SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission only (as Permitted
by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to 240.14a-12
USAA Mutual Fund, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
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(2) Aggregate number of securities to which transaction
applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
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fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
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USAA Letterhead
August 23, 1995
Dear Shareholder:
On October 13, 1995, a special meeting of shareholders of certain of
the USAA Family of Funds will be held to vote on several important
proposals. The enclosed materials contain information about the proposals
and a proxy to vote your shares at the meeting.
Your vote is extremely important, no matter how many shares you own.
We encourage you to complete and return the enclosed proxy as soon as
possible to ensure that you are represented at the meeting.
Among the items to be considered at the meeting are proposals to
approve changes to certain Funds' investment restrictions. These technical
changes do not affect the investment objective of any Fund and are not
expected to result in any significant changes to any Fund's investment
strategy. Moreover, these changes are consistent with regulatory requirements
applicable to the Funds and are in line with industry practice. We believe
they will modify investment limits of the Funds in away that recognizes the
current state of the securities markets without compromising the protections
which the limitations give shareholders. The Boards of the USAA Family of
Funds believe that approval of each proposal is in the best interest of
the Funds and shareholders and unanimously recommend that shareholders vote
FOR approval of each proposal.
Voting by mail is quick and easy. Everything you need is enclosed.
To cast your vote, simply complete the enclosed proxy card. Be sure to
sign the card before mailing it in the postage-paid envelope provided.
If you have any questions before you vote, please call us toll free at
1-800-531-8181. We'll be glad to help you get your vote in quickly. Thank
you for your participation in this important initiative for the Funds.
Sincerely,
Michael J.C. Roth, C.F.A.
President
USAA MUTUAL FUND, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF THE AGGRESSIVE GROWTH FUND, GROWTH FUND,
GROWTH & INCOME FUND, INCOME STOCK FUND, INCOME
FUND, SHORT-TERM BOND FUND AND MONEY MARKET FUND
To Be Held October 13, 1995
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of the Aggressive Growth Fund, Growth Fund, Growth & Income
Fund, Income Stock Fund, Income Fund, Short-Term Bond Fund and Money Market
Fund series of USAA Mutual Fund, Inc., a Maryland corporation (the
"Company"), will be held in the Auditorium of the McDermott Building, 9800
Fredericksburg Road, San Antonio, Texas, on Friday, October 13, 1995, at
2:00 p.m., local time, for the following purposes:
1. To elect a Board of Directors;
2. To approve the proposals set forth in the attached proxy
statement to reclassify or amend certain investment restrictions
of the Funds; and
3. To ratify the selection of KPMG Peat Marwick LLP as auditors for
the Company.
Shareholders may also consider and act upon any other matters which
may properly come before the Meeting or any adjournments thereof. The
foregoing proposals are described in greater detail in the attached proxy
statement.
The close of business on August 17, 1995 has been fixed as the record
date for the determination of shareholders entitled to notice of and vote
at the Meeting and any adjournments thereof.
By Order of the Board of Directors
MICHAEL D. WAGNER, Secretary
August 23, 1995
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
If you do not expect to attend the Meeting in person please indicate
your voting instructions on the enclosed proxy card. Date, sign and return
the proxy card in the enclosed envelope which needs no postage if mailed in
the United States. In order to avoid the additional expense of further
solicitation, please mail your proxy promptly.
PRELIMINARY COPY
USAA MUTUAL FUND, INC.
9800 Fredericksburg Road
San Antonio, Texas 78288
P R O X Y S T A T E M E N T
Special Meeting of Shareholders of Aggressive
Growth Fund, Growth Fund, Growth & Income Fund,
Income Stock Fund, Income Fund, Short-Term Bond Fund,
and Money Market Fund
October 13, 1995
This proxy statement is being distributed by the Board of Directors of
USAA Mutual Fund, Inc. (the "Company") to solicit proxies from shareholders
of the Aggressive Growth Fund, Growth Fund, Growth & Income Fund, Income
Stock Fund, Income Fund, Short-Term Bond Fund and Money Market Fund (each a
"Fund" and collectively the "Funds") series of the Company for use at a
Special Meeting of Shareholders (the "Meeting") and any adjournments
thereof. The Meeting is scheduled to be held at the McDermott Building,
9800 Fredericksburg Road, San Antonio, Texas on October 13, 1995 at
2:00 p.m.
Any person giving a proxy may revoke it at any time prior to its use.
A shareholder may revoke a proxy by appearing at the Meeting and voting in
person, by giving written notice of revocation to the Board of Directors or
by returning a later dated proxy. Signed proxies received by the Board of
Directors in time for voting and not so revoked will be voted in accordance
with the instructions noted thereon. If no instructions are given, the
enclosed proxy will be voted FOR the election of the nominees named herein
as Directors and FOR each of the proposals described in this proxy
statement.
Shareholders of record of each Fund on August 17, 1995 are entitled to
notice of and to vote at the Meeting. Each Fund is a separate portfolio of
the Company represented by a separate series of capital stock, $.01 par
value per share, of the Company. As of the record date, there were ____
shares of the Aggressive Growth Fund, _____ shares of the Growth Fund, ____
shares of the Growth & Income Fund, _____ shares of the Income Fund, ____
shares of the Income Stock Fund, ____ shares of the Short-Term Bond Fund
and ____ shares of the Money Market Fund issued and outstanding, with each
shareholder entitled to the same number of votes as the number of shares of
capital stock held by such shareholder.
