UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: DANIEL J. MAVICO
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: DECEMBER 31
Date of reporting period: JUNE 30, 2014
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JUNE 30, 2014
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF NASDAQ-100 INDEX FUND]
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SEMIANNUAL REPORT
USAA NASDAQ-100 INDEX FUND
JUNE 30, 2014
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PRESIDENT'S MESSAGE
"...[W]E HAVE BELIEVED FOR SOME TIME THE
ECONOMIC RECOVERY WILL BE MORE GRADUAL [PHOTO OF BROOKS ENGLEHARDT]
THAN THE MARKET'S INITIAL EXPECTATIONS."
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AUGUST 2014
The six-month reporting period was a reminder that nothing should be taken for
granted, especially when it comes to the economy and financial markets. In
January 2014, when the six-month period began, many observers anticipated U.S.
economic growth of more than 3% in 2014. Interest rates were expected to rise
once the U.S. Federal Reserve (the Fed) began tapering (or reducing) its
quantitative easing (QE) asset purchases. The equity market was expected to
become more volatile, as Fed tapering continued. Instead, stock market
volatility remained low, interest rates fell, and U.S. economic growth slowed.
At USAA Asset Management Company, we have believed for some time the economic
recovery will be more gradual than the market's initial expectations. Indeed,
economic growth disappointed many during the reporting period, contracting by
2.9% in the first quarter of 2014. Some attributed the deceleration to the
extreme winter weather, but we are not entirely convinced. For example, in
Canada, where the winter weather was equally harsh, economic growth remained
positive. In the second quarter, economic growth appeared to pick up -
manufacturing data and construction spending improved, for example - suggesting
the economy was getting healthier. Nevertheless, we believe that gross domestic
product growth for 2014 is likely to fall short of the market's expectations at
the beginning of the year.
At the same time, inflationary pressures are increasing. The Fed has a
long-stated inflation target of 2%. By many measures, inflation is at or near
that range. If inflation continues to rise, the Fed may taper its QE asset
purchases more aggressively.
Meanwhile, the U.S. stock market generated positive returns during the reporting
period, with little to no increase in market volatility. International stocks
also generated positive returns. We remain concerned, and are also
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uncertain, if the improving economy can generate the revenue and earnings growth
needed to justify current valuations and serve as a foundation for future price
gains. Valuations will continue to rise, in our opinion, if economic growth
accelerates and profit margins can maintain their current levels. If growth
stalls and profit margins decrease, earnings may disappoint and stocks may trim
their gains. Based on fundamental valuation at the time of this writing, we are
more optimistic about the near-term prospects for international stocks than for
U.S. stocks.
As for interest rates, they declined after the Fed started tapering its QE asset
purchases. By the end of the reporting period, the Fed - which had bought $85
billion of U.S. Treasury securities and mortgage-backed securities every month
during 2013 - had cut its asset purchases by more than half, with $35 billion
slated for purchase in July 2014. Longer-term interest rates, which had been
expected to increase, dropped and bond prices (which tend to move inversely with
rates) increased. We have long believed that, while interest rates would rise
over the longer term, it would be at a much more gradual pace than the market
was expecting.
In the months ahead, we will continue to monitor the direction of interest rates
and central bank policy, as well as the financial markets, corporate earnings,
economic trends, and other factors that could potentially affect your
investments. Assuming the U.S. economy regains its footing and continues to
strengthen, we expect the Fed to end its QE asset purchases by the end of 2014.
We believe that other global central banks are likely to maintain their easy
monetary policies, using rate cuts and/or asset purchases, to boost economic
growth in their countries and to support their financial markets.
On behalf of everyone at USAA Asset Management Company, thank you for allowing
us to help you manage your investments. We appreciate your continued investment
in our family of mutual funds.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Asset Management Company
Past performance is no guarantee of future results. o As interest rates rise,
bond prices generally fall; given the historically low interest rate
environment, risks associated with rising interest rates may be heightened.
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGER COMMENTARY 2
INVESTMENT OVERVIEW 4
FINANCIAL INFORMATION
Portfolio of Investments 7
Notes to Portfolio of Investments 13
Financial Statements 14
Notes to Financial Statements 17
EXPENSE EXAMPLE 29
ADVISORY AGREEMENT(S) 31
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2014, USAA. All rights reserved.
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FUND OBJECTIVE
THE USAA NASDAQ-100 INDEX FUND (THE FUND) SEEKS TO MATCH, BEFORE FEES AND
EXPENSES, THE PERFORMANCE OF THE STOCKS COMPOSING THE NASDAQ-100 INDEX. THE
NASDAQ-100 INDEX REPRESENTS 100 OF THE LARGEST NONFINANCIAL STOCKS TRADED ON THE
NASDAQ STOCK MARKET(R).
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TYPES OF INVESTMENTS
The Fund's principal investment strategy is, under normal market conditions, to
invest at least 80% of the Fund's assets in the common stocks of companies
composing the Nasdaq-100 Index. This strategy may be changed upon 60 days'
written notice to shareholders.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Asset Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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FUND OBJECTIVE | 1
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MANAGER COMMENTARY ON THE FUND
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o HOW DID THE USAA NASDAQ-100 INDEX FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund closely tracked its benchmark, the broad-based Nasdaq-100(R) Index
(the Index), for the period ended June 30, 2014. The Fund posted a return of
7.56% versus the Index, which returned 7.87%. The Index is 100 of the
largest nonfinancial companies listed on The Nasdaq Stock Market(R) and is
not available for direct investment.
o WHAT WERE THE MARKET CONDITIONS DURING THE PERIOD?
Global stocks showed generally positive returns during the first half of
2014 and U.S. large cap stocks tended to outperform non-U.S. markets, and
the Index outperformed other U.S. benchmarks as a result of its
differentiated sector allocation and stock selection. Information technology
stocks, which make up more than half of the Index, significantly
outperformed other stocks, driving positive performance for the first six
months of the year. The Index also does not hold the financial sector, which
positively contributed to relative to performance, as this sector tended to
underperform the broader market.
At the beginning of 2014, markets battled several negative headlines and had
slightly positive returns. U.S. economic data for the first quarter was
disappointing, as an exceptionally cold winter hindered economic growth
substantially. The U.S. Federal Reserve continued to taper its asset purchase
program, though it appeared that an actual increase in short-term interest
rates was not imminent. Several geopolitical risks also emerged during the
period. Investors worried about the potential for
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Refer to page 5 for the benchmark definition.
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2 | USAA NASDAQ-100 INDEX FUND
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Russian involvement following a period of unrest and a change in government
there. The conflict in the Ukraine escalated quickly, and several western
governments, including the United States, began to introduce a range of
economic sanctions against Russia. Volatility remained somewhat muted despite
the unrest, and there was little evidence of increased investor worry even as
tensions rose in the Middle East. The equity markets generally shrugged off
these geopolitical worries, apparently focusing instead on positive corporate
earnings results. Additionally, an increase in corporate activity, including
mergers and acquisitions, boosted equity returns.
o PLEASE DESCRIBE SECTOR PERFORMANCE DURING THE PERIOD.
