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 MODERATELY CONSERVATIVE FUND]
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SEMIANNUAL REPORT
USAA CORNERSTONE MODERATELY CONSERVATIVE 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 24
Financial Statements 27
Notes to Financial Statements 30
EXPENSE EXAMPLE 45
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 MODERATELY CONSERVATIVE FUND (THE FUND) SEEKS CURRENT
INCOME WITH A SECONDARY FOCUS ON CAPITAL APPRECIATION.
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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 40% equity
securities and 60% 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 MODERATELY CONSERVATIVE FUND (THE FUND)
PERFORM DURING THE REPORTING PERIOD?
The Fund returned 2.88% during the reporting period ended November 30,
2013. This compares to returns of -0.56% for the Barclays U.S. Aggregate
Bond Index and 10.50% for the MSCI All-Country World Index.
o WHAT SPECIFIC ELEMENTS OF YOUR POSITIONING HELPED PERFORMANCE?
The Fund's 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. 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.
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
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
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2 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
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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 healthy returns.
Our holdings in ETFs that invest in the developed overseas markets
performed 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 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 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.
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MANAGERS' COMMENTARY ON THE FUND | 3
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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 during the
reporting period. 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 modest 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 market
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.
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.
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4 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
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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.
Non-investment grade securities are considered speculative and are subject
to significant credit risk. They are sometimes referred to as junk bonds
since they represent a greater risk of default than more creditworthy
investment-grade securities. o As interest rates rise, bond prices fall.
o Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability. Emerging
market countries are less diverse and mature than other countries and tend
to be politically less stable. o Diversification does not guarantee a
profit or prevent a loss. o Precious metals and minerals is a volatile asset
class and is subject to additional risks, such as currency fluctuation,
market liquidity, political instability and increased price volatility. It
may be more volatile than other asset classes that diversify across many
industries and companies.
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MANAGERS' COMMENTARY ON THE FUND | 5
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INVESTMENT OVERVIEW
USAA CORNERSTONE MODERATELY CONSERVATIVE FUND (THE FUND) (Ticker Symbol: UCMCX)
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11/30/13 5/31/13
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Net Assets $128.8 Million $99.7 Million
Net Asset Value Per Share $11.25 $11.05
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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
2.88% 8.03% 10.64%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/13
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1 Year Since Inception 6/8/12
7.47% 10.54%
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EXPENSE RATIOS AS OF 5/31/13**
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Before Reimbursement 1.33% After Reimbursement 0.98%
(Includes acquired fund fees and expenses of 0.08%)
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 Fund's prospectus dated October 1, 2013, and
are calculated as 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 0.90% 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 MODERATELY CONSERVATIVE FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
MSCI ALL-COUNTRY USAA CORNERSTONE MODERATELY BARCLAYS U.S. AGGREGATE
WORLD INDEX CONSERVATIVE FUND BOND INDEX
05/31/12 $10,000.00 $10,000.00 $10,000.00
06/30/12 10,493.89 10,170.27 10,003.92
07/31/12 10,637.55 10,310.69 10,141.91
08/31/12 10,868.84 10,461.13 10,148.53
09/30/12 11,211.17 10,622.61 10,162.50
10/31/12 11,136.45 10,693.23 10,182.49
11/30/12 11,278.85 10,753.76 10,198.56
12/31/12 11,534.33 10,886.65 10,184.04
01/31/13 12,065.70 11,069.61 10,112.81
02/28/13 12,063.82 11,089.94 10,163.50
03/31/13 12,281.81 11,199.72 10,171.61
04/30/13 12,635.33 11,363.07 10,274.54
05/31/13 12,600.66 11,291.61 10,091.22
06/30/13 12,232.36 11,033.78 9,935.12
07/31/13 12,817.95 11,238.87 9,948.70
08/31/13 12,550.90 11,105.56 9,897.85
09/30/13 13,199.17 11,286.61 9,991.55
10/31/13 13,729.68 11,555.10 10,072.33
11/30/13 13,924.12 11,617.05 10,034.62
[END CHART]
Data from 5/31/12 to 11/30/13.*
See benchmark definitions on next page.
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 is calculated from the end of the month, May 31, 2012,
while the Cornerstone Moderately Conservative 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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The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Moderately Conservative 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.
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8 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
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o TOP 10 HOLDINGS* o
AS OF 11/30/13
(% of Net Assets)
iShares MSCI EAFE ETF** .................................................. 6.8%
iShares Core MSCI Emerging Markets ETF** ................................. 2.8%
iShares MSCI United Kingdom ETF** ........................................ 2.7%
iShares MSCI Hong Kong ETF** ............................................. 1.5%
iShares Core S&P Mid-Cap ETF** ........................................... 1.5%
U.S. Treasury Notes, 1.75%, 5/15/2022 .................................... 1.4%
iShares MSCI Germany ETF** ............................................... 1.2%
Gilead Sciences, Inc. .................................................... 1.0%
StanCorp Financial Group, Inc. ........................................... 1.0%
Oil Insurance Ltd. ....................................................... 1.0%
o ASSET ALLOCATION -- 11/30/2013** o
[PIE CHART OF ASSET ALLOCATION]
CORPORATE OBLIGATIONS 23.3%
INTERNATIONAL EQUITY SECURITIES 20.7%
U.S. EQUITY SECURITIES 19.2%
MONEY MARKET INSTRUMENTS 16.3%
EURODOLLAR AND YANKEE OBLIGATIONS 7.2%
COMMERCIAL MORTGAGE SECURITIES 7.2%
U.S. TREASURY SECURITIES 3.9%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 1.2%
GLOBAL REAL ESTATE EQUITY SECURITIES 0.4%
[END CHART]
* 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 10-23.
