governed
by a written charter adopted by the Board of Directors (a copy of which is
attached hereto as Appendix 1), that sets forth in greater detail the
Committee's purposes, duties and powers.
AUDIT COMMITTEE REPORT
At a special meeting of the Audit Committee held on February 20, 2002, the
Committee reviewed the Fund's audited financial statements and discussed the
financial statements with the Investment Manager and the independent auditors.
The Committee discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees). In addition, the Committee discussed with the independent auditors
the auditors' independence from management and reviewed the written disclosures
and letter required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees) which had been previously provided. Based on
those reviews and discussions, the Committee recommended to the Board of
Directors that the audited financial statements be included in the Fund's annual
report to stockholders for the 2001 fiscal year.
The Audit Committee:
Wendell G. Van Auken, Chair
John C. Atwater
Richard J. Bradshaw
INDEPENDENT AUDITORS
At a meeting held on April 12, 2002, the Independent Directors and the
full Board of Directors, voting separately, unanimously selected Ernst & Young
LLP ("E&Y") as the Fund's independent auditors, for the fiscal year ending
December 31, 2002, to examine the Fund's books and accounts and to certify the
Fund's financial statements. The Fund's financial statements for the fiscal year
ended December 31, 2001 were audited by E&Y. The following table sets forth the
aggregate fees billed for professional services rendered by E&Y:
FINANCIAL INFORMATION
SYSTEMS DESIGN AND
AUDIT FEES(1) IMPLEMENTATION FEES(2) ALL OTHER FEES(2)
------------- ---------------------- -----------------
$60,000 $0 $5,068,622
- -------------------
(1) The fees disclosed under the caption "Audit Fees" are the aggregate fees
for professional services rendered for the audit of the Fund for the most
recent fiscal year. E&Y also serves
7
as the independent auditor for other funds advised by the Investment
Manager, and receives audit and other fees for services performed for those
funds.
(2) The fees disclosed under the captions "Financial Information Systems
Design and Implementation Fees" and "All Other Fees" include fees billed for
services rendered, if any, for the most recent fiscal year to the Fund, the
Investment Manager and all entities controlling, controlled by, or under
common control with the Investment Manager that provide services to the
Fund.
The Fund's Audit Committee gave careful consideration to the non - audit
related services provided by E&Y to the Fund, the Investment Manager and
entities controlling, controlled by or under common control with the Investment
Manager that provide services to the Fund, and, based in part on certain
representations and information provided by E&Y, determined that the provision
of these services was compatible with maintaining E&Y's independence.
Representatives of E&Y are not expected to be present at the Annual
Meeting, but will be available by telephone to respond to appropriate questions
posed by stockholders or management and to make a statement if they desire to do
so.
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 Deutsche Asset Management, 101
California Street, Suite 4100, San Francisco, CA 94111.
YEAR FIRST
PRESENT OFFICE WITH THE FUND; BECAME AN
NAME (AGE) PRINCIPAL OCCUPATION OR EMPLOYMENT(1) OFFICER(2)
---------- ------------------------------------- ----------
Richard T. Hale (57) President; Managing Director, 2002
Deutsche Asset Management.
Gary Bartlett (42) Vice President; Director, 2002
Deutsche Asset Management.
J. Christopher Vice President; Director, 2002
Gagnier (44) Deutsche Asset Management.
Judith A. Hannaway Vice President; Managing 2001
(49) Director, Deutsche Asset
Management.
Maureen E. Kane (40) Vice President and Secretary; 1999
Vice President, Deutsche Asset
Management (1997 to present);
prior thereto, Assistant Vice
President of State Street Bank
and Trust Company; Associate
Staff Attorney of FMR Corp.
8
Gary L. French (51) Treasurer; Managing Director, 2002
Deutsche Asset Management (2001
to present); prior thereto,
President, UAM Fund Services, Inc.
John R. Hebble (43) Assistant Treasurer; Senior Vice 1998
President of Deutsche Asset
Management.
- -------------------
(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 are also officers or directors of other
funds advised by the Investment Manager. Messrs. Bartlett, Gagnier and
Hale own securities of Deutsche Bank AG.
(2) All Officers are appointed annually by, and serve at the discretion of,
the Board of Directors.
REMUNERATION OF DIRECTORS AND OFFICERS
Each Director receives remuneration from the Fund for his or her services.
The Fund does not compensate its Officers or employees, since the Investment
Manager makes these individuals available to the Fund to serve without
compensation from the Fund. Remuneration to Directors consists of Directors'
fees composed in each case of a quarterly retainer of $2,000 (except the
Chairman of the Board, whose quarterly retainer is $6,000) and a fee of $500 for
each Board meeting attended and $250 for each committee meeting attended, as
well as any related expenses. For the fiscal year ended December 31, 2001, total
compensation (including reimbursement of expenses) for all Directors as a group
was $75,534.
The Compensation Table below provides the following data:
Column (1) Each Director who receives 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,
the Investment Manager and from all other funds advised by
the Investment Manager. No member of the Board serves as a
Director or Trustee for any other fund in the complex of
funds advised by the Investment Manager nor does any Director
receive any pension or retirement benefits from the Fund.