Information Technology was the top performing sector in the Index, returning
11.50%. The next best performing sector was Materials, which returned 8.46%.
The worst performing sectors in the Index were Telecommunication Services,
which returned -15.14%, Consumer Discretionary, which returned -0.45%, and
Industrials, which returned 3.24%.
o WHAT INVESTMENT STRATEGIES WILL YOU PURSUE FOR THE FUND IN THE SECOND HALF
OF 2014?
We don't manage the Fund according to a given outlook for the stock markets
or the economy in general, because we're managing an index fund that seeks
to replicate as closely as possible (before deduction of expenses) the broad
diversification and returns of the Index. Nevertheless, we will monitor
economic conditions and their effect on the financial markets as we seek to
track the Index's performance closely.
Thank you for your investment in the Fund.
INVESTING IN SECURITIES PRODUCTS INVOLVES RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
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MANAGER COMMENTARY ON THE FUND | 3
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INVESTMENT OVERVIEW
USAA NASDAQ-100 INDEX FUND (THE FUND) (Ticker Symbol: USNQX)
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6/30/14 12/31/13
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Net Assets $539.8 Million $460.7 Million
Net Asset Value Per Share $11.10 $10.32
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AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/14
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12/31/2013 - 6/30/14* 1 YEAR 5 YEARS 10 YEARS
7.56% 33.31% 21.53% 9.79%
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EXPENSE RATIO AS OF 12/31/13**
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0.64%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
* Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated May 1, 2014, and is
calculated as a percentage of average net assets. This expense ratio may differ
from the expense ratio disclosed in the Financial Highlights, which excludes
acquired fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions, if any. The
total returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
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4 | USAA NASDAQ-100 INDEX FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA NASDAQ-100
NASDAQ-100 INDEX INDEX FUND
6/30/2004 $10,000.00 $10,000.00
7/31/2004 9,235.08 9,224.32
8/31/2004 9,031.79 9,014.68
9/30/2004 9,322.67 9,308.18
10/31/2004 9,811.79 9,790.36
11/30/2004 10,376.69 10,335.43
12/31/2004 10,708.93 10,670.86
1/31/2005 10,039.33 9,995.45
2/28/2005 9,990.76 9,932.32
3/31/2005 9,803.26 9,742.93
4/30/2005 9,396.42 9,322.07
5/31/2005 10,209.78 10,121.71
6/30/2005 9,885.34 9,806.06
7/31/2005 10,625.35 10,521.53
8/31/2005 10,478.24 10,374.23
9/30/2005 10,610.60 10,500.48
10/31/2005 10,462.63 10,353.18
11/30/2005 11,088.44 10,963.43
12/31/2005 10,911.83 10,774.04
1/31/2006 11,347.92 11,215.95
2/28/2006 11,089.82 10,942.39
3/31/2006 11,310.94 11,152.82
4/30/2006 11,292.78 11,131.77
5/31/2006 10,497.25 10,332.14
6/30/2006 10,469.13 10,290.05
7/31/2006 10,033.56 9,869.19
8/31/2006 10,510.62 10,332.14
9/30/2006 11,006.10 10,795.09
10/31/2006 11,529.12 11,321.16
11/30/2006 11,928.16 11,699.94
12/31/2006 11,706.25 11,468.46
1/31/2007 11,943.37 11,699.94
2/28/2007 11,749.19 11,510.55
3/31/2007 11,822.29 11,573.68
4/30/2007 12,460.68 12,183.93
5/31/2007 12,873.95 12,583.75
6/30/2007 12,914.34 12,604.79
7/31/2007 12,902.01 12,583.75
8/31/2007 13,292.86 12,962.52
9/30/2007 13,977.87 13,614.86
10/31/2007 14,967.58 14,582.84
11/30/2007 13,979.64 13,614.86
12/31/2007 13,958.20 13,572.77
1/31/2008 12,329.11 11,994.54
2/29/2008 11,696.68 11,363.25
3/31/2008 11,945.07 11,594.72
4/30/2008 12,856.25 12,478.53
5/31/2008 13,638.48 13,236.08
6/30/2008 12,327.73 11,952.45
7/31/2008 12,410.40 12,015.58
8/31/2008 12,578.49 12,183.93
9/30/2008 10,712.47 10,353.18
10/31/2008 8,968.52 8,669.74
11/30/2008 7,977.50 7,701.76
12/31/2008 8,155.29 7,870.10
1/31/2009 7,945.31 7,659.67
2/28/2009 7,531.58 7,259.85
3/31/2009 8,343.63 8,038.45
4/30/2009 9,407.23 9,069.56
5/31/2009 9,697.98 9,343.12
6/30/2009 9,981.77 9,595.63
7/31/2009 10,836.44 10,416.31
8/31/2009 10,996.07 10,563.61
9/30/2009 11,633.41 11,173.86
10/31/2009 11,285.11 10,816.13
11/30/2009 11,976.93 11,489.51
12/31/2009 12,609.16 12,078.71
1/31/2010 11,803.08 11,300.12
2/28/2010 12,344.31 11,805.15
3/31/2010 13,295.02 12,710.00
4/30/2010 13,587.47 12,983.56
5/31/2010 12,595.07 12,036.63
6/30/2010 11,830.80 11,279.08
7/31/2010 12,682.98 12,099.76
8/31/2010 12,040.06 11,468.46
9/30/2010 13,613.82 12,962.52
10/31/2010 14,479.04 13,783.20
11/30/2010 14,456.56 13,741.11
12/31/2010 15,149.17 14,390.10
1/31/2011 15,589.38 14,811.48
2/28/2011 16,077.39 15,253.93
3/31/2011 16,000.49 15,169.65
4/30/2011 16,450.21 15,591.03
5/31/2011 16,258.13 15,401.41
6/30/2011 15,941.36 15,085.37
7/31/2011 16,206.93 15,338.20
8/31/2011 15,398.55 14,558.65
9/30/2011 14,702.07 13,884.44
10/31/2011 16,228.23 15,317.13
11/30/2011 15,817.45 14,916.82
12/31/2011 15,703.52 14,807.91
1/31/2012 17,019.96 16,030.58
2/29/2012 18,121.65 17,072.12
3/31/2012 19,039.58 17,909.87
4/30/2012 18,830.58 17,706.10
5/31/2012 17,486.73 16,438.14
6/30/2012 18,127.88 17,026.83
7/31/2012 18,321.14 17,207.97
8/31/2012 19,263.00 18,068.37
9/30/2012 19,461.77 18,249.50
10/31/2012 18,421.18 17,253.25
11/30/2012 18,684.06 17,502.32
12/31/2012 18,585.20 17,393.27
1/31/2013 19,080.42 17,850.39
2/28/2013 19,173.84 17,918.95
3/31/2013 19,747.33 18,444.64
4/30/2013 20,239.99 18,901.75
5/31/2013 20,948.99 19,564.57
6/30/2013 20,460.72 19,084.60
7/31/2013 21,746.69 20,273.10
8/31/2013 21,684.60 20,204.54
9/30/2013 22,714.31 21,164.48
10/31/2013 23,852.77 22,215.85
11/30/2013 24,696.88 22,970.09
12/31/2013 25,446.26 23,654.46
1/31/2014 24,960.35 23,196.04
2/28/2014 26,249.92 24,387.93
3/31/2014 25,552.27 23,769.07
4/30/2014 25,466.65 23,631.54
5/31/2014 26,625.83 24,708.83
6/30/2014 27,447.85 25,442.30
[END CHART]
Data from 6/30/04 to 6/30/14.