The approval of shareholders of the Aggressive Growth Fund, Growth
Fund, Income Fund and Money Market Fund is required for each of the
proposals described in this proxy statement. The approval of shareholders
of the Growth & Income Fund, Income Stock Fund and Short-Term Bond Fund is
required solely for Proposals 1, 2A, 2B, 2C, and 3. The table below
identifies which proposals are applicable to shareholders of each Fund.
Aggressive Growth Fund
Growth Fund Growth & Income Fund
Income Fund Income Stock Fund
Proposal Money Market Fund Short-Term Bond Fund
1. Election of
Directors X X
2. Reclassification or
Amendment of
Investment Restrictions
A. Diversification X X
B. Borrowing X X
C. Lending X X
D. Illiquid Securities X
E. New Issuers X
F. Joint Trading Accounts X
3. Ratification of Auditors X X
The Board of Directors expects to make this solicitation primarily by
mail; however, in addition to the solicitation of proxies by mail the
officers and Directors of the Company and persons affiliated with USAA
Investment Management Company, the investment manager and underwriter for
the Funds, 9800 Fredericksburg Road, San Antonio, Texas 78288 (the
"Manager"), may, without remuneration, solicit proxies personally or by
telephone, telegram or other electronic means. The Company also may retain
a proxy solicitation firm to assist in soliciting proxies. The costs of
retaining such a firm would depend upon the amount and type of services
rendered. The Company does not anticipate that it will retain such a firm
in connection with the proxy solicitation for the Meeting. The costs of
solicitation and expenses incurred in connection with preparing this proxy
statement and its enclosures, including any cost of retaining a proxy
solicitation firm, will be borne by the Funds. The Funds will reimburse
brokerage firms and others for their expenses in forwarding solicitation
materials to the beneficial owners of shares of the Funds.
With respect to each proposal, a majority of the shares of the Fund
entitled to vote, represented in person or by proxy, is required to
constitute a quorum at the Meeting. Under Maryland law, abstentions do not
constitute a vote "for" or "against" a matter but will be included in
determining the number of shares outstanding and the number of shares
present for purposes of the proposals described herein. Proposals 2A
through 2F require a vote based on the total votes entitled to be cast, not
the votes actually cast, while Proposals 1 and 3 require a vote based on
the votes actually cast. As a result, abstentions will assist a Fund in
obtaining a quorum and will have no effect on the outcome of Proposals 1
and 3 but will have the effect of a "no" vote for purposes of obtaining the
requisite vote for approval of Proposals 2A through 2F. Broker "non-votes"
(i.e., proxies from brokers or nominees indicating that such persons have
not received instructions from the beneficial owner or other person
entitled to vote shares on a particular matter with respect to which the
brokers or nominees do not have discretionary power) will be treated the
same as abstentions.
In the event a quorum is not present at the Meeting or in the event a
quorum is present at the Meeting but sufficient votes to approve any of the
proposals are not received, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies,
provided that such persons determine such an adjournment and additional
solicitation is reasonable and in the interest of shareholders after
consideration of all relevant factors, including the nature of the relevant
proposals, the percentage of votes then cast, the percentage of negative
votes then cast, the nature of the proposed solicitation activities and the
nature of the reasons for such further solicitation. One or more of the
proposals in this proxy statement may be voted on prior to any adjournment
if sufficient votes have been received for a proposal and such vote is
otherwise appropriate. With respect to each Fund, any such adjournment
will require the affirmative vote of a majority of those shares of the Fund
present at the Meeting in person or by proxy.
This proxy statement and the accompanying Notice of Special Meeting of
Shareholders and form of proxy are being mailed on or about August 25, 1995
to shareholders of record on the record date. The Annual Report for the
fiscal period ended July 31, 1994 and Semiannual report for the six month
period ending January 31, 1995 for each Fund may be obtained without charge
upon written request to the Company at the address listed above or by
calling toll free 1-800-531-8181.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of eight
Directors; six were elected by shareholders and two were appointed by the
Board of Directors in accordance with the provisions of the By-laws of the
Company. Pursuant to a policy recently adopted by the Board, each duly
elected or appointed Director will continue to serve as a Director until
the Director either reaches age 70 or has served 10 years in such capacity.
To ensure continuity of Board membership during the implementation of this
policy, the Board has determined to permit George E. Brown to serve as a
Director until December 31, 1996, and Howard L. Freeman, Jr. to serve as a
Director until December 31, 1999. A Director of the Company may resign or
be removed by a vote of the holders of a majority of the outstanding shares
of the Company at any time.
Under the Investment Company Act of 1940, as amended (the "1940 Act"),
if at any time less than a majority of the Directors holding office have
been elected by shareholders, the Directors then in office are required to
call a shareholder meeting for the purpose of electing those Directors who
have not previously been elected by shareholders. As noted above, two of
the eight Directors of the Company, Hansford T. Johnson and Barbara B.
Dreeben, have not been elected by shareholders, and one Director, C. Dale
Briscoe, has informed the Board of his intention not to continue to serve
as a Director after December 31, 1995. The Directors believe that by
electing all Directors at the Meeting, the Company may delay the time at
which another shareholder meeting is required for the election of
Directors, thereby saving the expense associated with holding such a
meeting.