9
COMPENSATION TABLE
for the fiscal year ended December 31, 2001
- --------------------------------------------------------------------------------
(1) (2) (3)
- --------------------------------------------------------------------------------
TOTAL
COMPENSATION
FROM THE FUND
AND FUND
AGGREGATE COMPLEX
NAME OF PERSON, COMPENSATION PAID TO
POSITION FROM THE FUND DIRECTOR
- --------------------------------------------------------------------------------
John C. Atwater $10,000 $10,000
Director
Richard J. Bradshaw $10,500 $10,500
Director
Maryellie K. Johnson $10,000 $10,000
Director
John T. Packard $ 8,000 $ 8,000
Director
Wendell G. Van Auken $10,250 $10,250
Director
James C. Van Horne $26,000 $26,000
Chairman
- --------------------------------------------------------------------------------
RECOMMENDATION AND REQUIRED VOTE
The Board of Directors recommends a vote FOR election of each of the
nominees for Director. Election of the nominees for Director requires the
affirmative vote of a plurality of the votes cast in person or by proxy at the
Annual Meeting.
PROPOSAL 2 - APPROVAL OF A NEW MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT FOR
THE FUND WITH DEUTSCHE INVESTMENT MANAGEMENT AMERICAS INC.
INTRODUCTION
Prior to April 5, 2002, the Investment Manager acted as investment adviser
to and manager for the Fund pursuant to a Management and Investment Advisory
Agreement dated September 7, 1998 (the "Prior Agreement"). On April 5, 2002, the
Investment Manager was acquired by Deutsche Bank AG ("Deutsche Bank"). Effective
as of the closing of this transaction (the "Transaction"), the Investment
Manager became a part of Deutsche Asset Management and changed its name to
Deutsche Investment Management Americas Inc. The Transaction resulted in an
"assignment," as that term is defined in the 1940 Act, of the Prior Agreement.
As required by the 1940 Act, the Prior Agreement provided for its automatic
10
termination in the event of its assignment and, accordingly, the Prior Agreement
terminated on April 5, 2002.
In anticipation of the Transaction and the consequent termination of the
Prior Agreement, the Board of Directors of the Fund approved an interim
management and investment advisory agreement between the Fund and the Investment
Manager (the "Interim Agreement") for a maximum of 150 days following the
closing of the Transaction in order to permit the Investment Manager to provide
services to the Fund while stockholder approval of a new management and
investment advisory agreement was pending. Consequently, the Investment Manager
is currently providing services to the Fund pursuant to the Interim Agreement.
The terms of the Interim Agreement are substantially identical to the terms of
the Prior Agreement, except for certain special provisions required by Rule
15a-4 under the 1940 Act for the Interim Agreement, including: a maximum term of
150 days; a provision that the Board of Directors or holders of a majority of
the Fund's outstanding shares may terminate the Interim Agreement at any time
without penalty on not more than 10 days' written notice; and a provision
requiring any compensation earned under the Interim Agreement to be held in an
interest-bearing escrow account until stockholder approval of a new management
and investment advisory agreement with the Investment Manager, after which
approval the amount in the escrow account (together with any interest) would be
paid to the Investment Manager. Moreover, effective July 1, 2002, the Investment
Manager voluntarily implemented the same lower fee rate schedule for assets in
excess of $100 million that would be in effect under the New Agreement (as
defined below) upon stockholder approval.
Accordingly, the Interim Agreement is scheduled to expire on September 2,
2002, unless earlier terminated as described above. The Interim Agreement
provides that any management and advisory fees earned by the Investment Manager
under the Interim Agreement will be held in an interest-bearing escrow account
and be paid upon approval of a new management and investment advisory agreement
with the Investment Manager (the "New Agreement") by stockholders of the Fund.
If stockholders do not vote to approve the New Agreement, the Investment Manager
will be paid, out of the escrow account, the lesser of (a) any costs incurred in
performing its duties under the Interim Agreement (plus interest earned on that
amount while in escrow), or (b) the total amount in the escrow account (plus
interest earned). If the New Agreement is not approved, the Board of Directors
will take such action as it deems to be in the best interests of the Fund and
its stockholders.
The form of the New Agreement is attached hereto as Exhibit A. THE TERMS
OF THE NEW AGREEMENT ARE SUBSTANTIALLY IDENTICAL TO THE TERMS OF THE PRIOR
AGREEMENT, EXCEPT THAT, UNDER THE NEW AGREEMENT, THE FEE RATE SCHEDULE FOR
ASSETS IN EXCESS OF $100 MILLION WOULD BE LOWER AND THE INVESTMENT MANAGER WOULD
BE AUTHORIZED, SUBJECT TO FURTHER BOARD APPROVAL, TO APPOINT CERTAIN AFFILIATES
AS SUB-ADVISERS. THESE DIFFERENCES ARE DESCRIBED UNDER "DIFFERENCES BETWEEN THE
PRIOR AND NEW AGREEMENTS" BELOW. The material terms of the Prior Agreement are
described under "Description of the Prior Agreement" below.
The information set forth in this Proxy Statement and any accompanying
materials concerning the Transaction, the Transaction Agreement, Zurich
Financial Services ("Zurich Financial"), Deutsche Bank, the Investment Manager
and their respective affiliates has been provided to the Fund by Zurich
Financial, Deutsche Bank and the Investment Manager.
11
BOARD APPROVAL AND RECOMMENDATION
On June 28, 2002, the Board of Directors, including the Independent
Directors, voted to approve the New Agreement and to recommend its approval to
stockholders.