The graph illustrates how a $10,000 hypothetical investment in the USAA
Nasdaq-100 Index Fund which closely tracks the Nasdaq-100 Index, an unmanaged
modified capitalization-weighted index composed of 100 of the largest
nonfinancial domestic and international companies listed on The Nasdaq Stock
Market(R) based on market capitalization.
"Nasdaq-100(R)," "Nasdaq-100 Index(R)," and "Nasdaq(R)"are trademarks or service
marks of The Nasdaq Stock Market, Inc. (which with its affiliates are the
"Corporations") and have been licensed for our use. THE CORPORATIONS MAKE NO
WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE USAA NASDAQ-100 INDEX FUND.
The Fund is not sponsored, sold, or promoted by The Nasdaq Stock Market, Inc.,
and The Nasdaq Stock Market, Inc. makes no representation regarding the
advisability of investing in the Fund. Index products incur fees and expenses
and may not always be invested in all securities of the index the Fund attempts
to mirror. Indexes are unmanaged and you cannot invest directly in an index. The
return information for the indices does not reflect the deduction of any fees or
expenses.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on distributions or the redemption of shares.
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INVESTMENT OVERVIEW | 5
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o TOP 10 EQUITY HOLDINGS o
AS OF 6/30/14
(% of Net Assets)
Apple, Inc. ............................................................. 12.5%
Microsoft Corp. ......................................................... 7.7%
Google, Inc. "C" ........................................................ 4.3%
Google, Inc. "A" ........................................................ 3.7%
Intel Corp. ............................................................. 3.4%
Amazon.com, Inc. ........................................................ 3.3%
Facebook, Inc. "A" ...................................................... 3.0%
QUALCOMM, Inc. .......................................................... 3.0%
Gilead Sciences, Inc. ................................................... 2.8%
Cisco Systems, Inc. ..................................................... 2.8%
You will find a complete list of securities that the Fund owns on pages 7-12.
o SECTOR ALLOCATION* - 6/30/14 o
[PIE CHART OF SECTOR ALLOCATION]
INFORMATION TECHNOLOGY 57.0%
CONSUMER DISCRETIONARY 18.4%
HEALTH CARE 13.1%
CONSUMER STAPLES 4.4%
INDUSTRIALS 1.7%
TELECOMMUNICATION SERVICES 1.0%
MATERIALS 0.2%
[END CHART]
* Excludes Money Market Instruments.
Percentages are of the net assets of the Fund, and may not equal 100%.
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6 | USAA NASDAQ-100 INDEX FUND
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PORTFOLIO OF INVESTMENTS
June 30, 2014 (unaudited)
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
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COMMON STOCKS (95.8%)
CONSUMER DISCRETIONARY (18.4%)
------------------------------
APPAREL RETAIL (0.3%)
25,529 Ross Stores, Inc. $ 1,688
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AUTOMOBILE MANUFACTURERS (0.7%)
14,915 Tesla Motors, Inc.* 3,580
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AUTOMOTIVE RETAIL (0.4%)
12,749 O'Reilly Automotive, Inc.* 1,920
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BROADCASTING (0.6%)
17,740 Discovery Communications, Inc. "A"* 1,318
12,551 Liberty Media Corp. "A"* 1,715
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3,033
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CABLE & SATELLITE (4.9%)
13,008 Charter Communications, Inc. "A"* 2,060
257,973 Comcast Corp. "A" 13,848
60,363 DIRECTV* 5,132
26,511 DISH Network Corp. "A"* 1,725
26,701 Liberty Global plc "A"* 1,181
725,227 Sirius XM Holdings, Inc.* 2,509
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26,455
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CASINOS & GAMING (0.5%)
12,165 Wynn Resorts Ltd. 2,525
---------
CATALOG RETAIL (0.3%)
55,514 Liberty Interactive Corp. "A"* 1,630
---------
CONSUMER ELECTRONICS (0.3%)
23,478 Garmin Ltd. 1,430
---------
GENERAL MERCHANDISE STORES (0.2%)
24,858 Dollar Tree, Inc.* 1,354
---------
HOMEFURNISHING RETAIL (0.3%)
24,521 Bed Bath & Beyond, Inc.* 1,407
---------
HOTELS, RESORTS & CRUISE LINES (0.4%)
35,185 Marriott International, Inc. "A" 2,255
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PORTFOLIO OF INVESTMENTS | 7
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
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INTERNET RETAIL (5.8%)
55,308 Amazon.com, Inc.*(a) $ 17,963
14,066 Expedia, Inc. 1,108
7,207 Netflix, Inc.* 3,175
6,302 Priceline Group, Inc.* 7,581
15,606 TripAdvisor, Inc.* 1,696
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31,523
---------
LEISURE PRODUCTS (0.3%)
40,778 Mattel, Inc. 1,589
---------
MOVIES & ENTERTAINMENT (1.8%)
171,618 Twenty-First Century Fox, Inc. "A" 6,033
45,535 Viacom, Inc. "B" 3,949
---------
9,982
---------
RESTAURANTS (1.3%)
90,482 Starbucks Corp. 7,002
---------
SPECIALTY STORES (0.3%)
77,721 Staples, Inc. 843
16,646 Tractor Supply Co. 1,005
---------
1,848
---------
Total Consumer Discretionary 99,221
---------
CONSUMER STAPLES (4.4%)
-----------------------
FOOD RETAIL (0.3%)
44,180 Whole Foods Market, Inc. 1,707
---------
HYPERMARKETS & SUPER CENTERS (1.1%)
52,867 Costco Wholesale Corp. 6,088
---------
PACKAGED FOODS & MEAT (2.7%)
19,560 Keurig Green Mountain, Inc. 2,437
71,553 Kraft Foods Group, Inc. 4,290
203,307 Mondelez International, Inc. "A" 7,646
---------
14,373
---------
SOFT DRINKS (0.3%)
20,090 Monster Beverage Corp.* 1,427
---------
Total Consumer Staples 23,595
---------
HEALTH CARE (13.1%)
-------------------
BIOTECHNOLOGY (9.8%)
23,769 Alexion Pharmaceuticals, Inc.* 3,714
90,994 Amgen, Inc. 10,771
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8 | USAA NASDAQ-100 INDEX FUND
