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SIGNATURE THOMAS F. MCDONOUGH
TITLE VICE PRESIDENT
State of Delaware
Office of the Secretary of State Page 1
-------------------------------------
I, Edward K. Freel, Secretary of State of the State of Delaware, do hereby
certify the attached is a true and correct copy of the certificate of agreement
of merger, which mergers:
"Montgomery Street Income Securities, Inc.", a Delaware Corporation,
With and into "Montgomery Street Income Securities, Inc." under the nanme of
"Montgomery Street Income Securities, Inc.", a corporation organized and
existing under the laws of the state of Maryland, as received and filed in this
office the twenty-second day of July, A.D. 1996, at 9 o'clock a.m.
A certified copy of this certificate has been forwarded to the New Castle
County Recorder of Deeds and Recording.
/s/Edward J. Freel
----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
<PAGE>
State of Delaware
Secretary of State
Division of Corporations
Files 09:00 AM 07/22/1996
960212609-787304
AGREEMENT AND ARTICLES OF MERGER
BETWEEN
MONTGOMERY STREET INCOME SECURITIES, INC.
(a Maryland corporation)
AND
MONTGOMERY STREET INCOME SECURITIES, INC.
(a Delaware corporation)
MONTGOMERY STREET INCOME SECURITIES, INC., a corporation duly organized
and existing under the laws of the State of Maryland ("MD Corp") and MONTGOMERY
STREET INCOME SECURITIES, INC., a corporation duly organized and existing under
the laws of the State of Delaware ("DE Corp"), do hereby certify that:
FIRST: MD Corp and DE Corp agree to merge.
SECOND: The name and place of incorporation of each party to this
Agreement and Articles of Merger are MONTGOMERY STREET INCOME SECURITIES, INC.,
a Maryland corporation, and MONTGOMERY STREET INCOME SECURITIES, INC., a
Delaware corporation. MD Corp shall be the successor corporation in the merger.
THIRD: The date of incorporation of DE Corp was December 11, 1972. DE
Corp is incorporated under the Delaware General Corporation Law. DE Corp is not
registered or qualified to do business in Maryland.
FOURTH: MD Corp has its principal office in Maryland in Baltimore City.
DE Corp does not have a principal office in Maryland and does not own an
interest in land in Maryland.
FIFTH: The terms and conditions of the transaction set forth in this
Agreement and Articles of Merger were advised, authorized, and approved by each
corporation party to the Agreement and Articles of Merger in the manner and by
the vote required by its charter and the laws of the state of its incorporation.
The manner of approval was as follows:
(a)The Board of Directors of MD Corp, at a meeting held on July 11,
1996, adopted a resolution which approved the Agreement and Articles of Merger,
declared that the proposed merger was advisable on substantially the terms and
conditions set forth or referred to in the resolution and directed that the
proposed merger be submitted for consideration by the sole stockholder of MD
Corp by written consent. The Board of Directors of DE Corp at a meeting held on
-1-
<PAGE>
April 12, 1996, adopted a resolution which approved the Agreement and Articles
of Merger, declared that the proposed merger was advisable on substantially the
terms and conditions set forth or referred to in the resolution and directed
that the proposed merger be submitted for consideration at the annual meeting of
the stockholders of DE Corp.
(b)Notice of the proposed merger was waived by the sole stockholder of
MD Corp and simultaneously the proposed merger was approved by the sole
stockholder of MD Corp by written consent dated July 11, 1996.
(c)Notice which stated that a purpose of the annual meeting was to act
on the proposed merger was given by DE Corp as required by law. The proposed
merger was approved by stockholders of DE Corp at the annual meeting of
stockholders held on July 11, 1996, by at least a majority of all the votes
entitled to be cast on the matter.
SIXTH: The total number of shares of stock of all classes which MD Corp
has authority to issue is 30,000,000 shares of Common Stock (par value $0.001
per share). The aggregate par value of all the shares of stock of all classes of
MD Corp is $30,000. The total number of shares of stock of all classes which DE
Corp has authority to issue is 15,000,000 shares, all of which are Common Stock
(par value $1.00 per share). The aggregate par value of all the shares of stock
of all classes of DE Corp is $15,000,000.
SEVENTH: The merger does not amend the charter of the successor, MD Corp.
EIGHTH: The terms and conditions of the merger, the mode of carrying the
same into effect, the manner and basis of converting or exchanging issued stock
of the merging corporations into different stock of a corporation or other
consideration, and the treatment of any issued stock of the merging corporations
not to be converted or exchanged are as follows:
(a)The only issued and outstanding share of the Common Stock of MD Corp
prior to the effective date will be one share, which will be held by DE Corp.
The share of Common Stock of MD Corp held by DE Corp before the merger shall be
cancelled automatically upon effectiveness of the merger.
-2-
<PAGE>
(b)Each issued and outstanding share of Common Stock of DE Corp on the
effective date of the merger shall, upon effectiveness and without further act,
be automatically converted into and become one share of the Common Stock of MD
Corp.
(c)Certificates representing shares of Common Stock of DE Corp before
the merger will represent shares of the Common Stock of MD Corp after the
merger, and it will not be necessary for stockholders of DE Corp to surrender or
exchange their existing stock certificates for new stock certificates of MD Corp
Common Stock.
NINTH: The merger shall become effective at 5:00 p.m. (eastern time) on
July 23, 1996.
TENTH: MD Corp agrees that it may be served with process in Delaware in
any proceeding for enforcement of any obligation of DE Corp, as well as for
enforcement of any obligation of the surviving or resulting corporation arising
from the merger, including any suit or other proceeding to enforce the right of
any stockholder as determined in appraisal proceedings pursuant to the
provisions of section 262 of Title 8 of the Delaware Code of 1953, and
irrevocably appoints the Secretary of State of the State of Delaware as its
agent to accept service of process in any such suit or other proceedings. The
address to which a copy of such process shall be mailed by the Secretary of
State of the State of Delaware is: Montgomery Street Income Securities, Inc.,
101 California Street, Suite 4100, San Francisco, California 94111, Attention:
John T. Packard, President.
-3-
<PAGE>
IN WITNESS WHEREOF, MONTGOMERY STREET INCOME SECURITIES, INC., a
Maryland corporation, and MONTGOMERY STREET INCOME SECURITIES, INC., a Delaware
corporation, have caused these presents to be signed in their respective names
and on their respective behalves by their respective presidents and witnessed by
their respective secretaries on July 11, 1996.
WITNESS: MONTGOMERY STREET INCOME SECURITIES, INC.
(a Maryland corporation)
/s/Thomas F. McDonough By /s/John T. Packard
- ------------------------- -----------------------
Secretary President
Thomas F. McDonough John T. Packard
WITNESS: MONTGOMERY STREET INCOME SECURITIES, INC.
(a Delaware corporation)
/s/Thomas F. McDonough By /s/John T. Packard
- ------------------------- -----------------------
Secretary President
Thomas F. McDonough John T. Packard
THE UNDERSIGNED, President of MONTGOMERY STREET INCOME SECURITIES, INC.,
a Maryland corporation, who executed on behalf of the Corporation the foregoing
Agreement and Articles of Merger of which this certificate is made a part,
hereby acknowledges in the name and on behalf of said Corporation the foregoing
Agreement and Articles of Merger to be the corporate act of said Corporation and
hereby certifies that to the best of his knowledge, information and belief the
matters and facts set forth therein with respect to the authorization and
approval thereof are true in all material respects under the penalties of
perjury.
By /s/John T. Packard
-----------------------
President
John T. Packard
THE UNDERSIGNED, President of MONTGOMERY STREET INCOME SECURITIES, INC.,
a Delaware corporation, who executed on behalf of the Corporation the foregoing
Agreement and Articles of Merger of which this certificate is made a part,
hereby acknowledges in the name and on behalf of said Corporation the foregoing
-4-
<PAGE>
Agreement and Articles of Merger to be the corporate act and deed of said
Corporation and hereby certifies that to the best of his knowledge, information
and belief the matters and facts set forth therein with respect to the
authorization and approval thereof are true in all material respects under the
penalties of perjury.
By /s/John T. Packard
-----------------------
President
John T. Packard
THE UNDERSIGNED, Secretary of MONTGOMERY STREET INCOME SECURITIES, INC.,
a Delaware corporation, hereby certifies that, pursuant to the requirements of
Sections 251(c) and 252(c) of the Delaware General Corporation Law, a majority
of the outstanding stock of DE Corp entitled to vote voted for the adoption of
the Agreement and Articles of Merger.
/s/Thomas F. McDonough
-------------------------
Secretary
Thomas F. McDonough
-5-
MONTGOMERY STREET INCOME SECURITIES, INC.
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings. The Corporation shall hold an annual
meeting of its stockholders to elect directors and transact any other business
within its powers either at 10:00 a.m. on the second Thursday of July in each
year if not a legal holiday, or at such other time and on such other day falling
on or before the 30th day thereafter as shall be set by the Board of Directors.
Except as the charter or statute provides otherwise, any business may be
considered at an annual meeting without the purpose of the meeting having been
specified in the notice. Failure to hold an annual meeting does not invalidate
the Corporation's existence or affect any otherwise valid corporate acts.
Section 1.02. Special Meetings. At any time in the interval between
annual meetings, a special meeting of stockholders may be called by the
President or by a majority of the Board of Directors by vote at a meeting or in
writing (addressed to the Secretary of the Corporation) with or without a
meeting. The Secretary of the Corporation shall call a special meeting of
stockholders on the written request of stockholders entitled to cast at least 25
percent of all the votes entitled to be cast at the meeting. A request for a
special meeting shall state the purpose of the meeting and the matters proposed
to be acted on at it. The Secretary shall inform the stockholders who make the
request of the reasonably estimated costs of preparing and mailing a notice of
the meeting and, on payment of these costs to the Corporation, notify each
stockholder entitled to notice of the meeting. Unless requested by stockholders
entitled to cast a majority of all the votes entitled to be cast at the meeting,
a special meeting need not be called to consider any matter which is
substantially the same as a matter voted on at any special meeting of
stockholders held in the preceding 12 months.
Section 1.03. Place of Meetings. Meetings of stockholders shall be
held at such place in the United States as is set from time to time by the Board
of Directors.
Section 1.04. Notice of Meetings; Waiver of Notice. Not less than ten
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The notice
shall state the time and place of the meeting and, if the meeting is a special
meeting or notice of the purpose is required by statute, the purpose of the
meeting. Notice is given to a stockholder when it is personally delivered to
him, left at his residence or usual place of business, or mailed to him postage
prepaid at his address as it appears on the records of the Corporation.
Notwithstanding the foregoing provisions, each person who is entitled to notice
waives notice if he before or after the meeting signs a waiver of the notice
which is filed with the records of stockholders' meetings, or is present at the
<PAGE>
meeting in person or by proxy.
Section 1.05. Quorum; Voting. Unless statute or the charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting constitutes a quorum. A majority of all the votes cast at a meeting
at which a quorum is present is sufficient to approve any matter which properly
comes before the meeting, except that a plurality of all the votes cast at a
meeting at which a quorum is present is sufficient to elect a director.
Section 1.06. Adjournments. Whether or not a quorum is present, a meeting
of stockholders convened on the date for which it was called may be adjourned
from time to time without further notice by a majority vote of the stockholders
present in person or by proxy to a date not more than 120 days after the
original record date. Any business which might have been transacted at the
meeting as originally notified may be deferred and transacted at any such
adjourned meeting at which a quorum shall be present.
Section 1.07. General Right to Vote; Proxies. Unless the charter provides
for a greater or lesser number of votes per share or limits or denies voting
rights, each outstanding share of stock is entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. A stockholder may vote the
stock he owns of record either in person or by written proxy signed by the
stockholder or by his duly authorized attorney in fact. Unless a proxy provides
otherwise, it shall not be valid for more than 11 months after its date. In
addition to written proxies and to the extent permitted by Maryland law, the
Corporation may permit stockholders to vote by proxies in the forms of
telegrams, mailgrams, proxygrams, facsimile transmission, or other form of
electronic transmission provided the stockholder complies with such procedures
as the Corporation may determine to be necessary or appropriate to determine the
authenticity of such proxies, which may include a requirement that such proxies
set forth or are submitted with information, as required by the Corporation,
from which the authenticity of the proxies can be determined.
Section 1.08. List of Stockholders. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class or series of shares held by each and
certified by the transfer agent for such class or series or by the Secretary,
shall be furnished by the Secretary.
Section 1.09. Conduct of Business and Voting. At all meetings of
stockholders, unless the voting is conducted by inspectors, the proxies and
ballots shall be received, and all questions touching the qualification of
voters and the validity of proxies, the acceptance or rejection of votes and
procedures for the conduct of business not otherwise specified by these ByLaws,
the charter or law, shall be decided or determined by the chairman of the
meeting. If demanded by stockholders, present in person or by proxy, entitled to
cast ten percent in number of votes entitled to be cast, or if ordered by the
chairman, the vote upon any election or question shall be taken by ballot and,
upon like demand or order, the voting shall be conducted by one or more
inspectors, in which event the proxies and ballots shall be received, and all
questions touching the qualification of voters and the validity of proxies and
the acceptance or rejection of votes shall be decided, by such inspectors.
2
<PAGE>
Unless so demanded or ordered, no vote need be by ballot and voting need not be
conducted by inspectors. The stockholders at any meeting may choose an inspector
or inspectors to act at such meeting, and in default of such election the
chairman of the meeting may appoint an inspector or inspectors. No candidate for
election as a director at a meeting shall serve as an inspector thereat.
Section 1.10. Consent of Stockholders in Lieu of Meeting. Any action
required or permitted to be taken at a meeting of stockholders may be taken
without a meeting if there is filed with the records of stockholders' meetings
an unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right to
dissent signed by each stockholder entitled to notice of the meeting but not
entitled to vote at it.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. Function of Directors. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the charter or By-Laws. The Board may delegate the duty of management of the
assets and the administration of the day-to-day operations of the Corporation to
one or more entities or individuals pursuant to a written contract or contracts
which have obtained the approvals, including the approval of renewals thereof,
required by the Investment Company Act of 1940.
