SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<Table>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
</Table>
MONTGOMERY STREET INCOME SECURITIES
- --------------------------------------------------------------------------------
(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)(1) 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:
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[ ] 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:
------------------------------------------------------------------------
NOTICE OF
2006
ANNUAL MEETING
OF STOCKHOLDERS
AND
PROXY STATEMENT
[MONTGOMERY LOGO]
MONTGOMERY STREET
INCOME SECURITIES, INC.
This page
intentionally
left blank
IMPORTANT NEWS FOR FUND STOCKHOLDERS
While we encourage you to read the full text of the enclosed Proxy
Statement, here is a brief overview of the matters affecting your Fund that will
be the subject of a stockholder vote.
Q & A: QUESTIONS AND ANSWERS
Q. WHAT ISSUES AM I BEING ASKED TO VOTE ON?
A. You are being asked to vote on the following two proposals:
- To re-elect the five current Directors of the Fund.
- To approve a new Investment Advisory Agreement (the "New Advisory
Agreement") between the Fund and Hartford Investment Management Company
(the "New Advisor").
Q. WHY AM I BEING ASKED TO VOTE ON THE NEW ADVISORY AGREEMENT?
A. On December 1, 2005, the parent company of the current investment advisor of
the Fund, Deutsche Investment Management Americas Inc. (the "Current
Advisor"), sold parts of its asset management business to Aberdeen Asset
Management PLC ("Aberdeen PLC"). Certain members of the Fund's portfolio
management team moved to an Aberdeen PLC affiliate as part of the sale, and
the Current Advisor determined to cease its relationship with the Fund. The
Board of Directors conducted a search for a new investment advisor and
selected Hartford Investment Management Company (the "New Advisor") to
replace the Current Advisor. See "Background" under Proposal 2 in the
enclosed Proxy Statement. As of June 9, 2006, the New Advisor will begin
providing advisory services to the Fund under an interim investment advisory
agreement (the "Interim Advisory Agreement"). If stockholders do not approve
the New Advisory Agreement by November 6, 2006, the Interim Advisory
Agreement will terminate and the Board of Directors will take such action as
it deems to be in the best interest of the Fund and its stockholders.
THE BOARD OF DIRECTORS OF THE FUND, NONE OF WHOSE MEMBERS ARE AFFILIATED WITH
THE NEW ADVISOR, RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE NEW
ADVISORY AGREEMENT. See "Board Considerations" under Proposal 2 in the
enclosed Proxy Statement.
Q. WILL THE EXPENSES OF THE FUND BE THE SAME UPON APPROVAL OF THE NEW ADVISORY
AGREEMENT?
A. No. It is estimated that, after approval of the New Advisory Agreement, the
combined management and administration fees of the Fund, as a percentage of
net assets, will be approximately 0.02% higher than those under the current
advisory agreement with the Current Advisor (the "Current Advisory
Agreement"). It is also estimated that the total annual operating expenses of
the Fund, as a percentage of net assets, will be approximately 0.01% higher
than those under the Current Advisory Agreement. While
the expenses of the Fund are expected to increase under the New Advisory
Agreement, the Board of Directors did not have the option of continuing the
Current Advisory Agreement. See "Pro Forma Expenses" under Proposal 2 in the
enclosed Proxy Statement.
Q. WHO WILL PAY FOR THE COSTS ASSOCIATED WITH THE TRANSITION TO THE NEW ADVISOR?
A. The Current Advisor has agreed to bear these costs, excluding any transaction
or other costs related to the transitioning of the Fund's portfolio. See
"Background" under Proposal 2 in the enclosed Proxy Statement.
Q. HOW CAN I VOTE MY SHARES?
A. You may choose from the following options:
- 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?
A. Please call Georgeson Shareholder Communications, the Fund's information
agent, toll free at (866) 214-4433.
May 19, 2006
To the Stockholders:
The Annual Meeting of Stockholders of Montgomery Street Income Securities,
Inc. (the "Fund") is to be held at 10:00 a.m. (Pacific time) on Thursday, July
13, 2006 at 101 California Street, 5th Floor, San Francisco, California. A Proxy
Statement regarding the meeting, a proxy card for your vote at the meeting and
an envelope -- postage prepaid -- in which to return your proxy card are
enclosed.
At the Annual Meeting, the stockholders will elect the Fund's Directors and
consider the approval of a new Investment Advisory Agreement between the Fund
and Hartford Investment Management Company. In addition, the stockholders
present will hear a report of the Fund. There will be an opportunity to discuss
matters of interest to you as a stockholder.
The enclosed Proxy Statement provides greater detail about each proposal.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT THE STOCKHOLDERS VOTE IN
FAVOR OF EACH PROPOSAL.
To vote, simply fill out the enclosed proxy card -- be sure to sign and
date it -- and return it to us in the enclosed postage-prepaid envelope. Your
vote is very important to us. Thank you for your response and for your continued
investment with the Fund.
Respectfully,
- -s- Richard J. Bradshaw
Richard J. Bradshaw
Chairman of the Board
- -s- Michael Colon
Michael Colon
President and Chief Executive Officer
MONTGOMERY STREET INCOME SECURITIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of
Montgomery Street Income Securities, Inc.:
Please take notice that the Annual Meeting of Stockholders (the "Annual
Meeting") of Montgomery Street Income Securities, Inc. (the "Fund") has been
called to be held at 101 California Street, 5th Floor, San Francisco,
California, on Thursday, July 13, 2006 at 10:00 a.m. (Pacific time), for the
following purposes:
Proposal 1: To elect five Directors of the Fund to hold office until the
next Annual Meeting or until their respective successors shall
have been duly elected and qualified.
Proposal 2: To approve a new Investment Advisory Agreement between the Fund
and Hartford Investment Management Company.
Those present and the appointed proxies will also transact such other
business, if any, as may properly come before the Annual Meeting or any
adjournments or postponements thereof.
Holders of record of the shares of common stock of the Fund at 5:00 p.m.
(Eastern time) on May 12, 2006 are entitled to vote at the Annual Meeting or any
adjournments or postponements thereof.
In the event that the necessary quorum to transact business or the vote
required to approve any proposal is not obtained at the Annual Meeting, the
persons named as proxies on the enclosed proxy card may propose one or more
adjournments of the Annual Meeting to permit, in accordance with applicable law,
further solicitation of proxies with respect to that proposal. Any such
adjournment as to a matter will require the affirmative vote of the holders of a
majority of the shares present in person or by proxy at the session of the
Annual Meeting to be adjourned. The persons named as proxies on the enclosed
proxy card will vote FOR any such adjournment those proxies which they are
entitled to vote in favor of the proposal for which further solicitation of
proxies is to be made. They will vote AGAINST any such adjournment those proxies
required to be voted against such proposal.
By order of the Board of
Directors,
/s/ John Millette
May 19, 2006 John Millette, 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.
C/O JACKSON FUND SERVICES
225 WEST WACKER DRIVE, SUITE 1200
CHICAGO, ILLINOIS 60606
1-800-XXX-XXXX
PROXY STATEMENT
RECORD DATE: May 12, 2006 MAILING DATE: May 19, 2006
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 101 California Street, 5th
Floor, San Francisco, California, on Thursday, July 13, 2006 at 10:00 a.m.
(Pacific time). The Board of Directors is also soliciting proxies for use at any
adjournment or postponement of the Annual Meeting. This Proxy Statement is
furnished in connection with this solicitation.
The Fund may solicit proxies by mail, telephone, telegram, and personal
interview. Georgeson Shareholder Communications Inc., 17 State Street, New York,
New York 10004, has been engaged to assist in the solicitation of proxies for
the Fund, at an estimated cost of $41,000. In addition, the Fund may request
personnel of the Fund's new administrator, Jackson Fund Services, a division of
Jackson National Asset Management, LLC (the "New Administrator"), to assist in
the solicitation of proxies for no separate compensation. It is anticipated that
the Fund will request brokers, custodians, nominees, and fiduciaries who are
record owners of stock to forward proxy materials to their principals and obtain
authorization for the execution of proxies. Upon request, the Fund will
reimburse the brokers, custodians, nominees, and fiduciaries for their
reasonable expenses in forwarding proxy materials to their principals. The Fund
and the Fund's current investment advisor, Deutsche Investment Management
Americas Inc. (the "Current Advisor"), will share the cost of soliciting
proxies.
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 Georgeson Shareholder, 17 State Street,
10th Floor, NY, NY 10004, Attn: MSIS
- 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.
Withheld votes and broker non-votes will not be counted in favor of, but will
have no other effect on, the vote for Proposal 1. Abstentions will have the
effect of a "no" vote on Proposal 2. Broker non-votes will have the effect of a
"no" vote on Proposal 2 if such vote is determined on the basis of obtaining the
affirmative vote of more than 50% of the outstanding shares of the Fund. Broker
non-votes will not constitute "yes" or "no" votes for Proposal 2 but will be
counted in determining the voting securities "present" if such vote is
determined on the basis of the affirmative vote of 67% of the voting securities
of the Fund present at the Annual Meeting.
In the event that the necessary quorum to transact business or the vote
required to approve any proposal is not obtained at the Annual Meeting, the
persons named as proxies on the enclosed proxy card may propose one or more
adjournments of the Annual Meeting to permit, in accordance with applicable law,
further solicitation of proxies with respect to that proposal. Any such
adjournment as to a matter will require the affirmative vote of the holders of a
majority of the shares present in person or by proxy at the session of the
Annual Meeting to be adjourned. The persons named as proxies on the enclosed
proxy card will vote FOR any such adjournment those proxies which they are
entitled to vote in favor of the proposal for which further solicitation of
proxies is to be made. They will vote AGAINST any such adjournment those proxies
required to be voted against such proposal.
The record date for determination of stockholders entitled to receive
notice of the Annual Meeting and to vote at the Annual Meeting or any
adjournments or postponements thereof, was May 12, 2006 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. The
following table sets forth, for each Director of the Fund, the current and new
chief executive officer of the Fund, and the Directors and the new executive
officers as a group, as of May 3, 2006, the amount of shares beneficially owned
in the Fund, the dollar range of securities owned in the Fund, and the aggregate
dollar range of all shareholdings in all funds overseen by each Director in the
same family of investment companies. Each Director's and chief executive
officer's individual beneficial shareholdings in the Fund constituted less than
1% of the outstanding
2
shares of the Fund, and, as a group, the Directors and the new executive
officers owned beneficially less than 1% of the outstanding shares of the Fund.
<Table>
<Caption>
AGGREGATE DOLLAR
RANGE OF EQUITY
AMOUNT OF SECURITIES IN ALL
SHARES FUNDS OVERSEEN
BENEFICIALLY DOLLAR RANGE OF IN FAMILY OF
OWNED IN EQUITY SECURITIES INVESTMENT
POSITION THE FUND(1) IN THE FUND COMPANIES(2)
-------- ------------ ----------------- -----------------
INDEPENDENT DIRECTORS
Richard J. Bradshaw....... Chairman and 7,475(3) Over $100,000 Over $100,000
Director
Victor L. Hymes........... Director 2,901 $50,000-$100,000 $50,000-$100,000
John T. Packard........... Director 1,500 $10,000-$50,000 $10,000-$50,000
Wendell G. Van Auken...... Director 31,028 Over $100,000 Over $100,000
James C. Van Horne........ Director 2,500 $10,000-$50,000 $10,000-$50,000
CHIEF EXECUTIVE OFFICER
Michael Colon(4).......... Current 0 0
President
and Chief
Executive
Officer
Mark D. Nerud(4).......... New 0 0
President
and Chief
Executive
Officer
All Directors and New
Executive Officers as a
Group...................
45,404(5) Over $100,000
</Table>
- ---------------------
(1) The information as to beneficial ownership is based on statements furnished
to the Fund by each Director, nominee and executive officer. Unless
otherwise indicated, each person has sole voting and investment power over
the shares reported.
(2) Consists of all funds overseen by the Director, managed by Hartford
Investment Management Company, and holding themselves out as related for
purposes of investment and investor services.
(3) Includes 4,890 shares held with sole voting and investment power and 2,585
shares held with shared voting and investment power.
3
(4) Mr. Colon is the current President and Chief Executive Officer of the Fund.
Mr. Nerud was appointed President and Chief Executive Officer of the Fund,
effective June 9, 2006.
(5) Includes 42,819 shares held with sole voting and investment power and 2,585
shares held with shared voting and investment power.
To the Fund's knowledge, as of April 30, 2006, no person owned beneficially
more than 5% of the Fund's outstanding shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), and Section 30(h) of the 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 advisor, affiliated persons of the investment advisor, 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 U.S.
Securities and Exchange Commission (the "SEC") and any exchange on which the
fund's securities are traded. Such persons are required by SEC regulations to
furnish the fund with copies of all such reports.
Based on a review of reports filed by the Fund's reporting persons, and
written representations by the reporting persons that no year-end reports were
required for such persons, there were two filings required by Section 16(a) of
the 1934 Act for the fiscal year ended December 31, 2005, that were untimely,
except that William Chepolis and Michael Colon each filed a Form 3 late. Each
person has since corrected his omission by making the necessary 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, 2005, WITHOUT CHARGE, BY CALLING 1-800-XXX-XXXX OR
WRITING THE FUND, C/O JACKSON FUND SERVICES, 225 WEST WACKER DRIVE, SUITE 1200,
CHICAGO, ILLINOIS 60606.
PROPOSAL 1 -- ELECTION OF DIRECTORS
At the Annual Meeting, stockholders will be asked to elect five individuals
to constitute the Board of Directors of the Fund. Each Director so elected will
hold office until the next annual meeting or until the election and
qualification of a successor. The five individuals listed below under
"Information Concerning Nominees" were nominated for election as Directors of
the Fund by the Fund's present Board of Directors. Each of the nominees is
currently a Director of the Fund and was elected to serve as a Director at the
2005 Annual Meeting of Stockholders.
The persons named as proxies on the enclosed proxy card intend to vote for
all of the nominees named below, unless authority to vote for any or all of the
nominees is withheld. In the unanticipated event that any nominee for Director
cannot be a candidate
4
at the Annual Meeting, the appointed proxies will vote their proxy in favor of
the remainder of the nominees and, in addition, in favor of such substitute
nominee(s) (if any) as the Board of Directors shall designate. Alternatively,
the proxies may vote in favor of a resolution reducing the number of Directors
to be elected at the Annual Meeting.
INFORMATION CONCERNING NOMINEES
Each of the nominees is listed below. The address of each nominee is c/o
Montgomery Street Income Securities, Inc., c/o Jackson Fund Services, 225 West
Wacker Drive, Suite 1200, Chicago, Illinois 60606. Each nominee has consented to
be nominated and to serve if elected.
<Table>
<Caption>
PRINCIPAL OCCUPATION OR EMPLOYMENT YEAR FIRST
DURING PAST FIVE YEARS AND DIRECTORSHIPS BECAME A
NOMINEE (AGE) IN PUBLICLY HELD COMPANIES DIRECTOR
- -------------------- ----------------------------------------------- ----------
INDEPENDENT DIRECTORS
RICHARD J. BRADSHAW Mr. Bradshaw is the Executive Director of 1991
(57) Cooley Godward LLP (law firm). He has acted as
Chairman of the Board of the Fund since July
2004.
VICTOR L. HYMES Since April 2004 Mr. Hymes has been CEO and 2005
(48) Chief Investment Officer of Legato Capital
Management LLC (investment advisor). He was
Chief Operating Officer and Chief Investment
Officer of Cazenave Partners, LLC (investment
advisor) from January 2003 to January 2004. Mr.
Hymes was a Managing Director of a predecessor
of the Current Advisor from January 1997 to
April 2002, and served as the President of the
Fund from February 2000 to April 2002.
</Table>
5
<Table>
<Caption>
PRINCIPAL OCCUPATION OR EMPLOYMENT YEAR FIRST
DURING PAST FIVE YEARS AND DIRECTORSHIPS BECAME A
NOMINEE (AGE) IN PUBLICLY HELD COMPANIES DIRECTOR
- -------------------- ----------------------------------------------- ----------
JOHN T. PACKARD Since January 2005 Mr. Packard has been 2001
(72) Executive Vice President of Mt. Eden Investment
Advisors LLC. He was an Advisory Managing
Director of Weiss, Peck & Greer Investments
(investment advisor and broker-dealer) from
February 2000 to January 2002 and a Managing
Director from January 2002 to December 2004.
Mr. Packard was a Managing Director of a
predecessor of the Current Advisor from 1985 to
1998 and an Advisory Managing Director from
1999 to 2000, and served as the President of
the Fund from 1988 to February 2000.
WENDELL G. VAN AUKEN Mr. Van Auken is a Managing Director of several 1994
(61) venture capital funds affiliated with Mayfield.