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------
28,511 Biogen Idec, Inc.* $ 8,990
96,260 Celgene Corp.* 8,267
184,581 Gilead Sciences, Inc.* 15,304
11,886 Regeneron Pharmaceuticals, Inc.* 3,357
28,365 Vertex Pharmaceuticals, Inc.* 2,685
---------
53,088
---------
HEALTH CARE DISTRIBUTORS (0.2%)
10,241 Henry Schein, Inc.* 1,215
---------
HEALTH CARE EQUIPMENT (0.4%)
4,616 Intuitive Surgical, Inc.* 1,901
---------
HEALTH CARE SERVICES (1.4%)
24,809 Catamaran Corp.* 1,095
92,986 Express Scripts Holdings Co.* 6,447
---------
7,542
---------
HEALTH CARE TECHNOLOGY (0.4%)
41,271 Cerner Corp.* 2,129
---------
LIFE SCIENCES TOOLS & SERVICES (0.5%)
15,424 Illumina, Inc.* 2,754
---------
PHARMACEUTICALS (0.4%)
44,921 Mylan, Inc.* 2,316
---------
Total Health Care 70,945
---------
INDUSTRIALS (1.7%)
------------------
AIR FREIGHT & LOGISTICS (0.4%)
17,838 C.H. Robinson Worldwide, Inc. 1,138
23,719 Expeditors International of Washington, Inc. 1,047
---------
2,185
---------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.5%)
42,661 PACCAR, Inc. 2,681
---------
ENVIRONMENTAL & FACILITIES SERVICES (0.2%)
10,178 Stericycle, Inc.* 1,205
---------
RESEARCH & CONSULTING SERVICES (0.2%)
19,989 Verisk Analytics, Inc. "A"* 1,200
---------
TRADING COMPANIES & DISTRIBUTORS (0.4%)
35,687 Fastenal Co. 1,766
---------
Total Industrials 9,037
---------
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PORTFOLIO OF INVESTMENTS | 9
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (57.0%)
------------------------------
APPLICATION SOFTWARE (1.8%)
59,817 Adobe Systems, Inc.* $ 4,329
27,364 Autodesk, Inc.* 1,543
19,716 Citrix Systems, Inc.* 1,233
34,150 Intuit, Inc. 2,750
---------
9,855
---------
COMMUNICATIONS EQUIPMENT (6.0%)
615,701 Cisco Systems, Inc. 15,300
9,121 F5 Networks, Inc.* 1,017
202,864 QUALCOMM, Inc.(a) 16,067
---------
32,384
---------
DATA PROCESSING & OUTSOURCED SERVICES (1.5%)
57,954 Automatic Data Processing, Inc. 4,595
29,958 Fiserv, Inc.* 1,807
43,684 Paychex, Inc. 1,815
---------
8,217
---------
HOME ENTERTAINMENT SOFTWARE (0.3%)
86,016 Activision Blizzard, Inc. 1,918
---------
INTERNET SOFTWARE & SERVICES (14.8%)
21,393 Akamai Technologies, Inc.* 1,306
33,156 Baidu, Inc. ADR* 6,194
152,323 eBay, Inc.* 7,625
5,984 Equinix, Inc.* 1,257
239,630 Facebook, Inc. "A"* 16,125
33,854 Google, Inc. "A"*(a) 19,794
40,534 Google, Inc. "C"* 23,318
121,008 Yahoo! Inc.* 4,251
---------
79,870
---------
IT CONSULTING & OTHER SERVICES (0.7%)
73,080 Cognizant Technology Solutions Corp. "A"* 3,574
---------
SEMICONDUCTOR EQUIPMENT (0.9%)
146,313 Applied Materials, Inc. 3,300
19,922 KLA-Tencor Corp. 1,447
---------
4,747
---------
SEMICONDUCTORS (8.2%)
37,635 Altera Corp. 1,308
37,748 Analog Devices, Inc. 2,041
================================================================================
10 | USAA NASDAQ-100 INDEX FUND
================================================================================
-----------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------
30,041 Avago Technologies Ltd. $ 2,165
64,299 Broadcom Corp. "A" 2,387
598,379 Intel Corp. 18,490
28,385 Linear Technology Corp. 1,336
33,984 Maxim Integrated Products, Inc. 1,149
128,647 Micron Technology, Inc.* 4,239
67,044 NVIDIA Corp. 1,243
30,287 NXP Semiconductors N.V.* 2,005
129,716 Texas Instruments, Inc. 6,199
32,241 Xilinx, Inc. 1,525
---------
44,087
---------
SYSTEMS SOFTWARE (8.6%)
53,203 CA, Inc. 1,529
23,138 Check Point Software Technologies Ltd.* 1,551
992,830 Microsoft Corp.(a) 41,401
83,200 Symantec Corp. 1,905
---------
46,386
---------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (14.2%)
724,720 Apple, Inc.(a) 67,348
39,852 NetApp, Inc. 1,455
27,166 SanDisk Corp. 2,837
39,549 Seagate Technology plc 2,247
28,251 Western Digital Corp. 2,608
---------
76,495
---------
Total Information Technology 307,533
---------
MATERIALS (0.2%)
----------------
SPECIALTY CHEMICALS (0.2%)
14,280 Sigma-Aldrich Corp. 1,449
---------
TELECOMMUNICATION SERVICES (1.0%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (1.0%)
15,491 SBA Communications Corp. "A"* 1,585
198,681 VimpelCom Ltd. ADR 1,669
62,952 Vodafone Group plc ADR 2,102
---------
5,356
---------
Total Telecommunication Services 5,356
---------
Total Common Stocks (cost: $292,944) 517,136
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MARKET
$(000)/ VALUE
SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (4.1%)
MONEY MARKET FUNDS (3.9%)
20,831,327 State Street Institutional Liquid Reserve Fund, 0.06%(a),(b) $ 20,831
--------
U.S. TREASURY BILLS (0.2%)
$1,065 0.01%, 10/02/2014(c),(d) 1,065
--------
Total Money Market Instruments (cost: $21,896) 21,896
--------
TOTAL INVESTMENTS (COST: $314,840) $539,032
========
------------------------------------------------------------------------------------------------------
NUMBER OF CONTRACT UNREALIZED
CONTRACTS EXPIRATION VALUE APPRECIATION
LONG/(SHORT) DATE (000) (000)
------------------------------------------------------------------------------------------------------
FUTURES (4.1%)
290 Nasdaq-100 E-Mini Index 9/19/14 $22,275 $ 272
------- --------
TOTAL FUTURES $22,275 $ 272
======= ========
------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
------------------------------------------------------------------------------------------------------
Common Stocks $517,136 $- $- $517,136
Money Market Instruments:
Money Market Funds 20,831 - - 20,831
U.S. Treasury Bills 1,065 - - 1,065
Futures(1) 272 - - 272
------------------------------------------------------------------------------------------------------
Total $539,304 $- $- $539,304
------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/depreciation on the
investment.
For the period of January 1, 2014, through June 30, 2014, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers into and out of the levels as of the beginning of the period in which
the event or circumstance that caused the transfer occurred.