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INVESTMENT OVERVIEW | 9
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PORTFOLIO OF INVESTMENTS
November 30, 2013 (unaudited)
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
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U.S. EQUITY SECURITIES (19.2%)
COMMON STOCKS (15.4%)
CONSUMER DISCRETIONARY (1.2%)
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AUTO PARTS & EQUIPMENT (0.3%)
5,670 TRW Automotive Holdings Corp.* $ 440
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CABLE & SATELLITE (0.1%)
3,050 Comcast Corp. "A" 152
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DEPARTMENT STORES (0.2%)
4,600 Kohl's Corp. 254
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HOME IMPROVEMENT RETAIL (0.1%)
2,250 Lowe's Companies, Inc. 107
----------
HOMEFURNISHING RETAIL (0.1%)
1,180 Bed Bath & Beyond, Inc.* 92
----------
MOVIES & ENTERTAINMENT (0.3%)
5,200 Walt Disney Co. 367
----------
SPECIALIZED CONSUMER SERVICES (0.1%)
6,000 H&R Block, Inc. 167
----------
Total Consumer Discretionary 1,579
----------
CONSUMER STAPLES (1.1%)
-----------------------
DRUG RETAIL (0.5%)
5,150 CVS Caremark Corp. 345
4,100 Walgreen Co. 243
----------
588
----------
HOUSEHOLD PRODUCTS (0.1%)
1,500 Procter & Gamble Co. 126
----------
HYPERMARKETS & SUPER CENTERS (0.2%)
3,810 Wal-Mart Stores, Inc. 309
----------
TOBACCO (0.3%)
5,010 Philip Morris International, Inc. 428
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Total Consumer Staples 1,451
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10 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
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ENERGY (1.6%)
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INTEGRATED OIL & GAS (0.7%)
1,250 Chevron Corp. $ 153
8,410 Occidental Petroleum Corp. 799
----------
952
----------
OIL & GAS EQUIPMENT & SERVICES (0.2%)
3,850 Halliburton Co. 203
----------
OIL & GAS EXPLORATION & PRODUCTION (0.6%)
3,000 Anadarko Petroleum Corp. 267
2,600 ConocoPhillips 189
11,000 Marathon Oil Corp. 396
----------
852
----------
OIL & GAS REFINING & MARKETING (0.1%)
2,900 Valero Energy Corp. 132
----------
Total Energy 2,139
----------
FINANCIALS (2.4%)
-----------------
CONSUMER FINANCE (0.3%)
6,320 Capital One Financial Corp. 453
----------
DIVERSIFIED BANKS (0.2%)
6,250 Wells Fargo & Co. 275
----------
LIFE & HEALTH INSURANCE (0.2%)
3,800 MetLife, Inc. 198
----------
MULTI-LINE INSURANCE (0.1%)
2,000 American International Group, Inc. 100
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.6%)
10,010 Citigroup, Inc. 530
4,430 JPMorgan Chase & Co. 253
----------
783
----------
REGIONAL BANKS (0.5%)
4,450 BB&T Corp. 155
3,450 CIT Group, Inc. 174
4,300 PNC Financial Services Group, Inc. 331
----------
660
----------
SPECIALIZED FINANCE (0.5%)
2,300 CME Group, Inc. 188
1,860 IntercontinentalExchange Group, Inc.* 397
----------
585
----------
Total Financials 3,045
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PORTFOLIO OF INVESTMENTS | 11
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
HEALTH CARE (3.3%)
------------------
BIOTECHNOLOGY (1.0%)
17,550 Gilead Sciences, Inc.* $ 1,313
----------
HEALTH CARE DISTRIBUTORS (0.4%)
8,090 Cardinal Health, Inc. 523
----------
HEALTH CARE EQUIPMENT (0.1%)
2,200 Medtronic, Inc. 126
----------
HEALTH CARE SERVICES (0.1%)
2,170 Express Scripts Holdings Co.* 146
----------
LIFE SCIENCES TOOLS & SERVICES (0.1%)
1,480 Thermo Fisher Scientific, Inc. 149
----------
MANAGED HEALTH CARE (0.1%)
2,060 UnitedHealth Group, Inc. 153
----------
PHARMACEUTICALS (1.5%)
10,900 AbbVie, Inc. 528
2,000 Allergan, Inc. 194
6,000 Johnson & Johnson 568
18,300 Pfizer, Inc. 581
----------
1,871
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Total Health Care 4,281
----------
INDUSTRIALS (1.7%)
------------------
AEROSPACE & DEFENSE (0.7%)
900 Boeing Co. 121
2,200 Raytheon Co. 195
13,800 Spirit AeroSystems Holdings, Inc. "A"* 450
1,370 United Technologies Corp. 152
----------
918
----------
AIR FREIGHT & LOGISTICS (0.3%)
3,370 United Parcel Service, Inc. "B" 345
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.1%)
3,000 Republic Services, Inc. 105
----------
INDUSTRIAL CONGLOMERATES (0.6%)
32,100 General Electric Co. 856
----------
Total Industrials 2,224
----------
