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:
[ ] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission only
(as Permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[_] Soliciting Material Pursuant to 240.14a-12
USAA Tax Exempt 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):
[ ] $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 applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or
the Form or Schedule and the
date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date filed:
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 a way 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
1-800-531-8448. 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 TAX EXEMPT FUND, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF THE LONG-TERM FUND, INTERMEDIATE-TERM FUND,
SHORT-TERM FUND, TAX EXEMPT MONEY MARKET FUND,
CALIFORNIA BOND FUND, CALIFORNIA MONEY MARKET FUND,
NEW YORK BOND FUND, NEW YORK MONEY MARKET FUND,
VIRGINIA BOND FUND AND VIRGINIA 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 Long-Term Fund, Intermediate-Term Fund, Short-Term Fund,
Tax Exempt Money Market Fund, California Bond Fund, California Money Market
Fund, New York Bond Fund, New York Money Market Fund, Virginia Bond Fund
and Virginia Money Market Fund series of USAA Tax Exempt 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, amend or eliminate 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.
USAA TAX EXEMPT 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 Long-Term Fund,
Intermediate-Term Fund, Short-Term Fund,
Tax Exempt Money Market Fund, California Bond Fund,
California Money Market Fund, New York Bond Fund,
New York Money Market Fund, Virginia Bond Fund
and Virginia Money Market Fund
October 13, 1995
This proxy statement is being distributed by the Board of Directors of
USAA Tax Exempt Fund, Inc. (the "Company") to solicit proxies from
shareholders of the Long-Term Fund, Intermediate-Term Fund, Short-Term
Fund, Tax Exempt Money Market Fund, California Bond Fund, California Money
Market Fund, New York Bond Fund, New York Money Market Fund, Virginia Bond
Fund and Virginia 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 of the Company 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 class of capital stock, $.01 par value
per share, of the Company. As of the record date, there were 134,923,187
shares of the Long-Term Fund, 125,378,677 shares of the Intermediate-Term
Fund, 73,629,391 shares of the Short-Term Fund, 1,481,262,006 shares of the
Tax Exempt Money Market Fund, 37,775,894 shares of the California Bond Fund,
276,293,162 shares of the California Money Market Fund, 4,774,116 shares of
the New York Bond Fund, 29,502,783 shares of the New York Money Market Fund,
22,883,474 shares of the Virginia Bond Fund and 104,246,470 shares of the
Virginia 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 Long-Term Fund, Intermediate-Term
Fund, Short-Term Fund, Tax Exempt Money Market Fund is required for each of
the proposals described in this proxy statement. The approval of
shareholders of the California Bond Fund, California Money Market Fund, New
York Bond Fund, New York Money Market Fund, Virginia Bond Fund and Virginia
Money Market Fund is required solely for Proposals 1, 2A, 2B, 2C, 2D and 3.
The table below identifies which proposals are applicable to shareholders
of each Fund.
California Bond Fund
California Money Market Fund
Long-Term Fund New York Bond Fund
Intermediate-Term Fund New York Money Market Fund
Short-Term Fund Virginia Bond Fund
Proposal Tax Exempt Money Market Fund Virginia Money Market Fund
--------- --------------------------- --------------------------
1. Election of
Directors X X
2. Reclassification,
Amendment, or
Elimination of
Investment
Restrictions
A. Illiquid Securities X X
B. Underwriting X X
C. Borrowing X X
D. Lending X X
E. Investments in other X
than Tax Exempt
Securities
F. Restricted Securities X
G. Diversification 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 2G 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 2G. 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 March 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 1-800-531-8448.
