UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: DANIEL J. MAVICO
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: MAY 31
Date of reporting period: NOVEMBER 30, 2014
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED NOVEMBER 30, 2014
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE MODERATE FUND]
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SEMIANNUAL REPORT
USAA CORNERSTONE MODERATE FUND
NOVEMBER 30, 2014
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PRESIDENT'S MESSAGE
"...[A] KEY DETERMINANT OF INVESTMENT
SUCCESS IS THE ABILITY TO DEAL WITH OUR [PHOTO OF BROOKS ENGLEHARDT]
EMOTIONAL REACTIONS."
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JANUARY 2015
The reporting period was perilous for those who believe they can gauge - and
trade - the direction of the financial markets. When the period began in June of
last year, many observers believed that longer-term interest rates could not get
any lower. In fact, they continued to trend down as the Federal Reserve (the
Fed) gradually tapered (or reduced), and eventually, ended its quantitative
easing (QE) bond-buying program. The yield on a 10-year U.S. Treasury, which
began the period at 2.48%, ended it at 2.17%. As yields fell, bond prices rose
(bond prices and yields move in opposite directions), with longer-term and
intermediate-term U.S. Treasuries generating the highest bond-market returns for
the reporting period overall. U.S. large-cap stocks performed even better than
U.S. Treasuries. After dipping sharply in the first two weeks of October,
large-cap stocks rallied and finished the period with a solid gain.
The performance of other asset classes was quite different. During the reporting
period, investors generally sold off European stocks, which ended the period in
negative territory. Japanese equities notched a gain, but they underperformed
versus the broad U.S. stock market. U.S. small-cap stocks declined for most of
the period, rebounding during the final weeks to eke out a small positive
return. Within fixed-income securities, high-yield spreads (or yield
differentials versus risk-free U.S. Treasuries of comparable maturity) widened,
suggesting investors were growing concerned about corporate fundamentals amid
weaker global economic growth.
Indeed, while the U.S. economy continued to strengthen during the reporting
period, other economies did not fare well. Europe's economic growth slowed,
Japan struggled to jumpstart its declining economy, and the former engine of
global growth - China - weakened. The monetary policies of global central banks
reflected the divergence between those economies and our own. As the Fed was
ending its QE program, other central banks were easing monetary policy further,
pushing down interest rates around the world. At the same time, inflation
pressures eased as oil prices fell by nearly a third during the reporting period
and natural gas,
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copper, and agricultural commodity prices also declined. Gold prices, however,
held up relatively well in comparison, falling only modestly.
Few could have foreseen this investment landscape when the reporting period
started. Despite what some experts say, no one can be sure exactly what will
happen in the financial markets. I suspect those who tried to time the markets
were surprised by the performance of certain asset classes. Under the
circumstances, if you decided to adhere to your long-term investment plan, you
have every reason to congratulate yourself. This is all the more true when you
consider the dramatic headlines that dominated the period, including Russia's
involvement in the Ukraine, the Ebola crisis, and the uncertainty in the Middle
East. In my opinion, a key determinant of investment success is the ability to
deal with our emotional reactions. We believe investors should strive to ignore
media noise and focus instead on relevant information, such as the direction of
interest rates and the condition of the U.S. economy, which can provide them
with the perspective they need to manage their investments. In this respect, a
long-term plan can be extremely useful.
That said, as we look ahead to 2015, it may be a good time to review your
investment plan and make sure it still suits your goals, risk tolerance, and
time horizon. You also may want to rebalance your portfolio. Regular rebalancing
can potentially help you protect your gains and prepare for what happens next.
If you would like some help, please call one of our financial advisors. They
would be happy to assist you.
At USAA Investments, we remain committed to providing you with our best advice,
top-notch service and a wide variety of investment choices. Rest assured we will
continue monitoring global economic trends, central bank monetary policy, and
other factors that potentially could affect your investments. From all of us
here, I would like to thank you for the opportunity to serve your investment
needs.
Sincerely,
/S/ BROOKS ENGLEHART
Brooks Englehardt
President
USAA Investments
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 Emerging market countries are less diverse and mature than other countries and
tend to be politically less stable. o Precious metals and minerals is a volatile
asset class and is subject to additional risks, such as currency fluctuation,
market illiquidity, political instability, and increased price volatility. It
may be more volatile than other asset classes that diversify across many
industries and companies. o Investments provided by USAA Investment Management
Company and USAA Financial Advisors Inc., both registered broker dealers.
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 29
Financial Statements 33
Notes to Financial Statements 36
EXPENSE EXAMPLE 52
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)2015, USAA. All rights reserved.
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FUND OBJECTIVE
THE USAA CORNERSTONE MODERATE FUND (THE FUND) SEEKS HIGH TOTAL RETURN.
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TYPES OF INVESTMENTS
The Fund invests in equity securities, bonds, money market instruments and other
instruments. The Fund will have a target asset class allocation of approximately
50% equity securities and 50% fixed-income securities. The actual asset class
allocation can deviate from time to time from these targets as market conditions
warrant. The implementation of the asset allocation may involve the extensive
use of equity and fixed-income exchange-traded funds (ETFs). The Fund may invest
in investment-grade and below-investment-grade securities.
The Fund also may use alternative investment strategies from time to time, in an
attempt to reduce the Fund's volatility over time and enhance the Fund's return
and diversification.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Asset Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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FUND OBJECTIVE | 1
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MANAGERS' COMMENTARY ON THE FUND
USAA Asset Management Company
JOHN P. TOOHEY, CFA ARNOLD J. ESPE, CFA
WASIF A. LATIF DAN DENBOW, CFA
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o HOW DID THE GLOBAL FINANCIAL MARKETS PERFORM DURING THE REPORTING PERIOD?
The U.S. stock market performed very well during the period, with large-cap
companies leading the way. The United States is one of the fastest-growing
developed world economies, and large-cap companies generally feature strong
balance sheets, above-average dividend yields and stable business lines.
Large-cap stocks were, therefore, seen as being a relatively good option at
a time of slower growth overseas, helping the S&P 500(R) Index to finish the
period close to its all-time high. Small-cap stocks, while positive, lagged
large-cap stocks somewhat due to their weak showing during September and
the first half of October. In contrast to the U.S. market, international
equities as a group closed the period with a negative return. While a large
portion of the decline resulted from the falling value of overseas
currencies relative to the U.S. dollar, the asset class was also hurt by
signs of weak growth in both Europe and Japan. Emerging market equities
also lost ground, reflecting concerns about the outlook for the world
economy and the potential impact of falling commodity prices.
The U.S. investment-grade bond market was helped by modest economic growth,
low inflation, and the growing expectation that the Federal Reserve will
not be compelled to raise interest rates until late in 2015. Yields on U.S.
Treasury bonds fell, as prices rose, and these gains carried through to the
rest of the market. While investment-grade bonds performed well,
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2 | USAA CORNERSTONE MODERATE FUND
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high-yield bonds as a group experienced negative returns during the
six-month period. The asset class was hurt by the unfavorable combination
of investors exiting the asset class generally and an elevated supply of
high-yield bond issues in the early autumn. Later in the period, the sharp
downturn in the price of oil weighed on the performance of bonds issued by
energy companies, which are heavily represented in the high-yield market.
o HOW DID THE USAA CORNERSTONE MODERATE FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the six-month reporting period ended November 30, 2014, the Fund had a
total return of 1.38%. This compares to returns of 7.89% for the Russell
3000(R) Index, 1.91% for the Barclays U.S. Aggregate Bond Index, and 3.67%
for the Lipper Balanced Funds Index.
USAA Asset Management Company is the Fund's investment adviser. The
investment adviser provides day-to-day discretionary management for the
Fund's assets.
o PLEASE DISCUSS THE FACTORS THAT HELPED AND HURT PERFORMANCE.
The strong showing of our investment-grade bond portfolio was the largest
positive factor in the Fund's six-month results. We added the most value
through individual security selection in the corporate bond and commercial
mortgage-backed sectors, where our bottom-up, research-driven approach
worked very well. We maintained our long-standing approach of keeping the
portfolio's duration (or interest-rate sensitivity) below that of the
Barclays U.S. Aggregate Bond Index, while looking for compelling
risk-return opportunities in the higher-yielding segments of the
investment-grade market. This approach has worked well not just in the past
six months, but over the long term as well.
The Fund's domestic equity allocation also delivered a positive return and
made an important contribution to performance. Strong stock selection,
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
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MANAGERS' COMMENTARY ON THE FUND | 3
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particularly in the information technology, consumer discretionary, and
health care sectors, was the key driver of performance in the Fund's
domestic equity segment. Our performance also was helped by our tilt toward
large-cap stocks and away from small-cap stocks. We have held this
positioning for several quarters on the belief that small-cap stocks'
elevated valuations signal the potential for below-average returns over a
three-to-five year interval. This positioning, while a headwind to Fund
returns earlier in the year, began to pay off during the past six months.
In our view, this helps illustrate the potential benefit of taking a
long-term view and using valuation as one of the key pillars of our
allocation decisions.
The Fund's international allocation, which holds stocks that are invested
in both the developed and emerging markets overseas, was a key detractor
from our six-month results given the negative returns of these market
segments. Nevertheless, we believe the international markets represent a
compelling opportunity at a time in which U.S. equities are trading above
longer-term averages based on many valuation metrics.
Our allocation to gold and gold-related equities also detracted from
performance. U.S. dollar strength tends to weigh on the sector by making
gold more expensive for non-U.S. buyers, which in turn dampens demand.
While this led to a negative return for the Fund's precious metals
allocation during the past six months, it's important to keep in mind that
we don't own gold with the goal of boosting short-term performance.
Instead, this segment of the portfolio is intended to provide
diversification, longer-term inflation protection, and a hedge against
central bank policy errors.
The Fund also holds an allocation to high-yield bonds. This position was a
strong, positive contributor to performance through the first half of 2014,
and it has made a favorable contribution over the trailing one-, three-,
and five-year periods as well. In contrast, the more recent weakness in
high-yield bonds caused this allocation to detract from performance during
the past six months. From a longer-term standpoint, however, we believe the
asset class remains supported by the environment of moderate economic
growth, low defaults, and the steady credit outlook for high-yield companies.
