FORM N-CSR/S
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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: JULY 31
Date of reporting period: JANUARY 31, 2014
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JANUARY 31, 2014
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA FIRST START GROWTH FUND]
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SEMIANNUAL REPORT
USAA FIRST START GROWTH FUND
JANUARY 31, 2014
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PRESIDENT'S MESSAGE
"IN MY OPINION, THE CONTINUATION OF
THE TAPER IS AN INDICATION THAT FED [PHOTO OF DANIEL S. McNAMARA]
POLICYMAKERS BELIEVE THE U.S. ECONOMIC
RECOVERY IS STRENGTHENING."
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FEBRUARY 2014
For much of the reporting period, market sentiment was driven by the potential
for -- and then the reality of -- Federal Reserve (the Fed) "tapering." The Fed
had hinted during the spring of 2013 that it might start reducing its asset
purchase program (also known as quantitative easing, or QE) if U.S. economic
conditions improved. (In September 2012, the U.S. central bank began purchasing
$85 billion of U.S. Treasury securities and mortgage-backed securities every
month to push down long-term interest rates and stimulate economic growth.) The
Fed also continued to reiterate its "forward guidance" -- the promise to hold
short-term interest rates near zero until unemployment falls below 6.5% and
inflation rises above 2.5%.
In general, equity investors seemed to like the Fed's promise of "low rates for
longer" more than they disliked the prospect of the taper. Though stocks had
briefly declined in response to the Fed's springtime "taper talk," they moved
higher overall during the reporting period, reaching new all-time highs in
mid-January 2014. In the bond market, longer-term yields -- especially in
five-year, 10-year, and 30-year maturities -- rose on expectations that the Fed
would begin tapering sooner rather than later. Bond prices, which move in the
opposite direction of yields, declined. However, not all bonds performed the
same way during the reporting period. The fixed-income market is, after all, a
market of bonds and not a single bond market. It comprises different types of
bonds with different maturities and risk characteristics, including U.S.
Treasuries, mortgage-backed securities, investment-grade bonds, high-yield
bonds, municipal securities and more. While U.S. Treasury securities
underperformed during the reporting period, bonds with more exposure to the U.S.
economy's health (i.e., those with credit risk) outperformed.
In December, the Fed announced it would taper its QE asset purchases by $10
billion beginning in January 2014. It subsequently announced additional tapering
of $10 billion in February and suggested it would continue reducing its asset
purchases in $10 billion increments through the end of 2014. In my opinion, the
continuation of the taper is an indication that Fed policymakers believe the
U.S. economic recovery is strengthening. Indeed, near the end of the reporting
period, the U.S. Department of Commerce estimated that fourth-quarter gross
domestic product growth was 3.2%, which was later revised downward to 2.4% on
February 28, 2014. Combined with a third-quarter
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growth rate of 4.1%, the U.S. economy experienced one of its strongest six-month
periods in a decade during the second half of 2013.
In mid-January, stocks underwent a sell-off. According to some observers, the
decline was a response to slowing global economic growth, especially in China
and Brazil, as well as currency weakness in Turkey and South Africa. However, in
my opinion, the predominant driver of market behavior is how investors interpret
macroeconomic data and future earnings trends. Some companies that met or beat
earnings expectations in the fourth-quarter 2013 have guided down forecasts for
coming quarters. Downward earnings guidance feeds into the belief held by many,
including USAA Asset Management Company, that it may be harder than the markets
expect for U.S. companies to find the earnings growth needed to support current
valuations.
Meanwhile, as stocks declined in late January, investors sought safety in U.S.
Treasuries and other conservative fixed-income securities. Though yields trended
down, they generally remained higher at the end of the reporting period than
they were at the beginning. Higher yields mean that investors have the
opportunity to reinvest at higher rates and can potentially earn more on new
investments.
Nevertheless, the shift in market sentiment during January underlines the
importance of diversification. Different asset classes, such as stocks and
bonds, move up and down at different rates and often at different times. I urge
all investors to hold diversified portfolios directly tied to their goals, risk
tolerance and time horizon. It is also a good idea to regularly reassess your
investment risk and rebalance your portfolio. Regular rebalancing can
potentially help you protect your gains and prepare for what happens next.
Looking ahead, I expect U.S. economic growth to continue getting stronger,
albeit slowly. While some investors may believe the economy is already on a
clear path to normalization, I believe the ride will be bumpier than many of us
would like. Rest assured we will continue to monitor economic trends, Fed
policy, geopolitical events, and other factors that could potentially affect
your investments. From all of us at USAA Asset Management Company, thank you for
allowing us to help you with your investment needs.
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 generally fall; given the historically low interest rate
environment, risks associated with rising interest rates may be heightened.
o Diversification is a technique intended to help reduce risk and does not
guarantee a profit or prevent a loss. o Financial advice provided by USAA
Financial Planning Services Insurance Agency, Inc. (known as USAA Financial
Insurance Agency in California, License # 0E36312), and USAA Financial Advisors,
Inc., a registered broker-dealer.
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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 11
Notes to Portfolio of Investments 31
Financial Statements 34
Notes to Financial Statements 37
EXPENSE EXAMPLE 53
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 FIRST START GROWTH FUND (THE FUND), SEEKS LONG-TERM CAPITAL GROWTH WITH
REDUCED VOLATILITY OVER TIME.
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TYPES OF INVESTMENTS
The Fund invests primarily in equity securities when we believe the reward
characteristics outweigh the risk in the market. To reduce the overall
volatility to investors, we generally will invest between 20% and 80% of the
Fund's assets in bonds and money market instruments, depending on our view of
the overall direction of the stock and bond markets. Although the Fund typically
will invest primarily in U.S. securities, it may invest without limit in foreign
securities.
As an alternative investment strategy, in our attempt to reduce the Fund's
volatility over time, the Fund at times may implement an index option-based
strategy.
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 Quantitative Management Associates LLC
ARNOLD J. ESPE, CFA PETER XU, PH.D.
WASIF A. LATIF DANIEL CARLUCCI, CFA
JOHN P. TOOHEY, CFA STACIE L. MINTZ, CFA
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o HOW DID THE USAA FIRST START GROWTH FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund had a total return of 4.15% for the six-month period ended January
31, 2014. This compares to a total return of 7.50% for the Russell 3000(R)
Index (the Index), 1.78% for the Barclays U.S. Aggregate Bond Index, and
5.53% for the Lipper Flexible Portfolio Funds Index (Lipper).
USAA Asset Management Company is the Fund's investment adviser. As the
investment adviser, USAA Asset Management Company employs dedicated
resources to support the research, selection, and monitoring of the Fund's
subadviser. Quantitative Management Associates LLC (QMA) is a subadviser to
the Fund. The investment adviser and the subadviser each provides
day-to-day discretionary management for a portion of the Fund's assets.
o PLEASE DISCUSS PERFORMANCE IN THE EQUITY PORTION OF THE FUND DURING THE
REPORTING PERIOD.
The Fund's domestic equity allocation -- which makes up approximately half
of the portfolio -- delivered strong performance during the
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Refer to page 8 for benchmark definitions.
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2 | USAA FIRST START GROWTH FUND
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six-month reporting period. The U.S. stock market performed well thanks to
a favorable backdrop of improving economic growth, greater clarity
regarding U.S. Federal Reserve (the Fed) policy, and investors' appetite
for higher-risk assets. The U.S. equity portfolio, managed by QMA,
generated a positive return and outperformed the broader U.S. market behind
the manager's strong individual stock selection.
Our international allocation also delivered positive returns, but it fell
short of the gain in our domestic equity portfolio. Performance was largely
driven by our holdings in the developed international markets, which we
achieve via a broad-based ETF and several ETFs that target specific
countries where we see the potential for outperformance. While we added
value via allocations to ETFs that invest in Germany and the United
Kingdom, this was counterbalanced by the underperformance of our
allocations to Hong Kong and Singapore.
The Fund's option hedging strategy, which is designed to help cushion the
impact of large stock market sell-offs, detracted at a time of rising
equity prices. Nevertheless, we continue to view the hedging strategy as a
way to help mitigate against the potential for a sharp, unexpected decline
in the global equity markets, given our belief that the cost of hedging
remains attractively priced.
These favorable returns were offset, to some extent, by the weaker
performance of our holdings in ETFs that are invested in the emerging
markets. This allocation was a key factor in the Fund's underperformance
relative to its peer group, but we continue to believe emerging market
equities are an essential element of a diversified portfolio.
o PLEASE DISCUSS PERFORMANCE IN THE FIXED-INCOME PORTION OF THE FUND DURING
THE REPORTING PERIOD.
Over one-fourth of the Fund is currently invested in a portfolio of
investment-grade bonds. Our bond portfolio finished the reporting period
with a positive return that outperformed both the Lipper
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MANAGERS' COMMENTARY ON THE FUND | 3
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average and the Index. Bonds performed reasonably well in the reporting
period, as investors grew more comfortable with the need for the Fed to
taper (or reduce) its quantitative easing policy.
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. Our selection process worked well during the past six
months, adding to the Fund's relative performance.
We also maintained a below-average duration (interest-rate sensitivity) in
order to protect the portfolio against the potential for market volatility,
particularly among longer-term bonds. This defensive approach, which
reflects our view that long-term bond yields are poised to rise gradually
over time, aided performance in the volatile market environment of past six
months. Our goal is to outperform via the strength of our security
selection rather than taking on added interest-rate risk.
o WHAT'S YOUR OUTLOOK FOR THE ECONOMY AND FINANCIAL MARKETS?
We believe the economy is strengthening, albeit slowly, as evidenced by the
improving housing market, rising corporate profits, and the declining
unemployment rate. While we forecast that real U.S. gross domestic product
will grow faster in 2014 than it did last year, we are concerned that the
jobs picture may not be as strong as the headline numbers indicate. Much of
the decline in the unemployment rate can be explained by a falling
participation rate, and a large proportion of the jobs being created are in
lower-paying service industries. We believe more meaningful gains in
value-added areas such as manufacturing will be required in order for the
economy to experience truly robust growth.
