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: JULY 31
Date of reporting period: JANUARY 31, 2015
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JANUARY 31, 2015
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INCOME STOCK FUND]
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SEMIANNUAL REPORT
USAA INCOME STOCK FUND
FUND SHARES o INSTITUTIONAL SHARES
JANUARY 31, 2015
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PRESIDENT'S MESSAGE
"...WE BELIEVE THAT IT IS IMPORTANT FOR INVESTORS
TO FOCUS LESS ON WHAT'S HAPPENING DAY-TO-DAY IN [PHOTO OF BROOKS ENGLEHARDT]
THE FINANCIAL MARKETS AND MORE ON THEIR OWN
FINANCIAL WELL-BEING."
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MARCH 2015
The United States was the place to be during the six-month reporting period
ended January 31, 2015. Those investors who concentrated their investments in
U.S. stocks and/or longer-term U.S. Treasury securities were fortuitously
positioned, as these asset classes generally outperformed all other market
segments. U.S. equities recorded strong gains, surpassing developed equities
markets and emerging markets equities, both of which declined during the
reporting period. Among U.S. stocks, growth-oriented names outperformed their
value counterparts, while mid-cap stocks outpaced small-cap and large-cap
stocks. Meanwhile, yields on longer-term U.S. Treasuries trended down, driving
up bond prices. (Bond prices move in the opposite direction of interest rates.)
Though yields were near historic lows during the period, they still remained the
highest among developed nations. U.S. Treasuries also benefited from their
perceived status as high-quality, safe-haven investments.
What circumstances produced these results? At USAA Investments, we believe a
series of interconnected factors were at work, all of which were still in place
at the end of the reporting period. These factors include:
o SLOWING INTERNATIONAL GROWTH. U.S. economic conditions improved during the
reporting period, but most other countries struggled with economic weakness.
The economy of continental Europe was stagnant, with some countries falling
into recession, while Japan's government continued to attempt to jumpstart
its sluggish economy. China's economy weakened, growing at its slowest pace
in more than 24 years. At the same time, a sharp drop in commodities and
energy prices weighed on emerging markets economies. Although economic
divergence is likely to continue for a time, we do not believe it is likely
to endure over the long term. We believe that eventually, either the global
economy will rebound or else global economic weakness will dampen U.S.
economic growth.
o DIVERGENT MONETARY POLICIES. Reflecting the disparity between
international and U.S. economic growth, the monetary policies of the world's
central banks diverged. In the United States, the Federal Reserve ended its
quantitative easing asset purchases and signaled its willingness--should the
data support
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it--to raise short-term interest rates. Elsewhere, central banks continued
to cut rates and increase monetary stimulus to support their faltering
economies.
o STRONGER U.S. DOLLAR. The divergence in monetary policies, along with
differing expectations about U.S. and international economic growth, had a
major impact on currencies. During the reporting period, the U.S. dollar
strengthened, appreciating significantly compared to most other global
currencies. In response, some countries devalued their currencies as an
attempt to make their exports cheaper to foreign buyers, and therefore to
boost economic growth.
o DECREASING INFLATION. Slowing international growth, divergent global
monetary policies, and currency movements combined to reduce inflation
expectations. The drop in energy prices was a prime example. Oil prices
fell nearly 50% during 2014. Lower oil prices do have some
advantages--automobile owners have more money to spend on other things--but
extended periods of low inflation can lead to economic stagnation, cause
consumers to postpone spending, and put pressure on corporate profit margins.
In this economic environment we believe that it is important for investors to
focus less on what's happening day-to-day in the financial markets and more on
their own financial well-being. As I write to you, tax season is upon us. You
may be preparing to make contributions to your IRA. You may also consider
setting near term goals, such as reviewing your investment strategy to make sure
it still suits your objectives, time horizon, and tolerance for risk. If you'd
like assistance, please call one of our financial advisors. They would be happy
to help.
Looking ahead, it is too soon to identify a dominant market trend for 2015.
However, we believe investors are likely to focus on higher asset quality as
long as the financial markets continue to grapple with the implications of
slowing global growth, divergent monetary policy, a stronger U.S. dollar, and
lower oil prices. On behalf of everyone here at USAA Investments, thank you for
your continued investment in our family of mutual funds.
Sincerely,
/S/ BROOKS ENDGLEHARDT
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 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 19
Financial Statements 20
Notes to Financial Statements 23
EXPENSE EXAMPLE 38
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.
203451-0315
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FUND OBJECTIVE
THE USAA INCOME STOCK FUND (THE FUND) SEEKS CURRENT INCOME WITH THE PROSPECT OF
INCREASING DIVIDEND INCOME AND THE POTENTIAL FOR CAPITAL APPRECIATION.
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TYPES OF INVESTMENTS
The Fund normally invests at least 80% of the assets in common stocks, with at
least 65% of the Fund's assets normally invested in common stocks of companies
that pay dividends. This 80% policy may be changed upon at least 60 days'
written notice to shareholders. Although the Fund will invest primarily in U.S.
securities, it may invest up to 20% of its total assets in foreign securities
including securities in emerging markets.
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 Epoch Investment Partners, Inc.
STEPHAN KLAFFKE, CFA ERIC SAPPENFIELD
JOHN P. TOOHEY, CFA MICHAEL A. WELHOELTER, CFA
WASIF A. LATIF* JOHN TOBIN, CFA
KERA VAN VALEN, CFA
WILLIAM W. PRIEST, CFA
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o PLEASE REVIEW MARKET CONDITIONS OVER THE REPORTING PERIOD.
Stocks finished moderately higher for the six-month reporting period ended
January 31, 2015, but with considerable volatility along the way. As the
period opened, geopolitical risks were at the forefront, with the
Russia-Ukraine conflict ongoing, the Israeli military launching actions in
Gaza, and the unrest in the Middle East. On the economic front, fears of
outright deflation in major regions, most notably Europe and Japan, were
added to concerns over the impact on global growth of China's efforts to
reform and restructure its economy. The United States stood as the
principal bright spot globally, as incoming data confirmed that the
previous winter's lull in economic activity had been largely weather-driven.
With inflation subdued and employment remaining below historical norms, the
Federal Reserve (the Fed) indicated it was in no rush to raise short-term
interest rates, however, should the data support it, further supporting the
domestic growth outlook.
Market jitters over increasing signs of possible deflation globally and
speculation over the impact on the Fed's interest rate policies of improving
U.S. employment statistics caused stocks to dip in October 2014, before
resuming their upward trend. The biggest story late in the period was a
collapse in oil prices, based on the outlook for weakened global demand
* Effective December 1, 2014, Wasif A. Latif is no longer a portfolio
manager of the Fund.
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2 | USAA INCOME STOCK FUND
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and continued strong supply. Russia, highly dependent on oil revenues and
already laboring under sanctions imposed in response to events in Ukraine,
saw the ruble dive in relation to other key currencies, adding to
geopolitical uncertainty. Against this backdrop, investors favored U.S.
dollar-denominated assets, helping to keep U.S. interest rates low.
Energy-related stocks suffered significant declines, while other areas of
the market benefited from the anticipated positive impact of lower energy
prices on U.S. consumers. Utilities, real estate investment trusts (REITs),
and other dividend-oriented stocks continued to benefit from the investors'
search for yield.
o HOW DID THE USAA INCOME STOCK FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund has two share classes: Fund Shares and Institutional Shares. For
the six-month reporting period ended January 31, 2015, the Fund Shares and
Institutional Shares had total returns of 2.57% and 2.61%, respectively.
