0000908695-14-000282.txt : 20140905 0000908695-14-000282.hdr.sgml : 20140905 20140905142504 ACCESSION NUMBER: 0000908695-14-000282 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20140630 FILED AS OF DATE: 20140905 DATE AS OF CHANGE: 20140905 EFFECTIVENESS DATE: 20140905 FILER: COMPANY DATA: COMPANY CONFORMED NAME: USAA MUTUAL FUNDS TRUST CENTRAL INDEX KEY: 0000908695 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07852 FILM NUMBER: 141085532 BUSINESS ADDRESS: STREET 1: 9800 FREDERICKSBURG ROAD STREET 2: A-3-W CITY: SAN ANTONIO STATE: TX ZIP: 78288-0227 BUSINESS PHONE: 210-498-0226 MAIL ADDRESS: STREET 1: 9800 FREDERICKSBURG ROAD STREET 2: A-3-W CITY: SAN ANTONIO STATE: TX ZIP: 78288-0227 FORMER COMPANY: FORMER CONFORMED NAME: USAA STATE TAX FREE TRUST DATE OF NAME CHANGE: 19940325 FORMER COMPANY: FORMER CONFORMED NAME: USAA STATE TAX EXEMPT TRUST DATE OF NAME CHANGE: 19930707 0000908695 S000012907 Nasdaq-100 Index Fund C000034876 Nasdaq-100 Index Fund USNQX N-CSRS 1 ncsrsnas063014.txt USAA NASDAQ-100 INDEX FUND - N-CSR/S 06-30-2014 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] =============================================== SEMIANNUAL REPORT USAA NASDAQ-100 INDEX FUND JUNE 30, 2014 =============================================== ================================================================================ ================================================================================ 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." -------------------------------------------------------------------------------- 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 ================================================================================ ================================================================================ 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. ================================================================================ ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- 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. ================================================================================ ================================================================================ 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). -------------------------------------------------------------------------------- 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. ================================================================================ FUND OBJECTIVE | 1 ================================================================================ MANAGER COMMENTARY ON THE FUND -------------------------------------------------------------------------------- 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. ================================================================================ 2 | USAA NASDAQ-100 INDEX FUND ================================================================================ 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. ================================================================================ MANAGER COMMENTARY ON THE FUND | 3 ================================================================================ INVESTMENT OVERVIEW USAA NASDAQ-100 INDEX FUND (THE FUND) (Ticker Symbol: USNQX) -------------------------------------------------------------------------------- 6/30/14 12/31/13 -------------------------------------------------------------------------------- Net Assets $539.8 Million $460.7 Million Net Asset Value Per Share $11.10 $10.32 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/14 -------------------------------------------------------------------------------- 12/31/2013 - 6/30/14* 1 YEAR 5 YEARS 10 YEARS 7.56% 33.31% 21.53% 9.79% -------------------------------------------------------------------------------- EXPENSE RATIO AS OF 12/31/13** -------------------------------------------------------------------------------- 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. ================================================================================ 4 | USAA NASDAQ-100 INDEX FUND ================================================================================ 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. ================================================================================ INVESTMENT OVERVIEW | 5 ================================================================================ 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%. ================================================================================ 6 | USAA NASDAQ-100 INDEX FUND ================================================================================ PORTFOLIO OF INVESTMENTS June 30, 2014 (unaudited)
