[NOTICE OF MEETING]
UNITED SERVICES FUNDS
7900 Callaghan Road
San Antonio, Texas 78229
NOTICE OF SPECIAL JOINT MEETING
OF SHAREHOLDERS OF
UNITED SERVICES FUNDS
U.S. GOLD SHARES FUND
AND
U.S. WORLD GOLD FUND
Dear Shareholder:
A Special Meeting of Shareholders of the U.S. Gold Shares Fund and U.S.
World Gold Fund (the "Funds"), both series of United Services Funds, a
Massachusetts business trust (the "Trust"), will be held at 7900 Callaghan, San
Antonio, Texas 78229 on May 31, 1996 at 3:00 p.m., local time, for the following
purposes:
1. to amend each Fund's fundamental borrowing limitations to permit the
Fund to borrow up to a limit of 33 1/3 percent of the Fund's total
assets (including the amount borrowed) less liabilities (other than
borrowings);
2. to amend each Fund's fundamental policy regarding commodities and
commodity futures contracts to permit the Fund to purchase and sell
futures contracts and options on futures contracts; and
3. to consider and act upon any other matters which may properly come
before the meeting or any adjournments thereof.
The Funds' Board of Trustees has concluded that it would be prudent to
enable the Funds to use cash management tools similar to those used by
competitive gold funds. The proposed changes are designed to address the effects
of unpredictable cashflows. By allowing each Fund to temporarily borrow money to
pay redeeming shareholders and to purchase and sell futures contracts and
options on futures contracts, long-term shareholders may benefit by enabling the
Funds to remain more fully invested and potentially reducing transaction costs.
Each proposed change is fully discussed in the attached proxy statement and is
presented as a separate shareholder proposal. The shareholders of each Fund will
vote separately for each proposal.
Shareholders of record at the close of business on March 29, 1996 shall be
entitled to notice of and to vote at the Meeting or any adjournment thereof.
We hope you will be represented at the meeting. The vote of every
shareholder is important. If you have questions or comments, contact the
undersigned at any time (1-800-873-8637 or 210-308-1234).
Susan B. McGee
Secretary of the Trust
Dated: March 29, 1996
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[PROXY STATEMENT]
UNITED SERVICES FUNDS
7900 Callaghan Road
San Antonio, Texas 78229
PROXY STATEMENT FOR SPECIAL JOINT MEETING
OF SHAREHOLDERS OF
UNITED SERVICES FUNDS
U.S. GOLD SHARES FUND
AND
U.S. WORLD GOLD FUND
INTRODUCTION
This Proxy Statement is furnished to shareholders of the U.S. Gold Shares
Fund and U.S. World Gold Fund (the "Gold Shares Fund" and "World Gold Fund,"
respectively, or the "Fund[s]"). Each is a series of United Services Funds, a
Massachusetts business trust (the "Trust"). This Proxy Statement is furnished in
connection with the solicitation of proxies by and on behalf of the Board of
Trustees of the Trust to be used at a Special Joint Meeting of Shareholders (the
"Meeting") to be held in the first floor Board Room at 7900 Callaghan Road, San
Antonio, Texas 78229 on May 31, 1996 at 3:00 p.m., or at any adjournments
thereof.
This Proxy Statement and the accompanying proxy were mailed to shareholders
on or about April 1, 1996. Shareholders of record at the close of business on
March 29, 1996 shall be entitled to notice of and to vote at the Meeting or any
adjournment thereof.
The Trust is presently composed of twelve separate funds: U.S. Gold Shares
Fund, U.S. Income Fund, U.S. Global Resources Fund, U.S. Treasury Securities
Cash Fund, U.S. All American Equity Fund, U.S. Tax Free Fund, United Services
Near-Term Tax Free Fund, U.S. World Gold Fund, U.S. Government Securities
Savings Fund, U.S. Real Estate Fund, United Services Intermediate Treasury Fund,
and the China Region Opportunity Fund.
On March 29, 1996 there were 92,811,994 shares of the Gold Shares Fund and
12,639,158 shares of the World Gold Fund outstanding. Each full share
outstanding at the close of business on March 29, 1996 is entitled to one full
vote and each fractional share outstanding on that date is entitled to a
proportionate share of one vote.