This compares to returns of 2.33% for the Russell 1000(R) Value Index (the
Index) and 2.17% for the Lipper Equity Income Funds Index.
USAA Asset Management Company is the Fund's investment adviser. As the
investment adviser, USAA Asset Management Company employs dedicated
resources to support the research, selection, and monitoring of the Fund's
subadviser. Epoch Investment Partners, Inc. (Epoch) is a subadviser to the
Fund. The investment adviser and the subadviser each provide day-to-day
discretionary management for a portion of the Fund's assets.
o HOW DID USAA ASSET MANAGEMENT COMPANY'S PORTION OF THE FUND PERFORM
DURING THE REPORTING PERIOD?
For the six-month reporting period ended January 31, 2015, the portion of
the Fund managed by USAA Asset Management Company modestly
Refer to page 7 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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lagged the Index. Stock selection within the financials, industrials, and
energy sectors detracted from relative performance. Overweighting and stock
selection within the technology sector was the largest positive contributor
to relative return.
The leading positive contributor to the Fund's relative performance came
from within the information technology sector. Contributors to positive
performance included semiconductor manufacturer Texas Instruments Inc.;
information technology firm Hewlett-Packard Co.; pharmaceutical companies
AbbVie, Inc.; and Novartis AG ADR. The leading detractors for the period
included offshore drilling services firm Transocean Ltd., whose stock
suffered from investor concerns over the negative impact on day rates of
the abundance supply of new offshore rigs coming online, and falling energy
prices. Industrial manufacturer Eaton Corp. plc lagged meaningfully on
investor concerns about softening global economies. Natural resource firm
Freeport-McMoRan, Inc. detracted from performance, as falling energy and
copper prices negatively impacted the company.
o HOW DID EPOCH'S PORTION OF THE FUND PERFORM DURING THE REPORTING PERIOD?
The portion of the Fund managed by Epoch provided positive absolute
returns and strong performance relative to the Index. Returns were helped
the most by the Fund's holdings in the utilities and consumer staples
sectors. Relative returns also were helped by stock selection in the energy
sector and by having less exposure to that sector than the Index. An
underweight position in health care detracted modestly from performance.
Leading individual contributors to performance included U.S.-based tobacco
producer Altria Group, Inc. (Altria). Altria has continued to drive earnings
growth with strong cigarette pricing offsetting volume pressures and
disciplined cost controls. The fundamentals of the business
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4 | USAA INCOME STOCK FUND
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allow Altria to generate strong cash flows and consistently return cash to
shareholders through a combination of growing dividends and share
repurchases. Wisconsin Energy Corp., a utility company that supplies
electricity and natural gas to customers in Wisconsin and Michigan, was
another significant contributor to performance. With a pending acquisition,
it will expand its services into Illinois and Minnesota. The company
reported better-than-expected third-quarter results and announced an
increase in its quarterly dividend. Health Care REIT, Inc. is a real estate
investment trust in the senior housing and health care sector. During the
quarter, the company announced strong results, increased forward guidance,
and raised its quarterly dividend in line with cash flow growth.
On the downside, Australian mining company BHP Billiton Ltd. ADR (BHP)
traded lower in late 2014 following the general trend in commodity prices.
Despite weakness for key commodities such as iron ore, copper, coal, and
oil, BHP's low-cost base, cost-cutting programs, lower capital spending
plans, and higher production volumes should support free cash flow
generation going forward. ONEOK, Inc., the sole general partner of natural
gas master limited partnership ONEOK Partners, LP, also lagged, as did
ConocoPhillips, which explores, produces, and markets crude oil, natural
gas, and liquid natural gas globally. The stock price for each company was
affected by the substantial decline in energy prices during the period.
Thank you for your continued investment in the Fund.
Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability. Emerging market
countries are most volatile. Emerging market countries are less diverse and
mature than other countries and tend to be politically less stable. o
Investing in REITs has some of the same risks associated with the direct
ownership of real estate. o Dividends are not guaranteed. In any year,
dividends may be higher, lower, or not paid at all.
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MANAGERS' COMMENTARY ON THE FUND | 5
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INVESTMENT OVERVIEW
USAA INCOME STOCK FUND SHARES (FUND SHARES) (Ticker Symbol: USISX)
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1/31/15 7/31/14
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Net Assets $1.6 Billion $1.6 Billion
Net Asset Value Per Share $17.55 $17.72
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AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/15
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7/31/14 - 1/31/15* 1 YEAR 5 YEARS 10 YEARS
2.57% 11.56% 13.98% 5.73%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/14
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1 YEAR 5 YEARS 10 YEARS
11.85% 14.14% 5.87%
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EXPENSE RATIO AS OF 7/31/14**
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0.80%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated December 1, 2014, and
is calculated as a percentage of average net assets. This expense ratio may
differ from the expense ratio 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 INCOME STOCK FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER EQUITY USAA INCOME
RUSSELL 1000 INCOME FUNDS STOCK FUND
VALUE INDEX INDEX SHARES
1/31/2005 $10,000.00 $10,000.00 $10,000.00
2/28/2005 10,331.42 10,295.16 10,343.98
3/31/2005 10,189.65 10,136.24 10,111.60
4/30/2005 10,007.16 9,950.37 9,858.19
5/31/2005 10,248.05 10,184.88 10,241.39
6/30/2005 10,360.25 10,271.76 10,436.59
7/31/2005 10,660.00 10,601.88 10,778.06
8/31/2005 10,613.64 10,540.72 10,641.47
9/30/2005 10,762.66 10,623.67 10,721.37
10/31/2005 10,489.31 10,415.07 10,471.89
11/30/2005 10,834.12 10,724.40 10,771.26
12/31/2005 10,898.84 10,775.17 10,825.81
1/31/2006 11,322.13 11,112.38 11,246.02
2/28/2006 11,391.24 11,162.57 11,295.88
