UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: DANIEL J. MAVICO
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: MAY 31
Date of reporting period: NOVEMBER 30, 2013
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED NOVEMBER 30, 2013
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE AGGRESSIVE FUND]
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SEMIANNUAL REPORT
USAA CORNERSTONE AGGRESSIVE FUND
NOVEMBER 30, 2013
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PRESIDENT'S MESSAGE
"IT IS IMPORTANT TO OWN A VARIETY OF
INVESTMENTS THAT TEND TO PERFORM [PHOTO OF DANIEL S. McNAMARA]
DIFFERENTLY IN DIFFERENT ENVIRONMENTS."
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DECEMBER 2013
As experienced investors know, major moves in an asset class can happen quickly.
This was the case during the reporting period for both stocks and bonds. For
stocks, it was essentially a tale of two markets. In the first half of the
period, global stocks retreated on hints from Federal Reserve (the Fed) Chairman
Ben Bernanke that the Fed might begin tapering (or reducing) its quantitative
easing (QE) asset purchases. (Through QE, the Fed was buying $85 billion in U.S.
Treasury securities and mortgage-backed securities every month in order to push
down long-term interest rates and stimulate economic growth and it recently
signaled that it will reduce this amount to $75 billion every month.) Overall,
for the period between May 31, 2013, and September 5, 2013, international stocks
(which exclude the United States and Europe) and European stocks gained about
3%, while U.S. stocks returned approximately 2%. Emerging market stocks
declined.
Global stocks reversed direction in the second half of the reporting period,
rallying strongly after the Fed delayed the inevitable taper. Between September
6, 2013, and November 29, 2013, European stocks gained more than 10%,
outperforming U.S. and international stocks -- both of which advanced nearly a
still-respectable 10% -- and emerging markets stocks, which recorded a return of
about 8%. Varied performance, such as this, is an important reminder of the
benefits of diversification: it is important to own a variety of investments
that tend to perform differently in different environments.
In the bond market, longer-term interest rates rose on expectations of a
reduction in the Fed's asset purchases. Bond prices, which move in the opposite
direction of interest rates, declined. The increase in rates was most pronounced
in the longer end of the yield curve -- in five-year, 10-year and 30-year
maturities. For fixed-income investors, it was a mixed blessing. Higher rates
meant a decrease in principal value. On the other hand, lower prices mean
investors have the opportunity to reinvest at higher rates and earn more on any
new investments. Meanwhile, short-term interest rates remained anchored near
zero. The Fed has said it will keep the targeted federal funds rate between 0%
and 0.25% as long as unemployment is above 6.5% and inflation remains below
2.5%.
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Looking ahead, I expect the Fed to continue its asset purchases for the
foreseeable future. Janet Yellen, who has been nominated to succeed Bernanke,
said this past November that she supports the continuation of the Fed's
accommodative monetary policies. Yellen also told the Senate Banking Committee
that the Fed would eventually have to begin tapering (which it subsequently
stated it will do). However, I believe that the Fed will continue asset
purchases, as the U.S. economy remains fragile.
As the Fed starts to taper its asset purchases, longer-term interest rates will
probably increase. Though gradually rising rates can be a headwind for
investors, fixed-income investing is not an all-or-none scenario. I believe that
bonds continue to have a place in a diversified portfolio, in part because of
the income they provide. Furthermore, the bond market is not one market but is
actually a market of many different types of bonds, including U.S. Treasuries,
mortgage-backed securities, investment-grade bonds, high-yield bonds, municipal
securities, and more. Many of these fixed-income asset classes performed
differently (some better and some worse than U.S. Treasuries) during the
reporting period.
Meanwhile, equity valuations have risen faster than fundamentals. I believe
valuations will continue to rise if economic growth accelerates and profit
margins can maintain their current levels. If growth stalls or decelerates and
profit margins decrease, earnings may disappoint and stocks may trim their
gains.
Precious metals, like fixed-income securities, underperformed during the
reporting period. The underperformance, in my view, was driven by concern that
Fed tapering would be stronger than expected, which could lead to a rally in the
U.S. dollar and reduce the need for inflation protection. Precious metals are
typically used as a long-term inflation hedge. Exposure to gold and other
precious metals and minerals may enhance overall portfolio diversification.
In the months ahead, rest assured that we will continue to monitor the financial
markets as well as Congressional budget negotiations, Fed policy, economic
trends, corporate earnings, and other factors that potentially could affect the
performance of your investments. On behalf of everyone at USAA Asset Management
Company, thank for your continued investment in our family of no-load mutual
funds.
Sincerely,
/S/ DANIEL S. MCNAMARA
Daniel S. McNamara
President
USAA Investment Management Company
Past performance is no guarantee of future results. o As interest rates rise,
bond prices fall o Diversification is a technique to help reduce risk and does
not guarantee a profit or prevent a loss. o Emerging market countries are less
diverse and mature than other countries and tend to be politically less stable.
o Financial advice provided by USAA Financial Planning Services Insurance
Agency, Inc. (known as USAA Financial Insurance Agency in California, License
# 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer.
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Portfolio of Investments 10
Notes to Portfolio of Investments 22
Financial Statements 25
Notes to Financial Statements 28
EXPENSE EXAMPLE 44
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2014, USAA. All rights reserved.
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FUND OBJECTIVE
THE USAA CORNERSTONE AGGRESSIVE FUND (THE FUND) SEEKS CAPITAL APPRECIATION OVER
THE LONG TERM. THE FUND ALSO CONSIDERS THE POTENTIAL FOR CURRENT INCOME.
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TYPES OF INVESTMENTS
The Fund invests in equity securities, bonds, and money market instruments. The
Fund will have a target asset class allocation of approximately 80% equity
securities and 20% fixed-income securities. The actual asset class allocation
can deviate from time to time from these targets as market conditions warrant.
The implementation of the asset allocation may involve the extensive use of
equity and fixed-income exchange-traded funds (ETFs). The Fund may invest in
investment-grade and below-investment-grade securities.
The Fund also may use alternative investment strategies and other instruments
from time to time, in an attempt to reduce its volatility over time and to
enhance the Fund's return and diversification.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Asset Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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FUND OBJECTIVE | 1
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MANAGERS' COMMENTARY ON THE FUND
USAA Asset Management Company
JOHN P. TOOHEY, CFA ARNOLD J. ESPE, CFA
WASIF A. LATIF DAN DENBOW, CFA
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o HOW DID THE USAA CORNERSTONE AGGRESSIVE FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund returned 6.37% during the reporting period ended November 30, 2013.
This compares to returns of 10.50% for the MSCI All-Country World Index and
-0.56% for the Barclays U.S. Aggregate Bond Index.
o WHAT SPECIFIC ELEMENTS OF YOUR POSITIONING HELPED PERFORMANCE?
Our domestic equity allocation made a positive contribution to performance.
The U.S. equity market delivered strong returns as growing optimism about
the economic outlook helped fuel investors' appetite for risk. The Fund's
equity weighting is higher than that of the Lipper peer group, which was a
positive for performance at a time of robust stock market returns.
Our equity allocation is diversified among individual large-cap U.S. stocks
and exchange-traded funds (ETFs) that provide exposure to domestic mid- and
small-cap stocks.
Refer to page 7 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. o Diversification does
not guarantee a profit or prevent a loss.
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2 | USAA CORNERSTONE AGGRESSIVE FUND
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The Fund's large-cap portfolio, which emphasizes stocks with attractive
valuations and improving fundamentals, finished with a positive return and
robust relative performance versus the broader U.S. equity market. While
our focus on high-quality stocks would typically be a headwind in a
momentum-driven market, our strong individual stock selection helped the
large-cap portfolio to outperform. In addition, our allocations to both mid-
and small-cap stocks enabled us to capitalize on the strong, relative
performance of these asset classes.
The non-U.S. equity portion of the Fund also delivered positive returns.
Our holdings in ETFs that invest in the developed overseas markets performed
particularly well due in part to the signs of recovery in Europe's economy
and the aggressive policies of Japan's central bank. Our allocation to the
emerging markets -- which includes both broad-based and ETFs linked to
individual countries where we see the potential for outperformance -- also
produced a gain, albeit a more modest one than our positions in the
developed markets. During the reporting period, investors reacted
negatively to the prospect of the U.S. Federal Reserve (the Fed) "tapering"
(or reducing) the bond-buying program known as "quantitative easing" which
caused emerging markets stocks to lag as well as weaker-than-expected growth
in key markets such as Brazil, China, and India.
