UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: MARK S. HOWARD
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: JULY 31
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Date of reporting period: JULY 31, 2008
ITEM 1. REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - ANNUAL REPORT FOR PERIOD ENDING JULY 31, 2008
[LOGO OF USAA]
USAA(R)
USAA CAPITAL
GROWTH Fund
[GRAPHIC OF USAA CAPITAL GROWTH FUND]
A n n u a l R e p o r t
JULY 31, 2008
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 Investment 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.
Table of CONTENTS
MESSAGE FROM THE PRESIDENT 2
MANAGER'S COMMENTARY 4
FUND RECOGNITION 7
INVESTMENT OVERVIEW 9
FINANCIAL INFORMATION
Distributions to Shareholders 15
Report of Independent Registered Public Accounting Firm 16
Portfolio of Investments 17
Notes to Portfolio of Investments 28
Financial Statements 29
Notes to Financial Statements 32
EXPENSE EXAMPLE 48
ADVISORY AGREEMENTS 50
TRUSTEES' AND OFFICERS' INFORMATION 58
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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 INVESTMENT 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)2008, USAA. All rights reserved.
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M E S S A G E
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from the PRESIDENT
"
THE OLD ADAGE - THE BEST TIME TO BUY IS
[PHOTO OF CHRISTOPHER W. CLAUS] WHEN IT FEELS LIKE THE WORST TIME - IS OLD
FOR A REASON. THERE FREQUENTLY ARE BUYING
OPPORTUNITIES IN DECLINES.
"
August 2008
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No doubt about it. It's a tough time to be an investor. With the major
stock indexes down more than 20% at the time of this writing, investors
officially are in a bear market. But I believe that most people will
look back at this period and say that, despite the economic challenges,
there were some great buying opportunities.
All the same, the experience has been unpleasant. The housing downturn,
a liquidity crunch, tighter credit requirements, the rapid increase in
oil, commodity, and food prices - all have had an impact on the equity
markets. While the U.S. economy may not be in a recession officially,
it certainly feels like one.
The good news is that bear markets don't last forever (generally,
slightly more than a year), and this one is nearly a year old. If
history is any gauge, the worst could be over. For the long-term
investor, it is time to keep the faith. The old adage - the best time
to buy is when it feels like the worst time - is old for a reason.
There frequently are buying opportunities in declines.
When will this bear market end? No one really knows. But housing, the
decline's primary catalyst, will play a role. Although a large number
of foreclosed and unsold homes remains, residential real estate has
become more affordable, which could mean that the housing downturn is
closer to bottom.
Meanwhile, oil prices have fallen from their peak of $147 a barrel.
Nevertheless, they remain elevated and are subject to daily price
swings, inventory pressures, and supply disruptions. In response,
Americans are changing their driving habits - from the type of car they
own to the
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number of miles they drive. "Green" is a major social trend that's
gaining momentum.
At the moment, the liquidity squeeze on financial institutions
continues to weigh on the equity market. I expect the uncertainty to
end only after investors have confidence that the write-downs in the
financial sector have ended.
In the fixed-income market, credit spreads - the difference in yield
between Treasuries and comparable corporate bonds - have widened to
historic panic levels. When concern eases about credit quality, spreads
are likely to narrow as corporate bond prices start to rise and
Treasuries sell off. In the meantime, fixed-income investors have
received strong yields.
Long-term investors who can tolerate the volatility may find some
attractive values in the market. In particular, I refer to U.S.
large-cap stocks with sound fundamentals, high-quality corporate bonds,
and high-quality municipal bonds. Investing a set amount each month,
also called dollar-cost averaging, is one way to purchase them. Our
investment representatives can help you implement such a plan; they
also provide guidance - at no charge - if you are concerned about the
markets or want to revisit your investment strategy.
At USAA, we remain committed to providing you with our best advice,
top-notch service, and a variety of pure no-load mutual funds. In the
months ahead, we will continue working hard to serve your investment
needs. From all of us here, thank you for your faith and trust in us.
Sincerely,
/s/ CHRISTOPHER W. CLAUS
Christopher W. Claus
President and Vice Chairman of the Board
USAA Mutual Funds Trust
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SYSTEMATIC INVESTMENT PLANS DO NOT ASSURE A PROFIT OR PROTECT AGAINST
LOSS IN DECLINING MARKETS. DOLLAR-COST AVERAGING INVOLVES CONTINUOUS
INVESTMENT IN SECURITIES REGARDLESS OF FLUCTUATING PRICE LEVELS OF SUCH
SECURITIES. INVESTORS SHOULD CONSIDER THEIR FINANCIAL ABILITY TO
CONTINUE PURCHASES THROUGH PERIODS OF LOW PRICE LEVELS. o MUTUAL FUND
OPERATING EXPENSES APPLY AND CONTINUE THROUGHOUT THE LIFE OF THE FUND.
4
M A N A G E R ' S
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COMMENTARY on the Fund
[PHOTO OF MICHAEL P. MCELROY] MICHAEL P. McELROY, CFA
Batterymarch Financial Management, Inc.
HOW DID THE FUND PERFORM?
For the one-year period ended July 31, 2008, the USAA Capital Growth
Fund had a total return of -8.80%. This compares to returns of -3.76%
for the Russell 2000 Growth Index, -10.88% for the Morgan Stanley
Capital International (MSCI) World Index, -11.20% for the Lipper
Small-Cap Growth Funds Index, and -11.67% for the Lipper Global Funds
Index.
WHAT'S YOUR VIEW OF THE GLOBAL MARKET ENVIRONMENT DURING THE REPORTING YEAR?
The reporting year coincided with the still-unresolved credit crisis,
which affected stock markets everywhere because of the increasingly
interconnected global economy. The U.S. economy slowed first, largely
because of the housing downturn, but as the reporting year progressed,
economies started to cool in Europe, Japan, and to a lesser degree, in
emerging markets. A huge spike in commodity prices benefited the
economies and markets of commodity producers and penalized net
importers.
HOW DID THE GLOBAL SLOWDOWN PLAY OUT IN TERMS OF THE FUND'S REGIONAL ALLOCATION?
We apply our in-depth stock selection framework globally, investing in
what we believe are the best companies regardless of geography, limited
only by the broad industry-sector neutrality we maintain as a
risk-management measure. As a result of our company-by-company process,
we reduced our emerging markets exposure
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
REFER TO PAGE 11 FOR BENCHMARK DEFINITIONS.
5
. . . C O N T I N U E D
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rather dramatically as the reporting year progressed, from 19% of the
Fund's assets down to 6%. That exposure was a big factor in the Fund's
strong performance over the past few years. Although our exposure to
emerging markets detracted from Fund performance during the period, we
benefited from reducing this exposure as these markets cooled in 2008.
It's important to recognize that emerging markets aren't represented in
the MSCI World Index, so any exposure is by definition an overweight.
WHERE DID YOU INVEST THE ASSETS FROM THE EMERGING MARKETS REDUCTION?
The assets were reallocated to stocks in markets that have lagged,
particularly the United Kingdom. We also increased exposure to the
United States and European Union countries, but reduced holdings in
Japan, where prospects for many companies are fading with the domestic
economy and lower expectations for export growth.
WHAT FACTORS LED THE FUND TO OUTPERFORM THE MSCI WORLD INDEX?
The primary driver was individual stock selection, particularly in the
financials and materials sectors. Even though global banking was under
siege, we got positive absolute performance out of banks such as Banco
Itau Holding Financeira S.A. ADR in Brazil and Industrial and
Commercial Bank of China Ltd. "H," while generally avoiding banks with
excessive exposure to the credit crisis. We also benefited from a
slight underweight to banks overall, because while we attempt to
maintain sector neutrality, if companies don't screen well in our
process, we'll keep looking.
In materials, our holdings in metals and mining companies AK Steel
Holding Corp. (U.S.), CF Industries Holdings, Inc. (U.S.), and Yara
International ASA (Norway) did very well. We also had
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS ON PAGES
17-27.
BANCO ITAU HOLDING FINANCEIRA S.A. ADR WAS SOLD OUT OF THE FUND PRIOR
TO JULY 31, 2008.
6
. . . C O N T I N U E D
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COMMENTARY on the Fund
positive stock selection in energy, led by Reliance Industries Ltd.
(India) and Hess Corp. (U.S.).
WHAT FACTORS DETRACTED FROM PERFORMANCE?
Stock selection in information technology and health care was
relatively weak. We also didn't own quite enough consumer staples
stocks, although stock selection within that strong group was neutral.
HAS THERE BEEN ANY OTHER REPOSITIONING WORTH NOTING?
We've been investing increasingly in mega-cap stocks as of late,
including HSBC Holdings plc (U.K.), BP plc (U.K.), E.ON AG (Germany),
and Vodafone Group plc (U.K.). In general, these stocks have more
defensive characteristics than those they replaced. At the end of the
reporting year, the Fund's aggregate valuation was below the MSCI World
Index's, while the average long-term earnings growth rate was higher.
7
F U N D
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RECOGNITION
USAA CAPITAL GROWTH FUND
LIPPER FUND AWARD 2007
IN 2008, LIPPER NAMED THE FUND "BEST FUND OVER THREE YEARS"
FOR CONSISTENTLY STRONG RISK-ADJUSTED RETURNS AMONG 72 FUNDS
[LOGO OF LIPPER IN THE GLOBAL MULTI-CAP CORE FUNDS CATEGORY FOR THE THREE-
FUND AWARDS YEAR PERIOD ENDED DECEMBER 31, 2007. THE FUND WAS RANKED 6
US 2008] OF 54 FUNDS FOR THE FIVE-YEAR PERIOD ENDED DECEMBER 31, 2007.
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PEERLESS PERFORMER
The American Association of Individual Investors included the USAA Capital
Growth Fund among its "Peerless Performers: The Top Funds Over 5 Years." The
Fund was among seven USAA funds recognized in the AAII Journal April issue for
having beaten their peer groups based on five-year annualized total returns over
a five-year period ended December 31, 2007.
THE LIPPER FUND AWARDS PROGRAM HIGHLIGHTS FUNDS THAT HAVE EXCELLED IN DELIVERING
CONSISTENTLY STRONG RISK-ADJUSTED PERFORMANCE, RELATIVE TO PEERS. THE LIPPER
FUND AWARDS ARE AWARDED TO FUNDS IN 21 COUNTRIES IN ASIA, EUROPE, AND THE
AMERICAS. LIPPER DESIGNATES AWARD-WINNING FUNDS IN MOST INDIVIDUAL
CLASSIFICATIONS FOR THE THREE-, FIVE-, AND 10-YEAR PERIODS. IN ADDITION, THE
LIPPER FUND AWARDS PROGRAM SPOTLIGHTS FUND FAMILIES WITH HIGH AVERAGE SCORES FOR
ALL FUNDS WITHIN A PARTICULAR ASSET CLASS OR OVERALL. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
THE AMERICAN ASSOCIATION OF INDIVIDUAL INVESTORS (AAII) IS AN INDEPENDENT
NONPROFIT ASSOCIATION WHOSE PURPOSE IS TO HELP ITS MEMBERS BECOME EFFECTIVE
MANAGERS OF THEIR OWN ASSETS THROUGH PROGRAMS OF EDUCATION, INFORMATION, AND
RESEARCH. IN ITS 27TH EDITION, 2008, OF THE INDIVIDUAL INVESTOR'S GUIDE TO THE
TOP MUTUAL FUNDS, AAII RANKED MUTUAL FUNDS DURING THE PERIOD 2003-2007. TO BE
RATED A TOP FUND, NO-LOAD AND LOW-LOAD MUTUAL FUNDS OPEN TO NEW INVESTORS MUST
HAVE BEATEN THEIR PEER GROUP BENCHMARKS ON A FIVE-YEAR ANNUALIZED TOTAL RETURN
BASIS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. GO TO WWW.AAII.COM
FOR MORE INFORMATION.