PURPOSE OF THE MEETING
The Funds' Board of Trustees has concluded that it would be prudent to
enable the Funds to use cash management tools similar to those used by
competitive gold funds. The purpose of this Meeting is to consider and vote upon
the following proposals:
PROPOSAL ONE:
to amend each Fund's fundamental borrowing limitations to permit the
Fund to borrow up to a limit of 33 1/3 percent of the Fund's total
assets (including the amount borrowed) less liabilities (other than
borrowings);
PROPOSAL TWO:
to amend each Fund's fundamental policy regarding commodities and
commodity futures contracts to permit the Fund to purchase and sell
futures contracts and options on futures contracts; and
to consider and act upon any other matters which may properly come before
the meeting or any adjournments thereof.
All shares represented at the Meeting by properly executed proxies will be
voted in accordance with the instructions thereon, if any; and if no
instructions are given, the proxy will be voted for approval of each proposal.
The Board of Trustees does not know of any action to be considered at the
Meeting other than Proposals One and Two.
The proxy may be revoked at any time before it is exercised by the
subsequent execution and submission of a revised proxy, by written notice of
revocation to the Secretary of the Trust, or by voting in person at the Meeting.
In addition to the solicitation of proxies by mail, officers and employees
of the Trust and United Services Advisors, Inc. ("USAI" or the "Advisor"), the
manager and investment advisor of the Trust, without additional compensation,
may solicit proxies in person or by telephone or other means of communication.
The cost of the solicitation of proxies by the Board of Trustees of the Trust
for this meeting of shareholders will be borne by the Funds and will include any
reimbursement paid to fiduciaries, brokerage firms, nominees and custodians for
their expenses in forwarding solicitation material regarding the Meeting to
beneficial owners.
PRINCIPAL SHAREHOLDERS OF THE FUND
On March 29 , 1996, the officers and Trustees of the Trust owned less than
1% of the outstanding shares of either Fund. The Trust is aware of the following
persons who owned of record, or beneficially, more than 5% of the outstanding
shares of either Fund on March 29, 1996:
U.S. Gold Shares Fund Charles Schwab & Co. 8.18% Record
San Francisco, CA 94104-4175
U.S. World Gold Fund Charles Schwab & Co. 23.55% Record
San Francisco, Ca 94104-4175
National Financial 5.75% Record
Services Corp.
New York, NY 10281
Charles Schwab & Co., Inc, a broker-dealer, and National Financial Services
Corp., a broker-dealer, have each advised that no individual client owns more
than 5% of either Fund.
THE ADVISOR
USAI is a Texas Corporation with its principal executive offices located at
7900 Callaghan Road, San Antonio, Texas 78229. USAI's relationship to the Funds
is discussed in the prospectus and Statement of Additional Information.
PROPOSAL ONE
BORROWING PROPOSAL
BACKGROUND
Since inception, each Fund has had to deal with unpredictable cashflows as
shareholders purchase and redeem shares. On any given day, more shareholders may
purchase shares than redeem them. A Fund must invest this net cash inflow in
additional portfolio securities in order to stay fully invested in the sector
which is the focus of its investment strategy; i.e., South African gold mining
stocks for the Gold Shares Fund and gold mining stocks traded worldwide for the
World Gold Fund. Conversely, when shareholder redemptions exceed purchases, the
Fund must sell portfolio securities to raise cash to pay net redemptions.
Maintaining large uninvested cash balances in anticipation of redemptions is
generally undesirable because the Fund's performance becomes less representative
of the market in which it primarily invests. On the other hand, maintaining the
maximum level of investment in the Fund's target market in the face of
unpredictable cashflows poses problems as well. Frequent purchases and sales of
securities resulting from the Fund's attempts to remain fully invested may
result in increased transaction costs which may tend to reduce the Fund's
performance. In addition, a fully invested Fund faces the risk of unexpected
losses because it may be forced to sell portfolio securities under temporarily
adverse market conditions to pay net shareholder redemptions when investment
considerations would advise against such sales.
The Funds' Board of Trustees reviewed this situation at a Board meeting held
October 25, 1995 and concluded that it would be prudent to provide each Fund
with two additional tools frequently utilized in the industry to manage its cash
positions. The Trust, therefore, proposes changing its investment restrictions
on each Fund (1) to provide greater freedom to borrow money as described
immediately below, and (2) to purchase and sell futures contracts and options on
futures contract as described in Proposal Two below.
EACH FUND'S CURRENT AND PROPOSED LIMITATION ON BORROWING
The current fundamental policy regarding borrowing reads as follows:
"Each Fund may borrow from a bank up to a limit of 5% of the total assets of
that Fund as a temporary measure (for emergency purposes)."