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12 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (3.6%)
-----------------------------
APPLICATION SOFTWARE (0.1%)
2,600 Adobe Systems, Inc.* $ 148
----------
COMMUNICATIONS EQUIPMENT (0.2%)
14,363 Cisco Systems, Inc. 305
----------
COMPUTER HARDWARE (1.1%)
1,360 Apple, Inc. 756
21,800 Hewlett-Packard Co. 596
----------
1,352
----------
COMPUTER STORAGE & PERIPHERALS (0.4%)
6,600 SanDisk Corp. 450
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.3%)
2,050 Visa, Inc. "A" 417
----------
INTERNET SOFTWARE & SERVICES (0.3%)
380 Google, Inc. "A"* 403
----------
SEMICONDUCTOR EQUIPMENT (0.0%)
3,500 Applied Materials, Inc. 61
----------
SEMICONDUCTORS (0.5%)
5,000 Broadcom Corp. "A" 133
15,200 Intel Corp. 362
2,500 Texas Instruments, Inc. 108
----------
603
----------
SYSTEMS SOFTWARE (0.7%)
18,400 Microsoft Corp. 702
4,800 Oracle Corp. 169
----------
871
----------
Total Information Technology 4,610
----------
MATERIALS (0.1%)
----------------
PAPER PRODUCTS (0.1%)
2,500 International Paper Co. 117
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.2%)
6,400 CenturyLink, Inc. 196
----------
Total Common Stocks (cost: $16,787) 19,651
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
PREFERRED STOCKS (1.9%)
CONSUMER STAPLES (1.6%)
-----------------------
AGRICULTURAL PRODUCTS (1.6%)
32,000 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual $ 917
10,000 Dairy Farmers of America, Inc., 7.88%, cumulative
redeemable, perpetual(b) 1,068
----------
Total Consumer Staples 1,985
----------
ENERGY (0.0%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.0%)
50 Kinder Morgan G.P. Inc., 4.16%, cumulative redeemable(b) 46
----------
FINANCIALS (0.3%)
-----------------
REGIONAL BANKS (0.3%)
400 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 411
----------
Total Preferred Stocks (cost: $2,306) 2,442
----------
EXCHANGE-TRADED FUNDS (2.1%)
8,349 EGShares Emerging Markets Consumer ETF 224
14,433 iShares Core S&P Mid-Cap ETF 1,883
5,430 iShares Core S&P Small-Cap ETF 586
----------
Total Exchange-Traded Funds (cost: $2,062) 2,693
----------
Total U.S. Equity Securities (cost: $21,155) 24,786
----------
INTERNATIONAL EQUITY SECURITIES (20.7%)
COMMON STOCKS (3.3%)
CONSUMER DISCRETIONARY (0.4%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.2%)
2,400 Magna International, Inc. 195
----------
HOTELS, RESORTS & CRUISE LINES (0.2%)
6,900 Carnival Corp. 249
----------
SPECIALTY STORES (0.0%)
800 Signet Jewelers Ltd. 62
----------
Total Consumer Discretionary 506
----------
CONSUMER STAPLES (0.2%)
-----------------------
BREWERS (0.1%)
950 Anheuser-Busch InBev N.V. ADR 97
----------
================================================================================
14 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
PACKAGED FOODS & MEAT (0.1%)
4,400 Unilever N.V. $ 173
----------
Total Consumer Staples 270
----------
ENERGY (0.3%)
-------------
OIL & GAS DRILLING (0.3%)
6,630 Transocean Ltd. 334
----------
FINANCIALS (0.2%)
-----------------
DIVERSIFIED BANKS (0.2%)
4,000 HSBC Holdings plc ADR 224
----------
HEALTH CARE (0.2%)
------------------
PHARMACEUTICALS (0.2%)
3,300 Novartis AG ADR 261
----------
INDUSTRIALS (0.7%)
------------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.4%)
7,050 Eaton Corp. plc 512
----------
RAILROADS (0.3%)
2,940 Canadian Pacific Railway Ltd. 453
----------
Total Industrials 965
----------
INFORMATION TECHNOLOGY (0.5%)
-----------------------------
SEMICONDUCTORS (0.5%)
14,200 NXP Semiconductors N.V.* 603
----------
MATERIALS (0.4%)
----------------
COMMODITY CHEMICALS (0.1%)
2,400 LyondellBasell Industries N.V. "A" 185
----------
DIVERSIFIED METALS & MINING (0.3%)
6,000 Rio Tinto plc ADR 319
----------
Total Materials 504
----------
TELECOMMUNICATION SERVICES (0.4%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.4%)
4,100 Rogers Communications, Inc. "B" 184
8,800 Vodafone Group plc ADR 326
----------
510
----------
Total Telecommunication Services 510
----------
Total Common Stocks (cost: $3,717) 4,177
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (17.4%)
10,560 iShares Core MSCI EAFE ETF $ 633
71,703 iShares Core MSCI Emerging Markets ETF 3,610
132,222 iShares MSCI EAFE ETF 8,758
52,333 iShares MSCI Germany ETF 1,599
92,458 iShares MSCI Hong Kong ETF 1,919
10,066 iShares MSCI Indonesia ETF 233
12,517 iShares MSCI Malaysia ETF 197