All of the individuals named below are presently serving as Directors
of the Company. The shareholders are being asked to elect these seven
nominees to serve as Directors until their successors are elected and
qualified. All shares represented by valid proxies will be voted
in the election of Directors FOR the nominees named below, unless authority
to vote for a particular nominee is withheld. Each nominee has agreed to
serve as a Director if elected. If any such nominee is not available for
election at the time of the Meeting, the persons named as proxies will vote
for such substitute nominee as the Board of Directors may recommend. In
the event any current Director is not elected at the Meeting, it is
anticipated that such Director will continue to serve until a successor is
elected and qualified.
Nominees for Election as Directors
The following table sets forth information concerning the nominees for
election as Directors of the Company:
Shares of Funds
Deemed Beneficially
Owned on
June 30, 1995
-------------------
Name and Position Director Principal Occupation
with the Company Since for Past 5 Years and Fund/Number
- ---------------- ----- Current Directorships of Shares
--------------------- -----------
*Hansford T. Johnson 1993 Director, Vice Chairman [A]220.718
Director and Chairman and Deputy Attorney-in-Fact, [C]625.159
of the Board of Directors United Services Automobile
Age: 59 Association (USAA) and President,
Chief Executive Officer,
Director and Vice Chairman of the
Board of Directors of USAA
Capital Corporation and of its
various subsidiaries and
affiliates (9/93-present);
Chief of Staff, USAA (1/93-8/93);
Executive Vice President,
USAA (10/92-12/92); Commander-
in-Chief, CINCTRANS, Department
of Defense-Pentagon (9/89-9/92).
Mr. Johnson currently serves as a
Director or Trustee and Chairman of
the Board of three other investment
companies for which the Manager
serves as an investment adviser and
Chairman of the Boards of Directors
of USAA Investment Management
Company, USAA Shareholder
Account Services, USAA Federal
Savings Bank and USAA Real
Estate Company.
*Michael J.C. Roth 1986 Chief Executive Officer [A] 314.890
President, Director and (10/93-present) and President, [B]1,279.204
Vice Chairman of the Director and Vice Chairman [C]5,208.383
Board of Directors of the Board of Directors of [D]5,283.009
Age: 53 USAA Investment Management [E]1,463.880
Company (1/90-present); Director,
USAA Federal Savings Bank (12/83-
8/91); Director, USAA Life Insurance
Company (1/92-present). Mr. Roth
currently serves as President,
Director or Trustee and Vice
Chairman of the Board of three
other investment companies
and as Trustee and Vice Chairman
of the Board of one other investment
company for which the Manager
serves as an investment adviser.
He serves as President, Director,
and Vice Chairman of USAA
Shareholder Account Services.
*John W. Saunders, Jr. 1990 Senior Vice President and [E] 201.090
Director, Vice President Director, USAA Investment
and Chairman of the Management Company (10/85-present);
Pricing and Investment Director,BHC Financial, Inc. and BHC
Committee Securities, Inc. (1/87-present). Mr.
Age: 60 Saunders currently serves as Director
or Trustee and Vice President of three
other investment companies and as
Vice President of one other investment
company for which the Manager serves
as an investment adviser. He serves
as Senior Vice President of USAA
Shareholder Account Services.
George E. Brown 1981 Retired. Mr. Brown currently [B] 544.048
Director and Chairman serves as Director or Trustee [C]18,335.613
of the Corporate of three other investment compa- [D]15,340.853
Governance Committee nies for which the Manager
Age: 77 serves as an investment.
Howard L. Freeman, Jr. 1980 Assistant General Manager for [B] 4,232.535
Director and Chairman Finance, San Antonio City Public [D] 497.396
of the Audit Committee Service Board (1976-present).
Age: 60 Mr. Freeman currently serves as
Director or Trustee of three other
investment companies for which the
Manager serves as an investment
adviser.
Richard A. Zucker 1992 Vice President, Beldon Roofing None
Director and Remodeling (1985-present).
Age: 52 Mr. Zucker currently serves as
Director or Trustee of three other
investment companies for which the
Manager serves as an investment
adviser.
Barbara B. Dreeben 1994 President, Postal Addvantage None
Director (7/92-present); Consultant,
Age: 50 Nancy Harkins Stationer (8/91-present);
Merchandise Manager, Nancy
Harkins Stationer (7/82-8/91).
Mrs. Dreeben currently serves as
Director or Trustee of three
other investment companies
for which the Manager serves
as an investment adviser.
Directors and executive officers of the Company, individually and as a
group, own 535.608 shares of the Aggressive Growth Fund, 6,164.350 shares
of the Growth Fund, 24,294.468 shares of the Income Stock Fund, 21,913.549
shares of the Income Fund and 7,483.380 shares of the Money Market Fund
which is less than one percent of the outstanding shares of each of these
Funds.
- -------------------
*Individual who is deemed to be an "interested person" of the Company under
the 1940 Act because of his affiliation with the Manager.
[A] Aggressive Growth Fund
[B] Growth Fund
[C] Income Stock Fund
[D] Income Fund
[E] Money Market Fund
Executive Officers
The following table sets forth information concerning the executive
officers of the Company:
Name and Position Executive Principal
with the Company Officer Since Occupation for Past 5 Years
- ----------------- ------------- ---------------------------
Michael J.C. Roth 1985 See preceding table.
President and Vice
Chairman of the Board
of Directors
John W. Saunders, Jr. 1980 See preceding table.
Vice President
Michael D. Wagner 1983 Vice President, Corporate Counsel
Secretary USAA (1982-present). Mr. Wagner
Age: 47 has held various positions in the
legal department of USAA since 1970
and currently serves as Vice
President, Secretary and Counsel
for USAA Investment Management
Company and USAA Shareholder
Account Services. Mr. Wagner
currently serves as Secretary
of three other investment companies
for which the Manager serves as
an investment adviser, and as Vice
President, Corporate Counsel
for various other USAA subsidiaries
and affiliates.