During the reporting period, the U.S. investment-grade bond market
experienced poor performance under the threat of a possible tapering by the
Fed. While the Fed kept the policy intact through the close of the reporting
period, the potential for a withdrawal of support led to a sell-off in
intermediate- and long-term investment-grade bonds. Shortly after the
reporting period ended, the Fed signaled that it will begin tapering its
bond-buying program from $85 billion per month to $75 billion per month.
Our bond portfolio delivered a positive performance in the past six months,
which helped mitigate the impact of broader bond market weakness. We
continued to construct the portfolio on a bond-by-bond basis using
fundamental credit research, with a focus on higher-yielding securities in
the investment-grade corporate bond
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MANAGERS' COMMENTARY ON THE FUND | 3
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and commercial mortgage-backed securities sectors. Within the corporate
segment, we held an overweight -- or above-market weighting -- in bonds
issued by banks and insurance companies, which continued to work well. In
addition, we maintained a below-average duration (to reduce interest-rate
sensitivity) in order to protect the portfolio against the potential for
market volatility, particularly among longer-term bonds. This defensive
approach aided performance in the difficult market environment of the past
six months.
The Fund has a modest allocation to high-yield bonds. This asset class tends
to have a lower sensitivity to interest-rate risk than the investment-grade
segment of the market, which was a positive for its six-month results.
High-yield bonds also were helped by stronger economic growth and investors'
continued preference for income-producing securities.
o WHAT ELEMENTS OF YOUR POSITIONING HURT PERFORMANCE?
Our allocation to gold and precious metals stocks was the weakest segment of
the portfolio. The price of gold weakened in an environment of low inflation
and positive investor sentiment, and gold stocks lagged even more
significantly due to their contracting profit margins and weak earnings
results.
Although our precious metals allocation lagged considerably in the past six
months, it's important to keep in mind that we construct the portfolio to
deliver strong risk-adjusted returns over the ups and downs of the markets
rather than trying to maximize short-term performance. We believe it's
essential to maintain this diversified approach rather than overreacting
when some elements of the portfolio aren't working.
The Fund's option hedging strategy -- which is designed to help cushion the
impact of large stock market sell-offs -- also detracted from performance,
as is typically the case during sizeable rallies. On a longer-term basis,
however, we view the hedging strategy as a way to help mitigate against
sharp declines in equity markets during the inevitable periods of elevated
volatility.
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4 | USAA CORNERSTONE AGGRESSIVE FUND
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o WHAT IS YOUR OUTLOOK FOR THE FINANCIAL MARKETS AS WE MOVE INTO 2014?
As we look ahead to 2014, we foresee an environment in which
financial-market performance may be somewhat more muted. Developed-market
stocks are more richly valued, and yields on long-term bonds are likely to
trend higher over time. What's more, we anticipate a high level of market
uncertainty stemming from shifting expectations for the country's fiscal and
monetary policies.
Accordingly, we are closely monitoring economic data to assess whether the
recent uptick in economic indicators is a sign that the U.S. economy is
about to achieve "escape velocity." If growth does indeed pick up, that
would represent a strong indication that corporate sales growth can
accelerate from its current low level. This is critical for equities, since
market performance has run far ahead of earnings growth in 2013 --
indicating that expanding valuations has been the key driver of performance.
It's therefore likely that investors will soon need to see an improvement in
revenues for equities to maintain their upward trajectory.
Our approach to this potentially challenging backdrop is to emphasize
fundamentals and valuations as the basis for determining the Fund's optimal
asset allocation. We seek to construct a portfolio that is truly diversified
in that it is positioned to capitalize on a wide range of potential outcomes
regarding global growth, central bank policy, and inflation. We believe this
nimble approach -- and not one that simply seeks to "ride the wave" of
accommodative central bank policies -- will be critical to generating
outperformance in the year ahead.
Thank you for your investment in the Fund.
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MANAGERS' COMMENTARY ON THE FUND | 5
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INVESTMENT OVERVIEW
USAA CORNERSTONE AGGRESSIVE FUND (THE FUND) (Ticker Symbol: UCAGX)
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11/30/13 5/31/13
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Net Assets $112.5 Million $83.6 Million
Net Asset Value Per Share $12.02 $11.30
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AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/13
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5/31/13-11/30/13* 1 Year Since Inception 6/8/12
6.37% 13.57% 15.27%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/13
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1 Year Since Inception 6/8/12
13.00% 15.36%
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EXPENSE RATIO AS OF 5/31/13**
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Before Reimbursement 1.81% After Reimbursement 1.26%
(Includes acquired fund fees and expenses of 0.16%)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense ratios represent the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Funds' prospectus dated October 1, 2013, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through October 1, 2014, to make payments or
waive management, administration, and other fees so that the total expenses of
the Fund (exclusive of commission recapture, expense offset arrangements,
acquired fund fees and expenses, and extraordinary expenses) do not exceed an
annual rate of 1.10% of the Fund's average net assets. This reimbursement
arrangement may not be changed or terminated during this time period without
approval of the Trust's Board of Trustees and may be changed or terminated by
the Manager at any time after October 1, 2014. These expense ratios may differ
from the expense ratios disclosed in the Financial Highlights, which excludes
acquired fund fees and expenses.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on distributions or the
redemption of shares.
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6 | USAA CORNERSTONE AGGRESSIVE FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
MSCI ALL-COUNTRY USAA CORNERSTONE BARCLAYS U.S.
WORLD INDEX AGGRESSIVE FUND AGGREGATE BOND INDEX
05/31/12 $10,000.00 $10,000.00 $10,000.00
06/30/12 10,493.89 10,330.00 10,003.92
07/31/12 10,637.55 10,390.00 10,141.91
08/31/12 10,868.84 10,610.00 10,148.53
09/30/12 11,211.17 10,850.00 10,162.50
10/31/12 11,136.45 10,810.00 10,182.49
11/30/12 11,278.85 10,870.00 10,198.56
12/31/12 11,534.33 11,071.06 10,184.04
01/31/13 12,065.70 11,399.70 10,112.81
02/28/13 12,063.82 11,327.81 10,163.50
03/31/13 12,281.81 11,502.40 10,171.61
04/30/13 12,635.33 11,656.45 10,274.54
05/31/13 12,600.66 11,605.10 10,091.22
06/30/13 12,232.36 11,276.46 9,935.12
07/31/13 12,817.95 11,697.53 9,948.70
08/31/13 12,550.90 11,471.59 9,897.85
09/30/13 13,199.17 11,820.77 9,991.55
10/31/13 13,729.68 12,211.03 10,072.33
11/30/13 13,924.12 12,344.54 10,034.62
[END CHART]
Data from 5/31/12 to 11/30/13.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Cornerstone Aggressive Fund to the following benchmarks:
o The unmanaged MSCI All-Country World Index is a free float-adjusted market
capitalization weighted index that is designed to measure the equity market
performance of developed and emerging markets.
o The unmanaged Barclays U.S. Aggregate Bond Index covers the U.S.
investment-grade fixed-rate bond market, including government and credit
securities, agency mortgage pass-through securities, asset-backed
securities, and commercial mortgage-backed securities that have remaining
maturities of more than one year.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a
shareholder would pay on distributions or the redemption of shares. Indexes
are unmanaged and you cannot invest directly in an index.
*The performance of the MSCI All-Country World Index and the Barclays U.S.
Aggregate Bond Index are calculated from the end of the month, May 31, 2012,
while the Cornerstone Aggressive Fund's inception date is June 8, 2012.
There may be a slight variation of the performance numbers because of this
difference.