4,498 iShares MSCI Russia Capped ETF 96
43,053 iShares MSCI Singapore ETF 585
17,693 iShares MSCI Taiwan ETF 254
5,171 iShares MSCI Turkey ETF 290
166,478 iShares MSCI United Kingdom ETF 3,414
3,196 SPDR S&P Emerging Markets SmallCap ETF 150
4,921 WisdomTree Emerging Markets Equity Income Fund 255
5,259 WisdomTree Emerging Markets SmallCap Dividend Fund 249
12,742 WisdomTree India Earnings Fund 212
----------
Total Exchange-Traded Funds (cost: $20,238) 22,454
----------
Total International Equity Securities (cost: $23,955) 26,631
----------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (1.2%)
EXCHANGE-TRADED FUNDS (1.2%)
33,300 Market Vectors Gold Miners ETF 742
7,000 SPDR Gold Shares* 845
----------
Total Exchange-Traded Funds 1,587
----------
Total Precious Metals and Commodity - Related Securities (cost: $2,348) 1,587
----------
GLOBAL REAL ESTATE EQUITY SECURITIES (0.4%)
PREFERRED STOCKS (0.4%)
REITs - OFFICE (0.4%)
13,000 CommonWealth REIT, 6.50%, perpetual 274
12,000 CommonWealth REIT, Series E, 7.25%, cumulative
redeemable, perpetual 274
----------
Total REITs - Office 548
----------
Total Global Real Estate Equity Securities (cost: $615) 548
----------
================================================================================
16 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
BONDS (41.6%)
CORPORATE OBLIGATIONS (23.3%)
CONSUMER DISCRETIONARY (0.2%)
-----------------------------
PUBLISHING (0.1%)
$ 100 McGraw-Hill Global Education Holdings, LLC(b) 9.75% 4/01/2021 $ 111
--------
TEXTILES (0.1%)
100 SIWF Merger Sub, Inc.(b) 6.25 6/01/2021 101
--------
Total Consumer Discretionary 212
--------
ENERGY (4.0%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.7%)
100 Alta Mesa Holdings, LP 9.63 10/15/2018 108
100 Fieldwood Energy, LLC(a) 8.38 9/30/2020 102
50 Halcon Resources Corp. 8.88 5/15/2021 51
100 Halcon Resources Corp.(b) 9.25 2/15/2022 103
100 Midstates Petroleum Co., Inc. 9.25 6/01/2021 105
100 Penn Virginia Corp. 8.50 5/01/2020 108
100 Quicksilver Resources, Inc.(a) 7.00 6/21/2019 98
50 Rex Energy Corp. 8.88 12/01/2020 55
100 Sabine Oil & Gas, LLC(a) 8.75 12/31/2018 101
50 Samson Investment Co.(a) 6.00 9/25/2018 50
--------
881
--------
OIL & GAS REFINING & MARKETING (0.0%)
50 Northern Tier Energy, LLC 7.13 11/15/2020 52
--------
OIL & GAS STORAGE & TRANSPORTATION (3.3%)
1,150 DCP Midstream, LLC(b) 5.85 5/21/2043 1,074
500 Enbridge Energy Partners, LP 8.05 10/01/2037 562
950 Energy Transfer Partners, LP(b) 3.26(c) 11/01/2066 869
1,000 Enterprise Products Operating, LLC 7.00 6/01/2067 1,031
100 Martin Midstream Partners, LP 7.25 2/15/2021 102
23 NuStar Logistics, LP 7.63 1/15/2043 597
--------
4,235
--------
Total Energy 5,168
--------
FINANCIALS (14.0%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.6%)
1,000 State Street Capital Trust IV 1.25(c) 6/15/2037 781
48 Walter Investment Management Corp.(a) 5.75 11/28/2017 48
--------
Total Asset Management & Custody Banks 829
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
CONSUMER FINANCE (0.8%)
$ 900 American Express Co. 6.80% 9/01/2066 $ 960
--------
LIFE & HEALTH INSURANCE (4.3%)
27 Delphi Financial Group, Inc. 7.38 5/15/2037 687
1,000 Lincoln National Corp. 7.00 5/17/2066 1,030
800 MetLife, Inc. 6.40 12/15/2036 824
800 Principal Financial Global Fund, LLC 0.76(c) 1/10/2031 704
1,000 Prudential Financial, Inc. 5.63 6/15/2043 986
1,250 StanCorp Financial Group, Inc. 6.90 6/01/2067 1,253
--------
5,484
--------
MULTI-LINE INSURANCE (2.7%)
750 Genworth Holdings, Inc. 6.15 11/15/2066 670
1,100 Glen Meadow Pass-Through Trust(b) 6.51 2/12/2067 1,078
1,100 Nationwide Mutual Insurance Co.(b) 5.81 12/15/2024 1,122
600 ZFS Finance USA Trust V(b) 6.50 5/09/2037 641
--------
3,511
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (1.6%)
1,000 GE Capital Trust I 6.38 11/15/2067 1,083
150 General Electric Capital Corp. 6.38 11/15/2067 163
75 ILFC E-Capital Trust I(b) 5.35(c) 12/21/2065 67
1,000 JPMorgan Chase Capital XXI 1.19(c) 2/02/2037 755
--------
2,068
--------
PROPERTY & CASUALTY INSURANCE (2.8%)
1,000 Allstate Corp. 5.75 8/15/2053 1,017
1,000 AmTrust Financial Services, Inc.(b) 6.13 8/15/2023 1,010
750 HSB Group, Inc. 1.15(c) 7/15/2027 596
600 Ironshore Holdings, Inc.(b) 8.50 5/15/2020 692
300 Progressive Corp. 6.70 6/15/2037 328
--------
3,643
--------
Regional Banks (1.2%)
30 Citizens Funding Trust I 7.50 9/15/2066 768