================================================================================
12 | USAA NASDAQ-100 INDEX FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2014 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o PORTFOLIO ABBREVIATION(S) AND DESCRIPTION(S)
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
o SPECIFIC NOTES
(a) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at June 30, 2014.
(b) Rate represents the money market fund annualized seven-day yield at
June 30, 2014.
(c) Rate represents an annualized yield at time of purchase, not coupon
rate.
(d) Securities with a value of $1,065,000 are segregated as collateral for
initial margin requirements on open futures contracts.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 13
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
June 30, 2014 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $314,840) $539,032
Cash 11
Receivables:
Capital shares sold 965
Dividends and interest 231
Variation margin on futures contracts 52
--------
Total assets 540,291
--------
LIABILITIES
Payables:
Capital shares redeemed 328
Accrued management fees 87
Accrued transfer agent's fees 22
Other accrued expenses and payables 64
--------
Total liabilities 501
--------
Net assets applicable to capital shares outstanding $539,790
========
NET ASSETS CONSIST OF:
Paid-in capital $314,935
Accumulated undistributed net investment income 5,180
Accumulated net realized loss on investments and futures transactions (4,789)
Net unrealized appreciation of investments and futures contracts 224,464
--------
Net assets applicable to capital shares outstanding $539,790
========
Capital shares outstanding, unlimited number of shares
authorized, no par value 48,616
========
Net asset value, redemption price, and offering price per share $ 11.10
========
See accompanying notes to financial statements.
================================================================================
14 | USAA NASDAQ-100 INDEX FUND
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended June 30, 2014 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $2) $ 5,049
Interest 6
-------
Total income 5,055
-------
EXPENSES
Management fees 490
Administration and servicing fees 367
Transfer agent's fees 373
Custody and accounting fees 43
Postage 12
Shareholder reporting fees 11
Trustees' fees 11
Registration fees 15
Professional fees 37
Other 94
-------
Total expenses 1,453
-------
NET INVESTMENT INCOME 3,602
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS
Net realized gain (loss) on:
Investments (47)
Futures transactions 1,121
Change in net unrealized appreciation/depreciation of:
Investments 32,752
Futures contracts (128)
-------
Net realized and unrealized gain 33,698
-------
Increase in net assets resulting from operations $37,300
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended June 30, 2014 (unaudited), and year ended
December 31, 2013
--------------------------------------------------------------------------------
6/30/2014 12/31/2013
---------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,602 $ 2,853
Net realized gain (loss) on investments (47) 1,429
Net realized gain on futures transactions 1,121 2,375
Change in net unrealized appreciation/depreciation of:
Investments 32,752 109,227
Futures contracts (128) 437
---------------------------
Increase in net assets resulting from operations 37,300 116,321
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (1,300)
---------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 96,914 117,067
Reinvested dividends - 1,281
Cost of shares redeemed (55,113) (82,314)
---------------------------
Increase in net assets from capital share transactions 41,801 36,034
---------------------------
Net increase in net assets 79,101 151,055
NET ASSETS
Beginning of period 460,689 309,634
---------------------------
End of period $539,790 $460,689
===========================
Accumulated undistributed net investment income:
End of period $ 5,180 $ 1,578
===========================
CHANGE IN SHARES OUTSTANDING
Shares sold 9,290 13,353
Shares issued for dividends reinvested - 125
Shares redeemed (5,300) (9,530)
---------------------------
Increase in shares outstanding 3,990 3,948
===========================
See accompanying notes to financial statements.
================================================================================
16 | USAA NASDAQ-100 INDEX FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2014 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 52 separate funds. The
information presented in this semiannual report pertains only to the USAA
Nasdaq-100 Index Fund (the Fund), which is classified as nondiversified under
the 1940 Act. The Fund seeks to match, before fees and expenses, the performance
of the stocks composing the Nasdaq-100 Index. The Nasdaq-100 Index represents
100 of the largest nonfinancial stocks traded on The Nasdaq Stock Market. USAA
Asset Management Company (the Manager), an affiliate of the Fund, has retained
Northern Trust Investments (NTI) to serve as subadviser for the Fund. NTI is
responsible for investing the Fund's assets. Under normal market conditions, NTI
attempts to achieve the Fund's objective by investing at least 80% of the Fund's
assets in the common stocks of companies composing the Nasdaq-100 Index.
As a nondiversified fund, the Fund may invest a greater percentage of its assets
in a single issuer. Because a relatively high percentage of the Fund's total
assets may be invested in the securities of a single issuer or a limited number
of issuers, the securities of the Fund may be more sensitive to changes in the
market value of a single issuer, a limited number of issuers, or large companies
generally. Such a focused investment strategy may increase the volatility of the
Fund's investment results because this Fund may be more susceptible to risk
associated with a single economic, political, or regulatory event than a
diversified fund.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
Board oversight, the Committee administers and oversees the Fund's valuation
policies and procedures which are approved by the Board. Among other things,
these policies and procedures allow the Fund to utilize independent pricing
services, quotations from securities dealers, and a wide variety of sources
and information to establish and adjust the fair value of securities as
events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and the Manager. Among other
things, these monthly meetings include a review and analysis of back testing
reports, pricing service quotation comparisons, illiquid securities and fair
value determinations, pricing movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the Nasdaq over-the-counter markets, are valued at the last sales price
or official closing price on the exchange or primary market on which
they trade. Equity securities traded primarily on foreign securities
exchanges or markets are valued at the last quoted sales price, or the
most recently determined official closing price calculated according to
local market convention, available at the time the Fund is valued. If no
last sale or official closing price is reported or available, the
average of the bid and asked prices generally is used.
2. Debt securities purchased with original or remaining maturities of
60 days or less may be valued at amortized cost, which approximates
market value.
================================================================================
18 | USAA NASDAQ-100 INDEX FUND
================================================================================
3. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and asked prices
or the last sales price to price securities when, in the Service's
judgment, these prices are readily available and are representative of
the securities' market values. For many securities, such prices are not
readily available. The Service generally prices these securities based
on methods that include consideration of yields or prices of securities
of comparable quality, coupon, maturity, and type; indications as to
values from dealers in securities; and general market conditions.
4. Investments in open-end investment companies, hedge, or other funds,
other than ETFs, are valued at their NAV at the end of each business
day.
5. Repurchase agreements are valued at cost, which approximates market
value.
6. Futures are valued based upon the last sale price at the close of
market on the principal exchange on which they are traded.
7. Securities for which market quotations are not readily available or
are considered unreliable, or whose values have been materially affected
by events occurring after the close of their primary markets but before
the pricing of the Fund, are valued in good faith at fair value, using
methods determined by the Manager in consultation with the Fund's
subadviser, if applicable, under valuation procedures approved by the
Board. The effect of fair value pricing is that securities may not be
priced on the basis of quotations from the primary market in which they
are traded and the actual price realized from the sale of a security may
differ materially from the fair value price. Valuing these securities at
fair value is intended to cause the Fund's net asset value (NAV) to be
more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any restrictions
on disposition of the securities, and an evaluation of the forces that
influenced the market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell,
and enter into certain types of derivatives, including, but not limited to
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's
================================================================================
20 | USAA NASDAQ-100 INDEX FUND
================================================================================
clearinghouse which, as counterparty to all exchange-traded futures
contracts and options, guarantees the transactions against default from the
actual counterparty to the trade. The Fund's derivative agreements held at
June 30, 2014, did not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to cash flow and tracking error
risk in the normal course of pursuing its investment objectives. The
Fund may use stock index futures contracts in an attempt to reduce any
performance discrepancies between the Fund and the Nasdaq-100 Index.