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4 | USAA FIRST START GROWTH FUND
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In this environment, we believe it will be a challenge for U.S. equities to
perform as well in 2014 as they did last year. Year-over-year earnings
growth ebbed to the mid-single digits in 2013, well off the double-digit
pace consistently seen since 2009. As a result, equities are trading at
fairly rich valuations given the modest level of earnings growth and
economic expansion. While we don't think the stock market is in "bubble"
territory, we are watchful given stocks' strong returns in 2013.
In the months ahead, we will be paying the most attention to fundamentals,
valuations, and corporate revenue growth as we work to uncover the most
promising opportunities for our investors. We seek to construct an equity
portfolio that is diversified in that it can capitalize on a wide range of
potential outcomes regarding global growth, central bank policy, and
inflation. On the fixed-income side, we will remain focused on the
potential impact of rising long-term bond yields.
Thank you for your investment in the Fund.
Diversification is a technique to help reduce risk and does not guarantee a
profit or prevent a loss. Foreign investing is subject to additional risks,
such as currency fluctuations, market illiquidity, and political instability.
Emerging market countries are most volatile. o Emerging market countries are
less diverse and mature than other countries and tend to be politically less
stable.
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MANAGERS' COMMENTARY ON THE FUND | 5
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INVESTMENT OVERVIEW
USAA FIRST START GROWTH FUND (THE FUND) (Ticker Symbol: UFSGX)
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1/31/14 7/31/13
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Net Assets $300.2 Million $278.2 Million
Net Asset Value Per Share $12.74 $12.56
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AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/14
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8/1/13-1/31/14* 1 Year 5 Years 10 Years
4.15% 10.57% 16.66% 5.91%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/13
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1 Year 5 Years 10 Years
17.59% 15.87% 6.26%
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EXPENSE RATIOS AS OF 7/31/13**
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Before Reimbursement 1.87% After Reimbursement 1.46%
(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
six-month 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 December 1, 2013, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through December 1, 2014, to make payments or
waive management, administration, and other fees so that the total annual
operating expenses of the Fund (exclusive of commission recapture, expense
offset arrangements, acquired fund fees and expenses, and extraordinary
expenses) do not exceed an annual rate of 1.38% of the Fund's average net
assets. This reimbursement arrangement may not be changed or terminated during
this time period without approval of the Fund's Board of Trustees and may be
changed or terminated by the Manager at any time after December 1, 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 FIRST START GROWTH FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER FLEXIBLE BARCLAYS U.S.
RUSSELL PORTFOLIO FUNDS USAA FIRST START AGGREGATE
3000 INDEX INDEX GROWTH FUND BOND INDEX
1/31/2004 $10,000.00 $10,000.00 $10,000.00 $10,000.00
2/29/2004 10,134.72 10,134.96 10,161.66 10,108.24
3/31/2004 10,014.42 10,091.70 10,184.76 10,183.94
4/30/2004 9,807.35 9,838.70 9,896.07 9,918.99
5/31/2004 9,949.89 9,906.93 9,988.45 9,879.25
6/30/2004 10,147.64 10,080.69 10,057.74 9,935.09
7/31/2004 9,763.90 9,811.18 9,549.65 10,033.57
8/31/2004 9,804.11 9,857.69 9,665.13 10,224.96
9/30/2004 9,954.82 10,017.85 10,046.19 10,252.70
10/31/2004 10,118.32 10,155.21 9,976.91 10,338.68
11/30/2004 10,588.68 10,517.29 10,508.08 10,256.21
12/31/2004 10,965.97 10,795.09 11,073.90 10,350.58
1/31/2005 10,673.90 10,622.69 10,681.29 10,415.58
2/28/2005 10,908.87 10,822.94 10,762.12 10,354.09
3/31/2005 10,724.35 10,630.89 10,623.56 10,300.92
4/30/2005 10,491.35 10,436.63 10,588.91 10,440.33
5/31/2005 10,888.88 10,677.48 11,016.17 10,553.28
6/30/2005 10,964.95 10,755.86 11,143.19 10,610.83
7/31/2005 11,414.79 11,100.01 11,535.80 10,514.23
8/31/2005 11,305.97 11,099.56 11,351.04 10,649.02
9/30/2005 11,404.88 11,260.65 11,639.72 10,539.32
10/31/2005 11,191.29 11,106.90 11,605.08 10,455.91
11/30/2005 11,626.63 11,373.41 12,159.35 10,502.16
12/31/2005 11,637.06 11,479.89 12,263.28 10,602.01
1/31/2006 12,025.87 11,850.88 12,505.77 10,602.61
2/28/2006 12,047.25 11,800.20 12,344.11 10,637.80
3/31/2006 12,255.49 11,987.95 12,251.73 10,533.41
4/30/2006 12,388.45 12,122.90 12,055.43 10,514.32
5/31/2006 11,991.82 11,845.01 11,385.68 10,503.10
6/30/2006 12,013.04 11,832.55 11,281.76 10,525.36
7/31/2006 12,001.79 11,871.88 11,108.55 10,667.69
8/31/2006 12,295.39 12,081.35 11,247.11 10,830.99
9/30/2006 12,570.62 12,214.49 11,581.99 10,926.13
10/31/2006 13,023.13 12,536.96 11,824.48 10,998.41
11/30/2006 13,306.49 12,817.36 12,020.79 11,126.00
12/31/2006 13,465.85 12,945.97 12,143.72 11,061.43
1/31/2007 13,722.16 13,099.72 12,307.04 11,056.89
2/28/2007 13,497.06 13,048.56 12,178.72 11,227.39
3/31/2007 13,637.54 13,171.07 12,272.04 11,227.73
4/30/2007 14,182.32 13,581.94 12,657.00 11,288.28
5/31/2007 14,699.15 13,887.57 12,901.97 11,202.73
6/30/2007 14,423.86 13,824.58 12,738.66 11,169.59
7/31/2007 13,931.97 13,684.66 12,482.02 11,262.76
8/31/2007 14,131.95 13,675.37 12,552.01 11,400.80
9/30/2007 14,647.16 14,214.39 12,901.97 11,487.29
10/31/2007 14,915.85 14,592.78 13,100.28 11,590.48
11/30/2007 14,244.36 14,247.34 12,703.66 11,798.91
12/31/2007 14,158.16 14,184.90 12,639.55 11,832.05
1/31/2008 13,300.01 13,723.85 12,022.99 12,030.81
2/29/2008 12,886.92 13,637.08 11,868.84 12,047.51
3/31/2008 12,810.57 13,455.70 11,726.56 12,088.61
4/30/2008 13,451.21 13,941.23 11,963.70 12,063.35
5/31/2008 13,726.78 14,162.05 12,177.13 11,974.89
6/30/2008 12,594.03 13,525.87 11,584.28 11,965.21
7/31/2008 12,493.59 13,270.09 11,453.85 11,955.45
8/31/2008 12,687.63 13,224.72 11,513.13 12,068.92
9/30/2008 11,494.69 11,985.75 10,671.29 11,906.81
10/31/2008 9,455.99 10,142.58 9,165.45 11,625.76
11/30/2008 8,709.54 9,571.22 8,537.03 12,004.18
12/31/2008 8,876.16 9,926.77 8,732.28 12,452.04
1/31/2009 8,131.27 9,505.51 8,216.45 12,342.17
2/28/2009 7,279.48 8,864.28 7,663.77 12,295.59
3/31/2009 7,917.11 9,451.60 8,081.35 12,466.52
4/30/2009 8,750.26 10,208.55 8,879.66 12,526.12
5/31/2009 9,217.15 10,858.62 9,604.28 12,616.97
6/30/2009 9,248.55 10,680.41 9,849.91 12,688.74
7/31/2009 9,968.42 11,549.62 10,378.03 12,893.40
8/31/2009 10,324.61 11,831.02 10,783.32 13,026.91
9/30/2009 10,757.17 12,332.68 11,336.00 13,163.75
10/31/2009 10,480.50 12,140.24 11,360.56 13,228.74
11/30/2009 11,076.04 12,658.10 11,630.76 13,400.01
12/31/2009 11,391.68 12,822.16 11,931.25 13,190.55
1/31/2010 10,981.04 12,486.98 11,867.79 13,392.05
2/28/2010 11,353.31 12,703.26 12,083.56 13,442.06
3/31/2010 12,068.87 13,323.38 12,565.89 13,425.53
4/30/2010 12,329.33 13,526.28 12,667.43 13,565.29
5/31/2010 11,355.35 12,748.39 12,147.03 13,679.44
6/30/2010 10,702.55 12,333.50 11,753.55 13,893.95
7/31/2010 11,445.55 12,996.12 12,350.11 14,042.18
8/31/2010 10,906.77 12,686.89 12,007.41 14,222.87
9/30/2010 11,936.56 13,493.32 12,908.60 14,238.03
10/31/2010 12,403.00 13,938.01 13,276.69 14,288.72
11/30/2010 12,474.60 13,927.22 13,213.22 14,206.60
12/31/2010 13,320.25 14,477.55 13,813.30 14,053.40
1/31/2011 13,611.18 14,780.02 13,995.22 14,069.76
2/28/2011 14,106.74 15,078.43 14,437.04 14,104.95
3/31/2011 14,170.37 15,146.97 14,644.96 14,112.75
4/30/2011 14,592.14 15,576.61 15,073.78 14,291.89
5/31/2011 14,425.65 15,441.52 14,917.84 14,478.40
6/30/2011 14,166.58 15,216.63 14,722.92 14,436.01
7/31/2011 13,842.16 15,093.94 14,489.02 14,665.09
8/31/2011 13,011.70 14,433.32 13,605.39 14,879.34
9/30/2011 12,002.05 13,464.14 12,721.75 14,987.58
10/31/2011 13,383.40 14,582.75 13,696.35 15,003.68
11/30/2011 13,347.23 14,359.73 13,566.40 14,990.67
12/31/2011 13,456.93 14,310.04 13,501.68 15,155.42
1/31/2012 14,136.01 14,969.59 14,140.19 15,288.50
2/29/2012 14,734.00 15,440.92 14,619.06 15,284.99
3/31/2012 15,188.50 15,583.49 14,791.99 15,201.24
4/30/2012 15,088.88 15,546.02 14,698.88 15,369.77
5/31/2012 14,156.10 14,718.34 13,887.45 15,508.84
6/30/2012 14,710.53 15,132.45 14,326.42 15,514.92
7/31/2012 14,856.24 15,318.28 14,459.44 15,728.92
8/31/2012 15,227.02 15,633.37 14,765.39 15,739.19
9/30/2012 15,626.88 15,972.30 15,124.55 15,760.86
10/31/2012 15,357.34 15,862.10 15,137.85 15,791.86
11/30/2012 15,476.27 16,001.04 15,257.57 15,816.78
12/31/2012 15,665.93 16,219.24 15,513.61 15,794.25
1/31/2013 16,525.53 16,717.48 16,056.52 15,683.79
2/28/2013 16,744.53 16,734.55 16,124.38 15,762.40
3/31/2013 17,400.70 17,013.60 16,463.70 15,774.99
4/30/2013 17,685.52 17,248.50 16,803.02 15,934.61
5/31/2013 18,102.74 17,240.90 16,816.59 15,650.30
6/30/2013 17,867.94 16,844.73 16,436.56 15,408.22
7/31/2013 18,847.24 17,459.69 17,047.33 15,429.28
8/31/2013 18,321.11 17,181.96 16,653.72 15,350.41
9/30/2013 19,002.22 17,785.69 17,155.91 15,495.74
10/31/2013 19,809.39 18,287.96 17,671.67 15,621.02
11/30/2013 20,384.27 18,461.96 17,983.85 15,562.53
12/31/2013 20,922.07 18,740.59 18,241.95 15,474.58
1/31/2014 20,261.06 18,425.28 17,754.19 15,703.23
[END CHART]
Data from 1/31/04 to 1/31/14.