Sherron Kirk 1992 Vice President, Controller, USAA
Treasurer Investment Management Company
Age: 50 (10/92-present); Vice President,
Corporate Financial Analysis,
USAA (9/92-10/92); Assistant Vice
President, Financial Plans and
Support, USAA (8/91-9/92); Assistant
Vice President, Real Estate
Accounting, USAA Real Estate
Company (5/90-7/91). Ms. Kirk
currently serves as Treasurer
of three other investment companies
for which the Manager serves as an
investment adviser and as Vice
President, Controller of USAA
Shareholder Account Services.
Board Meetings and Committees
The Board of Directors has four committees: an Executive Committee,
an Audit Committee, a Pricing and Investment Committee and a Corporate
Governance Committee. Between the meetings of the Board of Directors and
while the Board is not in session, the Executive Committee may exercise all
of the powers of the Board of Directors in the management of the business
of the Company which may be delegated to it by the Board. The Executive
Committee consists of four Directors, currently Messrs. Johnson, Roth,
Saunders and Freeman.
The Audit Committee consists of four Directors, currently Messrs.
Brown, Freeman and Zucker and Mrs. Dreeben, none of whom is an "interested
person" of the Company. The Audit Committee (a) selects an external
auditor; (b) reviews and approves an annual audit plan; (c) reviews annual
financial statements; (d) reviews the reports of the auditors; and (e)
undertakes such studies and analyses of various matters as shall from time
to time be deemed necessary by the Board of Directors, and makes
appropriate recommendations to the Board of Directors on such matters.
The Pricing and Investment Committee consists of four Directors,
currently Messrs. Saunders, Brown, Briscoe and Zucker. The Pricing and
Investment Committee (a) acts upon and deals with certain questions,
issues, and matters which may arise under Rule 2a-7 and the "Procedures to
Stabilize Net Asset Value" adopted by the Company as it impacts money
market funds; and (b) considers and acts upon such investment issues and
matters as may be presented relevant to the Funds.
The Corporate Governance Committee consists of all the Directors who
are not "interested persons" of the Company. Its purpose is to maintain
oversight of the organization and performance of the Board of Directors; to
evaluate the effectiveness of the Board and to ensure that the Board
conducts itself ethically and in accordance with applicable laws; to
maintain a policy on Board tenure and term limitations for independent
Directors; to recommend candidates to fill vacancies for independent
directorship positions of the Board; and to consider and act upon such
other issues as may be presented to it by the Board.
During the fiscal year ended July 31, 1995, the Board of Directors met
six times, the Executive Committee met three times, the Audit Committee met
three times, the Pricing and Investment Committee met four times and the
Corporate Governance Committee met once since its creation in May 1995.
Each Director attended 75% or more of the total number of meetings of the
Board and any committee on which he or she served.
Compensation of Directors and Executive Officers
The executive officers and "interested" Directors of the Company, as
defined in Section 2(a)(19) of the 1940 Act, receive no direct compensation
from the Company. Such executive officers and "interested" Directors of
the Company receive compensation from USAA or the Manager. Directors and
committee members who are not "interested persons" are compensated on the
basis of an annual retainer of $3,500 for the Company. The fee for
attending a regular or special Board Meeting is $500. All Funds in the
USAA Family of Funds meet on a combined basis for regular meetings and the
meeting fee is allocated evenly among the total number of Funds represented
at the meeting. An annual retainer of $500 from the Company for serving on
one or more committees is paid plus reimbursement for reasonable expenses
incurred in attending any Board or committee meetings. Beginning in September
of 1995, all compensation paid to the Directors will be used to acquire
shares of one or more USAA Funds within the USAA Family of Funds under an
automatic investment program for Directors. The following table sets forth
information concerning the compensation of the Directors of the Company for
the fiscal year ended July 31, 1995.
Total
Name Aggregate Compensation from
of Compensation from the USAA Family
Director the Company of Funds (c)
George E. Brown (a) $ 4,612 $ 18,500
Barbara B. Dreeben 4,612 18,500
Howard L. Freeman, Jr. 4,612 18,500
Hansford T. Johnson None (b) None (b)
Michael J.C. Roth None (b) None (b)
John W. Saunders, Jr. None (b) None (b)
Richard A. Zucker 4,612 18,500
_________________
(a) The USAA Family of Funds has accrued deferred compensation for Mr.
Brown in an amount (plus earnings thereon) of $ . The
compensation was deferred by Mr. Brown pursuant to a non-qualified
Deferred Compensation Plan, under which deferred amounts accumulate
interest quarterly based on the annualized U. S. Treasury Bill rate in
effect on the last day of the quarter. Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the USAA Funds until paid. The Deferred Compensation
Plan was terminated in 1988, and no compensation has been deferred by
any Director/Trustee of the USAA Family of Funds since the Plan was
terminated.
(b) Hansford T. Johnson, Michael J.C. Roth, and John W. Saunders, Jr. are
affiliated with the Company's investment adviser and, accordingly,
receive no remuneration from the Company or any other Fund of the USAA
Family of Funds.