3/31/2006 11,545.56 11,300.82 11,398.75
4/30/2006 11,838.96 11,550.52 11,613.28
5/31/2006 11,539.90 11,254.33 11,248.57
6/30/2006 11,613.72 11,294.06 11,314.67
7/31/2006 11,895.98 11,440.87 11,573.29
8/31/2006 12,095.09 11,660.71 11,788.81
9/30/2006 12,336.19 11,907.70 12,073.98
10/31/2006 12,739.99 12,288.12 12,420.19
11/30/2006 13,030.83 12,527.21 12,614.93
12/31/2006 13,323.33 12,758.01 12,883.61
1/31/2007 13,493.72 12,929.51 13,059.16
2/28/2007 13,283.36 12,782.00 12,769.13
3/31/2007 13,488.72 12,925.37 12,908.23
4/30/2007 13,987.17 13,463.66 13,391.14
5/31/2007 14,491.68 13,943.68 13,858.72
6/30/2007 14,153.06 13,711.52 13,522.92
7/31/2007 13,498.57 13,185.35 12,814.83
8/31/2007 13,649.83 13,328.52 12,961.07
9/30/2007 14,118.67 13,721.06 13,322.11
10/31/2007 14,120.23 13,869.52 13,283.45
11/30/2007 13,430.12 13,257.97 12,572.11
12/31/2007 13,300.25 13,137.82 12,457.68
1/31/2008 12,767.53 12,539.92 11,972.43
2/29/2008 12,232.60 12,132.40 11,436.97
3/31/2008 12,140.62 12,011.07 11,279.55
4/30/2008 12,732.43 12,556.07 11,792.64
5/31/2008 12,712.22 12,668.34 11,750.58
6/30/2008 11,495.39 11,531.04 10,631.69
7/31/2008 11,453.89 11,443.54 10,597.86
8/31/2008 11,648.47 11,567.48 10,792.39
9/30/2008 10,792.64 10,653.62 10,092.58
10/31/2008 8,924.30 8,914.56 8,365.10
11/30/2008 8,284.35 8,316.38 7,846.01
12/31/2008 8,399.34 8,486.59 8,019.71
1/31/2009 7,433.50 7,720.39 7,222.03
2/28/2009 6,440.31 6,870.59 6,321.42
3/31/2009 6,990.97 7,432.40 6,778.69
4/30/2009 7,740.35 8,136.42 7,365.89
5/31/2009 8,218.98 8,616.85 7,737.21
6/30/2009 8,158.28 8,599.65 7,686.76
7/31/2009 8,826.05 9,253.19 8,259.37
8/31/2009 9,287.70 9,665.83 8,606.40
9/30/2009 9,646.54 9,954.97 8,874.68
10/31/2009 9,351.31 9,793.54 8,709.21
11/30/2009 9,878.38 10,313.45 9,170.79
12/31/2009 10,053.19 10,510.95 9,347.46
1/31/2010 9,770.46 10,174.80 9,076.39
2/28/2010 10,078.86 10,448.04 9,321.23
3/31/2010 10,735.00 11,039.72 9,865.65
4/30/2010 11,012.77 11,183.28 9,988.43
5/31/2010 10,107.57 10,342.50 9,172.87
6/30/2010 9,538.57 9,834.81 8,650.97
7/31/2010 10,184.31 10,532.13 9,231.22
8/31/2010 9,748.53 10,123.81 8,888.35
9/30/2010 10,504.85 10,933.99 9,660.02
10/31/2010 10,820.06 11,260.71 10,056.64
11/30/2010 10,762.80 11,208.69 9,968.50
12/31/2010 11,612.04 11,986.38 10,565.40
1/31/2011 11,874.71 12,248.66 10,883.69
2/28/2011 12,312.71 12,648.42 11,334.60
3/31/2011 12,361.61 12,687.88 11,334.88
4/30/2011 12,690.78 13,097.84 11,769.13
5/31/2011 12,556.70 12,978.37 11,636.20
6/30/2011 12,299.24 12,753.52 11,460.97
7/31/2011 11,891.29 12,381.33 11,132.24
8/31/2011 11,149.20 11,752.39 10,492.56
9/30/2011 10,306.61 10,963.39 9,805.53
10/31/2011 11,486.64 12,058.49 10,821.74
11/30/2011 11,427.10 12,082.48 10,857.40
12/31/2011 11,657.38 12,305.01 10,964.41
1/31/2012 12,098.38 12,696.89 11,358.24
2/29/2012 12,580.66 13,152.13 11,823.66
3/31/2012 12,953.60 13,447.27 12,159.43
4/30/2012 12,821.51 13,397.94 12,051.67
5/31/2012 12,069.64 12,632.75 11,369.16
6/30/2012 12,668.90 13,162.75 11,841.63
7/31/2012 12,800.01 13,378.06 11,949.78
8/31/2012 13,077.92 13,598.57 12,184.09
9/30/2012 13,493.05 13,899.29 12,407.60
10/31/2012 13,426.81 13,810.46 12,235.77
11/30/2012 13,421.23 13,836.00 12,262.90
12/31/2012 13,698.44 13,990.56 12,356.70
1/31/2013 14,588.79 14,741.80 13,047.22
2/28/2013 14,798.19 14,907.94 13,201.68
3/31/2013 15,384.44 15,471.65 13,702.14
4/30/2013 15,617.08 15,828.50 14,067.05
5/31/2013 16,017.90 16,034.68 14,377.22
6/30/2013 15,876.72 15,863.59 14,209.58
7/31/2013 16,733.96 16,593.80 14,924.19
8/31/2013 16,099.13 16,077.25 14,456.95
9/30/2013 16,502.43 16,523.49 14,834.42
10/31/2013 17,225.12 17,199.39 15,514.99
11/30/2013 17,705.67 17,595.33 15,818.48
12/31/2013 18,154.10 18,005.79 16,188.45
1/31/2014 17,509.36 17,318.17 15,650.09
2/28/2014 18,266.52 18,044.04 16,188.45
3/31/2014 18,702.60 18,373.38 16,580.26
4/30/2014 18,880.33 18,557.94 16,780.83
5/31/2014 19,156.84 18,879.81 17,029.15
6/30/2014 19,657.23 19,304.88 17,435.84
7/31/2014 19,322.24 18,886.18 17,022.76
8/31/2014 20,032.43 19,529.49 17,647.19
9/30/2014 19,619.20 19,184.50 17,330.76
10/31/2014 20,059.96 19,550.10 17,697.86
11/30/2014 20,470.70 19,984.78 18,142.24
12/31/2014 20,596.27 19,931.12 18,106.42
1/31/2015 19,772.96 19,295.11 17,459.77
[END CHART]
Data from 1/31/05 to 1/31/15.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Income Stock Fund Shares to the following benchmarks:
o The unmanaged Russell 1000 Value Index measures the performance of those
Russell 1000 companies with lower price-to-book ratios and lower forecasted
growth values.
o The unmanaged Lipper Equity Income Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Equity Income Funds
category.
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.
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INVESTMENT OVERVIEW | 7
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USAA INCOME STOCK FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES)
(Ticker Symbol: UIISX)
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1/31/15 7/31/14
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Net Assets $1.1 Billion $1.0 Billion
Net Asset Value Per Share $17.54 $17.71
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AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/15
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7/31/14 - 1/31/15* 1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
2.61% 11.71% 14.16% 8.20%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/14
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1 YEAR 5 YEARS SINCE INCEPTION 8/01/08
11.93% 14.28% 8.92%
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EXPENSE RATIO AS OF 7/31/14**
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0.73%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**The expense ratio represents the total annual operating expenses, before
reductions of any expenses paid indirectly and including any acquired fund fees
and expenses, as reported in the Fund's prospectus dated December 1, 2014, and
is calculated as a percentage of average net assets. This expense ratio may
differ from the expense ratio 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.
The Institutional Shares are available for investment through a USAA
discretionary managed account program, and certain advisory programs sponsored
by financial intermediaries, such as brokerage firms, investment advisors,
financial planners, third-party administrators, and insurance companies.
Institutional Shares also are available to institutional investors, which
include retirement plans, endowments, foundations, and bank trusts, as well as
other persons or legal entities that the Fund may approve from time to time, or
for purchase by a USAA fund participating in a fund-of-funds investment strategy
(USAA fund-of-funds).
