ITEM 1. REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - ANNUAL REPORT FOR PERIOD ENDING JULY 31, 2013
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GROWTH & INCOME FUND]
ANNUAL REPORT
USAA GROWTH & INCOME FUND
FUND SHARES o ADVISER SHARES
JULY 31, 2013
PRESIDENT'S MESSAGE
"THE DECLINE WAS INSTRUCTIVE BECAUSE
IT REVEALED HOW ATTACHED INVESTORS [PHOTO OF DANIEL S. McNAMARA]
HAD BECOME TO FED STIMULUS."
AUGUST 2013
If there was any doubt the Federal Reserve's (the Fed) stimulus programs were
driving the performance of the U.S. stock and bond markets, it was greatly
diminished during the reporting period. Just a hint of eventual Fed tapering
sparked a broad selloff in the financial markets during June. The decline was
instructive because it revealed how attached investors had become to rely on the
Fed's stimulus policies. The Fed's bond-buying programs have pushed down
interest rates and driven bond prices higher. Lower interest rates, meanwhile,
have incentivized investors to seek higher returns in riskier asset classes,
such as stocks and corporate bonds.
In response to the selloff, the Fed moved quickly to remind investors it would
not raise short-term interest rates until it became clear that economic growth
was self-sustaining. The Fed also said it could change the terms of its
quantitative easing programs if the economy takes an unexpected turn, such as
strong growth or renewed weakness. (The term quantitative easing is generally
used to reference programs in which the Fed uses newly created money to purchase
financial assets.) In fact, I believe that the economy is weaker at the time of
this writing than when the Fed expanded quantitative easing in 2012.
Furthermore, inflation pressures remain modest. As a result, the Fed is likely
to continue its quantitative easing programs for some time, though I believe it
may purchase fewer securities if market conditions are favorable. However, with
a change in leadership coming at the end of 2013, Fed Chairman Ben Bernanke may
seek -- economic conditions permitting -- to preserve his legacy by setting the
stage for future tapering.
Although interest rates increased during the reporting period, they remain
exceptionally low by historical measures. I think investors have less to fear
from gradually rising interest rates than they do from a return to low rates,
which some believe could be caused by a Japan-like deflationary economy. That
said, higher interest rates do mean that bond investors are likely to
see a decrease in their principal (bond prices move in the opposite direction of
interest rates), but they will also -- for the first time in a long time -- see
an increase in the income they receive from their fixed-income investments.
However, it is important to remember that the fixed-income market is not a
"bond" market. It is a market of bonds, which includes U.S. Treasuries,
mortgage-backed securities, investment-grade bonds, high-yield bonds, municipal
securities and more. Many of these fixed-income asset classes perform
differently from each other.
Within equities, the selloff was relatively short lived and stocks reached new
highs just after the end of the reporting period. However, only about a third of
the gains can be attributed to earnings and dividend growth. Much of price
appreciation seems to be the result of higher valuations or multiple expansion.
While we believe current valuations are fair, 2008 should be a reminder that
investor preferences can change. Increasing valuations that are not supported by
earnings growth could decline in the future.
In this environment, I think it's more important than ever to keep emotion out
of the investment process. Shareholders should have an investment plan, remain
disciplined and hold diversified portfolios directly tied to their objectives,
risk tolerance and time horizon. If you think you might be over-allocated to
your fixed-income portfolio, you should reassess your investment risk and if
necessary, rebalance your portfolio. Regular rebalancing can potentially help
you protect your gains and prepare for what happens next. USAA advisors are
available to help you free of charge if you have questions or need assistance
updating your investment plan.
Though no one really knows what lies ahead, you can rest assured that we will
continue to monitor Fed policy and the many factors shaping the performance of
the financial markets. From all of us here at USAA Asset Management Company,
thank you for your continued investment in our family of mutual funds.
Sincerely,
/S/ DANIEL S. MCNAMARA
Daniel S. McNamara
President
USAA Investment Management Company
|
Past performance is no guarantee of future results. o Diversification is a
technique to help reduce risk and does not guarantee a profit or prevent a loss.
o Financial advice provided by USAA Financial Planning Services Insurance
Agency, Inc. (known as USAA Financial Insurance Agency in California, License #
0E36312), and USAA Financial Advisors, Inc., a registered broker dealer.
TABLE OF CONTENTS
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 7
FINANCIAL INFORMATION
Distributions to Shareholders 12
Report of Independent Registered Public Accounting Firm 13
Portfolio of Investments 14
Notes to Portfolio of Investments 24
Financial Statements 25
Notes to Financial Statements 28
EXPENSE EXAMPLE 45
ADVISORY AGREEMENT(S) 47
TRUSTEES' AND OFFICERS' INFORMATION 55
|
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)2013, USAA. All rights reserved.
FUND OBJECTIVE
THE USAA GROWTH & INCOME FUND'S (THE FUND) INVESTMENT OBJECTIVE IS CAPITAL
GROWTH AND A SECONDARY INVESTMENT OBJECTIVE OF CURRENT INCOME.
TYPES OF INVESTMENTS
The Fund invests its assets primarily in equity securities that show the best
potential for total return through a combination of capital appreciation and
income. Although the Fund will invest primarily in U.S. securities, it may
invest up to 20% of its total assets in foreign securities including securities
issued in emerging markets.
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
MANAGERS' COMMENTARY ON THE FUND
USAA Asset Management Company Wellington Management Company, LLP
JOHN P. TOOHEY, CFA MATTHEW E. MEGARGEL, CFA
WASIF A. LATIF FRANCIS J. BOGGAN, CFA
JOHN B. JARES JEFF L. KRIPKE
Barrow, Hanley, Mewhinney & Strauss, LLC
MARK GIAMBRONE, CPA
JAMES P. BARROW
RAY NIXON, Jr.
ROBERT J. CHAMBERS, CFA
TIMOTHY J. CULLER, CFA
|
o HOW DID THE USAA GROWTH & INCOME FUND (THE FUND SHARES) PERFORM?
At the end of the reporting period, the Fund Shares had a total return of
26.90%. This compares to returns of 26.86% for the Russell 3000(R) Index (the
Index) and 28.08% for the Lipper Multi-Cap Core Funds Index.
In addition to USAA Asset Management Company (AMCO), who manages a portion of
the Fund, the Fund has two subadvisers. Wellington Management Company, LLP
(Wellington Management) and Barrow, Hanley, Mewhinney & Strauss, LLC (BHMS).
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. o High double-digit
returns are attributable, in part, to unusually favorable market conditions
and may not be repeated or consistently achieved in the future.
2 | USAA GROWTH & INCOME FUND
o HOW DID THE WELLINGTON MANAGEMENT PORTION PERFORM DURING THE REPORTING
PERIOD?
For the 12-month period, the Wellington Management portfolio outperformed
the Index, primarily due to strong stock selection in financials, consumer
staples, and industrials, which more than offset weaker selection in the
materials, energy, and health care sectors. Sector allocation, a result of
bottom-up stock selection, was a modest contributor to relative return. An
underweight to the utilities sector contributed to performance, while an
overweight to information technology detracted.
Top contributors to relative performance included Green Mountain Coffee
Roasters, Inc., a provider of single-cup coffee brewers; Cigna Corp., a
global health service company; and Citigroup, Inc., a global banking firm.
U.S.-based global financial services company JPMorgan Chase & Co. was also
among the most significant absolute contributors. The largest detractors
from relative return included Barrick Gold Corp., a gold exploration and
mining company; ITT Educational Services, Inc., a private education provider;
and Western Union Co., a U.S.-based money transfer firm. The largest absolute
detractors also included Apple, Inc.
o HOW IS WELLINGTON MANAGEMENT POSITIONED?
We believe that the global economy is gradually normalizing. While there are
fears among market participants regarding the U.S. Federal Reserve's (the
Fed) eventual "tapering" of its quantitative easing measures, we are not
overly concerned, as we view this action as a shift from a "surge" in
liquidity to the Fed becoming a source of steady liquidity. We think that the
U.S. economy remains poised for a continued modest recovery as consumption
spending is still buoyed by household balance sheet and job gains. Housing
remains in a solid uptrend as well. At the end of the period, our portion of
the portfolio's largest overweights were to industrials, consumer
ITT Educational Services, Inc. and Western Union Co. were sold out of the
Fund prior to July 31, 2013.
MANAGERS' COMMENTARY ON THE FUND | 3
discretionary, and information technology, while we remained underweight
materials, utilities, and telecommunication services.
o HOW DID THE VALUE-ORIENTED BHMS PORTION PERFORM?
As is the norm in a strong market rally, performance for much of the period
was led by smaller-cap stocks with higher price-to-earnings ratios and lower
dividend payouts, resulting in a headwind to our value-based approach. In
addition, the market's focus on macroeconomic factors such as central bank
policy has resulted in historically high correlations among stocks, hampering
the ability of stock selection to generate return. Thankfully, both trends
began to ease over the latter part of the fiscal period, as stock valuations
became more elevated and investors began to focus more closely on individual
company fundamentals.
On the positive side, our largest overweight was to industrials, and
selection within the sector was the largest contributor to the Fund's
relative performance. Within industrials, we have sought to hold companies
with strong global brands, the potential to grow faster than the economy, as
well as sustained dividend growth. Standout performers included building
supplies provider Masco Corp. and home improvement retailer Stanley Black &
Decker, Inc., both of which benefited from ongoing improvements in the
housing sector. Our health care exposure represented another leading source
of positive relative performance.
In contrast, selection within information technology was a leading detractor
from returns. In particular, exposure to Western Union Co. was subtractive,
as the company's core funds transfer business suffered from continued
pressure on pricing. The semiconductor firm Intel Corp. has been a favorable
holding over the years, but was negatively impacted in recent quarters by a
decline in demand for PCs as tablet adoption increases. We have sold out of
Western Union Co. as of the end of the reporting period.
Masco Corp. was sold out of the Fund prior to July 31, 2013.
================================================================================
4 | USAA GROWTH & INCOME FUND
|
o WHAT IS BHMS' OUTLOOK?
While severe sovereign debt problems in Europe are being papered over with
the aid of European Central Bank actions, we expect Europe to constrain
global growth prospects for some time. In the United States, despite some
moderation in the ongoing fiscal controversy, there is no shortage of
uncertainty as well. Nevertheless, we continue to be positioned for a
gradual improvement in the U.S. economy, with a tilt toward companies in
economically-sensitive sectors that have been trading at relatively
inexpensive valuations. While holding many stocks with attractive dividends,
we will continue to focus on broader measures of valuation as well, including
low payout ratios and solid earnings prospects that in combination suggest
the potential for long-term growth in dividends. In this vein, we are
maintaining significant weightings in industrials and health care, while
minimizing exposure to utilities, energy, and materials.
After a lengthy period where stock market performance was driven by
macroeconomic factors, and performance correlation among stocks has been
high, recent market behavior suggests a return to a focus on company
fundamentals. We expect such an environment to be supportive of an investment
approach based on individual stock selection. The recent market rally has
made it somewhat more challenging to identify inexpensive stocks, and we are
selling or trimming positions where our valuation targets have been reached.
However, we remain confident that our bottom-up approach will continue to
generate solid ideas consistent with a focus on individual company valuations
and fundamentals.
o HOW DID THE PORTION OF THE FUND MANAGED BY AMCO PERFORM?
The AMCO portion of the Growth and Income Fund modestly trailed the
benchmark. Our top-performing sectors were consumer staples, health care, and
telecommunications services, while positions in
MANAGERS' COMMENTARY ON THE FUND | 5
consumer discretionary, energy, and industrials detracted from returns.
Leading individual contributors included Green Mountain Coffee Roasters,
Inc., Gilead Sciences, Inc., CIT Group, Inc., and MetLife, Inc. The largest
individual detractors included McGraw-Hill, Motorola Solutions, Inc.,
Transocean Ltd., and Broadcom Corp. "A". The USAA portion of the Fund is
currently overweight in the technology, health care, and industrials sectors,
while the utilities, energy, and materials sectors are underweighted.
o WHAT IS USAA'S OUTLOOK?