He also serves as a Director of Advent Software
(portfolio software company).
JAMES C. VAN HORNE Dr. Van Horne is the A.P. Giannini Professor of 1985
(70) Finance, Graduate School of Business, Stanford
University. He also serves as a Director of
Synnex Corporation (information technology
distributor) and Bailard Opportunity Fund Group
Inc. (registered investment company). Dr. Van
Horne was Chairman of the Board of the Fund
from July 1992 to July 2004.
</Table>
A majority of the board members of a registered investment company must not
be interested persons ("Interested Persons") of the company, as defined in the
1940 Act, for the company to take advantage of certain exemptive rules under the
1940 Act. Directors of the Fund who are not Interested Persons are referred to
in this Proxy Statement as "Independent Directors." If the nominees proposed for
election as Directors of the Fund are elected, all the members of the Board of
Directors will be Independent Directors. As required, each of the nominees who
will be considered an Independent Director, if elected, was selected and
nominated solely by the current Independent Directors of the Fund.
Each nominee currently serves as a board member of one portfolio in the
complex of funds that hold themselves out as related companies for purposes of
investment or
6
investor services or are managed by Hartford Investment Management Company ("the
New Advisor") or its affiliated persons (the "Fund Complex").
As of April 30, 2006, none of the nominees beneficially owned securities of
the New Advisor or any person directly or indirectly controlling, controlled by
or under common control with the New Advisor.
BOARD OF DIRECTORS; NOMINATIONS; BOARD AND COMMITTEE MEETINGS
The primary responsibility of the Board of Directors is to represent the
interests of the stockholders of the Fund and to provide oversight of the
management of the Fund.
The Board of Directors does not have a nominating committee or a charter
relating to the nomination of Directors. The full Board considers possible
candidates to fill vacancies on the Board of Directors, reviews the
qualifications of candidates recommended by stockholders and others, and
recommends the slate of nominees to be proposed for election by stockholders at
the annual meeting. As noted above, individuals who would be considered
Independent Directors, if elected, must be selected and nominated solely by the
Independent Directors of the Fund. In light of the fact that all the members of
the Board of Directors are Independent Directors, the Board believes that it is
appropriate for the full Board to participate in the consideration of Director
candidates. Stockholders wishing to recommend any Director candidate should
submit in writing a brief description of the candidate's business experience and
other information relevant to the candidate's qualifications to serve as a
Director. Submissions should be addressed to the Chairman of the Board of
Directors, Montgomery Street Income Securities, Inc., c/o Jackson Fund Services,
225 West Wacker Drive, Suite 1200, Chicago, Illinois 60606. In order to be
considered at the 2007 annual meeting, submission should be made by January 22,
2007.
The Board of Directors has an Executive Committee, a Valuation Committee
and an Audit Committee. In 2005, the Board of Directors held eight meetings, the
Valuation Committee held one meeting, and the Audit Committee held four
meetings. The Executive Committee did not meet in 2005. 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 served in 2005.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
The Board of Directors provides a process for stockholders to send
communications to the Board. Correspondence should be sent by U.S. mail or
courier service to the Chairman of the Board of Directors, Montgomery Street
Income Securities, Inc., c/o Jackson Fund Services, 225 West Wacker Drive, Suite
1200, Chicago, Illinois 60606. It is the general policy of the Fund that the
Directors should be represented at the Annual Meeting. All of the Directors
attended the last Annual Meeting, which was held on July 14, 2005.
7
EXECUTIVE COMMITTEE
The Executive Committee is authorized to exercise all powers of the Board
of Directors permitted to be exercised under the Maryland General Corporation
Law. The Committee is composed of two Independent Directors (Messrs. Bradshaw
and Van Horne).
VALUATION COMMITTEE
The Valuation Committee reviews Valuation Procedures adopted by the Board
of Directors, determines the fair value of the portfolio assets of the Fund as
needed in accordance with the Valuation Procedures and performs such other tasks
as the full Board of Directors deems necessary. The Committee is composed of
three Independent Directors (Messrs. Hymes (Chair), Van Auken and Van Horne).
AUDIT COMMITTEE
The Audit Committee oversees the accounting and financial reporting
policies and practices of the Fund, its internal controls over financial
reporting and, as the Audit Committee deems appropriate, the internal controls
of certain service providers to the Fund. The Audit Committee also oversees the
quality, objectivity and integrity of the Fund's financial statements and the
independent audit thereof, exercises direct responsibility for the appointment,
compensation, retention and oversight of the work performed by the independent
auditors, reviews the independent auditors' qualifications and independence, and
acts as a liaison between the Fund's independent auditors and the full Board of
Directors.
The Audit Committee is composed of three Independent Directors (Messrs. Van
Auken (Chair), Packard and Van Horne). Each Committee member meets the
independence requirements of the New York Stock Exchange listing standards. The
Audit Committee is governed by a written charter adopted by the Board of
Directors that sets forth in greater detail the Committee's purposes, duties and
powers. A copy of the charter effective as of June 9, 2006 is attached to this
Proxy Statement as Exhibit A.
AUDIT COMMITTEE REPORT
At meetings of the Audit Committee held on February 16, 2006 and April 18,
2006, the Committee reviewed the Fund's audited financial statements and
discussed the financial statements with management and the independent auditors.
The Committee discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees). In addition, the Committee discussed with the independent auditors
the auditors' independence from management and reviewed the written disclosures
and letter required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees). Based on those reviews and discussions, the
Committee recommended to the Board of
8
Directors that the audited financial statements be included in the Fund's annual
report to stockholders for the 2005 fiscal year.
The Audit Committee:
Wendell G. Van Auken, Chair
John T. Packard
James C. Van Horne
INDEPENDENT AUDITORS
The Fund's financial statements for the fiscal years ended December 31,
2004 and 2005 were audited by Ernst & Young LLP ("E&Y") and
PricewaterhouseCoopers LLP ("PwC"), respectively. The following table shows fees
billed by E&Y and PwC during the 2004 and 2005 fiscal years: (i) for audit,
audit-related, tax and other services provided to the Fund, and (ii) for
audit-related, tax and other services provided to the Current Advisor and
entities controlling, controlled by, or under common control with the Current
Advisor that provide ongoing services to the Fund (the "Advisor Entities").
<Table>
<Caption>
AUDIT RELATED
FEES(2) TAX FEES(3) ALL OTHER FEES(4)
AUDIT FEES(1) --------------- ----------------- -----------------
------------- ADVISOR ADVISOR ADVISOR
FISCAL YEAR ENDED FUND FUND ENTITIES FUND ENTITIES FUND ENTITIES
- ----------------- ------------- ---- -------- ------ -------- ----- ---------
December 31, 2005.... $41,500 $0 $268,900 $ 0 $197,605 $0 $104,635
December 31, 2004.... $56,000 $0 $347,500 $5,900 $ 0 $0 $331,601
</Table>
- ---------------------
(1) "Audit Fees" are the aggregate fees billed for professional services
rendered for the audit of the Fund's annual financial statements and
services provided in connection with statutory and regulatory filings or
engagements.
(2) "Audit Related Fees" are the aggregate fees billed for services in
connection with the assessment of internal controls and additional related
procedures that are reasonably related to the performance of the audit or
review of financial statements and are not reported under "Audit Fees."
(3) "Tax Fees" are the aggregate fees billed for professional services for tax
advice, tax compliance and tax planning.
(4) "All Other Fees" are the aggregate fees billed for products and services
other than "Audit Fees," "Audit Related Fees" and "Tax Fees," and include
fees for services in connection with risk management and process improvement
initiatives for the Current Advisor and other related entities that provide
support for the operations of the Fund.
Audit Committee Pre-Approval Procedures. The Audit Committee has adopted
procedures for the pre-approval by the Audit Committee of (i) the engagement of
the Fund's independent auditors to provide audit and non-audit services to the
Fund and (ii) the engagement of the Fund's independent auditors to provide
non-audit services to the investment advisor or its related entities that relate
directly to the Fund's operations and financial reporting. If time does not
permit, the Chairman of the Audit Committee is
9
authorized to pre-approve the engagement of the independent auditors on behalf
of the Audit Committee. The independent auditors and the investment advisor are
required to report on the initiation of any such engagement at the next regular
Audit Committee meeting.
All Non-Audit Fees. The aggregate non-audit fees billed by E&Y and PwC for
services rendered to the Fund and the Advisor Entities during the 2004 and 2005
fiscal years were $337,401 and $302,240, respectively. The Audit Committee
considered whether E&Y's and PwC's provision of non-audit services to the
Advisor Entities that were not pre-approved by the Audit Committee were
compatible with maintaining E&Y's and PwC's independence.
New Auditors. At a meeting held on April 8, 2005, based on Audit Committee
recommendations and approvals, the full Board of Directors unanimously voted to
dismiss E&Y and to approve PwC as the Fund's independent auditors for the fiscal
year ending December 31, 2005 to examine the Fund's books and accounts and to
certify the Fund's financial statements. During each of the 2003 and 2004 fiscal
years and the interim period between December 31, 2004 and April 7, 2005, there
was no disagreement between E&Y and the Fund on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures, which disagreement, if not resolved to the satisfaction of E&Y,
would have caused E&Y to make reference to the subject matter of the
disagreement in its audit reports. The audit reports of E&Y on the Fund's
financial statements for the 2003 and 2004 fiscal years did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope, or accounting principles.
Because of its current relationship with the parent of the New Advisor, PwC
has advised the Fund that it will be required to resign under applicable
accounting rules as the Fund's independent registered public accountants because
it will no longer be considered "independent" with respect to the Fund. PwC
expects to resign effective as of June 9, 2006, the date the New Advisor begins
providing advisory services to the Fund under an interim advisory agreement. See
"Background" under Proposal 2 below. During the 2005 fiscal year and the interim
period between December 31, 2005 and the date of this Proxy Statement, there was
no disagreement between PwC and the Fund on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedures,
which disagreement, if not resolved to the satisfaction of PwC, would have
caused PwC to make reference to the subject matter of the disagreement in its
audit report. The audit report of PwC on the Fund's financial statements for the
2005 fiscal year did not contain an adverse opinion or a disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope, or accounting
principles.
10
The Board of Directors is in the process of selecting new auditors for the
fiscal year ending December 31, 2006 and expects to complete that process in
advance of the Annual Meeting.
Representatives of PwC are not expected to be present at the Annual
Meeting, but will be available by telephone to respond to appropriate questions
posed by stockholders or management and to make a statement if they desire to do
so.
OFFICERS OF THE FUND
The following table sets forth certain information concerning each officer
of the Fund, effective June 9, 2006. The address of each officer is c/o Jackson
Fund Services, 225 West Wacker Drive, Suite 1200, Chicago, Illinois 60606.
<Table>
<Caption>
POSITION WITH THE FUND; PRINCIPAL
OCCUPATION OR EMPLOYMENT DURING YEAR FIRST BECAME
NAME (AGE) PAST FIVE YEARS AN OFFICER(1)
---------- --------------- -------------
Mark D. Nerud (39) President and Chief Executive 2006
Officer; Chief Financial Officer,
Jackson National Asset Management,
LLC (since 2000).
Jeffrey C. Nellessen Treasurer and Chief Financial 2006
(44) Officer; Controller, Jackson
National Asset Management, LLC
(since 2005); Chief Financial
Officer, Treasurer, and Secretary,
Security Capital Research &
Management (2002 to 2003); Vice
President, Controller, Treasurer,
and Secretary, Security Capital
Research & Management (1997 to
2002).
</Table>
11
<Table>
<Caption>
POSITION WITH THE FUND; PRINCIPAL
OCCUPATION OR EMPLOYMENT DURING YEAR FIRST BECAME
NAME (AGE) PAST FIVE YEARS AN OFFICER(1)
---------- --------------- -------------
Susan S. Rhee (34) Secretary; Secretary, Jackson 2006
National Asset Management, LLC
(since 2000).
Toni M. Bugni (32) Chief Compliance Officer; Compliance 2006
Manager, Jackson Fund Services (a
division of Jackson National Asset
Management, LLC) (since 2006); Legal
Assistant, MetLife Advisers, LLC
(2004 to 2006); Regulatory
Administration Senior Specialist,
PFPC Inc. (2003 to 2004); Reporting
and Compliance Senior Specialist,
Investors Bank & Trust (2001 to
2003).
</Table>
- ---------------------
(1) 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, since the New Administrator will make
these individuals available to the Fund to serve without compensation from the
Fund. Remuneration to Directors consists of a quarterly retainer of $3,000
(except the Chairman of the Board, whose quarterly retainer is $7,000, and the
Chairman of the Audit Committee, whose quarterly retainer is $4,000) and a fee
of $750 for each Board meeting attended and $500 for each committee meeting
attended, as well as any related expenses. For the fiscal year ended December
31, 2005, total compensation (including reimbursement of expenses) for all
Directors as a group was $106,533.
The Compensation Table below provides the following data:
Column (1) Each Director who received compensation from the Fund.
Column (2) Aggregate compensation received by a Director from the Fund.
Column (3) Total compensation received by a Director from the Fund and
Fund Complex. No member of the Board serves as a Director for any other
fund in the Fund Complex nor does any Director receive any pension or
retirement benefits from the Fund.
12
COMPENSATION TABLE
for the fiscal year ended December 31, 2005
<Table>
<Caption>
----------------------------------------------------------
(1) (2) (3)
----------------------------------------------------------
TOTAL COMPENSATION
AGGREGATE FROM FUND
NAME OF DIRECTOR, COMPENSATION AND FUND COMPLEX
POSITION FROM FUND PAID TO DIRECTOR
----------------------------------------------------------
INDEPENDENT DIRECTORS
Richard J. Bradshaw $31,750 $31,750
Board Chairman and
Director
Victor L. Hymes(1) $ 8,326 $ 8,326
Director and
Valuation Committee
Chairman
John T. Packard $17,750 $17,750
Director
Wendell G. Van Auken $22,250 $22,250
Director and Audit
Committee Chairman
James C. Van Horne $17,750 $17,750
Director
----------------------------------------------------------
</Table>
- ---------------------
(1) Commencing July 14, 2005.
BOARD RECOMMENDATION AND REQUIRED VOTE
Election of the nominees for Director requires the affirmative vote of a
plurality of the votes cast in person or by proxy at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF THE FUND VOTE
FOR THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR.
PROPOSAL 2 -- APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT WITH HARTFORD
INVESTMENT MANAGEMENT COMPANY
BACKGROUND
Deutsche Investment Management Americas Inc. (the "Current Advisor"), 345
Park Avenue, New York, New York, currently acts as investment advisor and
administrator to the Fund pursuant to a Management and Investment Advisory
Agreement dated August 15, 2002 (the "Current Advisory Agreement").
On July 7, 2005, Deutsche Bank AG, the parent company of the Current
Advisor, entered into an agreement with Aberdeen Asset Management PLC ("Aberdeen
PLC") to sell parts of its London- and Philadelphia-based asset management
businesses to Aberdeen PLC. The Fund's portfolio managers (other than the high
yield portfolio
13
manager) were employed at the time by the Philadelphia-based business being
sold. Initially, it was expected that the Current Advisor would recommend to the
Fund that the Current Advisor continue as the investment advisor and
administrator to the Fund and that an Aberdeen PLC affiliate ("Aberdeen") be
engaged as a sub-advisor to the Fund. Instead, as part of a new strategic plan,
the Current Advisor determined to cease its relationship with the Fund and to
recommend that Aberdeen be engaged as both advisor and administrator to the
Fund.
The Board of Directors of the Fund (the "Board") hired an independent
consultant, Callan Associates ("Callan"), to assist it in evaluating the Current
Advisor's recommendation and alternative investment managers. The Board, or a
committee of the Board, met with Callan on August 5, October 13 and October 27,
2005 to consider Callan's engagement and the results of Callan's analysis. In
the course of these meetings, the Board reviewed Callan's written and oral
evaluations of nine potential advisor candidates (including Aberdeen) and
interviewed three of the candidates (excluding Aberdeen). The Board also
reviewed the written and oral presentations of Aberdeen at meetings held on
September 16 and October 14, 2005, as well as additional written materials
provided subsequently by Aberdeen in response to the Board's questions.
The sale to Aberdeen PLC closed on December 1, 2005. At that time, the
Current Advisor provided a new portfolio manager to the Fund to replace the
portfolio management team that had moved to Aberdeen as part of the sale. The
Current Advisor agreed to continue to serve as the investment advisor and
administrator of the Fund until a successor firm or firms was selected by the
Board. The Current Advisor also agreed to bear all expenses incurred by the Fund
in connection with the transition to a new advisor and administrator, including
the fees and expenses of Callan, the legal fees and costs associated with the
Board's deliberations, and the cost of obtaining necessary Board and stockholder
approvals, but excluding any transaction or other costs related to the
transitioning of the Fund's portfolio.