(c) At July 31, 1995, the USAA Family of Funds consisted of 4 registered
investment companies offering 29 individual funds. Each Director
presently serves as Director or Trustee of each investment company in
the USAA Family of Funds. In addition, Michael J. C. Roth presently
serves as Trustee of USAA Life Investment Trust, a registered
investment company advised by USAA Investment Management Company,
consisting of five funds offered to investors in a fixed and variable
annuity contract with USAA Life Insurance Company. Mr. Roth receives
no compensation as Trustee of USAA Life Investment Trust.
Share Ownership of Management and Certain Beneficial Owners
As of June 30, 1995, USAA, a reciprocal interinsurance exchange,
beneficially owned directly or indirectly through one or more of its
affiliates 14,894,033 shares (15.2%) of the Aggressive Growth Fund; 529,001
shares (1.1%) of the Growth Fund; 1,987,611 shares (2.1%) of the Income
Stock Fund; 15,496,599 shares (10.7%) of the Income Fund; and 31,457,828
shares (2.1%) of the Money Market Fund. The address of USAA and its
affiliates is 9800 Fredericksburg Road, San Antonio, Texas 78288.
As far as is known to the Board of Directors of the Company, as of
June 30, 1995, no other person held of record or owned beneficially more
than 5% of the voting stock of any of the Funds.
Required Vote
Those nominees for Director of the Company receiving the vote of a
plurality of the votes cast at a meeting at which a quorum is present shall
be elected. Shares of all Funds shall be voted as a single class for the
election of Directors.
PROPOSAL 2
PROPOSALS TO RECLASSIFY OR AMEND
CERTAIN INVESTMENT RESTRICTIONS
The Board of Directors has proposed that shareholders approve the
reclassification or amendment of certain fundamental investment
restrictions of the Funds. The proposed changes to the investment
restrictions of each Fund are based on recommendations prepared by the
Manager, which were reviewed and approved by the Board of Directors,
subject to shareholder approval, at a meeting of the Board held on July 12,
1995.
Under the Investment Company Act of 1940, as amended (the "1940 Act"),
all investment policies of a mutual fund must be classified as either
"fundamental" or "non-fundamental." A fundamental policy may not be
changed without the approval of the fund's shareholders; a non-fundamental
policy may be changed by the Directors without shareholder approval. Under
the 1940 Act only certain policies are required to be classified as
fundamental.
In the past, the Company has adopted certain fundamental investment
restrictions for each Fund to reflect regulatory, business or industry
conditions, which in some cases are no longer in effect. At the Manager's
request, the Board of Directors of the Company recently reviewed each
Fund's fundamental investment restrictions and determined that it would be
in the best interest of each Fund to reclassify as non-fundamental certain
investment restrictions that are not required to be fundamental under
applicable law, and to clarify and modernize certain restrictions which are
required to be fundamental. The Directors also analyzed the various
fundamental and non-fundamental investment restrictions of all of the
investment companies advised by the Manager, and where practical and
appropriate to a Fund's investment objective, proposed to standardize
investment restrictions. The proposed investment restrictions set forth
below are expected to become standard for each of the mutual funds
comprising the USAA Family of Funds.
The Directors believe that the ability of the Funds' investment
adviser to manage the Funds' portfolios in a changing regulatory or
investment environment will be enhanced by approval of these proposals. In
addition, the Directors believe that approval of these proposals will
reduce the need for future shareholder meetings, thereby reducing the
Funds' ongoing costs of operation. Furthermore, it is anticipated that
increased standardization will help to promote operational efficiencies and
facilitate monitoring of compliance with fundamental and non-fundamental
investment restrictions.
At the Meeting, shareholders of each Fund will vote upon each of the
proposals separately. Each change to a Fund's fundamental investment
restrictions will become effective as soon as practicable following
approval by shareholders but in no event prior to December 1, 1995.
Although the proposed changes to each Fund's investment restrictions
generally give broader authority to make certain investments or engage in
certain practices than do the current investment restrictions of the Funds,
the Manager does not currently intend to change in any material way the
investment strategy or operations of any Fund.
Required Vote
To be approved with respect to any Fund, a proposal must receive the
affirmative vote of "a majority of the outstanding voting securities" of
the Fund, as defined in the 1940 Act. Under the 1940 Act, a vote of a
majority of the outstanding voting securities of a Fund means the lesser of
(a) more than 50% of the outstanding shares of the Fund or (b) 67% or more
of the shares of the Fund represented at the Meeting if more than 50% of
the outstanding shares of the Fund are present at the Meeting or
represented by proxy.
The Board of Directors unanimously recommends that shareholders vote
FOR approval of each of the following proposals.
PROPOSAL 2A
Under each Fund's current investment restriction relating to issuer
diversification, a Fund may not "purchase securities (including commercial
paper) of any issuer if such purchase would at that time (i) cause more
than 5% of the value of the individual Fund's assets to be invested in
securities of any one issuer other than the U.S. Government or its
corporate instrumentalities, or (ii) cause the Fund to own more than 10% of
the outstanding voting securities of any issuer." This restriction
currently applies to 100% of the assets of a Fund. The current restriction
is more restrictive than the 1940 Act, which applies the 5% and 10%
diversification requirements to only 75% of a Fund's total assets. The
current investment restriction was adopted to comply with certain state
securities requirements that are no longer applicable.
The Directors propose to amend this investment restriction to apply to
only 75% of a Fund's total assets and to clarify that the exception for
government securities is to be construed in accordance with the 1940 Act.
The proposed amendment would permit a Fund to invest up to 25% of its total
assets in the securities of a single issuer. The modified restriction would
mirror the diversification provision of the 1940 Act, and as such, the Manager
believes this restriction would be consistent with the diversification
restrictions adopted by the vast majority of other diversified mutual funds.