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4 | USAA CORNERSTONE MODERATE FUND
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The Fund's hedging strategy - which is designed to help cushion the impact
of large stock market sell-offs - had a neutral impact on overall
performance, but it helped dampen the effect of elevated market volatility
during September and the first half of October. We continue to view the
hedging strategy as a way to protect against the potential for unexpected
volatility in the global equity markets.
We continue to use our diversified, global approach to identify asset
classes that offer the combination of strong fundamentals and attractive
valuations, while tilting away from those that no longer offer a compelling
risk-return profile. We expect this long-term, value-driven methodology
will be critical to generating outperformance if the investment backdrop
becomes more challenging in the year ahead.
Thank you for your investment in the Fund.
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 Foreign investing is subject to additional risks, such
as currency fluctuations, market illiquidity, and political instability.
Emerging market countries are less diverse and mature than other countries
and tend to be politically less stable. o Precious metals and minerals is a
volatile asset class and is subject to additional risks, such as currency
fluctuation, market illiquidity, political instability, and increased price
volatility. It may be more volatile than other asset classes that diversify
across many industries and companies. o Non-investment grade securities are
considered speculative and are subject to significant credit risk. They are
sometimes referred to as "junk" bonds since they represent a greater risk
of default than more creditworthy investment-grade securities.
o Diversification is a technique intended to help reduce risk and does not
guarantee a profit or prevent a loss.
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MANAGERS' COMMENTARY ON THE FUND | 5
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INVESTMENT OVERVIEW
USAA CORNERSTONE MODERATE FUND (THE FUND) (Ticker Symbol: USBSX)
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11/30/14 5/31/14
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Net Assets $1.1 Billion $1.1 Billion
Net Asset Value Per Share $15.47 $15.46
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AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/14
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5/31/14 - 11/30/14* 1 YEAR 5 YEARS 10 YEARS
1.38% 6.56% 8.31% 4.82%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/14
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1 YEAR 5 YEARS 10 YEARS
4.52% 7.63% 4.42%
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EXPENSE RATIOS AS OF 5/31/14**
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BEFORE REIMBURSEMENT 1.33% AFTER REIMBURSEMENT 1.11%
(includes acquired fund fees and expenses of 0.11%)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**The expense ratios represent the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Funds' prospectus dated October 1, 2014, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through October 1, 2015, 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 1.00% 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 October 1, 2015. 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, if any. 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 (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
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6 | USAA CORNERSTONE MODERATE FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
RUSSELL 3000 LIPPER BALANCED USAA CORNERSTONE BARCLAYS U.S. AGGREGATE
INDEX FUNDS INDEX MODERATE FUND BOND INDEX
11/30/04 $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/31/04 10,356.32 10,249.62 10,279.05 10,092.01
01/31/05 10,080.48 10,117.59 10,139.34 10,155.38
02/28/05 10,302.38 10,260.73 10,245.79 10,095.43
03/31/05 10,128.13 10,119.45 10,121.15 10,043.58
04/30/05 9,908.08 9,997.85 10,020.94 10,179.51
05/31/05 10,283.51 10,227.11 10,294.85 10,289.64
06/30/05 10,355.35 10,300.60 10,346.09 10,345.75
07/31/05 10,780.17 10,529.50 10,587.63 10,251.57
08/31/05 10,677.41 10,559.96 10,627.89 10,382.99
09/30/05 10,770.82 10,601.82 10,634.22 10,276.03
10/31/05 10,569.10 10,435.36 10,418.57 10,194.71
11/30/05 10,980.24 10,688.70 10,667.91 10,239.80
12/31/05 10,990.09 10,782.33 10,726.58 10,337.15
01/31/06 11,357.28 11,039.71 10,911.15 10,337.73
02/28/06 11,377.47 11,025.90 10,882.76 10,372.05
03/31/06 11,574.14 11,133.26 10,918.79 10,270.27
04/30/06 11,699.71 11,254.65 10,983.06 10,251.65
05/31/06 11,325.13 11,031.50 10,690.28 10,240.71
06/30/06 11,345.17 11,024.90 10,709.48 10,262.42
07/31/06 11,334.54 11,076.36 10,680.72 10,401.19
08/31/06 11,611.82 11,289.38 10,824.48 10,560.42
09/30/06 11,871.75 11,452.13 11,049.41 10,653.18
10/31/06 12,299.10 11,718.92 11,266.20 10,723.65
11/30/06 12,566.71 11,944.66 11,439.64 10,848.06
12/31/06 12,717.21 12,033.00 11,517.04 10,785.10
01/31/07 12,959.27 12,162.77 11,695.05 10,780.68
02/28/07 12,746.68 12,116.35 11,640.87 10,946.91
03/31/07 12,879.35 12,220.31 11,711.48 10,947.25
04/30/07 13,393.84 12,571.78 12,007.18 11,006.28
05/31/07 13,881.94 12,841.91 12,217.29 10,922.87
06/30/07 13,621.96 12,721.92 12,095.89 10,890.56
07/31/07 13,157.41 12,505.06 11,822.05 10,981.40
08/31/07 13,346.28 12,606.14 11,931.59 11,115.99
09/30/07 13,832.84 12,962.29 12,217.34 11,200.32
10/31/07 14,086.60 13,190.23 12,429.74 11,300.93
11/30/07 13,452.43 12,881.00 12,044.26 11,504.16
12/31/07 13,371.03 12,818.43 11,943.69 11,536.47
01/31/08 12,560.59 12,394.67 11,576.96 11,730.26
02/29/08 12,170.46 12,233.40 11,360.26 11,746.54
03/31/08 12,098.36 12,139.91 11,221.85 11,786.62
04/30/08 12,703.38 12,542.39 11,523.78 11,761.99
05/31/08 12,963.63 12,680.93 11,750.23 11,675.74
06/30/08 11,893.86 12,010.51 11,090.88 11,666.31
07/31/08 11,799.00 11,858.41 10,896.45 11,656.79
08/31/08 11,982.25 11,903.50 10,930.27 11,767.42
09/30/08 10,855.63 11,004.17 9,992.13 11,609.36
10/31/08 8,930.28 9,593.84 8,484.37 11,335.33
11/30/08 8,225.33 9,156.78 7,922.15 11,704.30
12/31/08 8,382.68 9,463.18 8,066.85 12,140.97
01/31/09 7,679.20 9,025.13 7,601.45 12,033.85
02/28/09 6,874.77 8,441.36 6,972.31 11,988.43
03/31/09 7,476.95 8,910.85 7,331.03 12,155.08
04/30/09 8,263.78 9,524.65 7,968.14 12,213.20
05/31/09 8,704.71 10,002.4 88,788.51 12,301.78
06/30/09 8,734.37 10,026.3 79,012.04 12,371.75
07/31/09 9,414.22 10,628.8 09,515.66 12,571.31
08/31/09 9,750.60 10,913.2 49,877.91 12,701.47
09/30/09 10,159.12 11,262.19 10,407.93 12,834.90
10/31/09 9,897.83 11,130.5 110,434.71 12,898.27
11/30/09 10,460.26 11,544.86 10,747.13 13,065.26
12/31/09 10,758.35 11,673.07 10,973.49 12,861.03
01/31/10 10,370.53 11,473.44 10,910.37 13,057.49
02/28/10 10,722.11 11,677.51 11,108.74 13,106.25
03/31/10 11,397.89 12,121.63 11,530.73 13,090.14
04/30/10 11,643.87 12,270.40 11,730.63 13,226.40
05/31/10 10,724.03 11,642.98 11,140.01 13,337.70
06/30/10 10,107.53 11,363.01 10,857.76 13,546.86
07/31/10 10,809.22 11,914.27 11,353.39 13,691.39
08/31/10 10,300.40 11,658.02 11,142.29 13,867.56
09/30/10 11,272.93 12,318.85 11,778.27 13,882.34
10/31/10 11,713.44 12,631.56 12,083.12 13,931.77
11/30/10 11,781.06 12,564.15 12,027.70 13,851.70
12/31/10 12,579.69 13,062.20 12,456.01 13,702.32
01/31/11 12,854.45 13,245.43 12,660.97 13,718.27
02/28/11 13,322.46 13,541.36 12,996.36 13,752.59
03/31/11 13,382.55 13,571.09 13,100.37 13,760.19
04/30/11 13,780.88 13,932.48 13,465.83 13,934.86
05/31/11 13,623.64 13,840.50 13,390.86 14,116.71
06/30/11 13,378.97 13,671.69 13,220.32 14,075.38
07/31/11 13,072.59 13,567.12 13,031.45 14,298.73
08/31/11 12,288.30 13,055.90 12,351.55 14,507.63
09/30/11 11,334.78 12,356.13 11,664.96 14,613.17
10/31/11 12,639.33 13,215.93 12,349.46 14,628.87
11/30/11 12,605.17 13,118.27 12,273.40 14,616.17
12/31/11 12,708.78 13,158.83 12,299.91 14,776.82
01/31/12 13,350.10 13,652.19 12,684.28 14,906.57
02/29/12 13,914.85 14,043.45 13,030.21 14,903.15
03/31/12 14,344.08 14,195.25 13,149.42 14,821.49
04/30/12 14,250.00 14,182.04 13,120.44 14,985.80
05/31/12 13,369.08 13,569.37 12,627.69 15,121.40
06/30/12 13,892.69 13,914.18 12,896.88 15,127.33
07/31/12 14,030.29 14,081.68 13,033.35 15,335.98
08/31/12 14,380.46 14,303.05 13,238.07 15,346.00
09/30/12 14,758.09 14,552.45 13,469.16 15,367.13
10/31/12 14,503.54 14,479.40 13,518.21 15,397.35
11/30/12 14,615.85 14,581.68 13,586.88 15,421.65
12/31/12 14,794.97 14,730.35 13,758.41 15,399.69
01/31/13 15,606.78 15,149.80 14,085.05 15,291.98
02/28/13 15,813.61 15,226.58 14,094.95 15,368.63
03/31/13 16,433.29 15,525.31 14,277.12 15,380.90
04/30/13 16,702.28 15,743.36 14,505.95 15,536.54
05/31/13 17,096.30 15,798.73 14,426.36 15,259.33
06/30/13 16,874.55 15,542.56 14,066.09 15,023.29
07/31/13 17,799.42 16,061.32 14,426.25 15,043.83
08/31/13 17,302.53 15,780.57 14,246.17 14,966.94
09/30/13 17,945.77 16,254.94 14,547.90 15,108.63
10/31/13 18,708.07 16,692.47 14,941.36 15,230.78
11/30/13 19,250.99 16,929.00 15,032.16 15,173.75
12/31/13 19,758.89 17,145.02 15,164.79 15,088.00
01/31/14 19,134.63 16,886.59 14,981.83 15,310.93
02/28/14 20,042.30 17,419.33 15,398.56 15,392.34
03/31/14 20,148.68 17,456.78 15,462.99 15,366.12
04/30/14 20,173.13 17,525.07 15,595.85 15,495.79
05/31/14 20,613.33 17,815.41 15,800.25 15,672.21
06/30/14 21,130.36 18,067.61 16,031.29 15,680.31
07/31/14 20,713.51 17,851.91 15,887.05 15,640.99
08/31/14 21,582.54 18,286.12 16,103.41 15,813.65
09/30/14 21,132.66 17,964.49 15,780.41 15,706.28
10/31/14 21,714.08 18,214.34 15,873.60 15,860.66
11/30/14 22,240.30 18,468.84 16,018.57 15,971.46
[END CHART]
Data from 11/30/04 to 11/30/14.