Section 2.02. Number of Directors. The Corporation shall have at least
three directors; provided that, if there is no stock outstanding, the number of
directors may be less than three but not less than one, and, if there is stock
outstanding and so long as there are fewer than three stockholders, the number
of directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in its
charter until changed as herein provided. A majority of the entire Board of
Directors may alter the number of directors set by the charter to a number not
exceeding 25 nor less than the minimum number then permitted herein, but the
action may not affect the tenure of office of any director.
Section 2.03 Honorary Directors. The Board of Directors may from time
to time designate and appoint one or more qualified persons to the position of
"honorary director." Only persons who were directors of the Corporation
immediately prior to their appointment as honorary directors shall be eligible
to become honorary directors. Each honorary director shall serve for such term
as shall be specified in the resolution of the Board of Directors appointing him
or until his earlier resignation or removal. An honorary director may be removed
from such position by the vote of a majority of the Board of Directors. An
honorary director shall be invited to attend all meetings of the Board of
Directors. An honorary director shall not be a "director" or "officer" within
the meaning of the Corporation's Articles of Incorporation or of these By-Laws,
3
<PAGE>
shall not be deemed to be a member of an "advisory board" within the meaning of
the Investment Company Act of 1940, and shall not be liable to any person for
any act of the Corporation. Notice of meetings may be given to an honorary
director but the failure to give such notice shall not affect the validity of
any meeting or the action taken thereat. An honorary director shall not have the
powers of a director, may not vote at meetings of the Board of Directors and
shall not take part in the operation or governance of the Corporation. An
honorary director shall receive such compensation as shall be fixed from time to
time by resolution of the Board of Directors.
Section 2.04. Election and Tenure of Directors. At each annual
meeting, the stockholders shall elect directors to hold office until the next
annual meeting and until their successors are elected and qualify.
Section 2.05. Removal of Directors. Unless statute or the charter
provides otherwise, the stockholders may remove any director, with or without
cause and elect a successor, by the affirmative vote of a majority of all the
votes entitled to be cast for the election of directors. The Board of Directors
shall promptly call a meeting of stockholders for the purpose of voting upon the
question of removal of any director or directors when requested in writing to do
so by the record holders of not less than 25 percent of the outstanding shares.
Section 2.06. Vacancy on Board. The stockholders may elect a successor
to fill a vacancy on the Board of Directors which results from the removal of a
director by the stockholders. A director elected by the stockholders to fill a
vacancy which results from the removal of a director serves for the balance of
the term of the removed director. Unless otherwise provided by statute or the
charter, a majority of the remaining directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which results
from any cause except removal or an increase in the number of directors. A
majority of the entire Board of Directors may fill a vacancy which results from
an increase in the number of directors. A director elected by the Board of
Directors to fill a vacancy serves until the next annual meeting of stockholders
and until his successor is elected and qualifies.
Section 2.07. Regular Meetings. After each meeting of stockholders at
which directors shall have been elected, the Board of Directors shall meet as
soon as practicable for the purpose of organization and the transaction of other
business. In the event that no other time and place are specified by resolution
of the Board or the President with notice in accordance with Section 2.08, the
Board of Directors shall meet immediately following the close of, and at the
place of, such stockholders' meeting. Any other regular meeting of the Board of
Directors shall be held on such date and at any place as may be designated from
time to time by the Board of Directors.
Section 2.08. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the President or by a majority of the
Board of Directors by vote at a meeting, or in writing with or without a
meeting. A special meeting of the Board of Directors shall be held on such date
and at any place as may be designated from time to time by the Board of
Directors. In the absence of designation such meeting shall be held at such time
and place as may be designated in the call.
4
<PAGE>
Section 2.09. Notice of Meetings; Waiver of Notice. Except as provided
in Section 2.06, the Secretary shall give notice to each director of each
regular and special meeting of the Board of Directors. The notice shall state
the time and place of the meeting. Notice is given to a director when it is
delivered personally to him, left at his residence or usual place of business,
or sent by telegraph, facsimile transmission or telephone, at least 24 hours
before the time of the meeting or, in the alternative, by mail to his address as
it shall appear on the records of the Corporation at least 72 hours before the
time of the meeting. Unless statute, the By-Laws or a resolution of the Board of
Directors provides otherwise, the notice need not state the business to be
transacted at or the purposes of any regular or special meeting of the Board of
Directors. No notice of any meeting of the Board of Directors need be given to
any director who attends, or to any director who, in a writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Any meeting of the Board of Directors, regular or
special, may adjourn from time to time to reconvene at the same or some other
place, and no notice need be given of any such adjourned meeting other than by
announcement.
Section 2.10. Action by Directors. Unless statute or the charter or
the By-Laws requires a greater proportion, the action of a majority of the
directors present at a meeting at which a quorum is present is action of the
Board of Directors. A majority of the entire Board of Directors shall constitute
a quorum for the transaction of business. In the absence of a quorum, the
directors present by majority vote and without notice other than by announcement
may adjourn the meeting from time to time until a quorum shall attend. At any
such adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified. Unless otherwise provided by statute or regulation, any action
required or permitted to be taken at a meeting of the Board of Directors may be
taken without a meeting, if an unanimous written consent which sets forth the
action is signed by each member of the Board and filed with the minutes of
proceedings of the Board.
Section 2.11. Telephone Meetings. Members of the Board of Directors
may participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Unless provided otherwise by the Investment Company
Act of 1940 or other statute or regulation, participation in a meeting by these
means constitutes presence in person at the meeting.
Section 2.12. Compensation. By resolution of the Board of Directors a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. A director who serves the Corporation in
any other capacity also may receive compensation for such other services,
pursuant to a resolution of the Board of Directors.
5
<PAGE>
ARTICLE III
COMMITTEES
Section 3.01. Committees. The Board of Directors may appoint from
among its members an Executive Committee and other committees composed of two or
more directors and delegate to these committees any of the powers of the Board
of Directors, except the power to declare dividends or other distributions on
stock, elect directors, issue stock other than as provided in the next sentence,
recommend to the stockholders any action which requires stockholder approval,
amend the By-Laws, or approve any merger or share exchange which does not
require stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock, a committee of the Board, in accordance
with a general formula or method specified by the Board by resolution or by
adoption of a stock option or other plan, may fix the terms of stock subject to
classification or reclassification and the terms on which any stock may be
issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Directors.
Section 3.02. Committee Procedure. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the action of a majority
of those present at a meeting at which a quorum is present shall be action of
the committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if an unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of the committee. The members of a committee may conduct any meeting
thereof by telephone in accordance with the provisions of Section 2.11.
ARTICLE IV
OFFICERS
Section 4.01. Executive and Other Officers. The Corporation shall have
a President, a Secretary and a Treasurer. The Corporation may also have one or
more Vice Presidents, assistant officers and subordinate officers as may be
established by the Board of Directors. A person may hold more than one office in
the Corporation except that no person may serve concurrently as both President
and Vice President of the Corporation. Officers may but need not be directors.
Section 4.02. Chairman of the Board. The Board of Directors may, if it
so determines, elect a Chairman of the Board and, if one be elected, he shall
preside at all meetings of the Board of Directors and of the stockholders at
which he shall be present but he may delegate such authority and duty to the
President. In general, he shall perform all such duties as are from time to time
assigned to him by the Board of Directors.
6
<PAGE>
Section 4.03. President. Unless otherwise provided by resolution of
the Board of Directors, the President, in the absence of the Chairman of the
Board, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present. Unless otherwise specified by the
Board of Directors, the President shall be the chief executive officer of the
Corporation and perform the duties customarily performed by chief executive
officers. He may sign and execute, in the name of the Corporation, all
authorized deeds, mortgages, bonds, contracts registration statements and other
documents and instruments, except in cases in which the signing and execution
thereof shall have been expressly delegated to some other officer or agent of
the Corporation. In general, he shall perform all duties usually performed by a
president of a corporation and such other duties as are from time to time
assigned to him by the Board of Directors.
Section 4.04. Vice Presidents. The Vice President or Vice Presidents,
at the request of the President, or in the President's absence or during his
inability to act, shall perform the duties and exercise the functions of the
President, and when so acting shall have the powers of the President. If there
be more than one Vice President, the Board of Directors may determine which one
or more of the Vice Presidents shall perform any of such duties or exercise any
of such functions, or if such determination is not made by the Board of
Directors, the President may make such determination; otherwise any of the Vice
Presidents may perform any of such duties or exercise any of such functions. The
Vice President or Vice Presidents shall have such other powers and perform such
other duties, and have such additional descriptive designations in their titles
(if any), as are from time to time assigned to them by the Board of Directors or
the President.
Section 4.05. Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for that purpose; he shall see that all notices are duly given
in accordance with the provisions of the By-Laws or as required by law; he shall
be custodian of the records of the Corporation; he may witness any document on
behalf of the Corporation, the execution of which is duly authorized, see that
the corporate seal is affixed where such document is required or desired to be
under its seal, and, when so affixed, may attest the same; and, in general, he
shall perform all duties incident to the office of a secretary of a corporation,
and such other duties as are from time to time assigned to him by the Board of
Directors or the President.
Section 4.06. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he shall render to the President and to the Board of Directors,
whenever requested, an account of the financial condition of the Corporation;
and, in general, he shall perform all the duties incident to the office of a
treasurer of a corporation, and such other duties as are from time to time
assigned to him by the Board of Directors or the President.
Section 4.07. Assistant and Subordinate Officers. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice President, Secretary or Treasurer. The assistant or subordinate officers
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shall have such duties as are from time to time assigned to them by the Board of
Directors or the President.
Section 4.08. Election, Tenure and Removal of Officers. The Board of
Directors shall elect the officers of the Corporation. The Board of Directors
may from time to time authorize any committee or officer to appoint assistant
and subordinate officers. Election or appointment of an officer, employee or
agent shall not of itself create contract rights. All officers shall be
appointed to hold their offices, respectively, during the pleasure of the Board.
The Board of Directors (or, as to any assistant or subordinate officer, any
committee or officer authorized by the Board) may remove an officer at any time.
The removal of an officer does not prejudice any of his contract rights. The
Board of Directors (or, as to any assistant or subordinate officer, any
committee or officer authorized by the Board) may fill a vacancy which occurs in
any office for the unexpired portion of the term.
Section 4.09. Compensation. The Board of Directors shall have power to
fix the salaries and other compensation and remuneration, of whatever kind, of
all officers of the Corporation. It may authorize any committee or officer, upon
whom the power of appointing assistant and subordinate officers may have been
conferred, to fix the salaries, compensation and remuneration of such assistant
and subordinate officers.
ARTICLE V
INDEMNIFICATION
Section 5.01. Indemnification of Directors and Officers. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
a proceeding by or in the right of the Corporation in which such person shall
have been adjudged to be liable to the Corporation), by reason of being or
having been a director, honorary director or officer of the Corporation, or
serving or having served at the request of the Corporation as a director,
honorary director, officer, partner, trustee, employee or agent of another
entity in which the Corporation has an interest as a shareholder, creditor or
otherwise (a "Covered Person"), against all liabilities, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and reasonable expenses (including attorneys' fees) actually
incurred by the Covered Person in connection with such action, suit or
proceeding, except (i) liability in connection with any proceeding in which it
is determined that (A) the act or omission of the Covered Person was material to
the matter giving rise to the proceeding, and was committed in bad faith or was
the result of active and deliberate dishonesty, or (B) the Covered Person
actually received an improper personal benefit in money, property or services,
or (C) in the case of any criminal proceeding, the Covered Person had reasonable
cause to believe that the act or omission was unlawful and (ii) liability to the
Corporation or its security holders to which the Covered Person would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office (any or
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all of the conduct referred to in clauses (i) and (ii) being hereinafter
referred to as "Disabling Conduct").
Section 5.02. Procedure For Indemnification. Any indemnification under
Section 5.01 shall (unless ordered by a court) be made by the Corporation only
as authorized for a specific proceeding by (i) a final decision on the merits by
a court or other body before whom the proceeding was brought that the Covered
Person to be indemnified was not liable by reason of Disabling Conduct, (ii)
dismissal of the proceeding against the Covered Person for insufficiency of
evidence of any Disabling Conduct, or (iii) a reasonable determination, based
upon a review of the facts, by a majority of a quorum of the directors who are
neither "interested persons" of the Corporation as defined in the Investment
Company Act of 1940 nor parties to the proceeding ("disinterested, non-party
directors"), or an independent legal counsel in a written opinion, that the
Covered Person was not liable by reason of Disabling Conduct. The termination of
any proceeding by judgment, order or settlement shall not create a presumption
that the Covered Person did not meet the required standard of conduct; the
termination of any proceeding by conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment, shall create
a rebuttable presumption that the Covered Person did not meet the required
standard of conduct. Any determination pursuant to this Section 5.02 shall not
prevent recovery from any Covered Person of any amount paid to him in accordance
with this By-Law as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to be liable by reason of
Disabling Conduct.
Section 5.03. Advance Payment of Expenses. Reasonable expenses
(including attorneys' fees) incurred by a Covered Person shall be paid or
reimbursed by the Corporation in advance of the final disposition of an action,
suit or proceeding upon receipt by the Corporation of (i) a written affirmation
by the Covered Person of his good faith belief that the standard of conduct
necessary for indemnification under this By-Law has been met and (ii) a written
undertaking by or on behalf of the Covered Person to repay the amount if it is
ultimately determined that such standard of conduct has not been met, so long as
either (A) the Covered Person has provided a security for his undertaking, (B)
the Corporation is insured against losses arising by reason of any lawful
advances, or (C) a majority of a quorum of the disinterested, non-party
directors, or an independent legal counsel in a written opinion, has determined,
based on a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the Covered Person ultimately
will be found entitled to indemnification.
Section 5.04. Exclusivity, Etc. The indemnification and advance of
expenses provided by this By-Law shall not be deemed exclusive of any other
rights to which a Covered Person seeking indemnification or advance of expenses
may be entitled under any law (common or statutory), or any agreement, vote of
stockholders or disinterested directors, or other provision that is consistent
with law, both as to action in an official capacity and as to action in another
capacity while holding office or while employed by or acting as agent for the
Corporation, shall continue in respect of all events occurring while the Covered
Person was a director, honorary director or officer after such Covered Person
has ceased to be a director, honorary director or officer, and shall inure to
the benefit of the estate, heirs, executors and administrators of such Covered
Person. All rights to indemnification and advance of expenses under the charter
and hereunder shall be deemed to be a contract between the Corporation and each
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director, honorary director or officer of the Corporation who serves or served
in such capacity at any time while this By-Law is in effect. Nothing herein
shall prevent the amendment of this By-Law, provided that no such amendment
shall diminish the rights of any Covered Person hereunder with respect to events
occurring or claims made before its adoption or as to claims made after its
adoption in respect of events occurring before its adoption. Any repeal or
modification of this By-Law shall not in any way diminish any rights to
indemnification or advance of expenses of a Covered Person or the obligations of
the Corporation arising hereunder with respect to events occurring, or claims
made, while this By-Law or any provision hereof is in force.