At the commencement of the search process, the Board ideally sought an
investment manager which, like the Current Advisor, would be able to provide
Fund officers and a full range of administrative services, either internally or
through relationships with other service providers. During the process, it
became apparent that few advisors were willing to assume these responsibilities,
particularly for a single fund with an independent Board and assets of
approximately $200 million. As a result, the Board found itself searching for
both a new advisor and a new administrator. With the assistance of Callan and
the advisor candidates, the Board screened potential administrators, culminating
in a meeting with the New Administrator on January 31, 2006. Following further
negotiations with and diligence on the Current Advisor and the New
Administrator, the Board determined at its April 18, 2006 meeting to terminate
the Current Advisor and to retain the New Advisor and
14
the New Administrator, effective June 9, 2006. Implementation of the Board's
decision was delayed until June 9 because that was the earliest date on which
all the responsibilities of the New Advisor could be transitioned to the Current
Advisor, the New Administrator and the other new service providers.
Pursuant to Rule 15a-4 under the 1940 Act, upon the termination of an
investment advisory contract, an investment company board may approve an interim
investment advisory contract with a new advisor provided the interim contract
lasts no more than 150 days and the compensation to be received under the
interim contract is no greater than the compensation the former advisor would
have received under the previous contract. Accordingly, the Fund entered into an
interim investment advisory contract (the "Interim Advisory Contract") with the
New Advisor as of June 9, 2006, providing for a term no later than November 6,
2006 and for compensation to the New Advisor and the New Administrator which
combined would be no greater than the compensation the Current Advisor would
have received under the Current Advisory Agreement. The Board also determined to
recommend to the stockholders at the Annual Meeting the approval of the New
Advisory Agreement to replace the Interim Advisory Agreement. The 1940 Act does
not require the new administration agreement (the "New Administration
Agreement") between the Fund and the New Administrator to be approved by
stockholders, and the New Administration Agreement will continue in effect
whether or not stockholders approve the New Advisory Agreement.
CURRENT ADVISORY AGREEMENT
The Current Advisory Agreement was first approved by a vote of the
stockholders on August 15, 2002, in connection with the acquisition of the
Current Advisor by Deutsche Bank A.G. on April 5, 2002. The Current Advisory
Agreement was last approved by the Board of Directors on April 8, 2005. The
description of the Current Advisory Agreement in this Proxy Statement is
qualified in its entirety by reference to the copy of the Current Advisory
Agreement attached to this Proxy Statement as Exhibit B.
Services. The Current Advisory Agreement requires the Current Advisor to
provide management and investment advisory services to the Fund. It requires the
Current Advisor to provide statistical and research facilities and services, to
supervise the composition of the Fund's portfolio, to determine the nature and
timing of changes therein and the manner of effectuating such changes and to
cause the purchase and sale of portfolio securities, subject to overall
supervision by the Board of Directors. In addition to providing management and
investment advisory services, the Current Advisor pays for office space, all
necessary office facilities, basic business equipment, supplies, utilities,
property casualty insurance, telephone services and the costs of keeping the
Fund's general accounts and records. The Current Advisory Agreement requires the
Current Advisor to arrange, if desired by the Board of Directors, for officers
or employees of the
15
Current Advisor to serve, with or without compensation from the Fund, as
Directors, officers or employees of the Fund.
The Current Advisory Agreement provides that, with the prior approval of
the Board of Directors, including a majority of the Independent Directors, and
to the extent permissible by law, the Current Advisor may appoint certain of its
affiliates as sub-advisors to perform certain of the Current Advisor's duties.
If such an appointment were made, the Current Advisor would be authorized to
adjust the duties to be performed, the amount of assets to be managed and the
fees to be paid to any such sub-advisors. Any such appointment would not result
in an increase in the fee rate paid by the Fund; fees incurred by any such
sub-advisor would be paid by the Current Advisor.
The Current Advisory Agreement provides that the Current Advisor will not
be liable or responsible for any acts or omissions of any predecessor manager
and neither the Current Advisor nor any director, officer, agent or employee of
the Current Advisor will be liable or responsible to the Fund or its
stockholders except for willful misfeasance, bad faith, gross negligence or
reckless disregard of their respective duties. The Current Advisory Agreement
also provides that the Fund will hold the Current Advisor 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
Current Advisory Agreement which are specifically the result of written
instructions of the President, any Vice President or of a majority of the Board
of Directors. There must, however, have been an express finding that such acts
or omissions did not constitute willful misfeasance, bad faith, gross negligence
or reckless disregard of the Current Advisor's duties.
Fees and Expenses. The Current Advisory Agreement provides that the
Current Advisor be paid an annual fee, payable monthly, equal to 0.50% of the
value of the net assets of the Fund up to and including $100 million; 0.45% of
the value of the net assets of the Fund over $100 million and up to and
including $150 million; 0.40% of the value of the net assets of the Fund over
$150 million and up to and including $200 million; and 0.35% 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 is determined as of the close of
business on the last business day of each month.
The Current Advisory Agreement provides that the Fund bear all expenses
incurred in the operation of the Fund, except those that the Current Advisor
expressly assumes in the Current Advisory Agreement. Such expenses borne by the
Fund include: (a) all costs and expenses incident to (i) the registration of the
Fund under the 1940 Act, or (ii) any public offering of shares of the Fund, for
cash or otherwise, including those costs and expenses relating to the
registration of shares under the Securities Act of 1933, as amended (the
"Securities Act"), the qualification of shares of the Fund under state
securities laws, the printing or other reproduction and distribution of any
registration
16
statement (and all amendments thereto) under the Securities Act, the preliminary
and final prospectuses included therein, and any other necessary documents
incident to any public offering, the advertising of shares of the Fund and the
review by the National Association of Securities Dealers, Inc. of any
underwriting arrangements; (b) the charges and expenses of any registrar or any
custodian appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property; (c) the charges and expenses of auditors
(including the preparation of tax returns); (d) the charges and expenses of any
stock transfer, dividend agent or registrar appointed by the Fund; (e) broker's
commissions chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; (f) all taxes, including securities
issuance and transfer taxes, and corporate fees payable by the Fund to Federal,
state or other governmental agencies; (g) the cost and expense of engraving or
printing stock certificates representing shares of the Fund; (h) fees involved
in registering and maintaining registrations of the Fund and of its shares with
the SEC and various states and other jurisdictions; (i) all expenses of
stockholders' and Directors' meetings and of preparing, printing and mailing
proxy statements and quarterly, semiannual and annual reports to stockholders;
(j) fees and travel expenses of Directors of the Fund who are not directors,
officers or employees of the Current Advisor 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 Current
Advisor or its Affiliates relating to the valuation of portfolio securities; (q)
postage; and (r) insurance.
Expense Limitations. The Current Advisory Agreement provides that if
expenses of the Fund (including the advisory fee but excluding interest, taxes,
brokerage commissions and extraordinary expenses) in any fiscal year exceed a
specified expense limitation, the Current Advisor will pay the excess to the
Fund. The specified limitation is 1 1/2 % of the first $30 million of the Fund's
average net assets plus 1% of the Fund's average net assets in excess of $30
million. The Current Advisory Agreement provides that extraordinary expenses,
such as litigation expenses and the cost of issuing new shares, are excluded
expenses for purposes of the expense limitations described in this paragraph and
the immediately succeeding paragraph and that the Current Advisor will not be
obligated to pay any amount to the Fund during any fiscal year in excess of the
amount of the advisory fee for such fiscal year.
17
The Current Advisory Agreement also provides for a second expense
limitation, relating to the Fund's gross income (including gains from the sale
of securities without offset or deduction for losses, unpaid interest on debt
securities in the Fund's portfolio, and dividends declared but not paid on
equity securities in the Fund's portfolio). This limitation provides that if,
for any fiscal year, the expenses of the Fund described in the preceding
paragraph -- less any amount payable by the Current Advisor to the Fund on
account of the first expense limitation -- exceed 25% of the Fund's gross income
for the year, the Current Advisor will promptly pay the excess to the Fund;
provided, however, that the Current Advisor will not be obligated to pay any
amount to the Fund during any fiscal year in excess of the amount of the
advisory fee for such year.
For the fiscal year ended December 31, 2005, the Fund's expenses did not
exceed either of these limitations.
Term. The Current Advisory Agreement continues in effect until July 31 of
each year, provided its continuance is specifically approved at least annually
by the vote of a majority of the Directors who are not parties to the Current
Advisory Agreement or Interested Persons of the Fund or the Current Advisor cast
in person at a meeting called for the purpose of voting on such approval, and by
the vote of either the Board of Directors or a majority of the Fund's
outstanding voting securities. The Current Advisory Agreement may be terminated
on 60 days' written notice, without penalty, by a majority vote of the Board of
Directors, by the vote of a majority of the Fund's outstanding voting
securities, or by the Current Advisor, and automatically terminates in the event
of its assignment.
Related Agreements. Pursuant to a Sub-Administration and Sub-Accounting
Agreement dated April 1, 2003 (the "Sub-Administration Agreement"), between the
Current Advisor, Scudder Fund Accounting Corporation and State Street Bank and
Trust Company ("State Street"), the Current Advisor has delegated certain fund
accounting services and certain record keeping and other administrative services
to State Street, 225 Franklin Street, Boston, MA 02110. In accordance with the
terms of the Sub-Administration Agreement, State Street is compensated by the
Current Advisor, not by the Fund, for providing such services. State Street will
not continue to provide these services after June 9, 2006.
DWS Scudder Investments Services Company ("DWS-SISC"), an affiliate of the
Current Advisor, 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 DWS-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
18
for special projects. For the fiscal year ended December 31, 2005, the amount
charged to the Fund by DWS-SISC aggregated $25,198, of which $4,218 was unpaid
as of December 31, 2005. DWS-SISC will not continue to provide these services
after June 9, 2006.
Pursuant to an agreement dated January 15, 2003 (the "Sub-Agency
Agreement") between DWS-SISC and DST Systems, Inc. ("DST"), DWS-SISC has
appointed DST to serve as the Fund's Sub-Transfer Agent and Sub-Dividend
Disbursing Agent. In accordance with the terms of the Sub-Agency Agreement, DST
is compensated by DWS-SISC, not by the Fund, for providing such services. DST
will not continue to provide these services after June 9, 2006.
For the fiscal year ended December 31, 2005, 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.
INTERIM ADVISORY AGREEMENT
The Interim Advisory Agreement was approved by the Board of Directors on
April 18, 2006. The description of the Interim Advisory Agreement in this Proxy
Statement is qualified in its entirety by reference to the copy of the Interim
Advisory Agreement attached to this Proxy Statement as Exhibit C.
Services. The Interim Advisory Agreement requires the New Advisor to
formulate and implement a continuing program for the management of the Fund. The
New Advisor makes all determinations with respect to the investment of the
Fund's assets, including the placement of purchase and sale orders and the
voting of any proxies. The New Advisor bears all its personnel and other
expenses associated with the performance of its services under the Interim
Advisory Agreement.
The Interim Advisory Agreement provides that the New Advisor will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or its stockholders in connection with the performance of its duties
under the Interim Advisory Agreement, except for loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties, from reckless disregard by it of its duties under the Interim Advisory
Agreement or from its violation of applicable law. The Fund and the New Advisor
have certain indemnification obligations with respect to each other. Neither the
Fund nor the New Advisor is responsible for its nonperformance of any of its
obligations under the Interim Advisory Agreement by reason of any cause beyond
its control.
Fees and Expenses. The New Advisor will be paid an annual fee of 0.25%,
payable quarterly, based upon the average of the net assets of the Fund on the
last business day of each calendar month during the quarter. However, the
compensation received by the New Advisor under the Interim Advisory Agreement,
when added to the compensation received by the New Administrator under the New
Administration Agreement may not
19
exceed the compensation the Current Advisor would have received under the
Current Advisory Agreement. The fees are payable at the end of each calendar
quarter.
The Fund is responsible for the Fund's administrative and other direct
expenses, including, but not limited to: (a) fees pursuant to any plan of
distribution that the Fund may adopt; (b) the Fund's brokerage and commission
expenses, including all ordinary and reasonable transaction costs; (c) fees and
expenses of pricing services used by the Fund to determine the value of the
Fund's holdings; (d) Federal, state, local and foreign taxes, including issue
and transfer taxes incurred by or levied on the Fund; (e) interest charges on
any Fund borrowings; (f) the Fund's organizational and offering expenses, if
any; (g) fees and expenses of registering the Fund's shares under the
appropriate Federal securities laws and of qualifying the Fund's shares under
applicable state securities laws and pursuant to any foreign laws; (h) expenses
of printing and distributing reports to the Fund's stockholders, proxy
materials, prospectuses and distribution of dividends; (i) costs of the Fund's
shareholders' meetings and proxy solicitation; (j) charges and expenses of the
Fund's custodian and registrar, transfer agent and dividend disbursing agent;
(k) compensation of the Fund's officers, directors and employees (other than
compensation for the Fund's officers that is payable by the New Administrator);
(l) the Fund's legal and auditing expenses; (m) cost of certificates
representing shares of the Fund; (n) the Fund's costs of stationery and
supplies; (o) the Fund's insurance expenses; (p) the Fund's association
membership dues; and (q) travel expenses for attendance at Board meetings by
members of the Board of Directors.
Term. The Interim Advisory Agreement will become effective as of June 9,
2006, and will remain in force until a definitive agreement between the Fund and
the New Advisor is approved by the stockholders of the Fund or until November 6,
2006, whichever occurs earlier.
NEW ADVISORY AGREEMENT
The New Advisory Agreement was approved by the Board of Directors on April
18, 2006. The description of the New Advisory Agreement in this Proxy Statement
is qualified in its entirety by reference to the copy of the New Advisory
Agreement attached to this Proxy Statement as Exhibit D.
The New Advisory Agreement is substantially similar to the Interim Advisory
Agreement, except for its effective and termination dates and the compensation
payable to the New Advisor. The New Advisory Agreement will become effective on
the date it is approved by stockholders and will remain in force until July 31,
2007. Thereafter, the New Advisory Agreement may be continued for successive
annual periods if approved by a majority of the Directors who are not parties to
the New Advisory Agreement or Interested Persons of the Fund or the New Advisor,
and by the Board or a majority of the
20
outstanding shares of the Fund. The New Advisory Agreement may be terminated at
any time in the same manner as the Interim Advisory Agreement.
The compensation payable to the New Advisor under the New Advisory
Agreement will be the same as that under the Interim Advisory Agreement, except
that it will not be limited to the amount, when added to the compensation to be
received by the New Administrator under the New Administration Agreement, the
Current Advisor would have received under the Current Advisory Agreement.
NEW ADVISOR
Hartford Investment Management Company, 55 Farmington Avenue, Hartford,
Connecticut 06105, is a professional money management firm that provides
services to investment companies, employee benefit plans, its affiliated
insurance companies, and other institutional accounts. The New Advisor is a
wholly-owned subsidiary of The Hartford Financial Services Group, Inc. ("The
Hartford"), a diversified insurance and financial services company. As of
December 31, 2005, the New Advisor had investment management authority over $116
billion in assets.
The New Advisor is a Delaware corporation. The following table sets forth
certain information concerning the principal executive officer and each director
of the New Advisor. The address of each individual is c/o Hartford Investment
Management Company, 55 Farmington Avenue, Hartford, Connecticut 06105.
<Table>
<Caption>
NAME PRINCIPAL OCCUPATION
---- --------------------
David M. Znamierowski...... Director and President of the New Advisor
Director and Chief Operating Officer of the New
Leonard J. Saltiel......... Advisor
M. Timothy Corbett......... Director and Managing Director of the New Advisor
William H. Davison......... Director and Managing Director of the New Advisor
</Table>
Exhibit E sets forth the fees and other information regarding investment
companies managed by the New Advisor that have similar investment objectives to
those of the Fund.
COMPARISON OF CURRENT ADVISORY AGREEMENT AND NEW ADVISORY AGREEMENT
The New Advisory Agreement differs from the Current Advisory Agreement in
certain material respects. Under the Current Advisory Agreement, the Current
Advisor is required to provide administrative services and officers to the Fund.
Under the New Advisory Agreement, the New Advisor is not required to provide
administrative services or Fund officers. Those services and officers will be
provided by the New Administrator pursuant to the New Administration Agreement.