================================================================================
8 | USAA INCOME STOCK FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER EQUITY USAA INCOME
RUSSELL 1000 INCOME FUNDS STOCK FUND
VALUE INDEX INDEX INSTITUTIONAL SHARES
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,169.88 10,108.31 10,208.00
9/30/2008 9,422.68 9,309.73 9,549.79
10/31/2008 7,791.50 7,790.03 7,915.22
11/30/2008 7,232.78 7,267.31 7,424.04
12/31/2008 7,333.17 7,416.05 7,586.24
1/31/2009 6,489.93 6,746.50 6,838.98
2/28/2009 5,622.81 6,003.90 5,986.14
3/31/2009 6,103.58 6,494.84 6,424.15
4/30/2009 6,757.83 7,110.06 6,972.46
5/31/2009 7,175.71 7,529.88 7,332.54
6/30/2009 7,122.72 7,514.85 7,281.29
7/31/2009 7,705.72 8,085.95 7,832.53
8/31/2009 8,108.77 8,446.54 8,153.40
9/30/2009 8,422.06 8,699.21 8,412.89
10/31/2009 8,164.31 8,558.14 8,264.14
11/30/2009 8,624.47 9,012.47 8,702.14
12/31/2009 8,777.09 9,185.06 8,872.16
1/31/2010 8,530.25 8,891.31 8,606.58
2/28/2010 8,799.51 9,130.08 8,847.27
3/31/2010 9,372.36 9,647.12 9,360.58
4/30/2010 9,614.87 9,772.58 9,477.17
5/31/2010 8,824.57 9,037.86 8,702.68
6/30/2010 8,327.80 8,594.20 8,211.94
7/31/2010 8,891.57 9,203.56 8,763.31
8/31/2010 8,511.11 8,846.75 8,437.50
9/30/2010 9,171.43 9,554.73 9,176.45
10/31/2010 9,446.62 9,840.24 9,553.57
11/30/2010 9,396.63 9,794.78 9,478.14
12/31/2010 10,138.07 10,474.37 10,040.92
1/31/2011 10,367.40 10,703.56 10,343.66
2/28/2011 10,749.80 11,052.90 10,772.54
3/31/2011 10,792.50 11,087.38 10,778.44
4/30/2011 11,079.88 11,445.63 11,191.70
5/31/2011 10,962.82 11,341.23 11,065.19
6/30/2011 10,738.04 11,144.74 10,913.10
7/31/2011 10,381.87 10,819.50 10,591.63
8/31/2011 9,733.98 10,269.90 9,990.99
9/30/2011 8,998.35 9,580.43 9,341.93
10/31/2011 10,028.59 10,537.38 10,301.60
11/30/2011 9,976.61 10,558.35 10,335.57
12/31/2011 10,177.66 10,752.80 10,441.32
1/31/2012 10,562.68 11,095.25 10,816.66
2/29/2012 10,983.74 11,493.07 11,268.78
3/31/2012 11,309.35 11,750.97 11,584.37
4/30/2012 11,194.02 11,707.87 11,481.63
5/31/2012 10,537.59 11,039.21 10,839.48
6/30/2012 11,060.78 11,502.35 11,293.95
7/31/2012 11,175.25 11,690.49 11,388.49
8/31/2012 11,417.89 11,883.19 11,611.96
9/30/2012 11,780.32 12,145.97 11,828.64
10/31/2012 11,722.49 12,068.35 11,673.34
11/30/2012 11,717.62 12,090.67 11,699.22
12/31/2012 11,959.64 12,225.73 11,786.92
1/31/2013 12,736.97 12,882.21 12,446.09
2/28/2013 12,919.80 13,027.39 12,593.54
3/31/2013 13,431.63 13,519.99 13,074.51
4/30/2013 13,634.74 13,831.83 13,414.22
5/31/2013 13,984.68 14,012.00 13,719.09
6/30/2013 13,861.42 13,862.49 13,562.04
7/31/2013 14,609.85 14,500.59 14,244.52
8/31/2013 14,055.60 14,049.20 13,798.29
9/30/2013 14,407.70 14,439.15 14,153.78
10/31/2013 15,038.66 15,029.79 14,812.71
11/30/2013 15,458.21 15,375.78 15,102.64
12/31/2013 15,849.72 15,734.46 15,450.25
1/31/2014 15,286.83 15,133.58 14,935.84
2/28/2014 15,947.87 15,767.89 15,450.25
3/31/2014 16,328.60 16,055.68 15,826.55
4/30/2014 16,483.77 16,216.96 16,018.22
5/31/2014 16,725.18 16,498.23 16,264.65
6/30/2014 17,162.05 16,869.68 16,655.87
7/31/2014 16,869.59 16,503.80 16,261.05
8/31/2014 17,489.63 17,065.96 16,857.87
9/30/2014 17,128.86 16,764.48 16,549.32
10/31/2014 17,513.67 17,083.97 16,909.48
11/30/2014 17,872.27 17,463.82 17,334.30
12/31/2014 17,981.90 17,416.93 17,293.89
1/31/2015 17,263.10 16,861.15 16,685.08
[END CHART]
Data from 7/31/08 to 1/31/15.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Income Stock Fund Institutional Shares to the Fund's benchmarks listed
above (see page 7 for benchmark definitions).
*The performance of the Russell 1000 Value Index and the Lipper Equity Income
Funds Index is calculated from the end of the month, July 31, 2008, while the
inception date of the Institutional Shares is August 1, 2008. There may be a
slight variation of performance numbers because of this difference.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on 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 | 9
================================================================================
o TOP 10 HOLDINGS - 1/31/15 o
(% of Net Assets)
AbbVie, Inc. ............................................................. 3.0%
Johnson & Johnson ........................................................ 2.3%
Microsoft Corp. .......................................................... 2.0%
General Electric Co. ..................................................... 1.9%
Merck & Co., Inc. ........................................................ 1.9%
Intel Corp. .............................................................. 1.9%
Eaton Corp. plc .......................................................... 1.9%
Pfizer, Inc. ............................................................. 1.8%
Cisco Systems, Inc. ...................................................... 1.7%
Occidental Petroleum Corp. ............................................... 1.6%
o ASSET ALLOCATION - 1/31/15 o
[PIE CHART OF ASSET ALLOCATION]
INDUSTRIALS 15.2%
FINANCIALS 13.4%
INFORMATION TECHNOLOGY 13.4%
CONSUMER STAPLES 12.2%
HEALTH CARE 11.9%
ENERGY 9.2%
UTILITIES 8.5%
CONSUMER DISCRETIONARY 5.1%
MATERIALS 4.4%
TELECOMMUNICATION SERVICES 4.3%
MONEY MARKET INSTRUMENTS 2.4%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 11-18.