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 Fund/Number
with the Company Since for Past Years and of Shares
Current Directorships
* Hansford T. Johnson 1993 Director, Vice Chairman [A] 8,824.186
Director and Chairman and Deputy Attorney-in-Fact, [B] 3,211.513
of the Board of United Services Automobile [D] 67,052.130
Directors Association (USAA)
Age: 59 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] 4,103.723
President, Director (10/93-present) and President, [D] 11,764.860
and Vice Chairman Director and Vice Chairman
of the Board of of the Board of Directors of
Directors USAA Investment Management
Age: 53 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 [D] 165,616.790
Director, Vice President Director, USAA Investment
and Chairman of the Management Company
Pricing and Investment (10/85-present); Director BHC
Committee Financial, Inc. and BHC
Age: 60 Securities, Inc. (1/87-present).
Mr. 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] 17,663.551
Director and Chairman serves as Director or Trustee [C] 3,977.110
of the Corporate of three other investment
Governance Committee companies for which the Manager
Age: 77 serves as an investment adviser.
Howard L. Freeman, Jr. 1981 Assistant General Manager for [C] 22,989.556
Director and Chairman Finance, San Antonio City Public
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 [A] 9,797.725
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 22,725.634 shares of the Long-Term Fund, 21,120.092 shares of
the Intermediate-Term Fund, 26,966.666 of the Short-Term Fund and
248,084.810 shares of the Tax Exempt 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] Long-Term Fund
[B] Intermediate-Term Fund
[C] Short-Term Fund
[D] Tax Exempt Money Market Fund
Executive Officers
The following table sets forth information concerning the executive
officers of the Company:
Name and Position Executive Principal Occupation
with the Company Officer Since 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. 1981 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, presently 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 March 31, 1995, the Board of Directors
met six times, the Executive Committee met twice, the Audit Committee met
three times, the Pricing and Investment Committee met five 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 March 31, 1995.
Total
Name Aggregate Compensation from
of Compensation from the USAA Family
Director the Company of Funds (c)
-------- ------------------ ------------------
George E. Brown (a) $4,876 $18,500
Barbara B. Dreeben 4,876 18,500
Howard L. Freeman, Jr. 4,876 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 4,876 18,500
_________________
(a) The USAA Family of Funds has accrued deferred compensation for Mr.
Brown in an amount (plus earnings thereon) of $20,118. 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 March 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 3,515,037 shares (2.9%) of the Intermediate-Term Fund; and
5,663,794 shares (.4%) of the Tax Exempt Money Market Fund. The address of
USAA and its affiliates is 9800 Fredericksburg Road, San Antonio, Texas
78288.
The following table identifies all other persons, who as of June 30,
1995, held of record or owned beneficially 5% or more of any of the Funds'
shares.
Name and Address of
Title of Class Beneficial Owner Percent of Class
------------- ------------------- -----------------
California Money Robert M. Kommerstad 8.2%
Market Fund Lila M. Kommerstad
218 Deodar Lane
Bradbury, CA 91010-1011
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, AMEND OR
ELIMINATE CERTAIN INVESTMENT RESTRICTIONS
The Board of Directors has proposed that shareholders approve the
reclassification, amendment or elimination 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 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 eliminate or 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 the current investment restriction of the Long-Term Fund,
Intermediate-Term Fund, Short-Term Fund, Tax Exempt Money Market Fund,
California Bond Fund and California Money Market Fund relating to illiquid
securities, a Fund may not "invest more than 10% of the total
assets of any fund in illiquid securities (including repurchase
agreements maturing in more than seven days)." The current investment
restriction of the New York Bond Fund, New York Money Market Fund, Virginia
Bond Fund and Virginia Money Market Fund is identical to the above restriction
except that such investments may not exceed 10% of the value of net, as
opposed to total, assets of the Fund. The above restrictions were 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 restrictions be reclassified
as non-fundamental and that the investment restrictions be amended to
permit investments in illiquid securities to the maximum extent permitted
by applicable law. If Proposal 2A is approved, the Directors intend to
amend the investment restriction relating to illiquid securities to read as
follows:
[The Long-Term Fund, Intermediate-Term Fund, Short-Term
Fund, California Bond Fund, New York Bond Fund and
Virginia Bond 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 Tax Exempt Money Market Fund, California Money
Market Fund, New York Money Market Fund and Virginia
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.