In the coming months, we foresee continued modest expansion for the U.S.
economy, driven by an improving housing sector and declining unemployment. We
also look for continued strength in consumer-related industries, as well as
in the technology and health care sectors. The energy segment should
continue to be a source of job growth for the economy. However, we remain
underweight in this area because it is difficult to identify attractively
valued candidates for the portfolio within energy stocks. Lastly, the subdued
level of U.S. inflation adds to our positive outlook, as relatively stable
consumer prices have allowed the Fed to maintain an accommodative stance.
Thank you for your investment in the Fund.
McGraw-Hill and Motorola Solutions, Inc. were sold out of the Fund prior to
July 31, 2013.
6 | USAA GROWTH & INCOME FUND
INVESTMENT OVERVIEW
USAA GROWTH & INCOME FUND SHARES (FUND SHARES) (Ticker Symbol: USGRX)
--------------------------------------------------------------------------------
7/31/13 7/31/12
--------------------------------------------------------------------------------
Net Assets $1,418.3 Million $1,152.5 Million
Net Asset Value Per Share $19.39 $15.44
|
AVERAGE ANNUAL TOTAL RETURNS AS OF 7/31/13
1 Year 5 Years 10 Years
26.90% 6.39% 6.66%
EXPENSE RATIO AS OF 7/31/12*
1.01%
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.
*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 December 1, 2012, 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. 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 or the
redemption of shares.
INVESTMENT OVERVIEW | 7
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
RUSSELL 3000 LIPPER MULTI-CAP USAA GROWTH & INCOME
INDEX CORE FUNDS INDEX FUND SHARES
7/31/2003 $10,000.00 $10,000.00 $10,000.00
8/31/2003 10,221.60 10,307.50 10,215.74
9/30/2003 10,110.63 10,170.39 10,067.92
10/31/2003 10,722.52 10,776.09 10,728.53
11/30/2003 10,870.21 10,944.35 10,887.33
12/31/2003 11,367.41 11,380.70 11,329.61
1/31/2004 11,604.54 11,648.08 11,488.56
2/29/2004 11,760.88 11,828.99 11,666.58
3/31/2004 11,621.27 11,694.72 11,500.03
4/30/2004 11,380.99 11,448.50 11,296.49
5/31/2004 11,546.39 11,585.62 11,436.42
6/30/2004 11,775.87 11,842.08 11,764.66
7/31/2004 11,330.56 11,356.53 11,274.73
8/31/2004 11,377.22 11,348.18 11,217.47
9/30/2004 11,552.12 11,590.84 11,410.97
10/31/2004 11,741.85 11,765.71 11,506.48
11/30/2004 12,287.68 12,356.32 12,085.95
12/31/2004 12,725.51 12,790.80 12,534.41
1/31/2005 12,386.57 12,499.80 12,262.37
2/28/2005 12,659.24 12,752.52 12,486.81
3/31/2005 12,445.12 12,552.02 12,287.01
4/30/2005 12,174.73 12,210.35 12,028.34
5/31/2005 12,636.05 12,710.33 12,470.81
6/30/2005 12,724.32 12,850.27 12,530.61
7/31/2005 13,246.34 13,394.99 13,055.28
8/31/2005 13,120.06 13,334.00 13,041.65
9/30/2005 13,234.85 13,453.77 13,127.63
10/31/2005 12,986.97 13,175.60 12,813.93
11/30/2005 13,492.17 13,682.69 13,366.31
12/31/2005 13,504.28 13,842.38 13,398.50
1/31/2006 13,955.47 14,356.51 13,863.02
2/28/2006 13,980.28 14,299.44 13,768.67
3/31/2006 14,221.94 14,618.14 13,895.60
4/30/2006 14,376.23 14,799.24 14,077.29
5/31/2006 13,915.96 14,286.59 13,401.40
6/30/2006 13,940.58 14,244.48 13,425.58
7/31/2006 13,927.53 14,073.78 13,214.33
8/31/2006 14,268.23 14,406.86 13,338.17
9/30/2006 14,587.63 14,716.22 13,775.96
10/31/2006 15,112.75 15,263.69 14,206.46
11/30/2006 15,441.57 15,625.18 14,607.77
12/31/2006 15,626.50 15,799.92 14,678.41
1/31/2007 15,923.94 16,144.30 15,109.17
2/28/2007 15,662.72 15,931.50 14,849.09
3/31/2007 15,825.74 16,099.44 15,101.04
4/30/2007 16,457.93 16,725.56 15,596.83
5/31/2007 17,057.70 17,351.76 16,352.69
6/30/2007 16,738.24 17,201.51 16,190.14
7/31/2007 16,167.41 16,651.16 15,653.72
8/31/2007 16,399.49 16,758.68 15,791.89
9/30/2007 16,997.36 17,342.75 16,368.95
10/31/2007 17,309.17 17,692.26 16,897.24
11/30/2007 16,529.93 16,897.25 16,182.01
12/31/2007 16,429.90 16,743.08 16,071.99
1/31/2008 15,434.06 15,802.80 14,954.84
2/29/2008 14,954.68 15,386.41 14,419.73
3/31/2008 14,866.08 15,169.88 14,213.20
4/30/2008 15,609.52 15,932.33 15,029.94
5/31/2008 15,929.30 16,322.82 15,414.84
6/30/2008 14,614.80 15,021.42 14,224.48
7/31/2008 14,498.24 14,801.60 13,970.47
8/31/2008 14,723.42 14,942.89 14,083.37
9/30/2008 13,339.06 13,276.75 12,605.24
10/31/2008 10,973.25 10,768.67 10,219.95
11/30/2008 10,107.03 9,828.91 9,267.73
12/31/2008 10,300.38 10,138.26 9,409.16
1/31/2009 9,435.97 9,421.30 8,708.68
2/28/2009 8,447.50 8,549.78 7,923.01
3/31/2009 9,187.45 9,240.24 8,591.70
4/30/2009 10,154.28 10,437.03 9,560.05
5/31/2009 10,696.08 11,080.67 10,072.70
6/30/2009 10,732.52 11,070.72 9,982.52
7/31/2009 11,567.90 11,989.06 10,790.63
8/31/2009 11,981.24 12,397.74 11,161.41
9/30/2009 12,483.21 12,960.09 11,698.49
10/31/2009 12,162.14 12,581.16 11,431.96
11/30/2009 12,853.24 13,267.58 12,098.27
12/31/2009 13,219.53 13,717.14 12,445.42
1/31/2010 12,742.99 13,212.42 11,959.05
2/28/2010 13,175.00 13,657.44 12,416.81
3/31/2010 14,005.38 14,497.58 13,183.53
4/30/2010 14,307.62 14,779.73 13,412.64
5/31/2010 13,177.36 13,616.68 12,305.26
6/30/2010 12,419.82 12,937.96 11,561.64
7/31/2010 13,282.04 13,774.85 12,489.25
8/31/2010 12,656.81 13,160.06 11,791.15
9/30/2010 13,851.83 14,360.86 12,998.87
10/31/2010 14,393.12 14,968.01 13,506.57
11/30/2010 14,476.21 15,022.98 13,525.73
12/31/2010 15,457.54 15,998.16 14,428.05
1/31/2011 15,795.15 16,381.18 14,735.24
2/28/2011 16,370.23 16,945.41 15,157.62
3/31/2011 16,444.07 17,019.41 15,139.43
4/30/2011 16,933.52 17,516.82 15,658.49
5/31/2011 16,740.31 17,274.29 15,466.25
6/30/2011 16,439.67 16,969.17 15,166.57
7/31/2011 16,063.20 16,570.20 14,675.46
8/31/2011 15,099.49 15,391.96 13,731.77
9/30/2011 13,927.83 14,078.75 12,594.80
10/31/2011 15,530.82 15,635.11 14,138.99
11/30/2011 15,488.85 15,543.20 14,023.17
12/31/2011 15,616.16 15,548.97 14,063.76
1/31/2012 16,404.19 16,400.21 14,886.49
2/29/2012 17,098.14 17,109.78 15,534.99
3/31/2012 17,625.56 17,514.71 15,940.16
4/30/2012 17,509.96 17,347.02 15,668.67
5/31/2012 16,427.51 16,158.59 14,437.28
6/30/2012 17,070.90 16,705.13 14,892.80
7/31/2012 17,239.99 16,857.45 15,009.45
8/31/2012 17,670.27 17,299.80 15,534.39
9/30/2012 18,134.29 17,757.78 15,908.31
10/31/2012 17,821.50 17,540.85 15,606.32
11/30/2012 17,959.50 17,762.39 15,674.51
12/31/2012 18,179.60 18,060.27 15,820.94
1/31/2013 19,177.13 19,086.47 16,681.41
2/28/2013 19,431.27 19,268.96 16,788.97
3/31/2013 20,192.71 19,999.19 17,325.09
4/30/2013 20,523.24 20,243.61 17,589.67
5/31/2013 21,007.40 20,757.64 18,187.43
6/30/2013 20,734.92 20,447.64 17,936.49
7/31/2013 21,871.37 21,590.41 19,046.47
|
[END CHART]
Data from 7/31/03 to 7/31/13.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Growth & Income Fund Shares to the following benchmarks:
- The unmanaged Russell 3000 Index measures the performance of the 3,000 largest
U.S. companies based on total market capitalization, which represents
approximately 98% of the investable U.S. equity market.
- The unmanaged Lipper Multi-Cap Core Funds Index tracks the total return
performance of the 30 largest funds in the Lipper Multi-Cap Core Funds
category.
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. Indexes are unmanaged
and you cannot invest directly in an index.
8 | USAA GROWTH & INCOME FUND
USAA GROWTH & INCOME FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: USGIX)
--------------------------------------------------------------------------------
7/31/13 7/31/12
--------------------------------------------------------------------------------
Net Assets $7.9 Million $6.2 Million
Net Asset Value Per Share $19.34 $15.42
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 7/31/13
--------------------------------------------------------------------------------
1 Year Since Inception 8/01/10
26.37% 13.93%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 7/31/12*
--------------------------------------------------------------------------------
Before Reimbursement 1.43% After Reimbursement 1.30%
|
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.
*The expense ratios represent 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 December 1, 2012, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through December 1, 2013, to make payments or
waive management, administration, and other fees so that the total expenses of
the Adviser Shares (exclusive of commission recapture, expense offset
arrangements, acquired fund fees and expenses, and extraordinary expenses) do
not exceed an annual rate of 1.30% of the Adviser Shares' average net assets.
This reimbursement arrangement may not be changed or terminated during this time
period without approval of the Fund's Board of Trustees and may be changed or
terminated by the Manager at any time after December 1, 2013. These expense
ratios may differ from the expense ratios 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. 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 or the
redemption of shares.
INVESTMENT OVERVIEW | 9
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
RUSSELL 3000 LIPPER MULTI-CAP USAA GROWTH & INCOME
INDEX CORE FUNDS INDEX FUND ADVISER SHARES
7/31/2010 $10,000.00 $10,000.00 $10,000.00
8/31/2010 9,529.27 9,553.69 9,242.88
9/30/2010 10,429.00 10,425.42 10,181.90
10/31/2010 10,836.53 10,866.19 10,572.36
11/30/2010 10,899.09 10,906.09 10,594.88
12/31/2010 11,637.93 11,614.04 11,294.92
1/31/2011 11,892.12 11,892.10 11,535.56
2/28/2011 12,325.09 12,301.71 11,858.92
3/31/2011 12,380.68 12,355.43 11,843.03
4/30/2011 12,749.19 12,716.53 12,249.34
5/31/2011 12,603.72 12,540.46 12,091.33
6/30/2011 12,377.37 12,318.96 11,856.29
7/31/2011 12,093.93 12,029.32 11,464.60
8/31/2011 11,368.35 11,173.96 10,726.40
9/30/2011 10,486.22 10,220.62 9,836.31
10/31/2011 11,693.10 11,350.48 11,035.68
11/30/2011 11,661.50 11,283.76 10,945.16
12/31/2011 11,757.35 11,287.94 10,972.69
1/31/2012 12,350.66 11,905.91 11,615.47
2/29/2012 12,873.13 12,421.03 12,114.58
3/31/2012 13,270.23 12,714.99 12,431.21
4/30/2012 13,183.19 12,593.26 12,211.66
5/31/2012 12,368.22 11,730.51 11,257.74
6/30/2012 12,852.62 12,127.27 11,605.30
7/31/2012 12,979.93 12,237.85 11,696.32
8/31/2012 13,303.88 12,558.98 12,098.34
9/30/2012 13,653.24 12,891.45 12,389.98
10/31/2012 13,417.75 12,733.97 12,154.49
11/30/2012 13,521.65 12,894.80 12,200.07
12/31/2012 13,687.36 13,111.05 12,299.97
1/31/2013 14,438.39 13,856.03 12,962.98
2/28/2013 14,629.74 13,988.51 13,046.81
3/31/2013 15,203.03 14,518.63 13,461.18
4/30/2013 15,451.88 14,696.06 13,659.59
5/31/2013 15,816.40 15,069.23 14,125.08
6/30/2013 15,611.25 14,844.19 13,925.20
7/31/2013 16,466.88 15,673.79 14,781.20
|
[END CHART]
Data from 7/31/10 to 7/31/13.*
See page 8 for benchmark definitions.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Growth & Income Fund Adviser Shares to the benchmarks.