The Trustees propose modifications to the existing borrowing policy to
increase each Fund's ability to borrow from 5% to 33 1/3% and to give each Fund
greater flexibility in borrowing. The revised fundamental policy would read as
follows:
"Each Fund may borrow money only for temporary or emergency purposes (not
for leveraging or investment), and the amount of such borrowings may not exceed
33 1/3% of a Fund's total assets (including the amount borrowed) less
liabilities (other than borrowings)."
In conjunction with the proposed modification of its fundamental borrowing
limitation, each Fund also intends to adopt certain nonfundamental investment
policies with regard to borrowing. Nonfundamental policies may be changed
without shareholder approval. As a matter of nonfundamental policy, each Fund
will borrow money only from a bank or by engaging in reverse repurchase
agreements with any party. In a reverse repurchase agreement, the Fund may sell
a portfolio security to a third party with an agreement to repurchase the
security at a future date. Reverse repurchase agreements are treated as
borrowings for purposes of each Fund's fundamental borrowing limitation. In
addition, as a matter of nonfundamental policy, each Fund will not purchase any
security while borrowings represent more than 5% of its total assets
outstanding.
DISCUSSION
The proposed changes to each Fund's borrowing policies and limitations are
designed to address the effects of unpredictable cashflows described above.
Allowing each Fund to temporarily borrow money to pay redeeming shareholders may
benefit long-term shareholders by enabling the Funds to remain more fully
invested and potentially reducing transaction costs. The proposed policies and
limitations will give each Fund greater capability to borrow money to meet net
shareholder redemptions when investment considerations do not favor the sale of
portfolio securities. When temporary market conditions do not favor an immediate
program of sales to meet redemption requests, the Fund benefits from the use of
borrowing as an alternative means of honoring redemptions to the extent the cost
of borrowing (interest and other expenses associated with borrowing) is less
than the difference in value the Fund realizes from an orderly program of
security sales as compared to one made under adverse market conditions. In
addition, when the Fund repays borrowings through the use of subsequent net cash
inflows rather than through the liquidation of portfolio securities, the Fund's
performance is enhanced to the extent its borrowing costs are less than the
transaction costs the Fund would have incurred (a) to liquidate portfolio
securities to honor the original redemptions and (b) to purchase portfolio
securities with newly invested shareholder cash.
Although the Funds will not borrow for leveraging purposes, borrowing to
meet shareholder redemptions prior to selling securities involves an element of
leverage. Since substantially all of the Fund's assets fluctuate in value and
the interest obligations on borrowings are generally fixed, the net asset value
per share of the Fund with outstanding borrowings will increase more when the
Fund's portfolio assets increase in value and decrease more when the Fund's
portfolio assets decrease in value than would be the case absent the borrowings.
In addition, interest costs on borrowings can fluctuate with changing market
rates of interest and may partially offset or exceed the returns which the Fund
could earn on portfolio securities which would have been sold but for the Fund's
borrowing. Under adverse conditions, the Fund might be forced to sell portfolio
securities to meet interest or principal payments at a time when market
conditions would not be conducive to such sales.
THE BOARD OF TRUSTEES OF THE TRUST UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF
THE FUNDS VOTE FOR APPROVAL OF PROPOSAL ONE.
PROPOSAL TWO
FUTURES PROPOSAL
BACKGROUND
As noted above under the proposal addressing each Fund's borrowing policy,
unpredictable cashflows as the result of shareholder redemption and purchase
activity can have a negative impact on each Fund. In addition, each Fund may
experience transaction costs when it sells securities to reduce its market
exposure in a temporarily unfavorable market environment and then repurchases
those same or similar securities later when conditions improve. The Trustees
have determined that the ability to use investment strategies involving futures
contracts and options on futures contracts could enable each Fund to manage
cashflows and exposure to market risk more efficiently. The Trustees therefore
propose changes to each Fund's fundamental policy regarding commodities and
commodities futures contracts as discussed below.
EACH FUND'S CURRENT AND THE PROPOSED LIMITATION ON FUTURES CONTRACTS AND OPTIONS
ON FUTURES CONTRACTS
Under the current fundamental policy regarding commodity futures contracts,
each Fund may not:
" . . . engage in the purchase or sale of commodities or commodity futures
contracts, except that the Gold Fund and World Gold Fund may invest not
more than 10% of the Fund's total net assets in gold and gold bullion."
Under the revised fundamental policy by the Trustees to permit the use of
futures contracts and options on futures contracts, each Fund may not:
" . . . engage in the purchase or sale of commodities except that the Gold
Shares Fund and the World Gold Fund may (i) invest not more than 10% of its
total net assets in gold and gold bullion and (ii) invest in futures
contracts, options on futures contracts, and similar instruments."