The Directors believe that such a change will benefit the Fund by allowing the
Manager greater investment flexibility. To the extent that a Fund invests more
than 5% of its assets in the securities of any single issuer, the Fund will be
subject to greater risks associated with those securities. Conversely, the
Fund will be able to realize greater benefits should the value of such
securities appreciate.
If Proposal 2A is approved, the Directors intend to delete the
existing investment restriction concerning issuer diversification and adopt
the following new fundamental investment restriction:
[A Fund may not] with respect to 75% of its total
assets, purchase the securities of any issuer (except
Government Securities, as such term is defined in the
1940 Act) if, as a result, the Fund would own more than
10% of the outstanding voting securities of such issuer
or the Fund would have more than 5% of the value of its
total assets invested in the securities of such issuer.
PROPOSAL 2B
Under each Fund's current investment restriction relating to
borrowing, a Fund may "borrow only from banks, and then not to purchase
portfolio securities, but only for temporary or emergency purposes. Such
borrowing will be in amounts not more than 5% of the market value of the
individual Fund's assets or not more than 10% of the value of its total
assets taken at cost, whichever amount is less."
It is proposed that the above investment restriction be amended to
permit a Fund to borrow an amount equal to not more than 1/3 of its total
assets for temporary or emergency purposes. It is also proposed that a
Fund be permitted to borrow from non-banks, to the extent permitted by
applicable law. The proposed amendment is consistent with current
limitations imposed under the 1940 Act. The Directors believe that these
changes will provide the Manager with greater flexibility in managing the
liquidity needs of a Fund by allowing the Fund to use borrowings to satisfy
redemptions or settle securities transactions. Consistent with current
policies, a Fund would not be permitted to borrow for the purpose of
leveraging its portfolio.
If Proposal 2B is approved, the Directors will delete the existing
investment restriction relating to borrowing and adopt the following new
fundamental investment restriction:
[A Fund may not] borrow money, except for temporary or
emergency purposes in an amount not exceeding 33 1/3%
of its total assets (including the amount borrowed)
less liabilities (other than borrowings).
PROPOSAL 2C
Under each Fund's current investment restriction relating to lending,
a Fund may not "lend money or securities except that the Aggressive Growth
Fund, Growth & Income Fund, Income Stock Fund, Short-Term Bond Fund, and
Money Market Fund may purchase securities subject to repurchase agreements.
The purchase of publicly held debt securities is not considered lending
money for the purpose of this restriction."
It is proposed that the above investment restriction be amended to
permit a Fund to lend up to 1/3 of its total assets. The proposed
amendment to this limitation is consistent with current limitations imposed
under the 1940 Act and under certain state securities laws.
It is a common practice in the mutual fund industry for mutual funds
to lend portfolio securities to obtain additional fee income on idle
assets. While such loans are outstanding, the mutual fund receives as
collateral cash or high quality short-term instruments with a value at
least equal to the amount of the loan. The collateral is marked-to-market
daily and is available at all times to satisfy the borrower's obligations.
In this manner, the risks associated with a borrower default are minimized.
Currently, none of the Funds engages in securities lending activities and
the Board of Directors has no current intention of doing so. By approving
the proposed changes to each Fund's investment restrictions at this time,
the Funds will be able to enter into securities loan transactions at a
future date.
If Proposal 2C is approved, the Directors will delete the existing
investment restriction relating to lending and adopt the following new
fundamental investment restriction:
[A Fund may not] lend any securities or make any loan
if, as a result, more than 33 1/3% of its total assets
would be lent to other parties, except that this
limitation does not apply to purchases of debt
securities or to repurchase agreements.
PROPOSAL 2D
(Aggressive Growth Fund, Growth Fund,
Income Fund and Money Market Fund)
Under the current investment restriction of the Aggressive Growth
Fund, Growth Fund, Income Fund and Money Market Fund relating to illiquid
securities, a Fund may not "invest more than 5% of the value of its assets
in securities which are illiquid or not readily marketable, including
restricted securities and repurchase agreements maturing in more than 7
days." This restriction was adopted to satisfy certain state securities
laws and certain guidelines established by the Securities and Exchange
Commission (the "Commission") relating to investments in illiquid
securities, but is not required to be a fundamental policy of any Fund.
It is proposed that the above investment restriction be reclassified
as non-fundamental and that the investment restriction be amended to permit
investments in illiquid securities to the maximum extent permitted by
applicable law. If Proposal 2D is approved, the Directors intend to amend
the investment restriction relating to illiquid securities to read as
follows:
[The Aggressive Growth Fund, Growth Fund and Income
Fund may not] invest more than 15% of the value of its
net assets in illiquid securities, including repurchase
agreements maturing in more than seven days.
[The Money Market Fund may not] invest more than 10% of
the value of its net assets in illiquid securities,
including repurchase agreements maturing in more than
seven days.
From time to time, each of the Funds may invest in securities that
are subject to restrictions on transfer under the Securities Act of 1933,
as amended (commonly referred to as "restricted securities"). Many restricted
securities, such as privately placed securities that are traded on a secondary
market among institutional investors (commonly referred to "144A Securities"),
are readily marketable. The staff of the Commission has indicated that
investment restrictions relating to investments in illiquid securities may
appropriately be limited to securities which are not readily marketable,
regardless of whether such securities are restricted as to disposition under
the federal securities laws. Consistent with this position, the Commission
permits investment companies to adopt policies and guidelines pursuant to which
144A Securities and similar restricted securities may be determined to be
liquid for purposes of this restriction. The proposed changes will clarify
that the Fund may treat such securities as liquid in accordance with guide-
lines adopted by the Directors.