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
indexes does not reflect the deduction of any fees, expenses, or taxes.
================================================================================
INVESTMENT OVERVIEW | 7
================================================================================
The graph on page 7 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Cornerstone Moderate 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 Balanced Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Balanced 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 CORNERSTONE MODERATE FUND
================================================================================
o TOP 10 HOLDINGS* - 11/30/14 o
(% of Net Assets)
iShares MSCI EAFE ETF** .......................................... 6.7%
U.S. Treasury Bond, 3.13%, 8/15/2044 ............................. 4.6%
iShares Core MSCI EAFE ETF** ..................................... 4.3%
iShares Core MSCI Emerging Markets ETF** ......................... 4.2%
iShares Core S&P 500 ETF** ....................................... 3.8%
iShares MSCI Germany ETF** ....................................... 3.6%
U.S. Treasury Note, 1.75%, 5/15/2022 ............................. 2.8%
iShares Core S&P Mid-Cap ETF** ................................... 2.7%
Vanguard Mid-Cap ETF** ........................................... 1.2%
iShares 7-10 Year Treasury Bond ETF** ............................ 0.8%
* Excludes money market instruments.
** The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940, as amended, that would otherwise be
applicable.
You will find a complete list of securities that the Fund owns on pages 11-28.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o ASSET ALLOCATION** - 11/30/14 o
[PIE CHART OF ASSET ALLOCATION]
U.S. EQUITY SECURITIES* 30.3%
INTERNATIONAL EQUITY SECURITIES* 22.4%
CORPORATE OBLIGATIONS 17.6%
U.S. TREASURY SECURITIES 9.1%
COMMERCIAL MORTGAGE SECURITIES 8.7%
EURODOLLAR AND YANKEE OBLIGATIONS 6.5%
MONEY MARKET INSTRUMENTS 2.9%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES* 1.6%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.3%
ASSET-BACKED SECURITIES 0.2%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
* The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
** Excludes options.
================================================================================
10 | USAA CORNERSTONE MODERATE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2014 (unaudited)
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES (30.3%)
COMMON STOCKS (19.2%)
CONSUMER DISCRETIONARY (2.5%)
-----------------------------
ADVERTISING (0.2%)
24,400 Omnicom Group, Inc. $ 1,885
---------
AUTO PARTS & EQUIPMENT (0.6%)
59,000 Johnson Controls, Inc. 2,950
30,000 Magna International, Inc. 3,230
---------
6,180
---------
AUTOMOBILE MANUFACTURERS (0.2%)
125,000 Ford Motor Co. 1,966
---------
CABLE & SATELLITE (0.3%)
57,120 Comcast Corp. "A" 3,258
---------
CASINOS & GAMING (0.1%)
62,300 MGM Resorts International* 1,421
---------
DEPARTMENT STORES (0.1%)
20,100 Kohl's Corp. 1,198
---------
GENERAL MERCHANDISE STORES (0.1%)
19,300 Dollar General Corp.* 1,288
---------
HOME IMPROVEMENT RETAIL (0.2%)
18,800 Home Depot, Inc. 1,869
---------
HOTELS, RESORTS & CRUISE LINES (0.3%)
57,300 Carnival Corp. 2,531
15,000 Royal Caribbean Cruises Ltd. 1,106
---------
3,637
---------
SPECIALIZED CONSUMER SERVICES (0.2%)
69,200 H&R Block, Inc. 2,328
---------
SPECIALTY STORES (0.2%)
19,664 Signet Jewelers Ltd. 2,575
---------
Total Consumer Discretionary 27,605
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
CONSUMER STAPLES (1.1%)
-----------------------
DRUG RETAIL (0.9%)
60,030 CVS Health Corp. $ 5,484
68,300 Walgreen Co. 4,686
---------
10,170
---------
FOOD DISTRIBUTORS (0.1%)
25,000 Sysco Corp. 1,007
---------
HOUSEHOLD PRODUCTS (0.1%)
15,100 Procter & Gamble Co. 1,365
---------
Total Consumer Staples 12,542
---------
ENERGY (1.9%)
-------------
INTEGRATED OIL & GAS (0.6%)
9,330 Chevron Corp. 1,016
70,170 Occidental Petroleum Corp. 5,597
---------
6,613
---------
OIL & GAS DRILLING (0.1%)
40,700 Transocean Ltd. 855
---------
OIL & GAS EQUIPMENT & SERVICES (0.8%)
115,440 Halliburton Co. 4,872
50,000 Schlumberger Ltd. 4,297
---------
9,169
---------
OIL & GAS EXPLORATION & PRODUCTION (0.4%)
21,300 Anadarko Petroleum Corp. 1,686
86,500 Marathon Oil Corp. 2,502
---------
4,188
---------
Total Energy 20,825
---------
FINANCIALS (3.3%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.1%)
9,000 Ameriprise Financial, Inc. 1,186
---------
CONSUMER FINANCE (0.4%)
60,000 Capital One Financial Corp. 4,992
---------
DIVERSIFIED BANKS (1.4%)
165,000 Bank of America Corp. 2,812
70,833 Citigroup, Inc. 3,823
99,400 JPMorgan Chase & Co. 5,980
57,940 Wells Fargo & Co. 3,156
---------
15,771
---------
================================================================================
12 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE (0.1%)
33,800 Morgan Stanley $ 1,189
---------
LIFE & HEALTH INSURANCE (0.3%)
54,500 MetLife, Inc. 3,031
---------
MULTI-LINE INSURANCE (0.1%)
19,300 American International Group, Inc. 1,058
---------
REGIONAL BANKS (0.6%)
30,830 CIT Group, Inc. 1,505
267,000 KeyCorp 3,604
18,200 PNC Financial Services Group, Inc. 1,592
---------
6,701
---------
SPECIALIZED FINANCE (0.3%)
15,450 Intercontinental Exchange, Inc. 3,491
---------
Total Financials 37,419
---------
HEALTH CARE (2.8%)
------------------
BIOTECHNOLOGY (0.9%)
11,500 Amgen, Inc. 1,901
78,800 Gilead Sciences, Inc.* 7,905
---------
9,806
---------
HEALTH CARE DISTRIBUTORS (0.2%)
31,800 Cardinal Health, Inc. 2,614
---------
HEALTH CARE EQUIPMENT (0.3%)
47,300 Medtronic, Inc. 3,494
---------
PHARMACEUTICALS (1.4%)
121,750 AbbVie, Inc. 8,425
23,440 Johnson & Johnson 2,538
20,900 Merck & Co., Inc. 1,262
103,134 Pfizer, Inc. 3,213
---------
15,438
---------
Total Health Care 31,352
---------
INDUSTRIALS (2.8%)
------------------
AEROSPACE & DEFENSE (0.4%)
11,800 Raytheon Co. 1,259
42,100 Spirit AeroSystems Holdings, Inc. "A"* 1,815
11,730 United Technologies Corp. 1,291
---------
4,365
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS (0.1%)
12,330 United Parcel Service, Inc. "B" $ 1,355
---------
AIRLINES (0.3%)
56,900 United Continental Holdings, Inc.* 3,484
---------
ELECTRICAL COMPONENTS & EQUIPMENT (0.6%)
91,400 Eaton Corp. plc 6,200
---------
ENVIRONMENTAL & FACILITIES SERVICES (0.2%)
58,800 Republic Services, Inc. 2,329
---------
INDUSTRIAL CONGLOMERATES (0.8%)
13,500 Carlisle Companies, Inc. 1,207
304,890 General Electric Co. 8,077
---------
9,284
---------
INDUSTRIAL MACHINERY (0.2%)
16,100 Parker Hannifin Corp. 2,077
---------
RAILROADS (0.2%)
9,000 Kansas City Southern 1,070
10,000 Union Pacific Corp. 1,168
---------
2,238
---------
Total Industrials 31,332
---------
INFORMATION TECHNOLOGY (4.1%)
-----------------------------
APPLICATION SOFTWARE (0.1%)
18,000 Adobe Systems, Inc.* 1,326
---------
COMMUNICATIONS EQUIPMENT (0.6%)
184,456 Cisco Systems, Inc. 5,099
87,600 Juniper Networks, Inc. 1,941
---------
7,040
---------
DATA PROCESSING & OUTSOURCED SERVICES (0.2%)
8,700 Visa, Inc. "A" 2,246
---------
INTERNET SOFTWARE & SERVICES (0.5%)
22,500 Facebook, Inc. "A"* 1,748
5,860 Google, Inc. "A"* 3,218
---------
4,966
---------
SEMICONDUCTOR EQUIPMENT (0.3%)
159,800 Applied Materials, Inc. 3,843
---------
SEMICONDUCTORS (0.6%)
41,200 Broadcom Corp. "A" 1,777
95,790 Intel Corp. 3,568
================================================================================
14 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
27,900 Texas Instruments, Inc. $ 1,518
---------
6,863
---------
SYSTEMS SOFTWARE (0.7%)
154,780 Microsoft Corp. 7,400
---------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (1.1%)
41,730 Apple, Inc. 4,963
126,800 Hewlett-Packard Co. 4,953
29,100 Seagate Technology plc 1,924
---------
11,840
---------
Total Information Technology 45,524
---------
MATERIALS (0.4%)
----------------
DIVERSIFIED CHEMICALS (0.2%)
71,000 Huntsman Corp. 1,812
---------
DIVERSIFIED METALS & MINING (0.0%)