DISCUSSION
The principal investment available to each Fund under the revised policy
would involve transactions in commodity futures contracts, stock index futures
contracts, and options on futures contracts. A commodity futures contract
obligates the seller to deliver, and the purchaser to pay for, a certain
quantity of a specified commodity (such as gold) at a certain price on a
particular date in the future. Customarily, the parties to a futures contract
avoid actual physical delivery and payment on the expiration date of the
contract by closing out their positions through offsetting transactions before
that date. In a stock index futures contract, there is never any obligation to
deliver the stocks underlying the index. Instead, either the seller or the buyer
is obligated to make a payment to the other based on the relative difference
between the value of the index on which the contract price is based and the
actual value of the index on the expiration date. Parties to stock index futures
contracts also typically close out their positions prior to expiration. In an
option on a futures contract, the purchaser of the option has the right and the
seller of the option has the obligation, should the purchaser exercise its
right, to enter into a particular futures contract. The roles of the two parties
as purchaser and seller of the underlying futures contract are designated under
the terms of the option contract. Options positions may also be closed out prior
to expiration through closing transactions.
The market on which futures and options on futures are traded value a
futures position based in large part on the current market value of the
commodity or stock index underlying it. Thus, the value received or paid in
closing out a futures position depends primarily on changes in the relevant
market prices since that position was taken. The value of certain types of
futures positions rises and falls in tandem with relevant market prices while
the value of other futures positions moves in the opposite direction from
relevant market prices. Because the value of futures contracts and options on
futures contracts behave in this fashion, the Advisor can use them to increase
or decrease the Fund's exposure to market price fluctuations by matching
appropriate futures positions to particular portions of the Fund's portfolio.
Neither Fund will use futures strategies for leverage.
For example, were the Fund to experience significant shareholder purchase
activity under conditions where the Advisor, whether for investment or other
reasons, was prevented from investing the newly received cash promptly, futures
positions designed to increase market exposure could be matched to the amount of
uninvested cash to enable the Fund to perform as if it were fully invested in
its target markets. As the Advisor became able to invest the cash in an orderly
manner, the Fund would close out its futures positions. The use of similar
futures strategies could enable the Fund to perform as if it were fully invested
while maintaining a portion of its assets in cash in anticipation of substantial
shareholder redemptions. In both situations, the Fund could benefit by being
able to participate in favorable market price movements with a greater
proportion of its portfolio than would otherwise be the case.
At other times, the Fund might wish to reduce its exposure to market price
movements through the use of futures strategies. For example, in situations
where the Fund had experienced large net redemptions and the Advisor deemed
conditions unfavorable for the sale of portfolio securities, the Advisor could
raise the necessary cash by borrowing, as described above under Proposal 1,
rather than by selling securities. The Advisor could then use futures strategies
designed to hedge against market price movements to attempt to protect the value
of those portfolio securities it intended to sell to repay the borrowings. At
other times, the Fund might experience temporary market conditions under which
investment considerations argue for the sale of certain portfolio securities to
reduce market exposure although the Advisor expects to repurchase those same or
similar securities later under more favorable circumstances. The Advisor could
avoid the negative impact on Fund performance of the transaction costs
associated with this type of sale and repurchase activity by using futures to
hedge the portfolio securities that it would otherwise have sold.
As with any investment technique, there is no guarantee that the Fund's use
of futures and options on futures will work as the Advisor intends, and the use
of futures strategies could result in losses to the Fund. Whether the Fund
realizes a gain or loss from futures activities depends generally upon movements
in the price of gold or changes in the value of the gold stock indexes
underlying its futures positions. There is, therefore, the risk that the price
movements of a futures contract will not exactly mirror the price movements of
the underlying gold or gold stocks the Fund might otherwise purchase or sell. In
addition, tax considerations may limit the Fund's ability to purchase or sell
futures contracts as it seeks to qualify for favorable tax treatment under the
Internal Revenue Code. Each Fund intends to comply with Rule 4.5 under the
Commodity Exchange Act, which limits the extent to which the Fund can commit
assets to initial margin deposits and option premiums. Each Fund will also
comply with guidelines established by the Securities and Exchange Commission
with respect to the coverage of futures strategies by mutual funds.