See next page for benchmark definitions.
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 return information for the
indices does not reflect the deduction of any fees or expenses.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA First Start Growth Fund to the following benchmarks:
o The unmanaged Russell 3000 Index measures the performance of the 3,000
largest U.S. companies based on total market capitalization, which
represents approximately 98% of the investable U.S. equity market.
o The unmanaged Lipper Flexible Portfolio Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Flexible Portfolio
Funds category.
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.
================================================================================
8 | USAA FIRST START GROWTH FUND
================================================================================
o TOP 10 HOLDINGS o
AS OF 1/31/2014
(% of Net Assets)
iShares MSCI EAFE ETF* ................................................... 7.8%
iShares MSCI United Kingdom ETF* ......................................... 3.1%
iShares Core MSCI Emerging Markets ETF* .................................. 2.9%
iShares MSCI Germany ETF* ................................................ 2.0%
iShares MSCI Hong Kong ETF* .............................................. 1.9%
U.S. Treasury Note, 1.63%, 8/15/2022 ..................................... 1.6%
Apple, Inc. .............................................................. 1.4%
Exxon Mobil Corp. ........................................................ 1.0%
Google, Inc. "A" ......................................................... 1.0%
Johnson & Johnson ........................................................ 0.9%
*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 11-30.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o ASSET ALLOCATION -- 1/31/2014 o
[PIE CHART OF ASSET ALLOCATION]
FINANCIALS 24.5%
FOREIGN EXCHANGE-TRADED FUNDS* 21.5%
INFORMATION TECHNOLOGY 9.8%
HEALTH CARE 7.2%
INDUSTRIALS 6.6%
ENERGY 6.5%
CONSUMER DISCRETIONARY 6.1%
MONEY MARKET INSTRUMENTS 4.4%
CONSUMER STAPLES 4.3%
UTILITIES 3.6%
U.S. TREASURY SECURITIES 2.7%
MATERIALS 2.0%
TELECOMMUNICATION SERVICES 0.9%
DOMESTIC EXCHANGE-TRADED FUNDS* 0.3%
[END CHART]
* The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
10 | USAA FIRST START GROWTH FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2014 (unaudited)
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
EQUITY SECURITIES (73.6%)
COMMON STOCKS (50.5%)
CONSUMER DISCRETIONARY (6.1%)
-----------------------------
APPAREL RETAIL (1.0%)
1,600 Destination Maternity Corp. $ 43
8,100 Express, Inc.* 140
6,200 Foot Locker, Inc. 239
19,900 Gap, Inc. 758
11,900 Ross Stores, Inc. 808
16,300 TJX Companies, Inc. 935
----------
2,923
----------
APPAREL, ACCESSORIES & LUXURY GOODS (0.3%)
11,300 Michael Kors Holdings Ltd.* 903
1,600 VF Corp. 94
----------
997
----------
AUTO PARTS & EQUIPMENT (0.0%)
800 Drew Industries, Inc. 39
1,100 Modine Manufacturing Co.* 14
1,400 Tower International, Inc.* 31
----------
84
----------
AUTOMOBILE MANUFACTURERS (0.3%)
42,500 Ford Motor Co. 636
4,800 Thor Industries, Inc. 246
----------
882
----------
BROADCASTING (0.2%)
5,200 Gray Television, Inc.* 59
1,400 Liberty Media Corp. "A"* 184
3,400 Scripps Networks Interactive "A" 247
----------
490
----------
CABLE & SATELLITE (0.5%)
9,800 AMC Networks, Inc. "A"* 632
8,800 Comcast Corp. "A" 479
1,900 DIRECTV* 132
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
4,700 Starz "A"* $ 131
----------
1,374
----------
CATALOG RETAIL (0.2%)
5,900 HSN, Inc. 323
5,700 Liberty Interactive Corp. "A"* 152
----------
475
----------
DEPARTMENT STORES (0.5%)
5,100 Dillard's, Inc. "A" 445
18,500 Macy's, Inc. 984
----------
1,429
----------
EDUCATION SERVICES (0.1%)
600 Graham Holdings Co. "B" 376
----------
FOOTWEAR (0.1%)
10,900 Steven Madden Ltd.* 355
----------
GENERAL MERCHANDISE STORES (0.1%)
5,000 Dollar General Corp.* 282
----------
HOME FURNISHINGS (0.0%)
2,400 La-Z-Boy, Inc. 65
----------
HOME IMPROVEMENT RETAIL (0.4%)
16,100 Home Depot, Inc. 1,237
1,400 Lowe's Companies, Inc. 65
----------
1,302
----------
HOMEFURNISHING RETAIL (0.1%)
6,900 Bed Bath & Beyond, Inc.* 441
----------
HOTELS, RESORTS & CRUISE LINES (0.2%)
6,000 Marriott Vacations Worldwide Corp.* 287
5,200 Wyndham Worldwide Corp. 369
----------
656
----------
HOUSEHOLD APPLIANCES (0.3%)
300 NACCO Industries, Inc. "A" 18
6,000 Whirlpool Corp. 800
----------
818
----------
HOUSEWARES & SPECIALTIES (0.0%)
1,100 Libbey, Inc.* 24
----------
INTERNET RETAIL (0.2%)
700 Amazon.com, Inc.* 251
2,200 Expedia, Inc. 143
2,220 FTD Companies, Inc.* 69
================================================================================
12 | USAA FIRST START GROWTH FUND
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
3,700 Overstock.com, Inc.* $ 78
2,700 PetMed Express, Inc. 36
----------
577
----------
LEISURE PRODUCTS (0.0%)
900 Arctic Cat, Inc. 38
----------
MOVIES & ENTERTAINMENT (0.9%)
7,500 Cinemark Holdings, Inc. 220
1,200 Madison Square Garden Co. "A"* 69
6,300 Time Warner, Inc. 396
19,100 Twenty-First Century Fox, Inc. "A" 608
5,200 Viacom, Inc. "B" 427
15,000 Walt Disney Co. 1,089
----------
2,809
----------
PUBLISHING (0.1%)
3,800 Meredith Corp. 174
1,600 Morningstar, Inc. 123
----------
297
----------
RESTAURANTS (0.6%)
7,400 Jack in the Box, Inc.* 374
14,600 McDonald's Corp. 1,375
----------
1,749
----------
Total Consumer Discretionary 18,443
----------
CONSUMER STAPLES (3.6%)
-----------------------
AGRICULTURAL PRODUCTS (0.6%)
24,800 Archer-Daniels-Midland Co. 979
7,600 Bunge Ltd. 576
3,400 Darling International, Inc.* 67
1,400 Ingredion, Inc. 87
----------
1,709
----------
DRUG RETAIL (0.3%)
15,000 CVS Caremark Corp. 1,016
----------
FOOD DISTRIBUTORS (0.0%)
2,600 Spartan Stores, Inc. 59
----------
FOOD RETAIL (0.3%)
25,100 Kroger Co. 906
----------
HOUSEHOLD PRODUCTS (0.9%)
10,300 Colgate-Palmolive Co. 631
3,900 Kimberly-Clark Corp. 426
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
21,100 Procter & Gamble Co. $ 1,617
----------
2,674
----------
HYPERMARKETS & SUPER CENTERS (0.5%)
21,000 Wal-Mart Stores, Inc. 1,568
----------
PACKAGED FOODS & MEAT (0.1%)
1,300 Cal-Maine Foods, Inc. 65
3,700 Chiquita Brands International, Inc.* 39
400 J.M. Smucker Co. 39
2,800 Pilgrim's Pride Corp.* 47
----------
190
----------
PERSONAL PRODUCTS (0.0%)
6,600 Avon Products, Inc. 98
300 Nu Skin Enterprises, Inc. "A" 26
----------
124
----------
SOFT DRINKS (0.9%)
12,800 Coca-Cola Co. 484
5,900 Coca-Cola Enterprises, Inc. 255
22,400 PepsiCo, Inc. 1,800
----------
2,539
----------
Total Consumer Staples 10,785
----------
ENERGY (5.1%)
-------------
INTEGRATED OIL & GAS (1.8%)
20,700 Chevron Corp. 2,311
32,900 Exxon Mobil Corp. 3,032
1,200 Occidental Petroleum Corp. 105
----------
5,448
----------
OIL & GAS DRILLING (0.2%)
9,200 Ensco plc "A" 463
----------
OIL & GAS EQUIPMENT & SERVICES (0.7%)
8,900 Baker Hughes, Inc. 504
2,300 Dril-Quip, Inc.* 231
900 Matrix Service Co.* 24
13,400 Schlumberger Ltd. 1,174
----------
1,933
----------
OIL & GAS EXPLORATION & PRODUCTION (1.6%)
14,000 Anadarko Petroleum Corp. 1,130
7,200 Apache Corp. 578
9,600 Chesapeake Energy Corp. 258
================================================================================
14 | USAA FIRST START GROWTH FUND
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
17,600 ConocoPhillips $ 1,143
7,900 Devon Energy Corp. 468
3,900 EOG Resources, Inc. 644
19,700 Marathon Oil Corp. 646
----------
4,867
----------
OIL & GAS REFINING & MARKETING (0.5%)
6,300 Marathon Petroleum Corp. 549
14,750 Phillips 66 1,078
----------
1,627
----------
OIL & GAS STORAGE & TRANSPORTATION (0.3%)
27,500 Kinder Morgan, Inc. 935
----------
Total Energy 15,273
----------
FINANCIALS (8.3%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.8%)
600 Ameriprise Financial, Inc. 63
3,500 BlackRock, Inc. 1,052
17,600 Franklin Resources, Inc. 915
3,900 SEI Investments Co. 133
2,700 State Street Corp. 181