For information about the Board's deliberations and the reasons for its
recommendation, please see "Board Considerations" below.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THE
APPROVAL OF THE NEW AGREEMENT.
INFORMATION CONCERNING THE TRANSACTION AND DEUTSCHE BANK
Description of the Transaction. On December 3, 2001, the then majority
owners of the Investment Manager entered into a Transaction Agreement with
Deutsche Bank. Pursuant to the Transaction Agreement, on April 5, 2002, Deutsche
Bank acquired 100% of the Investment Manager, not including certain U.K.
operations (known as Threadneedle Investments), for approximately $2.5 billion.
On the same date, the Investment Manager became part of Deutsche Asset
Management and changed its name to Deutsche Investment Management Americas Inc.
The Transaction was comprised of three steps:
- First, in a merger pursuant to a separate merger agreement (the
"Merger Agreement"), the Zurich Financial entities that formerly
owned approximately 82% of the Investment Manager's common stock
acquired the approximately 18% of the Investment Manager's common
stock owned by the Investment Manager's employee and retired
employee stockholders. The employee and retired employee
stockholders received cash for their shares, and the Security
Holders Agreement among the current Investment Manager stockholders
terminated. As of the date of the Transaction, Director John Packard
held 20,494.277 shares of Zurich Scudder Investments, Inc.'s Class A
stock.
- Second, the Investment Manager transferred its ownership interest in
Threadneedle Investments to the Zurich Financial entities that at
that point owned 100% of the Investment Manager's common stock. As a
result, Threadneedle Investments was no longer a part of the
Investment Manager.
- Finally, the Zurich Financial entities sold 100% of the common stock
of the Investment Manager to Deutsche Bank for $2.5 billion, subject
to certain adjustments.
In connection with the Transaction, Zurich Financial also acquired
Deutsche Bank's European insurance businesses for EUR 1.5 billion; Deutsche Bank
acquired Zurich Financial's German and Italian asset management businesses in
exchange for a financial agent network and a real estate and mutual fund
consulting business owned by Deutsche Bank; and Deutsche Bank and Zurich
Financial entered into a broad strategic cooperation agreement. Additional
information about Deutsche Bank is provided below under "Deutsche Bank."
As discussed in the "Introduction" above, under the 1940 Act, the
Transaction caused all then current investment management agreements with
registered funds managed by the
12
Investment Manager, including the Prior Agreement with the Fund, to terminate
automatically. Client consents also have been required for the continuation of
other advisory agreements with the Investment Manager.
Under the Transaction Agreement and the Merger Agreement, the Investment
Manager and its former majority owners agreed that they would, and would cause
each of the Investment Manager's subsidiaries engaged in the investment
management business to, use their reasonable best efforts to ensure the
satisfaction of the conditions set forth in Section 15(f) of the 1940 Act, as
discussed under "Board Considerations," below.
Deutsche Bank. Deutsche Bank, Aktiengesellschaft, 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 in the United States for the asset management services of
several Deutsche Bank entities that are separately incorporated and registered
as investment advisers, including the Investment Manager. As of May 1, 2002,
Deutsche Asset Management had more than $800 billion in assets under management.
The Investment Manager is, and will for the immediate future remain, a
separate entity within the Deutsche Asset Management group. Deutsche Bank has
guaranteed the obligations of each of its subsidiaries that has a contractual
relationship with the Fund, which include the Investment Manager.
THE INVESTMENT MANAGER
Deutsche Investment Management Americas Inc., located at 345 Park Avenue,
New York, New York 10154, is one of the largest and most experienced investment
management firms in the United States. Formerly known as Zurich Scudder
Investments, Inc., it was established as a partnership in 1919 and restructured
as a Delaware corporation in 1985. Its first fund was launched in 1928. As of
May 1, 2002, the Investment Manager had approximately $328 billion in assets
under management. The principal source of the Investment Manager's income is
professional fees received from providing continuing investment advice. The
Investment Manager provides investment counsel for many individuals and
institutions, including insurance companies, endowments, industrial corporations
and financial and banking organizations.
Since the closing of the Transaction, 100% of the voting securities of the
Investment Manager has been held by Deutsche Bank.
The principal business address of each director and principal executive
officer, as it relates to his or her duties at the Investment Manager, is 345
Park Avenue, New York, New York
13
10154. The names and principal occupations of the directors and principal
executive officers of the Investment Manager are shown below.
POSITION WITH THE INVESTMENT
NAME MANAGER AND PRINCIPAL OCCUPATION
Thomas Hughes Director and President
Dean S. Barr Director and Chief Investment
Officer
Deborah A. Flickinger Director and Chief of Staff
Phillip Freiherr von Girsewald Director
William N. Shiebler Director and Chief Executive
Officer
Betty Welchel Chief Legal Officer
William G. Butterly III Secretary
The names and principal occupations of the Officers of the Fund who are
associated with the Investment Manager are listed under "Officers of the Fund"
in Proposal 1.
Exhibit B sets forth (as of each fund's last fiscal year end) the fees and
other information regarding investment companies advised by the Investment
Manager that have similar investment objectives to the Fund.