----------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ----------------------------------------------------------------------------------- COMMON STOCKS (95.8%) CONSUMER DISCRETIONARY (18.4%) ------------------------------ APPAREL RETAIL (0.3%) 25,529 Ross Stores, Inc. $ 1,688 --------- AUTOMOBILE MANUFACTURERS (0.7%) 14,915 Tesla Motors, Inc.* 3,580 --------- AUTOMOTIVE RETAIL (0.4%) 12,749 O'Reilly Automotive, Inc.* 1,920 --------- BROADCASTING (0.6%) 17,740 Discovery Communications, Inc. "A"* 1,318 12,551 Liberty Media Corp. "A"* 1,715 --------- 3,033 --------- 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 --------- 26,455 --------- 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 ---------
================================================================================ PORTFOLIO OF INVESTMENTS | 7 ================================================================================
----------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ----------------------------------------------------------------------------------- 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 --------- 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
================================================================================ 8 | USAA NASDAQ-100 INDEX FUND ================================================================================
----------------------------------------------------------------------------------- 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 ---------
================================================================================ PORTFOLIO OF INVESTMENTS | 9 ================================================================================
----------------------------------------------------------------------------------- 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. EX-99.CERT 2 ncsrscert063014.txt USAA MUTUAL FUNDS TRUST - CERTIFICATION 06-30-2014 CERTIFICATIONS I, DANIEL S. MCNAMARA, certify that: ------------------ 1. I have reviewed the reports on Form N-CSR/S for the period ending June 30, 2014 for the following funds of USAA MUTUAL FUNDS TRUST: S&P 500 INDEX FUND REWARD SHARES S&P 500 INDEX FUND MEMBER SHARES TOTAL RETURN STRATEGY FUND SHARES TOTAL RETURN STRATEGY FUND INSTITUTIONAL SHARES REAL RETURN FUND SHARES REAL RETURN FUND INSTITUTIONAL SHARES EXTENDED MARKET INDEX FUND NASDAQ - 100 INDEX FUND ULTRA SHORT-TERM BOND FUND SHARES ULTRA SHORT-TERM BOND FUND INSTITUTIONAL SHARES FLEXIBLE INCOME FUND SHARES FLEXIBLE INCOME FUND INSTITUTIONAL SHARES FLEXIBLE INCOME FUND ADVISER SHARES TARGET RETIREMENT INCOME FUND TARGET RETIREMENT 2020 FUND TARGET RETIREMENT 2030 FUND TARGET RETIREMENT 2040 FUND TARGET RETIREMENT 2050 FUND TARGET RETIREMENT 2060 FUND GLOBAL MANAGED VOLATILITY FUND SHARES GLOBAL MANAGED VOLATILITY FUND INSTITUTIONAL SHARES 2. Based on my knowledge, these reports do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by these reports; 3. Based on my knowledge, the financial statements, and other financial information included in these reports, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in these reports; 4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which these reports are being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in these reports our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in these reports any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal half-year (the Registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer(s) and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: 08/27/2014 /S/ DANIEL S. MCNAMARA ------------------- -------------------------------------- Daniel S. McNamara President I, ROBERTO GALINDO, JR., certify that: -------------------- 1. I have reviewed the reports on Form N-CSR/S for the period ending June 30, 2014 for the following funds of USAA MUTUAL FUNDS TRUST: S&P 500 INDEX FUND REWARD SHARES S&P 500 INDEX