Each Fund's current investment policy limits investments in illiquid
securities to 10% 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 10% of its assets in illiquid
securities, the Fund will 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 2A 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 2B
Each Fund is currently subject to a fundamental investment restriction
relating to the underwriting of securities. Under the restriction, a Fund
may not "underwrite any issue of securities." The Directors propose that
this investment restriction be amended to clarify that a Fund is permitted
to be an underwriter in connection with the resale of restricted securities
or illiquid securities.
If Proposal 2B is approved, the Directors will delete the existing
investment restriction relating to underwriting and adopt the following new
fundamental investment restriction:
[A Fund may not] underwrite securities of other
issuers, except to the extent that it may be deemed to
act as a statutory underwriter in the distribution of
any restricted securities or not readily marketable
securities.
PROPOSAL 2C
Under the current investment restriction of the Long-Term Fund,
Intermediate-Term Fund, Short-Term Fund and Tax Exempt Money Market Fund
relating to borrowing, a Fund may not "borrow money except for temporary
emergency purposes and then only from banks in an amount not to exceed 5%
of the value of the total assets of that Fund; the Company will repay all
borrowings before making additional investments and the interest paid on
such borrowings will reduce income." The current investment restriction of
the California Bond Fund, California Money Market Fund, New York Bond Fund,
New York Money Market Fund, Virginia Bond Fund and Virginia Money Market
Fund is substantially similar to the above restriction except that
such borrowings may not exceed 10% of the value of total assets.
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. Presently, a Fund may borrow for temporary purposes up to
five percent of the value of its total assets from any one non-bank.
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.
Borrowing money temporarily will cause a Fund to incur interest charges,
and may increase the effect of fluctuations in the value of a Fund's
investments as long as the borrowing is outstanding. The Manager will
take these factors into account when evaluating the relative merits of
different ways of raising cash temporarily.
If Proposal 2C 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).
In addition to the above restriction, the Directors will adopt
the following non-fundamental restriction:
[A Fund may not] purchase any security while borrowings
representing more than 5% of the Fund's total assets are
outstanding.
PROPOSAL 2D
Under the current investment restriction of the Long-Term Fund,
Intermediate-Term Fund, Short-Term Fund and Tax Exempt Money Market Fund
relating to lending, a Fund may not "make loans to other persons, except by
the purchase of bonds, debentures or similar obligations which are publicly
distributed and [except that a Fund may lend securities] as provided under
the Investment Policies" of the Statement of Additional Information. The
current investment restriction of the California Bond Fund, California
Money Market Fund, New York Bond Fund, New York Money Market Fund, Virginia
Bond Fund and Virginia Money Market Fund includes the bracketed language.
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 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 engage 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 2D 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 2E
(Long-Term Fund, Intermediate-Term Fund, Short-Term
Fund and Tax Exempt Money Market Fund Only)
Each of the Long-Term Fund, Intermediate-Term Fund, Short-Term Fund
and Tax Exempt Money Market Fund has a fundamental policy that "during
normal market conditions the Fund's assets will be invested so that at
least 80% of the Fund's annual income will be exempt from federal
personal income tax and excluded from the calculation of federal alternative
minimum taxes for individual taxpayers." This policy satisfies regulatory
requirements applicable to all mutual funds that hold themselves out to the
public as "tax exempt funds."
Each Fund also has adopted a more restrictive policy stating
that no Fund "will invest in securities other than tax-exempt securities,
except that a Fund may make temporary investments for defensive purposes in
notes issued by or on behalf of municipal or corporate issuers, obligations of
the United States Government and its agencies or instrumentalities, commercial
paper, bank certificates of deposit and any such items or tax-exempt securities
subject to short-term repurchase agreements." This additional policy is
not required by applicable law.