Section 5.05. Right to Bring Suit. If a claim under Section 5.01 or
Section 5.03 of this Article is not paid in full by the Corporation within 60
days after a written claim has been received by the Corporation, except in the
case of a claim for an advance, in which case the applicable period shall be 20
days, a Covered Person may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by the Corporation to recover an
advance pursuant to the terms of an undertaking, the Covered Person also shall
be entitled to be paid the expense of prosecuting or defending such suit.
Section 5.06. Indemnification of Employees. The Corporation may, to
the extent authorized from time to time by the Board of Directors, provide
indemnification and advances to any employee of the Corporation to the fullest
extent of the rights to indemnification and advances granted to directors,
honorary directors and officers of the Corporation under the provisions of this
By-Law.
Section 5.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any Covered Person or employee against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such; provided, however, that the Corporation shall not purchase
insurance to indemnify any Covered Person or employee against liability for
Disabling Conduct.
Section 5.08. Severability: Definitions. The invalidity or
unenforceability of any provision of this Article V shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
By-Law" in this Article V means this Article V in its entirety.
ARTICLE VI
STOCK
Section 6.01. Certificates for Stock. Each holder of shares is
entitled to a certificate or certificates which represent and certify the full
shares he holds in the Corporation. Each stock certificate shall include on its
face the name of the Corporation, the name of the class of shares represented
thereby, the name of the stockholder or other person to whom it is issued and
number of shares it represents. It shall be in such form, not inconsistent with
law or with the charter, as shall be approved by the Board of Directors or any
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officer or officers designated for such purpose by resolution of the Board of
Directors. Each stock certificate shall be signed by the President or a Vice
President, and countersigned by the Secretary, an Assistant Secretary, the
Treasurer or an Assistant Treasurer. Each certificate may be sealed with the
actual corporate seal or a facsimile of it or in any other form and the
signatures may be either manual or facsimile signatures. A certificate is valid
and may be issued whether or not an officer who signed it is still an officer
when it is issued.
Section 6.02 Fractional Shares. The Corporation may issue, sell,
repurchase and otherwise deal in and with shares of its stock in fractional
denominations to the same extent as its whole shares, and shares in fractional
denominations shall be shares of stock having proportionately to the respective
fractions represented thereby all the rights of whole shares, including, without
limitation, the right to vote, the right to receive dividends and distributions,
and the right to participate upon liquidation of the Corporation.
Section 6.03. Transfers. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of shares of stock; and may appoint
transfer agents and registrars thereof. The duties of transfer agent and
registrar may be combined.
Section 6.04. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend or be allotted other
rights. The record date may not be prior to the close of business on the day the
record date is fixed nor, subject to Section 1.06, more than 90 days before the
date on which the action requiring the determination will be taken; the transfer
books may not be closed for a period longer than 20 days; and, in the case of a
meeting of stockholders, the record date or the closing of the transfer books
shall be at least 10 days before the date of the meeting.
Section 6.05. Stock Ledger. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number of
shares of stock of each class which the stockholder holds. The stock ledger may
be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of a transfer agent
for the particular class of stock, or, if none, at the principal office in the
State of Maryland or the principal executive offices of the Corporation.
Section 6.06. Certification of Beneficial Owners. The Board of
Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may certify, the purpose for which the certification
may be made, the form of certification and the information to be contained in
it, if the certification is with respect to a record date or closing of the
stock transfer books, the time after the record date or closing of the stock
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transfer books within which the certification must be received by the
Corporation, and any other provisions with respect to the procedure which the
Board considers necessary or desirable. On receipt of a certification which
complies with the procedure adopted by the Board in accordance with this
Section, the person specified in the certification is, for the purpose set forth
in the certification, the holder of record of the specified stock in place of
the stockholder who makes the certification.
Section 6.07. Lost Stock Certificates. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen or destroyed, including
the requirement that the owner furnish a bond as indemnity against any claim or
loss that may be made against the Corporation in respect of the lost, stolen or
destroyed certificate or arise by reason of the issuance of a new certificate,
or the Board of Directors may delegate such power to any officer or officers of
the Corporation. In their discretion, the Board of Directors or such officer or
officers may refuse to issue such new certificate save upon the order of some
court having jurisdiction in the premises.
ARTICLE VII
FINANCE
Section 7.01. Checks, Drafts, Etc. All checks, drafts and orders for
the payment of money, notes and other evidences of indebtedness, issued in the
name of the Corporation, shall, unless otherwise provided by resolution of the
Board of Directors, be signed by the President, a Vice President or the
Treasurer or by any one or more officers or agents of the Corporation as shall
be designated for that purpose by the vote of the Board of Directors.
Section 7.02. Annual Statement of Affairs. The President or Treasurer
shall prepare or cause to be prepared annually a full and correct statement of
the affairs of the Corporation, to include a statement of net assets and a
financial statement of operations for the preceding fiscal year. The statement
of affairs shall be placed on file at the Corporation's principal office within
120 days after the end of the fiscal year.
Section 7.03. Fiscal Year. The fiscal year of the Corporation shall be
the twelve-calendar-month period ending December 31 in each year, unless
otherwise provided by the Board of Directors.
Section 7.04. Dividends. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the charter of the
Corporation.
Section 7.05. Repurchase of Shares. The Corporation may repurchase its
authorized and outstanding shares as the Board of Directors may direct, subject
to the provisions of Maryland law. None of the Corporation's shares or
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stockholders shall have the right to effect a redemption at net asset or any
other value.
Section 7.06. Employment of Custodian. The Corporation shall place and
maintain its securities and similar investments in the custody of one or more
custodians meeting the requirements of the Investment Company Act of 1940 or may
serve as its own custodian but only in accordance with such rules and
regulations or orders as the Securities and Exchange Commission may from time to
time prescribe for the protection of investors. Securities held by a custodian
may be registered in the name of the Corporation, including the designation of
the particular class to which such assets belong, or any such custodian, or the
nominee of either of them. Subject to such rules, regulations and orders as the
Commission may adopt as necessary or appropriate for the protection of
investors, the Corporation or any custodian, with the consent of the
Corporation, may deposit all or any part of the securities owned by the
Corporation in a system for the central handling of securities, pursuant to
which system all securities of a particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such securities.
ARTICLE VIII
SUNDRY PROVISIONS
Section 8.01. Books and Records. The Corporation shall keep correct
and complete books and records of its accounts and transactions and minutes of
the proceedings of its stockholders and Board of Directors and of any executive
or other committee when exercising any of the powers of the Board of Directors.
The books and records of a Corporation may be in written form or in any other
form which can be converted within a reasonable time into written form for
visual inspection. Minutes shall be recorded in written form but may be
maintained in the form of a reproduction. The original or a certified copy of
these By-Laws shall be kept at the principal office of the Corporation.
Section 8.02. Corporate Seal. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the charge
of the Secretary. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. If the Corporation is required to
place its corporate seal to a document, it is sufficient to meet the requirement
of any law, rule or regulation relating to a corporate seal to place the word
"Seal" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
Section 8.03. Bonds. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more sureties
and in such amount as may be satisfactory to the Board of Directors.
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Section 8.04. Voting Shares in Other Corporations. Shares of other
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares.
Section 8.05. Mail. Any notice or other document which is required by
these By-Laws to be mailed shall be deposited in the United States mails,
postage prepaid.
Section 8.06. Execution of Documents. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge or verify an instrument required by law to be executed, acknowledged
or verified by more than one officer.
Section 8.07. Amendments. (i) Any and all provisions of these By-Laws
may be amended, altered or repealed and new By-Laws may be adopted at any annual
meeting of the stockholders, or at any special meeting called for that purpose,
and (ii) the Board of Directors shall have the power, at any regular or special
meeting thereof, to make and adopt new By-Laws, or to amend, alter or repeal any
of the By-Laws of the Corporation.
14
CERTIFICATE OF CORRECTION
to
ARTICLES OF INCORPORATION
of
MONTGOMERY STREET INCOME SECURITIES, INC.
(a Maryland corporation)
MONTGOMERY STREET INCOME SECURITIES, INC., a Maryland corporation (the
"Corporation"), having its principal office in Baltimore City, Maryland, hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Articles of Incorporation of the Corporation were filed with the
State Department of Assessments and Taxation of Maryland on June 13, 1996, and
said Articles of Incorporation require correction as permitted by Section 1-207
of the Corporations and Associations Article of the Annotated Code of Maryland.
SECOND: The first sentence in Paragraph SIXTH (a) of the Articles of
Incorporation as previously filed and to be corrected hereby is as follows:
SIXTH: (a) The total number of shares of stock of all classes which
the Corporation has authority to issue is 50,000,000 shares of Common Stock
(par value $.001 per share), amounting in aggregate par value to $50,000.
THIRD: The first sentence in Paragraph SIXTH (a) of the Article of
Incorporation as corrected hereby is as follows:
SIXTH: (a) The total number of shares of stock of all classes which
the Corporation has authority to issue is 30,000,000 shares of Common Stock
(par value $.001 per share), amounting in aggregate par value to $30,000.
FOURTH: The inaccuracy or defect in the Articles of Incorporation as
previously filed is that the first sentence in Paragraph SIXTH (a) of the
Articles of Incorporation should not have authorized 50,000,000 shares.
IN WITNESS WHEREOF, I have executed this Certificate of Correction,
acknowledging the same to be my act, on July 15, 1996.
WITNESS:
/s/Anne M. Lindner By:/s/Henry D. Kahn
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Anne M. Lindner Henry D. Kahn
Incorporator
<PAGE>
MONTGOMERY STREET INCOME SECURITIES, INC.
ARTICLES OF INCORPORATION
FIRST: THE UNDERSIGNED, Henry D. Kahn, whose address is Charles Center
South, 36 South Charles Street, Baltimore, Maryland 21201, being at least
eighteen years of age, acting as incorporator, does hereby form a corporation
under and by virtue of the General Laws of the State of Maryland.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
MONTGOMERY STREET INCOME SECURITIES, INC.
THIRD: (a) The purposes for which and any of which the Corporation is
formed and the business and objects to be carried on and promoted by it are:
(1) To be a closed-end management investment company within the
meaning of the Investment Company Act of 1940, as amended (the "1940
Act").
(2) To engage in any one or more businesses or transactions, or to
acquire all or any portion of any entity engaged in any one or more
businesses or transactions which the Board of Directors may from time
to time authorize or approve, whether or not related to the business
described elsewhere in this Article or to any other business at the
time or theretofore engaged in by the Corporation.
(b) The foregoing enumerated purposes and objects shall be in no
way limited or restricted by reference to, or inference from, the terms
of any other clause of this or any other Article of the charter of the
Corporation, and each shall be regarded as independent; and they are
intended to be and shall be construed as powers as well as purposes and
objects of the Corporation and shall be in addition to and not in
limitation of the general powers of corporations under the General Laws
of the State of Maryland.
FOURTH: The present address of the principal office of the Corporation in
this State is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, MD 21202.
FIFTH: The name and address of the resident agent of the Corporation in
this State are The Corporation Trust Incorporated, 32 South Street, Baltimore,
MD 21202. Said resident agent is a Maryland corporation.
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<PAGE>
SIXTH: (a) The total number of shares of stock of all classes which the
Corporation has authority to issue is 50,000,000 shares of Common Stock (par
value $0.001 per share), amounting in aggregate par value to $50,000.
(b) If, in the opinion of the Board of Directors of the
Corporation, concentration of ownership of shares of Common Stock may
cause the Corporation to be deemed a personal holding company within
the meaning of the Internal Revenue Code of 1986, as amended, the
Corporation may at any time and from time to time refuse to give effect
on the books of the Corporation to any transfer or transfers of any
share or shares of Common Stock in an effort to prevent such personal
holding company status.
SEVENTH: The number of directors of the Corporation shall initially be six,
which number may be increased or decreased by a majority of the directors then
in office pursuant to the By-Laws of the Corporation, but shall never be less
than the minimum number permitted by the General Laws of the State of Maryland
now or hereafter in force. The initial directors shall be:
John C. Atwater
Richard J. Bradshaw
Otto W. Butz
Maryellie K. Moore
Wendell G. Van Auken
James C. Van Horne
EIGHTH: (a) The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the
directors and stockholders:
(1) The Board of Directors is hereby empowered to authorize the
issuance from time to time of shares of its stock of any class, whether
now or hereafter authorized, or securities convertible into shares of
its stock of any class or classes, whether now or hereafter authorized,
for such consideration as may be deemed advisable by the Board of
Directors and without any action by the stockholders.
(2) No holder of any stock or any other securities of the
Corporation, whether now or hereafter authorized, shall have any
preemptive right to subscribe for or purchase any stock or any other
securities of the Corporation other than such, if any, as the Board of
Directors, in its sole discretion, may determine and at such price or
prices and upon such other terms as the Board of Directors, in its sole
discretion, may fix; and any stock or other securities which the Board
of Directors may determine to offer for subscription may, as the Board
of Directors in its sole discretion shall determine, be offered to the
holders of any class, series or type of stock or other securities at
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<PAGE>
the time outstanding to the exclusion of the holders of any or all
other classes, series or types of stock or other securities at the time
outstanding.
(3) The Board of Directors of the Corporation shall, consistent
with applicable law, have power in its sole discretion to determine
from time to time in accordance with sound accounting practice or other
reasonable valuation methods what constitutes annual or other net
profits, earnings, surplus, or net assets in excess of capital; to fix
and vary from time to time the amount to be reserved as working
capital, or determine that retained earnings or surplus shall remain in
the hands of the Corporation; to set apart out of any funds of the
Corporation such reserve or reserves in such amount or amounts and for
such proper purpose or purposes as it shall determine and to abolish
any such reserve or any part thereof; to distribute and pay
distributions or dividends in stock, cash or other securities or
property, out of surplus or any other funds or amounts legally
available therefor, at such times and to the stockholders of record on
such dates as it may, from time to time, determine; and to determine
whether and to what extent and at what times and places and under what
conditions and regulations the books, accounts and documents of the
Corporation, or any of them, shall be open to the inspection of
stockholders, except as otherwise provided by statute or by the
By-Laws, and, except as so provided, no stockholder shall have any
right to inspect any book, account or document of the Corporation
unless authorized so to do by resolution of the Board of Directors.