100 First Maryland Capital Trust I 1.24(c) 1/15/2027 84
500 Fulton Capital Trust I 6.29 2/01/2036 486
200 Regions Financial Corp. 7.75 11/10/2014 212
--------
1,550
--------
Total Financials 18,045
--------
INDUSTRIALS (0.4%)
------------------
AEROSPACE & DEFENSE (0.2%)
248 Textron Financial Corp.(b) 6.00 2/15/2067 221
--------
================================================================================
18 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
AIRLINES (0.2%)
$ 285 Continental Airlines, Inc. "B" Pass-Through Trust 6.25% 4/11/2020 $ 298
--------
Total Industrials 519
--------
INFORMATION TECHNOLOGY (0.1%)
-----------------------------
DATA PROCESSING & OUTSOURCED SERVICES (0.1%)
100 First Data Corp.(b) 6.75 11/01/2020 105
--------
TELECOMMUNICATION SERVICES (0.4%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.4%)
20 Qwest Corp. 7.50 9/15/2051 510
--------
WIRELESS TELECOMMUNICATION SERVICES (0.0%)
50 MetroPCS Wireless, Inc.(b) 6.25 4/01/2021 52
--------
Total Telecommunication Services 562
--------
UTILITIES (4.2%)
----------------
ELECTRIC UTILITIES (1.8%)
600 Enel S.p.A.(b) 8.75 9/24/2073 655
500 NextEra Energy Capital Holdings, Inc. 6.35 10/01/2066 503
324 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 332
300 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 328
450 PPL Capital Funding, Inc. 6.70 3/30/2067 454
125 Texas Competitive Electric Holdings Co., LLC(a) 4.73 10/10/2017 87
--------
2,359
--------
MULTI-UTILITIES (2.4%)
390 Dominion Resources, Inc. 7.50 6/30/2066 420
600 Dominion Resources, Inc. 2.55(c) 9/30/2066 563
1,000 Integrys Energy Group, Inc. 6.11 12/01/2066 1,009
1,000 Puget Sound Energy, Inc. 6.97 6/01/2067 1,024
--------
3,016
--------
Total Utilities 5,375
--------
Total Corporate Obligations (cost: $29,515) 29,986
--------
EURODOLLAR AND YANKEE OBLIGATIONS (7.2%)
CONSUMER STAPLES (0.2%)
-----------------------
PACKAGED FOODS & MEAT (0.2%)
200 JBS S.A. 10.50 8/04/2016 226
--------
ENERGY (0.7%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.7%)
900 TransCanada Pipelines Ltd. 6.35 5/15/2067 935
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
FINANCIALS (5.0%)
-----------------
DIVERSIFIED BANKS (2.0%)
$ 400 Barclays Bank plc 0.65%(c) -(d) $ 238
400 Barclays Bank plc 0.69(c) -(d) 232
50 Barclays Bank plc(b) 7.70 -(d) 55
400 Compass Bank 6.40 10/01/2017 438
200 HSBC Bank plc 0.60(c) -(d) 125
1,400 HSBC Bank plc 0.63(c) -(d) 868
100 Lloyds TSB Bank plc 0.49(c) -(d) 60
500 Royal Bank of Scotland Group plc 9.50(c) 3/16/2022 585
--------
2,601
--------
LIFE & HEALTH INSURANCE (0.8%)
1,000 Great-West Life & Annuity Insurance Capital, LP(b) 7.15 5/16/2046 1,035
--------
PROPERTY & CASUALTY INSURANCE (1.6%)
1,350 Oil Insurance Ltd.(b) 3.23(c) -(d) 1,229
750 QBE Capital Funding III Ltd.(b) 7.25 5/24/2041 796
--------
2,025
--------
REINSURANCE (0.6%)
200 Platinum Underwriters Finance, Inc. 7.50 6/01/2017 227
500 Swiss Re Capital I, LP(b) 6.85 -(d) 532
--------
759
--------
Total Financials 6,420
--------
INDUSTRIALS (0.5%)
------------------
INDUSTRIAL CONGLOMERATES (0.4%)
500 Hutchison Whampoa International Ltd.(b) 6.00 -(d) 531
--------
MARINE (0.1%)
100 Navios Maritime Holdings, Inc.(b) 7.38 1/15/2022 101
--------
Total Industrials 632
--------
MATERIALS (0.3%)
----------------
CONSTRUCTION MATERIALS (0.1%)
50 Cemex Espana Luxembourg(b) 9.88 4/30/2019 57
--------
DIVERSIFIED METALS & MINING (0.1%)
100 Vedanta Resources plc(b) 6.00 1/31/2019 96
--------
GOLD (0.1%)
200 St. Barbara Ltd.(b) 8.88 4/15/2018 169
--------
Total Materials 322
--------
================================================================================
20 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES (0.0%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.0%)
$ 50 Altice Financing S.A.(b) 7.88% 12/15/2019 $ 54
--------
UTILITIES (0.5%)
----------------
ELECTRIC UTILITIES (0.5%)
700 Electricite De France S.A.(b) 5.25 -(d) 693
--------
Total Eurodollar and Yankee Obligations (cost: $8,825) 9,282
--------
COMMERCIAL MORTGAGE SECURITIES (7.2%)
FINANCIALS (7.2%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (7.2%)
299 Banc of America Commercial Mortgage, Inc. 4.77 7/10/2043 297
400 Banc of America Commercial Mortgage, Inc. 5.86 7/10/2044 412
100 Banc of America Commercial Mortgage, Inc. 5.42 10/10/2045 100
359 Banc of America Commercial Mortgage, Inc.(b) 5.94 9/10/2047 377