================================================================================
10 | USAA INCOME STOCK FUND
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2015 (unaudited)
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
COMMON STOCKS (97.6%)
CONSUMER DISCRETIONARY (5.1%)
-----------------------------
ADVERTISING (0.4%)
150,600 Omnicom Group, Inc. $ 10,964
------------
AUTO PARTS & EQUIPMENT (0.4%)
222,000 Johnson Controls, Inc. 10,316
------------
AUTOMOBILE MANUFACTURERS (0.4%)
804,000 Ford Motor Co. 11,827
------------
DEPARTMENT STORES (0.2%)
116,600 Kohl's Corp. 6,963
------------
DISTRIBUTORS (0.5%)
142,800 Genuine Parts Co. 13,272
------------
HOME IMPROVEMENT RETAIL (0.6%)
149,750 Home Depot, Inc. 15,637
------------
HOTELS, RESORTS & CRUISE LINES (0.7%)
448,489 Carnival Corp. 19,716
------------
LEISURE PRODUCTS (0.4%)
420,550 Mattel, Inc. 11,313
------------
MOVIES & ENTERTAINMENT (0.6%)
463,250 Regal Entertainment Group "A" 9,802
109,765 Time Warner, Inc. 8,554
------------
18,356
------------
RESTAURANTS (0.3%)
85,640 McDonald's Corp. 7,917
------------
SPECIALIZED CONSUMER SERVICES (0.6%)
491,700 H&R Block, Inc. 16,855
------------
Total Consumer Discretionary 143,136
------------
CONSUMER STAPLES (12.2%)
------------------------
BREWERS (0.6%)
206,350 Molson Coors Brewing Co. "B" 15,668
------------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
DRUG RETAIL (1.6%)
172,425 CVS Health Corp. $ 16,925
381,100 Walgreens Boots Alliance, Inc. 28,106
------------
45,031
------------
FOOD DISTRIBUTORS (0.5%)
354,400 Sysco Corp. 13,882
------------
HOUSEHOLD PRODUCTS (2.0%)
112,625 Colgate-Palmolive Co. 7,604
191,549 Kimberly-Clark Corp. 20,680
321,200 Procter & Gamble Co. 27,074
------------
55,358
------------
HYPERMARKETS & SUPER CENTERS (0.8%)
275,250 Wal-Mart Stores, Inc. 23,391
------------
PACKAGED FOODS & MEAT (2.2%)
286,500 Campbell Soup Co. 13,105
92,300 Hershey Co. 9,434
267,300 Kraft Foods Group, Inc. 17,465
475,800 Unilever N.V. 20,635
------------
60,639
------------
SOFT DRINKS (1.0%)
264,700 Coca-Cola Co. 10,898
256,850 Coca-Cola Enterprises, Inc. 10,813
83,569 PepsiCo, Inc. 7,837
------------
29,548
------------
TOBACCO (3.5%)
544,200 Altria Group, Inc. 28,897
276,895 Lorillard, Inc. 18,167
333,780 Philip Morris International, Inc. 26,783
336,999 Reynolds American, Inc. 22,899
------------
96,746
------------
Total Consumer Staples 340,263
------------
ENERGY (9.2%)
-------------
INTEGRATED OIL & GAS (4.8%)
349,800 Chevron Corp. 35,865
86,877 Exxon Mobil Corp. 7,595
581,650 Occidental Petroleum Corp. 46,532
714,869 Royal Dutch Shell plc ADR "A" 43,929
------------
133,921
------------
================================================================================
12 | USAA INCOME STOCK FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
OIL & GAS DRILLING (0.4%)
611,600 Transocean Ltd. $ 9,969
------------
OIL & GAS EXPLORATION & PRODUCTION (1.4%)
168,480 California Resources Corp. 862
470,402 ConocoPhillips 29,626
336,500 Marathon Oil Corp. 8,951
------------
39,439
------------
OIL & GAS STORAGE & TRANSPORTATION (2.6%)
266,450 Enterprise Products Partners, LP 9,176
561,067 Kinder Morgan, Inc. 23,032
116,700 Markwest Energy Partners, LP 6,877
187,620 ONEOK Partners, LP 7,756
225,550 ONEOK, Inc. 9,931
296,050 Spectra Energy Corp. 9,900
141,060 Targa Resources Partners, LP 6,355
------------
73,027
------------
Total Energy 256,356
------------
FINANCIALS (13.4%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.7%)
36,570 BlackRock, Inc. 12,452
114,500 State Street Corp. 8,188
------------
20,640
------------
CONSUMER FINANCE (0.6%)
231,900 Capital One Financial Corp. 16,977
------------
DIVERSIFIED BANKS (4.6%)
114,240 Commonwealth Bank of Australia ADR 7,899
764,600 HSBC Holdings plc ADR 34,957
787,600 JPMorgan Chase & Co. 42,830
820,800 Wells Fargo & Co. 42,616
------------
128,302
------------
INSURANCE BROKERS (1.0%)
392,700 Arthur J. Gallagher & Co. 17,448
218,570 Marsh & McLennan Companies, Inc. 11,752
------------
29,200
------------
LIFE & HEALTH INSURANCE (1.2%)
714,300 MetLife, Inc. 33,215
------------
REGIONAL BANKS (2.9%)
724,100 BB&T Corp. 25,553
389,800 Fifth Third Bancorp 6,744
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
546,000 KeyCorp $ 7,093
84,450 M&T Bank Corp. 9,556
364,700 PNC Financial Services Group, Inc. 30,832
------------
79,778
------------
REITs - HEALTH CARE (0.7%)
233,350 Health Care REIT, Inc. 19,123
------------
REITs - SPECIALIZED (0.4%)
270,795 Corrections Corp. of America 10,648
------------
SPECIALIZED FINANCE (0.7%)
223,780 CME Group, Inc. 19,089
------------
THRIFTS & MORTGAGE FINANCE (0.6%)
1,254,660 People's United Financial, Inc. 17,653
------------
Total Financials 374,625
------------
HEALTH CARE (11.9%)
-------------------
HEALTH CARE EQUIPMENT (0.9%)
364,680 Medtronic plc 26,038
------------
MANAGED HEALTH CARE (0.5%)
126,236 UnitedHealth Group, Inc. 13,413
------------
PHARMACEUTICALS (10.5%)
1,365,950 AbbVie, Inc. 82,435
646,200 Johnson & Johnson 64,710
878,450 Merck & Co., Inc. 52,953
353,100 Novartis AG ADR 34,392
1,649,620 Pfizer, Inc. 51,551
154,100 Sanofi ADR 7,102
------------
293,143
------------
Total Health Care 332,594
------------
INDUSTRIALS (15.2%)
-------------------
AEROSPACE & DEFENSE (5.2%)
67,040 Boeing Co. 9,746
129,750 General Dynamics Corp. 17,284
129,750 Honeywell International, Inc. 12,684
127,140 Lockheed Martin Corp. 23,949
410,250 Raytheon Co. 41,046
348,500 United Technologies Corp. 40,001
------------
144,710
------------
AIR FREIGHT & LOGISTICS (1.3%)
371,020 United Parcel Service, Inc. "B" 36,672
------------
================================================================================
14 | USAA INCOME STOCK FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
COMMERCIAL PRINTING (1.0%)
276,900 Deluxe Corp. $ 17,979
541,600 R.R. Donnelley & Sons Co. 8,920
------------
26,899
------------
CONSTRUCTION MACHINERY & HEAVY TRUCKS (0.2%)
83,200 Caterpillar, Inc. 6,653
------------
ELECTRICAL COMPONENTS & EQUIPMENT (2.4%)
820,000 Eaton Corp. plc 51,734
267,300 Emerson Electric Co. 15,220
------------
66,954
------------
ENVIRONMENTAL & FACILITIES SERVICES (2.1%)
952,150 Republic Services, Inc. 37,781
395,340 Waste Management, Inc. 20,333
------------
58,114
------------
INDUSTRIAL CONGLOMERATES (2.7%)
131,500 3M Co. 21,342
2,287,600 General Electric Co. 54,651
------------
75,993
------------
INDUSTRIAL MACHINERY (0.3%)
84,000 Stanley Black & Decker, Inc. 7,866
------------
Total Industrials 423,861
------------
INFORMATION TECHNOLOGY (13.4%)
------------------------------
COMMUNICATIONS EQUIPMENT (1.7%)
1,742,300 Cisco Systems, Inc. 45,936
------------
DATA PROCESSING & OUTSOURCED SERVICES (1.2%)
202,900 Automatic Data Processing, Inc. 16,745
351,800 Paychex, Inc. 15,923
------------
32,668
------------
SEMICONDUCTOR EQUIPMENT (0.4%)
197,650 KLA-Tencor Corp. 12,150
------------
SEMICONDUCTORS (4.1%)
1,589,400 Intel Corp. 52,514
135,850 Linear Technology Corp. 6,105
356,150 Microchip Technology, Inc. 16,062
752,400 Texas Instruments, Inc. 40,216
------------
114,897
------------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
SYSTEMS SOFTWARE (2.5%)
1,375,550 Microsoft Corp. $ 55,572
324,800 Oracle Corp. 13,606
------------
69,178
------------
TECHNOLOGY HARDWARE, STORAGE, & PERIPHERALS (3.5%)
134,109 Apple, Inc. 15,712
1,086,800 Hewlett-Packard Co. 39,266
765,630 Seagate Technology plc 43,212
------------
98,190
------------
Total Information Technology 373,019
------------
MATERIALS (4.4%)
----------------
COMMODITY CHEMICALS (0.3%)
104,400 LyondellBasell Industries N.V. "A" 8,257
------------
DIVERSIFIED CHEMICALS (0.9%)
308,270 Dow Chemical Co. 13,921
157,600 E.I. du Pont de Nemours & Co. 11,223
------------
25,144
------------
DIVERSIFIED METALS & MINING (1.4%)
148,030 BHP Billiton Ltd. ADR 6,858