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. . . C O N T I N U E D
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RECOGNITION
USAA CAPITAL GROWTH FUND
LIPPER LEADERS (OVERALL)
[5] [5]
TOTAL RETURN CONSISTENT RETURN
The Fund is listed as a Lipper Leader for Total Return and Consistent Return
among 89 and 85 funds within the Lipper Global Multi-Cap Core Funds category for
the overall period ended July 31, 2008. The Fund received a Lipper Leader rating
for Total Return among 89 and 58 funds and for Consistent Return among 84 and 54
funds for the three- and five-year periods, respectively. Lipper ratings for
Total Return reflect funds' historical total return performance relative to
peers as of July 31, 2008. Lipper ratings for Consistent Return reflect funds'
historical risk-adjusted returns, adjusted for volatility, relative to peers as
of July 31, 2008.
RATINGS ARE SUBJECT TO CHANGE EVERY MONTH AND ARE BASED ON AN EQUAL-WEIGHTED
AVERAGE OF PERCENTILE RANKS FOR THE TOTAL RETURN AND CONSISTENT RETURN METRICS
OVER THREE-, FIVE-, AND 10-YEAR PERIODS (IF APPLICABLE). THE HIGHEST 20% OF
FUNDS IN EACH PEER GROUP ARE NAMED LIPPER LEADERS, THE NEXT 20% RECEIVE A SCORE
OF 4, THE MIDDLE 20% ARE SCORED 3, THE NEXT 20% ARE SCORED 2, AND THE LOWEST 20%
ARE SCORED 1.* LIPPER RATINGS ARE NOT INTENDED TO PREDICT FUTURE RESULTS, AND
LIPPER DOES NOT GUARANTEE THE ACCURACY OF THIS INFORMATION. MORE INFORMATION IS
AVAILABLE AT WWW.LIPPERLEADERS.COM. LIPPER LEADER COPYRIGHT 2008, REUTERS, ALL
RIGHTS RESERVED.
*EFFECTIVE NOVEMBER 7, 2007, THE LIPPER LEADERS RATING SYSTEM CHANGED THE
NUMERIC ORGANIZATION OF ITS LIPPER LEADER CLASSIFICATIONS. WHILE THE FORMULAS
AND UNDERLYING METHODOLOGY REMAIN THE SAME, THE HIGHEST 20% NOW ARE RATED 5, OR
LIPPER LEADERS, AND THE LOWEST 20% ARE RATED 1 FOR EACH MEASURE. PREVIOUSLY, A
RATING OF 5 WAS CONSIDERED THE LOWEST RATING AND 1 WAS CONSIDERED THE HIGHEST,
OR A LIPPER LEADER.
9
I N V E S T M E N T
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OVERVIEW
USAA CAPITAL GROWTH FUND (Ticker Symbol: USCGX)
OBJECTIVE
Capital appreciation.
TYPES OF INVESTMENTS
Invests primarily in equity securities. The Fund may invest up to 100% of
its assets in foreign securities.
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7/31/08 7/31/07
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Net Assets $817.2 Million $540.8 Million
Net Asset Value Per Share $7.90 $9.34
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AVERAGE ANNUAL TOTAL RETURNS AS OF 7/31/08
1 YEAR 5 YEARS SINCE INCEPTION ON 10/27/00
-8.80% 12.81% -0.12%
---------------------------------
EXPENSE RATIO*
---------------------------------
Before Reimbursement 1.47%
After Reimbursement 1.20%
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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 BEFORE REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING
EXPENSES INCLUDING ANY ACQUIRED FUND FEES AND EXPENSES, BEFORE REDUCTIONS OF ANY
EXPENSES PAID INDIRECTLY, AS REPORTED IN THE FUND'S PROSPECTUS DATED DECEMBER 1,
2007, AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS. THE AFTER
REIMBURSEMENT EXPENSE RATIO REPRESENTS TOTAL ANNUAL OPERATING EXPENSES, BEFORE
REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND EXCLUDING ANY ACQUIRED FUND FEES
AND EXPENSES, AFTER REIMBURSEMENT FROM USAA INVESTMENT MANAGEMENT COMPANY (IMCO)
AS REPORTED IN THE FUND'S PROSPECTUS DATED DECEMBER 1, 2007. IMCO HAS
VOLUNTARILY AGREED TO LIMIT THE FUND'S TOTAL ANNUAL OPERATING EXPENSES TO 1.20%,
BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND EXCLUDING ANY ACQUIRED
FUND FEES AND EXPENSES, AND TO REIMBURSE THE FUND FOR EXPENSES IN EXCESS OF THIS
AMOUNT. IMCO CAN MODIFY OR TERMINATE THIS ARRANGEMENT AT ANY TIME. EFFECTIVE
DECEMBER 1, 2008, THE VOLUNTARY EXPENSE LIMITATION WILL BE CHANGED TO
1.30%. THESE EXPENSE RATIOS MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE
FINANCIAL HIGHLIGHTS.
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 FUND DISTRIBUTIONS OR THE
REDEMPTION OF FUND SHARES.
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OVERVIEW
CUMULATIVE PERFORMANCE COMPARISON
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER GLOBAL MSCI WORLD RUSSELL 2000 LIPPER SMALL-CAP USAA CAPITAL
FUNDS INDEX INDEX GROWTH INDEX GROWTH FUNDS INDEX GROWTH FUND
10/31/2000 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
11/30/2000 9,417.18 9,391.60 8,184.34 8,297.02 7,850.00
12/31/2000 9,693.42 9,542.29 8,685.14 9,030.89 8,360.00
1/31/2001 9,853.94 9,726.04 9,388.12 9,306.06 8,470.00
2/28/2001 9,131.87 8,903.00 8,101.24 8,114.67 6,710.00
3/31/2001 8,497.56 8,316.72 7,364.69 7,326.55 5,860.00
4/30/2001 9,079.95 8,929.79 8,266.32 8,117.54 6,600.00
5/31/2001 9,024.63 8,813.42 8,457.79 8,337.49 6,680.00
6/30/2001 8,770.96 8,536.05 8,688.44 8,547.72 6,740.00
7/31/2001 8,553.50 8,421.95 7,947.22 8,071.24 6,300.00
8/31/2001 8,213.79 8,016.46 7,450.91 7,593.41 5,860.00
9/30/2001 7,446.48 7,309.02 6,248.67 6,408.30 4,860.00
10/31/2001 7,631.93 7,448.58 6,849.82 6,877.89 5,120.00
11/30/2001 8,048.17 7,888.11 7,421.60 7,410.86 5,570.00
12/31/2001 8,165.26 7,936.90 7,883.66 7,859.79 5,750.00
1/31/2002 7,917.84 7,695.64 7,603.19 7,622.13 5,480.00
2/28/2002 7,871.08 7,627.95 7,111.08 7,160.87 5,210.00
3/31/2002 8,243.96 7,979.24 7,729.17 7,746.32 5,480.00
4/30/2002 8,044.01 7,693.27 7,561.95 7,541.94 5,400.00
5/31/2002 8,062.23 7,706.10 7,119.80 7,239.39 5,140.00
6/30/2002 7,594.02 7,237.21 6,516.05 6,701.46 4,740.00
7/31/2002 6,922.45 6,626.55 5,514.59 5,751.05 4,260.00
8/31/2002 6,954.30 6,637.86 5,512.02 5,742.70 4,350.00
9/30/2002 6,263.04 5,907.03 5,113.88 5,394.42 4,090.00
10/31/2002 6,620.84 6,342.29 5,372.54 5,624.60 4,250.00
11/30/2002 6,944.92 6,683.27 5,905.16 6,095.71 4,420.00
12/31/2002 6,642.22 6,358.56 5,497.91 5,688.47 4,160.00
1/31/2003 6,429.28 6,164.79 5,348.55 5,538.25 4,100.00
2/28/2003 6,271.07 6,056.90 5,205.93 5,365.67 4,050.00
3/31/2003 6,201.77 6,036.90 5,284.74 5,476.32 4,180.00
4/30/2003 6,734.18 6,571.88 5,784.88 5,928.93 4,530.00
5/31/2003 7,148.92 6,946.05 6,436.79 6,533.51 4,970.00
6/30/2003 7,286.19 7,065.39 6,560.83 6,754.92 5,050.00
7/31/2003 7,440.20 7,208.04 7,056.81 7,149.91 5,420.00
8/31/2003 7,637.16 7,362.88 7,435.85 7,529.05 5,730.00
9/30/2003 7,678.90 7,407.19 7,247.62 7,344.13 5,660.00
10/31/2003 8,115.64 7,846.01 7,873.73 8,010.43 6,230.00
11/30/2003 8,266.29 7,964.60 8,130.44 8,223.73 6,500.00
12/31/2003 8,764.96 8,463.66 8,166.79 8,235.44 6,460.00
1/31/2004 8,948.86 8,599.47 8,595.82 8,620.75 6,700.00
2/29/2004 9,139.95 8,743.47 8,582.52 8,588.35 6,700.00
3/31/2004 9,100.90 8,685.45 8,622.64 8,528.99 6,710.00
4/30/2004 8,865.63 8,507.56 8,189.80 8,112.22 6,460.00
5/31/2004 8,895.64 8,578.55 8,352.71 8,281.43 6,540.00
6/30/2004 9,045.34 8,761.32 8,630.63 8,517.53 6,770.00
7/31/2004 8,707.33 8,475.26 7,855.95 7,766.10 6,270.00
8/31/2004 8,712.34 8,512.51 7,686.82 7,514.51 6,120.00
9/30/2004 8,945.22 8,673.55 8,111.86 7,943.80 6,550.00
10/31/2004 9,158.99 8,885.79 8,308.97 8,166.53 6,640.00
11/30/2004 9,669.76 9,352.57 9,011.29 8,738.38 7,230.00
12/31/2004 10,024.92 9,709.59 9,335.16 9,124.08 7,510.00
1/31/2005 9,834.34 9,490.98 8,914.62 8,778.75 7,310.00
2/28/2005 10,148.12 9,791.64 9,036.97 8,952.18 7,550.00
3/31/2005 9,936.88 9,602.39 8,698.00 8,651.37 7,230.00
4/30/2005 9,714.30 9,392.36 8,144.43 8,168.04 6,780.00
5/31/2005 9,879.30 9,559.24 8,718.67 8,709.38 7,190.00
6/30/2005 9,984.89 9,641.95 9,000.56 9,013.73 7,490.00
7/31/2005 10,379.47 9,978.76 9,629.70 9,563.75 7,810.00
8/31/2005 10,507.50 10,053.95 9,494.00 9,398.57 7,660.00
9/30/2005 10,787.58 10,315.09 9,569.24 9,449.65 7,780.00
10/31/2005 10,543.95 10,064.83 9,215.60 9,129.59 7,490.00
11/30/2005 10,878.56 10,400.19 9,737.34 9,619.04 7,790.00
12/31/2005 11,216.84 10,630.60 9,722.84 9,610.94 8,148.56
1/31/2006 11,793.32 11,105.29 10,660.71 10,394.27 8,618.28
2/28/2006 11,710.84 11,088.76 10,603.89 10,353.63 8,608.07
3/31/2006 12,010.57 11,332.59 11,119.27 10,785.12 8,853.14
4/30/2006 12,338.99 11,676.66 11,087.17 10,821.41 9,179.90
5/31/2006 11,882.45 11,277.79 10,306.91 10,148.05 8,659.13
6/30/2006 11,856.54 11,274.49 10,313.12 10,063.57 8,679.55
7/31/2006 11,858.49 11,344.85 9,777.39 9,514.77 8,740.82
8/31/2006 12,170.15 11,639.33 10,063.77 9,706.39 8,985.89
9/30/2006 12,336.80 11,778.11 10,131.88 9,833.21 9,016.52
10/31/2006 12,731.38 12,210.40 10,788.41 10,277.38 9,373.91
11/30/2006 13,095.44 12,509.41 11,046.69 10,623.96 9,690.46
12/31/2006 13,381.29 12,763.74 11,020.40 10,634.91 9,975.92
1/31/2007 13,587.60 12,914.42 11,225.44 10,902.96 10,127.07
2/28/2007 13,450.59 12,847.22 11,189.93 10,882.21 10,068.94
3/31/2007 13,721.22 13,082.39 11,293.28 10,996.34 10,347.99
4/30/2007 14,245.93 13,659.35 11,589.36 11,313.64 10,673.54
5/31/2007 14,685.90 14,042.08 12,118.33 11,832.82 11,092.11
6/30/2007 14,664.54 13,933.76 12,048.54 11,802.16 10,999.09
7/31/2007 14,367.87 13,625.18 11,422.97 11,371.52 10,859.57
8/31/2007 14,343.69 13,614.85 11,710.27 11,523.10 10,836.32
9/30/2007 14,928.50 14,262.30 12,050.46 11,971.92 11,603.70
10/31/2007 15,437.32 14,699.75 12,592.98 12,491.03 12,150.16
11/30/2007 14,757.91 14,098.89 11,723.30 11,668.30 11,394.41
12/31/2007 14,622.47 13,916.99 11,796.93 11,663.94 11,245.05
1/31/2008 13,591.22 12,853.47 10,714.72 10,510.81 10,292.29
2/29/2008 13,469.94 12,779.07 10,343.88 10,088.93 10,304.83
3/31/2008 13,385.75 12,656.58 10,283.67 9,948.57 10,104.25
4/30/2008 13,971.78 13,321.79 10,812.07 10,518.00 10,655.85
5/31/2008 14,164.96 13,524.92 11,424.54 10,952.93 10,956.72
6/30/2008 12,993.54 12,446.21 10,743.47 10,196.88 10,217.08
7/31/2008 12,690.66 12,142.10 10,993.29 10,098.29 9,903.67
|
[END CHART]
*DATA FROM 10/31/00 THROUGH 7/31/08.