A futures contract represents a commitment for the future purchase or
sale of an asset at a specified price on a specified date. Upon entering
into such contracts, the Fund is required to deposit with the broker in
either cash or securities an initial margin in an amount equal to a certain
percentage of the contract amount. Subsequent payments (variation
margin) are made or received by the Fund each day, depending on the
daily fluctuations in the value of the contract, and are recorded for
financial statement purposes as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened
and the value at the time it was closed. Upon entering into such
contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an unfavorable direction, in
which case, the Fund may not achieve the anticipated benefits of the
futures contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JUNE 30, 2014*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
---------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
ASSETS AND ASSETS AND
DERIVATIVES NOT ACCOUNTED LIABILITIES LIABILITIES
FOR AS HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
---------------------------------------------------------------------------------------------------
Equity contracts Net unrealized $272** - $-
appreciation of
futures contracts
---------------------------------------------------------------------------------------------------
*For open derivative instruments as of June 30, 2014, see the portfolio of
investments, which also is indicative of activity for the period ended June
30, 2014.
**Includes cumulative appreciation (depreciation) of futures as reported on
the portfolio of investments. Only current day's variation margin is reported
within the statement of assets and liabilities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2014
(IN THOUSANDS)
CHANGE IN
UNREALIZED
REALIZED APPRECIATION
DERIVATIVES NOT ACCOUNTED STATEMENT OF GAIN (LOSS) (DEPRECIATION)
FOR AS HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
-------------------------------------------------------------------------------------------
Equity contracts Net realized gain (loss) on $1,121 $(128)
futures transactions/
Change in net unrealized
appreciation/depreciation
of futures contracts
-------------------------------------------------------------------------------------------
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income to
its shareholders. Therefore, no federal income tax provision is required.
E. INVESTMENTS IN SECURITIES - Security transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the ex-
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Discounts and premiums on short-term
securities are amortized on a straight-line basis over the life of the
respective securities.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the
exchange rate obtained from an independent pricing service on the
respective dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
================================================================================
22 | USAA NASDAQ-100 INDEX FUND
================================================================================
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, these net realized foreign currency
gains/losses are reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the statement of assets
and liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
G. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month period
ended June 30, 2014, there were no custodian and other bank credits.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 7.0 basis points of the amount of the committed loan
agreement. The facility fees are allocated among the Funds based on their
respective average net assets for the period.
For the six-month period ended June 30, 2014, the Fund paid CAPCO facility fees
of $1,000, which represents 0.8% of the total fees paid to CAPCO by the USAA
Funds. The Fund had no borrowings under this agreement during the six-month
period ended June 30, 2014.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of December 31,
2014, in accordance with applicable tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
The Fund is permitted to carry forward net capital losses indefinitely.
Additionally, such capital losses that are carried forward will retain their
character as short-term and/or long-term capital losses. Post-enactment capital
loss carryforwards must be used before pre-enactment capital loss
================================================================================
24 | USAA NASDAQ-100 INDEX FUND
================================================================================
carryforwards. As a result, pre-enactment capital loss carryforwards may be more
likely to expire unused.
At December 31, 2013, the Fund had no pre-enactment capital loss carryforwards
and post-enactment long-term capital loss carryforwards of $3,250,000, for
federal income tax purposes. It is unlikely that the Board will authorize a
distribution of capital gains realized in the future until the capital loss
carryforwards have been used or expire.
For the six-month period ended June 30, 2014, the Fund did not incur any income
tax, interest, or penalties, and has recorded no liability for net unrecognized
tax benefits relating to uncertain income tax positions. On an ongoing basis the
Manager will monitor its tax positions to determine if adjustments to this
conclusion are necessary. The statute of limitations on the Fund's tax return
filings generally remains open for the three preceding fiscal reporting year
ends and remain subject to examination by the Internal Revenue Service and state
taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2014, were
$51,013,000 and $10,573,000, respectively.
As of June 30, 2014, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
Gross unrealized appreciation and depreciation of investments as of June 30,
2014, were $227,110,000 and $2,918,000, respectively, resulting in net
unrealized appreciation of $224,192,000.
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund and
for directly managing the day-to-day investment of the Fund's assets,
subject to the authority of and supervision by the Board.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
The Manager also is authorized to select (with approval of the Board and
without shareholder approval) one or more subadvisers to manage the actual
day-to-day investment of a portion of the Fund's assets.
The Manager monitors each subadviser's performance through quantitative and
qualitative analysis and periodically reports to the Board as to whether
each subadviser's agreement should be renewed, terminated, or modified. The
Manager also is responsible for allocating assets to the subadviser(s). The
allocation for each subadviser could range from 0% to 100% of the Fund's
assets, and the Manager could change the allocations without shareholder
approval.
The Fund's management fees are accrued daily and paid monthly at an
annualized rate of 0.20% of the Fund's average net assets for the fiscal
year. For the six-month period ended June 30, 2014, the Fund incurred
management fees, paid or payable to the Manager, of $490,000.
B. SUBADVISORY ARRANGEMENT(S) - The Manager has entered into an investment
subadvisory agreement with NTI under which NTI directs the investment and
reinvestment of the Fund's assets (as allocated from time to time by the
Manager). The Manager (not the Fund) pays NTI a subadvisory fee equal to the
greater of a minimum annual fee of $50,000 or a fee at an annual rate equal
to 0.06% of the Fund's average net assets on amounts up to $100 million;
0.04% of net assets for amounts over $100 million and up to $250 million;
and 0.03% of net assets for amounts over $250 million. For the six-month
period ended June 30, 2014, the Manager incurred subadvisory fees, paid or
payable to NTI, of $96,000.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of the Fund's average net assets for the fiscal year. For the
six-month period ended June 30, 2014, the Fund incurred administration and
servicing fees, paid or payable to the Manager, of $367,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain
================================================================================
26 | USAA NASDAQ-100 INDEX FUND
================================================================================
compliance and legal services for the benefit of the Fund. The Board has
approved the reimbursement of a portion of these expenses incurred by the
Manager. For the six-month period ended June 30, 2014, the Fund reimbursed
the Manager $6,000 for these compliance and legal services. These expenses
are included in the professional fees on the Fund's statement of operations.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund based on an annual charge of $23 per
shareholder account plus out-of-pocket expenses. SAS pays a portion of these
fees to certain intermediaries for the administration and servicing of
accounts that are held with such intermediaries. For the six-month period
ended June 30, 2014, the Fund incurred transfer agent's fees, paid or
payable to SAS, of $373,000.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no commissions or fees for this service.