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INVESTMENT OVERVIEW | 7
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o TOP 10 HOLDINGS* o
AS OF 11/30/13
(% of Net Assets)
iShares MSCI EAFE ETF** .................................................. 12.4%
iShares MSCI United Kingdom ETF** ........................................ 5.4%
iShares Core MSCI Emerging Markets ETF** ................................. 4.8%
iShares MSCI Hong Kong ETF** .............................................. 2.7%
iShares MSCI Germany ETF** ................................................ 2.5%
iShares Core S&P Mid-Cap ETF** ........................................... 2.2%
iShares Core S&P Small-Cap ETF** .......................................... 2.1%
Gilead Sciences, Inc. ..................................................... 1.9%
Market Vectors Gold Miners ETF ............................................ 1.8%
iShares Russell 2000 ETF** ............................................... 1.6%
* Excludes money market instruments.
** The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
You will find a complete list of securities that the Fund owns on pages 10-21.
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8 | USAA CORNERSTONE AGGRESSIVE FUND
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o ASSET ALLOCATION -- 11/30/2013* o
[PIE CHART OF ASSET ALLOCATION]
INTERNATIONAL EQUITY SECURITIES 38.8%
U.S. EQUITY SECURITIES 34.2%
MONEY MARKET INSTRUMENTS 9.6%
CORPORATE OBLIGATIONS 8.2%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 2.6%
COMMERCIAL MORTGAGE SECURITIES 2.6%
EURODOLLAR AND YANKEE OBLIGATIONS 2.4%
U.S. TREASURY SECURITIES 1.0%
GLOBAL REAL ESTATE EQUITY SECURITIES 0.1%
[END CHART]
* The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
Excludes options.
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 10-21.
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INVESTMENT OVERVIEW | 9
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PORTFOLIO OF INVESTMENTS
November 30, 2013 (unaudited)
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MARKET
NUMBER OF VALUE
SHARES SECURITY (000)
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U.S. EQUITY SECURITIES (34.2%)
COMMON STOCKS (27.8%)
CONSUMER DISCRETIONARY (2.3%)
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AUTO PARTS & EQUIPMENT (0.6%)
9,010 TRW Automotive Holdings Corp.* $ 699
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CABLE & SATELLITE (0.2%)
4,650 Comcast Corp. "A" 232
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DEPARTMENT STORES (0.4%)
7,300 Kohl's Corp. 403
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HOME IMPROVEMENT RETAIL (0.2%)
3,640 Lowe's Companies, Inc. 173
----------
HOMEFURNISHING RETAIL (0.1%)
2,050 Bed Bath & Beyond, Inc.* 160
----------
MOVIES & ENTERTAINMENT (0.6%)
8,700 Walt Disney Co. 614
----------
SPECIALIZED CONSUMER SERVICES (0.2%)
9,500 H&R Block, Inc. 265
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Total Consumer Discretionary 2,546
----------
CONSUMER STAPLES (2.0%)
-----------------------
DRUG RETAIL (0.8%)
8,050 CVS Caremark Corp. 539
6,400 Walgreen Co. 379
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918
----------
HOUSEHOLD PRODUCTS (0.2%)
2,400 Procter & Gamble Co. 202
----------
HYPERMARKETS & SUPER CENTERS (0.4%)
5,990 Wal-Mart Stores, Inc. 485
----------
TOBACCO (0.6%)
8,050 Philip Morris
International, Inc. 689
----------
Total Consumer Staples 2,294
----------
ENERGY (3.0%)
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INTEGRATED OIL & GAS (1.3%)
2,050 Chevron Corp. 251
13,120 Occidental Petroleum Corp. 1,246
----------
1,497
----------
OIL & GAS EQUIPMENT & SERVICES (0.3%)
6,140 Halliburton Co. 324
----------
OIL & GAS EXPLORATION & PRODUCTION (1.2%)
4,700 Anadarko Petroleum Corp. 417
4,200 ConocoPhillips 306
17,700 Marathon Oil Corp. 638
----------
1,361
----------
OIL & GAS REFINING & MARKETING (0.2%)
4,600 Valero Energy Corp. 210
----------
Total Energy 3,392
----------
FINANCIALS (4.3%)
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CONSUMER FINANCE (0.6%)
9,820 Capital One Financial Corp. 703
----------
DIVERSIFIED BANKS (0.4%)
9,830 Wells Fargo& Co. 433
----------
LIFE& HEALTH INSURANCE (0.3%)
6,070 MetLife, Inc. 317
----------
MULTI-LINE INSURANCE (0.2%)
3,400 American International Group, Inc. 169
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10 | USAA CORNERSTONE AGGRESSIVE FUND
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MARKET
NUMBER OF VALUE
SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES (1.1%)
16,010 Citigroup, Inc. $ 847
7,110 JPMorgan Chase& Co. 407
----------
1,254
----------
REGIONAL BANKS (0.9%)
7,000 BB&T Corp. 243
5,500 CIT Group, Inc. 278
6,800 PNC Financial Services Group, Inc. 523
----------
1,044
----------
SPECIALIZED FINANCE (0.8%)
3,300 CME Group, Inc. 270
2,920 IntercontinentalExchange Group, Inc.* 623
----------
893
----------
Total Financials 4,813
----------
HEALTH CARE (6.1%)
------------------
BIOTECHNOLOGY (1.9%)
27,750 Gilead Sciences, Inc.* 2,076
----------
HEALTH CARE DISTRIBUTORS (0.7%)
12,810 Cardinal Health, Inc. 827
----------
HEALTH CARE EQUIPMENT (0.2%)
3,500 Medtronic, Inc. 201
----------
HEALTH CARE SERVICES (0.2%)
3,650 Express Scripts Holdings Co.* 246
----------
LIFE SCIENCES TOOLS & SERVICES (0.2%)
2,360 Thermo Fisher Scientific, Inc. 238
----------
MANAGED HEALTH CARE (0.2%)
3,350 UnitedHealth Group, Inc. 249
----------
PHARMACEUTICALS (2.7%)
17,400 AbbVie, Inc. 843
3,100 Allergan, Inc. 301
9,690 Johnson & Johnson 917
29,170 Pfizer, Inc. 926
----------
2,987
----------
Total Health Care 6,824
----------
INDUSTRIALS (3.1%)
------------------
AEROSPACE & DEFENSE (1.3%)
1,500 Boeing Co. 201
3,600 Raytheon Co. 319
21,800 Spirit AeroSystems Holdings, Inc. "A"* 712
2,210 United Technologies Corp. 245
----------
1,477
----------
AIR FREIGHT & LOGISTICS (0.5%)
5,290 United Parcel Service, Inc. "B" 542
----------
ENVIRONMENTAL& FACILITIES SERVICES (0.1%)
5,000 Republic Services, Inc. 174
----------
INDUSTRIAL CONGLOMERATES (1.2%)
50,780 General Electric Co. 1,354
----------
Total Industrials 3,547
----------
INFORMATION TECHNOLOGY (6.5%)
-----------------------------
APPLICATION SOFTWARE (0.2%)
4,200 Adobe Systems, Inc.* 239
----------
COMMUNICATIONS EQUIPMENT (0.4%)
23,000 Cisco Systems, Inc. 489
----------
COMPUTER HARDWARE (1.9%)
2,145 Apple, Inc. 1,193
34,900 Hewlett-Packard Co. 954
----------
2,147
----------
COMPUTER STORAGE & PERIPHERALS (0.6%)
10,400 SanDisk Corp. 709
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.6%)
3,250 Visa, Inc. "A" 661
----------
INTERNET SOFTWARE & SERVICES (0.6%)
595 Google, Inc. "A"* 630
----------
SEMICONDUCTOR EQUIPMENT (0.1%)
5,500 Applied Materials, Inc. 95
----------
SEMICONDUCTORS (0.9%)
8,100 Broadcom Corp. "A" 216
23,890 Intel Corp. 570
4,300 Texas Instruments, Inc. 185
----------
971
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER OF VALUE
SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
SYSTEMS SOFTWARE (1.2%)
29,100 Microsoft Corp. $ 1,110
7,800 Oracle Corp. 275
----------
1,385
----------
Total Information Technology 7,326
----------
MATERIALS (0.2%)
----------------
PAPER PRODUCTS (0.2%)
4,000 International Paper Co. 187
----------
TELECOMMUNICATION SERVICES (0.3%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.3%)
10,300 CenturyLink, Inc. 316
----------
Total Common Stocks (cost :$26,305) 31,245
----------
PREFERRED STOCKS (0.5%)
CONSUMER STAPLES (0.4%)
-----------------------
AGRICULTURAL PRODUCTS (0.4%)
8,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 229
2,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable,
perpetual(a) 214