387,000 Freeport-McMoRan, Inc. 6,506
592,645 Rio Tinto plc ADR 26,153
------------
39,517
------------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.6%)
440,600 Potash Corp. of Saskatchewan, Inc. 16,100
------------
PAPER PACKAGING (0.7%)
429,610 Bemis Co., Inc. 19,032
------------
PAPER PRODUCTS (0.2%)
131,600 International Paper Co. 6,930
------------
SPECIALTY CHEMICALS (0.3%)
178,500 RPM International, Inc. 8,543
------------
Total Materials 123,523
------------
TELECOMMUNICATION SERVICES (4.3%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (2.5%)
518,097 AT&T, Inc. 17,056
550,304 CenturyLink, Inc. 20,455
709,966 Verizon Communications, Inc. 32,452
------------
69,963
------------
================================================================================
16 | USAA INCOME STOCK FUND
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (1.8%)
451,100 Rogers Communications, Inc. "B" $ 16,073
980,850 Vodafone Group plc ADR 34,457
----------
50,530
----------
Total Telecommunication Services 120,493
----------
UTILITIES (8.5%)
----------------
ELECTRIC UTILITIES (3.3%)
269,940 Duke Energy Corp. 23,522
103,600 Entergy Corp. 9,066
336,960 Northeast Utilities 18,728
512,870 PPL Corp. 18,207
205,500 Southern Co. 10,423
244,700 Weststar Energy, Inc. 10,454
----------
90,400
----------
GAS UTILITIES (0.3%)
165,450 WGL Holdings, Inc. 9,348
----------
MULTI-UTILITIES (4.9%)
337,870 Ameren Corp. 15,299
370,000 CenterPoint Energy, Inc. 8,543
421,450 CMS Energy Corp. 15,901
181,100 Dominion Resources, Inc. 13,925
94,800 National Grid plc ADR 6,668
498,050 NiSource, Inc. 21,545
153,250 SCANA Corp. 9,773
529,410 TECO Energy, Inc. 11,292
237,700 Vectren Corp. 11,391
397,060 Wisconsin Energy Corp. 22,144
----------
136,481
----------
Total Utilities 236,229
----------
Total Common Stocks (cost: $2,320,109) 2,724,099
----------
MONEY MARKET INSTRUMENTS (2.4%)
MONEY MARKET FUNDS (2.4%)
67,696,001 State Street Institutional Liquid Reserves Fund Premier Class,
0.09%(a) (cost: $67,696) 67,696
----------
TOTAL INVESTMENTS (COST: $2,387,805) $2,791,795
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $2,724,099 $- $- $2,724,099
Money Market Instruments:
Money Market Funds 67,696 - - 67,696
------------------------------------------------------------------------------------------------------
Total $2,791,795 $- $- $2,791,795
------------------------------------------------------------------------------------------------------
For the period of August 1, 2014, through January 31, 2015, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers into and out of the levels as of the beginning of the period in which
the event or circumstance that caused the transfer occurred.
================================================================================
18 | USAA INCOME STOCK FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2015 (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 9.1% of net assets at January 31,
2015.
o PORTFOLIO ABBREVIATION(S) AND DESCRIPTION(S)
ADR - American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
REIT - Real estate investment trust
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at
January 31, 2015.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 19
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
January 31, 2015 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,387,805) $2,791,795
Receivables:
Capital shares sold 969
Dividends and interest 5,156
----------
Total assets 2,797,920
----------
LIABILITIES
Payables:
Securities purchased 3,518
Capital shares redeemed 766
Accrued management fees 1,218
Accrued transfer agent's fees 40
Other accrued expenses and payables 121
----------
Total liabilities 5,663
----------
Net assets applicable to capital shares outstanding $2,792,257
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,365,947
Accumulated undistributed net investment income 5,030
Accumulated net realized gain on investments 17,290
Net unrealized appreciation of investments 403,990
----------
Net assets applicable to capital shares outstanding $2,792,257
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,645,459/93,751
shares outstanding) $ 17.55
==========
Institutional Shares (net assets of $1,146,798/65,395
shares outstanding) $ 17.54
==========
See accompanying notes to financial statements.
================================================================================
20 | USAA INCOME STOCK FUND
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended January 31, 2015 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $355) $45,336
Interest 20
-------
Total income 45,356
-------
EXPENSES
Management fees 7,042
Administration and servicing fees:
Fund Shares 1,267
Institutional Shares 564
Transfer agent's fees:
Fund Shares 927
Institutional Shares 564
Custody and accounting fees:
Fund Shares 91
Institutional Shares 58
Postage:
Fund Shares 46
Institutional Shares 27
Shareholder reporting fees:
Fund Shares 29
Institutional Shares 7
Trustees' fees 11
Registration fees:
Fund Shares 14
Institutional Shares 14
Professional fees 68
Other 23
-------
Total expenses 10,752
Expenses paid indirectly:
Fund Shares (5)
Institutional Shares (3)
-------
Net expenses 10,744
-------
NET INVESTMENT INCOME 34,612
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 30,863
Foreign currency transactions (7)
Change in net unrealized appreciation/depreciation 3,508
-------
Net realized and unrealized gain 34,364
-------
Increase in net assets resulting from operations $68,976
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended January 31, 2015 (unaudited), and year ended
July 31, 2014
---------------------------------------------------------------------------------------------------
1/31/2015 7/31/2014
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 34,612 $ 71,623
Net realized gain on investments 30,863 325,184
Net realized gain (loss) on foreign currency transactions (7) 3
Change in net unrealized appreciation/depreciation
of investments 3,508 (60,076)
-------------------------------
Increase in net assets resulting from operations 68,976 336,734
-------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (20,246) (40,859)
Institutional Shares (14,026) (26,933)
-------------------------------
Total distributions of net investment income (34,272) (67,792)
-------------------------------
Net realized gains:
Fund Shares (38,415) (32,267)
Institutional Shares (26,651) (21,393)
-------------------------------
Total distributions of net realized gains (65,066) (53,660)
-------------------------------
Distributions to shareholders (99,338) (121,452)
-------------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 22,245 56,224
Institutional Shares 123,226 71,803
-------------------------------
Total net increase in net assets
from capital share transactions 145,471 128,027
-------------------------------
Net increase in net assets 115,109 343,309
NET ASSETS
Beginning of period 2,677,148 2,333,839
-------------------------------
End of period $2,792,257 $2,677,148
===============================
Accumulated undistributed net investment income:
End of period $ 5,030 $ 4,690
===============================
See accompanying notes to financial statements.
================================================================================
22 | USAA INCOME STOCK FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2015 (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.
Additionally, the Fund qualifies as a registered investment company under
Accounting Standards Codification Topic 946. The information presented in this
semiannual report pertains only to the USAA Income Stock Fund (the Fund), which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek current income with the prospect of increasing dividend income and
the potential for capital appreciation.