*THE PERFORMANCE OF THE LIPPER GLOBAL FUNDS INDEX, THE MSCI WORLD
INDEX, THE RUSSELL 2000 GROWTH INDEX, AND THE LIPPER SMALL-CAP GROWTH
FUNDS INDEX IS CALCULATED FROM THE END OF THE MONTH, OCTOBER 31, 2000,
WHILE THE FUND'S INCEPTION DATE IS OCTOBER 27, 2000. THERE MAY BE A
SLIGHT VARIATION OF THE 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 FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES.
11
. . . C O N T I N U E D
========================--------------------------------------------------------
The graph illustrates the comparison of a $10,000 hypothetical
investment in the USAA Capital Growth Fund to the following benchmarks:
o The unmanaged Lipper Global Funds Index tracks the total return
performance of the 30 largest funds within this category. This
category includes funds that invest at least 25% of their portfolio
in securities traded outside of the United States and that may own
U.S. securities as well.
o The Morgan Stanley Capital International (MSCI) World Index is an
unmanaged index that reflects the movements of world stock markets by
representing a broad selection of domestically listed companies
within each market.
o The unmanaged Russell 2000(R) Growth Index measures the performance
of those Russell 2000 companies with higher price-to-book ratios and
higher forecasted growth values.
o The unmanaged Lipper Small-Cap Growth Funds Index tracks the total
return performance of the 30 largest funds in the Lipper Small-Cap
Growth Funds category.
12
P O R T F O L I O
==================--------------------------------------------------------------
HIGHLIGHTS
ASSET ALLOCATION
7/31/2008
[PIE CHART OF ASSET ALLOCATION]
United States 40.6%
United Kingdom 12.4%
Germany 8.8%
Japan 6.7%
Canada 4.8%
Switzerland 3.4%
Spain 3.0%
France 3.0%
Other* 17.3%
|
[END CHART]
*INCLUDES COUNTRIES WITH LESS THAN 3% OF PORTFOLIO AND MONEY MARKET
INSTRUMENTS (2.1%). EXCLUDES SHORT-TERM INVESTMENTS PURCHASED WITH
CASH COLLATERAL FROM SECURITIES LOANED.
PERCENTAGES ARE OF THE NET ASSETS OF THE FUND AND MAY NOT EQUAL 100%.
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISK, SUCH AS CURRENCY
FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL INSTABILITY.
13
. . . C O N T I N U E D
========================--------------------------------------------------------
TOP 10 EQUITY HOLDINGS AS OF 7/31/2008
(% of Net Assets)
BHP Billiton plc 1.7%
HSBC Holdings plc 1.6%
International Business Machines Corp. 1.6%
Microsoft Corp. 1.6%
Exxon Mobil Corp. 1.5%
Chevron Corp. 1.4%
Banco Santander S.A. 1.3%
Hewlett-Packard Co. 1.3%
Oracle Corp. 1.3%
Vodafone Group plc 1.3%
---------------------------------------------------
|
YOU WILL FIND A COMPLETE LIST OF SECURITIES THAT THE FUND OWNS ON PAGES
17-27.
14
. . . C O N T I N U E D
========================--------------------------------------------------------
HIGHLIGHTS
SECTOR ASSET ALLOCATION*
7/31/2008
[PIE CHART OF SECTOR ASSET ALLOCATION]
Financials 20.6%
Energy 12.6%
Information Technology 11.1%
Industrials 10.0%
Materials 10.0%
Consumer Staples 8.7%
Consumer Discretionary 8.2%
Health Care 7.1%
Telecommunication Services 5.2%
Utilities 4.4%
Money Market Instruments 2.1%
|
[END CHART]
*EXCLUDES SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM
SECURITIES LOANED.
PERCENTAGES ARE OF THE NET ASSETS OF THE FUND AND MAY NOT EQUAL 100%.
15
D I S T R I B U T I O N S
==========================------------------------------------------------------
to SHAREHOLDERS
USAA CAPITAL GROWTH FUND
The following federal tax information related to the Fund's fiscal year
ended July 31, 2008, 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 2009.
4.35% of ordinary income distributions qualify for the dividends-
received deductions eligible to corporations.
For the fiscal year ended July 31, 2008, the Fund hereby designates
100%, or the maximum amount allowable, of its net taxable income as
qualified dividends taxed at individual net capital gains rates.
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $13,013,000 as long-term capital gains for the
fiscal year ended July 31, 2008.
The Fund has elected under Section 853 of the Internal Revenue Code to
pass through the credit for taxes paid in foreign countries. The gross
income derived from foreign sources and foreign taxes paid during the
fiscal year ended July 31, 2008, by the Fund are $12,829,000 and
$1,018,000, respectively.
For the fiscal year ended July 31, 2008, certain dividends paid by the
Fund qualify as interest-related dividends. The Fund designates
$474,000 as qualifying interest income.
16
R E P O R T O F I N D E P E N D E N T R E G I S T E R E D
========================--------------------------------------------------------
Public ACCOUNTING Firm
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF USAA CAPITAL GROWTH FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the USAA Capital Growth Fund (one of the
portfolios constituting USAA Mutual Funds Trust) (the "Fund") as of July 31,
2008, 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 each of the five years in the period
then ended. 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, 2008, 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 Capital Growth Fund at July 31, 2008, 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 five years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
San Antonio, Texas
September 17, 2008
|
17
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
USAA CAPITAL GROWTH FUND
JULY 31, 2008
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------
EQUITY SECURITIES (97.9%)
COMMON STOCKS (97.3%)
CONSUMER DISCRETIONARY (8.2%)
-----------------------------
APPAREL & ACCESSORIES & LUXURY GOODS (0.2%)
76,900 Hanesbrands, Inc.* $ 1,649
--------
APPAREL RETAIL (1.3%)
65,700 Aeropostale, Inc.* 2,119
291,200 Esprit Holdings Ltd. 3,130
85,100 Ross Stores, Inc. 3,230
57,000 TJX Companies, Inc. 1,921
--------
10,400
--------
AUTOMOBILE MANUFACTURERS (0.3%)
159,700 Fiat S.p.A. 2,760
--------
BROADCASTING & CABLE TV (0.6%)
104,300 DIRECTV Group, Inc.* 2,818
74,400 DISH Network Corp. "A"* 2,189
--------
5,007
--------
CASINOS & GAMING (0.5%)
40,200 Bally Technologies, Inc.* 1,278
80,590 OPAP S.A. 2,891
--------
4,169
--------
CONSUMER ELECTRONICS (1.4%)
38,690 LG Electronics, Inc. 3,995
338,000 Matsushita Electric Industrial Co. Ltd. 7,237
--------
11,232
--------
FOOTWEAR (0.2%)
33,100 NIKE, Inc. "B" 1,942
--------
GENERAL MERCHANDISE STORES (0.7%)
106,100 Big Lots, Inc.*(a) 3,232
109,100 Family Dollar Stores, Inc. 2,542
--------
5,774
--------
HOUSEHOLD APPLIANCES (0.2%)
30,600 Snap-On, Inc. 1,722
--------
|
18
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------
HOUSEWARES & SPECIALTIES (0.2%)
47,000 Tupperware Brands Corp. $ 1,833
--------
INTERNET RETAIL (0.2%)
15,700 Priceline.com, Inc.* 1,805
--------
LEISURE PRODUCTS (0.4%)
47,400 Sankyo Co. 2,887
--------
MOVIES & ENTERTAINMENT (0.4%)
117,200 Walt Disney Co. 3,557
--------
RESTAURANTS (1.2%)
473,600 Compass Group plc 3,436
48,300 Darden Restaurants, Inc. 1,573
72,400 McDonald's Corp. 4,329
--------
9,338
--------
SPECIALIZED CONSUMER SERVICES (0.4%)
125,300 H&R Block, Inc. 3,049
--------
Total Consumer Discretionary 67,124
--------
CONSUMER STAPLES (8.7%)
-----------------------
BREWERS (0.7%)
34,880 Molson Coors Brewing Co. "B" 1,883
170,700 SABMiller plc 3,549
--------
5,432
--------
DISTILLERS & VINTNERS (0.2%)
74,000 Constellation Brands, Inc. "A"* 1,593
--------
DRUG RETAIL (0.8%)
172,540 CVS Caremark Corp. 6,298
--------
FOOD RETAIL (1.0%)
257,600 Koninklijke Ahold N.V. 2,943
125,600 Kroger Co. 3,552
61,700 Safeway, Inc. 1,649
--------
8,144
--------
|
19
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (0.4%)
48,800 Procter & Gamble Co. $ 3,195
--------
HYPERMARKETS & SUPER CENTERS (1.7%)
45,600 BJ's Wholesale Club, Inc.* 1,711
131,876 Wal-Mart Stores, Inc. 7,731
148,856 Wesfarmers Ltd. 4,820
--------
14,262
--------
PACKAGED FOODS & MEAT (1.0%)
48,700 IAWS Group plc 1,124
97,000 Nestle S.A. 4,268
395,100 Tate & Lyle 3,060
--------
8,452
--------
PERSONAL PRODUCTS (0.3%)
48,000 Herbalife Ltd. 2,073
--------
SOFT DRINKS (0.3%)
55,800 Coca-Cola Co. 2,874
--------
TOBACCO (2.3%)
101,730 Altria Group, Inc. 2,070
145,500 British America Tobacco plc 5,272
80,520 KT&G Corp. 7,144
78,560 Philip Morris International, Inc. 4,058
--------
18,544
--------
Total Consumer Staples 70,867
--------
ENERGY (12.6%)
--------------
COAL & CONSUMABLE FUELS (0.9%)
66,600 Fording Canadian Coal Trust 5,887
1,021,197 Yanzhou Coal Mining Co. Ltd. "H" 1,869
--------
7,756
--------
INTEGRATED OIL & GAS (9.1%)
904,900 BP plc 9,354
134,228 Chevron Corp. 11,350
114,700 ConocoPhillips 9,362
95,100 ENI S.p.A. 3,225
148,700 Exxon Mobil Corp. 11,960
|
20
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------
37,400 Hess Corp. $ 3,792
147,650 OAO Gazprom ADR 7,117
92,700 Occidental Petroleum Corp. 7,307
47,900 Petro-Canada 2,211
52,900 Royal Dutch Shell plc "A" 1,889
90,700 Total S.A. 6,989
--------
74,556
--------
OIL & GAS EXPLORATION & PRODUCTION (2.4%)
69,900 Addax Petroleum Corp. 2,730
55,200 Apache Corp. 6,192
55,900 Devon Energy Corp. 5,304
113,700 Nexen, Inc. 3,577
21,200 Noble Energy, Inc. 1,566