1,100 Waddell & Reed Financial, Inc. "A" 71
----------
2,415
----------
CONSUMER FINANCE (0.4%)
6,600 Capital One Financial Corp. 466
12,100 Discover Financial Services 649
2,800 Nelnet, Inc. "A" 104
----------
1,219
----------
DIVERSIFIED BANKS (0.9%)
8,100 U.S. Bancorp 322
52,600 Wells Fargo & Co. 2,385
----------
2,707
----------
INSURANCE BROKERS (0.0%)
500 Marsh & McLennan Companies, Inc. 23
----------
INVESTMENT BANKING & BROKERAGE (0.7%)
8,500 Goldman Sachs Group, Inc. 1,395
9,500 Morgan Stanley 280
7,800 Raymond James Financial, Inc. 397
4,000 TD Ameritrade Holding Corp. 125
----------
2,197
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
MULTI-LINE INSURANCE (0.3%)
7,600 American Financial Group, Inc. $ 417
4,800 American International Group, Inc. 230
1,900 HCC Insurance Holdings, Inc. 82
1,600 Kemper Corp. 59
----------
788
----------
MULTI-SECTOR HOLDINGS (0.2%)
6,500 Berkshire Hathaway, Inc. "B"* 725
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (1.3%)
60,500 Bank of America Corp. 1,013
17,600 Citigroup, Inc. 835
36,400 JPMorgan Chase & Co. 2,015
----------
3,863
----------
PROPERTY & CASUALTY INSURANCE (0.6%)
2,600 Aspen Insurance Holdings Ltd. 101
9,800 AXIS Capital Holdings Ltd. 441
1,900 Chubb Corp. 161
900 CNA Financial Corp. 35
1,300 Navigators Group, Inc.* 78
2,900 ProAssurance Corp. 135
8,500 Travelers Companies, Inc. 691
1,500 XL Group plc 43
----------
1,685
----------
REAL ESTATE SERVICES (0.3%)
7,600 CBRE Group, Inc. "A"* 202
7,200 Jones Lang LaSalle, Inc. 822
----------
1,024
----------
REGIONAL BANKS (0.5%)
800 Customers Bancorp, Inc.* 16
2,700 First Interstate BancSystem, Inc. 69
64,100 KeyCorp 818
2,500 OFG Bancorp 36
4,000 PNC Financial Services Group, Inc. 320
26,800 Regions Financial Corp. 273
----------
1,532
----------
REINSURANCE (0.5%)
4,300 Everest Re Group Ltd. 623
8,100 PartnerRe Ltd. 795
----------
1,418
----------
================================================================================
16 | USAA FIRST START GROWTH FUND
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
REITs - DIVERSIFIED (0.1%)
2,600 American Assets Trust, Inc. $ 87
8,100 Chambers Street Properties 63
----------
150
----------
REITs - MORTGAGE (0.5%)
17,800 American Capital Agency Corp. 373
15,600 American Capital Mortgage Investment Corp. 305
68,200 Annaly Capital Management, Inc. 734
4,600 Invesco Mortgage Capital 72
22,000 Resource Capital Corp. 130
----------
1,614
----------
REITs - OFFICE (0.1%)
14,000 Franklin Street Properties Corp. 168
11,700 Lexington Realty Trust 126
----------
294
----------
REITs - RETAIL (0.2%)
1,500 Agree Realty Corp. 43
18,600 General Growth Properties 375
1,100 Simon Property Group, Inc. 170
----------
588
----------
REITs - SPECIALIZED (0.3%)
2,000 Chesapeake Lodging Trust 49
12,000 Hospitality Properties Trust 308
18,300 RLJ Lodging Trust 457
4,000 Summit Hotel Properties, Inc. 36
1,600 Ventas, Inc. 100
----------
950
----------
SPECIALIZED FINANCE (0.6%)
1,000 IntercontinentalExchange Group, Inc. 209
12,200 McGraw Hill Financial, Inc. 928
16,100 NASDAQ OMX Group, Inc. 614
----------
1,751
----------
THRIFTS & MORTGAGE FINANCE (0.0%)
2,400 Home Loan Servicing Solution Ltd. 49
----------
Total Financials 24,992
----------
HEALTH CARE (7.2%)
------------------
BIOTECHNOLOGY (1.2%)
2,800 Alexion Pharmaceuticals, Inc.* 444
6,800 Amgen, Inc. 809
5,600 Biogen Idec, Inc.* 1,751
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
2,400 Celgene Corp.* $ 365
3,700 Gilead Sciences, Inc.* 298
1,000 Ligand Pharmaceuticals, Inc. "B"* 62
----------
3,729
----------
HEALTH CARE EQUIPMENT (1.2%)
34,100 Abbott Laboratories 1,250
4,300 Becton, Dickinson & Co. 465
2,000 C.R. Bard, Inc. 259
4,500 CareFusion Corp.* 183
1,300 Covidien plc 89
4,700 Hill-Rom Holdings, Inc. 170
11,200 Medtronic, Inc. 634
7,700 St. Jude Medical, Inc. 468
1,600 Stryker Corp. 124
----------
3,642
----------
HEALTH CARE FACILITIES (0.2%)
9,900 HCA Holdings, Inc.* 498
----------
HEALTH CARE SERVICES (0.3%)
11,700 Express Scripts Holdings Co.* 874
----------
HEALTH CARE TECHNOLOGY (0.3%)
13,800 Cerner Corp.* 785
----------
LIFE SCIENCES TOOLS & SERVICES (0.0%)
800 TECHNE Corp. 73
----------
MANAGED HEALTH CARE (0.9%)
2,500 Aetna, Inc. 171
11,300 Cigna Corp. 975
11,600 UnitedHealth Group, Inc. 838
7,100 WellPoint, Inc. 611
----------
2,595
----------
PHARMACEUTICALS (3.1%)
9,600 Allergan, Inc. 1,100
12,400 Eli Lilly and Co. 670
13,900 Forest Laboratories, Inc.* 921
5,000 Jazz Pharmaceuticals plc* 758
32,100 Johnson & Johnson 2,840
17,200 Merck & Co., Inc. 911
67,300 Pfizer, Inc. 2,046
2,000 Zoetis, Inc. 61
----------
9,307
----------
Total Health Care 21,503
----------
================================================================================
18 | USAA FIRST START GROWTH FUND
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
INDUSTRIALS (6.3%)
------------------
AEROSPACE & DEFENSE (1.5%)
600 Boeing Co. $ 75
10,800 General Dynamics Corp. 1,094
6,200 Hexcel Corp.* 258
300 Honeywell International, Inc. 27
3,800 L-3 Communications Holdings, Inc. 422
10,900 Northrop Grumman Corp. 1,260
7,700 Raytheon Co. 732
14,700 Spirit AeroSystems Holdings, Inc. "A"* 499
1,300 Teledyne Technologies, Inc.* 119
----------
4,486
----------
AIR FREIGHT & LOGISTICS (0.4%)
12,700 United Parcel Service, Inc. "B" 1,209
----------
AIRLINES (0.3%)
6,700 Alaska Air Group, Inc. 530
4,500 Spirit Airlines, Inc.* 211
----------
741
----------
BUILDING PRODUCTS (0.3%)
8,800 A.O. Smith Corp. 415
2,100 Lennox International, Inc. 182
16,100 Masco Corp. 341
800 Universal Forest Products, Inc. 42
----------
980
----------
CONSTRUCTION & ENGINEERING (0.2%)
11,100 AECOM Technology Corp.* 318
7,300 Quanta Services, Inc.* 228
----------
546
----------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.3%)
1,500 Federal Signal Corp.* 18
17,800 Oshkosh Corp. 964
----------
982
----------
DIVERSIFIED SUPPORT SERVICES (0.1%)
1,900 Performant Financial Corp.* 16
1,400 UniFirst Corp. 148
2,300 Viad Corp. 61
----------
225
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.6%)
17,600 Emerson Electric Co. 1,160
3,600 EnerSys 245
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
2,900 Rockwell Automation, Inc. $ 333
----------
1,738
----------
INDUSTRIAL CONGLOMERATES (0.9%)
8,500 3M Co. 1,090
57,700 General Electric Co. 1,450
----------
2,540
----------
INDUSTRIAL MACHINERY (0.4%)
900 Global Brass & Copper Holdings, Inc. 16
2,900 Harsco Corp. 74
1,200 Hyster-Yale Materials Handling, Inc. 103
5,000 Illinois Tool Works, Inc. 394
700 L.B. Foster Co. "A" 30
5,700 Lincoln Electric Holdings, Inc. 394
1,200 Mueller Industries, Inc. 75
1,000 Standex International Corp. 57
----------
1,143
----------
MARINE (0.0%)
4,300 Matson, Inc. 103
----------
OFFICE SERVICES & SUPPLIES (0.0%)
6,100 Steelcase, Inc. "A" 90
----------
RAILROADS (0.8%)
30,400 CSX Corp. 818
3,800 Norfolk Southern Corp. 352
6,900 Union Pacific Corp. 1,202
----------
2,372
----------
RESEARCH & CONSULTING SERVICES (0.0%)
200 Exponent, Inc. 14
1,000 Navigant Consulting, Inc.* 18
----------
32
----------
TRADING COMPANIES & DISTRIBUTORS (0.4%)
2,700 Aceto Corp. 57
300 DXP Enterprises, Inc.* 29
15,100 MRC Global, Inc.* 422
3,300 W.W. Grainger, Inc. 774
----------
1,282
----------
TRUCKING (0.1%)
500 AMERCO 111
4,100 Old Dominion Freight Line, Inc.* 223
----------
334
----------
Total Industrials 18,803
----------
================================================================================
20 | USAA FIRST START GROWTH FUND
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (9.8%)
-----------------------------
APPLICATION SOFTWARE (0.4%)
2,000 ANSYS, Inc.* $ 157
1,100 Comverse, Inc.* 39
8,600 Intuit, Inc. 630
5,600 Manhattan Associates, Inc.* 189
2,200 Pegasystems, Inc. 100
3,500 SS&C Technologies Holdings, Inc.* 136
----------
1,251
----------
COMMUNICATIONS EQUIPMENT (1.1%)
71,100 Cisco Systems, Inc. 1,558
25,000 QUALCOMM, Inc. 1,855
----------
3,413
----------
COMPUTER HARDWARE (1.9%)
8,180 Apple, Inc. 4,095
53,200 Hewlett-Packard Co. 1,543
----------
5,638