*The performance of the Russell 3000 Index and the Lipper Multi-Cap Core Funds
Index is calculated from the end of the month, July 31, 2010, while the Adviser
Shares' inception date is August 1, 2010. There may be a slight variation of
performance numbers because of this difference.
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. Indexes are unmanaged
and you cannot invest directly in an index.
10 | USAA GROWTH & INCOME FUND
o TOP 10 HOLDINGS o
AS OF 7/31/2013
(% of Net Assets)
Citigroup, Inc. .......................................................... 2.4%
Pfizer, Inc. ............................................................. 2.1%
Gilead Sciences, Inc. .................................................... 2.1%
American International Group, Inc. ....................................... 2.0%
Hewlett-Packard Co. ...................................................... 1.8%
JPMorgan Chase & Co. ..................................................... 1.8%
Royal Caribbean Cruises Ltd. ............................................. 1.6%
Canadian Pacific Railway Ltd. ............................................ 1.6%
Johnson & Johnson......................................................... 1.5%
Microsoft Corp. .......................................................... 1.5%
|
o ASSET ALLOCATION -- 7/31/2013 o
[PIE CHART OF ASSET ALLOCATION]
FINANCIALS 18.4%
INFORMATION TECHNOLOGY 18.2%
HEALTH CARE 14.2%
CONSUMER DISCRETIONARY 13.6%
INDUSTRIALS 13.6%
ENERGY 8.4%
CONSUMER STAPLES 7.7%
MONEY MARKET INSTRUMENTS 2.3%
MATERIALS 2.1%
TELECOMMUNICATION SERVICES 1.1%
UTILITIES 0.3%
EXCHANGE-TRADED FUNDS* 0.2%
|
[END CHART]
* The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 14-23.
INVESTMENT OVERVIEW | 11
DISTRIBUTIONS TO SHAREHOLDERS
The following federal tax information related to the Fund's fiscal year ended
July 31, 2013, is provided for information purposes only and should not be used
for reporting to federal or state revenue agencies. Federal tax information for
the calendar year will be reported to you on Form 1099-DIV in January 2014.
100.00% of ordinary income distributions qualify for the dividends-received
deductions eligible to corporations.
For the fiscal year ended July 31, 2013, the Fund hereby designates the maximum
amount allowable of its net taxable income as qualified dividends taxed at
individual net capital gain rates.
For the fiscal year ended July 31, 2013, certain dividends paid by the Fund
qualify as interest-related dividends. The Fund designates $20,000 as qualifying
interest income.
12 | USAA GROWTH & INCOME FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF USAA GROWTH & INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the USAA Growth & Income Fund (one of the
portfolios constituting USAA Mutual Funds Trust) (the "Fund") as of July 31,
2013, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of July 31, 2013, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
USAA Growth & Income Fund at July 31, 2013, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the periods
indicated therein, in conformity with U.S. generally accepted accounting
principles.
/S/ ERNST & YOUNG LLP
San Antonio, Texas
September 17, 2013
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 13
PORTFOLIO OF INVESTMENTS
July 31, 2013
--------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------
EQUITY SECURITIES (97.8%)
COMMON STOCKS (97.6%)
CONSUMER DISCRETIONARY (13.6%)
------------------------------
ADVERTISING (0.8%)
663,695 Interpublic Group of Companies, Inc. $ 10,918
----------
APPAREL RETAIL (0.7%)
84,900 Abercrombie & Fitch Co. "A" 4,234
211,300 Ascena Retail Group, Inc.* 4,033
30,685 Buckle, Inc. 1,718
----------
9,985
----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.7%)
27,800 Fossil Group, Inc.* 3,055
79,800 Hanesbrands, Inc. 5,064
20,800 PVH Corp. 2,742
----------
10,861
----------
AUTO PARTS & EQUIPMENT (0.3%)
89,300 Delphi Automotive plc 4,797
----------
AUTOMOBILE MANUFACTURERS (0.6%)
64,700 Daimler AG ADR 4,477
121,900 General Motors Co.* 4,372
----------
8,849
----------
AUTOMOTIVE RETAIL (0.2%)
6,840 AutoZone, Inc.* 3,068
----------
BROADCASTING (0.7%)
178,770 CBS Corp. "B" 9,446
----------
CABLE & SATELLITE (0.5%)
171,100 Comcast Corp. "A" 7,713
----------
CASINOS & GAMING (0.5%)
220,700 International Game Technology 4,077
50,500 Las Vegas Sands Corp. 2,806
----------
6,883
----------
COMPUTER & ELECTRONICS RETAIL (0.2%)
60,500 Rent-A-Center, Inc. 2,419
----------
|
14 | USAA GROWTH & INCOME FUND
--------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------
DEPARTMENT STORES (0.5%)
130,530 Kohl's Corp. $ 6,915
----------
EDUCATION SERVICES (0.5%)
63,400 American Public Education, Inc.* 2,505
144,600 Grand Canyon Education, Inc.* 4,890
----------
7,395
----------
GENERAL MERCHANDISE STORES (1.5%)
78,000 Dollar General Corp.* 4,264
167,165 Dollar Tree, Inc.* 8,969
66,550 Family Dollar Stores, Inc. 4,576
53,500 Target Corp. 3,812
----------
21,621
----------
HOME IMPROVEMENT RETAIL (1.2%)
380,765 Lowe's Companies, Inc. 16,975
----------
HOMEBUILDING (0.5%)
337,200 D.R. Horton, Inc. 6,778
----------
HOMEFURNISHING RETAIL (0.6%)
111,000 Bed Bath & Beyond, Inc.* 8,488
----------
HOTELS, RESORTS & CRUISE LINES (2.4%)
114,900 Carnival Corp. 4,255
61,700 Hyatt Hotels Corp. "A"* 2,792
619,300 Royal Caribbean Cruises Ltd. 23,589
57,355 Starwood Hotels & Resorts Worldwide, Inc. 3,794
----------
34,430
----------
INTERNET RETAIL (0.1%)
5,100 Amazon.com, Inc.* 1,536
11,500 Expedia, Inc. 542
----------
2,078
----------
LEISURE PRODUCTS (0.2%)
55,795 Mattel, Inc. 2,345
----------
MOTORCYCLE MANUFACTURERS (0.3%)
71,200 Harley-Davidson, Inc. 4,042
----------
MOVIES & ENTERTAINMENT (0.4%)
86,400 Walt Disney Co. 5,586
----------
SPECIALTY STORES (0.2%)
38,100 PetSmart, Inc. 2,790
----------
Total Consumer Discretionary 194,382
----------
|
PORTFOLIO OF INVESTMENTS | 15
--------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------
CONSUMER STAPLES (7.7%)
-----------------------
BREWERS (0.9%)
138,725 Anheuser-Busch InBev N.V. ADR $ 13,277
----------
DRUG RETAIL (1.6%)
221,500 CVS Caremark Corp. 13,620
179,450 Walgreen Co. 9,017
----------
22,637
----------
HOUSEHOLD PRODUCTS (0.9%)
165,610 Procter & Gamble Co. 13,299
----------
HYPERMARKETS & SUPER CENTERS (1.1%)
198,325 Wal-Mart Stores, Inc. 15,457
----------
PACKAGED FOODS & MEAT (1.1%)
172,155 Green Mountain Coffee Roasters, Inc.* 13,287
65,900 Unilever N.V. 2,637
----------
15,924
----------
SOFT DRINKS (0.8%)
42,830 Monster Beverage Corp.* 2,612
99,700 PepsiCo, Inc. 8,329
----------
10,941
----------
TOBACCO (1.3%)
384,330 Altria Group, Inc. 13,475
10,000 Imperial Tobacco Group plc ADR 671
39,600 Philip Morris International, Inc. 3,532
----------
17,678
----------
Total Consumer Staples 109,213
----------
ENERGY (8.4%)
-------------
INTEGRATED OIL & GAS (2.4%)
147,800 BP plc ADR 6,125
100,830 Chevron Corp. 12,693
170,600 Occidental Petroleum Corp. 15,192
----------
34,010
----------
OIL & GAS DRILLING (1.6%)
67,900 Atwood Oceanics, Inc.* 3,825
134,525 Ensco plc "A" 7,714
91,800 Noble Corp. 3,507
99,200 SeaDrill Ltd. 4,234
86,900 Transocean Ltd. 4,098
----------
23,378
----------
|
16 | USAA GROWTH & INCOME FUND
--------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES (1.3%)
48,600 Cameron International Corp.* $ 2,882
154,800 Halliburton Co. 6,995
40,100 National-Oilwell Varco, Inc. 2,814
76,300 Oceaneering International, Inc. 6,187
----------
18,878
----------
OIL & GAS EXPLORATION & PRODUCTION (2.9%)
103,955 Anadarko Petroleum Corp. 9,202
64,600 ConocoPhillips 4,190
46,200 Continental Resources, Inc.* 4,264
314,000 Marathon Oil Corp. 11,417
111,500 Southwestern Energy Co.* 4,325
160,850 Whiting Petroleum Corp.* 8,279
----------
41,677
----------
OIL & GAS REFINING & MARKETING (0.2%)
64,200 Valero Energy Corp. 2,297
----------
Total Energy 120,240
----------
FINANCIALS (18.4%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (2.1%)
131,920 Ameriprise Financial, Inc. 11,741
26,615 BlackRock, Inc. 7,504
60,600 State Street Corp. 4,222
114,390 Waddell & Reed Financial, Inc. "A" 5,841
----------
29,308
----------
CONSUMER FINANCE (2.4%)
60,200 American Express Co. 4,441
291,300 Capital One Financial Corp. 20,105
79,400 Discover Financial Services 3,931
249,120 SLM Corp. 6,156
----------
34,633
----------
DIVERSIFIED BANKS (0.8%)
271,250 Wells Fargo & Co. 11,799
----------
INVESTMENT BANKING & BROKERAGE (0.7%)
253,000 E*Trade Financial Corp.* 3,770
222,000 Morgan Stanley 6,040
----------
9,810
----------
LIFE & HEALTH INSURANCE (1.4%)
114,955 AFLAC, Inc. 7,090
105,200 Lincoln National Corp. 4,384
|
PORTFOLIO OF INVESTMENTS | 17
--------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------
170,200 MetLife, Inc. $ 8,241
----------
19,715
----------
MULTI-LINE INSURANCE (2.0%)
610,635 American International Group, Inc.* 27,790
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (4.6%)
436,500 Bank of America Corp. 6,373
655,025 Citigroup, Inc. 34,153
451,210 JPMorgan Chase & Co. 25,146
----------
65,672
----------
PROPERTY & CASUALTY INSURANCE (0.7%)
330,512 Assured Guaranty Ltd. 7,152
108,980 XL Group plc 3,417
----------
10,569
----------
REGIONAL BANKS (2.6%)
227,000 CIT Group, Inc.* 11,375
225,300 Fifth Third Bancorp 4,333
349,800 First Niagara Financial Group, Inc. 3,739
237,250 PNC Financial Services Group, Inc. 18,043
----------
37,490
----------
SPECIALIZED FINANCE (0.5%)
37,120 IntercontinentalExchange, Inc.* 6,773
----------
THRIFTS & MORTGAGE FINANCE (0.6%)
285,300 New York Community Bancorp, Inc. 4,328
303,800 People's United Financial, Inc. 4,557
----------
8,885
----------
Total Financials 262,444
----------
HEALTH CARE (14.2%)
-------------------
BIOTECHNOLOGY (3.3%)
133,660 Amgen, Inc. 14,474
481,100 Gilead Sciences, Inc.* 29,564
32,700 Vertex Pharmaceuticals, Inc.* 2,609
----------
46,647
----------
HEALTH CARE DISTRIBUTORS (0.4%)
65,100 Cardinal Health, Inc. 3,261
24,055 McKesson Corp. 2,950
----------
6,211
----------
HEALTH CARE EQUIPMENT (1.5%)
53,100 Baxter International, Inc. 3,878
79,555 Covidien plc 4,903
|
18 | USAA GROWTH & INCOME FUND
--------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------
100,900 Medtronic, Inc. $ 5,574
122,850 St. Jude Medical, Inc. 6,436
----------
20,791
----------
HEALTH CARE SERVICES (0.6%)
44,400 Express Scripts Holdings Co.* 2,910
93,200 Omnicare, Inc. 4,920
----------
7,830
----------
LIFE SCIENCES TOOLS & SERVICES (0.7%)
109,700 Thermo Fisher Scientific, Inc. 9,995
----------