--------
19,369
--------
OIL & GAS REFINING & MARKETING (0.2%)
15,100 Reliance Industries Ltd. GDR 1,563
--------
Total Energy 103,244
--------
FINANCIALS (20.0%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.6%)
29,600 Northern Trust Corp. 2,314
38,400 State Street Corp. 2,751
--------
5,065
--------
DIVERSIFIED BANKS (8.2%)
183,537 Alpha Bank A.E. 5,440
112,484 Banco Espanol de Credito S.A.(a) 1,705
553,200 Banco Santander S.A. 10,769
36,200 Erste Bank der Oesterreichischen Sparkassen AG 2,329
817,300 HSBC Holdings plc 13,592
8,264,000 Industrial and Commercial Bank of China Ltd. "H" 6,250
146,040 Korea Exchange Bank 1,905
138,550 National Australia Bank Ltd. 3,222
91,373 National Bank of Greece S.A. 4,344
19,100 Raiffeisen International Bank 2,389
42,150 Royal Bank of Canada 1,945
81,850 Shinhan Financial Group Co. Ltd. 3,834
210,900 Standard Chartered plc 6,480
80,800 Sydbank A/S 3,083
--------
67,287
--------
|
21
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE (0.5%)
20,100 Goldman Sachs Group, Inc. $ 3,699
--------
LIFE & HEALTH INSURANCE (1.3%)
50,900 AFLAC, Inc. 2,831
48,700 Manulife Financial Corp. 1,794
64,000 Power Corp. of Canada(a) 1,952
473,000 Standard Life plc 2,135
96,620 Unum Group 2,334
--------
11,046
--------
MULTI-LINE INSURANCE (2.4%)
150,000 Assicurazioni Generali S.p.A. 5,225
38,000 Assurant, Inc. 2,285
21,500 Baloise Holdings AG 2,031
8,200 Fairfax Financial Holdings Ltd. 2,100
410,500 Mapfre S.A. 2,055
22,450 Zurich Financial Services AG 5,943
--------
19,639
--------
MULTI-SECTOR HOLDINGS (0.5%)
91,600 Jardine Matheson 2,895
15,100 Pargesa Holding S.A. 1,571
--------
4,466
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (2.4%)
88,600 Bank of America Corp. 2,915
264,800 ING Groep N.V.(a) 8,676
68,838 JPMorgan Chase & Co. 2,797
83,350 Toronto-Dominion Bank 5,070
--------
19,458
--------
PROPERTY & CASUALTY INSURANCE (1.4%)
41,800 Ace Ltd. 2,119
64,150 Chubb Corp. 3,082
94,600 Millea Holdings, Inc. 3,577
56,700 Travelers Companies, Inc. 2,502
--------
11,280
--------
REAL ESTATE MANAGEMENT & DEVELOPMENT (0.9%)
434,000 Cheung Kong Holdings Ltd. 6,130
598,000 New World Development Ltd. 1,127
--------
7,257
--------
|
22
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------
REGIONAL BANKS (0.8%)
48,700 Bank of Hawaii Corp. $ 2,454
191,000 Bendigo Bank Ltd.(a) 1,942
742,000 Hokuhoku Financial Group, Inc. 1,912
--------
6,308
--------
REINSURANCE (1.0%)
32,985 Hannover Rueckversicherungs 1,577
39,900 Muenchener Rueckversicherungs-Gesellschaft AG 6,647
--------
8,224
--------
Total Financials 163,729
--------
HEALTH CARE (7.1%)
------------------
BIOTECHNOLOGY (0.4%)
34,700 Genentech, Inc.* 3,305
--------
HEALTH CARE SUPPLIES (0.2%)
55,800 Inverness Medical Innovations, Inc.* 1,881
--------
LIFE SCIENCES TOOLS & SERVICES (1.3%)
100,300 Invitrogen Corp.* 4,448
24,000 Lonza Group AG 3,497
78,000 PerkinElmer, Inc. 2,270
--------
10,215
--------
MANAGED HEALTH CARE (0.4%)
76,850 Humana, Inc.* 3,374
--------
PHARMACEUTICALS (4.8%)
215,200 AstraZeneca plc 10,527
82,000 Johnson & Johnson 5,615
93,000 Novartis AG 5,545
76,900 Sanofi-Aventis S.A. 5,406
423,800 Schering-Plough Corp. 8,934
155,000 Shionogi & Co. Ltd. 3,039
--------
39,066
--------
Total Health Care 57,841
--------
INDUSTRIALS (10.0%)
-------------------
AEROSPACE & DEFENSE (0.3%)
332,200 Bombardier, Inc. 2,381
--------
|
23
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING (0.8%)
60,035 Imtech NV $ 1,338
110,160 KBR, Inc. 3,140
33,900 Outotec Oyj 1,740
--------
6,218
--------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (1.0%)
24,700 AGCO Corp.* 1,478
53,400 Cummins, Inc. 3,543
23,900 Deere & Co. 1,677
64,300 Hitachi Construction Machinery Co. Ltd. 1,716
--------
8,414
--------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES (0.4%)
90,900 Aggreko plc 1,281
27,200 Brink's Co. 1,876
--------
3,157
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.2%)
66,700 Prysmian S.p.A. 1,653
--------
HEAVY ELECTRICAL EQUIPMENT (1.0%)
175,200 ABB Ltd.* 4,657
33,600 Alstom RGPT 3,795
--------
8,452
--------
INDUSTRIAL CONGLOMERATES (1.1%)
166,900 Cookson Group plc 2,058
286,000 Keppel Corp. Ltd. 2,230
183,962 Murray & Roberts Holdings Ltd. 2,407
21,000 Walter Industries, Inc. 2,202
--------
8,897
--------
INDUSTRIAL MACHINERY (0.9%)
69,250 GEA Group AG 2,289
46,200 Konecranes Oyj 1,854
13,300 MAN AG 1,343
56,300 Timken Co. 1,859
--------
7,345
--------
MARINE (0.7%)
16,400 Dampskibsselskabet NORDEN A/S 1,611
138,000 Mitsui O.S.K. Lines Ltd. 1,804
253,000 Nippon Yusen Kabushiki Kaisha 2,176
--------
5,591
--------
|
24
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------
RAILROADS (1.1%)
60,900 CSX Corp. $ 4,115
69,100 Norfolk Southern Corp. 4,970
--------
9,085
--------
TRADING COMPANIES & DISTRIBUTORS (2.5%)
416,000 Itochu Corp. 4,165
469,000 Marubeni Corp. 3,447
271,600 Mitsubishi Corp. 7,981
232,000 Mitsui & Co. Ltd. 4,806
--------
20,399
--------
Total Industrials 81,592
--------
INFORMATION TECHNOLOGY (11.1%)
------------------------------
COMMUNICATIONS EQUIPMENT (1.4%)
115,700 ADC Telecommunications, Inc.* 1,094
168,200 Corning, Inc. 3,366
34,650 Harris Corp. 1,668
45,500 Research In Motion Ltd.* 5,592
--------
11,720
--------
COMPUTER HARDWARE (3.5%)
176,800 Dell, Inc.* 4,344
242,400 Hewlett-Packard Co. 10,860
102,000 International Business Machines Corp. 13,054
--------
28,258
--------
COMPUTER STORAGE & PERIPHERALS (0.4%)
115,500 Western Digital Corp.* 3,325
--------
ELECTRONIC EQUIPMENT MANUFACTURERS (0.2%)
134,000 Nippon Electric Glass Co. Ltd. 1,979
--------
HOME ENTERTAINMENT SOFTWARE (0.3%)
4,500 Nintendo Co. Ltd. 2,194
--------
INTERNET SOFTWARE & SERVICES (0.5%)
7,900 Google, Inc. "A"* 3,743
--------
|
25
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------
IT CONSULTING & OTHER SERVICES (0.8%)
149,600 Accenture Ltd. "A" $ 6,247
6,100 Indra Sistemas S.A. 164
--------
6,411
--------
OFFICE ELECTRONICS (0.3%)
137,000 Konica Minolta Holdings, Inc. 2,255
--------
SEMICONDUCTORS (0.2%)
78,400 Broadcom Corp. "A"* 1,904
--------
SYSTEMS SOFTWARE (3.5%)
144,300 BMC Software, Inc.* 4,746
522,591 Microsoft Corp. 13,441
496,700 Oracle Corp.* 10,694
--------
28,881
--------
Total Information Technology 90,670
--------
MATERIALS (10.0%)
-----------------
DIVERSIFIED CHEMICALS (1.9%)
89,700 BASF AG 5,693
115,200 Bayer AG(a) 9,959
--------
15,652
--------
DIVERSIFIED METALS & MINING (4.3%)
79,100 Anglo American Capital plc 4,580
406,600 BHP Billiton plc 13,644
125,500 Companhia Vale do Rio Doce ADR 3,769
70,500 Rio Tinto plc 7,462
78,400 Xstrata plc 5,666
--------
35,121
--------
FERTILIZERS & AGRICULTURAL CHEMICALS (2.1%)
26,700 CF Industries Holdings, Inc.(a) 4,364
9,807 Incitec Pivot Ltd. 1,514
179,855 Israel Chemicals Ltd. (ICL) 3,360
20,900 Potash Corp. of Saskatchewan, Inc. 4,294
53,500 Yara International ASA 3,864
--------
17,396
--------
METAL & GLASS CONTAINERS (0.2%)
43,275 Owens-Illinois, Inc.* 1,828
--------
|
26
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------
STEEL (1.5%)
72,850 AK Steel Holding Corp. $ 4,626
41,000 ArcelorMittal ADR 3,660
17,500 Evraz Group S.A. GDR 1,680
58,400 Steel Dynamics, Inc. 1,850
--------
11,816
--------
Total Materials 81,813
--------
TELECOMMUNICATION SERVICES (5.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (3.5%)
101,500 AT&T, Inc. 3,127
258,400 France Telecom S.A. 8,210
378,738 Telefonica S.A. 9,884
1,250,000 Telstra Corp. Ltd. 5,297
56,400 Verizon Communications, Inc. 1,920
--------
28,438
--------
WIRELESS TELECOMMUNICATION SERVICES (1.7%)
563 KDDI Corp. 3,241
3,988,300 Vodafone Group plc 10,755
--------
13,996
--------
Total Telecommunication Services 42,434
--------
UTILITIES (4.4%)
----------------
ELECTRIC UTILITIES (2.8%)
75,600 DPL, Inc. 1,919
48,500 E.ON AG 9,263
73,350 Edison International 3,545
690,600 Enel S.p.A. 6,404
84,480 Reliant Energy, Inc.* 1,530
--------
22,661
--------
MULTI-UTILITIES (1.6%)
84,000 Dominion Resources, Inc. 3,711
47,800 Public Service Enterprise Group, Inc. 1,998
62,250 RWE AG 7,473
--------
13,182
--------
Total Utilities 35,843
--------
Total Common Stocks (cost: $801,775) 795,157
--------
|
27
P O R T F O L I O
==================--------------------------------------------------------------
of INVESTMENTS
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------
PREFERRED SECURITIES (0.6%)
FINANCIALS (0.6%)
-----------------
DIVERSIFIED BANKS (0.6%)
34,838 Uniao De Bancos Brasileiros S.A. (Unibanco) GDR (cost: $3,882) $ 4,586
--------
Total Equity Securities (cost: $805,657) 799,743
--------
MONEY MARKET INSTRUMENTS (2.1%)
MONEY MARKET FUNDS (2.1%)
17,192,897 State Street Institutional Liquid Reserves, 2.48%(b) (cost: $17,193) 17,193
--------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (3.3%)
MONEY MARKET FUNDS (0.7%)
994,814 AIM Short-Term Investment Co. Liquid Assets Portfolio, 2.56%(b) 995
5,266,262 Merrill Lynch Premier Institutional Fund, 2.54%(b) 5,266
--------
Total Money Market Funds 6,261
--------
PRINCIPAL
AMOUNT
(000)
----------
REPURCHASE AGREEMENTS (2.6%)
$ 9,000 Credit Suisse First Boston LLC, 2.19%, acquired on 7/31/2008 and
due 8/01/2008 at $9,000 (collateralized by $9,250 of U.S.