20,000 Freeport-McMoRan Copper & Gold, Inc. 537
---------
GOLD (0.1%)
27,700 Newmont Mining Corp. 510
11,900 Royal Gold, Inc. 758
---------
1,268
---------
PAPER PRODUCTS (0.1%)
18,000 International Paper Co. 969
---------
Total Materials 4,586
---------
TELECOMMUNICATION SERVICES (0.3%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.3%)
65,889 Verizon Communications, Inc. 3,333
---------
Total Common Stocks (cost: $165,325) 214,518
---------
PREFERRED STOCKS (2.6%)
CONSUMER STAPLES (1.0%)
-----------------------
AGRICULTURAL PRODUCTS (1.0%)
161,682 CHS, Inc., Series B, 7.88%, cumulative redeemable, perpetual 4,626
58,000 Dairy Farmers of America, Inc., 7.88%, cumulative redeemable, perpetual(a) 6,199
---------
10,825
---------
Total Consumer Staples 10,825
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
ENERGY (0.5%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.5%)
2,050 Kinder Morgan G.P., Inc., 4.13%, cumulative redeemable(a) $ 1,917
156,338 NuStar Logistics, LP, 7.63% 4,164
---------
6,081
---------
Total Energy 6,081
---------
FINANCIALS (0.8%)
-----------------
LIFE & HEALTH INSURANCE (0.4%)
167,198 Delphi Financial Group, Inc., 7.38%, cumulative redeemable 4,196
---------
REINSURANCE (0.0%)
1,500 American Overseas Group Ltd., 7.50%, non-cumulative,
perpetual, acquired 1/23/2007 - 3/09/2007; cost $1,533*(b),(c) 375
---------
REITs - MORTGAGE (0.1%)
24,000 Arbor Realty Trust, Inc., 7.38% 596
---------
REITs - OFFICE (0.3%)
130,027 Equity Commonwealth, Series E, 7.25%, cumulative redeemable, perpetual 3,338
---------
Total Financials 8,505
---------
TELECOMMUNICATION SERVICES (0.3%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.3%)
126,000 Qwest Corp., 7.50% 3,422
---------
Total Preferred Stocks (cost: $27,693) 28,833
---------
EXCHANGE-TRADED FUNDS (7.7%)
202,300 iShares Core S&P 500 ETF 42,196
205,079 iShares Core S&P Mid-Cap ETF 29,584
109,700 Vanguard Mid-Cap ETF 13,684
---------
Total Exchange-Traded Funds (cost: $73,753) 85,464
---------
FIXED-INCOME EXCHANGE-TRADED FUNDS (0.8%)
FIXED-INCOME EXCHANGE-TRADED FUNDS (0.8%)
-----------------------------------------
89,500 iShares 7-10 Year Treasury Bond ETF (cost: $9,389) 9,504
---------
Total U.S. Equity Securities (cost: $276,160) 338,319
---------
================================================================================
16 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY SECURITIES (22.4%)
COMMON STOCKS (1.7%)
CONSUMER DISCRETIONARY (0.2%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.2%)
25,000 Delphi Automotive plc $ 1,824
---------
ENERGY (0.1%)
-------------
INTEGRATED OIL & GAS (0.1%)
12,600 Royal Dutch Shell plc ADR 837
---------
FINANCIALS (0.1%)
-----------------
DIVERSIFIED BANKS (0.1%)
29,400 HSBC Holdings plc ADR 1,463
---------
HEALTH CARE (0.2%)
------------------
PHARMACEUTICALS (0.2%)
25,700 Novartis AG ADR 2,484
---------
INDUSTRIALS (0.2%)
------------------
RAILROADS (0.2%)
14,400 Canadian Pacific Railway Ltd. 2,781
---------
INFORMATION TECHNOLOGY (0.5%)
-----------------------------
SEMICONDUCTORS (0.5%)
70,428 NXP Semiconductors N.V.* 5,480
---------
MATERIALS (0.2%)
----------------
DIVERSIFIED METALS & MINING (0.2%)
44,300 Rio Tinto plc ADR 2,064
---------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
69,209 Vodafone Group plc ADR 2,530
---------
Total Common Stocks (cost: $14,892) 19,463
---------
EXCHANGE-TRADED FUNDS (20.7%)
82,387 EGShares Emerging Markets Consumer ETF 2,234
830,360 iShares Core MSCI EAFE ETF 48,211
931,100 iShares Core MSCI Emerging Markets ETF 46,350
1,169,397 iShares MSCI EAFE ETF 74,830
1,398,539 iShares MSCI Germany ETF 40,278
32,280 iShares MSCI Philippines ETF 1,247
47,738 iShares MSCI Turkey ETF 2,753
34,497 SPDR S&P Emerging Markets SmallCap ETF 1,609
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
55,946 WisdomTree Emerging Markets Equity Income Fund $ 2,558
59,797 WisdomTree Emerging Markets SmallCap Dividend Fund 2,688
103,151 WisdomTree India Earnings Fund 2,398
100,600 WisdomTree Japan Hedged Equity Index Fund 5,573
---------
Total Exchange-Traded Funds (cost: $221,408) 230,729
---------
Total International Equity Securities (cost: $236,300) 250,192
---------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (1.6%)
GOLD (0.9%)
AFRICAN GOLD COMPANIES (0.1%)
80,356 AngloGold Ashanti Ltd. ADR* 688
98,700 Gold Fields Ltd. ADR 405
130,000 Harmony Gold Mining Co. Ltd. ADR* 222
---------
1,315
---------
AUSTRALIAN GOLD COMPANIES (0.1%)
66,200 Newcrest Mining Ltd.*(c) 560
---------
EUROPEAN GOLD COMPANIES (0.1%)
12,600 Randgold Resources Ltd. ADR 815
---------
NORTH AMERICAN GOLD COMPANIES (0.5%)
23,500 Agnico-Eagle Mines Ltd. 552
38,400 Alamos Gold, Inc. 264
121,200 AuRico Gold, Inc. 417
215,000 B2Gold Corp.* 350
58,900 Barrick Gold Corp. 700
79,000 Centerra Gold, Inc. 365
110,000 Dundee Precious Metals, Inc.* 285
103,900 Eldorado Gold Corp. 651
33,800 Goldcorp, Inc. 664
154,000 IAMGOLD Corp.* 325
280,400 Kinross Gold Corp.* 785
50,000 New Gold, Inc.* 200
50,000 Primero Mining Corp.* 204
213,130 Semafo, Inc.* 634
45,800 Yamana Gold, Inc. 173
---------
6,569
---------
SOUTH AMERICAN GOLD COMPANIES (0.1%)
91,000 Compania de Minas Buenaventura S.A. ADR 842
---------
Total Gold (cost: $17,999) 10,101
---------
================================================================================
18 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
SILVER (0.2%)
69,100 Pan American Silver Corp. $ 647
44,300 Silver Wheaton Corp. 882
23,000 Tahoe Resources, Inc.* 367
---------
Total Silver (cost $2,425) 1,896
---------
EXCHANGE-TRADED FUNDS (0.5%)
69,416 iShares Silver Trust* 1,029
41,626 SPDR Gold Shares* 4,667
---------
Total Exchange-Traded Funds (cost: $7,932) 5,696
---------
Total Precious Metals and Commodity-Related Securities (cost: $28,356) 17,693
---------
---------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
---------------------------------------------------------------------------------------------------
BONDS (42.4%)
CORPORATE OBLIGATIONS (17.6%)
CONSUMER DISCRETIONARY (0.2%)
-----------------------------
SPECIALTY STORES (0.2%)
$ 1,000 Guitar Center, Inc.(a) 6.50% 4/15/2019 872
700 Toys R Us Property Co. II, LLC 8.50 12/01/2017 700
---------
1,572
---------
Total Consumer Discretionary 1,572
---------
ENERGY (2.6%)
-------------
OIL & GAS DRILLING (0.1%)
674 Schahin II Finance Co.(a) 5.88 9/25/2023 595
---------
OIL & GAS EXPLORATION & PRODUCTION (0.4%)
800 Alta Mesa Holdings, LP 9.63 10/15/2018 780
700 American Energy - Permian Basin, LLC(a) 7.38 11/01/2021 569
700 California Resources Corp.(a) 6.00 11/15/2024 628
800 Fieldwood Energy, LLC(d) 8.38 9/30/2020 730
500 Rex Energy Corp. 8.88 12/01/2020 497
800 Sabine Oil & Gas, LLC(d) 8.75 12/31/2018 745
900 Samson Investment Co.(d) 5.00 9/25/2018 823
---------
4,772
---------
OIL & GAS STORAGE & TRANSPORTATION (2.1%)
5,000 DCP Midstream, LLC(a) 5.85 5/21/2043 4,994
3,059 Enbridge Energy Partners, LP 8.05 10/01/2077 3,411
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 7,300 Energy Transfer Partners, LP 3.25%(e) 11/01/2066 $ 6,792
4,000 Enterprise Products Operating, LLC 7.00 6/01/2067 4,185
800 Martin Midstream Partners, LP 7.25 2/15/2021 796
1,000 Southern Union Co. 3.25(e) 11/01/2066 830
2,500 TEPPCO Partners, LP 7.00 6/01/2067 2,552
---------
23,560
---------
Total Energy 28,927
---------
FINANCIALS (11.1%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.2%)
6,000 Prospect Capital Corp. 5.00 7/15/2019 6,231
8,000 State Street Capital Trust IV 1.23(e) 6/01/2077 6,780
1,200 Walter Investment Management Corp. 7.88 12/15/2021 1,086
---------
14,097
---------
DIVERSIFIED BANKS (0.5%)
2,100 JPMorgan Chase Capital XIII 1.18(e) 9/30/2034 1,799
4,500 JPMorgan Chase Capital XXI 1.18(e) 1/15/2087 3,758
---------
5,557
---------
LIFE & HEALTH INSURANCE (1.7%)
5,500 Lincoln National Corp. 7.00 5/17/2066 5,637
2,000 Lincoln National Corp. 6.05 4/20/2067 2,030
4,000 Prudential Financial, Inc. 5.63 6/15/2043 4,150
1,000 Prudential Financial, Inc. 5.20 3/15/2044 1,000
6,150 StanCorp Financial Group, Inc. 6.90 6/01/2067 6,396