Although each Fund intends to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that a
liquid market will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit, or trading may be suspended for specified periods
during the day. Futures contract prices could move to the limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and potentially subjecting the Fund to
substantial losses. If trading is not possible, or the Fund determines not to
close a futures position in anticipation of adverse price movements, the Fund
could be required to make daily cash payments to cover additional margin
requirements. The risk that the Fund will be unable to close out a futures
position will be minimized by entering into such transactions only after the
Advisor has determined that there is an active and liquid secondary market.
THE BOARD OF TRUSTEES OF THE TRUST UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF
THE FUNDS VOTE FOR APPROVAL OF PROPOSAL TWO.
REQUIRED VOTE
Approval of Proposals One and Two requires the affirmative vote of the
holders of a majority of the outstanding voting securities of the Funds, defined
under the 1940 Act as the lesser of (I) a majority of the outstanding shares of
the Fund or (ii) 67% or more of the shares of the Fund represented at the
Special Meeting if more than 50% of the outstanding shares of the Fund are
present or represented by proxy at the Meeting. Abstentions and proxies with
respect to shares held by a broker or other nominees that are not voted because
the nominee lacks discretionary authority to vote the shares will be treated as
follows: broker "non votes" and "abstentions" will have the effect of "no"
votes.
If at the announced time of the Meeting management has not yet received
sufficient proxies to pass both proposals, the meeting may be adjourned to a
later date to allow time to solicit additional proxies sufficient to pass both
proposals.
Under Section 5.5 of the First Amended and Restated Master Trust Agreement,
such approval may be obtained without meeting by having a written consent signed
by a majority of shareholders entitled to vote on that matter. Notwithstanding
Section 5.5, in order to give all shareholders an opportunity to be heard, a
Meeting is being called.
OTHER MATTERS
No business other than the matters set forth in this Proxy Statement is
expected to come before the meeting, but should any other matters requiring a
vote of shareholders arise, including a question of adjourning the meeting, the
persons named in the accompanying proxy will vote thereon according to their
best judgment in the interests of the Fund.
The foregoing Notice and Proxy Statement are sent by order of the Board of
Trustees.
Susan B. McGee
Secretary of the Trust
Dated: March 29, 1996
<PAGE>
FORM OF PROXY (FRONT)
PROXY
UNITED SERVICES FUNDS - U.S. WORLD GOLD FUND AND/OR U.S. GOLD SHARES FUND
7900 CALLAGHAN ROAD AT IH 10 WEST
SAN ANTONIO, TEXAS 78229
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Susan B. McGee and Mary J. Weber and each
of them, proxies with full power of substitution to act for and vote on behalf
of the undersigned all shares of the United Services U.S. World Gold Fund and/or
U.S. Gold Shares Fund (the "Funds") which the undersigned would be entitled to
vote if personally present at the Special Meeting of the Shareholders of the
Fund to be held on May 31, 1996 (the "Meeting").
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders and Proxy Statement furnished in connection with the
Meeting and hereby instructs said proxies to vote said shares as indicated
hereon. Both of the proxies present and acting at the meeting in person or by
substitute (or, if only one shall be so present, then that one) shall have and
may exercise all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.
IF A CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED AS INDICATED. IF NO
CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSALS ONE AND TWO. In
their discretion, the proxies are authorized to vote upon such business as may
properly come before the Meeting. The Board of Trustees recommends a vote FOR
Proposal One and Proposal Two.
This proxy may be revoked at any time prior to the exercise of the powers
conferred by the proxy.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
FORM OF PROXY (BACK)
PROXY -- UNITED SERVICES FUNDS U.S. WORLD GOLD FUND AND/OR U.S. GOLD SHARES FUND
FOR AGAINST ABSTAIN
1. PROPOSAL ONE: to amend each Fund's / / / / / /
fundamental borrowing limitations to permit
the Fund to borrow up to a limit of 33 1/3
percent of the Fund's total assets
(including the amount borrowed) less
liabilities (other than borrowings);
2. PROPOSAL TWO: to amend each Fund's / / / / / /
fundamental policy regarding commodities
and commodity futures contracts to
permit the Fund to purchase and sell futures
contracts and options on futures contracts;
and
3. to consider and act upon any other matters / / / / / /
which may properly come before the
meeting or any adjournments thereof.
- ------------------------------------------------
(SIGNATURE) (DATE)
- ------------------------------------------------
(SIGNATURE IF HELD JOINTLY)
Please sign exactly as your name appears on this proxy card. When signing as
attorney, executor, administrator, trustee or guardian, give full title as such.
If a corporation, please sign in the full corporate name by president or other
authorized officer. If a partnership, sign in partnership name by authorized
person.
