SCHEDULE 14A
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[USAA EAGLE LOGO] HOME INSURANCE BANKING INVESTMENTS MEMBER SERVICES
USAA MUTUAL FUND SHAREHOLDERS: YOUR VOTE COUNTS
-------------------
If you own a USAA eqity mutual fund as of August 23, SEE ALSO
2002, you recently received a proxy statement in the A SPECIAL MESSAGE
mail. It tells you about important issues that FROM THE CEO
affect USAA mutual funds.
SUMMARY OF THE
The USAA mutual fund board of directors carefully PROPOSALS]
considered the proposals and recommends voting IN -------------------
FAVOR OF all of the proposals. Your "FOR" vote on these
issues will enable us to meet your future investment
needs with the quality you expect.
Please review your proxy statement and submit your
vote on or before the shareholder meeting on
OCTOBER 18, 2002.
BEFORE YOU VOTE
* Read your proxy statement and determine your vote.
* Have your proxy card(s) available. You should have a separate proxy card
for each of your accounts.
* If you did not receive proxy card(s) or if you have questions about
voting, call toll-free, 1-800-531-8448.
FOUR WAYS TO VOTE
1 INTERNET
* Go to: PROXYVOTE.COM [LINK TO VOTING SITE] [GRAPHIC]
* Enter the 12-digit control number [SAMPLE]
from each proxy card. [PROXY CARD]
* Follow the instructions on the site.
* You will need to submit your vote separately
for each proxy card you've received.
2 PHONE
* Call toll-free, 1-800-690-6903.
* Enter the 12-digit control number from each proxy card.
* Follow the recorded instructions.
3 MAIL
* Mark your choices and sign each proxy card.
* Return your completed proxy card(s) in the provided postage-paid
envelope.
4 IN PERSON
* You are invited to attend the mutual fund shareholder meeting:
October 18, 2002, 3 p.m. Central Time
USAA Building, McDermott Auditorium
9800 Fredericksburg Road, San Antonio, Texas
[SYMBOL]
THIS COMMUNICATION IS BEING MADE ON BEHALF OF USAA MUTUAL FUND, INC. AND USAA
INVESTMENT TRUST. SHAREHOLDERS OF THE AFFECTED USAA MUTUAL FUNDS WILL RECEIVE A
PROXY STATEMENT ON THESE MATTERS. SHAREHOLDERS SHOULD READ THE PROXY STATEMENT
WHEN IT BECOMES AVAILABLE BECAUSE IT CONTAINS IMPORTANT INFORMATION.
SHAREHOLDERS MAY OBTAIN AN ADDITIONAL FREE COPY OF THE PROXY STATEMENT AND ANY
OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE FROM USAA INVESTMENT
MANAGEMENT COMPANY OR THE SEC'S WEB SITE AT WWW.SEC.GOV.
MESSAGE FROM THE CEO
August 23, 2002
Dear Shareholder:
In recent weeks, I communicated to you on some important steps that the USAA
mutual funds' board of directors has taken to improve your funds' investment
performance. After careful consideration, the funds' board authorized USAA
Investment Management Company to engage eight leading investment firms to take
over the equity portfolio management responsibilities for fifteen USAA funds. We
believe these steps were necessary to deliver the investment performance that
you expect from USAA.
WE NEED YOUR VOTE TO COMPLETE THIS INITIATIVE. YOUR FUNDS' DIRECTORS,
INCLUDING MYSELF, RECOMMEND THAT YOU VOTE IN FAVOR OF THE PROPOSALS
DESCRIBED IN THE ENCLOSED MATERIALS. THESE ARE SOME OF THE BENEFITS:
(_) Access to the leading investment firms in their investment
categories, each with significant resources and long-term proven
performance records.
(_) Continued oversight and management of your funds by USAA and the
USAA funds' board of directors.
(_) USAA's ongoing commitment to premier service.
(_) No changes to the funds' fee rates.
We believe that the additional investment expertise, at the same fee rates,
combined with USAA's commitment to service will result in a better overall value
to you.
Whether or not you plan to be present at the shareholder meeting, we need your
vote. We have taken several steps to help you cast your vote:
(_) First, in addition to the traditional method of returning your
proxy card by mail, you may vote on the Internet at
WWW.PROXYVOTE.COM or the "Proxy Voting" link on USAA.COM, or by
calling toll-free 1-800-690-6903.
(_) Second, while we encourage you to read the enclosed proxy
statement, we have attached on the following pages a summary of
the proposals to assist you in understanding them.