The Fund consists of two classes of shares: Income Stock Fund Shares (Fund
Shares) and Income Stock Fund Institutional Shares (Institutional Shares). Each
class of shares has equal rights to assets and earnings, except that each class
bears certain class-related expenses specific to the particular class. These
expenses include administration and servicing fees, transfer agent fees,
postage, shareholder reporting fees, and certain registration and custodian
fees. Expenses not attributable to a specific class, income, and realized gains
or losses on investments are allocated to each class of shares based on each
class's relative net assets. Each class has exclusive voting rights on matters
related solely to that class and separate voting rights on matters that relate
to both classes. The Institutional Shares are available for investment through a
USAA discretionary managed account program, and certain advisory programs
sponsored by financial intermediaries, such as brokerage firms, investment
advisors, financial planners, third-party administrators, and insurance
companies. Institutional Shares also are available to institutional investors,
which include retirement plans, endowments, foundations, and
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
bank trusts, as well as other persons or legal entities that the Fund may
approve from time to time, or for purchase by a USAA fund participating in a
fund-of-funds investment strategy (USAA fund-of-funds).
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, 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
================================================================================
24 | USAA INCOME STOCK 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 and the Fund's subadviser(s),
if applicable, will monitor for events that would materially affect
the value of the Fund's foreign securities. The Fund's subadviser(s)
have agreed to notify the Manager of significant events they identify
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 believes to be the fair
value of the securities as of the close of the NYSE. Fair valuation of
affected foreign equity securities may occur frequently based on an
assessment that events that occur on a fairly regular basis (such as
U.S. market movements) are significant.
3. Investments in open-end investment companies, hedge, or other funds,
other than ETFs, are valued at their NAV at the end of each business
day.
4. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates
market value.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
5. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and asked prices
or the last sales price to price securities when, in the Service's
judgment, these prices are readily available and are representative of
the securities' market values. For many securities, such prices are
not readily available. The Service generally prices these securities
based on methods that include consideration of yields or prices of
securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general
market conditions.
6. Repurchase agreements are valued at cost, which approximates market
value.
7. Securities for which market quotations are not readily available or
are considered unreliable, or whose values have been materially
affected by events occurring after the close of their primary markets
but before the pricing of the Fund, are valued in good faith at fair
value, using methods determined by the Manager in consultation with
the Fund's subadviser(s), if applicable, under valuation procedures
approved by the Board. The effect of fair value pricing is that
securities may not be priced on the basis of quotations from the
primary market in which they are traded and the actual price realized
from the sale of a security may differ materially from the fair value
price. Valuing these securities at fair value is intended to cause the
Fund's NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited
to, obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any
restrictions on disposition of the securities, and an evaluation of
the forces that influenced the market in which the securities are
purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
================================================================================
26 | USAA INCOME STOCK FUND
================================================================================
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 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. 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.
D. 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 on short-term securities are
amortized on a straight-line basis over the life of the respective
securities.
E. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
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
gains/losses are reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the statement of assets
and liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
F. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition, through
arrangements with the Fund's custodian and other banks utilized by the Fund
for cash management purposes, realized credits, if any, generated from cash
balances in the Fund's bank accounts may be used to directly reduce the
Fund's expenses. For the six-month period
================================================================================
28 | USAA INCOME STOCK FUND
================================================================================
ended January 31, 2015, brokerage commission recapture credits reduced the
expenses of the Fund Shares and Institutional Shares by $5,000 and $3,000,
respectively. For the six-month period ended January 31, 2015 there were no
custodian and other bank credits.
G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
H. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $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 January 31, 2015, the Fund paid CAPCO facility
fees of $7,000, which represents 4.1% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2015.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 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
capital loss carryforwards. As a result, pre-enactment capital loss
carryforwards may be more likely to expire unused.
At July 31, 2014, the Fund had no capital loss carryforwards, for federal income
tax purposes.
For the six-month period ended January 31, 2015, 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 January 31, 2015, were
$147,886,000 and $114,915,000, respectively.
As of January 31, 2015, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
================================================================================
30 | USAA INCOME STOCK FUND
================================================================================
Gross unrealized appreciation and depreciation of investments as of January 31,
2015, were $492,461,000 and $88,471,000, respectively, resulting in net
unrealized appreciation of $403,990,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2015, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share
transactions for all classes were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
JANUARY 31, 2015 JULY 31, 2014
-----------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------
FUND SHARES:
Shares sold 3,588 $ 64,865 10,627 $ 180,975
Shares issued from
reinvested dividends 3,112 56,359 4,115 69,923
Shares redeemed (5,482) (98,979) (11,418) (194,674)
--------------------------------------------------------
Net increase from
capital share transactions 1,218 $ 22,245 3,324 $ 56,224
========================================================
INSTITUTIONAL SHARES:
Shares sold 9,240 $166,685 11,382 $ 190,800
Shares issued from
reinvested dividends 2,249 40,670 2,847 48,323
Shares redeemed (4,645) (84,129) (9,754) (167,320)
--------------------------------------------------------
Net increase from capital
share transactions 6,844 $123,226 4,475 $ 71,803
========================================================
(6) 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 portion of the Fund's assets,
subject to the authority of and supervision
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
by the Board. The Manager is authorized to select (with approval of the
Board and without shareholder approval) one or more subadvisers to manage
the actual day-to-day investment of a portion of the Fund's assets.
The Manager monitors each subadviser's performance through quantitative and
qualitative analysis, and periodically reports to the Board as to whether
each subadviser's agreement should be renewed, terminated, or modified. The
Manager also is responsible for allocating assets to the subadviser(s). The
allocation for each subadviser could range from 0% to 100% of the Fund's
assets, and the Manager could change the allocations without shareholder
approval.
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid
monthly at an annualized rate of 0.50% of the Fund's average net assets for
the fiscal year.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class's performance to that of the Lipper
Equity Income Funds Index over the performance period. The Lipper Equity
Income Funds Index tracks the total return performance of the 30 largest
funds in the Lipper Equity Income Funds category. The performance period for
each class consists of the current month plus the previous 35 months. The
following table is utilized to determine the extent of the performance
adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
---------------------------------------------------------------------------
+/- 100 to 400 +/- 4
+/- 401 to 700 +/- 5
+/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant index, rounded to the
nearest basis point. Average net assets of the share class are calculated
over a rolling 36-month period.
================================================================================
32 | USAA INCOME STOCK FUND
================================================================================
Each class's annual performance adjustment rate is multiplied by the average
net assets of each respective class 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, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Equity Income Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended January 31, 2015, the Fund incurred total
management fees, paid or payable to the Manager, of $7,042,000. For the
six-month period ended January 31, 2015, the Fund did not incur any
performance adjustments.
B. SUBADVISORY ARRANGEMENT(S) - The Manager has entered into an investment
subadvisory agreement with Epoch Investment Partners, Inc. (Epoch), under
which Epoch directs the investment and reinvestment of portions of the
Fund's assets (as allocated from time to time by the Manager). The Manager
(not the Fund) pays Epoch a subadvisory fee in the annual amount of 0.30% of
the Fund's average net assets for the first $600 million of assets that
Epoch manages, plus 0.20% on the next $900 million of assets, and 0.18% on
assets over $1.5 billion that Epoch manages. For the six-month period ended
January 31, 2015, the Manager incurred subadvisory fees, paid or payable to
Epoch of 1,684,000.
C. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets of the Fund Shares, and 0.10% of average net
assets of the Institutional Shares. For the six-month period ended January
31, 2015, the Fund Shares and Institutional Shares incurred administration
and servicing fees, paid or payable to the Manager, of $1,267,000 and
$564,000, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended January 31, 2015, the Fund reimbursed the Manager
$44,000 for these compliance and legal services. These expenses are included
in the professional fees on the Fund's statement of operations.