Treasury, 1.73%(d), due 1/02/2009; market value $9,181) 9,000
12,000 Deutsche Bank Securities, Inc., 2.18%, acquired on 7/31/2008
and due 8/01/2008 at $12,000 (collateralized by $48 of Freddie
Mac(c), 5.00%, due 11/26/2012; $12,223 of Freddie Mac(c),
2.50%(d), due 9/08/2008; combined market value $12,241) 12,000
--------
Total Repurchase Agreements 21,000
--------
Total Short-Term Investments Purchased With Cash Collateral
From Securities Loaned (cost: $27,261) 27,261
--------
TOTAL INVESTMENTS (COST: $850,111) $844,197
========
|
28
N O T E S
==========----------------------------------------------------------------------
to Portfolio of INVESTMENTS
USAA CAPITAL GROWTH FUND
JULY 31, 2008
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 60.6% of net assets
at July 31, 2008.
PORTFOLIO DESCRIPTION ABBREVIATIONS
ADR - American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
GDR - Global depositary receipts are receipts issued by a U.S. or
foreign bank evidencing ownership of foreign shares. Dividends are
paid in U.S. dollars.
SPECIFIC NOTES
(a) The security or a portion thereof was out on loan as of July 31,
2008.
(b) Rate represents the money market fund annualized seven-day yield at
July 31, 2008.
(c) Securities issued by government-sponsored enterprises are supported
only by the credit of the issuing agency, instrumentality, or
corporation, and are neither issued nor guaranteed by the U.S.
government.
(d) Zero-coupon security. Rate represents the effective yield at the
date of purchase.
* Non-income-producing security.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
S T A T E M E N T
==================--------------------------------------------------------------
of ASSETS and LIABILITIES
(in thousands)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
ASSETS
Investments in securities, at market value (including securities
on loan of $26,216) (cost of $850,111) $844,197
Cash 73
Cash denominated in foreign currencies (identified cost of $496) 490
Receivables:
Capital shares sold 1,404
USAA Investment Management Company (Note 6D) 857
Dividends and interest 1,121
Securities sold 13,451
Other 16
--------
Total assets 861,609
--------
LIABILITIES
Payables:
Upon return of securities loaned 27,262
Securities purchased 15,812
Capital shares redeemed 594
Unrealized depreciation on foreign currency contracts held, at value 4
Accrued management fees 526
Accrued transfer agent's fees 55
Other accrued expenses and payables 146
--------
Total liabilities 44,399
--------
Net assets applicable to capital shares outstanding $817,210
========
NET ASSETS CONSIST OF:
Paid-in capital $892,523
Accumulated undistributed net investment income 6,965
Accumulated net realized loss on investments (76,355)
Net unrealized depreciation of investments (5,914)
Net unrealized depreciation of foreign currency translations (9)
--------
Net assets applicable to capital shares outstanding $817,210
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 103,495
========
Net asset value, redemption price, and offering price per share $ 7.90
========
|
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30
S T A T E M E N T
==================--------------------------------------------------------------
of OPERATIONS
(in thousands)
USAA CAPITAL GROWTH FUND
YEAR ENDED JULY 31, 2008
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $1,264) $ 16,324
Interest 904
Securities lending (net) 443
--------
Total income 17,671
--------
EXPENSES
Management fees 5,482
Administration and servicing fees 1,077
Transfer agent's fees 2,848
Custody and accounting fees 273
Postage 198
Shareholder reporting fees 77
Trustees' fees 10
Registration fees 102
Professional fees 70
Other 14
--------
Total expenses 10,151
Expenses paid indirectly (6)
Expenses reimbursed (1,536)
--------
Net expenses 8,609
--------
NET INVESTMENT INCOME 9,062
--------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized loss on:
Investments (61,633)
Foreign currency transactions (472)
Change in net unrealized appreciation/depreciation of:
Investments (25,000)
Foreign currency translations (13)
--------
Net realized and unrealized loss (87,118)
--------
Decrease in net assets resulting from operations $(78,056)
========
|
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31
S T A T E M E N T S
====================------------------------------------------------------------
of Changes in NET ASSETS
(in thousands)
USAA CAPITAL GROWTH FUND
YEARS ENDED JULY 31,
2008 2007
-----------------------------
FROM OPERATIONS
Net investment income $ 9,062 $ 2,514
Net realized gain (loss) on investments (61,633) 36,277
Net realized loss on foreign currency transactions (472) (134)
Change in net unrealized appreciation/depreciation of:
Investments (25,000) 12,736
Foreign currency translations (13) 4
-----------------------------
Increase (decrease) in net assets resulting from
operations (78,056) 51,397
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,577) (1,327)
Net realized gains (48,505) (23,796)
-----------------------------
Distributions to shareholders (52,082) (25,123)
-----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 550,617 409,176
Reinvested dividends 51,576 24,994
Cost of shares redeemed (195,662) (71,381)
-----------------------------
Increase in net assets from capital share transactions 406,531 362,789
-----------------------------
Net increase in net assets 276,393 389,063
NET ASSETS
Beginning of year 540,817 151,754
-----------------------------
End of year $ 817,210 $540,817
=============================
Accumulated undistributed net investment income:
End of year $ 6,965 $ 1,879
=============================
CHANGE IN SHARES OUTSTANDING
Shares sold 62,537 45,111
Shares issued for dividends reinvested 5,650 2,929
Shares redeemed (22,607) (7,845)
-----------------------------
Increase in shares outstanding 45,580 40,195
=============================
|
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
USAA CAPITAL GROWTH FUND
JULY 31, 2008
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment
Company Act of 1940 (the 1940 Act), as amended, is a management
investment company organized as a Delaware statutory trust consisting
of 45 separate funds. The information presented in this annual report
pertains only to the USAA Capital Growth Fund (the Fund), which is
classified as diversified under the 1940 Act. The Fund's investment
objective is capital appreciation.
A. SECURITY VALUATION - 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 exchange 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 is generally 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
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
33
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
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, USAA
Investment Management Company (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 Trust's Board of Trustees, 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, other than ETFs,
are valued at their NAV at the end of each business day.
4. Short-term securities with original or remaining maturities of
60 days or less may be valued at amortized cost, which
approximates market value.
5. Repurchase agreements are valued at cost, which approximates
market value.
34
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
6. 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 Trust's Board of Trustees. 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. 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.
C. 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
35
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
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.
D. REPURCHASE AGREEMENTS - The Fund may enter into repurchase
agreements with commercial banks or recognized security dealers.
These agreements are collateralized by obligations issued or
guaranteed as to both principal and interest by the U.S.
government, its agencies, or its instrumentalities.
Government-sponsored enterprises, such as Fannie Mae and Freddie
Mac, are supported only by the credit of the issuing U.S.
government agency, and are neither issued nor guaranteed by the
U.S. government. The collateral obligations are marked-to-market
daily to ensure their value is equal to or in excess of the
repurchase agreement price plus accrued interest and are held by
the Fund, either through its regular custodian or through a
special "tri-party" custodian that maintains separate accounts
for both the Fund and its counterparty, until maturity of the
repurchase agreement. The Fund's Manager monitors the
creditworthiness of sellers with which the Fund may enter into
repurchase agreements.
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
U.S. dollars, foreign currency amounts are translated into U.S.
dollars on the following basis:
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.
36
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
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 - 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 reduce
the Fund's expenses. For the year ended July 31, 2008, these
custodian and other bank credits reduced the Fund's expenses by
$6,000.
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
37
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
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 $300 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 based on the funds' assessed proportionate share
of CAPCO's operating expenses related to obtaining and maintaining
CAPCO's funding programs in total (in no event to exceed 0.07% annually
of the $300 million loan agreement). The facility fees are allocated
among the funds based on their respective average net assets for the
period.
For the year ended July 31, 2008, the Fund paid CAPCO facility fees of
$1,000, which represents 1.7% 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, 2008.
38
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
(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 passive foreign investment
corporation gains and losses, foreign currency gains and losses, and
dividend distributions resulted in reclassifications to the statement
of assets and liabilities to decrease accumulated undistributed net
investment income and decrease accumulated net realized loss on
investments by $399,000. This reclassification has no effect on net
assets.
The tax character of distributions paid during the years ended July 31,
2008, and 2007, was as follows:
2008 2007
-----------------------------------
Ordinary income* $39,069,000 $16,479,000
Long-term realized capital gains 13,013,000 8,644,000
|
*Includes distribution of short-term realized capital gains, if any,
which are taxable as ordinary income.