Under the Current Advisory Agreement, the Fund pays the Current Advisor,
for advisory and administrative services, 0.50% of net assets up to $100
million, 0.45% of net
21
assets between $100 and $150 million, 0.40% of net assets between $150 and $200
million, and 0.35% of net assets over $200 million. Under the New Advisory
Agreement, the Fund would pay the New Advisor an annual fee of 0.25% of net
assets for advisory services only. Under the New Administration Agreement, the
Fund will pay the New Administrator, for administrative services only, 0.25% of
net assets up to $100 million, 0.20% of net assets between $100 and $200
million, and 0.15% of net assets over $200 million. For the fiscal year ended
December 31, 2005, the Fund paid the Current Advisor an aggregate fee of
$930,160. If the New Advisory Agreement and New Administration Agreement had
been in effect for that year, the Fund would have paid the New Advisor and the
New Administrator an aggregate fee of $955,857. This fee would have been 103% of
the fee actually paid to the Current Advisor for the same period.
The Current Advisory Agreement provides for two expense limitations: one if
the ordinary expenses of the Fund exceed 1.5% of the first $30 million of net
assets and 1.0% of net assets over $30 million; and the other if these expenses
exceed 25% of the Fund's gross income. In such cases, the Current Advisor is
required to pay any excess to the Fund. For at least the last 10 fiscal years,
the Fund's expenses did not exceed these limitations. The New Advisory Agreement
does not contain these limitations.
DWS-SISC, an affiliate of the Current Advisor, currently serves as the
Fund's transfer agent and dividend disbursing agent. Mellon Investor Services,
which is not affiliated with the New Advisor, will serve as the new transfer
agent and dividend disbursing agent of the Fund.
NEW SERVICE PROVIDERS
New Administrator. Jackson Fund Services, a division of Jackson National
Asset Management, LLC, 225 West Wacker Drive, Suite 1200, Chicago, Illinois
60606, will become the new administrator of the Fund as of June 9, 2006,
replacing the Current Advisor and State Street. Under the New Administration
Agreement, the New Administrator is required to provide the Fund's officers,
fund accounting, fund administration, Board support, investor servicing, and
oversight of the Fund's other service providers. For these services, the Fund
will pay the New Administrator an annual fee of 0.25% of net assets up to $100
million, 0.20% of net assets from $100 million to $200 million, and 0.15% of net
assets greater than $200 million.
New Custodian. Mellon Bank, N.A. ("Mellon Bank") will become the new
custodian of the Fund as of June 9, 2006, replacing State Street. Under the Fund
Custody and Services Agreement between the Fund and Mellon Bank, Mellon Bank
will have custody of the Fund's assets and will act as the Fund's foreign
custody manager and primary custodian.
22
New Transfer Agent. Mellon Investor Services LLC ("Mellon Investor
Services"), an affiliate of Mellon Bank, will become the new transfer agent,
registrar and dividend disbursing agent of the Fund as of June 9, 2006,
replacing DWS-SISC and DST.
New Plan Agent. Mellon Investor Services will become the new plan agent of
the Fund's Dividend Reinvestment and Cash Purchase Plan as of June 9, 2006,
replacing UMB Bank, N.A.
PRO FORMA EXPENSES
The following table shows the fees and expenses paid by the Fund and its
stockholders for the fiscal year ended December 31, 2005 compared to those
estimated to be paid if the New Advisory Agreement is approved.
<Table>
<Caption>
2005 ACTUAL 2006 PRO FORMA(1)
----------- -----------------
STOCKHOLDER TRANSACTION EXPENSES
Additional Purchase under Dividend Reinvestment
and Cash Purchase Plan(2)................... $ 1.00 $ 1.00
Sale under Dividend Reinvestment and Cash
Purchase Plan(2)............................ $ 2.50 $ 2.50
ANNUAL OPERATING EXPENSES (as a percentage of net
assets)
Management Fees................................ 0.46%(3) 0.25%
Administration Fees............................ 0.00% [0.23%]
Other Operating Expenses....................... 0.28% [0.27%](4)
Total Annual Operating Expenses............. 0.74% [0.75%]
</Table>
<Table>
<Caption>
- ------------------------------------------------------------------------------------
EXAMPLE(1,4,5) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
A stockholder would pay the following $8 $24 $42 $93
expenses on a $1,000 investment,
assuming a 5% annual return throughout
the periods.
- ------------------------------------------------------------------------------------
</Table>
- ---------------------
(1) Assumes New Advisory Agreement, New Administration Agreement and new
agreements with Mellon Bank and Mellon Investor Services are in effect, and
the net assets of the Fund are the same as the net assets of the Fund on
December 31, 2005. The New Advisory Agreement will not go into effect unless
and until approved by stockholders. The New Administration Agreement and new
agreements with Mellon Bank and Mellon Investor Services go into effect on
June 9, 2006 and will remain in effect whether or not the New Advisory
Agreement is approved.
(2) Fee per transaction. Does not include brokerage commissions. Additional
purchases consist of voluntary cash investments under the cash purchases
feature of the Dividend Reinvestment and Cash Purchase Plan (the
23
"Plan"), as opposed to dividend reinvestments. There is generally no transaction
fee for dividend reinvestments under the Plan.
(3) Includes both investment advisory and administration fees.
(4) Based on estimated amounts for the 2006 fiscal year
(5) Assumes that net assets and Annual Operating Expenses remain the same each
year and that all dividends and distributions are reinvested.
The purpose of the foregoing table and example is to assist a stockholder
in understanding the various costs and expenses that the stockholder will bear
directly or indirectly after the transition to the New Advisor and the New
Administrator. As indicated by the table, it is estimated that the combined
Management and Administration Fees will be 0.02% higher, as a percentage of net
assets, than those under the Current Advisor and that all Other Operating
Expenses of the Fund will be 0.01% lower, as a percentage of net assets, than
those under the Current Advisor. Of the Other Operating Expenses, it is
anticipated that transfer agent, custodian and other (including securities
pricing) expenses of the Fund will be lower and insurance costs of the Fund will
be higher. As a result, it is expected that the Total Operating Expenses of the
Fund after the transition to the New Advisor will be approximately 0.01% higher
than those under the Current Advisor. The table and the example should not be
considered a representation of future expenses. Actual expenses may be greater
or lesser than those shown.
BOARD CONSIDERATIONS
At a meeting held on April 18, 2006, the Board of Directors, including the
Independent Directors, voted to approve the Interim Advisory Agreement and the
New Advisory Agreement and to recommend that the stockholders of the Fund
approve the New Advisory Agreement at the Annual Meeting.
At the April 18 meeting, the Board of Directors reviewed, among other
information, written and oral reports and compilations from the New Advisor,
including comparative data from independent sources as to investment
performance, advisory fees and other expenses. The Board of Directors also
considered the written and oral advice of Callan in connection with the search
process, the Board's interviews and negotiations with the search candidates, and
the written and oral presentations of the New Administrator as to the
administration of the Fund.
In approving the Interim Advisory Agreement and the New Advisory Agreement,
the Board of Directors considered the following factors, among others:
Nature, Extent and Quality of Services. The Board examined the nature,
extent and quality of the advisory services to be provided to the Fund by the
New Advisor. The Board considered the terms of the Interim Advisory Agreement
and the New Advisory Agreement, the experience and qualifications of the New
Advisor and its personnel in managing fixed-income instruments, and the proposed
investment strategy to be employed by the
24
New Advisor. The Board also considered the experience of the New Advisor in
managing open- and closed-end funds, the availability of the New Advisor's
personnel, the extent and quality of information provided by the New Advisor to
the Board, the New Advisor's compliance policies and procedures and attention to
compliance matters, and the extent of any regulatory issues relating to the New
Advisor or its affiliates. Further, the Board considered the stability of the
New Advisor's organization and turnover in its personnel, the overall commitment
of the New Advisor to the Fund, and the general financial condition, resources
and reputation of the New Advisor and its parent. The Board was generally
satisfied with the nature, extent and quality of the advisory services to be
provided to the Fund.
Investment Performance. The Board reviewed the investment performance of
the New Advisor over various periods, as compared to the performance of relevant
indices, of the Fund and of other similar funds. The Board also reviewed with
Callan the ways in which the investment strategies employed by the New Advisor
contributed to its investment performance. The performance data showed, among
other things, that the New Advisor's core plus fixed income strategy
outperformed the Fund's benchmark index, the Lehman Brothers Aggregate Bond
Index, for the 1, 3, 5 and 7 years, and the Fund for the 1, 5 and 7 years, ended
December 31, 2005. The performance data also showed that the New Advisor's core
plus fixed income strategy achieved top quartile performance for the 5 year
period ended December 31, 2005 relative to a universe of other core plus fixed
income managers. The Board was generally satisfied with the investment
performance of the New Advisor.
Cost of Services. The Board examined the cost of the services to be
provided to the Fund by the New Advisor, including comparable expense
information concerning other similar funds and certain non-fund accounts of the
New Advisor employing similar investment strategies. The advisory fee to be
charged by the New Advisor appeared to be comparable to that charged to the
non-fund accounts and below that charged to other similar funds, although the
services provided to the other similar funds may have included administration in
some cases. It was noted that, in connection with its search, the Board had
solicited fee proposals from several potential investment advisor candidates and
that the fee to be charged by the New Advisor for advisory services was among
the lowest fees proposed. The Board concluded that the advisory fee to be
charged by the New Advisor was generally competitive.
Profits Realized. The Board considered the profits to be realized by the
New Advisor from its relationship with the Funds. The New Advisor informed the
Board that it did not prepare separate financial statements in accordance with
generally accepted accounting principles and that a significant portion of the
assets it manages are managed for affiliates on a cost basis. As a result, the
New Advisor was not able to provide
25
meaningful profitability information to the Board, but assured the Board that
any profits it expected to generate from the Fund would be moderate. The Board
requested that the New Advisor provide profitability information as soon as
practicable, but in any event prior to the Board's first annual review of the
New Advisory Agreement. The Board was comforted by the fact that the New Advisor
was selected as a result of a competitive search process and that the advisory
fee to be charged by the New Advisor was among the lowest fees proposed. The
Board recognized that the New Advisor was entitled to earn a profit for the
services it furnishes and concluded, based on the information provided, that the
profit expected to be earned by the New Advisor would not be excessive.
Economies of Scale. The Board considered the extent to which economies of
scale could be realized as the Fund grows and whether the advisory fee to be
charged by the New Advisor reflects these economies of scale for the benefit of
Fund investors. It was noted that, as a closed-end fixed income fund making
regular dividend distributions, the assets of the Fund were not expected to
increase materially. Accordingly, the Board negotiated with the New Advisor a
fixed fee rate taking into account the current size of the Fund. In the event
the size of the Fund does increase materially in the future, the Board will
consider whether the advisory fee should be adjusted to reflect any economies of
scale.
Other Benefits. The Board recognized that the New Advisor and its
affiliates may derive other benefits from its relationship with the Fund,
including the use of the Fund's performance record in marketing other products,
the inclusion of the Fund on its client list, the aggregation of the Fund's
purchase orders with other accounts, and the potential use of soft dollars
generated by the Fund to acquire research and brokerage services for the New
Advisor as permitted by applicable law.
In addition to the foregoing factors, among others, the Board considered
its ability to terminate the Interim Advisory Agreement and the New Advisory
Agreement on 60 days' notice, the conduct and results of the independent search
process, and the alternatives available, including a sale or liquidation of the
Fund. In its deliberations, the Board did not identify any particular factor or
factors that were all-important or controlling, and each Director assigned
different weights to the various factors considered.
REQUIRED VOTE
Approval of the continuance of the New Advisory Agreement by stockholders
requires the affirmative vote of the holders of a majority of the Fund's
outstanding shares. In this context, "majority" means the lesser of two votes:
(1) 67% of the Fund's outstanding shares present at the Annual Meeting if the
holders of more than 50% of the outstanding shares are present in person or by
proxy, and (2) more than 50% of all of the Fund's outstanding shares. If the New
Advisory Agreement is approved at the Annual
26
Meeting, the New Advisory Agreement will remain in force until July 31, 2007. If
the New Advisory Agreement is not approved at the Annual Meeting, the Board of
Directors will make such arrangements for the management of the Fund as it deems
appropriate and in the best interest of the Fund and its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF THE FUND VOTE
FOR THE APPROVAL OF THE NEW ADVISORY AGREEMENT.
STOCKHOLDER PROPOSALS FOR 2007 PROXY STATEMENT
Stockholders wishing to submit proposals for inclusion in a proxy statement
for the 2007 meeting of stockholders of the Fund should send their written
proposals to Montgomery Street Income Securities, Inc., c/o Jackson Fund
Services, 225 West Wacker Drive, Suite 1200, Chicago, Illinois 60606, by January
22, 2007. 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 2007 meeting of stockholders which are not
included in the proxy statement and form of proxy, if notice of such proposals
is not received by the Fund at the above address by April 5, 2007. Even if
timely notice is received, the Fund may exercise discretionary voting authority
in certain other circumstances. Discretionary voting authority is the ability to
vote proxies that stockholders have executed and returned to the Fund on matters
not specifically reflected on the form of proxy.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than those mentioned in this Proxy Statement. The appointed
proxies will vote on any other business that comes before the Annual Meeting or
any adjournments or postponements thereof in accordance with their best
judgment.
Please complete and sign the enclosed proxy card and return it in the
envelope provided so that the Annual Meeting may be held and action may be taken
on the matters described in this Proxy Statement with the greatest possible
number of shares participating. This will not preclude your voting in person if
you attend the Annual Meeting.
/s/ John Millette
John Millette,
May 19, 2006 Secretary
27
EXHIBIT A
MONTGOMERY STREET INCOME SECURITIES, INC.
("FUND")
AUDIT COMMITTEE CHARTER
This document constitutes the Charter of the Audit Committee ("Committee")
of the Board of Directors of 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, as amended) of the Fund, who do not
accept directly or indirectly any consulting, advisory or other compensatory
fees from the Fund or from the Fund's investment adviser or its affiliates
(except fees for services as a Director), and who satisfy any requirements
with respect to independence, expertise and/or availability established by
the exchange on which the Fund's shares are traded.
2. Meetings. The Committee shall meet on a regular basis as necessary or
appropriate and is empowered to hold special meetings as circumstances
require.
3. Committee Purposes. The purposes of the Committee are as follows:
(a) To review the Fund's accounting and financial reporting policies and
practices, the Fund's internal controls over financial reporting
(including disclosure controls and procedures) and, as the Committee
deems appropriate, the internal controls over financial reporting of
certain Fund service providers;
(b) To review the quality, objectivity and integrity of the Fund's financial
statements and the independent audit thereof;
(c) To review the Fund's compliance with legal and regulatory requirements
that relate to the Fund's accounting and financial reporting, internal
controls over financial reporting, and independent audits;
(d) To exercise direct responsibility for the appointment, compensation,
retention and oversight of the work performed by the Fund's independent
auditors for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the Fund, and, in
connection therewith, to review the independent auditors' qualifications
and independence; and
(e) To act as a liaison between the independent auditors and the full Board
of Directors; and
(f) To prepare an audit committee report to be included in the Fund's annual
proxy statement.
A-1
The function of the Audit Committee is oversight; it is management's
responsibility to maintain or arrange for the maintenance of appropriate systems
for accounting and internal controls (including disclosure controls and
procedures), and the auditor's responsibility to plan and carry out a proper
audit.