MANAGED HEALTH CARE (2.1%)
214,195 Cigna Corp. 16,671
112,900 UnitedHealth Group, Inc. 8,225
65,228 WellPoint, Inc. 5,581
----------
30,477
----------
PHARMACEUTICALS (5.6%)
155,400 AbbVie, Inc. 7,067
25,600 Allergan, Inc. 2,333
55,690 Eli Lilly and Co. 2,958
225,700 Johnson & Johnson 21,103
233,765 Merck & Co., Inc. 11,260
1,046,699 Pfizer, Inc. 30,595
68,000 Sanofi ADR 3,501
50,082 Zoetis, Inc. 1,493
----------
80,310
----------
Total Health Care 202,261
----------
INDUSTRIALS (13.6%)
-------------------
AEROSPACE & DEFENSE (2.3%)
52,700 B/E Aerospace, Inc.* 3,674
60,800 Boeing Co. 6,390
37,100 General Dynamics Corp. 3,166
75,315 Honeywell International, Inc. 6,249
64,800 Raytheon Co. 4,655
85,950 United Technologies Corp. 9,074
----------
33,208
----------
AIR FREIGHT & LOGISTICS (1.0%)
83,260 FedEx Corp. 8,826
62,800 United Parcel Service, Inc. "B" 5,451
----------
14,277
----------
AIRLINES (0.5%)
183,480 United Continental Holdings, Inc.* 6,394
----------
|
PORTFOLIO OF INVESTMENTS | 19
--------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING (0.4%)
93,230 Chicago Bridge & Iron Co. N.V. $ 5,555
----------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.9%)
168,520 AGCO Corp. 9,479
26,000 Caterpillar, Inc. 2,156
106,500 Titan International, Inc. 1,836
----------
13,471
----------
ELECTRICAL COMPONENTS & EQUIPMENT (2.1%)
82,441 Belden, Inc. 4,832
296,225 Eaton Corp. plc 20,425
65,300 Emerson Electric Co. 4,007
----------
29,264
----------
INDUSTRIAL CONGLOMERATES (0.7%)
107,200 Danaher Corp. 7,219
112,600 General Electric Co. 2,744
----------
9,963
----------
INDUSTRIAL MACHINERY (1.6%)
138,730 Flowserve Corp. 7,863
40,500 Illinois Tool Works, Inc. 2,918
71,700 Pentair Ltd. 4,379
53,100 SPX Corp. 4,057
48,900 Stanley Black & Decker, Inc. 4,138
----------
23,355
----------
MARINE PORTS & SERVICES (0.5%)
222,300 Norwegian Cruise Line Holdings Ltd.* 6,727
----------
OFFICE SERVICES & SUPPLIES (0.2%)
94,300 Herman Miller, Inc. 2,651
----------
RAILROADS (2.2%)
189,200 Canadian Pacific Railway Ltd. 23,249
112,560 Norfolk Southern Corp. 8,235
----------
31,484
----------
SECURITY & ALARM SERVICES (0.3%)
127,300 Tyco International Ltd. 4,431
----------
TRADING COMPANIES & DISTRIBUTORS (0.6%)
106,310 WESCO International, Inc.* 8,056
----------
TRUCKING (0.3%)
173,800 Hertz Global Holdings, Inc.* 4,451
----------
Total Industrials 193,287
----------
|
20 | USAA GROWTH & INCOME FUND
--------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (18.2%)
------------------------------
APPLICATION SOFTWARE (0.8%)
234,300 Adobe Systems, Inc.* $ 11,078
----------
COMMUNICATIONS EQUIPMENT (1.9%)
778,250 Cisco Systems, Inc. 19,884
403,880 JDS Uniphase Corp.* 5,925
24,105 QUALCOMM, Inc. 1,556
----------
27,365
----------
COMPUTER HARDWARE (3.1%)
40,210 Apple, Inc. 18,195
997,900 Hewlett-Packard Co. 25,626
----------
43,821
----------
COMPUTER STORAGE & PERIPHERALS (1.3%)
611,345 EMC Corp. 15,987
46,860 SanDisk Corp.* 2,583
----------
18,570
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.3%)
86,908 Global Payments, Inc. 4,025
----------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
69,900 Molex, Inc. 2,085
----------
INTERNET SOFTWARE & SERVICES (3.9%)
103,700 eBay, Inc.* 5,360
281,000 Facebook, Inc. "A"* 10,349
22,770 Google, Inc. "A"* 20,211
95,570 IAC/InterActiveCorp. 4,837
72,000 Rackspace Hosting, Inc.* 3,261
185,100 Web.com Group, Inc.* 4,809
256,100 Yahoo! Inc.* 7,194
----------
56,021
----------
IT CONSULTING & OTHER SERVICES (0.7%)
40,700 Cognizant Technology Solutions Corp. "A"* 2,946
284,847 iGATE Corp.* 6,640
----------
9,586
----------
SEMICONDUCTOR EQUIPMENT (0.2%)
173,600 Applied Materials, Inc. 2,831
----------
SEMICONDUCTORS (3.1%)
115,400 Broadcom Corp. "A" 3,181
378,800 Intel Corp. 8,826
108,800 Microchip Technology, Inc. 4,324
|
PORTFOLIO OF INVESTMENTS | 21
--------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------
573,755 NXP Semiconductors N.V.* $ 18,733
222,500 Texas Instruments, Inc. 8,722
----------
43,786
----------
SYSTEMS SOFTWARE (2.8%)
115,600 CA, Inc. 3,438
132,970 Check Point Software Technologies Ltd.* 7,488
662,510 Microsoft Corp. 21,088
237,385 Oracle Corp. 7,679
----------
39,693
----------
Total Information Technology 258,861
----------
MATERIALS (2.1%)
----------------
CONSTRUCTION MATERIALS (0.2%)
168,800 CRH plc ADR 3,563
----------
DIVERSIFIED CHEMICALS (0.5%)
126,100 E.I. du Pont de Nemours & Co. 7,275
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.5%)
68,000 Monsanto Co. 6,717
----------
GOLD (0.1%)
135,610 Barrick Gold Corp. 2,301
----------
PAPER PRODUCTS (0.5%)
136,900 International Paper Co. 6,614
----------
SPECIALTY CHEMICALS (0.3%)
61,400 Rockwood Holdings, Inc. 4,159
----------
Total Materials 30,629
----------
TELECOMMUNICATION SERVICES (1.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.9%)
258,000 AT&T, Inc. 9,100
69,100 Verizon Communications, Inc. 3,419
----------
12,519
----------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
110,900 Vodafone Group plc ADR 3,321
----------
Total Telecommunication Services 15,840
----------
UTILITIES (0.3%)
----------------
ELECTRIC UTILITIES (0.3%)
50,695 NextEra Energy, Inc. 4,391
----------
Total Common Stocks (cost: $1,103,296) 1,391,548
----------
|
22 | USAA GROWTH & INCOME FUND
--------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (0.2%)
15,500 SPDR S&P MidCap 400 ETF Trust (cost: $2,789) $ 3,471
----------
Total Equity Securities (cost: $1,106,085) 1,395,019
----------
MONEY MARKET INSTRUMENTS (2.3%)
MONEY MARKET FUNDS (2.3%)
32,758,521 State Street Institutional Liquid Reserve Fund, 0.08%(a) (cost: $32,759) 32,759
----------
TOTAL INVESTMENTS (COST: $1,138,844) $1,427,778
==========
|
---------------------------------------------------------------------------------------------------
($ 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
---------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $1,391,548 $- $- $1,391,548
Exchange-Traded Funds 3,471 - - 3,471
Money Market Instruments:
Money Market Funds 32,759 - - 32,759
---------------------------------------------------------------------------------------------------
Total $1,427,778 $- $- $1,427,778
---------------------------------------------------------------------------------------------------
|
For the period of August 1, 2012, through July 31, 2013, 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.
PORTFOLIO OF INVESTMENTS | 23
NOTES TO PORTFOLIO OF INVESTMENTS
July 31, 2013
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.
Investments in foreign securities were 11.5% of net assets at July 31, 2013.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
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) Rate represents the money market fund annualized seven-day yield at
July 31, 2013.
* Non-income-producing security.
See accompanying notes to financial statements.
24 | USAA GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
July 31, 2013
ASSETS
Investments in securities, at market value (cost of $1,138,844) $1,427,778
Receivables:
Capital shares sold 835
USAA Asset Management Company (Note 6D) 3
Dividends and interest 1,451
Securities sold 1,769
----------
Total assets 1,431,836
----------
LIABILITIES
Payables:
Securities purchased 4,111
Capital shares redeemed 669
Accrued management fees 672
Accrued transfer agent's fees 61
Other accrued expenses and payables 108
----------
Total liabilities 5,621
----------
Net assets applicable to capital shares outstanding $1,426,215
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,206,379
Accumulated undistributed net investment income 645
Accumulated net realized loss on investments (69,743)
Net unrealized appreciation of investments 288,934
----------
Net assets applicable to capital shares outstanding $1,426,215
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,418,296/73,144 shares outstanding) $ 19.39
==========
Adviser Shares (net assets of $7,919/409 shares outstanding) $ 19.34
==========
|
See accompanying notes to financial statements.
FINANCIAL STATEMENTS | 25
STATEMENT OF OPERATIONS (IN THOUSANDS)
Year ended July 31, 2013
`
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $231) $ 25,357
Interest 38
--------
Total income 25,395
--------
EXPENSES
Management fees 7,310
Administration and servicing fees:
Fund Shares 1,893
Adviser Shares 11
Transfer agent's fees:
Fund Shares 2,432
Distribution and service fees (Note 6F):
Adviser Shares 17
Custody and accounting fees:
Fund Shares 215
Adviser Shares 1
Postage:
Fund Shares 107
Shareholder reporting fees:
Fund Shares 74
Trustees' fees 13
Registration fees:
Fund Shares 32
Adviser Shares 27
Professional fees 114
Other 24
--------
Total expenses 12,270
Expenses paid indirectly:
Fund Shares (8)
Expenses reimbursed:
Adviser Shares (7)
--------
Net expenses 12,255
--------
NET INVESTMENT INCOME 13,140
--------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 133,766
Foreign currency transactions (2)
Change in net unrealized appreciation/depreciation 159,099
--------
Net realized and unrealized gain 292,863
--------
Increase in net assets resulting from operations $306,003
========
|
See accompanying notes to financial statements.
26 | USAA GROWTH & INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Years ended July 31,
--------------------------------------------------------------------------------
2013 2012
--------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 13,140 $ 10,444
Net realized gain on investments 133,766 29,070
Net realized loss on foreign currency transactions (2) -
Change in net unrealized appreciation/depreciation
of investments 159,099 (13,347)
-----------------------
Increase in net assets resulting from operations 306,003 26,167
-----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (12,941) (10,420)
Adviser Shares (52) (41)
-----------------------
Distributions to shareholders (12,993) (10,461)
-----------------------
NET DECREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares (25,659) (16,286)
Adviser Shares 101 (7)
-----------------------
Total net decrease in net assets from capital
share transactions (25,558) (16,293)
-----------------------
Net increase (decrease) in net assets 267,452 (587)
NET ASSETS
Beginning of year 1,158,763 1,159,350
-----------------------
End of year $1,426,215 $1,158,763
=======================
Accumulated undistributed net investment income:
End of year $ 645 $ 505
=======================
|
See accompanying notes to financial statements.