You may receive a telephone call from either a member service representative of
USAA Investment Management Company or a representative from Georgeson
Shareholder Communications, Inc. encouraging you to return your proxy. When
shareholders don't promptly cast their votes, the funds will incur the
additional expense of follow-up communications. PLEASE DO NOT SET THIS PROXY
ASIDE FOR ANOTHER TIME.
Your vote is very important in completing this initiative to improve your funds'
performance. Please know that we appreciate the trust you place in USAA, and we
look forward to serving your investment needs for many years to come.
Sincerely yours,
/s/ Robert G. Davis
Robert G. Davis
CHAIRMAN OF THE BOARD
WHAT WOULD YOU LIKE TO DO NOW?
MESSAGE FROM THE CEO
* RETURN TO USAA.COM HOME [LINK]
* RETURN TO INVESTMENTS MAIN MENU [LINK]
SUMMARY OF PROPOSALS
SUMMARY OF THE PROPOSALS
USAA Investment Management Company (IMCO) recently conducted a comprehensive
review of each USAA mutual fund's performance. Upon completion, IMCO determined
that affirmative steps should be taken in the equity portfolio management area
to progress toward the desired objective of superior investment performance
across ALL USAA funds. IMCO then embarked upon a process that has resulted in
the following:
(_) After analyzing various alternatives, IMCO recommended to the USAA
funds' board of directors a strategy of retaining highly regarded
outside investment firms to manage the equity portions of fifteen
USAA funds. The board reviewed, among other things, IMCO's
evaluation process for identifying subadvisers and the fact that
the long-term performance records of the proposed subadvisers
generally were superior to those of IMCO for the funds affected.
BOTH IMCO AND THE FUNDS' BOARD CONCLUDED THAT MAKING THE CHANGES
EXPEDITIOUSLY WAS IN EACH FUND SHAREHOLDER'S BEST INTERESTS. As a
result, on June 26, 2002, the funds' board of directors took
actions to engage the new subadvisers in accordance with an SEC
rule that permits these actions on an interim basis until
shareholders have an opportunity to vote on the changes.
(_) Should you approve Proposals 1 and 2, IMCO will continue to
oversee each fund as its investment adviser. IMCO will actively
monitor the activities of the subadvisers through ongoing audits
for compliance with investment policies and parameters and
regulatory requirements, reviews of reports from the subadvisers,
and ongoing dialogues with designated subadviser personnel. The
USAA funds' board of directors will continue to act in its
oversight role just as it has in the past.
(_) UNDER THE PROPOSED AGREEMENTS, THE ADVISORY FEE RATES CHARGED TO
THE FUNDS DO NOT CHANGE. The new subadvisers are paid by IMCO out
of the advisory fees it receives from a fund.
The interim agreements typically may only remain in effect up to 150 days. And
so the board is asking fund shareholders to approve the agreements described in
Proposals 1 and 2 before the interim agreements terminate.
The funds' board and IMCO also request the ability going forward for IMCO, with
board approval, to change subadvisers without the time and expense of obtaining
shareholder approval. As the funds' manager, IMCO will monitor the performance
of the subadvisers and will recommend a change in subadviser when deemed in the
best interests of shareholders. The SEC has granted the funds and IMCO an order
that would permit such an arrangement as long as it is initially approved by
shareholders. Approval of Proposal 3 would accomplish this objective.
Finally, as a result of the new investment management structure, the funds'
board is proposing amendments to the objectives of the Growth Fund and the
Growth & Income Fund, as set forth in Proposals 4 and 5.
The funds' board of directors unanimously recommends that shareholders vote for
the approval of all of the proposals summarized below.
PROPOSAL 1 - APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENTS WITH IMCO
AT THE MEETING, SHAREHOLDERS WILL BE ASKED TO APPROVE A NEW ADVISORY AGREEMENT
WITH IMCO FOR EACH FUND AS PART OF THE NEW INVESTMENT MANAGEMENT STRUCTURE.
(_) WHAT ARE THE DIFFERENCES BETWEEN THE PROPOSED AGREEMENTS AND THE FORMER AND
INTERIM AGREEMENTS?
The provisions of the former, interim, and proposed agreements are
substantially similar. Other than the temporary duration of the interim
agreement, the only difference of note is the use of a different Lipper
index as the benchmark to be used in calculating the performance adjustment
to the advisory fee of the Aggressive Growth Fund, the Capital Growth Fund,
and the Growth & Income Fund. In each instance, each fund's board and IMCO
believe the proposed new benchmark index is a more appropriate benchmark
because it provides a better representation of the performance of other
funds with comparable management styles.