INVESTMENT AND BROKERAGE DISCRETION
The Investment Manager places orders for portfolio transactions with
issuers, 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. When consistent with
this policy, the Investment Manager may place such transactions with brokers and
dealers that sell shares of funds advised by the Investment Manager and is
authorized to place brokerage with brokers and dealers who supply brokerage and
research services to the Investment Manager or the Fund. The term "research
services" includes advice as to the value of securities; the advisability of
investing in, purchasing or selling securities; the availability of securities
or purchasers or sellers of securities; and analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. The Investment Manager is authorized when
placing portfolio transactions for equity securities to pay a brokerage
commission (to the extent applicable) in excess of that which another broker
might charge for executing the same transaction because of the receipt of
research services. The placement of portfolio transactions is supervised by the
Investment Manager.
14
For the fiscal year ended December 31, 2001, 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; nor has
the Fund paid any brokerage commissions to an "affiliated broker" during the
interim period ended May 31, 2002.
BOARD CONSIDERATIONS
On September 23, 2001, Zurich Financial and Deutsche Bank entered into a
preliminary agreement whereby Deutsche Bank agreed, subject to a number of
conditions (including the execution of a definitive transaction agreement), to
acquire the Investment Manager (except for certain of its U.K. operations) from
Zurich Financial. At its regular meeting on October 12, 2001, the Board of
Directors of the Fund met with representatives of the Investment Manager to
discuss the general terms and timing of the Transaction, the background and
plans of Deutsche Bank, the key employees of the combined organization, Deutsche
Bank's fixed income business and the Investment Manager's views on the
Transaction.
The definitive transaction agreement between Zurich Financial and Deutsche
Bank was executed on December 3, 2001. The Board of Directors met again with
representatives of the Investment Manager at its regular meeting on December 14,
2001 to receive an update on the Transaction and to discuss in more detail the
integration process and the potential effects of the Transaction on the Fund and
its stockholders. In the course of its review of the Transaction, both before
and after the December 3 meeting, the Board of Directors requested and reviewed
substantial written information from the Investment Manager regarding the
management and financial position of Deutsche Bank and Deutsche Asset
Management; the history of Deutsche Bank's business and operations, including
its compliance history and the history of its recent acquisitions; Deutsche
Asset Management's U.S. fund operations, including the investment performance of
funds advised by Deutsche Asset Management; the proposed structure and
operations of the combined organization after the Transaction; Deutsche Bank's
strategic and financial goals following the Transaction; the terms of the
Transaction; the future plans of Deutsche Bank with respect to the Investment
Manager and its affiliated entities; and the specific impact of the Transaction
on the Fund.
Late in February 2002, the Board of Directors was advised that Deutsche
Bank proposed, as part of a restructuring of the Investment Manager's
operations, to replace the portfolio management team and President of the Fund.
As a result of these changes, the Board of Directors determined to employ Callan
Associates ("Callan") as an independent consultant to perform a comparative
analysis of alternative investment managers for the Fund. The Board of Directors
also established a special Advisory Review Committee, consisting of each of the
Independent Directors, to oversee and review Callan's work and to recommend a
course of action to the Board of Directors. The Board of Directors and the
Advisory Review Committee were assisted throughout this process by the Fund's
independent legal counsel.
On April 4, 2002, the day prior to the closing of the Transaction, the
Board of Directors convened a special meeting to consider the approval of an
interim management and investment advisory agreement to preserve the status quo
pending the completion of the Advisory Review Committee's evaluation and the
presentation of a new management and advisory agreement to the stockholders. The
meeting was attended by the Chief Operating Officer of Deutsche Bank's
15
U.S. mutual fund business, who provided a further update on the Transaction, and
by one of the new lead portfolio managers for the Fund, who gave an extensive
presentation on the experience and the investment strategy and processes of the
new portfolio management team. At the April 4 meeting, the Board of Directors
approved the Interim Agreement. In connection with its deliberations, the Board
of Directors obtained certain assurances from Deutsche Bank, including the
following:
- Deutsche Bank had provided the Board of Directors with such
information as was reasonably necessary to evaluate the Interim
Agreement and any new management and investment advisory agreement
with the Investment Manager.
- Deutsche Bank considered the Investment Manager a core part of its
global asset management strategy. Deutsche Bank would devote to the
Investment Manager the attention and resources designed to provide
for the Fund top quality investment management, shareholder,
administrative and product distribution services.
- The Transaction was not expected to result in any adverse change in
the investment management or operations of the Fund, and Deutsche
Bank did not anticipate making any material change in the manner in
which investment advisory services or other services were rendered
to the Fund.
- Deutsche Bank was committed to the continuance, without
interruption, of services to the Fund of at least the type and
quality currently provided by the Investment Manager and its
affiliates, or superior thereto.
- In order to retain and attract key personnel, Deutsche Bank intended
to maintain overall compensation and performance incentive policies
at market levels or better.
- Deutsche Bank agreed to indemnify the Fund and its Directors against
any liability or expense based upon any misstatements or omissions
by Deutsche Bank to the Directors or stockholders of the Fund in
connection with their consideration of the Transaction.
- Deutsche Bank would promptly advise the Board of Directors of
decisions materially affecting the Deutsche Bank organization as
they related to the Fund. Deutsche Bank represented to the Board of
Directors that neither this, nor any of the other above commitments,
would be altered by Deutsche Bank without the Board's prior
consideration.