800 Banc of America Commercial Mortgage, Inc. 6.25 2/10/2051 833
50 Bear Stearns Commercial Mortgage Securities, Inc. 5.48 12/11/2040 46
400 Bear Stearns Commercial Mortgage Securities, Inc. 4.75 6/11/2041 416
100 Bear Stearns Commercial Mortgage Securities, Inc.(b) 5.66 9/11/2041 97
50 Bear Stearns Commercial Mortgage Securities, Inc. 5.60 10/12/2041 47
450 Citigroup Commercial Mortgage Trust 5.78 3/15/2049 463
850 Credit Suisse Commercial Mortgage
Pass-Through Trust 0.36 2/15/2040 636
750 GE Capital Commercial Mortgage Corp. 5.28 3/10/2044 725
50 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 51
400 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 379
1,075 GS Mortgage Securities Corp. II 5.59 4/10/2038 1,083
50 GS Mortgage Securities Corp. II 5.74 8/10/2038 50
1,000 GS Mortgage Securities Corp. II 4.78 7/10/2039 1,012
300 J.P. Morgan Chase Commercial Mortgage
Securities Trust 5.37 5/15/2047 320
300 LB-UBS Commercial Mortgage Trust 5.38 11/15/2038 327
50 LB-UBS Commercial Mortgage Trust 5.28 2/15/2041 50
400 Merrill Lynch Mortgage Trust 5.14 7/12/2038 417
50 Morgan Stanley Capital I, Inc. 5.50 3/12/2044 51
1,000 Wachovia Bank Commercial Mortgage Trust 5.72 5/15/2043 1,046
100 Wachovia Bank Commercial Mortgage Trust(b) 4.99 5/15/2044 94
--------
9,329
--------
Total Financials 9,329
--------
Total Commercial Mortgage Securities (cost: $9,134) 9,329
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
-------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (3.9%)
NOTES (3.9%)
$ 965 1.63%, 8/15/2022 $ 896
1,315 1.63%, 11/15/2022 1,214
1,906 1.75%, 5/15/2022 1,801
500 1.75%, 5/15/2023 461
618 2.00%, 2/15/2023 586
--------
Total Notes 4,958
--------
Total U.S. Treasury Securities (cost: $5,264) 4,958
--------
Total Bonds (cost: $52,738) 53,555
--------
-------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES
-------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (16.3%)
MONEY MARKET FUNDS (16.3%)
20,907,718 State Street Institutional Liquid Reserve Fund, 0.07%(e) (cost: $20,908) 20,908
--------
TOTAL INVESTMENTS (COST: $121,719) $128,015
========
-------------------------------------------------------------------------------------------------------
NUMBER OF
CONTRACTS
-------------------------------------------------------------------------------------------------------
PURCHASED OPTIONS (0.1%)
568 Put - iShares MSCI EAFE ETF expiring January 18, 2014 at 61 12
150 Put - iShares MSCI Emerging Markets expiring January 18, 2013 at 41 13
135 Put - iShares MSCI Emerging Markets expiring January 18, 2014 at 38 4
42 Put - S&P 500 Index expiring January 18, 2014 at 1640 17
43 Put - S&P 500 Index expiring January 18, 2014 at 1730 50
--------
TOTAL PURCHASED OPTIONS (COST: $200) $ 96
========
================================================================================
22 | USAA CORNERSTONE MODERATELY CONSERVATIVE 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 $19,651 $ - $- $ 19,651
Preferred Stocks - 2,442 - 2,442
Exchange-Traded Funds 2,693 - - 2,693
International Equity Securities:
Common Stocks 4,177 - - 4,177
Exchange-Traded Funds 22,454 - - 22,454
Precious Metals and
Commodity-Related Securities:
Exchange-Traded Funds 1,587 - - 1,587
Global Real Estate Equity Securities:
Preferred Stocks 274 274 - 548
Bonds:
Corporate Obligations - 29,986 - 29,986
Eurodollar and Yankee Obligations - 9,282 - 9,282
Commercial Mortgage Securities - 9,329 - 9,329
U.S. Treasury Securities 4,958 - - 4,958
Money Market Instruments:
Money Market Funds 20,908 - - 20,908
Purchased Options 96 - - 96
----------------------------------------------------------------------------------------------------
Total $76,798 $51,313 $- $128,111
----------------------------------------------------------------------------------------------------
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 | 23
================================================================================
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 29.0% 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
================================================================================
24 | USAA CORNERSTONE MODERATELY CONSERVATIVE 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) 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 the
stated final maturity date due to mandatory or optional prepayments.