----------
443
----------
Total Consumer Staples 443
----------
ENERGY (0.0%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.0%)
50 Kinder Morgan G.P. Inc., 4.16%, cumulative redeemable(a) 46
----------
FINANCIALS (0.1%)
-----------------
REGIONAL BANKS (0.1%)
100 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 103
----------
Total Preferred Stocks (cost :$555) 592
----------
EXCHANGE-TRADED FUNDS (5.9%)
18,610 iShares Core S&P Mid-Cap ETF 2,427
21,962 iShares Core S&P Small-Cap ETF 2,372
16,034 iShares Russell 2000 ETF 1,820
----------
Total Exchange-Traded Funds (cost: $4,989) 6,619
----------
Total U.S. Equity Securities (cost: $31,849) 38,456
----------
INTERNATIONAL EQUITY SECURITIES (38.8%)
COMMON STOCKS (5.9%)
CONSUMER DISCRETIONARY (0.7%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.3%)
3,700 Magna International, Inc. 301
----------
HOTELS,RESORTS & CRUISE LINES (0.3%)
11,000 Carnival Corp. 397
----------
SPECIALTY STORES (0.1%)
1,250 Signet Jewelers Ltd. 96
----------
Total Consumer Discretionary 794
----------
CONSUMER STAPLES (0.4%)
-----------------------
BREWERS (0.1%)
1,500 Anheuser-Busch InBev N.V. ADR 153
----------
PACKAGED FOODS & MEAT (0.3%)
7,200 Unilever N.V. 283
----------
Total Consumer Staples 436
----------
ENERGY (0.5%)
-------------
OIL & GAS DRILLING (0.5%)
10,350 Transocean Ltd. 521
----------
FINANCIALS (0.3%)
-----------------
DIVERSIFIED BANKS (0.3%)
6,400 HSBC Holdings plc ADR 359
----------
================================================================================
12 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-----------------------------------------------------------------------------------------
MARKET
NUMBER OF VALUE
SHARES SECURITY (000)
-----------------------------------------------------------------------------------------
HEALTH CARE (0.4%)
-------------------
PHARMACEUTICALS (0.4%)
5,300 Novartis AG ADR $ 419
----------
INDUSTRIALS (1.4%)
------------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.8%)
11,350 Eaton Corp. plc 825
----------
RAILROADS (0.6%)
4,600 Canadian Pacific Railway Ltd. 708
----------
Total Industrials 1,533
----------
INFORMATION TECHNOLOGY (0.8%)
-----------------------------
SEMICONDUCTORS (0.8%)
22,300 NXP Semiconductors N.V.* 948
----------
MATERIALS (0.7%)
----------------
COMMODITY CHEMICALS (0.2%)
3,500 LyondellBasell Industries N.V. "A" 270
----------
DIVERSIFIED METALS & MINING (0.5%)
9,400 Rio Tinto plc ADR 499
----------
Total Materials 769
----------
TELECOMMUNICATION SERVICES (0.7%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.7%)
6,500 Rogers Communications, Inc. "B" 291
13,900 Vodafone Group plc ADR 516
----------
807
----------
Total Telecommunication Services 807
----------
Total Common Stocks (cost: $5,776) 6,586
----------
EXCHANGE-TRADED FUNDS (32.9%)
14,112 EGShares Emerging Markets Consumer ETF 379
9,100 iShares Core MSCI EAFE ETF 545
108,289 iShares Core MSCI Emerging Markets ETF 5,452
211,193 iShares MSCI EAFE ETF 13,989
90,745 iShares MSCI Germany ETF 2,772
147,141 iShares MSCI Hong Kong ETF 3,053
17,922 iShares MSCI Indonesia ETF 414
21,350 iShares MSCI Malaysia ETF 336
8,009 iShares MSCI Russia Capped ETF 171
74,654 iShares MSCI Singapore ETF 1,014
30,344 iShares MSCI Taiwan ETF 436
9,208 iShares MSCI Turkey ETF 516
298,471 iShares MSCI United Kingdom ETF 6,122
5,690 SPDR S&P Emerging Markets SmallCap ETF 267
8,602 Vanguard FTSE Emerging Markets ETF 357
8,244 WisdomTree Emerging Markets Equity Income Fund 427
8,945 WisdomTree Emerging Markets SmallCap Dividend Fund 424
22,687 WisdomTree India Earnings Fund 378
----------
Total Exchange-Traded Funds (cost: $33,015) 37,052
----------
Total International Equity Securities (cost: $38,791) 43,638
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER OF VALUE
SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (2.6%)
EXCHANGE-TRADED FUNDS (2.6%)
91,741 Market Vectors Gold Miners ETF $ 2,044
7,300 SPDR Gold Shares* 881
----------
Total Exchange-Traded Funds 2,925
----------
Total Precious Metals and Commodity-Related Securities
(cost: $4,492) 2,925
----------
GLOBAL REAL ESTATE EQUITY SECURITIES (0.1%)
PREFERRED STOCKS (0.1%)
REITs - OFFICE (0.1%)
----------------------
3,000 CommonWealth REIT, 6.50%, perpetual 63
4,000 CommonWealth REIT, Series E, 7.25%, cumulative redeemable,
perpetual 92
----------
Total REITs - Office 155
----------
Total Preferred Stocks (cost: $176) 155
----------
Total Global Real Estate Equity Securities (cost: $176) 155
----------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
BONDS (14.2%)
CORPORATE OBLIGATIONS (8.2%)
CONSUMER DISCRETIONARY (0.2%)
-----------------------------
PUBLISHING (0.1%)
$ 100 McGraw-Hill Global Education Holdings, LLC(a) 9.75% 4/01/2021 $ 111
------
TEXTILES (0.1%)
100 SIWF Merger Sub, Inc.(a) 6.25 6/01/2021 101
------
Total Consumer Discretionary 212
------
ENERGY (2.0%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.8%)
100 Alta Mesa Holdings, LP 9.63 10/15/2018 108
100 Fieldwood Energy, LLC(b) 8.38 9/30/2020 102
50 Halcon Resources Corp. 8.88 5/15/2021 51
100 Halcon Resources Corp.(a) 9.25 2/15/2022 103
100 Midstates Petroleum Co., Inc. & Midstates Petroleum
Co., LLC 9.25 6/01/2021 105
100 Penn Virginia Corp. 8.50 5/01/2020 108
================================================================================
14 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------------
$ 100 Quicksilver Resources, Inc.(b) 7.00% 6/21/2019 $ 98
50 Rex Energy Corp. 8.88 12/01/2020 55
100 Sabine OIL & GAS, LLC(b) 8.75 12/31/2018 101
50 Samson Investment Co.(b) 6.00 9/25/2018 50
--------
881
--------
OIL & GAS REFINING & MARKETING (0.0%)
50 Northern Tier Energy, LLC & Northern Tier Finance Corp. 7.13 11/15/2020 52
--------
OIL & GAS STORAGE & TRANSPORTATION (1.2%)
350 DCP Midstream, LLC(a) 5.85 5/21/2043 327
100 Enbridge Energy Partners, LP 8.05 10/01/2037 112
300 Energy Transfer Partners, LP(a) 3.26(c) 11/01/2066 275
200 Enterprise Products Operating, LLC 7.00 6/01/2067 206
100 Martin Midstream Partners, LP 7.25 2/15/2021 102
11 NuStar Logistics, LP 7.63 1/15/2043 275
--------
1,297
--------
Total Energy 2,230
--------
FINANCIALS (4.3%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.2%)
300 State Street Capital Trust IV 1.25(c) 6/15/2037 235
48 Walter Investment Management Corp.(b) 5.75 11/28/2017 48
--------
Total Asset Management & Custody Banks 283
--------
CONSUMER FINANCE (0.2%)
200 American Express Co. 6.80 9/01/2066 213
--------
LIFE & HEALTH INSURANCE (1.3%)
8 Delphi Financial Group, Inc. 7.38 5/15/2037 201
300 Lincoln National Corp. 7.00 5/17/2066 309
200 MetLife, Inc. 6.40 12/15/2036 206
200 Principal Financial Global Fund, LLC 0.76(c) 1/10/2031 176
200 Prudential Financial, Inc. 5.63 6/15/2043 197
350 StanCorp Financial Group, Inc. 6.90 6/01/2067 351
--------
1,440
--------
MULTI-LINE INSURANCE (0.9%)
225 Genworth Holdings, Inc. 6.15 11/15/2066 201
400 Glen Meadow Pass-Through Trust(a) 6.51 2/12/2067 392
300 Nationwide Mutual Insurance Co.(a) 5.81 12/15/2024 306
150 ZFS Finance USA Trust V(a) 6.50 5/09/2037 160
--------
1,059
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.5%)
$ 250 GE Capital Trust I 6.38% 11/15/2067 $ 271
50 General Electric Capital Corp. 6.38 11/15/2067 54
75 ILFC E-Capital Trust I(a) 5.35(c) 12/21/2065 67
200 JPMorgan Chase Capital XXI 1.19(c) 2/02/2037 151
--------
543
--------
PROPERTY & CASUALTY INSURANCE (0.9%)
200 Allstate Corp. 5.75 8/15/2053 203
200 AmTrust Financial Services, Inc.(a) 6.13 8/15/2023 202
200 HSB Group, Inc. 1.15(c) 7/15/2027 159
250 Ironshore Holdings, Inc.(a) 8.50 5/15/2020 289
100 Progressive Corp. 6.70 6/15/2037 109
--------
962
--------