---------
19,213
---------
MULTI-LINE INSURANCE (1.7%)
7,000 Genworth Holdings, Inc. 6.15 11/15/2066 4,708
8,300 Glen Meadow Pass-Through Trust(a) 6.51 2/12/2067 8,196
6,670 Nationwide Mutual Insurance Co.(a) 5.81(e) 12/15/2024 6,678
---------
19,582
---------
MULTI-SECTOR HOLDINGS (0.3%)
3,000 BNSF Funding Trust I 6.61 12/15/2055 3,392
---------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.3%)
3,000 GE Capital Trust I 6.38 11/15/2067 3,248
---------
PROPERTY & CASUALTY INSURANCE (2.9%)
5,000 Allstate Corp. 5.75 8/15/2053 5,284
5,800 AmTrust Financial Services, Inc. 6.13 8/15/2023 6,131
4,875 HSB Group, Inc.(c) 1.14(e) 7/15/2027 3,547
4,530 Ironshore Holdings, Inc.(a) 8.50 5/15/2020 5,494
================================================================================
20 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 9,600 Oil Insurance Ltd. (a) 3.22%(e) -(f) $ 8,870
2,500 Travelers Companies, Inc. 6.25 3/15/2067 2,722
---------
32,048
---------
REAL ESTATE DEVELOPMENT (0.1%)
800 Forestar USA Real Estate Group, Inc. (a) 8.50 6/01/2022 817
---------
REGIONAL BANKS (2.0%)
1,000 Allfirst Preferred Capital Trust 1.73(e) 7/15/2029 890
4,000 Cullen/Frost Capital Trust II 1.78(e) 3/01/2034 3,512
700 First Hawaiian Capital I 8.34 7/01/2027 710
2,850 First Maryland Capital Trust I 1.23(e) 1/15/2027 2,565
2,500 First Tennessee Bank, N.A. 5.65 4/01/2016 2,623
2,400 Fulton Capital Trust I 6.29 2/01/2036 2,352
2,000 Huntington Capital Trust II "B" 0.86(e) 6/15/2028 1,720
500 M&T Capital Trust I 8.23 2/01/2027 505
2,000 Manufacturers & Traders Trust Co. 5.63 12/01/2021 2,096
6,000 Suntrust Capital I 0.90(e) 5/15/2027 5,010
---------
21,983
---------
REINSURANCE (0.3%)
1,500 Alterra USA Holdings Ltd.(a) 7.20 4/14/2017 1,654
1,500 Platinum Underwriters Finance, Inc. 7.50 6/01/2017 1,695
---------
3,349
---------
THRIFTS & MORTGAGE FINANCE (0.1%)
1,000 Ocwen Financial Corp.(a) 6.63 5/15/2019 953
---------
Total Financials 124,239
---------
INDUSTRIALS (0.5%)
------------------
AEROSPACE & DEFENSE (0.1%)
500 Moog, Inc.(a) 5.25 12/01/2022 510
1,150 Textron Financial Corp.(a) 6.00 2/15/2067 1,061
---------
1,571
---------
AIRLINES (0.1%)
698 America West Airlines, Inc. Pass-Through Trust (INS)7.93 7/02/2020 771
---------
RAILROADS (0.0%)
350 Florida East Coast Holdings Corp.(a) 6.75 5/01/2019 359
---------
TRADING COMPANIES & DISTRIBUTORS (0.3%)
1,000 ILFC E-Capital Trust I(a) 4.84(e) 12/21/2065 955
2,000 ILFC E-Capital Trust II(a) 6.25(e) 12/21/2065 1,947
---------
2,902
---------
Total Industrials 5,603
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000)(j) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
MATERIALS (0.0%)
----------------
GOLD (0.0%)
CAD 1,050 Allied Nevada Gold Corp.(a) 8.75% 6/01/2019 $ 372
---------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
$ 700 Sprint Corp. 7.13 6/15/2024 696
---------
UTILITIES (3.1%)
----------------
ELECTRIC UTILITIES (1.0%)
2,800 NextEra Energy Capital Holdings, Inc. 6.35 10/01/2066 2,772
1,750 NextEra Energy Capital Holdings, Inc. 6.65 6/15/2067 1,773
2,150 NextEra Energy Capital Holdings, Inc. 7.30 9/01/2067 2,342
3,312 PPL Capital Funding, Inc. 6.70 3/30/2067 3,355
1,869 Texas Competitive Electric Holdings
Co., LLC (d),(g) 4.65 10/10/2017 1,359
---------
11,601
---------
MULTI-UTILITIES (2.1%)
----------------------
2,500 Dominion Resources, Inc. 7.50 6/30/2066 2,669
2,900 Dominion Resources, Inc. 2.53(e) 9/30/2066 2,744
3,342 Integrys Energy Group, Inc. 6.11 12/01/2066 3,396
7,000 Puget Sound Energy, Inc. 6.97 6/01/2067 7,361
7,000 Wisconsin Energy Corp. 6.25 5/15/2067 7,147
---------
23,317
---------
Total Utilities 34,918
---------
Total Corporate Obligations (cost: $180,695) 196,327
---------
EURODOLLAR AND YANKEE OBLIGATIONS (6.5%)
ENERGY (0.5%)
-------------
OIL & GAS STORAGE & TRANSPORTATION (0.5%)
5,544 TransCanada Pipelines Ltd. 6.35 5/15/2067 5,530
---------
FINANCIALS (3.2%)
-----------------
DIVERSIFIED BANKS (1.7%)
350 Barclays Bank plc 0.56(e) -(f) 229
500 Barclays Bank plc 0.63(e) -(f) 329
8,030 Barclays Bank plc 0.69(e) -(f) 5,340
900 Barclays Bank plc(a) 7.70 -(f) 990
600 Compass Bank 6.40 10/01/2017 661
9,500 HSBC Bank plc 0.69(e) -(f) 6,401
================================================================================
22 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 1,000 LBI hf, acquired 10/12/2007;
cost $1,000(a),(b),(c),(g) 7.43% -(f) $ -
6,800 Lloyds Bank plc 0.56(e) -(f) 4,505
---------
18,455
---------
LIFE & HEALTH INSURANCE (0.5%)
5,550 Great-West Life & Annuity Insurance Capital, LP(a) 7.15 5/16/2046 5,779
---------
PROPERTY & CASUALTY INSURANCE (0.6%)
6,130 QBE Capital Funding III Ltd.(a) 7.25 5/24/2041 6,698
---------
REGIONAL BANKS (0.0%)
2,000 Glitnir Banki hf, acquired 9/11/2006 - 10/18/2006;
cost $2,034(a),(b),(c),(g) 7.45 -(f) -
---------
REINSURANCE (0.4%)
4,000 Swiss Re Capital I, LP(a) 6.85 -(f) 4,245
---------
Total Financials 35,177
---------
INDUSTRIALS (0.1%)
------------------
MARINE (0.1%)
800 Navios Maritime Holdings, Inc.(a) 7.38 1/15/2022 775
---------
TRADING COMPANIES & DISTRIBUTORS (0.0%)
600 Ashtead Capital, Inc.(a) 5.63 10/01/2024 635
---------
Total Industrials 1,410
---------
MATERIALS (1.3%)
----------------
COMMODITY CHEMICALS (0.3%)
3,000 Braskem Finance Ltd. 6.45 2/03/2024 3,142
---------
DIVERSIFIED METALS & MINING (0.1%)
800 Vedanta Resources plc(a) 6.00 1/31/2019 774
---------
GOLD (0.9%)
5,000 Kinross Gold Corp.(a) 5.95 3/15/2024 4,787
4,285 Newcrest Finance Proprietary Ltd.(a) 4.45 11/15/2021 4,071
2,200 St. Barbara Ltd.(a) 8.88 4/15/2018 1,804
---------
10,662
---------
Total Materials 14,578
---------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
1,200 NII International Telecom SCA(a),(g) 7.88 8/15/2019 882
---------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
UTILITIES (1.3%)
----------------
ELECTRIC UTILITIES (1.3%)
$ 3,000 EDP Finance B.V.(a) 4.13% 1/15/2020 $ 3,048
4,500 Electricite De France S.A.(a) 5.25 -(f) 4,674
5,700 Enel S.p.A.(a) 8.75 9/24/2073 6,672
---------
14,394
---------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.0%)
300 AES Gener S.A.(a) 8.38 12/18/2073 335
---------
Total Utilities 14,729
---------
Total Eurodollar and Yankee Obligations (cost: $69,714) 72,306
---------
ASSET-BACKED SECURITIES (0.2%)
FINANCIALS (0.2%)
-----------------
ASSET-BACKED FINANCING (0.2%)
2,000 SLC Student Loan Trust 0.68(e) 7/15/2036 1,794
620 SLM Student Loan Trust 0.78(e) 10/25/2038 567
---------
2,361
---------
Total Financials 2,361
---------
Total Asset-Backed Securities (cost: $2,006) 2,361
---------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.3%)
FINANCIALS (0.3%)
-----------------
494 Sequoia Mortgage Trust 1.06(e) 9/20/2033 433
3,167 Structured Asset Mortgage Investments, Inc. 0.65(e) 7/19/2035 2,798
534 Wells Fargo Mortgage Backed Securities Trust 4.83(e) 4/25/2035 514
---------
Total Financials 3,745
---------
Total Collateralized Mortgage Obligations (cost: $3,810) 3,745
---------
COMMERCIAL MORTGAGE SECURITIES (8.7%)
FINANCIALS (8.7%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (8.7%)
1,000 Banc of America Commercial Mortgage, Inc. 5.47 11/10/2042 1,004
3,238 Banc of America Commercial Mortgage, Inc. 6.05 7/10/2044 3,350
3,000 Banc of America Commercial Mortgage, Inc. 5.95 5/10/2045 3,156
1,000 Banc of America Commercial Mortgage, Inc. 5.42 10/10/2045 1,041
3,254 Banc of America Commercial Mortgage, Inc.(a) 6.14 9/10/2047 3,334
4,000 Banc of America Commercial Mortgage, Inc. 6.47 2/10/2051 4,307
2,000 BCRR Trust(a) 5.86 7/17/2040 2,184
400 Bear Stearns Commercial Mortgage Securities, Inc. 5.59 12/11/2040 394
================================================================================
24 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 2,000 Bear Stearns Commercial Mortgage Securities, Inc. 5.21% 2/11/2041 $ 2,004
4,034 Bear Stearns Commercial Mortgage Securities,
Inc.(a) 5.66 9/11/2041 3,943
900 Bear Stearns Commercial Mortgage Securities, Inc. 5.60 10/12/2041 911
3,200 Bear Stearns Commercial Mortgage Securities, Inc. 4.99 9/11/2042 3,281