----------
COMPUTER STORAGE & PERIPHERALS (0.2%)
1,800 Immersion Corp.* 21
7,100 Western Digital Corp. 612
----------
633
----------
DATA PROCESSING & OUTSOURCED SERVICES (0.7%)
11,300 CoreLogic, Inc.* 360
5,500 DST Systems, Inc. 501
5,200 Fiserv, Inc.* 291
26,900 Genpact Ltd.* 457
2,100 Global Cash Access Holdings, Inc.* 18
3,400 Syntel, Inc.* 286
200 Visa, Inc. "A" 43
----------
1,956
----------
ELECTRONIC MANUFACTURING SERVICES (0.0%)
1,000 Fabrinet* 18
----------
INTERNET SOFTWARE & SERVICES (1.6%)
28,300 Facebook, Inc. "A"* 1,771
2,390 Google, Inc. "A"* 2,822
600 LogMeIn, Inc.* 20
1,600 Perficient, Inc.* 33
----------
4,646
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
IT CONSULTING & OTHER SERVICES (0.8%)
6,400 Accenture plc "A" $ 511
4,800 Booz Allen Hamilton Holding 88
5,000 Cognizant Technology Solutions Corp. "A"* 485
9,600 iGATE Corp.* 324
5,400 International Business Machines Corp. 954
----------
2,362
----------
SEMICONDUCTOR EQUIPMENT (0.0%)
1,700 Cabot Microelectronics Corp.* 68
3,300 Ultra Clean Holdings, Inc.* 38
----------
106
----------
SEMICONDUCTORS (0.7%)
8,900 Integrated Device Technology, Inc.* 86
54,400 Intel Corp. 1,335
19,200 Intersil Corp. "A" 218
400 Power Integrations, Inc. 24
3,600 Silicon Image, Inc.* 20
17,400 Skyworks Solutions, Inc.* 526
----------
2,209
----------
SYSTEMS SOFTWARE (1.9%)
17,900 CA, Inc. 574
73,000 Microsoft Corp. 2,763
50,200 Oracle Corp. 1,853
23,500 Symantec Corp. 503
----------
5,693
----------
TECHNOLOGY DISTRIBUTORS (0.5%)
5,100 Arrow Electronics, Inc.* 262
13,500 Avnet, Inc. 554
23,100 Ingram Micro, Inc. "A"* 578
2,600 ScanSource, Inc.* 98
1,600 SYNNEX Corp.* 90
----------
1,582
----------
Total Information Technology 29,507
----------
MATERIALS (1.7%)
----------------
ALUMINUM (0.0%)
1,300 Noranda Aluminum Holding Corp. 4
----------
COMMODITY CHEMICALS (0.6%)
1,500 Koppers Holdings, Inc. 59
13,000 LyondellBasell Industries N.V. "A" 1,024
5,800 Westlake Chemical Corp. 705
----------
1,788
----------
================================================================================
22 | USAA FIRST START GROWTH FUND
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
DIVERSIFIED CHEMICALS (0.0%)
700 Dow Chemical Co. $ 32
----------
DIVERSIFIED METALS & MINING (0.6%)
30,100 Freeport-McMoRan Copper & Gold, Inc. 976
3,500 Globe Specialty Metals, Inc. 61
28,600 Southern Copper Corp. 800
----------
1,837
----------
PAPER PRODUCTS (0.1%)
3,000 Clearwater Paper Corp.* 171
3,500 P.H. Glatfelter Co. 108
1,400 Schweitzer-Mauduit International, Inc. 65
----------
344
----------
SPECIALTY CHEMICALS (0.3%)
3,900 FutureFuel Corp. 64
400 International Flavors & Fragrances, Inc. 35
5,100 PPG Industries, Inc. 930
----------
1,029
----------
STEEL (0.1%)
1,300 Reliance Steel & Aluminum Co. 91
2,600 Worthington Industries, Inc. 105
----------
196
----------
Total Materials 5,230
----------
TELECOMMUNICATION SERVICES (0.9%)
---------------------------------
ALTERNATIVE CARRIERS (0.0%)
3,400 Premiere Global Services, Inc.* 37
----------
INTEGRATED TELECOMMUNICATION SERVICES (0.9%)
35,700 AT&T, Inc. 1,190
20,100 CenturyLink, Inc. 580
16,500 Verizon Communications, Inc. 792
----------
2,562
----------
Total Telecommunication Services 2,599
----------
UTILITIES (1.5%)
----------------
ELECTRIC UTILITIES (0.8%)
13,100 Duke Energy Corp. 925
700 Edison International 34
2,500 El Paso Electric Co. 91
31,100 PPL Corp. 951
16,400 Xcel Energy, Inc. 474
----------
2,475
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
GAS UTILITIES (0.2%)
1,200 Atmos Energy Corp. $ 58
2,400 New Jersey Resources Corp. 109
8,300 UGI Corp. 360
----------
527
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.2%)
38,800 AES Corp. 546
----------
MULTI-UTILITIES (0.2%)
4,700 DTE Energy Co. 321
7,600 PG&E Corp. 320
----------
641
----------
WATER UTILITIES (0.1%)
7,900 American Water Works Co., Inc. 336
----------
Total Utilities 4,525
----------
Total Common Stocks (cost: $126,007) 151,660
----------
PREFERRED STOCKS (1.3%)
CONSUMER STAPLES (0.7%)
-----------------------
AGRICULTURAL PRODUCTS (0.7%)
40,000 CHS, Inc., Series B, 7.88%, cumulative
redeemable, perpetual 1,148
10,000 Dairy Farmers of America, Inc., 7.88%,
cumulative redeemable, perpetual(a) 1,088
----------
2,236
----------
Total Consumer Staples 2,236
----------
FINANCIALS (0.6%)
-----------------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.2%)
10 International Lease Finance Corp., 0.19%, perpetual(b) 640
----------
REGIONAL BANKS (0.2%)
500 M&T Bank Corp., 6.38%, cumulative redeemable, perpetual 480
----------
REINSURANCE (0.0%)
500 American Overseas Group Ltd., 7.50%, non-cumulative,
perpetual, acquired 3/09/2007; cost $526*(b),(c) 125
----------
REITs - OFFICE (0.2%)
20,000 CommonWealth REIT, Series E, 7.25%, cumulative
redeemable, perpetual 456
----------
Total Financials 1,701
----------
Total Preferred Stocks (cost: $4,182) 3,937
----------
================================================================================
24 | USAA FIRST START GROWTH FUND
================================================================================
----------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (21.8%)
DOMESTIC EXCHANGE-TRADED FUNDS (0.3%)
9,000 iShares Russell 1000 ETF $ 898
----------
Total Domestic Exchange-Traded Funds 898
----------
FOREIGN EXCHANGE-TRADED FUNDS (21.5%)
29,398 EGShares Emerging Markets Consumer ETF 712
30,376 iShares Core MSCI EAFE ETF 1,756
188,084 iShares Core MSCI Emerging Markets ETF 8,620
366,771 iShares MSCI EAFE ETF 23,330
203,034 iShares MSCI Germany ETF 6,057
301,382 iShares MSCI Hong Kong ETF 5,762
27,860 iShares MSCI Indonesia ETF 646
48,357 iShares MSCI Malaysia ETF 711
5,810 iShares MSCI Philippines ETF 180
79,463 iShares MSCI Singapore ETF 971
28,032 iShares MSCI South Korea Capped ETF 1,655
26,740 iShares MSCI Turkey ETF 1,111
472,164 iShares MSCI United Kingdom ETF 9,401
12,254 SPDR S&P Emerging Markets SmallCap ETF 534
11,520 Vanguard FTSE Emerging Markets ETF 434
19,024 WisdomTree Emerging Markets Equity Income Fund 885
20,334 WisdomTree Emerging Markets SmallCap Dividend Fund 877
48,857 WisdomTree India Earnings Fund 790
----------
Total Foreign Exchange-Traded Funds 64,432
----------
Total Exchange-Traded Funds (cost: $61,128) 65,330
----------
Total Equity Securities (cost: $191,317) 220,927
----------
----------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
----------------------------------------------------------------------------------------------------
BONDS (22.4%)
CORPORATE OBLIGATIONS (11.0%)
ENERGY (1.4%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (1.4%)
$ 800 DCP Midstream, LLC(a) 5.85% 5/21/2043 744
1,000 Enbridge Energy Partners, LP(d) 8.05 10/01/2037 1,127
1,000 Energy Transfer Partners, LP 3.29(e) 11/01/2066 915
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------
$ 1,000 Enterprise Products Operating, LLC 7.00% 6/01/2067 $ 1,039
500 TEPPCO Partners, LP 7.00 6/01/2067 514
----------
4,339
----------
Total Energy 4,339
----------
FINANCIALS (7.4%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.4%)
1,575 State Street Capital Trust IV 1.24(e) 6/01/2077 1,214
----------
CONSUMER FINANCE (0.2%)
500 American Express Co.(d) 6.80 9/01/2066 540
----------
DIVERSIFIED BANKS (0.2%)
1,000 Lloyds Bank plc 0.69(e) -(f) 670
----------
LIFE & HEALTH INSURANCE (1.4%)
28 Delphi Financial Group, Inc. 7.38 5/15/2037 675
800 Lincoln National Corp. 7.00 5/17/2066 820
200 Lincoln National Corp. 6.05 4/20/2067 198
500 Principal Financial Global Fund, LLC 0.76(e) 1/10/2031 440
1,000 Prudential Financial, Inc. 5.63 6/15/2043 1,005
1,000 StanCorp Financial Group, Inc. 6.90 6/01/2067 1,002
----------
4,140
----------
MULTI-LINE INSURANCE (1.2%)
1,000 Genworth Holdings, Inc. 6.15 11/15/2066 898
1,000 Glen Meadow Pass-Through Trust(a) 6.51 2/12/2067 1,000
1,000 Nationwide Mutual Insurance Co.(a) 5.81 12/15/2024 1,016
800 ZFS Finance USA Trust V(a) 6.50 5/09/2037 859
----------
3,773
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.3%)