(4) Notwithstanding any provision of Maryland law requiring the
authorization of any action by a greater proportion than a majority of
the total number of shares of all classes of capital stock or of the
total number of shares of any class of capital stock, such action shall
be valid and effective if authorized by the affirmative vote of the
holders of a majority of the total number of shares of all classes
outstanding and entitled to vote thereon or of the class entitled to
vote thereon as a separate class.
(5) The Corporation hereby expressly elects not to be subject to
the requirements of Title 3, Subtitle 6 of the Maryland General
Corporation Law.
(6) Subject to any limitations imposed by the 1940 Act, the
Corporation shall indemnify (A) its directors and officers, whether
serving the Corporation or at its request any other entity, to the
fullest extent required or permitted by the General Laws of the State
of Maryland now or hereafter in force, including the advance of
expenses under the procedures and to the full extent permitted by law,
and (B) other employees and agents to such extent as shall be
authorized by the Board of Directors or the By-Laws and as permitted by
law. The foregoing rights of indemnification shall not be exclusive of
any other rights to which those seeking indemnification may be
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<PAGE>
entitled. The Board of Directors may take such action as is necessary
to carry out these indemnification provisions and is expressly
empowered to adopt, approve and amend from time to time such by-laws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No amendment
of the charter of the Corporation or repeal of any of its provisions
shall limit or eliminate the right of indemnification provided
hereunder with respect to acts or omissions occurring prior to such
amendment or repeal.
(7) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the 1940 Act, no
director or officer of the Corporation shall be personally liable to
the Corporation or its stockholders for money damages. No amendment of
the charter of the Corporation or repeal of any of its provisions shall
limit or eliminate the limitation of liability provided to directors
and officers hereunder with respect to any act or omission occurring
prior to such amendment or repeal.
(8) The Corporation reserves the right from time to time to make
any amendments of its charter which may now or hereafter be authorized
by law, including any amendments changing the terms or contract rights,
as expressly set forth in its charter, of any of its outstanding stock
by classification, reclassification or otherwise.
(b) The enumeration and definition of particular powers of the Board of
Directors included in the foregoing shall in no way be limited or restricted by
reference to or inference from the terms of any other clause of this or any
other Article of the charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any powers conferred
upon the Board of Directors under the General Laws of the State of Maryland now
or hereafter in force.
NINTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation,
acknowledging the same to be my act, on June 12, 1996.
WITNESS:
/s/Anne M. Lindner /s/Henry D. Kahn
- --------------------------- ------------------------------
Anne M. Lindner Henry D. Kahn
-4-
MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT
Between
MONTGOMERY STREET INCOME SECURITIES, INC.
And
SCUDDER, STEVENS & CLARK, INC.
AGREEMENT made this 23rd day of July, 1996 by and between
Montgomery Street Income Securities, Inc., a Maryland corporation (hereinafter
called the "Fund"), and Scudder, Stevens & Clark, Inc., a Delaware corporation
(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
<PAGE>
reports shall include information and reports on industries, businesses,
corporations and all types of securities which the Fund is empowered to
purchase, whether or not the Fund has at any time any holdings in such
industries, businesses, corporations or securities.
(b) Furnish to the Fund, from time to time, advice,
information and recommendations with respect to the acquisition, holding or
disposal by the Fund of securities in which the Fund is permitted to invest in
accordance with its investment objectives, policies and limitations ("Eligible
Securities"), and subject to overall supervision of the Board of Directors of
the Fund, arrange purchases and sales of Eligible Securities on behalf of the
Fund.
(c) Furnish to the Fund necessary assistance in, as reasonably
requested by the Fund:
(i) The preparation and filing of all reports (including
Form N-SAR) now or hereafter required by Federal or other laws or
regulations.
(ii) The preparation and filing of prospectuses and
registration statements (including Form N-2) and amendments thereto
that may be required by Federal or other laws or by the rule or
regulation of any duly authorized commission or administrative body.
However, the Manager shall not be obligated to pay the costs of
preparation, printing or mailing of prospectuses being used in
connection with sales of the Fund's shares or otherwise, unless
otherwise provided herein.
(iii) The preparation and filing of all proxy materials.
(iv) Making arrangements for all Board and stockholders
meetings and, to the extent requested by the Board of Directors of the
Fund, participating in those meetings.
(v) The preparation and filing of quarterly, semiannual and
annual reports and other communications to stockholders.
(vi) Responding to questions and requests from stockholders,
the financial press and the financial services community.
(vii) Providing data to the various publications and
services which track fund performance.
(viii) Providing information and reports to the New York
Stock Exchange and any other exchange on which the Fund's shares are
listed.
(ix) The valuation of the Fund's portfolio on a weekly
basis.
(x) The maintenance of the accounting records (including
book and tax) of the Fund required by Federal and other laws and
regulations.
(xi) Providing information to and answering questions of the
Fund's auditors.
2
<PAGE>
(xii) Monitoring the services, and reviewing the records,
provided by the transfer agent and registrar, the dividend disbursing
agent and the custodian.
(d) Furnish the necessary personnel to provide the services
set forth herein.
(e) Furnish to the Fund office space at such place as may be
agreed upon from time to time, and all necessary office facilities, basic
business equipment, supplies, utilities, property casualty insurance and
telephone service for managing the affairs and investments and keeping the
general accounts and records of the Fund (exclusive of the necessary records of
any transfer agent, registrar, dividend disbursing or reinvesting agent, or
custodian, and arrange, if desired by the Board of Directors of the Fund, for
officers or employees of the Manager to serve, without or with compensation from
the Fund, as officers, directors or employees of the Fund.
(f) Advise the Board of Directors of the Fund promptly of
any change in any senior investment or administrative personnel providing
services to the Fund.
3. 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 of 1940, as amended
(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
3
<PAGE>
"affiliates" (as defined in the Investment Company Act); (k) all fees and
expenses incident to any dividend or distribution reinvestment program; (1)
charges and expenses of outside legal counsel in connection with matters
relating to the Fund, including without limitation, legal services rendered in
connection with the Fund's corporate and financial structure and relations with
its stockholders, issuance of Fund shares, and registrations and qualifications
of securities under Federal, state and other laws; (m) association dues; (n)
interest payable on Fund borrowings; (o) fees and expenses incident to the
listing of Fund shares on any stock exchange; (p) costs of information obtained
from sources other than the Manager or its "affiliates" (as defined in the
Investment Company Act) relating to the valuation of portfolio securities; and
(q) postage.
4. 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 $150 million; .45 of 1% of the
value of the net assets of the Fund over $150 million and up to and including
$200 million; and .40 of 1% of the value of the net assets of the Fund over $200
million. For purposes of computing the monthly fee, the value of 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.
5. (a) In the event the expenses of the Fund, including
amounts payable to the Manager pursuant to paragraph 4 hereof (but excluding
interest, taxes, brokerage commissions and extraordinary expenses), 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.
4
<PAGE>
(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 5 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 5 will
be exceeded for such fiscal year, the Manager's fee for such month, as provided
in paragraph 4 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 5
(but reduced by an amount, if any, payable by the Manager pursuant to
subparagraph (a)of this paragraph (5), exceed twenty-five percent (25%) of the
gross income of the Fund for such fiscal year, the Manager will pay the amount
of such excess to the Fund promptly and in all events prior to the publication
of the Fund's annual report for such fiscal year; provided, however, that the
Manager shall not be obligated to pay any amount to the Fund during any fiscal
year in excess of the amount of the advisory fee for such fiscal year. For
purposes of this subparagraph (c), "gross income of the Fund" shall include, but
not be limited to, gains from the sale of securities, without offset or
deduction for losses from the sale of securities, unpaid interest on debt
securities in the Fund's portfolio, accrued to and including the last day of
such fiscal year, and dividends declared but not paid on equity securities in
the Fund's portfolio, the record dates for which fall on or prior to the last
day of such fiscal year.
6. 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.
7. Subject to paragraph 8 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.
8. Neither the Manager, nor any director, officer, agent or
employee of the Manager shall be liable or responsible to the Fund or its
5
<PAGE>
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.
9. 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.
10. This Agreement shall remain in effect until July 8, 1997,
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 Board of Directors of the Fund who are not parties to this
Agreement or "interested persons" (as defined in the Investment Company Act) of
any party to this Agreement, which vote must be cast in person at a meeting
called for the purpose of voting on approval of the terms of this Agreement and
its continuance; provided, however, that (a) the Fund may, at any time and
without the payment of any penalty, terminate this Agreement upon sixty days'
written notice to the Manager either by majority vote of the Board of Directors
of the Fund or by the vote of a majority of the outstanding voting securities of
the Fund; (b) this Agreement shall immediately terminate in the event of its
assignment (within the meaning of the Investment Company Act) unless such
automatic termination shall be prevented by an exemptive order of the Securities
and Exchange Commission; and (c) the Manager may terminate this Agreement
without payment of penalty on sixty days' written notice to the Fund. All
notices or communications hereunder shall be in writing and if sent to the
Manager shall be mailed by first class mail, or delivered, or telegraphed or
telexed and confirmed in writing to the Manager at 345 Park Avenue, New York,
New York 10154, Attn: Juris Padegs, 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: John Packard, or at such other address as the
Fund shall have communicated in writing to the Manager.
11. 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.
6
<PAGE>
12. 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 on the day and year first above written in San
Francisco, California.
MONTGOMERY STREET INCOME
SECURITIES, INC.
By:/s/John T. Packard
------------------------------
President
SCUDDER, STEVENS & CLARK, INC.
By:/s/David S. Lee
------------------------------
Managing Director
7
SHAREHOLDER MEETING RESULTS
The Annual Meeting of Shareholders of Montgomery Street Income Securities, Inc.
(the "Company") was held on Thursday, July 11, 1996, at the offices of the
Company, 101 California Street, Suite 4100, San Francisco, California. The four
matters voted upon by Shareholders and the resulting votes for each matter are
presented below.
1. The election of six Directors to hold office until the next Annual
Meeting or until their respective successors shall have been duly
elected and qualified.
Director: Number of Votes:
--------- ----------------
For Withheld Broker Non-Votes*
--- -------- -----------------
John C. Atwater 7,752,562 120,915 0
Richard J. Bradshaw 7,769,067 104,409 0
Otto W. Butz 7,749,965 123,512 0
Maryellie K. Moore 7,770,569 102,907 0
Wendell G. Van Auken 7,772,609 100,867 0
James C. Van Horne 7,766,895 106,581 0
2. Ratification or rejection of the action taken by the Board of Directors
in selecting Ernst & Young LLP as independent auditors for the fiscal
year ending December 31, 1996.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
7,748,954 39,648 84,875 0
3. Approval or disapproval of the continuance of the Management and
Investment Advisory Agreement between the Company and Scudder, Stevens
& Clark, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
7,639,941 83,338 150,198 0
4. Approval or disapproval of the Agreement and Articles of Merger pursuant
to which the Company's state of incorporation would be changed from
Delaware to Maryland:
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
5,254,777 161,743 225,617 2,246,109
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Company from brokers or
nominees when the broker or nominee neither has received instructions from
the beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
19
Montgomery Street
Income Securities, Inc.
101 California Street, Suite 4100
San Francisco, California 94111
(415) 981-8191
Notice of
1996
Annual Meeting
of Stockholders
and
Proxy Statement
MONTGOMERY STREET
INCOME SECURITIES, INC.
<PAGE>
MONTGOMERY STREET 101 California Street, Suite 4100
INCOME SECURITIES, INC. San Francisco, CA 94111
(415) 981-8191
May 23, 1996
To the Stockholders:
The Annual Meeting of Stockholders of Montgomery Street Income Securities,
Inc. (the "Company") is to be held at 10:00 a.m., pacific time, on Thursday,
July 11, 1996 at the offices of the Company, 101 California Street, Suite 4100,
San Francisco, California. A Proxy Statement regarding the meeting, a proxy card
for your vote at the meeting and an envelope--postage prepaid--in which to
return your proxy are enclosed.
At the Annual Meeting the stockholders will elect the Company's Directors,
consider the ratification of the selection of Ernst & Young LLP as independent
auditors, consider the approval of the continuance of the Management and
Investment Advisory Agreement between the Company and Scudder, Stevens & Clark,
Inc. and consider the proposal to change the Company's state of incorporation
from Delaware to Maryland. In addition, the stockholders present will hear a
report on the Company. There will be an opportunity to discuss matters of
interest to you as a stockholder.
Your Directors recommend that the stockholders vote in favor of each of the
foregoing matters.
Respectfully,
/s/James C. Van Horne /s/John T. Packard
James C. Van Horne John T. Packard
Chairman of the Board President
- --------------------------------------------------------------------------------
STOCKHOLDERS ARE URGED TO SIGN THE PROXY CARD AND MAIL IT IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE SO AS TO ENSURE A QUORUM AT THE MEETING. THIS IS
IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES.
- --------------------------------------------------------------------------------
<PAGE>
MONTGOMERY STREET INCOME SECURITIES, INC.
Notice of Annual Meeting of Stockholders
To the Stockholders of
Montgomery Street Income Securities, Inc.:
Please take notice that the Annual Meeting of Stockholders of Montgomery
Street Income Securities, Inc. (the "Company") has been called to be held at the
offices of the Company, 101 California Street, Suite 4100, San Francisco,
California on Thursday, July 11, 1996 at 10:00 a.m., pacific time, for the
following purposes:
(1) To elect six Directors of the Company to hold office until the
next Annual Meeting or until their respective successors shall have been
duly elected and qualified.
(2) To ratify or reject the action taken by the Board of Directors
in selecting Ernst & Young LLP as independent auditors for the fiscal year
ending December 31, 1996.
(3) To approve or disapprove the continuance of the Management and
Investment Advisory Agreement between the Company and Scudder, Stevens &
Clark, Inc.
(4) To approve or disapprove the Agreement and Articles of Merger
pursuant to which the Company's state of incorporation would be changed
from Delaware to Maryland.