Each Fund's current investment policy limits investments in illiquid
securities to 5% of the Fund's assets although current law permits a
non-money market fund to invest up to 15% of its net assets and a money
market fund to invest up to 10% of its net assets in illiquid securities.
To the extent that a Fund invests more than 5% of its assets in illiquid
securities, the Fund may be subject to greater risk associated with holding
securities that are not readily marketable. The Directors believe that
such a change will benefit the Funds by allowing the Manager greater
investment flexibility.
If Proposal 2D is approved, the Directors will be able to further
amend or eliminate this investment policy in the future, without
shareholder approval, if the Directors determine that such a change is
appropriate and desirable. The Directors have no present intention of
amending or eliminating this policy, except as described above. The
Directors believe, however, that reclassification of this policy as
non-fundamental at this time will permit the Funds to respond more rapidly
to future changes in the Funds' competitive and regulatory environment.
PROPOSAL 2E
(Aggressive Growth Fund, Growth Fund,
Income Fund and Money Market Fund)
The Aggressive Growth Fund, Growth Fund, Income Fund and Money Market
Fund are currently subject to a fundamental investment restriction relating
to investments in the securities of new issuers. Under the restriction, a
Fund may not "invest more than 5% of the value of its assets in securities
of companies having a record of less than three years' continuous
operations, except that the Aggressive Growth Fund may invest up to 75% of
its assets in such companies." This restriction is required to satisfy
certain state securities laws, but is not required to be a fundamental
policy of a Fund. The Directors propose that this investment restriction
be reclassified as non-fundamental.
If Proposal 2E is approved, the Directors will be able to amend or
eliminate this investment policy in the future, without shareholder
approval, if the Directors determined that a change is appropriate and
desirable. The Directors have no present intention of amending or
eliminating this policy. The Directors believe, however, that
reclassification of the policy as non-fundamental at this time will permit
a Fund to respond more rapidly to future changes in the Fund's competitive
and regulatory environment.
PROPOSAL 2F
(Aggressive Growth Fund, Growth Fund,
Income Fund and Money Market Fund)
Under the current investment restrictions of the Aggressive Growth
Fund, Growth Fund, Income Fund and Money Market Fund, a Fund may not, "on a
joint or joint and several basis, participate in any trading account in
securities." It is proposed that the above investment restriction be
changed from a fundamental investment restriction to a non-fundamental
investment restriction.
It is common for affiliated investment companies to maintain joint
trading accounts for the purpose of pooling cash balances to invest in
short term instruments, such as repurchase agreements. These pooling
arrangements permit a fund to obtain a higher yield on its excess cash
balances than would otherwise be available to the fund individually. To
engage in these activities, under current law a fund is required to obtain
an exemptive order from the Commission. Although no Fund has any present
intention of establishing such a joint trading account, the
reclassification of the above investment restriction as non-fundamental
would permit a Fund to implement arrangements involving joint trading
accounts after obtaining an exemptive order from the Commission, upon
approval of the Directors, or should the Commission adopt a rule expressly
authorizing such arrangement, without first seeking shareholder approval.
The Directors believe that such flexibility is in the best interests of the
shareholders and will permit a Fund to respond more rapidly to future changes
in the Fund's competitive and regulatory environment.
PROPOSAL 3
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of KPMG Peat Marwick LLP
as auditors for the Company for its fiscal year ending July 31, 1995.
Shareholders are being asked to ratify the selection of KPMG Peat Marwick
LLP to perform audit services for the Company for such fiscal year. KPMG
Peat Marwick LLP were the auditors for the Company for the fiscal year
ended July 31, 1994.
KPMG Peat Marwick LLP are the auditors for the Manager, the other
investment companies for which the Manager serves as investment adviser,
USAA and its subsidiaries and affiliated companies. A representative of
KPMG Peat Marwick LLP is expected to attend the Meeting with the
opportunity to make a statement and/or respond to appropriate questions
from shareholders.
Required Vote
Proposal 3 requires the affirmative vote of a majority of the votes
cast at a meeting at which a quorum is present. Shares of all Funds shall
be voted as a single class. The Board of Directors unanimously recommends
that shareholders vote FOR Proposal 3.
OTHER BUSINESS
The Board of Directors does not know of any other matters to be
considered at the Meeting other than those referred to above. If any other
matters are properly presented to the Meeting, it is the intention of proxy
holders to vote such proxies on such matters in accordance with their
judgment.
The Funds do not hold annual shareholder meetings. Shareholders
wishing to submit proposals for inclusion in a proxy statement for a
subsequent shareholder meeting should send their written proposals to the
Secretary of the Company, 9800 Fredericksburg Road, San Antonio, Texas
78288.
By Order of the Board of Directors
Michael D. Wagner
Secretary
August 23, 1995
San Antonio, Texas
PRELIMINARY COPY
Growth & Income Fund PROXY Short-Term Bond Fund
Income Stock Fund USAA MUTUAL FUND, INC.
Special Meeting of Shareholders - October 13, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The shareholder(s) as shown on this card hereby appoints Michael J.C.