4. Duties and Powers. To carry out the purposes specified in Paragraph 3 above,
the Committee shall have the following duties and powers:
(a) To approve the selection, retention or termination of the independent
auditors, to review and approve the terms and scope of the annual audit
of the Fund and any special audits, and to approve the fees and other
compensation to be paid to the independent auditors by or on behalf of
the Fund;
(b) To request and evaluate on an annual basis a formal written statement
from the independent auditors delineating all significant relationships
that the independent auditors have with the Fund and the investment
adviser and its affiliates, and to consider whether the provision of
non-audit services rendered by the independent auditors to the Fund and
the Fund's investment adviser and its affiliates is compatible with the
independent auditors' independence;
(c) To obtain and review, at least annually, a report by the independent
auditors describing: the audit firm's internal quality-control
procedures; any material issues raised by the most recent internal
quality-control review, or peer review, of the audit firm, or by any
inquiry or investigation by governmental or professional authorities,
within the preceding five years, respecting one or more independent
audits carried out by the audit firm, and any steps taken to deal with
any such issues; and (to assess the auditor's independence) all
relationships between the independent auditor and the Fund;
(d) (i) To review and discuss with management and the independent auditors
the Fund's annual audited financial statements, including management's
discussion of the Fund's performance, and discuss any matters of concern
relating thereto, including any adjustments to such statements
recommended by the auditors, regulatory and tax compliance matters
considered in the preparation of the financial statements, or other
results of said audit(s); (ii) to review with the independent auditor any
audit problems or difficulties and management's response; (iii) to
consider the auditors' comments with respect to the Fund's financial
policies and procedures, internal accounting controls and disclosure
controls and procedures, and management's responses thereto; (iv) to
review the form of the opinion the auditors propose to render to the
Board of Directors and the shareholders of the Fund; (v) to review any
other reports, representations or communications from the independent
auditors regarding matters within the scope of the Committee's
responsibilities under this Charter; (vi) as the
A-2
Committee or the Chairman of the Committee, pursuant to delegation, may
deem necessary, to review and discuss with management and/or the
independent auditors the Fund's semi-annual and quarterly financial
statements; and (vii) to consider, at the Committee's discretion, such
other information that the Committee believes may be relevant to the
audit and the Fund's financial policies and procedures, internal
accounting controls and disclosure controls and procedures;
(e) To determine whether to recommend to the Board of Directors that the
Fund's audited financial statements be included in the Annual Report and
to perform such additional functions as may be required under rules and
regulations promulgated by the Securities and Exchange Commission and the
New York Stock Exchange;
(f) To meet separately, periodically, with management and with the
independent auditors to discuss any matters that the Committee or such
parties believe necessary or appropriate to raise, and to review and
consider any reports or communications from any such parties relating to
the operations of the Fund;
(g) To establish procedures for the approval, in advance, of the engagement
of the independent auditors to provide (i) audit or permissible non-audit
services to the Fund, and (ii) non-audit services to the Fund's
investment adviser (and any affiliate that provides services to the Fund)
that relate directly to the Fund's operations and financial reporting;
(h) To review, annually, with Fund management and the independent auditors,
the Fund's disclosure controls and procedures, a report by Fund
management covering any Form N-CSR filed, and any required certification
of such filing, along with the results of Fund management's most recent
evaluation of the Fund's disclosure controls and procedures;
(i) To establish procedures for the receipt, retention and treatment of
complaints received by the Fund regarding accounting, internal
accounting controls or auditing matters and the confidential, anonymous
submission by officers of the Fund or employees of the investment
adviser, administrator, principal underwriter, or any other provider of
accounting related services to the Fund of concerns regarding suspected
fraud of any type related to the Fund, including without limitation
questionable accounting or auditing matters; and
(j) To report its activities to the full Board of Directors on a regular
basis and to make such recommendations with respect to the above and
other matters as the Committee may deem necessary or appropriate.
5. Other Responsibilities. The Committee shall (i) discuss generally the Fund's
policies with respect to risk assessment and risk management; (ii) set clear
hiring policies for the Fund and the investment adviser with respect to
employees or former employees of the independent auditors; (iii) review the
Fund's policy with respect to earnings
A-3
press releases, as well as to financial information and earnings guidance
provided to analysts and rating agencies; and (iv) review, annually, the
performance of the Committee.
6. Role of Independent Auditors. The Fund's independent auditors are ultimately
accountable to the Committee and must report directly to the Committee.
7. Resources and Authority. The Committee shall have the resources and
authority appropriate for purposes of discharging its responsibilities under
this Charter, including the authority to engage independent counsel and/or to
retain, at the Fund's expense, such experts or consultants as the Committee
deems necessary or appropriate to fulfill such responsibilities.
8. Periodic Review of Charter. The Committee shall review this Charter at least
annually and recommend any changes to the full Board of Directors.
Effective: June 9, 2006
A-4
Exhibit B
MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT
BETWEEN
MONTGOMERY STREET INCOME SECURITIES, INC.
AND
DEUTSCHE INVESTMENT MANAGEMENT AMERICAS INC.
AGREEMENT made and effective as of the 15th day of August 2002 by and
between Montgomery Street Income Securities, Inc., a Maryland corporation
(hereinafter called the "Fund"), and Deutsche Investment Management Americas
Inc. (hereinafter called the "Manager").
WHEREAS, the Fund engages in business as a closed-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended; and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940 and is engaged in the business of providing
investment advice; and
WHEREAS, the Fund desires to retain the Manager to render such
services in the manner and on the terms and conditions hereinafter set forth;
and
WHEREAS, the Manager desires to perform such services in the manner
and on the terms and conditions hereinafter set forth;
NOW, THEREFORE, this Agreement
WITNESSETH:
that in consideration of the foregoing and of the premises and covenants
hereinafter contained, the Fund and the Manager agree as follows:
1. The Fund hereby employs the Manager to provide investment advisory,
statistical and research facilities and services, to supervise the composition
of the Fund's portfolio, to determine the nature and timing of changes therein
and the manner of effectuating such changes and to cause the purchase and sale
of portfolio securities, subject to overall supervision by the Fund's Board of
Directors, all for the period and on the terms set forth in this Agreement. The
Manager hereby accepts such employment and agrees to render the services and to
assume the obligations herein set forth, for the compensation herein provided.
2. The Manager shall, at its expense:
(a) Furnish to the Fund research and statistical and other factual
information and reports with respect to securities held by the Fund or which the
Fund might purchase. It shall also furnish to the Fund such information as may
be appropriate concerning developments which may affect issuers of securities
held by the Fund or which the Fund might purchase or the business in which such
issuers may be engaged. Such statistical and other factual information and
reports shall include information and reports on industries, businesses,
corporations and all types of securities which the Fund is empowered to
purchase, whether or not the Fund has at any time any holdings in such
industries, businesses, corporations or securities.
(b) Furnish to the Fund, from time to time, advice, information and
recommendations with respect to the acquisition, holding or disposal by the Fund
of securities in which
B-1
the Fund is permitted to invest in accordance with its investment objectives,
policies and limitations ("Eligible Securities"), and subject to overall
supervision of the Board of Directors of the Fund, arrange purchases and sales
of Eligible Securities on behalf of the Fund.
(c) Furnish to the Fund necessary assistance in, as reasonably
requested by the Fund:
(i) The preparation and filing of all reports (including Form
N-SAR) now or hereafter required by Federal or other laws or regulations.
(ii) The preparation and filing of prospectuses and registration
statements (including Form N-2) and amendments thereto that may be required
by Federal or other laws or by the rule or regulation of any duly
authorized commission or administrative body. However, the Manager shall
not be obligated to pay the costs of preparation, printing or mailing of
prospectuses being used in connection with sales of the Fund's shares or
otherwise, unless otherwise provided herein.
(iii) The preparation and filing of all proxy materials.
(iv) Making arrangements for all Board and stockholders meetings
and, to the extent requested by the Board of Directors of the Fund,
participating in those meetings.
(v) The preparation and filing of quarterly, semiannual and
annual reports and other communications to stockholders.
(vi) Responding to questions and requests from stockholders, the
financial press and the financial services community.
(vii) Providing data to the various publications and services
which track fund performance.
(viii) Providing information and reports to the New York Stock
Exchange and any other exchange on which the Fund's shares are listed.
(ix) The valuation of the Fund's portfolio on a weekly basis.
(x) The maintenance of the accounting records (including book and
tax) of the Fund required by Federal and other laws and regulations.
(xi) Providing information to and answering questions of the
Fund's auditors.
(xii) Monitoring the services, and reviewing the records,
provided by the transfer agent and registrar, the dividend disbursing agent
and the custodian.
(d) Furnish the necessary personnel to provide the services set forth
herein.
(e) Furnish to the Fund office space at such place as may be agreed
upon from time to time, and all necessary office facilities, basic business
equipment, supplies, utilities, property casualty insurance and telephone
service for managing the affairs and investments and keeping the general
accounts and records of the Fund (exclusive of the necessary records of any
transfer agent, registrar, dividend disbursing or reinvesting agent, or
custodian), and arrange, if desired by the Board of Directors
B-2
of the Fund, for officers or employees of the Manager to serve, without or with
compensation from the Fund, as officers, directors or employees of the Fund.
(f) Advise the Board of Directors of the Fund promptly of any change
in any senior investment or administrative personnel providing services to the
Fund.
3. Subject to the prior approval of a majority of the members of the
Fund's Board of Directors, including a majority of the Directors who are not
"interested persons," as defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act"), the Manager may, through a sub-advisory
agreement or other arrangement, delegate to any other company that the Manager
controls, is controlled by, or is under common control with, or to specified
employees of any such company, or to more than one such company, to the extent
permitted by applicable law, certain of the Manager's duties enumerated in
paragraph 2 hereof; provided, that the Manager shall continue to supervise the
services provided by such companies or employees and any such delegation shall
not relieve the Manager of any of its obligations hereunder.
Subject to the provisions of this Agreement, the duties of any
sub-adviser or delegate, the portion of portfolio assets of the Fund that the
sub-adviser or delegate shall manage and the fees to be paid to the sub-adviser
or delegate by the Manager under and pursuant to any sub-advisory agreement or
other arrangement entered into in accordance with this Agreement may be adjusted
from time to time by the Manager, subject to the prior approval of a majority of
the members of the Fund's Board of Directors, including a majority of the
Directors who are not "interested persons," as defined in the Investment Company
Act.
4. Except as otherwise expressly provided herein, the Fund assumes and
shall pay or cause to be paid all costs and expenses of the Fund, including,
without limitation: (a) all costs and expenses incident to: (i) the registration
of the Fund under the Investment Company Act, or (ii) any public offering of
shares of the Fund, for cash or otherwise, including those costs and expenses
relating to the registration of shares under the Securities Act of 1933, as
amended (the "Securities Act"), the qualification of shares of the Fund under
state securities laws, the printing or other reproduction and distribution of
any registration statement (and all amendments thereto) under the Securities
Act, the preliminary and final prospectuses included therein, and any other
necessary documents incident to any public offering, the advertising of shares
of the Fund and the review by the National Association of Securities Dealers,
Inc. of any underwriting arrangements; (b) the charges and expenses of any
registrar or any custodian appointed by the Fund for the safekeeping of its
cash, portfolio securities and other property; (c) the charges and expenses of
auditors (including preparation of tax returns); (d) the charges and expenses of
any stock transfer, dividend agent or registrar appointed by the Fund; (e)
broker's commissions chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; (f) all taxes, including
securities issuance and transfer taxes, and corporate fees payable by the Fund
to Federal, state or other governmental agencies; (g) the cost and expense of
engraving or printing of stock certificates representing shares of the Fund; (h)
fees involved in registering and maintaining registrations of the Fund and of
its shares with the Securities and Exchange Commission and various states and
other jurisdictions; (i) all expenses of stockholders' and directors' meetings
and of preparing, printing and mailing proxy statements and quarterly,
semiannual and annual reports to stockholders; (j) fees and travel expenses of
directors of the Fund who are not directors, officers or employees of the
Manager or its "affiliates" (as defined in the Investment Company Act); (k) all
fees and expenses incident to any dividend or distribution reinvestment program;
(l) charges and expenses of outside legal counsel in connection with matters
relating to the Fund, including without limitation, legal services rendered in
connection with the Fund's corporate and financial structure and relations with
its stockholders, issuance of Fund shares, and registrations and qualifications
of securities under Federal, state and other laws; (m) association dues; (n)
interest payable on Fund borrowings; (o) fees and expenses
B-3
incident to the listing of Fund shares on any stock exchange; (p) costs of
information obtained from sources other than the Manager or its "affiliates" (as
defined in the Investment Company Act) relating to the valuation of portfolio
securities; and (q) postage.
5. The Fund agrees to pay to the Manager, as full compensation for the
services to be rendered and expenses to be borne by the Manager hereunder, an
annual fee, payable monthly, equal to .50 of 1% of the value of the net assets
of the Fund up to and including $100 million; .45 of 1% of the value of the net
assets of the Fund over $100 million and up to and including $150 million; .40
of 1% of the value of the net assets of the Fund over $150 million up to and
including $200 million; and .35 of 1% of the value of the net assets of the Fund
over $200 million. For purposes of computing the monthly fee, the value of the
net assets of the Fund shall be determined as of the close of business on the
last business day of each month; provided, however, that the fee for the period
from the end of the last month ending prior to termination of this Agreement,
for whatever reason, to the date of termination shall be based on the value of
the net assets of the Fund determined as of the close of business on the date of
termination, and the fee for such period and for the period from the effective
date of this Agreement through the end of the month in which the effective date
falls will be prorated according to the proportion which such period bears to a
full monthly period. Each payment of a monthly fee to the Manager shall be made
within the ten days next following the day as of which such payment is so
computed.
6. (a) In the event the expenses of the Fund, including amounts
payable to the Manager pursuant to paragraph 5 hereof (but excluding interest,
taxes, brokerage commissions and extraordinary expenses, such as litigation
expenses and the cost of issuing new shares), exceed one and one-half percent
(1-1/2%) of the first thirty million dollars ($30,000,000) of the average net
assets of the Fund, plus one percent (1%) of the average net assets of the Fund
in excess of $30,000,000, in each case computed by dividing (i) the sum of the
net asset values of the Fund as of the last business day of each week of such
fiscal year or of each week during such fiscal year during which this Agreement
was in effect, as the case may be, by (ii) the number of weeks of such fiscal
year or the number of weeks (including a partial week) during which the
Agreement is in effect during such fiscal year, as the case may be, the Manager
shall pay to the Fund the amount of such excess as soon as practicable after the
end of such fiscal year, and in all events prior to the publication of the
annual report of the Fund for such fiscal year; provided, however, that the
Manager shall not be obligated to pay any amount to the Fund during any fiscal
year in excess of the amount of the advisory fee for such fiscal year.
(b) At the end of each month of each fiscal year of the Fund, the
Manager shall review the expenses of the Fund as outlined in subparagraph (a) of
this paragraph 6 which have accrued to and including the period ending with such
month and shall estimate such contemplated expenses to the end of such fiscal
year. If, as a result of such review and estimate, it appears likely that the
expense limitation provided for in subparagraph (a) of this paragraph 6 will be
exceeded for such fiscal year, the Manager's fee for such month, as provided in
paragraph 5 hereof, shall be reduced, subject to later adjustment, by an amount
equal to a pro rata portion (prorated on the basis of the remaining months of
the year including the month just ending) of the amount by which the sum of such
expenses of the Fund for such fiscal year are expected to exceed the expense
limitation.
(c) If, for any fiscal year of the Fund ending on a date on which this
Agreement is in effect, the expenses of the Fund which are includable within the
expense limitation described in subparagraph (a) of this paragraph 6 (but
reduced by an amount, if any, payable by the Manager pursuant to subparagraph
(a) of this paragraph 6), exceed twenty-five percent (25%) of the gross income
of the Fund for such fiscal year, the Manager will pay the amount of such excess
to the Fund promptly and in all events prior to the publication of the Fund's
annual report for such fiscal year; provided, however, that the Manager shall
not be obligated to pay any amount to the Fund during any fiscal year in excess
of the amount of the advisory fee for such fiscal year. For purposes of this
subparagraph (c), "gross income of
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the Fund" shall include, but not be limited to, gains from the sale of
securities, without offset or deduction for losses from the sale of securities,
unpaid interest on debt securities in the Fund's portfolio, accrued to and
including the last day of such fiscal year, and dividends declared but not paid
on equity securities in the Fund's portfolio, the record dates for which fall on
or prior to the last day of such fiscal year.
7. The services of the Manager to the Fund are not to be deemed
exclusive, and the Manager shall be free to engage in any other business or to
render investment advisory or management services of any kind to any other
corporation, firm, trust, individual or association, including any other
investment company, so long as its services hereunder are not impaired thereby.
Nothing in this Agreement shall limit or restrict the right of any director,
officer or employee of the Manager to engage in any other business or to devote
his time and attention in part to the management or other aspects of any other
business, whether of a similar or dissimilar nature.
8. Subject to paragraph 9 hereof, the Manager shall not be responsible
for any action of the Board of Directors of the Fund or any committee thereof in
following or declining to follow any advice or recommendation of the Manager.
The Manager shall be entitled to rely on express written instructions of the
President or any Vice President of the Fund or of a majority of the Board of
Directors of the Fund.
9. Neither the Manager, nor any director, officer, agent or employee
of the Manager shall be liable or responsible to the Fund or its stockholders
except for willful misfeasance, bad faith, gross negligence or reckless
disregard of their respective duties. The Fund will hold the Manager harmless
against judgments, but not expenses of defense or settlements, rendered against
the Manager which (a) result from specific actions or omissions by the Manager
in respect of the performance of its obligations hereunder, which specific acts
or omissions occur as a result of express written instructions of the President
or any Vice President of the Fund or of a majority of the Board of Directors of
the Fund, and (b) arise in actions in which there is an express finding that
such specific acts or omissions did not constitute willful misfeasance, bad
faith, gross negligence or reckless disregard of its duty.