Those present and the appointed proxies will also transact such other
business as may properly come before the meeting or any adjournments thereof.
Holders of record of the shares of common stock of the Company at 5:00
p.m., eastern time, on May 13, 1996 are entitled to vote at the meeting or any
adjournments thereof.
By order of the Board of Directors,
May 23, 1996 Thomas F. McDonough, Secretary
- --------------------------------------------------------------------------------
IMPORTANT--We urge you to sign and date the enclosed proxy card and return it in
the enclosed addressed envelope which requires no postage and is intended for
your convenience. Your prompt return of the enclosed proxy card may save the
Company the necessity and expense of further solicitations to ensure a quorum at
the Annual Meeting. If you can attend the meeting and wish to vote your shares
in person at that time, you will be able to do so.
- --------------------------------------------------------------------------------
<PAGE>
MONTGOMERY STREET INCOME SECURITIES, INC.
101 CALIFORNIA STREET, SUITE 4100
SAN FRANCISCO, CALIFORNIA 94111
(415) 981-8191
PROXY STATEMENT
RECORD DATE: May 13, 1996 MAILING DATE: May 23, 1996
Introduction
The Board of Directors of Montgomery Street Income Securities, Inc. (the
"Company") is soliciting proxies for use at the Annual Meeting of Stockholders
(the "Annual Meeting"). The Annual Meeting will be held at the offices of the
Company, 101 California Street, Suite 4100, San Francisco, California on
Thursday, July 11, 1996 at 10:00 a.m., pacific time. The Board of Directors is
also soliciting proxies for use at any adjournment of the Annual Meeting. This
Proxy Statement is furnished in connection with that solicitation.
The Company may solicit proxies by mail, telephone, telegram, and personal
interview. In addition, the Company may request personnel of Scudder, Stevens &
Clark, Inc. (the "Investment Manager") to assist in the solicitation of proxies
by mail, telephone, telegram, and personal interview for no separate
compensation. It is anticipated that the Company will request brokers,
custodians, nominees, and fiduciaries who are record owners of stock to forward
proxy materials to their principals and obtain authorization for the execution
of proxies. The Company will pay the cost of soliciting proxies. Upon request,
the Company will reimburse the brokers, custodians, nominees, and fiduciaries
for their reasonable expenses in forwarding proxy materials to their principals.
You may revoke the enclosed proxy at any time insofar as not yet exercised
by the appointed proxies. You may do so by:
* written notice to the Company, c/o State Street Bank and Trust
Company, P.O. Box 8200, Boston, MA 02266-8200, Attn: Manager, Proxy
Department;
* written notice to the Company 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 which are returned marked to abstain from or withhold voting, as well as
proxies returned by brokers or others who have not received voting instructions
and do not have discretion to vote for their clients, 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) which
requires the approval of a plurality of shares voting at the Annual Meeting.
Abstentions and broker non-votes will have the effect of a "no" vote for
proposals (2), (3) and (4) which require the approval of a specified percentage
1
<PAGE>
of the outstanding shares of the Company or of such shares present at the Annual
Meeting. Stockholders who hold their shares through a broker or other nominee
are urged to forward their voting instructions.
In the event that sufficient votes in favor of any proposal are not
received by July 11, 1996, the persons named as proxies on the enclosed proxy
card may propose one or more adjournments of the meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of the holders of a majority of the shares present in person or by proxy at the
session of the Annual Meeting to be adjourned. The persons named as proxies on
the enclosed proxy card will vote in favor of such adjournment those proxies
which they are entitled to vote in favor of the proposal for which further
solicitation of proxies is to be made. They will vote against any such
adjournment those proxies required to be voted against such proposal. The costs
of any such additional solicitation and of any adjourned session will be borne
by the Company.
The record date for determination of stockholders entitled to receive
notice of the Annual Meeting and to vote at the Annual Meeting or any
adjournments thereof, was May 13, 1996 at 5:00 p.m., eastern time (the "Record
Date").
As of the Record Date, there were issued and outstanding 10,108,104
shares of common stock of the Company, constituting all of the Company's then
outstanding securities. Each share of common stock is entitled to one vote. As
of March 31, 1996, each Director, and all Directors and Officers as a group,
beneficially owned shares of the Company's common stock as follows:
Shares Percent of Total
Owned(1) Outstanding Shares
-------- ------------------
John C. Atwater ....................... 100 less than 1/4 of 1%
Richard J. Bradshaw(2)................. 2,240 less than 1/4 of 1%
Otto W. Butz(2)........................ 313 less than 1/4 of 1%
Maryellie K. Moore..................... 2,360 less than 1/4 of 1%
Wendell G. Van Auken................... 8,318 less than 1/4 of 1%
James C. Van Horne..................... 1,500 less than 1/4 of 1%
All Directors and Officers as a
group (14 in number)(3)............. 21,933 less than 1/4 of 1%
- --------------------------------------------------------------------------------
(1) Unless otherwise indicated, each person has sole voting and investment
power over the shares reported.
(2) Shared investment and voting power over the shares reported.
(3) The total for the group includes 14,118 shares held with sole
investment and voting power and 7,815 shares held with shared
investment and voting power.
- --------------------------------------------------------------------------------
Section 30(f) of the Investment Company Act of 1940, as amended (the "1940
Act"), requires the Company's Officers, Directors, Investment Manager,
affiliates of the Investment Manager, and persons who beneficially own more than
ten percent of the Company's common stock ("Reporting Persons"), to file reports
of ownership of the Company's common stock and changes in such ownership with
the Securities and Exchange Commission (the "SEC") and the New York Stock
2
<PAGE>
Exchange. Such persons are required by SEC regulations to furnish the Company
with copies of all such filings.
Based solely upon its review of the copies of such reports received by it
and written representations from certain Reporting Persons that no year-end
reports were required for those persons, the Company believes that during the
fiscal year ended December 31, 1995, all filing requirements applicable to its
Reporting Persons were satisfied.
To the best of the Company's knowledge, as of March 31, 1996, no person
owned beneficially more than 5% of the Company's outstanding shares.
The Company provides periodic reports to all stockholders which highlight
relevant information, including investment results and a review of portfolio
strategy. You may receive an additional copy of the annual report for the fiscal
year ended December 31, 1995, without charge, by calling 1-800-552-2556 or
writing the Company at 101 California Street, Suite 4100, San Francisco, CA
94111.
PROPOSAL 1--ELECTION OF DIRECTORS
Six Directors are to be elected at the Annual Meeting as the six Directors
of the Company. They are to be elected to hold office until the next annual
meeting or until their successors are elected and qualified. The persons named
on the accompanying proxy card, if granted authority to vote in the election of
Directors, intend to vote at the Annual Meeting for the election of the nominees
named below as the six Directors of the Company. In the unanticipated event that
any nominee for Director cannot be a candidate at the Annual Meeting, the
appointed proxies will vote their proxy in favor of the remainder of the
nominees and, in addition, in favor of such substitute nominee(s) (if any) as
the Board of Directors shall designate. Alternatively, the proxies may vote in
favor of a resolution reducing the number of Directors to be elected at the
Annual Meeting. Each of the nominees is now a Director of the Company and each
was elected to serve as a Director at the 1995 Annual Meeting of Stockholders.
All nominees have consented to be nominated and to serve if elected.
Information Concerning Nominees
The following table sets forth certain information concerning each of the
nominees as a Director of the Company.
<TABLE>
<CAPTION>
Year First
Principal Occupation or Employment Became a
Nominee (Age) and Directorships in Publicly Held Companies Director
------------------- ----------------------------------------------- -------------
<S> <C> <C>
John C. Atwater (35) Mr. Atwater is Managing Partner of Prime Property Capital, Inc. 1994
(real estate investment firm). He also serves as a Director of SNK
Oaks Development, Inc.
Richard J. Bradshaw Mr. Bradshaw is currently Executive Director of Orrick, Herrington 1991
(47)* & Sutcliffe (law firm), a position he has held since October 1992.
From January 1988 to September 1992, he was Chief
Financial Officer of Morrison & Foerster (law firm).
3
<PAGE>
Year First
Principal Occupation or Employment Became a
Nominee (Age) and Directorships in Publicly Held Companies Director
------------------- ----------------------------------------------- -------------
Otto W. Butz (73) Dr. Butz retired as President of Golden Gate University in July 1975
1992, a position he had held since November 1970. Golden Gate
University is a private, accredited university, located in San
Francisco, California specializing in the areas of
management, public administration, and law.
Maryellie K. Moore Ms. Moore is an international shipping consultant and has been a 1989
(60) Director of London and Overseas Freighters, Ltd. since January
1989. Prior to 1989, she served as Treasurer of Alexander and
Baldwin, Inc. (shipping company) and Matson Navigation Company,
Inc. (containerized freight service). She has been a Trustee of
the University of San Francisco since 1992.
Wendell G. Van Auken Mr. Van Auken is a General Partner of several venture capital 1994
(51) funds affiliated with Mayfield Fund. He also serves as a
Director of Advent Software (portfolio software company)
and Adept Technologies (robotics company).
James C. Van Horne Dr. Van Horne is an A.P. Giannini Professor of Finance, Graduate 1985
(60) School of Business, at Stanford University, a position he has held
from September 1965 to August 1975 and from September 1976 to
present. He also serves as a Director of the Sanwa Bank California
and Bailard, Biehl & Kaiser International Fund Group, Inc. and as
a Trustee of the Bailard, Biehl & Kaiser Fund Group (both
registered investment companies).
* Director considered by the Company to be an "interested person" of the Company, as defined in the
1940 Act. Mr. Bradshaw is deemed to be an "interested person" because of his affiliation with
Orrick, Herrington & Sutcliffe, former counsel to the Company.
</TABLE>
Committees of the Board--Board Meetings
The Board of Directors, in addition to an Executive Committee, has an Audit
Committee and a Nominating Committee.
In 1995, the Board of Directors held four meetings and the Executive
Committee did not meet. Each Director attended at least 75% of the total number
of meetings of the Board of Directors and of all committees of the Board on
which he or she served during his or her tenure as a Director of the Company.
Audit Committee
The Audit Committee held two meetings during 1995. The current members of
the Audit Committee are Messrs. Van Auken and Bradshaw and Ms. Moore. One of the
Audit Committee's responsibilities is to approve the scope of the audit of the
4
<PAGE>
books and accounts of the Company to be conducted by its independent auditors,
including all services performed, whether audit or non-audit related. Another
responsibility is to meet with the independent auditors and receive their
reports on audits. The Audit Committee, or one of its members, in carrying out
the Audit Committee's responsibilities, is empowered to meet and confer with, or
receive the written reports of, Officers and employees of the Company, the
custodian of its assets, and the Investment Manager.
Nominating Committee
The Nominating Committee held one meeting in 1995. The current members of
this committee are Messrs. Atwater and Butz and Ms. Moore. The responsibilities
of this committee are to recommend possible candidates to fill vacancies on the
Board of Directors, to review the qualifications of candidates recommended by
others, to recommend to the Board the slate of Director candidates to be
proposed for election by stockholders at the annual meeting, and to recommend to
the Board policies and criteria regarding retirement from the Board. The
Nominating Committee will consider nominees recommended by stockholders. Those
wishing to submit the name of any individual should submit in writing a brief
description of the proposed nominee's business experience and other information
relevant to the qualifications of the individual to serve as a Director. In
order to be considered at the 1997 annual meeting, submission should be made by
January 24,1997.
Officers of the Company
Pamela A. McGrath (age 42), John T. Packard (age 62), Daniel Pierce (age
62), Kathryn L. Quirk (age 43) and Stephen A. Wohler (age 47), who are Vice
President and Treasurer, President, Vice President and Assistant Treasurer, Vice
President and Assistant Secretary, and Vice President of the Company,
respectively, are Managing Directors of the Investment Manager. In addition, the
following Principals of the Investment Manager are Officers of the Company in
the following capacities: Mark S. Boyadjian (age 31), Vice President; Thomas F.
McDonough (age 49), Vice President and Secretary; and Edward J. O'Connell (age
51), Vice President. All of the Officers have been employed by the Investment
Manager for the past five years, although perhaps not in the same capacity
during that time period. All Officers, except Messrs. Packard, Wohler and
Boyadjian, are also officers or Directors of other funds managed by the
Investment Manager.
Remuneration of Directors and Officers
Each Director receives remuneration from the Company for his or her
services. The Company does not compensate its Officers or employees, since the
Investment Manager makes these individuals available to the Company to serve
without compensation from the Company. Remuneration to Directors consists of
Directors' fees composed in each case of a quarterly retainer of $2,000 (except
the Chairman of the Board, whose quarterly retainer is $6,000) and a fee of $500
for each Board meeting attended and $250 for each committee meeting attended as
well as any related expenses. For the fiscal year ended December 31, 1995, total
compensation (including reimbursement of expenses) for all Directors as a group
was $80,143.
5
<PAGE>
The Compensation Table below provides in tabular form, the following data:
Column (1) All Directors who receive compensation from the Company.
Column (2) Aggregate compensation received by a Director from the
Company.
Column (3) Total compensation received by a Director from the Company
and from all other funds managed by the Investment Manager. No member of
the Board serves as a Director or Trustee for any other fund in the
complex of funds managed by the Investment Manager.
Compensation Table
for the year ended December 31, 1995
--------------------------------------------------------------------------
(1) (2) (3)
Total Compensation From
Aggregate the Company and Fund
Name of Person, Compensation Complex
Position from the Company Paid to Director
--------------------------------------------------------------------------
John C. Atwater $9,750 $9,750
Director
Richard J. Bradshaw $10,500 $10,500
Director
Otto W. Butz $10,250 $10,250
Director
Maryellie K. Moore $10,750 $10,750
Director
Wendell G. Van Auken $10,500 $10,500
Director
James C. Van Horne $26,000 $26,000
Chairman
Recommendation and Required Vote
The Board of Directors recommends a vote FOR election of each of the
nominees for Director. Election of the nominees for Director requires the
affirmative vote of a plurality of the shares present or represented by proxy at
the Annual Meeting.
PROPOSAL 2--RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
At a meeting held on April 12, 1996, a majority of the Directors who were
not "interested persons," as defined in the 1940 Act ("Interested Persons") of
the Company, selected Ernst & Young LLP as the Company's independent auditors,
for the fiscal year ending December 31, 1996, to examine the Company's books and
accounts and to certify the Company's financial statements. Under the 1940 Act,
this selection must be submitted to the stockholders for ratification or
rejection at the Annual Meeting. If the selection of Ernst & Young LLP is not
ratified by stockholders, the Board of Directors will consider the selection of
another accounting firm.