As of July 31, 2008, the components of net assets representing
distributable earnings on a tax basis were as follows:
Undistributed ordinary income $ 7,311,000
Accumulated capital and other losses (75,910,000)
Unrealized depreciation of investments (6,703,000)
Unrealized depreciation on foreign currency translations (9,000)
|
The difference between book-basis and tax-basis unrealized depreciation
of investments is attributable to the tax deferral of losses on wash
sales
39
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
and mark-to-market adjustments on passive foreign investment
corporations.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the
succeeding fiscal year or as otherwise required to avoid the payment of
federal taxes. At July 31, 2008, the Fund had current post-October
currency losses and capital losses of $341,000 and $75,569,000,
respectively, for federal income tax purposes, which will be recognized
on the first day of the following fiscal year.
Effective August 1, 2007, the Fund adopted Financial Accounting
Standards Board (FASB) Interpretation No. 48, "ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES" (FIN 48). FIN 48 provides guidance for how
uncertain tax positions should be recognized, measured, presented, and
disclosed in the financial statements. FIN 48 requires the evaluation
of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions
are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not
threshold would be recorded as a tax expense in the current year. As of
July 31, 2008, the Manager has reviewed all open tax years and
concluded that the adoption of FIN 48 resulted in no impact to the
Fund's net assets or results of operations. On an ongoing basis, the
Manager will monitor its tax positions under FIN 48 to determine if
adjustments to this conclusion are necessary.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities,
excluding short-term securities, for the year ended July 31, 2008, were
$1,822,376,000 and $1,466,493,000, respectively.
As of July 31, 2008, the cost of securities, including short-term
securities, for federal income tax purposes, was $850,900,000.
40
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
Gross unrealized appreciation and depreciation of investments as of
July 31, 2008, for federal income tax purposes, were $41,608,000 and
$48,311,000, respectively, resulting in net unrealized depreciation of
$6,703,000.
(5) LENDING OF PORTFOLIO SECURITIES
The Fund, through its third-party securities-lending agent, Wachovia
Global Securities Lending (Wachovia), may lend its securities to
qualified financial institutions, such as certain broker-dealers, to
earn additional income. The borrowers are required to secure their
loans continuously with cash collateral in an amount at least equal to
the fair value of the securities loaned, initially in an amount at
least equal to 102% of the fair value of domestic securities loaned and
105% of the fair value of international securities loaned. Cash
collateral is invested in high-quality short-term investments. The Fund
and Wachovia retain 80% and 20%, respectively, of the income earned
from the investment of cash received as collateral, net of any expenses
associated with the lending transaction. Wachovia receives no other
fees from the Fund for its services as securities-lending agent. Risks
to the Fund in securities-lending transactions are that the borrower
may not provide additional collateral when required or return the
securities when due, and that the value of the short-term investments
will be less than the amount of cash collateral required to be returned
to the borrower. Wachovia Corp., parent company of Wachovia, has agreed
to indemnify the Fund against any losses due to counterparty default in
securities-lending transactions. For the year ended July 31, 2008, the
Fund received securities-lending income of $443,000, which is net of
the 20% income retained by Wachovia. As of July 31, 2008, the Fund
loaned securities having a fair market value of approximately
$26,216,000 and received cash collateral of $27,262,000 for the loans.
Of this amount, $27,261,000 was invested in short-term investments, as
noted in the Fund's portfolio of investments, and $1,000 remained in
cash.
41
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management
services to the Fund pursuant to an Investment 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 Trust's Board of Trustees.
The Manager is authorized to select (with approval of the Trust's
Board of Trustees and without shareholder approval) one or more
subadvisers to manage the actual day-to-day investment of a
portion of the Fund's assets. The Manager monitors each
subadviser's performance through quantitative and qualitative
analysis, and periodically recommends to the Trust's Board of
Trustees 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 that increases or decreases the
base fee depending upon the performance of the Fund relative to
the performance of a Lipper index. The portion of the performance
adjustment that includes periods beginning August 1, 2006, is
based on the performance of the Fund relative to the Lipper
Global Funds Index, which tracks the total return performance of
the 30 largest funds in the Lipper Global Funds category. The
portion of the performance adjustment that includes periods from
December 1, 2005, through July 31, 2006, is based on comparing
the Fund's performance to both the Lipper Small-Cap Growth Funds
Index, which tracks the total return performance of the 30
largest funds in the Lipper Small-Cap Growth Funds category, and
the Lipper Global Funds Index, and then selecting the comparison
that results in the lesser base fee
42
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
adjustment for the Fund's shareholders. The portion of the
performance adjustment that includes periods prior to December 1,
2005, is based on the performance of the Fund relative to the
performance of the Lipper Small-Cap Growth Funds Index. The
Fund's base fee is accrued daily and paid monthly at an
annualized rate of 0.75% of the Fund's average net assets for the
fiscal year.
The performance adjustment is calculated monthly by comparing the
Fund's performance to that of the applicable Lipper index over
the performance period. The performance period consists of the
current month plus the previous 35 months.
The annual performance adjustment rate is multiplied by the
average net assets of the Fund 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 amount is then
added to (in the case of overperformance) or subtracted from (in
the case of underperformance) the base fee, as referenced in the
following chart:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS
--------------------------------------------------------------------------------
+/- 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 Fund and
its relevant index, rounded to the nearest 0.01%.
Under the performance fee arrangement, the Fund will pay a
positive performance fee adjustment for a performance period
whenever the Fund outperforms the applicable Lipper index over
that period, even if the Fund had overall negative returns during
the performance period.
43
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
For the year ended July 31, 2008, the Fund incurred total
management fees, paid or payable to the Manager, of $5,482,000,
which included a performance adjustment of $97,000 that increased
the effective base management fee of 0.75% by 0.01%.
B. SUBADVISORY ARRANGEMENTS - The Manager has entered into an
investment subadvisory agreement with Batterymarch Financial
Management, Inc. (Batterymarch), under which Batterymarch directs
the investment and reinvestment of the Fund's assets (as
allocated from time to time by the Manager). The Manager (not the
Fund) pays Batterymarch a subadvisory fee based on the aggregate
net assets that Batterymarch manages in the USAA Cornerstone
Strategy Fund, the USAA Capital Growth Fund, and the USAA World
Growth Fund in the annual amount of 0.25% of the first $250
million of assets, 0.21% on assets over $250 million and up to
$500 million, and 0.17% on assets over $500 million. For the year
ended July 31, 2008, the Manager incurred subadvisory fees for
the Fund, paid or payable to Batterymarch, of $1,389,000.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and shareholder servicing functions for the Fund.
For such services, the Manager receives a fee accrued daily and
paid monthly at an annualized rate of 0.15% of the Fund's average
net assets. For the year ended July 31, 2008, the Fund incurred
administration and servicing fees, paid or payable to the
Manager, of $1,077,000.
In addition to the services provided under its Administration and
Servicing Agreement with the Fund, the Manager also provides
certain legal and tax services for the benefit of the Fund. The
Trust's Board of Trustees has approved the reimbursement of a
portion of these expenses incurred by the Manager. For the year
44
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
ended July 31, 2008, the Fund reimbursed the Manager $11,000 for
these legal and tax services. These expenses are included in the
professional fees expenses on the Fund's statement of operations.
D. EXPENSE LIMITATION - The Manager has voluntarily agreed to limit
the annual expenses of the Fund to 1.20% of its average annual
net assets, before reductions of any expenses paid indirectly,
and will reimburse the Fund for all expenses in excess of that
amount. This agreement may be modified or terminated at any time.
For the year ended July 31, 2008, the Fund incurred reimbursable
expenses of $1,536,000, of which $857,000 was receivable from the
Manager. Effective December 1, 2008, the Fund's expense
limitation will change to 1.30%.
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 based on an annual
charge of $23 per shareholder account plus out-of-pocket
expenses. The Fund also pays 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, 2008, the Fund
incurred transfer agent's fees, paid or payable to SAS, of
$2,848,000.
F. UNDERWRITING SERVICES - The Manager provides exclusive
underwriting and distribution of the Fund's shares on a
continuing best-efforts basis. The Manager receives no
commissions or fees for this service.
(7) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers,
and/or employees of the Manager. None of the affiliated trustees or
Fund officers received any compensation from the Fund.
45
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
(8) NEW ACCOUNTING PRONOUNCEMENTS
A. STATEMENT ON FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 157, "FAIR
VALUE MEASUREMENTS" (SFAS 157) - In September 2006, FASB issued
SFAS 157. This standard clarifies the definition of fair value
for financial reporting, establishes a framework for measuring
fair value, and requires additional disclosures about the use of
fair value measurements. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. As of July
31, 2008, the Manager does not believe the adoption of SFAS 157
will impact the amounts reported in the Fund's financial
statements; however, additional disclosures will be required
about the inputs used to develop the measurements of fair value
and the effect of certain measurements reported in the statement
of operations for a fiscal period.
B. SFAS NO. 159, "THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND
FINANCIAL LIABILITIES" (SFAS 159) - In February 2007, FASB issued
SFAS 159. In summary, SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at
fair value that are not currently required to be measured at fair
value. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities
that choose different measurement attributes for similar types of
assets and liabilities. SFAS 159 is effective for financial
statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. The Manager
has evaluated SFAS 159 and has determined that there are no
eligible instruments for which the Fund intends to avail itself
of the fair value option.
46
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
C. SFAS NO. 161, "DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES - AN AMENDMENT OF FASB STATEMENT NO. 133"
(SFAS 161) - In March 2008, FASB issued SFAS 161. In summary,
SFAS 161 requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about
fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The Manager is in the process
of evaluating the impact of SFAS 161 on the Fund's financial
statement disclosures.
47
N O T E S
==========----------------------------------------------------------------------
to FINANCIAL Statements
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
(9) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
YEAR ENDED JULY 31,
----------------------------------------------------------------------------
2008 2007 2006 2005 2004
----------------------------------------------------------------------------
Net asset value at beginning of period $ 9.34 $ 8.56 $ 7.81 $ 6.27 $ 5.42
----------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .08 .04 .05 (.04)(a) (.02)(a)
Net realized and unrealized
gain (loss) (.80) 1.91 .87 1.58(a) .87(a)
----------------------------------------------------------------------------
Total from investment operations (.72) 1.95 .92 1.54(a) .85(a)
----------------------------------------------------------------------------
Less distributions from:
Net investment income (.05) (.05) - - -
Realized capital gains (.67) (1.12) (.17) - -
----------------------------------------------------------------------------
Total distributions (.72) (1.17) (.17) - -
----------------------------------------------------------------------------
Net asset value at end of period $ 7.90 $ 9.34 $ 8.56 $ 7.81 $ 6.27
============================================================================
Total return (%)* (8.80) 24.24(d) 11.92 24.56 15.68
Net assets at end of period (000) $817,210 $540,817 $151,754 $115,515 $79,026
Ratios to average net assets:**
Expenses (%)(b),(c) 1.20 1.16(d) 1.00 1.00 1.00
Expenses, excluding
reimbursements (%)(b) 1.41 1.47(d) 1.68 1.68 1.74
Net investment income (loss) (%) 1.26 .83 .56 (.62) (.34)
Portfolio turnover (%) 210 223 240 166 195
* 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.
** For the year ended July 31, 2008, average net assets were $719,063,000.
(a) Calculated using average shares.
(b) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased the
expense ratios as follows:
(.00%)(+) (.00%)(+) (.00%)(+) (.05%) (.09%)
+ Represents less than 0.01% of average net assets.
(c) Effective December 1, 2006, the Manager voluntarily agreed to limit the
annual expenses of the Fund to 1.20% of the Fund's average net assets.