10. The Manager shall not be liable or responsible for any acts or
omissions of any predecessor manager or of any other persons having
responsibility for matters to which this Agreement relates, nor shall the
Manager be responsible for reviewing any such acts or omissions. The Manager
shall, however, be liable for its own acts and omissions subsequent to assuming
responsibility under this Agreement as herein provided.
11. This Agreement shall remain in effect until July 31, 2003, unless
sooner terminated as hereinafter provided. This Agreement shall continue in
effect from year to year thereafter provided its continuance is specifically
approved at least annually by vote of a majority of the outstanding voting
securities of the Fund or by vote of the Board of Directors of the Fund, and by
a majority of the members of the Board of Directors of the Fund who are not
parties to this Agreement or "interested persons" (as defined in the Investment
Company Act) of any party to this Agreement, which vote must be cast in person
at a meeting called for the purpose of voting on approval of the terms of this
Agreement and its continuance; provided, however, that (a) the Fund may, at any
time and without the payment of any penalty, terminate this Agreement upon sixty
days' written notice to the Manager either by majority vote of the Board of
Directors of the Fund or by the vote of a majority of the outstanding voting
securities of the Fund; (b) this Agreement shall immediately terminate in the
event of its assignment (within the meaning of the Investment Company Act)
unless such automatic termination shall be prevented by an exemptive order of
the Securities and Exchange Commission; and (c) the Manager may terminate this
Agreement without payment of penalty on sixty days' written notice to the Fund.
All notices or communications hereunder shall be in writing and if sent to the
Manager shall be mailed by first class mail, or delivered, or telegraphed or
telexed and confirmed in writing to the Manager at 345 Park Avenue,
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New York, New York 10154, Attn: General Counsel, or at such other address as the
Manager shall have communicated in writing to the Fund, and if sent to the Fund
shall be mailed by first class mail, or delivered, or telegraphed or telexed and
confirmed in writing to the Fund at 101 California Street, Suite 4100, San
Francisco, California 94111, Attn: Fund Secretary, or at such other address as
the Fund shall have communicated in writing to the Manager.
12. For purposes of this Agreement, a "majority of the outstanding
voting securities of the Fund" shall be determined in accordance with the
applicable provisions of the Investment Company Act.
13. This Agreement shall be construed in accordance with the laws of
the State of California and the applicable provisions of the Investment Company
Act. To the extent applicable law of the State of California, or any of the
provisions herein, conflict with applicable provisions of the Investment Company
Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement.
MONTGOMERY STREET INCOME SECURITIES,
INC.
By: /s/ Maureen E. Kane
------------------------------------
Maureen E. Kane, Vice President
DEUTSCHE INVESTMENT MANAGEMENT AMERICAS
INC.
By: /s/ Caroline Pearson
------------------------------------
Caroline Pearson, Managing Director
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Exhibit C
INTERIM INVESTMENT ADVISORY AGREEMENT
This Interim Investment Advisory Agreement (this "Agreement") is made as of
this 9th day of June, 2006, by and between MONTGOMERY STREET INCOME SECURITIES,
INC., a closed-end registered investment company organized pursuant to the laws
of the State of Maryland (the "Company"), and HARTFORD INVESTMENT MANAGEMENT
COMPANY, a corporation organized pursuant to the laws of the State of Delaware
(the "Adviser").
WHEREAS, the Adviser is a registered investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and is in the
business of providing investment management services;
WHEREAS, the Company is a closed-end investment company registered with the
Securities and Exchange Commission ("SEC") pursuant to the Investment Company
Act of 1940, as amended ("1940 Act");
WHEREAS, the Management and Investment Advisory Agreement between the
Company and Deutsche Investment Management Americas Inc. ("DIMA"), dated August
15, 2002 (the "Prior Advisory Agreement"), was terminated by the Board of
Directors of the Company as of the date hereof;
WHEREAS, the Company and the Adviser are entering into this Agreement in
reliance on Rule 15a-4 under the 1940 Act, which provides a temporary exemption
from the shareholder approval requirement of Section 15(a) of the 1940 Act; and
WHEREAS, the Company desires to retain the Adviser on an interim basis in
accordance with Rule 15a-4 to render investment advisory services to all of the
assets of the Company (the "Account"), in the manner and on the terms
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Company and the Adviser agree as follows:
1. APPOINTMENT AND EXPENSES OF THE ADVISER. The Company hereby appoints the
Adviser to serve as investment adviser with respect to the Account, and to
perform the services hereinafter set forth, and the Adviser hereby accepts such
appointment. The Adviser agrees, for the compensation herein provided, to assume
all obligations herein provided and bear all its personnel and other expenses
associated with the performance of its services hereunder. The Company shall be
responsible for the Company's and the Account's administrative and other direct
expenses, including, but not limited to: (a) fees pursuant to any plan of
distribution that the Company may adopt; (b) the Account's brokerage and
commission expenses, including all ordinary and reasonable transaction costs;
(c) fees and expenses of pricing services used by the
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Company to determine the value of the Account's holdings; (d) Federal, state,
local and foreign taxes, including issue and transfer taxes incurred by or
levied on the Company or the Account; (e) interest charges on any Account
borrowings; (f) the Company's organizational and offering expenses, if any; (g)
fees and expenses of registering the Company's shares under the appropriate
Federal securities laws and of qualifying the Company's shares under applicable
state securities laws and pursuant to any foreign laws; (h) expenses of printing
and distributing reports to the Company's shareholders, proxy materials,
prospectuses and distribution of dividends; (i) costs of the Company's
shareholders' meetings and proxy solicitation; (j) charges and expenses of the
Company's custodian and registrar, transfer agent and dividend disbursing agent;
(k) compensation of the Company's officers, directors and employees; (l) the
Company's legal and auditing expenses; (m) cost of certificates representing
shares of the Company; (n) the Company's costs of stationery and supplies; (o)
the Company's insurance expenses; (p) the Company's association membership dues;
and (q) travel expenses for attendance at Board of Directors' meetings by
members of the Board of Directors of the Company (the "Board").
2. DUTIES OF THE ADVISER. In performing its duties hereunder, the Adviser
shall formulate and implement a continuing program for the management of the
Account. The Adviser shall make all determinations with respect to the
investment of the assets of the Account and shall take such steps as may be
necessary to implement the same, including the placement of purchase and sale
orders with respect to the Account. The Company shall be responsible for the
administration of the activities of the Company and the Account, including
compliance with the requirements of the 1940 Act, the Internal Revenue Code of
1986, as amended, and all other applicable federal and state laws and
regulations, except for the investment management activities specifically
delegated to the Adviser pursuant to this Agreement.
3. POWERS OF THE ADVISER.
3.1. The Adviser's power to direct the investment and reinvestment of
the assets in the Account shall be exercised in accordance with applicable law,
the Company's Articles of Incorporation and the investment objectives, policies
and restrictions set forth in the Company's then-current Form N-2 Registration
Statement under the 1940 Act and the Securities Act of 1933, as amended, as such
Registration Statement may be supplemented by changes approved by the Company's
shareholders or disclosed in the Company's annual shareholder reports as
provided in Rule 8b-16 under the 1940 Act (the "Registration Statement"). The
Company may also place additional limitations on the Adviser's investment
decisions by written notice to the Adviser. The Company agrees to provide
promptly to the Adviser a copy of the documents mentioned above and all changes
made to such documents. The Adviser shall not be bound by any changes to the
Company's Articles of Incorporation or the Registration Statement and shall have
no responsibility to monitor compliance with limitations or restrictions
specifically applicable to the Company imposed by such changes until the Adviser
has received written notice of any such change, limitation or restriction. The
Company hereby directs the Adviser to select investments for the Account in
compliance with the Registration Statement and on the basis of the investments'
possibilities for achieving the
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Account's stated objectives. The Company understands that there can be no
assurance that such objectives will be achieved. The Company shall also be
required to notify the Adviser in writing of specific restrictions governing the
Account under the current or future laws of any state or by virtue of the terms
of any other contract or instrument purporting to bind the Company.
3.2. The Adviser will have day-to-day responsibility for the
discretionary investment decisions to be made on behalf of the Account, subject
to oversight of the Board. Such oversight shall not require prior approval of
discretionary investment decisions made by the Adviser except as may be required
by applicable law, the Company's investment objectives, policies and
restrictions and/or any limitations imposed on the Adviser by the Company
pursuant to the preceding paragraph. The Company shall retain the right to
instruct the Adviser to effect any transactions necessary to ensure compliance
with the Company's investment objectives, policies and restrictions as well as
the requirements of Subchapter M of the Internal Revenue Code and the
regulations promulgated thereunder, or as otherwise required by law.
3.3. In the event the Adviser's compliance with any amendment of the
Company's investment objectives, policies and restrictions or other limitations
placed on the Adviser's investment decisions with respect to the Account would
interfere with the completion of any transaction commenced on behalf of the
Account prior to the Adviser's knowledge of such amendment, the Adviser may
proceed with such transaction unless proceeding with the transaction would
violate any applicable law, rule or regulation. The Adviser will not be
responsible for any loss that may result from the completion of the transaction.
3.4. Further, and except as may be qualified elsewhere in this
Agreement, the Adviser is hereby authorized and directed, for and on behalf of
the Company, with respect to the assets of the Account, in its discretion to:
(a) exercise any conversion and/or subscription rights available
in connection with any securities or other investments held in the Account;
(b) maintain all or part of the Account's assets uninvested in
short-term income-producing instruments for such periods of time as shall
be deemed reasonable and prudent by the Adviser;
(c) instruct the Company's Custodian (the "Custodian") to deliver
for cash received, securities or other cash and/or securities instruments
sold, exchanged, redeemed or otherwise disposed of from the Account, and to
pay cash for securities or other cash and/or securities instruments
delivered to the Custodian and/or credited to the Portfolio upon
acquisition of the same for the Account;
(d) assist in the valuation of the Company's securities and other
assets in accordance with the Company's valuation policies and procedures:
and
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(e) generally, perform any other act necessary to enable the
Adviser to carry out its obligations under this Agreement.
4. SELECTION OF BROKER-DEALERS.
4.1 The Adviser may effect transactions for the Account with or
through any broker-dealer that the Adviser selects, provided that the Adviser
may not effect transactions with or through any broker-dealer that is an
affiliate of the Adviser without the prior written consent of the Company and
the adoption of any procedures required by law. When the Adviser places orders
for the execution of transactions for the Account, the Adviser may allocate such
transactions to such brokers and dealers for execution on such markets, at such
prices and at such commission rates as in the good faith judgment of the Adviser
will be in the best interest of the Company, taking into consideration in the
selection of such brokers and dealers not only the available prices and rates of
brokerage commissions, but also other relevant factors (such as, without
limitation, execution capabilities, research and other services provided by such
brokers or dealers which are expected to enhance the general portfolio
management capabilities of the Adviser and the value of an ongoing relationship
of the Adviser with such brokers and dealers) without having to demonstrate that
such factors are of a direct benefit to the Account. Accordingly, the Adviser
shall have no obligation to seek solely the lowest commission cost to the
Account. Notwithstanding the foregoing, all transactions shall satisfy the
requirements of Section 28(e) under the Securities Exchange Act of 1934, as
amended.
The Adviser is authorized to aggregate sales and purchase orders of
assets on behalf of the Account with similar orders being placed simultaneously
for other accounts of the Adviser. Such aggregated order prices, commissions or
other expenses shall be equitably apportioned among participating accounts.
4.2. The Company hereby agrees and consents that the Adviser and its
affiliates are authorized to execute cross transactions for the Account provided
such transactions comply with Rule 17a-7 under the 1940 Act and any other
applicable laws or regulations.
5. DOCUMENTATION TO BE FURNISHED; RECORDS. Each party hereby agrees to
furnish the other party with such information, authorizations and documentation
as such party may from time to time require to enable it to carry out its
obligations under this Agreement. The Adviser shall keep records relating to the
services to be performed by it hereunder in accordance with Section 31 of the
1940 Act, and the rules thereunder. The Adviser agrees that all such records are
the property of the Company and will be promptly surrendered to the Company on
and in accordance with its request.
6. APPRAISAL AND REPORTS. The Adviser will provide to the Company, within a
reasonable time period after the end of each calendar quarter and at such other
times as the Company may reasonably request, an appraisal of the Account as of
the last business day of each calendar quarter (the "Appraisal Date") during the
term of
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this Agreement. Such appraisal shall be in the form of a written summary of the
assets held in the Account on the Appraisal Date, as well as any other
information with respect to the Account as the Company may reasonably request.
The Adviser shall also make an in person presentation at each quarterly meeting
of the Board, at times mutually agreeable to both parties, with respect to the
assets in, the activity within and the performance of the Account during the
preceding quarter. The Adviser shall provide to the Company and its agents such
other information regarding the Account and the Adviser as the Company or its
agents may reasonably request or as shall be required by law. The Adviser shall
inform the Company promptly of any change in the senior personnel providing
services to the Company.
7. COMPENSATION TO ADVISER. For the Adviser's services under this
Agreement, the Adviser will be paid a fee equal to the product of (a) one
quarter of 0.25%, times (b) the average of the net assets of the Company on the
last business day of each calendar month of the then ended calendar quarter;
provided, however, that the compensation received by the Adviser under this
Agreement, when added to the compensation received by Jackson National Asset
Management, LLC ("JNAM") under the Fund Accounting and Administration Services
Agreement between the Company and JNAM, dated as of the date hereof, shall in no
event exceed the compensation DIMA would have received under the Prior Advisory
Agreement. The fees are payable at the end of each calendar quarter for services
provided by the Adviser during the prior three months. If the Adviser shall
serve for less than the whole of any calendar quarter, its compensation shall be
determined as provided above on the basis of the value of the assets in the
Account and shall be payable on a pro-rata basis for the part of the quarter
during which it served as the Adviser hereunder.
C-5
8. CUSTODY, DELIVERY AND RECEIPT OF SECURITIES. The Company will be
responsible for the establishment and maintenance of proper arrangements
regarding the custody of the securities and other assets in the Account.
The Company will authorize the Custodian to follow the Adviser's
instructions to make and accept payments for, and to deliver to or receive,
securities, cash or other investments purchased, sold, redeemed, exchanged,
pledged or loaned for the Account. The Company may change such instructions and
such other provisions from time to time by written notice to the Adviser. The
Company also will instruct the Custodian to send the Company and the Adviser
monthly statements showing the assets in and all transactions for the Account
during the month, including any payments of the Adviser's fees.
9. RISK ACKNOWLEDGMENT. The Company acknowledges and agrees that references
(if any) herein or in the Registration Statement to "targets", "objectives",
"benchmarks" or similar terms are not to be construed as a guarantee by the
Adviser of a specific rate of return on the Account on an absolute basis or as
compared to any defined benchmark. The Company acknowledges that Adviser's past
performance is not a guarantee of any future results. The Adviser does not
guarantee the future performance of the Account or any specific level of
performance, the success of any investment decision or strategy that the Adviser
may use, or the success of the Adviser's overall management of the Account. The
Company understands that investment decisions made for the Account by the
Adviser are subject to various market, currency, economic and business risks,
and that those investment decisions will not always be profitable.
10. SERVICES TO OTHER CLIENTS. It is understood that the Adviser and its
affiliates perform investment advisory services for various clients (including
investment companies). The Company agrees that the Adviser may give advice and
take action with respect to any of its other clients which may differ from
advice given or the timing or nature of action taken with respect to the
Account, so long as it is the Adviser's policy, to the extent practical, to
allocate investment opportunities to the Account over a period of time on a fair
and equitable basis relative to other clients. It is understood that the Adviser
shall not have any obligation to purchase or sell, or to recommend for purchase
or sale, for the Account any securities which its principals, affiliates or
employees may purchase or sell for its or their own accounts or for the Account
of any other client. This Agreement does not limit or restrict in any way the
Adviser or any of its affiliates from buying, selling or trading in any
securities for their own accounts.
11. REPRESENTATIONS AND WARRANTIES OF THE ADVISER. The Adviser represents
and agrees that:
(a) The Adviser is registered, and will continue to be registered, as
an "investment adviser" under the Advisers Act and is currently in
compliance in all material respects and shall at all times continue to
comply in all material respects with the requirements imposed upon it by
the Advisers Act, the 1940 Act, the Internal Revenue Code, state securities
laws, all applicable rules and regulations thereunder, and all other
applicable laws, rules and regulations as they relate to
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the services provided under this Agreement. The Adviser will notify the
Company promptly if it becomes aware of the occurrence of any event that
would disqualify the Adviser from serving as an investment adviser of an
investment company pursuant to Section 9 of the 1940 Act or any other
applicable law or regulation.
(b) The Adviser has provided the Company with a copy of Part I and
Part II of its most recent and complete Form ADV and will promptly furnish
the Company with copies of any material amendments thereto.