It is anticipated that a representative of Ernst & Young LLP will be
present at the Annual Meeting and will be available to respond to appropriate
questions. The representative will be given an opportunity to make any desired
statement.
6
<PAGE>
Recommendation and Required Vote
The Board of Directors recommends a vote FOR the ratification of the
selection of Ernst & Young LLP as the Company's independent auditors. The
ratification of the selection of Ernst & Young LLP requires the affirmative vote
of a majority of the shares present or represented by proxy at the Annual
Meeting.
PROPOSAL 3--APPROVAL OR DISAPPROVAL OF THE CONTINUANCE OF THE MANAGEMENT AND
INVESTMENT ADVISORY AGREEMENT BETWEEN THE COMPANY AND SCUDDER,
STEVENS & CLARK, INC.
Scudder, Stevens & Clark, Inc., 345 Park Avenue, New York, New York, acts
as investment adviser to and manager for the Company pursuant to a Management
and Investment Advisory Agreement dated July 8, 1993 (the "Agreement"). The
continuance of the Agreement was last approved by a vote of the stockholders on
July 13, 1995. The Agreement continues in effect by its terms from year to year
provided its continuance is specifically approved at least annually by the vote
of a majority of the Directors who are not parties to the Agreement or
Interested Persons of the Company or the Investment Manager cast in person at a
meeting called for the purpose of voting on such approval, and by the vote of
either the Board of Directors or a majority of the Company's outstanding voting
securities. The Agreement may be terminated on 60 days' written notice, without
penalty, by a majority vote of the Board of Directors, by the vote of a majority
of the Company's outstanding voting securities, or by the Investment Manager,
and automatically terminates in the event of its assignment.
Services Provided
The Agreement requires the Investment Manager to provide investment
management and advisory services to the Company. It provides that the Investment
Manager will provide statistical and research facilities and services, supervise
the composition of the Company's portfolio, determine the nature and timing of
changes therein and the manner of effectuating such changes and cause the
purchase and sale of portfolio securities, subject to control by the Company's
Board of Directors. In addition to providing investment management and advisory
services, the Investment Manager pays for office space, all necessary office
facilities, basic business equipment, supplies, utilities, property casualty
insurance, telephone services and the costs of keeping the Company's books and
records. The Agreement requires the Investment Manager to arrange, if desired by
the Board of Directors of the Company, for officers or employees of the
Investment Manager to serve, with or without compensation from the Company, as
Officers, Directors or employees of the Company.
The Agreement provides that the Investment Manager will not be liable for
any acts or omissions of any predecessor adviser and neither the Investment
Manager nor any director, officer, agent or employee of the Investment Manager
will be liable or responsible to the Company or its stockholders except for
willful misfeasance, bad faith, gross negligence or reckless disregard of their
respective duties or breach of fiduciary duty. The Agreement also provides that
the Company will hold the Investment Manager harmless from judgments against it
resulting from acts or omissions in the performance of its obligations under the
Agreement which are specifically the result of written instructions of the
President, any Vice President or a majority of the Board of Directors of the
Company. There must, however, be an express finding that such acts or omissions
7
<PAGE>
did not constitute willful misfeasance, bad faith, gross negligence or reckless
disregard of duties.
Fees and Expenses
The Agreement provides that the Investment Manager be paid an annual fee,
payable monthly, equal to .50 of 1% of the value of the net assets of the
Company up to and including $150 million, .45 of 1% of the value of the net
assets of the Company over $150 million and up to and including $200 million,
and .40 of 1% of the value of the net assets of the Company over $200 million.
For purposes of computing the monthly fee, the value of net assets of the
Company is determined as of the close of business on the last business day of
each month. For the fiscal year ended December 31, 1995 the Company paid the
Investment Manager an aggregate fee of $946,575.
The Agreement provides that the Company bear all expenses incurred in the
operation of the Company -- except those that the Investment Manager expressly
assumes in the Agreement. Such expenses borne by the Company include (a) all
costs and expenses incident to: (i) the registration of the Company under the
1940 Act, or (ii) any public offering of shares of the Company, for cash or
otherwise, including those costs and expenses relating to the registration of
shares under the Securities Act of 1933, as amended (the "Securities Act"), the
qualification of shares of the Company under state securities laws, the printing
or other reproduction and distribution of any registration statement (and all
amendments thereto) under the Securities Act, the preliminary and final
prospectuses included therein, and any other necessary documents incident to any
public offering, the advertising of shares of the Company and the review by the
National Association of Securities Dealers, Inc. of any underwriting
arrangements; (b) the charges and expenses of any registrar or any custodian
appointed by the Company for the safekeeping of its cash, portfolio securities
and other property; (c) the charges and expenses of auditors (including the
preparation of tax returns); (d) the charges and expenses of any stock transfer,
dividend agent or registrar appointed by the Company; (e) broker's commissions
chargeable to the Company in connection with portfolio securities transactions
to which the Company is a party; (f) all taxes, including securities issuance
and transfer taxes, and corporate fees payable by the Company to federal, state
or other governmental agencies; (g) the cost and expense of engraving or
printing stock certificates representing shares of the Company; (h) fees
involved in registering and maintaining registrations of the Company and of its
shares with the SEC and various states and other jurisdictions; (i) all expenses
of stockholders' and Directors' meetings and of preparing, printing and mailing
proxy statements and quarterly, semiannual and annual reports to stockholders;
(j) fees and travel expenses of Directors of the Company who are not directors,
officers or employees of the Investment Manager or its "affiliates" (as defined
in the 1940 Act); (k) all fees and expenses incident to any dividend or
distribution reinvestment program; (l) charges and expenses of outside legal
counsel in connection with matters relating to the Company, including without
limitation, legal services rendered in connection with the Company's corporate
and financial structure and relations with its stockholders, issuance of Company
shares, and registrations and qualifications of securities under federal, state
and other laws; (m) association dues; (n) interest payable on Company
borrowings; (o) fees and expenses incident to the listing of Company shares on
any stock exchange; (p) costs of information obtained from sources other than
8
<PAGE>
the Investment Manager or its "affiliates" (as defined in the 1940 Act) relating
to the valuation of portfolio securities; and (q) postage.
Expense Limitations
The Agreement provides that if expenses of the Company (including the
advisory fee but excluding interest, taxes, brokerage commissions and
extraordinary expenses) in any fiscal year exceed a specified expense
limitation, the Investment Manager will pay the excess to the Company. The
specified limitation is 11/2% of the first $30 million of the Company's average
net assets plus 1% of the Company's average net assets in excess of $30 million.
The Agreement provides that extraordinary expenses, such as litigation expenses
and the cost of issuing new shares, are excluded expenses for purposes of the
expense limitations described in this paragraph and the immediately succeeding
paragraph and that the Investment Manager will not be obligated to pay any
amount to the Company during any fiscal year in excess of the amount of the
advisory fee for such fiscal year.
The Agreement also provides for a second expense limitation, relating to
the Company's gross income (including gains from the sale of securities without
offset for losses, unpaid interest on debt securities in the Company's
portfolio, and dividends declared but not paid on equity securities in the
Company's portfolio). This limitation provides that if, for any fiscal year, the
expenses of the Company described in the preceding paragraph -- less any amount
payable by the Investment Manager to the Company on account of the first expense
limitation -- exceed 25% of the Company's gross income for the year, the
Investment Manager will promptly pay the excess to the Company.
For the fiscal year ending December 31, 1995, the Company's expenses did
not exceed these limitations.
Investment Manager
The Investment Manager is a Delaware corporation. Daniel Pierce* is the
Chairman of the Board, and Edmond D. Villani# is the President of the
Investment Manager. Stephen R. Beckwith#, Lynn S. Birdsong#, Nicholas Bratt#,
Linda C. Coughlin#, Margaret D. Hadzima*, Jerard K. Hartman#, Richard A. Holt@,
Dudley H. Ladd*, Douglas M. Loudon#, John T. Packard~, Juris Padegs# and
Cornelia M. Small# are the other members of the Board of Directors of the
Investment Manager. The principal occupation of each of the above named
individuals is serving as a Managing Director of the Investment Manager.
* Two International Place, Boston, Massachusetts
# 345 Park Avenue, New York, New York
~ 101 California Street, San Francisco, California
@ Two Prudential Plaza, 180 North Stetson, Suite 5400, Chicago, Illinois
All of the outstanding voting and non-voting securities of the Investment
Manager are held of record by Stephen R. Beckwith, Juris Padegs, Daniel Pierce
and Edmond D. Villani in their capacity as representatives (the
"Representatives") of the beneficial owners of such securities, pursuant to a
Security Holders' Agreement among the Investment Manager, the beneficial owners
of securities of the Investment Manager, and the Representatives. Pursuant to
the Security Holders' Agreement, the Representatives have the right to
reallocate shares among the beneficial owners from time to time. Such
9
<PAGE>
reallocation will be at net book value in cash transactions. All Managing
Directors of the Investment Manager own voting and non-voting stock; all
Principals own non-voting stock.
The Investment Manager or an affiliate manages in excess of $100 billion in
assets for individuals, funds and other organizations. The following are open-
or closed-end funds with investment objectives similar to the Company, for whom
the Investment Manager provides investment management:
<TABLE>
<CAPTION>
Total Net Assets
as of Management Compensation
April 30, 1996 on an Annual Basis Based on the
Name (000 omitted) Value of Average Daily Net Assets
---- ------------- ---------------------------------
<S> <C> <C>
AARP High Quality Bond Fund $520,000 0.49 of 1%.*
Managed Intermediate Government Fund $ 11,600 0.65 of 1%.
Scudder Income Fund $565,800 0.65 of 1%; 0.60 of 1% on net assets in
excess of $200 million; 0.55 of 1% on net
assets in excess of $500 million.
Scudder Variable Life Investment $ 56,400 0.475 of 1%.
Fund - Bond Portfolio
- -------------
* Consists of an Individual Fund Fee Rate of 0.19 of 1% plus an Annual Base Fee in proportion to the ratio of the
daily net assets of the fund to the daily net assets of all of the funds (the "AARP Funds") in the AARP Investment
Program from Scudder (the "Program"). The Annual Base Fee Rate is: 0.35 of 1% on net assets of the Program up to and
including $2 billion; 0.33 of 1% on net assets of the Program in excess of $2 billion up to and including $4
billion; 0.30 of 1% on net assets of the Program in excess of $4 billion up to and including $6 billion; 0.28 of 1%
on net assets of the Program in excess of $6 billion up to and including $8 billion; 0.26 of 1% on net assets of the
Program in excess of $8 billion up to and including $11 billion; 0.25 of 1% on net assets of the Program in excess
of $11 billion up to and including $14 billion; and 0.24 of 1% on net assets of the Program in excess of $14
billion.
</TABLE>
From time to time, directors, officers and employees of the Investment
Manager may have transactions with various banks, including the Company's
custodian bank. It is the Investment Manager's opinion that the terms and
conditions of those transactions that have occurred were not influenced by
existing or potential custodial or other Company relationships.
Investment and Brokerage Discretion
The Investment Manager has primary responsibility for the selection of
brokers and dealers (including futures commission merchants) through which the
Company's portfolio transactions are executed, subject to periodic review by the
Company's Board of Directors. To the maximum extent feasible, the Investment
Manager places orders for portfolio transactions through Scudder Investor
Services, Inc. (a corporation registered as a broker/dealer and a subsidiary of
the Investment Manager), which in turn will place orders on behalf of the
Company with the issuer, underwriters or other brokers and dealers. Scudder
Investor Services, Inc. receives no commissions, fees or other remuneration from
the Company for this service. Allocation of trades will be supervised by the
Investment Manager.
10
<PAGE>
Recommendation and Required Vote
At a meeting held on April 12, 1996, the Board of Directors, including a
majority of the Directors who were not Interested Persons of the Company or the
Investment Manager, approved the continuance of the Agreement until July 8, 1997
and recommended that the stockholders approve its continuance at the Annual
Meeting.
In approving the continuance of the Agreement, the Board of Directors,
considering the best interests of the stockholders of the Company, took into
account a number of factors. Among such factors were: the long-term investment
record of the Investment Manager in advising the Company; the experience and
research capabilities of the Investment Manager in fixed-income instruments,
including mortgage-related securities and private placements; the relatively low
expenses and expense ratio of the Company; the Investment Manager's access to
quality service providers at reasonable cost due to the size of its assets under
management; the quality of the administrative services to the Company; the
experience of the Investment Manager in administering other open- and closed-end
funds; the availability and responsiveness of the Investment Manager and its
attention to internal controls and procedures; the extent and quality of
information provided to the Board of Directors and stockholders; the continuity
in the Company's investment and administrative personnel; the financial
resources of the Investment Manager and its ability to retain capable personnel;
the Investment Manager's financial condition, profitability and assets under
management; and possible indirect benefits to the Investment Manager from
serving as adviser of the Company.
In reviewing the continuance of the Agreement, the Board of Directors
reviewed, among other information, extensive written and oral reports and
compilations from the Investment Manager, including comparative data from
independent sources as to investment performance, advisory fees and other
expenses. The Board of Directors also received a separate written and oral
report from Gifford Fong Associates, an independent investment consultant
engaged by the Board of Directors specializing in quantitative fixed-income
investment analysis.
Approval by stockholders requires the affirmative vote of the holders of a
majority of the Company's outstanding shares. In this context, "majority" means
the lesser of two votes: (1) 67% of the Company's outstanding shares present at
a meeting if the holders of more than 50% of the outstanding shares are present
in person or by proxy, or (2) more than 50% of all of the Company's outstanding
shares. If continuance is approved at the Annual Meeting, the Agreement will
continue until annual review of the question of continuance by the Board or the
stockholders in 1997. If annual continuance of the Agreement is not approved at
the Annual Meeting, the Board of Directors, notwithstanding its approval of
annual continuance at the April 12, 1996 meeting, will make such arrangements
for the management of the Company as it believes appropriate and in the best
interests of the Company.