The loan is 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) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 25
================================================================================
occur in an exempt transaction to a qualified institutional buyer as
defined by Rule 144A, and as such has been 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.
================================================================================
26 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
November 30, 2013 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $121,719) $128,015
Purchased options, at market value (cost of $200) 96
Cash 107
Receivables:
Capital shares sold 317
USAA Asset Management Company (Note 5C) 52
Dividends and interest 606
Securities sold 75
--------
Total assets 129,268
--------
LIABILITIES
Payables:
Securities purchased 295
Capital shares redeemed 40
Accrued management fees 52
Accrued transfer agent's fees 6
Other accrued expenses and payables 46
--------
Total liabilities 439
--------
Net assets applicable to capital shares outstanding $128,829
========
NET ASSETS CONSIST OF:
Paid-in capital $121,466
Accumulated undistributed net investment income 424
Accumulated net realized gain on investments and options 747
Net unrealized appreciation of investments and options 6,192
--------
Net assets applicable to capital shares outstanding $128,829
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 11,450
========
Net asset value, redemption price, and offering price per share $ 11.25
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended November 30, 2013 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $2) $ 617
Interest 1,255
------
Total income 1,872
------
EXPENSES
Management fees 282
Administration and servicing fees 85
Transfer agent's fees 128
Custody and accounting fees 63
Postage 5
Shareholder reporting fees 10
Trustees' fees 7
Registration fees 21
Professional fees 25
Other 3
------
Total expenses 629
Expenses reimbursed (122)
------
Net expenses 507
------
NET INVESTMENT INCOME 1,365
------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND OPTIONS
Net realized gain (loss) on:
Investments:
Unaffiliated transactions 136
Affiliated transactions (Note 7) 19
Options (408)
Change in net unrealized appreciation/depreciation of:
Investments 2,748
Options (181)
------
Net realized and unrealized gain 2,314
------
Increase in net assets resulting from operations $3,679
======
See accompanying notes to financial statements.
================================================================================
28 | USAA CORNERSTONE MODERATELY CONSERVATIVE 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 $ 1,365 $ 1,504
Net realized gain on investments 155 1,590
Net realized loss on options (408) (590)
Change in net unrealized appreciation/depreciation of:
Investments 2,748 3,548
Options (181) 77
--------------------------
Increase in net assets resulting from operations 3,679 6,129
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,253) (1,192)
--------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 39,399 103,567
Reinvested dividends 937 637
Cost of shares redeemed (13,616) (9,458)
--------------------------
Increase in net assets from capital share transactions 26,720 94,746
--------------------------
Net increase in net assets 29,146 99,683
NET ASSETS
Beginning of period 99,683 -
--------------------------
End of period $128,829 $ 99,683
==========================
Accumulated undistributed net investment income:
End of period $ 424 $ 312
==========================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,587 9,829
Shares issued for dividends reinvested 86 59
Shares redeemed (1,240) (871)
--------------------------
Increase in shares outstanding 2,433 9,017
==========================
*Fund commenced operations on June 8, 2012.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 29
================================================================================
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 Moderately Conservative Fund (the Fund), which is classified as
diversified under the 1940 Act. The Fund's investment objective is to seek
current income with a secondary focus on capital appreciation.
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 things, these monthly meetings include a
review and analysis of back
================================================================================
30 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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 particular
event would materially affect the value of the Fund's foreign
securities, then the Manager, under valuation procedures
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
approved by the Board, will consider such available information that it
deems relevant to determine a fare 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.
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
================================================================================
32 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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.