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. Transfer agent's fees for Fund Shares are paid monthly
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 held with such intermediaries.
Transfer agent's fees for Institutional Shares are paid monthly based on a
fee accrued daily at an annualized rate of 0.10% of the Institutional
Shares' average net assets, plus out-of-pocket expenses. For the six-month
period ended January 31, 2015, the Fund Shares and Institutional Shares
incurred transfer agent's fees, paid or payable to SAS, of $927,000 and
$564,000, respectively.
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.
(7) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional Shares for investment by other USAA funds and
is one of 17 USAA mutual funds in which the affiliated USAA fund-of-funds may
invest. The USAA fund-of-funds do not invest in the underlying funds for the
purpose of exercising management or control. As of
================================================================================
34 | USAA INCOME STOCK FUND
================================================================================
January 31, 2015, the USAA fund-of-funds owned the following percentages of the
total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
USAA Cornerstone Conservative Fund 0.1
USAA Cornerstone Equity Fund 0.3
USAA Target Retirement Income Fund 0.7
USAA Target Retirement 2020 Fund 1.7
USAA Target Retirement 2030 Fund 4.3
USAA Target Retirement 2040 Fund 5.4
USAA Target Retirement 2050 Fund 3.1
USAA Target Retirement 2060 Fund 0.2
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution.
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 | 35
================================================================================
(8) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
--------------------------------------------------------------------------------
2015 2014 2013 2012 2011 2010
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 17.72 $ 16.29 $ 13.26 $ 12.53 $ 10.50 $ 9.53
--------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .22 .47 .24 .18 .13 .13
Net realized and
unrealized gain .25 1.77 3.03 .73 2.03 .98
--------------------------------------------------------------------------------
Total from investment
operations .47 2.24 3.27 .91 2.16 1.11
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (.22) (.45) (.24) (.18) (.13) (.14)
Realized capital gains (.42) (.36) - - - -
--------------------------------------------------------------------------------
Total distributions (.64) (.81) (.24) (.18) (.13) (.14)
--------------------------------------------------------------------------------
Net asset value at
end of period $ 17.55 $ 17.72 $ 16.29 $ 13.26 $ 12.53 $ 10.50
================================================================================
Total return (%)* 2.57 14.06 24.89 7.34 20.59 11.65(b)
Net assets at
end of period (000) $1,645,459 $1,640,134 $1,453,425 $1,680,648 $1,440,420 $1,228,596
Ratios to average
net assets:**
Expenses (%)(a) .79(d) .80 .85 .85 .84 .84(b)
Net investment
income (%) 2.43(d) 2.77 1.67 1.43 1.08 1.26
Portfolio turnover (%) 4 57 64 42 38(c) 107
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2015, average net assets were
$1,675,760,000.
(a) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios by less than 0.01%.
(b) During the year ended July 31, 2010, SAS reimbursed the Fund Shares $233,000
for corrections in fees paid for the administration and servicing of certain
accounts. The effect of this reimbursement on the Fund Shares' total return
was less than 0.01%. The reimbursement decreased the Fund Shares' expense
ratio by 0.01%. This decrease is excluded from the expense ratio in the
Financial Highlights table.
(c) Reflects decreased trading activity due to market volatility.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
36 | USAA INCOME STOCK FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
--------------------------------------------------------------------------------
2015 2014 2013 2012 2011 2010
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 17.71 $ 16.28 $ 13.25 $ 12.52 $ 10.49 $ 9.52
--------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .22 .49 .26 .20 .16 .16
Net realized and
unrealized gain .26 1.76 3.03 .73 2.02 .97
--------------------------------------------------------------------------------
Total from investment
operations .48 2.25 3.29 .93 2.18 1.13
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (.23) (.46) (.26) (.20) (.15) (.16)
Realized capital gains (.42) (.36) - - - -
--------------------------------------------------------------------------------
Total distributions (.65) (.82) (.26) (.20) (.15) (.16)
--------------------------------------------------------------------------------
Net asset value at
end of period $ 17.54 $ 17.71 $ 16.28 $ 13.25 $ 12.52 $ 10.49
================================================================================
Total return (%)* 2.61 14.16 25.08 7.52 20.86 11.88
Net assets at
end of period (000) $1,146,798 $1,037,014 $880,414 $249,551 $144,236 $87,983
Ratios to average
net assets:**
Expenses (%)(a) .73(d) .73 .73 .71 .61 .62
Expenses, excluding
reimbursements (%) .73(d) .73(a) .73(a) .71(a) .61(a),(b) .62(a),(b)
Net investment income (%) 2.49 2.85 1.83 1.56 1.29 1.37
Portfolio turnover (%) 4 57 64 42 38(c) 107
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended January 31, 2015, average net assets were
$1,119,387,000.
(a) Reflects total annual operating expenses of the Institutional Shares before
reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratios by less than 0.01%.
(b) Prior to December 1, 2010, the Manager had voluntarily agreed to limit the
annual expenses of the Institutional Shares to .62% of the Institutional
Shares' average net assets.
(c) Reflects decreased trading activity due to market volatility.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
EXPENSE EXAMPLE
January 31, 2015 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2014, through
January 31, 2015.
ACTUAL EXPENSES
The line labeled "actual" under each share class 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 for your share
class 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" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class 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
================================================================================
38 | USAA INCOME STOCK FUND
================================================================================
the Fund and other funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2014 -
AUGUST 1, 2014 JANUARY 31, 2015 JANUARY 31, 2015
-----------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,025.70 $4.03
Hypothetical
(5% return before expenses) 1,000.00 1,021.22 4.02
INSTITUTIONAL SHARES
Actual 1,000.00 1,026.10 3.73
Hypothetical
(5% return before expenses) 1,000.00 1,021.53 3.72
*Expenses are equal to the annualized expense ratio of 0.79% for Fund Shares and
0.73% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 184 days/365 days (to reflect the one-half-year period).
The Fund's actual ending account values are based on its actual total returns
of 2.57% for Fund Shares and 2.61% for Institutional Shares for the six-month
period of August 1, 2014, through January 31, 2015.
================================================================================
EXPENSE EXAMPLE | 39
================================================================================
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 One Lincoln Street
Boston, Massachusetts 02111
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT usaa.com account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA
(8722)
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) in summary within the Statement of Additional Information on the SEC's
website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available without charge (i) at usaa.com; and (ii) on the SEC's
website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
================================================================================
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] [LOGO OF RECYCLE PAPER]
USAA We know what it means to serve.(R) 10%
=============================================================================
23422-0315 (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 trustees. The Corporate Governance
Committee has adopted procedures to consider Board candidates suggested by
shareholders. The procedures are initiated by the receipt of nominations
submitted by a fund shareholder sent to Board member(s) at the address specified
in fund disclosure documents or as received by AMCO or a fund officer. Any
recommendations for a nomination by a shareholder, to be considered by the
Board, must include at least the following information: name; date of birth;
contact information; education; business profession and other expertise;
affiliations; experience relating to serving on the Board; and references.
The Corporate Governance Committee gives shareholder recommendations the same
consideration as any other candidate.
ITEM 11. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA Mutual
Funds Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR/S was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation. The only change to the
procedures was to document the annual disclosure controls and procedures
established for the new section of the shareholder reports detailing the factors
considered by the Funds' Board in approving the Funds' advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA MUTUAL FUNDS TRUST, Period Ended January 31, 2015
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 03/26/2015
------------------------------
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: 03/30/2015
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 03/30/2015
------------------------------
*Print the name and title of each signing officer under his or her signature.