1,000 JPMorgan Chase Capital XIII 1.20(e) 9/30/2034 800
----------
PROPERTY & CASUALTY INSURANCE (1.8%)
1,000 Allstate Corp. 5.75 8/15/2053 1,015
1,000 AmTrust Financial Services, Inc.(a) 6.13 8/15/2023 1,010
1,000 HSB Group, Inc. 1.15(e) 7/15/2027 785
750 Ironshore Holdings, Inc.(a) 8.50 5/15/2020 879
500 Progressive Corp.(d) 6.70 6/15/2037 544
1,000 Travelers Companies, Inc.(d) 6.25 3/15/2037 1,075
----------
5,308
----------
REGIONAL BANKS (1.5%)
30 Citizens Funding Trust I 7.50 9/15/2066 764
1,000 Fulton Capital Trust I(d) 6.29 2/01/2036 898
================================================================================
26 | USAA FIRST START GROWTH FUND
================================================================================
----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------
$ 1,000 KeyCorp Capital I 0.99%(e) 7/01/2028 $ 830
150 M&T Capital Trust I(d) 8.23 2/01/2027 152
1,000 Manufacturers & Traders Trust Co.(d) 5.63 12/01/2021 1,045
1,000 Suntrust Capital I 0.91(e) 5/15/2027 820
----------
4,509
----------
REINSURANCE (0.2%)
500 Alterra USA Holdings Ltd.(a),(d) 7.20 4/14/2017 566
----------
REITs - RETAIL (0.2%)
577 Brixmor LLC 7.68 11/02/2026 579
----------
Total Financials 22,099
----------
INDUSTRIALS (0.3%)
------------------
AEROSPACE & DEFENSE (0.3%)
1,000 Textron Financial Corp.(a) 6.00 2/15/2067 907
----------
UTILITIES (1.9%)
----------------
ELECTRIC UTILITIES (0.7%)
500 Enel S.p.A.(a) 8.75 9/24/2073 544
983 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 1,002
500 PPL Capital Funding, Inc. 6.70 3/30/2067 505
----------
2,051
----------
MULTI-UTILITIES (1.2%)
1,000 Dominion Resources, Inc.(d) 7.50 6/30/2066 1,090
770 Integrys Energy Group, Inc. 6.11 12/01/2066 777
1,000 Puget Sound Energy, Inc.(d) 6.97 6/01/2067 1,054
725 Wisconsin Energy Corp. 6.25 5/15/2067 744
----------
3,665
----------
Total Utilities 5,716
----------
Total Corporate Obligations (cost: $29,858) 33,061
----------
EURODOLLAR AND YANKEE OBLIGATIONS (3.1%)
FINANCIALS (2.6%)
-----------------
DIVERSIFIED BANKS (1.1%)
1,500 Barclays Bank plc 0.69(e) -(f) 1,005
2,040 HSBC Bank plc 0.69(e) -(f) 1,473
500 LBI hf, acquired 10/12/2007;
cost $500(a),(b),(c),(g) 7.43 -(f) -
700 Royal Bank of Scotland Group plc 9.50 3/16/2022 820
----------
3,298
----------
LIFE & HEALTH INSURANCE (0.3%)
1,000 Great-West Life & Annuity
Insurance Capital, LP(a) 7.15 5/16/2046 1,035
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE (0.7%)
$ 1,300 Oil Insurance Ltd.(a) 3.23%(e) -(f) $ 1,188
750 QBE Capital Funding III Ltd.(a) 7.25 5/24/2041 775
----------
1,963
----------
REGIONAL BANKS (0.0%)
1,000 Glitnir Banki hf, acquired 9/11/2006
and 10/18/2006; cost $1,017(a),(b),(c),(g) 7.45 -(f) -
----------
REINSURANCE (0.5%)
500 Platinum Underwriters Finance, Inc.(d) 7.50 6/01/2017 572
804 Swiss Re Capital I, LP(a) 6.85 -(f) 864
----------
1,436
----------
Total Financials 7,732
----------
MATERIALS (0.3%)
----------------
COMMODITY CHEMICALS (0.3%)
1,000 Braskem Finance Ltd.(h) 6.45 2/03/2024 985
----------
UTILITIES (0.2%)
----------------
ELECTRIC UTILITIES (0.2%)
650 Electricite De France S.A.(a) 5.25 -(f) 629
----------
Total Eurodollar and Yankee Obligations
(cost: $9,343) 9,346
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.3%)
FINANCIALS (0.3%)
-----------------
1,133 Structured Asset Mortgage Investments, Inc.
(cost: $1,002) 0.66(e) 7/19/2035 1,011
----------
COMMERCIAL MORTGAGE SECURITIES (5.3%)
FINANCIALS (5.3%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (5.3%)
500 Banc of America Commercial Mortgage, Inc. 5.77 5/10/2045 529
400 Banc of America Commercial Mortgage, Inc. 5.46 9/10/2045 429
1,000 Banc of America Commercial Mortgage, Inc.(d) 5.18 9/10/2047 1,040
500 Banc of America Commercial Mortgage, Inc. 6.25 2/10/2051 525
500 Bear Stearns Commercial Mortgage
Securities, Inc.(d) 4.99 9/11/2042 523
530 Citigroup Commercial Mortgage Trust(d) 5.78 3/15/2049 547
1,000 GE Capital Commercial Mortgage Corp.(d) 5.61 12/10/2049 1,041
500 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 479
250 GMAC Commercial Mortgage Securities, Inc. 4.98 12/10/2041 201
1,000 GS Mortgage Securities Corp. II 5.59 4/10/2038 1,011
1,000 GS Mortgage Securities Corp. II 4.78 7/10/2039 1,024
================================================================================
28 | USAA FIRST START GROWTH FUND
================================================================================
----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------
$ 1,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.04% 10/15/2042 $ 1,032
690 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.57 4/15/2043 712
500 J.P. Morgan Chase Commercial Mortgage
Securities Corp.(d) 5.40 12/15/2044 519
378 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.40 12/15/2044 399
1,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.48 5/15/2045 1,051
500 Merrill Lynch Mortgage Trust 5.14 7/12/2038 520
250 Merrill Lynch Mortgage Trust 5.18 7/12/2038 244
135 Merrill Lynch Mortgage Trust 5.21 7/12/2038 123
670 Merrill Lynch Mortgage Trust 5.69 5/12/2039 681
500 Merrill Lynch Mortgage Trust 5.01 10/12/2041 505
1,000 ML-CFC Commercial Mortgage Trust(d) 5.42 8/12/2048 1,061
500 ML-CFC Commercial Mortgage Trust 5.89 8/12/2049 517
1,000 Wachovia Bank Commercial Mortgage Trust 5.72 5/15/2043 1,051
--------
15,764
--------
Total Financials 15,764
--------
Total Commercial Mortgage Securities (cost: $13,960) 15,764
--------
U.S. TREASURY SECURITIES (2.7%)
NOTES (2.7%)
390 1.63%, 11/15/2022 362
4,970 1.63%, 8/15/2022 4,634
2,000 1.75%, 5/15/2022 1,895
170 2.00%, 2/15/2023 162
1,000 2.75%, 11/15/2023 1,007
--------
Total Notes 8,060
--------
Total U.S. Treasury Securities (cost: $8,431) 8,060
--------
Total Bonds (cost: $62,594) 67,242
--------
----------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
----------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (4.4%)
MONEY MARKET FUNDS (4.4%)
13,116,906 State Street Institutional Liquid Reserve Fund, 0.06%
(cost: $13,117) 13,117
--------
TOTAL INVESTMENTS (COST: $267,028) $301,286
========
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
-------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
-------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $151,660 $ - $ - $151,660
Preferred Stocks - 3,172 765 3,937
Exchange-Traded Funds:
Domestic Exchange-Traded Funds 898 - - 898
Foreign Exchange-Traded Funds 64,432 - - 64,432
Bonds:
Corporate Obligations - 33,061 - 33,061
Eurodollar and Yankee Obligations - 9,346 - 9,346
Collateralized Mortgage Obligations - 1,011 - 1,011
Commercial Mortgage Securities - 15,764 - 15,764
U.S. Treasury Securities 8,060 - - 8,060
Money Market Instruments:
Money Market Funds 13,117 - - 13,117
-------------------------------------------------------------------------------------------------------------
Total $238,167 $62,354 $765 $301,286
-------------------------------------------------------------------------------------------------------------
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
-----------------------------------------------------------------------------------------------------
EURODOLLAR
PREFERRED AND YANKEE
STOCKS OBLIGATIONS
-----------------------------------------------------------------------------------------------------
Balance as of July 31, 2013 $765 $ 3
Purchases - -
Sales - -
Transfers into Level 3 - -
Transfers out of Level 3 - -
Net realized gain (loss) on investments - -
Change in net unrealized appreciation/depreciation of investments - (3)
-----------------------------------------------------------------------------------------------------
Balance as of January 31, 2014 $765 $ -
-----------------------------------------------------------------------------------------------------
For the period of August 1, 2013, through January 31, 2014, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers into and out of the levels as of the beginning of the period in which
the event or circumstance that caused the transfer occurred.