REGIONAL BANKS (0.3%)
6 Citizens Funding Trust I 7.50 9/15/2066 154
50 First Maryland Capital Trust I 1.24(c) 1/15/2027 42
100 Fulton Capital Trust I 6.29 2/01/2036 97
50 Regions Financial Corp. 7.75 11/10/2014 53
--------
346
--------
Total Financials 4,846
--------
INDUSTRIALS (0.1%)
------------------
AEROSPACE & DEFENSE (0.0%)
50 Textron Financial Corp.(a) 6.00 2/15/2067 45
--------
AIRLINES (0.1%)
66 Continental Airlines, Inc. "B" Pass-Through Trust 6.25 4/11/2020 69
--------
Total Industrials 114
--------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
DATA PROCESSING & OUTSOURCED SERVICES (0.1%)
100 First Data Corp.(a) 6.75 11/01/2020 105
--------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
4 Qwest Corp. 7.50 9/15/2051 102
--------
WIRELESS TELECOMMUNICATION SERVICES (0.0%)
50 MetroPCS Wireless, Inc.(a) 6.25 4/01/2021 52
--------
Total Telecommunication Services 154
--------
================================================================================
16 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------------
UTILITIES (1.4%)
----------------
ELECTRIC UTILITIES (0.8%)
$ 200 Enel S.p.A.(a) 8.75% 9/24/2073 $ 218
100 NextEra Energy Capital Holdings, Inc. 6.35 10/01/2066 101
174 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 178
50 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 55
200 PPL Capital Funding, Inc. 6.70 3/30/2067 202
125 Texas Competitive Electric Holdings Co., LLC(b) 4.73 10/10/2017 87
--------
841
--------
MULTI-UTILITIES (0.6%)
50 Dominion Resources, Inc. 7.50 6/30/2066 54
150 Dominion Resources, Inc. 2.55(c) 9/30/2066 140
300 Integrys Energy Group, Inc. 6.11 12/01/2066 303
200 Puget Sound Energy, Inc. 6.97 6/01/2067 205
--------
702
--------
Total Utilities 1,543
--------
Total Corporate Obligations (cost: $9,003) 9,204
--------
EURODOLLAR AND YANKEE OBLIGATIONS (2.4%)
CONSUMER STAPLES (0.1%)
-----------------------
PACKAGED FOODS & MEAT (0.1%)
100 JBS S.A. 10.50 8/04/2016 113
--------
ENERGY (0.2%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
200 TransCanada Pipelines Ltd. 6.35 5/15/2067 208
--------
FINANCIALS (1.4%)
-----------------
DIVERSIFIED BANKS (0.6%)
100 Barclays Bank plc 0.65(c) -(d) 60
100 Barclays Bank plc 0.69(c) -(d) 58
50 Barclays Bank plc(a) 7.70 -(d) 55
200 HSBC Bank plc 0.60(c) -(d) 125
300 HSBC Bank plc 0.63(c) -(d) 186
100 Lloyds TSB Bank plc 0.49(c) -(d) 60
100 Royal Bank of Scotland Group plc 9.50 3/16/2022 117
--------
661
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------------
LIFE & HEALTH INSURANCE (0.2%)
$ 200 Great-West Life & Annuity Insurance Capital, LP(a) 7.15% 5/16/2046 $ 207
--------
PROPERTY & CASUALTY INSURANCE (0.5%)
395 Oil Insurance Ltd.(a) 3.23(c) -(d) 360
200 QBE Capital Funding III Ltd.(a) 7.25 5/24/2041 212
--------
572
--------
REINSURANCE (0.1%)
50 Platinum Underwriters Finance, Inc. 7.50 6/01/2017 57
100 Swiss Re Capital I, LP(a) 6.85 -(d) 106
--------
163
--------
Total Financials 1,603
--------
INDUSTRIALS (0.2%)
------------------
INDUSTRIAL CONGLOMERATES (0.1%)
150 Hutchison Whampoa International Ltd.(a) 6.00 -(d) 159
--------
MARINE (0.1%)
100 Navios Maritime Holdings, Inc.(a) 7.38 1/15/2022 101
--------
Total Industrials 260
--------
MATERIALS (0.3%)
----------------
CONSTRUCTION MATERIALS (0.1%)
50 Cemex Espana Luxembourg(a) 9.88 4/30/2019 57
--------
DIVERSIFIED METALS & MINING (0.1%)
100 Vedanta Resources plc(a) 6.00 1/31/2019 96
--------
GOLD (0.1%)
200 St. Barbara Ltd.(a) 8.88 4/15/2018 169
--------
Total Materials 322
--------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
50 Altice Financing S.A.(a) 7.88 12/15/2019 54
--------
UTILITIES (0.1%)
----------------
ELECTRIC UTILITIES (0.1%)
150 Electricite De France S.A.(a) 5.25 -(d) 148
--------
Total Eurodollar and Yankee Obligations (cost: $2,573) 2,708
--------
================================================================================
18 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE SECURITIES (2.6%)
FINANCIALS (2.6%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (2.6%)
$ 100 Banc of America Commercial Mortgage, Inc. 6.06% 7/10/2044 $ 103
100 Banc of America Commercial Mortgage, Inc. 5.42 10/10/2045 100
200 Banc of America Commercial Mortgage, Inc. 6.25 2/10/2051 208
65 Banc of America Merrill Lynch Commercial Mortgage, Inc. 4.77 7/10/2043 65
90 Banc of America Merrill Lynch Commercial Mortgage,
Inc.(a) 5.94 9/10/2047 94
50 Bear Stearns Commercial Mortgage Securities, Inc. 5.49 12/11/2040 46
100 Bear Stearns Commercial Mortgage Securities, Inc. 4.75 6/11/2041 104
100 Bear Stearns Commercial Mortgage Securities, Inc.(a) 5.66 9/11/2041 97
50 Bear Stearns Commercial Mortgage Securities, Inc. 5.60 10/12/2041 47
50 Citigroup Commercial Mortgage Trust 5.78 3/15/2049 51
50 Credit Suisse Commercial Mortgage Pass-Through Trust 5.79 6/15/2038 50
350 Credit Suisse Commercial Mortgage Pass-Through Trust 0.36 2/15/2040 262
250 GE Capital Commercial Mortgage Corp. 5.28 3/10/2044 242
50 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 51
100 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 95
300 GS Mortgage Securities Corp. II 5.63 4/10/2038 302
50 GS Mortgage Securities Corp. II 5.93 8/10/2038 50
200 GS Mortgage Securities Corp. II 4.78 7/10/2039 203
100 J.P. Morgan Chase Commercial Mortgage Securities Trust 5.37 5/15/2047 107
100 LB-UBS Commercial Mortgage Trust 5.38 11/15/2038 109
50 LB-UBS Commercial Mortgage Trust 5.28 2/15/2041 50
100 Merrill Lynch Mortgage Trust 5.14 7/12/2038 104
50 Morgan Stanley Capital I, Inc. 5.50 3/12/2044 51
200 Wachovia Bank Commercial Mortgage Trust 5.72 5/15/2043 209
100 Wachovia Bank Commercial Mortgage Trust(a) 4.99 5/15/2044 94
--------
2,894
--------
Total Financials 2,894
--------
Total Commercial Mortgage Securities (cost: $2,839) 2,894
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER OF VALUE
SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (1.0%)
NOTES (1.0%)
345 1.63%, 8/15/2022 $ 321
230 1.63%, 11/15/2022 212
401 1.75%, 5/15/2022 379
245 2.00%, 2/15/2023 232
--------
1,144
--------
Total U.S. Treasury Securities (cost: $1,222) 1,144
--------
Total Bonds (cost: $15,637) 15,950
--------
MONEY MARKET INSTRUMENTS (9.6%)
MONEY MARKET FUNDS (9.6%)
10,817,234 State Street Institutional Liquid Reserve Fund, 0.07%(e) (cost: $10,817) 10,817
--------
TOTAL INVESTMENTS (COST: $101,762) $111,941
========
-------------------------------------------------------------------------------------------------------
NUMBER OF
CONTRACTS
-------------------------------------------------------------------------------------------------------
PURCHASED OPTIONS (0.1%)
999 Put - iShares MSCI EAFE ETF expiring January 18, 2014 at 61 22
200 Put - iShares MSCI Emerging Markets ETF expiring January 18, 2014 at 38 5
265 Put - iShares MSCI Emerging Markets ETF expiring January 18, 2014 at 41 23
68 Put - S&P 500 Index expiring January 18, 2014 at 1640 28
69 Put - S&P 500 Index expiring January 18, 2014 at 1730 81
--------
TOTAL PURCHASED OPTIONS (COST: $331) $ 159
========
================================================================================
20 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
($ in 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
--------------------------------------------------------------------------------------------------------
U.S. Equity Securities:
Common Stocks $31,245 $ - $- $ 31,245
Preferred Stocks - 592 - 592
Exchange-Traded Funds 6,619 - - 6,619
International Equity Securities:
Common Stocks 6,586 - - 6,586
Exchange-Traded Funds 37,052 - - 37,052
Precious Metals and Commodity-Related
Securities:
Exchange-Traded Funds 2,925 - - 2,925
Global Real Estate Equity Securities:
Preferred Stocks 63 92 - 155
Bonds:
Corporate Obligations - 9,204 - 9,204
Eurodollar and Yankee Obligations - 2,708 - 2,708
Commercial Mortgage Securities - 2,894 - 2,894
U.S. Treasury Securities 1,144 - - 1,144
Money Market Instruments:
Money Market Funds 10,817 - - 10,817
Purchased Options 159 - - 159
--------------------------------------------------------------------------------------------------------
Total $96,610 $15,490 $- $112,100
--------------------------------------------------------------------------------------------------------
For the period of June 1, 2013, through November 30, 2013, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers into and out of the levels as of the beginning of the period in which
the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2013 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. Investments in foreign securities were 41.4% of net assets at November
30, 2013. A category percentage of 0.0% represents less than 0.1% of net
assets.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
o CATEGORIES AND DEFINITIONS
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES -- Asset-backed
securities represent a participation in, or are secured by and payable from,
a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
when the final principal payment will be made for all underlying loans. The
weighted average life is the average time for principal to be repaid, which
is calculated
================================================================================
22 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
by assuming prepayment rates of the underlying loans. The weighted average
life is likely to be substantially shorter than the stated final maturity as
a result of scheduled principal payments and unscheduled principal
prepayments. Stated interest rates on commercial mortgage-backed securities
may change slightly over time as underlying mortgages pay down.
EURODOLLAR AND YANKEE OBLIGATIONS -- Eurodollar obligations are
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee obligations
are dollar-denominated instruments that are issued by foreign issuers in the
U.S. capital markets.
o PORTFOLIO ABBREVIATION(S) AND DESCRIPTION(S)
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
REIT Real estate investment trust
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by the Trust's
Board of Trustees (the Board), unless otherwise noted as illiquid.
(b) Senior loan (loan) -- is not registered under the Securities Act of
1933. The loan contains certain restrictions on resale and cannot be
sold publicly. The interest rate is adjusted periodically, and the rate
disclosed represents the current rate at November 30, 2013. The
weighted average life of the loan is likely to be shorter than
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 23
================================================================================
the stated final maturity date due to mandatory or optional prepayments.
The loan is deemed liquid by the Manager, under liquidity guidelines
approved by the Board, unless otherwise noted as illiquid.
(c) Variable-rate or floating-rate security -- interest rate is adjusted
periodically. The interest rate disclosed represents the current rate at
November 30, 2013.
(d) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(e) Rate represents the money market fund annualized seven-day yield at
November 30, 2013.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
24 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
November 30, 2013 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $101,762) $111,941
Purchased options, at market value (cost of $331) 159
Cash 107
Receivables:
Capital shares sold 409
USAA Asset Management Company (Note 5C) 51
Dividends and interest 255
Securities sold 149
--------
Total assets 113,071
--------
LIABILITIES
Payables:
Securities purchased 408
Capital shares redeemed 26
Accrued management fees 67
Accrued transfer agent's fees 10
Other accrued expenses and payables 41
--------
Total liabilities 552
--------
Net assets applicable to capital shares outstanding $112,519
========
NET ASSETS CONSIST OF:
Paid-in capital $101,084
Accumulated undistributed net investment income 925
Accumulated net realized gain on investments and options 503
Net unrealized appreciation of investments and options 10,007
--------
Net assets applicable to capital shares outstanding $112,519
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 9,361
========
Net asset value, redemption price, and offering price per share $ 12.02
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended November 30, 2013 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $2) $ 861
Interest 412
------
Total income 1,273
------
EXPENSES
Management fees 361
Administration and servicing fees 72
Transfer agent's fees 157
Custody and accounting fees 62
Postage 5
Shareholder reporting fees 8
Trustees' fees 7
Registration fees 21
Professional fees 25
Other 3
------
Total expenses 721
Expenses reimbursed (192)
------
Net expenses 529
------
NET INVESTMENT INCOME 744
------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND OPTIONS
Net realized gain (loss) on:
Investments:
Unaffiliated transactions 1,346
Affiliated transactions (Note 7) 13
Options (666)
Change in net unrealized appreciation/depreciation of:
Investments 5,283
Options (322)
------
Net realized and unrealized gain 5,654
------
Increase in net assets resulting from operations $6,398
======
See accompanying notes to financial statements.
================================================================================
26 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended November 30, 2013 (unaudited), and period ended
May 31, 2013
------------------------------------------------------------------------------------------
11/30/2013 5/31/2013*
------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 744 $ 724
Net realized gain on investments 1,359 1,530
Net realized loss on options (666) (971)
Change in net unrealized appreciation/depreciation of:
Investments 5,283 4,896
Options (322) 150
--------------------------
Increase in net assets resulting from operations 6,398 6,329
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (543)
Net realized gains - (749)
--------------------------
Distributions to shareholders - (1,292)
--------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 32,965 86,643
Reinvested dividends - 571
Cost of shares redeemed (10,429) (8,667)
--------------------------
Increase in net assets from capital share transactions 22,536 78,547
--------------------------
Capital contribution from USAA Transfer Agency Company - 1
--------------------------
Net increase in net assets 28,934 83,585
NET ASSETS
Beginning of period 83,585 -
--------------------------
End of period $112,519 $83,585
==========================
Accumulated undistributed net investment income:
End of period $ 925 $ 181
==========================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,868 8,129
Shares issued for dividends reinvested - 53
Shares redeemed (907) (782)
--------------------------
Increase in shares outstanding 1,961 7,400
==========================
*Fund commenced operations on June 8, 2012.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2013 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 52 separate funds. The
information presented in this semiannual report pertains only to the USAA
Cornerstone Aggressive Fund (the Fund), which is classified as diversified under
the 1940 Act. The Fund's investment objective is to seek capital appreciation
over the long term with the potential for current income.