500 CD Commercial Mortgage Trust 5.69 10/15/2048 487
900 Citigroup Commercial Mortgage Trust 5.96 3/15/2049 942
800 Citigroup Commercial Mortgage Trust 6.34 12/10/2049 813
3,000 Commercial Mortgage Loan Trust 6.24 12/10/2049 3,102
1,000 Commercial Mortgage Loan Trust(a) 5.54 12/11/2049 1,051
7,400 Credit Suisse Commercial Mortgage
Pass-Through Trust 0.35 2/15/2040 6,420
1,000 Credit Suisse First Boston Mortgage Securities
Corp. 0.40 4/15/2037 985
4,000 GE Capital Commercial Mortgage Corp. 5.45 3/10/2044 4,074
3,600 GE Capital Commercial Mortgage Corp. 5.49 11/10/2045 3,635
1,900 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 2,005
2,000 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 2,032
500 GMAC Commercial Mortgage Securities, Inc. 4.98 12/10/2041 510
1,000 GMAC Commercial Mortgage Securities, Inc. 4.81 5/10/2043 985
2,850 GS Mortgage Securities Corp. II 5.71 4/10/2038 2,941
1,000 GS Mortgage Securities Corp. II 4.78 7/10/2039 1,009
4,500 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.04 10/15/2042 4,577
3,210 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.57 4/15/2043 3,342
1,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.56 12/15/2044 1,038
1,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.56 12/15/2044 1,031
4,500 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 6.06 4/15/2045 4,527
900 LB-UBS Commercial Mortgage Trust 5.28 2/15/2041 915
1,000 Merrill Lynch Mortgage Trust 5.41 7/12/2038 985
400 Merrill Lynch Mortgage Trust 5.44 7/12/2038 382
4,000 Merrill Lynch Mortgage Trust 5.86 5/12/2039 4,032
`2,500 Merrill Lynch Mortgage Trust 5.01 10/12/2041 2,508
1,000 ML-CFC Commercial Mortgage Trust 5.42 8/12/2048 1,057
1,500 ML-CFC Commercial Mortgage Trust 6.08 8/12/2049 1,540
460 ML-CFC Commercial Mortgage Trust 5.86 9/12/2049 508
4,150 Morgan Stanley Capital I Trust 5.38 11/14/2042 4,183
800 Morgan Stanley Capital I Trust 5.67 3/12/2044 807
878 Morgan Stanley Capital I, Inc. 5.15 8/13/2042 892
723 Morgan Stanley Capital I, Inc. 5.17 8/13/2042 732
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 3,150 Wachovia Bank Commercial Mortgage Trust 5.90% 5/15/2043 $ 3,270
500 Wachovia Bank Commercial Mortgage Trust(a) 4.99 5/15/2044 490
---------
96,716
---------
Total Financials 96,716
---------
Total Commercial Mortgage Securities (cost: $89,588) 96,716
---------
U.S. TREASURY SECURITIES (9.1%)
BONDS (4.6%)
49,500 3.13%, 8/15/2044 51,526
---------
NOTES (4.5%)
31,750 1.75%, 5/15/2022 31,279
3,750 1.63%, 8/15/2022 3,652
1,350 1.63%, 11/15/2022 1,310
690 2.00%, 2/15/2023 688
4,200 2.75%, 11/15/2023 4,418
8,500 2.38%, 8/15/2024 8,637
---------
49,984
---------
Total U.S. Treasury Securities (cost: $97,812) 101,510
---------
Total Bonds (cost: $443,625) 472,965
---------
MONEY MARKET INSTRUMENTS (2.9%)
COMMERCIAL PAPER (0.4%)
MATERIALS (0.4%)
----------------
SPECIALTY CHEMICALS (0.4%)
5,101 Cabot Corp.(a),(h) 0.32 12/01/2014 5,101
---------
---------------------------------------------------------------------------------------------------
NUMBER OF
SHARES
---------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (2.5%)
27,566,629 State Street Institutional Liquid Reserves Fund Premier Class, 0.08%(i) 27,567
----------
Total Money Market Instruments (cost: $32,668) 32,668
----------
TOTAL INVESTMENTS (COST: $1,017,109) $1,111,837
==========
================================================================================
26 | USAA CORNERSTONE MODERATE FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF CONTRACTS SECURITY (000)
---------------------------------------------------------------------------------------------------
PURCHASED OPTIONS (0.0%)
1,300 Put - iShares MSCI EAFE ETF expiring January 17, 2015 at 61 $ 62
----------
TOTAL PURCHASED OPTIONS (COST: $116) $ 62
==========
---------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
---------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
---------------------------------------------------------------------------------------------------
U.S. Equity Securities:
Common Stocks $214,518 $ - $ - $ 214,518
Preferred Stocks - 28,458 375 28,833
Exchange-Traded Funds 85,464 - - 85,464
Fixed-Income Exchange-
Traded Funds 9,504 - - 9,504
International Equity Securities:
Common Stocks 19,463 - - 19,463
Exchange-Traded Funds 230,729 - - 230,729
Precious Metals and Commodity-
Related Securities:
Gold 9,541 560 - 10,101
Silver 1,896 - - 1,896
Exchange-Traded Funds 5,696 - - 5,696
Bonds:
Corporate Obligations - 192,780 3,547 196,327
Eurodollar and Yankee Obligations - 72,306 - 72,306
Asset-Backed Securities - 2,361 - 2,361
Collateralized Mortgage Obligations - 3,745 - 3,745
Commercial Mortgage Securities - 96,716 - 96,716
U.S. Treasury Securities 101,510 - - 101,510
Money Market Instruments:
Commercial Paper - 5,101 - 5,101
Money Market Funds 27,567 - - 27,567
Purchased Options 62 - - 62
---------------------------------------------------------------------------------------------------
Total $705,950 $402,027 $3,922 $1,111,899
---------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
--------------------------------------------------------------------------------------------
PREFERRED CORPORATE
STOCKS OBLIGATIONS
--------------------------------------------------------------------------------------------
Balance as of May 31, 2014 $ 2,685 $3,802
Purchases - -
Sales (2,385) -
Transfers into Level 3 - -
Transfers out of Level 3 - -
Net realized gain (loss) on investments (165) -
Change in net unrealized appreciation/depreciation of investments 240 (255)
--------------------------------------------------------------------------------------------
Balance as of November 30, 2014 $ 375 $3,547
--------------------------------------------------------------------------------------------
For the period of June 1, 2014, through November 30, 2014, common stocks with a
fair value of $600,000 were transferred from Level 1 to Level 2. Due to an
assessment of events at the end of the current reporting period, these
securities had adjustments to their foreign market closing prices to reflect
changes in value that occurred after the close of foreign markets and prior to
the close of the U.S. securities markets. Such adjustments were not made at the
end of the prior reporting period. 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.
================================================================================
28 | USAA CORNERSTONE MODERATE FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 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 30.0% of net assets at
November 30, 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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 29
================================================================================
loans. The weighted average life is likely to be substantially shorter than
the stated final maturity as a result of scheduled principal payments and
unscheduled principal prepayments. Stated interest rates on commercial
mortgage-backed securities may change slightly over time as underlying
mortgages pay down.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no
later than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable maturities than regular mortgage
securities but such maturities can be difficult to predict because of the
effect of prepayments.
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are dollar-
denominated instruments that are issued outside the U.S. capital markets by
foreign corporations and financial institutions and by foreign branches of
U.S. corporations and financial institutions. Yankee obligations are
dollar-denominated instruments that are issued by foreign issuers in the
U.S. capital markets.
o PORTFOLIO ABBREVIATION(S) AND DESCRIPTION(S)
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
REIT Real estate investment trust
CREDIT ENHANCEMENTS - add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a
high-quality bank, insurance company or other corporation, or a collateral
trust. The enhancements do not guarantee the market values of the
securities.