================================================================================
30 | USAA FIRST START GROWTH FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2014 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net
assets. Investments in foreign securities were 26.7% of net assets at
January 31, 2014.
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 by assuming prepayment rates of the underlying loans. The
weighted
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 31
================================================================================
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)
REIT Real estate investment trust
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company (the Manager) under liquidity guidelines approved by the
Trust's Board of Trustees (the Board), unless otherwise noted as
illiquid.
(b) Security was fair valued at January 31, 2014, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $765,000, which represented 0.3% of
net assets of the Fund.
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities
at January 31, 2014, was $125,000, which represented less than 0.1% of
the Fund's net assets.
================================================================================
32 | USAA FIRST START GROWTH FUND
================================================================================
(d) At January 31, 2014, portions of these securities were segregated to
cover delayed-delivery and/or when-issued purchases.
(e) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the current rate
at January 31, 2014.
(f) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(g) Currently the issuer is in default with respect to interest and/or
principal payments.
(h) At January 31, 2014, the aggregate market value of securities purchased
on a delayed-delivery were $985,000, of which all where when-issued.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
January 31, 2014 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $267,028) $301,286
Cash 13
Receivables:
Capital shares sold 959
USAA Asset Management Company (Note 5D) 95
Dividends and interest 762
Securities sold 9,636
--------
Total assets 312,751
--------
LIABILITIES
Payables:
Securities purchased 11,934
Capital shares redeemed 304
Accrued management fees 193
Accrued transfer agent's fees 16
Other accrued expenses and payables 81
--------
Total liabilities 12,528
--------
Net assets applicable to capital shares outstanding $300,223
========
NET ASSETS CONSIST OF:
Paid-in capital $263,047
Overdistribution of net investment income (585)
Accumulated net realized gain on investments 3,503
Net unrealized appreciation of investments 34,258
--------
Net assets applicable to capital shares outstanding $300,223
========
Capital shares outstanding, unlimited number of shares authorized,
no par value 23,558
========
Net asset value, redemption price, and offering price per share $ 12.74
========
See accompanying notes to financial statements.
================================================================================
34 | USAA FIRST START GROWTH FUND
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended January 31, 2014 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 2,226
Interest 1,801
-------
Total income 4,027
-------
EXPENSES
Management fees 1,096
Administration and servicing fees 219
Transfer agent's fees 1,040
Custody and accounting fees 72
Postage 41
Shareholder reporting fees 35
Trustees' fees 7
Registration fees 18
Professional fees 42
Other 5
-------
Total expenses 2,575
Expenses reimbursed (559)
-------
Net expenses 2,016
-------
NET INVESTMENT INCOME 2,011
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND OPTIONS
Net realized gain (loss) on:
Investments 7,390
Options (1,243)
Change in net unrealized appreciation/depreciation of:
Investments 3,351
Options 178
-------
Net realized and unrealized gain 9,676
-------
Increase in net assets resulting from operations $11,687
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 35
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended January 31, 2014 (unaudited), and year ended
July 31, 2013
----------------------------------------------------------------------------------------------
1/31/2014 7/31/2013
----------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,011 $ 5,015
Net realized gain on investments 7,390 11,732
Net realized loss on options (1,243) (1,414)
Change in net unrealized appreciation/depreciation of:
Investments 3,351 25,004
Options 178 67
------------------------
Increase in net assets resulting from operations 11,687 40,404
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (5,182) (4,770)
Net realized gains (2,712) -
------------------------
Distributions to shareholders (7,894) (4,770)
------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 35,788 53,632
Reinvested dividends 7,848 4,748
Cost of shares redeemed (25,420) (38,227)
------------------------
Increase in net assets from capital share transactions 18,216 20,153
------------------------
Net increase in net assets 22,009 55,787
NET ASSETS
Beginning of period 278,214 222,427
------------------------
End of period $300,223 $278,214
========================
Accumulated undistributed (overdistribution) of net
investment income:
End of period $ (585) $ 2,586
========================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,783 4,502
Shares issued for dividends reinvested 602 417
Shares redeemed (1,985) (3,227)
------------------------
Increase in shares outstanding 1,400 1,692
========================
See accompanying notes to financial statements.
================================================================================
36 | USAA FIRST START GROWTH FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2014 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment company
organized as a Delaware statutory trust consisting of 52 separate funds. The
information presented in this semiannual report pertains only to the USAA First
Start Growth Fund (the Fund), which is classified as diversified under the 1940
Act. The Fund's investment objective is to seek long-term capital growth with
reduced volatility over time.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
and USAA Asset Management Company (the Manager). Among other things, these
monthly meetings include a review and analysis of back testing reports,
pricing service quotation comparisons, illiquid securities and fair value
determinations, pricing movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as
set forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the Nasdaq over-the-counter markets, are valued at the last sales price
or official closing price on the exchange or primary market on which
they trade. Equity securities traded primarily on foreign securities
exchanges or markets are valued at the last quoted sales price, or the
most recently determined official closing price calculated according to
local market convention, available at the time the Fund is valued. If
no last sale or official closing price is reported or available, the
average of the bid and asked prices generally is used.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the 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(s), if applicable, will monitor for events that would
materially affect the value of the Fund's foreign securities. The
Fund's subadviser(s) has agreed to notify the Manager of significant
events it identifies that would
================================================================================
38 | USAA FIRST START GROWTH FUND
================================================================================
materially affect the value of the Fund's foreign securities. If the
Manager determines that a particular event would materially affect the
value of the Fund's foreign securities, then the Manager, under
valuation procedures approved by the Board, will consider such
available information that it deems relevant to determine a fair value
for the affected foreign securities. In addition, the Fund may use
information from an external vendor or other sources to adjust the
foreign market closing prices of foreign equity securities to reflect
what the Fund believes to be the fair value of the securities as of the
close of the NYSE. Fair valuation of affected foreign equity securities
may occur frequently based on an assessment that events that occur on a
fairly regular basis (such as U.S. market movements) are significant.
3. Investments in open-end investment companies, hedge, or other funds,
other than ETFs, are valued at their NAV at the end of each business
day.
4. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
5. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and asked prices
or the last sales price to price securities 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
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 determined to
most closely reflect market value of the options at the time of
computation of the Fund's NAV.
9. Securities for which market quotations are not readily available or are
considered unreliable, or whose values have been materially affected by
events occurring after the close of their primary markets but before
the pricing of the Fund, are valued in good faith at fair value, using
methods determined by the Manager in consultation with the Fund's
subadviser(s), if applicable, under valuation procedures approved by
the Board. The effect of fair value pricing is that securities may not
be priced on the basis of quotations from the primary market in which
they are traded and the actual price realized from the sale of a
security may differ materially from the fair value price. Valuing these
securities at fair value is intended to cause the Fund's NAV to be more
reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any restrictions
on disposition of the securities, and an evaluation of the forces that
influenced the market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments
is based upon the transparency of inputs to the valuation
================================================================================
40 | USAA FIRST START GROWTH FUND
================================================================================
of an asset or liability as of the measurement date. The three levels are
defined as follows:
Level 1 -- inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices. Level 2 securities
include certain preferred stocks, which are valued based on methods
discussed in Note 1A1, and all bonds, except U.S. Treasuries, which are
valued based on methods discussed in Note 1A5.
Level 3 -- inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
For the securities valued using significant unobservable inputs, market
quotations were not available from the pricing services. As such, the
securities were valued in good faith using methods determined by the
Manager, under valuation procedures approved by the Board. The valuation of
some securities falling in the Level 3 category are primarily supported by
discounted prior tender offers or quoted prices obtained from
broker-dealers participating in the market for these securities. However,
these securities are included in the Level 3 category due to limited market
transparency and or a lack of corroboration to support the quoted prices.
Refer to the portfolio of investments for a reconciliation of investments
in which significant unobservable inputs (Level 3) were used in determining
value.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
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. The
Fund's derivative agreements held during the six-month period ended January
31, 2014, did not include master netting provisions.
OPTIONS TRANSACTIONS -- The Fund is subject to equity price risk in the
normal course of pursuing its investment objectives. The Fund may use
options on underlying instruments, namely, equity securities, ETFs, and
equity indexes, to gain exposure to, or hedge against, changes in the value
of equity securities, ETFs, or equity indexes. A call option gives the
purchaser the right to buy, and the writer the obligation to sell, the
underlying instrument at a specified price during a specified period.
Conversely, a put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying instrument at a specified
price during a specified period. The purchaser of the option pays a premium
to the writer of the option.
Premiums paid for purchased options are included in the Fund's statement of
assets and liabilities as an investment. If a purchased option expires
unexercised, the premium paid is recognized as a realized loss. If a
purchased call option on a security is exercised, the cost of the security
acquired includes the exercise price and the premium paid. If a purchased
put option on a security is exercised,
================================================================================
42 | USAA FIRST START GROWTH FUND
================================================================================
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 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED JANUARY 31, 2014 (IN THOUSANDS)
CHANGE IN NET
DERIVATIVES UNREALIZED
NOT ACCOUNTED STATEMENT OF APPRECIATION
FOR AS HEDGING OPERATIONS REALIZED LOSS (DEPRECIATION)
INSTRUMENTS LOCATION ON DERIVATIVES ON DERIVATIVES
------------------------------------------------------------------------------
Equity contracts Net realized loss $(1,243) $178
on options
transactions / Change
in net unrealized
appreciation/
depreciation
of options
------------------------------------------------------------------------------
D. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its income to its shareholders.