FINANCIAL STATEMENTS | 27
NOTES TO FINANCIAL STATEMENTS
July 31, 2013
(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 annual report pertains only to the USAA Growth &
Income Fund (the Fund), which is classified as diversified under the 1940 Act.
The Fund's investment objectives are capital growth and, secondarily, current
income.
The Fund has two classes of shares: Growth & Income Fund Shares (Fund Shares)
and Growth & Income Fund Adviser Shares (Adviser Shares). Each class of shares
has equal rights to assets and earnings, except that each class bears certain
class-related expenses specific to the particular class. These expenses include
administration and servicing fees, transfer agent fees, postage, shareholder
reporting fees, distribution and service (12b-1) fees, and certain registration
and custodian fees. Expenses not attributable to a specific class, income, and
realized gains or losses on investments are allocated to each class of shares
based on each class's relative net assets. Each class has exclusive voting
rights on matters related solely to that class and separate voting rights on
matters that relate to both classes. The Adviser Shares permit investors to
purchase shares through financial intermediaries, banks, broker-dealers,
insurance companies, investment advisers, plan sponsors, and financial
professionals that provide various administrative and distribution services.
A. SECURITY VALUATION -- The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to 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
28 | USAA GROWTH & INCOME 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 USAA Asset Management Company
(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. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the foreign
markets may be closed. Therefore, the
NOTES TO FINANCIAL STATEMENTS | 29
calculation of the Fund's net asset value (NAV) may not take place at the
same time the prices of certain foreign securities held by the Fund are
determined. In most cases, events affecting the values of foreign
securities that occur between the time of their last quoted sales or
official closing prices and the close of normal trading on the NYSE on a
day the Fund's NAV is calculated will not be reflected in the value of the
Fund's foreign securities. However, the Manager, an affiliate of the
Fund, and the Fund's subadviser, if applicable, will monitor for events
that would materially affect the value of the Fund's foreign securities.
The Fund's subadviser has agreed to notify the Manager of significant
events it identifies that would materially affect the value of the Fund's
foreign securities. If the Manager determines that a particular event
would materially affect the value of the Fund's foreign securities, then
the Manager, under valuation procedures approved by the Board, will
consider such available information that it deems relevant to determine a
fair value for the affected foreign securities. In addition, the Fund may
use information from an external vendor or other sources to adjust the
foreign market closing prices of foreign equity securities to reflect what
the Fund believes to be the fair value of the securities as of the close
of the NYSE. Fair valuation of affected foreign equity securities may
occur frequently based on an assessment that events that occur on a fairly
regular basis (such as U.S. market movements) are significant.
3. 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.
4. Debt securities purchased with original or remaining maturities of 60 days
or less may be valued at amortized cost, which approximates market value.
5. 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
30 | USAA GROWTH & INCOME FUND
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.
6. Repurchase agreements are valued at cost, which approximates market value.
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 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
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
NOTES TO FINANCIAL STATEMENTS | 31
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. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income tax provision is required.
D. 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.
E. 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
32 | USAA GROWTH & INCOME FUND
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.
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.
F. EXPENSES PAID INDIRECTLY -- A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition, 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. Effective January 1, 2013, the Fund's custodian suspended
the bank
NOTES TO FINANCIAL STATEMENTS | 33
credit arrangement. For the year ended July 31, 2013, brokerage commission
recapture credits reduced the Fund Shares' and Adviser Shares' expenses by
$8,000 and less than $500, respectively. For the year ended July 31, 2013,
custodian and other bank credits reduced the Fund's expenses by less than
$500.
G. 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.
H. 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 a rate per annum equal to
the rate at which CAPCO obtains funding in the capital markets, with no markup.
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. Prior to September 30, 2012, the Funds were assessed facility fees by
CAPCO in the amount of 7.5 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.
34 | USAA GROWTH & INCOME FUND
For the year ended July 31, 2013, the Fund paid CAPCO facility fees of $8,000,
which represents 2.2% of the total fees paid to CAPCO by the USAA Funds. The
Fund had no borrowings under this agreement during the year ended July 31, 2013.
(3) DISTRIBUTIONS
The character of any distributions made during the year from net investment
income or net realized gains is determined in accordance with federal tax
regulations and may differ from those determined in accordance with U.S.
generally accepted accounting principles. Also, due to the timing of
distributions, the fiscal year in which amounts are distributed may differ from
the year that the income or realized gains were recorded by the Fund.
During the current fiscal year, permanent differences between book-basis and
tax-basis accounting for foreign currency and non-REIT return of capital
adjustments resulted in reclassifications to the statement of assets and
liabilities to decrease accumulated undistributed net investment income and
accumulated net realized loss on investments by $7,000. These reclassifications
had no effect on net assets.
The tax character of distributions paid during the years ended July 31, 2013,
and 2012, was as follows:
2013 2012
-----------------------------
Ordinary income* $12,993,000 $10,461,000
|
* Includes distribution of short-term realized capital gains, if any, which are
taxable as ordinary income.
As of July 31, 2013, the components of net assets representing distributable
earnings on a tax basis were as follows:
Undistributed ordinary income $ 375,000
Accumulated capital and other losses (58,193,000)
Unrealized appreciation of investments 277,656,000
|
The difference between book-basis and tax-basis unrealized appreciation of
investments is attributable to the tax deferral of losses on wash sales and
return of capital dividend adjustments.
NOTES TO FINANCIAL STATEMENTS | 35
Distributions of net investment income are made quarterly. Distributions of
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.
Under the Regulated Investment Company Modernization Act of 2010 (the Act) a
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 carryforwards.
As a result, pre-enactment capital loss carryforwards may be more likely to
expire unused.
For the year ended July 31, 2013, the Fund utilized pre-enactment capital loss
carryforwards of $133,899,000, to offset capital gains. At July 31, 2013, the
Fund had pre-enactment capital loss carryforwards of $58,193,000, and no
post-enactment capital loss carryforwards, for federal income tax purposes. If
not offset by subsequent capital gains, the pre-enactment capital loss
carryforwards will expire in 2018. 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 year ended July 31, 2013, 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 remain 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 year ended July 31, 2013, were $1,393,053,000 and
$1,435,331,000, respectively.
As of July 31, 2013, the cost of securities, including short-term securities,
for federal income tax purposes, was $1,150,122,000.
36 | USAA GROWTH & INCOME FUND
Gross unrealized appreciation and depreciation of investments as of July 31,
2013, for federal income tax purposes, were $282,028,000 and $4,372,000,
respectively, resulting in net unrealized appreciation of $277,656,000.
(5) CAPITAL SHARE TRANSACTIONS
At July 31, 2013, there were an unlimited number of shares of capital stock at
no par value authorized for the Fund.
Capital share transactions for all classes were as follows, in thousands:
YEAR ENDED YEAR ENDED
JULY 31, 2013 JULY 31, 2012
-------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------
FUND SHARES:
Shares sold 9,260 $ 159,608 10,309 $ 154,239
Shares issued from
reinvested dividends 754 12,733 699 10,245
Shares redeemed (11,498) (198,000) (12,060) (180,770)
--------------------------------------------
Net decrease from capital
share transactions (1,484) $ (25,659) (1,052) $ (16,286)
============================================
ADVISER SHARES:
Shares sold 7 $ 123 3 $ 45
Shares issued from
reinvested dividends -* 1 -* 1
Shares redeemed (2) (23) (4) (53)
--------------------------------------------
Net increase (decrease) from
capital share transactions 5 $ 101 (1) $ (7)
============================================
|
*Represents less than 500 shares
(6) 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, subject to the
authority of and supervision by the Board. The Manager 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 the Fund's
assets. The
NOTES TO FINANCIAL STATEMENTS | 37
Manager monitors each subadviser's performance through quantitative and
qualitative analysis, and periodically recommends 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 subadvisers. The
allocation for each subadviser can range from 0% to 100% of the Fund's
assets, and the Manager can change the allocations without shareholder
approval.
The investment management fee for the Fund is composed of a base fee and a
performance adjustment. The base fee is accrued daily and paid monthly at an
annualized rate of 0.60% of the Fund's average net assets for the fiscal
year.
The performance adjustment is calculated separately for each share class on a
monthly basis by comparing each class's performance to that of the Lipper
Multi-Cap Core Funds Index over the performance period. The Lipper Multi-Cap
Core Funds Index tracks the total return performance of the 30 largest funds
in the Lipper Multi-Cap Core Funds category. The performance period for each
class consists of the current month plus the previous 35 months. The
performance adjustment for the Adviser Shares includes the performance of the
Fund Shares for periods prior to August 1, 2010. The following table is
utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1)
--------------------------------------------------------------------------------
+/- 1.00% to 4.00% +/- 0.04%
+/- 4.01% to 7.00% +/- 0.05%
+/- 7.01% and greater +/- 0.06%
|
(1)Based on the difference between average annual performance of the relevant
share class of the Fund and its relevant index, rounded to the nearest
basis point (0.01%). Average net assets of the share class are calculated
over a rolling 36-month period.
Each class's annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period, which
is then multiplied by a fraction, the numerator of which is the number of
days in the month and the denominator of which is 365 (366 in leap years).
The resulting
38 | USAA GROWTH & INCOME FUND
amount is the performance adjustment; a positive adjustment in the case of
overperformance, or a negative adjustment in the case of underperformance.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Multi-Cap Core Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the year ended July 31, 2013, the Fund incurred total management fees,
paid or payable to the Manager, of $7,310,000, which included a performance
adjustment for the Fund Shares and Adviser Shares of $(304,000) and $(2,000),
respectively. For the Fund Shares and Adviser Shares, the performance
adjustments were (0.02)% and (0.02)%, respectively.
B. SUBADVISORY ARRANGEMENT(S) -- The Manager has entered into investment
subadvisory agreements with Wellington Management Company, LLP (Wellington
Management) and Barrow, Hanley, Mewhinney & Strauss, LLC (BHMS), under which
Wellington Management and BHMS direct the investment and reinvestment of
portions of the Fund's assets (as allocated from time to time by the
Manager).
The Manager (not the Fund) pays Wellington Management a subadvisory fee in an
annual amount of 0.20% of the portion of the Fund's average net assets that
Wellington Management manages. For the year ended July 31, 2013, the Manager
incurred subadvisory fees, paid or payable to Wellington Management, of
$875,000.
The Manager (not the Fund) pays BHMS a subadvisory fee based on the aggregate
net assets that BHMS manages in the USAA Value Fund and the USAA Growth &
Income Fund combined, in an annual amount of 0.75% of the first $15 million
of assets, 0.55% on assets over $15 million and up to $25 million, 0.45% on
assets over $25 million and up to $100 million, 0.35% on assets over $100
million and up to $200 million, 0.25% on assets over $200 million and up to
$1 billion, and 0.15% on assets over $1 billion. For the year ended
NOTES TO FINANCIAL STATEMENTS | 39
July 31, 2013, the Manager incurred subadvisory fees, paid or payable to
BHMS, of $736,000.
Effective November 12, 2012, the Manager terminated its investment
subadvisory agreement with Loomis, Sayles & Company L.P. (Loomis Sayles).
For the year ended July 31, 2013, the Manager incurred subadvisory fees, paid
or payable to Loomis Sayles, of $153,000.
Effective November 12, 2012, the Manager terminated its investment
subadvisory agreement with UBS Global Asset Management (Americas) Inc. (UBS).
For the year ended July 31, 2013, the Manager incurred subadvisory fees, paid
or payable to UBS, of $247,000.
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 average net assets for both the Fund Shares and Adviser Shares.
For the year ended July 31, 2013, the Fund Shares and Adviser Shares incurred
administration and servicing fees, paid or payable to the Manager, of
$1,893,000 and $11,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain 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
year ended July 31, 2013, the Fund reimbursed the Manager $39,000 for these
compliance and legal services. These expenses are included in the
professional fees on the Fund's statement of operations.