11
<PAGE>
PROPOSAL 4 -- REINCORPORATION OF THE COMPANY IN MARYLAND
Subject to the approval of stockholders, the Board of Directors has
approved the Company's change of domicile from Delaware to Maryland (the
"Reincorporation") in accordance with the Agreement and Articles of Merger
attached as Exhibit A to this Proxy Statement (the "Merger Agreement"). The
primary reason for the Reincorporation is to eliminate the annual franchise
taxes payable by the Company as a Delaware corporation.
Pursuant to the Merger Agreement, the Company will merge into a new
Maryland corporation to be named Montgomery Street Income Securities, Inc. ("New
Montgomery"), and each issued and outstanding share of common stock of the
Company will automatically be converted into one share of common stock of New
Montgomery. Upon effectiveness of the Reincorporation, New Montgomery will
succeed to all of the assets and liabilities of the Company, and the Company
will cease to exist. New Montgomery will operate in substantially the same
manner and with the same investment objectives, policies and restrictions as the
Company has in the past.
Reasons for the Reincorporation
Following the Reincorporation, the Company will no longer be required to
pay Delaware franchise taxes that are incurred annually as a result of being a
Delaware corporation. In 1995, the Company paid $43,233 in franchise taxes to
the State of Delaware. Under current Maryland law, New Montgomery will be
required to pay a one-time, organization fee of $20 and an annual fee of $100 in
connection with the filing of its Maryland personal property tax return, but
will not be required to pay any franchise taxes.
In connection with the Reincorporation, the Company will be increasing the
number of its authorized shares of common stock from 15,000,000 to 30,000,000
and will be conforming its corporate documents to current Maryland law. Among
other changes, the corporate documents of New Montgomery contain certain
limitations on the liability of directors and officers consistent with current
Maryland law. The Company was organized in Delaware in 1972. See "Certain
Comparative Information About the Company and New Montgomery."
Principal Features of the Reincorporation
To accomplish the Reincorporation, New Montgomery will be formed as a
Maryland corporation pursuant to articles of incorporation that will be filed
with the Maryland State Department of Assessments and Taxation, and one share of
New Montgomery capital stock will be issued to the Company. In its capacity as
sole stockholder prior to the Reincorporation, the Company will, subject to
stockholder approval of Proposals 1, 2, and 3, respectively, (i) elect the
Company's Directors as Directors of New Montgomery (see Proposal 1); (ii) ratify
the selection of Ernst & Young LLP as independent accountants of New Montgomery
(see Proposal 2); and (iii) approve the management and investment advisory
agreement between New Montgomery and Scudder, Stevens & Clark, Inc. (see
Proposal 3). Stockholder approval of the Reincorporation will be deemed to
authorize the Company, as sole stockholder of New Montgomery, to take such
actions. However, if the stockholders do not separately elect the Directors and
approve the accountants and advisory arrangements described above, the Board of
Directors of the Company may determine to abandon the Reincorporation
notwithstanding stockholder approval of the Reincorporation itself. The share of
12
<PAGE>
New Montgomery capital stock held by the Company will be cancelled upon the
effectiveness of the Reincorporation.
On the effective date of the Reincorporation, the Company will merge with
and into New Montgomery, each outstanding share of Company common stock will
automatically become one share of common stock of New Montgomery, and
stockholders of the Company will automatically become stockholders of New
Montgomery. Stockholders holding stock certificates of the Company need not
exchange their certificates for new certificates following consummation of the
Reincorporation. Certificates for shares of the Company issued prior to the
Reincorporation will represent outstanding shares of New Montgomery after the
Reincorporation. Following the Reincorporation, the common stock of New
Montgomery will continue to be quoted on the New York Stock Exchange, and
delivery of certificates representing existing common stock will constitute
"good delivery" of common stock of New Montgomery for subsequent transactions.
As a result of the Reincorporation, the Company and the rights of its
stockholders, Directors and Officers will be governed by Maryland law and by New
Montgomery's Articles of Incorporation (the "Maryland Charter") and By-Laws (the
"Maryland By-Laws"), rather than by Delaware law and the Company's existing
Certificate of Incorporation (the "Delaware Certificate") and By-Laws (the
"Delaware By-Laws"). A copy of the Maryland Charter is attached hereto as
Exhibit B. Copies of the Maryland By-Laws, the Delaware Certificate and the
Delaware By-Laws are available for inspection at the principal executive offices
of the Company and will be sent to stockholders upon request for a nominal
charge to cover costs. All references to the Merger Agreement, the Maryland
Charter, the Maryland By-Laws, the Delaware Certificate and the Delaware By-Laws
are qualified in their entirety by reference to such documents, the General
Corporation Law of the State of Delaware ("Delaware Law") and the Maryland
General Corporation Law ("Maryland Law").
The Reincorporation will be effective upon the filing of the Merger
Agreement with the Secretary of State of the State of Delaware and the Maryland
State Department of Assessments and Taxation in the manner prescribed by law,
which filings are expected to be made as promptly as practicable after the
Annual Meeting. The Reincorporation may, however, become effective at another
time and date should circumstances warrant. To protect the Company against
unforeseen events, and notwithstanding the approval of the Merger Agreement by
stockholders of the Company, the Reincorporation may be terminated or amended at
any time prior to its consummation by action of the Board of Directors of the
Company. However, no amendment will be made that will materially and adversely
affect the interests of stockholders of the Company without further stockholder
approval.
New Montgomery
New Montgomery, like the Company, will be a closed-end management
investment company. New Montgomery will have a fiscal year ending December 31,
as does the Company. Subject to the provisions of the Maryland Charter, the
Maryland By-Laws and Maryland Law, the business of New Montgomery will be
managed by its Directors, who will have all powers necessary to carry out that
responsibility. The powers and responsibilities of the Directors will be
substantially the same as those currently of the Directors of the Company. See
"Certain Comparative Information About the Company and New Montgomery."
13
<PAGE>
The Directors of New Montgomery will be those persons elected by the
stockholders as Directors of the Company at the Annual Meeting. Information
concerning these persons is set forth in Proposal 1. It is anticipated that the
current Officers of the Company will be appointed by the Directors to serve as
Officers of New Montgomery and will perform substantially the same functions for
New Montgomery following the Reincorporation as they now perform on behalf of
the Company.
Certain Comparative Information About the Company and New Montgomery
As a Maryland corporation, New Montgomery's operations will be governed by
the Maryland Charter, Maryland By-Laws and Maryland Law rather than by the
Delaware Certificate, Delaware By-Laws and Delaware Law. Certain similarities
and differences between the two forms of organization are summarized below. This
summary is not intended to be complete and is qualified in its entirety by
reference to the Maryland Charter, Maryland By-Laws and Maryland Law, and to the
Delaware Certificate, Delaware By-Laws and Delaware Law.
Authorized Capital. The Delaware Certificate currently provides for a
capitalization of 15,000,000 shares of common stock, $1.00 par value, of which
10,091,241 were outstanding as of March 31, 1996, leaving a total of 4,908,759
shares of Common Stock available for issuance. The Maryland Charter authorizes
the issuance of 30,000,000 shares of common stock, $.001 par value. The Board of
Directors has determined that additional stock should be available for issuance
from time to time as the Board may approve in connection with the dividend
reinvestment and cash purchase plan, stock dividends or splits, rights offerings
to existing stockholders, sales to the general public or other corporate
purposes. There are presently no plans, arrangements or understandings with
respect to issuance of any of the additional shares to be authorized (other than
possible issuance under the dividend reinvestment and cash purchase plan).
Since the need for the issuance of additional shares may not arise at the
time of an annual meeting of stockholders, authorization at this time of this
added number of shares of common stock of New Montgomery could avoid the expense
and delay of calling a special stockholder's meeting for such approval in cases
where a meeting is not otherwise required. The Maryland Charter, like the
Delaware Certificate, does not authorize the Board of Directors to issue classes
or series of stock other than common stock. The Maryland Charter would need to
be amended by stockholder action before the Board of Directors would be
permitted to issue other classes or series of stock or before the Board could
issue more shares than are authorized by the Maryland Charter.
Redemption and Retirement. Delaware Law generally prohibits the purchase or
redemption of a corporation's common stock when the capital of a corporation is,
or would become, impaired. Delaware Law allows a corporation, in determining the
amount of surplus, to value its assets at fair market value rather than at
historic book value. Under Maryland Law, a corporation is generally permitted to
purchase or redeem shares of its own stock, unless the corporation would not be
able to pay its debts as they become due in the usual course of business or the
corporation's total assets would be less than the sum of the corporation's total
liabilities. For these purposes, Maryland Law permits a fair valuation of assets
14
<PAGE>
and liabilities as well as the use of financial statements prepared in
accordance with generally accepted accounting principles.
Dividends. Under Delaware Law, a corporation generally may pay dividends
out of surplus or, if there is no surplus, out of net profits for the current
year and/or the immediately preceding fiscal year. Maryland Law generally
permits the payment of dividends unless the corporation would not be able to pay
its debts as they become due in the usual course of business or the
corporation's total assets would be less than the sum of the corporation's total
liabilities, determined on the same basis as in a redemption or retirement.
Annual Meeting of Stockholders. The Delaware By-Laws require that an annual
meeting of stockholders be held on the third Tuesday of May or on a subsequent
date. The Maryland By-Laws provide that annual meetings of stockholders will be
held on the second Thursday of July in each year if not a legal holiday, or on
such other day falling on or before the 30th day thereafter as shall be set by
the Board of Directors. Failure to hold an annual meeting will not invalidate
the existence, or affect any otherwise valid corporate acts, of New Montgomery.
Special Meetings of Stockholders. Pursuant to the Delaware By-Laws, a
special meeting of the stockholders of the Company may be called by the
President or the Board of Directors. A special meeting may also be called by the
Secretary at the request in writing of stockholders entitled to cast at least
20% of the votes at such a meeting; however, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any special meeting of stockholders held during the preceding 12 months
unless the meeting is requested by stockholders entitled to cast a majority of
all votes entitled to be cast at the meeting. The Maryland By-Laws contain
substantially similar provisions, except that stockholders entitled to cast at
least 25% of the votes at a special meeting may request such a meeting.
Notice of Meetings of Stockholders; Adjourned Meetings. Under the Delaware
By-Laws, written notice of stockholders' meetings must be given not less than 10
nor more than 50 days before the date of the meeting. The Maryland By-Laws
provide that such notice must be given not less than 10 nor more than 90 days
before the date of the meeting.
Under Delaware Law and the Delaware By-Laws, a meeting of stockholders may
be adjourned without notice for not more than 30 days, whether or not a quorum
is present; if the meeting is adjourned for more than 30 days, notice of the
adjourned meeting must be given to each stockholder of record entitled to vote
at the meeting. Under Maryland Law and the Maryland By-Laws, a meeting of
stockholders may be adjourned without notice to a date not more than 120 days
after the original record date by a vote of a majority of the stockholders
present at the meeting, whether or not constituting a quorum.
Stockholder Action Without a Meeting. Under the Delaware By-Laws, the
stockholders of the Company may take any action (consistent with the 1940 Act)
which may be taken at a meeting of stockholders if all of the stockholders who
would have been entitled to vote, if such meeting were held, consent in writing
to such action being taken. Maryland Law similarly requires the unanimous
written consent of all stockholders for action without a meeting. Because such
unanimous consent is practically unattainable by a public company in most
circumstances, it is anticipated that New Montgomery will be required to hold
15
<PAGE>
stockholder meetings to approve matters required to be voted upon by
stockholders.
Stockholders' Inspection Rights. Delaware Law allows any stockholder to
inspect the stockholders' list and other books and records of a corporation for
any purpose reasonably related to such person's interest as a stockholder.
Moreover, during the 10 days preceding a meeting of stockholders, a stockholder
may inspect the stockholders' list for any purpose germane to that meeting.
Under Maryland Law, any stockholder has the right to inspect and copy the
by-laws, minutes of the proceedings of stockholders, annual statement of affairs
and voting trust agreements on file at the corporation's principal office. In
addition, the stockholders' list, certain other corporate books and records,
and the stock ledger may be inspected by any stockholder or stockholders who
together are, and for at least six months have been, holders of record of at
least 5% of the outstanding stock of any class.
Preemptive Rights. Stockholders of the Company and New Montgomery do not
have any preemptive rights to subscribe for any newly issued stock or other
securities of either company.
Stockholder Vote for Reorganizations. Delaware Law requires that the
approval of stockholders holding a majority of all votes entitled to be cast is
required for a merger, consolidation or sale of substantially all of the assets
of a corporation. The Maryland Charter reduces the 66-2/3% vote required by
Maryland Law for mergers, consolidations, share exchanges and transfers of all
or substantially all of the assets of New Montgomery and provides that such
actions may be approved by a majority of all votes entitled to be cast.
Board of Directors. Under the Delaware Certificate, the number of Directors
of the Company is determined in accordance with the Delaware By-Laws, but may
not be less than three. The Delaware By-Laws currently set the number of
Directors at six. The Maryland Charter sets the number of Directors at six, but
provides that the number may be increased or decreased by the Board of Directors
pursuant to the Maryland By-Laws. The Maryland By-Laws provide, subject to
Maryland Law and certain exceptions, that the number of Directors may not be
less than three nor more than twenty-five. The power to determine the number of
Directors within these numerical limitations is vested in the Board of
Directors.
Removal of Directors and Vacancies. The Delaware Certificate provides that
the stockholders may, by vote of the holders of a majority of the capital stock
of the Company at the time entitled to vote for Directors, remove any Director
at any time with or without cause and elect a successor. Under the Delaware
By-Laws, the Directors may, to the extent consistent with the1940 Act, by a vote
of not less than a majority of the Directors then in office, remove from office
any Director elected by them and may for cause remove any Director elected by
the stockholders and fill in each case the vacancy so caused.
Under Maryland Law, directors may be removed only by vote of the
stockholders. The Maryland By-Laws provide that the stockholders may remove any
Director, with or without cause, and elect a successor by vote of a majority of
all votes entitled to be cast for the election of Directors.
Under the Delaware Certificate, any vacancy which results from any cause
other than removal may be filled by a majority of the remaining members of the
16
<PAGE>
Board of Directors, although such majority is less than a quorum. Under the
Maryland By-Laws, any vacancy which results from any cause except removal or an
increase in the number of Directors may be filled by a majority of the remaining
members of the Board of Directors, whether or not sufficient to constitute a
quorum. Any vacancy which results from an increase in the number of Directors
may be filled by action of a majority of the entire Board of Directors.