================================================================================
30 | USAA CORNERSTONE MODERATE FUND
================================================================================
(INS) Principal and interest payments are insured by AMBAC Assurance
Corp. Although bond insurance reduces the risk of loss due to default
by an issuer, such bonds remain subject to the risk that value may
fluctuate for other reasons, and there is no assurance that the
insurance company will meet its obligations.
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 USAA Mutual
Funds Trust's Board of Trustees (the Board), unless otherwise noted as
illiquid.
(b) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board. The aggregate market value of these securities at
November 30, 2014, was $375,000, which represented less than 0.1% of the
Fund's net assets.
(c) Security was fair valued at November 30, 2014, by the Manager in
accordance with valuation procedures approved by the Board. The total
value of all such securities was $4,482,000, which represented 0.4% of
the Fund's net assets.
(d) Senior loan (loan) - is not registered under the Securities Act of
1933. The loan contains certain restrictions on resale and cannot be
sold publicly. The interest rate is adjusted periodically, and the rate
disclosed represents the current rate at November 30, 2014. The weighted
average life of the loan is likely to be shorter than the stated final
maturity date due to mandatory or optional prepayments. The loan is
deemed liquid by the Manager, under liquidity guidelines approved by the
Board, unless otherwise noted as illiquid.
(e) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at
November 30, 2014.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 31
================================================================================
(f) Security is perpetual and has no final maturity date but may be
subject to calls at various dates in the future.
(g) At November 30, 2014, the issuer was in default with respect to
interest and/or principal payments.
(h) Commercial paper issued in reliance on the "private placement"
exemption from registration afforded by Section 4(2) of the Securities
Act of 1933. Unless this commercial paper is subsequently registered, a
resale of this commercial paper in the United States must be effected in
a transaction exempt from registration under the Securities Act of 1933.
Section 4(2) commercial paper is normally resold to other investors
through or with the assistance of the issuer or an investment dealer who
makes a market in this security, and as such has been deemed liquid by
the Manager under liquidity guidelines approved by the Board, unless
otherwise noted as illiquid.
(i) Rate represents the money market fund annualized seven-day yield at
November 30, 2014.
(j) In U.S. dollars unless otherwise noted.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
32 | USAA CORNERSTONE MODERATE FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
November 30, 2014 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,017,109) $1,111,837
Purchased options, at market value (cost of $116) 62
Cash 2,527
Cash denominated in foreign currencies (identified cost of $2) 2
Receivables:
Capital shares sold 686
USAA Asset Management Company (Note 5C) 109
Dividends and interest 4,826
Securities sold 3,306
Other 28
----------
Total assets 1,123,383
----------
LIABILITIES
Payables:
Securities purchased 5,376
Capital shares redeemed 745
Accrued management fees 653
Accrued administration and servicing fees 5
Accrued transfer agent's fees 37
Other accrued expenses and payables 106
----------
Total liabilities 6,922
----------
Net assets applicable to capital shares outstanding $1,116,461
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,007,417
Accumulated undistributed net investment income 3,553
Accumulated net realized gain on investments and options 10,818
Net unrealized appreciation of investments and options 94,674
Net unrealized depreciation of foreign currency translations (1)
----------
Net assets applicable to capital shares outstanding $1,116,461
==========
Capital shares outstanding, unlimited number of shares authorized,
no par value 72,192
==========
Net asset value, redemption price, and offering price per share $ 15.47
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 33
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended November 30, 2014 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $17) $ 8,428
Interest 11,979
--------
Total income 20,407
--------
EXPENSES
Management fees 3,977
Administration and servicing fees 832
Transfer agent's fees 1,448
Custody and accounting fees 114
Postage 68
Shareholder reporting fees 40
Trustees' fees 11
Registration fees 23
Professional fees 59
Other 9
--------
Total expenses 6,581
--------
Expenses reimbursed (1,036)
--------
Net expenses 5,545
--------
NET INVESTMENT INCOME 14,862
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FOREIGN CURRENCY, AND OPTIONS
Net realized gain (loss) on:
Unaffiliated transactions 25,851
Affiliated transactions (Note 7) 66
Foreign currency transactions (36)
Options (1,984)
Change in net unrealized appreciation/depreciation of:
Investments (26,129)
Foreign currency translations (1)
Options 1,913
--------
Net realized and unrealized loss (320)
--------
Increase in net assets resulting from operations $ 14,542
========
See accompanying notes to financial statements.
================================================================================
34 | USAA CORNERSTONE MODERATE FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended November 30, 2014 (unaudited), and year ended May 31,
2014
-------------------------------------------------------------------------------------
11/30/2014 5/31/2014
-------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 14,862 $ 25,967
Net realized gain on investments 25,917 25,051
Net realized loss on foreign currency transactions (36) (1)
Net realized loss on options (1,984) (6,453)
Change in net unrealized appreciation/depreciation of:
Investments (26,129) 51,837
Foreign currency translations (1) -
Options 1,913 (2,955)
-----------------------
Increase in net assets resulting from operations 14,542 93,446
-----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (14,418) (26,410)
-----------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 91,601 235,972
Reinvested dividends 14,303 26,203
Cost of shares redeemed (83,350) (180,256)
-----------------------
Increase in net assets from capital share transactions 22,554 81,919
-----------------------
Net increase in net assets 22,678 148,955
NET ASSETS
Beginning of period 1,093,783 944,828
-----------------------
End of period $1,116,461 $1,093,783
=======================
Accumulated undistributed net investment income:
End of period $ 3,553 $ 3,109
=======================
CHANGE IN SHARES OUTSTANDING
Shares sold 5,937 15,959
Shares issued for dividends reinvested 926 1,794
Shares redeemed (5,404) (12,206)
-----------------------
Increase in shares outstanding 1,459 5,547
=======================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 35
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 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
Cornerstone Moderate Fund (the Fund), which is classified as diversified under
the 1940 Act. The Fund's investment objective is to seek a high total return.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize
independent pricing services, quotations from securities dealers, and a
wide variety of sources and information to establish and adjust the fair
value of securities as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures
during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and USAA Asset Management
Company (the Manager). Among other things, these monthly meetings include
a review and analysis of back testing reports,
================================================================================
36 | USAA CORNERSTONE MODERATE FUND
================================================================================
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, will
monitor for events that would materially affect the value of the Fund's
foreign securities. If the Manager determines that a particular event
would materially affect the value of the Fund's foreign securities,
then the Manager, under valuation procedures approved by the Board,
will consider such available information that it deems relevant to
determine a fair value for the affected foreign securities. In
addition, the Fund may use information from an external vendor or other
sources to adjust the foreign market closing prices of foreign equity
securities to reflect what the Fund
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
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. Futures are valued based upon the last sale price at the close of
market on the principal exchange on which they are traded.
5. 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.
6. Debt securities purchased with original or remaining maturities of
60 days or less may be valued at amortized cost, which approximates
market value.
7. 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.
8. Repurchase agreements are valued at cost, which approximates market
value.
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
================================================================================
38 | USAA CORNERSTONE MODERATE FUND
================================================================================
the pricing of the Fund, are valued in good faith at fair value, using
methods determined by the Manager under valuation procedures approved
by the Board. The effect of fair value pricing is that securities may
not be priced on the basis of quotations from the primary market in
which they are traded and the actual price realized from the sale of a
security may differ materially from the fair value price. Valuing these
securities at fair value is intended to cause the Fund's NAV to be more
reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any
restrictions on disposition of the securities, and an evaluation of the
forces that influenced the market in which the securities are purchased
and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
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 and certain gold securities, which are
valued based on methods discussed in Note 1A2, certain bonds, which are
valued based on methods discussed in Note 1A7, and commercial paper, which
is valued at amortized cost.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
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 offer 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.
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 at November 30, 2014 did not include
master netting provisions.
================================================================================
40 | USAA CORNERSTONE MODERATE FUND
================================================================================
OPTIONS TRANSACTIONS - The Fund is subject to equity price risk in the
normal course of pursuing its investment objectives. The Fund may use
options on underlying instruments, namely, equity securities, ETFs, and
equity indexes, to gain exposure to, or hedge against, changes in the value
of equity securities, ETFs, or equity indexes. A call option gives the
purchaser the right to buy, and the writer the obligation to sell, the
underlying instrument at a specified price during a specified period.
Conversely, a put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying instrument at a specified
price during a specified period. The purchaser of the option pays a premium
to the writer of the option.
Premiums paid for purchased options are included in the Fund's statement of
assets and liabilities as an investment. If a purchased option expires
unexercised, the premium paid is recognized as a realized loss. If a
purchased call option on a security is exercised, the cost of the security
acquired includes the exercise price and the premium paid. If a purchased
put option on a security is exercised, the realized gain or loss on the
security sold is determined from the exercise price, the original cost of
the security, and the premium paid. The risk associated with purchasing a
call or put option is limited to the premium paid.
Premiums received from writing options are included in the Fund's statement
of assets and liabilities as a liability. If a written option expires
unexercised, the premium received is recognized as a realized gain. If a
written call option on a security is exercised, the realized gain or loss
on the security sold is determined from the exercise price, the original
cost of the security, and the premium received. If a written put option on
a security is exercised, the cost of the security acquired is the exercise
price paid less the premium received. The Fund, as a writer of an option,
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
consistent returns over a wide range of equity market environments. This
strategy may not fully protect the Fund against declines in the portfolio's
value, and the Fund could experience a loss. Options on ETFs are similar to
options on individual securities in that the holder of the ETF call (or
put) has the right to receive (or sell) shares of the underlying ETF at the
strike price on or before exercise date. Options on securities indexes are
different from options on individual securities in that the holder of the
index option has the right to receive an amount of cash equal to the
difference between the exercise price and the settlement value of the
underlying index as defined by the exchange. If an index option is
exercised, the realized gain or loss is determined by the exercise price,
the settlement value, and the premium amount paid or received.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2014* (IN
THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
--------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ASSETS AND ASSETS AND
ACCOUNTED FOR AS LIABILITIES LIABILITIES
HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
--------------------------------------------------------------------------------------------
Equity contracts Purchased $62 - -
options; Net
unrealized
appreciation
of investments
and options
--------------------------------------------------------------------------------------------
* For open derivative instruments as of November 30, 2014, see the
portfolio of investments, which also is indicative of activity for the
six-month period ended November 30, 2014.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED NOVEMBER 30, 2014 (IN THOUSANDS)
CHANGE IN
UNREALIZED
DERIVATIVES NOT APPRECIATION
ACCOUNTED FOR AS STATEMENT OF REALIZED LOSS (DEPRECIATION)
HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
--------------------------------------------------------------------------------------------
Equity contracts Net realized gain (loss) on $(1,984) $1,913
options/Change in net unrealized
appreciation/depreciation of options
--------------------------------------------------------------------------------------------
================================================================================
42 | USAA CORNERSTONE MODERATE FUND
================================================================================
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income to
its shareholders. Therefore, no federal income tax provision is required.