(_) WILL THE ADVISORY FEE RATES CHARGED TO THE FUNDS INCREASE AS A RESULT OF
THE PROPOSED AGREEMENTS?
No, the advisory fee rates charged to the funds will not increase. With
respect to the three funds with a proposed new benchmark index, the impact
of the proposed agreements to the performance adjustment will depend on
each fund's future performance relative to the new index. The new indices
would not be used to calculate the performance adjustment for any periods
prior to shareholder approval.
PROPOSAL 2 - APPROVAL OF NEW INVESTMENT SUBADVISORY AGREEMENTS BETWEEN IMCO
AND SUBADVISERS
AT THE MEETING, SHAREHOLDERS WILL BE ASKED TO APPROVE NEW SUBADVISORY AGREEMENTS
BETWEEN IMCO AND SUBADVISERS.
(_) WHAT WAS THE PROCESS LEADING TO THIS PROPOSAL AND WHO ARE THE PROPOSED
SUBADVISERS?
After deciding to evaluate fully the possibility of engaging subadvisers,
IMCO retained an independent consultant specializing in the evaluation of
investment management firms. Upon receiving extensive materials from the
con-sultant, IMCO performed its own additional analysis using the
consultant's data, as well as other third-party data. An IMCO working group
of senior management assessed the information and developed short lists of
firms to interview. Those candidates made presentations to the working
group. Upon identifying its candidates, negotiations transpired resulting
in the recommendation to engage the subadvisers listed below that was made
to and approved by the funds' board on June 26, 2002.
IMCO will continue to oversee the management of each fund as its investment
adviser. IMCO also will continue to perform the day-to-day portfolio
management for the fixed income portion of the Balanced Strategy,
Cornerstone Strategy, and Growth and Tax Strategy Funds as well as the
science portion of the Science & Technology Fund.
The following are the proposed subadvisers for the funds currently
operating under interim agreements:
================================================================================
FUND SUBADVISER(S)
--------------------------------------------------------------------------
Aggressive Growth Fund Marsico Capital Management, LLC
Balanced Strategy Fund Wellington Management Company, LLP
Capital Growth Fund Batterymarch Financial Management, Inc.
Cornerstone Strategy Fund Wellington Management Company, LLP
MFS Investment Management
Emerging Markets Fund The Boston Company Asset Management, LLC
First Start Growth Fund Marsico Capital Management, LLC
Growth Fund Dresdner RCM Global Investors LLC
Marsico Capital Management, LLC
Growth & Income Fund Wellington Management Company, LLP
Growth and Tax Strategy Fund Dresdner RCM Global Investors LLC
Income Stock Fund The Boston Company Asset Management, LLC
Westwood Management Corporation
International Fund MFS Investment Management
Science & Technology Fund Wellington Management Company, LLP
Small Cap Stock Fund Eagle Asset Management, Inc.
Value Fund Westwood Management Corporation
World Growth Fund MFS Investment Management
================================================================================
(_) WHAT ARE THE KEY PROVISIONS OF THE SUBADVISORY AGREEMENTS?
Under each subadvisory agreement, IMCO will continue to employ the current
subadviser to manage the day-to-day investment of all or a portion of each
fund's assets (as allocated from time to time by IMCO), consistent with
each fund's investment objectives, policies, and restrictions. Each
subadviser will be responsible for, among other things, placing all orders
for the purchase and sale of portfolio securities for which it is
responsible, subject to the supervision and monitoring of IMCO and the
oversight of the funds' board. IMCO, and not the fund, will be responsible
for paying all fees charged by the applicable subadviser for these
subadvisory services.
(_) WILL FEES CHARGED TO THE FUNDS CHANGE AS A RESULT OF THE SUBADVISORY
AGREEMENTS?
No, the fees charged to the funds will not change as a result of the
subadvisory agreements. IMCO (not the fund) pays a fee to the subadvisers
for services under the subadvisory agreements.
PROPOSAL 3 - APPROVAL OF A PROPOSAL TO PERMIT IMCO TO ENTER INTO AND AMEND
SUBADVISORY AGREEMENTS ON BEHALF OF EACH FUND WITHOUT SHAREHOLDER
APPROVAL
AT THE MEETING, SHAREHOLDERS WILL BE ASKED TO APPROVE A PROPOSAL THAT WOULD
PERMIT IMCO AND THE FUNDS' BOARD TO APPOINT AND REPLACE SUBADVISERS, ENTER INTO
SUBADVISORY AGREEMENTS, AND APPROVE AMENDMENTS TO SUBADVISORY AGREEMENTS ON
BEHALF OF EACH FUND WITHOUT SHAREHOLDER APPROVAL.