The 1940 Act provides that no vacancies may be filled by the vote of the
Board of Directors of a registered investment company, such as the Company and
New Montgomery, if immediately after filling any such vacancy less than
two-thirds of the directors then holding office will have been elected to such
office by the holders of the outstanding securities of such company.
Limitations of Liability of Directors and Officers. Although Delaware Law
permits the Company to limit the directors' liability for money damages for
breaches of their duty of care, the Delaware Certificate does not authorize such
limitation of liability.
Under Maryland Law and the Maryland Charter, a stockholder may recover
money damages against a Director or Officer of New Montgomery only if he is able
to prove that (a) the Director or Officer actually received an improper benefit
in money, property or services (in which case recovery is limited to the actual
amount of such improper benefit) or (b) the action, or failure to act, by the
Director or Officer was the result of active and deliberate dishonesty which was
material to the cause of action adjudicated in the proceeding. The Maryland
Charter provides that no amendment or repeal of any of its provisions will
operate to limit or eliminate the limitation of liability provided thereunder to
Directors and Officers with respect to any act or omission occurring prior to
such amendment or repeal.
Pursuant to the 1940 Act, no Director or Officer may be protected against
any liability to the Company or New Montgomery (or their stockholders) to which
he would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of his duties.
As of the date of this Proxy Statement, the Company is not aware of any
pending or threatened claims or litigation in respect of any acts or omissions
which would be affected by the provisions of the Maryland Charter.
Indemnification of Directors and Officers. The Delaware By-Laws, Maryland
Charter and Maryland By-Laws generally provide for indemnification of Directors,
Honorary Directors and Officers to the fullest extent permitted by applicable
law. Maryland Law is generally more favorable to directors and officers of a
corporation than is Delaware Law with respect to indemnification.
Under Delaware Law, directors and officers, as well as other employees and
agents, may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation -- a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, they had no
reasonable cause to believe their conduct was unlawful. A similar standard of
care is applicable in the case of derivative actions, except that
indemnification extends only to expenses (including attorneys' fees) incurred in
connection with defense or settlement of such an action.
17
<PAGE>
Maryland Law provides that a director, officer, employee or agent of a
corporation may be indemnified for such service unless it is established that:
(a) the act or omission was material to the cause of action adjudicated in the
proceeding and either was committed in bad faith or was the result of active and
deliberate dishonesty; (b) the person actually received an improper personal
benefit in money, property or services; or (c) in the case of any criminal
proceeding, the person had reasonable cause to believe that the act or omission
was unlawful.
Under Delaware Law, the termination of any proceeding by conviction or upon
a plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that such person is prohibited from being indemnified. Under
Maryland Law, such a termination creates a rebuttable presumption that such
person is not entitled to indemnification. Under the Delaware By-Laws,
indemnification is not provided in connection with a proceeding (or part
thereof) initiated by a Director, Honorary Director or Officer, other than a
claim for indemnification, unless such proceeding (or part thereof) was
authorized by the Board of Directors. The Maryland Charter and the Maryland
By-Laws do not contain a similar provision.
Consistent with the 1940 Act and interpretations thereof by the staff of
the SEC, the Delaware By-Laws and the Maryland By-Laws both preclude
indemnification for any liability arising by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of duties and provide that
indemnification may be made only if certain procedural requirements have been
met in determining whether indemnification is appropriate. Such requirements
include a final decision on the merits of a court or other body before whom the
proceeding was brought or, in the absence of such a decision, the vote of a
majority of a quorum of Directors who are neither "interested persons" within
the meaning of the 1940 Act nor parties to the proceeding or the written opinion
of independent legal counsel.
The Delaware By-Laws and Maryland By-Laws provide for advances of
attorneys' fees or other expenses incurred by Directors, Honorary Directors and
Officers in defending a proceeding prior to its final disposition. Consistent
with the 1940 Act, the Delaware By-Laws and Maryland By-Laws both require that
the Director, Honorary Director or Officer provide an undertaking to repay such
advances unless it is ultimately determined that he is entitled to
indemnification. The undertaking need not be secured if the company is insured
against losses arising by reason of any lawful advances or if a majority of a
quorum of the disinterested, non-party directors, or an independent legal
counsel in a written opinion, has determined, based on a review of readily
available facts, that there is reason to believe that the Director, Honorary
Director or Officer ultimately will be found entitled to indemnification. The
Maryland By-Laws also require a written affirmation by the Director, Honorary
Director or Officer of his good faith belief that the standard of conduct
necessary for indemnification has been met where the Director, Honorary Director
or Officer seeks payment of expenses in defending a proceeding in advance of its
final disposition. The Delaware By-Laws do not contain a similar provision.
Under both the Delaware By-Laws and the Maryland By-Laws, if a claim for
indemnification by a Director, Honorary Director or Officer is not paid in full
within 60 days (or, in the case of a claim for an advance, 20 days) after a
written claim has been received by the Company, the Director, Honorary Director
18
<PAGE>
or Officer seeking indemnification may bring suit against the Company to recover
the unpaid amount of the claim.
The Delaware By-Laws provide that the Board of Directors may provide
indemnification and advances to employees to the fullest extent of the rights to
indemnification and advances granted to Directors, Honorary Directors and
Officers. In addition, the Company may, to the extent permitted by the 1940 Act,
maintain insurance to protect itself and any Director, Honorary Director,
Officer or employee against any expense, liability or loss, whether or not the
Company would have the power to indemnify such persons against such expense,
liability or loss under Delaware Law. The Maryland By-Laws contain substantially
similar provisions.
Pursuant to the Maryland Charter and the Maryland By-Laws, no amendment or
repeal of any of their respective provisions will limit or eliminate the right
of indemnification provided thereunder with respect to acts or omissions
occurring prior to such amendment or repeal. The Delaware Certificate and the
Delaware By-Laws do not contain a similar provision.
Amendment of Charter and By-Laws. Under Delaware Law, amendment of the
certificate of incorporation of a Delaware corporation requires the approval of
the Board of Directors and the holders of a majority of the outstanding shares
entitled to vote on such amendment, except that a proportion greater than a
majority may be required by the certificate of incorporation in certain cases.
The Delaware Certificate does not contain any such provision. The Delaware
By-Laws provide that the Delaware By-Laws may be amended, altered or repealed by
the affirmative vote of the holders of a majority of shares of capital stock
issued and outstanding and entitled to vote, or by a vote of a majority of the
Directors then in office, provided, however, that the Board of Directors may not
amend the By-Laws to permit removal by the Board of Directors without cause of
any Director elected by the stockholders.
The Maryland Charter provides that the Maryland Charter may be amended by
the affirmative vote of the holders of a majority of the total number of shares
of all classes outstanding and entitled to vote thereon or the class entitled
to vote thereon as a separate class. The Maryland By-Laws provide that the
Maryland By-Laws may be amended, altered or repealed and new by-laws adopted by
a majority of all the votes cast at a meeting of stockholders at which a quorum
is present or by a vote of a majority of Directors present at a meeting at which
a quorum is present.
Temporary Amendments to Investment Limitations
The Company is currently restricted from purchasing the securities of any
company for the purpose of exercising control or management, from investing in
the securities of companies which have a record of less than three years of
continuous operation and from purchasing more than 10% of the outstanding voting
securities of any one issuer. These investment restrictions, which require
stockholder approval before they may be changed, arguably restrict the Company's
ability to carry out the Reincorporation because, prior to the Reincorporation,
the Company will be the sole stockholder of New Montgomery, an entity with no
prior history of operation. Accordingly, a vote for the Reincorporation will be
deemed also to be a vote to amend these investment restrictions to the extent
necessary to carry out the Reincorporation in the manner described above. These
19
<PAGE>
amendments will only be for the purpose of effecting the Reincorporation, and
the present investment restrictions will otherwise remain in effect for New
Montgomery after the Reincorporation.
Federal Income Tax Consequences
Prior to the Reincorporation, the Company will receive an opinion of
Howard, Rice, Nemerovski, Canady, Falk & Rabkin, a Professional Corporation,
legal counsel to the Company, that the Reincorporation will be a tax-free
reorganization under Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended (the "Code"), and that neither the Company nor the stockholders of
the Company will recognize any gain or loss under the Code as a result of the
Reincorporation. As a tax-free reorganization under the Code, each stockholder's
adjusted basis for tax purposes in New Montgomery shares after the
Reincorporation will be the same as his adjusted basis for tax purposes in the
shares of the Company immediately before the Reincorporation. Moreover, provided
that Company shares are held by the stockholder as a capital asset, a
stockholder's holding period in the New Montgomery shares received in the
Reincorporation for tax purposes will include the period the stockholder held
his shares of the Company prior to the Reincorporation.
Stockholders should consult their own tax advisers with respect to the
details of these tax consequences and with respect to state and local tax
consequences of the Reincorporation.
Stockholders' Appraisal Rights
Delaware Law provides that stockholders of a Delaware corporation do not
have appraisal rights when a Delaware corporation listed on a national
securities exchange, or with more than 2,000 stockholders of record, merges with
a foreign corporation, provided that certain consideration, such as shares of
the surviving company as is the case here, is paid in connection with the
merger. The common stock of the Company is listed on the New York Stock Exchange
and, consequently, stockholders' appraisal rights are not available to
stockholders of the Company with respect to the Reincorporation.
Expenses
The expenses related to the Reincorporation will include, principally, the
establishment of New Montgomery and the preparation of this Proxy Statement and
related materials. These expenses, currently estimated to be approximately
$70,000, will be paid by the Company.
Required Vote and Recommendation of the Board of Directors
The Board of Directors of the Company has unanimously approved the proposed
Merger Agreement and has determined that the Reincorporation is in the best
interests of the Company and its stockholders. The affirmative vote of the
holders of a majority of the Company's outstanding shares is required to approve
the Merger Agreement. The Board of Directors recommends a vote FOR approval of
the Merger Agreement. A vote FOR the Merger Agreement will constitute specific
approval of the Reincorporation and all other matters related to the
Reincorporation, including the Merger Agreement, the provisions of the Maryland
Charter, and the temporary amendments to the Company's investment restrictions
to the extent necessary to effect the Reincorporation.
20
<PAGE>
STOCKHOLDER PROPOSALS FOR 1997 PROXY STATEMENT
A rule of the SEC provides for a deadline by which stockholders must submit
any proposals to be considered for inclusion in the Company's proxy statement
for next year's annual meeting. Unless you are otherwise notified, the deadline
for receiving stockholders' proposals for that meeting is January 24, 1997.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than those mentioned in this Proxy Statement. The appointed
proxies will vote on any other business that comes before the Annual Meeting or
any adjournments thereof in accordance with their best judgment.
Please complete and sign the enclosed proxy card and return it in the
envelope provided so that the Annual Meeting may be held and action may be taken
on the matters described in this Proxy Statement with the greatest possible
number of shares participating. This will not preclude your voting in person if
you attend the Annual Meeting.
Thomas F. McDonough
May 23, 1996 Secretary
21
<PAGE>
PROXY MONTGOMERY STREET INCOME SECURITIES, INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Annual Meeting of Stockholders--July 11, 1996
The undersigned hereby appoints Thomas F. McDonough, John T. Packard and
Daniel Pierce, each with the power of substitution, as proxies for the
undersigned, to vote all shares of Montgomery Street Income Securities, Inc.
(the "Company") which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of the Company to be held at the offices of the Company, 101
California Street, Suite 4100, San Francisco, California, on Thursday, July 11,
1996 at 10:00 a.m., pacific time, and at any adjournments thereof.
Unless otherwise specified in the squares provided, the undersigned's vote will
be cast FOR Proposals 1, 2, 3 and 4 below.
1. The election of six Directors.
Nominees: J.C. Atwater, R.J. Bradshaw, O.W. Butz, M.K. Moore, W.G. Van Auken,
J.C. Van Horne
FOR ALL NOMINEES / / WITHHELD FROM ALL NOMINEES / /
/ /____________________________________
For all nominees except as noted above
2. Ratification of the selection of FOR / / AGAINST / / ABSTAIN / /
Ernst & Young LLP as the Company's
independent auditors.
<PAGE>
3. Approval of the continuance of the FOR / / AGAINST / / ABSTAIN / /
Management and Investment Advisory
Agreement between the Company and
Scudder, Stevens & Clark, Inc.
4. Approval of the Agreement and FOR / / AGAINST / / ABSTAIN / /
Articles of Merger pursuant to
which the Company will change its
state of incorporation from
Delaware to Maryland.
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED.
Please sign exactly as your name or
names appear hereon. When signing as
attorney, executor, administrator,
trustee or guardian, please give your
full title as such.
Signature_________________ Date________
Signature_________________ Date________
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from the Montgomery Street Income Securities
Annual Report for the fiscal year ended December 31,
1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 0
<NAME> MONTGOMERY STREET INCOME SECURITIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 192,162,461
<INVESTMENTS-AT-VALUE> 195,327,563
<RECEIVABLES> 3,331,620
<ASSETS-OTHER> 9,716
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 198,668,899
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 203,077
<TOTAL-LIABILITIES> 203,077
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 198,608,467
<SHARES-COMMON-STOCK> 10,158,937
<SHARES-COMMON-PRIOR> 10,091,241
<ACCUMULATED-NII-CURRENT> 64,006
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,371,701)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,165,050
<NET-ASSETS> 198,465,822
<DIVIDEND-INCOME> 292,813
<INTEREST-INCOME> 15,155,803
<OTHER-INCOME> 0
<EXPENSES-NET> 1,507,821
<NET-INVESTMENT-INCOME> 13,940,795
<REALIZED-GAINS-CURRENT> 2,330,201
<APPREC-INCREASE-CURRENT> (6,065,303)
<NET-CHANGE-FROM-OPS> 10,205,693
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (14,163,424)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 67,695
<NET-CHANGE-IN-ASSETS> (2,781,464)
<ACCUMULATED-NII-PRIOR> 206,477
<ACCUMULATED-GAINS-PRIOR> (5,621,744)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 959,376
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,507,821
<AVERAGE-NET-ASSETS> 197,300,797
<PER-SHARE-NAV-BEGIN> 19.94
<PER-SHARE-NII> 1.38
<PER-SHARE-GAIN-APPREC> (0.38)
<PER-SHARE-DIVIDEND> 1.40
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.54
<EXPENSE-RATIO> 0.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