A. SECURITY VALUATION -- The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager). Among other
================================================================================
28 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
things, these monthly meetings include a review and analysis of back testing
reports, pricing service quotation comparisons, illiquid securities and fair
value determinations, pricing movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the Nasdaq over-the-counter markets, are valued at the last sales
price or official closing price on the exchange or primary market on
which they trade. Equity securities traded primarily on foreign
securities exchanges or markets are valued at the last quoted sales
price, or the most recently determined official closing price
calculated according to local market convention, available at the time
the Fund is valued. If no last sale or official closing price is
reported or available, the average of the bid and asked prices
generally is used.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the
Fund's net asset value (NAV) may not take place at the same time the
prices of certain foreign securities held by the Fund are determined.
In most cases, events affecting the values of foreign securities that
occur between the time of their last quoted sales or official closing
prices and the close of normal trading on the NYSE on a day the Fund's
NAV is calculated will not be reflected in the value of the Fund's
foreign securities. However, the Manager, an affiliate of the Fund,
and the Fund's subadviser, if applicable, will monitor for events that
would materially affect the value of the Fund's foreign securities.
The Fund's subadviser has agreed to notify the Manager of significant
events it identifies that would materially affect the value of the
Fund's foreign securities. If the Manager determines that a
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
particular event would materially affect the value of the Fund's
foreign securities, then the Manager, under valuation procedures
approved by the Board, will consider such available information that
it deems relevant to determine a fair value for the affected foreign
securities. In addition, the Fund may use information from an external
vendor or other sources to adjust the foreign market closing prices of
foreign equity securities to reflect what the Fund believes to be the
fair value of the securities as of the close of the NYSE. Fair
valuation of affected foreign equity securities may occur frequently
based on an assessment that events that occur on a fairly regular
basis (such as U.S. market movements) are significant.
3. Investments in open-end investment companies, hedge, or other funds,
other than ETFs, are valued at their NAV at the end of each business
day.
4. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates
market value.
5. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and asked prices
or the last sales price to price securities when, in the Service's
judgment, these prices are readily available and are representative of
the securities' market values. For many securities, such prices are
not readily available. The Service generally prices these securities
based on methods that include consideration of yields or prices of
securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general
market conditions.
6. Repurchase agreements are valued at cost, which approximates market
value.
7. Futures are valued based upon the last sale price at the close of
market on the principal exchange on which they are traded.
================================================================================
30 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
8. Options are valued by a pricing service at the National Best Bid/Offer
(NBBO) composite price, which is derived from the best available bid
and ask prices in all participating options exchanges determined to
most closely reflect market value of the options at the time of
computation of the Fund's NAV.
9. Forward currency contracts are valued on a daily basis using foreign
currency exchange rates obtained from an independent pricing service.
10. 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 under valuation
procedures approved by the Board. The effect of fair value pricing is
that securities may not be priced on the basis of quotations from the
primary market in which they are traded and the actual price realized
from the sale of a security may differ materially from the fair value
price. Valuing these securities at fair value is intended to cause the
Fund's NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited
to, obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any
restrictions on disposition of the securities, and an evaluation of
the forces that influenced the market in which the securities are
purchased and sold.
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments is
based upon the transparency of inputs to the valuation
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
of an asset or liability as of the measurement date. The three levels are
defined as follows:
Level 1 -- inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices. Level 2 securities
include certain preferred stocks, which are valued based on methods
discussed in Note 1A1, and all bonds, except U.S. Treasuries, which are
valued based on methods discussed in Note 1A5.
Level 3 -- inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -- The Fund may buy, sell, and
enter into certain types of derivatives, including, but not limited to
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the trade.
================================================================================
32 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
OPTIONS TRANSACTIONS -- The Fund is subject to equity price risk in the
normal course of pursuing its investment objectives. The Fund may use
options on underlying instruments, namely, equity securities, ETFs, and
equity indexes, to gain exposure to, or hedge against, changes in the value
of equity securities, ETFs, or equity indexes. A call option gives the
purchaser the right to buy, and the writer the obligation to sell, the
underlying instrument at a specified price during a specified period.
Conversely, a put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying instrument at a specified
price during a specified period. The purchaser of the option pays a premium
to the writer of the option.
Premiums paid for purchased options are included in the Fund's statement of
assets and liabilities as an investment. If a purchased option expires
unexercised, the premium paid is recognized as a realized loss. If a
purchased call option on a security is exercised, the cost of the security
acquired includes the exercise price and the premium paid. If a purchased
put option on a security is exercised, the realized gain or loss on the
security sold is determined from the exercise price, the original cost of
the security, and the premium paid. The risk associated with purchasing a
call or put option is limited to the premium paid.
Premiums received from writing options are included in the Fund's statement
of assets and liabilities as a liability. If a written option expires
unexercised, the premium received is recognized as a realized gain. If a
written call option on a security is exercised, the realized gain or loss
on the security sold is determined from the exercise price, the original
cost of the security, and the premium received. If a written put option on
a security is exercised, the cost of the security acquired is the exercise
price paid less the premium received. The Fund, as a writer of an option,
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
In an attempt to reduce the Fund's volatility over time, the Fund may
implement a strategy that involves purchasing and selling options on
indexes or ETFs that represent the Fund's exposure against a highly
correlated stock portfolio. The combination of the diversified stock
portfolio with index or ETF options is designed to provide the Fund with
consistent returns over a wide range of equity market environments. This
strategy may not fully protect the Fund against declines in the portfolio's
value, and the Fund could experience a loss. Options on ETFs are similar to
options on individual securities in that the holder of the ETF call (or
put) has the right to receive (or sell) shares of the underlying ETF at the
strike price on or before exercise date. Options on securities indexes are
different from options on individual securities in that the holder of the
index option has the right to receive an amount of cash equal to the
difference between the exercise price and the settlement value of the
underlying index as defined by the exchange. If an index option is
exercised, the realized gain or loss is determined by the exercise price,
the settlement value, and the premium amount paid or received.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2013*
(IN THOUSANDS)
CAPTION>
ASSET DERIVATIVES LIABILITY DERIVATIVES
---------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ACCOUNTED ASSETS AND ASSETS AND
FOR AS HEDGING LIABILITIES LIABILITIES
INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
---------------------------------------------------------------------------------------------------
Equity contracts Purchased $159 - -
options; Net
unrealized
appreciation of
investments and
options
---------------------------------------------------------------------------------------------------
*For open derivative instruments as of November 30, 2013, see the portfolio of
investments, which also is indicative of activity for the six-month period
ended November 30, 2013.
================================================================================
34 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2013 (IN THOUSANDS)
DERIVATIVES CHANGE IN
NOT ACCOUNTED STATEMENT OF UNREALIZED
FOR AS HEDGING OPERATIONS REALIZED LOSS DEPRECIATION ON
INSTRUMENTS LOCATION ON DERIVATIVES DERIVATIVES
----------------------------------------------------------------------------------
Equity contracts Net realized loss on $(666) $(322)
options/Change in
net unrealized
appreciation/depreciation
of options
----------------------------------------------------------------------------------
D. 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.
E. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Dividend income, less foreign taxes, if any, is recorded on the ex-dividend
date. If the ex-dividend date has passed, certain dividends from foreign
securities are recorded upon notification. Interest income is recorded
daily on the accrual basis. Discounts and premiums are amortized over the
life of the respective securities, using the effective yield method for
long-term securities and the straight-line method for short-term securities.
F. FOREIGN CURRENCY TRANSLATIONS -- The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the
exchange rate obtained from an independent pricing service on the
respective dates of such transactions.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, these net realized foreign currency
gains/losses are reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the statement of assets
and liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS -- Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis or for delayed draws on loans can take
place a month or more after the trade date. During the period prior to
settlement, these securities do not earn interest, are subject to market
fluctuation, and may increase or decrease in value prior to their delivery.
The Fund receives a commitment fee for delayed draws on loans. The Fund
maintains segregated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a
delayed-delivery or when-issued basis and delayed-draw loan commitments may
increase the volatility of the Fund's NAV to the
================================================================================
36 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
extent that the Fund makes such purchases and commitments while remaining
substantially fully invested.
H. EXPENSES PAID INDIRECTLY -- Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses.
I. INDEMNIFICATIONS -- Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
J. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 7.0 basis points of the amount of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
the committed loan agreement. The facility fee rate remains unchanged from
September 30, 2012, to September 30, 2013. The facility fees are allocated among
the Funds based on their respective average net assets for the period.