D. EXPENSE LIMITATION -- The Manager has agreed, through December 1, 2013, to
limit the annual expenses of the Adviser Shares to 1.30% of its average net
assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and will reimburse the Adviser Shares for all
expenses in excess of that amount. This expense limitation arrangement may
not be changed or terminated through December 1, 2013, without approval of
the Board, and may be changed
40 | USAA GROWTH & INCOME FUND
or terminated by the Manager at any time after that date. For the year ended
July 31, 2013, the Adviser Shares incurred reimbursable expenses of $7,000,
of which $3,000 was receivable from the Manager.
E. 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. Transfer agent's fees for both the Fund Shares and
Adviser Shares are paid monthly based on an annual charge of $23 per
shareholder account plus out-of-pocket expenses. The Fund Shares and Adviser
Shares also pay SAS fees that are related to the administration and servicing
of accounts that are traded on an omnibus basis. For the year ended July 31,
2013, the Fund Shares and Adviser Shares incurred transfer agent's fees, paid
or payable to SAS, of $2,432,000 and less than $500, respectively.
F. DISTRIBUTION AND SERVICE (12b-1) FEES -- The Fund has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser Shares.
Under the plan, the Adviser Shares pay fees to USAA Investment Management
Company, the distributor, for distribution and shareholder services. USAA
Investment Management Company pays all or a portion of such fees to
intermediaries that make the Adviser Shares available for investment by their
customers. The fee is accrued daily and paid monthly at an annual rate of
0.25% of the Adviser Shares average net assets. Adviser Shares are offered
and sold without imposition of an initial sales charge or a contingent
deferred sales charge. For the year ended July 31, 2013, the Adviser Shares
incurred distribution and service (12b-1) fees of $17,000.
G. 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.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At
NOTES TO FINANCIAL STATEMENTS | 41
July 31, 2013, USAA and its affiliates owned 398,000 shares, which represent
97.1% of the Adviser Shares and 0.5% of the Fund.
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.
(8) NEW ACCOUNTING PRONOUNCEMENTS
OFFSETTING ASSETS AND LIABILITIES -- In December 2011, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-11,
Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.
The amendments in the ASU enhance disclosures about offsetting of financial
assets and liabilities to enable investors to understand the effect of these
arrangements on a fund's financial position. In January 2013, FASB issued ASU
No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures
about Offsetting Assets and Liabilities. The amendments in ASU No. 2013-01
clarify the scope of disclosures required by ASU No. 2011-11. These ASUs are
effective for annual periods beginning on or after January 1, 2013, and interim
periods within those annual periods. The Fund believes the adoption of these
ASUs will not have a material impact on its financial statement disclosures.
42 | USAA GROWTH & INCOME FUND
(9) FINANCIAL HIGHLIGHTS -- FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
YEAR ENDED JULY 31,
--------------------------------------------------------------------
2013 2012 2011 2010 2009
--------------------------------------------------------------------
Net asset value at
beginning of period $ 15.44 $ 15.24 $ 13.06 $ 11.35 $ 14.86
Income (loss) from investment
operations:
Net investment income .18 .14 .11 .08 .11
Net realized and unrealized
gain (loss) 3.95 .20 2.17 1.71 (3.51)
--------------------------------------------------------------------
Total from investment
operations 4.13 .34 2.28 1.79 (3.40)
--------------------------------------------------------------------
Less distributions from:
Net investment income (.18) (.14) (.10) (.08) (.11)
--------------------------------------------------------------------
Net asset value at
end of period $ 19.39 $ 15.44 $ 15.24 $ 13.06 $ 11.35
====================================================================
Total return (%)* 26.90 2.28 17.50 15.74(a) (22.81)
Net assets at
end of period (000) $1,418,296 $1,152,540 $1,153,199 $1,031,233 $927,126
Ratios to average
net assets:**
Expenses (%)(b) .96 1.01 .98 1.04(a) 1.12
Net investment income (%) 1.04 .93 .72 .60 .99
Portfolio turnover (%) 112(c) 51 52 91 100
* 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 year ended July 31, 2013, average net assets were $1,263,578,000.
(a) During the year ended July 31, 2010, SAS reimbursed the Fund Shares $167,000 for corrections
in fees paid for the administration and servicing of certain accounts. The effect of this
reimbursement on the Fund Shares' total return was less than 0.01%. The reimbursement decreased
the Fund Shares' expense ratios by 0.02%. This decrease is excluded from the expense ratios in
the Financial Highlights table.
(b) Reflects total operating expenses of the Fund Shares before reductions of any expenses paid
indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows:
(.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.01%)
(+) Represents less than 0.01% of average net assets.
(c) Reflects increased trading activity due to changes in subadvisers.
|
NOTES TO FINANCIAL STATEMENTS | 43
(9) FINANCIAL HIGHLIGHTS (continued) -- ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
YEAR ENDED JULY 31, PERIOD ENDED
------------------------ JULY 31,
2013 2012 2011***
--------------------------------------------
Net asset value at beginning of period $15.42 $15.22 $13.34
-----------------------------------------
Income from investment operations:
Net investment income .12 .10 .05
Net realized and unrealized gain 3.93 .20 1.90
-----------------------------------------
Total from investment operations 4.05 .30 1.95
-----------------------------------------
Less distributions from:
Net investment income (.13) (.10) (.07)
-----------------------------------------
Net asset value at end of period $19.34 $15.42 $15.22
=========================================
Total return (%)* 26.37 2.02 14.65
Net assets at end of period (000) $7,919 $6,223 $6,151
Ratios to average net assets:**
Expenses (%)(a) 1.30 1.30 1.30(b)
Expenses, excluding reimbursements (%)(a) 1.39 1.43 1.83(b)
Net investment income (%) .70 .64 .35(b)
Portfolio turnover (%) 112(c) 51 52
|
* 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 year ended July 31, 2013, average net assets were $6,957,000.
*** Adviser Shares were initiated on August 1, 2010.
(a) Reflects total operating expenses of the Adviser Shares before reductions of
any expenses paid indirectly. The Adviser Shares' expenses paid indirectly
decreased the expense ratios by less than 0.01%.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Reflects increased trading activity due to changes in subadvisers.
44 | USAA GROWTH & INCOME FUND
EXPENSE EXAMPLE
July 31, 2013 (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, distribution and service
(12b-1) 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 February 1, 2013, through
July 31, 2013.
ACTUAL EXPENSES
The line labeled "actual" under each share class in 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 for your share
class in the "actual" 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 line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not
EXPENSE EXAMPLE | 45
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 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 line labeled "hypothetical"
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 FEBRUARY 1, 2013 -
FEBRUARY 1, 2013 JULY 31, 2013 JULY 31, 2013
-----------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,141.80 $4.99
Hypothetical
(5% return before expenses) 1,000.00 1,020.13 4.71
ADVISER SHARES
Actual 1,000.00 1,140.30 6.90
Hypothetical
(5% return before expenses) 1,000.00 1,018.35 6.51
|
* Expenses are equal to the Fund's annualized expense ratio of 0.94% for Fund
Shares and 1.30% for Adviser Shares, which are net of any 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 actual ending account values are based on its actual total returns of
14.18% for Fund Shares and 14.03% for Adviser Shares for the six-month period
of February 1, 2013, through July 31, 2013.
46 | USAA GROWTH & INCOME FUND
ADVISORY AGREEMENT(S)
July 31, 2013
At a meeting of the Board of Trustees (the Board) held on April 30, 2013, 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 and the Subadvisory
Agreements between the Manager and the Subadvisers 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 Agreements and
the Manager and the Subadvisers, 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 Subadvisers' operations and personnel.
Prior to voting, the Independent Trustees reviewed the proposed continuance of
the Advisory Agreement and the Subadvisory Agreements 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 Agreements with
respect to the Fund. The Independent Trustees also reviewed the proposed
continuation of the Advisory Agreement and the Subadvisory Agreements 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
ADVISORY AGREEMENT(S) | 47
by each Subadviser. At the meeting at which the renewal of the Advisory
Agreement and Subadvisory Agreements are 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 Subadvisers is an ongoing one. In
this regard, the Board's and its committees' consideration of the Advisory
Agreement and Subadvisory Agreements included 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 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 performance of the Subadvisers and its
48 | USAA GROWTH & INCOME FUND
timeliness in responding to performance issues. The allocation of the Fund's
brokerage, including the Manager's process for monitoring "best execution" and
the utilization of "soft dollars," also was 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 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 objective and classification,
sales load type (in this case, 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 load
and no-load retail open-end investment companies in the same investment
classification/objective 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 and the effects of any performance adjustment -- was below the median
of its expense group and 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
ADVISORY AGREEMENT(S) | 49
into account the various services provided to the Fund by the Manager and its
affiliates. The Board also noted the level and method of computing the
management fee, including any performance adjustment to such fee. The Trustees
also took into account that the subadvisory fees under the Subadvisory
Agreements are paid by the Manager. The Board also considered and discussed
information about the Subadvisers' fees, including the amount of management fees
retained by the Manager after payment of the subadvisory fees. 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 the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison indicated that, among other data, the Fund's
performance was lower than the average of its performance universe and its
Lipper index for the one-, three-, and five-year periods ended December 31,
2012. The Board also noted that the Fund's percentile performance ranking was in
the bottom 50% of its performance universe for the one-, three-, and five-year
period endings December 31, 2012. The Board took into account management's
discussion of the Fund's performance, including the factors that contributed to
the Fund's underperformance. The Board also took into account recent steps taken
by management to address the Fund's performance.
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
50 | USAA GROWTH & INCOME FUND
allocation of 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 entitled 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 current advisory fee structure. The Board also considered the effect of
the Fund's growth and size on its performance and fees, noting 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 noted
that the Manager pays the 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 being
addressed; (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 their relationship
with the Fund 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) | 51
SUBADVISORY AGREEMENTS
In approving each Subadvisory Agreement with respect to the Fund, the Board
considered various factors, among them: (i) the nature, extent, and quality of
services provided to the Fund by the respective Subadviser, including the
personnel providing services; (ii) each 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 each 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 each Subadvisory Agreement. In approving each 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 Subadvisers, including information presented periodically throughout the
previous year. The Board considered each 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 each Subadviser's level of
staffing. The Trustees noted that the materials provided to them by each
Subadviser 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 each
Subadviser's brokerage practices. The Board also considered each Subadviser's
regulatory and compliance history. The Board also took into account each
Subadviser's risk management processes. The Board noted that the Manager's
monitoring processes of each 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.
52 | USAA GROWTH & INCOME FUND
SUBADVISER COMPENSATION -- The Board also took into consideration the financial
condition of each Subadviser. In considering the cost of services to be provided
by each Subadviser and the profitability to that Subadviser of its relationship
with the Fund, the Trustees noted that the fees under the Subadvisory Agreements
were paid by the Manager. The Trustees also relied on the ability of the Manager
to negotiate the Subadvisory Agreements and the fees thereunder at arm's length.
For the above reasons, the Board determined that the profitability of each
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 each Subadviser's management of the Fund was
not a material factor in considering the Subadvisory Agreement, although the
Board noted that one of the Subadvisory Agreements contains breakpoints in its
fee schedule.
SUBADVISORY FEES AND PERFORMANCE -- The Board compared the subadvisory fees for
the Fund with the fees that each Subadviser charges to comparable clients, as
applicable. The Board considered that the Fund pays a management fee to the
Manager and that, in turn, the Manager pays subadvisory fees to each Subadviser.
As noted previously, the Board considered, among other data, the Fund's
performance during the one-, three-, and five-year periods ended December 31,
2012, 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
each Subadviser. The Board was mindful of the Manager's focus on each
Subadviser's performance and the explanations of management regarding the
factors that contributed to the performance of the Fund. The Board also noted
each Subadviser's long-term performance record for similar accounts, as
applicable.
CONCLUSIONS -- The Board reached the following conclusions regarding each
Subadvisory Agreement, among others: (i) each Subadviser is qualified to manage
the Fund's assets in accordance with its investment objectives and policies;
(ii) each Subadviser maintains an appropriate
ADVISORY AGREEMENT(S) | 53
compliance program; (iii) the performance of the Fund is being addressed; 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 each Subadviser.
Based on its conclusions, the Board determined that approval of each Subadvisory
Agreement with respect to the Fund would be in the best interests of the Fund
and its shareholders.