FUND MEMBER SHARES TOTAL RETURN STRATEGY FUND SHARES TOTAL RETURN STRATEGY FUND INSTITUTIONAL SHARES REAL RETURN FUND SHARES REAL RETURN FUND INSTITUTIONAL SHARES EXTENDED MARKET INDEX FUND NASDAQ - 100 INDEX FUND ULTRA SHORT-TERM BOND FUND SHARES ULTRA SHORT-TERM BOND FUND INSTITUTIONAL SHARES FLEXIBLE INCOME FUND SHARES FLEXIBLE INCOME FUND INSTITUTIONAL SHARES FLEXIBLE INCOME FUND ADVISER SHARES TARGET RETIREMENT INCOME FUND TARGET RETIREMENT 2020 FUND TARGET RETIREMENT 2030 FUND TARGET RETIREMENT 2040 FUND TARGET RETIREMENT 2050 FUND TARGET RETIREMENT 2060 FUND GLOBAL MANAGED VOLATILITY FUND SHARES GLOBAL MANAGED VOLATILITY FUND INSTITUTIONAL SHARES 2. Based on my knowledge, these reports do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by these reports; 3. Based on my knowledge, the financial statements, and other financial information included in these reports, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in these reports; 4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which these reports are being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in these reports our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based such evaluation; and (d) disclosed in these reports any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal half-year (the Registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer(s) and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: 08/27/2014 /S/ ROBERTO GALINDO, JR. ----------------- ___________________________________ Roberto Galindo, Jr. Treasurer EX-99.906 CERT 3 ncsrs906cert063014.txt USAA MUTUAL FUNDS TRUST - 906 CERT. 06-30-2014 SECTION 906 CERTIFICATION CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Name of Issuer: USAA MUTUAL FUNDS TRUST S&P 500 INDEX FUND REWARD SHARES S&P 500 INDEX FUND MEMBER SHARES TOTAL RETURN STRATEGY FUND SHARES TOTAL RETURN STRATEGY FUND INSTITUTIONAL SHARES REAL RETURN FUND SHARES REAL RETURN FUND INSTITUTIONAL SHARES EXTENDED MARKET INDEX FUND NASDAQ - 100 INDEX FUND ULTRA SHORT-TERM BOND FUND SHARES ULTRA SHORT-TERM BOND FUND INSTITUTIONAL SHARES GLOBAL MANAGED VOLATILITY FUND SHARES GLOBAL MANAGED VOLATILITY FUND INSTITUTIONAL SHARES FLEXIBLE INCOME FUND SHARES FLEXIBLE INCOME FUND INSTITUTIONAL SHARES FLEXIBLE INCOME FUND ADVISER SHARES TARGET RETIREMENT INCOME FUND TARGET RETIREMENT 2020 FUND TARGET RETIREMENT 2030 FUND TARGET RETIREMENT 2040 FUND TARGET RETIREMENT 2050 FUND TARGET RETIREMENT 2060 FUND In connection with the Annual Reports on Form N-CSR/S (Reports) of the above-named issuer for the Funds listed above for the period ended June 30, 2014, the undersigned hereby certifies, that: 1. The Reports fully comply with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Reports fairly present, in all material respects, the financial condition and results of operations of the issuer. Date: 08/27/2014 /S/ DANIEL S. MCNAMARA ________________ ___________________________________ Daniel S. McNamara President SECTION 906 CERTIFICATION CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Name of Issuer: USAA MUTUAL FUNDS TRUST S&P 500 INDEX FUND REWARD SHARES S&P 500 INDEX FUND MEMBER SHARES TOTAL RETURN STRATEGY FUND SHARES TOTAL RETURN STRATEGY FUND INSTITUTIONAL SHARES REAL RETURN FUND SHARES REAL RETURN FUND INSTITUTIONAL SHARES EXTENDED MARKET INDEX FUND NASDAQ - 100 INDEX FUND ULTRA SHORT-TERM BOND FUND SHARES ULTRA SHORT-TERM BOND FUND INSTITUTIONAL SHARES GLOBAL MANAGED VOLATILITY FUND SHARES GLOBAL MANAGED VOLATILITY FUND INSTITUTIONAL SHARES FLEXIBLE INCOME FUND SHARES FLEXIBLE INCOME FUND INSTITUTIONAL SHARES FLEXIBLE INCOME FUND ADVISER SHARES TARGET RETIREMENT INCOME FUND TARGET RETIREMENT 2020 FUND TARGET RETIREMENT 2030 FUND TARGET RETIREMENT 2040 FUND TARGET RETIREMENT 2050 FUND TARGET RETIREMENT 2060 FUND In connection with the Annual Reports on Form N-CSR/S (Reports) of the above-named issuer for the Funds listed above for the period ended June 30, 2014, the undersigned hereby certifies, that: 1. The Reports fully comply with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Reports fairly present, in all material respects, the financial condition and results of operations of the issuer. Date: 08/27/2014 /S/ ROBERTO GALINDO, JR. ________________ __________________________________ Roberto Galindo, Jr. Treasurer