The Directors believe that the Manager should be provided with maximum
flexibility to achieve each Fund's objective, consistent with the Fund's
policy of investing its assets such that at least 80% of the Fund's income
will be tax exempt. For this reason, the Directors believe that the
additional restriction relating to investments in securities that are not
tax exempt should be eliminated. Historically, substantially all of the
income of each Fund has been tax exempt. It is anticipated that if
Proposal 2E is approved substantially all of the income of each Fund will
continue to be tax exempt.
PROPOSAL 2F
(Long-Term Fund, Intermediate-Term Fund, Short-Term
Fund and Tax Exempt Money Market Fund Only)
The Long-Term Fund, Intermediate-Term Fund, Short-Term Fund and Tax
Exempt Money Market Fund each has an investment restriction that prohibits
the Fund from purchasing "restricted securities." Restricted securities
are securities that must be registered under the Securities Act of 1933
before they may be offered or sold to the public. Because of this
registration requirement, restricted securities may be illiquid.
The prohibition on investing in restricted securities is not required
by the 1940 Act and was originally adopted for each Fund in response to
state blue sky requirements that are no longer applicable. The purpose of
the restriction is to limit a Fund's investments in illiquid securities.
The Directors believe that a complete prohibition on investing in
restricted securities limits the Manager's ability to make appropriate
investments for a Fund, with no apparent benefit. Each Fund is subject to
a separate investment restriction that limits a Fund's ability to invest in
illiquid securities, which restriction would apply to any restricted
securities that are illiquid. See Proposal 2A described above.
Accordingly, the Directors believe that the prohibition on investing in
restricted securities is unnecessary and should be eliminated. If Proposal
2F is approved and it is subsequently determined that a restriction on
investing in restricted securities is required by the blue sky laws of any
state, the Company will adopt a non-fundamental investment restriction that
satisfies such laws.
PROPOSAL 2G
(Long-Term Fund, Intermediate-Term Fund, Short-Term Fund
and Tax Exempt Money Market Fund Only)
Under the current investment restriction of the Long-Term Fund,
Intermediate-Term Fund, Short-Term Fund and Tax Exempt Money Market Fund
relating to issuer diversification, a Fund may not "purchase securities of
any issuer (except the United States Government, its agencies and
instrumentalities and any tax-exempt security guaranteed by the United
States Government) if as a result more than 5% of the total assets of the
Fund would be invested in securities of such issuer." The restriction
currently applies to 100% of the assets of a Fund. Such restriction is
more restrictive than the 1940 Act, which applies the 5% diversification
requirement to only 75% of a Fund's total assets. The current investment
restrictions were adopted to comply with certain state securities
requirements that are no longer applicable.
The Directors propose to amend the above 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 a 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, a Fund will be able to realize greater benefits
should the value of such securities appreciate.
If Proposal 2G is approved, the Directors intend to delete the
existing investment restriction concerning 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 have more
than 5% of the value of its total assets invested in
the securities of such issuer.
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 March 31, 1996.
Shareholders are being asked to ratify the selection of KPMG Peat Marwick
LLP to perform audit services for the Company for the current fiscal year.
KPMG Peat Marwick LLP were the auditors for the Company for the fiscal year
ended March 31, 1995.
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
LONG-TERM FUND USAA TAX EXEMPT FUND, INC.
SHORT-TERM FUND Special Meeting of Shareholders-October 13, 1995
INTERMEDIATE-TERM FUND THIS PROXY IS SOLICITED ON BEHALF OF THE
TAX EXEMPT MONEY MARKET FUND BOARD OF DIRECTORS
The shareholder(s) as shown on this card
PROXY SERVICES hereby appoints Michael J.C. Roth, John
POST OFFICE BOX 9149 W. Saunders, Jr. and George E. Brown,
FARMINGDALE, NY 11735-9856 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 TAX
EXEMPT 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
vote upon such other business as may
properly come before the meeting. The
Board of Directors recommends a vote
FOR such proposals:
TO VOTE, MARK BLOCKS BELOW IN BLUE KEEP THIS PORTION FOR YOUR RECORDS
OR BLACK INK AS FOLLOWS [X]
_______________________________________________________________________________
DETACH AND RETURN THIS PORTION ONLY.