For the six-month period ended November 30, 2013, the Fund paid CAPCO facility
fees of less than $500, which represents 0.2% of the total fees paid to CAPCO by
the USAA Funds. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2013.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2014, in
accordance with applicable tax law.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
Under the Regulated Investment Company Modernization Act of 2010 (the Act), a
fund is permitted to carry forward net capital losses indefinitely.
Additionally, such capital losses that are carried forward will retain their
character as short-term and/or long-term capital losses. Post-enactment capital
loss carryforwards must be used before pre-enactment capital loss carryforwards.
As a result, pre-enactment capital loss carryforwards may be more likely to
expire unused.
At May 31, 2013, the Fund had no post-enactment capital loss carryforwards, for
federal income tax purposes.
For the six-month period ended November 30, 2013, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis the Manager will monitor its tax positions to determine if
adjustments to this conclusion are necessary. The
================================================================================
38 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
statute of limitations on the Fund's tax return filings generally remain open
for the three preceding fiscal reporting year-ends and remain subject to
examination by the Internal Revenue Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2013, were
$47,056,000 and $29,095,000, respectively.
As of November 30, 2013, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as that
reported in the financial statements.
Gross unrealized appreciation and depreciation of investments as of November 30,
2013, were $12,240,000 and $2,233,000, respectively, resulting in net unrealized
appreciation of $10,007,000.
For the six-month period ended November 30, 2013, transactions in written call
and put options* were as follows:
PREMIUMS
NUMBER OF RECEIVED
CONTRACTS (000's)
-------------------------------
Outstanding May 31, 2013 243 $ 371
Options written 2,119 154
Options terminated in closing
purchase transactions (1,632) (510)
Options expired (730) (15)
-------------------------------
Outstanding at November 30, 2013 - $ -
===============================
*Refer to Note 1C for a discussion of derivative instruments and how they are
accounted for in the Fund's financial statements.
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
and affairs of the Fund and for directly managing the day-to-day investment
of the Fund's assets, subject to the authority of and supervision by the
Board. The Manager also is authorized to select (with approval of the Board
and without shareholder approval) one or more subadvisers to manage the
actual day-to-day investment of a portion of the Fund's assets. The Fund's
management fees are accrued daily and paid monthly at an annualized rate of
0.75% of the Fund's average net assets for the fiscal year. For the
six-month period ended November 30, 2013, the Fund incurred total management
fees, paid or payable to the Manager, of $361,000.
B. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of the Fund's average net assets. For the period ended November 30,
2013, the Fund incurred administration and servicing fees, paid or payable
to the Manager, of $72,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the period ended November 30, 2013, the Fund reimbursed the Manager $1,000
for these compliance and legal services. These expenses are included in the
professional fees on the Fund's statement of operations.
C. EXPENSE LIMITATION -- The Manager has agreed, through October 1, 2014, to
limit the annual expenses of the Fund to 1.10% of its average net assets,
excluding extraordinary expenses and before reductions of any expenses paid
indirectly, and will reimburse the Fund for all expenses in excess of that
amount. This expense limitation arrangement may not be changed or terminated
through October 1, 2014, without approval of the Board, and may be changed
or terminated by the Manager at any time after that date. For the
================================================================================
40 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
six-month period ended November 30, 2013, the Fund incurred reimbursable
expenses of $192,000, of which $51,000 was receivable from the Manager.
D. TRANSFER AGENT'S FEES -- USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund based on an annual charge of $23 per
shareholder account plus out-of-pocket expenses. SAS pays a portion of these
fees to certain intermediaries for administration and servicing of accounts
held with such intermediaries. For the six-month period ended November 30,
2013, the Fund incurred transfer agent's fees, paid or payable to SAS, of
$157,000.
E. UNDERWRITING SERVICES -- USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no commissions or fees for this service.
(6) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2013, USAA and its affiliates owned 2,500,000 shares, which represents 26.7% of
the Fund.
(7) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended November 30, 2013, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
the following affiliated USAA Funds at the then-current market price with no
brokerage commissions incurred.
NET REALIZED
COST TO GAIN (LOSS) TO
SELLER PURCHASER PURCHASER SELLER
-------------------------------------------------------------------------------------
USAA Cornerstone USAA Cornerstone
Aggressive Fund Moderately Aggressive
Fund $1,671,000 $ 70,000
USAA Cornerstone USAA Cornerstone
Aggressive Fund Moderately Conservative
Fund 3,000 -*
USAA Cornerstone USAA Cornerstone
Aggressive Fund Moderate Fund 3,000 -*
USAA Cornerstone USAA First Start
Aggressive Fund Growth Fund 282,000 (5,000)
USAA Cornerstone USAA Real
Aggressive Fund Return Fund 641,000 (52,000)
USAA Income USAA Cornerstone
Stock Fund Aggressive Fund 117,000 77,000
USAA Real USAA Cornerstone
Return Fund Aggressive Fund 116,000 (13,000)
USAA Cornerstone USAA Cornerstone
Moderately Aggressive Fund
Conservative Fund 139,000 (9,000)
USAA Cornerstone USAA Cornerstone
Moderately Aggressive Fund
Aggressive Fund 113,000 (18,000)
*Represents less than $500.
================================================================================
42 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, MAY 31,
-----------------------------------
2013 2013***
-----------------------------------
Net asset value at beginning of period $ 11.30 $ 10.00
---------------------------------
Income from investment operations:
Net investment income(a) .09 .16
Net realized and unrealized gain(a) .63 1.43
---------------------------------
Total from investment operations(a) .72 1.59
---------------------------------
Less distributions from:
Net investment income - (.12)
Realized capital gains - (.17)
---------------------------------
Total distributions - (.29)
---------------------------------
Net asset value at end of period $ 12.02 $ 11.30
=================================
Total return (%)* 6.37 16.05
Net assets at end of period (000) $112,519 $83,585
Ratios to average net assets:**
Expenses (%)(b),(c) 1.10 1.10
Expenses, excluding reimbursements (%)(b),(c) 1.50 1.65
Net investment income (%)(c) 1.54 1.46
Portfolio turnover (%) 33 74
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2013, average net assets were
$96,114,000.
*** Fund commenced operations on June 8, 2012.
(a) Calculated using average shares. For the six-month period ended November
30, 2013, average shares were 8,365,000.
(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 by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
EXPENSE EXAMPLE
November 30, 2013 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, 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 June 1, 2013, through
November 30, 2013.
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
================================================================================
44 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the 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 JUNE 1, 2013 -
JUNE 1, 2013 NOVEMBER 30, 2013 NOVEMBER 30, 2013
------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,063.70 $5.69
Hypothetical
(5% return before expenses) 1,000.00 1,019.55 5.57
*Expenses are equal to the Fund's annualized expense ratio of 1.10%, which is
net of any expenses paid indirectly, multiplied by the average account value
over the period, multiplied by 183 days/365 days (to reflect the one-half-year
period). The Fund's ending account value on the first line in the table is
based on its actual total return of 6.37% for the six-month period of
June 1, 2013, through November 30, 2013.
================================================================================
EXPENSE EXAMPLE | 45
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Paul L. McNamara
Jefferson C. Boyce
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select "Investments,"
AT USAA.COM then "Mutual Funds"
OR CALL Under "Investments" view
(800) 531-USAA account balances, or click
(8722) "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) in summary within the Statement of Additional Information on the SEC's
website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's
website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
================================================================================
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on usaa.com select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R)
=============================================================================
97452-0114 (C)2014, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 11. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA Mutual
Funds Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR/S was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation. The only change to the
procedures was to document the annual disclosure controls and procedures
established for the new section of the shareholder reports detailing the factors
considered by the Funds' Board in approving the Funds' advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA MUTUAL FUNDS TRUST, Period Ended November 30, 2013
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: DANIEL J. MAVICO, Assistant Secretary
Date: 1/27/2014
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /S/ DANIEL S. MCNAMARA
-----------------------------------------------------
Signature and Title: Daniel S. McNamara, President
Date: 1/27/2014
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 1/27/2014
------------------------------
*Print the name and title of each signing officer under his or her signature.