Deutsche Bank also assured the Board of Directors that it would comply
with Section 15(f) of the 1940 Act. Section 15(f) provides a non-exclusive safe
harbor for an investment adviser to an investment company or any of its
affiliated persons to receive any amount or benefit in connection with a change
in control of the investment adviser so long as two conditions are met. First,
for a period of three years after the transaction, at least 75% of the board
members of the investment company must not be "interested persons," as defined
in the 1940 Act, of such investment adviser. The composition of the Board is in
compliance with this provision of Section 15(f).
16
Second, an "unfair burden" must not be imposed upon the investment company
as a result of such transaction or any express or implied terms, conditions or
understandings applicable thereto. The term "unfair burden" is defined in
Section 15(f) to include any arrangement during the two-year period after the
transaction, whereby the investment adviser, or any interested person of such
adviser, receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its shareholders (other than fees for
bona fide investment advisory or other services) or from any person in
connection with the purchase or sale of securities or other property to, from or
on behalf of the investment company (other than bona fide ordinary compensation
as principal underwriter for such investment company).
Deutsche Bank is not aware of any express or implied term, condition,
arrangement or understanding that would impose an "unfair burden" on the Fund as
a result of the Transaction. Deutsche Bank has agreed that neither it, nor any
of its affiliates, will take any action that would have the effect of imposing
an "unfair burden" on the Fund as a result of the Transaction. In furtherance
thereof, Deutsche Bank and the Investment Manager have undertaken to pay the
costs of preparing and distributing proxy materials to, and of holding the
Annual Meeting of, the Fund's stockholders, as well as other fees and expenses
incurred by the Fund in connection with the Transaction, including the fees and
expenses of legal counsel to the Fund.
In addition, Deutsche Bank represented that it expected the management
team and personnel then providing marketing, shareholder servicing, investment
operations, accounting and administration services to the Fund, and the systems
then used by them to support these functions, to remain largely in place.
On April 12, 2002, in connection with its regular annual review of the
Fund's management and investment advisory 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 the Fund's investment performance, advisory fees and
other expenses. The Board of Directors also received a separate quantitative
analysis from Gifford Fong Associates, an independent consultant regularly
engaged by the Board of Directors on an annual basis to assist the Board in
evaluating the investment performance of the Fund.
The Advisory Review Committee met with Callan on April 16, May 6 and May
22, 2002, to consider the progress and results of Callan's analysis. In the
course of these meetings, the Committee reviewed Callan's written report on five
potential adviser candidates (including the Investment Manager), and interviewed
two of the candidates (other than the Investment Manager). The Committee also
received a proposal from the Investment Manager to lower its advisory fees on
net assets of the Fund in excess of $100 million, effective July 1, 2002. At the
conclusion of this process, the Committee determined to recommend that the
Investment Manager be retained as the adviser to the Fund.
At its regular meeting on June 28, 2002, the Board of Directors, including
the Independent Directors, met in person to consider the approval of the New
Agreement. In its deliberations, the Board of Directors took into account a
number of factors. Among those factors were: the long-term investment record of
the Investment Manager in advising the Fund; the experience and research
capabilities of the Investment Manager in fixed-income instruments,
17
including mortgage-related securities and private placements; the relatively low
expenses and expense ratio of the Fund; the Investment Manager's access to
quality service providers at reasonable cost due to the size of its assets under
the management; the quality of the administrative services to the Fund; the
experience of the Investment Manager in administering other open- and closed-end
funds; the availability and responsiveness of the Investment Manager and its
attention to internal controls and procedures; the extent and quality of
information provided to the Board of Directors and stockholders; the continuity
in the Fund's administrative personnel; the financial resources of the
Investment Manager and its ability to retain capable personnel; the Investment
Manager's financial condition, profitability and assets under management; the
provision of transfer agency and related services to the Fund by an affiliate of
the Investment Manager; possible indirect benefits to the Investment Manager
from serving as the investment manager of the Fund; the effects of Transaction
and the related changes to the investment and management personnel of the Fund;
the assurances of Deutsche Bank; Callan's analysis and the Advisory Review
Committee's review of alternative investment manager candidates; and the
recommendation of the Advisory Review Committee.
In addition, in considering the approval of the New Agreement, the Board
of Directors reviewed the changes proposed to the terms of the New Agreement as
described below under "Differences Between the Prior and New Agreements." In
this connection, the Board of Directors noted that the Investment Manager had
agreed to lower its advisory fees on net assets of the Fund in excess of $100
million under the New Agreement which would become effective upon stockholder
approval, and that the Investment Manager had agreed to voluntarily implement
the lower management fee schedule effective July 1, 2002. The Board of Directors
also noted the potential benefit to the Fund of allowing the Investment Manager
to appoint its affiliates as sub-advisers of the Fund, to the extent legally
permissible and subject to prior Board approval, without incurring the expense
of obtaining further stockholder approval.
As a result of its review and consideration of the Transaction and the New
Agreement, at its meeting on June 28, 2002, the Board of Directors, including
the Independent Directors of the Fund, voted to approve the New Agreement and to
recommend it to the Fund's stockholders for their approval.
DESCRIPTION OF THE PRIOR AGREEMENT
General. The Prior Agreement was dated September 7, 1998 and was last
approved by the Board of Directors on April 13, 2001 and by the stockholders of
the Fund on July 12, 2001. As discussed above, the Prior Agreement automatically
terminated upon the closing of the Transaction. The Board of Directors has
approved the Interim Agreement pending approval of a new management and
investment advisory agreement by the stockholders. The Interim Agreement is
described under "Introduction" above.