54 | USAA GROWTH & INCOME FUND
TRUSTEES' AND OFFICERS' INFORMATION
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees (the Board) of the Trust consists of six Trustees. These
Trustees and the Trust's Officers supervise the business affairs of the USAA
family of funds. The Board is responsible for the general oversight of the
funds' business and for assuring that the funds are managed in the best
interests of each fund's respective shareholders. The Board periodically reviews
the funds' investment performance as well as the quality of other services
provided to the funds and their shareholders by each of the fund's service
providers, including USAA Asset Management Company (AMCO) and its affiliates.
The term of office for each Trustee shall be 20 years or until the Independent
Trustee reaches age 72 or an Interested Trustee reaches age 65. The Board may
change or grant exceptions from this policy at any time without shareholder
approval. A Trustee may resign or be removed by a vote of the other Trustees or
the holders of a majority of the outstanding shares of the Trust at any time.
Vacancies on the Board can be filled by the action of a majority of the
Trustees, provided that at least two-thirds of the Trustees have been elected by
the shareholders.
Set forth below are the Trustees and Officers of the Trust, their respective
offices and principal occupations during the last five years, length of time
served, and information relating to any other directorships held. Each serves on
the Board of the USAA family of funds consisting of one registered investment
company offering 52 individual funds. Unless otherwise indicated, the business
address of each is 9800 Fredericksburg Road, San Antonio, TX 78288.
If you would like more information about the funds' Trustees, you may call (800)
531-USAA (8722) to request a free copy of the funds' statement of additional
information (SAI).
TRUSTEES' AND OFFICERS' INFORMATION | 55
INTERESTED TRUSTEE(1)
DANIEL S. MCNAMARA(2, 4)
Trustee, President, and Vice Chair of the Board of Trustees
Born: December 1966
Year of Election or Appointment: 2009
President, Financial Advice and Solutions Group, USAA (2/13-present); Director
of AMCO (01/12-present); President and Director, USAA Investment Management
Company (IMCO) and USAA Shareholder Account Services (SAS) (10/09-present);
Senior Vice President of USAA Financial Planning Services Insurance Agency, Inc.
(FPS) (04/11-present); President and Director of USAA Investment Management
Corporation (ICORP) (03/10-present); President and Director of USAA Financial
Advisors, Inc. (FAI) and FPS (10/09-04/11); President, Banc of America
Investment Advisors (9/07-9/09); Managing Director Planning and Financial
Products Group, Bank of America (09/01-09/09). Mr. McNamara brings to the Board
extensive experience in the financial services industry, including experience as
an officer of the Trust.
NON-INTERESTED (INDEPENDENT) TRUSTEES
ROBERT L. MASON, PH.D.(2, 3, 4, 5, 6)
Trustee and Chair
Born: July 1946
Year of Election or Appointment: 1997(+)
Institute Analyst, Southwest Research Institute (3/02-present), which focuses in
the fields of technological research. Dr. Mason brings to the Board particular
experience with information technology matters, statistical analysis, and human
resources as well as over 16 years' experience as a Board member of the USAA
family of funds. Dr. Mason holds no other directorships of any publicly held
corporations or other investment companies outside the USAA family of funds.
56 | USAA GROWTH & INCOME FUND
BARBARA B. OSTDIEK, PH.D.(3, 4, 5, 6, 7)
Trustee
Born: March 1964
Year of Election or Appointment: 2008
Associate Professor of Finance at Jesse H. Jones Graduate School of Business at
Rice University (7/01-present); Academic Director, El Paso Corporation Finance
Center at Jesse H. Jones Graduate School of Business at Rice University
(7/02-6/12). Dr. Ostdiek brings to the Board particular experience with
financial investment management, education, and research as well as over five
years' experience as a Board member of the USAA family of funds. Dr. Ostdiek
holds no other directorships of any publicly held corporations or other
investment companies outside the USAA family of funds.
MICHAEL F. REIMHERR(3, 4, 5, 6)
Trustee
Born: August 1945
Year of Election or Appointment: 2000
President of Reimherr Business Consulting (5/95-present), an organization that
performs business valuations of large companies to include the development of
annual business plans, budgets, and internal financial reporting. Mr. Reimherr
brings to the Board particular experience with organizational development,
budgeting, finance, and capital markets as well as over 13 years' experience as
a Board member of the USAA family of funds. Mr. Reimherr holds no other
directorships of any publicly held corporations or other investment companies
outside the USAA family of funds.
TRUSTEES' AND OFFICERS' INFORMATION | 57
PAUL L. MCNAMARA(3, 4, 5, 6)
Trustee
Born: July 1948
Year of Election or Appointment: 2012
Director, Cantor Opportunistic Alternatives Fund, LLC (3/10-present), which is a
closed-end fund of funds managed by Cantor Fitzgerald Investment Advisors. LLC.
Mr. McNamara retired from Lord Abbett & Co. LLC as an Executive Member in 9/09,
a position he held since 10/02. He had been employed at Lord Abbett since 1996.
Mr. McNamara brings to the Board extensive experience with the financial
services industry and, in particular, institutional and retail mutual fund
markets, including experience with mutual fund marketing, distribution, and risk
management, as well as overall experience with compliance and corporate
governance issues. Mr. McNamara also has experience serving as a fund director
as well as one year as a Board Member of the USAA family of funds. Mr. McNamara
holds no other directorships of any publicly held corporations or other
investment companies outside the USAA family of funds. Paul L. McNamara is no
relation to Daniel S. McNamara.
58 | USAA GROWTH & INCOME FUND
JEFFERSON C. BOYCE(3, 4, 5, 6)
Trustee
Born: September 1957
Year of Election or Appointment: 2013
Senior Managing Director, New York Life Investments, LLC (1992-2012); Vice
President, New Life Investments, LLC (1986-1992). Mr. Boyce brings to the Board
experience in financial investment management, and, in particular, institutional
and retail mutual funds, variable annuity products, broker dealers, and
retirement programs, including experience in organizational development,
marketing, product development, and money management. Mr. Boyce is a board
member of Westhab Inc., and Friends of Teboho, Inc.
(1) Indicates the Trustee is an employee of AMCO or affiliated companies
and is considered an "interested person" under the Investment Company
Act of 1940.
(2) Member of Executive Committee
(3) Member of Audit Committee
(4) Member of Pricing and Investment Committee
(5) Member of Corporate Governance Committee
(6) The address for all non-interested trustees is that of the USAA Funds,
P.O. Box 659430, San Antonio, TX 78265-9430.
(7) Dr. Ostdiek was appointed the Audit Committee Financial Expert for the
Funds' Board in November 2008.
(+) Mr. Mason was elected as Chair of the Board in January 2012.
TRUSTEES' AND OFFICERS' INFORMATION | 59
INTERESTED OFFICERS(1)
R. MATTHEW FREUND
Vice President
Born: July 1963
Year of Appointment: 2010
Senior Vice President, Investment Portfolio Management, Chief Investment
Officer, AMCO (01/12-present); Senior Vice President, Investment Portfolio
Management, IMCO (02/10-12/11); Vice President, Fixed Income Investments, IMCO
(02/04-2/10). Mr. Freund also serves as a director of SAS.
JOHN P. TOOHEY
Vice President
Born: March 1968
Year of Appointment: 2009
Vice President, Equity Investments, AMCO (01/12-present); Vice President, Equity
Investments, IMCO (02/09-12/11); Managing Director, AIG Investments,
(12/03-01/09).
JAMES G. WHETZEL
Secretary
Born: February 1978
Year of Appointment: 2013
Executive Director and General Counsel, Financial Advice & Solutions Group
General Counsel, USAA (10/12-present); Secretary and Director, IMCO
(6/13-present); Attorney, Financial Advice & Solutions Group General Counsel,
USAA (11/08-10/12); Assistant Secretary, USAA family of funds (4/10-6/13);
Reed Smith, LLP, Associate (08/05-11/08). Mr. Whetzel also serves as
Secretary of AMCO, SAS and ICorp.
60 | USAA GROWTH & INCOME FUND
DANIEL J. MAVICO
Assistant Secretary
Born: June 1977
Year of Appointment: 2013
Executive Director, Lead Securities Attorney, Financial Advice & Solutions Group
General Counsel, USAA (04/13-present); Attorney, Financial Advice & Solutions
Group General Counsel, USAA (04/10-04/13); Associate, Goodwin Procter LLP
(02/09-04/10); Associate, Morrison & Foerster LLP (07/07-02/09). Mr. Mavico also
serves as Assistant Secretary of IMCO, AMCO, SAS, and FAI.
ROBERTO GALINDO, JR.
Treasurer
Born: November 1960
Year of Appointment: 2008
Assistant Vice President, Portfolio Accounting/Financial Administration, USAA
(12/02-present).
WILLIAM A. SMITH
Assistant Treasurer
Born: June 1948
Year of Appointment: 2009
Vice President, Senior Financial Officer, and Treasurer, IMCO, FAI, FPS, SAS and
USAA Life (2/09-present); Vice President, Senior Financial Officer, USAA
(2/07-present).
TRUSTEES' AND OFFICERS' INFORMATION | 61
STEPHANIE HIGBY
Chief Compliance Officer
Born: July 1974
Year of Appointment: 2013
Executive Director, Institutional Asset Management Compliance, USAA
(04/13-present); Director, Institutional Asset Management Compliance, AMCO
(03/12-04/13); Compliance Director for USAA Mutual Funds Compliance, IMCO
(06/06-02/12). Ms. Higby also serves as the Funds' anti-money laundering
compliance officer.
(1) Indicates those Officers who are employees of AMCO or affiliated
companies and are considered "interested persons" under the Investment
Company Act of 1940.
62 | USAA GROWTH & INCOME FUND
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Paul L. McNamara
Jefferson C. Boyce
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
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 "Investments,"
AT USAA.COM then "Mutual Funds"
OR CALL Under "Investments" view
(800) 531-USAA account balances, or click
(8722) "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
|
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 Reference 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)
23431-0913 (C)2013, USAA. All rights reserved.
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 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
considering by the Trust's Board in approving the Trust's advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). Code of Ethics pursuant to Item 2 of Form N-CSR is filed hereto exactly
as set forth below:
CODE OF ETHICS
FOR PRINCIPAL EXECUTIVE OFFICER
AND SENIOR FINANCIAL OFFICERS
USAA MUTUAL FUNDS TRUST
I. PURPOSE OF THE CODE OF ETHICS
USAA Mutual Funds Trust (the Trust or the Funds) has adopted this code
of ethics (the Code) to comply with Section 406 of the Sarbanes-Oxley Act of
2002 (the Act) and implementing regulations of the Securities and Exchange
Commission (SEC). The Code applies to the Trust's Principal Executive Officer,
Principal Financial Officer and Principal Accounting Officer (each a Covered
Officer), as detailed in Appendix A.
The purpose of the Code is to promote:
- honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest between the Covered
Officers' personal and professional relationships;
- full, fair, accurate, timely and understandable disclosure in
reports and documents that the Trust files with, or submits
to, the SEC and in other public communications made by the
Trust;
- compliance with applicable laws and governmental rules and
regulations;
- prompt internal reporting of violations of the Code to the
Chief Legal Officer of the Trust, the President of the Trust
(if the violation concerns the Treasurer), the CEO of USAA,
and if deemed material to the Funds' financial condition or
reputation, the Chair of the Trust's Board of Trustees; and
- accountability for adherence to the Code.
Each Covered Officer should adhere to a high standard of business
ethics and should be sensitive to actual and apparent conflicts of interest.
II. CONFLICTS OF INTEREST
A. DEFINITION OF A CONFLICT OF INTEREST.
A conflict of interest exists when a Covered Officer's private interest
influences, or reasonably appears to influence, the Covered Officer's judgment
or ability to act in the best interests of the Funds and their shareholders. For
example, a conflict of interest could arise if a Covered Officer, or an
immediate family member, receives personal benefits as a result of his or her
position with the Funds.
Certain conflicts of interest arise out of relationships between
Covered Officers and the Funds and are already subject to conflict of interest
provisions in the Investment Company Act of 1940 (the 1940 Act) and the
Investment Advisers Act of 1940 (the Advisers Act). For example, Covered
Officers may not individually engage in certain transactions with the Funds
because of their status as "affiliated persons" of the Funds. The USAA Funds'
and USAA Investment Management Company's (IMCO) compliance programs and
procedures are designed to prevent, or identify and correct, violations of these
provisions. This Code does not, and is not intended to, repeat or replace these
programs and procedures, and such conflicts fall outside of the parameters of
this Code.