(6) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2014 2013 2012 2011 2010 2009
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.32 $ 7.61 $ 6.54 $ 6.83 $ 5.74 $ 3.74
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) .07 .06 .05 .01 .01 (.00)(a),(b)
Net realized and
unrealized gain .71 2.68 1.09 .19 1.09 2.00(a)
--------------------------------------------------------------------------------
Total from investment
operations .78 2.74 1.14 .20 1.10 2.00(a)
--------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.03) (.06) - (.01) -
Realized capital gains - - (.01) (.49) - -
--------------------------------------------------------------------------------
Total distributions - (.03) (.07) (.49) (.01) -
--------------------------------------------------------------------------------
Net asset value at
end of period $ 11.10 $ 10.32 $ 7.61 $ 6.54 $ 6.83 $ 5.74
================================================================================
Total return (%)* 7.56 36.00 17.46 2.90 19.14 53.48
Net assets at
end of period (000) $539,790 $460,689 $309,634 $218,220 $202,057 $159,254
Ratios to average
net assets:**
Expenses (%) .59(d) .64(c),(e) .71(c) .78(c) .78(c) .78(c)
Expenses, excluding
reimbursements (%) - .64(c) .75(c) .95(c) 1.02(c) 1.11(c)
Net investment
income (loss) (%) 1.47(d) .77 .80 .16 .15 (.04)
Portfolio turnover (%) 2 11 10 27 5 4
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended June 30, 2014, average net assets were
$493,796,000.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) Reflects total annual operating expenses of the Fund before reductions
of any expenses paid indirectly. The Fund's expenses paid indirectly
decreased the expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Prior to May 1, 2013, the Manager had voluntarily agreed to limit the
annual expenses of the Fund to 0.78% of the Fund's average net assets.
================================================================================
28 | USAA NASDAQ-100 INDEX FUND
================================================================================
EXPENSE EXAMPLE
June 30, 2014 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2014, through June
30, 2014.
ACTUAL EXPENSES
The first line of the table on the next page provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested at the beginning of the period, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you
================================================================================
EXPENSE EXAMPLE | 29
================================================================================
paid for the period. You may use this information to compare the ongoing costs
of investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the second line of the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2014 -
JANUARY 1, 2014 JUNE 30, 2014 JUNE 30, 2014
--------------------------------------------------------------
Actual $1,000.00 $1,075.60 $3.04
Hypothetical
(5% return before expenses) 1,000.00 1,021.87 2.96
* Expenses are equal to the Fund's annualized expense ratio of 0.59%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 181 days/365 days (to
reflect the one-half-year period). The Fund's ending account value on the
first line in the table is based on its actual total return of 7.56% for the
six-month period of January 1, 2014, through June 30, 2014.
================================================================================
30 | USAA NASDAQ-100 INDEX FUND
================================================================================
ADVISORY AGREEMENT(S)
June 30, 2014 (unaudited)
--------------------------------------------------------------------------------
At an in-person meeting of the Board of Trustees (the Board) held on April 30,
2014, the Board, including the Trustees who are not "interested persons" of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund and the Subadvisory Agreement between the Manager and the Subadviser with
respect to the Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and Subadvisory Agreement and the
Manager and the Subadviser, and were given the opportunity to ask questions and
request additional information from management. The information provided to the
Board included, among other things: (i) a separate report prepared by an
independent third party, which provided a statistical analysis comparing the
Fund's investment performance, expenses, and fees to comparable investment
companies; (ii) information concerning the services rendered to the Fund, as
well as information regarding the Manager's revenues and costs of providing
services to the Fund and compensation paid to affiliates of the Manager; and
(iii) information about the Manager's and Subadviser's operations and personnel.
Prior to voting, the Independent Trustees reviewed the proposed continuance of
the Advisory Agreement and the Subadvisory Agreement with management and with
experienced independent counsel and received materials from such counsel
discussing the legal standards for their consideration of the proposed
continuation of the Advisory Agreement and the Subadvisory Agreement with
respect to the Fund. The Independent Trustees also reviewed the proposed
continuation of the Advisory Agreement and the Subadvisory Agreement with
respect to the Fund in private sessions with their counsel at which no
representatives of management were present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager and by the Subadviser.
At the meeting at which the renewal of the Advisory Agreement
================================================================================
ADVISORY AGREEMENT(S) | 31
================================================================================
and Subadvisory Agreement is considered, particular focus is given to
information concerning Fund performance, comparability of fees and total
expenses, and profitability. However, the Board noted that the evaluation
process with respect to the Manager and the Subadviser is an ongoing one. In
this regard, the Board's and its committees' consideration of the Advisory
Agreement and Subadvisory Agreement included certain information previously
received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by independent counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Advisory Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, stockholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of senior personnel, as well as current staffing levels. The
Board discussed the Manager's effectiveness in monitoring the
================================================================================
32 | USAA NASDAQ-100 INDEX FUND
================================================================================
performance of the Subadviser and its timeliness in responding to performance
issues. The allocation of the Fund's brokerage, including the Manager's process
for monitoring "best execution," was also considered. The Manager's role in
coordinating the activities of the Fund's other service providers also was
considered. The Board also considered the Manager's risk management processes.
The Board considered the Manager's financial condition and that it had the
financial wherewithal to continue to provide the same scope and high quality of
services under the Advisory Agreement. In reviewing the Advisory Agreement, the
Board focused on the experience, resources, and strengths of the Manager and its
affiliates in managing the Fund, as well as the other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager, including the Manager's oversight of the Fund's
day-to-day operations and oversight of Fund accounting. The Trustees, guided
also by information obtained from their experiences as trustees of the Trust,
also focused on the quality of the Manager's compliance and administrative
staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain factors,
including fund type, comparability of investment objectives and classifications,
sales load type (in this case, pure-index retail investment companies with
front-end loads and no sales loads), asset size, and expense components (the
"expense group") and (ii) a larger group of investment companies that includes
all front-end and no-load retail open-end investment companies in similar
investment classifications/objectives as the Fund regardless of asset size,
excluding outliers (the "expense universe"). Among other data, the Board noted
that the Fund's management fee rate - which includes advisory and administrative
services - was equal to the median of its expense group and below the median of
its expense universe. The data indicated that the Fund's total expenses were
below the median of its expense group and its expense universe. The Board took
into account the various
================================================================================
ADVISORY AGREEMENT(S) | 33
================================================================================
services provided to the Fund by the Manager and its affiliates, including the
nature and high quality of the services provided by the Manager. The Board also
considered the level of correlation between the Nasdaq-100 Index and the Fund
and the relatively low tracking error between the Fund and the index and noted
that it reviews such information on a quarterly basis. The Board also noted the
level and method of computing the management fee. The Trustees also took into
account that the subadvisory fees under the Subadvisory Agreement are paid by
the Manager. The Board also considered and discussed information about the
Subadviser's fees, including the amount of management fees retained by the
Manager after payment of the subadvisory fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with similar
classifications/objectives as the Fund regardless of asset size or primary
channel of distribution. This comparison indicated that, among other data, the
Fund's performance was above the average of its performance universe and its
Lipper index for the one-, three-, and five-year periods ended December 31,
2013. The Board also noted that the Fund's percentile performance ranking was in
the top 30% of its performance universe for the one-year period ended December
31, 2013, was in the top 10% of its performance universe for the three-year
period ended December 31, 2013, and was in top 5% of its performance universe
for the five-year period ended December 31, 2013.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the management fee. The information considered by the Board
included operating profit margin information for the Manager's business as a
whole. The Board also received and considered profitability information related
to the management revenues from the Fund. This information included a review of
the methodology used in the allocation of
================================================================================
34 | USAA NASDAQ-100 INDEX FUND
================================================================================
certain costs to the Fund. In considering the profitability data with respect to
the Fund, the Trustees noted that the Manager pays the Fund's subadvisory fees.