With- For 1. Election of Directors: 1) H. Johnson, 2) M. Roth,
For hold All 3) J. Saunders, Jr., 4) G. Brown, 5) B. Dreeben,
All All Except 6) H. Freeman, Jr., 7) R. Zucker
[_] [_] [_]
To withhold authority to vote for any invidual
nominee(s) write that nominee(s) number on the
line provided below.
______________________________________________________
For Against Abstain
[ ] [ ] [ ] 2A. Proposal to reclassify as non-fundamental each
Fund's investment restriction relating to
illiquid securities.
[ ] [ ] [ ] 2B. Proposal to amend each Fund's investment
restriction relating to underwriting.
[ ] [ ] [ ] 2C. Proposal to amend each Fund's investment
restriction relating to borrowing.
[ ] [ ] [ ] 2D. Proposal to amend each Fund's investment
restriction relating to lending.
[ ] [ ] [ ] 2E. Proposal to eliminate each Fund's investment
restriction relating to investments in other
than tax exempt securities.
[ ] [ ] [ ] 2F. Proposal to eliminate each Fund's investment
restriction relating to restricted securities.
[ ] [ ] [ ] 2G. Proposal to amend each Fund's investment
restriction relating to diversification.
[ ] [ ] [ ] 3. Proposal to ratify the selection of KPMG Peat
Marwick LLP as auditors for the Company.
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. 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.
___________________________________ ______________________________
Signature Date Signature Date
Please sign name or names exactly as printed above to authorize the
voting of your shares as indicated above. Where shares are registered
with joint owners, all joint owners should sign. Persons signing as
executors, administrators, trustees, etc., should so indicate.
Corporate proxies should be signed by authorized officer.
CALIFORNIA BOND FUND USAA TAX EXEMPT FUND, INC.
NEW YORK MONEY MARKET FUND Special Meeting of Shareholders-October 13, 1995
CALIFORNIA MONEY MARKET FUND THIS PROXY IS SOLICITED ON BEHALF OF
VIRGINIA BOND FUND THE BOARD OF DIRECTORS
NEW YORK BOND FUND The shareholder(s) as shown on this
VIRGINIA MONEY MARKET FUND card hereby appoints Michael J.C. Roth,
PROXY John W. Saunders, Jr. and George E.
Brown, and each of them, as proxies
PROXY SERVICES with full power of substitution to act
POST OFFICE BOX 9149 for and vote on behalf of the
FAMINGDALE, NY 11735-9856 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 TAX EXEMPT 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:
TO VOTE, MARK BLOCKS BELOW IN KEEP THIS PORTION FOR YOUR RECORDS.
BLUE OR BLACK INK AS FOLLOWS [X]
______________________________________________________________________________
DETACH AND RETURN THIS PORTION ONLY.
With- For 1. Election of Directors: 1) H. Johnson,
For hold All 2) M. Roth 3) J. Saunders, Jr., 4) G. Brown,
All All Except 5) B. Dreeben 6) H. Freeman, Jr., 7) R. Zucker
[ ] [ ] [ ] To withhold authority to vote for any individual
nominee(s), write that nominee(s) number on the
line provided below.
_____________________________________________
For Against Abstain
[ ] [ ] [ ] 2A. Proposal to reclassify as non-fundamental
each Fund's investment restriction relating
to illiquid securities.
2B. Proposal to amend each Fund's investment
restriction relating to underwriting.
2C. Proposal to amend each Fund's investment
restriction relating to borrowing.
2D. 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.
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. 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.
________________________________________ _______________________________
Signature Date Signature Date
Please sign name or names exactly as printed above to authorize the voting
of your shares as indicated above. Where shares are registered with joint
owners, all joint owners should sign. Persons signing as executors,
administrators, trustees, etc., should so indicate. Corporate proxies
should be signed by authorized officer.