Prior to this date, the voluntary expense limit was 1.00%.
(d) For the year ended July 31, 2007, SAS voluntarily reimbursed the Fund for a
portion of the transfer agent's fees incurred. The reimbursement had no
effect on the Fund's total return or ratio of expenses to average net
assets.
|
48
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE (unaudited)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct
costs, such as wire fees, redemption fees, and low balance fees; and
indirect costs, including management fees, transfer agency fees, and
other Fund operating expenses. This example is intended to help you
understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire six-month period of
February 1, 2008, through July 31, 2008.
ACTUAL EXPENSES
The first line of the table on the next page provides information about
actual account values and actual expenses. You may use the information
in this line, together with the amount you invested at the beginning of
the period, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Fund's actual return. The hypothetical
account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the
49
E X P E N S E
==============------------------------------------------------------------------
EXAMPLE (unaudited)
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
Fund and other funds. To do so, compare this 5% hypothetical example
with the 5% hypothetical examples that appear in the shareholder
reports of other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any direct costs, such as
wire fees, redemption fees, or low balance fees. Therefore, the second
line of the table is useful in comparing ongoing costs only, and will
not help you determine the relative total costs of owning different
funds. In addition, if these direct costs were included, your costs
would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE FEBRUARY 1, 2008 -
FEBRUARY 1, 2008 JULY 31, 2008 JULY 31, 2008
-------------------------------------------------------------
Actual $1,000.00 $ 962.20 $5.85
Hypothetical
(5% return before expenses) 1,000.00 1,018.90 6.02
|
*Expenses are equal to the Fund's annualized expense ratio of 1.20%,
which is net of any reimbursements and expenses paid indirectly,
multiplied by the average account value over the period, multiplied by
182 days/366 days (to reflect the one-half-year period). The Fund's
ending account value on the first line in the table is based on its
actual total return of (3.78)% for the six-month period of February 1,
2008, through July 31, 2008.
50
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
At a meeting of the Board of Trustees (the "Board") held on April 9,
2008, the Board, including the Trustees who are not "interested
persons" of the Trust (the "Independent Trustees"), approved the
continuance of the Investment Advisory Agreement between the Trust and
the Manager and the Subadvisory Agreement with respect to the Fund.
In advance of the meeting, the Trustees received and considered a
variety of information relating to the Investment Advisory Agreement
and Subadvisory Agreement and the Manager and the Subadviser, and were
given the opportunity to ask questions and request additional
information from management. The information provided to the Board
included, among other things: (i) a separate report prepared by an
independent third party, which provided a statistical analysis
comparing the Fund's investment performance, expenses, and fees to
comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the
Manager's revenues and costs of providing services to the Fund and
compensation paid to affiliates of the Manager; and (iii) information
about the Manager's and Subadviser's operations and personnel. Prior to
voting, the Independent Trustees reviewed the proposed continuance of
the Investment Advisory Agreement and the Subadvisory Agreement with
management and with experienced independent counsel and received
materials from such counsel discussing the legal standards for their
consideration of the proposed continuation of the Investment Advisory
Agreement and the Subadvisory Agreement with respect to the Fund. The
Independent Trustees also reviewed the proposed continuation of the
Investment Advisory Agreement and the Subadvisory Agreement with
respect to the Fund in private sessions with their counsel at which no
representatives of management were present.
At each regularly scheduled meeting of the Board and its committees,
the Board receives and reviews, among other things, information
concerning the Fund's performance and related services provided by the
Manager and by the Subadviser. At the meeting at which the renewal
51
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
of the Investment Advisory Agreement and Subadvisory Agreement is
considered, particular focus is given to information concerning Fund
performance, comparability of fees and total expenses, and
profitability. However, the Board noted that the evaluation process
with respect to the Manager and the Subadviser is an ongoing one. In
this regard, the Board's and its committees' consideration of the
Investment Advisory Agreement and Subadvisory Agreement included
information previously received at such meetings.
INVESTMENT ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including
the Independent Trustees, voted to approve the Investment Advisory
Agreement. In approving the Investment Advisory Agreement, the Trustees
did not identify any single factor as controlling, and each Trustee
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
Investment Advisory Agreement, the Board reviewed information provided
by the Manager relating to its operations and personnel. The Board also
took into account its familiarity with the Manager's management 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 Investment 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
52
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
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 Subadviser
and its timeliness in responding to performance issues. The allocation
of the Fund's brokerage, including the Manager's process for monitoring
"best execution" 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
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 Investment Advisory Agreement. In
reviewing the Investment Advisory Agreement, the Board focused on the
experience, resources, and strengths of the Manager and its affiliates
in managing investment companies, including the Fund.
The Board also reviewed the compliance and administrative services
provided to the Fund by the Manager and its affiliates, 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 Fund and other investment
companies managed by the Manager, also focused on the quality of the
Manager's compliance and administrative staff.
EXPENSES AND PERFORMANCE. In connection with its consideration of the
Investment 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
53
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
investment objective and classification, sales load type (in this case,
investment companies with no sales loads), asset size, and expense
components (the "expense group") and (ii) a larger group of investment
companies that includes all 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 as well as any fee waivers or reimbursements
- was below the median of both its expense group and its expense
universe. The data indicated that the Fund's total expense ratio, after
reimbursements, was below the median of both its expense group and its
expense universe. The Board took 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
the performance adjustment to such fee. The Trustees also took into
account the Manager's current voluntary undertakings to maintain
expense limitations for the Fund and that the subadvisory fees under
the Subadvisory Agreement are paid by the Manager.
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 Investment 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
the Fund's performance was above the average of its
54
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
performance universe and its Lipper index for the one-, three-, and
five-year periods ended December 31, 2007. The Board also noted that
the Fund's percentile performance ranking was in the top 30% of its
performance universe for the one- and three-year periods ended December
31, 2007, and in the top 10% of its performance universe for the
five-year period ended December 31, 2007. The Board also noted the
Fund's Morningstar ranking.
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 consideration included a broad review of the
methodology used in the allocation of certain costs to the Fund. In
considering the profitability data with respect to the Fund, the
Trustees noted that the Manager has reimbursed a portion of its
management fees to the Fund and also pays the subadvisory fees. The
Trustees reviewed the profitability, if any, 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
55
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
account management's discussion of the current advisory fee structure.
The Board also considered the fee waivers and expense reimbursement
arrangement by the Manager and the fact that the Manager pays the
subadvisory fee. 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 determined that the current investment management fee structure
was reasonable.
CONCLUSIONS. The Board reached the following conclusions regarding the
Fund's Investment 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 Investment
Advisory Agreement; (ii) the Manager maintains an appropriate
compliance program; (iii) the performance of the Fund is reasonable in
relation to the performance of funds with similar investment objectives
and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to
be provided by the Manager; and (v) the Manager's and its affiliates'
level of profitability, if any, from their relationship with the Fund
is reasonable. Based on its conclusions, the Board determined that
continuation of the Investment Advisory Agreement would be in the best
interests of the Fund and its shareholders.
SUBADVISORY AGREEMENT
In approving the Fund's Subadvisory Agreement, the Board considered
various factors, among them: (i) the nature, extent, and quality of
services provided to the Fund, including the personnel providing
services; (ii) the Subadviser's compensation and any other benefits
derived from the subadvisory relationship; (iii) comparisons of
subadvisory fees and performance to comparable investment companies;
and (iv) the terms of the Subadvisory Agreement. The Board's analysis
of these factors is set forth below.
56
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
After full consideration of a variety of factors, the Board, including
the Independent Trustees, voted to approve the Subadvisory Agreement.
In approving the Subadvisory Agreement, the Trustees did not identify
any single factor as controlling, and each Trustee attributed different
weights to various factors. Throughout their deliberations, the
Independent Trustees were represented and assisted by independent
counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES PROVIDED; INVESTMENT PERSONNEL.
The Trustees considered information provided to them regarding the
services provided by the Subadviser, including information presented
periodically throughout the previous year. The Board considered the
Subadviser's level of knowledge and investment style. The Board
reviewed the experience and credentials of the investment personnel who
are responsible for managing the investment of portfolio securities
with respect to the Fund and the Subadviser's level of staffing. The
Trustees noted that the materials provided to them indicated that the
method of compensating portfolio managers is reasonable and includes
appropriate mechanisms to prevent a manager with underperformance from
taking undue risks. The Trustees also noted the Subadviser's brokerage
practices. The Board also considered the Subadviser's regulatory and
compliance history. The Board noted that the Manager's monitoring
processes of the Subadviser include: (i) regular telephonic meetings to
discuss, among other matters, investment strategies and to review
portfolio performance; (ii) monthly portfolio compliance checklists and
quarterly compliance certifications to the Board; and (iii) due
diligence visits to the Subadviser.
SUBADVISER COMPENSATION. The Board also took into consideration the
financial condition of the Subadviser. In considering the cost of
services to be provided by the Subadviser and the profitability to the
Subadviser of its relationship with the Fund, the Trustees noted that
the fees under the Subadvisory Agreement were paid by the Manager. The
Trustees also relied on the ability of the Manager to negotiate the
Subadvisory Agreement and the fees thereunder at arm's length. The
Board also considered information relating to the cost of services to
be
57
A D V I S O R Y
================----------------------------------------------------------------
AGREEMENTS (unaudited)
(continued)
USAA CAPITAL GROWTH FUND
JULY 31, 2008
provided by the Subadviser, the Subadviser's profitability with respect
to the Fund, and the potential economies of scale in the Subadviser's
management of the Fund, to the extent available. However, for the
reasons noted above, this information was less significant to the
Board's consideration of the Subadvisory Agreement than the other
factors considered.
SUBADVISORY FEES AND FUND PERFORMANCE. The Board compared the
subadvisory fees for the Fund with the fees that the Subadviser charges
to comparable clients. The Board considered that the Fund pays a
management fee to the Manager and that, in turn, the Manager pays a
subadvisory fee to the Subadviser.
As noted above, the Board considered the Fund's performance during the
one-, three-, and five-year periods ended December 31, 2007, as
compared to the Fund's respective peer group and noted that the Board
reviews at its regularly scheduled meetings information about the
Fund's performance results. The Board noted the Manager's expertise and
resources in monitoring the performance, investment style, and
risk-adjusted performance of the Subadviser. The Board also noted the
Subadviser's long-term performance record for similar accounts.
CONCLUSION. The Board reached the following conclusions regarding the
Subadvisory Agreement, among others: (i) the Subadviser is qualified to
manage the Fund's assets in accordance with its investment objectives
and policies; (ii) the Subadviser maintains an appropriate compliance
program; (iii) the performance of the Fund is reasonable in relation to
the performance of funds with similar investment objectives and to
relevant indices; and (iv) the Fund's advisory expenses are reasonable
in relation to those of similar funds and to the services to be
provided by the Manager and the Subadviser. Based on the Board's
conclusions, it determined that approval of the Subadvisory Agreement
with respect to the Fund would be in the best interests of the Fund and
its shareholders.
58
T R U S T E E S ' A N D O F F I C E R S '
===================-------------------------------------------------------------
INFORMATION
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees 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 of Trustees 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 of Trustees 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 Investment Management Company (IMCO)
and its affiliates. The term of office for each Trustee shall be 20
years or until the Trustee reaches age 70. All members of the Board of
Trustees shall be presented to shareholders for election or
re-election, as the case may be, at least once every five years.
Vacancies on the Board of Trustees 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 Trustees of the USAA
family of funds consisting of one registered investment company with 45
individual funds as of July 31, 2008. 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).