OPTION 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
================================================================================
34 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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)
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 $96 - -
options; Net
unrealized
depreciation 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.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2013 (IN THOUSANDS)
CHANGE IN
DERIVATIVES UNREALIZED
NOT ACCOUNTED STATEMENT OF APPRECIATION
FOR AS HEDGING OPERATIONS REALIZED GAIN (LOSS) (DEPRECIATION)
INSTRUMENTS LOCATION ON DERIVATIVES ON DERIVATIVES
-------------------------------------------------------------------------------------
Equity contracts Net realized loss $(408) $(181)
on options transactions/
Change in net unrealized
appreciation/depreciation
of options
-------------------------------------------------------------------------------------
================================================================================
36 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
the difference between amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts received. At the end of the Fund's fiscal year,
these net realized foreign currency gains/losses are reclassified from
accumulated net realized gain/loss to accumulated undistributed net
investment income on the statement of assets and liabilities as such
amounts are treated as ordinary income/loss for tax purposes. Net
unrealized foreign currency exchange gains/losses arise from changes in the
value of assets and liabilities, other than investments in securities,
resulting from changes in the exchange rate.
G. EXPENSES PAID INDIRECTLY -- Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month
period ended November 30, 2013, there were no custodian and other bank
credits.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
I. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet
================================================================================
38 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
temporary or emergency cash needs, including redemption requests that might
otherwise require the untimely disposition of securities. Subject to
availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's
total assets at an interest rate based on the London Interbank Offered Rate
(LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 7.0 basis points of the amount of the committed loan
agreement. The facility 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
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
adustments to this conclusion are necessary. The statute of limitations on the
Fund's tax return filings generally remain open for the three preceeding 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
$47,941,000 and $26,520,000, 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 $7,956,000 and $1,764,000, respectively, resulting in net unrealized
appreciation of $6,192,000.
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 164 $ 218
Options written 1,239 92
Options terminated in closing
purchase transactions (968) (301)
Options expired (435) (9)
-----------------------------
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.
================================================================================
40 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund
and for directly managing the day-to-day investment of the Fund's assets,
subject to the authority of and supervision by the Board. 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. For the six-month period
ended November 30, 2013, there are no subadvisers. The Fund's management
fees are accrued daily and paid monthly at an annualized rate of 0.50% 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 $282,000.
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 $85,000.
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 $2,000
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 0.90% of its average net assets,
excluding extraordinary expenses and before reductions of any expenses paid
indirectly, and will reimburse the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
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 six-month period ended
November 30, 2013, the Fund incurred reimbursable expenses of $122,000, of
which $52,000 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 $128,000.
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. For the six-month
period ended November 30, 2013, USAA and its affiliates owned 2,500,000 shares,
which represents 21.8% 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
================================================================================
42 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
the following affiliated USAA Funds at the then-current market price with no
brokerage commissions incurred.
NET REALIZED
COST TO GAIN TO
SELLER PURCHASER PURCHASER SELLER
---------------------------------------------------------------------------------
USAA Cornerstone USAA Real Return Fund $407,000 $(10,000)
Moderately
Conservative Fund
USAA Cornerstone USAA Cornerstone 9,000 (-)*
Moderately Moderate Fund
Conservative Fund
USAA Cornerstone USAA Cornerstone 139,000 (9,000)
Moderately Aggressive Fund
Conservative Fund
Income Stock Fund USAA Cornerstone 103,000 70,000
Moderately
Conservative Fund
USAA Real Return Fund USAA Cornerstone 641,000 (19,000)
Moderately
Conservative Fund
USAA Cornerstone USAA Cornerstone 3,000 (-)*
Aggressive Fund Moderately
Conservative Fund
USAA Cornerstone USAA Cornerstone 9,000 (1)
Moderate Fund Moderately
Conservative Fund
*Represents less than $500.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
(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 $ 11.05 $ 10.00
------------------------------
Income from investment operations:
Net investment income .13 .28(a)
Net realized and unrealized gain .19 .99(a)
------------------------------
Total from investment operations .32 1.27(a)
------------------------------
Less distributions from:
Net investment income (.12) (.22)
------------------------------
Net asset value at end of period $ 11.25 $ 11.05
==============================
Total return (%)* 2.98 12.81
Net assets at end of period (000) $128,829 $99,683
Ratios to average net assets:**
Expenses (%)(b),(c) .90 .90
Expenses, excluding reimbursements (%)(b),(c) 1.11 1.25
Net investment income (%)(c) 2.41 2.56
Portfolio turnover (%) 27 59
* 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
$112,774,000.
*** Fund commenced operations on June 8, 2012.
(a) Calculated using average shares.
(b) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
44 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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
================================================================================
EXPENSE EXAMPLE | 45
================================================================================
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 $1,029.80 $4.58
Hypothetical
(5% return before expenses) 1,000.00 1,020.56 4.56
* Expenses are equal to the Fund's annualized expense ratio of 0.90%, which is
net of any reimbursements and 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 2.98% for the
six-month period of June 1, 2013, through November 30, 2013.
================================================================================
46 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Paul L. McNamara
Jefferson C. Boyce
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select "Investments,"
AT USAA.COM then "Mutual Funds"
OR CALL Under "Investments" view
(800) 531-USAA account balances, or click
(8722) "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) in summary within the Statement of Additional Information on the SEC's
website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's
website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
===============================================================================
USAA
9800 Fredericksburg Road --------------
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)
=============================================================================
97451-0114 (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: 01/27/2014
------------------------------
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: 01/27/2014
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 01/27/2014
------------------------------
*Print the name and title of each signing officer under his or her signature.