The Trustees reviewed the profitability of the Manager's relationship with the
Fund before tax expenses. In reviewing the overall profitability of the
management fee to the Manager, the Board also considered the fact that
affiliates provide shareholder servicing and administrative services to the Fund
for which they receive compensation. The Board also considered the possible
direct and indirect benefits to the Manager from its relationship with the
Trust, including that the Manager may derive reputational and other benefits
from its association with the Fund. The Trustees recognized that the Manager
should be able to earn a reasonable level of profits in exchange for the level
of services it provides to the Fund and the entrepreneurial risk that it assumes
as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussion of
the Fund's current advisory fee structure. The Board also noted that if the
Fund's assets increase over time, the Fund may realize other economies of scale
if assets increase proportionally more than some expenses. The Board also
considered the fact that the Manager pays the Fund's subadvisory fees. The Board
determined that the current investment management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability from its relationship with the Fund, if any, is reasonable. Based
on its conclusions, the Board determined that continuation of the Advisory
Agreement would be in the best interests of the Fund and its shareholders.
================================================================================
ADVISORY AGREEMENT(S) | 35
================================================================================
SUBADVISORY AGREEMENT
In approving the Fund's Subadvisory Agreement, the Board considered various
factors, among them: (i) the nature, extent, and quality of services provided to
the Fund, including the personnel providing services; (ii) the Subadviser's
compensation and any other benefits derived from the subadvisory relationship;
(iii) comparisons, to the extent applicable, of subadvisory fees and performance
to comparable investment companies; and (iv) the terms of the Subadvisory
Agreement. The Board's analysis of these factors is set forth below. After full
consideration of a variety of factors, the Board, including the Independent
Trustees, voted to approve the Subadvisory Agreement. In approving the
Subadvisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by independent counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES PROVIDED; INVESTMENT PERSONNEL - The
Trustees considered information provided to them regarding the services provided
by the Subadviser, including information presented periodically throughout the
previous year. The Board considered the Subadviser's level of knowledge and
investment style. The Board reviewed the experience and credentials of the
investment personnel who are responsible for managing the investment of
portfolio securities with respect to the Fund and the Subadviser's level of
staffing. The Trustees noted that the materials provided to them indicated that
the method of compensating portfolio managers is reasonable and includes
appropriate mechanisms to prevent a manager with underperformance from taking
undue risks. The Trustees also noted the Subadviser's brokerage practices. The
Board also considered the Subadviser's regulatory and compliance history. The
Board also took into account the Subadviser's risk management processes. The
Board noted that the Manager's monitoring processes of the Subadviser include:
(i) regular telephonic meetings to discuss, among other matters, investment
strategies and to review portfolio performance; (ii) monthly portfolio
compliance checklists and quarterly compliance certifications to the Board; and
(iii) due diligence visits to the Subadviser.
SUBADVISER COMPENSATION - The Board also took into consideration the financial
condition of the Subadviser. In considering the cost of services to be
================================================================================
36 | USAA NASDAQ-100 INDEX FUND
================================================================================
provided by the Subadviser and the profitability to the Subadviser of its
relationship with the Fund, the Trustees noted that the fees under the
Subadvisory Agreement were paid by the Manager. The Trustees also relied on
the ability of the Manager to negotiate the Subadvisory Agreement and the fees
thereunder at arm's length. For the above reasons, the Board determined that
the profitability of the Subadviser from its relationship with the Fund was not
a material factor in its deliberations with respect to the consideration of the
approval of the Subadvisory Agreement. For similar reasons, the Board
concluded that the potential for economies of scale in the Subadviser's
management of the Fund was not a material factor in considering the
Subadvisory Agreement, although the Board noted that the Subadvisory
Agreement contains breakpoints in its fee schedule.
SUBADVISORY FEES AND FUND PERFORMANCE - The Board noted that it was reported
that the subadvisory fees that the Subadviser charges the Fund are unique due to
the type of fund and could not be compared to the fees that the Subadviser
charges to other clients. The Board considered that the Fund pays a management
fee to the Manager and that, in turn, the Manager pays a subadvisory fee to the
Subadviser. As noted above, the Board considered, among other data, the Fund's
performance during the one-, three-, and five-year periods ended December 31,
2013, as compared to the Fund's respective peer group and noted that the Board
reviews at its regularly scheduled meetings information about the Fund's
performance results. The Board noted the Manager's expertise and resources in
monitoring the performance, investment style, and risk-adjusted performance of
the Subadviser.
CONCLUSIONS - The Board reached the following conclusions regarding the
Subadvisory Agreement, among others: (i) the Subadviser is qualified to manage
the Fund's assets in accordance with its investment objectives and policies;
(ii) the Subadviser maintains an appropriate compliance program; (iii) the
performance of the Fund is reasonable in relation to the performance of funds
with similar investment objectives and to relevant indices; and (iv) the Fund's
advisory expenses are reasonable in relation to those of similar funds and to
the services to be provided by the Manager and the Subadviser. Based on its
conclusions, the Board determined that approval of the Subadvisory Agreement
with respect to the Fund would be in the best interests of the Fund and its
shareholders.
================================================================================
ADVISORY AGREEMENT(S) | 37
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9453
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9453
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA
(8722)
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) in summary within the Statement of Additional Information on the SEC's
website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's
website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Ref erence Room may be obtained by
calling (800) 732-0330.
================================================================================
USAA --------------
9800 Fredericksburg Road PRSRT STD
San Antonio, TX 78288 U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R)
=============================================================================
37758-0814 (C)2014, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 11. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA Mutual
Funds Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR/S was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation. The only change to the
procedures was to document the annual disclosure controls and procedures
established for the new section of the shareholder reports detailing the factors
considered by the Funds' Board in approving the Funds' advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA MUTUAL FUNDS TRUST, Period Ended June 30, 2014
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 08/27/2014
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /S/ DANIEL S. MCNAMARA
-----------------------------------------------------
Signature and Title: Daniel S. McNamara, President
Date: 08/27/2014
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 08/27/2014
------------------------------
*Print the name and title of each signing officer under his or her signature.