(_) WHY ARE SHAREHOLDERS BEING ASKED TO VOTE ON THIS PROPOSAL?
The board has determined that it would be in the best interests of each
fund's shareholders for IMCO to have the ability to appoint and replace
subadvisers for a fund and to enter into, and approve amendments of,
subadvisory agreements in the future without first obtaining shareholder
approval.
On June 18, 2002, the SEC granted an order permitting IMCO to change
subadvisers for a fund without first calling a special shareholder meeting
and obtaining shareholder approval. One of the conditions for approval by
the SEC is that the shareholders approve this arrangement. By approving
this proposal, you will be authorizing IMCO to change subadvisers in the
future with only prior fund board approval.
(_) WHAT ARE THE BENEFITS TO EACH FUND?
The board believes that it is in the best interests of each fund's
shareholders to allow IMCO the maximum flexibility to select, supervise,
and evaluate subadvisers without incurring the expense and potential delay
of seeking specific shareholder approval. Without the benefits of this
proposal, a fund must call and hold a meeting of the fund's shareholders,
create and distribute proxy materials, and arrange for the solicitation of
voting instructions from shareholders. This process results in unnecessary
administrative expenses to the fund and may cause harmful delays in
executing changes that the board and IMCO have determined are necessary or
desirable. These costs are generally borne entirely by a fund. If IMCO and
the board can rely on the proposed policy, the board and IMCO would be able
to act more quickly and with less expense to a fund to appoint an
unaffiliated subadviser when the board and IMCO believe that the
appointment would benefit the fund and its shareholders.
(_) HOW WILL SHAREHOLDERS BE INFORMED OF NEW SUBADVISERS FOR A FUND?
Within 90 days following the hiring of any new subadviser, a fund's
shareholders will receive an information statement containing all the
relevant information. The information statement will include, for example,
disclosure as to the level of fees to be paid by IMCO to the subadviser.
If this proposal is approved, amendments to the agreements between IMCO and
each fund will remain subject, where applicable, to shareholder and board
approval requirements. Although approval of the proposal generally will
permit the board and IMCO to change the fees payable to a subadviser
without shareholder approval, which in turn may result in a different net
fee retained by IMCO, such changes will not permit the board and IMCO to
increase the rate of the fees payable by the fund to IMCO under the
agreement without first obtaining shareholder approval.
PROPOSAL 4 - APPROVAL OF AN AMENDMENT TO THE INVESTMENT OBJECTIVE OF THE USAA
GROWTH FUND
AT THE MEETING, SHAREHOLDERS WILL BE ASKED TO APPROVE AN AMENDMENT TO THE
INVESTMENT OBJECTIVE OF THE USAA GROWTH FUND.
(_) WHAT CHANGE IS THE BOARD OF DIRECTORS PROPOSING TO THE FUND'S INVESTMENT
OBJECTIVE?
The board of directors proposes to change the fund's investment objective
to read as follows:
"The fund's investment objective is long-term growth of capital."
(_) WHY IS THE BOARD OF DIRECTORS PROPOSING THIS CHANGE?
IMCO and the fund's board have determined that it is most appropriate for
the Growth Fund to have the sole investment objective of long-term growth
of capital. To date, in addition to the primary objective of long-term
growth of capital, the fund has had secondary objectives of regular income
and conservation of principal. The board and IMCO no longer believe the
secondary objectives are appropriate given the strategic direction of the
fund and investment style of the current subadvisers.
PROPOSAL 5 - APPROVAL OF AN AMENDMENT TO THE INVESTMENT OBJECTIVE OF THE
USAA GROWTH & INCOME FUND
AT THE MEETING, SHAREHOLDERS WILL BE ASKED TO APPROVE AN AMENDMENT TO THE
INVESTMENT OBJECTIVE OF THE USAA GROWTH & INCOME FUND.
(_) WHAT CHANGE IS THE BOARD OF DIRECTORS PROPOSING TO THE FUND'S INVESTMENT
OBJECTIVE?
The board of directors proposes to change the fund's investment objective
to read as follows:
"The fund's primary investment objective is capital growth and
its secondary investment objective is current income."
(_) WHY IS THE BOARD OF DIRECTORS PROPOSING THIS CHANGE?