59
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
INTERESTED TRUSTEE(1)
CHRISTOPHER W. CLAUS (2, 4)
Trustee
Born: December 1960
Year of Election or Appointment: 2001
President and Chair of the Board of Directors, IMCO (2/08-present);
President, USAA Financial Advisors, Inc. (FAI) (12/07-present);
President, Financial Services Group, USAA (1/07-present); Chair of the
Board of Directors and Chief Investment Officer, IMCO (1/07-2/08);
President and Chief Executive Officer, Director, and Chair of the Board
of Directors, IMCO (12/04-1/07); President and Chief Executive Officer,
Director, and Vice Chair of the Board of Directors, IMCO (2/01-12/04).
Mr. Claus serves as President, Trustee, and Vice Chair of the Board of
Trustees of the USAA family of funds. He also serves as Chair of the
Board of Directors of USAA Shareholder Account Services (SAS), USAA
Financial Planning Services Insurance Agency, Inc. (FPS), and FAI. He
also is a Director for USAA Life Insurance Company (USAA Life) and USAA
Federal Savings Bank (FSB).
(1) INDICATES THE TRUSTEE IS AN EMPLOYEE OF USAA INVESTMENT MANAGEMENT
COMPANY 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.
60
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
NON-INTERESTED (INDEPENDENT) TRUSTEES
BARBARA B. DREEBEN (3, 4, 5, 6)
Trustee
Born: June 1945
Year of Election or Appointment: 1994
President, Postal Addvantage (7/92-present), a database management
service. Mrs. Dreeben holds no other directorships of any publicly held
corporations or other investment companies outside the USAA family of
funds.
ROBERT L. MASON, Ph.D. (3, 4, 5, 6)
Trustee
Born: July 1946
Year of Election or Appointment: 1997
Institute Analyst, Southwest Research Institute (3/02-present); Staff
Analyst, Southwest Research Institute (9/98-3/02), which focuses in the
fields of technological research. Dr. Mason holds no other
directorships of any publicly held corporations or other investment
companies outside the USAA family of funds.
BARBARA B. OSTDIEK, Ph.D. (3, 4, 5, 6)
Trustee
Born: March 1964
Year of Election or Appointment: 2007
Academic Director of the El Paso Corporation Finance Center at Jesse
H. Jones Graduate School of Management at Rice University
(7/02-present); Associate Professor of Finance at Jesse H. Jones
Graduate School of Management at Rice University (7/01-present). Dr.
Ostdiek holds no other directorships of any publicly held corporations
or other investment companies outside the USAA family of funds.
61
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
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 holds no other directorships of any
publicly held corporations or other investment companies outside the
USAA family of funds.
RICHARD A. ZUCKER (2, 3, 4, 5, 6)
Trustee and Chair of the Board of Trustees
Born: July 1943
Year of Election or Appointment: 1992(+)
Vice President, Beldon Roofing Company (7/85-present). Mr. Zucker
holds no other directorships of any publicly held corporations or
other investment companies outside the USAA family of funds.
INTERESTED OFFICERS(1)
CLIFFORD A. GLADSON
Vice President
Born: November 1950
Year of Appointment: 2002
Senior Vice President, Fixed Income Investments, IMCO (9/02-present).
(+) MR. ZUCKER WAS ELECTED AS CHAIR OF THE BOARD IN 2005.
(1) INDICATES THOSE OFFICERS WHO ARE EMPLOYEES OF USAA INVESTMENT
MANAGEMENT COMPANY OR AFFILIATED COMPANIES AND ARE CONSIDERED
"INTERESTED PERSONS" UNDER THE INVESTMENT COMPANY ACT OF 1940.
62
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
RONALD B. SWEET
Vice President
Born: November 1962
Year of Appointment: 2006
Vice President, Equity Investments, IMCO (6/06-present); Assistant Vice
President, Investment Strategy & Analysis, USAA (12/01-6/06).
MARK S. HOWARD
Secretary
Born: October 1963
Year of Appointment: 2002
Senior Vice President, Life/IMCO/FPS General Counsel, USAA
(10/03-present); Senior Vice President, Securities Counsel, USAA
(12/02-10/03). Mr. Howard also holds the Officer positions of Senior
Vice President, Secretary, and Counsel for USAA Life, IMCO, FAI, FPS,
and SAS.
ROBERTO GALINDO, Jr.
Treasurer
Born: November 1960
Year of Appointment: 2000
Assistant Vice President, Portfolio Accounting/Financial
Administration, USAA (12/02-present); Assistant Treasurer, USAA family
of funds (7/00-2/08).
JEFFREY D. HILL
Chief Compliance Officer
Born: December 1967
Year of Appointment: 2004
Assistant Vice President, Mutual Funds Compliance, USAA (9/04-present);
Assistant Vice President, Investment Management Administration &
Compliance, USAA (12/02-9/04).
63
. . . C O N T I N U E D
========================--------------------------------------------------------
INFORMATION
ROSE URBANCZYK
Assistant Treasurer
Born: June 1961
Year of Appointment: 2008
Assistant Vice President, Finance, Senior Financial Officer, IMCO
(6/08-present); Assistant Vice President, Senior Financial Officer and
Treasurer, FAI (6/08-present); Assistant Vice President, Finance,
Senior Financial Officer and Treasurer, FPS (6/08-present); Assistant
Vice President, Senior Financial Officer, Chief Financial Office, USAA
(IMCO/FPS) (5/08-present); Executive Director, Finance, Senior
Financial Officer, IMCO (11/07-6/08); Senior Financial Officer and
Treasurer, FAI (4/07-6/08); Executive Director, Finance, Senior
Financial Officer and Treasurer, FPS (8/06-6/08); Executive Director,
Enterprise Planning & Performance Management (3/03-8/06); Director,
Accounting/Financial, Corporate Financial Reporting, Planning &
Analysis, IMCO (2/01-10/06).
TRUSTEES Christopher W. Claus
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Richard A. Zucker
--------------------------------------------------------------------------------
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, AND San Antonio, Texas 78265-9825
DISTRIBUTOR
--------------------------------------------------------------------------------
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 LEARN MORE ONLINE NOW
SELF-SERVICE 24/7 At "Products & Services" click
AT USAA.COM "Investments" then "Mutual Funds"
OR CALL View account balance, transactions, fund
(800) 531-USAA prices; or exchange/redeem fund shares.
(8722) Go to "My Accounts" then "Investments"
|
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) ON THE SEC'S WEB SITE 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 AT NO CHARGE (I) AT USAA.COM; AND
(II) ON THE SEC'S WEB SITE 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 (I) BY CALLING (800) 531-USAA(8722); (II) AT USAA.COM; AND (III) ON
THE SEC'S WEB SITE 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.
[LOGO OF USAA] 9800 Fredericksburg Road -------------
USAA(R) San Antonio, Texas 78288 PRSRT STD
U.S.
Postage
P A I D
USAA
-------------
|
SAVE PAPER AND FUND COSTS
At USAA.COM click: MY DOCUMENTS
Set preferences to USAA DOCUMENTS ONLINE
[LOGO OF USAA] WE KNOW WHAT IT MEANS TO SERVE.(R)
USAA ----------------------------------
INSURANCE o MEMBER SERVICES
36844-0908 (C)2008, USAA. All rights reserved.
|
ITEM 2. CODE OF ETHICS.
On September 19, 2008, the Board of Trustees of USAA Mutual Funds Trust approved
a Code of Ethics (Sarbanes Code) applicable solely to its senior financial
officers, including its principal executive officer (President), as defined
under the Sarbanes-Oxley Act of 2002 and implementing regulations of the
Securities and Exchange Commission. A copy of the Sarbanes Code is attached as
an Exhibit to this Form N-CSR.
No waivers (explicit or implicit) have been granted from a provision of the
Sarbanes Code.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
In 2006, the Trustee designated as the Board's audit committee financial expert
resigned from the Board. The Board has not determined that another Trustee
qualifies as an audit committee financial expert. The Board is seeking a
replacement and will consider a candidate's qualifications to become the audit
committee financial expert as a factor in the evaluation process.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. The Registrant, USAA Mutual Funds Trust, consists of 45 funds in
all. Only 14 funds of the Registrant have a fiscal year-end of July 31 and are
included within this report (the Funds). The aggregate fees accrued or billed by
the Registrant's independent auditor, Ernst & Young LLP, for professional
services rendered for the audit of the Registrant's annual financial statements
and services provided in connection with statutory and regulatory filings by the
Registrant for the Funds for fiscal years ended July 31, 2008 and 2007 were
$391,060 and $393,763, respectively.
(b) AUDIT RELATED FEE. The aggregate fees accrued or paid to Ernst & Young, LLP
by USAA Shareholder Account Services (SAS) for professional services rendered
for audit related services related to the annual study of internal controls of
the transfer agent for fiscal years ended July 31, 2008 and 2007 were $64,375
and $55,000, respectively. All services were preapproved by the Audit Committee.
(c) TAX FEES. No such fees were billed by Ernst & Young LLP for fiscal years
ended July 31, 2008 and 2007.
(d) ALL OTHER FEES. No such fees were billed by Ernst & Young LLP for fiscal
years ended July 31, 2008 and 2007.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICY. All audit and non-audit services to
be performed for the Registrant by Ernst & Young LLP must be pre-approved by the
Audit Committee. The Audit Committee Charter also permits the Chair of the Audit
Committee to pre-approve any permissible non-audit service that must be
commenced prior to a scheduled meeting of the Audit Committee. All non-audit
services were pre-approved by the Audit Committee or its Chair, consistent with
the Audit Committee's preapproval procedures.
(2) Not applicable.
(f) Not applicable.
(g) The aggregate non-audit fees billed by Ernst & Young LLP for services
rendered to the Registrant and the Registrant's investment adviser, IMCO, and
the Funds' transfer agent, SAS, for July 31, 2008 and 2007 were $106,475 and
$89,560, respectively.
(h) Ernst & Young LLP provided non-audit services to IMCO in 2008 and 2007 that
were not required to be pre-approved by the Registrant's Audit Committee because
the services were not directly related to the operations of the Registrant's
Funds. The Board of Trustees will consider Ernst & Young LLP's independence and
will consider whether the provision of these non-audit services to IMCO is
compatible with maintaining Ernst & Young LLP's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
Item 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 11. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA Mutual
Funds Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR 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 IMCO 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 IMCO, or for both), be involved in establishing policies and
implementing decisions that will have different effects on IMCO and the Funds.
The participation of Covered Officers in such activities is inherent in the
contractual relationship between the Funds and IMCO 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 IMCO 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 IMCO'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, IMCO, 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 IMCO's more detailed
compliance policies and procedures (including its Insider Trading Policy) are
separate requirements applying to Covered Officers and other IMCO 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, IMCO, 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
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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA MUTUAL FUNDS TRUST, Period Ended July 31, 2008
By:* /s/ MARK S. HOWARD
-----------------------------------------------------------
Signature and Title: Mark S. Howard, Secretary
Date: SEPTEMBER 25, 2008
------------------------------
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /s/ CHRISTOPHER W. CLAUS
-----------------------------------------------------
Signature and Title: Christopher W. Claus, President
Date: SEPTEMBER 26, 2008
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By:* /s/ ROBERTO GALINDO, JR.
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Signature and Title: Roberto Galindo, Jr., Treasurer
Date: SEPTEMBER 26, 2008
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|
*Print the name and title of each signing officer under his or her signature.
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