Roth, John W. Saunders, Jr. and George E. Brown, and each of them, as
proxies with full power of substitution to act for and vote on behalf of
the shareholder(s) all shares of the Fund which the shareholder(s) would be
entitled to vote if personally present at the Special Meeting of
Shareholders of USAA MUTUAL FUND, INC. (the "Company") to be held in San
Antonio, Texas on October 13, 1995 or at any adjournment thereof, on the
following items as set forth in the Notice of Meeting and the Proxy
Statement.
PLEASE INDICATE YOUR VOTES BY AN "X" IN THE APPROPRIATE BOXES BELOW
IF A CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED AS
INDICATED. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED
FOR ALL PROPOSALS. In their discretion, the Proxies are
authorized to vote upon such other business as may properly come
before the meeting. The Board of Directors recommends a vote FOR
such proposals:
1. Election of Directors
INSTRUCTIONS: To withhold authority to vote for any individual
nominee, strike a line through the nominee's name and mark center box.
H. Johnson M. Roth J. Saunders, Jr. G. Brown
B. Dreeben H. Freeman, Jr. R. Zucker
FOR ALL [ ] FOR ALL EXCEPT [ ] WITHHOLD AUTHORITY [ ]
2. Proposals to amend certain investment restrictions
For Against Abstain
A. Proposal to amend each Fund's investment
restriction relating to diversification [ ] [ ] [ ]
B. Proposal to amend each Fund's investment
restriction relating to borrowing [ ] [ ] [ ]
C. Proposal to amend each Fund's investment
restriction relating to lending [ ] [ ] [ ]
3. Proposal to ratify the selection of KPMG
Peat Marwick LLP as auditors for the
Company
FOR [ ] AGAINST [ ] ABSTAIN [ ]
IMPORTANT! Please Vote, Sign, Date, Detach and Mail in the Enclosed
Envelope.
The undersigned acknowledges receipt of the Notice of Special Meeting and
Proxy Statement dated August 23, 1995. INDICATE CHANGE OF ADDRESS BELOW.
This proxy may be revoked at any time prior to the exercise of the powers
conferred by this proxy, as indicated in the Proxy Statement.
FUND NAME ACCOUNT NUMBER NUMBER OF SHARES
__________________________________________________________
Date Signature
__________________________________________________________
Signature If Held Jointly
YOUR VOTE IS IMPORTANT.
PLEASE SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOX, SIGN, DATE,
DETACH AND MAIL IN ENCLOSED ENVELOPE.
PRELIMINARY COPY
Aggressive Growth Fund PROXY Income Fund
Growth Fund USAA MUTUAL FUND, INC. Money Market Fund
Special Meeting of Shareholders - October 13, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The shareholder(s) as shown on this card hereby appoints Michael J.C.
Roth, John W. Saunders, Jr. and George E. Brown, and each of them, as
proxies with full power of substitution to act for and vote on behalf of
the shareholder(s) all shares of the Fund which the shareholder(s) would be
entitled to vote if personally present at the Special Meeting of
Shareholders of USAA MUTUAL FUND, INC. (the "Company") to be held in San
Antonio, Texas on October 13, 1995 or at any adjournment thereof, on the
following items as set forth in the Notice of Meeting and the Proxy
Statement.
PLEASE INDICATE YOUR VOTES BY AN "X" IN THE APPROPRIATE BOXES BELOW
IF A CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED AS
INDICATED. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED
FOR ALL PROPOSALS. In their discretion, the Proxies are
authorized to vote upon such other business as may properly come
before the meeting. The Board of Directors recommends a vote FOR
such proposals:
1. Election of Directors
INSTRUCTIONS: To withhold authority to vote for any individual
nominee, strike a line through the nominee's name and mark center box.
H. Johnson M. Roth J. Saunders, Jr. G. Brown
B. Dreeben H. Freeman, Jr. R. Zucker
FOR ALL [ ] FOR ALL EXCEPT [ ] WITHHOLD AUTHORITY [ ]
2. Proposals to reclassify or amend certain investment restrictions
For Against Abstain
A. Proposal to amend each Fund's investment
restriction relating to diversification [ ] [ ] [ ]
B. Proposal to amend each Fund's investment
restriction relating to borrowing [ ] [ ] [ ]
C. Proposal to amend each Fund's investment
restriction relating to lending [ ] [ ] [ ]
D. Proposal to reclassify as non-fundamental
each Fund's investment restriction
relating to illiquid securities [ ] [ ] [ ]
E. Proposal to reclassify as non-fundamental
each Fund's investment restriction
relating to investments in new issuers [ ] [ ] [ ]
F. Proposal to reclassify as non-fundamental
each Fund's investment restriction
relating to participation in joint
trading accounts [ ] [ ] [ ]
3. Proposal to ratify the selection of KPMG
Peat Marwick LLP as auditors for the Company
FOR [ ] AGAINST [ ] ABSTAIN [ ]
IMPORTANT! Please Vote, Sign, Date, Detach and Mail in the Enclosed
Envelope.
The undersigned acknowledges receipt of the Notice of Special Meeting and
Proxy Statement dated August 23, 1995. INDICATE CHANGE OF ADDRESS BELOW.
This proxy may be revoked at any time prior to the exercise of the powers
conferred by this proxy, as indicated in the Proxy Statement.
FUND NAME ACCOUNT NUMBER NUMBER OF SHARES
__________________________________________________________
Date Signature
__________________________________________________________
Signature If Held Jointly
YOUR VOTE IS IMPORTANT.
PLEASE SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOX, SIGN, DATE,
DETACH AND MAIL IN ENCLOSED ENVELOPE.