(c) The Adviser maintains, and will continue to maintain, written
policies and procedures reasonably designed to prevent violation of the
Federal Securities Laws, as provided in Rule 38a-1 under the 1940 Act.
(d) The Adviser carries, and will continue to carry, general
liability, errors and omissions, fidelity bond and other policies of
insurance in amounts and scope that are commercially reasonable in light of
the nature and scope of services to be provided under this Agreement.
12. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and agrees that the Company is currently in material compliance and shall at all
times continue to be in material compliance with the relevant requirements of
the 1940 Act and all applicable state securities laws, and the rules thereunder.
13. LIABILITY, INDEMNIFICATION AND FORCE MAJEURE.
13.1. The Adviser, its affiliated firms or its or their employees,
officers, or directors will not be liable for any error of judgment or mistake
of law or for any loss suffered by the Account, the Company, or its shareholders
in connection with the performance of their duties under this Agreement, except
for loss resulting from willful misfeasance, bad faith or gross negligence on
their part in the performance of their duties, from reckless disregard by them
of their duties under this Agreement or from their violation of applicable law.
13.2. The Company shall indemnify the Adviser, its affiliated persons,
its officers, directors and employees, for any liability and expenses, including
reasonable attorneys' fees, which may be sustained as a result of the Company's
willful misconduct, bad faith, gross negligence, reckless disregard of its
duties hereunder or violation of applicable law, including, without limitation,
the 1940 Act and federal and state securities laws, or as a result of any untrue
statement of a material fact contained in the Registration Statement or Company
marketing materials and advertising or the omission to state therein a material
fact required to be stated therein or necessary to make the statement therein
not misleading, if such a statement or omission was made other than in reliance
upon and in conformity with written information furnished by the Adviser, or any
affiliated person of the Adviser, or other than in reliance upon verbal
information confirmed by the Adviser in writing; provided, however, that in no
case is the Company's indemnity in favor of the Adviser or any affiliated person
or controlling person of the
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Adviser deemed to protect such person against any liability to which any such
person would otherwise be subject by reason of willful misconduct, bad faith or
gross negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement or violation of
applicable law.
13.3. The Adviser shall indemnify the Company, its affiliated persons,
and its officers, directors, employees, and agents for any liability and
expenses, including reasonable attorneys' fees, which may be sustained as a
result of the Adviser's willful misconduct, bad faith, gross negligence,
reckless disregard of its duties hereunder or violation of applicable law, or as
a result of any untrue statement of a material fact contained in the
Registration Statement or in the Company's shareholder reports, proxy materials
or other SEC filings or public disclosures, or the omission to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading, if such a statement or omission was made in reliance
upon and in conformity with written information furnished by the Adviser, or any
affiliated person of the Adviser, or in reliance upon verbal information
confirmed by the Adviser in writing.
13.4. Neither party shall be held responsible for its nonperformance
of any of its obligations under this Agreement by reason of any cause beyond its
control, including any breakdown or failure of transmission, communication or
computer facilities, postal or other strikes or similar industrial action and
the failure of any relevant exchange, clearing house and/or broker for any
reason to perform its obligations; provided, however, that each party shall have
adequate disaster recovery plans and facilities in place at all times to perform
its respective obligations hereunder.
13.5. The Adviser shall have no obligation to seek any material
non-public ("inside") information about any issuer of securities, and shall not
purchase or sell, or recommend for purchase or sale, the securities of any
issuer for the Account on the basis of any such information as may come into its
possession.
14. TERM AND TERMINATION.
14.1. This Agreement shall become effective as of the date first above
written and shall remain in force until a definitive agreement between the
Company and the Adviser is approved by the holders of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Company or 150
days from the date first above written, whichever occurs earlier.
14.2. This Agreement may be terminated at any time without the payment
of any penalty (1) by the Company by a vote of the Board on 60 days' written
notice to the Adviser; (2) by the Company by a vote of the holders of a majority
of the outstanding voting securities (as defined in the 1940 Act) of the
Company; or (3) by the Adviser on 60 days' written notice to the Company.
14.3. This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in Section 2(a)(4) of the 1940 Act and the
rules thereunder.
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14.4. The provisions of Sections 5, 11(d), 13.2, 13.3, and 21 shall
survive the termination of this Agreement.
15. AMENDMENT. No amendment to or modification of this Agreement shall be
effective unless and until it is set forth in a written amendment signed by the
Company and the Adviser and approved in accordance with the 1940 Act.
16. AUTHORITY AND ENFORCEABILITY.
16.1. Each of the parties to this Agreement hereby represents that it
is duly authorized and empowered to execute, deliver, and perform this Agreement
and that such actions do not conflict with or violate any provision of law,
rule, regulation, other legal requirement, contract or other instrument to which
it is a party or to which it is subject and that this Agreement constitutes a
valid and binding obligation, inuring to the benefit of the Company and the
Adviser and their respective successors, enforceable in accordance with its
terms.
16.2. If any provision of this Agreement shall be held or made invalid
or unenforceable by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby and any such invalid or
unenforceable provision shall be deemed to be replaced with a valid and
enforceable provision that most closely reflects the intention of the parties.
17. APPLICABLE LAW. To the extent that state law is not preempted by the
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended from time to time, this Agreement shall be administered,
construed and enforced according to the laws of the State of California which
apply to contracts made and to be performed in the State of California.
18. NOTICES. Any notice, direction, instruction, acknowledgment, or other
communication required or contemplated by this Agreement shall be in writing by
personal delivery, overnight courier, facsimile or email (confirmed by
facsimile) and addressed as follows:
C-9
To the Company: Richard J. Bradshaw
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Facsimile No.: (650) 857-0663
Email: bradshawrj@cooley.com
With a copy to:
Andre W. Brewster, Esq.
Howard Rice Nemerovski Canady Falk & Rabkin
3 Embarcadero Center
San Francisco, CA 94111-4024
Facsimile No.: (415) 217-5910
Email: abrewster@howardrice.com
To the Adviser: Hartford Investment Management Company
55 Farmington Avenue, 12th Floor
Hartford, Connecticut 06105
Attention: Mr. John Cardinali, Vice President
Facsimile No.: (860) 297-8878
Email: john.cardinali@thehartford.com
Such communication shall be deemed to have been given on the date received. Any
party hereto by notice hereunder to the other may designate a different address.
19. VOTING OF CORPORATE ACTIONS. The Adviser shall promptly execute or
cause to be executed corporate actions, amendments, waivers, consents, proxies
and other related documentation, to the extent received from the Custodian, for
issuers of the securities being held in the Account in a manner which the
Adviser reasonably believes is in the best interest of the Account and in
accordance with any applicable policies and procedures approved by the Board.
The Company shall ensure that the Custodian of the Account is provided written
notice of the Adviser's authority to vote corporate actions and proxies pursuant
to this Agreement.
20. CLASS ACTIONS. The Adviser shall act for the Company in class actions
involving securities or other assets held in the Account in accordance with any
applicable policies and procedures approved by the Board.
21. CONFIDENTIALITY. The Adviser agrees to treat confidentially and as
proprietary information of the Company all records and other information related
to the Company, and not to use such records and information for any purpose
other than the performance of its responsibilities and duties hereunder.
However, the Adviser may disclose such records and information (a) to the
Company's agents, (b) as required by broker-dealers in connection with trading
in the Account, or (c) after prior notification to and approval in writing by
the Company, which approval may not be withheld where
C-10
such disclosure is required by law. The Adviser shall be permitted to include
the Company in its list of clients and disclose the contents of such list to
third parties in the normal course of the Adviser's business.
22. MISCELLANEOUS. This Agreement may be executed in counterparts, each of
which shall be considered as an original. Where the context allows, words in the
plural shall include the singular and the singular shall include the plural.
This Agreement contains the entire agreement between the parties with respect to
the subject matter hereof. The waiver by any party of a breach of any provision
of this Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach by such other party. The Company acknowledges
receipt of Part II of the Adviser's Form ADV filed with the SEC pursuant to
Section 203(c) of the Advisers Act, which states information relative to the
Adviser's investment and brokerage policies and other important matters, and
which the Adviser warrants is the current filing of such form, at least 48 hours
prior to the execution of this Agreement, as required by Rule 204-3 under the
Advisers Act.
C-11
MONTGOMERY STREET INCOME SECURITIES,
INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
HARTFORD INVESTMENT MANAGEMENT COMPANY
By:
------------------------------------
Name: William H. Davison, Jr.
Title: Managing Director
C-12
Exhibit D
INVESTMENT ADVISORY AGREEMENT
This Investment Advisory Agreement (this "Agreement") is made as of this
13th day of July, 2006, by and between MONTGOMERY STREET INCOME SECURITIES,
INC., a closed-end registered investment company organized pursuant to the laws
of the State of Maryland (the "Company"), and HARTFORD INVESTMENT MANAGEMENT
COMPANY, a corporation organized pursuant to the laws of the State of Delaware
(the "Adviser").
WHEREAS, the Adviser is a registered investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and is in the
business of providing investment management services;
WHEREAS, the Company is a closed-end investment company registered with the
Securities and Exchange Commission ("SEC") pursuant to the Investment Company
Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Company desires to retain the Adviser to render investment
advisory services to all of the assets of the Company (the "Account"), in the
manner and on the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Company and the Adviser agree as follows:
1. APPOINTMENT AND EXPENSES OF THE ADVISER. The Company hereby appoints the
Adviser to serve as investment adviser with respect to the Account, and to
perform the services hereinafter set forth, and the Adviser hereby accepts such
appointment. The Adviser agrees, for the compensation herein provided, to assume
all obligations herein provided and bear all its personnel and other expenses
associated with the performance of its services hereunder. The Company shall be
responsible for the Company's and the Account's administrative and other direct
expenses, including, but not limited to: (a) fees pursuant to any plan of
distribution that the Company may adopt; (b) the Account's brokerage and
commission expenses, including all ordinary and reasonable transaction costs;
(c) fees and expenses of pricing services used by the Company to determine the
value of the Account's holdings; (d) Federal, state, local and foreign taxes,
including issue and transfer taxes incurred by or levied on the Company or the
Account; (e) interest charges on any Account borrowings; (f) the Company's
organizational and offering expenses, if any; (g) fees and expenses of
registering the Company's shares under the appropriate Federal securities laws
and of qualifying the Company's shares under applicable state securities laws
and pursuant to any foreign laws; (h) expenses of printing and distributing
reports to the Company's shareholders, proxy materials, prospectuses and
distribution of dividends; (i) costs of the Company's shareholders' meetings and
proxy solicitation; (j) charges and expenses of the Company's custodian and
registrar, transfer agent and dividend disbursing agent; (k) compensation of
D-1
the Company's officers, directors and employees; (l) the Company's legal and
auditing expenses; (m) cost of certificates representing shares of the Company;
(n) the Company's costs of stationery and supplies; (o) the Company's insurance
expenses; (p) the Company's association membership dues; and (q) travel expenses
for attendance at Board of Directors' meetings by members of the Board of
Directors of the Company (the "Board").
2. DUTIES OF THE ADVISER. In performing its duties hereunder, the Adviser
shall formulate and implement a continuing program for the management of the
Account. The Adviser shall make all determinations with respect to the
investment of the assets of the Account and shall take such steps as may be
necessary to implement the same, including the placement of purchase and sale
orders with respect to the Account. The Company shall be responsible for the
administration of the activities of the Company and the Account, including
compliance with the requirements of the 1940 Act, the Internal Revenue Code of
1986, as amended, and all other applicable federal and state laws and
regulations, except for the investment management activities specifically
delegated to the Adviser pursuant to this Agreement.
3. POWERS OF THE ADVISER.
3.1. The Adviser's power to direct the investment and reinvestment of
the assets in the Account shall be exercised in accordance with applicable law,
the Company's Articles of Incorporation and the investment objectives, policies
and restrictions set forth in the Company's then-current Form N-2 Registration
Statement under the 1940 Act and the Securities Act of 1933, as amended, as such
Registration Statement may be supplemented by changes approved by the Company's
shareholders or disclosed in the Company's annual shareholder reports as
provided in Rule 8b-16 under the 1940 Act (the "Registration Statement"). The
Company may also place additional limitations on the Adviser's investment
decisions by written notice to the Adviser. The Company agrees to provide
promptly to the Adviser a copy of the documents mentioned above and all changes
made to such documents. The Adviser shall not be bound by any changes to the
Company's Articles of Incorporation or the Registration Statement and shall have
no responsibility to monitor compliance with limitations or restrictions
specifically applicable to the Company imposed by such changes until the Adviser
has received written notice of any such change, limitation or restriction. The
Company hereby directs the Adviser to select investments for the Account in
compliance with the Registration Statement and on the basis of the investments'
possibilities for achieving the Account's stated objectives. The Company
understands that there can be no assurance that such objectives will be
achieved. The Company shall also be required to notify the Adviser in writing of
specific restrictions governing the Account under the current or future laws of
any state or by virtue of the terms of any other contract or instrument
purporting to bind the Company.
3.2. The Adviser will have day-to-day responsibility for the
discretionary investment decisions to be made on behalf of the Account, subject
to oversight of the Board. Such oversight shall not require prior approval of
discretionary investment decisions made by the Adviser except as may be required
by applicable law,
D-2
the Company's investment objectives, policies and restrictions and/or any
limitations imposed on the Adviser by the Company pursuant to the preceding
paragraph. The Company shall retain the right to instruct the Adviser to effect
any transactions necessary to ensure compliance with the Company's investment
objectives, policies and restrictions as well as the requirements of Subchapter
M of the Internal Revenue Code and the regulations promulgated thereunder, or as
otherwise required by law.
3.3. In the event the Adviser's compliance with any amendment of the
Company's investment objectives, policies and restrictions or other limitations
placed on the Adviser's investment decisions with respect to the Account would
interfere with the completion of any transaction commenced on behalf of the
Account prior to the Adviser's knowledge of such amendment, the Adviser may
proceed with such transaction unless proceeding with the transaction would
violate any applicable law, rule or regulation. The Adviser will not be
responsible for any loss that may result from the completion of the transaction.
3.4. Further, and except as may be qualified elsewhere in this
Agreement, the Adviser is hereby authorized and directed, for and on behalf of
the Company, with respect to the assets of the Account, in its discretion to:
(a) exercise any conversion and/or subscription rights available
in connection with any securities or other investments held in the Account;
(b) maintain all or part of the Account's assets uninvested in
short-term income-producing instruments for such periods of time as shall
be deemed reasonable and prudent by the Adviser;
(c) instruct the Company's Custodian (the "Custodian") to deliver
for cash received, securities or other cash and/or securities instruments
sold, exchanged, redeemed or otherwise disposed of from the Account, and to
pay cash for securities or other cash and/or securities instruments
delivered to the Custodian and/or credited to the Portfolio upon
acquisition of the same for the Account;
(d) assist in the valuation of the Company's securities and other
assets in accordance with the Company's valuation policies and procedures:
and
(e) generally, perform any other act necessary to enable the
Adviser to carry out its obligations under this Agreement.
4. SELECTION OF BROKER-DEALERS.
4.1 The Adviser may effect transactions for the Account with or
through any broker-dealer that the Adviser selects, provided that the Adviser
may not effect transactions with or through any broker-dealer that is an
affiliate of the Adviser without the prior written consent of the Company and
the adoption of any procedures required by law. When the Adviser places orders
for the execution of transactions for the Account, the Adviser may allocate such
transactions to such brokers and dealers for
D-3
execution on such markets, at such prices and at such commission rates as in the
good faith judgment of the Adviser will be in the best interest of the Company,
taking into consideration in the selection of such brokers and dealers not only
the available prices and rates of brokerage commissions, but also other relevant
factors (such as, without limitation, execution capabilities, research and other
services provided by such brokers or dealers which are expected to enhance the
general portfolio management capabilities of the Adviser and the value of an
ongoing relationship of the Adviser with such brokers and dealers) without
having to demonstrate that such factors are of a direct benefit to the Account.
Accordingly, the Adviser shall have no obligation to seek solely the lowest
commission cost to the Account. Notwithstanding the foregoing, all transactions
shall satisfy the requirements of Section 28(e) under the Securities Exchange
Act of 1934, as amended.
The Adviser is authorized to aggregate sales and purchase orders of
assets on behalf of the Account with similar orders being placed simultaneously
for other accounts of the Adviser. Such aggregated order prices, commissions or
other expenses shall be equitably apportioned among participating accounts.
D-4
4.2. The Company hereby agrees and consents that the Adviser and its
affiliates are authorized to execute cross transactions for the Account provided
such transactions comply with Rule 17a-7 under the 1940 Act and any other
applicable laws or regulations.