Although typically not presenting an opportunity for improper personal
benefit, conflicts could arise from, or as a result of, the contractual
relationships between the Funds and AMCO of which the Covered Officers are also
officers or employees. As a result, this Code recognizes that the Covered
Officers will, in the normal course of their duties (whether formally for the
Funds or for AMCO, or for both), be involved in establishing policies and
implementing decisions that will have different effects on AMCO and the Funds.
The participation of Covered Officers in such activities is inherent in the
contractual relationship between the Funds and AMCO and is consistent with the
performance by the Covered Officers of their duties as officers of the Funds.
Thus, if performed in compliance with the provisions of the 1940 Act and the
Advisers Act, such activities will be deemed to have been handled ethically.
B. GENERAL RULE. Covered Officers Should Avoid Actual and Apparent
Conflicts of Interest.
Conflicts of interest, other than the conflicts described in the two
preceding paragraphs, are covered by the Code. The following list provides
examples of conflicts of interest under the Code, but Covered Officers should
keep in mind that these examples are not exhaustive. The overarching principle
is that the personal interest of a Covered Officer should not be placed
improperly before the interest of the Funds and their shareholders.
Each Covered Officer must not engage in conduct that constitutes an
actual conflict of interest between the Covered Officer's personal interest and
the interests of the Funds and their shareholders. Examples of actual conflicts
of interest are listed below but are not exclusive. Each Covered Officer must
not:
- use his personal influence or personal relationships improperly to
influence investment decisions or financial reporting by the Funds
whereby the Covered Officer would benefit personally to the
detriment of the Funds and their shareholders;
- cause the Funds to take action, or fail to take action, for the
individual personal benefit of the Covered Officer rather than the
benefit of the Funds and their shareholders.
- accept gifts, gratuities, entertainment or any other benefit from
any person or entity that does business or is seeking to do
business with the Funds DURING CONTRACT NEGOTIATIONS.
- accept gifts, gratuities, entertainment or any other benefit with
a market value over $100 per person, per year, from or on behalf
of any person or entity that does, or seeks to do, business with
or on behalf of the Funds.
- EXCEPTION. Business-related entertainment such as meals,
and tickets to sporting or theatrical events, which are
infrequent and not lavish are excepted from this
prohibition. Such entertainment must be appropriate as to
time and place, reasonable and customary in nature, modest
in cost and value, incidental to the business, and not so
frequent as to raise any question of impropriety
(Customary Business Entertainment).
Certain situations that could present the appearance of a conflict of
interest should be discussed with, and approved by, or reported to, an
appropriate person. Examples of these include:
- service as a director on the board or an officer of any public or
private company, other than a USAA company or the Trust, must be
approved by the USAA Funds' and Investment Code of Ethics
Committee and reported to the Trust.
- the receipt of any non-nominal (I.E., valued over $25) gifts from
any person or entity with which a Trust has current or prospective
business dealings must be reported to the Chief Legal Officer. For
purposes of this Code, the individual holding the title of
Secretary of the Trust shall be considered the Chief Legal Officer
of the Trust.
- the receipt of any business-related entertainment from any person
or entity with which the Funds have current or prospective
business dealings must be approved in advance by the Chief Legal
Officer unless such entertainment qualifies as Customary Business
Entertainment.
- any ownership interest in, or any consulting or employment
relationship with, any of the Trust's service providers, other
than IMCO or any other USAA company, must be approved by the CEO
of USAA and reported to the Trust's Board.
- any material direct or indirect financial interest in commissions,
transaction charges or spreads paid by the Funds for effecting
portfolio transactions or for selling or redeeming shares other
than an interest arising from the Covered Officer's employment,
such as compensation or equity ownership should be approved by the
CEO of USAA and reported to the Trust's Board.
III. DISCLOSURE AND COMPLIANCE REQUIREMENTS
- Each Covered Officer should familiarize himself with the
disclosure requirements applicable to the Funds, and the
procedures and policies implemented to promote full, fair,
accurate, timely and understandable disclosure by the Trust.
- Each Covered Officer should not knowingly misrepresent, or
cause others to misrepresent, facts about the Funds to others,
whether within or outside the Funds, including to the Funds'
Trustees and auditors, and to government regulators and
self-regulatory organizations.
- Each Covered Officer should, to the extent appropriate within
his area of responsibility, consult with other officers and
employees of the Funds and AMCO with the goal of promoting
full, fair, accurate, timely and understandable disclosure in
the reports and documents filed by the Trust with, or
submitted to, the SEC, and in other public communications made
by the Funds.
- Each Covered Officer is responsible for promoting compliance
with the standards and restrictions imposed by applicable
laws, rules and regulations, and promoting compliance with the
USAA Funds' and AMCO's operating policies and procedures.
- A Covered Officer should not retaliate against any person
who reports a potential violation of this Code in good faith.
- A Covered Officer should notify the Chief Legal Officer
promptly if he knows of any violation of the Code. Failure
to do so itself is a violation of this Code.
IV. REPORTING AND ACCOUNTABILITY
A. INTERPRETATION OF THE CODE. The Chief Legal Officer of the Trust
is responsible for applying this Code to specific situations in
which questions are presented under it and has the authority to
interpret the Code in any particular situation. The Chief Legal
Officer should consult, if appropriate, the USAA Funds' outside
counsel or counsel for the Independent Trustees. However, any
approvals or waivers sought by a Covered Officer will be
reported initially to the CEO of USAA and will be considered by
the Trust's Board of Trustees.
B. REQUIRED REPORTS
- EACH COVERED OFFICER MUST:
- Upon adoption of the Code, affirm in writing to the
Board that he has received, read and understands the
Code.
- Annually thereafter affirm to the Chief Legal Officer
that he has complied with the requirements of the Code.
- THE CHIEF LEGAL OFFICER MUST:
- report to the Board about any matter or situation
submitted by a Covered Officer for interpretation under
the Code, and the advice given by the Chief Legal
Officer;
- report annually to the Board and the Corporate
Governance Committee describing any issues that arose
under the Code, or informing the Board and Corporate
Governance Committee that no reportable issues occurred
during the year.
C. INVESTIGATION PROCEDURES
The Funds will follow these procedures in investigating and enforcing
this Code:
- INITIAL COMPLAINT. All complaints or other inquiries
concerning potential violations of the Code must be reported
to the Chief Legal Officer. The Chief Legal Officer shall be
responsible for documenting any complaint. The Chief Legal
Officer also will report immediately to the President of the
Trust (if the complaint involves the Treasurer), the CEO of
USAA and the Chair of the Trust's Audit Committee (if the
complaint involves the President) any material potential
violations that could have a material effect on the Funds'
financial condition or reputation. For all other complaints,
the Chief Legal Officer will report quarterly to the Board.
- INVESTIGATIONS. The Chief Legal Officer will take all
appropriate action to investigate any potential violation
unless the CEO of USAA directs another person to undertake
such investigation. The Chief Legal Officer may utilize USAA's
Office of Ethics to do a unified investigation under this Code
and USAA's Code of Conduct. The Chief Legal Officer may direct
the Trust's outside counsel or the counsel to the Independent
Trustees (if any) to participate in any investigation under
this Code.
- STATUS REPORTS. The Chief Legal Officer will provide monthly
status reports to the Board about any alleged violation of the
Code that could have a material effect on the Funds' financial
condition or reputation, and quarterly updates regarding all
other alleged violations of the Code.
- VIOLATIONS OF THE CODE. If after investigation, the Chief
Legal Officer, or other investigating person, believes that a
violation of the Code has occurred, he will report immediately
to the CEO of USAA the nature of the violation, and his
recommendation regarding the materiality of the violation. If,
in the opinion of the investigating person, the violation
could materially affect the Funds' financial condition or
reputation, the Chief Legal Officer also will notify the Chair
of the Trust's Audit Committee. The Chief Legal Officer will
inform, and make a recommendation to, the Board, which will
consider what further action is appropriate. Appropriate
action could include: (1) review of, and modifications to, the
Code or other applicable policies or procedures;
(2) notifications to appropriate personnel of IMCO or USAA;
(3) dismissal of the Covered Officer; and/or (4) other
disciplinary actions including reprimands or fines.
- The Board of Trustees understands that Covered
Officers also are subject to USAA's Code of Business
Conduct. If a violation of this Code also violates
USAA's Code of Business Conduct, these procedures do
not limit or restrict USAA's ability to discipline
such Covered Officer under USAA's Code of Business
Conduct. In that event, the Chairman of the Board of
Trustees will report to the Board the action taken by
USAA with respect to a Covered Officer.
V. OTHER POLICIES AND PROCEDURES
This Code shall be the sole code of ethics adopted by the Funds for
purposes of Section 406 of the Act and the implementing regulations adopted by
the SEC applicable to registered investment companies. If other policies and
procedures of the Trust, AMCO, or other service providers govern or purport to
govern the behavior or activities of Covered Officers, they are superseded by
this Code to the extent that they overlap, conflict with, or are more lenient
than the provisions of this Code. The Investment Code of Ethics (designated to
address 1940 Act and Advisers Act requirements) and AMCO's more detailed
compliance policies and procedures (including its Insider Trading Policy) are
separate requirements applying to Covered Officers and other AMCO employees, and
are not part of this Code. Also, USAA's Code of Conduct imposes separate
requirements on Covered Officers and all employees of USAA, and also is not part
of this Code.
VI. AMENDMENTS
Any amendment to this Code, other than amendments to Appendix A, must
be approved or ratified by majority vote of the Board of Trustees.
VII. CONFIDENTIALITY AND DOCUMENT RETENTION
The Chief Legal Officer shall retain material investigation documents
and reports required to be prepared under the Code for six years from the date
of the resolution of any such complaint. All reports and records prepared or
maintained pursuant to this Code will be considered confidential and shall be
maintained and protected accordingly. Except as otherwise required by law or
this Code, such matters shall not be disclosed to anyone other than the Trust's
Board of Trustees and counsel for the Independent Trustees (if any), the Trust
and its counsel, AMCO, and other personnel of USAA as determined by the Trust's
Chief Legal Officer or the Chair of the Trust's Board of Trustees.
Approved and adopted by IMCO's Code of Ethics Committee: June 12, 2003.
Approved and adopted by the Boards of Directors/Trustees of USAA Mutual Fund,
Inc., USAA Tax-Exempt Fund, Inc., USAA Investment Trust & USAA State Tax-Free
Trust: June 25, 2003.
Approved and adopted by the Board of Trustees of USAA Life Investment Trust:
August 20, 2003.
Approved and adopted as amended by IMCO's Code of Ethics Committee: August 15,
2005.
Approved and adopted as amended by the Boards of Directors/Trustees of USAA
Mutual Fund, Inc., USAA Tax-Exempt Fund, Inc., USAA Investment Trust & USAA
State Tax-Free Trust: September 14, 2005.
Approved and adopted as amended by the Board of Trustees of USAA Life Investment
Trust: December 8, 2005.
Approved and adopted as amended by IMCO's Code of Ethics Committee: August 16,
2006.
Approved and adopted by the Board of Trustees of USAA Mutual Funds Trust:
September 13, 2006.
Approved and adopted by IMCO's Code of Ethics Committee: August 28, 2007.
|
Approved and adopted by the Investment Code of Ethics Committee: August 29,
2008.
Approved and adopted as amended by the Board of Trustees of USAA Mutual Funds
Trust: September 19, 2008.
Approved and adopted by the Investment Code of Ethics Committee: August 17,
2009.
Approved and adopted by the Board of Trustees of USAA Mutual Funds Trust:
September 24, 2009.
Approved and adopted by the Investment Code of Ethics Committee: August 31,
2010.
Approved and adopted by the Board of Trustees of USAA Mutual Funds Trust:
September 22, 2010.
Approved and adopted by the Investment Code of Ethics Committee: August 22,
2011.
Approved and adopted by the Board of Trustees of USAA Mutual Funds Trust:
September 20, 2011.
Approved and adopted by the Investment Code of Ethics Committee: September 4,
2012.
Approved and adopted by the Board of Trustees of USAA Mutual Funds Trust:
September 27, 2012.
APPENDIX A
COVERED OFFICERS
PRESIDENT
TREASURER
(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.