Therefore, no federal income tax provision is required.
E. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the
ex-dividend date. If the ex-dividend date has passed, certain dividends
from foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Discounts and premiums are amortized
over the life of the respective securities, using the effective yield
method for long-term securities and the straight-line method for short-term
securities.
F. FOREIGN CURRENCY TRANSLATIONS -- The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
================================================================================
44 | USAA FIRST START GROWTH FUND
================================================================================
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received.
At the end of the Fund's fiscal year, these net realized foreign currency
gains/losses are reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the statement of assets
and liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS -- Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the
extent that the Fund makes such purchases while remaining substantially
fully invested. As of January 31, 2014, the Fund's outstanding
delayed-delivery commitments, including interest purchased, were $1,000,000;
all of which were when-issued securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
H. EXPENSES PAID INDIRECTLY -- A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition,
through arrangements with the Fund's custodian and other banks utilized by
the Fund for cash management purposes, realized credits, if any, generated
from cash balances in the Fund's bank accounts may be used to directly
reduce the Fund's expenses. For the six-month period ended January 31,
2014, the Fund did not receive any brokerage commission recapture credits.
For the six-month period ended January 31, 2014, there were no custodian
and other bank credits.
I. INDEMNIFICATIONS -- Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
J. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
================================================================================
46 | USAA FIRST START GROWTH FUND
================================================================================
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 7.0 basis points of the amount of the committed loan
agreement. The facility fees are allocated among the Funds based on their
respective average net assets for the period.
For the six-month period ended January 31, 2014, the Fund paid CAPCO facility
fees of $1,000, which represents 0.5% 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 January 31, 2014.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year end of July 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 July 31, 2013, the Fund had no pre-enactment or post-enactment capital loss
carryforwards, for federal income tax purposes.
For the six-month period ended January 31, 2014, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis the Manager will monitor its tax positions to determine if
adjustments to this conclusion are necessary. The statute of limitations on the
Fund's tax return filings generally remain open for the three
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
preceding fiscal reporting year ends and remain subject to examination by the
Internal Revenue Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2014, were
$96,928,000 and $89,944,000, respectively.
As of January 31, 2014, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
Gross unrealized appreciation and depreciation of investments as of January 31,
2014, were $40,207,000 and $5,949,000, respectively, resulting in net unrealized
appreciation of $34,258,000.
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund
and for directly managing the day-to-day investment of a portion of the
Fund's assets, subject to the authority of and supervision by the Board.
The Manager is authorized to select (with approval of the Board and without
shareholder approval) one or more subadvisers to manage the actual
day-to-day investment of a portion of the Fund's assets.
The Manager monitors each subadviser's performance through quantitative and
qualitative analysis, and periodically reports to the Board as to whether
each subadviser's agreement should be renewed, terminated, or modified. The
Manager also is responsible for allocating assets to the subadviser(s). The
allocation for each subadviser(s) could range from 0% to 100% of the Fund's
assets, and the Manager could change the allocations without shareholder
approval.
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued
================================================================================
48 | USAA FIRST START GROWTH FUND
================================================================================
daily and paid monthly at an annualized rate of 0.75% of the Fund's average
net assets for the fiscal year.
The performance adjustment is calculated monthly by comparing the Fund's
performance to that of the Lipper Flexible Portfolio Funds Index over the
performance period. The Lipper Flexible Portfolio Funds Index tracks the
total return performance of the 30 largest funds in the Lipper Flexible
Portfolio Funds category. The performance period for the Fund consists of
the current month plus the previous 35 months. The following table is
utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1)
--------------------------------------------------------------------------------
+/- 1.00% to 4.00% +/- 0.04%
+/- 4.01% to 7.00% +/- 0.05%
+/- 7.01% and greater +/- 0.06%
(1)Based on the difference between average annual performance of the Fund
and its relevant index, rounded to the nearest 0.01%. Average net assets
are calculated over a rolling 36-month period.
The annual performance adjustment rate is multiplied by the average net
assets of the Fund over the entire performance period, which is then
multiplied by a fraction, the numerator of which is the number of days in
the month and the denominator of which is 365 (366 in leap years). The
resulting amount is then added to (in the case of overperformance) or
subtracted from (in the case of underperformance) the base fee.
Under the performance fee arrangement, the Fund will pay a positive
performance fee adjustment for a performance period whenever the Fund
outperforms the Lipper Flexible Portfolio Funds Index over that period,
even if the Fund had overall negative returns during the performance period.
For the six-month period ended January 31, 2014, the Fund incurred total
management fees, paid or payable to the Manager, of $1,096,000, which
included no performance adjustment.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
B. SUBADVISORY ARRANGEMENT(S) -- The Manager has entered into an investment
subadvisory agreement with Quantitative Management Associates LLC (QMA),
under which QMA directs the investment and reinvestment of a portion of the
Fund's assets invested in domestic stocks (as allocated from time to time
by the Manager).
The Manager (not the Fund) pays QMA a subadvisory fee in the annual amount
of 0.20% on the first $250 million, and 0.15% on assets over $250 million
of the portion of the Fund's average net assets that QMA manages. For the
six-month period ended January 31, 2014, the Manager incurred subadvisory
fees, paid or payable to QMA, of $147,000.
C. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of the Fund's average net assets. For the six-month period ended
January 31, 2014, the Fund incurred administration and servicing fees, paid
or payable to the Manager, of $219,000.
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 six-month period ended January 31, 2014, the Fund reimbursed the
Manager $4,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's statement of operations.
D. EXPENSE LIMITATION -- The Manager has agreed, through December 1, 2014, to
limit the total annual operating expenses of the Fund to 1.38% of its
average net assets, excluding extraordinary expenses and before reductions
of any expenses paid indirectly, and will reimburse the Fund for all
expenses in excess of that amount. This expense limitation arrangement may
not be changed or terminated through December 1, 2014, without approval of
the Board, and may be changed
================================================================================
50 | USAA FIRST START GROWTH FUND
================================================================================
or terminated by the Manager at any time after that date. For the six-
month period ended January 31, 2014, the Fund incurred reimbursable
expenses of $559,000, of which $95,000 was receivable from the Manager.
E. TRANSFER AGENT'S FEES -- USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund based on an annual charge of $23 per
shareholder account plus out-of-pocket expenses. SAS pays a portion of
these fees to certain intermediaries for the administration and servicing
of accounts that are held with such intermediaries. For the six-month
period ended January 31, 2014, the Fund incurred transfer agent's fees,
paid or payable to SAS, of $1,040,000.
F. UNDERWRITING SERVICES -- USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a
continuing best-efforts basis and receives no commissions or fees for this
service.
(6) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------
2014 2013 2012 2011 2010 2009
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.56 $ 10.87 $ 11.15 $ 9.73 $ 8.45 $ 9.66
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .09 .23 .24 .21 .30 .28
Net realized and
unrealized gain(loss) .44 1.69 (.28) 1.46 1.30 (1.24)
----------------------------------------------------------------------------------------
Total from investment
operations .53 1.92 (.04) 1.67 1.60 (.96)
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.23) (.23) (.24) (.25) (.32) (.25)
Realized capital gains (.12) - - - - -
----------------------------------------------------------------------------------------
Total distributions (.35) (.23) (.24) (.25) (.32) (.25)
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 12.74 $ 12.56 $ 10.87 $ 11.15 $ 9.73 $ 8.45
========================================================================================
Total return (%)* 4.15 17.90 (.20) 17.32 19.00 (9.39)
Net assets at
end of period (000) $300,223 $278,214 $222,427 $226,948 $200,296 $172,415
Ratios to average
net assets:**
Expenses (%)(a) 1.38(b) 1.38 1.38 1.38 1.38 1.38
Expenses, excluding
reimbursements (%)(a) 1.76(b) 1.79 1.90 1.91 2.14 2.67
Net investment
income (%) 1.38(b) 2.01 2.26 1.95 3.11 3.62
Portfolio turnover (%) 32 70 85(c) 133(c) 188(c) 216(d)
* 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 January 31, 2014, average net assets were $289,981,000.
(a) Reflects total operating expenses of the Fund before reductions of any expenses paid indirectly. The Fund's expenses
paid indirectly decreased the expense ratios as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+)Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of operations.
(c) Reflects decreased trading activity due to changes in subadviser(s) and asset allocation strategies.
(d) Reflects increased trading activity due to asset allocation changes.
================================================================================
52 | USAA FIRST START GROWTH FUND
================================================================================
EXPENSE EXAMPLE
January 31, 2014 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2013, through
January 31, 2014.
ACTUAL EXPENSES
The first line of the table on the next page provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested at the beginning of the period, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual
================================================================================
EXPENSE EXAMPLE | 53
================================================================================
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 AUGUST 1, 2013 -
AUGUST 1, 2013 JANUARY 31, 2014 JANUARY 31, 2014
------------------------------------------------------------------
Actual $1,000.00 $1,041.50 $7.10
Hypothetical
(5% return before expenses) 1,000.00 1,018.25 7.02
* Expenses are equal to the Fund's annualized expense ratio of 1.38%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 184 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 4.15% for the
six-month period of August 1, 2013, through January 31, 2014.
================================================================================
54 | USAA FIRST START GROWTH FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
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 your mutual fund
AT USAA.COM account and either click the link or
select `I want to...' and select
OR CALL the desired action.
(800) 531-USAA
(8722)
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) in summary within the Statement of Additional Information on the SEC's
website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's
website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
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31703-0314 (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 January 31, 2014
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 3/31/2014
------------------------------
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: 3/31/2014
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 3/31/2014
------------------------------
*Print the name and title of each signing officer under his or her signature.