5. DOCUMENTATION TO BE FURNISHED; RECORDS. Each party hereby agrees to
furnish the other party with such information, authorizations and documentation
as such party may from time to time require to enable it to carry out its
obligations under this Agreement. The Adviser shall keep records relating to the
services to be performed by it hereunder in accordance with Section 31 of the
1940 Act, and the rules thereunder. The Adviser agrees that all such records are
the property of the Company and will be promptly surrendered to the Company on
and in accordance with its request.
6. APPRAISAL AND REPORTS. The Adviser will provide to the Company, within a
reasonable time period after the end of each calendar quarter and at such other
times as the Company may reasonably request, an appraisal of the Account as of
the last business day of each calendar quarter (the "Appraisal Date") during the
term of this Agreement. Such appraisal shall be in the form of a written summary
of the assets held in the Account on the Appraisal Date, as well as any other
information with respect to the Account as the Company may reasonably request.
The Adviser shall also make an in person presentation at each quarterly meeting
of the Board, at times mutually agreeable to both parties, with respect to the
assets in, the activity within and the performance of the Account during the
preceding quarter. The Adviser shall provide to the Company and its agents such
other information regarding the Account and the Adviser as the Company or its
agents may reasonably request or as shall be required by law. The Adviser shall
inform the Company promptly of any change in the senior personnel providing
services to the Company.
7. COMPENSATION TO ADVISER. For the Adviser's services under this
Agreement, the Adviser will be paid a fee equal to the product of (a) one
quarter of 0.25%, times (b) the average of the net assets of the Company on the
last business day of each calendar month of the then ended calendar quarter. The
fees are payable at the end of each calendar quarter for services provided by
the Adviser during the prior three months. If the Adviser shall serve for less
than the whole of any calendar quarter, its compensation shall be determined as
provided above on the basis of the value of the assets in the Account and shall
be payable on a pro-rata basis for the part of the quarter during which it
served as the Adviser hereunder.
D-5
8. CUSTODY, DELIVERY AND RECEIPT OF SECURITIES. The Company will be
responsible for the establishment and maintenance of proper arrangements
regarding the custody of the securities and other assets in the Account.
The Company will authorize the Custodian to follow the Adviser's
instructions to make and accept payments for, and to deliver to or receive,
securities, cash or other investments purchased, sold, redeemed, exchanged,
pledged or loaned for the Account. The Company may change such instructions and
such other provisions from time to time by written notice to the Adviser. The
Company also will instruct the Custodian to send the Company and the Adviser
monthly statements showing the assets in and all transactions for the Account
during the month, including any payments of the Adviser's fees.
9. RISK ACKNOWLEDGMENT. The Company acknowledges and agrees that references
(if any) herein or in the Registration Statement to "targets", "objectives",
"benchmarks" or similar terms are not to be construed as a guarantee by the
Adviser of a specific rate of return on the Account on an absolute basis or as
compared to any defined benchmark. The Company acknowledges that Adviser's past
performance is not a guarantee of any future results. The Adviser does not
guarantee the future performance of the Account or any specific level of
performance, the success of any investment decision or strategy that the Adviser
may use, or the success of the Adviser's overall management of the Account. The
Company understands that investment decisions made for the Account by the
Adviser are subject to various market, currency, economic and business risks,
and that those investment decisions will not always be profitable.
10. SERVICES TO OTHER CLIENTS. It is understood that the Adviser and its
affiliates perform investment advisory services for various clients (including
investment companies). The Company agrees that the Adviser may give advice and
take action with respect to any of its other clients which may differ from
advice given or the timing or nature of action taken with respect to the
Account, so long as it is the Adviser's policy, to the extent practical, to
allocate investment opportunities to the Account over a period of time on a fair
and equitable basis relative to other clients. It is understood that the Adviser
shall not have any obligation to purchase or sell, or to recommend for purchase
or sale, for the Account any securities which its principals, affiliates or
employees may purchase or sell for its or their own accounts or for the Account
of any other client. This Agreement does not limit or restrict in any way the
Adviser or any of its affiliates from buying, selling or trading in any
securities for their own accounts.
11. REPRESENTATIONS AND WARRANTIES OF THE ADVISER. The Adviser represents
and agrees that:
(a) The Adviser is registered, and will continue to be registered, as
an "investment adviser" under the Advisers Act and is currently in
compliance in all material respects and shall at all times continue to
comply in all material respects with the requirements imposed upon it by
the Advisers Act, the 1940 Act, the Internal Revenue Code, state securities
laws, all applicable rules and regulations thereunder, and all other
applicable laws, rules and regulations as they relate to
D-6
the services provided under this Agreement. The Adviser will notify the
Company promptly if it becomes aware of the occurrence of any event that
would disqualify the Adviser from serving as an investment adviser of an
investment company pursuant to Section 9 of the 1940 Act or any other
applicable law or regulation.
(b) The Adviser has provided the Company with a copy of Part I and
Part II of its most recent and complete Form ADV and will promptly furnish
the Company with copies of any material amendments thereto.
(c) The Adviser maintains, and will continue to maintain, written
policies and procedures reasonably designed to prevent violation of the
Federal Securities Laws, as provided in Rule 38a-1 under the 1940 Act.
(d) The Adviser carries, and will continue to carry, general
liability, errors and omissions, fidelity bond and other policies of
insurance in amounts and scope that are commercially reasonable in light of
the nature and scope of services to be provided under this Agreement.
12. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and agrees that the Company is currently in material compliance and shall at all
times continue to be in material compliance with the relevant requirements of
the 1940 Act and all applicable state securities laws, and the rules thereunder.
13. LIABILITY, INDEMNIFICATION AND FORCE MAJEURE.
13.1. The Adviser, its affiliated firms or its or their employees,
officers, or directors will not be liable for any error of judgment or mistake
of law or for any loss suffered by the Account, the Company, or its shareholders
in connection with the performance of their duties under this Agreement, except
for loss resulting from willful misfeasance, bad faith or gross negligence on
their part in the performance of their duties, from reckless disregard by them
of their duties under this Agreement or from their violation of applicable law.
13.2. The Company shall indemnify the Adviser, its affiliated persons,
its officers, directors and employees, for any liability and expenses, including
reasonable attorneys' fees, which may be sustained as a result of the Company's
willful misconduct, bad faith, gross negligence, reckless disregard of its
duties hereunder or violation of applicable law, including, without limitation,
the 1940 Act and federal and state securities laws, or as a result of any untrue
statement of a material fact contained in the Registration Statement or Company
marketing materials and advertising or the omission to state therein a material
fact required to be stated therein or necessary to make the statement therein
not misleading, if such a statement or omission was made other than in reliance
upon and in conformity with written information furnished by the Adviser, or any
affiliated person of the Adviser, or other than in reliance upon verbal
information confirmed by the Adviser in writing; provided, however, that in no
case is the Company's indemnity in favor of the Adviser or any affiliated person
or controlling person of the
D-7
Adviser deemed to protect such person against any liability to which any such
person would otherwise be subject by reason of willful misconduct, bad faith or
gross negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement or violation of
applicable law.
13.3. The Adviser shall indemnify the Company, its affiliated persons,
and its officers, directors, employees, and agents for any liability and
expenses, including reasonable attorneys' fees, which may be sustained as a
result of the Adviser's willful misconduct, bad faith, gross negligence,
reckless disregard of its duties hereunder or violation of applicable law, or as
a result of any untrue statement of a material fact contained in the
Registration Statement or in the Company's shareholder reports, proxy materials
or other SEC filings or public disclosures, or the omission to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading, if such a statement or omission was made in reliance
upon and in conformity with written information furnished by the Adviser, or any
affiliated person of the Adviser, or in reliance upon verbal information
confirmed by the Adviser in writing.
13.4. Neither party shall be held responsible for its nonperformance
of any of its obligations under this Agreement by reason of any cause beyond its
control, including any breakdown or failure of transmission, communication or
computer facilities, postal or other strikes or similar industrial action and
the failure of any relevant exchange, clearing house and/or broker for any
reason to perform its obligations; provided, however, that each party shall have
adequate disaster recovery plans and facilities in place at all times to perform
its respective obligations hereunder.
13.5. The Adviser shall have no obligation to seek any material
non-public ("inside") information about any issuer of securities, and shall not
purchase or sell, or recommend for purchase or sale, the securities of any
issuer for the Account on the basis of any such information as may come into its
possession.
14. TERM, RENEWAL AND TERMINATION.
14.1. This Agreement shall become effective as of the date first above
written and shall remain in force until July 31, 2007 and thereafter for
successive annual periods so long as each such continuance is specifically
approved at least annually by (1) a majority of the Directors of the Company who
are not parties to this Agreement or interested persons (as defined in the 1940
Act) of any such parties, by vote cast in person at a meeting called for the
purpose of voting on such approval; and (2) a vote of the Board or the holders
of a majority of the outstanding voting securities (as defined in the 1940 Act)
of the Company.
14.2. This Agreement may be terminated at any time without the payment
of any penalty (1) by the Company by a vote of the Board on 60 days' written
notice to the Adviser; (2) by the Company by a vote of the holders of a majority
of the outstanding voting securities (as defined in the 1940 Act) of the
Company; or (3) by the Adviser on 60 days' written notice to the Company.
D-8
14.3. This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in Section 2(a)(4) of the 1940 Act and the
rules thereunder.
14.4. The provisions of Sections 5, 11(d), 13.2, 13.3, and 21 shall
survive the termination of this Agreement.
15. AMENDMENT. No amendment to or modification of this Agreement shall be
effective unless and until it is set forth in a written amendment signed by the
Company and the Adviser and approved in accordance with the 1940 Act.
16. AUTHORITY AND ENFORCEABILITY.
16.1. Each of the parties to this Agreement hereby represents that it
is duly authorized and empowered to execute, deliver, and perform this Agreement
and that such actions do not conflict with or violate any provision of law,
rule, regulation, other legal requirement, contract or other instrument to which
it is a party or to which it is subject and that this Agreement constitutes a
valid and binding obligation, inuring to the benefit of the Company and the
Adviser and their respective successors, enforceable in accordance with its
terms.
16.2. If any provision of this Agreement shall be held or made invalid
or unenforceable by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby and any such invalid or
unenforceable provision shall be deemed to be replaced with a valid and
enforceable provision that most closely reflects the intention of the parties.
17. APPLICABLE LAW. To the extent that state law is not preempted by the
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended from time to time, this Agreement shall be administered,
construed and enforced according to the laws of the State of California which
apply to contracts made and to be performed in the State of California.
18. NOTICES. Any notice, direction, instruction, acknowledgment, or other
communication required or contemplated by this Agreement shall be in writing by
personal delivery, overnight courier, facsimile or email (confirmed by
facsimile) and addressed as follows:
D-9
To the Company: Richard J. Bradshaw
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Facsimile No.: (650) 857-0663
Email: bradshawrj@cooley.com
With a copy to:
Andre W. Brewster, Esq.
Howard Rice Nemerovski Canady Falk & Rabkin
3 Embarcadero Center
San Francisco, CA 94111-4024
Facsimile No.: (415) 217-5910
Email: abrewster@howardrice.com
To the Adviser: Hartford Investment Management Company
55 Farmington Avenue, 12th Floor
Hartford, Connecticut 06105
Attention: Mr. John Cardinali, Vice President
Facsimile No.: (860) 297-8878
Email: john.cardinali@thehartford.com
Such communication shall be deemed to have been given on the date received. Any
party hereto by notice hereunder to the other may designate a different address.
19. VOTING OF CORPORATE ACTIONS. The Adviser shall promptly execute or
cause to be executed corporate actions, amendments, waivers, consents, proxies
and other related documentation, to the extent received from the Custodian, for
issuers of the securities being held in the Account in a manner which the
Adviser reasonably believes is in the best interest of the Account and in
accordance with any applicable policies and procedures approved by the Board.
The Company shall ensure that the Custodian of the Account is provided written
notice of the Adviser's authority to vote corporate actions and proxies pursuant
to this Agreement.
20. CLASS ACTIONS. The Adviser shall act for the Company in class actions
involving securities or other assets held in the Account in accordance with any
applicable policies and procedures approved by the Board.
21. CONFIDENTIALITY. The Adviser agrees to treat confidentially and as
proprietary information of the Company all records and other information related
to the Company, and not to use such records and information for any purpose
other than the performance of its responsibilities and duties hereunder.
However, the Adviser may disclose such records and information (a) to the
Company's agents, (b) as required by broker-dealers in connection with trading
in the Account, or (c) after prior notification to and approval in writing by
the Company, which approval may not be withheld where
D-10
such disclosure is required by law. The Adviser shall be permitted to include
the Company in its list of clients and disclose the contents of such list to
third parties in the normal course of the Adviser's business.
22. MISCELLANEOUS. This Agreement may be executed in counterparts, each of
which shall be considered as an original. Where the context allows, words in the
plural shall include the singular and the singular shall include the plural.
This Agreement contains the entire agreement between the parties with respect to
the subject matter hereof. The waiver by any party of a breach of any provision
of this Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach by such other party. The Company acknowledges
receipt of Part II of the Adviser's Form ADV filed with the SEC pursuant to
Section 203(c) of the Advisers Act, which states information relative to the
Adviser's investment and brokerage policies and other important matters, and
which the Adviser warrants is the current filing of such form, at least 48 hours
prior to the execution of this Agreement, as required by Rule 204-3 under the
Advisers Act.
D-11
MONTGOMERY STREET INCOME SECURITIES,
INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
HARTFORD INVESTMENT MANAGEMENT COMPANY
By:
------------------------------------
Name: William H. Davison, Jr.
Title: Managing Director
D-12
Exhibit E
INVESTMENT ADVISORY AND MANAGEMENT FEE RATES FOR FUNDS SUB-ADVISED BY THE
INVESTMENT MANAGER WITH SIMILAR OBJECTIVES
FEES(1)
-------------------------------- NET ASSETS
CLOSED END FUNDS OBJECTIVE ASSETS ANNUAL RATE 12/31/2005
---------------- --------- ------ ----------- ----------
Hartford Income Shares Fund Hartford Income Shares Fund is a First $100 Million 0.45% $102,318,531
closed-end diversified investment Over $100 Million 0.40%
company which seeks a high level of Plus 2% of investment income
current income through investment in a
diversified portfolio of debt
securities, some of which may be
privately placed and some of which may
have equity features. Capital
appreciation is a secondary objective.
E-1
FEES(1)
-------------------------------- NET ASSETS
OPEN END FUNDS OBJECTIVE ASSETS ANNUAL RATE 12/31/2005
-------------- --------- ------ ----------- ----------
The Hartford Total Return The Hartford Total Return Bond Fund is First $500 Million 0.65% $681,338,722
Bond Fund an open-end diversified fund which Next $500 Million 0.55%
seeks a competitive total return Next $4 Billion 0.50%
through investment in a diversified Next $5 Billion 0.48%
portfolio of debt securities. Income is Over $10 Billion 0.47%
a secondary objective.
The Hartford Income Fund The Hartford Income Fund is an open-end First $500 Million 0.60% $57,709,524
diversified fund which seeks to provide Next $4.5 Billion 0.55%
a high level of current income through Next $5 Billion 0.53%
investment in a diversified portfolio Over $10 Billion 0.52%
of debt securities. Capital
appreciation is a secondary objective.
The Hartford High Yield Fund The Hartford High Yield Fund is an First $500 Million 0.75% $321,731,178
open-end diversified fund which seeks Next $500 Million 0.65%
to provide a high level of current Next $4 Billion 0.60%
income through investment in a Next $5 Billion 0.58%
diversified portfolio of Over $10 Billion 0.57%2
non-investment-grade debt securities.
Growth of capital is a secondary
objective.
The Hartford US Government The Hartford US Government Securities First $50 Million 0.80% $226,670,365
Securities Fund Fund is an open-end fund which seeks to Next $4.95 Billion 0.70%
provide a current income while Next $5 Billion 0.68%
maintaining preservation of capital Over $10 Billion 0.67%
consistent with prudent investment
risk. Investments will primarily be
made in securities issued or guaranteed
by the US Government or its agencies or
instrumentalities.
(1) Each fund pays this monthly management fee to Hartford Investment Financial
Services Company ("HIFSCO"), as the investment advisor, based on a stated
percentage of the fund's average daily net asset value. Hartford Investment
Management Company (the "New Advisor") serves as a sub-advisor to each fund
and is reimbursed on a cost basis for expenses incurred. The New Advisor
does not specifically identify or bill costs on a fund-by-fund basis to
HIFSCO.
2 Effective 11/1/05, HIFSCO has voluntarily agreed to waive 0.15% of the
management fees until 10/31/06.
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