E. INVESTMENTS IN SECURITIES - Security transactions are accounted for on
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the
ex-dividend date. If the ex-dividend date has passed, certain dividends
from foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Discounts and premiums are amortized
over the life of the respective securities, using the effective yield
method for long-term securities and the straight-line method for short-term
securities.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the
exchange rate obtained from an independent pricing service on the
respective dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
gains/losses are reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the statement of assets
and liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis or for delayed draws on loans can take
place a month or more after the trade date. During the period prior to
settlement, these securities do not earn interest, are subject to market
fluctuation, and may increase or decrease in value prior to their delivery.
The Fund receives a commitment fee for delayed draws on loans. The Fund
maintains segregated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a
delayed-delivery or when-issued basis and delayed-draw loan commitments may
increase the volatility of the Fund's NAV to the extent that the Fund makes
such purchases and commitments while remaining substantially fully invested.
H. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month
period ended November 30, 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.
================================================================================
44 | USAA CORNERSTONE MODERATE FUND
================================================================================
J. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 7.0 basis points of the amount of 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 November 30, 2014, the Fund paid CAPCO facility
fees of $3,000, which represents 1.6% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended November 30, 2014.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2015, in
accordance with applicable tax law.
Distributions of net investment income are made quarterly. Distributions of
realized gains from security transactions not offset by capital losses are made
annually in the succeeding fiscal year or as otherwise required to avoid the
payment of federal taxes.
The Fund is permitted to carry forward post-enactment 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
capital loss carryforwards. As a result, pre-enactment capital loss
carryforwards may be more likely to expire unused.
At May 31, 2014, the Fund had pre-enactment capital loss carryforwards of
$12,957,000, and no post-enactment capital loss carryforwards, for federal
income tax purposes. If not offset by subsequent capital gains, the
pre-enactment capital loss carryforwards will expire in 2018. It is unlikely
that the Board will authorize a distribution of capital gains realized in the
future until the capital loss carryforwards have been used or expire.
For the six-month period ended November 30, 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 preceding fiscal
reporting year ends and remain subject to examination by the Internal Revenue
Service and state taxing authorities.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2014, were
$294,423,000 and $254,395,000, respectively.
As of November 30, 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 November 30,
2014, were $121,696,000 and $27,022,000, respectively, resulting in net
unrealized appreciation of $94,674,000.
================================================================================
46 | USAA CORNERSTONE MODERATE FUND
================================================================================
For the six-month period ended November 30, 2014, transactions in written call
and put options* were as follows:
PREMIUMS
NUMBER OF RECEIVED
CONTRACTS (000's)
--------------------------------
Outstanding May 31, 2014 6,420 $ 777
Options written - -
Options terminated in closing
purchase transactions - -
Options expired (6,420) (777)
--------------------------------
Outstanding at November 30, 2014 - $ -
================================
* Refer to Note 1C for a discussion of derivative instruments and how they are
accounted for in the Fund's financial statements.
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund,
and for directly managing the day-to-day investment of the Fund's assets,
subject to the authority of and supervision by the Board. The Manager is
authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage the actual day-to-day
investment of a portion of the Fund's assets. For the year ended May 31,
2014, there are no subadvisers.
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid
monthly at an annualized rate of 0.75% of the Fund's average net assets for
the fiscal year.
The performance adjustment is calculated monthly by comparing the Fund's
performance to that of the Lipper Balanced Funds Index over the performance
period. The Lipper Balanced Funds Index tracks the total return performance
of the 30 largest funds in the Lipper Balanced Funds category. The
performance period for the Fund consists of the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
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 (IN BASIS POINTS AS A %
(IN BASIS POINTS)(1) OF THE FUND'S AVERAGE NET ASSETS)(1)
----------------------------------------------------------------------------
+/- 100 to 400 +/- 4
+/- 401 to 700 +/- 5
+/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the Fund
and its relevant index, rounded to the nearest basis point. 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 Balanced Funds Index over that period, even if the
Fund had overall negative returns during the performance period.
For the six-month period ended November 30, 2014, the Fund incurred total
management fees, paid or payable to the Manager, of $3,977,000, which
included a (0.03)% performance adjustment of $(182,000).
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of the Fund's average net assets. For the six-month period ended
November 30, 2014, the Fund incurred administration and servicing fees,
paid or payable to the Manager, of $832,000.
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.
================================================================================
48 | USAA CORNERSTONE MODERATE FUND
================================================================================
For the six-month period ended November 30, 2014, the Fund reimbursed the
Manager $18,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's statement of operations.
C. EXPENSE LIMITATION - The Manager agreed, through October 1, 2015, to
limit the total annual operating expenses of the Fund to 1.00% of its
average net assets, excluding extraordinary expenses and before reductions
of any expenses paid indirectly, and will reimburse the Fund for all
expenses in excess of that amount. This expense limitation arrangement may
not be changed or terminated through October 1, 2015, without approval of
the Board, and may be changed or terminated by the Manager at any time
after that date. For the six-month period ended November 30, 2014, the Fund
incurred reimbursable expenses of $1,036,000, of which $109,000 was
receivable from the Manager.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund based on an annual charge of $23 per
shareholder account plus out-of-pocket expenses. SAS pays a portion of
these fees to certain intermediaries for the administration and servicing
of accounts that are held with such intermediaries. For the six-month
period ended November 30, 2014, the Fund incurred transfer agent's fees,
paid or payable to SAS, of $1,448,000.
E. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a
continuing best-efforts basis and receives no commissions or fees for this
service.
(6) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
(7) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended November 30, 2014, in accordance with
affiliated transaction procedures approved by the Board, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred.
NET REALIZED
COST TO GAIN TO
SELLER PURCHASER PURCHASER SELLER
--------------------------------------------------------------------------------
USAA Cornerstone USAA Cornerstone $1,153,000 $66,000
Moderate Fund Moderately Conservative
Fund
================================================================================
50 | USAA CORNERSTONE MODERATE FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED
NOVEMBER 30, MAY 31,
-------------------------------------------------------------------------------
2014 2014 2013 2012 2011 2010
-------------------------------------------------------------------------------
Net asset value at
beginning of period $ 15.46 $ 14.49 $ 13.07 $ 14.29 $ 12.26 $ 10.08
-------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .38 .40 .40 .38 .47
Net realized and
unrealized gain(loss) (.00)(c) .98 1.42 (1.22) 2.05 2.18
-------------------------------------------------------------------------------
Total from investment
operations .21 1.36 1.82 (.82) 2.43 2.65
-------------------------------------------------------------------------------
Less distributions from:
Net investment income (.20) (.39) (.40) (.40) (.40) (.47)
-------------------------------------------------------------------------------
Net asset value at end
of period $ 15.47 $ 15.46 $ 14.49 $ 13.07 $ 14.29 $ 12.26
===============================================================================
Total return (%)* 1.38 9.60 14.17 (5.70) 20.21 26.63
Net assets at end
of period (000) $1,116,461 $1,093,783 $944,828 $766,037 $785,016 $592,088
Ratios to average
net assets:**
Expenses (%)(a) 1.00(d) 1.00 1.00 1.00 1.00 1.00
Expenses, excluding
reimbursements (%)(a) 1.19(d) 1.22 1.30 1.38 1.36 1.38
Net investment income (%) 2.68(d) 2.60 2.87 3.03 2.92 3.95
Portfolio turnover (%) 24 46 66(b) 119(b) 145 110
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2014, average net assets
were $1,106,513,000.
(a) Reflects total annual operating expenses of the Fund before reductions
of any expenses paid indirectly. The Adviser Shares expenses paid
indirectly decreased the expense ratios as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+)Represents less than 0.01% of average net assets.
(b) Reflects decreased trading activity due to asset allocation changes.
(c) Represents less than $0.01 per share.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
EXPENSE EXAMPLE
November 30, 2013 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2014, through
November 30, 2014.
ACTUAL EXPENSES
The line labeled "actual" in the table 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 "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do
================================================================================
52 | USAA CORNERSTONE MODERATE FUND
================================================================================
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
in the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these direct costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2014 -
JUNE 1, 2014 NOVEMBER 30, 2014 NOVEMBER 30, 2014
----------------------------------------------------------
Actual $1,000.00 $1,013.80 $5.05
Hypothetical
(5% return before expenses) 1,000.00 1,020.05 5.06
* Expenses are equal to the Fund's annualized expense ratio of 1.00%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of 1.38% for the six-month period of June 1,
2014, through November 30, 2014.
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EXPENSE EXAMPLE | 53
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TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
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://WW.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.
200992-0115
================================================================================
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
27804-0115 (C)2015, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 11. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA Mutual
Funds Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR/S was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation. The only change to the
procedures was to document the annual disclosure controls and procedures
established for the new section of the shareholder reports detailing the factors
considered by the Funds' Board in approving the Funds' advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA MUTUAL FUNDS TRUST, Period Ended November 30, 2014
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 01/26/2015
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /S/ DANIEL S. MCNAMARA
-----------------------------------------------------
Signature and Title: Daniel S. McNamara, President
Date: 01/27/2015
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 01/27/2015
------------------------------
*Print the name and title of each signing officer under his or her signature.