Services Provided. The Prior Agreement required the Investment Manager to
provide management and investment advisory services to the Fund. It required the
Investment Manager to provide statistical and research facilities and services,
to supervise the composition of the Fund's portfolio, to determine the nature
and timing of changes therein and the manner of effectuating such changes and to
cause the purchase and sale of portfolio securities, subject to overall
supervision by the Fund's Board of Directors. In addition to providing
management and
18
investment advisory services, the Investment Manager paid 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 Prior Agreement required the Investment
Manager to arrange, if desired by the Board of Directors of the Fund, for
officers or employees of the Investment Manager to serve, with or without
compensation from the Fund, as Officers, Directors or employees of the Fund.
The Prior Agreement provided that the Investment Manager would 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 would 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 Prior Agreement also provided
that the Fund would hold the Investment Manager harmless from judgments, but not
expenses of defense or settlements, rendered against it resulting from acts or
omissions in the performance of its obligations under the Agreement which are
specifically the result of written instructions of the President, any Vice
President or of a majority of the Board of Directors of the Fund. There must,
however, have been an express finding that such acts or omissions did not
constitute willful misfeasance, bad faith, gross negligence or reckless
disregard of the Investment Manager's duties.
Fees and Expenses. The Prior Agreement provided 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 $150 million; 0.45 of 1% of
the value of the net assets of the Fund over $150 million and up to and
including $200 million; and 0.40 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 was determined as of the close of business on the last
business day of each month. For the fiscal year ended December 31, 2001 the Fund
paid the Investment Manager an aggregate fee of $971,856.
The Prior Agreement provided that the Fund bear all expenses incurred in
the operation of the Fund -- except those that the Investment Manager expressly
assumes in the Prior Agreement. Such expenses borne by the Fund included (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
19
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.
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, 2001, the Fund paid an aggregate fee of $32,748 to SISC. It is
expected that SISC will continue to provide services to the Fund.
Expense Limitations. The Prior Agreement provided that if expenses of the
Fund (including the advisory fee but excluding interest, taxes, brokerage
commissions and extraordinary expenses) in any fiscal year exceeded a specified
expense limitation, the Investment Manager would pay the excess to the Fund. The
specified limitation was 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 Prior Agreement provided that extraordinary expenses, such as litigation
expenses and the cost of issuing new shares, were excluded expenses for purposes
of the expense limitations described in this paragraph and the immediately
succeeding paragraph and that the Investment Manager would not be obligated to
pay any amount to the Fund during any fiscal year in excess of the amount of the
advisory fee for such fiscal year.
The Prior Agreement also provided 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 provided 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 -- exceeded 25% of the Fund's gross income for the year, the
Investment Manager would promptly pay the excess to the Fund; provided, however,
that the Investment Manager would 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.
20
For the fiscal year ended December 31, 2001, the Fund's expenses did not
exceed these limitations.
THE NEW AGREEMENT
The New Agreement was approved by the Board of Directors of the Fund on
June 28, 2002 and would be dated as of the date of its approval by stockholders
of the Fund. The New Agreement would continue 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 Independent Directors 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. In
the event that stockholders of the Fund do not approve the New Agreement, the
Interim Agreement would terminate on September 2, 2002. In such event, the Board
would take such action, if any, as it deems to be in the best interests of the
Fund and its stockholders.
DIFFERENCES BETWEEN THE PRIOR AND NEW AGREEMENTS
The terms of the New Agreement are substantially identical to the terms of
the Prior Agreement, except as described below.
The New Agreement provides that the Investment Manager would 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. Thus, under the New Agreement, the fee rate paid by the
Fund for assets in excess of $100 million would be lower than the fee rate under
the Prior Agreement. Effective July 1, 2002, the Investment Manager has
voluntarily implemented this lower management fee schedule for assets in excess
of $100 million.
In addition, to the extent permissible by law, pursuant to the New
Agreement, the Investment Manager would be authorized to appoint certain of its
affiliates as sub-advisers to perform certain of the Investment Manager's
duties. In such case, the Investment Manager would also be authorized to adjust
the duties, the amount of assets to be managed and the fees paid to any such
sub-advisers. Those sub-advisers must be entities that the Investment Manager
controls, is controlled by, or is under common control with, and any such
appointments would be subject to the further approval of the Independent
Directors and the full Board. Stockholders of the Fund would receive prompt
notice following approval of any such appointment or adjustment by the
Independent Directors. The fee rate paid by the Fund would not increase as a
result of any such action; all fees incurred by any such sub-adviser would
continue to be the responsibility of the Investment Manager. The Investment
Manager would retain full responsibility for the actions of any such
sub-adviser.
RECOMMENDATION AND REQUIRED VOTE
The Board of Directors recommends a vote FOR the approval of the New
Agreement. Approval by stockholders of the New Agreement 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
21
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.