The fund's current investment objective places equal emphasis on growth and
income. In recent years, there has been a dramatic reduction in the number
of companies that pay dividends with respect to their common stock. As a
result, it is increasingly difficult for any fund that invests primarily in
equity securities to comply with an objective that places equal emphasis on
growth and income. Thus, the Board proposes that the fund's objective be
modified as described above.
SUMMARY OF PROPOSALS
WHAT WOULD YOU LIKE TO DO NOW?
* RETURN TO USAA.COM HOME [LINK]
* RETURN TO INVESTMENTS MAIN MENU [LINK]
TELEPHONE SCRIPT USED BY GEORGESON SHAREHOLDER COMMUNICATIONS
"Hello. My name is ______. I'm calling on behalf of USAA Investment Management
Company (IMCO). May I speak with ____? Briefly, you were sent a proxy statement
for the USAA Mutual Funds shareholder meeting to be held on October 18, 2002.
Have you had a chance to vote yet?"
Yes No
Thank You very much Are you interested in voting
for your prompt Yes by telephone right now?
response. Have a nice ____." :
:
: No
"Would you like to vote :
........Yes as recommended by the Mutual :
: Funds Board of Directors?" :
: :
: No :
: : :
: : :
"I have recorded your vote and : :
will send a printed confirmation "Would you like to review the :
to (address). Is this the correct proposals?" :
address?" If not, obtain the :
correct address. "And, for No YES (READ BRIEFLY) :
your protection, could you tell : :
me the last four digits of : :
your social security "Thank you very much for your time. :
number?" Your Mutual Funds Board of :
: Directors would really appreciate a ....:
: prompt response. If you would like
: to quickly vote your shares over
: the phone, please call 866-291-4456.
: You can also vote your shares on
"Thank you for your the web at proxyvote.com"
time and have a good
- ------."
Machine: This message is to remind you that a USAA Mutual Funds shareholder
meeting is scheduled for October 18, 2002. To quickly vote your shares over the
telephone, simply call (866) 291-4456. When calling please refer to record #
___. Representatives are available until 11:00 p.m. eastern time and will be
happy to assist. Your vote is important! If you have questions concerning the
proxy, please call (800) 531-8448. Thank you.
Telephone script used by USAA Investment Management Company to contact
Select Members
CONCEPT DEFINITION:
This campaign is designed for IMCO's Select Investment Professionals to call
their members and verify receipt of the Proxy. The Select Investment
Professionals will encourage the members to vote and if feasible, they will
transfer the members to Georgeson Shareholder Communications to vote at that
time (1-800-748-4465).
MEMBER SERVICE OBJECTIVE:
IMCO's Select Investment Professionals will contact their members to assure the
receipt of the Proxy and encourage the members to vote. If feasible, the
Investment Professionals will transfer the members to the direct Proxy voting
line to assure a vote.
TARGET AUDIENCE:
The target audience will consist of all Select members.
TALKING POINTS:
O TALKING POINTS WHEN THE MEMBER ANSWERS:
MSR: Hello, this is (Representative First and Last Name) with USAA
Select; may I speak with Ms. Member?
Member: Yes, this is Ms. Member.
MSR: Ms. Member, I'm calling today to make sure that you have
received your copy of the proxy statement about the upcoming
shareholder meeting and answer any questions you may have
regarding the voting options available to you.
Member: Great, I have received it and was wondering what I should do
with it.
MSR: We encourage you to vote as the board of directors has
recommended which is in favor of all the proposals. There are
several options available to cast your vote. I could transfer
you to the direct Proxy voting line if you would like to vote
now. In addition, you can vote through the direct link on USAA's
web site or through the proxy link at www.proxyvote.com. If you
are not ready to vote at this time you may call back at your
convenience directly to the Proxy voting line, 1-800-690-6903.
If you have marked, signed and dated your Proxy card you could
also drop it in the mail.
Member: That's sounds good; I think I would like to be transferred to
the Proxy line now.
MSR: It would be my pleasure.
O TALKING POINTS WHEN THE MEMBER DOES NOT ANSWER AND THE MSR LEAVES A MESSAGE:
MSR: Hello, this is (Representative Name) with USAA's Select
Investment team. I'm leaving this message for Ms. Member. I'm
calling today to make sure that you have received your proxy
card in which the board of directors has recommended that you
vote in favor of all the proposals. If you have any questions
regarding the Proxy please contact USAA Select at our designated
toll free number, 1-800-645-9344 (or other applicable Select
team number). Our office hours are 7:00 a.m. -8:00 p.m., CST,
Monday through Friday. We appreciate your attention to this
important initiative.