STOCKHOLDER PROPOSALS FOR 2003 PROXY STATEMENT
Stockholders wishing to submit proposals for inclusion in a proxy
statement for the 2003 meeting of stockholders of the Fund should send their
written proposals to the Fund, at 101 California Street, Suite 4100, San
Francisco, California 94111, within a reasonable time before the solicitation of
proxies for such meeting. 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 2003 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 within a reasonable time before
the solicitation of proxies for such meeting. Even if timely notice is received,
the Fund may exercise discretionary voting authority in certain other
circumstances. Discretionary voting authority is the ability to vote proxies
that stockholders have executed and returned to the Fund on matters not
specifically reflected on the form of proxy.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than those mentioned in this Proxy Statement. The appointed
proxies will vote on any other business that comes before the Annual Meeting or
any adjournments or postponements thereof in accordance with their best
judgment.
Please complete and sign the enclosed proxy card and return it in the
envelope provided so that the Annual Meeting may be held and action may be taken
on the matters described in this Proxy Statement with the greatest possible
number of shares participating. This will not preclude your voting in person if
you attend the Annual Meeting.
Maureen E. Kane
July 19, 2002 Secretary
22
INDEX OF EXHIBITS AND APPENDICES
EXHIBIT A: FORM OF NEW MANAGEMENT AND INVESTMENT
ADVISORY AGREEMENT
EXHIBIT B: MANAGEMENT FEE RATES FOR FUNDS ADVISED BY
THE INVESTMENT MANAGER WITH SIMILAR
INVESTMENT OBJECTIVES
APPENDIX 1: AUDIT COMMITTEE CHARTER
EXHIBIT A
FORM OF NEW
MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT
BETWEEN
MONTGOMERY STREET INCOME SECURITIES, INC.
AND
DEUTSCHE INVESTMENT MANAGEMENT AMERICAS INC.
AGREEMENT made and effective as of this _____ day of ______, 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
A-1
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.
A-2
(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
A-3
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.
A-4
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
A-5
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:
A-6
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:
--------------------------------
President
DEUTSCHE INVESTMENT MANAGEMENT
AMERICAS INC.
By:
--------------------------------
A-7
EXHIBIT B
MANAGEMENT FEE RATES FOR FUNDS ADVISED BY THE INVESTMENT MANAGER
WITH SIMILAR INVESTMENT OBJECTIVES
FUND OBJECTIVE FEE RATE+ NET ASSETS*
---- --------- -------- ----------
U.S. INCOME FUNDS
Scudder High-Yield Fund Highest level of current income 0.580% to $250 million $ 2,616,954,464
obtainable from a diversified 0.550% next $750 million
portfolio of fixed-income 0.530% next $1.5 billion
securities which the fund's 0.510% next $2.5 billion
investment manager considers 0.480% next $2.5 billion
consistent with reasonable risk. 0.460% next $2.5 billion
As a secondary objective, the fund 0.440% next $2.5 billion
will seek capital gain where 0.420% over $12.5 billion
consistent with its primary
objective.
Scudder Income Fund High income while managing its 0.550% to $250 million $ 835,783,924
portfolio in a way that is 0.520% next $750 million
consistent with the prudent 0.500% next $1.5 billion
investment of shareholders' 0.480% next $2.5 billion
capital. 0.450% next $2.5 billion
0.430% next $2.5 billion
0.410% next $2.5 billion
0.400% over $12.5 billion
Scudder Short Term Bond Fund High income while managing its 0.450% to $1.5 billion $ 1,142,547,984
portfolio in a way that is 0.425% next $500 million
consistent with maintaining a high 0.400% next $1 billion
degree of stability of 0.385% next $1 billion
shareholders' capital. 0.370% next $1 billion
0.355% next $1 billion
0.340% over $6 billion
B-1
FUND OBJECTIVE FEE RATE+ NET ASSETS*
---- --------- -------- ----------
CLOSED-END FUNDS
Scudder High Income Trust Highest current income obtainable 0.850% to $250 million $ 172,641,703
consistent with reasonable risk 0.750% over $250 million(1)
with capital gains secondary.
Scudder Strategic Income Trust High current income. 0.850% of net assets(1) $ 40,839,186
Montgomery Street Income High level of current income 0.500% to $150 million $ 195,533,218
Securities, Inc. consistent with prudent investment 0.450% next $50 million
risks through a diversified 0.400% over $200 million(2)
portfolio primarily of debt
securities.
* The information provided in the chart is shown as of the end of each
Fund's most recent fiscal year.
+ Unless otherwise noted, the investment management fee rates provided above
are based on the average daily net assets of a Fund. Certain Funds from
time to time may be subject to waiver and/or expense limitations.
(1) Based on average weekly net assets.
(2) Based on average monthly net assets. Under the New Management and
Investment Advisory Agreement between Deutsche Investment Management
Americas Inc. and the Fund, the management fee rate would be 0.50% of the
value of the net assets of the Fund up to and including $100 million;
0.45% of the next $50 million, 0.40% of the next $50 million and 0.35%
over $200 million. Effective July 1, 2002, Deutsche Investment Management
Americas Inc. voluntarily implemented the lower management fee schedule
proposed under the New Management and Investment Advisory Agreement.
B-2
APPENDIX 1
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 and who meet the
independence requirements of Sections 303.01(B)(2)(a) and 303.01(B)(3) of
the New York Stock Exchange Listed Company Manual. Each member of the
Committee shall be financially literate, as such qualification is
interpreted by the Board of Directors in its business judgment (or must
become financially literate within a reasonable period of time after his
or her appointment to the Committee). At least one member of the Committee
must have accounting or related financial management expertise, as the
Board of Directors interprets such qualification in its business judgment.
2. Meetings. The Committee shall meet on a regular basis as necessary or
appropriate and is empowered to hold special meetings as circumstances
require.
3. Committee Purposes. The purposes of the Committee are as follows:
(a) To oversee the accounting and financial reporting policies and
practices of the Fund, their internal controls and, as appropriate,
the internal controls of certain service providers to the Fund;
(b) To oversee the quality and objectivity of the Fund's financial
statements and the independent audit thereof; and
(c) To act as a liaison between the Fund's independent auditors and the
full Board of Directors.
The function of the Audit Committee is oversight; it is management's
responsibility to maintain or arrange for the maintenance of appropriate
systems for accounting and internal controls, and the auditor's
responsibility to plan and carry out a proper audit.
4. Duties and Powers. To carry out the purposes specified in Paragraph
3 above, the Committee shall have the following duties and powers:
(a) To recommend to the Board of Directors the selection of the Fund's
independent auditors, on the condition that the independent auditors
are ultimately accountable to the Board of Directors and the
Committee and that the Committee and the Board of Directors shall
have the ultimate authority and responsibility to select, evaluate
and, where appropriate, replace the independent auditors (or to
nominate the outside auditor to be proposed for shareholder approval
in any proxy statement);
(b) To request and evaluate on an annual basis a formal written
statement from the independent auditor delineating all significant
relationships between the independent auditor and the Fund and the
Investment Adviser and recommend that the Board of Directors take
appropriate action, if any, in response to the independent auditors'
report to satisfy itself of the auditors' independence.
(c) To meet with the Fund's independent auditors, including private
meetings as necessary (i) to review the arrangements for and scope
of the annual audit of the Fund and any special audits; (ii) to
review the Fund's audited financial statements and discuss any
matters of concern relating thereto, including any adjustments to
such statements recommended by the auditors, regulatory and tax
compliance matters considered in the preparation of the financial
statements, or other results of said audit(s); (iii) to consider the
auditors' comments with respect to the Fund's financial policies and
procedures and internal accounting controls, and management's
responses thereto; and (iv) to review the form of the opinion the
auditors propose to render to the Board of Directors and the
shareholders of the Fund;
(d) To determine whether to recommend to the Board of Directors that the
Fund's audited financial statements be included in the Annual Report
and to perform such additional functions as may be required under
rules and regulations promulgated by the Securities and Exchange
Commission and the New York Stock Exchange;
(e) To meet regularly with the chief financial and accounting officers
of the Fund to discuss any matters addressed herein that the
Committee believes should be raised with said officers;
(f) To review such other matters or information that the Committee
believes may be relevant to the auditors, the audit engagement, or
the Fund's financial policies and procedures or internal accounting
controls;
(g) To report its activities to the full Board of Directors on a regular
basis and to make such recommendations with respect to the above and
other matters as the Committee may deem necessary or appropriate.
5. Resources and Authority. The Committee shall have the resources and
authority appropriate for purposes of discharging its responsibilities
under this Charter, including the authority to consult with counsel and/or
to retain such experts or consultants as the Committee deems necessary or
appropriate to fulfill such responsibilities at the expense of the Fund.
6. Periodic Review of Charter. The Committee shall review this Charter at
least annually and recommend any changes to the full Board of Directors.
Amended as of June 28, 2002
PROXY MONTGOMERY STREET INCOME SECURITIES, INC PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS -- AUGUST 15, 2002
The undersigned hereby appoints Richard T. Hale, Maureen E. Kane and John R.
Hebble, each with the power of substitution, as proxies for the undersigned, to
vote all shares of Montgomery Street Income Securities, Inc. (the "Fund") which
the undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Fund to be held at the offices of the Fund, 101 California Street, Suite 4100,
San Francisco, California 94111, on Thursday, August 15, 2002 at 10:00 a.m.,
Pacific time, and at any adjournments or postponements thereof.
The undersigned hereby revokes any and all proxies with respect to such shares
previously given by the undersigned. The undersigned acknowledges receipt of the
Proxy Statement relating to the Annual Meeting.
This instruction may be revoked at any time prior to its exercise at the Annual
Meeting by execution of a subsequent proxy card, by written notice to the Fund's
Secretary or by voting in person at the Annual Meeting.
THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED. IF NO
INSTRUCTIONS ARE INDICATED ON A PROPERLY EXECUTED PROXY, THE UNDERSIGNED'S VOTE
WILL BE CAST FOR PROPOSALS 1 AND 2.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSALS.
(1) To elect six Directors of the Fund to hold office until the next Annual FOR all WITHHELD
Meeting or until their respective successors shall nominees listed at from all
have been duly elected and qualified. left(except as nominees
noted at left) listed at left
[ ] [ ]
Nominees: John C. Atwater, Richard J. Bradshaw, Maryellie K. Johnson, Wendell G.
Van Auken, James C. Van Horne, John T. Packard
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(2) To approve a new Management and Investment Advisory Agreement for the
Fund with Deutsche Investment Management Americas Inc.
CONTINUED ON OTHER SIDE
THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION ON ANY OTHER BUSINESS
WHICH MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF.
PLEASE SIGN AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED.
___________________________________________
(Signature of Stockholder)
___________________________________________
(Signature of joint owner, if any)
Dated____________________________, 2002
PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES
APPEAR. WHEN SIGNING AS AN ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE YOUR FULL TITLE AS
SUCH.